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1	The basic goal of the elections system in the United States is straightforward: All eligible persons, but only eligible persons, should be able to cast their votes and, if such votes have been properly cast by the voters, have those votes counted accurately. Faith in the fairness and accuracy of the U.S. election system is at the foundation of our democracy. Reports of problems encountered in the close 2000 presidential election with respect to voter registration lists, absentee ballots, ballot counting, and antiquated voting equipment raised concerns about the fairness and accuracy of certain aspects of the U.S. election system. After the events surrounding the November 2000 general election, the Help America Vote Act of 2002 (HAVA) was enacted and major election reforms are now being implemented. The November 2004 general election highlighted some of the same challenges as 2000 as well as some new challenges in areas such as electronic voting technology and implementation of some HAVA requirements. The issues that arose in both elections highlighted the importance of the effective interaction of people, processes, and technology in ensuring effective election operations and maintaining public confidence that our election system works. Since 2001, GAO has issued a series of reports covering aspects of the election process primarily with respect to federal elections. This report focuses on the changing of such election processes in the United States and the November 2004 general election. Specifically, primarily with respect to federal elections, our objectives were to examine each major stage of the election process to (1) identify changes to election systems since the 2000 election, including steps taken to implement HAVA, and (2) describe the issues and challenges encountered by election officials in the November 2004 election. Election authority is shared by federal, state, and local officials in the United States. Congressional authority to affect the administration of elections derives from various constitutional sources, depending upon the type of election. Congress has passed legislation in several major areas of the voting process. For example, the National Voter Registration Act of 1993 (NVRA), expanded the opportunities for citizens to register to vote for federal elections by, among other things, requiring most states to accept registration applications for federal elections by mail and at state motor vehicle agencies (MVA) and at certain other state agencies. The act also requires that in the administration of elections for federal office, states are to take certain steps to accurately maintain voter registration lists, and it limits the circumstances for removing names from voter lists. The Uniformed and Overseas Citizens Absentee Voting Act of 1986 (UOCAVA) requires states to, among other things, permit uniformed services voters absent from the place of residence where they are otherwise qualified to vote, their dependents, and U.S. citizens residing outside the country to register and vote absentee in elections for federal office. The Help America Vote Act was enacted into law on October 29, 2002. As discussed below, the act includes a number of provisions related to voter registration, provisional voting, absentee voting, voting equipment, and other election administration provisions, and authorizes the appropriation of funds to be used toward implementing the law’s requirements. HAVA also provides that the choices on the methods of implementation of such requirements, for example, a computerized statewide voter registration list, provisional voting, voter information requirements at the polling place, identification requirements, and voting system standards (for ballot verification, manual audit capacity, accessibility, and error rates), are left to the discretion of the states. HAVA further specifies that such requirements are minimum requirements and should not be construed to prevent states from establishing election technology and administration requirements that are stricter than HAVA requirements as long as they are not inconsistent with certain other specified provisions. HAVA, in general, applies to all 50 states and the District of Columbia. Areas covered by the law include Computerized statewide voter registration list: HAVA requires most states to implement a single, uniform, centralized, computerized statewide voter registration list to serve as the official voter registration list for the conduct of all elections for federal office in each such state. Under HAVA, the computerized statewide voter registration list was to have been implemented by 2004. However, 40 states and the District of Columbia received waivers to extend the deadline until January 1, 2006. States are required to perform regular maintenance of the voter list by comparing it to state records on felons and deaths, and to match voter registration applicant information on the voter list with information in the state motor vehicle agency’s records and Social Security Administration records, as appropriate. Absentee ballots: HAVA contains various amendments to UOCAVA regarding absentee voting for absent uniformed service voters and certain other civilian voters residing outside of the United States. The amendments, among other things, (1) required that the secretaries of each military department, to the maximum extent practicable, provide notice to military personnel of absentee ballot deadlines, (2) extended the time that can be covered by a single absentee ballot application from UOCAVA voters, and (3) prohibited states from refusing to accept or process, with respect to federal elections, a voter registration application or an absentee ballot application by an absent uniformed services voter on the ground that the application was submitted before the first date that the state otherwise accepts or processes applications for that year from nonuniformed service absentee voters. Provisional ballots: HAVA requires most states to implement provisional voting for elections for federal office. Under HAVA, in an election for federal office, states are to provide a provisional ballot to an individual asserting (1) to be registered in the jurisdiction for which he or she desires to vote and (2) eligible to vote in a federal election but (3) whose name does not appear on the official list of eligible voters for the polling place. Provisional ballots are also to be provided in elections for federal office to individuals who an election official asserts to be ineligible to vote, and for court-ordered voting in a federal election after the polls have closed. These various types of individuals, under HAVA, are to be permitted to cast the provisional ballot upon the execution of written affirmation at the polling place that they are registered voters in the jurisdiction and that they are eligible to vote in that election. If election officials determine that the individual is eligible under state law to vote, the individual’s provisional ballot is to be counted as a vote in accordance with state law. HAVA also requires that a free access system be established to inform voters if their votes were counted, and if not, the reason why. Polling places: HAVA provisions targeted, among other things, improving information at polling places and Election Day procedures. To improve the knowledge of voters regarding voting rights and procedures, HAVA requires election officials to post voting information at each polling place on the days of elections for federal office, including, for example, a sample ballot, polling place hours, how to vote, instructions for first-time voters who registered by mail, and general information on federal and state voting rights laws and laws prohibiting fraud and misrepresentation. The act also authorized the appropriation of funds for payments to states for educating voters concerning voting procedures, voting rights, and voting technology. Under HAVA, voting systems used in elections for federal office are required to meet specified accessibility requirements for individuals with disabilities. With respect to improving accessibility, HAVA also authorized the appropriation of funds for payments to states to be used for improved accessibility of polling places for, among others, individuals with disabilities and those with limited English proficiency. HAVA also requires that such voting systems provide individuals with disabilities with the same opportunity for access and participation (including privacy and independence) as for other voters. In connection with this requirement, HAVA provides for the use of at least one direct recording electronic (DRE) device or other voting system equipped for individuals with disabilities at each polling place. Identification requirements: Under HAVA, states are to require that certain voters who register by mail to provide specified types of identification when voting at the polls or send a copy of the identification with their mailed applications. Acceptable identification includes a current and valid photo identification or current utility bill, bank statement, government check, paycheck, or other government document that shows the name and address of the voter. Under HAVA, voters at the polls who have not met the identification requirement may cast a vote under HAVA’s provisional voting section. Similarly, mail-in ballots from persons who have not provided the required identification also are to be counted as HAVA provisional ballots. Election administration: HAVA also established an agency with wide-ranging duties to help improve state and local administration of federal elections. The Election Assistance Commission is to be involved with, among other things, providing voluntary guidance to states implementing certain HAVA provisions, serving as a national clearinghouse and resource for information with respect to the administration of federal elections, conducting studies, administering programs that provide federal funds for states to make improvements to some aspects of election administration, and helping to develop testing for voting systems, and standards for election equipment. EAC is led by four Commissioners, who are to be appointed by the President and confirmed by the Senate. The Commissioners, who, under HAVA, were to be appointed by February 26, 2003, were appointed by the President in October 2003 and confirmed by the Senate in December 2003. Since beginning operations in January 2004, EAC has achieved many of its objectives. Among other things, EAC has held hearings on the security of voting technologies and the national poll worker shortage; established a clearinghouse for information on election administration by issuing two best practices reports; distributed payments to states for election improvements, including payments for voter education and voting equipment replacement; drafted changes to existing federal voluntary standards for voting systems; and established a program to accredit the national independent certified laboratories that test electronic voting systems against the federal voluntary standards. However, EAC has reported that its delayed start-up affected its ability to conduct some HAVA-mandated activities within the time frames specified in the act. In turn, according to its fiscal year 2004 annual report, the delayed EAC start-up affected states’ procurement of new voting equipment and the ability of some states and local jurisdictions to meet related HAVA requirements by statutory deadlines. Voting systems: One of the primary HAVA provisions relates to encouraging states to replace punch card voting systems and lever voting systems and authorizing appropriations for payments to support states in making federally mandated improvements to their voting systems. A voting system includes the people, processes, and technology associated with any voting method. It encompasses the hardware and software used to define the ballot, conduct the vote, and transmit and tally results, and system maintenance and testing functions. With respect to standards for voting systems used in elections for federal office, HAVA requirements for such systems include providing voters with the ability to verify their votes before casting their ballots, producing permanent paper records for manual auditing of voting systems, and compliance of voting system ballot counting error rates with those set out in specified federal voting system standards. HAVA also directs that updates to the federal voluntary voting system standards for these requirements be in place by January 1, 2004, and provides for additional updates to the voluntary standards as approved by the Election Assistance Commission. Mechanisms are also specified that can be used by states and localities in acquiring and operating voting systems, including accreditation of laboratories to independently test and evaluate voting systems and federal certification for voting systems that undergo independent testing. The time frames for implementing various HAVA requirements ranged from as early as 45 days after enactment (a deadline for establishing a grant program for payment to the states for improved election administration) to as late as January 1, 2006, for various voting system standards. Several key deadlines were set for January 1, 2004, including implementation of HAVA’s provisional voting requirements and the establishment of a statewide voter registration list (or to request a waiver from the deadline until January 1, 2006). States receiving funds to replace punch card voting systems or lever voting systems could also request a waiver until January 1, 2006; otherwise such systems were to be replaced in time for the November 2004 general elections. The deadline for states and jurisdictions to comply with specific requirements for voting systems, such as producing a paper record for audit purposes, was January 1, 2006. HAVA vests enforcement authority with the Attorney General to bring a civil action against any state or jurisdiction as may be necessary to carry out specified uniform and nondiscriminatory election technology and administration requirements under HAVA. These requirements pertain to HAVA voting system standards, provisional voting and voting information requirements, the computerized statewide voter registration list requirements, and requirements for persons who register to vote by mail. The enforcement of federal statutes pertaining to elections and voting has, with certain exceptions, been delegated by the Attorney General to the Civil Rights Division. The U.S. election system is highly decentralized and based upon a complex interaction of people (election officials and voters), processes, and technology. Each of the 50 states and the District of Columbia has its own election system with a somewhat distinct approach. Within each of these 51 systems, the guidelines and procedures established for local election jurisdictions can be very general or specific. Each election system generally incorporates elements that are designed to allow eligible citizens to vote and ensures that votes are accurately counted. While election systems vary from one local jurisdiction to another, most election systems have the elements identified in figure 7. Typically, states have decentralized elections so that the details of administering elections are determined at the local jurisdiction. States can be divided into two groups according to how they delegate election responsibilities to local jurisdictions. The first group include 41 states where election responsibilities are delegated to counties, with a few of these states delegating election responsibilities to some cities, and 1 state that delegates these responsibilities to election regions. We included the District of Columbia along with this group. The second group is composed of 9 states that delegate election responsibilities to subcounty governmental units, known by the U.S. Census Bureau as minor civil divisions (MCD). However, in 1 of these states, Minnesota, election functions are split between county-level governments and MCDs. For example, registration is handled exclusively by county officials, and functions, such as polling place matters, are handled by MCDs. Overall, about 10,500 local government jurisdictions are responsible for conducting elections nationwide, with the first group of states containing about one- fourth of the local election jurisdictions and about three-fourths of the local election jurisdictions located in the states delegating responsibilities to MCDs. Although more election jurisdictions are in the 9 states, most of the population (88 percent of the U.S. population based on the Census of 2000) lives in the states delegating responsibilities primarily to counties. While voter registration is not a federal requirement, the District of Columbia and all states, except North Dakota, generally require citizens to register before voting. The deadline for registering, and what is required to register, varies; at a minimum, state eligibility provisions typically require a person to be a U.S. citizen, at least 18 years of age, and a resident of the state, with some states requiring a minimum residency period. Citizens apply to register to vote in various ways, such as at motor vehicle agencies, during voter registration drives, by mail, or at local voter registrar offices. Election officials process registration applications and compile and maintain the list of registered voters to be used throughout the administration of an election. Prior to HAVA, voter registration lists were not necessarily centralized at the state level, and separate lists were often managed by local election officials. HAVA requires voter registration information for federal elections to be maintained as a statewide computerized list and matched with certain state data, and that voter registration application information be matched with certain state data and, in some cases, with federal data, to help ensure that the voter list is accurate. All states and the District of Columbia have provisions allowing voters to cast their ballot before Election Day by voting absentee with variations on who may vote absentee, whether the voter needs an excuse, and the time frames for applying and submitting absentee ballots. In addition, some states also allow early voting, in which the voter goes to a specific location to vote in person prior to Election Day. As with absentee voting, the specific circumstances for early voting—such as the dates, times, and locations—are based on the state and local requirements. In general, early voting allows voters from any precinct in the jurisdiction to cast their vote before Election Day either at one specific location or at one of several locations. The early voting locations are staffed by poll workers who have a registration list for the jurisdiction and ballots specific to each precinct. The voter is provided with and casts a ballot for his or her assigned precinct. Election officials perform a broad range of activities in preparation for and on Election Day itself. Prior to an election, officials recruit and train poll workers to have the skills needed to perform their Election Day duties, such as opening and closing the polls, operating polling place equipment, and explaining and implementing provisional voting procedures for certain voters such as those who are not on the registration list. Where needed and required, election officials must also recruit poll workers who speak languages other than English. Polling places have to be identified as meeting basic standards for accessibility and having an infrastructure to support voting machines as well as voter and poll worker needs. Ballots are designed and produced to meet state requirements, voter language needs, and identify all races, candidates, and issues on which voters in each precinct in their jurisdiction will vote. Election officials seek to educate voters on topics such as what the ballot looks like, how to use a voting machine, and where their particular polling place is located. Finally, election officials seek to ensure that voting equipment, ballots, and supplies are delivered to polling places. On Election Day, poll workers set up and open the polling places. This can include tasks such as setting up the voting machines or voting booths, readying supplies, testing equipment, posting required signs and voter education information, and completing paperwork such as confirming that the ballot is correct for the precinct. Before a voter receives a ballot or is directed to a voting machine, poll workers typically are to verify his or her eligibility. The assistance provided to voters who are in the wrong precinct depends on the practices for that particular location. One of the most significant post-2000 election reforms found in HAVA, according to the Election Assistance Commission, is that states are required to permit individuals, under certain circumstances, to cast a provisional ballot in federal elections. More specifically, states are to provide a provisional ballot to an individual asserting to be (1) registered in the jurisdiction for which he or she desires to vote and (2) eligible to vote in a federal election, but (3) whose name does not appear on the official list of eligible voters for the polling place. In addition, provisional ballots are to be provided in elections for federal office to individuals who an election official asserts to be ineligible to vote, and for court-ordered voting in a federal election after the polls have closed. Although many states had some form of provisional balloting prior to the passage of HAVA, 44 of the 50 states and the District of Columbia were required to provide provisional ballots for the 2004 general election. Under HAVA, 6 states were exempt from HAVA’s provisional voting requirements because they either permitted voters to register on Election Day or did not require voter registration. If individuals are determined to be eligible voters, their provisional ballots are to be counted as votes in accordance with state law, along with other types of ballots, and included in the total election results. Following the close of the polls, election officials and poll workers complete a number of basic steps to get the votes counted and determine the outcome of the election. Equipment and ballots are to be secured, and votes are to be tallied or transferred to a central location for counting. The processes used to count or to recount election votes vary with the type of voting equipment used in a jurisdiction, state statutes, and local jurisdiction policies. Votes from Election Day, absentee ballots, early votes (where applicable), and provisional ballots are to be counted and consolidated for each race to determine the outcome. While preliminary results are available usually by the evening of Election Day, the certified results are generally not available until days later. Some states establish a deadline for certification of results, while other states do not. Voting methods are tools for accommodating the millions of voters in our nation’s approximately 10,000 local election jurisdictions. Since the 1980s, ballots in the United States have been cast and counted using five methods: paper ballots, lever machines, punch cards, optical scan, and DREs. Four of the five methods by which votes are cast and counted involve technology; only the paper ballot system does not use technology. The three newer methods—punch card, optical scan, and DRE—depend on computers to tally votes. Punch card and optical scan methods rely on paper ballots that are marked by the voter, while many DREs use computers to present the ballot to the voter. Voting systems utilize technology in different ways to implement these basic voting methods. For instance, some punch card systems include the names of candidates and issues on the printed punch card, while others use a booklet of candidates and issues that must be physically aligned with the punch card. The way systems are designed, developed, tested, installed, and operated can lead to a variety of situations where misunderstanding, confusion, error, or deliberate actions by voters or election workers can, in turn, affect the equipment’s performance in terms of accuracy, ease of use, security, reliability, and efficiency. In fact, some recent election controversies have been specifically associated with particular voting methods and systems. Nevertheless, all voting methods and systems can benefit from established information technology management practices that effectively integrate the people, processes, technologies. For this report, we conducted a Web-based survey of election officials in all 50 states and the District of Columbia, surveyed by mail a nationally representative stratified random probability sample of 788 local election jurisdictions, and conducted on-site interviews with election officials in 28 local jurisdictions in 14 states. Copies of the survey instruments are in appendixes II and III. In addition, the results of our state and local surveys are presented in two supplemental GAO products that can be found on our Web site at www.gao.gov. Appendix IV provides a summary of jurisdictions we visited. In reporting the state survey data, actual numbers of states are provided. When reporting local jurisdiction survey data, we provide estimates for jurisdictions nationwide. Unless otherwise noted, the maximum sampling error, with 95 percent confidence, for estimates of all jurisdictions from our local jurisdiction survey is plus or minus 5 percentage points (rounded). We also provide some national estimates by jurisdiction population size, and the sampling errors for these estimates are slightly higher. For these estimates, large jurisdictions are defined as those with a population over 100,000, medium jurisdictions have a population of over 10,000 to 100,000, and small jurisdictions have a population of 10,000 or less. Unless otherwise noted, all estimates from our local jurisdiction survey are within our planned confidence intervals. Jurisdictions in which we conducted on-site interviews were chosen based on a wide variety of characteristics, including voting methods used, geographic characteristics, and aspects of election administration, such as whether early voting was offered. We did not select jurisdictions we visited on the basis of size, but as appropriate, we identify the size of a jurisdiction we visited using the same groupings we used for our nationwide mail survey. We also reviewed extensive prior GAO work and other national studies and reports, and attended an annual election official conference. A comprehensive description of our methodology for this report is contained in appendix V. We conducted our work between March 2005 and February 2006 in Washington, D.C.; Dallas; Los Angeles; and 28 local election jurisdictions in 14 states, in accordance with generally accepted government auditing standards. In general, the goal of a voter registration system is to ensure that eligible citizens who complete all the steps required of them to register to vote in their jurisdictions are able to have their registrations processed accurately and in a timely fashion, so they may be included on the rolls in time for Election Day. The November 2000 general election resulted in widespread concerns about voter registration in the United States. Headlines and reports questioned the mechanics and effectiveness of voter registration by highlighting accounts of individuals who thought they were registered being turned away from polling places on Election Day, the fraudulent use of the names of dead people to cast additional votes, and jurisdictions incorrectly removing the names of eligible voters from voter registration lists. With the passage of HAVA, with respect to federal elections, most states were required to establish statewide computerized voter registration lists and perform certain list maintenance activities as a means to improve upon the accuracy of voter registration lists. List maintenance is performed by election officials and consists of updating registrants’ information and deleting duplicate registrations and the names of registrants who are no longer eligible to vote. The voter registration process includes the integration of people, processes, and technology involved in registering eligible voters and in compiling and maintaining accurate and complete voter registration lists. In managing the voter registration process and maintaining voter registration lists, state and local election officials must balance two goals— minimizing the burden on eligible persons registering to vote, and ensuring that voter lists are accurate, that is, limited to those eligible to vote and that eligible registered voters are not inadvertently removed from the voter registration lists. This has been a challenging task, and remains so, as we and others have noted. While registering to vote appears to be a simple step in the election system generally, applying to register and being registered are not synonymous, and election officials face challenges in processing the voter registration applications they receive. This chapter describes various HAVA and state changes related to the voter registration processes that have occurred since the 2000 general election. It also examines continuing and new registration challenges encountered by local jurisdictions for the 2004 general election. With respect to voter registration, a significant change since the 2000 general election is the HAVA requirement for states to each establish a single, uniform, statewide, computerized voter registration list for conducting elections for federal office. The HAVA requirements for states to develop statewide lists and verify voter information against state and federal agency records presented a significant shift in voter list management in many states. While the initial deadline to implement HAVA’s statewide list requirement was January 1, 2004, more than 40 states took advantage of a waiver allowing an extra 2 years to complete the task, or until January 1, 2006. The statewide registration lists for federal elections are intended to implement a system capable of maintaining voter registration lists that are more accurate by requiring states to (1) match voter registration application information against other state and federal agency databases or records to help ensure that only eligible voters are added to such lists, (2) identify certain types of ineligible voters whose names should be removed from the lists, and (3) identify individual voter names that appear more than once on the list to be removed from the lists. While HAVA defined some parameters for the required statewide voter registration lists and required matching voter information with certain state and federal records, the act leaves the choices on the methods of implementing such statewide list requirement to the discretion of the states. On the basis of our survey of state election officials, states varied in the progress made in implementing their statewide voter registrations lists, how they have implemented these systems, and the capabilities of their systems to match information with other state and federal agency records as well as many other features of the state systems. In addition to requiring states to develop statewide voter registration lists, HAVA provides that states must require that mail registrants who have not previously voted in a federal election in the state are to provide certain specified types of identification with their mail application, and if they do not provide such identification with their application, these first-time mail registrants are to provide the identification at the polls. Furthermore, if such a voter does not have the requisite identification at the polls, HAVA requires that the voter be provided a provisional ballot with the status of his or her ballot to be determined by the appropriate state or local official. As with the statewide voter registration list requirement, HAVA leaves the choices on the methods of implementing the provisional voting requirement to the discretion of the states. On the basis of interviews of officials in 28 local election jurisdictions, implementation of the requirement for first-time voters who registered by mail varied. One noteworthy variation is in the definition of mail registration, where some local jurisdictions we visited told us that applications received through voter registration drives would be treated as mail registrations subject to HAVA identification requirements and other local jurisdictions we visited told us applications from registration drives were not treated as mail registrations and therefore were not treated as subject to HAVA identification requirements. As noted above, during 2004 and 2005 many states were in the process of implementing their HAVA-required statewide voter registration lists and associated requirements for maintaining the lists. Thus, the potential benefits to be gained from HAVA’s requirement for the statewide voter registration lists were not evident in many states at the time of the November 2004 general election. Maintenance requirements in HAVA intended to help states and local election jurisdictions to have access to more accurate voter registration list information, such as identifying duplicate registrations and matching the voter information against other state agency databases or records, were not yet fully implemented by many states. Many local jurisdictions were not yet seeing the benefits of being able to verify voter registration application information with state motor vehicle agency databases to identify eligible voters, or to match voter registration lists with state vital statistics agency records to identify deceased persons, and to appropriate state agency’s records to identify felons who may be ineligible to vote. Thus, on the basis of our nationwide survey and local election jurisdictions we visited, many local jurisdictions continued to encounter challenges with the voter registration lists that they had experienced in the 2000 general election, such as difficulties related to receiving inaccurate and incomplete voter registration information, multiple registrations, or ineligible voters appearing on the list. In addition, election officials in some jurisdictions we visited told us they continued to face challenges obtaining voter registration applications from motor vehicle agencies and other NVRA entities. In addition, for some local election jurisdictions we visited, election officials told us that efforts on the part of various groups to get out the vote by registering new voters through voter registration drives created new challenges not identified to us as a problem in the 2000 general election. Specifically, at some local jurisdictions we visited, election officials told us they faced a challenge processing large volumes of voter registration applications just prior to the deadlines for registration, which included challenges in some large jurisdictions to resolve issues of incomplete or inaccurate (and potentially fraudulent) applications submitted by entities conducting voter registration drives. HAVA requires states to, among other things, (a) implement a single, uniform, computerized statewide voter registration list for conducting elections for federal office; (b) perform regular maintenance by comparing the voter list against state records on felons and deaths; (c) verify information on voter registration applications with information in state motor vehicle agency databases or with a Social Security Administration database, as appropriate. In addition, HAVA imposes new identification requirements for certain mail registrants—such as, individuals who register by mail and have not previously voted in a federal election within the state. Historically, to ensure that only qualified persons vote, states and local jurisdictions have used various means to establish and compile voter registration lists. Prior to HAVA, we noted in our October 2001 comprehensive report on election processes nationwide that in compiling these lists, election officials used different methods to verify the information on registration forms, check for duplicate registrations, and update registration records, and we noted that states’ capabilities for compiling these lists varied. At the time, some states had statewide voter lists, but others did not and were not required to do so. Moreover, most jurisdictions we visited at the time maintained their own local, computerized voter lists. Under HAVA, this has changed. HAVA requires the chief election official in the state to implement a “single, uniform, official, centralized, interactive, computerized statewide voter registration list” that must contain the name and registration information of every legally registered voter in the state. Under HAVA, states were required to be in compliance with the statewide voter registration list requirement by January 2004 unless they obtained a waiver until January 2006. Forty-one states and the District of Columbia obtained a waiver and thus, for the 2004 general election, were not required to have their statewide voter registration lists in place. With respect to the HAVA required statewide voter registration list, states are to, among other things: Make the information in such lists electronically accessible to any election officials in the state. Ensure that such voter lists contain registration information on every legally registered voter in the state, with a unique identifier assigned to each legally registered voter. Verify voter identity; most states are required to match voter information obtained on the voter registration application for the applicant’s drivers’ license number or the last four digits of the voter’s Social Security number, when available, to state MVAs or the Social Security Administration databases. In connection with this requirement to verify voter registration application information, states must require that individuals applying to register to vote provide a current and valid driver’s license number, or the last four digits of their Social Security number; if neither has been issued to the individual, then the state is to assign a unique identifier to the applicant. The state MVA must enter into an agreement with the Social Security Administration (SSA), as applicable, to verify the applicant information when the last four digits of the Social Security number are provided, rather than a driver’s license number or state ID number. Perform list maintenance on the statewide voter registration lists by coordinating them on a regular basis with state records on felony status and deaths, in order to identify and remove names of ineligible voters. List maintenance is also to be conducted to eliminate duplicate names. Implement safeguards ensuring that eligible voters are not inadvertently removed from statewide lists. Include technological security measures as part of the statewide list to prevent unauthorized access to such lists. Except for the 9 states that did not obtain a waiver from HAVA’s requirements for establishing a statewide voter registration list, all other states subject to the statewide list requirement were not required to perform list maintenance activities as defined in HAVA until the extended waiver deadline of January 2006. By the November 2004 general election, states were in various stages of implementing provisions of HAVA related to their statewide voter registration lists and performing voter list verification and maintenance, and had different capabilities and procedures at the state and local levels for performing required list maintenance functions. Many states reported that their statewide voter registration systems implementing the statewide list requirement include or will include additional election management features not required under HAVA. Voter registration system development was an ongoing process in 2004 and 2005. For the November 2004 general election, the use of technology to compile voter registration information remained an issue. Developing and implementing statewide computerized voter lists has been an ongoing process for many states, and state and local election officials reported encountering difficulties along the way. Our state survey and site visits suggest that states and jurisdictions were still coming to terms, as of the last half of calendar year 2005, with how their systems should be updated and whether states or jurisdictions should control the flow of information into statewide registration systems. As mentioned in chapter 1, HAVA vests the Attorney General with the responsibility of enforcing certain HAVA requirements with respect to the states. In January 2006, the Justice Department asked all states, the District of Columbia, and other covered territories to provide a detailed statement of their compliance with voting systems standards and implementation of a single, uniform, official, centralized, interactive computerized statewide voter registration list. If the states, the District of Columbia, or covered territories were not implementing HAVA’s requirements for the computerized statewide voter registration lists as of January 2006, the Justice Department reported that it then asked them to identify steps they planned to take to achieve full implementation of the HAVA-compliant statewide voter registration list and the date on which each step would be accomplished. According to Justice Department officials, they are reviewing the information provided by the states, the District of Columbia, and such territories to make determinations of what, if any, enforcement action might be needed. The Department of Justice reports that it entered into a memorandum of agreement with California in November 2005 after that state realized it would not be able to fully meet HAVA’s requirements by the January 1, 2006, deadline. On March 1, 2006, the Department of Justice also filed suit in a federal district court against the state of New York alleging the state not to be in compliance with, among other things, HAVA’s requirement for a computerized statewide voter registration list and seeking a judicial determination of noncompliance and a court order requiring the state to develop a plan for how it will come into compliance. During our site visits in 2005, we asked local election officials about the status of their statewide registration systems. Election officials in some local jurisdictions we visited cited difficulties related to implementing their statewide voter registration systems involving, among other things, internal politics and technology-related challenges. For example, election officials in a large jurisdiction reported that a disagreement between the State Board of Elections and local election officials over the type of system to implement delayed the project for a year. State election officials wanted a system requiring all voter registrations to be entered at the state level but maintained locally. The local election officials expressed the view that such a system would result in a lack of control over data entry at the local level at the front end, while imposing accountability on them on the back end (data maintenance). During our interview in August 2005, these election officials told us that a statewide registration system had not been implemented yet. In some jurisdictions, the difficulties cited by election officials may have reflected the fact that they were establishing statewide voter registration systems for the first time. For example, in 1 large jurisdiction that was establishing a HAVA voter registration list from scratch, local election officials noted that at the time of our interview in August, the system was behind schedule, lacked the ability to identify duplicates, had no quality control, and was not planned to function as a real-time system. In our survey of states and the District of Columbia, and our survey of local election jurisdictions nationwide, among other things, we inquired about the status of their capabilities for meeting HAVA provisions for (1) verifying voter registration application information against MVA and SSA databases and (2) maintaining the statewide voter lists by comparing information on the statewide voter registration list against state death records and felon information, and discussed the issues during our local site visits. Our work focused on how states had matched or planned to match voter registration lists against other state records, as required by HAVA. However, it is important to note that the success of such matching in ensuring accurate voter registration lists is dependent upon the accuracy and reliability of the data in the databases used for matching. If that state’s MVA databases, felon records, death records, or other records used for matching are inaccurate, they can result in voter registration list errors. When a driver’s license or driver’s license number is presented as identification when registering to vote in an election for federal office, HAVA requires that states match the voter registration application information presented with that in the MVA records. In our survey of state election officials, we asked states whether their voter registration systems would have the capability to perform electronic matching of such voter registration information with state motor vehicle agency records for the purposes of verifying the accuracy of information on the registration application. Twenty-seven states reported they will have or currently had the capability to match on a real-time basis, 15 states and the District of Columbia reported they will have or currently had capability to match in batches, and 4 states reported they would not have the capability to perform electronic matching. The remaining 4 states included 2 states that reported that they are not subject to HAVA’s registration information verification requirement because they collect the full Social Security numbers on voter registration applications; 1 state, North Dakota, which does not require voter registration, did not respond, and 1 state reported that it was uncertain of its capability to perform electronic matching. With respect to matching voter information with SSA data when a Social Security number is presented instead of a driver’s license, in our state survey, 7 states had and 26 states and the District of Columbia reported that they would have the capability, by January 1, 2006, to electronically match voter registration information with SSA (through the MVA); 10 states reported they planned to have this capability in place but not by January 2006; and 6 states had not yet determined whether they could do so. Many states reported concerns with whether SSA would be able to return responses to verify requests in a timely manner. Specifically, 30 states and the District of Columbia reported some level of concern about the issue. When asked whether they thought local jurisdictions would be able to resolve nonmatches resulting from SSA verification checks, opinions were divided, with a number of states (21) expressing some degree of concern about this, while a nearly equal number (22 states and the District of Columbia) did not. In our June 2005 report on maintaining accurate voter registration lists, we found that in one state (Iowa) that had verified its voter registration list with SSA before the 2004 general election, there was no unique match for 2,586 names, according to the SSA records. As we stated in our report, Iowa officials said that the biggest problem they faced was that SSA did not specify what specific voter information did not match (i.e., was the mismatch in name, date of birth, or final four-digit Social Security number). Without that information, they were not able to efficiently resolve the non- matching problems. In that same report, we also noted that an SSA official said that the system established to perform the HAVA matching on the four- digit Social Security number is not able to provide that detail. In addition, we found that use of SSA’s database to identify deceased registrants, which is linked with the system established to perform the HAVA verification of voter registration application information, had matching and timeliness issues. As shown in figure 8, many states reported that they faced significant challenges when trying to match voter registration information with state records. For example, in our survey, 29 states and the District of Columbia reported that records with incomplete data posed a challenge; 19 states and the District of Columbia reported that obtaining records not maintained electronically was a challenge; and 23 states reported that verifying information against incompatible electronic record systems was also a challenge. During our site visits to local jurisdictions, we obtained additional views on how well, in general, states were believed to perform various data- matching functions. We asked local election officials to describe their state system’s ability to match voter registration information with MVA and SSA records and the system’s ability to verify information on eligibility status for felons, noncitizens, and others with other state databases or records. One jurisdiction in Illinois reported it was not sure how or if its voter registration system would be able to match data with MVA and SSA databases or to verify eligibility status for felons and by age. An official in a jurisdiction in Florida said that Florida’s system could not verify information on the eligibility status of felons, noncitizens, the mentally incompetent, or the underaged—though plans were under way to obtain information from the Clerk of Courts Information System to perform some of these tasks. HAVA’s list maintenance provisions require states to match the statewide voter registration list information against certain state records to identify ineligible voters and duplicate names. If a voter is ineligible under state requirements and is to be removed from the statewide voter registration list, states are generally required to remove such names in accordance with NVRA provisions relating to the removal of voter names from registration lists for federal elections. Under NVRA, in the administration of voter registration for federal elections, states may not remove the names of people who are registered to vote for nonvoting and names may be removed only for certain specified reasons: at the request of the registrant; by reason of criminal conviction, as provided by state law; by reason of mental incapacity, as provided by state law; or pursuant to a general program that makes a reasonable effort to remove the names of ineligible voters from the official lists by reason of the death of the voter or on the ground that the voter has changed address to a location outside the election jurisdiction on the basis of change of address information from the U.S. Postal Service (but only if either (1) the voter confirms in writing a change of address to a place outside the election jurisdiction or (2) the voter has failed to respond to a confirmation mailing and the voter has not voted or appeared to vote in any election between the time of such notice and the passage of two federal general elections). Reasons Names Removed from Registration Lists In our survey of local election jurisdictions nationwide, we asked about the reasons names were removed from voter registration lists. On the basis of our survey of local election jurisdictions, the following table shows various reasons that jurisdictions removed names from voter registration lists for the 2004 general election and our estimates of how frequently names were removed for that reason. For example, the most frequent reason was the death of the voter (76 percent). Names were removed with about equal frequency because the voter requested that his or her name be removed (54 percent) or the registrant’s name appeared to be a duplicate (52 percent). The least frequent reason was for mental incompetency (10 percent). In many jurisdictions, names were not removed but rather placed on an inactive list for a period of time. In our survey of local jurisdictions, nearly half, or an estimated 46 percent, took this step. In our June 2005 report on maintaining accurate voter registration lists, on the basis of interviews of election officials in 14 jurisdictions and 7 state election offices, we reported that in larger jurisdictions, the task of identifying and removing registrants who died can be substantial. For example, in the city of Los Angeles, in 1 week in 2005 alone, almost 300 persons died. The issue of felons voting unlawfully—that is, voting when their felony status renders them ineligible to voter under state law—was a high-profile issue in some jurisdictions. According to an election official in a Washington jurisdiction we visited, this issue was identified during the November 2004 general election. This official also told us that the Secretary of State is working to establish a database that will indicate felony status and cancel the registration of felons. This election official noted that the jurisdiction rarely receives information from federal courts on felony convictions. Under federal law, U.S. Attorneys are to give written notice of felony convictions in federal district courts to the chief state election official of the offender’s state of residence. In our June 2005 report on maintaining accurate voter registration lists, we found that U.S. Attorneys had not consistently provided this information, and while the law did not establish a standardized time frame or format for forwarding the federal felony conviction information, election officials in 7 states we visited reported that the felony information received from U.S. Attorneys was not always timely and was sometimes difficult to interpret. We recommended that the U.S. Attorneys provide information in a more standardized manner. Under HAVA, duplicate names on the statewide voter registration list are also to be identified and removed. In our state survey, 49 states and the District of Columbia reported that their voter registration systems will include a function for checking duplicate voter registration records. On the basis of our nationwide survey of local jurisdictions, we estimate that 72 percent of local jurisdictions employed a system of edit checks (automated controls to identify registration problems) to identify duplicates. Our prior work has also found that states were, for the most part, able to handle duplicate registrations—though obtaining timely, accurate data to facilitate the identification of duplicate registrations has been viewed as a challenge among some state election officials. Specifically, in our February 2006 report on certain states’ (9 states that did not seek a waiver until January 1, 2006 and were to implement a computerized statewide voter registration list by January 1, 2004) experiences with implementing HAVA’s statewide voter registration lists, we found that 8 of the 9 states we reviewed screened voter applications to identify duplicate registrations, and most did so in real time. We also reported that 8 of these 9 states checked voter registration lists for duplicate registrations on an annual, monthly, or other periodic basis. And 4 of the 9 states reported that implementing the HAVA requirements led to some or great improvement in the accuracy of their voter lists by reducing duplicate registrations or improving the quality of voter information before it was entered into the statewide voter list. Checking for duplicates remained a challenge for some in 2004 and 2005, however. In our June 2005 report on maintaining accurate voter registration lists, we noted that officials in 7 of the 21 local election jurisdictions we spoke with during 2004 and 2005 had some concern about the accuracy and timeliness of data they received to identify duplicate registrants and verify that registrants resided within the jurisdiction. They noted that the matching and validation of names are complex and made more so when considering aliases and name changes, as are matches such as “Margie L. Smith” with “Margaret Smith.” Officials from several states who reported, at the time of our review, that their state had not implemented a statewide voter registration system noted that there was no way to identify duplicates outside their jurisdiction. While HAVA requires that both state and local election officials have immediate electronic access to information in the statewide voter registration list, HAVA grants states discretion as to the method used to ensure that this capability is established. According to EAC, state and local election officials may determine whether to establish (a) a top-down system, whereby the statewide voter registration list resides on a state database hosted on a single, central platform (e.g., a mainframe or client servers), which state and local election officials may query directly; (b) a bottom-up system, whereby the statewide voter list is stored on a state-level database that can be downloaded to jurisdictions and updated by the state only when the jurisdictions send new registration information back to the state; or (c) take another approach. According to the EAC voluntary guidance on HAVA’s statewide voter registration system, the top-down approach most closely matches HAVA requirements—but other configurations may be used as long as they meet the HAVA requirement for a single, uniform list that allows election officials to have immediate access. Our 2005 survey of state election officials sought information on how states were implementing statewide computerized voter registration systems. We asked, among other things, whether states were using a top-down or a bottom-up approach. In response, 40 states and the District of Columbia reported that they have a database maintained by the state, with information supplied by local jurisdictions (top-down system); 4 states reported that local jurisdictions retain their own lists and transmit information to a statewide list (a bottom-up system); and 5 states reported they use a hybrid of these two options. We also asked whether state election officials would have immediate, real-time access to their state lists for the purposes of entering new voter registration information, updating existing information, and querying voter registration records. About half the states and the District of Columbia reported they had or would have all these capabilities. Specifically, 24 states and the District of Columbia reported they had or would have as of January 2006, real-time access for entering new voter registration information, while 23 states reported they did not plan to do so and 2 states did not respond. In addition, 26 states and the District of Columbia reported that they had or would have as of January 2006, real-time access for updating existing voter registration information, while 21 states reported they did not plan to do so and 2 states did not respond. And 47 states and the District of Columbia reported they had or would have as of January 2006 real-time access for querying all state voter registration records, while 1 state reported it would not do so and 1 state did not respond. For each of these questions, one state reported it too would have these capabilities, but not by the January 1, 2006, HAVA deadline. We also sought state election officials’ views on whether election officials in local jurisdictions would have immediate, real-time access to voter list information for the same three purposes stated above: entering new information, updating existing information, and querying records. In our state survey, most states and the District of Columbia reported that local jurisdictions had these capabilities. Specifically, 46 states and the District of Columbia reported that local jurisdictions had or would have as of January 2006, real-time access for entering new voter registration information, and 3 other states reported that they planned to do so as well, but not by January 1, 2006. Also, 46 states and the District of Columbia reported that local jurisdictions had or would have as of January 2006, real-time access for updating existing voter registration information, and 3 other states planned to do so as well, but not by the deadline. Finally, 47 states and the District of Columbia reported local jurisdictions had or would have as of January 2006 the capability to query records for their jurisdictions in real time, and 2 states planned to do so, but not by January 2006. Figure 9 compares the capability of state and local jurisdiction election officials to access the voter registration lists to perform certain tasks. While HAVA’s list maintenance provisions require states to coordinate statewide voter registration list information with certain other state records within their state in order to identify and remove ineligible names, the act does not specifically provide that such coordination must be done electronically. However, to determine whether state systems had or would have the capability to perform electronic data matching, our survey asked states about existing or planned electronic capability. As shown in figure 10, more than half the states reported that they had, or planned to have, the ability to match voter registration information electronically with state records on felony convictions and deceased registrants. Specifically, 25 states reported they had and 15 states reported that they would have the capability to electronically match against state death records as of January 2006, and 6 states and the District of Columbia planned to have the capability, but not by January 2006. Three states reported that they did not plan to have this capability. With respect to identifying ineligible felons, 16 states reported they had, and 15 reported they would have the capability to electronically match against felony conviction records as of January 2006, while 9 states planned to do so but would not have done so by January 2006. In addition, 7 states and the District of Columbia did not plan to have this capability, and 2 states had not determined whether to have the capability. On the topic of states’ efforts to meet HAVA’s data-matching requirements electronically—as opposed to transmitting paper records—EAC recommends that voter registration information be transmitted electronically, particularly between states and their MVAs. EAC further recommends that to the extent allowed by state law and available technologies, the electronic transfer between statewide voter registration lists and coordinating verification databases should be accomplished through direct, secure, interactive, and integrated connections. While EAC provided guidance to states for their statewide systems, under HAVA, the states are to define the parameters for implementing interactive and integrated systems. HAVA requires election officials to provide adequate technological database security for statewide voter registration lists that is designed to prevent unauthorized access. EAC provided states with voluntary guidance, issued in July 2005, to help clarify HAVA’s provisions for computerized statewide voter registration lists. Among other things, the EAC guidance noted that such computer security must be designed to prevent unauthorized users from altering the list or accessing private or otherwise protected information contained on the list. Access may be controlled through a variety of tools, including network- or system-level utilities and database applications (such as passwords and “masked” data elements). Special care must be taken to ensure that voter registration databases are protected when linked to outside systems for the purposes of coordination. Any major compromise of the voter registration system could lead to considerable election fraud. We sought information on what documented standards or guidance for computer and procedural controls would be in place to prevent unauthorized access to the lists. In our state survey, 45 states and the District of Columbia reported having such standards or guidance, 3 plan to do so, and 1 reported that it did not know. We also asked states what actions they had taken or planned to take to deal with privacy and intrusion issues. We asked, for instance, what, if anything, had been done to install or activate mechanisms to detect or track unauthorized actions affecting the state’s computerized voter registration system. A majority of states reported actions had been taken or were to be taken at some point. Specifically, 26 states reported taking action as of August 1, 2005, while 12 states and the District of Columbia reported they would do so by January 1, 2006. An additional 4 states reported that actions were planned, but at no particular point in time. In a related question, we asked what actions had been taken or were planned to install or activate mechanisms to protect voter privacy. Again, a majority of states reported actions had been taken or were to be taken at some point. Specifically, 32 states reported taking action as of August 1, 2005, while 13 states and the District of Columbia reported they would do so by January 1, 2006. Two other states reported actions would be taken at a later point in time. During our site visits, we asked local election officials what standards or procedures were used for the November 2004 general election to help ensure that the registration list was secure and that the privacy of individuals was protected. Election officials in most jurisdictions reported that voter information (such as name and address) is public information if it is to be used for political purposes—though some do not release Social Security numbers, and others limit access to this information by requiring a fee. Some local election officials noted that security standards for this information were not set by the state but rather at the county or local level, though many look to the state for future guidance on standards. The type of security in place to restrict access to voter registration records varied by jurisdiction; among the procedures commonly used were password protection (so that only certain election officials could log onto the voter registration system to access the information); storage of voter registration records in locked facilities; use of “best practice” protocols such as system firewalls; and in some cases, registration information is maintained on a computer system that is separate from the jurisdiction’s central system. Along these lines, 1 jurisdiction noted that it planned to implement a public key infrastructure (PKI). A PKI is a system of computers, software, policies, and people that can be used to facilitate the protection of sensitive information and communications. The official noted it is a felony in that jurisdiction to use a PKI authorization without authorization from the State Board of Elections. Election officials in another jurisdiction we visited told us that all voter registration system users must log on using unique user IDs and passwords, which are maintained by the county registrar. The system tracks all data entries and changes, which user made them, and when they were made. In a few jurisdictions, election officials said they grant additional privacy to the records of voters involved in domestic disputes or other law enforcement matters. When asked whether they had any plan to develop or change existing security standards or procedures, local election officials in 16 of the 28 jurisdictions we visited told us there were no plans to alter current practices, though some noted they were not sure. Among those indicating that security procedures were being enhanced, election officials in 1 large jurisdiction said they planned to enclose their computer systems server in a secure case with restricted access. Another official in a large jurisdiction in another state said that because of a change in state law in 2004, a hard copy of voter records was no longer available for public inspection. As mentioned earlier, the HAVA computerized statewide voter registration list provisions require states to perform list maintenance to identify duplicate registrations, deceased registrants, and registrants who may be ineligible to vote under state law based upon a felony conviction. However, we note that requirements for matching voter registration lists with certain state records leaves some potential gaps for incomplete and inaccurate voter registration lists because election officials may not have information regarding registered voters who die out of state or who are in prison in another state and ineligible because of a criminal conviction. To determine whether states went beyond HAVA requirements to share voter registration data with other states to identify registrants who died in another state, were incarcerated in another state, or registered in another state, we asked on our survey of state election officials whether they had taken action to electronically exchange voter registration information with at least 1 other state and whether they were sharing registration information routinely with other states. In our state survey, 31 states and the District of Columbia reported that they did not plan to electronically exchange voter registration information with another state. However, 35 states and the District of Columbia reported they share information with states when a new registrant indicates he or she previously resided in another state. Other types of information sharing across state lines were less common. For instance, 6 states reported sharing voter registration information with neighboring states, and 1 state reported that it shared information with states where an individual is known to reside part of the year. In our state survey, 14 states reported they do not currently share voter registration information with other states. We analyzed state and federal voter registration applications to determine whether these applications provided space for applicants to indicate they were registered in other states or in other jurisdictions within the same state to identify duplicate registrations. We obtained state application forms during site visits with local election jurisdictions, from state Web sites or, if not available from there, we obtained the application from the state. Registration forms were those on the Web site or obtained from the states as of January 2006. Applications for the 46 states and the District of Columbia and both federal applications had a place on their registration application where registration applicants could indicate prior registration in another state on their forms. Three states (Kentucky, Texas, and Wyoming) did not include a place on their registration forms to identify prior registration information in another state. Forty-five states and the District of Columbia included a space for registration applicants to indicate prior registration in another jurisdiction within their state on their forms, or in the case of the District of Columbia applicants were to indicate the address of their last registration. Four states (Alaska, Hawaii, Kentucky, and Wyoming) did not provide space to indicate prior registration within their state. Figure 11 is an example of a state registration form that provided a space for the voter registration applicant to indicate that he or she had registered in another state. On the basis of our survey of local election jurisdictions, we estimated that 12 percent of local jurisdictions administered their own registration application form in addition to the state registration application. Of the 12 percent who had their own form, we estimate that 70 percent had space on their voter registration applications so that an applicant can indicate whether he or she was previously registered in another state. However, we estimate that about a third did not capture this information on their forms. Although HAVA’s voter registration-related provisions focus primarily on state election management activities for developing, verifying, and maintaining voter lists, we sought information on what other types of registration system upgrades, if any, states planned, and we asked at the sites we visited what additional system capabilities, if any, had been implemented or planned. In our state survey, 15 states reported taking action to upgrade the processing speed or records capacity of their systems as of August 2005; 6 states reported that such actions would be taken by January 2006; and 12 states and the District of Columbia reported they would take such action at a later time. In other recent work, we have also looked at selected states’ efforts to enhance their statewide voter list systems. In our February 2006 report on certain states’ experiences with implementing HAVA’s statewide voter registration lists, we found that 7 of 9 states that reported implementing HAVA provisions for a computerized, statewide voter registration system by January 1, 2004, also reported that they have upgraded or enhanced their systems, or planned to so do, to include additional election management capabilities. For example, Arizona reported plans to upgrade its current system to reflect reciprocity agreements with other states, so that election officials can be alerted when a voter moves from state to state, and will allow election officials to retrieve data on such issues as voter petitions, provisional ballots, poll worker training, and polling locations. Other states reported adding or planning similar enhancements. Kentucky reported another type of enhancement: It has used its statewide computerized voter registration system to establish voter information centers on the state’s Web site, to assist applicants and staff in the voter registration process. During our site visits, we asked local election officials to comment on the election management functions their voter registration systems might perform. While some local election officials noted they were not certain whether their new statewide voter registration systems would include the same array of features as the local county versions, other local election officials in some jurisdictions responded that they expect their statewide systems to be able to perform some or all of the following functions: maintain records confirming mailings to new registrants, generate letters informing rejected applicants of reasons for generate forms or mailing labels, note status or date of absentee applications and ballots sent and identify polling places for use on Election Day, and identify poll workers. In some jurisdictions, other capabilities were mentioned; 2 large jurisdictions noted, for instance, that bar coding would be used to identify registrants, and 2 other large jurisdictions indicated that their systems would track and maintain candidate petition information. Not all jurisdictions expressed equal confidence in the extra (non-HAVA- related) capabilities of their systems. Election officials in a couple of large jurisdictions, for instance, told us they were not certain their statewide voter system would have features comparable to those already in place, and that their vendor or state was taking a one-size-fits-all approach for all jurisdictions regardless of size, rather than taking specific local needs into account. In some jurisdictions, election officials stated that their statewide systems were still too new to know whether these additional functions would be operational, and some said they were not yet familiar with all the system’s capabilities. HAVA imposed new identification requirements for certain mail registrants—such as, individuals who register by mail and have not previously voted in a federal election within the state. These individuals (first-time mail registrants) must provide certain specified types of identification either by submitting copies of such identification during the mail registration process or by presenting such identification when voting in person for the first time following their mail registration. Moreover, first-time mail registrants are to be informed on the application that appropriate identifying information must be submitted with the mailed form in order to avoid additional identification requirements upon voting for the first time. An individual who asserts that he or she has registered by mail and desires to vote in person but who does not meet the identification requirements may cast a provisional ballot under HAVA’s provisional language. However, according to election officials in some jurisdictions we visited, casting a provisional ballot requires that these voters are to provide identification to election officials by a specified time (e.g., by close of polls on Election Day or within a certain number of days following Election Day) to have their ballot count. On the basis of our local survey, we estimate that 32 percent of local jurisdictions encountered a problem in counting provisional ballots because voters did not provide identification as specified by HAVA for mail-in registrants and were voting for the first time in the precinct or jurisdiction. Our discussion of provisional voting processes appears in chapter 5. HAVA, in general, provides states with discretion as to the methods of implementing HAVA’s identification requirements for first-time mail registrants, such as ensuring that voters comply with the requirements and, subject to certain limitations, allows states to establish requirements that are stricter than those required under HAVA. According to our state survey, 7 states reported that such HAVA requirements were already covered by existing state legislation or some type of state executive action (such as orders, directives, regulations, or policies); 44 states and the District of Columbia reported that they enacted new legislation or took some type of state executive action (such as orders, directives, regulations, or polices) to address the identification requirements in HAVA for first-time mail registrants. We analyzed state and federal (NVRA) voter registration application forms to determine whether the applications provided instructions on identification requirements for individuals registering in a jurisdiction for the first time. We obtained some state application forms during site visits with local election jurisdictions, and others from state Web sites or, if not available from there, we obtained the application from the state. Registration forms were those on the Web site or obtained from the states as of January 2006. Our analysis showed that 39 states and the District of Columbia had information on their application forms and 10 states did not provide this information on their forms. The NVRA voter registration form included this information. Figure 12 is an example of a voter registration form that included instructions for first-time mail registrants. During our site visits, we asked local election officials whether they considered registering by mail to only include when someone mails in a single application or to also include mailed-in applications from voter registration drives. Five local jurisdictions told us that applications received by mail as a result of voter registration drives are not treated as mail-in applications and therefore are not treated as subject to mail registration identification requirements under HAVA; 3 jurisdictions told us that applications submitted by voter registration drives were treated as mail-in applications subject to HAVA’s mail registration identification requirements. Election officials in 1 of these jurisdictions told us that under their state law (Pennsylvania) all voters who are voting for the first time in a district must show a valid form of identification, regardless of how they registered to vote. Also, during our site visits we asked local election officials how they processed voter registration applications from first-time mail registrants for the 2004 general election. Election officials reported taking different approaches, many involving mailed communications from election officials sent back to the applicant, particularly if required information was missing. For example, at least 2 large jurisdictions reported that first-time voters who did not mail in identification with their applications were sent letters instructing them to do so. Similarly, officials in 2 jurisdictions in another state said letters were sent to applicants whose applications were incomplete, advising them of the need to provide photo ID—and informed applicants that if they failed to do so, they may have to use a provisional ballot on Election Day, which would be subject to the voter subsequently providing identification. In other jurisdictions, though local election officials reported taking steps to process incomplete applications from first-time voters, they did not necessarily give the applicant a chance to correct the application prior to Election Day. For example, in a medium jurisdiction we visited, first-time voter applicants who did not submit proper identification were to have been given provisional ballots. However, the election official told us her office did not inform them about this in advance for the 2004 general election. In addition to contacting applicants to inform them of the need to provide identification discussed above, 1 jurisdiction we visited told us that it periodically provided a list of applicants who provided driver’s license numbers but did not provide identification at the time of registration to the state MVA as another means to verify the registrant’s identity. In this case, the MVA compared the county clerk office’s registration list against its list of licensed drivers to see if the name, date of birth, and driver’s license number matched, and returned the results to election officials. If all these data elements matched, the election official certified the records and these prospective voters were not required to show identification at the polling place. If a registrant did not provide identification prior to Election Day, local election officials at all 28 sites we visited reported having a system for recording first-time voters who failed to provide identification and transferring that information to a polling site by annotating the poll book. One large jurisdiction, for example shaded the voter line in the poll book, while another printed the words “ID required” next to the voter’s name. With respect to voters who presented themselves at a polling place and did not have identification, election officials at some local jurisdictions we visited described different ways that the voter’s provisional ballot could become verified. For example, a jurisdiction in Georgia said that if a voter did not provide identification at the polls, it allowed the voter to vote a provisional ballot and the voter had until 2 days after the election to provide identification. Another jurisdiction in Kansas told us that the voter had until the day that votes were canvassed to provide identification. Other jurisdictions told us that voters would have until the close of the polls on Election Day to provide identification to election officials. A local jurisdiction in Washington told us that if the voter did not have identification on Election Day, the voter would vote a provisional ballot and election officials would subsequently have the voter’s signature matched against the registration application to verify the voters identity. Citizens generally have numerous opportunities to apply to register to vote. Figure 13 shows several of these opportunities—such as applying at a local election office, at a motor vehicle agency, or through a voter registration drive—and the processes used to submit an application. Problems with applications submitted to MVAs have been identified as a challenge since 1999. Our October 2001 report on election processes found that 46 percent of local jurisdictions nationwide had problems processing applications submitted at MVAs and other public registration sites designated pursuant to NVRA requirements. In its reports to Congress on the impact of NVRA on federal elections in 1999 through 2002, the Federal Election Commission (FEC) found that several states reported problems with election officials receiving applications from MVA offices in a timely manner, resulting in, the FEC stated, “the effective disenfranchisement” of citizens who had applied to vote but were not processed by Election Day. FEC recommended in both reports that states develop ongoing training programs for personnel in NVRA agencies, such as MVAs. HAVA includes requirements providing that voters who contend that they registered (at MVAs or through other means) in the jurisdiction in which they desire to vote, but whose names are not on the voter registration list for that polling place, be allowed to cast a provisional ballot. HAVA also requires that voters who an election official asserts is not eligible to vote also be permitted to cast a provisional ballot. Election officials would determine the voter’s eligibility under state law and whether the vote should count as part of the vote counting process. From our local jurisdiction survey, we estimate that for the 2004 general election, 61 percent of local jurisdictions had a problem in counting provisional ballots because of insufficient evidence that individuals had submitted voter registration applications at MVAs. In addition, we estimate that 29 percent of local jurisdictions had a problem in counting provisional ballots because of insufficient evidence that individuals had submitted voter registration applications at NVRA agencies other than MVAs. Also, our September 2005 report on managing voter registration reported that 4 of 12 jurisdictions we surveyed reported that election office staff experienced challenges, either to a great extent or some extent, receiving voter registration applications from motor vehicle agencies. They reported taking steps to address the problem by hiring additional staff to handle the volume of applications received and by contacting applicants to obtain correct information. There is evidence that, at least in 1 jurisdiction, election officials took steps since the 2000 general election to address the MVA voter registration issue, though problems persisted for the November 2004 general election. When we revisited the same small jurisdiction in 2005 that we had visited in 2001, election officials reported they were still experiencing problems receiving registration forms from the MVA, for all those who registered to vote there—but noted that the process had improved. For example, they said elections staff now have access to the MVA database directly, so they can verify whether someone who claimed to have registered at the MVA actually did so. In our local jurisdictions survey, we estimate that few jurisdictions provided training to MVA or other NVRA agencies. Specifically, for the 2004 general election, we estimate that 12 percent of local jurisdictions provided training or guidance to MVA offices and an estimated 3 percent provided training to other NVRA entities regarding procedures for distributing and collecting voter registration applications. Large jurisdictions are statistically different from small or medium jurisdictions, and medium jurisdictions are statistically different from small jurisdictions. Specifically, we estimate that 34 percent of large jurisdictions provided training to MVA offices, an estimated 18 percent of medium jurisdictions did so, and an estimated 9 percent of small jurisdictions did this. In addition, large jurisdictions are statistically different from both medium and small jurisdictions in providing training to other NVRA entities. In our October 2001 comprehensive report on election processes nationwide, we identified measures such as improving the training of MVA staff as a means of addressing challenges related to applications received from MVAs. After the November 2004 general election, the National Task Force on Election Reform—composed almost exclusively of officials who served in voter registration and administration of elections capacities— reported that while the NVRA expanded the number of locations and opportunities where citizens can apply to register to vote, supporting the voter registration application process is a secondary duty for entities that do so under this law. The task force report noted that it is a challenge for these entities to provide this service in a consistent manner and to transfer the registrations collected accurately and efficiently to voter registration offices. In our October 2001 report on election processes, some election officials noted that while extending voter registration deadlines gave voters additional chances to register, it shortened the time for processing applications. And a few election officials raised concerns about short time frames for processing applications in relation to the possibility of voter fraud if there was insufficient time to verify an applicant’s eligibility. For the 2004 general election, the time frame for processing applications had the potential to pose an even greater challenge given the increase in the number of voter registration applications that elections officials reported receiving for the November 2004 general election. The conditions that election officials experienced in processing the volume of voter registration applications, such as long hours and lack of time to fully train temporary workers, could have resulted in data entry errors that would have had the impact of not properly registering eligible voters and not identifying ineligible voters. During our site visits to local jurisdictions, election officials told us that for the 2004 general election, entering applications in a timely manner was possible—but challenges did arise, and election officials described actions taken to help ensure that voters were properly registered. Furthermore, on the basis of our survey of local election jurisdictions, we estimate that 81 percent of local jurisdictions were able to process applications received just prior to the registration deadline—though we estimate 19 percent of the jurisdictions received applications just prior to the registration deadline that posed problems in entering them prior to Election Day. As shown in figure 14, we estimate that large jurisdictions experienced problems in entering the number of voter registration applications more than small and medium jurisdictions. Large jurisdictions are statistically different from both medium and small jurisdictions. This may be attributable to larger jurisdictions having larger populations with more registration activity, among other things. All jurisdictions we visited reported that they were able to enter all eligible applications into the voter registration lists. Nevertheless, most reported it was a challenge to process the large volume of applications received. For example, 1 large jurisdiction we visited reported that on a daily basis it was 30,000 to 40,000 applications behind in data entry. As a result, election officials reported that they hired 80 full-time temporary workers who worked two full-time shifts to enter all eligible applications into the voter registration list used at the polls on Election Day. Election officials in another large jurisdiction told us that they unexpectedly received about 10,000 last-minute registrants. Another large jurisdiction reported it was “swamped” with registration applications right before the registration deadline and was not prepared for the volume of applications submitted. Several jurisdictions required permanent employees to work extended hours or on weekends. To manage registration workloads, other jurisdictions reported hiring temporary workers and recruiting county employees to handle processing workloads. Figure 15 shows the reported spike in voter registration applications received prior to Election Day in 1 large jurisdiction. Some applications were received after the final week allowed for voter registration and could not be registered for the 2004 general election but were registered for future elections. In our state survey, a few states reported that since the 2000 general election they increased the time that voters in their states have to register. Although setting registration deadlines close to Election Day itself provides citizens increased time to apply to register, reducing the number of days from the registration deadline to Election Day can make it difficult for election officials to ensure that all eligible voters are included on the voter registration list. Specifically, in our state survey, 3 states (Maryland, Nevada, and Vermont) reported changing their registration deadlines for the November 2004 general election. For the 2000 general election, Maryland’s registration deadline had been 25 days before the election, but for the 2004 general election, the deadline for registration was 21 days before the election, extending the time that voters could register by 4 days. Nevada’s 2000 registration deadline (9 p.m. on the fifth Saturday preceding any primary or general election) remained the same for mail-in registrations. However, for the 2004 general election, the state extended in- person registration by 10 days. Vermont’s voter registration deadline changed from the second Saturday before the election to the second Monday before the election, allowing voters 2 more days to register. Appendix VI provides information on state laws pertaining to registration deadlines. On the basis of our local jurisdiction survey, entering all voter registration applications for the time between the registration deadline and the November 2004 general election posed problems for large jurisdictions more than it did for small and medium jurisdictions. Specifically, we estimate that 41 percent of large jurisdictions experienced problems, 18 percent of medium jurisdictions, and 13 percent of small jurisdictions. Large jurisdictions are significantly different from both medium and small jurisdictions. Inasmuch as large jurisdictions have more potential registrants, it is reasonable to expect that they would experience more difficulty entering all voter registration applications by Election Day than smaller ones would. For the 2004 general election, while many states reported having registration deadlines that were 20 to 30 days prior to Election Day, a few states reported having registration deadlines that were 10 days or less prior to Election Day, and some states reported having same-day registration. Four states (Alabama, Maine, New Hampshire, and Vermont) reported having registration deadlines that were 10 days or less prior to Election Day. Idaho, Maine, Minnesota, New Hampshire, Wisconsin, and Wyoming reported having Election Day registration at the polling place. Having sufficient staff to process the increased number of voter registration applications was an issue for large local election jurisdictions. On the basis of our nationwide survey, most local jurisdictions (an estimated 89 percent) had a sufficient number of election workers (whether full-time, part-time, or temporary) who were able to enter registration applications in a timely manner. However, we estimate that 11 percent had an insufficient workforce for this task. Large jurisdictions experienced problems with insufficient election workers to enter voter registrations applications more than small and medium jurisdictions did, as shown in figure 16. The difference between large jurisdictions and both medium and small jurisdictions is statistically significant. This difference could be attributable to larger jurisdictions having a greater need for additional staff. Several jurisdictions we visited reported that there was a price to pay for the large volume of registration applications received, such as the need to hire temporary workers or extend the hours of permanent employees in order to process voter registration applications for the November 2004 general election. Election officials in several jurisdictions we visited commented on the financial impact of the temporary workers hired, overtime hours, and the purchase of needed equipment, such as computers. In our September 2005 report on managing voter registration, we noted that all but 1 of the 14 jurisdictions we surveyed faced challenges receiving and processing voter registration applications during the 2004 general election and took various steps to address them. For example, election officials in 7 of the 14 jurisdictions reported challenges checking voter registration applications for completeness, or for accuracy, or for duplicates. At that time, as in our more recent site visits, jurisdictions reported hiring extra staff, among other things, to address these challenges. Providing training to data entry staff and tracking applications provide ways for election officials to manage the flow of applications for processing that can help ensure that voter registration applications are appropriately entered into the voter registration list. As part of our inquiry into the methods jurisdictions used to enter completed registration application data into voter lists, our questionnaire to local election jurisdictions asked how they went about accomplishing this task. On the basis of our survey, we estimate that 76 percent of all local jurisdictions provided training to data entry staff about the processing and inputting of registration applications. Seventy-five percent of small jurisdictions provided this training, 73 percent of medium jurisdictions did so, and 94 percent of larger jurisdictions did so, too. Large jurisdictions are statistically different from both medium and small jurisdictions. Another activity that election officials undertook when entering completed registration applications included tracking incoming registrations. The results of our survey show that over half of local jurisdictions tracked incoming registration applications to ascertain the total number received, the number entered into registration lists, and the number not processed because of omission or application error, and to identify ineligible voters based on age or residence. Again, large jurisdictions are statistically different from both medium and small jurisdictions. Table 2 provides information on the different activities that local election jurisdictions undertake when entering completed registration applications into the official voter registration list. Nongovernmental organizations in many states sponsored voter registration drives for the November 2004 general election in an effort to increase the number of citizens eligible to vote. Voter registration drives pose a dilemma for some election officials. On one hand, voter registration drives provide another means by which persons can apply to register to vote. On the other hand, they pose challenges in assessing the validity of submitted registrations and in processing large numbers of registrations submitted close to the registration deadline. For the November 2004 general election, election officials in some jurisdictions we visited told us they encountered challenges validating and processing the large number of voter registration applications obtained through voter registration drives that employed either paid staff (where workers are paid for each voter registration application completed and submitted to election authorities prior to Election Day) or used volunteers. For example, Wisconsin’s state legislative audit bureau conducted an evaluation of the 2004 general election in its state. It found, among other things, that many registration deputies appointed for the November 2004 general election worked for special interest groups or political parties interested in increasing voter turnout. The evaluation states that investigators found that registration deputies had submitted 65 falsified names for the 2004 general elections and that district attorneys in two counties charged four individuals with submitting fraudulent registration forms. According to the evaluation report, these registration deputies were reportedly paid by their employer on a per registrant basis, which may have encouraged them to submit fraudulent registration forms to increase their compensation. Such questions about the integrity of the voter registration process were of particular concern in battleground states such as Florida, Ohio, and Pennsylvania, where margins of victory were slim and accurate tallies of eligible votes were therefore of consequence. In our state survey several states reported that their state election provisions do not address the issue of voter registration drives that involve payment per application, while relatively fewer states reported prohibiting them outright. Specifically, 19 states and the District of Columbia reported that state laws or executive actions are silent about these drives (that is, it is left up to each local jurisdiction to decide). However, 1 of these 19 states further reported that while its state law does not address voter registration drives that involve payment per application, the conduct of such drives is not left up to each local jurisdiction—the local jurisdictions have no authority in regulating such matters. Sixteen states reported that voter registration drives are allowed either by state law or by executive action, 13 states reported that they are prohibited by state law, and 2 states did not respond. In addition, our nationwide survey of local election jurisdictions inquired about their awareness and handling of registration drives, and any actions taken to deter fraudulent applications from being submitted by persons or groups participating in paid registration drives, and we discussed this matter during our site visits to selected jurisdictions as well. In our nationwide survey, we estimate that 91 percent of all local jurisdictions were not aware of such drives, while 9 percent were aware. About a third (an estimated 32 percent) of the large jurisdictions—those with populations greater than 100,000—were aware of such drives. We also queried local election jurisdictions whether any names on voter registration applications appeared to be fraudulent. On the basis of our local survey, nearly all jurisdictions—an estimated 95 percent—did not have any names that appeared to be fraudulent. Although only 5 percent of local election jurisdictions had voter registration applications that appeared to have fraudulent names, an estimated 70 percent identified receiving 10 fraudulent applications or fewer, an estimated 14 percent identified receiving 10 or more fraudulent applications, and an estimated 16 percent did not know the volume of fraudulent applications received. The distribution of the volume of fraudulent applications received is of a smaller subset of our total sample and therefore has larger confidence intervals than other estimates. Figure 17 shows the extent to which local jurisdictions identified experiencing fraudulent voter registration applications. In addition, our prior work raised concerns about the quality of voter registration applications obtained through voter registration drives. In our September 2005 report on managing voter registration, we reported that among 12 of 14 local jurisdictions we surveyed, processing applications received from voter registration drives sponsored by nongovernmental organizations posed a challenge to election officials because applications were incomplete or inaccurate. During our site visits, we sought local officials’ views on a host of issues related to the integrity of the voter registration process, including how or whether voter registration drive applications were tracked, how many registration applications were submitted by volunteer or paid registration drives in calendar year 2004 leading up to the November election, and how their jurisdictions dealt with irregular applications. (We defined irregular applications as those using fictitious names, unusual dates of birth, nonexistent addresses, or fake signatures or party affiliations.) We also asked election officials whether they had the ability to determine if individuals were using false or fictitious names. Many local jurisdictions that we visited told us that they did not have specific procedures to ensure that voter applications obtained through voter registration drives were collected or tracked. This was because, in some cases, the application forms could simply be downloaded from the Internet. One large jurisdiction that did not track applications coming from various sources told us it planned to begin doing so, using a drop-down menu in its statewide voter registration system that will allow staff to record the information. Overall, at local jurisdictions that we visited where applications from voter registration drives were tracked or at least estimated, the number and proportion of applications submitted through voter registration drives relative to total registrations—and the number and proportion considered irregular—varied widely. For example, in 1 large jurisdiction, election officials reported that approximately 30,000 registrations received in 2004—about 90 percent—were submitted by registration drives. Of these, the election officials estimated that only about 50 applications were irregular—that is, they were unreadable, had questionable signatures, were incomplete, or had invalid addresses. The election official from this jurisdiction noted that it appeared some of the applications had been filled out by individuals who took addresses from the phone book and changed them slightly. In another large jurisdiction in a battleground state, local election officials estimated that 70,000 registration applications were submitted by volunteer or paid registration drives, and here too irregularities were noted—such as fictitious names and fake signatures— but election officials stated that these irregular applications represented a “low” percentage of the total. In other large jurisdictions, fewer voter registration applications were received; 1 jurisdiction, for example, in another battleground state, reported receiving 2,500 such applications and estimated that about 20 percent of them were irregular. Two medium jurisdictions we visited reported receiving a few hundred voter registration applications or fewer, and both reported that there were no irregularities. One small jurisdiction did not report any voter registration drives taking place. When we asked local election officials during our site visits whether they had the ability to determine whether a person actually tried to vote using a false or fictitious name, responses were mixed: Election officials in 3 large jurisdictions we visited told us they did not have the ability to make this determination. An election official in another large jurisdiction stated that “there is no way to know if someone falsely registered has voted.” Others, however, reported that they were able to determine whether false identities had been used. For example, in 1 large jurisdiction, election judges check voter IDs and signatures at the polls to prevent the use of fictitious identities. One large jurisdiction verifies voter registration information against Social Security and driver’s license information and checked voter history internally; election officials in this jurisdiction reported that they believe anyone who attempted to use a false or fictitious name in the November 2004 general election would have been caught. And in another jurisdiction, election officials told us that if an individual attempted to vote using a fictitious name that was not in the poll book, that individual would be issued a provisional ballot—which would not be verified if it was determined that the name was indeed fictitious. Election officials in some jurisdictions we visited said there was no way to know whether the poll book already contained fictitious names. When asked what steps, if any, local jurisdictions we visited took to notify law enforcement or other legal authorities on irregular registration applications received, most reported taking some actions. For example, 1 large jurisdiction we visited reported providing irregular registration applications to the Federal Bureau of Investigation (FBI) and the district attorney’s office and to the Secretary of State’s office for investigation. Both the FBI and the district attorney declined to pursue the matter on the ground that they were understaffed, the jurisdiction reported. The Secretary of State’s office concluded that while the registration applications were fraudulent or fictitious, a purposeful fraud was not committed and that the people completing the fake applications were not trying to alter an election, but to obtain money by working for the registration drives. Four other jurisdictions that we visited said they contacted appropriate state or federal authorities, such as state law enforcement, a State’s Attorney, a state election enforcement agency, or the FBI, but election officials did not know whether any action had been taken. In addition, in our June 2005 report on maintaining voter registration lists, we reported that election officials in seven locations we visited referred reported instances of voter registration fraud allegations to appropriate agencies, such as the district attorney and the U.S. Attorney for investigation. Also, EAC issued voluntary guidance in July 2005 to help states implement HAVA. EAC’s guidance suggested that when the voter registration verification process indicates the possible commission of an election crime, such as the submission of false registration information, such matters should be forwarded to local, state, and federal law enforcement authorities for investigation. When we asked local jurisdictions that we visited whether they had procedures in place for registration groups to follow when submitting applications, election officials in most jurisdictions reported that some type of system was in place to control registration drives. For example, 1 large jurisdiction reported that it had a program to train volunteer field registrars to register citizens on behalf of the county registrar; these field registrars were to comply with all registration rules and laws and must themselves be registered voters, and noncandidates, have proof of identify, complete a 2-hour training course, and pass a brief examination before taking an oath. In addition, this same jurisdiction required that any group requesting more than 50 voter registration forms was required to provide a plan to the state elections department for when, where, and how it would distribute the forms—all of which were numbered so that election offices could track them. Some jurisdictions reported, however, that no procedures were in place that registration groups had to follow. One large jurisdiction, for instance, reported that anyone can run a voter registration drive simply by downloading the voter registration form from the election office Web site. On the topic of what actions, if any, local jurisdictions had taken to deter paid registration drives from submitting fraudulent registration applications, from our nationwide survey, we estimate that roughly half of the estimated 9 percent of local jurisdictions that were aware that paid registration drives were occurring provided training or guidance on how to accurately complete an application, and an estimated 41 percent of these jurisdictions notified the persons or groups engaged in paid registration drives that they had submitted incomplete, inaccurate, or fraudulent applications. In addition, on the basis of our survey, 41 percent of local jurisdictions that were aware of the drives helped prevent submission of incomplete, inaccurate, or fraudulent applications by working with persons and groups engaged in paid registration drives. In a couple of jurisdictions, election officials told us they took other steps, such as meeting with registration drive organizers and contacting the registrant identified on the application, to help prevent fraudulent registrations. A jurisdiction in Colorado reported that numerous complaints had been received from voters who claimed to have completed registrations through a drive but for whom the county had no record of application. The jurisdiction reported that Colorado’s legislature passed a bill pertaining to voter registration drives. Subsequently, Colorado enacted legislation effective in June 2005 that, among other things, requires voter registration organizers to file a statement of intent with the Secretary of State, fulfill training requirements pursuant to rules promulgated by the Secretary of State, and, in general, submit or mail registration applications within 5 business days. In addition, the 2005 state legislation provides that voter registration organizers may not compensate persons circulating voter registration application forms based on the number of applications distributed or collected. The Secretary of State issued rules in November 2005 implementing such requirements, including rules that require registration drive organizers to file a statement of intent with the Secretary of State and require persons circulating such application forms to ensure that the tear-off receipt on the application is completed and given to the applicant. Election officials in 17 jurisdictions we visited told us that they had procedures in place for managing voter registration drives to some extent. For example, in 1 medium jurisdiction, election officials stated that groups or persons seeking to run registration drives must be trained and deputized by the registrar’s office. In 43 of the 50 states and the District of Columbia, successfully registering to vote prior to Election Day is a prerequisite for casting a ballot and having that ballot counted. States are still working to fully implement HAVA’s voter registration requirements. As states gain more experience with their statewide voter registration and data matching systems and processes, it is likely their systems and processes will evolve. Given the continuing challenge of maintaining accurate voter registration lists in a highly mobile society, this is to be expected. For election officials, the voter registration process presents a continuing challenge in balancing ease of registration for eligible voters with sufficient internal controls to help ensure that only eligible voters are added to and remain on the voter registration rolls. To maintain accurate voter registration lists, election officials must use and rely upon data from a number of sources, such as state death and criminal records and applications from MVAs. HAVA’s requirements for creating and maintaining statewide voter registration lists and its identification requirements for first-time voters who register by mail were designed to help improve the accuracy of voter registration lists and reduce the potential for voter fraud. Specifically, HAVA’s requirements for creating and maintaining a statewide voter registration list was designed to improve voter registration list accuracy by identifying duplicate registrations within the state and identifying those ineligible to vote because of death, criminal status, or other reasons. HAVA requires states to match the names and other identifying information on their statewide voter registration lists against death and felony records in the state. States may voluntarily match their voter registration lists with the voter registration lists, death, felony, or other records in other states. In the absence of voluntary cross-state matching, it is possible to fully implement HAVA’s statewide voter registration provisions and still have ineligible persons on the state’s voter registration rolls on Election Day, such as those who died out of state or were convicted in federal courts or other states. Nor would implementing HAVA’s statewide matching requirements identify persons who are registered to vote in more than one state. Although some states report sharing registration and eligibility information among states, the practice was generally limited to neighboring states or dependent upon a registrant indicating that he or she previously resided in another state. HAVA includes a provision that requires certain first-time voters who register by mail to provide identification as proof of their identity and eligibility to vote in the jurisdiction. Which voters must present identification either with their mail application or when they vote for the first time depends upon how states and local jurisdictions define “mail registrations” subject to HAVA’s identification requirement. In our site visits, we found that some local jurisdictions considered registration applications submitted by registration drives to be mail registrations subject to HAVA’s identification requirement for first-time voters, while other jurisdictions did not consider such registrations to be mail registrations subject to the identification requirement. This distinction has importance on Election Day for first-time voters who registered through registration drives. In those jurisdictions that considered mail registrations to include registration drive applications, first-time voters who registered through registration drives would be required to show an acceptable form of identification at the polls on election day. If they did not do so, they are to be permitted to cast a provisional ballot, but the ballot would only be counted upon a state determination that the voter is eligible to vote under state law. In contrast, in those jurisdictions that did not consider mail applications to include those submitted through registration drives, first- time voters would not be treated as subject to the HAVA identification requirement and could generally cast a regular ballot that would be counted with all other regular ballots. Election jurisdictions continue to face challenges in obtaining voter registration applications from NVRA entities, including MVAs. Some local jurisdictions have established processes to manage receipt of voter registration applications from these entities, such as training for staffs of these agencies. To the extent that NVRA entities do not track and forward to the appropriate election jurisdiction the voter applications that they have received, voters may be required to cast provisional ballots instead of regular ones because their names do not appear on the voter registration lists. In addition, the provisional ballot will not be counted if the voter’s valid registration cannot be verified. Our survey of local election jurisdictions found that many local jurisdictions encountered problems counting provisional ballots in cases where voters claimed to have registered at an MVA or some other NVRA entity but there was insufficient evidence that the voter had submitted a registration application at the MVA or NVRA entity. A surge of last-minute registrations in many jurisdictions prior to the November 2004 election illustrated the challenge of balancing ease of registration with assurance that only eligible voters are on the registration rolls. Some election jurisdictions reported registration drive groups submitted hundreds or thousands of applications just before the registration deadline. When the registration deadline is close to Election Day, processing these applications presents a tremendous challenge in checking applications for completeness, having time to contact applicants to obtain missing information, verifying applicants’ eligibility to vote, and adding the name of eligible voters to the registration list. Some jurisdictions reported hiring and training temporary employees to process the applications. The enormous workload and time constraints associated with processing large numbers of last-minute applications can increase the chances that errors will be made in determining voter eligibility, and the names of some eligible voters may not be added to the list in time for Election Day. A growing number of citizens seem to be casting their ballots before Election Day using absentee and early voting options that are offered by states and local jurisdictions. However, circumstances under which these voters vote and the manner in which they cast their ballots before Election Day differ because there are 51 unique election codes. Because of the wide diversity in absentee and early voting requirements, administration, and procedures, citizens face different opportunities for obtaining and successfully casting ballots before Election Day. To collect information about absentee and early voting options, in our state and local surveys we asked questions about each of these voting options separately. We defined absentee voting as casting a ballot, generally by mail, in advance of Election Day (although ballots could be returned through Election Day and dropped off in person). We defined early voting as generally in-person voting in advance of Election Day at specific polling locations, separate from absentee voting. However, there is some measure of overlap between absentee voting and early voting reported by the states, especially where states have reported in-person absentee voting to be, in effect, early voting. This may be due, in part, to the fact that the relational statutory framework for early voting and absentee voting varies among the states—with some states, for example, providing early voting within the context of the state’s absentee voting provisions, while others, for example, provide for absentee voting within the context of the state’s early voting provisions. Similarly, local jurisdictions that completed our survey may also have had some measure of overlap in relation to their practices for absentee and early voting. During our interviews with local election officials in jurisdictions that offered early voting, we were able to obtain more detailed information about absentee and early voting procedures and practices for those jurisdictions. On the basis of our site visits to jurisdictions that had early voting, absentee and early voting were similar in some ways and distinct in others. Election officials described to us that when voters cast absentee ballots, they typically followed a specific process including applying for and receiving the ballot and returning their marked ballots before Election Day or, in some cases, returning the ballot up until the close of polls on Election Day. According to the description that election officials gave us, early voting was distinct from in-person absentee voting in that in-person absentee voters usually applied for and received a ballot, and cast it at the registrar’s office, while early voters reported to a voting location where early voting staff verified their eligibility to vote, usually by accessing the jurisdiction’s voter registration list. Also, early voting usually did not require citizens to provide an excuse, as some states required for absentee voting, and it was usually allowed for a shorter period of time than absentee voting. For example, in the 14 jurisdictions we visited in 7 states that reported having early voting, the time frame allowed for absentee voting was almost always at least twice as long as that for early voting (e.g., Colorado allowed 30 days for absentee voting and 15 days for early voting). Early voting was similar to Election Day voting in that the voting methods were usually the same. However, according to election officials in jurisdictions we visited that had early voting, voters were not limited to voting in their precinct because all early voting locations had access to a complete list of registered voters for the jurisdiction (not just precinct specific) and had appropriate ballots that included federal, state, and precinct-specific races. Appendix VII provides a description of selected characteristics of the early voting jurisdictions we visited. In this chapter, we will discuss changes since 2000 and challenges related to (1) absentee voting in general, (2) overseas military and civilian absentee voting, and (3) early voting. Some states have increased the opportunities for citizens to vote absentee or early. For the November 2004 general election, 21 states reported that they no longer required voters to provide excuses such as being ill, having a disability, or being away from the precinct on Election Day to vote absentee—an increase of 3 states from the November 2000 general election. Three states reported expanding their provision for permanent absentee status (usually reserved for the elderly or those with disabilities), allowing voters to receive absentee ballots for a state-specified time period, such as 4 years. One state reported eliminating its requirement that mail-in absentee voters provide an attestation from a notary or witness for their signature along with the completed absentee ballot. Eliminating the need for a notary or witness removes a potential barrier to an absentee ballot being counted. According to election officials in 2 jurisdictions in 1 state we visited that required a notary or witness signature, an absentee ballot may not be counted if voters neglect to have their ballots witnessed or notarized. Furthermore, HAVA amended the Uniformed and Overseas Citizens Absentee Voting Act (UOCAVA) to, among other things, extend the period of time that can be covered by a single absentee ballot application by absent uniformed service voters and certain other civilian voters residing outside of the United States from the year during which the application was received to a time period covering up to the two next regularly scheduled general elections for federal office. Election officials reported facing some of the same challenges in the November 2004 general election that they had identified to us for the November 2000 general election, and they also reported some new challenges. Continuing absentee voting challenges included (1) receiving late absentee voter applications and ballots; (2) managing general workload, resources, and other administrative constraints; (3) addressing voter error issues such as unsigned or otherwise incomplete absentee applications and ballot materials; and (4) preventing potential fraud. Election officials also told us that they encountered new challenges in the November 2004 general election. Some election officials said that the increased early voter turnout during this election resulted in long lines. In some local jurisdictions we visited, election officials said that factors such as inadequate planning on their part, limitations on types of facilities that could be used for early voting locations, and funding constraints on hiring more staff or acquiring more voting locations affected their management of large early voter turnout. In addition, some election officials reported that they encountered a challenge handling disruptive third parties as they attempted to approach early voters who were in line to vote. Another challenge could develop as a result of a 2002 HAVA amendment to UOCAVA. In an effort to help make registration and voting easier for absent uniformed service voters and certain other civilian voters residing outside of the United States, this 2002 amendment, as noted above, extended the period of time that can be covered by a single application from the year during which the application was received to a time period covering up to the next two subsequent general elections for federal office. Election officials in 4 jurisdictions we visited told us that a possible unintended consequence of this amendment could be that when uniformed services personnel are reassigned to other duty posts, absentee ballots may not be sent to the correct address for subsequent general elections. Even with a 2005 revision to the ballot request form whereby voters can indicate that they want ballots for one federal election only, election officials in 3 of these jurisdictions were concerned many absentee ballots would be returned as undeliverable. Absentee voting allows citizens the opportunity to vote when they are unable to vote at their precinct on Election Day. Although availability, eligibility requirements, administration, and procedures vary across the 50 states and the District of Columbia, absentee voting generally follows a basic process. As figure 18 shows, this process included four basic steps for the November 2004 general election. Jurisdictions we visited typically provided absentee ballot applications that registered voters used to request absentee ballots in a standard state or jurisdiction form, as shown in figure 19. According to our state survey, state election officials reported that registered voters could visit or write their local election office, or in some cases visit a state or local election Web site, to obtain an application or learn what information was required to request an absentee ballot. State election officials reported registered voters could return a completed absentee ballot application via the U.S. mail or in many other different ways as allowed by state absentee ballot provisions. Also, some election officials in jurisdictions we visited told us that voters could complete any part of the absentee voting process in person at their local elections office. Table 3 shows the various options allowed by states for requesting and returning absentee ballot applications. However, it is important to note that particular local jurisdictions might not have offered all of the options described below. According to our state survey results, states reported that applicants could find out the status of their absentee ballot application after it was submitted and offered at least one of several ways, including telephoning a state or local jurisdiction office, telephoning a hotline or toll-free number, or e-mailing a state or local jurisdiction office. For example, in 49 states and in the District of Columbia, applicants could telephone a state or local jurisdiction office, and in 47 states and in the District of Columbia, applicants could e-mail a state or local jurisdiction office to find out their absentee ballot applications’ status. Thirty-nine states and the District of Columbia notified the applicant if the application was rejected. While absentee ballots are generally provided to the voter through the mail, unless voting in person, on the basis of our survey of a representative sample of local jurisdictions nationwide, some jurisdictions provided absentee ballots using fax and e-mail. Specifically, for the November 2004 general election, we estimate that 17 percent of local jurisdictions provided absentee ballots by fax, and 4 percent of local jurisdictions provided absentee ballots by e-mail. On the basis of our discussions with election officials in jurisdictions we visited, absentee ballots are generally returned through the mail. Election officials in most jurisdictions we visited said that voters used a combination of envelopes for returning completed absentee ballots so that voters’ indentities would be distinct from the ballots they were casting. For example, a voter would place the completed ballot in a secrecy (inner) envelope, which would then be placed in an outer envelope. The secrecy envelope would be to ensure that the voted ballot was not linked to the voter, while the voter’s affidavit information, such as a name, address, and signature, needed to certify that the voter was eligible to vote, would be marked on the outer envelope. Election officials in some jurisdictions provided examples of the envelopes used to return absentee ballots. One of these examples had a separate affidavit envelope, which was to be placed in a pre-addressed return envelope and mailed to the local elections jurisdiction. Other examples allowed the voter to include the affidavit information on the back of the pre-addressed return envelope. Once the local elections jurisdiction certified that the absentee ballots could be counted using the affidavit information, election officials in jurisdictions we visited told us that they removed the secrecy envelope (with the voted ballot sealed inside) and set it aside for counting. Figure 20 shows examples of absentee ballot return envelopes and the inclusion of affidavit information. In our survey of state election officials, we asked whether absentee voters were able to find out the status of their submitted absentee ballots in various ways. According to our state survey, 44 states and the District of Columbia reported that absentee voters were able to telephone a state or local jurisdiction office, 32 states and the District of Columbia reported that absentee voters were able to e-mail a state or local jurisdiction office, 16 states reported that absentee voters could telephone a hotline or toll- free number, and 5 states reported that absentee voters’ ballot status was available via a Web site. Furthermore, 16 states reported that either state or local jurisdictions would notify the voter if the absentee ballot was not counted. However, 6 states reported that they do not allow voters to check the status of their absentee ballots at all. For example, Vermont reported that state law does not allow voters to find out whether or not the absentee ballot was counted. Kentucky reported that it does not track whether or not an individual voter’s ballot was counted because linking a voted ballot back to a specific voter violates that voter’s right to a secret ballot. A few states reported changes to their requirements with respect to absentee voting by (1) no longer requiring a reason or excuse for voting absentee; (2) eliminating the need for a mail-in absentee voter to have a notary or witness for the voter’s signature to accompany the ballot; and (3) not limiting permanent absentee voting status to individuals with disabilities or the elderly. According to our state survey regarding the November 2004 general election, all 50 states and the District of Columbia had some provisions allowing registered voters to vote before Election Day, but not every registered voter was eligible to do so. Twenty-one states reported allowing voters to vote absentee for the November 2004 general election without first having to provide a reason or excuse. The other 29 states and the District of Columbia reported requiring voters to meet one of several criteria, or “excuses,” to be eligible to vote before Election Day, such as having a disability, being elderly, or being absent from the jurisdiction on Election Day. The following are examples of excuses that some states required: absent from the state or county on Election Day; a member of the uniformed services or a dependent; a permanent or total disability; ill or having a temporary disability; over a certain age, such as 65; at a school, college, or university; employed on Election Day in a job for which the nature or hours prevent the individual from voting at his or her precinct, such as an election worker; and involved in emergency circumstances, such as the death of a family member. In our survey of local jurisdictions, we asked about problems encountered when processing absentee ballot applications. As shown in figure 21, we estimate that 9 percent of local jurisdictions received absentee applications that did not meet the excuse required by law, in states where excuses were required. The issue of applicants not meeting the required excuse is more of a problem for large jurisdictions than small or medium jurisdictions. According to our state survey, the number of states that allowed absentee voting without an excuse increased from 18 in 2000 to 21 in 2004. Since November 2004, 2 more states reported that they have eliminated their excuse requirement. Specifically, during visits to local jurisdictions in New Jersey, election officials told us that state law had changed since the November 2004 general election. According to these officials, no-excuse absentee voting was adopted by the New Jersey legislature and became effective in July 2005. Ohio also amended its absentee voter provisions, effective January 2006, to provide for no-excuse absentee voting. Election officials in 2 jurisdictions in 1 state we visited told us that if voters returned a completed (voted) ballot without having the signature notarized or affirmed by a witness, the vote would be disqualified and not counted. For the November 2004 general election, according to our state survey, 12 states reported requiring that mail-in absentee ballots contain attestation by a notary or witness for a voter’s signature to accompany the absentee ballot. From the November 2000 election to the November 2004 election, Florida was the only state that reported in our state survey that it had dropped the requirement that mail-in absentee ballots contain attestation by a notary or witness for a voter’s signature. Permanent absentee voting, which typically was available to individuals with disabilities or the elderly, was another way some states sought to help enfranchise certain categories of voters. Permanent absentee status, where offered, generally allowed the voter to apply for mail-in absentee ballots once (rather than for each separate election) over a specified time period. State requirements dictated when and how often a voter must apply for permanent absentee status. For example, for the November 2004 general election, in a New Jersey jurisdiction that we visited, election officials told us that state law required those eligible for permanent absentee status to apply at the beginning of the calendar year to receive absentee ballots for that year. According to the absentee ballot application provided by this jurisdiction, a voter’s permanent absentee status remains in effect throughout that year unless the voter notifies the election office otherwise. An election official in a Pennsylvania jurisdiction we visited said that his state allowed permanent absentee voters to apply once every 4 years. In this state, permanent absentee voters were to receive absentee ballots for all elections during the 4-year period, according to the election official. In 2 Washington jurisdictions we visited, election officials told us that any voter could qualify for permanent absentee status for all future elections (e.g., no time period specified). In one of these Washington jurisdictions, election officials provided a copy of the permanent absentee application instructing voters that their permanent absentee status would be terminated upon the (1) voter’s written request, (2) cancelation of the voter’s registration record, (3) death or disqualification, or (4) return of an ongoing absentee ballot as undeliverable. Our state survey results showed that since the November 2000 general election, 3 states (California, Rhode Island, and Utah) reported state changes that expanded, in some manner, the use of permanent absentee voting. For example, California, reported changes for the November 2004 election that allowed any voter to apply for and receive permanent absentee status. For the November 2000 general election, California previously reported that only certain categories of voters with disabilities (e.g., blind voters) were eligible for permanent absentee status. Overall, the results of our state survey showed that at the time of the November 2004 general election, 17 states reported having some provision for permanent absentee status, 32 states and the District of Columbia reported that they did not provide for permanent absentee status, and Oregon reported conducting its election entirely by mail—making permanent absentee status unnecessary in this state. Appendix VIII provides information on states’ requirements for no-excuse absentee voting and witness or notary signature provisions for the November 2000 and 2004 general elections and shows where changes occurred. States did not report any changes to their permanent absentee requirements since the November 2000 general election. The results from our state survey show that deadlines for voters to both apply for absentee ballots and return them to local jurisdictions to be counted differed among states. According to our state survey for the November 2004 general election, 47 states and the District of Columbia reported that they had absentee ballot application deadlines that ranged from Election Day (5 states: Connecticut, Maine, New Jersey, Ohio, and South Dakota) to 21 days before Election Day (Rhode Island). Three states (Florida, New Hampshire, and Oregon) reported having no absentee ballot application deadline, although ballots in these states had to be returned by the close of polls on Election Day. With respect to state deadlines for returning absentee ballots, many states reported having more than one deadline to correspond with differing methods of returning such ballots to election officials. In our state survey, 44 states reported having provisions requiring that absentee ballots be returned by or on Election Day; 7 states reported having provisions requiring that absentee ballots be returned a certain number of days before Election Day; and 8 states and the District of Columbia reported having provisions allowing mailed absentee ballots to be returned a certain number of days after Election Day, if such ballots were postmarked by a specified date. For example, for the 2004 November general election, Alaska reported two deadlines: (1) mail-in absentee ballots were to be received by close of business on the 10th day after the election when postmarked on or before Election Day, and (2) in-person absentee ballots were to be delivered by 8:00 p.m. on Election Day. Also, according to our state survey, Nebraska reported that for absentee ballots returned by mail, the deadline changed from no later than 2 days after Election Day for the November 2000 general election to the close of polls on Election Day for the November 2004 general election. According to our state survey, these deadlines may be different for absent uniformed service voters and certain other civilian voters residing outside the United States, a subject that will be discussed later in this chapter. In our October 2001 comprehensive report on election processes, we reported that election officials for the 2000 general election identified receiving applications and ballots after state statutory deadlines as a challenge. According to our nationwide survey, local jurisdictions encountered similar problems with processing absentee ballot applications and absentee ballots for the November 2004 general election. More specifically, on the basis of our survey, we estimate that 55 percent of local jurisdictions received absentee ballot applications too late to process. We also estimate 77 percent of local jurisdictions encountered problems in processing absentee ballots because ballots were received too late. Furthermore, we asked jurisdictions about which problems were encountered most frequently. An estimated 25 percent of local jurisdictions encountered the ballot lateness problem most frequently. Figure 22 shows that medium and large jurisdictions encountered lateness with absentee ballots more than small jurisdictions did. Appendix VIII summarizes states’ deadlines for receiving domestic mail-in absentee ballot applications and absentee ballots. Election officials in the local jurisdictions we visited told us that they tried to approve applications and mail absentee ballots to voters as quickly as possible, assuming that the ballots had been finalized and printed. In 8 jurisdictions we visited in 5 states (Colorado, Kansas, New Mexico, Pennsylvania, and Washington), election officials said that their states mandated that local election jurisdictions process absentee ballot applications within a specified time period, such as within 24, 48, or 72 hours of receipt of the application. In 2 Pennsylvania jurisdictions we visited, election officials stated that they established a local policy encouraging election staff to process absentee ballot applications faster (such as on the day of receipt) than the time period specified in state law (which was 48 hours). In 1 Illinois and 1 Nevada jurisdiction we visited, election officials said that while a 24- or 48-hour turnaround time for absentee ballot applications was not mandated in state law, local office policy was to process them as quickly as possible—such as within 24 hours of receipt of the application. During our site visits, election officials in 9 jurisdictions stated that they received large numbers of mail-in absentee ballot applications just prior to the deadlines prescribed by state law. Most of these election officials said they were able to meet their state-mandated or office policy application- processing time, although they had to work long hours and hire additional staff to process the absentee ballot applications by the deadline. In 1 Florida jurisdiction we visited, local election officials said that even though they had no absentee ballot application deadline, they processed applications using “long hours and extra people” and tried to send out absentee ballots within 24 hours of receiving a complete application. In jurisdictions we visited in Pennsylvania and Colorado, election officials said that sometimes the 24- or 48-hour turnaround was impossible to meet because the state did not finalize the ballots for printing until the days immediately preceding Election Day for the November 2004 election. For example, an election official in the Pennsylvania jurisdiction we visited told us that determining whether or not an independent presidential candidate’s name was to be included on the November 2004 general election ballot proved to be a challenge. In this jurisdiction, the validity of petition signatures supporting the independent candidate’s request to be included on the ballot was challenged in state court about 10 weeks before the election. As a result, according to the election official, election officials were required to participate in a court-mandated process of verifying the signatures. According to the election official, it took about 10 days in court to resolve the situation, which delayed the printing of the ballots. In 6 jurisdictions we visited, election officials told us that slowness in the delivery of the mail added to the processing time crunch during the week before Election Day—a problem that is out of election officials’ control and may contribute to the local election officials’ receipt of absentee voting materials after state-mandated deadlines. Although envelopes can use an “official election mail” designation, election officials in these 6 jurisdictions we visited said that the U.S. Postal Service did not always process absentee voting materials in a timely manner. For example, in one New Mexico jurisdiction we visited, election officials stated that they experienced serious problems with the U.S. Postal Service delivering absentee ballot applications. These officials felt that the post office ignored the envelopes’ official election mail designation and did not process and deliver them quickly. Election officials in this jurisdiction said that their telephone system crashed numerous times leading up to Election Day in November 2004, given the heavy volume of incoming calls from voters checking on the status of their absentee ballot applications. In one Pennsylvania jurisdiction that we visited, election officials said that postal concerns were raised when some college students’ absentee ballot applications were received after Election Day. These officials could not definitely say at what point these applications might have been delayed and explained that the mail delivery delay could have been attributable to either the U.S. Postal Service or the university’s mailing center. Figure 23 illustrates the use of special postal markings for absentee ballot materials. While election officials in 6 jurisdictions we visited told us about challenges with mail delivery, election officials in 7 jurisdictions we visited told us that they did not have problems with mail delivery or coordinating with the U.S. Postal Service. In an Illinois jurisdiction we visited, election officials told us that prior to the election, staff from his office met with the postmaster to establish a good working relationship. Election officials in a New Hampshire and Ohio jurisdiction we visited stated that the post office was very helpful. In a Nevada jurisdiction we visited election officials said that they received excellent service from the postal service. When an absentee application was received after the state-mandated deadline, election officials in 13 jurisdictions we visited told us that they often sent these applicants a letter explaining that their application was received too late. In 5 of these same jurisdictions, election officials said they also provided an alternative to absentee voting such as early voting, voting on Election Day, or in-person absentee voting, where the voter could visit the election office and complete the absentee voting process in person. In our October 2001 report on election processes, we reported that election officials for the 2000 general election identified voters’ failure to provide critical information, with respect to signatures and addresses, as challenges to successfully processing mail-in absentee applications and verifying ballots for counting. According to our nationwide survey for the November 2004 election, local jurisdictions encountered similar voter errors that could affect the jurisdictions’ ability to establish voter eligibility or approve the ballot for counting when processing absentee ballot applications and absentee ballots. In our nationwide survey, we asked local jurisdictions what problems they encountered in processing absentee ballot applications. We estimate that 48 percent of them identified problems receiving absentee ballot applications that contained a missing or illegible voter signature. Furthermore, we asked about which problems were encountered most frequently. An estimated 20 percent of local jurisdictions encountered the problem of receiving absentee ballot applications that contained a missing or illegible voter signature most frequently. Table 4 shows our estimates of the types of voter errors local jurisdictions encountered with absentee ballot applications submitted for the November 2004 general election. On the basis of our nationwide survey, large jurisdictions had more of a problem than small or medium jurisdictions concerning missing or illegible signatures. Specifically, we estimate that 73 percent of large jurisdictions encountered this problem, while we estimate 44 percent and 55 percent of small and medium jurisdictions respectively encountered it. Large jurisdictions are statistically different from medium and small jurisdictions. When elections officials were unable to process absentee ballot applications, our nationwide survey showed that some local jurisdictions contacted applicants to inform them of the status of their application using the methods listed in table 5. Specifically, on the basis of our survey of local jurisdictions, we estimate that 72 percent of all jurisdictions telephoned applicants when their absentee applications could not be processed. We found no significant difference based on the size of the jurisdiction with regard to this contact method. However, we estimate that 84 percent of medium jurisdictions and 90 percent of large jurisdictions contacted absentee applicants by U.S. mail. In contrast, 63 percent of small jurisdictions contacted absentee applicants with problem applications via U.S. mail. Small jurisdictions are statistically different from medium and large jurisdictions. We also estimate that 10 percent of local jurisdictions did not inform any applicants about the status of their application. In an Illinois jurisdiction that we visited, elections officials told us that they would do everything possible in an attempt to obtain complete absentee applications from voters. If the absentee ballot application was incomplete, election office staff said they contacted the voter and attempted to resolve the problem in the best way practical, according to the election officials. For example, if the application was missing the voter’s signature and there was enough time, the staff mailed the application back to the voter for signature. If time was limited, the staff called the voter and asked him or her to visit the election office to sign the application. An election official in a Pennsylvania jurisdiction we visited told us that if applicants forgot to include one part of an address, such as a ZIP code, but election staff could match the rest of the address and voters’ identifying information with their registration information, the application was approved. Election officials in another Pennsylvania jurisdiction and a Nevada jurisdiction told us that the voter registration system automatically generated letters to voters when the application could not be processed for any reason. In our nationwide survey, we asked local jurisdictions what problems they encountered in processing submitted absentee ballots. We estimate that 61 percent of all jurisdictions reported that absentee ballots were received without the voter’s signature on the envelope. We estimate 54 percent of small jurisdictions, 76 percent of medium jurisdictions, and 90 percent of large jurisdictions encountered this problem. Jurisdictions of all sizes are statistically different from one another. Table 6 shows our estimates of the types of problems election officials encountered on absentee ballots. We estimate that 81 percent of local jurisdictions encountered at least one of the problems listed. If the ballot was not able to be verified, election officials in some jurisdictions we visited told us that they attempted to contact the voter, time permitting, so that the affidavit envelope could be corrected and approved for counting. In 10 jurisdictions we visited, election officials said that they reviewed the affidavit envelope information to approve the ballots as they received them rather than waiting until Election Day. On the basis of our nationwide survey, we estimate that 40 percent of local jurisdictions contacted the voter by mail in an attempt to address a problem with the affidavit envelope, and 39 percent contacted the voter via telephone. Table 7 shows our estimates of the contact methods used by local jurisdictions when absentee ballots had problems that could prevent them from being approved for counting if not corrected. Differences in whether voters were contacted by mail when there were problems with their absentee ballots were based on the size of the local elections jurisdiction. Specifically, we estimate that 31 percent of small, 61 percent of medium, and 66 percent of large jurisdictions contacted voters by mail. Small jurisdictions are statistically different from medium and large jurisdictions. While election officials in 10 jurisdictions we visited told us that they qualified absentee ballots prior to Election Day—allowing them time to follow up with voters, in 6 local jurisdictions we visited, election officials told us that they qualified or approved absentee ballots for counting on Election Day. According to election officials in these jurisdictions, contacting the voter for corrected or complete ballot information was not a viable option because there was not enough time. These election officials stated that absentee ballots with incomplete or inaccurate information on the affidavit envelope would not be qualified or counted. Some election officials in jurisdictions we visited told us that voters can visit local election offices and complete all or part of the absentee process in person. Some election officials told us that when voters vote in-person absentee, officials are well situated to help ensure that the application and ballot are complete and accurate before accepting them. For example, in one Connecticut jurisdiction we visited, election officials told us that they did not have incomplete absentee ballot applications from voters who visited the office in person because they reviewed the application and required the person to correct any errors before leaving. In our October 2001 report on election processes, we reported that election officials for the 2000 general election had concerns with mail-in absentee voting fraud, particularly regarding absentee voters being unduly influenced or intimidated while voting. However, we also reported that election officials identified that they had established procedures to address certain potential for fraud, such as someone other than the registered voter completing the ballot or voters casting more than one ballot in the same election. Once the voters received and voted absentee ballots in accordance with any state or local requirements (such as providing a signature or other information on the affidavit envelope), such ballots were to be returned to specified election officials. In general, local election officials or poll workers were to review the information on the affidavit envelope and subsequently verified or disqualified the ballot for counting based on compliance with these administrative requirements, according to election officials in some local jurisdictions we visited. In our state survey, we asked states whether they specified how local jurisdictions were to determine eligibility of absentee ballots. According to our survey, 44 states and the District of Columbia reported that at the time of our survey, they specified how to determine absentee ballot eligibility, while 6 states reported that they did not. Colorado, for example, specified that the poll worker is to compare the signature of the voter on a self- affirmation envelope with a signature on file with the county clerk and recorder. Wisconsin specified, among other things, that inspectors ascertain whether a certification has been properly executed, if the applicant is a qualified elector of the ward or election district, and that the voter has not already voted in the election. Our survey of local elections jurisdictions asked election officials if they used any of the procedures described in table 8 to ensure that the absentee voter did not vote more than once for the November 2004 general election. These procedures could have been conducted either manually by elections officials or through system edit checks. On the basis of our survey of local jurisdictions, we estimate that 69 percent of jurisdictions checked the Election Day poll book to determine whether the voter had been sent an absentee ballot, and 68 percent of jurisdictions checked the Election Day poll book to determine whether the voter had completed an absentee ballot. On our survey of local jurisdictions, we also asked if any of the procedures listed in table 9 were in place to ensure that the absentee ballots were actually completed by the person requesting the ballot. On the basis of our survey of local jurisdictions, we estimate that 70 percent of jurisdictions compared the absentee ballot signature with the absentee application signature. With respect to comparing the absentee ballot application signature with the absentee ballot signature, there were differences based on the size of the jurisdiction. On the basis of our survey of local jurisdictions, we estimate that 72 percent of small, 69 percent of medium, and 40 percent of large jurisdictions compared these signatures. Large jurisdictions are significantly different from small and medium jurisdictions. One reason that large jurisdictions may differ is that they have a large volume of absentee ballots to process and it may be too resource intensive to compare signatures, among other things. During our site visits, elections officials provided examples of the procedures they used to ensure against fraud. For example in 20 local jurisdictions that we visited, election officials said that when the ballot signature was compared with the absentee application signature, voter registration signature, or some other signature on file, the signatures had to match for the ballot to be approved and counted. In addition to matching signatures, election officials in 2 Illinois jurisdictions and 1 New Jersey jurisdiction we visited told us that during the Election Day absentee ballot qualification process, poll workers were instructed to check the poll book to determine if the voter had cast an Election Day ballot. In 1 of these Illinois jurisdictions, if poll workers found both an Election Day and absentee ballot were cast, they were instructed to void the absentee ballot so that it would not be counted. In addition to matching signatures, election officials in a Nevada jurisdiction we visited said that they used an electronic poll book to manage absentee, early, and Election Day voting to ensure that voters cast only one ballot. Once a ballot was cast in this jurisdiction, the electronic poll book was annotated and the voter was not allowed to cast another ballot. Although election officials in the 20 jurisdictions mentioned above told us that they had procedures in place designed to help prevent fraud during the absentee voting process, election officials told us that they still suspected instances of fraud. For example, in a Colorado jurisdiction we visited, election officials told us that they referred 44 individuals who allegedly voted absentee ballots with invalid signatures to the district attorney for investigation. In a New Mexico jurisdiction that we visited, election officials told us that organized third parties went door to door and encouraged voters to apply for absentee ballots. Once these voters received their ballots, according to election officials, the third parties obtained the voters’ names (in New Mexico this is public information, according to such officials), and went to the voters’ homes and offered to assist them in voting the ballots. These election officials said that they were concerned that the latter part of this activity might be intimidating to voters and could result in voter fraud. In general, the Uniformed and Overseas Citizens Absentee Voting Act requires, among other things, that states permit absent uniformed services members and U.S. citizen voters residing outside the country to register and vote absentee in elections for federal office. In addition, states also generally offer some measure of absentee voting for registered voters in their states not covered under UOCAVA. The basic process for absentee voting under UOCAVA is generally similar to that described in figure 18 for absentee voters not covered under UOCAVA in that UOCAVA voters also must establish their eligibility to vote on their absentee ballot application, and the ballot must be received by the voter’s local jurisdiction to verify it for counting. Election officials in some jurisdictions we visited told us that they allow UOCAVA voters to submit a voted ballot via facsimile—a method that might not be allowed for absentee voters not covered under UOCAVA because of concerns about maintaining ballot secrecy. In 6 jurisdictions we visited, election officials told us that they require voters under UOCAVA to submit a form acknowledging that ballot secrecy could be compromised when ballots are faxed. One mechanism used to simplify the process for persons covered by UOCAVA to apply for an absentee ballot is the Federal Post Card Application (FPCA), which states are to use to allow such absentee voters to simultaneously register to vote and request an absentee ballot. On our survey of local jurisdictions, we asked if any problems were encountered in processing absentee applications when the applicant used the FPCA. We estimate that 39 percent of local jurisdictions received the FPCA too late to process—a problem also encountered with other state-provided absentee ballot applications. Table 10 shows our estimates of problems local jurisdictions encountered when processing Federal Post Card Applications. In addition, we asked about which problems were encountered most frequently when the FPCA was used, and an estimated 19 percent of local jurisdictions encountered the problem of receiving the FPCA too late to process more frequently than other problems. Also, uniformed services voters and U.S. citizen voters residing outside of the country are allowed to use the Federal Write-In Absentee Ballot to vote for federal offices in general elections. This ballot may be used when such voters submit a timely application for an absentee ballot (i.e., the application must have been received by the state before the state deadline or at least 30 days prior to the general election, whichever is later) but do not receive a state absentee ballot. Some states’ absentee ballot application forms included serving in a uniformed service or residing outside the country as excuses for voting absentee. According to our state survey, 4 states (Minnesota, Missouri, Oklahoma, and Rhode Island) reported that they require attestation by a notary or witness for a voter’s signature on voted mail-in absentee ballots but do not require uniformed service voters and U.S. citizen voters outside the country to provide this on their voted ballots. For the 2004 November general election, according to our state survey, 9 states reported having absentee ballot deadlines for voters outside the United States that were more lenient than the ballot deadlines for voters inside the United States. Table 11 lists these 9 states and the difference between the mail-in ballot deadline from inside the United States and the mail-in absentee ballot deadline from outside the United States. HAVA amended the UOCAVA to, among other things, extend the period of time that can be covered by a single absentee ballot application—the Federal Post Card Application—by absent uniformed service voters and citizen voters residing outside the United States from the year during which the application was received to a time period covering up to the two next regularly scheduled general elections for federal office. To illustrate, if uniformed service voters or civilian voters residing outside the United States submitted a completed FPCA in July 2004, they would have been allowed to automatically receive ballots for the next two federal general elections, including those held in 2004 and 2006. (See fig. 24 for an example of the FPCA used in 2004.) In 4 local jurisdictions we visited, election officials told us that the amendment described above may present a challenge for successfully delivering absentee ballots to the uniformed services members because they tend to move frequently. For example, in a North Carolina jurisdiction that we visited, election officials stated that addresses on file for such voters at the time of the November 2004 general election may be no longer correct and that mail sent to these voters could be returned as undeliverable. Also, in 1 jurisdiction in Georgia that we visited, election officials told us that they were concerned that many of the absentee ballots sent in subsequent general elections would be returned as undeliverable. In an Illinois jurisdiction we visited, elections officials expressed concerns about paying the postage for mail that may be undeliverable will be a challenge in future years. Also, we noted in our March 2006 report on election assistance provided to uniformed service personnel, that one of the top two reasons for disqualifying absentee ballots for UOCAVA voters was that the ballots were undeliverable. The Federal Post Card Application was revised in October 2005, after the November 2004 general election, and now allows overseas military and civilians to designate the time period for which they want to receive absentee ballots. (See figure 24 for the revised FPCA.) Those who do not wish to receive ballots for two regularly scheduled general elections can designate that they want an absentee ballot for the next federal election only and then complete the form and request a ballot for each subsequent federal election separately. The FPCA used at the time of the November 2004 election did not allow overseas military and civilian voters to make this designation. Even with the revised FPCA, some applications might not have this box checked, and jurisdictions could continue to have absentee ballots returned as undeliverable. In an attempt to mitigate these problems, election officials in 3 local jurisdictions we visited told us that they planned several activities in an attempt to maintain and update the addresses of uniformed services voters and civilian voters residing outside the country. In a Washington jurisdiction we visited, election officials told us that they began requesting e-mail addresses from such voters so that any problems with these applications or ballots could be corrected more efficiently. In previous elections, when e-mail addresses were not available, elections officials in this jurisdiction told us that many absentee applications and ballots sent to uniformed services members and civilian voters residing outside the United States were often returned as undeliverable. In a Georgia jurisdiction that we visited, election officials said that they planned to create a subsystem within their voter registration system. This subsystem will, according to the election officials, allow staff in the election office to produce a form letter for each uniformed services voter that will verify the voter’s current address. The election officials also told us letters will be mailed in January asking the voter to contact the jurisdiction to confirm that he or she continues to reside at the address on the letter. If the jurisdiction does not receive confirmation from the uniformed services voter, the election officials told us that they will contact the Federal Voting Assistance Program (FVAP) for assistance in locating the voter. In an Illinois jurisdiction we visited, election officials stated that they plan to canvass all uniformed services members and civilians residing outside the United States who are registered in the state in 2006. Election officials in this jurisdiction told us that they had approximately 7,400 such registered voters who completed the FPCA and that the jurisdiction planned to canvass these voters to confirm that they continued to reside at the address on the FPCA. This jurisdiction expects that as many as half of these canvass cards will be returned as undeliverable. Once the cards are returned, state law allows those voters whose canvass cards are returned to be deleted from the voter registration list, according to the election officials. Early voting is another way to provide registered voters with the opportunity to cast ballots prior to Election Day. However, conducting early voting is generally more complicated for election officials than conducting Election Day voting. In the jurisdictions we visited in 7 states with early voting, election officials described early voting as generally in- person voting at one or more designated polling locations usually different from polling locations used at the precinct level on Election Day. The voting may or may not be at the election registrar’s office. Early voting is distinct from in-person absentee voting in that in-person absentee voters usually apply for an absentee ballot at the registrar’s office and vote at the registrar’s office at that time. Also, early voting usually does not require an excuse to vote, which some states require for absentee voting, and in the jurisdictions we visited in 7 states with early voting, it was usually offered for a shorter period of time than absentee voting. The time frame allowed for absentee voting was almost always at least twice as long as for early voting. For example, election officials in the Colorado jurisdictions we visited said that they allow 30 days for absentee voting and 15 days for early voting. In the jurisdictions we visited in 7 states with early voting, election officials said early voting is similar to Election Day voting in that the voter generally votes using the same voting method as on Election Day. However they added that it differs from Election Day voting in that voters can vote at any early voting polling location because all early voting locations have access to a list of all registered voters for the jurisdiction (not just precinct specific) and can provide voters with appropriate ballots that include federal, state, and precinct-specific races. Proponents argue that early voting is convenient for voters and saves jurisdictions money by reducing the number of polling places and poll workers needed on Election Day, and also provides the voter with more opportunity to vote. Opponents counter that those who vote early do so with less information than Election Day voters, and there is no proof that early voting increases voter turnout. Statistics on voter turnout for early voting can be difficult to come by, partly because some states and localities combine early and absentee voting numbers. Nevertheless, early voting in certain jurisdictions appears to be popular with voters and on the rise. In a New Mexico jurisdiction, election officials told us that early voting accounted for about 34 percent of the ballots cast in that jurisdiction. In North Carolina and Colorado elections jurisdictions we visited, election officials said that early voters cast about 35 and 38 percent of the jurisdictions’ total votes in the November 2004 election, respectively. In a Nevada jurisdiction we visited, election officials told us that the percentage of voters who voted early steadily increased over time. The officials said that in 1996, about 17 percent of voters voted early; in 2000, 43 percent voted early; and in the November 2004 general election, about 50 percent (271,500) of their voters voted early. Our prior work on the 2000 general election did not identify states that offered early voting as we have defined it. Rather, we reported on absentee and early voting together. Thus, we are unable to identify the change in the number of states that offered early voting for the November 2000 general election and the November 2004 general election. We describe the availability of early voting throughout the nation and the challenges and issues that election officials encountered in the November 2004 general election as they conducted early voting in selected jurisdictions. Many early polling locations in Florida and elsewhere received media publicity about voters standing in long lines and waiting for long periods of time to vote early. In half of the local election jurisdictions we visited, election officials described encountering challenges that included long lines, and some identified challenges dealing with disruptive third-party activities at the polls. For the November 2004 general election, in our state survey, 24 states and the District of Columbia reported offering early voting. In addition, 2 states—Illinois and Maine—reported, in our state survey, that they had enacted legislation or taken executive action since November 2004 to provide for early voting in their states. Another 7 states reported that with respect to early voting, they (1) had legislation pending, (2) considered legislation in legislative session that was not enacted, or (3) had an executive action that was pending or was considered. Figure 25 shows where early voting was provided for the November 2004 general election. On the basis of our survey of local jurisdictions, we estimate 23 percent of jurisdictions were in states that offered early voting. Furthermore, we estimate that 16 percent of small jurisdictions, 40 percent of medium jurisdictions, and 52 percent of large jurisdictions were in states that offered early voting. Small jurisdictions are statistically different from both medium and large jurisdictions. The number of days that early voting was available in these 24 states and the District of Columbia varied. In some cases, early voting was allowed no sooner than a day or a few days prior to Election Day, while in other cases voters had nearly a month or longer to cast an early ballot. Table 12 shows the range of days for early voting among the states and the District of Columbia that reported providing early voting for the November 2004 election. On the basis of our survey of local jurisdictions, we estimate that 75 percent of the jurisdictions that offered early voting offered it for 2 or more weeks prior to Election Day. Figure 26 shows the estimated percentage of local jurisdictions that offered early voting for various time periods. Among the local jurisdictions that we visited in the 7 states that provided early voting, we found that the shortest time frame allowed for early voting was in Georgia, which had 5 days, and the longest time frame allowed for early voting was in New Mexico, with 28 days. Furthermore, in the local jurisdictions we visited in the 7 states that provided early voting, election officials supplied information on early voting hours that ranged from weekday business hours to those that included weekends and evenings. For more details on the characteristics of early voting sites we visited, see appendix VII. During the course of our work, a limited review of state statutes showed, for example, that Nevada statute requires early voting polling places be open Monday through Friday, 8 a.m. to 6 p.m., during the first week of early voting and possibly to 8 p.m. during the second week, dependent upon the county clerk’s discretion. In addition, under the Nevada provision, polling places must be open on any Saturdays within the early voting period from 10 a.m. to 6 p.m., and may be open on Sundays within the early voting period dependent upon the county clerk’s discretion. Under these provisions, the early voting period is to begin the third Saturday prior to an election and end the Friday before Election Day. Similarly, Oklahoma statute provides that voters be able to cast early ballots from 8 a.m. to 6 p.m. on the Friday and Monday immediately before Election Day, and from 8 a.m. to 1 p.m. on the Saturday immediately before Election Day. Some states’ statutes are less prescriptive, such as those of Florida, where the statute specifies that early voting should be provided for at least 8 hours per weekday during the early voting period, and at least 8 hours in the aggregate for each weekend during the early voting period, without specifying the specific hours such voting is to be offered. Other states, such as Kansas, however, do not specify in statute the hours for voting early. Kansas statute, in general, leaves it to county election officials to establish the times for voting early. Officials at some local jurisdictions we visited said that their hours of operations were set based on the hours of the election office or by the hours of the facility that was hosting early voting such as a shopping mall or a library. According to our survey of local jurisdictions, an estimated 34 percent of local jurisdictions that provided early voting for the November 2004 general election offered early voting during regular business hours (e.g., from 8 a.m. until 4 p.m.) on weekdays, and 16 percent offered early voting during regular business hours on weekdays and during other hours. Other hours included weekday evenings (after 4 p.m. or 5 p.m. until 7 p.m. or 9 p.m.) and Saturdays (all day) and Sundays (any hours) for about 2 percent of the jurisdictions, respectively. As with early voting time frames, some states reported having requirements for local election jurisdictions regarding the number of early voting locations. In our state survey, 17 of the 25 entities (including 24 states and the District of Columbia) that reported offering early voting for the November 2004 general election also reported having requirements for local jurisdictions regarding the number or distribution of early voting locations. Kansas election standards, for example, provide for one such voting location per county unless a county’s population exceeds 250,000, in which case the election officer may designate additional sites as needed to accommodate voters. Election officials in 1 jurisdiction we visited said that state statute determined the number of locations, while election officials in 13 other jurisdictions told us they decided the number of locations. For example, New Mexico’s early voting statutory provisions specifically require that certain counties with more than 200,000 registered voters establish not fewer than 12 voting locations each. During our site visits, we asked jurisdictions how they determined the number of early voting locations. In a Nevada jurisdiction that we visited, election officials said that the number of locations was determined by the availability of resources such as fiscal and manpower needs. In a Colorado jurisdiction we visited, an election official said he would like to have had more early voting locations but could not because the jurisdiction did not have the funds to pay for additional costs associated with additional sites, such as the cost for computer connections needed for electronic voter registration list capability. In a North Carolina jurisdiction we visited, election officials said that they had only one early voting location because they did not have election staff that would be needed to manage another site. In many ways, early voting is conducted in a manner substantially similar to Election Day voting in that polling locations are obtained, workers are recruited to staff the sites for each day polling locations are to be open, and voting machines and supplies are delivered to the polling locations. However, as described by election officials in jurisdictions we visited that had early voting, early voting differs from Election Day voting in that staff are generally required to perform their voting day-related duties for more than 1 day, and staff generally do not use poll books to identify eligible voters and check them in. Instead, as described by some of these jurisdictions, early voting staff usually access the jurisdiction’s voter registration list to identify eligible voters and to indicate the voter voted early to preclude voting on Election Day or by absentee ballot. Also, election officials told us that, generally, staff must possess some computer skills and need to be trained in using the jurisdiction’s voter registration system. Furthermore, staff must be aware that ballots are specific to the voter’s precinct. In our nationwide survey of local election jurisdictions, we asked about the type of staff who worked at early voting polling places. According to our survey for the November 2004 general election, local election jurisdictions relied on permanent election jurisdiction staff most often to work at early voting polling locations. As table 13 shows, we estimate 30 percent of local jurisdictions offered early voting using only permanent election jurisdiction staff to work at the early voting polling places; we estimate that 14 percent of local jurisdictions used poll workers exclusively; and we estimate 14 percent used other staff (e.g., county or city employees). Election officials at 11 jurisdictions we visited emphasized the importance of staffing early voting locations with experienced staff such as election office staff or experienced and seasoned poll workers. Even with experienced staff working early voting locations, election officials at local jurisdictions we visited mentioned that staff were required to take training and were provided tools to help them perform their duties. In our nationwide survey, we asked local jurisdictions that provided early voting about the ways that staff were trained for early voting. As shown in table 14, the majority of jurisdictions used methods, such as providing a checklist of procedures, written guidance for self-study or reference, and quick reference materials for troubleshooting, to train early voting staff. Local jurisdictions could do more than one of the above ways to train early voting staff. On the basis of our local survey, we estimate that 14 percent of local jurisdictions used classroom training, written guidance for self-study or reference, a checklist of procedures, and quick reference materials for troubleshooting to train early voting staff. When asked about what worked particularly well during early voting, election officials in 1 jurisdiction we visited in Colorado said that that they provided 8 hours of training and had on-site supervision that they thought contributed to a successful early voting experience. The election officials also said they used a feature in their electronic poll book system to track the number of ballots used at each site to determine whether sites had adequate inventories of ballots. The program for the poll book system had an alarm that went off if any site was running low on ballots, according to these election officials. Two other jurisdictions we visited in Kansas and Florida noted the importance of having experienced staff for early voting, with the election officials in 1 Kansas jurisdiction saying that designating a group of workers to work on early voting helped the process run effectively and the election officials in 1 Florida jurisdiction saying that having the supervisor of elections office staff on site to support early voting helped make the process work well. When asked about challenges with early voting faced during the November 2004 general election, in half of the local jurisdictions we visited that offered early voting election officials identified long lines as a major challenge. Election officials at 5 local jurisdictions we visited said that they had not anticipated the large number of voters who had turned out to vote early. Officials attributed challenges handling the large number of voters and resulting long lines to problems with technology, people, and processes. Election officials at local jurisdictions we visited made the following comments: Election officials in one Florida jurisdiction we visited said that their jurisdiction faced more early voters than anticipated and this fact, coupled with slowness in determining voter eligibility, resulted in long lines. They said that on the first day of early voting, staff was unable to access the voter registration list because laptops were not functioning properly. To address the problem, a worker at the early voting location paired with another worker, who called the supervisor of elections office to obtain voter registration information and provide information on the voter seeking to vote early. An election official in another Florida jurisdiction said that while state law provides for early voting in the main office of the supervisor of elections, other locations may be used only under certain conditions. For example, in order for a branch office to be used, it must be a full-service facility of the supervisor and must have been designated as such at least 1 year prior to the election. In addition, a city hall or public library may be designated as an additional early voting location, but only if the sites are located so as to provide all voters in the county an equal opportunity to cast a ballot, insofar as is practicable. The official thought more flexibility was needed to allow him to either have more early voting locations or use other types of facilities, such as a local community center, that could accommodate more voters. An election official in a Nevada jurisdiction we visited said that the jurisdiction’s process flow was inadequate to handle the large turnout for early voting. The election official said that the jurisdiction had not planned sufficiently to manage the large turnout for early voting and did not have enough staff to process voters. The election official said that in the future, he will hire temporary workers and will assign one person to be in charge of each process (e.g., checking in voters, activating the DRE machine, etc.) In addition, the election official said that, in hindsight, he made a questionable decision to close all but two early voting locations for the last day of early voting. The closing of all but two locations on the last day of early voting coincided with a state holiday so children were out of school. The decision to close all but two locations caused 3 to 3½ hours of wait time, with parents waiting in line with children. The election official said he has set a goal for the future that no wait time should be longer than half an hour. To address challenges related to heavy early voter turnout, election officials in 1 Nevada jurisdiction said they have gradually added new early voting locations each year to keep up with the increasing number of people who vote early. In a New Mexico jurisdiction we visited, election officials said that they used a smaller ratio of voters to machines than required by state statute. According to these election officials, the state required at least one machine for every 600 voters, and during early voting, the election officials said they used one machine for every 400 voters registered in the jurisdiction. In 1 Colorado jurisdiction we visited, election officials said that they addressed the challenge of long lines by having greeters inform voters about the line and make sure the voters had required identification with them. They said they provided equipment demonstrations and passed out sample ballots so people in line could consider their choices, if they had not already done so. They also said they offered people in line the option of absentee ballot applications. In 3 jurisdictions we visited, election officials stated that they encountered challenges dealing with disruptive third-party activities at early voting sites. In particular, concerns were raised about various groups attempting to campaign or influence voters while the early voters waited in line. State restrictions on various activities in or around polling places on Election Day include prohibitions relating to, for example, the circulation of petitions within a certain distance of a polling place, the distribution of campaign literature within a certain distance of the polls, the conduction of an exit or public opinion poll within a certain distance of the polls, and disorderly conduct or violence or threats of violence that impede or interfere with an election. Election officials in 1 jurisdiction we visited stated that campaign activities too close to people waiting in line were a concern to the extent that police were called in to monitor the situation at one early voting location. Election officials in a Florida jurisdiction we visited said that they were concerned about solicitors, both candidates and poll watchers, approaching people waiting in line to vote early and offering them water or assistance in voting. While Florida’s statutory provisions in place for the November 2004 general election contained restrictions of various activities in or around polling places on Election Day, such provisions did not explicitly address early voting sites. Amendments to these provisions, effective January 2006, among other things, explicitly applied certain restrictions of activities in or around polling places to early voting areas. With respect to poll watchers, these amendments also prohibit their interaction with voters to go along with the pre-existing prohibition on obstructing the orderly conduct of any election by poll watchers. Making voting easier prior to Election Day has advantages for voters and election officials, but also presents challenges for elections officials. Many states and local jurisdictions appear to be moving in the direction of enabling voters to vote before Election Day by eliminating restrictions on who can vote absentee and providing for early voting. Many states allowed voters to use e-mail and facsimiles to request an absentee ballot application and, in some cases, to return applications. To the extent that large numbers of voters do vote absentee or early, it can reduce lines at the polling place on Election Day and, where permitted by state law, ease the time pressures of vote counting by allowing election officials to count absentee and early votes prior to Election Day. However, there are also challenges for election officials. An estimated 55 percent of jurisdictions received absentee ballot applications too late to process, and an estimated 77 percent received ballots too late. Although we do not know the extent of these problems in terms of the number of applications and ballots that could not be processed, the estimated number of jurisdictions encountering these problems may be of some concern to state and local election officials. Absentee application deadlines close to Election Day provide citizens increased time to apply to vote absentee. However, the short time period between when applications are received and Election Day may make it difficult for election officials to ensure that eligible voters receive absentee ballots in time to vote and return them before the deadline for receipt at election offices. Voter errors on their absentee applications and ballots also create processing problems for election officials. These include missing or illegible signatures, missing or inadequate voting residence addresses, and missing or incomplete witness information for a voter’s signature or other information. In addition, mail-in absentee ballots are considered by some to be particularly susceptible to fraud. This could include such activities as casting more than one ballot in the same election or someone other than the registered voter completing the ballot. Despite efforts to guard against such activities, election officials in some of the jurisdictions we visited expressed some concerns, particularly regarding absentee voters being unduly influenced or intimated by third parties who went to voters’ homes and offered to assist them in voting their ballots. Some election officials expressed similar concerns about the influence of third parties on early voters waiting in line who were approached by candidates and poll watchers. After this happened in Florida in November 2004, the state amended its election provisions to prohibit such activity with respect to early voters. Getting absentee ballots to uniformed service personnel and overseas citizens is a continuing challenge. UOCAVA permitted such voters to request an absentee ballot for the upcoming election, and HAVA extended the covered period to include up to two subsequent general elections for federal office. Because the duty station of uniformed service personnel may change during the period covered by the absentee ballot requests, election officials in jurisdictions we visited were concerned that they have some means of knowing the current mailing address. Some jurisdictions are taking action to ensure that they have the correct address for sending absentee ballots for the November 2006 election, such as requesting e-mail addresses that can be used to obtain the most current address information prior to mailing the absentee ballot. To the extent there are problems identifying the correct address, uniformed service personnel and overseas civilians may either not receive an absentee ballot or receive it too late to return it by the deadline required for it to be counted. Whether voters are able to successfully vote on Election Day depends a great deal on the planning and preparation that occur prior to the election. Election officials carry out numerous activities—including recruiting and training poll workers; selecting and setting up polling places; designing and producing ballots; educating voters; and allocating voting equipment, ballots, and other supplies to polling places—to help ensure that all eligible voters are able to cast a ballot on Election Day with minimal problems. In our October 2001 comprehensive report on election processes nationwide we described these activities as well as problems encountered in administering the November 2000 general election. Since then, federal and state actions have been taken to help address many of the challenges encountered in conducting the November 2000 general election. However, reports after the November 2004 general election highlighted instances of unprepared poll workers, confusion about identification requirements, long lines at the polls, and shortages of voting equipment and ballots that voters reportedly encountered on Election Day. This chapter describes changes and challenges—both continuing and new—that election officials encountered in preparing for and conducting the November 2004 general election. States and local jurisdictions have reported making changes since the November 2000 general election as a result of HAVA provisions and other state actions to improve the administration of elections in the United States. In addition to establishing a commission—the U.S. Election Assistance Commission—with wide-ranging duties that include providing information and assistance to states and local jurisdictions—HAVA also established requirements with respect to elections for federal office for, among other things, certain voters who register by mail to provide identification prior to voting; mandated that voting systems accessible to individuals with disabilities be located at each polling place; and required voter information to be posted at polling places on Election Day. HAVA also authorized the appropriation of federal funds for payments to states to implement these provisions and make other improvements to election administration. Since the November 2000 general election, some states have also reported making changes to their identification requirements for all voters. Election officials reported encountering many of the same challenges preparing for and conducting the November 2004 general election as they did in 2000, including recruiting and training an adequate supply of skilled poll workers, locating a sufficient number of polling places that met requirements, designing ballots that were clear to voters when there were many candidates or issues (e.g., propositions, questions, or referenda), having long lines at polling places, and handling the large volume of telephone calls received from voters and poll workers on Election Day. Election officials in some of the jurisdictions we visited also reported encountering new challenges not identified to us in the 2000 general election with third-party (e.g., poll watchers, observers, or electioneers) activities at polling places on Election Day. On the basis of our survey of a representative sample of local election jurisdictions nationwide and our visits to 28 local jurisdictions, the extent to which jurisdictions encountered many of these continuing challenges varied by the size of election jurisdiction. Large and medium jurisdictions—those jurisdictions with over 10,000 people—generally encountered more challenges than small jurisdictions. In most results from our nationwide survey where there are statistical differences between the size categories of jurisdictions, large jurisdictions are statistically different from small jurisdictions. HAVA established EAC to provide voluntary guidance and assistance with election administration, for example, by providing information on election practices to states and local jurisdictions and administering programs that provide federal funds for states to make improvements to some aspects of election administration. HAVA also added a new requirement for states to in turn require certain first-time voters who register by mail who have not previously voted in a federal election in the state to provide identification prior to voting, and jurisdictions reported taking steps to implement this requirement and inform voters about it. In addition, HAVA includes provisions to facilitate voting for individuals with disabilities, such as requirements for accessible voting systems in elections for federal office. HAVA established voter information requirements at polling places on the day of election for federal office and authorized the appropriation of funding for payments to states to expand voter education efforts. HAVA established EAC, in part, to assist in the administration of federal elections by serving as a national clearinghouse for information and providing guidance and outreach to states and local officials. In our October 2001 report on election processes, we estimated that on the basis of our survey of local election jurisdictions in 2001, 40 percent of local election jurisdictions nationwide were supportive of federal development of voluntary or mandatory standards for election administration similar to the voluntary standards available for election equipment. We also reported in 2001 that some election officials believed that greater sharing of information on best practices and systematic collection of information could help improve election administration across and within states. To assist election officials, since its establishment, EAC has produced two clearinghouse reports, one of which covers election administration. EAC released a Best Practices Toolkit on Election Administration on August 9, 2004, to offer guidance to election officials before the November 2004 general election. The document is a compilation of practices used by election officials that covers topics such as voter outreach, poll workers, polling places, and election operations. Of note, this compilation provided election officials with a checklist for HAVA implementation that covers identification for new voters, provisional voting, complaint procedures, and access for individuals with disabilities. EAC has made this guidance available to states and local jurisdictions via its Web site and engaged in public hearings and outreach efforts to inform the election community about the resource tool. EAC also administers programs that provide federal funds for states under HAVA to make improvements to aspects of election administration, such as implementing certain programs to encourage youth to become involved in elections; training election officials and poll workers; and establishing toll- free telephone hotlines that voters may use to, among other things, obtain general election information. The results of our state survey of election officials show that as of August 1, 2005, most states reported spending or obligating HAVA funding for a variety of activities related to improving election administration. For example, 45 states and the District of Columbia reported spending or obligating HAVA funding for training election officials, and 32 states and the District of Columbia reported spending or obligating funding to establish toll-free telephone hotlines. As discussed in chapter 2, under HAVA, states are to require certain first- time voters who registered to vote by mail to provide identification prior to voting. Voters who are subject to this provision are those individuals who registered to vote in a jurisdiction by mail and have not previously voted in a federal election in the state, or those who have not voted in a federal election in a jurisdiction which is located in a state that has not yet established a computerized voter registration list, as required by HAVA. When voting in person, these individuals must (if not already provided with their mailed application) present a current and valid photo identification, or a copy of a current utility bill, bank statement, government check, paycheck, or other government document that shows the name and address of the voter. Under HAVA, voters at the polls who have not met this identification requirement may cast a vote under HAVA’s provisional voting provisions. Additional information on provisional voting processes and challenges is presented in chapter 5. Election officials in 21 of the 28 jurisdictions we visited reported encountering no problems implementing the HAVA first-time voter ID requirement, and officials in some of these jurisdictions provided reasons why there were no problems. For example, election officials in 2 jurisdictions in Colorado told us that they did not encounter implementation problems because all voters, under state requirements, were required to show identification. Election officials in some other jurisdictions we visited reported that they took steps to inform voters of the new HAVA ID requirement for such voters registering by mail. For example, election officials in a jurisdiction in Ohio reported that they contacted about 300 prospective voters twice, either by phone or by letter, prior to the election to inform them that that they needed to show identification. Figure 27 illustrates a poster used in a jurisdiction we visited to inform prospective voters about the new identification requirements. HAVA contains provisions to help facilitate voting for individuals with disabilities, including requirements for the accessibility of voting systems used in elections for federal office, effective January 1, 2006. HAVA also authorized the appropriation of funding for payments to states to improve the accessibility of polling places. In October 2001, we issued a report that examined state and local provisions and practices for voting accessibility, both at polling places and with respect to alternative voting methods and accommodations. We reported in 2001 that all states and the District of Columbia had laws or other provisions concerning voting access for individuals with disabilities, but the extent and manner in which these provisions addressed accessibility varied from state to state. In addition, in our 2001 report we noted that various features of the polling places we visited had the potential to prove challenging for voters with certain types of disabilities. On the basis of our observations on Election Day 2000, we also estimated that most polling places in the contiguous United States had one or more physical features, such as a lack of accessible parking or barriers en route to the voting room, that had the potential to pose challenges for voters with disabilities. Results from our 2005 surveys show that at the time of the November 2004 general election, many states and local jurisdictions had taken steps to meet HAVA’s requirement for accessible voting systems, as well as making other changes to help improve the accessibility of voting for individuals with disabilities. HAVA requires that, effective January 1, 2006, each voting system used in a federal election must meet certain accessibility requirements. These voting systems are required to provide individuals with disabilities with the same opportunity for access and participation (including independence and privacy) as for other voters. These HAVA requirements specify that such accessibility include nonvisual accessibility for voters who are blind or visually impaired. HAVA provides for the use of at least one DRE or other voting system equipped for voters with disabilities at each polling place. The results of our state survey show that as of August 1, 2005, 41 states and the District of Columbia reported having laws (or executive action) in place to provide each polling location with at least one DRE voting system or other voting system equipped for individuals with disabilities by January 1, 2006. Of the remaining 9 states, 5 reported having plans to promulgate laws or executive action to provide each polling location with at least one DRE voting system or other voting system equipped for individuals with disabilities, and 4 reported that they did not plan to provide such equipment or were uncertain about their plans. Some local election jurisdictions provided accessible voting machines at polling places for the November 2004 general election. On the basis of our survey of a representative sample of local election jurisdictions nationwide, we estimate that 29 percent of all jurisdictions provided accessible voting machines at each polling place in the November 2004 general election. Further, more large and medium jurisdictions provided accessible voting machines than small jurisdictions. We estimate that 39 percent of large jurisdictions, 38 percent of medium jurisdictions, and 25 percent of small jurisdictions provided accessible voting machines at each polling place. The differences between both large and medium jurisdictions and small jurisdictions are statistically significant. Election officials from some small jurisdictions who provided written comments on our survey questionnaire expressed concerns about how this requirement would be implemented in their jurisdictions and whether electronic voting machines were the best alternative. For example, one respondent wrote: “We in a small town … and use paper ballots and that has worked very well in the past and I believe will work very well in the future. Voting machines should be decided on for much larger areas with a lot more than our 367 population with 150 voters.” Another wrote: “We are a small rural township with about 160 voters. Our 2004 election went well; as usual, we had no problems. We use paper ballots. We have some concerns with the implementation of HAVA. We are being forced to use expensive voting machines that will require expensive programming for every election. We are concerned about these costs.… If our limited budget can’t afford those expensive machines and programming, we may need to combine our township polling place with another township—maybe several townships. The additional driving to a different polling place miles away will discourage voters from voting—particularly our elderly residents. So these efforts (HAVA) to help voters will actually hinder voters.” In an effort to address these issues, Vermont, which has about 250 small and medium election jurisdictions that use paper and optical scan ballots, took an alternative approach to meeting the HAVA requirement, according to an election official. Instead of providing one DRE machine for each of its 280 polling places, Vermont plans to implement a secure vote-by-phone system that allows voters to mark a paper ballot, in private, using a regular telephone at the polling place. According to the Vermont’s Secretary of State’s Office, a poll worker uses a designated phone at the polling place to call a computer system located at a secure location and access the appropriate ballot for the voter. The computer will only permit access to the system from phone numbers that have been entered into the system prior to the election, and only after the proper poll worker and ballot access numbers have been entered. The phone system reads the ballot to the voter, and after the voter makes selections using the telephone key pad, the system prints out a paper ballot that is automatically scanned by the system and played back to the voter for verification. The voter may then decide to cast the ballot or discard it and revote. The system does not use the Internet or other data network, and it produces a voter-verified paper ballot for every vote cast. In addition, according to an election official, voters are able to dial into a toll-free telephone number for at least 15 days prior to an election to listen to, preview, and practice with the actual ballot they will vote on Election Day. This is a way of providing a sample ballot to voters, as well as providing an opportunity for voters to become familiar with using the telephone system. For our October 2001 report on voters with disabilities, our analysis included a review of state statutes, regulations, and written policies pertaining to voting accessibility for all 50 states and the District of Columbia, as well as policies and guidelines for a statistical sample of 100 counties. As part of our 2005 surveys, we asked states to report on provisions concerning accessibility and local jurisdictions whether they provided accommodations or alternative voting methods for individuals with disabilities in the November 2004 general election. While the methodologies in the 2001 report and this report differ, results of our 2005 surveys show that states and local jurisdictions have taken actions to help improve voting for individuals with disabilities by, for example, using HAVA funds, taking steps to help ensure accessibility of polling places, and providing alternative voting methods or accommodations. Most states reported that they had spent or obligated HAVA funding to improve the accessibility of polling places, including providing physical or nonvisual access. The results of our state survey of election officials show that as of August 1, 2005, 46 states and the District of Columbia reported spending or obligating HAVA funding for this purpose. For instance, election officials in a local jurisdiction we visited in Colorado told us they had used HAVA funds to improve the accessibility of polling places by obtaining input from the disability community, surveying the accessibility of their polling places, and reviewing the DRE audio ballot with representatives of the blind community. States and local jurisdictions reported taking a variety of actions designed to help ensure that polling places are accessible for voters with disabilities, including specifying guidelines or requirements, inspecting polling places to assess accessibility, and reporting by local jurisdictions on polling place accessibility to the state. In our October 2001 report on voters with disabilities, we noted that state involvement in ensuring polling places are accessible and the amount of assistance provided to local jurisdictions could vary widely. For example, in 2001 we reported that 29 states had provisions requiring inspections of polling places, and 20 states had provisions requiring reporting by local jurisdictions. According to our 2005 state survey, 43 states and the District of Columbia reported requiring or allowing inspections of polling places, and 39 states and the District of Columbia reported that they required or allowed reporting by local jurisdictions. From our local jurisdiction survey, we estimate that 83 percent of jurisdictions nationwide used state provisions to determine the accessibility requirements for polling places. During our site visits to local jurisdictions, we asked election officials to describe the steps they took to ensure that polling places were accessible. Election officials in many of the jurisdictions we visited told us that either local or state officials inspected each polling location in their jurisdiction using a checklist based on state or federal guidelines. For example, election officials in the 4 jurisdictions we visited in Georgia and New Hampshire told us that state inspectors conducted a survey of all polling locations. Election officials in the 2 jurisdictions we visited in Florida told us that they inspected all polling places using a survey developed by the state. Appendix IX presents additional information about state provisions for alternative voting methods and accommodations for the November 2000 and 2004 general elections. In addition to making efforts to ensure that polling places are accessible, some local jurisdictions provided alternative voting methods pursuant to state provisions (such as absentee voting) or accommodations at polling places (such as audio or visual aids) that could facilitate voting for individuals with disabilities. Table 15 presents results from our survey of local election jurisdictions about the estimated percentages of jurisdictions that provided alternative voting methods or accommodations to voters for the November 2004 general election. Election officials’ efforts to educate citizens can help minimize problems that could affect citizens’ ability to successfully vote on Election Day. Informing the public about key aspects of elections includes communicating how to register, what opportunities exist to vote prior to Election Day, where to vote on Election Day, and how to cast a ballot. This information can be distributed through a number of different media, including signs or posters, television, radio, publications, in-person demonstrations, and the Internet. In our October 2001 report on election processes, we stated that lack of funds was the primary challenge cited by election officials in expanding voter education efforts. From our 2001 survey of local election jurisdictions, we estimated that over a third of jurisdictions nationwide believed that the federal government should provide monetary assistance for voter education programs. Since the November 2000 election, changes in voter education efforts include HAVA requiring certain information to be posted at polling places and authorizing the payment of federal funds to states to use for educating voters, and states and local jurisdictions reported expansion of voter education efforts. To help improve voters’ knowledge about voting rights and procedures, HAVA required election officials to post voting information at each polling place on the day of each election for federal office and authorized the payment of funding to states for such purposes. This required voting information includes a sample ballot, polling place hours, instructions on how to vote, first-time mail-in instructions, and general information on federal and state voting rights laws and laws prohibiting fraud and misrepresentation. Results of our state survey of election officials show that as of August 1, 2005, 40 states and the District of Columbia reported spending or obligating HAVA funding for voting information, such as sample ballots and voter instructions, to be posted at polling places. Election officials in all 28 jurisdictions we visited told us they posted a variety of voter information signs at polling places on Election Day 2004. Figure 28 illustrates examples of some of these signs. HAVA also authorized the payment of funding for voter education programs in general, and according to our state survey, as of August 1, 2005, 44 states and the District of Columbia reported spending or obligating HAVA funding for these programs. For example, according to its HAVA plan, Florida required local election officials to provide descriptions of proposed voter education efforts, such as using print, radio, or television to advertise to voters, in order to receive state HAVA funds in fiscal years 2003 and 2004. Election officials in 2 jurisdictions we visited in Florida provided us information about voter education campaigns that they implemented. Election officials in 1 of these jurisdictions reported designing election advertisements to be shown on movie theater screens in the beginning of the summer season; election officials in the other jurisdiction told us they implemented a “Get Out the Vote” television advertising campaign with a cable company intended to reach hundreds of thousands of households during the weeks prior to the November 2004 general election. More local election jurisdictions appear to have taken steps to educate prospective voters prior to Election Day in 2004 than in 2000, and on the basis of our 2005 survey of local jurisdictions, more large and medium jurisdictions took these steps than small jurisdictions. In our October 2001 report on election processes, we noted that local election jurisdictions provided a range of information to prospective voters through multiple media. For example, on the basis of our 2001 survey of local jurisdictions, we reported that between 18 and 20 percent of local jurisdictions nationwide indicated they placed public service ads on local media, performed community outreach programs, or put some voter information on the Internet. On the basis of our 2005 survey, we estimate that more jurisdictions provided these measures. For instance, we estimate that 49 percent of all jurisdictions placed public service ads on local media, and 43 percent of all jurisdictions listed polling places on the Internet. However, increases in the overall estimates from the 2001 and 2005 surveys are, in part, likely due to differences in the sample designs of the two surveys and how local election jurisdictions that were minor civil divisions (i.e., subcounty units of government) were selected. Because of these sample design differences, comparing only election jurisdictions that are counties provides a stronger basis for making direct comparisons between the two surveys’ results. These county comparisons show increases as well. For instance, for the November 2000 election, we estimate that 21 percent of county election jurisdictions placed public service ads on local media, while for the November 2004 election, we estimate that 61 percent of county election jurisdictions placed such ads. In our 2005 survey, we also looked at whether there were differences between the size categories of jurisdictions, and generally, more large jurisdictions provided voter education prior to Election Day than medium and small jurisdictions. For instance, we estimate that 88 percent of large jurisdictions, 46 percent of medium jurisdictions, and 38 percent of small jurisdictions listed polling place locations on Internet Web sites. Table 16 presents estimated percentages of jurisdictions that provided various voter education steps prior to the November 2004 general election. Large jurisdictions may have provided voter education through multiple media in order to reach a broader audience of prospective voters. For instance, Web sites were used to provide information to voters by nearly all large jurisdictions. On the basis of our 2005 survey of local jurisdictions, we estimate that 93 percent of large jurisdictions, 60 percent of medium jurisdictions, and 39 percent of small jurisdictions had a Web site. The differences between all size categories are statistically significant. During our site visits, election officials in large jurisdictions described a variety of voter education mechanisms used to reach a number of prospective voters. For example, election officials in a large Nevada jurisdiction we visited told us that their office partnered with power, water, and cable companies to provide voter registration information in subscribers’ billing statements. Election officials in other jurisdictions we visited reported using a variety of other media to encourage participation or provide information to a broad audience of prospective voters. For example, figure 29 illustrates a billboard, cab-top sign, and milk carton used in local jurisdictions we visited. Whether or not all voters should be required to show identification prior to voting is an issue that has received attention in the media and reports since the November 2000 general election. Recent state initiatives, such as those in Georgia, that in general require voters to provide photo identification, exemplify the challenge that exists throughout the election process in maintaining balance between ensuring access to all prospective voters and ensuring that only eligible citizens are permitted to cast a ballot on Election Day. Results of our state and local jurisdiction surveys show that while providing identification could be one of several methods used to verify identity, it was not required by the majority of states, nor was it the only way used to verify voters’ identities in the majority of local jurisdictions for the November 2004 election. Voter identification requirements vary in flexibility, in the number and type of acceptable identification allowed, and in the alternatives available for verifying identity if a voter does not have an acceptable form of identification. Results of our state survey of election officials show that for the November 2004 general election 28 states reported that they did not require all prospective voters to provide identification prior to voting in person. Twenty-one states reported that they required all voters to provide identification prior to voting on Election Day 2004. However, 14 of these states reported allowing prospective voters without the required identification an alternative. In 9 of these 14 states the alternative involved voting a regular ballot in conjunction with, for example, the voter providing some type of affirmation as to his or her identity. For example, Connecticut, in general, allowed voters who were unable to provide required identification to swear on a form provided by the Secretary of State’s Office that they are the elector whose name appears on the official registration list. Kentucky allowed an election officer to confirm the identity of a prospective voter by personal acquaintance or by certain types of documents if the prospective voter did not have the required identification. The other 5 states reporting that they offered an alternative did so through the use of a provisional ballot if a prospective voter did not have the required identification. For the November 2004 election, 5 of the 21 states that reported having identification requirements also had statutory provisions requiring, in general, that such identification include a photograph of the prospective voter. For the other 16 states that reported requiring identification, there was a range of acceptable forms of identification, including photo identification, such as a driver’s license, and other documentation, such as a copy of a government check or current utility bill with a voter’s name and address. Figure 30 presents information on the identification requirements for prospective voters for the November 2004 general election for all 50 states and the District of Columbia. In our nationwide survey, we asked local jurisdictions about how they checked voters’ identities, such as by asking voters to state their name and address, verifying voters’ signatures, or asking voters to provide a form of identification or documentation. On the basis of this survey, we estimate that 65 percent of all local jurisdictions checked voters’ identification as one way to verify their identities on Election Day. However, in an estimated 9 percent of all jurisdictions, providing identification was the only way voters could verify their identities. Since the November 2004 general election, several states have reported that they have considered establishing identification requirements for all prospective voters, and some reported that they have implemented requirements. Results of our state survey show that at the time of our survey, 9 states reported having either considered legislation (or executive action) or legislation (or executive action) was pending to require voters to show identification prior to voting on Election Day. Four states, at the time of our survey, reported having taken action since November 2004 to require that voters show identification for in-person Election Day voting. For example, changes in Arizona law and procedure emanating from a November 2004 ballot initiative were finalized in 2005 after receiving approval from the Department of Justice. These Arizona changes require voters to present, prior to voting, one form of identification with the voter’s name, address, and photo, or two different forms of identification that have the name and address of the voter. Indiana enacted legislation in 2005 requiring, in general, that voters provide a federal- or state-of-Indiana- issued identification document with the voter’s name and photo prior to voting, whereas 2005 legislation in New Mexico and Washington imposed identification requirements but allowed prospective voters to provide one of several forms of photo or nonphoto forms of identification. In all four states, if voters are not able to provide a required form of identification, they are allowed to cast a provisional, rather than a regular, ballot. Finally, a state that had identification requirements in place for the November 2004 general election may have taken additional actions to amend such requirements. Georgia, for instance, required voters in the November 2004 general election to provide 1 of 17 types of photo or nonphoto identification. In 2005 Georgia enacted legislation that, in general, amended and reduced the various forms of acceptable identification and made the presentation of a form of photo identification, such as a driver’s license, a requirement to vote. Having enough qualified poll workers to set up, open, and work at the polls on Election Day is a crucial step in ensuring that voters are able to successfully vote on Election Day. The number of poll workers needed varies across jurisdictions, and election officials recruit poll workers in a variety of ways using different sources and strategies. Some poll workers are elected, some are appointed by political parties, and some are volunteers. Election officials in jurisdictions we visited reported considering several different factors—such as state requirements, registered voters per precinct, historical turnout, or poll worker functions at polling places—to determine the total number of poll workers needed. On the basis of our survey of local jurisdictions, we estimate that recruiting enough poll workers for the November 2004 general election was not difficult for the majority of jurisdictions. However, large and medium jurisdictions encountered difficulties to a greater extent than small jurisdictions. To meet their need, election officials recruited poll workers from numerous sources, including in some cases, high schools and local government agencies, to help ensure that they were able to obtain enough poll workers for Election Day. Poll workers with specialized characteristics or skills were also difficult for some large and medium jurisdictions to find. Election officials in some jurisdictions we visited reported that finding qualified poll workers could be complicated by having a limited pool of volunteers willing to work long hours for low pay. Poll worker reliability continued to be a challenge for some jurisdictions—especially large jurisdictions—that depend on poll workers to arrive at polling places on time on Election Day. We estimate that recruiting enough poll workers for the November 2004 general election was not difficult for the majority of jurisdictions, and may have been less of a challenge for the November 2004 election than it was for the November 2000 election. For example, on the basis of our 2001 survey of local jurisdictions, we estimate 51 percent of county election jurisdictions found it somewhat or very difficult to find a sufficient number of poll workers for the November 2000 election. In contrast, from our 2005 survey, we estimate that 36 percent of county election jurisdictions had difficulties obtaining enough poll workers for the November 2004 election. In our 2005 survey, there are differences between size categories of election jurisdictions in the difficulties encountered obtaining a sufficient number of poll workers, with more large and medium jurisdictions encountering difficulties than small jurisdictions. As shown in figure 31, we estimate that 47 percent of large jurisdictions, 32 percent of medium jurisdictions, and 14 percent of small jurisdictions found it difficult or very difficult to obtain a sufficient number of poll workers. Election officials in large and medium jurisdictions, with typically more polling places to staff, are generally responsible for obtaining more poll workers than officials in small jurisdictions. For example, election officials in a large jurisdiction we visited in Illinois told us that recruiting enough poll workers for Election Day was always a challenge and November 2004 was no different. They said that state law specifies a minimum of 5 poll workers per precinct, and there were 2,709 precincts in their jurisdiction for the November 2004 general election, requiring at least 13,545 poll workers. In contrast, election officials in a small jurisdiction we visited in New Hampshire told us that they never had difficulties finding poll workers because they were able to use a pool of volunteers to staff the 9 poll worker positions at their one polling place. While election officials in 10 of the 27 large and medium jurisdictions we visited told us they had difficulties recruiting the needed number of poll workers, election officials in the other 17 jurisdictions did not report difficulties. These officials provided a variety of reasons why they did not encounter difficulties, including having a set number of appointed or elected poll workers for each precinct, having a general public interest in being involved in a presidential election, and using a variety of strategies and sources to recruit poll workers. For example, election officials in a large jurisdiction in New Mexico told us that their lack of problems with recruitment was due to the fact that they had a full-time poll worker coordinator who began the search for poll workers very early and, as a result, was able to fill all of the positions needed (about 2,400) for the November 2004 election. Election officials in other large jurisdictions reported that they were able to obtain enough poll workers by relying on multiple sources. For example, election officials in a large jurisdiction in Kansas told us that they made an exhaustive effort to recruit about 1,800 poll workers for the November 2004 general election that included soliciting from an existing list of poll workers, working with organizations, using a high school student program to obtain about 300 student poll workers, recruiting from a community college, using county employees, and coordinating with the political parties. On our nationwide survey we asked local jurisdictions about the sources they used to recruit poll workers for the November 2004 general election, and table 17 presents estimates from this survey on a variety of sources that jurisdictions used. In our October 2001 report on election processes, we identified several recruiting strategies that election officials reported helped in their efforts to obtain enough poll workers. On the basis of our local jurisdictions survey, student poll workers and county or city employees were used as sources for poll workers by many medium and large jurisdictions in the November 2004 general election, as shown in table 17. These two sources were also cited as having worked well by election officials in several of the jurisdictions we visited. For example, election officials in a jurisdiction in Colorado told us that their high school student poll worker programs helped them to obtain a sufficient number of skilled poll workers and reported that 200 of their about 600 poll workers were high school students. Election officials in other jurisdictions we visited reported that high school students often helped them in obtaining enough poll workers with specialized skills or characteristics, such as needed language skills. According to our state survey, 38 states and the District of Columbia reported allowing poll workers to be under the age of 18. Local government offices were another source of poll workers for the November 2004 general election. As shown in table 17, we estimate that 65 percent of large jurisdictions, 25 percent of medium jurisdictions, and 12 percent of small jurisdictions recruited poll workers from city or county government offices. For example, election officials in a large jurisdiction in Nevada told us that the chief poll worker at most of the jurisdiction’s 329 polling places is a county employee, and described benefits of recruiting local government employees as poll workers, including their experience in dealing with the public. The specific skills and requirements needed for poll workers varies by jurisdiction, and in some cases by precinct, but can include political party affiliation, specific technical or computer skills, or proficiency in languages other than English. On the basis of our survey of local jurisdictions, we estimate that most jurisdictions nationwide did not encounter difficulties recruiting poll workers with these specific skills and requirements. However, the results show that the ease of obtaining poll workers with these skills varied by the size of the election jurisdiction, with large and medium jurisdictions generally experiencing more difficulties than small jurisdictions. Some states require political balance between poll workers at polling places. For example, New York election law, which requires that each election district must be staffed with four election inspectors (i.e., chief poll workers) and a variable number of poll workers (depending upon specified conditions), requires that appointments to such positions for each election district be equally divided between the major political parties. Election officials in some jurisdictions we visited told us that even though not required, they tried to maintain a balance in poll workers’ political party affiliation. Recruiting enough poll workers with specific political party affiliations continued to be a challenge for some, in particular large and medium jurisdictions. From our local jurisdiction survey, we estimate that 49 percent of large jurisdictions, 41 percent of medium jurisdictions, and 22 percent of small jurisdictions had difficulties recruiting enough Democratic or Republican poll workers, as shown in figure 32. Election officials in 11 of the 28 jurisdictions we visited reported experiencing some difficulties finding enough poll workers with needed party affiliations. For example, election officials in a jurisdiction in Connecticut told us that because their jurisdiction was predominantly one political party it was difficult to find minority party poll workers. Election officials in these 11 jurisdictions told us that they recruited independents, unaffiliated persons, or student poll workers to fill minority party poll worker positions. Recruiting poll workers with necessary information technology skills or computer literacy was also a challenge for some large and medium jurisdictions, according to our survey of local jurisdictions. We estimate that 34 percent of large jurisdictions and 28 percent of medium jurisdictions found it difficult or very difficult to obtain poll workers with these skills, whereas, we estimate that 5 percent of small jurisdictions had difficulties, as shown in figure 33. Election officials in 23 of the 28 jurisdictions we visited told us that computer or technically skilled poll workers were not needed in their jurisdictions for the November 2004 general election. However, election officials in some of these jurisdictions reported that they foresaw a need for poll workers with these skills with the implementation of electronic poll books or new voting technology. Among the reasons cited for not needing technically skilled poll workers were the use of paper ballots or lever machines, the ease of use of DRE voting equipment, and that any needed skills were taught. In addition, election officials in many jurisdictions we visited told us that they recruited and trained technicians or troubleshooters to maintain, repair, and in some cases set up voting equipment prior to Election Day. Some jurisdictions may be required under the language minority provisions of the Voting Rights Act to, in general, provide voting assistance and materials in specified minority languages in addition to English. We asked on our survey of local jurisdictions whether jurisdictions encountered difficulties recruiting poll workers who were fluent in the languages covered under the Voting Rights Act for their jurisdiction and estimate that for the majority (61 percent) of all jurisdictions, this requirement was not applicable. We estimate that 15 percent of all jurisdictions indicated that recruiting poll workers fluent in languages other than English was difficult or very difficult. Jurisdictions of all size categories may encounter difficulties recruiting poll workers with needed language skills for different reasons. For instance, small jurisdictions may find it difficult to recruit enough poll workers fluent in other languages because of a limited pool of potential recruits, whereas large jurisdictions may be required to provide voters with assistance in multiple languages other than English. Los Angeles County, for example, was required to provide voters assistance in six languages other than English for the November 2004 election. Election officials in some of the large jurisdictions we visited reported encountering difficulties obtaining poll workers with needed language skills, but these officials also told us about their efforts to recruit poll workers with language skills. For example, election officials in a large jurisdiction in Illinois reported that they recently established an outreach department to assist in the recruitment of poll workers with specialized language skills. The jurisdiction has hired outreach coordinators for the Hispanic, Polish, and Chinese communities to assist with recruiting. Figure 34 illustrates materials used by election officials in some jurisdictions we visited to recruit poll workers with a variety of skills for the November 2004 general election. In our October 2001 report on election processes, we identified long hours, low pay, and an aging volunteer workforce as factors that complicated election officials’ efforts to recruit enough poll workers. Election officials in some, but not all, of the jurisdictions we visited in 2005 told us that one or more of these factors complicated their efforts to find enough quality poll workers for the November 2004 general election. For example, election officials in a large jurisdiction in Nevada told us that it was difficult to find people who wanted to work, considering that most families are two-income households and Election Day is a long—14 hours—grueling day. Election officials in a large jurisdiction in Washington told us that they never have enough poll workers, noting that the pay is minimal, the hours are long, and the majority of the poll worker population is elderly. Election officials in several of these jurisdictions we visited reported concerns about finding poll workers in light of a limited pool of volunteers. For example, election officials in a large jurisdiction in Colorado told us the average age of poll workers was over 70 years old and expressed concerns about obtaining poll workers who could physically work a 12-hour day. Alternatively, election officials in a large jurisdiction in Florida told us that the younger generation does not have the same commitment to civic duty that the older poll worker generation had and recruiting enough qualified poll workers may be a challenge in the future. These officials noted that about three- quarters of their poll workers are return participants. An election official in a large jurisdiction in Pennsylvania, where the median age of poll workers is about 75 years old, suggested that serving as a poll worker should be treated similarly as serving on jury duty—it should be everyone’s civic duty to serve as a poll worker. In our October 2001 report on election processes, we noted that poll worker reliability was a challenge for election officials, who depended on poll workers to arrive on time, open, and set up polling places. Poll worker absenteeism was a challenge for large and, to some extent, medium jurisdictions in the November 2004 general election. On the basis of our nationwide survey of local jurisdictions, we estimate that 61 percent of large jurisdictions, 20 percent of medium jurisdictions, and 2 percent of small jurisdictions encountered problems with poll workers failing to show up on Election Day. The differences between all size categories are statistically significant. One way that election officials in several large jurisdictions we visited minimized the impact of poll worker absenteeism was to recruit backup poll workers to ensure that polling places were set up and adequately staffed, even if some poll workers failed to show up. For example, election officials in a large jurisdiction we visited in Illinois reported that approximately 1 to 2 percent of about 13,000 poll workers did not show up on Election Day. However, these officials reported that they had recruited stand-by judges who were to report to the elections office on Election Day in case an already scheduled judge did not show up. Election officials in a few other jurisdictions we visited told us that they called poll workers before Election Day to help ensure they showed up. For instance, election officials in a large jurisdiction in Pennsylvania told us that they called all of the chief poll workers—about 1,300 people—during the week prior to the election. Election officials in a large jurisdiction we visited in Connecticut went a step further, reporting that in addition to placing wake- up calls to all of the chief poll workers, they offered rides to poll workers to help ensure they showed up on time. Voters’ experiences on Election Day are largely informed by their interactions with poll workers, who are responsible for conducting many Election Day activities, such as setting up polling places, checking in voters and verifying their eligibility to vote, providing assistance to voters, and closing the polling places. Although these workers are usually employed only for 1 day, the success of election administration partly depends on their ability to perform their jobs well. Depending on the applicable state requirements and the size of the jurisdiction, the steps that election officials take to adequately prepare all of their poll workers can vary, but may include training, testing, or certification. Ensuring that poll workers were adequately trained for Election Day was a challenge reported by some election officials in large and medium jurisdictions we visited, but these officials also reported a variety of steps they took to help prepare poll workers for Election Day. Most states and the District of Columbia reported having training requirements for poll workers for the November 2004 general election, but the frequency and content of training varied. Some states also reported providing guidance related to the training of poll workers. According to our state survey, for the November 2004 general election, 18 states reported having had poll worker training requirements and providing guidance; 20 states and the District of Columbia reported having had training requirements; 9 states reported providing guidance; 1 state reported that it did not require training nor provide guidance; and Oregon, which conducted all-mail voting on Election Day 2004, indicated this requirement was not applicable. Figure 35 shows reported state requirements for training for the chief poll worker at a precinct or polling place and for poll workers. About half of the states with training requirements reported requiring that poll workers be trained prior to every election or every general election. According to our survey, of the 38 states and the District of Columbia that reported having training requirements for poll workers, 22 states and the District of Columbia reported requiring poll workers to be trained prior to every election or every general election. For example, Florida provisions in place for the November 2004 general election required that poll workers have a minimum of 3 hours of training prior to each election and demonstrate a working knowledge of the laws and procedures relating to voter registration, voting system operation, balloting, and polling place procedures, and problem-solving and conflict resolution skills. These Florida provisions also require, among other things, that local election officials are to contract with a “recognized disability-related organization” to develop and assist with training for disability sensitivity programs, which must include actual demonstrations of obstacles confronted by persons with disabilities during the voting process, including obtaining access to the polling place and using the voting system. Ten states reported requiring that poll workers be trained on a scheduled basis (e.g., yearly or every 2 years). For example, under provisions in place for the November 2004 general election, New Jersey required that all district board members attend training sessions for each election at least once every 2 years. The other 6 states reported that training was required at least once, but not prior to every general election; that the frequency of training was not specified; or that they did not know. For the November 2004 general election, fewer states reported requiring testing or certification than training for poll workers. According to our state survey, 12 states reported having requirements for testing or certification for poll workers, and 16 states reported having these requirements for the chief poll worker at a precinct or polling place. Election officials in 6 of the 28 jurisdictions we visited reported that poll workers were certified or tested after training. Election officials in 6 other jurisdictions told us that they used informal tests or quizzes or informally monitored poll workers performance in training. For instance, election officials in a jurisdiction in Kansas told us that they gave poll workers a nongraded quiz at the end of training. In Nevada, where state election officials indicated in our state survey that there are no requirements for poll worker training or testing, election officials in the 2 jurisdictions we visited told us that they required poll workers to attend training. Election officials in 1 of these jurisdictions required all poll workers to attend a training class each year and to pass a hands-on performance test in which they demonstrate their ability to perform their assigned function, such as checking in voters or programming the DRE voting equipment. Training provided to poll workers varies greatly among local election jurisdictions. Therefore, we asked questions about training challenges as part of our site visits only where we were able to gain an understanding of the types of training and specific conditions faced by local jurisdictions. Election officials in a small jurisdiction we visited in New Hampshire reported that they did not conduct training for the November 2004 general election because poll workers only receive training if they have not previously worked in the polling place, and all nine poll workers had worked in the polling place before. Election officials in the 27 other jurisdictions we visited described the training that they provided poll workers for the November 2004 general election. According to these officials, poll worker training generally occurred in the weeks or month before the election and ranged from 1 hour to 2 days, depending on the type of poll worker being trained. Election officials in most of these jurisdictions reported that training was mandatory. However, the frequency varied, with election officials in the majority of jurisdictions reporting that they required training prior to every election. Election officials in a few jurisdictions reported that poll workers received training at least once or on a scheduled basis, such as once every 2 years. Election officials in many jurisdictions told us that poll workers were paid to attend training, and payments could range from $5 to $50. While election officials in nearly all of these jurisdictions reported that training was conducted by these officials and their staffs, the manner in which the training was conducted varied. For example, election officials in a large jurisdiction in Nevada told us that poll workers were trained in a workshop fashion in which 15 to 20 poll workers were provided hands-on training for their specific function, such as operating voting machines or processing voters. In a large jurisdiction in Kansas, election officials told us that they conduct the training for between 70 and 100 poll workers using a formal presentation as well as the documents poll workers use on Election Day and the voting equipment. Election officials in a large jurisdiction in Washington told us that poll worker training consisted of a PowerPoint presentation conducted in a train-the-trainer style where election officials trained the chief poll workers, who then trained the poll workers. Election officials in 9 of the 27 large and medium jurisdictions we visited reported encountering some challenges with training poll workers, but generally reported that they overcame them. Some of the challenges reported by these officials included keeping poll workers informed about new or changing requirements, conveying a vast amount of information about election processes to a large number of people in a limited time, and ensuring that poll workers understand their tasks and responsibilities. For instance, election officials in a large jurisdiction in Ohio told us that it was challenging keeping up with state changes and incorporating such changes into poll worker training. Election officials in a large jurisdiction in Connecticut told us that effectively training poll workers on a variety of new changes (such as those required by HAVA) could be challenging because the procedures can be difficult to understand, especially for tenured poll workers who have been working at the polls for many years. Election officials in a large jurisdiction in Kansas noted that addressing the need to have a systematic way to evaluate poll worker performance at polling places was a challenge. These officials said that they currently rely on the fact that the poll worker showed up, general observations of the poll workers’ performance, and feedback cards completed by voters exiting the polls. Election officials in the jurisdictions we visited reported taking steps to address these challenges, such as providing poll workers training manuals or booklets for reference on Election Day, training poll workers to perform one function, and conducting training in a workshop fashion with smaller class sizes. Election officials and poll workers perform many tasks throughout the day to ensure that elections run smoothly and that voters move efficiently through the polling place. These activities can include checking in voters, providing instructions for voting machine operation, or assisting voters at the polls. We asked on our survey of local jurisdictions whether for the November 2004 general election jurisdictions encountered poll workers failing to follow procedures for a variety of activities, including, among others, procedures for voter identification requirements, providing correct instructions to voters, and voting machine operation. Overall, according to this survey, most local election jurisdictions nationwide did not encounter problems with poll worker performance. For example, we estimate that 90 percent of all jurisdictions did not encounter poll workers failing to follow procedures related to voter identification requirements, 92 percent of all jurisdictions did not encounter poll workers failing to provide correct instructions to voters, and 94 percent of all jurisdictions did not encounter poll workers failing to follow procedures for voting machine operation. However, we estimate that poll worker performance problems encountered varied by size category of jurisdiction, with more large jurisdictions encountering problems than medium and small jurisdictions. For example, we estimate that 37 percent of large jurisdictions, 19 percent of medium jurisdictions, and 3 percent of small jurisdictions encountered problems with poll workers failing to follow procedures related to voter identification requirements. In terms of providing correct instructions to voters, we estimate that 31 percent of large jurisdictions, 12 percent of medium jurisdictions, and 1 percent of small jurisdictions encountered problems with poll worker performance in this area. For both results, the differences between all size categories are statistically significant. Large jurisdictions could have encountered problems for a variety of reasons, including having more poll workers to train and oversee or having fewer options for recruiting skilled poll workers. While jurisdictions may have reported on our survey that they encountered problems with a particular aspect of poll workers’ performance, written comments provided on the questionnaire indicated that these problems may not have been widespread or may have been easily remedied after they occurred. For example, one survey respondent wrote: “Errors were few and far between, but with 4,500 poll workers, it is very difficult to answer that [our jurisdiction did not encounter any problems with poll workers’ performance.]” Election officials in 12 of the 28 jurisdictions we visited reported that they encountered some problems with poll workers’ performance, but that generally the majority of poll workers performed well. For example, an election official in a large jurisdiction in Pennsylvania we visited told us that while the jurisdiction did not encounter serious problems with performance, in the official’s opinion, it would be disingenuous to report that there were no problems with the 6,500 poll workers working the polls on Election Day. In an effort to minimize poll worker confusion or performance problems, many jurisdictions provided written guidelines or instructions for poll workers to use at the polling place. On our nationwide survey we asked local jurisdictions whether or not for the November 2004 general election they had written guidelines or instructions at the polling place for poll workers covering a variety of topics, such as voting equipment operation; procedures related to verifying voters’ eligibility to vote; and assisting voters with special needs, such as voters with disabilities or who spoke a language other than English. We estimate that 94 percent of all jurisdictions had at least one set of written guidelines at polling places for poll workers. Further, more large and medium jurisdictions provided instructions to poll workers than small jurisdictions. For example, we estimate that 99 percent of large jurisdictions, 96 percent of medium jurisdictions, and 80 percent of small jurisdictions provided written instructions for poll workers to use at polling places if a voter’s name was not on the poll list. In addition, we estimate that 96 percent of large jurisdictions, 92 percent of medium jurisdictions, and 71 percent of small jurisdictions provided written guidelines to use at the polls for identification requirements for first-time voters who registered by mail and did not provide identification with their registration. For both of these results, small jurisdictions are statistically different from both medium and large jurisdictions. During our site visits, election officials in 26 of the 28 jurisdictions we visited reported that they provided written instructions or checklists for poll workers to have at polling places. Election officials in the 2 smallest population size jurisdictions we visited reported that they did not provide written instructions for poll workers. As the officials in a small jurisdiction in New Hampshire said, they are at the polling place to resolve issues personally as they arise. Figure 36 illustrates examples of some checklists that election officials in jurisdictions we visited provided to us. Written instructions and checklists may help poll workers, but problems on Election Day can still be encountered with some issues, in particular issues related to voter registration. We asked on our survey of local jurisdictions whether for the November 2004 general election jurisdictions maintained a written record to keep track of issues or problems that occurred on Election Day. We estimate that 55 percent of all jurisdictions nationwide maintained a written record to keep track of issues. Of those that did maintain a record and provided written comments on our survey, the issues most frequently cited by election officials were problems with voter registration (e.g., not being registered, being registered at another polling location, or being in the wrong polling location). Election officials are responsible for selecting and securing a sufficient number of polling places that meet basic requirements and standards. Polling place locations vary across jurisdictions but can include public and private facilities, such as schools, government buildings, fire departments, community centers, libraries, churches, and residential facilities. To meet the needs of the voting population, polling places should be easily accessible to all voters, including voters with disabilities. Polling places also need to have a basic infrastructure, including electricity, heating and cooling units, and communication lines, to support some voting machines and be comfortable for voters and poll workers. In our October 2001 report on election processes, we stated that obtaining polling places for the November 2000 election was not a major challenge for most jurisdictions. On the basis of our 2005 survey of local jurisdictions, obtaining a sufficient number of polling places was not difficult for the majority of jurisdictions. However, finding polling places that met these standards was generally more difficult for large and medium jurisdictions than for small jurisdictions. Election officials in many jurisdictions reported combining precincts in one polling place, with minimal challenges, for the November 2004 general election. For the November 2004 election, obtaining a sufficient number of polling places was not difficult for the majority of jurisdictions. On the basis of our survey of local jurisdictions, we estimate that 3 percent of all jurisdictions found it difficult or very difficult to obtain a sufficient number of polling places for the November 2004 general election. However, the difficulty encountered in finding enough polling places varied by the size category of jurisdiction. We estimate that 14 percent of large jurisdictions, 8 percent of medium jurisdictions, and 1 percent of small jurisdictions had difficulties obtaining enough polling places, as presented in figure 37. Small jurisdictions may not experience difficulties obtaining polling places for a variety of reasons, among them because they do not have to find as many locations to support an election as large jurisdictions do. For example, election officials in a small jurisdiction we visited in New Hampshire told us that because of the small voting population (about 1,200), they only needed to use one polling place—the town hall—for the November 2004 general election, as shown in figure 38. In contrast, large jurisdictions could be responsible for selecting hundreds of polling places for Election Day. Election officials from a large jurisdiction we visited in Illinois reported that they used over 1,800 polling places for the November 2004 election and hired staff to find polling places that met standards for their jurisdiction. Although election officials in some large and medium jurisdictions told us that they needed to find numerous polling places, officials in only 1 large jurisdiction we visited in Kansas told us that they encountered difficulties finding suitable polling places, in part because of low payments provided to use polling place facilities. Election officials in this jurisdiction reported that in 2003 they implemented a campaign to “recruit” polling places and sent letters to schools and other possible locations in addition to conducting site visits and inspections. These election officials reported that after their efforts, they added about 70 polling places for use on Election Day 2004. Selecting accessible polling places includes assessing parking areas, routes of travel, exterior walkways, and entrances, as well as interior voting areas. In our October 2001 report on voters with disabilities, we identified a variety of challenges faced by election officials in improving the accessibility of voting—including the limited availability of accessible buildings and the lack of authority to modify buildings to make them more accessible. Finding accessible polling places continued to be a challenge for some jurisdictions for the November 2004 general election. On the basis of our local jurisdiction survey, we estimate that 36 percent of large jurisdictions, 25 percent of medium jurisdictions, and 5 percent of small jurisdictions found it difficult or very difficult to find enough accessible polling places, as shown in figure 39. Election officials in some jurisdictions we visited told us that they encountered challenges finding accessible polling places. For example, election officials in 2 large jurisdictions we visited reported that it was challenging to find polling places that were accessible because many of the public buildings in their jurisdiction were older facilities and were not compliant with the Americans with Disabilities Act (ADA). However, election officials reported taking steps to help ensure that polling places were accessible. For example, election officials in a large jurisdiction in Georgia reported that they hired a private company to conduct surveys of the polling locations and determine whether they were accessible and what, if any, changes needed to be made to make the facilities compliant. Some election officials described making minor or temporary modifications to polling places to ensure that they were accessible, for example, by adding ramps, using doorstops for heavier doors, or clearly identifying accessible entrances. In addition to being accessible for all voters, polling places should have sufficient parking for voters and phone lines to provide for communication on Election Day. From our local jurisdiction survey, more large and medium jurisdictions encountered difficulties in finding polling places with these characteristics than small jurisdictions. On the basis of this survey, we estimate that 38 percent of large jurisdictions, 18 percent of medium jurisdictions, and 4 percent of small jurisdictions had difficulties obtaining polling places with adequate parking. The differences between all size categories are statistically significant. In terms of finding polling places with adequate phone lines, we estimate that 35 percent of large jurisdictions, 33 percent of medium jurisdictions, and 9 percent of small jurisdictions had difficulties obtaining polling places with adequate phone lines. Providing cell phones to poll workers was one way for some jurisdictions to help ensure communication between polling places and the election office on Election Day. Also on the basis of our survey, we estimate that cell phones provided by the jurisdiction were the primary means of communication for 29 percent (plus or minus 9 percent) of large jurisdictions, 15 percent (+9 percent, -6 percent) of medium jurisdictions, and 3 percent of small jurisdictions. For both of these results, the differences between both large and medium jurisdictions and small jurisdictions are statistically significant. Election officials in some large jurisdictions we visited included cell phones as part of the supplies provided to each polling place. For example, officials in a large jurisdiction we visited in Nevada told us they paid poll workers $5 to use their own cell phones. We identified several strategies in our October 2001 report on election processes that election officials said helped in their efforts to obtain enough polling places, including locating more than one precinct at a single polling place. Results of our 2005 state and local surveys and site visits show that combining precincts at a polling location continued to be a strategy used by local jurisdictions, predominantly large and medium jurisdictions, to find adequate polling locations for voters in all precincts. According to our state survey, nearly all states (47) reported that they allowed precincts to be colocated in a polling place for the November 2004 general election. Ten states reported allowing colocation only under specified conditions, for instance, if no suitable polling place existed for a precinct, and 37 states reported allowing colocation but did not specify conditions. On the basis of our survey of local jurisdictions, we estimate 33 percent of all jurisdictions had multiple precincts located in the same polling place. However, more large and medium jurisdictions combined precincts than small jurisdictions. We estimate that 78 percent of large jurisdictions, 63 percent of medium jurisdictions, and 19 percent of small jurisdictions had multiple precincts located in the same polling location. The differences between all size categories are statistically significant. During our site visits, election officials in 22 of the 28 jurisdictions we visited told us that they combined precincts in the same polling location for the November 2004 general election. Included in the 6 jurisdictions that did not report combining precincts in a single polling place were the 1 small and 2 medium jurisdictions we visited. Further, in many of the large jurisdictions we visited, election officials told us that most of their polling places had more than one precinct. For example, election officials in a large jurisdiction in Ohio told us that there was an average of three precincts per polling location, but that there could be up to nine precincts in one polling place. Although combining precincts may help solve the issue of obtaining a sufficient number of voting places that meet requirements, other challenges may surface, including voter confusion in not finding the correct precinct at a location, poll worker confusion about eligibility if a voter is not in the correct precinct poll book at a polling place, and the possibility of voters voting on the wrong voting machine for their precinct. However, on the basis of our local survey, few challenges were encountered in polling places where precincts were combined for the November 2004 general election. We estimate that of the 33 percent of jurisdictions with multiple precincts at a polling location, 85 percent (+6 percent, -5 percent) did not experience challenges in terms of voters locating their correct precinct. Election officials in jurisdictions we visited described steps they took to help ensure that voters were able to easily find their correct precinct, including posting signage to direct voters to the correct precinct, using specially designated poll workers as greeters to direct voters as they entered the polling location, setting up separate tables or voting areas for each precinct, and locating the precincts in distinct areas of the building, for example, in the gym and cafeteria of a school building. Election officials in a few jurisdictions we visited told us that they consolidated functions, such as the check-in table or voting equipment, for precincts located in the same polling location in order to avoid voter confusion or problems with voting. For example, election officials in a jurisdiction in Kansas reported that they used one registration table with a consolidated poll book for all precincts at a polling location. As a result, voters only needed to locate one table. Election officials in a jurisdiction in Nevada reported that once voters checked in, they were able to vote on any voting machine in the polling location because the machines were programmed with ballots from each of the precincts located at the polling place, and poll workers activated the particular ballot style for a particular voter. Beyond consolidating some functions at a polling place, in 2004 Colorado authorized the use of “vote centers,” which are polling places at which any registered voter in the local election jurisdiction may vote, regardless of the precinct in which the voter resides. Each vote center is to use a secure electronic connection to a computerized registration list maintained by the local election office to allow all voting information processed at any vote center to be immediately accessible to computers at all other vote centers in the jurisdiction. Larimer County, with 143 precincts and about 200,000 registered voters, reported using 31 vote centers for the November 2004 general election. Election officials in Larimer County described several benefits of vote centers, including voter convenience; cost- effectiveness; minimal voter wait time on Election Day; and overall easier management, including requiring fewer poll workers. Election officials told us that voters liked the convenience of being able to vote anywhere in the jurisdiction, regardless of the precinct they live in. Vote centers can also be cost-effective, according to election officials, for jurisdictions faced with replacing voting equipment to comply with HAVA accessibility requirements for voting systems used in federal elections. Using vote centers also reduces the number of polling places a jurisdiction needs, which can be cost-effective with respect to finding enough accessible polling places. Election officials also told us that on Election Day they were able to avoid having long lines at most vote centers by issuing media announcements to voters throughout the day specifying which vote centers were busy and which were not, and by using their electronic poll book technology to process voters quickly and to monitor ballots and supplies. Officials told us that on average there was a 15-minute wait time for voters. Finally, officials told us that from the perspective of election officials, vote centers facilitated aspects of election administration because there were fewer locations (about 30 instead of about 140) and fewer poll workers overall to recruit and train. While other jurisdictions in Colorado have used vote centers since the November 2004 election or are planning to pilot vote centers in elections in 2006, election officials in a second jurisdiction we visited in Colorado explained why their jurisdiction opted to not use vote centers. Officials told us that their jurisdiction assessed the feasibility of implementing vote centers and concluded that despite several advantages offered by vote centers, the cost of implementation was prohibitive. For example, election officials identified costs including the connectivity for the electronic poll books, so that voters can be credited with voting in real time; potential rental costs for facilities, such as hotels, to house vote centers; and the expense of purchasing additional voting equipment. Because a voter in a jurisdiction using vote centers can vote at any vote center, each vote center needs to be stocked with all applicable ballot styles for an election or have DRE voting machines capable of being programmed with all applicable ballot styles, according to election officials. For the November 2004 general election, these officials told us that they used optical scan for absentee and Election Day voting and DREs for early voting. To avoid the cost and confusion of having to print and keep track of ballot styles for their 378 precincts—compared to Larimer County’s 143 precincts—election officials said that they would need to purchase additional DRE voting machines if they were to implement vote centers. Election officials are responsible for designing ballots that meet various state requirements, possibly federal requirements under the minority language provisions of the Voting Rights Act relating to offering voting materials in specified minority languages in addition to English, and the requirements of the particular voting equipment, and these ballots must be easy for voters to understand. Ballot design generally involves both state and local participation. Most states (46 states and the District of Columbia) were involved in ballot design for the November 2004 general election. For instance, according to our state survey, 17 states and the District of Columbia reported designing ballots for local jurisdictions, 3 states reported requiring approval of the ballot design, and 26 states reported having requirements for local jurisdictions regarding ballot design (e.g., layout, candidate order, or paper stock). Specifically, election officials must determine all races, candidates, and issues that voters in each precinct in a jurisdiction will vote on and construct layouts for these races and issues for the particular types of ballots used with their election equipment. Figure 40 illustrates an optical scan ballot used in El Paso County, Colorado, for the November 2004 general election. In our October 2001 report on election processes, we noted that despite the controversy over the “butterfly ballot” and other ballot problems in the aftermath of Florida’s 2000 general election, very few jurisdictions nationwide thought that confusing ballot design was a major problem. Ballot design problems were not highlighted by voters as a problem in the November 2004 election; therefore, we did not inquire about the extent of ballot design problems in our local survey of jurisdictions. However, we asked about ballot design processes and problems during our visits to local election jurisdictions. Election officials in all of the jurisdictions we visited reported that they did not encounter voter problems with confusing ballot designs for the November 2004 general election. However, election officials in 7 jurisdictions we visited told us that designing easily understood ballots that meet the particular constraints of the voting equipment can be challenging when there are a large number of races or issues to include on the ballot. For example, election officials in a jurisdiction we visited in Colorado that used optical scan ballots told us that fitting all of the races and questions on the ballot is always challenging, but they managed to do so by limiting the number of words on ballot questions and using small fonts. These officials noted that they provided magnifying glasses at polling places to assist voters. Election officials in a jurisdiction we visited in Florida reported that they had to use oversized optical scan ballots to accommodate the number of constitutional amendments that had to be included on the ballot. Some ballot design options taken to help ensure clarity for voters could lead to problems later. For example, election officials in a jurisdiction in Kansas reported that they used a two-sided ballot design requiring that the optical scan counting equipment read the ballot front and back, which presented a problem. Chapter 6 discusses challenges with counting ballots. The requirements of the voting equipment may also limit options election officials can take related to ballot design. For example, election officials in a jurisdiction in Illinois that used punch cards reported that lengthy ballots could have been a problem in the November 2004 election, but they decided to change the type of punch card ballot used. These officials told us that increasing the number of punch positions allowed for more space on the ballot and prevented challenges related to length of ballot. However, with punch card ballots, the greater the number of choices on a punch card, the greater the potential for voter error in punching the preferred choice, as voters must align the ballot carefully. Election officials in jurisdictions we visited that designed their ballots described steps they took to ensure that ballots were clear to voters, including using templates from the state or election management systems, proofreading both before and after printing, and public viewing or testing of ballots. For example, election officials in a jurisdiction in Colorado told us that prior to printing they send proofs of the ballot designs to candidates for their review. After printing, election officials said that staff members and representatives of the political parties test the ballot designs to ensure that there are no problems with how the ballots are processed through the counting equipment. Election officials in another jurisdiction in Colorado reported conducting a mock election with county employees to review the ballot and test a ballot from each package of printed ballots. Election officials in a jurisdiction in Ohio told us that they displayed the ballots for the general public to view and test. The activities and plans that election officials undertake related to preparing ballots or voting equipment can have a direct impact on a voter’s Election Day experience. For example, reports about the November 2004 election highlighted shortages of ballots and voting machines at some polling places. While election officials may not be able to prepare for every contingency that could affect a voter’s wait time or experience at the polls, ensuring that there is a sufficient number of ballots or voting machines can minimize potential problems. On the basis of our survey of local jurisdictions, we estimate that few jurisdictions had problems with ballot or voting equipment shortages for the November 2004 general election. We estimate that 4 percent of all jurisdictions experienced problems with Election Day ballot shortages, and an estimated 4 percent of all jurisdictions did not have enough voting equipment on Election Day. However, there were statistical differences between large and small jurisdictions in having enough voting equipment. We estimate that 12 percent of large jurisdictions, 4 percent of medium jurisdictions, and 3 percent of small jurisdictions did not have enough voting equipment. Election officials in 23 of the 28 jurisdictions we visited reported that they encountered no challenges with preparing and delivering ballots, voting equipment, and supplies for the November 2004 general election. However, these activities could present logistical challenges for jurisdictions if there are unexpected delays, or for jurisdictions that are required to prepare ballots in multiple languages or prepare and deliver numerous voting machines to a large number of polling places. To ensure that there is an adequate supply of machine-readable paper ballots on Election Day, election officials may conduct numerous activities, such as designing, reviewing, proofreading, printing, and testing ballots. Uncertainties about ballot content, such as whether or not certain candidates or issues will be included on the ballot, could affect these activities by delaying printing or leading to a last-minute rush to ensure that ballots are printed in time for the election. While election officials in most of the jurisdictions we visited did not report encountering these uncertainties, election officials did in 4 jurisdictions. For example, election officials in a jurisdiction in Colorado reported that ballot printing was delayed by three statewide lawsuits regarding the content of the ballot. These officials reported that they prepared two ballot designs—one with a particular candidate’s name and one without—so that they would be prepared to send the ballots to an external printer regardless of the lawsuits’ outcome. Some jurisdictions are required to provide ballots in languages other than English. Producing ballots in multiple languages can add to the complexity of preparing ballots because election officials must take steps to ensure proper translation and printing for each required language. On the basis of our local jurisdictions survey, we estimate that 6 percent of jurisdictions nationwide provided ballots in other languages. We estimate that significantly more large jurisdictions provided ballots in languages other than English than medium and small jurisdictions. We estimate that 26 percent of large jurisdictions (compared to 10 percent of medium jurisdictions and 3 percent of small jurisdictions) provided ballots in languages other than English. Once voting equipment, ballots, and supplies have been prepared, ensuring that they are transported to polling places can be a logistical challenge for jurisdictions with thousands of voting machines and hundreds of polling places. Election officials in 18 of the 28 jurisdictions we visited told us that they contracted with moving companies to deliver voting equipment to polling places prior to Election Day. For example, election officials in a jurisdiction in Pennsylvania told us that they contract with a moving company that transports about 1,000 DREs to about 400 polling places in the week prior to Election Day. Election officials in a jurisdiction in Nevada told us that to ensure that voting machines were delivered to the correct polling places, they bar-coded each DRE and also assigned a bar code to each polling place. Upon delivery, contract movers used scanners to read the bar codes on each DRE and the bar code for the specific polling place. Prior to Election Day, these officials said that teams of election staff technicians then went to each polling place to set up the DREs and verify the scanned bar codes. After setting up the DREs, the rooms in which they were located were secured until Election Day. In contrast, in a jurisdiction we visited in New Hampshire, two election workers delivered 12 optical scan counters to the 12 polling places at 4:00 a.m. on Election Day. Figure 41 shows stored voting equipment—with accompanying delivery instructions for each DRE for 1 location—in 3 large jurisdictions we visited that needed to be prepared and delivered to polling places prior to Election Day. Long voter wait times are a problem that election officials try to avoid. However, voters waiting in line at the polls was an issue identified in reports reviewing the November 2004 general election. These reports identified a variety of factors, including confusion about a voter’s registration status, ballot or voting equipment shortages, or malfunctioning voting equipment that led to long voter wait times. We asked election officials during our site visits whether or not any polling places in their jurisdictions had long lines during the November 2004 general election and to describe factors they thought contributed to or helped to reduce long lines. Election officials in 17 of the 28 jurisdictions we visited reported having long lines at one or more polling places in their jurisdiction at some point on Election Day. However, there was variation in the reported voter wait times, times of day, and numbers of polling places with lines. For instance, election officials described voter wait times that ranged from 15 minutes to 1 ½ hours. Some election officials reported that the longer lines occurred in the morning; others told us that they kept polling places open past the official closing time to accommodate voters who were in line when the polls closed. Election officials in over half these 17 jurisdictions attributed long lines to higher than expected voter turnout, both in general and at peak voting times. Some of these jurisdictions were located in states where the presidential race was considered close (often referred to as “battleground states”). For example, the election official in a jurisdiction in Nevada attributed long lines to using a new voting system in addition to being a battleground state and encountering high voter turnout. This official estimated that there were between 30,000 and 35,000 more voters for the November 2004 general election than in previous elections. Election officials in 2 jurisdictions we visited in Ohio told us that higher than expected voter turnout in some precincts led to long lines. For example, election officials in 1 of these jurisdictions reported that at a polling place where two precincts were located there was higher than expected turnout because of a school board race. According to these officials, at this polling place there was a single line for voters from both precincts to check in at the registration table, and this line backed up. Election officials in another jurisdiction in Ohio told us that some precincts had long lines, and one precinct in particular had a waiting time of up to 1 hour. These officials said that one precinct closed 30 to 45 minutes after closing time for the voters that were in line at 7:30 p.m. Election officials in 11 of 28 jurisdictions we visited told us that none of the polling places in their jurisdictions had long lines, and some described factors that helped to reduce or prevent lines. High voter turnout prior to Election Day—either during early voting or through absentee voting—was one factor they identified. For example, election officials in 2 jurisdictions we visited—a second jurisdiction in Nevada and 1 in New Mexico—told us that about 60 percent of those who cast ballots voted early or absentee. Election officials in a jurisdiction we visited in Washington (which reported that it did not require or allow early voting) told us that they attributed their lack of long lines on Election Day to the fact that two-thirds of voters in their jurisdiction vote by absentee ballot. Election officials in a jurisdiction in Florida reported that in planning for the November 2004 general election, they decided to encourage early and absentee voting as alternatives to Election Day voting in anticipation that there would be heavy turnout for the general election. Their voter education campaign, which included buying airtime on radios and in movie theaters, stressed early voting options. In the end, about 40 percent of voters cast early ballots, which, according to election officials, made crowds easier to manage on Election Day. On Election Day, poll workers may need to communicate with election officials at the central office for a variety of reasons—to inquire about a person’s eligibility to vote if his or her name does not appear in the poll book, to report voting equipment problems, or to report other issues that could occur at a polling place on Election Day. On the basis of our nationwide survey of local jurisdictions, for the November 2004 general election, we estimate that for 48 percent of all jurisdictions, the primary means of communication between polling places and the central office was telephones installed at polling places. Cell phones were also used as a primary means of communication in some jurisdictions. For example, on the basis of our local survey results, we estimate that for 25 percent of all jurisdictions, personal cell phones were the primary means of communication. Having inadequate communication lines on Election Day was a problem for election officials in the November 2000 election, as we noted in our October 2001 report on election processes. On the basis of our 2005 survey of local jurisdictions, communication problems between polling places and the election office on Election Day were a challenge for some jurisdictions in the November 2004 election, and these problems varied by the size category of jurisdiction, with more large jurisdictions encountering major problems than medium and small jurisdictions. We estimate that 36 percent of large jurisdictions, 63 percent of medium jurisdictions, and 89 percent of small jurisdictions encountered no major problems with the communication system used at polling places. Small jurisdictions may not have experienced communication problems on Election Day for a variety of reasons, among them because a single polling place is located in the same building as the central election office, allowing the election officials to be physically present to resolve any questions or issues. Election officials in small jurisdictions provided comments on our nationwide survey of local jurisdictions about the primary communication system used in their jurisdictions on Election Day, including “personal contact—the clerk’s office is across the hall from the polling place,” “ yelled across the room,” or “we are the central office and the polling place.” In addition, the election official in the small jurisdiction we visited in New Hampshire told us that the town clerk was on site at the one polling place. Election Day communication problems encountered by some large and medium jurisdictions included overloaded phones because of the volume of calls. On the basis of our local jurisdictions survey, we estimate that 49 percent (plus or minus 8 percent) of large jurisdictions, 14 percent of medium jurisdictions, and 1 percent of small jurisdictions experienced overloaded phone systems. The differences between all size categories are statistically significant. Election officials in many large jurisdictions we visited reported receiving numerous phone calls on Election Day, both from polling places and from the public. In addition to poll workers calling from polling places, election officials at the central office may receive phone calls from citizens asking about the location of their polling place or whether or not they are registered to vote. For example, a large jurisdiction we visited in Nevada reported receiving over 35,000 calls on Election Day 2004, about three times the number reportedly received in 2000. Election officials reported that most calls received were from people wanting to know whether or not they were registered or where their polling place was, despite providing polling place locations on their Web site, printing the locations in the newspaper, and mailing a sample ballot listing polling place locations to every registered voter in the jurisdiction. Election officials in 2 other large jurisdictions in Florida and Kansas reported that the volume of calls received was extremely high and that most inquiries concerned voter eligibility. In 1 of these 2 jurisdictions, election officials told us that many poll workers could not get through to the elections office to verify voter registration information, which may have increased the number of provisional ballots issued during the election. Election officials in many of the large jurisdictions we visited reported taking steps to manage, or even reduce, the volume of calls from both polling places and the public. These actions included setting up call centers or phone banks, installing additional phone lines in their offices, or hiring temporary workers. For example, election officials in a large jurisdiction in Pennsylvania reported that after experiencing problems being able to handle the volume of calls on Election Day 2000, they implemented a call center at their office with 30 phone lines for the November 2004 election. While these election officials reported receiving “a lot” of calls for the 2004 general election, they said they were able to successfully handle the volume because of the new phone lines. Election officials in a large jurisdiction in Illinois reported that a feature, new for the November 2004 election, on the jurisdiction’s Web site that allowed voters to determine their polling place online helped to reduce the number of phone calls received from people asking about polling location. After the November 2004 general election, some reports highlighted allegations of voter intimidation by third parties (e.g., poll watchers, observers, or electioneers) at polling places. To gain a better understanding of the extent to which this alleged behavior occurred and because the range of behaviors and circumstances in which they could have occurred was difficult to capture on a structured survey, we asked election officials during our site visits about challenges they faced conducting voting on Election Day—specifically, we asked them about any problems they encountered with voter intimidation. Election officials in 19 of the 28 jurisdictions we visited did not report experiencing problems with third parties on Election Day. However, election officials in 9 jurisdictions we visited in battleground states reported challenges with disruptive third- party activities. In some instances these third parties simply increased the number of people that poll workers were to manage at a polling location; in others, election officials told us third-party observers provided misinformation to voters or even used intimidation tactics. Election officials in a jurisdiction in Nevada told us that poll watchers were the biggest challenge on Election Day. Poll watchers, according to election officials, had been bused in from another state to observe the election because Nevada was a battleground state, which led to having 14 poll watchers at some locations. These officials noted that while most poll watchers simply observed, the poll watchers did increase the number of people at polling places, creating more for poll workers to manage. Election officials in other jurisdictions reported that third-party behavior negatively affected poll workers and voters. For example, election officials in a jurisdiction in Pennsylvania reported that one of the biggest challenges on Election Day was managing poll workers’ stress levels in an especially contentious election where poll watchers and observers yelled at them throughout the day. Election officials in another jurisdiction in Nevada told us that outside observers’ behavior was disruptive and noted that the observers were contentious, violated electioneering limits at the polling place, and questioned every action that poll workers made. Election officials in a jurisdiction in Colorado reported that at one polling location on a college campus, poll watchers and representatives of a national organization were encouraging students to go to the polling place at one time to create a disruption. Students were also being encouraged to get back in line after they had voted, which caused long lines for other voters. Election officials said that they ended up calling security officers to help manage the situation. In other instances, election officials reported that observers provided misinformation to voters or even used intimidation tactics. Election officials in a jurisdiction in Florida reported that third-party organizations caused confusion at polling places by misinforming voters and staging demonstrations. In a jurisdiction we visited in Colorado, election officials told us that poll watchers caused problems at some polling places by providing misinformation to voters, such as informing them that their provisional ballots would not be counted. In a jurisdiction in New Mexico, election officials said that one polling place had to remain open until 10:30 p.m. because voters were encouraged by local political advocates to go to that polling place to vote even though the polling location for their precinct had been changed. As a result, according to these officials, hundreds of provisional ballots were cast at the polling place, which made for long waiting times. Election officials in another jurisdiction in New Mexico reported that outside candidate advocates and observers from political parties tried intimidation tactics and treated people at the polls “terribly.” For example, these election officials told us that some advocates were observed taking photographs of the license plates of Hispanic voters as they arrived at polling places. We did not ask a specific question about third-party activities at polling places on our survey of local jurisdictions because of the complexities in capturing the range of alleged behaviors on a structured survey. However, we asked whether local election jurisdictions maintained a written record of issues that occurred on Election Day and, if so, what issue or problem occurred most frequently on Election Day. Several election officials from jurisdictions in battleground states that provided comments on our nationwide survey wrote that electioneering or poll watchers did. For example, election officials from Florida, Colorado, and Iowa wrote “voters complained about being harassed by demonstrators while waiting in line to vote,” “poll watchers acting aggressively,” and “poll watchers (who were attorneys, mostly) were interfering with the process, intimidating precinct officials, and giving erroneous advice to voters who showed up at the wrong polling place.” Administering an election in any jurisdiction is a complicated endeavor that involves effectively coordinating the people, processes, and technologies associated with numerous activities. Many of the challenges that election officials reported encountering in preparing for and conducting the November 2004 election were not new. Recruiting and training an adequate supply of poll workers, finding accessible polling places, and managing communications on Election Day were challenges we identified in our October 2001 report on the November 2000 election. Data from our local elections jurisdiction survey and site visits to 28 locations, indicate that more large, and to some extent medium, jurisdictions encountered challenges in preparing for and conducting the November 2004 general election than did small jurisdictions. This is not surprising. Larger, diverse jurisdictions may face challenges smaller jurisdictions do not, such as recruiting poll workers with non-English language skills. Larger jurisdictions are also likely to need to rely to a greater degree on technology to manage their elections administration process, and this brings its own set of challenges. The complexity of administering an election and the potential for challenges increase with the number of people and places involved, the ethnic diversity and language skills of the voting population, and the scope of activities and processes that must be conducted. Many of the election officials in large jurisdictions we visited told us that being well prepared, having established policies and procedures in place, and having qualified election staff were factors that contributed to a smooth Election Day. One problem that occurred on Election Day in some jurisdictions that election officials reported encountering was the actions of poll watchers and other third parties that election officials considered disruptive. This presents another issue that election officials may need to include in their Election Day preparations and training. A goal of the election process is to ensure that every eligible voter is able to cast a vote and have that vote counted. In the November 2000 general election, reports of some voters showing up at the polls and not being able to vote raised concerns about eligible voters’ names not appearing on the voter registration list at the polling place or poll workers not otherwise being able to determine voters’ eligibility. While many jurisdictions reported in 2001 having at least one procedure in place to help resolve eligibility questions for voters whose names did not appear on a polling place registration list, only 20 states plus the District of Columbia reported using some form of provisional ballot for the 2000 general election. One of the major changes since the 2000 general election has been the implementation of a HAVA provision requiring, in general, that states permit individuals, under certain circumstances, to cast provisional ballots in elections for federal office. In general, under HAVA, voters who claim to be eligible to vote and registered in the jurisdiction they desire to vote in but whose names do not appear on the polling place registration list are to be allowed to cast provisional ballots in a federal election. These ballots are called provisional because they are counted only if an election official determines that the voter is eligible under state law to vote. In terms of ballot access, provisional ballots benefit voters by allowing an individual to cast a vote, in general, when there is some question as to the individual’s eligibility such as when the individual’s name is not on the registration list or the individual’s eligibility has been questioned by an election official. In terms of ballot integrity, provisional ballots benefit election officials by allowing them to determine voter eligibility prior to counting such ballots (i.e., verifying provisional ballots). In this chapter, we describe (1) events that preceded HAVA’s provisional voting requirements, (2) how states and local jurisdictions implemented the requirement to provide provisional ballots, (3) how states and local election jurisdictions qualified provisional ballots for counting, and (4) the difficulties of estimating and comparing the number of provisional ballots that were cast and counted. Concerns were raised with respect to the November 2000 election that some eligible voters were not allowed to vote because of questions regarding the voters’ eligibility. HAVA required that by January 1, 2004, most states permit the casting of provisional ballots in elections for federal office by voters who affirm in writing that they believe they are eligible to vote and registered in that jurisdiction, but are not found on the voter registration list. Such states are also required under HAVA to provide provisional ballots in federal elections under other circumstances such as for certain voters who registered by mail and do not have required identification, and where an election official asserts that an individual is ineligible to vote. Provisional votes cast under HAVA’s provisional voting requirements are to be counted in accordance with state law if election officials determine that the voter is eligible to vote under state law. Under HAVA, 6 states are exempt from the act’s provisional voting requirements because they either permitted the voter to register on Election Day or did not require voter registration. On the basis of reports from state election officials and in local election jurisdictions we surveyed and visited, states and local jurisdictions varied in a number of ways regarding how they implemented HAVA’s provisional voting requirements in the November 2004 election. Among other things, we found variation in the additional circumstances, apart from those circumstances specified in HAVA, where a provisional ballot would be offered, such as when voters claimed they did not receive an absentee ballot; design of ballots themselves and how they were tracked; and voting method used for casting provisional ballots, such as optical scan ballots or DRE. With respect to the counting of provisional votes, states reported various differences in their counting processes such as the prescribed location from which a voter must cast a provisional ballot in order for it to be counted. Also, with respect to the counting of provisional ballots, according to our estimates from our survey of local election jurisdictions nationwide, a voter not meeting residency requirements was the most frequently cited problem, followed by insufficient evidence that the voter was registered. In jurisdictions we visited, election officials also varied in how they handled a lack of information from the voter that was needed to verify a provisional ballot. National figures on provisional ballots for the November 2004 election are difficult to estimate because of a lack of data on provisional ballots cast and counted, and variation in how states implemented provisional voting. Nevertheless, we estimate that between 1.1 million and 1.7 million provisional ballots were cast in the November 2004 election. The variation in how provisional voting was implemented makes it difficult to compare the use and counting of provisional ballots among jurisdictions. A number of factors can affect the number of provisional ballots cast and counted. For example, one such factor could be an instance in which the polling location hours were extended and votes cast during the extended hours were cast provisionally. Following the November 2000 election, in our October 2001 comprehensive report on election processes nationwide, we noted that the biggest problems on Election Day involved resolving questions about voter eligibility. Typically, a voter’s eligibility is established before a voter receives a ballot, most often by a poll worker examining a poll book or registration list for the person’s name. If the name appears on the list and other identification requirements are met, the voter is given a regular ballot and is allowed to vote. We also noted in our report that in the November 2000 election, a large number of voters with eligibility issues created frustration for voters, long lines, and problems communicating between the polls and election headquarters as workers tried to resolve eligibility issues. For the 2000 general election, when the voter’s name did not appear on the registration list, we reported in October 2001 that jurisdictions had different procedures for dealing with the question of the voter’s eligibility. More specifically, we reported that 20 states plus the District of Columbia used some form of provisional ballot when a voter’s name was not on the voter list, with verification of registration conducted after the election. As we reported, provisional balloting measures went by different names among the states, including provisional ballot, challenged ballot, special ballot, emergency paper ballot, and escrow ballot. Further, in 5 states in the 2000 general election, we reported that voters could complete an affidavit when voting with no further verification of their registration information being required by state law prior to the ballot being counted. The U.S. Census Bureau estimated that of the 19 million registered voters who did not vote in 2000, 6.9 percent did not vote because of uncertainty regarding their registration. In our October 2001 report, we noted that headlines and reports questioned the effectiveness of voter registration by highlighting accounts of individuals who thought they were registered being turned away from polling places on Election Day and jurisdictions incorrectly removing the names of eligible voters from voter registration lists. Our report also found that almost half of the jurisdictions nationwide in 2000 reported having problems with registration applications submitted at motor vehicle agency offices that election officials believed could result in individuals showing up at the polls to vote and discovering that they were not registered. Numerous recommendations were made for federal regulations to require that all states provide provisional voting. For example, the Federal Election Commission in June 2001 recommended that all states devise procedures for voters to cast provisional ballots at the polls under certain conditions, as did the National Commission of Federal Election Reform in August 2001 and the National Task Force on Election Reform in July 2001, among others. Under HAVA, in an election for federal office, most states are to permit individuals to cast a provisional ballot under certain circumstances. The statutory deadline for implementing HAVA’s provisional voting requirement was January 1, 2004. For federal elections, states are, in general, required to allow the casting of a provisional ballot by an individual asserting to be registered in the jurisdiction in which the individual desires to vote and eligible to vote but whose name does not appear on the official list of eligible voters for the polling place, or whom an election official asserts to be ineligible to vote, or who registered to vote by mail but does not have (and has not previously provided) the required registration identification when trying to vote in person or by mail, or casting a vote pursuant to a court order or other type of order extending poll closing times. HAVA requires that an individual be permitted to cast a provisional ballot upon the execution of a written affirmation before an election official at the polling place. The written affirmation must state that the individual is registered to vote in that jurisdiction and eligible to vote in that election. HAVA specifies that either the provisional ballot or the written affirmation information be transmitted to an appropriate election official for a determination as to whether the individual is eligible to vote under state law. Under HAVA, if an individual is determined to be eligible, the provisional ballot is to be counted as a vote in accordance with state law. Election officials, under HAVA, are to give the individual written information on how to ascertain whether the vote was counted and, if the vote was not counted, the reason the vote was not counted. HAVA directs that state or local election officials establish a free access system, such as a toll-free number, for provisional voters to ascertain such information. While HAVA established conditions under which an individual must be allowed to cast a provisional ballot, states are not prohibited from offering provisional ballots for other reasons, or from using ballots with other names (e.g., a challenged ballot) to serve provisional vote purposes. HAVA explicitly provides that the specific choices on the methods of complying with certain act requirements, including the provisional voting requirements, are left to the discretion of the state. In addition, HAVA provides that a state may establish election technology and administration requirements that are stricter than HAVA requirements, so long as they are not inconsistent with other specified federal requirements. On the basis of reports from state election officials and in local election jurisdictions we surveyed and visited, states and local jurisdictions provided for provisional voting in a variety of ways for the November 2004 election. These differences contributed to the variation in the number of provisional votes cast among jurisdictions. The results of our state survey of election officials show that states reported using new or existing legislative or executive actions (which included executive orders, directives, regulations, or policies) to implement HAVA’s provisional voting requirements. Specifically, our state survey showed 27 states reported enacting new legislation or taking executive action to meet HAVA’s provisional voting requirements; 11 states and the District of Columbia reported using the state’s existing legislative or executive action to meet the requirements; 7 states said HAVA provisional requirements were met by a combination of new legislation or executive action and existing actions; 5 states (Idaho, Minnesota, New Hampshire, North Dakota, and Wisconsin), in response to the question of how their state established the provisional voting requirements set forth in HAVA, answered that they were exempt from such requirements; these 5 states are exempt from HAVA provisional requirements, in general, because they have same-day voter registration or no voter registration. Connecticut officials responded, for example, that the state enacted legislation after HAVA to establish HAVA provisional voting requirements. Connecticut state laws were enacted in June 2003 related to the application for a provisional ballot, casting of the ballot, and determination of eligibility for counting of provisional ballots, among other things. In contrast, Alaska election officials reported that existing legislation met HAVA’s provisional voting requirements. According to Alaska’s 2005 updated HAVA plan, the state had an existing provisional voting process known as Questioned Voting. This process, established in the early 1980s, required only minimal changes to meet HAVA provisional voting requirements. Alaska requires use of a questioned ballot for any voter who votes at a polling location where his or her name does not appear on the precinct register, or if the voter does not have identification and is not personally known by the election official. In our state survey, New Jersey reported meeting HAVA provisional voting requirements with a combination of existing and new legislation. In one New Jersey jurisdiction we visited, election officials stated that state provisional voting procedures were first established in 1999. According to these officials, the state amended its provisional ballot election law after HAVA to allow use for voting by court (or other) order after the polls have closed, and by first-time mail registrants who do not provide identification. Election officials in 25 of the 26 jurisdictions we visited that provide for provisional voting told us that they used some form of paper ballot for Election Day provisional voting for the November 2004 election. For example, election officials in the Illinois jurisdictions we visited said that the regular punch card ballot was used by provisional voters, and then placed in provisional ballot envelopes. In the New Jersey jurisdictions we visited officials said that provisional votes were cast on paper ballots that could be counted with optical scan machines (if voters were determined to be eligible). Election officials in Connecticut jurisdictions said that they used hand-counted paper ballots for provisional voters. According to election officials in 1 Ohio jurisdiction and 1 Nevada jurisdiction, DRE was used for Election Day provisional voters. According to election officials or documents they provided in the 2 jurisdictions we visited that used DRE for provisional voting on Election Day, the processes used for casting provisional votes were as follows: In the Ohio jurisdiction, election officials said voters first completed an affidavit statement with a preprinted code number, and signed a special section of the poll book. The poll worker then inserted a unit into the DRE that contained the ballot for the precinct. The poll worker then pressed the provisional ballot selection on the DRE and entered the code number for the individual voter associated with the voter’s affidavit statement. The individual then voted. In one Nevada jurisdiction, DREs were used for Election Day provisional voting, but optical scan ballots were used for provisional voters participating in early voting. According to the poll worker’s manual provided by election officials, Election Day provisional voters completed an affirmation with identifying information and the reason they were casting a provisional ballot. As described to us by election officials at this jurisdiction, the poll worker then added precinct information, and both signed the affirmation. The poll worker then activated the DRE with a card. To indicate that the ballot was provisional, the poll worker pressed “0” and the machine provided a provisional voter identification number that the poll worker copied onto the voter affirmation and provisional voter receipt. The voter then voted. According to election officials in the jurisdictions we visited, the design of provisional ballots varied for the November 2004 election. The provisional ballot differences included variation in terms of the races included, ballot and envelope color, the envelopes they were placed in, and the information included on the provisional ballot envelopes. For example, in the Nevada jurisdictions, the provisional ballot only included races for federal offices, while in the Kansas jurisdictions, officials said that the provisional ballot was the same as a regular ballot. In 1 Georgia jurisdiction, election officials stated that they were using an absentee ballot for provisional voters but were inserting it into a salmon-colored envelope, whereas in an Illinois jurisdiction we visited, “Provisional” was printed in pink letters across the punch card ballot used in that jurisdiction so that these ballots were distinguishable from other ballots. The provisional ballot envelopes also varied in terms of what information was provided in the jurisdictions we visited, according to example envelopes provided to us (or described) by election officials. The outside of the provisional ballot envelopes in most of the jurisdictions we visited served as the voter’s written affirmation that is required by HAVA. For example, in a jurisdiction in Illinois, the ballot envelope included instruction to voters on how to cast a provisional ballot; in a Florida jurisdiction (as well as in Illinois) the provisional envelope includes information on the reason why the provisional ballot was cast. In New Mexico and Colorado jurisdictions we visited, the envelope included a tear- off tab with information on how voters could find out whether their vote counted, and if not, why it was not counted. In addition, election officials in some jurisdictions we visited described provisional ballots being placed in envelopes, sometimes with a second security envelope covering the ballot inside. Figure 42 shows an example of a provisional ballot envelope. Officials in jurisdictions we visited described a variety of methods used for tracking provisional ballots in the November 2004 election. Methods included having individual ballots numbered, maintaining an inventory or log, accounting for provisional ballots at the beginning and end of Election Day, and using specially colored ballots or envelopes for holding provisional ballots. The following are examples of how election officials in four jurisdictions we visited said they tracked provisional ballots for the November 2004 election: In a Pennsylvania jurisdiction, election officials tracked provisional ballots cast at the polling place on a form provided by the election officials. Provisional ballots were marked with a sticker indicating that they were provisional. The sticker also had an identification number for tracking the ballot, and the voter was provided a receipt with the identification number to use when calling for information on the status of their ballot. All provisional ballots were placed inside of green envelopes. In a New Mexico jurisdiction, an election official said that ballots were numbered sequentially, so that the poll workers could track the numbers. The precinct judges certified the numbers of the ballots they received, used, delivered, and destroyed. In a New Jersey jurisdiction, the municipal clerk issued a specific number of provisional ballots (25) to each precinct, with a “Custody Receipt” form that identified who was in possession of the orange bag with the provisional ballots and an accounting of all ballots originally issued. A ballot that had been voted was enclosed in a gray envelope and then put back in the orange bag. In a Kansas jurisdiction, separate poll books, separate envelopes for provisional ballots, and separate pouches for envelopes containing provisional ballots (all blue in color) facilitated tracking the ballots as separate items from regular Election Day ballots. No tracking of the actual ballot occurred (before it was voted) because the same optical scan paper ballot was used for regular Election Day voters. Apart from permitting voters to cast provisional ballots under the circumstances specified in HAVA, some jurisdictions we surveyed or spoke with had additional reasons for providing provisional ballots to voters in the November 2004 election and other types of ballots that could be used for different circumstances. In addition, election officials in jurisdictions we visited told us about different approaches for offering provisional ballots. In the local election jurisdictions we visited, election officials described various circumstances, in addition to those required by HAVA, in which a provisional ballot was provided to a prospective voter in the November 2004 election. The additional circumstances under which provisional ballots were provided are established by state officials. For example, In one Colorado jurisdiction we visited, election officials stated that provisional ballots were available to voters who did not have the identification required of all voters in the state and also available if a person was listed as a felon in the poll book. Further, election officials told us that the Colorado Secretary of State issued guidance just prior to the 2004 general election that allowed individuals— claiming to have registered at a voter registration drive but for whom the jurisdiction had no record—to vote provisionally. Election officials in jurisdictions we visited in Colorado, Florida, Kansas, Ohio, and Washington said that voters claiming they had not received their absentee ballots were provided with provisional ballots. In other jurisdictions, such as the 2 we visited in Connecticut, voters were allowed to vote regularly if their absentee ballot did not arrive. Kansas election officials reported that they allowed voters to cast provisional ballots if the voter did not trust the voting machines and wanted a paper ballot, or if the voter had a different last name than the listed one because of marriage or divorce. The extent to which voters are provided with provisional ballots varied depending on whether states required identification of all voters or only certain voters, according to our state survey. Some states reported that they require all voters to provide identification; some reported that they require only provisional voters to produce identification, while others reported that they do not require identification from voters other than first- time voters who registered by mail, as required by HAVA. Chapter 4 on conducting elections discusses state requirements for voter identification for all voters. According to our state survey, 6 states—Arizona, Massachusetts, Michigan, New Mexico, Utah, and Wisconsin—reported requiring identification from only provisional voters in the November 2004 election, but Michigan and Utah reported allowing an alternative to identification for provisional voters who did not have required identification. In Michigan, for example, a voter receiving a provisional ballot who was unable to meet the identification requirement was permitted, according to election officials responding to our state survey, to fax, mail, or hand-deliver an acceptable form of photo identification to the clerk anytime during the 6 days following the election. Some jurisdictions we visited reported that Election Day voting options other than provisional ballots were available. For example, election officials in jurisdictions we visited in Ohio said that provisional ballots were the only special ballots available for that election. In contrast, in a New Mexico jurisdiction we visited, election officials said the state offered an in-lieu-of ballot for voters who requested an absentee ballot, and claimed it did not arrive. These election officials said the in-lieu-of ballot was the same as a provisional ballot, but it was placed in a different sleeve for later determination of whether an absentee ballot had been cast or not. At a Connecticut jurisdiction we visited, election officials described the state’s presidential ballot, available at the clerk’s office on Election Day for the November 2004 election. A presidential ballot, according to election officials and documents they provided, allowed voting for president and vice-president by former Connecticut residents who had moved to another state within 30 days of the election and for that reason could not vote in their new state of residence. Election officials in some jurisdictions we visited, such as 1 jurisdiction in Florida and 2 jurisdictions in New Jersey, said their procedures allowed challenged voters to sign a statement, such as an affidavit declaring their eligibility, and to vote on a regular ballot that would be counted with other ballots on Election Day. According to poll worker guidance provided by election officials in the Florida jurisdiction, a written challenge must be submitted under oath and given to the voter; then the voter has the right to submit an oath affirming his or her eligibility. The polling place clerk and inspectors must resolve the challenge by majority vote, providing a regular ballot if the decision is in the prospective voter’s favor. The guidance states that a challenged voter who refuses to sign the oath must be offered a provisional ballot. In both jurisdictions we visited in New Jersey, voters who were challenged were not issued a provisional ballot, according to documents provided by election officials. As stated in the poll worker manual for one of the jurisdictions for the 2004 general election, a voter who was challenged completed a challenged voter affidavit, as shown in figure 43. The manual stated that the location’s four poll workers take a vote to decide whether the voter would be allowed to vote. On the basis of the decision, the challenged voter cast a regular ballot or was not allowed to vote, according to the manual (in case of a tie, the voter was allowed to vote). In our survey of local election jurisdictions nationwide, we asked for information on the use of provisional ballots, challenged ballots, or other types of ballots under various scenarios for the November 2004 election. Table 18 shows the extent to which we estimate that local jurisdictions provided provisional ballots as compared to providing other types of ballots. Apart from permitting voters to cast provisional ballots under the circumstances specified in HAVA, election officials in jurisdictions we visited described differing approaches under which provisional ballots were utilized for the November 2004 election. Election officials in most of the 28 jurisdictions we visited said that in the November 2004 election they would not refuse an individual a provisional ballot. In a Colorado jurisdiction, election officials said that election judges were instructed to direct all voters meeting the criteria for voting provisionally (e.g., claiming to be registered and eligible, but with some eligibility question) to the provisional voting table. In 1 Nevada jurisdiction, the election official said that anyone could receive a provisional ballot. He said that they had Las Vegas tourists who wanted to vote a provisional ballot, even though they were informed that it would not be counted. Election officials in 1 Washington jurisdiction said voters knew that they could cast a ballot regardless of circumstances, and election officials in the other Washington jurisdiction said that provisional ballots served as a conflict avoidance tool at the polls. Election officials in both New Mexico jurisdictions said that if a voter was not on the registration list, he or she was immediately given a provisional ballot. According to the New Mexico election officials, precinct officials were not to direct a voter to the correct precinct; instead, under the provisional voting rule, they were to offer a provisional ballot to the voter. Election officials in some other jurisdictions we visited told us that poll workers may have taken certain steps before providing a voter with a provisional ballot. In 1 Illinois jurisdiction, an election official said that if a potential voter was not listed, the poll workers first tried to determine if the voter was registered in another jurisdiction. If that was the case, the poll workers then directed the voter to that jurisdiction, but they did not refuse to provide a provisional ballot if a voter requested one. In 1 Ohio jurisdiction, election officials told us that if a voter was registered in Ohio, everything was done to get the voter to the correct precinct. In a New Jersey jurisdiction we visited, election officials explained that poll workers take several steps when the voter’s name was not listed in the poll book. Poll workers were instructed, according to the poll worker’s manual, to check the poll book for misspellings or for the name being out of alphabetical sequence, and to check the county street guide to see if the voter was in the wrong location. Election officials in this jurisdiction also told us that voters who were in the wrong location were directed to the correct location. They added that voters who did not wish to vote provisionally were told to go before a superior court judge to plead their cases. In 5 jurisdictions we visited, election officials said there were instances where election officials would refuse to provide a provisional ballot on Election Day. In 1 Ohio jurisdiction, election officials said that a provisional ballot was provided if the potential voter appeared at the polling place. However, if the person came to the election office on Election Day and no record of voter registration was found by the Registrar, then the voter was not allowed to vote provisionally. A potential voter stating that he or she was not registered or not a resident was a reason not to offer the individual a provisional ballot, according to election officials in 1 jurisdiction in Nevada, and 1 in New Jersey, and both jurisdictions in North Carolina. Officials in 1 Georgia jurisdiction we visited said that an individual might not be offered a provisional ballot if he or she was on the voter registration list and therefore eligible to vote a regular ballot. Whether a provisional ballot was provided or not might have been based, in part, on the size of the jurisdiction and the familiarity of the poll workers with the voters. Several election officials in small local jurisdictions included in our nationwide survey made this point in written comments. For example, comments included the following: “This is a small township. We don’t have the problems big cities have. People know who lives in the township. They know their neighbors.” “Most voters are personally known, including their addresses.” “We were told that the state voter list was the bible for the day. But we had one lady who should have been provisional but we all knew where she lived so we let her vote. It was the choir lady’s niece. Her signature was on file.” In larger jurisdictions, poll workers might be less likely to know the voters in the precinct and may have made greater use of provisional ballots than in smaller jurisdictions. Some jurisdictions we visited reported that knowing how many provisional ballots to have available for the November 2004 election was a challenge. However, on the basis of our survey of local jurisdictions, we estimate that for the November 2004 election, only 1 percent of jurisdictions had a shortage of provisional ballots. The difficulty with anticipating the need for provisional ballots, according to an Illinois jurisdiction election official, was that officials had no historical experience to rely upon in deciding how many to make available at each site. In this jurisdiction, provisional ballots were used for the first time in the November 2004 election, according to the election official. Similarly, in a Pennsylvania jurisdiction we visited, election officials stated that they had no basis to plan for the number needed, and that they had to rush to produce (e.g., placing a provisional ballot sticker over an absentee ballot) additional provisional ballots at the last minute because some precincts needed more than were initially allocated. Election officials in one Nevada jurisdiction we visited said some polling places were overstocked while others were understocked, requiring them to shuttle the ballots between polling places. In a Colorado jurisdiction we visited, election officials said that last-minute changes by state officials created a need for more provisional ballots because this change allowed individuals who registered during a voter registration drive but who were not on the voter list to vote provisionally. On the basis of our local survey, poll workers failing to follow procedures for conducting provisional voting surfaced as an issue in some jurisdictions in the November 2004 election. We estimate that 12 percent of jurisdictions nationwide encountered poll worker performance problems related to their failure to follow procedures with provisional voting. The newness of the provisional procedures or last-minute changes in the guidance were challenges that confused poll workers, according to election officials in jurisdictions we visited. Specifically, In a Georgia jurisdiction, election officials told us there was a question regarding whether several college students were eligible to vote provisionally, and state election officials were called for clarification (the students were allowed to vote provisionally). In a Connecticut jurisdiction, election officials said poll workers were confused about the process, issuing provisional ballots in some cases before checking with the Registrar to try to locate the prospective voters in the statewide database. In both Nevada jurisdictions, election officials we visited identified poll worker training needs; for example, in 1 of the Nevada jurisdictions election officials said provisional ballot materials were not adequately tracked and returned. In an Ohio jurisdiction, election officials identified poll worker handling of provisional ballots as an area for improvement based on finding valid provisional ballots returned in envelopes for soiled and defaced ballots. In addition, they said about half of the provisional voters did not sign the poll book, as they were supposed to have done under this jurisdiction’s requirements. Furthermore, voters were to place their provisional ballots in a colored provisional sleeve for determination of eligibility before the vote was submitted, but the election official estimated that about 10 percent of the provisional ballots were placed directly in the ballot box instead. Some election officials in jurisdictions we visited described actions they took to implement provisional voting that worked well for the November 2004 election. Several identified training given to poll workers that prepared them for provisional voting, or had staff dedicated to handling provisional votes, or poll workers with prior provisional voting experience. For example, election officials in 1 Colorado jurisdiction said that they had election judges whose sole responsibility was conducting provisional voting. According to these election officials, the election judges (i.e., poll workers) were well trained and sat at a separate table to handle provisional voting. One jurisdiction we visited in Illinois had specific instructions on the voter affidavit for election workers to follow. Figure 44 provides an example of the affidavit. HAVA specifies that voters casting ballots under HAVA’s provisional balloting requirements must, in general, execute a written affirmation stating that they are registered in the jurisdiction in which they desire to vote and that they are eligible to vote in that election. Polling place officials, under HAVA, are to transmit either the ballot or the written affirmation information to an appropriate election official for verification to ascertain if the individual is eligible to vote under state law. In the November 2004 election, state requirements regarding the location from which voters had to cast their provisional ballot in order for it to be counted (e.g., in the specific precinct in which the voter is registered or anywhere within the county—city, parish, township—in which the voter was registered) was one key difference among states. States also varied in how missing voter information was handled and how voters were informed whether their vote was counted or not. On the basis of our national survey of local jurisdictions, the most frequent problem encountered by local jurisdictions in counting provisional ballots was that voters did not meet residency eligibility requirements for the precinct or jurisdiction. HAVA requires states to provide provisional balloting where, among other things, individuals assert that they are registered in the jurisdiction in which they desire to vote. The term “jurisdiction” in HAVA’s provisional voting requirements is not specifically defined. As a result, states establish, under their own election codes, the applicable jurisdiction where voters must cast their provisional ballot from in order for such ballot to be eligible to be counted. For example, in some states this location is the specific precinct in which the voter is registered, and in other states, the voter may be anywhere within the county (city, parish, township) in which the voter resides and is registered. Our survey of state election officials asked where a provisional voter needed to cast a vote in order for it to be counted for the November 2004 election. Figure 45 shows where states reported that provisional voters needed to cast their votes in order for such votes to be eligible to be counted. Variation in state requirements as to the location where a provisional ballot must have been cast in order to be counted was also evident in the jurisdictions we visited. For example, voters in Kansas could, according to election officials, vote provisionally in precincts other than where they were registered (but within the same county) and if otherwise eligible to vote have their vote partially counted (e.g., for county, state, or federal offices or issues). Nevada election officials said they count provisional votes cast anywhere in the county where the voter was registered and otherwise eligible, but all provisional ballots only included federal races. Election officials in both Washington jurisdictions we visited reported that a voter in the November 2004 election was allowed to cast a provisional ballot anywhere in the state of Washington, and the ballot would be forwarded to the correct county (if the ballot was cast in a county other than the one in which the voter was registered) and counted if the voter was eligible. Election officials in 1 Washington jurisdiction we visited said that county election workers mailed the provisional ballots for non- Washington residents to the Secretary of State of the state where the voter claimed to be registered, but these officials were not knowledgeable of what became of the ballots. Election officials in several states have faced court challenges to their state requirements regarding the location where a provisional ballot must have been cast in order to be counted. The litigation has primarily arisen in states requiring that a provisional voter had to cast a vote in the specific precinct in which he or she was registered, in order for that vote to be counted. In this context, the courts have generally held that HAVA does not require a state to count provisional votes cast in the wrong precinct as legal votes when they would otherwise be considered invalid under state law. In our state survey, we also asked state election officials if they anticipated that their state would change, by November 2006, where a provisional voter must cast a vote for it to be counted. Forty states reported that they did not anticipate such rules would change. Election officials in 4 states reported they anticipated a change by November 2006. Three out of the 4 states (Arkansas, Nevada, and New Jersey) reporting that they anticipated a change for 2006 had reported for the November 2004 general election that a provisional voter could have cast a vote anywhere within the county (city, parish, township) in which the voter resides and have such vote counted. The fourth state, Colorado, had reported for the November 2004 general election that provisional voters had to cast their votes in the specific precincts in which they were registered in order for their votes to be counted. Georgia, Maryland, and the District of Columbia said they did not know whether rules specifying where a provisional voter must cast a ballot in order to be counted could be anticipated to change, and the remaining 4 states responded that they will not have provisional voting. These 4 states are not subject to provisional voting requirements. In our survey of local election jurisdictions nationwide, we asked about problems that local jurisdictions encountered during the November 2004 election in counting provisional ballots. On the basis of our survey, in jurisdictions where provisional ballots were cast we estimate that the most frequent problems concerned voters not meeting residency requirements or lacking evidence that the voter was registered. Specifically, we estimate 66 percent (plus or minus 7 percent) of jurisdictions had a problem with voters not meeting residency eligibility requirements for the precinct or jurisdiction, 61 percent (plus or minus 7 percent) received insufficient evidence that individuals had submitted voter registration applications at motor vehicle agency offices, 61 percent (plus or minus 7 percent) had instances of insufficient evidence that individuals had registered or tried to register directly with the election office, 34 percent (plus or minus 7 percent) had registration applications received by the registrar very close to or after the registration deadline, 32 percent (plus or minus 7 percent) had voters not providing identification as specified by HAVA for registrants who registered by mail and were voting for the first time in the precinct or jurisdiction, 29 percent (plus or minus 6 percent) received insufficient evidence that individuals had submitted voter registration applications at National Voter Registration Act agencies other than motor vehicle agency offices, 28 percent (plus or minus 6 percent) had provisional ballot envelopes or ballots that were incomplete or illegible, and 20 percent of jurisdictions had problems with voters who did not sign a sworn statement that they met the qualifications to be eligible to vote in the precinct or jurisdiction. Written comments made by local election officials in our nationwide survey identified some additional problems encountered with counting provisional ballots. Examples included uncertainty whether a convicted felon’s voting rights, lost as a result of such conviction, had been restored; a voter’s registration records that had been sealed by a court; and the state changing the rules several times right up to Election Day, creating confusion, according to election officials. In addition to variation in where states required provisional ballots to be cast in order to be counted for the November 2004 election, local jurisdictions we visited reported a variation in how to handle a lack of identification or a missing signature. For example, election officials in one New Mexico jurisdiction we visited said that first-time voters that did not provide the required identification had until the close of the polls on Election Day to bring their identification to the county clerk’s office. In contrast, according to election officials in a New Jersey and a Georgia jurisdiction, provisional voters were allowed up to 2 days to produce identification for their vote to be counted, and in a Nevada jurisdiction, voters had until 5:00 p.m. the Friday after the election. With respect to mail registrants who were permitted to cast provisional ballots because they did not provide required identification when voting for the first time, election officials in 1 Illinois jurisdiction we visited reported a lack of clarity as to what subsequent identification-related verification was needed prior to counting provisional ballots. According to the Illinois election officials, the state’s guidance resulted in a situation where one Illinois jurisdiction required the voter to provide to the county clerk’s office identification with an address that matched the address in the voter registration list within 48 hours after the election in order to be counted, while another jurisdiction did not require the two such addresses match. The Illinois officials stated that this issue has been clarified. Jurisdictions we visited also varied in how they handled a missing voter signature. For example, in 1 Colorado jurisdiction, election officials said that they mailed letters to voters who failed to sign their provisional ballot envelopes and allowed the voters up to 10 days after the election to come in and sign so that their votes would be counted. This was not a procedure described in all jurisdictions we visited. In 1 jurisdiction in New Mexico, ballots would not be counted for voters who did not sign the provisional ballot affidavit or roster. In 1 Georgia jurisdiction we visited, voters had to complete a new voter registration form or their provisional ballots were not counted. HAVA requires that provisional voters be provided with written information about how to find out whether their vote was counted (and if not, why) using a free access system established by state or local election officials. On the basis of our local jurisdiction survey, we estimate that the majority of local jurisdictions that had provisional ballots cast used the telephone (often toll-free) as the free access system for voters in the November 2004 election to obtain information on whether their provisional ballot was counted, and if not counted, why not. Table 19 shows the estimated percentage of jurisdictions that used various methods. Some jurisdictions used more than one method. Election officials from jurisdictions we visited described a number of ways that provisional voters were provided information about how to learn the outcome of their votes for the November 2004 election, such as ballot receipts, a copy of the voter’s affidavit, a form letter, or a tear-off portion of the provisional ballot envelope. In a New Jersey jurisdiction we visited, provisional voters were given a toll-free number at which to leave their name and address, and then the results were mailed to them, according to election officials. The jurisdiction election officials noted that this process worked well. Figure 46 provides examples of the information voters were provided to inquire whether their vote was counted. In our local jurisdiction survey, we asked how soon after Election Day information on the outcome of a provisional ballot was made available to voters. According to written comments, feedback was reported by some election officials to be available to voters after the November 2004 election as early as the next day, or within 7 days after the election, although some allowed 1 month, or until the election was certified. Election officials in some of the jurisdictions we visited reported that few voters called to find out if their provisional votes were counted. For example, in a Colorado jurisdiction, officials reported approximately 100 calls out of over 6,100 ballots cast; a Kansas jurisdiction election official estimated receiving calls from 6 provisional voters out of over 3,600 that voted; a New Jersey jurisdiction reported receiving 69 inquiries from voters out of over 6,300 cast; and in 3 other jurisdictions we visited, election officials reported no one called to find out if his or her vote was counted. Estimating the number of provisional ballots initially cast and those that were counted in the November 2004 election is difficult because complete information is not available, and because of differences in how state and local jurisdictions have implemented HAVA provisional voting requirements affecting how and whether such ballots are provided and counted. Those same factors limit the value of comparing provisional ballots cast and counted among jurisdictions. Although estimation is difficult, our survey allowed us to estimate provisional ballots cast, but with strong caveats. While HAVA required that most states permit individuals to cast provisional ballots under certain circumstances, not all jurisdictions reported having provisional ballots cast in their jurisdiction in the November 2004 election. On the basis of our survey of local jurisdictions, we estimate that provisional votes were cast in 33 percent of jurisdictions and none were cast in 67 percent of jurisdictions. Our estimates varied by size of jurisdiction regarding whether provisional votes were cast or not. We estimate that in 99 percent of large jurisdictions, 84 percent of medium jurisdictions, and 12 percent of small jurisdictions provisional votes were cast in the November 2004 election. The differences between all sizes of jurisdictions were statistically significant. The difference between different sizes of jurisdictions’ use of provisional ballots may be explained in part by comments from election officials in local jurisdictions surveyed and from officials in jurisdictions we visited. For example, officials in several smaller jurisdictions included in our nationwide survey who reported that provisional ballots were not cast in their jurisdiction had indicated in written comments that election workers are likely to have personal knowledge of a voter’s eligibility. As one election official from a Wisconsin jurisdiction wrote, provisional ballots were available, but use of the ballots was not necessary. Similarly, in a small jurisdiction we visited in New Hampshire, election officials told us that given the town’s small population of roughly 1,600 residents, 99 percent of the time someone in the room knew the individual and could vouch for his or her identity. In this circumstance, according to election officials, no verification was necessary at the poll to ensure the voter's identification. The number of provisional ballots cast and counted nationally is difficult to estimate with precision because of the limited data available and data quality concerns. Estimates that are available, however, do serve as an indication that the HAVA provisional voting requirements have allowed potentially eligible voters who otherwise might have been turned away to participate. We requested November 2004 data on provisional ballots cast and counted in our survey of local election jurisdictions nationwide, but because of missing information and other methodological concerns, our estimate is provided only with strong caveats. We estimate that a total of between 1.1 million and 1.7 million provisional ballots were cast. Our range reflects the fact that an estimated 20 percent of the jurisdictions in our survey did not provide data on how many provisional ballots were cast. We could not estimate the number of provisional ballots that were counted with any level of certainty, because of a very high level of missing data—an estimated 40 percent of the jurisdictions did not provide data on the number of provisional ballots counted. In addition, some jurisdictions in our survey providing the number of provisional ballots cast may have actually provided the number of provisional votes counted. It is possible this may have occurred because jurisdictions would more likely have a record of the number of provisional votes determined to be qualified and counted than they would have the number of provisional votes originally submitted at polling places (cast). For example, in 1 jurisdiction we visited, provisional ballot numbers were provided only on the number of provisional votes that were counted. If some responses to our survey of local jurisdictions actually provided the number of votes counted rather than the number of votes cast, then our estimate of provisional votes cast may be an underestimate. HAVA specifies that information be made available to individuals through a free access system (such as a toll-free telephone number or an Internet Web site) regarding whether their provisional votes were counted and, if a vote was not counted, the reason it was not counted. The specifics of implementing such a system, such as the methods by which such information is to be identified, collected, and maintained, however, under HAVA, are left to the discretion of state and local election officials. The National Task Force on Election Reform recommended that states develop a uniform method for reporting provisional ballots at the state and national levels, and also that states collect data on the number of provisional ballots cast on Election Day. Some states might require the information on ballots cast and counted be sent for statewide figures. Election officials in a Connecticut jurisdiction we visited, for example, said that the Registrar completed a provisional ballot report for the Secretary of State in accordance with state guidance. Other national estimates of the number of provisional votes cast and counted in the November 2004 election have been affected by data quality issues. The Election Assistance Commission, using data from its survey of election administrators, estimated that 1.9 million voters cast provisional ballots at the polls in November 2004, and that 1.2 million of those votes cast were counted. As with our estimates, EAC cautioned that the coverage, or response rate, for its estimates was limited. The response rate for provisional ballots cast and counted was 46 percent and 38 percent, respectively. The report authors stated that data quality issues, such as missing data or data error entries (such as in 15 jurisdictions in the EAC report where the number of provisional ballots counted was greater than the jurisdiction reported as cast) were identified and corrected where possible. On the basis of data collected at different times from different sources in different states, electionline.org estimated that over 1.6 million provisional ballots were cast, and nearly 1.1 million of them were counted. However, readers are cautioned here as well about the limitations of the available data. For example, figures are not definitive because of the variation in requirements and procedures among (or even within) states, and estimates are based on incomplete information. The authors stated that they provided provisional voting estimates with the intent of moving the discussion of provisional voting forward. Information provided by some of the jurisdictions we visited illustrates the variation in the reported number of provisional ballots cast and counted during the November 2004 election, as shown in table 20. When looking at provisional ballots cast and counted for a particular jurisdiction, the variability in the implementation of provisional voting by states and jurisdictions makes interpretation and comparison among jurisdictions difficult. As mentioned earlier, the number of provisional votes cast and counted may vary based on a number of factors. In general, states and jurisdictions vary in why and how provisional ballots are provided to potential voters, as well as the state and local procedures for how provisional ballots are counted. A partial list of these factors includes the following: State provisions varied regarding the additional circumstances (apart from the minimum requirements specified in HAVA) under which a provisional ballot may be offered. Some states offered other voting options in addition to provisional ballots to voters with eligibility issues (such as signing an affidavit, then voting normally or casting a challenged ballot). The manner and extent to which the provisional ballot options available to voters are actually utilized varied in connection with the size and approach of the jurisdictions. For example, smaller jurisdictions were, according to election officials, less likely to use the provisional ballot option than larger jurisdictions because they were more knowledgeable of voters in their jurisdictions and therefore better positioned to address eligibility issues than larger jurisdictions, and some jurisdictions reported taking additional steps to send the voter to the correct precinct before offering a provisional ballot, whereas other jurisdictions might not do so. States established the location where voters must cast their provisional ballots from in order for such ballots to be eligible to be counted. For example, in some states this location is the specific precinct in which the voter is registered, and in other states, the voter may be anywhere within the county (city, parish, township) in which the voter resides and is registered. States or local jurisdictions established other conditions (e.g., the time limit for providing required identification) that varied in determining whether a provisional vote was to be counted. There were other factors, such as instances in which the polling location was kept open late because of a federal court, state court, or other order extending the polling hours. Notwithstanding the variations we have identified in provisional voting processes and challenges identified by some election officials in jurisdictions we visited, several election officials reported that they thought the provisional voting process worked well for the November 2004 election, in that people who would normally not have been able to cast a ballot were allowed to do so, and some of those ballots were counted. While many jurisdictions reported that for the November 2000 election having at least one procedure in place to help resolve eligibility questions for voters whose name did not appear on a polling place registration list, only 20 states plus the District of Columbia reported using some form of provisional voting in the November 2000 election. In those states in which it was not available, voters whose names did not appear on polling place registration lists, but stated they had properly registered to vote, were often not permitted to cast a regular ballot. Provisional voting is an important means of enhancing voter access to the polls. HAVA required all states that required registration prior to Election Day to provide for provisional balloting by the November 2004 election, but left to states the specific choices on how they would implement that requirement. In exercising this discretion, states have created varied provisional voting rules and practices. Under HAVA, provisional ballots are to be counted as a vote under state law if the person casting the ballot is determined to be eligible to vote under state law. These statutory provisions and determinations of eligibility and what constitutes a properly voted ballot vary by state and thus affect the state rules and procedures used to determine whether provisional ballots are counted. At least 1 state, for example, allows voters to cast a provisional ballot for statewide offices anywhere in the state, with the ballot returned for eligibility verification and counting to the jurisdiction in which the voter said he or she was registered. Other states required that voters cast provisional ballots in their assigned precinct for the ballots to be counted. The actual impact of these varying practices on provisional balloting and vote counting is unknown. Comparable data across states are not available to determine whether or how these variations affect the number of voters who are permitted to cast provisional ballots or the percentage of provisional ballots that are actually counted. Thus, it is difficult to assess the potential impact of a state changing its existing rules and practices. However, based on the data that are available, it is clear that provisional voting has helped to facilitate voter participation of those encountering eligibility-related issues when attempting to vote. Once the polls close on Election Day, the process of determining and certifying the final results begins. Vote counting is a complex, multistep process with many variations across the nation. The exact process depends upon a number of variables. Among them are state requirements that define standards for determining voter intent for ballots that are not clearly marked, deadlines for certifying the final count, and specifications for conducting recounts when required. The types of ballots to be counted affect vote tabulations because absentee and provisional ballots typically undergo some type of verification before counting, while early and regular Election Day ballots typically do not require this processing. The types of technology used for vote casting and counting—hand-counted paper ballots and machine-counted ballots (punch card, optical scan, and those cast electronically)—also add variance to how votes are handled. The counting process requires attention to detail, and problems in any one election stage can affect the final vote count. Moreover, its orchestration requires the effective interaction of people, processes, and technology. This chapter discusses the continuity and key changes since the 2000 general election and challenges—new and ongoing—encountered by election officials in the 2004 general election with respect to counting votes. In the 2004 general election, vote counting remained an intricate, multistep process characterized by a great variety of local procedures depending on a local jurisdiction’s technology, size, and preferences. As with the 2000 general election, the proportion of jurisdictions nationwide reporting recounts or contested elections remained small in the 2004 general election. There were some notable developments related to vote counting. A significant change was the fact that by the 2004 general election more states had developed guidance for determining voter intent on unclear ballots. Eighteen states that reported not having guidance in the 2000 general election reported in our survey they had such guidance in place for the 2004 general election. In addition, 9 states reported changes relating to the process of conducting recounts. Some added requirements for mandatory recounts. Others changed their conditions and guidance for conducting recounts. The results of our state survey showed that while 29 states and the District of Columbia did not require audits of vote counts, 9 states reported having taken some legislative or executive steps toward doing so. Many of the problems in managing people, processes, and technology that had confronted election officials across the country in the November 2000 general election continued to challenge them in the 2004 general election. Equipment problems, poll worker errors, and voter errors made it difficult to tabulate the votes quickly and accurately, according to some election officials. A new phenomenon emerged as a challenge to election officials, as well: Some jurisdictions reported difficulty completing the extra steps required to verify and count provisional votes within the time allowed for tallying the final vote count. Finally, while recounts and contested elections remained rare in the 2004 general election, those that did occur, particularly in Washington state, revealed the intricacies and vulnerabilities of the election process. The basic elements of the vote-counting process we described in our October 2001 comprehensive report on election processes nationwide remained in practice for the general election of 2004. Of necessity, it was a complex, multistep process, with many variations, depending on a jurisdiction’s technology, size, and preferences. As with other elections, vote counting in the 2004 general election involved certain common steps: closing and securing the polls and voting equipment; securing the ballots; reconciling the number of ballots at the polls (e.g., the number available at the polls compared to the number cast, spoiled, and remaining); transporting ballots and equipment from the polling places to a central location where they were secured; in some cases electronically transmitting results from polling place voting equipment to a central tally location; verifying provisional and absentee ballots for counting; determining whether and how to count ballots that may be improperly or unclearly marked; conducting any necessary recounts; and certifying the final count. Preliminary to counting, a key step was to secure the voting machines and ballots so that no additional votes could be cast. Procedures for securing equipment varied with the equipment that was in use. However, on the basis of our survey of a representative sample of local election jurisdictions nationwide, we estimate that 91 percent of all jurisdictions used hardware locks and seals as one of their predominant security measures. In our site visits, local election officials also described securing DRE tapes and cartridges under lock and key before and after they were delivered to boards of elections or other authorities. For example, election officials from 1 jurisdiction we visited described securing memory cards in optical scan counting machines by attaching a plastic band with a serial number. The band would have to be severed in order for the memory card to be removed, according to election officials. One such band is shown in Figure 47 securing a voting equipment bag. Election officials in 2 jurisdictions we visited also described a variety of measures they took to ensure that ballots were not lost or miscounted. In 1 Washington jurisdiction, officials said they secured punch card ballots at polling places for counting elsewhere by transporting ballots twice: once earlier on Election Day and the other time after the polls had closed. These officials also said that ballots were bundled into groups of 50, separated by type (Election Day, provisional, and absentee ballots), and put into transport carrier safe boxes. Two poll workers, one from each political party, accompanied the ballots when they were transported to the elections office for counting. Similarly, in a Colorado jurisdiction we visited, election officials said that at the close of Election Day they sealed optical scan ballots from the polling place and the optical scan counter to prevent tampering. Then, two election judges transferred the ballots and optical scan counter to the counting center. While ballot-securing methods varied, the results of our local jurisdiction survey showed that most jurisdictions had written policies and procedures in place in the November 2004 general election to secure ballots (including paper and electronically stored ballots). As shown in table 21, on the basis of our survey we estimate that two-thirds of local jurisdictions had written procedures for transporting ballots, and about three-quarters had written procedures in place for secure ballot storage rooms. In addition, reconciling ballots with the number of voters was a common step in securing ballots before they were counted. According to our state survey, 47 states and the District of Columbia reported that they required jurisdictions to count or keep track of ballots that were unused, spoiled, rejected, or issued but not returned. Two states, Montana and Maine, reported not requiring jurisdictions to count or keep track of such ballots. New York reported in our survey that because it does not have paper ballots, such tracking was not necessary. New York reported that it did not use paper, optical scan, or punch card ballots. During our visits to election jurisdictions, we asked officials how they reconcile ballot and voter numbers. The election officials reported conducting cross-checks in a number of ways, but generally followed a process of reconciling any discrepancies between the total numbers of ballots on hand at the beginning of the day, the number of voters who signed in at the polling place, and the number of ballots cast. Once the ballots were reconciled in the November 2004 election, local jurisdictions tabulated and canvassed (or reviewed) the vote. Both counting and canvassing the count were an ongoing process in the effort to ensure an accurate tally. After initial tabulations of votes on election night, which were typically released to the public, canvassing was typically the process of reviewing all votes by precinct, resolving problem votes, and counting all types of votes (including absentee and provisional votes) for each candidate and issue on the ballot and producing an official total for each. The official total was usually certified by an election official. This process varied among jurisdictions in terms of how and where it was done and who was responsible. The counting process involved several different types of ballots, cast under different circumstances: General election votes are cast at polling places on Election Day by voters who appeared in the registration lists for that precinct and voted a regular ballot. Provisional votes are cast by those, for example, whose registration (and qualification to vote) could not be established at the time of voting at the polls on Election Day. Absentee votes are generally votes received and cast by mail before Election Day. Early votes are generally cast in person before Election Day. According to our local survey, for the November 2004 general election, local jurisdictions nationwide used different voting methods for different ballot types. As shown in table 22, we estimate the largest percentages of jurisdictions used optical scan and paper hand-counted ballots for Election Day. Also, optical scan and punch card vote-counting methods were used at precincts or at central locations. Jurisdictions could check more than one voting method. In our local jurisdiction survey, we also asked what predominant voting method was used to process the largest number of ballots in the 2004 general election. We estimate that hand-counted paper ballots were the predominant tabulation method for 30 percent of all jurisdictions, although these were almost all small jurisdictions. Specifically, we estimate that 41 percent of small jurisdictions, 3 percent of medium jurisdictions, and no large jurisdictions hand-counted paper ballots. Small jurisdictions were statistically different from large jurisdictions. As in the November 2000 general election, the counting process for the November 2004 election took place at precincts or at centralized locations, such as election headquarters at town halls and even warehouses. In jurisdictions we visited, we learned about some of the substantial variations in the sequence, procedures, and precautions taken to conduct the count. We found in our site visits that vote counting ranged from a very simple process in a small jurisdiction to more complex processes in larger jurisdictions. For example, a small New Hampshire jurisdiction, with just over 1,000 registered voters, had one polling place and one precinct open on Election Day, according to election officials. They told us the paper ballots were not transferred to any location for counting and were hand- counted by 25 election workers. These officials also said that five teams of five individuals each reviewed votes cast on each paper ballot and used paper and pencil to record and tally vote totals. The final election outcomes were written on a standard form and submitted to the New Hampshire Secretary of State’s office, according to election officials. In contrast, election officials in a large Washington jurisdiction described a more complex process for their centralized vote count of punch card ballots. As described by these officials, their process enabled them to begin reporting results on Election Day evening by precinct and to provide updates of the count every 30 minutes. Once Election Day ballots were transferred to the election office by poll workers, the ballots were counted to determine total numbers, according to election officials. They also told us that after the ballots were separated by precinct, up to 20 inspection boards, composed of two Republicans and two Democrats each, inspected the ballots one precinct at a time. In the inspection process, the officials said that the ballots were further separated into categories—those that were machine-readable and those that required further examination, such as ballots with write-in candidates or with a chad hanging by two or more corners. Once all questions were resolved (including any that would require review by a canvassing board), they told us ballots in batches of 500 each were placed in trays by precinct and brought to the ballot tabulation area. According to these officials, the jurisdiction used a punch card tabulator, which was connected to a computer and had a processing speed of 600 ballots per minute (see fig. 48). Once all ballots were counted, jurisdiction election officials told us they generated an unofficial report with results for all races and voting propositions. This initial tally was posted on the county Web site and released to the press, candidates, and public, according to election officials. Six of the jurisdictions we visited told us that they counted Election Day votes at the local precinct, where poll workers would tabulate results and resolve any ballot issues that could be handled locally. For example, in a large Kansas jurisdiction, election officials said that voters were able to place their ballots in an optical scanner at the polling place that read the ballot and rejected it if there were any problems. According to officials there, the machines could return to the voter any ballot that, for example, had too few or too many votes for a specific office and provide a screen message for what to correct before resubmitting the ballot. After the polls closed, the optical scan machines with their memory cards—which had been programmed for the specific precinct—were transferred to election headquarters, according to election officials. The officials also said the optical scan machines were linked electronically to one computer and data from the memory cards were uploaded so that votes from all precincts could be tallied. Absentee, provisional, and early votes each required some additional steps to manage in order to include them in the vote count. Absentee votes: According to our state survey, all states reported having some provision for absentee voting in the 2004 general election. As we discussed in chapter 3, on absentee voting, absentee ballots must typically undergo some type of verification prior to counting. At 1 Colorado jurisdiction we visited, officials said that they began verifying and counting absentee ballots 10 days before Election Day. At 1 jurisdiction in Washington election officials said that they qualified the absentee ballots as they were received at the election office, but did not count the votes until 3:00 p.m. on Election Day. Additionally, at a jurisdiction in Illinois, election officials said that they distributed most absentee ballots to their respective precincts to be counted along with the Election Day ballots. In each of these jurisdictions, however, according to election officials, the absentee ballot results were not released until after the Election Day polls were closed. Also, on the basis of our local jurisdiction survey, we estimate that 99 percent of election jurisdictions included the counts of qualified absentee ballots in the final certified count, regardless of their effect on the outcome. Provisional votes: Provisional voting, which was required by HAVA in all but 6 states during the 2004 general election, generally required several steps. At all of the local jurisdictions we visited that used provisional ballots, election officials said that the ballots were transferred to an election office or central count location, where the eligibility of the voter was verified before they were counted. We estimate, on the basis of our local jurisdiction survey, that 83 percent of jurisdictions that provided provisional ballots during the 2004 general election transferred the provisional ballots to a central location for counting. Those jurisdictions that did not engage in transfers may have been jurisdictions with only one precinct, in which case, the votes were tallied on-site. At all of the jurisdictions we visited that used provisional ballots election officials said they included provisional ballots determined to be verified in certified vote counts regardless of their effect on the outcome of the election. Early votes: According to our state survey, for the November 2004 election, 24 states and the District of Columbia reported they allowed early voting, and from our local jurisdiction survey, we estimate that about 23 percent of local jurisdictions allowed early voting in the election. In early voting jurisdictions we visited, a variety of reconciliation and counting processes were used, according to election officials. At one jurisdiction we visited, election officials told us that early voting DRE votes were reconciled daily. According to these officials, at the end of the early voting period, election department staff shut down the DRE machines and removed the memory cards (which stored cast votes). The officials said that the memory cards were sealed and returned to the election department office for counting, in a manner similar to Election Day DRE votes. In another jurisdiction we visited that used optical scan machines for early voting, officials told us that ballots were inserted by voters into the machines at the polls—the same procedure used on Election Day. At the end of each early voting day, according to the officials, the ballots from that day were physically transferred to the clerk’s office and the optical scan results were submitted by modem to the jurisdiction’s headquarters. Election returns posted on election night are unofficial and are not considered final until canvassing—the process described earlier of reviewing all votes by precinct, resolving problem votes, and counting all types of votes—is complete and the count is certified. Certification is when the vote count is finalized, generally by state and local officials. Our state survey showed that for the 2004 general election, states reported varied practices for when counts were certified and by whom, similar to the general election of 2000. Our state survey showed that most states reported setting certification deadlines, but the certification periods varied from state to state. Four states (Alaska, Nebraska, New Hampshire, and Rhode Island) and the District of Columbia reported not specifying a deadline following Election Day for certification of election results, while all other states reported specifying such a deadline. For example, certification on the second day after Election Day was reported by Delaware, while not later than 40 days was reported by Michigan. Some states reported caveats and varying levels of specificity in the certification deadlines. Maine reported allowing 3 days for local election official certification and 20 days for state-level certification. Missouri’s reported deadline was by the fourth Tuesday following the election. North Dakota reported a deadline of not less than 3 days, but not more than 6. Similarly, the requirement reported for Texas was 15 to 30 days after the election. An important facet of the canvassing process is the consideration that may or may not be given to ballots that have not been marked properly. An improper mark, for example, could be a circle around a candidate’s name instead of a checked box on a ballot that is to be scanned optically. For those states providing for the determination of voter intent, the importance of having explicit and consistent criteria for treating unclear ballots became evident in the 2000 general election when different interpretations for punch card ballots in Florida made the close presidential race extremely contentious. While subsequent federal reforms have not specified standards for treating unclear ballots, HAVA requires that each state adopt uniform standards, by January 2006, that define what constitutes a vote and what will be counted as a vote for each category of voting system used in the state. In our state survey, 39 states and the District of Columbia reported that for the November 2004 general election they had requirements or guidance for determining voter intent that focused primarily on improper ballot marks. Forty-five states and the District of Columbia reported they had requirements or guidance for determining how or whether to count a machine-unreadable ballot—one that cannot be processed by machine because it is damaged. Eighteen states that had reported not having provisions in place for the 2000 general election reported to us in our 2005 state survey that they had voter intent guidance for the November 2004 general election. Georgia, for example, had developed requirements for four methods: DRE machines, lever-type machines, optical scan, and hand-counted paper ballots. Some of Georgia’s requirements were for certain ballots rejected by optical scan machines. These requirements provide for some measure of subjective determination of a voter’s intent by election officials in certain specified instances. In such an instance, a vote shall be counted, under these Georgia provisions, if in the opinion of the vote review panel, the voter has clearly and without question indicated a choice for which the voter desired to vote. In addition, under specified circumstances, these Georgia provisions also provide for a similar type of voter intent determination with respect to hand-counted paper ballots. As described below, we found in our site visits that under state or local guidance, local jurisdictions we visited had gone to varied lengths in the 2004 general election to salvage ballots that were improperly marked or that were machine unreadable. These efforts varied by the type of voting equipment used in the jurisdiction. Optical scan ballots: In some jurisdictions, election officials told us that optical scan machines located at polling places could notify the voter of an unreadable or incorrectly marked ballot at the moment it was submitted. However, where the ballots were transferred to a central location for counting this would not be the case. In one jurisdiction in Colorado where optical scanning was done centrally for absentee ballots, election officials told us they were required to interpret voter intent or replace an unreadable ballot. According to election officials, the jurisdiction had instructions, which they stated were based on state statutes, specifying that bipartisan election judges would be the responsible parties for determining voter intent. Their deliberations, however, would be observed by others, according to the instructions. If a decision was reached on voter intent, a replacement ballot could be created and run through the optical scanner, according to the officials. Officials in a Kansas jurisdiction we visited said that state election standards were very specific for interpreting an incorrectly marked optical scan ballot. They would count a vote if an oval shape is marked, near but not inside the oval, and not closer to another candidate’s name. A completed oval would also be counted if another oval for the same race was scribbled or crossed out. If the ballot could be interpreted locally, officials said election workers duplicated the vote on a new ballot for the optical scanner to read. According to election officials, if the intent was not clear, the ballot would be sent to the Board of Canvassers for further examination. State guidance also included standards for hand-counted paper ballots. In Florida, guidance in place for the November 2004 general election was even more specific than that provided in Colorado or Kansas. The guidance specified, for example, that, with respect to manual recounts, a vote may be counted if “there is an ‘X’, a check mark, a plus sign, an asterisk or a star, any portion of which is contained in a single oval or within the blank space between the head and tail of a single arrow and which does not enter into another oval or the space between the head and tail of another arrow.” It also allowed for a vote to be counted under additional specified circumstances including if “there is a diagonal, horizontal, or vertical line, any portion of which intersects two points on the oval and which does not intersect another oval at any two points,” provided that the horizontal line does not strike through the name of the candidate. Punch cards: While federal election reforms included provisions promoting replacement of punch card ballots, on the basis of our local jurisdiction survey, some jurisdictions continued to use them in the 2004 election. As was the case for other types of ballots, levels of guidance for interpreting voter intent varied by state. Illinois reported that it had no requirements or guidance for determining voter intent, according to our state survey. Election officials in 2 Illinois jurisdictions using punch card ballots told us in our site visit that election workers did not attempt to ascertain the intent of voters on punch card ballots that were improperly punched. If the ballot could not be counted by a punch card-counting machine because of an improper punch or mark, the votes were not to be counted. In contrast to Illinois, Washington reported that it had guidelines or requirements regarding voter intent and allowed for remaking an unreadable or damaged punch card. In a Washington jurisdiction we visited that used punch card ballots in the 2004 general election, election officials said that state law guided their jurisdiction’s written instructions for determining voter intent. Election officials said voters were given very specific instructions for how to change their vote before casting their vote, if necessary, on a punch card ballot while at the polls. These officials also said ballots could be either enhanced or duplicated if it was clear that a voter had followed these instructions. Also, according to the officials, a problem ballot could be enhanced or duplicated by officials if voter intent could easily be determined. If voter intent was at all unclear, the ballot was to be sent to the canvassing board for review. According to officials, canvassing board meetings were open to the public and state guidelines were to be used to interpret voter intent. Figure 49 shows a punch card voting booth. Hand-counted paper ballots: While we estimate, on the basis of our local jurisdiction survey, that no large jurisdictions and only 3 percent of medium jurisdictions used paper ballots in the November 2004 general election for their predominant voting method, 41 percent of small jurisdictions did. This voting method presented yet another variation in the process of determining voter intent. For example, in one small jurisdiction we visited in New Hampshire, election officials we spoke with said a senior election official was on hand during ballot counting. They said if a ballot was unclear, the senior official would be involved to discuss it. If it was still unresolved, state guidance called for an unclear ballot to “be counted in accordance with a majority vote of the election officials present.” The guidance, which we examined, also provided examples of what marks on a paper ballot to accept, as shown in figure 50. As with the 2000 general election, recounts and contested elections were an uncommon event in the 2004 general election. On the basis of our local survey, we estimate that 92 percent of election jurisdictions nationwide did not conduct a recount for federal or statewide office. Also on the basis of our survey, recounts were more prevalent in large than in small election jurisdictions. Specifically, we estimate that 4 percent of small jurisdictions, 16 percent of medium, and 24 percent of large jurisdictions conducted recounts for federal or statewide offices. Both large and medium jurisdictions were statistically different from small jurisdictions. Similarly, in our state survey, 37 states and the District of Columbia reported they had no recounts for federal or statewide offices during the primary or general elections of 2004, as shown in figure 51. Recounts are, in general, conducted because a candidate, voter, or group of voters has requested it or because the margin of victory was within a certain specified margin such that state provisions required or allowed for a recount. Election officials in local jurisdictions we visited in several states where recounts were conducted described to us the procedures they used for their 2004 general election recounts. In a New Hampshire jurisdiction, where a recount was conducted of the presidential race of 2004, officials said the recount was requested by a presidential candidate to test the accuracy of the optical scan vote-counting equipment. The officials provided the following description of the recount: Five wards in the jurisdiction had been selected for a sample recount. It was conducted by the New Hampshire Secretary of State’s office, not by the local election jurisdiction. The jurisdiction’s only role in the recount was to provide the Secretary of State with the optical scan ballots from the applicable wards. After the Secretary of State recounted a portion of the optical scan ballots and found no significant discrepancies between the initial vote tally and the partial recount, a full recount was not conducted statewide, according to these officials. In North Carolina, races for two statewide offices (the Agricultural Commissioner and the Superintendent of Public Instruction) were subject to recounts because, under state law, the close margin of victory allowed the losing candidates to request a recount, according to election officials. In 1 North Carolina jurisdiction we visited, which used DRE machines, local election officials described the recount process as follows: The recount was conducted in a different manner from the initial count. For the initial count, votes were electronically transferred from each DRE machine to vote storage devices at the polls that stored the vote totals by precinct. The precinct totals were then downloaded from the vote storage devices onto a computer located at the jurisdiction’s election headquarters, and vote tabulation software summed vote totals from each precinct for each election contest in the jurisdiction. During the recount, rather than relying on aggregated votes totaled by precinct for a vote count, officials tabulated individual DRE ballots. To complete this process, the jurisdiction’s tabulation software recognized individual ballot images from the DRE machines rather than aggregated votes per precinct. The individual ballot images were downloaded onto the computer in election headquarters, and votes for the races in question were retabulated (by voter, rather than by precinct as in the initial count). The outcomes of both the Agricultural Commissioner and the Superintendent of Public Instruction races were unaffected by the recount results. Generally, contested elections are court actions initiated by a candidate or voter alleging, for example, that some type of misconduct or fraud on the part of another candidate, election officials, or voters, occurred in a particular election. The results of our local survey indicate that contested elections were rare during the period from 2001 to the 2004 general election. In our local survey, we asked local jurisdictions whether they held any primary or general elections for federal or statewide offices during this period that were contested, and if so, whether the outcomes for these elections changed. On the basis of our nationwide survey, we estimate that 5 percent of local election jurisdictions held a federal or statewide election that was contested during this period. The contested elections in which the winner did change involved races for offices such as state judge or governor, or for the U.S. House of Representatives. Perhaps the most heavily contested election in November 2004, which received a great deal of press coverage, was the Washington state governor’s race. A close margin of victory and a candidate request prompted two recounts, and after the state certification of a winner in the election, the second place candidate’s campaign and seven voters filed a petition in a state Superior Court contesting such certification, alleging that errors, omissions, mistakes, neglect, and other wrongful acts had occurred in conducting the election. The Chelan County Superior Court dismissed the election contest petition, finding that the petitioners failed to prove that grounds for nullification of the election existed. The Superior Court held, in general, that while there was some evidence of irregularities, the petitioners failed to adequately prove that the outcome of the election was changed as a result. The recount itself, however, revealed the substantial complexities involved in accomplishing an error-free count. We discuss this case more closely later in this chapter. State provisions for recount processes vary, and not all states have provided for or required them in the past. For the November 2004 general election, however, several states reported that they had introduced or further developed their specifications for election recounts since the 2000 general election. In our October 2001 report on election processes, we reported that 47 states and the District of Columbia had provisions for recounts, though most did not have mandatory recount provisions. To better understand recount reform efforts to help ensure vote count accuracy since the 2000 election, we asked states in our 2005 survey about changes to their mandatory recount provisions in place for the November 2004 general election. Nineteen states reported requiring a mandatory recount predominantly in cases of a tie or close margin of victory, whereas in 2001, 17 states indicated they required mandatory recounts. Thus, 2 more states reported requiring mandatory recounts for the 2004 general election than for the 2000 general election. In addition, 3 other states reported amending their existing provisions for mandatory recounts, while 3 said they had changed their requirements or guidance for who may request a recount as shown in table 23. Three states—Hawaii, Mississippi, and Tennessee— reported not having any formal provision for conducting recounts—both for the 2000 or 2004 general elections. Alabama, Pennsylvania, and Texas were the states that reported adding mandatory recount provisions for the 2004 election. Alabama law, in place for the 2004 general election, requires a recount when the election returns for any public office indicate that a candidate or ballot measure is defeated by not more than one-half of 1 percent of the votes cast for the office or the ballot measure—unless the defeated candidate submits a written waiver. In Pennsylvania, a recount is mandatory if an election is decided by one-half of 1 percent or less—unless the defeated candidate requests in writing that a recount and recanvass not be made. Texas reported that a recount was required only if two or more candidates tie in an election. For the 2004 general election, Arizona, Minnesota, and Washington reported adding more specifications to the vote margins that trigger recounts in their states than were in effect during the 2000 general election. Arizona added triggers for different types of races. For the 2000 general election, Arizona reported requiring a mandatory recount when the margin of votes between the two candidates receiving the most votes was not more than 0.1 percent of votes cast for both candidates, or 200 votes for statewide offices and 50 votes for the state legislature. For the 2004 general election, Arizona reported in our state survey that it had amended its mandatory recount requirements so that the thresholds triggered by the number of votes only applied when the total number of votes cast was 25,000 or fewer. Washington’s mandatory recount provisions in place for the November 2004 general election had changed since the November 2000 general election. The requirement in 2000 for a mandatory recount by machine was a margin of 0.5 percent or less of total votes cast for the top two candidates. If the margin was less than 150 votes and less than 0.25 percent of total votes cast for the top two candidates, a manual recount was required. The amended requirement, in place for the November 2004 general election, specified that a recount by machine was required when the margin is both fewer than 2,000 votes and less than 0.5 percent of total votes cast for the top two candidates. If the margin was fewer than 150 votes and less than 0.25 percent of total votes cast for the top two candidates, there was to be a manual recount. Since the November 2000 election, Minnesota amended its mandatory recount triggers to include a specific percentage margin of victory in certain circumstances, rather than only a specified difference in the absolute number of votes between the top two candidates. While a margin of 100 votes or fewer in an election had previously triggered a recount for the 2000 general election, Minnesota election officials reported in our state survey that for the 2004 general election their state required a recount if the margin was determined to be either less than one-half of 1 percent of the total number of votes counted or, was 10 votes or less when no more than 400 votes are cast. According to our state survey, state requirements or guidance for who may request a recount, in place for the November 2004 general election, changed in Florida, Maine, and Rhode Island since 2000. While any Florida candidate or candidate’s political party in 2000 could request a recount, this was no longer true for the November 2004 general election. For the 2004 general election, Florida election officials reported that no candidate or political party could request a recount, and that the only authorized recounts were mandatory recounts to be conducted when the margin of victory was 0.5 percent or less of the total votes cast. Rhode Island, which reported that for the November 2000 general election it had allowed recount requests by any candidate who trailed the winning candidate by less than 5 percent, reported that for the November 2004 general election, it required a smaller margin before a losing candidate could request a recount. For example, for races with between 20,001 and 100,000 votes, Rhode Island reported that it required a margin of 1 percent or less (or 500 votes) before a trailing candidate could request a recount, and for races with more than 100,000 votes the required margin was one-half of 1 percent (or 1,500 votes) before a trailing candidate could request a recount. Maine, on the other hand, reported that its recount provisions in place for the November 2004 general election were clarified to provide that an apparent losing candidate, rather than only the second-place candidate, could request a recount. Twenty-nine states and the District of Columbia reported that for the 2004 general election, they did not have provisions requiring or allowing local jurisdictions to conduct a vote count audit of election results. However, in our state survey, 9 states reported taking action since November 2004 (e.g., enacted legislation or took executive action) to require audits of vote counts. As used in this report, a vote count audit is an automatic recount, in full or in part, of the vote tabulation, irrespective of the margin of victory, in order to ensure accuracy before certification. On the basis of our state survey, as shown in figure 52, 8 states reported that for the 2004 general election they had a vote count audit requirement for all local jurisdictions, and 2 states reported requiring vote count audits for some local jurisdictions. Election officials from 29 states and the District of Columbia reported that for the 2004 general election they did not require or allow local jurisdictions to conduct vote count audits. Eleven states reported that they allowed them. We estimate, on the basis of our local survey, that 15 percent of all local jurisdictions were required by their states to conduct such audits as part of the certification process for the 2004 general election. Larger and medium jurisdictions were more likely to have been required to do so than smaller jurisdictions. Nine percent of small jurisdictions, 27 percent of medium, and 38 percent of large jurisdictions conducted a required vote count audit of the 2004 general election. Both large and medium jurisdictions were statistically different from small jurisdictions. Nine states reported in our state survey that they had enacted legislation or taken some executive action to require audits since November 2004. For example, in Washington, beginning January 1, 2006, prior to election certifications, county officials must audit the results of votes cast on DRE machines. The audit must be conducted by randomly selecting up to 4 percent of the DRE voting machines or one machine, whichever is greater, and for each device, comparing the results recorded electronically with the results recorded on paper. During our visits to local election jurisdictions, election officials in 5 jurisdictions described conducting vote count audits as a part of the election certification process for the November 2004 general election. For instance, 2 large jurisdictions in Nevada reported that the state requires each jurisdiction to randomly audit election results when DRE machines were used. According to officials in 1 of these Nevada jurisdictions, they were required to select 1 percent of DRE machines, or 20 machines, whichever amount is greater, and to perform a manual audit of the machine-tabulated vote totals. The officials said that they used a computer program to randomly select which of the jurisdiction’s 740 DRE machines to audit. To conduct a paper-based audit, they told us that for each randomly selected machine, election workers printed the DRE result tapes from the voter-verified paper trail printer, manually counted the vote data on the tapes, and compared the manual count results to the original electronic results. In one large Illinois jurisdiction we visited, election officials told us they were required by the state to automatically audit (by retabulating votes) results of punch card ballots in 5 percent of their precincts, which were randomly selected. According to the officials, the State Board of Elections sent the jurisdiction officials a letter specifying which randomly selected precincts had to retabulate their votes. Election officials in a Pennsylvania jurisdiction we visited said that state law required random audits when electronic voting machines were used. According to these officials, they were required to audit 2 percent of DRE vote totals following an election. They told us, however, that in practice they actually audit all DRE machine vote totals to ensure an accurate vote count. They stated that vote data stored on DRE backup memory cards is printed and compared to vote data stored on DRE cartridges used in original vote counts. They said they operated on the assumption that because the internal memory cards serve as a backup system, there should be no difference in the totals. As in the general election of 2000, the 2004 general election saw failures to properly employ voting equipment. At several of the jurisdictions we visited, officials recounted mistakes in using the DRE systems, for example, that echoed other recent findings (in our September 2005 report on the security and reliability of electronic voting), noting inadequate understanding of the equipment on the part of those using it. In our September 2005 report on electronic voting, we noted that instances of fewer votes counted than cast in one Pennsylvania county in the 2004 general election had resulted from incorrectly programmed DRE machines. Similarly, in our 2005 site visits to election jurisdictions for this report, officials with whom we spoke recounted difficulties that had resulted from mistakes in programming the electronic equipment. In 1 Florida jurisdiction, for example, officials reported that the storage capacity of an optical scan accumulator (used to combine vote data from DREs and optical scanners) had been inadequately programmed to capture all of the votes cast. Officials there were able to discover and rectify the problem so that all votes were counted. In a Nevada jurisdiction, officials said that on Election Day, there were 198 provisional ballots (out of 4,532 cast) that were incorrectly programmed on the DRE machines at several polling locations, resulting in the provisional votes being counted without the voter first being qualified. According to these officials, poll workers forgot to add the “0” to the beginning of the precinct number. The officials noted that 2004 was the first time that the jurisdiction had used provisional voting and that in the future they planned to use paper provisional ballots to avoid any confusion. In a North Carolina jurisdiction we visited, election officials told us about how a misunderstanding of the voting equipment resulted in the loss of votes. Specifically, election officials were unclear about the vote storage capacity of a DRE machine used in early voting and failed to notice the machine’s warning that its file was full. The software installed on this machine was an older version of the program and only recognized up to 3,500 votes, according to election officials. Election administrators believed that it could recognize up to 10,500 votes. They discovered the error at the close of Election Day when reconciling the number of votes cast on the DRE machine used in early voting with the number of voters credited with early voting at the polls. Furthermore they said it was not until they subsequently conducted a simulation of votes cast that they discovered the cause of the problem. They also discovered that while the machine’s software flashed warnings on its screen when the voter file became full, election workers had not seen it because of the screen’s positioning. Also, according to the officials, they had been operating under the assumption that the machine would have automatically stopped accepting votes once the limit had been reached. Instead, the machine had continued to accept votes cast, overwriting earlier votes in order to accommodate the new ones. The officials said they determined that 4,235 votes were lost. Not all equipment failures resulted in lost votes, but some did create technical challenges. Officials in a Colorado jurisdiction stated that memory cards for optical scan machines at early voting sites sometimes failed, which meant that all affected optical scan ballots were rescanned using a new card once poll workers realized that the original card was malfunctioning. Also, in our September 2005 report on the security and reliability of electronic voting mentioned earlier, we noted that a Florida county experienced several problems with its DRE system, including instances where each touch screen took up to 1 hour to activate and had to be activated separately and sequentially, causing delays at the polling place. In addition, we reported that election monitors discovered that the system contained a flaw that allowed one DRE machine’s ballots to be added to the canvass totals multiple times without being detected. In another instance, our report notes that a malfunction in a DRE system in Ohio caused the system to record approximately 3,900 votes too many for one presidential candidate in the 2004 general election. We also reported that a state- designated voting system examiner in a Pennsylvania jurisdiction noted that the county DRE system had technical problems, such as failure to accurately capture write-in votes, frozen computer screens, and difficulties sensing voters’ touches. During our 2005 site visits, officials from 3 jurisdictions also described several cases of jamming problems with optical scan and punch card ballot tabulators. For example, election officials in a Kansas jurisdiction we visited told us that an extensive two-sided optical scan ballot frequently jammed voting machines because of its length. These officials told us that they used a two-sided ballot design which required that the optical scan counting equipment read the ballot front and back, which presented a problem. According to the officials, the ballot was not scored properly to feed easily through the equipment and paper jams occurred frequently. Election officials said the ballots had to be hand-sorted into 13 groups before scanning, which took time. Similarly, officials in a New Jersey jurisdiction told us that their optical scan machines had frequently jammed when reading provisional and absentee ballots. According to the officials, the ballots had two or three folds, which in combination with the high volume of ballots being read, jammed the machine regularly. To repair the jams, officials told us they would straighten ballots and run them through again, or, if needed, would remake the ballot. Also, officials in an Illinois jurisdiction we visited said punch cards had also jammed in their tabulator. Officials there said that this had been likely due to the punch cards swelling in humid weather, and this problem had caused the scanner to misread ballots on several occasions. In all of these instances, the problems were corrected. While we heard in our site visits about some human error at the polls, in our survey of local jurisdictions we found that human error was a problem for a small portion of election jurisdictions in terms of at least one key function. Specifically, we estimate that 6 percent of local jurisdictions nationwide experienced poll worker errors in tracking and accounting for ballots. To the extent that these errors occurred, they were more common in large jurisdictions. We estimate 1 percent of small jurisdictions, 14 percent of medium jurisdictions, and 34 percent of large jurisdictions had these errors. The differences between all size categories are statistically significant. In 10 of the jurisdictions we visited, election officials cited poll worker or voter errors as the cause of discrepancies in the number of ballots and voters. In 1 Ohio jurisdiction, for example, election officials said the discrepancy in the number of ballots and votes was caused by the fact that poll workers did not track some voters who left the polling place without voting. In a Florida jurisdiction, according to election officials, some voters left the polling place without signing a poll book (which was used to reconcile voter numbers). Another cause for discrepancies in the number of ballots and voters cited by election officials in a Washington jurisdiction was that poll workers erroneously counted some provisional ballots as regular Election Day ballots, which led to the appearance of more regular Election Day ballots cast than voters credited with voting in that manner. Finally, from election officials in 2 jurisdictions we visited, we learned of voter errors in using voting technology. In one Kansas jurisdiction, officials reported that some voters did not know how to scroll down the electronic screen to see all of the information. Also, we were told by election officials in a New Jersey jurisdiction that poll workers had noticed that some voters had failed to press a button to finalize their votes. According to these officials, the poll workers watched for such a mistake, and in at least one instance, reached under the curtain to register a vote while both a Democrat and a Republican poll worker observed the maneuver. According to state survey responses, 7 states (Arkansas, California, Georgia, Oklahoma, Pennsylvania, South Carolina, and Virginia) encountered a challenge during the 2004 general election related to timely completion of the certification process. For example, Georgia election officials reported difficulty in certifying election results in a timely manner that would allow a runoff election to commence within 3 weeks of Election Day. California officials responded that achieving an appropriate balance between vote count accuracy and the speed of vote tabulation was a challenge statewide. Arkansas officials said that the Secretary of State’s office had to contact local election jurisdictions numerous times to receive certified election results in a timely manner. In some local jurisdictions we visited, we also heard about difficulty meeting certification deadlines, particularly with regard to provisional ballots. In 7 local election jurisdictions we visited, election officials cited concerns with the timing requirements of election certifications. Specifically, the task of verifying voter information with respect to provisional ballots and counting provisional ballots made achieving certification deadlines difficult. For example, officials in 1 Colorado jurisdiction said that verifying and counting provisional ballots within the state-mandated 12-day period required that the county hire additional workers. A Florida jurisdiction reported a similar challenge, but in this instance, these officials stated that the county canvassing board was required to consider each provisional ballot individually, which added to the challenge to meet the short state certification deadline. One large jurisdiction in Illinois also reported that its 14-day certification deadline was difficult to achieve because of the large number of provisional ballots that had to be verified and counted. In a Washington jurisdiction, officials stated that verifying and counting all ballots (including provisional ballots) within state-mandated periods had been a challenge in 2004. In 2005, the Washington state legislature extended the mandated certification deadline from 15 to 21 days following any general election. While the 2004 recount in Washington was one of few statewide recounts conducted across the country, the types of issues that surfaced during the recount about Washington’s election system identified problems in all three key elements of elections—people, process, and technology. The close gubernatorial race and the recount subjected these elements to close scrutiny, revealing the vulnerability and interdependence of the various stages of the elections process and the unerring attention to detail that is required to run an error-free election. It was, in fact, the closest gubernatorial race in United States history. In the initial statewide count, a mere 261 votes separated the top two candidates—about 0.001 percent of the total votes cast. An initial recount reduced that margin of victory to just 42 votes out of more than 2.7 million cast, and the final recount resulted in a 129-vote margin of victory for the candidate who came in second in the first two vote counts. In part because it is the largest election jurisdiction (in number of voters) in Washington state, King County was the subject of some of the greatest scrutiny. However, problems were identified by courts in other jurisdictions in the state as well. As a result of this scrutiny, as discussed below, Washington state, and King County itself, has subsequently instituted many reforms. We reviewed a variety of reports and studies on this extraordinary election, including state task force studies, an internal county review, a management audit sponsored by the Election Center, and the findings of a state Superior Court that resulted from a lawsuit challenging the results of the final recount. The principal problems we identified in these materials ranged from poll worker errors to challenges in using equipment. Described here, they illustrate how breakdowns in the interface of people, process, and technology may, at any stage of an election, impair an accurate vote count. In at least 11 counties provisional ballots were found by a Washington state Superior Court to have been counted without verifying voter signatures or before verification of voter registration status was completed. For example, in Pierce County, Washington, 77 provisional ballots were found by the Superior Court to have been improperly cast. Provisional ballots were to have included on the ballot envelope the voter’s name and residence. Because the provisional voter’s identity or residence was not marked on the provisional ballot envelope for these 77 ballots, voter registration status could not be verified. In King County, the court found that 348 provisional ballots were improperly cast without verifying voter eligibility. The Election Center management audit found this had occurred because the provisional voters had been allowed to put their ballots, which had not been verified, directly into the optical scan machines at the voting precincts. The Superior Court found that of these 348 provisional ballots, 252 were ultimately determined to have been cast by registered voters. According to the audit, this error resulted from poll worker confusion about who was accountable for the provisional voting process at the polls. No one poll worker was assigned responsibility for tracking provisional ballots. The Superior Court also found that more than 1,400 votes had been cast illegally by felons during the November 2004 general election in counties across Washington. Under Washington state law, in general, persons convicted of a federal or state felony are not eligible to vote unless their right to vote has been restored. According to the King County audit, some felons were registered to vote in King County. The audit stated that election registration officials had very limited information available to them regarding such felons that would have allowed them to periodically purge the rolls. Moreover, according to the audit report, when a former felon who wished to register signed an affidavit to attest to the fact that his or her voting rights had been restored, election officials had no expedient way to verify the claim, particularly for former felons convicted in a different county. In addition, the audit report noted that election officials did not necessarily have the authority to refuse to accept a registration form. In our June 2005 report on maintaining accurate voter registration lists, we found that similar challenges in identifying and removing felons from voter rolls were reported in other states as well. The Superior Court found that more votes were counted than the number of voters credited with voting. Specifically, a judge cited evidence of 190 excess votes counted in Clark County, 77 excess votes counted in Spokane County, 20 excess votes counted in Island County, and 14 excess votes counted in Kittitas County. In a King County internal report, election officials reported that the discrepancy between voters credited with voting and ballots cast was about 0.2 percent, or over 1,000 votes. The Election Center management audit concluded that the discrepancy may have been due, in part, to the use of an electronic wand held by temporary employees to scan the entry codes in the poll book when registrants came to vote. The audit noted space limitations and difficulty hearing the wand’s beep when it processed a bar code may have prevented an accurate count of voters. During our site visit with King County officials, they told us that separate from the wanding issue, poll worker training deficiencies may have contributed to discrepancies in the number of votes credited and cast when voter information was not entered properly into poll books. According to the Superior Court’s findings, in several counties uncounted ballots were discovered after the certification of the initial election results. The Superior Court found that there were 64 uncounted absentee ballots found in Pierce County and 8 in Spokane County. According to the Election Center audit, in King County, the uncounted ballots were both absentee and provisional ballots, and 22 absentee and provisional ballots were discovered in the base units of optical scan machines after the election was certified. The audit concluded that poll workers had failed to adhere to their procedures for checking these units when reconciling ballots after the polls closed, and recommended strengthening both procedures and training. In King County, during the second recount, the King County Canvassing Board discovered that election workers had disqualified 573 absentee ballots during initial canvassing when they could not find the voters’ signatures in the county’s new computerized voter registration list for verification. In addition, the election workers had not checked elsewhere for these signatures, such as on the voters’ paper registration forms. In the recount, the King County Canvassing Board decided to recanvass these ballots to determine whether their disqualification had been appropriate or whether these ballots should have been counted. According to the King County audit, the voter registration list had been very recently updated, and for this reason, not all voter signatures had been scanned and electronically stored in time for the general election so that election workers would have been able to find them. Verifying absentee ballots was another issue highlighted during the recount. According to press accounts, differences existed in how local jurisdictions in the state verified the signatures of absentee and provisional voters. The Seattle Times reported conducting a survey in which it found that signatures went through as many as four levels of review in one county and only one level in another. Also, the newspaper reported that some counties would look for as many as six different identifying traits of a signature, while others “eyeballed the handwriting.” Recommendations by the Governor’s Election Reform Task Force identified the verification of voter signatures as one of several areas needing more procedural consistency among the counties. Washington enacted into law a series of election reform measures in 2005 designed to clarify, standardize, and strengthen election requirements and procedures. Several of the statewide reforms specifically address problems described above, but others are broader measures designed to improve election administration. Examples of these measures are listed below. Unique provisional and absentee ballots: All provisional and absentee ballots are required to be visually distinguishable from one another and must be either printed on colored paper or imprinted with a bar code for the purpose of identifying the ballot as a provisional or absentee ballot. The bar code must not identify the voter. Provisional and absentee ballots must be incapable of being tabulated by polling place counting devices. Standardized guidelines for signature verification processes: The Secretary of State is to establish guidelines for signature verification relating to, for example, signatures on absentee and provisional ballot envelopes. All election personnel assigned to verify signatures are required to receive training on the established guidelines. State law also provides that while signatures on certain mail-in ballot envelopes (such as absentee ballots) must be compared with the voter’s signature in the county registration files, variation between the signature on a return envelope and the signature of that voter in the registration files due to the substitution of initials or the use of common nicknames (e.g., Joseph Smith versus Joe Smith) is permitted so long as the surname and handwriting are clearly the same. Triennial review of county election processes and reports listing corrective actions: Instead of being performed periodically, state-conducted reviews of county election-related policies, procedures, and practices are to be performed at least once every 3 years. If staffing or budget levels do not permit a 3-year review cycle, such reviews must be done as often as possible. The county auditor or the county canvassing board must respond to the review report in writing, listing steps to be taken to correct any problems. Before the next primary or general election, the Secretary of State’s office must visit the county and verify that the corrective action has been taken. Election law manuals for use in all vote-counting centers: The Secretary of State must prepare a manual explaining all election laws and rules in easy-to-understand, plain language for use during the vote counting, canvassing, and recounting process. The manuals must be available for use in all vote-counting centers throughout the state. Option to conduct voting entirely by mail: Another change introduced by the state, which may avoid errors at the polls, has been to give county officials the option to conduct elections entirely by mail. The new measure authorizes the use of all-mail voting in counties upon the express approval by a county’s legislative authority and provides that such approval must apply to all primary, special, and general elections conducted by the county. For example, King County has announced plans to conduct elections entirely by mail in 2007. The King County Independent Task Force on Elections found in 2005 that the King County election process basically involved simultaneously conducting two dissimilar elections. The task force stated that increasingly, a majority of King County voters (565,011, or slightly more than 62 percent in 2004) used the permanent absentee or vote-by-mail process. Despite this fact, the task force reported that the county also conducted a traditional election involving about 330,000 voters assigned to over 2,500 precincts and 540 individual polling places, and the use of hundreds of temporary election workers who must be trained and who work at the polling places for more than 13 hours on election days. Furthermore, the task force stated that both election processes contain independent, complex, and often conflicting requirements that have clearly caused significant problems for King County election officials. Having one means of voting for all citizens is perceived to be both more efficient and cost-effective than the previous process, according to the task force. Paper records for electronic voting devices and precertification audits of electronic voting results: All electronic voting devices must, beginning January 1, 2006, produce an individual paper record of each vote, at the time of voting, that may be accepted or rejected by the voter before finalizing his or her vote. This audit is to be conducted by randomly selecting a specified percentage of electronic voting devices and, for each device, comparing the results recorded electronically with the paper records. The audit process must be open to observation by political party representatives if such representatives have been appointed and are present at the time of the audit. Separate from changes made at the Washington state level, King County, as reported in the Election Center audit, also implemented or was in the process of implementing changes to improve election administration that specifically address issues that arose during the 2004 general election. Examples of such reported changes are below: Controls to manage provisional ballots: Provisional ballots will be color- coded for easy recognition and will have timing marks that prevent the counter at the polling place from accepting them. Therefore, the voter has no option but to return his or her provisional ballot to a poll worker, who will place it in a provisional envelope. One additional poll worker is to be assigned to each polling place to exclusively manage provisional ballots for all voters at that polling place. Controls to prevent misplaced ballots: Poll workers are required to record the serial number located at the bottom of the optical scan bins on the ballot reconciliation transmittal form. The serial number is not visible if any ballots remain in the bin. Increased poll worker training, attaching a flashlight to the inside of each bin, and continued adherence to existing procedures for troubleshooters to examine each bin before certification are also intended to help ensure that all ballots are properly handled and counted in future elections. Additional procedures for tracking absentee ballots and registration signatures: King County performed a database search of the entire voter file prior to the fall 2005 elections, in order to identify missing or unreadable signatures. On the basis of the search results, elections personnel contacted voters and made significant progress in updating the files. In addition, procedures at the absentee ballot operation center have been enhanced. New logs were created for tracking absentee ballots that required additional research because they were not easily verified. Also, in any instance where a voter registration signature is not on file, or is illegible, a search for the original record, as well as a call and a letter to the voter, is required. Improvements to procedures for reconciling ballots and voters: For the 2005 primary and general elections, the use of electronic hand wands to scan poll books, when reconciling ballot and voter numbers, was to be done at a county center where more space would be available. New checklists were developed that required staff to balance the number of signatures recorded with the wand against the number of ballots counted by the computer. Also, the hand-wand process was to occur at the beginning rather than at the end of the canvass to allow more time for any necessary research into potential discrepancies. Although the methods used to secure and count ballots vary across the 50 states and the District of Columbia, the goal of vote counting is the same across the nation: to accurately count all ballots cast by eligible voters. As with the elections process overall, conducting an accurate vote count is not a simple process. It requires many steps, an unerring attention to detail, and the seamless integration of people, processes, and technology. Providing eligible voters multiple means and times within a jurisdiction for casting their ballots—early, absentee, provisional, and Election Day voting—enhances eligible voters’ opportunity to vote. At the same time, multiple voting methods and types of ballots can make the vote-counting process more complicated. In addition, short deadlines for certifying the final vote—as little as 2 days in 1 state—provide little time for election officials to review, verify, and count provisional and absentee ballots. Larger jurisdictions generally face more challenges than smaller jurisdictions because of the sheer volume of votes cast by all ballot types— absentee, provisional, and regular ballots. Provisional ballots were new for many jurisdictions in November 2004 and created some challenges in tracking, verifying, and counting. On the basis of their experience in November 2004, some jurisdictions are implementing new procedures for provisional voting, such as printing provisional ballots in a color different from other types of ballots or using paper ballots rather than DRE machines for provisional voters. Two jurisdictions we visited in Washington have announced plans to move to all-mail elections, which was authorized on a county-wide basis by recent state law. Although replacing in-person voting with all-mail voting eliminates some challenges—e.g., poll worker training on voting equipment operations and provisional voting or the chance of malfunctioning voting equipment at the polls—in some circumstances it could magnify the importance of other aspects of state election processes, such as verifying votes, accurately matching voter signatures and having guidance for determining voter intent from improperly or unclearly marked ballots. For those jurisdictions allowing or requiring the determination of a voter’s intent from an improperly or unclearly marked ballot, the importance of having explicit and consistent criteria for treating such ballots became evident in the 2000 general election when different interpretations for such ballots in Florida made the close presidential race extremely contentious. Eighteen states that reported they did not have voter intent guidance in place for the November 2000 general election reported to us in our state survey that they did have voter intent requirements or guidance in place for the November 2004 general election. While federal election provisions do not address the state counting issue of ascertaining voter intent, HAVA did require states to adopt, by January 2006, uniform and nondiscriminatory standards defining what constitutes a vote and what will be counted as a vote for each type of voting system used by the state. The recount in the close gubernatorial election in Washington revealed the interdependence of every stage of the elections process in ensuring an accurate vote count. That experience also illustrated how small errors in election operations can affect the vote counting process. Were any state’s election processes subjected to the very close scrutiny that characterized the recount in Washington state, it is likely that imperfections would be revealed. Votes are cast and elections are conducted by people who are not and cannot be 100 percent error free in all their tasks all the time. Thus, the consistently error-free vote count may be elusive, particularly in very large jurisdictions with hundreds of thousands of ballots cast in person, absentee, or provisionally. However, diligent efforts to achieve consistent error-free vote counts can help to ensure that any errors are reduced to the minimum humanly possible. Voting methods can be thought of as tools for accommodating the millions of voters in our nation’s more than 10,000 local elections jurisdictions. These tools are as simple as a pencil, paper, and a box, or as sophisticated as programmable computer-based touch screens. Regardless of method, however, the proper operation and functioning of each depends on its effective interplay with the people who participate in elections (both voters and election workers) and the processes (governed by policies, procedures, and so forth) that govern the interaction of people with one another and with the voting method. This chapter focuses on voting methods—the technology variable in the people, process, and technology election equation. It describes the use of voting methods in the 2004 general election, compares this technology environment with that of the 2000 general election, and examines plans for voting technologies in the 2006 election, particularly in light of the roles being played by states and HAVA. It also examines efforts to measure and understand how well voting equipment performed in the 2004 election (see fig. 53 for equipment examples), including the state of performance standards and local jurisdictions’ overall satisfaction with their respective voting methods. Additionally, this chapter discusses the state of practice relative to voting system security, testing, and integration, and presents key challenges facing all levels of governments as voting systems, related election systems, and supporting technologies continue to evolve. The technology of the voting environment can be characterized as varied and evolving, according to our 2005 state survey results and local jurisdiction survey estimates. We estimate on the basis of our local jurisdiction survey that the predominant voting methods most often used for the 2004 general election by large jurisdictions were DRE and precinct count optical scan, while medium jurisdictions most often used precinct count optical scan and small jurisdictions most often used paper ballot. In addition, the predominant voting method most often used for large jurisdictions changed from precinct count optical scan in 2000 to both DRE and precinct count optical scan in 2004, while the predominant voting methods remained the same for the other jurisdiction sizes. Also in the 2004 general election, an estimated one-fifth of jurisdictions used multiple voting methods to support voting activities. Most states generally exercised influence over the voting methods used by their respective elections jurisdictions through a range of approaches such as requiring the use of one specific voting method, helping with local acquisition efforts, or eliminating voting methods, according to our 2005 state survey. Ten states and the District of Columbia reported that they required the use of one specific method for the 2004 general election, and 4 additional states planned to require a specific method for the 2006 general election. Sixteen states and the District of Columbia reported that they were involved to some extent in local jurisdiction efforts to acquire voting systems, components, and services. States also reported that they were eliminating lever and punch card equipment between the 2000 and 2006 general elections. Specifically, for the November 2000 general election, 37 states reported that they used lever or punch card voting equipment; by the November 2006 general election, only 4 states had plans to use lever and punch card equipment. HAVA has influenced state and local decisions regarding particular voting methods by providing funds to states to replace punch card and lever voting equipment with other voting methods. This greater state involvement in jurisdictions’ choice of voting methods, combined with federal funding to replace lever and punch card voting equipment and certain HAVA requirements—among other factors—is likely to influence the adoption of DRE and optical scan voting methods. Federal and state standards provide an important baseline for the performance of voting systems and were widely adopted for the 2004 general election. However, according to our local jurisdiction survey, voting equipment performance was not consistently measured during the 2004 general election and varied by jurisdiction size and voting method, in part because some types of measures were not well suited to particular voting methods. For example, small jurisdictions were generally less likely to collect accuracy measures such as accuracy of voting equipment (estimated at 31 percent for small jurisdictions) than large and medium jurisdictions (66 percent and 54 percent, respectively), and this may be because the predominant voting method most used by small jurisdictions was paper ballot. On the other hand, on the basis of our local jurisdiction survey, we estimate that the vast majority of all jurisdictions were very satisfied or satisfied with their systems’ performance during the 2004 general election. For instance, we estimate that 78 percent of jurisdictions were very satisfied or satisfied with the accuracy of their voting system performance. The estimated high satisfaction levels demonstrated across different voting system performance areas and jurisdiction sizes contrast with our lower estimates of the performance measures that were collected for the 2004 general election. Although the reasons for moderate collection levels for performance measures are unclear, jurisdictions that may not have collected performance data or may have considered such information not applicable to their situation may lack sufficient insight into their system operations to adequately support their satisfaction in the variety of performance areas we surveyed. The moderate collection levels of data on operational voting system performance may present a challenge to state and local election officials in their efforts to make informed decisions on both near-term and long-term voting system changes and investments. A wide range of recently published concerns for the security of voting systems and the development of nationwide mechanisms under HAVA to improve security standards and processes have not yet produced a consistent approach across all jurisdictions for managing the security of voting systems. Our 2005 local jurisdiction survey and our visits to local jurisdictions found that voting system security has been primarily shouldered by local jurisdictions. However, states, vendors, law enforcement officials, and others shared in these efforts to varying degrees for the 2004 general election. Our state survey for the 2004 general election and visits to local jurisdictions indicated that security mechanisms employed by some states—but not others—included promulgation of policies and guidance, compliance of voting equipment with security standards, and monitoring and evaluation of implemented security controls. According to our local jurisdiction survey estimates and visits to local jurisdictions, jurisdictions and their support organizations were largely responsible for implementation of security controls, such as access restrictions to voting equipment, system backup capabilities, and security- related testing. Estimates from our local jurisdiction survey also showed, however, that many jurisdictions nationwide had not documented their security measures, and we found that several of the jurisdictions we visited reported that they had not implemented recommended measures, such as security plans, training, and documentation of policies and procedures. Furthermore, decisions by states to continue using outdated voting system standards may allow the vulnerabilities of newer technologies to go unevaluated and impair effective management of the corresponding security risks. States and local jurisdictions face the challenge of regularly updating and consistently applying appropriate standards and other directives to meet the vulnerabilities and risks of their specific election environments. Testing and evaluation of voting systems also varied across states and jurisdictions for the 2004 general election. Our state survey found that most states required certification testing of their voting systems using a range of criteria. However, responsibility for purchasing a certified system typically rested with local jurisdictions. Other results from our 2005 state survey and responses from jurisdictions we visited indicated that acceptance testing continued to be commonly performed, but there was wide variation in the responsibilities and practices for this type of testing, including whether such testing was applied to new systems or upgrades, the extent of vendor participation, and the coverage of hardware and software functions. Also on the basis of our local jurisdiction survey, we estimate that most jurisdictions conducted readiness (logic and accuracy) testing for the 2004 general election as they did for the 2000 election, but in some jurisdictions we visited, we found they used different procedures that may have included one or more processes such as diagnostic tests, mock elections, or suites of test votes. In contrast, our local survey estimates indicate that parallel testing was employed by fewer than an estimated 2 percent of jurisdictions. This may be due to, in part, the lack of directives for conducting such tests. Finally, postelection voting system audit tests were conducted by fewer than half of jurisdictions for the 2004 general election, according to our local survey estimates, although many more large and medium jurisdictions performed these tests than small jurisdictions. As with other types of testing, the requirements and practices for audit tests were diverse. Factors associated with the testing of voting systems may further challenge states and local jurisdictions as they adapt to changes in voting system capabilities, standards, and national certification for the 2006 general election. Those factors are likely to include increased certification testing workloads to recertify systems with new capabilities, ongoing limits to the number of available testing laboratories until a new laboratory accreditation process becomes fully operational, and more complex testing because a new version of the federal voluntary voting system guidelines has been added in 2005 to older federal standards from 1990 and 2002 that states are already using. The number of jurisdictions that had integrated particular aspects of voting system components and technologies was limited for the 2004 general election, according to estimates from our local jurisdiction survey and visits to local jurisdictions for the selected areas of integration we examined, such as electronic programming or setup and electronic management. Two-thirds of the jurisdictions we visited told us that they used electronic programming or setup of voting equipment, and an estimated 7 percent of jurisdictions that used voting methods other than paper ballots, according to our local survey, connected their voting equipment via a local network at polling locations. Relatively few local jurisdictions we visited also reported having plans for integrating or further integrating their election-related systems and components for the 2006 general election, and in the instances where jurisdictions reported plans, the scope and nature of the plans varied. For instance, officials at 5 jurisdictions we visited reported plans to introduce a voter-verifiable paper trail (VVPT) capability for future elections, and officials from 1 jurisdiction reported plans to purchase an optical scanner with the ability to tabulate both DRE and optical scan election results. Nevertheless, the potential for greater integration in the future does exist as states and jurisdictions act on plans to acquire the kind of voting equipment (e.g., optical scan and DRE products) that lends itself to integration. For example, on the basis of our local jurisdiction survey, we estimate that at least one-fifth of jurisdictions plan to acquire DRE or optical scan equipment before the 2006 general election, and officials from 2 jurisdictions we visited who used DRE equipment told us that their state planned to purchase electronic poll books for its precincts to use during the 2006 elections to electronically link its voter registration system with its voting systems. It is unclear if and when this migration to more technology-based voting methods will produce more integrated election system environments. However, suitable standards and guidance for these interconnected components and systems—some of which remain to be developed—could facilitate the development, testing, operational management, and maintenance of components and systems, thereby maximizing the benefits of current and emerging election technologies and achieving states’ and local jurisdictions’ goals for performance and security. The challenge inherent in such a dynamic environment is to update system standards so that emerging technical, security, and reliability interactions are systematically addressed. The technology of the voting environment can be characterized as varied and evolving, according to our 2005 state survey results and local jurisdiction survey estimates. We estimate on the basis of our local jurisdiction survey that the predominant voting methods most often used for the 2004 general election by large jurisdictions were DRE and precinct count optical scan, while medium jurisdictions most often used precinct count optical scan and small jurisdictions most often used paper ballot. Two key patterns emerged in the use of voting methods between the 2000 and 2004 general elections. First, we estimate that the percentage of large jurisdictions using DREs doubled from 15 percent in the 2000 general election to 30 percent in 2004. The predominant voting method for large jurisdictions changed from precinct count optical scan in 2000 to both DRE and precinct count optical scan in 2004. In contrast, we estimate that the predominant voting methods remained the same for small and medium jurisdictions (paper ballots and precinct count optical scan, respectively) from 2000 to 2004. Furthermore, on the basis of our local jurisdiction survey, we estimate that at least one-fifth of jurisdictions plan to acquire DRE or optical scan equipment before the 2006 general election. Second, in response to our state survey, 9 states reported that they eliminated the lever machine and punch card voting methods for the 2004 general election. In addition, 18 other states plan to eliminate lever or punch card voting methods for the 2006 general election. This greater state involvement in jurisdictions’ choice of voting methods, the availablilty of federal funding to replace lever and punch card voting equipment, and certain HAVA requirements—among other factors—are likely influences on the adoption of DRE and optical scan voting methods. Since the November 2000 general election, the DRE voting method has become more widely used in large jurisdictions, according to our local jurisdiction 2005 survey. During the same period, states’ reported use of lever machine and punch card voting methods has decreased, according to responses to our 2005 state survey. Our state and local jurisdiction surveys also indicate plans for changes to voting technologies for the 2006 general election. Overall, the estimated percentages of predominant voting methods used by local jurisdictions in the 2000 and 2004 general elections did not change appreciably. In particular, from our local jurisdiction survey, we estimate that the mix of predominant voting methods used in the November 2000 general election was 5 percent DRE, 21 percent central count optical scan, 26 percent precinct count optical scan, 5 percent central count punch card, 2 percent precinct count punch card, 8 percent lever, and 31 percent paper. In comparison, we estimate that the mix for the November 2004 general election (in the same order) was 7 percent DRE, 21 percent central count optical scan, 30 percent precinct count optical scan, 2 percent central count punch card, 2 percent precinct count punch card, 7 percent lever, and 30 percent paper. Figure 54 compares these percentage changes. According to our local jurisdiction survey, there may have been a small shift away from punch card and lever machine voting methods (estimated at 3 percent or 1 percent loss of jurisdictions, respectively) and may have been an increase in optical scan and DRE voting equipment (estimated at 5 percent and 2 percent gain of jurisdictions, respectively) for the 2004 general election. However, these differences are not statistically significant. During the same time frame, we estimate that 16 percent of jurisdictions acquired new voting equipment through their own purchases or leases and 15 percent of jurisdictions through purchases or leases by their state. Thus, the new voting equipment acquired by many jurisdictions since 2000 did not substantively affect the predominant voting methods that were already in use. One notable change did occur, however, in the use of predominant voting methods in the 2000 and 2004 general elections. The percentage of large jurisdictions using DREs doubled (estimated at 15 percent in 2000 and 30 percent in 2004, respectively)—an increase that is statistically significant. This increase in the use of DREs changed the predominant voting method most often used for large jurisdictions, which was precinct count optical scan in 2000, to both DRE and precinct count optical scan in 2004. A smaller increase in the use of DREs among medium jurisdictions (from an estimated 13 percent in 2000 to 20 percent in 2004) is not statistically significant, and there was virtually no change in DRE use among small jurisdictions (an estimated 1 percent for both elections). In contrast, the use of paper ballots as a predominant voting method did not appreciably change between the 2000 and 2004 general elections (with overall use at 30 percent in 2000 and 31 percent in 2004, respectively). Small jurisdictions were the major contributors to this steady use of paper ballots (estimated at 43 percent in 2000 and 41 percent in 2004, respectively); medium jurisdictions were minor contributors (3 percent for each election). (No large jurisdictions used paper ballots as their predominant voting method for either of these elections.) We also estimate that use of precinct count optical scan as the predominant voting method for medium jurisdictions did not change appreciably between the 2000 and 2004 elections (estimated at 35 percent in 2000 and 39 percent in 2004, respectively). Figure 55 shows the estimated use of predominant voting methods for small, medium, and large jurisdictions in the 2004 general election. The more widespread adoption of DREs by large jurisdictions was consistent with their greater proportion among jurisdictions that acquired voting equipment since 2000. According to our local jurisdiction survey, we estimate that 37 percent of large jurisdictions bought or leased new voting equipment since 2000, compared with 21 percent of medium jurisdictions and 12 percent of small jurisdictions, where the differences between large jurisdictions and both medium and small jurisdictions are statistically significant. Furthermore, on the basis of our local jurisdiction survey, we estimate that at least one-fifth of jurisdictions plan to acquire DRE or optical scan equipment before the 2006 general election. Both large and medium jurisdictions are more likely to have plans to acquire DREs before the November 2006 general election (estimated at 34 percent each) than small jurisdictions (estimated at 13 percent), while small jurisdictions are more likely to have plans to acquire precinct count optical scan voting equipment (estimated at 28 percent) than medium or large jurisdictions (estimated at 17 percent and 15 percent, respectively). In general, fewer jurisdictions expected to acquire central count optical scan voting equipment than the other two voting methods, although the differences were not statistically significant. The percentages of jurisdictions planning to acquire the newer voting systems before the next general election are shown in figure 56 by the size of jurisdiction. Another interesting pattern emerged in voting methods between November 2000 and November 2004 at the statewide level. Thirty-seven states reported that at least 1 jurisdiction used lever machine or punch card voting equipment for the November 2000 general election. By the time of the November 2004 general election, the number of states that continued to employ these voting methods decreased to 28. Specifically, our state survey results show that 9 states reported that they completed replacement of all their punch card or lever voting equipment before the November 2004 general election, and 4 other states reported that they completed their replacements since the 2004 election. Of the remaining 24 states that reported using the punch card and lever methods in 2000 but had not yet replaced them at the time of our survey, 18 reported that they planned to replace all punch card and lever voting equipment by the November 2006 general election, while 3 planned to replace a portion of their equipment by then. One state reported no replacement plans prior to the November 2006 general election. Figure 57 summarizes the states’ progress and plans for replacing punch card and lever voting equipment. Our local jurisdiction survey provided insight into jurisdictions’ plans for acquiring technology-based voting methods and the time frames for executing these plans, which may increase the predominance of these methods in future elections. Specifically, we estimate that 25 percent of local jurisdictions are planning to acquire precinct count optical scan machines by the November 2006 general election, 19 percent expect to acquire DREs by then, and about 7 percent plan to acquire central count optical scan equipment before that election. In addition, we estimate that between 4 and 10 percent of local jurisdictions had plans to acquire additional equipment in each of these voting methods but had not set a target date for doing so at the time of our survey. During visits to election jurisdictions across the country, local election officials explained some of their motivations behind plans to acquire DRE or optical scan voting equipment. For example, election officials in 6 jurisdictions cited HAVA as the reason for purchasing new DRE equipment, particularly HAVA’s requirement that each voting place have at least one voting method that is accessible to persons with disabilities, as we discussed earlier in chapter 4. More specifically, officials in 1 large jurisdiction in Connecticut said that they would evaluate the use of DREs to meet HAVA accessibility requirements before deciding whether to purchase more DREs in time for the November 2006 general election. Election officials from 5 other jurisdictions stated that they planned to purchase new voting equipment to provide a VVPT, a requirement levied by 3 of the 14 states we visited (Colorado, Nevada, and New Mexico). Officials from 5 other jurisdictions said that they expected to acquire new voting equipment but did not give a reason and, in some cases, did not yet know what type of equipment they would obtain. Officials in jurisdictions that did not plan to purchase new voting equipment told us that their existing equipment was sufficient or that budget constraints prevented the acquisition of new equipment, among other reasons. As for the 2000 general election, some jurisdictions used multiple voting methods to support the 2004 general election, and some of these methods were more widely used than others for particular types of voting. In our October 2001 comprehensive report on election processes nationwide, we reported that 5 percent of jurisdictions used more than one voting method. On the basis of our 2005 local jurisdiction survey, we estimate that 21 percent of jurisdictions used more than one voting method in the November 2004 general election, with the most common combination of methods being central count optical scan with paper ballot (estimated to be 5 percent of jurisdictions). Other common combinations in 2004 were lever machine with paper ballot (4 percent) and DRE with paper ballot (3 percent). DRE with central count optical scan was one of numerous other combinations used by 2 percent or less of local jurisdictions. Figure 58 shows the estimated proportion of jurisdictions with the most prevalent single and combination voting methods. The specific mix of voting methods used can also be viewed with respect to particular types of voting (e.g., absentee, early, provisional) that were supported in the 2004 election. In this regard, some voting methods were applied to a particular type of voting more frequently than others. We estimate that paper ballot was the most widely used voting method for absentee voting (36 percent of jurisdictions), provisional voting (18 percent), and early voting (8 percent). Precinct count optical scan (shown in fig. 59) was generally the second most widely used voting method for these types of voting (24 percent of jurisdictions for absentee, 10 percent for provisional, and 5 percent for early voting, respectively), while central count optical scan was the third most widely used method (20 percent of jurisdictions for absentee, 9 percent for provisional, and 5 percent for early voting, respectively). Most states have generally exercised influence over the voting methods used by their respective elections jurisdictions through a range of approaches. In particular, for our state survey, a majority of states (32) and the District of Columbia said that they restricted the voting methods employed by local jurisdictions in the 2004 election either by requiring the use of one specific method (10 states and the District of Columbia) or providing a list of approved voting methods for the jurisdiction to select from (22 states). An alternate approach reported by 10 states was to require local jurisdictions to obtain state approval when selecting a voting method. The remaining 8 states said that local jurisdictions chose the voting method they used without any state involvement. In addition to affecting the choice of voting methods, 16 states and the District of Columbia reported that they were involved to some extent in local jurisdiction efforts to acquire voting systems, components, and services. For example, 1 state reported that it evaluated voting equipment options and vendors, and then contracted with a single vendor to supply voting equipment for all jurisdictions in the state. Jurisdictions within this state then had the option of purchasing additional voting equipment from this vendor, as needed. The top map of figure 60 shows the role of each state in the selection of specific voting methods for jurisdictions in the 2004 general election. Washington, D.C. Washington, D.C. Responses to our state survey indicate that state influence over the voting methods to be used in the November 2006 general election will continue to increase. Four additional states planned to require the use of a single voting method statewide, which will bring the total number of states doing so to 14, and the District of Columbia will do so as well. Also, 5 additional states reported that they will require local jurisdictions to select a voting method or methods from a state-approved list, bringing this total to 27; 8 states intended to continue to allow local jurisdictions to select their voting methods with state approval. Only 1 state was not expecting to be involved in decisions on voting methods for its jurisdictions for 2006. The bottom map of figure 60 shows the role of each state in the selection of specific voting methods for jurisdictions in the 2006 general election. Consistent with state survey responses indicating their contributions to local jurisdictions’ selection of voting methods and on the basis of our local jurisdiction survey, one of the most frequent factors that influenced the 16 percent of local jurisdictions that bought or leased new voting equipment since the November 2000 general election was state requirements or certification of the equipment (an estimated 83 percent of the 16 percent of jurisdictions that bought or leased the new voting equipment). Other widely influential factors included ease of equipment use (91 percent), vendor demonstrations (72 percent), and affordability (68 percent). In contrast, local requirements and HAVA funding were less influential factors for local jurisdictions’ acquisition of voting equipment (44 percent and 45 percent of jurisdictions, respectively). (See fig. 61.) HAVA has also influenced state and local decisions regarding particular voting methods through mechanisms to encourage the adoption of technology. Among other things, HAVA provided funds to states to replace punch card and lever voting equipment with other voting methods (Section 102 funds). During fiscal year 2003, the General Services Administration (GSA) reported distributing about $300 million to 30 states that applied for these funds. Figure 62 depicts an overview of the funds distributed to states specifically to replace lever machines and punch card voting equipment. (Fig. 57 presented an overview of states’ progress in replacing lever and punch card voting equipment.) In responding to our state survey, 24 of the 30 states reported that they had invested at least a portion of these funds to replace lever or punch card voting equipment as of August 1, 2005. In addition to the funding that HAVA earmarked for voting equipment replacement, states could also apply for other HAVA funds that could be used for multiple purposes, including replacement or upgrade of voting systems (Section 101 funds). In its 2004 annual report, EAC reported that almost $344 million had been distributed to each of the 50 states and the District of Columbia under this multiple purpose funding category. In all, 44 states and the District of Columbia reported in our state survey that they had spent or obligated funds from one or both of these HAVA funding sources in order to improve, acquire, lease, modify, or replace voting systems and related technology. EAC requires states to submit detailed annual reports on the use of those funds but has not yet compiled data from the state reports about spending for voting equipment covered in HAVA Section 101. Besides authorizing funding for changes to voting methods, HAVA also has the potential to influence voting methods through new requirements for the usability and accountability of voting systems. Among other things, HAVA requires that voting systems used in federal elections provide voters with ballot verification and correction capabilities by January 1, 2006, including the opportunity to verify their ballots in a private and independent manner before they are cast; the ability to change their ballots or correct any error in a private and independent manner before the ballots are cast and counted; and the capability to both notify the voter whenever more than one candidate has been selected for a single office and correct the ballots. HAVA also requires voting equipment to generate a permanent paper record with manual audit capacity as an official record of the election. Our October 2001 report on election processes described how voting methods varied in their ability to support features such as error identification and correction for voters. With regard to minimizing voter error at the polls, our local jurisdiction survey for the 2004 general election found that, for instance, voters were provided the opportunity to correct a ballot or exchange a spoiled ballot for a new one in most jurisdictions, and such capabilities were largely available for all voting methods. Our estimates of the availability of ballot correction capabilities range from 100 percent (for jurisdictions whose predominant voting method was central count punch cards) to 70 percent (for jurisdictions predominantly using DREs). However, the differences among these voting methods were not statistically significant. Figure 63 shows one approach that allows voters to verify and correct their ballots using a particular voting method (DRE). With regard to voting equipment that generated a permanent paper record with a manual audit capability for election audits in the 2004 general election (including solutions such as VVPT), we estimate that few jurisdictions that used DREs had this capability. Specifically, from our local jurisdiction survey, a small proportion of jurisdictions that used DREs for the 2004 election had manual audit capabilities such as VVPT (estimated at 8 percent of DRE jurisdictions) or printing of ballot images (11 percent of DRE jurisdictions). An estimated 52 percent of jurisdictions using DREs had equipment that produced an internal paper record that was not voter-verifiable. With this limited implementation of HAVA-related capabilities in the 2004 general election, it appears that most of the voting system and election process changes to comply with these specific HAVA usability and accountability requirements will need to be satisfied by jurisdictions for the 2006 general election. Voting system performance can be viewed in terms of accuracy, reliability, and efficiency. Accuracy refers to how frequently the equipment completely and correctly records and counts votes; reliability refers to a system’s ability to perform as intended, regardless of circumstances; and efficiency refers to how quickly a given vote can be cast and counted. Performance in each of these areas depends not only on how well a given voting system was designed and developed, but also on the procedures governing its operation and maintenance and the people who use and operate it. Thus, it is important that system performance be measured during an election when the system is being used and operated according to defined procedures by voters and election workers. As we have previously reported in our October 2001 report on election processes, measuring how well voting systems perform during a given election allows local election officials to better position themselves for ensuring that elections are conducted effectively and efficiently. Such measurement also provides the basis for knowing where performance needs, requirements, and expectations are not being met so that timely corrective action can be taken. HAVA recognized the importance of voting system performance by specifying requirements for error rates in voting systems and providing for updates to the federal voting system standards, including the performance components of those standards. Moreover, according to our local jurisdiction survey, most local jurisdictions adopted performance standards for the 2004 general election—usually standards selected by their respective states. As was the case for the 2000 general election, jurisdictions collected various types of voting system performance measures for the 2004 general election, although some types of measures were collected by fewer jurisdictions than others—in part because they were not well suited to particular voting methods. Furthermore, from our local jurisdiction survey, we estimate that the vast majority of all jurisdictions were very satisfied or satisfied with their systems’ performance during the 2004 general election, even though performance data may not have been collected to an extent that would provide firm support for these views. In our October 2001 report on voting equipment standards, we reported that the national voluntary voting system standards being used by some states and local jurisdictions at that time were originally approved in 1990 and were thus out of date. Among other things, these standards identified minimum functional and performance thresholds for voting systems in terms of accuracy, reliability, and efficiency. In 2002, the Federal Election Commission updated these standards and, in doing so, provided new or enhanced coverage of certain performance requirements for, among other things, voting system components that define, develop, and maintain election databases; perform election definition and setup functions; format ballots; count votes; consolidate and report results; and maintain records to support vote recounts; direct feedback to the voter that indicates when an undervote or overvote is detected in DRE and paper-based voting systems that encompass punch cards and optical scan; system standards to meet the needs of voters with disabilities, including specific standards for DREs; and strengthened election record requirements to address a range of election management functions, including such functions such as ballot definition and election programming. HAVA further focused attention on voting system performance by establishing a performance requirement for systems used in elections for federal offices and by providing for updates to federal voting system standards. Specifically, HAVA required that voting systems used in federal elections comply with error rate standards specified in the 2002 federal voting system standards. Under these standards, the maximum acceptable error rate during testing is 1 in 500,000 ballot positions. In addition, HAVA directed EAC to revise the voluntary national voting system standards, and to test, certify, decertify, and recertify voting system hardware and software with respect to national voting system standards using accredited testing laboratories. On the basis of our local jurisdiction survey, we estimate that the vast majority of jurisdictions that used some type of automated voting equipment on Election Day generally established written standards for the performance of their voting equipment for the November 2004 general election. Of these, most jurisdictions (an estimated 77 percent) had adopted their state’s standards or requirements pertaining to voting system performance, although a few had adopted performance standards from a source other than their state (10 percent) or developed their own (8 percent). The apparently high adoption rate for standards among states and local jurisdictions is important because it indicates broad acceptance of a basic management tool needed for systematic performance measurement and evaluation. Consistent with our results on voting system performance measurement from our October 2001 report on election processes, estimates from our local jurisdiction survey indicated that jurisdictions used several specific measures that could be generally grouped into the areas of accuracy, reliability, and efficiency to assess the performance of their voting systems for the 2004 general election. However, jurisdictions measured how well their systems actually performed in the 2004 election to varying degrees. In the discussion below, we compare jurisdictions’ collection of selected information on voting system performance for the 2000 and 2004 general elections, and then examine jurisdictions’ performance monitoring in each of the three performance areas. On the basis of on our local jurisdiction surveys for the 2000 and 2004 elections, we estimate that about 50 percent of jurisdictions collected performance information in both elections using three measures— accuracy, undervotes, and overvotes. The percentage of jurisdictions that collected information on a fourth performance measure—average time to vote—was much smaller (estimated at 10 percent or less). The differences between estimates for the two elections are not statistically significant. Figure 64 shows the percentages of jurisdictions that collected these performance measures for the 2000 and 2004 general elections. In the area of accuracy, we estimate that 42 percent of jurisdictions overall monitored the accuracy of voting equipment in the 2004 general election. Other widely used measures of accuracy in the 2004 general election were spoiled ballots (estimated at 50 percent of jurisdictions), undervotes (50 percent of jurisdictions), and overvotes (49 percent of jurisdictions). During our visits to local jurisdictions, election officials in several jurisdictions told us that measuring overvotes was not a relevant performance indicator for jurisdictions using lever machines and DREs because neither permits overvoting. Election officials in several local jurisdictions we visited also told us that undervotes were not a meaningful metric because most voters focused on a limited range of issues or candidates and thus frequently chose not to vote on all contests. Jurisdictions’ collection of the accuracy measures we studied for the 2004 general election varied according to jurisdiction size, with small jurisdictions generally less likely to collect these measures than other jurisdiction sizes. Both large jurisdictions (an estimated 66 percent) and medium jurisdictions (54 percent) were significantly more likely than small jurisdictions (31 percent) to collect data on vote count accuracy. In addition, large jurisdictions (65 percent) were significantly more likely than small jurisdictions (47 percent) to collect data on undervotes. (See fig. 65.) This disparity may be due to the proportion of smaller jurisdictions that use paper ballots and for whom collection of these data would be a manual, time-consuming process. In the area of reliability, we estimate that 15 percent of jurisdictions measured the reliability of their voting equipment in terms of pieces of equipment that failed, and 11 percent measured equipment downtime. As with accuracy, a higher percentage of large and medium jurisdictions collected such reliability data than small jurisdictions, and in the case of equipment failures, there were statistically significant differences in the collection of this information among different sizes of jurisdictions. (See fig. 66.) Importantly, an estimated 55 percent of all jurisdictions kept a written record of issues and problems that occurred on Election Day, which could be a potential source of reliability data. Collection of reliability data for automated voting equipment was also related to the predominant voting method used by a jurisdiction, with jurisdictions that predominantly used DREs more likely to collect reliability data than those that used optical scan voting methods. An estimated 45 percent of jurisdictions whose predominant method was DREs collected information on the number of pieces of voting equipment that failed. The next most frequently collected information on machine failures was for precinct count optical scan systems (an estimated 23 percent of jurisdictions) and central count optical scan systems (an estimated 10 percent). The differences in data collection on equipment failures among jurisdictions that predominantly used DREs and those that used precinct count optical scan or central count optical scan voting methods are statistically significant. (See fig. 67.) In the area of efficiency, we estimate that 13 percent of jurisdictions measured their voting system’s speed of counting votes, 17 percent measured the time it took for election workers to set up equipment, and 4 percent measured the average length of time it took for voters to cast ballots on Election Day. Large jurisdictions (34 percent) were significantly more likely than were both medium jurisdictions (19 percent) and small jurisdictions (9 percent) to collect information on counting speed. There were no significant differences for other efficiency measures by jurisdiction size. (See fig. 68.) It is worth noting that for several types of performance measures in our local jurisdiction survey, jurisdiction size was a factor in whether system performance information was collected. Generally, large jurisdictions were most likely to record voting system performance and small jurisdictions were least likely, with medium jurisdictions in between. Moreover, large jurisdictions were more likely to keep a written record of issues or problems that occurred on Election Day. Specifically, on the basis of our local jurisdiction survey, we estimate that 79 percent of large jurisdictions kept such records, compared with 59 percent of medium jurisdictions and 52 percent of small jurisdictions. The differences between large jurisdictions and both medium and small jurisdictions are statistically significant. The responsibilities for monitoring or reporting voting system performance most often rested with local jurisdictions. On the basis of our local jurisdiction survey, we estimate that 83 percent of local jurisdictions had local officials responsible for performance monitoring or reporting, while states or other organizations (such as independent consultants or vendors) held such responsibilities in 11 percent and 13 percent of jurisdictions, respectively. Information obtained during our visits to local election jurisdictions was generally consistent with the above estimates from our local jurisdiction survey. For example, election officials in the 28 jurisdictions we visited most frequently cited number of undervotes (14 jurisdictions), overvotes (10 jurisdictions), and equipment failures (10 jurisdictions) as types of performance metrics collected. Another collected metric (cited by election officials in 6 jurisdictions we visited) was equipment speed, measured in terms of how fast the voting equipment downloaded vote totals or transmitted totals to its central count location, and the time required to cast a vote (reported by election officials in 4 jurisdictions, although officials in 2 of these 4 jurisdictions limited their measurements to early voting). Another measurement that election officials in some jurisdictions told us they collected was comments from poll workers and voters on the efficiency of the equipment. For instance, an election official in a large jurisdiction in Georgia told us that poll workers commented that it took 20 minutes to vote using the voting equipment’s audio feature. In addition, election officials in several jurisdictions that we visited told us that they had established performance management programs for their voting systems. For example, election officials in 1 jurisdiction reported that they collected data on the time it took to vote to better allocate its voting equipment to various locations. Officials in a large jurisdiction in Kansas said they had conducted a survey of voters concerning their satisfaction with the ease of use of voting equipment during the 2004 general election and determined that they were very satisfied. In our October 2001 report on election processes, we reported that 96 percent of local jurisdictions nationwide were satisfied with the performance of the voting equipment during the November 2000 general election. On the basis of our local jurisdiction survey for the 2004 general election, we estimate that election officials were generally satisfied with their voting system performance. Estimated satisfaction varied for specific areas of voting system performance, ranging from relatively high levels for accuracy (78 percent), speed of vote counting (73 percent), time to set up equipment (63 percent), and number of spoiled or ruined ballots (61 percent), to relatively low levels for equipment failures (37 percent), and downtime (36 percent). Some of these measures may not be applicable to all jurisdictions, such as those using only hand-counted paper ballots. When jurisdictions that used only hand-counted paper ballots were excluded from our results, satisfaction levels were higher in all performance areas—accuracy (86 percent), speed of vote counting (83 percent), time to set up equipment (76 percent), number of spoiled ballots (68 percent), equipment failures (54 percent), and downtime (52 percent). However, even with the exclusion of paper ballot jurisdictions, “not applicable” responses were often selected by jurisdictions in the areas of equipment failures (41 percent not applicable) and downtime (43 percent not applicable). Also on the basis of our local jurisdiction survey, for five of six satisfaction measures, we estimate that medium and large jurisdictions were satisfied or very satisfied with their voting systems more frequently than small jurisdictions and that most of these differences are statistically significant. These ratings may be related to the widespread use of paper ballots by small jurisdictions, where this voting method was predominant in an estimated 41 percent of jurisdictions. Figure 69 shows the frequency of satisfaction in each of six performance areas for large, medium, and small jurisdictions. The estimated high satisfaction levels demonstrated across different voting system performance areas and jurisdiction sizes contrast with our lower estimates of the performance measures that were collected for the 2004 general election. Although the reasons for moderate collection levels for performance measures are unclear, jurisdictions that may not have collected performance data or may have considered such information not applicable to their situation may lack sufficient insight into their system operations to adequately support their satisfaction in the variety of performance areas we surveyed. Local election officials at most of the 28 jurisdictions we visited also expressed satisfaction with the performance of their voting systems or method. For example, Election officials in several jurisdictions using optical scan systems stated that they were pleased with their equipment because it produced a paper trail and permitted fast processing. Officials in 1 large jurisdiction in Florida added that their use of the same equipment over several elections made it easy for voters to use the equipment in both 2000 and 2004. Election officials in several other jurisdictions using DREs told us that their equipment was easy to use and provided results that were accurate and timely. Officials in 1 large jurisdiction in New Jersey reported that, in contrast to paper ballots, DREs do not require poll workers to interpret a voter’s ballot. Election officials in a large Connecticut jurisdiction using lever machines said that voters were happy with the equipment and that it had worked well for over 60 years. They emphasized that the simplicity and transparency of the equipment’s counting mechanisms gave voters confidence that their votes would be counted correctly. Election officials in a small New Hampshire jurisdiction using paper ballots reported that they had used the same hand-counted paper ballot system for decades and it has been very cost-effective for the small population of voters in the jurisdiction. Overall, election officials in few of the 28 jurisdictions that we visited reported substantive performance issues, such as overvoting, undervoting, or equipment failure. Although the estimated level of satisfaction with voting equipment performance in the 2004 general election was high overall, some dissatisfaction existed. On the basis of our local jurisdiction survey, we estimate that between 1 and 4 percent of jurisdictions were dissatisfied or very dissatisfied with their voting systems in the 2004 general election for the six performance areas of our survey. Our local jurisdiction survey provided additional insight into the role of voting equipment in jurisdictions’ dissatisfaction ratings. Of almost 300 responses to our open-ended question about the issue or problem that occurred most frequently on Election Day, November 2004, fewer than 20 responses were specifically related to voting equipment. The most frequent reason for voting system dissatisfaction was voting equipment malfunction. Ballot errors related to voting equipment were much less frequently mentioned. Although such problems were rarely mentioned by election officials during our visits to local jurisdictions, some did describe a few reasons for dissatisfaction with voting equipment, including the additional time required to count ballots using DREs versus the optical scan equipment previously used, the perceived lower reliability and greater failure rates of DREs over the voting equipment used in the past, accuracy problems with DRE computer programs, and difficulty in first-time poll worker operation and voter use of DREs. Election officials in a few jurisdictions we visited noted situations that required considerable effort to resolve. For example, as mentioned in our discussion of vote counting in chapter 6, election officials in a North Carolina jurisdiction told us that 4,235 ballots were lost by one of the DREs used for early voting because the software manufacturer had not installed an upgrade that would have allowed the machine to record up to 10,000 ballots rather than its original limit of 3,500 ballots. The machine continued to show the number of people who voted on the machine after 3,500 ballots had been cast, but did not store the results of their ballots. As a result, the jurisdiction switched to hand-counted paper ballots for elections after the 2004 general election until its state can approve a new automated system for use. Given the real and potential impacts of situations where dissatisfaction was reported, systematic collection and analysis of performance information may help provide election officials with objective support for decisions to improve the operation and upgrade of these systems. Having secure voting systems is essential to maintaining public confidence in the election process, and accomplishing this is a shared responsibility among federal, state, and local jurisdiction authorities. Among other things, voting system security involves ensuring that technical security controls embedded in voting equipment operate as intended, as well as ensuring that security policies and procedures governing the testing, operation, and use of the systems are properly defined and implemented by state and local election officials. Our October 2001 report on election processes identified voting system security challenges facing local jurisdictions, such as consistent application of controls and adequacy of resources. HAVA recognized some of these challenges by requiring specific system security controls and providing improved security management guidance. Nevertheless, while we estimate from our local survey that most jurisdictions have assigned responsibility for voting system security to individuals and implemented certain security controls, the nature and extent of their respective security efforts and activities varied widely. In particular, according to our state survey, estimates from our local jurisdiction survey, and visits to jurisdictions, there are differences across jurisdictions in the (1) adoption of system security standards, with some states requiring jurisdictions to use outdated standards for voting systems; (2) reported implementation of system security controls; and (3) testing performed to ensure that security controls are functioning properly. For instance, we estimate on the basis of our local jurisdiction survey that at least 19 percent of local jurisdictions nationwide (excluding jurisdictions that reported using paper ballots) did not conduct security testing for the systems they used in the November 2004 general election. In addition, 27 states reported in our state survey that they are requiring jurisdictions to apply federal standards to voting systems used for the first time in the November 2006 general election that are outdated, unspecified, or entail multiple versions. This variability in implementation and testing of controls is generally consistent with what we reported for the 2000 general election. Moreover, our September 2005 report on the security and reliability of electronic voting highlighted substantial security issues and concerns for more modern electronic voting systems and reinforced the importance of effective security management. HAVA recognized the importance of effective voting system security through two primary mechanisms. First, it required voting systems to produce a permanent paper record that provides a manual review capability and constitutes the official record for recounts by January 1, 2006. The paper record can be compared with polling place records and voting system documentation to ensure that authorized ballots have been completely and accurately counted. Second, HAVA provided various means to assist states and localities in acquiring and operating secure voting systems. These include provisions for EAC to (1) update voting system standards for voting systems, including standards for security; (2) establish processes for accrediting voting system testing laboratories and conducting tests of voting systems against the standards; and (3) create a process for federal certification of voting systems that undergo the testing process. In doing so, HAVA created tools and resources that states and local jurisdictions can leverage when, for example, acquiring systems from vendors, conducting system testing, and operating and auditing voting systems. However, delays in establishing EAC and commission funding challenges resulted in the first update to the 2002 voluntary voting system standards, and its provisions for system security, not being approved until December 2005. Further, commission efforts to establish processes for accrediting testing laboratories, conducting testing, and certifying systems are still under way. As was the case for the November 2000 general election, the nature and extent of voting system security efforts and activities during the 2004 election varied among jurisdictions. Moreover, these efforts and activities do not in all cases reflect the use of recommended system security management practices and current voting system security standards. In our October 2001 report on election processes, we reported that jurisdictions had taken a number of steps to manage the security of their respective voting systems for the 2000 general election. In particular, we estimated that 89 percent of the local jurisdictions assigned responsibility for performing security-related functions to one or more individuals, and implemented some type of controls to protect their equipment during the election. Examples of implemented security controls included such physical controls as locks and surveillance, and such embedded controls as access restrictions and firewalls. However, we also reported in 2001 that an estimated 40 percent of the jurisdictions had not assessed the security threats and risks on which their controls were based, and 19 percent had not reviewed the sufficiency of their security controls. Moreover, the nature of established controls varied by type of system, and these controls were not uniformly followed across jurisdictions. For the November 2004 general election, jurisdictions addressed system security to varying degrees and through various means. At the foundation of these approaches, responsibilities for voting system and network security were distributed among local officials, the state, and third parties (e.g., independent consultants and vendors) in varying proportions. On the basis of our 2005 local jurisdiction survey, we estimate that 90 percent of all jurisdictions (excluding those that used only hand-counted paper ballots on Election Day) specifically assigned responsibility for voting system security in the 2004 general election. We estimate that 67 percent of these local jurisdictions assigned responsibilities for voting system and network security to local election officials, 14 percent relied on state officials to perform these responsibilities, and 24 percent assigned them to third parties. Moreover, this distribution varied somewhat according to jurisdiction size, with large jurisdictions depending on local officials the most and medium jurisdictions depending on local officials the least. Figure 70 shows how voting system and network security responsibilities were distributed among various parties for each size of jurisdiction. On the basis of our visits to local jurisdictions, the types of system security responsibilities and the groups that performed them further demonstrate the variation among security approaches and controls applied to voting systems. Specifically, election officials in these jurisdictions were typically responsible for implementing security controls, state officials were usually involved with developing security policy and guidance and monitoring local jurisdictions’ implementation of security, and third parties performed tasks such as ensuring adequate security of voting equipment during transport or storage. Table 24 shows examples of security tasks and the parties that performed them as reported to us by election officials in the jurisdictions that we visited. Responses to our state survey showed that both states and third parties participated in security responsibilities related to monitoring and evaluating security and privacy controls. Although the most frequently cited party responsible for this area was local officials (identified by 38 states), just less than one-half of the states (22 states and the District of Columbia) reported that they had some level of responsibility for security monitoring and evaluation as well. In addition, 22 states responded that third parties (e.g., independent consultants or vendors) were involved in monitoring and evaluating controls. Overall, security monitoring and evaluation was performed by two or more entities in 26 of the states. The use of certain security controls was similarly varied. On the basis of our local jurisdiction survey, we estimate that 59 percent of jurisdictions used power or battery backup, 67 percent used system access controls, 91 percent used hardware locks and seals, and 52 percent used backup electronic storage for votes. We further estimate that 95 percent of jurisdictions used at least one of these controls, with hardware locks and seals being most consistently used across the automated voting methods associated with this survey question. Furthermore, we estimate that a lower percentage of small jurisdictions used power or battery backup and electronic backup storage of votes for their voting equipment than large or medium jurisdictions, and these differences are statistically significant in most cases. Figure 71 presents the use of various security controls by jurisdiction size. We estimate that a small percentage of local jurisdictions (10 percent) provided remote access to their voting systems for one or more categories of personnel—local election officials, state election officials, vendors, or other parties. Small jurisdictions, in particular, were less likely to provide remote access to their voting systems (estimated at 7 percent) than either medium jurisdictions (13 percent) or large jurisdictions (19 percent). The difference between small jurisdictions and large jurisdictions is statistically significant. For each category of personnel—local officials, state election officials, vendors, or other parties—7 to 8 percent of jurisdictions did not know if remote access was available to their systems, a situation that could increase the risk of unauthorized access to these systems. Some of the jurisdictions responding to this survey question described a variety of protections to mitigate the risk of unauthorized remote access, including locally controlled passwords, passwords that change for each access, and local control of communications connections. Among the jurisdictions that we visited, election officials reported that various security measures were in use during the 2004 general election to safeguard voting equipment, ballots, and votes before, during, and after the election. However, the measures were not uniformly reported by officials in these jurisdictions, and officials in most jurisdictions reported that they did not have a security plan to document these measures or other aspects of their security program. The security controls most frequently cited by officials for the jurisdictions that we visited were locked storage of voting equipment and ballots, and monitoring of voting equipment. Other security measures mentioned during our visits included testing voting equipment before, during, or after the election to ensure that the equipment was accurately tallying votes; planning and conducting training on security issues and procedures for elections personnel; and video surveillance of stored ballots and voting equipment. Table 25 summarizes the types and frequency of security measures reported by election officials in the jurisdictions we visited. Notwithstanding this range of reported security controls that were used in the 2004 general election by jurisdictions we visited, jurisdictions’ activities and efforts for managing voting system security were not always in line with recommended system security practices. Our research of recommended practices shows that effective system security management involves having, among other things, (1) defined policies governing such system controls as authorized functions and access, and documented procedures for secure normal operations and incident management; (2) documented plans for implementing policies and procedures; (3) verified implementation of technical and procedural controls designed to reduce the risk of disruption, destruction, or unauthorized modification of systems and their information; and (4) clearly assigned roles and responsibilities for system security. On the basis of our local jurisdiction survey, we estimate that 46 percent of election jurisdictions nationwide that used some type of automated voting method had written policies for voting system security and access in place for the November 2004 general election, while 45 percent had formal security procedures. Written security policies were more prevalent among large jurisdictions, an estimated 65 percent, compared to an estimated 52 percent of medium jurisdictions and an estimated 41 percent of small jurisdictions. The difference between large and small jurisdictions is statistically significant. More large and small jurisdictions had formal security procedures (an estimated 51 percent and 47 percent, respectively) than medium jurisdictions (an estimated 39 percent), although these differences are not statistically significant. Figure 72 shows the estimated percentages of jurisdictions with written security policies and procedures by jurisdiction size. In our earlier discussion of local survey responses related to counting votes in chapter 6, we estimated that many jurisdictions had written policies and procedures for ballot security in the 2004 general election. However, we estimate that up to one-fifth of jurisdictions did not have written policies and procedures uniformly in place, including policies and procedures for transporting unvoted and voted ballots or electronic memory, storing unvoted and voted ballots, and electronic transmission of voted ballots. The disparity in written policies and procedures was observed for electronic transmission of voted ballots for counting, where an estimated 18 percent of jurisdictions had such security management tools, compared with between 66 and 76 percent of jurisdictions for each of the other four types of ballot controls—a difference that is statistically significant but which may be linked to the percentage of jurisdictions that used paper ballot and older technologies in the 2004 general election. Yet we also found that an estimated 17 percent of jurisdictions whose predominant method was DRE had no policies or procedures for electronic transmission of voted ballots for counting. In addition, the differences in estimates of policies and procedures for electronic ballot transmission among jurisdictions whose predominant voting method was punch cards and those whose methods were DRE or optical scan are statistically significant. Figure 73 shows the variation in estimates of documented policies and procedures for electronically transmitting ballots among jurisdictions that used specific voting methods. Moreover, our visits to local jurisdictions found diverse approaches to documenting security policies and procedures. Election officials in 8 of the jurisdictions that we visited told us that they had written instructions for managing security aspects of their voting equipment and processes. However, some guidance we reviewed did not cover these topics. Election officials in some jurisdictions stated that their security measures were contained in the voting process documentation for the voting system or were covered in election worker training. For example, the hardware guide for the voting system used by some jurisdictions described the verification and authentication functions that were built into the system to secure vote counts during transmission of the precinct results to the jurisdiction, including processes for ballot creation and vote tabulation that also included security procedures. In contrast, several other jurisdictions that we visited had published detailed security policies and procedures for their voting systems that included, for example, network security policies for election tabulation, procedures for securing and protecting election equipment and software, testing voting equipment to ensure accurate recording of votes, and disaster recovery plans, and they provided them to GAO. Officials in several jurisdictions also described their steps to ensure that election workers had access to, and were trained in, the contents of the policies and procedures for securing ballots and voting equipment. Information system security plans typically identify the responsibilities, management approach, and key controls to be implemented for an information system, based on an assessment of identified risks to the information. Election officials in a few of the jurisdictions that we visited told us that they had security plans in place for the November 2004 general election (8 of 28). Officials at 4 of the jurisdictions that we visited stated that they had security plans or plan components that were approved at the state level, and officials in 1 large jurisdiction in Nevada reported having a state statutory requirement for a voting system security plan. However, jurisdictions that employed advanced security technologies, such as encryption, in their systems did not always have a plan that would document how the elections people, process, and technologies would work together to provide comprehensive protections. Moreover, the contents of plans we obtained from our visits to local jurisdictions varied widely. One of the jurisdiction security plans we examined covered most aspects of the voting process, from ballot preparation through recount, while another plan focused on the security of its vote-tallying system in a stand-alone environment. Two security plans covered several security topics including risk assessment, physical and personnel controls, and incident response. Table 26 shows the variation in topics covered in the security plans we reviewed. Security testing is an important way to verify that system security controls have been implemented and are functioning properly. From our survey of state election officials, 17 states and the District of Columbia reported that they had conducted security testing of the voting systems used in the 2004 general election, and 7 other states reported that they required local jurisdictions to conduct such testing. The remaining 22 states said that they did not conduct or require system security testing. (Three states reported that security testing was not applicable for their voting systems.) Moreover, from our local jurisdiction survey, we estimate that at least 19 percent of local jurisdictions nationwide (excluding jurisdictions that reported that they used paper ballots) did not conduct security testing for the systems they used in the November 2004 general election. Although jurisdiction size was not a factor in whether security testing was performed, the percentage of jurisdictions performing security testing was notably higher when the predominant voting method was DRE (63 percent) and lower for jurisdictions where the predominant method was central count optical scan (38 percent) or precinct count optical scan (45 percent). However, the difference in the percentages of jurisdictions performing security testing on DRE or central count optical scan is not statistically significant. Beyond jurisdictions’ efforts to verify implementation of voting system security controls, some states required that their voting systems be nationally qualified against the federal voluntary voting system standards, which include a security component. In particular, from our state survey, most states that used a new voting system for the first time in the November 2004 general election said that they required the system to go through qualification testing. For example, all 26 states that used DREs for the first time in the 2004 general election, as well as the District of Columbia, required qualification testing and approval by the National Association of State Election Directors (NASED). Similarly, of the 35 states and the District of Columbia that used optical scan systems for the first time in the 2004 general election, 31 reported that they required voting systems to be qualified. Nine of the 10 states that used new punch card systems for the first time in the 2004 general election also reported that they required voting systems to be qualified. States and jurisdictions are applying a variety of security standards to their voting systems, some of which are no longer current. Specifically, 44 states and the District of Columbia reported on our state survey that they were requiring local jurisdictions’ voting systems being used for the first time in the November 2006 general election to comply with voluntary federal voting system standards, which include security standards. However, they are not all using the same version of the voluntary standards. This is troublesome because the 2002 standards are more stringent than the 1990 standards in various areas, including security. For instance, the 2002 standards establish security requirements and acceptable levels of performance for the telecommunications components of voting systems, while the 1990 standards do not include detailed requirements for this control measure. According to our analysis of responses states reported in our state survey, 17 of the 44 states and the District of Columbia reported that their voting systems must comply solely with the 2002 standards that were developed and approved by the Federal Election Commission and later adopted by EAC. However, 27 other states are requiring their jurisdictions to apply federal standards to their new voting systems that are outdated, unspecified, or entail multiple versions. In the case of 5 of these 27 states where multiple versions of voluntary federal standards will be applied, one of the versions is the Voluntary Voting System Guidelines, which was approved by the EAC in December 2005. These guidelines promote security measures that address gaps in prior standards and are applicable to more modern technologies, such as controls for distributing software and wireless operations. Nevertheless, these same 5 states reported that they will also apply older federal standards to systems that are new to the 2006 election. Furthermore, 2 other states responded that they do not plan to require their voting systems to comply with any version of the voluntary federal standards, while 3 additional states reported that they had not yet made a decision on compliance with voluntary federal standards for 2006. (One state did not respond.) Figure 74 depicts the number of states that reported applying voluntary federal voting system standards to their new voting systems. Appendix X summarizes responses for all states and the District of Columbia regarding reported requirements for local jurisdictions’ use of federal standards for their voting systems. Simultaneous use of multiple versions of voting system standards is not new for the 2006 election. Not all NASED-qualified voting systems that may have operated during the 2004 election were tested against a single version of security standards. For example, many systems that were qualified before the 2004 general election had been tested against the 1990 Federal Election Commission standards, rather than the more stringent 2002 standards. The use of outdated system security standards increases the risk of system integrity, availability, and confidentiality problems for all voting methods, but it is of special concern for jurisdictions that use their systems in a networked environment or transmit election data using telecommunications capabilities. This is because the use of such connectivity introduces vulnerabilities and risks that the older versions of the standards do not adequately address, as we have previously described in our September 2005 report on the security and reliability of electronic voting. After the 2000 general election, Congress, the media, and others cited numerous instances of problems with the election process. As the use of electronic voting systems expanded and the 2004 general election approached, the media and others continued to report problems with these systems that caused some to question whether they were secure and reliable. To clarify the wide range of concerns and issues raised and identify recommended practices for addressing them, our September 2005 report on the security and reliability of electronic voting analyzed over 80 recent and relevant studies related to the security and reliability of electronic voting systems. We focused on systems and components associated with vote casting and counting, including those that define electronic ballots, transmit voting results among election locations, and manage groups of voting machines. In summary, our September 2005 report stated that while electronic voting systems hold promise for a more accurate and efficient election process, numerous organizations and individuals have raised concerns about their security, citing instances of weak security controls, system design flaws, inadequate system version control, inadequate security testing, incorrect system configuration, poor security management, and vague or incomplete voting system standards, among other issues. For example, we reported that studies found (1) some electronic voting systems did not encrypt cast ballots or system records of ballots, and it was possible to alter both without being detected; (2) it was possible to alter the files that define how a ballot looks and works so that the votes for one candidate could be recorded for a different candidate; and (3) vendors installed uncertified versions of voting system software at the local level. We also reported that some of these concerns were said to have caused local problems during national elections—resulting in the loss or miscount of votes. We added, however, that many of the reported concerns were drawn from specific system makes and models or from a specific jurisdiction’s election, and that there has been a lack of consensus among election officials and other experts on the pervasiveness of the concerns. We also reported in September 2005 that federal organizations and nongovernmental groups have issued recommended practices and guidance for improving the election process, including electronic voting systems, as well as general practices for the security of information systems. For example, in mid-2004, EAC issued a collection of practices recommended by election experts, including state and local election officials. This guidance includes approaches for making voting processes more secure and reliable through, for example, risk analysis of the voting process, poll worker security training, and chain of custody controls for Election Day operations, along with practices that are specific to ensuring the security and reliability of different types of electronic voting systems. As another example, in July 2004, the California Institute of Technology and the Massachusetts Institute of Technology issued a report containing recommendations pertaining to testing equipment, retaining records of ballots, and physically securing voting systems. In addition to such election-specific practices, numerous recommended practices are available that are relevant to any information system. For instance, we, the National Institute for Standards and Technology (NIST), and others have issued guidance that emphasizes the importance of incorporating security and reliability into the life cycle of information systems through practices related to security planning and management, risk management, and procurement. We noted that the recommended practices in these election- specific and information technology-focused documents provide valuable guidance that, if implemented effectively, should help improve the security of voting systems. Further, our September 2005 report stated that since the passage of HAVA, the federal government has begun a range of actions that are expected to improve the security and reliability of electronic voting systems. Specifically, after beginning operations in January 2004, EAC was leading efforts to (1) draft changes to the existing federal voluntary standards for voting systems, including provisions related to security; (2) develop a process for certifying, decertifying, and recertifying voting systems; (3) establish a program to accredit the national independent testing laboratories that test electronic voting systems against the federal standards; and (4) develop a software library and clearinghouse for information on state and local elections and systems. However, we observed that these actions were unlikely to have a major effect in the 2006 federal election cycle because at the time of our report publication the changes to the standards had not yet been completed, the system certification and laboratory accreditation programs were still in development, and the software library had not been updated or improved since the 2004 elections. Further, we stated that EAC had not defined tasks, processes, and time frames for completing these activities, and we recognized that other organizations had actions under way that were intended to improve the security of electronic voting systems. These actions include developing and obtaining international acceptance for voting system standards, developing voting system software in an open source environment (i.e., not proprietary to any particular company), and cataloging and analyzing reported problems with electronic voting systems. To improve the security and reliability of electronic voting systems, we made recommendations to EAC for establishing tasks, processes, and time frames for improving the federal voluntary voting system guidelines, testing capabilities, and management support available to state and local election officials. The EAC commissioners agreed with our recommendations and stated that actions to address each were either under way or intended, and the NIST director agreed with our conclusions. To ensure that voting systems perform as intended during use, the systems must be effectively tested, both before they are accepted from the manufacturer and before each occasion that they are used. Further confidence in election results can be gained by conducting Election Day and postelection audits of voting systems. For the November 2004 general election, voting system testing was conducted for almost all voting systems, but the types and content of the testing performed varied considerably. Most states and local jurisdictions employed national and state certification testing and readiness testing to some extent, but the criteria used in this testing were highly dependent on the state or jurisdiction. Also, many, but not all, states and jurisdictions conducted acceptance testing of both newly acquired systems and those undergoing changes or upgrades. In contrast, relatively few states and jurisdictions conducted parallel testing during elections or audits of voting systems following elections. To assist election officials in testing voting systems for the 2004 general election, most local jurisdictions documented policies and procedures related to some types of testing, according to estimates based on our survey of local jurisdictions. However, the testing approaches embodied in policies and procedures that the local jurisdictions we visited shared with us varied considerably. Furthermore, in jurisdictions we visited, few voting system problems were reported as a result of local testing, and correspondingly few changes were made to the systems or election processes. The variability in testing approaches among states and jurisdictions underscores our previously reported concerns from our September 2005 report about whether actual testing of voting systems is sufficient to ensure satisfaction of system requirements, including those associated with accuracy, reliability, and security. Voting system test and evaluation can be grouped into various types or stages: certification testing (national level), certification testing (state level), acceptance testing, readiness testing, parallel testing, and postelection voting system audits. Each of these tests has a specific purpose, and is conducted at the national, state, or local level at a particular time in the election cycle. Table 27 summarizes these types of tests. Many states have laws or regulations that mandate specific types of testing for voting equipment and time frames for conducting those tests. Documented policies and procedures for testing and evaluation provide an important means for ensuring that testing is effectively planned and executed. Effective test and evaluation can greatly reduce the chances of unexpected or unknown equipment problems and errors. From our local jurisdiction survey for the 2004 election, we estimate that 85 percent of local jurisdictions had documented policies and procedures for some type of voting system testing, 6 percent of jurisdictions did not have policies and procedures for testing, and 9 percent did not know whether their jurisdictions had them. Larger jurisdictions were more likely to have these management tools than smaller ones. An estimated 96 percent of large jurisdictions had documented testing policies and procedures, compared with 89 percent of medium and 82 percent of small jurisdictions. The difference between large and small jurisdictions is statistically significant. The testing policies and procedures of the local jurisdictions we visited presented a wide variety of approaches and details for the 2004 general election. For instance, election officials in 1 large jurisdiction in Connecticut told us that they did not conduct acceptance testing on their lever equipment, which had been in use for many years, and did not conduct either parallel testing or audit testing, stating that these tests were not applicable to its systems for 2004. However, officials said they did conduct readiness testing at the polling place prior to the election. Election officials in a large Ohio jurisdiction that used punch card voting equipment told us that readiness testing had been conducted by local officials. However, election officials stated that certification and acceptance testing were not performed for 2004 because this system had been used in prior elections. They also said that neither parallel testing nor audit testing of voting systems was performed. Officials in a large Colorado jurisdiction we visited that used central count optical scan equipment told us that they obtained state certification of the newly purchased equipment, conducted acceptance and readiness testing prior to the election, and executed another readiness test following the election. Election officials in a large Georgia jurisdiction that used DRE voting equipment reported that the state performed both certification and acceptance testing when the equipment was purchased and conducted a parallel test of the tabulation system during the election. Further, local officials reported that they conducted readiness testing prior to the election, but did not perform postelection audit testing. For the 5 local jurisdictions that provided us with copies of procedures for readiness testing, three sets of procedures were developed by the jurisdictions themselves and two sets were developed by the voting equipment vendors. The enactment of HAVA in 2002 established federal responsibilities for the certification of voting systems to meet federal standards and provided the framework for a national testing program. The act charged EAC, supported by NIST, with instituting a federal program for the development and adoption of voluntary voting system guidelines against which voting systems can be evaluated, establishing processes and responsibilities for accrediting laboratories to test systems, and using the results of testing by the accredited labs to certify the voting systems. In 2005, EAC developed guidelines for the certification process and defined the steps needed for the process to transition from NASED to EAC. States and local jurisdictions are to decide whether and how to use the testing and certification results from the federal program in their elections processes. Most states continued to require that voting systems be nationally tested and certified. In our October 2001 report on election processes, we reported that 38 states required that their voting systems meet federal standards for the November 2000 general election, which meant that the systems were tested by NASED. For voting systems being used for the first time in the 2004 general election, national certification testing was almost uniformly required. From our prior discussion of state survey responses in the context of voting system security, 26 of 27 states using DRE for the first time in this election, as well as the District of Columbia, required them to be nationally certified, while 9 of the 10 states using punch card equipment for the first time, and 30 of 35 states and the District of Columbia using optical scan equipment for the first time, said they had such requirements. It is unclear whether the proportion of nationally certified systems changed between the 2000 and 2004 general elections. In our October 2001 report on election processes nationwide, we reported that an estimated 39 percent of jurisdictions used NASED-qualified voting equipment for the 2000 general election. However, for the 2004 general election, we estimate that 68 percent of jurisdictions did not know whether the respective systems that they used were NASED-qualified. This uncertainty surrounding the national qualification status of a specific version of voting system at the local level underscores a concern we recently reported with respect to electronic voting security and reliability in our September 2005 report on this topic—that is, even though voting system software may have been qualified and certified at the national or state levels, software changes and upgrades performed at the local level may not be qualified and certified. The upcoming 2006 general election can be viewed as a challenging transition period in the voting system capabilities, standards, and national certification, with several testing-related factors potentially increasing the difficulty of this transition. First, HAVA’s requirements for voting system capabilities, such as voter error correction and manual audit, along with the attendant new guidelines, are likely to require additional testing at the national level to recertify previously fielded and certified systems that have been upgraded. Second, this increased workload is not likely to be met with added national testing capacity, since the process for accrediting new voting system testing laboratories is not expected to produce newly accredited labs in time for the 2006 election. Third, the complexity of the testing being performed is likely to increase because states report that they will collectively apply the full range of available standards—1990, 2002, and 2005 standards, as well as various combinations of these—to voting systems first used for the November 2006 election. As a result, a range of test protocols must be developed or maintained, and a variety of corresponding tests must be planned, executed, and analyzed to meet the variety of standards. Most states continue to certify voting systems to ensure that they meet minimum state election requirements. In our October 2001 report on election processes, we reported that 45 states and the District of Columbia had certification programs for their voting systems, 38 of which required that the systems be tested before they were certified for the 2000 general election. In addition, we reported that an estimated 90 percent of local jurisdictions used state-certified voting equipment for the November 2000 general election. However, we also reported that state officials had expressed concerns with voting system changes that did not undergo recertification. Since then, we have reported that security experts and election officials have expressed similar concerns. For the November 2004 general election, 42 states and the District of Columbia reported on our state survey that they required state certification of voting systems. (See fig. 75.) Seven states required certification of the voting equipment purchased at the state level for local jurisdictions in the 2004 election. However, in 35 states and the District of Columbia, officials reported that responsibility for purchasing a state-certified system rested with the local jurisdiction. While state certification requirements often included NASED testing, as well as approval or confirmation of functionality for particular ballot conditions, some states also included additional requirements for features such as quality of construction, transportation safety, and documentation. Although the remaining 8 states did not require state certification, the officials we contacted described other mechanisms to address the compliance of voting equipment with state-specific requirements, such as a state approval process or acceptance of voting equipment based on federal certification. Figure 75 shows states’ reported certification requirements for voting systems used in the 2004 general election. For the 2006 general election, 44 states reported that they will have requirements for certification of voting systems, 2 more states than for the 2004 general election. The District of Columbia reported that it will not require voting system certification for the 2006 general election. Of the 44, all but 1 expected to conduct the certification themselves; the 1 state reported that it would rely solely on a national independent testing authority to make its certification decision. Furthermore, of the 43 other states conducting certification themselves, 41 reported that they would include testing of system functions to obtain certification. In addition, 18 of the 43 states planned to involve a national testing laboratory in their certification process. As we reported previously in our October 2001 report on election processes, either states or local jurisdictions conducted acceptance tests prior to the 2000 general election. However, the testing processes, test steps, and involvement of vendors in the testing performed varied by jurisdiction and by type of equipment. Also, we reported in our 2001 report that states and local jurisdictions sometimes relied heavily on vendors to design and conduct acceptance tests. With respect to vendor involvement in particular, we reported that vendors were sometimes heavily relied upon to design and conduct acceptance tests. For the 2004 election, the extent and variety of acceptance testing was similar to those for the 2000 election. With regard to state roles and involvement in acceptance testing of new voting systems, 26 states and the District of Columbia reported responsibilities at some level of government. Specifically, 8 states and the District of Columbia reported on our survey that they had responsibility for performing acceptance testing, 15 states required local jurisdictions to perform such testing, and 3 states reported that requirements for acceptance testing existed at both the state and local levels. Twenty-two states either did not require such testing or did not believe that such testing was applicable to them. (Two states did not know their acceptance testing requirements for the 2004 election.) More states required that acceptance testing be performed for changes and upgrades to existing systems than they did for new systems—30 states in all and the District of Columbia. Specifically, 15 states and the District of Columbia were responsible for performing acceptance tests for changes and upgrades, 10 states required local jurisdictions to perform these tests, and 5 states required acceptance testing at both the state and local levels. Election officials at a majority of the local jurisdictions that we visited told us that they conducted some type of acceptance testing for newly acquired voting equipment. As with the 2000 general election, these officials described a variety of approaches to acceptance testing for the 2004 general election. For example, the data used for testing could be vendor- supplied, developed by election officials, or both, and could include system initialization, logic and accuracy, and tamper resistance. Other steps, such as diagnostic tests, physical inspection of hardware, and software configuration checks, were also mentioned as testing activities by local election officials. Further, election officials from 3 jurisdictions that we visited said that vendors were heavily involved in designing and executing the acceptance tests, while officials from another jurisdiction that we visited said that vendors contributed to a portion of their testing. In 2 jurisdictions in Georgia, officials said that acceptance tests were conducted at a university center for elections systems. Most jurisdictions conducted readiness testing, also known as logic and accuracy testing, for both the 2000 and 2004 general elections. In addition, some states reported that they conducted readiness testing for the 2004 general election. The content and nature of these tests varied among jurisdictions. According to our state survey, 49 states and the District of Columbia reported that they performed readiness testing of voting systems at the state level, the local level, or both (1 state did not require readiness testing). Most states required local jurisdictions to perform readiness testing (37 states in all). However, 7 states reported that they performed their own readiness testing of voting equipment for the 2004 general election in addition to local testing. Five states and the District of Columbia reported that they had no requirements for local jurisdictions to perform readiness testing but conducted this testing themselves. State laws or regulations in effect for the 2004 election typically had specific requirements for when readiness testing should be conducted and who was responsible for testing, sometimes including public demonstrations of voting system operations. For example, one state mandated that local jurisdictions conduct three readiness tests using all types of election ballots including audio ballots. One test took place before Election Day and two occurred on Election Day—before the official counting of ballots began and after the official counting had been completed. Another state required the Secretary of State to conduct testing using pre-audited ballots before Election Day, as well as on Election Day before ballots were counted. On the basis of a subgroup of local election jurisdictions from our 2000 election survey, we estimate that 96 percent of jurisdictions nationwide conducted readiness testing before the 2000 general election. For a comparable subgroup of jurisdictions in the 2004 general election, we estimate that 95 percent of local jurisdictions conducted readiness testing. The frequency with which readiness testing was conducted in 2004 was largely stable across all jurisdictions of various sizes that did not solely use hand-counted paper ballots, ranging between an estimated 90 percent (for small jurisdictions) to an estimated 96 percent (for large jurisdictions). Whenever the sample of jurisdictions permitted statistical comparison, there were also no significant differences between the percentages of jurisdictions that said they conducted readiness testing for various predominant voting methods. The variety of readiness testing activities performed by jurisdictions for the 2000 general election was also evident for the 2004 general election. Election officials in all of the local jurisdictions we visited following the 2004 election reported that they conducted readiness testing on their voting equipment using one or more of the approaches we identified for the 2000 election, such as diagnostic tests, integration tests, mock elections, and sets of test votes. Election officials in many of these jurisdictions told us that they combined test approaches. For example, officials in 1 large jurisdiction in Florida told us that they conducted pre-election testing using complete ballots (not test decks) to determine the accuracy of the marks and to see if there were any errors in voting machine programming. They told us that logic and accuracy testing was performed for each machine using undervoted ballots and overvoted ballots, and that zero tapes were run for each voting machine before the election. In addition, a diagnostic test was run before the election on each voting machine. According to the local officials, this was the test approach described in the manufacturer’s preparation checklist. Election officials in another Florida jurisdiction stated that readiness testing included integration testing to demonstrate that the voting system is properly programmed; the election is correctly defined on the system; and all system inputs, outputs, and communication devices are in working order. In the case of these jurisdictions, the state requires logic and accuracy testing and submission of the test parameters to the state. Parallel testing was not widely performed by local jurisdictions in the 2004 general election, although 7 states reported on our state survey that they performed parallel testing of voting systems on Election Day, and another 6 states reported that this testing was required by local jurisdictions. From our survey of local jurisdictions, we estimate that 2 percent of jurisdictions that did not solely use hand-counted paper ballots conducted parallel testing for the 2004 general election. Large and medium jurisdictions primarily performed this type of testing (7 percent and 4 percent of jurisdictions, respectively). The percentage of small jurisdictions performing this type of testing was negligible (0 percent). The differences between both large and medium jurisdictions and small jurisdictions are statistically significant. Our visits to local jurisdictions affirmed the limited use of parallel testing. Specifically, election officials in 2 of the 28 jurisdictions that we visited told us that they performed parallel testing. Officials in 1 large jurisdiction in Georgia told us that parallel testing was conducted by the state in conjunction with a university center for voting systems. In another case, officials in a large jurisdiction in Kansas told us that parallel testing was required by the local jurisdiction and was publicly conducted. In both cases, the tests were conducted on voting equipment for which security concerns had been raised in a voting equipment test report issued by the state of Maryland prior to the 2004 general election. Local officials who told us that parallel testing was not performed on their voting systems attributed this to the absence of parallel testing requirements, a lack of sufficient voting equipment to perform these tests, or the unnecessary nature of parallel testing because of the stand-alone operation of their systems. According to our state survey, 22 states and the District of Columbia reported that they performed postelection voting system audits for the 2004 general election. Specifically, 4 states and the District of Columbia reported that they conducted postelection audits of voting systems themselves, 16 states required that audits of voting systems be conducted by local jurisdictions, and 2 states reported that audits of voting systems were performed at both the state and local levels. State laws or regulations in effect for the 2004 general election varied in when and how these audits were to be conducted. In addition, a variety of statutes cited by states for testing requirements did not mention postelection voting system audits, and the one that did lacked details on the scope or components of such audits. According to our local jurisdiction survey, postelection voting system audits were conducted by an estimated 43 percent of local jurisdictions that did not solely use hand-counted paper ballots on Election Day. This practice was much more prevalent at large and medium jurisdictions (62 percent and 55 percent, respectively) than small jurisdictions (34 percent). The differences between small jurisdictions and both medium and large jurisdictions are statistically significant. We further estimate that these voting system audits were conducted more frequently in jurisdictions with central count optical scan voting methods (54 percent) than they were in jurisdictions with precinct count optical scan voting methods (35 percent). Figure 76 shows the estimated use of postelection audits for jurisdictions with different voting methods in the 2004 general election. Election officials in 14 of 28 local jurisdictions that we visited told us that they conducted postelection voting system audits. However, the conditions and scope of voting system audits varied. Some were routine, while others were conducted only in the event of close races or challenges to results. Among the 14 jurisdictions, most of the officials we spoke with said that they focused on reconciling voting machine counts with known votes, and officials in 2 of these jurisdictions characterized the voting system audits largely as voting system logic and accuracy tests. However, officials with a few jurisdictions told us that they also reviewed voting machine logs, sampled results from random precincts, or employed independent auditors to repeat and verify vote counting. In 1 large jurisdiction in Nevada, an election official told us that paper results were compared to the tabulated results of votes counted on 24 machines. In addition, every voting machine was activated and the same scripts used for pre-election testing were rerun through the machines. According to the election official, this level of testing was required by law. The number of jurisdictions that have integrated particular aspects of voting system components and technologies was limited for the 2004 general election for the areas of integration we examined, based on estimates from our local jurisdiction survey and visits to local jurisdictions. For the areas of integration we did examine, the scope and nature of this integration was diverse and included remote programming of electronic ballots, statewide tabulation of voting results, and end-to-end management of the election process. Nevertheless, the potential for greater integration in the future does exist as states and jurisdictions act on their earlier discussed plans to acquire the kind of voting equipment (e.g., optical scan and DRE products) that lends itself to integration. It is unclear if and when this migration to more technology-based voting methods will produce more integrated election system environments. However, suitable standards and guidance for these interconnected components and systems—some of which remain to be developed—could facilitate the development, testing, operational management, and maintenance of components and systems, thereby maximizing the benefits of current and emerging election technologies and achieving states’ and local jurisdictions’ goals for performance and security. Various voting systems, components, and technologies—some of which have been available since the 2000 general election—encompass a wide range of functional capabilities and system interactions. According to our local jurisdiction survey estimates and visits to election jurisdictions for the 2004 general election, officials reported various types of integration, but there were few instances. The areas in which integration was reported can be grouped into four categories: (1) electronic programming or setup of voting equipment from a centralized facility, (2) electronic aggregation and tabulation of voting results from multiple voting systems or locations, (3) add-on voting features and technologies, and (4) electronic management of voting equipment and operations. Electronic programming or setup of voting equipment involves integration between an administrative system and voting equipment to initialize vote count totals, load ballot definitions, and authorize voter access. As we previously reported in our September 2005 report on the security and reliability of electronic voting, this type of integration has raised security concerns. Election officials in 19 of the 28 jurisdictions that we visited used portable memory cartridges or cards for electronic programming or setup of their voting equipment. To accomplish programming or setup, officials at some of the local jurisdictions that we visited said that they used a computer to preload voting equipment with ballots or tabulation logic prior to transporting the equipment to polling locations. At 1 large New Jersey jurisdiction, officials stated that the administrative computer used a dedicated connection to the election server to electronically transmit the data and logic necessary to program and enable the units for the election. Election officials in some jurisdictions told us that an administrative system loaded ballot definitions onto portable electronic devices, such as memory cartridges or smart cards, which were then physically transported to the locations where the voting equipment was being prepared for the election—either at a storage facility or polling location (see fig. 77). The cartridges or cards were then inserted into individual voting units to prepare or activate them for the election. Some electronic ballot cards were provided directly to the voter to activate the voting equipment, then returned to election workers when the ballot has been cast. Electronic aggregation or tabulation of cast ballots also requires integration between voting equipment and another computer system that is responsible for collecting and aggregating the votes. Figure 78 shows examples of computer systems used for vote tabulation. Transfer of votes or election results between the voting equipment and the central tabulator may employ portable electronic media or telecommunication lines. Portable electronic media were the means that officials at 7 of the 28 jurisdictions that we visited said they used to electronically aggregate election results from multiple voting locations. For DRE equipment, memory cartridges that stored cast ballots from individual voting units were transferred to the election office, and the data they contained were uploaded and tallied by an electronic tabulation system. Some jurisdictions also used telecommunications services to transfer election data from polling locations or election coordination centers to tabulation facilities, although how these services were used varied. Officials at 4 jurisdictions that we visited told us that they employed dial-up connections to transmit local vote tallies for further tabulation. For instance, election officials in a large jurisdiction in Washington told us that after the polls were closed and all ballots were scanned and recorded by the optical scan machines at each polling place, the machines were taken to storage areas, where the results were transmitted to the central computer for tabulation using the jurisdiction’s phone line. Officials at a large jurisdiction that we visited in Ohio said that they had election judges take voting machine memory cartridges from their polling locations to facilities where laptop computers would read the cartridges and transmit vote tallies over phone lines to a remote access server at the elections office. In a large jurisdiction that we visited in Illinois, election officials told us that they took their portable precinct ballot counters to 1 of 10 stations throughout the city, where vote totals from the counters were encrypted and transmitted to a remote access server via a cellular network. Add-on features and technologies to ensure the accuracy of votes, provide easier access to persons with disabilities or special needs, and enhance security or privacy were also integrated into voting systems by a few states and jurisdictions for the 2004 general election. Officials at both large jurisdictions in Nevada that we visited told us that they had integrated a VVPT capability into their DREs to meet a state requirement for VVPT. Figure 79 shows one example of a VVPT voting system component. Overall, we estimate that about 8 percent of jurisdictions operating DRE voting equipment in the November 2004 general election produced VVPT. Audio features were also added to voting systems for the 2004 election. Officials at 6 of the jurisdictions that we visited reported that they had incorporated an audio ballot component into their DRE machines for voters with sight impairments. Election officials in 3 jurisdictions reported that they offered audio ballots in languages other than English. Security and privacy capabilities, such as data encryption and virtual private networks, were also reportedly integrated into several jurisdictions’ voting system environments for the 2004 general election to protect electronically transferred election data or to secure remote system access. Election officials at 6 of the 28 jurisdictions that we visited said they used encryption to protect ballots during electronic storage. Officials at both jurisdictions in Georgia explained that their state-selected DRE equipment used individual access cards for each voter, uniquely encrypted data on the card (including the voter’s cast ballot) for each polling location, and a separately encrypted electronic key needed to access the voter’s ballot. Officials at 7 jurisdictions said they applied encryption to the transmission of election results during the 2004 general election. Election officials in 1 large Colorado jurisdiction stated that they used a virtual private network to ensure the secrecy of data and authenticity of parties when transmitting election results from jurisdictions to the state. Electronic management of voting equipment and operations was another form of integration employed for the 2004 general election. Electronic management covers such functions as equipment testing, initializing, operational monitoring, diagnosis, troubleshooting, shutdown, and auditing. It also includes election operations that affect voting equipment, such as voter processing at the polling place and handling of absentee ballots. We previously reported that some of these capabilities were available during the 2000 general election in our October 2001 report on election processes. For the 2004 general election, on the basis of our local jurisdiction survey, we estimate that 7 percent of jurisdictions that used voting methods other than paper ballots connected their voting equipment via a local network at their polling locations. The frequency with which remote access to voting systems was provided for the 2004 general election was similarly low (estimated at 10 percent of jurisdictions that used voting methods other than paper ballots) but was again affected by the size of jurisdictions. We estimate that a higher percentage of large jurisdictions used remote access to voting equipment (estimated at 19 percent) than medium jurisdictions (13 percent) or small jurisdictions (7 percent). The difference between large and small jurisdictions is statistically significant. Furthermore, we estimate that remote access was primarily provided to local election officials (in 6 percent of jurisdictions) and to a lesser extent, state election officials, voting equipment vendors, and third parties. Figure 80 shows the estimated percentages of jurisdictions of various sizes that used networking or various types of remote access. These capabilities pose voting system security and reliability concerns as reported in our September 2005 report on the security and reliability of electronic voting. From approximately 20 open-ended text responses to our survey of local jurisdictions that described steps taken to prevent unauthorized remote access to voting systems, four safeguards were identified: employing passwords for remote users, limiting operations to specific election activities, use of virtual private networks, and system monitoring. As we previously reported in our September 2001 report on voting assistance to military and overseas citizens, state and local election officials used technologies like electronic mail and faxing to better integrate activities during the 2000 general election and to improve communications with absentee voters. According to our estimates from the local jurisdiction survey for the 2004 election, jurisdictions continued to use electronic mail to interact with voters and also relied on Web sites for a variety of election needs including voter registration status, the application and processing of absentee ballots, and the status of provisional ballots. For seven items in our survey where we asked about jurisdictions’ use of e-mail and Web sites for voter services, we estimate that large jurisdictions generally used these technologies more frequently than both medium and small jurisdictions, and that differences in six of these items were statistically significant. Figure 81 shows the extent to which jurisdictions of different sizes employed e-mail and Web sites for selected voter services. In addition to using technology to support individual voters, election officials in 1 large jurisdiction we visited in New Mexico described their use of telecommunications technology to support early voting at multiple locations. This jurisdiction connected its registration database to its early voting locations with dedicated phone lines, thus making voter registration information electronically available at each location. Relatively few local jurisdictions we visited reported having plans for integrating or further integrating their election-related systems and components for the 2006 general election, and in cases where they had plans, the scope and nature of the plans varied. At the same time, we estimate on the basis of our local jurisdiction survey that a relatively large proportion of jurisdictions expect to acquire DREs and optical scan systems, which will introduce greater integration opportunities. However, given the uncertainty surrounding the specific types of systems and features to be acquired, the extent and timing of greater integration of voting systems and components, as well as election-related systems, remains to be seen. More specifically, officials in several jurisdictions that we visited told us about plans to integrate relatively modular add-on components to their systems, while officials with several other jurisdictions described plans for more complex end-to-end interactions among election systems and technologies. For example, officials at 5 jurisdictions that we visited reported plans to introduce a VVPT capability for future elections, and officials at 2 jurisdictions reported plans to integrate an audio component to comply with HAVA requirements. In another case, officials in 2 jurisdictions told us that their state is planning to purchase electronic poll books for its precincts to use during the 2006 elections to electronically link its voter registration system with its voting systems. Officials at another jurisdiction told us that they plan to obtain a new optical scanner that will be used to tabulate both DRE and optical scan election results. The scope and magnitude of election system integration may be influenced, in part, by the jurisdictions’ adoption of the optical scan and DRE voting methods and the corresponding products that support add-on automated features, such as languages and accessibility tools, and interactions among automated components of the election process, such as ballot generation and tabulation. As we discussed earlier in this chapter, one-fifth of local jurisdictions are planning to acquire new optical scan and DRE voting equipment in time for the 2006 general election. For instance, on the basis of our survey of local jurisdictions, we estimate that 25 percent of jurisdictions plan to acquire precinct count optical scan voting equipment by the November 2006 general election. However, some jurisdictions had not yet finalized their time frame for acquiring voting equipment at the time of our survey. In addition, their acquisition plans also include technologies for their election Web sites. Figure 82 estimates the percentages of jurisdictions with acquisition plans for various technologies and their implementation time frames. While the advent of more technology-based voting methods provides greater opportunities for integration, the uncertainty around the timing and nature of their introduction makes the future extent of this integration unclear at this point. It is important for voting system standards developers to recognize the opportunity and potential for greater integration of election systems. EAC recently adopted a new version of the voluntary voting system guidelines in December 2005 that will become effective in December 2007. However, this version does not address some of the capabilities discussed above. For instance, the guidelines do not address the integration of registration systems with voting systems. Neither do they address commercial-off-the- shelf devices (such as card readers, printers, or personal computers) or software products (such as operating systems or database management systems) that are used in voting systems without modification. EAC has acknowledged that more work is needed to further develop the technical guidelines in areas such as voting accessibility, usability, and security features. Such efforts have the potential to assist states and local jurisdictions in maximizing the benefits of emerging election technologies. The challenges confronting local jurisdictions in acquiring and operating voting technologies are not unlike those faced by any technology user— adoption and consistent application of standards for system capabilities and performance, reliable measures and objective data to determine whether the systems are performing as intended, rigorous and disciplined performance of security and testing activities, and successful management and integration of the people, process, and technology components of elections during system acquisition and operation. These challenges are heightened by other conditions common to both the national elections community and other information technology environments: the distribution of responsibilities among various organizations, technology changes, funding opportunities and constraints, emerging requirements and guidance, and public attention. The extent to which states and local jurisdictions adopt and consistently apply up-to-date voting systems standards will directly affect the security and performance of voting systems. A substantial proportion of jurisdictions have yet to adopt the most current federal voting system standards or related performance measures. Even if this happens, however, other challenges loom because systems will need to be tested and recertified by many states (and by federal processes whenever states have adopted national standards) to meet any newly adopted voting standards and HAVA requirements for accuracy. Organizations involved with recertification—including federal, state, and local governments; testing authorities; and vendors—may need the capacity to assume the workloads associated with expected increases in the adoption of current standards and the use of new voting systems so that potential risks to near-term election processes are minimized. Reliable measures and objective data are also considered essential management practices for determining whether the technology being used is meeting the needs of the jurisdiction’s user communities (both the voters and the officials who administer the elections). Looking back to the November 2000 and 2004 general elections, we estimate that the vast majority of jurisdictions were satisfied with the performance of their respective technologies. However, considering that our local jurisdiction surveys for the 2000 and 2004 elections indicated limited collection of voting system performance data, we conclude that estimated levels of satisfaction with voting equipment found in our local surveys have been mostly based on a patchwork of operational indicators and, based on site visits to local jurisdictions, have involved anecdotal experiences of election officials. Although these impressions should not be discounted, informed decision making on voting system changes and investment would benefit from more objective data about how well existing equipment is meeting specific requirements, such as those governing system accuracy, reliability, efficiency, and security. No one voting method, or particular voting system make and model, will meet the needs of every jurisdiction. The challenge is thus to ensure that decisions about staying with an existing voting method or investing in new or upgraded voting equipment are made on the basis of reliable and relevant data about the operational performance of the existing method against requirements and standards, as well as the benefits to be derived versus the costs to be incurred with each choice. Effective execution of well-planned security and testing activities provides opportunities to anticipate and address potential problems before they affect election results. This is important because even a few instances of election errors or disruptions can have a sizable impact if election results are close. We estimate that the vast majority of jurisdictions performed security and testing activities in one form or another for the 2004 general election. However, the nature and extent of these activities varied among jurisdictions—to some degree by jurisdiction size, voting method, or perceived applicability of the activities. These activities were also largely responsive to—and limited by—formal state and local directives. When appropriately defined and implemented, such directives can promote the effective execution of security and testing practices across all phases of the elections process. As voting technologies and requirements evolve, states and local jurisdictions face the challenge of regularly updating and consistently implementing the directives to meet the needs of their specific election environments. As we noted for the 2000 general election, managing the three election components of people, process, and technology as interrelated and interdependent variables presents an important challenge in the acquisition or operation of a given voting method. Whether a state or jurisdiction is acquiring, testing, operating, or maintaining a new voting system or an existing one, how successfully the system actually performs throughout the election cycle will depend not only on how well the technology itself has been designed, but also on how well the people and processes associated with the system fulfill their roles for each stage. The technical potential of more extensive integration of voting equipment, components, and election systems also holds the prospect for even more interrelationships and interdependencies among the people, processes, and technologies, with all their attendant risks. In addition to establishing minimum functional and performance requirements and processes for voting system aspects of the election process, system standards can also be used to govern the integration of election systems; address the accuracy, reliability, privacy, and security of components and interfaces; and deliver needed support for the people and processes that will use the integrated election systems. Timely development of integration standards presents a challenge to the election community to keep pace with the advancement of election systems and technology.	The 2004 general election was the first presidential election that tested substantial changes states made to their election systems since the 2000 election, including some changes required by the Help America Vote Act of 2002 (HAVA). HAVA required some major changes in the nation's elections processes, not all which had to be implemented by the November 2004 election. HAVA addressed issues of people, processes, and technology, all of which must be effectively integrated to ensure effective election operations. GAO initiated a review under the authority of the Comptroller General to examine an array of election issues of broad interest to Congress. For each major stage of the election process, this report discusses (1) changes to election systems since the 2000 election, including steps taken to implement HAVA, and (2) challenges encountered in the 2004 election. For this report, GAO sent a survey to the 50 states and the District of Columbia (all responded) and mailed a questionnaire to a nationwide sample of 788 local election jurisdictions about election administration activities (80 percent responded). To obtain more detailed information about experiences for the 2004 election, GAO also visited 28 local jurisdictions in 14 states, chosen to represent a range of election system characteristics. In passing HAVA, Congress provided a means for states and local jurisdictions to improve upon several aspects of the election system, but it is too soon to determine the full effect of those changes. For example, 41 states obtained waivers permitted under HAVA until January 1, 2006, to implement a requirement for statewide voter registration lists. States also had discretion in how they implemented HAVA requirements, such as the identification requirements for first-time mail registrants. Some local election jurisdictions described different identification procedures for first-time mail registrants who registered through voter registration drives. Although states differed regarding where voters who cast provisional ballots for federal office must cast those ballots in order for their votes to be counted, provisional voting has helped to facilitate voter participation. HAVA also created the Election Assistance Commission, which has issued best practice guides and voluntary voting systems standards and distributed federal funds to states for improving election administration, including purchasing new voting equipment. The results of our survey of local election jurisdictions indicate that larger jurisdictions may be replacing older equipment with technology-based voting methods to a greater extent than small jurisdictions, which continue to use paper ballots extensively and are the majority of jurisdictions. As the elections technology environment evolves, voting system performance management, security, and testing will continue to be important to ensuring the integrity of the overall elections process. GAO found that states made changes--either as a result of HAVA or on their own--to address some of the challenges identified in the November 2000 election. GAO also found that some challenges continued--such as problems receiving voter registration applications from motor vehicle agencies, addressing voter error issues with absentee voting, recruiting and training a sufficient number of poll workers, and continuing to ensure accurate vote counting. At the same time, new challenges arose in the November 2004 election, such as fraudulent, incomplete, or inaccurate applications received through voter registration drives; larger than expected early voter turnout, resulting in long lines; and counting large numbers of absentee ballots and determining the eligibility of provisional voters in time to meet final vote certification deadlines.	16.1	long	4,304
2	Hospitals, which account for over 40 percent of U.S. health care expenditures, are changing rapidly and dramatically. Growing costs, advancing technology, and an aging population are driving these changes. As health care costs have increased, both public health financing programs, such as Medicare and Medicaid, and private health insurers have fundamentally reformed their methods for paying for and managing hospital-provided health care. Such reforms have not generally been implemented, however, in hospitals operated directly by the federal government, including those operated by VA. Hospital care accounts for the largest component of national health care expenditures. In 1995, hospitals accounted for 40 percent or about $441 billion of the nation’s estimated $1.1 trillion in health care expenditures. The next largest component of health care expenditures, physician services, accounted for just about 19 percent. (See fig. 1.1.) The American Hospital Association (AHA) groups hospitals into two primary categories—community and noncommunity. Community hospitals include all nonfederal, short-term general, and other special hospitals whose facilities and services are available to the public. Noncommunity hospitals include federal hospitals, long-term hospitals, hospital units of institutions, psychiatric hospitals, hospitals for tuberculosis and other respiratory diseases, chronic disease hospitals, institutions for the mentally retarded, and alcoholism and chemical dependency hospitals. For 1995, AHA reported that it had 6,291 hospitals registered in the United States, including 5,194 community and 1,097 noncommunity hospitals. The community hospitals included 3,092 nongovernment not-for-profit, 752 investor-owned for-profit, and 1,350 state- and local government-owned hospitals. This report focuses primarily on community hospitals when discussing non-VA hospitals. Such hospitals accounted for 873,000 of the nation’s 1,081,000 beds and almost 31 million of the approximately 33 million hospital admissions in 1995. VA hospitals account for 16 percent of all noncommunity hospitals. In fiscal year 1995, VA operated 173 of the 1,097 noncommunity hospitals, with an average of 50,787 hospital beds and admission of 844,626 patients. In addition to hospitals, the VA health care system included 375 outpatient clinics, 130 nursing homes, and 39 domiciliaries in 1995. For fiscal year 1995, VA obligated about $16.5 billion to maintain and operate its facilities and, on a limited basis, contract for care from non-VA providers. Over $8.4 billion (51 percent) of its obligations were for operating VA hospitals (see fig. 1.2). VA hospitals differ from community hospitals in the following ways: Whom they can and do serve. Community hospitals generally have no restrictions on whom they can serve. A hospital’s target population is limited primarily by the facility’s capabilities and business decisions. In contrast, VA hospitals have historically been limited to treating mainly veterans—adult males. Recent eligibility and contracting reform legislation, as discussed below, has broadened the types of patients VA hospitals may treat. Whom they can buy care from and sell care to. Community hospitals have few restrictions on their ability to contract to buy or sell patient care or nonpatient care services. Historically, VA facilities have been limited primarily to sharing health care services with other federal hospitals and with their medical school affiliates. Recent legislation has removed most restrictions on VA contracting. Who pays for the care provided. Most community hospital revenue comes from payments for patients sponsored by public payers (primarily Medicare and Medicaid) and private health insurers. Small portions also come directly from patients and state and local governments as operating subsidies. VA hospitals receive funding through an annual appropriation process. VA receives virtually no funding through Medicare and Medicaid and before August 1997 returned recoveries from private health insurance (other than a portion needed to cover the cost of operating the recovery program) to the general fund in the Department of the Treasury. Although VA facilities relied almost entirely on appropriated funds, they were allowed to retain certain payments resulting from sale of health care resources to the Department of Defense (DOD), other federal facilities, and certain other providers. In addition, although most VA hospitals, like their community counterparts, focus on short-term acute care services, other VA hospitals focus more on psychiatric and long-term care services. Under the AHA definitions, hospitals that primarily focus on psychiatric care, long-term care, or specialty services, even if they also provide some short-term care, are considered noncommunity hospitals. Systemwide, over 50 percent of VA’s 50,787 operating beds in fiscal year 1995 were devoted to long-term care (intermediate medicine), specialized services (rehabilitation of the blind, treatment of spinal cord injuries, and rehabilitation medicine), or psychiatric care (see fig. 1.3). About 18 percent of VA hospitals provide mainly psychiatric care. In administering the veterans’ health benefits program authorized under title 38 of the U.S. Code, some of VA’s responsibilities are like those of the Health Care Financing Administration (HCFA) in administering Medicare benefits and like those of private health insurance companies in administering health insurance policies. For example, VA is responsible for determining under the statute (1) which benefits veterans are eligible to receive, (2) whether and how much veterans must contribute toward the cost of their care, and (3) where veterans may obtain covered services (in other words, whether they must use VA-operated facilities or may obtain needed services from other providers at VA expense). Similarly, VA, like HCFA and private insurers, is responsible for ensuring that the health care benefits provided to its beneficiaries—veterans—are (1) medically necessary and (2) provided in the most appropriate care setting whether that is a hospital, nursing home, or outpatient clinic. In operating a health care delivery program, VA’s role is like that of the major private-sector health care delivery networks as operated by Kaiser Permanente. For example, VA strives to ensure that its facilities (1) provide high-quality care, (2) are used to optimum capacity, (3) are located where they are accessible to their target population, (4) provide good customer service, (5) offer potential patients services and amenities comparable with those of competing facilities, and (6) operate effective billing and collection systems. Historically, VA health benefits were focused on hospital care; outpatient care for most veterans was limited to coverage of services that would prepare the veterans for hospitalization, obviate the need for hospitalization, or provide treatments needed following a hospitalization. The Veterans’ Health Care Eligibility Reform Act of 1996, enacted in October 1996 (P.L. 104-262), eliminated the obviate-the-need provision and made all veterans eligible for comprehensive outpatient care. Any person who served on active duty in the uniformed services for the minimum amount of time specified by law and who was discharged, released, or retired under other than dishonorable conditions is eligible for some VA health care benefits. The amount of required active-duty service varies depending on when the person entered the military and an eligible veteran’s health care benefits depend on factors such as the presence and extent of a service-connected disability, income, and period or conditions of military service. Although all veterans meeting the above basic requirements were eligible for hospital, nursing home, and at least some outpatient care, before October 1996, 38 U.S.C. 1710 established a complex priority system— based on factors such as the presence and extent of any service-connected disability, the incomes of veterans with nonservice-connected disabilities, and the purpose of care needed—to determine which services were covered and which veterans received care within available resources. All veterans’ health care benefits included medically necessary hospital and nursing home care, but certain veterans, referred to as category A or mandatory-care category veterans, had the highest priority for receiving care. More specifically, the old law required VA to provide hospital care, and, if space and resources were available, allowed VA to provide nursing home care to veterans who had service-connected disabilities, were discharged from the military for disabilities incurred or aggravated in the line of duty, were former prisoners of war, were exposed to certain toxic substances or ionizing radiation, served during the Mexican Border Period or World War I, received disability compensation, received nonservice-connected disability pension benefit, or had incomes below the means test threshold (as of January 1996, $21,001 for a single veteran or $25,204 for a veteran with one dependent plus $1,404 for each additional dependent). For higher income veterans who did not qualify under these conditions, VA could provide hospital and nursing home care if space and resources were available. These veterans, however, known as category C or discretionary care category veterans, had to pay a part of the cost of the care they received. Under the old law, VA provided three basic levels of outpatient care benefits: comprehensive care, which included all services needed to treat any service-connected care, which was limited to treating conditions related to a service-connected disability; and hospital-related care, which provided only the outpatient services needed to (1) prepare for a hospital admission, (2) obviate the need for a hospital admission, or (3) complete treatment begun during a hospital stay. Separate mandatory and discretionary care categories applied to outpatient care. Figure 1.4 summarizes mandatory and discretionary VA health benefits under the old law. The Veterans’ Health Care Eligibility Reform Act of 1996 (P.L. 104-262) eliminated the criterion to obviate the need for hospital care and expanded eligibility for comprehensive outpatient services to all veterans. In addition, the act provides the following: Expressly states that the availability of health care services for veterans in the mandatory care category is limited by the amounts appropriated in advance by the Congress. The act has authorized appropriations of $17.25 billion for fiscal year 1997 and $17.9 billion for fiscal year 1998. Removes about 1.2 million veterans with noncompensable service- connected disabilities from the mandatory care category. Requires VA to establish an enrollment process for managing demand within available resources. The priorities for enrollment are (1) veterans with service-connected disabilities rated at 50 percent or higher; (2) veterans with service-connected disabilities rated at 30 or 40 percent; (3) former prisoners of war and veterans with service-connected disabilities rated at 10 or 20 percent; (4) catastrophically disabled veterans and veterans receiving increased nonservice-connected disability pensions because they are housebound or need the aid and attendance of another person to accomplish the activities of daily life; (5) veterans unable to defray the cost of medical care; (6) all other veterans in the so-called “core” group, including veterans of World War I and veterans with a priority for care based on presumed environmental exposure; and (7) all other veterans. VA may create additional subdivisions within the enrollment groups. The enrollment process will be implemented over a 2-year period during which VA facilities may continue to treat veterans regardless of their enrollment status. After September 30, 1998, however, veterans generally will need to be enrolled to receive VA care. Enrollment will be limited to the number of veterans VA can take care of within its available resources. One of the most significant differences between the VA health care system and the private sector has been the limited ability of VA to purchase health care services from and sell such services to the private sector. The Veterans’ Health Care Eligibility Reform Act of 1996, however, largely eliminated these differences. Before October 1996, veterans were generally limited to obtaining health care services from VA-operated facilities, with the following three main exceptions: VA-operated nursing home and domiciliary care was augmented by contracts with community nursing homes and by per diem payments for veterans in state-operated veterans’ homes. VA paid private-sector physicians and other health care providers to extend care to certain veterans when the services needed were unavailable in the VA system or when the veterans lived too far from a VA facility (commonly referred to as fee-basis care). VA limited use of fee-basis care mainly to veterans with service-connected disabilities. Veterans could obtain emergency hospitalization from any hospital and then be transferred to a VA hospital when their conditions stabilized. In addition, veterans being treated in VA facilities could be provided specific, scarce medical resources from other public and private providers through sharing agreements and contracts between VA and non-VA providers. Similarly, VA was generally not permitted to sell hospital and other health care services but could enter sharing agreements to obtain or provide health care services to DOD and other federal hospitals and specialized medical resources to federal and nonfederal hospitals, clinics, and medical schools. VA could not, however, sell health care services directly to veterans or others. The Veterans’ Health Care Eligibility Reform Act of 1996 expanded the types of providers as well as the types of services for which VA may contract. In addition, it simplified the procedures for complying with federal procurement processes when contracting with commercial providers. Finally, the act eliminated the ban on VA contracting for patient care (which had been suspended through 1999). Following are the contracting provisions under the new law: VA may sell services to nonveterans but only if veterans will receive priority for care under such an arrangement and the arrangement is needed to maintain an acceptable level and quality of service or will result in improved services for veterans. VA may acquire—without regard to laws or regulations requiring use of competitive procedures—resources in instances when such resources are to be obtained from a VA-affiliated institution, including medical practice groups, blood banks, organ banks, or research centers. When the health care resource is to be obtained from commercial sources, it is to be obtained in accordance with simplified VA-developed procurement procedures that would permit all responsible sources to compete for the resource being obtained. VA may contract with outside entities for converting VA activities to private activities. Previously, Section 8110(c) of title 38 of the U.S. Code prohibited contracting out of direct patient care activities or activities “incident to” direct care and permitted contracting out other activities, such as laundry and cleaning services, only on the basis of a VA-conducted cost-comparison study. This section was repealed but the VA must still report annually on performance by contractor personnel of work previously performed by VA employees. Unlike private-sector hospitals, VA hospitals do not depend financially on public and private health insurance. As a result, VA hospitals are not at financial risk for inappropriate admissions, unnecessary days of care, and treatment of ineligible beneficiaries. Private-sector hospitals generally depend on payments from public and private insurance programs and their patients for their income. Private-sector hospitals are facing increased pressures from both private insurers and public health benefits programs, such as Medicare and Medicaid, to eliminate inappropriate admissions and reduce hospital lengths of stay. For example, private health insurers increasingly use preadmission screening to ensure the medical necessity of hospital admissions and set limits on approved lengths of stay. Although nothing prevents private-sector hospitals from admitting patients without an insurer’s authorization, the hospital and the patient, rather than the insurer, become financially responsible for the care. Similarly, the Medicare prospective payment system and utilization reviews provide financial incentives for hospitals to provide services in the most appropriate setting and to discharge patients as soon as their medical conditions allow. The financial incentive is particularly strong for hospital care financed under Medicare because the hospital is, in general, not allowed to charge beneficiaries for services determined to be medically unnecessary or inappropriate. Historically, VA hospitals and veteran patients have not faced these same risks. VA hospitals do not face the same payment limitations and external utilization reviews that private-sector hospitals face. And, although VA hospitals can recover funds from veterans’ private health insurance, failure to comply with private health insurers’ preadmission screening and length-of-stay requirements has little direct financial effect on VA hospitals. This is because (1) before 1994 VA facilities were funded primarily on the basis of their inpatient workload and (2) before last year medical care cost recoveries were returned to the Department of the Treasury. During the past 5 years, we completed a series of reviews focusing on the many challenges facing the VA health care system and the potential role of VA in health care reforms. This report, prepared at the request of the Chairman, Senate Committee on Veterans’ Affairs, summarizes and expands on that body of work to identify major issues concerning the future of VA hospitals. Specifically, it discusses the evolution of hospital care during the 20th century, factors contributing to the declining demand for hospital care in community and VA hospitals, the extent to which excess capacity exists in community and VA hospitals, and actions taken by community and VA hospitals to increase efficiency and compete for patients. In developing information on the evolution of hospital care, we relied on the legislative history of the veterans’ health care provisions of title 38 of the U.S. Code and articles and reports prepared by or for the Brookings Institution (1934); House Committee on Veterans’ Affairs (1967); National Academy of Sciences (1977); VA’s Commission on the Future Structure of Veterans Health Care; Congressional Research Service; Twentieth Century Fund; and VA. Information on the evolution of community hospitals came primarily from our 1985 report, Constraining National Health Care Expenditures: Achieving Quality Care at an Affordable Cost (GAO/HRD-85-105, Sept. 30, 1985); the Source Book of Health Insurance Data, 1995; AHA’s Hospital Statistics; and HCFA’s Data Compendiums. To identify factors contributing to the declining demand for care in community and VA hospitals, we interviewed policy analysts from associations and think tanks, including the American Medical Association (AMA), AHA, and the CATO Institute; obtained the views of representatives from the major veterans service reviewed many studies and reports on hospitals, including those prepared by the Pew Health Professions Commission, Prospective Payment Assessment Commission, Physician Payment Review Commission, HIAA, Hay Group, National Committee for Quality Health Care, Congressional Research Service, the former Office of Technology Assessment, HCFA, and VA; reviewed our prior reports and testimonies on VA health care, Medicare, and health care cost containment; and reviewed reports and studies on VA health care prepared by the VA Office of Inspector General and others. To estimate the amount of excess bed capacity in community and VA hospitals, we developed three approaches by adapting methods used in prior studies reviewed by the National Academy of Science’s Institute of Medicine. First, we developed a conservative measure of excess capacity based on the number of unused beds, assuming an 85-percent occupancy rate was appropriate. Next, we developed estimates of additional excess capacity under differing assumptions about the amount of medically unnecessary care being provided. Third, we developed estimates of longer term goals for reducing hospital beds based on selected targets of beds per 1,000 population (beds per 1,000 users for VA). Additional details on how we selected our approaches appear in chapter 6. To identify actions of community hospitals to increase efficiency and compete for patients, we used a three-tiered approach. First, we identified, on the basis of our initial review of health care literature and discussions with health policy analysts, several specific actions taken by community hospitals. Second, we refined and expanded this list through discussions with AHA, AMA, VA, and others. Third, we conducted an extensive literature search using Healthstar, Econlit, and other search engines to identify pertinent literature on the list of specific actions. We focused on studies that described the actions being taken, showed how extensively community hospitals were implementing the actions, described the intended benefits of the actions, and evaluated their effectiveness. We used a similar multitiered approach to determine VA actions. First, we provided the Veterans Health Administration a list of the community hospital actions and asked for information on the extent to which VA had taken or planned to take similar actions. After receiving written responses from VA central office officials, we followed up to obtain additional details. Second, we reviewed VA planning documents and reports, including the Under Secretary for Health’s 1995 Vision for Change, 1996 Prescription for Change, and 1997 Journey of Change, which contain the primary action plans for restructuring the VA health care system. In addition, we reviewed the 1996 and 1997 network directors’ performance measures; status reports on directors’ meeting their performance goals; VA budget submissions for fiscal years 1996, 1997, and 1998; and VA’s draft strategic plan prepared under the Government Performance and Results Act. Third, we reviewed each of the 22 Veterans Integrated Service Networks’ strategic plans, looking specifically for references to the types of actions being taken by community hospitals. Finally, we obtained additional information on VA actions through interviews with VA officials from VHA, the National Acquisition Center, and the Office of General Counsel. Our work was conducted between January 1996 and January 1998 in accordance with generally accepted government auditing standards. The role of America’s hospitals has profoundly changed during this century. During the first three-quarters of the century, advances in medical technology and the development of private and public health insurance led to unprecedented growth in the role of hospitals in the U.S. health care system. Other factors, most notably two world wars and the creation and subsequent expansion of VA’s safety net mission during the Great Depression, significantly increased demand for VA hospital care during the 1930s and 1940s. Both private-sector and VA hospitals were transformed from charitable institutions providing mainly custodial care into the preeminent providers of life-saving and -sustaining technologies. Because the demand for hospital care seemed insatiable, federal programs encouraged construction of additional private-sector and VA hospital beds. But, by the 1960s and 1970s, health care spending was rising rapidly, consuming a growing portion of the gross domestic product. Hospitals accounted for the largest and a growing portion of the increased spending. As concern about rising health care costs grew in the early 1980s, the role and fortunes of America’s hospitals again began to change. The steadily increasing supply of and demand for hospital beds in the first three- quarters of the century began to decline. More and more hospitals began to close. In addition, the role of hospitals in overall health care spending stabilized, and, in the VA system, declined as hospital admissions declined and lengths of stay shortened. In the 19th century, hospitals mainly provided a place for people to die; little medical treatment was offered. In addition, hospitals were basically charitable institutions; neither patients nor the government provided extensive financial support. The late 19th century and first half of the 20th century saw the following changes both in the role of hospitals and in the financing of hospital care: Scientific developments increased the amount of medical and surgical care provided in hospitals. Private health insurance became an important source of payment for hospital care. World wars strained the ability of the private sector to treat returning casualties, leading to expanded veterans’ facilities. Declining use of VA hospitals by veterans with service-connected disabilities following World War I and increased use during the Great Depression led to the creation and expansion of VA’s safety net mission. The increased demand for hospital care prompted by these developments led to a perceived shortage of hospital beds and to federal programs to promote hospital construction. Late 19th-century scientific developments increasingly shifted the focus of medical care from physicians’ offices and patients’ homes to hospitals. For example, the use of antiseptics and other methods to fight disease-causing microorganisms reduced the spread of infection, making surgery safer. Furthermore, breakthroughs in disease diagnosis and therapeutic intervention expanded the science and art of medicine. As a result, physicians began to depend more on hospital-based equipment and services to provide medical care to their patients. In addition to the development of antisepsis, the discovery of antibiotics and the introduction of modern surgical techniques and equipment made surgery safer for the patient. Moreover, surgeons’ increasing knowledge and the availability of sophisticated medical and surgical equipment made possible surgical procedures not previously considered. Private health insurance emerged with the creation of the first Blue Cross and Blue Shield plans in the 1930s. Traditional health insurance in which providers are paid for each covered service delivered (known as fee-for- service coverage) tends to increase demand for hospital care by insulating both the patient and the provider from medical care costs. Fee-for-service health insurance encourages patients to demand more and better health care because it reduces the patient’s cost for care and forces changes in consumer and provider behavior through increased use of insured services and reduced concern about the relative cost of providers. Moreover, as fee-for-service health insurance became more comprehensive, physicians had fewer incentives to question the cost-effectiveness of alternative treatments or the prices charged by hospitals. Also, physicians had financial incentives to provide more services to patients because this increased their earnings. Increased health insurance coverage, while increasing demand for care in community hospitals, tends to decrease demand for care in VA hospitals. This is because the number of veterans with health insurance is expected to increase, and veterans with health insurance are more likely to seek care from community hospitals than VA hospitals. Before World War I, the government built a number of homes to provide domiciliary care to war veterans. These homes provided only incidental medical and hospital care. During World War I, veterans received a series of new benefits, including medical and hospital care for those suffering from wounds or diseases incurred in the service. Public Health Service (PHS) hospitals treated returning veterans, and, at the end of the war, several military hospitals were transferred to PHS to enable it to continue serving the growing veteran population. In 1921, PHS hospitals primarily serving veterans were transferred to the newly established Veterans’ Bureau. Casualties from World War I soon overwhelmed the capacity of veterans’ hospitals to treat injured soldiers. The Congress responded by increasing the number of veterans’ hospitals with an emphasis on treating veterans’ disabling conditions. After veterans’ immediate, postwar, service-connected medical problems were met, VA hospitals began to have excess beds instead of a shortage of beds. The Congress, in 1924, responded by giving wartime veterans with nonservice-connected conditions access to veterans’ hospitals when space was available and the veterans signed an oath indicating that they could not pay for their care. The Great Depression saw an unprecedented demand for VA hospital care. In 1937, President Roosevelt authorized construction of additional VA hospital beds to (1) meet the increased demand for neuropsychiatric care and treatment of tuberculosis and other respiratory illnesses and (2) provide more equitable geographic access to care. Rapidly rising demand for hospital care prompted by U.S. involvement in World War II led to further construction and expansion of VA hospitals. Demand for care was so great that in March 1946 VA had a waiting list of over 26,000 veterans seeking care for nonservice-connected conditions. As had occurred after World War I, however, the initial high demand for medical services for returning casualties soon subsided and VA once again had excess hospital capacity. Although VA began to have excess hospital beds after World War II, the supply of community hospital beds was generally considered inadequate to meet increasing demand. To address this problem, the Congress, in 1946, passed the Hill-Burton Act (P.L. 79-725). The act provided federal funds to match those raised by local communities for building new hospitals and modernizing and replacing existing facilities. Between 1950 and 1980, hospital care consumed a steadily increasing percentage of overall health care spending. (See fig. 2.1.) Initially, the increase was slight, from 24 to 28 percent of health care expenditures between 1950 and 1965. In the 15 years following the 1965 creation of the Medicare and Medicaid programs, however, the growth in hospital spending rapidly outpaced growth in other health care spending. By 1980, hospital care accounted for 44 percent of the nation’s health care expenditures. Two primary factors contributing to rising hospital expenditures were (1) federal programs and tax policies that encouraged hospital construction and (2) growing demand for hospital care. Both the supply of community hospital beds and demand for hospital care increased dramatically between 1950 and 1980. Community hospital beds increased from about 505,000 to about 988,000. (See fig. 2.2.) During this same time period, community hospital admissions per 1,000 population increased from about 111 to about 162. While the supply of and demand for hospital beds had been increasing in the private sector, demand for VA hospital beds has been steadily decreasing since 1963. VA operating beds declined by about 33,000 between 1963 and 1979; the average daily census declined by about 40,000. (See fig. 2.3.) Although the average daily census in VA hospitals declined during the period, demand for hospital care, as measured by admissions per 1,000 veterans, increased. (See fig. 2.4.) As previously discussed, the Congress enacted the Hill-Burton Act in 1946 to encourage the construction of community hospital beds. According to an AHA estimate, the Hill-Burton Act played a role in the construction of about 43 percent of the not-for-profit community hospital beds in operation in 1974. Another federal subsidy that contributed to the increased number of community hospital beds was the use of tax-exempt bonds to finance construction projects. Hospitals, particularly tax-exempt, nonprofit hospitals, obtained low-interest loans for capital projects through the issuance of tax-exempt bonds. Many factors contributed to the increased demand for hospital care: (1) population growth, (2) advances in medical technology often requiring elaborate equipment available only in a hospital, (3) a growing elderly population with increasing health care needs, (4) improved insurance coverage of hospital expenses with the advent of Medicare and other federal health benefits programs, and (5) expansion of VA hospital benefits. Although increased hospital admissions between 1950 and 1980 are partly explained by increases in both the general and veteran populations, the growth in hospital admissions generally outpaced population increases. The general population increased from 152 million in 1950 to 228 million in 1980, a 50-percent increase. During this same period, community hospital admissions more than doubled, from 16.7 million to 36.2 million. In other words, hospital admissions per 1,000 population increased from about 111 in 1950 to about 162 in 1980. The Korean Conflict increased the number of new veterans by about 6 million during the early and mid-1950s. By 1965, the total veteran population dropped to just under 22 million. As the nation geared up for and entered the Vietnam War, the veteran population once again began to grow. It increased steadily for the next 15 years, reaching 28.6 million by 1980. As demands for treatment of returning casualties increased, admissions to VA hospitals more than doubled from 1963 through 1980, from 585,000 to 1,183,000. As was the case with private-sector hospitals, admissions increased at a faster pace than did the number of veterans. Admissions to VA hospitals per 1,000 veterans grew steadily from 1967 through 1980, from 24 to 41. The second factor contributing to increased demand for hospital care between 1950 and 1980 was continuing advances in medical technology. The development of intensive care units (ICU) and other technologies, such as computed tomographic scanners, open-heart surgery, and life- sustaining procedures for critically ill patients, for example, renal dialysis, exemplify what hospitals can provide and what the public grew to expect. In addition to increasing demand, these advances contributed to higher hospital care costs in the following ways: An ICU is an area of the hospital set aside for the most seriously ill. ICUs have an array of electronic monitoring devices and life-support machinery, such as mechanical ventilators and defibrillators. In addition, ICUs have a high concentration of nursing and support personnel. Although the United States had fewer than 1,000 ICU beds in 1958, by 1976 nearly all community hospitals with 200 or more beds had an ICU, about 90 percent with 100 to 199 beds had such units, and almost 50 percent of hospitals with fewer than 100 beds had an ICU. By 1983, over 80,800 ICU beds were available. Renal dialysis filters waste material from the blood through an artificial kidney. The first long-term renal dialysis programs began in the early 1960s. Although about 1,000 patients received renal dialysis in 1967, another estimated 6,000 patients died because of the lack of resources to treat them. The Social Security Amendments of 1972 (42 U.S.C. 426-1) authorized Medicare to pay for dialysis and kidney transplants for patients with end-stage renal disease. By 1980, 50,000 patients were on dialysis and about 4,700 transplants were performed. In 1996, 200,000 patients received dialysis. Transplantation is a surgical procedure involving the implantation of healthy organs or tissues obtained from either living donors or cadavers. Kidney transplantation costs less than renal dialysis for treating kidney disease and is preferred for treating end-stage renal disease. Transplantation frees patients from the inconvenience of continuous dialysis treatments, imparts a sense of good health, and improves overall quality of life. The first successful kidney transplant was performed in 1954. Transplantation now includes such organs as the heart, liver, lungs, and pancreas. In 1994, U.S. surgeons performed over 18,000 organ transplants. Resuscitation techniques (including reversal of cardiac arrest), the development of respirators, and intravenous feeding enable medicine to do more for critically ill patients than ever before. The nation’s health care delivery system can now delay the moment of death for almost any life-threatening condition. For patients suffering a permanent loss of consciousness, doctors can use intensive and aggressive therapies to reverse unconsciousness and overcome other medical conditions. The third factor contributing to increased demand for community hospital care was the creation and subsequent expansion of public health benefits programs to help selected groups pay for health care services. In 1965, the Congress enacted legislation establishing the two largest public health insurance programs—Medicare, which covers most people aged 65 or older and certain disabled persons under age 65, and Medicaid, which covers many low-income people. The following year, the Congress established the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) to enable military retirees and dependents to obtain health care in the private sector when services are not available or accessible in DOD facilities. As the percentage of health expenses paid by third parties increased, the proportion paid directly by consumers dropped. In 1965, when the Medicare and Medicaid programs were established, consumers’ out-of- pocket payments accounted for about 53 percent of total personal health care expenditures. By 1970—just 5 years after these programs’ implementation—consumers’ out-of-pocket payments dropped to about 39 percent of expenditures. Out-of-pocket payments have continued falling, accounting for only about one-fifth of personal health care expenditures in 1994. (See fig. 2.5.) More significant is the growth of third-party payments for hospital care. In 1965, third parties accounted for about 83 percent of total expenditures for hospital care, growing to about 92 percent by 1975. In 1995, third parties accounted for an estimated 95 percent or more of total expenditures for hospital care. (See fig. 2.6.) While these programs tended to increase the demand for care in community hospitals, they decreased the demand for VA hospital care. For example, studies have shown that many VA hospital users increase their use of community hospitals and decrease their use of VA hospitals when they become Medicare eligible. This is because veterans’ financial incentive to use VA hospitals is largely eliminated when they become Medicare eligible and community hospitals are usually closer to their homes. A fourth factor contributing to increased demand for hospital care between 1950 and 1980 was the health care needs of an aging population. Older people use medical personnel and facilities more than younger people. For example, older people are hospitalized approximately twice as often as younger people, have lengths of stay 50 percent longer than younger people, and use twice as many prescription drugs. From 1950 through 1980, the proportion of the U.S. population 65 years of age or older increased from 8.0 to 11.3 percent, continuing the trend from the first half of the century; in 1900, only 4 percent of the population was 65 years of age or older. A 1977 study of the health care needs of the aging veteran population anticipated this increase. VA predicted that after 1985, veterans’ demand for VA hospital care would accelerate rapidly. VA estimated that it would need to operate about 91,000 beds in 1985, about 115,000 beds by 1995, and about 120,000 beds by the year 2000. VA based its estimates on utilization rates and eligibility provisions in effect in 1977 but factored in assumptions that (1) the need for psychiatric beds would continue decreasing and (2) hospital lengths of stay would continue declining despite the patients’ advancing ages. Eligibility expansions also affected demand for VA hospital care. In 1962, the Congress passed legislation that defined as a service-connected disability any condition traceable to a period of military service, regardless of the cause or circumstances of its occurrence. Previously, care for service-connected conditions was not ensured unless such conditions were incurred or aggravated during wartime service. VA expanded its safety net mission near the end of the Vietnam War. In 1973, VA expanded eligibility for hospital care to treatment of nonservice- connected disabilities of peacetime veterans unable to defray the cost of care. Treatment of nonservice-connected disabilities had previously been limited to wartime veterans. By the mid-1970s, researchers began to question whether the nation had too many hospital beds and whether the excess beds were contributing to higher health care costs. For example, the National Academy of Sciences’ Institute of Medicine (IOM) recommended in 1976 that the bed-to- population ratio, which by 1975 had reached 4.4 community hospital beds per 1,000 population, be reduced by at least 10 percent. Specifically, IOM called for reducing the number of community hospital beds per 1,000 population from 4.4 to approximately 4.0. IOM called for further sizeable reductions to follow after the initial goal had been met. As scientific developments continue and employers and the government focus on ways to contain health care costs, the role of hospitals is once again changing. Just as scientific advances spawned increased demand for hospital care in the first seven decades of this century, technological advances are enabling much of the care previously provided in hospitals to be shifted to outpatient settings (see ch. 3). Similarly, changes in the insurance market—principally the development of prospective payment systems and managed care—have helped decrease hospital use (see ch. 4). Demand for hospital care began to decline in community hospitals and continued to decline in VA hospitals during the 1980s. As shown in figure 2.7, demand for care in community hospitals declined more rapidly than the supply of hospital beds from 1980 through 1993. The number of community hospital beds increased slightly between 1980 and 1984 but has steadily declined since then. By 1995, community hospital beds had dropped to 873,000 after peaking at slightly over 1 million. More importantly, the average daily census in community hospitals dropped from 747,000 in 1980 to 548,000 in 1995. Demand for VA hospital care continued the decline that began in the early 1960s. From fiscal year 1981 through fiscal year 1995, the average daily census in VA hospitals dropped from about 66,000 to about 37,000. During the same period, the number of VA operating beds dropped from about 82,000 to about 51,000. (See fig. 2.8.) From 1980 through 1986, VA hospital admissions continued to increase despite a gradual decline in the number of veterans. Since 1987, however, VA hospital admissions have declined more quickly than the veteran population. Hospital admissions dropped about 18.6 percent from 1988 through 1995, from about 1,038,000 to about 845,000. During approximately the same period, the veteran population declined about 5 percent, from 27.5 million to 26.2 million. As a result, the number of VA hospital admissions per 1,000 veterans dropped from 38 in 1988 to 32 in 1995. Admissions to community hospitals are also declining. Despite continuing population growth, community hospital admissions, after increasing steadily from 1950 through 1980, dropped by 15 percent from 1981 through 1995. Adjusting for population growth, admissions per 1,000 population dropped from 158 to 118. From 1975 through 1995, more community hospitals have closed than new hospitals have opened, while VA has opened more hospitals than it has closed. Although the U.S. population increased by about 47 million between 1975 and 1995, the number of community hospitals decreased by about 12 percent (from 5,875 to 5,194). During the same period, the number of VA hospitals increased from 171 to 173. These community hospital statistics understate the actual extent of hospital closures because new hospitals continue to open as other hospitals close. For example, in 1993, 62 hospitals (including 34 community hospitals) closed but 40 new hospitals opened. Of the 40, 5 were psychiatric or substance abuse hospitals, 15 were rehabilitation hospitals, 3 were specialty hospitals, and 17 were general medical and surgical facilities. Similarly, although the number of VA hospitals saw a net increase over the 20-year period, two VA hospitals—in Martinez and Sepulveda, California—were closed because of actual or potential earthquake damage. Changes in medical technology and practice have contributed to the decreasing demand for both VA and community hospital care since 1980. Advances in medical technology, such as laser and other less invasive surgical techniques, allow much care previously provided in hospitals to be provided at home, on an outpatient basis, or in a nursing home. Such advances also shorten the length of stay for many procedures still performed in the hospital. Similarly, changes in medical practice and the development of psychotherapeutic drugs to treat mental illness have led to fewer and shorter hospital admissions for psychiatric patients and to the deinstitutionalization of many long-term psychiatric patients. While changes in technology and medical practice contributed to declining demand for both community and VA hospitals, for many years VA lagged behind the private sector in effectively using such changes. VA, however, is now aggressively shifting patients from inpatient to outpatient and other less costly settings. As a result, many issues remain unresolved concerning the future effects of changes in medical technology and practice on demand for VA hospital care. For example, VA’s success in reducing inpatient surgeries is diminishing the economic viability of, and threatening the quality of care provided by, many VA hospitals’ inpatient programs. Limited data are available on efforts to ensure that vulnerable populations, such as the homeless, do not lose access to VA services through efforts to shift care to outpatient settings. Advances in medical technology continue to be a major force driving change in the health care system. But, unlike the first three-quarters of the century when medical advances fostered increased demand for hospital care, recent advances have reduced this demand. Technology advancements now permit (1) many surgeries to be performed in a doctor’s office or hospital outpatient department, (2) shorter lengths of stay following inpatient surgeries, and (3) treatments for many chronically and catastrophically ill patients to be provided at home rather than in a hospital. Although VA, through its affiliations with medical schools and research programs, played an important role in developing and testing many of these technologies, it lagged behind the private sector for many years in using new technology to shift care from inpatient to outpatient settings. As a result, the full effect of technology on demand for VA hospital care has yet to be felt. During the past few years, VA has aggressively shifted care to outpatient settings. Technological changes and medical innovations are shifting many surgeries and medical treatments from inpatient to less intensive, outpatient settings. The following treatments for ulcers, kidney stones, and cataracts are examples: H2 antagonists are drugs with brand names such as Tagamet and Pepcid-AC used to reduce the production of gastric acids. In 1977, before the introduction of H2 antagonists, about 155,000 people had surgery for ulcers. By 1993, surgeries for ulcers had dropped to about 16,000. The recent discovery that most ulcers are caused by bacteria and can be treated with antibiotics will probably result in fewer such surgeries. Lithotripsy (in Greek, “stone crusher”) is a process that uses shock waves to fracture kidney stones into pieces small enough to pass through a patient’s urinary tract. Although patients may be able to pass smaller stones on their own, many stones are too large to pass through the ureter, a gradually narrowing tube in the urinary tract. In the past, when patients could not pass a kidney stone, the primary treatment was surgery to remove the stones. Now, however, a specialized piece of equipment—an extracorporeal shock-wave lithotripter—produces shock waves to fracture the kidney stone, allowing the patient to pass the stone without surgery. Lithotripsy requires no lengthy hospital stay, no incision or surgery, and no lengthy recovery period. Up to 95 percent of the approximately 400,000 Americans treated for kidney stones each year can now be treated through lithotripsy rather than surgery. Lithotripsy can generally be performed as an outpatient procedure. Phacoemulsification is a method of treating cataracts in which an ultrasonic device disintegrates the cataract, which is then suctioned out. This procedure, which involves only a tiny incision, can be done on an outpatient basis with the patient typically returning home within hours after the cataract is removed and a plastic lens implanted in the eye. In the past, cataract removal generally required an inpatient hospital stay of several days. Cataract surgery is the most often performed therapeutic surgical procedure in the United States on people 65 years of age and older. Medicare pays over $3.4 billion a year for cataract surgery, paying for about 1 million of the 1.3 million cataract procedures performed annually. The percentage of surgeries performed on an inpatient basis has declined steadily in the private sector since 1989. In 1993, over 55 percent of surgical operations in community hospitals were performed on an outpatient basis. Until recently, VA was much less successful in shifting care to outpatient settings than were community hospitals. For example, audits by VA’s Office of Inspector General (OIG) in 1991 and 1992 identified the unavailability of outpatient surgery or other capabilities as the primary cause of unnecessary admissions and days of care in VA surgical wards. Specifically, the OIG estimated the following: The New Orleans VA medical center could have avoided about 32 percent (931 of the 2,921 days) of surgical care had the center established an outpatient surgery program. About 32 percent of the Denver VA medical center’s 1- to 4-day surgical admissions were for medical care that could have been provided on an outpatient basis without jeopardizing patients’ welfare. About 45 percent of the 2-day surgical admissions at the Togus, Maine, VA medical center could have been avoided by treating the patients on an outpatient basis. The medical center agreed with the finding and attributed the inappropriate admissions to the perception that VA’s resource allocation method did not cover the cost of outpatient surgery. The Dallas VA medical center incurred about $766,000 in unnecessary expenses because physicians admitted patients who did not require hospital care and hospitalized patients longer than medically necessary. The lack of facilities dedicated to outpatient surgery was the sole reason cited for the inappropriate admissions. About 72 percent of inpatient cataract surgeries and 29 percent of other short-term surgical admissions reviewed at the West Los Angeles VA medical center could have been done on an outpatient basis. The Veterans Health Administration’s (VHA) recently established performance measures for Veterans Integrated Service Network (VISN) directors set expectations for what portion of surgeries should be done on an outpatient basis. For example, under one fiscal year 1996 performance measure, VISN directors were judged to be fully successful if from 50 to 64 percent of surgeries and invasive procedures were done in an outpatient setting; 65 percent or more was considered exceptional performance. All VA medical centers now have outpatient surgery programs. All but eight VISN directors exceeded the 50-percent minimum for fully successful performance in fiscal year 1996; one VISN director—in VISN 11 (Ann Arbor)—was exceptional. Seven of the eight VISN directors not meeting the minimum made statistically significant improvements in the percentage of outpatient procedures performed. Systemwide improvement has been impressive, from 35 percent in fiscal year 1994 to 52 percent in fiscal year 1996. VHA’s goal is to reach at least 65 percent of surgeries and other invasive procedures performed on an outpatient basis in fiscal year 1998; 75 percent or more is considered exceptional performance. Advances in medical technology have also reduced the length of stay following inpatient procedures. For example, the development of the endoscope allows many procedures to be done through a natural body opening, such as the mouth, or through a small incision. An endoscope is an instrument with an optical system for observing the inside of a hollow organ or cavity. Another comparable instrument, the laparoscope, permits the removal of the gall bladder through surgery involving only minimal incisions. As a result, the length of stay following gall bladder surgery has often been reduced from a 3- to 7-day recuperative period to a 1- to 2-day period. In some cases, gall bladder surgery is now done as an outpatient procedure. Similarly, the use of balloon angioplasty to open narrowed coronary arteries reduces the need for more invasive bypass surgery. To perform angioplasty, surgeons insert a catheter with a deflated balloon on its tip into an artery narrowed by plaque. Plaque is the fatty material that accumulates inside the walls of the arteries and blocks blood flow. The balloon is inflated to widen the clogged artery. Angioplasty is clearly less invasive than bypass surgery. Advances in medical technology also make it possible for many chronically and catastrophically ill patients to receive medical treatment at home. For example, people with chronic respiratory problems who require a ventilator and nursing assistance can often return home if they are provided with a ventilator, visits by a nurse, and associated supplies. Similarly, sophisticated medical care previously available only in a hospital or nursing home can now be provided at home because of the development of medical technology such as ventilator therapy and infusion pumps. The development of new drug therapies and mental illness treatment and care practices has helped reduce acute psychiatric admissions to both community and VA hospitals. Efforts to deinstitutionalize the chronically mentally ill have also helped reduce hospital admissions. Because the chronically mentally ill were typically in state and county hospitals for the mentally ill rather than in community-based facilities, VA hospitals treating veterans for mental illness were more affected by efforts to deinstitutionalize the chronically mentally ill than were community facilities. Psychotherapeutic drugs are those that lessen the primary symptoms afflicting mentally disturbed people such as anxiety, depression, and psychosis. Among the psychotherapeutic drugs are antianxiety agents such as Librium, Valium, Xanax, and Ativan, all of which are forms of benzodiazepine; antidepressants such as Nardil (phenelzine sulfate), Adapin (doxepin HCL), and Etrafon (perphenazine and amitriptyline hydrochloride); antipsychotic products such as Clozaril (clozapine), Haldol (haloperidol), and Thorazine (chlorpromazine); and psychostimulants such as Ritalin (methylphenidate hydrochloride) and Cylert (pemoline). Such drugs often allow people with mental illnesses that in the past would have required lengthy periods of institutionalization to obtain outpatient treatment. In the past, many mentally disabled people were institutionalized, typically in state and county mental hospitals. Because of concern over the deplorable conditions in many of these facilities, new treatment methods and philosophies, and the potential for cost savings, however, efforts were made to place institutionalized mentally disabled patients in the community. The Mental Retardation Facilities and Community Mental Health Centers Construction Act of 1963, which was repealed by the Omnibus Budget Reconciliation Act of 1981, became the basis for a major part of the federal government’s involvement in “deinstitutionalizing” the mentally disabled. The Congress later amended the Social Security Act to enable more mentally disabled people to return to the community. Deinstitutionalization was intended to allow mentally disabled people to be as independent and self-supporting as possible by (1) preventing unnecessary admission to and retention in institutions; (2) finding and developing appropriate care alternatives in the community, such as day care and foster homes; and (3) improving conditions, care, and treatment for those needing some institutional care. In a 1977 report, we noted that deinstitutionalization had returned many mentally disabled people to communities. For example, the resident population in public mental hospitals steadily declined nationwide from 505,000 in 1963 to 120,000 in 1983. In 1967, about 193,000 people were in public institutions for the mentally retarded. By 1982, the number had declined to about 118,000. Although the use of VA psychiatric beds declined significantly, the decline in use of state mental hospitals declined even more. In its 1977 report, The Aging Veteran: Present and Future Needs, VA noted that the number of VA psychiatric beds dropped from 54,345 in 1967 to 28,173 in 1977, despite an increase in annual admissions from 71,076 to 161,969. During the same time period, outpatient psychiatric visits to VA mental hygiene clinics, day treatment centers, and day hospital programs increased from about 750,000 to over 1.6 million. VA identified the following important developments that modified its approach to psychiatric care: improvements in psychiatric therapy, development of a wide variety of psychotropic drugs that made it possible for many psychiatric patients to function independently, recognition that geographically isolated institutions may not provide the best environment for rehabilitation, recognition that psychiatric care is more effectively delivered as a service of a general medical and surgical teaching hospital, a change in philosophy that has encouraged returning many psychiatric patients to the community, and expansion of outpatient resources and treatment modalities. Unlike acute medical and surgical hospital use, the need for which increases as people age, VA found that the frequency of major psychiatric hospitalization decreases as people age. In its report, Aging Veteran, VA said that the decline in psychiatric hospitalization would probably continue as the veteran population aged. Specifically, VA noted that the hospitalization rates for schizophrenia, psychoneuroses, personality and behavior disorders, and alcoholism decrease as people age. It concluded in 1977 that “it seems reasonable to assume that the aging veteran population will not create new pressures for psychiatric beds.” Demand for psychiatric hospital care did, as VA predicted, continue to decline, although admissions over the last 20 years continued to increase slowly. In fiscal year 1996, VA operated 15,690 psychiatric beds, a decline of over 70 percent during the past 30 years. VA was slow to take advantage of new technologies and medical practices and shift patients from hospital beds to outpatient clinics and other care settings. As a result, estimates of nonacute days of medical and surgical care in individual VA hospitals ran as high as 72 percent only 6 years ago. VA has begun addressing these problems during the past several years, and early results are encouraging. For example, VA increased the percentage of surgeries and other invasive procedures performed on an outpatient basis from 35 percent in 1994 to 52 percent in 1996. VA’s success in reducing inpatient surgeries, however, could further diminish the economic viability of the inpatient surgery programs at many VA hospitals and threaten their ability to provide quality care. In fiscal year 1996, 56 of the 129 VA hospitals with inpatient surgery programs had an average of fewer than 25 surgery beds occupied on any given day (average daily census (ADC)); 28 had an ADC of less than 10, including 6 with an average workload of only one or two patients. In addition to the high cost of maintaining inpatient surgery programs for so few patients, such programs raise concerns about quality of care because surgeons may not perform enough operations to remain proficient. The VA OIG initially raised questions about continuing to operate surgical programs with limited workload in a 1991 review of 33 VA surgical programs. The OIG recommended that VA consider closing inpatient surgical services at the 33 locations and (1) realign services with other medical centers or (2) provide the services through community hospitals. The OIG estimated that such a realignment would provide opportunities to better use staff resources and avoid the need for some replacement equipment and construction, saving over $100 million. In addition, the OIG’s audit expressed concerns about the quality of care provided at smaller hospitals with minimal workloads that are unaffiliated or minimally affiliated with a medical school. Five years after the OIG report was issued, however, 4 of the 33 medical centers reviewed by the OIG discontinued their surgical programs. Workloads at the remaining medical centers and others have continued to decline. With such a limited inpatient surgical workload, VA could discontinue the inpatient programs and either refer veterans to other VA facilities or use its new contracting authority to purchase care from community hospitals closer to the veterans’ homes. Referring veterans to other VA hospitals could help build workload at those facilities but would probably make health care less accessible for veterans (except in those places where two or more VA medical centers were in close proximity such as in Chicago, Boston, and Pittsburgh). In addition, the cost of transporting veterans to a distant VA medical center would add to the cost of providing the care through another VA facility. Transferring veterans to distant medical centers could also deprive them of the emotional support of family and friends unable to make the trip. Such travel could be particularly difficult for elderly spouses. Uncertainties also exist about the extent to which VA should shift additional mental health services to outpatient settings. For example, many VISNs plan to discontinue their inpatient substance abuse programs and provide outpatient services instead. Other VISN planning documents do not specifically address this. In 1972, more than 95 percent of veterans discharged from the substance abuse program were classified as poor; in 1995, about 50 percent of veterans in inpatient substance abuse programs were homeless at the time of admission, and 35 percent had both substance abuse and one or more psychiatric disorders. VA recognized this problem and is developing clinical guidelines and an addiction severity index to evaluate substance abuse patients. In a July 1997 report, the VA OIG reported that substance abuse treatment program officials in the 12 medical centers reviewed had established in-house residential care beds and identified community housing and social support resources for homeless patients before they converted their substance abuse treatment programs to outpatient programs. The OIG also found, however, that the wide variation in reporting of the number of patients treated in substance abuse treatment programs in the VA databases prevents VHA officials from really knowing the impact of these conversions to outpatient treatment on access to care for homeless and other economically disadvantaged veterans. The OIG also identified needed improvements in (1) methods for identifying homeless veterans seeking treatment in both VA and community-based substance abuse treatment programs; (2) efforts to ensure that halfway house beds are available for veterans needing such aftercare; and (3) medical record documentation to show that VA employees discussed the ability of veterans, particularly homeless or economically disadvantaged veterans, to arrange transportation to outpatient substance abuse treatment. The OIG found transportation to be a major barrier to outpatient substance abuse treatment, particularly in small urban areas. A third of the patients from small urban areas interviewed by the OIG indicated that inadequate transportation systems limited patients’ access to outpatient care. The OIG reviewed the medical records of 71 homeless patients discharged from inpatient substance abuse treatment programs and found that 50 records had no information to show that program officials had discussed transportation issues with the veterans. In response to the OIG report, VHA identified actions to strengthen the substance abuse program, including establishing a committee to discuss possible solutions to the transportation problem. Because these actions are in the planning stage, it is not clear what their effect will be on lessening the impact of VA’s shift of substance abuse treatment to outpatient settings on access to care for homeless veterans. Although the OIG has evaluated VA’s efforts to shift substance abuse treatment from inpatient to outpatient settings and corrective actions are planned or under way, less is known about the effects of other efforts to shift care to outpatient settings. For example, a large percentage of homeless veterans suffer from serious mental illness, including post-traumatic stress disorder (PTSD). As a result, such veterans may face the same transportation barriers as veterans with substance abuse problems in accessing outpatient mental health care, for example, PTSD treatment. Little is known about the extent to which veterans discharged from VA psychiatric hospitals receive needed outpatient mental health services as well as the full range of other VA benefits to which they may be entitled to enable them to function independently. Fundamental changes in the structure of public and private health insurance have significantly reduced community hospital use but affected VA hospitals less. The establishment of prospective payment, capitation, and other payment methods under public and private health insurance has provided community hospitals strong financial incentives to reduce hospital admissions and lengths of stay or both. Similarly, insurers’ increased focus on medical necessity through such programs as preadmission certification has reduced both admissions to and lengths of stay in community hospitals. Finally, increased third-party coverage of home health and hospice care has made it possible to (1) discharge patients from hospitals sooner and (2) reduce the use of hospital care by the terminally ill. These changes, however, have had limited effect on demand for care in VA hospitals because these hospitals do not financially depend on insurance payments. VA is implementing changes in allocating funds to its hospitals and managing patient care that seek to simulate changes in public and private insurance. Because these changes are recent and because of differences between VA and private-sector actions, such changes’ effect on future demand for VA hospital care is uncertain. For example, it is not clear to what extent VA’s new preadmission screening program will change physicians’ admitting practices without the financial incentives used in the private sector. Similarly, it is unclear how Veterans Integrated Service Networks (VISN) and individual VA facilities will react to the financial incentives created by VA’s new capitation-based resource allocation system without the contractual obligations to provide covered services that private-sector managed care plans have. Prospective payment and other payment reforms initiated by Medicare and other third-party payers have significantly reduced demand for hospital care in community hospitals. These payment reforms were designed to provide community hospitals financial incentives to reduce hospital admissions and lengths of stay or both. Third-party payment reforms, however, have not played a major role in reduced demand for VA hospital care; VA hospitals, unlike community hospitals, do not depend on third- party payments. VA is changing its funding of health care facilities to create financial incentives like those in the private sector. The methods—fee-for-service and cost-based reimbursement—originally used by both public and private health insurers to pay for hospital and other health care services created incentives for physicians and hospitals to provide unnecessary services. Under fee-for-service reimbursement, physicians receive an amount for every service provided. As a result, physician income depends largely on the volume of services provided. Fee-for-service payments thus create financial incentives to provide unnecessary services. Similarly, under cost-based reimbursement, hospitals were typically reimbursed retrospectively on the basis of costs incurred. Hospitals were paid their actual costs as long as they were reasonable, related to patient care, and not in excess of maximum allowable amounts established by the program. This method encouraged hospitals to spend more and keep patients in the hospital longer because the more they spent for services, the larger their reimbursement would be. Although the 1970s saw several attempts, particularly under federal programs, to set limits on reimbursement rates, these efforts did not succeed in controlling cost growth. For hospitals, the most significant change in payment methods came with the 1983 enactment of PPS for acute care hospitals treating Medicare beneficiaries. Unlike the cost-based system preceding it, PPS has incentives for hospitals to shorten lengths of stay and provide care more efficiently. Hospitals are paid a predetermined amount for each Medicare discharge. Acute care patients are placed in 1 of over 400 diagnosis-related groups, or DRGs, on the basis of their principal diagnoses, the presence of complicating conditions, whether certain procedures were performed, and their age. In determining the payment amount, HHS basically calculates the average cost of treating Medicare patients in each DRG using historical hospital cost data and then adjusts the PPS rates for factors such as differences in area wages, teaching activity, and care to the poor. Hospitals whose average costs are lower than the PPS rates may keep all of the difference; hospitals whose costs are above these rates must absorb the loss. To reduce the risk to hospitals of costly cases, Medicare pays hospitals additional amounts for high-cost “outliers.” PPS drastically changed hospitals’ financial incentives. Under the cost- reimbursement system, hospitals had an incentive to keep patients longer and provide more ancillary services because each day of care and service provided was reimbursed separately. Under PPS, hospitals have a financial incentive to limit lengths of stay and the number of ancillary services provided because payment is fixed without regard to these factors. Both the average length of hospital stay and the number of admissions to community hospitals declined after PPS was introduced. Although PPS was initially limited to payment for services provided to Medicare beneficiaries, many other health care programs adopted similar payment methods. For example, the Civilian Health and Medical Program for the Uniformed Services (CHAMPUS) implemented a DRG-based PPS on October 1, 1987, to reduce government costs and provide an incentive for hospitals to reduce operating costs. Similarly, in 1991, 20 states reported using a DRG-based PPS under their Medicaid programs. Unlike community hospitals, whose revenues come mainly from third- party payments, VA hospitals do not depend on such payments. VA lacks the authority to bill Medicare for services provided to Medicare-eligible veterans. Although VA bills private health insurers for services it provides to their policyholders, recoveries occurring before June 30, 1997, except for the amount spent on the recovery effort, were returned to the Treasury. VA receives an annual appropriation from the Congress to cover the costs of services it expects to provide to veterans, including those with private health insurance or Medicare coverage. Until 1984, the distribution of appropriated funds to individual VA medical centers had been based mainly on their historic expenditures; that is, each medical center generally received its prior year’s allocation adjusted for inflation and certain other factors such as operating new facilities and programs. VA experimented with a case mix PPS to allocate resources to its hospitals in the mid-1980s but abandoned the system in 1990 when concerns arose about “gaming” and the equity of resource allocations. In 1984, VA introduced a national average cost-based prospective budgeting approach, the Resource Allocation Method (RAM) for distributing globally budgeted funds to its medical facilities. Like HCFA’s PPS, RAM was based on DRGs. Initially, VA planned to use RAM to measure and redistribute acute inpatient care resources, including all general medical, surgical, rehabilitation, neurological, and psychiatric services. In 1985, RAM was expanded to include outpatient and extended care services. Funds for outpatient care were allocated using an age-adjusted, capitation method with six price groups determined by the type and extent of utilization during a year. Extended care, including intermediate hospital care and nursing home care, was to be funded through a Resource Utilization Group (RUG) system. Similar to hospital DRGs, the RUG system classifies long-term care patients according to the amount of direct nursing that they require. Unlike Medicare’s PPS’ effects on community hospitals, however, RAM had little effect on VA hospitals’ budgets. RAM showed that VA hospitals incurred differing costs for treating similar patients and provided for shifting significant amounts of resources among facilities to encourage more efficient operations. VA never fully implemented RAM, however, shifting few resources (less than 2 percent of the total dollars budgeted) among facilities. RAM was abandoned in 1990 because of concerns that medical centers were gaming the system to maximize resource allocations. Gaming involves medical centers performing work beyond their resources to justify additional resources in the future. Although VA cited gaming as the main reason for abandoning RAM, it was not implemented partly because stakeholders lacked confidence in the equity of the resource allocations. After RAM was abandoned, VA moved toward a new patient-based allocation system known as the Resource Planning and Management (RPM) system. Even after introducing RPM in 1994, however, VA continued to allocate resources mainly on the basis of historical cost. RPM, like RAM, was never fully implemented, and few resources were actually shifted among VA facilities. In April 1997, VA began to implement a new resource allocation system—the Veterans Equitable Resource Allocation (VERA) system based on the capitation funding principles applied by many risk-based managed care plans. Capitation was the second major change in how public and private health insurers pay for health care that contributed to declining demand for hospital care. Under capitation, a health maintenance organization (HMO) or other risk-basis managed care plan agrees to provide comprehensive health services to enrollees in return for a prepaid, fixed payment for each enrollee regardless of the quantity or types of services provided to any particular enrollee. The loss an HMO suffers from treating enrollees whose health care services cost more than the HMO receives in capitation payments is offset by the profit the HMO makes from enrollees who use services worth less than the capitation amount. Capitation reverses the financial incentives existing under the traditional fee-for-service reimbursement system. It gives HMOs and other managed care plans incentives to limit the utilization of health care services because their profits increase if they provide fewer services. Because revenue is collectively obtained from the entire enrolled population of the managed care plan, the effect of an individual enrollee’s health care use on the HMO’s profitability is limited. In other words, capitation tempers the financial incentive of an HMO to deny needed services to an individual patient. Many HMOs and other managed care plans use capitation or other financial incentives to shift some of the risk to individual providers or groups of providers. Depending on their design, such capitation payments may encourage primary care physicians to limit referrals to specialists and admissions to hospitals and hospitals to limit the lengths of stay and admissions. The financial incentives vary by type of HMO. For example, staff model HMOs provide services through salaried primary care physicians; such physicians do not directly benefit financially by limiting the services they provide. Other types of HMOs and managed care plans, however, provide physicians financial incentives through capitation to control (1) use of primary care services, (2) referrals to specialists, and (3) hospital admissions. Capitation payment mechanisms require primary care physicians or groups of physicians to accept a monthly designated amount as payment in full for each assigned enrollee, no matter how often during the month the physician or group of physicians provides services or how much the services cost. This shifts a substantial portion of financial risk for medical services from the HMO to the primary care physician; an individual primary care physician or group of physicians can gain or lose profits depending on the amount of patient services delivered. The amount of financial risk transferred from the HMO or managed care plan to the physician or physician group is lowest when the capitation covers only primary care services; the risk increases as the physician or physician group becomes responsible for a wider range of services such as care by specialists and hospital care. Although much debate continues on the cost-effectiveness of HMOs and their effect on access to and continuity and quality of care, studies have found that HMO enrollees have lower hospital utilization compared with fee-for-service plans, particularly regarding shorter hospital lengths of stay. Therefore, the rapid growth of HMOs and other managed care plans has significantly contributed to decreasing demand for hospital care. Enrollment in HMOs increased from 9 million in 1980 to an estimated 56 million in 1995 (see fig. 4.1). HMO enrollment skyrocketed from 3,356 per 100,000 population in 1978 to 17,526 per 100,000 population in 1993, according to a report prepared for the National Committee for Quality Health Care. In addition, many states are enrolling Medicaid recipients in HMOs or other managed care plans. Capitation did not, however, contribute significantly to the declining demand for VA health care. Throughout the 15-year period during which VA hospital workload steadily declined, VA hospitals were funded mainly on the basis of their historical workload, creating incentives to increase—not decrease—inpatient workload. VA began implementing a capitation-based resource allocation system— VERA—in April 1997. Under VERA, facilities’ resource allocations are developed on the basis of the number of users rather than on the number of services provided. Users are divided into two groups—those with routine health care needs (called Basic Care) and those with special, typically chronic, and complex health care needs (called Special Care). For fiscal year 1997, VA allocated $2,596 for each Basic Care user and $35,707 for each Special Care user. VA adjusted allocations to reflect differences in labor costs in geographic areas. Because VISNs receive a fixed allocation for each Basic and Special Care user regardless of the types or volume of services provided, the allocation system no longer provides a financial incentive to unnecessarily hospitalize patients to increase resource allocations. VERA should ensure that VISNs have a financial incentive for their facilities to treat patients in the most cost-effective setting. Although VERA holds promise for creating financial incentives for VISNs to reduce unnecessary hospital use, we have testified that VA has not adequately studied the reasons for the cost variations among VISNs. Flat-rate reimbursement was the third major change in payment methods that affected demand for hospital care. States often use flat-rate payments under their Medicaid programs and managed care plans in negotiating provider agreements. States have considerable flexibility in determining how they pay for hospital care under their Medicaid programs. Generally, states’ methods for reimbursing hospitals may not yield rates that exceed amounts paid under the Medicare program. Before Medicare’s PPS implementation, most states, like Medicare, reimbursed hospitals on a retrospective cost basis. Due to increased flexibility given states through the Omnibus Budget Reconciliation Act of 1981, all but four states shifted from retrospective cost-based reimbursement to some PPS by 1991. Fourteen states developed systems that pay a flat rate per day or per case regardless of diagnosis. The rates are generally established for each individual facility but may be subject to overall limits for classes or “peer groups” of facilities depending on number of beds, affiliation with medical schools, and location. Under flat-rate PPSs, hospitals receive a fixed payment for each day of hospital care provided or each patient treated regardless of the volume or cost of services provided. Hospitals have incentives to limit the amount and types of services provided. Like the other payment reforms, flat-rate payment methods have not contributed to the declining demand for care in VA hospitals. Private-sector hospitals have a financial incentive to limit the services they provide because their profits depend on the extent to which they can provide care for less than the amount they receive from Medicaid. VA’s system, however, does not base hospitals’ funding on their per diem costs. Under a traditional fee-for-service health plan, enrollees obtained access to all types of care through an independent physician who was reimbursed by the health plan for the specific treatment provided. The fee-for-service payment method encouraged physicians and hospitals to provide unnecessary services. However, two major changes in how insurers manage their enrollees’ access to covered health care services—primary care case management and preadmission certification—have been used to control admissions to and lengths of stay in community hospitals. Although these changes have significantly contributed to the declining use of community hospitals, they have had less effect on demand for care in VA hospitals because VA hospitals do not depend financially on payments from third-party insurance and, until recently, VA hospitals did not have comparable programs. VA, however, began systemwide implementation of its own primary care program in 1994 and established a systemwide preadmission screening program in August 1996. Unlike preadmission screening programs of health insurers, however, the VA program does not financially penalize a physician or hospital if a patient admitted to a hospital is determined to need less care or a patient stays beyond the number of days determined appropriate for the condition(s) being treated. In addition to providing financial incentives for physicians to limit referrals to specialists and admissions to hospitals, HMOs and other managed care plans control use of specialists and hospital care through primary care case management. The objective of case management is to coordinate and organize health care resources to address patients’ specific medical problems and to control the cost and volume of the health services delivered. Each insured individual selects or is assigned to a case manager through whom all medical care (including hospital and specialty care) is provided or approved. Primary care case management may take place either in a risk-based prepaid health care setting, such as an HMO, or in a nonrisk-based fee-for-service system. For example, 17 states participating in Medicaid managed care in 1993 operated primary care case management programs. Under these programs, recipients have a specific primary care doctor or provider who oversees their care. Providers are paid on a fee-for-service rather than a risk basis. Medicaid recipients enrolled in primary care case management plans obtain access to care through a primary care physician who controls (acts as a gatekeeper) and coordinates the delivery of health services in a cost-conscious way. Primary care case management did not significantly contribute to the declining use of VA hospital care. In the past, VA care was episodic, with veterans appearing at the emergency room or outpatient clinic when they were sick. The more traditionally operated general medicine clinics do not always pair the veteran with the same physician, so no single physician may be responsible for the veteran’s care. One of the objectives set forth by VA’s Prescription for Change was to establish primary care as the central focus of patient treatment. Though 20 percent of VA users perceived that one provider or primary care team was in charge of their care in 1994, 72 percent of users in 1996 were assigned a primary care provider. VA’s goal is to have 80 percent of users enrolled in primary care during fiscal year 1998. While prospective payment gives hospitals incentives to reduce lengths of stay and the number of ancillary services provided, it does not give incentives to control hospital admissions. One way to control unnecessary hospital admissions is through preadmission certification of the medical necessity of acute, inpatient hospital services. Under preadmission certification, the insurer must review and approve of the need for admission (other than in an emergency) beforehand. Hospital preadmission certification can also effectively identify potential candidates for more cost-effective alternatives to inpatient care such as home health care. Such certification has become common in private health insurance policies and in HMOs. About 75 percent of private-sector employers now purchasing health insurance for their employees, an official of the Health Insurance Association of America (HIAA) estimated, want a hospital preadmission certification program included in their overall health care package. Beneficiaries or their physicians typically have to contact their insurers at the time of the nonemergency admission to the hospital to obtain certification that the insurer will pay the hospital. Similarly, all fee-for-service health plans participating in the Federal Employees Health Benefits Program (FEHBP) must operate hospital preadmission certification programs. For example, the governmentwide Blue Cross and Blue Shield Service Benefit Plan requires that the enrollee or enrollee’s doctor check with the local plan before the enrollee is admitted to a hospital (or within 2 business days after the day of a maternity or emergency admission). Precertification allows the plan to evaluate the medical necessity of the proposed hospital admission and to determine the number of days of hospital care authorized for treating the enrollee’s condition. If a policyholder is admitted to the hospital without precertification, the plan reduces benefits by $500, even if the admission was medically necessary. If the plan determines that the hospitalization was not necessary, it will not pay inpatient hospital benefits. If the plan determines the admission to be medically necessary but part of the stay not to be medically necessary, the plan will not pay inpatient hospital benefits for the portion of the stay that was not medically necessary. Insurers’ preadmission certification requirements did not significantly contribute to the declining demand for VA hospital care between 1980 and 1995. This is because the VA system hardly had any financial incentives to provide care in the most cost-effective setting. Even in those cases in which a private health insurer’s preadmission certification requirement applied, failure to obtain such certification or to admit the patient after certification was denied did not affect hospital revenues. A VA hospital that admits a patient who does not need hospital care incurs no penalty. In fact, VA’s past resource allocation methods gave medical centers a financial incentive to admit patients whose care could have been provided more efficiently in an outpatient setting and to keep them in the hospital as long as possible. VERA is intended to overcome this problem and provide financial incentives for VISNs to provide care in more cost-effective settings. As noted, however, VERA does not provide financial incentives for individual physicians to use more efficient practices. We reported in July 1996 that VA, unlike private-sector health care providers, had no systemwide external preadmission screening program or other utilization review program to provide incentives to ensure that only patients who need hospital care are admitted and that patients are discharged as soon as medically possible. In response to our recommendation that it establish an independent external preadmission certification program, the Veterans Health Administration, in August 1996, issued a directive requiring VISNs to establish utilization management programs to assess, monitor, and evaluate the appropriateness of the level of care provided by their facilities. By September 30, 1996, facilities had substantially implemented preadmission review of 100 percent of planned admissions to determine each patient’s most appropriate level of care and continuing stay reviews to determine the appropriateness of each additional day of acute hospitalization. Each VISN was to determine the design and extent of the continuing stay reviews. The directive also said that each network was to ensure that facilities establish a process for coordinating referrals and arrange for the inpatient and outpatient alternatives to acute hospitalization for each patient. The outpatient alternatives should, the directive states, include clinic appointments to primary care clinics, preferably, or specialty clinics; urgent care evaluation units; outpatient care evaluation units; temporary lodging; or observation beds. Expanded insurance coverage of home health care has helped reduce community hospital admissions and lengths of stay. Both public programs, such as Medicare and CHAMPUS, and private insurance have expanded coverage of home health care, particularly when such care is considered less expensive than continued hospital care or an alternative to hospital care. Although VA also provided home health care during our study period (1980 to 1995), the availability of such care was more limited. For chronically and catastrophically ill patients, home health care may (1) reduce the number or length of rehospitalizations, (2) benefit the patient, and (3) cost less than hospital care for many patients who would otherwise remain in the hospital if home care were not available. The increased demands for home health care also reflect many Americans’ desire for treatment options that allow autonomy, functional independence, quality of life, and dignity, while providing needed support. With the implementation of the Medicare inpatient PPS in 1983, use of the home health benefit was expected to grow as patients were discharged from the hospital earlier in their recovery periods. Expenditures changed little in the next 5 years, however. Home health expenditures grew significantly after home health coverage was broadened and program controls were reduced in the late 1980s. Figure 4.2 shows the growth in Medicare home health visits per 100,000 beneficiaries between 1978 and 1993. The extent to which home health care has helped decrease hospital lengths of stay has not been quantified. Nevertheless, the availability of home health care has surely enabled decreased lengths of stay. Although home health care has been a Medicare benefit since the program’s inception, changes in the legal and regulatory provisions governing the home health benefit, together with changes in HCFA’s policies, have played a major role in increased use of the benefit. Initially, Medicare provided a limited posthospital home health care benefit of up to 100 visits per year. Benefits were available only following discharge from a hospital and had to be provided within 1 year after the patient’s discharge and for treating the illness that caused the hospitalization. These restrictions were eliminated by the Omnibus Reconciliation Act of 1980. Other important restrictions, however, remained. For example, under HCFA’s interpretation of the law, home health care was available only on a part-time and intermittent basis. After HCFA’s interpretation of this and other benefit coverage requirements was struck down in a 1988 lawsuit (Duggan v. Bowen), Medicare coverage was further broadened. As a result of the lawsuit, HCFA revised its home health guidance to cover home health care that is part time or intermittent, enabling home health agencies to increase the frequency of visits. In addition, patients now qualify for skilled observation by a nurse or therapist if a reasonable possibility exists for complications or the need to change treatment. Moreover, the benefit now allows maintenance therapy, that is, therapy services required for the patient to simply maintain function. Previously, patients were eligible for therapy only if expected to show improvement from such services. These changes made Medicare home health care available to more beneficiaries for less acute conditions and for longer periods of time. For example, in 1992, about one-third of Medicare home health beneficiaries entered the program without a prior hospital stay during the year and, of those who had been hospitalized, only half had been hospitalized within the 30 days before receiving home health care. Both the number of Medicare beneficiaries receiving home health services and the number of services received by each beneficiary have increased significantly. In 1989, 1.7 million Medicare beneficiaries received home health services; by 1993, this number had grown to 2.8 million. During the same time, the number of visits provided to beneficiaries receiving home health care more than doubled, from an average of 26 visits per year in 1989 to an average of 57 visits per year in 1993. Linking these increases to decreased use of hospital care is difficult, however. As discussed, the largest increases in home health visits did not occur during the 5 years following implementation of the PPS. During that period, however, the Deficit Reduction Act of 1984 reduced the number of intermediaries processing home health claims, and HCFA intensified education of the home health intermediaries to promote more consistency in claims reviews. These improved controls resulted in an increased claim denial rate of between 1985 and 1987. Thus, reductions in home health use may have offset any increased use of home health care to shorten hospital lengths of stay. Although controls over home health care improved during the mid- and late 1980s, they have largely deteriorated since then, contributing to the growth in benefit payments. The Congress, in October 1992, authorized DOD to establish a program for individual case-managed home care of military beneficiaries with extraordinary medical or psychological disorders. The program grew out of two demonstration projects intended to test whether expanded home care benefits, coupled with case management, could reduce medical costs and improve services to CHAMPUS beneficiaries. The original program focused on serving patients who, in the absence of case-managed home care, would remain hospitalized. Although private health insurance plays a comparatively small role in financing home health care, it is the fastest growing benefit. Between 1989 and 1993, private health insurance payments for home health services increased from $0.4 billion to $2.5 billion (see fig. 4.3). Home health payments increased 13.6 percent between 1992 and 1993, compared with an increase of 7.9 percent for payments for hospital care, which had the second highest rate of increase. VA home health care benefits have grown more modestly, though still significantly, than such benefits under private health insurance. VA’s efforts to meet veterans’ home health care needs focus on providing long-term care services for chronic medical conditions as well as shorter term services for acute medical conditions. VA’s Hospital-Based Home Care (HBHC) program most often provides care to those with chronic conditions. Veterans requiring short-term skilled care often following a hospital stay generally receive services from community-based providers. VA either arranges for Medicare to pay for eligible veterans to receive home care from community-based providers or, under its fee-basis program, pays community-based providers to provide care for those not eligible for Medicare. HBHC is an extended-care program designed to meet the long-term care needs of veterans who have chronic multiple medical and psychosocial problems, a terminal illness, or a need for posthospital rehabilitation or monitoring. The objectives of the program are to provide primary care services to homebound patients; create a therapeutic and safe home environment; support the caregiver—the veteran’s spouse, other family member, or friend—in caring for the patient; reduce the need for, and provide an alternative to, hospitalization or other institutionalization; promote timely discharge of patients from hospitals or nursing homes; and provide an academic and clinical setting for students of the health professions. VA’s HBHC program, begun in 1972, had been implemented in VA’s 173 hospitals by fiscal year 1975. In fiscal year 1994, VA served 9,953 veterans under the program. The fee-basis program, the second method VA uses to provide home health services, involved nearly all VA hospitals in fiscal year 1995. The hospitals use the program to purchase skilled home health services from community- based providers. In fiscal year 1994, VA spent $27.3 million on fee-basis home health care services for about 12,800 patients. Most veterans in the program receive short-term home health care services for acute medical conditions, such as hip fractures or surgical wounds. Skilled nursing is the predominant service covered under the fee-basis program. Finally, VA provides homemaker/home health aide services for veterans who otherwise would be placed in a nursing home under a pilot program implemented in April 1993 in response to Public Law 101-366. Although the program was initially limited to services for veterans with service- connected disabilities, Public Law 103-452 expanded eligibility to include all veterans, and the Veterans’ Benefits Act of 1997 made the program permanent. Under the pilot program, a VA facility provides primary health services for veterans receiving homemaker/home health aide services. Community health nurses and social workers select a licensed home health agency to provide the homemaker/home health aide services. The continued need for the services is reassessed every 3 months, and the cost of homemaker/ home health aide services on a per patient basis is limited to 65 percent of the average per diem costs of VA nursing home care units. All VA medical centers may participate in the pilot program. In 1996, 118 medical centers operated pilot programs, which had an average daily census of about 1,457. In addition to the veterans receiving hospital- and fee-based care, VA facilities referred about 19,000 Medicare-eligible veterans to Medicare- certified home health agencies in fiscal year 1994. Medicare, rather than VA, paid for the home health services provided to such veterans. The rapid expansion of hospice care benefits from 1978 through 1993 has reduced hospital use by the terminally ill. Although VA also offers hospice benefits, its benefits were primarily for inpatients and limited to selected medical centers until 1993. As a result, these benefits did not significantly affect demand for inpatient hospital care between 1980 and 1995. Hospice care involves a medically supervised program of home or inpatient palliative and supportive care for a terminally ill patient and the patient’s family. Specialized care for terminally ill patients began in Europe in the 1800s, but in the United States, the first hospice was not formally organized until 1974. Medicare’s 1983 addition of a hospice benefit helped to rapidly expand hospice care: The number of hospices increased from 158 in 1985 to 1,459 in 1994. The number of Medicare- covered hospice days per 100,000 Medicare beneficiaries increased from 3,270 days in 1986 to 19,864 days in 1993. (See fig. 4.4.) Virtually all terminally ill Medicare beneficiaries are now eligible for hospice care. Until recently, coverage was limited to four periods of care—two 90-day periods, one 30-day period, and a final period of unlimited duration. The Medicare hospice benefit also offers financial incentives for hospices to provide care in the patient’s home rather than in a facility. Other health care programs also initiated or expanded hospice benefits. For example, over 30 states had added hospice benefits under their Medicaid programs by 1991 and DOD’s direct delivery system and CHAMPUS authorized a hospice benefit in 1991. Similarly, many private health insurers covered hospice benefits by the early 1980s. Although hospices mainly serve patients with cancer, a broad range of terminally ill patients, such as patients with acquired immunodeficiency syndrome, are also served. Moreover, an estimated 15 percent of the children who die in the United States could potentially benefit from hospice services. All terminally ill veterans are eligible to receive hospice care from VA with no limits on the length of time covered. VA’s Commission on the Future Structure of Veterans Health Care reported in November 1991 that only 45 VA medical centers had hospice programs as of October/November 1990. One year later, however, VA reported that all of its medical centers provided hospice care. VA has developed new methods for allocating resources and monitoring the appropriateness of hospital admissions and lengths of stay modeled after private-sector actions. The effects of these changes on future demand for VA hospital care are uncertain, however, because of important differences between VA and private-sector programs and because the changes are recent. VERA may help VA reduce hospital admissions as the private sector already has through prospective payment and capitation. The ultimate effect of VERA on hospital operations, however, depends on several factors. First, how effective will VERA be in changing practice patterns absent the financial risk upon which both prospective payment and capitation are based? Unlike private-sector hospitals and health plans, VISNs do not have a contractual obligation to provide their users needed health care services. Theoretically, if a VISN runs out of funds, it may deny care to any veteran, including those with service-connected disabilities. By contrast, private insurers have a contractual obligation to provide their members the full range of health care services covered by the plan. Because implementation of VERA did not begin until April 1997 and resource shifts are being phased in over several years, little is known about how VISNs and individual facilities are reacting to both increased and decreased resource allocations and the potential effects, both positive and negative, on veterans’ access to health care services. Determining the effect of VERA on VA hospitals’ efficiency will be difficult because VISNs and individual facilities can and do shift costs to other programs such as the Medicare home health and hospice programs and the Medicaid nursing home program. In other words, increased costs in other programs may offset reductions in VA costs per patient served. Another reason why VERA’s effects are uncertain relates to VISNs’ decisions on allocating resources. If VISNs use VERA to provide veterans the same opportunity for VA-supported hospital care regardless of veterans’ residence, then fewer funds will be available to support existing VA hospitals and more funds will be allocated to purchase care from community hospitals closer to veterans’ homes. This is because about 89 percent of veterans live more than 5 miles from a VA hospital providing acute medical and surgical care, and many veterans—given a choice between care in non-VA facilities close to their homes and more distant VA facilities—with no difference in out-of-pocket costs, would most likely choose non-VA care. Although it is too early to evaluate the effectiveness of VA’s new preadmission screening and continuing stay review requirements, data from both the Washington, D.C., and Martinsburg, West Virginia, VA medical centers indicate that about 45 percent of acute inpatient admissions and about 60 percent of acute days of care (in both centers) did not meet standards for acuity or intensity of care. Preliminary data from VISN 5 (Baltimore) suggest that they are having a limited effect on reducing unnecessary hospital admissions and excessive lengths of stay in that area. VISN 5 (Baltimore) uses its reviews mainly for data collection, evaluation, and monitoring. Unlike the preadmission certification and continuing stay review programs run by private health insurers, the VA program has no similar enforcement mechanism. Private-sector community hospitals generally do not get paid if they admit patients without the insurer’s prior approval, except in an emergency. Under VA’s preadmission certification program, however, neither the hospital nor the physician authorizing the admission incurs any direct financial penalty for admitting a patient whom the screening program determined did not need to be admitted. Even without giving hospitals and physicians a direct financial stake in admission decisions, preadmission screening and continuing stay reviews should somewhat affect nonacute admissions. Data are not yet available for gauging the extent to which individual physicians are changing their admitting practices because of the review programs. Once such data are available, the need to establish the types of financial disincentives to nonacute admissions that exist in the private sector can be determined. Finally, expanded home health and hospice benefits under public and private health insurance could affect demand for VA hospital care. The availability of Medicare home health benefits, which require no beneficiary cost sharing, may have contributed to decreased use of VA as well as community hospitals. Similarly, VA’s focus on home health and hospice care, both through direct provision of services and referrals to Medicare and other programs, could further reduce VA lengths of stay. Although medical advances and changes in the payment and care management methods used by public and private health insurers did not affect demand for VA hospital care as much as demand for community hospitals, several additional factors affected VA but not community hospitals. First, VA hospitals have had a steadily declining target population since 1980, while the general population has been increasing. Second, the Medicare and Medicaid programs gave many veterans the means to obtain care from community hospitals closer to their homes than VA hospitals. As the veteran population declines, an increasing proportion is becoming Medicare eligible and using such coverage to obtain all or a portion of their hospital care from more convenient community hospitals. Finally, the growth of HMOs and preferred provider organizations (PPO) with their relatively low cost-sharing requirements has largely eliminated one of VA’s competitive advantages over community hospitals—its ability to offer veterans free care if they use VA hospitals. Recent and proposed changes in the VA system and other health care programs create considerable uncertainty about future demand for VA hospital care. For example, how will expansions of veterans’ eligibility for VA health care services and VA’s ability to buy care from and sell care to private-sector hospitals and health plans affect future use of VA hospitals? Similarly, proposals to delay Medicare eligibility and give Medicare beneficiaries the choice of establishing medical savings accounts (MSA) could increase demand for VA hospital care. On the other hand, actions to make it easier for people to maintain insurance coverage when they change jobs could decrease future demand for VA care. VA hospitals have had a steadily declining target population since 1980. The decline is expected to escalate during the next 12 years, resulting in an overall one-third reduction in the number of veterans between 1980 and 2010. In contrast, the general population has increased steadily since 1980, helping offset the effect on community hospital demand of other efforts to decrease demand. The veteran population, which numbered slightly more than 30 million in 1980, declined to about 26 million in 1995. In contrast, the general population increased from about 228 million in 1980 to more than 263 million in 1995. (See fig. 5.1.) Projected changes in the veteran population by 2010 indicate that demand for VA hospital care will continue to decline unless VA acts to increase the percentage of veterans using VA hospital care. The veteran population is expected to decline another 23 percent (6.1 million) by 2010. In contrast, the general population is expected to increase by about 13.2 percent (34.7 million) in the same period. (See fig. 5.2.) With the downsizing of the military since the end of the Vietnam War and with World War II ending over 50 years ago, the aging of the veteran population has become more pronounced. The proportion of the veteran population under the age of 45 is projected to decline from 31 to 16 percent between 1990 and 2010. In contrast, the proportion of the veteran population that is 75 years old or older will increase from approximately 5 to about 23 percent in the same 20-year period. Although veterans’ health care needs increase among older veterans, the overall decline in the number of veterans should more than offset the increased hospital use by older veterans and should further reduce the number of days of VA hospital care. If veterans continued to use VA hospital care at the same rate that they did in 1994, the number of days of care provided in VA hospitals should decline about 11 percent, from 15.4 million in 1994 to about 13.7 million by 2010. In other words, even if VA made no other changes in its health care system to reduce the amount of care unnecessarily provided in its hospitals, the declining numbers of veterans would reduce demand despite the aging of the veteran population. These estimates may, in fact, overstate demand for VA inpatient hospital care. Between fiscal years 1994 and 1996, VA hospital days of care declined from 576 to 542 per 1,000 veterans. More importantly, days of care per 1,000 veterans aged 85 and older declined 30 percent in the 2-year period. Despite a 26-percent increase in the number of veterans 85 and older, days of care provided to veterans in the age group declined 11 percent. One of the main reasons for the declining use of VA services by older veterans is the introduction of Medicare and Medicaid. The rate at which elderly veterans used VA hospitals dropped by 50 percent between 1975 and 1996. The introduction of Medicare and Medicaid in 1965 gave many veterans new health care options. This is important because veterans who have health insurance are much less likely to use VA hospitals than veterans without public or private insurance. Medicare, which provides hospital insurance to almost all Americans aged 65 and older and some under 65 who are disabled, gave many veterans new or improved access to health insurance. Similarly, the enactment of Medicaid improved access to health care services for some low-income veterans. Almost immediately after the enactment of the two programs, demand for VA hospital care began to steadily decline as the Medicare and Medicaid programs were increasing demand in community hospitals. Medicare increasingly affected demand for VA hospital care between 1975 and 1996 as the veteran population aged. This is because most veterans become eligible for Medicare when they turn 65 years of age even if they were previously employed in jobs that did not provide health insurance. VA research has confirmed that a significant portion of VA’s elderly users leave VA’s inpatient care system or reduce their use of VA hospital care as they become Medicare eligible. VA hospital discharges per 1,000 veterans aged 65 or older declined from 78 in fiscal year 1975 to 39 in fiscal year 1996. Hospital discharges among veterans between the ages of 45 and 64 decreased, but to a lesser extent, in the 21-year period, from 33 to 29 per 1,000 veterans. Hospital discharges increased from 19 to 25 per 1,000 veterans under age 45. (See fig. 5.3.) The data show that the peaks in use by veterans in the two younger age groups roughly correspond to the aging of the large numbers of Vietnam-era and Korean Conflict veterans. For example, the 1985 peak in hospital use by veterans aged 45 to 64 corresponds to the period in which most Korean Conflict veterans were in this age group. Hospital use by this group of veterans subsequently began to decline as more Korean Conflict veterans reached 65 years of age. Similarly, VA hospital discharges per 1,000 veterans under age 35 have declined steadily since 1985 as most Vietnam-era veterans continue aging; discharges per 1,000 veterans aged 35 to 44 generally increased during the same time period. Increasing enrollment in HMOs, PPOs, and point of service (POS) plans also affected demand for VA hospital care by reducing or eliminating the financial incentive for veterans to use VA hospitals. Unlike traditional fee-for-service health insurance that typically requires policyholders to pay a significant portion of their hospital costs through deductibles and copayments, HMOs, PPOs, and POS plans generally require no or small cost sharing when policyholders obtain care from designated hospitals. In 1985, both public and private health insurance plans were still predominantly fee for service and had significant out-of-pocket costs. Although most fee-for-service insurance provided first-dollar coverage of hospital room and board, patients often paid sizable deductibles and coinsurance for physician and ancillary services. Specifically, about 66 percent of private health insurance policies provided first-dollar coverage of hospital room and board, but 95 percent required policyholders to pay from 10 to 20 percent of hospital charges for physician and ancillary services; the remaining 5 percent required policyholders to pay 25 percent of charges. In addition, fee-for-service insurance often required policyholders to pay a specified amount of covered charges before insurance paid any benefits. Such deductibles were generally applied annually. In 1985, between 80 and 90 percent of fee-for-service health plans had deductibles for major medical benefits. The significant cost sharing associated with fee-for-service health insurance costs veterans with such insurance out-of-pocket expenses when they obtain care from community hospitals. Although veterans with higher incomes are less likely to use VA facilities, it provides a financial incentive for veterans with limited incomes to use VA rather than community hospitals. This is because VA does not require these veterans to pay applicable copayments and deductibles under their public or private insurance. Fee-for-service payment methods have declined in both public and private insurance as enrollment in HMOs and other managed care plans has increased. Enrollment in HMOs increased from 9 million in 1982 to 50 million in 1994. In 1993, however, 49 percent of American workers with health insurance still had a conventional fee-for-service plan. By 1995 that percentage had dropped to 27. The nearly three-fourths of workers with employer-provided health insurance now covered under a managed care plan have largely eliminated the financial incentive for employed veterans to use VA hospitals. A slower shift is occurring among Medicare enrollees. Between 1987 and 1996, enrollment in Medicare risk-contract HMOs increased from 2.6 percent of beneficiaries to 10 percent of beneficiaries. By 2002, however, enrollment is projected to be 22.9 percent of total beneficiaries. Like enrollees under other HMOs, Medicare beneficiaries enrolled in risk-based HMOs usually have minimal out-of-pocket expenses. In addition, HMOs often add additional benefits, such as prescription drugs, not otherwise covered under Medicare. Recent and proposed changes in the VA system and other health care programs create considerable uncertainty about future demand for VA hospital care. First, VA expects last year’s expansion of eligibility for VA health care to enable it to increase VA system users by 20 percent. It is not clear, however, to what extent new users attracted to VA outpatient care through community-based outpatient clinics (CBOC) will use VA for hospital care. VA’s 1998 budget proposed reinvesting all efficiency savings and using additional resources to expand its system users by 20 percent. VA expected to add a total of $5.8 billion in new resources in the next 5 years (from public and private insurers and others), starting with $737 million in 1998 and increasing to $1.7 billion in 2002. VA expected these additional resources to allow it to increase the number of veterans served by 587,000, which would increase its patient base from 2.9 million to 3.5 million in 2002. If VA attains the targeted resource levels, it could attract 587,000 new users by 2002. The recent expansions of VA’s contracting authority and veterans’ eligibility for care should facilitate creation of new CBOCs, which, along with VA’s efforts to improve accessibility of hospital-based clinics, will probably attract new users. It is unclear, however, whether the new users will use VA for hospital care. To the extent that CBOCs are far from their sponsoring VA hospitals, the likelihood of veterans using a VA hospital drops off rather significantly at distances of more than 5 miles from the VA hospital. The second factor that could affect future demand for VA hospital care is VA’s expanded authority to buy hospital care from and sell hospital care to the private sector. This authority could increase the use of VA hospitals if VA uses it to serve more nonveterans or decrease the use of VA hospitals if VA uses it to allow veterans, such as the new users attracted to the system through CBOCs, to use community hospitals closer to their homes. A third factor that could affect future demand for VA hospital care is delaying Medicare eligibility. As discussed, veterans tend to stop using or reduce their use of VA hospitals after they become eligible for Medicare. Thus, delaying eligibility for Medicare benefits could delay veterans’ leaving the VA system. More importantly, VA could serve as an increasingly important source of health care coverage for veterans retiring before they qualified for Medicare. Many such veterans might not be able to continue coverage under their employer-provided health insurance, or such coverage might be prohibitively expensive. MSAs, authorized under the Balanced Budget Act of 1997, are the fourth factor that could increase future demand for VA hospital care. Medicare- eligible veterans may have financial incentives to establish such accounts, enroll in the VA health care system, obtain essentially free care from VA, and then pocket the excess funds in the account. MSAs could, however, be structured to prevent people with such accounts from using other federal health benefits. The Balanced Budget Act permits the Secretary of HHS to apply rules that will ensure that such dual enrollment will not result in increased expenditures for the federal government. Veterans enrolling in MSAs would no longer be able to use both VA and Medicare services. About half of the Medicare-eligible veterans using VA services use both VA and Medicare services. Further changes in the private health insurance market could also affect future demand for VA hospital care. First, recently enacted legislation could make it easier for people to maintain their private health insurance when they lose or change jobs. The Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191) limits to 12 months plans’ ability to restrict coverage of employees’ preexisting health care conditions. Before this law, plans could permanently exclude coverage of preexisting conditions. The law also made it easier for veterans to change jobs without losing health insurance coverage; this, in turn, could reduce some veterans’ incentives to use VA facilities. For example, in 1994 we reported that veterans participating in focus groups told us that they use VA health care when they lack health insurance. Although, as discussed, a continued growth in managed care plan enrollment could further reduce use of VA health care, growing dissatisfaction with HMOs and other managed care plans could result in increased use of VA hospitals. For example, physicians from VA medical centers in California, Florida, New Mexico, and other states have noted an increase in the number of elderly veteran patients who seek care at VA facilities while enrolled in HMOs. Two studies at individual VA facilities found that HMO enrollment ranged from 10 percent among veterans of all ages to about 25 percent among elderly veterans. Finally, the recent trend toward increased beneficiary cost sharing in managed care plans could provide financial incentives for veterans to obtain care from VA hospitals. One found that copayments for hospital stays rose from $4.50 a day in 1987 to $24.90 a day in 1993; for inpatient mental health care services, copayments increased from $3.39 to $14.51 per day. The study also found that the higher copayments decreased demand for services from the HMOs. For example, researchers in Washington found that adding a $5 copayment reduced visits to primary care physicians by 5 percent. It is unclear, however, to what extent increased use of VA-provided services would offset reduced use of HMO-provided services. Because of the declining demand for inpatient hospital care, community hospitals have hundreds of thousands of unused hospital beds. Overall, about 26 percent of community hospital beds exceeded demand in 1995, and over 65 percent may exceed demand within the next 15 years. Although fewer—about 14 percent—of VA’s operating beds exceeded demand in 1995, actions to improve the VA health care system’s efficiency, coupled with other changes in the health care marketplace, could result in 80 percent of VA’s hospital beds exceeding demand within the next 5 to 10 years. With the likelihood that most hospital beds in both VA and the private sector will exceed demand within the next 5 to 15 years, the administration and the Congress will face difficult challenges and policy decisions about the future of VA hospitals. Among the challenges VA faces concerning the closure of VA hospitals are determining the number of hospital beds it needs, their locations, and the extent to which VA should buy rather than provide hospital care. Where hospital closures are warranted, VA will face added challenges to ensure that community hospitals or other VA hospitals meet veterans’ hospital care needs and to minimize the effect of the closures on VA employees and the community. With the expanded authority to sell VA’s excess capacity to private-sector health plans, facilities, and providers, the administration also faces difficult decisions about the extent to which VA should increase demand for care as an alternative to closing hospitals. Because decisions to either increase demand to preserve VA hospitals or close underused hospitals would significantly affect veterans, VA employees, community hospitals, medical schools, and individual communities, the administration and the Congress face difficult challenges in determining the future of VA hospitals. Use of both community and VA hospitals varies widely in different parts of the country. Among the possible causes of such variation are differences in health status, demographics of the veteran and general population, market penetration of managed care plans, and differences in efficiency. The number and use of community hospital beds vary significantly by census division and, even within census division, by state. Nationally, community hospital beds numbered about 3.3 per 1,000 population in 1995, ranging from 2.3 in the Pacific states to 4.3 in the West North Central states. Other census divisions with significantly higher-than-average operating beds and average daily censuses (ADC) were the East South Central and Middle Atlantic states; the Mountain division was well below the national averages. (See figs. 6.1 and 6.2.) Within some census divisions, hospital use also varied significantly. For example, among South Atlantic states, Maryland and Virginia had an ADC of 1.7 per 1,000 population; the District of Columbia and West Virginia had 4.9 and 2.7, respectively. Similarly, among Mountain states, Utah’s ADC was 1.1 per 1,000 population but Montana’s was 3.2. Appendix I contains additional information on the number of operating beds and ADCs per 1,000 population by census division and state. Many factors, such as differences in age, health status, and insurance coverage, could affect hospital use. For example, states with more elderly people may have greater hospital use. Similarly, regional variation in the incidence of certain diseases could result in higher use of hospital care in some areas. For example, the higher incidence of cancer in the Middle Atlantic states could cause greater hospital use there than in other areas. Medical practice in different parts of the country may also account for variation in hospital use. For example, patients in the Northeast tend to have longer lengths of stay than similar patients in the western states. (See table 6.1.) Finally, the market penetration of managed care may affect hospital use. States in which HMOs and preferred provider organizations have significantly penetrated the market tend to have less hospital use. Of the nine states with hospital usage of 1.5 beds per 1,000 population or less, managed care accounted for 40 percent or more of the insurance market; in only two states (Alaska and New Mexico) did managed care account for less than 20 percent of the insurance market. In contrast, of the 10 states with hospital usage of 2.7 beds per 1,000 population or higher, in only 1 state (Nebraska) did managed care account for 40 percent of the market; in 4 states, managed care had captured 5 percent or less of the insurance market. Appendix II contains additional information on managed care’s market penetration by state and census division. (See fig. 6.3.) The number and use of VA hospital beds also vary widely by VISN. Differences in the rate of use of VA hospitals correlate to regional differences in use of community hospitals, suggesting that differences in health status or medical practice may at least partially explain the variation. VA data, however, provide conflicting views of the reasons for the variation. In fiscal year 1995, the VA system operated an average of 50,785 beds and had an ADC of 37,003. With about 2.9 million unduplicated users, the VA system operated about 18 beds per 1,000 users and had an ADC of 13 per 1,000 users. The number of operating beds per 1,000 users ranged from 10 per 1,000 users in VISN 18 (Phoenix) to 26 in VISN 3 (Bronx). Similarly, the ADC ranged from 6 per 1,000 users in VISN 18 (Phoenix) to 21 per 1,000 users in VISN 3 (Bronx). (See figs. 6.4 and 6.5.) Although the use of surgical beds varied somewhat by VISN, the use of medicine and psychiatric beds varied most. The ADC in medicine beds ranged from 3 to 11 per 1,000 users; the ADC in psychiatric beds ranged from 3 to 8 per 1,000 users. Appendix VI provides additional details. Variation in the use of VA hospitals tends to mirror the variation in use of community hospital beds. The two census divisions with the lowest community hospital use per 1,000 population—Mountain and Pacific— contained four of the five VISNs with the lowest VA hospital use. Similarly, the census division with the highest community hospital use—Middle Atlantic—contained the three VISNs with the highest rate of VA hospital use. Appendix VII compares operating beds and ADCs for VISNs with their corresponding census divisions. Several possible reasons explain veterans’ varying use of VA hospitals. First, the variation may reflect differences in efficiency among VISNs and individual facilities. VA’s resource allocation models have consistently attributed much of the variation in VA costs to inefficiency. The Resource Allocation Method, Resource Planning and Management system, and new Veterans Equitable Resource Allocation (VERA) method all found that VA’s costs varied widely by facility and VISN for treating similar patients and concluded that inefficiency caused most of the variation. Differences in health status could also help explain the variation in hospital use. To the extent that veteran users in some VISNs have poorer health than those in other VISNs, then higher hospital use can be expected, and it may not be reasonable to expect such VISNs to decrease utilization rates. Similarly, differences in the age of the veteran population can affect hospital use. Hospital use generally increases with population age; therefore, VISNs serving elderly veterans could be expected to have higher rates of hospital use. VA, however, in developing VERA, concluded that the higher hospital use in some VISNs could not be explained by differences in veterans’ ages. Insurance use could also affect the extent of VA hospital use. Veterans with public or private insurance are much less likely to use VA hospital care than are the uninsured. Thus, variation in the rate of insurance coverage among VISNs could help explain variation in hospital usage. Similarly, the market penetration of managed care plans could help explain the lower hospital use in some VISNs. This is because veterans enrolled in managed care plans can generally obtain hospital care closer to their homes with low cost sharing through managed care plans. Finally, differences in medical practice may explain variation in hospital use. As previously discussed, hospital lengths of stay for short-term hospitalizations are generally longer in the Northeast than in the West. This could help explain the higher rate of hospital use in VISNs in the Middle Atlantic states. VERA and the Veterans Health Administration’s 1997 performance measures for VISN directors, however, give conflicting views of the extent to which such variation is due to differences in efficiency rather than medical practice or health status. Under the performance measures, VA compared the VA acute bed-days of care per 1,000 users in each VISN with Medicare beds-days of care per 1,000 beneficiaries in the comparable census division. VA defined as fully successful performance reduced VA bed-days of care that matched local Medicare performance. Of the seven VISNs required to reduce acute bed-days of care by 20 percent or more to achieve fully successful performance, VERA designated four to receive additional resources. The VISN required to reduce acute bed-days of care the most—37 percent—was VISN 19 (Denver), which VERA identified as needing a 6.6-percent increase in funding. Similarly, VISN 2 (Albany) and VISN 4 (Pittsburgh)—whose acute care rates were already below the Medicare rate—were found under VERA to be among the less efficient VISNs. Under VERA, VISN 2 (Albany) would absorb the second largest decrease in funding. Under the performance measures, however, it would be expected to absorb the funding decrease without reducing acute bed-days of care. Another performance measure that provides a conflicting view of VISN efficiency is reduced operating beds. Under this performance goal, fully successful performance is judged to be reduced operating beds to match the assigned targets. As was the case with days of care, however, the VISNs with the largest targeted reductions in operating beds are among those qualifying for the largest resource increases under VERA. Ten of the 11 VISNs expected to close 300 or more operating beds in fiscal year 1997 should, under VERA, receive increased resource allocations of up to 15 percent. In contrast, of the 11 VISNs expected to close fewer than 300 beds, 6 should, under VERA, receive fewer resources. For example, VISN 2 (Albany) is not expected to close any operating beds but should receive a 7.5-percent decrease in funding. Table 6.2 compares the change in resource allocation under VERA with the 1997 network directors’ hospital performance measures. Because VA is phasing in VERA’s implementation, the actual shifts in resource allocations are less than the projected shifts had VERA been fully implemented in 1997. The health care literature identifies many different approaches for estimating excess hospital beds. Each approach has certain limitations. For example, some approaches estimate current excess capacity; others focus on future needs. To provide a range of estimates of current and future excess capacity, we developed estimates using three approaches: Target occupancy rates. Under this approach, excess capacity is defined as the number of beds that would need to be eliminated to raise actual occupancy rates up to a prescribed efficient level. For example, if average occupancy were 60 percent and the target rate were 85 percent, 25 percent of beds would be excess. In fact, an 85-percent occupancy level is generally considered optimum. In other words, a hospital is not considered to have excess capacity until its average occupancy drops below 85 percent. Estimates of medically unnecessary days of care. Under this approach, a percentage of the days of care provided is assumed, on the basis of studies, to be medically unnecessary. A 1970s study used this approach and estimated that 264,000 community hospital beds were in excess. The study assumed that one-third of the days of care provided by community hospitals were medically unnecessary. Between 1980 and 1995, community hospital beds declined by about 115,000 beds mainly in response to actions taken to reduce medically unnecessary days of care. Estimates derived from this approach are often added to estimates of excess capacity derived through the first approach. Target beds per 1,000 population. Under this approach, excess capacity is the difference between operating beds and some target number of beds per 1,000 population. For example, the Institute of Medicine set a target to reduce the beds per 1,000 population from 4.4 to 4.0 beds in a 1976 report.Unlike the target occupancy rate approach, this approach can be used to predict future bed needs by basing the estimates on projected population. The use of target occupancy rates is the most conservative approach for estimating excess beds because it basically counts empty beds at the time of the study. It does not consider changes that could affect either the future supply of or demand for hospital beds. In addition, it assumes that current hospital utilization rates are appropriate, that is, that all admissions and lengths of stay are appropriate. Just as the use of target occupancy rates may understate the extent of excess beds, the other two approaches may overstate realistic reductions in excess beds. This is because reaching such targets would necessitate a level of uniformity in medical practice that has so far been out of reach. Community hospitals have far too many beds than needed. Overall, community hospitals had 873,000 beds, and 228,000 (26 percent) of these were unused in 1995 and could have been closed without increasing hospital occupancy rates above the 85-percent rate generally considered optimal. Although the number of hospital beds per 1,000 population varies significantly by state and census division, all areas of the country have far too many hospital beds. To the extent such variation is reduced or eliminated, excess beds will probably increase in the next 10 to 15 years. For example, if hospitals nationwide reduce usage to the levels already reached in California and several other western states, as many as 610,000 (65 percent) community hospital beds could become excess even with projected population growth. The Pew Health Professions Commission estimated in 1996 that over 60 percent of hospital beds may be excess and that as many as half of the nation’s hospitals may close. Defining excess capacity as the difference between operating beds and the number of beds that would be needed to meet demand at the 85-percent occupancy level indicates that 26 percent (228,000) of the approximately 873,000 community hospital beds were excess in 1995. This is nearly double the excess capacity estimated in 1975 using this method. During the 20-year period, the number of operating beds in community hospitals dropped by 69,000, but the ADC dropped by 158,000. By 1995, community hospitals’ occupancy rate had declined to under 63 percent. All but three states (Delaware, New York, and Hawaii) in 1995 had more than 10 percent of excess beds. Seven states (Alaska, Kansas, Oklahoma, Oregon, Texas, Utah, and Wyoming) had more than 35 percent of excess beds. On the basis of an 85-percent target occupancy rate, excess capacity ranged from 12 percent in the Middle Atlantic states to about 35 percent in the West South Central states and 32 percent in the Mountain states. As previously discussed, people in the Middle Atlantic states use roughly twice as much hospital care as do those in the Mountain states. Appendix III contains additional information on excess capacity by census division and state under the target occupancy rate approach. Estimating excess capacity using the target occupancy rate approach has become increasingly problematic because of inconsistencies in hospitals reporting a number of beds they have. Specifically, some hospitals report how many beds they are licensed to operate; others report staffed and operating beds. This can significantly affect estimates of excess capacity. Consider the following illustration: Hospital A is licensed to operate 100 beds but is normally staffed to operate only 50 beds. The hospital has an ADC of 45 patients. If it provides American Hospital Association (AHA) data on the number of licensed beds it has, then it has an occupancy rate of 45 percent and 40 excess beds. If, however, the hospital reports the average number of staffed and operating beds, then it has an occupancy rate of 90 percent and no excess capacity. Because of inconsistencies in hospitals’ reporting the number of beds, AHA discontinued reporting occupancy rates in 1995. Implementation of prospective payment systems, use of preadmission certification requirements, and expansion of HMOs and other managed care organizations have reduced the amount of medically unnecessary care provided by community hospitals. On the other hand, as previously discussed, states in which HMOs and PPOs have significantly penetrated the market tend to have lower rates of hospital use, suggesting that further reductions are possible. Assuming that 10 percent of the days of care provided by community hospitals nationally are medically unnecessary, an additional 65,000 beds beyond the 228,000 excess beds estimated using the target occupancy rate approach would be considered excess. Moreover, assuming that 20 percent of community hospital days of care are medically unnecessary, 357,000 hospital beds would be estimated to be excess. By 1990, the Institute of Medicine’s 1976 goal for reducing the number of community hospital beds to four beds per 1,000 population had been met, and, by 1995, the number of community beds had fallen to 3.3 per 1,000 population. Hospital demand, however, averaged only about 2.1 beds per 1,000 population that same year. As occupancy rates continue to fall, researchers are once again considering what the appropriate target should be. For example, one market forecaster from California indicated that hospital use in California is below 45 percent of licensed capacity and that hospital demand currently averages only 1.1 beds per 1,000 population. The forecaster estimated that, in California, demand for hospital beds will drop to 0.8 bed per 1,000 population from 2000 to 2005. Recognizing the continued shift of care from hospitals to outpatient and other more cost-effective settings and the development of new technologies and medical practices that preclude or shorten hospital stays, we chose two targets—two beds per 1,000 population and one bed per 1,000 population—to estimate future bed needs. The two beds per 1,000 population target assumes that further reductions in hospital admissions and lengths of stay will be minimal—current hospital demand averages 2.1 beds per 1,000 population. The one bed per 1,000 population target assumes more significant reductions in future demand such that demand nationally would be slightly lower than current demand in Alaska, Utah, and Washington—1.1 beds per 1,000 population—but higher than the projected future demand in California mentioned above—0.8 bed per 1,000 population. At a target of two beds per 1,000 population, about 347,000 community hospital beds could be considered in excess of need using 1995 population data. Because the number of operating beds as well as hospital usage differ widely by state, to reduce excess beds to the target of two beds per 1,000 population (using 1995 population data) would necessitate closing about half the hospital beds in the Middle Atlantic, East South Central, and West South Central states. In contrast, Pacific states could reach this target by closing only about 14 percent of their community hospital beds. Hospital use in 18 states, primarily in the Mountain and Pacific census divisions, is already below the level needed to support two hospital beds per 1,000 population. Assuming that hospital use in those states does not increase to the national average, we substituted the estimate of current excess capacity derived from the target occupancy rate approach for the lower estimate of excess capacity derived from applying the two beds per 1,000 population target. This adjustment increases the overall estimate of excess beds to about 370,000 or about 42 percent of the operating beds in 1995. Population growth—assuming no new hospital beds are added—will reduce the excess capacity from 370,000 beds to about 272,000 beds by 2010. Adding projected population growth lowers the estimates of excess capacity in all census divisions but most affects the South Atlantic, Mountain, and Pacific states. In other areas, such as the Middle Atlantic and New England states, population growth is not expected to significantly reduce excess capacity. We estimated that at a target of one bed per 1,000 population (using 1995 population data), about 610,000 community hospital beds would be excess. Population growth—again assuming no added capacity—would reduce excess beds to about 572,000 by 2010. Appendix IV contains detailed estimates by census division and state based on 1995 population; appendix V contains estimates based on projected 2010 population. A number of previous studies have also predicted dramatic declines in community hospital beds in the next 5 to 10 years. For example, a 1995 survey of hospital executives suggested that the number of community hospital beds will probably decline in the next decade at an average rate of 5 percent per year. Similarly, the Pew Health Professions Commission, in a 1995 study, predicted that health care will continue to shift from a supply orientation to a demand-driven system, resulting in as many as half of the nation’s hospitals closing and the loss of perhaps 60 percent of hospital beds. Finally, the health research organization, Interstudy, predicted that 40 percent of all U.S. hospitals could be closed, merged, or converted to other uses by the year 2000. As in the private sector, VA hospitals also have excess beds. About 14 percent of VA hospital beds exceeded demand in fiscal year 1995, but more than 80 percent could exceed demand if VA can reduce hospital use systemwide to the level already achieved by its Northern California Health Care System (NCHCS). This system closed over 5,000 beds in fiscal year 1996, bringing the total beds closed to over 38,000 since 1980. Veterans’ use of VA hospitals varies significantly by VISN just as use of community hospitals varies by census division and state. Defining excess capacity as the difference between operating beds and the number of beds that would be needed to serve the ADC at an 85-percent occupancy level indicates that VA had only about 7,300 excess hospital beds in fiscal year 1995, half as many excess beds as it had 5 years earlier. (See table 6.3.) Applying this approach to VISNs suggests that among those VISNs with the most excess beds are many that already operate the fewest hospital beds per 1,000 users in the VA system. For example, VISN 18 (Phoenix) and VISN 4 (Pittsburgh) have the same number of excess beds—304—although VISN 18 (Phoenix) operated fewer than half as many beds per 1,000 users. Under this approach, the VISN with the most excess beds is VISN 16 (Jackson) with 844 excess beds; the VISN with the least excess beds is VISN 10 (Cincinnati) with only 105 excess beds. (See app. VIII.) Unlike community hospitals that have felt the effects of prospective payments, preadmission screening, and managed care on the extent of medically unnecessary care for over 10 years, the VA system has only recently focused on reducing medically unnecessary days of care (see ch. 4). As a result, estimates of excess VA hospital beds need to consider the likely effect of efficiency improvements on future bed needs. In 1985, we reported that 43 percent of the medical and surgical days of care in VA hospitals could have been avoided. Since then, a number of studies by VA researchers and VA’s Office of Inspector General (OIG) have found similar problems. For example, a January 1996 VA study reported that about 40 percent of the admissions to acute medical and surgical services were nonacute. The study also reported that about 30 percent of the days of care in the acute medical and surgical services of the VA hospitals reviewed were nonacute. In the study, reviewers from 24 randomly selected VA hospitals assessed the appropriateness of 2,432 fiscal year 1992 admissions to acute medical, surgical, and psychiatry services. The study found similar rates of nonacute admissions and days of care in all 24 hospitals. Many factors accounted for the nonacute admissions, including lack of outpatient care alternatives, conservative physician practices, delays in discharge planning, and social factors such as homelessness and long travel distances. Conservatively assuming that 10 percent of the days of care provided by VA hospitals in fiscal year 1995 were medically unnecessary, 4,353 beds in addition to the 7,252 estimated using the target occupancy rate approach would be considered excess. If, as suggested by VA studies, 40 percent of the days of care were assumed to be medically unnecessary, total excess beds would increase to 24,667, roughly half of VA’s operating beds. (See table 6.4.) Because hospital use varies significantly by hospital and VISN, the same level of medically inappropriate care may not apply in each hospital and VISN. The studies, however, have generally found significant levels of medically unnecessary care at every VA hospital reviewed. Appendix VIII has estimates by VISN of excess beds based on different assumptions about the level of medically unnecessary care. Because the veteran population differs from the general population, the target beds per 1,000 population used to estimate community hospitals’ bed needs does not apply to VA hospitals. For example, private-sector hospitals have cribs and bassinets that VA hospitals do not have; the veteran population excludes children and is predominantly male; VA hospitals include long-term medical and psychiatric beds not generally found in community hospitals; and estimates of community hospital beds already include veterans’ hospital care needs, and most veterans rely on community hospitals for care. As a result, we developed three alternative population-based targets: actual hospital usage generated in VA’s NCHCS, actual hospital usage in VA’s VISN 18 (Phoenix, including Arizona, New Mexico, and parts of Texas), and VA’s national average hospital usage. NCHCS most closely resembles the outpatient-based health care system envisioned for VA’s future. When VA closed its hospital in Martinez, California, in 1991 because of concerns about its safety during a possible earthquake, veterans in NCHCS’ catchment area were left with limited access to hospital and outpatient care. Before its closing, the Martinez hospital had an ADC of 235 patients. A replacement outpatient clinic—which became a prototype for the VA system—opened in November 1992. The clinic included modern outpatient surgery capabilities, sophisticated imaging technology, and attractive surroundings. As a result, much of the care that previously required a hospital admission could now be done on an outpatient basis. VA also reached an agreement with the Air Force that allowed VA to operate 55 beds at the David Grant Air Force Medical Center at Travis Air Force Base, with another 18 “swing” beds available when needed. In addition to the hospital beds at Travis, NCHCS clinics place veterans needing hospital care at other VA hospitals—primarily those at Palo Alto and San Francisco—and, in the case of medical emergencies, in community hospitals. In 1995, the four NCHCS clinics served over 33,000 veterans, providing a total of 338,000 outpatient visits. Veterans served by the four clinics were admitted to hospitals about 2,800 times, primarily for general medicine services but also for surgical, neurological, and psychiatric services. This admission rate, about 85 admissions per 1,000 veterans served, supported an ADC of about 75 beds or about 2 beds per 1,000 veterans served. Assuming an 80-percent occupancy rate, NCHCS needed to operate about 2.5 beds per 1,000 users. This is a conservative estimate of the number of beds VA needed to operate because it (1) assumes an 80-percent rather than an 85-percent occupancy rate and (2) includes use of community hospital beds for emergency care in estimating the need for VA beds. Applying the target of 2.5 beds per 1,000 users to the VA system yields a systemwide need for only about 7,230 hospital beds. Even if VA’s users increase by 20 percent as VA predicts and they generate hospital demand at the same rate as current users, VA would need only 8,676 hospital beds. However, new users attracted through community-based clinics are unlikely to generate as much hospital demand as current users because new users have indicated they are more likely to choose their local hospital rather than a distant VA facility. Reaching this target would require closing about 85 percent of VA’s current operating beds. VA’s VISN 18 (Phoenix) has the least VISN-wide hospital use in the VA system, supporting an ADC of 6 per 1,000 unduplicated veteran users in fiscal year 1995. Assuming an 85-percent occupancy rate, VISN 18 (Phoenix) needs to maintain about seven beds per 1,000 users to support its hospital demand. Applying a target of seven beds per 1,000 users nationally yields a systemwide need for only 20,230 hospital beds to support VA’s 1995 user population. Systemwide, VA had an ADC of 13 beds per 1,000 veteran users in fiscal year 1995. At an average occupancy rate of 85 percent, VA would need to maintain 15 beds per 1,000 veteran users to support this workload. If the VISNs that operated more than 15 beds per 1,000 users reduced their usage to the national average, then 9,445 beds would be considered excess in those VISNs, but no excess beds would be assumed in other VISNs. This is a very conservative approach; each of the VISNs with usage below the national average closed additional hospital beds in fiscal year 1996. In fact, the 11 VISNs with an ADC below the national average closed almost 2,000 beds in fiscal year 1996, about 40 percent of the beds closed in the VA system. VA’s Under Secretary for Health has noted that the traditional general acute care hospital, as an institution, will eventually become a large intensive care unit, taking care of only the sickest and most complicated patients. The Under Secretary has stated that all other medical care will be provided in outpatient care settings, at home, in hospices, or at various types of extended-care facilities. Most of the hospital beds in both VA and the private sector will likely exceed demand within the next 15 years, leading to more closing of both VA and community hospitals. Among the challenges VA faces concerning closing VA hospitals are determining the number of hospital beds it needs and their locations, determining when closing hospitals would be more cost-efficient rather than reducing operating beds, ensuring that community hospitals or other VA hospitals meet veterans’ hospital care needs following closures, minimizing the impact of such decisions on VA employees and the community, and identifying alternative uses for closed facilities. With its expanded authority to sell excess capacity to private-sector health plans, facilities, and providers, the administration also faces difficult decisions about the extent to which demand for care should be expanded before closing a facility. Just as decisions to close VA hospitals affect multiple stakeholders, so too would decisions to more directly compete with community hospitals. Whether the administration proposes to close a VA hospital or expand its market share, developing a process for making changes that adequately considers the needs and concerns of all major stakeholders, including veterans, VA employees, community hospitals, affiliated medical schools, and the community will be a major challenge. To meet current and future demand, VA faces many challenges in determining the number of hospital beds it needs and their locations. VA’s past methods for estimating its bed needs, however, tended not only to build in but expand excess beds by using national rather than local hospital usage. As previously discussed, VA data provide conflicting explanations for the widely varying hospital use among VISNs. Baseline data on the amount of medically necessary hospital care provided by each of its hospitals could enable VA to more effectively plan for the future. Historically, VA has overestimated its hospital bed needs. For example, in its 1984 report, Caring for the Older Veteran, VA developed estimates of what it termed “real need.” In criticizing a more conservative estimate of bed needs developed by the Congressional Budget Office, VA suggested that real need should be measured by applying the use rates from areas of the country with the highest VA hospital use rates to rates in other parts of the country. Using this approach, VA recommended construction of 85,000 additional hospital beds by 1990, even while use of hospital beds was declining. VA estimated that it would need between 134,000 and 246,000 hospital beds by the year 2000. VA used similar approaches in planning specific construction projects, often adding to the number of beds determined through its hospital sizing model. For example, VA tried to add 117 beds to a construction project at the Atlanta medical center on the basis of anticipated workload increases. The Office of Management and Budget, however, determined that the VA hospital sizing model had already accounted for the factors VA was using to justify the additional beds and directed that the project be scaled back. VA used the concept of “suppressed demand” to justify hospital projects in Hawaii, Northern California, and East Central Florida that would have exceeded demand. For example, VA decided that it needed to build a new hospital in East Central Florida largely on the basis of an analysis that showed that the number of VA hospital beds available for Florida veterans was below the national average—about 1.40 beds per 1,000 Florida veterans compared with 2.02 beds per 1,000 veterans nationwide. Our analysis, however, suggested that Florida veterans’ lower use of VA hospitals was likely caused, at least in part, by differences in Florida veterans’ health and economic status and insurance coverage and those of veterans nationwide. VA has subsequently developed plans to meet central Florida veterans’ needs without building a new hospital. VA also added beds to a proposed joint venture construction project at Tripler Army Medical Center in Hawaii on the basis of perceived suppressed demand. VA compared Hawaii veterans’ rate of VA hospital use with that of mainland veterans and found that veterans were hospitalized in Hawaii at only 43 percent of the national rate. VA added 27 beds to the proposed 105-bed facility on the basis of suppressed demand. As in Florida, VA did not adequately evaluate other possible explanations for the lower-than-average use of VA health care services by Hawaii veterans. For example, it did not consider the extent to which military retirees dually eligible for VA and DOD benefits were using their DOD benefits. More importantly, it did not consider the extent to which veterans in Hawaii had other health care options and therefore did not seek VA care. Hawaii has one of the highest percentages of residents in the country with health insurance. Veterans without health insurance are eight times more likely to use VA hospitals than are veterans with insurance. VA subsequently determined that the Tripler Army Medical Center would not need the additional 27 beds to meet demand for beds. VA’s performance measures for fiscal year 1997 essentially take the most conservative approach for measuring excess VA hospital beds—target occupancy rates. VISNs are expected to close only beds that exceed the need for meeting current demand at an 85-percent occupancy level. In other words, they do not assess the medical appropriateness of the care provided in occupied beds to determine the number of additional beds to be closed and patients shifted to other care settings. Because VA’s performance measures and VERA data give conflicting views of the role such factors as health status, medical practice, and HMO market penetration play in the varying use of VA hospital beds, an assessment of the medically necessary care provided by each facility could serve as a baseline for decision-making. Although researchers have studied the nonacute admissions and days of care at selected VA hospitals, their studies have not reported results for individual hospitals or reviewed all of the hospital beds at a facility. The studies, however, reported wide variation in the numbers of nonacute admissions and days of care provided by the hospitals reviewed. For example, one study reported nonacute admissions in 50 randomly selected VA hospitals ranging from 25 to 72 percent. Basing decisions on current utilization data without determining the appropriateness of the data overstates the beds VA needs to operate an efficient health care system. Baseline data on the numbers of medically necessary admissions and days of care are important because they both establish targets for efficiency improvements and provide the essential workload data for decisions about hospital closures and service consolidations. Similarly, assessments of the potential to deinstitutionalize psychiatric patients could provide baseline data for determining the future need for psychiatric beds. Such baseline data would essentially determine the extent to which differences in health status or medical practice contribute to higher hospital use rates in some VISNs. The apparent correlation between the rates of VA and community hospital use by census division/VISN suggests that factors other than differences in efficiency contribute to varying hospital use rates. The extent to which variation caused by factors such as differences in medical practice can be reduced is not clear, but the wide variation that still exists in hospital use rates in the private sector suggests that conforming medical practice will be difficult. On the other hand, the generally lower rates of hospital use in areas with high concentrations of managed care enrollment suggest that, given the right incentives, physicians will change their practice patterns. VA and the private sector have reacted very differently to declining inpatient workload. In the private sector, hundreds of hospitals have been closed in the last 10 years. VA, however, has not closed any hospitals because of declining use, choosing instead to reduce the number of operating beds or close particular services such as inpatient surgery. This process, however, often leaves VA operating only a small part of a hospital’s capacity. Closing beds clearly results in some savings by reducing staffing costs. But, with fewer patients over whom to distribute the fixed costs of operating a facility, the cost per patient treated rises. At some point, it becomes more cost-effective to close a hospital and provide care either through another VA hospital or through contracts with community hospitals. VA demonstrated the feasibility of closing underused hospitals when it closed the Sepulveda, California, VA medical center in 1995 after it suffered earthquake damage. The workload from the Sepulveda hospital was transferred to the West Los Angeles medical center. VA’s OIG had found that the reported numbers of inpatients treated at both Sepulveda and West Los Angeles had declined significantly in the prior 4-year period and that the workload may have been even less than VA reported because VA had overstated it. VA does not plan to rebuild the Sepulveda hospital but plans to establish an expanded outpatient clinic there. The OIG concluded that the West Los Angeles medical center had sufficient resources to care for the hospital needs of veterans formerly using the Sepulveda hospital. The only other hospital VA has closed in the last 25 years is the Martinez, California, medical center. Like Sepulveda, it was closed because of seismic deficiencies and its workload transferred to other VA medical centers. Before closing, the Martinez hospital had an ADC of about 240 patients. VA developed plans to replace the hospital as a joint venture with DOD at the David Grant Medical Center at Travis Air Force Base. VA planned to operate 243 beds in the new hospital. Last year, we reported that this construction project was not needed because existing VA and community hospitals could meet VA’s current and future need for hospital beds. A congressionally mandated evaluation of veterans’ health care in northern California reached the same conclusion. As a result, VA ceased plans to construct new beds at Travis and instead developed plans to use existing VA and community beds and has 55 beds at a former DOD medical facility in Sacramento. Nonetheless, closing hospitals and contracting for care entail some risk. Allowing veterans to obtain free hospital care in community hospitals closer to their homes could increase demand for VA-supported hospital care, offsetting any savings from contracting. To the extent that new demand is generated by veterans who lack other health care options, contracting could improve the health status of veterans. On the other hand, if the demand is generated mainly by insured veterans seeking a health care option with lower out-of-pocket payments, contracting could increase costs without significantly improving veterans’ health status. VA wants to ensure that closing a VA hospital does not result in veterans losing accessibility to care either through other VA facilities or through community hospitals. Studies performed at VA and public hospitals indicate, however, that when facilities are closed or access is restricted, patients do not always seek alternative sources of care. Researchers have reported that reduced access to care adversely affects some patients’ health. For example, one study found that patients previously served by a public hospital “had difficulty finding new health care providers, waited longer for routine medical care, and felt that the availability of hospital services had decreased.” A second study reported that among the veterans examined, “the general health perceptions and functional status of discharged patients had worsened when compared with non-discharged patients . . . . Among previously hypertensive patients who were discharged found statistically and clinically significant elevations in blood pressure.” A third study found that, “mong those who stop using the VA [because they were found ineligible for VA outpatient care], many do not receive any medical care or obtain a regular provider within the first 9 months after their release from the VA system.” In addition, our 1992 study of the closure of the Martinez VA medical center found that VA had not developed plans or procedures for referring VA patients to other VA hospitals before it announced the emergency closing of the center. The problems VA encountered after the Martinez hospital closure—while understandable because the hospital closed due to an emergency—highlight the need for planning to ensure that patients affected by future hospital closures can obtain needed hospital services through community or VA hospitals. In some rural communities, VA may need to maintain a small VA hospital because no community hospitals are nearby. In such cases, VA might improve health care services not only to veterans but to the general community by opening its doors to nonveterans. The expanded workload might lower per patient costs by better using excess capacity and improve quality of care by broadening the type of patients served. The administration and the Congress will also have to decide what to do with any hospitals that are closed. One option is to convert VA hospitals to provide nursing home or other types of care. Although converting space to provide nursing home care is often cheaper than building a new facility, converting hospital beds to other uses would increase costs. Construction funds would be needed for the conversions, and medical care funds would be needed for the new nursing home residents in formerly empty beds. Nursing home care is a discretionary benefit for all veterans, including those with service-connected disabilities. Such care is, however, one of the main health care needs of the growing elderly population. Another option would be to convert part of a hospital to another use while leaving the rest of the building as a hospital. Such use—whether patient care or nonpatient care related—would reduce the costs for providing hospital care by distributing the building’s fixed costs over a larger user base. In addition to converting unused wards to provide nursing home care, space could be leased to public or private health care organizations, veterans service organizations, or others to generate revenues to help offset the high costs of maintaining a small inpatient unit in a large building. A third option would be to sell or otherwise dispose of the property. Some properties have strong potential for commercial development. Sale of such properties might raise enough revenue to make it profitable for VA to relocate nonhospital services. Other properties, particularly those in rural areas, may not be commercially valuable, and it might be cost-effective to retain such properties for outpatient clinics and other nonhospital services. Still other properties might be made available to state and local governments for use as nursing homes, homeless shelters, or other purposes. One way to avoid closing VA hospitals would be to increase demand for VA hospital care, which involves two basic approaches. First, VA could compete to increase its market share of the veteran population. Second, VA could use its excess hospital capacity to serve veterans’ dependents or other nonveterans. Either approach has significant implications for the communities in which VA hospitals operate. For example, increasing demand for VA hospital care would probably decrease demand for community hospital care unless VA targeted only those users with unmet hospital care needs. By competing with nearby community hospitals for a larger market share, VA could cause the closure of community hospitals. The effect on community hospitals would be greatest if VA would increase workload by competing to treat nonveterans. On the other hand, treating nonveterans in VA hospitals could strengthen VA’s teaching and research missions by broadening the type of patients treated. This was one of the main reasons Australia opened its veterans hospitals to nonveterans. Because decisions either to close VA hospitals or directly compete with private-sector hospitals for a larger market share of the declining inpatient demand would significantly affect veterans, VA employees, community hospitals, and the community in general, it is important to involve all affected parties in the decision-making. Neither VA’s Prescription for Change nor individual VISN strategic plans establish a process to be followed for closing a VA hospital or the extent to which VA should involve the community. Nor do they establish a process for assessing the possible effects of decisions to compete for increased market share. VA hospitals are often one of the main employers in the communities in which they operate. Consequently, closing a VA hospital could significantly affect the community’s economic health and employment rate. For example, an underused community hospital might be able to handle the VA workload if a nearby VA hospital closed. In this case, closing the VA hospital would reduce VA’s costs, provide continued care for veterans in the community, and improve the financial viability of the community hospital. Unfortunately, VISN strategic plans have little or no information on the availability or financial status of the community hospitals located near VA hospitals that could illuminate decisions about closing VA hospitals. The Congress established a process that was used for closing military bases in 1991, 1993, and 1994. An eight-person commission was established to review closure recommendations that were to be made, in part, on the basis of published criteria. Some of these criteria addressed cost implications to the government, economic and environmental impacts on communities, and the ability of communities’ infrastructure to support the proposed changes. Members of the Congress from districts affected by base closures and realignments had an opportunity to play an active part in the commission’s fact-finding and public hearing process. Ultimately, however, the Congress committed to accepting all of the recommendations as a package. Just as decisions to either close a VA hospital or compete with community hospitals for patients would affect nearby community hospitals, so too could changes in community hospitals affect the future of VA hospitals. For example, closure of a community hospital could increase demand for VA hospital care. The effect on VA would be greatest if the hospital had a large charity care workload, were the only other hospital in the community, or were located near the VA hospital. Conversely, opening a new community hospital near a VA hospital could decrease demand for VA hospital care. Similarly, new programs or the procurement of new high-tech equipment by community hospitals could lure patients from VA hospitals. VISN strategic plans have little information about the status and plans of community hospitals located near VA hospitals and the possible effects of their actions on VA. Among the most important changes in response to payment reforms and declining demand for hospital care are changes in how hospitals are managed and in their relationships with other hospitals, other types of health care providers, and health care systems. Specifically, community hospitals are increasingly joining forces with other hospitals to form alliances and networks (horizontally integrating) either locally or nationally; expanding their product lines to include other types of health care services, such as nursing home and home health care, to help generate hospital demand (vertically integrating); hiring outside management to evaluate hospital efficiency and effect needed changes; and improving accounting and information systems to enable managers to identify and eliminate inefficiencies and unprofitable lines of business. Except for hiring outside management, VA is making the same types of changes as community hospitals. In fact, the VA system was both horizontally and vertically integrated long before the concepts gained favor in the private sector. VA is, however, increasingly integrating its hospitals regionally and expanding the range of services provided in part by establishing community-based outpatient clinics (CBOC). In addition, VA, like community hospitals, is implementing new accounting and information systems. VA faces many important issues and challenges in changing the management of its hospitals. For example, in forming alliances as networks, VA faces choices between limiting networks to VA hospitals or having VA hospitals network with DOD and community hospitals to improve accessibility of VA-supported care. Similarly, considerable uncertainty exists about the effectiveness of VA’s strategy for increasing demand for hospital care by establishing CBOCs far from VA hospitals. Such actions can improve accessibility of VA outpatient care but are unlikely to help increase demand for VA hospital care. VA also faces a difficult challenge in ensuring that its management information systems can generate the complete and accurate data Veterans Integrated Service Network (VISN) and hospital managers need both to identify efficiency savings and prevent actions that could compromise the quality of or access to VA hospital care. Finally, VA must decide to what extent it should follow the lead of some community hospitals and test the possibility of contracting for management of one or more of its hospitals. Many community hospitals are forming networks and alliances either locally or nationally. Such horizontal integration includes the merger, consolidation, or other informal pooling of resources by two or more hospitals to meet common objectives. Although VA hospitals have been horizontally integrated under common central office management from the inception of the VA health care system, the hospitals have largely functioned independently. As VA restructures its health care system, however, it is increasingly integrating and consolidating management and both patient and nonpatient care services at nearby hospitals. The term “horizontal integration” includes (1) legal mergers that join hospitals under common ownership, (2) hospitals maintaining separate ownership but forming networks and alliances to lessen duplication of services, and (3) hospitals collaborating to enhance their buying power and lower costs by forming a purchasing cooperative. Although alliances and networks are often formed locally or regionally, legal mergers often involve the formation of national hospital chains such as Columbia/HCA. Horizontal integration is intended to allow hospitals to gain control over markets by working with potential competitors; lessen duplication of services by sharing such services as information systems and laboratory facilities with other nearby hospitals; reduce administrative costs; reduce procurement costs by obtaining volume discounts; and better market their services to employers, managed care plans, and other purchasers. Horizontal integration is expected to allow hospitals to contain overhead costs, provide more efficient patient care, and increase opportunities for managed care contracting. Networks and alliances may also help hospitals market their services by offering employers and insurers “one-stop shopping,” minimizing purchasers’ transaction costs. In addition, hospital networks offer purchasers stability: they can expect access to the same providers each year. Horizontal integration can help hospitals’ marketing efforts by reducing purchasers’ uncertainties about hospitals’ quality of care, the accessibility of hospital care for their beneficiaries, and the availability of a wide range of medical technology. Horizontal integration has increased significantly since 1990, when about 45 percent of community hospitals belonged to some kind of multihospital system. Between 1990 and 1993, 71 hospital mergers took place. In 1994 alone, however, more than 650 hospitals were involved in mergers or acquisitions. This trend continued in 1995, when 447 or about 1 out of every 12 (8.5 percent) of the approximately 5,200 community hospitals nationwide were involved in mergers or acquisitions. In addition, four large corporate deals increased the total number of hospitals involved in mergers to over 900 or about 1 in 6 community hospitals. Eighty-one percent of 1,200 acute-care hospital executives surveyed by Deloitte & Touche in 1994 predicted that their hospitals would join a network within 5 years. To remain competitive and reduce costs, their hospitals would join a network to share such services as information systems and laboratory facilities, according to these executives. Horizontal integration has involved hospitals with different religious affiliations and profit statuses. For example, such mergers have taken place in Denver. Similarly, many community not-for-profit hospitals nationwide are converting to for-profit status as they join or are acquired by chains. VA has been a horizontally integrated hospital system from its inception. Most of its hospitals, however, have operated independently, often competing with other VA hospitals to add new services and equipment, disregarding overall need either within the VA system or the community. By establishing VISNs, however, VA is decentralizing system management. VA is both integrating the administrative management and operations of nearby medical centers to increase efficiency and consolidating services at fewer locations. In addition, some VISNs are beginning to review more closely their role in the community. In March 1995, VA submitted to the Congress a plan, its Vision for Change, to restructure its health care system from a centralized system with four regional offices to a decentralized system with 22 VISNs. The Congress approved the plan on September 5, 1995. According to Vision for Change, a VISN is designed to be the basic budgetary and planning unit of the veteran health care system. It is intended to reflect the Veterans Health Administration’s (VHA) natural patient referral patterns, numbers of beneficiaries and facilities needed to support and provide primary, secondary, and tertiary care, and, to a lesser extent, political jurisdictional boundaries such as state borders. Under the VISN model, health care is intended to be provided through strategic alliances among VA medical centers and other government providers and other such relationships. Facility integrations are a critical part of VA’s nationwide strategy to restructure field operations. By mid-1997, VA had approved the management integration of VA facilities in 18 geographic areas. A task force VA had established in 1994 to examine ways to achieve efficiencies in the VA health care system had identified about 30 potential management consolidations of geographically close medical centers that have complementary missions. The Under Secretary for Health’s March 1996 Prescription for Change identified a series of actions to restructure VA facilities or their management to reduce administrative costs and increase resources devoted to direct patient care. In addition to completing the ongoing facility integrations, the Prescription outlined actions to support additional facility management mergers and clinical or support service consolidations; promulgate screening criteria for potentially realigning facilities and seek opportunities to restructure processes to best align resources; change personnel policies to give VISNs the authority to tailor their develop a network business plan, including a 1-year tactical plan, a 2- to 3-year strategic plan, and 5-year strategic targets; and develop a systemwide business plan based on input from the VISN plans. VA has implemented or is implementing many actions outlined in the Prescription. For example, since the 8 initial management integrations, central office has approved 11 additional integrations. Similarly, in September 1995, VA established the “Criteria for Potential Realignment [CPR] of VHA Facilities and Programs,” also referred to as the “CPR List.” Other actions VA has completed include delegating to field managers authority to conduct (1) reductions-in-force for title 5 personnel and (2) staffing adjustments for title 38 personnel. Finally, VISNs submitted their initial strategic plans to VA’s central office in fall 1996, and they were included in the VHA section of the overall strategic plan. Many of the VISN strategic plans address consolidating specific services: VISN 3 (Bronx) plans to consolidate many of the laboratory services now provided separately by the Lyons and East Orange medical centers. It plans to similarly consolidate services at the Bronx and Castle Point medical centers. VISN 5 (Baltimore) consolidated all cardiac surgery at the Washington, D.C., VA medical center and all neurosurgery at the Baltimore medical center. VISN 7 (Atlanta) plans to consolidate surgical services now provided at both the Montgomery and Tuskegee medical centers at Montgomery. We are now reviewing VA’s efforts to integrate the two facilities. VISN 8 (Bay Pines) contracted for a study of the feasibility of integrating clinical programs, support services, and the management of its Lake City and Gainesville medical centers. In addition, VISN 8 (Bay Pines) consolidated laundry services for the Miami and West Palm Beach medical centers at West Palm Beach to provide additional outpatient care space at the Miami medical center. Similarly, the VISN consolidated warehousing for the Tampa and Bay Pines medical centers at Bay Pines to make additional outpatient care space available at the Tampa medical center. The network may also consolidate food service operations for the two medical centers. VISN 10 (Cincinnati) is considering consolidating five laboratories into one or two to attain economies of scale. VISN 12 (Chicago) plans to integrate and consolidate clinical and support services where such actions will yield savings and improve patient care. For example, it has task groups exploring the feasibility of consolidating cardiac surgery and neurosurgery programs. Two VISNs’ business plans indicated that they have no plans to consolidate facilities because of the distances between their facilities. For example, the VISN 6 (Durham) plan indicated that all of its medical centers are separated by distances requiring from 1 to 5 hours of driving time. Similarly, the VISN 9 (Nashville) plan indicated that the network is considering no facility consolidations because of the geographic dispersion and clinical mix of the network’s facilities. In addition to focusing on integrating and consolidating VA facilities, VA’s Prescription for Change calls for establishing strategic partnerships with other government health care providers and the private sector through the use of sharing agreements. Among other things, the CPR List provides guidance on contracting for services from community hospitals rather than providing them directly. Neither the CPR List nor the Prescription, however, specifically addresses the possible integration of VA facilities with local networks or alliances with non-VA hospitals. Eleven VISN strategic plans mention efforts to integrate VA facilities with community providers or contract for community hospital care: Several alliances of community hospitals have approached VISN 3 (Bronx) about joining them to form a single provider network for veterans and their families. The VISN’s plan, however, does not indicate whether the network expects to pursue such an alliance. VISN 13’s (Minneapolis) plan indicated that its four Minnesota medical centers hope to create a Minnesota VA Health Plan that will contract with local community health care providers to offer primary and emergency care for eligible enrolled veterans. VISN 14 (Omaha) is considering closing the inpatient hospital medical care and intermediate care units at Grand Island and Lincoln and pursuing contracts with community hospitals to provide acute inpatient care to VA users requiring such care. VISN 19’s (Denver) Cheyenne medical center plans to close its surgical unit because of low utilization and contract for surgical care from a community hospital. VISN 20’s (Portland) plan discussed its goal of making the network a health care organization providing services either in the network’s own facilities or in contract facilities. Other VISN strategic plans, however, mentioned little or nothing about integrating VA facilities with non-VA hospitals in their community. Thirteen VISN plans mentioned sharing agreements with other government facilities and medical school affiliates. Although horizontal integration is expected to allow hospitals to achieve service efficiencies, little systematic evidence exists to support this view. Studies of California’s local hospital systems in the late 1980s and early 1990s challenged the view that horizontally integrated hospitals produce efficiencies. In a cross-sectional analysis examining high-technology services, cost per admission, administrative costs, and price and cost margins, researchers concluded that hospitals’ benefits from integration derive from marketing efficiencies rather than from production efficiencies. Specifically, researchers found that multihospital systems do not consistently reduce the number of high-tech hospitals in multihospital systems do not generally have lower patient care costs than their unintegrated counterparts, integrated systems are more likely than their unintegrated counterparts to have unusually high administrative costs, and hospital systems still may be profitable if they can generate marketing benefits. Hospitals, these researchers concluded, may also prosper if associated with a teaching hospital, religion, or national chain. Many community hospitals are adding product lines by establishing home health care and expanding outpatient care to increase hospital workload and efficiency and improve marketing. Although such vertical integration is a more recent development in the private sector, most VA hospitals have been part of vertically integrated medical centers for years. VA is further expanding, however, the availability of some services, such as outpatient care, to improve access and increase hospital demand. Under a vertically integrated system, patients may typically be treated as outpatients (prehospital care), admitted to an acute inpatient facility for services that cannot be provided on an outpatient basis, and then transferred to a nursing home or home health care agency (posthospital care). Operating an outpatient clinic allows hospitals to provide services in a lower cost setting and respond to potential demand for inpatient services. Similarly, operating a nursing home or home health agency can make it easier for hospitals to discharge patients from high-cost acute beds by providing them postacute beds that they control. Such strategies can be particularly important under hospital prospective payment systems. This is because the hospital may bill separately for outpatient services and home health and nursing home care that would have been included in the fixed payment if provided in the hospital. Vertical integration may involve a single hospital setting up an outpatient clinic. It may also involve a single hospital converting to a health care system as Detroit’s Henry Ford Hospital did. In 1971, 210 physicians and one outpatient care clinic were affiliated with the Henry Ford Hospital. Supported by a grant from the Ford Foundation, by 1980, the system had grown to include a 350-physician group practice, five medical centers, and an education and research center. After implementing a 10-year strategic plan, the Henry Ford Health Care System grew to include 35 outpatient care centers, an 800-member multispecialty physician group, a 450,000-member HMO, a 903-bed tertiary care hospital, a 100-bed psychiatric facility, a chemical dependency program, two nursing homes, and home health services. By providing a continuum of care, hospitals expect to increase profits, control patient flow, and achieve maximum market penetration. Providing a continuum of care allows hospitals to compete for inpatient referrals through the primary sources of admissions to community hospitals: community-based physicians, provider networks, and managed care systems. Moreover, by offering more services, hospitals expect to more effectively compete for contracts with physician networks and managed care systems. A 1995 survey of over 500 hospital executives found that most viewed vertical integration as offering the best chance for survival over the next decade. About 63 percent of the executives said that expanding external services (such as home health care and community outreach programs) offered the most hope for hospital survival—compared with just 30 percent of executives in 1990. Meanwhile, the executives were less likely to view expanding hospital-based outpatient services as important to hospital survival (44 percent in 1990 compared with 28 percent in 1995). Executives’ views of the benefits of offering specialized services as a survival strategy dramatically changed from 1990 to 1995. Of the hospital executives surveyed in 1990, 20 percent viewed such specialization as vital to survival. In 1995, however, only 8 percent viewed offering specialized services as an important survival strategy. Vertical integration has greatly increased since the early 1970s. According to the American Hospital Association, between 1972 and 1990, the percentage of acute care hospitals offering home health services increased from 6.2 to 35.5 percent, operating nursing homes increased from 8.6 to 21.0 percent, and operating an outpatient clinic increased from 27.5 to 85.2 percent. As a vertically integrated system, the VA health care system has for many years offered, in addition to hospital care, such services as outpatient, nursing home, domiciliary, and hospital-based home care. In 1996, VA operated, in addition to its 173 hospitals, 398 outpatient clinics, 133 nursing homes, and 40 domiciliaries. It also operated several special- emphasis programs focused on the health care needs of certain veterans, such as those who are homeless and those suffering from post-traumatic stress disorder (PTSD), substance abuse, blindness, acquired immunodeficiency syndrome, or spinal cord injuries. Through these facilities and programs, VA has offered a continuum of care that, even today, community hospitals do not adequately offer. Among the objectives cited in VA’s Prescription for Change is increasing the accessibility of VA services. VA has focused these efforts, however, on developing alternatives to hospital care—actions that would tend to reduce demand for VA hospital care—rather than generate new demand. To improve veterans’ access to VA health care, VHA, in February 1995, encouraged its facilities to establish more “access points,” now known as CBOCs. VA has opened, or developed plans to open, 86 CBOCs during the past 3 years. Although VA’s Prescription for Change indicates that VA was considering opening approximately 275 CBOCs, VA has not determined the exact number of CBOCs it will open. Virtually all VISN strategic plans have indicated that networks will establish additional CBOCs. In addition to establishing CBOCs, VISN strategic plans have identified other initiatives to expand and reinforce the continuum of care offered by the VA health care system: VISN 11 (Ann Arbor) includes community support services in its continuum of care. In addition, the VISN has worked with neighboring VISNs 10 (Cincinnati) and 12 (Chicago) to develop services at state veterans’ homes in those VISNs. VISN 12 (Chicago) plans to expand its continuum of clinical service settings so that patients’ care can be provided in the most cost-effective and clinically appropriate setting. Specifically, the VISN is studying (1) establishing CBOCs and (2) shifting substance abuse and PTSD care to more cost-effective outpatient and residential settings. Researchers, providers, and analysts give vertical integration mixed reviews. Research shows that community hospitals that have established primary care clinics have increased their market share of inpatient services. Similarly, a study of California hospitals found that offering a continuum of care increased revenues—even after inflation. Adding more community-based physicians to the medical staff, providing more outpatient care, and expanding outpatient surgery services increased hospital revenues between 1983 and 1990. Prehospital strategies, such as adding hospital-based outpatient care and surgery, greatly contributed to increasing revenue or at least reducing declining Medicare revenues. Posthospital strategies, such as setting up home health agencies and nursing homes, did not increase revenue as much as the aforementioned practices. In reviewing the vertically integrated Henry Ford Health Care System, the Pew Health Professions Commission concluded that integrated health care systems have the potential to align health care delivery and financing to help improve care, increase patient and customer satisfaction, and reduce or hold costs to a minimum. Others, however, question the benefits of vertical integration. For example, one futurist has warned of the inherent discord in vertically integrated systems. He has noted that hospitals, health plans, and doctors continue to have conflicting motives under our health care system. In his view, integrated health care systems do not create proper incentives. Because they tend to pay salaries to doctors, they destroy physicians’ incentives to share financial risk. And, in his opinion, hospitals that vertically integrate are more concerned with filling beds and increasing revenue than improving care. Concerns have also been raised about vertical integration at the local level. For example, the merger between a 250-doctor clinic and a nearby hospital failed after 4 years. The clinic expected the merger to help it access capital and reduce overhead and enable it to tap into managed care contracts. Instead, according to the clinic’s vice president, the clinic was in ruin after 2 years; all of its midlevel administrators had left, its administrative costs had doubled, and the clinic had not benefited from managed care contracts. The vice president questioned whether physicians and hospitals can truly align their incentives. Researchers also question whether vertical integration increases rather than decreases health care costs. For example, Robinson noted costs are likely to be higher for hospital-owned outpatient, home health, and nursing home services than for comparable nonhospital providers. He noted that hospital-owned facilities tend to have higher wage rates for nurses, technicians, clerical workers, and other staff than wage rates in independent physician offices, nursing homes, and home health agencies. Finally, he noted that hospitals’ practices tend to be more intensive than those of independent nursing homes and physician offices; hospitals therefore have higher costs, even after accounting for wages and other costs. In addition, Robinson noted that a vertically integrated system allows potential for opportunistic cost and revenue accounting because costs may be shifted among inpatient, outpatient, and postacute care divisions.In other words, one segment of a vertically integrated system may be used to subsidize other segments. Many community hospitals have used outside management expertise to help improve efficiency and profitability. Although VA has not contracted out the management of any of its hospitals, it has used outside expertise to manage the VA system. Contract management is an arrangement in which a hospital’s board of trustees retains an outside organization to manage the hospital. The contractor provides an administrator, usually along with an entire management team, to oversee daily hospital operations. This arrangement contrasts with that in which a board of trustees hires an administrator or chief executive officer directly. Contract management is intended to improve the financial performance of hospitals facing possible closure. Contract management is expected to provide hospitals (1) greater management expertise, (2) easier access to capital markets, and (3) lower procurement costs. Contract management can produce lower procurement costs because of the economies of scale provided by joint purchasing with other hospitals managed by the same contractor. Contractors manage over 10 percent of the nation’s community hospitals. Contractors managed 10.4 percent of community hospitals in 1982, and by 1987, this had grown to 12.4 percent. A representative from the Agency for Health Care Policy and Research (AHCPR), which developed the above estimates, indicated that the organization has not developed more recent estimates but believes that contract management is growing. Contract-managed hospitals tend to be small, rural hospitals with fewer technology-intensive services. Contract-managed and noncontract- managed hospitals have like case mixes but appear to have greatly differing financial performances. With at least 2 or more consecutive years of control, contract managers have been able to reduce costs to below those of noncontract hospitals and to substantially improve their hospitals’ capital structure. For example, the salaries and benefits cost per admission for hospitals that had been contract managed for 2 years or more was $2,089 compared with $2,459 for similar hospitals not contract managed. Similarly, the ratio of assets to liabilities for the contract-managed hospitals studied improved from 2.391 after 1 year to 2.897 after 2 or more years of contract management, slightly exceeding the performance of noncontract-managed hospitals. VA has not used contract management for any of its hospitals. As previously discussed, before October 1996 VA was not generally authorized to contract for direct patient care services or services incident to direct patient care. VA officials did not know of VA considering any use of contract management or whether contracting restrictions would have prohibited such contracts. Neither VA’s Vision for Change nor Prescription for Change discussed the hiring of contract management. Nor do any of the VISN business plans directly address the hiring of such management. The VISN 12 (Chicago) plan, however, indicates that the VISN will, if the need arises, recruit management staff with the skills and expertise needed to help accomplish its mission. Although VA has not contracted for management of entire hospitals, it has used management expertise from the private sector in managing the veterans health care system, starting at the top with the Under Secretary for Health. The Under Secretary’s prior experience included running the California Medicaid program (Medi-Cal), the nation’s largest. Similarly, VA selected many VISN directors from outside the VA system. Hospitals and health plans are spending billions of dollars on health care information systems. As in the private sector, VA is developing and implementing both information and financial management systems to provide the data it needs to make sound management decisions. Decision support systems (DSS) provide managers with information on business operations to ease decision-making. In the health care industry, these systems provide managers and clinicians with data on patterns of patient care and patient health outcomes, which can then be used to analyze resource utilization and the cost of providing health care services. Several vendors offer various types of DSSs for the health care industry. Administrators and physicians often have limited information to support efforts to manage product lines and the process of clinical care. Existing information systems usually support only one portion of the health care system such as clinical laboratories and financial reporting systems. No major integration of financial and clinical data systems has taken place. Research on hospital information systems indicates that better integrated financial and clinical information could provide more efficient and effective decision support to both administrators and physicians. For example, the clinical data in the system could support the development and monitoring of practice guidelines and critical pathways. Although cost savings have eluded those that have invested in integrated clinical and financial data systems, such investments have improved provider productivity, medical outcomes, and patient satisfaction. DSSs can compute the costs of services provided to each patient by combining patient-based information on services provided with financial information on the costs and revenue associated with those services. For example, a private-sector hospital performing cataract surgery collects information on the services provided to each patient, including the laboratory tests performed and the medications supplied, through its billing system. The hospital then collects revenue and cost information through its accounting systems, incorporating the collections from the insurance companies and applicable parties, such as Medicare, and expenditures for utilities and equipment. Using a DSS to combine the clinical and financial information from the billing and accounting systems, the hospital can, for example, (1) calculate the specific cost of providing cataract surgery to a patient; (2) compare revenue received to costs incurred to determine profitability of this type of service; (3) compare costs incurred for different physicians and for surgery performed at different locations; (4) evaluate patient outcomes; and (5) analyze ways to increase the quality of service, reduce costs, or increase profitability. DSSs can also help compare patient care with predefined health care standards. DSSs have improved productivity and lowered costs. Responses to a survey published in 1989 also cited service improvement as a major benefit of their systems but seldom mentioned improved quality of care as an additional benefit. A 1992 survey of health care chief executive officers (CEO) found that they viewed DSSs as most critical in supporting cost- control efforts (82 percent), physician-hospital relations (78 percent), quality improvement (66 percent), and managed care (65 percent). For each of these areas, however, 50 percent or less of the CEOs were satisfied with existing DSSs. The CEOs viewed DSSs’ financial reporting capabilities most favorably; over 70 percent were satisfied with existing systems. DSSs are viewed as particularly important as the nation moves increasingly toward managed care, which requires hospitals to integrate their business and clinical operations. For example, an information system for a managed-care system might include the capability to (1) analyze capitation rates, (2) process claims, (3) determine eligibility, (4) manage health care utilization, and (5) credential providers. By 1990, more than 200 vendors were selling DSSs to hospitals. These systems included support for some or all functions of financial planning and modeling, diagnosis-related groups, cost accounting, facility utilization, and strategic marketing. A study by Sheldon Dorenfest Associates found that health care information system spending totaled $8.7 billion in 1995 and would probably reach $11 billion in 1997. In 1996, however, the Healthcare Financial Management Association said that only one in five integrated delivery systems had computerized planning systems that profiled doctors, projected demand, measured outcomes, or tracked patients electronically. In addition, a study by Abt Associates for the Healthcare Financial Management Association found that no integrated U.S. health care delivery network had truly integrated its clinical and financial systems. Networks that have invested money in developing systems have done so without expecting, or getting, cost savings, according to the study. Although savings are elusive, an Abt senior consultant found improvements in provider productivity, medical outcomes, and patient satisfaction. The study cited shorter waiting times resulting from automatic scheduling systems as one example of the benefits of information systems. Like the private sector, VA is working to improve its cost and utilization data. Its information and accounting systems cannot provide detailed information on the specific services VA provides or the cost of those services. VA’s efforts include (1) implementing a DSS, (2) developing a National Patient Care Database, (3) developing a computerized patient medical record, and (4) implementing a new financial management system. Since February 1994, VA has been phasing in at its facilities a new DSS that uses commercially available software to help provide managers data on patterns of care as well as their resource and cost implications. This DSS fundamentally differs from existing VA databases because it organizes each patient’s selected resource utilization and clinical outcome data in a longitudinal format. This, according to VA, allows the Department to evaluate patterns of care for a user-defined patient population for an extended time period beyond a specific episode or care site. The DSS receives input from diverse data systems and consistently allocates specific costs, including personnel, supplies, and fixed overhead, to each patient service or procedure. The DSS, by combining patterns of patient resource utilization (cost) information and patient outcome (quality), reflects the value of patient care delivered by VA. As of March 1996, 68 VA medical centers were in various stages of implementing DSS. VA’s Prescription for Change called for 30 additional centers to be added to the DSS every 6 months until implementation is complete. Subsequently, VA accelerated DSS implementation, and the remaining centers began implementing DSS in March 1997. Consistent with guidance provided in the Prescription, more than half the VISN strategic plans address DSS implementation. Only VISN 11’s (Ann Arbor) business plan, however, identifies efforts to ensure the integrity and validity of data entered in DSS. VISN 11’s (Ann Arbor) and VISN 12’s (Chicago) plans also have more detailed information on potential uses of DSS data for comparative analyses than other plans. Many of the VISNs’ plans indicate that networks are developing separate information system plans. VA’s Prescription for Change also called for establishing linkages between VA data systems and other public health care programs such as Medicare and Medicaid. It noted that VHA participated in the National Committee on Vital and Health Statistics’ Core Data Elements Project sponsored by the National Center for Health Statistics. VA is also developing a National Patient Care Database. Several systems are now used to gather clinical workload data. For example, VA has separate databases with inpatient (patient treatment file) and outpatient care (outpatient file) data. This limits the amount of information on services provided to individual patients according to the database. As a result, the current systems do not provide the data VA needs to support broader management, medical resource management, and policy decisions. VA’s current outpatient file is inadequate to meet VA’s needs for clinical and management information. The outpatient file has information on specific clinic stops but not on the diagnoses made, services provided, or physicians or other clinicians providing services. In addition, the data VA collects are not compatible with those collected by the Health Care Financing Administration (HCFA) or other health care programs, making it difficult to compare VA with other programs in efficiency or quality. To address these problems, the Under Secretary for Health required VA facilities to gather, beginning in October 1996, certain information to receive workload “credit” for outpatient visits. VA developed a new encounter form to gather data on patient demographics, diagnoses, procedures performed, and providers. In completing these forms, VA facilities must use the same coding and terminology typically used by HCFA and the private sector, including diagnostic and procedure codes. The National Patient Care Database is expected to eliminate fragmented and overlapping data systems, resolve inconsistencies in current data systems, implement standard-based codes and data sets, move the focus from the program to the patient, and improve the timeliness of data. VA is developing the National Patient Care Database in two phases. In 1997, it collected outpatient care data; in 1998, it began adding inpatient data. In addition, according to VA’s Prescription, VHA plans to work more with the National Library of Medicine’s electronic medical record system cooperative project to conduct large-scale testing of vocabularies for computer-based patient records. Similarly, many VISN strategic plans identify developing computerized patient records as a goal. Finally, the Prescription called for the design of a management information system that would track and link care to individual caregivers throughout the VA system. VA established a National Provider Index that identifies caregivers and links them to patient care. The information is being incorporated into the DSS and National Patient Care Database. VA replaced its former accounting system with the new Financial Management System (FMS) using upgraded technology and the governmentwide standard general ledger structure. According to VA officials, FMS is a tool to help VA improve its financial management and internal controls. Many issues need to be addressed about VA’s efforts to change its hospitals’ management and their relationships with other providers. These issues involve horizontal and vertical integration as well as contract management issues. Traditionally, almost all veterans provided hospital care through the VA system have been expected to use VA-operated facilities. In establishing its 22 VISNs, VA horizontally integrated into networks with 4 to 11 VA hospitals in broad geographic areas. VA therefore expects veterans to be able to obtain virtually any health care service through referral to a network hospital. VA’s hospitals and clinics, however, are often located hundreds of miles apart, making referrals between them problematic. Horizontal integration in the private sector usually involves referral networks of hospitals and other nearby facilities. The referral networks established by VISNs, however, often cover vast distances. VISN 5 (Baltimore), one of the smaller VISNs geographically, includes hospitals in Washington, D.C.; Martinsburg, West Virginia; and Baltimore, Maryland (a total of three hospitals). (See fig. 7.2.) The distances between Martinsburg and Washington, D.C., (about 90 miles) and Martinsburg and Baltimore (about 95 miles) raise questions about the extent to which patients needing services not available at the Martinsburg hospital are expected to obtain those services from VA hospitals in Washington, D.C., or Baltimore. Such referrals are necessary if community hospitals in Martinsburg or nearby cities such as Hagerstown, Maryland, cannot provide the services. But, for services available from community hospitals, referral to a distant VA medical center may create unnecessary hardships for veterans and their families. VISN strategic plans, however, have little information on the community hospital services available and the relative cost of providing services through contracts with such hospitals compared with the cost of referring a patient to the nearest VA hospital that can offer the services (including any transportation and lodging costs). By integrating its hospitals with non-VA hospitals in their communities, VISNs might be able to establish referral patterns comparable with those of community hospitals. For example, the Washington, D.C., medical center could form a referral network with the four Washington area military hospitals to improve the two systems’ beneficiaries’ access to hospital services. (See fig. 7.3.) VA hospitals would need to address the following issues before joining a local network: To what extent would the network help increase demand for VA-supported hospital care? Can the VA hospital support additional workload without compromising services for veterans? Would VA be able to generate enough revenues from selling services to military and community hospitals in the network to offset the increased contracting costs? To what extent would current VA hospital users shift their use to other, more convenient, military or community hospitals in the network? To what extent can VA reach agreements to consolidate specialized services in fewer locations to increase efficiency and quality? Another potential advantage of VA hospitals joining local networks would be VA’s increased consideration of the health care capacity and needs of local communities in its planning. For example, VA could reach agreements with community hospitals about the proliferation of high-technology equipment. Similarly, in placing expensive new equipment in the VA system, VA could consider the extent to which the equipment could serve the community as well as veterans. VISN strategic plans, however, generally do not address the health care capacity and needs of the communities with VA hospitals. One approach that might increase veterans’ access to more convenient community or military hospitals but preserve veterans’ incentives to use VA hospitals would be to impose higher veteran cost sharing for services obtained from non-VA hospitals. In effect, VA would be establishing a point-of-service plan, allowing veterans to obtain care from any willing provider but paying for more of the cost of the care if it is obtained from a preferred provider (a VA hospital) or participating provider (other network hospital). As of July 1997, VA had initiated integrations in 18 geographic areas with five reported as completed. VA indicates the integrations are having positive results. VA has, however, had difficulties planning and implementing some of the integrations. Our ongoing work has revealed areas where improvements could be made. For example, VA generally makes integration decisions incrementally, that is, on a service-by-service basis throughout the process instead of on the basis of decisions affecting all activities in integrated facilities. Also, planning and implementation activities often take place simultaneously, which precludes VA’s considering the collective effect of such changes on the integration. In addition, stakeholders, though involved at varying times in different ways, do not always receive sufficient information at key decision points. Our work suggests that as VA considers ways to improve its facility integration process, several actions might facilitate better results. These include adopting a more comprehensive planning approach, completing planning before implementing changes, improving the timeliness and effectiveness of communications with stakeholders, and using a more independent planning approach. Considerable uncertainty surrounds the potential effects of VA’s vertical integration efforts on future demand for VA hospital care. Because VA has been a vertically integrated health care system for many years, it may have already reaped many of vertical integration’s benefits. For example, community hospitals expect to retain or increase demand for hospital care by operating nursing homes and home health agencies. VA, however, has both operated nursing homes and contracted for nursing home care in the private sector since the 1960s. Transfers between these nursing homes and VA hospitals have long generated a portion of VA’s hospital demand. One way for VA to increase hospital demand would be to expand its nursing home program, either by establishing additional VA nursing homes or contracts with community nursing homes. Such actions would, however, require significant new VA resources to only slightly increase hospital admissions. Changes need to be made in the financing of VA nursing home care. Veteran cost sharing provides less than 1 percent of the cost of providing VA-supported nursing home care. On the other hand, expanding the availability of nursing home care would help bridge the gap in health care coverage for elderly veterans. The second major issue concerning vertical integration is the extent to which CBOCs may generate new demand for VA hospital care. Many CBOCs are located far (often over 50 miles) from the nearest VA facility. CBOC physicians are expected to refer veterans needing specialized services or hospital care to a VA hospital. Distance from a VA hospital, however, significantly affects the likelihood that veterans will seek care from a VA facility. The rate at which veterans use VA hospitals declines significantly at distances of over 5 miles from a VA facility. Thus, the extent to which CBOCs serve veterans who have other health care options through public or private health insurance further reduces the likelihood of VA hospital use. Because VA’s contracting authority did not expand until October 1996, it is too soon to determine its effect on demand for VA hospital care. Use of the authority to contract for hospital and specialized services from private-sector providers to improve veterans’ access to hospital care could further reduce demand for VA hospital care. Our work on other countries’ veterans health care systems found that use of veterans’ hospitals declined once veterans gained access to community hospitals through national health insurance or changes in the veterans’ program to authorize contract care. As discussed, one option that could limit the effect of giving veterans greater access to community hospitals closer to their homes would be to require higher veteran cost sharing for care from non-VA hospitals. One change that community (but not VA) hospitals have tried is contracting for outside hospital management to restructure operations and improve efficiency. VA could test contract management under several scenarios. For example, because contract management appears to have succeeded most in small, rural community hospitals, VA could work with the Congress to develop a pilot program to test contract management at one or more of its small rural hospitals. On the other hand, it could try contract management in hospitals facing significant management challenges. Similarly, VA could use outside management to plan and implement facility integrations. In designing such demonstration projects, however, VA would need to establish evaluation plans to determine the effects both on efficiency and quality of care. In other words, it would need to ensure that the contractor did not increase efficiency by compromising quality of care. While the DSS may significantly improve VA’s ability to manage its health care operations, the ultimate usefulness of the system will depend not on the software but on the completeness and accuracy of the data entering the system. If the DSS cannot provide reliable information, VA facilities and VISNs will either continue to make decisions on the basis of unreliable information or spend valuable time developing their own data systems. Two years ago, we recommended that VA develop a strategy to identify data needed to support decision-making and ensure that these data are complete, accurate, consistent, and reconciled monthly. VA’s Prescription for Change advocated swift implementation of the DSS but did not target any actions to ensure that the data and systems entering the DSS could provide complete and accurate data. Similarly, VISN strategic plans generally do not address plans to ensure the completeness and accuracy of data entering the DSS and other data systems. As a result, it is not clear whether the DSS, FMS, and other data systems will generate the reliable data VA needs to support management decisions. VA’s facility integrations create additional challenges for VA data systems. For example, decentralized hospital computer programs at VA facilities have been largely locally developed and may not be compatible with other facilities’ systems. Similarly, VA will have to resolve facilities’ differences in data coding and entry. Both VA and community hospitals face the challenge of reprogramming their computers to recognize the next century. Most computer software in use today is limited to a two-digit date field such as “97” for 1997. Thus, this software will not be able to distinguish between the years 1900 and 2000 because both will be designated “00.” VA’s draft strategic plan states that VA’s objective is to ensure that its information systems will provide uninterrupted service to support VA medical care in the year 2000. The plan includes a performance goal that full implementation and testing of compliant software (that is, software capable of processing dates beyond 1999) will be completed by December 1999. Personnel accounts for over 40 percent of community hospital expenditures. Hospitals are the major employers of nursing staff, including registered nurses, licensed practical nurses, and nursing assistants. Throughout the 1980s, the use of nursing staff, particularly registered nurses, increased steadily, raising costs. By 1992, registered nurses accounted for about 25 percent of hospital employment. The increased demand for and limited supply of registered nurses led to significant wage increases, raising operating costs further. Because personnel accounts for such a large part of hospital costs, any effort to reduce costs must focus on effectively using health care workers. Community hospitals often change their basic work processes to more efficiently use personnel resources. For example, community hospitals are contracting for patient and nonpatient care services when such contracting is less costly than providing the services through the hospital’s staff; using part-time and temporary nurses and other health care professionals to more flexibly meet changing workloads and patient mix; cross-training personnel to perform multiple jobs to more efficiently use developing nurse extender programs to allow nurses to devote more time to direct patient care; and restructuring care delivery around patient-centered teams to increase efficiency and patient satisfaction. In the past, VA has not focused as much as the private sector on work transformation in part because of limitations on its authority to contract for patient care services. VA’s Prescription for Change, however, placed increased emphasis on such concepts as cross-training and patient- centered care. Veterans Integrated Service Network (VISN) strategic plans, however, hardly mention efforts to implement the changes the Prescription calls for. As a result, VA faces many issues concerning the extent to which its hospitals should change work processes. Community hospitals try to control costs by contracting for a wide variety of patient and nonpatient care services. By doing so, hospitals can shift some costs from fixed to variable, allowing them to react to changing workloads. In other words, hospitals using contract services pay only for the services they use. In addition, use of contract employees reduces employee benefits costs. Until recently, VA’s legislative authority did not permit it to contract for patient care services. VA is now, however, increasingly exploring options to contract for both patient and nonpatient care services. Although we found no studies that identify the number or percentage of community hospitals using contract services, annual surveys of hospital executives by Modern Healthcare suggest that this is a growing trend. The services hospitals most frequently contract for include food service, emergency services, housekeeping, laundry, equipment maintenance, and pharmacy services. Between 1994 and 1995, the number of hospitals surveyed that reported using contract services increased, particularly services for emergency room, financial management, equipment maintenance, and physical and rehabilitation therapy. (See table 8.1.) Controlling costs was the main reason chief executive officers (CEO) cited for using contractors to provide support and business services. Nearly 60 percent of the executives responding to Hospitals & Health Networks’ Fifth Annual Contract Management Survey in 1995 cited cost as a reason for contracting for support services; 56 percent cited the need to obtain specialized expertise; 42 percent cited the ability to downsize the workforce. Similarly, slightly more than half of the respondents said that they contract for business services to contain costs and take advantage of vendors’ specialized expertise. Cost was not as much a factor in hospitals’ decisions to contract for clinical services. Respondents most often cited the need to obtain specialized expertise (54 percent) and difficulty in recruiting staff (52 percent) as reasons for contracting for such services. Lack of capital appears to be a major factor in decisions to contract for diagnostic imaging services. A diagnostic imaging contractor provides such services as mobile computed tomography, magnetic resonance imaging, single photon emission computed tomography, ultrasound, and nuclear medicine. Hospitals that cannot afford to purchase, or justify on the basis of workload, such equipment, which may cost $2 million or $3 million, may purchase the service from a contractor. Another reported trend is for contractors to hire hospital employees. For example, when Marriott contracts to provide food service operations, it may hire hospital employees. Contracting for food service operations can save money because contractors generally pay lower wages than hospitals. Overall, hospital executives appeared satisfied with use of contract services. Over 90 percent of hospital executives participating in Hospitals & Health Networks’ 1995 survey were very or generally satisfied with contracts for clinical, support, and business services. More than one-third of the nation’s hospitals regularly use temporary staffing agency personnel. The nursing shortage of the mid-1980s led hospitals to rely on temporary contract nursing staff to meet staffing requirements. Some inner-city hospitals reportedly pay $50 an hour for such personnel. Temporary staffing agencies (1) help hospitals meet staffing shortages and (2) allow nurses flexibility in their work schedules. Hospital administrators like using agency personnel because it avoids the costs of providing insurance and other benefits to permanent employees. On the other hand, permanent employees often complain that use of agency personnel makes it harder to maintain continuity of care. Many also resent the significantly higher hourly wages that agency nurses receive without having to assume the same nonclinical responsibilities as permanent staff. The number of nurses working in independent contract positions is increasing. Despite the increased use and considerable cost of such nurses, we found little information on them. A 1990 survey of registered nurses in Illinois (66,005 out of 117,796 nurses responded), however, found that agency nurses received higher hourly wages but fewer benefits than permanent hospital staff nurses. Hospital staff nurses were more likely than agency nurses to receive pension plans, health and dental insurance, reimbursement for continuing education, child care services, and parking. Historically, VA hospitals have not been allowed to contract for patient and nonpatient care services to the same extent as community hospitals. Now that legislative barriers to such contracting have been removed, VA expects its hospitals to increasingly use contract services when they are less expensive and of equal or better quality. Until fiscal year 1994, VA was, in general, prohibited from contracting for direct patient care services, such as nursing services, which are currently provided by federal employees. Section 8110(c) of title 38 of the U.S. Code generally precluded VA from entering into contracts under which VA direct patient care, or activities incident to direct patient care, would be performed by non-VA personnel. VA interpreted activities such as dietary and laundry services as incident to direct patient care and therefore exempted them from efforts by the Office of Management and Budget to have agencies contract out functions previously performed by federal employees. The Veterans’ Benefits Improvements Act of 1994 (P.L. 103-446, title XI, section 1103) suspended these requirements for fiscal years 1995 to 1999. The Secretary of VA must, however, (1) ensure that contractors give priority to former VA employees displaced by contract awardees and (2) provide former VA employees all possible help in obtaining other federal employment or entering job training programs. In August 1995, the Under Secretary for Health distributed criteria for potentially realigning VA facilities and programs to help field managers identify opportunities for improving efficiency. Several criteria focus on contracting for services when the community offers the same kind of service of equal or better quality at a lower cost. While the criteria present hypothetical examples of situations in which a VA facility would purchase a service from another facility rather than provide it directly, field managers could also interpret the criteria to include situations in which a private contractor would be hired to operate services, such as laundry and food services, within a VA facility. Public Law 104-262, which became law on October 9, 1996, removed additional barriers to expanded VA contracting. Specifically, it (1) expanded the types of professionals and services for which VA may contract, (2) simplified procedures for complying with federal procurement processes when contracting with commercial firms, and (3) permanently eliminated the restriction on contracting for patient care-related services. Several VISN business plans have identified efforts to contract for patient and nonpatient care services using this expanded authority: VISN 7 (Atlanta) plans to purchase laboratory services from more cost-effective non-VA providers. VISN 12 (Chicago) expects to save 40 percent on staffing and 25 percent on other costs by contracting out selected administrative, clinical, and support services. Among the activities the network is considering for contracting are grounds maintenance, warehousing, and fire prevention. VISN 14 (Grand Island) is reevaluating its in-house provision of dialysis services to determine whether it would be less expensive to contract for the services. It is also weighing the possibility of sharing its other dialysis resources with community providers. To cope with rapidly changing workloads and help contain staffing and benefits costs, community hospitals are using more part-time and intermittent nursing employees. Although VA also uses part-time and intermittent employees, such use has declined in the past 5 years. In addition, some community hospitals are developing regional staffing pools to share personnel among facilities. VA officials did not know of any personnel sharing among its facilities but believe integration of VA medical centers may encourage this practice. The use of part-time and intermittent employees provides several advantages as well as disadvantages to both staff and hospitals. First, the use of part-time and intermittent employees can enable hospitals to cost-effectively meet staffing needs due to changes in patient loads, case mix, and vacancies. Intermittent employees generally receive higher wages instead of benefits and have more control in scheduling their work assignments than do part timers. Second, using part-time and intermittent employees also allows hospitals an expanded pool of nurses from which to recruit and the ability to retain nurses who might have left the workforce or sought other employment if their families’ situation changed. Nurses often prefer part-time or intermittent work because it gives them greater flexibility in scheduling their work hours and more time to spend with their families and reduces stress. By requiring intermittent employees to work a minimum number of shifts, weekends, and holidays, hospitals also make it easier for full-time staff to schedule time off. The use of part-time and intermittent employees also has disadvantages, however. Programs that allow lots of movement of such staff among work units may have difficulty keeping intermittent employees abreast of hospital policies and procedures. On the other hand, programs that allow such employees to work in a limited number of units may have difficulty meeting staffing needs without relying on outside staffing agencies. Finally, intermittent employees are often viewed as lacking a permanent staff’s commitment to an organization. One hospital, Tampa General Hospital, addressed these problems by organizing its intermittent staff, including registered nurses, licensed practical nurses, paramedics, certified surgical technicians, mental health technicians, and emergency medical technicians, into unit-based and divisional pools. The unit-based pool places intermittent employees under the direct supervision of the unit nurse manager. Although assigned to a specific unit, such employees receive a pay differential as well as retirement and Social Security benefits. In contrast, Tampa General’s divisional nursing pool is intended for employees who want greater flexibility in scheduling and assignments. Staff in the divisional pool work at least 16 weekend hours every month and one 8-hour shift during the Thanksgiving, Christmas, and New Year holiday season. The nursing pools have allowed the hospital to decrease its use of overtime and staffing agencies, according to hospital officials, and offered other advantages. First, the unit-based pool has allowed the hospital to meet fluctuating demand or cover vacancies with nurses familiar with the unit. Second, when intermittent employees convert to permanent status, orientation costs are typically lower than for newly hired nurses. Between 1966 and 1986, the percentage of nurses working part time in hospitals ranged from 15 to 20 percent. The percentage of nurses working part time increased to 26 in 1988, according to another source. Similarly, in a 1993 study conducted by the Florida Hospital Association, 47 percent of the hospitals surveyed indicated that they used intermittent contract staff only when needed. In addition, 40 percent of the hospitals reported that they had “float pools” to meet staffing needs. Float pools comprise hospital staff who agree to work in different units due to changing patient loads and case mix. The survey did not include data on use of nurses obtained from nursing agencies. Almost half of the more than 7,000 nurses responding to the Patient Care Survey of the American Journal of Nursing reported that part-time or intermittent registered nurses have been substituted for full-time registered nurses at their facilities; two out of five reported the substitution of unlicensed auxiliary personnel for registered nurses. Nurses in the Pacific region reported significantly higher rates of substitution. Nurses in the Northeast and East North Central regions reported the greatest cutbacks in the use of registered nurses. Like community hospitals, VA uses part-time and intermittent nurses and other health care professionals to increase its flexibility in meeting changing workloads and patient mix. Unlike community hospitals, however, VA is decreasing its use of part-time and intermittent nurses. Overall, the use of part-time and intermittent nurses in the VA health care system has declined steadily since 1992, when about 13.3 percent of VA nurses worked as part-timers or intermittents. At the end of fiscal year 1995, about 11.2 percent of VA nurses and nurse anesthetists worked as part-timers or intermittents. According to VA’s chief consultant in its Nursing Strategic Health Care Group, hospitals that have had to reduce staffing due to budget problems have sometimes eliminated part-time and intermittent nurses to protect full-time, permanent nurses. This, she said, can result in reducing the hospital’s flexibility in responding to changing workloads. VA statistics on part-time and intermittent employees provide systemwide information on physicians, dentists, and nurses but have no data on other types of health care workers. In addition, VA officials did not know of any studies or data on the actual extent to which part-time and intermittent nurses and other staff are working in VA hospitals. To date, VA’s restructuring efforts have not specifically focused on use of part-time and intermittent staff. Neither VA’s Vision for Change nor Prescription for Change addresses the use of part-time and intermittent employees. Nor do any of the VISN business plans address the issue. VA officials, however, agreed that use of part-time and intermittent employees can increase flexibility and reduce costs. They also said that use of part-time and intermittent nurses probably varies within the VA system due to local conditions, such as the supply of nurses. Some community hospitals have developed staffing networks to pool hospital personnel geographically. For example, rural hospitals in Vermont have developed an interhospital staff sharing system to alleviate staffing shortages. Under the pooling arrangements, some hospitals lend staff more often than they borrow them from the pool, while others borrow more than they lend. All hospitals, however, cited advantages. For example, hospitals borrowing staff from the pool reported that it allowed them to (1) keep a department or unit in a small institution open and (2) avoid having to transfer patients because of short staffing. Similarly, hospitals lending staff through the pool said that it gave them an alternative to sending staff nurses home without pay during low demand periods. Lending hospitals are responsible for ensuring the competency of pool members. Employee participation is voluntary, but those who participate are (1) paid $3 to $5 above their regular hourly salary depending on when they work and (2) reimbursed for travel. Even with the salary differential, hospitals paid less than they would have if they had obtained staff from a nursing agency. Other advantages of the pooled resources cited were better communication among hospitals in the pool, avoiding the need to use more costly and less reliable staffing agencies, sharing innovative approaches and best practices as pool staff were exposed to other hospitals’ care management practices. Hospital administrators plan to expand the pool to include other health care providers in smaller, more geographically compact Vermont communities. For example, hospitals and home health agencies might share staff. VA central office officials did not know of any VA hospitals that have set up float pools comparable with those in community hospitals but said that such programs might be considered in the future, particularly by hospitals under common management. To maintain patient care, while coping with staff shortages, community hospitals increasingly cross-train both clinical and support personnel. VA’s Prescription for Change calls for increased cross-training and multi- skilling of VA personnel; VISN strategic plans, however, generally do not discuss plans to accomplish this. Initially, community hospitals used cross-training to help cope with the shortage of nurses during the 1970s and 1980s. As the nursing shortage eased, the demands for greater efficiency driven by managed care and payment reforms became the impetus for cross-training. Therefore, cross-training has focused heavily on training to reduce the need for or make more effective use of nurses in delivering patient care. Hospitals have developed individual programs to meet their needs and labeled both their programs and staff positions differently. Rural hospitals, in particular, have had to develop programs to cope with chronic shortages of medical personnel, and they have reportedly done so successfully. Clinical personnel are usually cross-trained within their general area of expertise to allow them to expand the scope of their practice. For example, a registered nurse normally working on general surgical cases might be cross-trained to assist with orthopedic surgery. Similarly, licensed practical nurses may be trained to assume certain duties traditionally performed by registered nurses. Cross-training allows hospitals to more efficiently use resources by expanding the number of clinical and nonclinical staff trained to perform a given task. For example, if nursing assistants are trained to perform nonpatient care duties, such as changing bed linens, they can substitute for housekeeping staff. The 1996 Patient Care Survey of the American Journal of Nursing, a national survey including responses from 7,560 nurses, reported that nurses are caring for more patients, have been cross-trained to assume more nursing responsibilities, and have substantially less time to provide all aspects of nursing care. In its December 1995 report, Critical Challenges: Revitalizing the Health Professions for the Twenty-First Century, the Pew Health Professions Commission recommended that team training and cross-professional education continue and expand. VA similarly supports cross-training and multi-skilling and, according to a VA official, VA facilities are using physician extenders and other allied health professionals. For example, the Acting Director of Surgical Services told us that VA started cross-training some technicians in intensive care, respiratory therapy, and laboratory services. Neither he nor other VA officials, however, could provide data on the extensiveness of cross- training in the VA system. In VA’s Prescription for Change, the Under Secretary for Health described several actions to expand the use of cross-training and multi-skilling. First, under its goal of improving customer service, VA plans to establish new positions for multi-skilled caregivers as part of efforts to empower staff to plan and execute their work to best respond to patient needs. In addition, to help make VA an employer of choice, VA established a work group to examine cross-training, employee development, and other workforce issues. Finally, in March 1995, VA revised its directives on the scope of practice for nurse practitioners, physician assistants, and clinical pharmacists to better utilize such personnel. The revised guidance also established prescribing guidelines for these professions. VA’s Office of Academic Affairs is also supporting cross-training through its Primary Care Education program and “firm” system. VA officials told us that the programs emphasize team building among multidisciplinary staff rather than cross-training of staff to perform more than one job. VISN strategic plans generally support the need to enhance training of hospital personnel but focus more on retraining personnel to work in outpatient settings and in providing primary care. This focus is appropriate in the short term, given the significant shift in VA care from inpatient to outpatient settings. Another approach community hospitals sometimes use to reduce personnel costs that closely relates to cross-training is expanding the roles and responsibilities of nursing assistants and other ancillary personnel. Likewise, VA supports expanded roles for nursing assistants and other ancillary personnel, but the extent to which VISNs are increasing their use is unclear. If money were no object and the supply of nurses endless, hospitals would undoubtedly prefer to use only registered nurses to provide direct patient care. But, with the shortage of registered nurses in the 1980s and increasing pressures to contain costs, community hospitals increasingly sought to develop lower cost alternatives. One such alternative is the use of specially trained nursing assistants, often referred to as nurse extenders, to assume many tasks normally performed by registered nurses. This reduces the need for higher paid nurses and allows registered nurses to use their advanced education and experience to enhance all patient care activities. Registered nurses remain pivotal in coordinating care in hospitals, sometimes as case managers. Nursing assistants’ roles, however, have been changing. In some community hospitals, nursing assistants, under the direction of a registered nurse, are assuming more responsibility for direct care. Under nurse extender programs, nursing assistants or other ancillary personnel are generally trained to replace or assist registered nurses in performing relatively simple bedside care such as changing dressings and taking vital signs. In addition, they sometimes help nurses in providing total bedside care. Still others are trained to help telemonitor, lift patients, administer electrocardiographs, or provide physical therapy. Registered nurses assume additional management and supervisory responsibilities to monitor the nurse extenders. Meanwhile, nurse extenders relieve registered nurses of many routine patient care-related duties. Creating nurse extender positions is sometimes accompanied by changing the roles of other support personnel such as those performing dietary, housekeeping, and transportation services. Following are examples of three hospitals’ efforts to expand the roles of nursing assistants and other ancillary personnel: A Southern Maryland hospital developed a new patient care delivery model to respond to a nursing shortage. The hospital, forced to close 10 percent of its beds because of a staffing shortage, could reopen the beds only through the use of agency nurses, a temporary and costly option. To reduce its need for registered nurses, the hospital created two new patient care positions—nursing technician and patient care assistant—by expanding the duties of nursing assistants and housekeepers. It expanded the former nursing assistant job description to include more technical duties previously performed by nurses. It reassigned unskilled tasks to personnel in other departments. The hospital pairs nursing technicians with the same registered nurses to establish strong working relationships. The hospital expanded the housekeepers’ role to include delivering water, mail, and linen directly to patients; accompanying discharged patients to the front door; delivering specimens and requisitions to other departments; helping nurses with patient turning and positioning; applying side rails and assembling traction to unoccupied beds; and cleaning equipment. Before assuming these expanded duties, the former housekeepers were trained in infection control procedures and body mechanics. Many of the tasks the patient care assistants assumed had been previously done by nursing assistants. Unlike the former housekeepers, who reported to the general services department, patient care assistants report directly to the care unit. The hospital also expanded the roles of other nonpatient care staff. For example, dietary aides distribute and collect patient meal trays, a task previously performed by nursing assistants. The hospital reported that it reduced by 12 percent the number of registered nurses needed by shifting non-nursing tasks to nursing technicians and patient care assistants. The hospital also reported increased employee satisfaction among nursing technicians and patient care assistants resulting from their interaction with patients and nurses, improved documentation and care planning, better continuity of care from shift to shift, more time for patient teaching, and a cleaner unit. Boston’s University Hospital developed a patient care technician position. Patient care technicians, who must have 4 years of education beyond high school, complete a formal 8-week training program followed by a 3-month probationary period. As in the Southern Maryland hospital, the patient care technician worked closely with a registered nurse. An official from the Boston University Medical Center, however, told us that the hospital discontinued the program because it was not cost-effective. She said that the positions had high turnover rates because the program was limited to individuals with college degrees in fields other than nursing and such individuals often returned to their original fields or took other jobs. Another problem the program had was inadequate training of nurses in delegating duties to the technicians. Braintree Hospital (in Maine) developed a rehabilitation technician position. In addition to the duties normally performed by a nursing assistant, the rehabilitation technician (1) prepares narrative documentation; (2) provides special eye and skin care, bowel care, simple treatments and dressings, and tube feeding; and (3) applies hot and cold compresses. Just as nurse extenders are reducing community hospitals’ demand for registered nurses, nurse practitioners, physicians assistants, and nurse midwives often substitute for physicians. Several factors have influenced this trend, including the need to lower health care costs and improve access to care for the poor and residents of rural areas. In 1990, Medicare and Medicaid began reimbursing certain nonphysician health professionals for the care they deliver, allowing them to expand their roles and perform functions previously performed by physicians. Many nurses frown on the use of nurse extenders and other unlicensed assistive personnel. For example, the Patient Care Survey of the American Journal of Nursing revealed that only about 13 percent of the nurses surveyed believed the use of such personnel improved patient care where they worked. The responses are somewhat misleading, however, because only about 42 percent of the respondents reported the hiring of auxiliary personnel to provide direct patient care previously provided by registered nurses. As in the private sector, VA is expanding the scope of work of certain paraprofessionals to enable them to substitute for physicians and pharmacists. Neither central office nor VISN strategic plans, however, focus on expanded use of nurse extenders and other personnel to substitute for registered nurses. In March 1995, VA issued revised policy directives expanding the scope of practice for physician assistants and nurse practitioners. It similarly revised policy directives covering clinical pharmacists in May 1996. VA revised prescribing guidelines to allow certain advanced practice nurses to prescribe medications without a physician’s review. In VA’s Prescription for Change, the Under Secretary for Health called for better utilization of nurse practitioners, physician assistants, and clinical pharmacists. Subsequently, a VA work group was charged with identifying barriers to increased use of nurse practitioners, clinical pharmacy and nurse specialists, and physician assistants. The work group submitted its report to the Under Secretary for Health in August 1997. The report identified informal barriers to greater use of such personnel. According to a VA official, the primary barrier is VA’s culture, which has been physician driven and therefore closed to expanded roles for allied health professionals. Neither the Prescription nor the VISN strategic plans identify efforts to expand the use of nurse extenders or other auxiliary personnel to substitute for registered nurses. Several facilities have identified efforts to create such positions, however, as they develop patient-centered care approaches. Many community hospitals are using the above-mentioned and other novel practices to fundamentally reengineer the provision of hospital care. Generally referred to as “patient-centered” care (sometimes “patient- focused” care), such reengineering typically involves creating care teams, including both registered nurses and other specially trained nurse extenders and ancillary personnel cross-trained to offer maximum flexibility and interchangeability in providing patient and nonpatient care services. Many VA hospitals are similarly developing patient-centered care programs for both inpatient and outpatient care. Although no single definition of patient-centered care exists, such programs often involve changing how care is managed using such tools as clinical guidelines (see ch. 11); case management; strengthened discharge planning; and shared decision-making among physicians, nurses, and allied professionals. Patient-centered care also focuses on customer satisfaction by increasing involvement of patients and their families in treatment decisions and reducing the number of a patient’s caregivers during a hospital stay. Finally, patient-centered care often involves decentralizing ancillary services, moving many services, such as X rays and pharmacy, to wards. Patient-centered care involves developing integrated care teams. Many hospitals have reorganized the nursing and other patient and nonpatient care personnel into care teams. Under some programs, the team includes not only nursing staff, but also pharmacists, respiratory therapists, and other caregivers with functional expertise and training. Team members’ work responsibilities typically overlap so that staff can better respond to both patients and management. By allowing team members to share responsibilities, hospitals can eliminate the inefficiencies associated with rigidly defined job responsibilities. Including the task of cleaning and preparing rooms in the work responsibilities of all team members, for example, avoids waiting for a housekeeping staff member to prepare a room—a common cause of delays in admitting patients. Although teams are a central feature of patient-centered care, their makeup and structure vary. For example, one approach relies mainly on expanded caregiver roles to improve efficiency; other approaches feature organizational changes involving staff from other units, such as the pharmacy, being supervised by the care team leader, typically a registered nurse. Another feature of patient-centered care involves reducing the number of staff interacting with patients. Patient-centered care generally reduces the number of caregivers interacting with a given patient during a 3-day stay from up to 55 to fewer than 15. A third feature of patient-centered care involves redesigning wards to bring ancillary services closer to patients. Hospitals group patients with similar care needs together on a single ward rather than disperse them to several wards. This enables redesigning wards to bring ancillary services closer to patients. By grouping like patients together, hospitals can move ancillary services for about 90 percent of the procedures required by these patients to that ward. Hospitals can use space previously used for supplies and the central nursing station for high-volume ancillary services such as pharmacy, laboratory, radiology, and physical therapy. With supplies, medical records, and caregivers closer to patients, hospitals may also move the traditional nursing station closer to patients. In addition, hospitals may locate work areas for preparing patient charts and other functions at smaller units throughout the ward. Placing ancillary services, such as X ray, laboratory, pharmacy, and rehabilitation, on the patient floor often greatly reduces travel time from patients’ rooms to the service area. In addition, X ray technicians, medical technologists, pharmacists, and therapists can become more a part of the care team. Hospitals also report that this feature reduces the time needed to obtain test results. For example, one hospital reported that it reduced the time required to obtain X ray results from almost 2-1/2 hours to just 28 minutes. Although we found little data on the extent to which community hospitals have implemented patient-centered care, nearly half of the hospital CEOs responding to a 1992 survey indicated that they are either planning to or are already implementing patient-centered care. One health analyst predicts that within 10 years, most hospitals will have patient-centered care programs. In June 1995, the Veterans Affairs Nursing Board of Directors established a task force to study patient-centered care. The task force evaluated over 40 patient-centered care delivery systems in both VA and the private sector. In April 1997, the task force issued a resource guide, VAlue: Patient Centered Health Care, which (1) reviews the models currently in use to provide “templates for transforming traditional illness-based organizations into transdisciplinary, cost-effective, health-focused systems” and (2) provides a self-assessment tool to allow facilities to identify their reorganization status. The task force analyzed 20 community hospitals and 13 VA medical centers adopting patient-centered care models in their outpatient or hospital care programs. The following examples illustrate VA’s use of patient-centered care in hospital settings: The Iowa City VA medical center is developing a patient-centered care approach that organizes staff and services around patient needs. The medical center is creating four care teams: critical/special care, psychiatry, medical/neurology, and surgical. Each team includes a wide range of direct care providers such as registered nurses, nursing assistants, housekeepers, dieticians, physical and respiratory therapists, and social workers. The program is intended to (1) increase staff and patient satisfaction, (2) redirect scarce resources to patient care activities, (3) improve patient care processes, (4) reengineer medical center systems, and (5) redesign jobs and work processes. The Providence VA medical center has established an integrated inpatient/outpatient firm system. As the medical center’s inpatient workload decreased and its outpatient workload increased, nursing staff were shifted from inpatient to outpatient care. In addition to registered nurses, the firm includes physician assistants, nurse practitioners, licensed practical nurses, clerks, and patient care assistants. The newly created patient care assistant position is one involving skills intended to include nursing, medicine, and medical administration. Although the firm is outpatient care-based, physicians, nurse practitioners, and social workers make daily rounds of firm system patients in the hospital. This provides both continuity of care and helps plan for discharging and following up on the patient after discharge. VA’s analysis of the program found that (1) access to care greatly improved, (2) waiting times decreased, (3) patient and staff satisfaction improved, and (4) patient education improved. The San Diego VA medical center restructured its nursing service to create self-directed teams to decentralize management and empower staff. The program decentralized clinical specialists to the wards and reduced the number of assistant chiefs of nursing service. The program restructured the role of the head nurse into a new position—clinical services director— and developed a new staff nurse facilitator role. VA’s analysis of the program found that the restructuring energized the nursing staff and promoted creativity. The Louisville VA medical center is developing a patient-centered care pilot project based on a program at the University of Arizona. The medical center has developed new positions for multi-skilled administrative and clinical workers. The administrative position, the patient support associate, includes duties from emergency medical services, escort services, and food and nutrition services. The clinical multi-skilled position, the patient care associate, adds duties relating to respiratory therapy, phlebotomy, rehabilitation medicine, and electrocardiograms to the existing duties of nursing assistants and licensed practical nurses. Staffing and budget considerations have delayed the pilot’s implementation. Little quantitative data exist on the benefits of patient-centered care.Hospitals that have implemented patient-centered care, however, have reported improved physician satisfaction. Many hospital executives also see benefits to patient-centered care. Hospital executives responding to a survey conducted jointly by Hospitals and ServiceMaster cited the following reasons, among others, for establishing or developing patient-centered care programs: They are the best way to provide patient care (88 percent). They will lower expenses (55 percent). They grew out of the hospitals’ total quality management or continuous quality improvement programs (43 percent). They were part of their survival strategy (37 percent). They will improve their hospital’s reputation (36 percent). They will improve their hospital’s market share (33 percent). They will help attract and retain physicians (29 percent) and allied health professionals (30 percent). Not all hospital executives responding to the survey, however, viewed patient-centered care as an improvement. Over half of the respondents indicated that they do not plan to adopt patient-centered care programs because of uncertainty about their benefits. Similarly, some VA officials expressed concern that some patient-centered care may be a veiled attempt to cut costs by reducing nursing staff. Because staffing accounts for such a large percentage of hospital costs, many challenges remain to be addressed as VA considers transforming its hospital staffing. One major challenge involves VA’s central office convincing VISNs and individual hospitals to use their new contracting authority to seek less costly ways to provide services such as laundry, dietetics, and housekeeping. Although the Under Secretary for Health’s criteria for potential realignment encourage contracting for services when they are cheaper and of equal or better quality, VISN strategic plans generally do not address such contracting. Until VA completes improvements in information and financial management systems, VA hospitals may not have the type of reliable cost and utilization data they need to make informed decisions on contracting for services rather than providing them directly or obtaining them from another VA facility. Another factor relating to such decisions is their effect on VA employees and the community. For example, contracting to obtain dietary services from a local provider might save jobs in the community and provide employment opportunities for current employees without relocating them. On the other hand, providing the services through one consolidated VA location might save jobs within the VA system and improve efficiency at the gaining VA facility through economies of scale. Such action would, however, more adversely affect the community standing to lose jobs. In addition, VISNs and individual VA hospital directors will have to make difficult choices about using part-time and intermittent employees. For example, in an era of downsizing, to what extent should VA protect full-time permanent employees by eliminating positions for part-time and intermittent employees even if doing so decreases staffing flexibility? Similarly, can VA devise alternatives to using, or other ways to use, part-time and intermittent employees to make comparable efficiency improvements without the disadvantages associated with using such employees? For example, VA facilities might be able to save resources by pooling staff with each other or with nearby community hospitals. Finally, community hospitals typically pay differentials to part-time and intermittent employees, but such differentials are not available to VA employees. Offering pay differentials might encourage some full-time staff to shift to part-time or intermittent status. In addition, it might make it easier for VA to compete with community hospitals for available staff. It is not clear, however, to what extent VA is having difficulty filling part-time and intermittent positions under its current pay system. Adding pay differentials if recruiting part-time and intermittent staff can be easily done but could needlessly increase operating costs. VA’s Prescription for Change addresses the need for increased cross- training and developing VA staff’s skills and physician extender programs. Similarly, VA issued a resource guide to patient-centered care. Decisions on starting or expanding the use of such programs are difficult, however, because the private sector does not uniformly support the concepts. For example, some have expressed concern that using nurse extenders and patient-centered care sacrifices quality of care to reduce costs. VISNs and hospital directors thus face difficult challenges in planning for the use of such personnel and programs to ensure improvement of patient care. Materials management refers to the systems, functions, and tasks involved in obtaining goods, such as pharmaceuticals, medical equipment, and other supplies, and moving them to where they will be used. It involves not only hospitals, but also manufacturers and distributors. Materials management affects from 25 to 45 percent of a hospital’s operating budget. Effective materials management (1) allows nursing staff to spend more time with patients and (2) reduces the staff, inventory, space, and other resources needed to ensure that supplies are available when needed. Community hospitals are improving materials management, reducing operating costs in several ways. For example, they may join purchasing groups and alliances to take advantage of volume discounts; use just-in-time and stockless delivery to manage inventory costs; use the hospital formulary to reduce pharmacy costs; change the methods used to procure high-technology equipment, such as purchasing remanufactured equipment, leasing rather than purchasing equipment, and centralizing procurement; and more effectively use high-technology equipment through sharing arrangements and joint purchases. The VA system is a leader in materials management and, in some cases, such as the use of purchasing alliances, VA actions preceded widespread private-sector efforts by many years. Changes in materials management, however, create policy issues and management challenges. For example, the Congress faces decisions about the extent to which nonfederal health care facilities should be allowed to use federal supply schedules (FSS). Similarly, VA faces challenges in encouraging its health care facilities to take full advantage of the changes in materials management, such as just-in-time delivery, instituted by its National Acquisition Center (NAC) and in realizing financial benefits from such changes. Joining purchasing groups and alliances is one way community hospitals strengthen materials management. By representing multiple hospitals in negotiations with manufacturers, purchasing groups can obtain volume discounts on pharmaceuticals and medical equipment and other supplies. VA’s joint procurement efforts pre-date private-sector efforts by about 25 years. During the late 1970s, community hospitals formed purchasing groups to buy equipment and supplies at discounted prices. Initially, these groups were formed mainly at the local, state, or regional level. Subsequently, some of the groups joined together to form large regional or national organizations, known as hospital purchasing alliances. Alliances take advantage of their relatively large membership to negotiate larger discounts from manufacturers and suppliers. Although some alliances use diverse suppliers, others use sole-source procurers (prime vendors) to secure volume discounts. Some alliances also try to provide their members other types of aid and experience to help them get more managed care contracts. Supplies available through purchasing groups and alliances include furniture, medical and surgical supplies, laboratory supplies, nonmedical equipment, X ray film, pharmaceuticals, and office and medical equipment. A 1995 survey by Modern Healthcare of purchasing groups and alliances identified over 12,000 hospital memberships as of September 30, 1994, a 13-percent increase over prior-year memberships. However, most hospitals belonged to two or more purchasing groups and alliances and were therefore counted more than once. According to Modern Healthcare, in 1994 each of the 10 largest purchasing groups/alliances represented more than $1 billion in annual purchases of supplies and equipment for their members. The two largest purchasing alliances responding were American Health Care Systems/Premier Health Alliance with $6.2 billion in contract purchases in 1994 and Voluntary Hospitals of America with contract purchases of $5.6 billion in 1994. In 1995, two of the largest alliances had contract compliance requirements that specified the percentage of eligible goods that members must purchase under contract. This enabled the alliances to negotiate significant discounts from vendors. American Health Care Systems required its member hospitals to buy 90 percent of eligible goods under its corporate contracts. Similarly, Voluntary Hospitals of America established a committed buying program that intended to save members 12 to 14 percent on 13 product categories. Participants must achieve 95-percent compliance on contracts with seven vendors. In return, members received quarterly dividends from an incentive pool, according to their purchasing volume. UHC, Inc., a purchasing alliance serving 68 academic medical centers, estimates that it saves about $1 million a year for each alliance member. Similarly, American Health Care Systems/Premier Health Alliance, which serves 40 multihospital systems with 820 hospitals in 46 states, estimates that it negotiates savings averaging 20 percent. VA operates one of the largest purchasing cooperatives in the United States, NAC, which has multiyear contracts valued at over $10 billion. Established in 1951, NAC supports VA’s health care delivery systems and those of other government agencies by providing an acquisition program for health care products and, since the late 1970s, managing certain FSSs. The FSSs are based on a multiple-award contracting system, which determines the low cost through negotiations with each offeror. A variety of product choices, including pharmaceuticals, and medical and other supplies and equipment, are available from the schedules. The FSS for pharmaceuticals catalogs almost 23,000 pharmaceutical products and their prices available to federal agencies and institutions and several other purchasers, such as the District of Columbia, U.S. territorial governments, and many Indian tribal governments. VA, which received responsibility for administering the pharmaceutical schedule from the General Services Administration, negotiates prices with drug manufacturers. VA is also the largest purchaser of products from the schedule; in fiscal year 1996, it purchased about $922 million worth of products or about 71 percent of the government’s purchases from the pharmaceutical FSS. Similarly, VA has received responsibility for administering the FSS for medical products and certain nonperishable subsistence items such as dietary supplements. Sales under the FSS medical products programs managed by NAC exceeded $529 million in fiscal year 1996. Although VA manages and is the largest purchaser of products from the FSS for medical products, other government agencies accounted for approximately $208 million of the $529 million in sales. NAC has three divisions: The Pharmaceutical Products Division solicits, awards, and administers national contracts for pharmaceutical products and medical gases and three FSSs. The Medical Care Products Division administers FSSs of such diverse products as medical supplies and equipment; dental equipment and supplies; wheelchairs; X ray equipment and supplies; and certain food items, including cereals, cookies, and crackers. The Medical Equipment Division administers both FSS and direct delivery contracts for highly technical equipment, such as computerized axial tomographic scanners, magnetic resonance imagers (MRI), positron emission tomography (PET) scanners, and systems used in federal medical facilities. In addition to the FSS, NAC uses national contract awards to negotiate lower prices for certain high-volume products. FSS is a multiple-award type of contract; national contracts, however, are competitively bid, single-award contracts for 1 year, typically with four 1-year options. According to NAC, the leveraged national buying power results in better prices than can be obtained under the FSS. The national contracts are mandatory for use by VA facilities. In addition, NAC uses blanket purchase agreements (BPA) and incentive agreements to encourage effective procurement. BPAs are agreements with authorized suppliers of pharmaceutical products. They essentially are charge accounts that provide medical centers a simple way of obtaining supplies and services for which demand is repetitive. Incentive agreements range from volume rebates and free goods based on quantities purchased to special incentive programs developed for Veterans Integrated Service Networks (VISN). The use of BPAs, NAC reports, has enabled both VA and DOD to save significant amounts of money. It reported that one contractor’s BPA saved VA $4 million and DOD $5.5 million in 1 year. NAC noted that VISN 8 (Bay Pines) avoided $500,000 in expenditures by using a BPA with one contractor. NAC also reported that a second contractor’s BPA saved VA and DOD over 35 percent. NAC’s Medical Equipment Division administers the FSS that negotiates contracts with clinical laboratories on a cost per test (CPT) basis. Under this newly established program, contractors must provide a price for each test they can perform. The price per test covers equipment use, all consumables, reagents, standards, controls, and supplies; all necessary service and maintenance; and training for government personnel. Procurement through CPT contracting allows hospitals to reduce capital expenditures, while maintaining access to state-of-the-art equipment. In addition to the economies of scale available through NAC, several VISN strategic plans identify further efforts to consolidate purchasing: VISN 19 (Denver) plans to establish a Rocky Mountain Network Acquisition Center to consolidate contracting activities and determine possible savings through larger scale purchasing arrangements and enhanced contracting expertise. The VISN strategic plan indicates that the network acquisition center will do essentially the same things NAC does but at a regional level. The VISN plans to use NAC for items that can be obtained at a lower price through national procurement. VISN 17 (Dallas) plans to consolidate network procurement of open market items. VISN 5 (Baltimore) plans to establish a section of its Acquisition and Material Management Service to contract at the network level for leases, community nursing home services, halfway houses, preventive maintenance services, and supply contracts that exceed $25,000. A Contract Service Center, located at the Milwaukee Medical Center in VISN 12 (Chicago), has been providing centralized consolidated purchasing to the network area since 1992. The center now handles contracting of real property leases, equipment leases, architect/engineer services, sharing agreements, medical equipment maintenance, transportation, blood and blood products, home oxygen and durable medical equipment, nursing home and extended care, elevator maintenance and inspection, and fire alarm maintenance and inspection. The VISN reports that the Center generates yearly savings of over $1 million through a variety of methods, including an active BPA and economies-of-scale quantity discounts. The Center received one of the Vice President’s National Performance Review Hammer Awards in 1995. The network plans to expand the scope of goods and services available through the Center. Community hospitals have been shifting to just-in-time and stockless inventory systems. VA similarly closed its supply depots in 1994 and now offers both VA and other government health care facilities a choice of conventional, just-in-time, or stockless delivery. The just-in-time delivery technique (developed in Japan) involves shipping supplies directly to customers or vendors on an as-needed basis, eliminating the need for large inventories. The supplier/vendor, rather than the hospital, maintains the bulk of the inventory. Hospitals implementing just-in-time delivery systems typically buy from a limited number of suppliers, share information about their operations with their suppliers, and eliminate certain hospital-based supply and inventory functions that the supplier now performs. Just-in-time delivery can reduce costs, increase productivity, improve utilization of equipment, and reduce the need for certain workers such as material handlers. Other hospitals have taken just-in-time delivery one step further by using stockless inventory, in which an outside vendor manages much of an organization’s supplies. Stockless inventory allows hospitals to eliminate storerooms, significantly reducing savings by lowering staffing. It is not clear, however, whether these savings offset the service fees paid to the suppliers. Although stockless inventory is gaining popularity, it is far from being accepted as the industry standard. A 1993 study found that just-in-time and stockless material management systems can increase hospital efficiency. For example, one small specialty hospital reported that it reduced its annual inventory value from $2.3 million to an estimated $1.2 million over a 3-year period by using just-in-time delivery. VA, like the private sector, has been shifting to just-in-time and stockless delivery systems. Delivery options available through NAC’s Pharmaceutical Prime Vendor program include conventional, stockless, and just-in-time delivery. Historically, VA benefited from the deep discounts it obtained from manufacturers through volume procurement. Manufacturers generally delivered the products to VA’s three supply depots. The supply depots, in turn, distributed the products to warehouses operated by individual VA medical centers. This distribution system was costly—about $138 million in fiscal year 1991—and resulted in storing relatively large inventories in both supply depots and at the medical centers. The Veterans Health Care Act of 1992 established ceiling prices for covered drugs, eliminating the pricing advantage of many of the products distributed through the depot system. Under the act, drug manufacturers must make their brand-name drugs available through the FSS to receive reimbursement for drugs covered by Medicaid. The act also requires drug manufacturers to sell drugs covered by the act to VA, DOD, the Public Health Service, and the Coast Guard at no more than 76 percent of the nonfederal average manufacturer price, a level referred to as the federal ceiling price. The FSS price may be higher or lower than the ceiling, but if it is higher than the ceiling, the protected purchasers, including VA facilities, pay no more than the ceiling price. Meanwhile, VA completed a pilot test of a just-in-time commercial delivery system for FSS pharmaceuticals through prime vendor arrangements. Under the prime vendor arrangements, medical centers, using centralized contracts, order products from the prime vendor with delivery made directly to the medical center, bypassing the VA distribution network. Subsequently, a VA task force established in January 1993 recommended that VA phase out its depot system and move to a commercial distribution system. With the support of the Vice President’s National Performance Review, the supply depots were closed at the end of fiscal year 1994 and contracts for just-in-time delivery of drugs instituted. Both national contract and FSS items are now distributed by the Pharmaceutical Prime Vendor program. This fee-based distribution contract allows readily available access to FSS and national contract items. In addition to conventional delivery (72 hours), the program offers both just-in-time (24 hours) and stockless (8 hours) delivery options. Just-in-time contracts for medical supplies and subsistence items were completed by 1996. This affords medical facilities the same delivery options for medical supplies and equipment as for pharmaceuticals. VA expects closing the supply depots and moving to just-in-time delivery to save $168 million over 6 years. The pharmacy is estimated to account for 4 to 8 percent of a hospital’s total expenses, and a higher demand for fewer drugs improves hospitals’ ability to secure discounts from manufacturers. Both VA and community hospitals are limiting the numbers and types of pharmaceuticals in their formularies to reduce costs. The effect of such actions on costs, however, may be limited because increases in other charges may offset savings in pharmacy charges. Although hospital formularies have existed for over 150 years, early formularies simply listed all of the drugs carried by the pharmacy. Over time, formularies became a mechanism to control costs by limiting the number and types of drugs routinely stocked in the hospital pharmacy. By procuring larger quantities of a smaller number of pharmaceuticals, hospitals can negotiate volume discounts from manufacturers. Keeping fewer infrequently used drugs in the hospital’s inventory also reduces costs. Finally, further savings can accrue if a formulary convinces physicians to prescribe less expensive, but therapeutically equivalent, drugs. Some practicing physicians complain, however, that formularies infringe on their ability to select the drugs they feel are most appropriate for their patients. VA, like the private sector, is establishing formularies to reduce costs. Historically, each VA facility has established its own formulary. VA’s Prescription for Change provided for the establishment of VISN formularies, with a national formulary to follow. VA noted that establishing a national formulary should increase standardization, decrease inventory costs, improve efficiency, and lower pharmaceutical costs through enhanced competition. VA officials told us that the VISN formularies were established as of April 30, 1996, and the initial version of the national formulary was established by June 1, 1997. According to another VA official, 22 national pharmaceutical contracts will save VA over $150 million annually, and standardized contracts for intravenous solutions have saved VA over $100 million. The official also told us that with the increased focus on standardization, VA will award more national contracts. He said that because some VISN contracting will be done simultaneously with national contracting, good communication will be necessary to avoid duplicated effort and diluting of VA’s buying power. VA has asked medical centers to include “escape” language in their contracts and agreements stating that a national contract will take precedence over local contracts. NAC established a Value Incentive program to save money by using standardized commercial products. For example, its Medical Care Products Division recently awarded national contracts or blanket purchase agreements for products such as wheelchairs, needles and syringes, urinary drainage products, and anti-embolism stockings. These contracts are for VA-preferred sources and should be used before FSS contracts. VISN strategic plans generally do not discuss standardization beyond establishing pharmaceutical formularies. The VISN 8 (Bay Pines) plan, however, indicates that the network is considering establishing a formulary for prosthetics. Similarly, VISN 20 (Portland) plans to decrease unit costs of medical/surgical supplies through more standardization. Most studies of formularies, which focus on a narrow range of drugs, a single hospital, and effects on pharmacy costs, generally confirm that a limited drug inventory reduces pharmacy costs. A 1993 study, however, reported that while such limits reduced pharmacy charges, increases in other charges tended to offset any savings. The effectiveness of hospital formularies, according to this study, depends on several other factors, such as the extent of efforts to educate physicians about appropriate drug use, the ease with which physicians can obtain nonformulary drugs for their patients, and the overall emphasis the hospital places on cost containment. The study also raised concerns that limiting the number of drugs in a hospital formulary could compromise quality because patients may react differently to the same drug. In other words, a drug that effectively treats a condition in one patient may not so effectively treat the same condition in another patient. According to the study, even small differences in a drug’s effectiveness in a therapeutic category could be clinically important, both to achieve good outcomes and to avoid adverse reactions. A drug could be less cost-effective on average but provide a much more cost-effective therapy in specific cases. High-technology equipment generally accounts for the largest share of hospitals’ capital expenditures, totaling about 7 percent of hospital spending in 1989. Although hospitals predominantly buy high-technology equipment using internal funds or gifts, many community hospitals are limiting their capital expenditures by (1) renting or leasing rather than buying such equipment when this is cost-effective and (2) buying remanufactured equipment. VA supports both approaches. Before the introduction of prospective payment and the growth of managed care, hospitals generally did not compete on the basis of costs or charges. As a result, they passed the costs of the latest technology on to their patients, or, more often, to their insurers. Essentially, hospitals could use newly acquired technologies to attract both physicians and patients. The average U.S. hospital spent nearly $2.8 million on medical equipment in fiscal year 1990, according to a survey of hospital chief executive officers. Hospitals tend to base procurement decisions on whether such new equipment will generate profits. For example, because of concerns that the number of lithotripters exceeds demand, hospital executives do not generally view such equipment as profitable. Executives responding to a 1990 Hospitals survey identified leasing as one way to acquire most types of high-technology equipment. Among the equipment the executives identified as being leased were ultrasound (15 percent), automated laboratory (34 percent), radiography and fluoroscopy rooms (19 percent), cardiac catheterization laboratories (18 percent), and MRIs (22 percent). One significant change in rental/leasing arrangements is the adoption of the same type of charge structure as for photo and other copiers for obtaining high-technology services. Under these arrangements, hospitals pay a basic rental fee plus a charge for each test conducted on the equipment. Hospitals’ costs are essentially based on the extent to which they use the equipment. If their workloads decline, so do their expenditures for the rented equipment. Under straight rental/leasing arrangements, however, hospitals pay the same amount regardless of workload fluctuations. Another option for reducing the cost of high-technology equipment is purchasing refurbished equipment. Sales of refurbished imaging equipment were expected to reach $300 to $500 million in 1997, more than double 1992 sales. Refurbished equipment costs from 25 to 65 percent less than new equipment depending on its age and the work done. Hospitals, however, generally prefer new imaging equipment because the latest technology can produce better images, be more comfortable for patients, and require fewer staff to operate. Refurbished equipment is an option, however, when the latest technology is not clinically necessary, the technology is not changing rapidly, or the equipment can be rebuilt to take advantage of technological advances. For example, technology in X ray/fluoroscopy rooms is not rapidly advancing, and equipment can often be rebuilt to operate like new equipment. Refurbishing and adding digital technology to an 8-year-old X ray machine can bring it up to current standards. Hospitals, however, often distrust refurbished equipment. The term “refurbished” might mean that the equipment underwent a complete retooling or that only cosmetic changes were made, a so-called “spray- and-pray” job. An estimated 500 to 600 firms, including equipment manufacturers such as General Electric and Picker International, refurbish equipment, but only about 24 firms perform more complex remanufacturing. The Food and Drug Administration (FDA) published regulations in June 1997 exempting the refurbishing industry from the level of review used for equipment manufacturers because refurbishers restore equipment to the original manufacturers’ specifications. Refurbishers are, however, subject to good manufacturing regulations. In addition, according to an FDA official, in December 1997, FDA published a Federal Register notice of its intention to review and, as necessary, revise or amend, its compliance policy guides and regulatory requirements for remarketing of used medical devices and those who refurbish, recondition, rebuild, service, or remarket such devices. Written commens on the notice were due by March 23, 1998. In the meantime, individual hospitals and alliances must decide for themselves which refurbishers are reputable. For example, Columbia/HCA, in 1995, designated one company a preferred supplier of refurbished imaging equipment. A hospital alliance, however, reported that its member hospitals showed little interest in purchasing refurbished equipment without a good warranty and indemnification. Like community hospitals, VA is seeking to share rather than purchase high-technology equipment or to purchase refurbished equipment. In addition, VA is emphasizing central procurement of high-technology equipment to obtain better prices. VA’s Prescription for Change calls for developing and implementing a major medical equipment acquisition methodology. It notes that a proposed methodology has to balance the need for facilities and networks to make local decisions with the need for VA’s central office to ensure that federal procurement laws and regulations are followed. Subsequently, VA developed a decentralized equipment assessment and planning program (DEAPP), a needs-driven plan similar to equipment planning programs used by the private sector. According to VA, DEAPP builds on the strength of existing medical center equipment committees and describes a consistent approach to identifying equipment needs. The methodology establishes a point-scoring system to assess needs on the basis of three categories— function, reliability/regulatory compliance, and economy. The Veterans Health Administration’s (VHA) criteria for potential realignment noted in VA’s Prescription also has guidance on how VISNs and medical centers should determine when to purchase high-tech equipment and services or obtain such services from other VA facilities or community providers. For example, it suggests that VISNs consider both capital and operating costs for new high-tech or automated equipment in cost- effectiveness analyses. Our prior work found that the Albuquerque VA medical centers underestimated the cost of providing lithotripsy services because it overestimated workload and set excessively long equipment depreciation periods. NAC’s Medical Equipment Division solicits, awards, and administers FSS and direct delivery contracts for highly technical equipment and systems used in VA and other government medical facilities. The Direct Delivery program allows medical facilities to order high-tech equipment directly from the manufacturer at prices negotiated by NAC. Among the equipment available through the Direct Delivery program are computerized tomographic (CT) and MRI scanners, nuclear medicine systems, and X ray systems. In addition to procuring new equipment, NAC negotiates cost per use contracts to provide facilities an alternative to buying high-technology equipment when demand may not justify the purchase. Under such contracts, medical facilities pay only for the services they use. For example, they might pay for each periodic use of an MRI rather than purchase the equipment. Another option available through NAC is the purchase of refurbished equipment. NAC has awarded 12 contracts for the purchase of refurbished equipment. Our review of VISN strategic plans identified several additional initiatives to improve the procurement of high-tech equipment and services: VISN 8 (Bay Pines) plans to coordinate its needs assessments for high-tech equipment with neighboring networks. The network also developed a methodology for rating and ranking medical facilities’ requests for high- tech equipment. VISN 12 (Chicago) reports that by approaching vendors as a network customer, it saved a substantial amount of money when recently buying CT scanners. VISN 18 (Phoenix) is evaluating the feasibility of purchasing remanufactured equipment, where appropriate, instead of new items. VISN 20 (Portland) has a shared equipment purchasing program under which each facility pays 20 percent of its allocated equipment budget for each item funded under the program. The planned equipment purchased under this program in fiscal year 1997 includes three CT scanners and a cardiac catheterization imaging system. VISN 7 (Atlanta) plans to consolidate the procurement of standard radiology and fluoroscopy suites, saving money on the purchase price, on expendable supplies, and on service contracts. Another method hospitals use to reduce capital expenditures is sharing high-technology equipment. To allow federal agencies’ resources to be used to maximum capacity and avoid unnecessary duplication and overlap of activities, federal agencies have been authorized for over 60 years to obtain goods or services through other federal agencies. In the past 15 to 20 years, we have identified and VA and the Congress have addressed barriers to sharing. As these barriers have been addressed, VA sharing both with DOD and the private sector has increased. More recently, VA has placed greater emphasis on sharing services and equipment among VA facilities. Health resources sharing, which involves the buying, selling, or trading of health care services, benefits both parties in the agreement and helps contain health care costs by better utilizing medical resources. For example, a hospital that buys an infrequently used diagnostic test from another hospital often pays less money than it would buying the needed equipment and providing the service directly. Similarly, a hospital that uses an expensive piece of equipment only 4 hours a day but has staff to operate it for 8 hours a day may generate additional revenues by selling its excess capacity to other providers. The following are examples of efforts to share high-technology equipment and services: Two hospitals in Missoula, Montana, agreed to share an MRI when neither hospital had sufficient demand to solely support the equipment. A microwave link relays test results between the two hospitals. In addition, the two hospitals established a mobile lithotripsy network to serve hospitals in western Montana. A PET scanner at the University of Texas Health Science Center in San Antonio was jointly funded by the University of Texas, VA, and DOD. The PET facility, the first in the DOD system, will become a national referral center for DOD patients and a regional referral center for VA patients. The PET equipment alone cost $5.3 million; the construction of a building to house the equipment cost millions more. Under an access agreement, the University of Texas will have 50 percent of the facility’s workload, with VA and DOD getting 25 percent each. The PET facility will be used for both research and patient care. The San Antonio VA medical center jointly purchased an MRI with the neighboring medical center and a linear accelerator with Southwest Texas Methodist Hospital. Ten Rhode Island hospitals formed a network to share the costs and services of four MRIs. The network bought four MRIs for the price of three, paying about $10 million for them, including the construction of one fixed site and pads for three mobile units. The network uses a centralized scheduling system, which also saves money. Because hospitals pay a fixed daily rate for MRI use regardless of volume, they have an incentive to image as many patients as possible during their allocated periods. Two hospital systems in the Sacramento area, which together operated six acute care hospitals and a psychiatric facility, joined forces to establish a $5.7 million PET scanner facility. A management firm under contract to the two systems will oversee the facility’s daily operations. Officials estimated eventual demand for PET scans at about eight to nine scans a day in the Sacramento area, with initial demand at only four to six. Neither system, each of which operated over 800 acute care beds, had sufficient demand to justify purchase of a PET scanner. A 1992 survey of hospital chief executive officers found that 38 percent reportedly had collaborated with other area health care providers to share technology. Forty-six percent said that they had collaborated on service development to avoid duplicating services. The following are examples of collaboration: Three hospitals and a home health agency in Roanoke, Virginia, created a shared, off-site, intravenous admixture center to prepare intravenous solutions. Creating the admixture center was reported to have saved about $230,000 in personnel costs over a 2-year period (October 1992 to September 1994). In addition, about $207,000 was reportedly saved over the 2-year period for nonbillable supplies (for example, syringes, needles, and diluents). Other reported benefits included expanding availability of intravenous admixture services in several service areas, eliminating duplicated services, savings from nonbillable supplies, avoiding salary and benefits costs associated with hiring new personnel, improved quality control, and acquisition of state-of-the-art equipment. Three Boston hospitals combined their cancer programs to avoid duplication. The Dana Farber Cancer Institute combined its adult patient care and research operations with those at Massachusetts General and Brigham and Women’s Hospital. Dana-Farber transferred its inpatient beds to Brigham and Women’s. To use federal agencies’ excess resources to maximum capacity and avoid overlapping of activities, VA has, at our urging, long been authorized to share excess health care services with DOD. In addition, VA has, since 1966, been authorized to share specialized medical resources with nonfederal hospitals, clinics, and medical schools. Such sharing is permitted only if it does not adversely affect health care services to veterans. As an incentive to share excess health care resources, VA facilities providing services through sharing agreements may recover and retain the cost of the services from DOD or private-sector facilities. In fiscal year 1996, VA sold about $20.0 million in specialized medical resources to private-sector hospitals and about $29.3 million in health care services to the military health care system. During the same year, VA purchased about $23.6 million in health care services from DOD and about $60.0 million from private-sector hospitals. Services sold and purchased through sharing agreements included organ transplants, open-heart surgery, and specialized laboratory and radiology procedures. In 1992, enactment of Public Law 102-405 gave VA specific authority to jointly acquire advanced technology. Specifically, it allows the joint holding of titles to medical equipment between VA and a sharing partner. In fiscal year 1995, VA spent about $900 million on the shared acquisition program. With the creation of VISNs, VA transferred responsibility for funding joint acquisitions to the networks. The Veterans’ Health Care Eligibility Reform Act of 1996 expanded both the types of providers VA may contract with and the types of services VA may contract for. In addition, it simplified the procedures for complying with federal procurement processes when contracting with commercial providers. (Ch. 1 more fully discusses these provisions.) VA’s Prescription for Change calls for VISNs to increase sharing with both government and nongovernment health care providers. Our review of VISN strategic plans identified many efforts to expand sharing among VA facilities, VA and other government facilities, VA and TRICARE, and VA and community providers: VISN 13’s (Minneapolis) strategic plan indicates that generating alternative revenues through sharing agreements with DOD, the Indian Health Service, and the Bureau of Prisons and serving as a TRICARE provider are key survival strategies. VISN 17 (Dallas) proposes to diversify its funding base by sharing with the Civilian Health and Medical Program for the Uniformed Services (CHAMPUS), TRICARE, DOD, other federal agencies, and the private sector. In addition, it proposes a pilot project to provide services to Medicare and Medicaid recipients. VISN 3 (Bronx) wants to increase the income generated through sharing agreements by $500,000 per year, primarily through agreements with DOD and its medical school affiliates. Many of the sharing efforts among VA facilities focused on developing telemedicine capability. The following examples illustrate VISN efforts to expand sharing among VA facilities: VISN 18 (Phoenix), in conjunction with DOD and the Texas Tech University Health Center, has purchased equipment to provide telemedicine capability at three network facilities. VISN 12 (Chicago) is developing a telemedicine strategic plan. The VISN’s telepathology initiative between the Milwaukee and Iron Mountain medical centers received the Vice President’s National Performance Review Hammer Award. VISN 8 (Bay Pines) plans to study the sharing of gamma camera capability and other imaging equipment networkwide. VA has also expanded sharing efforts with private-sector providers. Following are some of these efforts: VISN 11 (Ann Arbor) proposes a pilot program under which VA facilities would provide specialty services, such as clinical laboratory services, to community hospitals in exchange for primary care services. VISN 9 (Nashville) anticipates establishing a network of mental health primary care providers through contracting. VISN 18 (Phoenix) has a sharing initiative for the Phoenix medical center to purchase a new MRI in conjunction with a local hospital. The Augusta medical center in VISN 7 (Atlanta) contracted with a 16-bed community residential care facility to provide care to veterans with spinal cord injuries. The residential care facility is used to provide temporary housing for spinal cord-injured veterans coming to the medical center for outpatient annual evaluations and may, in the future, be used as a permanent home for veterans who might otherwise enter nursing homes. VISN plans mention sharing agreements with the military health care system, including the following planned actions: VISN 7 (Atlanta) plans to implement a TRICARE contract that can be replicated VISN-wide. VISN 5 (Baltimore) has a sharing agreement with Walter Reed Army Medical Center to obtain obstetric/gynecological and urology services and with Bethesda Naval Hospital to obtain neurosurgery services. VISN 19’s (Denver) Cheyenne medical center has a sharing agreement with F.E. Warren Air Force Base that includes inpatient, outpatient, and special medical services. VISN 18 (Phoenix) shares extensively with DOD, including a joint venture at Albuquerque. VA and Kirtland Air Force Base share inpatient and outpatient services at collocated facilities. In addition, VA’s El Paso health care center has a joint venture with the William Beaumont Army Medical Center. Finally, VA’s Tucson medical center and DOD jointly established community-based outpatient clinics (CBOC) in Yuma and Sierra Vista. Some VISN plans also detailed efforts to share with other federal, state, and local government facilities: VISN 19’s (Denver) Fort Harrison medical center has a sharing agreement with the Indian Health Service’s community hospital in Browning, Montana. VISN 18’s (Phoenix) Amarillo medical center is collaborating with the Pantex plant to establish an outpatient surgery unit to serve as a decontamination unit in a nuclear disaster. VISN 9 (Nashville) plans to contract with the Tennessee and Kentucky health departments for establishing CBOCs in rural, underserved areas. It also plans to contract with its medical school affiliates (Vanderbilt, East Tennessee State, and Kentucky) for establishing CBOCs in rural areas. VISN 6 (Durham) is developing an enhanced use lease of the nursing home at the Salisbury medical center to permit the state of North Carolina to operate the nursing home as a state veterans’ home. Under the proposal, the state would place $5.2 million in a trust to be used by VA to benefit veterans in North Carolina. The VISN plan indicates that one use of the trust funds would be to establish additional CBOCs. The changes in materials management in both the private sector and VA create a number of challenges and policy issues for the administration and the Congress. The administration faces challenges to ensure that VA (1) facilities use NAC and other purchasing groups to the extent practicable; (2) achieves the benefits anticipated through closure of supply depots and implementing just-in-time and stockless delivery systems; (3) appropriately balances cost containment and physician preferences in implementing its formularies; (4) facilities use cost-effective strategies to procure high-technology equipment; and (5) facilities both buy high- technology services from and sell such services to other health care providers, including community hospitals and other government agencies whenever cost-effective. An important policy issue relates to the extent to which nonfederal facilities should be allowed to use FSSs. Although NAC offers significant savings compared with local procurement, VA faces a challenge in ensuring that its hospitals obtain pharmaceuticals and medical supplies through NAC rather than through local procurement. Similarly, VA faces challenges in deciding when to establish regional acquisition centers and when to allow medical centers to conduct their own acquisition and when they should rely on NAC. For example, procurements by the regional acquisition centers should complement rather than duplicate those by NAC. Finally, VA faces challenges in ensuring that the prices it pays, whether through NAC, regional acquisition centers, or local procurement, are comparable with or better than prices available through private-sector purchasing groups and alliances. One important policy issue facing the Congress and the administration is the extent to which nonfederal hospitals and health care facilities should be allowed to use FSSs. The Federal Acquisition Streamlining Act of 1994 (P.L. 103-355, sec. 1555) authorized creation of a cooperative purchasing program that would allow state, local, and Indian tribal governments and the Commonwealth of Puerto Rico to purchase pharmaceuticals and other goods and services from FSSs. Neither the nonfederal agencies nor the manufacturers would have to participate. For example, manufacturers could decline to make their products available to nonfederal entities. VA raised concerns that drug manufacturers would seek to increase schedule prices if a larger group of purchasers received access to those prices. As a result, the General Services Administration, which has overall responsibility for the FSSs, proposed that the pharmaceutical schedule be excluded from the cooperative purchasing program because it could otherwise have the unintended effect of increasing federal agencies’ drug costs. Pharmaceutical manufacturers’ and public hospitals’ representatives’ views differ on whether the FSS should be open to nonfederal providers. Representatives of several drug manufacturers explained that their companies have been willing to give federal purchasers such low prices because they consider the FSS to be a special, limited category of pricing that affects no more than 2 to 3 percent of total dollars in domestic pharmaceutical sales. Some manufacturers, however, have expressed an unwillingness to offer the same low prices to an expanded group of government purchasers. They have also expressed an unwillingness to treating similarly different types of purchasers that they are used to treating as separate markets. The Public Hospital Pharmacy Coalition, on the other hand, favors opening the schedule to public hospitals. A Coalition analysis of the differences between FSS prices and the prices nine public hospitals paid for drugs showed that, on average, FSS prices were considerably lower—on average about 17 percent lower—than the hospitals’ purchase prices for 100 drugs on which the hospitals spent the most during fiscal year 1997. The Coalition contends that any adverse effects on FSS or other drug prices would be negligible and state and local purchasers would have access to many FSS prices that would be lower than the drug prices they currently pay. We reported in June 1997 that opening the pharmaceutical schedule to state and local purchasers could change the dynamics of negotiating FSS prices for both VA and drug manufacturers. VA has been able to obtain significant discounts from drug manufacturers by seeking the most favored customer price. Many FSS prices are more than 50 percent below nonfederal average manufacturer prices. The Congress, through the National Defense Authorization Act of 1996 (P.L. 104-106, sec. 4309), subsequently delayed opening the schedules pending our assessment of the possible impact. We reported in June 1997 that the effect of opening the FSSs for pharmaceuticals on schedule prices ultimately depends on the outcome of negotiations between VA and drug manufacturers. It is not possible to predict how schedule drug prices would change or what the ultimate effect on federal, state, and local purchasers would be. However, several factors could cause schedule prices to rise. In emergency supplemental appropriation legislation (P.L. 105-18), the Congress further delayed implementation of the cooperative purchasing program until adjournment of the first session of the 105th Congress. The overall effectiveness of NAC’s efforts to implement just-in-time and stockless delivery depends largely on individual VA medical facilities. VA, however, to assess the effectiveness of these efforts, would need information on the extent to which VA facilities are using just-in-time and stockless delivery systems, VA facilities have reduced inventories and personnel as they implement just-in-time and stockless inventory systems, VA has achieved the expected savings from closing its supply depots, just-in-time and stockless delivery has reduced local procurements, and facilities are using higher cost stockless or just-in-time delivery for items that could be procured through conventional 72-hour delivery. VA faces several challenges concerning establishing VISN and national formularies. First, as previously discussed, some believe that formularies that limit the number and types of drugs a hospital stocks may reduce pharmacy costs but increase overall health care costs. Because VA’s national and VISN formularies were recently established, no data are available yet to determine the extent to which they reduce the number of drugs hospitals stock or their effect on drug costs and overall health care costs. The effect of VA’s formularies on health care costs depends on many factors, such as the amount of flexibility they, and individual hospital directors, give physicians in prescribing drugs not on the formulary. If a physician can easily prescribe a drug not on the formulary and obtain it within 8 hours through stockless delivery or local procurement, then VA may limit its savings by limiting the number of drugs on its formularies. On the other hand, placing too many restrictions on physicians’ ability to prescribe drugs not on the formulary might deny them the ability to tailor treatments to individual circumstances. Another uncertainty about the effect of VA’s formularies on costs is the extent to which the formularies would succeed in changing physicians’ prescribing habits. Finally, the formularies’ effectiveness in reducing procurement costs depends on how restrictive the formularies are. Hospital directors face difficult challenges in choosing the most cost- effective strategies for procuring high-technology equipment. Procuring refurbished equipment offers significant cost savings, but little is known about the experiences—either positive or negative—with such equipment and individual refurbishers. Hospital directors often hesitate to buy such equipment because of concerns about its reliability. NAC has tried to address such concerns through its program to certify remanufacturers. Still, FDA’s limited oversight of refurbishers might hinder efforts to expand use of refurbished equipment. Another alternative to buying new equipment is transferring equipment within the VA system. With the planned integration and consolidation of VA hospitals, VA may have excess high-technology equipment. Hospital directors, however, may have the same concerns about the reliability of used equipment that they have about refurbished equipment. Although the Under Secretary’s Criteria for Potential Realignment of VHA Facilities and Programs calls for VISNs to purchase services from community providers when such services are equal in quality and lower in price, VISN plans indicate sharing agreements only between VA and the military hospital care system. Without assessments of underused capacity in the surrounding community, VA hospitals may purchase high-technology equipment that increases excess capacity. Similarly, where VA already has underused high-technology equipment, selling the excess capacity both to government and private-sector providers could generate additional revenues and help other health care facilities avoid procuring high-cost equipment that would probably increase excess capacity. For example, additional opportunities may exist for VA facilities to sell services to the Indian Health Service and Bureau of Prisons. Similarly, VA might be able to provide high-technology services to support community health centers in exchange for primary care services for veterans. Another approach being pursued by some VA hospitals is jointly procuring high-technology equipment with teaching affiliates, DOD hospitals, or community hospitals. Finally, VA has increased its sharing with both nongovernment and DOD health care providers. The following are among the challenges VA faces in implementing such agreements: VA must ensure that payments cover VA’s cost of providing the services. This is important primarily if VA is maintaining capacity expressly for selling it to CHAMPUS or TRICARE, in which case any deficit detracts from funds available for serving veterans. VA must ensure that sharing agreements do not detract from services available to veterans. As excess capacity grows, community hospitals are seeking ways to retain current users and attract new ones. Among the ways they are marketing their services and building market share are redesigning the hospital environment to be more homelike, conducting market research and patient satisfaction surveys, advertising their services, contracting with managed care plans and preferred provider organizations (PPO), and establishing service delivery arrangements with physicians to increase referrals. In general, VA has not as actively marketed its hospital services as the private sector. Its facilities generally lack the privacy and other amenities typical of community hospitals. In addition, VA does not pay for advertising to attract new users or enter into risk-sharing agreements with either managed care plans or physicians to build workload. VA is, however, beginning to change the way it markets its health care services; it is increasing its use of market research and patient satisfaction surveys and expanding efforts to sell its excess resources to DOD and others using its recently expanded contracting authority. If VA decides to try and preserve certain VA hospitals by competing with private-sector hospitals, then it will probably have to expand its marketing efforts. Among the decisions that VA would face is whether to revise its policy against using paid advertising and—if it decides to advertise— whether to use comparative or negative advertising. Similarly, VA would also have to decide on the extent to which it should (1) market its services to nonveterans, (2) enter risk contracts with managed care plans and individual physicians, (3) invest resources in improving privacy and amenities in VA hospitals, and (4) grant admitting rights to non-VA physicians with practices near a VA hospital. Community hospitals are increasingly marketing their services directly to patients. An important part of such marketing efforts is redesigning hospitals to provide a more homelike environment. Although VA has made some progress in improving the privacy and amenities offered by its hospitals, most VA hospitals cannot compete with community hospitals in these areas. People often view the comfort and appearance of hospital rooms as a reflection of a hospital’s attitude and concern toward patients.Designing the physical environment is important because patients and their families tend to judge a hospital by their first impression. For example, hospitals that appear old fashioned and run-down are not likely to instill confidence in the medical treatment. Unattractive facilities have also been reported to adversely affect patients’ psychological well-being. Patients already depressed about their health tend to become more depressed in a drab environment, slowing their recovery. Just as a drab hospital can adversely affect patients’ perceptions of the quality of care they receive and therefore their psychological well-being, a hospital designed to provide a bright, homelike feeling can instill patients’ confidence in a hospital and the quality of care it provides. Among the approaches community hospitals have used to make their facilities more appealing to patients and visitors are color, artwork, plants, attractive and comfortable furnishings, and textured walls. Following are examples of such approaches: Methodist Hospital in Omaha, Nebraska, renovated its hospital wards to create a more homelike environment. It created mini-nursing stations between every two to four patient rooms to locate nurses closer to the patients. It changed most of its semiprivate rooms to private rooms and added handicapped-accessible bathrooms. It added chairs that fold down into beds to patient rooms to accommodate family members. In addition, it established family lounges, nourishment stations with beverages and microwaves and a deli-style cafeteria to accommodate visitors. The hospital remodeled patient rooms to include clocks, plant shelves, and erasable “white” boards for leaving messages. To create a homelike environment, designers used light wood with drapes and wall coverings in soothing colors. The Samuels Planetree Model Hospital Unit in New York City, a 945-bed, not-for-profit tertiary care teaching hospital, remodeled patient rooms to include (1) patterned curtains, (2) soothing wall and hallway colors, (3) furniture that was both attractive and comfortable, (4) a special living room setting where patients and visitors could spend time together, and (5) a sleeper couch in the patient room where family members or friends could comfortably stay overnight. In addition to a television, the rooms include magazines and a videocassette recorder. The hospital also added a kitchen for use by patients’ family and friends. Baptist Hospital in Miami, Florida, redesigned its emergency room to create the ambiance of a hotel lobby. Natural light was filtered, artificial lights focused on architectural details, and high-tech machines hidden behind panels or camouflaged by soft fabrics. Because the hospital converts about 25 percent of its emergency room visits into admissions, it believes the calming and attractive design of its emergency room contributed to an increase in hospital admissions. Some community hospitals have focused on changes to attract certain types of patients such as the affluent. For example, Christ Hospital in Oak Lawn, Illinois, decorated rooms with 18th century furniture and began offering specially prepared meals served on china to attract affluent patients. Similarly, Century City Hospital in Los Angeles designed rooms with rich wood patterns, faux marble, and plaster moldings. The hospital’s luxury accommodations also include imported china, silver flatware, and antique artwork. Just as giving hospitals a more homelike appearance can influence patients’ overall perceptions, accommodating patients’ disabilities can increase patient satisfaction. For example, by lowering closet rods, hospitals can allow patients in wheelchairs to be more independent. Similarly, chairs designed to allow patients to rise without help can increase patients’ independence and reduce demands on nurses. VA hospitals have a distinct competitive disadvantage compared with community hospitals regarding privacy and hospital amenities. VA hospitals are often outdated and lack amenities comparable with private-sector hospitals. Most VA hospitals are more than 30 years old, some more than 50 years old. Although VA has some hospitals that are relatively new or have been updated, many still have four- and six-bed rooms and communal toilets and showers. In addition, many VA hospitals lack basic amenities, such as in-room televisions, that community hospitals have. Beyond amenities, older VA facilities face additional structural problems. For example, they often have inadequate space in clinics and nurses’ stations, poorly designed intensive care units, and inadequate ventilation systems. VA has, however, made progress in improving both privacy and amenities. For example, in response to recommendations from us and the Vice President’s National Performance Review, VA has installed bedside telephones in its hospitals. The lack of privacy in VA hospitals can create particular problems for women veterans. In 1982 and again in 1992 and 1994, we reported on VA facilities’ problems in accommodating women veterans. At the time of our 1982 report, women could not be accommodated in 10 of the 16 domiciliaries and in some inpatient psychiatric programs. By 1992, VA had made significant progress in improving the availability of services for women veterans; by that time, for example, VA could accommodate women in all VA domiciliaries. Still, VA had problems in meeting women’s privacy needs. For example, men and women still shared communal showers at many facilities. At our urging, VA surveyed all of its facilities to identify needed construction projects to ensure women adequate privacy. Medical centers identified almost $1.5 billion worth of projects. By October 1993, 131 of the 336 planned projects had been completed or funded at an estimated cost of over $672 million. VA expected most of the remaining projects to be funded by the year 2000. In a separate survey conducted in late 1993, VA facilities identified over $3.3 billion in construction and renovation projects it viewed as necessary to allow VA to effectively compete with the private sector. The Veterans Health Administration’s (VHA) Strategic Planning and Policy Office compiled a prioritized inventory of requested projects ranging from improving patient amenities to new bed towers. The Office requested more than 1,400 of these projects. Even this estimate, however, did not accurately portray the capital investment that would be needed to make VA competitive with community hospitals in the area of amenities. This is because the amount VA planned to spend on construction projects was capped at $3.3 billion. VA has not proceeded, however, with most of the projects. Because of the uncertainty about the future missions of and demand for care in many VA hospitals, VA, at our urging, has limited its major construction projects primarily to expanding outpatient capacity rather than building or renovating hospital capacity. For example, in its fiscal year 1998 budget submission, VA sought $79.5 million for major construction and renovation of medical facilities, of which $35 million is for seismic corrections at the Memphis, Tennessee, medical center. VA’s Prescription for Change does not address improving the appearance and amenities of VA hospitals to make them more attractive to potential customers. Nor do Veterans Integrated Service Network (VISN) strategic plans generally address improvements to hospital privacy and amenities. The VISN 6 (Durham) plan, however, discusses renovations to improve privacy particularly for women veterans and identifies planned projects at the Beckley, West Virginia, and Salisbury, North Carolina, medical centers. It notes that the acute medical and surgical wards at the Salisbury hospital include one-, two-, three-, and four-bed rooms, but less than 10 percent have toilets. The planned renovation would increase privacy and provide handicapped-accessible bathing and toilet facilities. The other VISN strategic plan that discusses amenities—VISN 18’s (Phoenix)—focuses on services rather than renovations. Specifically, this network plans to establish a guest services program that will use hotel-like amenities and services for its hospitals. To effectively market their services, hospitals need information on both current and potential users. For example, they need to know who is using their services and their motivation (convenience, reputation for quality, amenities, services, and the like) for using that particular hospital. Just as important, they need to know who is not using their services and why. They need information on the types of outreach efforts (newspaper, television, or direct mail) that will most effectively attract new users and retain current ones. Among the methods hospitals use to identify potential customers and retain current ones are patient satisfaction surveys and market research. VA, like community hospitals, is increasingly emphasizing customer satisfaction and market research to help keep current users and identify potential new ones. With decreasing demand and increasing competition, hospitals no longer assume that users will choose the same hospital in the future. Hospitals therefore are increasingly focusing on ways to improve customer service. An important way to identify what patients like and dislike about a hospital experience is the patient satisfaction survey. Both community and VA hospitals use such surveys extensively. Responses to patient satisfaction surveys tend to focus on interactions— either positive or negative—with hospital staff. The results can thus provide important information on needed changes in staff education and training to improve customer service. Such surveys can also identify other changes in the hospital that might attract users. For example, surveys that reveal frequent complaints about the food service, delays in answering call buttons, or drab decor can be used to target needed changes. Hospitals can conduct satisfaction surveys in several ways. For example, hospitals can call patients or send them a questionnaire after patients are discharged. Patient satisfaction surveys generally show a relationship between patient satisfaction and whether the patient will return to the same hospital. One approach to improving patient satisfaction, developed by the Cleveland Clinic Foundation, is a Patient Callback Program. The hospital calls patients 3 weeks after discharge to identify and resolve any clinical or service concerns. The hospital found that the program creates perceptions of higher quality care and contributes to more effective clinical care by identifying patients’ concerns. Other reported benefits of the program are identifying and resolving past and current problems and increased patient satisfaction, leading to a greater likelihood of future use by the patients as well as their family and friends. Although the hospital initially limited the program to patients discharged from surgical services, it subsequently expanded the program to include discharges from medical bed sections and outpatient surgery. Historically, veterans often complained about excessive waiting times for VA care and poor customer service. For example, participants in 14 focus group discussions we held with veterans nationwide during 1994 elicited frequent complaints about poor customer service, poor staff attitudes, excessive waiting times, and inadequate parking. Similarly, the Vice President’s National Performance Review made a series of recommendations in September 1993 intended to improve customer service throughout VA programs. Subsequently, VA established the National Customer Feedback Center and began revising the standard of care and therefore increasing patient satisfaction. In addition, VA published customer service standards for its medical facilities in October 1994. VA’s Prescription for Change identifies several planned actions to assess and improve patient satisfaction. For example, it provides that VHA will annually assess compliance with the customer service standards through patient surveys. In addition, it provides for the development and implementation of corrective action plans for those areas in which customer feedback or other data indicate a need for service improvement. VA’s fiscal year 1998 budget submission identified two performance measures based on the customer service standards. The first performance measure is to increase the percentage of patients reporting their care as very good to excellent by 5 percent annually, starting at 60 percent for both inpatient and outpatient care. VA reported that it met the goal for inpatient care but satisfaction with outpatient care increased by only 1 percent. The second measure tracks VISN improvements regarding nine customer service standards. VA’s goal is for 95 percent of its networks to improve performance on two-thirds of the customer service standards. VA will gauge progress on the basis of results of surveys mailed to veterans nationwide receiving VA care. VA reported that in fiscal year 1996, 86 percent of VISNs showed improvement on two-thirds or more of the customer service standards. Demographic information on users helps hospitals target marketing toward nonusers most likely to be influenced by such efforts. In other words, if a hospital has historically drawn users from a particular demographic group, such as the uninsured or elderly, it may want to target those demographic groups in its marketing efforts. In addition to identifying the demographics of the market area’s population, a hospital may want to elicit perceptions about it that might hinder efforts to attract new users and identify added services that might attract users as well as evaluate the competition. On the basis of such research results, hospitals develop marketing strategies that target advertising toward certain types of people or add services likely to generate new workload. One of the actions discussed in VA’s Prescription for Change is the use of focus groups and customer surveys to evaluate services. According to the Prescription, VA conducted focus groups and telephone market surveys in the referral networks of over 75 medical centers during 1994 and 1995. The studies targeted current and former users as well as nonusers to get a better understanding of VA’s current and potential customers, their perceptions about VA, and their individual needs. VISNs appear to be further expanding the use of market research. Almost all VISN strategic plans indicate that market surveys have been planned or completed, often through contracts with public polling firms such as the Gallup Organization. In the past, hospitals did not extensively advertise or otherwise market their services, relying instead on physicians to generate workload. As patients and their families have expanded their role in selecting hospitals, advertising has become an important marketing tool for community hospitals. Although VA directives do not permit the use of paid advertising to market health care services, VISNs and individual facilities may use a variety of other methods, such as newsletters and public service announcements, to inform veterans of their VA benefits. Historically, patients typically relied on their family physician to determine where they went for hospital care. Those patients choosing their own hospital generally did not have a family physician and tended to use the hospital emergency room as a physician’s office. In other words, their choice of hospitals was more a matter of necessity than preference. In the mid-1980s, an estimated 40 percent of patients (or their family members) chose their own hospital. By the 1990s, however, one report estimated that 90 percent of hospital inpatients were playing an active role in choosing their own hospital, often on the basis of others’ opinions. A logical outgrowth of this trend has been increased hospital advertising directed toward patients and their families. Advertising generally promotes the hospital’s services without criticizing other hospitals. Hospital advertisements have progressed from providing general information to advertising such distinct product lines as cardiology, psychiatry, and lithotripsy. Hospitals in major urban areas advertise more than hospitals in rural communities, and large hospitals advertise more than small ones. To be effective, hospital marketing programs must specifically target the correct individuals with appropriate messages to convince them to become hospital customers. Advertising campaigns often target specific groups of potential users gleaned from market research. For example, hospitals may target their marketing toward people between the ages of 50 and 60 because this age group accounts for nearly 60 percent of all health care spending. Others may target the elderly because they represent the fastest growing segment of the population and are the most intensive users of health care services. A third target of marketing efforts is people interested in the wellness movement: Some hospitals have developed programs targeted to attract individuals interested in exercise, diet, and preventive health programs. Unlike the private sector, VA is restricted in its ability to advertise its health care services to the general public. VA may prepare informational brochures and public service announcements, but it may not advertise in newspapers or on radio or television. VA regulations limit the use of paid advertising to personnel recruitment and certain loan guaranty activities; they specifically prohibit the purchase of advertising time and space to promote VA benefits and services. Although it may not generally use paid advertising, VA has express authority to conduct a Veterans Outreach Services program to ensure that all veterans are “provided timely and appropriate assistance to aid and encourage them in applying for and obtaining” VA benefits and services. According to two VA assistant general counsels, this authority requires VA to distribute full information to eligible beneficiaries on all services for which they might be eligible. This, according to VA’s Office of General Counsel, permits VA to advertise VA medical services using exhibits, photographic displays, and other visual educational information and descriptive material. In addition, the assistant general counsels concluded that although VA’s authority to conduct outreach does not specifically authorize VA to give information to veterans comparing VA services with those of other providers, VA could determine that to give veterans full information, it might be necessary to give them comparative information. The two assistant general counsels, however, concluded that VA may not, under its legislative authority, conduct negative advertising or, under VA policy, use paid advertising to promote its health care services. The assistant general counsels recommended that the VA policy be revised to explicitly authorize use of paid advertising. As of August 1997, the policy had not been revised. Neither VA’s Vision for Change nor its Prescription for Change contains specific initiatives about advertising and outreach. Many of the VISN strategic plans, however, discuss outreach efforts, including the following examples: VISN 3 (Bronx) established a network marketing implementation group and conducts direct mail outreach to service-connected veterans. VISN 4 (Pittsburgh) plans to mail promotional materials to and telephone targeted groups of nonusers. VISN 16 (Jackson) indicates that its medical centers are encouraged to use customer-centered advertising, including patient newsletters and promotional videos, health information fairs, and good media relations to reach its marketing goals. VISN 22 (Long Beach) plans to publish a quarterly newsletter and use public service announcements to inform veterans of their medical benefits. Another method community hospitals use to maintain or broaden market share is contracts and risk-sharing arrangements with managed care plans. Until recently, VA had no authority to either routinely treat nonveterans or contract with managed care plans. As a result, few VISN strategic plans identify efforts to contract with managed care plans other than DOD’s TRICARE managed care plan. Historically, community hospitals were fairly well insulated from risk. During the 1960s, both public and private insurance generally paid hospitals’ billed charges or actual costs. Although hospitals had a financial risk, they could raise prices to compensate. Hospitals assumed greater risk in the 1970s as insurers increasingly set limits on allowable charges or costs and developed utilization management tools to reduce unnecessary hospital use. It was not until Medicare developed a prospective payment system in 1983, however, that most hospitals had to assume direct risk for the cost of care provided to individual patients. That change, however, did not force hospitals to directly compete with each other for market share. The growth of managed care plans, however, has increasingly put hospitals in direct competition with each other for dwindling inpatient workload. With about 40 percent of hospital beds empty on any given day, managed care plans have strong bargaining power with hospitals. If a hospital charges too much, an HMO will merely contract with another hospital. Managed care plans typically pay hospitals on a per case or per diem basis to encourage efficient delivery of services and discourage the provision of unnecessary services. In return, the HMO typically guarantees a certain workload. Since the mid-1980s, the number of hospital contracts with HMOs has increased significantly. In 1985, only about one-third of community hospitals were providing care to HMO members. By 1990, the percentage of community hospitals contracting with HMOs or PPOs had increased to 63 percent. By 1994, three-fourths of community hospitals reported having such contracts. Unlike community hospitals, VA hospitals generally do not have formal relationships with HMOs or other managed care plans to serve either veterans or nonveterans. To become a preferred provider under some plans, VA would be required to accept discounted payments. Historically, VA has not been allowed to negotiate discounted payments. Before enactment of the Balanced Budget Act of 1997, VA was required to recover its full cost of providing care; it was not authorized to negotiate on the basis of price. The Balanced Budget Act shifted VA’s basis for recovering costs from that of a reasonable cost to a reasonable charge, giving VA greater flexibility to negotiate on the basis of price. VA already had such flexibility when seeking to participate as a provider of care to nonveterans. VA may use its recently expanded contracting authority, which allows it to negotiate payments in the best interest of the government, to sell services to managed care plans. HMOs and PPOs have little interest in VA’s providing services to their veteran policyholders. Because HMOs and PPOs typically pay only for care provided by hospitals that have negotiated provider agreements, they have no obligation to pay VA for care provided to their veteran policyholders as long as they do not accept VA facilities as participating providers. In other words, to the extent that managed care plans’ veteran policyholders obtain care from nonparticipating VA facilities, the plans’ profits will be higher. VA currently contracts with only one HMO—Dakota Care—in South Dakota but has been trying to negotiate with at least two other HMOs to become a participating provider. VA officials attribute their ability to obtain a provider agreement in South Dakota to the state’s rural nature and the limited number of providers. VA is succeeding somewhat more in negotiating provider agreements under its medical care cost recovery authority with point-of-service (POS) plans. Unlike HMOs and PPOs that may be able to avoid all payments to VA (other than for emergency care) by excluding VA as a participating provider, POS plans have less to gain by not accepting VA as a participating provider. This is because a POS plan is obligated to pay providers for nonemergent care, including those without a provider agreement. Since February 1995, VA’s General Counsel has reviewed and approved at least 32 provider agreements between VA facilities and POS plans. VA does not have readily available information on the number of such contracts. In the past, VA was not allowed to sell hospital services to managed care plans. It could sell any health care service to DOD and other federal agencies and specialized medical resources to hospitals, clinics, and medical schools. VA’s 1996 Prescription for Change recognized, however, the need to market specialized VA clinical services to other government health care providers and the private sector. It also noted that legislation was pending that would expand VA’s resource-sharing authority to allow VA to offer any health care resource to any public or private entity. Because of VA’s limited sharing authority, its Prescription focused primarily on increasing sharing with DOD and other government health care programs. For example, VA plans to implement contracts with regional TRICARE contractors and providers as DOD expands TRICARE nationwide. VA’s Prescription notes that a standard provider agreement has been negotiated with Foundation Health Corporation for medical and surgical care. Contracts with TRICARE are mentioned in the strategic plans of VISNs 5 (Baltimore), 14 (Grand Island), and 16 (Jackson). With the enactment of Public Law 104-262 later in 1996, VA received authority to sell hospital and other health care services to managed care plans and others. Because the legislation was passed after VA’s Prescription for Change was issued and during the development of the VISN strategic plans, these plans do not address expanding contracting with managed care plans. Community hospitals are also seeking to maintain or broaden their market share by purchasing physician practices and securing a patient base through various risk-sharing arrangements with physicians. VA does not have similar risk-sharing arrangements with private practice physicians but is establishing community-based outpatient clinics (CBOC) to encourage more referrals to VA hospitals. Physicians and hospitals see benefits from closer cooperation in an environment of higher financial risk. Hospitals see stronger linkages with primary care physicians as an important source of hospital admissions, particularly under managed care plans. They also see such linkages as allowing them to shift some financial risk to physicians. Individual and small group (physician) practices benefit because such arrangements allow them access to sophisticated information systems, medical technology, and personnel familiar with managed care contracting, marketing, and management without investing significant capital. Many community hospitals seek to increase their market share by obtaining control of physicians either by buying physician practices or providing them substantial subsidies. One study noted that the percentage of physicians practicing as employees rose from 24.2 percent in 1983 to 42.3 percent in 1994. During that period, the percentage of self-employed physicians in group practices fell from 35.3 percent to 28.4 percent. The study notes that most such change occurred during the last 6 years of the 12-year period and was most prominent among young physicians. Increased earnings of employee physicians compared with those of self-employed physicians accounts for the shift. The Prospective Payment Assessment Commission reported in 1996 that hospital-physician arrangements improve hospitals’ ability to secure managed care contracts, expanding market share and improving financial performance. The Commission noted that such arrangements subject both hospitals and physicians to increased financial risk but also create opportunities for greater profits. Concerns have been raised about such hospital-physician arrangements. For example, some are concerned that these arrangements may violate antitrust laws. In addition, some believe that an inherent conflict exists in hospital-physician arrangements because the two principals have different strategic needs. Hospitals and physicians often have opposing views on such issues as working environment, decision-making goals, and working and management style. Others have questioned whether the hospitals and other health care organizations acquiring physician practices are realizing a positive return on investment. One author notes that acquisitions often create excess capacity, raise costs, and reduce an organization’s ability to attract managed care contracts. Finally, concerns have been expressed about the methods used to value the physician practice and potential violations of the Medicare anti-kickback statute when physician practices continue to be affiliated with the buyers of those practices. Unlike community hospitals, which rely primarily on private-practice physicians to generate hospital admissions, VA hospital admissions come mainly from within the VA system. Only salaried VA physicians may admit and treat patients at VA hospitals. As of February 1998, VA had, however, opened 198 CBOCs since 1994, which have brought new users into the system. A CBOC is either a VA-operated clinic or a VA-funded or reimbursed private clinic, group practice, or single practitioner that is geographically distinct or separate from the parent facility. CBOCs provide only primary care and are expected to refer veterans to VA hospitals for inpatient and more specialized care. Unlike the hospital-physician arrangements emerging in the private sector, however, CBOC physicians have no financial incentive to refer patients to VA hospitals. VA has established a goal of increasing the number of VA users by 20 percent over the next 5 years to use its excess capacity. VA will need to address many issues, however, concerning the likely effect of this strategy on the use of its excess hospital capacity. Although VA appears capable of attracting new users through its plans to establish additional CBOCs, this approach is not likely to generate much new demand for VA inpatient hospital care. This is because new users are most likely to choose their local hospital rather than a distant VA facility and veterans’ use of VA hospital care decreases significantly at distances of over 5 miles from the hospital. In addition, to the extent that physicians at CBOCs have admitting privileges at nearby community hospitals, they will have little financial incentive to refer patients to a distant VA hospital. One option for increasing referrals from CBOC physicians would be to use physician incentive arrangements like those used by community hospitals. If VA decides to try to preserve certain VA hospitals by competing with private-sector hospitals, then VA might want to target its marketing efforts toward veterans and nonveterans living near its hospitals. One approach might be to grant admitting privileges to private practice physicians. This might increase referrals of veterans who routinely obtain needed health care services from private practice physicians. Such physician referrals are an important source of admissions to community hospitals. VA’s 1992 National Survey of Veterans found that most of the veterans surveyed (74 percent) indicated that they did not use VA hospitals because their private practice physicians would most likely send them to a specific hospital. Another approach for increasing hospital users would be for VA hospitals to become preferred providers under managed care plans. This might generate new hospital demand from both veterans and nonveterans who normally use other hospitals. The success of such efforts, however, would depend on many factors. The perceptions, if not the reality, that VA facilities are outdated, lack the patient amenities of private-sector hospitals, or provide inadequate care and customer service will probably affect the decisions of both veterans and nonveterans to use VA hospitals. Because most patients have a choice of whether to go to a VA or community hospital, considerable uncertainty surrounds VA’s ability to attract more hospital users. In addition, managed care plans may be unwilling to contract with VA for hospital care because of the lack of privacy and amenities comparable with what their members are accustomed to. Spending money to improve privacy and amenities in VA hospitals to attract additional hospital users would, however, be risky. Even if VA hospitals were to provide modern accommodations with private and semiprivate rooms, veterans may still have negative perceptions of the VA system and its quality of care. VA attributes such perceptions to its inability to use paid advertising to change people’s perception. This creates difficult policy choices. For example, should VA change its policy on use of paid advertising to attract new users? If so, what restrictions should be placed on such advertising regarding comparative and negative advertising? The ability of VA to attract new hospital users will also probably depend on the population VA targets. For veterans with limited resources and no health insurance, VA may be their only health care option. But VA wants to serve more higher income, Medicare-eligible veterans. Most such veterans either have Medigap insurance as well as their Medicare coverage or are enrolled in Medicare HMOs. As a result, these veterans incur no or minimal cost sharing regardless of where they obtain care. Medicare-eligible veterans have used VA hospital care less and less since the mid-1980s. Other individuals VA appears to be targeting as new users are those with private health insurance. Veterans with private insurance are, however, less likely to use VA hospitals than are those without insurance. Therefore, considerable uncertainty exists about the ability of VA to increase use of VA hospitals by targeting marketing efforts toward insured and higher income veterans. Pressures resulting from prospective payment, capitation, and utilization review have forced community hospitals to more closely monitor and manage the treatment of individual patients to ensure the cost- effectiveness of their care. Specifically, hospitals are implementing clinical guidelines to help physicians and other caregivers follow cost-effective courses of treatment; developing outcome measures to enable hospitals to evaluate their performance and that of individual physicians; performing tests and other procedures on an outpatient basis before, or as an alternative to, admitting patients; and discharging patients sooner to alternative settings such as nursing home, home health, and hospice care. VA’s Prescription for Change outlines ambitious plans for VA to expand the development and use of clinical guidelines, develop and implement outcome measures, and shift care from inpatient to outpatient and other more cost-effective settings. Veterans Integrated Service Network (VISN) strategic plans generally identify additional such efforts. Neither VA nor the private sector is sure about the extent to which clinical guidelines are being followed and to what effect. Similarly, both VA and the private sector are in the early stages of developing and using outcome measures. Some of VA’s early efforts to develop performance measures, however, have focused more on process than outcomes and appear to conflict with other VA initiatives such as the Veterans Equitable Resource Allocation (VERA) system. Finally, VA faces challenges in ensuring that its facilities shift care to other treatment settings when cost-effective. Both community and VA hospitals are increasing efforts to develop and implement clinical guidelines. Despite the rapid development of guidelines, little effort has been devoted to determining whether they achieve their intended effect. A clinical guideline explicitly states what is known and believed about the benefits, risks, and costs of a particular medical treatment intended to achieve a meaningful difference in patient outcomes. By identifying which services are beneficial (and which are not), guidelines can help patients get needed care and help them avoid the risks of unnecessary services. Guidelines can also support cost containment efforts by reducing unnecessary care and providing information on the benefits, risks, and costs of services. Such information can help patients, physicians, payers, and others make appropriate choices in an environment of limited resources. Without guidelines, attempts to contain health care costs may inadvertently result in patients being denied needed services. The Physician Payment Review Commission classifies clinical guidelines as either diagnostic, management, or service. Diagnostic guidelines establish procedures for evaluating patients with particular symptoms (such as chest pain) to effectively identify the source of the problem. Diagnostic guidelines can also be developed to guide providers in screening asymptomatic patients for early stages of disease. Management guidelines establish appropriate courses of treatment once a diagnosis has been made. Finally, service guidelines identify appropriate and inappropriate uses of particular diagnostic and therapeutic procedures (such as a chest X ray, colonoscopy, or administration of hepatitis vaccine). Service guidelines help in deciding whether a particular treatment or test should be administered. A guideline’s effectiveness is evaluated by the frequency with which it produces the desired patient outcome. For example, a diabetes guideline might be evaluated on the basis of its success in regulating patients’ hemoglobin levels. Similarly, a hypertension guideline might be evaluated using a longer term (over time) outcome measure, such as reduced morbidity and mortality from coronary artery and renal disease and stroke. The Congress created the Agency for Health Care Policy and Research (AHCPR) to sponsor clinical guidelines development and conduct research on medical outcomes to provide information needed for developing future guidelines. In March 1992, AHCPR issued the first of 18 clinical guidelines it developed—on acute pain management and urinary incontinence in adults. Multidisciplinary panels knowledgeable about managing certain conditions developed the guidelines. AHCPR chose these areas for guideline development because they permitted consideration of the following factors: the adequacy of scientific-based evidence; the number of people whose care the guidelines would affect; the likelihood of the guidelines’ reducing variation in prevention, diagnosis, management, and outcomes of the condition; the specific needs of Medicare and Medicaid beneficiaries; and the costs of treating the condition to all payers, including patients. Many others are also developing clinical guidelines. For example, in a 1991 report, we identified 27 medical specialty societies that had or were developing clinical guidelines. Similarly, a 1992 Physician Payment Review Commission report indicated that more than 1,000 guidelines, covering an array of topics, had been identified by the American Medical Association (AMA). The Commission reported that more than 50 organizations were developing clinical guidelines, including professional groups, payers, hospitals, academic medical centers, HMOs, government agencies, public and private researchers, and malpractice insurers. Hospital executives view guidelines as important in shaping the future of health care. Asked what key factors will influence health care delivery in the years ahead, 41 percent of executives in a 1995 survey cited clinical guidelines and outcome measures compared with just 22 percent of executives surveyed in 1990. Moreover, nearly two-thirds of the executives believed that costs can be successfully controlled by using monetary physician incentives if effective protocols and guidelines are developed. VA, like AHCPR, AMA, and the specialty societies, is developing and implementing clinical guidelines. Using AHCPR and other guidelines as a starting point, VA developed national guidelines for rehabilitation of stroke patients and treatment of amputees in June 1996. Other nationally developed guidelines cover major depressive disorders, diabetes, psychoses, and ischemic heart disease. National guidelines are under development for anxiety, gout, degenerative joint disease, asthma, and prostate disease, among others. In addition to these clinical guidelines, the Veterans Health Administration (VHA) has developed several pharmacological management guidelines. These guidelines, developed by VA’s Pharmacy Benefits Management Medical Advisory Panel, cover drug therapy for chronic obstructive heart disease, human immunodeficiency virus/acquired immunodeficiency syndrome, hyperlipidemia, hypertension, and noninsulin-dependent diabetes. Guidelines are being developed for congestive heart failure, depression, peptic ulcers, glaucoma, benign prostate hypertrophy, and degenerative joint disease. In his 1996 Prescription for Change, the Under Secretary for Health called for the increased use of clinical guidelines to both measure and improve care in the VA system. In response to his earlier Vision for Change, the Office of Policy, Planning, and Performance and the Office of Patient Care Services began distributing existing guidelines and efforts to develop a uniform process for developing and implementing clinical guidelines. Under the guidance issued in VA’s Prescription for Change, VISNs are expected to standardize clinical processes by using nationally developed clinical guidelines. In addition, the Prescription for Change indicated that VISNs are expected to delegate clinical care responsibility to nonphysician caregivers, when appropriate, through locally developed clinical pathways. VA’s Prescription also called for establishing minimal criteria for local development of clinical pathways and a mechanism for internetwork sharing of pathways. Subsequently, a clinical pathways networking group was established at the Quality Management Institute located at the Durham VA medical center. In 1995, the Institute published a directory of clinical pathways. Under its 1997 Network Directors’ Performance Measures, networks were expected to implement, by September 30, 1997, 12 nationally developed networkwide clinical guidelines, 2 of which must focus on special- emphasis populations. Our review of VISN strategic plans identified a wide range of actions to implement clinical guidelines and pathways: VISN 1 (Boston) indicated that it had developed clinical guidelines for eight health conditions, including diabetes, pneumonia, and congestive heart failure. VISNs 3 (Bronx) and 6 (Durham) indicated that they implemented five clinical guidelines in fiscal year 1996. VISN 5 (Baltimore) indicated that it has implemented 34 national clinical practice guidelines and plans to develop clinical pathways for the network’s top five diagnoses during fiscal year 1997. VISN 10 (Cincinnati) planned to complete development of 12 clinical pathways in fiscal year 1997, including pathways for stroke, acute and chronic back pain, major depressive disorders, and hypertension. Despite the intense efforts to develop clinical guidelines, little is known about how extensively they are followed and their results. For example, our 1991 study noted that only a few evaluative studies had been done on the effects of clinical guidelines. Similarly, the Physician Payment Review Commission noted in its 1992 report that little was known about the validity of clinical guidelines and that questions existed about how many physicians use or even know about the availability of such guidelines. A 1993 study of 59 published evaluations of clinical guidelines, however, concluded that explicit guidelines improve clinical practice. All but 4 of the 59 evaluations studied found significant changes in the care proposed by the guidelines. All but 2 of the 11 studies that evaluated patient outcomes found significant improvement. A Canadian researcher noted in 1995 that the ultimate success of clinical guidelines depends on routine evaluation. He also noted, however, that compared with efforts to develop guidelines, little effort is devoted to their evaluation. Similarly, neither VA’s Prescription for Change nor individual VISN strategic plans focus on determining the extent of the use of the guidelines being developed and their effect on patient care. VA does, however, assess the extent to which nationally recognized clinical guidelines are followed in treating certain high-cost/high-volume conditions such as diabetes and hypertension. VA’s draft strategic plan, developed under the Government Performance and Results Act, indicates that VA plans not only to expand the development and implementation of clinical guidelines, but also, in future years, to analyze how the guidelines are working to improve care processes and patient outcomes. According to the draft plan, by the year 2000, VA expects to be able to demonstrate improved processes resulting from six of its clinical guidelines. By the year 2002, it expects to be able to implement improvements in patient care or patient outcomes resulting from clinical guidelines. The private sector, the Health Care Financing Administration (HCFA), and VA are developing outcome measures to compare the performance of hospitals, physicians, and health plans. Outcome measurement is the assessment of the results or consequences of a medical intervention.Typically, comparative analysis is used to determine whether a course of treatment or medical intervention had its intended effect. For example, a patient’s condition at the end of a course of treatment is compared with his or her condition before treatment. Similarly, mortality rates for a specific surgical procedure may be compared with some baseline. Whether comparing hospitals, health plans, or physicians, outcome measures must compare like procedures and like patients. For example, it is meaningless to compare mortality rates following a heart transplant with mortality rates following the setting of a broken arm. It is also important to compare similar hospitals and patients. For example, mortality rates for a teaching hospital that accepts the most complex surgery cases should not be compared with those of a small rural hospital performing only minor surgery. Similarly, mortality rates for 25-year-old males should not be compared with those for 75-year-old males to assess effectiveness of care. Severity determinations attempt to group diseases (and patients) of similar intensity to make outcome comparisons meaningful. For example, the rate of patient deaths following open-heart surgery may be compared with rates in other hospitals or with some national average. Similarly, patient satisfaction can be compared over time. Attempts to assess hospitals’ performance using outcome measures have been under way for several decades. These assessments have been performed by federal and state inspectors, private accrediting agencies, and health care organizations. But specific results of these activities have been generally kept confidential. Other than informal communication or knowledge of an organization’s accreditation or license, corporate and individual health care purchasers had no method for determining which organization provided the best care. Outcome measures are intended to (1) provide hospital managers, managed care plans, and physicians information on the relative effectiveness of their treatment programs, allowing them to focus changes on problem areas; (2) provide consumers with meaningful data to use in making health care choices on the basis of quality as well as price; and (3) allow regulators to identify and sanction physicians and hospitals providing substandard care. Employers and consumers are increasingly seeking outcome data to help guide their selections of hospitals, health plans, and other providers. As employers negotiate for lower premiums or limit employees’ access to providers, they want to ensure that their employees still receive quality care. Individual consumers want assurance that they have access to quality providers and that they make the right health care decisions. As a result, both employers who purchase health care and individual consumers have demanded more information about quality. The first widespread public disclosure of quality assessment using outcome measures took place in 1987 when HCFA reported on the observed and expected mortality rates in hospitals performing coronary artery bypass graft surgery. Although the data were intended to be used only by peer review organizations and hospitals for quality assessment purposes, the news media obtained the data through a Freedom of Information Act request and ranked hospitals from the best to worst. HCFA officials continued to release the data until 1993, when they stopped the practice, citing problems with the reliability of their methods for adjusting the data to account for the influence of patient characteristics on the outcomes. In the mid-1980s, health policy experts advised corporate purchasers that health care costs could be contained if purchasers considered both cost and quality of care information when they made their health care purchases. Early efforts by corporate purchasers, however, progressed slowly as providers and purchasers tried to agree on what performance indicators would be useful. Increasingly, state and federal officials advocated publication of quality of care results, believing that such data could help contain health care expenditures. Both health plans and governmental entities have started to inform the public about the quality of care hospitals and health plans furnish. Summaries of hospital and health plan performance, often referred to as “report cards,” are being developed and published. For example, Pennsylvania, New York, and California have published report cards about hospital services provided in their states. In 1993, the Pennsylvania Health Care Cost Containment Council published the Hospital Effectiveness Report on care provided in 175 Pennsylvania hospitals for each of 53 diagnostic categories during 1991. For each of the 175 hospitals, this report provided data about the number of patients admitted, average severity of illness of those patients when admitted, percentage of patients aged 65 and older, actual and expected number of deaths and complications, average length of stay, and average charge per patient. In addition, health plans, providers, and corporate purchasers working under the auspices of the National Committee for Quality Assurance (NCQA) have been developing and promoting the use of standardized performance measures. NCQA developed a consensus list of performance measures—the Health Plan Employer Data and Information Set (HEDIS)— that could be used by corporate purchasers to assess health plan value. Released in 1993, HEDIS 2.0 includes over 60 indicators that describe performance in five areas—quality, access and patient satisfaction, membership and utilization, finance, and health plan management activities. HEDIS 2.0 indicators measure health plans’ process and structure. Developers did not include indicators that directly measure the longer term results or outcomes of care. They believed that (1) outcomes measurement was not yet an established field of study and (2) many outcomes may not have been meaningful until a lengthy period had elapsed after an intervention. HEDIS developers expect to include outcome measures in future revisions. HEDIS 3.0, released in 1997, features measures that are less process oriented. Working with the developers, HCFA was able to add the functional status of enrollees over age 65 as a measure of the effectiveness of care. This will be HEDIS’ first outcome measure that will track and measure functional status over time. HCFA now requires Medicare managed care plans to use HEDIS to facilitate comparison of plan performance and to hold plans accountable for the care they provide. In addition, HCFA has other efforts under way to develop outcome measures. First, it is working with the Foundation for Accountability (FACCT) to develop quality outcome measures for depression, breast cancer, and diabetes. Second, HCFA and HHS’ Assistant Secretary for Planning and Evaluation recently contracted with the RAND Corporation, a nonprofit research organization, to refine and test three sets of outcome measures to be implemented in 1998. Finally, HCFA plans to administer, through an independent vendor, a uniform Medicare beneficiary survey— the Consumer Assessment of Health Plans Study—to enrollees in Medicare managed care plans. Although significant efforts to develop and implement outcome measures have taken place, a former HCFA Administrator said that getting potential users to use outcome measures has been more difficult than anticipated. In her view, however, it is only a matter of time before such measures are widely used. Just as purchasers are slow to adopt outcome measures, so too are hospitals slow to use outcome measures to improve quality. A 1991 evaluation of 31 hospitals that were using the same outcomes measurement system found that the system alone does not create hospital accountability. Specifically, the evaluation found that 14 (45 percent) of the hospitals were using outcome measures solely to maintain the status quo. The goal of such hospitals was to be within the norm and hope that the changing marketplace would not affect them. The evaluation found that another 35 percent of the hospitals were using outcome measures to achieve financial success rather than financial survival. Administrators at these hospitals were using outcomes information internally to improve resource consumption and to ensure that quality remained within the norms. The evaluation found that only 20 percent of the hospitals made quality their top priority and presented outcomes information, including both clinical and cost data, to physicians for comparison. VA, like HCFA and the private sector, is aggressively developing and using outcome measures. VA expects outcome measures to help it demonstrate the quality and value of its services, assess new and existing technologies, educate patients, improve provider-customer relations, and assess the effects of changes under way in the VA health care system. Many of VA’s efforts are outlined in a March 1997 primer, Using Outcomes to Improve Health Care Decision Making, prepared by VA’s Management Decision and Research Center. The primer identifies several ways in which VA is using outcomes measurement. First, it is developing and using outcome measures as part of the performance contracts between VA central office and VISN directors. VA expects such performance measures to ultimately allow comparison of medical centers within VISNs, among VISNs, and with similar medical centers nationwide. VA also expects to develop performance measures that will permit comparisons of VA and non-VA providers. As part of this effort, VA is developing new methodologies to adjust for differences among patients to facilitate such comparisons. VA also expects to use the results of outcome measures in developing, revising, and distributing national clinical guidelines. The primer identifies a number of outcomes research projects being conducted by VA facilities that could be used for such purposes. These efforts include identifying key variables that could be used to assess the quality of care for patients with hypertension, diabetes, and chronic obstructive pulmonary disease; studying the appropriateness and necessity of cardiac catheterization, coronary angioplasty, and coronary artery bypass graft surgery to determine the appropriateness of their use; examining the necessity of surgery for aneurysms that are not large or studying, in collaboration with the National Cancer Institute, the effects on patient health status and overall costs of alternative treatments for prostate cancer; and studying how the organization and processes of a cardiac services unit are affecting outcomes in open-heart surgery. VA also envisions use of outcome measures to establish performance monitoring systems and mechanisms for distributing best practices systemwide. Finally, VA plans to explore the use of report cards, especially for chronic diseases. VA is discussing with NCQA, which oversees the development and updating of HEDIS, the possibility of developing and applying measures that assess processes of care similar to those in HEDIS. One of the outcome measures VA currently uses is its chronic disease index, intended to assess the quality of services provided to outpatients in high-volume/high-cost diagnostic categories such as diabetes and hypertension. The individual disease-specific measures in the index determine the degree to which VA is following nationally recognized clinical guidelines. VA’s first assessment using the chronic disease index, completed in 1996, found compliance with the guidelines to be 46 percent. VA established a goal to increase compliance to 95 percent in fiscal year 1998. Changes in how hospitals are paid have created financial incentives for community hospitals to admit a patient later or release a patient sooner than medically necessary. Community hospitals have increasingly established separate outpatient departments and shifted many diagnostic and other tests to these departments to avoid unnecessary days of care for elective admissions. Similarly, hospitals often avoid admitting patients altogether by providing services in outpatient departments. For many years, VA lagged behind the private sector in shifting care to outpatient settings in part because its resource allocation methods rewarded hospitals for higher inpatient use. During the past several years, however, VA has aggressively sought to shift more care to alternative settings as reflected in the 20-percent decrease in bed-days of care (BDOC) in fiscal year 1996. The 1986 Annual Report of the Prospective Payment Assessment Commission noted that hospitals may shift services previously performed on an inpatient basis to alternative settings to maximize profits. It noted that hospitals can generate additional profits by providing care in outpatient settings such as outpatient clinics and surgery departments, emergi-centers, dialysis centers, and diagnostic centers. It also noted that this strategy is particularly attractive for vertically integrated hospitals because it allows them to not only reduce the length of inpatient stays, but also capture at least some of the revenues from a patient from preadmission through postdischarge care. Outpatient departments in community hospitals have grown significantly since the 1983 introduction of Medicare’s prospective payment system and the growth of managed care during the 1980s and 1990s. After increasing slightly from 1975 to 1985, the number of visits to hospital outpatient departments nearly doubled between 1985 and 1995. During the same period, the number of days of inpatient hospital care steadily declined (see fig. 11.1). The Prospective Payment Assessment Commission reported that since fiscal year 1983, Medicare expenditures for outpatient services, excluding those for physician services, have risen an average of 14 percent annually, reaching $16.3 billion in fiscal year 1995. An estimated 70 percent of those payments were to hospitals for services provided in outpatient departments. The Commission noted that payment for hospital outpatient services under Medicare is fragmented and provides little incentive for providing care in the most efficient way. According to the Commission, most services are paid on the basis of costs or charges, meaning that lower costs or charges would mean correspondingly lower payments. One reaction of hospitals to Medicare’s prospective payment system and other limits on hospital payments was to provide as many services to patients as possible on an outpatient basis before admission. This is because hospitals could obtain separate payment for every outpatient test and procedure; if they waited until after admitting the patient to perform the tests, they would have to absorb the costs of such services. Services shifted to outpatient settings include both testing and laboratory work and patient education. Medicare subsequently changed its rules for inpatient prospective payment to include tests and laboratory work performed within 72 hours of admission. Nevertheless, hospitals still find it more cost-effective to perform as many tests and as much patient education on an outpatient basis as possible. Following are programs established by community hospitals to increase preadmission testing and education: The Hospital Center at Orange, New Jersey, developed a preadmission testing program that includes laboratory work, electrocardiograms, social and rehabilitative service referrals, patient education, and a nursing assessment. The hospital uses specially trained registered nurses to conduct the preadmission testing. The testing program has reduced costs, increased patient and physician satisfaction, and decreased idle time for both patients and staff. Sarasota Memorial Hospital, in Florida, developed a pre-anesthesia collaborative care track to address problems in preparing patients for surgery. Under the program, the registered nurse anesthesia coordinator ensures that appropriate clinical data are available to avoid last-minute delays and cancellations of scheduled surgical procedures. Delays in performing surgery resulting from the unavailability of needed clinical data are costly to hospitals and distressing to patients. Just as prospective payment gave community hospitals incentives to perform tests and laboratory work on an outpatient basis before scheduled hospital admissions, managed care and preadmission certification programs encouraged hospitals to avoid admitting patients altogether who could safely be treated as outpatients. Community hospitals established outpatient surgery, chemotherapy, renal dialysis, and diagnostic testing programs to shift care to outpatient settings. According to the Health Insurance Association of America (HIAA), by 1993, 83 percent of community hospitals had outpatient departments providing outpatient surgery, examination, diagnosis, and treatment for a variety of nonemergency medical conditions. HIAA notes that hospitals now offer more procedures and treatments on an outpatient basis than in the past and that occupancy in community hospitals continues to decrease in part because of this trend. In addition to traditional medical/surgical care, by 1993 community hospitals were offering a variety of other outpatient services, including substance abuse treatment, AIDS diagnosis and treatment, psychological services, and rehabilitation. (See fig. 11.2.) VA, without the financial incentives of community hospitals, was initially slow to shift care to outpatient settings. VA has long had authority to (1) conduct preadmission tests and provide postdischarge care on an outpatient basis (1960) and (2) provide outpatient care to any veteran if doing so would obviate the need for inpatient care (1973). Studies by the VA Inspector General, VA researchers, and us have found, however, that VA had not effectively used this authority to shift more care to outpatient settings. During the past several years, VA has increasingly focused on providing care in more cost-effective outpatient settings. VA hospitals, like community hospitals, have had steadily increasing outpatient workloads and correspondingly decreasing inpatient hospital- days of care. Much of VA’s increase in outpatient demand, however, can be attributed to eligibility expansions and opening of new clinics rather than shifting care from inpatient to outpatient settings. In its fiscal year 1975 annual report, VA noted the relationship between the “progressive expansion of legislation expanding the availability of outpatient services and increased outpatient workload.” Among the eligibility expansions occurring between 1960 and 1975 were actions to authorize (1) pre- and posthospital care for treating nonservice-connected conditions (1960) and (2) outpatient treatment to obviate the need for hospitalization (1973). Workload at VA outpatient clinics increased from about 2 million to 12 million visits during the 15-year period. Just as these eligibility expansions increased outpatient workload, VA efforts to improve the accessibility of VA care resulted in more demand for outpatient care. Between 1980 and 1995, the number of VA outpatient clinics increased from 222 to 565, including many mobile clinics that bring outpatient care closer to veterans in rural areas. Between 1980 and 1995, outpatient visits provided by VA clinics increased from 18 million to 27.5 million as inpatient days of care were steadily decreasing (see fig. 11.3). As previously discussed, as recently as the early 1990s, the VA Inspector General was reporting that much of the surgery performed in VA hospitals on an inpatient basis could have been performed on an outpatient basis if VA had established outpatient surgery capability at its medical centers. Similarly, studies by VA researchers consistently found that over 40 percent of the days of care in VA hospitals were non-acute. For example, a 1991 VA-funded study of admissions to VA acute medical and surgical bed sections estimated that 43 percent (+ or –3 percent) of admissions were non-acute. Under the study, non-acute admissions in the 50 randomly selected VA hospitals ranged from 25 to 72 percent. The study found that the most common reason for non-acute medical admissions was that care could have been performed on an outpatient basis. All of the surgical admissions determined to be non-acute were found to (1) be procedures that VA had determined could be done on an outpatient basis and (2) lack documented risk factors indicating a need for inpatient care. The study concluded that, on the basis of medical necessity, a large proportion of acute medical/ surgical care in VA medical centers could be shifted to outpatient and long-term care settings. Among the reasons the study cited for the high rate of non-acute admissions were the absence of financial incentives for VA hospitals to shift care to outpatient settings; the absence of formal mechanisms, such as mandatory preadmission review, to control non-acute admissions; and VA’s significant social mission that may influence use of inpatient resources. In a separate article, the same authors estimated that 48 percent (+ or –2 percent) of the days of care at the 136 VA medical centers providing acute medical and surgical care were non-acute, ranging from 38 to 72 percent. Yet another study, this one published in 1993, found that (1) 47 percent of the admissions and 45 percent of the days of care in VA medical wards were non-acute and (2) 64 percent of surgical admissions and 34 percent of days of care in VA surgical wards were non-acute. The Under Secretary for Health’s 1996 Prescription for Change identified a series of planned actions to shift more of VA’s care from hospital to outpatient settings. These actions include increasing VA’s outpatient capacity to accommodate the workload shifted from inpatient to outpatient settings; requiring each network to develop hospital admission, utilization, and length of stay criteria; requiring each network to implement preadmission screening programs; increasing outpatient surgery and diagnostic procedure capacity and utilization; and increasing temporary lodging and residential care capabilities to accommodate patients needing housing but not acute hospital care while being diagnosed or treated. Many of these actions, such as establishing preadmission screening programs, temporary lodging, and outpatient surgery programs, address the specific problems identified in the above-mentioned studies. VA established performance measures to gauge its progress in implementing some of the actions identified in its Prescription. For example, its fiscal year 1996 performance measures for VISN directors set the expectation that at least 50 percent of surgeries and other invasive procedures would be performed on an outpatient basis; to be considered exceptional, 65 percent or more of surgeries would have to be performed on an outpatient basis. All but eight VISNs met the minimum requirement for fully successful performance; VA determined that each of the eight had made statistically significant improvement. Another performance measure required VISNs to reduce their BDOC by 20 percent during fiscal year 1996. Although seven VISNs did not meet the goal, all had made statistically significant progress. Three VISNs—4 (Pittsburgh), 5 (Baltimore), and 7 (Atlanta)—reported 29-percent reductions in BDOC. Finally, the performance measures required all VISNs to establish, by September 30, 1996, (1) temporary lodging capacity to accommodate 10 patients, (2) a VISN-wide preadmission screening program, (3) admission and discharge planning programs, and (4) a telephone liaison program. VA reported that all VISNs have complied with these requirements. In its 1997 performance measures, VA revised its performance measure for the percentage of surgeries and invasive procedures performed in an outpatient setting to link the goal to HCFA data. To be assessed as fully successful, a VISN must perform 65 percent of the surgeries and diagnostic procedures that HCFA will reimburse in outpatient settings in such settings. In its assessment of mid-year performance for 1997, VA reported that 10 VISNs had met or exceeded the goal. All VISNs, however, improved from fiscal year 1996. Just as prospective payment encouraged hospitals to reduce the length of patient stays by performing tests and patient education on an outpatient basis before admission, it provided incentives for community hospitals to discharge patients sooner to other care settings such as home health and nursing home care. The 1986 Annual Report of the Prospective Payment Review Commission noted that hospitals may shift services previously performed on an inpatient basis to alternative settings such as nursing homes, other long-term care facilities, and home health care. The Commission also noted that some cases requiring extra days of care may be transferred to another acute care hospital. It noted that such transfers may lower the quality of care and lead to higher costs. VA researchers found in a 1990 study that the number of transfers from community hospitals to VA hospitals increased substantially following implementation of the Medicare prospective payment system. The study suggested that some of the savings attributed to prospective payment may simply have been a shifting of costs from Medicare to the VA system. As previously discussed, hospitals are expanding into the post-acute care market. From 1991 to 1995, the number of Medicare-certified, hospital- based skilled nursing facilities increased 59 percent, hospital-based rehabilitation facilities increased 19 percent, and hospital-based home health agencies increased 52 percent. The number of free-standing facilities grew similarly (see fig. 11.4). The Prospective Payment Assessment Commission reported that Medicare payments for post-acute care skyrocketed between 1988 and 1994. In 1988, post-acute care accounted for only about 8 percent of Medicare part A payments; by 1994, they accounted for 25 percent. Although growth of post-acute payments has since slowed, payments to these providers are growing twice as fast as total part A spending. The Commission noted that many services now provided in outpatient and post-acute settings were previously provided in acute hospitals. It also noted, however, that several other factors, including medical advances and changing practice patterns, also affect the increased demand for post-acute services. We made similar observations in a December 1996 report. As discussed, VA hospitals lagged behind community hospitals in shifting patients from inpatient to post-acute care settings even though such settings have long been a part of the VA health care system. The Under Secretary for Health’s Prescription for Change identifies a series of planned actions to discharge patients sooner to other, more cost-effective settings. These actions include requiring each network to develop utilization and length of stay criteria; requiring each network to implement discharge planning programs; expanding VA’s hospital-based home care program to include home intravenous therapy, total parenteral nutrition, and other services; expanding VA’s continuum of clinical service settings so that patient care can be provided in the most cost-effective clinically appropriate setting; and expanding use of noninstitutional long-term care when clinically appropriate and financially sound. None of VA’s fiscal year 1996 or 1997 performance measures, however, specifically addressed increased use of post-acute care as an alternative to inpatient hospital care. Nor did VISN plans address the subject. Our work identified several issues and challenges concerning VA’s efforts to monitor patient care and shift care to alternative settings. First, regarding efforts to develop and implement clinical guidelines, little information is available either in VA or the private sector on the extent to which physicians and other caregivers are following clinical guidelines and to what effect. In addition, VA’s development and evaluation of clinical guidelines rely heavily on successful completion of efforts to improve its management information and financial management systems. Thus, VA, like the private sector, faces significant challenges, in developing clinical guidelines, evaluating their effectiveness, and ensuring their appropriate use. The second major challenge is in developing and using outcome measures. For example, outcome measures will probably have little effect on hospital operations and individual provider performance without VA’s effectively distributing the results of assessments and monitoring corrective actions. Similarly, the effectiveness of outcome measures will depend heavily on VA’s ability to identify and develop meaningful ways to compare VA and other health care providers and programs as well as VA facilities and providers. VA must take care, however, to ensure that the results portrayed by outcome measures reflect differences in performance rather than differences in the populations studied. Effective case mix comparisons are, however, difficult to develop. One of VA’s initial efforts to develop outcome measures is its performance measures for VISN directors. These measures are process oriented, however, such as the number of surgeries shifted to outpatient settings and the reduction of BDOC, rather than outcome oriented. As discussed in chapter 6, VA’s 1997 performance measures present a view of VISN efficiency that conflicts with that portrayed by VERA. For example, VA began setting its goals for reducing BDOC on the basis of Medicare days of care per 1,000 beneficiaries by census division. Under this performance measure, VERA identified four of the seven VISNs required to reduce BDOC by 20 percent or more as comparatively more efficient VISNs. The VISN required to reduce BDOC by the greatest percentage—39 percent—was determined under VERA to qualify for one of the larger increases in funding on the basis of its perceived efficiency. Similarly, another performance measure set VISN-specific goals for increasing the number of mandatory care category users. Generally, however, the VISNs needing the smallest increases in new users to meet their goals were those receiving the largest increases in funding under VERA. Because of the apparent inconsistencies between the performance measures and VERA analyses, VA faces a significant challenge in determining (1) the underlying causes of variation in the rates of hospital use and (2) to what extent the variation can be reduced without jeopardizing patient care. An important part of such an assessment is developing baseline data on each VA facility. VA studies show that although all VA hospitals studied had significant amounts of non-acute care, the percentages varied from about 25 percent to over 70 percent. Baseline data on VA’s surgery programs showing the percentages of surgeries needed to be done on an inpatient basis would provide a sound basis for establishing goals for reducing inpatient surgeries. Setting performance measures without such baseline data could require some facilities to jeopardize patient care to meet the goals, while other facilities could meet the goals and still provide extensive non-acute care. VA is gathering the types of baseline data that could be used to establish facility-specific performance measures through its preadmission screening program. A third challenge VA faces is in evaluating the effectiveness of VA initiatives, such as establishing temporary lodging in VA hospitals, in reducing costs. For example, little is known about how much it costs VA to provide temporary lodging because such initiatives are recent. VISNs and individual hospitals face significant challenges in determining when it would be less expensive to purchase care from a hospital or outpatient clinic closer to a veteran’s home rather than pay for additional nights of lodging to provide care at a VA facility. Although the temporary lodging program should be less expensive than admitting a patient earlier or keeping a patient in a hospital longer than medically necessary, providing lodging in a hospital using VA hospital staff may not always be the lowest cost alternative. In arranging for temporary lodging, VA could explore many other alternatives, including using nearby commercial lodging and hiring an outside contractor to operate a temporary lodging unit. The use of temporary lodging also raises several policy issues. For example, to what extent should veterans, rather than the government, be expected to pay for temporary lodging incident to direct patient care? To the extent that providing free lodging encourages longer and more frequent stays, it could offset the savings achieved by using fewer hospital beds. Similarly, to what extent should temporary lodging be made available to family members? Finally, should temporary lodging be provided to veterans traveling significant distances for outpatient services? Neither performance measures nor VISN strategic plans focus on efforts to shift care to post-acute settings when medically appropriate. The effectiveness of such actions depends on many factors such as the adequacy of discharge planning efforts, efforts to ensure that patients are not discharged before medically appropriate, the extent to which patients receive appropriate follow-on care, and the extent to which the cost of home health or other post-acute care services exceed the cost that would have been incurred through continued institutional care. The overall effect of VA efforts depends as well on the extent to which VA facilities shift the costs of post-acute care to other payers such as the Medicare home health program. To the extent that such shifts occur, higher costs under Medicare and Medicaid will offset any savings VA achieves through efficiencies. Teaching hospitals’ medical education missions have changed significantly. Until recently, both nonfederal and VA teaching hospitals had steadily increased their use of medical residents partly because residents were a lower cost labor source. Because of increasing concern that the growing number of medical residents contributes to the oversupply of physicians and increased health care costs, the Congress has provided financial incentives to hospitals to reduce the number of residency positions. Both nonfederal and VA teaching hospitals are also changing the focus of their residency programs to increase the number of primary care residencies in response to the growth of managed care. Finally, nonfederal teaching hospitals are offering significant discounts to managed care plans; VA hospitals, however, are not. Several issues and challenges surround VA’s future role in medical education. For example, should financial incentives similar to those provided to non-VA teaching hospitals through the Balanced Budget Act of 1997 be provided to VA to encourage reductions in residency positions? Furthermore, how does the declining demand for VA hospital care affect the viability of the medical education program? Finally, VA is likely to find it increasingly difficult to assert its independence from its affiliated medical schools as tough decisions about the future of hospitals and residency programs are debated. Graduate medical education (GME) refers to the period following the completion of medical school in which physicians, as residents, receive further training in fields such as family practice, general surgery, or anesthesiology. GME takes place in federal (including VA) and nonfederal teaching hospitals. Although over 1,000 U.S. hospitals had at least one teaching program in 1996, about 80 percent of residents train in large tertiary care hospitals belonging to the Council of Teaching Hospitals. In 1996, the Council had about 400 member hospitals. Nonfederal teaching hospitals pay for GME through a combination of inpatient revenues (both hospital payments and faculty physician fees) and a complex mix of federal and state government funds. The federal government is the largest single source of financing for GME through the Medicare program and through its support of residencies in VA and DOD hospitals. From its inception in 1965, the Medicare program has reimbursed teaching hospitals for its share of the costs of training interns and residents. When Medicare adopted its prospective payment system in 1983, it developed new policies. Medicare now recognizes the costs of GME under two mechanisms: direct medical education payments and an indirect medical education adjustment to prospective payment rates. GME’s direct costs include residents’ stipends, supervising faculty salaries, administrative expenses, and institutional overhead allocated to residency programs. Hospitals receive additional payments to cover Medicare’s share of these direct costs. In addition to payments for direct costs, teaching hospitals receive an indirect hospital-specific percentage adjustment (based on the ratio of interns and residents per bed) to their total diagnosis-related group payments to compensate them for their relatively higher costs. The adjustment has been a critical source of revenue for teaching hospitals, particularly those serving large low-income and uninsured populations. In fiscal year 1991, Medicare paid approximately $1.5 billion in direct GME payments and $2.9 billion in indirect adjustments to prospective payment rates. In fiscal year 1997, it is estimated that Medicare paid approximately $2.5 billion in direct GME payments and $4.6 billion in indirect adjustments to prospective payment rates. Medical education is one of VA’s four core missions. Since 1946, VA facilities have been authorized to enter into agreements with medical schools and their teaching hospitals. Under these agreements, VA hospitals provide training for medical residents and students and appoint medical school faculty as VA staff physicians to supervise resident education and patient care. Over half of the nation’s physicians received some of their training through VA programs. In 1997, 130 VA facilities had affiliation agreements with one or more medical schools; 105 medical schools had affiliation agreements with the Veterans Health Administration (VHA). More than 34,000 medical residents and 21,000 medical students receive some of their training in VA facilities every year. VHA supports about 8,900 residency positions, about 8.7 percent of those in the United States. Almost one-third of U.S. residents rotate through VA in any given year. In addition to training medical residents, VA is affiliated with schools of dentistry, optometry, podiatry, nursing, and other associated health professions. All told, VA was affiliated with over 1,000 educational institutions and provided all or some of the training provided to about 107,000 medical and other students in fiscal year 1996. About 95 percent of the associated health students being trained in VA facilities receive no compensation. Table 12.1 shows the number of residents and students rotating through VA and the number of paid VA positions in fiscal year 1996. Teaching hospitals, including those operated by VA, save money by using medical residents and other students as a lower cost supply of physicians, physician assistants, and nurse practitioners. For many years, both Medicare’s hospital reimbursement policies and VA’s stipends encouraged hospitals to expand the use of medical residents. Some health policy experts believe, however, that teaching hospitals’ demands for medical residents are contributing to an oversupply of physicians and to higher health care costs. As a result, both Medicare and the VA health care system have acted to reduce the number of residency positions. Reducing the number of medical residents by substituting other health care personnel, however, is estimated to increase teaching hospitals’ operating costs significantly. Medical residents long represented a low-cost source of labor for teaching hospitals because (1) residents work long hours in exchange for relatively small stipends to offset their living costs and (2) Medicare and other programs’ reimbursement methods provide financial incentives to use residents to perform functions that could be done by physician assistants or nurse practitioners. Medicare financing for direct GME creates an incentive for nonfederal hospitals to employ residents instead of highly skilled nonphysician practitioners or fully trained salaried physicians. Residents are expected to work long hours in exchange for a stipend that can largely be passed on to Medicare through direct GME payments. A nurse practitioner or physician assistant, in contrast, may be able to provide comparable service on a medical ward or in the operating room but commands a higher salary, works fewer hours, and does not generate additional Medicare payments. Medicare makes both direct and indirect payments to hospitals on the basis of the number of residents they employ, making Medicare GME, in effect, an uncapped entitlement. In other words, Medicare pays hospitals for as many residents as they employ. The Congressional Budget Office estimated that Medicare paid teaching hospitals an average of $88,000 per resident in 1993. By increasing residents, hospitals may raise their total Medicare teaching payments by substantially more than the direct salary and benefit costs they incur. Residents also provide patient care services to hospitals; therefore, hospitals have a strong incentive to hire more of them. Like the private sector, VA benefits financially because its residents represent a low-cost source of labor. For example, VA estimates that it pays residents stipends of $34,000 a year compared with $100,000 for a physician and $60,000 for a nonphysician provider. The difference in cost per hour, however, is even greater because residents typically work 60 hours weekly compared with 40 hours for physicians and other providers. Unlike community hospitals, however, VA hospitals do not receive additional payments from Medicare to support their GME programs. VA does, however, through the Veterans Equitable Resource Allocation (VERA) system, allocate additional funds to its Veterans Integrated Service Networks (VISN) to compensate them for the higher costs of their medical education missions. Due in part to Medicare’s funding of the costs of GME programs, the total number of medical residents more than doubled between 1965 and 1990, from 31,898 to 82,902. That growth has continued in the 1990s. The American Association of Medical Colleges reported 103,640 residents in the 1994-95 academic year. (See fig. 12.1.) VA hospitals also increased their use of medical residents. Between 1975 and 1995, the number of VA part-time residents increased 366 percent, from 5,329 to 19,872. (See fig. 12.2.) Although the number of part-time residents rotating through VA has increased nearly 80 percent since 1987, VA’s Residency Realignment Review Committee reported that the number of VA resident positions increased only 2.9 percent between 1987 and 1995. An official from VA’s Office of Academic Affairs did not know the reason for the differences between the number of part-time VA residents at the end of the fiscal year and the number of paid residency positions. He suggested that some residents may not have been removed from the rolls at the end of their VA tour of duty. Teaching hospitals’ demands for medical residents, according to some health policy experts, may have contributed to an oversupply of physicians. This oversupply is, in their view, a major factor in rising health care costs. The number of active U.S. physicians more than doubled between 1970 and 1993. (See fig. 12.3.) Active physicians per 10,000 population increased from 15.7 to 25.1 during that period. The Pew Health Professions Commission recommended dramatic reductions in the training of new doctors, including a reduction of 20 to 25 percent in the number of students entering U.S. medical schools.Eliminating residency positions, however, would result in losing not only the direct medical education payment, but also the indirect medical education payment, creating a major financial loss for teaching hospitals. Similarly, the Council on Graduate Medical Education recommended an overall reduction in the nation’s physician supply and the number of physicians in training. Reducing the number of medical residents would, however, force teaching hospitals to seek alternative professionals to substitute for providing the care that resident physicians now provide. Although some substitution is occurring now, teaching hospitals are concerned about the potential cost of increased substitution as the number of residents declines. Using nonphysician providers would mean employing a variety of providers at a higher cost than teaching hospitals have had to incur in the past by using medical residents. An analysis of the potential cost of replacing residents with midlevel practitioners in New York City has highlighted the significant amount of money teaching hospitals have been able to save by using residents in the past. In New York state, residents’ salaries were fully covered by federal and state direct medical education payments. Teaching hospitals in the state received $2.9 billion in GME payments in 1995—roughly $188,000 per resident. Hospitals losing residency positions would thus not only lose those payments, but would also incur new costs to hire additional physicians, nurse practitioners, and physician assistants to perform their duties. The analysis estimated that, on average, hospitals would need to hire three midlevel practitioners to replace each resident. The salary costs of replacing all residents with midlevel practitioners were estimated to range from $242 million to $600 million. In a survey of teaching hospitals, 178 (62 percent) of the responding medical directors reported that they already used substitution involving physician assistants and nurse practitioners to some extent at their hospitals. They reported that they used substitution in a wide range of services, including surgery, primary care, and medical specialties. Almost all survey respondents expressed satisfaction with the substitution, including physicians, nurses, residents, and patients. Recent actions by the Congress, HCFA, and VA indicate that the number of residents will probably decline in the future. For example, the Balanced Budget Act of 1997 froze the number of residency positions Medicare will fund at a hospital at the number of full-time equivalent (FTE) interns and residents in the hospital in 1996. New York hospitals sought and received from HCFA a program that rewards them for reducing residency positions. In February 1997, HCFA approved a demonstration project proposed by the Greater New York Hospital Association. Under the project, HCFA will provide incentive payments totaling $400 million over the next 5 years to 42 New York teaching hospitals. The goal of the project is to reduce the number of residents trained by the 42 hospitals by up to 25 percent over the 5-year period. The Balanced Budget Act of 1997 authorized similar incentive payments to hospitals in other states that participate in plans for voluntarily reducing the number of resident positions. Essentially, participating hospitals may receive “hold harmless” payments if they agree to reduce the number of residents by specified amounts. For example, a hospital with more than 750 residents would qualify for the incentive payments if it submitted to HCFA an acceptable plan to reduce the number of residents by 20 percent over a 5-year period. The hold harmless payments would decline over the 5-year period. In late 1995, VA established a Residency Realignment Review Committee to make recommendations for possibly realigning VA’s residency programs to ensure that VA’s GME program meets VA’s current and future needs. In its May 1996 report, the Committee recommended eliminating 250 residency positions in disciplines other than primary care and reallocating 750 positions from specialties to primary care. The Committee estimated that it would cost VA almost three times as much to replace a resident with a physician or nonphysician provider. The VISN strategic plans, however, contain little information on implementing the Committee’s recommendations. The growth in the number of medical residents between 1989 and 1995 can be attributed to increasing numbers of residency positions established for graduates of foreign medical schools. Residency positions for graduates of U.S. medical schools have actually declined since 1989. By 1996, graduates of foreign medical schools accounted for over one-fourth of residency positions. VA, like community hospitals, uses foreign medical school graduates extensively. Between 1989 and 1995, the number of foreign medical school graduates in U.S. residency training programs more than doubled, from 12,259 to 24,982. During the same period, the number of U.S. medical school graduates in residency training declined slightly, from 73,071 to 71,053. To reduce the number of physicians, some policymakers are calling for using fewer foreign-trained physicians and for restrictions on their training. Efforts to restrict the arrival and impede the permanent residence of foreign-trained physicians are under way. For example, the Pew Health Professions Commission and the Institute of Medicine issued high-profile statements about reshaping the physician workforce by using fewer foreign-trained physicians. More recently, the Association of American Medical Colleges, the American Medical Association (AMA), and other national professional associations issued a consensus statement calling for restrictions on training. Others, however, caution that limiting the number of foreign medical school residency positions could reduce services in medically underserved areas. Although the nation has a surplus of physicians, some communities have had a chronic physician shortage. Hospitals in such communities have used residency programs and the associated Medicare GME funds to attract and pay resident physicians for essentially providing clinical care. In some cases, hospitals in poor communities do not have teaching programs attractive enough to U.S. medical students. Therefore, the communities have hired foreign medical graduates willing to provide care to uninsured individuals. In such instances, Medicare GME payments have helped communities address significant physician shortages. Some have expressed concern that limiting Medicare GME payments or the use of foreign medical residents might adversely affect the ability of such communities to meet their health care needs. VA officials estimate that 18 to 20 percent of its residents graduate from foreign medical schools. According to VA officials, VA does not have a specific policy on using foreign medical school graduates; it tries to recruit the best candidates regardless of where they attended school. VA officials also indicated, however, that VA hires foreign medical graduates because the supply of U.S. medical school graduates does not meet its demand for first-year resident positions. U.S. medical schools supply only about 100 graduates for every 140 jobs VA has available. The increased emphasis on managed care has fostered an increased demand for primary care physicians. Meanwhile, as more of the diagnosis and care are provided in outpatient settings, teaching hospitals have increasingly recognized that physicians need to obtain some of their training in outpatient care settings rather than hospitals. Recent changes in Medicare payment policies have encouraged increased training of primary care residents and authorized training in outpatient settings. VA is both increasing the percentage of its residency positions in primary care and providing more of its training in outpatient care sites. The growth of HMOs and other managed care plans has generated increased demand for physicians trained in primary care. As in private- sector managed care plans, VA’s efforts to restructure its health care system are increasing demand for primary care physicians. Like the private sector, VA has too many specialists and too few primary care physicians. The director of one VA medical center told us that VA needs a ratio of 60 percent generalists to 40 percent specialists but has a ratio of about 20 percent generalists to 80 percent specialists. Consistent with the increased demand for primary care physicians, one recent study reported that the number of jobs advertised for physician specialists has declined considerably over the past 5 years with the exception of pediatric specialists. The number of jobs advertised for internal medicine specialists declined most dramatically—by 75 percent since 1990. The study found that four times as many jobs were advertised for specialists in 1990 as for generalists. Only 5 years later, however, the ratio of advertised positions for specialists compared with those for generalists dropped to 1 to 8. Both the Congress and VA have acted to increase the number of physicians trained in primary care. After the Physician Payment Review Commission reported in 1992 that the share of residents in generalist fields was dropping while medical specialties were constituting a larger proportion of residents, the Congress made changes in Medicare payments for GME that discouraged excessive specialty residencies. Specifically, the Omnibus Budget Reconciliation Act (OBRA) of 1993 created separate hospital-specific payment rates for primary care and nonprimary care residents. The law permitted rates for primary care (and obstetrics and gynecology) residents to be adjusted on the basis of the consumer price index, while freezing rates for other residents in fiscal years 1994 and 1995. Similarly, VA’s Office of Academic Affairs started a program to increase training in primary care. As a result, the number of VA residency positions in primary care increased from 2,920 in 1992 to 3,306 in 1995. In addition, the Residency Realignment Review Committee, in recommending a 250-position decrease in the number of VA-funded residency positions, indicated that the reductions should come from disciplines other than primary care. The Committee also recommended that 750 residency positions be shifted from specialties to primary care. It estimated that implementing the recommendations would increase the percentage of VA residency positions in primary care from 34 percent in 1987 to 49 percent upon completion of the phased implementation in 2001. Among the approaches VA is using to increase training in primary care is the Primary Care Education (PRIME) program. Created in 1993 by the Office of Academic Affairs, PRIME funds trainee awards to VA facilities providing primary and managed care to veterans using a multidisciplinary team approach. In academic year 1996-97, PRIME included 445 medical resident positions at 80 sites and almost 1,000 associated health trainee positions. Most of the residency positions were in internal medicine. VISN strategic plans have generally contained no substantive discussion of plans to increase training of primary care physicians. As the focus of health care shifts from hospitals to physicians’ offices and outpatient clinics, some of the training provided to medical residents needs to be shifted to such settings. Before the enactment of the Balanced Budget Act of 1997, however, Medicare payment policies discouraged teaching hospitals from supporting such shifts. In contrast, VA has long provided medical education through its outpatient clinics. The importance of training medical residents in an outpatient setting is increasing for several reasons. First, diagnosis and treatment—critical components of medical education—are increasingly provided in outpatient settings. As a result, patients now admitted to hospitals tend to have more complex and acute needs than in the past, and more patients are admitted to hospitals just for specialized procedures. Second, because lengths of stay are shorter, residents have less time to think through a clinical plan and establish rapport with their patients. Although inpatient training remains a critical part of medical education, the Physician Payment Review Commission has expressed concern that residents have too few opportunities to learn about outpatient care, such as how to (1) provide a continuum of care that includes health promotion and preventive medicine, (2) manage chronic disease, (3) decide when hospitalization is necessary, (4) care for patients after discharge, and (5) develop personal relationships with patients and their families. The Commission noted that the technical skill, judgment, and processes of medical decision-making required to provide these services are important to physicians both in primary care and specialty care practices. The Commission also noted that the financing of GME primarily through inpatient sites has obstructed changing training sites. Considerably less financing has been available for training in outpatient sites, and compensation for outpatient faculty is recognized only if the hospital incurs all or substantially all of the costs of training. This discouraged expansion of training to group practices, nursing homes, and other nontraditional sites. Furthermore, even residency programs that sought to expand outpatient training programs in hospital-owned sites faced financial barriers because direct costs were based on 1984 costs rather than current costs. Finally, Medicare would not pay for indirect costs in nonhospital sites. The Balanced Budget Act of 1997 authorized the Secretary of Health and Human Services to establish rules for payment to qualified nonhospital providers for their direct costs of medical education. Nonhospital providers include federally qualified health centers, rural health clinics, and other providers the Secretary determines appropriate. Non-VA teaching hospitals, which typically have higher costs than other community hospitals, increasingly offer deep discounts to managed care plans. Before enactment of the Balanced Budget Act of 1997, however, teaching hospitals had no assurance that they would receive Medicare GME payments for care provided to managed care enrollees. This presents no problem for VA teaching hospitals, however, because VA receives a direct appropriation to cover the costs of its medical education program and has no contracts with managed care plans. The trend toward managed care could effect significant changes in non-VA teaching hospitals’ ability to fund their medical education missions. First, managed care organizations do not usually want to pay the higher costs associated with teaching hospitals. They typically negotiate deep discounts from teaching hospitals because the market has far more capacity than needed, and nonteaching hospitals can provide services at lower costs because they lack teaching and research missions. Second, as Medicare recipients increasingly enroll in HMOs, teaching hospitals may lose the direct Medicare GME payments. Although Medicare factors such payments into the capitation rates it pays HMOs, the HMOs have no obligation to pass those payments on to the teaching hospitals or, for that matter, to contract with the higher cost teaching hospitals. The Balanced Budget Act of 1997, however, requires HCFA to provide additional payments to hospitals for the direct costs of GME related to Medicare risk-contract managed care enrollees. The provision applies to services provided after December 31, 1997. Unlike private-sector hospitals, VA hospitals have, until recently, been unable to sell services or negotiate prices with HMOs and other managed care plans. Historically, VA facilities have been permitted to sell hospital and other services in only a few situations. Other than sharing agreements with DOD and other federal hospitals, VA has been limited to the sale of specialized medical resources to health care facilities, such as hospitals or clinics, medical schools, and certain research centers. The Veterans’ Health Care Eligibility Reform Act of 1996, however, expanded the types of providers and services with whom VA may contract for care services. VA may sell patient care services to both public and private entities, including managed care plans. In addition, VA may now negotiate prices for services sold to HMOs and other managed care plans. These provisions apply mainly to sales of services to be provided to nonveterans because services provided to veterans with private health insurers are still governed by separate medical care cost-recovery provisions of the law. Medical education has played a vital role in improving the quality of care in VA hospitals for over 50 years. Similarly, VA has played an important part in training a large proportion of the nation’s physicians. With a growing number of physicians, however, and a steadily declining veteran population, the Congress and the administration face difficult decisions about the future of affiliation agreements. For example, should VA hospitals receive the same kinds of incentives to reduce the number of residency positions that the Congress provided non-VA hospitals through the Balanced Budget Act of 1997? Actions taken through the Balanced Budget Act of 1997 to reduce residency positions in teaching hospitals have significant implications for VA and its medical education mission. To the extent that teaching hospitals respond to incentives to significantly reduce their residency positions, VA and rural hospitals should be better able to compete for graduates of U.S. schools. One way to lessen the effect of reducing residency positions on U.S. medical schools would be for teaching hospitals to target the reductions toward foreign medical school graduates. With fewer residency positions in non-VA teaching hospitals, VA might decide to use more of its available residency positions for graduates of U.S. medical schools. Although VA’s Residency Realignment Review Committee recommended reducing the number of residency positions in VA hospitals, the planned reduction is much smaller than that sought from non-VA teaching hospitals. While non-VA hospitals are being encouraged to reduce residency positions by 20 to 25 percent by the year 2005, VA is planning a reduction of less than 3 percent in its residency positions. Changes in the veteran population also affect VA’s ability to support its medical education mission. Because the veteran population is both declining and aging, VA may no longer provide enough of a variety of patients to support its medical education mission. This same problem prompted Australia to open its veterans hospitals to nonveterans to broaden the patient mix and ultimately close or transfer hospitals over to the states or the private sector. Of particular concern is the ability of VA hospitals to support surgical residencies. As previously discussed, surgical workloads have declined more than 50 percent. VA hospitals with inpatient surgery programs had an average of less than 25 beds occupied on any given day; many had fewer than 10 beds occupied. An important challenge facing VA and its affiliated medical schools is determining when to end a residency program. VA’s Residency Realignment Review Committee began this process by recommending that 750 residency positions in specialties be converted to primary care residencies. Another important challenge facing VA is maintaining its independence from the affiliated medical schools for making decisions about the future of VA hospitals and their residency programs that are best for all stakeholders. Maintaining this independence is difficult because many medical school faculty and managers play decision-making roles at VA medical centers. Medical schools faced with decreasing residency positions in non-VA teaching hospitals could seek to increase such positions in VA hospitals rather than reduce the size of their teaching programs. VA Chiefs of Staff with dual appointments could find themselves in the difficult position of trying to support two opposite goals: the medical schools’ goal to increase residency positions in VA to compensate for decreased positions in other hospitals and VA’s own goal to reduce residency positions. The potential for conflict increases when decisions involve potential hospital closings. Because VA hospitals serve as major sources of support for residency positions for medical schools, the schools clearly have an interest in VA hospitals staying open. Although those interests must be considered, achieving the proper balance between VA’s primary mission— serving the health care needs of veterans—and one of three other missions—support for medical education—will be difficult. VA must take care to prevent medical schools from overly influencing the future direction of its health care system. Historically, both VA and non-VA teaching hospitals relied mainly on federal funds to support their medical research programs—VA on a separate research appropriation and non-VA hospitals on grants from the National Institutes of Health (NIH). As competition for these limited funds increases, however, teaching hospitals are diversifying their funding sources. Both VA and non-VA teaching hospitals are increasing efforts to obtain research funding from pharmaceutical and biomedical companies. Non-VA hospitals are also increasing the amount of research they conduct in areas of interest to managed care plans to attract contracts from those plans. VA already conducts such research but obtains funding from foundations and other federal agencies rather than from managed care plans. The development of alternative funding streams for medical research raises several issues and challenges. For example, if academic medical centers reduce the amount of basic research they conduct to obtain additional funding from managed care plans and pharmaceutical companies, should VA do the same or fill the void by increasing its support for basic research? In addition, policy decisions will have to be made about (1) the extent to which the government shares in any profits resulting from collaborative research and (2) what agreement should be reached about delaying distribution of research findings. As VA develops multiple funding sources for its research programs, it will need strong internal control systems to prevent program abuse. Historically, the federal government, through NIH, has supplied the most direct funding for both basic and applied research. NIH, the clearinghouse for federal medical research funding, in addition to conducting its own research, provides about 85 percent of its funds to teaching hospitals through research grants. In fiscal year 1996, NIH awarded about $8.9 billion in research grants to both VA and non-VA teaching hospitals. NIH research grants convey prestige because they are more competitive and the research proposals are reviewed by peers. NIH grants fund basic as well as applied research and place few restrictions on distributing research findings. Non-VA teaching hospitals receive research funding from NIH; however, they have several other research funding sources. These include industry- and foundation-sponsored research grants, internal cross-subsidies (such as use of surplus patient treatment income, tuition, and endowments), and third-party insurance payments to reimburse the cost of health care provided to patients participating in research protocols. Medical research—both basic and applied—is one of VA’s four core missions. The current research program was established shortly after the end of World War II and has been included in VA’s authorizing legislation since the late 1950s. Although VA hospitals, like other teaching hospitals, obtain NIH research grants, VA research is funded mainly by VA appropriations. Of the approximately $923 million in budgetary resources VA had available for medical and prosthetic research in fiscal year 1996, $591.4 million came from VA appropriations ($256.7 million from the medical and prosthetic research appropriation and $334.7 million in medical care support from the medical care appropriation). The remainder of VA research funds in fiscal year 1996 came from federal grants (mainly from NIH) totaling $209.5 million, other grants (mainly from voluntary agencies) totaling $105.9 million, and DOD reimbursements of $16 million. Teaching hospitals are finding it increasingly difficult to maintain their historic funding sources for several reasons. First, they can no longer count on increases in federal research funds. Such funding grew at the rate of 8 to 10 percent annually during the late 1970s and early 1980s, while inflation in biomedical costs ranged between 4 and 5 percent. In fiscal year 1996, however, NIH funding grew by only 5.7 percent, and the Congress considered cutting NIH’s budget. In addition, some concern exists over future federal funding amid debate about the proper role of the federal government in funding medical research. Second, managed care has made it more difficult for teaching hospitals to use profits from patient care to pay for medical research. According to the Association of American Medical Colleges, teaching hospitals are losing about $1 billion a year due to managed care’s shift to use of lower cost community hospitals. To help prevent such losses, many teaching hospitals have cut the prices they charge HMOs and preferred provider organizations (PPO) and adopted intensive cost-reduction efforts. Obviously, lowered prices mean fewer resources for subsidizing research projects. Third, teaching hospitals face increasing competition from contract research organizations. Industry-sponsored medical research, which was mainly conducted by academic medical centers before 1980, is increasingly being conducted by for-profit contract research firms. The use of academic investigators to conduct industry-sponsored research trials dropped from 82 percent in 1989 to 68 percent in 1993. Fourth, the managed care industry has increasingly established its own research centers, drawing both public and private research dollars away from teaching hospitals. HMOs, which provide comprehensive services to a defined population in a real-life environment, can test the results of trials that were conducted in more controlled environments. Teaching hospitals have increasingly turned to pharmaceutical and biomedical companies for funds for two reasons. First, the availability of federal research funds is becoming more uncertain. Second, in 1988 pharmaceutical companies spent an amount on research and development that exceeded that of the entire NIH budget. Private industry supports a growing portion of teaching hospitals’ research. Private industry (39 percent) and NIH (38 percent) supported roughly the same percentage of medical research in 1984, according to the Association of American Medical Colleges. Ten years later, however, private industry supported over half ($17 billion) of the $33 billion spent on research, while NIH contributed 31 percent ($10.2 billion). Some teaching hospitals are actively seeking to expand their use of private industry funds. For example, George Washington University now gets more than half of its funds for medical research from private industry. Similarly, Columbia University actively markets its research capabilities to corporations, and the University of California, San Francisco, created a special center to attract industry-supported research. One concern raised about involving pharmaceutical and biomedical companies in funding research at teaching hospitals is the potential delay in sharing research findings. Companies sometimes ask researchers to agree not to disclose the results of their research for as long as 10 years.This allows them to develop and market their products for longer periods before their patents expire. A second concern about relying on private-sector funding is pharmaceutical and biomedical companies’ focus on clinical trials and applied research that can quickly lead to marketable new drugs and devices. This focus could, many researchers fear, reduce the amount of basic or fundamental research. Like other teaching hospitals, VA is concerned about the future availability of federal funding for its research activities and is increasingly seeking alternative sources for funding research. In addition to obtaining more NIH funds, it is establishing nonprofit corporations to raise funds for research. Like NIH funding, the growth in VA’s medical and prosthetic research appropriation funding has slowed in the 1990s, growing at a rate of 2 to 5 percent per year, meaning little growth in funding after inflation. VA reports that research funding declined as a percentage of the overall medical care appropriation from 2.0 percent in 1980 to 1.2 percent in 1996. These figures do not, however, include funds VA obtained from other sources. Between 1990 and 1996, nonfederal research funding increased from about $176 million to over $315 million. (See fig. 13.1.) In May 1988, the Congress authorized VA to establish nonprofit research corporations for a limited time period to provide an additional funding mechanism for VA-approved research (P.L. 100-322). Public Law 104-262 reauthorized the corporations through 2000. A March 1997 VA Office of Inspector General report identified 83 nonprofit research corporations. VA reported to the Congress that contributions to the nonprofit research corporations were $38 million in 1994 and $63 million in 1996. An advantage provided by its nonprofit corporations is that they generally have low indirect costs, which ensures more resources for research. According to VA officials, the administrative overhead rates for VA’s nonprofit corporations averaged 12.5 percent in 1995 compared with university and private foundation rates averaging 50 percent. Therefore, a greater percentage of VA research funds may be available to actually support research and related activities. Several of the Veterans Integrated Service Network (VISN) strategic plans discuss efforts to establish additional nonprofit research corporations: VISN 8 (Bay Pines) has set a goal of increasing the total non-VA research funds by 10 percent by establishing nonprofit corporations. It currently has such corporations at its Bay Pines, Miami, and San Juan medical centers. VISN 17 (Dallas) established its third nonprofit research corporation in March 1996 to increase non-VA funding. VISN 4 (Pittsburgh) is exploring the possibility of establishing a nonprofit research corporation. VISN 6 (Durham) expects its main research effort to be overseeing and coordinating the operations of nonprofit research corporations. Both university-based academic medical centers and VA are conducting collaborative research efforts with others. Academic medical centers are focusing on collaborative efforts with managed care plans, while VA is focusing on collaborative efforts with other government agencies and manufacturers of high-cost/high-tech equipment. Academic medical centers are beginning to align their research agenda with that of the managed care industry. In the past, academic medical centers favored basic research and research on relatively rare diseases and therapies. HMOs, on the other hand, were more interested in applied research that identified the most cost-effective way to treat common, expensive, or high-risk conditions. Because HMOs and other managed care plans have financial risk for their patients’ care, they want to know which medical treatments are most cost-effective. To gain support for their research programs from managed care plans, academic medical centers are emphasizing cost-effectiveness and outcomes research and strengthening their ties with schools of public health. Consequently, managed care plans’ health research centers are conducting collaborative projects with teaching hospitals. For example, Group Health Cooperative of Puget Sound collaborated with the University of Washington. Similarly, Prudential’s Center for Health Care Research collaborated with the Harvard Medical School. According to some researchers, the full potential for collaborative efforts has not been realized because of mutual distrust. In their view, academic medical centers often see managed care plans as overly concerned with cost cutting, while managed care plans complain of teaching hospitals’ academic arrogance. Researchers note that academic medical centers could benefit from access to managed care plans’ enrolled populations and their information systems that identify and track patients with specific conditions for conducting research on outcomes of specific treatments. Similarly, academic medical centers could, they believe, offer managed care plans an unbiased research environment, access to trained investigators, and well-equipped research infrastructures. Finally, an affiliation with an academic medical center could give HMOs a marketing advantage for managed care plans by making it easier to attract enrollees. One of the key objectives in VA’s Prescription for Change is expanding collaborative investigative efforts with both government and nongovernment entities. An official from VA’s Office of Research told us he did not know of any such collaborative research efforts with managed care plans but that such efforts might be pursued by individual facilities or VISNs. As a nationwide system, VA has the capability to design and implement large-scale cooperative trials. For example, in the 1950s, VA developed cooperative studies to investigate the effectiveness of therapies for treating tuberculosis. Similarly, it completed cooperative studies documenting the benefits of hypertension treatment and coronary artery bypass surgery. The Cooperative Studies program now has designated coordinating centers (comprising epidemiologists, biostatisticians, and data analysts) whose sole mission is to help investigators design and implement multicenter studies of clinical and health services interventions. Some examples of this research are studies of angina, symptomatic human immunodeficiency virus infection, and clinically localized prostate cancer. VA’s ability to do nationwide studies helps it develop collaborative efforts. For example, VA established a Diabetes Research Initiative with the Juvenile Diabetes Foundation: For a 5-year period, VA and the Foundation will each contribute $7.5 million to fund VA diabetes research centers of excellence. In addition, VA signed a memorandum of understanding to plan future collaborative research efforts with the Agency for Health Care Policy and Research and the University Health Systems Consortium. Finally, VA’s Prescription for Change indicates that it plans to actively pursue collaborative research efforts with manufacturers of high-cost/ high-technology equipment. None of the VISN plans has identified plans to conduct collaborative efforts with managed care plans. Three VISN strategic plans did, however, identify planned actions that might make VA research programs more attractive to managed care plans: VISN 1 (Boston) has a Research Advisory Council responsible for building stronger linkages between research efforts and clinical practice. The Council is also responsible for identifying additional revenue streams to support research. VISN 17 (Dallas) will emphasize research consistent with national trends toward primary care, systems analysis, outcomes research, and development of clinical guidelines. The network convened a Research and Development Subcommittee to, among other things, promote collaborative research. VISN 18 (Phoenix) has a major collaborative research project to search for a breast cancer vaccine involving the Amarillo, Texas, VA medical center, Pantex plant (Department of Energy), and Duke University. VA faces many challenges and policy decisions as it seeks to develop alternative funding streams for medical research. For example, as a matter of policy, to what extent should the government share in the financial benefits resulting from new products or treatments developed through collaborative research efforts with drug and biomedical companies? Similarly, VA will have to make policy decisions about how research results are distributed and when they are publicized. Finally, VA will need to decide to what extent it should follow the lead of academic medical centers and seek collaborative research efforts with HMOs and other managed care plans. VA has successfully developed alternative revenue streams to supplement its research appropriation. The proliferation of VA nonprofit research corporations and other sources of nonappropriated research funds, however, creates new challenges. For example, VA will need accounting systems and internal controls to track the many revenue streams supporting individual projects. Without such systems and controls, researchers might receive funding exceeding the project’s cost. For example, accounting systems need to be able to determine whether a researcher receives a grant funding more than 100 percent of the researcher’s time. Similarly, the systems and controls need to be able to ensure that teaching physicians do not inappropriately collect research funds from both VA and the medical school. In addition to the direct appropriation for medical and prosthetic research, VA’s research efforts also received funds from the medical care appropriation. VA reported receiving $335 million from this additional appropriation in fiscal year 1996. Under the Veterans Equitable Resource Allocation (VERA) model, VA allocated $399 million among VISNs for medical research support on the basis of the proportional amount of funded research reported by each VISN in fiscal year 1995. It is not clear, however, how the $399 million will be allocated within the VISNs or the extent to which the higher patient care costs associated with VA’s research mission will affect its ability to sell its excess capacity to managed care plans or others without offering discounts like those offered by some academic medical centers. Another challenge facing VA and its hospitals is balancing the longer lengths of stay frequently associated with medical research with performance measures that call for significantly reducing bed-days of care. For example, should performance measures, like VERA, have adjustments to allow for the more frequent admissions and longer lengths of stay for patients in research protocols? Finally, the changing focus of academic medical centers’ research efforts has important policy implications for VA research. If academic medical centers increasingly shift from supporting basic to applied research to attract additional research funds, should VA do the same? Or should VA fill the void created and increase its support for basic research? One action community hospitals reportedly take to improve profitability is reducing the amount of uncompensated care (defined as the sum of charity care and bad debt) they provide. Despite growing numbers of uninsured people, the amount of uncompensated care provided by community hospitals has reportedly declined in the 1990s. Many nonprofit hospitals are acting more like their for-profit competitors by seeking to reduce the amount of uncompensated and charity care they provide and focusing on attracting paying customers. Others are converting to for-profit status or selling out to for-profit chains. As a result, some believe that the burden of providing uncompensated care has increasingly shifted to public, and particularly public teaching, hospitals. As increasing numbers of public hospitals convert to nonprofit or for-profit ownership, will the health care safety net shrink even more? On average, VA serves a larger proportion of uninsured people than even public teaching hospitals. Many of VA’s restructuring efforts, however, create incentives for Veterans Integrated Service Networks (VISN) and individual VA facilities to model for-profit health plans and hospitals and focus less on VA’s traditional safety net mission. In addition, VA, like many nonprofit hospitals, has established strategic goals that focus on increasing market share rather than meeting the health care needs of uninsured veterans. The apparent changes in focus of both community and VA hospitals raise significant issues about the future direction of the VA health care system. For example, to what extent should VA use its excess capacity to target the market segment—low-income and uninsured people—that many for-profit and nonprofit hospitals are apparently abandoning? Who should pay for such services? Similarly, to what extent should VA’s strategic goals focus specifically on its safety net mission and improving the health status of uninsured veterans? The burden of serving patients with no health insurance falls disproportionately on VA and public teaching hospitals. About 21 percent of veterans using the VA health care system have no public or private health insurance compared with about 5 percent of patients using nonteaching hospitals. Similarly, public teaching hospitals serve a percentage of hospital patients who have no insurance that is three to four times higher than that served by private academic medical centers. (See fig. 14.1.) Public and particularly public teaching hospitals provide disproportionate and increasing amounts of uncompensated care, according to many studies. For example, urban public hospitals are reported to provide one-third of the nation’s uncompensated care, even though they only have about one-sixth of the hospital market. Between 1990 and 1994, their burden of uncompensated care increased. First, their percentage of total costs devoted to uncompensated care increased from 11.8 to 12.8 percent. Second, public hospitals accounted for 36.8 percent of total hospital uncompensated care in 1994, up from 33.4 percent in 1990. Among public hospitals, major teaching hospitals’ share of uncompensated care is reportedly three times larger than their share of the hospital market. In 1994, almost 20 percent of their expenses were reportedly devoted to providing uncompensated care. Although public hospitals provide a disproportionate share of uncompensated care, private-sector hospitals still provide most uncompensated care. Private hospitals, however, vary widely in the amount of uncompensated care they reportedly provide. For example, about 240 private hospitals reported uncompensated care burdens averaging 15 percent of total operating expenses in 1994. The remaining approximately 3,600 private hospitals reported uncompensated care burdens averaging 8 percent or less of operating expenses. These findings are consistent with our 1990 analysis of the role of nonprofit hospitals in providing uncompensated care.Government-owned hospitals provided a disproportionate amount of the uncompensated care in each of the five states in our review. Both nonprofit and for-profit hospitals provided a smaller share of the state’s uncompensated care than they provided of general hospital services. Moreover, the burden of uncompensated care was not distributed equally among the nonprofit hospitals in the five states. Large urban teaching hospitals had a greater share of the uncompensated care expense than did other nonprofit hospitals. Generally, the nonprofit hospitals with the lowest rates of uncompensated care also served fewer Medicaid patients and had higher profit margins than did the large urban teaching hospitals providing most of the uncompensated care. In other words, the nonprofit hospitals with the most resources for financing uncompensated care were often those providing the least amount of such care. About 15 percent of the nonprofit hospitals we studied reported providing uncompensated care valued at less than the benefits of their federal and state income tax exemption. Excluding bad debt and examining only the provision of charity care, however, revealed that 57 percent of the nonprofit hospitals in our study provided charity care valued at less than the benefits of their tax liability. Another study reported an apparent correlation between market penetration of managed care plans and decreased levels of uncompensated care. Hospitals in metropolitan statistical areas where managed care plans had captured large shares of the health care market tended to provide less uncompensated care. A hospital’s goals and policies influence the amount of uncompensated care it provides. In the five communities we visited during our 1990 study, the strategic goals of some nonprofit hospitals excluded the health needs of the poor or underserved in their communities. Instead, the goals most often focused on increasing the hospitals’ share of patients in their market area, resembling the goals of investor-owned institutions. Other goals concerned maintaining the hospitals’ financial viability, improving their competitive positions, expanding services and facilities, or developing employee skills and personnel practices. Furthermore, physician staffing and charity admission policies discouraged admission of those unable to pay, except in emergency cases. In communities without a government-owned or major teaching hospital, uncompensated care costs present problems in providing services to the indigent and could eventually cause service gaps for entire communities. In two of the communities we visited for our 1990 study, the uncompensated care costs were relatively high, and the nonprofit hospitals providing most of this care were seeking ways to reduce these costs. For example, hospitals in San Diego were trying to restrict their indigent care expenses. One nonprofit hospital that traditionally treated indigent patients was investing in a new facility in a suburb to increase its market share of patients able to pay. Another nonprofit hospital planned to downgrade its emergency room, closing it to ambulance traffic to reduce its indigent care workload. Of the 5,768 hospitals operating in 1990, about 9 percent (532) had changed ownership during the preceding decade. Ownership changes continued in the 1990s; 3 percent of the hospitals operating in 1993 had changed ownership since 1990. Over half of the ownership changes between 1980 and 1990 involved converting public hospitals to nonprofit or for-profit status (see fig. 14.2). Because public hospitals serve a higher proportion of uninsured patients than either private nonprofit or for-profit hospitals, this raises concerns about the future availability of charity care in the affected communities. Public hospitals have been converting to nonprofit or for-profit ownership. Between 1980 and 1990, more than 15 percent of public hospitals changed control, most often (75 percent) to nonprofit status. Another 3 percent of public hospitals changed control between 1990 and 1993 and 88 percent, to nonprofit status. Conversions of nonprofit and for-profit hospitals to public hospitals partially offset conversions of public hospitals to nonprofit status. The unwillingness of local governments and communities to provide continued tax support for public hospitals reportedly played a major role in the conversions. Conversions were also seen as a way to free the hospitals from government procurement and hiring rules. In addition, nonprofit hospitals have had many ownership changes, but the overall number of nonprofit hospitals increased between 1990 and 1993 mainly because of the conversion of public hospitals to nonprofit hospitals. Between 1980 and 1990, 175 nonprofit hospitals converted to either for-profit (110) or public (65) ownership. The rate of conversion of nonprofit hospitals increased between 1990 and 1993. Hospitals are converting to for-profit status because of concerns about their future. Policy analysts have identified several reasons for hospital ownership conversions: Conversions can provide nonprofit hospitals access to the capital they need to restructure operations. Nonprofit hospitals may seek to improve efficiency through merger or acquisition. Weaker hospitals, faced with closure, may see sale of their assets to or a joint venture with a for-profit firm as the best option for survival. Nonprofit hospitals may convert to for-profit status to avoid regulatory constraints placed on nonprofits limiting their flexibility in compensating executives, staff, and partners. Personal financial gain may motivate the decisions of the insiders of some nonprofit hospitals to sell or convert to for-profit status. In addition, some for-profit hospitals are also changing ownership. Conversions of for-profit hospitals to nonprofit or public ownership accounted for only 11 percent of conversions between 1980 and 1990 but 31 percent of conversions between 1990 and 1993. Some believe such conversions may reflect increased concern about the long-term commitment of for-profit owners to the health care needs of the community. VA’s restructuring efforts create many of the same types of incentives for VISNs and individual hospitals to reduce services to veterans with no health insurance that have resulted in less charity and uncompensated care in nonprofit and for-profit hospitals. And, like many nonprofit hospitals, VA has established strategic goals focused more on increasing market share than on fulfilling its safety net mission. This year, VA sought and obtained approval to retain nonappropriated revenues generated through recoveries from private health insurance and collection of veteran copayments. VA essentially sought to divide the veteran population into two distinct groups: nonrevenue-generating veterans and revenue-generating veterans. This latter group has several potential target populations for VA: lower income veterans with private health insurance; higher income veterans subject to copayments but with no health insurance; and higher income, privately insured veterans subject to copayments. The last group has the least need for VA services but represents the greatest revenue-generating potential because VA can generate revenues from both insurance and copayments. Allowing VA to retain recoveries from private health insurance and copayments creates an incentive for VA to market its services to attract revenue-generating rather than nonrevenue-generating veterans. This incentive could affect several aspects of VA services, including where VA decides to locate new community-based outpatient clinics (CBOC). For example, VA recently proposed locating a CBOC in a homeless shelter that it expects could attract 2,040 new users in need of VA’s safety net and therefore not likely to generate revenue. In contrast, VA has also proposed opening a clinic in one of the country’s more affluent counties. Although the clinic is intended to improve access for current users, VA also expects it to attract patients who could ultimately generate revenue. Similarly, VA’s new resource allocation method, the Veterans Equitable Resource Allocation System (VERA), could lead VISNs and individual facilities to act more like for-profit HMOs. VA developed VERA in response to Public Law 104-204, which directed VA to prepare a resource allocation system that would ensure similar access to VA care for veterans who have similar economic status and eligibility priority. The system, which VA began implementing in April 1997, is based on calculations of the cost per veteran user in each VISN. VISNs that have the highest costs per veteran user will lose funds; VISNs with the lowest costs per veteran user will get additional funds. VERA creates both positive and negative incentives. On the positive side, it moves toward creating the kinds of incentives needed to increase efficiency that HMOs have long had. On the negative side, it creates the kinds of incentives HMOs have to (1) focus marketing efforts on attracting the types of users who use fewer health care services, such as younger veterans, and, conversely, (2) make continued use of VA services unattractive or unavailable to veterans with extensive health care needs. HMOs are often criticized for their efforts to attract and retain users with minimal health care needs. These negative incentives could be heightened in the VA system because, unlike HMOs, the VISNs have no contractual obligation to provide comprehensive care to any veteran, making it easier for VA facilities to artificially increase efficiency by providing less intensive services or attracting healthier users. On the other hand, also unlike most for-profit HMOs, VA physicians have no financial stake in the care they provide. Because VA physicians receive a salary, they would not personally gain by reducing the amount of services they provide. Nevertheless, VERA and the retention of third-party recoveries could provide VISNs and individual facilities financial incentives to focus marketing efforts on veterans most likely to use fewer services and those not likely to generate additional payments. VA’s strategic goals for its health care system, like those of many nonprofit and for-profit hospitals, focus on increasing market share rather than on improving the health status of service-connected or uninsured veterans. Specifically, under the broad goal to “improve the overall health care of veterans,” VA’s plan sets an objective to increase its number of users by 20 percent by 2003. It also sets a performance goal of increasing the number of Category A veterans (primarily veterans with service-connected disabilities or low incomes) by 500,000 and Category C veterans (primarily veterans with no service-connected disabilities and higher incomes) by 125,000 by 2003. The stated purpose of the increase in users is to “preserve the viability of the health care system” rather than to meet the health care needs of service-connected or uninsured veterans. Beyond setting a goal to serve more Category A veterans, VA does not differentiate between serving a service-connected veteran with no health insurance and a low-income veteran with health insurance. Although the Congress established specific priorities for enrolling veterans in the VA health care system, VA’s strategic goals do not reflect those priorities. VA also linked its strategic goal to enactment of the proposed legislation to allow it to retain recoveries from private health insurance and Medicare. It noted that it could treat a significantly larger number of veterans—up to 20 percent more—only if its medical care cost recovery and Medicare reimbursement proposals were enacted. Our review of VA’s 1998 budget submission, however, found that to meet its revenue projections, VA would probably have to focus its marketing efforts on attracting veterans with fee-for-service private health insurance. In addition, VA proposes to collect about $557 million from Medicare in 2002 for services provided to about 106,000 additional higher income veterans covered by Medicare. As stated, the Congress authorized VA to retain recoveries and collections from private health insurance and veterans’ copayments but did not authorize VA to obtain recoveries from Medicare. The Administration and the Congress face difficult decisions concerning the future direction of VA’s safety net mission and the role VA’s hospitals should play in meeting the hospital care needs of the uninsured. For example, one important decision facing VA is determining the extent to which it should use its expanded contracting authority to purchase hospital care for veterans, particularly those with service-connected disabilities or no health insurance who cannot get care from a VA hospital because of geographic inaccessibility. Many veterans cannot get needed health care because of the distance from their homes to a VA facility. Our analysis of 1992 National Survey of Veterans data estimated that fewer than half of the 159,000 veterans who did not obtain needed hospital care lived within 25 miles of a VA hospital. By comparison, we estimated that over 90 percent lived within 25 miles of a private-sector hospital. One option for improving the health status of such veterans would be for VA to use its expanded contracting authority to purchase hospital and other services for uninsured veterans that live far from a VA hospital. On average, the VA health care system provides a higher proportion of care to patients with no health insurance than any category of community hospital, including public teaching hospitals. Still, many veterans without health insurance have reported that they have not used VA health care services and that they have unmet health care needs. In 1990, 9 out of 10 veterans reported having public or private health insurance. That meant, however, that about 2.6 million veterans had neither public nor private health insurance. Without a demonstrated ability to pay for care, individuals’ access to health care is much more limited in the private sector, decreasing their ability to receive needed care. Lacking insurance, people often postpone obtaining care until their conditions become more serious and require more costly medical services. In the past, most veterans who lacked insurance coverage could get needed hospital care through public programs and VA. Still, VA’s 1992 National Survey of Veterans estimated that about 159,000 veterans could not get needed hospital care in 1992, and about 228,000 could not get needed outpatient services. By far, the most common reason veterans cited for not obtaining needed care was that they could not afford to pay for it. So, if VA is to fulfill its safety net mission, it will have to ensure that VISNs and individual facilities do not react to incentives to generate revenue by reducing services to uninsured veterans and those with service-connected disabilities. Similarly, monitoring will be needed to ensure that facilities do not inappropriately bill insurers for services provided to service-connected veterans to generate additional revenues. Moreover, the incentive to target programs toward revenue-generating veterans is greatest if the facility providing the care retains the funds. Such an arrangement, however, would also provide the greatest incentive for operating an effective program. VA faces the challenge of identifying and applying the appropriate balance. In addition, ownership conversions of public and nonprofit hospitals could affect the ability of low-income or uninsured veterans to obtain services from such hospitals. With community hospitals’ support for the medically indigent apparently decreasing, should VA follow their lead? Or, should VA try to fill the void left by those providers? For example, veterans without health insurance often have families without health insurance. Should VA hospitals use their excess capacity to serve veterans’ uninsured dependents? If so, how should such care be financed? For example, should recoveries from private health insurance be earmarked for use in providing services to the families of uninsured veterans? Both VA and community hospitals are struggling to survive. Demand for hospital care, which increased for much of the century, has steadily declined since the 1980s in community hospitals and since the 1960s in VA hospitals. Although many factors have contributed to the declining demand, VA has been less affected by the effects of payment and other reforms than have community hospitals. Therefore, further reductions in use of VA hospitals are likely as VA tries to shift more of its care to outpatient and other more cost-effective settings. In addition, VA, unlike community hospitals, has a declining target population. One of the most crucial decisions facing the Congress and the administration as they plan for the future of the veterans’ health care system is the extent of effort that should be spent to preserve VA’s direct delivery infrastructure and the process that should be followed to effect change. VA, amid a massive restructuring of its health care system, has made efficiency improvements to the system. These actions have focused heavily on shifting patients from inpatient hospitals to outpatient and other more appropriate care settings—actions taken by community hospitals during the 1980s. The efforts’ success, however, has further reduced the workload of VA hospitals, increasing the cost of serving the remaining patients and heightening the need to address the future of the hospitals. Because fixed costs are dispersed over fewer patients, the declining use of VA hospitals increases the cost of providing hospital care to remaining patients. Community hospitals, also faced with declining workloads, have tried many approaches to reducing their costs, including increased use of part-time and intermittent employees and use of nurse extenders and other unlicensed assistive personnel. With the exception of efforts to integrate and consolidate patient care services and administrative functions of VA hospitals in close proximity, VA has not emphasized improving the efficiency of some hospital operations as much as community hospitals have. For example, VA could not pursue contracting for patient and nonpatient care services to the same extent as community hospitals. Not everyone accepts all of the changes taking place in community hospitals, however. For example, some view the use of some patient- centered care with skepticism because they are concerned about hospitals’ cutting costs by reducing nursing staff. Decisions will have to be made about which community hospital initiatives VA should pursue and to what extent. In fact, many of VA’s actions to improve the efficiency of its health care system, such as the Veterans Equitable Resource Allocation (VERA) system and preadmission screening, come from private-sector initiatives. These actions differ, however, from their private-sector counterparts because they lack the same financial incentives and risks. Nonetheless, individuals differ about the appropriate risk that is assumed by individual providers. A provider’s assuming too much risk or having too strong a financial incentive could adversely affect patient care. Too little risk, in contrast, could limit the effectiveness of the initiative. VA thus faces difficult decisions about the extent to which it should use financial incentives and risks to change practice patterns. The reduced use of VA hospitals associated with efficiency improvements, coupled with the declining veteran population and continued enrollment growth in managed care plans, makes preserving VA hospitals exceedingly difficult. About 46 percent of the beds in VA hospitals have been closed, and over 80 percent of the remaining beds might become excess within the next 5 to 10 years if VA’s efficiency improvement efforts succeed. This gives VA two basic options: attract significant numbers of new users or close hospitals. VA’s current efforts to attract new users, however, are unlikely to generate significant demand for hospital care. Its efforts legitimately focus more on improving the accessibility of outpatient care for veterans who live far from a VA clinic than on generating demand for VA hospital care. If VA hospitals are to remain exclusively for veterans, VA will have to attract a much larger and ever-increasing proportion of the veteran population. Other countries, such as Australia, have opened their veterans hospitals to nonveterans to build workload. Allowing VA hospitals to treat more nonveterans could increase VA hospital use and broaden VA’s patient mix, strengthening VA’s medical education mission. Without better systems for determining the cost of care, however, such action could result in funds appropriated for veterans’ health care being used to pay for care for nonveterans. In addition, if VA opened its hospitals to nonveterans, it would be expanding the areas in which it directly competes with private-sector hospitals in nearby communities. Essentially, every nonveteran coming into a VA hospital would be one fewer patient for a private-sector hospital. Thus, expanding VA’s role in providing care to nonveterans could further jeopardize the fiscal viability of private-sector hospitals. If VA decides to compete directly with community hospitals for both veteran and nonveteran patients, then it will subsequently have to decide the extent to which it should adopt private-sector practices on advertising and adding amenities, areas on which VA, up to now, has not focused. Similarly, decisions would have to be made about whether to market services to managed care plans and, if so, how to price them to compete with community hospitals. Several factors, including its medical education and research missions, currently limit VA’s ability to compete with community hospitals on the basis of price. Closing some VA hospitals, on the other hand, could make more funds available for expanding the use of contract hospitals for providing services to veterans who have service-connected disabilities or lack public or private insurance and do not live near a VA hospital. Now, the cost of maintaining its hospitals limits VA’s ability to meet the hospital care needs of some veterans with no public or private health insurance. This is because VA hospitals have more than enough capacity to serve all veterans seeking care, regardless of their finances. In other words, insured veterans living close to a VA hospital have better access to VA-supported care than do uninsured veterans who live far from a VA hospital. Maintaining VA hospitals in markets with declining demand could result in funds being used to pay for hospital care provided to veterans in the discretionary care category, while the hospital care needs of uninsured veterans in other areas are unmet. Other countries have successfully closed veterans hospitals, while improving veterans’ access to hospital care by contracting with community hospitals. The declining use of community hospitals and VA’s vast purchasing power could allow VA, like HMOs and other managed care plans, to negotiate significant discounts from community hospitals. This could improve the accessibility of VA-supported hospital care for uninsured veterans and veterans with service-connected disabilities. Contracting could help improve the financial status of some community hospitals by increasing patient workload. Because they serve a large proportion of uninsured and low-income patients, VA hospitals are more like public hospitals than either nonprofit or for-profit community hospitals. Many of the actions VA is taking, however, threaten to divert it from its traditional safety net mission to more directly competing with community hospitals for revenue-generating patients. Therefore, the Congress and VA have important decisions to make about the extent to which VA should focus its strategic goals on its safety net role. Finally, medical education has played a vital role in improving the quality of care in VA hospitals for over 50 years. Similarly, VA has played an important part in training a large proportion of the nation’s physicians. With a growing surplus of physicians, however, and a steadily declining veteran population, the Congress and VA face difficult decisions about the future of affiliation agreements. For example, should VA hospitals receive the same kinds of incentives to reduce the number of residency positions they support that the Congress provided non-VA hospitals through the Balanced Budget Act? Decisions about the future of VA hospitals, whether it be to close hospitals or open them to nonveterans, have significant implications for veterans, VA employees, affiliated medical schools, community hospitals, and taxpayers. It is therefore important that the Congress and the administration have available sufficient information to properly weigh the potential effects of VA health care system infrastructure changes on all affected stakeholders. In a letter dated March 5, 1998, VA’s Assistant Secretary for Policy and Planning said that this report extensively assesses the VA health care system from its inception to the present and accurately depicts the dynamic reengineering of the Veterans Health Administration (VHA) into the type of organization necessary to ensure that VA patients receive the care they need. The letter states that VA considers the report a valuable tool for helping the Department as it develops strategic initiatives to provide seamless health care services to veterans. VA stated that although it may agree with the issues and challenges identified in the report, it does not necessarily agree with the report’s conclusions on VA’s approach to the issues, the effect of continued reengineering on veterans, and the direction of VA’s health care system. Our report, VA stated, often focuses on issues from past reports that VA believes are either no longer relevant, have been resolved, or are already being addressed in conjunction with its reengineering program. This, in VA’s opinion, leads the report to conclusions about the future that are not certain and that the Department is not prepared to acknowledge as the only or most probable ones. Our report is intended to identify and analyze the implications of different approaches to restructuring the veterans health care program, not to draw conclusions about the direction of the program. We believe our focus on issues raised in past reports is appropriate both for documenting the progress VA has made in its restructuring efforts and the lessons learned along the way. VA also contends that many of the issues we cite as not being addressed in the first submission of Veterans Integrated Service Network (VISN) plans are addressed in VHA’s guidance for the plans submitted in October 1997 and that future versions of the guidance will continue to address these issues and others. We recognize that the VISN plans we reviewed were the networks’ first attempt at developing strategic/business plans. We reviewed the plans in detail, however, because efforts to obtain information from VA’s central office yielded few specifics on the extent to which VA was implementing initiatives like those of many community hospitals. Our review of the plans was linked to VA’s guidance on preparing the plans and to the Under Secretary’s Prescription for Change. Our review, however, was not intended to criticize VA’s efforts to develop strategic plans. Nor are we suggesting that VA should necessarily adopt all of the community hospital initiatives. VA stated that the current national health care climate, as our report acknowledges, remains unsettled, and VA’s vision of future health care delivery scenarios is based on trends that continue to emerge. This report, VA stated, clarifies that VA is at a watershed and that among the issues pertinent to the future of both VA and non-VA health care are (1) how VA can best provide services to an aging population with multiple health care needs and function as a safety net provider, (2) whether VA should continue to provide services directly, and (3) how new technologies will affect VA health care. In addition, VA indicated that it agrees that recent and proposed changes in VA and other programs make the future demand for both VA and non-VA hospital care uncertain. It noted that outpatient care, coupled with intensive care services, is a probable future model of U.S. health care. According to VA, it is therefore logical that in the future both VA and non-VA hospitals will change and some may close. VA agreed with our observation that decisions about whether to close or consolidate hospitals or services, change missions, sell excess capacity, or identify enhanced uses of excess space will require that the effect on all stakeholders (veterans, VA employees, community hospitals, medical schools, and individual communities) be fully considered without undue political influence. VA also stated that because VHA is in the midst of reengineering the health care system, significant uncertainty and ultimately no clear answers exist to the many questions this report raises. According to VA, improving its information and financial systems will be critical to answering these questions and will enable VA to demonstrate good value not only in cost, but also in quality, service, patients’ functional status, accessibility, and satisfaction. VA stated that by (1) following through with the transformation already occurring in its infrastructure and processes; (2) continuing to improve its strategic planning and resource allocation; and (3) implementing and monitoring clinical guidelines, performance measures, and outcomes, it will be able to successfully address these questions and other stakeholders’ needs. Regarding its safety net mission, VA said that it disagrees with our contention that eligibility reform and changes in contracting and resource allocation will cause VA to focus less on serving service-connected veterans and on its safety net role regarding low-income or uninsured veterans and enhance marketing to high-income, insured veterans. VA stated that contrary to the impression left by this report, approximately 95 percent of VA patients are veterans who meet congressional mandates for care, including veterans with service-connected disabilities and those with no service-connected disabilities who have the lowest incomes and poorest insurance coverage. According to VA, VERA focuses not simply on dollars per user but on dollars per mandatory user. The report does not contend that VA will focus less on serving service-connected veterans or its safety net role regarding low-income or uninsured veterans. We recognize that VA’s strategic goals and performance measures call for increasing VA’s market share of mandatory veterans. Even some veterans within the mandatory care group, however, have a greater need for or more right to care than others. First, veterans seeking care for service-connected disabilities should have the highest priority for care. Similarly, lower income veterans who lack other health care options, such as public or private health insurance, have a greater need for VA health care services than other veterans. We are concerned that VERA and the new medical care cost recovery provisions could at least in the short term provide financial incentives for individual facility managers to focus on serving revenue- generating veterans—those with higher incomes or private health insurance—rather than veterans with service-connected disabilities or no health insurance. We are also concerned about the extent to which VA can recover its costs for treating nonmandatory veterans to permit it to maintain or increase services to mandatory veterans. In addition, unless VA improves its medical facilities’ determination of which care category—mandatory or discretionary—a veteran is placed in, it will be difficult to accurately determine whom VA is serving. A discrepancy continues to exist between the care categories assigned by VA medical facilities, which, according to VA, report that less than 5 percent of both inpatient and outpatient users were discretionary in fiscal year 1995 and our prior work, which found that about 15 percent of the veterans using VA facilities who have no service-connected disabilities have sufficiently high incomes that would place them in the lowest priority category under the new patient enrollment system. Additional VA comments and technical corrections have been incorporated in this report as appropriate. See appendix X for a copy of VA’s comments.	Pursuant to a congressional request, GAO reviewed major issues and challenges that Congress and the administration will face in the next few years concerning Department of Veterans Affairs (VA) hospitals, focusing on: (1) how VA and community hospitals' care evolved during the twentieth century, including changes in supply and demand; (2) factors contributing to the declining demand; (3) the extent of excess capacity; (4) actions taken to increase efficiency and compete for patients; and (5) changes in hospitals involved in training the nation's physicians and conducting medical research. GAO noted that: (1) both community and VA hospitals are struggling to survive; (2) demand for hospital care abruptly reversed and has steadily declined since the 1980s in community hospitals and since the 1960s in VA hospitals; (3) although many factors contributed to the reversal, medical advances and changes in health insurance mainly drove changes to community hospitals; (4) VA hospitals, however, were mainly affected by declining numbers of veterans and the improving health care options available to veterans through Medicare and other insurance; (5) GAO's work, and studies by others, suggest that if trends continue, 60 percent or more of community hospital beds and over 80 percent of VA hospital beds may not be needed in the next 15 years; (6) if such reductions occur, many hospitals will cease operation; (7) VA's current strategy for attracting new users may not generate the demand needed to preserve VA hospitals; (8) new users have indicated they are more likely to choose their local hospitals rather than a distant VA facility; (9) if VA decides to directly compete with community hospitals for market share, then it will have to subsequently decide whether to adopt private-sector marketing techniques; (10) both VA and community hospitals are fundamentally changing the ways they operate; (11) such changes include the hospitals' basic structure and management; reinvention of basic work, procurement, and supply processes; development of new marketing strategies; and methods and procedures of monitoring and delivering patient care; (12) teaching hospitals' use of medical residents as a lower cost labor source is often seen as contributing to the oversupply of physicians; (13) Congress, through the Balanced Budget Act of 1997, gave non-VA teaching hospitals financial incentives through the Medicare program to reduce residency positions; (14) both VA's strategic goals and the incentives it is creating through some of its restructuring efforts suggest that VA, like many community hospitals, is focusing its marketing efforts on attracting revenue-generating patients; (15) decisions on the future of VA hospitals, whether they mean closing hospitals or opening them to nonveterans, have significant implications for veterans, VA employees, affiliated medical schools, community hospitals, and taxpayers; and (16) therefore, Congress and the administration must have sufficient information for properly assessing the potential effects of VA's health care system changes on all stakeholders.	14.4	long	7,744
3	Recovery Act funds are being distributed to states, localities, other entities, and individuals through a combination of formula and competitive grants and direct assistance. Nearly half of the approximately $580 billion associated with Recovery Act spending programs will flow to states and localities affecting about 50 state formula and discretionary grants as well as about 15 entitlement and other countercyclical programs. As noted above, three of the largest streams of funds flowing to states and localities are (1) the temporary increase in FMAP funding which will provide states with approximately $87 billion in assistance; (2) the State Fiscal Stabilization Fund, which will provide nearly $54 billion to help state and local governments avert budget cuts, primarily in education; and (3) highway infrastructure investment funds of approximately $27 billion. Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the FMAP. Across states, the FMAP may range from 50 to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. Under the Recovery Act, states are eligible for an increased FMAP for expenditures that states make in providing services to their Medicaid populations. The Recovery Act provides eligible states with this increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, CMS made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for: (1) the maintenance of states’ prior year FMAPs; (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. For the first two quarters of 2009, the increases in the FMAP for the 16 states and the District ranged from 7.09 percentage points in Iowa to 11.59 percentage points in California. (See table 1.) The Recovery Act provides approximately $48 billion to fund grants to states, localities, regional authorities and others for transportation projects of which the largest piece is $27.5 billion for highway and related infrastructure investments. The Recovery Act largely provides for increased transportation funding through existing programs-such as the Federal-Aid Highway Surface Transportation Program—a federally funded, state-administered program. Under this program, funds are apportioned annually to each state department of transportation (or equivalent) to construct and maintain roadways and bridges on the federal-aid highway system. The Federal-Aid Highway Program refers to the separately funded grant programs mostly funded by formula, administered by the Federal Highway Administration (FHWA) in the U.S. Department of Transportation. The Recovery Act provided $53.6 billion in appropriations for the State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education. The Recovery Act requires that the Secretary of Education set aside $5 billion for State Incentive Grants, referred to by the department as the Reach for the Top program, and the establishment of an Innovation Fund. After reserving these and certain other funds, the remaining funds are to be distributed to states by formula, with 61 percent of the state award based on the state’s relative share of the population aged 5 to 24 and 39 percent based on the state’s relative share of the total U.S. population. The Recovery Act specifies that 81.8 percent (about $39.5 billion) of these remaining funds are to be distributed to states for support of elementary, secondary, and postsecondary education, and early childhood education programs. The remaining 18.2 percent of SFSF (about $8.8 billion) is available for public safety and other government services including for educational purposes. The Department of Education announced on April 1, 2009 that it will award the SFSF in two phases. The first phase—$32.6 billion—represents about two-thirds of the SFSF. Figure 1 shows the distribution of Recovery Act funds to states by broad functional categories over the next several years. The timeline of Recovery Act spending has been a key issue in the debate and design of the Recovery Act because of the elapsed time between when policy changes are first proposed and actual spending begins to flow from enacted changes. Figure 2 shows the projected timing of state and local- administered Recovery Act spending. Over time, the programmatic focus of Recovery Act spending will change. As shown in figure 3, about two-thirds of Recovery Act funds expected to be spent by states in the current 2009 fiscal year will be health related, primarily temporary increases in Medicaid FMAP funding. Health, education, and transportation is estimated to account for approximately 90 percent of fiscal year 2009 Recovery Act funding for states and localities. However, by fiscal year 2012, transportation will be the largest share of state and local Recovery Act funding. Taken together, transportation spending, along with investments in the community development, energy, and environmental areas that are geared more toward creating long-run economic growth opportunities will represent approximately two-thirds of state and local Recovery Act funding in 2012. The administration has stipulated that every taxpayer dollar spent on economic recovery must be subject to unprecedented levels of transparency and accountability. To that end, the Recovery Act established the Recovery Accountability and Transparency Board to coordinate and conduct oversight of funds distributed under the Act in order to prevent fraud, waste and abuse. The Board includes a Chairman appointed by the President, and ten Inspectors General specified by the Act. The Board has a series of functions and powers to assist it in the mission of providing oversight and promoting transparency regarding expenditure of funds at all levels of government. The Board will report on the use of Recovery Act funds and may also make recommendations to agencies on measures to avoid problems and prevent fraud, waste and abuse. The Board is also charged under the Act with establishing and maintaining a web site, www.recovery.gov, (Recovery.gov) to foster greater accountability and transparency in the use of covered funds. The website currently includes overview information about the Recovery Act, a timeline for implementation, a frequently asked questions page, and an announcement page that is to be regularly updated. The administration plans to develop the site to encompass information about available funding, distribution of funds, and major recipients. The website is required to include plans from federal agencies; information on federal awards of formula grants and awards of competitive grants; and information on federal allocations for mandatory and other entitlement programs by state, county, or other appropriate geographical unit. Eventually, prime recipients of Recovery Act funding will provide information on how they are using their federal funds. Currently, Recovery.gov features projections for how, when, and where the funds will be spent, as well as which states and sectors of the economy are due to receive what proportion of the funds. As money starts to flow, additional data will become available. In addition to Recovery.gov, OMB has also issued guidance directing executive branch agencies to develop a dedicated portion of their web sites for information related to the recovery. To ensure a high level of accountability, OMB has issued guidance to the heads of federal departments and agencies for implementing and managing activities enacted under the Recovery Act. OMB has also issued for comment detailed reporting requirements for Recovery Act fund recipients that include the number of jobs created and jobs retained as a result of Recovery Act funding. OMB’s guidance documents are available on Recovery.gov. In addition, the Civilian Acquisition Council and the Defense Acquisition Regulations Council have issued an interim rule revising the Federal Acquisition Regulation (FAR) to require a contract clause that implements these reporting requirements for contracts funded with Recovery Act dollars. The Recovery Act also assigns GAO a range of responsibilities to help promote accountability and transparency. Some are recurring requirements such as providing bimonthly reviews of the use of funds made available under Division A of the Recovery Act by selected states and localities and reviews of quarterly reports on job creation and job retention as reported by Recovery Act fund recipients. Other requirements include targeted studies in several areas such as small business lending, education, and trade adjustment assistance. We completed the first of these mandates on April 3, 2009, by announcing the appointment of 13 members to the Health Information Technology Policy Committee, a new advisory body established by the Recovery Act. The committee will make recommendations on creating a policy framework for the development and adoption of a nationwide health information technology infrastructure, including standards for the exchange of patient medical information. On April 16, 2009, we issued a report completing a second mandate to report on the actions of the Small Business Administration (SBA) to, among other things, increase liquidity in the secondary market for SBA loans. Officials in the 16 selected states and the District indicated they have used certain Recovery Act funds and continue planning for the use of additional funds they have not yet received. States’ existing intergovernmental programs—such as Medicaid, transportation, and education—have been among the first programs to receive Recovery Act funds. Planning continues for the use of Recovery Act funds for these and other program areas. States’ planning actions include appointing Recovery Czars; establishing task forces and other entities, and developing public web sites to solicit input and publicize selected projects. In some cases, according to state officials, state legislation will be required to receive and expend funds or to make required changes to programs for eligibility prior to using the funds. States’ approaches to planning for Recovery Act funds also vary in response to state legislative and budget processes regarding the use of federal funds and states’ fiscal situations. The three largest programs making funds available to the state and localities so far have been the Medicaid FMAP, highways funds, and the SFSF. Table 2 shows the breakout of funding available for these three programs in the 16 selected states and the District that GAO visited. Recovery Act funding for these 17 jurisdictions accounts for a little less than two-thirds of total Recovery Act funding for these three programs. Under the Recovery Act, states are eligible for an increased FMAP for expenditures that states make in providing services to their Medicaid populations. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008 and December 31, 2010. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for: (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. In our sample of 16 states and the District, officials from 15 states and the District indicated that they had drawn down increased FMAP grant awards, totaling $7.96 billion for the period of October 1, 2008 through April 1, 2009—47 percent of their increased FMAP grant awards. In our sample, the extent to which individual states and the District accessed these funds varied widely, ranging from 0 percent in Colorado to about 66 percent in New Jersey. Nationally, the 50 states and several territories combined have drawn down approximately $11 billion as of April 1, 2009, which represents almost 46 percent of the increased FMAP grants awarded for the first three quarters of federal fiscal year 2009 (Table 3). In order for states to qualify for the increased FMAP available under the Recovery Act, they must meet certain requirements. In particular Maintenance of Eligibility: In order to qualify for the increased FMAP, states generally may not apply eligibility standards, methodologies, or procedures that are more restrictive than those in effect under their state Medicaid programs on July 1, 2008. In guidance to states, CMS noted that examples of restrictions of eligibility could include (1) the elimination of any eligibility groups since July 1, 2008 or (2) changes in an eligibility determination or redetermination process that is more stringent than what was in effect on July 1, 2008. States that fail to initially satisfy the maintenance of eligibility requirements have an opportunity to reinstate their eligibility standards, methodologies, and procedures before July 1, 2009 and become retroactively eligible for the increased FMAP. Compliance with Prompt Payment: Under federal law states are required to pay claims from health practitioners promptly. Under the Recovery Act, states are prohibited from receiving the increased FMAP for days during any period in which that state has failed to meet this requirement. Although the increased FMAP is not available for any claims received from a practitioner on each day the state is not in compliance with these prompt payment requirements, the state may receive the regular FMAP for practitioner claims received on days of non-compliance. CMS officials told us that states must attest that they are in compliance with the prompt payment requirement, but that enforcement is complicated due to differences across states in methods used to track this information. CMS officials plan to issue guidance on reporting compliance with the prompt payment requirement and are currently gathering information from states on the methods they use to determine compliance. Rainy Day Funds: States are not eligible for an increased FMAP if any amounts attributable (either directly or indirectly) to the increased FMAP are deposited or credited into any reserve or rainy day fund of the state. Percentage Contributions from Political Subdivisions: In some states, political subdivisions—such as cities and counties—may be required to help finance the state’s share of Medicaid spending. States that have such financing arrangements are not eligible to receive the increased FMAP if the percentage contributions required to be made by a political subdivision are greater than what was in place on September 30, 2008. In addition to meeting the above requirements, states that receive the increased FMAP must submit a report to CMS no later than September 30, 2011 that describes how the increased FMAP funds were expended, in a form and manner determined by CMS. In guidance to states, CMS has stated that further guidance will be developed for this reporting requirement. CMS guidance to states also indicates that, for federal reimbursement, increased FMAP funds must be drawn down separately, tracked separately, and reported to CMS separately. Officials from several states told us they require additional guidance from CMS on tracking receipt of increased FMAP funds and on reporting on the use of these funds. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the state share for their Medicaid programs. States have reported using these available funds for a variety of purposes. In our sample, individual states and the District reported that they would use the funds to maintain their current level of Medicaid eligibility and benefits, cover their increased Medicaid caseloads—which are primarily populations that are sensitive to economic downturns, including children and families, and to offset their state general fund deficits thereby avoiding layoffs and other measures detrimental to economic recovery. Ten states and the District reported using these funds to maintain program eligibility. Nine states and the District reported using these funds to maintain benefits. Specifically, Massachusetts reported that during a previous financial downturn, the state limited the number of individuals eligible for some services and reduced certain program benefits that were optional for the state to cover. However, with the funds made available as a result of the increased FMAP, the state did not have to make such reductions. Similarly, New Jersey reported that the state used these funds to eliminate premiums for certain children in its State Children’s Health Insurance Program, allowing it to retain coverage for children whose enrollment in the program would otherwise have been terminated for non-payment of premiums. Nine states and the District reported using these funds to cover increases to their Medicaid caseloads, primarily to populations that are sensitive to economic downturns, such as children and families. For example, New Jersey indicated that these funds would help the state meet the increased demand for Medicaid services. According to a New Jersey official, due to significant job losses, the state’s proposed 2010 budget would not have accommodated all the applicants newly eligible for Medicaid and that the funds available as a result of the increased FMAP have allowed the state to maintain a “safety net” of coverage for uninsured and unemployed people. In addition, 10 states and the District indicated that the increased funds made available would help offset deficits in their general funds. Pennsylvania reported that because funding for its Medicaid program is derived, in part, on state revenues, program funding levels fluctuate as the economy rises and falls. However, the state was able to use funds made available to offset the effects of lower state revenues. Arizona officials also reported that the state used funds made available as a result of the increased FMAP to pay down some of its debt and make payroll payments, thus allowing the state to avoid a serious cash flow problem. Finally, six states in our sample also reported that they used funds made available as a result of the increased FMAP to comply with prompt payment requirements. Specifically, Illinois reported that these funds will permit the state to move from a 90-day payment cycle to a 30-day payment cycle for all Medicaid providers. Three states also reported using these funds to restore or to increase provider payment rates. In our sample, many states and the District indicated that they need additional guidance from CMS regarding eligibility for the increased FMAP funds. Specifically, 5 states raised concerns about whether certain programmatic changes could jeopardize the state’s eligibility for these funds. For example Texas officials indicated that guidance from CMS is needed regarding whether certain programmatic changes being considered by Texas, such as a possible extension of the program’s eligibility period, would affect the state’s eligibility for increased FMAP funds. Similarly, Massachusetts wanted clarification from CMS as to whether certain changes in the timeframe for the state to conduct eligibility re- determinations would be considered a more restrictive standard. Four states also reported that they wanted additional guidance from CMS regarding policies related to the prompt payment requirements or changes to the non-federal share of Medicaid expenditures. For example, California officials noted that the state reduced Medicaid payments for in-home support services, but that counties could voluntarily choose to increase these payments without altering the cost sharing arrangements between the counties and the state. The state wants clarification from CMS on whether such an arrangement would be allowable in light of the Recovery Act requirements regarding the percentage of contributions by political subdivisions within a state toward the non-federal share of expenditures. In response to states’ concerns regarding the need for guidance, CMS told us that it is in the process of developing draft guidance on the prompt payment provisions in the Recovery Act. One official noted that this guidance will include defining the term practitioner, describing the types of claims applicable under the provision, and addressing the principles that are integral to determining a state’s compliance with prompt payment requirements. Additionally, CMS plans to have a reporting mechanism in place through which states would report compliance under this provision. With regard to Recovery Act requirements regarding political subdivisions, CMS described their current activities for providing guidance to states. Due to the variability of state operations, funding processes, and political structures, CMS has been working with states on a case-by-case basis to discuss particular issues associated with this provision and to address the particular circumstances for each state. A CMS official told us that if there were an issue(s) or circumstance(s) that had applicability across the states, or if there were broader themes having national significance, CMS would consider issuing guidance. Of the $27.5 billion provided in the Recovery Act for highway and related infrastructure investments, $26.7 billion is provided to the 50 states for restoration, repair, construction and other activities allowed under the Federal-Aid Highway Surface Transportation Program and for other eligible surface transportation projects. Nearly one-third of these funds are required to be sub-allocated to metropolitan and other areas. States must follow the requirements for the existing program, and in addition, the Recovery Act requires that the Governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. The certifications must include a statement of the amount of funds the state planned to expend from state sources as of the date of enactment, during the period beginning on the date of enactment through September 30, 2010, for the types of projects that are funded by the appropriation. The U.S. Department of Transportation is reviewing the Governors’ certifications regarding maintaining their level of effort for highways. According to the Department, of the 16 states in our review and the District of Columbia, three states have submitted a certification free of explanatory or conditional language—Arizona, Michigan, and New York. Eight submitted “explanatory” certifications—certifications that used language that articulated assumptions used or stated the certification was based on the “best information available at the time,” but did not clearly qualify the expected maintenance of effort on the assumptions proving true or information not changing in the future. Six submitted a “conditional” certifications, which means that the certification was subject to conditions or assumptions, future legislative action, future revenues, or other conditions. Recovery Act funding for highway infrastructure investment differs from the usual practice in the Federal-aid Highway Program in a few important ways. Most significantly, for projects funded under the Recovery Act, the federal share is 100 percent; typically projects require a state match of 20 percent while the federal share is typically 80 percent. Under the Recovery Act, priority is also to be given to projects that are projected to be completed within three years. In addition, within 120 days after the apportionment by the Department of Transportation to the states (March 2, 2009), and specifically before June 30, 2009, 50 percent of the apportioned funds must be obligated. Any amount of this 50 percent of apportioned funding that is not obligated may be withdrawn by the Secretary of Transportation and redistributed to other states that have obligated their funds in a timely manner. Furthermore, one year after enactment the Secretary will withdraw any remaining unobligated funds and redistribute them based on states’ need and ability to obligate additional funds. These provisions are applicable only to those funds apportioned to the state and not those funds required by the Recovery Act to be suballocated to metropolitan, regional and local organizations. Finally, states are required to give priority to projects that are located in economically distressed areas as defined by the Public Works and Economic Development Act of 1965, as amended. In March 2009, FHWA directed its field offices to provide oversight and take appropriate action to ensure that states gave adequate consideration to economically distressed areas in selecting projects. Specifically, field offices were directed to discuss this issue with the states and to document its review and oversight of this process. States are undertaking planning activities to identify projects, obtain approval at the state and federal level and move them to contracting and implementation. However, because of the steps necessary before implementation, states generally had not yet expended significant amounts of Recovery Act funds. States are required to reach agreement with the Department of Transportation (DOT) on a list of projects reimbursement from DOT for these projects. States will then request reimbursement from DOT as the state makes payments to contractors working on approved projects. As of April 16, 2009, the U.S Department of Transportation reported that nationally $6.4 billion of the $26.6 billion in Recovery Act highway infrastructure investment funding provided to the states had been obligated – meaning Transportation and the states had reached agreements on projects worth this amount. As shown in Table 4 below, for the locations that GAO reviewed, the extent to which the Department of Transportation had obligated funds apportioned to the states and Washington D.C. ranged from 0 to 65 percent. For two of the states, the Department of Transportation had obligated over 50 percent of the states’ apportioned funds, for 4 it had obligated 30 to 50 percent of the states’ funds, for 9 states it had obligated under 30 percent of funds, and for three it had not obligated any funds. In most states we visited, while they had not yet expended significant funds, they were planning to solicit bids in April or May. They also stated that they planned to meet statutory deadlines for obligating the highway funds. A few states had already executed contracts. As of April 1, 2009, the Mississippi Department of Transportation (MDOT), for example, had signed contracts for 10 projects totaling approximately $77 million. These projects include the expansion of State Route 19 in eastern Mississippi into a four-lane highway. This project fulfills part of MDOT’s 1987 Four- Lane Highway Program which seeks to link every Mississippian to a four- lane highway within 30 miles or 30 minutes. Similarly, as of April 15, 2009, the Iowa Department of Transportation had competitively awarded 25 contracts valued at $168 million. Most often, however, we found that highway funds in the states and the District have not yet been spent because highway projects were at earlier stages of planning, approval, and competitive contracting. For example, in Florida, the Department of Transportation (FDOT) plans to use the Recovery Act funds to accelerate road construction programs in its preexisting 5- year plan which will result in some projects being reprioritized and selected for earlier completion. On April 15, 2009, the Florida Legislative Budget Commission approved the Recovery Act-funded projects that FDOT had submitted. For the most part, states were focusing their selection of Recovery Act- funded highway projects on construction and maintenance, rather than planning and design, because they were seeking projects that would have employment impacts and could be implemented quickly. These included road repairs and resurfacing, bridge repairs and maintenance, safety improvements, and road widening. For example, in Illinois, the Department of Transportation is planning to spend a large share of its estimated $655 million in Recovery Act funds for highway and bridge construction and maintenance projects in economically distressed areas, those that are shovel-ready, and those that can be completed by February 2012. In Iowa, the contracts awarded have been for projects such as bridge replacements and highway resurfacing—shovel-ready projects that could be initiated and completed quickly. Knowing that the Recovery Act would include opportunities for highway investment, states told us they worked in advance of the legislation to identify appropriate projects. For example, in New York, the state DOT began planning to manage anticipated federal stimulus money in November 2008. A key part of New York’s DOT’s strategy was to build on existing planning and program systems to distribute and manage the funds. The states and D.C. must apply to the Department of Education for SFSF funds. Education will award funds once it determines that an application contains key assurances and information on how the state will use the funds. As of April 20, applications from three states had met that determination-South Dakota, and two of GAO’s sample states, California and Illinois. The applications from other states are being developed and submitted and have not yet been awarded. The states and the District report that SFSF funds will be used to hire and retain teachers, reduce the potential for layoffs, cover budget shortfalls, and restore funding cuts to programs. The applications to Education must contain certain assurances. For example, states must assure that, in each of fiscal years 2009, 2010, and 2011, they will maintain state support at fiscal year 2006 levels for elementary and secondary education and also for public institutions of higher education (IHEs). However, the Secretary of Education may waive maintenance of effort requirements if the state demonstrates that it will commit an equal or greater percentage of state revenues to education than in the previous applicable year. The state application must also contain (1) assurances that the state is committed to advancing education reform in increasing teacher effectiveness, establishing state-wide education longitudinal data systems, and improving the quality of state academic standards and assessments; (2) baseline data that demonstrates the state’s current status in each of the education reform areas; and (3) a description of how the state intends to use its stabilization allocation. Within two weeks of receipt of an approvable SFSF application, Education will provide the state with 67 percent of its SFSF allocation. Under certain circumstances, Education will provide the state with up to 90 percent of its allocation. In the second phase, Education intends to conduct a full peer review of state applications before awarding the final allocations. After maintaining state support for education at fiscal year 2006 levels, states are required to use the education portion of the SFSF to restore state support to the greater of fiscal year 2008 or 2009 levels for elementary and secondary education, public IHEs, and, if applicable, early childhood education programs. States must distribute these funds to school districts using the primary state education formula but maintain discretion in how funds are allocated to public IHEs. If, after restoring state support for education, additional funds remain, the state must allocate those funds to school districts according to the funding formula found in Title I, Part A, of the Elementary and Secondary Education Act of 1965 (ESEA), commonly known as the No Child Left Behind Act. However, if a state’s education stabilization fund allocation is insufficient to restore state support for education, then a state must allocate funds in proportion to the relative shortfall in state support to public schools and IHEs. Education stabilization funds must be allocated to school districts and public IHEs and cannot be retained at the state level. Once stabilization funds are awarded to school districts and public IHEs, they have considerable flexibility over how they use those funds. School districts are allowed to use stabilization funds for any allowable purpose under the Elementary and Secondary Education Act (ESEA), (commonly known as the No Child Left Behind Act), the Individuals with Disabilities Education Act (IDEA), the Adult Education and Family Literacy Act, or the Perkins Act, subject to some prohibitions on using funds for, among other things, sports facilities and vehicles. In particular, because allowable uses under the Impact Aid provisions of ESEA are broad, school districts have discretion to use Recovery Act funding for things ranging from salaries of teachers, administrators, and support staff to purchases of textbooks, computers, and other equipment. The Recovery Act allows public IHEs to use SFSF funds in such a way as to mitigate the need to raise tuition and fees, as well as for the modernization, renovation, and repair of facilities, subject to certain limitations. However, the Recovery Act prohibits public IHEs from using stabilization funds for such things as increasing endowments, modernizing, renovating, or repairing sports facilities, or maintaining equipment. According to Education officials, there are no maintenance of effort requirements placed on local school districts. Consequently, as long as local districts use stabilization funds for allowable purposes, they are free to reduce spending on education from local-source funds, such as property tax revenues. States have broad discretion over how the $8.8 billion in SFSF funds designated for basic government services are used. The Recovery Act provides that these funds can be used for public safety and other government services and that these services may include assistance for education, as well as for modernization, renovation, and repairs of public schools or IHEs, subject to certain requirements. Education’s guidance provides that the funds can also be used to cover state administrative expenses related to the Recovery Act. However, the Act also places several restrictions on the use of these funds. For example, these funds cannot be used to pay for casinos (a general prohibition that applies to all Recovery Act funds), financial assistance for students to attend private schools, or construction, modernization, renovation, or repair of stadiums or other sports facilities. States’ expected that SFSF uses by school districts and public IHEs would include retaining current staff and spending on programmatic initiatives, among other uses. Some states’ fiscal condition could affect their ability to meet maintenance of effort (MOE) requirements in order to receive SFSF monies, but they are awaiting final guidance from Education on procedures to obtain relief from these requirements. For example, due to substantial revenue shortages, Florida has cut their state budget in recent years and the state will not be able to meet the maintenance-of-effort requirement to readily qualify for these funds. The state will apply to Education for a waiver from this requirement; however, they are awaiting final instructions from Education on submission of the waiver. Florida plans to use SFSF funds to reduce the impact of any further cuts that may be needed in the state education budget. In Arizona, generally, state officials expect that SFSF recipients, such as local school districts, will use their allocations to improve the tools they use to assess student performance and determine to what extent performance meets federal academic standards, rehire teachers that were let go because of prior budget cuts, retain teachers, and meet the federal requirement that all schools have equal access to highly qualified teachers, among other things. Funds for the state universities will help them maintain services and staff as well as avoid tuition increases. Illinois officials stated that the state plans to use all of the $2 billion in State Fiscal Stabilization funds, including the 18.2 percent allowed for government services, for K-12 and higher education activities and hopes to avert layoffs and other cutbacks many districts and public colleges and universities are facing in their fiscal year 2009 and 2010 budgets. State Board of Education officials also noted that U.S. Department of Education guidance allows school districts to use stabilization funds for education reforms, such as prolonging school days and school years, where possible. However, officials said that Illinois districts will focus these funds on filling budget gaps rather than implementing projects that will require long-term resource commitments. While planning is underway, most of the selected states reported that they have not yet fully decided how to use the 18.2 percent of the SFSF which is discretionary. In addition to funds for Medicaid, transportation, and SFSF which flow primarily directly to the states, the Recovery Act provided funds for other program areas ranging from housing to training to alternative energy. Localities’ planning for the use of Recovery Act education funds varied according to both the status of federal guidance in place at the time of our review and individuals states’ and localities’ own planning process. New Jersey state education officials said they were initially limited in their ability to provide guidance to local institutions because they were awaiting guidance from the U.S. Department of Education. As a result, school district officials we interviewed in Newark and Trenton said they are waiting for state officials to tell them what their allocations are for each of the federal Recovery Act education programs. The timing of the federal and state guidelines for these funds are important as the local schools districts are planning their upcoming fiscal year budgets and would like to know how the Recovery Act funds would complement their upcoming school spending. According to the governor’s chief of staff, the state already funds local school districts with $8.8 billion in state funds, so ensuring accountability for the use of state funds to so many school districts is not a new challenge to the state oversight agencies. On April 1, 2009, the U.S. Department of Education issued guidance to the states on how Recovery Act funds could be used for education. State officials are continuing to review the guidance, and on April 16, 2009, issued guidance to local school districts outlining each district’s allocation of additional funds made available under the Recovery Act for programs authorized under Title I of the Elementary and Secondary Education Act (ESEA) and the Individuals with Disabilities Education Act. In Arizona, Tempe School District No. 3 plans to use the vast majority of the Recovery Act funding for ESEA Title I for existing programs, but it has tentative plans to use portions of it each year to hire two temporary regional facilitators and to fund five existing preschool programs, among other uses. Officials from the selected states and the District said there were plans in place to apply for and use Recovery Act funds. For example, Michigan plans to apply for $67 million in Recovery Act funds for crime control and prevention activities under the Department of Justice’s Edward Byrne Memorial Justice Assistance Grants. Michigan Department of Community Health officials told us that about $41 million of these funds will support, among other things, state efforts to reduce the crime lab backlog, funding for multi-jurisdictional courts, and localities’ efforts regarding law enforcement programs, community policing, and local correctional resources. An additional $26 million in Recovery Act funds will go directly to localities to support efforts against drug-related and violent crime. On April 13, 2009, Michigan began accepting grant applications for the Byrne program and will continue to accept them until May 11, 2009. In another example, officials in the District told us that as of April 3, 2009, the District Department of Employment Services had received about $1.5 million for adult Workforce Investment Act (WIA) programs, about $3.8 million for dislocated workers programs, and almost $4 million for youth programs. They said that D.C. plans to use these Recovery Act funds in accordance with the U.S. Department of Labor’s guidance stating the intent of the Recovery Act to use WIA Adult funds to provide the necessary services to substantially increased numbers of adults to support their entry or reentry into the job market, and that WIA Dislocated Worker funds be used to provide the necessary services to dislocated workers to support their reentry into the job market. Officials in all of the selected states indicated they were able to reduce or eliminate expected budget shortfalls through the inclusion of Recovery Act funds in their budget projections. In Texas, some representatives told us that absent the availability of Recovery Act funds, state agencies likely would have been asked to make cuts of about 10 percent for the state’s fiscal year 2010-2011 biennial budget, in addition to the state drawing upon the rainy day fund. However, other officials representing the Texas Office of the Governor said that budget deficit situations do not necessarily result in the state using its rainy day fund. The officials stressed that—to meet the requirement to pass a balanced budget—a variety of other solutions could be considered, such as budget reallocations among state agencies and programs, as well as spending cuts. Colorado officials said Recovery Act funds will help prevent cuts to state programs such as transportation. Illinois officials said the state hopes to avert layoffs and create new jobs with Recovery Act funds. Officials in Massachusetts also said that federal Recovery Act funds are critical to addressing the Commonwealth’s immediate fiscal pressures. State officials expect to use a significant portion of funds made available as a result of their state-projected $8.7 billion in Recovery Act funds (over 2 years) for budget stabilization. As of April 2009, the Commonwealth is addressing a budget shortfall of approximately $3.0 billion, driven largely by lower-than-anticipated revenues. The combination of funds made available as a result of the increased FMAP and state rainy day funds— a reserve fund built up during more favorable economic conditions to be used during difficult economic times—will help the state avoid cuts in several areas, including health care, education, and public safety. Faced with declining revenue projections since fiscal year 2008, Pennsylvania officials believe that funds made available as a result of the Recovery Act are critical to help alleviate the immediate fiscal pressure and help balance the state budget. Based on February 2009 projections, Pennsylvania faces a $2.3 billion shortfall in fiscal year 2009, largely because of lower-than- expected revenues. Despite the infusion of Recovery Act funds into state budgets, some state officials reported that the current fiscal situation still requires action to maintain balanced budgets. These actions include budget reductions, fee increases and scaling back of state rebates of local property taxes. In Georgia, officials amended the state budget by reducing revenue estimates, using reserves, and cutting program funding. These actions were necessary despite the inclusion of additional Medicaid funds made available as a result of the Recovery Act. The largest budget cuts in New Jersey come from scaling back of state rebates of local property taxes by $500 million, and reducing state payments to the pension funds by $895 million. Officials in the selected states acknowledged the Recovery Act’s contributions to easing immediate fiscal pressures but remain wary of continued fiscal pressures likely to remain after federal assistance ends. Officials in several states reported that their planning efforts focused on maintaining existing services rather than creating new programs or staff positions which could extend their state’s financial liabilities beyond the end date for Recovery Act funds. Officials generally expected to use Recovery Act funds to fill gaps in existing programs rather than funding new initiatives. In the midst of program budget cuts, state officials acknowledged the challenge of ensuring that, where required to do so, they use Recovery Act funds to supplement and not supplant current state program funds. For example, in Arizona, programs receiving Recovery Act funds may have a share of the state general fund reduced to help balance the fiscal year 2010 budget, thus demonstrating the state has met the prohibition on supplanting state funds could be a challenge. The Arizona Treasurer’s Office estimated that even with Recovery Act funding, Arizona’s expenditures were expected to exceed revenues through about 2014, and the state’s “rainy day” fund has been depleted. In California, even when the state Legislative Analyst’s Office factors in the state’s anticipated Recovery Act funding and a package of state budget solutions that will be voted on in a May 19, 2009 special election, it estimates an $8 billion deficit in fiscal year 2009-10. Further, since the release of the governor’s budget in January 2009, the state’s economic condition continues to deteriorate, and the state legislature and governor may need to develop additional budgetary solutions to rebalance the 2009-10 budget following an update of the budget in May. All of the 16 selected states and the District reported taking action to plan for and monitor the use of Recovery Act funding. Some states reported that Recovery Act planning activities for funds received by the state are directed primarily by the governor’s office. In New York, for example, the governor provides program direction to the state’s departments and offices, and he established a Recovery Act Cabinet comprised of representatives from all state agencies and many state authorities to coordinate and manage Recovery Act funding throughout the state. In North Carolina, Recovery Act planning efforts are led by the newly created Office of Economic Recovery and Investment, which was established by the governor to oversee the state’s economic recovery initiatives. Other states reported that their Recovery Act planning efforts were less centralized. In Mississippi, the governor has little influence over the state Departments of Education and Transportation, as they are led by independent entities. In Texas, oversight of federal Recovery Act funds involves various stakeholders, including the Office of the Governor, the Office of the Comptroller of Public Accounts, and the State Auditor’s Office as well as two entities established within the Texas legislature specifically for this purpose—the House Select Committee on Federal Economic Stabilization Funding and the House Appropriations’ Subcommittee on Stimulus. Several states reported that they have appointed “Recovery Czars” or identified a similar key official and established special offices, task forces or other entities to oversee the planning and monitor the use of Recovery Act funds within their states. In Michigan, the governor appointed a recovery czar to lead a new Michigan Economic Recovery Office, which is responsible for coordinating Recovery Act programs across all state departments and with external stakeholders such as GAO, the federal OMB, and others. Some states began planning efforts before Congress passed the Recovery Act. For example, the state of Georgia recognized the importance of accounting for and monitoring Recovery Act funds and directed state agencies to take a number of steps to safeguard Recovery Act funds and mitigate identified risks. Georgia established a small core team in December 2008 to begin planning for the state’s implementation of the Recovery Act. Within 1 day of enactment, the governor appointed a Recovery Act Accountability Officer, and she formed a Recovery Act implementation team shortly thereafter. The implementation team includes a senior management team, officials from 31 state agencies, an accountability and transparency support group comprised of officials from the state’s budget, accounting, and procurement offices, and five cross- agency implementation teams. At one of the first implementation team meetings, the Recovery Act Accountability Officer disseminated an implementation manual to agencies, which included multiple types of guidance on how to use and account for Recovery Act funds, and new and updated guidance is disseminated at the weekly implementation team meetings. In contrast, officials in some states are using existing mechanisms rather than creating new offices or positions to lead Recovery Act efforts. For example, a District official stated that the District would not appoint a Recovery Czar, and instead would use its existing administrative structures to distribute and monitor Recovery Act funds to ensure quick disbursement of funds. In Mississippi, officials from the Governor’s Office said that the state did not establish a new office to provide statewide oversight of Recovery Act funding, in part because they did not believe that the act provided states with funds for administrative expenses— including additional staff. The Governor did designate a member of his staff to act as a stimulus coordinator for Recovery Act activities. All 16 states we visited and the District have established Recovery Act web sites to provide information on state plans for using Recovery funding, uses of funds to date, and, in some instances, to allow citizens to submit project proposals. For example, Ohio has created www.recovery.Ohio.gov, which represents the state’s efforts to create an open, transparent, and equitable process for using Recovery Act funds. The state has encouraged citizens to submit proposals for use of Recovery Act funds, and as of April 8, 2009, individuals and organizations from across Ohio submitted more than 23,000 proposals. Iowa officials indicated they want to use the state’s recovery web site (www.recovery.Iowa.gov) to host a “dashboard” function to report updated information on Recovery Act spending that is easily searchable by the public. Also in Colorado, the state plans to create a web-based map of projects receiving Recovery Act funds to help inform the public about the results of Recovery Act spending in Colorado. In many states we spoke to, officials reported that their planning efforts were affected by the need for the state legislature to approve state agencies’ use of Recovery Act funds. For example, in Florida, the state legislature must authorize the use of all Recovery Act funds received by the state; including those passed on to local governments. In Colorado, some Recovery Act funds, including those going to Child Care Development Block Grants (CDBG) and the Temporary Assistance to Needy Families (TANF) Emergency Contingency Fund, must be allocated by the Colorado General Assembly, which is in session only through early May. Mississippi officials also plan to use Recovery Act funds to address the state’s fiscal challenges. Mississippi legislative officials we met with told us that the state legislature was considering adding escalation language to the current fiscal year’s appropriations bills that would authorize state agencies to spend any Recovery Act funds received. The legislature normally conducts its regular session between the beginning of January and the end of March. However, the legislature recessed early during the 2009 regular session in part because of uncertainty regarding how Recovery Act funds that the state will receive should be spent. The legislature plans to reconvene in early May 2009 to complete its work on the state’s fiscal year 2010 budget. The selected states’ and localities’ tracking and accounting systems are critical to the proper execution and accurate and timely recording of transactions associated with the Recovery Act. OMB has issued guidance to the states and localities that provides for separate “tagging” of Recovery Act funds so that specific reports can be created and transactions can be traced. Officials from all 16 of the selected states and the District told us they have established or were establishing methods and processes to separately identify (i.e., tag), monitor, track, and report on the use of the Recovery Act funds they receive. The states and localities generally plan on using their current accounting system for recording Recovery Act funds, but many are adding identifiers to account codes to track recovery act funds separately. Many said this involved adding digits to the end of existing accounting codes for federal programs. In California for instance, officials told us that while their plans for tracking, control, and oversight are still evolving, they intend to rely on existing accountability mechanisms and accounting systems, enhanced with newly created codes, to separately track and monitor Recovery Act funds that are received by and pass through the state. Several officials told us that the state’s accounting system should be able to track Recovery Act funds separately. In one state, Arizona, officials told us that state agencies will primarily be responsible for administering, tracking, reporting on and overseeing Recovery Act funds for their respective programs because the state government is highly decentralized. The state’s existing accounting system will have new accounting codes added in order to segregate and track the Recovery Act funds separately from other funds that will flow through the state government. Under Arizona’s decentralized government, some larger agencies, and program offices within them, have their own accounting systems that will need to code and track Recover Act funds as well. The Arizona General Accounting Office has issued guidance to state agencies on their responsibilities, including how they were to receive, disburse, tag or code in their accounting systems, track separately, and to some extent report on these federal resources. A concern expressed by state officials is that agencies within the state often use different accounting software making it difficult to ensure consistent and timely reporting. For example, Georgia officials stated that the majority of state agencies use the same software; however, some agencies do not use this software and others have greatly customized the software. Similarly, officials from the Illinois Office of the Internal Auditor said that the state is assessing an issue that could affect reporting — specifically that there are currently more than 100 separate financial systems used throughout the Illinois state government. Furthermore, Colorado state officials are concerned that their accounting system is outdated and said they faced challenges in meeting federal reporting requirements. Some state departments do not use the state financial system grant module and therefore manually post aggregate revenue and expenditure data. As a result, they may have to compile a list of Recovery Act funding received outside of their central financial management system. State officials are determining what approach they will use in tracking funds, and told us they plan to create an accounting fund and a centrally defined budget coding structure through which to track state agencies’ use of Recovery Act funds. State officials reported a range of concerns regarding the federal requirements to identify and track Recovery Act funds going to sub- recipients, localities and other non-state entities. These concerns include their inability to track these funds with existing systems, uncertainty regarding state officials’ accountability for the use of funds which do not pass through state government entities, and their desire for additional federal guidance to establish specific expectations on sub-recipient reporting requirements. Officials from many of the 16 selected states and the District told us that they had concerns about the ability of sub-recipients, localities, and other non-state entities to separately tag, monitor, track, and report on the Recovery Act funds they receive. For example, in New Jersey officials noted that certain towns and cities, as well as regional planning organizations, can apply for and directly receive federal funds under the terms of the Recovery Act. According to the state Inspector General, the risk for waste, fraud and abuse increases the farther removed an organization is from state government controls. While some state officials said that they have statewide investigative authority, they would not be able to readily track the funding going directly to local and regional government organizations and nonprofits as a result of the funding delivery and reporting requirements set up in the Recovery Act. In addition, staff from the State Auditor’s office noted that some smaller cities and towns in New Jersey are not used to implementing guidance from the state or federal government on how they are using program funds and this could result in the localities reporting using funds for ineligible purposes. Officials in many states expressed concern about being held accountable for funds flowing directly from federal agencies to localities or other recipients. For example, officials in Colorado expressed concern that they will be held accountable for all Recovery Act funds flowing to the state, including those funds for which they do not have oversight or even information about, because some funds flow directly to non-state entities within Colorado (such as school districts and transportation districts). Officials in some states said they would like to at least be informed about funds provided to non-state entities in order to facilitate planning for the use of these funds and so they can coordinate Recovery Act activities. For example, Georgia officials do not expect to track and report on funds going directly to localities, but would like to be informed about these funds so that the state can coordinate with localities. They cited Recovery Act-funded broadband initiatives and health funding to nonprofit hospitals as areas where a lack of coordination could result in a duplication of services or missed opportunities to leverage resources. Officials at the Colorado Department of Public Safety told us that, because Colorado and other states expressed interest in receiving data on localities’ grant funding, the federal Bureau of Justice Assistance in the U.S. Department of Justice began providing data to the states on localities’ funding. In another example, officials told us that the Ohio Administrative Knowledge System (OAKS) will allow the state to tag Recovery Act funding. However, they said in many cases state agencies will rely on grantees and contractors to track the funds to their end use. Because the state intends to code each Recovery Act funding stream separately and recipients typically manage more than one funding stream at a time, state officials said recipients should be able to track Recovery Act funds separately from other funding sources. However, state and local officials we interviewed raised concerns about the capacity of grantees and contractors to track funds spent by sub-recipients. For example, officials with the Ohio Department of Education said they can track Recovery Act funds to school districts and charter schools, but they have to rely on the recipients’ financial systems to be able to track funds beyond that. An official with the Columbus City Schools said that while they could provide assurances that Recovery Act funds were spent in accordance with program rules; they could not report back systematically how each federal Recovery Act dollar was spent. Officials with the Columbus Metropolitan Housing Authority also noted limitations in how far they could reasonably be expected to track Recovery Act funds. They said they could track Recovery Act dollars to specific projects but could not systematically track funds spent by subcontractors on materials and labor. These officials added, however, that if they required the contractors to collect this information from their subcontractors, they would be able to report back with great detail. Still, they said, without additional guidance from the federal government on specific reporting requirements, they were hesitant to specify requirements for their contractors to collect the data. Pennsylvania officials said that the state will rely on sub-recipients to meet reporting requirements at the local level. Recipients and sub-recipients can be local governments or other entities such as transit agencies. For example, about $367 million in Recovery Act money for transit capital assistance and fixed guideway (such as commuter rails and trolleys) modernization was allocated directly to areas such as Philadelphia, Pittsburgh, and Allentown. State officials also told us that the state would not track or report Recovery Act funds that go straight from the federal government to localities and other entities, such as public housing authorities. Officials in several states indicated that either their states would not be tracking Recovery Act funds going to the local levels or that they were unsure how much data would be available on the use of these funds. For example, Massachusetts officials told us that the portion of recovery funds going directly to recipients other than Massachusetts state government agencies, such as independent state authorities, local governments, or other entities, will not be tracked through the Office of the Comptroller. While state officials acknowledged that the Commonwealth lacks authority to ensure adequate tracking of these funds, they also are concerned about the ability of smaller entities to manage Recovery Act funds, particularly smaller municipalities that traditionally do not receive federal funds and who are not familiar with Massachusetts tracking and procurement procedures, and recipients receiving significant increases in federal funds. In order to address this concern, the state administration introduced emergency legislation that, according to state officials, includes a provision requiring all entities within Massachusetts that receive Recovery Act money to provide information to the state on their use of Recovery Act funds. Nevertheless, two large non-state government entities we spoke with—the city of Boston and the Massachusetts Bay Transportation Authority (an independent authority responsible for the metropolitan Boston’s transit system)—believe that their current systems, with some modifications, will allow them to meet Recovery Act requirements. For example, the city of Boston hosted the Democratic National Convention in 2004 and officials said that their system was then capable of segregating and tracking a sudden influx of temporary funds. This response was common among the selected states. For example, officials in Florida told us that the state’s accounting system will not track the portion of Recovery Act funds that flow directly to local entities from federal agencies. Officials in Michigan’s Auditor General’s Office told us that their oversight responsibilities do not include most sub-recipients that receive direct federal funding, so any upfront safeguards to track or ensure accountability have not been determined. Mississippi officials also said that although special accounting codes will be added to the Statewide Automated Accounting System in order to track the expenditure of Recovery Act funds, the system would not track Recovery Act fund allocated directly to local and regional government organizations and nonprofit organizations. In Arizona, the portion of recovery funds going directly to recipients other than Arizona government agencies, such as independent state authorities, local governments, or other entities, may not be tracked by the state. State officials expressed concern that they may not be able to attest to localities’ ability to tag, track, and report on Recovery Act funds when these entities receive the moneys directly from federal agencies rather than through state agencies. Department heads and program officials generally expected that they could require sub-recipients receiving funds from the state, through agreements, grant applications, and revised contract provisions, to separately track and report Recovery Act funding. For example, unemployment program managers said they were issuing new intergovernmental agreements with localities to cover new reporting requirements. However, several of the state officials did raise questions about the ability of some local organizations to do this, such as small, rural entities, boards or commissions, or private entities not used to doing business with the federal government. Furthermore, several of the state department officials acknowledged that either some state agency information systems have data reliability problems, which will have to be resolved, or they had sub-recipients who in the past had problems providing timely and accurate reporting, but said that they would work with these entities to comply, and also had sanctions to use as a last resort. Officials in Arizona, Florida, Georgia, and New York, also expressed concern that the new requirement to provide reports on use of Recovery Act funds within 10 days after a quarter ends may be challenging to meet by both state and local entities. In some program areas, some state officials raised concerns that the Recovery Act requirement will create much shorter deadlines for processing financial data that local areas will have difficultly meeting. The selected states and the District are taking various approaches to ensure that internal controls are in place to manage risk up-front, rather than after problems develop and deficiencies are identified after the fact, and have different capacities to manage and oversee the use of Recovery Act funds. Many of these differences result from the underlying differences in approaches to governance, organizational structures, and related systems and processes that are unique to each jurisdiction. A robust system of internal control specifically designed to deal with the unique and complex aspects of the Recovery Act funds will be key to helping management of the states and localities achieve the desired results. Effective internal control can be achieved through numerous different approaches, and, in fact, we found significant variation in planned approaches by state. For example, New York’s Recovery Act cabinet plans to establish a working group on internal controls; the Governor’s office plans to hire a consultant to review the state’s management infrastructure and capabilities to achieve accountability, effective internal controls, compliance and reliable reporting under the act; and, the state plans to coordinate fraud prevention training sessions. Michigan’s Recovery Office is developing strategies for effective oversight and tracking of the use of Recovery Act funds to ensure compliance with accountability and transparency requirements. Ohio’s Office of Internal Audit plans to assess the adequacy and effectiveness of the current internal control framework and test whether state agencies adhere to the framework. Florida’s Chief Inspector General established an enterprise-wide working group of agency program Inspectors General who are updating their annual work plans by including the Recovery Act funds in their risk assessments and will leave flexibility in their plans to address issues related to funds. Massachusetts’s Joint Committee on Federal Recovery Act Oversight will hold hearings regarding the oversight of Recovery Act spending. Georgia’s State Auditor plans to provide internal control training to state agency personnel in late April. The training will discuss basic internal controls, designing and implementing internal controls for Recovery Act programs, best practices in contract monitoring, and reporting on Recovery Act funds. Internal controls include management and program policies, procedures, and guidance that help ensure effective and efficient use of resources; compliance with laws and regulations; prevention and detection of fraud, waste, and abuse; and the reliability of financial reporting. Because Recovery Act funds are to be distributed as quickly as possible, controls are evolving as various aspects of the program become operational. Effective internal control is a major part of managing any organization to achieve desired outcomes and manage risk. GAO’s Standards for Internal Control include five key elements: control environment, risk assessment, control activities, information and communication, and monitoring. The control environment should create a culture of accountability by establishing a positive and supportive attitude toward improvement and the achievement of established program outcomes. Control environment includes the integrity and ethical values maintained and demonstrated by management, the organizational structure, and management’s philosophy and operating style. As detailed earlier in this report, although the implementation has varied, many locations we reviewed have attempted to enhance their control environment through the appointment of a Recovery czar or the establishment of boards or working groups that focus on the Recovery Act. Also, as noted earlier, state officials expressed concerns about the reliability and accuracy of data coming from localities. The second feature of strong internal controls is risk assessment—that is, performing comprehensive reviews and analyses of program operations to determine if risks exist and the nature and extent of risks have been identified. Some states told us that they are conducting such risk assessments and the existing body of work by state auditors and others provide a good roadmap for states to use to pinpoint key areas of concern and to strengthen internal controls and subsequent oversight. For example, the Illinois Office of Internal Audit is performing a risk assessment of all programs related to the Recovery Act, and North Carolina’s Office of Internal Audit is assessing the risk of the state department’s financial management system and internal controls. Michigan’s major state departments are conducting self assessments of controls, including identification of internal control and programmatic weaknesses. In Georgia, the budget office is requiring state agencies to complete a tool that assesses risk as part of the budget process for the Recovery Act funds. Selected states have thus far identified various risks that the Recovery Act funds and programs face, including Georgia officials identifying three state departments with increased risk—the Georgia Department of Labor that is on a different accounting system than other state departments, the Georgia Department of Transportation which had previously identified accounting problems and is currently being reorganized, and the Georgia Department of Human Resources, which is currently being divided into three parts, which increases risk. Additionally, Massachusetts’ fiscal year 2007 Single Audit report also identified deficiencies, especially in the Department of Education’s sub-recipient monitoring. Officials in several of the selected states told us that risk assessment is being conducted to look at programs receiving Recovery Act funds. Officials in Texas’ State Auditor’s Office noted that relatively high risks generally can be anticipated with certain types of programs such as new programs with completely new processes and internal controls; programs that distribute significant amounts of funds to local governments or boards, and programs that rely on sub-recipients for internal controls and monitoring. Officials from New York, North Carolina, and Pennsylvania commented that the weatherization program was an example of a program at increased risk. The results of recent audits are a readily available source of information to use in the risk assessment process. Material weaknesses and other conditions identified in an audit represent potential risks that can be analyzed for their significance and occurrence that will allow management and others to decide how to manage the risk and what actions should be taken. A readily available source of information on internal control weaknesses and other risks present in the states and other jurisdictions receiving Recovery Act funding is the Single Audit report, prepared to meet the requirements of the Single Audit Act, as amended (Single Audit Act) and OMB’s implementing guidance in OMB Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations. The Single Audit Act adopted a single audit concept to help meet the needs of federal agencies for grantee oversight and accountability as well as grantees’ needs for single, uniformly structured audits. The Single Audit Act requires states, local governments and nonprofit organizations expending over $500,000 in federal awards in a year to obtain an audit in accordance with requirements set forth in the Act. A single audit consists of (1) an audit and opinions on the fair presentation of the financial statements and the Schedule of Expenditures of Federal Awards (SEFA); (2) gaining an understanding of and testing internal control over financial reporting and the entity’s compliance with laws, regulations, and contract or grant provisions that have a direct and material effect on certain federal programs (i.e., the program requirements), and (3) an audit and an opinion on compliance with applicable program requirements for certain federal programs. The audit report also includes the auditor’s schedule of findings and questioned costs, and the auditee’s corrective action plans and a summary of prior audit findings that includes planned and completed corrective actions. Auditors are also required to report on significant deficiencies in internal control and on compliance associated with the audit of the financial statements. For example, in California, the most recent single audit conducted by the State Auditor for fiscal year 2007 identified 81 material weaknesses, 27 of which were associated with programs we reviewed for purposes of this report. The State Auditor plans to use past audit results to target state agencies and programs with a high number and history of problems, including data reliability concerns, and is closely coordinating with us on these efforts. For example, the fiscal year 2007 State Single Audit Report identified 8 material weaknesses pertaining to the ESEA Title I program and the Individuals with Disabilities Education Act programs. The audit findings included a material weakness in the California Department of Education’s management of cash because it disbursed funds without assurances from LEAs that the time between the receipt and disbursement of federal funds was minimized, contrary to federal guidelines. Education officials told us that they have addressed some of these material weaknesses and, in other cases, they are still working to correct them. If these and other material weaknesses are not corrected, they may affect the state’s ability to appropriately manage certain Recovery Act funds. The State Auditor’s Office told us that it is in the process of finalizing the fiscal year 2007 State Single Audit Report and plans to issue the report within the next 30 days. In addition, the State Auditor’s Office is summarizing the results of the single audit to identify those programs that continue to have material weaknesses. Finally, the State Auditor’s Office plans to use the results of other audits it has conducted in conjunction with the single audit to develop its approach for determining the state’s readiness to receive the large influx of federal funds and comply with the requirement regarding the use of those funds under the Recovery Act. Arizona’s fiscal year 2007 Single Audit report identified a number of material weaknesses related to the state Department of Education. The report identified a material weakness involving IDEA where the state department had not reviewed sub-recipients to ensure that federal awards were used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grant agreements. The Audit report also identified one financial reporting material weaknesses related to the state Department of Administration’s ability to prepare timely financial statements, including its Comprehensive Annual Financial Report (CAFR). In fiscal year 2007, the CAFR was issued in June 2008, approximately 6 months after the scheduled deadline. According to the Auditor General’s Office, the fiscal year 2008 CAFR will also be completed late as the last agency submitted its financial statement on March 9, 2008. According to the Auditor General’s Office, this control deficiency affects the timeliness of financial reporting which affects the needs of users. It is especially important that Arizona try to address the timeliness issue with regard to financial statements given the number and strict reporting timelines that are imposed on states under the Recovery Act. The third element of a comprehensive system of internal controls is that of control activities, which involve taking actions to address identified risk areas and help ensure that management’s decisions, directives, and plans are carried out and program objectives met. Various control activities already exist and are also being put in place in the states related to the Recovery Act. Control activities for states and localities consist of the policies, procedures, and guidance that enforce management’s directives and achieve effective internal control over specific program activities. Examples of such policies and procedures particularly relevant to the Recovery Act spending are (1) proper execution and accurate and timely recording of transactions and events, (2) controls to help ensure compliance with program requirements, (3) establishment and review of performance measures and indicators, and (4) appropriate documentation of transactions and internal control. Documented policies, procedures and guidance that are effectively implemented will be critical tools for states and localities management and staff as well as program recipients for achieving good management of Recovery Act programs. Control activities are also key in helping to achieve accurate, reliable reporting of information and results. Effective control activities and monitoring are key to achieving this objective. Pennsylvania’s Auditor General also found potential weaknesses and vulnerabilities in programs expected to receive Recovery Act funds. For example, a recent Auditor General report found, among other things, weak internal controls, weaknesses in contracting, and inconsistent verification and inspection of subcontractor work in the state’s Weatherization Assistance Program. States and localities that receive and administer the Recovery Act funds will be expected to minimize fraud, waste, and abuse in contracting. According to Florida state officials, the state completed an initiative to strengthen contracting requirements several years ago. For example, the majority of state contracts greater than $1 million are required to be reviewed for certain criteria by the Department of Financial Services’ Division of Accounting and Auditing before the first payment is processed. The contract must also be negotiated by a contract manager certified by the Florida Department of Management Services, Division of State Purchasing Training and Certification Program. In another example of efforts to enhancing contracting processes and oversight, officials in New Jersey told us that the controls and reports will be put into place by the state’s centralized purchasing department, the Division of Purchase and Property (DPP). The current accounting system will be able to account for and control the use of Recovery Act funds used for procurement because DPP will create special accounting codes for these funds. New Jersey officials stated that their accounting systems had the capability to track funds using special accounting codes and that they were confident no special enhancements were needed to their accounting software, although they would monitor the accounting system to ensure it was functioning properly. DPP will also publicly advertise bids for projects funded with Recovery Act funds, include terms and conditions in each request for proposals and contract for these projects stating detailed reports required by the Act, and will post contract award notices for Recovery Act-funded projects. Information should be communicated to management and within the entity to enable accountable officials and others throughout the entity to carry out their responsibilities and determine whether they are meeting their goals of accountability and efficient use of resources. The states have undertaken a variety of information and communication methods. For the Recovery Act, internal state communication is being conducted through newly created task forces or working groups such as those in California and the District, implementation teams such as in Florida and Georgia, and state offices such as in North Carolina. Texas also uses a periodic forum of the internal audit staff of Texas state agencies for another statewide communication method. Various officials are developing guidance related to the Recovery Act and dispensing the information to state agencies. Monitoring activities include the systemic process of reviewing the effectiveness of the operation of the internal control system. These activities are conducted by management, oversight boards and entities, and internal and external auditors. Monitoring enables stakeholders to determine whether the internal control system continues to operate effectively over time. It also improves the organization’s overall effectiveness and efficiency by providing timely evidence of changes that have occurred, or might need to occur, in the way the internal control system addresses evolving or changing risks. Many of the boards or offices discussed in the control environment above have responsibilities related to monitoring the Recovery Act funds. States have undertaken various other activities to monitor Recovery Act funds, including Arizona’s budget director meeting with the heads of programs potentially receiving Recovery Act funds to gauge each programs’ preparedness; Arizona’s Comptroller conducting a survey to inventory current internal controls at state agencies to help ensure controls are in place to limit the risk of fraud, waste, abuse and mismanagement of Recovery Act funds; California’s Governor appointing the state’s first Inspector General specifically to oversee Recovery Act funds as they are disbursed in the state; Massachusetts’ legislature creating the Joint Committee on federal Recovery Act Oversight with the goals of ensuring compliance with federal regulations and reviewing current state laws, regulations and policies to ensure they allow access to Recovery Act funds and streamline the processes to quickly stimulate the economy; and Texas State Auditor’s Office plans to hire 10 additional staff. An important aspect of monitoring Recovery Act funding includes sub- recipient monitoring. As noted, significant concerns exist regarding sub- recipient monitoring, as this is an area where limited experience and known vulnerabilities exist. Some state auditors do not have authority to monitor local operations of internal controls. For example, in Pennsylvania, officials from the Auditor General’s office have different views about what authority they have to audit federal money that flows directly to localities, such as housing authorities and municipalities. In Texas, the State Auditor’s Office made a recommendation regarding the monitoring of sub-recipients in its most recent audit of the Texas Education Agency. The audit report did not find that sub-recipients were improperly spending federal funds or were not meeting federal requirements, however the report did note that the agency had “a limited number of resources available to monitor fiscal compliance.” The audit report recommended that the Texas Education Agency continue to add resources, within its budget constraints, to increase the amount of federal fiscal compliance performed. According to the State Auditor, following the audit in February 2009, the Texas Education Agency created a comprehensive correction plan to address this resource issue, which the agency is implementing. OMB’s Circular No. A-133 sets out implementing guidelines for the single audit and defines roles and responsibilities related to the implementation of the Single Audit Act, including detailed instructions to auditors on how to determine which federal programs are to be audited for compliance with program requirements in a particular year at a given grantee. The Circular No. A-133 Compliance Supplement is issued annually to guide auditors on what program requirements should be tested for programs audited as part of the single audit. OMB has stated that it will use its Circular No. A-133 Compliance Supplement to notify auditors of program requirements that should be tested for Recovery Act programs, and will issue interim updates as necessary. Both the Single Audit Act and OMB Circular No. A-133 call for a “risk- based” approach to determine which programs will be audited for compliance with program requirements as part of a single audit. In general, the prescribed approach relies heavily on the amount of federal expenditures during a fiscal year and whether findings were reported in the previous period to determine whether detailed compliance testing is required for a given program that year. Under the current approach for risk determination in accordance with Circular No. A-133, certain risks unique to the Recovery Act programs may not receive full consideration. Recovery Act funding carries with it some unique challenges. The most significant of these challenges are associated with (1) new government programs (2), the sudden increase in funds or programs that are new for the recipient entity, and (3) the expectation that some programs and projects will be delivered faster so as to inject funds into the economy. This makes timely and efficient evaluations in response to the Recovery Act’s accountability requirements critical. Specifically, new programs and recipients participating in a program for the first time may not have the management controls and accounting systems in place to help ensure that funds are distributed and used in accordance with program regulations and objectives; Recovery Act funding that applies to programs already in operation may cause total funding to exceed the capacity of management controls and accounting systems that have been effective in past years; the more extensive accountability and transparency requirements for Recovery Act funds will require the implementation of new controls and procedures; and risk may be increased due to the pressures of spending funds quickly. In response to the risks associated with Recovery Act funding, the single audit process needs adjustment to put appropriate focus on Recovery Act programs to provide the necessary level of accountability over these funds in a timely manner. The single audit process could be adjusted to require the auditor to perform procedures such as the following as part of the routine single audit: provide for review of the design and implementation of internal control over compliance and financial reporting for programs under the Recovery Act; consider risks related to Recovery Act-related programs in determining which federal programs are major programs; and specifically, test Recovery Act programs to determine whether the auditee complied with laws and regulations. The first two items above should preferably be accomplished during 2009 before significant expenditures of funds in 2010 so that the design of internal control can be strengthened prior to the majority of those expenditures. We further believe that OMB Circular No. A-133 and/or the Circular No. A-133 Compliance Supplement could be adjusted to provide some relief on current audit requirements for low-risk programs to offset additional workload demands associated with Recovery Act funds. OMB told us that it is developing audit guidance that would address the above audit objectives. OMB also said that it is considering reevaluating potential options for providing relief from certain existing audit requirements in order to provide some balance to the increased requirements for Recovery Act program auditing. Officials in several states expressed concerns regarding the lack of funding provided to state oversight entities in the Recovery Act given the additional federal requirements placed on states to provide proper accounting, and ensure transparency. Due to fiscal constraints, many states reported significant declines in the number of management and oversight staff—limiting states’ ability to ensure proper implementation and management of Recovery Act funds. To the extent that states’ management infrastructures were already strained due to resource issues, risks will be exacerbated by increased workloads and new program implementation. While the majority of states indicated that they lack the necessary resources to conduct additional management and oversight related to the Recovery Act, some states indicated that they are taking measures to either hire new staff or reallocate existing staff to ensure adequate oversight of Recovery Act funds. Officials we interviewed in several states said the lack of funding for state oversight entities in the Recovery Act presents them with a challenge, given the increased need for oversight and accountability. According to state officials, state budget and staffing cuts have limited the ability of state and local oversight entities to ensure adequate management and implementation of the Recovery Act. For example, Colorado’s state auditor reported that state oversight capacity is limited, noting that the Department of Health Care Policy and Financing has had 3 controllers in the past 4 years and the state legislature’s Joint Budget Committee recently cut field audit staff for the Department of Human Services in half. In addition, the Colorado Department of Transportation’s deputy controller position is vacant, as is the Department of Personnel & Administration’s internal auditor position. Colorado officials noted that these actions are, in part, due to administrative cuts during a past economic downturn in an attempt to maintain program delivery levels. In Massachusetts, the task forces the Governor convened in December 2008 concluded that it is critical the Inspector General and State Auditor have resources to audit Recovery Act contracts and management of Recovery Act funds, as well as recommended that the Attorney General’s office be provided with the resources to promptly and effectively pursue fraud and abuse. Massachusetts officials explained that the oversight community is facing budget cuts of about 10 percent at a time when increased oversight and accountability is critically needed. To illustrate the impact of the impending budget situation, the Inspector General stated that his department does not have the resources to conduct any additional oversight related to Recovery Act funds. This significantly affects the Inspector General’s capacity to conduct oversight since the budget is almost entirely comprised of salaries, and any cuts in funding would result in fewer staff available to conduct oversight. In addition, the Massachusetts State Auditor described how their department has had to resort to staff being furloughed already for 6 days and is anticipating further layoffs before the end of fiscal year 2009. Similarly, 94 percent of their department’s budget is labor and any cuts in funding generally result in cuts in staff. Much like Colorado and Massachusetts, Arizona and Florida state officials report significant declines in oversight staff. The Florida Auditor General told us that the office has not been hiring new staff for over a year and has about 10 percent of the office’s positions unfilled. In addition, the Office of Policy Analysis and Government Accountability officials also told us their respective staffs have decreased by 10 percent in the past two years. State officials stated that these staff resource constraints may lead them to reassesses priorities and reallocate staff to ensure adequate oversight of Recovery Act funds. Officials within Arizona state executive offices that are coordinating oversight activities—such as the Office of Strategic Planning and Budgeting, the Office of Economic Recovery, and the Comptroller’s Office—stated that they will need additional people to help ensure compliance with Recovery Act funding requirements, but that the state has a hiring freeze to help address budget deficits. For example, the General Accounting Office within the state Department of Administration has experienced a reduction from 74 to 50 staff, posing challenges to its increased oversight responsibilities, and the state Department of Economic Security that manages workforce investment programs had 8,214 staff on furloughs of five or nine days, depending on pay grade, and has laid off about 800 staff members as well. Similarly, a state Department of Housing official stated that the office currently has a vacancy rate of about 15 percent because of the hiring freeze. Furthermore, the state Auditor General reported that its staffing levels are nearly 25 percent below the authorized staffing level of 229 full time equivalents. Although most states indicated that they lack the resources needed to provide effective monitoring and oversight, some states indicated they will hire additional staff to help ensure the prudent use of Recovery Act funds. For example, according to officials with North Carolina’s Governor’s Crime Commission, the current management capacity in place is not sufficient to implement the Recovery Act. Officials explained that the Recovery Act funds for the Edward Byrne Memorial Justice Assistance Grant program have created an increase in workload that the department will have to hire additional staff to handle over the next 3 years. Officials explained that these staff will be hired for the short term since the money will run out in 3 years. Additionally, officials explained that they are able to use 10 percent of the Justice Assistance Grants funding to pay for the administrative positions that are needed. In addition, officials from Ohio’s Office of Budget and Management (OBM) stated that its Office of Internal Audit plans to increase its internal audit staff from 9 (current) to 33 by transferring internal audit personnel from other state agencies and hiring new staff by July 2009. OBM officials say that the increase in Office of Internal Audit staff will provide the needed resources to implement its objectives and ensure that current safeguards are in place and followed as the state manages its Recovery Act funded programs. Additionally, some Georgia state officials that directly administer programs stated that overseeing the influx of funds could be a challenge, given the state’s current budget constraints and hiring freeze. For example, the State Auditor, whose fiscal year 2009 budget was cut by 11 percent, expressed concerns about the lack of additional funds for Recovery Act oversight. The Georgia State Auditor noted that, if state fiscal conditions do not improve or federal funding does not become available for audit purposes, additional budget and staffing cuts may occur within the department. In some cases, state officials told us that they planned to use Recovery Act funds to cover their administrative costs. Meanwhile, other state officials want additional clarity on when they could use program funds to cover such costs. A number of states expressed concerns regarding the ability to track Recovery Act funds due to state hiring freezes, resulting from budget shortfalls. For instance, New Jersey has not increased its number of state auditors or investigators, nor has there been an increase in funding specifically for Recovery Act oversight. In addition, the state hiring freeze has not allowed many state agencies to increase their Recovery Act oversight efforts. For example, despite an increase of $469 million in Recovery Act funds for state highway projects, no additional staff will be hired to help with those tasks or those directly associated with the Recovery Act, such as reporting on the number of jobs created. While the state’s Department of Transportation has committed to shift resources to meet any expanded need for internal Recovery Act oversight, one person is currently responsible for reviewing contractor-reported payroll information for disadvantaged business enterprises, ensuring compliance with Davis-Bacon wage requirements, and development of the job creation figures. State education officials in North Carolina also said that greater oversight capacity is needed to manage the increase in federal funding. However, due to the state’s hiring freeze, the agency will be unable to use state funds to hire the additional staff needed to oversee Recovery Act funds. The North Carolina Recovery Czar said that his office will work with state agencies to authorize hiring additional staff when directly related to Recovery Act oversight. Michigan officials reported that the state’s hiring freeze may not allow state and local agencies to hire the additional staff needed to increase Recovery Act oversight efforts. For example, an official with the state’s Department of Community Health said that because it has been downsizing for several years through attrition and early retirement, it does not have sufficient staff to cover its current responsibilities and that further reductions are planned for fiscal year 2010. However, state officials told us that they will take the actions necessary to ensure that state departments have the capacity to provide proper oversight and accountability for Recovery Act funds. In contrast, two states indicated that they have or will have sufficient levels of existing personnel to track funds. Texas state officials noted that state agencies plan on using existing staff to manage the stimulus funds. Agency officials will monitor the situations and, as need arises, will determine whether additional staff should be hired to ensure adequate oversight of the state Recovery Act funds. Additionally, in preparation of the infusion of Recovery Act funds, the Illinois Governor is seeking approximately 350 additional positions state-wide in the fiscal year 2010 budget to help implement Recovery Act programs, according to officials from the Governor’s Office of Management and Budget. With respect to oversight of Recovery Act funding at the local level, varying degrees of preparedness were reported by state and local officials. While the California Department of Transportation (Caltrans) officials stated that extensive internal controls exist at the state level, there may be control weaknesses at the local level. Caltrans is collaborating with local entities to identify and address these weaknesses. Likewise, Colorado officials expressed concerns that effective oversight of funds provided to Jefferson County may be limited due to the recent termination of its internal auditor and the elimination of its internal control audit function. Arizona state officials expressed some concerns about the ability of rural, tribal, and some private entities such as; boards, commissions, and nonprofit organizations to manage, especially if the Recovery Act does not provide administrative funding for some programs. As recipients of Recovery Act funds and as partners with the federal government in achieving Recovery Act goals, states and local units of government are expected to invest Recovery Act funds with a high level of transparency and to be held accountable for results under the Recovery Act. As a means of implementing that goal, guidance has been issued and will continue to be issued to federal agencies, as well as to direct recipients of funding. To date, OMB has issued two broad sets of guidance to the heads of federal departments and agencies for implementing and managing activities enacted under the Recovery Act. OMB has also issued for public comment detailed proposed standard data elements that federal agencies will require from all (except individuals) recipients of Recovery Act funding. When reporting on the use of funds, recipients must show the total amount of recovery funds received from a federal agency, the amount expended or obligated to the project, project specific information including the name and description of the project, an evaluation of its completion status, the estimated number of jobs created and retained by the project, and information on any subcontracts awarded by the recipient, as specified in the Recovery Act. In addition, the Civilian Acquisition Council and Defense Acquisition Regulations Council have issued an interim rule revising the Federal Acquisition Regulation (FAR) to require a contract clause that implements these reporting requirements for contracts funded with Recovery Act dollars. State reactions vary widely and often include a mixture of responses to the reporting requirements. Some states will use existing federal program guidance or performance measures to evaluate impact, particularly for on- going programs. Other states are waiting for additional guidance from federal departments or from OMB on how and what to measure to assess impact. While Georgia is waiting on further federal guidance, the state is adapting an existing system (used by the State Auditor to fulfill its Single Audit Act responsibilities) to help the state report on Recovery Act funds. The statewide web-based system will be used to track expenditures, project status, and job creation and retention. The Georgia governor is requiring all state agencies and programs receiving Recovery Act funds to use this system. Some states indicated that they have not yet determined how they will assess impact. Preserving existing jobs and stimulating job creation and promoting economic recovery are among the Recovery Act’s key objectives. Officials in 9 of the 16 states and the District expressed concern about the definitions of jobs retained and jobs created under the Recovery Act, as well as methodologies that can be used for estimation of each. Officials from several of the states we met with expressed a need for clearer definitions of “jobs retained” and “jobs created.” Officials from a few states expressed the need for clarification on how to track indirect jobs, while others expressed concern about how to measure the impact of funding that is not designed to create jobs. Mississippi state officials suggested the need for a clearly defined distinction for time-limited, part-time, full-time, and permanent jobs; since each state may have differing definitions of these two categories. Officials from Massachusetts expressed concern that contractors may overestimate the number of jobs retained and created. Some existing programs, such as highway construction, have methodologies for estimating job creation. But other programs, existing and new, do not have job estimation methodologies. State officials that we spoke with are pursuing a number of different approaches for measuring the effects of Recovery Act funding. For example, Florida’s state workforce agency is encouraging recipients of Recovery Act funds throughout the state to list jobs created with the funds in the state’s existing online job bank. The Iowa Department of Transportation tracks the number of worker hours by highway project on the basis of contractor reports and will use these reports to estimate jobs created. In New Jersey, state and local agencies will collect or estimate data on the number of jobs created or retained as a result of Recovery Act funds in different ways. For example, the Newark Housing Authority will use payroll data to keep track of the exact number of union tradesmen and housing authority residents employed to turn damaged vacant units into rentable ones. In contrast, New Jersey Transit is using an academic study that examined job creation from transportation investment to estimate the number of jobs that are created by contractors on its Recovery Act-funded construction projects. Beyond employment issues, some Michigan state universities and the state’s economic development department are expected to participate in analyses of the potential impact of Recovery Act funds. Some of the questions that states and localities have about Recovery Act implementation may have been answered in part via the guidance provided by OMB for the data elements and in the Federal Acquisition Regulation, as well as by guidance issued by federal departments. For example, OMB provided definitions for employment, as well as for jobs retained and jobs created via Recovery Act funding. However, OMB did not specify methodologies for estimating jobs retained and jobs created, which has been a concern for some states. Data elements were presented in the form of templates with section by section data requirements and instructions. OMB provided a comment period during which it is likely to receive many questions and requests for clarifications from states, localities, and other direct recipients of Recovery Act funding. OMB plans to update this guidance again within 30 to 60 days of its April 3, 2009 issuance. Some federal agencies have also provided guidance to the states. The U.S. Departments of Education, Housing and Urban Development, Justice, Labor, Transportation, the Corporation for National and Community Service, the National Institutes of Health, and the Centers for Medicare & Medicaid Services have provided guidance for program implementation, particularly for established programs. Although guidance is expected, some new programs, such as the Broadband Deployment Grants, are awaiting issuance of implementation instructions. It has been a little over two months since enactment of the Recovery Act and OMB has moved out quickly. In this period, OMB has issued two sets of guidance, first on February 18 and next on April 3, with another round to be issued within 60 days. OMB has sought formal public comment on its April 3 guidance update and before this, according to OMB, reached out informally to Congress, federal, state, and local government officials, and grant and contract recipients to get a broad perspective on what is needed to meet the high expectations set by Congress and the Administration. In addition, OMB is standing up two new reporting vehicles, Recovery.gov, which will be turned over to the Recovery Accountability and Transparency Board and is expected to provide unprecedented public disclosure on the use of Recovery Act funds, and a second system to capture centrally information on the number of jobs created or retained. As OMB’s initiatives move forward and it continues to guide the implementation of the Recovery Act, OMB has opportunities to build upon its efforts to date by addressing several important issues. These issues can be characterized broadly in three categories: (1) Accountability and Transparency Requirements, (2) Administrative Support and Oversight, and (3) Communications. Recipients of Recovery Act funding face a number of implementation challenges in this area. The Act includes many programs that are new or new to the recipient and, even for existing programs; the sudden increase in funds is out of normal cycles and processes. Add to this the expectation that many programs and projects will be delivered faster so as to inject funds into the economy and it becomes apparent that timely and efficient evaluations are needed. The following are our recommendations to help strengthen ongoing efforts to ensure accountability and transparency. The single audit process is a major accountability vehicle but should be adjusted to provide appropriate focus and the necessary level of accountability over Recovery Act funds in a timelier manner than the current schedule. OMB has been reaching out to stakeholders to obtain input and is considering a number of options related to the single audit process and related issues. We Would Recommend: To provide additional leverage as an oversight tool for Recovery Act programs, the Director of OMB should adjust the current audit process to: focus the risk assessment auditors use to select programs to test for compliance with 2009 federal program requirements on Recovery Act funding; provide for review of the design of internal controls during 2009 over programs to receive Recovery Act funding, before significant expenditures in 2010; and evaluate options for providing relief related to audit requirements for low-risk programs to balance new audit responsibilities associated with the Recovery Act. Responsibility for reporting on jobs created and retained falls to non- federal recipients of Recovery Act funds. As such, states and localities have a critical role in determining the degree to which Recovery Act goals are achieved. Senior Administration officials and OMB have been soliciting views and developing options for recipient reporting. In its April 3 guidance, OMB took an important step by issuing definitions, standard award terms and conditions, and clarified tracking and documenting Recovery Act expenditures. Furthermore, OMB and the Recovery Accountability and Transparency Board are developing the data architecture for the new federal reporting system that will be used to collect recipient reporting information. According to OMB, state chief information officers commented on an early draft and OMB expects to provide an update for further state review. We Would Recommend: Given questions raised by many state and local officials about how best to determine both direct and indirect jobs created and retained under the Recovery Act, the Director of OMB should continue OMB’s efforts to identify appropriate methodologies that can be used to: assess jobs created and retained from projects funded by the Recovery Act; determine the impact of Recovery Act spending when job creation is indirect; identify those types of programs, projects, or activities that in the past have demonstrated substantial job creation or are considered likely to do so in the future. Consider whether the approaches taken to estimate jobs created and jobs retained in these cases can be replicated or adapted to other programs. There are a number of ways that the needed methodologies could be developed. One option would be to establish a working group of federal, state and local officials and subject matter experts. Given that governors have certified to the use of funds in their states, state officials are uncertain about their reporting responsibilities when Recovery Act funding goes directly to localities. Additionally, they have concerns about the capacity of reporting systems within their states, specifically, whether these systems will be capable of aggregating data from multiple sources for posting on Recovery.gov. Some state officials are concerned that too many federal requirements will slow distribution and use of funds and others have expressed reservations about the capacity of smaller jurisdictions and non-profits to report data. Even those who are confident about their own systems are uncertain about the cost and speed of making any required modifications for Recovery.gov reporting or further data collection. Problems also have been identified with federal systems that support the Recovery Act as well. For example, questions have been raised about the reliability of www.USAspending.gov (USAspending.gov) and the ability of Grants.gov to handle the increased volume of grant applications. OMB is taking concerted actions to address these concerns. It plans to reissue USAspending guidance shortly to include changes in operations that are expected to improve data quality. In a memorandum dated March 9, OMB said that it is working closely with federal agencies to identify system risks that could disrupt effective Recovery Act implementation and acknowledged that Grants.gov is one such system. A subsequent memorandum on April 8, offered a short-term solution to the significant increase in Grants.gov usage while longer-term alternative approaches are being explored. GAO has work underway to review differences in agency policies and methods for submitting grant applications using Grants.gov and will issue a report shortly. OMB addressed earlier questions about reporting coverage in its April 3 guidance. According to OMB there are limited circumstances in which prime and sub recipient reporting will not be sufficient to capture information at the project level. OMB stated that it will expand its current model in future guidance. OMB guidance described recipient reporting requirements under the Recovery Act’s section 1512 as the minimum which must be collected, leaving it to federal agencies to determine whether additional information would be required for program oversight. We Would Recommend: In consultation with the Recovery Accountability and Transparency Board and States, the Director of OMB should evaluate current information and data collection requirements to determine whether sufficient, reliable and timely information is being collected before adding further data collection requirements. As part of this evaluation, OMB should consider the cost and burden of additional reporting on states and localities against expected benefits. At a time when states are experiencing cutbacks, state officials expect the Recovery Act to incur new regulations, increase accounting and management workloads, change agency operating procedures, require modifications to information systems, and strain staff capacity, particularly for contract management. Although federal program guidelines can include a percentage of grants funding available for administrative or overhead costs, the percentage varies by program. In considering other sources, states have asked whether the portion of the State Fiscal Stabilization Fund that is available for government services could be used for this purpose. Others have suggested a global approach to increase the percentage for all Recovery Act grants funding that can be applied to administrative costs. As noted earlier, state auditors also are concerned with meeting increased audit requirements for Recovery Act funding with a reduced number of staff and without a commensurate reduction in other audit responsibilities or increase in funding. OMB and senior administration officials are aware of the states’ concerns and have a number of options under consideration. We Would Recommend: The Director of OMB should timely clarify what Recovery Act funds can be used to support state efforts to ensure accountability and oversight, especially in light of enhanced oversight and coordination requirements. State officials expressed concerns regarding communication on the release of Recovery Act funds and their inability to determine when to expect federal agency program guidance. Once funds are released, there is no consistent procedure for ensuring that the appropriate officials in states and localities are notified. According to OMB, agencies must immediately post guidance to the Recovery Act web site and inform to the “maximum extent practical, a broad array of external stakeholders.” In addition, since nearly half of the estimated spending programs in the Recovery Act will be administered by non-federal entities, state officials have suggested opportunities to improve communication in several areas. For example, they wish to be notified when funds are made available to prime recipients that are not state agencies. Some of the uncertainty can be attributed to evolving reports and timing of these reports at the federal level as well as the recognition that different terms used by federal assistance programs add to the confusion. A reconsideration of how best to publicly report on federal agency plans and actions led to OMB’s decision to continue the existing requirement to report on the federal status of funds in the Weekly Financial and Activity Reports and eliminate a planned Monthly Financial Report. The Formula and Block Grant Allocation Report has been replaced and renamed the Funding Notification Report. This expanded report includes all types of awards, not just formula and block grants, and is expected to better capture the point in the federal process when funds are made available. We Would Recommend: To foster timely and efficient communications, the Director of OMB should develop an approach that provides dependable notification to (1) prime recipients in states and localities when funds are made available for their use, (2) states, where the state is not the primary recipient of funds, but has a state-wide interest in this information, and (3) all non-federal recipients, on planned releases of federal agency guidance and, if known, whether additional guidance or modifications are expected. We provided the Director of the Office of Management and Budget with a draft of this report for comment on April 20, 2009. OMB staff responded the next day, noting that in its initial review, OMB concurred with the overall objectives of our recommendations. OMB staff also provided some clarifying information, adding that OMB will complete a more thorough review in a few days. We have incorporated OMB’s clarifying information as appropriate. In addition, OMB said it plans to work with us to define the best path forward on our recommendations and to further the accountability and transparency of the Recovery Act. The Governors of each of the 16 states and the Mayor of the District were provided drafts for comment on each of their respective appendixes in this report. Those comments are included in the appendixes. We are sending copies of this report to the Office of Management and Budget and relevant sections to the selected states and the District. The report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-5500. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III-XX. The Recovery Act specifies several roles for GAO, including conducting bimonthly reviews of selected states’ and localities’ use of funds made available under the act. As a result, our objectives for this report were to describe (1) selected states’ and localities’ uses of and planning for Recovery Act funds, (2) approaches taken by the selected states and localities to ensure accountability for Recovery Act funds, and (3) states’ plans to evaluate the impact of the Recovery Act funds they have received to date. To address our objectives, we selected a core group of 16 states and the District that we will follow over the next few years to provide an ongoing longitudinal analysis of the use of funds provided in conjunction with the Recovery Act. The selected states are Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas. We selected these states and the District on the basis of outlay projections, percentage of the U.S. population represented, unemployment rates and changes, and a mix of states’ poverty levels, geographic coverage, and representation of both urban and rural areas. These states and D.C. contain about 65 percent of the U.S. population and are estimated to receive about two-thirds of the intergovernmental grant funds available through the Recovery Act. Furthermore, they strike a balance between covering a significant portion of Recovery Act funding and obtaining a mix that reflects the breadth of circumstances facing states and localities throughout the country. To focus our analysis, we examined a set of programs receiving Recovery Act funding that are administered by states and localities. To do this, we reviewed analysis and estimates of Recovery Act funds flowing to states and localities that were done by state and local associations including the National Governors Association, the National Conference of State Legislatures, and the Federal Funds Information for States (FFIS). We also analyzed data from congressional appropriations committees and the Congressional Budget Office (CBO) on the distribution, allocation, and spend out rates of Recovery Act funding. The programs we selected were streams of Recovery Act funding flowing to states and localities through increased Medicaid Federal Medical Assistance Percentage (FMAP) grant awards, funding for highway infrastructure investment, and the State Fiscal Stabilization Fund (SFSF). Together, they are expected to account for about 91 percent of fiscal year 2009 Recovery Act spending by states and localities. For the FMAP grant awards, we conducted a web-based inquiry, asking the 16 states and D.C. to provide data and information on enrollment, expenditures, and changes to their Medicaid programs and to report their plans to use state funds made available as a result of the increased FMAP. We reviewed states’ responses for internal consistency and conducted follow-up with the states as needed. We also spoke with individuals from the U.S. Department of Health and Human Services regarding the changes to the FMAP and the disbursement of increased FMAP funds. In addition, we spoke with individuals from the Centers for Medicare & Medicaid regarding their oversight and guidance to states. For highways infrastructure investment, we reviewed status reports and guidance to the states and discussed these with the U.S. Department of Transportation (DOT) and Federal Highways Administration (FHWA) officials. To understand how the U.S. Department of Education is implementing the SFSF, we reviewed relevant laws, guidance, and communications to the states and interviewed Education officials. Our review of related documents and interviews with federal agency officials focused on determining and clarifying how states, school districts, and public Institutions of Higher Education would be expected to implement various provisions of the SFSF. We considered programs with large amounts of funding, programs receiving significant increases in funding, new programs, and those with known risks. For example, the Medicaid program is on the GAO high risk list. In addition, we consulted with our internal program experts and outside experts including federal agency inspectors general, state and local auditors, and state and local government associations. Our teams visited the 16 selected states, localities within those states, and D.C. during March and April 2009 to collect documentation on the plans, uses, and tracking of Recovery Act funds and to conduct interviews with state and local officials. The teams met with a variety of state and local officials from executive-level offices including Governors and their key staff, Comptrollers’ Offices, Treasurers’ Offices, State Auditors’ Offices, Recovery Czars, Inspectors Generals, senior finance and budget officials, and local officials such as from housing authorities, school districts, police departments, and other key audit community stakeholders to determine how they planned to conduct oversight of Recovery Act funds. The teams also met with state and local agencies administering programs receiving Recovery Act funds, including state Departments of Education, Transportation, and Health and Human Services, and with selected legislative offices in the states. In support of these interviews, we developed a series of program review and semi-structured interview guides that addressed state plans for management, tracking, and reporting of Recovery Act funds and activities. These guides focused on identification of risk, risk mitigation, contracting, the internal control environment and safeguards against fraud, waste, and abuse. While in the 16 states and D.C., the teams also met with and interviewed a number of local government officials, whose offices are identified in Appendix 2. To determine how states and localities plan to track the receipt of, planning for, and use of Recovery Act funds, the state and D.C. teams asked cognizant officials to describe the accounting systems and conventions that would be used to execute transactions and to monitor and report on expenditures. In addition, to assist in the planning of the audit work and for inclusion in their risk assessment framework, we provided the state and D.C. teams with fiscal year 2007 single audit summary information, which was the most recent single audit information available. Single audit information was obtained from the Federal Audit Clearinghouse (FAC) single audit data collection forms and the single audit reports. The single audit summary information provided included : (1) total federal awards expended; (2) whether there were questioned costs; (3) the financial statement audit opinion, number of material weaknesses, and a brief description of each material weakness; and (4) major federal program audit opinion, number of material weaknesses, and a brief description of each material weakness. We examined the Single Audit reports to identify these issues and used that information when interviewing state officials in order to ascertain how they have addressed or plan to address the weaknesses. We also asked auditors to address how they planned to monitor and oversee the Recovery Act funds and whether or not they felt their offices had sufficient capacity to handle any new or increased responsibilities related to the Recovery Act. To understand the reporting requirements of the Recovery Act, we reviewed the guidance issued by OMB on February 18 and April 3, 2009 and selective federal agency guidance related to grants and to states and localities. We also reviewed an interim rule amending the Federal Acquisition Regulation containing interim reporting requirements for the Recovery Act, issued March 31, 2009. Additionally we studied the OMB issued Information Collection Requirements: Proposed Collection (April 1, 2009) that contains the data elements for the quarterly recipient reports specified in Section 1512 of the Recovery Act. Each of the states and D.C. provided information on its plans to provide assessment data required by Section 1512. We conducted this performance audit from February 17, 2009, through April 20, 2009, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Data on states’ and localities’ plans, uses, and tracking of Recovery Act funds was provided during interviews and follow-up meetings with state and local officials. Given that much of the Recovery Act funding had not yet reached the states and localities, we could not validate nor test the accuracy of the statements made by these officials regarding their accounting and tracking systems. Overall, we determined that the data were sufficiently reliable for the purposes of providing the background information on Recovery Act funding for this report. Our sample of selected states is not a random selection and therefore cannot be generalized to the total population of state and local governments. Appendix II: Localities Visited by GAO in Selected States Localities (or Associations Representing Localities) Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act funding provided to states and localities will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) have made about $534.6 million in Medicaid FMAP grant awards to Arizona. As of April 1, 2009, the state has drawn down about $286.3 million, or almost 54 percent of its initial increased FMAP grant awards. Officials plan to use a significant portion of funds made available as a result of the increased FMAP to offset statewide general fund shortfalls. Arizona was apportioned about $522 million for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $148.1 million for 26 Arizona As of April 20, 2009, the Arizona Department of Transportation (ADOT) had selected 41 highway transportation projects worth almost $350 million and had advertised competitive bids on 27 of these projects totaling about $190 million. The earliest bids will close on April 24, 2009, with projects expected to begin work later this spring. These projects include activities such as preserving pavement, widening lanes and adding shoulders, and repairing bridges and interchanges. Arizona will request reimbursement from the Federal Highway Administration as the state makes payments U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Arizona was allocated about $681.4 million from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. The state plans to submit its application by April 24, 2009, once officials review the latest estimates for the state’s fiscal year 2010 budget situation. The state expects funds to be used to improve student assessments, obtain more teachers, and meet federal standards, among other things, in compliance with federal requirements. Arizona is also receiving additional Recovery Act funds under other programs, such as programs under Title I, Part A of the Elementary and Secondary Education Act (ESEA), (commonly known as No Child Left Behind); programs under the Individuals with Disabilities Education Act (IDEA); several housing programs such as the Low-Income Housing Tax Credit (LIHTC) Assistance program; and programs under the Workforce Investment Act to help provide employment-related services, among other things. Plans to use these funds are discussed throughout this appendix. Safeguarding and transparency: The state government created a new Office of Economic Recovery within the Office of the Governor, the purpose of which is to coordinate the use of Recovery Act funds across state agencies and to ensure accountability for and transparency in the use of these funds. In addition, to meet Recovery Act requirements, the state comptroller noted that Arizona intends to add new codes to its central accounting system to track Recovery Act funds separately and work with state agencies that have their own accounting systems to ensure that they can also track funds separately. The state has issued guidance on managing the funds, and has plans to publicly report its Recovery Act spending, although officials have said that the state may not be aware of all funds sent directly by federal agencies to other entities, such as municipalities and independent authorities. The officials also identified other challenges, such as ensuring that recipients can report on their use of funds and that, where applicable, funds are used to supplement and not supplant state funds that support relevant affected programs. State and local officials noted that they expect to use existing internal controls and monitoring techniques to safeguard Recovery Act funds, but are concerned about having enough resources to do so. State departments were in the early stages of addressing some of these challenges, and are awaiting further guidance from the federal government on these issues. Assessing the effects of spending: Arizona state agencies and select localities that we met with expect to use or enhance existing performance metrics to assess the results achieved through Recovery Act funding, unless the federal government requires new metrics that will need to be developed. State officials were unclear, however, on how to determine the number of jobs created and saved by certain Recovery Act funds and were awaiting further guidance from the federal government. Arizona has begun to use some of its Recovery Act funds as follows: Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 1, 2009, Arizona has drawn down $286.3 million in increased FMAP grant awards, which is almost 54 percent of its total awards of $534.5 million. Officials plan to use a significant portion of funds made available as a result of the increased FMAP to offset shortfalls created by reductions implemented to balance the budget. The state used the initial funds made available as a result of the increased FMAP to meet payroll and to avoid serious cash-flow problems. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and to undertake other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Arizona has provided this certification. As of April 20, 2009, the Arizona Department of Transportation (ADOT) had selected 41 highway transportation projects to be funded with Recovery Act dollars. These projects are worth approximately $350 million of the state’s total $521.9 million apportionment. These include projects such as pavement preservation, widening lanes and adding shoulders, and bridge and interchange repair. As of April 20, 2009, the state had advertised 27 projects worth about $190 million with the earliest bids to close on April 24, 2009, and projects expected to begin work this spring. Among the projects that have been advertised for bid are the widening of Interstate 10 in Maricopa County, repaving of state routes, making safety improvements to a state route, and improving intersections. Among the first advertisements to close will be the widening of a shoulder within the Tonto National Forest, on State Route 87. The cost of this project is estimated at approximately $6.8 million, and is estimated to take 150 days to complete. Bids will close on April 24, 2009. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures it will take action to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Arizona’s initial SFSF allocation is $681.4 million. The state plans to submit its application for funds by May 4, 2009, but according to state education officials, they are waiting for the legislature to propose a 2010 budget for their programs before they can definitely decide how they will spend the funds. Generally, the state expects that recipients, such as local school boards, will use their allocations to improve the tools they use to assess student performance and determine to what extent performance meets federal academic standards, rehire teachers that were let go because of prior budget cuts, retain teachers, and meet the federal requirement that all schools have equal access to highly qualified teachers, among other things. Funds for the state universities will help them maintain services and staff as well as avoid tuition increases. In addition to stabilization funding to support education through the state fiscal stabilization fund, a senior official from the Arizona Department of Education noted that, as of April 3, 2009, Arizona had received $97.5 million for programs under Title I, Part A of ESEA. The funds will be used to improve assessments to meet federal standards, enrich teacher qualifications, avoid more teacher layoffs, improve poorer performing schools, and ultimately improve student performance, among other things. The state had also received about $89.2 million for programs under IDEA, Part B, which provides funds for public education to children with disabilities. According to state Department of Education officials, these funds will be used to hire more teachers to serve students with special needs, among other things. se programs, The state education officials said that they had prepared estimated allocations for the No Child Left Behind Recovery Act funds to the local school districts, which in turn will prepare and submit applications before they can use the funds. Arizona is also eligible to receive Recovery Act funds for several housing programs including the Low-Income Housing Tax Credit (LIHTC) Assistance program. The Arizona Department of Housing received notice that it will receive approximately $32 million to provide gap financing for LIHTC projects which provide funding for development of low income housing. Finally, the state Department of Economic Security had received approximately $43 million in Recovery Act funding anticipated for Workforce Investment Act programs to be used for adult, youth (including a summer youth program), and dislocated worker services. Faced with deteriorating revenue projections, declining consumer confidence, a depressed real estate market, and a requirement to balance its budget, Arizona officials believe that much of the money the state will receive in Recovery Act funds will relieve some of the state’s immediate fiscal pressures. State officials envision that funds made available as a result of the Recovery Act will be used to support program budgets that had been reduced in the state’s efforts to balance the budget. Arizona has about $7 billion in its General Fund with a current budget of about $10 billion. State officials are working to close a budget gap of about $1.3 billion for fiscal year 2008, an estimated budget gap of about $2.1 billion for state fiscal year 2009 and about $2.8 billion for fiscal year 2010 through reductions and other strategies. These strategies were limited to some extent, because voter propositions protect major programs from significant cuts, including Medicaid, education, and corrections, meaning other programs must absorb the cuts. The state’s budget imbalance has been complicated by lower-than-anticipated revenues. For example, state fiscal year 2009 revenue is significantly lower than estimated and has left the state unable to support previously approved spending levels. Arizona’s Budget Office has estimated its future revenues and expenditures for each fiscal year through 2014. It projects an increasing deficit in each fiscal year, from $2.1 billion in 2009 to $4.1 billion in 2014, a situation which most likely would mean continued cuts. The state’s Budget Stabilization Fund, known as its “rainy day” fund—a reserve fund built up during more favorable economic conditions to be used during difficult economic times—has been depleted. As of April 13, 2009, decisions about finalizing the fiscal year 2010 budget were still in flux in part because Governor Brewer—only in office since January after the former Governor, Janet Napolitano, became Secretary of the U.S. Department of Homeland Security—has not issued a formal budget proposal. The Governor recognized that further reductions in government services may be necessary to help close the significant deficit between state revenues and expenditures. Given this, in early March, the Governor certified that the state would accept the funds made available by the Recovery Act and use certain funds to create jobs and promote economic growth within the state. Because of the state’s economic and budgetary challenges, some state agency and local officials we met with expected to use the funds as they had been using them under their existing programs and did not expect to use Recovery Act funding on new initiatives. They also were confident recipients had sufficient critical uses for the funds and could use them immediately. However, state officials expressed concerns that using Recovery Act funds to make longer term operational and program commitments would mean higher future state spending that would not be sustainable once Recovery Act funds were no longer available, given the state of the economy. As a result, officials from one state agency explained that they are advising subrecipients to spend their funds on shorter term projects. Furthermore, with program budgets being cut to help relieve fiscal pressures, some state officials have said it may be challenging to ensure compliance with provisions requiring certain Recovery Act funds to be used to supplement and not supplant FY 2010 program funds. Officials with the state Department of Education, however, had one concern about passing the supplanting test. They said that it was unclear whether states could treat Recovery Act funds provided under the fiscal stabilization program as “state” funds versus “federal” funds. If they could use the funds as state resources, they would be able to meet the supplanting restrictions, but if not, they would have serious challenges in complying, jeopardizing the use of the funds. On the other hand, some state officials and program managers did not think it would be difficult to demonstrate they were not supplanting state funds in part because state funding for the programs had already been cut so significantly—in other words, there were few state funds to supplant. For example, they did not think it would be difficult to show that activities supported with Recovery Act resources, such as keeping teachers, could only be accomplished with federal support. One issue raised by officials in the Office of the Governor and within some state and local program offices was covering the costs to oversee and track the use of the Recovery Act funds, given past budget cuts, staff reductions, and increasing workloads—for example, increasing numbers of unemployed individuals who want services. These officials noted that their service delivery capacity will be challenged to administer funds flowing into eligible programs. Some of the officials wondered what flexibility they had to use some of the Recovery Act funds to cover administrative costs. On the other hand, some state agency officials said that they expected to be able to oversee and track Recovery Act funds with existing resources because funding to current programs that had administrative processes in place would be increased. In still other cases, Recovery Act funds will be disbursed through existing grant programs that may provide for a certain percentage of funds to be used for administration. The state comptroller told us that the state’s existing accounting system will have new accounting codes added in order to segregate and track the Recovery Act funds separately from other funds that will flow through the state government. Because some larger agencies and program offices maintain their own accounting systems, the Arizona General Accounting Office has issued guidance to state agencies on their responsibilities, including how they are to receive, disburse, tag, or code funds in their accounting systems; track funds separately; and, to some extent, report on these federal resources. State officials we spoke with noted that they do not foresee that it will be difficult to track Recovery Act funds separately from other funds. However, an official in the state Department of Economic Security noted that the Recovery Act funds will stress the tracking and reporting capacity of the financial management systems they use because the systems are old, are not very flexible, and were not designed for these purposes. The official said that the systems must be enhanced to provide the capacity needed for Recovery Act funds and that they are working to design a solution for this problem. Department heads and program officials generally expect that they will require subrecipients, through agreements, grant applications, and revised contract provisions, to track and report Recovery Act funding separately. For example, unemployment program managers said they were issuing new intergovernmental agreements with localities to cover new reporting requirements. However, several of the state officials raised questions about the tracking and reporting abilities of some local organizations, such as small, rural entities, boards or commissions, or private entities not used to doing business with the federal government. Furthermore, several of the state department officials acknowledged that either some state agency information systems have data reliability problems that will have to be resolved, or they had subrecipients that in the past had problems providing timely and accurate reporting, but said that they would work with these entities to comply, and also had sanctions to use as a last resort. Furthermore, state officials expressed some concern that the new requirement to provide financial reports on subrecipients’ use of funds within 10 days after a quarter ends may be challenging to meet by both state and local entities, because they may not have actual data in time to meet this reporting time frame. Finally, the state may lack the ability to track the portion of Recovery Act funds going directly to recipients other than Arizona government agencies, such as independent state authorities, local governments, or other entities. State officials expressed concern that they may not be able to track and report Recovery Act funds when these entities receive the monies directly from federal agencies rather than through state agencies. Overall, the state agency and local officials that we spoke with expect that their existing internal controls and techniques to manage any potential risks posed to Recovery Act funding will be sufficient and effective to safeguard Recovery Act funds, unless additional requirements are mandated by the federal government that generate the need to change business processes. These controls and techniques include submitting financial and performance reports for review, as well as conducting supervisory and compliance reviews, on-site inspections, external audits, and audits by the state Auditor General. Although Arizona is largely decentralized—state agencies and localities have responsibility for monitoring and are accountable for their respective Recovery Act funds— the state executives are reaching out to the state agencies to help ensure they are ready. For example, the state budget director met with the heads of the programs potentially receiving Recovery Act funds to gauge each program’s preparedness. In addition, a number of state agencies were conducting or had plans to conduct meetings, training, and outreach to funding recipients to help them understand the goals and objectives of the act and their responsibilities for managing the funding it would provide. Similarly, in early April 2009, the state’s General Accounting Office released a technical bulletin, the purpose of which was to establish consistent policies and procedures that all state agencies receiving Recovery Act funds must “immediately implement in order to effectively manage activities under the act.” A senior official in the state comptroller’s office said that office plans to conduct a survey to inventory current internal controls at state agencies to help ensure controls are in place to limit the risk of fraud, waste, abuse, and mismanagement of Recovery Act funds. Several risks still to be addressed have been identified as a result of using audits as an internal control. For example, Arizona’s fiscal year 2007 Single Audit report identified a number of material weaknesses related to the state Department of Education. The report identified a material weakness involving IDEA in which the state department had not reviewed subrecipients to ensure that federal awards were used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grant agreements. The audit report also identified one financial reporting material weakness related to the state Department of Administration’s ability to prepare timely financial statements, including its Comprehensive Annual Financial Report (CAFR). This is mostly because many of the larger state agencies maintain separate accounting systems and submit financial data to the Department of Administration for inclusion in its consolidated financial statements. In fiscal year 2007, the CAFR was issued in June 2008, approximately 6 months after the scheduled deadline. According to the Auditor General’s Office, the fiscal year 2008 CAFR will also be completed late, as the last agency submitted its financial statement on March 9, 2008. According to the Auditor General’s Office, this control deficiency affects the timeliness of financial reporting, which affects the needs of users. It is especially important that Arizona try to address the timeliness issue with regard to financial statements given the number and strict reporting timelines that are imposed on the state under the Recovery Act. For most of the other programs, managers stated that they had no outstanding material weaknesses and that any past weaknesses had been brought into compliance. According to state officials, another area of risk that the state agency is trying to manage is that some Recovery Act funds, particularly in the transportation area, are reimbursable, meaning that either ADOT or localities will have to spend funds from their own budgets until they are reimbursed by Recovery Act funds. Because of the state’s challenging financial situation, it may be a challenge for some state and local government entities to spend the funds up front with the limited cash they have on hand. This is particularly true for rural transit projects. According to an ADOT official, to address this risk, they are vetting applications for rural transit funds closely, with an eye toward granting funds only to those localities that have shown they have the cash on hand to pay up front for the costs of the rural transit projects. Representatives of a number of state executive offices, state agencies, and select localities reported that they would at a minimum continue to monitor Recovery Act funding as they had monitored federal funding provided to these same programs in the past. They expected to meet the financial monitoring, performance measurement, and accountability requirements using existing systems and reports, unless the federal government institutes any new requirements that would require changes to their systems and processes. The entities were still waiting for further guidance from the federal government to determine any needed changes. In some cases, agencies had plans to increase monitoring. For example, according to officials for the Arizona Division of the Federal Highway Administration (FHWA), they plan on increasing the number of site visits on projects that use Recovery Act funds. Similarly, state transportation officials will require that contractors report the Recovery Act dollars spent and the jobs they created as part of their regular reports to the state. To some extent, Arizona is providing the public an opportunity to monitor how the state is using Recovery Act funding and what it is achieving with these funds through a Web site, azrecovery.gov, where the state has posted links to program funding levels, guidance, and intended uses of Recovery Act money, and intends to post reports on the use of funds, among other things. However, several state officials expressed concern that the Recovery Act did not provide funding specifically for state oversight activities, despite their importance in ensuring that the Recovery Act funds are used appropriately and effectively. Officials within state executive offices that are coordinating oversight activities—such as the Office of Economic Recovery and the Comptroller’s Office—stated that they will be challenged to oversee compliance with Recovery Act funding requirements within their existing staffing levels, given that the state currently has a hiring freeze to help relieve its budget deficits. For example, the Arizona General Accounting Office within the state Department of Administration has experienced a reduction of staff from 74 to 50, posing challenges to its increased oversight responsibilities. The Department of Economic Security, which manages workforce investment programs and human services programs, among other responsibilities, has an estimated 8,214 staff on furloughs and has laid off about 800 staff members as well. Similarly, a Department of Housing official stated that the office currently has a vacancy rate of about 15 percent because of the hiring freeze. Furthermore, the state Auditor General reported that its staffing levels are nearly 25 percent below the authorized staffing level of 229 full time equivalents. State agencies and the select localities that we spoke with expected to use existing performance metrics to assess results achieved through Recovery Act funding, but were also looking for more guidance from the federal government on how to comply with new assessment requirements under the act. Agency officials generally stated that because the Recovery Act funds are for pre-existing programs, they will continue to use their existing performance metrics to assess impacts. For example, the Arizona Criminal Justice Commission, which oversees among other things the Edward Byrne Memorial Justice Assistance Grants, tracks a wide list of both short- term and long-term performance measures that assess the effectiveness of law enforcement projects funded by the grants. Short-term measures include increasing the number of units that report high program quality, while long-term measures include changing crime rate percentages in communities. Commission officials stated that they will continue to track these measures for Recovery Act funding, in addition to any new measures required under the act. Likewise, administrators at a local school district we visited stated that they have a department that uses a system to track the performance for every school and every student in the school district. The officials stated that they will use the same measures to track school and student performance improvements using Recovery Act funds. However, officials were unclear as to how to determine the number of jobs created and saved by certain Recovery Act funds, new measures required by the act. State education officials noted that the act is vague about determining the number of teachers who would have been laid off in the absence of Recovery Act funding. Although a state housing official expected that her office would have the capabilities to assess results, such as job creation and economic output, local housing officials stated they may have difficulty doing so. State and local officials were waiting for additional guidance from the federal government on how to implement measures for jobs created and saved, as well as any new measures required under the act. We provided the Governor of Arizona with a draft of this appendix on April 17, 2009. The Director of the Office of Economic Recovery responded for the Governor on April 20, 2009. In general, the state agreed with our draft and provided some clarifying information which we incorporated. The state also provided technical suggestions that were incorporated, as appropriate. In addition to the contacts named above, Kirk Kiester, Assistant Director; Joseph Dewechter, analyst-in-charge; Lisa Brownson; Aisha Cabrer; Alberto Leff; Jeff Schmerling; and Margaret Vo made major contributions to this report. Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act funding provided to states and localities will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $3.331 billion in increased Federal Medical Assistance Percentage (FMAP) grant awards to California. As of April 1, 2009, the state has drawn down about $1.5 billion, or 45.4 percent of its initial increased FMAP grant awards. Funds made available as a result of increased FMAP will help offset the state’s general fund budget deficit, according to California officials. California was apportioned about $2.570 billion for highway infrastructure investment on March 2, 2009 by the U.S. Department of Transportation. Under a state law enacted in late March 2009, 62.5 percent of funds ($1.606 billion) will go to local governments for projects of their selection. Of the remaining 37.5 percent ($964 million), $625 million will go to State Highway Operation and Protection Program (SHOPP) projects for highway rehabilitation, eligible maintenance and repair; $29 million will fund Transportation Enhancement projects; and $310 million will be loaned to fund stalled capacity expansion projects. As of April 16, 2009, the U.S. Department of Transportation had obligated $261.4 million for 20 California California will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) California was allocated about $3.993 billion from the initial release of these funds on April 2, 2009 by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and they will implement strategies to meet certain educational requirements, including teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. California’s application was approved by the U.S. Department of Education on April 17, 2009 and the state is now eligible to draw funds for local school districts and universities. Approximately $3.266 billion of the $3.993 billion (81.8 percent) must be spent on education. The remaining $727 million (18.2 percent) can be spent at the Governor’s discretion and is expected to be directed to public safety. Of the funds devoted to education, the majority will be spent on primary and secondary education. California is receiving additional Recovery Act funds under other programs, such as Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA), (commonly known as No Child Left Behind); the Individuals with Disabilities Education Act, Part B, and workforce training programs under the Workforce Investment Act (WIA). Safeguarding and transparency: The Governor established the California Federal Economic Stimulus Task Force to ensure both accountability and transparency in how funds are spent, consistent with the Recovery Act and the state’s own goals. The Task Force will also manage California’s recovery Web site (www.recovery.ca.gov), the state’s principal vehicle for reporting on the use and status of Recovery Act funds. In addition, on April 3, 2009, California appointed a Recovery Act Inspector General to make sure Recovery Act funds are used as intended and to identify instances of waste, fraud, and abuse. California intends to use its existing accounting system to track funds flowing through the state government. Although California will publicly report its Recovery Act spending, officials have said that the state may not be aware of all federal funds sent directly to other entities, such as municipalities and independent authorities. The California State Auditor has raised concerns about internal controls at various state agencies that could affect accountability for Recovery Act funds, and will take this into account when assessing risk during her current audit planning efforts. Assessing the effects of spending: According to state officials, California has begun to develop plans to assess the effects of Recovery Act spending. However, they are waiting for further guidance from the federal government, particularly related to measuring job creation. California has begun to use some of its Recovery Act funds, as follows: Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. Under the Recovery Act, California will receive increased FMAP grant awards of at least 61.6 percent, up from 50 percent. As of April 1, 2009, California has drawn down $1.5 billion, or 45.4 percent of its initial FMAP grant awards. Initially, the state could not obtain increased FMAP funds because the state reduced its eligibility period for children from 12 months of continuous eligibility to 6 months, effective January 1, 2009. However, because this change was suspended on March 27, 2009 and eligibility was restored to any children affected, the state has been able to draw down increased FMAP funds. Officials plan to use funds made available as a result of the increased FMAP to offset the state’s general fund budget deficit. Transportation—Highway Infrastructure Investment: The Recovery Act provides funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which the funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. California provided these certifications but noted that the state’s level of funding was based on the best information available at the time of the state’s certification. According to state sources, under a state law enacted in late March 2009, 62.5 percent of funds ($1.606 billion) will go to local governments for projects of their selection. Of the remaining 37.5 percent ($964 million), $625 million will go to State Highway Operation and Protection Program (SHOPP) projects for highway rehabilitation, eligible maintenance and repair; $29 million will fund transportation enhancement projects; and $310 million will be loaned to fund stalled capacity expansion projects. As of April 16, 2009, the U.S. Department of Transportation had obligated $261.4 million for 20 California projects. These projects consist of rehabilitating roadways, pavement, and rest areas as well as upgrading median barriers and guardrails. For example, a $33 million project is being funded to rehabilitate a road in San Jose. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures it will take action to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. California’s initial SFSF allocation is $3.993 billion. Approximately $3.266 billion of this money (81.8 percent) must be spent on education. The remaining $727 million (18.2 percent) can be spent on public safety and other government services (including education). California officials told us that the Governor plans to recommend to the State Legislature that the funds be spent on the Department of Corrections. Like other states, California will receive its SFSF funds in two phases. California’s application was approved by the U.S. Department of Education on April 17, 2009, and the state is now eligible to draw funds for local school districts and universities. Of the $3.266 billion for education, the state plans to spend the maximum amount possible under Recovery Act formulas--approximately $2.57 billion on primary and secondary education and $537 million on higher education, for the purpose of restoring funding to 2008-2009 levels. The remaining $164 million will be used to restore education funding in future years. These funds will help ensure that primary and secondary schools and institutions of higher education have the resources they need to avert cuts and retain teachers and professors. The Governor and his administration are setting the overall policy for coordination of and accountability for Recovery Act funds. Prior to the enactment of the Recovery Act, the Governor’s office formed nine working groups organized around broad program areas (e.g., transportation, environment, etc.) and comprising representatives of the Department of Finance, program departments, the legislative branch, and California’s Washington, D.C. office. The working groups worked with the California congressional delegation to estimate the effects of the Recovery Act and to lobby for changes helpful to the state. The Recovery Act was enacted on February 17, 2009, and California signed a state certification letter on March 5 stating that the state would request and use certain Recovery Act funds to create jobs and promote economic growth (California was the first state to do so). Initially, the Department of Finance, the Director of which is appointed by the Governor, was the focal point for working with state agencies to prepare to meet Recovery Act accountability and reporting requirements. In late March 2009, the Governor’s office established the California Federal Economic Stimulus Task Force, which is responsible both for tracking Recovery Act funds that come into the state and ensuring that those funds are spent efficiently and effectively. The task force is chaired by the Deputy Chief of Staff to the Governor and Director of the Governor’s Office of Planning and Research, and will include one representative from the administration for each of the main program areas that will receive funds. The Chief Deputy Director of Finance will serve as deputy coordinator of the task force and will be responsible for, among other things, tracking the funds coming into the state. The Chief Operating Officer of the Department of Finance will oversee the accountability and auditing functions of the task force. In total, as of March 27, 2009, the state of California estimates that the state and its localities will receive approximately $48.3 billion for various programs, including health, education, and infrastructure. (see figure 4.) Of this, about $14 billion will go directly to local governments and the other $34 billion will go to the state. The extent to which spending decisions have been made varies by program in California, with some uses determined while others are still unknown. For example, for some funding, like the $10 billion made available as a result of the increased FMAP, all or most is formula driven, and the application of funds is already determined. Likewise, for public transit investment grants and fixed-guideway infrastructure programs (due to receive approximately $1.019 billion in Recovery Act funds, according to Federal Transit Administration officials), all or most of the funding is formula driven, but local priority-setting processes will determine which projects will be funded. For education (receiving about $11.8 billion in Recovery Act funds), while the majority of allocations to school districts are based on formulas, education officials told us that spending decisions will largely be made at the local level. Officials from the Sacramento Housing and Redevelopment Agency (SHRA)—one of the state’s 55 public housing authorities hoping to receive a portion of Recovery Act funding from the formula-based Public Housing Capital Fund—stated that they have begun to prioritize how funds will be used. Contracts will be awarded by SHRA for bids received within 120 days on projects listed in its 5-year Capital Fund Plan. State officials from the Department of Housing and Community Development are not sure how much funding another program, the Neighborhood Stabilization Program, will receive. Officials told us that their plans for spending the money will be determined by the amount received. In some instances, state officials have sought federal guidance on the use of certain funds. For example, California Employment Development Department (EDD) officials told us that they hoped to receive additional federal guidance clarifying whether California, through its legislative budget process, can use all discretionary Workforce Investment Act funding through Recovery Act funds to offset employment and training program general fund costs in either the California Department of Corrections and Rehabilitation or the California Conservation Corps. EDD officials noted that using the discretionary funds in this way might contradict recent U.S. Department of Labor guidance, which only allows funds to be used for new programs and not to replace state or local funding for existing programs. State officials are also seeking guidance from CMS regarding policies on payments for in home support services funded by Medicaid. State officials are also uncertain whether Recovery Act funds can help pay for the increased costs of administering, overseeing, and auditing Recovery Act program funds and stated that federal guidance, thus far, has not addressed these questions. In some cases, state agencies face deadlines for using their funds. Caltrans must obligate at least half of certain Recovery Act funds within 120 days of when the funds were apportioned by the Department of Transportation or the funds will be redistributed to other states. Caltrans did not foresee problems meeting this deadline. Caltrans officials further stated that most projects could be completed within 1 year; however, project completion time lines and specific project funding outlays by year have not been finalized. Caltrans officials stated that some project construction may begin by early-May 2009. In another case, the Tax Credit Allocation Committee (TCAC) must commit at least 75 percent of the $325.9 million in Recovery Act’s Tax Credit Assistance Program funds by February 17, 2010. TCAC did not foresee problems meeting this deadline. TCAC officials told us that they have a system in place to quickly identify recipients and that they are planning to make sure to comply with the timeline as reflected in regulations. The state’s economy and California state revenues have been severely affected by the national recession and financial market credit crunch. In March 2009, California’s unemployment rate rose to 11.2 percent, 2.7 percentage points higher than the national average. In February, according to RealtyTrac, California posted the nation’s third highest state foreclosure rate, behind Nevada and Arizona, with 1 in every 165 housing units in foreclosure. On March 19, Fitch Investor Services downgraded California General Obligation bonds to an “A” rating, the lowest current rating of any state. State general fund revenues are projected to fall in state fiscal year 2008- 2009 by $15.1 billion, or 14.7 percent, from fiscal year 2007-2008. In January 2009, the fiscal year 2009-2010 Governor’s Budget projected that the state would end the state fiscal year with a $41.6 billion deficit if no corrective actions were taken. In response, the State Legislature and the Governor agreed to a $42 billion package of solutions. As described by state sources, this package includes reducing spending, temporarily increasing taxes, using funds made available as a result of the Recovery Act, and borrowing from future lottery profits. The budget package depends, in part, on voter approval of six different propositions at a May 19, 2009, special election. If three of these propositions are approved, the state Legislative Analyst’s Office (LAO) estimates the package will reduce the state’s budget deficit by $6 billion. Unfortunately, the state’s economic condition since the release of the Governor’s budget in January 2009 has continued to deteriorate. Even if the May 19, 2009, propositions pass, and the state uses $8.2 billion in funds made available as a result of the Recovery Act, the LAO estimates an $8 billion deficit in 2009-2010. Consequently, the State Legislature and the Governor may need to work on additional budgetary solutions to rebalance the 2009-2010 budget following the May 2009 budget update. On February 3, 2009, the California State Auditor added the state’s budget condition to its list of high-risk issues facing the state. State officials are working to get the necessary guidance and systems up and running that will allow for a comprehensive and accurate accounting of California Recovery Act funds. As previously mentioned, the California Federal Economic Stimulus Task Force is responsible for tracking Recovery Act funds and ensuring that they are spent efficiently and effectively. The state’s new recovery Web site (www.recovery.ca.gov) will serve as the primary tool to fulfill federal reporting and accountability requirements consistently throughout the state. A representative from each state agency is tasked with ensuring that data required by federal Recovery Act reporting requirements are available on the state Web site. Development of the related processes and procedures to accumulate and consolidate the spending data is underway. State officials also plan to use the Web site to provide the public with up-to-date information about federal funds received by the state, how those dollars are being spent, and, through the use of digital mapping, the geographic distribution of expenditures. The state intends to rely heavily on existing systems to track and account for Recovery Act funds. State agency officials generally told us that their existing accounting systems, enhanced with newly created codes for Recovery Act funds, will enable them to separately track and monitor how state and local agencies spend Recovery Act funds that pass through the state. For example, California Department of Education officials told us that the department already has a consistent accounting structure in place for tracking and reporting on how federal funds are used. The department plans to create separate accounting codes within that structure to track and report how the different programmatic funds received through the Recovery Act are used. According to the officials, the department will provide those codes to the local education agencies (LEA), as well as instruct them on what the codes mean. However, some officials still expressed concerns about the ability of LEAs to consistently maintain accountability for funds. For example, a Department of Finance official with responsibility for education program budgets stated that there are over 1,000 school districts in California, and they possess varying levels of sophistication in their accounting systems. While the state will be providing guidance to help ensure proper accountability, this official expects some districts may face challenges complying. Most state program officials told us that they will apply the same controls and oversight processes that they currently apply to other program funds. For example, the California Employment and Development Department has an independent division that conducts monitoring, audits, and evaluations to guard against mismanagement, waste, fraud, and abuse. The effectiveness of internal controls at the local level, however, is unknown for some programs. Caltrans officials, for example, stated that while extensive internal controls exist at the state level, there may be control weaknesses at the local level. Caltrans is collaborating with local entities to identify and address these weaknesses. Additionally, Caltrans has conducted workshops and other outreach activities to ensure that regions and localities are fully informed regarding requirements for the tracking and expenditure of Recovery Act funds, and would like to increase its capacity to provide oversight, particularly at the local level. California intends to use existing internal and independent audit functions and a new inspector general to oversee Recovery Act funds received by the state. The Office of State Audits and Evaluations (OSAE) is an internal audit function within the Department of Finance which performs audits of various state funds and programs, including those receiving Recovery Act funds. According to state officials, OSAE is also responsible for ensuring compliance with the state’s Financial Integrity and State Manager’s Accountability Act of 1983 (FISMA) and oversees the activities of internal audit functions within most state agencies. According to state sources, FISMA requires each state agency to maintain effective systems of internal accounting and administrative control, to evaluate the effectiveness of these controls on an ongoing basis, and to review and report biennially on the adequacy of the agency’s systems of internal accounting and administrative control. OSAE has not yet determined the scope or approach for its review of Recovery Act funds or the extent to which it can utilize FISMA in assessing compliance with Recovery Act requirements. In addition, the State Controller audits claims for payment submitted by state agencies and provides internal audit services to some state agencies, such as Caltrans, for Recovery Act funds. The State Auditor, California’s independent audit and evaluation office, conducts financial and performance audits as authorized or required by law and requested by the State Legislature. The State Auditor is also annually responsible for conducting California’s statewide single audit of numerous federal programs administered in California. Based on the State Auditor’s initial analysis of Recovery Act funds the state expects to receive and the formula for determining which programs require an audit, the State Auditor anticipates it will likely need to expand single audit coverage to capture additional programs receiving Recovery Act funds. Finally, on April 3, 2009, the Governor appointed the nation’s first Recovery Act Inspector General, whose role is to make sure Recovery Act funds are used as intended and to identify instances of waste, fraud, and abuse. The most recent single audit, conducted by the State Auditor for fiscal year 2007, identified 81 material weaknesses, 27 of which were associated with programs we reviewed for purposes of this report. The State Auditor plans to use past audit results to target state agencies and programs with a high number and history of problems, including data reliability concerns, and is closely coordinating with us on these efforts. For example, the fiscal year 2007 State Single Audit Report identified eight material weaknesses pertaining to the ESEA Title I program and the Individuals with Disabilities Education Act programs. The audit findings included a material weakness in the California Department of Education’s management of cash because it disbursed funds without assurances from LEAs that the time between the receipt and disbursement of federal funds was minimized, contrary to federal guidelines. Education officials told us that they have addressed some of these material weaknesses and, in other cases, they are still working to correct them. If these and other material weaknesses are not corrected, they may affect the state’s ability to appropriately manage certain Recovery Act funds. The State Auditor’s Office told us that it is in the process of finalizing the fiscal year 2008 State Single Audit Report and plans to issue the report within the next 30 days. In addition, the State Auditor’s Office is summarizing the results of the single audit to identify those programs that continue to have material weaknesses. Finally, the State Auditor’s Office plans to use the results of other audits it has conducted in conjunction with the single audit to assess risk and develop its approach for determining the state’s readiness to receive the large influx of federal funds and comply with the requirement regarding the use of those funds under the Recovery Act. State officials with whom we spoke have not yet established plans or processes for assessing the impacts of Recovery Act funds. According to Department of Finance officials, the newly created California Federal Economic Stimulus Task Force will assume this responsibility. Several state agency officials and a local public housing authority believe that additional guidance is needed from the U.S. Office of Management and Budget (OMB) before they can fully address the issue of impact assessments. State officials told us that assessing the impact of Recovery Act funds on job creation in particular will be difficult. That is, while they believe that tracking the impact for contracts, grants, or discrete projects is possible, it is extremely difficult to separate out the specific impact of Recovery Act funds when they are combined with other federal, state, or local funds, as they will be in many situations. The state program officials with whom we spoke raised a number of specific concerns about their ability to measure the impact of Recovery Act funds. For example, California education officials told us they did not yet know how the state will measure the impact of the Recovery Act funds spent on education. The officials said that, although it should be possible to track Recovery Act education spending separately from non-Recovery Act money, this does not mean that they will be able to report on specific outcomes that result from this spending. One concern mentioned by several officials is that it may not be possible to link the spending categories used in the accounting system to specific outcomes. Furthermore, even if such links could be made, another difficulty would be determining the extent to which an outcome was the result of the Recovery Act funds received in April 2009 versus the non-Recovery Act funds received earlier in the year for the same program. Finally, officials expressed concern about the incompatibility between desired Recovery Act outcomes and Recovery Act funding. One of the Recovery Act’s desired outcomes is job creation and preservation, which requires ongoing funds, but the Recovery Act provides only temporary funds. According to Caltrans officials, measuring the full economic impact of highway funds presents challenges. Caltrans officials told us that since Recovery Act funds may be combined with other funds to complete projects, isolating the number of jobs created using just the Recovery Act funds may be difficult. In addition, Caltrans officials told us that guidance on measuring and reporting the effect of Recovery Act funds for transit and fixed-guideway investments has not yet been issued, however they anticipate it will be difficult to report on jobs preserved or created. California Employment Development Department officials told us that its existing accounting system can report output, such as how many more participants are registered and enrolled in Workforce Investment Act programs and the level of program services increased due to the Recovery Act. They also said that the existing system can track certain performance indicators for program participants, such as successful employment, wage increases, and job retention. However, these officials noted that they anticipate challenges determining whether such outcomes are specifically due to services supported by the additional Recovery Act funds versus services previously or currently provided to program participants through existing Workforce Investment Act funds. We provided the Governor of California with a draft of this appendix on April 17, 2009. Members of the California Federal Economic Stimulus Task Force responded for the Governor on April 20, 2009. These officials provided clarifying and technical comments that we incorporated where appropriate. In addition to the contacts named above, Paul Aussendorf, Candace Carpenter, Joonho Choi, Brian Chung, Nancy Cosentino, Kerry Dunn, Michelle Everett, Chad Gorman, Richard Griswold, Bonnie Hall, Delwen Jones, Brooke Leary, Jeff Schmerling, Steve Secrist, and Eddie Uyekawa made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services had made about $227 million in increased FMAP grant awards to Colorado. As of April 16, 2009, the state had not drawn down any of its increased FMAP grant awards. State officials noted they are working to ensure that the state is in compliance with Recovery Act provisions governing eligibility for the increased FMAP. Colorado was apportioned about $404 million for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $118.4 million for 19 projects; the Colorado Department of Transportation had advertised 17 of these projects, and 5 of the 17 had been awarded. Colorado’s Recovery Act transportation funds are being directed to projects that can be advertised within 90 to 180 days of the passage of the act, can be completed within 3 years, and will result in job creation. Projects include resurfacing roads and replacing highway bridges in the Denver metropolitan area, as well as improvements to mountain highways. Colorado will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Colorado was allocated about $509 million from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the U.S. Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. The Governor is working with the state legislature on a plan for spending the fiscal stabilization funds Colorado will receive to support education. Once legislative concurrence is obtained, the plan will be submitted to the U.S. Department of Education. A state official estimated that could happen as early as the week of April 20, 2009. Colorado is also receiving additional Recovery Act funds under other programs, such as those under Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left Behind); programs under the Individuals with Disabilities Education Act (IDEA), Part B; programs under the Workforce Investment Act; and Edward Byrne Memorial Justice Assistance Grants. These are described throughout this appendix. Safeguarding and transparency: As the state makes its plans, some officials raised concerns about how well the state is positioned to track and oversee Recovery Act expenditures and identified general areas of vulnerability in spending Recovery Act funds. For example, Colorado’s accounting system is 18 years old, which will make it challenging for the state to tag and track Recovery Act funds, according to state officials. State officials are determining what approach they will use in tracking funds and told us they currently plan to create an accounting fund to track state agencies’ use of Recovery Act funds, employing a centrally defined budget-coding structure to distinguish between Recovery Act and non- Recovery Act federal funds. State officials were also concerned about tracking funds that bypass the state and flow directly to local entities. Assessing the effects of spending: The state is making plans to assess the effects of Recovery Act spending on Colorado’s economy. Some agencies plan to use their existing performance indicators to assess the effects of recovery, while others have received guidance including new indicators. Some officials identified concerns with recipients’ ability to submit reports more quickly or more frequently than normal, while some questioned how precisely economic effects can be measured. Colorado has begun to use some of its Recovery Act funds, as follows: Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 3, 2009, CMS had made about $227 million in increased FMAP grant awards to Colorado. As of April 16, 2009, state officials had not drawn down any of the state’s increased FMAP grant awards. State officials noted they are working to ensure that the state is in compliance with Recovery Act provisions governing eligibility for the increased FMAP. Officials also indicated that, in order to account for the increased FMAP funds available through the Recovery Act, the state has created unique codes that will calculate the additional federal reimbursement. The state will use these codes to assist with the proper drawing down and reporting of these expenditures on quarterly Medicaid reports. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and to undertake other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the Governor must certify that the state will maintain its current level of transportation spending, and the Governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Colorado provided this certification but noted that the state’s level of funding was based on “planned nonbond state expenditures” and represented the best information available at the time of the state’s certification. Colorado was apportioned about $404 million in Highway Infrastructure Investment Recovery Act funds by the U.S. Department of Transportation on March 2, 2009. As of April 16, 2009, the U.S. Department of Transportation had obligated $118.4 million for 19 Colorado projects. Seventeen of these projects, which include resurfacing roads and replacing highway bridges in the Denver metropolitan area and improvements to mountain highways, had been advertised for bid, and 5 of the 17 projects had been awarded. According to Colorado Department of Transportation officials, the department has a well-established process for distributing funds and contracting projects and has already begun to use this process in applying for Recovery Act funds. In order to spend funds quickly and create jobs, Colorado is directing Recovery Act transportation funds to projects that can be advertised within 90 to 180 days of the passage of the Recovery Act, can be completed within 3 years, and will result in job creation. Department officials told us they are emphasizing construction projects rather than projects in planning or design phases, in order to maximize job creation. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures it will take action to meet certain educational requirements such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. The Governor has proposed a plan for spending the majority of the $760 million in stabilization funds Colorado will receive to support education, focusing on offsetting current and planned reductions in state funding for higher education. Officials told us that funding cuts were directed primarily toward higher education rather than kindergarten through 12th grade education because of a state constitutional provision requiring guaranteed annual increases in state funding of kindergarten through 12th grade education—and as a result, SFSF funds are more urgently needed in higher education. The state will receive its first allocation of funds— $509 million or 67 percent of the total—after it has applied to Education, which it plans to do once the Governor’s office and legislature agree on the plan and the state’s budget. As of April 20, 2009, the state’s General Assembly was negotiating the final budget and a school finance bill that could affect the specific use of the SFSF funds. A Colorado official said that if the state approves a budget the week of April 20, 2009, the propo could go to Education soon after that date. The Governor is also developing a plan for the Government Services Fund, a component of the SFSF, which will provide $138 million of SFSF funds that may be used for public safety and other government services. Following passage of the Recovery Act, Colorado’s Governor established an oversight board, the Colorado Economic Recovery Accountability Board, to oversee Colorado’s Recovery Act funding and ensure funds are spent effectively and transparently. The board is chaired by the Director of the Colorado Office of Economic Development, who has also been charged with being Colorado’s recovery coordinator. The board is composed of 12 public- and private-sector leaders from across the state, including the state treasurer, a state senator and a state representative, and a number of business leaders. To date, the board has held three public meetings during which members discussed the short time frames for disbursing Recovery Act funds and a lack of federal guidance, among other issues. The board has also developed a Web site to publicize information about the Recovery Act. Management of and decisions about Recovery Act funds are the responsibility of the Governor, according to state officials. The Governor’s office is directly responsible for exercising discretion with regard to certain funds such as portions of the SFSF. The Governor is working in consultation with the executive directors of Colorado’s state departments and agencies to develop plans for spending Recovery Act funds, which are to be publicly available on the state’s Web site. Officials told us the Governor has directed that all departmental decisions on spending Recovery Act funds are to be made in line with the original charge of the Recovery Act to promote job creation or preservation and economic development, as well as the Governor’s agenda. The decision process for using Recovery Act funds depends on the program, consistent with federal and state statutes and guidance. Officials from several departments, such as the Departments of Public Safety, Labor and Employment, and Local Affairs, told us they have made initial programmatic decisions for Recovery Act funds. Other programs have not made such decisions; for example, Colorado Department of Education officials told us the department will distribute funds such as those under the ESEA and IDEA programs directly to local school districts to make programmatic decisions about the funds. Many Colorado officials said the Recovery Act would increase their departments’ workloads and said they would like to add personnel and perhaps systems to manage the funds, but the overall extent to which Recovery Act funds are permitted to be used for those costs is uncertain. While some officials we interviewed said their departments had received or would receive Recovery Act funds to cover administrative or management activities, officials in other departments did not know whether they would receive funds for that purpose. Officials at the Colorado Department of Labor and Employment, for example, said they can spend about $1.5 million in Recovery Act funding to cover administrative costs associated with Workforce Investment Act programs, consistent with their normal procedures for administration of the programs, while officials from the Colorado Department of Education said they were uncertain what, if any, funds they were going to receive to administer and manage recovery programs. State officials told us they believe the government services portion of the SFSF can be used by the Colorado Department of Education and other state departments to cover administrative costs. Colorado officials identified general areas of vulnerability in spending Recovery Act funds, as well as specific concerns about their ability to oversee Recovery Act funds coming into the state. Areas of vulnerability include new programs and localities that may be ill-equipped to manage the influx of new funds. In addition, state officials are concerned about their ability to oversee Recovery Act funds because of three primary challenges: (1) the state’s accounting system is 18 years old, which may make it challenging to tag and track Recovery Act funds; (2) adequate resources to administer and audit expenditures of Recovery Act funds may not be available; and (3) state officials are still determining what they will be required to track and report on and are particularly concerned about tracking funds that bypass the state and flow directly to local entities. The state’s departments have begun to identify potential areas of vulnerability in spending Recovery Act funds, according to officials. One area that officials identified is the influx of new Recovery Act funds that must be adequately managed as they are spent quickly. For example, some programs, such as Medicaid, already have known weaknesses in managing existing funds (identified, for example, in audits conducted by the Colorado state auditor) and may be challenged in managing large amounts of additional funds. A second vulnerable area, according to officials, involves new programs that do not have well-established processes, or programs that will need to establish additional processes, to accommodate significant funding increases, such as the state’s energy program, which will receive funds for weatherization and other energy projects. Funds that go directly to localities are a third area that may be vulnerable because, according to officials, the state does not currently oversee these funds and cannot provide assistance to local entities, some of which may not be well- equipped to manage the increased funds. State officials were concerned that Colorado’s accounting system—the Colorado Financial Reporting System (COFRS)—is 18 years old, which may make it difficult for the state to use and track Recovery Act funds. For example, state officials are concerned about Colorado’s ability to report quickly on Recovery Act expenditures. Because of limitations associated with COFRS, officials told us the state will have difficulties meeting reporting requirements established for certain Recovery Act expenditures, such as the requirement in section 1512 of Title I, Division A of the Recovery Act calling for recipient reports within 10 days of the end of the calendar quarter. In addition, some individual state departments do not use the COFRS grant module and therefore must manually post aggregate revenue and expenditure data to COFRS. Consequently, given the state’s current capabilities, data on total Recovery Act funding received by the state may not be able to be drawn from COFRS and may have to be compiled through a manual exercise outside of the central financial management system, raising internal control concerns among some officials we talked with. These concerns include inadequate audit documentation on how the information is compiled, potential human error in inputting and aggregating information, and potentially inconsistent or duplicative reporting from various agencies on the extent and nature of Recovery Act funding received and used. Finally, state officials also voiced concerns that COFRS uses Catalog of Federal Domestic Assistance numbers to track grants from each federal agency, but some federal departments are not establishing unique Catalog of Federal Domestic Assistance numbers for some Recovery Act funds, which will make automated reporting difficult. Officials with the Colorado Department of Personnel & Administration were concerned that vacancies in procurement positions posed an impediment to effective tracking and control over the state’s Recovery Act funds. Many Colorado state agencies have vacancies for procurement officers, which have been left unfilled due to the state budget shortfall and a consequent hiring freeze. For example, the Department of Personnel & Administration, which administers statewide contracts and supports several state agencies that have little or no purchasing authority, currently has three vacancies in its purchasing agent and contracting positions. Filling these vacancies would enable this department to better assist state agencies receiving Recovery Act funds, according to department officials. Similar purchasing agent vacancies exist, according to these officials, in the Colorado Departments of Corrections, Education, Human Services, Labor and Employment, and Local Affairs. Colorado Department of Personnel & Administration officials hope to hire former or retired state employees with procurement experience on a 6-month basis to alleviate this problem, but additional funding—and possibly legislative and budgetary approval—may be needed in order to hire temporary procurement personnel, which could potentially delay hiring if the state needs to await legislative action. State officials were also concerned with the amount of audit coverage throughout the state. For example, officials with the Colorado state auditor’s office told us their office would have difficulty absorbing additional work associated with the Recovery Act, and believed that state oversight capacity was limited. For example, according to these officials, the Department of Health Care Policy and Financing (the state’s Medicaid agency) has had three controllers in the past 4 years; these officials also told us the state legislature’s Joint Budget Committee recently cut field audit staff levels for the state Department of Human Services in half. Officials with the Department of Personnel & Administration told us their department’s internal auditor position is vacant, while officials with the Colorado Department of Transportation told us that two of their department’s financial management positions, including the deputy controller position, are vacant. At the county level, Jefferson County recently terminated its internal auditor and eliminated its internal control audit office. The reduced number of staff in oversight positions resulted in part from budget cuts and staffing decisions during the state’s last economic downturn, and state officials told us certain positions would be difficult to fill because of the state’s current hiring freeze. Officials said because the “ratchet effect” of Colorado’s constitutional and legislative requirements limits the growth of spending, it can be difficult to re-establish and fill positions that are eliminated during economic downturns. Officials told us, for example, that some state agencies have not refilled all of the staff positions they lost to budget cuts during Colorado’s 2001-2003 downturn. Colorado officials said they have not received state-specific guidance on Recovery Act reporting from the federal Office of Management and Budget. They said the guidance provided in February and April 2009 was addressed to federal departments and agencies, and it was necessary to determine whether and how this guidance applied to state governments. Officials wondered, for example, whether the state would be required to report centrally on all funds coming through the state or whether state agencies will report as normal through federal departments, or both; what the frequency and form of reports will be; and the level to which funds will need to be tracked and reported (e.g., at the recipient level, subrecipient level, etc.). Officials were especially concerned that a substantial portion of funds provided to Colorado will go directly to local entities, making it difficult for state officials to be aware of and track all funds within the state. In the absence of state-specific guidance, state officials were taking some steps on their own to track the use of Recovery Act funds. Department of Personnel & Administration officials said they anticipated that statewide reporting on the use of Recovery Act funds will be necessary, in addition to having individual state departments and agencies reporting directly to their respective federal granting agencies. The department discussed various tracking and reporting methodologies with state department controllers to determine what tracking method would be the most effective and least disruptive; the department determined that the state would create an accounting fund through which it could track state agencies’ use of Recovery Act funds and would employ a centrally defined budget-coding structure for Recovery Act funds, which should be able to distinguish between Recovery Act funds and other federal non-Recovery Act funds. This accounting process would capture only those funds flowing through state agencies. State officials said they are still determining how they will capture funds that do not flow through the state and said that guidance will be important in order to prevent duplicate reporting of Recovery Act funds by state and federal agencies. Although they are moving forward, state officials are hesitant to establish statewide reporting requirements for fear they could waste state resources developing and implementing an approach that is not consistent with the federal guidance ultimately established. Colorado’s state departments with responsibility for the funds we examined described a range of approaches to assess and report on the effects of recovery spending in the state. Some agencies plan to use their existing performance indicators to assess the effects of Recovery Act funding, as they have not yet received reporting guidance from the federal departments involved. For example, Colorado Housing and Finance Authority officials said they plan to use existing indicators, such as the number of affordable housing units created and the relative income levels of populations served by those units, to assess the effects of Recovery Act funding for the Low-Income Housing Tax Credit. Other agencies, such as the Colorado Department of Transportation, have received guidance to report on existing and new indicators, such as direct jobs associated with Recovery Act projects; the indicators will involve a significant increase in data collection and reporting by the department, including gathering data from more entities and reporting more frequently than the department has reported in the past, according to department officials. In another example, the Colorado Department of Public Safety, which did not report on jobs in the past, will report on the jobs created or retained with the spending of justice assistance grants. In addition, it will report on a set of new performance measures being developed by the federal Department of Justice Bureau of Justice Assistance. Department of Public Safety officials are concerned about the timing of reporting job creation and retention data, however, because the Recovery Act requires states to report 10 calendar days after the end of each quarter, which is faster than the normal reporting time frames and, according to officials, will necessitate that recipients report to the department within 5 calendar days of the end of the quarter. Some grantees will have difficulty reporting within such short time frames, according to one department official, because they still mail or hand deliver their reports. State and local officials raised other concerns about tracking the economic effects of Recovery Act funds. Officials with the state auditor’s office, for example, said that tying specific funding to the creation of particular jobs is problematic. One state official pointed out that increased FMAP available under the Recovery Act would reduce the amount of funds that Colorado will need to spend on its Medicaid program, allowing the state to use these funds for other purposes and avoid cutting other programs to balance the state budget. However, because specific program cuts were not determined, identifying the preserved programs and their economic effects is impossible. While some state departments have received guidance on counting jobs created or retained, officials from at least one local department said they needed more guidance about how to measure the number of new jobs created. Another official said that her department will report jobs created or retained but questioned how indirect jobs would be counted. According to this official, spending Recovery Act funds to purchase items such as equipment or vehicles will have substantial economic effects, particularly the creation of indirect jobs, but she was not certain how these jobs would be counted and asked whether clarification would come through Office of Management and Budget or other guidance. To measure such impacts for the state, an economic impact assessment would need to be conducted, according to a member of the Colorado Economic Recovery Accountability Board. The board is considering contracting for such an assessment, according to the member, but has not yet decided on whether or when to do it. We provided the Governor of Colorado with a draft of this appendix on April 17, 2009. State officials from the Governor’s office responded for the Governor on April 20, 2009. In general, they agreed with this summary of Colorado’s recovery efforts to date. The officials also provided technical comments that were incorporated, as appropriate. In addition to the contacts named above, Steve Gaty, Susan Iott, Tony Padilla, Ellen Phelps Ranen, Lesley Rinner, Glenn Slocum, and Mary Welch made significant contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $1.4 billion in increased FMAP grant awards to Florida. As of April 1, 2009, Florida has drawn $817 million, or 58.6 percent of its increased FMAP grant awards to date. From January 2008 to January 2009, the state’s Medicaid enrollment increased from 2,151,917 to 2,391,569, with most enrollment changes attributable to two population groups: (1) children and families and (2) other individuals, including those with disabilities. While funds are made available as a result of the increased FMAP, the state legislature is still determining how to make use of these funds. Florida was apportioned about $1.3 billion for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for On April 1, 2009, the Florida Department of Transportation (FDOT) prepared a final listing of potential Recovery Act funded projects and on April 15, 2009, the Florida Legislative Budget Commission approved the list of projects. The U.S. Department of Transportation, Federal Highway Administration must also approve the final listing of projects before the state can advertise bids for contracts. These projects include activities such as resurfacing roads, expanding existing highways, repairing bridges and installing sidewalks. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Florida was allocated about $1.8 billion from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance-of-effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. According to Florida officials, Florida plans to apply for a waiver to obtain these funds after the Department of Education issues final instructions for waiver applications. Florida is also receiving Recovery Act funds under other programs, such as programs under Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left Behind); programs under the Individuals with Disabilities Education Act (IDEA); and Workforce Investment Act employment and training programs. The status of plans for using these funds is described throughout this appendix. Safeguarding and transparency: The Governor has created the Florida Office of Economic Recovery to oversee, track and provide transparency in how Recovery Act funds are spent. In addition, according to Florida officials, Florida’s accounting system will be able to separately track the Recovery Act funds flowing through the state government. Florida plans to publicly report its Recovery Act spending on a state Web site. Florida state accountability organizations have identified areas where Recovery Act funds may be at greater risk of fraud, waste, and abuse, such as Medicaid, and have begun to collaborate in developing plans for oversight. Assessing the effects of spending: Florida state officials are in the early stages of developing plans to assess the effects of Recovery Act spending and told us that guidance from the federal government would be instrumental in developing their plans. On April 3, 2009, the U.S. Office of Management and Budget (OMB) issued guidance indicating that it will be developing a comprehensive system to collect information, including jobs retained and created, on Recovery Act funds sent to all recipients. Florida state officials told us that they will ask OMB to allow the state to obtain data from this system on local entities in Florida that receive Recovery Act funds directly from federal agencies. Florida has begun to use some of its funds made available as a result of the Recovery Act, as follows: Increased Federal Medicaid Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008 and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provide for: (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that the state must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 1, 2009, Florida has drawn down $817 million in increased FMAP grant awards, which is about 58.6 percent of its awards to date. The state is determining how to make use of the state funds made available as a result of the increased FMAP grant awards. Officials told us that each state agency with a budget impact resulting from Recovery Act funding has prepared budget amendments for the current state fiscal year (July 1, 2008, to June 30, 2009) for consideration by the Executive Office the Governor and the Legislative Budget Commission (LBC). On April 15, 2009, the LBC approved 17 amendments to the 2008-2009 state appropriation to authorize the use of Recovery Act funds. The state has drawn down funds that are for Medicaid expenditures retroactive to October 1, 2008. Florida officials told us they require additional guidance from CMS on the prompt payment requirements, and for CMS to provide of the state guidance, if applicable, on any additional reporting requirements. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Florida provided this certification, but conditioned it, noting that state funding for the transportation programs is provided from dedicated funding sources that are subject to fluctuations resulting from economic conditions. On April 15, 2009, the Florida LBC approved the Recovery Act funded projects that the FDOT had submitted. As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for Florida projects. The Federal Highway Administration must approve this final listing of projects before the FDOT can advertise bids or request reimbursement from the Federal Highway Administration. The state’s projects include activities such as resurfacing roads, expanding existing highways, repairing bridges, and installing sidewalks. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Florida’s initial SFSF allocation is about $1.8 billion. However, according to Florida officials, the state will not be able to meet the maintenance-of-effort requirement to readily qualify for these funds because revenue declines led to cuts in the state’s education budget in recent years. The state will apply to Education for a waiver from this requirement; however, they are awaiting final instructions from Education on submission of the waiver. Florida plans to use SFSF funds to reduce the impact of any further cuts that may be needed in the state’s education budget. Florida state officials began preparing for the use of Recovery Act funds prior to the receipt of the funds. Florida officials believe that Recovery Act funds are critical to addressing the state’s budgetary crisis and maintain necessary services to its citizens. According to state officials, the state plans to use about $3 billion of Recovery Act funds to reduce the state’s $6 billion budget shortfall for state fiscal year 2009-2010. One reason for this shortfall is the significant declines in revenue Florida has faced in recent years—23 percent since state fiscal year 2005-2006, from about $27.1 billion to $20.9 billion in state fiscal year 2008-2009—due to such factors as the recession and housing crisis. State officials estimate that Florida will receive about $15 billion in Recovery Act funds over 3 state fiscal years. Florida estimates that approximately $14.1 billion of this amount will flow through state agencies, with at least $4.7 billion of this amount allocated to local entities. In addition, approximately $1.2 billion in funding will be directly allocated to local entities from federal agencies. On March 3, 2009, the Governor established the Florida Office of Economic Recovery that is responsible for overseeing, tracking and providing transparency of Florida’s Recovery Act funds. The office is headed by the Special Advisor to the Governor for the Implementation of the American Recovery and Reinvestment Act (Recovery Czar) and includes three other staff members on loan from state agencies. The Florida Office of Economic Recovery also established an implementation team that meets twice a week and includes representatives from each of the state’s program agencies and administrative offices, such as the Office of Policy and Budget, the Chief Inspector General, the State Auditor General, the Department of Financial Services, as well as representatives from the Florida Association of Counties and the Florida League of Cities. On March 17, 2009, pursuant to Section 1607 of division A, title XVI of the Recovery Act, the Governor certified that the state would request and use funds provided by the act. Additional certifications for transportation, energy, and unemployment compensation have also been submitted. According to state officials, before Florida agencies can use the Recovery Act funds, the Florida legislature must authorize the use of all funds received by state agencies, including those passed-through to local governments. On April 15, 2009, the joint Legislative Budget Commission met and approved 17 amendments to the 2008-2009 state budget authorizing appropriations totaling almost $4 billion in Recovery Act funds. The Florida state legislature is still in session and developing the state’s fiscal year 2009-2010 budget. As explained by state officials, if the legislature does not pass the authorization for the Recovery Act funds before the end of the session (May 1, 2009), a joint legislative budget committee can later amend the Appropriation Act and authorize the use of the Recovery Act funds or the legislature can reconvene. To promote transparency, the Florida Office of Economic Recovery implemented a state Recovery Act Web site that became operational on March 19, 2009. The Web site is intended to provide information to the public on the amount and uses of Recovery Act funds the state receives and on resources being made available to citizens, such as unemployment compensation and workforce training. Officials from Florida’s Department of Financial Services said that the state’s accounting system—Florida Accounting Information Resource (FLAIR)—will be used to track Recovery Act funds that will flow through the state government. The state agencies will record the Recovery Act funds separately from other state and federal funds using selected identifiers in FLAIR such as grant number or project number. Officials in some Florida state program agencies raised concerns that local areas will not be able to provide timely data to enable state agencies to meet financial reporting deadlines for the quarterly reports required by the Recovery Act. These reports on the uses of Recovery Act funds are due 10 days after the end of each quarter. In addition, Florida officials and a group representing local school superintendents were particularly concerned about the ability of school districts to meet these deadlines after having experienced reductions in administrative staff due to recent budget cuts. Florida officials submitted feedback to OMB suggesting that OMB consider providing guidance on reconciling the information provided in the Recovery Act quarterly reports with other federal reporting requirements to avoid confusion. According to Florida officials, quarterly reports on many federal grants are due 45 days after the end of the quarter and reporting systems are currently oriented towards these requirements. Florida officials added that it is likely that meeting the Recovery Act quarterly reporting requirement will necessitate the submission of preliminary reports. Some state agencies have issued or are developing guidance to assist local areas in planning for the use of Recovery Act funds that will be passed through the state to local areas. For example, on April 1, 2009, Florida received about $580 million for Title I, Part A of ESEA and for IDEA, which will be passed through to local school districts. In anticipation of these funds, the Florida Department of Education provided guidance to school districts on strategies for using education funds, such as assigning high-performing teachers to low-performing schools, providing reading coaches to schools, and investing in intensive professional development for teachers. On March 19, 2009, Florida received almost $143 million for the Workforce Investment Act Adult, Youth, and Dislocated Worker employment and training programs and made $121 million available to regional workforce areas the next day. As of April 13, 2009, regional workforce areas had drawn down about $744,000 of these funds, according to a Florida official. Florida’s Agency for Workforce Innovation had previously established various task teams, composed of state and regional workforce officials that created action plans for implementing these funds. For example, to facilitate the rapid expansion of summer youth employment programs, the state plans to develop a local implementation checklist and a toolkit of summer youth materials. Florida has various oversight entities responsible for monitoring, tracking, and overseeing financial expenditures, assessing internal controls and ensuring compliance with state and federal laws and regulations: the Office of the Chief Inspector General, Auditor General, Office of Program Policy Analysis and Government Accountability (OPPAGA), and the Department of Financial Services. Each state agency has an Office of Inspector General (OIG) that is responsible for conducting audits, investigations, and technical assistance, and promoting accountability, integrity and efficiency in the state government. The Auditor General has broad audit authority with respect to audits of government agencies in Florida and routinely conducts Single Audits of the State of Florida reporting entities and of the state’s district school boards. The single audits include determining if federal and state expenditures are in compliance with applicable laws and regulations and assessing the effectiveness of key internal controls. Florida’s OPPAGA—the research unit of the state’s legislature—is responsible for conducting studies on the performance of state agencies and programs to identify ways to improve services and cut costs. In addition, the Florida Department of Financial Services is responsible for overseeing state expenditures and financial reporting. Independent certified public accountants also conduct annual financial audits of local governmental entities, such as counties and municipalities. According to state officials, Florida law requires that the scope of such audits encompass federal and state Single Audit requirements, as applicable. Past experience has highlighted financial management vulnerabilities in agencies that will receive Recovery Act funds. Auditor General and state OIG reports identified several high-risk areas that are vulnerable to fraud, waste, and abuse. For example, in 2008: State officials identified Medicaid as the highest risk program. The Auditor General reported breakdowns in internal controls over the Medicaid program because state Medicaid program officials failed to properly document and verify recipients’ income, which increased the risk of ineligible individuals receiving program benefits. The Auditor General reported that, for some federal programs, the Florida Department of Education failed to provide monitoring that reasonably ensured sub-recipient adherence to program requirements. The Auditor General reported that the Florida Department of Community Affairs failed to provide information that was needed to assess the success or progress of its federal low-income housing community development block grant program. The agency OIGs continue to provide oversight through audits and investigations of contracting and grant activities associated with federal funds. For instance, FDOT and Florida’s Department of Education OIG reported on contractors’ inaccurate reporting of expenditures and inadequate oversight of sub-contractors. Moreover, in July 2008, the FDOT OIG reported their review of contract files disclosed that differences between the state’s accounting system payments and the recipient expenditures were not adequately explained. State officials also expressed some broader concerns about other potential risks. For example, state officials identified new programs in the Recovery Act as potentially risky and noted that the state’s fiscal year 2009 Single Audit report that will cover such new programs will not be completed until spring 2010. State officials also expressed concern about potential risk in programs receiving large funding increases under the Recovery Act. For example, Florida Department of Law Enforcement officials stated that the amount of Recovery Act funds received for the Edward Byrne Memorial Justice Assistance Grant Program, which is designed to help prevent and control crime and improve the operations of the criminal justice system will be four to five times the amounts received in prior years. For these programs, they estimate that about $52 million will be passed through to 67 local Florida counties, which have had grants collectively totaling only $12 million to $15 million in past years. In response to the Recovery Act, Florida’s Chief Inspector General established an enterprisewide working group of agency OIG’s to evaluate risk assessments, and promote fraud prevention, awareness, and training. The group members are updating their annual work plans by including the Recovery Act funds in their risk assessments and will leave flexibility in their plans to address issues related to these funds. In preparing to conduct the Single Audits for 2008-2009 and subsequent fiscal years, the Auditor General is monitoring the state’s plans for accounting for and expending Recovery Act funds, tracking the expected changes in OMB’s Single Audit requirements, and participating in the National State Auditors Association’s efforts to provide input on Recovery Act accounting, reporting, and auditing issues. The Auditor General expects the number of major federal programs to increase as a result of the large infusion of Recovery Act funds into the state, thus increasing the number of federal programs that the Auditor General must audit as part of the state’s annual Single Audit. Officials from Florida’s OPPAGA expect an increase in the number of legislative requests for their studies—particularly those focused on education programs—as Recovery Act funds are disbursed to recipients. The OIGs are developing and refining strategies to ensure oversight of Recovery Act funds. For example, the FDOT OIG is developing plans to increase its up-front monitoring activities for transportation funds to mitigate the potential risk of fraud, waste, and abuse. Some of these activities include: Designating a team of seven auditors to monitor Recovery Act expenditures and other related activities; Developing fraud awareness training specifically for Recovery Act Conducting risk assessments of Recovery Act transportation projects; Monitoring and providing oversight for the pre-construction, advertisement, bid, award, and contract-letting activities for Recovery Act projects. Florida officials told us that separate accounts have been established for receipt of increased FMAP grant awards. The OIG in the Agency for Health Care Administration will follow established recovery protocol and processes to prevent and detect Medicaid overpayments by conducting detection analyses and audits, imposing sanctions, and making referrals to the Medicaid Fraud Control Unit and other regulatory and investigative agencies as appropriate. According to Florida state officials, the state completed an initiative to strengthen contracting requirements several years ago. For example, the majority of state contracts greater than $1 million are required to be reviewed for certain criteria by the Department of Financial Services’ Division of Accounting and Auditing before the first payment is processed. The contract must also be negotiated by a contract manager certified by the Florida Department of Management Services, Division of State Purchasing Training and Certification Program. In light of decreased state budgets that have resulted in prior staff reductions, Florida state auditing officials expressed concern about the adequacy of staff resources to provide oversight of Recovery Act funds beyond that required under existing federal Single Audit Act requirements. For example, the Auditor General told us that the office has not hired new staff for over a year and about 10 percent of the office’s positions remain unfilled. In addition, OPPAGA officials told us their staff has decreased by 10 percent in the past 2 years. State officials told us that the efficient use of existing and projected resource levels will require an ongoing assessment of risks and priorities and the allocation of staff resources to ensure the required oversight of state and federal funds, including Recovery Act funds. Florida state agencies were in the early stages of developing plans to assess the effects of the Recovery Act spending because they were waiting for guidance from OMB on how to measure jobs retained and created with Recovery Act funds. For example, Florida Department of Law Enforcement (FDLE) officials said that they could count the number of staff hired to implement a new program, but they did not know how to count the number of jobs retained or created if Recovery Act funds are used for purchases of goods such as new police cruisers. In addition, FDLE and other state officials said they needed clear OMB guidance in order to build this information upfront into the data reporting requirements. Florida’s Department of Education has created a new form that school districts will use to report quarterly Recovery Act expenditures and the number of jobs retained and created, but they need additional guidance from OMB to develop instructions for school districts on how to count these jobs. Florida’s Agency for Workforce Innovation is encouraging recipients of Recovery Act funds throughout the state to list jobs created with the funds in the state’s existing online job bank. By including tags in the system to identify the jobs linked to Recovery Act funds, the agency expects to be able to count specific jobs created with the funds. A local workforce investment board official told us that the board is publicizing the use of the job bank for Recovery Act jobs through radio and town hall appearances and mailings to potential recipients of Recovery Act funds. Because Florida is only required to collect data on jobs created with Recovery Act funds for which Florida is the recipient, Florida officials plan to include data on the state Recovery Act Web site on all jobs created with Recovery Act funds in Florida. On April 3, 2009, OMB issued guidance indicating that it will be developing a comprehensive system to collect information, including jobs retained and created, from all recipients of Recovery Act funds. The state plans to ask OMB if they can obtain data relevant to Florida collected by the national reporting system on jobs retained and created with Recovery Act funds. According to Florida officials, this will reduce duplication and increase the efficiency of their reporting. We provided the Governor of Florida with a draft of this appendix on April 17, 2009. The Special Advisor to Governor Charlie Christ, Florida Office of Economic Recovery, responded for the Governor on April 20, 2009. In general, the Florida official concurred with the information in the appendix. The official also provided technical suggestions that were incorporated, as appropriate. In addition to the contacts named above, Fannie Bivins, Carmen Harris, Kathy Peyman, Robyn Trotter, and Cherie’ Starck made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $521 million in increased FMAP grant awards to Georgia. As of April 1, 2009, Georgia had drawn down about $312 million, or 60 percent of its initial increased FMAP grant awards. State officials plan to use funds made available as a result of the increased FMAP to address increased caseloads, offset general fund needs, and maintain current benefit levels and provider reimbursement rates in the state’s Medicaid program. Georgia was apportioned about $932 million for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for On April 7, 2009, the Governor certified that the Georgia Department of Transportation plans to spend $208 million on 67 projects throughout the state. The department plans to award contracts for most of these projects by May 22, 2009. These projects include maintenance, bridge work, and other activities. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Georgia was allocated about $1 billion from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. Georgia plans to submit its application in late April or early May. The state’s fiscal year 2010 budget, which passed on April 3, 2009, included $521 million in state fiscal stabilization funds for education. Georgia also is receiving Recovery Act funds under other programs, such as Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left Behind); the Individuals with Disabilities Education Act, Part B; and the Tax Credit Assistance Program. The status of plans for using these funds is discussed throughout this appendix. Safeguarding and transparency: A small core team consisting of representatives from the Office of Planning and Budget, State Accounting Office, and Department of Administrative Services (the department responsible for procurement) is taking steps to establish safeguards for Recovery Act funds and mitigate identified areas of risk. For example, the State Accounting Office has issued guidance on tracking Recovery Act funds separately, and the Office of Planning and Budget is developing a state-level strategy to monitor high-risk agencies. The State Auditor and Inspector General will monitor the use of Recovery Act funds. Assessing the effects of spending: While waiting for additional federal guidance, the state has taken some steps to assess the impact of Recovery Act funds on the state, including adapting an automated system currently used for financial management to meet Recovery Act reporting requirements. Although Georgia is still awaiting final information from the federal government, the state estimates it will receive about $7.3 billion in funding under the Recovery Act. Of that amount, about $467 million (or 6 percent) will be awarded by federal agencies directly to localities and other nonstate entities. As shown in figure 5, the majority of Recovery Act funds will support education (36 percent), health programs (35 percent, of which 23 percent will go toward Medicaid), and transportation (15 percent). The Governor completed the blanket certification for Recovery Act funds on March 25, 2009, confirming that the state will use the funds to create jobs and promote economic growth. The state has begun to use or plans to use funds for the following purposes: Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs, (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs, and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 1, 2009, Georgia had drawn down $311.5 million in increased FMAP grant awards, which is about 59.8 percent of its awards to date. Officials noted that these funds were drawn down retroactively for the period October 1, 2008, through February 25, 2009, but funds can now be drawn down on a more frequent basis. Georgia officials reported they plan to use funds made available as a result of the increased FMAP to address increased caseloads, offset general fund deficits, and maintain current eligibility and benefit levels in the state Medicaid program. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Georgia provided these certifications, but qualified its maintenance of effort certification, noting that the Georgia General Assembly still was considering the Georgia Department of Transportation’s (GDOT) fiscal year 2010 budget, which could impact the state’s highway spending plans for that year. Georgia has been apportioned $932 million for highway infrastructure. On April 7, 2009, the Governor certified the first round of projects to be funded with Recovery Act funds. As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for Georgia projects. Georgia plans to spend $208 million on 67 projects throughout the state. Of that amount, $97 million will be spent in economically distressed areas. The funds will be spent on maintenance (53 percent), bridges (23 percent), capacity projects (17 percent), safety projects (6 percent), and enhancements (1 percent). The Georgia Department of Transportation plans to award contracts for the majority of these projects (73 percent) by May 22, 2009. Figure 6 illustrates the implementation time line for Recovery Act highway projects. Pre-Construction Conference Contractor assembles materials and workers U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Georgia’s initial SFSF allocation was about $1 billion. According to state officials, the state’s fiscal year 2010 budget passed on April 3, 2009, and included $521 million in state fiscal stabilization funds for education and $140 million in state fiscal stabilization funds for public safety. Georgia plans to use the education funds for elementary, secondary, and public higher education. For instance, Georgia intends to use three established formulas to allocate funds to local education agencies, universities, and technical colleges. Georgia plans to use the public safety funds to help maintain safe staffing levels at state prisons, appropriately staff the state’s forensic laboratory system, and avoid cuts in the number of state troopers. Georgia plans to submit its application for fiscal stabilization funds in late April or early May. In addition to the major programs we discussed earlier, table 6 shows how Georgia and two local entities plan to use Recovery Act funds for other selected programs. Funds will be used to help with needs that were deferred as a result of budget cuts, such as bus replacement and the purchase of cleaner fuel vehicles. Funds will go to the Metropolitan Atlanta Rapid Transit Authority. State will encourage local education agencies to focus on professional learning opportunities for staff and intervention programs for students who need help with math and writing. Among other things, the state plans to encourage local education agencies to (1) provide professional development for special education teachers, (2) expand the availability and range of inclusive placement options for preschoolers, and (3) obtain state-of-the-art assistive technology devices and provide training in their use to enhance access to the general curriculum for students with disabilities. State plans to use a portion for administration, oversight of local workforce agencies, as well as rapid response during major layoffs; the majority of the funds will be allocated to the 20 local areas within the state for adult, youth, and dislocated worker programs. The Atlanta Regional Workforce Board—the local workforce board for seven counties in the Atlanta metropolitan area—is concentrating on plans for using the $3.1 million it will receive for summer youth programs. State will focus on fiscal year 2008 projects that received tax credits and those on the waiting list; for projects that received tax credits but are having difficulty using them, the state will either provide gap financing or exchange the tax credits for grants. The Atlanta Housing Authority will use $18.6 million to rehabilitate 13 public housing developments and an additional $8 million to complete the demolition of 3 public housing developments. State plans to apply, but the competition criteria have not yet been published. State is currently developing a strategy to allocate the funds that must be passed through to local governments. The anticipated funds are based on federal agency announcements as of April 17, 2009. The recent economic downturn adversely affected Georgia in a number of ways: Higher unemployment rate—as of February 2009, the state’s unemployment rate was 9.3 percent. This rate surpassed the national unemployment rate (8.1 percent) and was almost double the state unemployment rate from a year earlier (5.4 percent). Increases in Medicaid enrollment—from January 2008 to January 2009, the state’s Medicaid enrollment increased from 1,265,136 to 1,314,689, with increased enrollment attributable to three population groups: (1) children and families, (2) disabled individuals, and (3) other populations, which includes refugees and women with breast and/or cervical cancer. Declining revenue—through March 2009, the state’s net revenue collections for fiscal year 2009 were 8 percent less than they were for the same time period in fiscal year 2008, representing a decrease of approximately $1 billion in total taxes and other revenues collected. Use of reserves—to offset shortages in revenue, the state used $200 million from its Revenue Shortfall Reserve, or “rainy day” fund, in fiscal year 2009 and will use an additional $259 million in fiscal year 2010. Recent budget cuts—overall, the state’s budget was cut by 8 percent from fiscal year 2008 to fiscal year 2009. As shown in table 2, some individual agencies were cut more significantly than others. Georgia officials plan to use Recovery Act funds to limit additional budget cuts. Georgia moved quickly to implement an infrastructure to manage Recovery Act funds. A small core team was in place as of December 2008 to begin planning for implementation. Within 1 day of enactment, the Governor had appointed a Recovery Act Accountability Officer, and she formed a Recovery Act implementation team shortly thereafter. The implementation team includes a senior management team, officials from 31 state agencies, a group to support accountability and transparency, and cross-agency teams (see fig. 7). The Recovery Act Accountability Officer and senior management team are responsible for analyzing and disseminating federal and state guidance to the state agencies receiving Recovery Act funds. The accountability and transparency support group comprises representatives from the Office of Planning and Budget, State Accounting Office, and Department of Administrative Services. The State Auditor will serve as the primary auditor of the funds, and the Inspector General will provide investigative support and respond to complaints of fraud. The first implementation team meeting was held on February 24, 2009. Since then, the implementation team has met almost every week. According to state officials, each year the Governor is required to present to the General Assembly a recommended state budget for the upcoming fiscal year and an amended budget for the current fiscal year. Prior to submitting the budget for the upcoming year, the Governor sets the state’s revenue estimate, which when added to surplus and reserve funds, determines the size of the forthcoming appropriations bill. Furthermore, state officials told us that the Governor has the authority to approve the appropriations bill in its entirety or choose individual expenditure items to veto. To approve the use of Recovery Act funds, Georgia has enhanced its existing budget process. The majority of Recovery Act funds will be added into state budgets via an amendment process through the Governor’s Office of Planning and Budget. A monthly Recovery Act budgeting and amendment process has been established to account for federal dollars. The Recovery Act approval process requires that each state agency submit an action plan to the Office of Planning and Budget that includes information on the agency, funding sources, accountability measures, and details on individual projects funded (see fig. 8). For Recovery Act funds the state government receives, the budget office also is requiring state agencies to complete a tool that assesses risk. The budget office then reviews the plans submitted by the agency, provides feedback to the agency, and, in conjunction with the agency, finalizes the plans and risk assessment tool. The Governor, the Recovery Act Accountability Officer, budget office staff, and agency officials meet to vet the action plan and make a final decision on applying for funding. As of April 17, 2009, all state agencies had submitted action plans, and the budget office had begun its review of these plans. Georgia’s most recent Single Audit Act report identified a number of material weaknesses. Recognizing the risks associated with the influx of Recovery Act funds, the state has taken a number of steps to establish internal controls and safeguards for these funds. Georgia’s most recent Single Audit Act findings indicate that the state may have difficulty accounting for the use of some Recovery Act funds. In its fiscal year 2008 Single Audit report, the State Auditor identified 28 financial material weaknesses and 7 compliance material weaknesses. Three state agencies that expect to receive a substantial amount of Recovery Act funds were cited for most of the financial material weaknesses—the Department of Transportation (10), Department of Labor (4), and Department of Human Resources (2). For example, the Department of Transportation’s financial accounting system was deemed unsuitable for day-to-day management. It also did not have a system in place to correctly identify fund sources, and as a result, auditors found that $138 million of federal funds were misclassified. In addition, auditors found that the Department of Labor was unable to provide detailed account balances for the Unemployment Insurance Program because it maintained an inadequate general ledger that consisted of manually updated spreadsheets. The auditors also found that the Department of Human Resources’ process of allocating indirect costs to programs had multiple deficiencies. They noted that inadequate internal controls and failure to follow established policies increases the risk of material misstatement in the financial statements, including misstatements due to fraud and noncompliance with federal regulation. In addition, the Department of Human Resources was cited for four compliance material weaknesses, such as requesting federal funds in excess of program expenditures. To ensure that the affected state agencies will address these material weaknesses, the State Accounting Office will be monitoring corrective action plans developed in response to the Single Audit report. The office plans to issue guidance on the monitoring process by the end of April 2009 and has asked agencies to start tracking actions taken to address material weaknesses. Georgia recognizes the importance of accounting for and monitoring Recovery Act funds and, despite recent budget cuts, has directed state agencies to safeguard Recovery Act funds and mitigate identified risks. At one of the first implementation team meetings, the Recovery Act Accountability Officer disseminated an implementation manual to agencies, which included multiple types of guidance on how to use and account for Recovery Act funds. For example, the Office of Planning and Budget provided details on the budgeting process for Recovery Act funds. New and updated guidance is disseminated at the weekly implementation team meetings. At the direction of the Recovery Act Accountability Officer, the three agencies tasked with accountability support—the Office of Planning and Budget, State Accounting Office, and Department of Administrative Services—and other state agencies have instituted the following safeguards: The Office of Planning and Budget, in collaboration with the State Accounting Office and others, is developing a state-level strategy to monitor high-risk agencies. Additional risk-mitigation strategies will be developed and implemented for these agencies. The State Accounting Office issued two accounting directives to all state agencies. The first provides guidance on accounting for Recovery Act funds separately from other funds. The state plans to use Catalog of Federal Domestic Assistance numbers to track Recovery Act funds separately. Funds will also be segregated through a set of unique Recovery Act fund sources in the state’s financial accounting system. For example, the state is tracking increased FMAP funds for Medicaid through the development of a unique identifier for each grant award. The second accounting directive supplies language that should be included in all contracts issued under the Recovery Act. In addition, the office is reviewing the current accounting internal controls and assessing how they can be enhanced for Recovery Act funds. The Georgia Department of Administrative Services plans to issue a communication alert stating that any state agency planning to award contracts with Recovery Act funds should contact the department for guidance. The department has developed standard contract language that should be included in all Recovery Act contracts and plans to publicize and offer training for state agency contracting staff. Further, the department plans to continue its compliance reviews of agencies with delegated purchasing authority to ensure they are following proper policies and procedures. All of the agencies we met with that directly administer programs had monitoring processes in place that they plan to adapt or enhance for Recovery Act oversight. For example, the Georgia Department of Community Affairs’ plans for monitoring the Tax Credit Assistance Program include a front-end analysis of costs, third-party inspections prior to the release of funds, and an audit of the general contractor by a certified public accountant. The last requirement is unique to projects funded with Recovery Act tax credits. In addition, the State Auditor, Inspector General, and internal audit divisions within state agencies have taken or plan to take the following steps to mitigate risk and oversee the use of Recovery Act funds: The State Auditor issued two audit risk alerts. One urged all agency officials to include appropriate contractual provisions in Recovery Act contracts and to not rush the distribution of Recovery Act funds before adhering to proper internal control processes and understanding federal guidelines. The other alert discussed limits on the use of funds. The State Auditor also plans to provide internal control training to state agency personnel in late April. The training will discuss basic internal controls, designing and implementing internal controls for Recovery Act programs, best practices in contract monitoring, and reporting on Recovery Act funds. Currently, the State Auditor conducts routine statewide risk assessments as a means of identifying high-risk agencies and determining where to best focus audit resources. Officials plan to target future risk assessments on programs receiving Recovery Act funding and are awaiting additional audit guidance from the Office of Management and Budget (OMB). The Inspector General issued a directive requiring all state agencies to insert new contractual language in any contracts, subcontracts, grants, and bid solicitations financed with Recovery Act funds. The new language specifically gives her the right to inspect all records of outside vendors, subcontractors, and consultants. In conjunction with the State Accounting Office, the Inspector General plans to conduct unannounced visits to state agencies receiving Recovery Act funding. The Inspector General also developed a database to specifically track Recovery Act complaints and a public service announcement to alert the public of how to report fraud, waste, and abuse. Some state agencies, such as the Departments of Human Resources and Transportation, have internal audit divisions that plan to monitor the use of Recovery Act funds. For instance, the Department of Human Resources’ internal auditor has developed a plan to assess the risk of each program prior to receiving Recovery Act funding. As these actions and plans indicate, Georgia recognizes the importance of instituting safeguards for Recovery Act funds. However, state officials also stressed the costs of such efforts. Both the Governor’s Office and the State Auditor noted that they had not received additional funding for Recovery Act oversight. As shown in table 2, several agencies with oversight responsibilities experienced significant budget reductions in fiscal year 2009, including the State Accounting Office (43 percent), Inspector General (19 percent), Office of Planning and Budget (11 percent), and State Auditor (11 percent). The State Auditor noted that, if state fiscal conditions do not improve or federal funding does not become available for audit purposes, additional budget and staffing cuts may occur within the department. Directives from OMB, due by May 1, will provide guidance on the audit requirements for Recovery Act programs. Officials noted that the scope of pending audit requirements may greatly impact the State Auditor’s ability to audit Recovery Act programs on top of existing audit requirements. In addition, some state officials that directly administer programs told us that overseeing the influx of funds could be a challenge, given the state’s current budget constraints and hiring freeze. In some cases, state agencies told us that they planned to use Recovery Act funds to cover their administrative costs. Other state agencies wanted additional clarity on when they could use program funds to cover such costs. In general, Georgia is awaiting additional federal guidance on reporting requirements before making detailed plans to assess impact. However, the State Auditor is adapting an existing system (used to fulfill its Single Audit Act responsibilities) to help the state report on Recovery Act funds. The statewide Web-based system will be used to track expenditures, project status, and job creation and retention. The state will make data from this system available on its Recovery Web site. The Governor is requiring all state agencies and programs receiving Recovery Act funds to use this system. State officials do not expect to track and report on funds going directly to localities, but some said they would like to be informed of these funds so that the state can coordinate with localities. They cited broadband initiatives and health funding to nonprofit hospitals as areas where a lack of coordination could result in a duplication of services or missed opportunities to leverage resources. In addition, some state agencies appear to have more experience tracking jobs than others. For example, the Georgia Department of Community Affairs has experience tracking jobs for the Community Development Block Grant program; therefore, agency officials do not expect to have difficulty tracking jobs for the Neighborhood Stabilization Program. For another program it will administer, the Tax Credit Assistance Program, Community Affairs surveyed potential applicants in March 2009 to gain a better understanding of performance measures that could be tracked as a part of its monitoring efforts, including job creation. In contrast, officials from other programs, such as the Edward Byrne Memorial Justice Assistance Grant program and the Transit Capital Assistance Grant program expressed concerns about identifying appropriate measures of job creation and retention within the purpose of their programs and were waiting for more guidance from federal agencies and OMB. We provided the Governor of Georgia with a draft of this appendix on April 17, 2009. The Recovery Act Accountability Officer responded for the Governor on April 19, 2009. In general, she noted that the report accurately and succinctly captures the implementation status of the Recovery Act process in Georgia. In addition to the contacts named above, Paige Smith, Assistant Director; Nadine Garrick, analyst-in-charge; Stephanie Gaines; Alma Laris; Marc Molino; Barbara Roesmann; Robyn Trotter; and Mark Yoder made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, highways, and the State Fiscal Stabilization Fund. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $992 million in increased FMAP grant awards to Illinois. As of April 1, 2009, Illinois has drawn down about $117.1 million, or about 12 percent of its initial increased FMAP grant awards. Illinois plans to use funds made available as a result of the increased FMAP in fiscal years 2009 and 2010 to fill a Medicaid budget gap, permitting the state to move from an average 90-day payment cycle to a cycle of no more than 30 days for all of its providers, including payments hospitals and nursing homes. Illinois was apportioned about $936 million for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $606.3 million for 214 Illinois projects. Illinois Department of Transportation officials stated that they will award most contracts based on a competitive bidding process, but they will use a quality based selection process for approximately $27 million in engineering services contracts. These projects include activities such as resurfacing highways and repairing bridge decks. Illinois will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Illinois was allocated about $1.4 billion from the initial release of these funds on April 2, 2009 by the U.S. Department of Education. On April 20, 2009, these funds became available to the state. Illinois is expecting to receive an additional $678 million by September 30, 2009. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. The state submitted its application on April 10, 2009. Illinois plans to use all of its $2 billion in State Fiscal Stabilization funds for K-12 and higher education activities to address the layoffs and other cutbacks many district and public colleges and universities are facing in their fiscal year 2009 and 2010 budgets. Illinois is also receiving additional Recovery Act funds under other programs, such as programs under Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left Behind); programs under the Individuals with Disabilities Education Act (IDEA); and two programs of the U.S. Department of Agriculture—one for administration of the Temporary Food Assistance Program and one for competitive equipment grants targeted to low income districts from the National School Lunch Program. Safeguarding and transparency: To provide accountability and transparency in how these funds are being spent, the state has established a high level Executive Committee and a separate working group to oversee Recovery Act compliance across agencies and departments. It has also developed a Web site (www.recovery.illinois.gov) that contains information about the use of Recovery Act funds. The state is in the process of performing a risk assessment of all state programs receiving Recovery Act funds to identify potential vulnerabilities. It will use the state’s Single Audit—a state-level audit of the largest programs receiving federal money—as a tool in identifying these risks. State agencies also reported that they are capable of tracking their Recovery Act funds separately from other program funds by tagging them with a special accounting or funding code. For the most part, these codes will permit agencies to then rely on existing processes to monitor and report on how these funds are being spent. Assessing the effects of spending: Officials at several state agencies indicated that they can track various performance measures for projects funded through the Recovery Act by utilizing existing systems. However, according to officials in the Governor’s office and other state agencies, more guidance is needed on definitions for job creation and retention measures to adequately measure their impact. Illinois has started to use some of its Recovery Act funds, and high level state officials we spoke with described several overarching priorities and goals that the state plans to achieve through use of these funds. These include averting layoffs and creating new jobs, concentrating resources on economically distressed areas, and funding infrastructure improvements, as described below. Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. From January 2008 to January 2009, Illinois’s Medicaid enrollment increased slightly from 2,184,963 to 2,298,802, with the highest share of the enrollment increase attributable to two population groups: (1) children and families and (2) non-disabled non-elderly adults. Illinois is estimated to receive a total of $2.9 billion in increased FMAP funding, of which $992 million has already been awarded to the state for the first three quarters of federal fiscal year 2009. For the second quarter of federal fiscal year 2009, Illinois received an FMAP of 60.48 percent—an increase of 10.48 percentage points over its fiscal year 2008 FMAP. As of April 1, 2009, Illinois has drawn down $117.1 million in Recovery Act funds, which is almost 12 percent of the amount awarded to Illinois to date. Illinois state officials indicated that the main focus in using funds made available as a result of the Recovery Act will be to meet financial obligations and to ensure compliance with the prompt payment provisions of the Recovery Act. Specifically, Illinois is using funds made available as a result of the Recovery Act to fill a Medicaid budget gap, permitting the state to move from a 90-day payment cycle to a 30-day cycle for all of its providers, including payments to hospitals and nursing homes. The state has also decided to include pharmacists in its prompt payment initiative. These actions will also help avoid potential layoffs in provider organizations. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending. The governor or other appropriate chief executive must also certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Illinois provided the first of these certifications but noted that the state’s level of funding was based on the best information available at the time of the state’s certification. The Illinois Department of Transportation (IDOT) is planning to spend a large share of its estimated $655 million in Recovery Act funds for highway and bridge construction and maintenance projects in economically distressed areas. Equally important criteria are that projects must be shovel-ready and can be completed by February 2012. These funds will expand the amount of money the state can invest in highway projects beyond the amounts the state had listed in its State Transportation Improvement Program. The projects will include resurfacing roads across the state, repairing bridge decks, replacing guardrail sections, and improving pavement markings. As of April 16, 2009, the U.S. Department of Transportation had obligated $606.3 million for 214 Illinois projects. IDOT officials stated that they will award most contracts based on a competitive bidding process, but they will use a quality based selection process for approximately $27 million in engineering services contracts. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. The Illinois Office of the Governor submitted the state’s application for these funds to Education on April 10, 2009. On April 20, 2009, these funds became available to the state. Illinois is expecting to receive an additional $678 million by September 30, 2009. The U.S. Department of Education has allocated a total of about $2 billion in SFSF monies to Illinois. Approximately $1.4 billion of this amount was allocated in an initial release on April 2, 2009. Illinois plans to use all of the $2 billion from the SFSF for K-12 and higher education activities and hopes to avert layoffs and other cutbacks many districts and public colleges and universities are facing in their fiscal year 2009 and 2010 budgets. State Board of Education officials also noted that U.S. Department of Education guidance allows school districts to use stabilization funds for education reforms, such as prolonging school days and school years, where possible. However, officials said that Illinois districts will focus these funds on filling budget gaps rather than implementing projects that will require long-term resource commitments. The State of Illinois has been in a recession since December 2007 and continues to face financial difficulties. The state’s unemployment rate surged by 46 percent from 5.9 percent in February 2008 to 8.6 percent in February 2009. Major job losses are expected to continue in manufacturing, construction, and retail. On the housing front, foreclosure filings in February 2009 were up 62 percent over 2008. While state general fund revenue grew 4.5 and 5.7 percent in fiscal years 2007 and 2008, respectively, revenues declined by 0.5 percent in fiscal year 2009. The state estimates that it faces a projected $11.6 billion operating budget deficit for fiscal years 2009 and 2010. To address this deficit, the Governor has proposed a number of measures in the state’s 2010 budget proposal, including the following: Spending cuts, including 4 furlough days for state employees and a 2- percent spending reduction in grant programs; State employee pension reform, including provisions that would align the state’s eligible age for full benefits with that of Social Security, adjust benefit formulas, and increase contribution rates for current employees; Creation of a taxpayer board to improve accountability and efficiency across state programs; and Revenue increases, including income tax increases that would raise an estimated $2.8 billion from individuals and $350 million from corporations in fiscal year 2010; higher health care contributions from current and retired state employees; and higher vehicle registration, title, and license fees. Illinois officials expect that the state will receive at least $9 billion in direct Recovery Act funds to the state, and those local entities—such as public housing and transit authorities—will receive additional Recovery Act funds. State officials said they have identified about $4.3 billion of Recovery Act funds, including use of the previously mentioned SFSF, that could be utilized to address the operating budget shortfall for fiscal years 2009 and 2010. They noted that these funds would potentially reduce pressure on the state for further tax increases and spending cuts. In addition, the state plans to use some of the remaining Recovery Act funds to help launch the Governor’s proposed infrastructure building program— a $26.5 billion proposal to fund schools, roads and bridges, public transit, and energy and environmental capital projects during Illinois fiscal years 2010 through 2015. The $26.5 billion plan would be paid for with funds from the state ($10.6 billion), federal sources ($11.6 billion), local sources ($2.4 billion), and the Recovery Act ($2.0 billion). In addition to funds administered by state agencies, local entities will also receive funds through the Recovery Act for programs administered at the local level. We met with one local agency that will receive Recovery Act funds and will use its funds to address overdue capital improvements. The Chicago Transit Authority (CTA), an independent governmental agency that provides rail and bus service in the greater Chicago area, has already put plans in place to spend its $240 million. CTA has a backlog of $6.8 billion in unfunded capital projects necessary to update its infrastructure and fleet. The agency has begun work on an $87.8 million project that will replace rails, ties, and fasteners for one subway line. The agency also expects to complete hybrid bus purchases, a bus and rail car fleet overhaul, and numerous facility improvements by the end of 2009. Finally, reconstruction of at least one rail station is expected to be completed by late 2010. While we found examples of programs that have received Recovery Act funds and have projects that are already underway, we spoke with state officials who said they needed more guidance about how they should use, track, and report on these funds at their agencies. State Board of Education officials said that understanding the reporting requirements and eligible uses for Recovery Act funds is the biggest challenge they face as they prepare to disseminate funds to the local school districts. They also expressed concern with the Recovery Act’s dual emphases on accountability and quick expenditure of funds. The Illinois Criminal Justice Information Authority expressed similar concerns about the need for federal guidance in regard to reporting time frames that may not completely align with previous reporting procedures. During our meetings with high-level state officials, they said that efforts are underway to ensure accountability and transparency in the use of Recovery Act funds. The Governor’s office has established an Executive Committee and working group to identify concerns across state agencies and help them implement Recovery Act provisions. Also, state internal audit officials are developing a variety of internal control techniques to assure compliance with the Recovery Act’s requirements. To properly track funds, state agency officials explained that they plan to use unique identifiers or codes so that these funds can be separately tracked in their existing financial or grants management systems. To ensure accountability and transparency in the use of Recovery Act funds, the state has established an Executive Committee, a Recovery Act Working Group, and an Illinois Recovery Web site. The Executive Committee is comprised of state executives, including the Deputy Chief of Staff for Economic Recovery, the Chief Internal Auditor, the Budget Director, and the Chief Information Officer. According to state officials we spoke with, the Executive Committee is working to identify common risks to all state agencies in the use of Recovery Act funds. To address crosscutting Recovery Act issues, such as legal matters and procurement, the committee is also establishing subcommittees with agency subject matter experts to review critical information and develop policies on these subject matters. The Recovery Act Working Group consists of a contact point for each state agency for Recovery Act related matters and, according to state officials, meets to communicate requirements, guidance, and implementation related to the act. The Governor’s Office has also established an Illinois Recovery Web site at www.recovery.illinois.gov, which contains information on the programs receiving Recovery Act funds, amounts available through the act, and certifications signed by the Governor. The Web site will also include reports on Recovery Act program expenditures, and eventually users will have the ability to download raw data on project or program descriptions, budgets, spending, and job creation. Another feature of Illinois’s Web site is that it allows the public to submit suggestions for projects that the state could fund through the Recovery Act. Every state is required to have an annual Single Audit in accordance with U.S. Office of Management and Budget (OMB) requirements. This audit is required when $500,000 or more in federal funds is expended in any fiscal year. Officials from the Illinois Office of Internal Audit (OIA) stated that they will utilize the Office of the Auditor General’s (OAG) single audits to identify programs that may require additional scrutiny. In Illinois’s fiscal year 2007 Single Audit, the OAG identified four material weaknesses in internal controls over financial reporting and classified 46 findings as significant deficiencies and material weaknesses in internal controls related to compliance. Significant agency findings classified as a material weakness that are relevant to the Recovery Act and recipients of Recovery Act funds included The State Board of Education not sanctioning a Local Education Agency that did not meet the comparability of services requirement under the Title I Grants to Local Educational Agencies Program; IDOT not obtaining certifications from subrecipients for not having been suspended or debarred from participation for the Airport Improvement Program; Multiple agencies inadequately conducting or failing to conduct on-site monitoring of subrecipient awards for federal programs; and Multiple agencies inadequately monitoring subrecipient audit reports for federal programs. The OAG explained that to the extent that federal programs receiving Recovery Act funds are addressed in the OMB compliance supplement, it will be performing its required audit procedures. The OAG stated that OMB guidance will be critical for planning future audits of federal funds. Furthermore, the OAG conducted an analysis of programs receiving Recovery Act funds, and found that a few additional programs will likely be included in future single audits. OIA officials told us that they are using the Single Audit results to assist in conducting a risk assessment of all state-administered programs receiving Recovery Act funds. OIA officials said that they will use the results of this risk assessment to target their audit efforts to programs that demonstrate a high level of risk. OIA and OAG officials said that they plan to follow up on their respective prior audit findings to make sure that state agencies have taken appropriate corrective action. OIA officials said that in addition to large programs, they plan to follow up on prior internal audit findings on federal Recovery Act programs under $30 million that are not covered by the statewide single audit. Most agency officials we spoke with stated that their systems are capable of tracking Recovery Act funds separately from other funds for the same programs. For example, IDOT officials stated that Recovery Act projects are being noted in different systems, typically with special funding codes. In addition, when IDOT officials access Recovery Act funds, those transactions will have special codes and notations. Similarly, officials at the Illinois Department of Human Services told us that any funds the agency receives through the Recovery Act for the Neighborhood Stabilization Program will have accounting codes separate from any previous funds received through the program. In order to track increased FMAP funds, Illinois officials said they will use the state’s existing accounting systems and will use existing processes to review and reconcile expenditures. For example, state officials will record draw downs of increased FMAP funds separately from other Medicaid funds. State officials will also use special receipt, expenditure, and contract codes for all increased FMAP funds and related Medicaid expenditures. A CTA official we spoke with stated that his agency will use its existing financial system to track Recovery Act funds by unique project numbers or descriptions. Finally, officials from the State Comptroller’s Office told us that separate appropriation codes will likely be used to track Recovery Act expenditures statewide. One agency official indicated that while funds can easily be tagged at the state level, he was concerned that this might not be the case once funds are distributed to subrecipients. Officials at several state agencies we spoke with indicated that they can use various performance measures for projects funded through the Recovery Act by utilizing existing systems. For example, IDOT officials stated that they will track and monitor data for Recovery Act projects in the same manner as they do for regular program reporting, and should be able to report on and provide evidence regarding the status of project goals and objectives. Officials with the Illinois Housing Development Authority stated that they also track performance and goals for each project through current systems and should be able to build on these systems to customize reports as necessary for the Recovery Act. On the other hand, several state officials said that additional guidance is needed for measuring the potential impact of Recovery Act funds. According to officials from the Governor’s office and state agencies we spoke with, additional guidance is needed on definitions of “jobs saved,” “jobs created,” “jobs sustained,” and other similar terms included in the Recovery Act. Illinois Department of Commerce and Economic Opportunity officials stated that they had concerns regarding the evaluation of job retention as it relates to the Workforce Investment Act program. Specifically, they said OMB Recovery Act guidance focuses on quick job placement, but jobs created through the act may have lower retention than those under past program grants. Furthermore, while officials at most agencies we visited stated that they are considering plans to track the impact of Recovery Act funds, none of these plans have been finalized. Officials at two state agencies said that their systems do not track such specific performance measures, and they may need to develop additional mechanisms to link Recovery Act funds with their performance results. We provided the Governor of Illinois with a draft of this appendix on April 17, 2009. The Deputy Chief Of Staff responded for the Governor on April 20, 2009. In general, the state concurred with our statements and observations. The official also provided technical suggestions that were incorporated, as appropriate. In addition to the contacts named above, Paul Schmidt, Assistant Director; Tarek Mahmassani, Analyst-in-Charge; Rick Calhoon; Katherine Iritani; David Lehrer; Lisa Reynolds; and Mark Ryan made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation, and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage Funds As of April 3, 2009, Centers for Medicare and Medicaid Services (CMS) had made about $84 million in increased FMAP grant awards to Iowa. From January 2008 to January 2009, Iowa’s Medicaid enrollment increased from 358,112 to 392,813, with the highest enrollment increase attributable to two population groups: (1) children and families and (2) nondisabled nonelderly individuals. As of April 15, 2009, Iowa had drawn down about $86 million, or 63 percent of its increased FMAP grant Officials plan to use funds made available as a result of the increased FMAP to cover increased caseloads, maintain existing populations of recipients, and avoid reductions to benefits for Medicaid recipients. Iowa was apportioned about $358 million for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $221.2 million for 107 Iowa As of April 15, 2009, the Iowa Department of Transportation had competitively awarded 25 contracts valued at $168 million, or 47 percent of the Recovery Act funds apportioned. Contracts were awarded for projects such as bridge replacements and highway resurfacing—“shovel ready” projects that could be initiated and completed quickly. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Iowa was allocated about $316 million from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. Iowa plans to submit its application as soon as it can be accurately completed. Iowa’s Department of Education plans to use these funds to maintain spending for grades K-12 and postsecondary education at fiscal year 2009 levels for fiscal years 2010 and 2011. In addition, Iowa estimates that other funding will be provided to the state under the Recovery Act for the following program areas: Education—$214 million (includes programs such as those to provide grants to local education agencies and assist individuals with disabilities). Housing and infrastructure—$252 million (includes programs such as the Weatherization Assistance Program). Agriculture/natural resources—$152 million (includes programs such as the clean water state revolving fund). Economic development—$94 million (includes programs such as the unemployment insurance program). The status of plans for using these funds is discussed throughout this appendix. Safeguarding and transparency: Iowa has a foundation of safeguards and controls that could help assure proper spending of Recovery Act funds. For example, the State Auditor is responsible for audits of state and local entities, such as counties, cities, and school districts, and must provide guidelines to public accounting firms that perform such audits. In addition, many state agencies have internal audit groups that focus on programmatic and financial issues. Furthermore, according to state officials, administrative and statutory mechanisms are in place that could oversee Recovery Act funds and provide information to the public on how these funds are being spent. For example, while previous audits have shown few financial weaknesses, the State Auditor is updating its 2009 audit plan risk assessment to reflect the increased risk associated with Recovery Act funding. Iowa is also enhancing its accounting systems to track all Recovery Act funds that will flow through the state government to ensure that the state can adjust its spending plans as needed. Furthermore, Iowa is developing or planning systems to track funds provided to cities, counties, local governments, and other entities. Finally, Iowa is working to establish a framework that will provide transparency on the use of Recovery Act funds. This framework includes the state’s Recovery Act Web site, which is designed to provide up-to-date information on the use of Recovery Act funds by program, a state board to recommend improvements to existing practices to prevent fraud, waste, and abuse and oversee the spending of Recovery Act funds, and mechanisms provided through the state’s Accountable Government Act. Assessing the effects of spending: State agencies have begun to consider how to measure outcomes and assess the effect of the Recovery Act. Some agencies have mechanisms in place to collect data in order to calculate outcomes. Other state agencies are awaiting guidance such as a consistent approach to quantifying the number of jobs created and sustained. In the meantime, Iowa’s Legislative Services Agency plans to work closely with the Iowa Department of Management to create outcome measures for the Recovery Act and report results. Most Iowa state officials said they plan to follow established allocation formulas while waiting for federal guidance on the use and tracking of Recovery Act funds. For example, the Iowa Department of Economic Development, which manages the state’s Community Development Block Grants and Neighborhood Stabilization Program, intends to follow the state-established allocation formula for the Community Development Block Grants program. This formula allocates funding in thirds: one-third to affordable housing, one-third to economic development, and one-third to infrastructure. Some agencies have gone even further in their spending of Recovery Act funds. For example, the Iowa Department of Transportation has funded some “shovel ready” projects within 3 days of the enactment of the Recovery Act. Additionally, the Iowa Department of Economic Development has already established guidance for allocating Neighborhood Stabilization Program funding to eligible entities, should the state be awarded competitive grant funds. As of April 15, 2009, Iowa had drawn down about $86 million of its increased FMAP grant awards for the Medicaid program, which is 63 percent of its awards to date. The state plans to use funds made available as a result of the increased FMAP to cover increased caseloads and maintain current levels of benefits, noting that without these funds, the program would have faced budget shortfalls. Additionally, the state plans to use $110 million of funds made available as a result of the increased FMAP to fully fund Medicaid in the current fiscal year and $145 million of these funds to fully fund Medicaid in fiscal year 2010. Iowa has begun to use some of its Recovery Act funds, as follows. Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, CMS made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. For the first two quarters of 2009, Iowa’s FMAP rate was 68.82 percent, a 7.09 percentage point increase over fiscal year 2008. Iowa has received increased FMAP grant awards of $136 million for fiscal year 2009, and, as of April 15, 2009, Iowa had drawn down $86 million in increased FMAP grant awards, which is about 63 percent of its awards to date. Iowa officials indicated they will use funds made available as a result of the increased FMAP to cover increased caseloads, maintain existing populations of recipients, avoid cuts to eligibility, and maintain current levels of benefits. In addition, such funds will provide Iowa officials with the means to offset budget shortfalls, including shortfalls for the state’s Medicaid program. Iowa officials indicated that they expect the recession to continue longer for the state than for the nation as a whole, and if the increased FMAP funds are not available for all of federal fiscal year 2011, the resulting deficit will likely be addressed through the use of reserve funds or cuts in program funding. According to state officials, the use of FMAP funds requires an appropriation from the state legislature. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for existing programs, and in addition, the Governor must certify that the state will maintain its current level of transportation spending, and the Governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Iowa’s Governor certified that the state would “maintain its efforts” for Department of Transportation programs funded under the Recovery Act. However, Iowa noted in its certification that transportation spending would be influenced by the difference in the definition of the word “expend” for different covered programs; the uncertainty of the amount collected from state user fees to fund the programs; and variables (such as weather) that may affect the state’s timeline for spending Recovery Act transportation funds. Within 3 days of the enactment of the Recovery Act, the Iowa Department of Transportation competitively awarded contracts for 19 highway and bridge projects valued at about $56 million. Contracts were awarded for projects such as bridge replacements and highway resurfacing—shovel- ready projects that could be initiated and completed quickly. As of April 15, 2009, Iowa had competitively awarded a total of 25 contracts valued at $168 million, or 47 percent of the Recovery Act funds apportioned. As of April 16, 2009, the U.S. Department of Transportation had obligated $221.2 million for 107 Iowa projects. According to Iowa transportation officials, the agency could begin spending Recovery Act funds quickly because it maintained an inventory of shovel-ready projects and its accounting system needed few changes to track the projects. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be administered by the U.S. Department of Education. The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to the U.S. Department of Education that assures, among other things, that it will take actions to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. On April 2, Iowa was allocated $316 million for the education portion of the SFSF. Overall, Iowa expects that the state’s total SFSF allocation will be $472 million. In April, the Governor proposed using almost 82 percent of this amount, or $386 million, to support elementary, secondary, and higher education, as required. These funds will be used for activities such as updating standards and implementing a new data system. For the remaining 18 percent of the SFSF allocation, or $86 million, the Governor proposes to fund universities and community colleges, law enforcement, and corrections in fiscal year 2010. The Governor also proposed using $600,000 of the $86 million to oversee Recovery Act funds. Iowa plans to submit its application as soon as the application can be accurately completed. Beginning in April 2008, unemployment began to rise and in October 2008, state revenues began to slow. As of February 2009, Iowa’s unemployment rate was 4.9 percent, up from 3.9 percent in February 2008. According to a March 27, 2009, report by the Rural Policy Research Institute, the nation’s rural economy is losing jobs at a rate faster than the rest of the United States. Iowa state budget officials estimated that the state’s unemployment rate could increase to 7 percent by December 2009. Regardless of this economic downturn, Iowa’s Governor and General Assembly have statutory responsibility to balance the budget and meet expenditure limitations and are required to use the revenue estimates agreed to by Iowa’s Revenue Estimating Conference, which convenes quarterly, as the basis for determining the budget for the general fund, according to state officials. If revenue estimates are revised downward for the current fiscal year, state officials explained that the law still requires the budget to be balanced. In the current fiscal year, and for the first time since fiscal year 2003, Iowa’s general fund revenues of almost $6 billion are expected to be lower than in the previous fiscal year, a decrease of 1.9 percent from fiscal year 2008 to fiscal year 2009. In response to this downturn, in December 2008, the Governor directed an across-the-board 1.5 percent reduction in the state’s general fund appropriations, effective December 22, 2008. On April 3, 2009, the Governor released a revised budget for fiscal year 2010 of $5.9 billion for the state’s general fund, representing a 7.9 percent reduction for many state programs, even with the addition of more than $535 million in Recovery Act funds. According to state officials, decisions regarding the use of Recovery Act funds require approval by the General Assembly. Since the Iowa General Assembly is scheduled to adjourn on or around May 1, 2009, it may have to develop strategies if funding decisions are necessary after adjournment. For example, the Governor may request that the General Assembly return for a special session. In March 2009, the Governor established a Recovery Act implementation working group to provide a coordinated process for (1) reporting on Recovery Act funds available to Iowa through various federal grants and (2) tracking the federal requirements and deadlines associated with those grants. The implementation working group comprises representatives from nearly two dozen state agencies, led by an executive-level working group, and assisted by groups that will focus on implementation issues such as budget and tracking, intergovernmental coordination, and communications. The implementation working group includes several issue-specific small groups focusing on key program areas: education, energy, environment, health care, housing, information technology, public safety, transportation and infrastructure, and workforce. On April 14, 2009, the working group issued a progress report on Recovery Act funds in Iowa. For example, the working group reported on the planned and spent funding of the state’s energy program to reduce per capita energy consumption, loans for wastewater infrastructure projects, and neighborhood stabilization programs to provide emergency assistance to acquire and redevelop foreclosed properties. In addition to FMAP, Transportation, and the State Fiscal Stabilization Fund programs, the Governor’s office estimates that the state will receive Recovery Act funding as follows: Education: Of $214 million, a large majority involves two formula grant programs—grants to local education agencies ($52 million) and special education grants to assist individuals with disabilities ($122 million). Housing and infrastructure: Of $252 million, 32 percent ($81 million) is for the Weatherization Assistance Program to provide energy-related improvements to homes and educate residents about energy conservation. Agriculture/natural resources: Of $152 million, more than one-third (36 percent or $54 million) is for the clean water state revolving fund. Economic development: Of $94 million, more than three-quarters (76 percent or $71 million) is to modernize the unemployment insurance program. To supplement Recovery Act funds, Iowa is considering other stimulus proposals, such as the Iowa Infrastructure Investment Initiative, or I-JOBS, and another bonding initiative. I-JOBS is designed to create jobs, strengthen the state’s economy, and rebuild the state’s infrastructure over 3 years. If approved by the General Assembly, I-JOBS, as described by state officials, is expected to provide funding for various infrastructure projects, such as transportation, public buildings, and wastewater improvements, and will be funded through 20-year tax-exempt bonds paid for by gaming revenue, current tax revenue, or both. The General Assembly is also considering another bonding initiative to provide economic stimulus. As of April 17, 2009, the Iowa General Assembly had not authorized the issuance of bonds for either of these initiatives. In the absence of OMB and program-specific guidance, associations and organizations have provided guidance and assistance to Iowa on the use and reporting of Recovery Act funds. Among these associations are the National Association of Crime Victim Compensation Boards, the National Association of Victims of Crime Act Assistance Administrators, and the Association for Stop Violence Against Women Administrators. For example, justice associations have helped the Iowa Attorney General’s Office complete grant applications. Many Iowa agencies expect that they will be able to track the Recovery Act funds they use through the state’s central accounting system. The state is also evaluating options for reporting Recovery Act funds provided to cities, counties, local governments, and other entities that will help satisfy reporting requirements for these funds. Specifically, state accounting officials are developing special codes to track Recovery Act funds and have begun to train state agencies’ accounting officials in the use of these new codes. However, Iowa’s central accounting system does not track Recovery Act funds provided directly to some agencies because they are not part of the system. For example, the central accounting system does not track Recovery Act funding provided to the Iowa Department of Transportation. In this case, Iowa transportation officials said the agency is establishing separate accounting codes to track Recovery Act funds by project. Similarly, the central accounting system does not track Recovery Act funds provided to state-funded universities. The state and Board of Regents are discussing how to track these funds. While local governing authorities are not required to report through the state, the Iowa Department of Management is in discussions with these entities to report Recovery Act spending on the state’s Web site. At the local level, some agencies can track these funds, while others are developing guidance to require such tracking, according to state officials. In order to track increased FMAP funds, Iowa is adapting its existing systems. In addition, Iowa’s state Medicaid agency uses a data warehouse for Medicaid payments made to counties, subcontractors, and medical facilities, and U.S. Health and Human Services’ Office of Inspector General has audited the state’s data warehouse. The General Assembly may also track Recovery Act spending. In particular, the assembly’s Legislative Services Agency—a nonpartisan analysis and research agency serving the Iowa General Assembly— assisted members in interpreting the Recovery Act and provided preliminary estimates of funds provided to the state. Furthermore, the Legislative Services Agency will be able to access Iowa’s central accounting system to monitor agencies’ spending in real time. Even as Iowa plans for tracking Recovery Act funds, state officials said that they continue to have some questions about how to report Recovery Act funds. For example, Iowa officials noted that they need additional guidance on reporting increased FMAP funds to CMS. Specifically, Iowa officials said that they need guidance on the timing for drawing down increased FMAP grant awards, reporting receipts and expenditures, and submitting claims for expenditures made retroactively to October 2008. There are various entities in Iowa that are responsible for monitoring, tracking, and overseeing financial expenditures, including the Iowa State Accounting Enterprise (collects and reports state financial information and processes financial transactions); the State Auditor (audits state and local entities, such as counties, cities, and school districts, and provides guidelines to public accounting firms that perform such audits); and the Attorney General (prevents and prosecutes fraud). Finally, many state agencies have internal audit groups that focus on programmatic and financial issues. Prior years’ audits indicate few weaknesses in Iowa’s financial management systems and controls. Iowa’s fiscal year 2007 single audit found one material weakness in internal controls related to a public assistance grant provided to the Iowa Department of Transportation: a computer program error resulted in a $3.6 million overpayment to the agency by the Federal Emergency Management Agency for materials related to disaster recovery. In 2009, Iowa refunded the $3.6 million. Iowa’s fiscal year 2008 single audit did not identify any material weaknesses. While prior audits indicate few financial weaknesses, the Office of the State Auditor is updating its 2009 audit plan risk assessment to reflect the increased risk associated with Recovery Act funding. Of great concern to officials of the State Auditor’s office are possible limits on the ability to charge fees for audit services. According to state officials, these limits would significantly reduce the effectiveness of the State Auditor to audit federal funds received, including those under the Recovery Act, as required by the Single Audit Act. If limits on audit fees were enacted, officials said that the state’s comprehensive annual financial report and the single audit report are likely to result in qualified opinions. The Iowa state government is working to establish a framework to provide transparency on the use of Recovery Act funds. In March 2009, the Governor’s office launched an economic Recovery Act Web site— recovery.iowa.gov—to provide information on Recovery Act funding by program. Iowa plans to add a “dashboard” feature to the Web site—a user- friendly search capability that will provide detailed information on how and where Recovery Act funds are spent. The Governor’s office expects OMB to provide guidance on how to report information on Iowa’s Recovery Act Web site, including the dashboard feature, and how to forward that information to the national Recovery Act Web site. In addition, the state is developing a system that will allow information on Recovery Act funding that does not come through the state government, such as grants federal agencies provide directly to localities, to be available on the state’s Web site. On April 14, the Governor created the Iowa Accountability and Transparency Board—which has similarities to the federal Recovery Accountability and Transparency Board—to, among other duties, assess existing practices to prevent fraud, waste, and abuse; recommend opportunities for improvement in these areas; and oversee real-time audits and reporting. The board will be made up of 14 members. Voting members include the Governor or his designee, the State Auditor or his designee, the State Treasurer or his designee, three local government members, and three citizens. Nonvoting members of the board include the Director of Iowa’s Department of Management or his designee and four members of the state’s General Assembly. The Iowa Accountability and Transparency Board will recommend improvements and oversee the spending of Recovery Act funds. Iowa’s Accountable Government Act could serve as a mechanism to safeguard Recovery Act funding. Under this act, Iowa is required to provide for the efficient and effective use of state funds. Among other things, Iowa’s Accountable Government Act requires grant recipients to certify that information on internal controls relating to processes are available for inspection by the state agency, and the Legislative Services Agency if the recipients provide a service of more than $500,000 that is paid for with local, state, or federal funds. In addition, recipients must report on financial information, reportable conditions in internal control or material noncompliance, and corrective actions taken or planned in response to these reportable conditions. State agencies can enforce this monitoring by terminating payments and recovering any expended government funds. Furthermore, the Legislative Services Agency tracks personnel services contracts—that is, contracts for consulting services or temporary hires—within all state agencies (except the Iowa Department of Transportation and the Iowa Board of Regents) regardless of the value of the contract. State officials could require a similar certification and monitoring of Recovery Act funds. Iowa officials said that they recognize the need for greater oversight and proper management of programs in light of the infusion of significant funds under the Recovery Act. According to state officials, the Recovery Act did not provide funds for oversight. For example, one state agency official in the Iowa Department of Education expressed concern about the adequacy of resources available for ensuring the appropriate use of the Recovery Act funds—an estimated $386 million from the state fiscal stabilization program for education—particularly because the agency anticipates further state-imposed staff reductions. Recognizing that the Recovery Act did not specifically provide funds for state oversight, the Governor proposed using $600,000 of the $86 million in fiscal stabilization funds in his 2010 budget to be made available for general government services to oversee Recovery Act funds. Iowa officials indicated that they are identifying ways to use the state’s internal audit functions to address Recovery Act-related issues. Iowa state audit officials indicated that state programs that receive significant Recovery Act funds while maintaining a high level of discretion over use of those funds—such as the state’s Medicaid program—present an increased risk to the state and will receive greater scrutiny during internal state audits. Iowa has just begun to consider how to measure outcomes and assess the effect of Recovery Act funding while it awaits federal guidance on a consistent approach to measuring the number of jobs created and sustained. State officials identified Iowa’s Accountable Government Act as a mechanism that has familiarized state agencies with results-oriented management and could help them assess the impact of Recovery Act funds. The Iowa Accountable Government Act requires each state agency to measure and monitor progress toward achieving program goals and report the progress toward those goals. In addition, the Iowa Department of Management, in consultation with the Legislative Services Agency, the State Auditor, and agencies, must periodically conduct performance reviews to assess the effectiveness of programs and make recommendations to improve agency performance. State agency officials said that they expect to be able to track information on the number of jobs created while others said they need further guidance. For example, the Iowa Department of Transportation tracks the number of worker hours by highway project on the basis of contractor reports. An Iowa Transportation official said that this information may be used to calculate the number of jobs created. Iowa education officials, in contrast, may need more guidance. Iowa teachers are notified by school districts in mid-March whether their jobs are guaranteed for the next school year, pending passage of school budgets. Once the budgets are passed, teachers are asked to return for the following school year. Officials said that they believed that federal guidance would help them determine how to characterize whether these jobs would be created or sustained. According to Iowa’s Department of Management, once it receives federal guidance on how to assess the impact of Recovery Act funding, it plans to disseminate the information across state agencies. It intends to measure the impact of Recovery Act funds through the state’s Recovery Act Web site and current tracking software. The Legislative Services Agency plans to work closely with the Department of Management to create outcome measures for the Recovery Act and report the results. Additionally, the Iowa Department of Economic Development has already established output and outcome measures for the Neighborhood Stabilization Program. Although most state agencies are waiting for federal guidance on how to assess results from Recovery Act funding, officials from some state agencies told us that they have accounting systems in place to measure programmatic outcomes. For example, the Iowa Department of Economic Development will monitor its Recovery Act funds by using systems adopted for tracking federal disaster recovery funds, including systems that the federal Department of Housing and Urban Development uses to monitor and report on funding spent to recover from natural disasters. The Iowa Department of Economic Development plans to put in place procedures for working with the State Auditor to leverage oversight of stimulus funds. Similar procedures have been established to oversee funding the state expects to receive to recover from disastrous floods in 2008. The Department of Economic Development expects a 20-fold increase in Community Development Block Grants in 2009 to help the recovery effort from these floods. Officials noted the potential difficulty of measuring Recovery Act outcomes separately from other recovery initiatives, such as Iowa’s proposed I-JOBS program. While state officials said that they believe there are benefits to supplementing federal efforts, the state may find it difficult to separate outcomes among the recovery programs. We provided the Governor of Iowa with a draft of this appendix on April 17, 2009. The Director, Iowa Office of State-Federal Relations and the Director for Performance Results, Department of Management responded for the Governor on April 20, 2009. In general, officials agreed with our findings and conclusions. The officials also offered several technical suggestions that we have incorporated, as appropriate. In addition to the individuals named above, Thomas Cook, Assistant Director; Christine Frye, Analyst-in-Charge; Alisa Beyninson; Gary Brown; Daniel Egan; Nancy Glover; Marietta Mayfield; Mark Ryan; and Carol Herrnstadt Shulman made key contributions to this appendix. Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act funding provided to states and localities will be for health, transportation, and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage Funds As of April 1, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $1.2 billion in increased FMAP grant awards to Massachusetts. As of April 1, 2009, the state had drawn down about $273 million, or 23 percent, of its initial increased FMAP Officials plan to use funds made available as a result of the increased FMAP to avoid additional cuts in health care and social service programs, restore certain provider rates, and provide caseload mitigation for Medicaid and Commonwealth Care (an expansion of its Medicaid program). Massachusetts was apportioned about $425 million for highway infrastructure investment as of April 16, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated about $63.9 million for 19 projects As of April 4, 2009, the Massachusetts Executive Office of Transportation had advertised 19 projects for competitive bids totaling more than $62 million; the earliest announcements were scheduled to close on April 14, 2009, and work on the projects is expected to begin this spring. These projects include activities such as road repaving and sign replacement. Massachusetts will request reimbursement from the U.S. Department of Transportation as project phases are completed by contractors. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Massachusetts was allocated about $666 million from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. In early April 2009, state officials reported that the commonwealth will file its application for this money around April 15, 2009, when it would better understand the state fiscal year 2010 budget situation. The Governor has announced that he intends to provide funds to 166 school districts to help them increase spending to prior levels and avoid program cuts and teacher layoffs in fiscal year 2010. He also intends to use some of these funds at public colleges and universities to reduce layoffs, program cuts, and student fee hikes. The commonwealth of Massachusetts is also receiving additional Recovery Act funds under programs, such as Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA, commonly known as No Child Left Behind); the Individuals with Disabilities Education Act, Part B (IDEA); and two programs of the U.S. Department of Agriculture—one for administration of the Temporary Food Assistance Program and one for competitive equipment grants targeted to low-income districts from the National School Lunch Program. The status of plans for using Recovery Act funds is discussed throughout this appendix. Safeguarding and transparency: Task forces, established by the Governor, encouraged the state to adopt accountability and transparency measures. Further, Massachusetts is expanding its accounting system to track funds flowing through the state government. Although Massachusetts has plans to publicly report its Recovery Act spending, officials have said that the state may not be aware of all funds sent directly to other entities, such as municipalities and independent authorities. The commonwealth’s oversight community has identified situations that raise concerns about the adequacy of safeguards, such as funding for larger projects and new programs, but is waiting for further information on what specific programs will receive funding before developing plans to address those concerns. Assessing the effects of spending: Massachusetts agencies are in the early stages of developing plans to assess the effects of Recovery Act spending. According to state officials, they are awaiting further guidance from the federal government, particularly related to measuring job creation. Massachusetts has begun to use some of its Recovery Act funds, as follows. Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act are for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. Under the Recovery Act, the commonwealth’s FMAP will increase to at least 56.2 percent, up from 50 percent. As of April 1, 2009, Massachusetts had drawn down $272.6 million, or 23 percent, of its increased FMAP grant awards. In fiscal years 2009 and 2010, officials plan to use a significant portion of funds made available as a result of the increased FMAP funds to avoid additional cuts in health care and social service programs, restore certain provider rates, and provide caseload mitigation for Medicaid and Commonwealth Care. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways, and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Massachusetts provided these certifications, but conditioned the state’s level of funding for these programs, noting that this spending will be financed through issuing bonds and may need to be decreased, depending on the state of the economy. The commonwealth’s debt affordability policy will determine the amount of debt that can be issued. As of April 4, 2009, the Massachusetts Executive Office of Transportation had advertised 19 projects for competitive bid totaling more than $62 million. These projects included, for example, replacing traffic and guide signs along sections of Route I-95 and paving Route 6 in southeastern Massachusetts. As of April 16, 2009, the U.S. Department of Transportation had obligated about $63.9 million for 19 projects in Massachusetts. Massachusetts will request reimbursement from the U.S. Department of Transportation as project phases are completed by contractors. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF is intended to help states avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Massachusetts’ initial SFSF allocation is $666,152,997. In early April 2009, state officials reported that the state would file its application for this money around April 15, 2009, when it would better understand the state’s revenue projections and after the Massachusetts House issues its fiscal year 2010 budget proposal. In March 2009, the Governor of Massachusetts had announced he intended to fund $168 million in SFSF to 166 school districts to help them increase funding and avoid program cuts and teacher layoffs in fiscal year 2010. He also announced he intended to provide $162 million in SFSF to public university and college campus budgets to reduce layoffs, program cuts, and student fee hikes. Massachusetts officials began preparing for receipt of federal Recovery Act funds prior to enactment of the act. Faced with deteriorating revenue projections, the potential for expanding caseloads in some safety net programs, such as Medicaid, and a requirement to balance the budget, Massachusetts officials believe that funds made available as a result of the Recovery Act are critical to addressing the commonwealth’s immediate fiscal pressures. State officials envision a sizable portion of the state- projected $8.7 billion in Recovery Act funds (over 2 years) going directly toward budget stabilization. According to state officials, as of April 2009, the state is addressing a budget gap of approximately $3.0 billion. This gap is driven largely by lower-than-anticipated revenues. State fiscal year 2009 revenue is significantly lower than budgeted and has left the state unable to support previously approved spending levels, and revenues are expected to fall short of planned expenditures for 2010, as well. In December 2008, anticipating a major infusion of federal funding, especially for infrastructure projects, the Governor established task forces to identify “shovel-ready” projects and address obstacles to project implementation. Ten task forces were created—seven focused on specific types of infrastructure investment, such as transportation, energy, and information technology, and three focused on crosscutting issues like workforce mobilization and procurement. In conducting their work, the task forces were guided by several principles, including investing for the long term and limiting investments to those that would not add to the state’s operating budget. Although other program areas, such as Medicaid and education, likely will receive more funding than will infrastructure, the work of the task forces was influential. The task forces developed work plans for projects that could be implemented using the anticipated funding and were instrumental in the appointment of a director of infrastructure investment (a “recovery czar”) to coordinate and monitor state agencies’ and municipalities’ implementation of projects. The task forces also encouraged the creation of a central Web site to enhance transparency, called for the involvement of the oversight community in contract oversight to ensure accountability, and prompted the introduction of legislation (now being considered by the legislature) intended to ease some of the procurement and contracting processes that might delay quick implementation of construction projects. The task force efforts helped prepare the state to submit several certifications required under the Recovery Act to the federal government. In late February, the Governor certified that the state would request and use all funds provided by the act. Additional certifications for transportation and energy have also been submitted. Revenue from the state’s “rainy-day” fund, a reserve fund built up during more favorable economic conditions to be used during difficult economic times, will give the commonwealth additional flexibility to avoid some cuts in fiscal year 2010. The commonwealth’s budget already calls for using about $925 million from the rainy-day fund in fiscal year 2009, and the Governor’s proposed 2010 budget calls for using about $489 million of the rainy-day funds. According to budget documents, the combination of funds made available as a result of the increased FMAP and rainy-day funds will help the state avoid cuts in several areas, including health care, education, and public safety. State documents suggest that officials are concerned about using one-time federal and rainy-day funds to make longer-term operational and program commitments that could require additional revenue in the future to avoid job and service cuts. State officials note that using temporary funds, such as Recovery Act and rainy-day funds, make budgeting uncertain and require strategic fiscal management. The commonwealth is expanding the use of its existing accounting system to track all Recovery Act funds that will flow through the state government. New codes are being added to the existing system in order to segregate and track the Recovery Act funds. The Office of the Comptroller has issued guidance on the required use of these newly created account codes for all Recovery Act transactions and has stipulated that all the Recovery Act-funded contracts include provisions to segregate Recovery Act money. While these changes have been made, officials were still testing the system and developing reporting capabilities as of April 13, 2009. The portion of Recovery Act funds going directly to recipients other than Massachusetts government agencies, such as independent state authorities, local governments, or other entities, will not be tracked through the state comptroller’s office. While state officials acknowledged that the commonwealth lacks authority to ensure adequate tracking of these funds, they are concerned about the ability of smaller entities to manage Recovery Act funds—particularly municipalities that traditionally do not receive federal funds and that are not familiar with Massachusetts’ tracking and procurement procedures, as well as recipients receiving significant increases in federal funds. In order to address this weakness, the administration introduced emergency legislation that, according to state officials, includes a provision requiring all entities within Massachusetts that receive Recovery Act money to provide information to the state on their use of Recovery Act funds. Alternatively, the two large nonstate government entities we spoke with to date—the city of Boston and the Massachusetts Bay Transportation Authority (MBTA, a quasi- independent authority responsible for metropolitan Boston’s transit system)—believe that their current systems, with some modifications, will allow them to meet Recovery Act requirements. For example, the city of Boston hosted the Democratic National Convention in 2004, and city officials said that their system was then capable of segregating and tracking a sudden influx of one-time funds. Some state programs have received actual allocations of federal Recovery Act funds, while for other state programs, officials have developed spending plans based on preliminary figures provided by federal departments. The U.S. Department of Transportation, through the Federal Transit Administration, published apportionment amounts for the Transit Capital Assistance and the Fixed Guidance Infrastructure Investment Programs on March 5, 2009. The Massachusetts Executive Office of Transportation (EOT) and the MBTA have been able to develop spending plans with a degree of certainty and EOT has advertised requests for bids on 19 projects totaling about $62 million. Other program officials have had to develop plans with preliminary estimates. For example, as of mid-March 2009, state officials from the Department of Elementary and Secondary Education said that local education officials reported that one of their biggest challenges was a lack of reliable information on federal Recovery Act allocations that they could use to plan their budgets. However, on April 1, 2009, Education announced the release of state allocations of ESEA Title I and IDEA funds, along with more detailed guidance for these programs. Some state and local officials said that while clear, specific guidance takes time to develop, the lack of guidance from federal agencies had limited their ability to make spending decisions. Officials from some of the entities we spoke with, including the state Department of Elementary and Secondary Education, the Department of Housing and Community Development, and the city of Boston, said they are comfortable making spending decisions with money slated to flow through pre-existing grant programs. However, the lack of specific guidance for federal Recovery Act funds for some programs has presented challenges, according to some state officials. An area of significant challenge for education officials concerns how to use federal Recovery Act funding to supplement state and local revenues for existing educational programs, rather than use these funds to supplant state and local revenue. State education officials said they anticipated that to prove funds have not been supplanted will be very challenging for local school districts and have requested additional guidance from the U.S. Department of Education to help them make better decisions about spending priorities. For example, state housing officials are seeking clarification from the U.S. Department of Housing and Urban Development (HUD) on whether the Tax Credit Assistance Program can be used to provide loans rather than grants to subrecipients, and state transportation officials are waiting for guidance on whether competitive grants can be used for “signature projects.” Some state agencies told us they anticipate they will be able to manage additional Recovery Act funding coming through well-established grant programs with existing agency resources but, in some cases, will hire additional staff to manage Recovery Act programs. For example, the state’s Department of Housing and Community Development (DHCD) reported it is expecting to receive significant Recovery Act funds and has plans to hire staff to help manage the programs. DHCD has well- established methods for managing expenditures and accomplishments, so agency officials believe they can effectively administer Recovery Act funds using existing structures. MBTA officials told us that given the enhanced transparency and reporting requirements associated with an additional $230 million in project spending, they anticipate that managing these Recovery Act projects will present some new challenges and will require that they hire a project management firm. Finally, a Department of Elementary and Secondary Education official told us they anticipate a need to hire additional staff, for a limited term, to manage competitive grant programs funded under the Recovery Act. The commonwealth has entities responsible for monitoring, tracking, and overseeing financial expenditures. The comptroller, who is responsible for implementing accounting policies and practices, oversees fiscal management functions, including internal controls. The State Auditor audits the administration and expenditure of state funds, ands partners with an accounting firm to perform the state’s annual Single Audit—a comprehensive review of all state agencies’ accounts and activities. The state Inspector General, with a broad mandate to prevent fraud, waste, and abuse, conducts operational and management reviews and has authority to examine independent authorities and municipalities. The Attorney General also plays a role, including preventing and prosecuting fraud. Further, according to state officials, some state departments have internal audit groups that focus on programmatic issues. In addition to these entities, the commonwealth has laws that provide further safeguards. Past experience has shown financial management vulnerability involving organizations that will receive funds under the Recovery Act. The Office of the Attorney General has documented improper Medicaid payments and has concerns regarding the funds from the Recovery Act going to the Medicaid program. They plan to take a risk-based approach, but are waiting for firm information on which programs and recipients will receive Recovery Act funds. The Inspector General stated that his office will need to emphasize oversight of larger procurement projects, which may be vulnerable. In addition, officials pointed to the multibillion-dollar cost overruns on a federally funded highway project in Boston (the “Big Dig”) as an example of what can go wrong when a large project lacks sufficient oversight. The Massachusetts fiscal year 2007 Single Audit report identified vulnerabilities that included insufficient monitoring of subrecipients of federal grants to the state. For example, the Massachusetts Department of Early Education and Care programs, which will receive Recovery Act funds, did not conduct any on-site monitoring of the Child Care Resource and Referral Agencies (subrecipients), which received approximately $11 million in child care development funds and $122 million in Temporary Assistance for Needy Families funds. Since that audit, the department has implemented numerous improvements and controls to address these issues. The State Auditor has also identified financial management concerns with nonprofit entities that receive federal funds and will receive additional funds under the Recovery Act. In addition, oversight officials noted some more general situations raising concerns. For example, some oversight officials identified new programs as potentially risky; however, new programs would have little impact on the fiscal year 2009 Single Audit report. New programs would probably be included on the fiscal year 2010 Single Audit report, which typically comes out some months after the end of the state’s fiscal year. Oversight officials also expressed concern about programs receiving large increases under the Recovery Act, and recipients that do not typically receive federal funds—and therefore may not have systems in place to track them—are also at risk. In order to better understand areas of potential vulnerability, the Governor asked all commonwealth agencies in late January 2009 to conduct self- assessments identifying existing oversight and accountability mechanisms. Most agencies submitted reports, which included varying levels of detail. The reports we reviewed showed that the agencies are generally comfortable with the mechanisms currently in place. One report expressed a need for additional resources to oversee any new funding. The self- assessments were shared with the State Auditor, Inspector General, and Comptroller’s offices. The State Auditor has provided comments to the Governor’s office, noting that while the self-assessments indicated existing control mechanisms in place to manage, account for, and monitor the spending of the Recovery Act funds, he expressed two areas of concern. He was concerned about tracking funds that bypass the state government and, based on past audits, about subgrantee monitoring. The Inspector General plans to provide comments on the needs assessments to the Governor’s office by the end of April. The Comptroller is using the assessments to monitor agencies’ controls over Recovery Act funds on an ongoing basis. While the commonwealth’s oversight community has come together to discuss issues such as avoiding areas of duplication and preventing oversight gaps, as a whole, it has yet to develop a coordinated plan describing which programs and departments it will focus on or how it will conduct critically needed oversight. Both the Inspector General and Attorney General recognize the need for training for local officials, specifically related to procurement. The Inspector General stated that his department would continue its training of local procurement officials and announced in its March 2009 Procurement Bulletin that his office should be contacted regarding any questions on procurement or Recovery Act expenditures. While the Inspector General identified the need for increased oversight, particularly related to procurements, oversight officials generally stated that once they determine the total distribution of Recovery Act money, they then would begin selecting areas for review. The Attorney General has convened a task force to coordinate on oversight issues with the federal and state oversight community. The state legislature will also provide oversight of the Recovery Act funds through the newly created Joint Committee on Federal Stimulus Oversight. This committee has already held three hearings with plans to hold more regarding the oversight of Recovery Act spending. According to committee members, the impetus for creating this committee was Massachusetts’ failure to control fraud, waste, and abuse in the federally funded “Big Dig” construction project. The purpose of the joint committee is to ensure compliance with federal regulations and to review current state laws, regulations, and policies to ensure they allow the commonwealth to access Recovery Act funding and streamline processes to quickly stimulate the economy. In addition to the co-chairmen having the capability to subpoena individuals, a co-chairman said that the Joint Committee has broad authority and its jurisdiction extends to wherever public federal, state, and local money is spent. Massachusetts’ administration has emphasized transparency of Recovery Act spending and identified the state recovery Web site as a transparency tool. In addition, the Web site has links to planning documents, guidance, and intended uses of Recovery Act money, and officials are planning to enhance the Web site with a goal of making it the central portal for all Recovery Act information and reporting. Their goal is to include the ability to track Recovery Act money by town and by project, as well as to include each project’s budget, schedule, awarded contracts (with contract details), and its on-time status. In addition, the public can send e-mails regarding stimulus issues to this site and the Recovery czar’s staff is responsible for replying. Several Massachusetts officials expressed concern that the Recovery Act did not provide funding specifically for state oversight activities, despite the importance of ensuring that Recovery Act funds are used appropriately and effectively. In addition, the task forces the Governor convened in December 2008 concluded that it is critical the Inspector General and State Auditor have resources to audit Recovery Act contracts and management of Recovery Act funds, as well as recommended that the Attorney General’s office should be provided with the resources to promptly and effectively pursue fraud and abuse. However, due to the present economic conditions, state officials said the Massachusetts oversight community is facing budget cuts of about 10 percent at a time when increased oversight and accountability is critically needed. To illustrate the impact of the impending budget situation, the Inspector General told us that his department does not have the resources to conduct any additional oversight related to Recovery Act funds. This significantly impacts the Inspector General’s capacity to conduct oversight since the budget of the Inspector General’s office is almost entirely composed of salaries, and any cuts in funding would result in fewer staff available to conduct oversight. In addition, the State Auditor described how his office has already furloughed staff for 6 days and anticipates further layoffs before the end of fiscal year 2009. Similar to the Inspector General’s office, 94 percent of his department’s budget is for labor and any cuts in funding generally result in cuts in staff. Some of these vulnerabilities may be mitigated by emergency legislation that the Governor recently filed, which included a provision to allow the pooling of administrative costs. This new legislation may make some Recovery Act funds available to the audit community for oversight, as long as federal law permits. Meanwhile, officials stated they are moving forward with developing and implementing enhancements to the Massachusetts recovery Web site, yet they are doing so without any Recovery Act funds. One senior state official stated she did not believe the Recovery Act provided funding for any state-level centralized information technology planning or development but noted that the Recovery Act provided a considerable level of funding for information technology development at the program level. Although they are awaiting federal guidance on how to assess the impact of the Recovery Act, Massachusetts agencies are in the process of considering how to assess the number of jobs that will be created. For example, officials from DHCD are examining different methodologies for identifying job creation, while the city of Boston is using an economic forecasting model to evaluate job creation and other economic effects of projects. In addition, DHCD officials told us that they asked Tax Credit Assistance Program project managers to report estimates on the number of jobs, by trade, that will be needed to complete projects and are also looking for a reliable economic forecasting model to use for this reporting objective. DHCD officials also said they are waiting for guidance from HUD on how to calculate and document job creation for programs funded under the Neighborhood Stabilization Program. DHCD officials said they plan to use a pre-existing process developed for community action programs to collect information on job creation for projects funded by the Weatherization Program. MBTA officials said they feel confident they can estimate the number of new jobs created using Recovery Act funds; however, they are waiting for specific guidance from the U.S. Federal Transit Administration or the Office of Management and Budget on what to include in job creation calculations, as well as how to track indirect (jobs created to manufacture goods used in the project) and leveraged jobs (jobs created by new building projects that result from transportation improvements). MBTA officials also said they are looking to outsource some of the required oversight, including documenting job creation. Finally, state transportation officials are concerned that incentives may encourage contractors to overinflate the number of jobs created by their projects. They told us that, in the absence of specific guidance on how to account for job creation, some smaller contractors might overreport the number of jobs created. Furthermore, the cold weather conditions in the commonwealth can prohibit construction from continuing during the winter months. Officials suggested the pressure to show that the projects are contributing to the recovery may encourage some contractors to inflate the number of jobs created in some months when weather conditions decrease employment. We provided the Governor of Massachusetts and representatives of oversight agencies with a draft of this appendix on April 17, 2009, and representatives from the Governor’s office and the oversight agencies responded that day. In general, they agreed with our draft and provided some clarifying information, which we incorporated. The officials also provided technical suggestions that were incorporated, as appropriate. In addition to the contacts named above, Carol L. Patey, Assistant Director; Ramona L. Burton, analyst-in-charge; Kathleen M. Drennan; Salvatore F. Sorbello, Jr.; and Robert D. Yetvin made major contributions to this report. Use of funds: In estimated 90 percent of fiscal year 2009 Recovery Act funding provided to states and localities nationwide will be for health, transportation, and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $701 million in increased FMAP grant awards to Michigan. From January 2008 to January 2009, the state’s Medicaid enrollment increased from 1,547,259 to 1,624,245 with the highest share of increased enrollment attributable to two population groups: (1) children and families and (2) disabled individuals. As of April 1, 2009, Michigan has drawn down about $463 million—which represents funds drawn down for two quarters—or 66.1 percent of its initial increased FMAP grant awards. Officials plan to use funds made available as a result of the increased FMAP to cover increased caseloads, offset general fund shortfalls, ensure compliance with prompt payment provisions, maintain existing populations of Medicaid recipients, avoid eligibility restrictions, increase provider payments, maintain current levels of benefits, and avoid benefit cuts. Michigan was apportioned about $847 million for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009 the U.S. Department of Transportation had obligated $110.8 million for 27 Michigan As of April 13, 2009, the Michigan Department of Transportation had advertised 16 projects for competitive bid totaling more than $41 million. These projects included resurfacing I-196 in Grand Rapids and M-13 in Genesee County. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Michigan was allocated about $1.1 billion from the U.S. Department of Education’s initial release of these funds on April 2, 2009. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. Michigan plans to submit its application on or after May 15, 2009, once it completes its review of all program priorities for which it intends to use stabilization funds. Michigan Department of Education officials told us they consulted with local education agencies to develop plans and establish priorities for the use of State Fiscal Stabilization Fund funds that were consistent with the state’s priorities, policies and programs, such as increasing support for the lowest performing schools. Michigan is receiving additional Recovery Act funds under other programs, such as programs under Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left Behind); the Individuals with Disabilities Education Act (IDEA), Part B; Federal Transit Administration Transit Grants; and the Edward Byrne Justice Assistance Grants. These are described in this appendix. Safeguarding and transparency: All of the state and local agency officials we interviewed indicated they plan to use existing systems to separately identify and track Recovery Act funding. State officials were confident that their existing processes, modified to incorporate specific Recovery Act codes, would be sufficient to allow them to separately account for funds as required by the act. However, officials were uncertain whether local entities have the capacity to similarly track federal funds that go directly to local entities rather than through the state. Michigan also plans to continue using existing internal controls and processes to provide assurances over Recovery Act spending. Michigan has established a new Recovery Office to, among other things, provide oversight and enhance transparency over the availability and use of funds and maintain a Web site on Michigan’s Recovery and Reinvestment Plan (www.michigan.gov/recovery). Michigan’s existing processes also include ongoing risk-based self-assessments of controls by major state agencies that are next due on May 1, 2009. However, these assessments are limited to state agencies. In addition, the state Auditor General has identified material weaknesses in two key departments that have received Recovery Act funds—Michigan’s Department of Human Services and Department of Community Health. The state Auditor General plans to continue working on a biennial basis, reviewing and reporting on about one-half of the state agencies each year. The state Auditor General’s oversight responsibilities do not include efforts to ensure accountability over federal funds going directly to localities. For example, the U.S. Department of Education’s Inspector General identified weak internal controls that resulted in problems in how the city of Detroit school district used federal funds for programs under Tile I of ESEA. Specifically, its July 2008 report found that Detroit Public Schools, among other things, did not always properly support compensation charges against ESEA Title I funds. Detroit Public Schools officials told us that in the spring of 2009 they hired new staff to develop corrective action plans for addressing existing internal control weaknesses. Assessing the effects of spending: Michigan officials have some experience in measuring the impact of funds in creating jobs and promoting economic growth. The state plans to rely on experts in economic modeling. The state’s financial management system, however, is old and does not have the capability to track impacts, so the state will have to rely upon its agencies for this. State officials also told us that the state information technology group will implement a database system at the end of April 2009 that will support its financial management system in recording the impact of Recovery Act funds. Faced with the highest unemployment rate of all the states (as of February 2009), heavy reliance on the deteriorating car manufacturing sector, and declining tax revenue, Michigan officials plan to use Recovery Act funds to address the state’s immediate fiscal needs as well as to help develop long- term capacity. From an employment peak in June 2000, Michigan had lost about 520,000 jobs as of December 2008. Unemployment sharply increased from 7.4 percent in February 2008 to 12 percent in February 2009, and several local communities had even higher rates. For example, since domestic auto manufacturing dominates Detroit’s economy, the unemployment levels in the city have been consistently higher than in the rest of the state. As of December 2008, the city’s jobless rate was 18.6 percent and according to Detroit officials reached nearly 22.8 percent in March 2009. To help address these issues, prior to the enactment of the Recovery Act on February 17, 2009, the federal government provided $23.7 billion to two auto companies and two financing companies operating in Michigan as part of the Troubled Asset Relief Program. Michigan has been experiencing declines in state revenues. In January 2009, Michigan reported an expected budget gap of approximately $1.4 billion for fiscal year 2010. In response, the Governor has proposed budget cuts for fiscal year 2010 of $670 million in key state programs such as public education, corrections, and community health; $232 million in revenue enhancements, such as tax increases and elimination of tax exemptions; and using funds made available as a result of $500 million in increased FMAP funds to offset the budget gap. In March 2009, Michigan’s legislature estimated that the state would receive approximately $7 billion in Recovery Act funding. These estimates show that the majority of Recovery Act funds would support education (36 percent), Medicaid (32 percent), and transportation (14 percent), with smaller amounts of funding available for other programs (18 percent). Michigan has begun to use some of its Recovery Act funds, as follows. Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. Under the Recovery Act, Michigan’s FMAP will increase to at least 69 percent, up from 58 percent in 2008. From January 2008 to January 2009, the state’s Medicaid enrollment increased from 1,547,259 to 1,624,245, with the highest share of increased enrollment attributable to two population groups: (1) children and families and (2) disabled individuals. As of April 1, 2009, Michigan has drawn down $463 million, 66.1 percent, of its awards to date. Michigan officials indicated that they will use funds made available as a result of the increased FMAP to cover increased caseloads, offset general fund shortfalls, ensure compliance with prompt payment provisions, maintain existing populations of Medicaid recipients, avoid eligibility restrictions, increase provider payments, maintain current levels of benefits, and avoid benefit cuts. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation funding, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Michigan has submitted these certifications. As of April 16, 2009, the U.S. Department of Transportation had obligated $110.8 million for 27 Michigan projects. On March 31, 2009, the Governor signed state legislation authorizing the use of federal Recovery Act funds for transportation projects that are expected to create about 25,000 jobs. As of April 13, 2009, the Michigan Department of Transportation (MDOT) had advertised 16 projects totaling more than $41 million for competitive bidding. These projects included resurfacing I-196 in Grand Rapids and M- 13 in Genesee County. Michigan was apportioned about $982 million for transportation projects, including $847 million for highway infrastructure investment projects and $135 million for urban and rural transit projects. MDOT was apportioned about 75 percent of Recovery Act highway infrastructure investment funds and remaining funds will be suballocated to metropolitan, regional, and local organizations. MDOT identified 178 road and bridge projects that would, among other things, improve road pavement conditions on 1,300 lane miles of roadways, add lanes to four major roads to reduce congestion, and perform work on 112 bridges, of which 41 are structurally deficient. According to MDOT officials, the priority was to select shovel-ready projects that could be initiated and completed quickly. In Michigan, Recovery Act funds are being used primarily to fund transportation projects in fiscal year 2009 that were originally scheduled to begin in fiscal year 2010 or beyond, as well as some projects that had been identified but had no source of funding. MDOT officials told us they intend to complete selecting and approving specific road and bridge projects to be funded with Recovery Act money by May 1, 2009. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take action to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Michigan’s initial SFSF allocation is $1.1 billion. The Recovery Act provided State Fiscal Stabilization Funds to increase funding for education over the next several years and avoid program cuts and teacher layoffs in fiscal year 2010. The amount of funding for each of the initiatives has not yet been determined. Michigan plans to submit its application for SFSF funds on or after May 15, 2009, once the state completes its review of all program priorities for which it intends to use stabilization funds. Michigan Department of Education officials told us they consulted with local education agencies to develop plans and establish priorities for the use of SFSF funds that were consistent with the state’s priorities, policies, and programs, such as increasing support for the lowest performing schools. U.S Department of Education ESEA Title I and Individuals with Disabilities Education Act (IDEA) Funds: Michigan Department of Education officials told us that although the amount of funding for each of these two initiatives has not yet been determined they anticipate that Recovery Act funds for ESEA Title I ($390 million) and IDEA ($426 million) will generally be used to support the same priorities that are funded in part by U.S. Department of Education funds that the state now receives. The state plans to use Recovery Act funds to support specified educational outcomes—reading, mathematics, and other learning proficiencies—and foster enhanced access to education programs for special needs students. Michigan’s Department of Education also intends to use Recovery Act funds to support professional development among teachers that can help sustain achievement of educational outcomes beyond the time limits of Recovery Act funding. U.S. Department of Justice Edward Byrne Memorial Justice Assistance Grant Program: Michigan plans to apply for $67 million in Recovery Act funds for crime control and prevention activities. Michigan Department of Community Health officials told us that about $41 million of these funds will support, among other things, state efforts to reduce the crime lab backlog, funding for multi-jurisdictional courts, and localities’ efforts regarding law enforcement programs, community policing, and local correctional resources. An additional $26 million in Recovery Act funds will go directly to localities to support efforts against drug-related and violent crime. On April 13, 2009, Michigan began accepting grant applications from local Michigan jurisdictions for Byrne Justice Assistance grants funding administered by the state and will continue to accept them until May 11, 2009. All state and local agency officials we interviewed indicated that they plan to use their existing systems to tag and track Recovery Act funding, including increased FMAP funds. State officials were confident that their existing processes for receiving, coding, and monitoring federal funds could be used to separately account for the use of Recovery Act funds as required by the Act. For example, Michigan’s Department of Education has used the Michigan Electronic Grants System since 2001 to generate recipient reports on the use of ESEA Title I, IDEA, and State Fiscal Stabilization Funds. According to its officials, Michigan Department Education plans to continue to use the grants system for reporting on recipients’ use of Recovery Act funds by creating new accounting codes for Recovery Act funds. Although state government officials told us they believed that their departments have sufficient capabilities to segregate Recovery Act funds, many expressed less confidence in the capabilities of sub-recipients to separately account for the use of Recovery Act funds. State officials expressed concerns about the capacity of smaller agencies and organizations to separately track and monitor Recovery Act funds. For example, Detroit Public Schools officials told us that the school district has not had a clearly specified process for segregating funds from different funding streams and for how it intends to use Recovery Act funds. According to the officials, in the last several years, the district has commingled ESEA Title I funds with its general funds, making it difficult to track the use of ESEA Title I funds and show that they were used only for allowable expenditures. In addition, according to Detroit Public Schools officials, without improvements to its oversight of these funds, Detroit Public Schools may continue experiencing oversight challenges with respect to Recovery Act funds provided through ESEA Title I and IDEA funding streams. For example, according to a July 2008 report from the U.S. Department of Education’s Office of Inspector General, the Detroit Public Schools district, among other things, did not always properly support compensation expenses charged to ESEA Title I funds. District officials told us that in April 2009 they hired new staff to develop corrective action plans for addressing existing internal control weaknesses. In anticipation of the opportunity to receive additional federal funding and the need to act quickly, Michigan began preparations before the Recovery Act was enacted. For example, the Governor established a working group of executive branch officials from Michigan state agencies and departments, known as Economic Recovery Coordinators (ERC), to plan for the use of anticipated Recovery Act funds. On February 13, 2009, the Governor established a Recovery Office for coordination of all Recovery Act activities, including communication with stakeholders within and outside the state. The Recovery Office is responsible for helping develop priorities for the use of Recovery Act funds by the state consistent with the objectives of the Recovery Act and with the state’s priorities identified to fully maximize the impact of these federal funds. Similarly, Detroit officials told us that they began planning in November 2008 for the receipt of Recovery Act funds and identified over 160 city projects that could be funded by working closely with city departments and community action organizations. Lansing Schools District officials told us that they began planning early for use of Recovery Act funding for the district’s 34 schools. The Recovery Office has also been working with state agencies to develop strategies for overseeing and tracking the use of Recovery Act funds to comply with requirements of the act and minimize fraud, waste, and abuse of funds and to help ensure consistent, timely, and accurate compliance with all reporting and certification requirements under the Recovery Act. Michigan is also maintaining a Web site on Michigan’s Recovery and Reinvestment Plan (www.michigan.gov/recovery). According to state officials, Recovery Act funds must be appropriated by the state legislature before the state is authorized to spend the money. In addition, the Michigan Senate created a special committee, known as the Senate Federal Stimulus Oversight subcommittee, to oversee Recovery Act funds. Michigan Department of Management and Budget officials told us that they are prepared to manage Recovery Act funds because they plan to use existing processes for purchasing goods and services. For example, Michigan will use existing processes to obtain competitive bids for contracts awarded by state agencies under the Recovery Act in accordance with state law, which state officials described as requiring competitive bids (other than certain exceptions such as emergencies or imminent protection). In January 2009, Michigan created a prequalification program for vendors to provide an inventory of prequalified vendors ready to quickly respond to bids for work that will spend Recovery Act funds. As part of preparing to spend Recovery Act funds, Michigan Department of Management and Budget officials also told us they have been looking at ways to further streamline awarding contracts. Michigan also allows local units of government to join state contracts to leverage the state’s negotiating and purchasing power. Michigan will continue to use existing internal controls to provide assurances over Recovery Act spending, including ongoing self- assessments of controls by major state departments that are next due to the state Auditor General on May 1, 2009. The self-assessments include identification of internal controls and programmatic weaknesses and developing and tracking actions taken in response to corrective action plans. The state Auditor General told us his office will include specific audit procedures to address Recovery Act funding as part of the planned procedures for its ongoing federal Single Audits of state departments which will start again in July 2009. However the state Auditor General does not yet have specific plans to audit Recovery Act funds. The state Auditor General’s Single Audit approach is to audit and report on individual state departments. Approximately one-half of Michigan’s 18 departments are audited each year, with the audits covering 2 fiscal years of departmental activity. Recent state Auditor General Single Audit Act reports identified numerous material weaknesses in key state operations that are slated to receive significant amounts of Recovery Act funds. For example, the state Auditor General reported in August 2007 that, for fiscal years 2005 and 2006, Michigan’s Department of Human Services did not materially comply with federal program requirements regarding allowed or unallowed costs, subrecipient monitoring, and eligibility. The October 2008 Single Audit report on Michigan’s Department of Community Health stated that internal controls were not sufficient to ensure the accuracy of financial accounting and reporting and compliance with federal requirements for 10 of 11 major programs. The Michigan Auditor General’s oversight responsibilities do not include most subrecipients that receive federal funding, so any upfront safeguards to track or ensure accountability over Recovery Act funds going directly to localities have not been determined. Officials from Detroit’s Office of the Auditor General told us that they intend to audit the use of Recovery Act funds. The superintendent of the Lansing school district told us the district, along with all the other 840 local school districts in the state, contract with independent public accountants to perform annual financial statement audits. A lack of staff and uncertainty of funding available under the Recovery Act to oversee the use of federal funds may pose challenges for Michigan. Michigan officials reported that a hiring freeze may not allow some state agencies to hire staff to increase their Recovery Act oversight efforts. Officials with the state’s Departments of Community Health and Education and the Lansing School District are concerned about available administrative resources to cover increased oversight activities on the use of Recovery Act funds. For example, the state Department of Community Health said that because it has been downsizing for several years through attrition and early retirement, it does not have sufficient staff to cover its current responsibilities and that further reductions are planned for fiscal year 2010. However, state officials told us that they will take the actions necessary to ensure that state departments have the capacity to provide proper oversight and accountability for Recovery Act funds. Michigan officials we spoke with in March 2009 wanted additional federal guidance related to state responsibilities and reporting requirements under the Recovery Act and expressed concern about spending funds before they had received such guidance. For example, officials were unclear about the state’s responsibilities concerning tracking or reporting on funds that go directly to local entities, such as transportation funding going directly to localities for urban transit. In addition, Michigan Department of Education officials expressed concern about the lack of guidance from the U.S. Department of Education regarding several aspects of how to manage the receipt, allocation, use, and reporting of Recovery Act funds. In particular, state officials said they had not yet received guidance on tracking funds under IDEA, Part C and were concerned that recipients of grant funds might report information inconsistently. On April 1, 2009, the U.S. Department of Education issued additional guidance on the use of Recovery Act funds. Michigan may face challenges in assessing the impact of Recovery Act funds because the state’s financial management system is old and does not have the capability to track impacts, so the state will have to rely upon its agencies for this. Furthermore, state officials said they are aware of the requirement that the state measure the extent that certain Recovery Act funds create jobs and promote economic growth and have identified prospective participants to estimate the impact of Recovery Act funds. State officials also told us that the state information technology group will implement a database system at the end of April 2009 that will support its financial management system in recording the impact of Recovery Act funds. They told us that the Michigan Economic Development Corporation, universities in the state and other experts in economic modeling are expected to participate in prospective analysis supporting the potential impact of Recovery Act funds on a project basis. Additionally, the Department of Energy, Labor and Economic Growth and the state Treasurer will also be involved in analysis related to the impact of Recovery Act’s funds. We provided the Governor of Michigan with a draft of this appendix on April 17, 2009. Michigan’s Recovery Czar responded for the Governor on April 20, 2009, stating that staff in the Michigan Governor’s office and the Michigan Economic Recovery Office have reviewed the draft appendix and, in general, agree with its overview of the state’s preparations for receiving and spending Recovery Act funding. These officials provided technical comments on the draft which were incorporated, as appropriate. In addition to the contacts named above, Robert Owens, Assistant Director; Jeffrey Isaacs, Analyst-in-Charge; Manuel Buentello; Leland Cogliani; Anthony Patterson; and Mark Ward made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 1, 2009, Centers for Medicare and Medicaid Services (CMS) had made about $225.5 million in increased FMAP grant awards to Mississippi. As of April 1, 2009, the state had drawn down $114.1 million, or just more than 50 percent of its initial increased FMAP grant awards. State officials reported that they plan to use funds made available as a result of the increased FMAP to cover their increased Medicaid caseload and to offset expected state budget deficits due to lower general fund revenue collections. On March 2, 2009, the U.S. Department of Transportation apportioned Mississippi about $355 million for highway infrastructure investment. As of April 16, 2009, the U.S. Department of Transportation had obligated approximately $137 million for 32 As of April 1, 2009, Mississippi had signed contracts for 10 projects totaling approximately $77 million. The Mississippi Department of Transportation (MDOT) used a competitive and transparent process to select projects. These projects include activities such as road construction and road maintenance. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) On April 2, 2009, the U.S. Department of Education allocated Mississippi about $321 million from the initial release of these funds. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements or will be able to comply with waiver provisions and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. Mississippi plans to submit its application for state fiscal stabilization funds after it receives and reviews the final program guidance. Mississippi expects to use these funds to help restore funding for elementary, secondary, and public higher education to prior levels in order to minimize reductions in education services in fiscal years 2009, 2010, and 2011. The state does not foresee having leftover funds for additional subgrants to local education agencies. Mississippi is receiving additional Recovery Act dollars to fund other programs, including employment and training programs under the Workforce Investment Act, capital and management activities under the Public Housing Capital Fund, and gap financing for low-income housing tax credit projects under the Taxpayer Credit Assistance Program. The status of Mississippi’s plans for using these funds is described throughout this appendix. Safeguarding and transparency: The State Auditor’s office has taken steps to ensure accountability. For example, the office hosted a meeting with state agency heads to discuss accountability requirements and expectations, and the office plans to conduct training seminars on accounting for and controlling the use of Recovery Act funds. In addition, officials with the auditor’s office said Mississippi plans to add special accounting codes to the statewide accounting system in order to track the expenditure of Recovery Act funds. The state also plans to publicly report Recovery Act spending that state agencies receive directly. State officials noted that the statewide accounting system would not capture those funds that the federal government allocates directly to local and regional governmental organizations, nonprofit organizations, or higher education entities. According to the Governor’s office, the state is developing a framework that would require these entities to report Recovery Act revenues and expenses to a central website. Assessing the effects of spending: According to state officials, they are waiting for the federal government to provide more specific guidance for measuring job creation and retention. For example, the officials noted that the federal government’s Office of Management and Budget (OMB) should provide more guidance for estimating job creation and retention. Mississippi has begun to use some of its Recovery Act funds, as follows. Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. Under the Recovery Act, Mississippi’s FMAP will increase to 83.62 percent, an increase of 7.33 percentage points over its fiscal year 2008 FMAP. As of April 1, 2009, Mississippi had drawn down $114.1 million or just more than 50 percent of its initial increased FMAP grant awards. Mississippi officials plan to use funds made available as a result of the increased FMAP to cover their increased Medicaid caseload and to offset expected state budget deficits due to lower general fund revenue collections, avoiding cuts in services. Mississippi officials indicated that simplifications to CMS expenditure reporting systems are needed to automatically generate the increased FMAP applicable to qualifying expenditures. Officials also reported a need for CMS guidance regarding programmatic changes that were made to its Family Planning Waiver since July 1, 2008, and whether these changes affect the state’s ability to draw down the increased FMAP. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects that could affect highways. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Mississippi’s Governor provided this certification in a letter dated March 17, 2009. The Governor noted that transportation spending authority in Mississippi is granted annually by the state Legislature to the Mississippi Department of Transportation (MDOT), which operates under the guidance of independently elected transportation commissioners. As such, MDOT’s Executive Director also provided this certification. As of April 1, 2009, MDOT had signed contracts for 10 projects totaling approximately $77 million. The agency used a transparent and competitive process for awarding contracts for these projects. MDOT issued an advance notice on its Web site to inform contractors of the opportunity to bid on the projects. Furthermore, MDOT used cost as a key criterion for awarding contracts. MDOT awarded the contract to the lowest bid, provided that the lowest bid did not exceed the state’s cost estimate for the project by more than 10 percent. These projects include the expansion of State Route 19 in eastern Mississippi into a four-lane highway. This project fulfills part of MDOT’s 1987 Four-Lane Highway Program, which seeks to link every Mississippian to a four-lane highway within 30 miles or 30 minutes. In addition, MDOT plans to upgrade a section of a major road, US-78, which runs across northern Mississippi. An MDOT official anticipated the project would have major economic benefits for Mississippi. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Mississippi’s initial SFSF allocation is about $321 million. The Recovery Act specifies that 81.8 percent is to be used for support of elementary, secondary and postsecondary education, and early childhood programs. The Recovery Act also authorizes the Governor to use 18.2 percent of these funds for “public safety and other government services,” which may include education. Mississippi’s Governor has not yet announced specific plans for the use of these other government services funds. According to state education officials, Mississippi will file its application for these funds after receiving and reviewing sufficient guidance. The funds will be appropriated to the state education agencies by the Mississippi State Legislature when it returns to session later this spring. The funding is expected to be used to stabilize education budgets in fiscal years 2009, 2010, and 2011 to help avoid reductions in education services. Restoring funding in those years to required levels is expected to consume all of the stabilization funds to be received by the state. Mississippi began planning for how the state would provide oversight of Recovery Act funding in February 2009. Officials from the Governor’s Office said that the state did not establish a new office to provide statewide oversight of Recovery Act funding, in part because they did not believe that the act provided states with funds for administrative expenses—including additional staff. The Governor’s Director of Federal Policy is serving as the stimulus coordinator for the state with support from a loaned executive from a statewide business development association. The stimulus coordinator told us she met individually with state agency heads to discuss their plans for spending funds allocated under the Recovery Act. In late March 2009, the Governor submitted a letter certifying that Mississippi would request funds available under the Recovery Act and such funds will be used to create jobs and promote economic growth. The Governor added in the certification letter that the state would continue to examine the various guidelines and fund-specific requirements associated with the Recovery Act funds. In April 2009, the Governor hosted a Mississippi Stimulus Summit where state agency heads provided information on the detailed steps that were already being taken or were planned regarding the use of Recovery Act funds. Finally, the Governor established a state stimulus Web site (www.stimulus.ms.gov) to provide information to the public on the Recovery Act funding received by the state. Mississippi officials plan to use the anticipated $2.8 billion in Recovery Act funding to address fiscal challenges the state has experienced due to a weakened economy. State officials reported that Mississippi entered a recession in late 2008. One indicator of Mississippi’s weakened economy is the state’s unemployment rate, which was 8.7 percent in January 2009 compared with 6.9 percent in June 2008. The state’s weakened economy has also resulted in lower-than-expected tax revenues for the state’s current fiscal year. According to the Governor, Mississippi’s Revenue Estimating Committee projected that the state’s fiscal year 2009 general fund revenue will fall $301 million, or 5.9 percent, short of expectations. In response to anticipated budget shortfalls, the Governor made two cuts to most state agency budgets. In November 2008, the Governor cut most agency budgets by 2 percent, or $42 million. In January 2009, the Governor cut state agencies’ budgets by an additional $158.3 million, bringing the total cuts to date for the fiscal year to $200 million. Each agency or department received a budget cut of up to 5 percent (see table 8). Although the Governor anticipated that Congress would pass a stimulus package, he ordered the cuts in agency budgets to comply with state law that requires a balanced budget for the fiscal year, which ends on June 30. To mitigate the impact of economic fluctuations on state revenues, Mississippi has historically set aside 2 percent of projected revenues into a budget stabilization fund. In 2008, however, the state did not set aside any revenues for this fund, which made available an additional $100 million for Mississippi’s 2009 fiscal year budget. Going forward, Mississippi faces budgetary challenges for fiscal year 2010. According to the Governor, the state’s Revenue Estimating Committee projects that Mississippi’s revenues will be $402.7 million, or 7.9 percent, short of expectations. State officials anticipate that the recession will increase the demand for certain government services, including unemployment benefits, Medicaid, food stamps, and rental assistance. Some Mississippi officials believe that the state’s recession could continue through fiscal year 2012. Most of the Recovery Act funds that Mississippi will receive are directed toward education, Medicaid, and transportation programs (see fig. 9). According to the Governor’s office, state law provides for state agencies to escalate their spending plans to account for federal funds received under the Recovery Act. State officials also told us that the Legislature was considering adding further escalation language to the current fiscal year’s appropriations bills that would authorize state agencies to spend any Recovery Act funds received. The Legislature normally conducts its regular session between the beginning of January and the end of March. However, the Legislature recessed early during the 2009 regular session in part because of uncertainty regarding how the state’s portion of Recovery Act funds should be spent. The Legislature plans to reconvene in early May 2009 to complete its work on the state’s fiscal year 2010 budget. Officials with the State Auditor’s office told us that special accounting codes will be added to the Statewide Automated Accounting System (SAAS) in order to track the expenditure of Recovery Act funds. The state also plans to publicly report Recovery Act spending that state agencies receive directly. However, state officials noted that SAAS would not track Recovery Act funds allocated directly to local and regional governmental organizations, nonprofit organizations, or higher education entities. For example, cities with a population of more than 50,000 residents can apply directly to federal agencies for certain programs, such as Community Development Block Grants. In addition, Mississippi has 10 regional planning and development districts that may receive funding directly from federal agencies. Finally, Mississippi localities may receive Recovery Act funds directly from the Appalachian Regional Commission or Delta Regional Authority, federally chartered regional commissions charged with promoting economic development in certain parts of the state. According to the Governor’s office, the state is developing a framework that would require these entities to report Recovery Act revenues and expenses to a central website. A few state agencies have made spending decisions for Recovery Act fund apportionments received: The Mississippi Department of Employment Security (MDES) received about $40.7 million in Recovery Act funding for adult, dislocated worker, and youth activity programs under the Workforce Investment Act. MDES officials told us they planned to use the youth activity funding to provide summer youth programs across the state. The Jackson Public Housing Authority received a $1.1 million allocation to its Public Housing Capital Fund from the Department of Housing and Urban Development (HUD) for capital and management activities, including modernization and development of public housing projects. The officials told us they planned to use the Recovery Act allocation to fund projects already included in their 5-year Capital Fund Plan—for instance, one project will redevelop housing in Jackson’s North Midtown Community. The Mississippi Home Corporation (MHC) was allocated approximately $21.9 million to provide additional gap financing to Low Income Housing Tax Credit (LIHTC) projects under the Taxpayer Credit Assistance Program (TCAP). MHC officials told us they had provided an initial notice to developers of LIHTC projects in the state about the additional funding provided under the Recovery Act for the TCAP but were waiting for HUD to issue final guidance before releasing details on their plans for administering the Recovery Act funding. The State Auditor’s office has taken and plans to take a number of steps to establish accountability. For example, in March 2009 the office hosted a meeting with staff from state agencies that are expected to receive Recovery Act funds to discuss accountability requirements and expectations. The office is planning to conduct training seminar for local officials and others concerned about accounting for and controlling the use of Recovery Act funds. Overall, the State Auditor believes the state has adequate controls for the use of Recovery Act funds but is concerned that the funding of new programs and the significant increase in funding of current programs will stress the control system. In addition to the State Auditor, a legislative oversight committee and internal audit offices within each agency may provide oversight of Recovery Act funds. For example, the legislative committee staff in March 2009 said they began tracking the Recovery Act and the state’s Recovery Act-related legislation and funding provided to Mississippi. Mississippi’s most recent Single Audit Act findings highlight two material weaknesses in internal control over financial reporting at one state agency that will receive Recovery Act funds. In its Single Audit report for fiscal year 2008, the State Auditor found that the Mississippi Department of Employment Security did not record the tax liens receivable account and corresponding Unemployment Insurance Premiums revenue account on the department’s financial statements in accordance with generally accepted accounting principles. As a result, the State Auditor proposed, and management made an audit adjustment of, approximately $35.5 million to properly state the department’s current year financial statements. In addition, the State Auditor found that the department’s internal controls over its tax lien receivable system were inadequate, and management proposed audit adjustments totaling approximately $6.4 million to properly state the department’s tax lien receivables. The State Auditor also identified one material weakness in internal control over compliance at the Mississippi Department of Human Services for the department’s failure to verify and document compliance with the Davis- Bacon Act requirements for the Social Services Block Grant, which could result in questioned costs and funds due back to the federal granting agency. State officials stated that the Recovery Act does not provide funding to oversight entities, but the federal government expects states to ensure accountability and transparency over expenditures. For example, officials from the State Auditor’s office told us they had experienced significant staff turnover in recent years and relied on less-experienced staff to conduct audit work. In addition, the Lieutenant Governor expressed concern about whether the State Auditor could be funded to conduct additional Recovery Act-related auditing responsibilities, as was done for Hurricane Katrina related oversight. Officials from the State Auditor’s office added that they normally charged the audit agency for the cost of audit services provided, but they were not sure whether Recovery Act funds could be used for this purpose. The State Auditor noted that the office would like to hire certified public accounting firms to conduct Recovery Act oversight work rather than increase staff. Further, the officials noted that OMB should provide guidance regarding state level oversight, auditing, and administrative costs—such as how costs should be paid for and with what funds. The legislative oversight committee also expressed concerns about the capabilities of the State Auditor’s office and some state agency internal audit functions. For example, in a recent report, the committee noted that low staffing levels and high turnover in the office’s Department of Audit’s Financial and Compliance Audit Division had resulted in a decreased experience level of audit staff and reduced institutional knowledge to use in forming auditor judgment. In addition, the committee noted there were limitations in the internal audit functions of some state agencies—for instance, state law required 19 agencies to establish an internal audit function; 13 had done so as of December 2008. Further, the committee reviewed the internal audit functions of 8 agencies and found that most focused on reviewing agency programs rather than testing internal controls. Finally, the committee found that the Executive Director for these agencies reviewed and approved the plans for their internal audit function, but this could limit the internal auditor’s freedom to determine the internal controls tested and programs reviewed. Officials from the State Auditor’s office recommended that the federal government provide specific guidance for reporting on the use of Recovery Act funds to support job creation or retention because the reliability of such estimates depends critically on using a solid methodology. Furthermore, the officials recommended that OMB provide a clear definition of time-limited, part-time, full-time, and permanent jobs. Another concern was how to report on jobs created from the use of funds for programs, such as unemployment, food stamps, and Medicaid. These funds make up a large portion of the Recovery Act funding, but, according to state officials, the purpose of these programs is not job creation and retention. The State Auditor’s office also expressed concerns about data reliability. For example, staff noted that standardization of data was lacking and the various decentralized reporting mechanisms, while certainly cheaper and less burdensome on state agencies, will not likely provide meaningful data on the impact of Recovery Act funds. Additionally, the staff noted that, if state agencies require their subrecipients to provide nonstandardized and nonuniform data, it will be difficult to identify trends at the state level. They also expressed concern that decentralized reporting would bypass the state-level efforts of accountability. Ultimately, they said state-level, centralized reporting using standardized and uniform data collection elements would be beneficial for state and federal oversight and would raise both the actual and perceived level of accountability. As an example of state efforts to assess the impact of Recovery Act funds, MDOT hired a contractor to conduct an economic impact analysis of projects MDOT had preselected to receive Recovery Act funding. According to one of the contractor’s staff, these projects were preselected on the basis that they were “shovel ready” during the first 90 days of the state receiving stimulus funds. The contractor used a forecasting model to measure the impact that an estimated $726 million in transportation stimulus funding would have on the state of Mississippi with regard to increased economic spending and the number of jobs from 2009 through 2011. We provided the Governor of Mississippi with a draft of this appendix on April 17, 2009. The Director of Federal Policy, who serves as the stimulus coordinator, responded for the Governor on April 20, 2009. The official provided technical suggestions that were incorporated, as appropriate. In addition to the contacts named above, Chris Keisling, assistant director; Marshall Hamlett, analyst-in-charge; David Adams; Michael O’Neill; Carrie Rogers, and Erin Stockdale made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $550 million in increased FMAP grant awards to New Jersey. As of April 1, 2009, the state has drawn down $362.2 million, which is almost 66 percent of its awards to date. Officials stated that the funds made available as a result of the increased FMAP allow the state to cover the increase in caseload and maintain current populations and benefits. In addition, these funds will help balance the state’s budget and allow the state to eliminate premiums for children in families with incomes less than 200 percent of the federal poverty level in New Jersey’s State Children’s Health Insurance Program. New Jersey has begun to use some of its Recovery Act funds, as follows. and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. (SCHIP). This will help the state retain children in SCHIP who would otherwise be terminated from the program for nonpayment of premiums. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects that could affect highways. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of highway spending and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. New Jersey provided these certifications but noted that the state’s level of funding was based on the best information available at the time of the state’s certification. Recovery Act transportation funding to 3 large projects, including one in an economically distressed area. As of April 16, 2009, 10 projects totaling about $269.5 million have been put out for bid through a competitive process. NJDOT officials estimate that Recovery Act funds will save the state about $100 million in interest charges over 12 years for one of the selected projects, as the state will not have to borrow to start and complete it. Not all of the selected projects were on the State Transportation Improvement Plan (STIP), but New Jersey, in consultation with the Federal Highway Administration, amended its STIP to include all of the selected projects. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. The state expects to receive $891.4 million in SFSF funds, about 82 percent of which is for education and about 18 percent of which is for the state to use for “public safety and other government services.” State officials said that, pending a New Jersey Supreme Court decision on the state’s new education funding formula, the SFSF funds for primary education would follow that formula. The state’s use of SFSF funds for higher education is unclear. The Governor’s Chief of Staff stated that New Jersey is currently trying to determine what portion of the SFSF education and other government services funds will be used for higher education and will not submit its application for SFSF funding until it completes this determination. New Jersey expects those determinations to be made sometime in April. The state expects that the receipt of stabilization funds will help balance its fiscal year 2009 budget and avoid layoffs or tax increases. currently planning their upcoming fiscal year budgets and would like to know how the Recovery Act funds would complement their upcoming school spending. On April 1, 2009, Education issued guidance to the states on how Recovery Act funds could be used for education. State officials are continuing to review the guidance and on April 16, 2009, issued guidance to local school districts outlining each district’s allocation of additional funds made available under the Recovery Act for programs authorized under Title I of the Elementary and Secondary Education Act and the Individuals with Disabilities Education Act. Transportation—Urban/Rural Transit Capital Assistance and Fixed Guideway Modernization Grants: New Jersey Transit (NJT), the primary public operator of bus and commuter rail transit lines in the state, was apportioned all of the Recovery Act funds for transit for New Jersey, which amounted to about $425 million in three pre-existing federal transit programs. NJT has selected 15 projects that will use Recovery Act funds, all of which were on their 20-year capital plan. About 70 percent of the funds are allocated to capacity expansion and improvement projects, with the remainder allocated to maintenance projects, as its regular funds are concentrated on safety, security and maintenance needs. According to NJT officials, NJT can move quickly to use these funds as the Federal Transit Administration (FTA), through its preaward authority, will reimburse the agency for funds expended for the selected projects, even though the funding for those projects has not yet been obligated by the FTA. The largest allocation of NJT’s Recovery Act funds ($130 million) will be used toward designing and undertaking some construction activity for new train tunnels under the Hudson River. The tunnels are expected to double the number of NJT trains going into and out of New York City. Housing and Urban Development—Housing Capital Assistance: HUD allocated approximately $104 million to 86 public housing authorities in New Jersey for capital and management activities, including modernization and development of public housing developments. Officials from the Newark Housing Authority (NHA), which is receiving an allocation of about $27.4 million, told us they planned to use the allocation to fund projects already included in their 5-year capital plan—including rehabbing 700 vacant units and 300 occupied units—which will generate income and additional HUD subsidies to NHA and provide new and improved affordable units for additional families. Justice—Edward Byrne Memorial Justice Assistance Grants: State officials expect to receive a Recovery Act allocation of $48 million from the Byrne Justice Assistance Grant Program. Local law enforcement officials stated that this program may provide for some additional facilities and other law enforcement equipment. For example, the Trenton Police Department is planning to use its Byrne Justice Assistance Grant funds on projects that will enhance its crime reduction efforts by sharing information with Mercer County’s Prosecutor’s Office and enhancing the department’s forensic crime analysis capabilities. In contrast, according to Newark’s Chief of Police, the amount of Byrne Justice Assistance Grants allocated to the Newark Police Department may be sufficient to provide some new equipment but not fund a major capital program. Anticipating even less revenue in fiscal year 2010, which begins on July 1, 2009, the Governor has proposed a $29.8 billion budget. According to the Governor, if New Jersey did nothing to curtail growth in state spending or adjust its mandatory obligations, the fiscal year 2010 budget would be about $36 billion, or $7 billion above anticipated revenues. In response to declining revenue, the Governor has proposed about $4 billion in cuts to programs, rebates, pension payments, and state worker personnel costs. In all, more than 850 line items in the budget have been cut. The largest cuts will come from scaling back state rebates of local property taxes by $500 million and reducing state payments to the pension fund by $895 million. The Governor is also proposing to save $400 million in personnel costs through a wage freeze and furloughs for state employees, avoiding an otherwise anticipated layoff of up to 7,000 state workers. Some New Jersey officials began preparing for receipt of Recovery Act funds prior to passage of the Recovery Act. Anticipating federal stimulus spending for infrastructure, the Governor asked NJDOT to identify projects that could be ready for federal funding and quick implementation in November 2008. NJDOT officials identified about $1.4 billion in potential eligible projects but had to scale this list back to meet New Jersey’s eventual apportionment of Recovery Act transportation funds. The city of Newark also prepared a process with evaluative criteria for selecting local projects for Recovery Act funds before the Recovery Act was enacted. fiscal year 2010 budget, which is currently being debated by the state legislature. New Jersey officials have been and are planning to continue submitting certifications for the state’s use of Recovery Act funds. The Governor issued a certification memo to the Secretary of the U.S. Department of Transportation that the state would maintain its efforts with regard to state funding for the types of projects funded under the Recovery Act. Other local officials told us they would issue or had issued similar certifications for Recovery Act funds for which they are directly responsible. For example, NHA staff told us their Executive Director signed a certification letter for the Recovery Act funds that the NHA was responsible for. the state Inspector General, who is responsible for investigations of fraud related to state government; and the internal audit offices that exist within most agencies, including the state Medicaid Inspector General and the contract compliance audit units within the Division of Purchase and Property (DPP) ad the Division of Property Management and Construction (DPMC). According to the state’s Comptroller, the legislature’s State Commission on Investigation, which is concerned with investigations on enforcement of state law, particularly regarding racketeering and organized crime, will also be among the agencies helping to ensure that the state’s public employees who administer Recovery Act funds do so effectively and in compliance with federal or state requirements. In addition, the state legislature, state agencies, and many local entities (e.g., housing authorities, school districts, and metropolitan planning organizations) also have a role in overseeing these funds. As described by state officials, Recovery Act funds must be used by state agencies pursuant to appropriation by the state legislature, and Recovery Act funds were appropriated in legislation enacted in March 2009.Under that legislation, the specific programs and activities conducted by those agencies with Recovery Act funds are also subject to approval by the legislature’s Joint Budget Oversight Committee. However, according to state officials, any Recovery Act funds directly received by local governments or other entities in the state would not be budgeted or appropriated by the state legislature. State officials describe New Jersey as a strong “home rule” state and its constitution as giving localities many rights and responsibilities for providing local services. Therefore, New Jersey has more than 1,900 cities, counties, towns, townships, and local authorities or taxing districts, including 86 housing authorities, 566 municipal governments, and 616 school districts that can apply for, use, and potentially be held accountable for Recovery Act funds. mandated limitations on compensation practices and proficiency targets for state assessments have been raised. Additionally, the state has a significant amount of oversight over the three districts that are under state control to review and control their budgets. The U.S. Department of Education and the county superintendent have the authority to review these school districts budgets, as well. Further, according to the Governor’s Chief of Staff, because the state already funds local school districts with $8.8 billion in state funds, ensuring accountability for the use of state funds by school districts is not a new challenge to the state oversight agencies. Many of the state and local agencies interviewed stated that their current accounting systems can track Recovery Act funds by program and project and can generate reports showing the use of those funds: Both the Newark and Trenton Housing Authorities stated that they use the Line of Credit Control System (LOCCS) accounting system, which HUD uses to provide funds to public housing authorities. LOCCS includes special accounting codes under which housing authorities can track Recovery Act funds by program and by type of use. Housing authorities can also use LOCCS to generate the required reports back to HUD showing how they have used Recovery Act funds. Both NJDOT and NJT stated that their accounting systems can track Recovery Act funds separately from their regular funds because they have created separate accounting codes to track these funds. Furthermore, most of the selected projects will be funded primarily with Recovery Act funds, making the process of tracking them easier. they were confident no special enhancements were needed to their accounting software, although they would monitor the accounting system to ensure it was functioning properly. DPP will also publicly advertise bids for projects funded with Recovery Act funds, include terms and conditions in each request for proposals and contract for these projects stating detailed reports required by the act, and will post contract award notices for Recovery Act funded projects. To track increased FMAP funds, New Jersey has established a discrete identifier in the state accounting system. The state has begun the process of adjusting systems, so that the additional FMAP funds can be tracked and monitored by specific service category. Despite these adjustments, tracking of these funds will not be dramatically different from how the state tracks funds for their overall budget. Additionally, the state is monitoring increased FMAP funds and comparing them against actual expenditures. According to New Jersey officials, the state is also monitoring unemployment levels to anticipate and project future FMAP levels. New Jersey has not increased its number of state auditors or investigators, and there has not been an increase in funding specifically for Recovery Act oversight. Additionally, the state hiring freeze has not allowed many state agencies to increase their Recovery Act oversight efforts. For example, despite an increase of $469 million in Recovery Act funds for state highway projects, no additional staff will be hired to help with those tasks or those directly associated with the act, such as reporting on the number of jobs that the Recovery Act funds created. While NJDOT has committed to shift resources to meet any expanded need for internal Recovery Act oversight, currently one person is responsible for reviewing contractor- reported payroll information for disadvantaged business enterprises, ensuring compliance with Davis-Bacon wage requirements, and job creation figures. 2005, the state Inspector General’s review of the now-dissolved School Construction Corporation, which was responsible for more than $8.66 billion in school construction funds, found the authority had “weak financial controls, glaring internal control deficiencies and lax or non- existent oversight and accountability” after it had disbursed $4.3 billion in contracts and approved approximately $540 million in changes to those contracts. In its place, in 2007, the state created a Schools Development Authority with a completely different management and accountability structure. State officials noted that certain towns and cities, as well as regional planning organizations, can apply for and directly receive federal recovery funds under the terms of the Recovery Act. According to the state Inspector General, the risk for waste, fraud, and abuse increases the farther removed an organization is from state government controls. While some state officials said they have statewide investigative authority, they would not be able to readily track the funding going directly to local and regional government organizations and nonprofits as a result of the funding delivery and reporting requirements set up in the Recovery Act. In addition, staff from the state Auditor’s office noted that some smaller cities and towns in New Jersey are not used to implementing guidance from the state or federal government on how they are using program funds, which could result in the localities reporting using funds for ineligible purposes. However, state Department of Education officials stated that although the sheer number of school districts in the state raises concerns, sufficient internal controls (state audits, Single Audits, state oversight, etc.) exist to prevent most instances of fraud and other illegal uses of funds. programs are being designed and how they are using the funds. For example, state officials are emulating the federal oversight effort, in part by trying to build internal controls at the outset of the process and to use merit-based selection criteria for Recovery Act projects. The state Inspector General, in coordination with the New Jersey Recovery Accountability Task Force, will be conducting training at New Jersey government agencies concerning Recovery Act related internal control issues. As of April 17, the Inspector General hopes to present the first trainings by mid-May. The Governor’s Chief of Staff stated that different state agencies are planning to evaluate the impact of Recovery Act funds. Assessing the impact of the increased FMAP funds will involve the extent to which the Medicaid program is able to accommodate additional applicants as a result of these funds. A New Jersey official noted that the state will have benchmark numbers on how many additional people are served and that this approach is no different from how the state would currently report impact. The state Auditor and the state Comptroller have also committed to carrying out audits and assessments of the impact of Recovery Act funds. Officials we interviewed at New Jersey state agencies have different ways of either collecting or estimating data on the number of jobs created or retained as a result of Recovery Act funds. For example, the NHA will use payroll data to keep track of the exact number of union tradesmen and housing authority residents employed to turn damaged vacant units into rentable ones. In contrast, NJT is using an academic study that examined job creation from transportation investment to estimate the number of jobs created by contractors on its Recovery Act-funded construction projects. Finally, officials stated that both DPP and DPMC both have methodology and mechanisms in place to track jobs created and maintained for goods and services procured under Recovery Act contracts. We provided the Governor of New Jersey with a draft of this appendix on April 17, 2009. The Governor’s Chief of Staff responded for the Governor on April 20, 2009. In general, the Chief of Staff substantially agreed with the draft and provided technical comments that were incorporated, as appropriate. In addition to the contacts names above, Raymond Sendejas, Assistant Director; Greg Hanna, analyst-in-charge; Jeremy Cox; Colin Fallon; Tarunkant Mithani; and Cheri Truett made major contributions to this report. Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act funding provided to states and localities will be for health, transportation and education programs. The three largest funding categories are the Medicaid increased Federal Medical Assistance Percentage (FMAP) grant awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 13, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $3.14 billion in increased FMAP grant awards to New York. As of April 13, 2009, New York had drawn down about $1.74 billion, or 55 percent of its initial increased Nearly $1.3 billion of the funds made available as a result of the increased FMAP were used to close the state’s budget deficit for the fiscal year ending on March 31, 2009, or applied to lower the deficit for the current fiscal year. In addition, $440 million was returned to the counties for their contributions towards the non-federal share of Medicaid expenditures that qualified for the increased FMAP. New York was apportioned about $1.12 billion for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated about $276.5 million for 108 projects to the New York State Department of Transportation. New York will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. As of April 13, 2009, the New York State Department of Transportation had advertised for bids on 38 projects. Work on all of these projects is expected to begin this spring. The state will target Recovery Act transportation funds to infrastructure rehabilitation, including preventive maintenance and reconstruction, such as bridge repairs and replacement, drainage improvements, repaving and roadway construction. State officials emphasized that these projects extend the life of infrastructure and can be contracted for and completed relatively easily in the 3-year time frame required by the act. Some Recovery Act funds will go to more typical “shovel-ready” highway construction projects for which there were insufficient funds. By the end of April 2009, New York expects to have a complete list of transportation projects that Recovery Act funds will support. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) As of April 13, 2009, New York had been allocated about $2.0 billion from the initial release of these funds by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that the states will meet maintenance-of-effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. As of April 13, 2009, New York had not submitted its application for these funds. New York plans to use the majority of Fiscal Stabilization funding to support K-12 education costs for the 2009-2010 and 2010-2011 school years beginning July 1, 2009. New York education officials told us that most of the funds will be used to offset expected budget cuts throughout the school system that were caused by the downturn in the economy and in state revenues. New York is also receiving additional Recovery Act funds under other programs, such as programs under Title I, Part A, of the Elementary and Secondary Education Act (ESEA) (commonly known as No Child Left Behind), and the Individuals with Disabilities Education Act, Part B (IDEA). These are described throughout this appendix. Overall, New York expects to receive about $26.5 billion in Recovery Act funds plus possible additional discretionary program funds over the next 3 years (fiscal years 2009-2011). Safeguarding and transparency: New York plans to track and monitor Recovery Act funds mostly through its existing internal control, audit, and accounting systems, although the new Recovery Cabinet and other state institutions have initiated several steps to coordinate the oversight of Recovery Act projects. For example, the Office of the State Comptroller (OSC) is using its accounting system to tag and track these funds, while the New York State Department of Transportation (NYSDOT) is conducting a federal-aid risk assessment to focus its internal and contract audit resources on projects and contracts that may be most vulnerable to fraud, waste, and abuse. New York officials, however, expressed concerns about monitoring Recovery Act funds that do not pass through state offices but flow directly from federal agencies to local agencies or authorities. For example, the Metropolitan Transportation Authority, which provides transportation services for the New York City metropolitan area, expects to receive directly about $1 billion in federal transit funds under the Recovery Act. Assessing the effects of spending: Officials have taken some initial steps to meet the Recovery Act’s reporting requirements, but generally they are awaiting further federal guidance. Officials throughout the state government expressed concerns about how to consistently report on the impact of Recovery Act funds. Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. For the second quarter of fiscal year 2009, New York’s FMAP was 58.78 percent, an increase of 8.78 percentage points over its fiscal year 2008 FMAP. New York expects to receive about $11 billion in federal Medicaid funds as a result of the increase in its FMAP. As of April 13, 2009, CMS had made about $3.14 billion in increased FMAP grant awards to New York and the state had drawn down about $1.74 billion of its grant awards. Nearly $1.3 billion of the funds made available as a result of the increased FMAP was used to close the state’s budget deficit for the state fiscal year ending on March 31, 2009, while $440 million was returned to the counties for their contributions towards the non-federal share of Medicaid expenditures eligible for the increased FMAP. towards the nonfederal share of Medicaid expenditures. The state’s counties provide this local share. According to state officials, in 2006, in order to control Medicaid spending at the local level, the state instituted a cap on local Medicaid expenditures that constituted about 33 percent of the nonfederal share of expenditures at the time. This cap, unique to New York, basically limits the annual increase in a locality’s Medicaid expenditures to 3 percent of what it spent in 2005. The result has been that the localities’ percentage share of Medicaid expenditures has slightly declined each year since 2006. The 2009-2010 enacted state budget plans to use nearly half of the enhanced FMAP funding expected to be received through March 31, 2010 on (1) health care to avoid certain difficult provider reimbursement cuts, and (2) other savings actions proposed by the Governor in his initial budget proposal in December 2008. These funds will also help pay for unanticipated rising Medicaid costs, primarily driven by rising caseloads resulting from the current economic downturn. In addition, the FMAP funds (1) helped avoid proposed cuts to important human services and mental hygiene programs, (2) were used to maintain revenue sharing funding for New York City, and (3) avoided several proposed tax increases that would have impacted middle class families and small businesses. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing federal-aid highway Surface Transportation Program, through which money is apportioned to states for the construction and maintenance of eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. As of April 16, 2009, the Federal Highway Administration had obligated about $276.5 million to New York State for 108 transportation projects. The state has been able to move quickly on these projects largely because NYSDOT, as required by federal surface transportation legislation, has a planning mechanism that routinely identifies needed transportation projects and performs preconstruction activities, such as obtaining required environmental permits. A NYSDOT official told us that as of April 13, 2009, 38 projects approved in March 2009 had been advertised for bids for contracts. In late 2008, NYSDOT began preparing to manage potential stimulus funding in transportation programs. NYSDOT, which oversees over 113,000 miles of highway, 16,000 bridges, and more than 130 transit operators, initially established a working group that began reviewing or “scrubbing” core projects in the state’s transportation improvement plan (STIP) in late 2008 to make sure projects would be fully permitted and “shovel ready,” should funding be made available. Because of an approximately 8 percent per year increase in construction costs during the last 3 years and the state’s declining fiscal position, New York has a large backlog of planned transportation projects. As of April 16, 2009, the Governor had certified that 108 projects met the objectives of the act and that the state will maintain its planned level of effort within its transportation program. support. NYSDOT officials noted that the list of projects would be fluid depending on bid results, budget overruns, and the ability of localities to start and complete planned projects within expected time frames. Consistent with the Governor’s goal of leveraging the impact of Recovery Act funds, NYSDOT has also begun working with rural public transportation systems to identify eligible Federal Transit Administration activities. Recovery Act transit funds will be used to replace a significant number of vehicles that currently exceed their federally rated service life with new cleaner-fuel buses that comply with the Americans with Disabilities Act. NYSDOT will use a statewide bus contract to procure the majority of these new vehicles. This cooperative effort would also allow the communities to take advantage of the state’s procurement expertise and presumably lower overall procurement costs. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). SFSF is intended to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures it will take actions to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. As of April 13, 2009, New York’s SFSF allocation was about $2.0 billion; however, the state had not drawn down any of this amount. The state has not applied for these funds and they will not be allocated to public entities such as K-12 school districts and public higher education institutions until the school year begins on July 1, 2009. The Governor’s office said that this application is expected to be submitted soon. The New York State Education Department (NYSED), which has an annual budget of about $30 billion, expects to receive about $5 billion in Recovery Act funds. About half of the amount—approximately $2.5 billion—is expected to be provided through SFSF. These funds can be used to help avert elementary, secondary, and higher education reductions, such as the loss of teachers. NYSED officials told us that they believe most of these funds will be used to offset expected budget cuts throughout school systems that were caused by the downturn in the economy and in state revenues. State officials also have discretion over an additional 18 percent of the stabilization funds–approximately $549 million--and can use this portion for a wide range of government services, including school modernization. As of April 13, 2009, New York had also been allocated an additional $1.7 billion in Recovery Act funds for programs under Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the No Child Left Behind Act, and the Individuals with Disabilities Education Act (IDEA). The key New York institutions involved in managing Recovery Act funds are the governor’s office, the state program departments and agencies, and OSC. In addition, localities, transit, or housing authorities will play a role in managing some Recovery Act funds that do not pass through state offices. Because of the timing of New York’s annual fiscal year and the February 17, 2009, enactment of the Recovery Act, the state had to quickly incorporate Recovery Act funding into the budget for the fiscal year beginning April 1, 2009. New York’s Governor, in anticipation of the Recovery Act, established a Recovery Cabinet in February 2009. The Recovery Cabinet is led by the Governor’s Senior Advisor for Transportation and Infrastructure. All state agencies and many state authorities are represented on the cabinet, which is charged with coordinating and managing Recovery Act funding throughout the state. Similarly, New York City officials developed a City Hall Working Group comprising city management and individuals from the relevant agencies that are planning to receive Recovery Act funding to coordinate and manage the funding. Recovery Act administrative and monitoring costs might strain existing financial and human resources. The Recovery Cabinet also serves as a focal point of contact for counties and other localities throughout the state—informing them of the types of projects that could be eligible for stimulus funding and soliciting ideas and proposals for such funding. In addition, New York established an economic recovery Web site in February 2009—www.recovery.ny.gov. By using the Web site, New Yorkers have been able to enter their project ideas directly into a project database and track Recovery Act funding and its impact. This database currently contains over 16,000 project ideas. Other key players in New York’s management of Recovery Act funds include OSC, an independently elected office that is charged with issuing the state’s internal control standards, managing the central accounting system, and directing internal audits throughout the state’s departments and agencies, among other responsibilities. OSC will be responsible for tracking and monitoring the progress of Recovery Act funding and ensuring that the funding meets established internal controls. State authorities and metropolitan planning organizations that are not directly managed by the Governor are also key players in the delivery of New York State services and are therefore central to the management of some Recovery Act funds. For example, the Metropolitan Transportation Authority will manage about $1 billion of Recovery Act funds. concerned about their ability to consistently report on the impact of Recovery Act funding. Several New York government entities are responsible for the management, implementation, and oversight of internal controls and for safeguarding taxpayers’ money. These entities include OSC, individual state agencies, and the governor’s office. For example, OSC is responsible for the state’s Central Accounting System, disburses funds, and audits state agencies and authorities, among other responsibilities. Each large state agency, such as NYSDOT, has a director of internal audit, as well as an internal control officer who reports to the head of the agency, coordinates internal control activities, and helps ensure internal control program compliance. The head of each state agency and public authority must annually certify compliance with the State’s Internal Control Act. Each state agency operates its own financial management and reporting system and has its own procurement officer. However, OSC must review and approve all contracts over $50,000. appropriate for recovery. OSC had also identified about $17 million in potential overpaid claims in 2007. State officials told us, however, that many of the instances of potential Medicaid overpayments were without basis and were, in fact, made consistent with federal requirements. NYSDOT did not adequately document audit extensions that it granted subrecipients. Furthermore, the department did not have a sanction policy in effect for subrecipients that were not in compliance with audit requirements. Effective August 2008, NYSDOT established a formal sanctioning policy. The Housing Trust Fund Corporation did not have procedures in place to adequately monitor the compliance requirements of the Single Audit Act, as amended, and OMB’s implementing guidance in OMB Circular No. A-133, for grant subrecipients. Several programs, including Temporary Assistance for Needy Families, the Child Care and Development Block Grant, and the Office of Children and Family Services, did not adequately complete forms documenting the transfer of funds awarded by the federal government. The Department of Education’s Vocational Rehabilitation Services program had not determined individuals’ eligibility for the program services within a reasonable period of time. The Single Audit did not provide 10 federal programs, including the Medical Assistance, Low-Income Home Energy Assistance, and Food Stamp Cluster Programs, an unqualified opinion because of various findings, including cost allocation plans that were not approved by the federal government. New York also received an unqualified opinion on OSC’s comprehensive annual financial statements for the state fiscal year that ended March 31, 2008. The audit reported control deficiencies but disclosed no instances of noncompliance that would be material to the basic financial statements. may rely on multiple databases for handling transactional and performance data, making data reliability difficult to ascertain. According to this official, state agencies vary in their capabilities, and the independent financial management systems that operate distinctly from the Central Accounting System have varying degrees of sophistication and accessibility. In addition to existing control systems, the Governor’s office has planned several new initiatives for ensuring accountability of Recovery Act funds. First, drawing on past efforts of New York state agencies and the New York State Internal Control Association to improve the state’s internal controls, transparency, and data integrity, the Recovery Cabinet plans to establish a working group on internal controls. This working group will be made up of internal control officers from major agencies in the cabinet and will meet regularly to provide additional guidance to those agencies receiving and or administering Recovery Act funds. Second, the Governor’s office plans to hire a consultant to review the state’s management infrastructure and capabilities to achieve accountability, effective internal controls, compliance, and reliable reporting under the Recovery Act. Third, the Director of State Operations provided initial guidance to the state agencies and authorities on the Recovery Act accountability and transparency requirements. According to state officials, all agencies and departments that expect to receive Recovery Act funds have been asked to review and report on their practices for fraud prevention, contract management, and grants accountability to assess their current vulnerabilities and to ensure that the state is prepared to meet the Recovery Act requirements. Finally, the state plans to coordinate fraud prevention training sessions. OSC says that it will continue to advise and provide technical assistance to local governments as the requirements of the Recovery Act become clearer. Guided by the Recovery Cabinet working groups, state agencies are planning to implement various types of oversight and reporting mechanisms to comply with the Recovery Act. For example: NYSDOT is relying heavily on existing program oversight controls, such as normal highway project procurement requirements, to manage and control Recovery Act spending. In addition to those oversight controls, as described above, NYSDOT is conducting a risk assessment of federal-aid projects to direct future internal audit and contract reviews. NYSDOT officials said that special emphasis will be placed on high-risk areas, such as projects developed by local public agencies, and that a formal plan for overseeing Recovery Act subrecipients will include training, technical assistance, and regular reviews of subrecipients’ documents and processes. With regard to reporting, NYSDOT is developing a dataset that is expected to contain all data elements required to fully meet state reporting requirements. NYSDOT is also putting a reporting requirement in existing recovery project contracts alerting contractors that they are responsible for meeting all Recovery Act reporting requirements. NYSED officials said that they have been meeting with OSC to ensure proper accounting codes are used in tracking and reporting Recovery Act funds. However, officials are concerned that once the funds reach localities, the funds may lose their accounting codes and get rolled up with other state and federal funds. In addition, state education officials said that they have established a waste, fraud, and abuse work team to examine risks and identify areas of concern associated with Recovery Act funds. The officials said that the biggest challenge that they foresee is district reporting at the school level. According to the officials, risk assessments for schools with higher spending per student will need to be developed. need to hire subcontractors, many of which will be new to the program. Specifically, New York State expects to receive $395 million in additional weatherization funds from the Recovery Act, compared with a little over $60 million allocated to the program in the previous state fiscal year. In addition, the Recovery Act increased the maximum amount that can be spent for each housing unit qualifying for the program from $2,500 to $6,500. Officials said they are concerned about their ability to effectively manage the program, given the major funding and program changes caused by the Recovery Act, when their existing staff is already stretched. Housing officials said that they are assessing the risk to the weatherization program. According to New York officials, increased FMAP grant awards are segregated from other Medicaid funds received by the state. These funds have received a distinct code to identify them as part of the funding received from the Recovery Act in OSC’s Central Accounting System. Additionally, the increased FMAP grant awards received by the state and local governments are tracked separately in the accounting system. OSC has instructed localities to maintain a separate account for FMAP funds. As of April 13, 2009, the comptroller had not disclosed plans for auditing the increased FMAP funds. State transportation, education, and housing agency officials are just beginning to consider plans to assess the impact of Recovery Act funds. They are generally waiting for the Office of Management and Budget to provide guidance or methods to help in assessing impact, such as job retention and creation, increases in tax revenues, and savings from weatherization or other energy projects. For instance, state housing officials said that they typically track dollars and that they will require additional guidance from the Department of Housing and Urban Development on how to track job creation. State education officials said that it would be difficult to isolate the impact of Recovery Act funds on student achievement from the impact of other initiatives the state is undertaking. State officials also expressed concerns about how to consistently measure the impact of funding, such as how to count job creation and how to track the ripple effect of funding. level. Officials said that the purpose of the database is to provide transparency for New York City residents and to fulfill future reporting requirements. The database is expected to provide such details on a Recovery Act-funded program as the number of additional beds at a homeless shelter. However, New York City officials said that it is difficult to begin planning how to assess impact until they know what measures will be called for by federal reporting guidelines. Furthermore, New York City officials recommended relaxing the reporting deadlines and requirements for the first quarter after Recovery Act funds are received so states and localities have more time to understand new guidance. We provided the Governor of New York with a draft of this appendix on April 17, 2009. The Senior Advisor for Transportation and Infrastructure responded for the Governor on April 20, 2009 by providing technical suggestions that were incorporated, as appropriate. In addition to the contacts named above, Ronald Stouffer, Assistant Director; Barbara Shields, analyst-in-charge; Jeremiah Donoghue, Colin Fallon, Summer Pachman, Frank Putallaz, Jeremy Rothgerber, and Cheri Truett made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $657 million in increased FMAP grant awards to North Carolina. As of April 1, 2009, North Carolina had drawn down $414.6 million in increased FMAP grant awards, or 63 percent of its awards to date. North Carolina officials reported that they plan to use funds made available as a result of the increased FMAP to maintain current populations and benefits and to offset the state’s general fund deficit. North Carolina was apportioned about $736 million for infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated about $165 million for 53 projects in As of April 16, 2009 the North Carolina Department of Transportation had selected 138 projects estimated to utilize about 90 percent of its allocated Recovery Act funds. These projects include activities such as repaving highways and replacing bridges. North Carolina Department of Transportation officials told us they identified these projects based on Recovery Act criteria that priority is to be given to projects that are anticipated for completion within a 3-year time frame and that are located in economically distressed areas. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) North Carolina was allocated about $952 million from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. North Carolina officials said that they would apply for fiscal stabilization funds by the end of April 2009. The state had not yet determined how fiscal stabilization funds will be used. North Carolina is also receiving additional Recovery Act funds under other programs, such as Edward Byrne Memorial Justice Assistance Grant program to improve the functioning of the criminal justice system; the Tax Credit Assistance Program for low-income housing; and Workforce Investment Act Youth, Adult, and Dislocated Worker Programs that provide employment and training services. The status of state plans for using these funds is described throughout this appendix. Safeguarding and transparency: The state has set up the Office of Economic Recovery and Investment (OERI) to help agencies track, monitor, and report on Recovery Act funds, and the North Carolina Senate and House of Representatives have established committees to provide legislative oversight of these funds. In addition, the state has a number of initiatives under way that will improve accountability and transparency for Recovery Act funds, and the state will track Recovery Act funds separately to ensure accountability for those funds. North Carolina officials identified several potential concerns about the safeguarding of funds. For example, several officials said that they were concerned about whether there were enough staff members to meet additional management and oversight responsibilities under the Recovery Act. Assessing the effects of spending: North Carolina agencies are in the early stages of developing plans to assess the impact of Recovery Act expenditures. According to state officials, they have been awaiting guidance from the federal government, particularly related to measuring job creation. and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs, (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs, and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act are for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 1, 2009, North Carolina had drawn down $414.6 million in increased FMAP grant awards, or 63 percent of its awards to date. North Carolina officials reported that they plan to use funds made available as a result of the increased FMAP to maintain current populations and benefits and to offset the state’s general fund deficit. The state has received guidance on the requirements for reporting Medicaid expenditures under the Recovery Act. However, the state would like additional guidance on other types of reporting requirements, such as performance information. legal reviews and determined that the projects are an appropriate use of taxpayer funds. North Carolina provided these certifications, but conditioned the level of funding from state sources for the Recovery Act covered programs on future revenue collections in the state. The North Carolina Department of Transportation (NCDOT) was apportioned about $736 million in Recovery Act funds for highways and bridges. As of April 16, 2009, the U.S. Department of Transportation had obligated about $165 million for 53 projects in North Carolina. The department has plans to award 70 contracts for Recovery Act projects between March and June, which are estimated to cost $466 million. NCDOT officials told us that they identified these projects based on Recovery Act direction that priority is to be given to projects that are anticipated to be completed within a 3-year time frame and that are located in economically distressed areas. Projects were also evaluated based on several criteria, including alignment with long-range investment plans and considerations about geographical diversity and economic impact. Based on the estimated costs of the initially selected projects, about one-third of costs are for projects not located in economically distressed areas, according to state officials. qualified teachers. North Carolina officials said that they would apply for fiscal stabilization funds by the end of April 2009. The state has been allocated $952 million under the SFSF program. Officials from the state education agency, the North Carolina Department of Public Instruction, said that 81.8 percent of the SFSF would be distributed to school districts and institutions of higher education in accordance with Recovery Act requirements. State officials are in the process of determining how to calculate the relative amount of funding that school districts and public institutions of higher education would receive. Regarding the other 18.2 percent of SFSF, state officials said that a decision had not yet been made about how these funds would be allocated. State officials have emphasized in their communications with school districts that funds should be used for short-term investments with potential for long-term programmatic gains, echoing federal guidance. U.S. Department of Justice Edward Byrne Memorial Justice Assistance Grant Program: The Edward Byrne Memorial Justice Assistance Grant Program (Byrne Grant Program) was established to streamline justice funding and grant administration, and allows states, tribes, and local governments to support a broad range of activities to prevent and control crime based on their own local needs and conditions. According to officials of the North Carolina Governor’s Crime Commission, the office expects to receive an allocation of $34.5 million through the Byrne Grant Program. The Governor’s Crime Commission is allowed to use 10 percent of that total, or about $3.5 million, for administrative purposes. This leaves a balance of $31 million. Of this amount, 42.4 percent, or $13.2 million, must be passed through by formula to local governments and the remainder of $17.9 million will go to other state agencies and institutions. North Carolina officials for the Byrne Grant Program are planning to fund programs based on the state’s list of program priorities, which include programs such as the Criminal Justice System Improvement, Crime Victims’ Services, Juvenile Justice Planning, and North Carolina Gang Prevention Initiative. Also, the localities within the state will receive $21.9 million, which will be awarded by the U.S. Department of Justice. housing credit agencies in each state distribute these funds competitively and according to their qualified allocation plan. According to officials with the North Carolina Housing Finance Agency (NCHFA), the state has identified potential projects for the Tax Credit Assistance Program (TCAP), focusing initially on 40 to 50 tax credit projects that were stalled due to a lack of financing from other sources. NCHFA officials said they are waiting on guidance from the U.S. Department of Housing and Urban Development and Department of the Treasury before they begin the application process for developers. NCHFA officials said that environmental review requirements could pose a challenge to meeting federal timelines for making awards, but that they would not know for certain until final federal guidance has been issued. Workforce Investment Act Youth, Adult, and Dislocated Worker Programs: The Workforce Investment Act (WIA) provides funds for employment and training services to youth, adults, and dislocated workers. North Carolina was allocated nearly $80 million through these WIA programs under the Recovery Act. The North Carolina Department of Commerce (DOC) has been working with local workforce development boards since January to help them plan and prioritize the use of these Recovery Act funds. The state has communicated these priorities to the local workforce development boards: (1) increasing the number of people served and trained, (2) targeting programs toward underserved populations, including those receiving public assistance, (3) implementing a statewide summer youth employment program, and (4) increasing support services, such as child care and transportation. As necessary, the department has worked with other state departments to coordinate efforts. For example, DOC has coordinated with the state community college system to create short-term course offerings in 12 high-growth occupations that lead to certificates at each of the 58 state community colleges. DOC officials are also developing plans to use state-level funds received under the Recovery Act, and anticipate using those funds to help conduct outreach to inform the public of available programs and services funded through the Recovery Act. on health and human services, and about 10 percent of state spending on education. North Carolina is expecting to receive an estimated $6.1 billion of the Recovery Act funding going to states. North Carolina’s fiscal situation is not unlike many other states. In the midst of its economic crisis, the Governor’s proposed biennial budget contains $2.6 billion in spending reductions and $1.3 billion in revenue increases, and proposes to use $2.9 billion of federal recovery funds to support education and other mission- critical services over the biennium. The Governor’s budget proposal indicated that most programs face reduced or level funding, but recommended continued focus on growing North Carolina’s economy, improving public education, keeping higher education accessible and affordable, and protecting the state’s most vulnerable citizens. North Carolina, after 3 consecutive years of growth, suffered a significant economic decline in 2008. As reported in the Governor’s budget proposal, the state lost over 120,000 jobs—a nearly 3 percent decline—in 2008, pushing its unemployment rate up to about 10 percent. Job losses were particularly steep in the manufacturing sector, but the state reported that its housing sector, while also suffering a decline, was less affected by the housing downturn than other states. The Governor’s budget proposal projects the economy to continue its decline, but to stabilize in 2010 and begin to grow in 2011. In general, the state projects economic performance to outpace the U.S. average. The North Carolina state government operates on a biennial budget cycle, which begins on July 1 of odd-numbered years. The North Carolina constitution requires the Governor to submit a balanced budget, and state statute requires the General Assembly to pass a balanced budget, according to the National Association of State Budget Officers. North Carolina’s General Assembly must pass an appropriations bill in order for state agencies to disburse federal funds, according to state officials, according to NASBO. Treasurer and the Superintendent of Public Instruction, are selected through statewide elections. Also, the State Auditor, who is responsible for providing independent evaluations and audits of state agencies and programs, is selected by statewide election. North Carolina has a bicameral General Assembly, with members of both the House and Senate being elected to 2-year terms. The General Assembly typically meets for a full session in odd-numbered years and a shorter session in even- numbered years. There is no concluding date for either session, according to state officials. On February 17, 2009—the same day the Recovery Act was enacted— Governor Perdue created the OERI to oversee North Carolina’s handling of federal stimulus funds as well as state-level economic recovery initiatives. OERI’s responsibilities include, among other things, coordinating state efforts to track and report on Recovery Act funds and maximizing the state’s use of Recovery Act funds. Another of OERI’s major responsibilities is to provide guidance to state departments and localities on how to monitor, track, and report the use of Recovery Act funds. On March 30, 2009, the state issued a memorandum on budgeting and accounting for Recovery Act funds. This memorandum is the first of what is anticipated to be a continuing series of information and directives to ensure that state agencies and subrecipients comply with federal and state requirements. Specifically, this memorandum provides guidance requiring that Recovery Act funds may not be commingled with other funds and that Recovery Act expenditures will require review and approval by the Office of State Budget and Management (OSBM). In addition, OERI has established two management directives requiring agencies to make weekly reports on Recovery Act funds, and to submit grant applications to OERI for review. management team with representatives from state agencies to exchange information and facilitate Recovery Act implementation. Governor Perdue’s budget proposal, which according to state documents incorporated an anticipated $6.1 billion in Recovery Act formula funds, is currently being considered and reviewed by the General Assembly. In an effort to monitor and oversee these Recovery Act funds, the North Carolina Senate established the Select Committee on Economic Recovery. According to the committee’s Chairman, the new committee was established to have legislative review of how the Recovery Act funds will be used and the effect the funds may have on the state’s budget. The North Carolina House of Representatives has established a similar committee. As North Carolina prepares for the receipt, tracking, monitoring, and reporting of Recovery Act funds, it currently faces a number of known financial management challenges and other risks. For example, North Carolina’s 2007 Single Audit report had 18 findings for material weaknesses and material noncompliance related to issues with federal program compliance for the North Carolina Departments of Health and Human Services (16) and Crime Control and Public Safety (2). Five of the 18 findings were related to insufficient subrecipient monitoring. The state auditor’s office also noted that single audit findings have consistently found issues related to subrecipient monitoring by state agencies. Insufficient subrecipient monitoring and other deficiencies such as these may leave Recovery Act funds vulnerable to fraud, waste, and abuse. 1965 (ESEA, commonly known as No Child Left Behind). However, officials in other agencies, such as the North Carolina Department of Commerce, which administers Workforce Investment Act funds, felt that they would be able to absorb additional responsibilities with current staff and resources. State officials also identified programs that were receiving a significant increase in program funding as a risk. For example, several officials noted that the weatherization program is receiving a substantial increase in funding. Finally, state officials told us that state agency guidance and communications with local governments are areas that will bear watching, as ensuring that local governments understand how to properly account for and segregate federal and state funds will be critical. Within the state of North Carolina, a variety of efforts are under way to establish new safeguards over Recovery Act funds, including some that will build on current systems and recent initiatives. For example, officials at North Carolina’s OSC and OSBM told us that several state agency accounting systems will need to be modified to track Recovery Act funds as required by the Recovery Act. OSBM officials told us that they have been waiting for Office of Management and Budget (OMB) guidance on the reporting requirements, which was released by OMB on April 3, 2009. These officials have not identified any state agency accounting systems that are incapable of adding a unique identifier code to separately track Recovery Act funds, but said that nearly all systems will need some modifications. A bigger concern is that Recovery Act reporting time frames may not be aligned to the state departments’ normal accounting cycles, which may delay the departments’ ability to provide monthly or quarterly reports to OSBM and OERI. this Web site include the ability to provide additional information about how funds will be distributed, information on how to apply for funds or contracts, a mechanism to track spending on individual projects, and estimates of the economic impact and jobs created. Additionally, OSBM, in consultation with the state Department of Administration, Division of Purchase and Contract, is reviewing a statewide procurement process to streamline the process and identify any areas that need to be improved. The results of this review may indicate either systemic statewide or individual agency needs related to the Recovery Act. Finally, the OSC is phasing in a statewide internal control program called EAGLE (Enhancing Accountability in Government through Leadership and Education), which is intended to establish adequate internal controls and increase fiscal accountability. Under the EAGLE program, each agency will be required to perform an annual assessment of internal controls over financial reporting and identify risks. North Carolina’s State Auditor told us that, given current staffing levels, her office will conduct as many oversight reviews and audits of Recovery Act funds as they can. In order to handle the new Recovery Act work, it will be necessary to cut back on some of the other fiscal control audits. The State Auditor told us that she uses a risk-based approach to auditing and plans to focus the State Auditor’s Recovery Act work on subrecipient monitoring and on how the Recovery Act funds are being segregated from other federal funds coming through traditional funding streams. The State Auditor’s office also noted that OMB and other federal agency guidance may identify areas that may merit closer scrutiny. State officials across agencies told us that that the state Office of Economic Recovery and Investment was developing guidance on the Recovery Act reporting requirements, but that the state has not yet begun assessing the effects of Recovery Act funds. The state provided localities with guidance on a number of Recovery Act-related topics on March 30, 2009, but the guidance has not yet specifically addressed Recovery Act reporting requirements. State officials told us that they needed federal guidance about how to assess the effects of Recovery Act funds before they can release state guidance. For example, the state’s Chief Procurement Officer said that the state needs guidance about how to measure specific reporting requirements such as jobs created and jobs saved. We provided the Governor of North Carolina with a draft of this appendix on April 17, 2009. The Director of OERI responded for the Governor on April 20, 2009. In general, the comments were either technical or were status updates. The official also provided technical suggestions that were incorporated, as appropriate. In addition to the contacts named above, Bryon Gordon, Assistant Director; Scott Spicer, analyst-in-charge; Carleen Bennett; George Depaoli; Bonnie Derby; Leslie Locke; Stephanie Moriarty; and Anthony Patterson made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $760 million in increased FMAP grant awards to Ohio. As of April 1, 2009, Ohio has drawn down about $420.6 million, or 55.3 percent of its initial increased FMAP Ohio officials indicated that they will use Recovery Act funds made available as a result of the increased FMAP to cover increased caseloads, offset general fund shortfalls due to state budget deficits, ensure compliance with prompt payment provisions, maintain existing populations, avoid eligibility restrictions, increase provider payments, and maintain and increase current levels of benefits. Ohio was apportioned about $935.7 million for highway infrastructure investment on March 2, 2009 by the U.S. Department of Transportation. Of the $935.7 million, about $774.2 million was apportioned to the Ohio Department of Transportation On March 26, 2009, ODOT announced that it will fund 149 projects with $774.2 million in Recovery Act funding. According to ODOT officials, they are currently meeting with all project sponsors and performing detailed reviews of project documentation, confirming federal eligibility, assessing project delivery, and establishing project schedules. As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for ODOT expects to begin advertising for bids during the week of April 20, 2009. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Ohio was allocated $1,198,882 from the initial release of these funds on April 2, 2009, by the U.S. Department As of April 17, 2009, Recovery Act funds for education and some child care programs had not been appropriated by the legislature. Officials with the Governor’s office and Ohio’s Office of Budget and Management (OBM) said these funds would be included in the budget for state fiscal years 2010-2011 and must pass by June 30, 2009. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. State officials said that they intend to apply for State Fiscal Stabilization Funds sometime in the future. The state of Ohio expects to receive a total of $8.2 billion from the Recovery Act over the next 3 years (fiscal years 2009-2011). In addition to the funding described above, Ohio is also receiving Recovery Act funds under other programs, such as programs under Title I, Part A of the Elementary and Secondary Education Act (ESEA) (commonly known as No Child Left Behind); programs under the Individuals with Disabilities Education Act (IDEA); and two programs of the U.S. Department of Agriculture—one for administration of the Temporary Food Assistance Program and one for competitive equipment grants targeted to low-income districts from the National School Lunch Program. The status of plans for using some of these funds is described in this appendix. Before passage of the Recovery Act, Ohio created a Web site at Recovery.Ohio.gov, which represents the state’s effort to create an open, transparent, and equitable process for allocating Recovery Act funds. Through the Web site, the state has encouraged proposals for uses of Recovery Act funds, and as of April 8, 2009, individuals and organizations from across Ohio have submitted over 23,000 proposals. While still receiving proposals, new submissions to the Web site have dropped in number dramatically, as guidance from federal agencies has clarified details about funding opportunities. By mid-April, approximately 26 state agencies with programmatic expertise had sorted the 23,000 submissions for response. Ohio regularly updates its Web site to provide timetables and information on applying for funds from state and federal agencies. State agencies are beginning to identify specific projects to fund. On April 1, 2009, the Governor signed House Bill 2. As described by state officials, the bill appropriates $1.9 billion in Recovery Act resources for 11 state agencies. According to state officials, additional appropriations are needed to spend Recovery Act funds for education and some child care programs, including Ohio’s share of the State Fiscal Stabilization Fund. According to state officials, these appropriations are included in House Bill 1, which is part of the state’s biennial budget and must be approved by June 30. As of April 1, 2009, The Ohio Department of Public Safety received about 730 proposals for Edward Byrne Memorial Justice Assistance Grant projects through the Ohio Recovery Web site. Applications for the state-administered funds are due on May 1, 2009; the department issued its request for proposals with caveats that specific reporting requirements are forthcoming from OMB and the U.S. Department of Justice. The Ohio Department of Job and Family Services (ODJFS) plans to allocate Workforce Investment Act (WIA) funds directly to local area workforce boards, and ODJFS provided these boards with estimates early so they could begin the planning process. Before funds were appropriated, some local areas began their efforts to procure providers for youth programs, particularly for work sites. Safeguarding and transparency: Ohio is planning to use existing systems and safeguards to track Recovery Act funds, but reliance on subrecipients to provide data for enhanced reporting requirements may present challenges. For example, the fiscal year 2007 single state audit identified material weaknesses with a number of the systems that Ohio’s Department of Jobs and Family Services uses to record and process eligibility and financial information for all their major federal programs. Moreover, officials with the Columbus Metropolitan Housing Authority (CMHA) noted limitations in how far they could reasonably be expected to track Recovery Act funds. They said they could track Recovery Act dollars to specific projects but could not systematically track funds spent by subcontractors on materials and labor. Assessing the effects of spending: Ohio continues to explore ways to assess the impact of Recovery Act funds, but officials anticipate challenges. Specifically, in the absence of guidance on the types of data to collect, funding could be released before state officials have determined reporting requirements. Moreover, Ohio officials are concerned that, without uniform reporting requirements, each state will develop their own methodologies for assessing the impact of the federal stimulus, eliminating any possibility of making assessments that are comparable nationwide. Ohio has begun to use some of its Recovery Act funds, as follows: Increased Federal Medical Assistance Percentage (FMAP) Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a genera across-the-board increase of 6.2 percentage points in states’ FMAPs; and l (3) a further increase to the FMAPs for those states that have a qualifyingincrease in unemployment rates. The increased FMAP available under theRecovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. Ohio began the planning process to spend these funds before the enactment of the Recovery Act. In December 2008, to mitigate a budget revision resulting from a 3.3 percent drop in estimated state tax revenues, the Governor’s office assumed that additional federal assistance would be forthcoming. By including funds made available as a result of the increased FMAP in the assumptions used to revise the budget, cuts to state agency budgets and services were less severe. As of April 1, 2009, Ohio has drawn $420.6 million in Medicaid Recovery Act funds or 55.3 percent of its initial FMAP funds. Ohio officials indicated that as of March 31, 2009, they will use Recovery Act funds to cover increased caseloads, offset general fund shortfalls due to state budget deficits, ensure compliance with prompt payment provisions, maintain existing populations, avoid eligibility restrictions, increase provider payments, and maintain and increase current levels of benefits. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Ohio provided this certification, but conditioned it, noting that future highway spending would depend on: the state’s collection of transportation revenues, state budgeting levels, ability to sell bonds, construction inflation, pending state legislation and the solvency of the federal highway trust fund. On March 26, 2009, the Governor announced that Ohio will fund 149 projects with $774.2 million in Recovery Act funding. At least 113 of these projects, costing $605.5 million, involve roadway repaving and bridge repair. Specific roadway projects range from $200 million, for the Cleveland Innerbelt Bridge in Cuyahoga County, to $50,000, for pavement markings in Belmont County. The remaining transportation funds, nearly $170.0 million, are to be spent for railroad, maritime, intermodal, and engineering projects. ODOT officials told us that they are currently meeting with all project sponsors and performing detailed reviews of project documentation, confirming federal eligibility, assessing project delivery, and establishing project schedules. ODOT expects to begin advertising for bids during the week of April 20, 2009. In addition to the more than $774 million apportioned to ODOT, another $161.5 million was directly suballocated to Ohio’s eight major metropolitan planning organizations in Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, Toledo, and Youngstown. As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for Ohio projects. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Ohio’s initial SFSF allocation is $1,198,882. According to state officials, the Ohio legislature has not passed the appropriations bills for Recovery Act- funded education programs and some child care programs. Those funds are expected to be appropriated, along with the rest of the state budget, by June 30, 2009. State officials said that they intend to apply for the State Fiscal Stabilization Funds sometime in the future. To provide guidance on key Recovery Act requirements and assure that the state is maximizing its access to and use of Recovery Act funds, a number of statewide teams have formed to aid the planning process. The Governor’s office organized a team of policy advisors, information technology specialists, and agency program staff to work on the application, program administration, reporting, and accountability related to the Recovery Act funds. This team is to ensure coordination with other offices, state agencies, or federal government entities and will work to ensure that Ohio appropriately applies for Recovery Act funding for which the state is eligible. In addition to the Governor’s teams, Ohio’s Office of Budget and Management (OBM) mandated that state agencies establish Recovery Act teams and recommended including fiscal, program, and compliance staff. The Governor also appointed an Infrastructure Czar to advise on the creation of an open, transparent process and to assist the state’s leaders in the strategic use of infrastructure dollars. As the infrastructure awards moved toward completion, state officials said he has turned his attention to assisting in competitive grant opportunities for entities in Ohio, including state agencies. The Czar will head a process for determining the most efficient and effective distribution of Recovery Act funds for competitive projects. The Ohio OBM will have primary responsibility for collecting and presenting financial data from state agencies through its Ohio Administrative Knowledge System (OAKS). OBM has issued guidance to state agencies on Recovery Act reporting requirements and risk management and accountability responsibilities. To ensure that Recovery Act funds are segregated from other program funds and accounted for separately, OBM will create a centralized system to report all accounting data through OAKS. To facilitate tracking, OBM assigns an OAKS program number (for both revenues and expenses) unique to Recovery Act funds. OBM plans to develop a series of program reports that state agencies can use to regularly monitor Recovery Act revenues and spending metrics to ensure the agency is in compliance. Although OAKS will allow the state to tag Recovery Act funding, in many cases the state agencies will rely on grantees and contractors to track the funds to the end use. Because the state intends to code each Recovery Act funding stream separately, and because these recipients typically manage more than one funding stream at a time, state officials said that the recipients should be able to track Recovery Act funds and other funding sources separately. However, some state departments may not be able to rely on data from a number of the complex information systems they use. For example, the fiscal year 2007 single state audit identified material weaknesses with a number of the systems that ODJFS uses to record and process eligibility and financial information for all their major federal programs. Auditors found that without sufficient, experienced internal personnel possessing the appropriate technical skills to independently analyze, evaluate, and test these complex information systems, ODJFS management may not be reasonably assured these systems are processing transactions accurately. In its response, ODJFS replied that it did not have the resources to create a separate independent office, but said that it had protocols in place to provide some assurances that its systems were processing transactions accurately. State officials said they are aware of the weakness listed and are taking action to remedy it. Further, OBM has instructed its own internal audit office to provide additional resources to assist the agency. Moreover, state and local officials we talked to raised some concerns about the ability of some localities to track Recovery Act funds to their end use. Specifically, they raised concerns about the capacity of grantees and contractors to track funds spent by subrecipients. For example, officials with the Ohio Department of Education said that they can track Recovery Act funds to school districts and charter schools, but they have to rely on the recipients’ financial systems to be able to track funds beyond that. An official with the Columbus City Schools said that its accounting system might be challenged to meet enhanced reporting requirements. While they could provide assurances that Recovery Act funds were spent in accordance with program requirements, they could not report systemwide how each federal Recovery Act dollar was spent. Officials with the Columbus Metropolitan Housing Authority (CMHA) also noted limitations in how far they could reasonably be expected to track Recovery Act funds. They said they could track Recovery Act dollars to specific projects but could not systematically track funds spent by subcontractors on materials and labor. These officials added, however, that if they required the contractors to collect this information from their subcontractors, they would be able to report back with great detail. Still, without guidance from the federal government on specific reporting requirements, they were hesitant to burden their contractors with collecting the data. On March 27, 2009, OBM directed state agencies to put in place risk management strategies for programs receiving Recovery Act funds. The guidance stresses the importance of having risk mitigation strategies in place that assure (1) management controls are operating to identify and prevent wasteful spending and minimize fraud, waste, and abuse; (2) adequate program monitoring by qualified personnel occurs; (3) awards are competed; (4) revenues and expenses are accurately reported; and (5) cost overruns and improper payments are minimized. To ensure that existing safeguards are followed, OBM’s Office of Internal Audit (OIA) plans to (1) provide training and education to state agency personnel, (2) assess the adequacy and effectiveness of the current internal control framework, (3) test whether state agencies adhere to the current framework, and (4) coordinate multiagency reviews with both federal and state officials. According to OIA officials, pursuant to its statutory implementation plans, OIA will increase its internal audit staff from 9 (current) to 33 by transferring internal audit personnel from other state agencies and hiring new staff by July 2009. OBM officials said that the increase in OIA staff will help provide the needed resources to implement its objectives and ensure that current safeguards are in place and followed as the state manages it Recovery Act-funded programs. Separately, both the Ohio State Auditor’s office and the Ohio Office of Inspector General are to provide independent reviews of the use of Recovery Act funds. The Ohio State Auditor’s office has created a Web- based database for all state agencies and local governments to report on Recovery Act funding and project expenditure activity. This database will also allow for public viewing of Recovery Act funds activity in the future. The State Auditor plans to use this information in helping assess risks and determine which programs to test as part of its single audit requirements. In addition, the State Auditor’s office plans to conduct interim audit work over controls and compliance at various state agencies and local governments. According to state officials, as part of House Bill 2, the Ohio General Assembly created in the Office of Inspector General the position of Deputy Inspector General for funds received through the Recovery Act. The Deputy Inspector General is charged with monitoring state agency distribution of Recovery Act funds, conducting a program of random reviews of the processing of contracts associated with Recovery Act projects, and investigating all wrongful acts or omissions committed by officers, employees, or contractors. OBM officials said that the emphasis on measuring the impact of certain Recovery Act funding has focused, thus far, on job creation; however, they noted that there are other goals of the Recovery Act. They argued that without comprehensive reporting guidance, states will struggle to assess impact on some of these other outcomes. States will not be able to go back later in the process to assess the impact of the Recovery Act on these other outcomes if they do not have guidance on what data to collect. While some state agencies have identified options for reporting on job creation, there are concerns about the soundness of some of the methodologies. The Ohio Department of Transportation, for example, identified a study from 1979 which projects how many jobs will be created by a given expenditure. Other models have also been identified; however, in the absence of uniform guidance from the federal government, Ohio officials are concerned that states and localities will use a variety of methods that will ultimately not be comparable and will make nationwide assessment of the Recovery Act difficult. We provided the Governor of Ohio with a draft of this appendix on April 17, 2009. The Chief Legal Council for OBM responded for the Governor on April 20, 2009. In general, the comments were either technical or were status updates. The Auditor of State also reviewed the draft and provided technical suggestions. We incorporated these comments, as appropriate. In addition to the contacts named above, Bill J. Keller, Assistant Director; Sanford F. Reigle, Analyst-in-Charge; Matthew Drerup; Laura Jezewski; Myra Watts-Butler; Lindsay Welter; Charles Willson; and Doris Yanger made major contributions to this report. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation and education programs. The three largest funding categories are the Medicaid increased Federal Medical Assistance Percentage (FMAP) grant awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $1 billion in increased FMAP grant awards to Pennsylvania. As of April 3, 2009, Pennsylvania has drawn down about $330.8 million, or nearly 32 percent of its initial increased FMAP grant awards. Officials plan to use funds made available as a result of the increased FMAP grant awards to help cover the state’s increased Medicaid caseload, ensure prompt claims payments, and to offset Pennsylvania’s general fund budget deficit. Pennsylvania was apportioned about $1.0 billion for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $308.6 million for 108 Pennsylvania projects. As of April 16, 2009, the Pennsylvania Department of Transportation had advertised competitive bids on 97 projects totaling about $260 million, and the earliest contract was awarded on March 20, 2009. These projects include activities such as highway repaving as well as bridge replacement and painting. Pennsylvania will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) Pennsylvania was allocated about $1.3 billion from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increased teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. Pennsylvania plans to submit its application by April 25, 2009. The Governor plans to use the funds to increase state funding for school districts and restore state funding for public colleges. The Governor also plans to use some funds to pay operating costs for the Department of Corrections. Pennsylvania is receiving additional Recovery Act funds under other programs, such as programs under Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left Behind); programs under the Individuals with Disabilities Education Act (IDEA); Transit Capital Assistance and the Fixed Guideway Infrastructure Investment Programs; Workforce Investment Act; the U.S. Department of Housing and Urban Development Neighborhood Stabilization Program; the U.S. Department of Justice Edward Byrne Memorial Justice Assistance Grants; and the U.S. Department of Energy Weatherization Assistance Program. Plans to use these funds are described throughout this appendix. Safeguarding and transparency: On March 4, 2009, the Governor named the Secretary of General Services as the state’s Chief Implementation Officer responsible for the effective and efficient delivery of all Recovery Act-funded initiatives and projects. Additionally, the Governor set up a Recovery Management Committee to report to him on the progress of recovery efforts. According to the Chief Implementation Officer, this body meets regularly to discuss the status of the program, troubleshoot areas of concern, and report to the Governor on the progress of recovery efforts. In addition, Pennsylvania officials said they would use their existing integrated accounting system to track Recovery Act funds flowing through the state government. Although Pennsylvania has plans to publicly report its Recovery Act spending through a Web site (www.recovery.pa.gov), officials have said that the state may not be aware of all Recovery Act funds sent directly by the federal agencies to municipalities and independent authorities. In late March 2009, the Governor appointed a Chief Accountability Officer who will be responsible for reporting on Pennsylvania’s use of Recovery Act funds. Pennsylvania plans to conduct several risk assessments for Recovery Act programs by June 2009. Pennsylvania’s Auditor General also anticipates work auditing and investigating Recovery Act funds received by state and local agencies. Assessing the effects of spending: Pennsylvania state departments are in the early stages of developing plans to assess the effects of Recovery Act spending. According to state officials, they are awaiting further guidance from the federal government, particularly related to measuring job creation. Pennsylvania has begun to use some of its Recovery Act funds, as follows: Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 percent to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 1, 2009, Pennsylvania has drawn down $330.8 million in increased FMAP grant awards, which is almost 32 percent of its awards to date. Pennsylvania officials reported that they plan to use funds made available as a result of the increased FMAP to cover the state’s increased Medicaid caseload and maintain current populations and benefits. State officials also noted that such funds are allowing them to forgo reductions that they otherwise would have had to make because state funding streams are smaller this year. For example, Pennsylvania officials indicated that the state's share for Medicaid expenditures is 20 percent of their state revenues; thus this funding fluctuates as the economy rises and falls. Funding made available as a result of the increased FMAP will also be used to offset the state’s general fund deficit and to help ensure that the Medicaid prompt payment requirements are met. Pennsylvania officials noted that early notification from CMS regarding any reporting forms that the state will be required to complete would be beneficial to ensure that the state’s accounting systems are properly aligned to produce needed reports. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and other surface transportation projects. States must follow the requirements for the existing program, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Pennsylvania provided the first of these certifications but noted that the state’s level of funding was based on “planned non-bound state expenditures” (sic) and represented the best information available at the time of the state’s certification. As of April 16, 2009, the U.S. Department of Transportation had obligated $308.6 million for 108 Pennsylvania projects. As of April 16, 2009, the Pennsylvania Department of Transportation (PennDOT) had advertised 97 projects for competitive bid totaling about $260 million. These projects included highway repaving as well as bridge replacement and painting. Pennsylvania will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Pennsylvania’s initial SFSF allocation is $1.3 billion. According to the Chief Implementation Officer, Pennsylvania plans to file its application for these monies by April 25, 2009. According to the Governor’s proposal, $418 million in SFSF will support state funding to elementary and secondary schools and $317 million to improve basic programs operated by local educational agencies in state fiscal year 2010. Similarly, $44 million will help restore state funding for higher education. The Governor proposes to spend $173 million on Department of Corrections operations in state fiscal year 2009 and reserve $324 million for appropriation in fiscal year 2010. Faced with declining revenue projections since fiscal year 2008, Pennsylvania officials believe that federal funds are critical to help alleviate the immediate fiscal pressure and help balance the state budget. Based on February 2009 projections, Pennsylvania faces a $2.3 billion shortfall in fiscal year 2009, largely because of lower-than-expected revenues. Since September 2008, the Governor has cut state spending by more than $500 million, imposed a state hiring freeze, and banned out-of- state travel and new vehicle purchases. Pennsylvania plans to draw $250 million from the state rainy day fund—one-third of the current balance— to help avoid further cuts in fiscal year 2009. According to Pennsylvania’s Secretary of the Budget, state revenues continue to decline and this may necessitate using even more rainy day funds during the current fiscal year. For fiscal year 2010, the Governor proposes to draw $375 million from the rainy day fund. The Governor’s budget proposal for fiscal year 2010, among other things, includes program cuts, layoffs, and reduced contributions for employees’ health care. According to budget documents, federal fiscal relief would be used to prevent even deeper cuts throughout the budget. As part of the budget process, the Pennsylvania General Assembly generally must appropriate federal funds, including Recovery Act amounts. The Governor’s office and state agencies have begun planning for the use of Recovery Act funds in Pennsylvania. As noted previously, in March 2009, the Governor named a Chief Implementation Officer who is responsible for the effective and efficient delivery of all Recovery Act- funded initiatives and projects. According to the Chief Implementation Officer, the Recovery Management Committee meets regularly to discuss the status of the program, troubleshoot areas of concern, and report to the Governor on the progress of recovery efforts. Pennsylvania plans to apply for competitive grants available under the Recovery Act, and the Governor’s Secretary for Planning and Policy is coordinating this strategy. Some state programs have received federal Recovery Act funds, and in some cases they have made funding decisions. For example, the U.S. Department of Transportation, through the Federal Highway Administration and the Federal Transit Administration, published final apportionments for the federal-aid highway program and Transit Capital Assistance and the Fixed Guideway Infrastructure Investment Programs March 2 and March 5, 2009, respectively. PennDOT officials said that they have been working closely with metropolitan and rural transportation planning organizations to develop spending plans. On March 17, 2009, PennDOT released its final list of 241 highway and bridge projects to be funded by the $1.0 billion Recovery Act investment in highways. Youth activities under the Workforce Investment Act have also received a funding allocation, and local Workforce Investment Boards must quickly establish summer youth programs for the Recovery Act Funding. According to local officials in the Harrisburg region, planning challenges include identifying eligible youth (some of whom are out of school and difficult to locate), identifying employment opportunities that fit the requirements of the Recovery Act and the Workforce Investment Act, and performing required background checks on staff before the summer program begins. The Pennsylvania Department of Education estimated allocations for their school districts while waiting for their final Recovery Act allocations. The Recovery Act funding will not be available to schools until the state General Assembly appropriates the funds. Program officials with whom we spoke provided varying levels of satisfaction with the guidance they had received from federal agencies, but some agencies were waiting for federal guidance to make spending and programmatic decisions. Officials from PennDOT stated that they have received guidance and have been able to administer Recovery Act funds. For the two new low-income housing tax credit financing programs created under the Recovery Act, the Pennsylvania Housing Finance Authority received initial information from the U.S. Department of Housing and Urban Development but no information from the U.S. Department of the Treasury; the housing finance agency is waiting for formal guidance before releasing implementation plans. Pennsylvania Department of Education officials also stated that although they received guidance on April 1, 2009, from the U.S. Department of Education on Recovery Act funds, they are concerned about certain provisions, such as the maintenance of effort provision, and are anticipating additional guidance. Some agency officials were unclear about whether Recovery Act funds could be used to fund administrative costs. Even though a good portion of the Recovery Act funds is flowing through established grant programs, some state agency officials were concerned about paying for the increased administrative costs associated with program implementation, including increased reporting and tracking requirements. For example, Pennsylvania Department of Education officials were unclear if Recovery Act funds could be spent on state administrative costs and anticipated applying to the U.S. Department of Education for a waiver for these costs. State department officials were specifically concerned that they might need to build an entirely new reporting system to evaluate teachers and principals to meet Recovery Act requirements. Pennsylvania Department of Community and Economic Development officials said they had not received guidance from the U.S. Department of Housing and Urban Development about implementation of the Recovery Act portion of the Neighborhood Stabilization Program, and were unsure of how much Recovery Act funds could be used for administrative purposes. PennDOT officials told us that, in some instances, non-Recovery Act funds were used to pay administrative costs for Recovery Act initiatives. This was the case in hiring two consultants to assess potential transit projects for Recovery Act funding. Pennsylvania has entities responsible for tracking, monitoring, and overseeing financial expenditures. The Office of the Budget oversees the state’s uniform accounting, payroll, and financial reporting systems. Pennsylvania is reorganizing and centralizing its internal audit and comptroller functions within the Governor’s Office of the Budget. The state’s elected Treasurer has a pre-audit function to review disbursements to be paid out by state agencies prior to payment. The state Inspector General—who works for the Governor—is charged with investigating fraud, waste, abuse, and mismanagement. The state’s elected Auditor General, who is responsible for ensuring that all state money is spent legally and properly, performs performance audits, financial audits, and investigations of state and local government entities. The Auditor General also partners with an accounting firm to perform Pennsylvania’s annual single audit of the federal money that Pennsylvania receives to ensure the funds are spent according to federal laws and guidelines. Pennsylvania will use its existing accounting system to track Recovery Act funds and state officials are confident that it will adequately identify Recovery Act funds received and how they are used. Pennsylvania has an enterprise resource planning (ERP) system that is used by all state agencies to account for federal and state funding. The integrated accounting system will be used to track Recovery Act funds. To accommodate the Recovery Act, on March 10, 2009, Pennsylvania’s Office of the Budget issued an administrative circular to all agencies under the Governor’s jurisdiction describing the specific accounting codes they must use to separately identify the expenditure of Recovery Act funds. Individual agencies are also taking action to ensure that Recovery Act funds are tracked separately. For example, PennDOT issued an administrative circular in March 2009 that established specific Recovery Act program codes to track highway and bridge construction spending. The department also established four new funds to account for Recovery Act fund reimbursements to local governments. Pennsylvania officials said that the state will rely on subrecipients to meet reporting requirements at the local level. Recipients and subrecipients can be local governments or other entities such as transit agencies. For example, about $367 million in Recovery Act money for transit capital assistance and fixed guideway infrastructure investment was apportioned directly to areas such as Philadelphia, Pittsburgh, and Allentown. State officials also told us that the state would not track or report Recovery Act funds that go straight from the federal government to localities and other entities, such as public housing authorities. Past audits have identified vulnerabilities in Pennsylvania’s financial reporting and noncompliance with requirements for federal money. Pennsylvania’s fiscal year 2007 single audit report had an unqualified opinion on financial reporting, but auditors found material weaknesses in the accounting controls. For example, auditors found weaknesses in segregating duties among staff and monitoring user activities to reduce the risk of inappropriate changes to accounting data or misappropriation of assets. Pennsylvania’s Secretary of the Budget told us that to mitigate this risk, internal auditors now are to work closely with the Office of Administration and the Office of Information Technology on all new system changes to ensure internal controls are built into the application. The single audit scope was limited in that auditors could not obtain key documentation needed to check compliance with procurement regulations for competitively bid contracts for goods and services. The Secretary of the Budget told us that, beginning in January 2009 under Pennsylvania’s Right to Know law, information related to losing bids and scoring by participants of the procurement committees will now be available for audit purposes. In 2007, Pennsylvania had a qualified opinion due to noncompliance with major federal programs. For example, auditors identified 13 weaknesses in which state agencies, such as the Department of Community and Economic Development, did not adequately monitor subrecipients or failed to document procedures for performing on-site monitoring for subrecipients or subgrantees. It is important to correct these weaknesses for Pennsylvania to be able to provide reasonable assurance that its subrecipients comply with requirements for Recovery Act funding, when appropriate. Pennsylvania’s Secretary of the Budget told us that the Office of Budget monitors the agencies’ corrective action plans and provides additional program monitoring and training for agency program staff as appropriate. As of April 2009, the Office of the Budget’s auditors were reviewing the status of implementing corrective action plans for past single audit findings. Pennsylvania officials also cited potential risks, based on experience with existing structures, with programs receiving Recovery Act funding. Pennsylvania’s Governor told us that he is concerned that school districts may use Recovery Act funds to start or expand education programs that are fiscally unsustainable when the federal funds expire. Several Pennsylvania officials, including the Governor, were specifically concerned about the Weatherization Assistance Program. Under the Recovery Act, the program is receiving a significant increase in funding and will make substantial use of contractors to weatherize properties. A 2007 Pennsylvania Auditor General report found that the program had, among other things, weak internal controls, weaknesses in contracting, and inconsistent verification and inspection of subcontractor work. According to the Chief Implementation Officer, Pennsylvania plans to conduct several risk assessments by June 2009, including assessments of potential contractor capacity challenges for transportation projects and the capacity of current weatherization providers and contractors. The Office of Chief Counsel is reviewing all construction contracts and grants to ensure compliance with the Recovery Act requirements as well as guidance issued by the U.S. Office of Management and Budget (OMB) and federal agencies. According to Pennsylvania’s Secretary of the Budget, the new Bureau of Audits within the Office of the Budget will develop a risk- based approach for Recovery Act audits with measurable criteria and develop a matrix of risks for each Recovery Act program by the end of June 2009. Pennsylvania has established structures to oversee Recovery Act funds and provide transparency to the public. On March 31, 2009, the Governor appointed a Chief Accountability Officer who will be responsible for reporting on Pennsylvania’s use of Recovery Act funds and working with the Office of Budget to ensure funds are spent in accordance with Recovery Act requirements. To serve as a portal for transparency of state Recovery Act spending, Pennsylvania also established a Web site (www.recovery.pa.gov) that makes available updates on funding and solicits public input on funding use. The Chief Accountability Officer will be responsible for identifying ways to present visual evidence, such as photographs and mapping, to help citizens track Recovery Act projects in Pennsylvania. A new Pennsylvania Stimulus Oversight Commission was created by the Governor—by executive order on March 27, 2009—after outreach to the Pennsylvania congressional delegation, the state legislature, and others. In addition to the Chief Accountability Officer, the commission is composed of the Governor, the Recovery Act Chief Implementation Officer, four representatives selected by Pennsylvania’s congressional delegation, members of each of the four caucuses in Pennsylvania’s General Assembly, and representatives from the Pennsylvania Chamber of Business and Industry, United Way of Pennsylvania, and Pennsylvania AFL-CIO. The commission was established to, among other things, monitor Pennsylvania’s efforts to ensure compliance with the Recovery Act and to review the state’s approach to allocating and disbursing funds, tracking funds, transparency, performance, and grants management and oversight. The commission met for the first time on March 31, 2009, and has not announced its oversight plans; the next commission meeting will be on April 23, 2009. Other state offices are generally not expecting new staff or resources for Recovery Act oversight. The Auditor General anticipates work auditing and investigating Recovery Act funds received by state and local agencies. For example, the Auditor General will audit Recovery Act funds during the annual single audit and will initiate additional compliance audits for Recovery Act programs. The Auditor General observed that the Recovery Act did not provide funding for his office to undertake work related to the act. In addition, officials of the Auditor General's office have different views about what authority they have to audit federal money that flows directly to localities, such as housing authorities and municipalities. Pennsylvania is also in the process of reorganizing and centralizing its internal audit and comptroller functions within the Governor’s Office of the Budget. According to the Secretary of Budget, the Bureau of Audits is not expected to dramatically change audit responsibilities in the state but rather provide a more focused, risk-based approach, particularly for Recovery Act funding. This office is expected to employ 95 people, about 70 of whom will be field auditors. The remaining staff will be responsible, among other things, for subrecipient desk reviews and agency risk assessments. The number of staff devoted to program oversight, and implementation in some state agencies has been affected by the state’s hiring freeze. For example, Workforce Investment Act program officials said monitoring efforts will need to increase under the Recovery Act and they have applied to the Governor for a waiver to hire additional staff. Department of Community and Economic Development officials told us that they have requested to hire 12 people, 3 or 4 of whom will be devoted to Recovery Act work related to the Neighborhood Stabilization Program. The Pennsylvania Commission on Crime and Delinquency, which administers the Edward Byrne Memorial Justice Assistance Grants, is trying to maximize the use of its existing staff and sought advice from the U.S. Department of Justice Inspector General; the latter will give a presentation, share checklists, and train program staff in monitoring subrecipients. PennDOT officials told us that they meet weekly to oversee the highway and bridge program funded through the Recovery Act. These meetings cover such things as the status of obligating program funds and potential problems. The department also has a special “war room” that tracks each project in each state district. Agency officials stated that, although they are emphasizing the planning and allocating of Recovery Act funds quickly, they are aware of requirements to assess the economic and other impacts of these funds. The new Chief Accountability Officer will be responsible for developing and using performance measures to demonstrate outcomes associated with Recovery Act spending and projects. Some agency officials with whom we met—at the Pennsylvania Department of Education and the Department for Community and Economic Development—are generally waiting for additional guidance from the federal government on performance measures, especially on how to measure and report jobs created and sustained. We provided the Governor of Pennsylvania with a draft of this appendix on April 17, 2009. The Chief Implementation Officer and the Secretary of the Budget responded for the Governor on April 20, 2009. These officials provided clarifying and technical comments that we incorporated where appropriate. We also provided the Auditor General's staff with portions of the draft that addressed the Auditor General's past work and plans related to Recovery Act funding. We incorporated those technical comments as appropriate. In addition to the contacts named above, MaryLynn Sergent, Assistant Director; Richard Jorgenson, Analyst-in-Charge; Andrea E. Richardson; George A. Taylor, Jr.; Laurie F. Thurber; and Lindsay Welter made major contributions to this report. Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act funding provided to states and localities will be for health, transportation, and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made approximately $1.45 billion in increased FMAP grant awards to Texas. As of April 1, 2009, the state has drawn down about $665.7 million, or 46 percent, of its initial increased FMAP grant awards. Texas officials noted that the funds made available as a result of the increased FMAP will allow the state to maintain the program’s level of service and eligibility standards in fiscal year 2009. Texas was apportioned about $2.25 billion for highway infrastructure investments on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $533.7 million for 159 projects in According to Texas Department of Transportation officials, the department is scheduled to receive bids in April 2009 on 137 contracts that would total approximately $400 million in Recovery Act funds. Texas will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. U.S. Department of Education State Fiscal Stabilization Fund Texas was allocated about $2.66 billion from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. Before receiving the funds, states are required to submit an application that provides several assurances to the Department of Education. These include assurances that they will meet maintenance of effort requirements (or that they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. According to Texas officials, the state’s application likely would not be submitted before the state legislature (which is in session until June 1, 2009) has finalized an appropriation for public and higher education. Texas officials indicated that the state plans to use its allocated federal funds to assist in continuing the historical levels of support for elementary, secondary, and higher education in the state. Education Agency officials said funds could be used, for example, to support efforts related to assessing school performance, teacher incentives, and teacher equity. Higher education officials anticipate using the funds to mitigate tuition and fee increases; support modernization, repair, and renovation of facilities; and provide incentive funding based on degrees awarded. Texas is receiving additional Recovery Act funds under other programs, such as programs under Title I, Part A of the Elementary and Secondary Education Act (ESEA), commonly known as No Child Left Behind; programs under the Individuals with Disabilities Education Act (IDEA); two programs of the U.S. Department of Agriculture—one for the administration of the Temporary Food Assistance Program and one for competitive equipment grants targeted to low income districts from the National School Lunch program; housing programs, including weatherization assistance; and justice assistance grants. The status of plans for using selected funds is discussed throughout this appendix. Safeguarding and transparency: To help ensure accountability and transparency, the Texas legislature’s forthcoming general appropriations act—expected to be passed by June 2009 to function as the state’s fiscal 2010-2011 biennium budget—will have a provision for tracking Recovery Act funds allocated to the state, according to the executive and legislative branch officials we contacted in Texas. To provide additional accountability and transparency, the Comptroller of Public Accounts has established a centralized budget account (with a unique funding code) for Recovery Act funds and has also established a Web page, www.window.state.tx.us/recovery, with links to www.recovery.gov/. To further help ensure accountability and transparency, Texas officials suggested that federal authorities provide concurrent notification to the state’s key stakeholders—particularly the Office of the Governor, the Comptroller of Public Accounts, the State Auditor’s Office, and the Legislative Budget Board—when Recovery Act funds are periodically distributed to Texas agencies and/or localities. Also, Texas officials told us that despite U.S. Office of Management and Budget (OMB) guidance, the increased FMAP funds the state has received through the Recovery Act, to date, have not been separately identified by the federal government. Assessing the effects of spending: Texas officials commented that— under the state’s performance-based budgeting process—agencies already have measures in place for assessing the performance of programs. Officials also believe that the state’s current monitoring and control processes and procedures are adequate to administer initiatives funded under the Recovery Act. The officials recognized, however, that some adjustments to performance measures may be needed for assessing the impact of Recovery Act funds. Texas has begun to use some of its Recovery Act funds, as follows: Increased Federal Medical Assistance Percentage Funds: Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The amount of federal assistance states receive for Medicaid service expenditures is known as the Federal Medical Assistance Percentage (FMAP). Across states, the FMAP may range from 50 to no more than 83 percent, with poorer states receiving a higher federal matching rate than wealthier states. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for federal fiscal year 2009 through the first quarter of federal fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs, (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs, and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 1, 2009, Texas had drawn down $665,665,000, or 46 percent, of its initial increased FMAP grant awards of $1,448,824,000 in FMAP funds. Texas officials commented that the funds made available as a result of the increased FMAP will allow the state to maintain the program’s level of service and eligibility standards and cover increased caseloads, among other uses. Texas officials indicated that guidance from CMS is needed regarding whether certain programmatic changes being considered by Texas, such as a possible extension of the program’s eligibility period, would affect the state’s eligibility for increased FMAP funds. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor must certify that the state will maintain its current level of transportation spending, and the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. Texas provided this certification but noted that the state’s level of funding was based on the best information available at the time of the state’s certification. Texas was apportioned about $2.25 billion of Recovery Act funds for highway infrastructure investments on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $533.7 million of Recovery Act funds for 159 projects in Texas. According to Texas Department of Transportation officials, the department is scheduled to receive bids in April 2009 on 137 contracts that would total approximately $400 million in Recovery Act funds. Texas will request reimbursement from the U.S. Department of Transportation as the state makes payments to contractors. U.S. Department of Education State Fiscal Stabilization Fund: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be administered by the U.S. Department of Education (Education). The SFSF provides funds to states to help avoid reductions in education and other essential public services. The initial award of SFSF funding requires each state to submit an application to Education that assures, among other things, it will take actions to meet certain educational requirements such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. Texas’ initial SFSF allocation is $2,662,203,000. According to Texas officials, the state generally plans to use its SFSF allocation to assist in continuing the historical levels of support for elementary, secondary, and higher education in the state. In April 2009, officials from the Office of the Governor informed us that the state was in the process of preparing its application for submission to the U.S. Department of Education—and that the application would reflect the fact that providing funding for public education is a priority in the state. The officials noted that the state’s application likely would not be submitted until the state legislature (which is in session until June 1, 2009) has finalized an appropriation for elementary, secondary, and higher education. Also, the officials commented that the state was awaiting further federal guidance on the appropriate use of Recovery Act funds. Generally, however, Texas Education Agency officials said that the federal funds could be used, for example, to support efforts related to high-quality assessment performance in schools, teacher incentives, and teacher equity. Also, according to the Texas Higher Education Coordinating Board, public institutions of higher education in Texas anticipate expending Recovery Act funds for three purposes—mitigating tuition and fee increases; supporting modernization, repair, and renovation of facilities; and providing incentive funding based on degrees awarded. To provide tracking and oversight of the Recovery Act funds, board officials commented that existing systems for implementing policies for accountability, internal controls, compliance, and reporting would be leveraged to the maximum extent possible to avoid the administrative burden associated with creating a completely new system. These officials explained that the proposed uses of the Recovery Act funds are not dissimilar to other well-established programs within the agency. Overall, throughout the multiyear time frame covered by the Recovery Act, Texas’ share of the total federal funds is estimated to be more than $15 billion for supporting a variety of program areas, such as health and human services, state fiscal stabilization, transportation, and education. (See table 9.) In his letter certifying acceptance of federal Recovery Act funds, the Texas Governor voiced opposition to “using these funds to expand existing government programs, burdening the state with ongoing expenditures long after the funding has dried up.” Similarly, during our review in Texas, legislative branch officials generally acknowledged that most of the federal Recovery Act funds appear to be one time in nature and that the state must avoid spending the funds for ongoing projects that would result in unsustainable future costs to the state’s budget. An illustration of such avoidance involves unemployment insurance. While the Texas Governor accepted some Recovery Act funds for unemployment insurance, he did not request Unemployment Insurance Modernization funds because the Governor believed that receiving those funds would place additional tax burdens on businesses, which would impede job creation and hamper the economy. Even though Texas generally continues to fare better economically than most states, nearly all available data suggest that the Texas economy is in recession, according to the Federal Reserve Bank in Dallas. In January 2009, the Office of the Comptroller of Public Accounts reported that the state’s fiscal 2010-2011 biennium budget will have $9 billion less in revenue than the current biennium budget. For perspective, officials with the Governor’s office told us that the $9 billion represents a 5 percent adjustment to the budget. In January 2009, anticipating that Texas faced a likely budget shortfall, the co-chairs of the state’s Legislative Budget Board requested that state agencies look for ways to reduce fiscal year 2009 expenditures by 2.5 percent. The co-chairs further noted that the state legislature should prudently plan on having a reasonable reserve in the state’s economic stabilization fund so that the state does not face a large deficit in the next biennium, ending August 31, 2011. In response to the co-chairs’ request for ways to reduce spending in fiscal year 2009, state agencies identified approximately $396 million in potential budget reductions based on hiring freezes, reduced services, delayed capital purchases, and other cost- cutting efforts. At the time of their request, the co-chairs noted that the Recovery Act—which was being debated in Washington, D.C.—could not responsibly be factored into the state’s budget process because many details were not known. In discussions with our review team in March 2009, representatives of the Office of the Lieutenant Governor commented that because of Recovery Act funds, state agencies were not required to implement the 2.5 percent spending reductions anticipated for state fiscal year 2009 and, further, the state did not have to tap into its rainy day fund. The representatives told us that absent the availability of Recovery Act funds, state agencies likely would have been asked to make cuts of about 10 percent for the fiscal 2010-2011 biennium budget, in addition to the state drawing upon the rainy day fund. On the other hand, officials representing the Office of the Governor commented that budget deficit situations do not necessarily result in the state using its rainy day fund. The officials stressed that—to meet the requirement to pass a balanced budget—a variety of other solutions could be considered, such as budget reallocations among state agencies and programs, as well as spending cuts. As an example, these officials noted that even though the state’s overall budget was reduced in 2003, the state raised education spending by $1 billion that year. Additionally, the officials explained that use of the rainy day fund is not an option readily available because it requires approval by two-thirds of the state legislature. Texas is taking various steps to help ensure accountability and transparency and address areas of vulnerability potentially associated with Recovery Act spending. Texas officials noted that Recovery Act funding will flow generally through existing federal-state agency partnerships or programs. Thus, to the extent possible, the state plans to use existing systems, processes, or mechanisms to provide Recovery Act funding accountability and transparency, according to the executive and legislative branch officials we contacted in Texas. In further reference to accountability and transparency, oversight of federal Recovery Act funds in Texas involves various stakeholders, including the Office of the Governor, the State Auditor’s Office, and the Office of the Comptroller of Public Accounts as well as two entities established within the Texas legislature specifically for this purpose—the House Select Committee on Federal Economic Stabilization Funding and the House Appropriations’ Subcommittee on Stimulus. Also, according to executive and legislative branch officials in Texas, the state plans to ensure that the forthcoming biennial general appropriations bill has a provision designed to specifically facilitate the tracking of federal Recovery Act funds distributed to Texas—that is, the act will have a separate section (“article”) that identifies, by applicable state agency, Recovery Act funds allocated to Texas. At the time of our study in April 2009, the Texas legislature was in session (81st regular session) and had not finished its work to complete and submit to the Governor a general appropriations bill for the state’s fiscal 2010-2011 biennium (Sept. 1, 2009, through Aug. 31, 2011). To further facilitate tracking, in March 2009, the Office of the Comptroller of Public Accounts established a centralized budget account for federal Recovery Act funds, with a unique funding code (0369). In turn, according to Texas officials, state agencies are modifying their financial systems to enable tracking of Recovery Act funds. Also, after the Recovery Act passed, the Office of the Governor began hosting regularly scheduled meetings (twice weekly) of a Stimulus Working Group comprising representatives of major state agencies to help ensure statewide communication of the need for accountability and transparency regarding Recovery Act funds. Similarly, a periodic forum of the internal audit staff of Texas state agencies serves as another means of statewide communication. Also, in March 2009, the Office of the Comptroller of Public Accounts scheduled training regarding federal awards and financial statements—training that included representatives from the Office of the Governor to discuss Recovery Act funds. Further, the Comptroller’s Office plans to hire 5 to 10 additional staff to help account for Recovery Act funds, according to office officials. In April 2009, the Comptroller’s Office issued policies and procedures to state agencies related to use and subsequent reporting on Recovery Act funds. The State Auditor’s Office is taking additional steps to ensure accountability. Anticipating that federal Recovery Act funding will increase its scope of responsibilities, the State Auditor’s Office plans to hire 10 additional staff (9 auditors and 1 investigator). The office intends to audit Recovery Act funds through the Single Audit of the State of Texas’ expenditures of federal awards—that is, the audit required by the Single Audit Act and to which OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, relates. Also, the State Auditor’s Office may conduct discretionary audits based, for example, on (1) discussions with internal auditors at state agencies or (2) risk assessments that consider previously reported material weaknesses in program compliance and internal controls, as well as risk assessments of programs that have not been tested before. Furthermore, the State Auditor’s Office noted that, as warranted, it pursues leads generated by complaint letters, hotline calls, and other information received from the public. In this regard, the State Auditor’s Office has Web-based and telephone “hotline” contacts for the general public to use in reporting possible fraud, waste, and abuse. In March 2009, the State Auditor told us that he was preparing a letter to send to state agencies regarding their general fraud responsibilities related to state funds. Moreover, in April 2009, the State Auditor’s Office informed us that a provision for reporting Recovery Act-related fraud is being added to the state’s fiscal 2010-2011 biennium appropriations bill. Among other requirements, this legislative provision, according to the State Auditor’s Office, will require that state agencies’ Web sites provide information on how to report suspected fraud, waste, and abuse directly to the State Auditor’s Office. According to state officials, in March 2009, a bill was filed in the Texas legislature that proposed creating a new office—the Texas Fiscal Responsibility Office—to oversee or monitor the spending of federal Recovery Act funds in Texas. As of early April 2009, the bill’s status had not been determined by the state legislature, which was scheduled to be in regular session until June 1, 2009. In response to our inquiry, the State Auditor’s Office provided us its views regarding accountability risks and other challenges potentially associated with the expenditure of federal Recovery Act funds in Texas. Based on its experience in auditing Texas’ use of previous federal awards and reporting internal control deficiencies or material weaknesses, the State Auditor’s Office noted that relatively high risks generally can be anticipated with certain types of programs—such as (1) new programs with completely new processes and internal controls, (2) programs that lack clear guidance on allowable uses of Recovery Act funds, (3) programs that distribute significant amounts of funds to local governments or boards, and (4) programs that rely on subrecipients for internal controls and monitoring. The State Auditor’s Office also noted that general economic stability and public education programs are considered to be high risk because they are new programs and federal guidance regarding the state’s appropriate use of the funds the funds is uncertain. The State Auditor’s Office further noted that highway construction and workforce programs are also high risk because funds flow through contractors or to local entities, respectively. Officials from Office of the Governor acknowledged that there are inherent risks associated with large, complex programs as well as programs that involve a large number of contracts and rely on subrecipients. However, the officials emphasized that Texas has experience in monitoring these types of programs, and officials noted that state agencies have controls in place to mitigate these risks. Regarding the Medicaid program, for example, the officials noted that in 2003, the Governor appointed an Inspector General for the Texas Health and Human Services Commission and charged the Inspector General with monitoring and preventing fraud, waste, and abuse. Also, the officials noted that the state’s Attorney General’s Office has a Medicaid Fraud Investigation Unit. The Texas State Auditor’s Office made a recommendation regarding the monitoring of subrecipients for risk in its most recent audit of the Texas Education Agency. The audit report did not find that subrecipients were improperly spending federal funds or were not meeting federal requirements; however, the report did note, however, that the agency had “a limited number of resources available to monitor fiscal compliance.” The audit report recommended that the Texas Education Agency continue to add resources, within its budget constraints, to increase its monitoring of federal fiscal compliance performed. According to the State Auditor’s Office, following the audit in February 2009, the Texas Education Agency created a comprehensive correction plan, which the agency is implementing to address this resource issue. After the Recovery Act was enacted, the Texas Education Agency announced in March 2009 that it was creating a task force on federal stimulus and stabilization to coordinate the agency’s plans. Also in March 2009, the agency reported that it had established new accounting codes for tracking Recovery Act funds. Furthermore, the agency indicated that its application guidance for the temporary funding would specify that (1) grantees are expected to expend funds in ways that do not result in unsustainable continuing commitments after the funding expires and (2) the funds must be separately tracked and monitored. Generally, state officials recognized that a potential vulnerability can be associated with significant increases in funding levels. An example is the weatherization assistance program. As noted in table 1, of the estimated $1.2 billion in Recovery Act funds to be used for housing and infrastructure programs in Texas, weatherization assistance is the largest component program in terms of funding ($327 million). This funding level represents about a 25-fold increase over the estimated annual amount ($13 million) that existed before the Recovery Act, according to Texas Department of Housing and Community Affairs data. Tentatively, the department indicated that its program implementation plan will include using an existing network of 34 weatherization assistance program providers (e.g., various community action entities) as well as awarding other contracts to cities with populations over 75,000. Under the program, subrecipients have 2 years to fully expend the weatherization funding. The Texas Department of Housing and Community Affairs noted that it intends to periodically assess progress and determine if unobligated funds need to be moved to high-performing entities. More broadly, a particular challenge or difficulty cited by the executive and legislative branch officials we contacted in Texas is the need for more guidance from OMB and other applicable federal agencies. Regarding quarterly recipient reports, for example, the officials said that there is a lack of clarity regarding whether all agencies in the state must submit reports to OMB or whether each state must submit a consolidated report. The officials also noted that it would be useful to have a reporting “template” that specifies the specific data fields or information to be reported. Furthermore, the officials commented that rather than simply being directed to a Web site, it would be helpful to have a centralized point of contact in Washington, D.C., for receiving and addressing questions. In April 2009, the Governor’s Office and State Comptroller of Public Accounts officials continued to express concerns to us about unclear guidance from federal agencies on allowable uses and reporting requirements. Also in April 2009, the officials informed us that the Office of the Governor had hired a consulting company, and six consultants had been staffed to track deadlines and work with state agencies to assist Texas in meeting Recovery Act reporting requirements. Regarding other opportunities for enhancing Recovery Act funding accountability, the executive and legislative branch officials we contacted in Texas advocated that various oversight entities in the state be concurrently notified when funds are distributed. As mentioned previously, in Texas, the state-level decision-making process regarding use (and accountability and transparency) of federal Recovery Act funds involves several entities or key stakeholders, particularly the Office of the Governor, the Office of the Comptroller of Public Accounts, the State Auditor’s Office, and the Legislative Budget Board. Generally, in our meetings with representatives of these entities, a common theme expressed has been a desire to be notified by federal authorities when Recovery Act funds are distributed to Texas state agencies and/or localities. The representatives stated that concurrent notification to the state’s key stakeholders would help to further ensure accountability and transparency. In April 2009, officials from the Office of the Governor and the State Comptroller’s Office told us that, in its disbursement of Recovery Act funds to the state, the federal government was not identifying these funds separately from other federal funds. The Texas officials cited increased FMAP funding as an example. Absent separate coding from the disbursing federal agency, the Texas officials said that the state relies on the Texas Health and Human Services Commission to inform the State Comptroller’s Office of what portion of the combined funds are Recovery funds. The Texas officials commented that it would be helpful if the federal government put in place the coding structure to identify Recovery Act funds separately from other federal funds—as they believe the Act requires—before Recovery Act funds are disbursed to Texas. The executive and legislative branch officials we contacted in Texas— including officials from the Office of the Governor, the Office of the Comptroller of Public Accounts, the State Auditor’s Office, the Legislative Budget Board, and various program agencies—recognized the importance of the state taking steps to assess the impact of Recovery Act funds in terms of preserving and creating jobs, assisting those individuals most impacted by the recession, and so forth. In late January 2009, for example, in preparing to implement the transportation components of the anticipated national economic recovery program, the Texas Transportation Commission recognized that a primary purpose of the recovery program is to “create and sustain jobs.” Texas officials commented that agencies in Texas—a state that has a performance-based budgeting process—already have performance measures in place for their respective programs and operations, although some Recovery Act-related adjustments or modifications may be needed. Texas Department of Transportation officials noted, for example, that contracts involving the use of Recovery Act funds will have special provisions requiring contractors to report on jobs created. These officials also cited potential difficulties in measuring the impact of Recovery Act funds used for programs that commingle these funds with other federal or state funds. Finally, Texas officials told us that the Governor’s Office has taken the lead in administering the state’s responsibilities under the Recovery Act. As mentioned previously, the Governor’s Office chairs a Stimulus Working Group with representatives from the state agencies that have a role under the Recovery Act. Texas officials were uncertain as to whether a specific agency would be designated to be responsible for compiling an overall assessment of the impact of Recovery Act funds in the state. The officials added, however, that the state’s legislature was still in session and that the forthcoming biennial general appropriations bill—which will have a separate section specifically for Recovery Act funds—could perhaps assign such responsibility to an agency. We provided the Governor of Texas with a draft of this appendix on April 17, 2009. A Senior Advisor, designated as the state's point of contact for the Recovery Act, responded for the Governor on April 20, 2009. In general, the Senior Advisor agreed with the information in this appendix but wanted us to provide more context for the views of the State Auditor regarding potential areas of vulnerability with Recovery Act funds. We added contextual perspectives to address this concern and the Senior Advisor’s belief that Texas is equipped to meet its responsibilities under the Recovery Act. The Senior Advisor also provided technical suggestions that we incorporated where appropriate. In addition to the contacts named above, Danny Burton, Assistant Director; K. Eric Essig, auditor-in-charge; Yecenia Camarillo; Camille Chaires; Sharhonda Deloach; Michael O’Neill; Daniel Silva; Gabriele Tonsil; and Christy Tyson made major contributions to this report. XIX: Washington, D.C. Use of funds: An estimated 90 percent of Recovery Act funding provided to states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will be for health, transportation, and education programs. The three largest programs in these categories are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, highways, and the State Fiscal Stabilization Fund. Medicaid Federal Medical Assistance Percentage (FMAP) Funds As of April 3, 2009, the Centers for Medicare and Medicaid Services (CMS) had made about $87.8 million in increased FMAP grant awards to the District of Columbia. As of April 1, 2009, the District had drawn down about $49.9 million, or about 57 percent of its initial increased FMAP grant awards. District officials plan to use funds made available as a result of the increased FMAP to cover an increased caseload, offset general fund deficits, and maintain current Medicaid eligibility and benefit levels. The District of Columbia was apportioned $123.5 million for highway infrastructure investment on March 2, 2009, by the U.S. Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $36.6 million for one project in the District of Columbia. The District of Columbia plans to use these funds for reviewed and vetted “shovel ready” projects, such as pavement restoration and resurfacing work on federal roadways, once the appropriate contracting processes have been completed. U.S. Department of Education State Fiscal Stabilization Fund The District of Columbia was allocated $89.4 million from the initial release of these funds on April 2, 2009, by the U.S. Department of Education. District officials intend to use these funds to increase aid across all schools in the District. As of April 2, 2009, about $59.9 million of this allocation was available for the District to draw down upon. Before receiving the funds, states are required to submit an application that provides several assurances to the U.S. Department of Education. These include assurances that they will meet maintenance of effort requirements, or that they will be able to comply with waiver provisions, and that they will implement strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified teachers, and improving the quality of state academic standards and assessments. As of April 15, 2009, the District was awaiting a response from the U.S. Department of Education on the District’s proposed plan for using the funds before submitting an application. Appendix XIX: Washington, D.C. In addition to the funding for these three programs, the District of Columbia is receiving Recovery Act funds under other programs, such as programs under Title I, Part A, of the Elementary and Secondary Education (ESEA), commonly known as the No Child Left Behind Act; programs under the Individuals with Disabilities Education Act (IDEA); and two programs of the U.S. Department of Agriculture—one for administration of the Temporary Food Assistance Program and one for competitive equipment grants targeted at low income districts from the National School Lunch Program. The District’s plans for using these and other Recovery Act funds are discussed throughout this appendix. Safeguarding and transparency: The District plans to use its existing financial systems to track the use of Recovery Act funds, and plans to use an ongoing accountability program to monitor District agency efforts to ensure that funds are used as intended. District officials are working to correct 89 material weaknesses in internal controls over both financial reporting and compliance with requirements applicable to major federal programs that were identified in the Fiscal Year 2007 Single Audit Report for the District of Columbia. The major federal programs in which these weaknesses were identified include programs that will be receiving Recovery Act funds, such as Medicaid’s FMAP, ESEA Title I Education grants, and Workforce Investment Act programs. At present, it is not clear whether corrective actions will be completed before the Recovery Act funds are received by the District. This could increase the risk that Recovery Act funds may not be used properly. The District’s Inspector General has also identified a number of District agencies with internal control and management issues that place them at risk for misusing Recovery Act funds. The District has initiated a Recovery Act Web site to help ensure that its Recovery Act efforts are transparent to the public. Assessing the effects of spending: The District plans to assess the impact of Recovery Act funds by using the information in reports required by federal agencies under the Recovery Act, including information on the economic impact of the funds, such as on job creation. The District has provided initial guidance to city agencies on the tracking and use of Recovery Act funds and is awaiting further guidance from the federal government, particularly information related to measuring jobs. District officials stated that the Office of Management and Budget (OMB) should provide a common definition of “job” and a metric to measure the number of jobs that are created by Recovery Act funds. District officials are also concerned about the lack of guidance for the methodology of tracking the new jobs created. Appendix XIX: Washington, D.C. The Mayor of the District of Columbia has established 13 work groups to oversee the use of Recovery Act funds in each program area. Each work group is led by the head of a District agency or department, or their designee, who reports to the City Administrator through his Recovery Act coordinator. The work groups will collaborate to make decisions on the use of Recovery Act funds. As of April 3, 2009, the District had been allocated about $240 million in Recovery Act funds. The City Administrator stated that the District is committed to taking full advantage of the opportunities provided by the Recovery Act, and is committed to doing so in a manner that is fiscally responsible, efficient, effective, and transparent, while addressing the goals of the statute and the needs of District residents. The District has begun to use the Recovery Act funds as follows. Appendix XIX: Washington, D.C. expenditures for Medicaid services. However, the receipt of the increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. As of April 1, 2009, the District of Columbia had drawn down $49.9 million in increased FMAP grant awards, which was 56.8 percent of its awards to date. District of Columbia officials reported that they plan to use funds made available as a result of the increased FMAP to cover an increased caseload, offset general fund deficits, and maintain current eligibility and benefit levels in the District’s Medicaid program. Transportation—Highway Infrastructure Investment: The Recovery Act provides additional funds for highway infrastructure investment using the rules and structure of the existing Federal-Aid Highway Surface Transportation Program, which apportions money to states to construct and maintain eligible highways and for other surface transportation projects. States must follow the requirements for the existing programs, and in addition, the governor or other appropriate chief executive must certify that the state or local government to which funds have been made available has completed all necessary legal reviews and determined that the projects are an appropriate use of taxpayer funds. As of March 2, 2009, the District’s Department of Transportation was apportioned $123.5 million in Recovery Act funds for highway infrastructure and has identified “shovel ready” projects for these funds. According to the District of Columbia’s certification, approximately $56 million in projects have been fully reviewed and vetted. As of April 16, 2009, the U.S. Department of Transportation had obligated $36.6 million for one District project—the demolition and reconstruction of the existing New York Avenue Bridge over the railroad. Appendix XIX: Washington, D.C. things, it will take actions to meet certain educational requirements, such as increasing teacher effectiveness and addressing inequities in the distribution of highly qualified teachers. As of April 15, 2009, the District was awaiting a response from Education on the District’s proposed plan for using the funds to increase funding for education on a per student basis. Once this response is received, the District will submit an application to the federal government and expects to receive about $89.4 million in fiscal stabilization funds. The District is home to about 220 schools in 60 local education agencies (LEAs). The District’s 60 LEAs include one large public school system (District of Columbia Public Schools, or DCPS) and 59 smaller LEAs that are mostly single public charter schools. For the 2008-2009 school year, about 64 percent of District students were enrolled in DCPS, while about 36 percent were in public charter schools. District officials stated that they intend to distribute stabilization funds across all 60 LEAs. Other Education Funds: The District expects to receive about $37 million in Recovery Act funds for its ESEA Title I program. Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the No Child Left Behind Act provides funds to LEAs for schools that have high concentrations of students from families living in poverty in order to help improve teaching and learning. District officials told us that it may be a challenge to disburse funds rapidly while also meeting programmatic requirements. They also told us they did not yet know how the LEAs were planning on using these funds. The District also expects to receive about $18.8 million in stimulus funds for Individuals with Disabilities Education Act (IDEA) programs. About $16.4 million will be used for Part B grants to states, and about $260,000 for Part B grants for preschool children. The other $2.1 million will be used for Part C (state grants for infants and families). Officials told us that they were unsure of how IDEA funds would be used, but they anticipate being able to serve more children under each program, improve methods for assessing the performance of students with disabilities, and improve services to children and compliance with IDEA’s requirements. Appendix XIX: Washington, D.C. approximately $202 million in Recovery Act funding from FTA. WMATA plans to use these funds for 29 projects, including improving information technology and operating systems, maintenance, repair and replacement of buses, and renovation of passenger facilities in disrepair. According to its Web site, WMATA expects to make its first Recovery Act purchase of 45 hybrid-electric buses at the end of April 2009. Workforce Investment Act (WIA): As of April 3, 2009, the District’s Department of Employment Services had been allocated about $1.5 million for adult Workforce Investment Act (WIA) programs, about $3.8 million for dislocated workers programs, and almost $4 million for youth programs. The District plans to use these Recovery Act funds in accordance with the U.S. Department of Labor’s Guidance Letter Number 14-08. This guidance states that it is the intent of the Recovery Act that WIA adult funds be used to provide the necessary services to substantially increase the number of adults to support their entry or reentry into the job market, and that WIA dislocated worker funds be used to provide the necessary services to dislocated workers to support their reentry into the recovering job market. The guidance also emphasizes Congress’s interest in using WIA youth funds to create summer employment opportunities for youth. The District has also developed a plan that includes an increase in weekly benefits for the unemployed and an expansion of city services to help those filing unemployment claims and looking for work. The new benefits for the unemployed include additional compensation in the form of a supplemental $25 weekly benefit outlined in the Recovery Act. In addition, the District announced an extension for those who have exhausted their unemployment benefits and are actively seeking work. According to District officials, the Mayor plans to forward legislation to the D.C. City Council that will enable those who will exhaust their unemployment benefits by late spring to extend them until December 2009. Both the new supplemental compensation and the extension of benefits are 100 percent federally funded as part of the Recovery Act. Appendix XIX: Washington, D.C. DHCD officials said they have questions about how the program will be implemented and that the answers to their questions could require revisions to state qualified allocation plans and procedures. As a result, further guidance from IRS will be needed to understand whether DHCD would use the program and, if so, what management changes, if any, will be needed for its implementation. As required by the Recovery Act, HUD allocated about $27 million to the District of Columbia Housing Authority (DCHA) for capital and management activities, including modernization and rehabilitation of public housing projects. DCHA officials told us that they planned to use the allocation to fund improvements at ongoing projects included in their 5-year construction plan. Homeland Security and Justice Programs: District officials expect to receive an additional allocation of about $11.7 million through the Department of Justice’s Edward Byrne Memorial Justice Assistance Grant Formula Program, which nearly doubles the total amount of grant funding awarded by the District’s Justice Grants Administration in the last fiscal year. The District plans to use these funds in several areas, including prisoner reentry, detention and incarceration diversion initiatives, and court diversion services for at-risk youth. The District plans to change its funding priority targets by phasing out small discrete grants and instead focus on awarding grants that invest in long-term projects. According to District officials, they have collaborated with local criminal justice stakeholders and community groups to identify funding priorities. District officials plan to track Recovery Act funds using existing financial systems. According to District officials, the financial system already has the infrastructure to track, monitor, and report the source of funds distributed to recipients to ensure strict compliance with the requirements of the Recovery Act and to monitor the flow of Recovery Act funds from the federal government to District agencies. District officials plan to account for Recovery Act funds in a manner similar to the way they track and manage grant funds, using a unique four-digit code. Officials from the District’s Office of the Chief Financial Officer told us that they had notified District agency officials of the need to closely monitor Recovery Act funds. The District has not provided guidance to recipients regarding the tracking and use of Recovery Act funds. The District will determine what guidance needs to be provided to recipients once the District receives guidance from OMB. Appendix XIX: Washington, D.C. The District has developed a Recovery Act Web site (www.recovery.dc.gov) that is intended to allow the public to track Recovery Act efforts. The Web site contains information on the management process the District plans to use to oversee Recovery Act spending, and provides the public a way to track Recovery Act spending and get information on grants and contracts that are available. The Web site also offers the public a means to submit ideas and to identify any waste or fraud. Further, the Mayor’s certification of the use of the funds is also posted on the Web site, as is the testimony of the City Administrator and the Chief Procurement Officer on Recovery Act efforts before the D.C. Council—the District’s legislative body. The District will continue to use CapStat, a performance-based accountability program designed to make the District government run more efficiently and to ensure accountability, effectiveness of internal controls, compliance with reporting requirements, and reliable reporting about uses of Recovery Act funds. The CapStat process takes the form of weekly accountability sessions where the Mayor and City Administrator bring into one room all the executives responsible for improving performance on an issue to examine performance data and explore ways to improve government services, as well as to make commitments for follow-up actions. Each District agency participates in the program. Agency directors prepare for a session by examining their agency’s performance measures and analyzing how they can improve their results. Appendix XIX: Washington, D.C. weaknesses in compliance with requirements applicable to major federal programs including Medicaid’s FMAP, ESEA Title I Education grants, and Workforce Investment Act programs, all of which will be receiving Recovery Act funds. The findings were significant enough to result in a qualified opinion for that section of the report. In addition, Education designated the District as a high-risk grantee in April 2006 because of its poor management of federal grants. If the District continues to be designated as a high-risk grantee, Education could respond by taking several actions, such as discontinuing one or more federal grants made to the District or having a third party take control over the administration of federal grants. OCFO officials told us that they are in the process of working with the federal agencies to address these material weaknesses, but it is unlikely the corrective actions will be completed before the District programs with these weaknesses begin receiving Recovery Act funds. This could increase the risk that Recovery Act funds may not be used properly. Appendix XIX: Washington, D.C. did not receive any additional funds or resources to carry out specific Recovery Act reviews. The Office of the District of Columbia Auditor is the legislative auditor for the District. The office exists to support the District City Council in meeting its legislative oversight responsibilities and to help improve the performance and accountability of the District government. The Auditor has the authority to conduct audits on District funds, including those used by the D.C. Charter schools, but is not set up to provide comprehensive services regarding federal funds except in instances of D.C. Council requests and pre-existing mandates. The D.C. Auditor’s main body of work is developed on a rotating basis, where the Auditor selects specific activities or accounts to review every 3 years, concentrating on financial accounting and reporting. According to the D.C. Auditor, due to limited resources, they only plan to conduct audits based on scheduled rotations and requests, and they have no plans to audit Recovery Act funds. If, however, a planned audit concerns a program receiving Recovery Act funds, then the Auditor may adjust audit plans accordingly. Appendix XIX: Washington, D.C. OMB provide a template for the format and required information for Recovery Act Web sites as well. District officials also plan to use the CapStat performance-based accountability program to examine the impact of the use of Recovery Act funds on District agencies and programs. We provided the Office of the Mayor of the District of Columbia with a draft of this appendix on April 15, 2009. On April 17, 2009, the City Administrator’s office provided technical suggestions on the appendix that were incorporated, as appropriate. In addition to the contacts named above, John Hansen, Assistant Director; Mark Tremba, analyst-in-charge; Maria Strudwick; Shawn Arbogast; Marisol Cruz; Nagla’a El-Hodiri; Sunny Chang; Nancy Glover; Justin Monroe; Ellen Phelps Ranen; and Melissa Schermerhorn made major contributions to this report. The names of GAO staff who served on the teams for the selected states and the District are listed at the end of each respective appendix. In addition, the following staff contributed to this report: Stanley J. Czerwinski, Denise Fantone, and Yvonne Jones (Directors); Thomas James, James McTigue, and Michelle Sager (Assistant Directors); and Allison Abrams, David Alexander, Peter Anderson, Thomas Beall, Joanna Berry, Sandra Beattie, Bonnie Beckett, Pedro Briones, Kimberly Brooks, Kay Brown, Marcia Buchanan, Ted Burik, Steven Cohen, Nancy Cosentino, Robert Cramer, Michael Derr, Kevin Dooley, Heather Dowey, Colin Fallon, Alice Feldesman, Andy Finkel, Shannon Finnegan, Jim Fuquay, Vicky Green, Brandon Haller, Anita Hamilton, Tracy Harris, Laura Heald, Michael Hrapsky, Mary Catherine Hult, Susan Irving, Shirley Jones, Stuart Kaufman, Karen Keegan, Martha Kelly, Ba Lin, Edward Leslie, Leslie Locke, Steve Martin, JoAnn Martinez, Kim McGatlin, John McGrail, Donna Miller, Sheila Miller, Clarita Mrena, Elizabeth Morrison, Andy O’Connell, Lisa Pearson, Janice Poling, Brenda Rabinowitz, Carl Ramirez, Mathew Scire, Thomas Short, Michael Springer, George Stalcup, Andrew Stephens, Hemi Tewarson, Patrick Tobo, Gabriele Tonsil, Cheri Truett, Susan Wallace, Lindsay Welter, Michelle Woods, and Carolyn Yocom.	The American Recovery and Reinvestment Act of 2009 (Recovery Act) is estimated to cost about $787 billion over the next several years, of which about $280 billion will be administered through states and localities. The Recovery Act requires GAO to do bimonthly reviews of the use of funds by selected states and localities. In this first report, GAO describes selected states' and localities' (1) uses of and planning of Recovery Act funds, (2) accountability approaches, and (3) plans to evaluate the impact of funds received. GAO's work is focused on 16 states and the District of Columbia--representing about 65 percent of the U.S. population and two-thirds of the intergovernmental federal assistance available through the Recovery Act. GAO collected documents from and interviewed state and local officials, including Governors, "Recovery Czars," State Auditors, Controllers, and Treasurers. GAO also reviewed guidance from the Office of Management and Budget (OMB) and other federal agencies. About 90 percent of the estimated $49 billion in Recovery Act funding to be provided to states and localities in FY2009 will be through health, transportation and education programs. Within these categories, the three largest programs are increased Medicaid Federal Medical Assistance Percentage (FMAP) grant awards, funds for highway infrastructure investment, and the State Fiscal Stabilization Fund (SFSF). The funding notifications for Recovery Act funds for the 16 selected states and the District of Columbia (the District) have been approximately $24.2 billion for Medicaid FMAP on April 3, $26.7 billion for highways on March 2, and $32.6 billion for SFSF on April 2. Fifteen of the 16 states and the District have drawn down approximately $7.96 billion in increased FMAP grant awards for the period October 1, 2008 through April 1, 2009. The increased FMAP is for state expenditures for Medicaid services. The receipt of this increased FMAP may reduce the state share for their Medicaid programs. States have reported using funds made available as a result of the increased FMAP for a variety of purposes. For example, states and the District reported using these funds to maintain their current level of Medicaid eligibility and benefits, cover their increased Medicaid caseloads-which are primarily populations that are sensitive to economic downturns, including children and families, and to offset their state general fund deficits thereby avoiding layoffs and other measures detrimental to economic recovery. States are undertaking planning activities to identify projects, obtain approval at the state and federal level and move them to contracting and implementation. For the most part, states were focusing on construction and maintenance projects, such as road and bridge repairs. Before they can expend Recovery Act funds, states must reach agreement with the Department of Transportation on the specific projects; as of April 16, two of the 16 states had agreements covering more than 50 percent of their states' apportioned funds, and three states did not have agreement on any projects. While a few, including Mississippi and Iowa had already executed contracts, most of the 16 states were planning to solicit bids in April or May. Thus, states generally had not yet expended significant amounts of Recovery Act funds. The states and D.C. must apply to the Department of Education for SFSF funds. Education will award funds once it determines that an application contains key assurances and information on how the state will use the funds. As of April 20, applications from three states had met that determination- South Dakota, and two of GAO's sample states, California and Illinois. The applications from other states are being developed and submitted and have not yet been awarded. The states and the District report that SFSF funds will be used to hire and retain teachers, reduce the potential for layoffs, cover budget shortfalls, and restore funding cuts to programs. Planning continues for the use of Recovery Act funds. State activities indlude appointing Recovery Czars; establishing task forces and other entities, and developing public websites to solicit input and publicize selected projects. GAO found that the selected states and the District are taking various approaches to ensuring that internal controls manage risk up-front; they are assessing known risks and developing plans to address those risks. State auditors are also planning their work including conducting required single audits and testing compliance with federal requirements. Nearly half of the estimated spending programs in the Recovery Act will be administered by non-federal entities. State officials suggested opportunities to improve communication in several areas. Officials in nine of the 16 states and the District expressed concern about determining the jobs created and retained under the Recovery Act, as well as methodologies that can be used for estimation of each.	14.3	long	2,320
4	This is an outline of two federal statutes: the Electronic Communications Privacy Act (ECPA) and the Foreign Intelligence Surveillance Act (FISA). Both evolved out of the shadow of the Supreme Court's Fourth Amendment jurisprudence. The courts play an essential role in both. Congress crafted both to preserve the ability of government officials to secure information critical to the nation's well-being and to ensure individual privacy. It modeled parts of FISA after features in ECPA. There are differences, however. ECPA protects individual privacy from the intrusions of other individuals. FISA has no such concern. FISA authorizes the collection of information about the activities of foreign powers and their agents, whether those activities are criminal or not. ECPA's only concern is crime. At common law, "eavesdroppers, or such as listen under walls or windows, or the eaves of a house, to hearken after discourse, and thereupon to frame slanderous and mischievous tales, are a common nuisance and presentable at the court-leet; or are indictable at the sessions, and punishable by fine and finding of sureties for [their] good behavior." Although early American law proscribed common law eavesdropping, the crime was little prosecuted and by the late nineteenth century had "nearly faded from the legal horizon." With the invention of the telegraph and telephone, however, state laws outlawing wiretapping or indiscretion by telephone and telegraph operators preserved the spirit of the common law prohibition in this country. Congress enacted the first federal wiretap statute as a temporary measure to prevent disclosure of government secrets during World War I. Later, it proscribed intercepting and divulging private radio messages in the Radio Act of 1927, but did not immediately reestablish a federal wiretap prohibition. By the time of the landmark Supreme Court decision in Olmstead , however, at least forty-one of the forty-eight states had banned wiretapping or forbidden telephone and telegraph employees and officers from disclosing the content of telephone or telegraph messages or both. Olmstead was a Seattle bootlegger whose Prohibition Act conviction was the product of a federal wiretap. He challenged his conviction on three grounds, arguing unsuccessfully that the wiretap evidence should have been suppressed as a violation of either his Fourth Amendment rights, his Fifth Amendment privilege against self-incrimination, or the rights implicit in the Washington state statute that outlawed wiretapping. For a majority of the Court, writing through Chief Justice Taft, Olmstead's Fourth Amendment challenge was doomed by the absence of "an official search and seizure of his person, or such a seizure of his papers or his tangible material effects, or an actual physical invasion of his house or curtilage for the purposes of making a seizure." Chief Justice Taft pointed out that Congress was free to provide protection which the Constitution did not. Congress did so in the 1934 Communications Act by expanding the Radio Act's proscription against intercepting and divulging radio communications so as to include intercepting and divulging radio or wire communications. The Federal Communications Act outlawed wiretapping, but it said nothing about the use of machines to surreptitiously record and transmit face to face conversations. In the absence of a statutory ban the number of surreptitious recording cases decided on Fourth Amendment grounds surged and the results began to erode Olmstead 's underpinnings. Erosion, however, came slowly. Initially the Court applied Olmstead 's principles to the electronic eavesdropping cases. Thus, the use of a dictaphone to secretly overhear a private conversation in an adjacent office offended no Fourth Amendment precepts because no physical trespass into the office in which the conversation took place had occurred. Similarly, the absence of a physical trespass precluded Fourth Amendment coverage of the situation where a federal agent secretly recorded his conversation with a defendant held in a commercial laundry in an area open to the public. On the other hand, the Fourth Amendment did reach the government's physical intrusion upon private property during an investigation, as for example when they drove a "spike mike" into the common wall of a row house until it made contact with a heating duct for the home in which the conversation occurred. The spike mike case presented something of a technical problem, because there was some question whether the spike mike had actually crossed the property line of the defendant's town house when it made contact with the heating duct. The Court declined to rest its decision on the technicalities of local property law, and instead found that the government's conduct had intruded upon privacy of home and hearth in a manner condemned by the Fourth Amendment. Each of these cases focused upon whether a warrantless trespass onto private property had occurred, that is, whether the means of conducting a search and seizure had been so unreasonable as to offend the Fourth Amendment. Yet in each case, the object of the search and seizure had been not those tangible papers or effects for which the Fourth Amendment's protection had been traditionally claimed, but an intangible, a conversation. This enlarged view of the Fourth Amendment could hardly be ignored, for "[i]t follows from ... Silverman ... that the Fourth Amendment may protect against the overhearing of verbal statements as well as against the more traditional seizure of papers and effects." Soon thereafter the Court repudiated the notion that the Fourth Amendment's protection was contingent upon some trespass to real property in Katz v. United States . Katz was a bookie convicted on the basis of evidence gathered by an electronic listening and recording device set up outside the public telephone booth that Katz used to take and place bets. The Court held that the gateway for Fourth Amendment purposes stood at that point where an individual should to able to expect that his or her privacy would not be subjected to unwarranted governmental intrusion. One obvious consequence of Fourth Amendment coverage of wiretapping and other forms of electronic eavesdropping is the usual attachment of the Amendment's warrant requirement. To avoid constitutional problems and at the same time preserve wiretapping and other forms of electronic eavesdropping as a law enforcement tool, some of the states established a statutory system under which law enforcement officials could obtain a warrant, or equivalent court order, authorizing wiretapping or electronic eavesdropping. The Court rejected the constitutional adequacy of one of the more detailed of these state statutory schemes in Berger v. New York . The statute was found deficient because of its failure to require: a particularized description of the place to be searched; a particularized description of the crime to which the search and seizure related; a particularized description of the conversation to be seized; limitations to prevent general searches; termination of the interception when the conversation sought had been seized; prompt execution of the order; return to the issuing court detailing the items seized; and any showing of exigent circumstances to overcome the want of prior notice. Berger helped persuade Congress to enact Title III of the Omnibus Crime Control and Safe Streets Act of 1968, a comprehensive wiretapping and electronic eavesdropping statute that not only outlawed both activities in general terms but that also permitted federal and state law enforcement officers to use them under strict limitations designed to meet the objections in Berger . A decade later another Supreme Court case persuaded Congress to supplement Title III with a judicially supervised procedure for the use of wiretapping and electronic eavesdropping in foreign intelligence gathering situations. When Congress passed Title III there was some question over the extent of the President's inherent powers to authorize wiretaps—without judicial approval—in national security cases. As a consequence, the issue was simply removed from the Title III scheme. After the Court held that the President's inherent powers were insufficient to excuse warrantless electronic eavesdropping on purely domestic threats to national security, Congress considered it prudent to augment the foreign intelligence gathering authority of the United States with the Foreign Intelligence Security Act of 1978 (FISA). The FISA provides a procedure for judicial review and authorization of electronic surveillance and other forms of information gathering for foreign intelligence purposes. Two other Supreme Court cases influenced the development of federal law in the area. In United States v. Miller , the Court held that a customer had no Fourth Amendment protected expectation of privacy in the records his bank created concerning his transactions with them. These third party records were therefore available to the government under a subpoena duces tecum rather than a more narrowly circumscribed warrant. In Smith v. Maryland , it held that no warrant was required for the state's use of a pen register or trap and trace device, if the device merely identified the telephone numbers for calls made and received from a particular telephone. No Fourth Amendment search or seizure occurred, the Court held, since the customer had no justifiable expectation of privacy in information which he knew or should have known the telephone company might ordinarily capture for billing or service purposes. In 1986, Congress enacted in the Electronic Communications Privacy Act (ECPA). ECPA consists of three parts: a revised Title III; the Stored Communications Act (SCA); and provisions governing the installation and use of pen registers as well as trap and trace devices. Congress has adjusted the components of ECPA and FISA, over the years. It has done so sometimes in the interests of greater privacy; sometimes in the interest of more effective law enforcement or foreign intelligence gathering; often with an eye to some combination of those interests. Prominent among its enactments are: the USA PATRIOT Act; the Intelligence Authorization Act for Fiscal Year 2002; the 21 st Century Department of Justice Appropriations Authorization Act; the Department of Homeland Security Act; the USA PATRIOT Improvement and Reauthorization Act; and the Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2008 (2008 FISA Amendments Act). In Title III, ECPA begins the proposition that unless provided otherwise, it is a federal crime to engage in wiretapping or electronic eavesdropping; to possess wiretapping or electronic eavesdropping equipment; to use or disclosure of information obtained through illegal wiretapping or electronic eavesdropping; or to disclosure of information secured through court-ordered wiretapping or electronic eavesdropping, in order to obstruct justice. First among these is the ban on illegal wiretapping and electronic eavesdropping that covers: any person who intentionally intercepts, or endeavors to intercept, wire, oral or electronic communications by using an electronic, mechanical or other device unless the conduct is specifically authorized or expressly not covered, e.g . one of the parties to the conversation has consent to the interception the interception occurs in compliance with a statutorily authorized, (and ordinarily judicially supervised) law enforcement or foreign intelligence gathering interception, the interception occurs as part of providing or regulating communication services, certain radio broadcasts, and in some places, spousal wiretappers. The prohibition applies to "any employee, or agent of the United States or any State or political subdivision thereof, and any individual, partnership, association, joint stock company, trust, or corporation." Conduct can only violate Title III if it is done "intentionally," inadvertent conduct is no crime; the offender must have done on purpose those things which are outlawed. He need not be shown to have known, however, that his conduct was unlawful. Subsection 2511(1) contains two interception bars—one, 2511(1)(a), simply outlaws intentional interception; the other, 2511(1)(b), outlaws intentional interception when committed under any of five jurisdictional circumstances with either an implicit or explicit nexus to interstate or foreign commerce. Congress adopted the approach because of concern that its constitutional authority might not be sufficient to ban instances of electronic surveillance that bore no discernable connection to interstate commerce or any other of Congress's enumerated constitutional powers. So it enacted a general prohibition, and as a safety precaution, a second provision more tightly tethered to specific jurisdictional factors. The Justice Department has honored that caution by employing subparagraph (b) to prosecute the interception of oral communications, while using subparagraph (a) to prosecute other forms of electronic eavesdropping. Interception "means the aural or other acquisition of the contents" of various kinds of communications by means of "electronic, mechanical or other devices." Although logic might suggest that interception occurs only in the place where the communication is captured, the cases indicate that interception occurs as well where the communication begins, is transmitted, or is received. Yet, it does not include instances when an individual simply reads or listens to a previously intercepted communication, regardless of whether additional conduct may implicate the prohibitions on use or disclosure. Once limited to aural acquisitions, ECPA enlarged the definition of "interception" by adding the words "or other acquisition" so that it is no longer limited to interceptions of communications that can be heard. The change complicates the question of whether the wiretap, stored communications, or trap and trace portions of the ECPA govern the legality of various means of capturing information relating to a communication. The analysis might seem to favor wiretap coverage when it begins with an examination of whether an "interception" has occurred. Yet, there is little consensus over when an interception occurs; that is, whether "interception" as used in section 2511 contemplates surreptitious acquisition, either contemporaneous with transmission, or whether such acquisition may occur anytime before the initial cognitive receipt of the contents by the intended recipient, or under some other conditions. The USA PATRIOT Act resolved some of the statutory uncertainty concerning voice mail when it removed voice mail from the wiretap coverage of Title III (striking the phrase "and such term includes any electronic storage of such communication" from the definition of "wire communications" in Title III (18 U.S.C. 2510(1)) and added stored wire communications to the stored communications coverage of 18 U.S.C. 2703. The interceptions proscribed in Title III are confined to those that capture a communication's "content," that is, "information concerning [its] substance, purport, or meaning." Trap and trace devices and pen registers once captured only information relating to the source and addressee of a communication, not its content. That is no longer the case. The "post-cut-through dialed digit features" of contemporary telephone communications now transmit communications in such a manner that the use of ordinary pen register or trap and trace devices will capture both non-content and content. As a consequence, a few courts have held, either as a matter of statutory construction or constitutional necessity, that the authorities must rely on a Title III wiretap order rather than a pen register/trap and trace order if such information will be captured. The statute does not cover common law "eavesdropping," but only interceptions "by electronic, mechanical or other device." The term includes computers, but it is defined so as not to include hearing aids or extension telephones in normal use (use in the "ordinary course of business"). Whether an extension phone has been installed and is being used in the ordinary course of business or in the ordinary course of law enforcement duties, so that it no longer constitutes an interception device for purposes of Title III and comparable state laws has proven a somewhat vexing question. Although often intertwined with the consent exception discussed below, the question generally turns on the facts in a given case. When the exemption is claimed as a practice in the ordinary course of business, the interception must be for a legitimate business reason, it must be routinely conducted, and at least in some circuits employees must be notified that their conversations are being monitored. Similarly, "Congress most likely carved out an exception for law enforcement officials to make clear that the routine and almost universal recording of phone lines by police departments and prisons, as well as other law enforcement institutions, is exempt from the statute." The exception contemplates administrative rather than investigative monitoring, which must nevertheless be justified by a lawful, valid law enforcement concern. An interception is only a violation of Title III if the conversation or other form of captured communication is among those kinds which the statute protects, in oversimplified terms—if it is a telephone (wire), face to face (oral), or computer (electronic) communication. Thus, Title III does cover silent video surveillance. Title III does not cover all wire, oral or electronic communications. "Oral communications," by definition, includes only those face to face conversations for which the speakers have a justifiable expectation of privacy. "Wire communications" are limited to those that are at some point involve voice communications (i.e., only aural transfers). The term "electronic communications" encompasses radio and data transmissions generally, but excludes certain radio transmissions which can be innocently captured without great difficulty. Even when a radio transmission meets the definition, Title III's general exemption may render its capture innocent. Although the statute condemns attempted wiretapping and electronic eavesdropping ("endeavoring to intercept"), the provisions appear to have escaped use, interest, or comment heretofore, perhaps because the conduct most likely to constitute preparation for an interception—possession of wiretapping equipment—is already a separate crime. Consent interceptions are common, controversial and have a history all their own. The early bans on divulging telegraph or telephone messages had a consent exception. The Supreme Court upheld consent interceptions against Fourth Amendment challenge both before and after the enactment of Title III. The argument in favor of consent interceptions has always been essentially that a speaker risks the indiscretion of his listeners and holds no superior legal position simply because a listener elects to record or transmit his statements rather than subsequently memorializing or repeating them. Wiretapping or electronic eavesdropping by either the police or anyone else with the consent of at least one party to the conversation is not unlawful under the federal statute. These provisions do no more than shield consent interceptions from the sanctions of federal law; they afford no protection from the sanctions of state law. Many of the states recognize comparable exceptions, but some only permit interception with the consent of all parties to a communication. Under federal law, consent may be either explicitly or implicitly given. For instance, someone, who uses a telephone other than his or her own and has been told by the subscriber that conversations over the instrument are recorded, has been held to have implicitly consented to interception when using the instrument. This is not to say that subscriber consent alone is sufficient, for it is the parties to the conversation whose privacy is protected. Although consent may be given in the hopes of leniency from law enforcement officials or as an election between unpalatable alternatives, it must be freely given and not secured coercively. Private consent interceptions may not be conducted for a criminal or tortious purpose. Some state wiretap laws do not recognize a one party consent exception. There, interception with the consent of but one party to the conversation is a violation of state law. But the federal exception is available as long as the purpose of the interception was neither criminal nor tortious—though the means may have been. At one time, the limitation encompassed interceptions for criminal, tortious, or otherwise injurious purposes, but ECPA dropped the reference to injurious purposes for fear that First Amendment values might be threatened should the clause be read to outlaw consent interceptions conducted to embarrass. Radio communications which can be inadvertently heard or are intended to be heard by the public are likewise exempt. These include not only commercial broadcasts, but ship and aircraft distress signals, tone-only pagers, marine radio and citizen band radio transmissions, and interceptions necessary to identify the source of any transmission, radio or otherwise, disrupting communications satellite broadcasts. Government officials have the benefit an exemption when executing a Title III eavesdropping order; acting in an emergency situation pending issuance of a court order; acting under the authority of Title III in the case of communications of an intruder in a communications system acting with the approval of the system provider; acting under the authority of the Foreign Intelligence Surveillance Act, or acting pursuant to the authority according them the use of pen registers and trap and trace devices. A further exemption applies to those who supply communications services: the telephone company, switchboard operators, and the like. The exemption permits interception in the name of improved service; to allow a service provider to itself against fraud; to assist federal and state officials operating under a judicially supervised interception order, and for the regulatory activities of the Federal Communications Commission. A few courts recognize a "vicarious consent" exception under which a custodial parent may secretly record the conversations of his or her minor child in the interest of protecting the child. Although rejected by most, a handful of federal courts have held that Title III does not preclude one spouse from wiretapping or electronically eavesdropping upon the other, a result other courts have sometimes reached through the telephone extension exception discussed above. Title III has three disclosure offenses. The first is a general prohibition focused on the products of an unlawful interception: any person [who] intentionally discloses or endeavors to disclose to another person the contents of any wire, oral, or electronic communication having reason to know that the information was obtained through the interception of a wire, oral, or electronic communication in violation of 18 U.S.C. 2511(1) is subject to the same sanctions and remedies as the wiretapper or electronic eavesdropper. This is true of the wiretapper or electronic eavesdropper and of all those who, aware of the information's illicit origins, disclose it. The defendant must be shown to have known that the interception occurred and that the interception was unlawful. There are exceptions. When the illegally secured information relates to a matter of usual public concern, the First Amendment precludes a prosecution for disclosure under §2511(c). Moreover, the legislative history indicates that Congress did not intend to punish the disclosure of intercepted information that is public knowledge. Less clear is whether the limitation is confined to information commonly known at the time of capture, or more likely, information of which the public was generally aware at the time of disclosure. Finally, the results of electronic eavesdropping authorized under Title III may be disclosed and used for law enforcement purposes and for testimonial purposes. Title III makes it a federal crime to disclose intercepted communications under two other circumstances. It is a federal crime to disclose, with an intent to obstruct criminal justice, any information derived from lawful police wiretapping or electronic eavesdropping, i.e .: any person [who] intentionally discloses, or endeavors to disclose, to any other person the contents of any wire, oral, or electronic communication intercepted by means authorized by sections: 2511(2)(a)(ii) (communication service providers, landlords, etc. who assist police setting up wiretaps or electronic eavesdropping devices) 2511(2)(b) (FCC regulatory activity) 2511(2)(c) (police one party consent) 2511(2)(e) (Foreign Intelligence Surveillance Act) 2516 (court-ordered, police wiretapping or electronic surveillance) 2518 (emergency wiretaps or electronic surveillance) knowing or having reason to know that the information was obtained through the interception of such a communication in connection with a criminal investigation having obtained or received the information in connection with a criminal investigation with intent to improperly obstruct, impede, or interfere with a duly authorized criminal investigation is subject to the same sanctions and remedies as one who illegally wiretaps. Offenders face the criminal and civil liability as those who wiretap. This second disclosure proscription applies to efforts to obstruct justice by revealing information gleaned from either federal wiretaps. It may also apply to state wiretaps. It covers information generated from a court-ordered wiretap authorized under Section 2516. Section 2516 authorizes both federal and state court-ordered wiretaps. On the other hand, strictly speaking, Section 2516 permits state wiretapping when "authorized" by state law. The courts might conclude that Congress would have spoken more clearly, if it intended to make it a federal crime to obstruct state criminal prosecutions by the disclosing of information derived from a state wiretap. A third disclosure proscription applies only to electronic communications service providers "who intentionally divulge the contents of the communication while in transmission" to anyone other than sender and intended recipient. The prohibition comes with its own exemptions for divulgence—when one of the parties to the communications consents, when Title III authorizes disclosure of a court approved interception, when necessary for transmission of the communication, or when it involves inadvertent discovery of information relating to the commission of a crime. Although subsection 2511(3) provides no specific sanctions, violators would presumably be exposed to criminal liability under the general disclosure proscription, 18 U.S.C. 2511(1)(c), and to civil liability under 18 U.S.C. 2520. The prohibition on the use of information secured from illegal wiretapping or electronic eavesdropping mirrors its disclosure counterpart: any person [who] intentionally uses or endeavors to use to another person the contents of any wire, oral, or electronic communication having reason to know that the information was obtained through the interception of a wire, oral, or electronic communication in violation of 18 U.S.C. 2511(1) is subject to the same sanctions and remedies as the wiretapper or electronic eavesdropper. The available case law under the use prohibition of paragraph 2511(1)(d) is scant, and the section has rarely been invoked except in conjunction with the disclosure prohibition of paragraph 2511(1)(c). The wording of the two is clearly parallel, the legislative history describes them in the same breath, and they are treated alike for law enforcement purposes. A few courts had recognized an exception to the disclosure-use bans of subsection 2511(1) when law enforcement officials disclose or use the results of an illegal interception in which they had played no role. The criminal and civil liability that attend unlawful use of intercepted communications in violation of paragraph 2511(1)(d) are the same as for unlawful disclosure in violation of paragraphs 2511(1)(c) or 2511(1)(e), or for unlawful interception under paragraphs 2511(1)(a) or 2511(1)(b). The proscriptions for possession and trafficking in wiretapping and eavesdropping devices are even more demanding than those that apply to the predicate offense itself. There are exemptions for service providers, government officials and those under contract with the government, but there is no exemption for equipment designed to be used by private individuals, lawfully but surreptitiously. Nevertheless, inoperable equipment, though designed to intercept, may not be considered equipment "which can be used to intercept" and consequently may not serve as the basis for a conviction under §2512. Section 2512's three prohibitions feature several common elements, declaring that: any person who intentionally either (a) sends through the mail or sends or carries in interstate or foreign commerce any electronic, mechanical, or other device knowing or having reason to know that the design of such device renders it primarily useful for the purpose of the surreptitious interception of wire, oral, or electronic communications; or (b) manufactures, assembles, possesses, or sells any electronic, mechanical, or other device knowing or having reason to know that the design of such device renders it primarily useful for the purpose of the surreptitious interception of wire, oral, or electronic communications, and that such device or any component thereof has been or will be sent through the mail or transported in interstate or foreign commerce; or (c) places in any newspaper, magazine, handbill, or other publication or disseminates electronically any advertisement of— any electronic, mechanical, or other device knowing or having reason to know that the design of such device renders it primarily useful for the purpose of the surreptitious interception of wire, oral, or electronic communications; or any other electronic, mechanical, or other device where such advertisement promotes the use of such device for the purpose of the surreptitious interception of wire, oral, or electronic communications knowing the content of the advertisement and knowing or having reason to know that such advertisement will be sent through the mail or transported in interstate or foreign commerce shall be imprisoned for not more than five years and/or fined not more than $250,000 (not more than $500,000 for organizations). The legislative history lists among the items Congress considered "primarily useful for the purpose of the surreptitious interception of communications: the martini olive transmitter, the spike mike, the infinity transmitter, and the microphone disguised as a wristwatch, picture frame, cuff link, tie clip, fountain pen, stapler, or cigarette pack." Questions once raised over whether §2512 covers equipment designed to permit unauthorized reception of scrambled satellite television signals have been resolved. Each of the circuits to consider the question has now concluded that §2512 outlaws such devices, but simple possession does not give rise to a private cause of action. The prohibitions in each of ECPA's three parts—chapter 119 (Title III), chapter 121 (Stored Communications Act), and chapter 206 (pen registers and trap & trace devices)—yield to the need for government access, usually under judicial supervision. Title III exempts federal and state law enforcement officials from its prohibitions on the interception of wire, oral, and electronic communications under three circumstances: (1) pursuant to or in anticipation of a court order, (2) with the consent of one of the parties to the communication; and (3) with respect to the communications of an intruder within an electronic communications system. To secure a Title III interception order as part of a federal criminal investigation, a senior Justice Department official must approve the application for the court order authorizing the interception of wire or oral communications. The procedure is only available where there is probable cause to believe that the wiretap or electronic eavesdropping will produce evidence of one of a long, but not exhaustive, list of federal crimes, or of the whereabouts of a "fugitive from justice" fleeing from prosecution of one of the offenses on the predicate offense list. Any federal prosecutor may approve an application for a court order under Section 2518 authorizing the interception of email or other electronic communications and the authority extends to any federal felony rather than more limited list of federal felonies upon which a wiretap or bug must be predicated. At the state level, the principal prosecuting attorney of a state or any of its political subdivisions may approve an application for an order authorizing wiretapping or electronic eavesdropping based upon probable cause to believe that it will produce evidence of a felony under the state laws covering murder, kidnaping, gambling, robbery, bribery, extortion, drug trafficking, or any other crime dangerous to life, limb or property. State applications, court orders and other procedures must at a minimum be as demanding as federal requirements. Applications for a court order authorizing wiretapping and electronic surveillance include: the identity of the applicant and the official who authorized the application; a full and complete statement of the facts including details of the crime, a particular description of the nature, location and place where the interception is to occur, a particular description of the communications to be intercepted, and the identities (if known) of the person committing the offense and of the persons whose communications are to be intercepted; a full and complete statement of the alternative investigative techniques used or an explanation of why they would be futile or dangerous; a statement of the period of time for which the interception is to be maintained and if it will not terminate upon seizure of the communications sought, a probable cause demonstration that further similar communications are likely to occur; a full and complete history of previous interception applications or efforts involving the same parties or places; in the case of an extension, the results to date or explanation for the want of results; and any additional information the judge may require. Before issuing an order authorizing interception, the court must find: probable cause to believe that an individual is, has or is about to commit one or more of the predicate offenses; probable cause to believe that the particular communications concerning the crime will be seized as a result of the interception requested; probable cause to believe that "the facilities from which, or the place where, the wire, oral, or electronic communications are to be intercepted are being used, or are about to be used, in connection with the commission of such offense, or are leased to, listed in the name of, or commonly used by such person." that normal investigative procedures have been or are likely to be futile or too dangerous." Subsections 2518(4) and (5) demand that any interception order include: the identity (if known) of the persons whose conversations are to be intercepted; the nature and location of facilities and place covered by the order; a particular description of the type of communication to be intercepted and an indication of the crime to which it relates; the individual approving the application and the agency executing the order; the period of time during which the interception may be conducted and an indication of whether it may continue after the communication sought has been seized; an instruction that the order shall be executed as soon as practicable, and so as to minimize the extent of innocent communication seized; and upon request, a direction for the cooperation of communications providers and others necessary or useful for the execution of the order. Compliance with these procedures may be postponed briefly until after the interception effort has begun, upon the approval of senior Justice Department officials in emergency cases involving organized crime or national security threatening conspiracies or involving the risk of death or serious injury. The court orders remain in effect only as long as required but not more than 30 days. After 30 days, the court may grant 30 day extensions subject to the procedures required for issuance of the original order. During that time the court may require progress reports at such intervals as it considers appropriate. Intercepted communications are to be recorded and the evidence secured and placed under seal (with the possibility of copies for authorized law enforcement disclosure and use) along with the application and the court's order. Within 90 days of the expiration of the order those whose communications have been intercepted are entitled to notice, and evidence secured through the intercept may be introduced into evidence with 10 days' advance notice to the parties. Title III also describes conditions under which information derived from a court ordered interception may be disclosed or otherwise used. It permits disclosure and use for official purposes by: other law enforcement officials including foreign officials; federal intelligence officers to the extent that it involves foreign intelligence information; other American or foreign government officials to the extent that it involves the threat of hostile acts by foreign powers, their agents, or international terrorists. It also allows witnesses testifying in federal or state proceedings to reveal the results of a Title III tap, provided the intercepted conversation or other communication is not privileged. Without a Title III order and without offending Title III, authorities may intercept the wire, oral, or electronic communications, it they have the consent of one of the parties to the communication. As noted earlier, consent may be either explicitly or implicitly given. For instance, someone who uses a telephone other than his or her own and has been told by the subscriber that conversations over the instrument are recorded has been held to have implicitly consented to interception when using the instrument. This is not to say that subscriber consent alone is sufficient, for it is the parties to the conversation whose privacy is designed to be protected. Although consent may be given in the hopes of leniency from law enforcement officials or as an election between unpalatable alternatives, it must be freely given and not secured coercively. Little judicial or academic commentary accompanies the narrow "computer trespasser" justification for governmental interception of electronic communications in paragraph 2511(2)(i). The paragraph originated as a temporary provision in the USA PATRIOT Act, and seems designed to enable authorities to track intruders who would surreptitiously use the computer systems of others to cover their trail. Interception, use, or disclosure in violation of Title III is generally punishable by imprisonment for not more than five years and/or a fine of not more than $250,000 for individuals and not more than $500,000 for organizations. The same penalties apply to the unlawful capture of cell phone and cordless phone conversations, since the Homeland Security Act repealed the reduced penalty provisions that at one time applied to the unlawful interceptions using radio scanners and the like. There is a reduced penalty, however, for filching satellite communications as long as the interception is not conducted for criminal, tortious, nor mercenary purposes: unauthorized interceptions are broadly proscribed subject to an exception for unscrambled transmissions and are subject to the general five-year penalty, but interceptions for neither criminal, tortious, nor mercenary purposes subject offenders to only civil punishment. Equipment used to wiretap or eavesdrop in violation of Title III is subject to confiscation by the United States, either in a separate civil proceeding or a part of the prosecution of the offender. In addition to exemptions previously mentioned, Title III provides a defense to criminal liability based on good faith. Victims of a violation of Title III may be entitled to equitable relief, damages (equal to the greater of actual damages, $100 per day of violation, or $10,000), punitive damages, reasonable attorney's fees and reasonable litigation costs. A majority of federal courts hold that a court may decline to award damages, attorneys' fees and costs, but a few still consider such awards mandatory. In addition, a majority hold that governmental entities other than the United States may be liable for violations of Section 2520 and that law enforcement officers enjoy a qualified immunity from suit under Section 2520. The cause of action created in Section 2520 is subject to a good faith defense. Efforts to claim the defense by anyone other than government officials or someone working at their direction have been largely unsuccessful. Moreover, as addressed more extensively below, the 2008 Foreign Intelligence Surveillance Amendments Act, under some circumstances, bars any state or federal cause of action against anyone who assists the government with the installation or use of a means of electronic eavesdropping or electronic surveillance. The USA PATRIOT Act authorizes a cause of action against the United States for willful violations of Title III, the Foreign Intelligence Surveillance Act or the provisions governing stored communications in 18 U.S.C. 2701-2712. Successful plaintiffs are entitled to the greater of $10,000 or actual damages, and reasonable litigation costs. Upon a judicial or administrative finding of a Title III violation suggesting possible intentional or willful misconduct on the part of a federal officer or employee, the federal agency or department involved may institute disciplinary action. It is required to explain to its Inspector General's office if it declines to do so. At one time, the American Bar Association (ABA) considered it ethical misconduct for an attorney to intercept or record a conversation without the consent of all of the parties to the conversation, ABA Formal Op. 337 (1974). The reaction of state regulatory authorities with the power to discipline professional misconduct was mixed. Some agreed with the ABA. Some agreed with the ABA, but expanded the circumstances under which recording could be conducted within ethical bounds. Some disagreed with the ABA view. The ABA has since repudiated its earlier position, ABA Formal Op. 01-422 (2001). Attorneys who engage in unlawful wiretapping or electronic eavesdropping will remain subject to professional discipline in every jurisdiction. In light of the ABA's change of position, courts and bar associations have had varied reactions to lawful wiretapping or electronic eavesdropping by members of the bar. When the federal wiretap statute prohibits disclosure, the information is inadmissible as evidence before any federal, state, or local tribunal or authority. Individuals whose conversations have been intercepted or against whom the interception was directed have standing to claim the benefits of the Section 2515 exclusionary rule through a motion to suppress under 18 U.S.C. 2518(10)(a). Paragraph 2518(10)(a) bars admission as long as the evidence is the product of (1) an unlawful interception, (2) an interception authorized by a facially insufficient court order, or (3) an interception executed in manner substantially contrary to the order authorizing the interception. Mere technical noncompliance is not enough; the defect must be of a nature that substantially undermines the regime of court-supervised interception for law enforcement purposes. Although the Supreme Court has held that Section 2515 may require suppression in instances where the Fourth Amendment exclusionary rule would not, some of the lower courts have recognized the applicability of the good faith exception to the Fourth Amendment exclusionary rule in Section 2515 cases. Other courts have held, moreover, that the fruits of an unlawful wiretapping or electronic eavesdropping may be used for impeachment purposes. The admissibility of tapes or transcripts of tapes of intercepted conversations raise a number of questions quite apart from the legality of the interception. As a consequence of the prerequisites required for admission, privately recorded conversations are more likely to be found inadmissible than those recorded by government officials. Admissibility will require the party moving for admission to show that the tapes or transcripts are accurate, authentic and trustworthy. For some courts this demands a showing that, "(1) the recording device was capable of recording the events offered in evidence; (2) the operator was competent to operate the device; (3) the recording is authentic and correct; (4) changes, additions, or deletions have not been made in the recording; (5) the recording has been preserved in a manner that is shown to the court; (6) the speakers on the tape are identified; and (7) the conversation elicited was made voluntarily and in good faith, without any kind of inducement." In its original form Title III was ill-suited to ensure the privacy of those varieties of modern communications which are equally vulnerable to intrusion when they are at rest as when they are in transmission. Surreptitious "access" is as least as great a threat as surreptitious "interception" to the patrons of electronic mail (email), electronic bulletin boards, voice mail, pagers, and remote computer storage. Accordingly, ECPA, in the Stored Communications Act (SCA), bans surreptitious access to communications at rest, although it does so beyond the confines that apply to interception, 18 U.S.C. 2701-2711. These separate provisions afford protection for email, voice mail, and other electronic communications only somewhat akin to that available for telephone and face to face conversations under 18 U.S.C. 2510-2522. The SCA has two sets of proscriptions: a general prohibition and a second applicable to only certain communications providers. The general proscription makes it a federal crime to: intentionally either access without authorization or exceed an authorization to access a facility through which an electronic communication service is provided and thereby obtain, alter, or prevent authorized access to a wire or electronic communication while it is in electronic storage in such system, 18 U.S.C. 2701(a). The prohibition extends only to "intentional" violations, that is, violations where the defendant had as a conscious objective the forbidden conduct and proscribed result. The offense has three essential components: access, to a facility through which service is supplied, and consequences (obtain, alter, prevent access to a wire or electronic communication). The first requires either unauthorized access or access in excess of authorization. The third requires either acquisition or alteration of an electronic communication or denial of access to it. The courts have encountered little difficulty in determining whether a defendant's conduct constitutes obtaining, altering, or preventing access to a communication. They have divided, however, over cases in which the defendant was granted access to a communication but used access for the purposes other than that for which it was authorized. The question is less divisive when the grant of access is expressly limited or when an individual with authorized access provides an outsider with his user name and password. The "facility through which an electronic communication service is provided" need not be one made available to the public; but includes as well facilities through which a private employer provides electronic communication services to his employees. The section only protects communications while "in electronic storage" in a facility through which electronic communications service is provided. "Electronic storage" is defined to encompass temporary, intermediate storage incidental to transmission as well as backup storage. The definition is not always easily applied. Section 2701's prohibitions yield to several exceptions and defenses. First, the section itself declares that: Subsection (a) of this section does not apply with respect to conduct authorized— (1) by the person or entity providing a wire or electronic communications service; (2) by a user of that service with respect to a communication of or intended for that user; or (3) in section 2703 [requirements for government access], 2704 [backup preservation] or 2518 [court ordered wiretapping or electronic eavesdropping] of this title. Second, there are the good faith defenses provided by section 2707: A good faith reliance on— (1) a court warrant or order, a grand jury subpoena, a legislative authorization, or a statutory authorization (including a request of a governmental entity under section 2703(f) of this title) [relating to an official request for a service provider preserve evidence]; (2) a request of an investigative or law enforcement officer under section 2518(7) of this title [relating to emergency wiretapping and electronic eavesdropping]; or (3) a good faith determination that section 2511(3) of this title [relating to the circumstances under which an electronic communications provider may divulge the contents of communication] permitted the conduct complained of is a complete defense to any civil or criminal action brought under this chapter or any other law. 18 U.S.C. 2707(e). Third, there is the general immunity from civil liability afforded providers under subsection 2703(e): [N]o cause of action shall lie in any court against any provider of wire or electronic communication service, its officers, employees, agents, or other specified persons for providing information, facilities, or assistance in accordance with the terms of a court order, warrant, subpoena , statutory authorization , or certification under this chapter. A second set of prohibitions appears in Section 2702 and supplements those in Section 2701. Section 2702 bans the disclosure of the content of electronic communications and records relating to them by those who provide the public with electronic communication service or remote computing service. The section forbids providers to disclose the content of certain communications to anyone or to disclose related records to governmental entities. Public electronic communication service (ECS) providers to the public must keep confidential the content of any "communication while in electronic storage by that service." Public remote computer service (RCS) providers must keep confidential the content of "any communication which is carried or maintained on that service—(A) on behalf of, and received by means of electronic transmission from (or created by means of computer processing of communications received by means of electronic transmission from), a subscriber or customer of such service; (B) solely for the purpose of providing storage or computer processing services to such subscriber or customer, if the provider is not authorized to access the contents of any such communications for purposes of providing any services other than storage or computer processing." Both sets of providers must keep confidential any "record or other information pertaining to a subscriber to or customer of such service (not including the contents of communications covered by paragraph (1) or (2)) to any government entity." Section 2702 comes with its own set of exceptions which permit disclosure of the contents of a communication: (1) to an addressee or intended recipient of such communication or an agent of such addressee or intended recipient; (2) as otherwise authorized in section 2517 [relating to disclosures permitted under Title III], 2511(2)(a)[relating to provider disclosures permitted under Title III for protection of provider property or incidental to service], or 2703 [relating to required provider disclosures pursuant to governmental authority] of this title; (3) with the lawful consent of the originator or an addressee or intended recipient of such communication, or the subscriber in the case of remote computing service ; (4) to a person employed or authorized or whose facilities are used to forward such communication to its destination; (5) as may be necessarily incident to the rendition of the service or to the protection of the rights or property of the provider of that service; (6) to the National Center for Missing and Exploited Children, in connection with a report submitted thereto under section 227 of the Victims of Child Abuse Act of 1990; (7) to a law enforcement agency—(A) if the contents—(i) were inadvertently obtained by the service provider; and (ii) appear to pertain to the commission of a crime; (8) to a Federal, State, or local government entity, if the provider, in good faith, believes that an emergency involving danger of death or serious physical injury to any person requires disclosure without delay of communications relating to the emergency. The record disclosure exceptions are similar. The Ninth Circuit in Quon noted that the exception in paragraph 2702(b)(3)(disclosure "with the lawful consent of the originator or an addressee or intended recipient of such communication, or the subscriber in the case of remote computing service ) permits RCS providers to disclose the contents of otherwise protected communications does not afford ECS providers the same exception. Thus, the service provider violated the SCA when it supplied the Ontario Police Department (the subscriber) with the text of Sergeant Quon's pager messages. The circumstances and procedural requirements for law enforcement access to stored wire or electronic communications and transactional records are less demanding than those under Title III. They deal with two kinds of information—often in the custody of the communications service provider rather than of any of the parties to the communication—communications records and the content of electronic or wire communications. The Stored Communications Act provides two primary avenues for law enforcement access: permissible provider disclosure (Section 2702) and required provided access (Section 2703). As noted earlier in the general discussion of Section 2702, a public electronic communication service (ECS) provider or a public remote computing service (RCS) provider may disclose the content of a customer's communication without the consent of a communicating party to a law enforcement agency in the case of inadvertent discovery of information relating to commission of a crime, or to any government entity in an emergency situation. ECS and RCS providers may also disclose communications records to any governmental entity in an emergency situation. Federal, state, and local agencies, regardless of the nature of their missions, all qualify as governmental entities for purposes of Section 2702. Section 2702 authorizes voluntary disclosure. Section 2703 speaks to the circumstances under which ECS and RCS providers may be required to disclose communications content and related records. Section 2703 distinguishes between recent communications and those that have been in electronic storage for more than 180 days. The section insists that government entities resort to a search warrant to compel providers to supply the content of wire or electronic communications held in electronic storage for less than 180 days. It permits them to use a warrant, subpoena, or a court order authorized in subsection 2703(d) to force content disclosure with respect to communications held for more than 180 days. A subsection 2703(d) court order may be issued by a federal magistrate or by a judge qualified to issue an order under Title III. It need not be issued in the district in which the provider is located. The person whose communication is disclosed is entitled to notice, unless the court authorizes delayed notification because contemporaneous notice might have an adverse impact. Government supervisory officials may certify the need for delayed notification in the case of a subpoena. Traditional exigent circumstances and a final general inconvenience justification form the grounds for delayed notification in either case: endangering the life or physical safety of an individual; flight from prosecution; destruction of or tampering with evidence; intimidation of potential witnesses; or otherwise seriously jeopardizing an investigation or unduly delaying a trial. Subsection 2703(d) authorizes issuance of an order when the governmental entity has presented specific and articulable facts sufficient to establish reasonable grounds to believe that the contents are relevant and material to an ongoing criminal investigation. Some courts have held that this "reasonable grounds" standard is a Terry standard, a less demanding standard than "probable cause," and that under some circumstances this standard may be constitutionally insufficient to justify government access to provider held email. A Sixth Circuit panel has held that the Fourth Amendment precludes government access to the content of stored communications (email) held by service providers in the absence of a warrant, subscriber consent, or some other indication that the subscriber has waived his or her expectation of privacy. Where the government instead secures access through a subpoena or court order as Section 2703 permits, the evidence may be subject to both the Fourth Amendment exclusionary rule and the exceptions to the rule. The SCA has two provisions which require providers to save customer communications at the government's request. One is found in subsection 2703(f). It requires ECS and RCS providers to preserve "records and other evidence in its possession," at the request of a governmental entity pending receipt of a warrant, court order, or subpoena. Whether providers are bound to preserve emails and other communications that come into their possession both before and after receipt of the request is unclear. The second preservation provision is more detailed. It permits a governmental entity to insist that providers preserve backup copies of the communications covered by a subpoena or subsection 2703(d) court order. It gives subscribers the right to challenge the relevancy of the information sought. It might also be read to require the preservation of the content of communications received by the provider both before and after receipt of the order, but the requirement that copies be made within two days of receipt of the order seems to preclude such an interpretation. Section 2703 provides greater protection to communication content than to provider records relating to those communications. Under subsection 2703(c), a governmental entity may require a ECS or RCS provider to disclose records or information pertaining to a customer or subscriber—other than the content of a communication—under a warrant, a court order under subsection 2703(d), or with the consent of the subject of the information. An administrative, grand jury or trial subpoena is sufficient, however, for a limited range of customer or subscriber related information. The customer or subscriber need not be notified of the record disclosure in either case. The district courts have been divided for some time over the question of what standard applies when the government seeks cell phone location information from a provider, either current or historical. The Third Circuit has held that while issuance of an order under subsection 2703(d) does not require a showing of probable cause as a general rule, the circumstances of a given case may require it. In United States v. J ones , five members of the Supreme Court seemed to suggest that a driver has a reasonable expectation that authorities must comply with the demands of the Fourth Amendment before acquiring access to information that discloses the travel patterns of his car over an extended period of time. There, the Court unanimously agreed that the agents' attachment of a tracking device to Jones' car and long-term capture of the resulting information constituted a Fourth Amendment search. For four Justices, placement of the device constituted a physical intrusion upon a constitutionally protected area. For four others, long-term tracking constituted a breach of Jones' reasonable expectation of privacy. For the ninth Justice, the activity constituted a Fourth Amendment search under either rationale. It remains to be seen whether the Supreme Court's decision in Jones will contribute to resolution of the issue. Breaches of the unauthorized access prohibitions of Section 2701 expose offenders to possible criminal, civil, and administrative sanctions. Violations committed for malicious, mercenary, tortious or criminal purposes are punishable by imprisonment for not more than five years (not more than 10 years for a subsequent conviction) and/or a fine of not more than $250,000 (not more than $500,000 for organizations); lesser transgressions, by imprisonment for not more than one year (not more than five years for a subsequent conviction) and/or a fine of not more than $100,000. Victims of a violation of subsection 2701(a) have a cause of action for equitable relief, reasonable attorneys' fees and costs, and damages equal to the amount of any offender profits added to the total of the victim's losses (but not less than $1,000 in any event). Violations by the United States may give rise to a cause of action and may result in disciplinary action against offending officials or employees under the same provisions that apply to U.S. violations of Title III, Unlike violations of Title III, however, there is no statutory prohibition on disclosure or use of the information through a violation of Section 2701; nor is there a statutory rule for the exclusion of evidence as a consequence of a violation. Yet, violations of SCA, which also constitute violations of the Fourth Amendment, will trigger both the Fourth Amendment exclusionary rule and the exceptions to that rule. No criminal penalties attend a violation of voluntary provider disclosure prohibitions of Section 2702. Yet, ECS and RCS providers—unable to claim the benefit of one of the section's exceptions, of the good faith defense under subsection 2707(e), or of the immunity available under subsection 2703(e)—may be liable for civil damages, costs and attorneys' fees under Section 2707 for any violation of Section 2702. A trap and trace device identifies the source of incoming calls, and a pen register indicates the numbers called from a particular instrument. Since they did not allowed the user to overhear the "contents" of the phone conversation or to otherwise capture the content of a communication, they were not considered interceptions within the reach of Title III prior to the enactment of ECPA. Although Congress elected to expand the definition of interception, it chose to regulate these devices beyond the boundaries of Title III for most purposes. Nevertheless, the Title III wiretap provisions apply when, due to the nature of advances in telecommunications technology, pen registers and trap and trace devices are able to capture wire communication "content." The USA PATRIOT Act enlarged the coverage of Sections 3121-3127 to include sender/addressee information relating to email and other forms of electronic communications. Subsection 3121(a) outlaws installation or use of a pen register or trap and trace device, except under one of seven circumstances: pursuant to a court order issued under sections 3121-3127; pursuant to a Foreign Intelligence Surveillance Act (FISA) court order; with the consent of the user; when incidental to service; when necessary to protect users from abuse of service; when necessary to protect providers from abuse of service; or in an emergency situation. Federal government attorneys and state and local police officers may apply for a court order authorizing the installation and use of a pen register and/or a trap and trace device upon certification that the information that it will provide is relevant to a pending criminal investigation. An order authorizing installation and use of a pen register or trap and trace device must: specify the person (if known) upon whose telephone line the device is to be installed, the person (if known) who is the subject of the criminal investigation, the telephone number, (if known) the location of the line to which the device is to be attached, and geographical range of the device, a description of the crime to which the investigation relates; upon request, direct carrier assistance pursuant to section 3124; terminate within 60 days, unless extended; involve a report of particulars of the order's execution in Internet cases; and impose necessary nondisclosure requirements. The order may be issued by a judge of "competent jurisdiction" over the offense under investigation, including a federal magistrate judge. Senior Justice Department or state prosecutors may approve the installation and use of a pen register or trap and trace device prior to the issuance of court authorization in emergency cases that involve either an organized crime conspiracy, an immediate danger of death or serious injury, a threat to national security, or a serious attack on a "protected computer." Emergency use must end within 48 hours, or sooner if an application for court approval is denied. Federal authorities have applied for court orders, under the Stored Communications Act (18 U.S.C. 2701-2712) and the trap and trace authority of 18 U.S.C. 3121-3127, seeking to direct communications providers to supply them with the information necessary to track cell phone users in conjunction with an ongoing criminal investigation. Thus far, their efforts have met with mixed success. The use or installation of pen registers or trap and trace devices by anyone other than the telephone company, service provider, or those acting under judicial authority is a federal crime, punishable by imprisonment for not more than a year and/or a fine of not more than $100,000 ($200,000 for an organization). Subsection 3124(e) creates a good faith defense for reliance upon a court order under subsection 3123(b), an emergency request under subsection 3125(a), "a legislative authorization, or a statutory authorization." There is no accompanying exclusionary rule, and consequently a violation of Section 3121 will not serve as a basis to suppress any resulting evidence. Moreover, unlike violations of Title III, there is no requirement that the target of an order be notified upon the expiration of the order; nor is there a separate federal private cause of action for victims of a pen register or trap and trace device violation. One court, in order the avoid First Amendment concerns, has held that the statute precludes imposing permanent gag orders upon providers. Nevertheless permitting providers to disclose the existence of an order to a target does not require them to do so. Some of the states have established a separate criminal offense for unlawful use of a pen register or trap and trace device, yet most of these seem to follow the federal lead and have not established a separate private cause of action for unlawful installation or use of the devices. The Foreign Intelligence Surveillance Act (FISA) authorizes special court orders for several purposes: electronic surveillance, physical searches, installation and use of pen registers/trap and trace devices, and orders to disclose tangible items. It once authorized surveillance orders which targeted the communications of persons overseas. Its replacement provisions for the review of orders directed at persons abroad expire on December 31, 2017. FISA insists that Congress be informed as to the extent that its authority has been used and establishes a safe harbor for those who help carry out its orders. The Foreign Intelligence Surveillance Court (the FISA court) is a creature of FISA. The FISA court consists of eleven federal district court judges from throughout the country, designated by the Chief Justice of the United States. The individual members of the court receive and act upon FISA order applications. Federal magistrate judges, designated by the Chief Justice, may also perform those functions with respect to pen register/trap and trace orders. Members of the FISA court, sitting in panels, pass upon challenges associated with the execution of tangible item and overseas targeting orders. These panels also rule upon requests to modify or set aside gag orders issued in connection with the execution of tangible item orders. The government may appeal the denial of a FISA application to a Foreign Intelligence Surveillance Court of Review made up of three federal judges designated by the Chief Justice. The FISA electronic surveillance and physical search components use generally parallel procedures. Both draw from their law enforcement counterparts, but with important differences. The procedure for securing wiretapping court orders under FISA differs from its law enforcement equivalent in several ways. First is the matter of what constitutes electronic surveillance. FISA classifies four kinds of "electronic surveillance." The four classes of electronic surveillance include wiretapping that could otherwise only be conducted under court order: "(1) the acquisition by an electronic, mechanical, or other surveillance device of the contents of any wire or radio communication sent by or intended to be received by a particular, known United States person who is in the United States, if the contents are acquired by intentionally targeting that United States person, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes; "(2) the acquisition by an electronic, mechanical, or other surveillance device of the contents of any wire communication to or from a person in the United States, without the consent of any party thereto, if such acquisition occurs in the United States, does not include the acquisition of those communications of computer trespassers that would be permissible under section 2511(2)(I) of title 18, United States Code; "(3) the intentional acquisition by an electronic, mechanical, or other surveillance device of the contents of any radio communication, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes, and if both the sender and all intended recipients are located within the United States; or "(4) the installation or use of an electronic, mechanical, or other surveillance device in the United States for monitoring to acquire information, other than from a wire or radio communication, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes," 50 U.S.C. 1801(f). In the area of surveillance and physical searches, the judges of the FISA court individually receive and approve or reject requests, authorized by the Attorney General, to conduct the four specific types of electronic surveillance noted earlier of the communications and activities of foreign powers. A FISA electronic surveillance or physical search application must include: the identity of the individual submitting the application; the identity or a description of the person whose communications are to be intercepted; an indication of why the person is believed to be a foreign power or the agent of a foreign power, and why foreign powers or their agents are believed to use the targeted facilities or places; a summary of the minimization procedures to be followed; a description of the communications to be intercepted and the information sought; certification by a senior national security or senior defense official designed by the President that the information sought is foreign intelligence information, a significant purpose of interception is to secure foreign intelligence information, the information cannot reasonably be obtained using alternative means, a summary statement of the means of accomplishing the interception (including whether a physical entry will be required); a history of past interception applications involving the same persons, places or facilities; the period of time during which the interception is to occur, whether it will terminate immediately upon obtaining the information sought, and if not, the reasons why interception thereafter is likely to be productively intercepted. The judges issue orders approving electronic surveillance or physical searches upon a finding that the application requirements have been met and that there is probable cause to believe that the target is a foreign power or the agent of a foreign power and that the targeted places or facilities are used by foreign powers or their agents. Orders approving electronic surveillance must: specify the identity or a description of the person whose communications are to be intercepted, the nature and location of the targeted facilities or places, if known, type of communications or activities targeted and the kind of information sought, the means by which interception is to be accomplished and whether physical entry is authorized, the tenure of the authorization, and whether more than one device are to be used and if so their respective ranges and associated minimization procedures; require that minimization procedures be adhered to, upon request, that carriers and others provide assistance, that those providing assistance observe certain security precautions, and be compensated; direct the applicant to advise the court of the particulars relating to surveillance directed at additional facilities and places when the order permits surveillance although the nature and location of targeted facilities and places were unknown at the time of issuance; expire when its purpose is accomplished but not later than after 90 days generally (after 120 days in the case of certain foreign agents and after a year in the case of foreign governments or their entities or factions of foreign nations) unless extended (extensions may not exceed one year). As in the case of law enforcement wiretapping and electronic eavesdropping, there is authority for interception and physical searches prior to approval in emergency situations. However, there is also statutory authority for foreign intelligence surveillance interceptions and physical searches without the requirement of a court order when the targets are limited to communications among or between foreign powers or involve nonverbal communications from places under the open and exclusive control of a foreign power. The second of these is replete with reporting requirements to Congress and the FISA court. These and the twin war time exceptions may be subject to constitutional limitations, particularly when Americans are the surveillance targets. FISA has detailed provisions governing the use of the information acquired through the use of its surveillance or physical search authority that include: confidentiality requirements; notice of required Attorney General approval for disclosure; notice to the "aggrieved" of the government's intention to use the results as evidence; suppression procedures; inadvertently captured information; notification of emergency surveillance or search for which no FISA order was subsequently secured; and clarification that those who execute FISA surveillance or physical search orders may consult with federal and state law enforcement officers. Both the surveillance and the physical search authorities are subject to Congressional oversight in the form of semiannual reports on the extent and circumstances of their use. Title III has long declared that it should not be construed to confine governmental activities authorized under FISA, but that the two—Title III and FISA—are the exclusive authority under which governmental electronic surveillance may be conducted in this country. The Justice Department suggested, however, that in addition to the President's constitutional authority the Authorization for the Use of Military Force Resolution, enacted in response to the events of September 11, established an implicit exception to the exclusivity requirement. Section 102 of 2008 FISA Amendments Act seeks to overcome the suggestion by establishing a second exclusivity section which declares that exceptions may only be created by explicit statutory language. It is a federal crime for federal officials to abuse their authority under either the FISA electronic surveillance or physical search provisions. The prohibitions cover illicit surveillance and searches as well as the use or disclosure of such unlawful activities. They apply to any federal officer or employee who: • intentionally, either • engages in electronic surveillance or conducts a physical search • under color of law • except as authorized by statute, or • discloses or uses • information obtained under color of law • by electronic surveillance or physical search, • knowing or having reason to know • that the information was obtained by electronic surveillance not authorized by statute. Violations are punishable by a fine and/or imprisonment for not more than 5 years. Federal law enforcement and investigative officers enjoy the benefit of a defense, if they are acting under the authority of warrant or court order. Violations may also expose the offender to civil liability. Those directed to assist authorities in execution of an electronic surveillance or physical search order are immune from civil suit. Moreover, even in the absence of a court order, the 2008 FISA Amendments Act bars the initiation or continuation of civil suits in either state or federal court based on charges that the defendant assisted any of the U.S. intelligence agencies. Dismissal is required upon the certification of the Attorney General that the person either: did not provide the assistance charged; provided the assistance under order of the FISA court; provided the assistance pursuant to a national security letter issued under 18 U.S.C. 2709; provided the assistance pursuant to 18 U.S.C. 2511(2)(a)(ii)(B) and 2518(7) under assurances from the Attorney General or a senior Justice Department official, empowered to approve emergency law enforcement wiretaps, that no court approval was required; provided the assistance in response to a directive from the President through the Attorney General relating to communications between or among foreign powers pursuant to 50 U.S.C. 1802(a)(4); provided the assistance in response to a directive from the Attorney General and the Director of National Intelligence relating to the acquisition of foreign intelligence information targeting non-U.S. persons thought to be overseas pursuant to 50 U.S.C. 1881a(h); or provided the assistance in connection with intelligence activities authorized by the President between September 11, 2001 and January 17, 2007 relating to terrorist attacks against the United States. Only telecommunications carriers, electronic service providers, and other communication service providers may claim the protection afforded those who assisted activities authorized between 9/11 and January 17, 2007. The group which may claim protection for assistance supplied under other grounds is larger. It includes not only communication service providers but also any "landlord, custodian or other person" ordered or directed to provide assistance. The Attorney General's certification is binding if supported by substantial evidence, and the court is to consider challenges and supporting evidence ex parte and in camera where the Attorney General asserts that disclosure would harm national security. Cases filed in state court may be removed to federal court. The courts have rejected arguments that immunity procedure violates the Due Process Clause, the First Amendment, separation of powers, and the Administrative Procedure Act in multi-district civil litigation arising out of the National Security Agency program. The 2008 FISA Amendments Act also preempts state regulatory authority over communication service providers with respect to assistance provided to intelligence agencies. In addition, it directs the Attorney General to report to the Judiciary and Intelligence Committees on implementation of the protective provisions. With the reduced availability of individual defendants, the USA PATRIOT Act amendments afford victims of any improper use of information secured under a FISA surveillance, physical search, or pen register order a cause of action against the United States for actual or statutory damages. No comparable cause of action against the United States exists for other FISA violations. FISA also has its own exclusionary rules for evidence derived from unlawful FISA electronic surveillance or physical searches. Nevertheless, Congress anticipated, and the courts have acknowledged, that lawful surveillance and searches conducted under FISA for foreign intelligence purposes may result in admissible evidence of a crime. The FISA exclusionary rules, however, do not apply before the grand jury. FISA pen register and trap and trace procedures are similar to those of their law enforcement counterparts, but with many of the attributes of other FISA provisions. The orders may be issued either by a member of the FISA court or by a FISA magistrate upon the certification of a federal officer that the information sought is likely to be relevant to an investigation of international terrorism or clandestine intelligence activities. The order may direct service providers to supply customer information related to the order. The statute allows the Attorney General to authorize emergency installation and use as long as an application is filed within 48 hours, and restricts the use of any resulting evidence if an order is not subsequently granted. The provisions for use of the information acquired run parallel to those that apply to FISA surveillance and physical search orders. The USA PATRIOT Improvement and Reauthorization Act increased the level of Congressional oversight by requiring that the semiannual report on the government's recourse to FISA pen register/trap and trace authority including statistical information on the extent of its use. The pen register/trap & trace portion of FISA declares that information acquired by virtue of a FISA pen register or trap & trade order may only be used and disclosed for lawful purposes and only consistent with FISA's use restrictions. It is a federal crime to install or use a pen register or trap and trace device unless authorized to do so under either ECPA or FISA. Offenders face the prospect of imprisonment for not more than 1 year and/or a fine of not more than $100,000. Good faith reliance on a statutory authorization, such as the authority FISA provides, constitutes a defense. Those who assist are immune from civil liability, but victims of the unlawful use of information derived from a FISA pen register or trap and trace device order have a cause of action against the United States. The exclusionary rule for a FISA pen register or trap and trace order is comparable to that which applies in the case of evidence derived from FISA electronic surveillance or a FISA physical search. FISA's tangible item orders are perhaps its most interesting feature. Prior to the USA PATRIOT Act, senior FBI officials could approve an application to the FISA court for an order authorizing common carriers, or public accommodation, storage facility, or vehicle rental establishments to release their business records based upon certification of a reason to believe that the records pertained to a foreign power or the agent of a foreign power. The USA PATRIOT Act and later the USA PATRIOT Improvement and Reauthorization Act temporarily rewrote the procedure. In its temporary form, it requires rather than authorizes access; it is predicated upon relevancy rather than probable cause; it applies to all tangible property (not merely business records); and it applies to the tangible property of both individuals or organizations, commercial and otherwise. It is limited, however, to investigations conducted to secure foreign intelligence information or to protect against international terrorism or clandestine intelligence activities. Recipients are prohibited from disclosing the existence of the order, but are expressly authorized to consult an attorney with respect to their rights and obligations under the order. They enjoy immunity from civil liability for good faith compliance. They may challenge the legality of the order and/or ask that its disclosure restrictions be lifted or modified. The grounds for lifting the secrecy requirements are closely defined, but petitions for reconsideration may be filed annually. The decision to set aside, modify or let stand either the disclosure restrictions of an order or the underlying order itself are subject to appellate review. As additional safeguards, Congress has: insisted upon the promulgation of minimization standards; established use restrictions; required the approval of senior officials in order to seek orders covering the records of libraries and certain other types of records; confirmed and reinforced reporting requirements; and directed the Justice Department's Inspector General to conduct an audit of the use of the FISA tangible item authority. The 2008 FISA Amendments Act established a temporary set of three procedures which authorize the acquisition of foreign intelligence information by targeting an individual or entity thought to be overseas. One, 50 U.S.C. 1881a, applies to the targeting of an overseas person or entity that is not a U.S. person. Another, 50 U.S.C. 1881b, covers situations when the American target is overseas but the gathering involves electronic communications or stored electronic communications or data acquired in this country. The third, 50 U.S.C. 1881c, applies to situations when the American target is overseas, but Section 1881b is not available, either because acquisition occurs outside of the United States or because it involves something other than electronic surveillance or the acquisition of stored communications or data, e.g ., a physical search. In the case of targets who are not U.S. persons, Section 1881a(a) declares "upon the issuance of an order in accordance with subsection (i)(3) or a determination under subsection (c)(2), the Attorney General and the Director of National Intelligence may authorize jointly, for a period of up to 1 year from the effective date of the authorization, the targeting of persons reasonably believed to be located outside the United States to acquire foreign intelligence information." It makes no mention of authorizing acquisition. It merely speaks of targeting with an eye to acquisition. Moreover, it gives no indication of whether the anticipated methods of acquisition include the capture of a target's communications, of communications relating to a target, of communications of a person or entity related to the target, or information concerning one of the three. The remainder of the section, however, seems to dispel some of the questions. Section 1881a is intended to empower the Attorney General and the Director of National Intelligence to authorize the acquisition of foreign intelligence information and the methods that may be used to the capture of communications and related information. The procedure begins either with a certification presented to the FISA court for approval or with a determination by the two officials that exigent circumstances warrant timely authorization prior to court approval. In the certification process, they must assert in writing and under oath that: a significant purpose for the effort is the acquisition of foreign intelligence information the effort will involve the assistance of an electronic communication service provider the court has approved, or is being asked to approve, procedures designed to ensure that acquisition is limited to targeted persons found outside the U.S. and to prevent the capture of communications in which all the parties are within the U.S. minimization procedures, which the court has approved or is being asked to approve and which satisfy the requirements for such procedures in the case of FISA electronic surveillance and physical searches, will be honored guidelines to ensure compliance with limitations imposed in the section have been adopted and the limitations will be observed these procedures and guidelines are consistent with Fourth Amendment standards. The certification is be accompanied by a copy of the targeting and minimization procedures, any supporting affidavits from senior national security officials, an indication of the effective date of the authorization, and a notification of whether pre-approval emergency authorization has been given. The certification, however, need not describe the facilities or places at which acquisition efforts will be directed. The limitations preclude intentionally targeting a person in the U.S., "reverse targeting" (intentionally targeting a person overseas purpose of targeting a person within the U.S.), intentionally targeting a U.S. person outside the U.S., intentionally acquiring a communication in which all of the parties are in the U.S., or conducting the acquisition in a manner contrary to the demands of the Fourth Amendment. The Attorney General, in consultation with the Director of National Intelligence, is obligated to promulgate targeting and minimization procedures and guidelines to ensure that the section's limitations are observed. The minimization procedures must satisfy the standards required for similar procedures required for FISA electronic surveillance and physical searches. The targeting procedures must be calculated to avoid acquiring communications in which all of the parties are in the U.S. and to confine targeting to persons located outside the U.S. Both are subject to review by the FISA court for sufficiency when it receives the request to approve the certification. Copies of the guidelines, which also provide directions concerning the application for FISA court approval under the section, must be supplied to court and to the congressional intelligence and judiciary committees. The Attorney General and Director of National Intelligence may instruct an electronic communications service provider to assist in the acquisition. Cooperative providers are entitled to compensation and are immune from suit for their assistance. They may also petition the FISA court to set aside or modify the direction for assistance, if it is unlawful. The Attorney General may petition the court to enforce a directive against an uncooperative provider. The court's decisions concerning certification approval, modification of directions for assistance, and enforcement of the directives are each appealable to the Foreign Intelligence Court of Review and on certiorari to the Supreme Court. Except with respect to disclosure following a failure to secure court approval of an emergency authorization, Section 1806, discussed earlier, governs the use of information obtained under the authority of Section 1881a. When the overseas target is an American individual or entity and acquisition is to occur in this country, the court may authorize acquisition by electronic surveillance or by capturing stored electronic communications or data under Section 1881b. The Attorney General must approve the application which must be made under oath and indicate: the identity of the applicant the identity, if known, or description of the American target the facts establishing that reason to believe that the person is overseas and a foreign power or its agent, officer, or employee the applicable minimization procedures a description of the information sought and the type of communications or activities targeted certification by the Attorney General or a senior national security or defense official that foreign intelligence information is to be sought a significant purpose of the effort is to obtain such information the information cannot otherwise reasonably be obtained (and the facts upon which this conclusion is based) the nature of the information ( e.g ., relating to terrorism, sabotage, the conduct of U.S. foreign affairs, etc.)(and the facts upon which this conclusion is based) the means of acquisition and whether physical entry will be necessary the identity of the service providing assisting (targeted facilities and premises need not be identified) a statement of previous applications relating to the same American and actions taken the proposed tenure of the order (not to exceed 90 days), and any additional information the FISA court may require. The court must issue an acquisition order upon a finding that the application satisfies statutory requirements, the minimization procedures are adequate, and there is probable cause to believe that the American target is located overseas and is a foreign power or its agent, officer or employee. The court must explain in writing any finding that the application's assertion of probable cause, minimization procedures, or certified facts is insufficient. Such findings are appealable to the Foreign Intelligence Surveillance Court of Review and under certiorari to the Supreme Court. The court's order approving acquisition is to include the identity or description of the American target, the type of activities targeted, the nature of the information sought, the means of acquisition, and duration of the order. The order will also call for compliance with the minimization procedures, and when appropriate, for confidential, minimally disruptive provider assistance, compensated at a prevailing rate. Providers are immune from civil liability for any assistance they are directed to provide. As in other instances, in emergency cases the Attorney General may authorize acquisition pending approval of the court. The court must be notified of the Attorney General's decision and the related application must be filed within 7 days. If emergency acquisition is not judicially approved subsequently, no resulting evidence may be introduced in any judicial, legislative or regulatory proceedings unless the target is determined not to be an American, nor may resulting information be shared with other federal officials without the consent of the target, unless the Attorney General determines that the information concerns a threat of serious bodily injury. Except with respect to disclosure following a failure to court approval of an emergency authorization, Section 1806, discussed earlier, governs the use of information obtained under the authority of Section 1881a. The second provision for targeting an American overseas in order to acquire foreign intelligence information, Section 1881c, is somewhat unique. Both FISA surveillance and Title III have been understood to apply only to interceptions within the United States. Neither has been thought to apply overseas. Section 1881c, however, may be used for acquisitions outside the United States. Moreover, it may be used for acquisitions inside the United States as long as the requirements that would ordinarily attend such acquisition are honored. Otherwise, Section 1881c features many of the same application, approval, and appeal provisions as Section 1881b. Authorization is available under a court order or in emergency circumstances under the order of the Attorney General. Acquisition activities must be discontinued during any period when the target is thought to be in the United States. Unlike 1881b, however, it is not limited to electronic surveillance or the acquisition of stored electronic information. Moreover, it declares that in the case of acquisition abroad recourse to a court order need only be had when the target American, found overseas, has a reasonable expectation of privacy and a warrant would be required if the acquisition efforts had taken place in the United States and for law enforcement purposes. A challenge to the constitutionality of Section 1881a was initially dismissed because the district court did not believe the plaintiffs had shown that they had standing (i.e., a sufficient individual injury attributable to execution of the statute's authority). The Second Circuit disagreed. The Supreme Court has agreed to consider the case. Every 6 months, the Attorney General must report on the use of FISA authority. Recipients are the House and Senate Judiciary Committees and the House and Senate Intelligence committees. In a manner consistent with the protection of national security, the transmission must provide: the number of persons targeted under: FISA electronic surveillance orders, FISA physical search orders, FISA pen register/trap and trace orders, FISA tangible item orders, FISA acquisitions relating to U.S. persons overseas; the number of persons covered as lone wolf terrorists; the number of times the Attorney General has authorized the use of FISA material in a criminal proceeding; a summary of the signification legal interpretations of the FISA court or the FISA Court of Review; and copies of the decisions, orders, and opinions of those courts. As used in this chapter— (1 ) "wire communication" means any aural transfer made in whole or in part through the use of facilities for the transmission of communications by the aid of wire, cable, or other like connection between the point of origin and the point of reception (including the use of such connection in a switching station) furnished or operated by any person engaged in providing or operating such facilities for the transmission of interstate or foreign communications or communications affecting interstate or foreign commerce; (2) "oral communication" means any oral communication uttered by a person exhibiting an expectation that such communication is not subject to interception under circumstances justifying such expectation, but such term does not include any electronic communication; (3) "State" means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States; (4) "intercept" means the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device; (5) "electronic, mechanical, or other device" means any device or apparatus which can be used to intercept a wire, oral, or electronic communication other than— (a) any telephone or telegraph instrument, equipment or facility, or any component thereof, (i) furnished to the subscriber or user by a provider of wire or electronic communication service in the ordinary course of its business and being used by the subscriber or user in the ordinary course of its business or furnished by such subscriber or user for connection to the facilities of such service and used in the ordinary course of its business; or (ii) being used by a provider of wire or electronic communication service in the ordinary course of its business, or by an investigative or law enforcement officer in the ordinary course of his duties; (b)a hearing aid or similar device being used to correct subnormal hearing to not better than normal; (6) "person" means any employee, or agent of the United States or any State or political subdivision thereof, and any individual, partnership, association, joint stock company, trust, or corporation; (7) "Investigative or law enforcement officer" means any officer of the United States or of a State or political subdivision thereof, who is empowered by law to conduct investigations of or to make arrests for offenses enumerated in this chapter, and any attorney authorized by law to prosecute or participate in the prosecution of such offenses; (8) "contents", when used with respect to any wire, oral, or electronic communication, includes any information concerning the substance, purport, or meaning of that communication; (9) "Judge of competent jurisdiction" means— (a) a judge of a United States district court or a United States court of appeals; and (b) a judge of any court of general criminal jurisdiction of a State who is authorized by a statute of that State to enter orders authorizing interceptions of wire, oral, or electronic communications; (10) "communication common carrier" has the meaning given the term in section 3 of the Communications Act of 1934; (11) "aggrieved person" means a person who was a party to any intercepted wire, oral, or electronic communication or a person against whom the interception was directed; (12) "electronic communication" means any transfer of signs, signals, writing, images, sounds, data, or intelligence of any nature transmitted in whole or in part by a wire, radio, electromagnetic, photoelectronic or photooptical system that affects interstate or foreign commerce, but does not include— (A) any wire or oral communication; (B) any communication made through a tone-only paging device; (C) any communication from a tracking device (as defined in section 3117 of this title); or (D) electronic funds transfer information stored by a financial institution in a communications system used for the electronic storage and transfer of funds; (13) "user" means any person or entity who— (A) uses an electronic communication service; and (B) is duly authorized by the provider of such service to engage in such use; (14) "electronic communications system" means any wire, radio, electromagnetic, photooptical or photoelectronic facilities for the transmission of wire or electronic communications, and any computer facilities or related electronic equipment for the electronic storage of such communications; (15) "electronic communication service" means any service which provides to users thereof the ability to send or receive wire or electronic communications; (16) "readily accessible to the general public" means, with respect to a radio communication, that such communication is not— (A) scrambled or encrypted; (B) transmitted using modulation techniques whose essential parameters have been withheld from the public with the intention of preserving the privacy of such communication; (C) carried on a subcarrier or other signal subsidiary to a radio transmission; (D) transmitted over a communication system provided by a common carrier, unless the communication is a tone only paging system communication; or (E) transmitted on frequencies allocated under part 25, subpart D, E, or F of part 74, or part 94 of the Rules of the Federal Communications Commission, unless, in the case of a communication transmitted on a frequency allocated under part 74 that is not exclusively allocated to broadcast auxiliary services, the communication is a two-way voice communication by radio; (17) "electronic storage" means— (A) any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof; and (B) any storage of such communication by an electronic communication service for purposes of backup protection of such communication; (18) "aural transfer" means a transfer containing the human voice at any point between and including the point of origin and the point of reception. (19) "foreign intelligence information", for purposes of section 2517(6) of this title, means— (A) information, whether or not concerning a United States person, that relates to the ability of the United States to protect against— (i) actual or potential attack or other grave hostile acts of a foreign power or an agent of a foreign power; (ii) sabotage or intentional terrorism by a foreign power or an agent of a foreign power; or (iii) clandestine intelligence activities by and intelligence service or network of a foreign power or by an agent of a foreign power; or (B) information, whether or not concerning a United States person, with respect to a foreign power or foreign territory that relates to— (i) the national defense or the security of the United States; or (ii) the conduct of the foreign affairs of the United States. (20) "protected computer" has the meaning set forth in section 1030; and (21) "computer trespasser"— (A) means a person who accesses a protected computer without authorization and thus has no reasonable expectation of privacy in any communication transmitted to, through, or from the protected computer; and (B) does not include a person known by the owner or operator of the protected computer to have an existing contractual relationship with the owner or operator of the protected computer for access to all or part of the protected computer. (1) Except as otherwise specifically provided in this chapter any person who— (a) intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication; (b) intentionally uses, endeavors to use, or procures any other person to use or endeavor to use any electronic, mechanical, or other device to intercept any oral communication when— (i) such device is affixed to, or otherwise transmits a signal through, a wire, cable, or other like connection used in wire communication; or (ii) such device transmits communications by radio, or interferes with the transmission of such communication; or (iii) such person knows, or has reason to know, that such device or any component thereof has been sent through the mail or transported in interstate or foreign commerce; or (iv) such use or endeavor to use (A) takes place on the premises of any business or other commercial establishment the operations of which affect interstate or foreign commerce; or (B) obtains or is for the purpose of obtaining information relating to the operations of any business or other commercial establishment the operations of which affect interstate or foreign commerce; or (v) such person acts in the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States; (c) intentionally discloses, or endeavors to disclose, to any other person the contents of any wire, oral, or electronic communication, knowing or having reason to know that the information was obtained through the interception of a wire, oral, or electronic communication in violation of this subsection; (d) intentionally uses, or endeavors to use, the contents of any wire, oral, or electronic communication, knowing or having reason to know that the information was obtained through the interception of a wire, oral, or electronic communication in violation of this subsection; or (e) (i) intentionally discloses, or endeavors to disclose, to any other person the contents of any wire, oral, or electronic communication, intercepted by means authorized by sections 2511(2)(a)(ii), 2511(2)(b)-(c), 2511(2)(e), 2516, and 2518 of this chapter, (ii) knowing or having reason to know that the information was obtained through the interception of such a communication in connection with a criminal investigation, (iii) having obtained or received the information in connection with a criminal investigation, and (iv) with intent to improperly obstruct, impede, or interfere with a duly authorized criminal investigation, shall be punished as provided in subsection (4) or shall be subject to suit as provided in subsection (5). (2 ) (a)(i) It shall not be unlawful under this chapter for an operator of a switchboard, or an officer, employee, or agent of a provider of wire or electronic communication service, whose facilities are used in the transmission of a wire or electronic communication, to intercept, disclose, or use that communication in the normal course of his employment while engaged in any activity which is a necessary incident to the rendition of his service or to the protection of the rights or property of the provider of that service, except that a provider of wire communication service to the public shall not utilize service observing or random monitoring except for mechanical or service quality control checks. (ii) Notwithstanding any other law, providers of wire or electronic communication service, their officers, employees, and agents, landlords, custodians, or other persons, are authorized to provide information, facilities, or technical assistance to persons authorized by law to intercept wire, oral, or electronic communications or to conduct electronic surveillance, as defined in section 101 of the Foreign Intelligence Surveillance Act of 1978, if such provider, its officers, employees, or agents, landlord, custodian, or other specified person, has been provided with— [ P.L. 110-261, Sec. 101(c)(1) ] (A) a court order directing such assistance or a court order pursuant to section 704 of the Foreign Intelligence Surveillance Act of 1978 signed by the authorizing judge, [ P.L. 110-261, Sec.403(b)(2)(C) ] Effective December 31, 201 7 . . . (C) except as provided in section 404, section 2511(2)(A)(ii)(A) of title 18, United States Code, is amended by striking "or a court order pursuant to section 704 of the Foreign Intelligence Surveillance Act of 1978". [ P.L. 110-261, Sec. 404(b)(3) ] Challenge of directives; protection from liability; use of information — Notwithstanding any other provision of this Act or of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.) . . . (E) section 2511(2)(a)(ii)(A) of title 18, United States Code, as amended by section 101(c)(1), shall continue to apply to an order issued pursuant to section 704 of the Foreign Intelligence Surveillance Act of 1978, as added by section 101(a)[50 U.S.C. 1881c]; or (B) a certification in writing by a person specified in section 2518(7) of this title or the Attorney General of the United States that no warrant or court order is required by law, that all statutory requirements have been met, and that the specified assistance is required, setting forth the period of time during which the provision of the information, facilities, or technical assistance is authorized and specifying the information, facilities, or technical assistance required. No provider of wire or electronic communication service, officer, employee, or agent thereof, or landlord, custodian, or other specified person shall disclose the existence of any interception or surveillance or the device used to accomplish the interception or surveillance with respect to which the person has been furnished a court order or certification under this chapter, except as may otherwise be required by legal process and then only after prior notification to the Attorney General or to the principal prosecuting attorney of a State or any political subdivision of a State, as may be appropriate. Any such disclosure, shall render such person liable for the civil damages provided for in section 2520. No cause of action shall lie in any court against any provider of wire or electronic communication service, its officers, employees, or agents, landlord, custodian, or other specified person for providing information, facilities, or assistance in accordance with the terms of a court order, statutory authorization, or certification under this chapter. (iii) If a certification under subparagraph (ii)(B) for assistance to obtain foreign intelligence information is based on statutory authority, the certification shall identify the specific statutory provision and shall certify that the statutory requirements have been met . (b) It shall not be unlawful under this chapter for an officer, employee, or agent of the Federal Communications Commission, in the normal course of his employment and in discharge of the monitoring responsibilities exercised by the Commission in the enforcement of chapter 5 of title 47 of the United States Code, to intercept a wire or electronic communication, or oral communication transmitted by radio, or to disclose or use the information thereby obtained. (c) It shall not be unlawful under this chapter for a person acting under color of law to intercept a wire, oral, or electronic communication, where such person is a party to the communication or one of the parties to the communication has given prior consent to such interception. (d) It shall not be unlawful under this chapter for a person not acting under color of law to intercept a wire, oral, or electronic communication where such person is a party to the communication or where one of the parties to the communication has given prior consent to such interception unless such communication is intercepted for the purpose of committing any criminal or tortious act in violation of the Constitution or laws of the United States or of any State. (e) Notwithstanding any other provision of this title or section 705 or 706 of the Communications Act of 1934, it shall not be unlawful for an officer, employee, or agent of the United States in the normal course of his official duty to conduct electronic surveillance, as defined in section 101 of the Foreign Intelligence Surveillance Act of 1978, as authorized by that Act. (f) Nothing contained in this chapter or chapter 121 or 206 of this title, or section 705 of the Communications Act of 1934, shall be deemed to affect the acquisition by the United States Government of foreign intelligence information from international or foreign communications, or foreign intelligence activities conducted in accordance with otherwise applicable Federal law involving a foreign electronic communications system, utilizing a means other than electronic surveillance as defined in section 101 of the Foreign Intelligence Surveillance Act of 1978, and procedures in this chapter or chapter 121 and the Foreign Intelligence Surveillance Act of 1978 shall be the exclusive means by which electronic surveillance, as defined in section 101 of such Act, and the interception of domestic wire, oral, and electronic communications may be conducted. (g) It shall not be unlawful under this chapter or chapter 121 of this title for any person— (i) to intercept or access an electronic communication made through an electronic communication system that is configured so that such electronic communication is readily accessible to the general public; (ii) to intercept any radio communication which is transmitted— (I) by any station for the use of the general public, or that relates to ships, aircraft, vehicles, or persons in distress; (II) by any governmental, law enforcement, civil defense, private land mobile, or public safety communications system, including police and fire, readily accessible to the general public; (III) by a station operating on an authorized frequency within the bands allocated to the amateur, citizens band, or general mobile radio services; or (IV) by any marine or aeronautical communications system; (iii) to engage in any conduct which— (I) is prohibited by section 633 of the Communications Act of 1934; or (II) is excepted from the application of section 705(a) of the Communications Act of 1934 by section 705(b) of that Act; (iv) to intercept any wire or electronic communication the transmission of which is causing harmful interference to any lawfully operating station or consumer electronic equipment, to the extent necessary to identify the source of such interference; or (v) for other users of the same frequency to intercept any radio communication made through a system that utilizes frequencies monitored by individuals engaged in the provision or the use of such system, if such communication is not scrambled or encrypted. (h) It shall not be unlawful under this chapter— (i) to use a pen register or a trap and trace device (as those terms are defined for the purposes of chapter 206 (relating to pen registers and trap and trace devices) of this title); or (ii) for a provider of electronic communication service to record the fact that a wire or electronic communication was initiated or completed in order to protect such provider, another provider furnishing service toward the completion of the wire or electronic communication, or a user of that service, from fraudulent, unlawful or abusive use of such service. (i) It shall not be unlawful under this chapter for a person acting under color of law to intercept the wire or electronic communications of a computer trespasser transmitted to, through, or from the protected computer, if— (I) the owner or operator of the protected computer authorizes the interception of the computer trespasser's communications on the protected computer; (II) the person acting under color of law is lawfully engaged in an investigation; (III) the person acting under color of law has reasonable grounds to believe that the contents of the computer trespasser's communications will be relevant to the investigation; and (IV) such interception does not acquire communications other than those transmitted to or from the computer trespasser. (3)(a) Except as provided in paragraph (b) of this subsection, a person or entity providing an electronic communication service to the public shall not intentionally divulge the contents of any communication (other than one to such person or entity, or an agent thereof) while in transmission on that service to any person or entity other than an addressee or intended recipient of such communication or an agent of such addressee or intended recipient. (b) A person or entity providing electronic communication service to the public may divulge the contents of any such communication— (i) as otherwise authorized in section 2511(2)(a) or 2517 of this title; (ii) with the lawful consent of the originator or any addressee or intended recipient of such communication; (iii) to a person employed or authorized, or whose facilities are used, to forward such communication to its destination; or (iv) which were inadvertently obtained by the service provider and which appear to pertain to the commission of a crime, if such divulgence is made to a law enforcement agency. (4)(a) Except as provided in paragraph (b) of this subsection or in subsection (5), whoever violates subsection (1) of this section shall be fined under this title or imprisoned not more than five years, or both. (b) Conduct otherwise an offense under this subsection that consists of or relates to the interception of a satellite transmission that is not encrypted or scrambled and that is transmitted— (i) to a broadcasting station for purposes of retransmission to the general public; or (ii) as an audio subcarrier intended for redistribution to facilities open to the public, but not including data transmissions or telephone calls, is not an offense under this subsection unless the conduct is for the purposes of direct or indirect commercial advantage or private financial gain. (c)[Redesignated (b)] (5)(a)(i) If the communication is— (A) a private satellite video communication that is not scrambled or encrypted and the conduct in violation of this chapter is the private viewing of that communication and is not for a tortious or illegal purpose or for purposes of direct or indirect commercial advantage or private commercial gain; or (B) a radio communication that is transmitted on frequencies allocated under subpart D of part 74 of the rules of the Federal Communications Commission that is not scrambled or encrypted and the conduct in violation of this chapter is not for a tortious or illegal purpose or for purposes of direct or indirect commercial advantage or private commercial gain, then the person who engages in such conduct shall be subject to suit by the Federal Government in a court of competent jurisdiction. (ii) In an action under this subsection— (A) if the violation of this chapter is a first offense for the person under paragraph (a) of subsection (4) and such person has not been found liable in a civil action under section 2520 of this title, the Federal Government shall be entitled to appropriate injunctive relief; and (B) if the violation of this chapter is a second or subsequent offense under paragraph (a) of subsection (4) or such person has been found liable in any prior civil action under section 2520, the person shall be subject to a mandatory $500 civil fine. (b) The court may use any means within its authority to enforce an injunction issued under paragraph (ii)(A), and shall impose a civil fine of not less than $500 for each violation of such an injunction. (1) Except as otherwise specifically provided in this chapter, any person who intentionally— (a) sends through the mail, or sends or carries in interstate or foreign commerce, any electronic, mechanical, or other device, knowing or having reason to know that the design of such device renders it primarily useful for the purpose of the surreptitious interception of wire, oral, or electronic communications; (b) manufactures, assembles, possesses, or sells any electronic, mechanical, or other device, knowing or having reason to know that the design of such device renders it primarily useful for the purpose of the surreptitious interception of wire, oral, or electronic communications, and that such device or any component thereof has been or will be sent through the mail or transported in interstate or foreign commerce; or (c) places in any newspaper, magazine, handbill, or other publication or disseminates by electronic means any advertisement of— (i) any electronic, mechanical, or other device knowing or having reason to know that the design of such device renders it primarily useful for the purpose of the surreptitious interception of wire, oral, or electronic communications; or (ii) any other electronic, mechanical, or other device, where such advertisement promotes the use of such device for the purpose of the surreptitious interception of wire, oral, or electronic communications, knowing the content of the advertisement and knowing or having reason to know that such advertisement will be sent through the mail or transported in interstate or foreign commerce, shall be fined under this title or imprisoned not more than five years, or both. (2)It shall not be unlawful under this section for— (a) a provider of wire or electronic communication service or an officer, agent, or employee of, or a person under contract with, such a provider, in the normal course of the business of providing that wire or electronic communication service, or (b) an officer, agent, or employee of, or a person under contract with, the United States, a State, or a political subdivision thereof, in the normal course of the activities of the United States, a State, or a political subdivision thereof, to send through the mail, send or carry in interstate or foreign commerce, or manufacture, assemble, possess, or sell any electronic, mechanical, or other device knowing or having reason to know that the design of such device renders it primarily useful for the purpose of the surreptitious interception of wire, oral, or electronic communications. (3)It shall not be unlawful under this section to advertise for sale a device described in subsection (1) of this section if the advertisement is mailed, sent, or carried in interstate or foreign commerce solely to a domestic provider of wire or electronic communication service or to an agency of the United States, a State, or a political subdivision thereof which is duly authorized to use such device. Any electronic, mechanical, or other device used, sent, carried, manufactured, assembled, possessed, sold, or advertised in violation of section 2511 or section 2512 of this chapter may be seized and forfeited to the United States. All provisions of law relating to (1) the seizure, summary and judicial forfeiture, and condemnation of vessels, vehicles, merchandise, and baggage for violations of the customs laws contained in title 19 of the United States Code, (2) the disposition of such vessels, vehicles, merchandise, and baggage or the proceeds from the sale thereof, (3) the remission or mitigation of such forfeiture, (4) the compromise of claims, and (5) the award of compensation to informers in respect of such forfeitures, shall apply to seizures and forfeitures incurred, or alleged to have been incurred, under the provisions of this section, insofar as applicable and not inconsistent with the provisions of this section; except that such duties as are imposed upon the collector of customs or any other person with respect to the seizure and forfeiture of vessels, vehicles, merchandise, and baggage under the provisions of the customs laws contained in title 19 of the United States Code shall be performed with respect to seizure and forfeiture of electronic, mechanical, or other intercepting devices under this section by such officers, agents, or other persons as may be authorized or designated for that purpose by the Attorney General. Whenever any wire or oral communication has been intercepted, no part of the contents of such communication and no evidence derived therefrom may be received in evidence in any trial, hearing, or other proceeding in or before any court, grand jury, department, officer, agency, regulatory body, legislative committee, or other authority of the United States, a State, or a political subdivision thereof if the disclosure of that information would be in violation of this chapter. (1) The Attorney General, Deputy Attorney General, Associate Attorney General, or any Assistant Attorney General, any acting Assistant Attorney General, or any Deputy Assistant Attorney General or acting Deputy Assistant Attorney General in the Criminal Division or National Security Division specially designated by the Attorney General, may authorize an application to a Federal judge of competent jurisdiction for, and such judge may grant in conformity with section 2518 of this chapter an order authorizing or approving the interception of wire or oral communications by the Federal Bureau of Investigation, or a Federal agency having responsibility for the investigation of the offense as to which the application is made, when such interception may provide or has provided evidence of— (a) any offense punishable by death or by imprisonment for more than one year under sections 2122 and 2274 through 2277 of title 42 of the United States Code (relating to the enforcement of the Atomic Energy Act of 1954), section 2284 of title 42 of the United States Code (relating to sabotage of nuclear facilities or fuel), or under the following chapters of this title: chapter 10 (relating to biological weapons) chapter 37 (relating to espionage), chapter 55 (relating to kidnapping), chapter 90 (relating to protection of trade secrets), chapter 105 (relating to sabotage), chapter 115 (relating to treason), chapter 102 (relating to riots), chapter 65 (relating to malicious mischief), chapter 111 (relating to destruction of vessels), or chapter 81 (relating to piracy); (b) a violation of section 186 or section 501(c) of title 29, United States Code (dealing with restrictions on payments and loans to labor organizations), or any offense which involves murder, kidnapping, robbery, or extortion, and which is punishable under this title; (c) any offense which is punishable under the following sections of this title: section 37 (relating to violence at international airports), section 43 (relating to animal enterprise terrorism), section 81 (arson within special maritime and territorial jurisdiction), section 201 (bribery of public officials and witnesses), section 215 (relating to bribery of bank officials), section 224 (bribery in sporting contests), subsection (d), (e), (f), (g), (h), or (i) of section 844 (unlawful use of explosives), section 1032 (relating to concealment of assets), section 1084 (transmission of wagering information), section 751 (relating to escape), section 832 (relating to nuclear and weapons of mass destruction threats), section 842 (relating to explosive materials), section 930 (relating to possession of weapons in Federal facilities), section 1014 (relating to loans and credit applications generally; renewals and discounts), section 1114 (relating to officers and employees of the United States), section 1116 (relating to protection of foreign officials), sections 1503, 1512, and 1513 (influencing or injuring an officer, juror, or witness generally), section 1510 (obstruction of criminal investigations), section 1511 (obstruction of State or local law enforcement), section 1591 (sex trafficking of children by force, fraud, or coercion), section 1751 (Presidential and Presidential staff assassination, kidnapping, and assault), section 1951 (interference with commerce by threats or violence), section 1952 (interstate and foreign travel or transportation in aid of racketeering enterprises), section 1958 (relating to use of interstate commerce facilities in the commission of murder for hire), section 1959 (relating to violent crimes in aid of racketeering activity), section 1954 (offer, acceptance, or solicitation to influence operations of employee benefit plan), section 1955 (prohibition of business enterprises of gambling), section 1956 (laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity), section 659 (theft from interstate shipment), section 664 (embezzlement from pension and welfare funds), section 1343 (fraud by wire, radio, or television), section 1344 (relating to bank fraud), section 1992 (relating to terrorist attacks against mass transportation), sections 2251 and 2252 (sexual exploitation of children), section 2251A (selling or buying of children), section 2252A (relating to material constituting or containing child pornography), section 1466A (relating to child obscenity), section 2260 (production of sexually explicit depictions of a minor for importation into the United States), sections 2421, 2422, 2423, and 2425 (relating to transportation for illegal sexual activity and related crimes), sections 2312, 2313, 2314, and 2315 (interstate transportation of stolen property), section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts), section 2340A (relating to torture), section 1203 (relating to hostage taking), section 1029 (relating to fraud and related activity in connection with access devices), section 3146 (relating to penalty for failure to appear), section 3521(b)(3) (relating to witness relocation and assistance), section 32 (relating to destruction of aircraft or aircraft facilities), section 38 (relating to aircraft parts fraud), section 1963 (violations with respect to racketeer influenced and corrupt organizations), section 115 (relating to threatening or retaliating against a Federal official), section 1341 (relating to mail fraud), a felony violation of section 1030 (relating to computer fraud and abuse), section 351 (violations with respect to congressional, Cabinet, or Supreme Court assassinations, kidnapping, and assault), section 831 (relating to prohibited transactions involving nuclear materials), section 33 (relating to destruction of motor vehicles or motor vehicle facilities), section 175 (relating to biological weapons), section 175c (relating to variola virus), section 956 (conspiracy to harm persons or property overseas), section a felony violation of section 1028 (relating to production of false identification documentation), section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers), section 1427 (relating to the sale of naturalization or citizenship papers), section 1541 (relating to passport issuance without authority), section 1542 (relating to false statements in passport applications), section 1543 (relating to forgery or false use of passports), section 1544 (relating to misuse of passports), or section 1546 (relating to fraud and misuse of visas, permits, and other documents); section 555 (relating to construction or use of international border tunnels); (d) any offense involving counterfeiting punishable under section 471, 472, or 473 of this title; (e) any offense involving fraud connected with a case under title 11 or the manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in narcotic drugs, marihuana, or other dangerous drugs, punishable under any law of the United States; (f) any offense including extortionate credit transactions under sections 892, 893, or 894 of this title; (g) a violation of section 5322 of title 31, United States Code (dealing with the reporting of currency transactions), or section 5324 of title 31, United States Code (relating to structuring transactions to evade reporting requirement prohibited); (h) any felony violation of sections 2511 and 2512 (relating to interception and disclosure of certain communications and to certain intercepting devices) of this title; (i) any felony violation of chapter 71 (relating to obscenity) of this title; (j) any violation of section 60123(b) (relating to destruction of a natural gas pipeline), section 46502 (relating to aircraft piracy), the second sentence of section 46504 (relating to assault on a flight crew with dangerous weapon), or section 46505(b)(3) or (c) (relating to explosive or incendiary devices, or endangerment of human life, by means of weapons on aircraft) of title 49; (k) any criminal violation of section 2778 of title 22 (relating to the Arms Export Control Act); (l) the location of any fugitive from justice from an offense described in this section; (m) a violation of section 274, 277, or 278 of the Immigration and Nationality Act (8 U.S.C. 1324, 1327, or 1328) (relating to the smuggling of aliens); (n) any felony violation of sections 922 and 924 of title 18, United States Code (relating to firearms); (o) any violation of section 5861 of the Internal Revenue Code of 1986 (relating to firearms); (p) a felony violation of section 1028 (relating to production of false identification documents), section 1542 (relating to false statements in passport applications), section 1546 (relating to fraud and misuse of visas, permits, and other documents, section 1028A (relating to aggravated identity theft)) of this title or a violation of section 274, 277, or 278 of the Immigration and Nationality Act (relating to the smuggling of aliens); or (q) any criminal violation of section 229 (relating to chemical weapons): or sections 2332, 2332a, 2332b, 2332d, 2332f, 2332g, 2332h 2339, 2339A, 2339B, 2339C, or 2339D of this title (relating to terrorism); (r) any criminal violation of section 1 (relating to illegal restraints of trade or commerce), 2 (relating to illegal monopolizing of trade or commerce), or 3 (relating to illegal restraints of trade or commerce in territories or the District of Columbia) of the Sherman Act (15 U.S.C. 1, , 3); or (s) any conspiracy to commit any offense described in any subparagraph of this paragraph. (2) The principal prosecuting attorney of any State, or the principal prosecuting attorney of any political subdivision thereof, if such attorney is authorized by a statute of that State to make application to a State court judge of competent jurisdiction for an order authorizing or approving the interception of wire, oral, or electronic communications, may apply to such judge for, and such judge may grant in conformity with section 2518 of this chapter and with the applicable State statute an order authorizing, or approving the interception of wire, oral, or electronic communications by investigative or law enforcement officers having responsibility for the investigation of the offense as to which the application is made, when such interception may provide or has provided evidence of the commission of the offense of murder, kidnapping, gambling, robbery, bribery, extortion, or dealing in narcotic drugs, marihuana or other dangerous drugs, or other crime dangerous to life, limb, or property, and punishable by imprisonment for more than one year, designated in any applicable State statute authorizing such interception, or any conspiracy to commit any of the foregoing offenses. (3) Any attorney for the Government (as such term is defined for the purposes of the Federal Rules of Criminal Procedure) may authorize an application to a Federal judge of competent jurisdiction for, and such judge may grant, in conformity with section 2518 of this title, an order authorizing or approving the interception of electronic communications by an investigative or law enforcement officer having responsibility for the investigation of the offense as to which the application is made, when such interception may provide or has provided evidence of any Federal felony. (1) Any investigative or law enforcement officer who, by any means authorized by this chapter, has obtained knowledge of the contents of any wire, oral, or electronic communication, or evidence derived therefrom, may disclose such contents to another investigative or law enforcement officer to the extent that such disclosure is appropriate to the proper performance of the official duties of the officer making or receiving the disclosure. (2) Any investigative or law enforcement officer who, by any means authorized by this chapter, has obtained knowledge of the contents of any wire, oral, or electronic communication or evidence derived therefrom may use such contents to the extent such use is appropriate to the proper performance of his official duties. (3) Any person who has received, by any means authorized by this chapter, any information concerning a wire, oral, or electronic communication, or evidence derived therefrom intercepted in accordance with the provisions of this chapter may disclose the contents of that communication or such derivative evidence while giving testimony under oath or affirmation in any proceeding held under the authority of the United States or of any State or political subdivision thereof. (4) No otherwise privileged wire, oral, or electronic communication intercepted in accordance with, or in violation of, the provisions of this chapter shall lose its privileged character. (5) When an investigative or law enforcement officer, while engaged in intercepting wire, oral, or electronic communications in the manner authorized herein, intercepts wire, oral, or electronic communications relating to offenses other than those specified in the order of authorization or approval, the contents thereof, and evidence derived therefrom, may be disclosed or used as provided in subsections (1) and (2) of this section. Such contents and any evidence derived therefrom may be used under subsection (3) of this section when authorized or approved by a judge of competent jurisdiction where such judge finds on subsequent application that the contents were otherwise intercepted in accordance with the provisions of this chapter. Such application shall be made as soon as practicable. (6) Any investigative or law enforcement officer, or attorney for the Government, who by any means authorized by this chapter, has obtained knowledge of the contents of any wire, oral, or electronic communication, or evidence derived therefrom, may disclose such contents to any Federal law enforcement, intelligence, protective, immigration, national defense, or national security official to the extent that such contents include foreign intelligence or counterintelligence (as defined in section 3 of the National Security act of 1947 (50 U.S.C. 401a), or foreign intelligence information (as defined in subsection (19) of section 2510 of this title), to assist the official who is to receive that information in the performance of his official duties. Any Federal official who receives information pursuant to this provision may use that information only as necessary in the conduct of that person's official duties subject to any limitations on the unauthorized disclosure of such information. (7) Any investigative or law enforcement officer, or other Federal official in carrying out official duties as such Federal official, who by any means authorized by this chapter, has obtained knowledge of the contents of any wire, oral, or electronic communication, or evidence derived therefrom, may disclose such contents or derivative evidence to a foreign investigative or law enforcement officer to the extent that such disclosure is appropriate to the proper performance of the official duties of the officer making or receiving the disclosure, and foreign investigative or law enforcement officers may use or disclose such contents or derivative evidence to the extent such use or disclosure is appropriate to the proper performance of their official duties. (8) Any investigative or law enforcement officer, or other Federal official in carrying out official duties as such Federal official, who by any means authorized by this chapter, has obtained knowledge of the contents of any wire, oral, or electronic communication, or evidence derived therefrom, may disclose such contents or derivative evidence to any appropriate Federal, State, local, or foreign government official to the extent that such contents or derivative evidence reveals a threat of actual or potential attack or other grave hostile acts of a foreign power of an agent of as foreign power, domestic or international sabotage, domestic or international terrorism, or clandestine intelligence gathering activities by an intelligence service or network of a foreign power or by an agent of a foreign power, within the United States or elsewhere, for the purpose of preventing or responding to such a threat. Any official who receives information pursuant to this provision may use that information only as necessary in the conduct of that person's official duties subject to any limitations on the unauthorized disclosure of such information, and any State, local, or foreign official who receives information pursuant to this provision may use that information only consistent with such guidelines as the Attorney General and Director of Central Intelligence shall jointly issue. (1) Each application for an order authorizing or approving the interception of a wire, oral, or electronic communication under this chapter shall be made in writing upon oath or affirmation to a judge of competent jurisdiction and shall state the applicant's authority to make such application. Each application shall include the following information: (a) the identity of the investigative or law enforcement officer making the application, and the officer authorizing the application; (b) a full and complete statement of the facts and circumstances relied upon by the applicant, to justify his belief that an order should be issued, including (i) details as to the particular offense that has been, is being, or is about to be committed, (ii) except as provided in subsection (11), a particular description of the nature and location of the facilities from which or the place where the communication is to be intercepted, (iii) a particular description of the type of communications sought to be intercepted, (iv) the identity of the person, if known, committing the offense and whose communications are to be intercepted; (c) a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous; (d) a statement of the period of time for which the interception is required to be maintained. If the nature of the investigation is such that the authorization for interception should not automatically terminate when the described type of communication has been first obtained, a particular description of facts establishing probable cause to believe that additional communications of the same type will occur thereafter; (e) a full and complete statement of the facts concerning all previous applications known to the individual authorizing and making the application, made to any judge for authorization to intercept, or for approval of interceptions of, wire, oral, or electronic communications involving any of the same persons, facilities or places specified in the application, and the action taken by the judge on each such application; and (f) where the application is for the extension of an order, a statement setting forth the results thus far obtained from the interception, or a reasonable explanation of the failure to obtain such results. (2) The judge may require the applicant to furnish additional testimony or documentary evidence in support of the application. (3) Upon such application the judge may enter an ex parte order, as requested or as modified, authorizing or approving interception of wire, oral, or electronic communications within the territorial jurisdiction of the court in which the judge is sitting (and outside that jurisdiction but within the United States in the case of a mobile interception device authorized by a Federal court within such jurisdiction), if the judge determines on the basis of the facts submitted by the applicant that— (a) there is probable cause for belief that an individual is committing, has committed, or is about to commit a particular offense enumerated in section 2516 of this chapter; (b) there is probable cause for belief that particular communications concerning that offense will be obtained through such interception; (c) normal investigative procedures have been tried and have failed or reasonably appear to be unlikely to succeed if tried or to be too dangerous; (d) except as provided in subsection (11), there is probable cause for belief that the facilities from which, or the place where, the wire, oral, or electronic communications are to be intercepted are being used, or are about to be used, in connection with the commission of such offense, or are leased to, listed in the name of, or commonly used by such person. (4) Each order authorizing or approving the interception of any wire, oral, or electronic communication under this chapter shall specify— (a) the identity of the person, if known, whose communications are to be intercepted; (b) the nature and location of the communications facilities as to which, or the place where, authority to intercept is granted; (c) a particular description of the type of communication sought to be intercepted, and a statement of the particular offense to which it relates; (d) the identity of the agency authorized to intercept the communications, and of the person authorizing the application; and (e) the period of time during which such interception is authorized, including a statement as to whether or not the interception shall automatically terminate when the described communication has been first obtained. An order authorizing the interception of a wire, oral, or electronic communication under this chapter shall, upon request of the applicant, direct that a provider of wire or electronic communication service, landlord, custodian or other person shall furnish the applicant forthwith all information, facilities, and technical assistance necessary to accomplish the interception unobtrusively and with a minimum of interference with the services that such service provider, landlord, custodian, or person is according the person whose communications are to be intercepted. Any provider of wire or electronic communication service, landlord, custodian or other person furnishing such facilities or technical assistance shall be compensated therefor by the applicant for reasonable expenses incurred in providing such facilities or assistance. Pursuant to section 2522 of this chapter, an order may also be issued to enforce the assistance capability and capacity requirements under the Communications Assistance for Law Enforcement Act. (5) No order entered under this section may authorize or approve the interception of any wire, oral, or electronic communication for any period longer than is necessary to achieve the objective of the authorization, nor in any event longer than thirty days. Such thirty-day period begins on the earlier of the day on which the investigative or law enforcement officer first begins to conduct an interception under the order or ten days after the order is entered. Extensions of an order may be granted, but only upon application for an extension made in accordance with subsection (1) of this section and the court making the findings required by subsection (3) of this section. The period of extension shall be no longer than the authorizing judge deems necessary to achieve the purposes for which it was granted and in no event for longer than thirty days. Every order and extension thereof shall contain a provision that the authorization to intercept shall be executed as soon as practicable, shall be conducted in such a way as to minimize the interception of communications not otherwise subject to interception under this chapter, and must terminate upon attainment of the authorized objective, or in any event in thirty days. In the event the intercepted communication is in a code or foreign language, and an expert in that foreign language or code is not reasonably available during the interception period, minimization may be accomplished as soon as practicable after such interception. An interception under this chapter may be conducted in whole or in part by Government personnel, or by an individual operating under a contract with the Government, acting under the supervision of an investigative or law enforcement officer authorized to conduct the interception. (6) Whenever an order authorizing interception is entered pursuant to this chapter, the order may require reports to be made to the judge who issued the order showing what progress has been made toward achievement of the authorized objective and the need for continued interception. Such reports shall be made at such intervals as the judge may require. (7) Notwithstanding any other provision of this chapter, any investigative or law enforcement officer, specially designated by the Attorney General, the Deputy Attorney General, the Associate Attorney General, or by the principal prosecuting attorney of any State or subdivision thereof acting pursuant to a statute of that State, who reasonably determines that— (a) an emergency situation exists that involves— (i) immediate danger of death or serious physical injury to any person, (ii) conspiratorial activities threatening the national security interest, or (iii) conspiratorial activities characteristic of organized crime, that requires a wire, oral, or electronic communication to be intercepted before an order authorizing such interception can, with due diligence, be obtained, and (b) there are grounds upon which an order could be entered under this chapter to authorize such interception, may intercept such wire, oral, or electronic communication if an application for an order approving the interception is made in accordance with this section within forty-eight hours after the interception has occurred, or begins to occur. In the absence of an order, such interception shall immediately terminate when the communication sought is obtained or when the application for the order is denied, whichever is earlier. In the event such application for approval is denied, or in any other case where the interception is terminated without an order having been issued, the contents of any wire, oral, or electronic communication intercepted shall be treated as having been obtained in violation of this chapter, and an inventory shall be served as provided for in subsection (d) of this section on the person named in the application. (8) (a) The contents of any wire, oral, or electronic communication intercepted by any means authorized by this chapter shall, if possible, be recorded on tape or wire or other comparable device. The recording of the contents of any wire, oral, or electronic communication under this subsection shall be done in such way as will protect the recording from editing or other alterations. Immediately upon the expiration of the period of the order, or extensions thereof, such recordings shall be made available to the judge issuing such order and sealed under his directions. Custody of the recordings shall be wherever the judge orders. They shall not be destroyed except upon an order of the issuing or denying judge and in any event shall be kept for ten years. Duplicate recordings may be made for use or disclosure pursuant to the provisions of subsections (1) and (2) of section 2517 of this chapter for investigations. The presence of the seal provided for by this subsection, or a satisfactory explanation for the absence thereof, shall be a prerequisite for the use or disclosure of the contents of any wire, oral, or electronic communication or evidence derived therefrom under subsection (3) of section 2517. (b) Applications made and orders granted under this chapter shall be sealed by the judge. Custody of the applications and orders shall be wherever the judge directs. Such applications and orders shall be disclosed only upon a showing of good cause before a judge of competent jurisdiction and shall not be destroyed except on order of the issuing or denying judge, and in any event shall be kept for ten years. (c) Any violation of the provisions of this subsection may be punished as contempt of the issuing or denying judge. (d) Within a reasonable time but not later than ninety days after the filing of an application for an order of approval under section 2518(7)(b) which is denied or the termination of the period of an order or extensions thereof, the issuing or denying judge shall cause to be served, on the persons named in the order or the application, and such other parties to intercepted communications as the judge may determine in his discretion that is in the interest of justice, an inventory which shall include notice of— (1) the fact of the entry of the order or the application; (2) the date of the entry and the period of authorized, approved or disapproved interception, or the denial of the application; and (3) the fact that during the period wire, oral, or electronic communications were or were not intercepted. The judge, upon the filing of a motion, may in his discretion make available to such person or his counsel for inspection such portions of the intercepted communications, applications and orders as the judge determines to be in the interest of justice. On an ex parte showing of good cause to a judge of competent jurisdiction the serving of the inventory required by this subsection may be postponed. (9) The contents of any wire, oral, or electronic communication intercepted pursuant to this chapter or evidence derived therefrom shall not be received in evidence or otherwise disclosed in any trial, hearing, or other proceeding in a Federal or State court unless each party, not less than ten days before the trial, hearing, or proceeding, has been furnished with a copy of the court order, and accompanying application, under which the interception was authorized or approved. This ten-day period may be waived by the judge if he finds that it was not possible to furnish the party with the above information ten days before the trial, hearing, or proceeding and that the party will not be prejudiced by the delay in receiving such information. (10)(a) Any aggrieved person in any trial, hearing, or proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States, a State, or a political subdivision thereof, may move to suppress the contents of any wire or oral communication intercepted pursuant to this chapter, or evidence derived therefrom, on the grounds that (i) the communication was unlawfully intercepted; (ii) the order of authorization or approval under which it was intercepted is insufficient on its face; or (iii) the interception was not made in conformity with the order of authorization or approval. Such motion shall be made before the trial, hearing, or proceeding unless there was no opportunity to make such motion or the person was not aware of the grounds of the motion. If the motion is granted, the contents of the intercepted wire or oral communication, or evidence derived therefrom, shall be treated as having been obtained in violation of this chapter. The judge, upon the filing of such motion by the aggrieved person, may in his discretion make available to the aggrieved person or his counsel for inspection such portions of the intercepted communication or evidence derived therefrom as the judge determines to be in the interests of justice. (b) In addition to any other right to appeal, the United States shall have the right to appeal from an order granting a motion to suppress made under paragraph (a) of this subsection, or the denial of an application for an order of approval, if the United States attorney shall certify to the judge or other official granting such motion or denying such application that the appeal is not taken for purposes of delay. Such appeal shall be taken within thirty days after the date the order was entered and shall be diligently prosecuted. (c) The remedies and sanctions described in this chapter with respect to the interception of electronic communications are the only judicial remedies and sanctions for nonconstitutional violations of this chapter involving such communications. (11) The requirements of subsections (1)(b)(ii) and (3)(d) of this section relating to the specification of the facilities from which, or the place where, the communication is to be intercepted do not apply if— (a) in the case of an application with respect to the interception of an oral communication— (i) the application is by a Federal investigative or law enforcement officer and is approved by the Attorney General, the Deputy Attorney General, the Associate Attorney General, an Assistant Attorney General, or an acting Assistant Attorney General; (ii) the application contains a full and complete statement as to why such specification is not practical and identifies the person committing the offense and whose communications are to be intercepted; and (iii) the judge finds that such specification is not practical; and (b) in the case of an application with respect to a wire or electronic communication— (i) the application is by a Federal investigative or law enforcement officer and is approved by the Attorney General, the Deputy Attorney General, the Associate Attorney General, an Assistant Attorney General, or an acting Assistant Attorney General; (ii) the application identifies the person believed to be committing the offense and whose communications are to be intercepted and the applicant makes a showing that there is probable cause to believe that the person's actions could have the effect of thwarting interception from a specified facility; (iii) the judge finds that such showing has been adequately made; and (iv) the order authorizing or approving the interception is limited to interception only for such time as it is reasonable to presume that the person identified in the application is or was reasonably proximate to the instrument through which such communication will be or was transmitted. (12) An interception of a communication under an order with respect to which the requirements of subsections (1)(b)(ii) and (3)(d) of this section do not apply by reason of subsection (11)(a) shall not begin until the place where the communication is to be intercepted is ascertained by the person implementing the interception order. A provider of wire or electronic communications service that has received an order as provided for in subsection (11)(b) may move the court to modify or quash the order on the ground that its assistance with respect to the interception cannot be performed in a timely or reasonable fashion. The court, upon notice to the government, shall decide such a motion expeditiously. (1) In January of each year, any judge who has issued an order (or an extension thereof) under section 2518 that expired during the preceding year, or who has denied approval of an interception during that year, shall report to the Administrative Office of the United States Courts— (a) the fact that an order or extension was applied for; (b) the kind of order or extension applied for (including whether or not the order was an order with respect to which the requirements of sections 2518(1)(b)(ii) and 2518(3)(d) of this title did not apply by reason of section 2518(11) of this title); (c) the fact that the order or extension was granted as applied for, was modified, or was denied; (d) the period of interceptions authorized by the order, and the number and duration of any extensions of the order; (e) the offense specified in the order or application, or extension of an order; (f) the identity of the applying investigative or law enforcement officer and agency making the application and the person authorizing the application; and (g) the nature of the facilities from which or the place where communications were to be intercepted. (2) In March of each year the Attorney General, an Assistant Attorney General specially designated by the Attorney General, or the principal prosecuting attorney of a State, or the principal prosecuting attorney for any political subdivision of a State, shall report to the Administrative Office of the United States Courts— (a) the information required by paragraphs (a) through (g) of subsection (1) of this section with respect to each application for an order or extension made during the preceding calendar year; (b) a general description of the interceptions made under such order or extension, including (i) the approximate nature and frequency of incriminating communications intercepted, (ii) the approximate nature and frequency of other communications intercepted, (iii) the approximate number of persons whose communications were intercepted, (iv) the number of orders in which encryption was encountered and whether such encryption prevented law enforcement from obtaining the plain text of communications intercepted pursuant to such order, and (v) the approximate nature, amount, and cost of the manpower and other resources used in the interceptions; (c) the number of arrests resulting from interceptions made under such order or extension, and the offenses for which arrests were made; (d) the number of trials resulting from such interceptions; (e) the number of motions to suppress made with respect to such interceptions, and the number granted or denied; (f) the number of convictions resulting from such interceptions and the offenses for which the convictions were obtained and a general assessment of the importance of the interceptions; and (g) the information required by paragraphs (b) through (f) of this subsection with respect to orders or extensions obtained in a preceding calendar year. (3) In June of each year the Director of the Administrative Office of the United States Courts shall transmit to the Congress a full and complete report concerning the number of applications for orders authorizing or approving the interception of wire, oral, or electronic communications pursuant to this chapter and the number of orders and extensions granted or denied pursuant to this chapter during the preceding calendar year. Such report shall include a summary and analysis of the data required to be filed with the Administrative Office by subsections (1) and (2) of this section. The Director of the Administrative Office of the United States Courts is authorized to issue binding regulations dealing with the content and form of the reports required to be filed by subsections (1) and (2) of this section. (a) In general.—Except as provided in section 2511(2)(a)(ii), any person whose wire, oral, or electronic communication is intercepted, disclosed, or intentionally used in violation of this chapter may in a civil action recover from the person or entity other than the United States which engaged in that violation such relief as may be appropriate. (b) Relief.—In an action under this section, appropriate relief includes— (1) such preliminary and other equitable or declaratory relief as may be appropriate; (2) damages under subsection (c) and punitive damages in appropriate cases; and (3) a reasonable attorney's fee and other litigation costs reasonably incurred. (c) Computation of damages.—(1) In an action under this section, if the conduct in violation of this chapter is the private viewing of a private satellite video communication that is not scrambled or encrypted or if the communication is a radio communication that is transmitted on frequencies allocated under subpart D of part 74 of the rules of the Federal Communications Commission that is not scrambled or encrypted and the conduct is not for a tortious or illegal purpose or for purposes of direct or indirect commercial advantage or private commercial gain, then the court shall assess damages as follows: (A) If the person who engaged in that conduct has not previously been enjoined under section 2511(5) and has not been found liable in a prior civil action under this section, the court shall assess the greater of the sum of actual damages suffered by the plaintiff, or statutory damages of not less than $50 and not more than $500. (B) If, on one prior occasion, the person who engaged in that conduct has been enjoined under section 2511(5) or has been found liable in a civil action under this section, the court shall assess the greater of the sum of actual damages suffered by the plaintiff, or statutory damages of not less than $100 and not more than $1000. (2) In any other action under this section, the court may assess as damages whichever is the greater of— (A) the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation; or (B) statutory damages of whichever is the greater of $100 a day for each day of violation or $10,000. (d) Defense.—A good faith reliance on— (1) a court warrant or order, a grand jury subpoena, a legislative authorization, or a statutory authorization; (2) a request of an investigative or law enforcement officer under section 2518(7) of this title; or (3) a good faith determination that section 2511(3) or 2511(2)(i) of this title permitted the conduct complained of; is a complete defense against any civil or criminal action brought under this chapter or any other law. (e) Limitation.—A civil action under this section may not be commenced later than two years after the date upon which the claimant first has a reasonable opportunity to discover the violation. (f) Administrative Discipline.—If a court or appropriate department or agency determines that the United States or any of its departments or agencies has violated any provision of this chapter, and the court finds that the circumstances surrounding the violation raise serious questions about whether or not an officer or employee of the United States acted willfully or intentionally with respect to the possible violation, the department or agency shall, upon receipt of a true and correct copy of the decision and findings of the court or appropriate department or agency promptly initiate a proceeding to determine whether disciplinary action against the officer or employee is warranted. If the head of the department or agency involved determines that disciplinary action is not warranted, he or she shall notify the Inspector General with jurisdiction over the department or agency concerned and shall provide the Inspector General with the reasons for such determination. (g) Improper Disclosure Is Violation.—Any willful disclosure or use by an investigative or law enforcement officer or governmental entity of information beyond the extent permitted by section 2517 is a violation of this chapter for purposes of section 2510(a). Whenever it shall appear that any person is engaged or is about to engage in any act which constitutes or will constitute a felony violation of this chapter, the Attorney General may initiate a civil action in a district court of the United States to enjoin such violation. The court shall proceed as soon as practicable to the hearing and determination of such an action, and may, at any time before final determination, enter such a restraining order or prohibition, or take such other action, as is warranted to prevent a continuing and substantial injury to the United States or to any person or class of persons for whose protection the action is brought. A proceeding under this section is governed by the Federal Rules of Civil Procedure, except that, if an indictment has been returned against the respondent, discovery is governed by the Federal Rules of Criminal Procedure. (a) Enforcement by court issuing surveillance order.—If a court authorizing an interception under this chapter, a State statute, or the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.) or authorizing use of a pen register or a trap and trace device under chapter 206 or a State statute finds that a telecommunications carrier has failed to comply with the requirements of the Communications Assistance for Law Enforcement Act, the court may, in accordance with section 108 of such Act, direct that the carrier comply forthwith and may direct that a provider of support services to the carrier or the manufacturer of the carrier's transmission or switching equipment furnish forthwith modifications necessary for the carrier to comply. (b) Enforcement upon application by Attorney General.—The Attorney General may, in a civil action in the appropriate United States district court, obtain an order, in accordance with section 108 of the Communications Assistance for Law Enforcement Act, directing that a telecommunications carrier, a manufacturer of telecommunications transmission or switching equipment, or a provider of telecommunications support services comply with such Act. (c) Civil penalty.— (1) In general.—A court issuing an order under this section against a telecommunications carrier, a manufacturer of telecommunications transmission or switching equipment, or a provider of telecommunications support services may impose a civil penalty of up to $10,000 per day for each day in violation after the issuance of the order or after such future date as the court may specify. (2) Considerations.—In determining whether to impose a civil penalty and in determining its amount, the court shall take into account— (A) the nature, circumstances, and extent of the violation; (B) the violator's ability to pay, the violator's good faith efforts to comply in a timely manner, any effect on the violator's ability to continue to do business, the degree of culpability, and the length of any delay in undertaking efforts to comply; and (c) such other matters as justice may require. (d) Definitions.—As used in this section, the terms defined in section 102 of the Communications Assistance for Law Enforcement Act have the meanings provided, respectively, in such section. (a) Offense.—Except as provided in subsection (c) of this section whoever— (1) intentionally accesses without authorization a facility through which an electronic communication service is provided; or (2) intentionally exceeds an authorization to access that facility; and thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system shall be punished as provided in subsection (b) of this section. (b) Punishment.—The punishment for an offense under subsection (a) of this section is— (1) if the offense is committed for purposes of commercial advantage, malicious destruction or damage, or private commercial gain, or in furtherance of any criminal or tortious act in violation of the constitution and laws of the United States or any state— (A) a fine under this title or imprisonment for not more than 5 years, or both, in the case of a first offense under this subparagraph; and (B) a fine under this title or imprisonment for not more than 10 years, or both, for any subsequent offense under this subparagraph; and (2) (A) a fine under this title or imprisonment for not more than 1 year or both, in the case of a first offense under this paragraph; and (B) a fine under this title or imprisonment for not more than 5 years, or both, in the case of an offense under this subparagraph that occurs after a conviction of another offense under this section. (c) Exceptions . —Subsection (a) of this section does not apply with respect to conduct authorized— (1) by the person or entity providing a wire or electronic communications service; (2) by a user of that service with respect to a communication of or intended for that user; or (3) in section 2703, 2704 or 2518 of this title. (a) Prohibitions . —Except as provided in subsection (b) or (c)— (1) a person or entity providing an electronic communication service to the public shall not knowingly divulge to any person or entity the contents of a communication while in electronic storage by that service; and (2) a person or entity providing remote computing service to the public shall not knowingly divulge to any person or entity the contents of any communication which is carried or maintained on that service— (A) on behalf of, and received by means of electronic transmission from (or created by means of computer processing of communications received by means of electronic transmission from), a subscriber or customer of such service; (B) solely for the purpose of providing storage or computer processing services to such subscriber or customer, if the provider is not authorized to access the contents of any such communications for purposes of providing any services other than storage or computer processing; and (3) a provider of remote computing service or electronic communication service to the public shall not knowingly divulge a record or other information pertaining to a subscriber to or customer of such service (not including the contents of communications covered by paragraph (1) or (2)) to any governmental entity. (b) Exceptions for disclosure of communications.—A provider described in subsection (a) may divulge the contents of a communication— (1) to an addressee or intended recipient of such communication or an agent of such addressee or intended recipient; (2) as otherwise authorized in section 2517, 2511(2)(a), or 2703 of this title; (3) with the lawful consent of the originator or an addressee or intended recipient of such communication, or the subscriber in the case of remote computing service; (4) to a person employed or authorized or whose facilities are used to forward such communication to its destination; (5) as may be necessarily incident to the rendition of the service or to the protection of the rights or property of the provider of that service; (6) to the National Center for Missing and Exploited Children, in connection with a report submitted thereto under section 2258A; (7) to a law enforcement agency— (A) if the contents— (i)were inadvertently obtained by the service provider; and (ii) appear to pertain to the commission of a crime; or [(B) Repealed. P.L. 108-21 , Title V, § 508(b)(1)(A), Apr. 30, 2003, 117 Stat. 684] [(C) Repealed. P.L. 107-296 , Title II, § 225(d)(1)(C), Nov. 25, 2002, 116 Stat. 2157] (8) to a governmental entity, if the provider, in good faith, believes that an emergency involving danger of death or serious physical injury to any person requires disclosure without delay of communications relating to the emergency. (c) Exceptions for disclosure of customer records . —A provider described in subsection (a) may divulge a record or other information pertaining to a subscriber to or customer of such service (not including the contents of communications covered by subsection (a)(1) or (a)(2))— (1)as otherwise authorized in section 2703; (2) with the lawful consent of the customer or subscriber; (3) as may be necessarily incident to the rendition of the service or to the protection of the rights or property of the provider of that service; (4) to a governmental entity, if the provider, in good faith, believes that an emergency involving danger of death or serious physical injury to any person requires disclosure without delay of information relating to the emergency; (5) to the National Center for Missing and Exploited Children, in connection with a report submitted thereto under section 2258A7; or (6) to any person other than a governmental entity. (d) Reporting of emergency disclosures.—On an annual basis, the Attorney General shall submit to the Committee on the Judiciary of the House of Representatives and the Committee on the Judiciary of the Senate a report containing— (1) the number of accounts from which the Department of Justice has received voluntary disclosures under subsection (b)(8); and (2) a summary of the basis for disclosure in those instances where— (A) voluntary disclosures under subsection (b)(8) were made to the Department of Justice; and (B) the investigation pertaining to those disclosures was closed without the filing of criminal charges. (a) Contents of wire or electronic communications in electronic storage.—A governmental entity may require the disclosure by a provider of electronic communication service of the contents of a wire or electronic communication, that is in electronic storage in a wire or electronic communications system for one hundred and eighty days or less, only pursuant to a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction. A governmental entity may require the disclosure by a provider of electronic communications services of the contents of a wire or electronic communication that has been in electronic storage in an electronic communications system for more than one hundred and eighty days by the means available under subsection (b) of this section. (b)(1) Contents of electronic communications in a remote computing service.—(1) A governmental entity may require a provider of remote computing service to disclose the contents of any wire or electronic communication to which this paragraph is made applicable by paragraph (2) of this subsection— (A) without required notice to the subscriber or customer, if the governmental entity obtains a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction by a court with jurisdiction; or (B) with prior notice from the governmental entity to the subscriber or customer if the governmental entity— (i) uses an administrative subpoena authorized by a Federal or State statute or a Federal or State grand jury or trial subpoena; or (ii) obtains a court order for such disclosure under subsection (d) of this section; except that delayed notice may be given pursuant to section 2705 of this title. (2) Paragraph (1) is applicable with respect to any wire or electronic communication that is held or maintained on that service— (A) on behalf of, and received by means of electronic transmission from (or created by means of computer processing of communications received by means of electronic transmission from), a subscriber or customer of such remote computing service; and (B) solely for the purpose of providing storage or computer processing services to such subscriber or customer, if the provider is not authorized to access the contents of any such communications for purposes of providing any services other than storage or computer processing. (c) Records concerning electronic communication service or remote computing service.—(1)(A) A government entity may require a provider of electronic communication service or remote computing service to disclose a record or other information pertaining to a subscriber to or customer of such service (not including the contents of communications). (B) A provider of electronic communication service or remote computing service shall disclose a record or other information pertaining to a subscriber to or customer of such service (not including the contents of communications covered by subsection (a) or (b) of this section) to a governmental entity only when the governmental entity— (A) obtains a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction by a court with jurisdiction; (B) obtains a court order for such disclosure under subsection (d) of this section; (C) has the consent of the subscriber or customer to such disclosure; or (D) submits a formal written request relevant to a law enforcement investigation concerning telemarketing fraud for the name, address, and place of business of a subscriber or customer of such provider, which subscriber or customer is engaged in telemarketing (as such term is defined in section 2325 of this title); or (E) seeks information under paragraph (2). (2) A provider of electronic communication service or remote computing service shall disclose to a governmental entity the (A) name; (B) address; (C) local and long distance telephone connection records, or records of session times and durations; (D) length of service (including start date) and types of service utilized; (E) telephone or instrument number or other subscriber number or identity, including any temporarily assigned network address; and (F) means and source of payment (including any credit car or bank account number), of a subscriber to or customer of such service, when the governmental entity uses an administrative subpoena authorized by a Federal or State statute or a Federal or State grand jury or trial subpoena or any means available under paragraph (1). (3) A governmental entity receiving records or information under this subsection is not required to provide notice to a subscriber or customer. (d) Requirements for court order . —A court order for disclosure under subsection (b) or (c) may be issued by any court that is a court of competent jurisdiction and shall issue only if the governmental entity offers specific and articulable facts showing that there are reasonable grounds to believe that the contents of a wire or electronic communication, or the records or other information sought, are relevant and material to an ongoing criminal investigation. In the case of a State governmental authority, such a court order shall not issue if prohibited by the law of such State. A court issuing an order pursuant to this section, on a motion made promptly by the service provider, may quash or modify such order, if the information or records requested are unusually voluminous in nature or compliance with such order otherwise would cause an undue burden on such provider. (e) No cause of action against a provider disclosing information under this chapter.—No cause of action shall lie in any court against any provider of wire or electronic communication service, its officers, employees, agents, or other specified persons for providing information, facilities, or assistance in accordance with the terms of a court order, warrant, subpoena , statutory authorization , or certification under this chapter. (f) Requirement to preserve evidence.—(1) In general.—A provider of wire or electronic communication services or a remote computing service, upon the request of a governmental entity, shall take all necessary steps to preserve records and other evidence in its possession pending the issuance of a court order or other process. (2) Period of retention.—Records referred to in paragraph (1) shall be retained for a period of 90 days, which shall be extended for an additional 90-day period upon a renewed request by the governmental entity. (g) Presence of Officer not Required.—Notwithstanding section 3105 of this title, the presence of an officer shall not be required for service or execution of a search warrant issued in accordance with this chapter requiring disclosure by a provider of electronic communications service or remote computing service of the contents of communications or records or other information pertaining to a subscriber to or customer of such service. (a) Backup preservation.—(1) A governmental entity acting under section 2703(b)(2) may include in its subpoena or court order a requirement that the service provider to whom the request is directed create a backup copy of the contents of the electronic communications sought in order to preserve those communications. Without notifying the subscriber or customer of such subpoena or court order, such service provider shall create such backup copy as soon as practicable consistent with its regular business practices and shall confirm to the governmental entity that such backup copy has been made. Such backup copy shall be created within two business days after receipt by the service provider of the subpoena or court order. (2) Notice to the subscriber or customer shall be made by the governmental entity within three days after receipt of such confirmation, unless such notice is delayed pursuant to section 2705(a). (3) The service provider shall not destroy such backup copy until the later of— (A) the delivery of the information; or (B) the resolution of any proceedings (including appeals of any proceeding) concerning the government's subpoena or court order. (4) The service provider shall release such backup copy to the requesting governmental entity no sooner than fourteen days after the governmental entity's notice to the subscriber or customer if such service provider— (A) has not received notice from the subscriber or customer that the subscriber or customer has challenged the governmental entity's request; and (B) has not initiated proceedings to challenge the request of the governmental entity. (5) A governmental entity may seek to require the creation of a backup copy under subsection (a)(1) of this section if in its sole discretion such entity determines that there is reason to believe that notification under section 2703 of this title of the existence of the subpoena or court order may result in destruction of or tampering with evidence. This determination is not subject to challenge by the subscriber or customer or service provider. (b) Customer challenges.—(1) Within fourteen days after notice by the governmental entity to the subscriber or customer under subsection (a)(2) of this section, such subscriber or customer may file a motion to quash such subpoena or vacate such court order, with copies served upon the governmental entity and with written notice of such challenge to the service provider. A motion to vacate a court order shall be filed in the court which issued such order. A motion to quash a subpoena shall be filed in the appropriate United States district court or State court. Such motion or application shall contain an affidavit or sworn statement— (A) stating that the applicant is a customer or subscriber to the service from which the contents of electronic communications maintained for him have been sought; and (B) stating the applicant's reasons for believing that the records sought are not relevant to a legitimate law enforcement inquiry or that there has not been substantial compliance with the provisions of this chapter in some other respect. (2) Service shall be made under this section upon a governmental entity by delivering or mailing by registered or certified mail a copy of the papers to the person, office, or department specified in the notice which the customer has received pursuant to this chapter. For the purposes of this section, the term "delivery" has the meaning given that term in the Federal Rules of Civil Procedure. (3) If the court finds that the customer has complied with paragraphs (1) and (2) of this subsection, the court shall order the governmental entity to file a sworn response, which may be filed in camera if the governmental entity includes in its response the reasons which make in camera review appropriate. If the court is unable to determine the motion or application on the basis of the parties' initial allegations and response, the court may conduct such additional proceedings as it deems appropriate. All such proceedings shall be completed and the motion or application decided as soon as practicable after the filing of the governmental entity's response. (4) If the court finds that the applicant is not the subscriber or customer for whom the communications sought by the governmental entity are maintained, or that there is a reason to believe that the law enforcement inquiry is legitimate and that the communications sought are relevant to that inquiry, it shall deny the motion or application and order such process enforced. If the court finds that the applicant is the subscriber or customer for whom the communications sought by the governmental entity are maintained, and that there is not a reason to believe that the communications sought are relevant to a legitimate law enforcement inquiry, or that there has not been substantial compliance with the provisions of this chapter, it shall order the process quashed. (5) A court order denying a motion or application under this section shall not be deemed a final order and no interlocutory appeal may be taken therefrom by the customer. (a) Delay of notification.—(1) A governmental entity acting under section 2703(b) of this title may— (A) where a court order is sought, include in the application a request, which the court shall grant, for an order delaying the notification required under section 2703(b) of this title for a period not to exceed ninety days, if the court determines that there is reason to believe that notification of the existence of the court order may have an adverse result described in paragraph (2) of this subsection; or (B) where an administrative subpoena authorized by a Federal or State statute or a Federal or State grand jury subpoena is obtained, delay the notification required under section 2703(b) of this title for a period not to exceed ninety days upon the execution of a written certification of a supervisory official that there is reason to believe that notification of the existence of the subpoena may have an adverse result described in paragraph (2) of this subsection. (2) An adverse result for the purposes of paragraph (1) of this subsection is— (A) endangering the life or physical safety of an individual; (B) flight from prosecution; (C) destruction of or tampering with evidence; (D) intimidation of potential witnesses; or (E) otherwise seriously jeopardizing an investigation or unduly delaying a trial. (3) The governmental entity shall maintain a true copy of certification under paragraph (1)(B). (4) Extensions of the delay of notification provided in section 2703 of up to ninety days each may be granted by the court upon application, or by certification by a governmental entity, but only in accordance with subsection (b) of this section. (5) Upon expiration of the period of delay of notification under paragraph (1) or (4) of this subsection, the governmental entity shall serve upon, or deliver by registered or first-class mail to, the customer or subscriber a copy of the process or request together with notice that— (A) states with reasonable specificity the nature of the law enforcement inquiry; and (B) informs such customer or subscriber— (i) that information maintained for such customer or subscriber by the service provider named in such process or request was supplied to or requested by that governmental authority and the date on which the supplying or request took place; (ii) that notification of such customer or subscriber was delayed; (iii) what governmental entity or court made the certification or determination pursuant to which that delay was made; and (iv) which provision of this chapter allowed such delay. (6) As used in this subsection, the term "supervisory official" means the investigative agent in charge or assistant investigative agent in charge or an equivalent of an investigating agency's headquarters or regional office, or the chief prosecuting attorney or the first assistant prosecuting attorney or an equivalent of a prosecuting attorney's headquarters or regional office. (b) Preclusion of notice to subject of governmental access.—A governmental entity acting under section 2703, when it is not required to notify the subscriber or customer under section 2703(b)(1), or to the extent that it may delay such notice pursuant to subsection (a) of this section, may apply to a court for an order commanding a provider of electronic communications service or remote computing service to whom a warrant, subpoena, or court order is directed, for such period as the court deems appropriate, not to notify any other person of the existence of the warrant, subpoena, or court order. The court shall enter such an order if it determines that there is reason to believe that notification of the existence of the warrant, subpoena, or court order will result in— (1) endangering the life or physical safety of an individual; (2) flight from prosecution; (3) destruction of or tampering with evidence; (4) intimidation of potential witnesses; or (5) otherwise seriously jeopardizing an investigation or unduly delaying a trial. (a) Payment.—Except as otherwise provided in subsection (c), a governmental entity obtaining the contents of communications, records, or other information under section 2702, 2703, or 2704 of this title shall pay to the person or entity assembling or providing such information a fee for reimbursement for such costs as are reasonably necessary and which have been directly incurred in searching for, assembling, reproducing, or otherwise providing such information. Such reimbursable costs shall include any costs due to necessary disruption of normal operations of any electronic communication service or remote computing service in which such information may be stored. (b) Amount.—The amount of the fee provided by subsection (a) shall be as mutually agreed by the governmental entity and the person or entity providing the information, or, in the absence of agreement, shall be as determined by the court which issued the order for production of such information (or the court before which a criminal prosecution relating to such information would be brought, if no court order was issued for production of the information). (c) Exception.—The requirement of subsection (a) of this section does not apply with respect to records or other information maintained by a communications common carrier that relate to telephone toll records and telephone listings obtained under section 2703 of this title. The court may, however, order a payment as described in subsection (a) if the court determines the information required is unusually voluminous in nature or otherwise caused an undue burden on the provider. (a) Cause of action.—Except as provided in section 2703(e), any provider of electronic communication service, subscriber, or other person aggrieved by any violation of this chapter in which the conduct constituting the violation is engaged in with a knowing or intentional state of mind may, in a civil action, recover from the person or entity other than the United States which engaged in that violation such relief as may be appropriate. (b) Relief.—In a civil action under this section, appropriate relief includes— (1) such preliminary and other equitable or declaratory relief as may be appropriate; (2) damages under subsection (c); and (3) a reasonable attorney's fee and other litigation costs reasonably incurred. (c) Damages.—The court may assess as damages in a civil action under this section the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation, but in no case shall a person entitled to recover receive less than the sum of $1,000. If the violation is willful or intentional, the court may assess punitive damages. In the case of a successful action to enforce liability under this section, the court may assess the costs of the action, together with reasonable attorney fees determined by the court. (d) Administrative Discipline.—If a court or appropriate department or agency determines that the United States or any of its departments or agencies has violated any provision of this chapter, and the court or appropriate department or agency finds that the circumstances surrounding the violation raise serious questions about whether or not an officer or employee of the United States acted willfully or intentionally with respect to the possible violation, the department or agency shall, upon receipt of a true and correct copy of the decision and findings of the court or appropriate department or agency promptly initiate a proceeding to determine whether disciplinary action against the officer or employee is warranted. If the head of the department or agency involved determines that disciplinary action is not warranted, he or she shall notify the Inspector General with jurisdiction over the department or agency concerned and shall provide the Inspector General with the reasons for such determination. (e) Defense.—A good faith reliance on— (1) a court warrant or order, a grand jury subpoena, a legislative authorization, or a statutory authorization (including a request of a governmental entity under section 2703(f) of this title); (2) a request of an investigative or law enforcement officer under section 2518(7) of this title; or (3) a good faith determination that section 2511(3) of this title permitted the conduct complained of; is a complete defense to any civil or criminal action brought under this chapter or any other law. (f) Limitation.—A civil action under this section may not be commenced later than two years after the date upon which the claimant first discovered or had a reasonable opportunity to discover the violation. (g) Improper Disclosure Is Violation.—Any willful disclosure of a "record", as that term is defined in section 552a(a) of title 5, United States Code, obtained by an investigative or law enforcement officer, or governmental entity, pursuant to section 2703 of this title, or from a device installed pursuant to section 3123 or 3125 of this title, that is not a disclosure made in the proper performance of the official duties of the officer or governmental entity making the disclosure, is a violation of this chapter. This provision shall not apply to information previously lawfully disclosed (prior to the commencement of any civil or administrative proceeding under this chapter) to the public by a Federal, State, or local governmental entity or by the plaintiff in a civil action under this chapter. The remedies and sanctions described in this chapter are the only judicial remedies and sanctions for nonconstitutional violations of this chapter. (a) Duty to provide—A wire or electronic communication service provider shall comply with a request for subscriber information and toll billing records information, or electronic communication transactional records in its custody or possession made by the Director of the Federal Bureau of Investigation under subsection (b) of this section. (b) Required certification—The Director of the Federal Bureau of Investigation, or his designee in a position not lower than Deputy Assistant Director at Bureau headquarters or a Special Agent in Charge in a Bureau field office designated by the Director, may— (1) request the name, address, length of service, and local and long distance toll billing records of a person or entity if the Director (or his designee) certifies in writing to the wire or electronic communication service provider to which the request is made that the name, address, length of service, and toll billing records sought are relevant to an authorized investigation to protect against international terrorism or clandestine intelligence activities, provided that such an investigation of a United States person is not conducted solely on the basis of activities protected by the first amendment to the Constitution of the United States; and (2) request the name, address, and length of service of a person or entity if the Director (or his designee) certifies in writing to the wire or electronic communication service provider to which the request is made that the information sought is relevant to an authorized investigation to protect against international terrorism or clandestine intelligence activities, provided that such an investigation of a United States person is not conducted solely upon the basis of activities protected by the first amendment to the Constitution of the United States. (c) Prohibition of certain disclosure—(1) If the Director of the Federal Bureau of Investigation, or his designee in a position not lower than Deputy Assistant Director at Bureau headquarters or a Special Agent in Charge in a Bureau field office designated by the Director, certifies that otherwise there may result a danger to the national security of the United States, interference with a criminal, counter terrorism, or counterintelligence investigation, interference with diplomatic relations, or danger to the life or physical safety of any person, no wire or electronic communications service provider, or officer, employee, or agent thereof, shall disclose to any person (other than those to whom such disclosure is necessary to comply with the request or an attorney to obtain legal advice or legal assistance with respect to the request) that the Federal Bureau of Investigation has sought or obtained access to information or records under this section. (2) The request shall notify the person or entity to whom the request is directed of the nondisclosure requirement under paragraph (1). (3) Any recipient disclosing to those persons necessary to comply with the request or to an attorney to obtain legal advice or legal assistance with respect to the request shall inform such person of any applicable nondisclosure requirement. Any person who receives a disclosure under this subsection shall be subject to the same prohibitions on disclosure under paragraph (1). (4) At the request of the Director of the Federal Bureau of Investigation or the designee of the Director, any person making or intending to make a disclosure under this section shall identify to the Director or such designee the person to whom such disclosure will be made or to whom such disclosure was made prior to the request, except that nothing in this section shall require a person to inform the Director or such designee of the identity of an attorney to whom disclosure was made or will be made to obtain legal advice or legal assistance with respect to the request under subsection (a). (d) Dissemination by bureau—The Federal Bureau of Investigation may disseminate information and records obtained under this section only as provided in guidelines approved by the Attorney General for foreign intelligence collection and foreign counterintelligence investigations conducted by the Federal Bureau of Investigation, and, with respect to dissemination to an agency of the United States, only if such information is clearly relevant to the authorized responsibilities of such agency. (e) Requirement that certain congressional bodies be informed—On a semiannual basis the Director of the Federal Bureau of Investigation shall fully inform the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate, and the Committee on the Judiciary of the House of Representatives and the Committee on the Judiciary of the Senate, concerning all requests made under subsection (b) of this section. (f) Libraries—A library (as that term is defined in section 213(1) of the Library Services and Technology Act (20 U.S.C. 9122(1)), the services of which include access to the Internet, books, journals, magazines, newspapers, or other similar forms of communication in print or digitally by patrons for their use, review, examination, or circulation, is not a wire or electronic communication service provider for purposes of this section, unless the library is providing the services defined in section 2510(15) ("electronic communication service") of this title. As used in this chapter— (1) the terms defined in section 2510 of this title have, respectively, the definitions given such terms in that section; (2) the term "remote computing service" means the provision to the public of computer storage or processing services by means of an electronic communications system; (3) the term "court of competent jurisdiction" includes - (A) any district court of the United States (including a magistrate judge of such a court) or any United States court of appeals that - (i) has jurisdiction over the offense being investigated; (ii) is in or for a district in which the provider of a wire or electronic communication service is located or in which the wire or electronic communications, records, or other information are stored; or (iii) is acting on a request for foreign assistance pursuant to section 3512 of this title; or (B) a court of general criminal jurisdiction of a State authorized by the law of that State to issue search warrants; and (4) the term "governmental entity" means a department or agency of the United States or State or political subdivision thereof. (a) In General.—Any person who is aggrieved by any willful violation of this chapter or of chapter 119 of this title or of sections 106(a), 305(a), or 405(a) of the Foreign Intelligence Surveillance Act (50 U.S.C. 1801 et seq.) may commence an action in United States District Court against the United States to recover money damages. In any such action, if a person who is aggrieved successfully establishes a violation of this chapter or of chapter 119 of this title or of the above special provisions of title 50, the Court may assess as damages— (1) actual damages, but not less than $10,000, whichever amount is greater; and (2) litigation costs, reasonably incurred. (b) Procedures . —(1) Any action against the United States under this section may be commenced only after a claim is presented to the appropriate department or agency under the procedures of the Federal Tort Claims Act, as set forth in title 28, United States Code. (2) Any action against the United States under this section shall be forever barred unless it is presented in writing to the appropriate Federal agency within 2 years after such claim accrues or unless action is begun within 6 months after the date of mailing, by certified or registered mail, of notice of final denial of the claim by the agency to which it was presented. The claim shall accrue on the date upon which the claimant first has a reasonable opportunity to discover the violation. (3) Any action under this section shall be tried in the court without a jury. (4) Notwithstanding any other provision of law, the procedures set forth in section 106(f), 305(g), or 405(f) of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.) shall be the exclusive means by which materials governed by those sections may be reviewed. (5) An amount equal to any award against the United States under this section shall be reimbursed by the department or agency concerned to the fund described in section 1304 of title 31, United States Code, out of any appropriation, fund, or other account (excluding any part of such appropriation, fund, or account that is available for the enforcement of any Federal law) that is available for the operating expenses of the department or agency concerned. (c) Administrative Discipline.—If a court or appropriate department or agency determines that the United States or any of the departments or agencies has violated any provision of this chapter, and the court or appropriate department or agency finds that the circumstances surrounding the violation raise serious questions about whether or not an officer or employee of the United States acted willfully or intentionally with respect to the possible violation, the department or agency shall, upon receipt of a true and correct copy of the decision and findings of the court or appropriate department or agency promptly initiate a proceeding to determine whether disciplinary action against the officer or employee is warranted. If the head of the department or agency involved determines that disciplinary action is not warranted, he or she shall notify the Inspector General with jurisdiction over the department or agency concerned and shall provide the Inspector General with the reasons for such determination. (d) Exclusive Remedy.—Any action against the United States under this subsection shall be the exclusive remedy against the United States for any claims within the purview of this section. (e) Stay of Proceedings.—(1) Upon the motion of the united States, the curt shall stay any action commenced under this section f the court determines that civil discovery will adversely affect the ability of the Government to conduct a related investigation or the prosecution of a related criminal case. Such a stay shall toll the limitations periods of paragraph (2) of subsection (b). (2) In this subsection, the terms "related criminal case" and "related investigation" means an actual prosecution or investigation in progress at the time at which the request for the stay or any subsequent motion to lift the stay is made. In determining whether any investigation or a criminal case is related to an action commenced under this section, the court shall consider the degree of similarity between the parties, witnesses, facts, and circumstances involved in the 2 proceedings, without requiring that nay one or more factors be identical. (3) In requesting a stay under paragraph (1), the Government may, in appropriate cases submit evidence ex parte in order to avoid disclosing any matter that may adversely affect a related investigation or a related criminal case. If the Government makes such an ex parte submission, the plaintiff shall be given an opportunity to make a submission to the court, not ex parte, and the court may, in its discretion, request further information from either party. (a) In general—Except as provided in this section, no person may install or use a pen register or a trap and trace device without first obtaining a court order under section 3123 of this title or under the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.). (b) Exception—The prohibition of subsection (a) does not apply with respect to the use of a pen register or a trap and trace device by a provider of electronic or wire communication service— (1) relating to the operation, maintenance, and testing of a wire or electronic communication service or to the protection of the rights or property of such provider, or to the protection of users of that service from abuse of service or unlawful use of service; or (2) to record the fact that a wire or electronic communication was initiated or completed in order to protect such provider, another provider furnishing service toward the completion of the wire communication, or a user of that service, from fraudulent, unlawful or abusive use of service; or (3) where the consent of the user of that service has been obtained. (c) Limitation—A government agency authorized to install and use a pen register or trap and trace device under this chapter or under State law shall use technology reasonably available to it that restricts the recording or decoding of electronic or other impulses to the dialing, routing, addressing, and signaling information utilized in identifying the origination or destination of wire or electronic communications. (d) Penalty—Whoever knowingly violates subsection (a) shall be fined under this title or imprisoned not more than one year, or both. (a)Application.(1) An attorney for the Government may make application for an order or an extension of an order under section 3123 of this title authorizing or approving the installation and use of a pen register or a trap and trace device under this chapter, in writing under oath or equivalent affirmation, to a court of competent jurisdiction. (2) Unless prohibited by State law, a State investigative or law enforcement officer may make application for an order or an extension of an order under section 3123 of this title authorizing or approving the installation and use of a pen register or a trap and trace device under this chapter, in writing under oath or equivalent affirmation, to a court of competent jurisdiction of such State. (b) Contents of application—An application under subsection (a) of this section shall include— (1) the identity of the attorney for the Government or the State law enforcement or investigative officer making the application and the identity of the law enforcement agency conducting the investigation; and (2) a certification by the applicant that the information likely to be obtained is relevant to an ongoing criminal investigation being conducted by that agency. (a) In general. (1) Upon an application made under section 3122(a)(1) of this title, the court shall enter an ex parte order authorizing the installation and use of a pen register or a trap and trace device if the court finds, based on facts contained in the application, that the information likely to be obtained by such installation and use is relevant to an ongoing criminal investigation. Such order shall, upon service of such order, apply to any entity providing wire or electronic communication service in the United States whose assistance may facilitate the execution of the order. (2) Upon an application made under section 3122(a)(2) of this title, the court shall enter an ex parte order authorizing the installation and use of a pen register or a trap and trace device within the jurisdiction of the court if the court finds, based on facts contained in the application, that the information likely to be obtained by such installation and use is relevant to an ongoing criminal investigation. (3)(A) Where the law enforcement agency implementing an ex part order under this subsection seeks to do so by installing and using its own pen register or trap and trace device on a packet-switched data network of a provider of electronic communication service to the public the agency shall ensure that a record will be maintained which will identify— (i) any officer or officers who installed the device and any officer or officers who accessed the device to obtain information from the network; (ii) the date and time the device was installed, the date and time the device was uninstalled, and the date, time, and duration of each time the device is accessed to obtain information; (iii) the configuration of the device at the time of its installation and any subsequent modification thereof; and (iv) any information which has been collected by the device. To the extent that the pen register or trap and trace device can be set automatically to record this information electronically, the record shall be maintained electronically throughout the installation and use of the such device. (B) The record maintained under subparagraph (A) shall be provided ex parte and under seal to the court which entered the ex parte order authorizing the installation and use of the device within 30 days after termination of the order (including any extensions thereof). (b) Contents of order—An order issued under this section— (1) shall specify— (A) the identity, if known, of the person to whom is leased or in whose name is listed the telephone line or other facility to which the pen register or trap and trace device is to be attached or applied; (B) the identity, if known, of the person who is the subject of the criminal investigation; (C) the attributes of the communications to which the order applies, including the number or other identifier and, if known, the location of the telephone line or other facility to which the pen register or trap and trace device is to be attached or applied, and, in the case of an order authorizing installation and use of a trap and trace device under subsection (a)(2), the geographic limits of the order; and (D) a statement of the offense to which the information likely to be obtained by the pen register or trap and trace device relates; and (2) shall direct, upon the request of the applicant, the furnishing of information, facilities, and technical assistance necessary to accomplish the installation of the pen register or trap and trace device under section 3124 of this title. (c) Time period and extensions— (1) An order issued under this section shall authorize the installation and use of a pen register or a trap and trace device for a period not to exceed sixty days. (2) Extensions of such an order may be granted, but only upon an application for an order under section 3122 of this title and upon the judicial finding required by subsection (a) of this section. The period of extension shall be for a period not to exceed sixty days. (d) Nondisclosure of existence of pen register or a trap and trace device—An order authorizing or approving the installation and use of a pen register or a trap and trace device shall direct that— (1) the order be sealed until otherwise ordered by the court; and (2) the person owning or leasing the line or other facility to which the pen register or a trap and trace device is attached, or applied, or who is obligated by the order to provide assistance to the applicant, not disclose the existence of the pen register or trap and trace device or the existence of the investigation to the listed subscriber, or to any other person, unless or until otherwise ordered by the court. (a) Pen registers—Upon the request of an attorney for the Government or an officer of a law enforcement agency authorized to install and use a pen register under this chapter, a provider of wire or electronic communication service, landlord, custodian, or other person shall furnish such investigative or law enforcement officer forthwith all information, facilities, and technical assistance necessary to accomplish the installation of the pen register unobtrusively and with a minimum of interference with the services that the person so ordered by the court accords the party with respect to whom the installation and use is to take place, if such assistance is directed by a court order as provided in section 3123(b)(2) of this title. (b) Trap and trace device—Upon the request of an attorney for the Government or an officer of a law enforcement agency authorized to receive the results of a trap and trace device under this chapter, a provider of a wire or electronic communication service, landlord, custodian, or other person shall install such device forthwith on the appropriate line or other facility and shall furnish such investigative or law enforcement officer all additional information, facilities and technical assistance including installation and operation of the device unobtrusively and with a minimum of interference with the services that the person so ordered by the court accords the party with respect to whom the installation and use is to take place, if such installation and assistance is directed by a court order as provided in section 3123(b)(2) of this title. Unless otherwise ordered by the court, the results of the trap and trace device shall be furnished, pursuant to section 3123(b) or section 3125 of this title, to the officer of a law enforcement agency, designated in the court order, at reasonable intervals during regular business hours for the duration of the order. (c) Compensation—A provider of a wire or electronic communication service, landlord, custodian, or other person who furnishes facilities or technical assistance pursuant to this section shall be reasonably compensated for such reasonable expenses incurred in providing such facilities and assistance. (d) No cause of action against a provider disclosing information under this chapter—No cause of action shall lie in any court against any provider of a wire or electronic communication service, its officers, employees, agents, or other specified persons for providing information, facilities, or assistance in accordance with a court order under this chapter or request pursuant to section 3125 of this title. (e) Defense—A good faith reliance on a court order under this chapter, a request pursuant to section 3125 of this title, a legislative authorization, or a statutory authorization is a complete defense against any civil or criminal action brought under this chapter or any other law. (f) Communications assistance enforcement orders—Pursuant to section 2522, an order may be issued to enforce the assistance capability and capacity requirements under the Communications Assistance for Law Enforcement Act. (a) Notwithstanding any other provision of this chapter, any investigative or law enforcement officer, specially designated by the Attorney General, the Deputy Attorney General, the Associate Attorney General, any Assistant Attorney General, any acting Assistant Attorney General, or any Deputy Assistant Attorney General, or by the principal prosecuting attorney of any State or subdivision thereof acting pursuant to a statute of that State, who reasonably determines that— (1) an emergency situation exists that involves— (A) immediate danger of death or serious bodily injury to any person; or (B) conspiratorial activities characteristic of organized crime; (C) an immediate threat to a national security interest; or (D) an ongoing attack on a protected computer (as defined in section 1030) that constitutes a crime punishable by a term of imprisonment greater than one year; that requires the installation and use of a pen register or a trap and trace device before an order authorizing such installation and use can, with due diligence, be obtained, and (2) there are grounds upon which an order could be entered under this chapter to authorize such installation and use; may have installed and use a pen register or trap and trace device if, within forty-eight hours after the installation has occurred, or begins to occur, an order approving the installation or use is issued in accordance with section 3123 of this title. (b) In the absence of an authorizing order, such use shall immediately terminate when the information sought is obtained, when the application for the order is denied or when forty-eight hours have lapsed since the installation of the pen register or trap and trace device, whichever is earlier. (c) The knowing installation or use by any investigative or law enforcement officer of a pen register or trap and trace device pursuant to subsection (a) without application for the authorizing order within forty-eight hours of the installation shall constitute a violation of this chapter. (d) A provider of a wire or electronic service, landlord, custodian, or other person who furnished facilities or technical assistance pursuant to this section shall be reasonably compensated for such reasonable expenses incurred in providing such facilities and assistance. The Attorney General shall annually report to Congress on the number of pen register orders and orders for trap and trace devices applied for by law enforcement agencies of the Department of Justice, which report shall include information concerning— (1) the period of interceptions authorized by the order, and the number and duration of any extensions of the order; (2) the offense specified in the order or application, or extension of an order; (3) the number of investigations involved; (4) the number and nature of the facilities affected; and (5) the identity, including district, of the applying investigative or law enforcement agency making the application and the person authorizing the order. As used in this chapter— (1) the terms "wire communication," "electronic communication," "electronic communication service," and "contents" have the meanings set forth for such terms in section 2510 of this title; (2) the term "court of competent jurisdiction" means— (A) any district court of the United States (including a magistrate judge of such a court) or any United States court of appeals that— (i) has jurisdiction over the offense being investigated; (ii) is in or for a district in which the provider of a wire or electronic communication service is located; (iii) is in or for a district in which a landlord, custodian, or other person subject to subsections (a) or (b) of section 3124 of this title is located; or (iv) is acting on a request for foreign assistance pursuant to section 3512 of this title; or (B) a court of general criminal jurisdiction of a State authorized by the law of that State to enter orders authorizing the use of a pen register or a trap and trace device; (3) the term "pen register" means a device or process which records or decodes or other dialing, routing, addressing, and signaling information reasonably likely to identify the source of a wire or electronic communication, provided, however, that such information shall not include the contents of any communication, but such term does not include any device or process used by a provider or customer of a wire or electronic communication service for billing, or recording as an incident to billing, for communications services provided by such provider or any device or process used by a provider or customer of a wire communication service for cost accounting or other like purposes in the ordinary course of its business; (4) the term "trap and trace device" means a device or process which captures the incoming electronic or other impulses which identify the originating number or other dialing, routing, addressing, and signaling information reasonably likely to identify the source of a wire or electronic communication, provided, however, that such information shall not include the contents of any communication; (5) the term "attorney for the Government" has the meaning given such term for the purposes of the Federal Rules of Criminal Procedure; and (6) the term "State" means a State, the District of Columbia, Puerto Rico, and any other possession or territory of the United States. As used in this subchapter: (a) "Foreign power" means— (1) a foreign government or any component thereof, whether or not recognized by the United States; (2) a faction of a foreign nation or nations, not substantially composed of United States persons; (3) an entity that is openly acknowledged by a foreign government or governments to be directed and controlled by such foreign government or governments; (4) a group engaged in international terrorism or activities in preparation therefor; (5) a foreign-based political organization, not substantially composed of United States persons; (6) an entity that is directed and controlled by a foreign government or governments; or (7) an entity not substantially composed of United States persons that is engaged in the international proliferation of weapons of mass destruction. (b) "Agent of a foreign power" means— (1) any person other than a United States person, who— (A) acts in the United States as an officer or employee of a foreign power, or as a member of a foreign power as defined in subsection (a)(4) of this section; (B) acts for or on behalf of a foreign power which engages in clandestine intelligence activities in the United States contrary to the interests of the United States, when the circumstances of such person's presence in the United States indicate that such person may engage in such activities in the United States, or when such person knowingly aids or abets any person in the conduct of such activities or knowingly conspires with any person to engage in such activities; (C) engages in international terrorism or activities in preparation therefore ; [ P.L. 109-177, Sec. 103, as amended by P.L. 112-14, Sec.2(b) ] Section 6001(b) of the Intelligence Reform and Terrorism Prev ention Act of 2004. (b) Sunset.— In General .— Except as provided in paragraph (2), the amendment made by subsection (a)[enacting section 1801(a)(1)(C) in bold italics above] shall cease to have effect on June 1, 2015. (2) Exception.— With respect to any particular foreign intelligence investigation that began before the date on which the provisions referred to in paragraph (1) cease to have effect, or with respect to any particular offense or potential offense that began or occurred before the date on which the provisions cease to have effect, such provisions shall continued in effect. (D) engages in the international proliferation of weapons of mass destruction, or activities in preparation therefor; or (E) engages in the international proliferation of weapons of mass destruction, or activities in preparation therefor for or on behalf of a foreign power; or (2) any person who— (A) knowingly engages in clandestine intelligence gathering activities for or on behalf of a foreign power, which activities involve or may involve a violation of the criminal statutes of the United States; (B) pursuant to the direction of an intelligence service or network of a foreign power, knowingly engages in any other clandestine intelligence activities for or on behalf of such foreign power, which activities involve or are about to involve a violation of the criminal statutes of the United States; (C) knowingly engages in sabotage or international terrorism, or activities that are in preparation therefor, or on behalf of a foreign power; (D) knowingly enters the United States under a false or fraudulent identity for or on behalf of a foreign power or, while in the United States, knowingly assumes a false or fraudulent identity for or on behalf of a foreign power; or (E) knowingly aids or abets any person in the conduct of activities described in subparagraph (A), (B), or (C) or knowingly conspires with any person to engage in activities described in subparagraph (A), (B), or (C). (c) "International terrorism" means activities that— (1) involve violent acts or acts dangerous to human life that are a violation of the criminal laws of the United States or of any State, or that would be a criminal violation if committed within the jurisdiction of the United States or any State; (2) appear to be intended— (A) to intimidate or coerce a civilian population; (B) to influence the policy of a government by intimidation or coercion; or (C) to affect the conduct of a government by assassination or kidnapping; and (3) occur totally outside the United States, or transcend national boundaries in terms of the means by which they are accomplished, the persons they appear intended to coerce or intimidate, or the locale in which their perpetrators operate or seek asylum. (d) "Sabotage" means activities that involve a violation of chapter 105 of Title 18, or that would involve such a violation if committed against the United States. (e) "Foreign intelligence information" means— (1) information that relates to, and if concerning a United States person is necessary to, the ability of the United States to protect against— (A) actual or potential attack or other grave hostile acts of a foreign power or an agent of a foreign power; (B) sabotage, international terrorism, or the international proliferation of weapons of mass destruction by a foreign power or an agent of a foreign power; or (C) clandestine intelligence activities by an intelligence service or network of a foreign power or by an agent of a foreign power; or (2) information with respect to a foreign power or foreign territory that relates to, and if concerning a United States person is necessary to— (A) the national defense or the security of the United States; or (B) the conduct of the foreign affairs of the United States. (f) "Electronic surveillance" means— (1) the acquisition by an electronic, mechanical, or other surveillance device of the contents of any wire or radio communication sent by or intended to be received by a particular, known United States person who is in the United States, if the contents are acquired by intentionally targeting that United States person, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes; (2) the acquisition by an electronic, mechanical, or other surveillance device of the contents of any wire communication to or from a person in the United States, without the consent of any party thereto, if such acquisition occurs in the United States, does not include the acquisition of those communications of computer trespassers that would be permissible under section 2511(2)(i) of title 18, United States Code; (3) the intentional acquisition by an electronic, mechanical, or other surveillance device of the contents of any radio communication, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes, and if both the sender and all intended recipients are located within the United States; or (4) the installation or use of an electronic, mechanical, or other surveillance device in the United States for monitoring to acquire information, other than from a wire or radio communication, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes. (g) "Attorney General" means the Attorney General of the United States (or Acting Attorney General) or the Deputy Attorney General, or, upon the designation of the Attorney General, the Assistant Attorney General for National Security under section 507A of title 28, United States Code. (h) "Minimization procedures", with respect to electronic surveillance, means— (1) specific procedures, which shall be adopted by the Attorney General, that are reasonably designed in light of the purpose and technique of the particular surveillance, to minimize the acquisition and retention, and prohibit the dissemination, of nonpublicly available information concerning unconsenting United States persons consistent with the need of the United States to obtain, produce, and disseminate foreign intelligence information; (2) procedures that require that nonpublicly available information, which is not foreign intelligence information, as defined in subsection (e)(1) of this section, shall not be disseminated in a manner that identifies any United States person, without such person's consent, unless such person's identity is necessary to understand foreign intelligence information or assess its importance; (3) notwithstanding paragraphs (1) and (2), procedures that allow for the retention and dissemination of information that is evidence of a crime which has been, is being, or is about to be committed and that is to be retained or disseminated for law enforcement purposes; and (4) notwithstanding paragraphs (1), (2), and (3), with respect to any electronic surveillance approved pursuant to section 1802(a) of this title, procedures that require that no contents of any communication to which a United States person is a party shall be disclosed, disseminated, or used for any purpose or retained for longer than 72 hours unless a court order under section 1805 of this title is obtained or unless the Attorney General determines that the information indicates a threat of death or serious bodily harm to any person. (i) "United States person" means a citizen of the United States, an alien lawfully admitted for permanent residence (as defined in section 1101(a)(20) of Title 8), an unincorporated association a substantial number of members of which are citizens of the United States or aliens lawfully admitted for permanent residence, or a corporation which is incorporated in the United States, but does not include a corporation or an association which is a foreign power, as defined in subsection (a)(1), (2), or (3) of this section. (j) "United States", when used in a geographic sense, means all areas under the territorial sovereignty of the United States and the Trust Territory of the Pacific Islands. (k) "Aggrieved person" means a person who is the target of an electronic surveillance or any other person whose communications or activities were subject to electronic surveillance. (l) "Wire communication" means any communication while it is being carried by a wire, cable, or other like connection furnished or operated by any person engaged as a common carrier in providing or operating such facilities for the transmission of interstate or foreign communications. (m) "Person" means any individual, including any officer or employee of the Federal Government, or any group, entity, association, corporation, or foreign power. (n) "Contents", when used with respect to a communication, includes any information concerning the identity of the parties to such communication or the existence, substance, purport, or meaning of that communication. (o) "State" means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Trust Territory of the Pacific Islands, and any territory or possession of the United States. (p) "Weapon of mass destruction" means.— (1) any explosive, incendiary, or poison gas device that is designed, intended, or has the capability to cause a mass casualty incident; (2) any weapon that is designed, intended, or has the capability to cause death or serious bodily injury to a significant number of persons through the release, dissemination, or impact of toxic or poisonous chemicals or their precursors; (3) any weapon involving a biological agent, toxin, or vector (as such terms are defined in section 178 of title 18, United States Code) that is designed, intended, or has the capability to cause death, illness, or serious bodily injury to a significant number of persons; or (4) any weapon that is designed, intended, or has the capability to release radiation or radioactivity causing death, illness, or serious bodily injury to a significant number of persons. 50 U.S.C. 1801 note [P.L. 110-261, §401] Severability. If any provision of this Act [P.L. 110-261], any amendment made by this Act, or the application thereof to any person or circumstances is held invalid, the validity of the remainder of the Act, of any such amendments, and of the application of such provisions to other persons and circumstances shall not be affected thereby. (a)(1) Notwithstanding any other law, the President, through the Attorney General, may authorize electronic surveillance without a court order under this subchapter to acquire foreign intelligence information for periods of up to one year if the Attorney General certifies in writing under oath that— (A) the electronic surveillance is solely directed at— (i)the acquisition of the contents of communications transmitted by means of communications used exclusively between or among foreign powers, as defined in section 1801(a)(1), (2), or (3) of this title; or (ii) the acquisition of technical intelligence, other than the spoken communications of individuals, from property or premises under the open and exclusive control of a foreign power, as defined in section 1801(a)(1), (2), or (3) of this title; (B) there is no substantial likelihood that the surveillance will acquire the contents of any communication to which a United States person is a party; and (C) the proposed minimization procedures with respect to such surveillance meet the definition of minimization procedures under section 1801(h) of this title; and if the Attorney General reports such minimization procedures and any changes thereto to the House Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence at least thirty days prior to their effective date, unless the Attorney General determines immediate action is required and notifies the committees immediately of such minimization procedures and the reason for their becoming effective immediately. (2) An electronic surveillance authorized by this subsection may be conducted only in accordance with the Attorney General's certification and the minimization procedures adopted by him. The Attorney General shall assess compliance with such procedures and shall report such assessments to the House Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence under the provisions of section 1808(a) of this title. (3) The Attorney General shall immediately transmit under seal to the court established under section 1803(a) of this title a copy of his certification. Such certification shall be maintained under security measures established by the Chief Justice with the concurrence of the Attorney General, in consultation with the Director of National Intelligence, and shall remain sealed unless— (A) an application for a court order with respect to the surveillance is made under sections 1801(h)(4) and 1804 of this title; or (B) the certification is necessary to determine the legality of the surveillance under section 1806(f) of this title. (4) With respect to electronic surveillance authorized by this subsection, the Attorney General may direct a specified communication common carrier to— (A) furnish all information, facilities, or technical assistance necessary to accomplish the electronic surveillance in such a manner as will protect its secrecy and produce a minimum of interference with the services that such carrier is providing its customers; and (B) maintain under security procedures approved by the Attorney General and the Director of National Intelligence any records concerning the surveillance or the aid furnished which such carrier wishes to retain. The Government shall compensate, at the prevailing rate, such carrier for furnishing such aid. (b) Applications for a court order under this subchapter are authorized if the President has, by written authorization, empowered the Attorney General to approve applications to the court having jurisdiction under section 1803 of this title, and a judge to whom an application is made may, notwithstanding any other law, grant an order, in conformity with section 1805 of this title, approving electronic surveillance of a foreign power or an agent of a foreign power for the purpose of obtaining foreign intelligence information, except that the court shall not have jurisdiction to grant any order approving electronic surveillance directed solely as described in paragraph (1)(A) of subsection (a) of this section unless such surveillance may involve the acquisition of communications of any United States person. (a)Court to hear applications and grant orders; record of denial; transmittal to court of review. (1) The Chief Justice of the United States shall publicly designate 11 district court judges from at least seven of the United States judicial circuits of whom no fewer than 3 shall reside within 20 miles of the District of Columbia who shall constitute a court which shall have jurisdiction to hear applications for and grant orders approving electronic surveillance anywhere within the United States under the procedures set forth in this chapter, except that no judge designated under this subsection (except when sitting en banc under paragraph (2) shall hear the same application for electronic surveillance under this chapter which has been denied previously by another judge designated under this subsection. If any judge so designated denies an application for an order authorizing electronic surveillance under this chapter, such judge shall provide immediately for the record a written statement of each reason for his decision and, on motion of the United States, the record shall be transmitted, under seal, to the court of review established in subsection (b) of this section. (2)(A) The court established under this subsection may, on its own initiative, or upon the request of the Government in any proceeding or a party under section 501(f)[50 U.S.C. 1861(f)] or paragraph (4) or (5) of section 702(h)[50 U.S.C. 1881a(h)], hold a hearing or rehearing, en banc, when ordered by a majority of the judges that constitute such court upon a determination that— (i)en banc consideration is necessary to secure or maintain uniformity of the court's decisions; or (ii) the proceeding involves a question of exceptional importance. (B) Any authority granted by this Act to a judge of the court established under this subsection may be exercised by the court en banc. When exercising such authority, the court en banc shall comply with any requirements of this Act on the exercise of such authority. (C) For purposes of this paragraph, the court en banc shall consist of all judges who constitute the court established under this subsection. (b) Court of review; record, transmittal to Supreme Court The Chief Justice shall publicly designate three judges, one of whom shall be publicly designated as the presiding judge, from the United States district courts or courts of appeals who together shall comprise a court of review which shall have jurisdiction to review the denial of any application made under this chapter. If such court determines that the application was properly denied, the court shall immediately provide for the record a written statement of each reason for its decision and, on petition of the United States for a writ of certiorari, the record shall be transmitted under seal to the Supreme Court, which shall have jurisdiction to review such decision. (c) Expeditious conduct of proceedings; security measures for maintenance of records Proceedings under this chapter shall be conducted as expeditiously as possible. The record of proceedings under this chapter, including applications made and orders granted, shall be maintained under security measures established by the Chief Justice in consultation with the Attorney General and the Director of National Intelligence. (d) Tenure Each judge designated under this section shall so serve for a maximum of seven years and shall not be eligible for redesignation, except that the judges first designated under subsection (a) of this section shall be designated for terms of from one to seven years so that one term expires each year, and that judges first designated under subsection (b) of this section shall be designated for terms of three, five, and seven years. (e)(1) Three judges designated under subsection (a) of this section who reside within 20 miles of the District of Columbia, or, if all of such judges are unavailable, other judges of the court established under subsection (a) of this section as may be designated by the presiding judge of such court, shall comprise a petition review pool which shall have jurisdiction to review petitions filed pursuant to section 1861(f)(1) or 1881a(h)(4) of this title. (2) Not later than 60 days after March 9, 2006, the court established under subsection (a) of this section shall adopt and, consistent with the protection of national security, publish procedures for the review of petitions filed pursuant to section 1861(f)(1) or 1881a(h)(4) of this title by the panel established under paragraph (1). Such procedures shall provide that review of a petition shall be conducted in camera and shall also provide for the designation of an acting presiding judge. (f)(1) A judge of the court established under subsection (a), the court established under subsection (b) or a judge of that court, or the Supreme Court of the United States or a justice of that court, may, in accordance with the rules of their respective courts, enter a stay of an order or an order modifying an order of the court established under subsection (a) or the court established under subsection (b) entered under any title of this Act, while the court established under subsection (a) conducts a rehearing, while an appeal is pending to the court established under subsection (b), or while a petition of certiorari is pending in the Supreme Court of the United States, or during the pendency of any review by that court. (2) The authority described in paragraph (1) shall apply to an order entered under any provision of this Act. (g)(1) The courts established pursuant to subsections (a) and (b) of this section may establish such rules and procedures, and take such actions, as are reasonably necessary to administer their responsibilities under this chapter. (2) The rules and procedures established under paragraph (1), and any modifications of such rules and procedures, shall be recorded, and shall be transmitted to the following: (A) All of the judges on the court established pursuant to subsection (a) of this section. (B) All of the judges on the court of review established pursuant to subsection (b) of this section. (C) The Chief Justice of the United States. (D) The Committee on the Judiciary of the Senate. (E) The Select Committee on Intelligence of the Senate. (F) The Committee on the Judiciary of the House of Representatives. (G) The Permanent Select Committee on Intelligence of the House of Representatives. (3) The transmissions required by paragraph (2) shall be submitted in unclassified form, but may include a classified annex. (h) Nothing in this Act shall be construed to reduce or contravene the inherent authority of the court established under subsection (a) to determine or enforce compliance with an order or a rule of such court or with a procedure approved by such court. (a) Submission by Federal officer; approval of Attorney General; contents Each application for an order approving electronic surveillance under this subchapter shall be made by a Federal officer in writing upon oath or affirmation to a judge having jurisdiction under section 1803 of this title. Each application shall require the approval of the Attorney General based upon his finding that it satisfies the criteria and requirements of such application as set forth in this subchapter. It shall include— (1) the identity of the Federal officer making the application; (2) the identity, if known, or a description of the specific target of the electronic surveillance; (3) a statement of the facts and circumstances relied upon by the applicant to justify his belief that— (A) the target of the electronic surveillance is a foreign power or an agent of a foreign power; and (B) each of the facilities or places at which the electronic surveillance is directed is being used, or is about to be used, by a foreign power or an agent of a foreign power; (4) a statement of the proposed minimization procedures; (5) a description of the nature of the information sought and the type of communications or activities to be subjected to the surveillance; (6) a certification or certifications by the Assistant to the President for National Security Affairs, an executive branch official or officials designated by the President from among those executive officers employed in the area of national security or defense and appointed by the President with the advice and consent of the Senate, or the Deputy Director of the Federal Bureau of Investigation, if designated by the President as a certifying official— (A) that the certifying official deems the information sought to be foreign intelligence information; (B) that a significant purpose of the surveillance is to obtain foreign intelligence information; (C) that such information cannot reasonably be obtained by normal investigative techniques; (D) that designates the type of foreign intelligence information being sought according to the categories described in section 1801(e) of this title; and (E) including a statement of the basis for the certification that — (i) the information sought is the type of foreign intelligence information designated; and (ii) such information cannot reasonably be obtained by normal investigative techniques; (7) a summary statement of the means by which the surveillance will be effected and a statement whether physical entry is required to effect the surveillance; (8) a statement of the facts concerning all previous applications that have been made to any judge under this subchapter involving any of the persons, facilities, or places specified in the application, and the action taken on each previous application; and (9) a statement of the period of time for which the electronic surveillance is required to be maintained, and if the nature of the intelligence gathering is such that the approval of the use of electronic surveillance under this subchapter should not automatically terminate when the described type of information has first been obtained, a description of facts supporting the belief that additional information of the same type will be obtained thereafter. (b) Additional affidavits or certifications The Attorney General may require any other affidavit or certification from any other officer in connection with the application. (c) Additional information The judge may require the applicant to furnish such other information as may be necessary to make the determinations required by section 1805 of this title. (d) Requirements regarding certain application (1)(A) Upon written request of the Director of the Federal Bureau of Investigation, the Secretary of Defense, the Secretary of State, the Director of National Intelligence, or the Director of the Central Intelligence Agency, the Attorney General shall personally review under subsection (a) an application under that subsection for a target described in section 1801(b)(2) of this title. (B) Except when disabled or otherwise unavailable to make a request referred to in subparagraph (A), an official referred to in that subparagraph may not delegate the authority to make a request referred to in that subparagraph. (C) Each official referred to in subparagraph (A) with authority to make a request under that subparagraph shall take appropriate actions in advance to ensure that delegation of such authority is clearly established in the event such official is disabled or otherwise unavailable to make such request. (2)(A) If as a result of a request under paragraph (1) the Attorney General determines not to approve an application under the second sentence of subsection (a) for purposes of making the application under this section, the Attorney General shall provide written notice of the determination to the official making the request for the review of the application under that paragraph. Except when disabled or otherwise unavailable to make a determination under the preceding sentence, the Attorney General may not delegate the responsibility to make a determination under that sentence. The Attorney General shall take appropriate actions in advance to ensure that delegation of such responsibility is clearly established in the event the Attorney General is disabled or otherwise unavailable to make such determination. (B) Notice with respect to an application under subparagraph (A) shall set forth the modifications, if any, of the application that are necessary in order for the Attorney General to approve the application under the second sentence of subsection (a) for purposes of making the application under this section. (C) Upon review of any modifications of an application set forth under subparagraph (B), the official notified of the modifications under this paragraph shall modify the application if such official determines that such modification is warranted. Such official shall supervise the making of any modification under this subparagraph. Except when disabled or otherwise unavailable to supervise the making of any modification under the preceding sentence, such official may not delegate the responsibility to supervise the making of any modification under that preceding sentence. Each such official shall take appropriate actions in advance to ensure that delegation of such responsibility is clearly established in the event such official is disabled or otherwise unavailable to supervise the making of such modification. (a) Necessary findings Upon an application made pursuant to section 1804 of this title, the judge shall enter an ex parte order as requested or as modified approving the electronic surveillance if he finds that— (1) the application has been made by a Federal officer and approved by the Attorney General; (2) on the basis of the facts submitted by the applicant there is probable cause to believe that— (A) the target of the electronic surveillance is a foreign power or an agent of a foreign power: Provided, That no United States person may be considered a foreign power or an agent of a foreign power solely upon the basis of activities protected by the first amendment to the Constitution of the United States; and (B) each of the facilities or places at which the electronic surveillance is directed is being used, or is about to be used, by a foreign power or an agent of a foreign power; (3) the proposed minimization procedures meet the definition of minimization procedures under section 1801(h) of this title; and (4) the application which has been filed contains all statements and certifications required by section 1804 of this title and, if the target is a United States person, the certification or certifications are not clearly erroneous on the basis of the statement made under section 1804(a)(7)(E) of this title and any other information furnished under section 1804(d) of this title. (b) Determination of probable cause In determining whether or not probable cause exists for purposes of an order under subsection (a)(2) of this section, a judge may consider past activities of the target, as well as facts and circumstances relating to current or future activities of the target. (c) Specifications and directions of orders (1) Specifications An order approving an electronic surveillance under this section shall specify— (A) the identity, if known, or a description of the specific target of the electronic surveillance identified or described in the application pursuant to section 1804(a)(3) of this title; (B) the nature and location of each of the facilities or places at which the electronic surveillance will be directed, if known; (C) the type of information sought to be acquired and the type of communications or activities to be subjected to the surveillance; (D) the means by which the electronic surveillance will be effected and whether physical entry will be used to effect the surveillance; and (E) the period of time during which the electronic surveillance is approved. ; and (2) Directions An order approving an electronic surveillance under this section shall direct— (A) that the minimization procedures be followed; (B) that, upon the request of the applicant, a specified communication or other common carrier, landlord, custodian, or other specified person, or in circumstances where the Court finds, based upon specific facts provided in the application, that the actions of the target of the application may have the effect of thwarting the identification of a specified person , such other persons, furnish the applicant forthwith all information, facilities, or technical assistance necessary to accomplish the electronic surveillance in such a manner as will protect its secrecy and produce a minimum of interference with the services that such carrier, landlord, custodian, or other person is providing that target of electronic surveillance; [ P.L. 109-177, Sec. 102(b) as amended by P.L. 112-14, Sec.2(a) ] (1) In General.— Effective June 1, 2015, the Foreign Intelligence Surveillance Act of 1978 is amended so that section[] 105(c)(2 read[s] as [it] read on October 25, 2001 [, that is, without the language in bold italics above]. (2) Exception.—W ith respect to any particular foreign intelligence investigation that began before the date on which the provisions referred to in paragraph (1) cease to have effect, or with respect to any particular offense or potential offense that began or occurred before the date on which the provisions cease to have effect, such provisions shall continued in effect. (C) that such carrier, landlord, custodian, or other person maintain under security procedures approved by the Attorney General and the Director of National Intelligence any records concerning the surveillance or the aid furnished that such person wishes to retain; and (D) that the applicant compensate, at the prevailing rate, such carrier, landlord, custodian, or other person for furnishing such aid. (3) Special directions for certain orders An order approving an electronic surveillance under this section in circumstances where the nature and location of each of the facilities or places at which the surveillance will be directed is unknown shall direct the applicant to provide notice to the court within ten days after the date on which surveillance begins to be directed at any new facility or place, unless the court finds good cause to justify a longer period of up to 60 days, of— (A) the nature and location of each new facility or place at which the electronic surveillance is directed; (B) the facts and circumstances relied upon by the applicant to justify the applicant's belief that each new facility or place at which the electronic surveillance is directed is or was being used, or is about to be used, by the target of the surveillance; (C) a statement of any proposed minimization procedures that differ from those contained in the original application or order, that may be necessitated by a change in the facility or place at which the electronic surveillance is directed; and (D) the total number of electronic surveillances that have been or are being conducted under the authority of the order. (d) Duration of order; extensions; review of circumstances under which information was acquired, retained or disseminated (1) An order issued under this section may approve an electronic surveillance for the period necessary to achieve its purpose, or for ninety days, whichever is less, except that (A) an order under this section shall approve an electronic surveillance targeted against a foreign power, as defined in section 1801(a)(1), (2), or (3) of this title, for the period specified in the application or for one year, whichever is less, and (B) an order under this chapter for a surveillance targeted against an agent of a foreign power who is not a United States person may be for the period specified in the application or for 120 days, whichever is less. (2) Extensions of an order issued under this subchapter may be granted on the same basis as an original order upon an application for an extension and new findings made in the same manner as required for an original order, except that (A) an extension of an order under this chapter for a surveillance targeted against a foreign power, as defined in paragraph (5), (6), or (7) of section 101(a) of this title, or against a foreign power as defined in section 1801(a)(4) of this title that is not a United States person, may be for a period not to exceed one year if the judge finds probable cause to believe that no communication of any individual United States person will be acquired during the period, and (B) an extension of an order under this chapter for a surveillance targeted against an agent of a foreign power who is not a United States person may be for a period not to exceed 1 year. (3) At or before the end of the period of time for which electronic surveillance is approved by an order or an extension, the judge may assess compliance with the minimization procedures by reviewing the circumstances under which information concerning United States persons was acquired, retained, or disseminated. (e)(1) Notwithstanding any other provision of this title, the Attorney General may authorize the emergency employment of electronic surveillance if the Attorney General— (A) reasonably determines that an emergency situation exists with respect to the employment of electronic surveillance to obtain foreign intelligence information before an order authorizing such surveillance can with due diligence be obtained; (B) reasonably determines that the factual basis for the issuance of an order under this title to approve such electronic surveillance exists; (C) informs, either personally or through a designee, a judge having jurisdiction under section 103 at the time of such authorization that the decision has been made to employ emergency electronic surveillance; and (D) makes an application in accordance with this title to a judge having jurisdiction under section 103 as soon as practicable, but not later than 7 days after the Attorney General authorizes such surveillance. (2) If the Attorney General authorizes the emergency employment of electronic surveillance under paragraph (1), the Attorney General shall require that the minimization procedures required by this title for the issuance of a judicial order be followed. (3) In the absence of a judicial order approving such electronic surveillance, the surveillance shall terminate when the information sought is obtained, when the application for the order is denied, or after the expiration of 7 days from the time of authorization by the Attorney General, whichever is earliest. (4) A denial of the application made under this subsection may be reviewed as provided in section 103. (5) In the event that such application for approval is denied, or in any other case where the electronic surveillance is terminated and no order is issued approving the surveillance, no information obtained or evidence derived from such surveillance shall be received in evidence or otherwise disclosed in any trial, hearing, or other proceeding in or before any court, grand jury, department, office, agency, regulatory body, legislative committee, or other authority of the United States, a State, or political subdivision thereof, and no information concerning any United States person acquired from such surveillance shall subsequently be used or disclosed in any other manner by Federal officers or employees without the consent of such person, except with the approval of the Attorney General if the information indicates a threat of death or serious bodily harm to any person. (6) The Attorney General shall assess compliance with the requirements of paragraph (5). (f) Testing of electronic equipment; discovering unauthorized electronic surveillance; training of intelligence personnel Notwithstanding any other provision of this subchapter, officers, employees, or agents of the United States are authorized in the normal course of their official duties to conduct electronic surveillance not targeted against the communications of any particular person or persons, under procedures approved by the Attorney General, solely to— (1) test the capability of electronic equipment, if— (A) it is not reasonable to obtain the consent of the persons incidentally subjected to the surveillance; (B) the test is limited in extent and duration to that necessary to determine the capability of the equipment; (C) the contents of any communication acquired are retained and used only for the purpose of determining the capability of the equipment, are disclosed only to test personnel, and are destroyed before or immediately upon completion of the test; and: (D) Provided, That the test may exceed ninety days only with the prior approval of the Attorney General; (2) determine the existence and capability of electronic surveillance equipment being used by persons not authorized to conduct electronic surveillance, if— (A) it is not reasonable to obtain the consent of persons incidentally subjected to the surveillance; (B) such electronic surveillance is limited in extent and duration to that necessary to determine the existence and capability of such equipment; and (C) any information acquired by such surveillance is used only to enforce chapter 119 of Title 18, or section 605 of Title 47, or to protect information from unauthorized surveillance; or (3) train intelligence personnel in the use of electronic surveillance equipment, if— (A) it is not reasonable to— (i) obtain the consent of the persons incidentally subjected to the surveillance; (ii) train persons in the course of surveillances otherwise authorized by this subchapter; or (iii) train persons in the use of such equipment without engaging in electronic surveillance; (B) such electronic surveillance is limited in extent and duration to that necessary to train the personnel in the use of the equipment; and (C) no contents of any communication acquired are retained or disseminated for any purpose, but are destroyed as soon as reasonably possible. (g) Retention of certifications, applications and orders Certifications made by the Attorney General pursuant to section 1802(a) of this title and applications made and orders granted under this subchapter shall be retained for a period of at least ten years from the date of the certification or application. (h) Release from liability No cause of action shall lie in any court against any provider of a wire or electronic communication service, landlord, custodian, or other person (including any officer, employee, agent, or other specified person thereof) that furnishes any information, facilities, or technical assistance in accordance with a court order or request for emergency assistance under this chapter for electronic surveillance or physical search. (i) In any case in which the Government makes an application to a judge under this title to conduct electronic surveillance involving communications and the judge grants such application, upon the request of the applicant, the judge shall also authorize the installation and use of pen registers and trap and trace devices, and direct the disclosure of the information set forth in 50 U.S.C. 1842(d)(2). 50 U.S.C. 1805a. Clarification of electronic surveillance of persons outside the United States [Expired]. 50 U.S.C. 1805b. Additional procedure for authorizing certain acquisitions concerning persons located outside the United States [Expired]. 50 U.S.C. 1805c. Submission to court of review of procedures [Expired]. (a) Compliance with minimization procedures; privileged communications; lawful purposes Information acquired from an electronic surveillance conducted pursuant to this subchapter concerning any United States person may be used and disclosed by Federal officers and employees without the consent of the United States person only in accordance with the minimization procedures required by this subchapter. No otherwise privileged communication obtained in accordance with, or in violation of, the provisions of this subchapter shall lose its privileged character. No information acquired from an electronic surveillance pursuant to this subchapter may be used or disclosed by Federal officers or employees except for lawful purposes. (b) Statement for disclosure No information acquired pursuant to this subchapter shall be disclosed for law enforcement purposes unless such disclosure is accompanied by a statement that such information, or any information derived therefrom, may only be used in a criminal proceeding with the advance authorization of the Attorney General. (c) Notification by United States Whenever the Government intends to enter into evidence or otherwise use or disclose in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States, against an aggrieved person, any information obtained or derived from an electronic surveillance of that aggrieved person pursuant to the authority of this subchapter, the Government shall, prior to the trial, hearing, or other proceeding or at a reasonable time prior to an effort to so disclose or so use that information or submit it in evidence, notify the aggrieved person and the court or other authority in which the information is to be disclosed or used that the Government intends to so disclose or so use such information. (d) Notification by States or political subdivisions Whenever any State or political subdivision thereof intends to enter into evidence or otherwise use or disclose in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of a State or a political subdivision thereof, against an aggrieved person any information obtained or derived from an electronic surveillance of that aggrieved person pursuant to the authority of this subchapter, the State or political subdivision thereof shall notify the aggrieved person, the court or other authority in which the information is to be disclosed or used, and the Attorney General that the State or political subdivision thereof intends to so disclose or so use such information. (e) Motion to suppress Any person against whom evidence obtained or derived from an electronic surveillance to which he is an aggrieved person is to be, or has been, introduced or otherwise used or disclosed in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States, a State, or a political subdivision thereof, may move to suppress the evidence obtained or derived from such electronic surveillance on the grounds that— (1) the information was unlawfully acquired; or (2) the surveillance was not made in conformity with an order of authorization or approval. Such a motion shall be made before the trial, hearing, or other proceeding unless there was no opportunity to make such a motion or the person was not aware of the grounds of the motion. (f) In camera and ex parte review by district court Whenever a court or other authority is notified pursuant to subsection (c) or (d) of this section, or whenever a motion is made pursuant to subsection (e) of this section, or whenever any motion or request is made by an aggrieved person pursuant to any other statute or rule of the United States or any State before any court or other authority of the United States or any State to discover or obtain applications or orders or other materials relating to electronic surveillance or to discover, obtain, or suppress evidence or information obtained or derived from electronic surveillance under this chapter, the United States district court or, where the motion is made before another authority, the United States district court in the same district as the authority, shall, notwithstanding any other law, if the Attorney General files an affidavit under oath that disclosure or an adversary hearing would harm the national security of the United States, review in camera and ex parte the application, order, and such other materials relating to the surveillance as may be necessary to determine whether the surveillance of the aggrieved person was lawfully authorized and conducted. In making this determination, the court may disclose to the aggrieved person, under appropriate security procedures and protective orders, portions of the application, order, or other materials relating to the surveillance only where such disclosure is necessary to make an accurate determination of the legality of the surveillance. (g) Suppression of evidence; denial of motion f the United States district court pursuant to subsection (f) of this section determines that the surveillance was not lawfully authorized or conducted, it shall, in accordance with the requirements of law, suppress the evidence which was unlawfully obtained or derived from electronic surveillance of the aggrieved person or otherwise grant the motion of the aggrieved person. If the court determines that the surveillance was lawfully authorized and conducted, it shall deny the motion of the aggrieved person except to the extent that due process requires discovery or disclosure. (h) Finality of orders Orders granting motions or requests under subsection (g) of this section, decisions under this section that electronic surveillance was not lawfully authorized or conducted, and orders of the United States district court requiring review or granting disclosure of applications, orders, or other materials relating to a surveillance shall be final orders and binding upon all courts of the United States and the several States except a United States court of appeals and the Supreme Court. (i) Destruction of unintentionally acquired information In circumstances involving the unintentional acquisition by an electronic, mechanical, or other surveillance device of the contents of any communication, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes, and if both the sender and all intended recipients are located within the United States, such contents shall be destroyed upon recognition, unless the Attorney General determines that the contents indicate a threat of death or serious bodily harm to any person. (j) Notification of emergency employment of electronic surveillance; contents; postponement, suspension or elimination If an emergency employment of electronic surveillance is authorized under section 1805(e) of this title and a subsequent order approving the surveillance is not obtained, the judge shall cause to be served on any United States person named in the application and on such other United States persons subject to electronic surveillance as the judge may determine in his discretion it is in the interest of justice to serve, notice of— (1) the fact of the application; (2) the period of the surveillance; and (3) the fact that during the period information was or was not obtained. On an ex parte showing of good cause to the judge the serving of the notice required by this subsection may be postponed or suspended for a period not to exceed ninety days. Thereafter, on a further ex parte showing of good cause, the court shall forego ordering the serving of the notice required under this subsection. (k) Consultation with Federal law enforcement officer (1) Federal officers who conduct electronic surveillance to acquire foreign intelligence information under this title may consult with Federal law enforcement officers or law enforcement personnel of a State or political subdivision of a State (including the chief executive officer of that State or political subdivision who has the authority to appoint or direct the chief law enforcement officer of that State or political subdivision to coordinate efforts to investigate or protect against— (A) actual or potential attack or other grave hostile acts of a foreign power or an agent of a foreign power; (B) sabotage, international terrorism, or the international proliferation of weapons of mass destruction by a foreign power or an agent of a foreign power; or (C) clandestine intelligence activities by an intelligence service or network of a foreign power or by an agent of a foreign power. (2) Coordination authorized under paragraph (1) shall not preclude the certification required by section 104(a)(7)(B) or the entry of an order under section 105. In April of each year, the Attorney General shall transmit to the Administrative Office of the United States Court and to Congress a report setting forth with respect to the preceding calendar year— (a) the total number of applications made for orders and extensions of orders approving electronic surveillance under this subchapter; and (b) the total number of such orders and extensions either granted, modified, or denied. (a)(1) On a semiannual basis the Attorney General shall fully inform the House Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence, and the Committee on the Judiciary of the Senate, concerning all electronic surveillance under this subchapter. Nothing in this subchapter shall be deemed to limit the authority and responsibility of the appropriate committees of each House of Congress to obtain such information as they may need to carry out their respective functions and duties. (2) Each report under the first sentence of paragraph (1) shall include a description of— (A) the total number of applications made for orders and extensions of orders approving electronic surveillance under this subchapter where the nature and location of each facility or place at which the electronic surveillance will be directed is unknown; (B) each criminal case in which information acquired under this chapter has been authorized for use at trial during the period covered by such report; and (C) the total number of emergency employments of electronic surveillance under section 1805(e) of this title and the total number of subsequent orders approving or denying such electronic surveillance. (b) On or before one year after October 25, 1978, and on the same day each year for four years thereafter, the Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence shall report respectively to the House of Representatives and the Senate, concerning the implementation of this chapter. Said reports shall include but not be limited to an analysis and recommendations concerning whether this chapter should be (1) amended, (2) repealed, or (3) permitted to continue in effect without amendment. (a) Prohibited activities A person is guilty of an offense if he intentionally — (1) engages in electronic surveillance under color of law except as authorized by this Act, chapter 119, 121, or 206 of title 18, United States Code, or any express statutory authorization that is an additional exclusive means for conducting electronic surveillance under section 112; or (2) discloses or uses information obtained under color of law by electronic surveillance, knowing or having reason to know that the information was obtained through electronic surveillance not authorized by this Act, chapter 119, 121, or 206 of title 18, United States Code, or any express statutory authorization that is an additional exclusive means for conducting electronic surveillance under section 112. (b) Defense It is a defense to a prosecution under subsection (a) of this section that the defendant was a law enforcement or investigative officer engaged in the course of his official duties and the electronic surveillance was authorized by and conducted pursuant to a search warrant or court order of a court of competent jurisdiction. (c) Penalties An offense described in this section is punishable by a fine of not more than $10,000 or imprisonment for not more than five years, or both. (d) Federal jurisdiction There is Federal jurisdiction over an offense under this section if the person committing the offense was an officer or employee of the United States at the time the offense was committed. An aggrieved person, other than a foreign power or an agent of a foreign power, as defined in section 1801(a) or (b)(1)(A) of this title, respectively, who has been subjected to an electronic surveillance or about whom information obtained by electronic surveillance of such person has been disclosed or used in violation of section 1809 of this title shall have a cause of action against any person who committed such violation and shall be entitled to recover — (a) actual damages, but not less than liquidated damages of $1,000 or $100 per day for each day of violation, whichever is greater; (b) punitive damages; and (c) reasonable attorney's fees and other investigation and litigation costs reasonably incurred. Notwithstanding any other law, the President, through the Attorney General, may authorize electronic surveillance without a court order under this subchapter to acquire foreign intelligence information for a period not to exceed fifteen calendar days following a declaration of war by the Congress. (a) Except as provided in subsection (b), the procedures of chapters 119, 121, and 206 of title 18, United States Code, and this Act shall be the exclusive means by which electronic surveillance and the interception of domestic wire, oral, or electronic communications may be conducted. (b) Only an express statutory authorization for electronic surveillance or the interception of domestic wire, oral, or electronic communications, other than as an amendment to this Act or chapters 119, 121, or 206 of title 18, United States Code, shall constitute an additional exclusive means for the purpose of subsection (a). As used in this subchapter: (1) The terms "foreign power", "agent of a foreign power", "'international terrorism", "sabotage", "foreign intelligence information", "Attorney General", "United States person", "United States", "person", "weapon of mass destruction", and "State" shall have the same meanings as in section 1801 of this title, except as specifically provided by this subchapter. (2) "Aggrieved person" means a person whose premises, property, information, or material is the target of physical search or any other person whose premises, property, information, or material was subject to physical search. (3) "Foreign Intelligence Surveillance Court" means the court established by section 1803(a) of this title. (4) "Minimization procedures" with respect to physical search, means — (A) specific procedures, which shall be adopted by the Attorney General, that are reasonably designed in light of the purposes and technique of the particular physical search, to minimize the acquisition and retention, and prohibit the dissemination, of nonpublicly available information concerning unconsenting United States persons consistent with the need of the United States to obtain, produce, and disseminate foreign intelligence information; (B) procedures that require that nonpublicly available information, which is not foreign intelligence information, as defined in section 1801(e)(1) of this title, shall not be disseminated in a manner that identifies any United States person, without such person's consent, unless such person's identity is necessary to understand such foreign intelligence information or assess its importance; (C) notwithstanding subparagraphs (A) and (B), procedures that allow for the retention and dissemination of information that is evidence of a crime which has been, is being, or is about to be committed and that is to be retained or disseminated for law enforcement purposes; and (D) notwithstanding subparagraphs (A), (B), and (C), with respect to any physical search approved pursuant to section 1822(a) of this title, procedures that require that no information, material, or property of a United States person shall be disclosed, disseminated, or used for any purpose or retained for longer than 72 hours unless a court order under section 1824 of this title is obtained or unless the Attorney General determines that the information indicates a threat of death or serious bodily harm to any person. (5) "Physical search" means any physical intrusion within the United States into premises or property (including examination of the interior of property by technical means) that is intended to result in a seizure, reproduction, inspection, or alteration of information, material, or property, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes, but does not include (A) "electronic surveillance", as defined in section 1801(f) of this title, or (B) the acquisition by the United States Government of foreign intelligence information from international or foreign communications, or foreign intelligence activities conducted in accordance with otherwise applicable Federal law involving a foreign electronic communications system, utilizing a means other than electronic surveillance as defined in section 1801(f) of this title. (a) Presidential authorization (1) Notwithstanding any other provision of law, the President, acting through the Attorney General, may authorize physical searches without a court order under this subchapter to acquire foreign intelligence information for periods of up to one year if— (A) the Attorney General certifies in writing under oath that— (i) the physical search is solely directed at premises, information, material, or property used exclusively by, or under the open and exclusive control of, a foreign power or powers (as defined in section 1801(a)(1), (2), or (3) of this title); (ii) there is no substantial likelihood that the physical search will involve the premises, information, material, or property of a United States person; and (iii) the proposed minimization procedures with respect to such physical search meet the definition of minimization procedures under paragraphs (1) through (4) of section 1821(4) of this title; and (B) the Attorney General reports such minimization procedures and any changes thereto to the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate at least 30 days before their effective date, unless the Attorney General determines that immediate action is required and notifies the committees immediately of such minimization procedures and the reason for their becoming effective immediately. (2) A physical search authorized by this subsection may be conducted only in accordance with the certification and minimization procedures adopted by the Attorney General. The Attorney General shall assess compliance with such procedures and shall report such assessments to the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate under the provisions of section 1826 of this title. (3) The Attorney General shall immediately transmit under seal to the Foreign Intelligence Surveillance Court a copy of the certification. Such certification shall be maintained under security measures established by the Chief Justice of the United States with the concurrence of the Attorney General, in consultation with the Director of Central Intelligence, and shall remain sealed unless — (A) an application for a court order with respect to the physical search is made under section 1821(4) of this title and section 1823 of this title; or (B) the certification is necessary to determine the legality of the physical search under section 1825(g) of this title. (4)(A) With respect to physical searches authorized by this subsection, the Attorney General may direct a specified landlord, custodian, or other specified person to — (i) furnish all information, facilities, or assistance necessary to accomplish the physical search in such a manner as will protect its secrecy and produce a minimum of interference with the services that such landlord, custodian, or other person is providing the target of the physical search; and (ii) maintain under security procedures approved by the Attorney General and the Director of Central Intelligence any records concerning the search or the aid furnished that such person wishes to retain. (B) The Government shall compensate, at the prevailing rate, such landlord, custodian, or other person for furnishing such aid. (b) Application for order; authorization Applications for a court order under this subchapter are authorized if the President has, by written authorization, empowered the Attorney General to approve applications to the Foreign Intelligence Surveillance Court. Notwithstanding any other provision of law, a judge of the court to whom application is made may grant an order in accordance with section 1824 of this title approving a physical search in the United States of the premises, property, information, or material of a foreign power or an agent of a foreign power for the purpose of collecting foreign intelligence information. (c) Jurisdiction of Foreign Intelligence Surveillance Court The Foreign Intelligence Surveillance Court shall have jurisdiction to hear applications for and grant orders approving a physical search for the purpose of obtaining foreign intelligence information anywhere within the United States under the procedures set forth in this subchapter, except that no judge (except when sitting en banc) shall hear the same application which has been denied previously by another judge designated under section 1803(a) of this title. If any judge so designated denies an application for an order authorizing a physical search under this subchapter, such judge shall provide immediately for the record a written statement of each reason for such decision and, on motion of the United States, the record shall be transmitted, under seal, to the court of review established under section 1803(b) of this title. (d) Court of review; record; transmittal to Supreme Court The court of review established under section 1803(b) of this title shall have jurisdiction to review the denial of any application made under this subchapter. If such court determines that the application was properly denied, the court shall immediately provide for the record a written statement of each reason for its decision and, on petition of the United States for a writ of certiorari, the record shall be transmitted under seal to the Supreme Court, which shall have jurisdiction to review such decision. (e) Expeditious conduct of proceedings; security measures for maintenance of records Judicial proceedings under this subchapter shall be concluded as expeditiously as possible. The record of proceedings under this subchapter, including applications made and orders granted, shall be maintained under security measures established by the Chief Justice of the United States in consultation with the Attorney General and the Director of Central Intelligence. (a) Submission by Federal officer; approval of Attorney General; contents Each application for an order approving a physical search under this subchapter shall be made by a Federal officer in writing upon oath or affirmation to a judge of the Foreign Intelligence Surveillance Court. Each application shall require the approval of the Attorney General based upon the Attorney General's finding that it satisfies the criteria and requirements for such application as set forth in this subchapter. Each application shall include— (1) the identity of the Federal officer making the application; (2) the identity, if known, or a description of the target of the search, and a detailed description of the premises or property to be searched and of the information, material, or property to be seized, reproduced, or altered; (3) a statement of the facts and circumstances relied upon by the applicant to justify the applicant's belief that— (A) the target of the physical search is a foreign power or an agent of a foreign power; (B) the premises or property to be searched contains foreign intelligence information; and (C) the premises or property to be searched is or is about to be owned, used, possessed by, or is in transit to or from a foreign power or an agent of a foreign power; (4) a statement of the proposed minimization procedures; (5) a statement of the nature of the foreign intelligence sought and the manner in which the physical search is to be conducted; (6) a certification or certifications by the Assistant to the President for National Security Affairs, an executive branch official or officials designated by the President from among those executive branch officers employed in the area of national security or defense and appointed by the President, by and with the advice and consent of the Senate, or the Deputy Director of the Federal Bureau of Investigation, if designated by the President as a certifying official— (A) that the certifying official deems the information sought to be foreign intelligence information; (B) that a significant purpose of the search is to obtain foreign intelligence information; (C) that such information cannot reasonably be obtained by normal investigative techniques; (D) that designates the type of foreign intelligence information being sought according to the categories described in section 1801(e) of this title; and (E) includes a statement explaining the basis for the certifications required by subparagraphs (C) and (D); (7) where the physical search involves a search of the residence of a United States person, the Attorney General shall state what investigative techniques have previously been utilized to obtain the foreign intelligence information concerned and the degree to which these techniques resulted in acquiring such information; and (8) a statement of the facts concerning all previous applications that have been made to any judge under this subchapter involving any of the persons, premises, or property specified in the application, and the action taken on each previous application. (b) Additional affidavits or certifications The Attorney General may require any other affidavit or certification from any other officer in connection with the application. (c) Additional information The judge may require the applicant to furnish such other information as may be necessary to make the determinations required by section 1824 of this title. (d) Requirements regarding certain applications (1)(A) Upon written request of the Director of the Federal Bureau of Investigation, the Secretary of Defense, the Secretary of State, or the Director of National Intelligence, or the Director of the Central Intelligence Agency, the Attorney General shall personally review under subsection (a) an application under that subsection for a target described in section 1801(b)(2) of this title. (B) Except when disabled or otherwise unavailable to make a request referred to in subparagraph (A), an official referred to in that subparagraph may not delegate the authority to make a request referred to in that subparagraph. (C) Each official referred to in subparagraph (A) with authority to make a request under that subparagraph shall take appropriate actions in advance to ensure that delegation of such authority is clearly established in the event such official is disabled or otherwise unavailable to make such request. (2)(A) If as a result of a request under paragraph (1) the Attorney General determines not to approve an application under the second sentence of subsection (a) for purposes of making the application under this section, the Attorney General shall provide written notice of the determination to the official making the request for the review of the application under that paragraph. Except when disabled or otherwise unavailable to make a determination under the preceding sentence, the Attorney General may not delegate the responsibility to make a determination under that sentence. The Attorney General shall take appropriate actions in advance to ensure that delegation of such responsibility is clearly established in the event the Attorney General is disabled or otherwise unavailable to make such determination. (B) Notice with respect to an application under subparagraph (A) shall set forth the modifications, if any, of the application that are necessary in order for the Attorney General to approve the application under the second sentence of subsection (a) for purposes of making the application under this section. (C) Upon review of any modifications of an application set forth under subparagraph (B), the official notified of the modifications under this paragraph shall modify the application if such official determines that such modification is warranted. Such official shall supervise the making of any modification under this subparagraph. Except when disabled or otherwise unavailable to supervise the making of any modification under the preceding sentence, such official may not delegate the responsibility to supervise the making of any modification under that preceding sentence. Each such official shall take appropriate actions in advance to ensure that delegation of such responsibility is clearly established in the event such official is disabled or otherwise unavailable to supervise the making of such modification. (a) Necessary findings Upon an application made pursuant to section 1823 of this title, the judge shall enter an ex parte order as requested or as modified approving the physical search if the judge finds that— (1) the application has been made by a Federal officer and approved by the Attorney General; (2) on the basis of the facts submitted by the applicant there is probable cause to believe that— (A) the target of the physical search is a foreign power or an agent of a foreign power, except that no United States person may be considered an agent of a foreign power solely upon the basis of activities protected by the first amendment to the Constitution of the United States; and (B) the premises or property to be searched is or is about to be owned, used, possessed by, or is in transit to or from an agent of a foreign power or a foreign power; (3) the proposed minimization procedures meet the definition of minimization contained in this subchapter; and (4) the application which has been filed contains all statements and certifications required by section 1823 of this title, and, if the target is a United States person, the certification or certifications are not clearly erroneous on the basis of the statement made under section 1823(a)(6)(e) of this title and any other information furnished under section 1823(c) of this title. (b) Probable cause In determining whether or not probable cause exists for purposes of an order under subsection (a)(2), a judge may consider past activities of the target, as well as facts and circumstances relating to current or future activities of the target. (c) Specifications and directions of orders An order approving a physical search under this section shall— (1) specify — (A) the identity, if known, or a description of the target of the physical search; (B) the nature and location of each of the premises or property to be searched; (C) the type of information, material, or property to be seized, altered, or reproduced; (D) a statement of the manner in which the physical search is to be conducted and, whenever more than one physical search is authorized under the order, the authorized scope of each search and what minimization procedures shall apply to the information acquired by each search; and (2) direct — (A) that the minimization procedures be followed; (B) that, upon the request of the applicant, a specified landlord, custodian, or other specified person furnish the applicant forthwith all information, facilities, or assistance necessary to accomplish the physical search in such a manner as will protect its secrecy and produce a minimum of interference with the services that such landlord, custodian, or other person is providing the target of the physical search; (C) that such landlord, custodian, or other person maintain under security procedures approved by the Attorney General and the Director of Central Intelligence any records concerning the search or the aid furnished that such person wishes to retain; (D) that the applicant compensate, at the prevailing rate, such landlord, custodian, or other person for furnishing such aid; and (E) that the Federal officer conducting the physical search promptly report to the court the circumstances and results of the physical search. (d) Duration of order; extensions; review of circumstances under which information was acquired, retained, or disseminated (1) An order issued under this section may approve a physical search for the period necessary to achieve its purpose, or for 90 days, whichever is less, except that (A) an order under this section shall approve a physical search targeted against a foreign power, as defined in paragraph (1), (2), or (3) of section 1801(a) of this title, for the period specified in the application or for one year, whichever is less, and (B) an order under this Act for a surveillance targeted against an agent of a foreign power, who is not a United States person may be for the period specified in the application or for 120 days, whichever is less. (2) Extensions of an order issued under this subchapter may be granted on the same basis as the original order upon an application for an extension and new findings made in the same manner as required for the original order, except that an extension of an order under this chapter for a physical search targeted against a foreign power, as defined in paragraph (5), (6), or (7) of section 1801(a) of this title, or against a foreign power, as defined in section 1801(a)(4) of this title, that is not a United States person, or an agent of as foreign power, who is not a United States person, may be for a period not to exceed one year if the judge finds probable cause to believe that no property of any individual United States person will be acquired during the period. (3) At or before the end of the period of time for which a physical search is approved by an order or an extension, or at any time after a physical search is carried out, the judge may assess compliance with the minimization procedures by reviewing the circumstances under which information concerning United States persons was acquired, retained, or disseminated. (e) Emergency orders (1) Notwithstanding any other provision of this title, the Attorney General may authorize the emergency employment of a physical search if the attorney general— (A) reasonably determines that an emergency situation exists with respect to the employment of a physical search to obtain foreign intelligence information before an order authorizing such physical search can with due diligence be obtained; (B) reasonably determines that the factual basis for issuance of an order under this title to approve such physical search exists; (C) informs, either personally or through a designee, a judge of the Foreign Intelligence Surveillance Court at the time of such authorization that the decision has been made to employ an emergency physical search; and (D) makes an application in accordance with this title to a judge of the Foreign Intelligence Surveillance Court as soon as practicable, but not more than 7 days after the Attorney General authorizes such physical search. (2) If the Attorney General authorizes the emergency employment of a physical search under paragraph (1), the Attorney General shall require that the minimization procedures required by this title for the issuance of a judicial order be followed. (3) In the absence of a judicial order approving such physical search, the physical search shall terminate when the information sought is obtained, when the application for the order is denied, or after the expiration of 7 days from the time of authorization by the Attorney General, whichever is earliest. (4) A denial of the application made under this subsection may be reviewed as provided in section 1803. (5) In the event that such application for approval is denied, or in any other case where the physical search is terminated and no order is issued approving the physical search, no information obtained or evidence derived from such physical search shall be received in evidence or otherwise disclosed in any trial, hearing, or other proceeding in or before any court, grand jury, department, office, agency, regulatory body, legislative committee, or other authority of the United States, a State, or political subdivision thereof, and no information concerning any United States person acquired from such physical search shall subsequently be used or disclosed in any other manner by Federal officers or employees without the consent of such person, except with the approval of the Attorney General if the information indicates a threat of death or serious bodily harm to any person. (6) The Attorney General shall assess compliance with the requirements of paragraph (5). (f) Retention of applications and orders Applications made and orders granted under this subchapter shall be retained for a period of at least 10 years from the date of the application. (a) Compliance with minimization procedures; lawful purposes Information acquired from a physical search conducted pursuant to this subchapter concerning any United States person may be used and disclosed by Federal officers and employees without the consent of the United States person only in accordance with the minimization procedures required by this subchapter. No information acquired from a physical search pursuant to this subchapter may be used or disclosed by Federal officers or employees except for lawful purposes. (b) Notice of search and identification of property seized, altered, or reproduced Where a physical search authorized and conducted pursuant to section 1824 of this title involves the residence of a United States person, and, at any time after the search the Attorney General determines there is no national security interest in continuing to maintain the secrecy of the search, the Attorney shall provide notice to the United States person whose residence was searched of the fact of the search conducted pursuant to this chapter and shall identify any property of such person seized, altered, or reproduced during such search. (c) Statement for disclosure No information acquired pursuant to this subchapter shall be disclosed for law enforcement purposes unless such disclosure is accompanied by a statement that such information, or any information derived therefrom, may only be used in a criminal proceeding with the advance authorization of the Attorney General. (d) Notification by United States Whenever the United States intends to enter into evidence or otherwise use or disclose in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States, against an aggrieved person, any information obtained or derived from a physical search pursuant to the authority of this subchapter, the United States shall, prior to the trial, hearing, or the other proceeding or at a reasonable time prior to an effort to so disclose or so use that information or submit it in evidence, notify the aggrieved person and the court or other authority in which the information is to be disclosed or used that the United States intends to so disclose or so use such information. (e) Notification by States or political subdivisions Whenever any State or political subdivision thereof intends to enter into evidence or otherwise use or disclose in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of a State or a political subdivision thereof against an aggrieved person any information obtained or derived from a physical search pursuant to the authority of this subchapter, the State or political subdivision thereof shall notify the aggrieved person, the court or other authority in which the information is to be disclosed or used, and the Attorney General that the State or political subdivision thereof intends to so disclose or so use such information. (f) Motion to suppress (1) Any person against whom evidence obtained or derived from a physical search to which he is an aggrieved person is to be, or has been, introduced or otherwise used or disclosed in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States, a State, or a political subdivision thereof, may move to suppress the evidence obtained or derived from such search on the grounds that— (A) the information was unlawfully acquired; or (B) the physical search was not made in conformity with an order of authorization or approval. (2) Such a motion shall be made before the trial, hearing, or other proceeding unless there was no opportunity to make such a motion or the person was not aware of the grounds of the motion. (g) In camera and ex parte review by district court Whenever a court or other authority is notified pursuant to subsection (d) or (e) of this section, or whenever a motion is made pursuant to subsection (f) of this section, or whenever any motion or request is made by an aggrieved person pursuant to any other statute or rule of the United States or any State before any court or other authority of the United States or any State to discover or obtain applications or orders or other materials relating to a physical search authorized by this subchapter or to discover, obtain, or suppress evidence or information obtained or derived from a physical search authorized by this subchapter, the United States district court or, where the motion is made before another authority, the United States district court in the same district as the authority shall, notwithstanding any other provision of law, if the Attorney General files an affidavit under oath that disclosure or any adversary hearing would harm the national security of the United States, review in camera and ex parte the application, order, and such other materials relating to the physical search as may be necessary to determine whether the physical search of the aggrieved person was lawfully authorized and conducted. In making this determination, the court may disclose to the aggrieved person, under appropriate security procedures and protective orders, portions of the application, order, or other materials relating to the physical search, or may require the Attorney General to provide to the aggrieved person a summary of such materials, only where such disclosure is necessary to make an accurate determination of the legality of the physical search. (h) Suppression of evidence; denial of motion If the United States district court pursuant to subsection (g) of this section determines that the physical search was not lawfully authorized or conducted, it shall, in accordance with the requirements of law, suppress the evidence which was unlawfully obtained or derived from the physical search of the aggrieved person or otherwise grant the motion of the aggrieved person. If the court determines that the physical search was lawfully authorized or conducted, it shall deny the motion of the aggrieved person except to the extent that due process requires discovery or disclosure. (i) Finality of orders Orders granting motions or requests under subsection (h) of this section, decisions under this section that a physical search was not lawfully authorized or conducted, and orders of the United States district court requiring review or granting disclosure of applications, orders, or other materials relating to the physical search shall be final orders and binding upon all courts of the United States and the several States except a United States Court of Appeals or the Supreme Court. (j) Notification of emergency execution of physical search; contents; postponement, suspension or elimination (1) If an emergency execution of a physical search is authorized under section 1824(d) of this title and a subsequent order approving the search is not obtained, the judge shall cause to be served on any United States person named in the application and on such other United States persons subject to the search as the judge may determine in his discretion it is in the interests of justice to serve, notice of— (A) the fact of the application; (B) the period of the search; and (C) the fact that during the period information was or was not obtained. (2) On an ex parte showing of good cause to the judge, the serving of the notice required by this subsection may be postponed or suspended for a period not to exceed 90 days. Thereafter, on a further ex parte showing of good cause, the court shall forego ordering the serving of the notice required under this subsection. (k)(1) Federal officers who conduct electronic surveillance to acquire foreign intelligence information under this title may consult with Federal law enforcement officers or law enforcement personnel of a State or political subdivision of a State (including the chief executive officer of that State or political subdivision who has the authority to appoint or direct the chief law enforcement officer of that State or political subdivision to coordinate efforts to investigate or protect against— (A) actual or potential attack or other grave hostile acts of a foreign power or an agent of a foreign power; (B) sabotage, international terrorism, or the international proliferation of weapons of mass destruction by a foreign power or an agent of a foreign power; or (C) clandestine intelligence activities by an intelligence service or network of a foreign power or by an agent of a foreign power. (2) Coordination authorized under paragraph (1) shall not preclude the certification required by section 1803(a)(6) or the entry of an order under section 1804. On a semiannual basis the Attorney General shall fully inform the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate, and the Committee on the Judiciary of the Senate, concerning all physical searches conducted pursuant to this subchapter. On a semiannual basis the Attorney General shall also provide to those committees and the Committee on the Judiciary of the House of Representatives a report setting forth with respect to the preceding six-month period— (1) the total number of applications made for orders approving physical searches under this subchapter; (2) the total number of such orders either granted, modified, or denied; (3) the number of physical searches which involved searches of the residences, offices, or personal property of United States persons, and the number of occasions, if any, where the Attorney General provided notice pursuant to section 1825(b) of this title; and (4) the total number of emergency physical searches authorized by the Attorney General under section 1824(e) of this title and the total number of subsequent orders approving or denying such physical searches. (a) Prohibited activities A person is guilty of an offense if he intentionally— (1) under color of law for the purpose of obtaining foreign intelligence information, executes a physical search within the United States except as authorized by statute; or (2) discloses or uses information obtained under color of law by physical search within the United States, knowing or having reason to know that the information was obtained through physical search not authorized by statute, for the purpose of obtaining intelligence information. (b) Defense It is a defense to a prosecution under subsection (a) of this section that the defendant was a law enforcement or investigative officer engaged in the course of his official duties and the physical search was authorized by and conducted pursuant to a search warrant or court order of a court of competent jurisdiction. (c) Fine or imprisonment An offense described in this section is punishable by a fine of not more than $10,000 or imprisonment for not more than five years, or both. (d) Federal jurisdiction There is Federal jurisdiction over an offense under this section if the person committing the offense was an officer or employee of the United States at the time the offense was committed. An aggrieved person, other than a foreign power or an agent of a foreign power, as defined in section 1801(a) or (b)(1)(A), respectively, of this title, whose premises, property, information, or material has been subjected to a physical search within the United States or about whom information obtained by such a physical search has been disclosed or used in violation of section 1827 of this title shall have a cause of action against any person who committed such violation and shall be entitled to recover— (1) actual damages, but not less than liquidated damages of $1,000 or $100 per day for each day of violation, whichever is greater; (2) punitive damages; and (3) reasonable attorney's fees and other investigative and litigation costs reasonably incurred. Notwithstanding any other provision of law, the President, through the Attorney General, may authorize physical searches without a court order under this subchapter to acquire foreign intelligence information for a period not to exceed 15 calendar days following a declaration of war by the Congress . As used in this subchapter: (1) The terms "foreign power", "agent of a foreign power", "international terrorism", "foreign intelligence information", "Attorney General", "United States person", "United States', "person", and "State" shall have the same meanings as in section 1801 of this title. (2) The terms 'pen register' and 'trap and trace device' have the meanings given such terms in section 3127 of Title 18. (3) The term 'aggrieved person' means any person— (A) whose telephone line was subject to the installation or use of a pen register or trap and trace device authorized by this subchapter of this chapter; or (B) whose communication instrument or device was subject to the use of a pen register or trap and trace device authorized by this subchapter to capture incoming electronic or other communications impulses. (a) Application for authorization or approval (1) Notwithstanding any other provision of law, the Attorney General or a designated attorney for the Government may make an application for an order or an extension of an order authorizing or approving the installation and use of a pen register or trap and trace device for any investigation to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities, provided that such investigation of a United States person is not conducted solely upon the basis of activities protected by the first amendment to the Constitution which is being conducted by the Federal Bureau of Investigation under such guidelines as the Attorney General approves pursuant to Executive Order No. 12333, or a successor order. (2) The authority under paragraph (1) is in addition to the authority under subchapter I of this chapter to conduct the electronic surveillance referred to in that paragraph. (b) Form of application; recipient Each application under this section shall be in writing under oath or affirmation to— (1) a judge of the court established by section 1803(a) of this title; or (2) a United States Magistrate Judge under chapter 43 of Title 28, who is publicly designated by the Chief Justice of the United States to have the power to hear applications for and grant orders approving the installation and use of a pen register or trap and trace device on behalf of a judge of that court. (c) Executive approval; contents of application Each application under this section shall require the approval of the Attorney General, or a designated attorney for the Government, and shall include— (1) the identity of the Federal officer seeking to use the pen register or trap and trace device covered by the application; and (2) a certification by the applicant that the information likely to be obtained is foreign intelligence information not concerning a United States person or is relevant to an ongoing investigation to protect against international terrorism or clandestine intelligence activities, provided that such investigation of a United States person is not conducted solely upon the basis of activities protected by the first amendment to the Constitution. (3) Repealed. P.L. 107-56 , Title II, § 214(a)(3), Oct. 26, 2001, 115 Stat. 286. (d) Ex parte judicial order of approval (1) Upon an application made pursuant to this section, the judge shall enter an ex parte order as requested, or as modified, approving the installation and use of a pen register or trap and trace device if the judge finds that the application satisfies the requirements of this section. (2) An order issued under this section — (A) shall specify— (i) the identity, if known, of the person who is the subject of the investigation; (ii) the identity, if known, of the person to whom is leased or in whose name is listed the telephone line or other facility to which the pen register or trap and trace device is to be attached or applied; and (iii) the attributes of the communications to which the order applies, such as the number or other identifier, and, if known, the location of the telephone line or other facility to which the pen register or trap and trace device is to be attached or applied and, in the case of a trap and trace device, the geographic limits of the trap and trace order; (B) shall direct that— (i) upon request of the applicant, the provider of a wire or electronic communication service, landlord, custodian, or other person shall furnish any information, facilities, or technical assistance necessary to accomplish the installation and operation of the pen register or trap and trace device in such a manner as will protect its secrecy and produce a minimum amount of interference with the services that such provider, landlord, custodian, or other person is providing the person concerned; (ii) such provider, landlord, custodian, or other person — (I) shall not disclose the existence of the investigation or of the pen register or trap and trace device to any person unless or until ordered by the court; and (II) shall maintain, under security procedures approved by the Attorney General and the Director of National Intelligence pursuant to section 1805(b)(2)(C) of this title, any records concerning the pen register or trap and trace device or the aid furnished; and (iii) the applicant shall compensate such provider, landlord, custodian, or other person for reasonable expenses incurred by such provider, landlord, custodian, or other person in providing such information, facilities, or technical assistance; and (C) shall direct that, upon the request of the applicant, the provider of a wire or electronic communication service shall disclose to the Federal officer using the pen register or trap and trace device covered by the order — (i) in the case of the customer or subscriber using the service covered by the order (for the period specified by the order) . — (I) the name of the customer or subscriber; (II) the address of the customer or subscriber; (III) the telephone or instrument number, or other subscriber number or identifier, of the customer or subscriber, including any temporarily assigned network address or associated routing or transmission information; (IV) the length of the provision of service by such provider to the customer or subscriber and the types of services utilized by the customer or subscriber; (V) in the case of a provider of local or long distance telephone service, any local or long distance telephone records of the customer or subscriber; (VI) if applicable, any records reflecting period of usage (or sessions) by the customer or subscriber; and (VII) any mechanisms and sources of payment for such service, including the number of any credit card or bank account utilized for payment for such service; and (ii) if available, with respect to any customer or subscriber of incoming or outgoing communications to or from the service covered by the order— (I) the name of such customer or subscriber; (II) the address of such customer or subscriber; (III) the telephone or instrument number, or other subscriber number or identifier, of such customer or subscriber, including any temporarily assigned network address or associated routing or transmission information; and (IV) the length of the provision of service by such provider to such customer or subscriber and the types of services utilized by such customer or subscriber. (e) Time limitation (1) Except as provided in paragraph (2), an order issued under this section shall authorize the installation and use of a pen register or trap and trace device for a period not to exceed 90 days. Extensions of such an order may be granted, but only upon an application for an order under this section and upon the judicial finding required by subsection (d) of this section. The period of extension shall be for a period not to exceed 90 days. (2) In the case of an application under subsection (c) of this section where the applicant has certified that the information likely to be obtained is foreign intelligence information not concerning a United States person, an order, or an extension of an order, under this section may be for a period not to exceed one year. (f) Cause of action barred No cause of action shall lie in any court against any provider of a wire or electronic communication service, landlord, custodian, or other person (including any officer, employee, agent, or other specified person thereof) that furnishes any information, facilities, or technical assistance under subsection (d) of this section in accordance with the terms of an order issued under this section. (g) Furnishing of results Unless otherwise ordered by the judge, the results of a pen register or trap and trace device shall be furnished at reasonable intervals during regular business hours for the duration of the order to the authorized Government official or officials. (a) Notwithstanding any other provision of this subchapter, when the Attorney General makes a determination described in subsection (b), the Attorney General may authorize the installation and use of a pen register or trap and trace device on an emergency basis to gather foreign intelligence information not concerning a United States person or information to protect against international terrorism or clandestine intelligence activities, provided that such investigation of a United States person is not conducted solely upon the basis of activities protected by the first amendment to the Constitution if— (1) a judge referred to in section 1842(b) of this title is informed by the Attorney General or his designee at the time of such authorization that the decision has been made to install and use the pen register or trap and trace device, as the case may be, on an emergency basis; and [Sec. 108(1)] (2) an application in accordance with section 1842(a)(1) of this title is made to such judge as soon as practicable, but not more than 7 days, after the Attorney General authorizes the installation and use of the pen register or trap and trace device, as the case may be, under this section. (b) A determination under this subsection is a reasonable determination by the Attorney General that — (1) an emergency requires the installation and use of a pen register or trap and trace device to obtain foreign intelligence information not concerning a United States person or information to protect against international terrorism or clandestine intelligence activities, provided that such investigation of a United States person is not conducted solely upon the basis of activities protected by the first amendment to the Constitution before an order authorizing the installation and use of the pen register or trap and trace device, as the case may be, can with due diligence be obtained under section 1842 of this title; and (2) the factual basis for issuance of an order under such section 1842(c) of this title to approve the installation and use of the pen register or trap and trace device, as the case may be, exists. (c)(1) In the absence of an order applied for under subsection (a)(2) approving the installation and use of a pen register or trap and trace device authorized under this section, the installation and use of the pen register or trap and trace device, as the case may be, shall terminate at the earlier of— (A) when the information sought is obtained; (B) when the application for the order is denied under section 1842 of this title; or (C) 7 days after the time of the authorization by the Attorney General. (2) In the event that an application for an order applied for under subsection (a)(2) is denied, or in any other case where the installation and use of a pen register or trap and trace device under this section is terminated and no order under section 1842(b)(2) of this title is issued approving the installation and use of the pen register or trap and trace device, as the case may be, no information obtained or evidence derived from the use of the pen register or trap and trace device, as the case may be, shall be received in evidence or otherwise disclosed in any trial, hearing, or other proceeding in or before any court, grand jury, department, office, agency, regulatory body, legislative committee, or other authority of the United States, a State, or political subdivision thereof, and no information concerning any United States person acquired from the use of the pen register or trap and trace device, as the case may be, shall subsequently be used or disclosed in any other manner by Federal officers or employees without the consent of such person, except with the approval of the Attorney General if the information indicates a threat of death or serious bodily harm to any person. Notwithstanding any other provision of law, the President, through the Attorney General, may authorize the use of a pen register or trap and trace device without a court order under this subchapter [50 U.S.C. 1841 et seq.] to acquire foreign intelligence information for a period not to exceed 15 calendar days following a declaration of war by Congress. (a)(1) Information acquired from the use of a pen register or trap and trace device installed pursuant to this subchapter concerning any United States person may be used and disclosed by Federal officers and employees without the consent of the United States person only in accordance with the provisions of this section. (2) No information acquired from a pen register or trap and trace device installed and used pursuant to this subchapter may be used or disclosed by Federal officers or employees except for lawful purposes. (b) No information acquired pursuant to this subchapter shall be disclosed for law enforcement purposes unless such disclosure is accompanied by a statement that such information, or any information derived therefrom, may only be used in a criminal proceeding with the advance authorization of the Attorney General. (c) Whenever the United States intends to enter into evidence or otherwise use or disclose in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States against an aggrieved person any information obtained or derived from the use of a pen register or trap and trace device pursuant to this subchapter, effort to so disclose or so use that information or submit it in evidence, notify the aggrieved person and the court or other authority in which the information is to be disclosed or used that the United States intends to so disclose or so use such information. (d) Whenever any State or political subdivision thereof intends to enter into evidence or otherwise use or disclose in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the State or political subdivision thereof against an aggrieved person any information obtained or derived from the use of a pen register or trap and trace device pursuant to this subchapter, the State or political subdivision thereof shall notify the aggrieved person, the court or other authority in which the information is to be disclosed or used, and the Attorney General that the State or political subdivision thereof intends to so disclose or so use such information. (e)(1) Any aggrieved person against whom evidence obtained or derived from the use of a pen register or trap and trace device is to be, or has been, introduced or otherwise used or disclosed in any trial, hearing, or other proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States, or a State or political subdivision thereof, may move to suppress the evidence obtained or derived from the use of the pen register or trap and trace device, as the case may be, on the grounds that — (A) the information was unlawfully acquired; or (B) the use of the pen register or trap and trace device, as the case may be, was not made in conformity with an order of authorization or approval under this subchapter. (2) A motion under paragraph (1) shall be made before the trial, hearing, or other proceeding unless there was no opportunity to make such a motion or the aggrieved person concerned was not aware of the grounds of the motion. (f)(1) Whenever a court or other authority is notified pursuant to subsection (c) or (d), whenever a motion is made pursuant to subsection (e), or whenever any motion or request is made by an aggrieved person pursuant to any other statute or rule of the United States or any State before any court or other authority of the United States or any State to discover or obtain applications or orders or other materials relating to the use of a pen register or trap and trace device authorized by this subchapter or to discover, obtain, or suppress evidence or information obtained or derived from the use of a pen register or trap and trace device authorized by this subchapter, the United States district court or, where the motion is made before another authority, the United States district court in the same district as the authority shall, notwithstanding any other provision of law and if the Attorney General files an affidavit under oath that disclosure or any adversary hearing would harm the national security of the United States, review in camera and ex parte the application, order, and such other materials relating to the use of the pen register or trap and trace device, as the case may be, as may be necessary to determine whether the use of the pen register or trap and trace device, as the case may be, was lawfully authorized and conducted. (2) In making a determination under paragraph (1), the court may disclose to the aggrieved person, under appropriate security procedures and protective orders, portions of the application, order, or other materials relating to the use of the pen register or trap and trace device, as the case may be, or may require the Attorney General to provide to the aggrieved person a summary of such materials, only where such disclosure is necessary to make an accurate determination of the legality of the use of the pen register or trap and trace device, as the case may be. (g)(1) If the United States district court determines pursuant to subsection (f) that the use of a pen register or trap and trace device was not lawfully authorized or conducted, the court may, in accordance with the requirements of law, suppress the evidence which was unlawfully obtained or derived from the use of the pen register or trap and trace device, as the case may be, or otherwise grant the motion of the aggrieved person. (2) If the court determines that the use of the pen register or trap and trace device, as the case may be, was lawfully authorized or conducted, it may deny the motion of the aggrieved person except to the extent that due process requires discovery or disclosure. (h) Orders granting motions or requests under subsection (g), decisions under this section that the use of a pen register or trap and trace device was not lawfully authorized or conducted, and orders of the United States district court requiring review or granting disclosure of applications, orders, or other materials relating to the installation and use of a pen register or trap and trace device shall be final orders and binding upon all courts of the United States and the several States except a United States Court of Appeals or the Supreme Court. (a) On a semiannual basis, the Attorney General shall fully inform the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate, and the Committee on the Judiciary of the House of Representatives and the Committee on the Judiciary of the Senate, concerning all uses of pen registers and trap and trace devices pursuant to this subchapter. (b) On a semiannual basis, the Attorney General shall also provide to the committees referred to in subsection (a) of this section and to the Committees on the Judiciary of the House of Representatives and the Senate a report setting forth with respect to the preceding 6-month period — (1) the total number of applications made for orders approving the use of pen registers or trap and trace devices under this subchapter; (2) the total number of such orders either granted, modified, or denied; and (3) the total number of pen registers and trap and trace devices whose installation and use was authorized by the Attorney General on an emergency basis under section 1843 of this title, and the total number of subsequent orders approving or denying the installation and use of such pen registers and trap and trace devices. (a)(1) Subject to paragraph (3), the Director of the Federal Bureau of Investigation or a designee of the Director (whose rank shall be no lower than Assistant Special Agent in Charge) may make an application for an order requiring the production of any tangible things (including books, records, papers, documents, and other items) for an investigation to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities, provided that such investigation of a United States person is not conducted solely upon the basis of activities protected by the first amendment to the Constitution. (2) An investigation conducted under this section shall (A) be conducted under guidelines approved by the Attorney General under Executive Order 12333 (or a successor order); and (B) not be conducted of a United States person solely upon the basis of activities protected by the first amendment to the Constitution of the United States. (3) In the case of an application for an order requiring the production of library circulation records, library patron lists, book sales records, book customer lists, firearms sales records, tax return records, educational records, or medical records containing information that would identify a person, the Director of the Federal Bureau of Investigation may delegate the authority to make such application to either the Deputy Director of the Federal Bureau of Investigation or the Executive Assistant Director for National Security (or any successor position). The Deputy Director or the Executive Assistant Director may not further delegate such authority. (b) Each application under this section (1) shall be made to — (A) a judge of the court established by section 1803(a) of this title; or (B) a United States Magistrate Judge under chapter 43 of Title 28, who is publicly designated by the Chief Justice of the United States to have the power to hear applications and grant orders for the production of tangible things under this section on behalf of a judge of that court; and (2) shall include— (A) a statement of facts showing that there are reasonable grounds to believe that the tangible things sought are relevant to an authorized investigation (other than a threat assessment) conducted in accordance with subsection (a)(2) of this section to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities, such things being presumptively relevant to an authorized investigation if the applicant shows in the statement of the facts that they pertain to— (i) a foreign power or an agent of a foreign power; (ii) the activities of a suspected agent of a foreign power who is the subject of such authorized investigation; or (iii) an individual in contact with, or known to, a suspected agent of a foreign power who is the subject of such authorized investigation; and (B) an enumeration of the minimization procedures adopted by the Attorney General under subsection (g) of this section that are applicable to the retention and dissemination by the Federal Bureau of Investigation of any tangible things to be made available to the Federal Bureau of Investigation based on the order requested in such application. (c)(1) Upon an application made pursuant to this section, if the judge finds that the application meets the requirements of subsections (a) and (b) of this section, the judge shall enter an ex parte order as requested, or as modified, approving the release of tangible things. Such order shall direct that minimization procedures adopted pursuant to subsection (g) of this section be followed. (2) An order under this subsection— (A) shall describe the tangible things that are ordered to be produced with sufficient particularity to permit them to be fairly identified; (B) shall include the date on which the tangible things must be provided, which shall allow a reasonable period of time within which the tangible things can be assembled and made available; (C) shall provide clear and conspicuous notice of the principles and procedures described in subsection (d) of this section; (D) may only require the production of a tangible thing if such thing can be obtained with a subpoena duces tecum issued by a court of the United States in aid of a grand jury investigation or with any other order issued by a court of the United States directing the production of records or tangible things; and (E) shall not disclose that such order is issued for purposes of an investigation described in subsection (a) of this section. (d)(1) No person shall disclose to any other person that the Federal bureau of investigation has sought or obtained tangible things pursuant to an order under this section, other than to (A) those persons to whom disclosure is necessary to comply with such order; (B) an attorney to obtain legal advice or assistance with respect to the production of things in response to the order; or (C) other persons as permitted by the Director of the Federal Bureau of Investigation or the designee of the Director. (2)(A) A person to whom disclosure is made pursuant to paragraph (1) shall be subject to the nondisclosure requirements applicable to a person to whom an order is directed under this section in the same manner as such person. (B) Any person who discloses to a person described in subparagraph (A), (B), or (C) of paragraph (1) that the Federal Bureau of Investigation has sought or obtained tangible things pursuant to an order under this section shall notify such person of the nondisclosure requirements of this subsection. (C) At the request of the Director of the Federal Bureau of Investigation or the designee of the Director, any person making or intending to make a disclosure under subparagraph (A) or (C) of paragraph (1) shall identify to the Director or such designee the person to whom such disclosure will be made or to whom such disclosure was made prior to the request. (e) A person who, in good faith, produces tangible things under an order pursuant to this section shall not be liable to any other person for such production. Such production shall not be deemed to constitute a waiver of any privilege in any other proceeding or context. (f)(1) In this subsection — (A) the term "production order" means an order to produce any tangible thing under this section; and (B) the term "nondisclosure order" means an order imposed under subsection (d) of this section. (2)(A)(i) A person receiving a production order may challenge the legality of that order by filing a petition with the pool established by section 1803(e)(1) of this title. Not less than 1 year after the date of the issuance of the production order, the recipient of a production order may challenge the nondisclosure order imposed in connection with such production order by filing a petition to modify or set aside such nondisclosure order, consistent with the requirements of subparagraph (c), with the pool established by section 1803(e)(1) of this title. (ii) The presiding judge shall immediately assign a petition under clause (i) to 1 of the judges serving in the pool established by section 1803(e)(1) of this title. Not later than 72 hours after the assignment of such petition, the assigned judge shall conduct an initial review of the petition. If the assigned judge determines that the petition is frivolous, the assigned judge shall immediately deny the petition and affirm the production order or nondisclosure order. If the assigned judge determines the petition is not frivolous, the assigned judge shall promptly consider the petition in accordance with the procedures established under section 1803(e)(2) of this title. (iii) The assigned judge shall promptly provide a written statement for the record of the reasons for any determination under this subsection. Upon the request of the Government, any order setting aside a nondisclosure order shall be stayed pending review pursuant to paragraph (3). (B) A judge considering a petition to modify or set aside a production order may grant such petition only if the judge finds that such order does not meet the requirements of this section or is otherwise unlawful. If the judge does not modify or set aside the production order, the judge shall immediately affirm such order, and order the recipient to comply therewith. (C)(i) A judge considering a petition to modify or set aside a nondisclosure order may grant such petition only if the judge finds that there is no reason to believe that disclosure may endanger the national security of the United States, interfere with a criminal, counter terrorism, or counterintelligence investigation, interfere with diplomatic relations, or endanger the life or physical safety of any person. (ii) If, upon filing of such a petition, the Attorney General, Deputy Attorney General, an Assistant Attorney General, or the Director of the Federal Bureau of Investigation certifies that disclosure may endanger the national security of the United States or interfere with diplomatic relations, such certification shall be treated as conclusive, unless the judge finds that the certification was made in bad faith. (iii) If the judge denies a petition to modify or set aside a nondisclosure order, the recipient of such order shall be precluded for a period of 1 year from filing another such petition with respect to such nondisclosure order. (D) Any production or nondisclosure order not explicitly modified or set aside consistent with this subsection shall remain in full effect. (3) A petition for review of a decision under paragraph (2) to affirm, modify, or set aside an order by the Government or any person receiving such order shall be made to the court of review established under section 1803(b) of this title, which shall have jurisdiction to consider such petitions. The court of review shall provide for the record a written statement of the reasons for its decision and, on petition by the Government or any person receiving such order for writ of certiorari, the record shall be transmitted under seal to the Supreme Court of the United States, which shall have jurisdiction to review such decision. (4) Judicial proceedings under this subsection shall be concluded as expeditiously as possible. The record of proceedings, including petitions filed, orders granted, and statements of reasons for decision, shall be maintained under security measures established by the Chief Justice of the United States, in consultation with the Attorney General and the Director of National Intelligence. (5) All petitions under this subsection shall be filed under seal. In any proceedings under this subsection, the court shall, upon request of the Government, review ex parte and in camera any Government submission, or portions thereof, which may include classified information. (g) Minimization procedures (1) In general Not later than 180 days after March 9, 2006, the Attorney General shall adopt specific minimization procedures governing the retention and dissemination by the Federal Bureau of Investigation of any tangible things, or information therein, received by the Federal Bureau of Investigation in response to an order under this subchapter. (2) Defined In this section, the term "minimization procedures" means — (A) specific procedures that are reasonably designed in light of the purpose and technique of an order for the production of tangible things, to minimize the retention, and prohibit the dissemination, of nonpublicly available information concerning unconsenting United States persons consistent with the need of the United States to obtain, produce, and disseminate foreign intelligence information; (B) procedures that require that nonpublicly available information, which is not foreign intelligence information, as defined in section 1801(e)(1) of this title, shall not be disseminated in a manner that identifies any United States person, without such person's consent, unless such person's identity is necessary to understand foreign intelligence information or assess its importance; and (C) notwithstanding subparagraphs (A) and (B), procedures that allow for the retention and dissemination of information that is evidence of a crime which has been, is being, or is about to be committed and that is to be retained or disseminated for law enforcement purposes. (h) Use of information Information acquired from tangible things received by the Federal Bureau of Investigation in response to an order under this subchapter concerning any United States person may be used and disclosed by Federal officers and employees without the consent of the United States person only in accordance with the minimization procedures adopted pursuant to subsection (g) of this section. No otherwise privileged information acquired from tangible things received by the Federal Bureau of Investigation in accordance with the provisions of this subchapter shall lose its privileged character. No information acquired from tangible things received by the Federal Bureau of Investigation in response to an order under this subchapter may be used or disclosed by Federal officers or employees except for lawful purposes. [ P.L. 109-177, Sec. 102(b) as amended by P.L. 112-14, Sec.2(a) ] (1) In General. — Effective June 1, 2015, the Foreign Intelligence Surveillance Act of 1978 is amended so that sections 1861[and] 1862 read as they read on October 25, 2001. (2) Exception.— With respect to any particular foreign intelligence investigation that began before the date on which the provisions referred to in paragraph (1) cease to have effect, or with respect to any particular offense or potential offense that began or occurred before the date on which the provisions cease to have effect, such provisions shall continued in effect. On October 25, 2001, section 1861 read: Sec. 1861. Definitions As used in this subchapter: (1) The terms "foreign power", "agent of a foreign power", "foreign intelligence information", "international terrorism", and "Attorney General" shall have the same meanings as in section 1801 of this title. (2) The term "common carrier" means any person or entity transporting people or property by land, rail, water, or air for compensation. (3) The term "physical storage facility" means any business or entity that provides space for the storage of goods or materials, or services related to the storage of goods or materials, to the public or any segment thereof. (4) The term "public accommodation facility" means any inn, hotel, motel, or other establishment that provides lodging to transient guests. (5) The term "vehicle rental facility" means any person or entity that provides vehicles for rent, lease, loan, or other similar use to the public or any segment thereof. On October 25, 2001, section 1862 read: Sec. 1862. Access to certain business records for foreign intelligence and international terrorism investigations (a) Application for authorization The Director of the Federal Bureau of Investigation or a designee of the Director (whose rank shall be no lower than Assistant Special Agent in Charge) may make an application for an order authorizing a common carrier, public accommodation facility, physical storage facility, or vehicle rental facility to release records in its possession for an investigation to gather foreign intelligence information or an investigation concerning international terrorism which investigation is being conducted by the Federal Bureau of Investigation under such guidelines as the Attorney General approves pursuant to Executive Order No. 12333, or a successor order. (b) Recipient and contents of application Each application under this section - (1) shall be made to - (A) a judge of the court established by section 1803(a) of this title; or (B) a United States Magistrate Judge under chapter 43 of title 28 who is publicly designated by the Chief Justice of the United States to have the power to hear applications and grant orders for the release of records under this section on behalf of a judge of that court; and (2) shall specify that - (A) the records concerned are sought for an investigation described in subsection (a); and (B) there are specific and articulable facts giving reason to believe that the person to whom the records pertain is a foreign power or an agent of a foreign power. (c) Ex parte judicial order of approval (1) Upon application made pursuant to this section, the judge shall enter an ex parte order as requested, or as modified, approving the release of records if the judge finds that the application satisfies the requirements of this section. (2) An order under this subsection shall not disclose that it is issued for purposes of an investigation described in subsection (a) of this section. (d) Compliance; nondisclosure (1) Any common carrier, public accommodation facility, physical storage facility, or vehicle rental facility shall comply with an order under subsection (c). (2) No common carrier, public accommodation facility, physical storage facility, or vehicle rental facility, or officer, employee, or agent thereof, shall disclose to any person (other than those officers, agents, or employees of such common carrier, public accommodation facility, physical storage facility, or vehicle rental facility necessary to fulfill the requirement to disclose information to the Federal Bureau of Investigation under this section) that the Federal Bureau of Investigation has sought or obtained records pursuant to an order under this section. [ P.L. 109-177, Sec. 102(b) as amended by P.L. 112-14, Sec.2(a) ] (1) In General. — Effective June 1, 2015, the Foreign Intelligence Surveillance Act of 1978 is amended so that sections 1861[and] 1862 read as they read on October 25, 2001. (a) On a annual basis, the Attorney General shall fully inform the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence and the Committee on the Judiciary of the Senate concerning all requests for the production of tangible things under section 1861 of this title. (b) In April of each year, the Attorney General shall submit to the House and Senate Committees on the Judiciary and the House Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence a report setting forth with respect to the preceding calendar year— (1) the total number of applications made for orders approving requests for the production of tangible things under section 1861 of this title; (2) the total number of such orders either granted, modified, or denied; and (3) the number of such orders either granted, modified, or denied for the production of each of the following: (A) Library circulation records, library patron lists, book sales records, or book customer lists. (B) Firearms sales records. (C) Tax return records. (D) Educational records. (E) Medical records containing information that would identify a person. (c)(1) In April of each year, the Attorney General shall submit to Congress a report setting forth with respect to the preceding year— (A) the total number of applications made for orders approving requests for the production of tangible things under section 1861 of this title; and (B) the total number of such orders either granted, modified, or denied. (2) Each report under this subsection shall be submitted in unclassified form. (a) Report On a semiannual basis, the Attorney General shall submit to the Permanent Select Committee on Intelligence of the House of Representatives, the Select Committee on Intelligence of the Senate, and the Committees on the Judiciary of the House of Representatives and the Senate, in a manner consistent with the protection of the national security, a report setting forth with respect to the preceding 6-month period — ( 1) the aggregate number of persons targeted for orders issued under this chapter, including a breakdown of those targeted for — (A) electronic surveillance under section 1805 of this title; (B) physical searches under section 1824 of this title; (C) pen registers under section 1842 of this title; (D) access to records under section 1861 of this title; (E) acquisitions under section 1881b; and (F) acquisitions under section 1881c. [ P.L. 110-261, Sec. 403(b)(2)(B) ] Effective December 31, 201 7 . . .(B) except as provided in section 404, section 601(a)(1) of such Act (50 U.S.C. 1871(a)(1)[above in bold italics]) is amended to read as such section read on the day before the date of the enactment of this Act, as follows: (1)The aggregate number of persons targeted for orders issued under this chapter, including a breakdown of those targeted for— (A) electronic surveillance under section 1805 of this title; (B) physical searches under section 1824 of this title; (C) pen register under section 1842 of this title; and (D) access to records under section 1861 of this title; (2) the number of individuals covered by an order issued pursuant to section 1801(b)(1)(c) of this title; (3) the number of times that the Attorney General has authorized that information obtained under this chapter may be used in a criminal proceeding or any information derived therefrom may be used in a criminal proceeding; (4) a summary of significant legal interpretations of this chapter involving matters before the Foreign Intelligence Surveillance Court or the Foreign Intelligence Surveillance Court of Review, including interpretations presented in applications or pleadings filed with the Foreign Intelligence Surveillance Court or the Foreign Intelligence Surveillance Court of Review by the Department of Justice; and (5) copies of all decisions, orders or opinions of the Foreign Intelligence Surveillance Court or Foreign Intelligence Surveillance Court of Review that include significant construction or interpretation of the provisions of this chapter. (b) Frequency The first report under this section shall be submitted not later than 6 months after December 17, 2004. Subsequent reports under this section shall be submitted semi-annually thereafter. (c) Submissions to Congress.—The Attorney General shall submit to the committees of Congress referred to in subsection (a)— (1) a copy of any decision, order, or opinion issued by the Foreign Intelligence Surveillance Court or the Foreign Intelligence Surveillance Court of Review that includes significant construction or interpretation of any provision of this Act, and any pleadings, applications, or memoranda of law associated with such decision, order, or opinion, not later than 45 days after such decision, order, or opinion is issued; and (2) a copy of each such decision, order, or opinion, and any pleadings, applications, or memoranda of law associated with such decision, order, or opinion, that was issued during the 5-year period ending on the date of the enactment of the FISA Amendments Act of 2008 and not previously submitted in a report under subsection (a). (d) Protection of national security.—The Attorney General, in consultation with the Director of National Intelligence, may authorize redactions of materials described in subsection (c) that are provided to the committees of Congress referred to in subsection (a), if such redactions are necessary to protect the national security of the United States and are limited to sensitive sources and methods information or the identities of targets. (e) Definitions.—In this section: (1) Foreign intelligence surveillance court.—The term 'Foreign Intelligence Surveillance Court' means the court established under section 103(a). (2) Foreign intelligence surveillance court of review.—The term 'Foreign Intelligence Surveillance Court of Review' means the court established under section 103(b). [ P.L. 110-261, Sec. 404(b)(4) ] Reporting requirements.— (A) Continued applicability.—Notwithstanding any other provision of this Act or of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.), section 601(a) of such Act (50 U.S.C. 1871(a)), as amended by section 101(c)(2), and sections 1881a(l) and 1881f of such Act, as added by section 101(a), shall continue to apply until the date that the certification described in subparagraph (B) is submitted. (B) Certification.—The certification described in this subparagraph is a certification— (i) made by the Attorney General; (ii) submitted to the Select Committee on Intelligence of the Senate, the Permanent Select Committee on Intelligence of the House of Representatives, and the Committees on the Judiciary of the Senate and the House of Representatives; (iii) that states that there will be no further acquisitions carried out under title VII of the Foreign Intelligence Surveillance Act of 1978, as amended by section 101(a), after the date of such certification; and (iv) that states that the information required to be included in a review, assessment, or report under section 601 of such Act, as amended by section 101(c), or 1881a(l) or 1881f of such Act, as added by section 101(a), relating to any acquisition conducted under title VII of such Act, as amended by section 101(a), has been included in a review, assessment, or report under such section 1871, 1881b(l), or 1881f. [ P.L. 110-261 , Sec. 403(b)(1) ] Except as provided in section 404, effective December 31, 201 7 , title VI of the Foreign Intelligence Surveillance Act of 1978, as amended by section 101(a), [50 U.S.C. 1881 to 1881g] ]is repealed . [ P.L. 110-261 , Sec. 404(b) ] Transition procedures for FISA Amendments Act of 2008 Provisions. — (1) Orders in effect on December 31, 201 7 .— Notwithstanding any other provision of this Act, any amendment made by this Act, or the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.), any order, authorization, or directive issued or made under title VII of the Foreign Intelligence Surveillance Act of 1978, as amended by section 101(a) [50 U.S.C. 1881-1881g], shall continue in effect until the date of the expiration of such order, authorization, or directive. (2) Applicability of Title VII of FISA to continued orders, authorizations, directives . — Notwithstanding any other provision of this Act, any amendment made by this Act, or the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.), with respect to any order, authorization, or directive referred to in paragraph (1), title VII of such Act, as amended by section 101(a) [50 U.S.C. 1881-1881g], shall continue to apply until the later of — (A) the expiration of such order, authorization, or directive; or (B) the date on which final judgment is entered for any petition or other litigation relating to such order, authorization, or directive . (a) In General . — The terms "agent of a foreign power", "Attorney General", "contents", "electronic surveillance", "foreign intelligence information", "foreign power", "person", "United States", and "United States person" have the meanings given such terms in section 101, except as specifically provided in this title. (b) Additional Definitions . — (1) Congressional Intelligence Committees .— The term "congressional intelligence committees" means — (A) the Select Committee on Intelligence of the Senate; and (B) the Permanent Select Committee on Intelligence of the House of Representatives. (2) Foreign Intelligence Surveillance Court ; Court . — The terms " Foreign Intelligence Surveillance Court " and "Court" mean the court established under section 103(a). (3) Foreign Intelligence Surveillance Court of Review; Court of Review . — The terms "Foreign Intelligence Surveillance Court of Review" and "Court of Review" mean the court established under section 103(b). (4) Electronic Communication Service Provider. — The term "electronic communication service provider" means — (A) a telecommunications carrier, as that term is defined in section 3 of the Communications Act of 1934 (47 U.S.C. 153); (B) a provider of electronic communication service, as that term is defined in section 2510 of title 18, United States Code; (C) a provider of a remote computing service, as that term is defined in section 2711 of title 18, United States Code; (D) any other communication service provider who has access to wire or electronic communications either as such communications are transmitted or as such communications are stored; or (E) an officer, employee, or agent of an entity described in subparagraph (A), (B), (c), or (D). (5) Intelligence Community. — The term "intelligence community" has the meaning given the term in section 3(4) of the National Security Act of 1947 (50 U.S.C. 401a(4)). (a) Authorization . — Notwithstanding any other provision of law, upon the issuance of an order in accordance with subsection (i)(3) or a determination under subsection (c)(2), the Attorney General and the Director of National Intelligence may authorize jointly, for a period of up to 1 year from the effective date of the authorization, the targeting of persons reasonably believed to be located outside the United States to acquire foreign intelligence information. (b) Limitations. — An acquisition authorized under subsection (a) — (1) may not intentionally target any person known at the time of acquisition to be located in the United States ; (2) may not intentionally target a person reasonably believed to be located outside the United States if the purpose of such acquisition is to target a particular, known person reasonably believed to be in the United States; (3) may not intentionally target a United States person reasonably believed to be located outside the United States ; (4) may not intentionally acquire any communication as to which the sender and all intended recipients are known at the time of the acquisition to be located in the United States; and (5) shall be conducted in a manner consistent with the fourth amendment to the Constitution of the United States . (c) Conduct of acquisition . — (1) In General . — An acquisition authorized under subsection (a) shall be co nducted only in accordance with— (A) the targeting and minimization procedures adopted in accordance with subsections (d) and (e); and (B) upon submission of a certification in accordance with subsection (g), such certification. (2) Determination. — A determination under this paragraph and for purposes of subsection (a) is a determination by the Attorney General and the Director of National Intelligence that exigent circumstances exist because, without immediate implementation of an authorization under subsection (a), intelligence important to the national security of the United States may be lost or not timely acquired and time does not permit the issuance of an order pursuant to subsection (i)(3) prior to the implementation of such authorization. (3) Timing of determination .— The Attorney General and the Director of National Intelligence may make the determination under paragraph (2) — (A) before the submission of a certification in accordance with subsection (g); or (B) by amending a certification pursuant to subsection (i)(1)(c) at any time during which judicial review under subsection (i) of such certification is pending. (4) Construction .— Nothing in title I shall be construed to require an application for a court order under such title for an acquisition that is targeted in accordance with this section at a person reasonably believed to be located outside the United States. (d) Targeting Procedures . — (1) Requirement to adopt . — The Attorney General, in consultation with the Director of National Intelligence, shall adopt targeting procedures that are reasonably designed to — (A) ensure that any acquisition authorized under subsection (a) is limited to targeting persons reasonably believed to be located outside the United States ; and (B) prevent the intentional acquisition of any communication as to which the sender and all intended recipients are known at the time of the acquisition to be located in the United States . (2) Judicial review . — The procedures adopted in accordance with paragraph (1) shall be subject to judicial review pursuant to subsection (i). (e) Minimization Procedures . — (1) Requirement to adopt .— The Attorney General, in consultation with the Director of National Intelligence, shall adopt minimization procedures that meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate, for acquisitions authorized under subsection (a). (2) Judicial review . — The minimization procedures adopted in accordance with paragraph (1) shall be subject to judicial review pursuant to subsection (i). (f) Guidelines for compliance with limitations . — (1) Requirement to adopt . — The Attorney General, in consultation with the Director of National Intelligence, s hall adopt guidelines to ensure— (A) compliance with the limitations in subsection (b); and (B) that an application for a court order is filed as required by this Act. (2) Submission of guidelines . — The Attorney General shall provide the guidelines adopted in accordance with paragraph (1) to — (A) the congressional intelligence committees; (B) the Committees on the Judiciary of the Senate and the House of Representatives; and (C) the Foreign Intelligence Surveillance Court . (g) Certification . — (1) In General . — (A) Requirement . — Subject to subparagraph (B), prior to the implementation of an authorization under subsection (a), the Attorney General and the Director of National Intelligence shall provide to the Foreign Intelligence Surveillance Court a written certification and any supporting affidavit, under oath and under seal, in accordance with this subsection. (B) Exception . — If the Attorney General and the Director of National Intelligence make a determination under subsection (c)(2) and time does not permit the submission of a certification under this subsection prior to the implementation of an authorization under subsection (a), the Attorney General and the Director of National Intelligence shall submit to the Court a certification for such authorization as soon as practicable but in no event later than 7 days after such determination is made. (2) Requirements . — A certification made under this subsection shall.— (A) attest that — (i) there are procedures in place that have been approved, have been submitted for approval, or will be submitted with the certification for approval by the Foreign Intelligence Surveillance Court that are reas onably designed to— ( I) ensure that an acquisition authorized under subsection (a) is limited to targeting persons reasonably believed to be located outside the United States ; and ( II) prevent the intentional acquisition of any communication as to which the sender and all intended recipients are known at the time of the acquisition to be located in the United States ; (ii) the minimization procedures to be used with respect to such acquisition — ( I) meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate; and ( II) have been approved, have been submitted for approval, or will be submitted with the certification for approval by the Foreign Intelligence Surveillance Court ; (iii) guidelines have been adopted in accordance with subsection (f) to ensure compliance with the limitations in subsection (b) and to ensure that an application for a court order is filed as required by this Act; (iv) the procedures and guidelines referred to in clauses (i), (ii), and (iii) are consistent with the requirements of the fourth amendment to the Constitution of the United States ; (v) a significant purpose of the acquisition is to obtain foreign intelligence information; ( vi) the acquisition involves obtaining foreign intelligence information from or with the assistance of an electronic communication service provider; and ( vii) the acquisition complies with the limitations in subsection (b); (B) include the procedures adopted in accordance with subsections (d) and (e); (C) be supported, as appropriate, by the affidavit of any appropriate official in the area of national security who is — ( i) appointed by the President, by and with the advice and consent of the Senate; or ( ii) the head of an element of the intelligence community; (D) include— ( i) an effective date for the authorization that is at least 30 days after the submission of the written certification to the court; or ( ii) if the acquisition has begun or the effective date is less than 30 days after the submission of the written certification to the court, the date the acquisition began or the effective date for the acquisition; and (E) if the Attorney General and the Director of National Intelligence make a determination under subsection (c)(2), include a statement that such determination has been made. (3) Change in effective date .— The Attorney General and the Director of National Intelligence may advance or delay the effective date referred to in paragraph (2)(D) by submitting an amended certification in accordance with subsection (i)(1)(c) to the Foreign Intelligence Surveillance Court for review pursuant to subsection (i). (4) Limitation — A certification made under this subsection is not required to identify the specific facilities, places, premises, or property at which an acquisition authorized under subsection (a) will be directed or conducted. (5) Maintenance of certification .— The Attorney General or a designee of the Attorney General shall maintain a copy of a certification made under this subsection. (6) Review. — A certification submitted in accordance with this subsection shall be subject to judicial review pursuant to subsection (i). (h) Directives and judicial review of directives . — (1) Authority . — With respect to an acquisition authorized under subsection (a), the Attorney General and the Director of National Intelligence may direct, in writing, an electronic communication service provider to — (A) immediately provide the Government with all information, facilities, or assistance necessary to accomplish the acquisition in a manner that will protect the secrecy of the acquisition and produce a minimum of interference with the services that such electronic communication service provider is providing to the target of the acquisition; and (B) maintain under security procedures approved by the Attorney General and the Director of National Intelligence any records concerning the acquisition or the aid furnished that such electronic communication service provider wishes to maintain. (2) Compensation . — The Government shall compensate, at the prevailing rate, an electronic communication service provider for providing information, facilities, or assistance in accordance with a directive issued pursuant to paragraph (1). (3) Release from liability . — No cause of action shall lie in any court against any electronic communication service provider for providing any information, facilities, or assistance in accordance with a directive issued pursuant to paragraph (1). (4) Challenging of directives .— (A) Authority to Challenge . — An electronic communication service provider receiving a directive issued pursuant to paragraph (1) may file a petition to modify or set aside such directive with the Foreign Intelligence Surveillance Court , which shall have jurisdiction to review such petition. (B) Assignment .— The presiding judge of the Court shall assign a petition filed under subparagraph (A) to 1 of the judges serving in the pool established under section 103(e)(1) not later than 24 hours after the filing of such petition. (C) Standards for review . — A judge considering a petition filed under subparagraph (A) may grant such petition only if the judge finds that the directive does not meet the requirements of this section, or is otherwise unlawful. (D) Procedures for initial review . — A judge shall conduct an initial review of a petition filed under subparagraph (A) not later than 5 days after being assigned such petition. If the judge determines that such petition does not consist of claims, defenses, or other legal contentions that are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law, the judge shall immediately deny such petition and affirm the directive or any part of the directive that is the subject of such petition and order the recipient to comply with the directive or any part of it. Upon making a determination under this subparagraph or promptly thereafter, the judge shall provide a written statement for the record of the reasons for such determination. (E) Procedures for plenary review . — If a judge determines that a petition filed under subparagraph (A) requires plenary review, the judge shall affirm, modify, or set aside the directive that is the subject of such petition not later than 30 days after being assigned such petition. If the judge does not set aside the directive, the judge shall immediately affirm or affirm with modifications the directive, and order the recipient to comply with the directive in its entirety or as modified. The judge shall provide a written statement for the record of the reasons for a determination under this subparagraph. (F) Continued effect . — Any directive not explicitly modified or set aside under this paragraph shall remain in full effect. (G) Contempt of court . — Failure to obey an order issued under this paragraph may be punished by the Court as contempt of court. (5) Enforcement of directives . — (A) Order to compel .— If an electronic communication service provider fails to comply with a directive issued pursuant to paragraph (1), the Attorney General may file a petition for an order to compel the electronic communication service provider to comply with the directive with the Foreign Intelligence Surveillance Court , which shall have jurisdiction to review such petition. (B) Assignment . — The presiding judge of the Court shall assign a petition filed under subparagraph (A) to 1 of the judges serving in the pool established under section 103(e)(1) not later than 24 hours after the filing of such petition. (C) Procedures for review . —A judge considering a petition filed under subparagraph (A) shall, not later than 30 days after being assigned such petition, issue an order requiring the electronic communication service provider to comply with the directive or any part of it, as issued or as modified, if the judge finds that the directive meets the requirements of this section and is otherwise lawful. The judge shall provide a written statement for the record of the reasons for a determination under this paragraph. (D) Contempt of court . — Failure to obey an order issued under this paragraph may be punished by the Court as contempt of court. (E) Process . — Any process under this paragraph may be served in any judicial district in which the electronic communication service provider may be found. (6) Appeal . — (A) Appeal to the court of review .— The Government or an electronic communication service provider receiving a directive issued pursuant to paragraph (1) may file a petition with the Foreign Intelligence Surveillance Court of Review for review of a decision issued pursuant to paragraph (4) or (5). The Court of Review shall have jurisdiction to consider such petition and shall provide a written statement for the record of the reasons for a decision under this subparagraph. (B) Certiorari to the Supreme Court . — The Government or an electronic communication service provider receiving a directive issued pursuant to paragraph (1) may file a petition for a writ of certiorari for review of a decision of the Court of Review issued under subparagraph (A). The record for such review shall be transmitted under seal to the Supreme Court of the United States , which shall have jurisdiction to review such decision. ( i) Judicial review of certifications and procedures . — (1) In General .— (A) Review by the Foreign Intelligence Surveillance Court . — The Foreign Intelligence Surveillance Court shall have jurisdiction to review a certification submitted in accordance with subsection (g) and the targeting and minimization procedures adopted in accordance with subsections (d) and (e), and amendments to such certification or such procedures. (B) Time period for review . — The Court shall review a certification submitted in accordance with subsection (g) and the targeting and minimization procedures adopted in accordance with subsections (d) and (e) and shall complete such review and issue an order under paragraph (3) not later than 30 days after the date on which such certification and such procedures are submitted. (C) Amendments . — The Attorney General and the Director of National Intelligence may amend a certification submitted in accordance with subsection (g) or the targeting and minimization procedures adopted in accordance with subsections (d) and (e) as necessary at any time, including if the Court is conducting or has completed review of such certification or such procedures, and shall submit the amended certification or amended procedures to the Court not later than 7 days after amending such certification or such procedures. The Court shall review any amendment under this subparagraph under the procedures set forth in this subsection. The Attorney General and the Director of National Intelligence may authorize the use of an amended certification or amended procedures pending the Court's review of such amended certification or amended procedures. (2) Review . — The Court shall review the following: (A) Certification . — A certification submitted in accordance with subsection (g) to determine whether the certification contains all the required elements. (B) Targeting procedures .— The targeting procedures adopted in accordance with subsection (d) to assess whether the procedu res are reasonably designed to— (i) ensure that an acquisition authorized under subsection (a) is limited to targeting persons reasonably believed to be located outside the United States ; and (ii) prevent the intentional acquisition of any communication as to which the sender and all intended recipients are known at the time of the acquisition to be located in the United States . (C) Minimization procedures . — The minimization procedures adopted in accordance with subsection (e) to assess whether such procedures meet the definition of minimization procedures under section 101(h) or section 301(4), as appropriate. (3) Orders . — (A) Approval . — If the Court finds that a certification submitted in accordance with subsection (g) contains all the required elements and that the targeting and minimization procedures adopted in accordance with subsections (d) and (e) are consistent with the requirements of those subsections and with the fourth amendment to the Constitution of the United States, the Court shall enter an order approving the certification and the use, or continued use in the case of an acquisition authorized pursuant to a determination under subsection (c)(2), of the procedures for the acquisition. (B) Correction of deficiencies . — If the Court finds that a certification submitted in accordance with subsection (g) does not contain all the required elements, or that the procedures adopted in accordance with subsections (d) and (e) are not consistent with the requirements of those subsections or the fourth amendment to the Constitution of the United States, the Court shall issue an order directing the Government to, at the Government's election and to the extent required by the Court's order — (i) correct any deficiency identified by the Court's order not later than 30 days after the date on which the Court issues the order; or (ii) cease, or not begin, the implementation of the authorization for which such certification was submitted. (C) Requirement for written statement . — In support of an order under this subsection, the Court shall provide, simultaneously with the order, for the record a written statement of the reasons for the order. (4) Appeal .— (A) Appeal to the court of review . — The Government may file a petition with the Foreign Intelligence Surveillance Court of Review for review of an order under this subsection. The Court of Review shall have jurisdiction to consider such petition. For any decision under this subparagraph affirming, reversing, or modifying an order of the Foreign Intelligence Surveillance Court , the Court of Review shall provide for the record a written statement of the reasons for the decision. (B) Continuation of acquisition pending rehearing or appeal . — Any acquisition affected by an order under paragraph (3)(B) may continue— ( i) during the pendency of any rehearing of the order by the Court en banc; and ( ii) if the Government files a petition for review of an order under this section, until the Court of Review enters an order under subparagraph (c). (C) Implementation pending appeal . — Not later than 60 days after the filing of a petition for review of an order under paragraph (3)(B) directing the correction of a deficiency, the Court of Review shall determine, and enter a corresponding order regarding, whether all or any part of the correction order, as issued or modified, shall be implemented during the pendency of the review. (D) Certiorari to the Supreme Court . — The Government may file a petition for a writ of certiorari for review of a decision of the Court of Review issued under subparagraph (A). The record for such review shall be transmitted under seal to the Supreme Court of the United States , which shall have jurisdiction to review such decision. (5) Schedule . — (A) Reauthorization of authorizations in effect . — If the Attorney General and the Director of National Intelligence seek to reauthorize or replace an authorization issued under subsection (a), the Attorney General and the Director of National Intelligence shall, to the extent practicable, submit to the Court the certification prepared in accordance with subsection (g) and the procedures adopted in accordance with subsections (d) and (e) at least 30 days prior to the expiration of such authorization. (B) Reauthorization of orders, authorizations , and directives . — If the Attorney General and the Director of National Intelligence seek to reauthorize or replace an authorization issued under subsection (a) by filing a certification pursuant to subparagraph (A), that authorization, and any directives issued thereunder and any order related thereto, shall remain in effect, notwithstanding the expiration provided for in subsection (a), until the Court issues an order with respect to such certification under paragraph (3) at which time the provisions of that paragraph and paragraph (4) shall apply with respect to such certification. (j) Judicial proceedings . — (1) Expedited judicial proceedings . — Judicial proceedings under this section shall be conducted as expeditiously as possible. (2) Time limits . — A time limit for a judicial decision in this section shall apply unless the Court, the Court of Review, or any judge of either the Court or the Court of Review, by order for reasons stated, extends that time as necessary for good cause in a manner consistent with national security. (k) Maintenance and security of records and proceedings . — (1) Standards .— The Foreign Intelligence Surveillance Court shall maintain a record of a proceeding under this section, including petitions, appeals, orders, and statements of reasons for a decision, under security measures adopted by the Chief Justice of the United States, in consultation with the Attorney General and the Director of National Intelligence. (2) Filing and review . — All petitions under this section shall be filed under seal. In any proceedings under this section, the Court shall, upon request of the Government, review ex parte and in camera any Government submission, or portions of a submission, which may include classified information. (3) Retention of records . — The Attorney General and the Director of National Intelligence shall retain a directive or an order issued under this section for a period of not less than 10 years from the date on which such directive or such order is issued. (l) Assessments and reviews . — (1) Semiannual assessment .— Not less frequently than once every 6 months, the Attorney General and Director of National Intelligence shall assess compliance with the targeting and minimization procedures adopted in accordance with subsections (d) and (e) and the guidelines adopted in accordance with subsection (f) and s hall submit each assessment to— (A) the Foreign Intelligence Surveillance Court ; and (B) consistent with the Rules of the House of Representatives, the Standing Rules of the Senate, and Senate Resolution 400 of the 94 th Congress or any successor Senate resolution — (i) the congressional intelligence committees; and (ii) the Committees on the Judiciary of the House of Representatives and the Senate. (2) Agency assessment . — The Inspector General of the Department of Justice and the Inspector General of each element of the intelligence community authorized to acquire foreign intelligence information under subsection (a), with respect to the department or element of such Inspector General — (A) are authorized to review compliance with the targeting and minimization procedures adopted in accordance with subsections (d) and (e) and the guidelines adopted in accordance with subsection (f); (B) with respect to acquisitions authorized under subsection (a), shall review the number of disseminated intelligence reports containing a reference to a United States-person identity and the number of United States-person identities subsequently disseminated by the element concerned in response to requests for identities that were not referred to by name or title in the original reporting; (C) with respect to acquisitions authorized under subsection (a), shall review the number of targets that were later determined to be located in the United States and, to the extent possible, whether communications of such targets were reviewed; and (D) shall provide each such review to — (i) the Attorney General; (ii) the Director of National Intelligence; and (iii) consistent with the Rules of the House of Representatives, the Standing Rules of the Senate, and Senate Resolution 400 of the 94 th Congress or any successor Senate resolution — (I) the congressional intelligence committees; and (II) the Committees on the Judiciary of the House of Representatives and the Senate. (3) Annual review . — (A) Requirement to conduct . — The head of each element of the intelligence community conducting an acquisition authorized under subsection (a) shall conduct an annual review to determine whether there is reason to believe that foreign intelligence information has been or will be obtained from the acquisition. The annual review shall provide, with respect to acquisitions authorized under subsection (a) — ( i) an accounting of the number of disseminated intelligence reports containing a reference to a United States-person identity; ( ii) an accounting of the number of United States-person identities subsequently disseminated by that element in response to requests for identities that were not referred to by name or title in the original reporting; ( iii) the number of targets that were later determined to be located in the United States and, to the extent possible, whether communications of such targets were reviewed; and ( iv) a description of any procedures developed by the head of such element of the intelligence community and approved by the Director of National Intelligence to assess, in a manner consistent with national security, operational requirements and the privacy interests of United States persons, the extent to which the acquisitions authorized under subsection (a) acquire the communications of United States persons, and the results of any such assessment. (B) Use of review . — The head of each element of the intelligence community that conducts an annual review under subparagraph (A) shall use each such review to evaluate the adequacy of the minimization procedures utilized by such element and, as appropriate, the application of the minimization procedures to a particular acquisition authorized under subsection (a). (C) Provision of review . — The head of each element of the intelligence community that conducts an annual review under subparagraph (A) shall provide such review to — ( i) the Foreign Intelligence Surveillance Court ; ( ii) the Attorney General; ( iii) the Director of National Intelligence; and ( iv) consistent with the Rules of the House of Representatives, the Standing Rules of the Senate, and Senate Resolution 400 of the 94 th Congress or any successor Senate resolution — ( I) the congressional intelligence committees; and ( II) the Committees on the Judiciary of the House of Representatives and the Senate. [P.L. 110-261, Sec. 404(b)(3)] [ Challenge of directives; protection from liability; use of information.— Notwithstanding any other provision of this Act or of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.) — (A) section 1803(e) of such Act, as amended by section 403(a)(1)(B)(ii), shall continue to apply with respect to any directive issued pursuant to section 1881a(h) of such Act, as added by section 101(a); (B) section 1881a(h)(3) of such Act (as so added) shall continue to apply with respect to any directive issued pursuant to section 1881a(h) of such Act (as so added); (C) section 1881b(e) of such Act (as so added) shall continue to apply with respect to an order or request for emergency assistance under that section; (D) section 18881e of such Act (as so added) shall continue to apply to an acquisition conducted under section 1881a or 1881b of such Act (as so added).] (a) Jurisdiction of the foreign intelligence surveillance court . — (1) In general . — The Foreign Intelligence Surveillance Court shall have jurisdiction to review an application and to enter an order approving the targeting of a United States person reasonably believed to be located outside the United States to acquire foreign intelligence information, if the acquisition constitutes electronic surveillance or the acquisition of stored electronic communications or stored electronic data that requires an order under this Act, and such acquisition is conducted within the United States. (2) Limitation . — If a United States person targeted under this subsection is reasonably believed to be located in the United States during the effective period of an order issued pursuant to subsection (c), an acquisition targeting such United States person under this section shall cease unless the targeted United States person is again reasonably believed to be located outside the United States while an order issued pursuant to subsection (c) is in effect. Nothing in this section shall be construed to limit the authority of the Government to seek an order or authorization under, or otherwise engage in any activity that is authorized under, any other title of this Act. (b) Application . — (1) In general . — each application for an order under this section shall be made by a Federal officer in writing upon oath or affirmation to a judge having jurisdiction under subsection (a)(1). Each application shall require the approval of the Attorney General based upon the Attorney General's finding that it satisfies the criteria and requirements of such application, as set forth in this section, and shall include — (A) the identity of the Federal officer making the application; (B) the identity, if known, or a description of the United States person who is the target of the acquisition; (C) a statement of the facts and circumstances relied upon to justify the applicant's belief that the United States person who is the target of the acquisition is — (i) a person reasonably believed to be located outside the United States ; and (ii) a foreign power, an agent of a foreign power, or an officer or employee of a foreign power; (D) a statement of proposed minimization procedures that meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate; (E) a description of the nature of the information sought and the type of communications or activities to be subjected to acquisition; (F) a certification made by the Attorney General or an official specified in section 104(a)(6) that — (i) the certifying official deems the information sought to be foreign intelligence information; (ii) a significant purpose of the acquisition is to obtain foreign intelligence information; (iii) such information cannot reasonably be obtained by normal investigative techniques; (iv) designates the type of foreign intelligence information being sought according to the categories described in section 101(e); and (v) includes a statement of the basis for the certification that — (I) the information sought is the type of foreign intelligence information designated; and (II) such information cannot reasonably be obtained by normal investigative techniques; (G) a summary statement of the means by which the acquisition will be conducted and whether physical entry is required to effect the acquisition; (H) the identity of any electronic communication service provider necessary to effect the acquisition, provided that the application is not required to identify the specific facilities, places, premises, or property at which the acquisition authorized under this section will be directed or conducted; (I) a statement of the facts concerning any previous applications that have been made to any judge of the Foreign Intelligence Surveillance Court involving the United States person specified in the application and the action taken on each previous application; and (J) a statement of the period of time for which the acquisition is required to be maintained, provided that such period of time shall not exceed 90 days per application. (2) Other requirements of the attorney general . — The Attorney General may require any other affidavit or certification from any other officer in connection with the application. (3) Other requirements of the judge .—T he judge may require the applicant to furnish such other information as may be necessary to make the findings required by subsection (c)(1). (c) Order . — (1) Findings . — Upon an application made pursuant to subsection (b), the Foreign Intelligence Surveillance Court shall enter an ex parte order as requested or as modified by the Court approving the acquisition if the Court finds that — (A) the application has been made by a Federal officer and approved by the Attorney General; (B) on the basis of the facts submitted by the applicant, for the United States person who is the target of the acquisition, there is probable cause to believe that the target is— (i) a person reasonably believed to be located outside the United States ; and (ii) a foreign power, an agent of a foreign power, or an officer or employee of a foreign power; (C) the proposed minimization procedures meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate; and (D) the application that has been filed contains all statements and certifications required by subsection (b) and the certification or certifications are not clearly erroneous on the basis of the statement made under subsection (b)(1)(F)(v) and any other information furnished under subsection (b)(3). (2) Probable cause . — In determining whether or not probable cause exists for purposes of paragraph (1)(B), a judge having jurisdiction under subsection (a)(1) may consider past activities of the target and facts and circumstances relating to current or future activities of the target. No United States person may be considered a foreign power, agent of a foreign power, or officer or employee of a foreign power solely upon the basis of activities protected by the first amendment to the Constitution of the United States . (3) Review . — (A) Limitation of review . — Review by a judge having jurisdiction under subsection (a)(1) shall be limited to that required to make the findings described in paragraph (1). (B) Review of probable cause . — If the judge determines that the facts submitted under subsection (b) are insufficient to establish probable cause under paragraph (1)(B), the judge shall enter an order so stating and provide a written statement for the record of the reasons for the determination. The Government may appeal an order under this subparagraph pursuant to subsection (f). (C) R eview of minimization procedures.— If the judge determines that the proposed minimization procedures referred to in paragraph (1)(c) do not meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate, the judge shall enter an order so stating and provide a written statement for the record of the reasons for the determination. The Government may appeal an order under this subparagraph pursuant to subsection (f). (D) Review of certification .— If the judge determines that an application pursuant to subsection (b) does not contain all of the required elements, or that the certification or certifications are clearly erroneous on the basis of the statement made under subsection (b)(1)(F)(v) and any other information furnished under subsection (b)(3), the judge shall enter an order so stating and provide a written statement for the record of the reasons for the determination. The Government may appeal an order under this subparagraph pursuant to subsection (f). (4) Specifications. — An order approving an acquisition under this sub section shall specify— (A) the identity, if known, or a description of the United States person who is the target of the acquisition identified or described in the application pursuant to subsection (b)(1)(B); (B) if provided in the application pursuant to subsection (b)(1)(H), the nature and location of each of the facilities or places at which the acquisition will be directed; (C) the nature of the information sought to be acquired and the type of communications or activities to be subjected to acquisition; (D) a summary of the means by which the acquisition will be conducted and whether physical entry is required to effect the acquisition; and (E) the period of time during which the acquisition is approved. (5) Directives .— An order approving an acquisition unde r this subsection shall direct— (A) that the minimization procedures referred to in paragraph (1)(c), as approved or modified by the Court, be followed; (B) if applicable, an electronic communication service provider to provide to the Government forthwith all information, facilities, or assistance necessary to accomplish the acquisition authorized under such order in a manner that will protect the secrecy of the acquisition and produce a minimum of interference with the services that such electronic communication service provider is providing to the target of the acquisition; (C) if applicable, an electronic communication service provider to maintain under security procedures approved by the Attorney General any records concerning the acquisition or the aid furnished that such electronic communication service provider wishes to maintain; and (D) if applicable, that the Government compensate, at the prevailing rate, such electronic communication service provider for providing such information, facilities, or assistance. (6) Duration. —A n order approved under this subsection shall be effective for a period not to exceed 90 days and such order may be renewed for additional 90-day periods upon submission of renewal applications meeting the requirements of subsection (b). (7) Compliance . —A t or prior to the end of the period of time for which an acquisition is approved by an order or extension under this section, the judge may assess compliance with the minimization procedures referred to in paragraph (1)(c) by reviewing the circumstances under which information concerning United States persons was acquired, retained, or disseminated. (d) Emergency authorization . — (1) Authority for emergency authorization . — notwithstanding any other provision of this Act, if the Attorney General reasonably determines that — (A) an emergency situation exists with respect to the acquisition of foreign intelligence information for which an order may be obtained under subsection (c) before an order authorizing such acquisition can with due diligence be obtained, and (B) the factual basis for issuance of an order under this subsection to approve such acquisition exists, the Attorney General may authorize such acquisition if a judge having jurisdiction under subsection (a)(1) is informed by the Attorney General, or a designee of the Attorney General, at the time of such authorization that the decision has been made to conduct such acquisition and if an application in accordance with this section is made to a judge of the Foreign Intelligence Surveillance Court as soon as practicable, but not more than 7 days after the Attorney General authorizes such acquisition. (2) Minimization procedures . — If the Attorney General authorizes an acquisition under paragraph (1), the Attorney General shall require that the minimization procedures referred to in subsection (c)(1)(C) for the issuance of a judicial order be followed. (3) Termination of emergency authorization .— In the absence of a judicial order approving an acquisition under paragraph (1), such acquisition shall terminate when the information sought is obtained, when the application for the order is denied, or after the expiration of 7 days from the time of authorization by the Attorney General, whichever is earliest. (4) Use of information . — If an application for approval submitted pursuant to paragraph (1) is denied, or in any other case where the acquisition is terminated and no order is issued approving the acquisition, no information obtained or evidence derived from such acquisition, except under circumstances in which the target of the acquisition is determined not to be a United States person, shall be received in evidence or otherwise disclosed in any trial, hearing, or other proceeding in or before any court, grand jury, department, office, agency, regulatory body, legislative committee, or other authority of the United States, a State, or political subdivision thereof, and no information concerning any United States person acquired from such acquisition shall subsequently be used or disclosed in any other manner by Federal officers or employees without the consent of such person, except with the approval of the Attorney General if the information indicates a threat of death or serious bodily harm to any person. (e) Release from liability . — No cause of action shall lie in any court against any electronic communication service provider for providing any information, facilities, or assistance in accordance with an order or request for emergency assistance issued pursuant to subsection (c) or (d), respectively. [[Sec. 404(b)(3)] Challenge of directives; protection from liability; use of information .— Notwithstanding any other provision of this Act or of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.) . . (c) section 703(e) of such Act (as so added) shall continue to apply with respect to an order or request for emergency assistance under that section;] (f) Appeal . — (1) Appeal to the foreign intelligence surveillance court of review . — The Government may file a petition with the Foreign Intelligence Surveillance Court of Review for review of an order issued pursuant to subsection (c). The Court of Review shall have jurisdiction to consider such petition and shall provide a written statement for the record of the reasons for a decision under this paragraph. (2) Certiorari to the Supreme Court . — The Government may file a petition for a writ of certiorari for review of a decision of the Court of Review issued under paragraph (1). The record for such review shall be transmitted under seal to the Supreme Court of the United States , which shall have jurisdiction to review such decision. (g) Construction. — Except as provided in this section, nothing in this Act shall be construed to require an application for a court order for an acquisition that is targeted in accordance with this section at a United States person reasonably believed to be located outside the United States . ( a) Jurisdiction and scope . — (1) Jurisdiction . — The Foreign Intelligence Surveillance Court shall have jurisdiction to enter an order pursuant to subsection (c). (2) Scope . — No element of the intelligence community may intentionally target, for the purpose of acquiring foreign intelligence information, a United States person reasonably believed to be located outside the United States under circumstances in which the targeted United States person has a reasonable expectation of privacy and a warrant would be required if the acquisition were conducted inside the United States for law enforcement purposes, unless a judge of the Foreign Intelligence Surveillance Court has entered an order with respect to such targeted United States person or the Attorney General has authorized an emergency acquisition pursuant to subsection (c) or (d), respectively, or any other provision of this Act. (3) Limitations . — (A) Moving or misidentified targets . — If a United States person targeted under this subsection is reasonably believed to be located in the United States during the effective period of an order issued pursuant to subsection (c), an acquisition targeting such United States person under this section shall cease unless the targeted United States person is again reasonably believed to be located outside the United States during the effective period of such order. (B) Applicability . — If an acquisition for foreign intelligence purposes is to be conducted inside the United States and could be authorized under section 703, the acquisition may only be conducted if authorized under section 703 or in accordance with another provision of this Act other than this section. (C) Construction . — Nothing in this paragraph shall be construed to limit the authority of the Government to seek an order or authorization under, or otherwise engage in any activity that is authorized under, any other title of this Act. (b) Application . — Each application for an order under this section shall be made by a Federal officer in writing upon oath or affirmation to a judge having jurisdiction under subsection (a)(1). Each application shall require the approval of the Attorney General based upon the Attorney General's finding that it satisfies the criteria and requirements of such application as set forth in this section and shall include — (1) the identity of the Federal officer making the application; (2) the identity, if known, or a description of the specific United States person who is the target of the acquisition; (3) a statement of the facts and circumstances relied upon to justify the applicant's belief that the United States person who is the target of the acquisition is — (A) a person reasonably believed to be located outside the United States ; and (B) a foreign power, an agent of a foreign power, or an officer or employee of a foreign power; (4) a statement of proposed minimization procedures that meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate; (5) a certification made by the Attorney General, an official specified in section 104(a)(6), or the head of an element of the intelligence community that — (A) the certifying official deems the information sought to be foreign intelligence information; and (B) a significant purpose of the acquisition is to obtain foreign intelligence information; (6) a statement of the facts concerning any previous applications that have been made to any judge of the Foreign Intelligence Surveillance Court involving the United States person specified in the application and the action taken on each previous application; and (7) a statement of the period of time for which the acquisition is required to be maintained, provided that such period of time shall not exceed 90 days per application. (c) Order — (1) Findings . — Upon an application made pursuant to subsection (b), the Foreign Intelligence Surveillance Court shall enter an ex parte order as requested or as modified by the Court if the Court finds that — (A) the application has been made by a Federal officer and approved by the Attorney General; (B) on the basis of the facts submitted by the applicant, for the United States person who is the target of the acquisition, there is probable cause to believe that the target is — (i) a person reasonably believed to be located outside the United States ; and (ii) a foreign power, an agent of a foreign power, or an officer or employee of a foreign power; (C) the proposed minimization procedures, with respect to their dissemination provisions, meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate; and (D) the application that has been filed contains all statements and certifications required by subsection (b) and the certification provided under subsection (b)(5) is not clearly erroneous on the basis of the information furnished under subsection (b). (2) Probable cause .— In determining whether or not probable cause exists for purposes of paragraph (1)(B), a judge having jurisdiction under subsection (a)(1) may consider past activities of the target and facts and circumstances relating to current or future activities of the target. No United States person may be considered a foreign power, agent of a foreign power, or officer or employee of a foreign power solely upon the basis of activities protected by the first amendment to the Constitution of the United States . (3) Review . — (A) Limitations on review . — Review by a judge having jurisdiction under subsection (a)(1) shall be limited to that required to make the findings described in paragraph (1). The judge shall not have jurisdiction to review the means by which an acquisition under this section may be conducted. (B) Review of probable cause . — If the judge determines that the facts submitted under subsection (b) are insufficient to establish probable cause to issue an order under this subsection, the judge shall enter an order so stating and provide a written statement for the record of the reasons for such determination. The Government may appeal an order under this subparagraph pursuant to subsection (e). (C) Review of minimization procedures . — If the judge determines that the minimization procedures applicable to dissemination of information obtained through an acquisition under this subsection do not meet the definition of minimization procedures under section 101(h) or 301(4), as appropriate, the judge shall enter an order so stating and provide a written statement for the record of the reasons for such determination. The Government may appeal an order under this subparagraph pursuant to subsection (e). (D) Scope of review of certification . — If the judge determines that an application under subsection (b) does not contain all the required elements, or that the certification provided under subsection (b)(5) is clearly erroneous on the basis of the information furnished under subsection (b), the judge shall enter an order so stating and provide a written statement for the record of the reasons for such determination. The Government may appeal an order under this subparagraph pursuant to subsection (e). (4) Duration. — An order under this paragraph shall be effective for a period not to exceed 90 days and such order may be renewed for additional 90-day periods upon submission of renewal applications meeting the requirements of subsection (b). (5) Compliance . — At or prior to the end of the period of time for which an order or extension is granted under this section, the judge may assess compliance with the minimization procedures referred to in paragraph (1)(c) by reviewing the circumstances under which information concerning United States persons was disseminated, provided that the judge may not inquire into the circumstances relating to the conduct of the acquisition. (d) Emergency authorization . — (1) Authority for emergency authorization . — Notwithstanding any other provision of this section, if the Attorney General reasonably determines that — (A) an emergency situation exists with respect to the acquisition of foreign intelligence information for which an order may be obtained under subsection (c) before an order under that subsection can, with due diligence, be obtained, and (B) the factual basis for the issuance of an order under this section exists, the Attorney General may authorize the emergency acquisition if a judge having jurisdiction under subsection (a)(1) is informed by the Attorney General or a designee of the Attorney General at the time of such authorization that the decision has been made to conduct such acquisition and if an application in accordance with this section is made to a judge of the Foreign Intelligence Surveillance Court as soon as practicable, but not more than 7 days after the Attorney General authorizes such acquisition. (2) Minimization procedures . —If t he Attorney General authorizes an emergency acquisition under paragraph (1), the Attorney General shall require that the minimization procedures referred to in subsection (c)(1)(c) be followed. (3) Termination of emergency authorization . —I n the absence of an order under subsection (c), an emergency acquisition under paragraph (1) shall terminate when the information sought is obtained, if the application for the order is denied, or after the expiration of 7 days from the time of authorization by the Attorney General, whichever is earliest. (4) Use of information . — If an application submitted to the Court pursuant to paragraph (1) is denied, or in any other case where the acquisition is terminated and no order with respect to the target of the acquisition is issued under subsection (c), no information obtained or evidence derived from such acquisition, except under circumstances in which the target of the acquisition is determined not to be a United States person, shall be received in evidence or otherwise disclosed in any trial, hearing, or other proceeding in or before any court, grand jury, department, office, agency, regulatory body, legislative committee, or other authority of the United States, a State, or political subdivision thereof, and no information concerning any United States person acquired from such acquisition shall subsequently be used or disclosed in any other manner by Federal officers or employees without the consent of such person, except with the approval of the Attorney General if the information indicates a threat of death or serious bodily harm to any person. (e) Appeal . — (1) Appeal to the court of review . —T he Government may file a petition with the Foreign Intelligence Surveillance Court of Review for review of an order issued pursuant to subsection (c). The Court of Review shall have jurisdiction to consider such petition and shall provide a written statement for the record of the reasons for a decision under this paragraph. (2) Certiorari to the supreme court . — The Government may file a petition for a writ of certiorari for review of a decision of the Court of Review issued under paragraph (1). The record for such review shall be transmitted under seal to the Supreme Court of the United States , which shall have jurisdiction to review such decision. (a) Joint applications and orders . — If an acquisition targeting a United States person under section 1881b or 1881c is proposed to be conducted both inside and outside the United States, a judge having jurisdiction under section 1881b(a)(1) or 1881c(a)(1) may issue simultaneously, upon the request of the Government in a joint application complying with the requirements of sections 1881b(b) and 1881c(b), orders under sections 1881b(c) and 1881c(c), as appropriate. (b) Concurrent authorization .— If an order authorizing electronic surveillance or physical search has been obtained under section 1805 or 1824, the Attorney General may authorize, for the effective period of that order, without an order under section 1881b or 1881c, the targeting of that United States person for the purpose of acquiring foreign intelligence information while such person is reasonably believed to be located outside the United States. (a) Information acquired under section 1881a . — Information acquired from an acquisition conducted under section 1881a shall be deemed to be information acquired from an electronic surveillance pursuant to title I for purposes of section 106, except for the purposes of subsection (j) of such section. (b) Information acquired under section 1881b . — Information acquired from an acquisition conducted under section 1881b of this title shall be deemed to be information acquired from an electronic surveillance pursuant to title I of this chapter for purposes of section 1806 of this title . (a) Semiannual report . — Not less frequently than once every 6 months, the Attorney General shall fully inform, in a manner consistent with national security, the congressional intelligence committees and the Committees on the Judiciary of the Senate and the House of Representatives, consistent with the Rules of the House of Representatives, the Standing Rules of the Senate, and Senate Resolution 400 of the 94 th Congress or any successor Senate resolution, concerning the implementation of this title. (b) Content . — Each report unde r subsection (a) shall include— (1) with respect to section 1881a of this title— (A) any certifications submitted in accordance with section 1881a(g) during the reporting period; (B) with respect to each determination under section 1881a(c)(2), the reasons for exercising the authority under such section; (C) any directives issued under section 1881a(h) during the reporting period; (D) a description of the judicial review during the reporting period of such certifications and targeting and minimization procedures adopted in accordance with subsections (d) and (e) of section 1881a and utilized with respect to an acquisition under such section, including a copy of an order or pleading in connection with such review that contains a significant legal interpretation of the provisions of section 1881a; (E) any actions taken to challenge or enforce a directive under paragraph (4) or (5) of section 1881a(h); (F) any compliance reviews conducted by the Attorney General or the Director of National Intelligence of acquisitions authorized under section 1881a(a); (G) a description of any incidents of noncompliance — ( i) with a directive issued by the Attorney General and the Director of National Intelligence under section 1881a(h), including incidents of noncompliance by a specified person to whom the Attorney General and Director of National Intelligence issued a directive under section 1881a(h); and ( ii) by an element of the intelligence community with procedures and guidelines adopted in accordance with subsections (d), (e), and (f) of section 1881a; and (H) any procedures implementing section 1881a; (2) with respect to section 1881b. — (A) the total number of applications made for orders under section 1881b(b); (B) the total number of such orders — ( i) granted; ( ii) modified; and ( iii) denied; and (c) the total number of emergency acquisitions authorized by the Attorney General under section 1881b(d) and the total number of subsequent orders approving or denying such acquisitions; and (3 ) with respect to section 1881c— (A) the total number of applications made for orders under section 1881c(b); (B) the total number of such orders— ( i) granted; ( ii) modified; and ( iii) denied; and (C) the total number of emergency acquisitions authorized by the Attorney General under section 1881c(d) and the total number of subsequent orders approving or denying such applications . Nothing in this title shall be construed to limit the authority of the Government to seek an order or authorization under, or otherwise engage in any activity that is authorized under, any other subchapter of this chapter . In this title: (1) Assistance.—The term "assistance" means the provision of, or the provision of access to, information (including communication contents, communications records, or other information relating to a customer or communication), facilities, or another form of assistance. (2) Civil action.—The term "civil action" includes a covered civil action. (3) Congressional intelligence committees.—The term "congressional intelligence committees" means— (A) the Select Committee on Intelligence of the Senate; and (B) the Permanent Select Committee on Intelligence of the House of Representatives. (4) Contents.—The term "contents" has the meaning given that term in section 101(n). (5) Covered civil action.—The term "covered civil action" means a civil action filed in a Federal or State court that— (A) alleges that an electronic communication service provider furnished assistance to an element of the intelligence community; and (B) seeks monetary or other relief from the electronic communication service provider related to the provision of such assistance. (6) Electronic Communication Service Provider.—The term "electronic communication service provider" means— (A) a telecommunications carrier, as that term is defined in section 3 of the Communications Act of 1934 (47 U.S.C. 153); (B) a provider of electronic communication service, as that term is defined in section 2510 of title 18, United States Code; (C) a provider of a remote computing service, as that term is defined in section 2711 of title 18, United States Code; (D) any other communication service provider who has access to wire or electronic communications either as such communications are transmitted or as such communications are stored; (E) a parent, subsidiary, affiliate, successor, or assignee of an entity described in subparagraph (A), (B), (c), or (D); or (F) an officer, employee, or agent of an entity described in subparagraph (A), (B), (c), (D), or (E). (7) Intelligence community.—The term "intelligence community" has the meaning given the term in section 3(4) of the National Security Act of 1947 (50 U.S.C. 401a(4)). (8) Person.—The term "person" means— (A) an electronic communication service provider; or (B) a landlord, custodian, or other person who may be authorized or required to furnish assistance pursuant to— (i) an order of the court established under section 103(a) directing such assistance; (ii) a certification in writing under section 2511(2)(a)(ii)(B) or 2709(b) of title 18, United States Code; or (iii) a directive under section 102(a)(4), 105B(e), as added by section 2 of the Protect America Act of 2007 ( P.L. 110-55 ), or 702(h). (9) State.—The term "State" means any State, political subdivision of a State, the Commonwealth of Puerto Rico, the District of Columbia, and any territory or possession of the United States, and includes any officer, public utility commission, or other body authorized to regulate an electronic communication service provider. (a) Requirement for certification.—Notwithstanding any other provision of law, a civil action may not lie or be maintained in a Federal or State court against any person for providing assistance to an element of the intelligence community, and shall be promptly dismissed, if the Attorney General certifies to the district court of the United States in which such action is pending that.— (1) any assistance by that person was provided pursuant to an order of the court established under section 103(a) directing such assistance; (2) any assistance by that person was provided pursuant to a certification in writing under section 2511(2)(a)(ii)(B) or 2709(b) of title 18, United States Code; (3) any assistance by that person was provided pursuant to a directive under section 102(a)(4), 105B(e), as added by section 2 of the Protect America Act of 2007 ( P.L. 110-55 ), or 702(h) directing such assistance; (4) in the case of a covered civil action, the assistance alleged to have been provided by the electronic communication service provider was— (A) in connection with an intelligence activity involving communications that was— (i) authorized by the President during the period beginning on September 11, 2001, and ending on January 17, 2007; and (ii) designed to detect or prevent a terrorist attack, or activities in preparation for a terrorist attack, against the United States; and (B) the subject of a written request or directive, or a series of written requests or directives, from the Attorney General or the head of an element of the intelligence community (or the deputy of such person) to the electronic communication service provider indicating that the activity was— (i) authorized by the President; and (ii) determined to be lawful; or (5) the person did not provide the alleged assistance. (b) Judicial review.— (1) Review of certifications.—A certification under subsection (a) shall be given effect unless the court finds that such certification is not supported by substantial evidence provided to the court pursuant to this section. (2) Supplemental materials.—In its review of a certification under subsection (a), the court may examine the court order, certification, written request, or directive described in subsection (a) and any relevant court order, certification, written request, or directive submitted pursuant to subsection (d) (c) Limitations on disclosure.—If the Attorney General files a declaration under section 1746 of title 28, United States Code, that disclosure of a certification made pursuant to subsection (a) or the supplemental materials provided pursuant to subsection (b) or (d) would harm the national security of the United States, the court shall— (1) review such certification and the supplemental materials in camera and ex parte; and (2) limit any public disclosure concerning such certification and the supplemental materials, including any public order following such in camera and ex parte review, to a statement as to whether the case is dismissed and a description of the legal standards that govern the order, without disclosing the paragraph of subsection (a) that is the basis for the certification. (d) Role of the parties.—Any plaintiff or defendant in a civil action may submit any relevant court order, certification, written request, or directive to the district court referred to in subsection (a) for review and shall be permitted to participate in the briefing or argument of any legal issue in a judicial proceeding conducted pursuant to this section, but only to the extent that such participation does not require the disclosure of classified information to such party. To the extent that classified information is relevant to the proceeding or would be revealed in the determination of an issue, the court shall review such information in camera and ex parte, and shall issue any part of the court's written order that would reveal classified information in camera and ex parte and maintain such part under seal. (e) Nondelegation.—The authority and duties of the Attorney General under this section shall be performed by the Attorney General (or Acting Attorney General) or the Deputy Attorney General. (f) Appeal.—The courts of appeals shall have jurisdiction of appeals from interlocutory orders of the district courts of the United States granting or denying a motion to dismiss or for summary judgment under this section. (g) Removal.—A civil action against a person for providing assistance to an element of the intelligence community that is brought in a State court shall be deemed to arise under the Constitution and laws of the United States and shall be removable under section 1441 of title 28, United States Code. (h) Relationship to other laws.—Nothing in this section shall be construed to limit any otherwise available immunity, privilege, or defense under any other provision of law. (i) Applicability.—This section shall apply to a civil action pending on or filed after the date of the enactment of the FISA Amendments Act of 2008. (a) In general.—No State shall have authority to— (1) conduct an investigation into an electronic communication service provider's alleged assistance to an element of the intelligence community; (2) require through regulation or any other means the disclosure of information about an electronic communication service provider's alleged assistance to an element of the intelligence community; (3) impose any administrative sanction on an electronic communication service provider for assistance to an element of the intelligence community; or (4) commence or maintain a civil action or other proceeding to enforce a requirement that an electronic communication service provider disclose information concerning alleged assistance to an element of the intelligence community. (b) Suits by the United States.—The United States may bring suit to enforce the provisions of this section. (c) Jurisdiction.—The district courts of the United States shall have jurisdiction over any civil action brought by the United States to enforce the provisions of this section. (d) Application.—This section shall apply to any investigation, action, or proceeding that is pending on or commenced after the date of the enactment of the FISA Amendments Act of 2008. (a) Semiannual report.—Not less frequently than once every 6 months, the Attorney General shall, in a manner consistent with national security, the Rules of the House of Representatives, the Standing Rules of the Senate, and Senate Resolution 400 of the 94 th Congress or any successor Senate resolution, fully inform the congressional intelligence committees, the Committee on the Judiciary of the Senate, and the Committee on the Judiciary of the House of Representatives concerning the implementation of this title. (b) Content.—Each report made under subsection (a) shall include— (1) any certifications made under section 1885a; (2) a description of the judicial review of the certifications made under section 1885a; and (3) any actions taken to enforce the provisions of section 1885b. Appendix A. State Statutes Outlawing the Interception of Wire(w), Oral(o) and Electronic Communications(e) Appendix B. Consent Interceptions Under State Law Appendix C. Statutory Civil Liability for Interceptions Under State Law Appendix D. Court Authorized Interception Under State Law Appendix E. State Statutes Regulating Stored Electronic Communications (SE), Pen Registers (PR) and Trap and Trace Devices (T) Appendix F. State Computer Crime Statutes	This report provides an overview of the Electronic Communications Privacy Act (ECPA) and the Foreign Intelligence Surveillance Act (FISA). ECPA consists of three parts. The first, often referred to as Title III, outlaws wiretapping and electronic eavesdropping, except as otherwise provided. The second, the Stored Communications Act, governs the privacy of, and government access to, the content of electronic communications and to related records. The third outlaws the use and installation of pen registers and of trap and trace devices, unless judicially approved for law enforcement or intelligence gathering purposes. FISA consists of seven parts. The first, reminiscent of Title III, authorizes electronic surveillance in foreign intelligence investigations. The second authorizes physical searches in foreign intelligence cases. The third permits the use and installation of pen registers and trap and trace devices in the context of a foreign intelligence investigation. The fourth affords intelligence officials access to business records and other tangible items. The fifth directs the Attorney General to report to Congress on the specifics of the exercise of FISA authority. The sixth, scheduled to expire on December 31, 2017, permits the acquisition of the communications of targeted overseas individuals and entities. The seventh creates a safe harbor from civil liability for those who assist or have assisted in the collection of information relating to the activities of foreign powers and their agents. This report includes the text of the Electronic Communications Privacy Act and the Foreign Intelligence Surveillance Act, as well as appendixes listing the citations to state statutes that correspond to various aspects of ECPA. The report is available in an abridged form without footnotes, attributions to authority, the text of ECPA or FISA, or appendixes found here as CRS Report 98-327, Privacy: An Abbreviated Outline of Federal Statutes Governing Wiretapping and Electronic Eavesdropping, by [author name scrubbed] and [author name scrubbed]. CRS Report R41733, Privacy: An Overview of the Electronic Communications Privacy Act, by [author name scrubbed], replicates portions of this report. Related CRS reports include CRS Report R42725, Reauthorization of the FISA Amendments Act, by [author name scrubbed], and CRS Report R40138, Amendments to the Foreign Intelligence Surveillance Act (FISA) Extended Until June 1, 2015, by the same author.	23.1	long	11,160
5	As described at the beginning of this report, DOD recognized the need for additional base closures and realignments following the 1995 closure round and made repeated efforts to gain congressional authorization for an additional closure round. Congress authorized an additional round for 2005 with the passage of the National Defense Authorization Act for Fiscal Year 2002. The 2002 Act essentially extended the authority of the Defense Base Closure and Realignment Act of 1990, which had authorized the 1991, 1993, and 1995 rounds, with some modifications for the 2005 base closure round. In a memorandum dated November 15, 2002, the Secretary of Defense issued initial guidance outlining goals and a leadership framework for the 2005 BRAC round. In doing so, he noted that “At a minimum, BRAC 2005 must eliminate excess physical capacity; the operation, sustainment and recapitalization of which diverts scarce resources from defense capability.” However, specific reduction goals were not established. At the same time, the Secretary’s guidance for the 2005 round depicted the round as focusing on more than the reduction of excess capacity. He said that “BRAC 2005 can make an even more profound contribution to transforming the Department by rationalizing our infrastructure with defense strategy.” He further noted that “A primary objective of BRAC 2005, in addition to realigning our base structure to meet our post-Cold War force structure, is to examine and implement opportunities for greater joint activity.” Toward that end, the Secretary indicated that organizationally the 2005 BRAC analysis would be two pronged. Joint cross-service teams would analyze common business-oriented functions, and the military departments would analyze service-unique functions. The Secretary of Defense established two senior groups to oversee and guide the BRAC 2005 process from a departmental perspective. The first was the Infrastructure Executive Council (IEC), which was designated the policy-making and oversight body for the entire process, and the second, a subordinate group, was the Infrastructure Steering Group (ISG), created to oversee the joint cross-service analyses and integrate that process with the military departments’ own service-unique analyses. Each of the military departments also established BRAC organizations, which had oversight from senior leaders. Likewise, each of the joint cross-service teams, under the purview of the ISG, was led by senior military or civilian officials, with representation from each of the services and relevant defense agencies. DOD’s BRAC leadership structure is shown in figure 1. DOD developed a draft set of 77 transformational options that once approved, were expected to constitute a minimum analytical framework upon which the military departments and joint cross-service groups would conduct their respective BRAC analyses. Because of a lack of agreement among the services and OSD, the draft options were never formally approved, but they remained available for consideration by analytical teams and were referenced by some groups in support of various BRAC actions being considered. (See app. XV for a list of the draft transformational options.) To some extent, the analyses and recommendations of each of the services and joint cross-service groups were also influenced by various guiding principles or policy imperatives developed by the respective service or joint cross-service groups, such as the need to preserve a particular capability in a particular location. The legislation authorizing the 2005 BRAC round, enacted as part of the fiscal year 2002 Defense Authorization Act, required DOD to give priority to selection criteria dealing with military value and added elements of specificity to criteria previously used by DOD in prior BRAC rounds. Subsequently, The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 codified the entire selection criteria and added the word “surge” to one previously used criterion related to potential future contingencies and mobilization efforts. In large measure, the final criteria closely followed the criteria DOD employed in prior rounds, with greater specificity added in some areas, as required by Congress. Figure 2 shows DOD’s selection criteria for 2005, with changes from BRAC 1995 denoted in bold. To ensure that the selection criteria were consistently applied, OSD established a common analytical framework to be used by each military service and joint cross-service group. Each service and group adapted this framework, in varying degrees, to its individual activities and functions in evaluating facilities and functions and identifying closure and realignment options. Despite the diversity of bases and cross-service functions analyzed, each of the groups was expected to first analyze capacity and military value of its respective facilities or functions, and then to identify and evaluate various closure and realignment scenarios and provide specific recommendations. Scenarios were derived from data analysis and transformational options, as well as from goals and objectives each group established for itself as it began its work. Figure 3 depicts the expected progression of that process. An initial part of the process involved an overall capacity analysis of specific locations or functions and subfunctions at specific locations. The analysis relied on data calls to obtain certified data to assess such factors as maximum potential capacity, current capacity, current usage, excess capacity, and capacity needed to meet surge requirements. The military value analysis consisted of assessments of operational and physical characteristics of each installation, or specific functions on an installation related to a specific joint cross-service group’s area of responsibility. These would include an installation’s or function’s current and future mission capabilities, physical condition, ability to accommodate future needs, and cost of operations. This analysis also relied on data calls to obtain certified data on the various attributes and metrics used to assess each of the four military value criteria and permit meaningful comparisons between like installations/facilities with reference to the collective military value selection criteria. DOD officials used these data to develop comparative military value scores for each installation/facility or for categories of facilities serving like functions. The scenario development and analysis phase focused on identifying various realignment and closure scenarios for further analysis. These scenarios were to be derived from consideration of the department’s 20- year force structure plan, capacity analysis, military value analysis, and transformational options; applicable guiding principles, objectives, or policy imperatives identified by individual military services or joint cross- service groups; and military judgment. Each component had available for its use an optimization or linear programming model that could combine the results of capacity and military value analyses and other information to derive scenarios and sets of alternatives. The model could be used to address varying policy imperatives or objectives, such as minimizing the number of sites, minimizing the amount of excess capacity, or maximizing the average military value. A BRAC review group could also direct variations that would, for example, eliminate as much excess capacity as possible while maintaining an average military value at least as high as the original set of sites. OSD policy guidance has historically specified that priority consideration be given to military value in making closure and realignment decisions, but that priority was specifically mandated by the legislation authorizing the 2005 BRAC round. At the same time, historic practice and the 2005 authorizing legislation both required consideration of additional issues included in selection criteria 5 through 8, detailed below: Criterion 5—costs and savings: This criterion consists of measures of costs and savings and the payback periods associated with them. Each component assessed costs using the Cost of Base Realignment Actions (COBRA) model that was used in each of the BRAC rounds since 1988. Appendix XIII summarizes improvements that have been made to the model over time and more recently for the 2005 round. Criterion 6—economic impact: This criterion measures the direct and indirect impacts of a BRAC action on employment in the communities affected by a closure or realignment. Appendix XIV provides a more complete description of how economic impact was assessed and the changes made to improve the assessment for this round. Criterion 7—community infrastructure: Selection criterion 7 examines “the ability of the infrastructure of both the existing and potential receiving communities to support forces, missions, and personnel.” The services and joint cross-service groups considered information on demographics, childcare, cost of living, employment, education, housing, medical care, safety and crime, transportation, and public utilities of the communities impacted by a BRAC action. Criterion 8—environmental impact: Selection criterion 8 assesses “the environmental impact, including the impact of costs related to potential environmental restoration, waste management, and environmental compliance activities” of closure and realignment recommendations. In considering this criterion, the services and joint cross-service groups focused mainly on potential environmental impacts while acknowledging, when appropriate, known environmental restoration costs associated with an installation recommended for closure or realignment. Waste management and environmental compliance costs were factored into criterion 5. However, under OSD policy guidance, environmental restoration costs were not considered in the cost and savings analyses for evaluating individual scenarios under criterion 5. DOD is obligated to restore contaminated sites on military bases regardless of whether they are closed, and such costs could be affected by reuse plans that cannot be known at this time but would be budgeted for at a later time when those plans and costs are better identified. Each of the military departments produced reports with closure and realignment recommendations, as did each of the joint cross-service groups, the results of which are summarized in appendixes III through XII. Figures 4 and 5 show, respectively, the 33 major closures and 30 major realignments that have been recommended by DOD where plant replacement values exceed $100 million for major base closures and net losses of 400 or more military and civilian personnel for major base realignments. While the 2005 BRAC round, like earlier BRAC rounds, was chartered to focus on United States domestic bases, DOD separately had under way a review of overseas basing requirements that had implications for the domestic BRAC process. In a September 2004 report to Congress, the Under Secretary of Defense for Policy provided an update on DOD’s “global defense posture review.” It noted that once completed, the changes stemming from the review would result in the most profound reordering of United States military forces overseas as the current posture has been largely unchanged since the Korean War. The report noted that over the next 10 years, it is planned that up to 70,000 military personnel would return to the United States, along with approximately 100,000 family members and civilian employees. It further noted that a net reduction of approximately 35 percent of overseas sites—bases, installations, and facilities—is planned. DOD had indicated that the domestic BRAC process would be used in making decisions on where to relocate forces returning to the United States from overseas bases. Separately, Congress in 2003 mandated the creation of a special commission to evaluate, among other things, the current and proposed overseas basing structure of the United States military forces. The Commission’s observations are included in its May 2005 report. Among other things, the Commission cited the need for appropriate planning to ensure the availability of community infrastructure to support returning troops and to mitigate the impact on communities. The recommendations proposed by the Secretary of Defense would have varying degrees of success in achieving DOD’s BRAC 2005 goals of reducing infrastructure and achieving savings, furthering transformation objectives, and fostering joint activity among the military services. While DOD proposed a record number of closure and realignment actions, exceeding those in all prior BRAC rounds combined, many proposals focus on the reserve component bases and relatively few on closing active bases. Projected savings are almost equally as large, as all prior BRAC rounds combined, but about 80 percent of the projected 20-year net present value savings (savings minus up-front investment costs) are derived from only 10 percent of the recommendations. While we believe the recommendations overall would achieve savings, up-front investment costs of about $24 billion are required to implement all recommendations to achieve DOD’s overall expected savings of nearly $50 billion over 20 years. Much of these saving are related to eliminations of jobs currently held by military personnel but are not likely to result in end-strength reductions, limiting savings available for other purposes. Some proposed actions represent some progress in emphasizing transformation and jointness, but progress in these efforts varied without clear agreement on transformational options to be considered, and many recommendations tended to foster jointness by consolidating functions within rather than across military services. The BRAC 2005 round is different from previous base closure rounds in terms of number of actions, projected implementation costs, and estimated annual recurring savings. While the number of major closures and realignments is just a little greater than individual previous rounds, the number of minor closure and realignments, as shown in table 1, is significantly greater than those in all previous rounds combined. The large increase in minor closures and realignments is attributable partly to actions involving the Army National Guard, Army Reserve, Air National Guard, and vacating leased space. The costs to implement the proposed actions are $24.4 billion compared to a $22 billion total from the four previous rounds through 2001, the end of the 6-year implementation period for the 1995 BRAC round. The increase in costs is due partly to significant military construction and moving costs associated with Army recommendations to realign its force structure, and to recommendations to move activities from leased space onto military installations. For example, the Army projects that it will need about $2.3 billion in military construction funds to build facilities for the troops returning from overseas. Likewise, DOD projects that it will need an additional $1.3 billion to build facilities for recommendations that include activities being moved from leased space. Time will be required for these costs to be offset by savings from BRAC actions and this in turn affects the point at which net annual recurring savings can begin to accrue. Finally, the projected net annual recurring savings are $5.5 billion compared to net annual recurring savings of $2.6 billion and $1.7 billion for the 1993 and 1995 rounds respectively. The increased savings are partly attributable to significant reductions in the number of military positions and business process reengineering efforts. DOD projects that the proposed recommendations would reduce excess infrastructure capacity, indicating that the plant replacement value of domestic installations would be reduced by about $27 billion, or 5 percent. However, the projected reductions in plant replacement value did not account for the $2.2 billion in domestic military construction projects associated with relocating forces from overseas. On the other hand, reductions in leased space are not considered in the plant replacement value analysis, since leased space is not government owned. DOD estimates that its recommendations will reduce about 12 million square feet of leased space. DOD projects that its proposed recommendations will produce nearly $50 billion in 20-year net present value savings, with net annual recurring savings of about $5.5 billion. There are limitations associated with the savings claimed from military personnel reductions and we believe there is uncertainty regarding the magnitude of savings likely to be realized in other areas given unvalidated assumptions regarding expected efficiency gains from business process reengineering efforts and projected savings from sustainment, recapitalization, and base operating support. Table 2 summarizes the projected one-time cost, the cost or savings anticipated during the 6-year implementation period for the closure or realignment, the estimated net annual recurring savings, and the projected 20-year net present value costs or savings of DOD’s recommendations. Table 2 also shows the Navy, Air Force, and joint cross-service groups all projecting net savings within the 6-year implementation period, as well as significant 20-year net savings. In contrast, because of the nature of the Army’s proposed actions and costs, such as providing infrastructure for troops returning from overseas and the consolidation and recapitalization of reserve facilities, the Army does not achieve net savings either during the implementation period or within 20 years, based on recommendations included in its BRAC report. Notwithstanding these projected savings, we identified limitations or uncertainties about the magnitude of savings likely to be realized. As figure 6 shows, 47 percent of the net annual recurring savings can be attributed to projected military personnel reductions. About 40 percent ($2.1 billion) of the projected net annual recurring savings can be attributed to savings from operation and maintenance activities, which include terminating or reducing property sustainment and recapitalization, base operating support, and civilian payroll. Furthermore, about $500 million of the “other” savings is based on business process reengineering efforts, but some of the assumptions supporting the expected efficiency gains have not been validated. Much of the projected net annual recurring savings (47 percent) are associated with eliminating positions currently held by military personnel; but rather than reducing end-strength levels, DOD indicates the positions are expected to be reassigned to other areas, limiting dollar savings available for other uses. For example, although the Air Force projects net annual recurring savings of about $732 million from eliminating about 10,200 military positions, Air Force officials stated the active duty positions will be reinvested to relieve stress on high demand career fields and the reserve positions to new missions yet to be identified. Likewise, the Army is projecting savings from eliminating about 5,800 military positions, but it has no plans to reduce its end-strength. Finally, the Navy is projecting it will eliminate about 4,000 active duty military positions, which a Navy official noted will help it achieve the end-strength reductions already planned. As we noted during our review of DOD’s process during the 1995 BRAC round, since these personnel will be assigned elsewhere rather than taken out of the force structure, they do not represent dollar savings that can be readily reallocated outside the personnel accounts. Without recognition that these are not dollar savings that can be readily applied elsewhere, this could create a false sense of savings available for use in other areas traditionally cited as a beneficiary of BRAC savings, such as making more funds available for modernization and better maintenance of remaining facilities. DOD is also projecting savings from the sustainment and recapitalization of facilities that are scheduled to be demolished, as well as from facilities that might remain in DOD’s real property inventory when activities are realigned from one base to another. For example, the Industrial Joint Cross-Service Group is claiming about $20 million in annual recurring savings from the recapitalization of facilities at installations responsible for destroying chemical weapons at three locations recommended for closure. However, the Army had already expected to demolish these chemical destruction facilities upon completing the destruction of the chemical weapons at each site and the Army has not identified future missions for these installations. As a result, we do not believe it is appropriate for the Industrial Joint Cross-Service Group to claim any recapitalization savings related to these installations. Likewise, DOD is projecting savings from the recapitalization and sustainment of facilities in cases where functions or activities would be realigned from one base to another. However, it is not clear to what extent the proposed realignments would result in an entire building or portion of a building being vacated, or if entire buildings are vacated, whether they would be declared excess and removed from the military services’ real property inventory. Our analysis shows that the supply and storage group’s recommendations project about $100 million in sustainment and recapitalization savings from realigning defense distribution depots. The group estimates its recommendations will vacate about 27 million square feet of storage space. Supply and storage officials told us their goal is to vacate as much space as possible by re-warehousing inventory and by reducing personnel spaces, but they do not have a specific plan for what will happen to the space once it is vacated. In addition, until these recommendations are ultimately approved and implemented, DOD will not be in a good position to know exactly how much space is available or how this space will be disposed of or utilized. As a result, it is unclear as to how much of the estimated $100 million in annual recurring savings will actually occur. Collectively, the issues we identified suggest the potential for reduced savings that are likely to be realized in the short term during the implementation period, which could further reduce net annual recurring savings realized in the long term. The short-term impact is that these reduced savings could adversely affect DOD’s plans for using these BRAC savings to help offset the up-front investment costs required to implement the recommendations and could further limit the amount of savings available for transformation and modernization purposes. DOD projected net annual recurring savings in the “other” category as shown in figure 6 include about $500 million that is based on business process reengineering efforts. Our analysis indicates that four recommendations—one from the Industrial Joint Cross-Service Group and three from the Supply and Storage Joint Cross-Service Group—involve primarily business process reengineering efforts. However, the expected efficiency gains from these recommendations are based on assumptions that are subject to some uncertainty and have not been validated. For example, our analysis indicates that $215 million, or 63 percent, of the estimated annual recurring savings from the Industrial Joint Cross-Service Group recommendation to create fleet readiness centers within the Navy is based on business reengineering efforts that would result in overhead efficiencies. Although the data suggest there is the potential for savings, we believe the magnitude of the savings is somewhat uncertain because the estimates are based on assumptions that have undergone only limited testing. Realizing the full extent of the savings would depend on actual implementation of the recommended actions and modifications to the Navy’s supply system. The industrial group and the Navy assumed that combining depot and intermediate maintenance levels would reduce the time needed for an item to be repaired at the intermediate level, which in turn would reduce the number of items needing to be kept in inventory, as well as the number of items being sent to a depot for repair. These assumptions, which were the major determinant of the realignment savings, were reportedly based on historical data and pilot projects and have not been independently reviewed or verified by the Naval Audit Service, the DOD Inspector General, or us. Furthermore, our analysis indicates that $291 million, or about 72 percent, of the net annual recurring savings expected from the Supply and Storage Joint Cross-Service Group’s three recommendations are also based on business process reengineering. In the COBRA model, the savings are categorized as procurement savings and are based on the expanded use of performance-based logistics and reductions to duplicate inventory. Supply and storage group staff said that these savings accrue from reduced contract prices because the Defense Logistics Agency (DLA) will have increased buying power since it is responsible for purchasing many more items that before were purchased by each of the services. In addition, savings accrue from increased use of performance-based agreements, a key component of performance-based logistics. The group estimates DLA can save 2.8 cents on each contract dollar placed on performance-based agreements. In addition, savings result from reductions in the amount of stock that must be held in inventory. Supply and storage staff said that these savings are attributable to reductions in the cost of money, cost of stock losses due to obsolescence, and cost of storage. Together the group estimates these factors save about 17 percent of the estimated value of the acquisition cost of the stock that is no longer required to be held in inventory. These savings estimates, for the most part, are based on historical documentation provided by DLA, which time did not allow us to validate. The extent to which these same savings will be achieved in the future is uncertain. As noted above, how these actions are implemented could also affect savings. We are concerned that this is another area that could lead to a false sense of savings and lead to premature reductions in affected budgets in advance of actual savings being fully realized, as has sometimes occurred in past efforts to achieve savings through business process reengineering efforts. We are also concerned that it could exacerbate a problem we have previously identified regarding past BRAC rounds involving the lack of adequate systems in place to track and update savings resulting from BRAC actions—the focus of our recommendation for the Secretary of Defense. These concerns are reinforced by limitations in DOD’s financial management systems that historically have made it difficult to fully identify the costs of operations and provide a complete baseline from which to assess savings. While furthering transformation was one of the BRAC goals, there was no agreement between DOD and its components on what should be considered a transformational effort. As part of the BRAC process, the department developed over 200 transformational options for stationing and supporting forces as well as for increasing operational efficiency and effectiveness. The OSD BRAC office narrowed this list to 77 options, but agreement was not reached within the department on these options, so none of them were formally approved. Nonetheless, each service and joint cross-service group was permitted to use the transformational options as appropriate to support its candidate recommendations. Appendix XV has a list of these 77 draft options. Collectively, these draft options did not provide a clear definition of transformation across the department. The options ranged from those that seemed to be service specific to those that suggested new ways of doing business. For example, some transformational options included reducing the number of Army Reserve regional headquarters; optimizing Air Force squadrons; and co-locating various functions such as recruiting, military and civilian personnel training, and research, development and acquisition and test and evaluation, across the military departments. In contrast, some options suggested consideration of new ways of doing business, such as privatizing some functions and establishing a DOD agency to oversee depot-level reparables. While the transformational options were never formally approved, our analysis indicates that many of DOD’s recommendations reference one or more of the 77 transformational options. For example, 15 of the headquarters and support activities group recommendations reference the option to minimize leased space and move organizations in leased space to DOD-owned space. Likewise, 37 of the Army reserve component recommendations reference the option to co-locate guard and reserve units at active bases or consolidate guard and reserve units that are located in proximity to one another at one location. Conversely, a number of the scenarios that were initially considered but not adopted reference transformational options that could have changed existing business practices. For example, the education and training group developed a number of scenarios—privatizing graduate education programs and consolidating undergraduate fixed and rotary wing pilot training—based on the draft transformational options, but none were ultimately approved by the department. DOD’s recommendations make some progress toward the goal of fostering joint activity among the military services, based on a broad definition of joint activity. We found that for DOD’s recommendations, joint activity included consolidating some training functions within the same service, co- locating like organizations and functions on the same installation, and moving some organizations or functions closer to installations in order to further opportunities for joint training. Although the recommendations achieve some progress in fostering jointness, we found other instances where DOD ultimately adopted a service-centric solution even though the joint cross-service groups proposed a joint scenario. Table 3 shows the major recommendations that foster joint activity. While the proposal to create joint bases by consolidating common installation management functions is projected to create greater efficiencies, our prior work suggests that implementation of these actions may prove challenging. The joint-basing recommendation involves one service being responsible for various installation management support functions at bases that share a common boundary or are in proximity to one another. For example, the Army would be the executive agent for Fort Lewis, Washington, and McChord Air Force Base, Washington, combined as Joint Base Lewis-McChord. However, as evident from our recent visit to both installations and discussions with base officials, concerns over obstacles such as seeking efficiencies at the expense of the mission, could jeopardize a smooth and successful implementation of the recommendation. In some cases, the joint cross-service groups proposed scenarios that would have merged various support functions among the services, but a service solution was adopted by DOD. For example, the Headquarters and Support Activities Joint Cross-Service Group proposed to (1) consolidate civilian personnel offices under a new defense agency as DOD implements the national security personnel system, and (2) co-locate all military personnel centers in San Antonio, Texas, in anticipation of a standard military personnel system being implemented across the department. However, in both cases, DOD decided to consolidate military and civilian personnel centers within each service. Likewise, the Education and Training Joint Cross-Service Group proposed scenarios to consolidate undergraduate fixed wing training activities between the Air Force and the Navy and rotary wing training activities between the Navy and the Army to eliminate excess capacity. However, the proposals were not adopted because the Navy and the Air Force expressed concerns that this recommendation would result in significant permanent change of station costs for the services, specifically the cost of students traveling to designated training locations. Based on our analytical work, we believe DOD established and generally followed a logical and reasoned process for formulating its list of BRAC recommendations. The process was organized in a largely sequential manner with a strong emphasis on ensuring that accurate data were obtained and used. OSD established an oversight structure that allowed the seven individual joint cross-service groups to play a larger, more visible role in the 2005 BRAC process compared to BRAC 1995. Despite some overlap in data collection and other phases of the process, these groups and the military services generally followed the sequential BRAC process designed to evaluate and subsequently identify recommendations within their respective areas, with only the Army using a separate but parallel process to evaluate its reserve components. DOD also incorporated into its analytical process several key considerations required by the BRAC legislation, including the use of certified data, basing its analysis on its 20- year force structure plan and emphasizing its military value selection criteria, which included homeland defense and surge capabilities. In addition, DOD’s Inspector General and the military service audit agencies helped to ensure the data used during the BRAC process were accurate and reliable. DOD provided overall policy guidance for the BRAC process, including a requirement that its components develop and implement internal control plans to ensure the accuracy and consistency of their data collection and analyses. These plans also helped to ensure the overall integrity of the process and the information upon which OSD considered each group’s recommendations. The BRAC recommendations, for the most part, resulted from a data-intensive process that was supplemented by the use of military judgment as needed. The process began with a set of sequential steps by assessing capacity and military value, developing and analyzing scenarios, then identifying candidate recommendations, which led to OSD’s final list of BRAC recommendations. Figure 7 illustrates the overall sequential analytical process DOD generally employed to reach BRAC recommendations. It must be noted, however, that while the process largely followed the sequential process established by the department, initial difficulties associated with obtaining complete and accurate data in a timely manner added to overlap and varying degrees of concurrency between data collection efforts and other steps in the process. During the 2005 BRAC process, the seven individual joint cross-service groups played a larger, more visible role compared to their role during the 1995 BRAC round. Our analysis indicates that many, although not all, actions proposed by these groups were accepted by OSD and the military services. Based on lessons learned, OSD empowered these groups in 2005 to suggest BRAC recommendations directly to a senior-level group that oversaw the BRAC 2005 analysis. Moreover, we noted a closer coordination between these groups, the military services, and OSD than existed during the 1995 round. OSD’s efforts to integrate the process among these seven joint cross-service groups with the military services’ own efforts led to increased discussions, greater visibility, and more influence for the cross- service recommendations than in prior BRAC rounds. To assist in the process for analyzing and developing recommendations, the military services and joint cross-service groups used various analytical tools. These tools helped to ensure a more consistent approach to BRAC analysis and decision making. For example, all of the groups used the DOD- approved COBRA model to calculate costs, savings, and return on investment for BRAC scenarios and, ultimately for the final 222 BRAC recommendations. As noted in appendix XIII, the COBRA model was designed to provide consistency across the military services and the joint cross-service groups in estimating BRAC costs and savings. DOD has used the COBRA model in each of the previous BRAC rounds and, over time, has improved upon its design to provide better estimating capability. In our past and current reviews of the COBRA model, we found it to be a generally reasonable estimator for comparing potential costs and savings among various BRAC options. Furthermore, the military services and joint cross-service groups generally used a consistent process to assess and formulate BRAC recommendations, with one minor exception involving the Army reserve components. The Army created a separate yet parallel approach in reviewing its reserve components for several reasons, although it generally followed the BRAC process. With respect to its reserve components, the Army did not perform a military value rank-ordering of these various installations across the country, but instead assessed the relative military value that could be obtained by consolidating various facilities into a joint facility in specific geographical locales to support, among other things, reserve component training, recruiting, and retention efforts. This approach provided an opportunity for the Army reserve components to actively participate in the BRAC process along with the voluntary participation of the states. The Army reported that consulting with the states was crucial to ensure the support of the state governors and staff Adjutants General for issues related to recommendations that affected the National Guard. The Army’s recommendations affected almost 10 percent of the Army’s 4,000 reserve components’ facilities. More specifically, the Army recommended 176 Army Reserve closures with the understanding that the state governors will close 211 Army National Guard facilities with the intent of relocating their units into 125 new Armed Forces Reserve Centers. The Army reports that 38 states and Puerto Rico voluntarily participated in the BRAC process. The Air Force and the Navy also reviewed their reserve components’ installations but did so within the common analytical structure established by OSD, yet with some differences in approach in involving affected stakeholders in the process. For example, the Air Force did not involve state officials or its State Adjutants General as it analyzed and developed its BRAC recommendations. However, senior Air National Guard and Reserve leadership were in attendance as voting members of the Air Force’s Base Closure Executive Group, a senior deliberative body for the BRAC process. The Navy also reviewed its reserve components, including the Marine Corps Reserves, within the BRAC process, and worked closely with representatives from the Navy and Marine Corps reserve components to consolidate units within active duty installations or armed forces reserve centers without affecting recruiting demographics. DOD also incorporated into its analytical process the legal considerations for formulating its realignment and closure recommendations. As required by BRAC legislation, DOD based its recommendations on (1) the use of certified data, (2) its 20-year force structure plan, and (3) military value criteria as the primary consideration in assessing and formulating its recommendations. DOD collected capacity and military value data that were certified as to their accuracy by hundreds of persons in senior leadership positions across the country. These certified data were obtained from corporate databases and from hundreds of defense installations. DOD continued to collect certified data, as needed, to support follow-up questions, cost calculations, and to develop recommendations. In total, DOD projects that it collected over 25 million pieces of data as part of the BRAC process. Given the extensive volume of requested data from the 10 separate groups (3 military departments and 7 joint cross-service groups), we noted that the data collection process was quite lengthy and required significant efforts to help ensure data accuracy, particularly from joint cross-service groups that were attempting to obtain common data across multiple military components, which, because of the diverse nature of the functions and activities, do not always use the same data metrics. In some cases, coordinating data requests, clarifying questions and answers, controlling database entries, and other issues led to delays in the data-driven analysis DOD originally envisioned. As such, some groups had to develop strategy-based proposals. As time progressed, however, these groups reported that they obtained the needed data, for the most part, to inform and support their scenarios. The DOD Inspector General and the service’s audit agencies played an important role in ensuring that the data used in the BRAC analyses were accurate and certified by cognizant senior officials. As congressionally mandated, each of the military services and the seven joint cross-service groups considered DOD’s 20-year force structure plan in its analyses. DOD based its force structure plan for BRAC purposes on an assessment of probable threats to national security during a 20-year period beginning with fiscal year 2005. DOD provided this plan to Congress in March 2004, and as authorized by the statute, it subsequently updated it 1 year later in March 2005. Based on our analysis, updates to the force structure affected some ongoing BRAC analyses. For example, the Industrial Joint Cross-Service Group reassessed its data pertaining to overhauling and repairing ships based on the updated force structure outlook and decided that one of its two smaller shipyards—Naval Shipyard Pearl Harbor or Naval Shipyard Portsmouth—could close. Ultimately, the Navy decided to close the Portsmouth shipyard in Maine. In addition, the Navy told us it recalculated its capacity based on updates to the force structure plan and determined that there was no significant change to its orginial analysis. The other groups, such as those examining headquarters and support activities, education and training, or technical functions, considered updates to the defense 20-year force structure and determined the changes would have no impact on their ongoing analyses or the development of recommendations. DOD gave primary consideration to its military value selection criteria in its process. Specifically, military value refers to the first four selection criteria in figure 2 and includes an installation’s current and future mission capabilities, condition, ability to accommodate future needs, and cost of operations. The manner in which each military service or joint cross- service group approached its analysis of military value varied according to the unique aspects of the individual service or cross-service function. These groups typically assessed military value by identifying multiple attributes or characteristics related to each military value criterion, then identifying qualitative metrics and measures and associated questions to collect data to support the overall military value analysis. For example, figure 8 illustrates how the Technical Joint Cross-Service Group linked several of its military value attributes, metrics, and data questions to the mandated military value criteria. Quantitative scoring plans were developed by each military service or joint cross-service group assigning relative weights to each of the military value criteria for use in evaluating and ranking facilities or functions in their respective areas. Appendixes III through XII highlight the use and linkages of military value criteria by each service and joint cross-service group. As noted earlier, based on congressional direction, there was enhanced emphasis on two aspects of military value—an installation’s ability to serve as a staging area for homeland defense missions and its ability to meet unanticipated surge. Homeland defense: Each of the three military services considered homeland defense roles in its BRAC analysis and coordinated with the U.S. Northern Command—a unified command responsible for homeland defense and civil support. In October 2004, the U.S. Northern Command contacted the Chairman of the Joint Chiefs of Staff, requesting to play a role in ensuring that homeland defense received appropriate attention in the analytical process. Our analysis shows that all three military departments factored in homeland defense needs, with the Air Force recommendations having the most impact. According to Air Force officials, the U.S. Northern Command identified specific homeland defense missions assigned to the Air Force, which they incorporated into its decision-making process. Navy officials likewise discussed the impact of potential BRAC scenarios on its maritime homeland defense mission with U.S. Northern Command, U.S. Strategic Command, and the U.S. Coast Guard. In this regard, the Navy decided to retain Naval Air Station Point Mugu, California, was influenced, in part, because the U.S. Coast Guard wanted to consolidate its West Coast aviation assets at this installation for homeland defense purposes. According to Army officials, most of the their role in supporting homeland defense is carried out by the Army National Guard. The U.S. Northern Command reviewed the recommendations and found no unacceptable risk to the homeland defense mission and support to civil authorities. Surge: DOD left it to each military service and joint cross-service group to determine how surge would be considered in the their analysis. Generally, all the groups considered surge by retaining a certain percentage of infrastructure, making more frequent use of existing infrastructure, or retaining difficult-to-reconstitute assets. For example, the Technical Joint Cross-Service Group set aside 10 percent of its facility infrastructure for surge, while the Industrial Joint Cross-Service Group factored in additional work shifts in its analysis. The military services retained difficult-to-reconstitute assets as the primary driver to satisfying the statutory requirement to consider surge capability. Both the Army and Navy gave strong consideration to infrastructure that would be difficult to reconstitute, such as large tracts of land for maneuver training purposes or berthing space for docking ships. For example, the Navy has a finite number of ships and aircraft and would likely have to increase operating tempo to meet surge needs. The Air Force addressed surge by retaining sufficient capacity to absorb temporary increases in operations, such as responding to emergencies or natural catastrophic events like hurricane damage, and the capacity to permanently relocate all of its aircraft stationed overseas in the United States if needed. Congress also mandated four other criteria to be considered in the analytical process: cost and savings of the BRAC recommendations, economic impact on affected communities, impact on communities’ infrastructure, and environmental impact. The extent these other mandated considerations influenced recommendations varied. For example, high cost was the primary reason the Army decided not to develop a recommendation to restation troops returning from overseas to installations with large tracts of undeveloped land that could potentially accommodate these moves, such as Yuma Proving Ground, Arizona, or Dugway Proving Ground, Utah. Despite these installations having the capacity to provide large training ranges, they do not have existing infrastructure to immediately house 3,000 to 5,000 troops required for the Army’s new modular combat brigades. Initially, the Army assessed the possibility of building new infrastructure at these locations, but Army BRAC officials told us it would be too costly given that the Army’s COBRA analysis showed that at Yuma, for example, it would cost about $2 billion to build the required infrastructure. As a result, the Army decided to place units returning from overseas at installations currently used to base other operational units, notwithstanding limitations in existing training capacities. Although there was heavy reliance on data for completing analyses, military judgment was also a factor throughout the entire process, starting with an analytical framework to base analysis of the 20-year force structure plan and ending with the finalized list of 222 recommendations submitted to the BRAC Commission. Military judgment also played a role in decisions on how military value selection criteria would be captured as attributes, with associated values or weights. Military judgment was also applied in deciding which proposed scenarios or actions should move forward for additional analysis. Generally, military judgment was exercised at this stage to delete or modify a potential recommendation for reasons such as strategic importance, as shown in the following examples: Naval Shipyard Pearl Harbor, Hawaii, which has a lower military value than other shipyards, was eliminated from closure consideration because the shipyard was considered to have more strategic significance in the Pacific Ocean area compared to other alternatives. Tripler Army Medical Center, Hawaii, which has a lower military value than some other bases, was eliminated from closure consideration because it is the only defense medical center of significant size in the Pacific Ocean area. Naval Station Everett, Washington, which has a lower military value than some other bases, was eliminated from closure consideration because of strategic reasons regarding the number and the locations of the Navy’s aircraft carriers on the West Coast and in the Pacific. Grand Forks Air Force Base, North Dakota, which has a lower military value than some other bases, was eliminated from closure consideration because of the belief that a strategic presence was needed in the north central United States. Even though Grand Forks Air Force Base was retained for strategic reasons, Minot Air Force Base is also located in North Dakota and is not affected by any BRAC recommendations. The oversight roles of the DOD Inspector General and the military services’ audit agency staff, given their access to relevant information and officials as the process evolved, helped to improve the accuracy of the data used in the BRAC process. The DOD Inspector General and most of the individual service audit agencies’ reports generally concluded that the extensive amount of data used as the basis for BRAC decisions was sufficiently valid and accurate for the purposes intended. In addition, with limited exceptions, these reports did not identify any material issues that would impede a BRAC recommendation. The DOD Inspector General and the services’ audit agencies played an important role in ensuring that the data used in the BRAC analyses were accurate and certified by cognizant senior officials. Their frontline roles and the thousands of staff days devoted to reviewing the massive data collection efforts associated with the BRAC process added an important aspect to the quality and integrity of the data used by military services and joint cross-service groups. Through extensive audits of the capacity, military value, and scenario data collected from field activities, these audit agencies notified various BRAC teams of data discrepancies for corrective action. The audit activities included validation of data, compliance with data certification requirements employed throughout the chain of command, and examination of the accuracy of the analytical data. While the auditors initially encountered problems with regard to data accuracy and the lack of supporting documentation for certain questions and data elements, most of these concerns were resolved. In addition, the auditors worked to ensure certified information was used for BRAC analysis. These audit agencies also reviewed other facets of the process, including the various internal control plans, the COBRA model, and other modeling and analytical tools that were used in the development of recommendations. Appendix XVI lists these organizations’ audit reports related to BRAC 2005 to the extent they were available at the time this report was completed. Overall, these organizational audit agencies reported the following: The Naval Audit Service reported that it visited 214 sites, covering 45 data calls, and audited over 8,300 questions. It concluded that the data appeared reasonably accurate and complete and the Navy complied with statutory guidance and DOD policies and procedures. The Air Force Audit Agency officials told us they visited 104 installations, reviewed over 11,110 data call responses at 126 Air Force locations, 8 major commands, the Air National Guard, and Headquarters Air Force, and concluded that data used for Air Force BRAC analysis were generally reliable. The Army Audit Agency reported that it visited 32 installations and 3 leased facilities and reviewed for accuracy over 2,342 responses. It concluded that the data was reasonably accurate and that the Army BRAC office had a sound process in place to collect certified data. DOD Inspector General officials told us they visited about 1,550 sites covering 29 defense agencies and organizations and reviewed over 15,770 responses. We were told that these responses were generally supported, complete, and reasonable. The DOD Inspector General also evaluated the validity, integrity, and documentation of data used by the seven joint cross-service groups and found they generally used certified data for the BRAC analysis. We closely coordinated with the DOD Inspector General and the three service audit agencies to maximize our individual and collective efforts and avoid duplication. As part of this coordination, we observed their audit efforts at selected military installations to verify the scope and quality of coverage they provided throughout the process and to give us insights into potential issues having broader applicability across the entire process. We also observed the work of these audit agencies to better familiarize ourselves with the types of issues being identified and resolved, with a view toward determining their materiality to the overall process. We identified issues regarding DOD’s recommendations, and other actions considered during the selection process that may warrant further attention by the BRAC Commission. Many of the issues relate to how costs and savings were estimated while others relate to potential impacts on communities surrounding bases that stand to gain or lose missions and personnel as a result of BRAC actions. Further, we are highlighting candidate recommendations that were presented during the selection process by either the military services or the joint cross-service groups to senior DOD leadership within the IEC that were projected as having the potential to generate significant savings, and which were substantially revised or deleted from further consideration during the last few weeks or days of the selection process. Additional discussion of issues targeted more specifically to the work and recommendations of the military services and joint cross-service groups is included in appendixes III through XII. We identified a number of issues, most of which apply to a broad range of DOD’s recommendations, that may warrant further attention by the BRAC Commission. In addition to the issue previously discussed regarding military personnel eliminations being claimed as savings to the department, other issues include (1) instances of lengthy payback periods (time required to recoup up-front investment costs), (2) inconsistencies in how DOD estimated costs for BRAC actions involving military construction projects, (3) uncertainties in estimating the total costs to the government to implement DOD’s recommended actions, and (4) potential impacts on communities surrounding bases that are expected to gain large numbers of personnel if DOD’s recommendations are implemented. Many of the 222 recommendations DOD made in the 2005 round are associated with lengthy payback periods, which, in some cases, call into question whether the department would be gaining sufficient monetary value for the up-front investment cost required to implement its recommendations and the time required to recover this investment. Our analysis indicates that 143, or 64 percent, of DOD’s recommendations are associated with payback periods that are 6 years or less while 79, or 36 percent, of the recommendations are associated with lengthier paybacks that exceed the 6-year mark or never produce savings. DOD officials acknowledge that the additional objectives of fostering jointness and transformation have had some effect on generating recommendations with longer payback periods. Furthermore, our analysis shows that the number of recommendations with lengthy payback periods varied across the military services and the joint cross-service groups, as shown in table 4. As shown in table 4, the Army has five recommendations and the education and training group has one recommendation that never payback, as described below: Army realignment of a special forces unit from Fort Bragg, North Carolina, to Eglin Air Force Base, Florida; Army realignment of a heavy brigade from Fort Hood, Texas, to Fort Army realignment of a heavy brigade to Fort Bliss, Texas, and infantry and aviation units to Fort Riley, Kansas; Army reserve component consolidations in Minnesota; Army reserve component consolidations in North Dakota; and Education and Training Joint Cross-Service Group’s establishment of Joint Strike Fighter aircraft training at Eglin Air Force Base, Florida. According to Army officials, their five recommendations have no payback because, in part, they must build additional facilities to accommodate the return of about 47,000 forces currently stationed overseas to the United States as part of DOD’s Integrated Global Presence and Basing Strategy initiative (see app. III for further discussion of the restationing initiative). According to the education and training group, its one recommendation with no payback period is due to the high military construction costs associated with the new mission to consolidate initial training for the Joint Strike Fighter aircraft for the Navy, the Marine Corps and the Air Force. Similarly, the Army has nearly 50 percent of the total number of DOD recommendations with payback periods of 10 years or longer. Our analysis of Army data shows that these lengthy paybacks are attributable to many of the recommendations regarding the reserve components. These recommendations typically have a combination of relatively high military construction costs and relatively low annual recurring savings, which tend to lengthen the payback period. We also identified some portions of DOD’s individual recommendations that are associated with lengthy payback periods for certain BRAC actions but are imbedded within larger bundled recommendations. The following are a few examples: A proposal initially developed by the Headquarters and Support Activities Joint Cross-Service Group to move the Army Materiel Command from Fort Belvoir, Virginia, to Redstone Arsenal, Alabama, had more than a 100-year payback period with a net cost over a 20-year period. However, the proposal did not include some expected savings that, if included, would have reduced the payback period to 32 years. Concurrently, the group developed a separate proposal to relocate various Army offices from leased and government-owned office space onto Fort Sam Houston, Texas, which would have resulted in a 3-year payback period. The headquarters group decided to combine these two stand-alone proposals into one recommendation, resulting in an expected 20-year net present value savings of about $123 million with a 10-year payback. Many of the individual Air Force proposals involving the Air National Guard and Air Force Reserve had payback periods ranging from 10 to more than 100 years. These individual proposals were subsequently revised by combining them with other related proposals to produce recommendations that had significant savings, minimized the longer payback periods, and linked operational realignment actions. We found that this change occurred in the realignment of Lambert-St. Louis International Airport Air Guard Station, Missouri, which originally had a 63-year payback period and resulted in a 20-year net present value cost of about $22 million. However, this realignment is now a part of the closure of Otis Air National Guard Base, Massachusetts, and the realignment of Atlantic City Air Guard Station, New Jersey. The combined recommendation results in a 20-year net present value savings of $336 million and a 3-year payback period. While the military services used the COBRA model to estimate the costs for military construction projects needed to implement BRAC recommendations, we found some inconsistencies in how they estimated some costs associated with these projects. While the impact of these inconsistencies on savings is likely not as great as others noted in this report, it nevertheless contributes to the overall imprecision of the cost estimates of DOD’s recommended actions. One area of inconsistent accounting involves the relative amounts of estimated support costs—such as the cost of connecting a new facility to existing water, sewage, and electrical systems—associated with military construction projects across the services. In its estimates, the Army considered these additional support costs as one-time costs whereas the Navy and the Air Force included them in the cost of the military construction projects for each project. By including these support costs in the cost of each project, the Navy and Air Force generally generated higher relative recurring costs than the Army for the recapitalization of facilities over time. Specifically, the Army increased its military construction cost estimates by 18.5 percent to account for the connection of the projected new facilities’ utilities. The Air Force, on the other hand, increased its construction costs for support services from 8 to 40 percent, depending on the type of facility, while the Navy included support costs at only two locations. According to the Special Assistant to the Secretary of the Navy for BRAC, the Navy assigned teams to review all proposed military construction projects by location to determine any support costs necessary for connection of utilities. Our analysis shows that had the Army used the same methodology as the Navy and the Air Force, the Army would incur about $66 million in additional recapitalization costs for all of its proposed military construction projects. The services were also inconsistent in considering the costs associated with meeting DOD’s antiterrorism force protection standards in their estimated costs for military construction projects. The Air Force increased the expected costs of its military construction projects by 2.3 percent, or about $18 million, to meet DOD’s standards. Air Force officials noted that these funds would provide enhancements such as security barriers and blast proof windows. The Army and the Navy, on the other hand, did not include additional costs to meet the department’s standards in their proposed military construction projects. If the Army and the Navy estimated costs similarly to the Air Force, the cost of their proposed military construction projects would have increased by about $146 million and $25 million, respectively. DOD’s cost and savings estimates for implementing its recommendations do not fully reflect all expected costs or savings that may accrue to the federal government. The BRAC legislation requires that DOD take into account the effect of proposed closure or realignment on the costs of any other activity of the department or any other federal agency that may be required to assume responsibility for activities at military installations. While the services and joint cross-service groups were aware of the potential for these costs, estimated costs were not included in the cost and savings analysis because it was unclear what actions an agency might take in response to the BRAC action. One such agency was the U.S. Coast Guard, which currently maintains some of its ships or various units at several installations that are slated to close. Navy BRAC officials briefed the U.S. Coast Guard about its recommendations prior to the list being published, but the Air Force did not meet with the Coast Guard. The U.S. Coast Guard was still in the process of evaluating various responses to take as a result of the proposed BRAC actions and did not complete its analysis in time for it to be included in this report. Further, as noted earlier, estimated costs for the environmental restoration of bases undergoing closure or realignment are not included in DOD’s cost and savings analyses. Such costs would be difficult to fully project at this point without planned reuse of the unneeded property being known. Consistent with the prior BRAC rounds, DOD excluded estimates for base environment restoration actions from its costs and savings analysis and in determining payback periods, on the premise that restoration is a liability that the department must address regardless of whether a base is kept open or closed and therefore should not be included in the COBRA analysis. Nevertheless, DOD did give consideration to such costs in addressing selection criterion 8, and included available information on estimated restoration costs as part of the data supporting its BRAC recommendations. DOD estimates that the restoration costs to implement its major closures would be about $949 million, as shown in table 5. (See fig. 4 in the Background section for a map of DOD’s major base closures.) Based on the data provided, the Army would incur the largest share of estimated restoration costs due to the closure of several ammunition plants and chemical depots. The largest expected costs for any one location across DOD, about $383 million, would be for restoration at Hawthorne Army Depot, Nevada. While the DOD report does not specifically identify the potential for some additional restoration costs at its installations, available supporting documentation does identify some additional costs. For example, the Army estimated the range restoration at Hawthorne Army Depot could cost from about $27 million to $147 million, which is not included in the estimates in table 5. Further, the Army recognizes that additional restoration costs could be incurred at six additional locations that have ranges and chemical munitions, but these costs have not yet been determined. Our prior work has shown that environmental costs can be significant, as evidenced by the nearly $12 billion in total cost DOD expected to incur when all restoration actions associated with the prior BRAC rounds are completed. Service officials told us that the projected cost estimates for environmental restoration are lower, in general, because the environmental condition of today’s bases is much better than the condition of bases closed during the prior BRAC rounds, primarily because of DOD’s ongoing active base environmental restoration program. Nonetheless, our prior work has indicated that as closures are implemented, more intensive environmental investigations occur and additional hazardous conditions may be uncovered that could result in additional, unanticipated restoration and higher costs. Finally, the services’ preliminary estimates are based on restoration standards that are applicable for the current use of the base property. Because reuse plans developed by communities receiving former base property sometimes reflect different uses for the property this could lead to more stringent and thus more expensive restoration in many cases. Based on experiences from prior BRAC rounds, we believe other costs are also likely to be incurred, although not required to be included in DOD’s cost and savings analysis but which could add to the total costs to the government of implementing the BRAC round. These costs include transition assistance, planning grants, and other assistance made available to affected communities by DOD and other agencies. DOD officials told us that such estimates were not included in the prior rounds’ analyses and that it was too difficult to project these costs, given the unknown factors associated with the number of communities affected and the costs that would be required to assist them. Additionally, as we reported in January 2005, in the prior four BRAC rounds, DOD’s Office of Economic Adjustment, the Department of Labor, the Economic Development Administration within the Department of Commerce, and the Federal Aviation Administration provided nearly $2 billion in assistance through fiscal year 2004 to communities and individuals, and according to DOD officials, these agencies are slated to perform similar roles for the 2005 round. However, while the magnitude of this assistance is unknown at this time, it is important to note that assistance will likely be needed in this round, as contrasted with prior rounds, for not only those communities that surround bases losing missions and personnel but also for communities that face considerable challenges dealing with large influxes of personnel and military missions. For example, DOD stated in its 2005 BRAC report that over 100 actions significantly affect local communities, triggering federal assistance from DOD and other federal agencies. Also, as discussed more fully later, the number of bases in the 2005 BRAC round that will gain several thousand personnel from the recommended actions could increase pressure for federal assistance to mitigate the impact on community infrastructure, such as schools and roads, with the potential for more costs than in the prior rounds. Finally, the BRAC costs and savings estimates do not include any anticipated revenue from such actions as the sale of unneeded former base property or the transfer of property to communities through economic development conveyances. The potential for significant revenue may exist at certain locations. For example, the Navy sold some unneeded property from prior round actions in California at the former El Toro Marine Corps Air Station for about $650 million and the former Tustin Marine Corps Air Station for $208.5 million. The extent to which sales will play a role in the disposal of unneeded property arising from the 2005 BRAC round remains to be seen. The recommended actions for the 2005 BRAC round will have varying degrees of impact on communities surrounding bases undergoing a closure or realignment. While some will face economic recovery challenges as a result of a closure and associated losses of base personnel, others, which expect large influxes of personnel due to increased base activity, face a different set of challenges involving community infrastructure necessary to accommodate growth. In examining the economic impact of the 222 BRAC recommendations as measured by the percentage of employment, DOD data indicate that most economic areas across the country are expected to be affected very little but a few could face substantial impact. Almost 83 percent of the 244 economic areas affected by BRAC recommendations fall between a 1 percent loss in employment and a 1 percent gain in employment. Slightly more than 9 percent of the economic areas had a negative economic impact of greater than 1 percent, but for some of these areas, the projected impact is fairly significant, ranging up to a potential direct and indirect loss of up to nearly 21 percent. Almost 8 percent of the economic areas had a positive economic impact greater than 1 percent. Appendix XIV provides additional detail on our economic analyses. Of those communities facing potential negative economic impact, six communities face the potential for a fairly significant impact. They include communities surrounding Cannon Air Force Base, New Mexico; Hawthorne Army Depot, Nevada; Naval Support Activity Crane, Indiana; Submarine Base New London, Connecticut; Eielson Air Force Base, Alaska; and Ellsworth Air Force Base, South Dakota, where the negative impact on employment as a percent of area employment ranges from 8.5 percent to 20.5 percent. Our prior work has shown that a variety of factors will affect how quickly communities are able to rebound from the negative economic consequences of closures and realignments. They include such factors as the trends associated with the national, regional, and local economies; natural and labor resources; effective planning for reuse of base property; and federal, state, and local government assistance to facilitate transition planning and execution. In a series of reports that have assessed the progress in implementing closures and realignments in prior BRAC rounds, we reported that most communities surrounding closed bases have been faring well in relation to key national economic indicators—unemployment rate and the average annual real per capita income growth rates. In our January 2005 report for example, we further reported that while some communities surrounding closed bases were faring better than others, most have recovered or are continuing to recover from the impact of BRAC, with more mixed results recently, allowing for some negative impact from the economic downturn nationwide in recent years. The 2005 round, however, also has the potential to significantly affect a number of communities surrounding installations, which are expected to experience considerable growth in the numbers of military, civilian, and civilian support personnel. These personnel increases are likely to place additional demands on community services, such as providing adequate housing and schools, for which the communities may not have adequate resources to address in the short term. The total gains can be much more than just those personnel with the consideration of accompanying families. Table 6 shows that 20 installations are expected to realize gains of over 2,000 military, civilian, and mission support contractor personnel for an aggregate increase of more than 106,000 personnel. As shown in table 6, most of the gaining installations are Army installations with the gains attributable to a number of actions, including the return of large numbers of personnel from overseas locations under DOD’s integrated global presence and basing strategy and the consolidation of various activities, such as combat-support related activities at Fort Lee, Virgina. Fort Belvoir, Virginia, has the largest expected growth, due in large measure to some consolidation of various activities from lease space in the Washington, D.C. area. The challenges facing communities surrounding gaining bases can be many, including increased housing demand, increased demands for roads and utilities, and adequate schools. These challenges can be formidable as communities may be faced with inadequate resources to address concerns in these areas as follows: Housing: If history is any indication, while some of the personnel transferring into a base may live on-base, the majority may not, as the military services are turning more to housing privatization. Installation officials at Fort Riley, Kansas, told us about concerns about the nearby availability of housing (within a 20-mile radius) to support the expected influx of military and civilian personnel and their families transferring to the base. For those installations where adequate housing is not available in the surrounding communities existing housing privatization projects would need to be revised and expedited to provide for additional units. Fort Bliss, Texas, officials told us that they expect the need to accelerate their existing housing privatization efforts, but would require additional funds to do so. Currently, housing privatization has taken place or is in the process of taking place at several of these installations and similar efforts may be needed there as well. Schools: Effects on bases with the greatest gain in personnel resulting from BRAC vary between whether dependents attend schools operated on base by DOD (Fort Benning, Fort Bragg, and Marine Corps Base Quantico as shown in table 6) or schools operated by local educational agencies. We recently reported on challenges likely to be faced by both DOD operated schools and those operated by local educational agencies in the post BRAC environment at these and other locations. Recently, in visiting selected bases affected by the BRAC recommendations, installation officials told us that while local educational authorities should be able to absorb additional students into their school systems, they are more concerned about the potential shortage of teachers. Another concern is that make-shift trailers or temporary modular facilities might be used. For example, while Kings Bay, Georgia, officials told us that the local school system should be able to accomodate the increase of students, it may need to resort to the use of portable classrooms. All installations that are expected to gain more than 2,000 personnel have local community-administrated school systems with the exceptions of Fort Benning, Fort Bragg, and Marine Corps Base Quantico which have DOD-administrated school systems. If additional capacity is required at these three locations, additional military constructions funds would likely be needed. Other infrastructure: Installation officials we spoke to also expressed some concern for the increased demand for various community services, such as health care, transportation, and utilities to accommodate personnel increases. Fort Carson, Colorado, officials told us that with its expected personnel increases, the local community will need more TRICARE providers to meet the expected demand. In other cases, such as at Fort Belvoir, Virgina, discussion has ensued regarding the need for increased mass transit capability, which may involve requests for millions of dollars in federal grant assistance. As previously noted, it is likely that these concerns may increase federal governmental expenditures that are not included in the BRAC cost and savings analyses. We also identified several candidate recommendations that were presented by the military services or joint cross-service groups to the IEC—DOD’s senior BRAC leadership group—that were substantially revised or deleted from further consideration during the last few weeks of the BRAC section process. In aggregate, based on projected savings, these actions reduced the overall potential for estimated net annual recurring savings by nearly $500 million and estimated 20-year net present value savings by over $4.8 billion, as shown in table 7. Each of the cases highlighted in the table is described in additional detail below. The educational and training group proposed to privatize graduate education, which enabled the Navy to recommend the closure of the Naval Postgraduate School, Monterey, California. The proposed closure supported DOD’s draft transformational option to privatize graduate- level education. Navy officials, however, stated that they believed professional military education was more important than ever given the world climate. During the IEC deliberations, Navy officials expressed concern about the loss of such a unique graduate military education facility and the effect on international students who participate in the school’s programs. Further, in the IEC meeting the Navy stated its belief that all education recommendations should be withdrawn because education is a core competency of the department and relying on the private sector to fulfill that requirement is too risky. The IEC agreed and disapproved the recommendation. The Medical Joint Cross-Service Group recommended that the Uniformed Services University of the Health Sciences associated with the National Naval Medical Center in Bethesda, Maryland, be closed, citing that educating physicians at the site was more costly than alternative scholarship programs (about triple the cost) and that the department could rely on civilian universities to educate military physicians. We also reported previously that the university is a more costly way to educate military physicians. The IEC, subsequently disapproved the recommendation, citing that education is a core competency for the department, and therefore it was considered too risky to rely on the private sector to provide this function. Also, a DOD official indicated that, with the recommended action to realign Walter Reed Army Medical Center to Bethesda, Maryland, it would be highly desirable to have a military medical college associated with this medical facility in order for it to be a world-class medical center. The Technical Joint Cross-Service Group, through the Army, proposed that the Natick Soldier Systems Center, Massachusetts, be closed and technical functions relocated to Aberdeen Proving Ground, Maryland, to create an integrated command, control, communications, and computers, intelligence, surveillance, and reconnaissance center. In its presentation to the IEC, the Army noted that the cost for this recommendation was high, but it would generate greater efficiencies and faster transition from research and development through the acquisition and fielding phases of the technology. Although the ISG initially raised no concerns and approved the recommendation, the IEC disapproved it in the last week of the BRAC selection process, citing the high cost of the recommendation. The closure of the Adelphi Laboratory Center, Maryland, was originally part of the recommendation to close Fort Monmouth, New Jersey, and, along with Natick Soldier Systems Center, was part of the Army’s plan for an integrated command, control, communications, and computers, intelligence, surveillance, and reconnaissance center. An Army official told us that, as with the closure of Natick, no concerns were originally raised and the recommendation was approved by the ISG, but the IEC later removed it from the recommendation that includes the closure of Fort Monmouth because of high cost. The proposed closure of Carlisle Barracks, Pennsylvania—home of the Army War College—was initiated by the Education and Training Joint Cross-Service Group and was aimed at creating synergy between the college and Army’s Command and General Staff College at Fort Leavenworth, Kansas. The IEC approved the proposed recommendation when it was initially briefed, but later rejected it, based on the Army’s argument that among other things, the Army War College’s proximity to Washington, D.C., provides access to key national and international policymakers and senior military and civilian leaders within DOD. The Education and Training Joint Cross-Service Group recommended the closure of the Air Force Institute of Technology at Wright-Patterson Air Force Base, Ohio. The group recommended that graduate-level education be provided by the private sector and that all other functions of the institute be relocated to Maxwell Air Force Base, Alabama. However, the IEC disapproved the recommendation based on the risk involved in relying on the private sector for education requirements, given that education is a core competency of the department. The Industrial Joint Cross-Service Group recommended transferring the workload of the Marine Corps’ depot maintenance facility in Barstow, California, which enabled the Department of the Navy to recommend closure of the Marine Corps Logistics Base. The Marine Corps raised concerns over the impact that the closure would have on Marine Corps deployments from the West Coast. The IEC decided to downsize the base and retain the depot, citing the Marine Corps’ concerns. While the Navy recommended closure of the Naval Air Station Brunswick, Maine, the IEC revised this to a realignment. Navy officials stated that the senior Navy leadership had been reluctant to give up the Navy’s remaining air station in the Northeast region, but found the potential savings significant enough to recommend closure. Navy officials stated that the IEC relied on military judgment to retain access to an airfield in the Northeast. Nonetheless, all aircraft and associated personnel, equipment, and support as well as the aviation intermediate maintenance capability will be relocated to another Navy base. The Navy is maintaining its cold weather-oriented Survival, Evasion, Resistance and Escape School, a Navy Reserve Center, and other small units at the air station. While the Air Force had proposed to close Grand Forks Air Force Base, North Dakota, the IEC revised this to a realignment a week before OSD released its recommendations. The Air Force reported in its submission to the BRAC Commission that over 80 percent of the base’s personnel are expected to be eliminated or realigned under the revised proposal. The revision to keep the base open was made based on military judgment to keep a strategic presence in the north central United States, with a possible unmanned aerial vehicle mission for the base. Even though Grand Forks Air Force Base was retained for strategic reasons, Minot Air Force Base is also located in North Dakota and is not affected by any BRAC rcommendation. The closure of Rome Laboratory, New York, was originally part of a Technical Joint Cross-Service Group recommendation to consolidate the Defense Research Laboratories. No concerns were originally raised about the closure, and it was approved by the IEC. However, the IEC subsequently decided to realign rather than close the laboratory to address strategic presence and cost concerns. The realignment of Rome has a higher 20-year net present value savings than the closure proposal because the closure would have required more military construction and transfers of military and civilian personnel and equipment. While we believe DOD’s overall recommendations, if approved and implemented would produce savings, there are clear limitations associated with the projected savings, such as the lack of military end-strength reductions and uncertainties associated with other savings estimates. DOD’s recommendations would provide net reductions in space and plant replacement value, which would reduce infrastructure costs once up-front investment costs have been recovered but the extent some projected space reductions will be realized is unclear. Other DOD savings estimates are based on what might be broadly termed business process reengineering efforts and other actions, where savings appear likely, but the magnitude of savings has not been validated and much will depend on how the recommended actions are implemented. Nevertheless, the savings could prove difficult to track over time. As a result, DOD’s projections may create a false sense of the magnitude of the savings, with fewer resources available for force modernization and other needs than might be anticipated, and there may be the potential for premature budget reductions. Given problems in tracking savings from previous BRAC rounds, and the large volume of BRAC actions this round that are more oriented to realignments and business process reengineering than closures, we believe it is of paramount importance that DOD put in place a process to track and periodically update its savings estimates. Despite a fundamentally sound overall process, we identified numerous issues regarding DOD’s list of recommendations that may warrant further attention by the BRAC Commission, as noted in this report and appendixes III through XII. These include those recommendations having lengthy payback periods, some with limited savings relative to investment costs, and potential implementation difficulties. Given the large number of such items for the Commission’s consideration, we are not addressing them as individual recommendations but simply referring our report in its entirety for the Commission’s consideration. We recommend that the Secretary of Defense take appropriate steps to establish mechanisms for tracking and periodically updating savings estimates in implementing individual recommendations, with emphasis both on savings related to the more traditional relignment and closure actions as well as those related more to business process reengineering. Cognizant officials of the military services and joint cross-service groups reviewed drafts of the report providing us with informal comments, permitting us to make technical changes, as appropriate, to enhance the accuracy and completeness of the report. Subsequently, we similarly provided complete drafts of the report to cognizant OSD officials, obtaining and incorporating their comments as appropriate. In providing oral comments on a draft of this report, the Deputy Under Secretary of Defense for Installations and Environment concurred with our recommendation. We are sending copies of this report to Members of Congress; the Secretaries of Defense, the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; the Director, Office of Management and Budget; and the Chairman, Defense Base Closure and Realignment Commission. We will also make copies available to others upon request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me on (202) 512-5581 or holmanb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix XVII. Prior to the release of the Department of Defense’s (DOD) base realignment and closure (BRAC) recommendations on May 13, 2005, we monitored the BRAC process in a real-time environment beginning in October 2003. We sought to assure ourselves that DOD followed an objective and consistently applied process in which we could observe logical decision making leading to defensible and well-documented proposed closure and realignment recommendations. During this period, we abided by an agreement with DOD to not disclose details of the process due to the sensitivity of the information. Following the release of the recommendations, we continued our analyses of the process and recommendations. With the unprecedented large number of recommendations and the finalization of many of these occurring in the final weeks of the process, along with the limited time available for us to report our results following DOD’s May 13, 2005, release of the recommendations, we were not able to review all recommendations in detail. We focused more of our attention on cross-cutting issues than on implementation issues of individual recommendations, but did review individual recommendations as time permitted. Further, because of time constraints, we had only limited opportunities to gain further insight into some of the recommendations from officials at bases affected by the recommendations. We performed our work primarily at the Office of the Secretary of Defense (OSD), the military services’ base closure offices, and the offices of seven joint cross-service groups that were established by OSD to develop cross- service recommendations. While we did not attend deliberative meetings, we had access to minutes of meetings and relevant documentation and met periodically with key staff and senior leadership to gain an understanding of each phase of the process and to provide them with the opportunity to address our concerns as the process was unfolding. We also visited selected bases following the public disclosure of the Secretary’s recommendations to gain further insights into potential issues regarding specific recommendations. Those bases included the Anniston Army Depot, Alabama; Fort Bliss, Texas; Fort Carson, Colorado; Fort Sam Houston, Texas; Fort Lewis, Washington; Fort Riley, Kansas; Lackland Air Force Base, Texas; McChord Air Force Base, Washington; Marine Corps Air Station Cherry Point, North Carolina; Naval Shipyard Portsmouth, Maine; Naval Submarine Base Kings Bay, Georgia; Naval Submarine Base New London, Connecticut; and Red River Army Depot, Texas. We also met with officials of the U.S. Coast Guard to discuss the impact of BRAC actions on their operations since they are tenants on several bases recommended for closure or realignment. We relied on DOD’s Office of the Inspector General, Army Audit Agency, Naval Audit Service, and Air Force Audit Agency to validate the data used by the military services and joint cross-service groups in their decision-making processes. We met with staff of these audit agencies periodically to discuss the results of their work as well as to observe their data validation efforts at selected locations across the country. The DOD Inspector General and service audit agencies issued reports that generally concluded that the extensive amount of data used as the basis for BRAC decisions was sufficiently valid and accurate for the purposes intended. In addition, with limited exceptions, these reports did not identify any material issues that would impede a BRAC recommendation. Where questions existed, we made further assessments and were able to satisfy ourselves that issues raised would have limited, if any, impact on the department’s recommendations. Based on the audit agencies’ extensive validation efforts and our observation of their work, we believe the data are sufficiently reliable for the purposes of this report. To determine the extent to which DOD achieved its BRAC goals, we interviewed key officials and collected and analyzed relevant documentation generated by OSD, the military departments, and the joint cross-service groups. We reviewed the Secretary of Defense’s November 2002 memorandum that initiated the 2005 BRAC process and highlighted DOD’s goals and obtained DOD officials’ views on the degree to which the goals were accomplished. With respect to DOD’s goal of reducing excess capacity, we initially reviewed the capacity analysis reports of the services and joint cross-service groups to gain insight into the relative amounts of excess capacity within the department. We subsequently reviewed major recommendations to determine the extent to which these recommended actions would reduce infrastructure and excess capacity. In this regard, we also assessed the changes in the overall defense infrastructure’s plant replacement value—a measure used by the department to determine the cost to replace an existing facility with a facility of the same size at the same location, using today’s standards—by reviewing supporting documentation for the recommendations. We also analyzed the aggregated estimated costs and savings associated with reducing DOD’s unnecessary infrastructure, as depicted in the Cost of Base Realignment Actions (COBRA) analyses for the 222 recommendations proposed by the department, and compared these estimates with similar data from the prior BRAC rounds to determine similarities and differences in sources of costs and savings and thereby identify potential areas for further review. With respect to DOD’s costs and savings estimates, we examined selected supporting documentation to determine the basis for the estimates and identified key elements, such as base operating support, personnel compensation, or recapitalization of facilities, those estimates comprised. We also performed a qualitative analysis of DOD’s performance in addressing its other BRAC goals—transforming the infrastructure and fostering jointness—by examining DOD’s proposed recommendations and seeking views from key officials on the relative success of achieving these initiatives. We also compared the justification narratives supporting individual recommendations for closures and realignments against draft transformation options developed by the department, although not formally adopted, that were nonetheless used by the individual military services and joint cross-service groups. Our efforts in addressing this and other objectives were facilitated by remote access to selected automated databases and tracking systems, which gave us near real-time access to relevant briefings and other documents, permitting us to broadly track the evolution of the BRAC process and identify issues for further consideration. To address whether DOD’s selection process for developing recommendations was logical and reasoned, we focused on key aspects of the BRAC process, including capacity and military value analyses. In doing so, we sought to determine whether DOD’s selection process was objective and in compliance with key considerations of BRAC legislation. Our monitoring of the process from the start permitted us to assess the extent to which the process followed was logical, sequential, reasoned, and well documented. Our monitoring permitted us to determine to what extent a logical and sequential flow existed among all phases of DOD’s selection process from the point at which data were collected and analyzed through the compilation of the final recommendations. We reviewed the services’ determinations of which installations to consider in the BRAC process and analyzed the services’ and joint cross-service groups’ excess capacity analyses and military value evaluation plans and analyses to determine if they were developed in a reasoned fashion and supported by appropriate documentation. In reviewing military value analyses, we reviewed specific attributes established by the services and joint cross-service groups and examined the linkage between the groups’ methodologies and the military value selection criteria (i.e., criteria 1 through 4) to determine if these mandated selection criteria were addressed. Regarding the development of recommendations, our focus was to determine whether the recommendations were developed in a logical and reasoned manner. We reviewed, among other things, the extent to which the services and joint cross-service groups (1) considered various alternative proposals for closure or realignment, (2) assessed proposed recommendations using military value as the predominant decision-making factor, and (3) considered the remaining four selection criteria as mandated by law. To address issues regarding DOD’s recommendations, we focused more of our attention on cross-cutting issues than on implementation issues of individual recommendations, but did review individual recommendations as time permitted. We reviewed recommendation justification packages that included particulars on the benefits of implementing the recommendations from an operational perspective, the estimated costs and savings associated with implementing the recommendations, and their degree of conformity to the mandated selection criteria. We discussed perceived benefits with key officials and reviewed appropriate supporting documentation. We also examined financial aspects of the recommended actions, including expected up-front investment costs to implement the actions, length of payback periods, net present value savings or costs over a 20-year period, and annual recurring savings or costs. In examining the expected costs and savings as generated by DOD’s COBRA model, we further examined assumptions and specific calculations regarding specific recommendations to determine the relative reasonableness of the estimates, given the data available to the services and the joint cross- service groups using the COBRA model. Further, we examined and discussed with DOD officials the economic and community impact for selected closure and realignment actions, including both adverse impacts associated with closing bases as well as challenges facing bases and surrounding communities that stand to receive large influxes of military personnel, civilian personnel, or both. Additionally, we reviewed potential recommendations that were approved by either the services or joint cross- service groups but ultimately rejected by senior leadership, the Infrastructure Executive Council, during the last few weeks of the BRAC process. We examined the merits of these proposals as presented by the services or joint cross-service groups in terms of addressing DOD’s BRAC goals. We further reviewed the rationale offered by senior leadership in its decisions to reject or substantially revise the offered proposals. Because of time limitations and complexities introduced by DOD in weaving together the unprecedented 837 closures and realignment actions across the country into 222 recommendations, we focused more on evaluating major issues affecting more than one recommendation than on implementation issues of individual recommendations. However, as time permitted, we did visit several selected installations, as noted above, to better gauge the operational and economic impact of the proposed recommendations. Installations visited were selected on a judgment basis because of our desire to have additional information on issues of concern, such as those related to costs and savings, potential operational implications, and potential economic impact. They included a number of bases with industrial-type activities because of concerns in prior rounds about how well the BRAC process and the COBRA model deal with such issues and other aspects of those facilities that permitted us to address other issues of concern. We conducted our work from October 2003, as DOD’s process was beginning, through June 2005, shortly after the Secretary of Defense announced his proposed base closures and realignments, in accordance with generally accepted government auditing standards. The following terms were used by DOD during the 2005 BRAC process. Annual recurring savings: Savings that are expected to occur annually after the costs of implementing a BRAC action have been offset by savings. Candidate recommendation: A scenario that a joint cross-service group or military department has formally analyzed against all eight selection criteria and which it recommends to the Infrastructure Steering Group and Infrastructure Executive Council respectively for approval by the Secretary of Defense. A joint cross-service group candidate recommendation must be approved by the Infrastructure Steering Group, the Infrastructure Executive Council, and the Secretary of Defense before it becomes a DOD recommendation. A military department candidate recommendation must be approved by the Infrastructure Executive Council and the Secretary of Defense before it becomes a DOD recommendation. Certified data: P.L. 101-510, section 2903 (c)(5) requires specified DOD personnel to certify to the best of their knowledge and belief that information provided to the Secretary of Defense or the 2005 Defense Base Closure and Realignment Commission concerning the realignment or closure of a military installation is accurate and complete. Closure: All missions of the installation have ceased or have been relocated. All personnel positions (military, civilian, and contractor) have either been eliminated or relocated, except for personnel required for caretaking, conducting any ongoing environmental restoration, and disposing of base property. COBRA: An analytical tool used to calculate the costs, savings, and return on investment of proposed realignment and closure actions. Force structure plan: Numbers, size, and composition of the units that comprise U.S. defense forces, for example, divisions, air wings, aircraft, tanks, and so forth. Infrastructure Executive Council (IEC): One of two senior groups established by the Secretary of Defense to oversee and operate the BRAC 2005 process. The IEC, chaired by the Deputy Secretary of Defense, composed of the Secretaries of the military departments and their chiefs of services, the Chairman of the Joint Chiefs of Staff, and Under Secretary of Defense (Acquisition, Technology, and Logistics), was the policy-making and oversight body of the entire BRAC 2005 process. Infrastructure Steering Group (ISG): The subordinate of two senior groups established by the Secretary of Defense to oversee the BRAC 2005 process. The ISG, chaired by the Under Secretary of Defense (Acquisition, Technology, and Logistics), and composed of the Vice Chairman of the Joint Chiefs of Staff, the Service Vice Chiefs, Deputy Under Secretary of Defense (Installations and Environment), and the Military Department Assistant Secretaries of Defense (Installations and Environment), provided oversight to joint cross-service group analyses of common business and support functions and ensured the integration of that process with the military departments’ and defense agencies’ specific analyses of all other functions. Losing installation: An installation from which missions, units, or activities would cease or be relocated pursuant to a closure or realignment recommendation. An installation can be a losing installation for one recommendation and a receiving installation for a different recommendation. Military installation: A base, camp, post, station, yard, center, homeport facility for any ship, or other activity under the jurisdiction of the Department of Defense, including any leased facility. The term does not include any facility used primarily for civil works, river and harbor projects, flood control, or other projects not under the primary jurisdiction or control of the Department of Defense. Military value: Referring to one or more of the first four BRAC selection criteria, which are collectively referred to as the military value criteria and are expected to receive priority consideration in the analytical process that results in recommendations for the closure or realignment of military installations within the United States. Net present value: In the context of BRAC, net present value is taking into account the time value of money in calculating the value of future cost and savings. Payback period: The time required for cumulative estimated savings to exceed the cumulative estimated costs incurred in net present value terms as a result of implementing BRAC actions. Realignment: Includes any action that both reduces and relocates functions and civilian personnel positions, but does not include a reduction in force resulting from workload adjustments, reduced personnel or funding levels, or skill imbalances. Receiving installation: An installation to which missions, units, or activities would be relocated pursuant to a closure or realignment recommendation. An installation can be a receiving installation for one recommendation and a losing installation for a different recommendation. Scenario: A proposal that has been declared for formal analysis by a military department or joint cross-service group deliberative body. The content of a scenario is the same as the content of a proposal. The only difference is that it has been declared for analysis by a deliberative body. Once declared, a scenario was registered at the ISG by inputting it into the ISG BRAC Scenario Tracking Tool. Surge: A term incorporated in one of the military value selection criteria for the 2005 BRAC round: “the ability to accommodate contingency, mobilization, surge, and future total force requirements.” The term is not otherwise defined and application of the term can vary by specific operational or support categories. Transformation: According to the department’s April 2003 Transformation Planning Guidance document, transformation is “a process that shapes the changing nature of military competition and cooperation through new combinations of concepts, capabilities, people, and organizations that exploit our nation’s advantages and protect against our asymmetric vulnerabilities to sustain our strategic position, which helps underpin peace and stability in the world.” The Army generally followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for reviewing its active component installations and followed a separate parallel process for its reserve components installations. Compared to prior rounds, the Army’s process produced a record number of 56 recommendations, with 44 of them directed to its reserve components and 12 directed to the active component, recognizing that many of the individual recommendations contain multiple closure and realignment actions. The 44 reserve components recommendations involved realignment or closure actions that could have been approved outside of the BRAC process, but the Army and DOD decided to include them as part of DOD’s efforts to aid transformation through the base realignment and closure process. Unlike the other military services and joint cross-service groups, the Army’s recommendations, while producing estimated net annual recurring savings of nearly $500 million after 2011, are not expected to achieve overall net savings over the 20-year period typically used to measure net savings from BRAC actions. Over this 20-year period, the Army expects to incur a net present value cost over $3 billion, which is due primarily to the very large up-front costs in a few recommendations that are necessary to return forces to the United States under DOD’s Integrated Global Presence and Basing Strategy. However, the financial outlook for the Army improves if joint cross-service recommendations involving Army bases are considered—these separately reported actions are expected to produce $10.7 billion in net present value savings over a 20-year period. Payback periods—the time required for savings to offset closure costs—for the active component recommendations are projected to average 2.5 years with a range of immediate to no payback, and average 12.3 years with a range of immediate to more than 100 years for the reserve components. We believe some of the Army’s recommendations may warrant additional attention from the BRAC Commission due to the likelihood of overstated savings projections associated with military personnel eliminations, uncertainties regarding overseas restationing of forces to the United States and other ongoing force structure changes, challenges facing communities surrounding bases that are gaining large numbers of personnel, the bundling of various recommendations, various unknowns associated with implementing the reserve components’ recommendations, and issues regarding the proposed closure of the Red River Army Depot in Texas. The Army Audit Agency, which performed audits of the data used in the process, concluded that the data were sufficiently reliable for use in BRAC. The Army established a Senior Review Group, headed by the Vice Chief of Staff of the Army and the Under Secretary of the Army and comprising senior Army military and civilian personnel, responsible for assessing potential recommendations for consideration by the Secretary of the Army, who in turn was to forward recommended actions to the Infrastructure Executive Council (IEC) for approval. This group was supported by The Army Basing Study Group, headed by the Deputy Assistant Secretary of the Army for Infrastructure Analysis, which was responsible for collecting and analyzing data and developing recommendations. In addition, subject matter experts and representatives from the Army’s major commands provided expertise and input throughout the BRAC process. The Army’s broadly stated goals for BRAC 2005 were to enhance the capabilities of a transforming Army while aligning its infrastructure to meet its post-Cold War force structure and eliminating excess physical capacity to provide ready combat power to Combatant Commanders. Some key planning and strategy documents provided guidance in the pursuit of Army goals. The Army Stationing Strategy, for example, provided an overall vision, principles, and goals relative to future basing decisions while DOD’s Strategic Planning Guidance helped to define objectives regarding soldiers’ well-being. In further defining its goals, the Army identified the capabilities and missions that its installations require to support its forces in the future. With these needs in mind, the Army set out numerous objectives, such as: locate Army forces and materiel (at critical installations) to enhance relocate forces in accordance with the Integrated Global Presence and reshape installations to support home station mobilization and reshape reserve components infrastructure to improve efficiency of mobilization and demobilization; and provide sufficient area and facilities (with varied terrain, climate, and airspace) to support institutional training, combat development, and doctrine development. The Army’s BRAC analysis included a review of 87 active component installations and 10 leased facilities. A separate effort was undertaken to review over 4,000 Army National Guard and Army Reserve facilities to explore infrastructure consolidation opportunities that would afford the reserve components better facilities and enhance, among other things, training and operations. Army officials indicated that differences in the objectives and the nature of facilities associated with the active and reserve components infrastructure made it impractical to use identical review and decision-making processes. As with previous BRAC rounds, capacity and military value analyses provided the starting point for the Army’s decision- making process. A key focus in the Army’s efforts was to preserve large maneuver areas to ensure that future training requirements could be met and to relocate missions and personnel from small, single-function installations to larger, multi-function installations. The Army Audit Agency played an important role in helping to ensure data accuracy through extensive audits of data gathered at various locations. The Army’s BRAC process was made more challenging by two ongoing force structure and basing initiatives—the rebasing of thousands of Army forces and their families to the United States as a result of the Integrated Global Presence and Basing Strategy and the restructuring of the Army’s forces under its modularity program—that were to be integrated into the BRAC process. The Army initiated its capacity analysis by collecting capacity-related data for its active duty installations (e.g., buildings, land) based on 28 capacity metrics, such as buildable acres, maneuver areas, and instructional facilities. In calculating capacity excesses or shortages through a comparison of the physical capacity data with requirements, the Army considered a surge capability to ensure that sufficient capacity existed to meet unforeseen military contingencies, future threats, and future needs as outlined in DOD’s 20-year force structure plan. The Army’s surge analysis also reinforced the importance of preserving assets such as maneuver land that would be difficult to reconstitute if eliminated. Table 8 shows selected Army’s capacity results for 7 of 12 mission areas, as presented in the Army’s BRAC 2005 report. As shown in table 8, some areas, such as armaments production and ammunition storage, had excess capacity ranging from about 5 percent to about 220 percent while other areas had shortages. Further, the Army reported that it had a service-wide excess of over 1.5 million square feet of general administrative space even though 35 installations reported shortages. While the Army’s BRAC report did not indicate the overall impact the Army’s proposed closure and realignment recommendations would have on reducing excess capacity, Army officials projected that its proposed actions would reduce excess general administrative space by over 1 million square feet while realigning Army units to better match the remaining capacity. While the overall capacity excesses and shortages, identified by installation, provided insights for potential closures or realignments, the Army subsequently conducted more detailed capacity analyses that identified the types of facilities and training lands that were required to support various units (e.g., light and heavy maneuver brigades, small and large training schools). In this manner, the Army had the ability to determine which installations could handle additional missions and units and what infrastructure improvements and additional military construction might be required to support those units. The Army did not perform a similar capacity assessment of the reserve components’ facilities because of the nature of their facilities and differing objectives, but did collect and assess data related to, for example, the condition and location of facilities, as well as expected costs such as construction and force protection upgrades that may be necessary to provide for viable reserve consolidation opportunities. Prior to the collection of this data, the Army sought interest from the state Adjutant Generals of the National Guards for units in each state participating in such efforts on a voluntary basis. The Army’s military value analysis focused on a set of 40 attributes, such as maneuver land, and housing availability for its soldiers and dependents, that are characteristics the Army considered desirable for its installations to meet Army needs. Attributes with less flexibility for change, such as the availability of maneuver land or direct fire ranges, were among those most highly valued in developing a scoring plan for evaluating the military value for each of the Army’s installations. According to Army officials, this reflected their view of the criticality of possessing adequate acreage to conduct unit training, particularly in view of the expectation for an increase in the number of brigades and return of various forces from overseas locations. The Army’s military value attributes also reflected consideration of its role in supporting the global war on terrorism, homeland defense, and transformation. Through a process of weighting each of the Army’s attributes, the Army derived relative weights for the four legislatively-mandated military value selection criteria. As shown in table 9, three of the four criteria had relatively higher weights than the remaining criterion dealing with cost and manpower implications. Imbedded within these criteria was a key focus on the need for availability of existing land and facilities for expansion purposes to address the needs as cited in those specific criteria. In this regard, the Army placed high value on these criteria as a hedge against uncertain future requirements and to ensure that they did not dispose of assets such as large tracts of land, which would be difficult to reacquire. In performing its military value assessment, the Army assessed each active duty installation and ranked each of them across the four military value selection criteria to more fully evaluate the potential for realignment and closure actions. This contrasted with the approach the Army used in the 1995 BRAC round when it developed a military value ranking for individual installations under one of 13 mission categories, which made it more difficult to assess an installation for use in a different mission area. For this round, the Army assessed the military value of each of its installations based on a common framework that linked attributes, metrics, and data call questions to military value as shown in figure 9. During its assessment, the Army stressed multi-function capabilities for installations. To account for the unique capabilities that some Army single- function installations provided, the Army applied military judgment to modify the initial ranking of its installations to better identify installations that the Army believed were best suited to meet its current and future capabilities. For example, the Tripler Army Medical Center in Hawaii, which initially ranked low in military value, is DOD’s only medical center of significant size in the Pacific and therefore was retained for strategic reasons. Ultimately, the Army moved nine installations higher in the list based on their unique capabilities. Subsequently, those installations with a lower military value ranking became more vulnerable to closure or realignment actions. With respect to its reserve components, the Army did not perform a military value rank-ordering of these various installations across the country, but instead assessed the relative military value that could be obtained by consolidating various facilities into a joint facility in specific geographical locales to support, among other things, the reserve components’ training, recruiting, and retention efforts. Throughout the BRAC process, the Army Audit Agency advised the Army on the development and implementation of its internal control procedures; performed audits of the Army’s conduct of the process, including the validation of data and various models used to assist in decision making. During the capacity and military value data calls, the Army Audit Agency performed on-site audits of data collection efforts at various installations on a sample basis to validate the data being gathered. Instances of inaccurate data or inadequate source documentation identified during these audits were generally corrected by the Army. As a result, the auditors generally found the data to be sufficiently reliable for use in the BRAC process. The Army used the results of its capacity and military value analyses, along with the 20-year force structure plan, as the foundation for the development of hundreds of potential closure and realignment scenarios. Scenarios under consideration were refined using various models— primarily an optimization model and the Cost of Base Realignment Actions (COBRA) model—along with military judgment. The optimization model, using capacity data, military value scores, and other data, provided the Army with various competing, plausible alternatives associated with the restationing of various missions and forces within the infrastructure. The model provided for alternative scenarios and their impact on overall military value as functions were moved to higher ranked installations. The COBRA model, which was used by all military services and joint cross- service groups to address the fifth selection criterion regarding costs and savings, provided the Army with the relative cost and savings estimates of these various alternatives. The Army further assessed the various scenarios in terms of the remaining selection criteria 6 through 8, regarding the economic impact on communities affected by BRAC, the ability of the infrastructure within communities to support military missions, and the environmental impact of the BRAC actions, respectively. The Army used input from various DOD- generated models in assessing its scenarios against these criteria, which, while important and mandated by the BRAC legislation, played less of a role than that of military value. However, the Army considered these criteria in order to ensure that there were no insurmountable challenges that would derail the implementation of any particular scenario. In addition, they were used to differentiate between competing scenarios. For example, the Army determined its final stationing of modular brigades based in part on its assessment of the environmental impact these brigades would have on the receiving installations. The Army also integrated into the overall process those scenarios that had been generated for the reserve components in the parallel process referred to previously. Those scenarios were developed through a series of meetings with state officials across the country. As with the active component, the reserve component scenarios were assessed using the COBRA model and other models. The Army also worked closely with the joint cross-service groups as they developed recommendations that affected Army installations. In some cases, the Army developed scenarios that were provided to the joint cross- service groups for further consideration. For example, the Army developed initial scenarios proposing to close three chemical demilitarization facilities, which were subsequently provided to the Industrial Joint Cross- Service Group, which ultimately developed and processed recommendations for these closures. Alternatively, some scenarios which ultimately became Army recommendations were developed in conjunction with the joint cross-service groups. For example, the Industrial Joint Cross- Service Group’s scenario regarding the realignment of the depot maintenance workload out of the Red River Army Depot in Texas, was instrumental in leading to an ultimate Army recommendation to close the depot. Similarly, the Education and Training Joint Cross-Service Group developed a scenario to realign the Army’s Armor Center and School from Fort Knox, Kentucky to Fort Benning, Georgia, an action that was later folded into the Army’s broader realignment of Fort Knox. As the Army and cross-service group recommendations were being finalized, the Army held a series of meetings with the joint cross-service groups to ensure that all recommended actions involving Army installations were properly integrated and corresponding impacts were considered in their entirety. The Army produced 56 recommendations that were approved by DOD—6 closures of active component installations, 6 realignments of active component installations, and 44 recommendations consisting of multiple reserve components closure and realignment actions grouped by state or region. These recommendations, along with other Army-related recommendations produced by the joint cross-service groups, align, for the most part, with the Army’s objectives of reducing the number of primarily single-function, smaller installations and transforming the infrastructure to better meet current and expected future Army needs. Table 10 provides the financial implications of the Army’s recommendations. As shown in table 10, the Army’s recommendations are expected to produce nearly $500 million in estimated net annual recurring savings beginning in 2012, but have a large 20-year net present value cost of about $3 billion, rather than savings which are typically expected in that timeframe; this is due primarily to very large up-front costs, nearly $10 billion in expected one-time costs, that are required to implement the recommendations. A few of the recommendations, particularly the one involving the redeployment of Army forces to the United States under DOD’s Integrated Global Presence and Basing Strategy, are responsible for the high costs and negative returns. The recommended closures of 6 active duty installations, which are largely installations of lower military value within the Army, have the greatest potential for savings with a combined estimated net present value savings over the next 20 years of about $3.8 billion and payback periods of 6 years or less. Most of the expected savings from these recommendations are due to reductions in personnel costs and overhead (e.g., base operations support). Expected personnel savings from these 6 recommendations are driven by the elimination of nearly 3,500 personnel of which nearly 25 percent, or over 800, are military. While 3 of the remaining 6 active duty base realignment recommendations as shown in table 10 also produce savings, 3 recommendations account for more than $9.4 billion in 20-year net present value costs and will never payback. The largest of these three latter recommendations involves the rebasing of Army forces to the United States from overseas locations. The Army projected that this realignment alone has a one-time cost of about $4 billion and annual recurring costs of almost $300 million and will never produce savings. Army officials note that a contributory factor to these high costs is the fact that the Army could not claim the estimated savings that would accrue from the expected closure of the overseas installations and the departure of Army forces from those locations. The Army estimates that had these estimated savings been accounted for in BRAC, the recommended actions would have produced substantial net savings rather than the costs as indicated. We did not validate the Army’s savings estimates for the overseas closures, and it is not clear to us that sufficient information is available at this time to fully assess the total changes in overseas basing costs since much of the detail regarding these plans has not been finalized. Further, we agree with DOD that it would not be appropriate for the Army to include these particular savings in BRAC as BRAC provisions in existing legislation do not contemplate consideration of savings from the closure or realignments that take place outside of the United States. With regard to the reserve components, the Army adopted 44 recommendations, which taken as a whole, would provide a net present value savings of over $1.5 billion over the next 20 years but have an average payback period of over 12 years. Five of the recommendations involve the realignment of the Army Reserve’s command and control structure within five regional areas. The remaining recommendations realign reserve components facilities in 38 states and Puerto Rico by constructing 125 new armed forces reserve centers while closing 176 Army Reserve centers and with the understanding that various states would close 211 National Guard armories and centers. These closures represent about 10 percent of the over 4,000 existing Army reserve components’ facilities across the country. While most of the Army’s projected savings associated with the reserve components’ recommendations result from reductions in personnel costs by eliminating over 4,000 personnel, about 80 percent of these eliminations are military personnel. Time did not permit us to assess the operational impact of each recommendation, particularly recommendations that included multiple closure and realignment actions across multiple locations. However, we offer a number of broad-based observations about the proposed recommendations. Some recommendations may warrant additional attention from the BRAC Commission based primarily on issues associated with the projected savings from military personnel reductions, uncertainties regarding the rebasing of overseas forces and modularity, potential impact of expected increase in the use of training ranges, the impact on gaining communities, uncertainties regarding the reserve component recommendations, the bundling of various recommendations, and concerns over the transfer of workload from Red River Army Depot, Texas. Our analysis showed that about $450 million of the Army’s projected annual recurring savings from its recommended closure and realignment actions are based on claimed savings from eliminating military personnel. Army officials acknowledged that a large portion of their annual recurring savings were derived from military personnel eliminations but noted that the Army’s financial outlook improved if joint cross-service group recommendations involving Army bases are considered. Nevertheless, the Army does not plan to reduce its active or reserve component end-strength in implementing these recommendations. According to Army officials, these personnel are being redistributed within the Army. While we believe that the potential exists for these personnel to provide a benefit to the Army in their new positions, it represents a savings to the Army in the sense of potentially avoiding costs that otherwise might be incurred in increasing authorized end strength levels. They do not represent dollar savings that might be shifted to other appropriations to meet other priority needs such as equipment modernization or improving remaining facilities, areas typically cited as likely beneficiaries of BRAC savings. Further, because DOD envisions BRAC savings in general to be used to partially fund up-front investment costs associated with implementing BRAC actions, the Army may be forced to find other sources of funding as military personnel savings will not likely be available for this purpose. The Commission may wish to consider this issue in evaluating the BRAC recommendations. Uncertainties over plans to realign thousands of soldiers and their families to the United States as a result of the Integrated Global Presence and Basing Strategy as well as the Army’s modularity efforts to create new modular brigades have the potential to change the expected costs and savings associated with the Army’s BRAC recommendations. The Army’s BRAC recommendations incorporate about 15,000 of the 47,000 Army personnel currently expected to return as a result of the global basing study. The Army also incorporated the stationing of five of ten brigades being created under the Army’s modular restructuring effort. Estimated BRAC costs and savings are typically calculated based on assumptions for specific units or missions that are expected to realign to specific installations in specific years. Changes to these assumptions can alter the costs and savings associated with the actions being undertaken. Existing Army plans for the return of overseas forces and modularity were the basis for the assumptions used to calculate estimated costs and savings and to determine potential impacts to the environment and communities surrounding the affected installations. However, our analysis identified several areas of uncertainty that could affect the assumptions contained in those recommendations: Army officials told us that DOD has been and is continuing to modify its overseas restationing plans, even as the Army BRAC recommendations were being finalized. Because of BRAC reporting requirements, the Army had to finalize its recommendations before the overseas rebasing plans were finalized. Army officials indicated that the major overseas restationing actions included in the BRAC recommendations are expected to occur as currently envisioned. However, as plans continue to evolve, the specific details regarding the rebasing could be adjusted, with corresponding adjustments in costs and savings being required. In a May 2005 report produced by the Commission on Review of the Overseas Military Facility Structure of the United States, the Commission recommended slowing down the Army’s entire overseas restationing process. If DOD heeds this recommendation, the timing of some planned restationing actions could be affected with the potential risk of not completing BRAC closure or realignment actions within the 6-year implementation period with a 2011 completion date as established by the BRAC legislation. Further, over half of the Army’s forces returning from overseas are expected to be folded into the new modular brigades being formed in the United States. Uncertainties over the timing of their return could also impact the costs and savings associated with those brigades. In a March 2005 congressional testimony, we reported that the design configuration of the Army’s modular brigades had not been finalized at that time. In this regard, the Army is considering adding an additional combat battalion to each of its modular brigades and has not finalized the design of higher echelon and support units. Any such changes to the design that was used in deriving the cost and savings estimates and potential impacts to the environment and communities of the recommended actions are likely to impact the estimates and may alter the potential impacts as well. The Commission may wish to ensure that it has the Army’s latest plans regarding the overseas rebasing and modularity efforts in reviewing the Army’s recommendations. The Army’s BRAC recommendations provide for the stationing of returning overseas forces and new modular brigades on existing Army installations. Our review of Army documentation shows these installations are already facing environmental and encroachment issues that constrain their ability to meet unit training requirements. These issues raise concerns that currently constrained installations may face additional challenges and unexpected costs in meeting the training requirements of the additional forces the Army plans to station at these installations. As we reported in June 2005, several of the Army’s training ranges already face challenges resulting from inadequate maintenance and modernization and may also require substantial investment for modernization to support the training requirements of the new brigades. Army officials stated they reviewed their BRAC recommendations to ensure that there were no insurmountable environmental or encroachment obstacles. They also noted that their recommendations included costs for training range upgrades. However, we have not validated whether these costs will adequately address training range limitations. Further, we have concerns as to whether the Army will need to acquire additional training range land at existing bases that are already experiencing range limitations—a potential cost not identified in the current BRAC recommendations. Concerns over the ability of existing training ranges to meet training requirements are exacerbated by uncertainties over the final number and composition of the modular brigades as well as the potential for additional forces returning from overseas. Because of existing constraints on training ranges, the Army developed scenarios to examine the possibility of stationing operational Army units on other installations, including installations belonging to other military services and Army installations with considerable acreage such as the Yuma Proving Ground in Arizona. The Army deemed none of these scenarios feasible for various reasons, such as the configuration of other service installations and their associated training ranges did not meet Army training requirements. For other scenarios, such as use of the Yuma Proving Ground, the lack of adequate infrastructure and the associated high military construction costs that would be required essentially made them infeasible. However, Army officials told us that should the Army decide to create an additional five modular brigades or bring additional forces back from overseas, it may become necessary to station these units at installations such as the Yuma Proving Ground, which has large tracts of land, because existing Army installations might not be able to support these additional units. The Commission may wish to review the Army’s plan for addressing training range issues and the potential need to acquire additional land to mitigate likely challenges the Army faces in the probable increased use of its training ranges. Several of the Army’s recommendations involve relocating significant numbers of forces and their families to various installations, which raises concerns about the ability of local communities to adapt to these changes and absorb these personnel increases. For example, Fort Bliss, Texas is expected to receive a net gain of over 11,000 military and civilian personnel. The full impact of such increases on surrounding communities, particularly on schools, housing, and other community infrastructure, is unclear at this time. According to Army officials, its analysis for the selection criterion regarding community impact (criterion seven) provided an overall assessment of the ability of local communities impacted by a potential BRAC action to handle additional personnel and their families, including the identification of potential obstacles that could prevent a recommendation from being implemented. For example, in assessing the impact of the return of forces from overseas, the Army’s review of community infrastructure for Fort Bliss and Fort Riley indicated the importance of working with these communities to assess and implement housing and schooling requirements. However, the Army concluded that these issues did not represent impediments to implementing recommendations involving these bases. Addressing the challenges that these communities face may require significant investments, particularly with regard to available housing and schools, which would increase pressures for federal assistance from various agencies to help mitigate these needs. While such costs might be borne outside the defense budget to some extent, they would nevertheless represent additional costs to the federal government. These potential costs, although not required to be captured in DOD’s cost and savings analyses for the various recommended actions, could be substantial, given the number of Army installations with expected personnel gains. Army officials stated that they expect to resolve these issues during implementation and that by staggering the movement of units being moved to these installations, they believe they will be able to reduce adverse impacts and enable communities to better prepare for their arrival. Nevertheless, some communities may lack the infrastructure to easily absorb these forces. This could impact the timing of the movement of forces to these communities, which in turn could alter current BRAC cost and savings estimates from a governmentwide perspective. The Commission may want to review the Army’s plans for addressing these issues. We identified a number of uncertainties associated with the Army’s reserve components’ recommendations. Most of these recommendations, as detailed in the Army’s 2005 BRAC report, are contingent upon certain actions that have either yet to take place or be decided. For example, the Army expects to build 125 Armed Forces Reserve Centers, which are currently expected to be able to accommodate National Guard units as well as Army Reserve units and some reserve units from the other military services. However, the decision to relocate these National Guard units lies with state authorities. While the states with Guard units that are affected by BRAC recommendations have agreed, on a voluntary basis, to be included in the process, they can opt out at any time, thereby creating uncertainties over future state actions and their impact on the precision of current cost and savings estimates for these recommendations. Should state authorities decline to relocate some or all of these units, the costs and savings associated with these armed forces reserve centers could change. Some of the reserve components’ recommendations have other contingencies as well. For example, the recommendation for the Texas reserve components calls, in part, for an Armed Forces Reserve Center to be located in Amarillo, Texas, if the Army is able to acquire land suitable for the construction of facilities there. Many others are like this as well. Should the land not be available, these recommendations will need to be adjusted as well as the related costs and savings estimates. While the Army’s reserve components’ recommendations as a whole are projected to generate more than $1.5 billion in net savings over a 20-year period if implemented, the uncertainties regarding some of the actions these recommendations are relying on could result in increases or decreases to this estimate. The Commission may wish to seek clarifications as to the status of these state- based actions and the potential consequences if some of those actions are not executed as currently planned. Most of the Army’s recommendations involve the bundling of multiple closure and realignment actions under one recommendation, which reduces the visibility of the estimated costs and savings as well as the payback periods of the individual actions that are embedded within the recommendation. While the the Army only produced six recommendations for the realignment of its active component installations, most of these recommendations have several components to them. For example, one Army recommendation involves the realignment of the Armor Center and School from Fort Knox, Kentucky, to Fort Benning, Georgia; the activation of a new modular brigade at Fort Knox; the relocation of various combat service support and other units from Europe and Korea to the United States; and the relocation of a reserve training center from Fort McCoy, Wisconsin, to Fort Knox. Similarly, the Army packaged all of its proposed reserve components’ realignments and closures within a state into a single recommendation for that state. As a result, there may be components within a recommendation that have relatively high costs or long pay-back periods (or never produce savings) even though the recommendation taken as a whole appears to have relatively higher savings or a shorter payback period. The Commission may therefore wish to request and examine information on the costs and savings associated with these individual actions. The following examples highlight these potential issues: The Army’s maneuver training recommendation would realign Fort Knox by incorporating several elements of scenarios the Army and the Education and Training Joint Cross-Service Group developed over time. The DOD-approved recommendation includes the stationing of a new modular brigade at Fort Knox. However, the Army’s original scenario for realigning Fort Knox, which did not include stationing the modular brigade or realigning the Armor Center and School, would have generated a 20-year net savings of almost $225 million. The Education and Training Joint Cross-Service Group’s related scenario involving the relocation of the Armor Center and School from Fort Knox to Fort Benning would have generated a 20-year net savings of over $1.3 billion. The Army’s approved recommendation combined most of the elements of these two scenarios but generated 20-year savings of about $950 million, or about $500 million less than one might have expected. The difference may be largely attributed to the inclusion of the new modular brigade in the Army’s final recommendation. The Army’s reserve components’ transformation recommendation in Arizona is expected to have a payback period of 5 years and generate a net savings of almost $52 million over a 20-year period. However, one action contained within this recommendation involves the creation of an Armed Forces Reserve Center at the Buckeye Training Site, Arizona. A previous scenario, which focused solely on this action, indicated that the Army would incur a net cost of almost $9 million over the 20-year period and that it would take more than 100 years to produce savings. By bundling this action with others, the net costs of this action are obscured by the net savings of the recommendation’s other actions. We are raising several issues with the recommended closure of the Red River depot and the transfer of its functions to other locations that may warrant further review by the Commission. The issues relate to the transfer of the Red River combat vehicle workload to the Anniston Army Depot, Alabama; the transfer of certain munitions to the McAlester Army Ammunition Plant, Oklahoma; and the replication of Red River’s capability to remove and replace rubber pads for vehicle track and road wheels. As discussed in appendix VIII, the Industrial Joint Cross-Service Group, when developing its maintenance proposals, completed its depot workloading analysis on the basis of one and a half shifts per workday (60 hour workweek) rather than the one shift per day (40 hour workweek) under the current system, thus increasing available capacity and allowing it to consider depot closures. Industrial group officials told us that use of more than one shift, which is a common private industrial better business practice, would enhance transformational opportunities in that it would provide for more efficient use of facilities and equipment. Industrial group officials stated that the expanded shift concept, although transformational, was only a “sizing or planning tool” to examine ways to increase depot capacity and that it would be left up to each depot to decide whether or not to employ the expanded shift concept. In other words, it was a way to see if a depot could accommodate the incoming transfer of additional workload. We were also told that no policy changes were envisioned to actually implement the expanded shift concept. Available information indicates that the closure recommendation may not be implemented based on the concept of a one and a half shift operation at the Anniston Army Depot, which is to receive the combat vehicle workload from Red River. In our visit to Anniston Army Depot, officials told us that, with additional construction to increase capacity as provided for in the supporting documentation for the recommendation, they would be able to accommodate this additional workload without much difficulty and without working under the expanded shift concept. Industrial group officials acknowledged that, while some one and a half shift operations may be implemented at other activities, only a one shift operation was envisioned at Anniston, given the uncertainty associated with future requirements and the need to minimize risk by providing for additional capacity if a contingency arises. As such, it appears that there is essentially no substantive transformational changes occurring with the closure of the Red River Army Depot. The BRAC recommendation to close the Red River Depot also dictates the transfer of its munitions storage mission to another Army depot--McAlester Army Ammunition Plant, Oklahoma. However, officials at Red River told us they were concerned about whether storage capacity at McAlester was sufficient to handle all of Red River’s munitions. Specifically, Red River officials told us during a recent visit that available excess storage capacity at McAlester has decreased since BRAC data were gathered, thus raising concerns whether all of Red River’s munitions can be stored there. Further, Red River officials asserted that McAlester did not have sufficient storage capacity for special types of munitions without constructing new storage facilities. According to Red River officials, certain munitions (category I and II) require different storage capacity and that McAlester currently does not have enough storage capacity for Red River’s entire category I munitions. However our analysis of the closure recommendation supporting documentation does not include any provision for military construction funds. Industrial group officials told us, however, that it expects that the McAlester plant will demilitarize much of its ammunition and thus free up space for the munitions stored at Red River. However, given that some diversion of demilitarization funds for other purposes has occurred in recent years, it raises questions as to the extent of the demilitarization that will occur. Nonetheless, in their opinion, this potential issue is not of concern to them. Time did not permit us to fully resolve the conflicting information regarding the extent to which the munitions may be transferred and McAlester’s ability to sufficiently accommodate the storage of any transferred munitions. Red River officials also raised concerns about the complexities associated with replicating its rubber production capability, which consists of removing and replacing rubber pads for vehicle track and road wheels, at Anniston Army Depot, Alabama, and that it is currently the only source for road wheels for the Abrams M1 tank. Specifically, Red River officials told us this capability is not an easy process to reproduce, including obtaining the required certification associated with the rubber production capability and that the processes must be qualified through rigorous testing. The complexities with replicating the rubber production capability was also echoed by officials at Anniston Army Depot, Alabama—the installation which is expected to absorb most of Red River’s combat vehicle workload. Officials at Anniston told us they expect a long certification process in order to perform the required rubber repair process and that this represents the most serious challenge in the workload transfer of Red River’s work. As to the Abrams Ml tanks road wheels, Red River officials told us that if the capability to produce road wheels is interrupted, the ability to sustain the warfighter is diminished and overall readiness could be degraded. To mitigate this risk, officials at Red River told us that it is imperative that the Army construct a new rubber production facility at Anniston, establish its processes and qualify its product before ceasing rubber production at Red River. Industrial group officials told us that, should a problem arise in this area, that commercial sources are available to purchase rather than repair these parts. We did not independently verify their assertion. The Commission may want to review the extent to which these concerns associated with Red River are valid and whether they were adequately considered by DOD. The Navy followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for reviewing its functions and facilities. The Navy’s process produced 21 base closure and realignment recommendations, which cover 63 active and reserve installations. The Navy projects that its recommendations would realize about $7.7 billion in net present value savings over a 20-year period. Payback periods—the time required for savings to offset closure costs—range from immediate to 15 years and average 3.5 years. At the same time, there are limitations associated with the projected savings related to the lack of planned reductions in military personnel end-strength associated with the savings. Some of the Navy’s recommendations may warrant additional attention from the BRAC Commission based on projected force structure changes, decisions to realign versus close some bases, and extended payback periods. The Naval Audit Service, which performed audits of the data, concluded that the data were sufficiently reliable for use during the BRAC process. The Navy established an organization to conduct the closure and realignment analysis similar to the one it used in the 1995 round. The Secretary of the Navy established a group of senior military officers and civilian executives, the Infrastructure Evaluation Group (IEG), chaired by the Assistant Secretary of the Navy (Installations and Environment) to conduct the process, and a related team, the Infrastructure Analysis Team, to support the IEG. The Secretary subsequently established a second senior-level group, the Department of the Navy Analysis Group, chaired by the Special Assistant to the Secretary of the Navy for BRAC, that was subordinate to the IEG, and he directed it to conduct the Navy’s analysis for Navy-unique functions. Another associated group, the Functional Advisory Board, consisted of the Navy and Marine Corps principal members of the seven joint cross-service groups and was responsible for ensuring that the Navy leadership was informed of matters relevant to those groups and for articulating the Navy’s position on common business-oriented support functions for Navy leaders. The Navy established numerous goals for BRAC, organized around such considerations as (1) facilitating recruitment and training, (2) providing quality of life, (3) matching force structure to national defense strategy, (4) adequately equipping the force, (5) ensuring access to an optimally integrated logistical and industrial infrastructure, and (6) maintaining secure and optimally located installations for mission accomplishment (including homeland defense). With these and other considerations in mind, the Navy established numerous objectives corresponding to DOD’s BRAC principles, examples include: Optimize access to critical maritime training facilities. Accommodate the 20-year force structure plan. Facilitate active/reserve integration and synchronization. Leverage opportunities for joint basing and training. Enable further installation management regional alignment. Optimize regional management structure for recruiting districts and reserve readiness command. Minimize use of long-term leased administrative space. Provide flexible research, development, test, and evaluation infrastructure to adapt to Navy transformational mission changes and joint operations. Consolidate aircraft basing to minimize sites while maintaining ability to meet operational requirements. Rely on private-sector support services where cost-effective and feasible. Retain sufficient organic capability to effectively support maritime- unique operation concepts. Align Navy infrastructure to efficiently and effectively support Fleet Response Plan and Sea-basing concepts. Realign assets to maximize use of capacity in fleet concentration areas while maintaining fleet dispersal and viable antiterrorism/force protection capability. In executing its BRAC process, the Navy sought to eliminate excess capacity and reconfigure its current infrastructure so that operational capacity maximized warfighting capability and efficiency. The IEG approved four major areas for analyses: operations, education and training, headquarters and support activities, and other activities. These major areas were then further divided into functions to ensure that installations performing comparable functions were compared with one another and to allow identification of total capacity and military value for an entire category of installations. The Navy’s BRAC process included a review of 889 reporting activities— 765 Navy and 124 Marine Corps—of which 673 were active component and 216 reserve component activities (reserve centers, reserve forces headquarters, reserve recruiting areas, and reserve personnel centers). As with previous BRAC rounds, capacity and military value analysis provided the starting point for the Navy’s BRAC process. The Naval Audit Service served an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. For its capacity analysis, the Navy universe was defined at the activity or function level, and a capacity data call was distributed to the 889 reporting activities. Capacity analysis for each activity consisted of comparing the current Department of the Navy base structure to the future force structure requirements to determine whether excess base structure capacity existed within the Department of the Navy. Current force requirements were based on the existing force structure, and future force requirements were derived from the 20-year force structure plan. All Navy and Marine Corps bases were placed into one of four categories for capacity analysis: operations, headquarters and support activities, education and training, and other activities. Each category used a different metric to analyze capacity. Almost all of the Navy’s bases were contained in the operations function category. In evaluating air operations activities the Navy used hangar modules, while in evaluating surface/subsurface operations activities it used a cruiser-equivalent concept, the same measures that were used in BRAC 1995. In evaluating ground operations activities, the Navy used a battalion-equivalent concept that considered the amount of administrative space, covered storage space, and maintenance space required to support a generic Marine Corps battalion. In evaluating munitions storage and distribution, the Navy used throughput (loading and unloading) and short-term storage functions to conduct its analysis. The Navy identified excess capacity in all four categories, as shown in table 11. In completing its capacity analysis, the Navy assumed that it would be necessary to home base all aircraft and ships at the same time. The Navy did not include additional infrastructure requirements to accommodate surge capability. According to Navy BRAC officials, the force structure— number of ships and aircraft—is finite in number, and additional ships or aircraft could not be quickly produced in the event of a contingency. The officials stated that their analysis also ensured that sufficient flexibility was retained to handle surge represented by operational tempo changes or unanticipated operational requirements. For example, for surface/subsurface operations, the Navy concluded that there was sufficient berthing space available in nonoperational bases (shipyards and weapon stations) to meet surge or other unanticipated operational requirements. Navy officials projected that their closure recommendations, if approved, would reduce excess capacity in aviation operations from 19 percent to 16 percent, in surface/subsurface operations from 25 percent to 17 percent, and in munitions storage and distribution operations from 24 percent to 16 percent, but they would not reduce excess ground operations capacity. The Navy did not recommend closing any ground operations facilities, citing cost considerations and noting that planned force structure changes would further increase its requirements. In completing its military value analysis, the Navy targeted military value questions to specific activities in order to rank installations in the four operational subgroups from highest to lowest in military value. Each of the four operational subgroups had overarching concepts by which military value scoring plans were then developed to measure and rank each installation. Military values were assigned to 35 Navy and Marine Corps installations under air operations, 29 surface/subsurface installations, and 11 ground operations installations. Table 12 shows how the Navy weighted military value criteria in its analyses of operational functions. Key factors considered in evaluating the military value of aviation operations activities included size and versatility of the facilities, proximity to training opportunities, and the strategic location of airfields. In considering surface/subsurface activities, key factors were the size and versatility of ship berthing, maintenance and support capabilities, and proximity to naval shipyards. Additional value was given for strategic nuclear submarine homeport capability and Nimitz-class nuclear powered berthing capability. Also considered was the proximity to training facilities, ranges, and operations areas as well as strategic location. Likewise, in considering ground operations activities, key factors were facilities and services, operational staff buildings, ordnance storage depots, and organic maintenance shops. Additional value was given for capability to receive and stage onward movement and integration of forces. Also considered was proximity to ranges, maneuver areas and training areas as well as proximity to aerial and seaports of debarkation. Key factors in the munitions storage and distribution operations activities were storage capability, throughput capability, strategic factors, environment and encroachment, and personnel support. Figure 10 illustrates how the Navy linked its analysis to the military value criteria for the naval aviation function. The same process was used to analyze military value with the other operational and functional areas. The Naval Audit Service played an important role in ensuring that the data used in the Navy’s analyses were certified. Through extensive audits of the capacity, military value, and scenario data collected from field activities, the audit service notified the Navy of any data discrepancies for the purpose of follow-on corrective action. While the process of validating data was quite lengthy and challenging, the Naval Audit Service deemed the Navy data was sufficiently reliable for use in the BRAC process. The Navy used results from the capacity and military value analyses as the inputs to its optimization model to help identify initial scenarios for realignment and closure. In some circumstances, such as closure of naval reserve centers, military judgment and transformation provided the basis for scenarios and later decisions. For example, Navy officials said it was necessary to retain naval reserve centers for naval air reservists near major airline hubs and activities in order to retain the demographic profile necessary to recruit and retain personnel for these units. The Navy identified 187 scenarios for consideration; 82 involved Navy and Marine Corps reserve centers. The scenarios were then further assessed through more detailed scenario analyses, cost and savings considerations, risk assessments, and the Navy’s IEG deliberations, which resulted in 53 candidate recommendations being forwarded to DOD’s IEC. After some consolidation and bundling, DOD approved 21 Department of the Navy recommendations and forwarded them to the BRAC Commission. The Navy eliminated scenarios for strategic reasons, to maintain operational flexibility, and for cost considerations. For example, various scenarios proposing to close Submarine Base San Diego, California, were dropped because a closure would have eliminated the sole capability for berthing attack submarines on the West Coast. Likewise, scenarios proposing to close Naval Station Everett, Washington, were dropped because of the strategic importance of this seaport. Various proposals to close active naval air stations were dropped because of operational concerns. For example, the Navy analyzed the potential to close Marine Corps Air Station Beaufort, South Carolina, and relocate its squadrons to Marine Corps Air Station Cherry Point, North Carolina. However, the Navy leadership concluded that Marine Corps Air Station Beaufort should be retained for future tactical aviation basing flexibility, especially in light of concerns about the continued viability of basing aviation units at Naval Air Station Oceana, Virginia. Due to increasing environmental and encroachment issues surrounding Naval Air Station Oceana, the Navy also analyzed various scenarios to close it. However, the analyses indicated a long payback period for achieving return on investment, high one-time costs, and operational issues at receiving sites. Therefore, the Navy determined that the closure of Naval Air Station Oceana was not feasible. Another complicating factor for basing of East Coast tactical aircraft is the Navy’s attempt to purchase approximately 33,000 acres in eastern North Carolina to build a new outlying landing field to provide simulated aircraft carrier landings for aircraft stationed at Naval Air Station Oceana and Marine Corps Air Station Cherry Point. The purchase is currently being challenged in federal court over environmental concerns. The Navy also did not pursue some scenarios because of cost considerations and extended payback periods. For example, Navy data showed a one-time cost of $838 million to close Construction Battalion Center Gulfport, Mississippi, and relocate it to Camp Lejeune, North Carolina, and a one-time cost of $643 million to close Marine Corps Recruit Depot San Diego, California, and relocate all recruit training to Parris Island, South Carolina. The Navy leadership determined that these costs did not justify closing either the Construction Battalion Center Gulfport or the Marine Corps Recruit Depot San Diego. The Navy also considered alternatives to homeport an additional carrier strike group forward in the Pacific theater through the BRAC process to accommodate Integrated Global Presence and Basing Strategy decisions. The Navy analyzed moving a carrier to Pearl Harbor, Hawaii, and Guam, and found that other than cost, there was no clear BRAC preference for either the losing or the gaining base. The Navy leadership postponed any decision until the ongoing Quadrennial Defense Review is completed. The Navy worked closely with the joint cross-service groups as they developed recommendations that affected Navy installations. In some cases, a joint cross-service group recommendation or series of recommendations relocated a majority of the functions, workload, equipment, or personnel from a Department of the Navy installation, thereby enabling closure of the entire installation. Where the DAG determined that the aggregate of joint cross-service group actions were of such magnitude that it affected the “critical mass” of the installation, e.g., impact on the major mission, a substantial number of personnel, and/or a substantial amount of acreage, a Navy closure scenario was developed. The closure of Portsmouth Naval Shipyard, Maine is an example of such a closure. The ISG and IEC approved an industrial joint cross-service group recommendation to relocate the ship overhaul and repair function at Portsmouth Naval Shipyard to Norfolk Naval Shipyard, Puget Sound Naval Shipyard, and Pearl Harbor Naval Shipyard, and to relocate the Submarine Maintenance Engineering, Planning and Procurement Activity at Portsmouth Naval Shipyard to the Norfolk Naval Shipyard. This recommendation eliminated Portsmouth Naval Shipyard’s primary mission and moved or eliminated approximately 90 percent of its workforce. After conducting criteria 5-8 analyses, the Navy recommended closing Portsmouth Naval Shipyard in its entirety. The Navy projects that its 21 recommendations will produce about $754 million in net annual recurring savings and, after savings have offset implementation costs, a 20-year net present value savings of $7.7 billion. Table 13 provides a summary of the financial aspects of the Navy’s recommendations. The Navy’s recommendations include 16 closures and 5 realignment actions, affecting 63 installations. Much of the projected annual recurring savings are based on military and civilian personnel reductions. The Navy has two recommendations with payback periods greater than 10 years—the realignment of Naval Station Newport, Rhode Island, and the closure of the Naval Support Activity Corona, California. Time did not permit us to assess the operational impact of each recommendation, particularly individual recommendations that include multiple closure and realignment actions at multiple locations outside of a single geographic area. Nonetheless, we offer a number of broad-based observations about the proposed recommendations. These recommendations may warrant additional attention from the BRAC Commission based on issues associated with projected savings from military personnel reductions, force structure changes, decisions to realign versus close some bases, extended payback periods, and potential impact on the U.S. Coast Guard. There remains uncertainty as to what the Navy’s future force structure will actually look like, particularly with battle force ships. While the Navy’s force structure plan that accompanies its BRAC report gives a range of 341 to 370 ships in the fleet in 2024, the Navy’s 30-year shipbuilding plan identifies a possible lower limit of 314 ships in 2024 (including all type surface ships and submarines). Additionally, the shipbuilding plan provides a fleet profile in the decade afterward (to the year 2035) with as few as 260 to 325 ships. This includes a decrease in aircraft carriers from the current 12 to 10 in 2035, as projected in the Navy’s shipbuilding plan. Our analysis showed that about $386 million, or about 51 percent, of the projected $753.5 million in net annual recurring savings are based on savings from eliminating almost 4,000 active duty military personnel positions. A Navy official indicated that these reductions will help the Navy achieve the projected 21,000 active military personnel reductions already programmed between fiscal year 2006 and 2011. However, the Navy has already reduced the military personnel account to reflect the savings associated with the projected 21,000 end-strength reduction. While the projected almost 4,000 reductions associated with BRAC actions might help the Navy achieve their overall programmed end strength reductions, it will not generate any additional dollar savings that could be reallocated for other higher priority needs. While the recommendations to close Submarine Base New London, Connecticut, and Portsmouth Naval Shipyard, Maine, project significant savings, both are based on projected decreases in the number of submarines in the future force structure. However, as mentioned earlier, there is uncertainty over the number of submarines and surface ships required for the future force. The proposed closure of Submarine Base New London is based on reducing existing excess capacity in the surface/subsurface category and planned reductions in the submarine force. Both the 25 percent excess capacity identified in the surface/subsurface infrastructure and the projected 21 percent reduction in the submarine force led the Navy to analyze various proposals to close submarine bases. As previously noted, the Navy’s BRAC scenario analysis focused on East Coast submarine bases because attack submarines are single-sited on the West Coast. The Navy considered three alternatives: (1) moving all submarines at Naval Station Norfolk, Virginia, to New London, Connecticut; (2) moving all submarines at Submarine Base New London and the Submarine School New London to Naval Station Norfolk; and (3) moving submarines at Submarine Base New London to both Naval Station Norfolk and Submarine Base Kings Bay, Georgia, and moving the submarine school to Kings Bay or Naval Station Newport, Rhode Island. The Navy analysis showed that only the option to relocate submarines from New London to Norfolk and Kings Bay achieved a reduction in capacity and savings resulting from a base closure. Navy officials noted that Submarine Base New London had a lower military value than both Norfolk and Kings Bay. As we also discuss in appendix XIV, this recommendation has the largest economic impact on any community in terms of the number of job losses (8,457 direct jobs and 7,351 indirect jobs). These direct and indirect job losses would result in a negative change of 9.4 percent in unemployment for the economic area around Submarine Base New London. The majority of the projected savings would result from the elimination of about 80 percent of the civilian personnel positions at New London. Officials at New London we met with concurred with the projected number of civilian positions that could be eliminated based on coordination with both receiving locations—Kings Bay, Georgia, and Norfolk, Virginia, and on the number of personnel that would be needed to support the missions being relocated. However, a separate issue of concern relates to the proposed move of the Navy’s submarine school from New London to Kings Bay. In our discussions with officials at New London, we found while the Navy’s BRAC cost and savings analysis includes one-time costs to move the specialized equipment associated with the submarine school, the Navy analysis does not appear to have included an assessment of the time it would take to pack, move, and unpack the equipment, and the potential impact on the training pipeline and the certification of crews for submarines. In subsequent discussions with Navy headquarters officials, we were told that the submarine school would be the last activity to move from New London to ensure that facilities at Kings Bay are ready to start training. Furthermore, they noted that the implementation plan will ensure that the Navy will be able to perform crew certification and maintain the training pipeline. The BRAC Commission may want to assure itself that the Navy has developed a transition plan to satisfy the training and certification requirements until the receiving sites are able to perform this training, without unduly interrupting the training pipeline. The proposed closure of the Portsmouth Naval Shipyard assumes that the remaining three shipyards could perform all of the projected depot level maintenance workload based on planned reductions in the number of attack submarines and the Navy’s proposal to decommission an aircraft carrier. The Navy, with agreement from the Industrial Joint Cross-Service group, which initially had assessed depot functions, selected the Portsmouth Naval Shipyard for closure, despite Pearl Harbor Shipyard’s having a slightly lower military value score, because it determined that Portsmouth was the only closure that would both eliminate excess capacity and satisfy the Combatant Commander’s and Navy’s strategic objective to place ship maintenance capabilities close to the fleet. The Navy BRAC and Industrial Joint Cross-Service Groups analyzed scenarios closing each of the four shipyards, and determined that only the potential closure of Portsmouth or Pearl Harbor was feasible due to cost and capacity considerations. Initially, based on capacity data and the 20- year force structure plan submitted in March 2004, the Industrial Joint Cross-Service Group determined that there was sufficient excess capacity in the aggregate across the four shipyards to close either Pearl Harbor or Portsmouth. However, the group determined that there was insufficient excess capacity in certain commodities in the remaining three shipyards to accept all the workload from the closing shipyard. As such, the group initially determined that no shipyard should be closed. However, based on changes in the DOD’s 20-year force structure plan it submitted to Congress in March 2005—reductions in the number of submarines and the decommissioning of an aircraft carrier—the industrial group’s analysis indicated that workload for all commodities at Portsmouth or Pearl Harbor could be accommodated by the remaining three shipyards. A Naval Sea Systems Command analysis of dry dock availability indicates that the three remaining Navy shipyards could handle the projected ship repair and overhauls in the future. However, the analysis indicates that within the next three years there would not be much, if any, room for unanticipated ship repairs. According to Navy officials, any unanticipated requirements would be addressed by a combination of delaying and re-prioritizing scheduled overhaul work, and authorizing additional overtime, which they noted is no different than how they manage these requirements in the current operating environment. In selecting Portsmouth over Pearl Harbor for closure, the Navy noted that Pearl Harbor is in a fleet concentration area in the Pacific theater and is the homeport for many ships, while Portsmouth is not in a fleet concentration area or a homeport for any ships. In addition, closing Pearl Harbor would require the ships that are homeported there to transit back to the east coast, in some cases, for maintenance, which the Navy would essentially view as a deployment and, for quality of life reasons, would want to avoid if possible. Another strategic objective was to maintain dry docks for aircraft carriers on both coasts and in the central Pacific. Pearl Harbor has aircraft carrier dry-docking capability, but Portsmouth does not. In our meeting with employees at the Portsmouth Naval Shipyard in June 2005, they raised questions about several issues regarding the cost and savings analysis developed to support the proposed action. First, they objected to the industrial group and the Navy disallowing about $281 million in costs ($205 million one-time and $76 million recurring) that they believed would be incurred if the shipyard were to close. About $52 million of the recurring costs are associated with sustainment of facilities and power plant from fiscal year 2008, when the base is projected to close, until 2011. While some of these costs are likely valid, overall they appear high in relation to the Navy’s projected savings of about $120 million over the same period from reduced base operating support and sustainment of facilities. The majority of the one-time costs are associated with closure of the buildings, historical preservation of buildings, and write-off of undepreciated assets of the working capital fund. While it is questionable whether all of these costs should be included, our analysis shows that if they are all included, the projected 20-year savings would decrease by $192 million, or 15 percent. Portsmouth employees were also concerned that the cost and savings analysis did not adequately capture the widely recognized efficiencies of their shipyard, which, if adopted, could translate into additional costs that the Navy would incur by shifting its workload to the remaining three Navy shipyards. The employees estimated that they perform submarine overhaul and depot maintenance work at about $54 million per year less than the average of the other three shipyards, an efficiency which was not included in the Navy’s analysis. Department of Navy officials recognized that the Portsmouth Naval shipyard is presently more efficient than the Puget Sound and Pearl Harbor shipyards, but noted that it is very difficult to quantify the impact of this efficiency. Navy officials noted that the scope of work performed is not always the same, depending on the condition of each submarine, and wages, especially in Pearl Harbor, are higher than in Portsmouth. Navy officials told us they were reviewing the efficiency analysis developed by the Portsmouth Naval Shipyard; however, their analysis was not completed in time to be included in this report. The Commission may wish to consider the views of the shipyard employees and the results of the Navy’s review in their analysis of this recommendation. The Navy initially recommended the closure of Naval Air Station Brunswick, Maine, and Marine Corps Logistics Base Barstow, California. However, based on direction from the IEC, these closure recommendations were changed to realignments. As a result, the 20-year savings decreased by almost $2 billion, as shown in table 14. According to Navy BRAC officials, the senior Navy leadership was reluctant to give up the Navy’s remaining air station in the Northeast but found the potential savings significant enough to recommend closure of Brunswick. However, the judgment of the IEC changed the closure to a realignment to retain access to the strategic airfield in the Northeast. As a result, the base will become a naval air facility with an operational runway, but all aircraft and associated personnel, equipment, and support will be relocated to Naval Air Station Jacksonville, Florida, and the Aviation Intermediate Maintenance will be consolidated with Fleet Readiness Center Southeast Jacksonville, Florida. The Navy is maintaining its cold weather–oriented Survival, Evasion, Resistance, and Escape School, a Navy Reserve Center, and other small units at Brunswick. Navy officials also stated that Brunswick would provide a base from which to carry out potential homeland defense missions should those missions not be able to be carried out from other military or civilian airfields in the Northeast. The Industrial Joint Cross-Service Group had proposed to close the depot maintenance functions at Barstow because of its low military value and to increase opportunities for joint maintenance at Army depots doing similar work. However, the Marine Corps objected to the closure because that would eliminate its only West Coast ground vehicle depot maintenance presence and would increase repair cycle times for the Marine’s West Coast equipment by increasing rail transit and customer turnaround time by 10 to 30 days. In response to the Marine Corps’ concerns, the IEC directed the Industrial Joint Cross-Service Group to develop several alternative recommendations that would have closed Barstow but still realigned its workload to other West Coast activities. The Industrial Joint Cross -Service Group estimated that all of these options would result in higher net annual recurring and 20-year net present savings than would the realignment option. The Commission may want to assess DOD’s rationale for changing the recommendation from a closure to realignment in light of the projected reductions in savings. The Navy has two recommendations for which the payback period is greater than 10 years, much longer than typically associated with recommendations in the 1995 BRAC round, and the one-time costs are significantly greater than the projected 20-year savings by which BRAC rounds are typically measured. The Navy’s proposal to realign Naval Station Newport by relocating the Navy Warfare Development Command to Naval Station Norfolk has a 13-year payback period and a projected one- time cost of about $12 million, primarily to rehabilitate existing structures and move 111 personnel. According to Navy officials, this recommendation places the Navy Warfare Development Command closer to Fleet Forces Command and the Second Fleet Battle Lab it supports. Likewise, the Navy recommendation to close Naval Support Activity Corona has a payback period of 15 years, one-time cost of about $80 million, and 20-year savings of about $400,000. Navy data shows that the one-time cost is primarily to rehabilitate existing facilities and relocate personnel from Corona to Naval Air Station Point Mugu, California. Navy officials stated the closure had merit because the Corona facility was a single-function facility whose mission could be performed at other multifunction bases. Several Navy recommendations to close bases could affect the U.S. Coast Guard. However, the Navy’s cost and savings analysis did not consider any costs that could be incurred by the Coast Guard if the bases are closed. Navy officials recognized that the Coast Guard would be affected by several of its recommendations and considered the impact in its deliberations. However, they determined that it was unreasonable to include any cost estimates for the Coast Guard because the Navy could not assume the final disposition of the facility and how much, if any, of the facility the Coast Guard would opt to retain. Coast Guard officials stated that the Navy briefed them on their potential recommendations several months prior to the public announcement of the recommendations. The Coast Guard is in the process of developing potential basing alternatives, to include cost impacts, for each affected location. However, the Coast Guard had not completed these estimates in time for us to include them in our report. The Air Force followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for reviewing its functions and facilities. The Air Force’s process produced 42 recommendations. Most of the recommendations are devoted to reserve component bases, including several realignment actions reallocating aviation assets to multiple locations. In comparison with the other services, its recommendations contain the smallest number of closures (three) of active component bases. It had two major realignments, however, that left the bases in a reduced active duty status, and another where the base was transferred to the Army, with the Air Force retaining a limited presence as a tenant. The Air Force recommendations project the greatest savings of any of the services— $14.6 billion in 20-year net present value savings. Payback periods—the time required for savings to offset closure and realignment costs—for active component bases range from immediate to 14 years, and average 3 years, and for reserve component bases they range from immediate to 18 years, and average 6 years. However, our analysis indicates that these projected savings in each of their categories could have some limitations, primarily due to the lack of personnel end-strength reductions associated with claimed savings. In addition, some Air Force recommendations may warrant additional attention by the BRAC Commission because of uncertainty regarding future mission requirements for adversely affected reserve component personnel, and because of lengthy payback periods associated with some recommendations having been merged with other recommendations that have shorter payback periods, thus making the former appear more acceptable. The Air Force Audit Agency, which performed audits of the data, concluded that the data were sufficiently reliable for use during the BRAC process. The Secretary of the Air Force established a group of senior Air Force military and civilian personnel to form an executive deliberative body responsible for conducting the Air Force base closure and realignment analyses. The Base Closure Executive Group was led by a Deputy Assistant Secretary and a General Officer from Plans and Programs, who served as co-chairs. This group’s working-level staff made up the Base Closure Working Group, which provided direct support for data collection, validation, and analysis in the development of base closure and realignment recommendations. The Air Force 2005 BRAC goals were to transform by maximizing warfighting capability of each squadron and realigning infrastructure with future defense strategy, maximizing operational capability by eliminating excess physical capacity, and to capitalize on opportunities for joint activity. To guide the BRAC process, the Air Force developed the following principles, to be applied to both active and reserve components: Maintain squadrons within operationally efficient proximity to DOD- controlled airspace, ranges, military operations areas, and low-level routes. Optimize the size of Air Force squadrons in terms of aircraft models, aircraft assigned, and crew ratios applied. Retain enough domestic capacity to base the Air Force entirely within the United States and its territories. Retain aerial refueling bases in optimal proximity to their missions. Better meet the needs of the Air Force by maintaining or placing Air Reserve Component (Air National Guard or Air Force Reserve Command) units in locations that best meet the demographic and mission requirements unique to the Air Reserve Component. Ensure joint basing realignment actions (in comparison with the status quo) either increased the military value of a function or decreased the cost for the same military value of that function. Ensure that long-range strike bases provide flexible strategic response and strategic force protection. Support the Air Expeditionary Forces framework by keeping two geographically separate munitions sites. Retain enough surge capacity to support deployments, evacuations, and base repairs. Consolidate or co-locate legacy fleets (such as A-10, B-1, B-52, F-15, and F-16 aircraft). Ensure global mobility by retaining two air mobility bases and one additional wide-body-capable base on each coast. Several of the above principles were included in an Expeditionary Air Force Principles White Paper, which outlined principles to shape future force development and basing. This document, discussed the increased effectiveness and efficiency of consolidating smaller squadrons into larger units. The significant reduction in aircraft based on the future force structure plan of 2025 will reduce the Air Force infrastructure, including that of the Air Reserve and the Air National Guard to select the best combination of bases, while accomadating use of reserve components for emerging missions, such as homeland defense and unmanned aerial systems. The Air Force BRAC process included a review of 154 installations—70 active and 84 reserve. As with previous BRAC rounds, capacity and military value analyses provided the starting point for analysis. However, in this BRAC round the Air Force concentrated its analysis on operational aircraft and space missions, since joint cross-service groups developed capacity and military value analyses and recommendations for various commonly held business-oriented categories, such as education and training, headquarters, and technical functions. The Air Force Audit Agency performed an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. The Air Force collected information on key capacity areas, such as physical capacity (buildings and utilities), environmental issues (air emissions and water resources), encroachment (constraints and noise safety), airfields, airspace and ranges (operational capacity of runways, ramp space, and fuel storage), communications (telecommunications), and personnel. The capacity data call was designed to provide information to assess bases for current and future missions in the following mission areas: (1) airlift; (2) space operations; (3) bombers; (4) tankers; (5) command and control and intelligence, surveillance and reconnaissance; (6) unmanned aerial vehicles; (7) fighter aircraft; and (8) Special Operation Forces and Combat, Search, and Rescue. The Air Force also considered surge requirements in its capacity analysis. According to Air Force officials, surge was defined as the ability to domestically “bed down” all aircraft, including those currently stationed overseas, as well as the ability to respond to natural disasters, emergencies, and runway repairs. Following the collection of the capacity data call, the Air Force requested that its eight major commands and the Air National Guard estimate each installation’s capacity to acquire additional squadrons, taking into consideration existing conditions, facilities, additional construction requirements, and operational and environmental infrastructure. The capacity analysis incorporated information from the 20-year force structure plan to serve as a baseline and to further define requirements in the future. Although this analysis indicated the ability of bases to bed down additional aircraft, according to Air Force officials, it did not provide a specific excess capacity percentage by installation or major command. Accordingly, an overall capacity analysis report was not made available to us, comparable to that provided by the other military departments. However Air Force officials said they considered capacity information in their assessment of installations. Air Force officials did provide limited capacity information in their final BRAC report. Table 15 provides excess capacity percentages that were calculated for two areas. According to Air Force officials, their recommendations if implemented are projected to reduce excess capacity by 37 percent for flight line and ramp space and 75 percent in buildings and facilities. In completing its military value data calls, the Air Force evaluated each of its bases in each of the eight mission categories, regardless of the base’s current use. Military value data analysis was directly linked to the four DOD military value selection criteria required by the BRAC process and legislation. As shown in table 16, the Air Force developed a weighting system for the military value criteria with the first two criteria having larger weights, or importance, than the remaining two criteria. The Air Force used various military value attributes (characteristics, factors, etc), metrics (measures), and questions related to each of the four military value criteria. Key military value attributes included operating environment, geographic-location factors, key mission infrastructure, operating areas, mobility/surge, growth potential, and cost. Other installation-specific attributes included such factors as electromagnetic spectrum and bandwidth, munitions storage and handling, runway dimensions, ramp area, space launch, proximity to (and quality of) airspace and ranges, and geographical factors. Figure 11 shows how the attributes, metrics, and military value data questions were linked to the military criteria for the fighter aircraft mission category. The Air Force followed a similar process for all eight mission categories. Likewise, each base was evaluated against metrics associated with each of the eight mission categories, which resulted in multiple military values for each base. Air Force officials stated that the resulting military value scores enabled them to determine which bases were best to retain and which were less desirable. This enabled them to produce mission compatibility indexes for their bases related to each of the four military value criteria. However, the Air Force did not develop one composite score for each base across all eight mission areas, which might have allowed for a clearer distinction between lower and higher military value rankings. Instead of developing one composite score, the Air Force established an overall mission compatibility index score within each of the eight mission areas, which provided each installation with eight entirely different scores for the various mission areas. According to Air Force officials, this approach was used to apply military judgment to select the best combination of bases to retain. During both the capacity and the military value data collection and analysis processes, the Air Force Audit Agency provided the Air Force with real- time evaluations of BRAC 2005 policies, procedural controls, systems, and data to ensure accurate data and analyses support for BRAC recommendations. One of its primary efforts involved three audits to verify the Air Force data call responses submitted during the BRAC process. Although the auditors found errors or inadequate source documentation, they reported that most discrepancies were subsequently corrected. In addition to these nationwide audits, the Air Force Audit Agency produced audit reports on other facets of the BRAC process, including the Air Force Internal Control Plan, COBRA data, and various modeling and analysis tools that were used in development of recommendations. The final Air Force Audit Agency reports on BRAC data concluded that overall the Air Force data were reliable for the purpose of developing recommendations. The Air Force identified over 100 scenarios, which were later reduced to 42 recommendations. The Air Force scenario teams identified potential scenario groups of like weapons systems, and then the Base Closure Executive Group selected scenarios for analysis. While the Air Force relied on certified data to identify proposed closure and realignment recommendations, other factors were instrumental in guiding decisions for closures and realignments, including changes in unit sizing, a decreased force structure, the active and reserve mix and future total force initiatives such as those discussed in the Expeditionary Air Force White Paper. Toward the end of the BRAC process, the Air Force eliminated and scaled back several recommendations because they did not actually result in net savings. In addition, the Air Force combined several interrelated recommendations (some that provide savings and some that do not) to present a consolidated recommendation with savings and a shorter payback period than would otherwise appear had some recommendations. The military value data were analyzed by a computer-generated optimization model called the Air Force cueing tool. This model used the military value data and the 20-year force structure plan to create a starting point for Base Closure Executive Group deliberations by allocating aircraft to the fewest bases while conserving the greatest military value. This model also included Air Force imperatives. For example, to ensure unimpeded access to polar and equatorial earth orbits for U.S. satellites, the Air Force decided that Vandenberg Air Force Base, California, and Patrick Air Force Base, Florida, must be retained. Likewise, the Air Force retained Andrews Air Force Base, Maryland, to provide support to the President of the United States. According to Air Force officials, the cueing tool results were the starting point for analysis in allocating its inventory of aircraft. The model had various limitations, such as its inability to factor the active/reserve force mix for specific types of aircraft or the different types of aircraft at an installation. Furthermore, it assumes that all aircraft are bedded down at bases ranked highest in military value, which generally were active bases. To address these limitations, the Base Closure Executive Group relied on military judgment in some cases to overrule the results of the model to preserve the existing active/reserve force mix, a ratio expectation to be maintained through 2011. In reviewing alternatives for BRAC recommendations, the Air Force went through various iterations of the BRAC recommendations (called second look, third look, and so forth) in order to provide force structure alignments that conformed to the Air Force principles and improved military capability and efficiency, consistent with sound military judgment. Air Force scenario teams analyzed the results of the analytical tools, including information to be considered with each recommendation—for example, force structure reductions from the future year force structure plan, new missions, military construction requirements, homeland defense missions, and other areas. Furthermore, the scenario teams were responsible for identifying any “showstoppers,” in terms of capacity or environmental characteristics that would make a recommendation difficult to implement. These consisted of running a potential recommendation through the COBRA model and developing the information for selection criteria 6 (economic impact), 7 (community infrastructure), and 8 (environmental impact) to help identify or evaluate possible closure and realignment actions. The majority of the candidate recommendations had various components derived from using the optimization model; however, a few of the recommendations did not. For example, a few of the candidate recommendations involved realigning aircraft from an active base to an Air National Guard station with a lower military value score in order to achieve the appropriate mix between active and reserve forces and to increase the standard squadron size. Further, in some recommendations Air National Guard aircraft were realigned to other Air National Guard stations with a lower military value to align common versions of weapon system types, and for strategic interests. Four other recommendations were not derived from an optimization model because the model primarily focused on the bedding down of aircraft rather than specific functional areas, such as repair facilities. These recommendations involved logistics support centers, standard air munitions packages (munitions storage), and avionics intermediate repair and maintenance facilities. Air Force officials told us they had requested that the Industrial Joint Cross-Service Group consider the above candidate recommendations in its process, but the group declined and deferred to the Air Force because it was considering scenarios at a joint operational level rather than at the installation level. As a result, Air Force officials told us that they applied either a Mission Compatibility Index approach to these scenarios in deliberative session to assess installations for future missions or they recommended certain functions to follow the placement of aircraft in other Air Force recommendations. The Air Force recommended closing 10 installations (3 active, 3 Air Reserve, and 4 Air National Guard bases) and realigning 62 other installations. In total, the Air Force projected its BRAC recommendations to result in 20-year net present value savings of over $14 billion—the largest projected savings of any service or Joint Cross-Service Group—and net annual recurring savings of $1.2 billion. Table 17 shows the financial aspect of the Air Force recommendations. Over 80 percent of the projected 20-year savings are based on the first 5 recommendations shown in table 17, which involve closing two and realigning three active bases and have payback periods of 1 year or less. Conversely, the one-time costs of over $1.8 billion to implement all recommendations are primarily comprised of new military construction to implement the recommendations. Most of the Air Force’s recommendations involve realignment of Air Guard facilities with limited savings. For example, the Air Force is proposing to realign five Air National Guard stations, with payback periods greater than 10 years and $12 million in 20-year savings, with onetime costs of about $71 million. According to Air Force officials, these proposals were necessary because the Air Force recommendations are interwoven, depending on realignment actions from other recommendations. For example, 72 realignment and closure recommendations involving active and reserve installations were combined to create 42 candidate recommendations. At least one segment of all but 3 of the 42 Air Force recommendations that were combined affects the Air Force Reserve Command or Air National Guard. Based on our analysis we noted that the majority of the net annual recurring savings (60 percent) are cost avoidances from military personnel eliminations. However, eliminations are not expected to result in reductions to active duty, Air Reserve and Air National Guard end strengths, limiting savings available for other purposes. None of the recommendations included in the Air Force’s report involve consolidation or integration of activities or functions with those of another military service. However, the Air Force believes that its recommendations to realign Pope Air Force Base, North Carolina, and Eielson Air Force Base, Alaska, and to move A-10 aircraft to Moody Air Force Base, Georgia, will provide an opportunity for joint close air support training with Army units stationed at Forts Benning and Stewart, Georgia. Furthermore, the Air Force’s recommendations support transformation efforts by optimizing (increasing) squadron size for most fighter and mobility aircraft. According to the Air Force BRAC report, the recommendations maximize warfighting capability by fundamentally reshaping the service, effectively consolidating older weapons systems into fewer but larger squadrons, thus reducing excess infrastructure and improving the operational effectiveness of major weapons systems. We have previously reported that the Air Force’s could not only reduce infrastructure by increasing the number of aircraft per fighter squadron but could also save millions of dollars annually. Time did not permit us to assess the operational impact of each recommendation, particularly where recommendations involve multiple locations. Nonetheless, we offer a number of broad-based observations about the proposed recommendations and selected observations on some individual recommendations. Our analysis of the Air Force recommendations identified some issues that the BRAC Commission may wish to consider, such as the projected savings from military personnel reductions; impact on the Air National Guard, impact on other federal agencies; and other issues related to the realignments of Pope Air Force Base, North Carolina; Eielson Air Force Base, Alaska; and Grand Forks Air Force Base, North Dakota and the closure of Ellsworth Air Force Base, South Dakota. Our analysis showed that about $732 million, or about 60 percent, of the projected $1.2 billion net annual recurring savings are based on savings from eliminating military personnel positions. Initially, the Air Force counted only military personnel savings that resulted in a decrease in end strength. However, at the direction of OSD, the Air Force included savings for all military personnel positions that were made available through realignment or closure recommendations. The Air Force was unable to provide us documentation showing at the present time to what extent each of these positions will be required to support future missions. According to Air Force officials, they envision that most active slots will be needed for formal training, and all the Air Reserve and Air National Guard personnel will be assigned to stressed career fields and emerging missions. Furthermore, Air Force officials said that positions will also be reviewed during the Quadrennial Defense Review, which could decrease end strength. Either way, claiming such personnel as BRAC savings without reducing end strength does not provide dollar savings that can be reapplied outside personnel accounts and could result in the Air Force having to find other sources of funding for up-front investment costs needed to implement its BRAC recommendations. At least one segment of all but 3 of the 42 Air Force recommendations that were combined affects the Air Force Reserve Command or Air National Guard. The Air Force BRAC report lists 7 closures and 35 Air Reserve and Air National Guard realignments. Overall, 68 Reserve Command (12) and Air National Guard (56) installations were affected by a closure or realignment, or they received aircraft or missions from these actions. According to Air Force officials, its BRAC recommendations have resulted in a reduction of 29 installations with flying missions. Of these reduced installations with flying missions, over 75 percent, or 22, are from the Air National Guard. If implemented the BRAC recommendations will affect over 30 percent of the 70 Air National Guard and 13 Air Reserve installations with air flying units, respectively. Table 18 shows the reduction of flying units in the BRAC process by active force, Air Force Reserve Command, and the Air National Guard. Based on our analysis of COBRA data, we estimate that more than 1,419 positions in the Air Reserve and 5,700 positions in the Air National Guard will be affected by the proposed recommendations, in terms of military personnel and civilians eliminated and realigned. In recommendations affecting active installations, over 26,000 positions are affected (eliminated and realigned); however, since the Air Force has combined active and reserve component actions in some recommendations those positions also include additional Air National Guard and Air Reserve personnel. Also the Air Force recognizes that in moving Air National Guard and Air Reserve units, part-time military (commonly referred to as drill) personnel will also be affected since they will not be moved. A significant portion of the personnel associated with these units must be replaced at the gaining installation and will require training. At Air National Guard installations with flying units, over 30 percent have been recommended for realignment or retirement; many of the personnel positions associated with the units do not have missions. Air Force officials said they plan to use these positions for emerging missions in such areas as homeland security, unmanned aerial vehicles, and intelligence, which they expect to further refine as part of the ongoing Quadrennial Defense Review. Initially, many of the Air Force proposals involving the Air National Guard and Air Force Reserve with payback periods ranging from 10 to more than 100 years were stand-alone recommendations. Those recommendations linked by related operational realignment actions were grouped together to produce recommendations that had significant savings and minimized the longer payback periods. We found that this occurred in the realignment of Lambert-St. Louis International Airport Air Guard Station, Missouri, which originally had a 63-year payback period and resulted in a 20-year net present value cost of $22 million. However, this realignment is now a part of the closure of Otis Air National Guard Base, Massachusetts, and the realignment of Atlantic City Air Guard Station, New Jersey because of related operational realignment actions. The current combined recommendation results in a 20-year net present value savings of $336 million and a 3-year payback period. Figure 12 shows the various BRAC actions in this recommendation. For example, 18 F-15 fighter aircraft are realigned from Otis Air National Guard Base and Lambert-St. Louis Air Guard Station to Atlantic City Air Guard Station. Furthermore, all three Air Guard Stations also realign other aircraft to three separate installations, Nellis Air Force Base, Nevada; Burlington Air Guard Station, Vermont; and Jacksonville Air Guard Station, Florida. Finally, questions have been raised by various state officials whether the Secretary of Defense is authorized to close or realign Air National Guard bases without the consent of the state governor. DOD’s Office of General Counsel has not issued a legal opinion on this issue. According to an Air Force official, as of the date of this report, there have been no legal challenges brought against DOD regarding this issue. The Air Force recommendation to close Otis Air National Guard Base could impact the U.S. Coast Guard. While the Air Force officials recognized the Coast Guard could be affected if the base was closed, their cost and savings analysis did not consider any costs that could be incurred by the Coast Guard. Air Force officials stated they didn’t have access to credible cost data during the BRAC process since cost estimates would have been speculative; the Air Force could not assume the final disposition of the facility and how much, if any, of the facility the Coast Guard would opt to retain. The Coast Guard is in the process of developing potential basing alternatives, to include costs impacts, for each affected location. Subsequent to the recommendations being made public, the Coast Guard estimated that they would incur about $17 million in additional annual operating costs to remain at Otis Air National Guard Base. The realignment of Pope Air Force Base involves the transfer of 100 percent of the acres and facilities to the Army to become part of Fort Bragg, with a C-130 active/reserve associate unit remaining to support the Army. Our analysis indicates that there is a significant difference between the savings claimed by the Air Force and the costs projected by the Army regarding base operations support, recapitalization, and sustainment for facilities on Pope Air Force Base. For example, the Air Force claimed total net annual recurring savings of about $36 million for not providing base operations support and recapitalization and sustainment of facilities on Pope Air Force Base. However, the Army estimated total annual recurring costs for these areas to be about $19.5 million. This estimated cost comprises over $13 million from the Army as well as over $5.5 million from the Air Force to remain as tenant at Fort Bragg. According to Army officials, their estimated costs included taking ownership for all facilities on Pope Air Force Base. The Air Force is also proposing to realign Eielson Air Force Base by moving all active duty units, leaving the Air National Guard units, and hiring contractors to provide base operating support and maintenance and repair of the facilities. The Air Force projects this action would produce a 20-year net present value savings of $2.8 billion, the most of any Air Force recommendation. Air Force officials said the decision to realign Eielson was made because of the high cost of operating the base and its value as major training site. The officials noted that the realignment will enable the Air Force to expand an annual training exercise as well as provide opportunities for increase use of the training area by other Air Force units. However, we have some question about the facilities that need to be retained to support the training mission and Air National Guard units. While the Air Force plans to give up the base family housing, it appears that all other base facilities would be retained. For example, Air Force COBRA data indicates that there will be no reduction in the square feet of facilities. The data also indicates that 64 percent of the facilities will be sustained at current funding. The Air Force proposed to close Grand Forks Air Force Base but this was changed to a realignment by the Infrastructure Executive Council a week before the recommendations were finalized within the department. As a result, the projected savings were significantly reduced, as shown in table 19. The decision to realign rather than close the base did not affect the need to move current aircraft and associated personnel to other bases to achieve the active and reserve mix. According to the Air Force BRAC report, this change to a realignment was based on military judgment to keep a strategic presence in the north central United States and on the fact that Grand Forks Air Force Base ranked high for acquiring a possible unmanned aerial vehicle mission. Even though Grand Forks Air Force Base was retained for strategic reasons, Minot Air Force Base is also located in North Dakota and is not affected by any BRAC recommendation. Furthermore, Minot Air Force Base scored only 3.4 points less than Grand Forks Air Force Base in the unmanned aerial vehicle mission area. The Air Force is proposing to close Ellsworth Air Force Base, South Dakota, and move its 24 B-1 bomber aircraft to Dyess Air Force Base, Texas to achieve operational efficiencies at one location. Ellsworth Air Force Base ranked lower in the military value than Dyess Air Force Base. In the 1995 BRAC round, the Air Force considered but chose not to close Ellsworth Air Force Base out of concern over placing all B-1 aircraft at a single location. In contrast, one of the Air Force principles which guided the BRAC 2005 process emphasized consolidating or co-locating legacy fleets such as the B-1 aircraft. Air Force officials stated that they no longer had concerns about consolidating the B-1 fleet in one location because it does not have the same operational mission requirements it had 10 years ago. The Education and Training Joint Cross-Service Group followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for reviewing its functions and facilities. The group produced a relatively small number of recommendations (nine) compared with the amount of excess capacity it identified. The group reported that the Infrastructure Steering Group (ISG) or the Infrastructure Executive Council (IEC) had each disapproved two recommendations for various reasons, and four recommendations were rolled into military department recommendations and are discussed in appendixes related to these groups. The group’s recommendations are projected to produce $1.3 billion in net present value savings over a 20-year period. For these recommendations, the length of time required for the savings to offset closure costs varied widely, with two recommendations expected to take just 1 year, two other recommendations requiring 13 and 16 years, respectively, and one never having any payback. We identified issues regarding the projected savings and extended payback periods with some recommendations that may warrant further attention by the BRAC Commission. The DOD Inspector General and service audit agencies, which performed audits of the data used in the process, concluded that the data were sufficiently reliable for use during the BRAC process. The overarching goal of the Education and Training Joint Cross-Service Group was to pursue those educational and training economies and efficiencies that enhance readiness and promote academic synergies for more joint or interservice education. The group was chaired by the Principal Deputy Under Secretary of Defense (Personnel and Readiness), with senior-level members from Air Force Manpower and Reserve Affairs, Marine Corp Training and Education Command, Army and Naval Personnel, and the Joint Staff. This cross-service group was organized into four subgroups, focusing on (1) flight training, (2) specialized skill training, (3) professional development education, and (4) ranges. The group identified five principles that were used to provide focus to its work: Advance jointness: Declare jointness paramount for specific functions. Establish Joint National Training Capability. Achieve synergy: Jointly construct, co-locate or put in close proximity multiple functions that are mutually supportive. Increase cross- functional use of training and testing ranges. Capitalize on technology: Leverage distance learning capability to significantly reduce residential requirements. Exploit best practices: Establish centers of excellence. Outsource to alternative providers. Minimize redundancy: Identify common functional areas and eliminate duplication, reduce or avoid costs, standardize instruction, and increase efficiency. The organizational structure and the above guiding principles provided a framework to evaluate the potential of a broad series of transformational options to improve DOD education and training. Capacity and military value analysis became the starting point for the group’s analyses. The DOD Inspector General and service audit agencies performed an important role in ensuring the accuracy of data used in these analyses through selective audits of data gathered at various locations. To form the basis for its analyses, the group developed metrics in each of the functional areas to measure capacity and subsequently collected certified data linked to these metrics from various defense activities whose missions resided within these categories. Each subgroup developed metrics to analyze capacity and to compare the various functions. The major standards used by each subgroup are described below: For undergraduate fixed and rotary flight training, runway and airspace capacity were the primary metrics used to analyze capacity. Runway capacity for fixed wing aircraft was calculated using Federal Aviation Administration standards to define the number of runway operations that could be conducted during daylight hours for 244 training days, at 12 hours per day. This approach accounted for weather conditions, the number and configuration of runways, the mix of aircraft, and the percentage of touchdown/takeoff operations. Other metrics included the amount of ramp (apron) space and ground-training facilities, such as classrooms and simulators. For professional development education, capacity was based on classroom equivalent hours available on a 6-hour training day basis for 244 days a year. Classroom equivalent hours represent the number of 1- hour classes (15 students per class) that can be held in designated facilities, and they are based on available classroom space and instructor office space. For specialized skill training, capacity was measured by the student population that can be sustained by the number of available dormitory rooms, dining facilities, and classrooms. This figure was based on an 8- hour training day for 244 days per year. For ranges, capacity was based on the volume and time for training and open air testing at ground, air, and sea levels. Each subgroup focused its capacity analysis on the existing capability to perform specific functions. Surge requirements, where applicable, were determined by military judgment. Excess capacity was defined as current capacity less current usage plus surge capacity. As seen in table 20, significant excess capacity was identified across all education and training functions except for the ranges subgroup. The percentage of excess capacity includes consideration of surge requirements for all functions except professional development education. According to service officials, in the event of a mobilization, postgraduate educational institutions and facilities would cease to operate and the students would revert back to their warfighting duties. The surge requirements for the remaining functions were based on military judgment. For example, the flight and specialized skill training subgroups used a 20 percent surge factor based on a review of current planning documents and military judgment. Likewise, a 25 percent surge factor was used for training ranges and a 10 percent factor for test and evaluation ranges, based on military judgment. According to service officials, a higher surge factor was used for training ranges to meet anticipated training needs for contingencies and mobilization, while test and evaluation are more measured and predictable and less likely to generate large surge loads on test and evaluation missions. The group did not analyze the extent to which its proposed recommendations would reduce excess capacity across all education and training functions. Nonetheless, the Air Force estimated that the recommendation to consolidate undergraduate pilot training would reduce excess capacity by 2 percent. At the same time, the excess capacity identified will remain in undergraduate rotary wing training because the Navy could not agree on a scenario to consolidate training. Since there were no recommendations involving training ranges, there was no reduction in excess capacity in the sea and open air testing areas. Each subgroup developed military value scoring plans to analyze and rank each training facility using DOD’s four military value selection criteria. The subgroups assigned weighted values to each of the four criteria based on relative importance in assessing the military value of a site under each subgroup and related functions. Table 21 shows the weights for each subgroup. Some key assumptions used by the subgroups in developing scoring plans for military value include the following: Installations with larger capacities are of comparatively greater military value for flight training and specialized skill training. Managed training areas (particularly airspace) would be extremely hard to reconstitute if lost due to the BRAC process. Existing service qualitative training requirements must be maintained. Retain unique, one-of-a-kind assets or capabilities. Attributes varied by subgroup. For example, the flight training subgroup identified six attributes that included airfield capacity, weather, environmental constraints (air quality, noise abatement, and encroachment), quality of life, managed training areas, and ground training facilities. The professional development subgroup applied location (access to senior political and military decision makers), educational output, facilities, educational staff, and quality of life. The specialized skill training subgroup attributes included location, quality of life issues, training facilities/resources (number of classrooms and available housing), support for other missions, training mission/throughput, and environmental constraints/expansion potential. Finally, the attributes for the ranges subgroup included personnel (experience and education), workload, physical plant (available space and range features), synergy with other ranges, and encroachment. Figure 13 gives an example of how the flight training subgroup was linked to the military value criteria. The specialized skill training, professional development education, and ranges subgroups used similar approaches of attributes, metrics, and data call questions to link analysis back to the military value criteria. The DOD Inspector General and service audit agencies reviewed the data and processes used by each subgroup to develop their recommendations. The overall objective was to evaluate the validity, integrity, and documentation of the data used by the subgroups. The DOD Inspector General and service audit agencies used real-time audit coverage of data collection and analyses processes to ensure that the data used in the Education and Training Joint Cross-Service Group capacity analysis and military value analysis were reliable and certified. Through extensive audits of the data collected by each subgroup from field activities during the process, the Inspector General and service audit agencies notified the group about identified data discrepancies for the purpose of follow-on corrective action. While the process for validating data was quite lengthy and challenging, the Inspector General and the service audit agencies ultimately determined the education and training–related data to be sufficiently reliable for use in the BRAC process once the subgroups made corrections to all the discrepancies. Although corrections were later made, the group did not have accurate and complete capacity and military value data when it started developing potential closure and realignment scenarios, and therefore, it had to rely on incomplete data, military judgment, and transformation options in developing initial scenarios for consideration. However, certified capacity and military value data and results of COBRA analyses were subsequently used to support the group’s final candidate recommendations. The group initially identified 64 scenarios and selected 17 candidate recommendations that were forwarded to the ISG. Four of the recommendations were rejected by the ISG and IEC and 4 of the group’s recommendations were integrated into military service recommendations. Ultimately, 9 recommendations were approved by the IEC. Generally, scenarios were eliminated because they were alternatives to a recommendation that was selected or because the services objected to the scenario and the group leadership decided to delete it. For example, the professional development education subgroup developed three scenarios to streamline graduate education courses—two to consolidate these functions at existing military facilities and another to obtain graduate-level education at civilian colleges and universities. The group selected the privatization option because of the significant savings; however, it was rejected by the IEC, as discussed later. The professional development education subgroup also developed nine scenarios to realign the senior- level education courses provided by the service war colleges. The group elected to relocate the service war colleges under the National Defense University as the “best choice” option because it establishes a joint strategic center of excellence in the National Capitol Region. However, the IEC rejected this option, as discussed later. Finally, the flight subgroup developed eight alternatives to consolidate undergraduate pilot training. However, the Navy and the Air Force objected to these scenarios because they believed they would result in too much disruption to the pilot production pipeline. The flight training subgroup was the only subgroup that used an optimization model in its scenario analysis. The subgroup used it to identify potential locations to consolidate undergraduate fixed wing pilot training functions among 11 installations. According to flight subgroup officials, the model was not used for rotary wing pilot training because there are only two locations where this training is conducted. Likewise, they noted that it was not used to select sites for the Joint Strike Fighter and Unmanned Aerial Vehicle training because there were limited sites selected for this training. Officials from the other three subgroups stated they did not use the model because of the limited number of facilities or functions reviewed. For example, the professional development education subgroup compared from two to six locations within each scenario, so the team manually developed scenarios by maximizing military value and capitalizing on excess capacity. The group estimated that its recommendations will produce $1.3 billion in 20-year savings and $236 million in net annual recurring savings. Table 22 provides a summary of the financial aspects of the group’s recommendations, all of which are realignment actions. Our analysis indicates that $1.3 billion, or over 95 percent, of the group’s projected 20-year savings results from two recommendations that involve only the Army—the combat service support center and the air defense artillery center. The greater part of the projected savings from these two recommendations is based on military personnel reductions. While five of the nine recommendations would foster jointness, they have limited projected savings. For example, the three recommendations that would establish joint centers of excellence for training (culinary, transportation management, and religious studies) are projected to produce only $45.6 million, or less than 1 percent, of the projected 20-year savings. Furthermore, the recommendation to consolidate the Joint Strike Fighter training has a payback period of never and a 20-year net present value cost of $226 million. Time did not permit us to assess the operational impact of each of the Education and Training Joint Cross-Service group’s recommendations, particularly where operations proposed for consolidation extend across multiple locations outside of a single geographic area. While available data supporting the recommendations suggest that their implementation should provide for more efficient operations within DOD, the BRAC Commission may wish to consider the basis for the group’s assumptions about military personnel reductions, because these have a significant impact on the recommendations’ annual recurring savings and the potential benefits in relation to the investment costs for recommendations with longer payback periods. Significant portions of the savings in three recommendations—combat service support, air defense, and aviation logistics—are related to military personnel reductions. These recommendations represent $217 million, or 92 percent of the Education and Training Joint Cross-Service Group’s projected net annual recurring savings. Our analysis indicates that about $174 million of the net annual recurring savings is based on eliminating over 2,000 military positions within the Army. However, the Army does not plan to reduce its end strength by 2,000 in implementing these actions. These projected revenues do not represent dollar savings that can be readily reallocated to other accounts and applied to other priorities such as modernization, an area typically cited as a potential beneficiary of BRAC savings. Our analysis shows that without the savings from the military personnel reductions, the payback for the combat service support recommendation increases to 35 years, and for both the air defense and aviation logistics recommendations there would be no payback. The group has proposed one recommendation that has no expected payback period and two others that have payback periods that exceed 10 years, far longer than the average payback typically associated with recommendations in the 1995 BRAC round. The recommendation to establish an integrated training center for the Joint Strike Fighter at Eglin Air Force Base, Florida, has no expected payback period, one-time cost of $199 million ($168 million is for military construction), and annual recurring cost of $3.3 million. This recommendation calls for the realignment of nearly 800 military positions—675 maintenance and 115 pilot—from five military installations to Eglin Air Force Base to train entry- level aviators and maintenance technicians from the Navy, Marine Corps, and Air Force in how to operate and maintain the new Joint Strike Fighter aircraft when produced and deployed. According to the chairman of the flight training subgroup, the recommendation does not provide the opportunity to generate savings through the consolidation and alignment of similar personnel because it is a new mission. However, this recommendation would establish a baseline program in a consolidated/joint school with a curriculum that brings a joint perspective to the learning process. The two recommendations with payback periods greater than 10 years affect the Army. For example, the recommendation to relocate the Army Prime Power School from Fort Belvoir, Virginia to Fort Leonard Wood, Missouri, has a 16-year payback period, onetime cost of $6 million, and a 20-year net present value savings of less than $1 million. According to the DOD BRAC report, implementation of this recommendation consolidates engineer courses at Fort Leonard Wood, since the common-core phase of engineer courses are already taught at Fort Leonard Wood. Likewise, the recommendation to realign Fort Eustis, Virginia by relocating the Aviation Logistics School and consolidating it with the Aviation Center and School at Fort Rucker, Alabama has a 13-year payback period, one-time cost of $492.3 million, and a 20-year net present value savings of only $77.4 million. According to the DOD BRAC report, consolidating aviation logistics training with the Aviation Center and School fosters consistency, standardization, and training proficiency. The proposed recommendations do little to reduce the significant excess capacity (see table 20) that was identified in undergraduate pilot training for both fixed and rotary wing aircraft. The Education and Training Joint Cross-Service group identified several scenarios to consolidate undergraduate pilot training that could have enabled some base closures, but the group was unable to get the military services to agree to a joint solution. As a result, the Air Force made a proposal to realign its undergraduate pilot training and consolidate its navigator training with the Navy, which DOD adopted. However, the approved recommendation did not include rotary wing flight training. According to the chairman of the flight training subgroup, the capacity and military value analysis clearly showed that sufficient space is available at Fort Rucker for the Navy undergraduate rotary wing program to relocate from Naval Air Station Whiting Field, Florida, to Fort Rucker with limited renovation or military construction. However, the chairman noted that his group could not get the Navy to agree to the consolidation because of the Navy’s concerns over how such actions would affect other training schedules, so it was not pursued. The Education and Training Joint Cross-Service group also developed a proposal to privatize graduate education that was conducted at the Naval Postgraduate School at Monterey, California, and the Air Force Institute of Technology at Wright-Patterson Air Force Base, Ohio. The group estimated that the proposal would produce $14 million in 20-year savings, with payback in 13 years, and enable the closure of the Monterey location. However, the IEC removed this recommendation late in the process because they believed that relying on the private sector to fulfill this requirement is too risky. According to the Navy’s Special Assistant for BRAC, the Chief of Naval Operations did not want to lose the synergy and interaction between U.S. and foreign students who attended the postgraduate school, and there were questions over whether all graduate- level courses would be available at civilian institutions. The group also developed a recommendation to consolidate all the military services’ senior war colleges at Fort McNair, Washington, D.C., making them one college of the National Defense University. The group estimated that the proposal would produce $213 million in 20-year savings, with payback in 2 years. All of the military services voiced concerns about this recommendation. The Air Force believed that this recommendation would significantly degrade its Center of Excellence for Professional Military Education that includes extensive curriculum for air centric studies located at Maxwell Air Force Base, Alabama. The Navy believed that the existing system already has joint educational forums to address executive-level interchange, and it is unclear what would be gained by creating a single senior war college. Finally, the Army opposed the recommendation because it would move senior leaders and their families to the National Capital Region for 10 months. Based on the services’ concerns, the IEC rejected the proposal. However, the group, with the Army’s concurrence, developed a recommendation to move the Army War College, Pennsylvania, to Fort Leavenworth, Kansas, and consolidate it with the Army Command and General Staff College at a single location. This proposal would have enabled the closure of Carlisle Barracks in Pennsylvania, with projected 20-year savings of $555 million and a 2-year payback period. However, the IEC rejected this proposal because it wanted to maintain the proximity to Washington, D.C. that provides access to key national and international policy makers as well as senior military and civilian leaders. Finally, the group developed eight scenarios to promote joint management of the military services’ training ranges. These options included utilizing a joint national urban operations training center and establishing three joint regional range coordination centers. The group ultimately proposed one recommendation to establish three regional joint range coordination centers, which it projected would have a 20-year cost of $138 million and no payback. The ISG rejected this recommendation because it deals with a program action as opposed to a BRAC-related issue. The Headquarters and Support Activities Joint Cross-Service Group followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for reviewing its functions and facilities. The group produced 21 recommendations, each of which resulted in multiple closures or realignments of activities, mostly from leased space onto military bases intended to consolidate commands, reduce costs, and enhance force protection. Nine other recommendations were referred to other joint cross-service groups or military services for inclusion in their reports. The group’s 21 recommendations are projected to realize $9.5 billion in net present value savings over 20 years. The payback period, or length of time required for the savings to offset closure costs for the recommendations discussed here, varied widely, from immediate to up to 16 years. We have identified some issues that suggest uncertainty about the level of savings likely to be realized, which the BRAC Commission may want to consider in its analysis of the proposed recommendations. The DOD Inspector General and service audit agencies, which performed audits of the data, concluded that the data were sufficiently reliable for use during the BRAC process, but did raise issues of concern impacting some recommendations. The Headquarters and Support Activities Joint Cross-Service Group comprised six senior-level principal members, representing each service, the Office of the Secretary of Defense, and the Joint Chiefs of Staff. The group was chaired by the Army Assistant Deputy Chief of Staff for Programs, and principal members included the Commandant, Naval District Washington; the Marine Corps Assistant Deputy Commandant for Manpower and Reserve Affairs; the Administrative Assistant to the Secretary of the Air Force; the Office of the Secretary of Defense Deputy Director for Administration and Management; and the Chief of the Forces Division, Joint Staff. The group analyzed common headquarters-, administration-, and business-related functions across DOD, covering the military services, and defense agencies and activities. The group’s objectives were to eliminate redundancy, duplication, and excess capacity; utilize best business practices; increase effectiveness, efficiency, and interoperability; and reduce costs. The group organized itself into three subgroups: (1) major administrative and headquarters activities, (2) geographic clusters and functional, and (3) mobilization. The major administrative and headquarters activities subgroup focus included headquarters activities in leased and DOD-owned space within and outside a 100-mile radius of the Pentagon, combatant, service component, and supporting commands, and reserve and recruiting headquarters. The geographic clusters and functional subgroup examined installation management within geographic clusters, Defense Finance and Accounting Services headquarters and field offices, correctional facilities, and civilian and military personnel centers. The mobilization subgroup looked at the potential for joint mobilization sites. Capacity analysis identified the current inventory of administrative space, while the military value analysis became the starting point for developing recommendations as they applied to the four military value selection criteria. The DOD Inspector General and service audit agencies performed an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. To form the basis for its analyses, the group developed metrics in each of the functional areas to measure capacity and subsequently collected certified data from the military services and defense agencies and activities. In most cases, the group used a single metric, a standard factor of 200 gross square feet per person in analyzing existing administrative space requirements. The group also used fiscal year 2003 inmate population and current and maximum operational capacities for correctional facilities, and it used fiscal year 2004 personnel processing numbers and peak processing capacities at military installations serving as reserve component mobilization sites to estimate mobilization excess capacity figures. The capacity analysis identified excess capacity across all functions analyzed—even when surge requirements were considered. As shown in table 23, excess capacity ranged from 14 percent to 87 percent across various capacity metrics in functional categories after applying a surge factor to figures for major administrative and headquarters installations and facilities and correctional facilities. The table provides the amount of the aggregate excess capacity for each of the functional categories; however, the amount of excess capacity varies by individual installation and activity. In calculating excess capacity estimates for each of the eight categories, the group analyzed the data call responses pertaining to current capacity, maximum potential capacity, current usage, and space required for surge, using a standard factor of 200 gross square feet per employee. Subtracting current usage and surge space requirements from maximum potential capacity resulted in the excess capacity estimates. The group used a variety of approaches to consider surge requirements. For example, the major administrative and headquarters activities subgroup determined surge requirements through specific data call questions and then used these requirements in the capacity analysis in terms of requirement and space evaluations. The correctional facilities function within the geographic clusters and functional subgroup considered surge as a function of demand against maximum potential capacity. At the same time, the geographic clusters and functional subgroup determined that military personnel centers had been operating in a surge mode for the past several years and did not require additional surge capacity to be retained. The group did not determine the aggregate impact its recommendations had on reducing excess capacity. The group’s military value analysis was directly linked to the four military value selection criteria, as required by the BRAC legislation. The group assigned military values to 25 civilian personnel offices, 10 military personnel centers, 17 correctional facilities, 26 Defense Finance and Accounting Service sites, 65 installation management sites, 334 major administrative and headquarters installations and activities, and 66 mobilization sites. Each functional group developed weighted values for each selected criteria by first asking each group member to assess weights across the military value selection criterion, ranking them from highest to lowest in importance to military value. Once the rankings were determined, the weights generated for each group member were compared and, if they were close, the weights were adopted. If not, the group discussed the differences and reached agreement. Table 24 shows the various weights assigned to each of the four military value selection criteria. The group’s assessment of military value included development of attributes (characteristics, facts, etc.), metrics or measures, and data call questions for each of the three subgroups. Figure 14 demonstrates an example of how attributes, metrics, and data call questions were linked back to the BRAC military value selection criteria for the major administrative and headquarters activities subgroup. The geographic clusters and functional subgroup and the mobilization subgroup used similar approaches of attributes, metrics, and data call questions to link the analysis back to the military value selection criteria. For example, the geographic clusters and functional, and major administive and headquarters subgroups developed metrics and data call questions addressing force protection issues. Using mostly certified data, the headquarters group examined the capabilities of each function from questions developed to rank activities from most valued to least valued. Exceptions occurred where military value responses were slow in arriving, contained obvious errors, or were incomplete, and in these cases judgment-based data were used. For example, in about 30 cases, activities in leased space did not respond to particular data call questions addressed to the leased space building manager nor did they identify what entity managed the building. After numerous follow-ups with the activities and meetings with representatives of the Washington Headquarters Service and Army Corps of Engineers— property agents for DOD—the group decided to use judgment-based data derived from functional subject matter experts, in consultation with the military departments and defense agencies. In an October 2004 memorandum to the Infrastructure Steering Group describing military value scoring plan changes, the Headquarters and Support Activities Joint Cross-Service Group concluded that based on an analysis of the effect of the missing, wrong, and incomplete data on proposals, there were some data issues that could affect the generation and comparison of proposals by the group members. However, improvements to the data occurred over time, and as of May 2005, when the military value analysis was completed, the group reported that a vast majority of its data were certified. We were told by a group operations research analyst that 99 percent of the analysis was determined by certified data and less than 1 percent by judgment- based data. The DOD Inspector General and service audit agencies reviewed the data and processes used by each subgroup to develop their recommendations; the military service audit agencies reviewed data inputs from the services, and the Inspector General reviewed data inputs from defense agencies and activities. Their objectives were to validate the data and the adequacy of the supporting documentation. The process for detecting and correcting data errors was quite lengthy and challenging. Through their audits of the data collected from field activities during the process, audit agencies notified the group as data discrepancies were discovered so that follow-on corrective actions could be initiated. The military service audit agencies concluded that the information was sufficiently reliable for its intended purpose. Assessments by the DOD Inspector General’s office of the data it reviewed were more mixed. In its June 10, 2005 draft report on the Headquarters and Support Activities Joint Cross-Service Group’s data integrity and internal control process for BRAC, the DOD Inspector General’s office concluded that after corrections were made, the group generally used certified data and created an adequate audit trail for its capacity, military value, and cost of base realignment actions. However, the Inspector General’s office raised issues involving estimated one-time savings associated with vacating leased space and consistency in rounding to estimate personnel savings. According to group officials, the Inspector General’s issues were discussed with group leadership, and they decided in deliberative session that the approaches taken by the group were the most fair and accurate approaches available and should be retained. Our analysis indicates that the two issues identified by the Inspector General would reduce projected savings. Our analysis shows that if the one-time cost savings associated with antiterrorism and force protection are excluded, the 20-year net present value savings would be reduced by $268.4 million, the payback periods for 7 of the 15 affected recommendations would be extended by 1 year, and 3 years for one recommendation. Also, for the two recommendations identified by the Inspector General as using abnormal rounding techniques to estimate personnel reductions, the projected 20-year net present value savings in one case would be reduced from $13.5 million to a $749,000 cost, and for the other recommendation, the 20-year net present value savings drops from approximately $4.9 million to $ 2.6 million. The Headquarters and Support Activities Joint Cross-Service Group developed proposals without receiving all the data they had requested from numerous activities. As such, the group relied on transformational goals and military judgment to develop its initial proposals. The group also used certified data to support or reject its proposals, data which the DOD Inspector General audited for accuracy. The group used the optimization model on a limited basis for a few functional areas because potential for those functional realignment possibilities was generally slight. The following transformation options helped guide the group in developing initial proposals: Consolidate management at installations with shared boundaries and in geographic clusters. Consolidate or co-locate civilian and military personnel offices. Consolidate Defense Finance and Accounting Service central and field offices. Establish and consolidate mobilization sites and establish joint deployment processing sites. Justify locations for headquarters, commands, and activities within 100 miles of the Pentagon. Eliminate leased space. Consolidate multi-location headquarters at single locations, and eliminate stand-alone headquarters. Consolidate corrections facilities. Co-locate reserve and active component recruiting headquarters, and eliminate reserve force management organizations. Regionalize common headquarters, administrative, and business-related common support activities. The group initially developed 117 proposals, based on these transformational options and military judgment, to include alternative proposals being requested by the Infrastructure Steering Group (ISG). The group settled on 50 recommendations that were initially forwarded to the ISG. Seventeen of them were subsequently consolidated with other recommendations; 2 were rejected by the ISG and one by the Infrastructure Executive Council. Also, 9 recommendations were transferred to other cross-service groups or military departments for inclusion in their reports. That left 21 recommendations that the group addressed in its report and accordingly are addressed in this appendix. The Headquarters and Support Activities Joint Cross-Service Group projects that its 21 recommendations will produce a 20-year net present value savings of $9.5 billion, net annual recurring savings of about $914 million, and payback, or length of time required for the savings to offset closure costs for the recommendations, that varies widely from immediate to up to 16 years. Table 25 provides a summary of the financial aspects of the group’s recommendations. In total, the group estimates that its recommendations will require a total investment of $2.5 billion, primarily for new military construction and moving personnel from leased space onto military bases, and will ultimately result in net annual recurring savings of $914.2 million. Our analysis indicates that about 92 percent of the annual recurring savings results from reductions in military and civilian employment levels (about $270 million, and about $267 million respectively) and the elimination of future lease payments for administrative office space ($300 million). Eighteen of the group’s recommendations are expected to realize savings within 10 years of completing the BRAC realignment and closure actions, while 3 have a payback period greater than 10 years. Time did not permit us to assess the operational impact of each recommendation, particularly where operations are proposed for consolidation across multiple locations outside a single geographic area. However, we offer a number of broad-based observations about the proposed recommendations. While available data supporting the recommendations suggest that their implementation should provide for more efficient operations within DOD, the BRAC Commission may wish to consider the basis of the group’s assumptions for personnel reductions because they have a significant impact on the recommendations’ savings; the assumptions regarding vacating leased facilities because including antiterrorism and force protection savings also has an impact on the recommendations’ savings; challenges to implementing joint basing; cases where realignment actions with long payback periods were combined with actions with shorter durations; stand-alone actions where the payback period exceeded 10 years; and proposals eliminated prior to release of the final recommendations. Approximately $537 million, or about 59 percent, of the group’s projected net annual recurring savings are based on reductions in the number of military and civilian personnel eliminated as a result of the BRAC actions. The process used raises questions about the projected savings. The group initially used generic savings factors to estimate the number of personnel positions that could be eliminated when organizations were co-located or consolidated. These factors were developed on the basis of comments from subject matter experts and research of various databases available through the Pentagon library or the Internet. The group found that personnel reductions from 14 percent to 30 percent resulted from consolidation of organizations and 7 percent to 15 percent when they were co-located. The group adopted these personnel savings factors because the information it did collect on the number of personnel performing common support functions within the affected organizations could not be used and believed it did not have sufficient time to perform more precise manpower studies. The group used these savings factors consistently as starting points in negotiating the number of personnel reductions with the military departments and defense agencies and activities. In most cases the negotiated estimates were accepted, but in some cases the group imposed a personnel reduction percentage when negotiations failed. For example, in analyzing the costs and savings associated with relocating the Army Materiel Command from temporary lease space on Fort Belvoir, Virginia, to Redstone Arsenal, Alabama, the group leadership decided to impose a 7 percent personnel elimination based on expected economies of scale from co-locating the command with one of its major subordinate activities. Our analysis showed that the percentage factor used to estimate personnel reductions for all recommendations ranged from zero percent to about 42 percent. A separate area of concern involves savings reported for military personnel. Our analysis indicates that the group’s recommendations propose to eliminate 2,479 military positions, which would result in about $270 million in net annual recurring savings. However, service officials indicate that they do not plan to reduce their end-strength based on these proposed eliminations but rather reallocate these positions elsewhere within the force structure. Since these military personnel will be assigned elsewhere rather than removed from the force structure, the projected savings do not represent dollars that can be readily allocated outside the personnel accounts to other purposes. Fifteen of the group’s recommendations include a one-time savings of over $300 million from moving activities from leased space onto military installations. For example, these recommendations, if approved, would reduce total DOD leased space within the National Capital Region from 8.3 million square feet to about 1.7 million square feet, or by 80 percent. While our prior work generally supports the premise that leased property is more expensive than government owned property, the recommendations related to vacating leased space also raises questions about a limitation in projected savings and impact on local communities. The one-time cost savings represents costs expected to be avoided in the future by moving from leased facilities onto government owned and protected facilities rather than upgrading existing leased space to meet DOD’s antiterrorism and force protection standards. According to a DOD official, the department put together a task force after the June 1996 Khobar Tower bombing incident in Dhahran, Saudi Arabia, of mostly engineers to develop minimum force protection standards for all DOD- occupied locations. The official also stated that application of the standards in BRAC was not the result of a threat or vulnerability assessment of the affected facilities. The Pentagon Force Protection Agency will shortly begin a 10-month antiterrorism and force protection vulnerability assessment of about 60 DOD-occupied leased buildings in the National Capital Region. This assessment will provide DOD with information to estimate the costs and feasibility of upgrading leased facilities to the antiterrorism and force protection standards. The force protection standards for leased buildings apply only where DOD personnel occupy at least 25 percent of the net interior usable area; only to the portion of the building occupied by DOD personnel; and to all new leases executed on or after October 1, 2005, and to leases renewed or extended on or after October 1, 2009. Initially, the group prepared military value data call questions that could determine whether a leased location met the force protection requirements. However, group officals stated that most of these questions were discarded because of inconsistencies in how the questions were answered except for the percentage of DOD personnel occupying buildings. The group applied the cost avoidance factor consistently to all leased locations but did not collect data that would indicate whether existing leases met the standards, which could possibly result in application of the factor at locations meeting the force protection requirements. For example, the group applied over $2 million in one-time force protection cost avoidance to relocate a Navy human resources service center from the Stennis Space Center, Mississippi, to the Naval Support Activity, Pennsylvania, even though the Stennis Space Center may be as secure as any military installation. If these one-time savings, as shown in the final recommendations forwarded to the BRAC Commission, are not considered in the cost and savings analysis, our analysis shows that the projected 20- year net present value savings decrease by 3 percent ($268.4 million), the payback period increases by 1 year for 7 of 15 recommendations, and by 3 years for one recommendation as shown in table 26. After the final recommendations were released to the BRAC Commission, the group found errors in some recommendations, affecting one-time estimated savings and other costs and savings, which were still in the process of being corrected at the time of this report. Furthermore, four of the Headquarters and Support Activities Joint Cross- Service Group’s recommendations involve moving personnel from leased space to Fort Belvoir, Virginia, mostly at the engineering proving ground, increasing Fort Belvoir’s population by about 10,700. The recommendations include military construction projects to build facilities for these personnel on Fort Belvoir. In addition, the recommendations include a $55 million Army estimate to improve roads and other infrastructure in the area surrounding the fort. However, it is uncertain at this time whether this will be sufficient to fully support the impact on the surrounding community’s infrastructure, or the likelihood that federal assistance is likely to be sought by local governments to help communities reduce the impact—costs that will have the effect of increasing one-time costs and offsetting short-term savings from the recommendations. Implementation Challenges While the proposal to create joint bases by consolidating common installation management functions is projected to create greater efficiencies, our prior work suggests that implementation of these actions may prove challenging. The joint-basing recommendation involves one service being responsible for various installation management support functions at bases that share a common boundary or are in proximity to one another. For example, the Army would be the executive agent for Fort Lewis, Washington, and McChord Air Force Base, Washington, combined as Joint Base Lewis-McChord. However, as evident from our recent visit to both installations and discussions with base officials, concerns over obstacles such as seeking efficiencies at the expense of the mission, could jeopardize a smooth and successful implementation of the recommendation. Further, Air Force officials stated that most military personnel at McChord are mission critical and deployable, increasing the difficulty to identify possible Air Force military personnel reductions. The group projects 20-year net present value savings of about $2.3 billion, with net annual recurring savings of about $184 million. More than 90 percent of the recurring savings reported represent military (54 percent) and civilian (37 percent) personnel reductions. The group applied personnel reductions ranging from 1 to 10 percent for each of the 12 locations included in the joint basing recommendation. The actual percentage used for each location was negotiated between the group and the military departments based on the size of base populations and the kind of services provided. In our June 2005 report we noted that DOD and the military services’ ability to forecast base operations support requirements and funding needs has been hindered by the lack of a common terminology for defining base support functions, as well as by the lack of a mature analytic process for developing base support requirements. We also reported challenges in maintaining adequate funding to meet base operating support requirements and facility upkeep. We concluded that until such problems are resolved, DOD will not have in place the management and oversight framework needed for identifying total base support requirements and ensuring adequate delivery of services, particularly in a joint environment. In its comments to a draft of our June report, DOD indicated that it expects to release a new facilities operation model by December 1, 2005, and use it to develop the fiscal year 2008 program and budget. DOD stated that it is also conducting a cross-department initiative to develop definitions for the common delivery of installation services and expects to complete this effort by December 2005. However, regarding modeling efforts, a Senior Joint Basing Group official expressed doubt during our review whether there would be a single funding model because base operating support, as it currently exists, has too many diverse activities to model. He indicated that it is more likely that a suite of tools will evolve over time. The headquarters group consolidated some recommendations with more than 10-year payback periods, far longer than typical payback periods in the 1995 BRAC round, with other proposals having shorter returns on investment. In total, 8 of the 21 final recommendations were actually packages that consolidated two or more recommendations approved by the joint cross-service group as stand-alone candidate recommendations. We found that in 7 instances, the more than 10-year payback periods of initially stand-alone proposals tended to be masked after they were combined in such packages. For example, the group developed a proposal to move the Army Materiel Command from Fort Belvoir, Virginia, to Redstone Arsenal, Alabama, which showed a 20-year net present cost and a 100-year payback period by not having to spend about $71 million to construct a permanent facility for the headquarters at Fort Belvoir. Had the construction savings been included in the recommendation, the payback period would have been 32 years. Concurrently, the group developed a separate proposal to relocate various Army offices from leased and government-owned office space mostly onto Fort Sam Houston, Texas, which would result in a 20- year net present value savings of about $277.4 million and a 3-year payback period. The group decided to combine these two stand-alone proposals so that all Army headquarters related activities were addressed in one recommendation with an estimated 20-year net present value savings of about $123 million with a 10-year payback. The group proposed three recommendations that have an estimated payback period exceeding 10 years and one-time costs for implementation that greatly exceeds the expected 20-year net present value savings. The cost, savings, and expected benefits for these recommendations are described below: The recommendation to co-locate military department and DOD security clearance adjudication and appeals activities to Fort Meade, Maryland, has an estimated payback of 13 years, one-time cost exceeding $67 million, and 20-year net present value savings of only $11.3 million. According to the DOD final BRAC report, implementation of this recommendation would co-locate adjudication activities, reduce lease costs, and enhance security. The recommendation to consolidate the Defense Commissary Agency Eastern and Midwestern regions and a leased site in Hopewell, Virginia, to Fort Lee, Virginia, has an estimated 14-year payback period, one-time cost exceeding $47 million, and 20-year net present value savings of only $4.9 million. According to the DOD BRAC report, implementation of this recommendation would consolidate headquarters operations at single locations, enhance security, and reduce lease costs. The recommendation to establish joint regional correctional facilities has an estimated 16-year payback period, one-time cost of almost $179 million, and 20-year net present value savings of only $2.3 million. For example, the recommendation would establish the Midwest Joint Regional Correctional Facility by relocating correctional functions currently located at Lackland Air Force Base, Texas; Fort Knox, Kentucky; and Fort Sill, Oklahoma, to Fort Leavenworth, Kansas. According to the DOD BRAC report, implementation of this recommendation would improve jointness, centralize corrections training, and eliminate or significantly reduce old inefficient facilities. Three recommendations were initially approved by the group; two were later rejected by the ISG and another by the IEC. The ISG rejected the recommendation to relocate U.S. Southern Command, Miami, Florida, from its leased space to a state-owned leased space also in Miami with no explanation. Group officials stated the ISG rejected the U.S. Southern Command recommendation because costs associated with the relocation were too high. The ISG also rejected the relocation of U.S. Army Pacific Headquarters from Fort Shafter, Hawaii, to Pearl Harbor, Hawaii, because of Pacific Command Combatant Commander and the Army concerns regarding future requirements of U.S. Army Pacific Headquarters. The recommendation rejected by the IEC to co-locate military department and DOD medical activities to the National Medical Center, Bethesda, Maryland was discarded because of cost and long payback issues. In other cases, Headquarters and Support Activities Joint Cross-Service Group members considered proposals that could have fostered jointly operated support activities, but they were later dropped on the basis of cost considerations and perceived operational risks. For example, the group considered co-locating all military personnel offices at one location. However, in analyzing this proposal, the group determined that implementing the joint proposal would be very costly, while also citing concerns about the uncertain availability of skilled employees at a single location to operate the joint facility. Therefore, the group concluded that it was better to co-locate or consolidate personnel centers within the individual military departments. Similarly, for civilian personnel centers the group developed a proposal to consolidate 25 offices that are currently operated by the military departments and defense agencies into 10 DOD “joint” offices. However, the proposal was dropped after concerns were raised by one military department that the risks associated with implementing joint personnel offices concurrently with processing paperwork supporting other BRAC-related personnel moves and implementing a new standardized personnel data system were too high. Consequently, the IEC directed the group to revise its proposal. The group revised its proposal to provide for consolidating the 25 current offices into 12 offices—4 to be operated by the Army, 4 by the Navy, 1 by the Air Force, and 3 by a single agency providing support to the defense agencies. While DOD did not recommend the creation of joint military personnel offices or joint civilian personnel offices, it is important to note that each of the initial proposals included justifications citing ongoing efforts within the department to establish standardized personnel processes and systems. The recommendation to co-locate components of the U.S. Transportation Command does not include the Navy Military Sealift Command, one of the service component organizations. The group developed a proposal to move the Army and Navy component of the Transportation Command to Scott Air Force Base, Illinois. While the Army agreed to the proposal, the Navy did not believe that the group should be proposing to move the Military Sealift Command because it was considered an operational headquarters and not an administrative function under the purview of the Headquarters and Support Activities Joint Cross-Service Group. The ISG agreed with the Navy and deleted the Military Sealift Command from the recommendation, which reduced projected 20-year net present value savings from $1.30 billion to $1.28 billion. The Industrial Joint Cross-Service Group followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for completing its review. The group initially produced 34 candidate recommendations; 3 were disapproved by the Infrastructure Executive Council (IEC); and several were subsequently integrated into larger military service recommendations. As a result, the group had 17 remaining recommendations that are addressed in this appendix. These 17 recommendations represent a mixture of closures and realignments with the realignments often encompassing the consolidation of various types of industrial workloads at fewer locations. Although some of the recommendations may be considered transformational, limited progress was made in recommending major actions to foster greater interservicing among the services. Industrial group officials said this was due to economic and military value considerations as well as the downsizing of maintenance facilities in prior BRAC rounds. Altogether, DOD projects these recommendations to produce about $7.6 billion in net present value savings over a 20-year period; nearly all are projected to have short payback periods (time required to recoup up-front investment costs) with expected savings offsetting expected implementation costs either immediately or within a few years. One recommendation has a payback period exceeding 10 years. However, uncertainty exists about the precision of the savings estimates because many estimates are based on efficiency gains that are yet to be validated and other factors. Further scrutiny by the BRAC Commission of this and other recommendations may be warranted to assess the impact of reductions against future force structure needs or capacity constraints. The DOD Inspector General and the military service audit agencies, which performed audits of the data, concluded that the data were sufficiently reliable for use during the BRAC process. The industrial group was composed of senior-level principal members from the installations directorates for each service, the Defense Logistics Agency (DLA), and the Joint Chiefs of Staff and was supported by staff from these organizations. The Under Secretary of Defense (Acquisition, Technology and Logistics) chaired the group, which in turn forwarded its proposed recommendations to the Infrastructure Steering Group (ISG) for its review and approval. The group organized its BRAC analyses around three subgroups: (1) maintenance, (2) ship overhaul and repair, and (3) munitions and armaments. All of the subgroups focused their work similarly on identifying opportunities for reducing excess capacity. The industrial group’s analytical process included a review of nine distinct industrial areas across each of the military services. They included: (1) ground vehicles, aircraft, and other depot maintenance; (2) ground vehicles, aircraft, and other intermediate maintenance; (3) ship depot maintenance; (4) ship intermediate maintenance; (5) munitions production; (6) munitions storage; (7) munitions demilitarization; (8) munitions maintenance; and (9) armaments production. As per the BRAC process outlined by OSD, capacity analysis and military value analysis provided the starting point for the cross-service group’s work. The DOD Inspector General and service audit agencies performed an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. To form the basis for its analysis, the group developed metrics in each of the nine industrial areas to measure current capacity and subsequently collected certified data linked to these metrics from various defense activities across the country whose missions resided within these categories. While the most predominate metric was direct labor hours— used by both the maintenance and ship overhaul and repair subgroups exclusively and by the munitions and armaments subgroup in some instances—the munitions and armaments subgroup also used other metrics for measuring capacity. For example, for measuring munitions production, the subgroup used pounds and units, and for measuring munitions storage, the subgroup used square feet and short tons. The disparate nature of the functions analyzed by the group did not lend itself to a “one size fits all” analytical approach and each of the three subgroups conducted its own capacity analysis. The munitions and armaments and ship overhaul and repair subgroups defined excess capacity as the difference between current capacity and current usage. For depot maintenance, the maintenance subgroup defined excess capacity as the difference between current capacity and the larger of current usage or core requirements. Core requirements are those workload needs that must be performed in organic rather than contractor facilities. For intermediate maintenance, the maintenance subgroup defined excess capacity as the difference between current capacity and current usage. The cross-service group’s capacity analysis showed that excess capacity existed within many of functional areas it examined, especially in those of munitions and armaments functions. As shown in table 27, the estimates of excess capacity ranged from 7 percent to 91 percent among individual functional categories. The three subgroups addressed surge requirements in their capacity analyses to varying degrees. For the maintenance subgroup, the excess percentages represent excess capacity above surge requirements, because the collected core requirements data included surge requirements and the excess capacity calculations were based on the larger of current usage or core requirements. For the munitions and armaments subgroup, the excess capacity percentages represent the capacity available to meet surge requirements. According to munitions and armaments subgroup officials, there are no over-arching, quantified, DOD-wide surge requirements for munitions and armaments. Instead, surge becomes a factor of how much excess capacity is available and can be addressed through multiple work shifts. Conversely, the percentages for ship repair and overhaul do not address surge requirements. According to ship overhaul and repair subgroup officials, because the Navy’s surge requirements are dictated by emergent deployments or ship repair requirements and because shipyards are normally workloaded to their workforce capacity, surge capability is limited to the use of overtime and delaying previously planned work. As table 27 shows, the data indicate that there was not much excess capacity in the ground vehicles, aircraft, and other depot maintenance area. Therefore, in that area the group focused much of its attention on minimizing sites by redistributing and consolidating workload. On the other hand, while many of the group’s ship overhaul and repair and munitions and armaments recommendations were directed toward reducing excess capacity, group officials did not calculate a percentage for the reduction in excess capacity made possible by implementing the recommendations. The military value of activities within the group played a predominant role in formulating recommendations. In completing its military value assessment, the industrial group assessed each activity across the four established military value criteria to more fully evaluate the potential for realignment and closure actions. As was the case with capacity analysis, the disparate nature of the industrial areas analyzed by the group precluded a uniform analytical approach among the three subgroups. As a result, the subgroups differed in the methodology they used to develop relative weights for the military value criteria for each of their functions. Table 28 shows the various weights assigned to each of the four military value criteria by the subgroups for their functions. The group’s military value analysis also included the development of attributes, metrics, and data call questions for each of the nine functional areas represented in the categories in the chart above which were linked back to the four military criteria. Figure 15 provides examples of these attributes, metrics, and data questions and shows how each of these was linked back to the criteria. Because of the disparate nature of the industrial areas analyzed by the industrial group, the subgroups also differed in the way they assigned military value scores to their respective activities. For instance, the maintenance subgroup determined military value by commodity only and did not develop an overall military value score for activities in the depot and intermediate maintenance functions. Because military value scores were only determined for activities by commodity, activities were only ranked within their respective commodities. For example, Rock Island Arsenal, Illinois, received a military value score for its combat vehicle maintenance workload and was ranked accordingly against all the other depot level activities that perform combat vehicle maintenance. In addition, because most activities involve multiple commodities, such as major maintenance functions like aircraft engines, electronics, etc., many of the activities received multiple military value scores. In the case of Rock Island Arsenal, it not only received a military value score for its combat vehicle maintenance work but also for its tactical vehicle maintenance work and its other equipment maintenance work. These military value scores were then used in an optimization model to determine the best locations to consolidate various like commodities among the three services. In all cases, the subgroup examined redistributing the workload to activities with a higher military value score for that commodity. According to the maintenance subgroup, determining military value by commodity allowed for more opportunities to create interservicing and consolidations of workload among the services. The maintenance subgroup’s process was focused on military value and available capacity without regard to service. The final recommendations were tempered by financial and operational considerations. However, as we discuss later, our analysis shows that while some interservicing may be achieved, most of the group’s recommendations remained relatively service-centric. The ship overhaul and repair and munitions and armaments subgroups, on the other hand, developed overall military value scores for activities within their respective functions and ranked their activities within those functions accordingly. For example, all shipyards were ranked together under the depot maintenance function, and all industrial activities that perform munitions production were ranked together under the munitions production function. The DOD Inspector General and the service audit agencies played important roles in ensuring that the data used in the industrial group’s data analyses were certified and properly supported. Through extensive audits of the data collected from field activities during the process, these audit agencies notified the group regarding any identified data discrepancies for the purpose of follow-on corrective action. While the process for detecting and correcting data errors was quite lengthy, the audit agencies ultimately deemed the industrial data to be sufficiently accurate for use in the BRAC process. The industrial group did not have complete capacity or military value data when it initiated the development of potential closure and realignment scenarios. Therefore, it had to rely on incomplete data as well as military judgment to determine which industrial areas had excess capacity and which could receive new workloads. As time progressed, however, the group obtained the needed data to inform and support its scenarios. The DOD Inspector General validated the data. The maintenance and munitions and armaments subgroups used an optimization model to help facilitate scenario development, while the ship overhaul and repair subgroup, which had similar data problems, also relied on incomplete data as well as military judgment to help formulate scenarios for consideration. This subgroup did not rely on the optimization model as extensively as the other subgroups due to the relatively small number of activities analyzed. Collectively, the subgroups initially developed 120 proposals and scenarios and with the maturation of the data, completion of Cost of Base Realignment Actions (COBRA) analyses, and elimination of alternative scenarios, the industrial group settled on 34 recommendations that were forwarded to the ISG with all but 3 being ultimately approved by the IEC. Despite having incomplete data, the maintenance subgroup began its scenario development by generating several ideas as potential scenarios. In testing the feasibility of these ideas, the maintenance subgroup found it useful to use an optimization model, because the subgroup was dealing with a universe of 57 commodities across 28 depot level activities and 11 commodities across over 200 intermediate level activities which made it extremely difficult to determine where workload could be consolidated or redistributed. For realignment considerations, officials told us the preferred method was to consolidate workload at the highest military value sites that remained open in the optimization results, but military judgment also played a role in finalizing the sites. In some instances, military judgment was used to override the results of the optimization model. For example, the subgroup chose not to realign the rotary aircraft workload from the Naval Air Depot at Cherry Point, North Carolina, to the Corpus Christi Army Depot, Texas, even though it was proposed for realignment under the optimization model because of concerns about establishing a single point of failure or vulnerability for DOD’s rotary aircraft workload. One issue that the maintenance subgroup dealt with during its scenario development was that the current DOD capacity baseline for its maintenance work was based on a single shift 40 hours per week workload. According to the subgroup, when using the optimization model, it found that existing capacity as measured on this basis would constrain its ability to identify options for achieving more economical operations. Further, recognizing that such a baseline was inconsistent with industry practice, the subgroup modified the capacity baseline to one and a half shifts with a 60 hours weekly workload, thus increasing available capacity at its industrial activities and the potential for consolidating work at fewer locations. As we reported after the 1995 BRAC round, a capacity baseline of a single shift 40 hours per week workload is a conservative projection of capacity because the private sector frequently uses a capacity baseline of two or two and a half shifts. In addition, based on more current information of private sector capacity utilization, we still believe that a single shift is a conservative projection of capacity, since many firms today work multiple shifts. Like the maintenance subgroup, the munitions and armaments subgroup also used the optimization model to test the feasibility of its ideas and to facilitate its scenario development and analysis. Its emphasis was on increasing multi-functional activities, (i.e., those activities that have the capability to do more than one munitions and armaments function). During scenario development, the subgroup’s preference was to eliminate excess capacity through closure versus realignment. The ship overhaul and repair subgroup, on the other hand, used mostly capacity and military value data in combination with military judgment in developing and analyzing its scenarios. Due to the small number of activities analyzed—22 depot and intermediate level ship overhaul and repair activities—the subgroup did not have to rely on the optimization model to determine where workload could be potentially consolidated or redistributed. While it did use the model primarily to check the feasibility and rationalization of scenarios, military judgment was required because most of the subgroup’s scenarios were influenced by Navy force structure changes and planned changes in the homeports of ships. According to industrial group officials, expected out-year changes in Navy force structure—specifically expected reductions in the number of ships— allowed them to recommend the closure of a shipyard. Expected changes in the homeports of ships also influenced the subgroup’s intermediate level scenarios because the Navy’s intermediate level maintenance is generally performed where ships are homeported. The industrial group’s 17 recommendations are estimated to produce an estimated $7.6 billion in 20-year net present value savings. Table 29 provides a summary of the financial aspects of the group’s recommendations. Most of the projected savings from the group’s recommendations are concentrated in relatively few recommendations and nearly all have an immediate or moderately short payback period where projected savings are anticipated to offset the implementation costs either immediately or within a few years. The recommendation regarding the establishment of Navy fleet readiness centers is by far the largest in terms of overall savings, accounting for about $341 million, or about 56 percent, of the total estimated net annual recurring savings. As discussed later, only one recommendation—the realignment of the Watervliet Arsenal, New York, has a lengthy payback period exceeding 10 years. Of the industrial joint cross-service group’s 17 recommendations, 8 are closures and 9 are realignments. However, contained within these recommendations are 40 smaller, individual realignment actions and several recommendations involve installations with less than 300 personnel that could be but were not required to be proposed under BRAC. The following summarizes some of our overall observations about the group’s recommendations. Interservicing: Despite setting up its military value scoring for maintenance by commodity to foster opportunities for interservicing, the industrial group actually developed few recommendations that proposed greater interservicing. Of the 9 realignment recommendations, we consider only three to involve interservicing—(1) realigning the Air Force’s depot maintenance workload at Lackland Air Force Base, Texas, to Tobyhanna Army Depot, Pennsylvania, (2) realigning the Navy’s depot maintenance at Naval Weapons Station Seal Beach, California to several other service depots, and (3) realigning Lima Army Tank Plant, Ohio, to support, in part, the future manufacturing of the Marine Corps expeditionary force vehicle. DOD has stated recently that there is some interservicing of ground maintenance work already being performed at the major depots. However, while there is significant interservicing of electronics work at Tobyhanna Army Depot, Pennsylvania and of rotary work at Corpus Christi Army Depot, Texas, our analysis shows that interservicing at the major ground vehicle maintenance depots is very limited. For example, in fiscal year 2003, only 3 percent of Anniston Army Depot’s total workload was for the Marine Corps and only 3 percent of Marine Corps Logistics Base Barstow’s and Marine Corps Logistics Base Albany’s workloads was for the Army. Moreover, out of 17 major maintenance depots across the services, the group only proposed the closure of three—Portsmouth Naval Shipyard, Maine, Red River Army Depot, Texas and Marine Corps Logistics Base Barstow, California—with Barstow ultimately becoming a realignment. No recommendations were developed regarding the Air Force’s three relatively large air logistics centers and only Navy-centric recommendations were developed regarding the Navy’s three naval air depots, despite that the industrial group had registered scenarios consolidating similar types of work from a naval air depot into air logistics centers. According to group officials, they decided not to propose these as recommendations because of the Navy’s desire to combine its aircraft depot and intermediate work into fleet readiness centers and because this recommendation offered greater financial benefits. As a result, this essentially removed the naval air depots from the BRAC analysis in considering opportunities for more interservicing. While not considered an industrial group recommendation or otherwise addressed in this appendix, the industrial group’s work also helped the Navy develop a recommendation realigning some of the workload at Marine Corps Logistics Base Barstow to Army depots. This recommendation is discussed in appendix IV. Closures: Regarding eight closures, four involve underutilized Army ammunition facilities, and three are chemical demilitarization facilities where the primary mission is slated to disappear in the coming years. Savings: Essentially all of the projected savings from the group’s recommendations are based on reducing overhead and eliminating civilian and military personnel as installations are closed and functions are realigned between installations. For example, 63 percent of the group’s total projected net annual recurring savings is from reductions in overhead and 37 percent is from personnel eliminations with civilians making up 21 percent of total net annual recurring savings and military personnel 16 percent. Taken individually, the recommendation that the industrial group expects will generate the greatest amount of savings is the establishment of the Navy’s fleet readiness centers, which is estimated to produce net annual recurring savings of $341 million or 56 percent of the group’s total net annual recurring savings and an estimated 20-year net present value savings of $4.7 billion or 62 percent of the group’s estimated total net present value savings. This realignment recommendation differs from the other realignments in that it proposes a significant business process reengineering effort to integrate the Navy’s non-deployable, intermediate and depot level aircraft maintenance rather than a consolidation or realignment of workload. While the changes proposed would appear to have the potential for significant savings, as explained below, some uncertainty exists about the full magnitude of the savings estimate for this recommendation because most of the group’s projected savings are based on efficiency gains that have yet to be validated. For example, based on our analysis, over 63 percent of the estimated net annual recurring savings for this recommendation are miscellaneous recurring savings projected to accrue from overhead efficiencies, such as reduced repair time and charges, while 12 percent of the annual recurring savings is produced from reductions in military personnel and 24 percent of the savings is derived from reductions in civilian personnel. These efficiencies are expected to be gained from integrating intermediate and depot levels of maintenance and not having to ship as many items to faraway depots for repair. In addition, 34 percent of the group’s net implementation savings for this recommendation is derived from other one-time unique savings accrued from one-time reductions in spare parts inventories. Time did not permit us to assess the operational impact of each of the industrial group’s recommendations that was approved by DOD, particularly those with minimal financial impact and where minimal realignment and consolidation of workload was proposed. At the same time, however, we offer a number of broad-based observations about selected proposed recommendations regarding high payback periods and uncertain savings that the BRAC Commission may want to consider in its review. The recommendation on fleet readiness centers is essentially a Navy business process reengineering effort to transform the way the Navy conducts aircraft maintenance by integrating existing, non-deployable, intermediate and depot maintenance levels into a single, seamless maintenance level. The fleet readiness center construct focuses on the philosophy that some depot level maintenance actions are best accomplished at or near the operational fleet. Although the data suggests the potential for savings, we believe there is some uncertainty regarding the magnitude of the industrial group’s expected savings for these readiness centers because its estimates are based on assumptions that have undergone limited testing, and full savings realization depends upon the transformation of the Navy’s supply system. In determining the amount of savings resulting from the establishment of the fleet readiness centers, the industrial group and the Navy made a series of assumptions that focused on combining depot and intermediate maintenance in a way that would reduce the time an item is being repaired at the intermediate level, which in turn, would simultaneously reduce the number of items needed to be kept in inventory and the number of items sent to a depot for repair. These assumptions, which were the major determinant of realignment savings, were based on historical data and pilot projects and have not been independently reviewed or verified by the Naval Audit Service, DOD Inspector General, or us. Moreover, how well these actions, if approved, are implemented will be key to determining the amount of savings realized. According to the group, two types of savings account for the majority of the projected savings from the fleet readiness center recommendation. First, one-time savings are projected to accrue from reductions in inventory maintained at several Navy shore locations because item repair cycle time for components is reduced with more depot level maintenance being performed at or near the fleet, generally at an intermediate facility. According to group officials, this reduction is accomplished by stationing several depot level repair personnel at an intermediate facility to assist in repairing an item on site rather that spending time re-packing and shipping the item to a depot for repair. By reducing the turnaround time for an item—that is, time spent in transit to and from a depot level repair facility, group officials estimate that the average time an item is in the repair pipeline will decrease from 28 hours to 9 hours, with nearly all that time spent on the actual repair. The industrial group maintains this reduction in turnaround time will allow for savings since fewer items will need to be kept in the shore based aviation consolidated inventory because items will be getting repaired quicker and returned to the inventory faster. The second type of savings is recurring overhead savings that are projected to accrue from fewer items being sent to depots for repair. According to group officials, establishing fleet readiness centers will result in fewer items being sent to a depot to be repaired, thus reducing per item maintenance costs. These savings are captured in the COBRA model under overhead as miscellaneous recurring savings. As explained by group officials, when an item is sent to a depot, two charges are applied to the cost to repair the item—a component unit price and a cost recovery rate. So, if fewer items are sent to a depot, then fewer repair charges are incurred and less overhead costs are incurred. However, according to an industrial group official, since the depots will have fewer items to repair, they will have fewer opportunities to generate revenue to support their working capital fund operations. This situation, in turn, could create an incentive for the depot to increase its cost recovery rate for items it does repair to make up for reduced revenues. If this were to occur, then the projected savings would not materialize because most of the fleet readiness center savings are based on a reduction in the number of items sent to depots and are contingent on the supply system not drastically raising the cost recovery rate. According to industrial group officials, it will be important to overall transformation efforts that DOD follow through on eliminating management structures and duplicate layers of inventory in the supply system. Also, according to these officials, some of this supply-side transformation is already underway at the retail level in the form of a partnership between fleet industrial supply centers and the naval air depots where material management for the depots was handed over to the supply centers to standardize supply chain processes, improve material availability, and reduce the material excesses that have been a difficult problem for the naval air depots. In addition, group officials stated that the supply and storage joint cross-service group’s recommendation to realign supply, storage, and distribution management should also further this transformation by eliminating unnecessary redundancies and duplication and by streamlining supply and storage processes, which will reduce costs and help prevent a large increase in the cost recovery rate. In addition, we believe there is some potential risk in properly accounting for depot level work to meet legislatively mandated reporting requirements on the percentage of depot workload performed in government and contractor facilities, absent efforts to ensure adequate differentiation of work completed for intermediate and depot level maintenance. We previously reported on similar difficulties in 2001 involving a consolidation of intermediate and depot level work at Pearl Harbor Naval Shipyard, Hawaii. We noted that, prior to consolidation, the Navy’s determination of depot and intermediate maintenance work was based on which facility performed it—the former Pearl Harbor shipyard performed depot work, and the former intermediate maintenance facility performed intermediate work. However, because Pacific Fleet and Pearl Harbor officials asserted that all work was considered and classified the same at the consolidated facility, the management and financial systems did not differentiate between depot and intermediate categories of work. As a result, the lines between what was considered intermediate and depot maintenance became blurred, making it harder to report what was intermediate and depot maintenance. The industrial group maintains that during the first few years of implementing the fleet readiness center recommendation, the Navy will continue to operate depot maintenance within the working capital fund (setting up a separate holding account) and perform intermediate maintenance with mission funding. During this period, depot maintenance will be reported as depot maintenance and intermediate maintenance will be reported as intermediate maintenance. While this should mitigate the accounting issue in the short-term, it is unclear to what extent longer term measures will be needed to ensure proper reporting of depot work to meet statutory requirements. The net annual recurring savings may be overstated for the three chemical depots recommended for closure—Newport, Umatilla, and Deseret—and it is unclear whether such facilities are appropriately included in the BRAC process. The industrial group estimated net annual recurring savings of $127 million for the three chemical demilitarization facilities, $20 million of which is from anticipated savings by not recapitalizing these closed BRAC installations. However, the current missions of each of these installations are focused on the destruction of existing chemical weapons stockpiles, and after the stockpiles are destroyed, the destruction facilities themselves are scheduled to be dismantled and disposed of in accordance with applicable laws and agreements with the governors of the states in which they are located. With the exception of the recommended transfer of storage igloos and magazines from Deseret to Tooele Army Depot, Utah, Army officials have not identified any existing plans for future missions at these depots once the chemical destruction mission is complete. Consequently, it is unclear how the closure of the depots will result in recapitalization savings. Additionally, given the general delays in the Army’s chemical weapons destruction program it is uncertain that it will be able to complete the chemical weapons destruction mission and close these depots within the 6-year BRAC statutory implementation period. There is uncertainty surrounding the Army’s ability to close the Hawthorne Army Depot, Nevada, by 2011, the final year as prescribed by the BRAC legislation for implementing BRAC actions. The Army may be unable to demilitarize all the unserviceable munitions stored at the depot by 2011, thereby placing the Army at risk for closing the depot by that date. Army officials told us that demilitarization funds have not been fully used for demilitarization purposes in recent years, but for other purposes. As a result, the stockpile of unserviceable munitions is growing. The funding situation is of such concern that an Army official told us they intend to request the DOD Comptroller issue a memorandum that would administratively “fence” funding in the demilitarization account to better ensure that the funds will be used for reducing the stockpiles of unserviceable munitions. This official also told us that this funding situation could be further exacerbated with the potential for the return to the United States of additional unserviceable munition stockpiles that are currently stored in Korea, even though the group considered these stocks in its analysis. This official stated that if these unserviceable munitions are returned for demilitarization to Hawthorne, there will be added pressure to finish the demilitarization process in time to close the facility by 2011. Currently, the Army leases some property at its ammunition plants through the Army’s program called the Armament Retooling and Manufacturing Support Initiative. DOD has recommended for closure four ammunition plants that are part of this initiative—Mississippi, Kansas, Lone Star, and Riverbank. We previously reported that, while this initiative has offset some of the Army’s maintenance costs, maintaining ammunition plants in an inactive status still represents a significant cost to the federal government. Through this initiative, the Army contracts with an operating contractor that conducts maintenance, repair, restoration, and remediation in return for use of the inactive part of the facility. The operating contractor, in turn, locates and negotiates with tenants regarding lease rates, facility improvements, and contract terms. However, the effect on these tenants of closing the four ammunition plants involved with the initiative is currently unknown. Army officials responsible for the initiative told us that past transfers of such property outside of the BRAC process have been handled poorly in that the General Services Administration or Army Corps of Engineers, the agencies responsible for transferring excess property, evicted the tenants and then sold the property separately, as was the case in past closures such as the Indiana Army Ammunition Plant. Army officials said that property transfers conducted in this manner could be costly because the government must incur some costs that were paid by the tenants, such as for security and maintenance. For example, an Army analysis showed that retaining the ARMS tenants on Indiana Army Ammunition plant rather than evicting them would have saved about $41 million. Additionally, DOD may incur some costs if leases are terminated early. An industrial group official told us that the group included termination costs for leases that extended past the proposed closure date but only for tenants performing DOD work, not for other tenants. We believe that lease termination costs should have been included for any tenant’s lease that extends past the proposed closure date, since there may be a cost incurred for breaking the lease early. However Army officials said that it would be difficult to estimate such potential costs at this time. Despite having a payback period of 18 years, the industrial group proposed the realignment of Watervliet Arsenal, New York, because it has considerable excess capacity and DOD will no longer require some of its capabilities. The group had originally considered either moving the entire workload of the arsenal to Rock Island Arsenal, Illinois, or moving the entire workload of Rock Island Arsenal to Watervliet Arsenal. However, according to industrial group officials environmental issues regarding potential chromium discharges into the Mississippi River and costs associated with moving heavy industrial equipment precluded a cost- effective realignment of moving the work at Watervliet Arsenal to Rock Island Arsenal. Similarly, air quality issues regarding sulfur dioxide emissions along with the costs to move equipment precluded a cost- effective realignment of moving the work at Rock Island Arsenal work to Watervliet Arsenal, since the Northeast region already exceeds allowable limits for sulfur dioxide emissions. As shown in the table 29, the Watervliet recommendation has a payback period of 18 years, with about $63.7 million in one time unique costs and only $5.2 million in net annual recurring savings. According to industrial group officials, these one-time costs reflect the costs of “shrinking the footprint,” (i.e., moving out of buildings and eliminating and moving excess equipment at both the arsenal and the accompanying research laboratories also located at the arsenal). The Intelligence Joint Cross-Service Group followed the common analytical framework established by the Office of the Secretary of Defense (OSD) in reviewing its functions and facilities. The Intelligence Joint Cross- Service Group produced two recommendations that it projects will yield about $588 million in 20-year net present value savings, with a payback period of 8 years for each recommendation. The majority of savings in the two recommendations result from lease terminations. Unlike the services or other groups, there is little savings projected from personnel reductions because, according to officials, almost all of the personnel will relocate and end strength is projected to increase as a result of program growth. The DOD Inspector General and service audit agencies, which performed audits of the data, concluded that the data were sufficiently reliable for use during the BRAC process. The intelligence group was responsible for reviewing intelligence functions throughout DOD. Previous BRAC rounds did not involve the participation of any joint cross-service group dedicated to analyzing intelligence functions. The intelligence group was chaired by the Deputy Under Secretary of Defense (Counterintelligence & Security). The Group’s principals included senior members from the Defense Intelligence Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office, National Security Agency, each military department, and the Joint Staff Directorate for Intelligence, along with representation from the offices of the Director, Central Intelligence Community Management Staff, and the Department of Defense Inspector General. The intelligence group formed four functional subgroups: Sources and Methods; Correlation, Collaboration, Analysis, and Access; Management Activities; and National Decisionmaking and Warfighting Capabilities. The first three subgroups each created an analytical construct for measuring defense intelligence capacity that resulted in a capacity data call. These subgroups were eventually replaced by a single Core Team that included membership from each organization represented in the Intelligence Joint Cross-Service Group. This team created a single, consolidated analytical construct for measuring the military value of defense intelligence facilities. The team also performed detailed capacity and military value analysis, evaluated scenario ideas, executed scenario data calls, and prepared Intelligence Joint Cross-Service Group candidate recommendations for deliberation. The overarching intelligence principle the group worked to support was that DOD needs intelligence capabilities to support the National Military Strategy by delivering predictive analyses, warning of impending crises, providing persistent surveillance of our most critical targets, and achieving “horizontal” (that is, interagency) integration of networks and databases. To do so, the group focused on four key objectives: Locating and upgrading facilities on protected installations as appropriate. Reducing vulnerable commercial leased space. Realigning selected intelligence functions/activities and establishing facilities to support continuity of operations and mission assurance requirements. Providing infrastructure to facilitate robust information flow between analysts, collectors, and operators at all echelons and achieve mission synergy. The group conducted an assessment of defense intelligence for buildings, facilities, and personnel performing the intelligence function. The objective was to project an alignment of present capabilities, with current organizational compositions and business processes, to desired future operational capabilities, using DOD’s transformational concepts and preferred organizational construct. The intelligence group initially identified five broad functions to analyze in defense intelligence: Sources and Methods (Acquisition and Collection); Analysis; Dissemination; Management Activities; and Sustainability. Based on subsequent Infrastructure Steering Group guidance, these five broad functions were consolidated into a single function—defense intelligence— in the final military value scoring plan. Capacity analysis and then military value analysis were the starting points for the BRAC analytical process. The DOD Inspector General and service audit agencies performed an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. To assess capacity, the intelligence group identified buildings and facilities performing the intelligence function and developed related attributes, metrics, and questions for analysis. Data calls were issued to the defense intelligence community to gather certified data on intelligence buildings and facilities. The capacity analysis identified limited excess capacity in some organizations, but no overall excess capacity, as shown in table 30. The negative excess capacity shown in table 30 differs from the group’s initial capacity data results, which showed an overall excess capacity of 18 percent. However, after reviewing the initial data, the intelligence group made two adjustments. First, the group removed buildings with no direct intelligence mission, such as barracks, pump houses, tunnels, or warehouses. Then the group increased its estimate of the area of square feet required for personnel temporarily working at another intelligence entity and for contractor personnel by 50 percent. The group did not identify any known documented requirements for the defense intelligence community to set aside space or facilities for surge. The intelligence community has historically handled surge operations by reassigning and reallocating existing resources within the current square footage. All BRAC 2005 selection criteria were applied by the intelligence group across the defense intelligence functional support area and used with the force structure plan and infrastructure inventory to perform analyses. Priority consideration was given to military value by evaluating and scoring activities based on the first four selection criteria. Table 31 below shows the weighted value the intelligence group gave to the criteria, based on a 100-point scale. The intelligence group assessed the military value of its facilities based on those facilities’ capabilities to support the intelligence function. A single scoring plan measured the value of both the infrastructure and the personnel performing the defense intelligence function at a given facility. Attributes and weighted metrics were used to compute the military value of a building by assessing the facility’s physical infrastructure and locations as they related to selection criteria 1 through 4. After computing military value scores, a rank-ordered listing of the 267 intelligence facilities was developed for the defense intelligence function. Subsequently, strategy- driven scenarios were validated by analyses of military value data and military judgment. Figure 16 illustrates how the military value attributes, metrics, and data questions were linked to the military value criteria using selected attributes, metrics, and questions. A similar process was followed for all of the 267 intelligence facilities. The DOD Inspector General and service audit agencies reviewed the data and processes used by the Intelligence Joint Cross-Service Group to develop its recommendations. The overall objective was to evaluate the validity, integrity, and documentation of data used by the subgroups. The DOD Inspector General and service audit agencies used real-time audit coverage of data collection and analysis processes to ensure that the data used in the groups’ capacity analysis, military value analysis, and use of optimization models was certified and was used as intended. Through extensive audits of the data collected from field activities during the process, the DOD Inspector General notified the group of data discrepancies for the purpose of follow-on corrective action. The DOD Inspector General ultimately determined, once the corrections to all the discrepancies were noted, the intelligence data to be sufficiently reliable for use in the BRAC process. The Intelligence Joint Cross-Service Group developed 13 scenarios, which after further analysis led to 6 candidate recommendations being presented to the Infrastructure Steering Group and the Infrastructure Executive Council, the latter of which approved 3 candidate recommendations. One of these 3 approved candidate recommendations was subsequently incorporated into a recommendation proposed by the headquarters group. Some scenarios were eliminated because they were alternatives to a proposed recommendation. Other scenarios were eliminated because of concerns over high implementation costs and long payback periods—that is, the length of time required for the savings to offset closure costs. For example, the group developed a scenario to establish selected continuity of operations and mission assurance functions at White Sands Missile Range, New Mexico, but it was disapproved by the Infrastructure Executive Council because it had a one-time cost of $1.8 billion and a projected payback period of never. The Intelligence Joint Cross-Service Group projects that its two recommendations will produce almost $588 million in 20-year net present value savings, and almost $138 million in net annual recurring savings. Table 32 below provides a summary of the financial aspects of the group’s recommendations. The majority of the net annual recurring savings in the two recommendations is from the avoidance of future leased cost when activities move from leased space to military installations. Intelligence Joint Cross-Service Group officials noted that about one-half of the estimated $1.1 billion one-time costs for the National Geospatial- Intelligence Agency move will be paid from National Intelligence Program funds. The recommendation to move the National Geospatial-Intelligence Agency from various leased sites to Fort Belvoir, Virginia, will have a significant impact on the local community when added to other proposals to move activities to Fort Belvoir. This one proposal would move about 8,500 personnel to Fort Belvoir from Bethesda, Maryland, Washington, DC and the northern Virginia area. The BRAC Commission may wish to consider the impact on the local community infrastructure, such as roads and public transportation, when evaluating this and other proposals affecting Fort Belvoir. The Medical Joint Cross-Service Group followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for reviewing the military health care system. It produced 22 candidate recommendations; one was disapproved late in the process by the Infrastructure Executive Council (IEC), and one was integrated with a service recommendation. The remaining 20 recommendations were combined into 6 recommendations that were ultimately approved by DOD. These 6 recommendations are projected to produce about $2.7 billion in estimated net present value savings over a 20-year period. The expected payback period, or length of time for the savings to offset costs associated with the recommendations, varies from immediately to 10 years. We have identified various issues regarding the recommendations that may warrant further attention by the BRAC Commission. These include the likelihood that some estimated savings could be less than projected, lengthy or no payback periods for certain proposed actions imbedded within the more complex recommendations, and uncertainties about future requirements and their impact on the viability of the recommendations. While the group encountered some challenges in obtaining accurate and consistent certified data on a cross-service basis, the DOD Inspector General and the military service audit agencies ultimately concluded that the data used by the medical group were sufficiently reliable for use in the BRAC process. maintain and improve access to care for all beneficiaries, including identify and maximize synergies from co-location or consolidation, and examine outsourcing opportunities, such as increasing the use of civilian care providers, to allow DOD to leverage its efforts across the overall United States health care system. The medical group organized and conducted its BRAC analyses of DOD’s military health care system focusing on three broad functions: (1) health care services; (2) health care education and training; and (3) medical and dental research, development, and acquisition. As with other military services and joint cross-service groups, capacity and military value analyses were the starting points for the group’s analyses. The DOD Inspector General and service audit agencies performed an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. In establishing the analytical framework for developing its recommendations, the medical group analyzed the military health system’s capacity in terms of services, workloads, and facilities. The group developed specific functional area metrics for measuring capacity and collected certified data associated with these metrics from military installations across the country. It used a range of metrics, depending on the functional area being assessed, such as military health care population and workloads, number of hospital beds, available and currently used building space, length and frequency of education and training programs, personnel requirements, and equipment usage, to measure capacity. group’s capacity analysis report acknowledged that even though adjustments have been made to the health care system since the BRAC 1995 round, the medical system infrastructure is still generally based on a Cold War strategy with minimal reliance on civilian health care providers. TRICARE network, civilian medical education and training programs, and extended operations. According to DOD medical officials, the Department of Health and Human Services, rather than DOD, is responsible for domestic homeland medical support, but defense medical personnel and infrastructure could be used to assist in handling domestic medical emergency situations. According to DOD officials, since this support is not part of DOD’s defined mission, it was not included in the medical group’s analysis. However, DOD officials also told us that the Joint Chiefs of Staff and the OSD had coordinated the BRAC analysis with major commands that would be impacted by BRAC proposals, including the U.S. Northern Command, which is responsible for the homeland defense mission. DOD is in the process of reviewing the military health care system’s ability to meet future medical readiness requirements, including an evaluation of medical infrastructure at various levels of operations from contingencies to full operational surges. DOD intends to include Department of Homeland Security policies in this review. According to DOD officials, the results of this ongoing assessment were not included in the medical group’s capacity analysis because the assessment is not expected to be completed until after the BRAC recommendations are finalized, following reviews by the BRAC Commission, the President, and Congress. Nevertheless, the medical group made a determination that the current medical force size was adequate to meet the requirements of various war plans, and after reviewing the fiscal year 2006 program objective memorandum and the 20-year force structure plan, it decided to use the current force structure for its analysis. Further, the group concluded that deployment force sizing, a readiness issue, did not have direct influence on determining excess facility capacity. The medical group estimates that its recommendations, if adopted, would result in a 12 percent reduction in excess inpatient medical capacity and an approximately 7.4 million square feet net reduction in overall facility space. The medical group’s assessment of military value, like its excess capacity assessment, focused on the same three functional areas: (1) health care services; (2) health care education and training; and (3) medical and dental research, development, and acquisition. The military value analysis helped to establish the basis for realigning medical functions across the various installations or closing specific activities within the medical infrastructure. It also helped to gauge the impact of the group’s proposed scenarios on the overall DOD health care system. The military value methodology for this BRAC round was similar, in many respects, to the one used in the 1995 round, especially for medical functions. For example, both rounds identified affected populations and local civilian providers within catchment areas. In both rounds, military value played a predominant role in formulating recommendations. Moreover, during the 2005 round, the medical group considered the impact on local beneficiaries, such as military retirees, from downsizing or eliminating medical facilities, which included input from a DOD-chartered military health benefit working group. This working group included independent members who represented TRICARE regions throughout the United States. The medical group’s functional military value analysis assessed the relative capabilities of various activities and facilities supporting the military health care system’s mission and operational needs. Its military value analysis was directly linked to the four military value criteria required by the BRAC legislation. For example, the military value analysis gave greater weight to services supporting active duty members in order to emphasize force readiness. Table 34 shows the relative weights that the group developed for each of the four selection criteria that relate to military value. Medical and dental research, development, and acquisition weight 1. The current and future mission capabilities and the impact on operational readiness of the total force of the Department of Defense, including the impact on joint warfighting, training, and readiness. 2. The availability and condition of land, facilities, and associated airspace (including training areas suitable for maneuver by ground, naval, or air forces throughout a diversity of climate and terrain areas and staging areas for the use of the Armed Forces in homeland defense missions) at both existing and potential receiving locations. 3. The ability to accommodate contingency, mobilization, surge, and future total force requirements at both existing and potential receiving locations to support operations and training. 4. The cost of operations and the manpower implications. In developing its analysis in accordance with the criteria above, the group developed specific functional area attributes, metrics, and data call questions to assist in assessing military value. Figure 17 provides an example of such analysis for the health care services functional area and its linkage to the BRAC legislation. Population—active duty, dependents, and other beneficiaries—eligible to receive medical care from the military health system. Age and condition of medical treatment facilities. Hospital potential capabilities for providing inpatient care to casualties. Total costs for inpatient and outpatient services. The BRAC military value criteria are the first four BRAC selection criteria. The DOD Inspector General and the service audit agencies played important roles in ensuring that the data used in the medical group’s analyses were certified and properly supported. The involvement of these audit groups included validation of data submitted by the military services, compliance with data certification requirements, the integrity of the group’s databases, accuracy of the analytical process in terms of calculations, and the adequacy of supporting documentation. These audit groups conducted extensive audits of the data collected from the military installations, and in some instances data discrepancies were identified for follow-on corrective actions. While the process for detecting and correcting data errors was quite lengthy, the DOD Inspector General and audit agencies determined that the medical-related data were sufficiently reliable for use in the BRAC process. The medical group’s study objectives, military judgment, and capacity and military value analyses helped to identify closure and realignment scenarios for consideration. Identification and evaluation of scenarios was also facilitated by use of an optimization model to identify recommendations that could aid in optimizing medical health care workloads and infrastructure. The group also developed scenarios that included establishing a minimum level of average daily patient workload for inpatient facilities and by reducing excess capacity in multiservice markets to achieve efficiencies. It also used the Cost of Base Realignment Actions (COBRA) model to estimate the potential net costs or savings for its scenario proposals. The group also considered the scenarios’ impact on the local economy, the DOD medical beneficiary population and graduate medical education requirements, and the environment. The medical group submitted 22 recommendations to the IEC, which disapproved one of the recommendations—the proposal to close the Uniformed Services University of the Health Sciences at Bethesda, Maryland. This matter is discussed further in the next section of this appendix. Further, another recommendation was integrated with a service realignment and closure action. The remaining 20 recommendations were combined into 6 recommendations that were ultimately approved by DOD. The group produced 6 recommendations which they reported will yield an estimated $2.7 billion in 20-year net present value savings and $412 million in net annual recurring savings. Table 35 below provides a summary of the financial aspects of the group’s recommendations. However, the group acknowledges that it incorrectly reported certain financial data for its recommendation involving the Walter Reed Army Medical Center. Based on our analysis, the revised estimates are shown as a note to table 35. Appendix X Medical Joint Cross-Service Group Selection Process and Recommendations One-time (costs) Payback period (years) Close Brooks City-Base, San Antonio, TX, by relocating functions to Randolph Air Force Base, Wright-Patterson Air Force Base, Lackland Air Force Base, Fort Sam Houston, and Aberdeen Proving Ground ($325.3) ($45.9) Realign various activities by converting inpatient services to clinics at Marine Corps Air Station Cherry Point, Fort Eustis, U.S. Air Force Academy, Andrews Air Force Base, MacDill Air Force Base, Keesler Air Force Base, Scott Air Force Base, Naval Station Great Lakes, and Fort Knox (12.9) Establish San Antonio Regional Medical Center at Fort Sam Houston, Brooke Army Medical Center; and realign basic and specialty enlisted medical training to Fort Sam Houston (1,040.9) (826.7) Realign Walter Reed Army Medical Center (all tertiary care to Bethesda National Naval Medical Center and primary and specialty care to Fort Belvoir) (988.8) (724.2) Realign McChord Air Force Base by relocating all medical functions to Fort Lewis (1.1) Realign various activities to create joint centers of excellence for chemical, biological, and medical research, development, and acquisition (at Fort Sam Houston, Walter Reed Army Medical Center— Forrest Glen Annex, Wright-Patterson Air Force Base, Fort Detrick, and Aberdeen Proving Ground) (73.9) (45.9) ($2,442.9) ($1,336.7) result in nearly all of the expected savings—over 90 percent of the total estimated 20-year net present value savings of about $2.7 billion, and of the net annual recurring savings of about $411.7 million. Two of the six recommendations have high one-time upfront costs—about $2 billion, or over 80 percent of the total one-time costs for the six recommendations. Two multiservice market area recommendations—the establishment of the San Antonio Regional Medical Center in Texas and realignment of the Walter Reed Army Medical Center in Washington, D.C.—are ultimately expected to (1) produce over 50 percent of the net annual recurring savings and (2) incur most of the up-front costs for the recommendations as a whole. The group’s primary motivation for these recommendations was to transform the existing medical infrastructure into premier modernized joint operational medical centers. In the case of the Walter Reed Medical Center recommendation, the group also justified the recommendation based on a shift in the beneficiary population from the northern tier of the Washington, D.C., area to the southern tier near Fort Belvoir, Virginia. Another recommendation with substantial estimated net annual recurring savings is the closure of the Brooks City-Base in Texas, which is projected to achieve efficiencies in research, development, and acquisition by relocating similar functions to a single location. However, as discussed below, a significant portion of the savings from this as well as other recommendations involve claimed military personnel savings, which are somewhat uncertain. The recommendation that involves the downsizing of inpatient facilities at nine locations is expected to achieve efficiencies and reduce personnel as well as provide enhanced training opportunities for medical personnel transferring to other locations. base will help foster jointness in the long term. Based on our analysis, it is not obvious whether some of these proposed realignments will truly result in joint military operations. Time did not permit us to assess the operational impact of each of the medical group’s recommendations, particularly where operations proposed for consolidations or realignments extend across functional areas, geographical areas, or both. At the same time, we offer a number of broad- based observations about some of the proposed recommendations as they relate to military medical personnel savings, payback periods, jointness, and medical wartime requirements that may warrant further review by the BRAC Commission. Our analysis shows that military personnel savings account for about $201 million or nearly 50 percent of the group’s estimated net annual recurring savings. However, the amount of projected dollar savings is uncertain because the medical group indicated that reductions in end strength are not planned. Indirectly, some savings could occur based on the group’s expectation that medical personnel would be reassigned on an individual basis to specific and varied locations, depending on where the need exists for military medical specialists. In some cases, the group noted that these military personnel reassignments could displace civilian and/or contractor medical providers. When or to what extent these reallocations would occur has not yet been determined. At the time of the group’s analysis, these specific moves had not been identified and thus the group did not estimate costs related to such potential moves in its cost and savings analysis. period was determined to be 10 years. The common linkage of the two recommendations is location, with the expectation that the enlisted medics will benefit from the location of the Brooke Army Medical Center in Texas, which has a trauma center suited for combat casualty training. Another example is the initial realignment of medical research, development, and acquisition functions at Brooks City-Base, which had no payback before DOD combined this recommendation with other related recommendations to close the base. DOD’s ongoing assessment of its future wartime medical requirements, as mentioned earlier, will not be completed until after BRAC decisions are finalized, following reviews by the BRAC Commission, the President, and Congress; therefore, this assessment was not included in the medical group’s analysis. Without having such requirements available during the BRAC process, it is difficult for DOD to identify the appropriate medical infrastructure changes that are needed or to determine the appropriate size of the military health care system. Also, the group recognized that medical operations are changing with casualties rapidly moved to medical facilities outside the theater of operations and that these changes may affect the future sizing of medical forces. Nevertheless, the group expressed belief that the current medical force size was adequate to meet the requirements of the various war plans despite the group’s recommendations that will reduce system-wide excess inpatient capacity by 622 beds. existing medical facilities. While the official told us that VA involvement had the potential for providing services and benefiting the department, another official added that the group’s analysis indicated that sufficient capacity exists, without VA support, within the private sector to accommodate military beneficiaries in those locations where inpatient care at the military facilities is being eliminated. However, we were unable to verify the results of this analysis because the group did not fully document its analysis. The medical group had initially developed a candidate recommendation to close DOD’s medical school, known as the Uniformed Services University of the Health Sciences, which is located on the grounds of the National Naval Medical Center in Bethesda, Maryland. The group had concluded that it was more costly than alternative scholarship programs, and that the department could rely on civilian universities to educate military physicians. The group projected the closure will yield net annual recurring savings of about $58 million, and 20-year net present value savings of approximately $575 million. In a series of reports from 1995 through 2000, we also concluded at the time that the university was a more costly way to educate military physicians. associated with this medical facility in order for it to be a world-class medical center. According to another official, DOD will need to make investments in the university in order to elevate its status and attract leading medical scholars who could make the university more competitive. The Supply and Storage Joint Cross-Service Group followed the common analytical framework established by the Office of the Secretary of Defense (OSD) for reviewing the supply, storage, and distribution system within DOD. The group initially produced five recommendations that were presented to the Infrastructure Steering Group (ISG) and the Infrastructure Executive Council (IEC). Three of the five recommendations were merged into one recommendation by the IEC. If adopted, the three approved recommendations are projected to generate about $5.6 billion in estimated 20-year net present value savings and $406 million in net annual recurring savings for the department with an immediate payback (i.e., time required to recoup up-front investment costs) on the cost of implementing these recommendations. While the number of recommendations is small, each encompasses multiple realignment actions of workloads affecting many locations. Our analysis shows that the anticipated savings would result primarily from business process reengineering—expanded use of performance-based logistics—, infrastructure and inventory reductions, and reduced civilian personnel costs. We identified a number of issues associated with several recommendations that may warrant additional attention by the BRAC Commission. The group encountered some challenges in obtaining accurate and consistent certified data, but the DOD Inspector General and the military service audit agencies, which performed audits of the data, ultimately concluded that the data were sufficiently reliable for use during the BRAC process. The supply and storage group consisted of six senior-level principal members from the logistics directorates for each service, the Defense Logistics Agency (DLA), and the Joint Chiefs of Staff, and was supported by staff from these organizations. The Director, DLA, chaired the group, following the retirement of the original chairman from the Joint Staff. The group’s overarching goal was to identify potential closures, realignments, or both that would enhance economies and efficiencies in operations as traditional military forces and logistics processes become more joint and increasingly take on expeditionary characteristics. The group organized its BRAC efforts around the three core logistics functions of supply, storage, and distribution. These functions are inherent in the military services’ operations as well as for DLA, whose mission is to provide wholesale-level support in these functions for the services in common supply classes. In collecting and analyzing data to formulate its recommendations, the group sought to assess the supply and storage infrastructure in the following four distinct activity areas: (1) military service and DLA inventory control points (2) defense distribution depots, (3) defense reutilization and marketing offices and (4) other activities such as installation-level supply operations. As with other military services and joint cross-service groups, capacity and military value analyses served as starting points for the group’s analyses. While the group initially tried to analyze both the wholesale and retail supply and storage activities, it later terminated most retail-level efforts because of difficulties in collecting reliable data and a desire by the group’s principals to not impact the retail support to operational and other deploying units. The DOD Inspector General and service audit agencies performed an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. exception, from further consideration in the succeeding analyses leading to recommended actions. The group’s capacity analysis showed that excess capacity exists, even when surge factors were considered, within three of the four supply and storage activity areas it examined. As shown in table 36, the excesses ranged from 20 percent to 75 percent under normal demand conditions across various capacity metrics in the functional areas, with the excesses somewhat less under surge conditions. According to the group’s staff, its recommendation regarding restructuring of defense distribution depots, if approved and implemented, is expected to reduce current covered storage of about 51 million square feet (both regular and special) by over 50 percent, or about 27 million square feet. In addition, the recommendation regarding inventory control points is expected to increase infrastructure by about 4,700 square feet because the inventory control points would be absorbing more space than they would be vacating. The group has no recommendations that would affect the capacity of DLA’s defense marketing and reutilization offices. The supply and storage group’s assessment of military value, like its excess capacity assessment, focused on the same three core logistics functions of supply, storage, and distribution. By linking its military analysis directly to OSD’s four military selection criteria required by the BRAC legislation, the group established a sound basis for developing its recommendations. As shown in table 37, the group developed a weighting system for the military value criteria with the first and third criteria having relatively larger weights, or importance, than the remaining two criteria. As with the capacity analysis, the group’s assessment of military value included development of attributes and metrics in each of the core functional areas to measure military value, and it subsequently sought to collect certified data linked to these metrics from various defense activities whose missions resided within these categories. The group developed 55 individual metrics within the three functional areas, addressing information such as the percentage of demand for stocked items and cost of operations per person. The attributes and metrics were linked back to the military value selection criteria, as illustrated in figure 18. retail level to complete a military value analysis at that level. In many respects, the military value methodology for this round was comparable to that used in the 1995 BRAC round, particularly for DLA activities. In both BRAC rounds, the military value ranking of an activity played a predominant role in formulating recommendations. The DOD Inspector General and the service audit agencies played important roles in helping to ensure that the data used in the group’s data analyses were certified and properly supported and that decision-making models (e.g., military value and optimization) were logically designed and operating as intended. Through extensive audits of the data collected from field activities during the process, these audit agencies notified the group when they identified data discrepancies for follow-on corrective action. While the process for detecting and correcting data errors was quite lengthy and challenging, the audit agencies ultimately deemed the supply and storage-related data to be sufficiently reliable for use in the BRAC process. The Supply and Storage Joint Cross-Service Group did not have accurate and complete capacity and military value data when it initially started developing potential closure and realignment scenarios and, therefore, had to rely on incomplete data, as well as military judgment based on the group’s collective knowledge of the supply and storage area, to formulate its initial closure and realignment scenarios for evaluation. Although the data improved as additional information was requested and received from field locations, the lack of useable data initially limited the use of an optimization model to help identify and analyze scenarios. As time progressed, however, the group obtained the needed data, for the most part, to inform and support its scenarios. The DOD Inspector General validated the data. The group also focused on a number of OSD supplied transformational options, as outlined below, to guide its efforts in the recommendation development process: Establishing a consolidated multi-service supply, storage, and distribution system focused on creating joint activities in areas with heavy DOD concentration. Privatizing the wholesale storage and distribution processes. Migrating oversight and management of all service depot-level reparables to a single DOD agency/activity. Establishing a single inventory control point within each service or consolidate into a joint activity. Examining the effect of reducing functions by 20, 30, and 40 percent from the existing baseline, or reducing excess capacity by an additional 5 percent beyond the analyzed excess capacity. The group developed a total of 51 scenarios based on these transformational options. With the maturation of the data and the application of the COBRA model to estimate costs and savings, along with military judgment, the group was able to narrow its proposals to five candidate recommendations that were forwarded to the ISG and ultimately approved by the IEC. Further integration of three of these recommendations into a single recommendation left the group with three approved recommendations. The group’s recommendations are projected to produce substantial savings—about $406 million in estimated net annual recurring savings and about $5.6 billion in estimated net present value savings for DOD over the next 20 years. All are realignment actions, even though one of the recommended actions will close two defense distribution depots at Columbus, Ohio, and Texarkana, Texas and another one will close four inventory control points at Fort Huachuca, Arizona; Fort Monmouth, New Jersey; Rock Island, Illinois; and Lackland Air Force Base, Texas, while, at the same time, opening a new one at Aberdeen Proving Ground, Maryland. The group’s recommendations also helped facilitate the closures of Fort Monmouth, New Jersey, and Red River Army Depot, Texas, both of which are reported in the Army’s BRAC report. Table 38 provides a summary of the financial aspects of the group’s three DOD-approved recommendations. industrial customers, such as maintenance depots, shipyards, and air logistics centers. The strategic distribution sites are located at Susquehanna, Pennsylvania; Warner Robins, Georgia; Oklahoma City, Oklahoma; and San Joaquin, California. It is also designed to realign service retail supply and storage functions along with personnel and infrastructure for these industrial customers in an “in-place, no-cost transfer” to DLA. This recommendation supports the closures of the defense distribution depots at Columbus, Ohio, and Texarkana, Texas, and realigns each of the remaining 17 defense distribution depots. The recommendation regarding the realignment of the inventory control points transfers certain inventory control point functions, such as contracting, budgeting and inventory management, to DLA and allows further consolidation of service and DLA inventory control points by the supply chains they manage. In addition, it supports the movement of the management of essentially all service consumable items and the procurement management and related support functions for the procurement of essentially all depot level reparables from the military services to DLA. This recommendation realigns all 16 of the current DLA and service inventory control points and closes 4 through consolidation— Fort Huachuca, Arizona; Fort Monmouth, New Jersey; Rock Island, Illinois; and Lackland Air Force Base, Texas—while opening a new inventory control point at Aberdeen Proving Ground, Maryland. The recommendation also supports the Army’s closure of Fort Monmouth by moving supply and storage functions to other locations. The recommendation regarding the realignment of commodity management disestablishes the wholesale supply, storage, and distribution functions within the department for all tires; packaged petroleum, oils, and lubricants; and compressed gases used by DOD. As a result, these commodities will be supplied directly by private industry, which will free up space and personnel used to manage these items. It realigns all of the remaining defense distribution depots by disestablishing all storage and distribution for the commodities. Although time did not permit us to fully assess the operational impact of each recommendation, particularly where operations proposed consolidation across multiple and varied locations, available information suggests these recommendations have the potential for more efficient operations within DOD. At the same time, there are some issues we identified that we believe the BRAC Commission may wish to consider during its review process because of potentially overstated savings estimates. In this regard, the supply and storage group claimed savings for future cost avoidances for sustainment and facilities’ recapitalization related to the facilities’ space that is expected to be vacated under the recommended actions. However, as discussed below, it is uncertain whether these savings will actually materialize if these facilities are not closed and remain open—even with reduced usage of the space. Additionally, the group did not develop recommendations for several areas within the scope of its responsibility that may have further contributed to the accomplishment of DOD’s BRAC objectives, such as additional consolidations in DLA and service inventory control points. required to be held in inventory. Although the group had some supporting documentation for its assumptions, time did not allow us to fully evaluate the documentation. Nevertheless, the full magnitude of savings likely to be realized will depend on how well the actions, if approved, are implemented in line with the assumptions made. All of the supply and storage group’s recommendations taken together show significant projected savings from expected reductions to excess or unnecessary infrastructure. According to the group’s estimates, it is claiming BRAC savings on about 27 million square feet of vacated space— an estimated savings of about $100 million annually or about 25 percent of the group’s total net annual recurring savings. In developing its costs and savings estimates, the group assumed that all of the excess infrastructure that was made possible by the recommendations would generate BRAC savings because it was further assumed that the infrastructure would no longer be used and therefore would not require sustainment and recapitalization funding. However, we believe these assumptions are not necessarily valid because it is not clear that the freed-up infrastructure will be eliminated and could potentially be occupied by other users following the BRAC process. At present the group does not have plans for this space. Under the BRAC process, if these vacated facilities or portions thereof are reoccupied by other defense organizations, there is a corresponding cost for this reoccupation. Likewise, additional BRAC costs are required for facilities that remain empty to minimally maintain them, and costs are incurred if buildings are demolished. Supply and storage officials told us they were aware of this issue and said that their goal is to vacate as much space as possible by re-warehousing inventory and by reducing personnel spaces, but they do not have a specific plan for what will happen to the space once it is vacated. In addition, until these recommendations are ultimately approved and implemented, it will not be known exactly how much space is available or how this space will be disposed of or utilized. As a result, it is unclear as to how much of the estimated $100 million net annual recurring savings will actually occur. 6,500 service staff to DLA and was estimated by the group to save $2.9 billion over the same 20-year period. The latter scenario would leave nearly 3,900 service technical and engineering support personnel of the more than 10,300 service staff at existing service inventory control points. Senior-level principal members of the supply and storage group consider the technical and engineering support personnel positions to be more closely related to weapon system readiness and support to the warfighter than other inventory control point functions, such as contracting, budgeting, and inventory management, which are being transferred to DLA. These officials were not willing to suggest transferring the technical positions to DLA because of the perceived additional risk involved of not being able to supply the critical parts to the warfighter when needed. Therefore, they approved the recommendation that generated less savings, but also less risk to weapon system readiness and moved fewer inventory control point functions and fewer service staff to DLA. The Commission may wish to further examine the potential for greater savings regarding the transfer of more inventory control point functions versus the potential risk of not being able to supply critical parts when needed. The group also did not pursue the development of recommendations regarding the defense reutilization and marketing office activities, even though considerable excess capacity exists, as shown in table 36, in that area. Group officials told us that these activities, which are managed by DLA, are considered follower organizations that are currently undergoing an extensive A-76 initiative outside the BRAC process that is expected to either close or consolidate several activities and reduce staff levels at others. DLA data indicate that 61 of the 67 reutilization and marketing office activities analyzed by the supply and storage group are involved in the effort and that the agency expects to save about $36 million through 2011 with the A-76 effort. The Technical Joint Cross-Service Group followed the common analytical framework established by the Office of the Secretary of Defense (OSD) in reviewing its functions and facilities. The group included in its report 13 recommendations that it projects would generate about $2.2 billion in 20- year net present value savings for DOD. These 13 recommendations incorporate a total of 6 closures, 62 realignments, and 1 disestablishment action. Additionally, the technical group transferred parts of nine recommendations to other joint cross-service groups or military services, which combined with other actions resulting in three additional closures. The majority of the projected annual recurring savings result from eliminating civilian and contractor personnel and vacating leased space. The recommendations have payback periods—the time required for savings to offset closure and realignment costs—ranging from 1 to 26 years. Limited progress was made to foster greater jointness and transformation. The DOD Inspector General and the military service audit agencies, which performed audits of the data used in the process, concluded that the data were sufficiently reliable for use during the BRAC process. While available data supporting the recommendations suggest their implementation should provide for more efficient operations within the department, we believe there are some issues that the BRAC Commission may wish to examine more closely during its review process. The technical group was chaired by the Director, Defense Research and Engineering; it consisted of senior members from each military department and the Joint Chiefs of Staff. The group created five subgroups to evaluate the technical facilities: (1) Command, Control, Communications, and Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR); (2) Air, Land, Sea, and Space Systems; (3) Weapons and Armaments; (4) Innovative Systems; and (5) Enabling Technologies. In addition, the group also created a Capabilities Integration Team and an Analytical Team to support the efforts of the subgroups. The technical group established two principles to guide its analysis and recommendation development: (1) provide efficiency of operations by consolidating technical facilities to enhance synergy and reduce excess capacity and (2) maintain competition of ideas by retaining at least two geographically separated sites. The group analyzed three functional areas within DOD: research, development and acquisition, and test and evaluation. It focused its analysis of the 3 functions across 13 technical capability areas—air platforms; battlespace environments; biomedical; chemical and biological defense; ground vehicles; human systems; information systems; materials and processes; nuclear technology; sea vehicles; sensors, electronics, and electronic warfare; space platforms; and weapons and armaments. Each of the military services and some defense agencies perform work in the functions and technical capability areas. The group developed a strategic framework based on its two principles that focused on establishing multifunctional and multidisciplinary centers of excellence, which served as the starting point for developing scenarios. These strategy-driven scenarios were later confirmed by capacity and military value data and military judgment. The DOD Inspector General and service audit agencies performed an important role in ensuring the accuracy of data used in these analyses through extensive audits of data gathered at various locations. and subsequently collected certified data on these measures from the technical facilities performing work in each of the technical facility categories. Excess capacity was defined as the difference between current usage plus a surge factor and peak capacity. Current usage was defined as the average usage for fiscal years 2001 through 2003, and peak capacity was defined as the maximum capacity for the measure. The group set the surge factor at 10 percent of current capacity, based on military judgment of how the technical community has approached surge in the past. The group calculated excess capacity for each of the 39 technical facility categories; however, the aggregated data provide more insight into the amount of excess capacity. Table 39 shows the excess capacity that the technical group found through its analysis. The group reported that the current required capacity, including surge, across all technical capability areas and functions is 169,596 work years. The group found the equivalent of 13,368 work years, or 7.9 percent, excess capacity across the three functions. The group reports that its recommendations eliminate approximately 3,000 work years. Based on these calculations, approximately 6 percent excess capacity would remain if all of the group’s recommended actions are implemented. The work year reductions include the reductions made through the technical group’s 13 recommendations. The work year reductions do not include reductions in technical excess capacity through the closure of Fort Monmouth, New Jersey, and Brooks City-Base, Texas, for example, which are included in the Army and Medical Joint Cross-Service Group recommendations, respectively. As with capacity analysis, the technical group’s assessment of military value included an assessment of the technical infrastructure across the 39 technical facility categories. The group weighted each of the four military value criteria based on the importance of the criterion to the technical function. The group used the same weights for the research and development and acquisition functions, but different weights for the test and evaluation function due to differences in the type of work conducted at these facilities. Table 40 shows the weights for the three functions. people, which measures intellectual capital; physical environment, which measures special features of technical physical structures and equipment, which measure the presence of physical structures unique within DOD and the value, condition, and use of these structures; operational impact, which measures the output of the three functional areas (research, development and acquisition, and test and evaluation); and synergy, which measures working on multiple technical capability areas and functions and jointness. The technical group developed weights for the 5 attributes that were applied to each of the criteria and 30 metrics divided among the 5 attributes. While the group allowed the evaluative weights for the metrics to vary across its subgroups, it used the same weights for the five attributes. The evaluative weight assigned to attributes varied among the three functions because a particular attribute could have greater importance for one function than another. For example, the technical group weighted the people attribute for criterion 1 at 17 percent of the total military value score for research, 13 percent for development and acquisition, and 16 percent for test and evaluation. While the attribute weights were the same for activities across subgroups, the metric weights varied by subgroup. For example, the Air, Land, Sea, and Space Systems subgroup weighted the patents, publications, and awards metric of criterion 1 for the research function at 30 percent of the total for the people attribute, while the Weapons and Armaments subgroup weighted the same metric at 18 percent. Figure 19 provides an example of the technical group’s military value attributes, metrics, data sources, and their link to the four BRAC military value criteria. Highest education level for professional/technical workforce. Number and funding for other services’ programs executed at the facility. The BRAC military value criteria are the first four BRAC selection criteria. All technical facilities were analyzed using the technical group’s military value approach, regardless of whether the recommendation ended up with the technical group’s 13 recommendations or in another services’ or joint cross-service groups’ recommendations. For example, part of the Army’s recommendation to close Fort Monmouth relocates the information systems research and development and acquisition to Aberdeen Proving Ground, Maryland. The technical group followed the same process in gathering data and calculating a military value score for these functions as they did all other technical functions. Inspector General found that certified data were used for the group’s capacity and military value analyses, and there was an adequate audit trail for the capacity and military value analyses, and COBRA input data. Through extensive audits of the data collected from technical facilities during the process, the service audit agencies notified the technical facility of identified data discrepancies and the technical facility was to take corrective action. While the process for detecting and correcting data errors was quite lengthy and challenging, the DOD Inspector General and service audit agencies deemed the technical data to be sufficiently reliable for use in the BRAC process. their implementation should provide for more efficient operations within the department, we believe there are some issues that the BRAC Commission may wish to examine more closely during its review process. The technical group’s proposed recommendations result in a total projected net savings of $2.2 billion over 20 years, with net annual recurring savings of $265.5 million per year. Table 41 provides a summary of the financial aspects of the group’s recommendations, most of which are realignment actions. The majority of the projected net annual recurring savings are based on eliminating civilian and contractor personnel ($167.7 million) as functions are realigned between installations and vacating leased space ($51.8 million). On the other hand, the majority of the projected costs are for constructing new facilities ($644.6 million) and moving personnel and equipment ($326.7 million) to the gaining installations. The group’s 13 recommendations include 6 closures, 62 realignments, and 1 disestablishment for a total of 69 actions. For example, the group’s recommendation to consolidate maritime C4ISR research, development and acquisition, and test and evaluation includes 16 realignment actions and 1 disestablishment action. The technical group’s recommendations support, to a limited extent, the goals of maximizing jointness and furthering transformation efforts within the department. Eight of the group’s 13 recommendations move functions from one service or defense agency’s installation to another service’s installation. For example, the recommendation to create an integrated weapons and armaments specialty site for guns and ammunition moves seven Navy functions to an Army installation. While the chairman of the group’s Capabilities Integration Team told us that all of the group’s recommendations were transformational, the supporting information often suggested the recommendations were more focused on combining like work at a single location without a clear indication of how it provided for transformation. Two of the group’s recommendations specifically mention transformation in their justification statements, but the transformational effects are not clear in the documentation. For example, the recommendation to create an air integrated weapons and armaments research, development and acquisition, and test and evaluation center states that it supports transformation because it moves and consolidates smaller weapons and armaments efforts into high military value integrated centers and leverages synergy among the three functions; however, the documentation does not discuss how these actions are transformational. Time did not permit us to assess the operational impact of each of the technical group’s recommendations, particularly where operations proposed for consolidation extend across multiple locations outside of a single geographic area. At the same time, we offer a number of broad-based observations about the proposed recommendations. there are some issues that the BRAC Commission may wish to consider during its review process. Specifically, the Commission may want to consider whether the level of personnel reductions is attainable, issues related to projected savings from vacating leased space, the long payback period and relatively small savings for some recommendations, and the economic impact of one recommendation. The technical group developed a standard assumption to eliminate 15 percent of military and civilian personnel affected by the recommendation for consolidation and joint actions based on personnel eliminations at technical facilities in previous BRAC rounds. The group used a different assumption (5.5 percent reduction in affected military and civilian personnel) for co-location actions because it is believed that there are likely to be fewer efficiency gains for co-locations than consolidations or joint actions. A technical group official told us that in some cases the group used higher personnel reduction estimates than the standard because the military department provided for higher estimated personnel reductions in the certified data, and the military services agreed with all personnel eliminations in the group’s recommendations. We believe there is some uncertainty regarding the magnitude of the group’s expected savings for these personnel reductions because its estimates are based on assumptions that have undergone limited testing and full savings realization depends upon the attainment of these personnel reductions. Eight of the group’s 13 recommendations eliminate at least 15 percent of military and civilian personnel positions affected by the recommendation. Personnel savings account for at least 40 percent, and as much as 100 percent, of the group’s projected annual recurring savings for each of these 8 recommendations. Almost three-quarters of all personnel savings come from civilian personnel eliminations. Similar to military and civilian personnel, the technical group developed a standard assumption that the subgroups could eliminate 15 percent of contractor personnel and could take $200,000 in recurring savings for each contractor position eliminated. It is unclear from the data what percentage of contractor positions were eliminated because the total number of contractor personnel is not included in the COBRA data. Seven of the group’s recommendations include savings from eliminating contractor personnel, for a total of $53.9 million in net annual recurring savings. In contrast, the data on economic impact (criterion 6 of the BRAC selection criteria) show a net loss of 508 contractor personnel in 10 recommendations, which would have totaled $101.6 million in net annual recurring savings. Technical group officials told us that both sets of numbers are based on certified data from the services; however, they added that the contractor data were difficult to collect because they were provided by the services through the scenario data calls, rather than as standard data in the COBRA model. It is unclear to what extent the personnel reductions assumed in the group’s recommendations will be attained, largely because of uncertainties associated with the group’s assumptions. For example, the group’s recommendation to create a naval integrated weapons and armaments research, development and acquisition, and test and evaluation center includes the reduction of 15 percent of military and civilian personnel. As mentioned above, the technical group assumed a standard 15 percent reduction in military and civilian personnel for consolidation and joint actions and a 5.5 percent reduction in military and civilian personnel for co- location actions. Because we are uncertain whether the 15 percent reduction in military and civilian personnel for consolidations and joint actions is attainable, we determined the costs and savings of the recommendation with the 5.5 percent personnel reduction for co-locations. Table 42 shows the financial aspects of DOD’s original recommendation with a 15 percent reduction in military and civilian personnel, our analysis of the recommendation with a 5.5 percent reduction in military and civilian personnel, and the difference between the two recommendations. Payback period (years) 20-year net present value savings (cost) GAO’s analysis (5.5 percent military and civilian personnel reduction) (3) Our analysis identified some inconsistencies in projecting annual recurring savings and one-time savings in three recommendations to move activities from leased space. The technical group used two different methodologies to project annual recurring savings from vacating leased space. In one recommendation, the group projected annual recurring savings based on future leased costs while in the other two, the group used actual lease costs data provided by the military services and defense agencies. Furthermore, the recommendation to co-locate the extramural research program managers also includes $2.7 million in annual recurring savings for the Defense Threat Reduction Agency vacating leased space; however, the agency is already scheduled to move to Fort Belvoir, Virginia, in January 2006. The technical group also included $14.5 million in one-time savings for seven of the eight activities vacating leased space for the cost of upgrading existing leased space to meet DOD’s antiterrorism and force protection standards. The group did not collect data that would indicate whether existing leases met the antiterrorism and force protection standards. Our analysis indicates that excluding these one-time savings would have minimal impact on the overall projected savings of the technical group’s recommendations. Only 3 of the 13 recommendations achieve savings during the 6-year implementation period, and 3 of the group’s recommendations take longer than 10 years to achieve savings, far longer than typically occurred in the 1995 BRAC round. According to a technical group official, the recommendation to establish a center for rotary wing air platform research, development and acquisition, and test and evaluation, which has a 26-year payback, was retained because it realigns the technical-related work away from a test range at Fort Rucker, Alabama, which will provide for expanded training space. An Army official agreed that a potential benefit of realigning the test range at Fort Rucker is that it would make available hangars, facilities, and airspace for trainers. For example, the Army said that the vacated hangar space could potentially be used to accommodate the Aviation Logistic School’s proposed move to Fort Rucker and the reduced demand for airspace will make additional airspace available to meet the current and future needs for manned and unmanned aviation training. The group’s recommendation to create an integrated weapons and armaments specialty site for guns and ammunition, which has one-time costs of $116.3 million and a 20-year net present value savings of $32.6 million, has a payback of 13 years. Technical group officials told us that this recommendation was determined to be worth the costs and longer payback period because it provides synergy and jointness, as well as eliminating some duplication, in research and development and acquisition of guns and ammunition for the Army and Navy. According to a group official, the group’s recommendation regarding Navy sensors, electronic warfare, and electronics research, development and acquisition, and test and evaluation, which has a 12-year payback period, is beneficial because it consolidates similar work currently performed at locations that are in proximity to each other and clears out laboratory space at Naval Air Station Point Mugu, California, that is needed for personnel moving in from Naval Support Activity Corona, California, through a Navy recommendation. The official added that while the payback for this recommendation is long, it should be put into perspective with the savings from closing Naval Support Activity Corona because the savings from closing that facility (net annual recurring savings of $6.0 million and a 20-year net present value of $0.4 million) would be smaller had the laboratory space not been available at Point Mugu. One of DOD’s BRAC selection criteria, criterion 6, required the department to consider the economic impact on existing communities in the vicinity of military installations when determining realignments and closures. In most cases, the group’s recommendations had a cumulative impact on communities of less than 1 percent as measured by direct and indirect job loss as a percentage of employment for the economic area of the military installation. However, the exception is the recommendations that realign activities from Naval Surface Warfare Center Crane, Indiana, which would result in an economic impact of 9.3 percent. A technical group official stated that realigning the technical infrastructure to respond to defense needs over the next 20 years took priority over the economic impact of the proposed recommendation. Two of the group’s recommendations realign or eliminate approximately 460 military and civilian personnel and 80 contractor personnel from Naval Surface Warfare Center Crane, for a cumulative reduction of 9.3 percent of employment in Martin County, Indiana, when direct and indirect jobs are considered. There is some uncertainty on the number of civilian personnel that would be realigned in the technical group’s recommendation to create a naval integrated weapons and armaments research, development and acquisition, and test and evaluation center. The recommendation proposes to realign about 1,400 civilian employees from Naval Air Station Point Mugu, California, to Naval Air Weapons Station China Lake, California. However, in its data call submission, Naval Air Station Point Mugu identified 505 civilian employees that operate or support an outdoor range that it believes should remain at Point Mugu; however the technical group’s recommendation proposes to move these personnel to China Lake. A Navy official said that if the recommendation is approved the Navy will decide the best way to manage the range, including the appropriate number of employees to retain at Point Mugu, during implementation. Our analysis indicates that if the 505 civilian employees remain at Point Mugu, the 20- year net present value savings decreases by about $87.4 million but the payback period remains at 7 years. The technical group developed a scenario that would have allowed the Air Force to close Los Angeles Air Force Base, California, which may have further contributed to the accomplishment of BRAC objectives; however, the Air Force Base Closure Executive Group did not approve this scenario due to the base’s relatively high military value and perceived operational risk due to a potential for schedule and performance disruption. Table 43 provides a summary of the financial aspects of this scenario. Payback period (years) 20-year net present value (costs) or savings($305.1) ($161.1) development and acquisition—its military value in space development and acquisition is four times higher than that of Peterson—and (2) the closure has a near-term operational risk due to a potential for schedule and performance disruption to development and acquisition programs and activities, intellectual capital, and synergy with industry based in Los Angeles and surrounding areas. Technical group officials told us that there are several reasons to close Los Angeles Air Force Base in addition to the net recurring savings ($52.9 million) and relatively high 20-year net present value savings ($358.5 million). Los Angeles Air Force Base is a single-service installation that primarily performs one function in one technical capability area— development and acquisition of space platforms. The technical group sought to identify opportunities to consolidate smaller single-function locations to larger multifunction facilities, so closing Los Angeles Air Force Base would meet this goal. The group proposed to move the functions at Los Angeles Air Force Base to Peterson Air Force Base to co-locate the development and acquisition function with the operational user. Other alternatives could achieve other goals. For example, moving the space development and acquisition function from Los Angeles Air Force Base to Kirtland Air Force Base, New Mexico, which performs research on space platforms, could expedite the transition of technology from the research phase to development and acquisition. Alternatively, there could be increased jointness among the services if the functions at Los Angeles Air Force Base were moved to Redstone Arsenal, Alabama, where much of the Army’s space platform development and acquisition work is done. DOD used a quantitative model, known as the Cost of Base Realignment Actions (COBRA) model, to provide consistency across the military services and the joint cross-service groups in estimating the costs and savings associated with BRAC recommendations. DOD has used the COBRA model in all previous BRAC rounds and over time has made improvements designed to provide better estimating capability. Similarly, DOD has continued to improve the model for its use in the 2005 BRAC round. We have examined COBRA in the past and during this review and have found it to be a generally reasonable estimator for comparing potential costs and savings among candidate alternatives. As with any model, the quality of the output is a direct function of the input data. Also, as in previous rounds, the COBRA model, which relies to a large extent on standard factors and averages, does not represent budget quality estimates that will be developed once BRAC decisions are made and detailed implementation plans are developed. The COBRA model also does not include estimated costs of environmental restoration as DOD considers these costs a liability that must be addressed whether or not an installation is closed. costs for the actions; (4) annual recurring savings; and (5) the net present value of BRAC actions, calculated over a 20-year time frame. Collectively, this financial information provides important input into the selection process as decision makers weigh the financial implications for various BRAC actions along with military value and other factors (for example, military judgment) in arriving at final decisions regarding the suitability of BRAC recommendations. The COBRA model uses a set of formulas, or algorithms, that rely on standardized data as well as base- and scenario-dependent data to perform its calculations. Standard factors are common to a class of bases and are applicable for all recommendations that involve those bases. Some standard factors apply only to one DOD component or a subset of a component’s bases, while others are applicable to all bases DOD-wide. Typical standard factors include, for example, average personnel salaries and costs per mile and per ton for moving personnel and equipment. Base- and recommendation-specific data, which were to be certified in accordance with the BRAC statute, include, for example, the number of authorized personnel on a base, the size of the base, and annual sustainment costs. As with any model, the quality of the output is a direct function of the quality of the input data. For this reason, the data used in COBRA were to be certified, in a manner similar to that employed for the capacity and military value data, as to their accuracy. The COBRA model has been used in the base closure process since 1988, and in the intervening years it has been consistently revised to address the problems we and others have identified after each round. DOD has once again made improvements to the model, as shown in table 44, that are designed to further refine its estimating capability. enclaves created during the prior BRAC rounds, thereby having the effect of overstating the savings for those particular BRAC actions. Consequently, the Joint Process Action Team provided for the inclusion of these costs in the COBRA model. In another case, the Joint Process Action Team developed an approach to incorporate longer term estimated facility recapitalization costs in COBRA, thus overcoming a COBRA shortcoming that we identified in our 1997 report on lessons learned from the prior BRAC rounds. As was done in the 1995 BRAC round, the Army Audit Agency examined the improved COBRA model to determine whether the model accurately calculated cost and savings estimates as described in the user’s manual. The Army Audit Agency assumed this responsibility at the request of The Army Basing Study Group since the Army serves as the executive agent for the COBRA model. The Army Audit Agency tested all 340 algorithms in the model as presented in the user’s manual and reported in September 2004 that COBRA accurately calculated costs and savings as prescribed in the manual. Following the audit, however, multiple revisions were made to the model to include changes to the TRICARE and privatization algorithms because of programming errors in the model. The Army Audit Agency subsequently reexamined the revisions where these algorithms were modified and concluded in a similar fashion that the model accurately calculated the estimates. In addition, the Army Audit Agency validated the certified data and documentation supporting the standard factors used in the model. accuracy of the input data, and the flexibility provided to users of the model to consider additional input data that can affect cost and savings estimates. The following are examples of cases where the specific application of the model can have an effect on the estimates: The COBRA model generates a dollar amount attributable to the reduction or elimination of military personnel at realigning or closing bases. While it has been DOD’s practice to classify these reductions or eliminations as recurring savings, we have consistently taken the view that these actions should not be counted as savings that can be used outside the military services’ personnel accounts unless commensurate reductions are made in the affected military services’ end strengths. We acknowledge that these actions may afford DOD the opportunity to redirect these personnel to serve in other roles that would benefit DOD. Our analysis of DOD data indicate that about 47 percent—about $2.6 billion—of the expected net annual recurring savings of nearly $5.5 billion for the 2005 round are attributable to these military personnel actions, for which reductions in the military personnel end- strength levels are not planned. The COBRA model provides users with considerable flexibility in estimating one-time and miscellaneous recurring costs or savings of various recommendations by allowing them to consider what actions might constitute a cost or savings and what the expected dollar amounts should be. Validating the level of projected savings is less clear-cut for recommendations that, instead of closing facilities, realign workloads from one location to another, or that estimate savings in overhead or other consolidation efficiencies. The dollar amounts could be based on specific assumptions as well as certified data but nonetheless be subject to greater degrees of uncertainty pending implementation than would be actions resulting in facility closures where expected reductions are more clear-cut. Our analysis of the BRAC recommendations showed inconsistencies across some of the services and joint cross-service groups in applying COBRA in this area. would be either understated or overstated. Time did not permit us to determine the extent to which this might be the case in the proposed recommendations. Although COBRA has provided DOD with a standard quantitative approach enabling it to compare the estimated costs and savings associated with various proposed BRAC recommendations, it should be noted that it does not necessarily reflect with a high degree of precision the actual costs or savings that are ultimately associated with the implementation of a particular BRAC action. COBRA is not intended to produce budget-quality data and is not used to develop the budgets for implementing BRAC actions, which are formulated following the BRAC decision-making process. COBRA estimates may vary from the actual costs and savings of BRAC actions for a variety of reasons, including the following: COBRA estimates, particularly those based on standard cost factors, are imprecise and are later refined during implementation planning for budget purposes. The use of averages has an effect on precision. For example, as noted previously, COBRA uses authorized, rather than actual, base civilian personnel figures in its calculations. Our work has shown that the actual number of personnel may be lower or higher than that which is authorized. The authorized personnel levels are documented estimates, which can be readily audited. COBRA also uses a median national civilian personnel salary figure (adjusted by locality pay), rather than average pay at a particular base, in its calculations. Further, COBRA estimates are expressed in constant-year dollars, whereas budgets are expressed in then-year dollars. 36 percent, or $8.3 million, of the $23.3 million in costs incurred through fiscal year 2003 for implementing BRAC actions for the previous four BRAC rounds. Further, COBRA does not include estimates for some other costs to the federal government, particularly those related to other federal agencies or DOD providing assistance to BRAC-affected communities. That is because assistance costs depend on specific implementation plans that are unknown at the time COBRA estimates are developed. In our January 2005 report on the previous BRAC rounds, we noted that about $1.9 billion in such costs had been incurred through fiscal year 2004. Some savings are not fully captured in COBRA as well. COBRA does not include estimates, for example, for anticipated sales of BRAC surplus property or other revenue that may be collected in the future through property leasing arrangements with BRAC-affected entities. These revenues can help offset some of the costs incurred in implementing BRAC actions. While such estimates had been included in COBRA in the previous rounds, the Joint Process Action Team decided not to include any such estimates for the 2005 round because of the difficulty in estimating the amount of these revenues. Nonetheless, while COBRA estimates do not necessarily reflect the actual costs and savings ultimately attributable to BRAC, we have recognized in the past and continue to believe that COBRA is a reasonably effective tool for the purpose for which it was designed: to aid in BRAC decision making. It provides a means for comparing cost and savings estimates across alternative closure and realignment recommendations. One of the eight selection criteria used to make BRAC decisions was the economic impact on existing communities in the vicinity of military installations coming from BRAC recommendations. DOD measured the economic impact of BRAC recommendations on the affected community’s economy in terms of total potential job change—measured both in absolute terms (estimated total job changes) and relative terms (total job changes as a percentage of the economic area’s total employment). This approach to measuring economic impact is essentially the same approach DOD used in the 1995 BRAC round. In a series of reports, that examine the progress in implementing closures and realignments in prior BRAC rounds, we examined how the communities surrounding closed bases were faring in relation to key national indicators. In our last status report, we observed that most communities surrounding closed bases were faring well economically in relation to key national economic indicators. While some communities surrounding closed bases were faring better than others, most have recovered or are continuing to recover from the impact of BRAC, with more mixed results recently, allowing for some negative impact from the 2001 recession. While there will be other economic impacts from 2005 BRAC actions that DOD did not consider, such as changes in the value of real estate or changes in the value of businesses in the economic area, we believe that the magnitude of job changes would be correlated with the changes in these other dimensions of economic impact. Although not a precise predictor of the economic impact, we and an independent panel of experts assembled by DOD agree that the methodology used by DOD makes a reasonable attempt to measure economic impact of BRAC actions, both in terms of communities losing and gaining jobs as a result of BRAC actions. DOD assessed the economic impact of realignments and closures using a methodology that sought to estimate the total direct and indirect job changes. To perform its assessment, DOD established the Economic Impact Joint Process Action Team with members of the services and the Office of the Secretary of Defense (OSD) to develop an economic impact model for the services and joint cross-service groups to use as they considered potential recommendations. The team met many times to develop the economic methodology. We attended and observed those meetings as the methodology was developed. DOD also retained a private firm, Booz Allen Hamilton, to provide technical assistance in developing the methodology and computer database used by the military services and joint cross-service groups in calculating economic impacts in communities for which they were considering closure or realignment actions. which the base’s primary county or counties lie. For bases in counties not in a MSA, Micropolitan Statistical Area, or a Metropolitan Division the economic area was defined as the county itself. The economic impact of a potential action on an area was measured in terms of direct and indirect job changes estimated from 2006 through 2011 as shown below. Estimated Total Job Changes = Direct Job Changes x (1 + indirect multiplier + induced multiplier). Direct job changes are the estimated net addition or loss of jobs for military personnel, military students, civilian employees, and contractor mission support employees. The indirect job changes are the estimated net addition or loss of jobs in each economic area that could potentially occur as a result of the direct job changes. DOD considered two types of indirect job changes: (1) indirect job changes that are associated with the production of goods or the provision of services that are direct inputs to a product, such as a subcontractor producing components for a weapon system and (2) induced job changes that are affected as a result of local spending by direct and indirect workers, such as retail sales. base was located. Indirect multipliers were estimated by mapping Military Occupational Specialties (MOSes) to economically similar civilian sectors. Each of these similar economic sectors multipliers were weighted by the number of military personnel mapped to each sector divided by the total number of employees in the sector. Examples of these economically similar sectors are educational services, administration and support services, scientific research and development services, aerospace product and parts manufacturing, and electronic repair and maintenance. Judgment was used to place all MOSes into one of the industrial sectors. A weighted average of the indirect multipliers, based on the weights discussed above, for each base was used to estimate the indirect job changes from military personnel. This weighted average of indirect multipliers used to estimate the military indirect multiplier for each base was used to estimate the indirect job changes from civilian personnel job changes, as well as the indirect job changes for mission-support contractors for each base. Estimating the induced job changes from military and civilian job changes was more straightforward. For each economic area, MIG used one induced multiplier for military personnel job changes and one for nonmilitary government jobs changes. These multipliers were used to estimate the induced job changes for each base in that economic area. Summing the products of the weights for each of the civilian industries calculated for the military indirect multipliers, and the induced multipliers for each of the industries from MIG, produced the induced multiplier used for mission support contractor job changes. Because of a concern about the lower spending of military trainees at recruit training facilities, an adjustment was made to reduce the values of the induced multipliers used for job changes of military trainees at recruit training bases. The Economic Impact Joint Process Action Team was also concerned about overestimating induced job changes for military trainees at recruit training bases and thought that military trainees at such bases have a smaller economic impact than civilian employees and regular military personnel, including those military personnel who receive more advanced training. The team thought this because such students receive a relatively smaller income and are generally transient. Student multipliers for bases with recruit training programs were estimated by multiplying the military induced multiplier for an economic area by the ratio of basic training wages to average military wages (slightly more than a third). Student induced multipliers for bases without basic training programs were set equal to the military induced multiplier for the base’s economic area. The team thought that these more advanced students were likely to have incomes and spending habits similar to the average military in the economic area. Some of the joint cross-service groups subsequently considered a small number of bases (leased spaces or Reserve/Guard centers) that were not included in the initial set of defined economic areas. For these economic areas, a generic set of multipliers was developed by averaging each of the multipliers of the five categories (military, civilian, contractor, student, and recruit training student) over the existing economic areas. by economic area (net result of all actions for the economic area). The total potential job change and the total potential job changes as a percentage of total in an economic area were to be considered in the context of historical economic data. For historical context, the services and the joint cross-service groups considered the following for each economic area: total employment: 1988 to 2002, annual unemployment rates: 1990 to 2003, and real per capita income: 1988 to 2002. In addition, the latest available numbers on population would be provided. These dates were chosen to reflect the latest available data from federal sources. In the 1995 BRAC round, DOD developed a separate method of assessing cumulative economic impact because some of the closures and realignments from the prior rounds had not been fully implemented, so special consideration was given to the economic impacts that were yet to occur. However in 2005, given the passage of time since all four of the previous BRAC rounds, which extended from 1988 to 1995, and other factors contributing to changing economic conditions in the interim period, DOD decided not to consider the cumulative economic impact of the prior BRAC rounds in assessing the impact of the current round. We believe DOD’s decision not to assess a cumulative economic impact for the 2005 round has merit. DOD had extensive documentation controls to protect how documents for economic impact were prepared, handled, and processed. Procedures were used to ensure that the inputs, such as the values of the multipliers, used to make calculations on job changes were correct. A review by qualified analysts who did not participate in the initial calculations was also conducted. DOD’s approach to measuring economic impact did not measure all the dimensions of the economic impact coming from a BRAC action. There will be other economic impacts on the economic area, such as changes in the value of real estate or the value of businesses in the area. The DOD approach did not estimate these effects, but it is reasonable to assume that the magnitude of job losses would be correlated with the changes in these values. DOD’s methodology does have some limitations. Specifically, it tended to overstate the employment impact for economic areas. One of DOD’s goals for the methodology was to produce credible estimates but to err on the side of overstating the actual impacts in order to prevent others from arguing that DOD was underestimating economic impact. The Joint Process Action Team was aware that the methodology had factors that might offset the estimated job losses. For example, the methodology assumed that that jobs are lost all at once and does not recognize that employees may be released over the 6-year implementation period and be reemployed in other local businesses or outside the economic area, which would reduce the estimated job loss. The methodology does not recognize the possible civilian reuse of the affected base and the resulting reemployment of workers, which would reduce the estimated job losses. In examining the construction of the indirect multipliers, it is possible to question how they were created. The indirect multiplier being used to estimate job changes from military job changes for a base is constructed as a weighted average multiplier where the weights are the fraction of total base personnel being judged to be similar to a particular civilian industry. Questions could be raised about judgments made to map particular Military Occupation Specialties to activities in civilian industries. In some cases, the mapping from military jobs to industries was easier, such as military jobs in the medical area being mapped to the medical industry. However, in other areas where the jobs are uniquely military, such as infantry, the mapping would be more problematic. If a mistake was made in mapping a job that is uniquely military to a civilian sector, the result would depend on the relative size of the multiplier of the correct civilian sector versus the civilian sector used. It could lead to overestimation or underestimation of the indirect job change. Time did not permit us to examine this mapping. Nonetheless, we believe the overall approach seemed to be a sound attempt to produce a credible multiplier. Finally, in using the ratio of estimated job losses from 2006 through 2011 to total employment as of 2002 (the latest figure for total employment) as a measure of economic impact, the economic impact was likely overstated. This occurs because total employment is likely to grow for many economic areas over the 2006-2011 implementation period as local economies grow, which would reduce the overall percentage of job losses. DOD’s methodology for assessing economic impact was reviewed by an independent panel of four economists and policy analysts from the private and academic sectors in August 2004. DOD formed the panel of four members to review the methodology and to determine if it conformed to accepted economic practices. Three of the panel members were Ph.D. economists and the other was a policy analyst. All four were experienced in conducting local economic impact studies and were not otherwise associated with the BRAC process. The panel found the methodology to be reasonable. The experts agreed that the use of direct and indirect job changes was a logical method to characterize the impact of proposed closures and realignments. The reviewers also concluded that DOD’s methodology represents a “worst-case” estimate of economic impact. We contacted each member of the panel to discuss their review of the methodology to ensure that DOD had adequately summarized the results of the panel meeting and that they agreed that the methodology was sound. We and the experts agreed that DOD had adequately summarized the review meeting and agreed that the methodology was reasonable to use. greatest negative employment change and the greatest positive employment change. As noted in prior reports, we examined how the communities surrounding closed bases were faring in relation to two key national economic indicators—the national unemployment rate and the average annual real per capita income growth rate. In our last status report, we observed that most communities surrounding closed bases were faring well economically in relation to these key national economic indicators. While some communities surrounding closed bases were faring better than others, most have recovered or are continuing to recover from the impact of BRAC, with more mixed results recently, allowing for some negative impact from the 2001 recession. Appendix XV Draft DOD Transformational Options Recommended for Approval 1. Consolidate Management at Installations with Shared Boundaries. Create a single manager for installations that share boundaries. Source & Application: H&SA 2. Regionalize Installation Support. Regionalize management of the provision of installation support activities across Military Departments within areas of significant Department of Defense (DoD) concentration, identified as Geographic Clusters. Option will evaluate designating organizations to provide a range of services, regionally, as well as aligning regional efforts to specific functions. For example, a possible outcome might be designation of a single organization with the responsibility to provide installation management services to DoD installations within the statutory National Capital Region (NCR). Source and Application: H&SA 3. Consolidate or collocate Regional Civilian Personnel Offices to create joint civilian personnel centers. Source and Application: H&SA 4. Consolidate active and Reserve Military Personnel Centers of the same service. Source and Application: H&SA 5. Collocate active and/or Reserve Military Personnel Centers across Military Departments. Source and Application: H&SA 6. Consolidate same service active and Reserve local Military Personnel Offices within Geographic Clusters. Source and Application: H&SA 7. Collocate active and/or Reserve local Military Personnel Offices across Military Departments located within Geographic Clusters. Source and Application: H&SA 8. Consolidate Defense Finance and Accounting Service (DFAS) Central and Field Sites. Consolidate DFAS business line workload and administrative/staff functions and locations. Source and Application: H&SA 9. Consolidate Local DFAS Finance & Accounting (F&A). Merge/consolidate local DFAS F&A within Geographic Clusters. Source and Application: H&SA 10. Consolidate remaining mainframe processing and high capacity data storage operations to existing Defense Mega Centers (Defense Enterprise Computing Centers). Source and Application: H&SA Appendix XV Draft DOD Transformational Options Recommended for Approval 11. Establish and consolidate mobilization sites at installations able to adequately prepare, train and deploy service members. Source and Application: H&SA 12. Establish joint pre-deployment/re-deployment processing sites. Source and Application: H&SA 13. Rationalize Presence in the DC Area. Assess the need for headquarters, commands and activities to be located within 100 miles of the Pentagon. Evaluation will include analysis of realignment of those organizations found to be eligible to move to DoD-owned space outside of a 100-miles radius. Source and Application: H&SA 14. Minimize leased space across the US and movement of organizations residing in leased space to DoD-owned space. Source and Application: H&SA 15. Consolidate HQs at Single Locations. Consolidate multi-location headquarters at single locations. Source and Application: H&SA 16. Eliminate locations of stand-alone headquarters. Source and Application: H&SA 17. Consolidate correctional facilities into fewer locations across Military Departments. Source and Application: H&SA 18. Collocate Reserve Component (RC) Headquarters. Determine alternative facility 19. Collocate Recruiting Headquarters. Analyze alternative Recruiting Headquarters alignments. Consider co-location of RC and Active Component (AC) Recruiting headquarters. Source and Application: H&SA 20. Establish a consolidated multi-service supply, storage and distribution system that 21. Privatize the wholesale storage and distribution processes from DoD activities that perform these functions. Source and Application: Supply & Storage Appendix XV Draft DOD Transformational Options Recommended for Approval 22. Migrate oversight and management of all service depot level reparables to a single DoD agency/activity. Source and Application: Supply & Storage 23. Decentralize Depot level maintenance by reclassifying work from depot-level to I- level. Source and Application: Industrial 24. Centralize I-level maintenance and decentralize depot-level maintenance to the existing (or remaining) depots. Eliminate over-redundancy in functions. Consolidate Intermediate and Depot-level regional activities Source and Application: Industrial 25. Regionalize severable and similar work at the intermediate level. Source and 26. Partnerships Expansions. Under a partnership, have government personnel work in contractor owned/leased facilities and realign or close facilities where personnel are currently working. Source and Application: Industrial 27. Collocate depots: Two Services use the same facility(s). Separate command structures but shared common operations. Source and Application: Industrial 28. Consolidate similar commodities under Centers of Technical Excellence. Source 29. Implement concept of Vertical Integration by putting entire life cycle at same site to increase synergies, e.g. production of raw materials to the manufacture of finished parts, co-locating storage, maintenance and demil. Source and Application: Industrial 30. Implement concept of Horizontal Integration by taking some of the most costly elements of the M&A processes and put them at the same site to increase efficiencies, e.g. put Load, Assemble and Pack (LAP) of all related munitions at same site. Source and Application: Industrial 31. Maintain a multi-service distribution and deployment network consolidating on regional joint service nodes. Source and Application: Industrial 32. Evaluate Joint Centers for classes and types of weapons systems and/or technologies used by more than one Military Department: Within a Defense Technology Area Plan (DTAP) Capability Area Across multiple functions (Research; Development & Acquisition; Test & Evaluation) Appendix XV Draft DOD Transformational Options Recommended for Approval Across multiple DTAP capability areas. Source and Application: Technical 33. Evaluate Service-Centric concentration, i.e. consolidate within each Service: Within a Defense Technology Area Plan (DTAP) capability area Across multiple functions (Research; Development & Acquisition; Test & Evaluation) Across multiple DTAP capability areas. Source and Application: Technical 34. Privatize graduate-level education. Source and Application: Education & Training 35. Integrate military and DoD civilian full-time professional development education programs. Source and Application: Education & Training 36. 36. Establish Centers of Excellence for Joint or Inter-service education and training by combining or co-locating like schools (e.g., form a “DoD University” with satellite training sites provided by Service-lead or civilian institutions). Source and Application: Education & Training 37. Establish “joint” officer and enlisted specialized skill training (initial skill, skill progression & functional training). Source and Application: Education & Training 38. Establish a single "Center of Excellence" to provide Unmanned Aerial Vehicle initial (a.k.a. undergraduate) training. Source and Application: Education & Training 39. Establish regional Cross-Service and Cross-Functional ranges that will support Service collective, interoperability and joint training as well as test and evaluation of weapon systems. Source and Application: Education & Training 40. Integrate selected range capabilities across Services to enhance Service collective, interoperability and joint training, such as Urban Operations, Littoral, training in unique settings (arctic, mountain, desert, and tropical). Source and Application: Education & Training 41. Combine Services' T&E Open Air Range (OAR) management into one joint management office. Although organizational/managerial, this option could engender further transformation. Joint management of OAR resources could encourage a healthy competition among OARs to increase efficiency and maximum utility DoD-wide. Source and Application: Education & Training 42. Consolidate or collocate at a single installation all services' primary phase of pilot training that uses the same aircraft (T-6). Source and Application: Education & Training Appendix XV Draft DOD Transformational Options Recommended for Approval 43. Locate (division/corps) UEx and (corps/Army) UEy on Joint bases where practical to leverage capabilities of other services (e.g., strategic lift to enhance strategic responsiveness). Source and Application: Army 44. Locate (brigades) Units of Action at installations DoD-wide, capable of training modular formations, both mounted and dismounted, at home station with sufficient land and facilities to test, simulate, or fire all organic weapons. Source and Application: Army 45. Collocate Army War College and Command and General Staff College at a single 46. Locate Special Operations Forces (SOF) in locations that best support specialized training needs, training with conventional forces and other service SOF units and wartime alignment deployment requirements. Source and Application: Army 47. Collocate or consolidate multiple branch schools and centers on single locations (preferably with MTOE units and RDTE facilities) based on warfighting requirements, training strategy, and doctrine, to gain efficiencies from reducing overhead and sharing of program-of-instruction resources. Source and Application: Army 48. Reshape installations, RC facilities and RC major training centers to support home station mobilization and demobilization and implement the Train/Alert/Deploy model. Source and Application: Army 49. Increase the number of multi-functional training areas able to simultaneously serve multiple purposes and minimize the number of single focus training areas for the Reserve Components where possible. Source and Application: Army 50. Collocate institutional training, MTOE units, RDTE organizations and other TDA units in large numbers on single installations to support force stabilization and enhance training. Army 51. Locate units/activities to enhance home station operations and force protection. Source and Application: Army 52. Consolidate aviation training with sister services for like-type aircraft to gain Appendix XV Draft DOD Transformational Options Recommended for Approval 54. Consolidate Army RDT&E organizations to capitalize on technical synergy across 55. Reduce the number of USAR regional headquarters to reflect Federal Reserve Restructuring Initiative (FRRI). Source and Application: Army 56. Consolidate RDT&E functions on fewer installations through inter-service support 57. Establish a single inventory control point (ICP) within each Service or consolidating into joint ICPs. Application: Supply and Storage 58. Expand Guard and Reserve force integration with the Active force. Examples: (1) Blended organizations. (2) Reserve Associate, Guard Associate, and Active Associate (3) Sponsored Reserve. (4) Blending of Guard units across state lines to unify mission areas, reduce infrastructure, and improve readiness. Application: MilDeps 59. Consolidate National Capital Region (NCR) intelligence community activities now occupying small government facilities and privately owned leased space to fewer, secure DoD-owned locations in the region. Application: Intel 60. Collocate Guard and Reserve units at active bases or consolidate the Guard and Reserve units that are located in close proximity to one another at one location if practical, i.e., joint use facilities. Application: MilDeps 61. Consolidate the Army’s five separate Active Component recruit training sites and BENS; Application: Supply and Storage, MilDeps 63. Privatize long-haul communications in the Defense Information Systems Agency 64. Collocate Joint Strike Fighter graduate flight training and maintenance training. 65. Collocate Joint Strike Fighter graduate flight training. Military Base Closures: Observations on Prior and Current BRAC Rounds. GAO-05-614. Washington, D.C.: May 3, 2005. Military Base Closures: Updated Status of Prior Base Realignments and Closures. GAO-05-138. Washington, D.C.: January 13, 2005. Military Base Closures: Assessment of DOD’s 2004 Report on the Need for a Base Realignment and Closure Round. GAO-04-760. Washington, D.C.: May 17, 2004. Military Base Closures: Observations on Preparations for the Upcoming Base Realignment and Closure Round. GAO-04-558T. Washington, D.C.: March 25, 2004. Military Base Closures: DOD’s Updated Net Savings Estimate Remains Substantial. GAO-01-971. Washington, D.C.: July 31, 2001. Military Bases: Lessons Learned from Prior Base Closure Rounds. GAO/NSIAD-97-151. Washington, D.C.: July 25, 1997. Military Bases: Analysis of DOD’s 1995 Process and Recommendations for Closure and Realignment. GAO/NSIAD-95-133. Washington, D.C.: April 14, 1995. Infrastructure and Environment: Technical Joint Cross-Service Group Data Integrity and Internal Control Processes for Base Realignment and Closure 2005. D-2005-086. Washington, D.C.: June 17, 2005. Defense Infrastructure: Education and Training Joint Cross-Service Group Data Integrity and Internal Control Processes for Base Realignment and Closure 2005. D-2005-084. Arlington, Va.: June 10, 2005. Defense Infrastructure: Industrial Joint Cross-Service Group Data Integrity and Internal Control Processes for Base Realignment and Closure 2005. D-2005-082. Arlington, Va.: June 9, 2005. Infrastructure and Environment: Washington Headquarters Services Data Call Submissions and Internal Control Processes for Base Realignment and Closure 2005. D-2005-079. Arlington, Va.: June 8, 2005. Defense Infrastructure: Supply and Storage Joint Cross-Service Group Data Integrity and Internal Control Processes for Base Realignment and Closure 2005. D-2005-081. Arlington, Va.: June 6, 2005. Infrastructure and Environment: Defense Finance and Accounting Service Data Call Submissions and Internal Control Processes for Base Realignment and Closure 2005. D-2005-075. Arlington, Va.: May 27, 2005. DOD Inspector General plans to issue reports on the Defense Logistics Agency, the Headquarters and Support Activities Joint Cross-Service Group, and the Medical Joint Cross-Service Group. Reserve Component Process Action Team, The Army Basing Study 2005. A-2005-0165-ALT. Alexandria, Va.: April 29, 2005. The Army Basing Study 2005 Process. A-2005-0164-ALT. Alexandria, Va.: April 22, 2005. Validation of Army Responses for Joint Cross-Service Group Questions. A-2005-0169-ALT. Alexandria, Va.: April 22, 2005. Army Military Value Data, The Army Basing Study 2005. A-2005-0083- ALT. Alexandria, Va.: December 21, 2004. Army Capacity Data, The Army Basing Study 2005. A-2005-0056-ALT. Alexandria, Va.: November 30, 2004. Cost of Base Realignment Actions (COBRA) Model. A-2004-0544-IMT. Alexandria, Va.: September 30, 2004. The Department of the Navy’s Implementation of the FY 2005 Base Realignment and Closure Process. N2005-0046. Washington, D.C.: June 10, 2005. Risk Assessment of the Department of the Navy Base Realignment and Closure 2005 Information Transfer System. N2005-0042. Washington, D.C.: April 25, 2005. Base Realignment and Closure Optimization Methodology. N2004-0058. Washington, D.C.: June 16, 2004. BRAC Cueing and Analysis Tools. F2005-0007-FB2000. Washington, D.C.: June 22, 2005. 2005 Base Realignment and Closure-Installation Visualization Tool Data Reliability. F2005-0004-FB4000. Washington, D.C.: June 16, 2005. Base Realignment and Closure Data Collection System. F2004-0008- FB40000. Washington, D.C.: September 27, 2004. 2005 Base Realignment and Closure: Installation Capacity Analysis Questionnaire. F2004-0007-FB4000. Washington, D.C.: August 24, 2004. 2005 Base Realignment and Closure: Installations Inventory. F2004-0005- FB4000. Washington, D.C.: April 12, 2004. 2005 Base Realignment and Closure: Air Force Internal Control Plan. F2004-0001-FB4000. Washington, D.C.: December 29, 2003. The Air Force Audit Agency plans to release 7 additional reports on the Air Force and joint cross-service group data collection, the Air Force analysis, and the use of various BRAC tools. In addition to the individual named above, Mike Kennedy, Jim Reifsnyder, Nelsie Alcoser, Shawn Arbogast, Raymond Bickert, Alissa Czyz, Andrew Edelson, Glenn Knoepfle, Nancy Lively, Warren Lowman, Tom Mahalek, David Mayfield, Richard Meeks, Hilary Murrish, Charles Perdue, Robert Poetta, James Reynolds, Laura Talbott, and Cheryl Weissman made key contributions to this report. Other individuals also contributing to this report included, Tommy Baril, Carl Barden, Angela Bourciquot, Steve Boyles, Delaney Branch, Joel Christenson, Kenneth Cooper, Paul Gvoth, Larry Junek, Mark Little, Philip Longee, Ricardo Marquez, Gary Phillips, Greg Pugnetti, Sharon Reid, John Strong, Roger Tomlinson, and Kimberly Young.	On May 13, 2005, the Secretary of Defense submitted proposed base realignment and closure (BRAC) actions to an independent commission for its review. The Commission must submit its recommendations to the President by September 8, 2005, for his acceptance or rejection in their entirety. Congress has final action to accept or reject these recommendations in their entirety later this year. The law requires that GAO issue a report on the Department of Defense's (DOD) recommendations and selection process by July 1, 2005. GAO's objectives were to (1) determine the extent to which DOD's proposals achieved its stated BRAC goals, (2) analyze whether the process for developing recommendations was logical and reasoned, and (3) identify issues with the recommendations that may warrant further attention. Time constraints limited GAO's ability to examine implementation details of most of the individual recommended actions. DOD had varying success in achieving its 2005 BRAC goals of (1) reducing excess infrastructure and producing savings, (2) furthering transformation, and (3) fostering jointness. While DOD proposed a record number of closures and realignments, exceeding all prior BRAC rounds combined, many proposals focused on reserve bases and relatively few on closing active bases. Projected savings are almost equally large, but most savings are derived from 10 percent of the recommendations. While GAO believes savings would be achieved, overall up-front investment costs of an estimated $24 billion are required, and there are clear limitations associated with DOD's projection of nearly $50 billion in savings over a 20-year period. Much of the projected net annual recurring savings (47 percent) is associated with eliminating jobs currently held by military personnel. However, rather than reducing end-strength levels, DOD indicates the positions are expected to be reassigned to other areas, which may enhance capabilities but also limit dollar savings available for other uses. Sizeable savings were projected from efficiency measures and other actions, but underlying assumptions have not been validated and could be difficult to track over time. Some proposals represent efforts to foster jointness and transformation, such as initial joint training for the Joint Strike Fighter, but progress in each area varied, with many decisions reflecting consolidations within, and not across, the military services. In addition, transformation was often cited as support for proposals, but it was not well defined, and there was a lack of agreement on various transformation options. DOD's process for conducting its analysis was generally logical, reasoned, and well documented. DOD's process placed strong emphasis on data, tempered by military judgment, as appropriate. The military services and seven joint cross-service groups, which focused on common business-oriented functions, adapted their analytical approaches to the unique aspects of their respective areas. Yet, they were consistent in adhering to the use of military value criteria, including new considerations introduced for this round, such as surge and homeland defense needs. Data accuracy was enhanced by the required use of certified data and by efforts of the DOD Inspector General and service audit agencies in checking the data. Time limitations and complexities introduced by DOD in weaving together an unprecedented 837 closure and realignment actions across the country into 222 individual recommendations caused GAO to focus more on evaluating major cross-cutting issues than on implementation issues of individual recommendations. GAO identified various issues that may warrant further attention by the Commission. Some apply to a broad range of recommendations, such as assumptions and inconsistencies in developing certain cost and savings estimates, lengthy payback periods, or potential impacts on affected communities. GAO also identified certain candidate recommendations, including some that were changed by senior DOD leadership late in the process that may warrant attention.	15.8	long	3,238
6	Since our last high-risk update, while progress has varied, many of the 32 high-risk areas on our 2015 list have shown solid progress. One area related to sharing and managing terrorism-related information is now being removed from the list. Agencies can show progress by addressing our five criteria for removal from the list: leadership commitment, capacity, action plan, monitoring, and demonstrated progress. As shown in table 1, 23 high-risk areas, or two-thirds of all the areas, have met or partially met all five criteria for removal from our High-Risk List; 15 of these areas fully met at least one criterion. Compared with our last assessment, 11 high-risk areas showed progress in one or more of the five criteria. Two areas declined since 2015. These changes are indicated by the up and down arrows in table 1. Of the 11 high-risk areas showing progress between 2015 and 2017, sufficient progress was made in 1 area—Establishing Effective Mechanisms for Sharing and Managing Terrorism-Related Information to Protect the Homeland—to be removed from the list. In two other areas, enough progress was made that we removed a segment of the high-risk area—Mitigating Gaps in Weather Satellite Data and Department of Defense (DOD) Supply Chain Management. The other eight areas improved in at least one criterion rating by either moving from “not met” to “partially met” or from “partially met” to “met.” We removed the area of Establishing Effective Mechanisms for Sharing and Managing Terrorism-Related Information to Protect the Homeland from the High-Risk List because the Program Manager for the Information Sharing Environment (ISE) and key departments and agencies have made significant progress to strengthen how intelligence on terrorism, homeland security, and law enforcement, as well as other information (collectively referred to in this section as terrorism-related information), is shared among federal, state, local, tribal, international, and private-sector partners. As a result, the Program Manager and key stakeholders have met all five criteria for addressing our high-risk designation, and we are removing this issue from our High-Risk List. While this progress is commendable, it does not mean the government has eliminated all risk associated with sharing terrorism-related information. It remains imperative that the Program Manager and key departments and agencies continue their efforts to advance and sustain ISE. Continued oversight and attention is also warranted given the issue’s direct relevance to homeland security as well as the constant evolution of terrorist threats and changing technology. The Program Manager, the individual responsible for planning, overseeing, and managing ISE, along with the key departments and agencies—the Departments of Homeland Security (DHS), Justice (DOJ), State (State), and Defense (DOD), and the Office of the Director of National Intelligence (ODNI)—are critical to implementing and sustaining ISE. Following the terrorist attacks of 2001, Congress and the executive branch took numerous actions aimed explicitly at establishing a range of new measures to strengthen the nation’s ability to identify, detect, and deter terrorism-related activities. For example, ISE was established in accordance with the Intelligence Reform and Terrorism Prevention Act of 2004 (Intelligence Reform Act) to facilitate the sharing of terrorism-related information. Figure 1 depicts the relationship between the various stakeholders and disciplines involved with the sharing and safeguarding of terrorism-related information through ISE. The Program Manager and key departments and agencies met the leadership commitment and capacity criteria in 2015, and have subsequently sustained efforts in both these areas. For example, the Program Manager clearly articulated a vision for ISE that reflects the government’s terrorism-related information sharing priorities. Key departments and agencies also continued to allocate resources to operations that improve information sharing, including developing better technical capabilities. The Program Manager and key departments and agencies also developed, generally agreed upon, and executed the 2013 Strategic Implementation Plan (Implementation Plan), which includes the overall strategy and more specific planning steps to achieve ISE. Further, they have demonstrated that various information-sharing initiatives are being used across multiple agencies as well as state, local, and private sector stakeholders. For example, the project manager has developed a comprehensive framework for managing enterprise architecture to help share and integrate terrorism-related information among multiple stakeholders in ISE. Specifically, the Project Interoperability initiative includes technical resources and other guidance that promote greater information system compatibility and performance. Furthermore, the key departments and agencies have applied the concepts of the Project Interoperability Initiative to improve mission operations by better linking different law enforcement databases, and facilitating better geospatial analysis, among other things. In addition, the Program Manager and key departments and agencies have continued to devise and implement ways to measure the effect of ISE on information sharing to address terrorist and other threats to the homeland. They developed performance metrics for specific information- sharing initiatives (e.g., fusion centers) used by various stakeholders to receive and share information. The Program Manager and key departments and agencies have also documented mission-specific accomplishments (e.g., related to maritime domain awareness) where the Program Manager helped connect previously incompatible information systems. The Program Manager has also partnered with DHS to create an Information Sharing Measure Development Pilot that intends to better measure the effectiveness of information sharing across all levels of ISE. Further, the Program Manager and key departments and agencies have used the Implementation Plan to track progress, address challenges, and substantially achieve the objectives in the National Strategy for Information Sharing and Safeguarding. The Implementation Plan contains 16 priority objectives, and by the end of fiscal year 2016, 13 of the 16 priority objectives were completed. The Program Manager transferred the remaining three objectives, which were all underway, to other entities with the appropriate technical expertise to continue implementation through fiscal year 2019. In our 2013 high-risk update, we listed nine action items that were critical for moving ISE forward. In that report, we determined that two of those action items—demonstrating that the leadership structure has the needed authority to leverage participating departments, and updating the vision for ISE—had been completed. In our 2015 update, we determined that the Program Manager and key departments had achieved four of the seven remaining action items—demonstrating that departments are defining incremental costs and funding; continuing to identify technological capabilities and services that can be shared collaboratively; demonstrating that initiatives within individual departments are, or will be, leveraged to benefit all stakeholders; and demonstrating that stakeholders generally agree with the strategy, plans, time frames, responsibilities, and activities for substantially achieving ISE. For the 2017 update, we determined that the remaining three action items have been completed: establishing an enterprise architecture management capability; demonstrating that the federal government can show, or is more fully developing a set of metrics to measure, the extent to which sharing has improved under ISE; and demonstrating that established milestones and time frames are being used as baselines to track and monitor progress. Achieving all nine action items has, in effect, addressed our high-risk criteria. While this demonstrates significant and important progress, sharing terrorism-related information remains a constantly evolving work in progress that requires continued effort and attention from the Program Manager, departments, and agencies. Although no longer a high-risk issue, sharing terrorism-related information remains an area with some risk, and continues to be vitally important to homeland security, requiring ongoing oversight as well as continuous improvement to identify and respond to changing threats and technology. Table 2 summarizes the Program Manager’s and key departments’ and agencies’ progress in achieving the action items. As we have with areas previously removed from the High-Risk List, we will continue to monitor this area, as appropriate, to ensure that the improvements we have noted are sustained. If significant problems again arise, we will consider reapplying the high-risk designation. Additional Information on Establishing Effective Mechanisms for Sharing and Managing Terrorism-Related Information to Protect the Homeland is provided on page 653 of this report. In the 2 years since our last high-risk update, sufficient progress has been made in two areas—DOD Supply Chain Management and Mitigating Gaps in Weather Satellite Data—that we are narrowing their scope. DOD manages about 4.9 million secondary inventory items, such as spare parts, with a reported value of approximately $91 billion as of September 2015. Since 1990, DOD’s inventory management has been included on our High-Risk List due to the accumulation of excess inventory and weaknesses in demand forecasting for spare parts. In addition to DOD’s inventory management, the supply chain management high-risk area focuses on materiel distribution and asset visibility within DOD. Based on DOD’s leadership commitment and demonstrated progress to address weaknesses since 2010, we are removing the inventory management component from the supply chain management high-risk area. Specifically, DOD has taken the following actions: Implemented a congressionally-mandated inventory management corrective action plan and institutionalized a performance management framework, including regular performance reviews and standardized metrics. DOD has also developed and begun implementing a follow-on improvement plan. Reduced the percentage and value of its “on-order excess inventory” (i.e., items already purchased that may be excess due to subsequent changes in requirements) and “on-hand excess inventory” (i.e., items categorized for potential reuse or disposal). DOD’s data show that the proportion of on-order excess inventory to the total amount of on- order inventory decreased from 9.5 percent at the end of fiscal year 2009 to 7 percent at the end of fiscal year 2015, the most recent fiscal year for which data are available. During these years, the value of on- order excess inventory also decreased from $1.3 billion to $701 million. DOD’s data show that the proportion of on-hand excess inventory to the total amount of on-hand inventory dropped from 9.4 percent at the end of fiscal year 2009 to 7.3 percent at the end of fiscal year 2015. The value of on-hand excess inventory also decreased during these years from $8.8 billion to $6.8 billion. Implemented numerous actions to improve demand forecasting and began tracking department-wide forecasting accuracy metrics in 2013, resulting in forecast accuracy improving from 46.7 percent in fiscal year 2013 to 57.4 percent in fiscal year 2015, the latest fiscal year for which complete data are available. Implemented 42 of our recommendations since 2006 and is taking actions to implement an additional 13 recommendations, which are focused generally on reassessing inventory goals, improving collaborative forecasting, and making changes to information technology (IT) systems used to manage inventory. Additional information on DOD Supply Chain Management is provided on page 248 of this report. Mitigating Gaps in Weather Satellite Data The United States relies on two complementary types of satellite systems for weather observations and forecasts: (1) polar-orbiting satellites that provide a global perspective every morning and afternoon, and (2) geostationary satellites that maintain a fixed view of the United States. Both types of systems are critical to weather forecasters, climatologists, and the military, who map and monitor changes in weather, climate, the oceans, and the environment. Federal agencies are planning or executing major satellite acquisition programs to replace existing polar and geostationary satellite systems that are nearing or beyond the end of their expected life spans. The Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) is responsible for the polar satellite program that crosses the equator in the afternoon and for the nation’s geostationary weather satellite program; DOD is responsible for the polar satellite program that crosses the equator in the early morning orbit. Over the last several years, we have reported on the potential for a gap in satellite data between the time that the current satellites are expected to reach the end of their lifespans, and the time when the next satellites are expected to be in orbit and operational. We added this area to our High- Risk List in 2013. According to NOAA program officials, a satellite data gap would result in less accurate and timely weather forecasts and warnings of extreme events—such as hurricanes, storm surges, and floods. Such degraded forecasts and warnings would endanger lives, property, and our nation’s critical infrastructures. Similarly, according to DOD officials, a gap in space-based weather monitoring capabilities could affect the planning, execution, and sustainment of U.S. military operations around the world. In our prior high-risk updates, we reported on NOAA’s efforts to mitigate the risk of a gap in its polar and geostationary satellite programs. With strong congressional support and oversight, NOAA has made significant progress in its efforts to mitigate the potential for gaps in weather satellite data on its geostationary weather satellite program. Specifically, the agency demonstrated strong leadership commitment to mitigating potential gaps in geostationary satellite data by revising and improving its gap mitigation/contingency plans. Previously, in December 2014, we reported on shortfalls in the satellite program’s gap mitigation/contingency plans and made recommendations to NOAA to address these shortfalls. For example, we noted that the plan did not sufficiently address strategies for preventing a launch delay, timelines and triggers to prevent a launch delay, and whether any of its mitigation strategies would meet minimum performance levels. NOAA agreed with these recommendations and released a new version of its geostationary satellite contingency plan in February 2015 that addressed the recommendations, thereby meeting the criterion for having an action plan. We rated capacity as partially met in our 2015 report due to concerns about NOAA’s ability to complete critical testing activities because it was already conducting testing on a round-the-clock, accelerated schedule. Since then, NOAA adjusted its launch schedule to allow time to complete critical integration and testing activities. In doing so, the agency demonstrated that it met the capacity criterion. NOAA has also met the criterion for demonstrating progress by mitigating schedule risks and successfully launching the satellite. In September 2013, we reported that the agency had weaknesses in its schedule- management practices on its core ground system and spacecraft. We made recommendations to address those weaknesses, which included sequencing all activities, ensuring there are adequate resources for the activities, and analyzing schedule risks. NOAA agreed with the recommendations and the Geostationary Operational Environmental Satellite-R series (GOES-R) program improved its schedule management practices. By early 2016, the program had improved the links between remaining activities on the spacecraft schedule, included needed schedule logic for a greater number of activities on the ground schedule, and included indications on the ground schedule that the results of a schedule risk analysis were used in calculating its durations. In addition, the program successfully launched the GOES-R satellite in November 2016. Oversight by Congress has been instrumental in reducing the risk of geostationary weather satellite gaps. For example, Subcommittees of the House Science, Space, and Technology committee held multiple hearings to provide oversight of the satellite acquisition and the risk of gaps in satellite coverage. As a result, the agency now has a robust constellation of operational and backup satellites in orbit and has made significant progress in addressing the risk of a gap in geostationary data coverage. Accordingly, there is sufficient progress to remove this segment from the high-risk area. Additional information on Mitigating Gaps in Weather Satellite Data is provided on pages 19 and 430 of this report. Below are selected examples of areas where progress has been made. Strengthening Department of Homeland Security Management Functions. The Department of Homeland Security (DHS) continues to strengthen and integrate its management functions and progressed from partially met to met for the monitoring criterion. Since our 2015 high-risk update, DHS has strengthened its monitoring efforts for financial system modernization programs by entering into a contract for independent verification and validation services to help ensure that the modernization projects meet key requirements. These programs are key to effectively supporting the department’s financial management operations. Additionally, DHS continued to meet the criteria for leadership commitment and a corrective action plan. DHS’s top leadership has demonstrated exemplary support and a continued focus on addressing the department’s management challenges by, among other things, issuing 10 updated versions of DHS’s initial January 2011 Integrated Strategy for High Risk Management. The National Defense Authorization Act for Fiscal Year 2017 reinforces this focus with the inclusion of a mandate that the DHS Under Secretary for Management report to us every 6 months to demonstrate measurable, sustainable progress made in implementing DHS’s corrective action plans to address the high-risk area, until we submit written notification of the area’s removal from the High-Risk List to the appropriate congressional committees. Similar provisions were included in the DHS Headquarters Reform and Improvement Act of 2015, the DHS Accountability Act of 2016, and the DHS Reform and Improvement Act. Additional information on this high-risk area is provided on page 354 of this report. Strategic Human Capital Management. This area progressed from partially met to met on leadership commitment. The Office of Personnel Management (OPM), agencies, and Congress have taken actions to improve efforts to address mission critical skills gaps. Specifically, OPM has demonstrated leadership commitment by publishing revisions to its human capital regulations in December 2016 that require agencies to, among other things, implement human capital policies and programs that address and monitor government- wide and agency-specific skills gaps. This initiative has increased the likelihood that skills gaps with the greatest operational effect will be addressed in future efforts. At the same time, Congress has provided agencies with authorities and flexibilities to manage the federal workforce and make the federal government a more accountable employer. For example, Congress included a provision in the National Defense Authorization Act for Fiscal Year 2016 to extend the probationary period for newly-hired civilian DOD employees from 1 to 2 years. This action is consistent with our 2015 reporting that better use of probationary periods gives agencies the ability to ensure an employee’s skills are a good fit for all critical areas of a particular job. Additional information on this high-risk area is provided on page 61 of this report. Transforming the Environmental Protection Agency’s Process for Assessing and Controlling Toxic Chemicals. Overall, this high- risk area progressed from not met to partially met on two criteria— capacity and demonstrated progress—and continued to partially meet the criterion for monitoring due to progress in one program area. The Environmental Protection Agency’s (EPA) ability to effectively implement its mission of protecting public health and the environment is critically dependent on assessing the risks posed by chemicals in a credible and timely manner. EPA assesses these risks under a variety of actions, including the Integrated Risk Information System (IRIS) program and EPA’s Toxic Substances Control Act (TSCA) program. The IRIS program has made some progress on the capacity, monitoring, and demonstrated progress criteria. In terms of IRIS capacity, EPA has partially met this criterion by finalizing a Multi-Year Agenda to better assess how many people and resources should be dedicated to the IRIS program. In terms of IRIS monitoring, EPA has met this criterion in part by using a Chemical Assessment Advisory Committee to review IRIS assessments, among other actions. In terms of IRIS demonstrated progress, EPA has partially met this criterion as of January 2017 by issuing five assessments since fiscal year 2015. The Frank R. Lautenberg Chemical Safety for the 21st Century Act amended TSCA and was enacted on June 22, 2016. Passing TSCA reform may facilitate EPA’s effort to improve its processes for assessing and controlling toxic chemicals in the years ahead. The new law provides EPA with greater authority and the ability to take actions that could help EPA implement its mission of protecting human health and the environment. EPA officials stated that the agency is better positioned to take action to require chemical companies to report chemical toxicity and exposure data. Officials also stated that the new law gives the agency additional authorities, including the authority to require companies to develop new information relating to a chemical as necessary for prioritization and risk evaluation. Using both new and previously existing TSCA authorities should enhance the agency’s ability to gather new information as necessary to evaluate hazard and exposure risks. Continued leadership commitment from EPA officials and Congress will be needed to fully implement reforms. Additional work will also be needed to issue a workload analysis to demonstrate capacity, complete a corrective action plan, and demonstrate progress implementing the new legislation. Additional information on this high-risk area is provided on page 417 of this report. Managing Federal Real Property. The federal government continued to meet the criteria for leadership commitment, now partially meets the criterion for demonstrated progress, and made some progress in each of the other high-risk criteria. The Office of Management and Budget (OMB) issued the National Strategy for the Efficient Use of Real Property (National Strategy) on March 25, 2015, which directs Chief Financial Officer (CFO) Act agencies to take actions to reduce the size of the federal real property portfolio, as we recommended in 2012. In addition, in December 2016, two real property reform bills were enacted that could address the long-standing problem of federal excess and underutilized property. The Federal Assets Sale and Transfer Act of 2016 may help address stakeholder influence by establishing an independent board to identify and recommend five high-value civilian federal buildings for disposal within 180 days after the board members are appointed, as well as develop recommendations to dispose and redevelop federal civilian real properties. Additionally, the Federal Property Management Reform Act of 2016 codified the Federal Real Property Council (FRPC) for the purpose of ensuring efficient and effective real property management while reducing costs to the federal government. FRPC is required to establish a real property management plan template, which must include performance measures, and strategies and government-wide goals to reduce surplus property or to achieve better utilization of underutilized property. In addition, federal agencies are required to annually provide FRPC a report on all excess and underutilized property, and identify leased space that is not fully used or occupied. In addressing our 2016 recommendation to improve the reliability of real property data, GSA conducted an in-depth survey that focused on key real property data elements maintained in the Federal Real Property Profile, formed a working group of CFO Act agencies to analyze the survey results and reach consensus on reforms, and issued a memorandum to CFO Act agencies designed to improve the consistency and quality of real property data. The Federal Protective Service, which protects about 9,500 federal facilities, implemented our recommendation aimed at improving physical security by issuing a plan that identifies goals and describes resources that support its risk management approach. In addition, the Interagency Security Committee, a DHS-chaired organization, issued new guidance intended to make the most effective use of physical security resources. Additional information on this high-risk area is provided on page 77 of this report. Enforcement of Tax Laws. The Internal Revenue Service’s (IRS) continued efforts to enforce tax laws and address identity theft refund fraud (IDT) have resulted in the agency meeting one criterion for removal from the High-Risk List (leadership commitment) and partially meeting the remaining four criteria (capacity, action plan, monitoring, and demonstrating progress). IDT is a persistent and evolving threat that burdens legitimate taxpayers who are victims of the crime. It cost the U.S. Treasury an estimated minimum of $2.2 billion during the 2015 tax year. Congress and IRS have taken steps to address this challenge. IRS has deployed new tools and increased resources dedicated to identifying and combating IDT refund fraud. In addition, the Consolidated Appropriations Act, 2016, amended the tax code to accelerate Wage and Tax Statement (W-2) filing deadlines to January 31. We had previously reported that the wage information that employers report on Form W-2 was not available to IRS until after it issues most refunds. With earlier access to W-2 wage data, IRS could match such information to taxpayers’ returns and identify discrepancies before issuing billions of dollars of fraudulent IDT refunds. Such matching could also provide potential benefits for other IRS enforcement programs, such as preventing improper payments via the Earned Income Tax Credit. Additional information on this high- risk area is provided on page 500 of this report. In addition to being instrumental in supporting progress in individual high- risk areas, Congress also has taken actions to enact various statutes that, if implemented effectively, will help foster progress on high-risk issues government-wide. These include the: Program Management Improvement Accountability Act: Enacted in December 2016, the act seeks to improve program and project management in federal agencies. Among other things, the act requires the Deputy Director of the Office of Management and Budget (OMB) to adopt and oversee implementation of government-wide standards, policies, and guidelines for program and project management in executive agencies. The act also requires the Deputy Director to conduct portfolio reviews to address programs on our High-Risk List. It further creates a Program Management Policy Council to act as an interagency forum for improving practices related to program and project management. The Council is to review programs on the High-Risk List and make recommendations to the Deputy Director or designee. We are to review the effectiveness of key efforts under the act to improve federal program management. Fraud Reduction and Data Analytics Act of 2015 (FRDA): FRDA, enacted in June 2016, is intended to strengthen federal anti-fraud controls, while also addressing improper payments. FRDA requires OMB to use our Fraud Risk Framework to create guidelines for federal agencies to identify and assess fraud risks, and then design and implement control activities to prevent, detect, and respond to fraud. Agencies, as part of their annual financial reports beginning in fiscal year 2017, are further required to report on their fraud risks and their implementation of fraud reduction strategies, which should help Congress monitor agencies’ progress in addressing and reducing fraud risks. To aid federal agencies in better analyzing fraud risks, FRDA requires OMB to establish a working group tasked with developing a plan for the creation of an interagency library of data analytics and data sets to facilitate the detection of fraud and the recovery of improper payments. This working group and the library should help agencies to coordinate their fraud detection efforts and improve their ability to use data analytics to monitor databases for potential improper payments. The billions of dollars of improper payments are a central part of the Medicare Program, Medicaid Program, and Enforcement of Tax Laws (Earned Income Tax Credit) high-risk areas. IT Acquisition Reform, Legislation known as the Federal Information Technology Acquisition Reform Act (FITARA): FITARA, enacted in December 2014, was intended to improve how agencies acquire IT and enable Congress to monitor agencies’ progress and hold them accountable for reducing duplication and achieving cost savings. FITARA includes specific requirements related to seven areas: the federal data center consolidation initiative, enhanced transparency and improved risk management, agency Chief Information Officer authority enhancements, portfolio review, expansion of training and use of IT acquisition cadres, government- wide software purchasing, and maximizing the benefit of the federal strategic sourcing initiative. Effective implementation of FITARA is central to making progress in the Improving the Management of IT Acquisitions and Operations government-wide area we added to the High-Risk List in 2015. In the 2 years since the last high-risk update, two areas—Mitigating Gaps in Weather Satellite Data and Management of Federal Oil and Gas Resources—have expanded in scope because of emerging challenges related to these overall high-risk areas. In addition, while progress is needed across all high-risk areas, particular areas need significant attention. While NOAA has made significant progress, as described earlier, in its geostationary weather satellite program, DOD has made limited progress in meeting its requirements for the polar satellite program. In 2010, when the Executive Office of the President decided to disband a tri-agency polar weather satellite program, DOD was given responsibility for providing polar-orbiting weather satellite capabilities in the early morning orbit. This information is used to provide updated information for weather observations and models. However, the department was slow to develop plans to replace the existing satellites that provide this coverage. Because DOD delayed establishing plans for its next generation of weather satellites, there is a risk of a satellite data gap in the early morning orbit. The last satellite that the department launched in 2014 called Defense Meteorological Satellite Program (DMSP)-19, stopped providing recorded data used in weather models in February 2016. A prior satellite, called DMSP-17, is now the primary satellite operating in the early morning orbit. However, this satellite, which was launched in 2006, is operating with limitations due to the age of its instruments. DOD had developed another satellite, called DMSP-20, but plans to launch that satellite were canceled after the department did not certify that it would launch the satellite by the end of calendar year 2016. The department conducted a requirements review and analysis of alternatives from February 2012 through September 2014 to determine the best way forward for providing needed polar-orbiting satellite environmental capabilities in the early morning orbit. In October 2016, DOD approved plans for its next generation of weather satellites, called the Weather System Follow-on—Microwave program, which will meet the department’s needs for satellite information on oceanic wind speed and direction to protect ships on the ocean’s surface. The department plans to launch a demonstration satellite in 2017 and to launch its first operational satellite developed under this program in 2022. However, DOD’s plans for the early morning orbit are not comprehensive. The department did not thoroughly assess options for providing its two highest-priority capabilities, cloud descriptions and area-specific weather imagery. These capabilities were not addressed due to an incorrect assumption about the capabilities that would be provided by international partners. The Weather System Follow-on—Microwave program does not address these two highest-priority capabilities and the department has not yet determined its long-term plans for providing these capabilities. As a result, the department will need to continue to rely on the older DMSP-17 satellite until its new satellite becomes operational in 2022, and it establishes and implements plans to address the high-priority capabilities that the new satellite will not address. Given the age of the DMSP-17 satellite and uncertainty on how much longer it will last, the department could face a gap in critical satellite data. In August 2016, DOD reported to Congress its near-term plans to address potential satellite data gaps. These plans include a greater reliance on international partner capabilities, exploring options to move a geostationary satellite over an affected region, and plans to explore options for acquiring and fielding new equipment, such as satellites and satellite components to provide the capabilities. In addition, the department anticipates that the demonstration satellite to be developed as a precursor to the Weather System Follow-on—Microwave program could help mitigate a potential gap by providing some useable data. However, these proposed solutions may not be available in time or be comprehensive enough to avoid near-term coverage gaps. Such a gap could negatively affect military operations that depend on weather data, such as long-range strike capabilities and aerial refueling. DOD needs to demonstrate progress on its new Weather Satellite Follow- on—Microwave program, and to establish and implement plans to address the high-priority capabilities that are not included in the program. Additional information on Mitigating Gaps in Weather Satellite Data is provided on page 430 of this report. On April 20, 2010, the Deepwater Horizon drilling rig exploded in the Gulf of Mexico, resulting in 11 deaths, serious injuries, and the largest marine oil spill in U.S. history. In response, in May 2010, the Department of the Interior (Interior) first reorganized its offshore oil and gas management activities into separate offices for revenue collection, under the Office of Natural Resources Revenue, and energy development and regulatory oversight, under the Bureau of Ocean Energy Management, Regulation and Enforcement. Later, in October 2011, Interior further reorganized its energy development and regulatory oversight activities when it established two new bureaus to oversee offshore resources and operational compliance with environmental and safety requirements. The new Bureau of Ocean Energy Management (BOEM) is responsible for leasing and approving offshore development plans while the new Bureau of Safety and Environmental Enforcement (BSEE) is responsible for lease operations, safety, and enforcement. In 2011, we added Interior’s management of federal oil and gas resources to the High-Risk List based on three concerns: (1) Interior did not have reasonable assurance that it was collecting its share of billions of dollars of revenue from federal oil and gas resources; (2) Interior continued to experience problems hiring, training, and retaining sufficient staff to oversee and manage federal oil and gas resources; and (3) Interior was engaged in restructuring its oil and gas program, which is inherently challenging, and there were questions about whether Interior had the capacity to reorganize while carrying out its range of responsibilities, especially in a constrained resource environment. Immediately after reorganizing, Interior developed memorandums and standard operating procedures to define roles and responsibilities, and facilitate and formalize coordination between BOEM and BSEE. Interior also revised polices intended to improve its oversight of offshore oil and gas activities, such as new requirements designed to mitigate the risk of a subsea well blowout or spill. In 2013, we determined that progress had been made, because Interior had fundamentally completed reorganizing its oversight of offshore oil and gas activities. As a result, in 2013, we removed the reorganization segment from this high-risk area. However, in February 2016, we reported that BSEE had undertaken various reform efforts since its creation in 2011, but had not fully addressed deficiencies in its investigative, environmental compliance, and enforcement capabilities identified by investigations after the Deepwater Horizon incident. BSEE’s ongoing restructuring has made limited progress enhancing the bureau’s investigative capabilities. BSEE continues to use pre– Deepwater Horizon incident policies and procedures. Specifically, BSEE has not completed a policy outlining investigative responsibilities or updated procedures for investigating incidents—among the goals of BSEE’s restructuring, according to restructuring planning documents, and consistent with federal standards for internal control. The use of outdated investigative policies and procedures is a long-standing deficiency. Post– Deepwater Horizon incident investigations found that Interior’s policies and procedures did not require it to plan investigations, gather and document evidence, and ensure quality control, and determined that continuing to use them posed a risk to the effectiveness of bureau investigations. Without completing and updating its investigative policies and procedures, BSEE continues to face this risk. BSEE’s ongoing restructuring of its environmental compliance program reverses actions taken to address post–Deepwater Horizon incident concerns, and risks weakening the bureau’s environmental compliance oversight capabilities. In 2011, in response to two post–Deepwater Horizon incident investigations that found that BSEE’s predecessor’s focus on oil and gas development might have been at the expense of protecting the environment, BSEE created an environmental oversight division with region-based staff reporting directly to the headquarters- based division chief instead of regional management. This reporting structure was to help ensure that environmental issues received appropriate weight and consideration within the bureau. Under the restructuring, since February 2015, field-based environmental compliance staff again report to their regional directors. BSEE’s rationale for this action is unclear, as it was not documented or analyzed as part of the bureau’s restructuring planning. Under federal standards for internal control, management is to assess the risks posed by external and internal sources and decide what actions to take to mitigate them. Without assessing the risk of reversing its reporting structure, Interior cannot be sure that BSEE will have reasonable assurance that environmental issues are receiving the appropriate weight and consideration, as called for by post–Deepwater Horizon incident investigations. When we reviewed BSEE’s environmental compliance program, we found that the interagency agreements between Interior and EPA designed to coordinate water quality monitoring under the National Pollutant Discharge Elimination System were decades old. According to BSEE annual environmental compliance activity reports, the agreements may not reflect the agency’s current resources and needs. For example, a 1989 agreement stipulates that Interior shall inspect no more than 50 facilities on behalf of EPA per year, and shall not conduct water sampling on behalf of EPA. Almost 30 years later, after numerous changes in drilling practices and technologies, it is unclear whether inspecting no more than 50 facilities per year is sufficient to monitor water quality. Nevertheless, senior BSEE officials told us that the bureau has no plans to update its agreements with EPA, and some officials said that a previous headquarters-led effort to update the agreements was not completed because it did not sufficiently describe the bureau’s offshore oil and gas responsibilities. According to Standards for Internal Control in the Federal Government, as programs change and agencies strive to improve operational processes and adopt new technologies, management officials must continually assess and evaluate internal controls to ensure that control activities are effective and updated when necessary. BSEE’s ongoing restructuring has made limited progress in enhancing its enforcement capabilities. In particular, BSEE has not developed procedures with criteria to guide how it uses enforcement tools—such as warnings and fines—which are among the goals of BSEE’s restructuring, according to planning documents, and consistent with federal standards for internal control. BSEE restructuring plans state that the current lack of criteria causes BSEE to act inconsistently, which makes oil and gas industry operators uncertain about BSEE’s oversight approach and expectations. The absence of enforcement climate criteria is a long- standing deficiency. For example, post–Deepwater Horizon incident investigations recommended BSEE assess its enforcement tools and how to employ them to deter safety and environmental violations. Without developing procedures with defined criteria for taking enforcement actions, BSEE continues to face risks to the effectiveness of its enforcement capabilities. To enhance Interior’s oversight of oil and gas development, we recommended in February 2016 that the Secretary of the Interior direct the Director of BSEE to take the following nine actions as it continues to restructure. To address risks to the effectiveness of BSEE’s investigations, environmental compliance, and enforcement capabilities, we recommended that BSEE complete policies outlining the responsibilities of investigations, environmental compliance, and enforcement programs, and update and develop procedures to guide them. To enhance its investigative capabilities, we recommended that establish a capability to review investigation policy and collect and analyze incidents to identify trends in safety and environmental hazards; develop a plan with milestones for implementing the case management system for investigations; clearly communicate the purpose of BSEE’s investigations program to industry operators; and clarify policies and procedures for assigning panel investigation membership and referring cases of suspected criminal wrongdoing to the Inspector General. To enhance its environmental compliance capabilities, we recommend conduct and document a risk analysis of the regional-based reporting structure of its Environmental Compliance Division, including actions to mitigate any identified risks; coordinate with the Administrator of the Environmental Protection Agency to consider the relevance of existing interagency agreements for monitoring operator compliance with National Pollutant Discharge Elimination System permits on the Outer Continental Shelf and, if necessary, update agreements to reflect current oversight needs; and develop a plan to address documented environmental oversight staffing needs. To enhance its enforcement capabilities, we recommended that BSEE develop a mechanism to ensure that it reviews the maximum daily civil penalty and adjusts it to reflect changes in the Consumer Price Index within the time frames established by statute. In its written comments, Interior agreed that additional reforms—such as documented policies and procedures—are needed to address offshore oil and gas oversight deficiencies, but Interior neither agreed nor disagreed with our specific recommendations. Additional information on Management of Federal Oil and Gas Resources is provided on page 136 of this report. Managing Risks and Improving VA Health Care. Since we added Department of Veterans Affairs (VA) health care to our High-Risk List in 2015, VA has acknowledged the significant scope of the work that lies ahead in each of the five areas of concern we identified: (1) ambiguous policies and inconsistent processes; (2) inadequate oversight and accountability; (3) information technology (IT) challenges; (4) inadequate training for VA staff; and (5) unclear resource needs and allocation priorities. It is imperative that VA maintain strong leadership support, and as the new administration sets its priorities, VA will need to integrate those priorities with its high-risk related actions. VA developed an action plan for addressing its high-risk designation, but the plan describes many planned outcomes with overly ambitious deadlines for completion. We are concerned about the lack of root cause analyses for most areas of concern, and the lack of clear metrics and needed resources for achieving stated outcomes. In addition, with the increased use of community care programs, it is imperative that VA’s action plan discuss the role of community care in decisions related to policies, oversight, IT, training, and resource needs. Finally, to help address its high-risk designation, VA should continue to implement our recommendations, as well as recommendations from others. While VA’s leadership has increased its focus on implementing our recommendations in the last 2 years, additional work is needed. We made 66 VA health care-related recommendations in products issued since the VA health care high- risk designation in February 2015, for a total of 244 recommendations from January 1, 2010, through December 31, 2016. VA has implemented 122 (about 50 percent) of the 244 recommendations, but over 100 recommendations remain open as of December 31, 2016 (with about 25 percent being open for 3 or more years). It is critical that VA implement our recommendations in a timely manner. Additional information on Managing Risks and Improving VA Health Care is provided on page 627 of this report. DOD Financial Management. The effects of DOD’s financial management problems extend beyond financial reporting and negatively affect DOD’s ability to manage the department and make sound decisions on mission and operations. In addition, DOD remains one of the few federal entities that cannot demonstrate its ability to accurately account for and reliably report its spending or assets. DOD’s financial management problems continue as one of three major impediments preventing us from expressing an opinion on the consolidated financial statements of the federal government. Sustained leadership commitment will be critical to DOD’s success in achieving financial accountability, and in providing reliable information for day-to-day management decision making as well as financial audit readiness. DOD needs to assure the sustained involvement of leadership at all levels of the department in addressing financial management reform and business transformation. In addition, further action is needed in the areas of capacity and action planning. Specifically, DOD needs to continue building a workforce with the level of training and experience needed to support and sustain sound financial management; continue to develop and deploy enterprise resource planning systems as a critical component of DOD’s financial improvement and audit readiness strategy, as well as strengthen automated controls or design manual workarounds for the remaining legacy systems to satisfy audit requirements and improve data used for day-to-day decision making; and effectively implement its Financial Improvement and Audit Readiness Plan and related guidance to focus on strengthening processes, controls, and systems to improve the accuracy, reliability, and reporting for its priority areas, including budgetary information and mission-critical assets. Further, DOD needs to monitor and assess the progress the department is making to remediate its internal control deficiencies. DOD should (1) require the military services to improve their policies and procedures for monitoring their corrective action plans for financial management-related findings and recommendations, and (2) improve its process for monitoring the military services’ audit remediation efforts by preparing a consolidated management summary that provides a comprehensive picture of the status of corrective actions throughout the department. DOD is continuing to work toward undergoing a full financial statement audit by fiscal year 2018; however, it expects to receive disclaimers of opinion on its financial statements for a number of years. A lack of comprehensive information on the corrective action plans limits the ability of DOD and Congress to evaluate DOD’s progress toward achieving audit readiness, especially given the short amount of time remaining before DOD is required to undergo an audit of the department-wide financial statements for fiscal year 2018. Being able to demonstrate progress in remediating its financial management deficiencies will be useful as the department works toward implementing lasting financial management reform to ensure that it can generate reliable, useful, and timely information for financial reporting as well as for decision making and effective operations. Moreover, stronger financial management would show DOD’s accountability for funds and would help it operate more efficiently. Additional information on DOD Financial Management is provided on page 280 of this report. Modernizing the U.S. Financial Regulatory System and the Federal Role in Housing Finance. Resolving the role of the federal government in housing finance will require leadership commitment and action by Congress and the administration. The federal government has directly or indirectly supported more than two-thirds of the value of new mortgage originations in the single-family housing market since the beginning of the 2007-2009 financial crisis. Mortgages with federal support include those backed by Fannie Mae and Freddie Mac, two large government-sponsored enterprises (the enterprises). Out of concern that their deteriorating financial condition threatened the stability of financial markets, the Federal Housing Finance Agency (FHFA) placed the enterprises into federal conservatorship in 2008, creating an explicit fiscal exposure for the federal government. As of September 2016, the Department of the Treasury (Treasury) had provided about $187.5 billion in funds as capital support to the enterprises, with an additional $258.1 billion available to the enterprises should they need further assistance. In accordance with the terms of agreements with Treasury, the enterprises had paid dividends to Treasury totaling about $250.5 billion through September 2016. More than 8 years after entering conservatorship, the enterprises’ futures remain uncertain and billions of federal dollars remain at risk. The enterprises have a reduced capacity to absorb future losses due to a capital reserve amount that falls to $0 by 2018. Without a capital reserve, any quarterly losses—including those due to market fluctuations and not necessarily to economic conditions—would require the enterprises to draw additional funds from Treasury. Additionally, prolonged conservatorships and a change in leadership at FHFA could shift priorities for the conservatorships, which in turn could send mixed messages and create uncertainties for market participants and hinder the development of the broader secondary mortgage market. For this reason, we said in November 2016 that Congress should consider legislation establishing objectives for the future federal role in housing finance, including the structure of the enterprises, and a transition plan to a reformed housing finance system that enables the enterprises to exit conservatorship. The federal government also supports mortgages through insurance or guarantee programs, the largest of which is administered by the Department of Housing and Urban Development’s Federal Housing Administration (FHA). During the financial crisis, FHA served its traditional role of helping to stabilize the housing market, but also experienced financial difficulties from which it only recently recovered. Maintaining FHA’s long-term financial health and defining its future role also will be critical to any effort to overhaul the housing finance system. We previously recommended that Congress or FHA specify the economic conditions that FHA’s Mutual Mortgage Insurance Fund would be expected to withstand without requiring supplemental funds. As evidenced by the $1.68 billion FHA received in 2013, the current 2 percent capital requirement for FHA’s fund may not always be adequate to avoid the need for supplemental funds under severe stress scenarios. Implementing our recommendation would be an important step not only in addressing FHA’s long-term financial viability, but also in clarifying FHA’s role. Additional information on Modernizing the U.S. Financial Regulatory System and the Federal Role in Housing Finance is provided on page 107 of this report. Pension Benefit Guaranty Corporation Insurance Programs. The Pension Benefit Guaranty Corporation (PBGC) is responsible for insuring the defined benefit pension plans of nearly 40 million American workers and retirees who participate in nearly 24,000 private sector plans. PBGC faces an uncertain financial future due, in part, to a long-term decline in the number of traditional defined benefit plans and the collective financial risk of the many underfunded pension plans that PBGC insures. PBGC’s financial portfolio is one of the largest of all federal government corporations and, at the end of fiscal year 2016, PBGC’s net accumulated financial deficit was over $79 billion—having more than doubled since fiscal year 2013. PBGC has estimated that, without additional funding, its multiemployer insurance program will likely be exhausted by 2025 as a result of current and projected pension plan insolvencies. The agency’s single- employer insurance program is also at risk due to the continuing decline of traditional defined benefit pension plans, increased financial risk and reduced premium payments. While Congress and PBGC have taken significant and positive steps to strengthen the agency over recent years, challenges related to PBGC’s funding and governance structure remain. Addressing the significant financial risk and governance challenges that PBGC faces requires additional congressional action. To improve the long-term financial stability of PBGC’s insurance programs, Congress should consider: (1) authorizing a redesign of PBGC’s single employer program premium structure to better align rates with sponsor risk; (2) adopting additional changes to PBGC’s governance structure—in particular, expanding the composition of its board of directors; (3) strengthening funding requirements for plan sponsors as appropriate given national economic conditions; (4) working with PBGC to develop a strategy for funding PBGC claims over the long term, as the defined benefit pension system continues to decline; and (5) enacting additional structural reforms to reinforce and stabilize the multiemployer system that balance the needs and potential sacrifices of contributing employers, participants and the federal government. Absent additional steps to improve PBGC’s finances, the long-term financial stability of the agency remains uncertain and the retirement benefits of millions of American workers and retirees could be at risk of dramatic reductions. Additional information on Pension Benefit Guaranty Corporation Insurance Programs is provided on page 609 of this report. Ensuring the Security of Federal Information Systems and Cyber Critical Infrastructure and Protecting the Privacy of Personally Identifiable Information. Federal agencies and our nation’s critical infrastructures—such as energy, transportation systems, communications, and financial services—are dependent on computerized (cyber) information systems and electronic data to carry out operations and to process, maintain, and report essential information. The security of these systems and data is vital to public confidence and the nation’s safety, prosperity, and well-being. However, safeguarding computer systems and data supporting the federal government and the nation’s critical infrastructure is a concern. We first designated information security as a government- wide high-risk area in 1997. This high-risk area was expanded to include the protection of critical cyber infrastructure in 2003 and protecting the privacy of personally identifiable information (PII) in 2015. Ineffectively protecting cyber assets can facilitate security incidents and cyberattacks that disrupt critical operations; lead to inappropriate access to and disclosure, modification, or destruction of sensitive information; and threaten national security, economic well-being, and public health and safety. In addition, the increasing sophistication of hackers and others with malicious intent, and the extent to which both federal agencies and private companies collect sensitive information about individuals, have increased the risk of PII being exposed and compromised. Over the past several years, we have made about 2,500 recommendations to agencies aimed at improving the security of federal systems and information. These recommendations would help agencies strengthen technical security controls over their computer networks and systems, fully implement aspects of their information security programs, and protect the privacy of PII held on their systems. As of October 2016, about 1,000 of our information security– related recommendations had not been implemented. In addition, the federal government needs, among other things, to improve its abilities to detect, respond to, and mitigate cyber incidents; expand efforts to protect cyber critical infrastructure; and oversee the protection of PII, among other things. Additional information on Ensuring the Security of Federal Information Systems and Cyber Critical Infrastructure and Protecting the Privacy of Personally Identifiable Information is provided on page 338 of this report. For 2017, we are adding three new areas to the High-Risk List. We, along with inspectors general, special commissions, and others, have reported that federal agencies have ineffectively administered Indian education and health care programs, and inefficiently fulfilled their responsibilities for managing the development of Indian energy resources. In particular, we have found numerous challenges facing Interior’s Bureau of Indian Education (BIE) and Bureau of Indian Affairs (BIA) and the Department of Health and Human Services’ (HHS) Indian Health Service (IHS) in administering education and health care services, which put the health and safety of American Indians served by these programs at risk. These challenges included poor conditions at BIE school facilities that endangered students, and inadequate oversight of health care that hindered IHS’s ability to ensure quality care to Indian communities. In addition, we have reported that BIA mismanages Indian energy resources held in trust and thereby limits opportunities for tribes and their members to use those resources to create economic benefits and improve the well-being of their communities. Congress recently noted, “through treaties, statutes, and historical relations with Indian tribes, the United States has undertaken a unique trust responsibility to protect and support Indian tribes and Indians.” In light of this unique trust responsibility and concerns about the federal government ineffectively administering Indian education and health care programs and mismanaging Indian energy resources, we are adding these programs as a high-risk issue because they uniquely affect tribal nations and their members. Federal agencies have performed poorly in the following broad areas: (1) oversight of federal activities; (2) collaboration and communication; (3) federal workforce planning; (4) equipment, technology, and infrastructure; and (5) federal agencies’ data. While federal agencies have taken some actions to address the 41 recommendations we made related to Indian programs, there are currently 39 that have yet to be fully resolved. We plan to continue monitoring federal efforts in these areas. To this end, we have ongoing work focusing on accountability for safe schools and school construction, and tribal control of energy delivery, management, and resource development. Education: We have identified weaknesses in how Indian Affairs oversees school safety and construction and in how it monitors the way schools use Interior funds. We have also found limited workforce planning in several key areas related to BIE schools. Moreover, aging BIE school facilities and equipment contribute to degraded and unsafe conditions for students and staff. Finally, a lack of internal controls and other weaknesses hinder Indian Affairs’ ability to collect complete and accurate information on the physical conditions of BIE schools. In the past 3 years, we issued three reports on challenges with Indian Affairs’ management of BIE schools in which we made 13 recommendations. Eleven recommendations below remain open. To help ensure that BIE schools provide safe and healthy facilities for students and staff, we made four recommendations which remain open, including that Indian Affairs ensure the inspection information it collects on BIE schools is complete and accurate; develop a plan to build schools’ capacity to promptly address safety and health deficiencies; and consistently monitor whether BIE schools have established required safety committees. To help ensure that BIE conducts more effective oversight of school spending, we made four recommendations which remain open, including that Indian Affairs develop a workforce plan to ensure that BIE has the staff to effectively oversee school spending; put in place written procedures and a risk-based approach to guide BIE in overseeing school spending; and improve information sharing to support the oversight of BIE school spending. To help ensure that Indian Affairs improves how it manages Indian education, we made five recommendations. Three recommendations remain open, including that Indian Affairs develop a strategic plan for BIE that includes goals and performance measures for how its offices are fulfilling their responsibilities to provide BIE with support; revise Indian Affairs’ strategic workforce plan to ensure that BIA regional offices have an appropriate number of staff with the right skills to support BIE schools in their regions; and develop and implement decision-making procedures for BIE to improve accountability for BIE schools. Health Care: IHS provides inadequate oversight of health care, both of its federally operated facilities and through the Purchase Referred Care program (PRC). Other issues include ineffective collaboration— specifically, IHS does not require its area offices to inform IHS headquarters if they distribute funds to local PRC programs using different criteria than the PRC allocation formula suggested by headquarters. As a result, IHS may be unaware of additional funding variation across areas. We have also reported that IHS officials told us that an insufficient workforce was the biggest impediment to ensuring patients could access timely primary care. In the past 6 years, we have made 12 recommendations related to Indian health care that remain open. Although IHS has taken several actions in response to our recommendations, such as improving the data collected for the PRC program and adopting Medicare-like rates for nonhospital services, much more needs to be done. To help ensure that Indian people receive quality health care, the Secretary of HHS should direct the Director of IHS to take the following two actions: (1) as part of implementing IHS’s quality framework, ensure that agency-wide standards for the quality of care provided in its federally operated facilities are developed, and systematically monitor facility performance in meeting these standards over time; and (2) develop contingency and succession plans for replacing key personnel, including area directors. To help ensure that timely primary care is available and accessible to Indians, IHS should: (1) develop and communicate specific agency- wide standards for wait times in federally-operated facilities, and (2) monitor patient wait times in federally-operated facilities and ensure that corrective actions are taken when standards are not met. To help ensure that IHS has meaningful information on the timeliness with which it issues purchase orders authorizing payment under the PRC program, and to improve the timeliness of payments to providers, we recommended that IHS: (1) modify IHS’s claims payment system to separately track IHS referrals and self-referrals, revise Government Performance and Results Act measures for the PRC program so that it distinguishes between these two types of referrals, and establish separate time frame targets for these referral types; and (2) better align PRC staffing levels and workloads by revising its current practices, where available, used to pay for PRC program staff. In addition, as HHS and IHS monitor the effect that new coverage options available to IHS beneficiaries through PPACA have on PRC funds, we recommend that IHS concurrently develop potential options to streamline requirements for program eligibility. To help ensure successful outreach efforts regarding PPACA coverage expansions, we recommended that IHS realign current resources and personnel to increase capacity to deal with enrollment in Medicaid and the exchanges, and prepare for increased billing to these payers. If payments for physician and other nonhospital services are capped, we recommended that IHS monitor patient access to these services. To help ensure a more equitable allocation of funds per capita across areas, we recommended that Congress consider requiring IHS to develop and use a new method for allocating PRC funds. To develop more accurate data for estimating the funds needed for the PRC program and improve IHS oversight, we recommended that IHS develop a written policy documenting how it evaluates the need for the PRC program, and disseminate it to area offices so they understand how unfunded services data are used to estimate overall program needs. We also recommended that IHS develop written guidance for PRC programs outlining a process to use when funds are depleted but recipients continue to need services. Energy: We have reported on issues with BIA oversight of federal activities, such as the length of time it takes to review energy-related documents. We also reported on challenges with collaboration—in particular, while working to form an Indian Energy Service Center, BIA did not coordinate with key regulatory agencies, including the Department of the Interior’s Fish and Wildlife Service, the U.S. Army Corps of Engineers, and the Environmental Protection Agency. In addition, we found workforce planning issues at BIA contribute to management shortcomings that have hindered Indian energy development. Lastly, we found issues with outdated and deteriorating equipment, technology, and infrastructure, as well as incomplete and inaccurate data. In the past 2 years, we issued three reports on developing Indian energy resources in which we made 14 recommendations to BIA. All recommendations remain open. To help ensure BIA can verify ownership in a timely manner and identify resources available for development, we made two recommendations, including that Interior take steps to improve its geographic information system mapping capabilities. To help ensure BIA’s review process is efficient and transparent, we made two recommendations, including that Interior take steps to develop a documented process to track review and response times for energy-related documents that must be approved before tribes can develop energy resources. To help improve clarity of tribal energy resource agreement regulations, we recommended BIA provide additional guidance to tribes on provisions that tribes have identified to Interior as unclear. To help ensure that BIA streamlines the review and approval process for revenue-sharing agreements, we made three recommendations, including that Interior establish time frames for the review and approval of Indian revenue-sharing agreements for oil and gas, and establish a system for tracking and monitoring the review and approval process to determine whether time frames are met. To help improve efficiencies in the federal regulatory process, we made four recommendations, including that BIA take steps to coordinate with other regulatory agencies so the Service Center can serve as a single point of contact or lead agency to navigate the regulatory process. To help ensure that BIA has a workforce with the right skills, appropriately aligned to meet the agency’s goals and tribal priorities, we made two recommendations, including that BIA establish a documented process for assessing BIA’s workforce composition at agency offices. Congressional Actions Needed: It is critical that Congress maintain its focus on improving the effectiveness with which federal agencies meet their responsibilities to serve tribes and their members. Since 2013, we testified at six hearings to address significant weaknesses we found in the federal management of programs that serve tribes and their members. Sustained congressional attention to these issues will highlight the challenges discussed here and could facilitate federal actions to improve Indian education and health care programs, and the development of Indian energy resources. See pages 200-219 for additional details on what we found. The federal government’s environmental liability has been growing for the past 20 years and is likely to continue to increase. For fiscal year 2016, the federal government’s estimated environmental liability was $447 billion—up from $212 billion for fiscal year 1997. However, this estimate does not reflect all of the future cleanup responsibilities facing federal agencies. Because of the lack of complete information and the often inconsistent approach to making cleanup decisions, federal agencies cannot always address their environmental liabilities in ways that maximize the reduction of health and safety risks to the public and the environment in a cost-effective manner. The federal government is financially liable for cleaning up areas where federal activities have contaminated the environment. Various federal laws, agreements with states, and court decisions require the federal government to clean up environmental hazards at federal sites and facilities—such as nuclear weapons production facilities and military installations. Such sites are contaminated by many types of waste, much of which is highly hazardous. Federal accounting standards require agencies responsible for cleaning up contamination to estimate future cleanup and waste disposal costs, and to report such costs in their annual financial statements as environmental liabilities. Per federal accounting standards, federal agencies’ environmental liability estimates are to include probable and reasonably estimable costs of cleanup work. Federal agencies’ environmental liability estimates do not include cost estimates for work for which reasonable estimates cannot currently be generated. Consequently, the ultimate cost of addressing the U.S. government’s environmental cleanup is likely greater than $447 billion. Federal agencies’ approaches to addressing their environmental liabilities and cleaning up the contamination from past activities are often influenced by numerous site-specific factors, stakeholder agreements, and legal provisions. We have also found that some agencies do not take a holistic, risk- informed approach to environmental cleanup that aligns limited funds with the greatest risks to human health and the environment. Since 1994, we have made at least 28 recommendations related to addressing the federal government’s environmental liability. These include 22 recommendations to the Departments of Energy (DOE) or Defense (DOD), 1 recommendation to OMB to consult with Congress on agencies’ environmental cleanup costs, and 4 recommendations to Congress to change the laws governing cleanup activities. Of these, 13 recommendations remain unimplemented. If implemented, these steps would improve the completeness and reliability of the estimated costs of future cleanup responsibilities, and lead to more risk-based management of the cleanup work. Of the federal government’s estimated $447 billion environmental liability, DOE is responsible for by far the largest share of the liability, and DOD is responsible for the second largest share. The rest of the federal government makes up the remaining 3 percent of the liability with agencies such as the National Aeronautics and Space Administration (NASA) and the Departments of Transportation, Veteran’s Affairs, Agriculture (USDA), and Interior holding large liabilities (see figure 2). Agencies spend billions each year on environmental cleanup efforts but the estimated environmental liability continues to rise. For example, despite billions spent on environmental cleanup, DOE’s environmental liability has roughly doubled from a low of $176 billion in fiscal year 1997 to the fiscal year 2016 estimate of $372 billion. In the last 6 years alone, DOE’s Office of Environmental Management (EM) has spent $35 billion, primarily to treat and dispose of nuclear and hazardous waste, and construct capital asset projects to treat the waste; however, EM’s portion of the environmental liability has grown over this same time period by over $90 billion, from $163 billion to $257 billion (see figure 3). Progress in addressing the U.S. government’s environmental liabilities depends on how effectively federal departments and agencies set priorities, under increasingly restrictive budgets, that maximize the risk reduction and cost-effectiveness of cleanup approaches. As a first step, some departments and agencies may need to improve the completeness of information about long-term cleanup responsibilities and their associated costs so that decision makers, including Congress, can consider the full scope of the federal government’s cleanup obligations. As a next step, certain departments, such as DOE, may need to change how they establish cleanup priorities. For example, DOE’s current practice of negotiating agreements with individual sites without considering other sites’ agreements or available resources may not ensure that limited resources will be allocated to reducing the greatest environmental risks, and costs will be minimized. In 1994, we recommended that Congress amend certain legislation to require agencies to report annually on progress in implementing plans for completing site inventories, estimates of the total costs to clean up their potential hazardous waste sites, and agencies’ progress toward completing their site inventories and on their latest estimates of total cleanup costs. We believe these recommendations are as relevant, if not more so, today. In 2015, we recommended that USDA develop plans and procedures for completing its inventories of potentially contaminated sites. USDA disagreed with this recommendation. However, we continue to believe that USDA’s inventory of contaminated and potentially contaminated sites—in particular, abandoned mines, primarily on Forest Service land—is insufficient for effectively managing USDA’s overall cleanup program. Interior is also faced with an incomplete inventory of abandoned mines that it is working to improve. In 2006, we recommended that DOD develop, document, and implement a program for financial management review, assessment, and monitoring of the processes for estimating and reporting environmental liabilities. This recommendation has not been implemented. We have found in the past that DOE’s cleanup strategy is not risk based and should be re-evaluated. DOE’s decisions are often driven by local stakeholders and certain requirements in federal facilities agreements and consent decrees. In 1995, we recommended that DOE set national priorities for cleaning up its contaminated sites using data gathered during ongoing risk evaluations. This recommendation has not been implemented. In 2003, we recommended that DOE ask Congress to clarify its authority for designating certain waste with relatively low levels of radioactivity as waste incidental to reprocessing, and therefore not managed as high-level waste. In 2004, DOE received this specific authority from Congress for the Savannah River and Idaho Sites, thereby allowing DOE to save billions of dollars in waste treatment costs. The law, however, excluded the Hanford Site. More recently, in 2015, we found that DOE is not comprehensively integrating risks posed by National Nuclear Security Administration’s (NNSA) nonoperational contaminated facilities with EM’s portfolio of cleanup work. By not integrating nonoperational facilities from NNSA, EM is not providing Congress with complete information about EM’s current and future cleanup obligations as Congress deliberates annually about appropriating funds for cleanup activities. We recommended that DOE integrate its lists of facilities prioritized for disposition with all NNSA facilities that meet EM’s transfer requirements, and that EM should include this integrated list as part of the Congressional Budget Justification for DOE. DOE neither agreed nor disagreed with this recommendation. See pages 232-247 for additional details on what we found. One of the most important functions of the U.S. Census Bureau (Bureau) is conducting the decennial census of the U.S. population, which is mandated by the Constitution and provides vital data for the nation. This information is used to apportion the seats of the U.S. House of Representatives; realign the boundaries of the legislative districts of each state; allocate billions of dollars in federal financial assistance; and provide social, demographic, and economic profiles of the nation’s people to guide policy decisions at each level of government. A complete count of the nation’s population is an enormous challenge as the Bureau seeks to control the cost of the census while it implements several new innovations and manages the processes of acquiring and developing new and modified IT systems supporting them. Over the past 3 years, we have made 30 recommendations to help the Bureau design and implement a more cost-effective census for 2020; however, only 6 of them had been fully implemented as of January 2017. The cost of the census, in terms of cost for counting each housing unit, has been escalating over the last several decennials. The 2010 Census was the costliest U.S. Census in history at about $12.3 billion, and was about 31 percent more costly than the $9.4 billion cost of the 2000 Census (in 2020 dollars). The average cost for counting a housing unit increased from about $16 in 1970 to around $92 in 2010 (in 2020 constant dollars). Meanwhile, the return of census questionnaires by mail (the primary mode of data collection) declined over this period from 78 percent in 1970 to 63 percent in 2010. Declining mail response rates—a key indicator of a cost-effective census—are significant and lead to higher costs. This is because the Bureau sends enumerators to each nonresponding household to obtain census data. As a result, nonresponse follow-up is the Bureau’s largest and most costly field operation. In many ways, the Bureau has had to invest substantially more resources each decade to match the results of prior enumerations. The Bureau plans to implement several new innovations in its design of the 2020 Census. In response to our recommendations regarding past decennial efforts and other assessments, the Bureau has fundamentally reexamined its approach for conducting the 2020 Census. Its plan for 2020 includes four broad innovation areas that it believes will save it over $5 billion (2020 constant dollars) when compared to what it estimates conducting the census with traditional methods would cost. The Bureau’s innovations include (1) using the Internet as a self-response option, which the Bureau has never done on a large scale before; (2) verifying most addresses using “in-office” procedures and on-screen imagery rather than street-by-street field canvassing; (3) re-engineering data collection methods such as by relying on an automated case management system; and (4) in certain instances, replacing enumerator collection of data with administrative records (information already provided to federal and state governments as they administer other programs). These innovations show promise for a more cost-effective head count. However, they also introduce new risks, in part, because they include new procedures and technology that have not been used extensively in earlier decennials, if at all. The Bureau is also managing the acquisition and development of new and modified IT systems, which add complexity to the design of the census. To help control census costs, the Bureau plans to significantly change the methods and technology it uses to count the population, such as offering an option for households to respond to the survey via the Internet or phone, providing mobile devices for field enumerators to collect survey data from households, and automating the management of field operations. This redesign relies on acquiring and developing many new and modified IT systems, which could add complexity to the design. These cost risks, new innovations, and acquisition and development of IT systems for the 2020 Census, along with other challenges we have identified in recent years, raise serious concerns about the Bureau’s ability to conduct a cost-effective enumeration. Based on these concerns, we have concluded that the 2020 Census is a high-risk area and have added it to the High-Risk List in 2017. To help the Bureau mitigate the risks associated with its fundamentally new and complex innovations for the 2020 Census, the commitment of top leadership is needed to ensure the Bureau’s management, culture, and business practices align with a cost-effective enumeration. For example, the Bureau needs to continue strategic workforce planning efforts to ensure it has the skills and competencies needed to support planning and executing the census. It must also rigorously test individual census-taking activities to provide information on their feasibility and performance, their potential for achieving desired results, and the extent to which they are able to function together under full operational conditions. We have recommended that the Bureau also ensure that its scheduling adheres to leading practices and be able to support a quantitative schedule risk assessment, such as by having all activities associated with the levels of resources and effort needed to complete them. The Bureau has stated that it has begun maturing project schedules to ensure that the logical relationships are in place and plans to conduct a quantitative risk assessment. We will continue to monitor the Bureau’s efforts. The Bureau must also improve its ability to manage, develop, and secure its IT systems. For example, the Bureau needs to prioritize its IT decisions and determine what information it needs in order to make those decisions. In addition, the Bureau needs to make key IT decisions for the 2020 Census in order to ensure they have enough time to have the production systems in place to support the end-to-end system test. To this end, we recommended the Bureau ensure that the methodologies for answering the Internet response rate and IT infrastructure research questions are determined and documented in time to inform key design decisions. Further, given the numerous and critical dependencies between the Census Enterprise Data Collection and Processing and 2020 Census programs, their parallel implementation tracks, and the 2020 Census’s immovable deadline, we recommended that the Bureau establish a comprehensive and integrated list of all interdependent risks facing the two programs, and clearly identify roles and responsibilities for managing this list. The Bureau stated that it plans to take actions to address our recommendations. It is also critical for the Bureau to have better oversight and control over its cost estimation process and we have recommended that the Bureau ensure its cost estimate is consistent with our leading practices. For example, the Bureau will need to, among other practices, document all cost-influencing assumptions; describe estimating methodologies used for each cost element; ensure that variances between planned and actual cost are documented, explained, and reviewed; and include a comprehensive sensitivity analysis, so that it can better estimate costs. We also recommended that the Bureau implement and institutionalize processes or methods for ensuring control over how risk and uncertainty are accounted for and communicated within its cost estimation process. The Bureau agreed with our recommendations, and we are currently conducting a follow-up audit of the Bureau’s most recent cost estimate and will determine whether the Bureau has implemented them. Sustained congressional oversight will be essential as well. In 2015 and 2016, congressional committees held five hearings focusing on the progress of the Bureau’s preparations for the decennial. Going forward, active oversight will be needed to ensure these efforts stay on track, the Bureau has needed resources, and Bureau officials are held accountable for implementing the enumeration as planned. We will continue monitoring the Bureau’s efforts to conduct a cost- effective enumeration. To this end, we have ongoing work focusing on such topics as the Bureau’s updated lifecycle cost estimate and the readiness of IT systems for the 2018 End-to-End Test. See pages 219 – 231 for additional details on what we found. After we remove areas from the High-Risk List we continue to monitor them, as appropriate, to determine if the improvements we have noted are sustained and whether new issues emerge. If significant problems again arise, we will consider reapplying the high-risk designation. DOD’s Personnel Security Clearance Program is one former high-risk area that we continue to closely monitor in light of government-wide reform efforts. The Office of the Director of National Intelligence (ODNI) estimates that approximately 4.2 million federal government and contractor employees held or were eligible to hold a security clearance as of October 1, 2015. Personnel security clearances provide personnel with access to classified information, the unauthorized disclosure of which could, in certain circumstances, cause exceptionally grave damage to national security. High profile security incidents, such as the disclosure of classified programs and documents by a National Security Agency contractor and the OPM data breach of 21.5 million records, demonstrate the continued need for high-quality background investigations and adjudications, strong oversight, and a secure IT process, which have been areas of long- standing challenges for the federal government. In 2005, we designated the DOD personnel security clearance program as a high-risk area because of delays in completing background investigations and adjudications. We continued the high-risk designation in the 2007 and 2009 updates to our High-Risk List because of issues with the quality of investigation and adjudication documentation, and because delays in the timely processing of security clearances continued. In our 2011 high-risk report, we removed DOD’s personnel security clearance program from the High-Risk List because DOD took actions to develop guidance to improve its adjudication process, develop and implement tools and metrics to assess quality of investigations and adjudications, and improve timeliness for processing clearances. We also noted that DOD continues to be a prominent player in the overall security clearance reform effort, which includes entities within the OMB, OPM, and ODNI that comprise the Performance Accountability Council (PAC) which oversees security clearance reform. The executive branch has also taken steps to monitor its security clearance reform efforts. The GPRA Modernization Act of 2010 requires OMB to report through a website—performance.gov—on long-term cross-agency priority goals, which are outcome-oriented goals covering a limited number of crosscutting policy areas, as well as goals to improve management across the federal government. Among the cross-agency priority goals, the executive branch identified security clearance reform as one of the key areas it is monitoring. Since removing DOD’s personnel security clearance program from the High-Risk List, the government’s overall reform efforts that began after passage of the Intelligence Reform and Terrorism Prevention Act of 2004 have had mixed progress, and key reform efforts have not yet been implemented. In the aftermath of the June 2013 disclosure of classified documents by a former National Security Agency contractor and the September 2013 shooting at the Washington Navy Yard, OMB issued, in February 2014, the Suitability and Security Processes Review Report to the President, a 120-day review of the government’s processes for granting security clearances, among other things. The 120-day review resulted in 37 recommendations, 65 percent of which have been implemented as of October 2016, including the issuance of executive branch-wide quality assessment standards for investigations in January 2015. Additionally, the recommendations led to expanding DOD’s ability to continuously evaluate the continued eligibility of cleared personnel. However, other recommendations from the 120-day review have not yet been implemented. For example, the reform effort is still trying to fully implement the revised background investigation standards issued in 2012 and improve data sharing between local, state, and federal entities. In addition, the 120-day review further found that performance measures for investigative quality are neither standardized nor implemented consistently across the government, and that measuring and ensuring quality continues to be a challenge. The review contained three recommendations to address the development of quality metrics, but the PAC has only partially implemented those recommendations. We previously reported that the executive branch had developed some metrics to assess quality at different phases of the personnel security clearance process; however, those metrics had not been fully developed and implemented. The development of metrics to assess quality throughout the security clearance process has been a long-standing concern. Since the late 1990s we have emphasized the need to build and monitor quality throughout the personnel security clearance process. In 2009, we again noted that clearly defined quality metrics can improve the security clearance process by enhancing oversight of the time required to process security clearances and the quality of the investigation and adjudicative decisions. We recommended that OMB provide Congress with results of metrics on comprehensive timeliness and the quality of investigations and adjudications. According to ODNI, in October 2016, ODNI began implementation of a Quality Assessment and Reporting Tool to document customer issues with background investigations. The tool will be used to report on the quality of 5 percent of each executive branch agency’s background investigations. ODNI officials stated that they plan to develop metrics in the future as data are gathered from the tool, but did not identify a completion date for these metrics. Separately, the NDAA for Fiscal Year 2017, among other things, requires DOD to institute a program to collect and maintain data and metrics on the background investigation process, in the context of developing a system for performance of background investigations. The PAC’s effort to fully address the 120-day review and our recommendations on establishing metrics on the quality of investigations as well as DOD’s efforts to address the broader requirements in the NDAA for Fiscal Year 2017 remain open and will need to be a continued focus of the department moving forward in its effort to improve its management of the security clearance process. Further, in response to the 2015 OPM data breach, the PAC completed a 90-day review which led to an executive order establishing the National Background Investigations Bureau, within OPM, to replace the Federal Investigative Services and transferred responsibility to develop, maintain and secure new IT systems for clearances to DOD. Additionally, the Executive Order made DOD a full principal member of the PAC. The Executive Order also directed the PAC to review authorities, roles, and responsibilities, including submitting recommendations related to revising, as appropriate, executive orders pertaining to security clearances. This effort is ongoing. In addition to addressing the quality of security clearances and other goals and recommendations outlined in the 120-day and 90-day reviews, and the government’s cross-agency priority goals, the PAC has the added challenge of addressing recent changes that may result from the NDAA for Fiscal Year 2017. Specifically, section 951 of the Act requires the Secretary of Defense to develop an implementation plan for the Defense Security Service to conduct background investigations for certain DOD personnel—presently conducted by OPM—after October 1, 2017. The Secretary of Defense must submit the plan to the congressional defense committees by August 1, 2017. It also requires the Secretary of Defense and Director of OPM to develop a plan by October 1, 2017, to transfer investigative personnel and contracted resources to DOD in proportion to the workload if the plan for DOD to conduct the background investigations were implemented. It is unknown if these potential changes will impact recent clearance reform efforts. Given the history and inherent challenges of reforming the government- wide security clearance process, coupled with recent amendments to a governing Executive Order and potential changes arising from the NDAA for Fiscal Year 2017, we will continue reviewing critical functions for personnel security clearance reform and monitor the government’s implementation of key reform efforts. We have ongoing work assessing progress being made on the overall security clearance reform effort and in implementing a continuous evaluation process, a key reform effort considered important to improving the timeliness and quality of investigations. We anticipate issuing a report on the status of the government’s continuous evaluation process in the fall of 2017. Additionally, we have previously reported on the importance of securing federal IT systems and anticipate issuing a report in early 2017 that examines IT security at OPM and efforts to secure these types of critical systems. Continued progress in reforming personnel security clearances is essential in helping to ensure a federal workforce entrusted to protect U.S. government information and property, promote a safe and secure work environment, and enhance the U.S. government’s risk management approach. The high-risk assessment continues to be a top priority and we will maintain our emphasis on identifying high-risk issues across government and on providing insights and sustained attention to help address them, by working collaboratively with Congress, agency leaders, and OMB. As part of this effort, with the new administration and Congress in 2017 we hope to continue to participate in regular meetings with the incoming OMB Deputy Director for Management and with top agency officials to discuss progress in addressing high-risk areas. Such efforts have been critical for the progress that has been made. This high-risk update is intended to help inform the oversight agenda for the 115th Congress and to guide efforts of the administration and agencies to improve government performance and reduce waste and risks. We are providing this update to the President and Vice President, congressional leadership, other Members of Congress, OMB, and the heads of major departments and agencies. In 1990, we began a program to report on government operations that we identified as “high risk.” Since then, generally coinciding with the start of each new Congress, we have reported on the status of progress addressing high-risk areas and have updated the High-Risk List. Our most recent high-risk update was in February 2015. That update identified 32 high-risk areas. Overall, this program has served to identify and help resolve serious weaknesses in areas that involve substantial resources and provide critical services to the public. Since our program began, the federal government has taken high-risk problems seriously and has made long- needed progress toward correcting them. In a number of cases, progress has been sufficient for us to remove the high-risk designation. A summary of changes to our High-Risk List over the past 27 years is shown in table 3. This 2017 update identifies 34 high-risk areas. To determine which federal government programs and functions should be designated high risk, we use our guidance document, Determining Performance and Accountability Challenges and High Risks. In making this determination, we consider whether the program or function is of national significance or is key to performance and accountability. Further, we consider qualitative factors, such as whether the risk involves public health or safety, service delivery, national security, national defense, economic growth, or privacy or citizens’ rights, or could result in significantly impaired service, program failure, injury or loss of life, or significantly reduced economy, efficiency, or effectiveness. We also consider the exposure to loss in monetary or other quantitative terms. At a minimum, $1 billion must be at risk, in areas such as the value of major assets being impaired; revenue sources not being realized; major agency assets being lost, stolen, damaged, wasted, or underutilized; potential for, or evidence of improper payments; and presence of contingencies or potential liabilities. Before making a high-risk designation, we also consider corrective measures planned or under way to resolve a material control weakness and the status and effectiveness of these actions. Our experience has shown that the key elements needed to make progress in high-risk areas are top-level attention by the administration and agency leaders grounded in the five criteria for removal from the High-Risk List, as well as any needed congressional action. The five criteria for removal that we issued in November 2000 are as follows: Leadership Commitment. Demonstrated strong commitment and top leadership support. Capacity. Agency has the capacity (i.e., people and resources) to resolve the risk(s). Action Plan. A corrective action plan exists that defines the root cause, solutions, and provides for substantially completing corrective measures, including steps necessary to implement solutions we recommended. Monitoring. A program has been instituted to monitor and independently validate the effectiveness and sustainability of corrective measures. Demonstrated Progress. Ability to demonstrate progress in implementing corrective measures and in resolving the high-risk area. The five criteria form a road map for efforts to improve and ultimately address high-risk issues. Addressing some of the criteria leads to progress, while satisfying all of the criteria is central to removal from the list. Our April 2016 report provided additional information drawn from our 2015 high-risk update on how agencies had made progress addressing high-risk issues. We provided illustrative actions that agencies took that led to progress or removal from our High-Risk List. This information provides additional guidance to agencies whose programs are on the High-Risk List. Figure 4 shows the five criteria and illustrative actions taken by agencies to address the criteria as cited in that report. Importantly, the actions listed are not “stand alone” efforts taken in isolation from other actions to address high-risk issues. That is, actions taken under one criterion may be important to meeting other criteria as well. For example, top leadership can demonstrate its commitment by establishing a corrective action plan including long-term priorities and goals to address the high-risk issue and using data to gauge progress—actions which are also vital to monitoring criteria. In each of our high-risk updates, for more than a decade, we have assessed progress to address the five criteria for removing a high-risk area from the list. In our 2015 update, we added clarity and specificity to our assessments by rating each high-risk area’s progress on the criteria and used the following definitions: Met. Actions have been taken that meet the criterion. There are no significant actions that need to be taken to further address this criterion. Partially Met. Some, but not all, actions necessary to meet the criterion have been taken. Not Met. Few, if any, actions towards meeting the criterion have been taken. Figure 5 shows a visual representation of varying degrees of progress in each of the five criteria for a high-risk area. Each point of the star represents one of the five criteria for removal from the High-Risk List and each ring represents one of the three designations: not met, partially met, or met. An unshaded point at the innermost ring means that the criterion has not been met, a partially shaded point at the middle ring means that the criterion has been partially met, and a fully shaded point at the outermost ring means that the criterion has been met. Further, a plus symbol inside the star indicates the rating for that criteria progressed since our last high-risk update in 2015. Likewise, a minus symbol inside the star indicates the rating for that criteria declined since our last update. At the bottom of the star graphic are summary statements showing the number of criteria that have been met as well as the number that progressed, declined, or both since the 2015 high-risk update. Some high-risk areas are comprised of segments or subareas that make up the overall high-risk area. For example, the high-risk area Transforming EPA’s Process for Assessing Toxic Chemicals includes two segments—EPA’s Integrated Risk Information System and the Toxic Substances Control Act—to reflect two interrelated parts of the overall high-risk area. Multidimensional high-risk areas such as these have separate ratings for each segment as well as a summary rating of the overall high-risk area that reflects a composite of the ratings received under the segment for each of the five high-risk criteria. A summary of areas removed from our High-Risk List over the past 27 years is shown in figure 6. The areas on our 2017 High-Risk List, and the year each was designated as high risk, are shown in table 4. The following pages provide overviews of the 34 high-risk areas on our updated list. Each overview discusses (1) why the area is high risk, (2) the actions that have been taken and that are under way to address the problem since our last update in 2015, and (3) what remains to be done. Each of these high-risk areas is also described on our High-Risk List website, http://www.gao.gov/highrisk/overview. We also provide additional details on the one area that was removed from the High-Risk List in 2017. Since we last reported on government-wide efforts to address skills gaps, the Office of Personnel Management (OPM), the Chief Human Capital Officers (CHCO) Council, and individual agencies have strengthened their leadership over this area; however, OPM and agencies have only partially met the criteria for removal from the High-Risk List. Mission- critical skills gaps within the federal workforce pose a high risk to the nation. Regardless of whether the shortfalls are in such government-wide occupations as cybersecurity and acquisitions, or in agency-specific occupations such as nurses at the Veterans Health Administration (VHA), skills gaps impede the federal government from cost-effectively serving the public and achieving results. Agencies can have skills gaps for different reasons: they may have an insufficient number of people or their people may not have the appropriate skills or abilities to accomplish mission-critical work. Moreover, current budget and long-term fiscal pressures, the changing nature of federal work, and a potential wave of employee retirements that could produce gaps in leadership and institutional knowledge, threaten to aggravate the problems created by existing skills gaps. Indeed, the government’s capacity to address complex challenges such as disaster response, national and homeland security, and rapidly-evolving technology and privacy security issues requires a skilled federal workforce able to work seamlessly with other agencies, with other levels of government, and across sectors. We first added strategic human capital management to the High-Risk List in 2001. In our 2015 update, we noted that while OPM and agencies had made strides in developing an infrastructure for identifying and addressing skills gaps, they needed to do additional work to more fully use workforce analytics to identify their gaps, implement specific strategies to address these gaps, and evaluate the results of actions taken so as to demonstrate progress in closing the gaps. Mission critical skills gaps were also a factor in making other areas across government high risk. Of the 34 other high-risk areas covered in this report, 15 areas—such as IT management, acquisitions, and management of oil and gas resources—had skills gaps playing a contributory role. Since we last reported on government-wide efforts to address skills gaps, OPM, the CHCO Council, and individual agencies have strengthened their leadership over this area, including establishing a new human capital framework to guide their efforts. In doing so, they have (1) taken important steps to institutionalize efforts to close skills gaps and (2) enhanced the analytical method used to identify skills gaps. However, OPM and agencies have only partially met the criteria for removal from the High-Risk List for developing the capacity to close skills gaps, designing and implementing action plan strategies for closing skills gaps, and monitoring efforts to close existing skills gaps as well as identify emerging ones. Additionally, OPM and agencies have not yet demonstrated sustainable progress in closing skills gaps. To date, Congress has provided agencies with authorities and flexibilities to manage the federal workforce and make the federal government a more accountable employer. For example, Congress included a provision in the National Defense Authorization Act for Fiscal Year 2016 to extend the probationary period for newly hired civilian Department of Defense (DOD) employees from 1 year to 2 years. As we noted in our 2015 report, better use of probationary periods gives agencies the ability to ensure an employee’s skills are a good fit for all critical areas of a particular job. Dismissing employees who cannot do the work becomes more difficult and time consuming after the probationary period because of the procedural requirements agencies must follow and the greater appeal rights afforded. Further, oversight hearings held by the House and Senate focusing on federal human capital management challenges have been important for ensuring that OPM and agencies continue to make progress in acquiring, developing, and retaining employees with the skills needed to carry out the government’s vital work. OPM and agencies can continue taking actions to address skills gaps with respect to capacity, action plan, monitoring, and demonstrated progress. In particular, we have identified several priority recommendations to OPM, in its role as leader for human capital management in the federal government: OPM needs to strengthen the approach and methodology for addressing skills gaps by working with agencies to develop targets that are clear, measurable, and outcome-oriented. OPM needs to establish a schedule specifying when it will modify its EHRI database to collect staffing data, in concert with agency CHCOs, and needs to help bolster agencies’ ability to assess workforce competencies, either by sharing competency surveys, disseminating lessons learned, or by other means. OPM, in consultation with the CHCO Council, should develop a core set of human capital metrics that agencies can use to monitor progress in closing skills gaps through HRstat reviews, and OPM should ensure that these efforts are coordinated with other agency skills gap initiatives. Individual agencies must also take steps to address skills gaps identified in our prior work. For example, we recommended that the Department of Veterans Affairs (VA) institute a system-wide evaluation of the initiatives to recruit and retain VHA nurses. Doing so could provide VHA with better data to identify resource needs across its medical centers and ensure that its nursing workforce is keeping pace with the health care needs of veterans. VA agreed with our recommendation and indicated in August 2016 that it had formed a working group that is charged with reporting on observations from data on recruitment and retention effectiveness by October 2017. Continued congressional attention to improving the government’s human capital policies and procedures will be essential going forward. For example, in our August 2016 report, to help improve the federal hiring process, we recommended that OPM assess the effectiveness of government hiring authorities to determine whether opportunities exist to refine, consolidate, eliminate, or expand them. In cases where legislation would be necessary to implement changes, we recommended that OPM should work with the CHCO Council to develop legislative proposals. OPM concurred with this recommendation and said it would work with the CHCO Council and others to develop proposals as appropriate. OPM and agencies have fully met the leadership criterion for removal from the High-Risk List. In December 2016, OPM finalized revisions to its strategic human capital management regulation that include the new Human Capital Framework. This framework is to be used by agencies to plan, implement, evaluate, and improve human capital policies and programs. Additionally, the revised regulation provides that agency human capital policies and programs must monitor and address skills gaps within government-wide and agency-specific mission-critical occupations by using comprehensive data analytic methods and gap closure strategies. The revised regulation also requires that agency leadership participate in a quarterly, data-driven review process known as HRstat, which, as we reported in 2015, could be an important tool in reviewing key performance metrics related to closing skills gaps. OPM and the CHCO Council also improved the method that agencies use to identify mission-critical occupations with skills gaps, in response to our recommendation. We previously reviewed the CHCO Council’s 2011- 2012 efforts to identify skills gaps. We reported that those efforts lacked a quantitative grounding and the CHCO Council did not use workforce analytics, such as employee attrition rates, until after it had already selected an initial set of occupations based on qualitative methods. In 2015, OPM and the CHCO Council worked with agencies to refine their inventory of government-wide and agency-specific skills gaps. They narrowed the scope for identifying skills gaps by using a quantitative multi-factor model—which included the 2-year retention rate, the quit rate, retirement rate, and average manager satisfaction with applicant quality. Using this model, OPM, the CHCO Council, and agencies identified six government-wide occupational areas with mission-critical skills gaps: Human Resources Specialist; The Science, Technology, Engineering, and Mathematics (STEM) functional area. OPM and the CHCO Council asked individual agencies to use the same process to identify 2 to 3 occupations within their own agency, resulting in 48 unique occupations with agency-specific skills gaps among the 24 Chief Financial Officers Act agencies. OPM also worked with the Office of Management and Budget (OMB) to issue guidance in November 2016 that outlined three broad objectives and seven practices agencies should use to achieve excellence in hiring. As part of OPM’s People and Culture Cross-Agency Priority goal, this memorandum encouraged agencies to, among other things, use data to inform workforce planning and strategic recruitment—as well as fully leverage relevant hiring authorities—consistent with our prior recommendations. With these actions, OPM, the CHCO Council, and agencies have built a framework to address skills gaps. It will be important for OPM to sustain this leadership commitment through budgetary challenges and the transition to a new administration so that institutional gains are not lost. OPM and agencies have partially met this criterion. After agencies identified sets of occupations with skills gaps, OPM and the CHCO Council worked with the agencies to establish working groups of occupational leaders and CHCO representatives—known as Federal Agency Skills Teams (FAST). According to OPM, the FASTs are to analyze root causes, develop strategies to address skills gaps through action plans, and monitor progress in closing skills gaps within each occupation. Beginning in January 2017, each FAST for both government- wide and agency-specific skills gaps is to report quarterly to OPM on progress and ensure that action plan strategies and performance metrics are aligned with the root cause analyses performed by the FASTs. These institutional resources can help sustain efforts to address skills gaps going forward. OPM has made less progress on other aspects of capacity building. For example, OPM has not finalized efforts to centralize collection of agency staffing data that could be used to detect emerging skills gaps. OPM officials have reported that modifying the Enterprise Human Resources Integration (EHRI) database to perform this function may not be feasible. Moreover, OPM officials reported that they were still working with stakeholders to develop a framework to assist agencies in assessing competencies. We reported, in 2015, that agencies vary in the extent to which they assess competencies, and thus some agencies have limited ability to respond to external workforce planning factors, despite the importance of conducting these assessments. Without more rigorous data collection across government on the number and skills of people filling mission-critical occupations, OPM and agencies may be unable to build the predictive capacity to identify and address emerging skills gaps. OPM and agencies have partially met this criterion. Working with the CHCO Council, OPM designed an action plan template that agency FASTs are to use as a model. In reviewing past efforts to address skills gaps, we found that agencies’ planning documents did not always adhere to best practices for project planning. We found that some plans did not consistently identify the root causes of the skills gaps, assign roles and responsibilities for implementing actions, or develop and use outcome- oriented performance metrics. OPM and the CHCO Council included all of these practices in their most recent template, which asks each agency FAST to identify key actions, responsible parties for those actions, milestones, time frames, and performance metrics for monitoring progress and skills gap risk reduction and closure. Moreover, the template asks FASTs to explain how the actions discussed in the document relate to the root cause of that skills gap. Going forward, OPM and the CHCO Council will need to ensure that agencies and their FASTs use the template appropriately and incorporate the best practices into their action plans. OPM has yet to show, however, whether agencies are consistently adopting these practices in their action plans. As of the end of 2016, nine agencies had not submitted action plans for closing skills gaps. OPM officials noted that they are still working with agencies on the submission of the outstanding plans. OPM and agencies have partially met this criterion. Agencies can take a number of actions to meet the monitoring criterion for removal from the High-Risk List, such as (1) holding frequent review meetings to assess status and performance, (2) reporting to senior managers on program progress and potential risks, and (3) tracking progress against goals. As noted, OPM’s revisions to its strategic human capital management regulations will require agency leadership to participate in quarterly, data- driven HRstat review sessions, and beginning in 2017 each FAST is to report quarterly to OPM and show that action plan strategies are aligned with monitored performance metrics. Together, these two actions could help ensure that skills gaps receive the visibility and attention of senior managers—as well as the accountability that comes from presenting quarterly results—that have been applied to other human capital challenges such as improving employee engagement. However, OPM could do more to assist agencies in developing consistent practices for HRstat and to improve the visibility of skills gaps to managers. In 2015, we recommended that OPM work with the CHCO Council to develop a core set of metrics that agencies should use in HRstat to track common skills gap challenges, while still allowing agencies discretion to include metrics that meet their specific needs. In response to our recommendation, OPM officials stated that they consider HRstat an agency-centric initiative and that, while OPM has no plans to prescribe a core set of skills gap metrics that all agencies must use for HRstat, OPM may recommend metrics for each type of skills gap challenge (e.g., training, recruitment, staffing, or competency assessments) that an agency may encounter. OPM has, however, used its November 2016 guidance to recommend specific metrics to be tracked in HRstat that are tailored to improving hiring practices. We maintain that this practice should be applied to skills gaps in general and that an appropriate core set of metrics would be beneficial because it would (1) help ensure agencies were monitoring skills gaps with a consistent set of robust metrics, (2) provide OPM and Congress greater visibility over government-wide progress in addressing skills gaps, and (3) help OPM and agencies target government-wide actions toward those areas where progress is lagging across agencies. OPM officials have also said that they have no plans to require agencies to integrate the work of their FASTs with their HRstat reviews. OPM officials again cited deference to agencies on identifying the most appropriate metrics to use for their HRstat reviews. The quarterly reporting mechanism that OPM has instituted with each agency FAST could be an effective monitoring tool going forward; however, requiring agencies to routinely monitor skills gap metrics as part of the mandatory HRstat reviews could increase the visibility and urgency of skills gaps for top agency management. OPM and agencies have not met this criterion because at present there are no government-wide targets or goals for closing skills gaps, and agencies are not reporting progress. In our 2015 review we reported that government-wide goals to close skills gaps lacked clarity and measurability. OPM previously had a Cross Agency Priority (CAP) goal to close skills gaps by 50 percent in at least 3 of the government-wide mission-critical occupations by the end of fiscal year 2013. The CAP Goal on skills gaps provided important visibility across the government. Following the expiration of this CAP Goal, the Fiscal Year 2015 Budget included a 4-year CAP Goal on People and Culture that included workforce planning elements related to skills gaps but had no government-wide performance targets for closing skills gaps. Currently there are no government-wide goals regarding skills gaps that have the same visibility that the prior CAP Goal provided. As a result, it is unclear what would be the appropriate yardstick for closing skills gaps across the government. OPM and agencies also have not reached the stage of reporting progress on strategies to close skills gaps. As part of the multi-year process OPM and the CHCO Council have developed with agency FASTs, OPM expects to see agencies reporting progress according to their performance metrics by September 2017. As noted above, not all agencies have even drafted action plans with performance metrics as of December 2016. Strengthening agencies’ abilities to identify and close skills gaps is critical because they can affect mission accomplishment across the government. Since our 2015 high-risk report, we have published over two dozen additional reports with findings related to skills gaps. Additionally, as noted above, 15 other sections in this report feature discussions related to skills gaps. Included in the examples below are issues found elsewhere in the 2017 high-risk report. Information Technology (IT) Workforce. We have underscored IT skills gaps in prior high-risk reports, and elements of the IT workforce– particularly cybersecurity– have been highlighted in OPM’s skills gap efforts since 2011. Challenges remain in this area. In November 2016, we reported that five selected agencies had not consistently applied key workforce planning steps and activities that help to ensure that program staff members have the knowledge and skills critical to successfully acquire IT investments. Moreover, we reported in April 2016 that the Federal Emergency Management Agency (FEMA) had not established time frames for completing its workforce planning activities and lacked an understanding of its regional IT workforce. In particular, FEMA’s 2014 competency assessment only covered part of its IT workforce, and multiple regional offices told us that they faced shortages in IT staff, such as computer and network engineers. Without a better understanding of its current IT workforce, FEMA will be unable to address its workforce planning needs and may not have the skills needed to respond to major disasters. The Department of Homeland Security (DHS) concurred in April 2016 with our recommendation to establish time frames for current and future workforce planning, and we will verify these efforts going forward. See Improving the Management of IT Acquisitions and Operations on page 180 for more information. Acquisition Management. Agencies have continued to face challenges in hiring sufficient staff and in monitoring the competencies of its workforce in acquisitions, an area we have highlighted in prior high-risk reports. For instance, DHS’s 2016 staffing assessments did not take into account all acquisition-related positions, potentially limiting DHS’s insight into the size and nature of potential staffing shortfalls. DHS announced plans in December 2016 to pilot new staffing assessment guidance to be more inclusive of acquisition positions, but the timing of full implementation is not yet known. Additionally, in December 2015, we found that while DOD has assessed workforce competencies for nearly all of its 13 career acquisition fields, the agency has not established a timeline for reassessing competencies in 10 of those fields to gauge progress addressing previously identified gaps. Officials agreed with our recommendation to work with functional leaders in setting timeframes for completing future career field competency assessments and, according to an October 2016 workforce strategic plan, intend to conduct career field competency assessments at a minimum of every 5 years. Doing so will better allow the agency to track improvements in the capability of a workforce that oversaw $273.5 billion in contracts for goods and services in fiscal year 2015. See Strengthening Department of Homeland Security Management Functions on page 354 and DOD Contract Management on page 483 for more information. Oil and Gas Management. In 2014, we recommended that The Department of the Interior (Interior) should collect data on hiring times and explore the expanded use of existing authorities to retain key oil and gas oversight positions, such as petroleum engineers, geologists, and geophysicists. In September 2016, we found that Interior continued to face challenges hiring and retaining staff for these positions and has taken steps to address low salaries and lengthy hiring times for certain occupations but has not evaluated the effectiveness of such measures. Moreover, Interior has not evaluated training needs or the effectiveness of existing training and has not promoted collaboration across its bureaus to discuss and address shared hiring and retention challenges. We recommended that Interior take steps to evaluate its training programs and promote cross-bureau hiring collaboration. In response to our recommendations, Interior officials indicated that their Office of Policy, Management, and Budget would monitor cross-bureau collaboration on a range of issues including hiring, retention, and training through ongoing quarterly performance reviews and that Interior’s bureaus would coordinate their training needs. See Management of Federal Oil and Gas Resources on page 136 for more information. Veterans Health Administration (VHA) Human Resources Personnel. In our December 2016 report on VHA’s human resources (HR) capacity, we recommended that VHA (1) develop its own comprehensive competency assessment tool for HR staff that evaluates knowledge of all three of VHA’s personnel systems and (2) ensure that all VHA HR staff complete it so that VHA may use the data to identify and address competency gaps among medical center HR staff. Without such a tool, VHA will have limited insights into the abilities of its HR staff and be ill-positioned to provide necessary support and training. The Department of Veterans Affairs (VA) agreed with both recommendations and indicated it has realigned its HR training office to ensure that a comprehensive competency assessment tool be developed and implemented. See Managing Risks and Improving VA Health Care on page 627 for more information. Oversight of Medical Products. As part of our December 2016 report, we found that vacancies at foreign Food and Drug Administration (FDA) offices persist. As of July 2016, 46 percent of foreign offices’ authorized positions, including those covering staff conducting medical product investigations, were vacant, and we found that FDA still faces challenges in recruiting staff to these positions. While FDA has set a goal for reducing this vacancy rate, the performance measure selected to track progress on this goal includes both foreign and domestic staff in FDA’s Office of International Programs. FDA could thus fulfill its overall vacancy goal without lowering vacancies in foreign offices. The Department of Health and Human Services (HHS) agreed with our December 2016 recommendation to establish staffing goals by position type at foreign offices, and FDA indicated that recruiting and hiring have long been challenges at these offices. We will monitor future developments in FDA’s foreign inspection staffing. See Protecting Public Health through Enhanced Oversight of Medical Products on page 400 for more information. In addition, our work published since the 2015 high-risk report has identified additional skills gaps that will require agencies’ attention because of their operational impact. For example, we reported in October 2015 that the Small Business Administration (SBA) did not have an up-to- date agency-wide competency assessment. Officials said that when SBA centralized its loan processing functions—and thus removed these functions from the agency’s district offices—as part of a 2004 reorganization, district offices had to take on new responsibilities, and certain staff no longer had skills that matched their day-to-day work. For example, employees with financial backgrounds—needed to process loans—were now asked to perform marketing and business development tasks. SBA also noted that the skills gap had been compounded by recent changes in job requirements and new initiatives that required new skill sets for its employees. SBA agreed with our recommendation to complete a workforce plan that includes a competency and skills gap assessment, and in October 2016 SBA indicated it had finalized such an assessment and would be incorporating it into its strategic workforce planning process. Going forward, agencies will need to continue to monitor these and other existing and newly emerging skills gap challenges. Managing these challenges is especially important because, as we have reported previously, agencies are facing a wave of potential retirements, as figure 7 shows. According to OPM data, government-wide over 34 percent of federal employees on board by the end of fiscal year 2015 will be eligible to retire by 2020. Some agencies, such as the Department of Housing and Urban Development, will have particularly high eligibility levels by 2020. Various factors can affect when individuals actually retire, and some amount of retirement and other forms of attrition can be beneficial because it creates opportunities to bring fresh skills on board and it allows organizations to restructure themselves to better meet program goals and fiscal realities. But if turnover is not strategically monitored and managed, gaps can develop in an organization’s institutional knowledge and leadership. For additional information about this high-risk area, contact Robert Goldenkoff at 202-512-6806 or GoldenkoffR@gao.gov or Yvonne Jones at 202-512-6806 or JonesY@gao.gov. Veterans Health Administration: Management Attention Is Needed to Address Systemic, Long-standing Human Capital Challenges. GAO-17-30. Washington, D.C.: December 23, 2016. Drug Safety: FDA Has Improved Its Foreign Drug Inspection Program, but Needs to Assess the Effectiveness and Staffing of Its Foreign Offices. GAO-17-143. Washington, D.C.: December 16, 2016. IT Workforce: Key Practices Help Ensure Strong Integrated Program Teams; Selected Departments Need to Assess Skill Gaps. GAO-17-8. Washington, D.C.: November 30, 2016. Oil and Gas Oversight: Interior Has Taken Steps to Address Staff Hiring, Retention, and Training but Needs a More Evaluative and Collaborative Approach. GAO-16-742. Washington, D.C.: September 29, 2016. Aviation Security: TSA Should Ensure Testing Data Are Complete and Fully Used to Improve Screener Training and Operations. GAO-16-704. Washington, D.C.: September 7, 2016. Federal Hiring: OPM Needs to Improve Management and Oversight of Hiring Authorities. GAO-16-521. Washington, D.C.: August 2, 2016. Information Technology: FEMA Needs to Address Management Weaknesses to Improve Its Systems. GAO-16-306. Washington, D.C.: April 5, 2016. Defense Acquisition Workforce: Actions Needed to Guide Planning Efforts and Improve Workforce Capability. GAO-16-80. Washington, D.C.: December 14, 2015. VA Health Care: Oversight Improvements Needed for Nurse Recruitment and Retention Initiatives. GAO-15-794. Washington, D.C.: October 30, 2015. Small Business Administration: Leadership Attention Needed to Overcome Management Challenges. GAO-15-347. Washington, D.C.: September 22, 2015. Federal Workforce: Improved Supervision and Better Use of Probationary Periods Are Needed to Address Substandard Employee Performance. GAO-15-191. Washington, D.C.: February 6, 2015. Federal Workforce: OPM and Agencies Need to Strengthen Efforts to Identify and Close Mission-Critical Skills Gaps. GAO-15-223. Washington, D.C.: January 30, 2015. The federal government’s real estate portfolio is vast and diverse— including approximately 273,000 buildings that are leased or owned in the United States and that cost billions of dollars annually to operate and maintain by civilian and defense agencies. Since federal real property management was placed on the High-Risk List in 2003, the federal government has given high-level attention to this issue, such as issuing the National Strategy for the Efficient Use of Real Property (National Strategy) in 2015, which provides a foundation to further assist agencies in strategically managing their real property inventories. However, federal agencies continue to face long-standing challenges in several areas of real property management, including: (1) disposing of excess and underutilized property effectively, (2) relying too heavily on leasing, (3) collecting reliable real property data to support decision making, and (4) protecting federal facilities. Issues with the reliability of the Federal Real Property Profile (FRPP) data—particularly the utilization variable—make it difficult to quantify the overall number of vacant and underutilized federal buildings. In September 2016, we reported on some vacant properties in the Washington, D.C., area that illustrate the challenges associated with disposing of or repurposing vacant property. Figure 8 illustrates the following examples: The Cotton Annex: This building, held by the General Services Administration (GSA), which serves as the federal government’s primary disposal agent, is located just a couple blocks off the National Mall in Washington, D.C., is approximately 118,000 gross square feet and has been vacant since 2007. In 2016, we found that GSA’s recent attempt to exchange the property for construction services failed when GSA was unable to obtain sufficient value from the exchange, making the fate of this unneeded building unclear. GSA Warehouses: In 2014, we found that some GSA warehouses listed in FRPP as used had been vacant for as long as 10 years. GSA only lists warehouses as unused if they are in the process of being disposed. Interpreting use this way in FRPP caused GSA to list as used some warehouses that had been vacant for years. We made a priority recommendation to GSA, to improve the way GSA manages its warehouses. According to GSA officials, they are in the process of developing a Guide for Strategic Warehouse Planning. St. Elizabeths: The west campus of St. Elizabeths, a National Historic landmark in Washington, D.C., is made up of 61 buildings on about 182 acres. Many buildings have been vacant for extended periods of time and are in badly deteriorated condition. As we reported in 2014, GSA developed a plan to establish a consolidated headquarters for the Department of Homeland Security (DHS) on the site in 2009. Since then, GSA has completed construction of a new headquarters building for the Coast Guard on the campus, but most of the project has been delayed. The estimated timeline for completing the project has been extended multiple times, from an initial estimated completion date of 2016, to an estimated completion date of 2021 based on a scaled back plan as of 2015. In addition, the federal government continues to face challenges in protecting federal facilities from potential attacks. For example, DHS’s Federal Protective Service (FPS), responsible for the physical protection of 9,500 federal facilities, continues to work to apply a risk-based approach for assessing facilities and ensuring that guards are adequately trained. In January 2017, we also reported that GSA is leasing from foreign owners about 3.3 million square feet in 20 buildings that require higher levels of security that could present security risks, such as espionage and unauthorized cyber and physical access. The federal government continues to meet the high-risk criterion for demonstrating leadership commitment to improving the management of real property by executing a number of reform efforts since the last high- risk update in 2015. For example, the Office of Management and Budget (OMB) has issued several key guidance documents since 2015. Most notably, OMB introduced the National Strategy in March 2015, and more recently issued a memo on Improving Federal Real Property Data Quality in January 2016. In response to OMB’s memo, GSA issued its Federal Real Property Data Validation and Verification (V&V) Guidance in May 2016. These actions represent key examples of the federal government’s continued commitment to improve its management of real property. The federal government has also continued to make progress toward increasing its capacity, developing an action plan, and monitoring its progress toward improving real property management and has made improvements in the demonstrating progress criterion to move it from a not met to a partially met rating. For example, in June 2016, OMB and GSA continued efforts to implement our March 2016 recommendation to improve FRPP data quality by conducting an in-depth survey of agencies and soliciting information on several data elements that have been known to be unreliable. GSA issued a memo in December 2016 to Chief Financial Officer (CFO) Act agencies that revised the definitions to improve the consistency and quality of several FRPP data elements. GSA also launched the Asset Consolidation Tool, a software application that allows federal agency users to generate geospatial information about assets in close proximity to identify potential candidates for colocation and consolidation. In addition, GSA implemented two priority recommendations since 2015 related to improving data reliability and is taking steps toward developing a 5-year capital plan. Although progress is evident, these reforms have not fully addressed the underlying challenges to manage real property efficiently. For example, we found that federal agencies have not demonstrated that they have the capacity to reduce their reliance on costly leases, particularly high-value leases where owning properties would be less costly in the long run. GSA has also made strides to improve data reliability, including but not limited to issuing new data validation and verification guidance that requires agencies to investigate anomalies and resolve them. However, GSA will not finish measuring and tracking the progress of its data reliability efforts until late in 2017; agencies submitted their first data under the new approach in December 2016 and address all data irregularities by October 2017. Related to physical security, we found that the federal government could do more to improve capacity, monitoring, action plans, and demonstrate progress. For example, FPS, GSA, and other agencies could improve the action plan criterion by collaborating and by clearly defining roles and responsibilities to adequately protect federal facilities. Further, FPS has taken some action to demonstrate progress but has yet to fully implement our March 2015 and September 2013 recommendations to improve security screening at federal buildings and guard training, respectively. In December 2016, Congress enacted two real property reform bills that could address the long-standing problem of federal excess and underutilized property. The Federal Assets Sale and Transfer Act of 2016 may help address stakeholder influence by establishing an independent board to identify and recommend at least five high-value civilian federal buildings for disposal within 180 days after the board members are appointed, as well as develop recommendations to dispose and redevelop federal civilian real properties. Additionally, the Federal Property Management Reform Act of 2016 codified the Federal Real Property Council (FRPC) for the purpose of ensuring efficient and effective real property management while reducing costs to the federal government. The FRPC is required to establish a real property management plan template, which must include performance measures, and strategies and government-wide goals to reduce surplus property or to achieve better utilization of underutilized property. In addition, federal agencies are required to annually provide FRPC a report on all excess and underutilized property and identify leased space that is not fully used or occupied. While the federal government has made progress on different aspects of managing federal real property, additional work is needed. In order to further improve the management of real property, OMB and GSA should implement our open recommendations to build upon the National Strategy and improve data reliability. Improving data reliability was also included as a priority recommendation in our August 2016 letter to the GSA Administrator. While the National Strategy mentions some underlying causes of the challenges that federal agencies face in managing their portfolios, it does not expound on the extent to which these challenges impede agencies’ ability to dispose of, better utilize, or repair their real property and offers discussion on how agencies can overcome these challenges by addressing the underlying causes, such as legal and budgetary limitations and competing stakeholder interests. OMB also could increase the usefulness of the National Strategy by discussing alternative funding mechanisms, such as retaining fees and enhanced-use leasing. Further, despite OMB’s efforts to focus agencies’ attention on measuring progress through the Reduce the Footprint policy, the government’s efforts to monitor progress remain limited without reliable real property data in the FRPP. In June 2016, OMB and GSA officials noted that they continue to implement our March 2016 recommendation to analyze the differences in how agencies collected and reported data by conducting a survey of agencies that contribute FRPP data on several key indicators such as status, utilization, and replacement value. GSA plans to convene an inter-agency working group in early 2017 to discuss each of the data elements and devise an action plan to address the findings of the survey. To further build capacity and develop action plans for reducing the federal government’s overreliance on costly leasing, GSA should implement our priority recommendation from 2013 to develop a strategy for the federal government to own rather than lease prioritized high-value properties such as agency headquarters buildings. While GSA has taken some steps to increase its capacity to make its existing leasing program less costly by increasing competition, further action is required to decrease leasing costs by reducing unneeded fees, which is one of our priority recommendations. Finally, FPS, GSA, and other agencies can take additional measures to increase capacity, develop action plans, and monitor as well as demonstrate progress in securing federal facilities and courthouses. For example, FPS can take additional action to address our March 2016 recommendation to improve human capital planning by developing performance measures with targets that are aligned to FPS goals. FPS and the Department of Justice’s (DOJ) U.S. Marshals Service (USMS) can continue work they have under way to implement our March 2015 recommendation to improve their security screening at federal buildings and courthouses. Further, FPS should implement our September 2013 recommendation to ensure that all guards have received screening and active-shooter training. Finally, the Administrator of GSA and the Secretary of Homeland Security should work jointly to implement our other open priority recommendation to improve the management of the Department of Homeland Security headquarters consolidation project. OMB continues to meet this criterion by demonstrating leadership commitment to reducing the amount of excess and underutilized federal real property. In March 2015, OMB implemented our recommendation by issuing government-wide guidance—the National Strategy—which identifies actions to reduce the size of the federal real property portfolio by prioritizing consolidation, colocation, and disposal actions. The strategy provides a foundation to further assist agencies strategically manage their real property. In conjunction with the National Strategy, OMB also issued the Reduce the Footprint policy, which requires all CFO Act agencies to implement a 5-year, rolling planning process that sets annual square-feet reduction targets to reduce their real property portfolios and to adopt space design standards to optimize domestic office space use. OMB and federal real property-holding agencies continue to partially meet the criterion for having the capacity to address the risks associated with managing excess and underutilized property. For example, GSA introduced the Asset Consolidation Tool in June 2016. It allows users to identify potential candidates for colocation and consolidation by generating geospatial information about assets in close proximity. In addition, GSA also introduced the Real Property Management Tool that uses multiple sources to help agencies identify opportunities for property consolidations, collocations, and disposals. While progress is evident, we have previously identified additional ways the federal government can strengthen its capacity to reduce excess and underutilized property. In 2016, we reported that the National Strategy mentions some of the causes underlying the challenges federal agencies face in managing their portfolios—such as limited funding—but it neither addresses the extent to which challenges impede agencies’ abilities to dispose of, better use, or repair their real property, nor does it offer guidance on how agencies can overcome these challenges by addressing the underlying causes. Furthermore, the strategy does not discuss alternative-funding mechanisms that we have previously identified to help manage budgetary constraints, such as retaining fees in real property and exploring enhanced use lease authority. OMB staff told us that their efforts are focused on identifying policy options within the current statutory framework to reduce excess and underutilized property while seeking legislative options to address the underlying challenges. We recommended that OMB expand the National Strategy to more clearly articulate planned actions and identify alternative approaches to address underlying causes of real property problems. In June 2016, OMB staff told us that they plan to expand the National Strategy since it is not a one-time policy but a living document that they plan to use to address long- standing challenges. As of December 2016, OMB had not made any changes to the National Strategy. OMB showed improvement and met the criterion of establishing an action plan for reducing excess and underutilized property. Under the Reduce the Footprint policy, OMB has, for the first time, established a government-wide action plan to use property as efficiently as possible and to reduce agency portfolios through annual reduction targets. For example, the Reduce the Footprint policy requires agencies to develop and submit annual Real Property Efficiency Plans, which describe the agency’s overall strategic and tactical approach in managing its real property, including measures to dispose of unneeded properties, improve efficiency, and save money. The policy also requires agencies to adopt space design standards to optimize how they use domestic office space and to set annual square foot reduction targets for their portfolio of office and warehouse space. OMB and federal real property-holding agencies continue to partially meet the criterion for monitoring progress toward reducing excess and underutilized real property. To implement the National Strategy, the Reduce the Footprint policy requires agencies to set annual reduction targets to measure agency performance. When agencies combine these reduction targets with the fiscal year 2014 benchmarking metrics developed under the President’s Management Agenda, the government has a 3-year set of performance measures to drive portfolio-wide efficiency improvements and property disposals. Despite multiple efforts outlined above, the government’s efforts remain limited without reliable real property data in the FRPP, which is necessary to effectively measure reductions in excess and underutilized property. For example, in our March 2016 report, we found that agencies tailored how they collect and report data to meet their mission needs and portfolio requirements, thus limiting OMB’s and GSA’s insight into the quality of the FRPP data and the extent to which agencies are following sound and comparable collection and reporting practices. For example, our review found that some of the agencies estimated, rather than determined, actual operating costs for each building, as these agencies do not maintain data on costs for specific buildings. As a result, standardizing data has been challenging since agencies have applied different approaches to collecting data that align closely with their mission but that in some cases are inconsistent with existing GSA guidance. In December 2016, GSA issued a memo to senior real property officers of the FRPC that revised the definitions to improve the consistency and quality of several FRPP data elements including replacement value, annual maintenance costs, and annual operating costs. Although a step in the right direction, agencies are not required to implement these revised definitions until the December 2018 FRPP reporting cycle. Since the last high-risk update, OMB and GSA have demonstrated some progress and partially met this criterion by taking a number of steps to reduce excess and underutilized properties. GSA implemented a new asset management tool, the Federal Real Property Profile Management System (FRPP MS), which helps agencies identify opportunities to consider new space and improves transparency by enabling agencies to access each other’s data. GSA officials said that the new platform will include capabilities to help identify underutilized properties and potential candidates for colocations and consolidations and address long-standing management challenges, while OMB staff noted that the new platform has the potential to improve real property data management. Further, OMB reported, in September 2016, that in fiscal years 2014 and 2015 the federal government disposed of over 12,000 buildings with 71.8 million square feet of space, saving $64 million in annual operation and maintenance costs. While progress is apparent, we testified in September 2016 that a lack of reliable data makes it difficult to accurately measure the amount of excess property and has undermined efforts to effectively reform real property management and judge progress. In two assessments of the federal government’s reported results of real property reforms, we identified problems with data reliability. While OMB and GSA have taken steps to address some of these data reliability issues such as revising FRPP definitions to improve data quality and consistency, more time is needed to determine the effectiveness of these measures and to demonstrate that the federal government’s real property data are reliable. OMB and GSA continue to meet this criterion and demonstrate leadership commitment in addressing its overreliance on leasing privately owned space in situations where owning buildings would be more cost efficient in the long run. As previously stated, OMB implemented our recommendation in March 2015 to issue a National Strategy, which requires agencies to identify opportunities to consolidate within their leased assets and to improve space utilization, steps that would reduce leasing. In addition, GSA could also save money by reducing the costs of the leases that remain. For example, GSA has implemented a number of measures, including leasing reform, and, at a June 2015 hearing, a top GSA manager stated that the agency’s ongoing lease reform efforts include plans to reduce costs by increasing competition for its leases. GSA still does not meet this criterion as it has not demonstrated that it has the capacity to reduce its reliance on costly leases, particularly high- value leases that represent a disproportionately large amount of the rent GSA pays. Although GSA has taken some actions to reduce the size of its leases, it has not addressed its overall reliance on high-value leases (defined as $2.85 million and over per year in rent) in situations where ownership would be less expensive in the long run. In particular, GSA has not implemented our 2013 recommendation to develop a strategy to increase ownership investments for a prioritized list of high-value leases where it would be less expensive in the long run to own. GSA has taken some steps to increase its capacity to reduce the cost of its existing leasing program by increasing competition for GSA leases but has not implemented our other recommendation to decrease leasing costs by reducing interest fees. For example, we found that GSA could potentially help tenant agencies save millions of dollars for some leases by loaning them the funds needed to improve newly leased spaces—that is, to make tenant improvements—instead of having the tenants finance these costs with private-sector owners at private-sector interest rates as high as 9 percent over the term of the lease. GSA showed improvement and partially met the action plan criterion by taking some steps to rank and prioritize long-term ownership solutions for current high-value leases. For example, GSA developed and provided us a list of criteria to rank and prioritize the space needs that are currently being met in high-value leases to determine which of those leases would benefit most from converting to a federally owned solution. GSA has also implemented a new software program for its 5-year capital-planning process that considers avoiding lease costs, among many other criteria, in prioritizing projects for approval. According to GSA officials, several of the projects approved in the capital plan covering fiscal years 2015-2019 would reduce lease costs by moving tenants out of leases into federally owned property. These efforts are producing incremental progress, but GSA has not implemented our recommendation to create a long-term, cross-agency strategy for considering targeted investments in ownership. In addition, we reported, in January 2016, that while GSA has taken steps to reform leasing and reduce leasing costs, certain factors—such as a tenant agency’s need for space in restricted geographic areas and specialized building requirements—may drive down competition and result in agencies obtaining leasing rates that are higher than local market rates. Developing additional plans to reduce barriers to competition, where possible, and identifying sources of capital to allow tenants to fund tenant improvements could decrease leasing costs and lead to millions in cost savings for some leases. OMB and GSA have shown improvement and partially met the criterion for monitoring progress toward reducing its overreliance on leasing privately owned space. By issuing the National Strategy, OMB instituted key property management reform by requiring agencies to measure the costs and utilization of individual real property assets to support more efficient use of federal space, which would include reducing the amount of space leased. However, GSA has not implemented our recommendation to set a long-term, cross-agency strategy for investing in ownership, which would improve the ability to monitor and track progress by defining success. As previously mentioned, adopting criteria to rank and prioritize potential long-term ownership alternatives to current high-value leases could help develop goals and a strategy to consider targeted investments in ownership specifically related to these costly leases. With regard to the costs of leasing, GSA is making progress by monitoring the extent to which its leases are competitive and signed at rates below the private sector. However, GSA should also implement our 2016 recommendations to reduce the costs to tenants by exploring strategies to enhance competition for GSA leases and reducing unneeded fees. OMB and GSA have demonstrated some progress since 2015 and partially met this criterion. OMB required agencies to reduce their overall footprint through the Reduce the Footprint policy and the National Strategy. Even though the National Strategy does not directly address the issue of leasing, it requires agencies to adopt space design standards to optimize how they use federal domestic office space, a step that would likely include reducing leased space by using space more efficiently and consolidating leases onto federally owned property. According to GSA data, the amount of space that GSA leases has fallen for 3 straight years, but only by 4 percent since 2013. GSA’s recent progress in reducing its reliance on leasing has been modest. GSA has outlined a number of actions that it has taken to implement our January 2016 recommendation to reduce leasing costs for federal agencies by increasing competition for GSA leases. Specifically, it has established a framework for broadening the delineated geographic areas agencies request—a key driver for competition. GSA officials said in 2016 that the agency has also implemented a performance measure to encourage competition. As a result, GSA said that 81 percent of its leases are competitive. However, these steps to reduce the costs of leases are still too recent to clearly demonstrate progress. Further, fully implementing our recommendation for GSA to develop and use criteria to rank and prioritize potential long- term ownership solutions to create a cross-agency strategy for making those investments is a needed first step in addressing its overreliance on leasing that could then lead to demonstrating progress in saving money in the long term. The federal government continued to demonstrate leadership commitment and met this criterion by taking a number of steps to improve data reliability within the FRPP. In addition to the National Strategy, which called for additional data quality improvements that support data-driven decision making, in January 2016, OMB issued a government-wide memo requiring all CFO Act agencies to implement standard data validation and verification checks when submitting their annual FRPP data to GSA beginning in fiscal year 2017. Subsequently, in May 2016, GSA issued its Federal Real Property Data Validation and Verification (V&V) Guidance, which establishes a new mandatory data validation and verification process and requires agencies to investigate data anomalies. OMB and GSA improved the government’s capacity to ensure that reliable data are available to inform real property decision making through a series of reforms to FRPP and now meet this criterion. For example, GSA upgraded FRPP from its legacy system to a new platform with several enhancements and tools. The new FRPP MS is an asset management tool that now supports the new Asset Consolidation Tool, which helps agencies identify opportunities to consider new space and improves transparency by enabling agencies to access each other’s data. GSA has also improved agencies’ capacity to submit accurate data by improving the clarity of variables and helping with data verification. GSA continues to partially meet this criterion by putting plans in place to continue implementing our recommendations aimed at addressing the reliability of federal real property data. In June 2016, OMB and GSA noted that they continue to implement our recommendation to improve FRPP data quality by conducting an in-depth survey focusing on several data elements including replacement value, status, owned and otherwise managed operating costs, repair needs, utilization, and lease costs. GSA officials told us that they implemented the survey to better understand the methods CFO Act agencies are employing to collect and prepare real property data submitted into the FRPP. Each survey question began with the FRPP definition for a specific data element, followed by a series of questions designed to elicit information about how each agency applies the FRPP reporting requirements. GSA completed its analysis of the survey results, and in December 2016, GSA issued a memorandum to senior real property officers of FRPC based on the survey results designed to improve the consistency and quality of real property data. In addition, GSA plans to convene an inter-agency working group—made up of GSA, OMB, and executive branch agencies that contribute data to the FRPP—in early 2017 to discuss each of the data elements and devise an action plan to address the findings of the survey. The working group will review the survey results in more detail and reach consensus on: (1) changes to the definitions and requirements for these data elements in the FRPP data dictionary; (2) limitations on the use of the data for cross- agency analysis, and (3) best practices and methodologies for reporting these data elements. The federal government continues to partially meet the criterion for monitoring progress toward improving FRPP data reliability. With OMB issuing its January 2016 memo on improving federal real property data quality and GSA issuing its recent V&V guidance, agencies will be required to adhere to a revised process for resolving data anomalies when they submit data into the FRPP. Specifically, the V&V guidance now includes a new mandate—referred to as anomaly resolution—that requires agencies to investigate whether the underlying data flagged by the anomalies are accurate or inaccurate. GSA’s updated information technology platform, FRPP MS, allows GSA and agencies to analyze the numbers and percentages of anomalies resolved versus total number of assets in a given anomaly category. The system will maintain records of data anomalies for each year that V&V is performed. Moreover, agencies will have year-to-year records of all data tagged as anomalous, as well as the reason for the tag. This has the potential to improve data quality, promote consistency among agencies, and enable OMB and other policymakers to measure how data quality improves over time. Although a step in the right direction, measuring and tracking the progress of these V&V checks will have to wait several years, as agencies submitted data under the new approach in December 2016, and will be required to address all data irregularities by October 2017. GSA showed improvement since 2015 and partially met the demonstrating progress criterion by improving the reliability of federal real property data, but challenges still remain. In March 2016, we reported that OMB and GSA took important steps to revise and modify several FRPP data definitions based upon user feedback and internal data evaluations. As previously mentioned, GSA issued its federal real property data validation and verification guidance, requiring agencies to confirm whether data flagged as anomalous are accurate or inaccurate, and has plans in place to address our recommendations through the recent survey it administered. However, until GSA acts on these survey findings and takes concrete steps to address differences in data collection and identify any limitations, the usefulness of FRPP data for decision making will remain unclear. For example, in our March 2016 report, we found that some of the agencies in our review estimated, rather than determined, actual operating costs into FRPP for each building, as these agencies do not maintain data on costs for each specific building. Estimating practices also varied by agency. As a result, it may be difficult for OMB or agencies to accurately determine aggregate cost savings from successfully reducing excess or underutilized property. Finally, it is unlikely that all of the data for 2 dozen variables submitted by agencies each year on over half a million buildings and structures will ever be completely correct and consistent. As a result, GSA should fully implement our 2016 recommendation to assess, analyze, and identify any limitations in how agencies collect and report data to FRPP. The federal government continued to meet the criterion for demonstrating leadership commitment to improving the physical security of federal facilities. In August 2013, the Interagency Security Committee (ISC), a DHS-chaired organization, showed leadership commitment by issuing a consolidated set of standards for physical security at federal facilities, called The Risk Management Process for Federal Facilities: An Interagency Security Committee Standard. In January 2016, it continued to show leadership commitment by updating the Risk Management Process elements related to current threats, countermeasures to mitigate the threats, and the protection level for federal child care centers. In 2015, FPS, which protects about 9,500 federal facilities in conjunction with GSA, implemented our recommendation by issuing a revised government facilities sector plan that identifies goals and describes resources that support the risk management approach. FPS and GSA continued to partially meet the criterion for having the capacity to address the risks associated with ensuring the safety of our federal facilities. For example, FPS developed a Strategic Human Capital Plan that included strategies tailored to address identified gaps and needs in its workforce and identified actions that build organizational capability to support those strategies. FPS also designed and plans to implement a staffing model—which identifies the federal workforce necessary to meet its mission—consistent with most key practices we identified. However, FPS has not fully developed performance measures to evaluate progress toward goals, which is also a key strategic workforce planning principle. For example, FPS has not identified performance measures for all of the Plan’s strategies, nor has it included performance targets. Additionally, FPS has made consistent progress in its efforts to conduct facility security assessments that are consistent with ISC standards. Specifically, in March 2012, FPS developed the Modified Infrastructure Survey Tool (MIST) to assess the vulnerabilities of federal facilities. In October 2016, FPS officials stated that FPS inspectors are currently using MIST augmented with external threat and consequence data to provide a more complete assessment for federal facilities than can be achieved by using MIST alone. As of October 2016, FPS had also developed a Mission Needs Assessment that outlines how FPS will enhance its ability to assess risks to federal facilities by incorporating threat, vulnerability, and consequence information in a single, integrated, and automated tool. FPS officials said that this new tool could improve FPS’s ability to better protect federal facilities and help minimize agencies’ duplicative risk assessment activities. FPS has shown improvement since our last high-risk update and partially met this criterion by developing action plans that should improve the physical security of federal facilities. We recommended, in December 2015, that FPS and GSA—two agencies that share responsibility for protecting federal facilities—take actions to improve their collaboration and finalize the two agencies’ memorandum of agreement (MOA) accordingly. As of August 2016, FPS reported that it has taken steps with GSA to resolve differences in agency opinions on security-related authorities for protecting federal real property. FPS also stated that once an agreement or an updated MOA has been established, both agencies would be better positioned to devise a plan with time frames for finalizing a joint strategy. However, progress toward an agreement is slow; the MOA has not been updated since 2006. Further, in September 2011, we recommended that FPS and DOJ work with other agencies to improve collaboration to address a number of courthouse security challenges. USMS and FPS formed a working group in 2015 to assess the costs and benefits of a pilot program that would enhance security. However, as of January 2017, FPS, USMS, the Administrative Office of the U.S. Courts, and GSA were still working to finalize the draft MOA on courthouse security. The federal government has shown improvement since our last high-risk update and partially met the criterion for monitoring progress in securing our nation’s federal facilities. For example, we reported, in March 2015, that action is needed to better assess cost-effectiveness of security enhancements at federal facilities. In December 2015, ISC implemented our recommendation that they help federal agencies implement the cost- effectiveness and performance measurements by amending the federal government’s risk management standard and published new guidance intended to help federal entities make the most effective use of resources available for physical security across their facilities. As a result, federal entities will be able to better determine the benefits of security investments and assess whether they have reduced federal facilities’ vulnerability to threats, including acts of terrorism or other forms of violence. With regard to FPS guard training, further action is required to monitor progress. FPS relies on 13,500 privately contracted guards to provide security to federal facilities under the custody and control of GSA. We recommended in September 2013 that FPS immediately determine which guards have not had screener (x-ray and magnetometer equipment) or active-shooter scenario training and ensure the training has been provided to them. FPS has taken some steps to build a monitoring and tracking system to identify guards who completed training but has not yet completed and implemented the tracking system. In addition, we reported in January 2017 that GSA is leasing from foreign owners about 3.3 million square feet in 20 buildings that require higher levels of security. Most of the tenant agencies we contacted were unaware that the space they occupy is in a foreign-owned building. Federal officials who assess foreign investments and some tenant agencies said that leasing space in foreign-owned buildings could present security risks, such as espionage and unauthorized cyber and physical access. We recommended that GSA identify foreign owners of high security space and inform the tenant agencies for any needed security mitigation. GSA agreed with the recommendations. Although FPS and other agencies have improved some areas of physical security, they have not yet met the criterion for demonstrated progress. To do so, FPS and USMS should continue work they have under way to implement our March 2015 recommendation related to security screening at federal buildings and courthouses. More specifically, we recommended that (1) FPS develop and implement a strategy for using covert-testing data and data on prohibited items to improve FPS’s security-screening efforts and (2) USMS develop and implement a strategy for using intrusion-testing data and data on prohibited items to improve security screening at federal courthouses held by GSA. Further, FPS must fully implement our September 2013 recommendations to ensure that its guards have met training and certification requirements and that contract guard companies’ instructors be certified to teach basic and refresher training courses to guards. As previously described, developing a tracking system that monitors guards’ training would also improve the way FPS oversees its contract guard program, which is central to effectively protecting employees and visitors in federal facilities. In July 2011, we recommended that FPS establish a process for verifying the accuracy of federal facility and guard training and certification data before entering them into the guard database. FPS developed and implemented procedures in 2014 to verify the accuracy of that data before entering it into its interim contract guard database. This step will help FPS in its continued efforts to verify the accuracy of federal facility and contract guard data. In June 2012, we recommended that OMB, in collaboration with Federal Real Property Council member agencies, develop and publish a national strategy for managing federal excess and underutilized real property. In the spring of 2015, OMB issued the National Strategy. By issuing the National Strategy, the federal government has taken a major step forward to increase the efficiency of federal real property management and address long-standing real property challenges. In March 2015, we recommended that the Secretary of Homeland Security direct ISC to develop guidance for helping federal entities meet the cost-effectiveness and performance measurement aspects of lSC’s risk management standard. In December 2015, ISC published new guidance that provides entities with an introduction and understanding of the most efficient processes and procedures to effectively allocate physical security resources across an entities’ portfolio of facilities, including discussions on how to determine cost- effectiveness and implement performance measures. As a result, federal entities will be able to better determine the benefits of security investments and whether they have reduced federal facilities’ vulnerability to acts of terrorism or other forms of violence. In August 2012, we recommended that DHS direct FPS to coordinate with GSA and other federal tenant agencies to reduce any unnecessary duplication in security assessments of facilities under the custody and control of GSA. In 2016, we determined that FPS had taken steps to coordinate with these agencies. For example, in 2014, FPS surveyed GSA and other federal agencies to determine why they were conducting their own risk assessments, among other things. As a result of both coordinating with and surveying GSA as well as other federal agencies, FPS has reduced or prevented the duplication of effort associated with its risk assessments. For additional information about this high-risk area, contact the following people. On real property management, contact Dave Wise at (202)512- 2834 or wised@gao.gov. On issues related to physical security of federal facilities, contact Lori Rectanus at (202) 512-2834 or rectanusl@gao.gov. Federal Real Property: GSA Should Inform Tenant Agencies When Leasing High-Security Space from Foreign Owners. GAO-17-195. Washington, D.C.: January 3, 2017. Federal Real Property: Efforts Made, but Challenges Remain in Reducing Unneeded Facilities. GAO-16-869T. Washington, D.C.: September 23, 2016. Federal Real Property: Actions Needed to Enhance Information on and Coordination among Federal Entities with Leasing Authority. GAO-16-648. Washington, D.C.: July 6, 2016. Federal Real Property: Observations on GSA’s Canceled Swap Exchange Involving Buildings in the Federal Triangle South Area, GAO-16-571R. Washington, D.C.: June 16, 2016. Federal Real Property: Improving Data Transparency and Expanding the National Strategy Could Help Address Long-standing Challenges. GAO-16-275. Washington, D.C.: March 31, 2016. Federal Protective Service: Enhancements to Performance Measures and Data Quality Processes Could Improve Human Capital Planning. GAO-16-384. Washington, D.C.: March 24, 2016. Federal Real Property: GSA Could Decrease Leasing Costs by Encouraging Competition and Reducing Unneeded Fees. GAO-16-188. Washington, D.C.: January 13, 2016. Homeland Security: FPS and GSA Should Strengthen Collaboration to Enhance Facility Security. GAO-16-135. Washington, D.C.: December 16, 2015. Homeland Security: Actions Needed to Better Manage Security Screening at Federal Buildings and Courthouses. GAO-15-445. Washington, D.C.: March 31, 2015. Homeland Security: Action Needed to Better Assess Cost-Effectiveness of Security Enhancements at Federal Facilities. GAO-15-444. Washington, D.C.: March 24, 2015. Federal Real Property: Strategic Focus Needed to Help Manage Vast and Diverse Warehouse Portfolio. GAO-15-41. Washington, D.C.: November 12, 2014. Capital Financing: Alternative Approaches to Budgeting for Federal Real Property. GAO-14-239. Washington, D.C.: March 12, 2014. Federal Facility Security: Additional Actions Needed to Help Agencies Comply with Risk Assessment Methodology Standards. GAO-14-86. Washington, D.C.: March 5, 2014. Federal Real Property: Greater Transparency and Strategic Focus Needed for High-Value GSA Leases. GAO-13-744. Washington, D.C.: September 19, 2013. Federal Protective Service: Challenges with Oversight of Contract Guard Program Still Exist, and Additional Management Controls Are Needed. GAO-13-694. Washington, D.C.: September 17, 2013. Critical Infrastructure: DHS Needs to Refocus Its Efforts to Lead the Government Facilities Sector. GAO-12-852. Washington, D.C.: August 13, 2012. Federal Protective Service: Actions Needed to Assess Risk and Better Manage Contract Guards at Federal Facilities. GAO-12-739. Washington, D.C.: August 10, 2012. Federal Buildings Fund: Improved Transparency and Long-term Plan Needed to Clarify Capital Funding Priorities. GAO-12-646. Washington, D.C.: July 12, 2012. Federal Real Property: National Strategy and Better Data Needed to Improve Management of Excess and Underutilized Property. GAO-12-645. Washington, D.C.: June 20, 2012. Federal Courthouses: Improved Collaboration Needed to Meet Demands of a Complex Security Environment. GAO-11-857. Washington, D.C.: September 28, 2011. The nation’s surface transportation system—including highways, transit, maritime ports, and rail systems that move both people and freight—is critical to the economy and affects the daily lives of most Americans. However, the system is under growing strain, and the cost to repair and upgrade the system to meet current and future demands is estimated in the hundreds of billions of dollars. The oldest portions of the Interstate Highway System are approaching 60 years of age, and 10 percent of the nation’s bridges were rated as structurally deficient in 2015. While this percentage of bridges rated as structurally deficient improved from 13 percent in 2006, bridge conditions may become more challenging to address as a growing proportion approach the end of their 50-year design life. Challenges to the nation’s surface transportation system are amplified by shifting demographics, the need to transport the goods and services to support a growing economy, rapid development of new technologies, and other factors. The U.S. population is expected to increase by 70 million over the next 30 years. As the Department of Transportation (DOT) has reported, this projected increase includes a growing percentage of Americans over the age of 65 with limited ability to drive or use transit to access critical services, and millennials, many of whom drive less than previous generations and choose to live in urban areas where they can walk, bike, or use public transportation. Though employment options in suburban areas are increasing, poverty is also increasing in such areas. Collectively, these changes will complicate future infrastructure planning decisions. These trends are altering transportation investment decision making. The amount of freight moving through the country is expected to grow, a factor that will place strain on existing freight bottlenecks. Rapidly evolving vehicle technologies present new opportunities, but also pose challenges to creating a statutory and regulatory framework that will allow people to use these technologies while addressing privacy and other concerns they raise. Climate change also poses risks to existing transportation assets and presents opportunities and challenges to enhance resilience and reduce potential future losses, rather than simply pursuing a reactive approach of funding after a disaster occurs. financial condition and fiscal outlook. Funding the nation’s surface transportation system has been on GAO’s High-Risk List since 2007. There is no rating for this high-risk area because addressing it primarily involves congressional action and the high-risk criteria and subsequent ratings were developed to reflect the status of agencies’ actions and the additional steps they need to take. Motor fuel taxes and additional truck-related taxes that support the Highway Trust Fund—the major source of federal surface transportation funding—are eroding. Federal motor fuel tax rates have not increased since 1993, and drivers of passenger vehicles with average fuel efficiency currently pay about $96 per year in federal gasoline taxes. Because of inflation, the 18.4 cent-per-gallon tax on gasoline enacted in 1993 is worth about 11 cents today. The tax base will likely continue to erode as demand for gasoline decreases with the introduction and adoption of more fuel-efficient and alternative fuel vehicles. To maintain spending levels of about $45-50 billion a year for highway and transit programs and to cover revenue shortfalls, Congress transferred a total of about $141 billion in general revenues to the Highway Trust Fund on eight occasions from 2008 through 2015. This funding approach has effectively ended the long-standing principle of “users pay” in highway finance, breaking the link between the taxes paid and the benefits received by highway users. The most recent surface transportation reauthorization measure, enacted in December 2015 and which authorized funding through 2020, was the Fixing America’s Surface Transportation (FAST) Act. In addition to funds authorized from the Highway Trust Fund, the FAST Act provided around $70 billion of the $141 billion in transfers from general revenues. The general revenues provided in the FAST Act represented a one-time transfer of funding, not a sustainable long-term source of revenues. After 2020, the gap between projected revenues and spending will recur. In March 2016, the Congressional Budget Office estimated that $107 billion in additional funding would be required to maintain current spending levels plus inflation from 2021 through 2026, as shown in figure 9. Congress and the administration need to agree on a long-term plan for funding surface transportation. Continuing to augment the Highway Trust Fund with general revenues may not be sustainable, given competing demands and the federal government’s fiscal challenges. A sustainable solution would balance revenues to and spending from the Highway Trust Fund. New revenues from users can come only from taxes and fees; ultimately, major changes in transportation spending or in revenues, or in both, will be needed to bring the two into balance. enhancing the management of discretionary grant programs. These actions are essential to maximizing the use of available resources. The challenge of funding the nation’s surface transportation system is magnified by the fact that spending for surface transportation programs has not commensurately improved system performance. Many programs have not effectively addressed key challenges—such as deteriorating infrastructure conditions and increasing congestion and freight demand— because federal goals and roles have been unclear, programs have lacked links to performance, and programs have not used the best tools and approaches to ensure effective investment decisions. Beginning in 2008, we recommended that Congress consider a fundamental reexamination of these programs to clarify federal goals and roles, establish performance links, and improve investment decision making. More recently, we found that it can be difficult to determine the extent to which federal funding has improved system performance. Specifically, in 2016, we found that while the Federal Highway Administration (FHWA) collects and maintains data on both federal funding for bridge projects and bridge conditions, it lacks a means of demonstrating the link between such funding and changes in bridge conditions. We recommended that the FHWA Administrator develop an efficiency measure to demonstrate the link between funding and bridge infrastructure outcomes, and report that information to Congress. DOT concurred with our recommendation and we are awaiting information on what steps DOT plans to take to implement it. Congress passed provisions in MAP-21 in 2012 to help address the key challenges we identified in 2008. Among other things, the act included provisions to move toward a more performance-based highway and transit program. Specifically, MAP-21 established national performance goals in areas such as infrastructure condition, safety, and system performance; MAP-21 also outlined a three-stage process in which (1) DOT establishes performance measures for these national goals, (2) states and other grantees set targets based on these performance measures and report annually on their progress, and (3) DOT evaluates whether grantees have met their targets and reports to Congress. bridge conditions, and system performance. For example, the System Performance Measure rule includes measures for freight movement, traffic congestion, and air quality and received over 8,800 public comments. MAP-21 also required states to report on their progress in implementing the transportation performance management requirements to DOT by October 2016 and required DOT to report to Congress on progress made by October 2017. Because several of the final rules were recently issued, it is too early for states to report on progress, and thus DOT provided guidance to states, requesting that they instead report on their general performance management activities. We plan to report on DOT and state progress and anticipated challenges implementing the new national transportation performance management framework in the summer of 2017. Congress and DOT have also taken steps to more strategically address freight congestion, though many of DOT’s actions are in the early stages. For example, MAP-21 established national goals and directed the Secretary of Transportation to establish a national freight network, develop a strategic freight plan, and provide the tools necessary to support a performance-based approach for evaluating and selecting new freight projects. The 2015 FAST Act made some changes to, and built upon, some of MAP-21’s freight provisions. Specifically, it extended the deadline for DOT to finalize the National Freight Strategic plan from October 2015 to December 2017. The public comment period for the draft plan closed on April 2016 and, according to DOT, it is on track to finalize the plan by the new deadline. The FAST Act also directed DOT to establish for the first time a National Multimodal Freight Network and also a National Highway Freight Network. The National Highway Freight Network is to be used to strategically direct federal resources and policies toward improved performance of highway portions of the U.S. freight transportation system. Finally, the FAST Act established a competitive grant program to fund freight and highway projects of regional or national importance. In 2016, DOT awarded approximately $760 million for the Fostering Advancements in Shipping and Transportation for the Long-term Achievement of National Efficiencies (FASTLANE) grant program to 18 freight projects. outcome—that of returning revenues to their attributed state of origin. For three highway programs designed to meet national and regional transportation priorities, we recommended that Congress consider a competitive, criteria-based process for distributing federal funds. The FAST Act authorized about a dozen new discretionary grant programs, some of which DOT is already implementing, including the FASTLANE program. While over 90 percent of funds will continue to be distributed by formula, the FAST Act represents a promising development to address national and regional transportation priorities. Nevertheless, we have found challenges with DOT’s implementation of discretionary grant programs, including problems documenting key evaluation and project selection decisions. For example, in May 2014, we found that DOT did not document key decisions—such as accepting and reviewing project applications received after the published deadline, or changes to projects’ technical ratings— and deviated from established procedures and recognized internal control practices in awarding Transportation Investment Generating Economic Recovery (TIGER) discretionary grants. We recommended that the Secretary of Transportation establish additional accountability measures by, among other things, issuing a decision memorandum or similar mechanism to document and approve major decisions in the application evaluation and project-selection process. DOT generally agreed with, but has not fully implemented, this recommendation. In addition, in December 2016, we found that the Federal Transit Administration (FTA) did not document key decisions in awarding $3.6 billion in discretionary, competitive grants for projects to increase the resilience of transit systems to withstand future disasters in areas affected by Hurricane Sandy. For example, FTA did not document how it addressed reviewers’ concerns that some of the proposed—and ultimately funded—projects were outside the scope of the grant program. We also found that because FTA did not incorporate information collected from applicants and reviewers into its selection process, it may have funded projects that may no longer be needed if other resilience projects in the same region are implemented. We recommended that FTA examine its funded projects for potential duplication with other resilience efforts and determine if realigning or rescinding those funds is appropriate. DOT concurred with our recommendation and we are awaiting information on what steps DOT plans to take to implement it. we recommended in December 2016 that the Secretary of Transportation issue a directive governing department-wide and modal administration discretionary grant programs. Such a directive should include requirements to, among other things, (1) develop an up-front plan for evaluating project proposals to ensure DOT reviews applications consistently; and (2) document key decisions, including the reason for any rating changes, as well as how high-level concerns raised during the process were addressed. Developing such a directive would help to ensure the integrity of future DOT discretionary grant programs. DOT concurred with our recommendation and we are awaiting information on what steps DOT plans to take to implement it. For additional information about this high-risk area, contact Susan Fleming at (202) 512-2834 or FlemingS@gao.gov. DOT Discretionary Grants: Problems with Hurricane Sandy Transit Grant Selection Process Highlight the Need for Additional Accountability. GAO-17-20. Washington, D.C.: December 14, 2016. West Coast Ports: Better Supply Chain Information Could Improve DOT’s Freight Efforts. GAO-17-23. Washington, D.C.: October 31, 2016. Highway Bridges: Linking Funding to Conditions May Help Demonstrate Impact of Federal Investment. GAO-16-779. Washington, D.C.: September 14, 2016. U.S. Border Communities: Ongoing DOT Efforts Could Help Address Impacts of International Freight Rail. GAO-16-274. Washington, D.C.: January 28, 2016. Surface Transportation: DOT Is Progressing Toward a Performance- Based Approach, but States and Grantees Report Potential Implementation Challenges. GAO-15-217. Washington, D.C.: January 16, 2015. Surface Transportation: Department of Transportation Should Measure the Overall Performance and Outcomes of the TIGER Discretionary Grant Program. GAO-14-766. Washington, D.C.: September 23, 2014. Freight Transportation: Developing National Strategy Would Benefit from Added Focus on Community Congestion Impacts. GAO-14-740. Washington, D.C.: September 19, 2014. Surface Transportation: Actions Needed to Improve Documentation of Key Decisions in the TIGER Discretionary Grant Program. GAO-14-628R. Washington, D.C.: May 28, 2014. Highway Trust Fund: Pilot Program Could Help Determine the Viability of Mileage Fees for Certain Vehicles. GAO-13-77. Washington, D.C.: December 13, 2012. Highway Trust Fund: All States Received More Funding Than They Contributed in Highway Taxes from 2005 to 2009. GAO-11-918. Washington, D.C.: September 8, 2011. Surface Transportation: Clear Federal Role and Criteria-Based Selection Process Could Improve Three National and Regional Infrastructure Programs. GAO-09-219. Washington, D.C.: February 6, 2009. Surface Transportation: Restructured Federal Approach Needed for More Focused, Performance-Based, and Sustainable Programs. GAO-08-400. Washington, D.C.: March 6, 2008. Congress and financial regulators have made progress in meeting criteria for removing the issue area of reforming the U.S. financial regulatory system from our High-Risk List. However, definitive steps have yet to be taken to address the federal government’s role in housing finance. As the worst financial crisis in more than 75 years unfolded, unprecedented federal support was provided to many firms, including Fannie Mae and Freddie Mac, two large, housing-related government-sponsored enterprises (the enterprises). Many households suffered as a result of falling asset prices, tightening credit, and increasing unemployment. These events clearly demonstrated that the U.S. financial regulatory system had failed to respond effectively to developments in the markets and to the increase in systemic risks that contributed to the crisis. Given the challenges that regulators would face in identifying and implementing changes to reduce the potential for such events to occur again, we designated reform of the financial regulatory system as a high-risk area in 2009. developments at the enterprises and FHA, we added this issue to the scope of this high-risk area in 2013. Congress and financial regulators have made progress in meeting criteria for removing the issue area of reforming the U.S. financial regulatory system from our High-Risk List, but additional steps are needed to improve the structure of the financial regulatory system and the implementation of some reforms. Demonstrating leadership commitment and capacity, Congress enacted sweeping reforms in 2010 through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) and regulators have worked to implement the act’s numerous reforms. Continued leadership commitment from financial regulators and Congress will be needed to fully implement the reforms and additional work will be needed to exhibit capacity to complete oversight and monitoring plans, monitor progress, and demonstrate the effectiveness of the new oversight bodies and regulations. Policymakers have made proposals to overhaul the federal role in the housing finance system, but additional leadership commitment will be needed to reach consensus and enact changes to the system. The ongoing federal conservatorship of the enterprises and FHA’s need for supplemental funds in 2013 underscore the need to reconsider the federal role. Federal agencies have taken some steps to develop plans, build capacity, and provide monitoring mechanisms that could help build a more robust housing finance system. However, progress toward resolving the federal role within that system will be difficult to achieve without an overall blueprint for change. new and more complex financial products for consumers and investors. Taking steps to better position regulators to oversee firms and products that pose risks to the financial system and consumers, and to adapt to new products and participants as they arise, could reduce the likelihood that the financial markets will experience another financial crisis similar to the one in 2007–2009. Losses from risky mortgage products also resulted in the enterprises being placed into federal conservatorship in 2008, creating an explicit fiscal exposure for the federal government. The enterprises received more than $187 billion in financial assistance from the Department of the Treasury (Treasury) through purchases of senior preferred stock, but have paid more than $250 billion in dividends to Treasury under the stock purchase agreements. Distressed housing and mortgage markets also expanded FHA’s role in the mortgage market, while leading to deterioration in the agency’s financial condition from which it has taken years to recover. In 2015, mortgages directly or indirectly supported by the federal government accounted for more than 70 percent of the dollar value of new single-family mortgage originations, according to data from Inside Mortgage Finance. Although more needs to be done to address this high-risk issue, there have been several benefits achieved by implementing our recommendations. In a March 2016, we reported that Treasury had not instituted a system to review the extent to which it would use the available program balance for the Making Home Affordable (MHA) program. Consistent with our recommendations, Treasury updated estimates of future MHA program expenditures, deobligated $2 billion from the MHA program, and announced a $2 billion increase in funding for the Hardest Hit Fund. In June 2013, we made recommendations intended to increase FHA’s returns on sales of foreclosed properties with FHA-insured mortgages. FHA’s actions in response to our recommendations improved its returns and led to financial benefits totaling more than $3.4 billion in fiscal years 2013–2016. approximately $7.1 billion dollars, which was returned to the general fund in fiscal year 2013. In November 2005, we recommended that FHA take a number of steps to mitigate the risks associated with mortgages with down payment assistance from nonprofit organizations funded by property sellers. Citing our work, Congress prohibited seller-funded down- payment assistance, effective October 1, 2008. In fiscal year 2013, the financial benefit to the federal government of not insuring such loans was approximately $2.5 billion. Continued leadership commitment is needed to ensure that financial regulations foster stable, competitive and well-functioning markets. Our review of selected major rules—that is, those likely to result in an annual impact on the economy of $100 million or more, among other things— found that regulators generally quantified some of the costs but not always the benefits of each rule, noting data and other limitations. Although the federal financial regulators—as independent agencies—are not subject to executive orders requiring detailed cost-benefit analysis in accordance with Office of Management and Budget (OMB) guidance, we have recommended that the regulators more fully incorporate OMB’s regulatory guidance into their written rulemaking policies. However, not all regulators have implemented this recommendation. The Administration and members of Congress have expressed intentions to reduce financial regulatory burdens. Such actions would be most effective if they largely preserve the benefits sought by the regulations while allowing institutions to comply with the requirements in less costly ways. requirements that regulators adopted for banks in October 2013 have some provisions that will not be fully effective until January 2019. Additional leadership from Congress is also needed to improve the inefficiencies that hamper the current financial regulatory system. Although the Dodd-Frank Act implemented a number of key reforms intended to address significant weaknesses and gaps in the regulatory system, the U.S. financial regulatory structure remains complex, with responsibilities fragmented among a number of regulators that have overlapping authorities. We have noted that this fragmentation, overlap, and duplication introduce significant challenges for efficient and effective oversight of financial institutions and activities. The framework we developed in 2009 for evaluating regulatory reform proposals noted that an effective regulatory system would address certain structural shortcomings created by fragmentation and overlap. To help achieve this, we have suggested that Congress consider whether additional changes to the financial regulatory structure are needed to reduce or better manage fragmentation and overlap in the oversight of financial institutions and activities to improve the efficiency and effectiveness of oversight. For example, Congress could consider consolidating the number of federal agencies involved in overseeing the safety and soundness of depository institutions, combining the entities involved in overseeing the securities and derivatives markets, transferring the remaining prudential regulators’ consumer protection authorities over large depository institutions to the Consumer Financial Protection Bureau (CFPB), and determining the optimal federal role in insurance regulation. Congressional leadership also could improve the ability of the U.S. regulatory system to address systemic risks. Although the Financial Stability Oversight Council (FSOC) represents advancement in addressing systemic risk threats to the U.S. financial system, its legal authorities may not be broad enough to ensure that it can address all threats effectively. Under the Dodd-Frank Act, FSOC can respond to certain potential systemic risks primarily through its authority to designate certain entities or activities that pose a threat to financial stability for enhanced supervision by a specific federal regulator. We reported in February 2016 that FSOC’s designation authorities, by statute, cannot be used to address certain types of risks, such as specific industry-wide activities involving nonbank financial institutions, and the full scope of FSOC’s designation authority remains untested and unclear to date. FSOC has other nondesignation authorities that allow it to recommend that individual regulators address specific risks, but these recommendations are nonbinding. As a result, we suggested that Congress consider whether legislative changes would be necessary to align FSOC’s authorities with its mission to respond to systemic risks. Such actions could include changes to FSOC’s mission, its authorities, or both, or to the missions and authorities of one or more of the FSOC member agencies to support a stronger link between its responsibility and capacity to respond to systemic risks. Additional leadership, planning, capacity, and monitoring activities by U.S. financial regulators also could improve systemic risk oversight. While the newly created systemic risk and financial research bodies have been established, we have continued to identify additional steps they need to take to fully meet their envisioned missions. The Dodd-Frank Act maintained the independence of the system’s multiple regulators but created FSOC to identify and respond to systemic risks. We noted in February 2016 that this approach to systemic risk oversight requires consistent and highly effective interagency collaboration and the use of good quantitative and qualitative information. However, we reported then that FSOC’s Systemic Risk Committee is not fully and consistently informed by the Office of Financial Research (OFR) and the Federal Reserve’s monitoring tools or other outputs, and we recommended this be done. In addition, we found that both OFR and the Federal Reserve conduct broad-based systemic risk monitoring activities that aim to identify threats across the financial system and recommended that the two agencies jointly articulate individual and common goals for their systemic risk monitoring activities, including a plan to monitor progress toward articulated goals, and formalize regular strategic and technical discussions around their activities and outputs to support those goals. Such efforts could help ensure that FSOC more accurately measures the effect of significant Dodd-Frank Act regulations but also more efficiently coordinates with its members to leverage retrospective reviews. agencies, to better ensure that the monitoring and analysis of the financial system are comprehensive and not unnecessarily duplicative. In addition, to improve the data that council members need to conduct their responsibilities, FSOC should direct OFR to work with its members to identify and collect the data necessary to assess the effect of the Dodd- Frank Act regulations on, among other things, the stability, efficiency, and competitiveness of the U.S. financial markets. Financial regulators need to demonstrate further progress by taking additional actions. Although FSOC’s ability to identify firms whose financial difficulties could pose threats to the overall financial system is an important oversight tool, we reported in November 2014 that the transparency of its process for designating systemically important nonbank entities could be improved. Designating these entities in a way that supports public and market confidence could help mitigate the potential for such entities to endanger the stability of the U.S. financial system. Thus, we recommended that FSOC take various steps to improve the tracking of its process and disclose the rationales for its designations in greater detail. Since then, FSOC has issued supplemental procedures for nonbank financial company designations that stated its commitment to continuing to provide the public with an understanding of the council’s analysis and a subsequent designation document included additional information compared to prior ones. However, that document did not fully explain how FSOC concluded that a company’s characteristics were sufficiently large or significant enough, or had other attributes, to meet a determination standard. Corporation address these weaknesses. In addition, we recommended in 2016 numerous steps the Federal Reserve could take to improve the stress tests that assess how large financial institutions would be affected by changes in economic or other conditions. Additional progress is needed to address other risks. Although the Federal Reserve has worked with the two clearing banks for the repurchase (repo) market to reduce their problematic credit exposures, the FSOC 2015 annual report notes that the risk of fire sales of collateral by creditors of a defaulted broker-dealer remains an important financial stability concern. For instance, many of the creditors may themselves be vulnerable to runs in a stress event. As a result, the council expressed the need for market participants to continue to improve the settlement processes for these transactions. Resolving the role of the federal government in housing finance will require continued leadership commitment by Congress and the administration. Prolonged conservatorships and a change in leadership at FHFA could shift priorities for the conservatorships, which in turn could send mixed messages and create uncertainties for market participants and hinder the development of the broader secondary mortgage market. For this reason, we said in November 2016 that Congress should consider legislation establishing objectives for the future federal role in housing finance, including the structure of the enterprises, and a transition plan to a reformed housing finance system that enables the enterprises to exit conservatorship. Maintaining FHA’s long-term financial health and defining its future role also will be critical to any effort to overhaul the housing finance system. We previously recommended that Congress or FHA specify the economic conditions that FHA’s Mutual Mortgage Insurance (MMI) Fund would be expected to withstand without requiring supplemental funds. As evidenced by the $1.68 billion FHA received in 2013, the 2 percent capital requirement for FHA’s MMI Fund may not always be adequate to avoid the need for supplemental funds under severe stress scenarios. Implementing our recommendation would be an important step not only in addressing FHA’s long-term financial viability, but also in clarifying FHA’s role. FHA also will need to sustain the progress it made in strengthening the health of the MMI Fund and implementing sound risk-management practices. Furthermore, it will be important for FHA and other agencies with housing finance-related responsibilities to fully implement our recommendations on evaluating the effectiveness of foreclosure mitigation actions, opportunities for consolidating similar housing programs, and the effect of recent mortgage market regulations. Due to the interconnected nature of the housing finance system and the central role homeownership plays in the U.S. economy, changes will need to be carefully designed and implemented. In October 2014, we issued a framework consisting of nine elements that Congress and others can use as they consider changes to the housing finance system. The framework has the following elements: clearly defined and prioritized goals for the housing finance system; policies and mechanisms that are aligned with goals and other adherence to an appropriate financial regulatory framework; government entities with the capacity to manage risks; protections for mortgage borrowers and actions to address barriers to protection for mortgage securities investors; consideration of the cyclical nature of housing finance and the effect of housing finance on financial stability; recognition and control of fiscal exposure and mitigation of moral hazard; and emphasis on implications of the transition. Each element in the framework is critically important in establishing the most effective and efficient housing finance system. Applying the elements of this framework would help policymakers identify the relative strengths and weaknesses of any proposals they consider. Similarly, the framework can be used to craft proposals or to identify changes to existing proposals to make them more effective and appropriate for addressing any limitations of the current system. However, any viable proposal for change must recognize that sometimes tradeoffs will exist among and within the nine elements. If Congress enacts changes to the housing finance system, relevant federal agencies will need to develop the capacity and action plans necessary to effectively implement the changes and monitor progress. FHA needs to complete or build on steps it has taken in response to two priority recommendations that were not fully implemented as of October 2016. First, FHA has partially addressed recommendations from our June 2012 report on reducing losses from troubled mortgages, but needs to finish analyzing and reevaluating its loss mitigation approaches in order to optimize these efforts. Second, FHA and other agencies that are part of a single-family housing task force need to evaluate and report on the opportunities for consolidating similar housing programs, as we recommended in an August 2012 report. federal role in housing finance, including the structure of the enterprises, and a transition plan to a reformed housing finance system that enables the enterprises to exit conservatorship. U.S. financial system and acting to mitigate risks that might destabilize the system. In addition, the act consolidated responsibility for consumer financial protection laws into a new agency, CFPB. However, some reforms, including several rules addressing over-the-counter derivatives reforms, have yet to be fully implemented. Additional leadership is needed from Congress to address the limitations that hamper the current financial regulatory structure. Although the Dodd- Frank Act made changes that were consistent with some of the characteristics we have identified for an effective financial regulatory framework, the existing regulatory structure does not always ensure (1) efficient and effective oversight, (2) consistent consumer protections, and (3) consistent financial oversight. As a result, negative effects of fragmented and overlapping authorities persist throughout the system. Without congressional action it is unlikely that remaining fragmentation and overlap in the U.S. financial regulatory system can be reduced or that policymakers and regulators can more effectively and efficiently oversee financial institutions. Members of Congress have also expressed concerns about the burdens that the new regulations may have created for financial institutions and have indicated plans to reduce these burdens. they continue to face such constraints they are taking steps to address their obligations to finalize the remaining rules. Regulators have made some progress in developing action plans for completing reforms and have partially met this criterion for removal from the High-Risk List. Since 2010, regulators have taken steps to prioritize rulemakings, including FSOC issuing an integrated implementation road map for required rules and publishing a consultation framework for guiding rulemaking coordination activities among agencies. FSOC’s annual reports serve as the council’s key accountability document, as each report discusses the progress regulators have made in implementing reforms, identifies newly emerging threats, and includes recommendations to address them. We also reported in February 2016 that the work of FSOC’s Systemic Risk Committee has become better integrated into the council’s annual reports. over time, may be useful to these regulators in monitoring the effect of regulations on banks and credit unions. Regulators have partially met the demonstrated progress criterion for removal from the High-Risk List. The new regulatory bodies have been taking actions to carry out their missions. For example, FSOC meets regularly to discuss issues related to risks to the U.S. financial system and issues an annual report that addresses market and regulatory developments across the financial system. As a result of FSOC determining that the activities or characteristics of some entities are systemically important, various financial market utilities (which perform key functions in the financial system) were designated to be subject to prescribed risk management standards and four nonbank financial companies were designated to be subjected to enhanced prudential standards and supervision by the Board of Governors of the Federal Reserve (Federal Reserve), although the United States District Court for the District of Columbia rescinded the designation applicable to one company and FSOC rescinded the designation of another after the company changed its operations to reduce its systemic importance. As part of making progress in demonstrating the effectiveness of implemented reforms, FSOC also issued a mandated report in March 2016 that addressed the effect regulatory changes are having on firm sizes, diversification, and other issues. CFPB has implemented rules and taken enforcement actions that resulted in billions of dollars of relief to consumers. With the recent crisis demonstrating the importance of efficiently resolving systemically important financial institutions that fail, the Federal Reserve and the Federal Deposit Insurance Corporation completed several annual reviews of resolution plans that the Dodd-Frank Act mandates large systemically important financial institutions prepare. And in response to one of our recommendations, the agencies made additional information public about the criteria they use to evaluate the plans. Regulators also made progress reducing the potential systemic implications of certain concentrations of credit risks the Dodd-Frank Act had not addressed. Regulators have been working to reduce the potential for serious problems arising from the failure of one of the two clearing banks that provide credit to facilitate transactions in the tri-party repurchase (repo) market that provides short-term funding to many financial institutions. FSOC’s 2015 annual report noted that market participants have reduced their reliance on intraday credit from the clearing banks, which reduces the risks posed by these activities. housing finance system. As of December 2016, none of the proposals had passed the Senate or the House of Representatives. Housing and regulatory agencies also have demonstrated commitment to strengthening the housing finance system. FHA has enhanced its risk- management practices in response to our recommendations, including creating credit and operational risk committees, and has taken actions to recapitalize its MMI Fund. FHFA has continued efforts to develop a single security for the enterprises—which may enhance market liquidity for mortgaged-backed securities—and put in place a common securitization platform for the enterprises. Additionally, as we reported in our 2015 high-risk update, financial regulators have finalized rules defining qualified mortgages and qualified residential mortgages that are designed to prevent a recurrence of risky mortgage origination and securitization practices. Agencies have partially met this criterion for removal from the High-Risk List. FHA has made progress in strengthening its financial capacity. In fiscal years 2009–2014, FHA’s MMI Fund was out of compliance with its statutory 2 percent minimum capital requirement. And at the end of fiscal year 2013, FHA drew on $1.68 billion in permanent and indefinite budget authority to ensure the MMI Fund had sufficient resources to pay for expected future losses on existing insurance obligations. However, as of September 30, 2016, the MMI Fund’s capital ratio was in compliance with the statutory requirement and stood at 2.32 percent. scores. FHA took steps to mitigate losses by revising guidelines on home retention options for struggling borrowers and by implementing cost- effective alternatives for disposing of nonperforming loans and foreclosed properties. FHA also acted on our recommendations for increasing returns on foreclosed properties, which could help strengthen its financial position. Under FHFA’s conservatorship, the enterprises generally have operated profitably since 2012, and, through September 2016, paid more than $250 billion to Treasury in dividends. However, FHFA’s Inspector General warned in March 2015 that the continued profitability of the enterprises was not assured and that the enterprises faced many financial challenges. These challenges included lower earnings on their retained investment portfolios and a reduced capacity to absorb future losses due to a capital reserve amount that falls to $0 by 2018. Without a capital reserve, any quarterly losses—including those due to market fluctuations and not necessarily to economic conditions—would require the enterprises to draw additional funds from Treasury. Treasury has provided about $187.5 billion in funds as capital support to the enterprises, with an additional $258.1 billion available to the enterprises should they need further assistance. Congress should consider granting FHFA the authority to examine third parties, including nonbank mortgage servicers doing business with the enterprises. As of December 2016, Congress had not yet acted on that recommendation. Although fundamental changes to the housing finance system have yet to be enacted, federal agencies have taken some planning steps in relation to resolving the federal role in housing finance and have therefore partially met this criterion for removal from the High-Risk List. As we noted in our 2015 high-risk update, these steps included a 2011 Treasury-HUD plan outlining a vision for the federal role, a 2014 FHFA plan identifying strategic goals for enterprise conservatorship, and a 2014 Treasury initiative to obtain public comments on the role of the private- label securities market in the current and future housing finance system. As we found in November 2016, FHFA’s 2014 strategic plan shifted emphasis away from contracting the enterprises’ operations, which was a goal in the 2012 plan developed under FHFA’s previous director. Since launching its initiative in 2014, Treasury has provided a forum for stakeholders in the private-label market to identify the structural reforms needed to bring back capital into that market in a responsible way. Additionally, in July 2016, Treasury, FHFA, and HUD issued a report with guiding principles for future efforts to mitigate mortgage losses based on lessons from the financial crisis. through their housing market scorecard. Furthermore, FHFA and FHA have continued to monitor and report on the financial condition of the enterprises and FHA’s MMI Fund. A number of agencies—such as CFPB and HUD—have begun planning required retrospective reviews of mortgage market reforms—specifically, the qualified mortgage and qualified residential mortgage rules noted previously. However, in June 2015, we found the agencies had not yet developed sufficient metrics, baselines, and analytical methods to effectively conduct the retrospective reviews. We recommended that they complete plans for the reviews and include the three elements we identified. As of December 2016, some of the agencies reported making progress to develop these improvements but had not yet completed them. Policymakers and regulators have not met this criterion for removal from the High-Risk List. Overall progress on resolving the federal role in housing finance will be difficult to achieve until Congress provides further direction by enacting changes to the housing finance system. Federal agencies have begun taking some planning, capacity building, and monitoring steps. Among these are actions mentioned above to strengthen the financial condition of FHA and mitigate risks of the housing enterprises. FHFA and FHA have also taken steps to monitor progress in these areas by reporting on their financial condition and activities. Furthermore, Treasury and HUD have combined to report regularly on the condition of the housing market. Nonetheless, assessing progress against specific goals is not yet possible because Congress has not provided an overall blueprint for the future federal role in housing finance or determined the specific roles federal agencies will play. to the TARP-funded Hardest Hit Fund, as authorized. Consistent with our recommendations, Treasury updated estimates of future MHA program expenditures, deobligated $2 billion from the MHA program, and announced a $2 billion increase in funding for the Hardest Hit Fund. In June 2013, we found that HUD’s performance in selling foreclosed properties with FHA-insured mortgages lagged the performance of Fannie Mae and Freddie Mac. We made recommendations intended to increase FHA’s returns on such property dispositions. FHA’s actions in response to our recommendations improved its returns and led to financial benefits totaling more than $3.4 billion in fiscal years 2013–2016. In a June 2012 report on federal foreclosure mitigation efforts, we found that Treasury had not reassessed its need for the $8 billion letter of credit facility for FHA’s Refinance for Borrowers in Negative Equity Positions program. We recommended that Treasury and FHA update their estimates of program participation and use the updated estimates to reassess the terms of the letter of credit facility. The agencies implemented our recommendation. As a result, Treasury amended the purchase agreement and deobligated approximately $7.1 billion dollars, which was returned to the general fund in fiscal year 2013. training for its staff and obtained assurance from the Office of Management and Budget that its collection of credit card data complied with federal requirements. These steps should help ensure CFPB collects and protects consumer financial data in accordance with federal requirements. After the Dodd-Frank Act prohibited certain types of proprietary trading that had caused large losses for banks, regulators implemented our recommendation to improve their oversight by reviewing trading data before issuing final rules to implement the restriction in December 2013. These rules also identified trading data some firms will have to report to regulators. As a result, regulators should have better information to help them reduce the risk that banks will incur large trading losses. FHA takes possession of thousands of homes as a result of foreclosures on FHA-insured mortgages. In June 2013, we found FHA generally did not take market conditions into account when reducing list prices for unsold foreclosed properties, but instead generally followed standardized schedules. We recommended that FHA adopt practices used by other federally related housing entities, which base price reduction decisions on property-level information and market conditions. FHA implemented our recommendations in June 2016, which could reduce holding times for and improve returns on foreclosed properties. Additionally, in response to our November 2011 recommendation that FHA establish ongoing mechanisms for anticipating potential risks presented by changing conditions, FHA created credit and operational risk committees, which have specified tools they use to address emerging risks. Taking these steps should help FHA more effectively identify, plan for, and address risks facing the agency. For additional information about this high-risk area, contact Lawrance Evans at (202) 512-8678 or evansl@gao.gov. Resolution Plans: Regulators Have Refined Their Review Processes but Could Improve Transparency and Timeliness. GAO-16-341. Washington, D.C: April 12, 2016. Financial Regulation: Complex and Fragmented Structure Could Be Streamlined to Improve Effectiveness. GAO-16-175. Washington, D.C: February 25, 2016. Dodd-Frank Regulations: Impacts on Community Banks, Credit Unions and Systemically Important Institutions. GAO-16-169. Washington, D.C: December 30, 2015. Bank Regulation: Lessons Learned and a Framework for Monitoring Emerging Risks and Regulatory Response. GAO-15-365. Washington, D.C: June 25, 2015. Financial Stability Oversight Council: Further Actions Could Improve the Nonbank Designation Process. GAO-15-51. Washington, D.C: November 20, 2014. Financial Stability: New Council and Research Office Should Strengthen the Accountability and Transparency of Their Decisions. GAO-12-886. Washington, D.C: September 11, 2012. Dodd-Frank Act Regulations: Implementation Could Benefit from Additional Analyses and Coordination. GAO-12-151. Washington, D.C: November 10, 2011. Financial Regulation: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System. GAO-09-216. Washington, D.C.: January 8, 2009. Federal Housing Finance Agency: Objectives Needed for the Future of Fannie Mae and Freddie Mac After Conservatorships. GAO-17-92. Washington, D.C.: November 17, 2016. Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened. GAO-16-278. Washington, D.C.: March 10, 2016. Mortgage Reforms: Actions Needed to Help Assess Effects of New Regulations. GAO-15-185. Washington, D.C.: June 25, 2015. Housing Finance System: A Framework for Assessing Potential Changes. GAO-15-131. Washington, D.C.: October 7, 2014. Mortgage Financing: FHA’s Fund Has Grown, but Options for Drawing on the Fund Have Uncertain Outcomes. GAO-01-460. Washington, D.C.: February 28, 2001. The U.S. Postal Service (USPS) faces a serious financial situation that is putting its mission of providing prompt, reliable, and efficient universal mail services at risk. It reported a net loss of $5.6 billion in fiscal year 2016—its 10th consecutive year of net losses. Additionally, it continues to face unfunded liabilities that have grown from 99 percent of USPS revenues in fiscal year 2007 to 169 percent of revenues in fiscal year 2016. These unfunded liabilities—totaling about $121 billion at the end of fiscal year 2016—consist mostly of retiree health and pension benefit obligations for which USPS has not set aside sufficient funds to cover. For example, since September 2010, USPS has not made almost $34 billion in required prefunding retiree health payments, which has led to an unfunded liability of about $52 billion. USPS’s ability to make payments to cover its unfunded liabilities is challenged due to (1) continued expected declines in mail volumes; (2) growing expenses; (3) expiration of a temporary rate surcharge (which generated $4.6 billion in additional revenue from its January 2014 inception to its April 2016 discontinuation); and (4) no planned new major cost-savings initiatives. As a result, it is not likely that USPS will be able to make all of its required health and pension payments in fiscal year 2017. of USPS by not saddling it with bills after employees have retired. USPS retirees participate in the same health and pension benefit programs as other federal retirees. Thus, if USPS ultimately does not adequately fund these benefits and if Congress wants these benefits to be maintained at current levels, funding from the U.S. Treasury and hence the taxpayer would be needed to continue the benefit at the same levels. Alternatively, unfunded benefits could pressure USPS to reduce benefits or pay for postal workers. In July 2009, we added USPS’s financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based restructuring. USPS has partially met all five of the criteria for removal from the High- Risk List. Although USPS has taken some steps to improve its financial situation, it has limited ability to resolve its financial difficulties, in part due to statutorily defined requirements, such as requirements to maintain 6- day delivery and resistance from external groups. USPS has made efforts to reduce its physical footprint, grow its shipping and package services, raise revenue, and reduce the gap between expenses and revenue. However, these initiatives are insufficient to restore USPS’s financial viability. USPS has no plans to initiate new major initiatives that would achieve necessary cost savings—USPS has previously faced resistance to such efforts from customers and Congress. USPS’s Five Year Strategic Plan for fiscal years 2017 to 2021 identified specific legislative changes needed for USPS to return to long-term financial health. Furthermore, USPS continued to monitor its situation through public quarterly and annual financial reports that discuss its financial status and performance, but has also reported that it cannot secure its near- or long-term financial outlook without the passage of targeted postal reform legislation. The House Committee on Oversight and Government Reform approved a bill that addressed some of USPS’s solvency challenges; however, the bill was not enacted and there continues to be a lack of consensus about how to address the trade-offs that are inherent with resolving USPS’s financial difficulties. USPS needs to continue taking action to reduce costs related to its operations, workforce, and facilities, and to increase revenues so that it can reduce its net losses, fully make its required payments to fund employee benefits, repay its debt, and generate capital for investments, such as replacing its aging vehicle fleet. Congress and USPS need to agree on a comprehensive package of actions to improve USPS’s financial viability. These actions include (1) modifying USPS’s retiree health benefit payments in a fiscally responsible manner; (2) facilitating USPS’s ability to better align costs with revenues; and (3) requiring any binding arbitration in the negotiation process for USPS labor contracts to take USPS’s financial condition into account. While USPS’s leadership has been committed to increasing revenue and reducing expenses in an effort to put USPS on a more stable financial path, USPS has no plans to initiate new major initiatives that would achieve necessary cost savings. Although USPS has previously faced resistance to such efforts from customers and Congress, committing to major cost-saving initiatives may serve to reiterate the need for broad- based restructuring. The efforts USPS has implemented thus far have been insufficient to eliminate net losses. For example, a temporary 4.3 percent “exigent” surcharge was implemented to address losses from decreased mail volume during the Great Recession, which occurred between December 2007 and June 2009. The surcharge began in January 2014 and was discontinued in April 2016, generating $4.6 billion in additional revenue during this period—including $1.1 billion in fiscal year 2016, $2.1 billion in fiscal year 2015, and $1.4 billion in fiscal year 2014. Furthermore, starting in fiscal year 2011, USPS established Delivering Results, Innovation, Value, and Efficiency initiatives to reduce the large gap between revenue and costs, and to implement strategic initiatives with measurable outcomes. and its overall workforce increased in fiscal years 2015 and 2016 due, in part, to significant volume-growth in shipping and packages (14.1 percent in fiscal year 2015 and 13.8 percent in fiscal year 2016), which are more labor intensive to process. USPS reported that although the 15.8 percent growth in shipping and packages revenue helped generate additional total revenue of $2.6 billion (a 3.7 percent increase), package growth also contributed to an increase of 18,000 employees in fiscal year 2016, and an increase in total expenses of about $3.1 billion (about 4.2 percent). In addition, although it experienced net losses, USPS’s compensation expenses increased by 2 percent in fiscal year 2016 due to salary increases and additional work hours. Furthermore, as part of its efforts to reduce excess capacity, USPS revised its standards for on-time mail delivery in January 2015 by increasing the number of days for some mail to be delivered and still be considered on time. Even with the revised standards, on-time delivery performance declined significantly, particularly for the second quarter of fiscal year 2015, a decline USPS attributed to operational changes enacted in January 2015 and adverse winter weather. Performance has rebounded since then, but with the rebound came increases in workforce and mail transportation costs. USPS’s Five-Year Strategic Plan for fiscal years 2017 to 2021 outlines its strategy for achieving financial viability. USPS’s plan summarizes changes that USPS has made or plans to make, and those that it would like Congress to address in postal reform legislation. We continue to believe that legislative action is needed to address USPS’s financial challenges, and in the interim, as previously noted, USPS has no current plans to undertake additional major initiatives to achieve significant cost savings in its operations—USPS has previously faced resistance to such efforts from customers and Congress. USPS continued to monitor its situation through public quarterly and annual financial reports that discuss its financial status and performance, including trends USPS expects to become more pronounced and will significantly impact its current business model. USPS, however, has also reported that it cannot secure its near- or long-term financial outlook without the enactment of targeted postal reform legislation. USPS’s actions have demonstrated some progress in achieving cost savings, as noted above. USPS has reported, however, that despite these efforts, statutory restrictions on its business model have left it unable to cover its total costs. We have issued a number of reports that included strategies and options for USPS to generate revenue, reduce costs, increase the efficiency of its delivery operations, and restructure the funding of pension and retiree health benefits. USPS has already acted on some of these strategies and options. Nonetheless, we have also reported that USPS’s actions alone under its existing authority will be insufficient to achieve sustainable financial viability and that comprehensive legislation is urgently needed to position USPS to be a sustainable entity. USPS improved the usefulness and transparency of its delivery performance information. USPS updated its website in June 2016 to include trend data for on-time delivery performance for all 67 postal districts beginning in the second quarter of fiscal year 2015 to the current quarter. While this accomplishment will not lead to financial benefits, the updated website will lead to more transparent and effective oversight of delivery performance to hold USPS accountable for meeting its statutory mission to provide service in all areas of the nation. As a result, USPS performance information is easily accessible and Postal stakeholders can determine whether delivery performance is a problem in rural areas. Congress has taken limited action over the past year to address the need for postal reform including the following: A January 2016 hearing titled, “Laying out the Reality of the United States Postal Service,” held by the Senate Committee on Homeland Security and Governmental Affairs. A May 2016 hearing regarding USPS’s ongoing financial challenges held by the House Committee on Oversight and Government Reform. The House Committee on Oversight and Government Reform approved a bill that addressed some of USPS’s solvency challenges; however, this bill was not enacted. For additional information about this high-risk area, contact Lori Rectanus at (202) 512-2834 or rectanusl@gao.gov. U.S. Postal Service: Continuing Financial Challenges and the Need for Postal Reform. GAO-16-651T. Washington, D.C.: May 11, 2016. U.S. Postal Service: Post Office Changes Suggest Cost Savings, but Improved Guidance, Data, and Analysis Can Inform Future Savings Efforts. GAO-16-385. Washington, D.C.: April 29, 2016. U.S. Postal Service: Financial Challenges Continue. GAO-16-268T. Washington, D.C.: January 21, 2016. U.S. Postal Service: Actions Needed to Make Delivery Performance Information More Complete, Useful, and Transparent. GAO-15-756. Washington, D.C.: September 30, 2015. U.S. Postal Service: Status, Financial Outlook, and Alternative Approaches to Fund Retiree Health Benefits. GAO-13-112. Washington, D.C.: December 4, 2012. U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability. GAO-10-455. Washington, D.C.: April 12, 2010. The Department of the Interior (Interior) has taken some steps to strengthen how it manages federal oil and gas resources, but has not met the criteria for removal from our High-Risk List. Interior has not implemented four of our recommendations to improve the verification of oil and gas produced from federal leases, and the reasonableness and completeness of royalty data. Management of federal oil and gas resources was added it to the High-Risk List in 2011. We identified challenges in Interior’s management of oil and gas on leased federal lands and waters. We found that Interior (1) lacked reasonable assurance that it was collecting its share of revenue from oil and gas produced on federal lands and waters; (2) continued to experience problems hiring, training, and retaining sufficient staff to oversee and manage oil and gas operations on federal lands and waters; and (3) was undertaking a major reorganization of its oversight of offshore oil and gas management and revenue collection functions. In 2013, after concluding that Interior had fundamentally completed its reorganization, we narrowed the high-risk area to Interior’s revenue collection and human capital challenges. For this update, we are reopening the third segment based on our February 2016 report, in which we found that Interior’s restructuring of the Bureau of Safety and Environmental Enforcement (BSEE) has made limited progress addressing long-standing deficiencies in the bureau’s investigative, environmental compliance, and enforcement capabilities. Federal oil and gas resources provide an important source of energy for the United States; create jobs in the oil and gas industry; and generate billions of dollars annually in revenues that are shared between federal, state, and tribal governments. Interior reported collecting over $49 billion from fiscal years 2011 through 2015 from royalties and other payments. This makes oil and gas resources one of the federal government’s largest sources of nontax revenue. Moreover, the April 2010 explosion onboard the Deepwater Horizon and subsequent oil spill in the Gulf of Mexico highlighted the importance of Interior’s management of permitting and inspection processes to ensure operational and environmental safety. oversight responsibilities to two new bureaus—the Bureau of Ocean Energy Management (BOEM) and BSEE—and assigning the revenue collection function to a new Office of Natural Resources Revenue (ONRR). BLM did not restructure its management of onshore federal oil and gas activities. BSEE’s mission is to promote safety, protect the environment, and conserve offshore resources through regulatory oversight and enforcement. It oversees offshore operations, which includes the authority to investigate incidents that occur on the outer continental shelf, monitor operator compliance with environmental stipulations, and take enforcement actions against operators that violate safety or environmental standards. Yet more than 5 years after its creation, BSEE continues to use investigative policies and procedures that predate the Deepwater Horizon explosion. BSEE’s outdated policies and procedures do not require planning investigations, gathering and documenting evidence, and ensuring quality control, potentially undermining the effectiveness of investigations. Moreover, BSEE’s ongoing restructuring of its environmental compliance program reverses steps taken to address post–Deepwater Horizon incident concerns, risking the bureau’s abilities to oversee environmental compliance. Additionally, BSEE did not review its maximum daily civil penalty as required by the Outer Continental Shelf Lands Act. management, we are expanding the Management of Federal Oil and Gas Resources high-risk area to again include a segment on Interior’s restructuring of offshore oil and gas oversight. Interior has partially met the criteria to address the revenue collection and human capital challenges we identified, and has implemented some of the recommendations we made. However, Interior needs to do more to meet its responsibilities to manage federal oil and gas resources, and to maintain leadership commitment in addressing the remaining four criteria. Leadership Commitment: To address its human capital challenges, Interior needs to evaluate the effectiveness of incentives such as special salary rates, analyze hiring time data, and evaluate the bureaus’ training programs. To enhance Interior’s oversight of oil and gas development, and fully implement the bureau’s restructuring and effectively oversee offshore oil and gas development, BSEE leadership needs to take several steps, such as completing draft policies outlining the responsibilities of its divisions, and updating and developing procedures to guide them. BSEE leadership also needs to conduct a risk analysis of its environmental compliance program. Capacity: To address its revenue collection challenges, Interior will need to identify the staffing resources necessary to consistently meet its annual goals for inspecting and verifying oil and gas production. To address its human capital challenges, Interior needs to evaluate whether its efforts to increase compensation paid to key oil and gas staff were effective in hiring and retaining staff. Interior also needs to fully evaluate the bureaus’ training programs and look for potential opportunities to share training resources. Action Plan: To address its revenue collection challenges, Interior needs to continue its efforts related to its study on automating data collection from production metering systems. To address its human capital challenges, Interior needs to track, monitor, and analyze the effectiveness of the incentives paid to key oil and gas staff. Interior also needs to analyze data from its new human resources software system in order to identify steps in the hiring process that may be causing delays. Regarding training, Interior needs to review training and identify opportunities to share training resources. measured, and that the federal government is collecting an appropriate share of oil and gas revenues. To address its human capital challenges, Interior needs to track and monitor performance metrics for incentive payments and special salary rates, capture accurate data on hiring time from a new human resources software system, and evaluate training programs. Demonstrated Progress: To address its revenue collection challenges, Interior needs to continue to effectively implement our related recommendations as outlined in the areas above. To address its human capital challenges, Interior must continue to show progress in hiring, retaining, and training its key oil and gas staff. Overall, Interior has partially met the criteria for leadership commitment, capacity, action planning, monitoring, and demonstrated progress. All of the 2017 ratings are the same as the 2015 ratings except for leadership commitment, which dropped from met to partially met for the human capital challenges segment, discussed below. Interior has demonstrated leadership commitment to address revenue collection weaknesses and partially met the remaining four criteria. Mining Services Group to help identify potentially erroneous data submitted by companies paying royalties. ONRR is also studying whether it can use automated data collection from metering systems to more efficiently obtain oil and gas production data used to determine royalties from companies. Interior’s capacity to address weaknesses in revenue collection is uneven. In recent years, Interior has hired offshore inspection staff to focus primarily on oil and gas measurement inspections. We found in April 2015 that BSEE came close to meeting its annual inspection goals for verifying oil and gas production in the Gulf of Mexico for fiscal years 2009 through 2013. On the other hand, for the same time frame, we found that BLM did not meet its oil and gas production inspection goals, which officials attributed, in part, to insufficient inspection staff. Interior has plans in place to continue implementing our recommendations aimed at correcting weaknesses in its revenue collection policies and practices. In November 2014, Interior provided a briefing document specifying goals and time frames for several areas related to these weaknesses. For example, in December 2013, we recommended that BLM issue revised regulations to provide it with greater flexibility in setting royalty rates and better ensure that the public receives a fair return from the oil and gas produced from federal leases. In November 2014, Interior stated that it planned to begin addressing this issue in fiscal year 2015 by issuing an advanced notice for proposed rulemaking. In November 2016, Interior amended its regulations to, among other things, allow for greater flexibility in setting royalty rates. Interior’s briefing document also specified other goals and time frames for completing a study on automating data collection from production metering systems, and for establishing procedures on when to periodically assess its fiscal system. Interior completed the latter of these two actions in August 2016. implemented the guidance. The new guidance outlines criteria for approving “commingling” requests—requests to combine oil or gas from public, state, or private leases prior to royalty measurement—and identifies considerations for determining whether commingling is in the public interest. This includes ensuring that BLM has the ability to verify that production is accurately measured and properly reported. Because it has not scheduled and completed a review of the effectiveness of the new commingling guidance after its implementation, BLM does not have reasonable assurance that its staff are consistently applying the new guidance, and that staff are able to verify production. Interior has demonstrated progress addressing weaknesses in its revenue collection policies and practices. As of January 2017, we found that Interior implemented 42 of 46 recommendations we had made since September 2008 addressing revenue collection weaknesses, including those related to oil and gas production verification and royalty data. However, as mentioned above, Interior has not completed reviewing the effectiveness of the new commingling guidance. Additionally, in March 2010, we found that Interior’s production accountability program did not sufficiently address key factors that could affect gas measurement accuracy, and recommended that Interior establish goals for particular types of measurement inspections. Interior agreed with the recommendation, but as of October 2016, it has not fully implemented it. Without completing this action, Interior cannot be assured that oil and gas are being reasonably measured and associated royalty payments are correct. Interior has partially met the five criteria below. The rating for leadership commitment dropped from ‘met’ in 2015 to ‘partially met’ in 2017. In January 2014, we recommended that Interior explore expanding its use of hiring incentives and systematically collect and analyze hiring data. Interior agreed with our recommendations and began to more systematically collect and analyze hiring data to identify causes for delays and expedite the hiring process. In November 2014, Interior senior officials briefed us on planned actions to address the department’s human capital challenges. As of September 2016, however, some of these planned actions had not yet been implemented or completed, as we reported. For example, Interior senior officials told us that they would implement a performance measure framework to evaluate the effectiveness of incentives on a quarterly basis beginning in April 2015. However, as of July 2016, a senior official from the Office of Policy, Management and Budget said these quarterly reviews had not yet begun. had provided limited leadership to facilitate the bureaus sharing training resources. We also reported that BSEE has not implemented a certification program for its inspectors, although the Outer Continental Shelf Safety Oversight Board and Interior Inspector General recommended it in 2010. Interior continues to partially meet this criterion. In 2010, we found that Interior’s bureaus experienced high turnover rates in key oil and gas inspection and engineering positions. In January 2014, we found that Interior’s hiring and retention challenges were largely due to lower salaries and a slow hiring process compared with similar positions in industry. The fiscal year 2012 attrition rate for petroleum engineers at BLM was more than 20 percent, or more than double the average federal attrition rate of 9.1 percent. The attrition rate for other key oil and gas staff was lower, but still a challenge because some field offices had only a few employees in any given position, and a single separation could significantly affect operations. According to Interior officials, these challenges made it more difficult for some field offices to conduct oversight activities, including inspecting production facilities. Since fiscal year 2012, Interior has increased compensation for certain key oil and gas staff by using special salary rates, incentive payments, and student loan repayments. During fiscal years 2012 through 2016, Interior had special salary rates—authorized by Congress in annual appropriations acts—that allowed it to pay certain staff up to 25 percent more than their basic pay. In addition, some of the bureaus increased compensation through other tools, such as incentive payments and student loan repayments. For example, for fiscal years 2012 through 2014, BLM and BSEE substantially increased the number of employees receiving a retention incentive payment from 14 to 346 employees. During the same period, BSEE and BOEM increased the number of staff receiving a student loan repayment from 25 to 66 employees. Officials from the three bureaus said that anecdotally they know that efforts to increase the compensation paid to key oil and gas staff, along with an industry downturn that reduced private sector hiring, had likely helped them fill vacancies. Outside of these anecdotal observations, however, Interior and the bureaus have not evaluated whether their efforts, and the specific tools they used, were effective in hiring and retaining staff. them information about the overall effectiveness of their training efforts by measuring the effect on staff’s job performance and comparing program benefits to training costs. Interior continues to partially meet this criterion. Interior does not have a written action plan summarizing how it will address its human capital challenges; however, agency officials have described some actions it plans to take to address these challenges. To evaluate the effectiveness of the agency’s efforts to increase compensation paid to key oil and gas staff, such as the use of incentive payments and special salary rates, officials said in September 2016, that they had developed initial performance metrics and gathered data for the first three quarters of fiscal year 2016. Officials said they would continue to track and monitor the data on a quarterly basis. To address the lengthy hiring process, officials from the three bureaus said in June 2016 that they had started analyzing data extracted from a new human resources software system in order to identify steps in the hiring process that may be causing delays. Regarding training, a senior Interior official we interviewed told us in January 2016, that their Interior Training Directors Council—composed of senior training officials across Interior—would begin reviewing training across the bureaus and seek to identify opportunities to share training resources. However, as of June 2016, officials had not reported any progress made by the council, and it is unclear what, if any, steps the office has taken to review training and identify opportunities to share training resources. In addition, it is unclear what, if any, actions the agency will take in response to the recommendations we issued in September 2016 directing the agency to develop technical competencies for all key oil and gas staff, and annually evaluate the bureaus’ training programs and viability of a certification program for BSEE inspectors. Interior continues to partially meet this criterion. Interior and the three bureaus have taken some steps to reduce hiring times, but did not have complete and accurate data to identify the causes of delays in the hiring process. Without reliable data, Interior’s bureaus cannot effectively implement changes to expedite the hiring process. We recommended in January 2014 that Interior systematically collect data on hiring times for key oil and gas positions, ensure the accuracy of the data, and analyze the data to identify the causes of delays and expedite the hiring process. In June 2016, officials from the three bureaus said that they had started analyzing data extracted from a new human resources software system in order to identify steps in the hiring process that may be causing delays. Once Interior has the systems in place to capture accurate data on hiring, the department will be able to monitor hiring times and the causes of delays in the hiring process. In addition, Interior officials said in September 2016 that they had developed initial performance metrics to track and monitor on a quarterly basis the effectiveness of incentive payments and special salary rates that the agency has used to try to increase compensation paid to its key oil and gas staff. These officials also said they had gathered data for the first three quarters of fiscal year 2016, and would continue to track and monitor the data on a quarterly basis. However, the agency had not yet used these data to evaluate the effectiveness of incentives. We recommended that Interior regularly evaluate the effectiveness of available incentives, such as special salary rates, the student loan repayment program, and other incentives in hiring and retaining key oil and gas staff. In regards to training, we reported in September 2016 that Interior had not evaluated training needs or effectiveness as required by law and regulations, according to officials, and we recommended the agency annually evaluate the bureaus’ training programs. We also reported that Interior’s bureaus have not evaluated training needs or effectiveness as directed by departmental policy. We recommended in September 2016 that the agency develop technical competencies for all key oil and gas staff, and annually evaluate the bureaus’ training programs and the viability of a certification program for BSEE inspectors. It is unclear what, if any, actions the agency will take in response to these recommendations. Interior continues to partially meet this criterion. In 2015, we reported that Interior and the three bureaus had taken some actions to address these hiring and retention challenges, but had not fully used their existing authorities to supplement salaries and provide other recruitment, relocation, and retention incentives. staff up to 25 percent more than their basic pay. In September 2016, Interior described its plans to collect data on the three incentives and special salary rates in order to measure effectiveness. Regarding their lengthy hiring process, in January 2014, we reported that Interior records showed that the average time to hire petroleum engineers and inspectors generally exceeded 120 calendar days—much longer than OPM’s target of 80 calendar days. We also found in September 2016 that each of the three bureaus has taken steps to begin to address their lengthy hiring process. In 2015, the three bureaus adopted new human resources software that officials said will provide them with better data to track their hiring process. In June 2016, officials from the three bureaus said that they had started analyzing data extracted from this new system to identify steps in the hiring process that may be causing delays. Regarding training, we found in March 2010 that Interior had not consistently and appropriately trained offshore inspection and engineering staff. In July 2012, we reported that Interior was creating a new training program for its offshore inspection and engineering staff. However, in September 2015, BSEE inspectors at four local offices told us that the offshore training courses BSEE provided them, which were primarily led by contractors, did not adequately prepare them to perform inspections because the courses focused on how equipment operates, and did not teach them how to inspect the equipment. More broadly, we found in September 2016 that none of the three bureaus had evaluated training needs or effectiveness as directed by departmental policy. Without evaluating its bureaus’ training efforts, Interior may not be able to ensure that its key oil and gas staff are being adequately trained to conduct oversight, and may be ineffectively and inefficiently spending training funds. capabilities. Moreover, BSEE’s deficient oversight capabilities continue to undermine its ability to effectively oversee offshore oil and gas development. In response to recommendations we made in April, 2015, Interior issued updated onshore (1) gas measurement, (2) oil measurement, and (3) oil and gas site security regulations. These new regulations should help ensure that oil and gas produced from federal leases are accurately measured. Accurate measurement is critical for calculating the royalty payments operators pay the government. In response to a recommendation we made in July 2012, Interior reported that the two bureaus, BOEM and BSEE, jointly approved an information technology plan. This plan, according to Interior documents, is a roadmap that outlines a framework for deploying technology resources throughout the organizations in support of bureau missions, goals, and program priorities. In response to a recommendation we made in July 2012, BSEE in August 2013 and BOEM in September 2016 issued human capital plans. In response to a recommendation we made in January 2014, Interior took several actions to bridge the salary gap for key oil and gas oversight staff. Specifically, BLM, BSEE, and BOEM increased the number of staff receiving retention, recruitment, or relocation incentive payments in fiscal year 2014 and in fiscal year 2015 issued guidance describing which staff should receive these incentives. In addition, in September 2016, Interior outlined steps it will take to assess the effectiveness of these incentives by tracking measures such as turnover and acceptance rates. Interior also implemented recommendations that we identified as priority recommendations to the Secretary of Interior. In response to a recommendation we made in December 2013, Interior took steps within its authority to revise BLM’s regulations to provide for flexibility to the bureau to make changes to onshore royalty rates, similar to that which is already available for offshore leases, to enhance Interior’s ability to make timely adjustments to the terms for federal onshore leases. fiscal system. These procedures identified generally when such an assessment should be done or what changes in the market or industry would signal that such an assessment should be done. In response to a recommendation we made in December 2013, the Secretary of the Interior established documented procedures for determining whether and how to adjust lease terms for new offshore leases, including documenting the justification and analysis supporting any adjustments. For additional information about this high-risk area, contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov. Oil and Gas Oversight: Interior Has Taken Steps to Address Staff Hiring, Retention, and Training but Needs a More Evaluative and Collaborative Approach. GAO-16-742. Washington, D.C.: September 29, 2016. Oil and Gas Management: Interior’s Bureau of Safety and Environmental Enforcement has Not Addressed Long-Standing Oversight Deficiencies. GAO-16-245. Washington, D.C.: February 10, 2016. Oil and Gas Resources: Interior’s Production Verification Efforts and Royalty Data Have Improved, but Further Actions Needed. GAO-15-39. Washington, D.C.: April 7, 2015. Oil and Gas: Updated Guidance, Increased Coordination, and Comprehensive Data Could Improve BLM’s Management and Oversight. GAO-14-238. Washington, D.C.: May 5, 2014. Oil and Gas Management: Continued Attention to Interior’s Human Capital Challenges Is Needed. GAO-14-394T. Washington, D.C.: February 27, 2014. Oil and Gas: Interior Has Begun to Address Hiring and Retention Challenges but Needs to Do More. GAO-14-205. Washington, D.C.: January 31, 2014. Oil and Gas Resources: Actions Needed for Interior to Better Ensure a Fair Return. GAO-14-50. Washington, D.C.: December 6, 2013. Oil and Gas Management: Interior’s Reorganization Complete, but Challenges Remain in Implementing New Requirements. GAO-12-423. Washington, D.C.: July 30, 2012. Climate change is considered by many to be a complex, crosscutting issue that poses risks to many environmental and economic systems and presents a significant financial risk to the federal government. According to the National Research Council (NRC), although the exact details cannot be predicted with certainty, there is clear scientific understanding that climate change poses serious risks to human society and many of the physical and ecological systems upon which society depends. According to the United States Global Change Research Program (USGCRP), among other reported impacts, climate change could threaten coastal areas with rising sea levels, alter agricultural productivity, and increase the costs of severe weather events as these once “rare” events potentially become more common and intense due to climate change. appropriations by the Congressional Research Service, the amount of inflation-adjusted disaster relief per fiscal year increased from a median of $6.2 billion for the years 2000 to 2006, to a median of $9.1 billion for the years 2007 to 2013 (46 percent). These impacts call attention to areas where government-wide action is needed to reduce fiscal exposure, because, among other roles, the federal government (1) leads a strategic plan that coordinates federal efforts and also informs state, local, and private-sector action; (2) owns or operates extensive infrastructure vulnerable to climate impacts, such as defense facilities and federal property; (3) insures property and crops vulnerable to climate effects; (4) provides data and technical assistance to federal, state, local, and private-sector decision makers responsible for managing the impacts of climate change on their activities; and (5) provides disaster relief aid. As a result, we added Limiting the Federal Government’s Fiscal Exposure by Better Managing Climate Change Risks to the High-Risk List in 2013. climate can be viewed as an insurance policy against climate change risks. Furthermore, according to NRC and USGCRP, the nation can reduce its vulnerability by limiting the magnitude of climate change through actions to limit greenhouse gas emissions. We recognize that (1) the federal government has a number of efforts underway to decrease domestic greenhouse gas emissions, and (2) the success of efforts to reduce greenhouse gas emissions depends in large part on cooperative international efforts. However, limiting the federal government’s fiscal exposure to climate change risks will be challenging no matter the outcome of efforts to reduce emissions, in part because greenhouse gases already in the atmosphere will continue altering the climate system for many decades, according to NRC and USGCRP. As of December 2016, the federal government has taken additional steps since our 2015 update and partially met four of the five criteria for removal from our High-Risk List—leadership commitment, capacity, action plan, and monitoring. Specifically, the federal government partially met the monitoring criterion, which had been rated not met in the 2015 report, and has taken further action in three criteria that remain partially met— leadership commitment, capacity, and action plan. However, the demonstrated progress criterion remains not met because it is too early to determine whether the federal government has made progress. Various executive orders (E.O.), task forces, and strategic planning documents identify climate change as a priority and demonstrate leadership commitment. This leadership commitment needs to be sustained and enhanced to address all aspects of the federal fiscal exposure to climate change in a cohesive manner. As we reported in 2015, the federal government has some capacity to address the federal fiscal exposure to climate change. However, across its actions and strategies, the federal government has yet to clearly define the roles, responsibilities, and working relationships among federal, state, local, and private-sector entities, or how these efforts will be funded, staffed, and sustained over time. The federal government has taken further action by establishing a monitoring mechanism to review certain federal agencies’ efforts to reduce some aspects of their fiscal exposure to climate change, such as building efficiency. However, it is too early to determine the new mechanism’s effectiveness at demonstrating progress in implementing corrective measures, or whether the federal government will apply a similar mechanism across all areas of federal fiscal exposure to climate change. strategic climate change priorities and develop roles, responsibilities, and working relationships among federal, state, and local entities. The federal government has had many climate-related strategic planning activities that demonstrated leadership commitment, such as the President’s June 2013 Climate Action Plan and the March 2015 E.O.13693 Planning for Federal Sustainability in the Next Decade. However, it was unclear how the various planning efforts related to each other or whether they amounted to a government-wide approach for reducing federal fiscal exposures. Accordingly, leadership commitment needs to be enhanced, with increased focus on developing a cohesive strategy to reduce fiscal exposure across the full range of related federal activities. Further, the federal government will need to focus on implementing this strategy—by developing measurable goals; identifying the roles, responsibilities, and working relationships among federal, state, and local entities; identifying how such efforts will be funded and staffed over time; and establishing mechanisms to track and monitor progress. 2017 and 2018 budget requests; and (4) actions to achieve the government-wide goals for improving the climate resilience of federal facilities established by E.O. 13693. Federal flood and crop insurance programs: This entails building climate resilience into the requirements for federal crop and flood insurance programs. Although the Federal Emergency Management Agency (FEMA) has plans to provide updated hazard products and tools that incorporate climate science on an advisory basis, and the U.S. Department of Agriculture (USDA) provides information on voluntary resilience-building actions for producers—policyholders are not required to use the information to improve their resilience and reduce federal fiscal exposure. As such, the federal government needs to address our October 2014 recommendations to incorporate, as appropriate, forward-looking standards into required minimum flood elevation standards for insured properties and long-term agricultural resilience into the allowable agricultural practices required for crop insurance by the federal government. Technical assistance to federal, state, local, and private-sector decision makers: This involves the Executive Office of the President (EOP) helping federal, state, local, and private sector decision makers access and use the best available climate information by designating a federal entity to (1) develop and periodically update a set of authoritative climate observations and projections for use in federal decision making, which state, local, and private sector decision makers could also access to obtain the best available climate information; and (2) create a national climate information system with defined roles for federal agencies and nonfederal entities, such as academic institutions, with existing statutory authority. Additionally, to assist standards-developing organizations incorporate forward-looking climate information into building codes and other standards, we recommended in November 2016 that the Secretary of Commerce should direct the National Institute of Standards and Technology (NIST) to convene federal agencies for an ongoing effort to provide the best available forward-looking climate information to these standards-developing organizations. Disaster aid: This involves implementing adequate budgeting and forecasting procedures to account for the costs of disasters. Additionally, the federal government has not yet defined the resources and government-wide structure to implement existing plans for reducing the federal fiscal exposure to disaster relief by improving resilience—with clear roles, responsibilities, and working relationships among federal, state, local, and private-sector entities. Recognizing that each department and agency operates under its own authorities and responsibilities—and can therefore be expected to address climate change in different ways relevant to its own mission— federal efforts have encouraged a decentralized approach, with federal agencies incorporating climate-related information into their planning, operations, policies, and programs. While individual agency actions are necessary, a centralized national strategy driven by a government-wide plan is also needed to reduce the federal fiscal exposure to climate change, maximize investments, achieve efficiencies, and better position the government for success. Even then, such approaches will not be sufficient unless also coordinated with state, local, and private-sector decisions that drive much of the federal government’s fiscal exposure. The challenge is to develop a cohesive approach at the federal level that also informs state, local, and private-sector action. The interagency Council on Climate Preparedness and Resilience (Resilience Council) established by E.O. 13653 recommended many of the same actions to future administrations in its October 2016 report Opportunities to Enhance the Nation’s Resilience to Climate Change. Among other actions, the Resilience Council called on the federal government to strengthen resilience coordination across federal agencies and increase the capacity for climate resilience efforts government-wide, expand incentives and requirements to increase resilience of infrastructure and buildings, improve awareness and dissemination of climate information, and enhance the usability of climate tools for decision making. Importantly, the Resilience Council recognized the need to coordinate resilience among multiple stakeholders—including all levels of government, academic institutions, and the private sector—through partnerships, shared knowledge and resources, and coordinated strategies, and to evaluate government-wide progress and performance of resilience investments. These are key elements of our criteria for removal from the High-Risk List. For its climate strategic planning efforts, the federal government partially met four of the five criteria—leadership commitment, capacity, action plan, and monitoring—and received a not met rating for the demonstrating progress criterion. The federal government is not well organized to address the fiscal risks to which climate change exposes it, partly because of the inherently complicated, crosscutting nature of the issue. The federal government would be better positioned to respond to the risks posed by climate change if federal efforts were more coordinated and were directed toward common goals. As we reported in our 2015 update, the federal government had partially met our leadership commitment, capacity, and action plan criteria through several climate-related strategic planning activities, such as the President’s June 2013 Climate Action Plan and agency adaptation plans, but it was unclear how the various planning efforts related to each other or what they amount to as a government-wide approach for reducing federal fiscal exposures. Additionally, existing planning activities partially met our capacity criterion because they did not clearly define the roles and responsibilities among federal, state, and local entities, or the resources needed to implement these plans. Furthermore, we reported that the federal government had not met our monitoring and demonstrated progress criteria because there were no programs to monitor the effectiveness of strategic planning efforts. among other things, address resilience planning in coordination with state, local, and tribal communities. Additionally, in April 2016, CEQ and OMB issued a joint memo that expands their annual review of agency adaptation plans, to include agency self-assessments and annual, in- person discussions with OMB and CEQ to evaluate certain agencies’ progress implementing their adaptation plans. Furthermore, the October 2016 report Opportunities to Enhance the Nation’s Resilience to Climate Change from the interagency Resilience Council identified a set of key opportunities to guide sustained and coordinated action among federal agencies and invited stakeholders to work with these agencies on a shared climate resilience agenda. For its strategic planning efforts, the federal government’s ratings are as follows. The federal government has partially met this criterion and has taken additional steps since our last high-risk update. Specifically, E.O. 13693 continues to demonstrate leadership commitment by establishing a government-wide approach and long-term goals for reducing some aspects of federal fiscal exposure to climate change. Further, the October 2016 Resilience Council report identified key opportunities to guide sustained and coordinated action among federal agencies and invited stakeholders to advance a shared climate resilience agenda. However, the EOP has yet to implement our May 2011 recommendation to clearly establish federal strategic climate change priorities that take into consideration the full range of climate-related activities within the federal government. Additionally, because of the potential long-term effects of climate change, leadership needs to be sustained well into the future. specified federal agencies to convene regional interagency working groups to, among other things, address resilience planning in coordination with state, local, and tribal communities. Further, the October 2016 Resilience Council report identifies opportunities to enhance capacity within the federal government and in local communities, among others. However, neither the October 2016 Resilience Council report nor the July 2015 E.O. 13693 implementing guidance specifically addresses the roles and responsibilities among federal, state, and local entities. Furthermore, neither the Resilience Council report nor the E.O. 13693 implementing guidance indicates how these efforts will be funded, staffed, and sustained over time. The federal government has partially met this criterion and has taken additional steps since our last high-risk update. In particular, the implementing guidance for E.O. 13693 directs agencies to annually measure and report their progress on, among other things, reducing greenhouse gas emissions and incorporating climate-resilient design into new agency buildings in their strategic sustainability performance plans, starting in June 2016. Additionally, the October 2016 Resilience Council report identified key opportunities that future administrations could take to improve climate resilience across three themes: (1) advancing and applying science-based information, technology, and tools to address climate risk; (2) integrating climate resilience into federal agency missions, operations, and culture; and (3) supporting community efforts to enhance climate resilience. However, it is too early to determine how effective agency strategic sustainability performance plans under E.O. 13693 will be at reducing aspects of the federal fiscal exposure to climate change. Moreover, the October 2016 Resilience Council report provides a broad overview of key opportunities to improve climate resilience, but does not require implementation of specific actions to address these opportunities. As a result, it is unclear to what extent the Resilience Council report will help the government substantially complete actions to reduce federal fiscal exposure to climate change across the entire range of related federal activities. responsible for implementing E.O. 13693 to advise OMB and CEQ on agencies’ performance of their E.O. responsibilities. Furthermore, the April 2016 joint CEQ and OMB memo established a monitoring mechanism to evaluate agencies’ progress on implementing their adaptation plans. However, it is too early to determine the effectiveness of the monitoring mechanisms. Additionally, the federal government has yet to establish a monitoring mechanism that addresses reducing federal fiscal exposure to climate change across the entire range of related federal activities. The federal government has not met the criterion for demonstrating progress. Fiscal year 2016 is the first year agencies will include addressing aspects of fiscal exposure to climate change as part of the annual strategic sustainability performance plan process under E.O. 13693. Therefore, it is too early to determine whether the federal government has demonstrated progress. Additionally, E.O. 13693 does not address reducing federal fiscal exposure to climate change across the entire range of related federal activities, such as federal disaster aid programs. For its role as property owner, the federal government partially met four of the five criteria—leadership commitment, capacity, action plan, and monitoring—and received a not met rating for the demonstrating progress criterion. The federal government owns and operates hundreds of thousands of facilities and manages millions of acres of land that could be affected by climate change. For example, DOD oversees more than 555,000 defense facilities and 28 million acres of land, with a replacement value DOD estimates at close to $850 billion. Federally funded and managed energy and water infrastructure, and federally managed land— about 650 million acres—are also vulnerable to changes in the climate, including more frequent and severe droughts and wildfires. For example, in a November 2016 assessment of federal fiscal risks related to climate change, OMB and the Council of Economic Advisers (CEA) reported that 18,000 facilities and structures with a replacement value of about $83 billion were in the 100-year floodplain and susceptible to future changes in flood risk. Further, OMB and CEA reported that annual federal wildland fire suppression expenditures could increase by about $2.3 billion by 2090. As of our 2015 update, the federal government had partially met the criteria for leadership commitment, capacity, and action plan through various directives for agencies to develop climate change adaptation plans to integrate consideration of climate change into agency operations and missions, but leadership needed to be sustained over time and most agencies had yet to identify specific actions and the resources necessary to implement these plans. Additionally, we reported that the federal government had not met our monitoring and demonstrated progress criteria because there were no programs to monitor the effectiveness and sustainability of agency adaptation plans. federal projects. Moreover, DOD had yet to implement our May 2014 recommendations to develop a plan for completing climate change vulnerability assessments and clarifying how to account for climate change in planning as well as when comparing construction projects for funding. Since our 2015 update, the federal government has made progress on our April 2013 NEPA recommendation, the May 2014 DOD recommendations, and in other areas. Specifically, in August 2016, CEQ issued final guidance for agencies on how to consider the effects of climate change when implementing NEPA. Also, among other actions responsive to our May 2014 recommendations, DOD issued a January 2016 directive on climate change adaptation and resilience that calls for DOD components to assess and manage climate change risks to build DOD’s resilience, when developing plans and implementing procedures. In addition, the March 2015 E.O.13693 directed certain agencies to develop and annually update agency strategic sustainability performance plans, which, among other things, evaluate past performance toward achieving certain government wide sustainability performance goals— including incorporating climate-resilient design and management elements into the operation, repair, and renovation of existing agency buildings and the design of new agency buildings. Finally, the April 2016 joint CEQ and OMB memo expanded their annual review of agency adaptation plans to include agency self-assessments and annual, in- person discussions with OMB and CEQ to evaluate agencies’ progress implementing their adaptation plans. Further, in July 2015, we reported that the January 2015 E.O. 13690, Establishing a Federal Flood Risk Management Standard and a Process for Further Soliciting and Considering Stakeholder Input requires all future federal investments in, and affecting, floodplains to meet a certain elevation level, as established by the standard. According to E.O. 13690, implementing the standard will ensure that agencies address current and future flood risk and ensure that projects funded with taxpayer dollars last as long as intended. Furthermore, since June 2015, OMB Circular A-11—government-wide guidance to agencies for developing their annual budgets—has directed agencies to include funding for resilience in construction and renovation of federal facilities in their fiscal year 2017 and 2018 budget requests, although the 2018 budget requests have not been finalized. For its role as property owner, the federal government’s ratings are as follows. The rating for this criterion remains at partially met, but the federal government has taken additional steps since our 2015 update. E.O. 13693 and E.O.13690 reflect continued leadership commitment by establishing a government-wide approach for reducing fiscal exposure to climate change for federal facilities and federally-funded infrastructure in and affecting floodplains. However, because of the potential long-term effects of climate change, leadership needs to be sustained well into the future. The rating for this criterion remains at partially met, but the federal government has taken additional steps since our 2015 update. Under E.O. 13693 agencies must, where life-cycle cost effective, incorporate climate-resilient design and management elements into agency building operation, renovation, and design of new buildings. Furthermore, OMB’s revised Circular A-11 directs agencies to include funding for resilience in construction and renovation of federal facilities in their fiscal year 2017 and 2018 budget requests—although the budget requests for fiscal year 2018 have not been finalized. Moreover, the August 2016 CEQ final guidance for agencies on how to consider climate change when implementing NEPA may increase the consistency with which agencies address climate change in implementing the law. However, it is too early to determine whether these efforts will effectively build the capacity of the federal government to reduce its fiscal exposure as a property owner. Standard. Moreover, DOD fully implemented one of our May 2014 recommendations by developing a plan and milestones for completing climate change vulnerability assessments. DOD has also made progress implementing components of our other recommendations for considering climate change impacts when planning installations and comparing construction projects for funding. However, it is too early to determine whether these plans will effectively reduce federal facilities’ fiscal exposure to climate change. The rating for this criterion was upgraded from not met in our 2015 update to partially met. E.O. 13693 establishes a mechanism for OMB and an interagency steering committee to monitor agency progress toward sustainability goals—which include incorporation of climate-resilient design and management elements into the operation, repair and renovation of existing agency buildings. Additionally, the April 2016 joint CEQ and OMB memo to federal agencies established a monitoring mechanism to evaluate agencies’ efforts to implement their adaptation plans as part of their annual reviews of the plans. However, it is too early to determine the effectiveness of these monitoring mechanisms. The federal government has not met the criterion for demonstrating progress. Fiscal year 2016 is the first year agencies will include “incorporating climate resilient design and management elements” as a measurable goal within their annual strategic sustainability performance plan under E.O. 13693. In addition, fiscal year 2017 is the first year of agencies’ implementation plans for the Federal Flood Risk Management Standard. Therefore, it is too early to determine whether the federal government has demonstrated progress. As the insurer of crops and property, the federal government partially met three of the five criteria—leadership commitment, capacity, and action plan—and received a not met rating for the monitoring and demonstrating progress criteria. Two important federal insurance efforts— the FEMA National Flood Insurance Program (NFIP) and USDA’s Federal Crop Insurance Corporation (FCIC)—face climate change and other challenges that increase federal fiscal exposure and send inaccurate price signals about risk to policyholders. For example, a November 2016 OMB and CEA report found that total annual premium subsidies for crop insurance could increase by about $4.2 billion in 2080 due to the effects of unmitigated climate change. In our 2015 update, we reported that the federal government had partially met our leadership commitment criterion by commissioning climate change studies and incorporating climate change adaptation into their planning, which recognized climate change risks to federal insurers, but needed to sustain top leadership support and enhance it over time. We also reported that the federal government had not met the other four criteria because federal insurers had yet to identify specific actions and the resources necessary to address challenges inherent to federal insurance programs—such as how to encourage policyholders to reduce their long-term exposure to climate change given the short-term nature of insurance contracts—that may impede the ability of these programs to minimize long-term federal fiscal exposure to climate change. climate change. USDA did not specify its agreement or disagreement with our recommendation. Since our 2015 update, FEMA and USDA have taken additional actions to understand and respond to climate change risks. For flood insurance, in February 2016, FEMA publicly released the 2015 Future Conditions Risk Assessment and Modeling report by the Technical Mapping Advisory Council (TMAC)—an advisory body created to review the national flood mapping program and make recommendations to FEMA. The report, which was required by law, has several recommendations on how FEMA could incorporate the best-available climate science to assess flood risk and incorporate such information into its advisory hazard products, tools, and information for local decision makers. For crop insurance, in May 2016, USDA publicly issued Building Blocks for Climate Smart Agriculture and Forestry: Implementation Plan and Progress Report for USDA’s framework for helping farmers, ranchers, and forestland owners respond to climate change, through voluntary and incentive-based actions. For its role as the insurer of crops and property, the federal government’s ratings are as follows. Blocks for Climate Smart Agriculture and Forestry implementation plan continues leadership commitment by establishing long-term goals for reducing agricultural GHG emissions by improving producers’ soil health, nitrogen management, and land management practices, among others— practices that may also reduce federal fiscal exposure for insured crops by improving agricultural resilience to climate change. However, because of the potential long-term effects of climate change, leadership needs to be sustained well into the future. The rating for this criterion was upgraded from not met in our 2015 update to partially met. For flood insurance, a senior FEMA official has publicly stated that the agency will engage with stakeholders and partners to implement the recommendations of the TMAC report on incorporating climate science into its products and tools for decision makers. Additionally, the agency has begun conducting sea level rise pilot studies and work to identify related research gaps for additional pilot studies, according to the FEMA official. If FEMA implements the TMAC recommendations, it could improve climate change–related decision making capacity at federal, state, and local levels. For crop insurance, through its 2016 implementation plan, USDA has identified lead agencies and potential partnerships with public and private sector organizations to implement certain actions that could also improve agriculture’s resilience to climate change. Additionally, the USDA Regional Climate Hubs—which deliver science-based knowledge, practical information, and program support to farmers, ranchers, and forest landowners—may help improve producers’ capacity to understand and respond to climate change impacts. However, neither FEMA nor USDA has identified the resources necessary to implement the actions outlined in the TMAC report or USDA’s implementation plan. Additionally FEMA has not identified the roles, responsibilities, and working relationships among federal, state, and local entities for its effort to incorporate climate science into its products and tools. actions to address aspects of climate change in federal insurance programs and have made these actions publicly available. In particular, for flood insurance, the publicly available TMAC report identified short- and long-term actions to incorporate climate change science into its products and tools for decision makers. However, FEMA has yet to establish milestones and metrics for implementing the recommendations—although a senior FEMA official stated that the agency plans to do so. For crop insurance, in its 2016 publicly available report, USDA has developed clear milestones and metrics to assess its progress implementing certain actions that could also improve agricultural resilience to climate change. However, neither federal insurance program has taken action to implement our October 2014 recommendations to improve the long-term resiliency of insured structures and crops—through changes to flood insurance standards or allowable growing practices for crop insurance. The rating for this criterion remains at not met, but the federal government has taken some steps since our 2015 update. For crop insurance, USDA established milestones for certain actions from 2016 to 2018 in its 2016 implementation plan, and the plan indicates that USDA is developing a framework to estimate the adoption of conservation practices and technologies. However, it is unclear from the plan what mechanisms are in place for USDA to assess its overall progress toward the department- wide goals, or the frequency of assessment. For flood insurance, FEMA has yet to establish metrics and milestones within an action plan to monitor its progress implementing the TMAC recommendations for addressing climate change in flood insurance. The federal government has not met the criterion for demonstrating progress. Without clear monitoring mechanisms for FEMA and USDA to assess their overall progress addressing aspects of climate change in federal insurance programs, it is unclear how either agency will be able to demonstrate progress. Additionally, FEMA has indicated that—consistent with the TMAC recommendations—it should provide its updated hazard products and tools that incorporate climate science on an advisory—not regulatory—basis. USDA has also framed its resilience-building actions for producers as voluntary. As a result, it is unclear to what extent policyholders in either federal insurance program will use the information provided to improve their resilience and reduce federal fiscal exposure. As the provider of technical assistance, the federal government partially met two of the five criteria—leadership commitment and action plan—and received a not met rating for the capacity, monitoring, and demonstrating progress criteria. Climate change has the potential to directly affect a wide range of federal services, operations, programs, and assets, as well as national security, increasing federal fiscal exposure in many ways. State, local, and private-sector decision makers can also drive federal climate-related fiscal exposures because they are responsible for planning, constructing, and maintaining certain types of vulnerable infrastructure paid for with federal funds, insured by federal programs, or eligible for federal disaster assistance. To reduce fiscal exposure, the federal government has a role to play in providing information to these decision makers so they can make more informed choices about how to manage the risks posed by climate change. As reported in our 2015 update, the federal government had partially met our leadership commitment and action plan criteria through various strategic plans and E.O.s that directed certain federal agencies to work together to provide authoritative and readily accessible climate-related information, but the roles, responsibilities, and working relationships among federal, state, local, and private-sector entities were still unclear. We also reported that the federal government had not met our criteria for capacity, monitoring, and demonstrated progress because the resources and government-wide structure necessary to implement plans were not yet defined, and that because no monitoring programs existed, the ability to demonstrate progress was limited. to identify the best available climate-related information for state and local infrastructure planning. Since our 2015 update, we have completed work related to federal climate-related technical assistance across several areas—including federal supply chain climate risk; government-wide options to provide climate information to federal, state, local, and private sector decision makers; fisheries management; and private sector use of climate information in design standards and building codes—and found that although the federal government had taken some steps, additional efforts are needed to address the High-Risk List criteria. As a result, the federal government’s ratings for the High-Risk List criteria under technical assistance have not changed. of such effects for specific fish stocks. Lastly, in November 2016, we reported on the use of climate information in design standards and building codes and found that standards-developing organizations such as professional engineering societies generally use historical data to develop standards and face institutional and technical challenges to using forward-looking climate information, including difficulty identifying the best available climate information. We found that government-wide coordination to help address these challenges could present a benefit by reducing the federal fiscal exposure to the effects of climate change. For its efforts to provide technical assistance, the federal government’s ratings are as follows. The rating for this criterion remains at partially met. Top leadership support for providing climate-related technical assistance has continued since 2009 through various E.O.s and planning documents, such as the President’s June 2013 Climate Action Plan, the U.S. Global Change Research Program’s 2012-2021 strategic plan for climate change science, and, more recently, the October 2016 Resilience Council report. However, because of the potential long-term effects of climate change, leadership needs to be sustained well into the future. agencies and nonfederal entities with existing statutory authority. The EOP did not agree or disagree with this recommendation. We also recently recommended that the EOP and other agencies provide guidance to help federal agencies and others use climate information. Specifically, in October 2015, we recommended that, within the EOP, the CEQ clarify the guidance to federal agencies on developing adaptation plans, to better assist agencies to include climate-related risks to their supply chains in their plans. CEQ agreed with this recommendation and implemented it in April 2016 by issuing a joint memo with OMB which, among other things, clarified the guidance to federal agencies for the November 2013 E.O. 13653 on Preparing the United States for the Impacts of Climate Change. Specifically, the joint memo directs agencies to include climate-related risks to supply chains in agency adaptation plans. In September 2016, we recommended that the Secretary of Commerce direct the National Marine Fisheries Service to develop guidance on how fisheries managers should incorporate climate information into different parts of the fisheries management process, such as fish stock assessments. Commerce agreed with this recommendation, but has yet to implement it. Lastly, in November 2016, we reported on using climate information in design standards and building codes. We found that standards-developing organizations, such as professional engineering societies, do not generally use forward-looking climate information and that they face institutional and technical challenges to doing so, including difficulty identifying the best available climate information. We also found that government-wide coordination to help address these challenges could present a benefit by reducing the federal fiscal exposure to the effects of climate change, and recommended that the Department of Commerce’s NIST convene federal agencies for an ongoing effort to provide the best available forward- looking climate information to standards-developing organizations. The Department of Commerce neither agreed nor disagreed with our recommendation. Implementing these recommendations would improve the federal government’s capacity as a provider of technical assistance. plans and an E.O. that directed certain federal agencies to work together to develop and provide authoritative, easily accessible and useable information on climate preparedness and resilience. Additionally, the October 2016 Resilience Council report identified several opportunities to improve aspects of federal technical assistance government-wide, such as making climate tools easier for decision makers to use. However, existing plans and reports do not amount to a government-wide plan with clear milestones and metrics to address the challenges we’ve identified related to the federal government’s role in providing climate-related technical assistance, and government and private sector decision makers accessing and using such information. The rating for this criterion remains at not met. The April 2016 joint memo by CEQ and OMB clarifies the process to monitor progress for certain agencies on several areas, including technical assistance. However, there are still no programs or mechanisms to monitor government-wide progress in addressing the challenges we’ve identified related to the federal government’s role in providing climate-related technical assistance. These challenges include clarifying the roles, responsibilities, and working relationships among federal, state, local, and private-sector entities; identifying the necessary resources and establishing the government-wide structure necessary to implement plans; and addressing the fragmentation of federal climate information across individual agencies that use the information in different ways to meet their missions. The rating for this criterion remains at not met. Without a program or mechanism to monitor government-wide action addressing relevant challenges, it is unclear how the federal government can demonstrate progress. As the provider of disaster aid, the federal government partially met two of the five criteria—leadership commitment, and capacity—and received a not met rating for the action plan, monitoring, and demonstrating progress criteria. Multiple factors, including increased disaster declarations, climate change effects, and changing development patterns increase federal fiscal exposure to severe weather events, which have cost the nation hundreds of billions of dollars over the past decade. For example, from fiscal years 2005 through 2014, the federal government obligated at least $277.6 billion across 17 federal department and agencies for disaster assistance programs and activities. Such federal disaster aid functions as the insurance of last resort in certain circumstances because whatever is not covered by insurance or built to be resilient to extreme weather increases the federal government’s implicit fiscal exposure through disaster relief programs. For example, a November 2016 OMB and CEA report found that total annual expected disaster relief for hurricane damage could increase by about $50 billion by 2075. the risk of facing a large fiscal exposure at any time. Moreover, fiscal constraints would make it more difficult for the federal government to respond effectively in the future and such expenses could affect resources available for other key government programs. Since our 2015 update, the federal government has made some progress addressing its federal fiscal exposure to disaster relief by improving resilience. Specifically, in our July 2015 report that examined disaster resilience efforts following Hurricane Sandy, we found that the President and Congress had taken multiple steps to enhance the federal government’s focus on disaster resilience through E.O.s, presidential policy directives, and enacted legislation. For example, we reported that E.O. 13690, Establishing a Federal Flood Risk Management Standard and a Process for Further Soliciting and Considering Stakeholder Input requires all future federal investments in, and affecting, floodplains to meet a certain elevation level, as established by the standard. Specifically, the standard provides 3 approaches that federal agencies can now use to establish the flood elevation and floodplain for consideration in their decision making: (1) climate-informed science approach, (2) adding 2-3 feet of elevation to the 100-year floodplain, and (3) using the 500-year floodplain. lifelines—such as communications, energy, transportation, and water management systems. As a result, we recommended that the Mitigation Framework Leadership Group (MitFLG)—an intergovernmental body to help coordinate hazard mitigation efforts of relevant local, state, tribal, and federal organizations—establish an investment strategy to identify, prioritize, and implement federal investments in disaster resilience. As part of its response to this priority recommendation, FEMA developed a high-level work plan to guide MitFLG’s development of a disaster resilience investment strategy. Additionally, in May 2016, MitFLG solicited stakeholder input on its design of a new Federal Mitigation Investment Strategy. According to MitFLG, the strategy will identify, prioritize, and guide federal investments in disaster resilience and hazard mitigation- related activities and include recommendations to the President and Congress on how the nation should prioritize future investments. Additionally, the October 2016 Resilience Council report identified several opportunities to further integrate climate resilience into federal agency missions and improve federal support for communities’ resilience-building efforts, such as expanding incentives and requirements to increase the resilience of infrastructure and building communities’ capacity for climate resilience efforts. For its role as the provider of disaster aid, the federal government’s ratings are as follows. The rating for this criterion remains at partially met. Top leadership has sustained support since 2009 through various E.O.s, such as E.O. 13690, and other documents, such as the October 2016 report on opportunities to enhance the nation’s resilience. However, because of the potential long-term effects of climate change, leadership needs to be sustained well into the future. identified three potential options for determining how a state, territory, or tribal government qualifies for federal disaster assistance. Additionally, in January 2016, FEMA solicited comments on implementing individualized deductibles for states, territories, and Indian tribes to qualify for disaster assistance under its Public Assistance program. FEMA is considering requiring states, territories, and Indian tribes to demonstrate satisfaction of a predetermined level of financial or other commitment before FEMA would provide financial assistance to them through this program. As of October 2016, FEMA was considering comments received on its proposal. Further, in March 2015, FEMA updated its guidance for state hazard mitigation plans to include a summary of the likelihood of future hazard events and changing future conditions, such as climate change, as a condition for receiving certain types of non-emergency disaster assistance. However, the federal government has yet to implement adequate budgeting and forecasting procedures to account for the costs of disasters. Additionally, the federal government has not yet defined the resources and government-wide structure to implement existing plans for reducing the federal fiscal exposure by improving resilience—with clear roles, responsibilities, and working relationships among federal, state, local, and private-sector entities. The rating for this criterion remains at not met. As we mentioned previously, the federal government has taken steps to develop an action plan for improving resilience through developing the Federal Mitigation Investment Strategy. However, because a draft of this strategy is not yet available, it is too soon to evaluate it as an action plan to address federal fiscal exposure through disaster aid. Additionally, although the October 2016 Resilience Council report identifies several opportunities to improve federal and local climate resilience, it does not meet several action plan characteristics from our high-risk criterion, such as establishing goals and performance measures, developing a plan with clear milestones and metrics, and ensuring there are processes for reporting results, among others. As a result, it is unclear to what extent the October 2016 report will help the government substantially complete actions to reduce federal fiscal exposure to climate change as the provider of disaster aid. The rating for this criterion remains at not met. The federal government has yet to implement programs or mechanisms to monitor the effectiveness of the measures identified across existing plans and standards. plans and standards, the federal government cannot demonstrate progress in implementing corrective measures. In response to a recommendation we made in May 2014, the Office of the Secretary of Defense (OSD) and the services took a number of actions from September 2014 to July 2015 to develop a project plan and milestones for completing DOD’s screening-level climate change vulnerability assessment. OSD also took action to direct the services to develop plans and milestones that describe how they intend to use the data collected through the assessment to support climate change adaptation planning. By implementing our recommendation, OSD and the services can now inform the department’s decision makers about the vulnerabilities of DOD facilities and missions to the potential impacts of climate change. (GAO-14-446) In response to a recommendation we made in October 2015, CEQ and OMB issued an April 2016 joint memo on climate adaptation planning that clarified the guidance for E.O. 13653 to include climate- related risks to supply chains in agency adaptation plans, among other things. (GAO-16-32) For additional information about this high-risk area, contact Alfredo Gómez Director, Natural Resources and Environment, (202)512-3841 or gomezj@gao.gov. Climate Change: Improved Federal Coordination Could Facilitate Use of Forward-Looking Climate Information in Design Standards, Building Codes, and Certification. GAO-17-3. Washington, D.C.: November 30, 2016. Federal Fisheries Management: Additional Actions Could Advance Efforts to Incorporate Climate Information into Management Decisions. GAO-16-827. Washington, D.C.: September 28, 2016. Federal Disaster Assistance: Federal Departments and Agencies Obligated at Least $277.6 Billion during Fiscal Years 2005 through 2014. GAO-16-797. Washington, D.C.: September 22, 2016. Polar Weather Satellites: NOAA Is Working to Ensure Continuity but Needs to Quickly Address Information Security Weaknesses and Future Program Uncertainties. GAO-16-359. Washington, D.C.: May 17, 2016. Climate Information: A National System Could Help Federal, State, Local, and Private Sector Decision Makers Use Climate Information. GAO-16-37. Washington, D.C.: December 8, 2015. Federal Supply Chains: Opportunities to Improve the Management of Climate-Related Risks. GAO-16-32. Washington, D.C.: October 27, 2015. Hurricane Sandy: An Investment Strategy Could Help the Federal Government Enhance National Resilience for Future Disasters. GAO-15-515. Washington, D.C.: July 30, 2015. Climate Change: Better Management of Exposure to Potential Future Losses Is Needed for Federal Flood and Crop Insurance. GAO-15-28. Washington, D.C.: November 20, 2014. Climate Change Adaptation: DOD Can Improve Infrastructure Planning and Processes to Better Account for Potential Impacts, GAO-14-446. Washington, D.C.: May 30, 2014. Although the executive branch has undertaken numerous initiatives to better manage the more than $80 billion that is annually invested in information technology (IT), federal IT investments too frequently fail or incur cost overruns and schedule slippages while contributing little to mission-related outcomes. We have previously testified that the federal government has spent billions of dollars on failed IT investments. These investments often suffered from a lack of disciplined and effective management, such as project planning, requirements definition, and program oversight and governance. In many instances, agencies have not consistently applied best practices that are critical to successfully acquiring IT. In this regard, we have identified nine critical factors underlying successful major acquisitions, such as program officials actively engaging with stakeholders and staff having the necessary knowledge and skills. Nonetheless, agencies continue to have IT projects that perform poorly. Such projects have often used a “big bang” approach—that is, projects are broadly scoped and aim to deliver functionality several years after initiation. According to the Defense Science Board, this approach is often too long, ineffective, and unaccommodating of the rapid evolution of IT. Further, it is inconsistent with Office of Management and Budget (OMB) guidance directing that IT investments deliver functionality in 6-month increments. In August 2016, we reported that approximately half of the software projects across selected agencies were following this guidance. Federal IT projects have also failed due to a lack of oversight and governance. Executive-level governance and oversight across the government has often been ineffective, specifically from chief information officers (CIO). However, we have reported that some CIOs’ authority is limited in that not all CIOs have the authority to review and approve the entire agency IT portfolio. Recognizing the severity of issues related to the government-wide management of IT, in December 2014, Congress enacted IT acquisition reform provisions (commonly referred to as the Federal Information Technology Acquisition Reform Act or FITARA) as part of the Carl Levin and Howard P. ‘Buck’ McKeon National Defense Authorization Act for Fiscal Year 2015. Among other things, the law requires action to: (1) consolidate federal data centers, (2) enhance transparency and improve risk management, (3) enhance agency CIO authority, (4) review IT investment portfolios, (5) expand training and use of IT acquisition cadres, (6) purchase software government-wide, and (7) maximize the benefit of federal strategic sourcing. OMB and federal agencies’ efforts to improve the management of IT acquisitions and operations have resulted in meeting one of the five criteria for removal from our High-Risk List—leadership commitment— and partially meeting the remaining four criteria—capacity, action plan, monitoring, and demonstrated progress. Specifically, OMB, in its leadership role in addressing this high-risk area, has demonstrated its commitment by issuing guidance for agencies implementing FITARA, optimizing federal data centers, and acquiring and managing software licenses. investments by fully implementing the CIO authorities described in FITARA and ensuring that program staff have the necessary knowledge and skills to acquire IT. Further work is also needed to establish action plans to modernize or replace obsolete IT investments. Regarding monitoring of IT investments, agencies need to improve how their CIOs assess investment risk and how they report incremental development status. Finally, additional demonstrated progress is needed by OMB and agencies to (1) address our open recommendations related to IT acquisitions and operations, (2) deliver functionality every 12 months on major acquisitions, and (3) achieve planned IT portfolio and data center consolidation savings. To help address the management of IT investments, OMB and federal agencies should continue to expeditiously implement the requirements of FITARA. While OMB’s June 2015 FITARA implementation guidance provides a solid foundation for implementing the law and addresses the actions agencies are to take in regard to several initiatives that we have identified as high risk, OMB will need to provide consistent oversight to ensure that agency actions are completed and the desired results are achieved. Doing so should continue to improve the transparency and management of IT acquisitions and operations, as well as increase the authority of CIOs to provide needed direction and oversight. Beyond implementing FITARA and OMB’s guidance to improve the capacity to address our high-risk area, selected agencies will also need to implement our recent recommendations related to improving their IT workforce planning practices. When fully implemented, these key practices should better position agencies to efficiently make decisions that cross lines of expertise and improve their ability to assess and address gaps in knowledge and skills that are critical to the success of major IT acquisitions. Further, agencies will need to establish action plans to modernize or replace obsolete IT investments. By establishing such plans, agencies can reduce the risk of continuing to maintain investments that have outlived their effectiveness and are consuming resources that outweigh their benefits. To improve how they monitor the acquisition and operations of IT investments, federal agencies will need to implement our recommendations to address weaknesses in their reporting of investment risk and incremental development implementation on the IT Dashboard. Doing so will provide OMB and agencies with increased transparency and oversight of the government’s billions of dollars in IT investments. Finally, initial progress has been made in addressing this high-risk area, including implementation of 46 percent of our prior recommendations. However, the remaining recommendations include 17 priority recommendations to agencies to, among other things, report all data center consolidation cost savings to OMB, address weaknesses in their management of software licenses, and improve their implementation of PortfolioStat. OMB and agencies need to take additional actions to (1) implement at least 80 percent of our recommendations related to the management of IT acquisitions and operations, (2) ensure that a minimum of 80 percent of the government’s major acquisitions deliver functionality every 12 months, and (3) achieve at least 80 percent of the over $6 billion in planned PortfolioStat savings and 80 percent of the more than $5 billion in savings planned for data center consolidation. It will be important for OMB and agencies to continue to make demonstrated progress against these metrics in order to more effectively and efficiently invest in IT, reduce the risk of major acquisitions, and achieve additional cost savings. OMB and the Federal CIO have demonstrated leadership commitment. Specifically, OMB’s June 2015 guidance for implementing FITARA addresses actions for agencies to take in several IT management areas we have identified as high risk, such as reviewing of poorly performing investments, reporting on investment risk, consolidating data centers, managing agencies’ IT portfolios, and purchasing government-wide software licenses. For example, OMB’s guidance reiterates the requirement for agencies to hold TechStat sessions—face-to-face meetings between OMB and agency leadership to terminate or turn around IT investments that are failing or are not producing results—and also requires agencies to report quarterly on the root causes of performance issues, to develop corrective action plans, and to establish a timeline for implementing the corrective actions. OMB also released more specific guidance on acquiring and managing software licenses and operating federal data centers—two areas that we identified in our 2015 high-risk report as needing attention. Specifically, in June 2016, OMB issued guidance that requires agencies to maintain and analyze an agency-wide inventory of software licenses to ensure compliance with software licensing agreements, consolidate redundant applications, and identify other cost savings opportunities. Regarding federal data centers, in August 2016, OMB issued a memorandum that established the Data Center Optimization Initiative, noting that this new initiative would supersede the Federal Data Center Consolidation Initiative started in 2010. Among other things, OMB’s guidance requires agencies to develop and report on data center strategies to consolidate inefficient infrastructure, optimize existing facilities, improve security posture, save money, and transition to more efficient infrastructure. OMB’s memorandum also establishes metrics for data center optimization and targets to be achieved by the end of fiscal year 2018. In addition, the Federal CIO and OMB senior staff members have routinely met with us over the last 2 years to discuss their plans and progress in addressing this high-risk area. According to these officials, and as indicated through its actions, OMB is committed to demonstrating sustained progress in addressing this high-risk area. Going forward, it will be important for OMB to maintain its current level of top leadership support and commitment to ensure that agencies continue to successfully execute OMB’s guidance on implementing FITARA and related IT initiatives. OMB and federal agencies partially met the criterion for having the capacity to improve the management of IT acquisitions and operations. Specifically, OMB’s June 2015 guidance addresses how agencies are to implement FITARA’s provisions related to enhancing the authority of federal CIOs. Among other things, OMB provided direction on enabling the CIOs’ role to integrate IT with the capabilities they support wherever IT may affect functions, missions, or operations; strengthening agency CIOs’ accountability for IT cost, schedule, performance, and security; and strengthening the relationship between agency CIOs and bureau CIOs. Further, OMB’s guidance includes several actions that agencies are to take to establish a basic set of roles and responsibilities (referred to as the “common baseline”) for CIOs and other senior agency officials that are needed to implement the authorities described in the law. For example, agencies are to conduct a self-assessment to identify where they conform to the common baseline and where they deviate. OMB guidance also requires agencies to annually update their self-assessment and report their progress reaching FITARA implementation milestones. Agencies’ first updates were due by April 30, 2016, and additional updates are due on an annual basis thereafter. As of December 2016, 19 of 24 major federal agencies had made their FITARA milestone status information publicly available, as required by OMB; however, all 19 agencies had milestones that were still in progress or not yet started. In addition, another area where agencies can improve their capacity to acquire IT investments is in assessing IT workforce skills gaps. Specifically, in November 2016, we reported that five selected agencies had not consistently applied key workforce planning steps and activities that help to ensure that program staff members have the knowledge and skills critical to successfully acquire IT investments. For example, four agencies had not demonstrated an established IT workforce planning process. The weaknesses identified were due, in part, to agencies lacking comprehensive policies that required such activities, or failing to apply the policies to IT workforce planning. We concluded that, until these weaknesses are addressed, the agencies risk not adequately assessing and addressing gaps in knowledge and skills that are critical to the success of major acquisitions. Accordingly, we recommended that the five selected agencies address the IT workforce planning practices that we identified as having weaknesses. OMB and federal agencies have partially met the criterion for establishing an action plan to address this high-risk area. In addition to requiring agencies to conduct self-assessments, OMB’s June 2015 FITARA implementation guidance required agencies to submit a plan describing the changes they will make to ensure that common baseline responsibilities are implemented. These plans are to address the areas of IT management that we have identified as high risk, such as reviewing poorly performing investments, managing agencies’ IT portfolios, and implementing incremental development. For example, according to OMB’s June 2015 guidance, agencies’ plans are required to define IT processes and policies which ensure that the CIO certifies that IT investments are adequately implementing incremental development. consistently meet OMB’s FITARA implementation deadlines going forward. Further, effectively implementing these plans will be critical to ensuring that agencies are able to effectively manage their IT investments and that CIOs have the authorities required under FITARA. We have ongoing work reviewing agency self-assessments and FITARA implementation plans, including the extent to which agencies have defined the role of the CIO in accordance with federal law and guidance. Significant work also remains for federal agencies to establish action plans to modernize or replace obsolete IT investments. Specifically, in May 2016, we reported that many agencies were using systems which had components that were, in some cases, at least 50 years old. For example, we determined that the Department of Defense (DOD) was using 8-inch floppy disks in a legacy system that coordinates the operational functions of the nation’s nuclear forces. In addition, the Department of the Treasury was using assembly language code—a computer language initially used in the 1950s and typically tied to the hardware for which it was developed. Table 5 provides examples of legacy systems across the federal government that agencies report are 30 years old or older and use obsolete software or hardware, and identifies those that do not have specific plans with time frames to modernize or replace these investments. To address this issue, we recommended that 12 agencies identify and plan to modernize or replace legacy systems, including establishing time frames, activities to be performed, and functions to be replaced or enhanced. Most agencies agreed with our recommendations or had no comment. OMB and federal agencies have partially met the criterion for monitoring efforts to address this high-risk area. Specifically, OMB took action to improve its use of TechStat sessions, which are intended to increase accountability and transparency and to improve investment performance. We previously reported that the number of TechStats that OMB and selected agencies had performed represented only a small percentage (33 percent) of the number of IT investments with a medium- or high-risk CIO rating. OMB’s June 2015 FITARA implementation guidance strengthened the TechStat process by requiring agencies to hold a TechStat session on any investment that has a high-risk CIO rating for 3 consecutive months, beginning on July 1, 2015. As a result, OMB and agencies will be able to more quickly intervene to turn around, halt, or terminate troubled IT projects. government-wide and agency-specific progress towards meeting applicable optimization targets, and cumulative cost savings and cost avoidance realized. OMB’s efforts to expand the IT Dashboard should continue to increase transparency into government-wide and agency-specific progress on this important IT initiative. However, significant work still remains for federal agencies to improve their monitoring of IT investments through their CIO risk assessments on the IT Dashboard. Specifically, in June 2016, we reported that our assessments of the risk ratings showed more risk than did the associated CIO ratings. In particular, of the 95 investments reviewed, our assessments matched the CIO ratings 22 times, showed more risk 60 times, and showed less risk 13 times. Figure 10 summarizes how our assessments compared to the select investments’ CIO ratings. in IT are not receiving the appropriate levels of oversight. Accordingly, we made 25 recommendations to 15 agencies to improve the quality and frequency of their CIO ratings. Most agencies agreed with our recommendations or had no comment. Another area of concern regarding the monitoring of IT acquisitions is agencies’ reported use of incremental development. In August 2016, we reported on 7 selected agencies’ software development projects and determined that the percentage delivering functionality every 6 months was reported at 45 percent for fiscal year 2015 and planned for 54 percent in fiscal year 2016. However, significant differences existed between the delivery rates that the agencies reported to us and what they reported on the IT Dashboard. For example, the percentage of software projects delivering every 6 months that was reported to us by the Department of Commerce was about a 42 percentage point decrease from what was reported on the IT Dashboard. In contrast, DOD reported to us a 55 percentage point increase from what was reported on the IT Dashboard. Figure 11 compares what the 7 agencies reported on the IT Dashboard and what numbers they reported to us. Improving the Management of IT Acquisitions and Operations The Department of Defense did not provide requested information in time to verify the information reported for a sample of projects. We reported that the significant differences in delivery rates were due, in part, to agencies having different interpretations of OMB’s guidance on reporting software development projects and because the information reported to us was generally more current than the information reported on the IT Dashboard. We concluded that, until the inconsistences in the information reported to us versus the information provided on the IT Dashboard are addressed, the seven agencies we reviewed are at risk that OMB and key stakeholders may make decisions regarding agency investments without the most current and accurate information. Accordingly, we made 12 recommendations to 8 agencies to improve their reporting of incremental data on the IT Dashboard, among other things. Most agencies agreed with our recommendations or did not comment. OMB and federal agencies partially met the criterion for demonstrating progress in improving the management of IT acquisitions and operations. In our 2015 high-risk report, we noted that OMB and agencies would need to demonstrate government-wide progress in the following key areas: OMB and agencies should, within 4 years, implement at least 80 percent of our recommendations related to managing IT acquisitions and operations. Agencies should ensure that a minimum of 80 percent of the government’s major acquisitions deliver functionality every 12 months. Agencies should achieve no less than 80 percent of the over $6 billion in planned IT portfolio savings and 80 percent of the more than $5 billion in savings planned for data center consolidation. Between fiscal years 2010 and 2015, we made 803 recommendations to OMB and federal agencies to address shortcomings in IT acquisitions and operations, including many to improve the implementation of the recent initiatives and other government-wide, cross-cutting efforts. As of December 2016, about 46 percent of these recommendations had been fully implemented. This is an additional 23 percent compared to the percentage we reported in our 2015 high-risk report. For example, in August 2016, the National Aeronautics and Space Administration (NASA) addressed our priority recommendation to report its data center consolidation cost savings and avoidances—totaling approximately $42 million between fiscal years 2012 through 2016—to OMB. In fiscal year 2016, we made 202 new recommendations, thus further reinforcing the need for OMB and agencies to address the shortcomings in IT acquisitions and operations. Table 6 summarizes OMB’s and agencies’ implementation of our recommendations. Following the table, figure 12 summarizes OMB’s and agencies’ implementation of our recommendations against the 80 percent target. functions. In November 2013, we reported that agencies continued to identify duplicative spending as part of PortfolioStat; however, weaknesses existed in agencies’ implementation of the initiative, such as limitations in the CIOs’ authority. In April 2015, we reported that, although agencies had achieved approximately $1.1 billion in PortfolioStat savings, inconsistencies in OMB’s and agencies’ reporting made it difficult to reliably measure progress in achieving savings. In total, our 2 reports made 69 recommendations to improve OMB and agencies’ implementation of PortfolioStat; and as of December 2016, 7 of our recommendations had been implemented. In addition, while agencies have made progress on efforts to ensure that the government’s major acquisitions deliver functionality every 12 months, additional work is needed. Specifically, in August 2016, we determined that 7 selected agencies reported delivering functionality at least every 12 months on 77 percent of their projects for fiscal year 2015. However, as previously stated, there were also inconsistencies with the selected agencies’ reporting of their incremental development status and we made recommendations to the agencies to address these issues. It will be critical for agencies to continue to improve their use of incremental development in order to reduce the risk that their projects will not meet cost, schedule, and performance goals and improve their reporting to better ensure that project decision making is based on current and accurate information. operational IT investments. Regarding the $6 billion in planned PortfolioStat savings identified in our 2015 high-risk report, agencies reported achieving approximately $1.4 billion in savings from fiscal years 2012 through 2015, or approximately 24 percent of planned PortfolioStat savings. Further, in March 2016, we reported that agencies had achieved an estimated $2.8 billion in cost savings and avoidances related to their data center consolidation efforts from fiscal years 2011 to 2015. This is approximately 51 percent of the $5.3 billion planned savings identified in our 2015 high-risk report. In July 2016, Congress enacted the MEGABYTE Act of 2016, which contained provisions to improve the management of software licenses. The act requires OMB to direct agency CIOs to, among other things, establish a comprehensive inventory of software license agreements and analyze software usage and other data to make cost-effective decisions. For additional information about this high-risk area, contact David A. Powner at (202) 512-9286 or pownerd@gao.gov or Carol Harris at (202) 512-4456 or harrisc@gao.gov. IT Workforce: Key Practices Help Ensure Strong Integrated Program Teams; Selected Departments Need to Assess Skill Gaps. GAO-17-8. Washington, D.C.: November 30, 2016. Information Technology: Agencies Need to Improve Their Application Inventories to Achieve Additional Savings. GAO-16-511. Washington, D.C.: September 29, 2016. Information Technology Reform: Agencies Need to Increase Their Use of Incremental Development Practices. GAO-16-469. Washington, D.C.: August 16, 2016. Digital Service Programs: Assessing Results and Coordinating with Chief Information Officers Can Improve Delivery of Federal Projects. GAO-16-602. Washington, D.C.: August 15, 2016. Information Technology: Better Management of Interdependencies between Programs Supporting 2020 Census Is Needed. GAO-16-623. Washington, D.C.: August 9, 2016. IT Dashboard: Agencies Need to Fully Consider Risks When Rating Their Major Investments. GAO-16-494. Washington, D.C.: June 2, 2016. Information Technology: Federal Agencies Need to Address Aging Legacy Systems, GAO-16-468. Washington, D.C.: May 25, 2016. DOD Major Automated Information Systems: Improvements Can Be Made in Reporting Critical Changes and Clarifying Leadership Responsibility. GAO-16-336. Washington, D.C.: March 30, 2016. Data Center Consolidation: Agencies Making Progress, but Planned Savings Goals Need to Be Established . GAO-16-323. Washington, D.C.: March 3, 2016. Information Technology Reform: Billions of Dollars in Savings Have Been Realized, but Agencies Need to Complete Reinvestment Plans. GAO-15-617. Washington, D.C.: September 15, 2015. For nearly a decade, we, along with inspectors general, special commissions, and others, have reported that federal agencies have ineffectively administered Indian education and health care programs and inefficiently fulfilled their responsibilities for managing the development of Indian energy resources. In particular, we have found numerous challenges facing the Department of the Interior’s (Interior) Bureau of Indian Education (BIE) and Bureau of Indian Affairs (BIA)—both under the Office of the Assistant Secretary for Indian Affairs (Indian Affairs)—and the Department of Health and Human Services’ (HHS) Indian Health Service (IHS), in administering education and health care services, which put the health and safety of American Indians served by these programs at risk. These challenges included poor conditions at BIE school facilities that endangered students and inadequate oversight of health care that hindered IHS’s ability to ensure quality care to Indian communities. In addition, we have reported that BIA mismanages Indian energy resources held in trust and thereby limits opportunities for tribes and their members to use those resources to create economic benefits and improve the well- being of their communities. Congress recently noted, “through treaties, statutes, and historical relations with Indian tribes, the United States has undertaken a unique trust responsibility to protect and support Indian tribes and Indians.” In light of this unique trust responsibility and concerns about the federal government ineffectively administering Indian education and health care programs and mismanaging Indian energy resources, we are adding these programs as a high-risk issue because they uniquely affect tribal nations and their members. Federal agencies have ineffectively administered and implemented Indian education and health care programs and mismanaged Indian energy resources in the following broad areas: (1) oversight of federal activities; (2) collaboration and communication; (3) federal workforce planning; (4) equipment, technology, and infrastructure; and (5) federal agencies’ data. Although federal agencies have taken some actions to address the 41 recommendations we made related to Indian programs, there are currently 39 that have yet to be fully resolved. We plan to continue monitoring federal efforts to address the 39 recommendations that have yet to be fully resolved. To this end, we have ongoing work focusing on accountability for safe schools and school construction and tribal control of energy delivery, management, and resource development. In the past 3 years, we issued 3 reports on challenges with Indian Affairs’ management of BIE schools in which we made 13 recommendations. Eleven recommendations below remain open. To help ensure that BIE schools provide safe and healthy facilities for students and staff, we made 4 recommendations which remain open, including that Indian Affairs ensure the inspection information it collects on BIE schools is complete and accurate; develop a plan to build schools’ capacity to promptly address safety and health deficiencies; and consistently monitor whether BIE schools have established required safety committees. To help ensure that BIE conducts more effective oversight of school spending, we made 4 recommendations which remain open, including that Indian Affairs develop a workforce plan to ensure that BIE has the staff to effectively oversee school spending; put in place written procedures and a risk-based approach to guide BIE in overseeing school spending; and improve information sharing to support the oversight of BIE school spending. To help ensure that Indian Affairs improves how it manages Indian education, we made 5 recommendations. Three recommendations remain open, including that Indian Affairs develop a strategic plan for BIE that includes goals and performance measures for how its offices are fulfilling their responsibilities to provide BIE with support; revise Indian Affairs’ strategic workforce plan to ensure that BIA regional offices have an appropriate number of staff with the right skills to support BIE schools in their regions; and develop and implement decision-making procedures for BIE to improve accountability for BIE schools. IHS beneficiaries through the Patient Protection and Affordable Care Act (PPACA) have on PRC funds, we recommend that IHS concurrently develop potential options to streamline requirements for program eligibility. To help ensure successful outreach efforts regarding PPACA coverage expansions, we recommend that IHS realign current resources and personnel to increase capacity to deal with enrollment in Medicaid and the exchanges and prepare for increased billing to these payers. If payments for physician and other nonhospital services are capped, we recommend that IHS monitor patient access to these services. To help ensure a more equitable allocation of funds per capita across areas, we recommended that Congress consider requiring IHS to develop and use a new method for allocating PRC funds. To make IHS’s allocation of PRC program funds more equitable, we recommended that IHS develop (1) written policies and procedures to require area offices to notify IHS when changes are made to the allocation of funds to PRC programs; (2) use actual counts of PRC users in any formula allocating PRC funds that relies on the number of active users; and (3) use variations in levels of available hospital services, rather than just the existence of a qualifying hospital, in any formula for allocating PRC funds that contain a hospital access component. To develop more accurate data for estimating the funds needed for the PRC program and improve IHS oversight, we recommended that IHS develop a written policy documenting how it evaluates need for the PRC program, and disseminate it to area offices so they understand how unfunded services data are used to estimate overall program needs. We also recommend that IHS develop written guidance for PRC programs outlining a process to use when funds are depleted but recipients continue to need services. In the past 2 years, we issued 3 reports on developing Indian energy resources in which we made 14 recommendations to BIA. All recommendations remain open. To help ensure BIA can verify ownership in a timely manner and identify resources available for development, we made 2 recommendations, including that Interior take steps to improve its geographic information system mapping capabilities. To help ensure BIA’s review process is efficient and transparent, we made 2 recommendations, including that Interior take steps to develop a documented process to track review and response times for energy-related documents that must be approved before tribes can develop energy resources. To help improve clarity of tribal energy resource agreement regulations, we recommended BIA provide additional guidance to tribes on provisions that tribes have identified to Interior as unclear. To help ensure that BIA’s effort to streamline the review and approval process for revenue-sharing agreements achieves its objectives, we made 3 recommendations, including that Interior establish time frames for the review and approval of Indian revenue-sharing agreements for oil and gas, and establish a system for tracking and monitoring the review and approval process to determine whether time frames are met. To help improve efficiencies in the federal regulatory process, we made 4 recommendations, including that BIA take steps to coordinate with other regulatory agencies so the Indian Energy Service Center can serve as a single point of contact or lead agency to navigate the regulatory process. To help ensure that it has a workforce with the right skills, appropriately aligned to meet the agency’s goals and tribal priorities, we made 2 recommendations, including that BIA establish a documented process for assessing BIA’s workforce composition at agency offices. It is critical that Congress maintain its focus on improving the effectiveness with which federal agencies meet their responsibilities to serve tribes and their members. Since 2013, we testified at 6 hearings to address significant weaknesses we found in the federal management of programs that serve tribes and their members. Sustained congressional attention to these issues will highlight the challenges discussed here and could facilitate federal actions to improve Indian education and health care programs and the development of Indian energy resources. Indian Affairs, through BIE, is responsible for providing quality education opportunities to Indian students and oversees 185 elementary and secondary schools that serve approximately 41,000 students on or near Indian reservations in 23 states, often in rural areas and small towns. About two-thirds of these schools are operated by tribes, primarily through federal grants, and about one-third are operated directly by BIE. BIE’s Indian education programs originate from the federal government’s trust responsibility to Indian tribes, a responsibility established in federal statutes, treaties, court decisions, and executive actions. It is the policy of the United States to fulfill this trust responsibility for educating Indian children by working with tribes to ensure that education programs are of the highest quality and that children are provided a safe and healthy environment in which to learn. Students attending BIE schools generally must be members of federally recognized Indian tribes, or descendants of members of such tribes, and reside on or near federal Indian reservations. All BIE schools—both tribally- and BIE-operated—receive almost all of their operational funding from federal sources, namely, Interior and the Department of Education, totaling about $1.2 billion in 2016. Indian Affairs considers many BIE schools to be in poor condition. BIE is primarily responsible for its schools’ educational functions, while their administrative functions—such as safety, facilities, and property management—are divided mainly between two other Indian Affairs’ offices, BIA and the Office of the Deputy Assistant Secretary of Management. However, frequent turnover of leadership in these offices has hampered efforts to improve Indian education over the years. For example, in September 2013, we reported that from 2000 through 2013 there were repeated changes in the tenure of acting and permanent assistant secretaries of Indian Affairs as well as acting and permanent directors of BIE. Since that time, leadership turnover has continued in these offices. For example, in March 2016, the previous BIE director was removed for violating federal hiring practices. ensure that its regional offices annually inspect the safety and health of all BIE school campuses, as required, or that the information it collects through inspections is complete and accurate, and we recommended that it take such actions. Specifically, we found that Indian Affairs did not conduct annual inspections at about 1 in 3 BIE schools from fiscal years 2012 through 2015. Further, 4 out of 10 regions did not conduct any inspections during this period. We also found that Indian Affairs did not systematically evaluate the thoroughness of the school safety inspections it conducted or monitor the extent to which inspection procedures varied within and across regions. Without Indian Affairs monitoring whether safety inspectors in each of its regions are consistently following appropriate procedures and guidance, inspections in different regions may continue to vary in completeness and miss important safety and health deficiencies at schools that could pose dangers to students and staff. In September 2016, Indian Affairs provided documentation that it had conducted fiscal year 2016 annual safety inspections at all BIE schools, but it did not include evidence that it had taken steps to ensure that its inspection information was complete and accurate. As of January 2017, we had not received further updates from Indian Affairs. We will continue to monitor its efforts in this area. In a February 2015 testimony, we reported that Indian Affairs did not consistently oversee some BIE school construction projects. For example, we found that at 1 BIE school Indian Affairs managed a $3.5 million project to replace roofs, but the new roofs had leaked continually since they were installed, causing mold and ceiling damage in classrooms, according to agency documents. At another school, Indian Affairs funded construction of a $1.5 million building for school bus maintenance and bus storage, but the size of the building did not allow a large school bus to fit on the lift when the exterior door was closed. documentation demonstrating it has developed a system for overseeing Department of Education formula grants provided to BIE schools to provide services for children with special needs and to expand and improve educational programs for students from low-income families. However, Indian Affairs was unable to provide documentation showing that it has developed written procedures to oversee funds BIE schools receive from their largest funding source— Interior’s Indian School Equalization Program. Further, as of late September 2016, BIE still had not hired additional staff to oversee school spending, among other duties. Indian Affairs also reported that it developed a risk-based approach to oversee BIE school expenditures, but we found it has not taken steps to fully implement this approach. Specifically, Interior reported that its risk- based approach was to post schools’ single audits on a website to enable officials responsible for fiscal monitoring to be able to target those at greatest risk of misusing federal funds. However, in reviewing the site, we found that audits for fewer than half of the schools had been posted on the site during each of the past 2 fiscal years. Access to all or at least the vast majority of these audits is critical for Indian Affairs to be able to conduct risk-based fiscal monitoring activities. Limited federal workforce planning. We have found limited workforce planning in several key areas related to BIE schools. In a February 2015 testimony, we noted that the capacity of Indian Affairs and BIE school staff to address school facility needs is limited due to gaps in expertise, steady declines in staffing levels, and limited institutional knowledge. that the agency develop a comprehensive workforce plan to ensure that BIE has an adequate number of staff with the requisite knowledge and skills to effectively oversee BIE school expenditures. Interior agreed to implement this recommendation, but as of January 2017, it had not provided documentation that it had done so. In a September 2013 report, we found that Indian Affairs could not ensure that staffing levels at Indian Affairs’ regional offices were adjusted to meet the needs of BIE schools in regions with varying numbers of schools, ranging from 2 to 65, because it had not updated its strategic workforce plan. We recommended that Indian Affairs revise its strategic workforce plan to ensure that its employees providing administrative support to BIE are placed in the appropriate offices to ensure that regions with a large number of schools have sufficient support. Indian Affairs agreed to implement this recommendation. In September 2016, Interior provided us with a revised workforce plan for Indian Affairs. However, this plan did not include information about the workforce needs related to the Indian Affairs offices that provide administrative support to BIE and its schools and therefore did not address the recommendation. As of January 2017, we had not received further updates from Indian Affairs. We will continue to monitor its efforts in this area. Outdated and deteriorating equipment, technology, and infrastructure. Aging BIE school facilities and equipment contribute to degraded and unsafe conditions for students and staff. In a March 2016 report, we found at one school 7 boilers that failed inspection because of multiple high-risk safety deficiencies, including elevated levels of carbon monoxide and a natural gas leak. Four of the boilers were located in a student dormitory, and 3 were located in classroom buildings. All but one of the boilers were about 50 years old. While the poor condition of the boilers posed an imminent danger to the safety of students and staff, most of the boilers were not repaired until about 8 months after failing their inspection, prolonging safety risks to students and staff. In a February 2015 testimony, we reported that BIE schools face a variety of challenges with their facilities, such as aging buildings and problems that result from years of deferred maintenance. For example, at one school built in 1959 we observed extensive cracks in concrete block walls and supports, which a BIA official said resulted from a shifting foundation. report, we found that Indian Affairs lacks sound information on safety and health conditions of all BIE schools. Specifically, we found that its nationwide information on safety and health deficiencies at schools is not complete and accurate because of key weaknesses in its inspection program. Without inspection information that is complete and accurate, Indian Affairs cannot effectively determine the magnitude and severity of safety and health deficiencies at schools. As a result, it cannot ensure BIE school facilities are safe for students and staff and currently meet safety and health requirements. We recommended that Indian Affairs take steps to ensure that the inspection information it collects on BIE schools is complete and accurate, among other things. As of January 2017, the agency had not provided documentation that it had done so. In a February 2015 testimony, we reported that issues with the quality of data on BIE school conditions—such as inconsistent data entry by schools and insufficient quality controls—makes it difficult to determine the actual number of schools in poor condition and undermines Indian Affairs’ ability to effectively track and address problems at school facilities. The Indian Health Service (IHS), an agency within HHS, is charged with providing health care to approximately 2.2 million Indians. In fiscal year 2016, IHS allocated about $1.9 billion for health services provided by federally and tribally operated hospitals, health centers, and health stations. Federally operated facilities provide mostly primary and emergency care, in addition to some ancillary or specialty services. The federally operated system consists of 26 hospitals, 56 health centers, and 32 health stations. IHS hospitals range in size from 4 to 133 beds. exacerbate the severity of a patient’s condition and necessitate more intensive treatment. PPACA expanded or created new health care coverage options that may benefit Indians, including a state option to expand Medicaid eligibility to individuals with incomes at or below 138 percent of the federal poverty level (FPL), federal premium tax credits for individuals obtaining insurance through health insurance exchanges with incomes between 100 and 400 percent of the FPL, and cost sharing exemptions for Indians who are members of federally recognized tribes with incomes at or below 300 percent of the FPL who purchase insurance through the exchanges. In September 2013, we estimated that PPACA’s new coverage options may allow hundreds of thousands of Indians to obtain health care benefits for which they were not previously eligible, assuming all states expanded their Medicaid programs. We reported that, if Indians enroll in one of these options and choose to receive care through IHS, increased revenue from third party payers such as Medicaid could free up IHS resources and help alleviate pressure on the IHS budget. Inadequate oversight of federal activities. IHS provides inadequate oversight of health care, both of its federally operated facilities and through the PRC program. In January 2017, we reported that IHS provided limited and inconsistent oversight of the quality of care provided in its federally operated facilities. As a result, the agency cannot ensure that patients receive quality care. IHS has recently finalized a quality framework designed to address these deficiencies and improve its oversight. We recommended that, as part of implementing the quality framework, IHS ensure that agency-wide standards for the quality of care provided in its federally operated facilities are developed, and that facility performance in meeting these standards is systematically monitored over time. HHS agreed with our recommendation and cited steps it already has underway to improve the quality of care in IHS’s federally-operated facilities. HHS described the development of the IHS Quality Framework and Implementation Plan released in November 2016. However, as of January 2017, IHS has not developed agency-wide standards for the quality of care provided in its federally operated facilities. weeks for an initial exam with a family medicine physician, and new patients in internal medicine may wait 3 to 4 months for an initial exam. IHS has delegated this responsibility to its area offices and has not conducted any systematic, agency-wide oversight of the timeliness of primary care. Without these standards, IHS cannot know whether it is providing sufficient primary care to meet the needs of its patients. We recommended that IHS develop and communicate specific agency-wide standards for patient wait times in federally operated facilities, monitor patient wait times, and take corrective actions when standards are not met. HHS stated that it agreed with the need to improve patient wait times at IHS federally-operated facilities to ensure that primary care is available and accessible to Indians. HHS described its plan to establish an Office of Quality Health Care at IHS Headquarters to provide for national policy and oversight of critical quality improvement strategies and ensure their success and accountability. As of January 2017, IHS has not established the Office of Quality Health Care, and has not developed agency-wide standards for patient wait times in federally operated facilities. specified allocation formula that may vary across areas. Neither bill became law. Ineffective collaboration and limited communication. In a June 2012 report, we found that IHS does not require its area offices to inform IHS headquarters if they distribute program increase funds to local PRC programs using different criteria than the PRC allocation formula suggested by headquarters. As a result, IHS may be unaware of additional funding variation across areas. We recommended that IHS develop written policies and procedures to require area offices to notify IHS when they diverge from the formula for allocating funds to PRC programs. HHS concurred with this recommendation and noted that guidance requiring area offices to report these changes to IHS headquarters would be added to the PRC manual, but did not specify a date for doing so. As of January 2017, IHS has not added this guidance to the manual. Limited federal workforce planning. In a March 2016 report, we reported that IHS officials told us that an insufficient workforce was the biggest impediment to ensuring patients could access timely primary care. According to IHS’s 2016 budget justification, there were over 1,550 vacancies for health care professionals throughout the IHS health care system including: physicians, dentists, nurses, pharmacists, physician assistants, and nurse practitioners. According to IHS officials, staffing vacancies have created obstacles for facilities working to provide primary care. In September 2013, we found that IHS did not have an effective plan in place to ensure that sufficient staff would be in place to assist with increased enrollment and third party billing under expanded Medicaid or the exchanges beginning in 2014 under PPACA. Without a plan, IHS may not be able to ensure that a sufficient number of staff are available to assist with enrollment and to process increased third-party payments. We recommended that IHS realign current resources and personnel to increase capacity to assist with these efforts. HHS neither agreed nor disagreed with this recommendation. As of January 2017, IHS has not implemented this recommendation. facility, and some PRC program officials noted that their number of staff was below these standards, contributing to delays in determining eligibility for the program and processing payments to providers. We recommended that IHS use available PRC funds to pay for PRC program staff. HHS disagreed with this recommendation, stating its intent to use PRC funds to pay only for services, not staff, since PRC funding was not sufficient to pay for all needed services. We acknowledged the difficult challenges and choices faced by PRC programs when program funds are not available to pay for all needed services, but maintained that without using funds to pay for staff, some PRC programs would continue to have staffing levels below IHS’s staffing standards model, which contributes to delays in administering the program. As of January 2017, IHS has not implemented this recommendation. Outdated and deteriorating equipment, technology, and infrastructure. In March 2016, we reported that IHS officials told us that access to timely primary care at some health care facilities serving Indian communities is hindered by outdated medical and telecommunications equipment, such as analog mammography machines and telephones with an insufficient number of lines for scheduling patient appointments. Incomplete and inaccurate data. In a June 2012 report, we found that IHS officials do not believe that its PRC program data are complete or that areas collect these data in the same manner. Without accurate data, IHS cannot know if the proportion of actual PRC users is consistent across areas. We made three recommendations to improve the accuracy of the PRC data for future allocations, including using actual counts of PRC users, using variation in levels of available hospital services in the funding formula, and, as mentioned above, requiring area offices to notify headquarters when they diverge from the formula for allocating funds to PRC programs. HHS did not concur with our recommendation to use actual counts of PRC users, rather than all IHS users, in any formula for allocating PRC funds that relies on the number of active users, stating that IHS’s combined count of all users is intended to reflect the health care needs of PRC users. HHS concurred with our recommendation that IHS use variations in levels of available hospital services to allocate PRC funds. As of January 2017, IHS has not implemented these recommendations. that IHS take steps to improve its ability to measure timeliness by modifying its claims data system to distinguish between two types of referrals and establish separate timeframe targets for each type. HHS concurred with this recommendation, but as of January 2017, IHS has not implemented it. Developing energy resources is vital for the livelihood and long-term economic wellbeing of some Indian tribes and their members. More specifically, energy development provides opportunities to improve poor living conditions and decrease high levels of poverty. Tribes and their members determine how to use Indian energy resources to meet the needs of the community. However, if the resources are held in trust or restricted status, BIA—through its 12 regional offices, 85 agency offices, and other supporting offices—generally must review and approve leases, permits, and other documents required to develop the resources. In 2014, in response to tribal requests for increased coordination and efficient management of their resources from the numerous federal regulatory agencies involved with Indian energy development, Interior took initial steps to form a new office, the Indian Energy Service Center (Service Center)—with BIA as the lead agency. According to Interior’s fiscal year 2016 budget justification, the Service Center is intended to, among other things, help expedite the leasing and permitting processes associated with Indian energy development. we reviewed identified that BIA’s review and approval process can be lengthy and increase development costs and project development times, resulting in missed development opportunities, lost revenue, and jeopardized viability of projects. For example, according to a tribal official, BIA took as long as 8 years to review some of its energy-related documents. In the meantime, the tribe estimates it lost $95 million in revenues it could have earned from tribal permitting fees, oil and gas severance taxes, and royalties. In another example, one lease for a proposed utility-scale wind project took BIA more than 3 years to review and approve. According to a tribal official, the long review time has contributed to uncertainty about the continued viability of the project because data used to support the economic feasibility and environmental impact of the project became too old to accurately reflect current conditions. We recommended that Interior direct BIA to develop a documented process to track its review and response times. In response, Interior stated it would try to implement a tracking and monitoring mechanism by the end of fiscal year 2017 for oil and gas leases. However, it did not indicate whether it intends to track and monitor its review of other energy-related documents that must be approved before tribes can develop resources. Without comprehensively tracking and monitoring its review process, BIA cannot ensure that documents are moving forward in a timely manner, and lengthy review times may continue to contribute to lost revenue and missed development opportunities for Indian tribes. In a June 2016 report, we found that BIA took steps to improve its process for reviewing revenue-sharing agreements, but still had not established a systematic mechanism for monitoring or tracking. With respect to revenue sharing agreements, we recommended, among other things, that BIA develop a systematic mechanism for tracking these agreements through the review and approval process. Interior concurred with these recommendations and stated that BIA will develop such a mechanism and in the meantime use a centralized tracking spreadsheet. serve as a single point of contact for permitting requirements. Without serving in these capacities, the Service Center will be limited in its ability to improve efficiencies in the federal regulatory process. We also found that in forming the Service Center, BIA did not involve key stakeholders, such as the Department of Energy—an agency with significant energy expertise—and BIA employees from agency offices. By not involving key stakeholders, BIA has missed an opportunity to incorporate their expertise into its efforts. We recommended that BIA include other regulatory agencies in the Service Center so that it can act as a single point of contact or a lead agency to coordinate and navigate the regulatory process. We also recommended BIA establish formal agreements with key stakeholders, such as DOE, that identify the advisory or support role of the office, and establish a process for seeking and obtaining input from key stakeholders, such as BIA employees, on the Service Center activities. Interior agreed with our recommendations and described plans to address them. In 2005, Congress provided an option for tribes to enter into an agreement with the Secretary of the Interior that allows the tribe, at its discretion, to enter into leases, business agreements, and rights-of-way agreements for energy resource development on tribal lands without review and approval by the Secretary. However, in a June 2015 report, we found that uncertainties about Interior’s regulations for implementing this option have contributed to deter a tribe from pursuing an agreement. We recommended that Interior provide clarifying guidance. In August 2015, Interior stated the agency is considering further guidance. As of December 2016, Interior had not provided additional guidance. Limited federal workforce planning. In November 2016, we found BIA had high vacancy rates at some agency offices and that the agency had not conducted key workforce planning activities, such as identifying the key workforce skills needed to achieve agency goals, and assessing any skill gaps. These workforce issues contribute to BIA’s management shortcomings that have hindered Indian energy development. Until BIA undertakes necessary workforce planning activities, it cannot ensure that it has a workforce with the right skills, appropriately aligned to meet the agency’s goals and tribal priorities. We recommended that BIA assess critical skills and competencies needed to fulfill its responsibilities related to energy development and identify potential gaps. We also recommended BIA establish a documented process for assessing BIA’s workforce composition at agency offices taking into account BIA’s mission, goals, and tribal priorities. Interior agreed with our recommendations and stated it is taking steps to implement them. Outdated and deteriorating equipment, technology, and infrastructure. In June 2015, we found that BIA does not have the necessary geographic information system (GIS) mapping data for identifying who owns and uses resources, such as existing leases. Interior guidance states that efficient management of oil and gas resources relies, in part, on GIS mapping technology because it allows managers to easily identify resources available for lease and where leases are in effect. According to a BIA official, without GIS data, the process of identifying transactions, such as leases and access agreements for Indian land and resources, can take significant time and staff resources to search paper records stored in multiple locations. We recommended BIA should take steps to improve its GIS capabilities to ensure it can verify ownership in a timely manner. Interior stated it will enhance mapping capabilities by developing a national dataset composed of all Indian land tracts and boundaries in the next 4 years. Incomplete and inaccurate data. In June 2015, we found that BIA did not have the data it needs to verify who owns some Indian oil and gas resources or identify where leases are in effect. In some cases, BIA cannot verify ownership because federal cadastral surveys—the means by which land is defined, divided, traced, and recorded—cannot be found or are outdated. The ability to account for Indian resources would assist BIA in fulfilling its federal trust responsibility, and determining ownership is a necessary step for BIA to approve leases and other energy-related documents. We recommended that Interior direct BIA to identify land survey needs. Interior stated it will develop a data collection tool to identify the extent of its survey needs in fiscal year 2016. As of December 2016, Interior had not provided information on the status of its efforts to develop a data collection tool. For additional information about this high-risk area related to our Indian Education work, contact Melissa Emrey-Arras at (617) 788-0534 or EmreyArrasM@gao.gov. For additional information about this high-risk area related to our Indian Health work, contact Kathleen King at (202) 512-7114 or KingK@gao.gov. For additional information about this high- risk area related to our Indian Energy work, contact Frank Rusco at (202) 512-3841 or RuscoF@gao.gov. Indian Affairs: Key Actions Needed to Ensure Safety and Health at Indian School Facilities. GAO-16-313. Washington, D.C.: March 10, 2016. Indian Affairs: Preliminary Results Show Continued Challenges to the Oversight and Support of Education Facilities. GAO-15-389T. Washington, D.C.: February 27, 2015. Indian Affairs: Bureau of Indian Education Needs to Improve Oversight of School Spending. GAO-15-121. Washington, D.C.: November 13, 2014. Indian Affairs: Better Management and Accountability Needed to Improve Indian Education. GAO-13-774. Washington, D.C.: September 24, 2013. Indian Health Service: Actions Needed to Improve Oversight of Quality of Care. GAO-17-181. Washington, D.C.: January 9, 2017. Indian Health Service: Actions Needed to Improve Oversight of Patient Wait Times. GAO-16-333. Washington, D.C.: March 29, 2016. Indian Health Service: Opportunities May Exist to Improve the Contract Health Services Program. GAO-14-57. Washington, D.C.: December 11, 2013. Indian Health Service: Most American Indians and Alaska Natives Potentially Eligible for Expanded Health Coverage, but Action Needed to Increase Enrollment. GAO-13-553. Washington, D.C.: September 5, 2013. Indian Health Service: Capping Payment Rates for Nonhospital Services Could Save Millions of Dollars for Contract Health Services. GAO-13-272. Washington, D.C.: April 11, 2013. Indian Health Service: Action Needed to Ensure Equitable Allocation of Resources for the Contract Health Services Program. GAO-12-446. Washington, D.C.: June 15, 2012. Indian Health Service: Increased Oversight Needed to Ensure Accuracy of Data for Estimating Contract Health Service Need. GAO-11-767. Washington, D.C.: September 23, 2011. Indian Energy Development: Additional Actions by Federal Agencies Are Needed to Overcome Factors Hindering Development. GAO-17-43. Washington, D.C.: November 10, 2016. Indian Energy Development: Interior Could Do More to Improve Its Process for Approving Revenue-Sharing Agreements. GAO-16-553. Washington, D.C.: June 13, 2016. Indian Energy Development: Poor Management by BIA Has Hindered Energy Development on Indian Lands. GAO-15-502. Washington, D.C.: June 8, 2015. One of the most important functions of the U.S. Census Bureau (Bureau) is conducting the decennial census of the U.S. population, which is mandated by the Constitution and provides vital data for the nation. This information is used to apportion the seats of the U.S. House of Representatives; realign the boundaries of the legislative districts of each state; allocate billions of dollars in federal financial assistance; and provide social, demographic, and economic profiles of the nation’s people to guide policy decisions at each level of government. A complete count of the nation’s population is an enormous challenge as the Bureau seeks to control the cost of the census while it implements several new innovations and manages the processes of acquiring and developing new and modified information technology (IT) systems supporting them. Over the past 3 years, we have made 30 recommendations to help the Bureau design and implement a more cost-effective census for 2020; however, only 6 of them had been fully implemented as of January 2017. The cost of the census, in terms of cost for counting each housing unit, has been escalating over the last several decennials. The 2010 Census was the costliest U.S. Census in history at about $12.3 billion, and was about 31 percent more costly than the $9.4 billion 2000 Census (in 2020 dollars). The average cost for counting a housing unit increased from about $16 in 1970 to around $92 in 2010 (in 2020 constant dollars). Meanwhile, the return of census questionnaires by mail (the primary mode of data collection) declined over this period from 78 percent in 1970 to 63 percent in 2010. Declining mail response rates—a key indicator of a cost-effective census—are significant and lead to higher costs. This is because the Bureau sends enumerators to each non-responding household to obtain census data. As a result, non-response follow-up (NRFU) is the Bureau’s largest and most costly field operation. In many ways, the Bureau has had to invest substantially more resources each decade to match the results of prior enumerations. The Bureau plans to implement several new innovations in its design of the 2020 Census. In response to our recommendations regarding past decennial efforts and other assessments, the Bureau has fundamentally reexamined its approach for conducting the 2020 Census. Its plan for 2020 includes four broad innovation areas that it believes will save it over $5 billion (2020 constant dollars) when compared to what it estimates conducting the census with traditional methods would cost. The Bureau’s innovations include (1) using the Internet as a self-response option, which the Bureau has never done on a large scale before; (2) verifying most addresses using “in-office” procedures and on-screen imagery rather than street-by-street field canvassing; (3) re-engineering data collection methods such as by relying on an automated case management system; and (4) in certain instances, replacing enumerator collection of data with administrative records (information already provided to federal and state governments as they administer other programs). These innovations show promise for a more cost-effective head count. However, they also introduce new risks, in part, because they include new procedures and technology that have not been used extensively in earlier decennials, if at all. The Bureau is also managing the acquisition and development of new and modified IT systems, which add complexity to the design of the census. To help control census costs, the Bureau plans to significantly change the methods and technology it uses to count the population, such as offering an option for households to respond to the survey via the Internet or phone, providing mobile devices for field enumerators to collect survey data from households, and automating the management of field operations. This redesign relies on acquiring and developing many new and modified IT systems, which could add complexity to the design. These cost risks, new innovations, and the acquisition and development of IT systems for the 2020 Census, along with other challenges we have identified in recent years, raise serious concerns about the Bureau’s ability to conduct a cost-effective enumeration. Based on these concerns, we have concluded that the 2020 Census is a high-risk area and have added it to the High-Risk List in 2017. To help the Bureau mitigate the risks associated with its fundamentally new and complex innovations for the 2020 Census, the commitment of top leadership is needed to ensure the Bureau’s management, culture, and business practices align with a cost-effective enumeration. For example, the Bureau needs to continue strategic workforce planning efforts to ensure it has the skills and competencies needed to support planning and executing the census. It must also rigorously test individual census-taking activities to provide information on their feasibility and performance, their potential for achieving desired results, and the extent to which they are able to function together under full operational conditions. We have recommended that the Bureau also ensure that its scheduling adheres to leading practices and be able to support a quantitative schedule risk assessment, such as by having all activities associated with the levels of resources and effort needed to complete them. The Bureau has stated that it has begun maturing project schedules to ensure that the logical relationships are in place and plans to conduct a quantitative risk assessment. We will continue to monitor the Bureau’s efforts. The Bureau must also improve its ability to manage, develop, and secure its IT systems. For example, the Bureau needs to prioritize its IT decisions and determine what information it needs in order to make those decisions. In addition, the Bureau needs to make key IT decisions for the 2020 Census in order to ensure they have enough time to have the production systems in place to support the end-to-end system test. To this end, we recommended the Bureau ensure that the methodologies for answering the Internet response rate and IT infrastructure research questions are determined and documented in time to inform key design decisions. Further, given the numerous and critical dependencies between the Census Enterprise Data Collection and Processing (CEDCaP) program—a large and complex modernization program within the IT Directorate—and 2020 Census programs, their parallel implementation tracks, and the 2020 Census’s immovable deadline, we recommended that the Bureau establish a comprehensive and integrated list of all interdependent risks facing the two programs, and clearly identify roles and responsibilities for managing this list. The Bureau stated that it plans to take actions to address our recommendations. It is also critical for the Bureau to have better oversight and control over its cost estimation process and we have recommended that the Bureau ensure its cost estimate is consistent with our leading practices. For example, the Bureau will need to, among other practices, document all cost-influencing assumptions; describe estimating methodologies used for each cost element; ensure that variances between planned and actual cost are documented, explained, and reviewed; and include a comprehensive sensitivity analysis, so that it can better estimate costs. We also recommended that the Bureau implement and institutionalize processes or methods for ensuring control over how risk and uncertainty are accounted for and communicated within its cost estimation process. The Bureau agreed with our recommendations, and we are currently conducting a follow-up audit of the Bureau’s most recent cost estimate and will determine whether the Bureau has implemented them. Sustained congressional oversight will be essential as well. In 2015 and 2016, congressional committees held five hearings focusing on the progress of the Bureau’s preparations for the decennial. Going forward, active oversight will be needed to ensure these efforts stay on track, the Bureau has needed resources, and Bureau officials are held accountable for implementing the enumeration as planned. We will continue monitoring the Bureau’s efforts to conduct a cost- effective enumeration. To this end, we have ongoing work focusing on such topics as the Bureau’s updated life-cycle cost estimate and the readiness of IT systems for the 2018 End-to-End Test, which is essentially a dress rehearsal for the decennial. The Bureau is planning many previously unused innovations for the 2020 Census: The decennial census is an inherently challenging undertaking, requiring many moving parts to come together in a short time and be completed according to a prescribed schedule. To help control costs and maintain accuracy, the Bureau is introducing significant change to how it conducts the decennial census in 2020. Its planned innovations include (1) making greater use of local data, imagery, and other office procedures to build its address list; (2) improving self- response by encouraging respondents to use the Internet and telephone; (3) using administrative records to reduce field work; and (4) reengineering field operations using technology to reduce manual effort and improve productivity. While the census is under way, the tolerance for any breakdowns is quite small. As a result, given the new four innovation areas for the 2020 Census, it will be imperative that the Bureau have systems and operations in place for the 2018 End-to-End Test. Using administrative records is promising but introduces challenges: Although administrative records—information already provided to the government as it administers other programs—have been discussed and used for the decennial census since the 1970s, the Bureau plans a more significant role for them to reduce the amount of data collection fieldwork, which has the potential to help significantly limit the cost increases of the 2020 Census. The Bureau has estimated that using these records could save up to $1.4 billion compared to traditional census methods. In 2015, we found that while the Bureau has already demonstrated the feasibility of using administrative records, it still faces challenges with using them for the 2020 Census. For example, although the Bureau has no control over the accuracy of data provided to it by other agencies, it is responsible for ensuring that data it uses for 2020 Census are of sufficient quality for their planned uses. Another challenge we identified is the extent to which the public will accept government agencies sharing personal data for the purposes of the census. Related concerns involve trust in the government and perceptions about burden on respondents as well the social benefits of agencies sharing data. Moreover, in addition to using administrative records to reduce fieldwork, the Bureau is considering several additional opportunities to leverage administrative records to help improve the cost and quality of the 2020 Census. It will be important for the Bureau to set deadlines for deciding which records it will use and for which purpose to help the Bureau monitor its progress and prioritize which activities—or records—to continue pursuing, or to abandon, if time becomes a constraint. The Bureau needs to identify and analyze root causes of non- interviews during testing: When households do not respond to the census and when the Bureau does not obtain information about the household while knocking on doors during its NRFU operation, the Bureau may have to impute attributes of the household based on the demographic characteristics of surrounding housing units as well as on administrative records. We reported in 2016 that during the Bureau’s 2016 Census Site Test, the Bureau experienced about 20 and 30 percent of its test workload as non-interviews at its two test sites in Harris County, Texas, and Los Angeles County, California, respectively. According to the Bureau, non-interviews are cases where no data or insufficient data are collected, either because enumerators make six attempted visits without success (the maximum number the Bureau allows), or are not completed due to, for example, language barriers or dangerous situations. Identifying root causes of problems is something we look for when determining progress within a high-risk area. Accordingly, while the 2016 Census Test non-interview rate is not necessarily a precursor to the 2020 non-interview rate, because of its relationship to the cost and quality of the census, it will be important for the Bureau to better understand the factors contributing to it. Bureau cancelled field tests for 2017: The Bureau plans to conduct additional research through 2018 in order to further refine the design of the 2020 Census, but recently had to alter its approach. On October 18, 2016, the Bureau decided to stop two field test operations planned for fiscal year 2017 in order to mitigate risks from funding uncertainty. Specifically, the Bureau said it would stop all planned field activity, including local outreach and hiring, at its test sites in Puerto Rico, North and South Dakota, and Washington State. The Bureau will not carry out planned field tests of its mail-out strategy and follow up for non-response in Puerto Rico or its door-to-door enumeration. The Bureau also cancelled plans to update its address list in the Indian lands and surrounding areas in the three states. However, the Bureau will continue with other planned testing in fiscal year 2017, such as those focusing on systems readiness and Internet response. Further, the Bureau said it would consider incorporating the cancelled field activities elements within the 2018 End-to-End Test. The Bureau maintains that stopping the 2017 Field Test will help prioritize readiness for the 2018 End-to-End Test, and mitigate risk. Nevertheless, as we reported in November 2016, it also represents a lost opportunity to test, refine, and integrate operations and systems, and it puts more pressure on the 2018 Test to demonstrate that enumeration activities will function as needed for 2020. The Bureau needs to strengthen the management and oversight of all IT programs, systems, and contractors supporting the decennial: The redesign of the 2020 Census relies on many new and modified IT systems. In addition to those systems that are being managed and developed within the 2020 Census Directorate, the 2020 program is also heavily dependent upon 11 systems that are being delivered by the CEDCaP program—a large and complex modernization program within the IT Directorate. Importantly, as a result of the Bureau’s challenges in key IT internal controls and its rapidly approaching deadline, we identified CEDCaP as an IT investment in need of attention in the February 2015 high-risk report. In addition, in August 2016, we reported that the 2020 program and CEDCaP program lacked effective processes for managing their schedule, risk, and requirements interdependencies. For example, among tens of thousands of schedule activities, the two programs were expected to manually identify activities that are dependent on each other, and rather than establishing one integrated dependency schedule, the programs maintained two separate dependency schedules. We reported that this contributed to misaligning milestones between the programs. We stated that until the two programs establish schedules that are completely aligned, develop an integrated list of all interdependent risks, and finalize processes for managing requirements, both programs are at risk of not delivering their programs as expected. The Bureau is also relying on contractor support in many key areas, including technically integrating all of the key systems and infrastructure, and developing many of the key data collection systems. Specifically, in August 2016, the Bureau hired a contractor to technically integrate the 2020 Census systems and infrastructure, to include evaluating the systems and infrastructure, developing the infrastructure (e.g., cloud or data center) to meet the Bureau’s scalability and performance needs, integrating all of the systems, and supporting testing activities. In addition, the Bureau is relying on contractors to develop a number of key systems and infrastructure; these activities include (1) developing the IT platform that will be used to collect data from a majority of respondents—by using the Internet, telephone, and NRFU activities; (2) procuring the mobile devices and cellular service to be used for NRFU; and (3) developing the IT infrastructure in the field offices. A greater reliance on contractors for these key components of the 2020 Census requires the Bureau to focus on sound management and oversight of the key contracts, projects, and systems. Key IT decisions need to be prioritized and made in time for full end- to-end testing in 2017: We have issued a series of reports and testimonies that have discussed the Bureau’s challenges in prioritizing and making IT decisions. In April 2014, we reported that the Bureau had not prioritized key IT research and testing needed for its 2020 Census design decisions. In February 2015, we reported that the Bureau had not determined how key IT research questions would be answered—such as the expected rate of respondents using its Internet response option or the IT infrastructure that would be needed to support this option. Further, we testified, in November 2015, that key IT decisions needed to be made soon because the Bureau was less than 2 years away from preparing for end-to-end testing of all systems and operations, and there was limited time to implement them. We emphasized that the Bureau had deferred key IT-related decisions, and that it was running out of time to develop, acquire, and implement the systems it will need to deliver the redesign. In October 2016, Bureau officials stated that they had 16 IT-related and 32 partially IT-related decisions left to make, including the uses of cloud- based solutions, the tools and test materials to be used during integration testing, and the expected scale of the system workload for those respondents who do not use the Bureau-provided Census ID. It will be important to make these decisions in enough time to develop solutions before the End-to-End Test begins in August 2017. Information security risks and challenges need to be addressed to secure the Bureau’s systems and data: In August 2016, we described the significant challenges that the Bureau faces in securing systems and data, such as developing policies and procedures to minimize the threat of phishing aimed at stealing personal information and ensuring that individuals gain only limited and appropriate access to 2020 Census data. Because many of the systems to be used in the 2018 End-to-End Test are not yet fully developed, the Bureau has not finalized all of the controls to be implemented, completed an assessment of those controls, developed plans to remediate any control weaknesses, and determined whether there is time to fully remediate any weaknesses before the system test. Estimation does not conform to best practices: We reviewed the Bureau’s October 2015 estimated comprehensive life-cycle cost for the 2020 Census and reported in 2016 that it did not conform to best practices, and, as a result, the estimate was unreliable. Cost estimates that appropriately account for risks facing an agency can help an agency manage large, complex activities like the 2020 Census, as well as help Congress make funding decisions and provide oversight. Cost estimates are also necessary to inform decisions to fund one program over another, to develop annual budget requests, to determine what resources are needed, and to develop baselines for measuring performance. We found that although the Bureau had taken significant steps to improve its capacity to carry out an effective cost estimate, its estimate for the 2020 Census partially met the characteristics of two best practices (comprehensive and accurate) and minimally met the other two (well- documented and credible), where all four need to be substantially met in order for an estimate to be deemed high-quality. According to best practices, to be comprehensive an estimate has to have enough detail to ensure that cost elements are neither omitted nor double-counted, and all cost-influencing assumptions are detailed in the estimate’s documentation, among other things. While Bureau officials were able to provide us with several documents that included projections and assumptions that were used in the cost estimate, we found the estimate to be partially comprehensive because it is unclear if all life-cycle costs are included in the estimate or if the cost estimate completely defines the program. Credible cost estimates clearly identify limitations due to uncertainty or bias surrounding the data or assumptions, according to best practices. We found the estimate minimally met best practices for this characteristic in part because the Bureau carried out its risk and uncertainty analysis only for about $4.6 billion (37 percent) of the $12.5 billion total estimated life-cycle cost, excluding, for example, consideration of uncertainty over what the decennial census’s estimated part will be of the total cost of CEDCaP. Accurate estimates are unbiased and contain few mathematical mistakes. We found the estimate partially met best practices for this characteristic, in part because we could not independently verify the calculations the Bureau used within its cost model, which the Bureau did not have documented or explained outside its limited access cost estimation software. Finally, the Bureau’s cost-estimate was not well-documented. Improving cost estimation practices will increase the reliability of the Bureau’s cost estimate, which will, among other things, help improve decision making, budget formulation, progress measurement, and accountability for results. The Bureau’s cost estimate had other shortcomings as well. For example, in 2016 we found that the Bureau’s cost estimation team did not record how and why it changed assumptions that were provided to it, and the Bureau lacked written guidance and procedures for the cost estimation team to follow. Moreover, key risks were not accounted for in the cost estimate although this is an important best practice. For additional information about this high-risk area, contact Robert Goldenkoff at (202) 512-2757 or GoldenkoffR@gao.gov; or David Powner at (202) 512-9286 or PownerD@gao.gov. 2020 Census: Additional Actions Could Strengthen Field Data Collection Efforts. GAO-17-191. Washington, D.C.: January 26, 2017. Information Technology: Better Management of Interdependencies between Programs Supporting 2020 Census Is Needed. GAO-16-623. Washington, D.C.: August 9, 2016. 2020 Census: Census Bureau Needs to Improve Its Life-Cycle Cost Estimating Process. GAO-16-628. Washington, D.C.: June 30, 2016. 2020 Census: Additional Actions Would Help the Bureau Realize Potential Administrative Records Cost Savings. GAO-16-48. Washington, D.C.: October 20, 2015. 2020 Census: Key Challenges Need to Be Addressed to Successfully Enable Internet Response. GAO-15-225. Washington, D.C.: February 5, 2015. 2020 Census: Census Bureau Can Improve Use of Leading Practices When Choosing Address and Mapping Sources. GAO-15-21. Washington, D.C.: October 2, 2014. 2020 Census: Bureau Needs to Improve Scheduling Practices to Enhance Ability to Meet Address List Development Deadlines. GAO-14-59. Washington, D.C.: November 21, 2013. 2020 Census: Additional Steps Are Needed to Build on Early Planning. GAO-12-626. Washington, D.C.: May 17, 2012. Decennial Census: Additional Actions Could Improve the Census Bureau’s Ability to Control Costs for the 2020 Census. GAO-12-80. Washington, D.C.: January 24, 2012. 2010 Census: Census Bureau Has Made Progress on Schedule and Operational Control Tools, but Needs to Prioritize Remaining System Requirements. GAO-10-59. Washington, D.C.: November 13, 2009. The federal government’s environmental liability has been growing for the past 20 years and is likely to continue to increase. For fiscal year 2016, the federal government’s estimated environmental liability was $447 billion—up from $212 billion for fiscal year 1997. However, this estimate does not reflect all of the future cleanup responsibilities federal agencies may face. Because of the lack of complete information and the often inconsistent approach to making cleanup decisions, federal agencies cannot always address their environmental liabilities in ways that maximize the reduction of health and safety risks to the public and the environment in a cost effective manner. The federal government is financially liable for cleaning up areas where federal activities have contaminated the environment. Various federal laws, agreements with states, and court decisions require the federal government to clean up environmental hazards at federal sites and facilities—such as nuclear weapons production facilities and military installations. Such sites are contaminated by many types of waste. numerous site-specific factors, stakeholder agreements, and legal provisions. We have also found that some agencies do not take a holistic, risk- informed approach to environmental cleanup that aligns limited funds with the greatest risks to human health and the environment. Since 1994, we have made at least 28 recommendations related to addressing the federal government’s environmental liability. These include 22 recommendations to the Department of Energy (DOE) or the Department of Defense (DOD), 1 recommendation to the Office of Management and Budget to consult with Congress on agencies’ environmental cleanup costs, 1 recommendation to the Department of Agriculture (USDA), and 4 recommendations to Congress to change the law governing cleanup activities. Of these, 13 recommendations remain unimplemented. If implemented, these steps would improve the completeness and reliability of the estimated costs of future cleanup responsibilities and lead to more risk-based management of the cleanup work. Future progress in addressing the U.S. government’s environmental liabilities depends, among other things, on how effectively federal departments and agencies set priorities, under increasingly restrictive budgets, that maximize the risk reduction and cost-effectiveness of cleanup approaches. As a first step, some departments and agencies may need to improve the completeness of information about long-term cleanup responsibilities and their associated costs so that decision makers, including Congress, can consider the full scope of the federal government’s cleanup obligations. As a next step, certain departments, such as DOE, may need to change how they establish cleanup priorities. For example, DOE’s current practice of negotiating agreements with individual sites without considering other sites’ agreements or available resources may not ensure that limited resources will be allocated to reducing the greatest environmental risks, and costs will be minimized. We have recommended actions to federal agencies that, if implemented, would improve the completeness and reliability of the estimated costs of future cleanup responsibilities and lead to more risk-based management of the cleanup work. In 1994, we recommended that Congress amend certain legislation to require agencies to report annually on progress in implementing plans for completing site inventories, estimates of the total costs to clean up their potential hazardous waste sites, and agencies’ progress toward completing their site inventories and on their latest estimates of total cleanup costs. We believe these recommendations are as relevant, if not more so, today. In 2015, we recommended that the USDA develop plans and procedures for completing their inventories of potentially contaminated sites. USDA disagreed with this recommendation. However, we continue to believe that USDA’s inventory of contaminated and potentially contaminated sites—in particular, abandoned mines, primarily on Forest Service land—is insufficient for effectively managing USDA’s overall cleanup program. Interior is also faced with an incomplete inventory of abandoned mines that they are working to improve. In 2006, we recommended that DOD develop, document, and implement a program for financial management review, assessment, and monitoring of the processes for estimating and reporting environmental liabilities. This recommendation has not been implemented. We have found in the past that DOE’s cleanup strategy is not risk- based and should be re-evaluated. DOE’s decisions are often driven by local stakeholders and certain requirements in federal facilities agreements and consent decrees. In 1995, we recommended that DOE set national priorities for cleaning up its contaminated sites using data gathered during ongoing risk evaluations. This recommendation has not been implemented. In 2003, we recommended that DOE ask Congress to clarify its authority for designating certain waste with relatively low levels of radioactivity as waste incidental to reprocessing, and therefore not managed as high-level waste. In 2004, DOE received this specific authority from Congress for the Savannah River and Idaho Sites, thereby allowing DOE to save billions of dollars in waste treatment costs. The law, however, excluded the Hanford Site. More recently, in 2015 we found that DOE is not comprehensively integrating risks posed by National Nuclear Security Administration’s (NNSA) nonoperational contaminated facilities with EM’s portfolio of cleanup work. By not integrating nonoperational facilities from NNSA, EM is not providing Congress with complete information about EM’s current and future cleanup obligations as Congress deliberates annually about appropriating funds for cleanup activities. We recommended that DOE integrate its lists of facilities prioritized for disposition with all NNSA facilities that meet EM’s transfer requirements, and that EM should include this integrated list as part of the Congressional Budget Justification for DOE. DOE neither agreed nor disagreed with this recommendation. Of the federal government’s estimated $447 billion environmental liability—up from $212 billion for fiscal year 1997—DOE is responsible for by far the largest share of the liability and DOD is responsible for the second largest share. The rest of the federal government makes up the remaining 3 percent of the liability with agencies such as the National Aeronautics and Space Administration (NASA) and the Departments of Transportation, Veterans Affairs, USDA, and Interior holding large liabilities (see figure 13). DOE was responsible for over 80 percent ($372 billion) of the U.S. government’s fiscal year 2016 reported environmental liability, mostly related to nuclear waste cleanup. DOE’s total reported environmental liability has generally increased since fiscal year 2000 (see figure 14). According to audit documentation related to DOE’s fiscal year 2016 financial statements, 50 percent of the DOE’s environmental liability resides at two cleanup sites: the Hanford Site in Washington State and the Savannah River Site in South Carolina. program —and delays and scope changes for major construction projects at the Hanford and Savannah River sites. We testified in February 2016 that DOE’s estimated liability does not include billions in expected costs. According to government accounting standards, environmental liability estimates include costs that are probable and reasonably estimable, meaning that costs that cannot yet be reasonably estimated are not included in total environmental liability. Examples of costs that DOE cannot yet estimate include the following: DOE has not yet developed a cleanup plan or cost estimate for the Nevada National Security Site and, as a result, the cost of future cleanup of this site was not included in DOE’s fiscal year 2015 reported environmental liability. The nearly 1,400-square-mile site has been used for hundreds of nuclear weapons tests since 1951. These activities have resulted in more than 45 million cubic feet of radioactive waste at the site. According to DOE’s financial statement, since DOE is not yet required to establish a plan to clean up the site, the costs for this work are excluded from DOE’s annually reported environmental liability. DOE’s reported environmental liability includes an estimate for the cost of a permanent nuclear waste repository, but these estimates are highly uncertain and likely to increase. In response to the termination of the Yucca Mountain repository program, DOE proposed separate repositories for defense high-level and commercial waste in March 2015. In January 2017, we reported that the cost estimate for DOE’s new approach excluded the costs and time frames for key activities. As a result, the full cost of these activities is likely more than what is reflected in DOE’s environmental liability. There are several possible causes for the large and growing amount of money that DOE will need to meet its cleanup responsibilities. First, as our and other organizations’ reports issued over the last 2 decades have found, DOE’s environmental cleanup decisions are not risk-based and its risk-based decision making is sometimes impeded by selection of cleanup remedies that are not appropriately tailored to the risks presented, and inconsistencies in the regulatory approaches followed at different sites. We and others have pointed out that DOE needs to take a nation-wide, risk-based approach to cleaning up these sites, which could reduce costs while also reducing environmental risks more quickly. Examples include the following: In 1995, we found that DOE’s cleanup strategy had been shaped by site-specific environmental agreements whose priorities and requirements had not always been consistent with technical or fiscal realities and that, under severe budgetary constraints, using many separately-negotiated agreements is not well suited to setting priorities among sites. We recommended that DOE set national priorities for cleaning up its contaminated sites. DOE responded at that time that because of limitations on the science of risk assessment, it had no intention of developing national, risk-based priorities for its cleanup work. In a later report, we found that DOE’s compliance agreements did not provide a means of prioritizing among sites and, therefore, DOE had not developed a comprehensive, relative ranking of the risks that it faces across its sites. DOE has been unsuccessful in its attempts to develop such a methodology in the past and, as a result, DOE has no systematic way to make cleanup decisions among sites based on risk. the waste’s origins rather than on its actual radiological risks. The Academy concluded that by working with regulators, public authorities, and local citizens to implement risk-informed practices, waste cleanup efforts can be done more cost-effectively. The report also suggested that statutory changes were likely needed. In 2011, the Academy also reported that DOE could realize significant benefits by providing more realistic safety- and risk-informed analyses. In 2015, a review organized by the Consortium for Risk Evaluation with Stakeholder Participation reported that DOE is not optimally using available resources to reduce risk. According to the report, factors such as inconsistent regulatory approaches and certain requirements in federal facility agreements cause disproportionate resources to be directed at lower priority risks. The report called for a more systematic effort to assess and rank risks within and among sites, including through headquarters guidance to sites, and to allocate federal taxpayer monies to remedy the highest priority risks through the most efficient means. Second, DOE’s cleanup approach is based primarily on a series of compliance agreements and consent orders between DOE, the Environmental Protection Agency (EPA), and state regulators. According to one DOE official, 40 such agreements establish the requirements for DOE’s cleanup work. We have reported in the past that these agreements include thousands of associated milestones. Some of the 40 agreements were made decades ago and may be based on outdated information about the effectiveness of certain cleanup technologies. Third, DOE may have insufficient controls in place to accurately account for its environmental liabilities. In January 2017, the DOE Inspector General reported a significant deficiency in internal control related to the reconciliation of environmental liabilities. its sites. In July 2010, we reported that DOD spent almost $30 billion from 1986 to 2008 across its environmental cleanup and restoration activities at its installations. More recently, in its July 2016 annual report to Congress on environmental cleanup, DOD reported spending an average of about $1.8 billion each year for its environmental cleanup activities from fiscal years 2011 to 2016. DOD’s inability to estimate with assurance key components of its environmental liabilities was a material weakness. We reported in January 2017 that this weakness still exists. Examples of uncertainties in DOD reported environmental liabilities include the following: DOD’s current environmental liability estimate does not include additional costs that will likely be needed for DOD to complete the cleanup for BRAC activities. We reported in January 2017 that DOD estimates it will need about $3.4 billion in addition to the $11.5 billion it has already spent to manage and complete environmental cleanup of BRAC installations. We also found that DOD’s annual report on its environmental cleanup program does not include significant costs associated with cleanup of contaminants at its installations, including those closed under BRAC. DOD’s estimate does not include the total costs associated with cleaning up weapons sites. According to DOD’s fiscal year 2015 Agency Financial Report (AFR), DOD is unable to estimate and report a liability for the environmental restoration that is needed to clean up buried chemical munitions and agents at certain sites, among other things, because the extent of the buried chemical munitions and agents is unknown. DOD may also incur costs not currently included in its environmental liability estimate for restoration initiatives in conjunction with returning overseas DOD facilities to host nations. According to DOD’s fiscal year 2015 AFR, DOD is unable to provide a reasonable estimate because the extent of required restoration is unknown. The remainder of the U.S. government’s estimated environmental liability (about $12 billion in fiscal year 2016) was managed by numerous departments and agencies and, similar to the DOE and DOD portions, is likely to increase. Federal agencies with large reported environmental liabilities in fiscal year 2016 included NASA, USDA, and the Departments of Transportation, Veterans Affairs, and Interior. Since 2000, the reported environmental liability for these agencies has also increased (see figure 17). which the federal government will pay cleanup costs may depend on whether or not financially viable responsible parties, including current and former mine owners and operators, can be identified. Additionally, neither department has a complete inventory of its cleanup responsibilities. For example, USDA: For fiscal year 2016, USDA reported an environmental liability of $196 million. As of April 2014, USDA had identified 1,491 contaminated sites but this list is incomplete as many more potentially contaminated sites, including abandoned mines, have not yet been identified. In 2015, we found that USDA does not have a reliable, centralized site inventory or plans and procedures for completing one, in particular for abandoned mines. For example, in fiscal year 2013, USDA reported $3 million for the Forest Service’s environmental liability. In 2015, we found that this figure did not include any cleanup costs for abandoned mines. The Forest Service estimates that there could be from 27,000 to 39,000 abandoned mines on its lands— approximately 20 percent of which may pose some level of risk to human health or the environment—and the federal government may have to pay for cleanup of some of these mines. USDA’s Forest Service has not developed a complete, consistent, or usable inventory of abandoned mines and had no plans and procedures for developing such an inventory. Without a reliable inventory, USDA cannot effectively estimate its ultimate cost to cleanup these sites. Interior: For fiscal year 2016, Interior reported an environmental liability of about $830 million. We found in 2015 that Interior had an inventory of 4,722 sites, including 85 abandoned mines, with confirmed or likely contamination. However, Interior may have future cleanup responsibilities and, as a result, ultimate cleanup costs may exceed the currently reported environmental liability. Specifically, Interior’s Bureau of Land Management (BLM) has identified over 30,000 abandoned mines—some of which will the federal government may have to pay to clean up—that have not yet been assessed for contamination. Furthermore, this inventory is not complete as BLM estimated that there are at least 100,000 abandoned mines that have not yet been inventoried. While cost estimates for addressing these mines are not currently included in Interior’s liability, information for certain types of mines indicates that the ultimate cost of Interior’s future cleanup responsibilities are greater than what is reflected in the reported environmental liability. BLM is working to improve the completeness and accuracy of its inventory. For additional information about this high-risk area, contact David Trimble, Director, Natural Resources and Environment, 202-512-3841 or trimbled@gao.gov. Military Base Realignments and Closures: DOD Has Improved Environmental Cleanup Reporting but Should Obtain and Share More Information. GAO-17-151. Washington, D.C.: January 19, 2017. Department of Energy: Observations on Efforts by NNSA and the Office of Environmental Management to Manage and Oversee the Nuclear Security Enterprise. GAO-16-422T. Washington, D.C.: February 23, 2016. DOE Facilities: Better Prioritization and Life Cycle Cost Analysis Would Improve Disposition Planning. GAO-15-272. Washington, D.C.: March 19, 2015. Hazardous Waste: Agencies Should Take Steps to Improve Information on USDA’s and Interior’s Potentially Contaminated Sites. GAO-15-35. Washington, D.C.: January 16, 2015. DOD Financial Management: Effect of Continuing Weaknesses on Management and Operations and Status of Key Challenges. GAO-14-576T. Washington, D.C.: May 13, 2014. Uranium Mining: Opportunities Exist to Improve Oversight of Financial Assurances. GAO-12-544. Washington, D.C.: May 17, 2012. Superfund: Interagency Agreements and Improved Project Management Needed to Achieve Cleanup Progress at Key Defense Installations. GAO-10-348. Washington, D.C.: July 15, 2010. Military Base Closures: Opportunities Exist to Improve Environmental Cleanup Cost Reporting and to Expedite Transfer of Unneeded Property. GAO-07-166. Washington, D.C.: January 30, 2007. Environmental Liabilities: Long-Term Fiscal Planning Hampered by Control Weaknesses and Uncertainties in the Federal Government’s Estimates. GAO-06-427. Washington, D.C.: March 31, 2006. Nuclear Waste: Challenges to Achieving Potential Savings in DOE’s High-Level Waste Cleanup Program. GAO-03-593. Washington, D.C.: June 17, 2003. Long-Term Commitments: Improving the Budgetary Focus on Environmental Liabilities. GAO-03-219. Washington, D.C.: January 24, 2003. Environmental Liabilities: Cleanup Costs From Certain DOD Operations Are Not Being Reported. GAO-02-117. Washington, D.C.: December 14, 2001. Environmental Liabilities: DOD Training Range Cleanup Cost Estimates Are Likely Understated. GAO-01-479. Washington, D.C.: April 11, 2001. Department of Energy: National Priorities Needed for Meeting Environmental Agreements. GAO/RCED-95-1. Washington, D.C.: March 3, 1995. Federal Facilities: Agencies Slow to Define the Scope and Cost of Hazardous Waste Site Cleanups. GAO/RCED-94-73. Washington, D.C.: April 15, 1994. The Department of Defense (DOD) manages about 4.9 million secondary inventory items, such as spare parts, with a reported value of $91.7 billion as of September 2015. Effective and efficient supply chain management is critical for supporting the readiness and capabilities of the force and for helping to ensure that DOD avoids spending resources on unneeded inventory that could be better applied to other defense and national priorities. However, DOD has experienced weaknesses in the management of its supply chain, particularly in the following areas: Inventory management. DOD’s inventory management practices and procedures have been ineffective and inefficient. DOD has experienced high levels of inventory that were in excess of requirements and weaknesses in accurately forecasting the demand for inventory items. Materiel distribution. DOD has faced challenges in delivering supplies and equipment, including not meeting delivery standards and timelines for cargo shipments as well as not maintaining complete delivery data for surface shipments. Asset visibility. DOD has had weaknesses in maintaining visibility of supplies, such as problems with inadequate radio-frequency identification information to track all cargo movements. We added supply chain management to the High-Risk List in 1990. In our February 2015 update, we reported that DOD had made moderate progress in addressing weaknesses in supply chain management, but had not resolved several long-standing problems. For example, DOD had not developed a corrective action plan to address materiel distribution weaknesses or performance metrics based on reliable data to assess performance across the entire distribution pipeline. With respect to asset visibility, DOD had not fully developed performance measures that will effectively ensure that the department’s initiatives improve asset visibility. Since our February 2015 high-risk update, DOD has made progress in addressing all three dimensions of its supply chain management: inventory management, materiel distribution, and asset visibility. For inventory management, DOD has met all five high-risk criteria. For this reason, we are removing inventory management from the supply chain management high-risk area. For materiel distribution, DOD has continued to demonstrate leadership commitment and capacity and has developed a corrective action plan to guide and direct the department’s efforts to improve materiel distribution support to the warfighter. However, work remains to fully meet the monitoring and demonstrated progress high-risk criteria. For asset visibility, DOD has continued to meet the leadership commitment criteria and has met the capacity and corrective action plan criteria—the latter in fiscal year 2015 by updating and implementing the Strategy for Improving DOD Asset Visibility (Strategy). However, additional actions are needed to fully meet the remaining two criteria— monitoring and demonstrated progress. In a December 2016 letter from the Under Secretary of Defense for Acquisition, Technology, and Logistics to the Chairman of the Committee on Oversight and Government Reform, U.S. House of Representatives, the department generally agreed with our assessment of progress made and outlined ongoing and planned actions to address the remaining issues. In October 2014, we provided DOD with a letter that outlined six actions and outcomes that we believe it should address in order to mitigate or resolve long-standing weaknesses in materiel distribution and address the criteria for removal from the High-Risk List. Based on discussions with DOD officials and recent efforts across the department as of November 2016, we believe that DOD has addressed three of the six actions and outcomes. Specifically, DOD has addressed the actions and outcomes associated with the action plan criterion by developing the Materiel Distribution Improvement Plan (Improvement Plan) that contains implementation goals and timelines that will guide its effort to identify gaps and root causes with respect to the performance of the entire distribution pipeline. However, DOD still needs to address the three remaining actions and outcomes from the October 2014 letter that are related to monitoring and demonstrating progress. Additionally, based on our review of DOD’s efforts to improve materiel distribution, we are adding an additional action focused on ensuring DOD refines and updates its actions in the Improvement Plan based on interim progress and results, which results in four remaining actions and outcomes that need to be addressed for removal of materiel distribution from the High- Risk List. Going forward, DOD needs to show measureable and sustained positive outcomes addressing the remaining four actions and outcomes. make progress in developing its suite of distribution performance metrics, improving the quality of data underlying those metrics, and sharing metrics information among stakeholders; integrate distribution metrics data, including cost data, from the combatant commands and other DOD components, as appropriate, on the performance of all legs of the distribution system, including the tactical leg; and refine existing actions in the Improvement Plan or incorporate additional actions based on interim progress and results, and update the Improvement Plan accordingly. demonstrate that the actions implemented under its Improvement Plan improve its capability to comprehensively measure distribution performance, identify distribution problems and root causes, and identify and implement solutions. Our October 2014 letter to DOD outlined seven actions and outcomes that we believe it should address in order to mitigate or resolve long- standing weaknesses in asset visibility and address the criteria for removal from the High-Risk List. Based on discussions with DOD officials and recent efforts across the department as of January 2017, we believe that DOD has addressed five of the seven actions and outcomes. Specifically, DOD has addressed the actions and outcomes associated with the capacity and action plan criteria by the department providing additional direction to the components on formulating cost estimates and the components implementing that direction in developing its cost estimates for the asset visibility initiatives. Additionally, DOD linked the goals and objectives of the Strategy with the specific initiatives intended to implement the Strategy, established a mechanism for periodically assessing the initiatives, and implemented numerous initiatives. Based on our review of DOD’s efforts to improve asset visibility, we are adding an additional action aimed at improving the monitoring of the individual improvement initiatives, which results in three remaining actions and outcomes that need to be addressed for removal of asset visibility from the High-Risk List. Going forward, DOD needs to show measureable and sustained positive outcomes in addressing these remaining three actions and outcomes. assess, and refine as appropriate, performance measures by, for example, incorporating the attributes (e.g., clear, quantifiable, objective, and reliable) of successful performance measures; and take steps to incorporate into after-action reports information relating to performance measures for the asset visibility initiatives. DOD should demonstrate sustained progress in having implemented the initiatives that result in measurable outcomes and progress towards realizing the goals and objectives in the Strategy. Senior officials, such as the Deputy Assistant Secretary of Defense for Supply Chain Integration (DASD(SCI)), have continued to demonstrate commitment and top leadership support for addressing the department’s inventory management challenges. These officials have taken actions, such as establishing a performance management framework to monitor and implement its corrective action plan since 2010 and revising inventory management policy and guidance, to institutionalize this commitment to help ensure the long-term success of the department’s efforts. In addition, senior DOD officials have met with us to discuss the department’s plans and progress in addressing inventory management challenges, and we have provided feedback on the department’s efforts. DOD has continued to demonstrate that it has the capacity—personnel and resources—to strengthen inventory management. DOD has continued to use structured working groups, which include representatives from each of the military services and the Defense Logistics Agency (DLA), to address inventory management weaknesses. Furthermore, DOD has dedicated financial resources to evaluating aspects of inventory management that need improvement, such as commissioning studies designed to improve forecasting for spare parts. DOD has continued to implement its corrective action plan, established in fiscal year 2010, that had actions and goals scheduled through fiscal year 2016, and has developed a follow-on improvement plan to guide efforts through 2020. As noted in our February 2015 update, DOD established overarching goals to reduce “on-order excess inventory” (i.e., items that have already been purchased but may be excess due to changes in requirements) and “on-hand excess inventory” (i.e., items that have been categorized for potential reuse or disposal). Additionally, DOD’s actions in its original and follow-up plans address key root causes of weaknesses in its inventory management, such as excess inventory and demand forecasting for spare parts. Since our February 2015 update, DOD has continued to implement actions associated with the plan across a number of areas of inventory management, such as demand forecasting, and has developed and begun implementing a follow-on improvement plan with actions and milestones intended to guide the department’s improvement efforts through 2020. DOD has continued to use a performance management framework, including metrics and milestones, to track the implementation and effectiveness of the areas of inventory management included in the corrective action plan. The DASD(SCI) oversees implementing the corrective action plan and monitors performance on the associated metrics through progress review meetings with representatives from the military services and DLA. The meetings are held about monthly. Since fiscal year 2010, DOD has demonstrated sustained progress sufficient to remove the inventory management area from the supply chain management high-risk category. Specifically, DOD has demonstrated progress in the following four key areas of inventory management, and used our findings and implemented our recommendations to improve the department’s management of inventory: Reducing excess inventory: Since fiscal year 2009, DOD has reduced the percentage and value of its on-order excess inventory— items already purchased that may be excess due to subsequent changes in requirements—and its on-hand excess inventory—items categorized for potential reuse or disposal. DOD’s data show that the proportion of on-order excess inventory to the total amount of on- order inventory decreased from 9.5 percent at the end of fiscal year 2009 to 7.0 percent at the end of fiscal year 2015, the most recent fiscal year for which data is available. During these years, the value of on-order excess inventory also decreased from $1.3 billion to $701 million. DOD’s data show that the proportion of on-hand excess inventory to the total amount of on-hand inventory dropped from 9.4 percent at the end of fiscal year 2009 to 7.3 percent at the end of fiscal year 2015. The value of on-hand excess inventory also decreased during these years from $8.8 billion to $6.8 billion. DOD plans to continue to monitor the amount of excess inventory in its follow-on improvement plan. Revising policy and guidance: DOD has made key revisions to its inventory management policy and guidance. Based on analysis conducted as part of its corrective action plan, the department updated its main supply chain management policy in February 2014. The update strengthened its guidance for on-order excess inventory, the management of “retention stock” (i.e., inventory calculated to be more economical to keep than to dispose of and repurchase because it will likely be needed in the future or inventory retained to support specific contingencies), and demand forecasting. DOD subsequently continued to update aspects of the guidance, such as adding requirements associated with overseeing contractor-managed inventory in August 2015. DOD also developed and implemented, in March 2016, a guide that standardizes inventory management metrics across the services and DLA. Lastly, DOD developed and began implementing plans to update its policy and guidance as it continues to oversee inventory management through its follow-on improvement plan. Addressing demand forecasting weaknesses: As we noted in our February 2015 update, DOD has taken actions to improve the accuracy of its demand forecasting for spare parts in an effort to address a key root cause of both excess inventory and parts shortages. First, in fiscal years 2010 through 2014, DOD reviewed its demand forecasting methods, which led to a number of changes in DOD’s guidance to the services and DLA aimed at improving the accuracy of demand forecasting. Second, DOD established department-wide forecasting accuracy metrics in 2013. Its key metric helped department officials determine that their forecast accuracy has improved from 46.7 percent in fiscal year 2013 to 57.4 percent in fiscal year 2015, the latest fiscal year for which complete data are available. As of August 2016, since our February 2015 update, DOD has been working to establish procedures, including statistical techniques, for setting appropriate targets to continue to guide improvement in the accuracy of forecasting the demand for spare parts. Third, DOD and DLA, in fiscal year 2013, modified approaches for setting inventory levels for over 495,000 consumable items with low or highly variable demand, and continue to monitor the effect of these changes through a suite of performance metrics. The Air Force also is in the process of implementing a similar method for setting levels for reparable items with low demand and is refining an approach for reparable items with variable demand and conducting additional analysis before deciding to implement it. Fourth, DOD has made progress improving its collaborative forecasting (i.e., using customer input to forecast demand versus relying solely on statistical forecasting methods) for spare parts. Specifically, we found in June 2016 that DLA partnered with the services to improve collaborative forecasting efforts through an analytical, results-oriented approach, such as regularly monitoring key performance metrics. The approach is tailored for each service, and DOD identified in its follow-on improvement plan that it will analyze these different approaches and assess areas for improvement in an effort to further reduce excess inventory and shortages. DLA also designed an additional metric for its collaborative forecasting program to more accurately assess and manage the program and plans to fully implement the metric by July 2017. DOD also is in the process of designing and adopting metrics to assess the accuracy of inventory planning factors, such as the accuracy of part lists that are used to determine the type and quantity of parts to buy for depot maintenance activities, and plans to implement these metrics by the end of fiscal year 2018. Enhancing the management and oversight of retention stock: DOD has continued to take actions to improve the management of retention stock across the department. For example, since fiscal year 2009, DOD has monitored the amount of its retention stock relative to on-hand inventory, reviewed and updated its policy and guidance for retention stock, and taken steps to ensure retention stock is managed consistently across the department. Further, in response to our June 2014 recommendation for the DLA Director to dispose of retention stock based on the results of an economic analysis, the Director changed DLA’s on-hand inventory reduction goal, which was leading DLA to dispose of items that the department’s guidance and DLA’s analysis showed were more economical to keep. With respect to “contingency retention stock” (i.e., items retained to support specific contingencies, such as disaster relief or civil emergencies), the department independently assessed its management in March 2011 and implemented resulting recommendations, such as establishing categories and tracking the reasons for retaining contingency retention stock. Lastly, DOD has used our findings and implemented our recommendations to improve how it manages inventory. Since May 2006, we have made 63 recommendations aimed at improving the efficiency and effectiveness of the department’s inventory management. As of January 2017, DOD has implemented 42 of those recommendations and was in the process of taking actions to implement an additional 13 recommendations, which are focused generally on re-assessing inventory goals, improving collaborative forecasting, and making changes to information technology systems used to manage inventory. The remaining eight recommendations were made in fiscal years 2007 and 2009 and focused on improving the management of acquisition lead times for spare parts and oversight of Army and Navy inventory management, respectively. However, these recommendations are no longer relevant given the department’s efforts since 2010. Senior leaders have continued to demonstrate commitment and support for addressing the department’s materiel distribution challenges. In April 2015, DOD established a distribution working group to draft a plan of actions and milestones for improving materiel distribution. The working group is co-chaired by the Office of the Deputy Assistant Secretary of Defense for Supply Chain Integration and the U.S. Transportation Command (USTRANSCOM). Other stakeholders include the Office of the Deputy Assistant Secretary of Defense for Transportation Policy, the military services, the Joint Staff, and DLA. As a result of the working group’s efforts, DOD completed its Materiel Distribution Improvement Plan (Improvement Plan), and the Acting Assistant Secretary of Defense for Logistics and Materiel Readiness signed it in September 2016. According to the Improvement Plan, the Supply Chain Executive Steering Committee will receive regular updates on the progress of the Improvement Plan’s implementation. The steering committee is chaired by the Deputy Assistant Secretary for Supply Chain Integration and includes senior-level supply chain stakeholders from across DOD. Under its charter, the steering committee oversees implementation of initiatives designed to improve logistics. DOD has continued to demonstrate that it has the capacity—personnel and resources—to improve materiel distribution. Key organizations in DOD’s global distribution system and its associated governance structure are USTRANSCOM, its military components, and DLA. Although the Improvement Plan does not quantify the level of resources required to accomplish corrective actions, it recognizes that some additional resources will likely be needed. With regard to developing a new distribution cost metric, for example, the Improvement Plan states that the metric would require a majority of its data inputs from two principal stakeholders—DLA and USTRANSCOM —and that many inputs can be pulled from existing data sources. However, there are likely other sources of information that must be identified or developed, some of which will require additional resources or processes to capture and validate relevant information that is not currently gathered. According to the Improvement Plan, the distribution governance structure is expected to provide the resources and staff to complete each recommended action in the Improvement Plan and close any identified performance gaps within the time frame specified. The governance structure includes senior DOD officials. At the top of this structure is the Distribution Process Owner Executive Board, which is chaired by the Commander, USTRANSCOM, and whose members are at the 3-Star or Senior Executive Service (SES) equivalent level. The next most senior body, the Distribution Oversight Council, is chaired by the Deputy Commander, USTRANSCOM, and has members at the 1- and 2-Star and SES equivalent level. The Council is tasked with ensuring that high- priority initiatives and enterprise improvements are pursued, commensurate with authorized resources. Since our February 2015 high-risk update, DOD has taken steps that meet our high-risk criteria for developing a corrective action plan to address the department’s materiel distribution challenges. The Acting Assistant Secretary of Defense for Logistics and Materiel Readiness signed the Improvement Plan in September 2016. According to the Acting Assistant Secretary, the Improvement Plan will guide and direct the department’s efforts to improve materiel distribution support to the warfighter by detailing specific goals and actions to better measure the end-to-end distribution process, ensure the accuracy of underlying data used to measure that process, and strengthen and integrate distribution policies and the governance structure. The Improvement Plan lists 18 actions divided among 3 lines of effort: (1) metrics and performance, (2) data accuracy, and (3) policy and governance. The intent of these lines of effort and actions is to improve DOD’s capability for measuring the performance of its materiel distribution system, enabling continuous process improvement. According to the Improvement Plan, DOD “must be able to measure performance with certainty across the enterprise before it can affect meaningful improvements in the distribution function.” In addition, the Acting Assistant Secretary of Defense for Logistics and Materiel Readiness states in the Improvement Plan that a robust policy and governance structure ensures that DOD can form, implement, and monitor corrective actions that address root causes and close distribution performance gaps once they are identified. The Improvement Plan provides time frames for completing each of the 18 actions. It calls for 11 of the actions to be completed within 1 year of the Improvement Plan’s approval, 4 additional actions to be completed within 2 years of the Improvement Plan’s approval, and the remaining 3 actions to be completed within 3 years of the Improvement Plan’s approval. Going forward, DOD’s Distribution Steering Group will assume responsibility for executing the Improvement Plan. The Distribution Steering Group, part of the distribution governance structure, is co- chaired by staff within USTRANSCOM and DLA. DOD has partially met this criterion. Through its Improvement Plan, DOD aims to improve its capability to measure the performance of the distribution system by developing a suite of distribution performance metrics, improving the quality of data underlying those metrics, and sharing metrics information among stakeholders. While DOD has numerous distribution metrics in place, a team within the Distribution Working Group determined that five metrics should be included in its new suite of metrics. The selected metrics are aimed at addressing various attributes of the distribution system: responsiveness, reliability, information visibility, and efficiency/cost. The Improvement Plan’s focus on these efforts has the potential, if implemented, to improve DOD’s ability to monitor various performance attributes of its distribution system. However, the Improvement Plan acknowledges that work remains to be done to investigate expanding the use of certain performance metrics, develop other metrics, improve data quality, and change policies to provide greater transparency of performance data and conduct routine reviews of performance metrics. DOD’s Improvement Plan refers to measuring performance for all legs of the distribution system, including the tactical leg. Specifically, one of the goals in the Improvement Plan is for greater transparency of service, agency, and combatant command distribution performance data, including cost data. The Improvement Plan identifies where a policy change could be made to capture and provide such data. However, the Improvement Plan does not specify the nature of data to be collected from the DOD components or how the data would be integrated with other metrics to measure the performance of all legs of the distribution system, including the tactical leg, and allow DOD to comprehensively monitor and oversee the materiel distribution system. DOD began implementing its Improvement Plan in 2016. However, it is too early to assess whether implementing its Improvement Plan will result in the necessary demonstrated progress. However, the Improvement Plan is a key step toward meeting this criterion. Specifically, as discussed above, the Improvement Plan is aimed at improving the department’s capability to comprehensively measure distribution performance. With a performance measurement system in place, DOD will be better positioned to identify distribution problems, along with root causes and solutions. DOD has identified next steps for implementing its Improvement Plan. According to the DASD(SCI), the Distribution Working Group (which developed the Improvement Plan) will formulate an approach to completing the Improvement Plan’s actions. The Distribution Steering Group will assume responsibility for executing and overseeing the Improvement Plan. We have previously noted that DOD has made progress in addressing its materiel distribution challenges. For example, DOD was able to improve delivery times for some customers and use available assets more. These efforts, according to DOD officials, resulted in $1 billion in cost avoidances through April 2013. In its Improvement Plan, DOD highlighted initiatives it has taken to improve distribution and noted that efforts to improve asset visibility also benefit materiel distribution. However, challenges remain in addressing materiel distribution weaknesses. As we reported in 2015, current materiel distribution metrics used by the department do not provide decision makers with a complete representation of performance across the entire global distribution pipeline. Further, although joint doctrine has set efficient and effective distribution “from the factory to the foxhole” as a priority, these metrics do not always include performance for the final destination. In addition, DOD may not have sufficiently reliable data to accurately determine the extent to which it has met the standards it has established for distribution performance. DOD’s Improvement Plan is focused on these issues, but it will be important for the department to demonstrate progress in measuring the entire pipeline and ensuring the reliability of its data and measures as implementation of the Improvement Plan evolves. Senior leaders at the department have continued to demonstrate commitment to addressing the department’s asset visibility challenges as evidenced, in part, by DOD issuing, in January 2014 and October 2015, its Strategies for Improving DOD Asset Visibility. The Office of the Deputy Assistant Secretary of Defense for Supply Chain Integration oversees department-wide how the Strategy is developed, coordinated, approved, and implemented, and reviews the implementation of the initiatives. Also, senior leadership commitment is evident in its involvement in efforts to improve asset visibility through groups such as the Supply Chain Executive Steering Committee—senior-level officials responsible for overseeing asset visibility improvement efforts—and the Asset Visibility Working Group; which includes representatives from the components and other government agencies, as needed; identifies opportunities for improvement; and monitors the implementation of initiatives. Sustained leadership commitment will be critical moving forward as the department continues to implement its Strategies intended to improve asset visibility and associated asset visibility initiatives. DOD now meets this criterion. As we previously reported in February 2013 and continued to report in February 2015 resources and investments should be discussed in a comprehensive strategic plan, to include the costs to execute the plan and the sources and types of resources and investments—including skills, human capital, technology, information and other resources—required to meet established goals and objectives. DOD has demonstrated that it has the capacity—personnel and resources—to improve asset visibility. For example, as we previously noted the department had established the Asset Visibility Working Group that is responsible for identifying opportunities for improvement; and monitoring the implementation of initiatives. The Working Group includes representatives from OSD and the components—Joint Staff, DLA, USTRANSCOM, and each of the military services. Furthermore, DOD’s 2015 Strategy calls for the components to consider items such as manpower, materiel, and sustainment costs when documenting cost estimates for the initiatives in the Strategy, as we recommended in January 2015. However, in December 2015 we found that the 2015 Strategy included three initiatives that did not include cost estimates. DOD has taken steps to address this weakness. Specifically, in December 2016, a DOD official provided an abstract from the draft update to the 2015 Strategy that provides additional direction on how to explain and document cases where the funding for the initiatives is embedded within overall program funding. The draft update notes that there may be instances where asset visibility improvements are embedded within a larger program, making it impossible or cost prohibitive to isolate the cost associated with the specific asset visibility improvements. In these cases, the plan outlining the initiative will indicate that cost information is not available and why. However, if at some point during implementation some or all costs are identified, the information about the initiative will be updated to reflect as such. According to Office of the Secretary of Defense (OSD) officials, DOD plans to issue the update to the 2015 Strategy in 2017, but a release date has not been determined. DOD now meets this criterion. The National Defense Authorization Act for Fiscal Year 2014 (NDAA) required DOD to submit to Congress a comprehensive strategy and implementation plans for improving asset tracking and in-transit visibility. The 2014 NDAA, among other things, called for DOD to include in its strategy and plans elements such as goals and objectives for implementing the strategy. The NDAA also included a provision that we assess the extent to which DOD’s strategy and accompanying implementation plans include the statutory elements. In January 2014, DOD issued its 2014 Strategy and accompanying implementation plans, which outline initiatives intended to improve asset visibility. DOD updated its 2014 Strategy and plans in October 2015. We previously reported in February 2013 and continued to report in February 2015 that while the 2014 Strategy and implementation plans serve as a corrective-action plan, there was not a clear link between the initiatives and the Strategy’s goals and objectives. We recommended that DOD clearly specify the linkage between the goals and objectives in the Strategy and the initiatives intended to implement the Strategy. DOD implemented our recommendation and updated its 2015 Strategy, which includes matrixes that link each of DOD’s ongoing initiatives intended to implement the Strategy to the Strategy’s overarching goals and objectives. DOD also added eight new initiatives to its 2015 Strategy and linked each of these efforts to the Strategy’s overarching goals and objectives. DOD partially meets this criterion. As we previously reported in 2013 and continued to report in February 2015, DOD lacked a formal, central mechanism to monitor the status of improvements or fully track the resources allocated to them. We also reported that, while DOD’s draft strategy included overarching goals and objectives that address the overall results desired from implementing the strategy, it only partially addressed, among other factors, performance measures, which are necessary for DOD to monitor progress. Since February 2015, DOD has taken some steps to better monitor its improvement efforts. As noted in the 2015 Strategy, DOD described a process that tasks the Asset Visibility Working Group—a team that oversees the development and execution of DOD’s Strategy—to, among other things, review the performance of the component’s initiatives during implementation on a quarterly basis. According to OSD officials, they plan to issue an update to the 2015 Strategy, but the release date for this update has not been determined. The Working Group uses status reports from the DOD components that include information on progress made toward implementation milestones, resources, and funding. DOD also identified performance measures for its asset visibility initiatives. However, the measures for the eight initiatives we reviewed were generally not clear, quantifiable, objective, and reliable. Measures with these attributes can help managers better monitor progress, including determining how well they are achieving their goals and identifying areas for improvement, if needed. Additionally, while the Asset Visibility Working Group has closed initiatives, the Working Group generally did not have information related to performance measures to assess the progress of these initiatives. As a result, DOD is unable to consistently monitor progress in achieving the Strategies’ goals and objectives. In December 2016, a DOD official provided an abstract from the draft update to the 2015 Strategy that noted that detailed metrics data will be collected and reviewed at the level appropriate for the initiative. High-level summary metrics information will be provided to the Working Group in updates to the plan outlining the initiatives. The extent this planned change will affect the development of clear, quantifiable, objective, and reliable performance measures remains to be determined. DOD partially meets this criterion. While DOD has made progress developing and implementing the 2014 and 2015 Strategies, the performance measures associated with the eight initiatives we reviewed cannot be used to demonstrate results. DOD reports it has closed or will no longer review the status of 20 of the 27 initiatives from the 2014 and 2015 Strategies and continues to monitor the remaining seven initiatives. Additionally, in October 2016, DOD officials stated that they plan to add 10 new initiatives in its update to the 2015 Strategy, which will be released in 2017, but OSD officials have not determined a date. However, DOD has not taken steps to consistently incorporate information in after-action reports on initiatives’ performance measures to demonstrate the extent to which progress has been made toward achieving its goals for improving asset visibility. Without clear and quantifiable performance measures and information to support that progress has been made, DOD may not be able to demonstrate that implementing these initiatives resulted in measurable outcomes and progress towards achieving the goals and objectives in the Strategy. Also, DOD will be limited in its ability to demonstrate sustained progress in implementing corrective actions and resolving the high-risk area. DOD Developed Metrics Guidance and Uses the Metrics to Monitor the Efficiency and Effectiveness of Its Inventory Management: In 2012, we found that DOD was developing metrics to assess the effectiveness and efficiency of its inventory management, but that it had not determined if it would incorporate these metrics into guidance. We noted that without guidance specifying standardized definitions, methodologies, and procedures for data collection procedures, DOD’s efforts to employ metrics to monitor and evaluate inventory management performance may be hampered. To ensure sustained management attention consistent with results- oriented management practices, we recommended that the Secretary of Defense direct the Assistant Secretary of Defense for Logistics and Materiel Readiness to (1) develop and implement guidance that establishes a comprehensive, standardized set of department-wide inventory management metrics, including standardized definitions and procedures for measuring and reporting the metrics, and (2) employ these metrics in periodically monitoring the effectiveness and efficiency of its inventory management practices. Based on our recommendations, the Assistant Secretary of Defense for Logistics and Materiel Readiness developed and issued the Supply Chain Metrics Guide in March 2016. This guide identifies a comprehensive, standardized set of inventory management metrics and identifies each metric’s application, definition, business value, data requirements, computational rules, goals and trends analysis, and connections to other related metrics. DOD’s metric guidance provided the necessary information to ensure that metrics across the services and the DLA are standardized and can be used to manage the department’s inventory. Also, the DASD(SCI) uses these metrics to regularly monitor the department’s inventory management practices and outcomes. These actions will allow the department to monitor the effectiveness and efficiency of its inventory management practices across the services and the DLA. The Army Established On-Order Excess Inventory Goals to Guide Performance Improvement: In our April 2015 report on the military services’ inventory management, we found that the Army had not established goals for reducing on-order excess inventory. To improve management and minimize the amount of on-order excess inventory, we recommended that the Secretary of the Army direct the Commander, Army Materiel Command, to develop life-cycle management command-specific goals for the reduction of on-order excess inventory and monitor these goals. Based on our recommendation, in April 2015, the Army established on-order excess inventory goals for its life-cycle management commands and began monitoring its performance against those goals. These actions will provide the Army the ability to better oversee on-order excess inventory and maximize the amount of on-order excess inventory it reduces. The Navy Established Management Reviews to Improve Oversight of On-Order Excess Inventory: In our April 2015 report on the military services’ inventory management, we found that the Navy did not use management reviews of potential on-order excess inventory based on dollar thresholds, as required by DOD guidance, resulting in a lack of oversight of on-order excess inventory. To help ensure the Navy adequately oversees on-order excess termination decisions, we recommended the Secretary of the Navy direct the Commander, Naval Supply Systems Command, to incorporate graduated management reviews based on dollar value thresholds into its current on-order excess inventory termination practices. Based on our recommendation, as of September 2015, the Navy began management reviews based on dollar value thresholds. This action will provide the Navy the ability to better oversee on-order excess inventory, thereby preventing unneeded inventory from being procured. DLA Revised Its Fiscal Year 2014 On-Hand Inventory Goal: In our June 2014 report on DLA inventory management, we found that DLA, in order to meet its on-hand inventory goal in fiscal year 2013, disposed of $855 million in inventory that its own economic analyses determined should be kept due to the risk DLA will need to buy the same items again in the future. To ensure that DLA does not dispose of inventory that is more economic to keep, in accordance with DOD guidance, we recommended that the Secretary of Defense direct the Director, DLA, to reassess and, if determined appropriate, revise DLA’s inventory reduction goals and schedule to achieve them in a way that minimizes risks and costs of having to buy items again in the long term. Based on our recommendation, in July 2014, DLA re- examined and documented its on-hand inventory reduction goal for fiscal year 2014. As a result of the review, DLA revised its on-hand inventory goal for fiscal year 2014 from $10 billion to about $10.9 billion. Adjusting its goals will result in DLA needing to dispose of less inventory to meet the goals, which reduces the risk DLA may have to buy the same inventory in the future. DLA Incorporated On-Order Excess Inventory Metrics into Senior Management Performance Briefings: In our June 2014 report on DLA inventory management, we found that DLA senior management did not regularly review on-order excess inventory performance and that performance across DLA’s aviation, land, and maritime supply chains varied. To improve management and minimize the amount of on-order excess inventory, we recommended the Secretary of Defense direct the Director, DLA, to regularly monitor progress reducing on-order excess inventory through DLA’s senior management performance briefings. Based on our recommendation, in July 2014, DLA began including on-order excess inventory metrics in DLA’s Agency Performance Review, which is reviewed quarterly by the DLA Director and monthly by DLA headquarters senior logistics operations managers. As a result of these actions, senior management will oversee on-order excess inventory performance and guide continued improvement managing its on-order inventory. DLA Established and Monitors Supply Chain-Specific On-Order Excess Inventory Goals: In our June 2014 report on DLA inventory management, we found that DLA had not established supply chain- specific goals for on-order excess inventory and that performance across DLA’s aviation, land, and maritime supply chains varied. To improve management and minimize the amount of on-order excess inventory, we recommended the Secretary of Defense direct the Director, DLA, to establish and regularly monitor supply chain-specific on-order excess goals that support DLA minimizing its investment in inventory that is not needed to meet requirements and achieving the DOD goal of 4 percent of the total value of on-order inventory by the end of fiscal year 2016. Based on our recommendation, DLA established supply chain-specific goals of 6 percent in July 2014 that were aligned with DOD goals for fiscal year 2014. In July 2014, DLA also began monitoring supply chain-specific on-order excess inventory performance against DOD’s established department wide goals as part of its monthly Agency Performance Reviews. These actions will provide DLA the ability to guide continued improvement in reducing on-order excess inventory as well as monitor supply chain-specific performance against DOD’s goals. DLA Is Tracking and Reviewing On-Order Excess Inventory Performance Data: In our June 2014 report on DLA inventory management, we found that DLA had not consistently tracked and reported data to thoroughly measure its efforts to reduce on-order excess inventory. To improve management and minimize the amount of on-order excess inventory, we recommended the Secretary of Defense direct the Director, DLA, to track and regularly review performance data, such as the amount of on-order excess inventory reviewed, modified, or cancelled, and the reasons for not modifying or cancelling, in its inventory management processes. Based on our recommendation, as of June 2016, DLA implemented a monthly report process that reviews performance cancelling of on-order excess inventory as well as the reasons for decisions to retain or cancel on-order excess contracts. As part of this review process, DLA reports bi-annually on the status of its on-order excess inventory, specifically the reasons for retaining on-order excess contracts. These actions will provide DLA the ability to better oversee on-order excess inventory, including tracking and monitoring the reasons for retaining on-order excess inventory. DOD Made Clear the Linkage between Its Goals and Objectives and Its Asset Visibility Initiatives: In our January 2015 report on DOD’s efforts to improve asset visibility, we found that DOD’s 2014 Strategy included goals and objectives, but these goals and objectives were not linked with the initiatives. We recommended that DOD clearly specify the linkage between the goals and objectives in the Strategy and the initiatives intended to implement the Strategy. In October 2015, DOD issued its 2015 update to its Strategy, which included graphics showing a summary of the initiatives and their alignment to the Strategy’s goals and objectives. As a result of making apparent the alignment between its goals and objectives in the 2015 Strategy and the initiatives intended to implement them, DOD should be better positioned to assess progress toward realizing its goals and objectives. DOD Included the Elements Considered in Its Cost Estimates for Asset Visibility Initiatives: In our January 2015 report on DOD’s efforts to improve asset visibility, we found that DOD’s Strategy did not specify the specific elements included in its cost estimates, such as human capital, information, and other resources required to meet the goals and objectives. That is, the components provided cost estimates in the plans outlining the initiatives, but generally at an aggregate level without details of the elements included. We recommended DOD include this information in subsequent updates to its Strategy. As a result, in its 2015 update to its Strategy, DOD provided direction instructing the components to include cost estimates in their plans outlining the initiatives and to include at least the categories of manpower, materiel, and sustainment in these estimates of cost. As a result of updating its Strategy to require the components to include information on the specific elements included in cost estimates, DOD gains insights on the elements considered in developing the cost estimates and the level of detailed cost information it needs to make well-informed decisions about asset visibility. For additional information about this high-risk area, contact Zina Merritt at (202) 512-5257 or merrittz@gao.gov or Cary Russell at (202) 512-5431 or russellc@gao.gov. Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Defense Logistics: DOD Has Addressed Most Reporting Requirements and Continues to Refine its Asset Visibility Strategy. GAO-16-88. Washington, D.C.: December 22, 2015. Defense Inventory: Services Generally Have Reduced Excess Inventory, but Additional Actions Are Needed. GAO-15-350. Washington, D.C.: April 20, 2015. Defense Logistics: Improvements Needed to Accurately Assess the Performance of DOD’s Materiel Distribution Pipeline. GAO-15-226. Washington, D.C.: February 26, 2015. Defense Logistics: DOD Has a Strategy and Has Taken Steps to Improve Its Asset Visibility, but Further Actions Are Needed. GAO-15-148. Washington, D.C.: January 27, 2015. Defense Inventory: Actions Needed to Improve the Defense Logistics Agency’s Inventory Management. GAO-14-495. Washington, D.C.: June 19, 2014. In March 2016, we reported that the Department of Defense (DOD) expects to invest $1.4 trillion (fiscal year 2016 dollars) to develop and procure its portfolio of 79 major defense acquisition programs. Congress and DOD have long sought to improve how major weapon systems are acquired, yet many DOD programs fall short of cost, schedule, and performance expectations, meaning DOD pays more than anticipated, can buy less than expected, and, in some cases, delivers less capability to the warfighter. With the prospect of slowly-growing or flat defense budgets for years to come, DOD must get better returns on its weapon system investments and find ways to deliver capability to the warfighter on time and within budget. Top leadership at DOD is committed to improving the way DOD acquires weapon systems. Since we added this area to our High-Risk List in 1990, DOD has made progress in addressing challenges, such as through the Better Buying Power initiatives outlined by the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics since 2010. Although DOD lacks a comprehensive action plan for fully addressing this high-risk area and its root causes, the Better Buying Power initiatives are a step in the right direction, as DOD has prescribed a number of concrete changes. DOD has partially met the criteria for monitoring by issuing a series of annual performance reports on the portfolio of major defense acquisition programs. In 2016, DOD issued the fourth report in this series. Continuing and expanding this series of reports should help DOD measure its progress over time. DOD has partially met the criteria for capacity by, for example, updating some policies to enable better outcomes and assessing the acquisition workforce. However, we remain concerned about whether DOD will fully implement its proposed reforms or continue to track progress in meeting workforce goals, as DOD has, in the past, failed to convert policy into practice. DOD has partially met the criteria for demonstrating progress as it relates to the cost and schedules of its weapon programs. Although we reported in March 2016 on the progress many DOD programs are making in reducing their cost, as demonstrated by improvements when measured against cost-growth targets, individual weapon programs are still not conforming to best practices for acquisition, or implementing key acquisition reforms and initiatives that could prevent long-term cost and schedule growth. Our work reveals that, while there is still cost and schedule growth in major defense acquisition programs, DOD is making progress in decreasing the amount of cost growth realized in the portfolio as a whole. In March 2016, we reported that the total acquisition cost of DOD’s fiscal year 2015 portfolio of 79 programs decreased by $2.5 billion from the previous year. The decrease, however, was due primarily to reductions in a few programs. The majority of individual programs, 42 of the 79, increased in cost. In terms of schedule, the time it took to deliver initial capabilities to the warfighter increased, on average, an additional 2.4 months. Our analysis also showed evidence that DOD made progress in improving efficiencies in its programs from 2014 to 2015. When we account for increased costs attributable to increased program quantity, 38 programs improved their buying power—that is, the amount of goods procured for dollars spent. DOD’s major acquisition programs also showed some improvement when measured against the three cost-growth targets we have used to measure DOD’s progress in the weapon system acquisition high-risk area since 2011. Most notably, 72 percent of programs meet the threshold for less than 10 percent growth over the past 5 years, and 76 percent meet the threshold for less than 2 percent growth in the past year, both an improvement over past assessments (see figure 18). In addition, Congress has been working to reform the process for acquiring weapon systems for several years. In the National Defense Authorization Acts (NDAA) for just the past 5 years, for example, Congress has enacted the following reforms, among others: In the 2013 NDAA, Congress introduced measures to control costs on acquisition programs by requiring DOD to limit the use of cost-type contracts for production, and to open programs to competition at the subcontract level. In the 2014 NDAA, Congress expanded requirements for cost reporting by requiring DOD to include additional cost and schedule estimates in its annual reports to Congress. In the 2016 NDAA, Congress made numerous reforms to the acquisition process including requiring more close involvement of the service chiefs; requiring DOD to report on efforts to streamline the requirements, acquisition, and budgeting processes; stipulating the use and contents of an acquisition strategy; and reducing the number of certifications required for programs at milestone reviews. In the 2017 NDAA, Congress enacted reforms to require modular open system approaches in major programs, further ensure the achievement and reporting of program goals, modify requirements for independent cost estimates, and reorganize the acquisition authority within the Office of the Secretary of Defense. At this point, DOD needs to build on existing reforms—not necessarily revisiting the process itself but augmenting it by tackling incentives. Based on our extensive body of work in weapon systems acquisition, DOD could examine best practices to integrate critical requirements, resources, and acquisition decision-making processes; attract, train, and retain acquisition staff and managers so that they are both empowered and accountable for program outcomes; use funding decisions at the start of new programs to reinforce desirable principles such as well-informed acquisition strategies; identify significant risks up front and resource them; explore ways to align budget decisions and program decisions more investigate tools, such as limits on system development time, to improve program outcomes. Further, we have open priority recommendations related to four acquisition programs that would benefit from greater attention given the size of DOD’s investments in them and their cost, schedule, and performance challenges, including the following: In April 2015, we made one priority recommendation for the F-35 Joint Strike Fighter program, that DOD analyze the affordability of the program’s current procurement plan that reflects various assumptions about future technical progress and funding availability. DOD stated that it would analyze affordability as part of an internal deliberative process culminating in the services’ annual budget request. We made one priority recommendation for the Littoral Combat Ship program in July 2014. This recommendation stated that the program should successfully complete key tests—such as shock, anti-air warfare self-defense testing, or final survivability assessments— before contracting for additional ships. The Navy’s recent decision to restructure the program alters the timing of our recommendation, but does not change our intent to ensure that the Navy does not continue to commit to additional ships until it demonstrates that it has attained some level of knowledge in key areas, such as ship survivability. In September 2013, we made three priority recommendations for the lead ship in the Ford-class aircraft carrier fleet, designated as CVN 78. DOD should explore capability trade-offs, update the Ford-class program’s test and evaluation master plan to allot sufficient time for testing, and adjust the post-delivery test schedule to ensure that system integration testing is completed prior to operational testing. DOD has made progress in implementing these recommendations by, for example, completing a cost-benefit analysis to determine the acquisition strategy for the follow-on ship. DOD, however, failed to fully explore capability trade-offs, and it remains to be seen whether additional time has been allotted to complete testing, as an updated test and evaluation master plan has not been approved. We made two priority recommendations in April 2013 for the Missile Defense Agency and its programs. We recommended that the agency both stabilize its acquisition baselines to enable meaningful comparisons over time and make its cost estimates more comprehensive by including military services’ operation and support costs. While DOD generally concurred with our recommendations, the Missile Defense Agency’s baselines continue to change, and agency decision makers still have not been informed of full program costs. Finally, Congress has an important role to play in advancing weapon system acquisition reform overall, particularly in what it sanctions via funding approvals. Programs that propose optimistic or rushed acquisition strategies represent opportunities for Congress to either maintain or change the defense acquisition culture—a prevailing set of incentives that encourages decisions to go forward with programs before they are ready, and a willingness to accept cost growth and schedule delays as the likely byproduct of such decisions. When programs that do not follow acquisition best practices are denied funding approval, those risky acquisition strategies, in effect, lack congressional sanction. DOD has met the criterion for leadership commitment. DOD continues to demonstrate a strong commitment, at the highest levels, to improving the management of its weapon system acquisitions. Over the past 6 years, the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics has implemented a series of efforts for acquisition reform through its Better Buying Power initiative. In January 2015, DOD updated its acquisition instruction, furthering this commitment as it incorporates many of the Better Buying Power initiatives, as well as acquisition reforms from the Weapon Systems Acquisition Reform Act of 2009 and other legislation. These actions are consistent with our past findings and recommendations. If these initiatives are to have a lasting, positive effect, however, decision makers need to be held accountable for implementing them. Our recent work shows there is much ground yet to cover. DOD has partially met the criterion for capacity. Across the portfolio, DOD has unevenly implemented knowledge-based acquisition practices that might prevent or mitigate cost growth. When we assessed DOD weapon programs in March 2016, we found that while DOD continues to show progress in following a knowledge-based approach to reduce risk, it has significant room for improvement. While programs that have recently passed through major decision points have demonstrated best practices—such as planning to constrain development times and achieving design stability—key practices like demonstrating technology maturity or controlling manufacturing processes are still not being fully implemented. Of the 17 programs we assessed that had recently passed through one of three key decision points in the acquisition process, only 3 had implemented all of the applicable knowledge-based practices applicable for that decision point. The remaining programs will carry technology, design, and production risks, which increase cost and schedule risks, into subsequent phases of the acquisition process. In March 2016, we also reported that implementation of the Better Buying Power and acquisition reform initiatives varied across programs. While 91 percent of programs successfully implemented “should-cost” initiatives and reported significant cost savings, only 67 percent had established affordability constraints. In addition, DOD has not completely implemented the direction to improve competition. Of the 12 future programs we assessed in our March 2016 report on selected weapon programs, half did not plan to conduct competitive prototyping before the start of development, and many current programs did not have acquisition strategies to ensure competition through the end of production. Eight current programs reported that they will not take actions to promote any competitive measures before or after development start. A significant element of capacity is whether the agency has the workforce in place to resolve risks. DOD has made some progress in managing its acquisition workforce. Specifically, in October 2016, DOD issued its updated acquisition workforce strategic plan which, among other things, assessed the current capability of the workforce and identified risks that DOD needed to manage to meet future needs. DOD acknowledged, however, that it will need to develop and implement metrics to track progress towards meeting the four strategic goals identified in its October 2016 strategic workforce plan. Further, the workforce plan does not establish specific career field goals or targets, which will hinder efforts to ensure DOD has the right people with the right skills to meet future needs. DOD has partially met the criterion for an action plan as it lacks a comprehensive action plan for fully addressing this high-risk area and its root causes, but addresses some of these issues in its Better Buying Power initiatives. Better Buying Power outlines some steps DOD can take across its acquisition portfolio to achieve better results. These initiatives include measures such as setting and enforcing affordability constraints, instituting a long-term investment plan for portfolios of weapon systems, implementing “should cost” management to control contract costs, and eliminating redundancies within portfolios. The initiatives also emphasize the need to adequately grow and train the acquisition workforce. DOD has partially met the criterion for monitoring progress. In December 2008, we, DOD, and the Office of Management and Budget discussed a set of cost growth metrics and goals to evaluate DOD’s progress on improving program performance for purposes of our high-risk report. These metrics were designed to capture total cost-growth performance over 1- and 5-year periods as well as from the original program estimate on a percentage basis, as opposed to dollar amount to control for the differences in the amount of funding among programs. DOD no longer supports the use of these metrics. We continue to believe that the current metrics have value. DOD has made some progress in its efforts to assess the root causes of poor weapon system acquisition outcomes, and monitor the effectiveness of its actions to improve how it manages weapon systems acquisition. In 2016, DOD issued the fourth in what is promised to be an annual series of performance reports on its portfolio of major defense acquisition programs. The report examines a wide range of acquisition-related information, such as contract type, contractor incentives, and the effects of statutes and policies to determine if there is any statistical correlation between these factors and good or poor acquisition outcomes. The report is a good step, but DOD needs to continue to refine and enhance this reporting. In addition, the department or Congress should formalize a requirement for the report to ensure it continues despite changes in leadership. DOD has partially met the criterion for demonstrating progress. As we reported in March 2016, many DOD programs are making progress reducing costs, as demonstrated by improvements when measured against cost-growth targets. However, individual weapon programs are still not conforming to best practices for acquisition or implementing key acquisition reforms and initiatives that could prevent long-term cost and schedule growth. Over the past 4 fiscal years, our analyses of DOD’s weapon system acquisitions have resulted in nearly $30 billion in financial savings. We have reported on the F-35 Joint Strike Fighter (JSF) program, DOD’s most expensive aircraft acquisition, for over a decade. A recurring theme in this body of work has been the program’s very aggressive and risky acquisition strategy, particularly the substantial concurrency, or overlap, among development, testing, and production activities. We repeatedly cautioned against procuring large quantities of aircraft before the system design was stable, performance verified through testing, and the manufacturing process capable of efficiently building aircraft at the planned production rates. We made numerous recommendations aimed at reducing annual procurements, delaying plans to accelerate production, and focusing more time and resources on system development and testing. We amplified this message in annual “Quick Look” reports, congressional testimonies, and numerous budget justification reviews. Defense officials acknowledged the concurrency in the JSF acquisition strategy, but stated that the risks were manageable. DOD’s position started to change, however, after years of cost growth and schedule delays. Consistent with our findings and recommendations, DOD decreased near-term procurement quantities by 103 aircraft for fiscal years 2013 and 2014 at a budgeted savings of about $9 billion, and by 187 aircraft for fiscal years 2015 through 2017 at a budgeted savings of about $12 billion. Congressional defense committees have depended on our work to provide accurate and realistic information to inform the ongoing debate on the F-35, and both congressional leaders and top DOD officials have noted that we were right about concurrency and the need to decrease annual aircraft purchases. In addition, as part of our annual work on the Ballistic Missile Defense System and assessments of defense-wide funding requests for research, development, test and evaluation, and procurement, we reported to Congress several times from March 2011 to April 2013 on the high acquisition risks and lack of analysis supporting the Precision Tracking Space System (PTSS). PTSS was designed as a satellite system to track ballistic missiles. We found that the program had developed an optimistic acquisition approach, including elevated levels of concurrency, and faced significant design challenges. This approach would have precluded demonstrations that the laboratory satellite design worked as intended before the Missile Defense Agency committed to industry-built satellites. DOD canceled the PTSS program in 2013 because of concerns with the program’s high-risk acquisition strategy and technical challenges that we raised, saving approximately $2.7 billion in planned funding for fiscal years 2014 through 2018. For additional information about this high-risk area, contact Michael J. Sullivan, Director, Acquisition and Sourcing Management at (202) 512- 4841 or sullivanm@gao.gov . F-35 Joint Strike Fighter: Continued Oversight Needed as Program Plans to Begin Development of New Capabilities.GAO-16-390. Washington, D.C.: April 14, 2016. KC-46 Tanker Aircraft: Challenging Testing and Delivery Schedules Lie Ahead. GAO-16-346. Washington, D.C.: April 8, 2016. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-16-329SP. Washington, D.C.: March 31, 2016. Defense Advanced Research Projects Agency: Key Factors Drive Transition of Technologies, but Better Training and Data Dissemination Can Increase Success. GAO-16-5. Washington, D.C.: November 18, 2015. Ford Class Aircraft Carrier: Poor Outcomes Are the Predictable Consequences of the Prevalent Acquisition Culture. GAO-16-84T. Washington, D.C.: October 1, 2015. GPS: Actions Needed to Address Ground System Development Problems and User Equipment Production Readiness. GAO-15-657. Washington, D.C.: September 9, 2015. Weapon System Acquisitions: Opportunities Exist to Improve the Department of Defense’s Portfolio Management. GAO-15-466. Washington, D.C.: August 27, 2015. Defense Acquisition Process: Military Service Chiefs’ Concerns Reflect Need to Better Define Requirements before Programs Start. GAO-15-469. Washington, D.C.: June 11, 2015. Defense Acquisitions: Better Approach Needed to Account for Number, Cost, and Performance of Non-Major Programs. GAO-15-188. Washington, D.C.: March 2, 2015. Acquisition Reform: DOD Should Streamline Its Decision-Making Process for Weapon Systems to Reduce Inefficiencies. GAO-15-192. Washington, D.C.: February 24, 2015. F-35 Joint Strike Fighter: Assessment Needed to Address Affordability Challenges. GAO-15-364. Washington, D.C.: April 14, 2015. Littoral Combat Ship: Additional Testing and Improved Weight Management Needed Prior to Further Investments. GAO-14-749. Washington, D.C.: July 30, 2014. Ford-Class Carriers: Lead Ship Testing and Reliability Shortfalls Will Limit Initial Fleet Capabilities. GAO-13-396. Washington, D.C.: September 5, 2013. Missile Defense: Opportunity to Refocus on Strengthening Acquisition Management. GAO-13-432. Washington, D.C.: April 26, 2013. Since 2015, the Department of Defense’s (DOD) progress in improving its financial management processes and operations has been mixed. Without reliable, useful, and timely financial information, DOD is severely hindered in making sound decisions affecting the department’s operations. DOD financial management was first added to our High-Risk List in 1995. Long-standing, uncorrected deficiencies with DOD’s financial management systems, business processes, financial manager qualifications, and material internal control and financial reporting weaknesses continue to negatively affect DOD’s ability to manage the department and make sound decisions on mission and operations. Having sound financial management practices and reliable, useful, and timely financial and performance information is important to help ensure accountability over DOD’s extensive resources and efficiently and economically manage the department’s assets and budgets. This is particularly important because DOD’s reported discretionary spending makes up about half of the federal government’s reported discretionary spending, and its reported assets represent more than 70 percent of the federal government’s reported physical assets. However, DOD remains one of the few federal entities that cannot demonstrate its ability to accurately account for and reliably report its spending or assets. DOD’s financial management problems remain one of three major impediments preventing us from expressing an opinion on the consolidated financial statements of the federal government. The effects of DOD’s financial management problems extend beyond financial reporting. Long-standing internal control deficiencies have adversely affected the economy, efficiency, and effectiveness of operations. For example, as we have reported, DOD’s financial management problems have contributed to (1) inconsistent and sometimes unreliable reports to Congress on weapon system operating and support costs, limiting the visibility that Congress needs to effectively oversee weapon system programs; and (2) an impaired ability to make cost-effective choices, such as deciding whether to outsource specific activities or how to improve efficiency through technology. DOD’s efforts to improve its financial management have been impaired by its decentralized environment; cultural resistance to change; lack of skilled financial management staff; lack of effective processes, systems, and controls; incomplete corrective action plans (CAP); and ineffective monitoring and reporting. Effective financial management is also fundamental to achieving DOD’s broader business transformation goals. However, given DOD’s decentralized environment and hundreds of nonstandard financial management business processes and systems, DOD anticipates it will take several years of effort before it will reach these goals. Current budget constraints and fiscal pressures make the reliability of DOD’s financial information and its ability to maintain effective accountability for its resources increasingly important to the federal government’s ability to make sound decisions about allocating resources. The Army, Navy, and Air Force underwent audits of their respective Schedules of Budgetary Activity (Budgetary Schedules) for fiscal years 2015 and 2016. However, all three of the independent public accountants (IPA) that performed these audits issued disclaimers, meaning that the IPAs were not able to complete their work or issue an opinion because they lacked sufficient evidence to support the amounts presented. These IPAs also identified material weaknesses in internal control at the three military services and collectively issued hundreds of findings and recommendations. As of the end of fiscal year 2016, 700 IPA findings and recommendations related to the three military services’ fiscal years 2015 and 2016 Budgetary Schedules remained open. These weaknesses included the military services’ inability to, among other things, reasonably assure that the Budgetary Schedules reflected all of the relevant financial transactions that occurred and that documentation was available to support such transactions. The results of these audits illustrate the significant amount of work that remains for DOD to have reliable, useful, and timely financial management and performance information for decision making on its mission and operations. In addition, DOD officials reported in the November 2016 Financial Improvement and Audit Readiness (FIAR) Plan Status Report that the department anticipates receiving disclaimers of opinion on its full financial statements for several years but emphasized that being subject to audit will help the department make progress. Since 2015, DOD’s progress in improving its financial management processes and operations has been mixed. DOD has made partial progress toward demonstrating leadership commitment and developing capacity and action plans. For example, DOD continues its efforts to address its financial management challenges through (1) updating the FIAR Guidance related to service providers, financial reporting of property, and seven critical capabilities for full audit readiness; (2) implementing training programs to build a skilled financial management workforce; and (3) developing a number of action plans. However, DOD continues to face challenges in monitoring corrective actions and demonstrating progress. In furtherance of financial management reform, Congress took the following actions during fiscal years 2013 through 2016: The National Defense Authorization Act (NDAA) for Fiscal Year 2013 established certain requirements for the FIAR Plan, including actions to be taken to ensure that DOD’s Schedule of Budgetary Resources is validated as ready for audit not later than September 30, 2014, and an assessment of readiness for the SBR audit. The NDAA for Fiscal Year 2014 mandated an audit of DOD’s fiscal year 2018 full financial statements, and that the results be submitted to Congress not later than March 31, 2019. Further, the NDAA for Fiscal Year 2016 had several relevant financial management provisions that, among other things required coordination with the Federal Accounting Standards Advisory Board to establish accounting standards to value large and unordinary general property, plant, and equipment items no later than September 30, 2017; required the Secretary of Defense to report to Congress, ranking the military departments and defense agencies in order of how advanced they are in achieving auditable financial statements; provided for DOD Office of Inspector General (OIG) involvement in each DOD component’s annual audit, including obtaining an audit of each component by an independent external auditor, participating in selecting the auditors, and monitoring the audits; required the financial audit reports issued by the independent external auditors to be submitted to the Under Secretary of Defense (Comptroller), Controller of the Office of Management and Budget’s (OMB) Office of Federal Financial Management, and appropriate congressional committees; and authorized the Secretary of Defense to carry out a pilot program allowing financial management personnel to temporarily exchange between DOD and contractors. Congressional oversight committees have continued to press for increased progress at DOD through hearings. DOD needs to assure the sustained involvement of leadership at all levels of the department in addressing financial management reform and business transformation. DOD leadership has stated that it is committed to achieving effective financial management controls to support financial accountability and reliable and timely information for day-to-day management decision making, and auditable financial statements. However, DOD reported in its November 2016 FIAR Plan Status Report that because some remediation actions and major system and process changes will not be fully completed, it expects the fiscal year 2018 full financial statements audit to result in significant audit findings and a disclaimer of opinion. In addition, DOD reported that it anticipates receiving disclaimers of opinion on its financial statements for several years. DOD leadership needs to reasonably assure that DOD components adhere to the processes in the FIAR Plan and the accompanying FIAR Guidance so that components have effective leadership, processes, systems, and controls in place to sustainably improve DOD’s financial management operations and audit readiness. Sustained leadership commitment is critical to DOD’s success in achieving financial accountability and in providing reliable information for day-to-day management decision making as well as financial audit readiness. DOD needs to continue building a workforce with the level of training and experience needed to support and sustain sound financial management. DOD needs to address the availability of financial management staff in light of the mandatory workforce reductions at headquarters. In addition, to continue building a skilled and knowledgeable workforce, DOD needs to assure that its financial management certification program continues developing and refreshing required competencies, periodically assessing the workforce’s capabilities, identifying competency gaps, and closing those gaps. DOD needs to continue to develop and deploy enterprise resource planning (ERP) systems as a critical component of DOD’s financial improvement and audit readiness strategy. DOD also will need to strengthen automated controls or design manual workarounds for the remaining legacy systems to satisfy audit requirements and improve data used for day-to-day decision making. The DOD OIG has reported that DOD continues to have schedule delays in effectively implementing its ERPs. These delays in implementing ERP systems increase the risk that DOD will not have reliable information for making important decisions on mission and operations or meet its goal of being validated as ready for an audit of its full financial statements by September 30, 2017. DOD needs to address identified deficiencies in service providers’ systems, processes, and controls that affect the reliability of financial data and information used in the related business processes. In addition, each of the components needs to resolve integration issues with DOD service providers. Further, the military services need to work with Defense Finance and Accounting Service (DFAS) management to address suspense accounts and support for adjustments made by journal vouchers. DOD needs to assure that military services enhance their policies and procedures for developing CAPs and improve processes for identifying, tracking, and remediating financial management related audit findings and recommendations. Improving remediation processes over these deficiencies will be more important in light of the hundreds of findings and recommendations resulting from the fiscal year 2015 and 2016 Budgetary Schedule audits. DOD needs to effectively implement its FIAR Plan and FIAR Guidance to focus on strengthening processes, controls, and systems to improve the accuracy, reliability, and reporting for the Budgetary Schedule and the SBR and assess the existence, completeness, and valuation of mission- critical assets. It also needs to fully define, in the FIAR Guidance, actions needed to resolve long-standing department and component financial management weaknesses. In taking such actions, DOD should not lose sight of the ultimate goal of implementing lasting and sustainable financial management reform which provides reliable, useful, and timely information for decision making as a routine part of financial management operations. Auditable financial statements would be a natural byproduct of the department’s success. To effectively monitor its components as they implement the FIAR Guidance and assess and test controls and remediate control deficiencies, DOD needs to establish a process for assuring that financial improvement plans have been effectively implemented. DOD management will need to monitor and assess the progress that the department is making. Additionally, the FIAR Directorate should validate that the military services and other components have achieved the seven critical capabilities. According to the April 2016 FIAR Guidance, these seven critical capabilities are related to DOD’s ability to: (1) produce a universe of transactions; (2) reconcile its Fund Balance with Treasury (FBWT) (i.e., balance its checkbook); (3) provide supporting documentation for material adjustments to its financial records; (4) validate the existence, completeness, and rights of its assets; (5) establish processes to manage and value its assets correctly; (6) establish an auditable process for estimating and recording its environmental and disposal liabilities; and (7) implement critical information technology controls for its financial systems. DOD should take the following actions: assure that the Navy fully implements the FIAR Guidance for FBWT in the areas of analyzing processes, prioritizing, assessing and testing internal controls, and evaluating supporting documentation to support audit readiness; require the military services to improve their policies and procedures for monitoring their CAPs for financial management related findings and recommendations; improve its process for monitoring the military services’ audit remediation efforts by preparing a consolidated CAP management summary that provides a comprehensive picture of the status of corrective actions throughout the department; and expand the FIAR Plan Status Report so that Congress and other decision makers will have more sufficient information to assess DOD’s current audit readiness status and the improvements that still need to be made. In addition, with regard to our open priority recommendations, DOD should monitor actions components are taking to direct DFAS to complete actions in response to our recommendations for implementing the requirements in the FIAR Guidance in the areas of planning, testing, and corrective actions; improve DOD processes to identify, estimate, reduce, recover, and report on improper payments to assure these processes fully comply with OMB guidance, the Improper Payments Information Act of 2002, as amended, and the Improper Payments Elimination and Recovery Act of 2010, and reconsider the status of three recommendations made by the House Armed Services Committee Panel on Defense Financial Management and Auditability Reform that the department determined to be met but that we determined to be partially met; these recommendations related to: attesting to audit readiness in each of the FIAR Plan Status including FIAR-related goals in Senior Executive Service performance plans and rewarding and evaluating performance over time based on these goals; and reviewing audit readiness assertions before component senior executive committees. Improving the department’s financial management operations—and thereby providing DOD management and the Congress with more accurate and more reliable information on the results of its business operations—will not be an easy task. Key challenges remain, such as allocating the department’s workforce and budget among competing priorities, achieving the critical capabilities detailed in the FIAR Guidance, and executing CAPs to effectively remediate findings and recommendations from IPAs, the DOD OIG, and us. According to its November 2016 FIAR Plan Status Report, DOD is continuing to work toward undergoing a full financial statement audit for fiscal year 2018; however, it expects to receive disclaimers of opinion on its financial statements for a number of years. This is why it is important for DOD and the military services to improve their processes for identifying, tracking, remediating, and monitoring audit findings and recommendations related to financial management. The military services will need to assure that they enhance their policies and procedures for remediating these findings and recommendations and DOD will need to obtain comprehensive information on the status of CAPs throughout the department in order to fully monitor and report on the progress being made to resolve financial management deficiencies. A lack of comprehensive information on the CAPs limits the ability of DOD and Congress to evaluate DOD’s progress toward achieving audit readiness, especially given the short amount of time remaining before DOD is required to undergo an audit of the department-wide financial statements for fiscal year 2018. Being able to show the progress that the department is making in remediating its financial management deficiencies will be useful as the department works toward implementing lasting financial management reform to ensure that it can generate reliable, useful, and timely information for financial reporting as well as for decision making and effective operations. DOD continues to partially meet the leadership commitment criterion. Since the last high-risk update in 2015, the commitment of DOD’s senior leadership to improving the department’s financial management has continued to be encouraging. The statements, testimony, and actions of senior leaders have emphasized the importance of effective financial management and audit readiness to DOD’s stewardship over the substantial funding and other resources entrusted to the department. In response to statutory requirements and targets, DOD leadership directives have set out a strategy and methodology for improving DOD’s financial management through the FIAR Plan Status Reports and FIAR Guidance. DOD’s current FIAR strategy and methodology focuses on four priorities—budgetary information, proprietary accounting and information, mission critical asset information, and valuation—with overall goals of improving the department’s financial management operations, helping provide service members with the resources they need to carry out their mission, and improving stewardship of the resources entrusted to DOD by the taxpayers. DOD Comptroller officials meet regularly with us for a constructive exchange of information on the status of DOD and component actions and to help sustain progress toward the FIAR goals. The April 2016 FIAR Guidance incorporates recent policy updates related to integrating service providers and financial reporting on existence, completeness, and valuation of property. It also defines seven critical capabilities that reporting entities must address prior to asserting full audit readiness. According to DOD, the approach to achieving full financial statement auditability by September 30, 2017, relies upon each DOD component and service provider addressing the seven critical capabilities in a timely manner; failing to do so will put the entire department’s strategy at risk. DOD continues to partially meet the capacity criterion. DOD faces capacity challenges because (1) its financial management personnel are insufficient in number, qualifications, and expertise; (2) its legacy financial systems data and ERPs lack the necessary standardization and reliability to support generating financial statements and related data; and (3) its service providers’ audit readiness activities are not fully integrated with respective DOD components’ audit readiness activities. DOD continues to identify the need for sufficient numbers of qualified and experienced personnel as a challenge to achieving its goals of financial improvement and audit readiness. In the November 2016 FIAR Plan Status Report, DOD reported that audit readiness resources are expected to decline across the department as audit readiness activities continue to rise. For example, DOD reported that new financial statement audits will increase the work demands on headquarters staff. However, since the department has been mandated to reduce its headquarters workforce by fiscal year 2020, this additional work could exacerbate the demands on the workforce. In addition, the Defense Health Program reported that resources needed to concurrently support audit readiness and financial management operations exceed the capacity of its available resources. Similarly, the Army identified resource constraints and the timing of its fiscal year 2016 Schedule of Budgetary Activity audit as challenges to its ability to remediate audit findings related to its ERP systems. Further, DOD reported in its November 2016 FIAR Plan Status Report that resource needs for financial statement audits will likely increase as the scope of the audits expand and work to correct audit findings increases. DOD has undertaken efforts to increase the knowledge and skills of its financial management workforce by implementing its financial manager certification program. However, it will take some time before DOD’s financial management staff achieves the level of training and experience needed to support and sustain financial management as envisioned by the FIAR Plan. Further, DOD’s decentralized management environment may have an effect on the ability of its financial management personnel to gain the requisite expertise to develop and implement needed CAPs. Moreover, while DOD has made progress in financial manager training, it lacks the level of expertise needed to lead financial management reform across the department. DOD faces challenges with its systems’ capacity to generate reliable, auditable financial information because it continues to rely on (1) legacy systems and related processes and controls that feed financial information to component general ledger systems and (2) general ledger systems, including ERP systems, that do not meet federal accounting standards, U.S. Standard General Ledger (USSGL) requirements, federal financial management system requirements, and DOD’s Standard Financial Information Structure. DOD continues to report that relying on legacy systems is a challenge. This is because legacy systems produce data that are not standardized and are therefore difficult to reconcile to the financial statements. Many legacy systems will still be in use when the audit of DOD’s fiscal year 2018 full financial statements must commence. In its May 2016 FIAR Plan Status Report, DOD discussed continuing challenges regarding the large number of business and financial systems and the level of effort and cost of developing and maintaining an audit- ready systems environment. DOD continues to implement and upgrade various ERP systems to establish an audit-ready systems environment. However, because these systems were not always designed to capture transaction-level information that can be tied to original supporting documents, significant time will be needed to make necessary modifications to assure that they generate reliable financial information. DOD components have varying plans for correcting system deficiencies; for some components, completion dates have either not been determined or extend into fiscal year 2019. DOD uses service providers to improve efficiency and standardize business operations in various functional areas, including accounting, personnel and payroll, logistics, contracting, and system operations and hosting support. DOD service providers and their business systems are fundamental to reliable accounting and reporting and financial audit readiness. For example, to process and record payments to contractors, DOD components depend on over a dozen systems owned and operated by service providers and on nonstandard business processes that need to link between the components and service providers. This complex level of interdependency increases the difficulty of identifying the systems that need to be modified, upgraded, or eliminated to support financial management improvement and audit readiness and the difficulty of defining critical roles and responsibilities for carrying out such actions. The FIAR Guidance calls for examinations of DOD service providers’ systems, processes, and controls. The IPAs that conduct these examinations have continued to identify deficiencies in service providers’ systems, processes, and controls that affect the reliability of financial data and information used in the related business processes. Each of the components has identified integration with DOD service providers as a challenge to completing financial improvement initiatives and audit readiness efforts. For example, the Army has expressed concerns about service providers’ abilities to provide timely responses to auditor samples, data requests, and sufficient supporting documentation. In addition, the Marine Corps has expressed concerns about the ability of service providers to provide supporting documentation for existence, completeness, rights, and valuation of Marine Corps assets. Further, the military services have expressed concerns about how DFAS manages suspense accounts and provides supporting documentation for adjustments made by journal vouchers. DOD continues to partially meet the action plan criterion. While the military services have developed, implemented, and validated many corrective actions, DOD’s limited progress in making needed financial management reform can be attributed to its decentralized management environment and cultural resistance to change, which have significantly impeded the department’s ability to modernize and transform business processes, systems, and controls. Sound financial management practices and reliable, useful, and timely financial information are important to help ensure accountability over DOD’s extensive resources and to efficiently and economically manage the department’s assets and budgets. Under DOD’s nonstandard, decentralized environment, each component is responsible for following steps in OMB’s guidance and DOD’s FIAR Guidance for addressing financial management related findings and recommendations reported by external auditors, including steps to (1) identify and track them, (2) prioritize them, (3) develop CAPs to remediate them, and (4) monitor the implementation status of the CAPs. However, we found that the remediation processes designed by each military service had deficiencies in one or more of these areas. For example, each military service’s policies and procedures lacked sufficient controls to reasonably assure that they identified and tracked the complete universe of open findings and recommendations related to financial management. Without identifying and tracking the complete universe of unresolved deficiencies, the military services cannot reasonably assure that the deficiencies will be addressed in a timely manner, which can ultimately affect the reliability of financial information and the auditability of their financial statements. The need to effectively implement financial management remediation processes has become more important in light of (1) the hundreds of findings and recommendations that resulted from the fiscal year 2015 and 2016 Budgetary Schedule audits, (2) future audits that will have a broader scope of work and may therefore identify additional findings and recommendations, and (3) the short period remaining before DOD is required to undergo a full financial statement audit for fiscal year 2018. DOD components have self-identified completion dates for achieving the seven critical audit readiness capabilities for both their general funds and working capital funds in coordination with their service providers. As reported in DOD’s November 2016 FIAR Plan Status Report, most of DOD’s audit readiness tasks and associated audit readiness milestones have planned completion dates in fiscal year 2017. DOD faces significant challenges, given its limited progress in assuring it can attain the seven critical capabilities and the volume and magnitude of open audit findings and recommendations that still need to be addressed from the fiscal year 2015 and 2016 Budgetary Schedule audits of the Army, Navy, and Air Force. To date, the efforts of DOD components to implement the FIAR Guidance have not fundamentally transformed systems and operations as necessary to produce reliable, useful, and timely information for day-to- day decision making on mission and operations. Resolving these deficiencies also will be crucial to DOD’s efforts to meet the statutory requirement to undergo a full financial statement audit for fiscal year 2018. However, much work remains to be completed in order for this date to be met. In its November 2016 FIAR Plan Status Report, DOD stated that readiness to undergo an audit does not mean that it expects to receive a positive opinion and that it is important to continue the audit regimen in order to gain valuable information from its early audit efforts, information that will help focus the department’s corrective actions in the most critical areas. DOD has not met the monitoring criterion. Effective monitoring requires instituting a program to monitor and independently validate the effectiveness and sustainability of corrective measures. However, as we have reported, while the DOD Comptroller has established several elements of a department-wide audit readiness remediation process, the DOD Comptroller does not obtain the complete, detailed information on all corrective action plans (CAP) from the military services related to the department’s critical capabilities necessary to fully monitor and assess DOD’s progress. Specifically, DOD does not prepare a consolidated management summary that would provide a comprehensive, department- wide picture of the status of CAPs needed for audit readiness that includes all of the elements that are recommended by the Implementation Guide for OMB Circular A-123. As a result, reports to external stakeholders, such as Congress, on the status of audit readiness do not provide comprehensive information on progress against the CAPs, limiting the ability of DOD and Congress to evaluate DOD’s progress toward achieving audit readiness, especially given the short amount of time remaining before the statutorily required full financial statement audit for fiscal year 2018. Further, the lack of comprehensive information on the status of CAPs increases DOD’s risk that it will not be able to fully, timely, and efficiently correct its long-standing deficiencies. In addition, we reported that DOD’s FIAR Plan Status Reports do not provide adequate visibility for Congress and other decision makers regarding the extent to which DOD has addressed certain internal control deficiencies that it refers to as deal-breakers. For example, the status reports do not include information on (1) audit assertions made without correcting internal control deficiencies along with actions and plans to remediate the deficiencies and (2) details of military services’ actions taken and progress made toward correcting the underlying deficiencies for reported deal-breakers. Without greater visibility of the status of DOD’s audit readiness or progress toward reported completion dates in its FIAR Plan Status Report, Congress and other decision makers may not have sufficient information to assess DOD’s current audit readiness status and the improvements that still need to be made. DOD has not effectively implemented the FIAR Guidance because, in part, it lacks effective monitoring to assess the effectiveness of controls and the remediation of control deficiencies. For example, we reported that the Navy did not fully implement the FIAR Guidance for reconciling its FBWT in the areas of process analysis, prioritization, internal control assessment and testing, and evaluation of supporting documentation to support audit readiness. In addition, each of the IPAs that performed audits of the military services fiscal year 2016 Budgetary Schedules identified deficiencies in monitoring information technology controls for its financial systems. DOD also has challenges with carrying out its strategy in the FIAR Guidance with regard to its critical capabilities. For example, the DOD OIG reported that the Army could not reconcile approximately $207 billion (68 percent) of its outlays, because the Army and DFAS did not coordinate to reengineer business processes when they implemented a new FBWT reconciliation tool. As a result, the DOD OIG reported that the Army cannot demonstrate an effective FBWT transaction-level reconciliation, which DOD identified as one of the deal-breakers to auditability. Furthermore, the DOD OIG reported that Army and DFAS could not adequately support material amounts of year-end adjustments to the Army General Fund financial data during the fiscal year 2015 financial statement compilation. As a result, the data used to prepare the fiscal year 2015 Army General Fund statements were unreliable and lacked an adequate audit trail. The DOD OIG also reported that DOD and Army managers could not rely on the data in the accounting systems when making management and resource decisions. According to the DOD OIG, until these control deficiencies are corrected, there is a considerable risk that the Army General Fund financial statements will be materially misstated and that the Army will not achieve the goal of being audit ready by September 30, 2017. DOD has not met the demonstrated progress criterion, showing limited progress in implementing corrective measures to resolve its long-standing financial management challenges. For example, because of difficulties encountered in preparing for an audit of the multi-year Statement of Budgetary Resources (SBR), DOD decided that, beginning with fiscal year 2015, it would limit the scope of the initial audits for all DOD components to current-year budget activity reported on a Budgetary Schedule. This was intended to be an interim step toward achieving the audit of multiple-year budgetary activity required for an audit of the SBR, with subsequent audits including current-year appropriations as well as prior-year appropriations going back to fiscal year 2015. Consequently, the Budgetary Schedules for the Army, Navy, and Air Force for fiscal year 2015 reflected only current year budget activity. As noted above, all three of the IPAs contracted to audit these fiscal year 2015 Budgetary Schedules issued disclaimers, meaning that the IPAs were unable to express an opinion because they lacked sufficient evidence to support the amounts presented. The IPAs for the three military services also identified material weaknesses in internal control. These weaknesses included military services’ inability to, among other things, reasonably assure that the Budgetary Schedules reflected all of the relevant financial transactions that occurred and that documentation was available to support such transactions. The IPAs for the three military services also issued disclaimers on the three services’ fiscal year 2016 Budgetary Schedules for reasons similar to those identified in the fiscal year 2015 audits. Further, the results of these audits—with hundreds of open findings and recommendations—show the extent and complexity of improvements needed to provide reliable information for financial reporting as well as for sound decision making on mission and operations. For additional information about this high-risk area, contact Asif Khan at (202) 512-9869 or khana@gao.gov. DOD Financial Management: Significant Efforts Still Needed for Remediating Audit Readiness Deficiencies. GAO-17-85. Washington, D.C.: February 9, 2017. DOD Financial Management: Improvements Needed in the Navy’s Audit Readiness Efforts for Fund Balance with Treasury. GAO-16-47. Washington, D.C.: August 19, 2016. DOD Financial Management: Greater Visibility Needed to Better Assess Audit Readiness for Property, Plant, and Equipment. GAO-16-383. Washington, D.C.: May 26, 2016. DOD Financial Management: Improved Documentation Needed to Support the Air Force’s Military Payroll and Meet Audit Readiness Goals. GAO-16-68. Washington, D.C.: December 17, 2015. DOD Financial Management: Additional Efforts Needed to Improve Audit Readiness of Navy Military Pay and Other Related Activities. GAO-15-658. Washington, D.C.: September 15, 2015. DOD Financial Management: Continued Actions Needed to Address Congressional Committee Panel Recommendations. GAO-15-463. Washington, D.C.: September 28, 2015. DOD Financial Management: Actions Are Needed on Audit Issues Related to the Marine Corps’ 2012 Schedule of Budgetary Activity. GAO-15-198. Washington, D.C.: July 30, 2015. The Department of Defense (DOD) spends billions of dollars each year to acquire modernized systems that are fundamental to achieving its business transformation goals, including systems that address key areas such as personnel, financial management, health care, and logistics. While DOD’s capacity for modernizing its business systems has improved over time, significant challenges remain. These challenges include fully defining and establishing management controls for business systems modernization. Such controls are vital to ensuring that DOD can effectively and efficiently manage an undertaking with the size, complexity, and significance of its business systems modernization, and minimize the associated risks. DOD’s effort to modernize its business systems environment has been designated as high risk since 1995. DOD has demonstrated elements of leadership commitment and has made progress in this area by taking steps to manage the modernization of its business systems more effectively and efficiently. For example, the department has begun to implement an improved investment management framework and processes, and has established the capacity to use its federated architecture to identify potentially duplicative investments. However, more needs to be done to leverage DOD’s capacity to identify potentially duplicative investments, and to ensure that, among other things, systems are reviewed at appropriate levels as part of the department’s improved investment management framework. In addition, DOD’s business systems modernization efforts continue to fall short of cost, schedule, and performance expectations, and the department has not yet established an action plan (or plans) highlighting how it intends to improve its use of its business architecture, improve its business system investment management process, or improve its business system acquisition outcomes. The department can leverage the federal information technology (IT) dashboard as a mechanism for beginning to monitor progress in improving its business system acquisition outcomes. Nevertheless, without an action plan, DOD lacks a baseline against which it can monitor broader progress in its business systems modernization efforts. Further, the National Defense Authorization Act for Fiscal Year 2017 and its accompanying conference report include provisions that might impact how the department will manage its business systems. Specifically, the act establishes a Chief Management Officer and the accompanying conference report calls for the department to develop a plan by June 2017 to implement a more optimized organizational structure and processes to support information management and cyber operations, including the policy, direction, oversight, and acquisition functions associated with, among other things, business systems. The impact of these provisions on the department’s business systems modernization efforts remains to be seen. Although more needs to be done to address this high-risk issue, DOD has achieved important benefits by implementing our recommendations. For example, fiscal years 2013 and 2014 saw total financial savings of $970 million due to the department cancelling the Air Force’s Expeditionary Combat Support System because of significant cost and schedule overages discovered as a result of increased oversight. DOD must more fully demonstrate leadership commitment and progress in implementing critical IT modernization management controls. For example, the department needs to address the provisions of the conference report accompanying the Fiscal Year 2017 National Defense Authorization Act that call for DOD to develop a plan by June 2017 to implement a more optimized organizational structure and processes to support, among other things, business systems. DOD also needs to ensure that its business system investments are managed with the kind of rigor and discipline embodied in relevant acquisition management guidance and best practices so that each investment will deliver expected benefits and capabilities on time and within budget. In addition, DOD should ensure that its information reported on the Office of Management and Budget’s IT Dashboard is reliable and, over time, demonstrates improved achievement of cost, schedule, and performance expectations. DOD should also demonstrate that it is improving its guidance on incrementally developing IT systems to help ensure a timely delivery of needed capabilities, consistent with the Federal IT Acquisition Reform provisions of the Carl Levin and Howard P. ‘Buck’ McKeon National Defense Authorization Act for 2015. In addition, DOD needs to take steps to address key portfolio management practices documented in our IT Investment Management Framework. For example, DOD has not yet defined criteria for reviewing defense business systems at an appropriate DOD level based on factors such as complexity, scope, cost, and risk in support of the certification and approval process. DOD also needs to develop plans defining how it will ensure that it is using its federated business architecture to identify and address potentially duplicative investments within its business systems environment. Further, DOD should demonstrate that plans exist for addressing these various actions and associated recommendations, and that it is monitoring progress against these plans and demonstrating progress and related outcomes. DOD also needs to ensure that it has the appropriate capacity in place by conducting needed human capital analyses. DOD has partially met the criterion for leadership commitment. For example, the department has taken steps to improve its publicly available investment ratings and encourage incremental development. However, more remains to be accomplished before the department can fully demonstrate leadership commitment. In particular, the department needs to take steps to improve the accuracy of the department’s ratings, improve its use of incremental development, and further define expectations for managing its business system investments. In March 2014, the department revised its chief information officer ratings process for investments presented on the Federal IT Dashboard to take into account additional information about the risk of its investments, such as investment complexity, execution issues, and external risk assessments, including our reports. Establishing an accurate picture of program risk helps department management better understand which investments would benefit from additional oversight. Nevertheless, we reported in June 2016 that investment risk ratings presented on the Dashboard were not consistent with our assessment of investment risks. Specifically, our assessment of 25 DOD programs, 4 of which were defense business systems, determined that 19 of the programs, including all 4 defense business systems, were at a higher risk level than what was presented on the Dashboard. Moreover, in January 2015, the department revised Department of Defense Instruction 5000.02: Operation of the Defense Acquisition System, which describes an incremental software development approach for IT investments. According to the instruction, the approach has been adopted for many defense business systems. This is partially consistent with the recommendation from our May 2014 report emphasizing the importance of IT investments delivering capabilities in smaller increments over shorter periods of time. However, the instruction does not provide a time frame for how often functionality is to be delivered. As a result, the instruction does not fully address our recommendation, which calls for DOD to update its incremental development policies to ensure that it complies with Office of Management and Budget guidance. This guidance requires federal agencies to deliver usable system functionality every 6 months. In addition, the results from our recent related work show that the department has not consistently implemented an incremental development approach for all of its major IT investments. Specifically, in August 2016, we reviewed 14 business system projects associated with seven business system investments and found that, in fiscal year 2016, only 8 projects planned to deliver functionality every 6 months. Moreover, only nine projects planned to deliver functionality every 12 months. Six of the projects that had planned to deliver functionality within 6 months were associated with only one of the seven investments. According to DOD officials, the department allows its program managers to determine the appropriate delivery schedule. The officials also noted that a 6-month schedule would be too expensive to implement given the scale of the projects at the department. Nevertheless, until DOD modifies and implements its incremental development policy, it continues to run the risk of failing to deliver major investments in a cost-effective and efficient manner. In November 2016, DOD officials from the Offices of the Deputy Chief Management Officer, Under Secretary for Acquisition, Technology, and Logistics, and DOD Chief Information Officer stated that the department had developed a draft DOD Instruction focused on improving business system acquisition. This instruction is to provide guidance in areas such as risk management, requirements management, and incremental development. However, as of December 2016, the department had not completed the instruction. In addition, as previously discussed, the impact of provisions included in the National Defense Authorization Act for Fiscal Year 2017, and its accompanying conference report, on DOD business system acquisition management remains to be seen. DOD has not met the criterion for capacity. In May 2013, we reported that the Office of the Deputy Chief Management Officer, which is responsible for annually reviewing and approving the expenditure of funds associated with DOD business systems, had not conducted a human capital analysis and that no plans existed to analyze and address skill gaps, thus limiting the department’s capacity to lead improvement initiatives in these areas. In August 2016, department officials reported that the office had undergone two reorganizational changes and used skill inventories, needs assessments, and gap analyses as part of a strategic approach to human capital planning. However, DOD has not provided evidence of having performed a needs assessment or a gap analysis. In November 2016, an official from the department’s Office of the Under Secretary of Defense for Acquisition, Technology and Logistics stated that the department planned to take additional steps to address human capital needs after issuing its forthcoming instruction on defense business systems. DOD has not met the criterion for developing an action plan. In particular, the department lacks a plan (or plans) to monitor efforts to manage its business system investments with the rigor and discipline embodied in relevant acquisition guidance and best practices. In October 2016, the Assistant Deputy Chief Management Officer described steps the department is taking to make improvements in this area, but stated that the department has not developed an action plan to address this high-risk area. DOD has partially met the criterion for monitoring progress. Specifically, the department can leverage the Federal IT Dashboard with more accurate data as a mechanism for beginning to monitor progress in improving its business system acquisition outcomes. However, without an approved action plan for addressing the DOD Business Systems Modernization high-risk area, the department lacks a means to monitor broader progress in making improvements to its business system acquisition management efforts. DOD has partially met the criterion for demonstrating progress. As discussed previously, the department has taken steps to improve business system acquisition management. However, it needs to show continued progress as it takes steps to improve its efforts. For example, in our series of reports on DOD major automated information systems, we reported that the department has had mixed success in addressing key acquisition practices, such as risk and requirements management. We also continue to identify examples of business systems that do not meet performance expectations and experience significant cost overruns and schedule slippages. For example, in March 2016, we reported that the projected cost of the Air Force system that provides financial capabilities, such as cost accounting and collections, had increased about 9 percent from the program’s first February 2012 estimate (from approximately $1.43 billion up to $1.56 billion). Program officials attributed the cost increase, in part, to program scope growth and the addition of software upgrade enhancements. We also reported that this system experienced a 1-year slippage in its full deployment decision date. Program officials attributed this slippage to findings identified in the system’s initial operational test and evaluation report. In addition, the system did not meet five of its nine key performance indicators. In November 2016, DOD officials stated that the system was not deployed as planned and is currently undergoing a critical change. Accordingly, as of November 2016, updated milestones have not yet been established. DOD has partially met the criterion for leadership commitment. Specifically, the department has taken steps to improve its business systems investment management process to include defining and implementing policies and procedures for managing portfolio-level investments consistent with our Information Technology Investment Management Framework, and relevant investment management and business system modernization requirements. For example, in July 2015, we reported that DOD was continuing its efforts to further define and implement its defense business system governance framework, called the Integrated Business Framework. In this regard, the department had taken steps to align its business system certification and approval process with its planning, programming, budgeting, and execution process. According to the department’s February 2015 certification and approval guidance, organizational execution plans, which are to summarize each component’s business strategy for each functional area (e.g., financial management), are to include information about certification requests for the upcoming fiscal year as well as over the course of the department’s Future Years Defense Program. In addition, DOD has generally concurred with our recommendations to address improvements to its management of business systems. Nevertheless, the department needs to show continued leadership commitment and progress in addressing our associated recommendations as it takes steps to improve its business system investment management process. These recommendations are aimed at ensuring that business systems receive the appropriate levels of review using a tiered investment review board approach, and that strategies for DOD functional areas include all of the critical elements identified in DOD investment management guidance. These critical elements include performance measures to determine progress toward achieving the goals that incorporate all of the attributes called for in the department’s guidance. Further, as previously discussed, the impact of provisions in the National Defense Authorization Act for Fiscal Year 2017, and its associated conference report, on the department’s business systems investment management process remains to be seen. DOD has partially met the criterion for capacity. Although the department has established an investment review board to oversee its portfolio-based investment management process, much still remains to be accomplished to better define and institutionalize this process. For example, as of December 2016, the department had not yet issued an update to its February 2015 Certification Guidance. Officials from the Offices of the Deputy Chief Management Officer, Under Secretary for Acquisition, Technology and Logistics, and DOD Chief Information Officer stated in November 2016 that the department was developing a DOD Instruction aimed at improving the management of defense business systems. According to the officials, updated guidance on defense business systems, including updated certification guidance, will be issued after the instruction is finalized. In addition, in May 2013, we reported that the Office of the Deputy Chief Management Officer, which is responsible for annually reviewing and approving the expenditure of funds associated with DOD business systems, had not conducted a human capital analysis and had not developed plans to analyze and address skill gaps, thus limiting the department’s capacity to lead improvement initiatives in these areas. In August 2016, department officials reported that the office had undergone two reorganizational changes and used skill inventories, needs assessments, and gap analyses as part of a strategic approach to human capital planning. However, DOD has not provided evidence of having performed a needs assessment or a gap analysis. Nevertheless, in November 2016, an official from the department’s Office of the Under Secretary for Acquisition, Technology and Logistics stated that the department planned to take additional steps to address human capital needs after issuing its forthcoming instruction on defense business systems. DOD has not met the criterion for developing an action plan. Specifically, the department has not established an action plan (or plans) for addressing gaps in its business system investment management approach. In October 2016, the Assistant Deputy Chief Management Officer described steps the department is taking to make improvements in this area, but stated that the department has not developed an action plan to address this high-risk area. DOD has not met the criterion for monitoring progress. Specifically, without an approved action plan for addressing the DOD Business Systems Modernization high-risk area, the department lacks a means to monitor progress in making improvements to its business system investment management process. DOD has partially met the criterion for demonstrated progress. As discussed previously, the department has taken steps to improve its business system investment management process. However, the department needs to show continued progress in addressing our associated recommendations as it takes steps to improve its business system investment management process. For example, as discussed, in February 2015, the department took steps to align its business system certification and approval process with its planning, programming, budgeting, and execution process. However, as we reported in July 2015, the department’s February 2015 certification and approval guidance does not specify a process for conducting an assessment or call for the use of actual versus expected performance data and predetermined thresholds. DOD has partially met the criterion for leadership commitment for its federated business enterprise architecture. For example, in May 2014, we reported that the department’s Deputy Chief Management Officer required all business systems to be entered into the architecture compliance tool before they could be certified and approved as part of DOD’s business system investment management process. In addition, the Office of the Deputy Chief Management Officer has initiated an effort to improve how the department leverages the architecture, and the department has identified several associated milestones. However, as of December 2016, the department had not demonstrated that this effort and the associated milestones had obtained final approval from the Assistant Deputy Chief Management Officer. In addition, as previously discussed, the impact of provisions in the National Defense Authorization Act for Fiscal Year 2017, and its accompanying conference report, on the business architecture remains to be seen. DOD has met the criterion for capacity by establishing tools and processes intended to improve the department’s efforts to identify potentially duplicative systems by leveraging the federated business enterprise architecture. For example, in 2014, the department completed efforts to automate its business architecture compliance review process. According to officials, this automation will improve the department’s efforts to identify potentially duplicative systems. In addition, the department’s December 2014 problem statement requirements validation guidance called for an enterprise architecture analysis to be conducted to determine if a capability already exists within the organization or elsewhere across the department. Further, the department’s April 2015 business enterprise architecture compliance guidance reinforced this guidance by stating that programs should be examined for potential duplication and overlap during the problem statement requirements analysis process, which is to occur early in a program’s life cycle. DOD has not met the criterion for developing an action plan. The department has initiated an effort to improve how it leverages the architecture and identified several associated milestones. However, as of December 2016, the department had not demonstrated that this effort and the associated milestones had been approved by the Assistant Deputy Chief Management Officer. DOD has not met the criterion for monitoring progress. The department has developed a draft plan to improve how it leverages the architecture and identified several associated milestones. However, as of December 2016, the department had not demonstrated that this effort and the associated milestones had been approved by the Assistant Deputy Chief Management Officer. Without approved plans, DOD lacks a means to monitor progress in leveraging its architecture compliance tool. DOD has partially met the criterion for demonstrated progress. For example, the department has established the capacity to identify potentially duplicative investments. DOD has also provided examples of benefits attributed, at least in part, to the department’s business enterprise architecture. For example, according to officials from the Office of the Deputy Chief Management Officer, two proposed new defense business system investments were not approved by DOD due, in part, to architecture reviews that revealed the requested capabilities were already available in existing systems. In addition, in November 2016, the department provided examples of programs that had been assessed for potential duplication and overlap based on their associated business activities. Nevertheless, the department has not yet demonstrated that it is actively and consistently using such assessments of potential duplication and overlap to eliminate duplicative systems. The department’s draft plan for improving how it leverages its business architecture acknowledges this gap and identifies steps the department can take to improve. In 2013, the department took actions to improve its investment management decision making. For example, the department’s investment management guidance, issued by the Office of the Deputy Chief Management Officer in April 2013, required the precertification authorities to include any open recommendations from us for program weaknesses, as well as a status update on addressing our recommendations as part of the certification requests. These actions help ensure that DOD’s Investment Review Board is provided with identified program weaknesses that can be appropriately considered and thus better inform and justify certification decisions for business systems investments. In 2014, the department reported all business system certification actions in its annual report to Congress. Specifically, DOD’s 2014 annual report to Congress included, among other things, a list of all certification actions the department took in the previous year on its business systems modernization investments. For example, the report contained an attachment that reported all fiscal year 2014 certification actions, including the amount of funding requested, the amount approved or disapproved, and any conditions placed on funding not certified or conditionally certified. Additionally, fiscal years 2013 and 2014 saw total financial savings of $970 million due to the department cancelling the Air Force’s Expeditionary Combat Support System because of significant cost and schedule overages discovered as a result of increased oversight. In 2015, the department demonstrated that it took steps to help ensure that it was appropriately reengineering business processes on defense business systems. In particular, as part of DOD’s fiscal year 2013 certification and approval process, the department placed conditions on certifications for these business systems requiring that a plan be submitted describing how each system would become compliant with business process re-engineering requirements. DOD officials also provided documentation showing that they tracked these conditions. In addition, DOD has reported much higher levels of compliance with business process reengineering requirements in subsequent annual review cycles. For example, for the fiscal year 2014 and 2015 certification cycles, DOD officials reported that only two systems and six systems, respectively, were approved that did not have complete business process reengineering assertions. Moreover, DOD officials provided justifications for why each of these systems did not have complete business process reengineering assertions. In 2016, the Air Force, Army, and Navy developed a plan for addressing core elements described in our Enterprise Architecture Management Maturity Framework. For additional information about this high-risk area, contact Carol C. Harris at (202) 512-4456 or HarrisCC@gao.gov. Information Technology Reform: Agencies Need to Increase Their Use of Incremental Development Practices. GAO-16-469. Washington, D.C.: August 16, 2016. IT Dashboard: Agencies Need to Fully Consider Risks When Rating Their Major Investments. GAO-16-494. Washington, D.C.: June 2, 2016. DOD Major Automated Information Systems: Improvements Can Be Made in Reporting Critical Changes and Clarifying Leadership Responsibility. GAO-16-336. Washington, D.C.: March 30, 2016. DOD Business Systems Modernization: Additional Action Needed to Achieve Intended Outcomes. GAO-15-627. Washington, D.C.: July 16, 2015. Defense Major Automated Information Systems: Cost and Schedule Commitments Need to be Established Earlier. GAO-15-282. Washington, D.C.: February 26, 2015. Since our 2015 high-risk update, the Department of Defense (DOD) has shown some improvement in managing its infrastructure to better achieve reductions and efficiencies, and has partially met each of the five criteria for removal from the High-Risk List. For this update, we are consolidating our evaluation of these two areas based on DOD officials’ assertion that achieving efficiencies in base support is integrated through numerous programs and efforts at the Office of the Secretary of Defense (OSD), military service, and installation levels, and is incorporated in DOD’s overall efforts to efficiently manage its infrastructure. Further, DOD officials stated that the joint basing program is no longer DOD’s primary effort for achieving efficiencies in base support services. For these reasons, we are reframing our evaluation to focus generally on DOD’s efforts to better align DOD’s support infrastructure with the needs of its forces and achieve efficiencies. DOD manages a global real property portfolio that consists of more than 562,000 facilities—including barracks, commissaries, data centers, office buildings, laboratories, and maintenance depots—located on about 4,800 sites worldwide and covering more than 25 million acres. With a DOD- estimated replacement value of about $880 billion, this infrastructure is critical to maintaining military readiness, and the cost to build and maintain it represents a significant financial commitment. Since designating this area as high risk in 1997, we have reported on various long-term challenges DOD faces in managing its infrastructure. Specifically, DOD has experienced obstacles reducing excess infrastructure, more efficiently using underutilized facilities, and reducing base support costs, as well as achieving efficiencies by consolidating or eliminating duplicate support services. In our 2015 high-risk update, we categorized the need for improvement into two areas: (1) reducing excess infrastructure, which included disposing of and consolidating facilities under the Base Realignment and Closure (BRAC) process and improving how DOD uses facilities; and (2) achieving efficiencies in base support through joint basing—a program aimed at consolidating support services by combining bases that are in close proximity or adjacent to one another. We reported that DOD retained significant excess capacity relative to its planned force structure; needed to improve the completeness and quality of its information on how it uses facilities to better manage and use them; and had not realized the anticipated cost savings and efficiencies in reducing duplicative support services through its joint basing program. As cited previously, since our 2015 high-risk update, DOD has shown some improvement in managing its infrastructure to better achieve reductions and efficiencies, and has partially met each of the five criteria for removal from the High-Risk List. Specifically, DOD has demonstrated leadership by requesting more rounds of BRAC—its primary method for reducing excess infrastructure not needed to support its forces. DOD has also showed some improvement in its leadership commitment, capacity, action plans, monitoring, and progress by increasing the completeness of utilization data, publishing an overarching Real Property Efficiency Plan, communicating and addressing issues on consolidating installation services at the joint bases, and reducing excess infrastructure through the Freeze the Footprint policy. However, DOD needs to take additional steps across all five of our high-risk criteria. For example, DOD has not committed to take action on some of our recommendations related to it implementing any future BRAC rounds, such as improving DOD’s ability to estimate potential liabilities, and savings to achieve desired outcomes. Further, DOD continues to maintain excess capacity in relation to its force structure, including long-standing excess facilities, and needs to ensure accuracy of its real property data to better identify potential areas to reduce and consolidate facilities. DOD also needs to address in its plans any actions geared toward achieving efficiencies in base support services, such as through consolidating services. By acting on our recommendations to strengthen its efforts in each of these areas, DOD will be better positioned to align its support infrastructure with the needs of its forces and achieve efficiencies. In April 2016, we provided DOD with a letter that outlined 19 actions and outcomes that we believe it should address in order to correct long- standing weaknesses in its support infrastructure management efforts. Based on discussions with DOD officials and recent efforts across the department, as of January 2017, we believe that DOD has addressed 4 of the 19 actions and outcomes related to capacity, monitoring, and demonstrated progress. Specifically, DOD evaluated the purpose of joint basing and whether its goals are still appropriate, reviewed and prioritized standards to ensure a shared framework for managing base support, provided guidance to the joint bases that directs them to identify opportunities for cost savings and efficiencies, and continued to develop an approach to identify and isolate cost savings resulting from consolidating support services at the joint bases. We also added one action on improving the accuracy and completeness of lease data, which we believe will assist DOD in managing its facilities more efficiently. Going forward, DOD needs to show measureable and sustained progress in addressing the remaining 16 actions and outcomes across each of the 5 criteria for removal from the High-Risk List related to improving implementation of any future BRAC rounds, improving facility utilization data, reducing base support costs, and achieving efficiencies in base support. In September 2016, we also provided DOD with a letter describing the overall status of DOD’s implementation of our recommendations, and noted specific open recommendations that we believe the department should give high priority to addressing. Included in the letter were 7 open priority recommendations related to improving initial cost estimates, limiting bundling of stand-alone realignments, developing baseline cost data, and establishing reduction targets for any future BRAC, which are also included in the 16 actions that are part of this high-risk update. DOD needs to take the following 16 actions to satisfy the five high-risk criteria for DOD support infrastructure management: Leadership Commitment: For any future BRAC rounds, DOD needs to commit to improve the process for identifying and entering into Cost of Base Realignment Actions (COBRA) requirements for relocating personnel and equipment, costs for alternatively financed projects, and limiting the practice of bundling multiple stand-alone realignments or closures into single recommendations, or when bundling is appropriate, itemize the costs and savings associated with each major discrete action. DOD should provide clear direction to the joint bases about goals, time frames, and measures in consolidating base support services. Capacity: DOD needs to implement guidance on improving utilization data; and, continue to manage the reduction of long-standing excess facilities, such as proactively managing processes to meet historic preservation and environmental requirements and working with host nations to avoid prolonged negotiations over returning excess infrastructure in foreign countries. Action Plan: DOD needs to include in its plans any actions geared toward reducing duplication or consolidating support services, such as providing measurable goals linked to achieving savings and efficiencies stemming from consolidation at the joint bases. Monitoring: DOD needs to improve the accuracy and completeness of data, including breaking out the cost and square footage information on multiple properties included in a single lease; in any future BRAC round, commit to improving the fidelity of initial BRAC cost estimates by working with military services and other appropriate stakeholders to fully identify requirements—the cost of military construction, information technology, and relocating personnel and equipment, and alternatively financed projects—and limit bundling multiple stand-alone realignments or closures into single recommendations. When bundling is appropriate, itemize the costs and savings associated with each major discrete action; direct the military departments to develop baseline cost data, including any consolidation resulting from a future BRAC round; and continue to periodically track service-level efforts to reduce excess infrastructure, such as planned service targets to reduce or better use excess space, based on reliable real property data, including information on utilization and leased space. Demonstrate Progress: DOD needs to establish targets for eliminating excess capacity, consistent with the BRAC selection criteria chosen, for any future BRAC rounds; assess—using better data on the use of space and better monitoring of DOD-level and service-level efforts— whether its goals and efforts need to be reviewed to align space utilization with mission needs; and ensure its plans and programs to achieve reduction goals are implemented and progress monitored, in addition to other actions previously mentioned under the other high-risk criteria. If Congress authorizes additional BRAC rounds, it may wish to consider amending BRAC legislation to require the Secretary of Defense to formally establish specific goals that the department expects to achieve from a future BRAC process and require DOD to implement our recommendations related to BRAC. DOD partially met the criterion for leadership commitment. DOD has demonstrated some top leadership commitment to reducing excess infrastructure and more efficiently managing its infrastructure, but needs to demonstrate further commitment to better managing any future BRAC rounds and providing steps to achieve its joint basing goals, timeframes, and measures in achieving efficiencies in support services. Since 2013, DOD has been successful in reducing excess infrastructure through its past BRAC rounds and has demonstrated leadership in requesting additional BRAC rounds. In addition, since 2013, in coordination with the military services, DOD has developed and implemented more effective and efficient methods to reduce excess infrastructure, such as through more proactively managing DOD’s processes to meet historic preservation and environmental requirements. Additionally, DOD has worked with host nations to avoid prolonged negotiations over returning excess infrastructure in foreign countries. However, DOD needs to demonstrate additional leadership commitment to ensuring the success of any future BRAC rounds by agreeing to implement key actions we have recommended from reviews of the most recent BRAC round. In March and April 2013, we reported that while the BRAC process was fundamentally sound, the way DOD implemented the 2005 BRAC round at times limited its ability to estimate costs, potential liabilities, and savings to achieve desired outcomes. Specifically, we identified a number of issues with DOD’s process for estimating BRAC costs and savings, which was hindered in many cases by underestimating recommendation-specific requirements that were entered in the COBRA estimation model. For example, the primary reason costs increased for BRAC 2005 was higher-than-anticipated military construction costs—an increase of 86 percent from $13.2 billion originally estimated by the BRAC Commission to $24.5 billion after BRAC implementation ended in 2011. DOD significantly understated initial requirements inputted into COBRA for information technology costs (e.g., realigning supply, storage, and distribution management initially estimated to be $31 million increased to over $190 million). Also, DOD understated the costs of relocating military personnel positions and equipment, and did not consistently capture all costs associated with alternatively financed projects. We recommended various actions to improve the quality of information that forms the basis for the costs estimates. In written comments to our March 2013 report, DOD officials did not fully concur with these actions, stating that the COBRA model was not meant for the purposes we recommended. However, more recently, they agreed to take additional action to better forecast the initial costs inputted into COBRA related to military construction, information technology, and relocating military personnel positions and equipment, and have already taken some steps to do so, in support of any future BRAC round. Officials did not agree that liabilities from alternatively financed projects need to be consistently captured in the COBRA model, stating that it is difficult to estimate these costs. However, as we stated in the April 2013 report, in cases where the amount of the liability cannot be estimated, modifying the model with a capability to note the existence of a potential liability would provide decision makers with valuable information to inform their deliberations. DOD officials also cautioned that costs can increase during implementation of BRAC recommendations which cannot be easily foreseen, and increases in costs are reported to Congress. We agree that costs can and have increased during the implementation of BRAC recommendations. However, the intent of our recommendations are to improve the information provided to decision makers while they are comparing competing scenarios and making closure and realignment decisions, understanding that ultimate costs may differ from these initial estimates. Further, DOD bundled multiple BRAC recommendations into single, highly complex recommendations without itemizing costs and savings associated with each separate major action, which limited visibility into the estimated costs and savings for individual closures and realignments and complicated the ability of the Defense Base Closure and Realignment Commission (BRAC Commission) to review the recommendations. We recommended actions to improve the quality of information that forms the basis for the cost estimates by limiting the bundling of recommendations, or if bundling is appropriate, to itemize the costs and savings associated with each major discrete action. In the March 2013 report, DOD did not fully concur with these recommendations, stating that actions are bundled when they relate to a common outcome, and thus need to be viewed comprehensively rather than individually. More recently, officials agreed that when bundling is appropriate during any future BRAC round, they would provide additional details related to costs and savings as needed. We are encouraged by DOD’s agreement that improvements can be made in the quality of the information that supports BRAC cost estimates, and we continue to believe addressing these issues when planning for any future BRAC rounds will help the department improve initial cost estimates and provide a means for better evaluating the proposed closure and realignment recommendations. Improving its planning processes, including the cost estimates, would also help DOD implement the BRAC process more effectively towards reducing excess capacity and provide more confidence to Congress and the public on DOD’s efforts in implementing BRAC actions. With respect to achieving efficiencies in base support, DOD reported relying on a multitude of efforts and initiatives at the OSD, military service, and installation levels. We have reported on DOD’s progress in implementing its joint basing program, one key initiative aimed at achieving efficiencies in base support. We reported that OSD demonstrated some leadership commitment to addressing issues affecting joint bases by issuing a memo to the Secretaries of the military departments asserting its support for joint basing and clarifying the program goals, but OSD and the military departments have not yet provided detailed guidance on how to meet the goals and related timeframes. DOD’s memo outlined key areas for continual success of the program, including continuing to consolidate installation support functions at the bases. While the 2014 memo did not provide detailed guidance on achieving cost savings and efficiencies or provide for milestones, as we have recommended, it affirmed the purpose and goals of the joint bases and demonstrated a commitment to the program. Continued leadership by DOD, to include implementing our prior recommendations in any future BRAC rounds and focusing its efforts to reduce duplication of support services for its bases, among DOD’s other efficiency measures, will be important to sustain efforts to more effectively and efficiently align its infrastructure with its needs. DOD partially met the criterion for capacity. DOD demonstrated its capacity to align its infrastructure with its force’s needs by disposing of excess infrastructure during past BRAC rounds, and by consolidating some installation services at the joint bases, among other efficiency efforts. However, DOD needs to ensure the accuracy of its real property data, and implement its utilization guide to improve its ability to identify potential areas to reduce and consolidate its infrastructure. DOD needs to further implement its Real Property Efficiency Plan, which is aimed at disposing of longstanding excess infrastructure. DOD has improved the way it collects utilization data for its facilities since our 2015 high-risk update, and has issued a guide for calculating utilization to help improve completeness and accuracy of the utilization data. In following up on our September 2014 report recommendations on DOD’s use of its facilities, we found that DOD has utilization data on about 97 percent of its facilities as of September 2015, the most recent data available—increasing from 53 percent as of September 2013. However, the utilization rates entered into DOD’s database are likely not reliable, since a majority of the facilities (85 percent) have the highest possible rate of 100, which indicates full utilization at the same time that DOD believes it has over 20 percent excess facility capacity. In addition, of the facilities that have a rating of 100, 24 percent had either no inspection date or been mostly recently inspected prior to September 30, 1999, which calls into question the accuracy of this data. In December 2016, DOD issued a policy memorandum that provided guidance for calculating utilization to ensure utilization is measured and reported consistently throughout DOD, and to maintain current information on facility utilization. As the guidance is implemented, DOD officials expect improvement in the accuracy of utilization data as facilities are assessed and to increase the completeness of utilization data. Implementing the guidance will help focus DOD’s efforts on reducing excess facility capacity, and should improve information on the utilization of facilities to position DOD to better identify excess facility capacity in support of its efforts to reduce excess infrastructure. In addition, we reported in September 2011 that long-standing excess facilities—those identified prior to DOD’s demolition program in fiscal 2008—accounted for more than half of the excess inventory DOD identified and may be more costly to eliminate due to historic preservation of certain facilities and environmental issues. We recommended that DOD continue to manage reduction of long-term excess facilities, such as proactively managing processes to meet historic preservation and environmental requirements and working with host nations to avoid prolonged negotiations over returning excess infrastructure in foreign countries. While DOD officials stated that they have been proactively managing historic preservation and environmental requirements, the amount of funding dedicated to future demolition is not consistent with the number of long-standing facilities yet to be demolished. In October 2015, DOD officials developed a DOD Real Property Efficiency Plan that describes DOD’s strategic and tactical approach to managing its real property effectively and efficiently, including reduction targets for fiscal years 2016 through 2020. The plan further provides for how DOD expects to dispose of long-standing excess facilities. However, DOD is in the early stages of implementing the plan, and thus it is too early to assess its results. If implemented effectively, the plan should help DOD improve its capacity and ability to identify excess facilities, and to more effectively and efficiently manage its real property. We also reported that DOD has shown capacity to consolidate installation services at the joint bases. We reported in November 2012 that the joint bases reported meeting common standards more than 70 percent of the time in fiscal years 2010 and 2011. Also, in September 2014, we reported that the joint bases reported partially consolidating 80 percent of their installation functions. However, we noted that without comprehensively evaluating whether installation support functions were still suitable for consolidation, and without identifying and addressing limitations reported by the joint bases, DOD might not be able to fully consolidate all installation support functions. We recommended that DOD evaluate the support functions identified in its joint base guidance to determine which are still suitable for consolidation, and subsequently identify and make any appropriate changes. In 2015, DOD evaluated the possibility of a European joint base, and removed six support functions that it determined were not suitable because the functions provided limited opportunities for consolidation. In addition, as part of its regular annual review of joint base standards, DOD continues to evaluate which standards are suitable for consolidation. Together, these actions address the intent of our recommendation. DOD partially met the criterion for having an action plan and has developed plans to better identify and dispose of excess infrastructure, including an overarching Real Property Efficiency Plan. However, these plans do not include actions geared toward improving infrastructure efficiencies related to achieving efficiencies in support services. DOD developed a number of action plans to reduce infrastructure under various initiatives. These action plans together provide for corrective measures and solutions to reduce excess infrastructure. For example, in October 2015, in response to a requirement under the Office of Management and Budget’s (OMB) Reduce the Footprint policy, DOD officials developed a Real Property Efficiency Plan that describes its strategic and tactical approach to managing its real property effectively and efficiently. This plan addresses our September 2014 recommendation to establish a strategic plan to manage DOD’s real property and facilitate the department’s ability to identify potential consolidation and disposal opportunities. The finalized plan describes goals aligned with the National Strategy for the Efficient Use of Real Property and for reducing the footprint of its real property inventory. The plan also describes the strategies, programs, and methodology for meeting these goals through the real property management policies and procedures of the military departments, and metrics to gauge progress. Implementing the plan, which began in 2016 and is scheduled to run through 2020, will help DOD improve its ability to identify excess facilities and plan for the effective and efficient management of its real property. However, DOD’s plans, such as the Real Property Efficiency Plan, do not address achieving efficiencies in support services. For example, for the joint base program, DOD has not established an action plan, including corrective measures and a timeline to benchmark progress, for achieving cost savings and efficiencies, as we recommended in November 2012 and September 2014. As a result, joint base commanders are responsible for determining to what extent they will pursue initiatives to reduce redundancy and achieve potential cost savings or efficiencies, and the extent to which such initiatives have been pursued varies by joint base. We continue to believe that having an action plan related to reducing duplication and consolidating installation support services would improve DOD’s efforts to align its infrastructure to its mission needs and lead to efficiencies in the department’s base support efforts. DOD partially met the criterion for monitoring. DOD has committed to taking actions that would improve its monitoring of any future BRAC rounds, and has demonstrated some ability to monitor its efforts to achieve reductions and efficiencies in infrastructure, but it does not have reliable real property data to effectively monitor property and facility utilization. Specifically, DOD is able to generally monitor excess infrastructure reduced through past BRAC rounds and ongoing property reduction efforts, and has improved its cost data monitoring for the joint bases. For example, DOD has some procedures in place to monitor excess infrastructure reduced from the 2005 BRAC round, the Freeze and Reduce the Footprint policies and each service’s efforts at monitoring its infrastructure. Under the Freeze and Reduce the Footprint policies, OMB directed federal agencies to limit expansion of property (no new facilities without disposing of equivalent facilities), provide real property efficiency plans, and plan for and report on the reduction of property. Through DOD’s Real Property Efficiency Plan, each military department outlines its methods and metrics for identifying and reducing excess infrastructure, and DOD monitors the military departments’ progress towards meeting its reduction goals. However, it is too early to assess the results from the plan since implementation began in 2016 and is scheduled to run through 2020. While DOD has made progress in improving its monitoring, it needs to improve the reliability of its real property data and the monitoring of costs and savings resulting from any future BRAC rounds. Specifically, as mentioned previously, we reported in September 2011 and September 2014 that DOD does not have reliable real property data to assess how it uses property and facilities. Subsequently, in March 2016 we reported that DOD lacked reliable data to effectively assess how it uses leases. While DOD is taking some steps to address data issues, it cannot fully determine the number, size, and costs of its leases for real property because the real property inventory system that DOD uses to monitor its leased assets contains some inaccurate and incomplete data. For example, we reported that about 15 percent of the lease records for fiscal year 2011 and 10 percent of the records for fiscal year 2013 were inaccurate. We recommended actions to improve the accuracy and completeness of this data, such as breaking out the cost and square footage information on multiple properties included in a single lease. DOD concurred with our findings, but did not concur with our recommended method to update DOD’s database. If DOD does not improve the reliability of its data, the department will continue to be limited in its ability to monitor its reduction of excess infrastructure, identify opportunities to consolidate underutilized facilities, and identify opportunities to reduce reliance on costly leased space by moving DOD organizations into excess facilities. Further, DOD has committed to taking some actions that would improve the monitoring of costs and savings from any future BRAC rounds, although some additional actions are needed. For example, we made a number of recommendations in March 2013 and April 2013 which would help DOD better monitor the implementation and effectiveness of the BRAC recommendations. DOD officials acknowledged that they could improve the initial estimates in future BRAC rounds, and have reported taking some action to do so, including updating standard factors for information technology as part of the European Infrastructure Consolidation effort. However, DOD also needs to consistently capture liabilities from alternatively financed projects in the COBRA model for any future BRAC round. These actions would provide for better baseline data with which to make decisions as well as to track and monitor the results achieved through any future BRAC rounds. We also reported in February 2016 that DOD’s implementation of certain BRAC recommendations limited its ability to determine cost savings because it lacked baseline cost data. Despite challenges in isolating cost information, without maintaining such information, DOD cannot determine the budgetary effect of implementing actions to achieve reductions and efficiencies in infrastructure. With respect to improving baseline cost data for the joint bases, in November 2012, we recommended that DOD continue to develop and refine the joint bases common standards in order to eliminate data reliability problems, facilitate comparisons of joint basing costs with the costs of operating separate bases, and isolate costs and savings from the joint basing initiative. DOD partially concurred with our recommendation, and stated that it was working to improve the data’s reliability but found it impractical to isolate and distinguish joint basing cost savings from the savings that result from unrelated DOD- or service-wide actions. DOD provided guidance to the joint bases to correct baseline data and as a result, the quality of the data improved for fiscal years 2012 and 2013, resulting in a 2013 analysis showing that the joint bases cost less to operate than the separate installations. Together, these actions met the intent of our recommendation and provided DOD with an improved picture of the cost of operating the joint bases. DOD partially met the criterion for demonstrated progress. DOD has demonstrated some progress in aligning its infrastructure to its forces’ needs by reducing excess infrastructure through BRAC and other service efforts, and in consolidating base support services. Although initially not agreeing to our related recommendations, DOD identified steps to improve the quality of information used to support recommendations for any future BRAC rounds, and improve the accuracy and completeness of utilization data. However, DOD needs to further improve lease data to better identify excess infrastructure for disposal and develop a plan for reducing duplication and consolidating support services to increase the efficiency of the department’s infrastructure services. DOD has also reduced some excess infrastructure, but needs to develop targets for eliminating excess through any future BRAC rounds, and ensure that its plans and programs to reach reduction goals are implemented and progress monitored. DOD did not concur with our recommendation to develop targets for eliminating excess infrastructure through any future BRAC rounds, stating that having overarching targets would subvert developing actions based on military value. However, in further discussion, DOD officials stated that qualitative goals, such as needing to reduce excess infrastructure, are helpful in focusing efforts and measuring success, but they continued to believe that quantitative goals would be in conflict with BRAC selection criteria. We have reported on the soundness of the BRAC selection criteria and generally endorsed their retention for the future, and do not believe that establishing targets for eliminating excess infrastructure affects DOD’s ability to apply these criteria. While we agree that stating a goal in future BRAC rounds, such as reducing excess infrastructure, is useful, we continue to believe that establishing specific targets would assist DOD in measuring progress in reducing excess infrastructure and not harm the department’s ability to consider military value as its primary selection criteria. Moreover, DOD would retain the ability to exercise military judgement in selecting from among the candidate recommendations to be put forward to the BRAC commission, as was the case in BRAC 2005 and which we have generally endorsed. The military services have also demonstrated some progress in reducing excess infrastructure. For example, the services have disposed of and demolished excess facilities through their individual efforts, and under the Freeze the Footprint policy DOD has limited construction of new facilities without disposing of equivalent facilities. Further, for fiscal year 2013, DOD reported a net reduction of 7.7 million square feet, which is about 75 percent of the total reduction across the federal government under this policy. As described above, DOD’s Real Property Efficiency Plan outlines goals, strategies and programs to reach goals, and metrics to gauge progress. It will be important for DOD to ensure that the plan is effectively implemented and progress is monitored so that the department can achieve its reduction goals. However, DOD’s progress in reducing excess infrastructure is limited by challenges with long-standing excess facilities and unreliable data related to the use of its facilities and of its leased space. Until DOD improves its capacity and monitoring of efforts aimed at reducing long-standing excess facilities, the department cannot fully demonstrate progress in better aligning its infrastructure to its mission needs. DOD has demonstrated some progress in achieving efficiencies in base support, such as officials reporting reductions of redundant funded positions, contracts, and procedures at the joint bases. DOD’s data shows that joint bases are obligating less funding than they would have as stand-alone bases, although some of the savings are attributable to other service actions, such as budget cuts unrelated to joint basing, as noted above. Further, DOD instituted mechanisms to facilitate routine communication to encourage jointly resolving common challenges and sharing best practices and lessons learned. DOD also issued a joint basing handbook to address inconsistent service level guidance. However, DOD has not provided clear direction to joint bases on steps needed to reach program goals, and lacks a plan for reducing duplication and consolidating support services. In October 2015, DOD issued its Real Property Efficiency Plan that describes DOD’s strategic and tactical approach to managing its real property effectively and efficiently. This plan addresses our September 2014 recommendation to establish a strategic plan to manage DOD’s real property and to facilitate the department’s ability to identify potential consolidation and disposal opportunities. The finalized plan describes goals aligned with the National Strategy for the Efficient Use of Real Property and for reducing the footprint of DOD’s real property inventory. The plan describes strategies, programs, and methodology to achieve these goals through the real property management policies and procedures of the DOD property holders—the three military departments and Washington Headquarters Service. The plan also provides baseline amounts and metrics to gauge progress toward goals established in the plan. As a result, we believe that DOD’s plan should help improve its ability to identify excess facilities and plan for effective and efficient management of its real property. In May 2015, DOD issued a handbook to provide basic information and clarify processes and procedures for the joint bases. The document is intended to serve as a first point of reference for information about the joint bases and the unique policies and guidance that govern them. This handbook, which addresses how joint bases differ from other military installations among other relevant issues, can better inform incoming servicemembers about the particular characteristics of joint bases, as well as reduce duplication or inconsistency in how the joint bases train incoming servicemembers. This document addresses our November 2012 recommendation for DOD to develop guidance to ensure all joint bases develop and provide training materials to incoming personnel to increase opportunities for greater efficiencies and reduce duplication of efforts. In January 2015, DOD evaluated the possibility of a European joint base, and removed six support functions that it determined were not suitable because the functions provided limited opportunities for consolidation. In addition, DOD continues to evaluate which standards are suitable for consolidation in its annual review process. Together these actions address the intent of our September 2014 recommendation to evaluate whether to continue including all current joint base support functions in future joint basing efforts and to make any changes appropriate to address these limitations. For additional information about this high-risk area, contact Brian J. Lepore at (202) 512-4523 or leporeb@gao.gov. Defense Infrastructure: More Accurate Data Would Allow DOD to Improve the Tracking, Management, and Security of Its Leased Facilities. GAO-16-101. Washington, D.C.: March 15, 2016. Military Base Realignments and Closures: More Guidance and Information Needed to Take Advantage of Opportunities to Consolidate Training. GAO-16-45. Washington, D.C.: February 18, 2016. DOD Joint Bases: Implementation Challenges Demonstrate Need to Reevaluate the Program. GAO-14-577. Washington, D.C.: September 19, 2014. Defense Infrastructure: DOD Needs to Improve Its Efforts to Identify Unutilized and Underutilized Facilities. GAO-14-538. Washington, D.C.: September 8, 2014. Military Bases: DOD Has Processes to Comply with Statutory Requirements for Closing or Realigning Installations. GAO-13-645. Washington, D.C.: June 27, 2013. Defense Infrastructure: Improved Guidance Needed for Estimating Alternatively Financed Project Liabilities. GAO-13-337. Washington, D.C.: April 18, 2013. Military Bases: Opportunities Exist to Improve Future Base Realignment and Closure Rounds. GAO-13-149. Washington, D.C.: March 7, 2013. DOD Joint Bases: Management Improvements Needed to Achieve Greater Efficiencies. GAO-13-134. Washington, D.C.: November 15, 2012. Military Base Realignments and Closures: Updated Costs and Savings Estimates from BRAC 2005. GAO-12-709R. Washington, D.C.: June 29, 2012. Excess Facilities: DOD Needs More Complete Information and a Strategy to Guide Its Future Disposal Efforts. GAO-11-814. Washington, D.C.: September 19, 2011. The Department of Defense (DOD) has taken some positive steps since the 2015 high-risk update to improve its business transformation efforts. For example, DOD has established the Defense Business Council (DBC) to serve as a senior-level governance forum for its business functions, and issued an Agency Strategic Plan that includes business transformation priorities and which the department is using to guide its business operations. However, additional steps are needed to address long-standing weaknesses in DOD’s business operations and remove this issue from the High-Risk List. DOD spends billions of dollars each year to maintain key business operations intended to support the warfighter, including systems and processes related to the management of contracts, finances, the supply chain, support infrastructure, and weapon systems acquisition. Weaknesses in these areas adversely affect DOD’s efficiency and effectiveness, and render its operations vulnerable to waste, fraud, and abuse. DOD’s overall approach to transforming these business operations is inextricably linked to DOD’s ability to perform its overall mission, directly affecting the readiness and capabilities of U.S. military forces. We added DOD’s overall approach to managing business transformation as a high-risk area in 2005 because DOD had not taken the necessary steps to achieve and sustain business reform on a broad, strategic, department-wide, and integrated basis. Further, DOD’s historical approach to business transformation has not proven effective in achieving meaningful and sustainable progress in a timely manner. For example, DOD had not established clear and specific management responsibility, accountability, and control over business transformation-related efforts and applicable resources across business functions. Also, DOD did not have an integrated plan for business transformation with specific goals, measures, and accountability mechanisms to monitor progress and achieve improvements. Since 2005, DOD has demonstrated some leadership commitment and notably improved capacity toward addressing business transformation efforts, such as assigning responsibility for agency goals and objectives. DOD has also taken several notable steps to improve its capacity to monitor DOD’s business transformation efforts, such as developing position descriptions for management analysts, and updating the mission for the Office of the Deputy Chief Management Officer’s (DCMO) Planning, Performance, and Assessment directorate to fulfill performance management-related requirements. While DOD has demonstrated some progress through undertaking initiatives intended to improve the efficiency of its business processes, DOD has not 1) fully developed a corrective action plan, 2) consistently held performance reviews that include department-wide performance information, and 3) fully established accountability mechanisms for meeting performance targets. Until DOD makes further progress in addressing these actions and outcomes, its progress in transforming into a more efficient department will be limited. To date, Congress has passed legislation that could assist DOD in addressing this high-risk area. For example, the National Defense Authorization Act for Fiscal Year 2017, among other things, created a distinct Chief Management Officer (CMO) position effective February 1, 2018, with the mission of managing, establishing policies on, and supervising the business operations of the department. This position would also have the authority to direct the Secretaries of the military departments and the heads of all other DOD components with regard to matters for which the CMO would have responsibility. Before the implementation of this position, the Secretary of Defense is required to conduct a review of the disposition of leadership positions, subordinate organizations, and defined relationships, including the placement and responsibilities of the new CMO position. Specifically, it requires a proposed implementation plan for how the Department would recommendations for revisions to appointments and qualifications, duties and powers, and precedent in the Department; recommendations for such legislative and administrative action, including conforming and other amendments to law, as the Secretary considers appropriate to implement the plan; and any other matters that the Secretary considers appropriate. A final report is due to the defense committees by August 1, 2017. Continued congressional attention to addressing this high-risk area will be essential going forward. In August 2014, we provided DOD with a letter that outlined 13 actions and outcomes that we believe it should address in order to mitigate or resolve long-standing weaknesses in its business transformation efforts. Based on discussions with DOD officials and recent efforts across the department as of October 2016, we believe that DOD has addressed 5 of the 13 actions and outcomes, but have yet to address 8 actions and outcomes. These actions and outcomes are based on the five high-risk criteria for removal: leadership commitment, capacity, action plan, monitoring, and demonstrated progress. For the capacity criterion, while we believe the actions and outcomes we have identified remain important, we also believe they have made notable progress in this criterion to be considered as met, such as reviewing the systems and functions of the Office of the DCMO and Office of the Secretary of Defense (OSD) organizations, and improving the alignment of its personnel with the strategic goals in the draft Agency Strategic Plan. For the remaining four criteria, DOD needs to show measureable and sustained positive outcomes in addressing the remaining eight actions and outcomes. This includes, among other things, DOD continuing to hold business function leaders accountable for performance, refining or developing a more comprehensive corrective action plan as well as existing performance measures, and achieving measurable and sustained outcomes. Leadership Commitment: DOD should continue to hold business function leaders accountable for diagnosing performance problems and identifying strategies for improvement; and continue to lead regular DOD performance reviews regarding transformation goals and associated metrics and ensure that business function leaders attend these reviews to facilitate problem solving. tradeoffs, priorities, and any sequencing needed to implement the initiatives, and help leaders plan for and provide the resources needed to make the corrective actions identified. continue to refine existing performance measures to ensure that measures assess progress in achieving all business transformation initiatives as needed, and hold owners of DOD’s business functions accountable for providing input into performance targets; and conduct frequent and regular data-driven performance reviews using established performance measures, and use existing governance structures, such as the DBC, to assess department-wide performance including the military departments. Demonstrated Progress: DOD should make substantial progress in implementing a corrective action plan that includes measures addressing the root causes of shortfalls in business functions, and details how corrective actions designed to improve DOD business functions will be implemented; continue to implement initiatives that result in measurable and sustained positive outcomes over several years, including cost savings and increased efficiencies, thus promoting actions that control costs across the department envisioned by the Secretary of Defense, as noted in DOD’s 2014 Report to Congress on the Defense Business Operations; and document and report on progress in implementing corrective actions across business functions to Congress and other key stakeholders to strengthen accountability; progress could be reported in the annual report to Congress on DOD Business Operations or through other means. a performance management framework that DOD intends to use to evaluate its effectiveness. DOD’s Agency Strategic Plan identifies five strategic goals that have associated strategic objectives, performance goals, agency priority goals, or cross-agency priority goals, as well as performance indicators with targets for assessing progress. One of these goals is to reform and reshape the defense institution. As part of the Agency Strategic Plan, OSD Principal Staff Assistants are responsible for reporting progress on performance goals, agency priority goals, or cross- agency priority goals that are linked to DOD’s strategic goals and objectives. OSD Principal Staff Assistants have reported on the progress of meeting these associated goals at the DBC meetings. In June and in August 2016, the Acting DCMO, through the DBC, conducted performance reviews intended to assess progress against agency priority goals and other performance measures in the Agency Strategic Plan, and provide opportunities to discuss problems and alternatives, among other things. However, these performance reviews have not been conducted on a regular basis. Specifically, prior to June 2016, the DBC had not conducted a performance review since November 2015. Office of the DCMO officials stated that the Acting DCMO plans to conduct a performance review in December 2016 and on a quarterly basis going forward. It will be important for the Acting DCMO to continue to conduct these performance reviews on a regular basis to hold business function leaders accountable for progress. To further enhance DOD’s oversight of its business transformation efforts, the National Defense Authorization Act for Fiscal Year 2017, among other things, created a distinct CMO position with the mission of managing, establishing policies on, and supervising the business operations of the department. This new position, to begin in February 2018, is expected to provide greater management authority to oversee management of business operations, and could help DOD further demonstrate its commitment to addressing business transformation efforts. This new position would also report directly to the Secretary of Defense. The Deputy Secretary of Defense will no longer serve as CMO. However, the effect of this new structure on improving business transformation within DOD remains to be determined, to include the extent to which this position will have the authority and support needed to drive business transformation efforts across the department. The Office of the DCMO has taken several notable steps to improve its capacity to monitor DOD’s business transformation efforts and now meets this high-risk criterion. In September 2016, the Acting DCMO stated that DOD conducted a business process and systems review that included reviewing structures and functions within the Office of the DCMO. DOD DCMO officials said that the office completed the review of the Office of the DCMO in September 2014. The review of the DCMO found that the overall structure of the office was sound from a mission perspective, but also identified opportunities to better align related organizations within the office. For example, the Office of the DCMO’s Planning, Performance, and Assessment Directorate was restructured to create outreach teams aligned to major strategic initiatives that are responsible for establishing goals and objectives. According to DOD officials, as part of this effort, the Office of the DCMO reassessed position descriptions to determine the appropriate structure for the office. The Office of the DCMO also developed position descriptions for management analysts, updated the mission for its Planning, Performance, and Assessment directorate, and reorganized the directorate to align its personnel with the strategic goals in the draft Agency Strategic Plan. They stated that this action was taken to ensure that the Office of the DCMO could work across each business function to accomplish department-wide goals. Further, Office of the DCMO officials stated that the Planning, Performance, and Assessment directorate hired personnel with expertise in strategic planning and performance management to increase its capacity to oversee business transformation efforts. Officials further stated that the directorate has assessed its staff’s knowledge, skills, and abilities related to strategic planning and performance management, and monitors progress towards addressing any gaps through annual performance reviews. working group is used to leverage subject matter expertise, including conducting additional analyses on issues tied to business operations for the Office of the DCMO as needed. It will be important for the Office of the DCMO to continue to use its existing management analysis capacity along with the Fourth Estate Working Group to drive business transformation efforts across the department. In addition to maintaining the capacity of the DCMO to drive business transformation efforts, it will be critical that the CMO position, established by the National Defense Authorization Act for Fiscal Year 2017, has the personnel and other resources needed to fulfill its significant responsibilities. Since this position will not go into effect until February 2018 and the details of its implementation and responsibilities are not fully known, it is too early to determine whether it will have the capacity needed to lead the department’s business transformation efforts. We will monitor DOD’s progress in implementing this position moving forward to include its impact on DOD’s transformation efforts. DOD now partially meets this criterion. In July 2015, DOD issued its first Agency Strategic Plan. Subsequently, in September 2016, DOD officials shared its draft update to the Agency Strategic Plan for Fiscal Years 2015 – 2018, Version 2.0. This draft update has a performance action plan that contains some but not all elements of a corrective action plan. The performance action plan is intended to provide detailed information for monitoring and reporting DOD’s progress towards each strategic goal, objective, and performance goal as well as, where appropriate, to address actions the department is taking in response to our and DOD Inspector General recommendations. The performance action plan identifies business function leaders for each strategic objective and associated performance goals. In addition, the plan includes, among other things, a description of the problem and opportunity; relationship to strategic goal and objective; key barriers and challenges; mitigation efforts; and an implementation plan, initiatives, and targets for performance measures over time. However, the performance action plan does not define the root causes of business transformation weaknesses or the steps necessary to implement solutions we have recommended in our prior work. Further, the performance action plan does not identify processes and systems to implement initiatives to address root causes, or the tradeoffs needed to implement the initiatives. In January 2017, a senior DOD official stated that DOD does not plan to issue the update to its Agency Strategic Plan, and will instead continue to collect, review, and report on performance data using the draft update until it is superseded. While the continued use of the draft update to the Agency Strategic Plan is a positive step forward, a more comprehensive performance action plan that outlines the necessary elements of a corrective action plan would allow DOD to more effectively hold business function leaders accountable. DOD now partially meets this criterion. DOD’s performance action plan in its draft update to the Agency Strategic Plan contains performance measures intended to measure progress in DOD’s business transformation efforts and establishes clear linkages to performance and resource decisions. However, the Office of the DCMO has not established how it plans to hold owners of DOD business functions accountable for performance or monitor the military departments’ business transformation efforts. According to DOD and military department officials, there has been an increased emphasis on reviewing the performance of DOD’s business functions as part of the DBC meetings. However, the DBC did not conduct quarterly reviews of performance from November 2015 until June 2016, when the Acting DCMO conducted a briefing of DOD’s agency priority goals in June 2016. In September 2016, the Acting DCMO stated that the department plans to conduct quarterly performance reviews against the agency priority goals and other performance measures in the draft update to the Agency Strategic Plan, and in its most recent meeting in December 2016, the DBC conducted a quarterly performance review against these measures. Further, in January 2017, a senior DOD official stated that DOD does not plan to issue the update to its Agency Strategic Plan, and will instead continue to collect, review, and report on performance data using the draft update until it is superseded. Consistently conducting quarterly performance reviews is critical to assessing the department’s progress in its business transformation efforts, and issuing an updated Agency Strategic Plan that sets forth DOD’s approach to monitoring would further institutionalize such efforts. wide performance to more effectively achieve business transformation goals. DOD now partially meets this criterion. Since 2014, and in part to respond to congressional direction, DOD has undertaken initiatives intended to improve the efficiency of its business processes, but DOD has not been able to demonstrate clear results associated with these initiatives, as well as sustained attention and focus consistently across the business functions. DOD guidance states that the DCMO is responsible for working to better synchronize, integrate, and coordinate the business operations of DOD to optimally align them to support the DOD warfighting mission. DOD reviewed headquarters organizations and other DOD entities to identify cost savings, but it is unclear to what extent these initiatives will help the department achieve the savings it has identified. For example, in May 2015, DOD concluded its Core Business Process Review, which was intended to apply lessons learned and information technology approaches from the commercial sector to the department’s business processes in order to reduce cost and improve mission performance. Through this review, the Office of the DCMO identified at least $62 billion in potential cumulative savings opportunities across the six business processes for fiscal years 2016 through 2020. The review identified that these potential savings opportunities could be achieved through not replacing civilian personnel who attrite and retire over the next 5 years; matching labor productivity in comparable industries or sectors; and improving core processes, such as rationalizing organizational structures to reduce excessive layers, optimizing contracts, and using information technology to eliminate or reduce manual processes. However, in June 2016, we reported that the potential savings opportunities could not entirely be achieved, according to Office of the DCMO officials. The results of DOD’s reviews of headquarters organizations and other DOD entities are still being implemented across the department, and DOD has not yet reported on progress associated with these reviews. efficiencies for delayering, contracted services, and other headquarters- related initiatives. Identifying savings and increased efficiencies from these efforts is important to promoting actions that control costs as envisioned by the Secretary of Defense, and we have cited the need for DOD to implement initiatives that result in measurable and sustained positive outcomes. The DCMO has used the DBC to continue to focus attention on modernizing its business systems versus more broadly on business transformation issues. While this is important in addressing another DOD high-risk area, the DCMO also needs to place greater attention on improving its business processes across the business functions. Further, the DCMO has not yet documented or reported on progress in implementing any corrective actions across business functions to Congress and other key stakeholders to strengthen accountability. For additional information about this high-risk area, contact Zina D. Merritt at (202) 512-5257 or merrittz@gao.gov. Defense Business Transformation: DOD Should Improve Its Planning with and Performance Monitoring of the Military Departments. GAO-17-9. Washington, D.C.: December 7, 2016. Defense Headquarters: Improved Data Needed to Better Identify Streamlining and Cost Savings Opportunities by Function. GAO-16-286. Washington, D.C.: June 30, 2016. DOD Financial Management: Greater Visibility Needed to Better Assess Audit Readiness for Property, Plant, and Equipment. GAO-16-383. Washington, D.C.: May 26, 2016. High-Risk Series: Key Actions to Make Progress Addressing High-Risk Issues. GAO-16-480R. Washington, D.C.: April 25, 2016. DOD Financial Management: Continued Actions Needed to Address Congressional Committee Panel Recommendations. GAO-15-463. Washington, D.C.: September 28, 2015. DOD Business Systems Modernization: Additional Action Needed to Achieve Intended Outcomes. GAO-15-627. Washington, D.C.: July 16, 2015. Managing for Results: Agencies Report Positive Effects of Data-Driven Reviews on Performance but Some Should Strengthen Practices. GAO-15-579. Washington, D.C.: July 7, 2015. Defense Business Transformation: DOD Has Taken Some Steps to Address Weaknesses, but Additional Actions Are Needed. GAO-15-213. Washington, D.C.: February 11, 2015. Federal agencies and our nation’s critical infrastructures—such as energy, transportation systems, communications, and financial services— are dependent on computerized (cyber) information systems and electronic data to carry out operations and to process, maintain, and report essential information. The security of these systems and data is vital to public confidence and the nation’s safety, prosperity, and well- being. However, safeguarding federal computer systems and the systems that support critical infrastructures—referred to as cyber critical infrastructure protection—has been a long-standing concern. The security of federal cyber assets has been on our High-Risk List since 1997. In 2003, we expanded this high-risk area to include the protection of critical cyber infrastructure. In 2015, we added protecting the privacy of personally identifiable information (PII) that is collected, maintained, and shared by both federal and nonfederal entities. implemented. As of October 2016, about 1,000 of our information security–related recommendations had not been implemented. Risks to cyber assets can originate from unintentional and intentional threats. These include insider threats from disaffected or careless employees and business partners, escalating and emerging threats from around the globe, the steady advances in the sophistication of attack technology, and the emergence of new and more destructive attacks. Ineffectively protecting cyber assets can facilitate security incidents and cyberattacks that disrupt critical operations; lead to inappropriate access to and disclosure, modification, or destruction of sensitive information; and threaten national security, economic well-being, and public health and safety. Regarding PII, advancements in technology, such as new search technology and data analytics software for searching and collecting information, have made it easier for individuals and organizations to correlate data and track it across large and numerous databases. In addition, lower data storage costs have made it less expensive to store vast amounts of data. Also, ubiquitous Internet and cellular connectivity makes it easier to track individuals by allowing easy access to information pinpointing their locations. These advances—combined with the increasing sophistication of hackers and others with malicious intent, and the extent to which both federal agencies and private companies collect sensitive information about individuals—have increased the risk of PII being exposed and compromised. Leadership at the White House and Department of Homeland Security (DHS) demonstrated commitment to improving cybersecurity. For example, the President issued strategy documents for improving aspects of cybersecurity and an executive order (E.O.) and policy directive for improving security and resilience of critical cyber infrastructure. However, challenges remain, such as shortages in qualified cybersecurity personnel and continued weaknesses in agencies’ information security programs. These challenges need to be addressed as initial steps toward removal from the High-Risk List. Furthermore, progress will need to be demonstrated by agencies fully implementing their information security programs and by critical infrastructure sectors improving their cybersecurity. In addition, Congress enacted legislation intended to strengthen information security across the federal government and to improve the protection of critical cyber assets. The Cybersecurity Act of 2015 established a voluntary framework for sharing cybersecurity threat information between and among the federal government, state governments, and private entities, and protects private sector entities from liability when sharing and receiving cyber threat information. The act also makes DHS’s National Cybersecurity and Communications Integration Center responsible for implementing these mechanisms, requires DHS to offer its intrusion and detection capabilities to any federal agency, and calls for agencies to assess their cyber-related workforce. DHS needs to expand capabilities, improve planning, and support wider adoption of its government-wide intrusion detection and prevention system. Agencies need to develop and implement complete policies, plans, and procedures for responding to cyber incidents and effectively oversee response activities. Agencies need to consistently implement policies and procedures for responding to breaches of PII. The federal government needs to expand its cyber workforce planning and training efforts. Agencies need to enhance efforts for recruiting and retaining a qualified improve cybersecurity workforce planning activities. The federal government needs to expand efforts to protect cyber critical infrastructure. For example: DHS and sector-specific agencies need to collaborate with sector partners to develop performance metrics and determine how to overcome challenges to reporting the results of their cyber risk mitigation activities; and DHS needs to assess whether its efforts to share information on cyber threats, incidents, and countermeasures with federal and non-federal entities are useful and effective. The federal government needs to better oversee the protection of PII contained in electronic health information and health insurance marketplaces. Needed efforts include the following: Department of Health and Human Services (HHS) needs to enhance its oversight and guidance related to the actions to protect privacy implemented by entities that maintain electronic health information. HHS’s Centers for Medicare & Medicaid Services (CMS) needs to ensure that Healthcare.gov and state health insurance marketplaces have effective controls in place to safeguard electronic health information. Congress should consider amending privacy laws to more fully protect the PII collected, used, and maintained by the federal government. The EOP and DHS met the criterion of demonstrating top leadership commitment to securing federal information and protecting the privacy of PII. For example, the President signed legislation, issued executive orders and a policy directive, and published a national action plan that were intended to improve aspects of federal information security, privacy safeguards, and critical infrastructure cybersecurity. In addition, updated guidance, as well as actions such as creating positions for a senior advisor for privacy and federal chief information security officer within the Office of Management and Budget (OMB), further demonstrated the extent to which the EOP was committed to securing federal information systems and protecting privacy. Specific actions taken by the administration and DHS included the following: In July 2016, the President released Presidential Policy Directive (PPD)-41 which set forth principles governing the federal government’s response to cyber incidents involving government or private sector entities. For significant cyber incidents, this PPD establishes lead federal agencies and a process for coordinating the broader federal government response. PPD-41 also requires the Department of Justice (DOJ) and DHS to maintain updated contact information for public use to assist entities affected by cyber incidents in reporting those incidents to the proper authorities. In February 2016, the President issued E.O. 13719, which created the Federal Privacy Council, a council of senior federal privacy officials established to share ideas and best practices and develop new approaches for protecting privacy in today’s technology driven environment. The President also directed his administration to systematically review where the federal government can reduce reliance on Social Security numbers. organizations, executive departments and agencies, and other entities and to collaborate to respond in as close to real time as possible. In July 2016, OMB issued a revised Circular A-130, Managing Information as a Strategic Resource, to reflect changes in law and advances in technology and to ensure consistency with executive orders, presidential directives, recent OMB policy, and National Institute of Standards and Technology (NIST) standards and guidelines. The revised circular establishes general policy for, among other things, information governance, security, and privacy. It incorporates security and privacy requirements as crucial elements of a comprehensive, strategic, and continuous risk-based program at federal agencies. DHS established the Critical Infrastructure Cyber Community (C3) Voluntary Program to encourage entities to adopt NIST’s Framework for Improving Critical Infrastructure Cybersecurity. As part of this program, DHS developed guidance and tools that are intended to help entities use the framework. The C3 Voluntary Program also includes outreach and awareness activities, promotion efforts targeting specific types of entities, and creation of communities of interest around critical infrastructure cybersecurity. The EOP and DHS partially met the criterion for improving the capacity of federal agencies to sufficiently protect their information systems and PII. Resources and initiatives were identified to address federal cybersecurity capacity concerns. Increased budgetary resources and human capital strategies were proposed to address limitations on federal cybersecurity capacity. For example, the President’s 2017 budget request proposed funds to enhance the Scholarship for Service program, develop a cybersecurity core curriculum, increase the number of academic institutions that are National Centers for Academic Excellence in Cybersecurity, and offer student loan forgiveness for cybersecurity experts in the federal workforce. The President’s 2017 budget also proposed investing $19 billion in cybersecurity, an increase of about 35 percent over fiscal year 2016. Nevertheless, according to OMB and agency chief information security officers, the federal government suffered from a shortage of cybersecurity professionals due to persistent recruitment and retention challenges. Also, it is unclear the extent to which efforts to improve the capacity of the cybersecurity workforce, among other cybersecurity-related initiatives, were focused on increasing resources at agencies devoted to privacy protection. Executing the human resources strategy and budget priorities could ensure that federal agencies have the necessary capacity to better address the information security and PII protection needs of federal civilian agencies. The EOP and DHS partially met the criterion for having a corrective action plan to improve the protection of cyber assets and PII. Government-wide plans identified actions to be taken to enhance cybersecurity and PII protection. Examples included the following: OMB issued the Cybersecurity Strategy and Implementation Plan in October 2015. The plan aimed to strengthen federal civilian cybersecurity by (1) identifying and protecting high-value information and assets, (2) detecting and responding to cyber incidents in a timely manner, (3) recovering rapidly from incidents when they occur and accelerating the adoption of lessons learned, (4) recruiting and retaining a highly qualified cybersecurity workforce, and (5) efficiently acquiring and deploying existing and emerging technology. The President directed his administration to implement the Cybersecurity National Action Plan. The plan identified near-term actions and a long-term strategy that are intended to enhance cybersecurity awareness and protections, protect privacy, maintain public safety and economic and national security, and empower Americans to take better control of their digital security. OMB issued the Federal Cybersecurity Workforce Strategy on July 12, 2016, which identified key actions to help recruit and retain a federal cybersecurity workforce. These key actions included directions to OMB and the Office of Personnel Management (OPM) to provide guidance on the use of special hiring authorities to recruit cybersecurity professionals as well as directions to DHS for piloting a new hiring tool. However, agencies had not yet fully implemented the actions identified in the plans and strategy. In addition, the plans do not consistently address the implementation of about 1,000 of our information security–related recommendations identified across federal agencies. The EOP, DHS, and federal agencies partially met the criterion for implementing programs to monitor corrective actions related to cybersecurity and PII protection. A government-wide reporting process provided a mechanism for monitoring the efforts of federal agencies in achieving cross-agency priority goals for cybersecurity. Specifically, the EOP and DHS developed and used metrics for measuring agency progress in implementing initiatives on information security regarding continuous monitoring, strong authentication, and anti-phishing and malware defense. In addition, OMB and DHS continued to monitor agencies’ implementation of information security requirements using FISMA reporting metrics that are tracked in the CyberScope system. Together, they had conducted CyberStat reviews that are intended to hold agencies accountable and offer assistance for improving their information security posture. Nevertheless, other cybersecurity monitoring efforts lacked metrics to measure and report on the effectiveness of the planned and implemented activities. Examples included the following: In December 2015, we reported that DHS had not developed metrics to measure the effectiveness of its efforts to promote the voluntary use of NIST’s Framework for Improving Critical Infrastructure Cybersecurity or to develop guidance and tools to help entities use the framework. We recommended that DHS develop metrics to monitor the effectiveness of its efforts to promote the framework. DHS agreed and indicated that these efforts are underway. mitigate cyber risks and vulnerabilities for their respective sectors. However, most sector-specific agencies had not developed metrics to measure and report on the effectiveness of their cyber risk mitigation activities or their sectors’ cybersecurity posture. We recommended that federal agencies develop performance metrics to monitor their progress. These metrics have not yet been developed. The EOP, DHS, and federal agencies partially met this criterion by demonstrating progress in implementing the many requirements for securing federal systems and networks. For example, the federal government had taken the following steps to enhance cybersecurity and protect PII: The EOP established an OMB Cyber Unit in January 2015 to improve overall federal cybersecurity oversight. OMB initiated a 30-day Cybersecurity Sprint in June 2015 to lead federal agencies to adopt strong authentication controls and deploy critical patches. OMB and DHS conducted CyberStat reviews at federal agencies during fiscal years 2015 and 2016. weakness or significant deficiency in internal controls over financial reporting for fiscal year 2016. Further, inspectors general at 20 of the 23 agencies cited information security as a major management challenge for their agencies. Providing government-wide intrusion detection and prevention services. In January 2016, we reported that DHS’s National Cybersecurity Protection System (NCPS) was partially, but not fully, meeting its stated system objectives of detecting intrusions, preventing intrusions, analyzing malicious content, and sharing information. DHS also had not developed metrics for measuring the performance of NCPS. We recommended that DHS take action to enhance NCPS’s capabilities, among other things. DHS concurred with our recommendations but has not yet fully implemented them. Strengthening security over industry and public health data at FDA. In August 2016, we reported that the Food and Drug Administration (FDA) had a significant number of security control weaknesses jeopardizing the confidentiality, integrity, and availability of its information and systems. The agency did not fully or consistently implement access controls, which are intended to prevent, limit, and detect unauthorized access to computing resources. Specifically, FDA did not always (1) adequately protect the boundaries of its network, (2) consistently identify and authenticate system users, (3) limit users’ access to only what was required to perform their duties, (4) encrypt sensitive data, (5) consistently audit and monitor system activity, and (6) review the physical security of its facilities. We made 15 recommendations to FDA to fully implement its agency-wide information security program. In a separate report with limited distribution, we recommended that FDA take 166 specific actions to resolve weaknesses in information security controls. FDA concurred with our recommendations and stated it has begun implementing many of them. Improving security controls over high-impact systems. In May 2016, we reported that 18 federal agencies with high-impact systems identified cyberattacks from “nations” as the most serious and most frequently occurring threat to the security of their systems. These agencies also noted that attacks delivered through e-mail were the most serious and frequent. During fiscal year 2014, 11 of the 18 agencies reported 2,267 incidents affecting their high-impact systems, with almost 500 of the incidents involving the installation of malicious code. At least half of the 18 agencies reported that challenges in recruiting and retaining staff with appropriate skills, rapidly changing technologies, and the limited effectiveness of intrusion detection tools impaired their capability to identify cyber threats to high-impact systems to a great or moderate extent. We also examined the security controls over eight high-impact systems at four agencies and reported that although the agencies had implemented numerous controls over the systems, they did not always fully implement key elements of their information security programs including developing security plans, assessing security controls, and remedying known vulnerabilities. We recommended that OMB complete its plans and practices for securing federal systems and that the National Aeronautics and Space Administration, Nuclear Regulatory Commission, OPM, and Department of Veterans Affairs fully implement key elements of their information security programs. The agencies generally concurred with the recommendations, with the exception of OPM. OPM did not concur with our recommendation to re-evaluate security control assessments to ensure they comprehensively test technical controls. We continue to believe the recommendation is warranted. Addressing cybersecurity for the nation’s critical infrastructures. Improving Critical Infrastructure Cybersecurity in the critical infrastructure sectors. For example, DHS established the Critical Infrastructure Cyber Community Voluntary Program to encourage entities to adopt the framework. However, DHS had not developed metrics to measure the success of its activities and programs. In addition, DHS and the General Services Administration (GSA) had not determined whether to develop tailored guidance for implementing the framework in government facilities sectors as other sector-specific agencies had done for their respective sectors. DHS concurred with our recommendation to develop metrics, but has not indicated that it has taken action as of yet, and DHS and GSA concurred with our recommendation and made a determination about whether to develop sector-specific guidance. In November 2015, we reported that the sector-specific agencies had determined the significance of cyber risk to the nation’s critical infrastructures and took actions to mitigate cyber risks and vulnerabilities for their respective sectors. However, not all sector-specific agencies had metrics to measure and report on the effectiveness of all their activities to mitigate cyber risks or their sectors’ cybersecurity posture. We recommended that agencies lacking metrics develop them and determine how to overcome any challenges to reporting the results of their activities to mitigate cyber risks. Four of the agencies explicitly agreed with our recommendations and identified planned or on-going efforts to implement performance metrics, but none have yet to provide developed metrics or reports of outcomes. Protecting the security and privacy of electronic health information. In August 2016, we reported that guidance for securing electronic health information issued by HHS did not address all key controls called for by other federal cybersecurity guidance. In addition, HHS oversight efforts did not always offer pertinent technical guidance and did not always follow up on corrective actions when investigative cases were closed. HHS generally concurred with the five recommendations we made and stated it would take actions to implement them. Information about actions taken to address the recommendations had not been provided at the time of this report. Ensuring privacy when face recognition systems are used. In May 2016, we reported that the Federal Bureau of Investigation (FBI) had not been timely in publishing and updating privacy documentation for using face recognition technology. Publishing such documents in a timely manner would better assure the public that the FBI is evaluating risks to privacy when implementing systems. Also, the FBI had taken limited steps to determine whether the face recognition system it was using was sufficiently accurate. Of the six recommendations we made, DOJ agreed with one, partially agreed with two, and disagreed with three. Information about actions taken to address the recommendations had not been provided at the time of this report. Protecting the privacy of users’ data on state-based marketplaces. In March 2016, we reported on weaknesses in technical controls for the “data hub” that CMS uses to exchange information between its health insurance marketplace and external partners. We also identified significant weaknesses in the controls in place at three selected state-based marketplaces established to carry out provisions of the Patient Protection and Affordable Care Act. We recommended that CMS define procedures for overseeing the security of state-based marketplaces and require continuous monitoring of state marketplace controls. HHS concurred with our recommendations. Information about actions taken to address the recommendations had not been provided at the time of this report. Improving consumer privacy protections. Major recommendations of the administration’s 2012 report on consumer privacy had not yet been implemented in 2016. The report included a framework as a broad action plan intended to improve consumer privacy protection, yet the administration’s recommendations to enact a consumer privacy bill of rights into law and to establish a national standard for data breach notification had not been implemented. Establishing a strategy for improving federal cybersecurity. In October 2015, OMB issued the Cybersecurity Strategy and Implementation Plan, which identified a series of action steps in several key areas that are intended to improve federal information security. As we had recommended in February 2013, the strategy clearly assigns responsibilities to specific organizations and individuals, sets specific dates for completing actions, and establishes a mechanism for monitoring progress. Implementing the strategy effectively and on time will likely improve the overall posture and capabilities of the federal government to protect its information and computer systems and networks. Bolstering information security at federal agencies. Over the last 4 fiscal years, federal agencies have implemented over 330 of our recommendations related to strengthening the security over sensitive information and systems at the Census Bureau, Federal Communications Commission, Internal Revenue Service, Federal Deposit Insurance Corporation, Securities Exchange Commission, CMS, and Federal Aviation Administration, among others. Security vulnerabilities expose agency information to increased risk of unauthorized access, disclosure, modification, and use. Addressing vulnerabilities better assures the confidentiality, integrity, and availability of the information agencies maintain and use for conducting their missions. Improving privacy protections for PII. While more needs to be done, agencies have taken action in response to our recommendations for specific steps to enhance the protection of PII. For example, agencies have implemented 8 of the 23 recommendations we made in 2013 to improve their practices in response to breaches of PII, improvements which can improve the consistency and effectiveness of data breach response programs. Likewise, HHS has implemented all 6 management recommendations we made in 2014 to ensure that PII contained in systems supporting the Healthcare.gov health insurance marketplace is properly protected from potential privacy threats. For additional information about this high-risk area, contact Gregory C. Wilshusen at (202) 512-6244 or wilshuseng@gao.gov. Federal Information Security: Actions Needed to Address Challenges. GAO-16-885T. Washington, D.C.: September 19, 2016. Electronic Health Information: HHS Needs to Strengthen Security and Privacy Guidance and Oversight. GAO-16-771. Washington, D.C.: August 26, 2016. Federal Chief Information Security Officers: Opportunities Exist to Improve Roles and Address Challenges to Authority GAO-16-686. Washington, D.C.: August 26, 2016. Information Security: FDA Needs to Rectify Control Weaknesses That Place Industry and Public Health Data at Risk. GAO-16-513. Washington, D.C.: August 30, 2016. Information Security: Agencies Need to Improve Controls over Selected High-Impact Systems. GAO-16-501. Washington, D.C.: May 18, 2016. Vehicle Cybersecurity: DOT and Industry Have Efforts Under Way, but DOT Needs to Define Its Role in Responding to a Real-world Attack. GAO-16-350. Washington, D.C.: March 24, 2016. SmartPhone Data: Information and Issues Regarding Surreptitious Tracking Apps That Can Facilitate Stalking. GAO-16-317. Washington, D.C.: April 21, 2016. Information Security: DHS Needs to Enhance Capabilities, Improve Planning, and Support Greater Adoption of Its National Cybersecurity Protection System. GAO-16-294. Washington, D.C.: January 28, 2016. Healthcare.gov: Actions Needed to Enhance Information Security and Privacy Controls. GAO-16-265. Washington, D.C.: March 23, 2016. Critical Infrastructure Protection: Sector-Specific Agencies Need to Better Measure Cybersecurity Progress. GAO-16-79. Washington, D.C.: November 19, 2015. The Department of Homeland Security’s (DHS) top leadership, including the Secretary and Deputy Secretary of Homeland Security, has demonstrated exemplary commitment and support for addressing the department’s management challenges. However, DHS needs to continue implementing its Integrated Strategy for High Risk Management and maintain engagement with us to show measurable, sustainable progress in implementing corrective actions and achieving outcomes. In 2003, we designated implementing and transforming DHS as high risk because DHS had to transform 22 agencies—several with major management challenges—into one department. Further, failure to effectively address DHS’s management and mission risks could have serious consequences for U.S. national and economic security. Given the significant effort required to build and integrate a department as large and complex as DHS, our initial high-risk designation addressed the department’s implementation and transformation efforts to include associated management and programmatic challenges. At that time, we reported that the creation of DHS was an enormous undertaking that would take time to achieve, and that successfully transforming large organizations, even those undertaking less strenuous reorganizations, could take years to implement. needs facing the nation after the department’s establishment, and the challenges posed by creating, integrating, and transforming it. As DHS continued to mature, and as we reported in our assessment of DHS’s progress and challenges in the 10 years following 9/11, we found that the department implemented key homeland security operations and achieved important goals in many areas to create and strengthen a foundation to reach its potential. For example, DHS developed strategic and operational plans to guide its efforts—such as the National Response Framework that outlines disaster response guiding principles—and successfully hired, trained, and deployed workforces, including the federal screening workforce to assume screening responsibilities at airports nationwide. However, we also found that more work remained for DHS to address weaknesses in other areas of its operational and implementation efforts. For example, we reported in 2011 that DHS had not yet determined how to implement a biometric exit capability, had taken action to address a small portion of the estimated overstay population in the United States, and needed to strengthen efforts to assess national capabilities for all- hazards preparedness. We further reported that continuing weaknesses in implementing and integrating DHS’s management functions continued to affect the department’s implementation efforts. 2013 we narrowed the scope of the high-risk area and changed the name from Implementing and Transforming the Department of Homeland Security to Strengthening Department of Homeland Security Management Functions to reflect this focus. In our 2015 high-risk update, we found that DHS’s top leadership had continued to demonstrate exemplary commitment to and support for addressing the department’s management challenges and that DHS had made important progress in strengthening its management functions. However, we also found that DHS continued to face significant management challenges that hindered its ability to achieve its missions and concluded that DHS needed to continue to demonstrate sustainable, measureable progress in addressing key challenges that remained within and across its management functions. DHS’s continued efforts to strengthen and integrate its acquisition, IT, financial, and human capital management functions have resulted in the department meeting three criteria for removal from the High-Risk List (leadership commitment, a corrective action plan, and a framework to monitor progress) and partially meeting the remaining two criteria (capacity and demonstrated, sustained progress). DHS’s top leadership, including the Secretary and Deputy Secretary of Homeland Security, has demonstrated exemplary commitment and support for addressing the department’s management challenges. For instance, the department’s Deputy Secretary, Under Secretary for Management, and other senior management officials have frequently met with us to discuss the department’s plans and progress, which serves as a model for senior- level engagement and helps ensure a common understanding of the remaining work needed to address our high-risk designation. Further, DHS established a framework for monitoring its progress in its Integrated Strategy for High Risk Management, in which it has included performance measures to track the implementation of key management initiatives since June 2012. In addition, since our 2015 high-risk update, DHS has strengthened its monitoring efforts for financial system modernization programs that are key to effectively supporting the department’s financial management operations, resulting in DHS meeting the monitoring criteria for the first time. which we identified and DHS agreed are critical to addressing the challenges within the department’s management areas, and to integrating those functions across the department. DHS has continued to make important progress across all of its management functions, fully addressing 13 of these outcomes, 9 of which it has sustained as fully implemented for at least 2 years. For example, DHS fully addressed one outcome for the first time by demonstrating improvement in human capital management by linking workforce planning efforts to strategic and program planning efforts. DHS also sustained full implementation of two other outcomes by obtaining a clean audit opinion on its financial statements for 4 consecutive fiscal years. Further, DHS has mostly addressed an additional eight outcomes, meaning that a small amount of work remains to fully address them. Considerable work remains, however, in several areas for DHS to fully achieve the remaining 17 outcomes and thereby strengthen its management functions. Addressing some of these outcomes, such as those pertaining to improving employee morale and modernizing the department’s financial management systems, are significant undertakings that will likely require multiyear efforts. DHS needs to make additional progress identifying and allocating resources in certain areas to sufficiently demonstrate that it has the capacity (that is, the people and resources) to achieve and sustain all 30 outcomes, as well as demonstrate additional sustainable and measurable progress in addressing key challenges that remain within and across these management functions. 2015, the DHS Accountability Act of 2016, and the DHS Reform and Improvement Act. House Report 114-215, which accompanied H.R. 3128 (DHS appropriations bill for fiscal year 2016) and later became effective under the Consolidated Appropriations Act, 2016, includes mandates related to DHS’s financial management system modernization projects, which relate to three high-risk financial management outcomes. Specifically, the committee directed GAO to assess the risks of DHS utilizing the Department of Interior’s Business Center (IBC), whether IBC is capable of expanding its services to additional federal agencies, and a comparison of the services and capabilities of federal and commercial shared service providers. In addition, the committee directed the DHS Office of the Chief Financial Officer to update the lifecycle cost estimate to reflect all contract awards and projected overall costs, including those for every component that plans to migrate to a federal shared service provider. The Border Patrol Agent Pay Reform Act of 2014, enacted on December 18, 2014, includes a mandate related to cybersecurity workforce assessments, which relates to one human capital management outcome. Specifically, DHS must identify all cybersecurity workforce positions and identify positions and areas of critical need. Congress also held a number of oversight hearings related to addressing DHS’s management challenges: U.S. Senate, Committee on Homeland Security and Governmental Affairs Hearing: DHS Management and Acquisition Reform. March 16, 2016. U.S. House of Representatives, Committee on Homeland Security, Subcommittee on Oversight and Management Efficiency Hearing: Assessing DHS’s Performance: Watchdog Recommendations to Improve Homeland Security. February 26, 2015. U.S. House of Representatives, Committee on Homeland Security Hearing: Preventing Waste, Fraud, Abuse and Mismanagement in Homeland Security – A GAO High-Risk List Review. May 7, 2014. U.S. Senate, Committee on Homeland Security and Governmental Affairs Hearing: The Department of Homeland Security at 10 Years: A Progress Report on Management. March 21, 2013. In the coming years, DHS needs to continue implementing its Integrated Strategy for High Risk Management and maintain engagement with us to show measurable, sustainable progress in implementing corrective actions and achieving outcomes. In doing so, it will be important for DHS to maintain its current level of top leadership support and sustained commitment to ensure continued progress in executing its corrective actions through completion; continue to identify the people and resources necessary to make progress towards achieving outcomes, work to mitigate shortfalls and prioritize initiatives, as needed, and communicate to senior leadership critical resource gaps; continue to implement its plan for addressing this high-risk area and periodically provide assessments of its progress to us and Congress; closely track and independently validate the effectiveness and sustainability of its corrective actions, and make midcourse adjustments as needed; and make continued progress in achieving the 17 outcomes it has not fully addressed and demonstrate that systems, personnel, and policies are in place to ensure that progress can be sustained over time. We will continue to monitor DHS’s efforts in this high-risk area to determine if the outcomes are achieved and sustained over the long term. Further, in order to address the outcomes, DHS must implement our prior recommendations listed below. DHS should address employee morale problems through comprehensively examining root causes and establishing clear metrics of success within DHS and its components’ action plans. DHS should ensure that its Human Resources IT Program (HRIT), of which the Performance and Learning Management System is the primary active project, receives necessary oversight and attention by ensuring the HRIT Executive Steering Committee is consistently involved. DHS should also address HRIT’s poor progress and ineffective management by: (1) updating and maintaining a schedule estimate for when DHS plans to implement each of the strategic improvement opportunities; (2) developing a complete life-cycle cost estimate for the implementation of HRIT; (3) documenting and tracking all costs, including components’ costs, associated with HRIT; and (4) updating and maintaining the department’s human resources system inventory, among other things. To more accurately communicate DHS’s funding plans for U.S. Coast Guard’s major acquisitions programs, DHS should ensure the funding plans presented to Congress are comprehensive and clearly account for all operations and maintenance funding DHS plans to allocate to each of the programs. DHS should enhance its leadership’s ongoing efforts to improve the affordability of the department’s major acquisitions portfolio by requiring components to submit funding certification memorandums for all major acquisition programs that have not been reviewed at an Acquisition Decision Event; and convening Acquisition Review Boards to discuss affordability and make tradeoffs between cost, schedule, and performance, as necessary. In addition, DHS should ensure that the Fiscal Year 2017 Future Years Homeland Security Program report reflects the results of any tradeoffs stemming from the acquisition affordability reviews; and require components to establish formal, repeatable processes for addressing major acquisition affordability issues. DHS’s Chief Information Officer should use accurate and reliable information, such as operational assessments of the new architecture and cost and schedule parameters approved by the Under Secretary of Management, to help ensure that assessments prepared by the Office of the Chief Information Officer in support of the department’s updates to the federal IT Dashboard more fully reflect the current status of the Transformation Program. DHS should continue to work to address its IT mission critical skills gaps, such as those related to its cybersecurity workforce. Further, DHS needs to remediate the material weakness in information security controls reported by its financial statement auditor in fiscal year 2016 by effectively addressing weaknesses in controls related to access, configuration management, and segregation of duties. DHS should ensure consistent, effective oversight of DHS’s acquisition programs and make the Comprehensive Acquisition Status Report (CASR) more useful by adjusting CASR to enable DHS to hold programs accountable for maintaining their cost, schedule, and performance data. For example, CASR could report an individual rating for each program’s cost, schedule, and technical risks, and the level at which the program’s life-cycle cost estimate was approved. progress on outstanding actions that are to be accomplished related to the high-risk area. According to DHS officials, these meetings provide an opportunity to maintain leadership support and accountability for making progress toward resolving management challenges facing the department. It will be important for DHS to maintain its current level of top leadership support and commitment to ensure continued progress in successfully completing its corrective actions. DHS has taken important actions to identify and put in place the people and resources needed to resolve departmental management risks; however, DHS needs to make additional progress identifying and allocating resources in certain areas to sufficiently demonstrate that it has the capacity to achieve and sustain corrective actions and outcomes. In particular, in a September 2010 letter to DHS, we identified and DHS agreed to achieve 31 outcomes that are critical to addressing challenges within the department’s management areas and in integrating those functions across the department. In March 2014, we updated these outcomes in collaboration with DHS to reduce overlap and ensure their continued relevance and appropriateness. These updates resulted in a reduction from 31 to 30 total outcomes. Toward achieving the outcomes, DHS has issued 10 updated versions of its initial January 2011 Integrated Strategy for High Risk Management, most recently in August 2016. Prior to the January 2016 Integrated Strategy for High Risk Management, DHS did not identify sufficient resources in a number of areas that could undermine DHS’s efforts to strengthen its management functions. For example, in June 2015, DHS identified that it had resources and personnel needed to implement 8 of the 11 key management initiatives it was undertaking to achieve the 30 outcomes, but did not identify sufficient resources for the 3 remaining initiatives. In addition, our prior work has identified specific capacity gaps that could undermine achievement of management outcomes. the Unity of Effort Integration within the Office of Policy to oversee Unity of Effort implementation. However, we found that DHS needs to make additional progress identifying and allocating resources in certain areas. Acquisition management. With respect to acquisition, DHS’s 2016 staffing assessments focused on identifying critical acquisition-related position gaps rather than all major program acquisition-related positions; consequently, some programs were assessed as being fully or almost fully staffed for critical positions despite significant staffing shortfalls in the overall program. This increased focus on critical gaps may limit DHS’s insight into the size and nature of acquisition-related staffing shortfalls, making it difficult for DHS to develop a plan or process to address these vacancies. In December 2016, DHS updated its staffing assessment guidance to refocus the assessment process on all major program acquisition-related positions. However, DHS plans to pilot the implementation of this policy update incrementally during 2017, and the timing of full implementation is not yet known. Emergency Management Agency and U.S. Immigration and Customs Enforcement modernization projects until April 2017. DHS has taken actions to address some of its previous capacity shortcomings and ensure that the department has the people and resources necessary to resolve risk. However, additional progress is needed to ensure that DHS has sufficient capacity not only to resolve risks, but to fully achieve and sustain the 30 outcomes. As a result, we assess DHS having partially met the capacity criterion. DHS needs to continue to comprehensively identify the people and resources necessary to make progress towards achieving all 30 outcomes; work to mitigate shortfalls and prioritize initiatives, as needed; and communicate to senior leadership about critical resource gaps requiring resolution. DHS previously established a plan for addressing this high-risk area as discussed above, and has continued to take critical, actionable steps towards addressing challenges faced within the department. As with prior iterations, DHS included in its most recent August 2016 version of its Integrated Strategy for High Risk Management key management initiatives and related corrective actions for addressing each of the management challenges and related outcomes we identified. For example, the August 2016 updated version of its strategy includes information on actions DHS is taking for an initiative focused on financial systems modernization and an initiative focused on IT human capital management, which support various outcomes. DHS’s strategy and approach, if effectively implemented and sustained, provides a path for DHS to be removed from our High-Risk List. strategy. For example, to monitor progress made towards strengthening the DHS acquisition process by improving the acquisition workforce, DHS management continues to monitor the percent of its nine acquisition certification policies completed—policies related to program management, cost estimating, and contracting among others—and the percent of required acquisition certification training developed. However, in our 2015 high-risk update, we found that DHS could strengthen its financial management monitoring efforts and thus concluded that the department had partially met the criterion for establishing a framework to monitor progress. In particular, according to DHS officials, as of November 2014, the department was establishing a monitoring program that would include assessing whether the projects modernizing key components of their financial management systems were following industry best practices and meeting users’ needs. Effectively implementing these modernization projects is important because until they are complete, the department’s systems will not effectively support financial management operations. Following the 2015 high-risk update, DHS entered into a contract for independent verification and validation services that should help ensure that financial management systems modernization projects meet key requirements. Moving forward, DHS will need to continue to closely track and independently validate the effectiveness and sustainability of its corrective actions, and make midcourse adjustments as needed. DHS has continued to make important progress in strengthening its management functions, but needs to demonstrate additional sustainable and measurable progress in addressing key challenges that remain within and across these functions. DHS has either fully or mostly addressed 21 of the 30 outcomes, demonstrating the department’s progress in strengthening its management functions, and partially addressed or initiated the remaining 9 outcomes. For example, DHS established the Joint Requirements Council, an acquisition oversight body, through which it has created a process for validating capability and requirements documents, among other things. DHS has also worked to improve the management and oversight of its IT investments by establishing and implementing a tiered governance and portfolio management structure. In addition, DHS obtained a clean audit opinion on its financial statements for 4 consecutive fiscal years—2013, 2014, 2015, and 2016. that hinder the department’s ability to meet its missions. For this update, we determined that DHS has partially addressed 6 and initiated 3 of the 30 outcomes. For example, while DHS has initiated acquisition program health assessments to demonstrate that major acquisition programs are on track to achieve their cost, schedule, and capability goals, it will take time to demonstrate that these initiatives will improve program performance. In addition, DHS does not have modernized financial management systems, which affects its ability to have ready access to reliable information for informed decision making. Further, it is important that DHS retain and attract the talent required to complete its work—a challenge the department continues to face due to employee morale issues. Addressing these and other management challenges will be a significant undertaking, but will be critical to mitigate the risks that management weaknesses pose to mission accomplishment. Achieving sustained progress across the outcomes, in turn, requires leadership commitment, effective corrective action planning, adequate capacity (that is, the people and other resources), and monitoring the effectiveness and sustainability of supporting initiatives. Table 7 summarizes DHS’s progress in addressing the 30 key outcomes and is followed by selected examples. Acquisition management. DHS has fully addressed two of the five acquisition management outcomes, mostly addressed two outcomes, and partially addressed the remaining outcome. For example, DHS has validated the required acquisition documentation for all of its major acquisition programs and plans to continue to ensure that all major acquisition programs have approved acquisition program baselines, and to use a pre-Acquisition Review Board checklist to confirm that programs have all required documentation for Acquisition Decision Events. In addition, DHS has taken a number of recent actions to establish and operate the Joint Requirements Council. These actions include (1) establishing a process for validating capability and requirements documents, and (2) piloting a joint assessment of requirements process that is intended to eventually inform the department’s budget decisions. Further, DHS continues to assess and address whether appropriate numbers of trained acquisition personnel are in place at the department and component levels. Finally, we reported in March 2016 that only 11 of the 25 major DHS acquisition programs we reviewed remained on track to meet their current schedule and cost goals. DHS has initiated acquisition program health assessments to report to senior DHS management the status of major acquisition programs toward achieving cost, schedule, and capability goals; however, it will take time to demonstrate that such initiatives are improving program performance. of DHS’s IT workforce, as well as hiring, training, and managing staff with those new skill sets. Enforcement financial management systems before DHS will be in a position to implement modernized solutions for these components and their customers. For example, discovery phase activities to determine the feasibility of implementing, deploying, and maintaining the chosen solution are not expected to be completed for these two projects until April 2017. Such information is essential for determining the implementation schedule and finalizing cost estimates that are needed prior to approving the projects for implementation. Further, without sound internal controls and systems, DHS faces long-term challenges in sustaining a clean audit opinion on its financial statements and in obtaining and sustaining a clean opinion on its internal controls over financial reporting, which are needed to ensure that its financial management systems generate reliable, useful, and timely information for day-to- day decision making as a routine business operation. Human capital management. DHS has fully addressed three human capital management outcomes, mostly addressed three, and partially addressed the remaining one. For example, the Secretary of Homeland Security signed a human capital strategic plan in 2011— which was revised and reissued in 2014—that DHS has since made sustained progress in implementing, thereby fully addressing one outcome. In addition, DHS successfully demonstrated the ability to conduct structured workforce planning for the majority of its priority mission critical occupations at the department in fiscal year 2015, and for all mission critical occupations in fiscal year 2016. To support this planning, DHS issued its Workforce Planning Guide in 2015, which enabled DHS components to apply a consistent and departmentally- approved methodology, including the use of standardized tools and templates. DHS also published and implemented a department-wide Employee Engagement Action Plan, which DHS’s components used to develop tailored action plans for their own employee engagement and outreach. results-oriented performance culture, talent management, and job satisfaction) from 2008 through 2015. DHS has developed plans for addressing its employee satisfaction problems and improved scores in all four areas in 2016, but as we previously recommended, in September 2012, DHS needs to continue to improve its root-cause analysis efforts related to these plans. DHS also needs to continue strengthening its learning management capabilities. Specifically, in February 2016, we reported that DHS had initiated the Human Resources Information Technology (HRIT) investment in 2003 to address issues presented by its human resource environment. designed to allow the department to operate in a more integrated fashion. Further, in support of this effort, in August 2015, the Under Secretary for Management identified four integrated priority areas to bring focus to strengthening integration among the department’s management functions. According to DHS’s August 2016 updated version of its strategy, these priorities—which include, for example, strengthening resource allocation and reporting reliability and developing and deploying secure technology solutions—each include detailed goals, objectives, and measurable action plans that are monitored at monthly leadership meetings led by senior DHS officials, including the Under Secretary for Management. Accomplishments DHS officials attribute to the Unity of Effort initiative and integrated priorities initiatives include the following, among others: DHS’s Office of Program Accountability and Risk Management developed and implemented a policy directive to monitor and track critical staffing gaps for major acquisition programs to ensure that such gaps are identified and remediated in a timely manner. DHS Science and Technology Directorate established Integrated Product Teams to better link the department’s research and development investments with the department’s operational needs. DHS strengthened its strategy, planning, programming, budgeting, execution, and acquisition processes by improving existing structures and creating new ones where needed to build additional organizational capability. DHS has institutionalized these reforms by issuing a range of departmental management directives and instructions. However, given that these main management integration initiatives are in the early stages of implementation and contingent upon DHS sustaining implementation plans and efforts over a period of years, it is too early to assess their effects. To achieve this outcome, DHS needs to continue to demonstrate sustainable progress integrating its management functions within and across the department and its components, as well as fully address the other 17 outcomes it has not yet achieved. In 2016, we recommended, among other things, that DHS (1) update the HRIT executive steering committee charter to establish the frequency with which HRIT executive steering committee meetings are to be held, (2) establish time frames for re-evaluating the strategic improvement opportunities and associated projects in the Human Capital Segment Architecture Blueprint and determining how to move forward with HRIT, and (3) evaluate the strategic improvement opportunities and projects within the Human Capital Segment Architecture Blueprint to determine whether they and the goals of the blueprint are still valid and reflect DHS’s HRIT priorities going forward, and update the blueprint accordingly. We reported that HRIT’s limited progress was due in part to lack of involvement of its executive steering committee and, as a result, key governance activities, such as approval of HRIT’s operational plan, were not completed. We concluded that until DHS takes actions to reevaluate and manage this neglected investment, it was unknown when its human capital weaknesses would be addressed. In response, in 2016, DHS addressed these three recommendations. As a result, DHS should have better assurance that the HRIT executive steering committee will meet regularly and carry out its responsibility to provide oversight and guidance to the HRIT investment. Further, DHS is better positioned to update the blueprint and address inefficiencies in its human resources environment, make informed resource decisions on the implementation of the strategic improvement opportunities, and address inefficiencies in its human resources environment. In 2015, we recommended that DHS re-baseline cost, schedule, and performance expectations for the remainder of the U.S. Citizenship and Immigration Services Transformation Program. We reported that the Transformation Program had an increased cost of $1 billion and delay of over 4 years from its initial July 2011 baseline, mostly due to changes in its acquisition strategy to address various technical challenges. These changes significantly delayed the program’s planned schedule, which in turn had adverse effects on when the program expects to achieve cost savings, operational efficiencies, and other benefits. In response, in 2015, DHS addressed this recommendation, and the re-baseline helps ensure that progress made by the program can be monitored against established and approved parameters. Secretary for Management (USM) to develop written guidance to clarify roles and responsibilities of PARM and the Office of the Chief Information Officer Enterprise Business Management Office for conducting oversight of major acquisition programs; (3) directed the USM to produce operations and maintenance cost estimates for programs in sustainment and establish responsibility for tracking sustainment programs’ adherence to those estimates; and (4) directed the USM to determine mechanisms to hold programs accountable for entering data in the Next Generation Periodic Reporting System consistently and accurately, and to hold Component Acquisition Executives accountable for validating the information and evaluate the root causes of why programs are not using the Next Generation Periodic Reporting System as intended. By PARM issuing a handbook that provides oversight roles and responsibilities and other guidance to PARM component leads, and by the USM and Acting Deputy USM issuing multiple memorandums regarding the clarification of acquisition oversight roles and responsibilities, the verification and certification of the data in designated fields, the verification and certification of the data on a biannual basis, and the requirement of root cause analyses, DHS is helping ensure consistent and effective oversight of its acquisition programs. In 2015, we recommended that DHS should ensure the Director of Operational Test and Evaluation explicitly address all of the relevant key performance parameters in each letter of assessment appraising operational test results of DHS’s major acquisitions programs. As a result, in 2015, DHS finalized an internal office procedure that established that each letter of assessment should provide detailed analysis indicating whether or not the key performance parameters were met. In 2014, we recommended that DHS clearly identify Leader Development Program goals and ensure program performance measures include key attributes, such as linkage, clarity, and measurable targets. As a result, in December 2014, Leader Development Program Office officials provided us with updated documentation on the program’s assessment approach. This documentation established 10 program goals. It also explained how the program’s performance measures link to the 10 program goals and to department-wide goals. Further, the documentation established targets for each performance measure and provided clarification for ambiguous measures. These enhancements to the Leader Development Program assessment approach should help produce actionable information for the program’s management to use in identifying the need for, and making, program improvements. In 2013, we recommended that DHS should direct the Office of the Chief Human Capital Officer (OCHCO) to require all components to provide recruiting cost information in a consistent manner to allow better tracking of overall recruiting costs, and use this information to assess the extent to which recruiting costs are being reduced by components as a result of increased coordination and leveraging resources as called for in the Coordinated Recruiting and Outreach Strategy. In June 2015, OCHCO provided us with examples of recruiting cost information that it has begun tracking in response to this recommendation. The data provided demonstrate that OCHCO has begun to better track component-level recruiting expenditures in a way that illustrates coordination among components, and could be used to track reduction in costs stemming from this coordination. In 2015, in response to one of our recommendations, DHS developed a financial systems modernization transition plan that included the tasks, milestones, and time frames for implementing new systems, and establishing the optimal sequencing of activities. If effectively implemented, the transition plan will help DHS increase its ability to effectively manage its financial management system modernization efforts. Also, in 2015, DHS developed a financial systems modernization transition plan and an updated architecture roadmap that collectively describe a target state architecture for DHS financial management segment in business terms (e.g., business functions and business processes) and technical terms (e.g., account classification standards data model, shared services, and federated solution approach). These DHS actions have helped improve DHS’s ability to ensure the effectiveness of financial management system investment decisions. For additional information about this high-risk area, contact Rebecca Gambler (202) 512-8777 or gamblerr@gao.gov. Homeland Security Acquisitions: Joint Requirements Council’s Initial Approach Is Generally Sound and It Is Developing a Process to Inform Investment Priorities. GAO-17-171. Washington, D.C.: October 24, 2016. Homeland Security Acquisitions: DHS Has Strengthened Management, but Execution and Affordability Concerns Endure. GAO-16-338SP. Washington, D.C.: March 31, 2016. Department of Homeland Security: Progress Made, but Work Remains in Strengthening Acquisition and Other Management Functions. GAO-16-507T. Washington, D.C.: March 16, 2016. Homeland Security: Oversight of Neglected Human Resources Information Technology Investment Is Needed. GAO-16-253. Washington, D.C.: February 11, 2016. Immigration Benefits System: Better Informed Decision Making Needed on Transformation Program. GAO-15-415. Washington, D.C.: May 18, 2015. Homeland Security Acquisitions: DHS Should Better Define Oversight Roles and Improve Program Reporting to Congress. GAO-15-292. Washington, D.C.: March 12, 2015. Department of Homeland Security: Progress Made, but More Work Remains in Strengthening Management Functions. GAO-15-388T. Washington, D.C.: February 26, 2015. DHS Training: Improved Documentation, Resource Tracking, and Performance Measurement Could Strengthen Efforts. GAO-14-688. Washington, D.C.: September 10, 2014. DHS Financial Management: Continued Effort Needed to Address Internal Control and System Challenges. GAO-14-106T. Washington, D.C.: November 15, 2013. DHS Financial Management: Additional Efforts Needed to Resolve Deficiencies in Internal Controls and Financial Management Systems. GAO-13-561. Washington, D.C.: September 30, 2013. Technological superiority is critical to U.S. military strategy. Thus, the Department of Defense (DOD) spends billions of dollars each year to develop and acquire sophisticated technologies to provide an advantage for the warfighter during combat or other missions. Many of these technologies are also sold or transferred to foreign partners to promote U.S. economic, foreign policy, and national security interests. These technologies can also be acquired through foreign investment in the U.S. companies that develop or manufacture them. In addition, they are targets for unauthorized transfer, such as theft, espionage, reverse engineering, and illegal export. To identify and protect technologies critical to U.S. interests, the U.S. government has a portfolio of programs. These include export controls— those developed to regulate exports and ensure that items and information are transferred in a manner consistent with U.S. interests—as well as a number of non-export control programs, including the Foreign Military Sales (FMS) program, anti-tamper measures, and the National Industrial Security Program, which oversees government contractors handling classified information, including that associated with critical technologies. These programs and activities are administered by multiple federal agencies with various interests, including DOD and the Departments of Commerce, Homeland Security, Justice, State, and the Treasury. We designated this area as high risk in 2007 because these programs, established decades ago, were ill-equipped to address the evolving challenges of balancing national security concerns and economic interests. While these agencies are making progress in addressing challenges identified by our work, we believe that additional leadership and coordination of programs and activities in the non-export control programs, among other things, is needed to identify strategic reforms that will help to advance U.S. interests. Since this area was added to the High-Risk List in 2007, our body of work in this area has identified progress in the programs designed to protect technologies critical to U.S. national security interests, but government- wide challenges remain, including the need to adopt a more consistent leadership approach, improve coordination among programs, address weaknesses in individual programs, and implement export control reform. Hence, we continue to consider each of our high-risk criteria in this area to be partially met: Leadership commitment to addressing challenges has been evident in some areas of the critical technologies portfolio, particularly with respect to the Export Control Reform initiative. However, as we reported in our 2015 update, greater collaboration among the critical technologies programs not directly related to export controls— including the FMS program, the anti-tamper program, and the National Industrial Security Program—could ensure that lead and stakeholder agencies take a more consistent approach to meeting program goals. The capacity for addressing challenges and implementing reforms has improved for some programs. However, many efforts remain limited to individual programs or activities within the overall program portfolio, and there are areas where broader coordination could be beneficial, such as determining an appropriate technical reference to inform key decisions relating to critical technologies. Action plans to guide improvements are in place for some programs; however, additional steps have yet to be taken to develop and implement action plans that will address ongoing challenges, such as administering the anti-tamper program. Monitoring of efforts to meet key challenges also has improved at some programs. DOD and State have implemented some, but not all, of our past recommendations on developing performance measures and monitoring program outcomes. The need for action remains both at the individual program level and the portfolio level. We have made a number of recommendations to agencies aimed at improving coordination among the programs that are intended to protect technologies critical to U.S. national security. We believe that implementing these recommendations could result in significant improvements. Our body of work shows that challenges remain. To address existing challenges, we have previously reported that the executive branch and Congress should consider reevaluating the wider portfolio of programs protecting critical technologies, including assessing the prospects for achieving collaboration across separate but related programs designed to protect critical technologies. Executive branch leadership has been committed to reforming the area of export controls, an important step forward. But leadership commitment is less evident in the critical technologies programs that fall outside the scope of export control reform. Individual agencies need to continue to implement our recommendations to address weaknesses in their respective programs. Doing so could increase these programs’ capacity for implementing reforms. For example, the export control agencies should work to develop standard operating procedures for the Export Enforcement Coordination Center—a primary forum within the federal government to coordinate export enforcement efforts and identify and resolve conflicts—to facilitate data sharing. Developing a concrete action plan for achieving collaboration across separate but related programs designed to protect critical technologies remains important. Executive branch leadership has developed a thorough action plan for export control reform. But formal and integrated planning is less evident in the critical technologies programs that fall outside the scope of export control reform. Individual agencies need to continue to implement our recommendations to address weaknesses in their respective programs. Doing so could increase these programs’ ability to monitor progress. For example, DOD should take additional actions to enhance its ability to provide security assistance through, for example, its FMS program by establishing performance measures for all phases of the security assistance process. users’ needs for a technical reference, whether it be the U.S. Munitions List or the Industrial Base Technologies List, other alternatives being used, or some combination thereof, and ensure that resources are coordinated and efficiently devoted to sustain the approach chosen. Since our recommendation, DOD officials said the department has moved toward using the U.S. Munitions List. However, DOD has not changed its policy requiring use of the Militarily Critical Technologies List (MCTL) as it has not yet received relief from that statutory requirement. At the portfolio level, implementing export control reforms demonstrates leadership commitment, but the agencies involved in export controls must continue to implement reforms to achieve the goals set to protect U.S. interests. For non-export control reform, increased collaboration between DOD’s offices responsible for administering the FMS program and approving exports represents an important step forward in coordinating the activities of selected programs. However, leadership still must decide, among other things, how to address protection of critical technologies at a more strategic level. In particular, in February 2015 we recommended that, to ensure a consistent and more collaborative approach to protecting critical technologies, the Secretaries of Commerce, Defense, Homeland Security, State, and the Treasury as well as the Attorney General of the United States—who have lead and stakeholder responsibilities for the programs within the critical technologies portfolio—should take steps to promote and strengthen collaboration mechanisms among their respective programs while they implement and assess ongoing initiatives. These steps need not be onerous; for example, they could include conducting an annual meeting to discuss their programs, including the technologies they are protecting, their programs’ intent, and any new developments or changes planned for their programs, as well as defining consistent critical technologies terminology and sharing important updates. Export control reform is being implemented in three phases. Phases I and II reconcile various definitions, regulations, and policies for export controls. As of August 2015, Phase I was finished. Phase II is nearing completion. This is all building toward Phase III, which will result in implementation of major changes supported by these reconciliations by consolidating export control efforts in four reform areas: creating a single, consolidated control list; designating a single licensing agency; designating a primary export enforcement coordination agency; and establishing a unified information technology system. We reported in February 2015 that significant collaboration by the participating agencies is essential to the Phase III consolidation efforts. In that same report, we noted that in order for full implementation of this third and final phase to occur, congressional action is needed to designate a single licensing agency and a primary export enforcement coordination agency. For example, since there are currently separate statutory bases for State and Commerce to review and issue export licenses, legislation will be required to consolidate the current system into a single licensing agency. Some of the issues identified through past reports on export controls include poor interagency coordination, inefficiencies in the license application process, and a lack of systematic assessments. This criterion has been met. The Obama administration directed an interagency review of the U.S. export control system that resulted in the 2010 establishment of an Export Control Reform initiative, which has continued to demonstrate strong leadership commitment, both from that administration and from leaders at the key federal agencies. This initiative is under way and actions toward the four key goals of reform—creation of a single, consolidated control list, a single licensing agency, a primary export enforcement coordination agency, and a unified information technology system—have been implemented using a phased approach, which we have concluded has the potential to address weaknesses in the U.S. export control system. the three key export control agencies are using this single system, and other agencies, such as Treasury, are working toward joining this system. However, other efforts under this criterion have yet to be completed. Fifteen federal agencies have come together through the establishment of the Export Enforcement Coordination Center (the Center), which, according to statistics the Center Director provided to us, has heightened awareness by exchanging investigation-related information. The Center had made good progress in addressing our February 2015 findings that export enforcement agencies had poor interagency coordination, but remaining efforts have stalled. For example, the Center has not yet finalized procedures for coordination between the investigative export control enforcement and intelligence communities. Center officials cited understaffing of interagency personnel as a key barrier, and, in August 2016, Commerce assigned new staff to the Center to assist in this process. This criterion has been met. The export control reform efforts lay out a clear plan of action—consisting of a three-phase framework of agency actions to implement reforms to export control lists, licensing, enforcement, and information technology—which has the potential to improve the efficiency and effectiveness of the export control process. This criterion has been partially met. We made four recommendations in March 2012 that departments with responsibilities for export control enforcement take steps to more effectively monitor resources spent on export control enforcement activities and develop and implement metrics for monitoring their effectiveness. As of 2016, one of these recommendations has been implemented by Homeland Security, but not Justice; a second has been implemented by both Homeland Security and Commerce; a third has not been implemented by Homeland Security; and a fourth has been implemented by both Commerce and State. remain under State control or move to Commerce control. The goal is to move certain less sensitive items from State’s jurisdiction to Commerce’s, while leaving high-risk and high-priority items on State’s list. However, other key steps, such as implementation of the Center’s procedures for coordination with the intelligence communities, remain incomplete. for ensuring consistent protection of critical technologies across weapon systems and their respective export variants. The Defense Security Service, which is responsible for administering the National Industrial Security Program and overseeing the protection of classified information at contractor facilities, has also made leadership progress in its technology protection role by beginning implementation of an enterprise-wide risk management approach that it expects to allow more effective oversight of technology and classified information. In 2016, agency officials reported that this approach has improved the overall oversight of all contractors by increasing visibility of security management issues across the agency’s individual directorates. This criterion has been partially met. In our 2015 update, we reported that DOD had initiated a plan and instituted the capacity for oversight and collaboration on those programs related to security cooperation and disclosure, and, while DOD has continued to expand these capacities, they remain fragmented across the portfolio of programs. For example, based on direction in the National Defense Authorization Act for Fiscal Year 2011, DOD created a Defense Exportability Features Pilot Program to reduce program costs and facilitate export sales for U.S. and foreign customers while balancing program protection needs. Since it was created, this pilot program has funded a limited number of designated systems to conduct initial feasibility studies, follow-on studies, and design efforts relating to protection of critical information on systems that may be candidates for export. Our ongoing work suggests that the pilot program has achieved some significant initial successes in helping assure greater value and effectiveness in preparing weapon programs for export. DOD officials also reported improved collaboration between agencies involved in the protection of critical technologies. Specifically, DOD officials responsible for administering FMS and export license requests, respectively, highlighted areas of increased collaboration, including joint briefings to Congress and temporary staff details across their organizations. significant work remains to be done in this area. Specifically, DOD officials said they do not have a strategic plan for administering the anti- tamper program, and officials also noted that, although technology protection is a strategic priority within the department, it was not included in a recent presidential transition strategy in terms of performance and tracking measures. This criterion has been partially met. While DOD has made some progress in establishing data-driven performance measures and tracking them against organizational goals, additional work is needed in some areas relating to the transfer of U.S. military equipment to foreign governments. For example, in our last update we noted that DOD has not implemented our recommendations to improve monitoring of the security assistance process for FMS and other security cooperation programs in which military equipment is provided directly to foreign governments. Since then, one recommendation—from November 2012—that DOD establish performance measures to assess the timeliness of the security assistance case closure process for FMS and related programs, has been implemented, but another—from the same report—calling for DOD to establish a performance measure to assess timeliness for the acquisition phase of the security assistance process remains unaddressed. Additionally, DOD officials responsible for administering the Defense Exportability Features Pilot Program said they have not yet developed meaningful metrics relating to aspects of the program International Cooperation officials would like to measure, such as cost savings and the defense industry’s ability to handle increased production to accommodate both U.S. and export items. example, we have previously reported that DOD’s MCTL, originally developed in response to the Export Administration Act of 1979 in order to inform export decisions, is no longer being updated or used by DOD officials who provide input on the criticality of technologies as part of export license determinations and reviews of foreign acquisition of U.S. companies. We recommended in January 2013 that DOD determine the best approach for meeting users’ requirements for a technical reference and DOD officials noted that a memorandum is pending final signature that would cancel DOD’s policy requiring use of the MCTL. In the meantime, DOD officials we spoke with in August 2016 highlighted an ongoing effort to update the U.S. Munitions List, which is now more widely used in security cooperation efforts. Additionally, the Defense Security Service maintains a separate list—the Industrial Base Technology List—which is used by many DOD entities to characterize threats to information and technology and to categorize technology acquisitions. In March 2012, we issued a report identifying delays in the license determination process, by which agencies confirm whether an item for export is controlled and requires a license. We recommended that Commerce establish timeliness goals for responding to license determination requests. According to Commerce, in April 2014, Commerce’s Bureau of Industry and Security began implementing the license determination module of the Commerce USXPORTS Export Support System. This system has enabled them to reduce their average processing time for license determinations to around 14 days, well below Commerce’s internal requirement for processing license determinations of 35 days. foreign security forces under security-related assistance programs to establish formal written procedures to consult with the Directorate of Defense Trade Controls to determine if there are additional safeguards recommended for the transfer of the defense articles. According to State officials, in October 2015, the Department of State’s Bureau of International Narcotics Control and Law Enforcement Affairs issued new standard operating procedures directing end-use monitoring officials to ensure that all U.S. government personnel utilize an end-use monitoring defense article checklist when conducting inspections. For additional information about this high-risk area, contact Marie A. Mak at (202) 512-4841 or makm@gao.gov. Critical Technologies: Agency Initiatives Address Some Weaknesses, but Additional Interagency Collaboration Is Needed. GAO-15-288. Washington, D.C.: February 10, 2015. Export Controls: NASA Management Action and Improved Oversight Needed to Reduce the Risk of Unauthorized Access to Its Technologies. GAO-14-315. Washington, D.C.: April 15, 2014. Countering Overseas Threats: DOD and State Need to Address Gaps in Monitoring of Security Equipment Transferred to Lebanon. GAO-14-161. Washington, D.C.: February 26, 2014. Protecting Defense Technologies: DOD Assessment Needed to Determine Requirement for Critical Technologies List. GAO-13-157. Washington, D.C.: January 23, 2013. Security Assistance: DOD’s Ongoing Reforms Address Some Challenges, but Additional Information Is Needed to Further Enhance Program Management. GAO-13-84. Washington, D.C.: November 16, 2012. Export Controls: Compliance and Enforcement Activities and Congressional Notification Requirements under Country-Based License Exemptions. GAO-13-119R. Washington, D.C.: November 16, 2012. Nonproliferation: Agencies Could Improve Information Sharing and End- Use Monitoring on Unmanned Aerial Vehicle Exports. GAO-12-536. Washington, D.C.: July 30, 2012. Export Controls: U.S. Agencies Need to Assess Control List Reform’s Impact on Compliance Activities. GAO-12-613. Washington, D.C.: April 23, 2012. Export Controls: Proposed Reforms Create Opportunities to Address Enforcement Challenges. GAO-12-246. Washington, D.C.: March 27, 2012. Export Controls: Agency Actions and Proposed Reform Initiatives May Address Previously Identified Weaknesses, but Challenges Remain. GAO-11-135R. Washington, D.C.: November 16, 2010. The Department of Health and Human Services (HHS), the U.S. Department of Agriculture (USDA), and the Office of Management and Budget (OMB) have taken some positive steps since the 2015 high-risk update to address fragmentation in the federal food safety oversight system. For example, HHS and USDA have continued and expanded collaboration on specific food safety issues, and HHS has updated its strategic plan to address interagency coordination on food safety. However, additional steps are needed to address the system’s fragmentation and remove this issue from the High-Risk List. For more than four decades, we have reported on the fragmented federal food safety oversight system, which has caused inconsistent oversight, ineffective coordination, and inefficient use of resources. We added federal food safety oversight to the High-Risk List in 2007 because of risks to the economy, to public health, and to safety. A 2011 estimate by the Centers for Disease Control and Prevention (CDC)—its most recent estimate—indicates that, as a result of foodborne illness, roughly 1 in 6 Americans (48 million people) gets sick each year, 128,000 are hospitalized, and 3,000 die. CDC data also show that the number of reported multistate foodborne illness outbreaks is increasing. This is notable because although multistate outbreaks make up a small proportion of total outbreaks, they affect greater numbers of people. For example, according to CDC data, 3 percent of reported outbreaks from 2010 to 2014 were multistate, but these outbreaks were associated with 11 percent of illnesses, 34 percent of hospitalizations, and 56 percent of deaths. CDC cites several potential contributors to the increase in reported multistate outbreaks, including greater centralization of food processing practices, wider food distribution, and improved detection and investigation methods. developing Crohn’s disease, a chronic inflammatory bowel disease. According to a May 2015 estimate from USDA’s Economic Research Service, the most common 15 foodborne pathogens together impose an economic burden related to foodborne illnesses, hospitalizations, and deaths in the United States of over $15.5 billion annually. That same year, researchers at HHS’s Food and Drug Administration (FDA) estimated health costs associated with foodborne illness at about $36 billion annually. In addition to the human health toll, foodborne illness outbreaks can impose high costs to industry from food recalls. An October 2011 study published by the Grocery Manufacturers Association (GMA), in partnership with Covington & Burling LLP and Ernst & Young, estimated the cost of food recalls. The study surveyed 36 GMA member companies and found that more than half had been affected by a product recall in the prior 5 years. For companies that had faced a recall in the past 5 years, 48 percent estimated the financial impact to be less than $9 million; 29 percent, from $10 million to $29 million; and 23 percent, $30 million or more. Based on the survey results, the four largest costs that companies face as a result of a recall are business interruption or lost profits; recall execution costs, such as destroying and replacing recalled products; liability risk; and company or brand reputation damage. As we reported in December 2014, three major trends create food safety challenges. First, a substantial and increasing portion of the U.S. food supply is imported, which stretches the federal government’s ability to ensure the safety of these foods. Second, consumers are eating more raw and minimally processed foods, which in general are more susceptible to foodborne pathogens. Third, segments of the population that are particularly susceptible to foodborne illnesses, such as older adults and immune-compromised individuals, are growing. The safety and quality of the U.S. food supply, both domestic and imported, are governed by a highly complex system stemming from at least 30 federal laws that are collectively administered by 16 federal agencies. The federal agencies with primary responsibility for food safety oversight are USDA’s Food Safety and Inspection Service (FSIS) and FDA. FSIS is responsible for the safety of meat, poultry, processed egg products, and catfish. FDA is responsible for virtually all other food. As we reported in May 2016, the federal food safety oversight system is supplemented by states, localities, tribes, and territories, which may have their own laws and agencies to address the safety and quality of food. HHS, USDA, and OMB have taken some positive steps since the 2015 high-risk update to address fragmentation in the federal food safety oversight system—including in relation to crosscutting requirements for individual strategic and performance planning documents and collaboration on specific food safety issues—but they have not addressed our March 2011 recommendation for a government-wide plan and Congress has not acted on our December 2014 matters for it to consider for government-wide planning and leadership. We continue to believe that these actions are important to federal food safety oversight efforts. A framework for addressing these actions could be provided through development and implementation of a national strategy for food safety oversight. Food safety and government performance experts who participated in a 2-day meeting that we, with the assistance of the National Academies of Sciences, Engineering, and Medicine (National Academies), convened in June 2016 stated that there is a compelling need for such a strategy to provide a framework for strengthening the federal food safety oversight system and addressing fragmentation. a government-wide plan and our December 2014 matters for Congress to consider for government-wide planning and leadership. In addition, developing and implementing a national strategy could provide a framework for addressing criteria for removing food safety from the High- Risk List. Such a strategy could also include actions consistent with our prior suggestion that Congress may wish to assess the need for comprehensive, uniform, risk-based food safety legislation or amendment of FDA’s and USDA’s existing authorities. To address capacity constraints for addressing fragmentation in federal oversight of food safety and to guide corrective actions and monitor progress, Congress should consider directing OMB to develop a government-wide performance plan for food safety and formalizing the Food Safety Working Group (FSWG) through statute. To provide building blocks toward OMB’s development of a government-wide performance plan for food safety, USDA should implement our priority recommendation to continue building upon its efforts to implement the GPRA Modernization Act of 2010 (GPRAMA) requirements to address crosscutting food safety efforts in its strategic and performance planning documents, which HHS has already done. These actions should provide federal food safety agencies with vehicles to demonstrate strong commitment to, top leadership support for, and progress in implementing corrective measures to address fragmentation in federal oversight of food safety. These actions could also be addressed through development and implementation of a national strategy for food safety oversight, which could thereby address criteria for removing food safety oversight from the High-Risk List. In addition, such a strategy could include actions consistent with our prior suggestion that Congress may wish to assess the need for comprehensive, uniform, risk-based food safety legislation or amendment of FDA’s and USDA’s existing authorities. If, over the next several years, weaknesses in the food safety system persist, Congress should also consider commissioning a detailed analysis of alternative organizational structures for food safety. The criterion of demonstrating commitment to, and top leadership support for, addressing fragmentation in federal oversight of food safety has been partially met. With the enactment of GPRAMA in January 2011, Congress and the executive branch demonstrated strong commitment and top leadership support for improving collaboration across the federal government. GPRAMA further highlights the need for crosscutting strategic and performance planning for issues that involve multiple federal agencies and could provide the initial steps toward a government-wide performance plan for food safety. GPRAMA added new requirements for addressing crosscutting efforts in federal strategic and performance planning. For example, GPRAMA requires agencies to describe in their strategic and performance planning documents how they are working with other agencies to achieve their goals and objectives. In December 2014, we found that HHS and USDA had taken steps to implement GPRAMA’s crosscutting requirements for their food safety efforts. However, the agencies did not fully address crosscutting food safety efforts in their strategic and performance planning documents. We recommended that HHS and USDA continue to build upon their efforts to implement GPRAMA requirements to address crosscutting food safety efforts in their strategic and performance planning documents. Both agencies agreed with the recommendation. included more information on crosscutting food safety efforts in its fiscal year 2017-2021 strategic plan and in its draft fiscal year 2017 annual plan than it did in its prior strategic and annual plans; USDA planned to include information on interagency collaboration in its next strategic plan, according to USDA officials. Fully addressing crosscutting food safety efforts in individual strategic and performance planning documents is an important first step toward providing a comprehensive picture of the federal government’s performance in overseeing food safety. However, the agency-by-agency focus of individual planning documents alone does not provide the integrated perspective on federal food safety performance necessary to guide congressional and executive branch decision making and to inform the public about what federal agencies are doing to ensure food safety. Those individual documents could, however, provide building blocks toward the next, more challenging task of developing a single, government-wide performance plan for food safety. The President demonstrated strong commitment and top leadership in March 2009, when the President established the FSWG to coordinate federal efforts and develop goals to make food safer. In March 2011, we indicated that creation of the FSWG was a positive step. However, the group stopped meeting after about 2 years. In December 2014, we reported that, according to senior FDA and FSIS officials and OMB staff, the FSWG was no longer needed, given the existence of other collaborative mechanisms. FDA and FSIS are involved in numerous mechanisms to facilitate interagency coordination on food safety; however, existing mechanisms focus on specific issues, and none provides for broad-based, centralized collaboration. For example, FDA and FSIS are collaborating with CDC through the Interagency Food Safety Analytics Collaboration to improve estimates of the most common sources of foodborne illnesses. However, this and other mechanisms do not allow FDA, FSIS, and other agencies to look across their individual programs and determine how they all contribute to federal food safety goals. In addition, the FDA Food Safety Modernization Act (FSMA)—enacted in 2011 to amend existing food safety laws—includes numerous provisions requiring interagency collaboration, but these too focus on specific topics and do not provide for centralized, broad-based collaboration across food safety regulations and programs. In December 2014, we suggested that Congress consider formalizing the FSWG through statute to help ensure sustained leadership across food safety agencies over time. As of January 2017, HHS, USDA, and OMB had taken some positive steps since our 2015 high-risk update to address fragmentation in the federal food safety oversight system—including continued and expanded collaboration on specific food safety issues—but they had not addressed our March 2011 recommendation for a government-wide plan and Congress had not acted on our December 2014 matters for it to consider for government-wide planning and leadership. We continue to believe that these actions are important to federal food safety oversight efforts. In January 2017, however, we also concluded that a framework for addressing these actions could be provided through development and implementation of a national strategy for food safety oversight. Food safety and government performance experts who participated in a 2-day meeting that we, with the assistance of the National Academies, convened in June 2016 stated that there is a compelling need for such a strategy to provide a framework for strengthening the federal food safety oversight system and addressing fragmentation. The experts identified stating the purpose, establishing sustained leadership, identifying resource requirements, monitoring progress, and including actions for gaining traction as key elements that should be included in a national strategy for food safety oversight; these elements are consistent with characteristics that we have identified as desirable in a national strategy. We have found that complex interagency and intergovernmental efforts, which could include food safety, can benefit from developing a national strategy and establishing a focal point with sufficient time, responsibility, authority, and resources to lead the effort. The experts did not specify which entity should lead such a strategy, but they emphasized that it should be led by the highest level of the administration. Past efforts to develop high-level strategic planning for food safety have depended on leadership from entities within the Executive Office of the President (EOP). By developing a national strategy to guide the nation’s efforts to improve the federal food safety oversight system and address ongoing fragmentation, the appropriate entities within the EOP, in consultation with relevant federal agencies and other stakeholders, could provide a comprehensive framework for considering organizational changes and making resource decisions. Experts identified the following stakeholders as key contributors to a national strategy for food safety: federal, tribal, state, and local government agencies; industry; consumer groups; academia; and key congressional committees. In our January 2017 report, we found that a national strategy for food safety, as described by the experts and possessing the desirable characteristics identified in our past work, could fulfill the intent behind our March 2011 recommendation for a government-wide plan and our December 2014 matters for congressional consideration for government- wide planning and leadership. Such a strategy could include all of the elements of a government-wide performance plan for federal food safety oversight, such as government-wide goals and performance indicators. In addition, we found that, to the extent that such a strategy establishes sustained leadership, it could fulfill the intent behind our December 2014 matter for Congress to consider formalizing the FSWG through statute to help ensure sustained leadership across food safety agencies over time. We therefore recommended that the appropriate entities within the EOP, in consultation with relevant federal agencies and other stakeholders, should develop a national strategy that states the purpose of the strategy, establishes high-level sustained leadership, identifies resource requirements, monitors progress, and identifies short- and long-term actions to improve the food safety oversight system. HHS and OMB did not comment on our recommendation. USDA disagreed with the need for a national strategy but cited factors to consider should changes be proposed. Even with USDA’s reservations, we continue to believe that a national strategy would provide a comprehensive framework for considering organizational changes and resource decisions to improve the federal food safety oversight system. It will be up to the stakeholders participating in such a strategy to decide which actions to pursue. Among the actions identified by experts at our June 2016 meeting for potential inclusion in a national strategy was alignment of FDA’s and USDA’s existing authorities. For example, several experts mentioned modifying the statutes that FSIS implements, such as the Federal Meat Inspection Act and the Poultry Improvement Act, to align the authorities of USDA with the Federal Food, Drug, and Cosmetic Act, as amended by FSMA, which outlines FDA’s responsibilities. This could help ensure a consistent approach across food commodities. Such actions would comport with our prior suggestion that Congress may wish to assess the need for comprehensive, uniform, risk-based food safety legislation or to amend FDA’s and USDA’s existing authorities. Federal food safety agencies have partially met the criterion for capacity to address the fragmentation in food safety oversight. USDA and HHS have the capacity to more fully address crosscutting food safety efforts in their individual strategic and performance planning documents; however, OMB action is needed to use those documents as building blocks to develop a government-wide performance plan on food safety. Federal food safety agencies also have the capacity to participate in a centralized collaborative mechanism on food safety—like the FSWG—but congressional action would be required to formalize such a mechanism through statute. Furthermore, appropriate entities within the EOP have the capacity to consult with relevant federal agencies and other stakeholders to develop a national strategy for food safety. Doing so could address our March 2011 recommendation for a government-wide plan and our December 2014 matters for congressional consideration for government-wide planning and leadership. The criterion of having a corrective action plan has not been met. Without a government-wide performance plan for food safety, Congress, program managers, and other decision makers are hampered in their ability to identify agencies and programs addressing similar missions and to set priorities, allocate resources, and restructure federal efforts, as needed, to achieve long-term goals. Moreover, without a centralized collaborative mechanism on food safety—like the FSWG—there is no forum for agencies to reach agreement on a set of broad-based food safety goals and objectives that could be articulated in a government-wide performance plan on food safety. Development and implementation of a national strategy for food safety could also fulfill these government-wide planning and leadership needs. The criterion of having a program to monitor corrective measures has not been met. Without a government-wide performance plan for food safety, federal food safety efforts are not clear and transparent to the public. Currently, to understand what government is doing to ensure the safety of the food supply, Congress, program managers, other decision makers, and the public must access, attempt to make sense of, and reconcile individual documents across the 16 federal agencies responsible for administering the more than 30 federal statutes that govern food safety and quality. This government-wide planning need could also be addressed through a national strategy for food safety. The criterion of demonstrating progress in implementing corrective measures to address fragmentation in federal oversight of food safety has been partially met. As noted, HHS, USDA, and OMB took some positive steps to address fragmentation in the federal food safety oversight system—including in relation to GPRAMA crosscutting requirements and collaborative mechanisms on specific food safety issues—but they did not address our March 2011 recommendation for a government-wide plan and Congress did not act on our December 2014 matters for it to consider for government-wide planning and leadership. Development and implementation of a national strategy for food safety could fulfill these government-wide planning and leadership needs and show sustained progress in addressing fragmentation in the federal food safety oversight system. In response to a recommendation we made in December 2014, HHS took steps to update its strategic and performance planning documents to better address crosscutting food safety efforts. For example, in February 2015, HHS updated its strategic plan to more fully describe how it is working with other agencies to achieve its food safety related goals and objectives. Among other things, HHS described its collaboration with USDA, the Environmental Protection Agency, and others through collaborative mechanisms such as the National Antimicrobial Resistance Monitoring System, the Partnership for Food Protection, and the Food Emergency Response Network. As a result, we closed the recommendation to HHS as implemented. For additional information about this high-risk area, contact Steve D. Morris at (202) 512-3841 or morriss@gao.gov. Food Safety: A National Strategy Is Needed to Address Fragmentation in Federal Oversight. GAO-17-74. Washington, D.C.: January 13, 2017. Food Safety: FDA Coordinating with Stakeholders on New Rules but Challenges Remain and Greater Tribal Consultation Needed. GAO-16-425. Washington, D.C.: May 19, 2016. Federal Food Safety Oversight: Additional Actions Needed to Improve Planning and Collaboration. GAO-15-180. Washington, D.C.: December 18, 2014. Federal Food Safety Oversight: Food Safety Working Group Is a Positive First Step but Governmentwide Planning Is Needed to Address Fragmentation. GAO-11-289. Washington, D.C.: March 18, 2011. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. Millions of medical products—drugs, biologics, and medical devices—are used daily by Americans at home, in the hospital, and in other health care settings. The Food and Drug Administration (FDA) has the vital mission of protecting the public health by overseeing the safety and effectiveness of these products marketed in the United States. The agency’s responsibilities begin long before a product is brought to market and continue after FDA approves a product, regardless of whether it is manufactured in the United States or abroad. The importance of FDA’s role in ensuring our citizens’ well-being cannot be overstated. In recent years, FDA has been confronted with multiple challenges. Rapid changes in science and technology, globalization, unpredictable public health crises, an increasing workload, and the continuing need to monitor the safety of thousands of marketed medical products are among the many challenges with which FDA must routinely contend. The oversight of medical products was added to our High-Risk List in 2009 because these obstacles threatened to compromise FDA’s ability to protect the public health. While progress has been made, we have found that some challenges remain and new ones, such as drug shortages, have emerged. In 2015, we found that FDA had made substantial progress in addressing some of the concerns we raised in this high-risk area. Specifically, we determined that FDA had significantly improved its oversight of medical device recalls and the implementation of the Safe Medical Devices Act of 1990. In recognition of the agency’s significant strides in these two areas, we narrowed the scope of our high-risk designation. FDA met all five criteria—demonstrating strong leadership commitment, ensuring sufficient capacity, developing both specific action plans and effective monitoring tools, and demonstrating progress—for having the high-risk designation removed for both medical device areas. At that time we also found that FDA had action plans in place to help it respond to two remaining issues of high importance: the effect of globalization on FDA’s ability to monitor medical product manufacturing, and the availability of medically necessary drugs. In addition, we reported that the agency’s leadership was committed to and supportive of initiatives in these two remaining areas. However, the agency’s capacity to address these issues was unclear, and the effectiveness of its monitoring and lack of adequate progress was a concern. Therefore, FDA’s oversight of medical products remained as a high-risk area. Since 2015, we have found FDA has made some progress addressing our remaining concerns about globalization and drug availability. For example, FDA has demonstrated progress in responding to globalization by increasing the number of inspections it conducts of foreign manufacturing establishments producing drugs for the U.S. market. It has also improved the accuracy and completeness of information in its catalog of drug manufacturing establishments subject to inspection (which we referred to as an “inventory” in previous reports). The availability of more reliable data should enhance FDA’s oversight and help FDA apply its risk-based model for selecting drug establishments for inspection. FDA also has the opportunity to better monitor drug shortages by fully utilizing a recently implemented tracking system. Although these are positive steps, we continue to have concerns in both areas. The effectiveness of FDA’s foreign offices, which began opening in 2008, has not yet been meaningfully assessed. In addition, persistently high vacancy rates in these offices suggest that they may lack the capacity to robustly monitor the global arena as the agency originally envisioned. As of July 2016, 46 percent of FDA foreign offices positions were vacant. Moreover, we found that some of the challenges FDA faces in recruiting staff to work in these offices are the same as those we reported on in 2010 and 2015. With regard to ensuring drug availability, the way FDA monitors its drug shortage information remains a concern. Although it implemented a new tracking system—the Shortage Tracker—in March 2016, this is the fourth approach to monitoring shortages that the agency has taken in 5 years. According to FDA, it routinely enters data into the system, but the agency has not yet developed standard reports to help it manage its efforts, nor has it made plans to use these data to analyze trends or identify patterns to help it predict future shortages. Similarly, we remain concerned about the reliability and availability of information that is necessary to monitor postmarket drug safety. For example, FDA has not yet fully implemented a recommendation we made in 2013 to ensure its databases collect reliable and timely data on inspections of certain establishments that compound drugs. causes, has been inconsistent. These inconsistencies may undermine FDA’s action plan and its effectiveness. In addition, in December 2015 and May 2016, we identified new concerns regarding the agency’s collection of reliable data regarding postmarket drug safety and shortcomings in its broader strategic planning efforts for drugs and other medical products. As a result, we no longer consider that FDA has met the criteria associated with having an effective action plan, and are therefore changing its rating in this area from met to partially met. In recent years, Congress has taken actions that have facilitated FDA’s ability to address concerns we have identified, and make progress in this important high-risk area. In July 2013, we reported that FDA’s authority to oversee drug compounding was unclear. The Drug Quality and Security Act, enacted in November 2013, helped clarify FDA’s authority to oversee drug compounding nationally. In November 2016, we reported that since the law’s enactment, FDA has issued numerous guidance documents related to compounding and conducted more than 300 inspections of drug compounders. These inspections have resulted in actions such as FDA issuing warning letters, which are issued for violations of regulatory significance, and recalls voluntarily initiated by manufacturers of potentially contaminated drugs. The Food and Drug Administration Safety and Innovation Act (FDASIA), enacted in July 2012, directed FDA to take a risk-based approach to inspecting both foreign and domestic drug manufacturing establishments, consistent with our 2008 recommendation. FDA has now fully implemented this provision. The number of foreign inspections has consistently increased each year since fiscal year 2009. In fiscal year 2015, FDA conducted more foreign than domestic inspections. The agency has also enhanced its risk-based approach to prioritizing drug establishments for inspection. consider the agency to meet the criteria for having an effective action plan. In addition to redoubling its efforts to develop—and sustain—an effective action plan for both globalization and drug availability, FDA needs to demonstrate that it has the capacity to address multiple challenges we have identified, along with effective monitoring strategies. For example, it needs to fully execute its plan to inspect the many foreign drug establishments making drugs for the U.S. market, for which it has no inspectional history, over the next 3 years. Furthermore, FDA should implement our prior recommendations to resolve new and previously identified concerns, including the following: FDA should assess the effectiveness of the foreign offices’ contributions, by systematically tracking information to measure whether the offices’ activities specifically contribute to drug safety- related outcomes, such as inspections, import alerts, and warning letters. FDA should establish goals to achieve the appropriate staffing level for its foreign offices. FDA should routinely use its new Shortage Tracker and conduct periodic analyses to systematically assess drug shortage information to proactively identify risk factors for potential drug shortages. FDA should develop comprehensive plans, including goals and time frames, to correct problems with its postmarket safety data and ensure that these data can be easily used for oversight. FDA should consistently collect reliable and timely information in FDA’s databases on inspections and enforcement actions associated with compounded drugs. FDA has met this criterion. In 2015, we noted FDA showed leadership commitment to this area by creating an office dedicated to confronting the challenges of globalization and helping prepare the agency to move from regulating domestic products to overseeing a worldwide market. The agency’s leadership commitment was made further evident by its strategic priorities for fiscal years 2014 through 2018, which discuss its goal of expanding its regulatory presence and partnerships overseas. producing drugs for the U.S. market than any other country, followed closely by China. While globalization brings benefits, it also carries risks, as some of these countries have regulatory systems less sophisticated than our own. This global marketplace has placed greater pressure on FDA to oversee the safety and effectiveness of all medical products marketed in the United States, regardless of where they are produced. In 2008, we reported that FDA inspected relatively few foreign drug manufacturing establishments each year. We also pointed out that FDA had not used its risk-based process to select foreign establishments for inspection to the extent it had for selecting domestic establishments. Two years later, in 2010, we reported FDA had increased the number of foreign drug inspections it conducted, but that it still conducted relatively fewer foreign drug inspections. However, since 2009, FDA has enhanced its capacity to conduct inspections and has increased the number of foreign establishments it inspects each year. In fiscal year 2015, FDA conducted more foreign than domestic inspections. Establishments in China and India were inspected by FDA more than those in other foreign countries. More recently, we have questioned the effectiveness of FDA’s foreign offices, which are overseen by its Office of International Programs (OIP). FDA began opening these offices in 2008 to obtain better information on products coming from overseas. Among other things, these offices help FDA build partnerships with its regulatory counterparts and industry members overseas, and help certain countries improve their regulatory capacities. Staff in these offices also inspect foreign establishments, gather intelligence, and foster information sharing with FDA headquarters. In December 2016, we reported that, while foreign office staff have inspected drug establishments overseas, they have conducted relatively few such inspections and may not have the capacity to do more. Most inspections of foreign drug establishments have been conducted by FDA’s domestically-based staff. Foreign office staff have conducted 5 percent of these inspections since fiscal year 2010. Further, the persistently high vacancy rates in these offices suggest that they may lack the capacity to robustly assist FDA and monitor the global arena, as the agency originally envisioned. As of July 2016, 46 percent of the offices’ positions were vacant, up slightly from 44 percent in October 2014. Moreover, we found that FDA still faces some of the challenges of recruiting staff to work in these offices that we identified in 2010 and 2015. Although FDA recently finalized a strategic workforce plan, as we recommended in 2010, we have identified several weaknesses in it. For example, the plan does not target vacancies by specific position types. While FDA recognizes its vacancy rate in its foreign offices is high and has set a goal of reducing this rate, the measure it has developed targets all of the staff in OIP, including those who are domestically-based. Thus, FDA could increase the number of domestically-based staff in OIP and fulfill its goal without reducing vacancies in its foreign offices. We remain concerned that, without targeting the foreign offices specifically or the types of positions most likely to have vacancies, FDA will not have a meaningful measure reflecting its true staffing needs overseas. In December 2016, we recommended that FDA establish goals to achieve the appropriate staffing levels for its foreign offices, which would include separating foreign office vacancies from the OIP-wide vacancy rate and setting goals by position type. We believe such actions are needed in order for FDA to demonstrate progress and help ensure that its foreign offices have the capacity to monitor conditions abroad and meaningfully contribute to drug safety. FDA said it is taking immediate steps to address this recommendation. FDA has met this criterion. In 2015, we recognized that FDA had developed an action plan for building a stronger, more secure global product safety net. In addition, we noted that FDA developed plans to partner with foreign regulatory authorities to leverage resources through increased information sharing following the enactment of FDASIA in 2012, which increased FDA’s ability to strengthen its efforts in this area. FDASIA also reinforced our 2008 recommendation that the agency should take a risk-based approach to selecting both foreign and domestic drug manufacturing establishments for inspection, which helped FDA develop plans to prioritize its drug inspections. FDA has partially met this criterion. We have been critical of FDA’s internal monitoring of its drug inspection program since as early as 1998, when we reported that the agency’s own internal evaluations concluded that it did not have a comprehensive data management system to monitor foreign manufacturers. The evaluations concluded that unless corrected, problems in FDA’s foreign inspection program could allow adulterated and low-quality drugs to be imported, posing serious health risks to Americans. Although the agency was aware of this problem, we found that similar problems persisted in 2008 and 2010, which affected the agency’s ability to manage the foreign drug inspection program. FDA has recently taken steps to better monitor its drug inspection program. In December 2016, we reported that FDA formalized its process for developing, evaluating, and documenting key decisions about the risk- based model that it will use to select drug establishments to inspect each year. FDA previously lacked a process for tracking revisions to its model and, as a result, officials were unable to recall or explain all the changes to the model over time. FDA’s documentation will now chronicle decisions made regarding which factors were included in the model in a particular year, according to officials. FDA officials also said that our prior reviews reinforced the need for written procedures. FDA has also taken steps to improve the accuracy and completeness of the information it uses to manage its foreign drug inspection program. The databases that FDA was using to select establishments to inspect did not contain accurate information on the number of establishments manufacturing drugs for the U.S. market, as we reported in 2008. Two years later, in 2010, we also found that 64 percent of the foreign establishments in FDA’s catalog may have never been inspected, almost half of which were in China and India. To help the agency manage its catalog of data, FDA established a data governance board in May 2015 to define standards, best practices, and policies, on which FDA’s oversight depends, including the veracity of its risk-based site selection model. FDA officials said the board has developed guidance for merging data processes and is working toward defining data metrics to determine whether they have improved on their reporting. The board has also defined data standards for storing key attributes of establishments, such as companies’ names, and continues to examine best practices for sharing establishment data across FDA. This action has helped FDA reduce the number of establishments in its catalog that may never have had a surveillance inspection. Currently, FDA lacks information on the inspection history of 33 percent of the foreign establishments in its catalog, compared to the 64 percent for which it lacked inspection history in 2010. While the agency has made progress in reducing this knowledge gap, it is important to note that the overall number of foreign establishments with no surveillance inspection history remains large, with about 1,000 of the approximately 3,000 in its catalog of establishments with no inspection history. To address this persistent concern, the agency plans to inspect all establishments in its catalog with no prior surveillance inspection history over the next 3 years (approximately one-third each year), beginning in fiscal year 2017. In addition, FDA has not sufficiently monitored the contributions of its foreign offices or meaningfully assessed their effectiveness. While these offices engage in collaborative activities with foreign stakeholders, FDA does not systematically track how information collected by the offices has contributed to drug safety. The agency has been considering the best approach to assessing the future needs of its foreign offices and measuring their performance. In 2014 and 2015, FDA’s Office of Planning compiled detailed information about their operations, including their workforce composition. More recently, in July 2016, FDA’s Office of Planning completed an internal evaluation to develop an evidence-based, collaborative, and repeatable process to select foreign post locations, considering the effects of cost, legislation, and program alignment on FDA foreign post operations, and the appropriate mix of FDA staffing at the posts. This evaluation proposed a process for determining the correct mix of staffing and position types for the foreign offices. The results of this evaluation suggest that the foreign offices would benefit from strategically aligning their operational activities and desired public health impacts. However, OIP has yet to implement and apply the process to the foreign offices. In December 2016, we recommended that FDA assess the effectiveness of the foreign offices’ contributions, which would require systematically tracking information to measure whether the offices’ activities specifically contribute to drug safety-related outcomes. FDA said it is taking immediate steps to address this recommendation. FDA has partially met this criterion. Since 2015, FDA has taken a variety of steps to respond to globalization and has made progress in meeting this challenge. For example, FDA has strengthened its monitoring of foreign drug establishments by improving the accuracy and completeness of information used to develop its catalog of drug manufacturing establishments subject to inspection. The availability of more reliable data should enhance FDA’s monitoring and oversight while helping it apply its risk-based model for prioritizing drug establishments for inspection. taken a risk-based approach to inspecting both foreign and domestic drug manufacturing establishments, in accordance with a directive in FDASIA and consistent with our 2008 recommendation. formalized its process for prioritizing the establishments it inspects to determine compliance with good manufacturing requirements, based on certain risk factors specified by FDASIA. decided that, starting in fiscal year 2017, the agency will allow no more than 5 years to elapse between inspections at a specific establishment. Yet, FDA still faces challenges overseeing the global marketplace and must continue to demonstrate progress in conducting more inspections of foreign establishments. There remain a large number of foreign establishments making drugs for the U.S. market—almost 1,000—that may never have been inspected. Over the last decade, prescription drugs—including those that are life- saving and life-sustaining—have been in short supply, preventing health care providers and patients from accessing medications that are essential for treatment. Those in shortage have included essential therapies, such as anesthetic, anti-infective, cardiovascular, nutritive, and oncology drugs. Although the number of new shortages reported each year has generally decreased since 2011, the number of ongoing shortages—those that began in prior years—have remained high. Since 2013, the majority of the ongoing shortages in a given year were first reported at least 2 years earlier. We have issued several reports on this topic since 2011 and made recommendations to enhance the agency’s ability to respond and oversee shortages. FDA has since implemented some of these recommendations. FDA has met this criterion by demonstrating leadership commitment to responding to drug shortages, which we recognized in 2015. Its strategic priorities for fiscal years 2014 through 2018 emphasize its continued commitment to responding to shortages. FDASIA also required FDA to issue a strategic plan to enhance the agency’s ability to prevent and mitigate shortages. FDA issued this strategic plan in October 2013. found that, while shortages persisted, FDA had prevented more potential shortages than it had in the prior 2 years by, for example, working with manufacturers to increase production. More recently, in 2016, we reported that FDA prioritized its review of nearly 400 applications to market generic drugs (or supplements to existing approved new or generic drug applications) to address shortages from January 2010 through July 2014. We analyzed a subset of those submissions and found that some were approved before the shortage was prevented or resolved. Although the timing of FDA’s approvals of submissions could not be directly linked to the resolution of particular shortages, we believe that prioritizing reviews may be a useful strategy in addressing some drug shortages. Despite the agency efforts, shortages persist and we recognize that FDA cannot resolve this concern alone. Nonetheless, there is more FDA could do. For example, given that the median time to approve prioritized generic drug applications is over a year, this approach is generally not a strategy for addressing shortages in the short term. In addition, FDA’s ability to manage risk-based decisions and proactively help prevent and resolve shortages may be hindered because it does not routinely analyze the data it collects. FDA now partially meets this criterion. In 2015, we rated FDA as meeting this criterion. However, we are changing this rating to partially meets due to shortcomings that we identified in recent reports, as discussed below. In order to protect public health, FDA works to ensure the availability of medically necessary drugs and the safety of the drug supply. In our 2015 high-risk report, we credited FDA for having an action plan that focuses on its capacity to respond when alerted to supply disruptions and on developing long-term prevention strategies to address the causes underlying supply disruptions. However, more recently we have identified several concerns with the agency’s readiness and plans to collect, track, and analyze data related to drug shortages and postmarket drug safety. We have also reported on shortcomings in its broader strategic planning efforts related to drugs and other medical products. We no longer consider that FDA has met the criteria associated with having an effective action plan. routinely and systematically assess this information, and use it proactively to identify risk factors for potential drug shortages. FDA’s response to these two recommendations has been mixed and an action plan has not been fully developed to implement these recommendations. In 2011, FDA relied on e-mail status reports to track shortages. Later that year it began using an electronic spreadsheet, which was replaced by a drug shortage database in 2012. A new drug shortage data system followed in 2014. But FDA’s planning did not result in a smooth transition from one system to another. FDA suspended its use of the drug shortage database at the end of 2013 while it was developing the more robust drug shortage data system. The transition to the new data system took longer than anticipated and FDA documented limited information about shortages using manual logs during an extended period in 2014. FDA began using its new data system in late 2014, and information on new and active shortages in 2014 was entered retroactively into this system. However, that system is no longer in use and FDA has now adopted an even newer system—its fourth approach to monitoring shortages in 5 years. The Shortage Tracker was implemented in March 2016. While it appears promising, FDA officials said it has been populated with data going back to January 2015 only, precluding the agency from easily conducting extensive analyses of trends prior to that date. Moreover, the agency has not yet made plans to use these data to analyze trends or identify patterns to help it predict future shortages, nor has it developed standard reports to assist with managing its efforts. Similar to our concerns with FDA’s drug shortage data, the reliability and availability of information that is necessary to monitor postmarket drug safety is limited. FDA lacks an action plan to address these issues. For example, in July 2013 we reported that FDA lacks timely and reliable information to oversee the entities that compound drugs, including timely, reliable information on the findings of inspections of these entities. FDA’s inspection database did not always distinguish compounding pharmacies from manufacturers of human or veterinary drugs. In addition, its database did not consistently reflect the agency’s final determination of an individual inspection’s results. We also found that the agency lacked reliable data to make decisions to prioritize its inspections of such pharmacies and other follow-up and enforcement actions. We recommended that FDA ensure its databases collect reliable and timely data on inspections of certain establishments that compound drugs, but the agency has not yet fully implemented this recommendation, which would improve its monitoring. Similarly, in December 2015, we found that FDA lacks reliable, readily accessible data on tracked safety issues and postmarket studies needed to meet certain postmarket safety reporting responsibilities, and to conduct systematic oversight. Tracked safety issues are potential safety issues that FDA determines are significant and that it tracks using an internal database. However, FDA’s evaluations of its database revealed problems with the completeness, timeliness, and accuracy of the data. For example, data on tracked safety issues were incomplete, postmarket study data were outdated and contained inaccuracies, and tracked safety issue and postmarket study data were not readily accessible to FDA staff for analysis. These problems, as well as problems with the way data are recorded that impair their accessibility, have prevented FDA from publishing statutorily required reports on certain potential safety issues and postmarket studies in a timely manner, and have restricted the agency’s ability to perform systematic oversight of postmarket drug safety. FDA has demonstrated some progress in addressing the problems with its data. However, the agency lacks plans that comprehensively outline its efforts and establish related goals and time frames. We recommended that FDA develop plans to correct problems with its postmarket safety data and ensure that these data can be easily used for oversight. While FDA recognized the challenges with its ability to track safety issues and has begun some efforts to improve its data, the agency has not provided comprehensive plans, with goals and time frames, to help ensure that FDA corrects the identified problems with its database on safety issues and postmarket studies. among the centers. Moreover, the strategic integrated management plan does not fully link its performance goals to its general goals and objectives. We also found in May 2016 that FDA lacks measurable goals to assess its progress in advancing regulatory science—the science supporting its effort to assess the products it regulates. Although the agency issued strategic planning documents in 2011 and 2013 to guide its regulatory science efforts and identify priority areas for conducting work, these documents do not specify the targets and time frames necessary for the agency to measure progress overall or within each of the eight priority areas related to medical products. According to leading practices for strategic planning, identifying and using consistent measurable goals in planning and progress documents is important to assessing effectiveness. While FDA cited examples of its achievements in regulatory science in a 2015 report, it cannot assess how those achievements constitute progress towards its goals. In addition, FDA lacks information about how funding targeted at regulatory science is distributed across the priority areas. Decisions to award these funds are made by individual FDA centers and offices, which generally did not collect information on the associated priority areas of funded projects. Rather, FDA retrospectively identified these areas for the purpose of our review. The lack of consistent information limits FDA’s ability to examine obligations across, or progress within, specific priority areas. Furthermore, multiple centers or offices fund projects toward a given priority area and leading practices for strategic planning encourage agencies to manage efforts that cut across the agency. Given the totality of our concerns, which range from needing action plans to address specific weaknesses we have identified to the agency’s overall strategic planning, we no longer consider that FDA has met the criteria associated with having an effective action plan. This criterion requires that a corrective action plan exist that defines the root cause, identifies solutions, and explains how an agency will substantially complete corrective measures, including steps necessary to implement solutions we recommended. We are therefore changing FDA’s action plan rating in this area, as well as its overall rating, from met to partially met. help it predict future shortages. While the drug shortage staff said that FDA’s Office of Pharmaceutical Quality will be interested in using data to conduct rigorous analyses for predicting shortages and risk factors, the drug shortage staff have not provided reports to any FDA components, raising questions about the agency’s commitment to conducting such analyses and leaving this recommendation unimplemented. We are also concerned that the annual reports FDA has issued to Congress on drug shortages have been limited, with no report providing data for more than a 9-month period. This annual report, which is required by FDASIA, is due no later than the end of the calendar year. FDA staff explained to us that it is not possible to issue a report containing 12 months of calendar year data by December 31, and they therefore report data from the first 9 months. However, FDA has not met the December 31 deadline, with publication dates ranging from February 5 through April 17. Given that the agency has never met its publication deadline, we believe it would be more helpful that policymakers receive a full year’s worth of data—such as data covering the federal fiscal year (October 1 through September 30)—so they could more closely monitor shortage information themselves and obtain a more realistic view of this serious public health problem. FDA has partially met this criterion by taking actions in recent years. FDA has implemented some of our recommendations, including one we made in 2014 regarding the need for the agency to develop policies and procedures for its drug shortages information management system, now known as the Shortage Tracker. These policies and procedures should help ensure information is entered into the Shortage Tracker consistently and accurately. FDA has assessed how it allocates its resources to improve the agency’s capacity to respond to drug shortages and increased the number of personnel devoted to shortages, as we recommended in 2011. In addition, FDA elevated the office of its drug shortage staff to a more prominent position in the agency and assigned drug shortage coordinators in each of its 20 district offices to help bring drug shortage-related concerns to light earlier, such as inspections citing violations of good manufacturing practices at establishments producing a large volume of drugs. And as we recommended in 2011, FDA has issued a strategic plan to enhance the agency’s ability to prevent and mitigate shortages, and also developed results-oriented performance metrics that can help evaluate program performance. including fully addressing the recommendations we made in 2011 and 2014. While FDA developed the new Shortage Tracker in March 2016— its fourth approach to monitoring shortages in the last 5 years—it needs to use this system consistently and share information across FDA offices regarding drugs that are in short supply. FDA also needs to periodically analyze this information to proactively identify risk factors for potential drug shortages early, thereby potentially helping FDA to recognize trends, clarify causes, and resolve problems before drugs go into short supply. FDA is now conducting more inspections of foreign manufacturing establishments producing drugs for the U.S. market, and is taking a risk-based approach by combining foreign and domestic establishments into a single list to prioritize establishments for inspection. FDA has improved the accuracy and completeness of information in its catalog of drug manufacturing establishments subject to inspection. FDA has developed a new drug shortage tracking system. Drug Safety: FDA Has Improved Its Foreign Drug Inspection Program, but Needs to Assess the Effectiveness and Staffing of Its Foreign Offices. GAO-17-143. Washington, D.C.: December 16, 2016. Drug Compounding: FDA Has Taken Steps to Implement Compounding Law, but Some States and Stakeholders Reported Challenges. GAO-17-64. Washington, D.C.: November 17, 2016. Drug Shortages: Certain Factors Are Strongly Associated with This Persistent Public Health Challenge. GAO-16-595. Washington, D.C.: July 7, 2016. Food and Drug Administration: Comprehensive Strategic Planning Needed to Enhance Coordination between Medical Product Centers. GAO-16-500. Washington, D.C.: May 16, 2016. Drug Safety: FDA Expedites Many Applications, But Data for Postapproval Oversight Need Improvement. GAO-16-192. Washington, D.C.: December 15, 2015. Drug Shortages: Better Management of the Quota Process for Controlled Substances Needed; Coordination between DEA and FDA Should Be Improved. GAO-15-202. Washington, D.C.: February 2, 2015. Drug Shortages: Public Health Threat Continues, Despite Efforts to Help Ensure Product Availability. GAO-14-194. Washington, D.C.: February 10, 2014. Drug Compounding: Clear Authority and More Reliable Data Needed to Strengthen FDA Oversight. GAO-13-702. Washington, D.C.: July 31, 2013. Drug Shortages: FDA’s Ability to Respond Should Be Strengthened. GAO-12-116. Washington, D.C.: November 21, 2011. The Environmental Protection Agency’s (EPA) ability to effectively implement its mission of protecting public health and the environment is critically dependent on assessing the risks posed by chemicals in a credible and timely manner. Such assessments are the cornerstone of scientifically sound environmental decisions, policies, and regulations under a variety of statutes, such as the Safe Drinking Water Act, the Toxic Substances Control Act (TSCA), and the Clean Air Act. EPA conducts assessments of chemicals under its Integrated Risk Information System (IRIS) program. EPA is also authorized under TSCA to obtain information on the risks of chemicals and to control those the agency determines pose an unreasonable risk. Because EPA had not developed sufficient chemical assessment information under these programs to limit exposure to many chemicals that may pose substantial health risks, we added this issue to the High-Risk List in 2009 as a government program in need of broad-based transformation. The Frank R. Lautenberg Chemical Safety for the 21st Century Act, enacted on June 22, 2016, provides EPA with greater authority to address chemical risks, but implementing it will take time. to continue to implement the TSCA reform legislation and define how it will implement corrective actions to assess and control toxic chemicals. EPA has now met the criteria for monitoring the IRIS program by finalizing the IRIS Multi-Year Agenda and other actions, including continuing to submit IRIS assessments for independent review to entities with scientific and technical credibility. EPA has not met the criteria for monitoring the TSCA program; to help ensure that the resources dedicated to TSCA are sufficient for effectively implementing the new law, EPA needs to institute a program to monitor and independently validate the effectiveness and sustainability of its initiative to use the new TSCA authorities. For the IRIS program, EPA has now partially met the criteria for demonstrated progress by, among other things, issuing five IRIS assessments since fiscal year 2015—as of January 19, 2017—and making three assessments available for public comment in fiscal year 2016 in preparation for an external peer review meeting associated with that particular assessment. For the TSCA program, EPA has not met the criteria for demonstrated progress. Both the IRIS and TSCA programs need to continue to implement corrective actions to resolve this complex high-risk area. Passing the Frank R. Lautenberg Chemical Safety for the 21st Century Act may facilitate EPA’s effort to improve its processes for assessing and controlling toxic chemicals in the years ahead. The new law provides EPA with greater authority and the ability to take actions that could help EPA implement its mission of protecting human health and the environment. Continued leadership commitment from EPA officials and Congress will be needed to fully implement reforms. Additional work will also be needed to issue a workload analysis to demonstrate capacity, complete a corrective action plan, and demonstrate progress implementing the new legislation. We recommended that EPA periodically assess the level of resources that should be dedicated to the Integrated Risk Information System (IRIS) program to meet user needs and maintain a viable database. therefore is not ensuring that current and accurate information on chemicals that EPA plans to assess through IRIS is available to IRIS users. Using the Federal Register to communicate these plans offers greater transparency to the public about the IRIS process than other forms of communication. We recommended that EPA develop a strategy to address the needs of its Program Offices and regions when IRIS toxicity assessments are not available. Officials from select EPA offices stated that, in the absence of agency-wide guidance, they used a variety of sources, other than IRIS toxicity assessments to meet their needs, including toxicity information from other EPA offices, or other state or federal agencies. IRIS program officials also stated that there is no agency- wide mechanism for EPA to ensure that chemicals without sufficient scientific data during one nomination period will have such information by subsequent nomination periods. We recognize that the development of EPA’s Multi-Year Agenda, issued in December 2015, was a productive effort that EPA told us included an extensive evaluation of user needs. However, the agency does not have a strategy for addressing data gaps or have assurance that its efforts will be sustainable over time. EPA needs to address this priority recommendation by developing: (1) an agency-wide strategy that addresses coordination across EPA offices and with other federal research agencies to help identify and fill data gaps that preclude the agency from conducting IRIS toxicity assessments, and (2) guidance that describes alternative sources of toxicity information and when it would be appropriate to use them when IRIS values are not available, applicable, or current. After many years of congressional committees considering legislation aimed at reforming the Toxic Substances Control Act (TSCA), in June 2016, Congress passed and the President signed the Frank R. Lautenberg Chemical Safety for the 21st Century Act, which gave EPA greater authority to improve its processes for assessing and controlling toxic chemicals. EPA and Congress need to continue to ensure that the resources dedicated to TSCA activities are sufficient to effectively implement the new law. We made three priority recommendations to address challenges EPA has faced obtaining toxicity and exposure data, banning or limiting the use of chemicals, and identifying resource needs. First, we recommended that EPA issue a rule to obtain toxicity and exposure data that chemical companies have submitted to the European Chemicals Agency. Second, we recommended that EPA issue a rule to obtain exposure-related data from processors. Third, we recommended that EPA develop strategies for addressing challenges associated with obtaining these data, banning or limiting the use of chemicals, and identifying resource needs. Because EPA has used its authority to limit or ban only five chemicals since TSCA was originally enacted in 1976, in part, because it believed it didn’t have enough information, we made these recommendations to address these concerns. The Frank R. Lautenberg Chemical Safety for the 21st Century Act, enacted on June 22, 2016, provides EPA with greater authority to address chemical risks, but implementing it will take time. With the implementation of the Frank R. Lautenberg Chemical Safety for the 21st Century Act, we believe EPA can make progress on these open recommendations. The act substantially revises TSCA and requires EPA to carry out numerous rulemaking and other activities within the next 2 years. In early 2016, we started a review of the TSCA program. With the passage of TSCA reform, we decided to suspend our review and give EPA time to implement the new law. In October 2016, as part of our recommendation follow-up process, we reviewed information on the new TSCA provisions. EPA officials told us that with new TSCA authority, the agency is better positioned to take action to require chemical companies to report chemical toxicity and exposure data. The new law authorizes EPA to order companies to develop new information relating to a chemical as necessary for prioritization and risk evaluation. This authority may help EPA to gather new information, as necessary, to evaluate hazard and exposure risks. TSCA reform legislation offers promise for EPA implementation of our recommendations and bringing the agency closer to achieving its goal of ensuring the safety of chemicals. provide a management-level review for consistency and quality control across assessments. Also, the Office of Research and Development’s Deputy Assistant Administrator worked with other EPA Deputy Assistant Administrators in Program Offices, such as the Office of Water and Deputy Regional Administrators, to develop the IRIS Multi-Year Agenda. EPA’s top leadership has also demonstrated support for improving the IRIS program by continuing to implement recommendations from us and EPA’s Science Advisory Board, and suggestions from the National Academies. EPA has partially met the criteria for capacity, after not meeting the criteria in 2015. In May 2013, we reported that EPA had not recently evaluated the demand for IRIS toxicity assessments with input from users inside and outside EPA. In response to our report, EPA started work on an IRIS Multi-Year Agenda in the summer of 2013 and issued it in December 2015. According to EPA, the purpose of the agenda was to: (1) identify IRIS assessments currently underway and their status; (2) prioritize IRIS assessments that will be initiated over the next few years; and (3) evaluate assessment needs and develop an update process for existing IRIS values. Now that EPA has finalized the agenda, the agency is better informed about how many people and resources to dedicate to the IRIS program. We have reviewed internal EPA documents on the need for people and resources, and the IRIS program has started to determine if it has the capacity to address the issues it faces. Because of EPA’s efforts to develop the Multi-Year Agenda, in October 2016, we closed a priority recommendation we made to EPA in 2008 for the program to determine the types of IRIS assessments to conduct on the basis of the needs of EPA’s Program Offices and other users. EPA’s actions are a good starting point for EPA’s continued process for determining the types of IRIS assessments to conduct on the basis of the needs of EPA’s Program Offices and others. part of its process for developing the Multi-Year Agenda it issued in December 2015. EPA also indicated that the agency used six general criteria to inform the selection of chemicals for assessment or reassessment, and it documented this process in an internal working table as part of its process for developing the agenda. By beginning to document how it applies its IRIS selection criteria, the IRIS program can start to determine a corrective action plan that defines root causes and solutions to move the program forward. EPA needs to be as transparent as possible when applying the selection criteria so that IRIS stakeholders can know how EPA is choosing what assessments to start and why. EPA has met the criteria for monitoring the IRIS program—after partially meeting the criteria in 2015—by finalizing the IRIS Multi-Year Agenda and other actions. Specifically, the program identified and evaluated demand for the number of IRIS toxicity assessments and resources required to meet users’ needs—a priority recommendation we made in 2013 and closed recently based on internal documents provided by EPA. Moreover, EPA presented a plan for how the agency will implement the National Academies’ suggestions for improving IRIS assessments in the “roadmap for revision” included in the National Academies’ peer review report on the draft formaldehyde assessment. The National Academies’ most recent report on the IRIS program, issued in May 2014, independently validates some of the corrective measures the program is implementing. EPA also created the Chemical Assessment Advisory Committee in January 2013, and uses it to provide continuing, consistent review of IRIS assessments and comment on implementing the National Academies’ suggestions in specific IRIS assessments—a recommendation we made in December 2011 and closed in the fall of 2016. All of these actions demonstrated EPA’s commitment to monitoring the IRIS program. EPA has partially met the criteria for demonstrating progress in implementing corrective measures by taking actions, such as releasing the IRIS Multi-Year Agenda that publicly identifies the current and future IRIS assessments. As of January 19, 2017, EPA issued two assessments in fiscal year 2017, two assessments in fiscal year 2016, and one assessment in fiscal year 2015. In addition, EPA made three assessments available for public comment in fiscal year 2016 in preparation for an external peer review meeting associated with that particular assessment. the public’s comments prior to peer review. EPA told us that the Stopping Rules also are important to the IRIS process to determine how to include new studies in an assessment without delaying the process or cycling through repeated revisions and re-revisions. Because of these actions, we closed a 2008 priority recommendation that demonstrated progress in implementing corrective measures. The recommendation called for EPA to conduct IRIS assessments on the basis of peer-reviewed scientific studies available at the time of the assessment, and develop criteria for allowing assessments to be suspended to await the completion of scientific studies only under exceptional circumstances. Although EPA officials told us that the agency has not formally invoked the Stopping Rules in response to a request to delay an assessment to incorporate studies, they told us they apply the rules in their everyday work when deciding whether to include new studies at different points in the IRIS development process. EPA said they would characterize the Stopping Rules as public IRIS policies that are in place to avoid delay for the inclusion of new studies or analysis that they believe would not affect the assessment’s conclusions. Over the past two decades, we reported that EPA had found much of TSCA difficult to implement—hampering the agency’s ability to obtain certain chemical data or place limits on chemicals. For example, EPA has found it difficult to obtain adequate information on toxicity—that is, the degree to which the chemical is harmful or deadly—and exposure levels—the frequency and duration of contact with the chemical. Without this information, it is difficult for EPA to determine whether a chemical poses an unreasonable risk to human health or the environment, and then take any action necessary to regulate such chemicals. The Frank R. Lautenberg Chemical Safety for the 21st Century Act, which reformed TSCA, was enacted on June 22, 2016. The new law provides EPA with greater authority and the ability to take actions that could help EPA implement its mission of protecting human health and the environment. including TSCA. In addition, the former Administrator and top leadership have expressed support for implementing TSCA reform. For example, the former Administrator said that, as with any major policy reform, this one includes compromises. But the former Administrator noted that the legislation should help EPA’s mission to protect public health and the environment. As in 2015, EPA has not met the criteria for capacity because the agency has not yet issued a workload analysis which is needed to determine whether EPA’s TSCA program has the capacity—people and resources— to resolve the risk to the program. The TSCA reform legislation requires EPA to report to Congress by December 2016 on its capacity to implement certain aspects of the legislation, including carrying out chemical risk evaluations and issuing rules regulating specific chemicals. In January 2017, EPA issued a report in response to this deadline. The report estimates the costs of carrying out risk evaluations under the TSCA reform legislation and discusses actions underway or planned for increasing EPA’s capacity to carry out these evaluations. The report does not, however, contain estimates of EPA’s capacity for carrying out risk evaluations or promulgating associated rules. We have previously reported that EPA has found many provisions of TSCA cumbersome and time consuming to implement. It is currently unclear if EPA has the people and resources to implement the new law. We will continue to monitor the program to determine if progress is made and the criteria for capacity are met. EPA continues to partially meet the criteria for having an action plan. As we reported in 2015, EPA has increased its efforts to obtain chemical toxicity and exposure data, initiate chemical risk assessments, and review certain new uses of chemicals, but it is too early to tell whether these actions will reduce chemical risks. With new TSCA authority, EPA officials stated that the agency is better positioned to take action to require chemical companies to report chemical toxicity and exposure data. Officials also stated that the new law gives the agency additional authorities, including the authority to require companies to develop new information relating to a chemical as necessary for prioritization and risk evaluation. Using both new and previously existing TSCA authorities should enhance the agency’s ability to gather new information as necessary to evaluate hazard and exposure risks. ensuring the safety of chemicals. We will continue to monitor the TSCA program as the agency implements this important legislation. As in 2015, EPA has not met the criteria for demonstrating progress, although it has recently begun implementing corrective measures to resolve this high-risk area. For example, the first TSCA reform reporting deadline directed EPA to publish in the Federal Register a list of mercury compounds that will be prohibited from export, not later than 90 days after the date of enactment. That reporting deadline was September 20, 2016; on August 26, 2016, EPA published a list of the mercury compounds that will be prohibited from export effective January 1, 2020. TSCA reform actions required by December 19, 2016, included the following topics and actions: (1) Risk Evaluations: EPA must ensure that risk evaluations are being conducted on 10 chemical substances drawn from the 2014 TSCA Work Plan; (2) Small Business: EPA must review, and potentially revise, its definitions of small businesses for reporting purposes after consulting with the Small Business Administration; and (3) Congressional Report: EPA must submit a report to Congress regarding the agency’s capacity to carry out risk evaluations and associated actions. According to EPA, the promulgation of these rules will better position the agency to increase the rate at which chemicals are evaluated for human and environmental health and safety. As of December 19, 2016, EPA had taken steps to respond to the December deadlines for risk evaluations and small business. Specifically, EPA has announced the first 10 chemicals it will evaluate for potential risks to human health and the environment and published a Federal Register notice on Standards for Small Manufacturers and Processors. In January 2017, EPA took action in response to December deadline 3 by issuing a report: Initial Report to Congress on the EPA’s Capacity to Implement Certain Provisions of the Frank R. Lautenberg Chemical Safety for the 21st Century Act. We will continue to monitor EPA as it implements this important piece of chemical legislation and determine if it is satisfying all the criteria for removal from the High-Risk List. recommendation we made in 2013 and closed recently based on EPA’s actions. Our work has also supported deliberations by Congress about TSCA and about strengthening EPA’s ability to regulate chemicals. For example, as far back as 1994, we reported that Congress should consider setting specific deadlines for reviewing existing chemicals, which the new TSCA legislation would address because it requires EPA to establish a chemical prioritization process, and to initiate risk evaluations of high priority chemicals, among other issues. Our work since then has addressed a variety of chemical management policy matters for Congress. For example, in 2009, we testified that EPA does not routinely assess the risks of chemicals in commerce, and in 2013, we testified about possible statutory changes to TSCA to give EPA additional authorities to obtain information, and shift more of the burden to chemical companies for demonstrating the safety of their chemicals. Finally, in 2016, Congress passed the Frank R. Lautenberg Chemical Safety for the 21st Century Act, which we found addresses key challenge areas we’ve identified previously. For additional information about this high-risk area, contact Alfredo Gómez at (202) 512-3841 or gomezj@gao.gov. Chemicals Management: Observations on Human Health Risk Assessment and Management by Selected Foreign Programs. GAO-16-111R. Washington, D.C.: October 9, 2015. Chemical Assessments: Agencies Coordinate Activities, but Additional Action Could Enhance Efforts. GAO-14-763. Washington, D.C.: September 29, 2014. Chemical Regulation: Observations on the Toxic Substances Control Act and EPA Implementation. GAO-13-696T. Washington, D.C.: June 13, 2013. Chemical Assessments: An Agencywide Strategy May Help EPA Address Unmet Needs for Integrated Risk Information System Assessments. GAO-13-369. Washington, D.C.: May 10, 2013. Toxic Substances: EPA Has Increased Efforts to Assess and Control Chemicals but Could Strengthen Its Approach. GAO-13-249. Washington, D.C.: March 22, 2013. Chemical Assessments: Challenges Remain with EPA’s Integrated Risk Information System Program. GAO-12-42. Washington, D.C.: December 9, 2011. Chemical Assessments: Low Productivity and New Interagency Review Process Limit the Usefulness and Credibility of EPA’s Integrated Risk Information System. GAO-08-440. Washington D.C: March 7, 2008. The two federal agencies responsible for managing weather satellites, the Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) and the Department of Defense (DOD), are in different stages in their efforts to ensure continued weather satellite coverage in their respective satellite orbits. In recognition of NOAA’s significant progress, we have narrowed the scope of this high-risk area to remove the segment on NOAA’s geostationary weather satellites. At the same time, we are expanding this high-risk area to include a segment on DOD’s polar-orbiting weather satellites because the agency has been slow to replace aging satellites and, as a result, is at risk of a gap in weather satellite data in the early morning orbit. We did not include a segment on DOD weather satellites in our prior high-risk update because the department was not, at that time, facing an imminent satellite data gap. The United States relies on two complementary types of satellite systems for weather observations and forecasts: (1) polar-orbiting satellites that provide a global perspective every morning and afternoon, and (2) geostationary satellites that maintain a fixed view of the United States. Both types of systems are critical to weather forecasters, climatologists, and the military, who map and monitor changes in weather, climate, the oceans, and the environment. Federal agencies are currently planning or executing major satellite acquisition programs to replace existing polar and geostationary satellite systems that are nearing the end of, or beyond, their expected life spans. Specifically, NOAA is responsible for the polar satellite program that crosses the equator in the afternoon and for the geostationary satellite program, while DOD is responsible for the polar satellite program that crosses the equator in the early morning orbit. However, these programs have troubled legacies of cost increases, missed milestones, technical problems, and management challenges that have reduced functionality and delayed launch dates. As a result, the continuity of weather satellite data is at risk. NOAA officials acknowledge that there is a risk of a gap in polar satellite data in the afternoon orbit, between the time that the current polar satellite is expected to reach the end of its life and the time when the next satellite is expected to be in orbit and operational. This gap could span up to a year or more, depending on how long the current satellite lasts and whether there are any delays in launching or operating the new one. In addition, there is a risk of a gap in polar satellite data in the early morning orbit because DOD has not yet replaced satellites that are nearing the end of their life spans. While NOAA does not anticipate gaps in geostationary satellite observations, such a gap could occur if the satellites currently in orbit do not last as long as anticipated or if the major satellite acquisition currently underway encounters schedule delays. According to NOAA program officials, a satellite data gap would result in less accurate and timely weather forecasts and warnings of extreme events—such as hurricanes, storm surges, and floods. Such degraded forecasts and warnings would endanger lives, property, and our nation’s critical infrastructures. Similarly, according to DOD officials, a gap in space-based weather monitoring capabilities could affect the planning, execution, and sustainment of U.S. military operations around the world. Given the criticality of satellite data to weather forecasts, the likelihood of significant gaps, and the potential impact of such gaps on the health and safety of the U.S. population and economy, we concluded that the potential gap in weather satellite data is a high-risk area and added it to the High-Risk List in 2013. It remained on the High-Risk List in 2015. the Geostationary Operational Environmental Satellite-R (GOES-R) series. Moreover, the agency successfully launched this satellite in November 2016 and is now better able to ensure continuous satellite coverage. In contrast, we are expanding the high-risk area to include a segment on DOD’s polar-orbiting satellite program, which provides weather observations in the early morning orbit. The department has been slow to establish plans for its follow-on satellite program and has made little progress in determining how it will meet selected weather satellite requirements in the early morning orbit. Moreover, DOD is currently relying on an older satellite that is well past its expected life span. As a result, there is a real risk of a weather satellite data gap in the early morning orbit. Such a gap could negatively affect military operations that depend on weather data. The two federal agencies responsible for managing weather satellites, NOAA and DOD, are in different stages in their efforts to ensure continued weather satellite coverage in their respective satellite orbits. NOAA’s efforts to strengthen mitigation planning for its polar-orbiting satellites in the afternoon orbit have resulted in it meeting three of the five criteria for removal from the high-risk area: leadership commitment, capacity, and monitoring progress. Specifically, NOAA has demonstrated leadership commitment in mitigating data gaps on its polar-orbiting weather satellites by establishing gap mitigation action plans, improving its computing capacity, and monitoring progress in implementing multiple mitigation activities. However, the agency has not yet addressed key shortfalls in its gap mitigation plans and several mitigation projects are not yet complete. Moreover, the agency recently decided to delay the launch date of the next polar-orbiting satellite due to problems in development. These issues increase the likelihood of a data gap in the afternoon orbit. The agency’s efforts to further improve its gap mitigation plans, complete gap mitigation projects, and successfully launch the next polar satellite will help ensure that it is in a good position to mitigate the possibility of gaps in satellite data. Aeronautics and Space Administration (NASA) successfully launched the latest geostationary weather satellite in November 2016, a step which improved the agency’s ability to ensure robust satellite coverage. In recognition of the agency’s significant progress, we have narrowed the scope of this high-risk area to remove the segment on NOAA’s geostationary satellites. On the other hand, DOD has been slow to establish a new satellite program, selected high-priority capabilities are not addressed by the department’s planned program, and problems with existing satellites have increased the risk of a gap in satellite data in the early morning orbit. In October 2016, over 6 years after the department was directed to establish a program to launch new satellites in the early morning orbit, DOD established a plan for its Weather Satellite Follow-on—Microwave program. The department plans to launch the first operational satellite under this program in 2022. However, this program does not address two high-priority capabilities—cloud characterization and area-specific weather imagery—and the department has not yet determined how it will provide those capabilities. Further, DOD’s primary satellite in the early morning orbit failed in February 2016, and the department is now using an older satellite that is well past its expected life span. Until the department launches its next satellite and establishes a plan to provide the two high-priority capabilities, it faces a significant risk of a gap in satellite data should the existing operational satellite fail. As a result of DOD’s limited progress in developing and implementing a plan to fulfill its weather satellite requirements, we are expanding this high-risk area to include a segment on DOD’s progress in addressing the need for satellite coverage in the early morning orbit. Over the last 4 years, congressional committees have held multiple hearings to address this high-risk area. Examples include: Subcommittees of the House Science, Space, and Technology Committee have held multiple hearings to provide oversight of major satellite acquisitions and the risk of gaps in satellite coverage (September 2013, February 2015, December 2015, July 2016) and on private sector weather forecasting (May 2015, June 2016). In March 2016, the Subcommittee on Commerce, Justice, Science, and Related Agencies of the Senate Appropriations Committee held a hearing on the President’s fiscal year 2017 budget proposal that included a discussion of current and future satellite programs. In July 2016, the House Science, Space, and Technology Committee’s Subcommittee on Environment held a hearing to provide oversight of DOD’s efforts to plan a new satellite acquisition and address the potential for gaps in satellite coverage. Also over the last 4 years, Congress has worked on legislation to address this high-risk area. Examples include: The Weather Research and Forecasting Innovation Act of 2015 was introduced as a bill in the House of Representatives to advance programs and activities related to improving weather warnings and forecasts—including analysis of potential observing system gaps— and clarifying NOAA’s ability to access commercial weather data and products. Congress appropriated funds for satellite data gap mitigation activities through the Disaster Relief Appropriations Act, 2013. address residual shortfalls in its mitigation plan, including providing key information about the cost and effects of the mitigation options, and establishing when the testing of selected options would be completed (this is a recommendation that we identified as a priority recommendation to the Secretary of Commerce); and demonstrate progress by completing the remaining gap mitigation projects identified in the polar satellite gap mitigation plan, including addressing the technical challenges that delayed the scheduled launch date for the next satellite, deciding when the next satellite will be launched, and acting to ensure a timely and successful launch. DOD has made limited progress in its efforts to replace aging satellites and is now at risk of a gap in weather satellite data in the early morning orbit. As a result, we are expanding this high-risk area to include DOD’s polar-orbiting weather satellites. The department needs to demonstrate progress on its next generation of weather satellites, called the Weather System Follow-on—Microwave (WSF-M) program, to address the risk of a gap in the early morning orbit; and establish and implement plans to mitigate the risk of a gap in the high- priority capabilities that are not included in WSF-M . NOAA has met the criterion of demonstrating a strong leadership commitment to mitigating potential gaps in polar-orbiting satellite data. In April 2015, NOAA issued an updated polar satellite gap mitigation plan which identifies the specific technical, programmatic, and management steps the agency is taking to ensure that satellite mitigation options are viable. Moreover, NOAA continues to oversee the implementation of 35 gap mitigation projects, including efforts to assimilate data from new sources into weather models and to explore how manned and unmanned aircraft observations could increase the accuracy of numerical weather predictions for high-impact weather events. In addition, NOAA executives oversee the acquisition of the next generation of polar-orbiting satellites through monthly briefings on the cost, schedule, and technical risks affecting the satellites’ development and planned launch dates. performance computing capacity resulted in reduced scope or delayed work on other critical mitigation projects, and recommended that NOAA investigate ways to prioritize the gap mitigation projects with the greatest potential benefit to weather forecasting. NOAA agreed with this recommendation, implemented it, and has since completed efforts to improve its high-performance computing capacity. Specifically, in May and December 2015, the agency completed upgrading its high- performance computers that support research and operations. These upgrades allowed the agency to move forward on multiple other mitigation activities, including experimenting with other data sources and assimilating these data into its weather models. NOAA has partially met the criterion for having a plan to address the risk of a polar satellite data gap. In April 2015, NOAA issued an updated satellite mitigation plan, which includes several improvements over its prior plan. For example, in response to a recommendation we made in December 2014 to address shortfalls in the mitigation plan, NOAA’s latest plan includes an expanded list of mitigation projects and identifies opportunities for accelerating the availability of satellite products after the next satellite is launched. However, the agency has not yet addressed residual shortfalls in its mitigation plan, including providing key information about the cost and impact of the mitigation options, and establishing when the testing of selected options would be completed. Until NOAA fully addresses the shortfalls in its gap mitigation plan, it may not be sufficiently prepared to mitigate potential gaps in polar satellite coverage. NOAA has met the criterion for monitoring progress on its gap mitigation activities, which is an increase over its prior rating. In December 2014, we reported that NOAA’s oversight of its many gap mitigation projects was not consistent or comprehensive. For example, only one of three NOAA organizations had briefed management on a monthly basis on the status of its mitigation projects and the agency had not yet reported progress on nine mitigation activities outlined in its plan. We recommended that NOAA ensure that the relevant entities provide regular progress updates on all mitigation projects and activities. NOAA agreed and implemented this recommendation. All three responsible NOAA organizations are now regularly briefing management on all active gap mitigation projects. categories: (1) understanding the likelihood and impact of a gap, (2) reducing the likelihood of a gap, and (3) reducing the impact of a gap. As of May 2016, 16 projects had been completed; 18 were ongoing; and 1 was planned for the future. However, one of the most important steps in reducing the likelihood of a gap—keeping the launch of the next polar satellite on schedule—has had problems. While NOAA targeted a March 2017 launch date for the next polar-orbiting satellite, agency officials recently decided to delay the launch by 4 to 6 months due to problems in developing the ground system and a critical instrument on the spacecraft. This launch delay exacerbates the probability of a gap in satellite data since the current operational satellite is now past its expected 5-year life span and one key instrument on that satellite has been experiencing technical issues. NOAA acknowledged that if this instrument fails before the next satellite is launched and operational, it would result in degraded weather forecasts, exposing the nation to a 15 percent chance of missing an extreme weather event forecast. While NOAA has made progress on its many mitigation projects, the agency acknowledges that no steps will completely mitigate a sudden failure of the primary operational polar- orbiting satellite. Until NOAA demonstrates that it is making swift and effective progress in mitigating potential near-term gaps in polar satellite data, there will be a growing risk that degraded forecasts and warnings will negatively impact the U.S. population and economy. NOAA has met the criterion of demonstrating strong leadership commitment to mitigating potential gaps in geostationary satellite data by revising and improving its geostationary satellite contingency plans, updating an assessment of the viability of the program schedule leading up to the launch date, and taking steps to ensure that the GOES-R satellite was successfully launched in November 2016. NOAA has met the criterion for ensuring it has the capacity to address the risk of a gap in backup coverage, which is an increase over its prior rating. Over the past several years, the agency has demonstrated its ability to mitigate operational satellite outages by monitoring the health of the satellites and by moving a backup satellite into operation when needed. Moreover, we rated capacity as partially met in our 2015 report due to concerns about NOAA’s ability to complete critical testing activities because it was already conducting testing on a round-the-clock, accelerated schedule. Since then, NOAA adjusted its launch schedule from March 2016 to November 2016 to allow time to complete critical integration and testing activities. rating. In December 2014, we reported on shortfalls in the satellite program’s gap mitigation/contingency plans and made recommendations to NOAA to address these shortfalls. For example, we noted that the plan did not sufficiently address strategies for preventing a launch delay, timelines and triggers to prevent a launch delay, and whether any of its mitigation strategies would meet minimum performance levels. NOAA agreed with these recommendations and released a new version of its geostationary satellite contingency plan in February 2015. The new plan includes information on steps planned or underway to mitigate potential launch delays, the potential impact of failure scenarios in the plan, and the minimum performance levels expected under such scenarios. NOAA has met the criterion for monitoring progress in addressing its risks. Officials responsible for satellite operations actively monitor the health of the satellite constellation and are prepared to implement contingency operations if they are warranted. In addition, GOES-R program officials actively monitored and analyzed the program schedule in order to minimize changes to the launch date. Program officials also regularly report to senior managers on progress and risks. NOAA has met the criterion for demonstrating progress in mitigating risks, which is an increase over its prior rating. In September 2013, we reported that the agency had weaknesses in its schedule management practices on its core ground system and spacecraft, and we made recommendations to address those weaknesses. The weaknesses pertained to the sequencing of all activities, ensuring there were adequate resources for the activities, and conducting a schedule risk analysis. NOAA agreed with the recommendations and the GOES-R program made improvements to its schedule management practices. In early 2016, the program improved the links between remaining activities on the spacecraft schedule, included needed schedule logic for a greater number of activities on the ground schedule, and included indications in the ground schedule that the results of a schedule risk analysis were used in calculating the duration of its activities. In addition, the GOES-R program made significant progress in developing and testing the GOES-R satellite and successfully launched it in November 2016. The agency now has a robust constellation of operational satellites and backup satellites in orbit. As a result, the agency has made significant progress in addressing the risk of a gap in geostationary satellite data coverage. In 2010, when the Executive Office of the President decided to disband a tri-agency polar weather satellite program, DOD was given responsibility for providing polar-orbiting weather satellite capabilities in the early morning orbit. However, the department was slow to develop plans to replace its existing satellites that provide this coverage. The department conducted a requirements review and analysis of alternatives from February 2012 through September 2014 to determine the best way forward for providing needed polar-orbiting satellite environmental capabilities in the early morning orbit. In October 2016, DOD approved plans for the WSF-M program. Through this program, the department plans to launch a demonstration satellite in 2017 and to launch its first operational satellite in 2022. However, DOD’s plans for the early morning orbit are not comprehensive. The department did not thoroughly assess options for providing its two highest-priority capabilities (cloud characterization and area-specific weather imagery) due to an incorrect assumption about the capabilities that would be provided by international partners. WSF-M does not include these two highest-priority capabilities and the department has not yet determined its long-term plans for providing them. Due to DOD’s delay in establishing plans for its next generation of weather satellites, there is now a significant risk of a satellite data gap in the early morning orbit. The last satellite that the department launched, called Defense Meteorological Satellite Program (DMSP)-19, stopped providing recorded data used in weather models in February 2016. A prior satellite, called DMSP-17, is now the primary satellite operating in the early morning orbit. However, this satellite was launched in 2006 and is operating with limitations due to the age of its instruments. DOD had developed another satellite, called DMSP-20, but plans to launch that satellite were canceled after the department did not certify that it would launch the satellite by the end of calendar year 2016. As a result, the department will need to continue to rely on the older DMSP-17 satellite until (1) its new satellite becomes operational in 2022, and (2) it determines how it will address the high priority capabilities that the new satellite will not provide. Given the age of the DMSP-17 satellite and uncertainty on how much longer it will last, the department could face a gap in critical satellite data that lasts for years. options for acquiring and fielding new equipment, such as satellites and satellite components, to provide the capabilities. In addition, the department anticipates that the demonstration satellite to be developed as a precursor to WSF-M could help mitigate a potential gap by providing some data. However, these proposed solutions may not be available in time or be comprehensive enough to avoid near-term coverage gaps. Such gaps could negatively affect operations that depend on weather data, such as long-range strike capabilities and aerial refueling. Over the next 2 years, we will assess DOD’s progress in addressing polar-orbiting weather satellites against the high-risk criteria and will report this information as appropriate. Examples of benefits achieved over the last 4 fiscal years by implementing our recommendations include the following actions by NOAA: Improving its gap mitigation/contingency plans for its polar-orbiting weather satellites. Prioritizing its gap mitigation efforts supporting its polar-orbiting weather satellites. Improving its oversight of its gap mitigation projects for its polar- orbiting weather satellites. Improving its schedule management practices on its geostationary satellite program. Improving its outreach to key external users of geostationary satellite data. Addressing shortfalls in its geostationary gap mitigation plans. its plan in April 2015 and addressed several of the identified shortfalls. However, we also reported that the plan does not include all elements needed to fully implement our recommendation, such as a schedule with meaningful timelines and linkages among mitigation activities. NOAA plans to update its polar satellite contingency plan to address these residual shortfalls in early 2017. For additional information about this high-risk area, contact David Powner at (202) 512-9286, or pownerd@gao.gov. Environmental Satellites: NOAA Needs to Ensure Its Timelines Are Accurate, Clear, and Fully Documented.GAO-16-767. Washington, D.C.: September 8, 2016. Polar Satellites: NOAA Faces Challenges and Uncertainties that Could Affect the Availability of Critical Weather Data. GAO-16-773T. Washington, D.C.: July 7, 2016. Defense Weather Satellites: DOD Faces Acquisition Challenges for Addressing Capability Needs. GAO-16-769T. Washington, D.C.: July 7, 2016. Polar Weather Satellites: NOAA Is Working to Ensure Continuity but Needs to Quickly Address Information Security Weaknesses and Future Program Uncertainties. GAO-16-359. Washington, D.C.: May 17, 2016. Defense Weather Satellites: Analysis of Alternatives Is Useful for Certain Capabilities, but Ineffective Coordination Limited Assessment of Two Critical Capabilities. GAO-16-252R. Washington, D.C.: March 10, 2016. Environmental Satellites: Launch Delayed; NOAA Faces Key Decisions on Timing of Future Satellites. GAO-16-143T. Washington, D.C.: December 10, 2015. Environmental Satellites: Improvements Needed in NOAA’s Mitigation Strategies as It Prepares for Potential Satellite Coverage Gaps. GAO-15-386T. Washington, D.C.: February 12, 2015. Polar Weather Satellites: NOAA Needs To Prepare for Near-term Data Gaps . GAO-15-47. Washington, D.C.: December 16, 2014. Geostationary Weather Satellites: Launch Date Nears, but Remaining Schedule Risks Need to be Addressed. GAO-15-60. Washington, D.C.: December 16, 2014. Since our high-risk report in February 2015, the Department of Energy (DOE) continued to meet the leadership commitment criterion and to partially meet the criterion for having a corrective action plan. DOE has improved its monitoring of the effectiveness of corrective measures and now partially meets this criterion. DOE did not meet the criterion for having the capacity to resolve contract and project management problems, nor did DOE meet the criterion for demonstrating progress toward implementing measures to resolve high-risk areas. DOE oversees a broad range of programs related to nuclear security, science, energy, and nuclear waste cleanup, among other areas. To support these missions, DOE has several offices, each of which oversees numerous programs that often design and construct large capital asset projects to meet the department’s mission needs. DOE relies primarily on contractors to carry out its programs. It is the largest civilian contracting agency in the federal government, and spends approximately 90 percent of its fiscal year 2017 funding of more than $32 billion on contracts and large capital asset projects. We designated DOE’s contract management—which has included both contract administration and project management—a high-risk area in 1990 because DOE’s record of inadequate management and oversight of contractors has left the department vulnerable to fraud, waste, abuse, and mismanagement. In January 2009, to recognize progress made at DOE’s Office of Science, we narrowed the focus of DOE’s high-risk designation to 2 DOE program elements—the Office of Environmental Management (EM) and the National Nuclear Security Administration (NNSA). Together, these 2 elements accounted for almost 60 percent of DOE’s annual budget. In February 2013, we further narrowed the focus of the high-risk designation to NNSA and EM’s major contracts and projects—those with an estimated cost of $750 million or greater—to acknowledge progress made in managing nonmajor projects, those with an estimated cost below $750 million. We continue to monitor DOE’s management of nonmajor projects to ensure that progress in this area is sustained. implemented corrective actions that aim to identify and address root causes of persistent project management challenges and implement solutions. Since our 2015 assessment, we also observed progress in DOE’s monitoring of the effectiveness and sustainability of corrective measures. As in previous years, however, EM and NNSA struggled to ensure they have the capacity (both people and resources) to mitigate risks. They have also demonstrated limited progress in contract management, particularly in the area of financial management, and have struggled to stay within cost and schedule estimates for some major projects. DOE has made progress in its contract and project management. DOE continued to meet the criterion for demonstrating a strong commitment and top leadership support for improving project management. The Secretary of Energy issued two memorandums, in December 2014 and June 2015, that lay out a series of changes to policies and procedures to improve project management. These changes were included in DOE’s revised project management order, DOE Order 413.3B, issued in May 2016. As noted in the memorandums, some of these changes are in response to recommendations we made in prior years, such as requiring that projects develop cost estimates and analyses of alternatives according to our best practices. According to DOE officials, the two memorandums serve as DOE’s corrective action plan, but we note that this plan does not appear to be comprehensive and, as such, DOE continues to partially meet this criterion. Specifically, DOE’s corrective action plan does not address 1) acquisition planning for its major contracts—a phase during which critical contract decisions are made that have significant implications for the cost and overall success of an acquisition; 2) the quality of enterprise-wide cost information available to DOE managers and key stakeholders; 3) DOE’s need for a program management policy; and 4) how DOE’s new requirements will be applied to the department’s major legacy projects, which receive billions of dollars in annual funding and often present the most intractable project management challenges. executes its major projects and programs, but additional time is needed for us to assess how effectively these recent monitoring improvements will validate the sustainability of corrective measures. We have not yet evaluated the operations of the newly created Project Management Risk Committee (PMRC). In addition, DOE’s new oversight and monitoring efforts are not comprehensive, as certain activities within EM are not subject to review by the PMRC, even though together they cost billions of dollars and last for numerous years. Finally, the effectiveness of DOE’s monitoring of its contracts, projects, and programs depends upon the availability of reliable enterprise-wide cost information on which to base oversight activities. DOE did not meet the criterion for having the capacity to mitigate risks with project and contract management. Since 2015, DOE has taken steps to improve capacity, such as increasing its number of contract specialists, but even with these recent steps, capacity challenges remain. The Secretary’s December 2014 and June 2015 memorandums were generally silent on capacity issues. In several recently issued reports, we found capacity shortfalls in key contract management functions, including cost and schedule performance evaluation, as well as in oversight of major projects and programs. For example, in May 2015, we found that NNSA had not determined whether it has sufficient, qualified personnel to ensure it used information from contractor assurance systems (CAS) consistently, which include information on contractors’ cost and schedule performance. In 2016, DOE issued a new Supplemental Directive on NNSA Site Governance requiring NNSA to develop training for NNSA organizations to help them implement the governance model that relied on information from CAS for oversight, but it is unclear whether this training has been developed and initiated. In November 2016, we found that DOE and NNSA had not established training programs, such as a career development program, for program managers. On December 14, 2016, the President signed the Program Management Improvement Accountability Act. The act, among other things, requires that each agency head appoint a Program Management Improvement Officer, who must develop a strategy for enhancing the role of program managers within the agency that includes enhanced training and educational opportunities for program managers. Finally, in July 2016, we found problems with DOE’s effort to evaluate the environment for raising concerns without fear of reprisal. are in the early stages, and more time is needed to assess the effectiveness of corrective measures and associated progress, especially with respect to ongoing major projects. DOE has taken significant actions regarding two of its six ongoing major projects but continues to encounter significant project management challenges, cost increases, and schedule delays on others. In addition, even though we removed nonmajor projects from our High-Risk List, we continue to monitor how DOE manages these projects to ensure that DOE sustains progress in this area. Finally, DOE’s recent reforms do not address contract management, and our work since the last high-risk report has identified several significant challenges with DOE contract management on which DOE has taken little action. Specifically, in May 2015, we found that NNSA had not established policies or guidance specific to using information from CAS to evaluate management and operations (M&O) contractor performance. Congress has taken several actions related to this high-risk area. For example, the fiscal year 2016 National Defense Authorization Act (NDAA) was enacted with several provisions on the basis of our recommendations, including modifications to requirements for cost-benefit analyses for competing management and operating contracts and additional requirements related to the oversight of the Hanford Waste Treatment and Immobilization Plant (WTP). In addition, the Senate Armed Services Committee report accompanying the fiscal year 2017 NDAA included requirements for DOE relevant to many issues highlighted in our high-risk report, including specific provisions for the Mixed Oxide (MOX) Fuel Fabrication Facility, the Chemistry and Metallurgy Research Replacement (CMRR) project, and the WTP. The Senate Armed Services Committee also held hearings in 2015 and 2016 on challenges identified in this high-risk area. We testified on our observations on DOE’s management challenges and the steps taken to address them. The House Energy and Commerce Committee also held a hearing in 2015 in which we testified on the actions needed to improve DOE and NNSA oversight of management and operating contracts. Capacity: DOE will need to commit sufficient people and resources to resolve its project, program, and contract management problems. DOE must develop a strategy to address these needs. We note that the initiatives DOE established in 2015, some of which we described in our last high-risk report, are not yet complete. NNSA’s issuance of a new Supplemental Directive on NNSA Site Governance is a good first step toward addressing the recommendations we made with regard to the agency’s capacity to conduct oversight activities using information from CAS. Specifically, the Supplemental Directive includes requirements for NNSA’s Office of Safety, Infrastructure and Operations to develop training for NNSA organizations to assist their implementation of the site governance model and to annually review and update the training as needed to ensure continuous improvement. However, NNSA has not yet established comprehensive guidance, beyond the general framework described in the new Supplemental Directive, to consistently implement the described governance model across the nuclear security enterprise, and this is needed to ensure that the training developed is aligned with the specifics of that governance model. In addition, significant additional action is required by both EM and NNSA to fully address our recommendations. DOE must implement program management policies and develop a strategy for enhancing the role of program managers, including for training, as required by the Program Management Improvement Accountability Act, and address our and others’ recommendations on whistleblower protection to ensure a safety- conscious work environment where staff are encouraged to use their expertise, identify risks, and proactively mitigate them without fear of workplace retaliation. Action Plan: DOE will need to ensure that its corrective action plan is comprehensive and addresses all root causes—including all front-end planning challenges and contract and program management, as well as capacity issues. To be considered a corrective action plan, DOE’s plan must also set milestones and timelines, assign responsibilities for implementing and completing corrective measures, and identify mechanisms to monitor progress and provide measurable outcomes. DOE must also ensure the corrective action plan includes steps necessary to implement solutions we and others have recommended. address acquisition planning for its major contracts, the quality of enterprise-wide cost information, and how DOE’s new requirements will be applied to major legacy projects. Finally, we will monitor how DOE applies—enterprise-wide—the standards, policies and guidelines for program management that are to be established at federal agencies in response to the Program Management Improvement Accountability Act. Monitoring: DOE will need to continue to monitor and independently validate the effectiveness and sustainability of its corrective measures, particularly for major projects. Meeting the monitoring criterion will require a comprehensive corrective action plan—as described above—against which progress can be monitored. DOE has created the PMRC to track progress of projects across the agency, but it is too early to assess its effectiveness, especially on major projects. As a next step, DOE should create a framework in which the PMRC and programs use existing and other tools as needed to track progress against a comprehensive corrective action plan and regularly update the plan with progress and any newly identified root causes based on the PMRC’s validation of completion. DOE should also ensure it has the reliable, enterprise-wide cost information that is needed to effectively monitor projects and programs. DOE will also need to ensure that EM’s operations activities that are currently outside of project management requirements are included in this framework and are subject to comparable monitoring and oversight by the PMRC or another body. Demonstrated Progress: DOE will need to demonstrate progress in implementing corrective measures, especially measures intended to improve the performance of major projects and contracts. For example, for projects, DOE must continue to show improvements on meeting cost and schedule targets and a commitment to applying new requirements to all of its major projects. DOE should also continue to monitor progress and apply corrective measures to nonmajor projects. For contracts, once DOE’s corrective action plan addresses contract management, DOE must apply these measures to address its longstanding contract management problems. More specifically, DOE should address some of the problems we found, such as developing a contract management framework addressing the use of CAS so that DOE staff have the ability to evaluate contractor performance. The department continued to meet the criterion for demonstrating a strong commitment and top leadership support for improving project management in EM and NNSA. The Secretary of Energy issued two memorandums, in December 2014 and June 2015, that lay out a series of changes to policies and procedures to improve project management. The Secretary’s changes were included in DOE’s revised project management order, DOE Order 413.3B, issued in May 2016. As noted in the memorandums, some of these changes are in response to recommendations we made in prior years, as shown in the following examples: DOE added requirements for program offices to conduct a root cause analysis if a major project is expected to exceed its approved cost or schedule. DOE added requirements for program offices to ensure that major projects’ designs and technologies are sufficiently mature before contractors are allowed to begin construction. DOE added a requirement to its revised project management order for program offices to conduct analyses of alternatives consistent with industry best practices, independent of the contractor organization responsible for managing the construction or constructing a capital asset project. DOE added a requirement to its project management order that projects’ cost estimates be developed, maintained, and documented in a manner consistent with industry best practices. DOE also required that its cost estimating guidance and Acquisition Regulations be consistent with cost estimating best practices reflected in our Cost Estimating and Assessment Guide. responsible for reviewing all capital asset projects with a total project cost of $100 million or more. DOE officials told us that the ESAAB met 16 times in fiscal year 2015 and 14 times in fiscal year 2016 after not meeting at all during fiscal years 2013 and 2014. The Secretary also created the PMRC, which includes senior DOE officials and is chaired by a new departmental position—the Chief Risk Officer (CRO). According to its charter, the committee meets biweekly to assess the risks of projects across the department, as well as to advise DOE senior leaders and the ESAAB on cost, schedule, and technical issues for projects. We also continue to monitor nonmajor projects, and we note that the Secretary’s December 2014 and June 2015 memorandums applied project management reforms to nonmajor projects previously not subject to such requirements. For example, DOE’s new project management reforms require full upfront funding for projects costing $50 million or less—a reform that should help deliver such projects on time and within costs. Notably, DOE’s performance in meeting cost and schedule milestones for nonmajor projects continues to improve, with nearly 95 percent of such projects meeting cost and schedule milestones over the last 3 years, according to DOE officials. DOE did not meet the criterion for having the capacity to mitigate risks with project and contract management. The department has long faced challenges in ensuring it has the right number of qualified individuals in crucial oversight areas. For example, we first noted capacity shortfalls in the department’s contract management in our 1994 high-risk report. At that time, we noted that the department did not have the necessary staff expertise and information systems to monitor contractors. In our February 2015 high-risk report, we found that DOE did not meet this criterion and noted that an internal DOE review determined that the department had an extremely low number of contract specialists. We noted in our 2015 high- risk report that DOE had established the Acquisition Fellows Program to recruit, acquire, develop, and retain contract specialists, and NNSA had signed an agreement with the U.S. Army Corps of Engineers (USACE) to supplement NNSA’s capacity needs. Since 2015, DOE has taken the following steps to improve capacity: DOE increased its number of contract specialists by 4, from 550 to 554. In November 2016, DOE officials told us that the department still faces shortfalls of contract specialists. They noted that there are statutory caps on the number of staff DOE can hire. The Acquisition Fellows Program’s first class of 11 participants is expected to graduate in January 2017. DOE is analyzing lessons learned from the program’s first cohort and determining ways to improve the program for the second cohort. NNSA officials stated that they continue to use USACE specialists because it helps NNSA manage its workload within the statutory workforce caps. DOE officials also stated that, on the basis of a USACE staffing model, NNSA recently increased the number of staff on certain major projects, in some cases more than doubling the number of staff responsible for project management activities. Even with these recent steps, capacity challenges remain. The Secretary’s December 2014 and June 2015 memorandums—which DOE has stated serve as its corrective action plan—were generally silent on capacity issues. The Secretary’s memorandums required the department to create a Project Leadership Institute and both the ESAAB and PMRC are to evaluate, among other things, issues related to organization and staffing if such factors present a risk to a project; however, other capacity issues, such as those related to contract oversight, were not explicitly addressed. In several recently issued reports, we found capacity shortfalls in key contract management functions, including cost and schedule performance evaluation, as well as in oversight of major projects and programs, as shown in the following examples: In May 2015, we found that NNSA had not determined whether it has sufficient, qualified personnel to ensure it used information from CAS consistently, which include information on contractors’ cost and schedule performance. Federal field office officials raised concerns that staffing levels and the mix of staff skills may not be adequate to use information from CAS to conduct appropriate oversight, potentially resulting in NNSA staff over relying on this information without the ability to ensure it is reliable. project, field office, and functional managers, it appears that the scope of this staffing assessment may not address all aspects covered by the supplemental directive itself. In May 2015, we found that DOE faced persistent and significant technical and management challenges at its WTP at Hanford and, consequently, we recommended that DOE take steps to augment its capacity to oversee the contractor. External reviews found that technical challenges continue to affect the facilities needed to treat radioactive waste, and the extent of the challenges was beyond the capacity of DOE to monitor and prevent recurrence. Under the WTP construction contract, and as recommended by an external DOE advisory group, DOE can employ an owner’s agent to help the department review the contractor’s approach to design management and mitigate design challenges. We recommended that DOE enlist the services of another agency or external entity to serve as an owner’s agent in reviewing and evaluating the WTP contractor’s design and approach to mitigating design challenges. Congress also included a provision in the 2016 NDAA requiring DOE to enlist the services of an owner’s agent who was to have certain oversight responsibilities independent of the contractor. In 2016, DOE instituted an owner’s representative, but the responsibilities of the owner’s representative do not include key elements of an owner’s agent’s responsibilities that we discussed in our report, such as independence and authority to oversee the contractor’s approach to design management. In February 2016, we found that the B-61-12 Life Extension Program faced staff shortfalls. We reported that NNSA may need about two or three times more personnel in the federal program manager’s office to ensure sufficient federal oversight. NNSA’s federal program office employs about 20 people—8 federal FTEs and about 12 FTE- equivalent contractors—to manage NNSA activities. In contrast, the Air Force office—the armed service office responsible for air-delivered weapons such as the B61—employs about 80 federal FTEs and contractors to manage comparable Air Force activities. with about $287 million in contract spending, compared with a federal government average of $9 million per procurement employee. In November 2016, we found that DOE faced capacity challenges in program management. Program management can help ensure that a group of related projects and activities are managed in a coordinated way to obtain benefits not available from managing them individually. This approach helps federal agencies get what they need, at the right time, and at a reasonable price. We found that DOE and NNSA had not established training programs, such as a career development program, for program managers. In contrast, DOE has established a training program for project managers, which the department said is open to program managers. In the absence of a current DOE or NNSA training program for program managers, most of the NNSA program managers we interviewed did not have training related to program management. As a result, NNSA may have difficulty developing and maintaining a cadre of professional, effective, and capable program managers. We recommended that DOE establish a training program for program managers. Notably, a new federal law may help NNSA address some of its capacity challenges in program management. In December 2016, the President signed the Program Management Improvement Accountability Act. The act, among other things, requires the Director of the Office of Personnel Management, in consultation with the Director of the Office of Management and Budget, to issue regulations that identify key skills and competencies needed for program and project managers; establish a new job series, or update and improve an existing job series; and establish a new career path for program and project managers. The act also requires that each agency head appoint a Program Management Improvement Officer, who must develop a strategy for enhancing the role of program managers within the agency that includes enhanced training and educational opportunities for program managers. that several factors may limit the use and effectiveness of mechanisms for contractor employees to raise concerns and seek whistleblower protections. We also found that DOE infrequently used its enforcement authority to hold contractors accountable for unlawful retaliation against whistleblowers, issuing just 2 violation notices in the past 20 years. Additionally, in 2013, DOE determined that it does not have the authority to enforce a key aspect of policies that prohibit retaliation for nuclear safety-related issues—despite having taken such enforcement actions previously. We made several recommendations, including that DOE independently assess the environment for raising concerns, evaluate whether the whistleblower pilot program will mitigate challenges with the existing program, expedite time frames for clarifying regulations, and clarify policies to hold contractors accountable. DOE concurred with most of these recommendations. In August 2016, DOE issued a proposed rule to change DOE’s nuclear safety rules to clarify the department’s authority to assess civil penalties against certain contractors and subcontractors for violating the prohibition against retaliating against whistleblowers. The comment period closed in September 2016, and DOE is now considering the comments that were submitted. In September 2016, DOE also updated its Order 221.1B that establishes the requirements and responsibilities for reporting fraud, waste, and abuse. The revised order provides some additional specificity to its Office of Inspector General’s role in processing employee allegations and provides additional language intended to prohibit contractors from deterring or dissuading employees from reporting concerns. DOE partially met the criterion for having a corrective action plan that defines root causes and identifies effective solutions. In issuing two memorandums to improve project management, the Secretary required project management reforms that—if fully implemented—will help ensure that future projects are not affected by the challenges that have persisted for DOE’s major projects. According to DOE officials, the memorandums serve as DOE’s corrective action plan to address the root causes DOE identified in its November 2014 report. DOE codified the memorandums’ reforms in its revised project management order, DOE Order 413.3B, which includes instituting best practices we and industry have identified for cost estimating, schedule estimating, and applying an analysis of alternatives (AOA) framework to the early stages of project planning. DOE also plans to publish a guide to instruct DOE staff on how to conduct an AOA. We are encouraged by DOE’s project management reforms but note that the memorandums and the November 2014 report, as well as associated changes to DOE’s project management order, do not fully include all important elements of a corrective action plan. For example, these documents do not identify goals and performance measures, establish milestones and metrics for implementing plan goals, or establish processes for reporting progress. In addition, DOE’s corrective action plan does not appear to be comprehensive. For example, DOE’s plan does not address challenges with (1) acquisition planning for its major contracts, (2) the quality of enterprise-wide cost information, or (3) the policy on program management. It also does not fully address how DOE will apply these new requirements to major legacy projects. Specifically: DOE’s corrective action plan does not address acquisition planning for its major contracts—a phase during which critical contract decisions are made that have significant implications for the cost and overall success of an acquisition. In August 2016, we found that DOE did not consider acquisition alternatives beyond continuing its longstanding M&O contract approach for 16 of its 22 M&O contracts. Without considering broader alternatives, DOE cannot ensure that it is selecting the most effective scope and form of contract, raising risks for both contract cost and performance. The size and duration of DOE’s M&O contracts—22 M&O contracts with an average potential duration of 17 years, representing almost three-quarters of the agency’s spending in fiscal year 2015—underscore the importance of planning for each M&O acquisition. DOE’s corrective action plan does not address the quality of enterprise-wide cost information available to DOE managers and key stakeholders. Reliable enterprise-wide cost information is needed to identify the cost of activities, to ensure the validity of cost estimates, and to provide information to Congress to make budgetary decisions. In January 2017, we found that NNSA’s recently developed plan to improve and integrate financial data to better understand and compare costs across NNSA programs, contractors, and sites did not fully incorporate leading strategic planning practices, which limits its usefulness as a planning tool as well as the effectiveness of NNSA’s effort to provide meaningful financial information to Congress and other stakeholders. NNSA’s plan also contains few details for all the elements it must include, such as its feasibility assessment, estimated costs, expected results, and an implementation timeline. Consequently, NNSA’s plan does not provide a useful roadmap for guiding NNSA’s effort. We recommended that NNSA develop a plan for producing cost information that fully incorporates leading planning practices. NNSA agreed with our recommendation. DOE’s corrective action plan does not address its need for a program management policy. For example, in November 2016, we found that DOE had not established a department-wide program management policy, and that NNSA had cancelled its program management policy in 2013 without establishing a new policy in its place. We concluded that having a policy that incorporates existing key internal control standards and leading industry program management practices may help ensure that EM and NNSA program offices are better able to achieve their missions, goals, and objectives. For example, in an August 2016 report examining NNSA’s plans to build the CMRR, we found that the agency had not clarified whether the project would satisfy the mission needs of other NNSA and DOE programs. NNSA might have been better able to clarify this project’s mission needs if DOE and NNSA had been operating under a DOE-wide program management policy incorporating leading practices. DOE and NNSA officials said they recognize the importance of establishing a program management policy, but at the time DOE had not taken steps to develop such a policy. We recommended that DOE establish a program management policy addressing internal control standards and leading practices. DOE had no comments on our recommendation. After our report was issued, the President signed the 2016 Program Management Improvement Accountability Act, also requiring the development of standards, policies, and guidelines for program and project management across the federal government. As required in the act, we will continue to monitor and report on its implementation in connection with our biennial high-risk updates, including on the effectiveness of the standards, policies, and guidelines that will be developed. DOE’s corrective action plan also does not fully address how DOE’s new requirements will be applied to the department’s major legacy projects, which receive billions of dollars in annual funding and often present the most intractable project management challenges. For example, we found in May 2015 that DOE continues to allow construction of certain WTP facilities before designs are 90 percent complete and other facilities before establishing updated cost and schedule baselines. before establishing cost and schedule baselines and (2) cost and schedule estimates that meet industry best practices. The WTP is DOE’s largest project, and it has faced numerous technical and management challenges that have added decades to its schedule and billions of dollars to its cost. We recommended in 2015 that DOE consider limiting construction for certain waste treatment facilities until technical challenges are addressed, but DOE did not implement our recommendation. For DOE to fully meet the corrective action criterion, it must demonstrate its willingness to apply project management reforms to the projects that need them the most. Moreover, the department still may not understand all of the root causes of its contract and project management problems. The most recent corrective actions taken by DOE represent the third such cycle since 2008, and the root causes DOE identified in November 2014 included some issues that the department had declared it previously mitigated, such as difficulties with front-end planning. Specifically, DOE acknowledged in its November 2014 root cause analysis its longstanding problems with front-end planning, stating that insufficient front-end planning has consistently contributed to DOE projects not finishing on budget or schedule. objectively consider all alternatives, without preference for a particular solution, as it proceeds with its AOA process. NNSA neither agreed nor disagreed with our recommendation. In August 2016, we found problems with DOE’s front-end project planning at the Waste Isolation Pilot Plant (WIPP) for the new permanent ventilation system. This system is being built to enable DOE to resume full operations of the geological nuclear waste repository, which were suspended after a radiological release accident in February 2014. DOE did not follow all best practices in analyzing and selecting an alternative for the new ventilation system at WIPP, which DOE estimated will cost between $270 million and $398 million to build and will be completed by the end of March 2021. For example, DOE did not select the preferred alternative based on assessing the difference between the life-cycle costs and benefits of each alternative, as called for by best practices and required by DOE’s revised project management order. We recommended that DOE require projects, including the WIPP ventilation system, to implement recommendations from independent AOA reviews or document the reasons for not doing so. DOE concurred with the recommendation and planned to incorporate guidance in its updated project review guide on how DOE offices should address recommendations from independent reviews. DOE made significant efforts to improve its performance in monitoring and independently validating the effectiveness and sustainability of corrective measures and now partially meets our monitoring criterion. Changes DOE has made are important and can substantively improve how DOE oversees and executes its major projects and programs. We have not evaluated the effectiveness of the new monitoring measures because it will take time for DOE to employ them, and we note that they do not cover all aspects of contract management or certain EM activities and depend upon the availability of reliable enterprise-wide cost information. and it meets on a biweekly basis. According to DOE officials, during 2015, the committee reviewed 19 project milestones, 2 proposals for updating major projects’ cost and schedule, and received 15 briefings from independent project review teams. Also in 2015, the PMRC reviewed multiple major projects, such as the Uranium Processing Facility (UPF), the MOX facility, the CMRR project, WTP, and the Salt Waste Processing Facility. The PMRC also prepared information on these projects for ESAAB meetings in which most of these major projects were discussed. In addition, according to senior DOE officials, the PMRC focuses on all elements of project risk, not just those elements related to DOE’s project management order but also projects’ contract terms and regulatory compliance. DOE has included the role of the PMRC in its updated project management order, issued in May 2016, and created the CRO position, which DOE plans to institutionalize. The CRO’s primary function is to independently oversee capital asset projects and alert the Secretary to any particular risks that may threaten projects’ on- time or on-budget delivery. DOE enhanced oversight of projects during the commissioning phase—the phase after construction is complete but before operations begin. DOE did so in response to its experience with the Sodium-Bearing Waste Treatment Facility at its Idaho site. In March 2016, DOE’s Office of Inspector General found major design and construction problems during the commissioning phase of this facility. The Inspector General’s investigation found that DOE had moved the scope of work associated with the comprehensive performance test, which demonstrates that the facility would perform its mission as designed, from the construction phase of the project to the operations phase of the project. The project modification prevented DOE from rigorously testing the facility before construction was declared complete. The Inspector General’s investigation concluded that the total actual construction cost for this facility was likely understated by about $181 million, and additional future costs to make the facility operational could exceed $40 million. will be the Sodium-Bearing Waste Treatment Facility. Officials also stated that the department intends to provide guidance to project managers through a new Commissioning Guide to be issued in fiscal year 2017. DOE established project assessment offices, independent of line management, which review projects at least annually. Through a May 2015 memorandum, NNSA elevated its Office of Project Assessment to report directly to the Under Secretary, increasing the prominence of this function and the likelihood that problems, if encountered, will receive senior-level attention within NNSA. According to EM officials, EM uses its Office of Project Management to conduct regular independent project reviews for projects under $100 million, and since July 2016, DOE’s Office of Project Management, Oversight, and Assessments has reviewed EM projects with a cost greater than $100 million. key waste treatment facilities. DOE’s cost performance data shows that the approved total project cost of $16.8 billion is underestimated, and a senior DOE official recently informed Congress that the WTP’s cost will increase significantly. DOE’s efforts to improve monitoring are encouraging, but additional time is needed for us to assess how effectively these recent monitoring improvements will validate the sustainability of corrective measures. We have not yet evaluated the operations of the PMRC, but according to its charter this committee serves in an advisory role to the ESAAB and the programs, while the program offices remain responsible for delivering projects. DOE officials stated that the PMRC provides a list of its recommendations for the ESAAB meetings, but DOE does not track which PMRC recommendations are implemented. In our ongoing work, we have identified an example that raises questions about whether the programs are following the guidance of the PMRC. For the Tank Waste Characterization and Staging facility at Hanford, DOE estimated a cost range of $390 million to $690 million. However, we reported in May 2015 that this cost range was not reliable. We also found that EM officials had estimated that the cost for this facility would range from $1 billion to $1.5 billion, making it a major project and subject to more rigorous oversight requirements. The PMRC reviewed the cost estimates showing that this facility should be classified as a major project, but the program office responsible for the facility did not modify the cost range for the project at inception, raising questions about the extent of the PMRC’s influence. DOE’s new oversight and monitoring efforts are not comprehensive, as certain activities within EM are not subject to review by the PMRC, even though together they cost billions of dollars and last for numerous years. Specifically, the PMRC does not review the cost and schedule performance of operations activities within EM. These operations activities include programs such as groundwater treatment at the Hanford site, which has annually cost between about $140 million and $185 million in recent years. of about $64 million and a schedule delay of nearly 9 months, in part because DOE’s initial estimates to complete the recovery activities did not follow all best practices and were therefore unreliable. Notably, DOE estimated it would restart waste operations based on a schedule that gave DOE less than a 1 percent chance of meeting its restart date. We recommended that EM revise its protocol to require it to use best practices in developing cost and schedule estimates. DOE concurred with our recommendation and stated that EM plans to transition from the operations activities protocol to a new directive for operations activities, which will include guidance on using cost and schedule best practices. Finally, the effectiveness of DOE’s monitoring of its contracts, projects, and programs depends upon the availability of reliable enterprise-wide cost information on which to base oversight activities. Such information is needed to, among other things, identify the costs of activities and ensure the validity of its cost estimates. However, meaningful cost analysis— including comparisons across programs, contractors, and sites—is not possible because NNSA’s contractors use different methods of accounting for and tracking costs. NNSA developed a plan to improve and integrate its cost reporting structures; however, we found in our January 2017 report that the plan did not provide a useful roadmap for guiding NNSA’s effort. Until a plan is in place that incorporates leading strategic planning practices, NNSA cannot be assured that its efforts will result in a cost collection tool that produces reliable enterprise-wide cost information that satisfies the information needs of Congress and program managers, and enables DOE to effectively monitor its progress in improving how it manages its contracts and programs. As noted earlier, DOE implemented a series of changes to policies and procedures to improve project management, but the department does not yet meet the criterion for demonstrating progress. DOE’s recent reforms are in the early stages, and more time is needed to assess the effectiveness of corrective measures and associated progress, especially with respect to ongoing major projects. DOE has taken significant actions regarding two of its six ongoing major projects but continues to encounter significant project management challenges, cost increases, and schedule delays on others. In addition, DOE’s recent reforms do not address contract management, and our work since the last high-risk report has identified several significant challenges with DOE contract management on which DOE has taken little action. For two major projects, DOE has taken significant steps to address cost and schedule problems. For example, NNSA proposed, in its fiscal year 2017 budget request, to terminate the MOX project and pursue an alternative path for disposing of plutonium, under which DOE would dilute plutonium for disposal in a geologic repository. For the UPF, NNSA has cancelled its plans for a large uranium facility, and proposed to use both existing and new smaller facilities and new technologies to meet its needs. It is too early to determine the effects of these changes. DOE has not developed a complete, reliable cost estimate for its new approaches at the MOX or UPF facilities. NNSA officials believe the new approaches will allow the agency to meet its mission needs at lower costs to the taxpayer. Our recent work has identified continuing challenges for two major projects that DOE’s recent project management reforms in theory should have addressed. For example, In May 2015, we found that DOE continues with its design build approach at the WTP, which is not consistent with DOE’s revised project management order. DOE’s revised project management order requires a facility’s design to be at least 90 percent complete before establishing cost and schedule baselines. We found that construction had outpaced design at some facilities at WTP, and external reviews had identified hundreds of vulnerabilities in the waste treatment facilities after assessing only half of the facilities’ systems. However, EM has not applied DOE’s requirement to the WTP. We recommended that DOE (1) limit construction on the WTP until risk mitigation strategies are developed to address known technical challenges, and (2) determine the extent to which the quality problems exist, in accordance with its quality assurance policy, for the facilities’ systems that have not been reviewed to determine if additional vulnerabilities exist. DOE neither agreed nor disagreed with these recommendations and has not implemented them. analyzing plutonium for the revised CMRR project. NNSA neither agreed nor disagreed with the recommendations. As noted earlier, DOE’s corrective action plan does not address problems with DOE’s oversight of major contracts. These problems have been longstanding. For example, we noted in 1991 that DOE lacked assurance that its oversight and control of contract expenditures will deter and detect potential fraud, waste, and abuse. In addition to the contract management issues noted earlier, such as acquisition planning for major contracts and the quality of enterprise wide-cost information, our recent work identifies additional challenges DOE continues to face in contract management. In May 2015, we found that NNSA had not established policies or guidance specific to using information from CAS to evaluate M&O contractor performance. NNSA did not have policy or guidance on how or to what extent NNSA officials should use information from CAS in evaluating M&O contractors’ performance. We recommended that NNSA revise its policy, guidance, and procedures for evaluating performance to fully address how and under what circumstances those responsible for evaluating M&O contractors’ performance should use information from CAS. NNSA agreed with this recommendation and revised the policy in 2016. NNSA also created a website and held a summit to share CAS lessons learned and strengthen the CAS community of practice. However, NNSA has not established comprehensive guidance for implementing this policy consistently. Even though we removed nonmajor projects from our High-Risk List, we continue to monitor how DOE manages these projects to ensure that DOE sustains progress in this area. We note that the Secretary’s December 2014 and June 2015 memorandums applied project management reforms to nonmajor projects previously not subject to such requirements, and DOE’s performance in meeting cost and schedule milestones for nonmajor projects continues to improve, with nearly 95 percent of such projects meeting cost and schedule milestones over the last 3 years, according to DOE officials. Our recent work, however, shows that several nonmajor projects exhibit some of the challenges that have long persisted for DOE’s major projects, such as incomplete front-end planning and unreliable cost and schedule estimates, which means that nonmajor projects still warrant our observation. waste in the tanks and (2) a tank waste characterization and staging facility to stage, mix, sample, and characterize high-level waste from the tanks prior to delivery to the pretreatment facility. They have a combined total estimated cost of $633 million to at least $1 billion. We found DOE excluded from its estimates the costs of some major activities necessary to construct these facilities, and did not sequence activities to complete them in accordance with schedule estimating best practices. We recommended, among other things, that DOE revise cost and schedule estimates for these two facilities in accordance with industry best practices. DOE generally agreed with our recommendations but has not yet implemented them. In 2014, we reviewed DOE’s request for fiscal year 2015 funding for the WTP. We found that DOE requested an additional $23 million for the design of a system to address technical problems the WTP had recently encountered. We noted that because engineering and construction at key WTP facilities had been stalled or slowed in fiscal year 2013, it was unclear whether DOE needed the full funding for WTP plus the additional amount to address technical problems. In the fiscal year 2015 appropriations bill, Congress provided $667 million for work at the WTP, which was $23 million less than DOE’s budget request for the WTP for that year. DOE achieved some benefits by implementing several of our recommendations in fiscal years 2015 and 2016. Specifically DOE instituted requirements for projects and programs to follow cost- estimating best practices. DOE instituted requirements for projects and programs to follow analysis of alternatives best practices. DOE analyzed root causes of the Plutonium Disposition Program cost increases and instituted a department-wide requirement for root cause analysis of cost and schedule breaches. DOE’s Office of Environmental Management developed a consolidated workforce plan. DOE provided independent reviews of nonmajor projects, and defined and tracked performance targets for nonmajor projects. For additional information about this high-risk area, contact David Trimble at (202) 512-3841 or trimbled@gao.gov. National Nuclear Security Administration: A Plan Incorporating Leading Practices Is Needed to Guide Cost Reporting Improvement Effort, GAO-17-141, Washington, D.C.: January 19, 2017. Program Management: DOE Needs to Develop a Comprehensive Policy and Training Program. GAO-17-51. Washington, D.C.: November 21, 2016. Department of Energy: Actions Needed to Strengthen Acquisition Planning for Management and Operating Contracts. GAO-16-529. Washington, D.C.: August 9, 2016. DOE Project Management: NNSA Needs to Clarify Requirements for Its Plutonium Analysis Project at Los Alamos. GAO-16-585. Washington, D.C.: August 9, 2016. Nuclear Waste: Waste Isolation Pilot Plant Recovery Demonstrates Cost and Schedule Requirements Needed for DOE Cleanup Operations. GAO-16-608. Washington, D.C.: August 4, 2016. Department of Energy: Whistleblower Protections Need Strengthening. GAO-16-618. Washington, D.C.: July 11, 2016. Department of Energy: Observations on Efforts by NNSA and the Office of Environmental Management to Manage and Oversee the Nuclear Security Enterprise. GAO-16-422T. Washington, D.C.: February 23, 2016. Nuclear Weapons: NNSA Has a New Approach to Managing the B61-12 Life Extension, but a Constrained Schedule and Other Risks Remain. GAO-16-218. Washington, D.C.: February 4, 2016. DOE Project Management: NNSA Should Ensure Equal Consideration of Alternatives for Lithium Production. GAO-15-525. Washington, D.C.: July 13, 2015. Department of Energy: Actions Needed to Improve DOE and NNSA Oversight of Management and Operating Contractors. GAO-15-662T. Washington, D.C.: June 12, 2015. National Nuclear Security Administration: Actions Needed to Clarify Use of Contractor Assurance Systems for Oversight and Performance Evaluation. GAO-15-216. Washington, D.C.: May 22, 2015. Hanford Waste Treatment: DOE Needs to Evaluate Alternatives to Recently Proposed Projects and Address Technical and Management Challenges. GAO-15-354. Washington, D.C.: May 7, 2015. National Nuclear Security Administration: Observations on Management Challenges and Steps Taken to Address Them. GAO-15-532T. Washington, D.C.: April 15, 2015. National Nuclear Security Administration: Reports on the Benefits and Costs of Competing Management and Operating Contracts Need to Be Clearer and More Complete. GAO-15-331. Washington, D.C.: March 23, 2015. Nuclear Waste: DOE Needs to Improve Cost Estimates for Transuranic Waste Projects at Los Alamos. GAO-15-182. Washington, D.C: February 18, 2015. The National Aeronautics and Space Administration (NASA) plans to invest billions of dollars in the coming years to explore space, understand Earth’s environment, and conduct aeronautics research. We designated NASA’s acquisition management as high risk in 1990 in view of NASA’s history of persistent cost growth and schedule delays in the majority of its major projects. Our work has shown that NASA has made progress over the past 5 years in a number of key acquisition management areas, but it faces significant challenges in some of its major projects largely driven by the need to improve the completeness and reliability of its cost and schedule estimating, estimating risks associated with the development of its major systems, and managing to aggressive schedules. NASA has continued to strengthen and integrate its acquisition management functions, resulting in the agency continuing to meet three criteria for removal from our High-Risk List: leadership commitment, a corrective action plan, and monitoring. For example, NASA has established metrics to monitor progress in improving acquisition management, and in recent years, we have found that many of the projects within the agency’s major project portfolio have improved their cost and schedule performance. NASA’s metrics include cost and schedule performance indicators and we have found that NASA’s performance metrics generally reflect improved performance. These actions have helped NASA to create better baseline estimates and track performance such that NASA has been able to launch more projects on time and within cost estimates. Although NASA has taken steps toward meeting our criteria for capacity by issuing guidance and implementing tools to reduce acquisition risk, our reviews have found that these efforts have not always been consistent with best practices in areas such as cost and schedule estimating and earned value management (EVM). Finally, while the agency has taken steps to demonstrate progress toward improving acquisition outcomes overall, we found that NASA continues to face significant challenges in its ability to manage and oversee its most expensive and complex projects, most notably its human spaceflight development programs. NASA must ensure that it conducts adequate and ongoing assessments of risks and understands the long-term costs for its larger human exploration programs, as the effects of any potential miscalculations could be felt across NASA’s portfolio. Such efforts should help maximize improvements and to demonstrate that the improved cost and schedule performance will be sustained, even for the agency’s most expensive and complex projects. In our 2015 high-risk update, we found that NASA has satisfied our high- risk criteria for the areas of leadership commitment, monitoring, and an action plan. We believe NASA’s progress in these areas is reflected in the improved cost and schedule performance of NASA’s portfolio of major acquisition projects, which includes projects with a life-cycle cost of more than $250 million. For example, in 2016, overall development cost growth for the portfolio of 12 development projects fell to 1.3 percent and launch delays averaged 4 months. Both of these measures are at or near the lowest levels we have reported since we began our annual assessments in 2009. These measures exclude the James Webb Space Telescope (JWST), which NASA rebaselined in September 2011 with significant cost increase and schedule delays. As of December 2016, we found that program continues to meet its revised cost and schedule commitments. NASA manages a portfolio of projects that will always have inherent technical, design, and integration risks because its projects are complex, specialized, and often push the state of the art in space technology. NASA has already taken steps to reduce acquisition risk from both a technical and management standpoint. The next few years will certainly test the extent to which these measures have taken hold in NASA’s largest programs. However, more needs to be done with respect to anticipating and mitigating risks—especially with regard to large programs, estimating and forecasting costs for its largest projects, and implementing management tools. Actions that will be critical to improving NASA’s acquisition outcomes include the following: Ensure that NASA conducts adequate and ongoing assessments of risks for larger programs—JWST, Space Launch System (SLS), Orion Multi-Purpose Crew Vehicle (Orion), and Exploration Ground Systems (EGS)—especially since each of these programs is at a different critical point in development and implementation, and the impacts of any potential miscalculations will be felt across NASA’s portfolio. Ensure that NASA understands long-term human exploration program costs. While the three major exploration programs have been baselined, none of the three programs have a baseline that covers activities beyond the second planned flight. Long-term estimates, which could be revised as potential mission paths are narrowed and selected, would provide decision makers with a more informed understanding of costs and schedules associated with potential agency development paths. Ensure that the Orion program analyzes the cost of deferred work in relation to levels of management reserves and unallocated future expenses, and actual contractor performance, and report the results of that analysis to NASA management. Ensure that rebaselined projects report cost and schedule growth from original baselines in order to provide stakeholders and Congress with a more accurate view of project performance and to enhance accountability. Ensure that program offices regularly and consistently update their Joint Cost and Schedule Confidence Levels (JCL) across the portfolio. As a project reaches the later stages of development, especially integration and testing, its risk posture may change. An updated project JCL would provide both project and agency management with data on relevant risks that can guide project decisions. Ensure that NASA continues its efforts to build capacity in areas such as cost and schedule estimating, and measuring contractor performance. Revisit schedules to ensure programs have fully considered the effects of managing programs in order to meet aggressive schedule dates. Our ongoing work assessing Commercial Crew, EGS, Orion, SLS, JWST, and the performance of the portfolio as a whole will provide insight into how well NASA is performing over the next several years. We determined in our 2015 update that NASA had met our criteria in the area of leadership commitment, which the agency continues to meet. We believe that the agency’s efforts in this area—including the strengthening of its acquisition policy and oversight functions—have resulted in improvement of major acquisition projects’ cost and schedule performance. NASA has partially met our high-risk criteria for capacity. While NASA has taken steps to issue guidance and implement tools to reduce acquisition risk, our reviews have found that these efforts have not always been consistent with best practices in areas such as estimating costs and schedules and EVM surveillance. In February 2015, NASA published a new version of its Cost Estimating Handbook that includes an appendix on JCL analysis. But NASA does not require its projects to update JCLs. Our prior work has found that projects do not regularly update cost risk analyses to take into account newly emerged risks. Our Cost Estimating and Assessment Guide recommends that cost estimates should be updated to reflect changes to a program or kept current as it moves through milestones. As new risks emerge for a project, updating the cost risk analysis can provide realistic estimates to decision makers, including Congress. Further, we have found that NASA’s three costliest acquisition programs—JWST, SLS, and Orion—did not fully follow best practices when developing their JCLs. For example, in July 2016 we found that the Orion program’s cost estimate met or substantially met 7 of 20 best practices and its schedule estimate met only 1 of 8 best practices. The cost estimate lacked necessary support and the schedule estimate did not include the level of detail required for high-quality estimates. Without sound cost and schedule estimates, decision makers do not clearly understand the cost and schedule risk inherent in the program and lack important information they need to make programmatic decisions. In October 2015, NASA decided to decentralize its independent assessment function and deploy the staff to the agency’s centers, in part, to better use its workforce to meet program needs in areas such as program management, cost estimating, and resource analysis, and to fill gaps in program analysis skills at the center level. It is too early to tell whether this change will address skills gaps and ultimately improve the quality of JCLs in the future as programs will need to hold reviews under this organization of the assessment function, and compare those reviews to actuals in order to assess the change. NASA has made progress implementing EVM analysis—another key project management tool— but the agency has not yet fully implemented a formal EVM surveillance plan in accordance with best practices. NASA has made significant progress rolling out EVM to its centers and supported these efforts with training, including classroom and online training to projects. In November 2012, we recommended that NASA update its procedural requirements to include a formal EVM surveillance program in order to improve the reliability of EVM data collected by NASA programs. While NASA agreed with our conclusion that EVM data reliability needed improvement, it has yet to implement a formal surveillance requirement due to resource constraints. In our December 2015 review of JWST, we found EVM data anomalies and recommended that project officials require the contractors to explain and document all such anomalies in their monthly EVM reports. A continuous surveillance program could have identified these anomalies earlier, allowing the project to pursue corrective action with its contractors. NASA has since implemented this recommendation for the JWST program. Proper surveillance of EVM contractor data is a best practice in the NASA Earned Value Management Handbook and our Cost Estimating and Assessment Guide. In our 2015 high-risk update, we found that NASA had satisfied our high- risk criteria for an action plan and it continues to do so. NASA, which reports its action plan metrics to us on a semiannual basis, continues to perform within the parameters outlined in the plan—such as meeting metrics for cost and schedule performance, and mission success measures. These and other steps have enabled NASA to launch more projects on time and within cost estimates. We found in 2015 that NASA had met our high-risk criteria for monitoring and it continues to do so. NASA has established metrics to monitor progress in improving acquisition management, and we have found that those metrics generally reflect improved performance. The NASA Systems Engineering Handbook includes several technical indicators for design maturity, and the agency’s project management policy and systems engineering policy have been updated to require projects to track these metrics. In March 2016, we found that NASA had sustained prior improvement in design stability for its major acquisition projects. NASA has partially met our criteria for demonstrating progress. The agency has taken steps to improve acquisition outcomes, but we continue to find that the agency faces significant challenges in its ability to manage and oversee its most expensive and complex projects, most notably regarding human spaceflight development. Other programs demonstrate that NASA continues to face challenges accurately estimating or quickly responding to risks. Also, NASA inconsistently reports on the performance of some programs, which masks the full extent of cost and schedule growth. Together, NASA’s three human spaceflight efforts constitute more than half of NASA’s portfolio development cost baseline, and helped make the 2016 portfolio the most expensive collection of NASA projects in development since we began our annual assessment in 2009. Although NASA’s human spaceflight programs are generally better positioned for success than the agency’s most recent effort to replace the space shuttle, managing weaknesses—including unreliable cost estimating, overly ambitious internal deadlines, limited reserves, and operating for extended periods of time without definitized contracts—have increased the likelihood that it will incur overruns and schedule delays, particularly when coupled with the broad array of technical risks that are inherent in any human spaceflight development. Moreover, all three human spaceflight projects will be significantly challenged in the next 2 years as NASA aims to launch its first exploration mission by November 2018. This mission, which will not have a crew, will fly some 70,000 kilometers beyond the moon—using the SLS launch vehicle, Orion, and EGS. During this time, the human spaceflight programs will need to resolve a multitude of technical and design challenges, complete fabrication and testing, and be delivered to the Kennedy Space Center where they will be integrated with each other and prepared for launch. Numerous activities along this development path are sequential and cannot be rearranged to gain back time lost from prior delays. Other activities can be deleted or performed concurrently, but not without more risk to the program. If delays materialize during individual systems integration and testing, they could cause a cascading effect of cross-program problems. NASA has already made these later phases more complicated by postponing key activities in order to keep pace with internal deadlines. In addition, because the agency will be in the final throes of other major programs, such as JWST, senior leaders’ attention may be divided amongst many programs in the months leading up to the first exploration mission. Examples of management risk for human spaceflight programs that we have recently identified include: As we found in July 2016, each program manages to an aggressive internal NASA launch readiness date, which creates an environment for programs to make decisions based on reduced knowledge to meet a date that is not realistic. For example, the EGS program has consolidated future schedule activities to prepare the mobile launcher—the vehicle used to bring SLS to the launch pad—to meet this internal goal. The program acknowledged that consolidating activities—which includes conducting verification and validation concurrent with installation activities—increases risk because of uncertainties about how systems not yet installed may affect the systems already installed. Officials added, however, that this concurrency is necessary to meet the internal schedule. All three programs are operating with limited cost reserves, which limit each program’s ability to address risks and unforeseen technical challenges. For example, we found in July 2016 that the Orion program will maintain very low levels of annual cost reserves until 2018. The lack of currently available cost reserves has caused the program to defer work to address technical issues to stay within budget. As a result, the Orion program’s reserves in future years could be overwhelmed by deferred work—a practice that contributed to the rebaseline of the JWST program, which included a $3.6 billion cost increase and a 52-month schedule delay. We found in July 2016 that the SLS program has not positioned itself well to accurately assess progress with the core stage—SLS’s structural backbone and fuel tank—because it did not have a performance measurement baseline for that contract. Such a baseline is necessary to support EVM reporting that can provide early warning signs of impending schedules delays and cost overrun, and provide unbiased estimates of anticipated costs at completion. The lack of an accurate performance measurement baseline stemmed from different assumptions between NASA and the contractor about when funding would be available to start different work and ultimately led to a contract modification. NASA and the contractor signed the contract replan in May 2016—with a cost increase of approximately $1 billion—and the program began receiving contractor EVM data in July 2016, more than 4.5 years after NASA awarded the contract. The cost and schedule baselines NASA has established for these three programs provide little visibility into long-term planning and costs. The baselines for SLS and EGS are applicable through the first exploration mission, and the baseline for Orion extends through the second exploration mission. However, the limited scope that NASA has chosen for constructing these cost estimates means that these estimates are unlikely to serve as a way to measure progress and track cost growth over the life of the projects which are expected to extend well beyond these first missions. In addition to these human spaceflight programs, NASA plans to reestablish a domestic capability to fly astronauts to the International Space Station through its Commercial Crew program by the end of 2018. This is also proving to be an aggressive schedule and NASA’s two contractors are concurrently developing, testing, and producing their vehicles in an effort to maintain schedule. Significant delays could lead to a gap in U.S. access to the International Space Station as NASA has acquired seats on the Russian Soyuz vehicle only through 2018. NASA also continues to have trouble demonstrating progress in executing two projects that we found in our 2015 high-risk update illustrated instances in which the agency had either underestimated risks and potential effects or had not reacted quickly enough to risks when they worsened: The Ice, Cloud, and Land Elevation Satellite-2 (ICESat-2) project—also scheduled to launch in 2018—continues to experience issues with its sole instrument, a laser altimeter. The project may require an additional 10 months or more to resolve technical challenges. The project already underwent one rebaseline in 2014, resulting in a 37 percent higher development cost than its original baseline—from $558.9 million to $763.7 million—which NASA officials at the time primarily attributed to underestimating the technical complexity of the project’s design. The Space Network Ground Segment Sustainment (SGSS) project’s contractor provided overly optimistic estimates, which—despite project officials being aware of this issue during project confirmation— necessitated a rebaseline shortly after the project was confirmed. NASA approved a new baseline in June 2015, which increased its estimated cost by $345 million and delayed its estimated completion by 27 months. In February 2016, NASA reclassified SGSS as a sustainment project rather than a major project, which reduces reporting and oversight requirements. Finally, as we highlighted in the 2015 high-risk update, the inconsistent way NASA measures its progress toward reducing acquisition risk masks true cost and schedule growth for some programs. When NASA reports on cost and schedule performance for individual projects or across its portfolio, it uses rebaseline data rather than original project baseline data for measuring outcomes. Cost and schedule growth that occurred prior to the rebaseline of a troubled project are excluded from calculations of overall progress. As a result, when the agency reports program performance in this manner—as it has for JWST, ICESat-2, and others— it makes it difficult to track cost and schedule growth compared to the agency’s original commitment levels. In November 2012, we found that NASA employee skill sets available to analyze and implement EVM vary widely from center to center, and we recommended that NASA conduct an EVM skills gap analysis to identify areas requiring augmented capability across the agency, and, based on the results of the assessment, develop a workforce training plan to address any deficiencies. NASA developed an EVM training plan in 2014 based on the results of an EVM skills gap analysis that was conducted in 2013. In November 2012, we found that NASA faced cultural and technical challenges that it must overcome to successfully implement an EVM system and to use this data on a regular basis to inform decision making. We recommended that the agency develop an EVM change management plan to assist managers and employees throughout the agency with accepting and embracing earned value techniques while reducing the operational effect on the agency. In response to our recommendation, in 2014, NASA developed an EVM change management plan. This plan was approved by the EVM Steering Committee, which is comprised of senior-level NASA officials who provide guidance to the agency on implementing EVM. In addition, the plan was briefed to the EVM Focal Points who are responsible for implementing the plan within their respective organizations. In November 2012, we found that 10 NASA major spaceflight projects had not yet fully implemented EVM. As a result, NASA was not taking full advantage of an important tool that could help reduce acquisition risk. We recommended that NASA establish a time frame by which all new spaceflight projects will be required to implement NASA’s newly developed EVM system to ensure that in-house efforts are compliant with ANSI/EIA-748, accounting for the need to increase NASA’s institutional capability for conducting EVM and analyzing and reporting the data. In fiscal year 2013, NASA started a phased rollout at selected centers to increase the agency’s EVM capacity by implementing its EVM Capability process at projects at those centers. According to NASA officials, as future projects at those centers implement EVM, they expect centers will follow the agency EVM process, which will better ensure that they are using systems which are compliant with ANSI/EIA-748. In August 2014, NASA addressed concerns we raised about the SLS by taking actions to balance the program’s cost and schedule risk in line with agency policies. At the time of our report in July 2014, we found that NASA’s funding plan for the first test flight of SLS in December 2017 was insufficient to meet needs. We recommended that the program match resources to requirements that would result in a level of risk in line with NASA policy by—for example—establishing cost and schedule baselines that supported a joint cost and schedule confidence level (JCL) of 70 percent. We indicated that NASA could, for example, increase funding or delay the scheduled launch date to reduce risks and meet the 70 percent JCL. In August 2014, the program addressed our concerns by establishing its agency cost and schedule baselines at a 70 percent JCL of $9.7 billion with a launch readiness date of November 2018. For additional information about this high-risk area, contact Cristina T. Chaplain at (202) 512-4841 or chaplainc@gao.gov. James Webb Space Telescope: Project Meeting Cost and Schedule Commitments but Continues to Use Reserves to Address Challenges. GAO-17-71. Washington, D.C.: December 7, 2016. Orion Multi-Purpose Crew Vehicle: Action Needed to Improve Visibility into Cost, Schedule, and Capacity to Resolve Technical Challenges. GAO-16-620. Washington, D.C.: July 27, 2016. NASA Human Space Exploration: Opportunity Nears to Reassess Launch Vehicle and Ground Systems Cost and Schedule. GAO-16-612. Washington, D.C.: July 27, 2016. NASA: Assessments of Major Projects. GAO-16-309SP. Washington, D.C.: March 30, 2016. James Webb Space Telescope: Project on Track but May Benefit from Improved Contractor Data to Better Understand Costs. GAO-16-112. Washington, D.C.: December 17, 2015. Space Launch System: Management Tools Should Better Track to Cost and Schedule Commitments to Adequately Monitor Increasing Risk. GAO-15-596. Washington, D.C.: July 16, 2015. NASA: Assessments of Selected Large-Scale Projects. GAO-15-320SP. Washington, D.C.: March 24, 2015. The Department of Defense (DOD) obligated $273.5 billion in fiscal year 2015 on contracts for goods and services, including major weapon systems, support for military bases, information technology, consulting services, and commercial items. Contracts also include those supporting contingency operations, such as those in Afghanistan. DOD is, by far, the single largest contracting agency in the federal government, typically accounting for about two-thirds of all federal contracting activity. Our work and that of others, however, has identified challenges DOD faces within three segments of contract management: (1) the acquisition workforce, (2) service acquisitions, and (3) operational contract support (OCS). Ensuring DOD has the people, skills, capacities, tools, and data needed to make informed acquisition decisions is essential if DOD is to effectively and efficiently carry out its mission in an era of more constrained resources. We added this area to our High-Risk List in 1992. Senior DOD leadership remains committed to addressing its contract management challenges and, in particular, has made significant progress in addressing OCS issues since 2015. For example, DOD held meetings of its senior executive level governance forum to institutionalize OCS, issued revised guidance, and made progress in incorporating OCS concepts into operational plans. Further, DOD has taken steps to address education and training shortfalls and has dedicated additional training resources to enhance OCS. DOD also updated its action plan for OCS, which includes both revised and new tasks with measurable metrics and milestones. As a result of these actions, for the OCS subarea, we have raised our assessments for capacity to partially met and consider DOD to have met our criterion for having an action plan. DOD has also made some progress in managing its acquisition workforce. Specifically, in October 2016, DOD issued its updated acquisition workforce strategic plan which, among other things, assessed the current capability of the workforce and identified risks that DOD needed to manage to meet future needs. As a result of these actions, we have raised the action plan criterion for the acquisition workforce subarea to partially met. DOD acknowledged, however, that it will need to develop and implement metrics to track progress toward meeting the four strategic goals identified in its October 2016 strategic workforce plan. Further, the workforce plan does not establish specific career field goals or targets, which will hinder efforts to ensure DOD has the right people with the right skills to meet future needs. Congress has also taken action to help improve the acquisition workforce. In the National Defense Authorization Act for Fiscal Year 2016, Congress made permanent the requirement for the military departments and defense agencies to remit $500 million for each fiscal year to the Defense Acquisition Workforce Development Fund (DAWDF)—a fund used by DOD to increase hiring and provide additional training. This enabled critical support for acquisition workforce development initiatives for DOD. While DOD continues to take action to improve how it manages services acquisitions, demonstrated progress was more limited. In January 2016, DOD issued a new instruction for service acquisitions that provides a management structure for acquiring services and identifies the roles and responsibilities of key leadership positions, but DOD still lacks an action plan that will enable it to assess progress toward achieving its goals, and efforts to identify goals and associated metrics are still in the early stages of development. One critical element in improving services acquisition is to know what the department is buying today and what it intends to buy in the future. We found that while data on future service acquisitions are generally maintained by DOD program offices, DOD and military department guidance does not require that data to be specifically identified in DOD’s budget forecasts. In that regard, DOD’s January 2016 service acquisition instruction includes requirements to generate data on anticipated future service acquisition spending, but this requirement does not clearly identify what level of detail should be collected, leaving DOD at risk of developing inconsistent data between each military department. To further improve outcomes on the billions of dollars spent annually on goods and services, DOD needs to take the following actions. Continue efforts, including strategic planning and aligning funding, to increase the department’s capacity to negotiate, manage, and oversee contracts by ensuring that its acquisition workforce is appropriately sized and trained to meet the department’s needs. Determine the appropriate mix of military, civilian, and contractor personnel. To assist with this, DOD needs to make decisions about the department’s approach for compiling its inventory of contracted services and defining the roles and responsibilities of those involved with the inventory. Strategically manage how it acquires services by defining desired outcomes, establishing goals and measures, and obtaining data needed to measure progress. To enhance available information on service acquisitions, the military departments should revise programming guidance to collect information on how contracted services will be used to meet requirements beyond the budget year. Sustain efforts throughout the department to integrate OCS through policy, planning, training, and application of necessary resources for both current and future contingency operations. Listed below are additional recommendations that need to be addressed: In December 2015, we recommended that DOD update its acquisition workforce plan, including revising career field goals. DOD concurred with our recommendation. In October 2016, DOD issued an updated acquisition workforce strategic plan which, among other things, assessed the current capacity and capability of the workforce and identified the risks that DOD needed to manage to meet future needs. The updated workforce plan also established four strategic goals, approved by the Defense Acquisition Workforce Senior Steering Board, to guide future efforts, including shaping the acquisition workforce to achieve current and future acquisition requirements. The October 2016 plan did not, however, establish specific career field goals or targets for its 13 career fields, including priority career fields where it has not met its targets, such as contracting, business, and auditing, which will hinder efforts to ensure that DOD has the right people with the right skills to meet future needs. In June 2013, we recommended that DOD identify baseline data on the status of service acquisitions, develop specific goals associated with their actions to improve service acquisitions, and establish metrics to assess progress in meeting these goals. DOD concurred with our recommendations and is developing service acquisition goals and metrics as well as an action plan for improving service acquisition. In relation to strategic sourcing—a process of moving away from numerous individual procurements to a broader aggregate approach—in September 2012, we recommended that the department issue direction that sets goals for spending managed through strategic sourcing vehicles, establishes procedures for tracking strategic sourcing efforts, and establishes metrics to track progress toward these goals. We also recommended that DOD identify and evaluate the best way to strategically source DOD’s highest spending categories. DOD concurred with these two priority recommendations and has been working with the Office of Management and Budget’s Category Management Leadership Council to determine appropriate strategic sourcing goals, but specific goals and corresponding metrics have not yet been established. DOD officials stated that appointing senior officials to manage the acquisition of services should help DOD further expand strategic sourcing efforts for high-spend service categories. As of October 2016, however, many of these efforts are in the early stages of implementation. We noted in our 2015 high-risk report that DOD’s top leadership has taken significant steps to plan and monitor progress in the management and oversight of contracting techniques and approaches. For example, we noted that DOD had been using its Business Senior Integration Group—the Under Secretary of Defense for Acquisition, Technology, and Logistics’ executive-level leadership forum for providing oversight in the planning, execution, and implementation of DOD’s Better Buying Power initiatives—as a mechanism to review ongoing and emerging issues, including competition. It is important for DOD to continuously promote competition, which is a critical tool for achieving the best possible return on investment for taxpayers. In addition, congressional action is needed to enhance visibility into DOD’s planned spending on contract services. In February 2016, we found that, unlike DOD budget exhibits for weapon systems, DOD’s other budget exhibits which contain information on contracted services do not include data on projected spending beyond the current budget year. Without a roadmap of future projected service contract spending needs, Congress has limited visibility into an area that constitutes more than half of DOD’s annual contract spending. Given that the intent of section 235 of Title 10 United States Code was to provide both DOD and Congress with increased oversight of the procurement of services, we suggested that Congress should consider amending reporting requirements to include estimated spending on services beyond the budget year. DOD has met this criterion by implementing its Better Buying Power initiative—which included specific actions to improve the professionalism of the acquisition workforce—and through continued efforts to sustain and train the workforce in times of budget constraints and cost-cutting pressures. For example, in June 2016, the Under Secretary of Defense for Acquisition, Technology and Logistics stated that DOD intends to sustain the acquisition workforce at current levels and continue to improve its professionalism. Similarly, DOD’s October 2016 acquisition workforce strategic plan stated that DOD must sustain the acquisition workforce size, factoring in workload demand and requirements; ensure its personnel continue to increase their professionalism, and continue to expand talent management programs to include recruitment, hiring, training, development, recognition, and retention incentives by using DAWDF and other appropriate tools. DOD components plan to spend more than $3.0 billion in DAWDF funding between fiscal years 2018 through 2022 in support of these objectives. DOD has partially met this criterion. Since 2015, DOD has continued to increase the size of the acquisition workforce by about 2,000 acquisition personnel. Overall, the size of its military and civilian acquisition workforce grew by about 26 percent—from close to 126,000 to more than 158,000 between September 2008 and March 2016—or about 12,000 more than the target identified in DOD’s April 2010 acquisition workforce plan. While DOD met the overall acquisition growth goal, it did not accomplish the goals set for some career fields. The plan indicated that targeted growth in 5 of these priority career fields—auditing, business, contracting, engineering, and program management—would help DOD strategically reshape its acquisition workforce. As of March 2016, our analysis shows that DOD met or exceeded its planned growth for 8 career fields by about 12,500 personnel, including the priority career fields of program management and engineering, but fell short by about 2,800 personnel in 5 other career fields, including the priority career fields of contracting, business, and auditing. DOD has also used DAWDF to increase hiring and provide for additional training. In the National Defense Authorization Act for Fiscal Year 2016, Congress further enabled critical support for acquisition workforce development initiatives by making permanent the requirement for the military departments and defense agencies to remit $500 million for each fiscal year to the fund. Increasing the number of people performing acquisition work is only part of DOD’s strategy to improve the capability of its workforce; another part is ensuring that the workforce has the requisite skills and tools to perform their tasks. DOD developed a five-phase process that included surveys of its employees to assess the skills of its workforce and to identify and close skill gaps. DOD completed competency assessments for 12 of its 13 career fields and is developing new training classes to address some skill gaps. However, DOD has not determined the extent to which workforce skill gaps identified in initial career field competency assessments have been addressed and what workforce skill gaps currently exist. In our December 2015 report, we recommended that DOD establish time frames to conduct follow-up career field competency assessments so that it can determine if skill gaps are being addressed. DOD agreed with the recommendation. The department’s October 2016 acquisition workforce strategic plan stated that career field competency assessments should be conducted at a minimum of every 5 years, but it is too soon to tell whether DOD will conduct these assessments as recommended in its workforce plan. DOD has now partially met this criterion. The National Defense Authorization Act for Fiscal Year 2010 required DOD to develop and submit to Congress a strategic plan for DOD’s acquisition workforce, to be updated biennially. In a December 2015 report, we found that DOD had exceeded its workforce growth target established in 2010 and was focused on sustaining the size of its acquisition workforce. We noted that an updated workforce plan that included revised career field goals, coupled with guidance on how to use DAWDF, could help DOD components focus future hiring efforts on priority career fields. Without an integrated approach, we concluded that the department would be at risk of using the funds to hire personnel in career fields that currently exceed their targets or are not considered a priority. Therefore, we recommended that DOD update its acquisition workforce plan, including revising career field goals, so that it could ensure that the most critical acquisition needs are being met. DOD officials agreed with our recommendation. In October 2016, DOD issued an updated acquisition workforce strategic plan which, among other things, assessed the current capacity and capability of the workforce and identified the risks that DOD needed to manage to meet future needs. The updated workforce plan also established four strategic goals, approved by the Defense Acquisition Workforce Senior Steering Board, to guide future efforts, including shaping the acquisition workforce to achieve current and future acquisition requirements. The October 2016 plan did not, however, establish specific career field goals or targets, which will hinder efforts to ensure that DOD has the right people with the right skills to meet future needs. We also continue to find that DOD faces challenges in meeting its statutory requirement to prepare an annual inventory of contracted services—one that could help it make more strategic decisions about the right workforce mix of military, civilian, and contractor personnel and better align resource needs through the budget process to achieve that mix. Specifically, in October 2016, we found DOD faced continued delays in (1) deciding on the path forward for its underlying data collection system for the inventory of contracted services, (2) staffing its inventory management support office, and (3) formalizing roles and responsibilities of that office and stakeholders. These continued delays hinder DOD’s ability to use the inventory to inform workforce and budget decision- making processes. DOD has partially met this criterion. DOD acknowledged that it will need to develop and implement metrics to track progress toward meeting the four strategic goals identified in its October 2016 strategic workforce plan, including those related to shaping the future acquisition workforce. DOD, however, has been tracking workforce growth against targets established in 2010, as well as other metrics, such as those related to education and training. DOD has partially met this criterion. The metrics show that the department has exceeded its overall acquisition workforce growth target and education and training rates have increased significantly since 2008. For example, in its October 2016 acquisition workforce plan, DOD reported that the number of personnel with bachelor’s degrees or higher increased from 77 percent in fiscal year 2008 to 84 percent in fiscal year 2015, while those with graduate degrees increased from 29 percent to 39 percent over the same period. DOD also reported that more than 96 percent of the acquisition workforce either met or was on track to meet certification requirements within required time frames. DOD has not, however, verified that the current composition of the workforce will meet its future workforce needs. DOD has demonstrated sustained leadership commitment in improving its approach to managing the acquisition of services, which accounted for more than 50 percent of DOD’s contract obligations in fiscal year 2015, and has met this criterion. This commitment is reflected in DOD’s issuance in January 2016 of a service acquisition instruction, which established policy, assigned responsibilities, and provided procedures for defining, assessing, reviewing, and validating requirements for the acquisition of services. This instruction, which provides a management structure for acquiring services, builds on DOD’s efforts to improve how it acquires services that were contained in its Better Buying Power initiative. We are currently assessing the actions the military departments are taking to implement the service acquisition instruction. DOD has partially met this criterion by establishing a number of management and oversight positions intended to address its capacity for strategically managing the acquisition of services. These include designating the Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics as the department’s senior manager for service acquisition in 2013, as well as building capacity to address service acquisition issues by designating a senior manager for service acquisitions in each military department. We are currently assessing the effects of these new positions. DOD has not met this criterion. DOD does not have an action plan that would enable it to assess progress toward achieving its goals, and its efforts to develop goals and associated metrics unique to each category of service it acquires are also in the early stages of development. DOD has partially met this criterion. Because DOD lacks an action plan, it is not yet positioned to fully assess its progress in improving service acquisition. A key element to being more strategic in acquiring services is knowing how and where service acquisition dollars are currently being spent and how those dollars will be spent in the future. We found in February 2016 that program offices within each of the military departments that we met with maintained data on current and estimated future spending needs for contracted service requirements, but they did not identify service contract spending needs beyond the next year, as they were not required to do so. We recommended that the military departments revise their programming guidance to collect information that is already available on how contracted services will be used to meet requirements beyond the budget year. We also recommended that DOD establish a mechanism, such as a working group of key stakeholders, to coordinate these efforts. DOD partially concurred with these two priority recommendations, citing challenges in estimating future spending, but as of July 2016, had generally not taken action to address them. In February 2016, however, the Army included service contract reporting requirements in its Command Program Guidance Memorandum for fiscal years 2018-2022. The memorandum instructs Army commands and operating agencies to document all current and future requirements for contracted services for fiscal years 2018-2022. In its memorandum, the Army noted that this data will provide transparency over contracted services funding and requirements and enable the Army to track dollars programmed for services. Further, the Army stated that this effort will provide data that can be used to make resource decisions and inform processes that determine workload requirements and assess the appropriate mix of military, civilian, and contractors to execute workload requirements. In addition, DOD has made progress in acquiring services through strategic sourcing but has more to do to improve monitoring. For example, in September 2015, we found that each of the military departments we reviewed had designated officials responsible for strategic sourcing and created offices to identify and implement strategic sourcing opportunities, including those specific to information technology services. The military departments did not monitor spending or establish savings goals and metrics for the use of their preferred strategic sourcing contracts for information technology services, which resulted in most of their dollars for information technology services being obligated through hundreds of potentially duplicative contracts that diminished the government’s buying power and resulted in missed opportunities to achieve savings and obtain other benefits. DOD has partially met this criterion. The January 2016 DOD services acquisition instruction included additional requirements to generate data on past and anticipated future service acquisition spending, but did not clearly identify what level of detail should be collected, leaving the department at risk of developing inconsistent data between each military department and limiting DOD leadership’s insight into future spending on contracted services. DOD plans to develop service acquisition related goals and metrics in fiscal year 2017 to develop additional baseline data to gauge progress. As DOD and the military departments mature efforts to develop more refined data on past and future service contract spending and develop specific goals related to each, DOD will be better positioned to assess its progress. DOD has met this criterion by continuing to demonstrate sustained commitment and strong leadership support in addressing OCS issues. DOD held its first OCS Summit in October 2015, attended by senior leaders from across the department, to review and discuss strategies to better formalize capability and capacity in the Joint Force. DOD officials are planning to host a similar forum in 2017. Additionally, the Functional Capabilities Integration Board serves as a single senior executive-level governance forum for OCS issues. It convenes quarterly, or as required, providing strategic leadership to multiple stakeholders working to institutionalize OCS. DOD has partially met this criterion. Specifically, DOD has made progress toward addressing agency capacity by identifying several actions to develop its personnel and training resources since our last high-risk update. The July 2014 update to the Joint Staff’s primary OCS guidance, according to DOD officials, changed doctrine and obviated the results of an earlier study that had found capacity shortfalls in OCS positions. Subsequently, according to officials, in September 2016 the Office of the Secretary of Defense established a joint OCS Policy Working Group to clarify and refine OCS policy. Also, DOD officials told us, in October 2016, that DOD is pursuing a joint OCS capacity review process to implement corrective actions to address OCS shortfalls in personnel, education, training, and materiel and to better incorporate OCS requirements. Joint Staff also identified priority items that combatant commanders should consider emphasizing in their training and exercise programs to improve OCS capacity. DOD has made significant progress in addressing the action plan criterion and has met this criterion. In September 2016, DOD issued its fourth iteration of the OCS Action Plan, which is organized around 10 capability gaps that needed to be closed in order to effectively institutionalize OCS capability and is DOD’s primary mechanism for monitoring and validating the effectiveness and sustainability of those tasks. We found, in February 2015, that the 2014 Action Plan lacked performance measures or metrics to evaluate if actions taken had filled the capability gaps. DOD’s 2016 action plan, however, revised tasks and added new tasks to include measurable metrics and provided a cross-walk to show the status of the tasks. For example, the 2016 plan shows 90 tasks completed or deleted from the preceding years. Further, the 2016 plan highlighted a number of other ongoing efforts, such as initiating a new joint capability requirements document and process that, if approved, may accelerate significant changes across DOD. DOD has partially met this criterion. Each task identified in the 2016 Action Plan has a deliverable or outcome measured against a target completion date, and a senior-level board serves as the primary monitor for these performance targets. Moreover, the 2016 Action Plan included a new annex managed by the Joint Staff logistics directorate to capture subtasks that supplement the 36 overarching tasks in the DOD action plan. However, some of these subtasks are not clearly defined and will be difficult to monitor. For example, one subtask associated with a gap— personnel being insufficiently aware of the significance of OCS—suggests the need for an enduring culture change, but it is unclear how DOD will monitor this effort. DOD has partially met this criterion. DOD continues to make progress in incorporating OCS concepts into plans and addressing education and training shortfalls. For example, we found, in December 2015, that U.S. Africa Command developed some annexes to plans that generally contained key considerations discussed in Joint Staff and other DOD guidance such as force protection, host nation agreements, and contractor oversight. Additionally, Joint Staff has revised the Universal Joint Tasks—which support DOD in conducting training and exercises— incorporating lessons learned related to OCS and new doctrine identified in Joint Publication 4-10. However, DOD has not implemented several priority recommendations related to OCS guidance. For example, we reported, in February 2013, that the Navy, Marine Corps, and Air Force have not developed comprehensive guidance, limiting the military departments’ planning efforts to accurately reflect how they use contract support. We recommended that DOD direct the Navy and Air Force to provide service- wide guidance for the Navy, Marine Corps, and Air Force that describes how each service should integrate OCS into its respective organization to include planning for contingency operations. DOD concurred with this priority recommendation. Since that time, the Marine Corps has developed guidance and definitions within the Marine Corps Capabilities List, and the Air Force has issued a memorandum on OCS integration and updated existing guidance to include OCS concepts. OSD officials told us, in December 2016, that Navy planners are drafting an OCS instruction for internal review, which they estimate will be completed in the summer of 2017. However, the September 2016 OCS Action Plan reflects the target publication date as the first quarter of fiscal year 2017. In March 2015, we recommended that DOD revise existing guidance to detail the roles and responsibilities of the military departments in collecting OCS lessons learned. We also recommended that DOD direct the Navy and Air Force to include the military departments’ roles and responsibilities to collect OCS lessons learned in military department specific guidance on how the Navy, Marine Corps, and Air Force should integrate OCS. DOD concurred with these priority recommendations, and, according to senior DOD officials, the department is revising a DOD instruction and directive to address these recommendations. In addition, the 2016 action plan identified foreign vendor vetting as a significant issue that should replace base access as a capability gap. DOD also noted that addressing this potential gap will likely require support from beyond the OCS community. Specifically, according to DOD officials, the OCS community of interest determined that the issue of vendor vetting is outside the responsibility and expertise of the OCS community. DOD established a separate working group on vendor vetting to address this issue. However, DOD has not developed comprehensive guidance on foreign vendor vetting, as we previously recommended. In December 2015, we recommended that the department develop guidance that clarifies the conditions under which combatant commands should have a foreign vendor vetting process or cell in place to determine whether potential vendors actively support any terrorist, criminal, or other sanctioned organization. DOD concurred with this priority recommendation, stating that the Office of the Secretary of Defense in collaboration with the Joint Staff had established a joint working group to identify key stakeholders and develop DOD policy requiring combatant commands to develop processes for vetting foreign vendors. As of December 2016, the department was in the process of preparing a directive type memorandum to the military departments and combatant commands with additional information. According to officials, DOD continues to gain stakeholder support and assess and analyze vendor vetting issues, in order to develop comprehensive guidance, as we previously recommended. In February 2016, we recommended that the military departments revise their programming guidance to collect information on how contracted services will be used to meet requirements beyond the budget year. DOD partially concurred with this recommendation, citing challenges with accurately quantifying service contract requirements beyond the budget year. In its February 2016 Command Program Guidance Memorandum, the Army required all its organizations to provide contract service requirements data for fiscal years 2018-2022, including all current and planned requirements. The Army recognized that this will enable the Army and its commands to analyze contract service requirements and execution trends and allow the Army to prioritize growth or reductions to specific contract service requirements. In March 2010, we recommended that DOD update its planning guidance to address the potential need for contractor support where appropriate. DOD concurred with this recommendation. In October 2012, the Chairman of the Joint Chiefs of Staff issued updated guidance on operational planning which contains information related to planning for contracted support. As a result of this change in guidance, senior DOD leaders will have a better understanding of how the department relies on contractors as it undertakes contingency operations, and will be more attuned to the potential risks of using contractors and better prepared to manage those risks. For additional information about this high-risk area, contact Timothy J. DiNapoli at (202) 512-4841 or dinapolit@gao.gov. DOD Inventory of Contracted Services: Timely Decisions and Further Actions Needed to Address Long-Standing Issues. GAO-17-17. Washington, D.C.: October 31, 2016. DOD Service Acquisition: Improved Use of Available Data Needed to Better Manage and Forecast Service Contract Requirements. GAO-16-119. Washington, D.C.: February 18, 2016. Operational Contract Support: Additional Actions Needed to Manage, Account for, and Vet Defense Contractors in Africa. GAO-16-105. Washington, D.C.: December 17, 2015. Defense Acquisition Workforce: Actions Needed to Guide Planning Efforts and Improve Workforce Capability. GAO-16-80. Washington, D.C.: December 14, 2015. DOD Inventory of Contracted Services: Actions Needed to Help Ensure Inventory Data are Complete and Accurate. GAO-16-46. Washington, D.C.: November 18, 2015. DOD Contract Services: Improvements Made to Planning and Implementation of Fiscal Controls. GAO-15-780. Washington, D.C.: September 30, 2015. Strategic Sourcing: Opportunities Exist to Better Manage Information Technology Services Spending. GAO-15-549. Washington, D.C.: September 22, 2015. Operational Contract Support: Actions Needed to Enhance the Collection, Integration, and Sharing of Lessons Learned. GAO-15-243. Washington, D.C.: March 16, 2015. Contingency Contracting: Contractor Personnel Tracking System Needs Better Plans and Guidance. GAO-15-250. Washington, D.C.: February 18, 2015. The Internal Revenue Service (IRS) continues to demonstrate top leadership support for improving tax compliance and addressing the tax gap. However, IRS’s capacity to implement new initiatives, carry out ongoing enforcement and taxpayer service programs, and combat identity theft (IDT) refund fraud under an uncertain budgetary environment remains a challenge. Enforcement of the tax laws helps fund the U.S. government. IRS enforcement collects revenue from noncompliant taxpayers and, perhaps more importantly, promotes voluntary compliance by giving taxpayers confidence that others are paying their fair share. In 2016, IRS estimated that the average annual gross tax gap—the difference between taxes owed and taxes paid on time—was $458 billion for tax years 2008-2010. IRS is able to recover a portion of the tax gap. In 2016, IRS estimated that it will eventually collect $52 billion of the tax gap through enforcement actions and late payments, leaving an annual estimated net tax gap of $406 billion for tax years 2008-2010. In 2015, we expanded the enforcement of tax laws high-risk area to include IRS’s efforts to address tax refund fraud due to IDT, which occurs when an identity thief files a fraudulent tax return using a legitimate taxpayer’s identifying information and claims a refund. According to IRS, it estimates that at least $14.5 billion in IDT tax refund fraud was attempted in tax year 2015, of which it prevented at least $12.3 billion (85 percent). Of the amount attempted, IRS estimated that at least $2.2 billion (15 percent) was paid. As previously mentioned, IRS continues to demonstrate top leadership support for improving tax compliance and addressing the tax gap. For example, it continues to research the extent and causes of taxpayer noncompliance, and released an updated tax gap estimate in April 2016. The agency has also taken steps to address IDT refund fraud, such as increasing the number of staff and resources dedicated to combating this issue. IRS has now partially met the criterion for capacity with respect to combating IDT refund fraud. But as also cited above, IRS’s capacity to implement new initiatives, carry out ongoing enforcement and taxpayer service programs, and combat IDT refund fraud under an uncertain budgetary environment remains a challenge. Annual appropriations increased by $290 million between fiscal years 2015 ($10.9 billion) and 2016 ($11.2 billion), but remain about $900 million (about 7 percent) below fiscal year 2011 levels ($12.1 billion). IRS continues to take actions toward meeting three other criteria for removal from our High-Risk List: developing a corrective action plan, monitoring, and demonstrating progress. For example, IRS’s strategic plan includes general approaches to make voluntary compliance easier for taxpayers. IRS also has a strategic plan that identifies refund fraud and IDT as challenges facing the nation’s tax system over the next several years. However, IRS has not yet implemented some of our recommendations highlighted in the 2015 high-risk report that could help it improve its corrective action plan, such as better measuring return-on- investment (ROI), better leveraging automated processes, and improving enforcement data. Also, for some compliance initiatives, such as those related to the Foreign Account Tax Compliance Act or the Patient Protection and Affordable Care Act (PPACA), IRS will need to continue to focus on measuring results and the effect of these initiatives on the tax gap. While IRS has developed research efforts to assess its IDT defense effectiveness, the agency needs to do more to demonstrate progress. Due in part to substantial methodological changes used to estimate the amount of IDT refund fraud prevented, year over year comparisons in IRS’s estimates of IDT refund fraud prevented and paid are not comparable. In addition, the agency has yet to address key weaknesses in authenticating taxpayers. While IRS is taking steps to improve authentication, it will still be vulnerable until it completes and uses the results of its analysis of costs, benefits, and risk to inform decision- making. Although more needs to be done, Congress and IRS have taken steps to implement a number of our recommendations that have resulted in benefits. For example, Congress passed legislation targeted at further strengthening tax law enforcement, including the Tax Equity and Fiscal Responsibility Act (TEFRA), which will improve the efficiency of partnership audits. Congress also passed legislation that will increase tax compliance through improved third-party reporting requirements, strengthened controls over higher education tax benefits to reduce inaccurate claims, and provided IRS with authority to correct errors related to the First-Time Home Buyer’s Credit. IRS and congressional actions based on our work in this area resulted in a total financial savings of approximately $7.8 billion between 2011 and 2016 and an estimated $12.5 billion in additional revenue over the next 8 years. IRS should implement our open recommendations, especially those that focus on improving audit effectiveness, taxpayer services, and resource investment decision making and oversight. Specifically, IRS should: continue to develop and implement a long-term strategy to address operations amidst an uncertain budget environment; determine resource allocation strategies for its enforcement efforts such as large partnership audits; assess the performance of its information technology (IT) investments as well as improve its IT security and online web services; develop a strategy for better identifying partnership noncompliance and assessing the effectiveness of exam selection; strengthen referral programs so whistleblowers and other stakeholders can more easily submit information to IRS about tax noncompliance; and enhance taxpayer services by developing a long-term strategy for providing web-based services to taxpayers, and improve telephone service by establishing a customer service standard and identifying resources needed to achieve that standard. With regard to IDT refund fraud, IRS should implement our open recommendations, including identifying and addressing authentication risks associated with the Taxpayer Protection Program; estimating and documenting the costs, benefits, and risks of possible options for taxpayer authentication; and improving third-party partnership programs. Given that the tax gap has been a persistent issue, we have previously reported that reducing it will require targeted legislative actions, including the following: Additional third-party information reporting. Taxpayers are much more likely to report their income accurately when the income is also reported to IRS by a third party. In 2008 and 2009, we suggested Congress consider expanding third-party information reporting to include payments for services to rental real estate owners and payments for services provided by corporations, respectively. In 2010, the Joint Committee on Taxation estimated that, for a 10-year period, tax compliance could potentially increase by $2.5 billion if third parties reported rental real estate service payments, and $3.4 billion if third parties reported service payments to corporations. Congress enacted a more expansive regime in 2010 covering reporting of payments for goods as well as services, and subsequently repealed these provisions. Enhanced electronic filing. Requiring additional taxpayers to electronically file tax and information returns could help IRS improve compliance efficiently. Current law requires entities that file more than 250 returns during a year or partnerships with more than 100 partners to file electronically. In 2014, we suggested that Congress consider expanding the mandate for partnerships and corporations to electronically file their tax returns, as this could help IRS reduce return processing costs, select the most productive tax returns to examine, and examine fewer compliant taxpayers. Increased electronic filing would also allow IRS to obtain timely, accurate data from a significant number of additional employers, and could further enhance the benefits IRS could obtain from the accelerated Wage and Tax Statement (W-2) deadline and prerefund W-2 matching. Treasury has requested authority to reduce the current 250-return threshold for employers electronically filing information returns. In 2014, we suggested that Congress consider authorizing Treasury to lower the threshold for electronic filing of W-2s from 250 returns annually to between 5 to 10 returns, as appropriate. Math error authority. Providing IRS with correctible authority with appropriate safeguards to permit it to correct errors in cases where information provided by the taxpayer does not match information in government databases, among other things, could help IRS correct additional errors and avoid burdensome audits and taxpayer penalties. Congress enacted legislation in December 2015 that expands the circumstances in which IRS may use math error authority in some situations for selected refundable tax credits. While expanding math error authority is consistent with what we have previously suggested, we had suggested that math error authority be authorized on a broader basis with appropriate controls rather than on a piecemeal basis, and that controls may be needed to ensure that this authority is used properly. Our prior work identified potential controls, such as requiring IRS to report on its use of math error authority. Paid preparer regulation. Establishing requirements for paid tax return preparers could improve the accuracy of the tax returns they prepare. In 2014, we suggested Congress consider granting IRS the authority to regulate paid tax preparers, if it agrees that significant paid preparer errors exist. The Joint Committee on Taxation estimated that legislation to regulate paid preparers would increase tax compliance by $135 million in revenue through fiscal year 2025. Tax reform and simplification. A broader opportunity to address the tax gap involves simplifying the Internal Revenue Code, as complexity can confuse taxpayers and provide opportunities to hide willful noncompliance. Fundamental tax reform could result in a smaller tax gap if the new system has fewer tax preferences or complex tax code provisions; such reform could reduce IRS’s enforcement challenges and increase public confidence in the tax system. Short of fundamental reform, targeted simplification opportunities also exist. Amending the tax code to define terms more consistently across tax provisions could help taxpayers more easily understand and comply with their obligations and get the maximum tax benefit for their situations. For example, there are several provisions in the tax code benefiting taxpayers’ educational expenses, but the definition of what qualifies as a higher-education expense varies between these tax expenditures. IRS has met the criterion of demonstrating a strong commitment to, and top leadership support for, improving tax compliance and addressing the tax gap. Some steps IRS has taken include the following: IRS adopted a new, more strategic approach to identifying and selecting budget program priorities. IRS prioritized a subset of its 19 strategic objectives for action and established six themes that represent its “future state” vision for tax administration. In the fiscal year 2017 congressional justification, IRS linked requests for increased funding to the themes and included details on how much would be funded by each appropriation account. IRS also identified enterprise goals to guide the IRS toward the future state. However, as of December 2016, IRS has yet to set targets for meeting the goals, but plans to have targets in place by June 2017. IRS has continued to research the extent and causes of taxpayer noncompliance. We have consistently stressed the importance of IRS conducting tax compliance research. IRS extended a program to encourage taxpayers to voluntarily report their previously undisclosed foreign accounts and assets. IRS has collected over $10 billion since this program was initiated in 2009, and has implemented some of our recommendations on better managing the program. IRS has not met the criterion of having the capacity to demonstrate progress toward improving compliance and addressing the tax gap. IRS’s ability to carry out ongoing enforcement programs and implement new initiatives to improve tax law enforcement, such as those required by PPACA, could be challenged under an uncertain budget environment. IRS is further challenged because it does not calculate ROI estimates for each enforcement program— information IRS could use to inform resource allocation decisions. IRS has also not determined how to best leverage automated processes and stakeholders such as whistleblowers. Between fiscal years 2011 and 2016, IRS’s annual appropriations declined about $900 million. Likewise, staffing has declined: full-time equivalent staff members funded by annual appropriations declined by 12,000 between fiscal year 2011 and fiscal year 2016, a 13 percent reduction. At the same time, IRS’s enforcement performance has declined. For example, the individual examination (or audit) coverage rate declined by 20 percent from fiscal years 2013 to 2015—the most recent years available. Reductions in examinations can reduce revenue collected and may indirectly reduce voluntary compliance. These declines have also contributed to fluctuations in taxpayer service and longer wait times on the phones than taxpayers have historically experienced. IRS partially meets the criterion for having a corrective action plan to improve tax compliance and address the tax gap. Specifically, IRS has a strategic plan that discusses general approaches to make voluntary compliance easier for taxpayers and to ensure taxes owed are paid. However, in some areas, the plan does not include specific tactics for improving compliance strategies. We have identified and made recommendations in several areas that could help IRS improve its corrective action plan. We subsequently designated several of these as priority recommendations, because if implemented, they could yield significant improvements to IRS’s operations. Better measure return on investment. IRS’s budget environment and increased workload underscore the importance of IRS maximizing its resources in fulfilling its mission. By further refining direct revenue ROI measures of its enforcement programs, IRS could improve how it allocates resources across its programs. In 2012, we made various recommendations advising IRS to make better use of ROI measures, subject to other considerations of tax administration, such as minimizing compliance costs and ensuring equitable treatment across different groups of taxpayers. IRS is taking steps to implement these priority recommendations. For example, IRS has made progress developing a methodology for estimating marginal ratios for a limited subset of cases within the correspondence examination program. IRS officials are working to apply this methodology more broadly; however, they expect this effort will be complex and time consuming. As of November 2016, officials do not have a timeline for full implementation. Until IRS takes into account some measure of revenue yield per dollar of cost when making allocation decisions, it may be missing opportunities to collect significant amounts of additional revenue. Better leverage automated processes. Taking greater advantage of automated processes could enhance some IRS enforcement programs. For example, IRS does not routinely match the K-1 information return—on which partnerships and S corporations report income distributed to partners or shareholders—to income information on tax returns for partners and shareholders that are themselves partnerships and S corporations. Matching such information might be another tool for detecting noncompliance by these types of entities. In 2014, we recommended that IRS test the feasibility of such matching. IRS stated it would consider studying such testing if resources become available. Likewise, continuing to enhance automated taxpayer services, such as web services, could result in lower-cost methods of interacting with taxpayers. In 2013, we made various recommendations for IRS to improve web services provided to taxpayers. IRS has made progress in addressing these priority recommendations but has not yet completed its efforts. IRS’s strategy has evolved from a singular focus on online services to a more comprehensive strategy of taxpayer interaction—the Future State Initiative—through all service channels. We will continue to assess the new initiative as IRS continues its development. Improve enforcement data. More complete enforcement data could help IRS better allocate resources across programs. For example, in 2014, we found that IRS did not know the full extent to which partnerships and S-corporations misreported income, and that IRS examinations and automated document matching have not been effective at finding most of the estimated misreported income. Further, IRS does not know how partnerships misreporting income affects taxes paid by partners. We recommended, among other things, that IRS (1) develop and implement a strategy to improve its information on the extent and nature of partnership misreporting, and (2) use the information to potentially improve how it selects partnership returns to examine. IRS agreed with these priority recommendations and developed a strategy, which will involve a multiyear examination effort to collect audit data from a representative, statistical sample of partnerships. Information from the full study will help IRS make better- informed data-based decisions on enforcement decisions. IRS officials also reported that in January 2016, IRS launched a research study on a subset of the population of partnerships with three or fewer individual partners. The results of this study could improve IRS’s ability to estimate the extent and nature of partnership misreporting, and the effectiveness of partnership examinations in detecting misreporting. However, as of December 2016, IRS had not fully implemented the strategy or the research study on small partnerships. IRS partially meets the criterion of having a program to monitor corrective measures. As previously mentioned, IRS continues to research the extent of taxpayer noncompliance, and periodically estimates the voluntary compliance rate—the amount of tax for a given year that is paid on time. However, IRS does not adequately measure the impact of some specific compliance programs, such as the following: Correspondence examinations. IRS does not have information to determine how its program of examining tax returns via correspondence affects the agency’s broader strategic goals for compliance, taxpayer burden, and cost. Thus, it is not possible to tell whether the program is performing better or worse from one year to the next. In 2014, we made several recommendations, including a priority recommendation, related to monitoring program performance. IRS officials provided documents intended to establish correspondence audit program objectives and measures, and link them to the overall IRS goals and objectives; but the objectives, measures, and links were not clear. As of January 2017, officials had no planned date by which to clearly document the objectives, measures, and links. They said they expect to describe the objectives in program guidance changes anticipated in the next 12 to 18 months. Compliance Assurance Process. IRS does not fully assess the savings it achieves through its Compliance Assurance Process (CAP)—through which large corporate taxpayers and IRS agree on how to report tax issues before tax returns are filed. In 2013, we recommended that IRS track savings from CAP and develop a plan for reinvesting any savings to help insure the program is meeting its goals. Although IRS has taken steps to track savings by analyzing and comparing the workload inventory of account coordinators who handle CAP cases against team coordinators who handle non-CAP cases, it did not show how such a workload comparison demonstrated savings from CAP. IRS has also not developed a plan for reinvesting any savings. Without a plan for tracking savings and using the savings to increase audit coverage, IRS cannot be assured that the savings are effectively invested in either CAP or non-CAP cases with high compliance risk. As of November 2016, IRS is evaluating the CAP program to determine how it fits with IRS’s future vision for examinations, but it has no timetable for completing this evaluation. Also, IRS did not accept new CAP applications for 2016. IRS has partially met the criterion of demonstrating progress in implementing corrective measures to improve compliance and reduce the tax gap. For example, IRS is taking steps to better leverage stakeholders by strengthening its nine public referrals programs—which enable individuals to submit information to IRS about tax noncompliance—but has not yet determined how to measure results for other programs intended to leverage third-party information to improve compliance. Specifically, Public Referral Programs. Public referral programs are an important piece of IRS’s overall enforcement strategy and can help reduce the tax gap. We made several recommendations to IRS, including that it establish a coordination mechanism to communicate across the multiple referral programs, develop an online referral submission process, streamline the review process, and improve external communication. IRS has taken some actions to establish a mechanism to coordinate on a plan and timeline for developing a consolidated, online referral submission, which is also a priority recommendation. For example, IRS established a cross-functional team in February 2016 to conduct a comprehensive review of IRS’s referral programs. In November 2016, the cross-functional team proposed creating an online submission referral application to simplify access and filing of information referrals by the public. The team also requested information technology resources for fiscal year 2019 to develop an online system which it said could potentially replace four separate referral forms, filter out incomplete referrals, and electronically route referrals for further IRS action. IRS assessed options for consolidating all forms for the various referral programs and determined that a consolidated single form was not feasible at this time due to the technical nature and complexity of the various referral types. As of December 2016, IRS said it will consider further consolidation of the referral programs once the online application is in place. Whistleblower Office. We also identified key problems specific to the whistleblower program, which is the largest of IRS’s nine referral programs. For example, few large awards have been paid, claims take years to process, and communication with whistleblowers is limited. IRS agreed with our 10 recommendations to strengthen the whistleblower program, has already implemented several of them, and is in the process of implementing the rest. Until IRS completes these actions, it may be missing opportunities to assist the public, collect billions in uncollected taxes owed, and leverage resources to streamline processes, which could help it to better coordinate and identify possible efficiencies, as well as better manage fragmentation and overlap among its referral programs. Efforts to Encourage Voluntary Compliance. Also, as previously mentioned, IRS has collected more than $10 billion through its program to encourage taxpayers to voluntarily report their previously undisclosed foreign accounts and assets. However, for some initiatives—such as those related to the Foreign Account Tax Compliance Act or using payment data from credit card companies to improve compliance among small businesses—IRS is still determining how to best measure results, including the effect on the tax gap. IRS has met the criterion for demonstrating leadership commitment for combating IDT refund fraud. The agency has taken steps to address IDT refund fraud, including recognizing the challenge of IDT refund fraud in its fiscal year 2014-2017 strategic plan, and expanding its automated fraud filters to detect IDT and prevent fraudulent refunds. The IRS Commissioner has testified numerous times about the challenges from IDT refund fraud and the agency’s progress on the issue. Further, the IRS Commissioner convened a Security Summit in March 2015 to bring together representatives of the tax preparation and software industry and state tax administrators to launch a collaborative effort to combat IDT refund fraud. According to IRS officials, this collaboration has resulted in enhanced authentication procedures and data sharing. IRS’s Identity Theft Tax Refund Fraud Information Sharing and Analysis Center—where IRS, states, and industry can share information—is intended to become operational at the start of the 2017 Filing Season in January. IRS has partially met the criterion for having the capacity to combat IDT refund fraud. In fiscal year 2016, IRS reported that it staffed more than 4,000 full-time equivalents (FTE) and spent about $516 million on all refund fraud and IDT activities. Under the Consolidated Appropriations Act 2016, IRS received an additional $290 million to improve customer service, IDT identification and prevention, and cybersecurity efforts. The agency requested an additional $90 million and an additional 491 FTEs for fiscal year 2017 to help prevent IDT refund fraud and reduce other improper payments. At the same time, IRS’s ability to combat IDT refund fraud will continue to be challenged by “adaptive adversaries” that continuously change their methods as IRS improves its defenses. For example, recent schemes have involved fraudsters targeting sources of personal and financial information—such as payroll providers and IRS’s Get Transcript service—in order to file returns that look like past returns filed by legitimate taxpayers. IRS is also constrained in its ability to combat IDT refund fraud because it must balance the need to prevent fraud against increasing the burden on legitimate taxpayers filing their taxes. IRS has met the criterion for having an action plan to address IDT refund fraud. IRS has a strategic plan that identifies refund fraud and IDT as major challenges facing the nation’s tax system over the next several years. IRS has also identified several strategic objectives relevant to its efforts to combat IDT, including balancing the speed of refund delivery with the need to verify taxpayers’ identities; and using third-party data, risk modeling, and a historical view of taxpayer interactions to prevent fraud before issuing refunds. In addition, IRS developed a more detailed Refund Fraud & IDT Strategy in January 2015 and updated it in January 2016. The strategy identifies and assesses the costs and benefits of actions IRS can take to combat IDT refund fraud (both with and without legislative change or a significant change in taxpayer expectations). The strategy has not been updated to reflect new, earlier W-2 filing deadlines enacted in December 2015 as part of the 2016 Consolidated Appropriations Act. However, officials told us that the agency is working with the Social Security Administration to accommodate earlier W-2 data, and plans to use the data, when available, to match to information reported on tax returns. According to IRS, prerefund matching using earlier W-2 data would potentially save a substantial part of the billions of taxpayer dollars currently lost to fraudsters. IRS has partially met the criterion of having a program to monitor corrective measures. IRS’s Identity Theft Taxonomy (Taxonomy) is a research-based effort to provide information to internal and external stakeholders about the effectiveness of IRS’s IDT defenses and help IRS identify IDT trends and evolving risks. While IRS has implemented a new methodology to improve its 2014 estimates in response to our past recommendations, additional action is needed. We will analyze the 2015 Taxonomy estimates to determine the extent to which our recommendations have been implemented. IRS has partially met the criterion for demonstrating progress in implementing corrective measures to address IDT refund fraud. IRS has developed tools and programs to further detect and prevent IDT refund fraud. IRS has also enhanced its authentication efforts for some online services, such as the Get Transcript application. However, IRS could further demonstrate progress by, for example, implementing our previous priority recommendation related to authentication weaknesses. While IRS has taken steps to address this recommendation, the agency has not used cost-benefit-risk analysis to select which authentication tools to use for certain taxpayer interactions. Without analysis of costs, benefits, and risks, IRS and Congress may not have quantitative information that could inform decisions about whether and how much to invest in the various authentication options. While IRS has developed research efforts to assess the effectiveness of its IDT defenses, it is unclear whether yearly changes in the amount of estimated IDT refund fraud prevented and paid are due to: methodological changes (i.e., using a different data source); overall changes in fraud patterns (i.e., an increase or decrease in improvements in IRS IDT defenses; or fraudsters’ ability to file returns using schemes IRS has not yet learned to detect. Specifically, IRS’s 2014 estimates cannot be compared to 2013 estimates because of substantial methodology changes that better reflect new IDT refund fraud schemes and improve the accuracy of its estimates, according to IRS officials. Improving Efficiency of Partnership Audits. Congress enacted legislation that alters the Tax Equity and Fiscal Responsibility Act (TEFRA) audit procedures, as we suggested in September 2014. The Bipartisan Budget Act of 2015, which was enacted in November 2015, repeals TEFRA audit procedures and mandates audit procedures that require partnerships with more than 100 partners to pay audit adjustments at the partnership level, among other changes. The legislative changes enacted to TEFRA we suggested could help with the time constraints of large partnership audits as well as reduce the resource demands of those audits. The Joint Committee on Taxation estimates this should raise $9.3 billion in additional revenue from fiscal years 2019 to 2025. Increasing Tax Compliance through Third-Party Reporting. Our past work underscored that data reported to IRS by third parties about taxpayers’ income is a powerful tool to improve taxpayer compliance. In response, Congress passed legislation in 2008—effective in 2011, which required banks and others to report income that merchants received through certain payment methods such as credit cards or third-party networks like PayPal. IRS compares this information to the merchants’ tax returns to help verify taxpayer compliance, which the Joint Committee on Taxation estimated would increase tax compliance by $3.9 billion between 2013 and 2016. Improving Tax Reporting on the Sale of Securities. We reported that many taxpayers misreported their capital gains or losses from the sale of securities. This often happened because taxpayers failed to accurately report the cost of the securities they sold. We suggested that Congress require brokers to report to both taxpayers and IRS the adjusted cost of the securities sold by taxpayers. In response, Congress enacted this requirement in 2008, which the Joint Committee on Taxation estimated would increase tax compliance by $3.2 billion between 2012 and 2016. Reporting Additional Mortgage Debt Information to Increase Tax Compliance. In 2015, Congress enacted the Surface Transportation and Veterans Health Care Choice Improvement Act. Section 2003 of the act requires taxpayers receiving mortgage interest payments to report the origination date of the mortgage, the amount of outstanding principal at the beginning of the calendar year, and the property’s address. In response to the legislation, IRS updated Form 1098 Mortgage Interest Statement for 2016, which is available for the 2017 filing season. The Joint Committee on Taxation estimated that this change would increase tax compliance by $1.8 billion between 2015 and 2025. Strengthening Controls Over Higher Education Tax Benefits. Congress enacted three provisions in 2015 to strengthen controls over higher education tax benefits to reduce inaccurate claims. These provisions: 1) require educational institutions to report only the aggregate amount of qualified tuition and related expenses actually paid to the educational institution during the calendar year; 2) require taxpayers to receive a completed Form 1098-T to claim a credit or deduction for education expenses for tax years beginning after the date of enactment; and 3) require educational institutions to provide their employer identification number on the Form 1098-T, and taxpayers claiming a credit for qualified tuition and educational expenses to provide this employer identification number. The Joint Committee on Taxation estimated that these changes would increase tax compliance by $2 million, $576 million, and $837 million, respectively, between fiscal years 2016 and 2025. Reducing Funding Requests by Modifying Cost Calculation of New Hires. Prior to the fiscal year 2015 budget request, IRS assumed all new staff requested for new initiatives in the budget request would be hired at the start of the fiscal year, although actual hiring patterns indicated new staff were brought on throughout the fiscal year and primarily in the 3rd and 4th quarters. As a result, IRS modified its calculation for new hires using a later estimated hire date. In the fiscal year 2015 and 2016 request, the estimated hire date was January 1st—the end of the 1st quarter. In the fiscal year 2017 request, the estimated hire date was April 1st—the start of the 3rd quarter. As a result, the funding requests for fiscal years 2015, 2016 and 2017 were approximately $518 million less than if IRS used its prior methodology for calculating FTE costs associated with new initiatives. Expanding Math Error Authority to Enforce First-Time Homebuyer Credit (FTHBC) Repayment Provision. In 2009, we found that IRS lacked math error authority, which must be provided by statute, to automatically correct tax returns on which taxpayers claimed the 2008 version of the FTHBC but did not repay it as required. We suggested that IRS be granted math error authority to enforce the FTHBC repayment provision. In response, Congress enacted legislation in 2009 granting IRS math error authority for this purpose, which we estimate has increased tax compliance by approximately $206 million between 2011 and 2014, after accounting for IRS costs. Redirecting Resources to Improve Taxpayer Services. In December 2012, we reported that IRS had made incremental efficiency gains in delivering taxpayer services, but the agency needed to do more to combat the imbalance between taxpayer demand for services and available resources. IRS acknowledged it needed to adjust its taxpayer service delivery because the agency lacked sufficient resources to answer every telephone call and serve every taxpayer who visits a walk-in site. Consistent with our finding that a more dramatic revision in providing service was necessary, IRS implemented six service initiatives in fiscal year 2014 that shifted taxpayers from using telephone and walk-in services to more cost- effective self-service options. As a result of these initiatives, IRS realized about $50.6 million of IRS resources in fiscal year 2016 dollars. Identifying Taxpayers Using Quiet Disclosures to Circumvent Taxes. In March 2016, IRS officials reported completing research to determine and implement the best option for identifying and pursuing potential quiet disclosures, as we recommended in March 2013. IRS reported that it identified more than 350 cases using its new methodology and as of October 2016 had completed examinations of 179 taxpayers, resulting in approximately $9.1 million in additional tax assessments. Using Data to Improve Taxpayer Services. IRS officials analyzed correspondence response timeliness data through the end of fiscal year 2014 and found that delays were continuing and more improvements were needed, including further revisions to notices and a revised automated recorded telephone message for taxpayers calling about the status of an audit. By analyzing the data as we recommended in June 2014, and using that data to change outgoing recorded messages starting in January 2015, IRS is better able to improve taxpayer service, reduce the need for taxpayer calls, and more efficiently use IRS resources. Taking Steps to Improve Claims Process and Communications to Encourage Tax Whistleblowers. Our 2015 review of the IRS whistleblower program resulted in ten recommendations. IRS concurred with these recommendations and has already implemented several of them. Both whistleblowers and IRS stand to benefit greatly as a result of actions IRS has taken such as streamlining the intake and initial review process of whistleblower claims and improving communications. For example, having a more streamlined staffing strategy will allow the Whistleblower Office to review more claims in a timely manner and get information to examiners more quickly to help IRS collect additional revenue. Also, communicating relevant information earlier to whistleblowers will help address a common complaint of the whistleblower community about the lack of timely communication from the Whistleblower Office and could encourage more whistleblowers to come forward with information. Using Employer Wage Data to Prevent Identity Theft Fraud. In 2014, we found that fraudsters take advantage of IRS’s “look back” compliance model, where the agency issues refunds before completing all compliance checks. If IRS matched employer wage data to tax returns earlier, before issuing refunds, it could help prevent fraud. We recommended that IRS assess the costs and benefits of accelerating W-2 deadlines and provide this information to Congress. Based on our review, in September 2015, IRS presented Congress with a document detailing the costs and benefits of W-2 acceleration. The document discusses the IRS systems and work processes that will need to be adjusted to accommodate earlier, prerefund matching of W-2s, the time frames for when these changes could be made; potential impacts on taxpayers, IRS, other parties; and what other changes will be needed (such as delaying refunds) to ensure IRS can match tax returns to W-2 data before issuing refunds. Congress accelerated W-2 filing deadlines to January 31 as part of the 2016 Consolidated Appropriations Act. This change will provide IRS with earlier access to W-2 data. According to IRS, prerefund matching would potentially save a substantial part of the billions of taxpayer dollars currently lost to fraudsters. Improving IRS’s estimates of IDT refund fraud. Based on our review, in August 2014 IRS changed its methodology for counting fraudulent IDT refunds paid, which increased the estimate of IDT refunds paid in 2013 by about $1 billion (from its original estimate of $4.8 billion to $5.8 billion).The research IRS used to develop these refund fraud estimates is important as it helps IRS better understand how IDT refund fraud is bypassing agency defenses to improve IDT controls. In June of 2016, we made additional recommendations that IRS improve its IDT cost estimates by removing refund thresholds and using return-level data where available. Improving the design and implementation of exempt organization examination selection. The Exempt Organizations Exam unit within IRS completed an action plan for the process of reviewing and updating its Internal Revenue Manual sections on an ongoing basis, as we recommended in July 2015. Implementation of the plan began at the end of 2015. Updated and accurate procedures help ensure that employees follow correct procedures and consistently administer tax laws. For additional information about this high-risk area, contact James R. McTigue, Jr., or Jessica Lucas-Judy at 202-512-9110 or mctiguej@gao.gov or lucasjudyj@gao.gov. Refundable Tax Credits: Comprehensive Compliance Strategy and Expanded Use of Data Could Strengthen IRS’s Efforts to Address Noncompliance. GAO-16-475. Washington, D.C.: May 27, 2016. GAO Series of Reports on Identity Theft: Identity Theft and Tax Fraud: IRS Needs to Update Its Risk Assessment for the Taxpayer Protection Program. GAO-16-508; Washington, D.C.: May 24, 2016; Identity Theft and Tax Fraud: Enhanced Authentication Could Combat Refund Fraud, but IRS Lacks an Estimate of Costs, Benefits and Risks. GAO-15-119. Washington, D.C.: January 20, 2015; and Identity Theft: Additional Actions Could Help IRS Combat the Large, Evolving Threat of Refund Fraud. GAO-14-633. Washington, D.C.: August 20, 2014. IRS Referral Programs: Opportunities Exist to Strengthen Controls and Increase Coordination across Overlapping Programs, GAO-16-155. Washington, D.C.: February 23, 2016. 2015 Tax Filing Season: Deteriorating Taxpayer Service Underscores Need for a Comprehensive Strategy and Process Efficiencies. GAO-16-151. Washington, D.C.: December 16, 2015. IRS Whistleblower Program: Billions Collected, but Timeliness and Communication Concerns May Discourage Whistleblowers. GAO-16-20. Washington, D.C.: October 29, 2015. Small Businesses: IRS Considers Taxpayer Burden in Tax Administration, but Needs a Plan to Evaluate the Use of Payment Card Information for Compliance Efforts. GAO-15-513. Washington, D.C.: June 30, 2015. Large Partnerships: With Growing Number of Partnerships, IRS Needs to Improve Audit Efficiency. GAO-14-732. Washington, D.C.: September 18, 2014. IRS Correspondence Audits: Better Management Could Improve Tax Compliance and Reduce Taxpayer Burden. GAO-14-479. Washington, D.C.: June 5, 2014. Partnerships and S Corporations: IRS Needs to Improve Information to Address Tax Noncompliance. GAO-14-453. Washington, D.C.: May 14, 2014. We designated Medicare as a high-risk program in 1990 due to its size, complexity, and susceptibility to mismanagement and improper payments. Addressing Medicare’s short-term and long-term challenges is vitally important, not only for the millions of aged and disabled individuals who depend upon the program for health care coverage, but also for the families of these individuals who might otherwise bear the cost of their health care, the taxpayers who finance the program, and the health care providers who depend upon receiving fair compensation for their services. The aging of the population, coupled with the growth in per capita health care costs, will magnify these challenges over time. Therefore, continued close attention will be necessary to ensure that Medicare is sustainable for generations to come. Medicare continues to pose challenges to the federal government for many of the same reasons we designated it a high-risk program. Specifically, Medicare’s substantial size and scope result in the current program having wide ranging effects on beneficiaries, the health care sector, and the overall U.S. economy. In 2016, Medicare was projected to spend $696 billion and provide health care coverage to over 57 million beneficiaries. Medicare pays about 60 percent of the health care costs of beneficiaries enrolled in fee-for-service (FFS) who do not reside in institutions. Over 1 million health care providers, contractors, and suppliers—including private health plans, physicians, hospitals, skilled nursing facilities, durable medical equipment (DME) suppliers, ambulance providers, and many others—receive payments from Medicare. Every year, Medicare pays over a billion claims submitted by these health care providers. Consequently, Medicare must be closely monitored because even relatively small changes can have large short-term effects in the aggregate. For example, Medicare provider payment rates that are set too high unnecessarily financially burden beneficiaries—through higher premiums and cost sharing—taxpayers, and the federal budget. Payment rates that are set too low may diminish providers’ willingness to treat Medicare beneficiaries and adversely affect their access to appropriate, high-quality health care. Medicare also has an outsize effect on the federal budget, which creates challenges when the federal government is determining how to prioritize its spending. The program’s expenditures currently account for about 3.6 percent of the country’s gross domestic product (GDP).The Congressional Budget Office (CBO) projects that in fiscal year 2016, Medicare outlays will total more than is projected to be spent on defense ($579 billion) and almost double federal spending on Medicaid ($365 billion). Medicare spending will account for approximately 17.8 percent of the approximately $3.9 trillion in federal outlays. Medicare also poses substantial long-term financial challenges for the federal government. Program spending is expected to increase significantly over time as the number of beneficiaries grows and per capita health care costs increase. CBO projects that, in just 10 years (in 2026) under current law, Medicare spending will reach almost $1.3 trillion. The Medicare Trustees 2016 report stated that, under current law, Medicare’s share of GDP would rise to 5.6 percent by 2040. As Medicare spending grows disproportionately to other federal spending and the economy, it will put increasing pressure on the federal budget and tend to squeeze out spending for other programs. However, the Trustees have stated that Medicare spending projections, especially those stretching out over decades, are highly uncertain and cautioned that future Medicare spending could be substantially higher than projected. In their 2016 report, they noted that some Medicare cost- reduction provisions may be difficult to sustain. For example, one set of Medicare provisions affecting many types of health care providers reduces the annual payment rate updates to account for economy-wide productivity growth. However, the productivity growth rates historically achieved by health care providers have been lower than the economy- wide rates. If health care providers do not realize sufficiently high productivity growth and these cost-reduction measures are not sustained, Medicare projected spending could rise to 6.2 percent of GDP in 2040 and 9.1 percent in 2090, according to the Trustees. Another uncertainty is whether advances in medical technology will tend to slow or accelerate Medicare spending growth. Technological advances may enhance the ability of providers to diagnose, treat, or prevent health problems. Examples include new drugs, devices, procedures, and therapies, as well as new applications of existing technologies. Although new technologies may decrease or increase health care costs, in 2013 we reported that technological change had likely been the dominant cause (accounting for 36 to 55 percent) of the increases in overall U.S. health care per capita spending over the past several decades. It should be noted, however, that a complete assessment of health care spending for new technologies should also consider the associated value for individuals, often measured by improved health functioning, increased life expectancy, or improved economic productivity. In the past few years, growth in Medicare spending has slowed, as overall health care spending has also slowed. Analysts debate whether this slowdown can be attributed to transitory effects, such as the recent economic turndown, or broader changes in the health care system that may be longer lasting. Nonetheless, Medicare’s historical trends, the aging of the population, and the uncertainties associated with recent reforms and the effects of advances in medical technology all underscore the need for continued efforts to moderate spending growth while ensuring that beneficiaries have appropriate access to high-quality health care. Achieving these goals will likely remain an important challenge and require a continued focus on the Medicare program. In March 2010, the Patient Protection and Affordable Care Act (PPACA) was enacted, which, among other things, made numerous statutory changes to Medicare. CBO estimated that PPACA would reduce Medicare spending by about $400 billion over 10 years from fiscal year 2010 to fiscal year 2019. Major savings were expected from several actions, including constraining annual payment updates to certain Medicare providers, tying Medicare Advantage (MA)—Medicare’s private plan alternative to the traditional Medicare FFS program—maximum payment amounts to near or below FFS spending, reducing payments to hospitals that serve a large number of low-income patients—reflecting the expectation that PPACA’s health insurance expansion provisions would result in far fewer uninsured hospital patients—and modifying the high- income threshold for adjusting beneficiary Part B premiums, among other changes. Some PPACA provisions sought to establish financial incentives for providers to increase the efficiency and quality of Medicare services, or to test new ways of achieving those goals. For example, PPACA required the establishment of a national, voluntary pilot program to bundle payments for physician, hospital, and post-acute care services to improve patient care and reduce spending. Another provision modified payments to hospitals that experience patient readmissions related to certain potentially preventable conditions. Certain PPACA payment changes seek to provide a strong financial incentive for health care providers to enhance productivity, improve efficiency, or otherwise reduce their costs per service. Notably, several of PPACA’s changes seek to implement value-based purchasing of health care and transform the program into one that encourages efficiency and quality, instead of simply compensating providers for the volume of health care services. In April 2015, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) was enacted, bringing additional changes to the way Medicare reimburses physicians, among other changes to Medicare. MACRA repealed the sustainable growth rate (SGR) system—which was first implemented in 1998 to moderate spending for physician services—and established a new payment framework to encourage efficiency in the provision of health care and to reward health care providers for higher quality of care. Specifically, MACRA created a Merit-based Incentive Payment System (MIPS) that will be used to increase or decrease certain physicians’ payments based on their performance. Under MIPS, the Centers for Medicare & Medicaid Services (CMS) will assess physician performance in four categories: quality; cost; clinical practice improvement activities; and advancing care information through the meaningful use of electronic health records technology. MACRA also included provisions to incentivize Medicare providers to participate in alternative payment models, such as qualifying accountable care organizations. In addition to reforming physician payment, MACRA made several other changes to Medicare, including making income-related adjustments to premiums in Medicare Parts B and D. It is too early to tell the extent to which these changes in PPACA and MACRA may help constrain Medicare spending over the long run, as the changes have only recently been implemented, or their implementation is ongoing. Moreover, future legislation could modify payment reforms, such as those established by PPACA and MACRA, and affect their impact on program spending. In addition, uncertainty about PPACA’s and MACRA’s effects on spending exists because future spending may also depend on changes in the rest of the health care system. For example, provisions of PPACA are designed to increase the number of individuals with health insurance and reduce the number of uninsured. In 2013, we found that Medicare beneficiaries who had continuous health insurance coverage before enrollment in Medicare reported being in better health in the 6 years after Medicare enrollment and, in the first year of Medicare coverage, had significantly lower Medicare spending. Additional spending uncertainty stems from concerns raised by the Medicare Trustees, CBO, and the Office of the Actuary (OACT) about whether some of the Medicare cost-containment mechanisms included in PPACA can be sustained over the long term, such as the provider productivity payment adjustment, and physician payment updates and incentives included in MACRA. For example, additional payments for alternative payment models provided under MACRA will expire in 2025, and physician payment update amounts, which are not tied to economic conditions, are not expected to keep pace with average physician cost increases. The Medicare Trustees report for 2016 projected that, beginning in 2048, physician payment rates will be lower than they would have been under the SGR formula and will continue to be lower after that. CBO and OACT both produced alternative projections of future spending that assume that certain cost-containment mechanisms are not fully maintained over the long term. Medicare is transitioning from a payment system that largely rewards the volume and complexity of health care services provided to a system that explicitly rewards quality and efficiency. Many of the broad-based reforms being implemented to Medicare’s payment systems in the traditional FFS program have introduced financial incentives into payment structures to explicitly reward quality and efficiency, such as creating the Merit-based Incentive Payment System discussed previously. To help ensure that physicians are able to respond to these new incentives and are able to improve their performance, CMS recently began to provide more frequent feedback to physicians on their performance, as we recommended, to help them identify opportunities to reduce costs and pinpoint high-cost beneficiaries who may benefit from enhanced care coordination. MACRA also required that CMS consider physician and other providers’ improvement and their opportunity for continued improvement when establishing benchmarks for Merit-based Incentive Payment System performance measures. As CMS progresses toward fully implementing its value-based payment system, it will be important for the agency to use reliable quality and cost measures and methodological approaches that maximize the number of physicians for whom value can be determined. As CMS implements these broad-based payment reforms, we have identified additional areas where continued monitoring of payment methods is warranted to encourage efficiency and reduce the risk of overspending. Payment methods for cancer hospitals. Currently, 11 cancer hospitals, designated in the 1980s and 1990s, that meet certain statutory criteria are exempt from Medicare’s inpatient prospective payment system (PPS) and are also receiving payment adjustments under the outpatient PPS. The Medicare PPS introduced better control over program spending and provided hospitals with an incentive for efficient resource use. Yet for decades, as required by law, Medicare has paid these cancer hospitals differently than PPS hospitals in recognition of their specialized focus and concerns that reimbursements under PPS would be inadequate to cover costs for the types of care provided at cancer hospitals. This has remained the case even as the inpatient PPS methodology has been refined to better account for variation in the severity and complexity of beneficiaries and the resource intensity of hospital care. The 11 cancer hospitals currently exempted from the inpatient PPS and receiving payment adjustments under the outpatient PPS are reimbursed largely based on their reported costs and as such have little incentive for containing costs. In 2012, we estimated that PPS-exempt cancer hospitals received, on average, about 42 percent more in Medicare inpatient payments per discharge than what Medicare would have paid a local PPS teaching hospital to treat cancer beneficiaries with the same level of complexity. Similarly, Medicare outpatient payment adjustments to these cancer hospitals resulted in overall payments that were about 37 percent higher, on average, than payments Medicare would have made to PPS teaching hospitals for the same set of services. Had beneficiaries of PPS-exempt cancer hospitals received services at nearby PPS teaching hospitals in 2012, the Medicare program may have saved almost $500 million. We suggested that Congress require Medicare to pay PPS- exempt hospitals as it pays PPS teaching hospitals, or provide the Secretary of Health and Human Services the authority to otherwise modify how Medicare pays these PPS-exempt hospitals. To generate cost savings, we also suggested that Congress provide that all forgone outpatient payment adjustment amounts be returned to the Supplementary Medical Insurance Trust Fund, which funds Medicare Part B services, such as physician visits, and Medicare Part D services, such as prescription drugs. The 21st Century Cures Act, enacted in December 2016, slightly reduces the additional payments cancer hospitals receive for outpatient services and returns savings to the Supplementary Medical Insurance Trust Fund. However, the law keeps in place the payment system for outpatient services that differs from how Medicare pays PPS teaching hospitals. Moreover, the law does not change how PPS-exempt cancer hospitals are paid for inpatient services. Until Medicare pays PPS-exempt cancer hospitals in a way that encourages efficiency, rather than largely on the basis of reported costs, Medicare remains at risk for overspending. Hospital-physician consolidation. Because Medicare often pays more for services when they are performed in a hospital outpatient department than when they are performed in a physician’s office, hospitals may have an incentive to acquire physician practices, hire physicians as salaried employees, or both—financial arrangements commonly referred to as vertical consolidations. After hospitals and physicians vertically consolidate, the same services that were once reimbursed by Medicare at a lower total payment rate could be classified as hospital outpatient department services and reimbursed at a higher rate. In our work, we found that the number of vertically consolidated hospitals increased by about 20 percent from 2007 through 2013 and the number of physicians in these arrangements nearly doubled. Some have questioned whether or to what extent vertical consolidations have contributed to the rapid rise in Medicare expenditures for hospital outpatient departments, which increased by more than eight percent annually from 2007 through 2013. We found that the percentage of evaluation and management (E/M) office visits performed in hospital outpatient departments was generally higher in counties with higher levels of vertical consolidation. The rise in vertical consolidation exacerbates a financial vulnerability in Medicare’s payment policy—paying different rates for the same service, depending on where the service is performed. Estimates from entities such as the Bipartisan Policy Center and the Medicare Payment Advisory Commission suggest that equalizing payments rates for E/M office visits could save nearly $1 billion to $2 billion a year for the Medicare program and beneficiaries. We suggested that Congress direct the Secretary of Health and Human Services to equalize payment rates between settings for E/M office visits and other services as appropriate. Until the disparity in payment rates for E/M office visits is addressed, Medicare could be expending more resources than necessary. Payments for hospital uncompensated care. Hospital uncompensated care costs are a long-standing concern because of their potential to weaken hospitals’ financial stability and thereby hospitals’ abilities to serve their communities. Both Medicare and Medicaid provide funds to help offset hospitals’ uncompensated care costs. In fiscal year 2014, Medicare made over $14 billion in payments to hospitals for uncompensated care through a variety of payment types, including a relatively new type of payment called Medicare Uncompensated Care (UC) payments. We have raised concerns that Medicare UC payments are largely based on hospitals’ Medicaid workload rather than hospitals’ actual uncompensated care costs, which can result in poor alignment between payments and uncompensated care costs. This may be particularly true in states that have expanded Medicaid—that is, coverage expanded through PPACA to nearly all adults with incomes up to 133 percent of the poverty level—and therefore where lower uncompensated care costs are expected. In an April 2016 proposed rule, CMS announced that it is considering making hospitals’ actual uncompensated care costs the sole basis for making Medicare UC payments by fiscal year 2020. Another concern, however, is that when making Medicare UC payments, CMS does not account for payments hospitals received from Medicaid, even though the bulk of Medicare’s payments are made on the basis of Medicaid workloads, for which hospitals may have also received Medicaid payments. We recommended that CMS improve the alignment of Medicare UC payments with hospital uncompensated care costs and account for Medicaid payments received when making Medicare UC payments to individual hospitals. HHS concurred with these recommendations and in its final rule indicated that it planned to implement them beginning in fiscal year 2021 to allow time for hospitals to collect and report reliable uncompensated care cost data. Physician self-referral. Our work has identified opportunities for CMS to introduce additional payment method refinements and controls in Medicare FFS to encourage appropriate use of services. For example, self-referral—when a provider refers patients to entities in which the provider or the provider’s family members have a financial interest— continues to be a concern in relation to the rapid growth of Medicare FFS expenditures. In recent years, we found that certain services—including diagnostic imaging, certain cancer treatments, and diagnostic pathology services—performed by self-referring groups have increased dramatically. For example, from 2004 through 2010, the number of self- referred magnetic resonance imaging (MRI) services increased by more than 80 percent; in comparison, the number of non-self-referred MRI services increased by 12 percent during this time period. We have recommended that CMS determine and implement an approach to ensure providers appropriately self-refer for advanced imaging services. HHS did not concur with this recommendation but is in the process of establishing an appropriate use criteria program for advanced imaging services that would apply to all physicians—including those that self-refer—and which, depending on implementation, could address our recommendation. CMS has yet to take definitive steps to monitor physician self-referral for certain cancer treatment and diagnostic pathology services, and until it does so, the Medicare FFS program and its beneficiaries will continue to be at risk for these rapidly increasing expenditures. High-expenditure Part B drugs. In 2014, Medicare spent over $24 billion on drugs covered under Part B. Part B drugs are those commonly administered by a physician or under a physician’s close supervision, such as vaccines or some oral cancer drugs. The vast majority of these expenditures ($21 billion) were based on the drug’s average sales price (ASP), the amount physicians and other purchasers pay manufacturers for the drug, which CMS calculates based on sales data reported by drug manufacturers. Ensuring the accuracy of the data on which CMS bases payment rates for part B ASP drugs is important given Medicare’s substantial expenditures for these drugs and given beneficiaries’ general responsibility to cover 20 percent of Medicare’s payment for these drugs via cost-sharing requirements, which amounted to about $4 billion in 2014. We found, however, that CMS is not able to assess the accuracy of all sales price data because not all manufacturers are required to submit these data. Further, while CMS conducts certain checks to assess the completeness of the sales data it does receive, the agency does not verify the accuracy of the data by tracing it to source documents, such as sales invoices. We suggested that Congress require all manufacturers of Part B drugs to submit sales price data to CMS and to ensure CMS has the authority to request source documentation and periodically validate such data. Additionally, the ASP does not account for drug coupon discounts that manufacturers provide to privately insured patients, which reduce the effective market price for these drugs. In our work, we found that the ASP for several part B drugs with drug coupon discounts exceeded the effective market price that manufacturers ultimately received. As a result, Medicare may be paying more than necessary for these drugs. Regular monitoring of the implications of coupon programs for Medicare’s payment methodology for part B drugs is needed as CMS works to propose an alternative payment system. CMS, however, lacks the authority to collect data from drug manufacturers on coupon discounts to patients because the authority to collect information relating to ASP is based on manufacturer sales to purchasers. We suggested that Congress consider granting CMS authority to collect data from drug manufacturers on coupon discounts for Part B drugs based on ASP and require the agency to periodically collect these data and report on the implications of coupon programs for Part B drug payment rate methodology. Low-volume payment adjustments. Medicare’s payment adjustment for low-volume dialysis facilities is one of several modifications in Medicare’s payment systems designed to help maintain beneficiaries’ access to care. Low-volume providers in areas where other care options are limited may warrant higher payments, and CMS intended this low-volume payment adjustment (LVPA) to encourage small dialysis facilities to continue operating in areas where beneficiary access might be jeopardized if such facilities closed. However, in 2013 we found that, as designed, the LVPA did not effectively achieve this goal because it did not target all relatively low-volume, high-cost facilities that were in areas where beneficiaries may have lacked other dialysis care options, and it targeted some facilities that appeared unnecessary for ensuring access to dialysis, such as dialysis facilities located in close proximity to other facilities. In response to our report, CMS revised the LVPA, beginning in 2016, to more effectively target low-volume facilities necessary for ensuring access to care; and in 2015, CMS issued clarifying guidance on the LVPA in a final rule and held outreach calls to dialysis facilities and Medicare contractors to ensure their understanding of the guidance. The agency has not acted, however, to implement an improvement we recommended to change the design of LVPA to reduce the incentive for facilities to restrict the services they provide in order to avoid reaching treatment thresholds that determine eligibility for the program. Physician payment rates. The accuracy of Medicare’s payment rate for physician services has major implications for the health care system given spending on these services—$70 billion in fiscal year 2015—and the fact that other payers, such as private insurers, base their payment rates at least in part on Medicare rates. Inaccurate payment rates can create distorted incentives for physicians to either over- or underprovide services or to pursue certain specialties. We and others have identified several weaknesses in CMS’s processes for setting physician payment rates. This process involves CMS assigning relative values to each service by taking into account recommendations made by the American Medical Association’s Specialty Society Relative Value Scale Update Committee (RUC). Some of our concerns with this process include issues with the survey data the RUC uses in part to develop relative value recommendations, including low survey response rates. In 2015, the median survey response rate for over 200 physician services was about 2 percent. Additionally, although CMS officials state that all Medicare services are reviewed every 5 years as required by statute, the agency does not maintain a database to track when services were last valued. CMS officials acknowledge that the agency relies heavily on RUC recommendations. Given the process and data-related weaknesses associated with the RUC’s recommendations, this process could potentially result in inaccurate payment rates. To address these concerns, we recommended that CMS incorporate data and expertise from physicians and other relevant stakeholders into the process for establishing relative values. CMS concurred with this recommendation and has begun to research ways to develop an approach for validating relative values, but until it develops a timeline and a plan for determining its approach, CMS risks continuing to use payment rates that may be inaccurate. The MA program, an alternative to the traditional Medicare FFS program, provides health care coverage to Medicare beneficiaries through private health plans. The number and percentage of Medicare beneficiaries enrolled in MA has grown steadily over the past several years, increasing from 8.1 million (20 percent of all Medicare beneficiaries) in 2007 to 15.8 million (30 percent of all Medicare beneficiaries) in 2014. Congress has taken a number of steps to introduce financial incentives to explicitly reward quality and efficiency in the MA program. For example, PPACA provided that MA plans with a quality rating of four or more stars—with five stars indicating the highest quality—receive bonus payments, and required MA maximum payment amounts to be adjusted to near or below FFS spending. Moreover, in January 2013, Congress enacted the American Taxpayer Relief Act of 2012 (ATRA), which increased the statutory minimum for the annual MA coding intensity adjustment in order to account for differences in the comprehensiveness with which MA plans and FFS providers code medical diagnoses. CBO estimated that this change alone would save Medicare about $1.4 billion over 5 years. The recently enacted 21st Century Cures Act also includes several changes to the MA risk adjustment model that must be implemented beginning in 2019. For example, the MA risk adjustment model will be required to take into account the number of diseases or conditions of enrollees and allows CMS to use 2 years of diagnosis data when determining the health condition of beneficiaries. CMS has yet to take action to improve the accuracy of its payments to MA programs or to ensure that MA beneficiaries have sufficient access to providers. We have identified additional opportunities for CMS to improve the accuracy of MA payments, such as adjusting its methodology to account for diagnostic coding differences between MA and FFS, and improve CMS’s oversight of MA network adequacy. MA plan payment adjustments. Concerns remain about the discrepancy between FFS and MA payments because CMS has yet to improve the accuracy of the adjustment to account for excess payments due to differences in how MA plans and FFS providers code medical diagnoses. We have found that CMS’s risk adjustment model—which uses one year’s diagnoses to predict the following year’s health care costs for each MA enrollee—has led it to overpay MA organizations because of different diagnostic coding patterns between the FFS and MA programs. In 2013, we estimated that these overpayments ranged from at least $3.2 billion to $5.1 billion from 2010 through 2012. We have recommended that CMS take steps to improve the accuracy of its risk score adjustments by, for example, accounting for additional beneficiary characteristics such as sex, health status, and Medicaid enrollment status, as well as including the most recent data available. In April 2016, CMS indicated that after analyzing MA data, the agency planned to implement the statutory minimum for the annual MA coding adjustment mandated in ATRA. However, as of October 2016, CMS had not provided documentation of its analysis to determine, for example, the extent to which the agency’s methodology accounted for additional beneficiary statistics, as we recommended. In addition, CMS has taken steps to collect encounter data—information on the services and items furnished to enrollees—which are more comprehensive than the beneficiary diagnosis data the agency currently uses to risk adjust payments to MA organizations, and has reported that it will use these data in calculating risk adjustments. However, CMS has not fully developed plans for validating and using MA encounter data, missing an opportunity to detect potentially inaccurate or unreliable data that is being used to direct billions of federal dollars. We recommended that CMS fully validate the MA encounter data it is collecting before using these data for payment purposes. In 2015, CMS began using encounter data as an additional source of diagnostic data in calculating beneficiary risk scores but acknowledged that the agency had yet to complete all steps to validate the data before using them for payment purposes, as we had recommended. Without fully validating the completeness and accuracy of MA encounter data, CMS and MA organizations would be unable to confidently use the data for risk adjustment or any other program management purpose. Provider network adequacy. CMS is responsible for ensuring adequate access to care for MA enrollees, but reports that some MA organizations have been narrowing their provider networks raise questions about CMS oversight of MA plans’ network adequacy. In 2015, we reported on shortcomings in CMS’s criteria for determining network adequacy, how the agency oversees MA organizations’ adherence to its requirements, and how it ensures enrollees are properly notified about provider network changes. For example, unlike other managed care programs, CMS’s network adequacy criteria do not consider measures of provider availability, such as appointment wait times and whether providers are accepting new patients. CMS also assesses very few networks (less than one percent) each year against its network adequacy criteria and does little to evaluate the accuracy of the network data MA organizations submit. We made several recommendations, including that CMS augment MA network adequacy criteria to address provider availability. HHS concurred with this recommendation, and in early 2016, officials stated that they will review how to augment the MA network adequacy criteria to address provider availability in future years. However, until this happens, provider networks may appear to regulators and beneficiaries as more robust than they actually are. The Medicare Trustees estimate that Medicare spending will grow at a faster rate than workers’ earnings or the economy overall, which will impose a significant burden on Medicare beneficiaries and the U.S. economy over time. Because most Medicare beneficiaries pay their Part B premium by having it withheld from their monthly Social Security benefits, and because growth in Medicare premiums and cost sharing has outpaced growth in Social Security benefits, beneficiaries and their families may increasingly need to draw on other income or resources to help pay for necessary medical care. Moving forward, it will be important to find approaches that help avert or mitigate this growing financial burden, particularly for those beneficiaries with high health care needs and few economic resources. For example, understanding how beneficiaries make medical decisions and what information would help them identify and use providers that efficiently deliver appropriate, high- quality care could lead to savings for both beneficiaries and taxpayers. Our work has identified additional opportunities to improve how the Medicare program ensures that beneficiaries, including those who are also eligible for Medicaid, receive the appropriate services they need. Care for dual-eligible beneficiaries. The federal government, states, and others have been focusing on care coordination as a key strategy for improving the quality of care for dual-eligible beneficiaries—individuals who qualify for both Medicare and Medicaid—while also reducing costs. Dual-eligible beneficiaries, who are often in poorer health compared with other Medicare and Medicaid beneficiaries, typically receive benefits through each program separately, which can lead to fragmented care due to different program rules for receiving benefits and reimbursing providers. In 2013, CMS began implementing the Financial Alignment Demonstration to integrate Medicare and Medicaid services and financing, and to improve coordination for dual-eligible beneficiaries. While CMS established a framework of monitoring activities to oversee the demonstration, the extent of care coordination is not entirely clear from the information being collected. For example, CMS monitors two core measures related to care coordination, but because these are being used in only one of two models being tested in the demonstration, CMS cannot compare the two demonstration models using these measures. Similarly, demonstration states had state-specific measures that explored aspects of care coordination, but they were not comparable across states. We recommended, among other things, that CMS align existing state- specific measures of the extent to which individualized care plans are being developed to make them comparable. The agency agreed with this recommendation, and CMS officials said they plan to develop a care plan measure that more closely aligns specifications across demonstrations, but data collection is not expected to begin until January 2018. Dual-eligible special needs plans. Special needs plans are MA private plans designed to address the unique needs of certain Medicare populations, and among these plans are those targeted specifically to dual-eligible beneficiaries. CMS and Congress have taken steps to coordinate care for those enrolled in dual-eligible special needs plans to increase benefit integration and care coordination. For example, PPACA established a type of plan referred to as a fully integrated dual-eligible special needs plan, which is designed to integrate program benefits for dual-eligible beneficiaries through a single managed care organization. In addition, dual-eligible special needs plans that meet certain performance and quality-based standards may seek CMS approval to offer benefits beyond what other MA plans offer if such benefits would help bridge the gap between Medicare- and Medicaid-covered services. Although a large percentage of dual-eligible beneficiaries (43 percent in 2012) were under age 65 and qualified for Medicare because they were disabled, we found that few fully integrated dual-eligible special needs plans serve disabled dual-eligible beneficiaries or report lower costs for Medicare services. In addition, moderately better health outcomes for disabled dual-eligible beneficiaries in dual-eligible special needs plans do not necessarily translate into lower levels of costly Medicare services—that is, inpatient stays, readmissions, and emergency room visits. Access to preventive services. Over the past several years, researchers have found that certain preventive services are effective in early diagnosis or reduced prevalence of diseases that contribute to the growth in Medicare spending. To encourage beneficiary use, PPACA removed beneficiary cost-sharing requirements for many Medicare- covered preventive services, such as mammograms and colorectal cancer screening. However, in our work we found that while Medicare beneficiaries’ use of some preventive services—cardiovascular disease screening and cervical cancer screening—generally aligned with clinical recommendations, the use of other preventive services, such as osteoporosis screening and immunizations, did not. Medicare beneficiaries who did not receive certain preventive services commonly reported that they had limited information on prevention; had concerns about discomfort, side effects, or efficacy; or their doctor did not recommend the services. Furthermore, we found better use of preventive services by beneficiaries is unlikely without appropriate Medicare coverage. For instance, low use of some recommended services—such as osteoporosis screenings—may result, in part, from limiting which beneficiaries are covered or how frequently the service is covered. Conversely, the absence of required cost sharing for certain services that are not recommended, such as prostate-specific antigen testing for prostate cancer for men aged 75 or older, may contribute to the inappropriate use of those services. In 2012, we suggested Congress require beneficiaries to share the cost when they receive services that the U.S. Preventive Services Task Force recommends against. CMS has overcome some challenges in managing the Medicare program as it implemented some program improvements in recent years, including a competitive bidding program for durable medical equipment (DME). However, more could be done to improve how CMS manages the Medicare program, including its handling of the growing number of appeals for denied claims. Competitive bidding program. We had previously reported that Medicare sometimes overpaid for DME items relative to other payers. Congress required that CMS implement a competitive bidding program for DME suppliers, which the agency began in 2009. In early assessments, we found that beneficiary access and satisfaction appeared stable and the competitive bidding program has led to savings. More recently in 2016, we found that the number of beneficiaries receiving DME items covered under the competitive bidding program generally decreased after implementation of phases of the program that began in July 1, 2013. Available evidence from CMS’s monitoring efforts indicates no widespread effects on beneficiary access, but some beneficiary advocacy groups have reported specific access issues, such as difficulty locating contract suppliers and delays in delivery of DME items. Changes such as expanding the program into additional competitive bidding areas; using pricing from competitive bidding areas to set prices in non-competitive bidding areas (which was fully phased in as of July 2016); and selecting new contract suppliers for contracts for new rounds of bidding will provide significant new data to further assess the effect of the program. Continued monitoring of the competitive bidding program experience is important to determine the full effects it may have on Medicare beneficiaries and DME suppliers. Appeals process. Medicare has seen significant growth in the number of appeals submitted by providers, beneficiaries, and others dissatisfied with the program’s decisions to deny or reduce payment for claims. The Department of Health and Human Services (HHS) attributes the increase in appeals to several factors, including for example, CMS’s recent increased focus on program integrity activities, which has resulted in more denied claims and more appeals. In fiscal year 2014, Medicare denied 128 million FFS claims, or 10.5 percent of claims submitted. Medicare’s administrative appeals process for FFS claims consists of 4 levels of review (Levels 1 through 4) and allows appellants who are dissatisfied with decisions at one level to appeal to the next level, with separate appeals bodies making decisions at each level. From fiscal year 2010 to 2014, the number of appeals at all levels of Medicare’s administrative appeals process increased significantly but varied by level. The largest rate of increase (over 900 percent) was experienced at Level 3, in which cases are reviewed by administrative law judges. The large volume of appeals has resulted in backlogs in decisions; in fiscal year 2014, more than 90 percent of Level 3 decisions were issued after the 90- day statutory time frame. We recommended that HHS take additional steps to improve its oversight of the appeals process, including collecting more complete and consistent data that would assist in monitoring efforts and addressing inefficiencies in the way certain repetitious claims—such as those for monthly oxygen equipment rentals—are adjudicated. HHS has taken some actions to reduce the backlog of appeals. For instance, CMS has offered administrative agreements to eligible hospitals that are willing to withdraw their pending appeals in exchange for timely partial payments, in order to more quickly reduce the volume of claims pending in the appeals process. As of August 2016, CMS has executed settlements amounting to nearly $1.5 billion with 2,022 hospitals, representing approximately 346,000 claims that were in the appeals system. In September 2016, CMS announced it would execute another round of settlements for hospitals with inpatient claims in appeals. In addition, in July 2016, HHS issued a proposed rule that would revise certain appellate procedures in an effort to improve the Medicare appeals process and reduce the backlog. However, HHS has not yet taken actions to address our specific recommendations, and the backlog shows no signs of abating, as the number of incoming appeals continues to surpass adjudication capacity at certain review levels. For fiscal year 2016, the average length of time to process Level 3 appeals was 877 days, compared with the 90 days generally required by statute, and up from the 662 days for fiscal year 2015. CMS has made progress in improving the health and safety of millions of Medicare beneficiaries, which represent a significant portion of the U.S. population. According to CMS, Medicare Quality Improvement Organizations—which work with providers, beneficiaries, and others to improve health care delivery systems to achieve better care for lower costs—-supported efforts that from fiscal year 2011 through fiscal year 2014 helped to prevent tens of thousands of beneficiaries from being admitted or readmitted to hospitals; reduce the number of health care associated infections; and reduce the number of nursing home patients who experienced pressure ulcers or the use of restraints. CMS has also improved its oversight of quality of care. In 2012, in response to our recommendation, CMS included long-term care hospitals in its validation surveys, which are used to measure the effectiveness of surveys conducted by accrediting organizations on the extent to which facilities meet federal standards for quality of care. However, CMS can further improve how it oversees patient care and safety, as described below. Clinical data registries. Clinical data registries (CDR) have the potential to improve the quality and efficiency of care for all Medicare beneficiaries by collecting extensive, standardized data and providing feedback to physicians on their performance based on their peers. CDRs are entities that collect detailed information on the therapies that patients receive and changes in their clinical condition over time in order to evaluate and improve care practices and outcomes. In 2013, we recommended that HHS adopt several key requirements to ensure qualified CDRs actually improve the quality and efficiency of care that beneficiaries receive. For example, CMS should require qualified CDRs to demonstrate improvements on key measures of quality and efficiency for their target population and establish a process for monitoring qualified CDRs’ compliance with requirements. HHS should also enhance the effect of qualified CDRs on quality and efficiency by making it easier to develop them by promoting the use of health information technology. HHS concurred with each of our recommendations, but also noted some challenges it expects, for example in establishing a set of core measures for qualified CDRs, as we recommended, given the number of clinical specialties on which qualified CDRs may focus. We maintain, however, that a minimum set of core measures—even if small—could help CDRs promote national-level quality improvement initiatives. End-stage renal disease. In 2013, Medicare spent about $11.7 billion on dialysis care for about 376,000 Medicare patients. Dialysis is the most common treatment for individuals with end-stage renal disease, and while the vast majority of dialysis treatments are performed in dialysis facilities, dialysis treatments received at home may increase autonomy and health- related quality of life for some patients. Physicians and other stakeholders estimate that between 15 and 25 percent of patients needing dialysis could realistically be on home dialysis. In 2012, about 11 percent of patients needing dialysis received home dialysis. A number of factors can affect the type of dialysis patients receive, including patients’ preference and clinical factors, but Medicare payment policy may also play a role. In 2015, we found that dialysis facilities have financial incentives in the short term to increase dialysis treatments provided in facilities. Medicare’s monthly payments to physicians for managing the care of home patients are often lower than those for managing in-center patients, which may also discourage physicians from prescribing home dialysis. Further, just a small fraction of Medicare patients have used the Kidney Disease Education benefit—which provides pre-dialysis education and is designed to help patients make informed decisions related to their treatment. Limited use of this benefit may be due to statutory limitations on the types of providers who are permitted to furnish the benefit and on the patients eligible to receive it. We recommended that CMS examine and, if necessary, revise policies for paying physicians to manage the care of dialysis patients, and examine the Kidney Disease Education benefit, and if appropriate, seek legislation to revise the categories of providers and patients eligible for the benefit. HHS concurred with the first recommendation but did not agree with the second, stating that CMS must prioritize its activities to improve care for dialysis patients. We maintain the importance of ensuring that Medicare patients with chronic kidney disease understand their condition and the implications of various treatment options; however, the limited use of the Kidney Disease Education benefit suggests it may be difficult for patients to receive this education. Congress, HHS, and CMS have taken steps to improve the fiscal integrity of Medicare, and CMS has implemented some of our recommendations, such as providing more frequent feedback to physicians so they can identify opportunities to reduce costs and rebasing payments for end- stage renal disease services using more recent data, which resulted in per treatment payment reductions. However, continued federal improvements to the oversight of Medicare are warranted given the size and complexity of the program as well as the number and scope of ongoing changes to the program. We have a number of Matters for Congressional Consideration for addressing Medicare payments, costs, and quality of care. Specifically: To increase beneficiaries’ awareness of providers’ financial interest in a particular treatment, Congress should consider directing the Secretary of Health and Human Services to require providers who self-refer intensity-modulated radiation therapy services—a type of cancer treatment—to disclose to their patients that they have a financial interest in the service. To further align Medicare beneficiary use of preventive services with U.S. Preventive Task Force recommendations, Congress should consider requiring beneficiaries who receive services that the Task Force recommends against to share the cost, notwithstanding that cost sharing may not be required for beneficiaries with different characteristics or under different circumstances. To help HHS better control spending and encourage efficient delivery of care, Congress should consider requiring Medicare to pay PPS- exempt cancer hospitals as it pays PPS teaching hospitals, or provide the Secretary with the authority to otherwise modify how Medicare pays these providers. To generate cost savings from any reduction in outpatient payments to PPS-exempt cancer hospitals, Congress should also provide that all forgone outpatient payment adjustment amounts be returned to the Supplementary Medical Insurance Trust Fund. In order to prevent the shift of services from physician offices to hospital outpatient departments from increasing costs for the Medicare program and beneficiaries, Congress should consider directing the Secretary of Health and Human Services to equalize payment rates between the settings for evaluation and management office visits—and other services that the Secretary deems appropriate—and to return the associated savings to the Medicare program. To help HHS ensure accuracy in Part B drug payment rates, Congress should consider requiring all manufacturers of Part B drugs paid at ASP, not only those with Medicaid drug rebate agreements, to submit sales price data to CMS, and ensure that CMS has authority to request source documentation to periodically validate all such data. To determine the suitability of Medicare’s Part B drug payment rate methodology for drugs with coupon programs, Congress should consider (1) granting CMS the authority to collect data from drug manufacturers on coupon discounts for Part B drugs paid based on ASP, and (2) requiring the agency to periodically collect these data and report on the implications that coupon programs may have for this methodology. In addition, we have made a range of recommendations to HHS and CMS intended to improve program management and control costs that remain open, including the following: To ensure that MA encounter data are of sufficient quality for their intended purposes, the Administrator of CMS should (1) establish specific plans and time frames for using the data for all intended purposes in addition to risk adjusting payments to MA organizations; and (2) complete all the steps necessary to validate the data, including performing statistical analyses, reviewing medical records, and providing MA organizations with summary reports on CMS’s findings, before using the data to risk adjust payments or for other intended purposes. To ensure that future low-volume payment adjustments (LVPA) are made only to eligible facilities and to rectify past overpayments, the Administrator of CMS should (1) require Medicare contractors to promptly recoup 2011 LVPA payments that were made in error, (2) improve the timeliness and efficacy of CMS’s monitoring regarding the extent to which Medicare contractors determine LVPA eligibility correctly and promptly redetermine eligibility when all necessary data become available, and (3) investigate errors that contributed to facilities not consistently receiving the 2011 LVPA and ensure that such errors are corrected. Additionally, to reduce the incentive for facilities to restrict the services they provide to avoid reaching the LVPA treatment threshold, the Administrator of CMS should consider revisions such as changing the LVPA to a tiered adjustment. In order to improve CMS’s ability to identify self-referred advanced imaging services and help CMS address the increases in these services, the Administrator of CMS should (1) insert a self-referral flag on its Medicare Part B claims form and require providers to indicate whether the advanced imaging services for which provider bills Medicare are self-referred or not; (2) reduce payments for self- referred advanced imaging services to recognize efficiencies when the same provider refers and performs a service; and (3) determine and implement an approach to ensure the appropriateness of advanced imaging services referred by self-referring providers. To increase dual-eligible special needs plans’ accountability and ensure that CMS has the information it needs to determine whether dual-eligible special needs plans are providing the services needed by dual-eligible beneficiaries, especially those who are most vulnerable, the Administrator of CMS should evaluate the extent to which dual- eligible special needs plans have provided sufficient and appropriate care to the population they serve, and report the results in a timely manner. To help ensure appropriate payments to MA plans, the Administrator of CMS should take steps to improve the accuracy of the adjustment made for differences in diagnostic coding practices between MA and Medicare FFS. Such steps could include, for example, accounting for additional beneficiary characteristics, including the most current data available, identifying and accounting for all years of coding differences that could affect the payment year for which an adjustment is made; and incorporating the trend of the impact of coding differences on risk scores. For additional information about this high-risk area, contact James Cosgrove at (202) 512-7114 or cosgrovej@gao.gov, or Kathleen King at (202) 512-7114 or kingk@gao.gov. Medicare: CMS’s Round 2 Durable Medical Equipment and National Mail- Order Diabetes Testing Supplies Competitive Bidding Programs. GAO-16-570. Washington, D.C.: September 15, 2016. Medicare Part B: Data on Coupon Discounts Needed to Evaluate Methodology for Setting Drug Payment Rates. GAO-16-643. Washington, D.C.: July 27, 2016. Medicare Part B: CMS Should Take Additional Steps to Verify Accuracy of Data Used to Set Payment Rates for Drugs. GAO-16-594. Washington, D.C.: July 1, 2016. Hospital Uncompensated Care: Federal Action Needed to Better Align Payments with Costs. GAO-16-568. Washington, D.C.: June 30, 2016. Medicare Fee-For-Service: Opportunities Remain to Improve Appeals Process. GAO-16-366. Washington, D.C.: May 10, 2016. Medicare Advantage: Action Needed to Ensure Appropriate Payments for Veterans and Nonveterans. GAO-16-137. Washington, D.C.: April 11, 2016. Medicare: Increasing Hospital-Physician Consolidation Highlights Need for Payment Reform. GAO-16-189. Washington, D.C.: December 18, 2015. Medicare and Medicaid: Additional Oversight Needed of CMS’s Demonstration to Coordinate the Care of Dual-Eligible Beneficiaries. GAO-16-31. Washington, D.C.: December 18, 2015. Medicare Part B: Expenditures for New Drugs Concentrated among a Few Drugs; and Most Were Costly for Beneficiaries. GAO-16-12. Washington, D.C.: October 23, 2015. End-Stage Renal Disease: Medicare Payment Refinements Could Promote Increased Use of Home Dialysis. GAO-16-125. Washington, D.C.: October 15, 2015. Medicare Advantage: Actions Needed to Enhance CMS Oversight of Provider Network Adequacy. GAO-15-710. Washington, D.C.: August 31, 2015. Medicare Physician Payment Rates: Better Data and Greater Transparency Could Improve Accuracy. GAO-15-434. Washington, D.C.: May 21, 2015. Medicare: Payment Methods for Certain Cancer Hospitals Should Be Revised to Promote Efficiency. GAO-15-199. Washington, D.C.: February 20, 2015. Medicare: Bidding Results from CMS’s Durable Medical Equipment Competitive Bidding Program. GAO-15-63. Washington, D.C.: November 7, 2014. We designated Medicare as one of the original high-risk programs in 1990 due to its size, complexity, and susceptibility to mismanagement and improper payments. In 2016, Medicare was projected to finance health services for more than 57 million elderly and disabled beneficiaries at a cost of $696 billion, and account for approximately 17.8 percent of federal spending. Improper payments—payments that are either made in an incorrect amount or should not be made at all—are a significant risk for Medicare and reached an estimated $60 billion in fiscal year 2016. The Centers for Medicare & Medicaid Services (CMS), which administers Medicare for the Department of Health and Human Services (HHS), is responsible for overseeing the program and safeguarding it from loss. While Medicare, the largest federal health program, remains inherently complex and susceptible to improper payments, CMS can continue to take actions to prevent and reduce improper payments in the program. This high-risk rating and assessment focuses on CMS’s efforts to reduce Medicare improper payments. We discuss the broader challenges and risks associated with the Medicare program separately. CMS has continued to demonstrate leadership commitment to preventing and reducing Medicare improper payments, but consistently high improper payment rates and unimplemented improvement opportunities have resulted in the agency partially meeting the four remaining criteria for removal from our High-Risk List—capacity, action plan, monitoring, and demonstrated progress. Since our last high-risk update, agency leadership took action to prevent improper payments by strengthening certain provider enrollment and prepayment controls, as we recommended. CMS also implemented our recommendation to improve oversight of contractors that carry out postpayment reviews, such as the Medicare Administrative Contractors (MAC) and Recovery Auditors (RA). The agency also took certain program integrity actions authorized by the Patient Protection and Affordable Care Act (PPACA) and the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). However, despite these efforts, Medicare improper payment rates remained high in 2016. According to HHS’s Agency Financial Report for 2016, although reported improper payments decreased for Medicare fee-for-service (FFS) from 12.1 percent in fiscal year 2015 to 11.0 percent in fiscal year 2016, this rate remained above the statutorily defined compliance threshold of 10 percent. In addition, the improper payment rates increased for Medicare Part C (9.5 percent in fiscal year 2015 to 10.0 percent in fiscal year 2016) and improved somewhat for Part D (3.6 percent in fiscal year 2015 to 3.4 percent in fiscal year 2016). These rates suggest that additional actions are needed to reduce improper payments in the Medicare program. By implementing our open recommendations, CMS will be able to reduce improper payments and progress toward fulfilling the outstanding criteria to remove Medicare improper payments from our High-Risk List. Congress has also taken actions aimed at helping CMS address this high-risk issue. For example, Congress passed and the President signed into law MACRA in April 2015, which included several provisions aimed at improving Medicare program integrity, such as requiring and providing funding for CMS to remove beneficiaries’ Social Security numbers (SSN) from Medicare cards, requiring MACs to have improper payments outreach and education programs, and modifying surety bond conditions of participation for home health agencies. Congress has also continued to appropriate discretionary funding for CMS to take action to reduce improper payments. In addition, the House and Senate have held more than 20 hearings in the last 4 fiscal years to identify additional program integrity improvements, including 7 hearings since our 2015 high-risk report. Improper payments in all parts of Medicare remain unacceptably high. As Medicare program spending and enrollment are projected to continue to grow under current law, sustained effort will be needed to ensure program integrity and reduce improper payments. If CMS were to effectively implement our numerous recommendations, it could improve program management, make fewer improper payments, and recover more of those it makes. For example, to improve the effectiveness of efforts to reduce and recover improper payments in Part C, CMS should improve the processes for selecting contracts to include in its risk adjustment data validation (RADV) audits—audits of Medicare Advantage (MA) organizations that help CMS recover improper payments in cases where beneficiary diagnoses are unsupported by medical records. We also recommend that CMS enhance the timeliness of these audits and incorporate recovery audit contractors (RAC) into the RADV audit. CMS should also revise its guidance for verifying provider practice locations so that MACs conduct additional research on questionable practice location addresses to help improve Medicare provider and supplier enrollment- screening procedures. Moreover, CMS should fully implement the following priority recommendations and available procedures authorized by PPACA and MACRA to improve the Medicare improper payment rate and remove this area from our High-Risk List: set clear expectations in contract work statements for Part D RAC, conduct annual RAC performance evaluations, and review the process for developing new audit issues to improve the agency’s Part D RAC program operations and contractor oversight; seek legislative authority to allow the RAs—which typically conduct postpayment reviews—to conduct prepayment claim reviews for Medicare FFS as another means of preventing improper payments before they occur; provide guidance to MACs on how to accurately calculate and report savings from prepayment claim reviews to ensure that CMS has the information it needs to evaluate MAC effectiveness in preventing improper payments and evaluate and compare MACs’ performance to that of other contractors; monitor the database used to track Medicare FFS recovery audit activities to ensure that all postpayment review contractors submit required data and that the data contained in the database are accurate and complete; clarify and standardize as much as possible the requirements for the contents of postpayment claims review contractors’ correspondence with providers and assess regularly whether contractors are complying with content requirements to improve the efficiency of postpayment claims reviews and simplify compliance for providers; and require surety bonds for certain types of at-risk providers and suppliers as authorized by PPACA and MACRA. CMS continues to meet our criterion for leadership commitment to reducing Medicare improper payments. Improper payment reduction remains a strategic priority for HHS, and CMS leadership has taken multiple actions that demonstrate its commitment to reducing such payments in the Medicare program, including implementing several of our recommendations. For example, CMS leadership indicated that the agency took steps since our last high-risk update to co-locate all offices whose primary mission is ensuring the integrity of Medicare FFS claims payments, which it believes will improve efficiency for dealing with program integrity issues. CMS also implemented some of our 2012 and 2013 recommendations to improve postpayment reviews and prepayment control efforts. For example, CMS uses several contractors to conduct postpayment reviews for improper payments and the agency has made changes to standardize contractor requirements as we highlighted as a priority recommendation in the 2015 high-risk update. By aligning these contractor requirements, CMS will likely improve the efficiency and effectiveness of its Medicare program integrity efforts by strengthening the control environment, lessening providers’ confusion, and reducing administrative burdens. In response to our priority recommendations, CMS also began disseminating information about certain contractors’ most successful prepayment edits—controls preprogrammed into payment processing systems—and requested that these contractors share information about their top edits, thereby ensuring more widespread use of effective prepayment controls. In 2015, we also recommended changes to improve CMS’s enrollment screening procedures for Medicare providers and suppliers, and CMS has implemented several updates to its provider enrollment database that will address identified weaknesses. CMS partially met our criterion that it have the capacity to reduce improper payments in the Medicare program. The Medicare integrity program—along with other activities to detect, prevent, and combat factors that contribute to improper payments—is funded through the Health Care Fraud and Abuse Control (HCFAC) program, which has reported returns on investment of $6.10 for every $1 spent from fiscal year 2013 through 2015. In fiscal year 2016, Congress provided more discretionary HCFAC funding than in any prior year. These funds helped CMS implement planned initiatives to protect Medicare dollars. While CMS received increased discretionary funding since 2015, the budgetary environment remains uncertain, as demonstrated by the 6 percent decline in discretionary Medicare integrity funding from fiscal year 2011 to 2014. Given funding uncertainty and projected spending increases, it is even more important for CMS to prioritize its most effective program integrity initiatives and to maximize the effect of those initiatives already underway by implementing our recommendations. CMS has partially met our action plan criterion. While CMS identifies and reports progress on corrective actions related to Medicare improper payments in HHS’s annual Agency Financial Report, the agency has not implemented all of the recommendations we made that could reduce improper payments nor fully developed an action plan for addressing our high-risk area. HHS’s Agency Financial Report for 2016 identified insufficient documentation and medical necessity errors as root causes of improper payments for Medicare FFS, and insufficient documentation and administrative errors as root causes of improper payments for both Parts C and D. The report also identified actions that CMS has taken or is taking to address these causes. For example: CMS took action to revalidate existing Medicare providers and suppliers, as required by PPACA. The provider and supplier revalidation is in the second round of a multiyear process to improve enrollment screening that we reported on in 2016. Specifically, we reported that CMS’s revised enrollment screening process resulted in over 703,000 existing enrollment records being deactivated or revoked but that CMS needed to establish performance measures to assess the revised process. CMS took several corrective actions to address improper payment rates for home health claims, which have historically had improper payment rates over 50 percent. For example, CMS took action to clarify face-to-face requirements for home health providers and implemented prepayment claims reviews in 2015 to help educate home health providers. The improper payment rate for home health claims decreased from 59.0 percent in fiscal year 2015 to 42.0 percent in fiscal year 2016. CMS also expanded the use of prior authorization to prevent improper payments for various suppliers. For example, CMS published a final rule in December 2015 that established a Master List of Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) items that providers frequently bill to Medicare when recipients don’t need them. The rule, which took effect on February 29, 2016, requires prior authorization for certain DMEPOS items on the Master List, which CMS believes will reduce or prevent questionable billing practices and improper payments for these items. In December 2016, CMS announced that it would begin implementing prior authorization for two types of power wheelchairs not previously covered in a demonstration beginning in March 2016. Despite these efforts, we have found problems with some of the proposed corrective actions. For Part C improper payments, HHS’s 2015 and 2016 Agency Financial Reports identified RADV audits as a primary corrective action. These audits of MA organizations—to which Medicare pays a risk- adjusted monthly amount for each enrolled beneficiary—help CMS recover improper payments from such organizations if they requested CMS to adjust payments based on beneficiary diagnoses unsupported by medical records. However, in April 2016, we reported significant problems with the methods used to select MA contracts for RADV audits and the time it took to complete the audits. For example, using current methods, CMS is unable to select contracts for audit that have the greatest potential for recovering improper payments. These issues limit CMS’s ability to recover the billions of dollars in MA improper payments that occur each year. In addition, CMS has yet to address some problems including those where we have recommended changes. For example, in 2016, we recommended that CMS seek legislative authority to allow RAs to review Medicare FFS claims before they are paid as another means to prevent improper payments before they occur. Although CMS and RA officials told us that a demonstration of RA prepayment reviews was considered successful, the agency disagreed with our recommendation to seek authority to extend this ability and told us that other claim review contractors conduct prepayment reviews and that CMS has implemented other programs as part of its strategy to move away from the “pay and chase” process of recovering overpayments. We continue to believe that prepayment reviews better protect agency funds compared to postpayment reviews, and that seeking the authority to allow RAs to conduct prepayment reviews is consistent with CMS’s strategy to pay claims properly the first time. In not seeking the authority, CMS may be missing an opportunity to reduce the amount of uncollectable overpayments from RA reviews and save administrative resources associated with recovering overpayments. Finally, CMS officials have indicated that the agency is developing an action plan to address our identified high-risk areas, but as of January 2017, the plan was not yet complete. CMS has taken steps to monitor the effectiveness of its corrective measures, but only partially met our monitoring criterion due to data and oversight challenges. For example, in response to our 2011 recommendation, CMS implemented changes to the data systems its contractors use to track spending on Medicare integrity efforts, thereby improving the agency’s ability to assess the effectiveness of these activities. However, other weaknesses limit CMS’s ability to monitor activities of the contractors that review Medicare claims before and after payment. In 2016, we reported that CMS does not have reliable data on savings from prepayment claims reviews to evaluate MACs’ performance in preventing improper payments or to compare performance across contractors. In response to our report, CMS is developing methodologies to estimate amounts CMS would have paid providers had claim denials based on prepayment review not occurred. Until CMS completes these activities and calculates and reports savings from prepayment reviews, this remains a priority recommendation. In 2016, we also found that, although CMS has improved its provider and supplier enrollment screening process, it lacked objectives for monitoring this screening process and performance measures to assess progress toward achieving its goals for revalidating enrollment information. Finally, in 2015, we reported that CMS did not adequately set expectations for the RAC hired to oversee Part D payments, did not conduct timely performance evaluations, and did not have a good process for approving audit work. As a result of these management weaknesses, CMS collected fewer than $10 million in Part D improper payments as of May 2015. Given that Part D improper payments increased from $2.2 billion to $2.4 billion from fiscal year 2015 to 2016, CMS will need to address these issues when it solicits the next Part D RAC contracts. CMS has demonstrated some progress, including a decrease in the Medicare FFS and Part D improper payment rates in fiscal year 2016, but the size of the program and persistently high improper payment rates for some parts of Medicare indicate further progress is needed. As noted, CMS has taken various actions to improve Medicare program integrity, such as updating eligibility enrollment software, revalidating existing providers and suppliers, and reducing differences in contractor postpayment review requirements; however, it has yet to be determined how many of these changes will affect CMS’s long-term ability to prevent and collect improper payments. In addition, Congress enacted MACRA, which, among other things, required and provided funding for CMS to remove beneficiaries’ SSNs from Medicare cards and develop a new, unique identifier—which we also recommended in 2012 and have highlighted as a priority recommendation. In 2016, CMS reported that it had begun the process of removing SSNs from Medicare cards and will begin replacing them with randomly generated Medicare Beneficiary Identifiers in 2018; however, such changes will not be fully implemented until 2019. CMS has indicated that certain other corrective actions—like expanding the use of prior authorization—have successfully reduced improper payments in several demonstration projects and provider education initiatives, and as a result, the agency is in the process of expanding such efforts. Moreover, CMS has yet to implement certain PPACA-authorized actions as we encouraged the agency to do in our 2015 high-risk report. For example, PPACA authorized CMS to impose surety bonds on certain at-risk providers to strengthen provider enrollment protections. MACRA also included a provision to require surety bonds for all home health agencies as a condition of Medicare participation. CMS has stated that the agency is working to implement this requirement, but, as of December 2016, CMS had not issued rules to do so. Continued progress in these and other efforts is needed, as Medicare FFS, Part C, and Part D all remained on the Office of Management and Budget’s list of high-error programs in 2015. Sustained control over payments and program integrity management is needed before Medicare improper payments can fully meet our criterion for demonstrated progress. Our body of work on improper payments has raised the level of attention to this issue, including Medicare improper payments, and contributed to the passage of the Improper Payments Information Act of 2002 (IPIA) and subsequent improper payment legislation. These laws require, among other things, agencies to estimate their annual amount of improper payments and report on actions to reduce them. In part from our continued oversight of CMS’s efforts to meet the requirement of IPIA, both Medicare Part C and Part D have reduced overpayment rates, a component of the total program improper payment rate, since each program began reporting improper payments in 2009 and 2011, respectively. Specifically, we determined that Medicare Part C had cost savings associated with overpayment error rate reductions of $1.2 billion in fiscal year 2010, $5.1 billion in fiscal year 2011, $6.2 billion in fiscal year 2013, and $8.9 billion in fiscal year 2014. Part D had cost reduction of $209.8 million in fiscal year 2014 and $51.1 million in fiscal year 2015. In 2012, we reported that CMS had not integrated its predictive analytics system, known as the Fraud Prevention System (FPS), with its claims processing and payment systems to allow for the automated prevention of potentially fraudulent Medicare claims payments. We recommended that the agency develop schedules for completing integration of these systems. In response, CMS implemented capabilities which allowed FPS to stop payment of certain improper and non-payable claims including a total of $26.2 million of cost savings in 2014 and 2015. In 2012, we made several recommendations to CMS to promote greater use of effective prepayment edits and better ensure proper payment, to promote implementation of effective edits based on national policies, and to encourage more widespread use of effective local edits by MACs. In response to these recommendations, CMS began disseminating information about certain contractors’ most successful prepayment edits—controls preprogrammed into payment processing systems—requested that these contractors share their top edits, and made improvements to certain edits that identify services billed in medically unlikely amounts. The agency also revised its standard operating procedures to ensure consideration of automated edits for all new and existing national coverage determinations— which describe the circumstances under which Medicare will cover services nationwide—as we recommended. These changes help CMS ensure Medicare payments are made properly the first time. Beginning in 2013, CMS took several actions to improve its process for addressing RAC-identified vulnerabilities that led to improper payments as we recommended in 2010. For example, the agency created a protocol to determine the effectiveness of certain corrective actions and established regular meetings to discuss RAC issues. By taking these steps, CMS established monitoring and control activities to ensure that corrective actions are taken that help meet the overall goal of reducing improper payments in the Medicare program. In response to our 2011 recommendation, CMS implemented changes in 2014 to the data systems MACs use to track spending on Medicare integrity efforts, thereby improving the accuracy of spending estimates. These changes improve the agency’s ability to assess the effectiveness of their Medicare integrity activities. In 2015, we reported weaknesses in the screening procedures CMS uses to prevent and detect ineligible or potentially fraudulent providers and suppliers from enrolling in the Medicare Provider Enrollment, Chain and Ownership System (PECOS). Specifically, we found that the computer software CMS uses to validate applicants’ addresses does not flag potentially ineligible addresses. In addition, we found that CMS’s process for verifying providers’ licenses did not always identify providers’ adverse actions when enrolling, revalidating, or reviewing provider’s licenses unless the provider self-reported the action. In response to recommendations we made to address these issues, CMS updated its address verification software and incorporated information from the Federation of State Medical Boards into its automatic screening process thereby improving the integrity of Medicare provider enrollment. In 2012 and 2013, we made recommendations to CMS to remove beneficiary SSNs from the Medicare insurance card in order to protect beneficiaries from identity theft. In response to our recommendations and in accordance with MACRA, CMS initiated a project in 2016 to replace beneficiary SSNs with a non SSN-derived Medicare Beneficiary Number. Removing SSNs from Medicare cards better protects Medicare beneficiaries from identity theft and provides CMS with a useful tool in combatting Medicare fraud and medical identity theft. In 2011, we identified instances of questionable access to prescription drugs in the Part D program and made a recommendation to CMS to improve its efforts to curb overutilization in Part D. In response to our recommendation, CMS conducted a case management pilot in 2012 to improve retrospective drug utilization program controls, developed a drug utilization review methodology to target Part D beneficiaries who are at risk due to high use of opioids, and implemented an overutilization monitoring system to ensure Part D sponsors are implementing effective controls against opioid overutilization. By implementing these changes, CMS has taken an important step toward insuring the safety of Medicare beneficiaries and reducing the abusive practice of doctor shopping for prescription drugs. For additional information about this high-risk area, contact Kathleen King at (202) 512-7114 or kingk@gao.gov. Medicare: Initial Results of Revised Process to Screen Providers and Suppliers, and Need for Objectives and Performance Measures. GAO-17-42. Washington, D.C.: November 15, 2016. Skilled Nursing Facilities: CMS Should Improve Accessibility and Reliability of Expenditure Data. GAO-16-700. Washington, D.C.: September 7, 2016. Medicare Fee-For-Service: Opportunities Remain to Improve Appeals Process. GAO-16-366. Washington, D.C.: May 10, 2016. Medicare: Claim Review Programs Could Be Improved with Additional Prepayment Reviews and Better Data. GAO-16-394. Washington, D.C.: April 13, 2016. Medicare Advantage: Fundamental Improvements Needed in CMS’s Effort to Recover Substantial Amounts of Improper Payments. GAO-16-76. Washington, D.C.: April 8, 2016. Health Care Fraud: Information on Most Common Schemes and the Likely Effect of Smart Cards. GAO-16-216. Washington, D.C.: January 22, 2016. Medicare Part D: Changes Needed to Improve CMS’s Recovery Audit Program Operations and Contractor Oversight. GAO-15-633. Washington, D.C.: August 14, 2015. Medicare Program: Additional Actions Needed to Improve Eligibility Verification of Providers and Suppliers. GAO-15-448. Washington, D.C.: June 25, 2015. Medicare: Potential Uses of Electronically Readable Cards for Beneficiaries and Providers. GAO-15-319. Washington, D.C.: March 25, 2015. The size, growth, and diversity of the Medicaid program presents oversight challenges, and we designated Medicaid as a high-risk program in 2003 due to concerns about the adequacy of fiscal oversight. Medicaid is one of the largest sources of funding for acute health care, long-term care, and other services for low-income and medically needy populations. This federal-state program covered an estimated 72.2 million people in fiscal year 2016 and is the largest health program as measured by enrollment and the second largest as measured by expenditures, second only to Medicare. A source of significant pressure on federal and state budgets, estimated Medicaid outlays for fiscal year 2016 were $575.9 billion, of which $363.4 billion was financed by the federal government and $212.5 billion by the states. Medicaid allows states significant flexibility to design and implement their programs, resulting in more than 50 distinct programs; this variability complicates program oversight and has contributed to challenges in overseeing program payments and beneficiaries’ access to services. Each state Medicaid program, by law, must cover certain categories of individuals and provide a broad array of benefits. Populations covered include children in low-income families and low-income individuals who are elderly, disabled, or are experiencing high medical needs. Medicaid’s extensive benefit package includes coverage for acute care services, primary care services, long-term care services, and comprehensive screening and treatment services for children. Within these broad parameters, however, states administer their own programs, deciding whether to cover any health services or populations beyond what are mandated by law, setting provider reimbursement rates, and operating state-specific data systems to enroll eligible beneficiaries and providers and to process and pay claims. For example, states may pay health care providers for each service they provide on a fee-for-service (FFS) basis; contract with managed care organizations (MCO) to provide a specific set of Medicaid-covered services to beneficiaries, and pay them a set amount per beneficiary per month; or rely on a combination of both delivery systems. Variability among state Medicaid programs also results from key Medicaid reform efforts that states may initiate. For example, under Section 1115 of the Social Security Act, the Secretary of Health and Human Services can waive traditional Medicaid requirements and authorize states to expend funds on Medicaid demonstrations to test new ways to deliver services. State Medicaid programs also differ in whether and how they have elected to expand Medicaid as allowed under the Patient Protection and Affordable Care Act (PPACA), which gave states the option to expand Medicaid eligibility to nearly all adults under age 65 with incomes up to 133 percent of the federal poverty level (hereafter referred to as newly eligible adults). States that elected to expand Medicaid received 100 percent federal funding for this newly eligible population through 2016, with the federal share declining to 90 percent for 2020 and subsequent years. As of October 2016, 31 states and the District of Columbia had opted to expand Medicaid eligibility under PPACA. In 2015, the Centers for Medicare & Medicaid Services (CMS) projected that total spending for Medicaid will rise an average of 6.4 percent per year from 2015 to 2024 (see figure 19). States also vary in the extent to which they are affected by economic downturns, which in turn can affect their Medicaid programs. The federal government matches most state expenditures using a statutory formula based in part on each state’s per capita income. We and others have noted that states’ efforts to fund Medicaid can be challenged during economic downturns, when Medicaid enrollment can rise and state revenues can decline. To ensure that federal funding efficiently and effectively responds to the program’s countercyclical nature, we have emphasized the need for timely and targeted federal assistance to stabilize states’ funding of Medicaid during such periods. Such assistance would support states with declining revenues or increased enrollment during a national economic downturn, further stabilizing the financing of this important program. An overarching challenge for the Medicaid program is the lack of accurate, complete, and timely data CMS needs to oversee the diverse and complex state Medicaid programs. Our work has made it clear that insufficient data have affected CMS’s ability to ensure proper payments and beneficiaries’ access to services. CMS’s two primary data sets—the CMS-64, which serves as the basis for calculating the amount of federal matching funds for states, and the Medicaid Statistical Information System (MSIS), which is designed to report individual beneficiary claims data—have the potential to offer a robust view of state financing, payments, and overall spending in the Medicaid program. However, the data’s usefulness is limited because of issues with completeness, timeliness, and accuracy. Improved data would enhance CMS oversight, allowing for improved monitoring of program financing and payments, beneficiary access, and compliance with Medicaid laws and requirements. CMS has acknowledged the need for improved Medicaid data and has undertaken a number of steps aimed at streamlining and improving the quality of data currently reported by states and available to CMS for oversight purposes. Complete and accurate data on state financing and payments to individual providers is essential for CMS to effectively oversee state Medicaid programs. Without more transparent information on state funding sources and program payments, CMS is unable to determine whether program expenditures are appropriate or to ensure the fiscal integrity of the program. Congress has held multiple hearings on these issues, including a November 2015 hearing at which the House Committee on Energy and Commerce, Subcommittee on Health, examined possible legislative remedies to address concerns we have raised in multiple reports about the transparency of Medicaid financing and payments to individual providers. Financing transparency and oversight. In recent years, states have increasingly relied on funds from providers and local governments to finance the nonfederal share of Medicaid, with implications for federal costs. While states finance the nonfederal share in large part through state general funds, they also depend on other sources of funds, such as taxes on health care providers and transfers of funds from local governments. Our 2013 survey of states found that, in 2012, states financed over one-quarter—over $46 billion—of the nonfederal share of Medicaid with funds from health care providers and local governments, an increase of over 21 percent since 2008 from these sources. Our work has illustrated that by requiring providers to supply all or more of the nonfederal share of Medicaid payments, states can claim an increase in federal matching funds without a commensurate increase in state expenditures. This shifts costs from the state to the federal government. Identifying the sources of nonfederal funds is essential to assessing their effect; however, CMS does not collect complete or accurate information on these sources of nonfederal funds. Apart from data on provider taxes and donations, CMS does not require states to provide information on the funds they use to finance Medicaid nor ensure that the data they do collect are accurate and complete. This lack of transparency in states’ sources of funding hinders CMS’s ability to determine whether increasing payments to providers provides fiscal relief to the state or whether increasing payments to providers improves beneficiary access. Without accurate information on how states finance their Medicaid programs, CMS is also unable to ensure that states comply with federal requirements. For instance, under federal law, at least 40 percent of the state share must be from state funds, which includes state general funds, provider taxes and donations, and transfers from other state agencies. CMS disagreed with our recommendation to take action to improve the information available on states’ sources of the nonfederal share of Medicaid payments. In 2015, legislation was introduced that would require CMS to take such action. Oversight of payments to institutional providers. Over the years, we and others have reported on CMS’s oversight of payments that states often make to institutional providers, such as hospitals and nursing facilities, which have raised questions. In particular, concerns have been raised about states making large Medicaid supplemental payments— payments in addition to the regular, claims-based payments made to providers for services they provided—often to government providers, such as local government and state-operated hospitals and other health care facilities. In fiscal year 2015, the latest date for which data are available, these payments totaled about $55 billion. Supplemental payments that result in total Medicaid payments well in excess of a provider’s costs raise questions about whether payments are consistent with the statutory requirement that payments be economical and efficient and are actually for covered Medicaid services. Among other concerns related to CMS oversight of supplemental payments, we have found the agency lacks a policy and process for determining whether payments made to individual providers are economical and efficient, as required by law, and lacks clear guidance on appropriate methods for states to distribute payments. For example, in 2015, we reported that three hospitals in New York received supplemental payments that resulted in overall Medicaid payments to the hospitals that greatly exceeded their cost of providing Medicaid services. CMS, in response, required New York to retroactively reduce supplemental payments to the hospitals by more than $1.5 billion— including $771 million in federal funds—over 4 years. Further, in a 2016 report, we found that selected states distributed supplemental payments to hospitals largely based on the availability of local government funds to finance the nonfederal share, rather than on the volume of services each hospital provided. In addition, officials from hospitals that received payments above costs reported using the excess revenues from these supplemental payments broadly, from covering the costs of uninsured patients to funding general hospital operations, maintenance, and capital purchases, such as for a helicopter. Based on the findings from these reports, we have recommended that CMS (1) clarify criteria for determining the economy and efficiency of payments to individual providers, (2) issue guidance clarifying its policies that supplemental payments should be linked to the provision of Medicaid services and not be contingent on the availability of local financing, and (3) require provider-specific reporting of certain types of supplemental payments. In 2015, legislation was proposed that would require CMS to collect provider-specific data on states’ supplemental payments. As of fall 2016, CMS was pursuing regulatory actions to address some of the concerns we raised, including requiring states to report information about how they distribute supplemental payments. As of 2014, the latest date for which this information is available, more than three-fourths of Medicaid beneficiaries received some of their services in a managed care delivery system, in which the state typically contracts with managed care organizations (MCO) to provide a specific set of services for beneficiaries for a set amount per beneficiary per month. Federal spending for managed care in fiscal year 2014 was $107 billion, which accounted for over one-third of federal Medicaid spending that year and represented a significant increase from 2013. Increased enrollment and spending for Medicaid managed care makes effective federal and state oversight of this large and complex component of the Medicaid program critical, and underscores the need for reliable data to assess the appropriateness of states’ payments to MCOs and beneficiaries’ access to MCO services. In our work examining federal expenditures for MCOs, we determined that state payments to MCOs in 2014 varied widely across and within 8 states as did the average annual MCO payments per beneficiary, which ranged from $2,784 in California to $5,180 in Pennsylvania. While this variation could be due, in part, to differences in the enrolled population and geographic costs and utilization patterns, it suggests the need to further examine the relationship between higher MCO spending and beneficiaries’ experiences. Further, federal law requires states to collect encounter data—records of health care services for which MCOs pay—and submit these data to CMS using MSIS. Having reliable encounter data that provides information on service utilization is important as MCOs receive a fixed amount per beneficiary regardless of the number of services used and therefore may have financial incentives to limit beneficiaries’ access to services. However, in our work examining beneficiary utilization of services, we could not fully assess utilization patterns for Medicaid managed care beneficiaries in 19 states because MSIS data were either not available (11 states) or were unreliable (8 states). In May 2016, CMS issued a final rule for Medicaid managed care that includes provisions aimed at improving Medicaid managed care encounter data submissions. For example, for contracts with MCOs and limited benefit health plans beginning on or after July 1, 2017, states are required to include provisions regarding the maintenance of encounter data, and, by July 1, 2018, to have procedures in place to validate that the enrollee encounter data these entities submit are complete and accurate. Medicaid demonstrations have become a significant proportion of Medicaid expenditures, growing steadily from about $50 billion, or about 14 percent of total Medicaid expenditures in fiscal year 2005, to $165 billion, or close to one-third of total Medicaid expenditures in fiscal year 2015. Section 1115 of the Social Security Act authorizes the Secretary of HHS to waive certain federal Medicaid requirements and allow costs that would not otherwise be eligible for federal matching funds for experimental, pilot, or demonstration projects that are likely to assist in promoting Medicaid objectives. The demonstrations can provide a way for states to test and evaluate new approaches for delivering Medicaid services. By policy, demonstrations should be budget neutral to the federal government; that is, they must not increase federal costs. In July 2015, CMS changed its organizational structure and increased its staffing to oversee section 1115 demonstrations and their growing role in the Medicaid program, and we continue to assess CMS’s approval and oversight of spending for these demonstrations. Expenditure authorities in Medicaid demonstrations. Using its authority under Section 1115 of the Social Security Act to approve costs that would not otherwise be matchable under Medicaid, HHS has approved Medicaid spending for a wide range of purposes beyond extending coverage to new populations or for new benefits. For example, HHS approved demonstrations that allowed 5 states to spend up to $9.5 billion to fund state health programs that were previously financed at least in part by the state or potentially other federal programs. HHS also approved 8 states to make more than $26 billion in supplemental payments to hospitals and other providers. We found that HHS’s criteria and approval documents were not always clear as to how approved spending would further Medicaid objectives. For example, some of these state programs appeared to be only tangentially related to improving health outcomes for low-income individuals and lacked documentation explaining how approving them would promote Medicaid objectives. We also found that demonstration approvals sometimes lacked assurances that demonstration spending would not duplicate other federal funds received by states. In response to our work, HHS issued general criteria for determining whether demonstrations met Medicaid objectives, which it had not delineated before. HHS also committed to identifying in approval documents how each expenditure authority promoted Medicaid objectives and providing assurances that demonstration funds would not duplicate other federal funds. While issuing the general criteria is a useful first step, we maintain that given the breadth of the Secretary’s authority under section 1115—the exercise of which can result in billions of dollars of federal expenditures for costs that would not otherwise by allowed under Medicaid—more explicit criteria are needed. Budget neutrality of Medicaid demonstrations. We remain concerned about the Secretary of HHS’s lack of an adequate budget neutrality policy including the criteria and process for reviewing and approving demonstration spending limits and the lack of a written, up-to-date policy that is readily available to state Medicaid directors and others. In multiple reports, we have found that federal spending on Medicaid demonstrations could be reduced by billions of dollars if HHS were required to improve the process for reviewing, approving, and making transparent the basis for spending limits approved for Medicaid demonstrations. For example, in 2014, we reported that HHS had approved a spending limit for Arkansas’s demonstration—to test whether providing premium assistance to purchase private coverage through the health insurance exchange would improve access for newly eligible Medicaid beneficiaries—that was based, in part, on hypothetical, not actual, costs. We estimated that by allowing the state to use hypothetical costs, HHS approved a demonstration spending limit that was over $775 million more than what it would have been if it was based on the state’s actual payment rates for services under the traditional Medicaid program. Another troubling precedent is that HHS granted Arkansas and 11 other states additional flexibility in their demonstrations to increase the spending limit if costs proved higher than expected. Our report on Arkansas was the latest in a series of reports showing significant concerns with HHS’s process for reviewing and approving spending under demonstrations. For example, in 2013 we reported that, for 4 of 10 demonstrations we reviewed, HHS approved spending limits that exceeded those that were supported in documentation and by HHS’s own policy by an estimated $32 billion. We have recommended that HHS (1) better ensure that valid methods are used to demonstrate budget neutrality, (2) clarify criteria for reviewing and approving demonstration spending limits, (3) document and make public the basis for approved spending limits, and (4) update its written budget neutrality policy to reflect the actual criteria and processes used to develop and approve demonstration spending limits. HHS has generally disagreed that changes to its policy and process are needed. Congress has held hearings, sent letters to CMS, and proposed legislation regarding how CMS reviews and approves demonstration spending limits. Although HHS has not issued a written budget neutrality policy as of October 2016, HHS has taken some steps to improve its oversight, including issuing a report in October 2015 to Congress on actions taken with respect to Medicaid demonstrations. The report discussed some steps HHS has taken and planned to take to improve access to program information and the transparency of its criteria for approving expenditures. Further, in 2016 HHS took steps to change its budget neutrality methodology that are intended to result in more appropriate demonstration spending limits. Nonetheless, we maintain that HHS must take the additional actions specified in our recommendations to improve the transparency of its demonstration approvals. Access to appropriate care has been a concern because of the needs and vulnerability of the individuals covered by Medicaid, including children, the elderly, and the disabled. National survey data have suggested that access reported by Medicaid beneficiaries is comparable to that of individuals with private health insurance in many areas, but that Medicaid beneficiaries do face particular challenges in accessing certain types of care. To help assess Medicaid enrollees’ access to care, CMS needs better data. Access to preventive, oral, and mental health services. The higher prevalence of some health conditions among Medicaid beneficiaries nationally that can be identified and managed by preventive services suggests that more can and should be done to ensure Medicaid beneficiaries receive these services. For example, states are required to provide preventive services for children through the Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit. However, national data collected by HHS suggest that Medicaid beneficiaries receive these services at rates below established goals. In addition, our 2016 work showed that, due to variation across states in the scope, functionality, and availability of resources on provider information, Medicaid beneficiaries in FFS arrangements may face challenges in identifying available providers in their respective states. State Medicaid programs have also struggled to ensure that beneficiaries, particularly children, receive appropriate oral health and mental health services when needed. High rates of dental diseases remain prevalent across the nation, especially in vulnerable and underserved populations. Medicaid beneficiaries, children in particular, have increased their use of dental services but still visited the dentist less often than privately insured children. These visits are essential to preventing future high cost dental services. Medicaid children may also have problems accessing mental health providers and may not be receiving appropriate mental health treatment and services. For example, national survey data indicate concerns that some children enrolled in Medicaid may be inappropriately prescribed psychotropic drugs and are not receiving needed mental health services, such as counseling and therapy. Better data needed to assess enrollees’ access to care. CMS’s ability to assess beneficiaries’ access to services is complicated by insufficient data. For example, in reviewing states’ EPSDT reports for our 2011 report, we found reporting errors large enough to overstate the extent to which children received services, and we found that states did not always report required data on the number of children referred for additional services. Further, the currently reported state data do not indicate whether children referred for preventive services actually received the services. CMS has taken steps to better identify reporting errors and obtain corrected data, but as of September 2016, CMS has no plans to require states to report whether children received the treatment services for which they were referred. Our 2015 work on MCOs described above also points out the need for better data to understand MCO beneficiaries’ access to covered services, including differences in access that could help explain the wide variation in MCO payments per beneficiary we identified. Finally, given that PPACA requires states to cover certain recommended preventive services for newly eligible adults in states that expanded Medicaid under the law, data are needed to determine whether this coverage helps improve beneficiaries’ access to and receipt of these services. Medicaid is the nation’s primary payer of long-term care services and supports (LTSS) for aged and disabled individuals. Medicaid spending (federal and state) on LTSS is significant—in 2016, we reported LTSS spending was an estimated $152 billion in fiscal year 2014 (see figure 20), or about one-quarter of the program’s total expenditures annually. The demand for LTSS is expected to increase as the nation’s population ages and life expectancy increases, including individuals with disabilities and complex health needs who require long-term services and supports. Monitoring of long-term care services provided in the community. Medicaid LTSS spending for services provided to beneficiaries in home- and community-based settings has grown rapidly and now exceeds spending for care provided in institutional settings, such as nursing homes. Monitoring and oversight of these services is important for ensuring quality of care, as the individuals who rely on these services are among Medicaid’s most vulnerable, and while home- and community- based services can enable people to live more independently, the services are not without risk. In the case of personal care services—an important type of long-term care service to help individuals who have limited ability to care for themselves—beneficiaries receiving these services include aged individuals and individuals with physical, developmental, or intellectual disabilities. When personal care services are provided in a private home, other providers or community members may not be present to help discourage or report questionable activities. Further, depending on the state and the personal care services program, personal care attendants who provide personal care services may not be required to have specialized training. Personal care services—for which Medicaid paid $15 billion on a fee-for-service basis in calendar year 2015—are also among the highest at risk for improper payments, including for services which were billed but never provided to the beneficiary. In 2014, CMS estimated over $2 billion of payment errors for Medicaid personal care services. In 2016, we found that while CMS has taken several steps to improve oversight of personal care services, it has not collected all required state reports on beneficiaries’ health and welfare for some programs, and it could do more to harmonize the patchwork of federal program requirements intended to oversee beneficiary safety and assure that billed services are provided. Such harmonization would help ensure a more consistent administration of policies and procedures and could enhance oversight. Finally, another important change in the delivery of Medicaid-funded LTSS is the rapid growth in managed care, which in 2014 accounted for almost 15 percent of Medicaid LTSS expenditures. We will continue to monitor Medicaid’s use of managed care to deliver LTSS as well as other aspects of the program’s growing support for LTSS and examine the implications for oversight. We have a number of Matters for Congressional Consideration and recommendations to HHS and CMS for addressing issues related to financing, payment oversight, demonstration spending, and access- related issues. We have suggested Congress take the following actions: To improve the transparency of and accountability for certain high-risk Medicaid payments that total tens of billions of dollars annually, Congress should consider requiring CMS to improve reporting of and guidance related to certain supplemental payments and to require states to submit annual independent audits of such payments. To improve the fiscal integrity of Medicaid, Congress should consider requiring increased attention to fiscal responsibility in approving Section 1115 Medicaid demonstrations by requiring the Secretary of HHS to improve the demonstration review process through steps such as (1) clarifying criteria for reviewing and approving states’ proposed spending limits, (2) better ensuring that valid methods are used to demonstrate budget neutrality, and (3) documenting and making public material explaining the basis for any approvals. To ensure that federal funding efficiently and effectively responds to the countercyclical nature of the Medicaid program, Congress should consider enacting a federal matching formula that targets variable state Medicaid needs and provides automatic, timely, and temporary increased federal assistance in response to national economic downturns. In addition, we have made recommendations to HHS and CMS, including: To improve CMS’s oversight of Medicaid payments, the Administrator of CMS should develop (1) a policy establishing criteria for when such payments at the provider level are economical and efficient; and (2) a process for identifying and reviewing payments to individual providers, once criteria are developed, in order to determine whether they are economical and efficient. To improve the transparency of the process for reviewing and approving spending limits for comprehensive section 1115 demonstrations, the Secretary of Health and Human Services should update the agency’s written budget neutrality policy to reflect actual criteria and processes used to develop and approve demonstration spending limits, and ensure the policy is readily available to state Medicaid directors and others. To meet HHS’s fiduciary responsibility of ensuring that section 1115 waivers are budget neutral, the Secretary should better ensure that valid methods are used to demonstrate budget neutrality, by developing and implementing consistent criteria for considering proposals for section 1115 demonstration waivers. To better understand the effect of certain personal care services on beneficiaries and more consistently administer policies and procedures across personal care services programs, the Secretary of HHS should direct the Administrator of CMS to (1) collect and analyze required state information on the impact of certain personal care services programs, and (2) take steps to further harmonize federal requirements across programs providing personal care services. In light of the need for accurate and complete information on children’s access to health services under Medicaid and State Children’s Health Insurance Program (CHIP), CMS should work with states to identify additional ways to improve reports used to monitor children’s access to services, including identifying how to capture information related to whether children receive treatment services for which they are referred. For additional information about this high-risk area, contact Katherine Iritani at (202) 512-7114 or iritanik@gao.gov, or Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov. Medicaid Personal Care Services: CMS Could Do More to Harmonize Requirements Across Programs. GAO-17-28. Washington, D.C.: November 23, 2016. Medicaid Fee-For-Service: State Resources Vary for Helping Beneficiaries Find Providers. GAO-16-809. Washington, D.C.: August 29, 2016. Medicaid: Federal Guidance Needed to Address Concerns About Distribution of Supplemental Payments. GAO-16-108. Washington, D.C.: February 5, 2016. Medicaid Managed Care: Trends in Federal Spending and State Oversight of Costs and Enrollment. GAO-16-77. Washington, D.C.: December 17, 2015. Medicaid: Improving Transparency and Accountability of Supplemental Payments and State Financing Methods. GAO-16-195T. Washington, D.C.: November 3, 2015. Medicaid: Overview of Key Issues Facing the Program. GAO-15-746T. Washington, D.C.: July 8, 2015. Medicaid: Key Issues Facing the Program. GAO-15-677. Washington, D.C.: July 30, 2015. Medicaid Demonstrations: More Transparency and Accountability for Approved Spending Are Needed. GAO-15-715T. Washington, D.C.: June 24, 2015. Medicaid: Service Utilization Patterns for Beneficiaries in Managed Care. GAO-15-481. Washington, D.C.: May 29, 2015. Medicaid Demonstrations: Approval Criteria and Documentation Need to Show How Spending Furthers Medicaid Objectives. GAO-15-239. Washington, D.C.: April 13, 2015. Medicaid: CMS Oversight of Provider Payments Is Hampered by Limited Data and Unclear Policy. GAO-15-322. Washington, D.C.: April 10, 2015. Medicaid and CHIP: Reports for Monitoring Children’s Health Care Services Need Improvements. GAO-11-293R. Washington, D.C.: April 5, 2011. The Centers for Medicare & Medicaid Services (CMS) in the Department of Health and Human Services (HHS) has taken several actions that demonstrate its commitment to reduce improper payments, including using rulemaking to strengthen state capacity and oversight of managed care organizations (MCO) and the ongoing implementation of a new claims data system that could address issues with incomplete, inaccurate, and untimely state data. Despite these efforts, however, overall Medicaid improper payments continue to increase, rising to about $36.3 billion in fiscal year 2016 compared with $29.1 billion in fiscal year 2015. We designated Medicaid as a high-risk program in 2003 in part due to concerns about the adequacy of the fiscal oversight that is necessary to prevent inappropriate program spending. This federal and state program covered acute health care, long-term care, and other services for an estimated 72.2 million low income and medically needy individuals in fiscal year 2016, making it one of the largest sources of funding for medical and health-related services. Under current law, the program is expected to continue to grow—covering as many as 13.2 million additional individuals by 2025—as states may expand their Medicaid programs under the Patient Protection and Affordable Care Act (PPACA). As with any estimate, changes to PPACA or other laws could affect the projected federal spending on major federal health care programs and federal revenues. By design, Medicaid allows significant flexibility for states to design and implement their programs, which has resulted in over 50 distinct state- based programs. The federal government matches state expenditures for most Medicaid services using a statutory formula. The federal matching rate varies under the program, with increased federal matching funds for individuals newly eligible through the expansion of Medicaid under PPACA. The program is a significant expenditure for the federal government and the states, with total estimated expenditures of $575.9 billion in fiscal year 2016, of which $363.4 billion was financed by the federal government and $212.5 billion by the states. Within broad federal guidelines, states have some discretion in setting Medicaid eligibility standards and provider payment rates, and in determining the amount, scope, and duration of covered benefits and how these benefits are delivered. For example, states may pay health care providers for each service they provide on a fee-for-service (FFS) basis; contract with MCOs to provide a specific set of Medicaid-covered services to beneficiaries and pay them a set amount per beneficiary per month; or rely on a combination of both delivery systems. Roughly three-fourths of Medicaid beneficiaries receive some or all of their services from MCOs, and payments to MCOs account for over one-third of federal Medicaid spending. Increased enrollment and spending for Medicaid-managed care makes effective federal and state oversight of this large and complex component of the Medicaid program critical. The size and diversity of the Medicaid program make it particularly vulnerable to improper payments—including payments made for people not eligible for Medicaid or made for services not actually provided. Over recent years, improper payments have increased substantially and represent a significant cost to the program, an estimated $36.3 billion in federal dollars in fiscal year 2016. While states have the first-line responsibility for preventing improper payments, CMS has an important role in overseeing and supporting state efforts to reduce and recover improper payments. This high-risk assessment focuses solely on CMS’s efforts to prevent and reduce improper payments. Medicaid vulnerabilities include more than improper payments, and we discuss the broader challenges and risks associated with the Medicaid program separately (see page 520). As mentioned above, the continued growth in the overall estimated improper payment rate—10.5 percent in 2016 compared with 9.8 percent in 2015—underscores the need for additional federal action and has resulted in the agency partially meeting the 5 key criteria for removal from our High-Risk List: leadership commitment, capacity, action plan, monitoring, and demonstrated progress. Until additional actions are taken, gaps in oversight remain that will challenge CMS’s ability to reduce improper payments. Congress has taken action to address improper payments and oversight challenges in the Medicaid program. For example, HHS identified provider screening and enrollment as a main area contributing to increased estimates in Medicaid improper payments, and Congress recently enacted legislation requiring MCOs only use providers that have been screened and enrolled by the appropriate state Medicaid program. The legislation also requires states to report information about terminated Medicaid providers to CMS and requires CMS to include such information, as appropriate, in the agency’s Medicaid provider termination notification system. Additionally, Congress has held several hearings related to Medicaid improper payments, including a May 2016 hearing held by the House Energy and Commerce Subcommittee on Oversight and Investigations and an October 2015 hearing held by the Senate Committee on Finance. Further indicating a continued focus on agency action on Medicaid program integrity, the chairmen of two congressional committees and subcommittees sent letters to CMS regarding Medicaid program integrity, including a letter on eligibility determinations and one on how CMS sets its target improper payment rate for the Medicaid program. CMS has taken steps to improve the improper payment rate in recent years, including implementing certain recommendations we previously made and using rulemaking to strengthen program integrity efforts. Several of these efforts are in progress, with staggered compliance dates for changes to oversight of MCOs and continued state implementation of the Transformed Medicaid Statistical Information System (T-MSIS). For example, the requirement in the May 2016 managed care rule for states to audit the accuracy, truthfulness, and completeness of the financial data submitted by MCOs will not take effect until July 2017. Additionally, T- MSIS, which aims to collect more complete and timely state data, including claims and utilization data, is not fully implemented across all states. Continued oversight and leadership will be necessary in these areas. Further, there are several areas where CMS needs to take action to address issues and recommendations that have not been fully implemented, including: considering which additional databases that states and Medicaid managed care plans use to screen providers, which could be helpful in improving the effectiveness of these efforts, and determining whether any of these databases should be added to the list of databases identified by CMS for screening purposes; developing a plan to regularly assess the effectiveness of checks for duplicate coverage between Medicaid and federally facilitated exchanges, including thresholds for the level of duplicate coverage it deems acceptable; continuing its efforts to work with Social Security Administration to share its Death Master File with states and providing additional guidance to states to better identify beneficiaries who are deceased; and conducting systematic assessments of federal determinations of Medicaid eligibility in states that delegated this authority to the federal marketplace until it is part of the regular review processes that are expected to resume in 2018. Fully addressing these recommendations would help CMS address the growing levels of improper payments. Until CMS takes additional actions to address these and other gaps in oversight, the Medicaid program remains at risk for unacceptable levels of improper payments and therefore remains on our High-Risk List. CMS continues to partially meet the criteria for leadership commitment to reducing improper payments; however, questions remain about the success of its efforts. Since 2014, the agency has reorganized its program integrity activities with the aim of creating more streamlined operations; established an agency-wide Program Integrity Board to identify and set priorities for addressing vulnerabilities in its programs; and taken steps to improve coordination activities with Medicare. CMS also published a final rule on Medicaid managed care in May 2016 that is intended to improve oversight of MCOs. The rule is responsive to our priority recommendations that CMS should hold states accountable for Medicaid MCO program integrity by requiring states to audit payments to and by MCOs, and updating its guidance on Medicaid managed care program integrity practices and effective handling of MCO recoveries. As 1 example, the rule requires that states, at least once every 3 years, audit the data submitted by MCOs with contracts starting on or after July 1, 2017. Prior to issuance of this rule, there had been no requirement for states to audit payments to and by MCOs. However, given that CMS only recently reorganized its program integrity activities, and issued the new rule, and that the rule’s provisions will be implemented in staggered time frames that extend to 2018, the effects on program integrity efforts are unclear. Further, additional leadership is needed to address remaining weaknesses in federal oversight, including ensuring complete, accurate, and timely data to support oversight and program integrity efforts. CMS is continuing its national effort to implement the T-MSIS. However, implementation has been delayed for several years, and it remains unclear when data will be available from all states or how CMS will use these data for oversight purposes. CMS continues to partially meet the criteria for capacity. The agency has taken actions to enhance the resources and guidance available to states for program integrity purposes. For example, CMS issued a final rule in December 2015 that permanently extends the availability of a 90 percent federal match for states’ expenditures related to enhancing or replacing their Medicaid eligibility and enrollment information technology (IT) systems, and aims, in part, to enhance states’ program reporting and management tools to support program integrity efforts. In addition, the May 2016 managed care rule includes provisions to strengthen data available on managed care utilization and imposes financial consequences on states that do not submit MCO utilization data. For example, state contracts with MCOs must provide for the collection and maintenance of sufficient data on managed care service utilization, also known as encounter data, and states must have procedures to ensure that these required enrollee encounter data are complete and accurate. However, these provisions do not take effect until July 2017 or 2018, so their success in improving data available for program integrity is unknown and will depend on how states and CMS implement them. In response to our 2015 priority recommendation to support state third- party liability efforts, CMS produced an updated guide to compile and share effective and innovative Medicaid third-party liability practices reported by states, an important tool that could help states ensure that Medicaid pays only after other liable third parties. In response to our priority recommendation to provide guidance to states on their oversight of third-party liability efforts conducted by Medicaid managed care plans, CMS subsequently published a handbook, which provides guidance to states on third party liability efforts, including such efforts conducted by Medicaid MCOs. Finally, our recent work has also identified limitations in program integrity efforts in Puerto Rico and other U.S. territories that put Medicaid funding in these areas at risk for fraud, waste, and abuse, and underscore the need for CMS to develop a cost-effective approach to protecting Medicaid funding in these territories. CMS has documented a strategic approach to reducing improper Medicaid payments, but only partially meets the criteria due to a missing report the agency is legally required to provide to Congress. In July 2014, CMS issued the Comprehensive Medicaid Integrity Plan for fiscal years 2014 through 2018, in which CMS established goals to expand its capacity to protect the program’s integrity and manage risk in administering federal grants to states. The agency is required to report to Congress annually on the use and effectiveness of funds appropriated for the Medicaid Integrity Program. The agency reported for fiscal years 2013 and 2014 in July 2016, well after the required timeframes, and the agency is out of compliance with the requirement for fiscal year 2015 because it has not submitted a report for fiscal year 2015, as of December 2016. With regard to specific actions, CMS has taken steps to identify duplicate coverage for individuals transitioning from Medicaid to federally facilitated exchanges created under PPACA, and had performed three checks as of October 2016. In response to our priority recommendation that CMS establish a schedule for regular checks for duplicate coverage, CMS reported that it intends to check for duplicate coverage at least two times per coverage year going forward. CMS also reported that it was reviewing these data to assess whether the checks were effective. However, the agency has not developed a plan, including thresholds for the level of duplicate coverage it deems acceptable, to routinely monitor the effectiveness of these checks. CMS continues to partially meet the criteria for monitoring. CMS has enhanced its oversight of states’ program integrity activities, particularly by increasing its focus on collaborative audits and working with states to improve compliance with PPACA’s provider screening requirements. In focusing on collaborative audits, CMS has engaged more states than before, targeted federal audit resources to state needs, and identified an increasing amount of overpayments. In addition, CMS now provides states with federal data to strengthen Medicaid provider enrollment screening and has provided guidance and technical assistance to assist states on their revalidation efforts. CMS also recently provided additional guidance to states on specific provider screening and reporting provisions included in the 21st Century Cures Act. Our prior work has shown that available federal data do not include all of the information necessary for states to effectively and efficiently process Medicaid provider applications. Due to this issue and other challenges, we found that states and managed care plans rely on fragmented information from multiple and disparate databases to screen managed care providers, and often struggle to access and use these databases because of difficulties conducting provider matches across databases. CMS also needs to take additional steps to better monitor states’ beneficiary eligibility determinations. Specifically, we found that CMS is not always able to assess the accuracy of federal Medicaid eligibility determinations, which is particularly problematic where states delegate this determination authority to the federal government through federally facilitated exchanges. While CMS is relying upon operational controls within the federal marketplaces to ensure accurate eligibility determinations, without a systematic review of these determinations, the agency lacks a mechanism to ensure that only eligible individuals are enrolled in the program and to identify associated improper payments until CMS’s updated eligibility review program resumes in 2018. CMS continues to partially meet the criteria for demonstrated progress. The agency has taken actions to improve federal and state oversight of Medicaid MCOs, to extend funding to help states modernize their eligibility systems, and to help states come into compliance with recent legislation by providing updated guidance. Nonetheless, additional actions are warranted to identify and reduce improper payments, given the rise in the Medicaid improper payment rate and expected growth of the Medicaid program. Several factors will complicate CMS efforts to identify improper payments. Specifically, CMS’s improper payment rate estimates may be inaccurate because the agency has frozen a component used to calculate improper payments based on beneficiary eligibility through fiscal year 2018. Additionally, CMS estimates of improper payments to MCOs do not consider underlying medical data such as the use of medically unnecessary services and other contributing factors. Finally, CMS will not fully implement certain provisions to strengthen program integrity in Medicaid managed care—such as requiring MCOs to only use providers that have been screened and enrolled by the appropriate state Medicaid program—until January 2018. Thus, it is critical that CMS take other actions to ensure that only providers in good standing participate in the program during this interim period. CMS is conducting collaborative audits with states, which allows the states to augment their own program integrity audit capacity by leveraging the resources of CMS and its audit contractors. These efforts have increased the amount of identified Medicaid overpayments. CMS provided training to states through the Medicaid Integrity Institute on correct reporting of program integrity recoveries. Efforts to ensure correct reporting of recoveries will make it easier for CMS to determine whether states are returning the federal share of recovered overpayments. CMS posted guidance on its website regarding the requirements that must be met in order for Medicaid administrative expenditures to be eligible for federal matching funds. A CMS official said that the agency ensures that the policies are applied consistently across all states through internal training. These efforts should improve CMS’s financial management of Medicaid administrative claiming activities. CMS reconfigured the National Medicaid Audit Program to eliminate the review contractor function altogether in response to concerns that the federal review was duplicative of actions undertaken by audit contractors within a state or geographic area. By eliminating duplication in the review function, CMS will realize greater efficiencies in its audits and reduce state burden. Medicaid: Program Oversight Hampered by Data Challenges, Underscoring Need for Continued Improvements. GAO-17-173. Washington, D.C.: January 6, 2017. Medicaid Program Integrity: Improved Guidance Needed to Better Support Efforts to Screen Managed Care Providers. GAO-16-402. Washington, D.C.: April 22, 2016. Medicaid and CHIP: Increased Funding in U.S. Territories Merits Improved Program Integrity Efforts. GAO-16-324. Washington, D.C.: April 8, 2016. Nonemergency Medical Transportation: Updated Medicaid Guidance Could Help States. GAO-16-238. Washington, D.C.: February 2, 2016. Medicaid: Additional Federal Controls Needed to Improve Accuracy of Eligibility Determinations and for Coordination with Exchanges. GAO-16-157T. Washington, D.C.: October 23, 2015. Medicaid: Additional Efforts Needed to Ensure That State Spending Is Appropriately Matched with Federal Funds. GAO-16-53. Washington, D.C: October 16, 2015. Medicaid and Insurance Exchanges: Additional Federal Controls Needed to Minimize Potential for Gaps and Duplication in Coverage. GAO-16-73. Washington, D.C.: October 9, 2015. Medicaid: Key Issues Facing the Program. GAO-15-677. Washington, D.C.: July 30, 2015. Medicaid: Additional Actions Needed to Help Improve Provider and Beneficiary Fraud Controls. GAO-15-313. Washington, D.C: May 14, 2015. Medicaid: Additional Federal Action Needed to Further Improve Third- Party Liability Efforts. GAO-15-208. Washington, D.C.: January 28, 2015. programs that support employment can divert individuals from the disability rolls, these programs lack a unified vision, strategy, or set of goals to guide their outcomes. We first designated improving and modernizing federal disability programs as high risk in 2003. The federal government’s progress in improving and modernizing disability programs remains mixed. We assessed progress across five broad areas: two reflecting SSA’s and VA’s actions to manage their disability claims workloads; two reflecting SSA’s and VA’s progress to modernize their criteria for deciding who is eligible for disability benefits; and, lastly, the Office of Management and Budget’s (OMB) efforts to create unified strategies and goals for programs that support employment for people with disabilities. Some of the agencies we assessed met certain criteria while others did not, and when combined, the resulting summary rating shows that the five criteria were partially met. SSA and VA have continued to make progress managing their claims workloads, but both agencies currently face challenges managing their appeals backlogs. SSA and VA also have made progress updating the criteria they use to determine eligibility for disability benefits, especially with respect to developing action plans. In terms of plans to mitigate the potential effects of program fragmentation, OMB—which performs a management role for the executive branch—has made some progress developing plans to test interventions that may improve employment outcomes in the private as well as public sector, but has not yet developed a unified vision, or government-wide goals and related strategies for improving employment outcomes outside of the federal sector. With respect to SSA updating the criteria it uses to determine eligibility for benefits, more needs to be done to address this high-risk issue, but in response to our 2012 recommendation, SSA took action that resulted in cost savings. Specifically, SSA replaced its earlier, highly ambitious plans to develop its own occupational information system (OIS) (to house occupational data used to make disability determinations) with a potentially more cost-effective approach that uses existing expertise and resources in the federal government. In doing so, SSA partnered with the Bureau of Labor Statistics (BLS) to collect and update occupational information by surveying employers. As a result of SSA implementing our recommendation, we determined that, as of 2015, SSA saved approximately $27 million dollars. council to run early intervention demonstration programs, which has the potential to uncover approaches worth pursuing at a national level. However, to date, the proposed council to achieve that vision has not been funded. Further, while common measures recently implemented will help assess the relative success of specific programs across agencies, the prior administration did not develop goals or strategies for measuring and tracking the cumulative effect of disparate programs on employment outcomes beyond the federal sector—which could also help inform and target the types of interventions to be piloted by the new administration. Since our 2015 update, SSA has demonstrated mixed progress in addressing its workload challenges, such that partially met ratings did not change from 2015. Specifically, SSA made progress reducing its backlog of initial disability claims, while its appeals workload continued to grow. Since our 2015 high-risk report, SSA has continued to meet our leadership criterion. As described below, SSA officials told us that they continued to develop plans to implement its Vision 2025—a long-term strategic plan that articulates how SSA will serve its customers in the future. SSA also designated reducing wait times for hearings decisions as a priority goal for fiscal years 2016 and 2017. SSA continued to partially meet our criterion for building capacity. With respect to ensuring sufficient capacity at the initial claims level, while SSA has reduced the number of pending initial claims each year since 2010, efforts to further reduce costs and process claims more efficiently using technology were stalled. Specifically, SSA halted development of its Disability Case Processing System (DCPS), after a consulting firm contracted by SSA reported the agency spent about $288 million with few results. Subsequently, SSA selected a new development path for the DCPS, and officials still expect that DCPS will improve workflows and reduce administrative costs; however, SSA’s Office of Inspector General found that SSA did not evaluate all alternatives or consider all costs required to maintain a new system before pursuing a DCPS alternative. SSA officials reported in October 2016 that the agency was developing an initial product to deliver to three test sites focused on processing certain fast-track claims. To address its priority goal of reducing the time for hearing decisions, officials reported that SSA increased the number of administrative law judges (ALJ) who decide appeals cases by 349 in fiscal years 2015 and 2016—about a 24 percent increase. In its plan to address its appeals backlog, SSA noted that it is exploring ways to improve ALJ hiring in difficult-to-staff locales, leverage SSA’s Office of Quality Review to obtain assistance with critical case processing activities, and use judges from the Appeals Council to hold hearings on some cases. However, SSA officials noted in October 2016 that plans to increase hiring and leverage other resources are on hold due to a hiring freeze expected to extend into fiscal year 2017. their hearings, and sharing resources across the agency to help process appeals at backlogged hearing offices; and improving the use of information technology (IT), such as expanding the use of video hearings, providing online records access to medical and vocational experts, and reducing the use of physical paperwork at hearings-level cases. While this plan is a positive step, the extent to which proposed actions will reduce the hearings backlog remains to be seen. In September 2016, SSA’s OIG reported that more than half of the initiatives in the agency’s plan duplicated past backlog initiatives, including a 2007 plan that did not result in long-term reductions of the backlog. Additionally, SSA notes in its plan that some efforts, such as increased hiring, will depend on the agency receiving additional funding. Regarding SSA’s broader Vision 2025 effort, officials told us that SSA is still in the process of developing plans to implement it. Among other things, Vision 2025 touches on the agency’s capacity to process initial claims and appeals. SSA officials told us that SSA is integrating aspects of Vision 2025 into its fiscal year 2018- 2022 strategic plan—scheduled to be issued in January 2018—and conducting working sessions with a cross-section of SSA employees to gather input about how to realize Vision 2025 priorities. SSA continued to meet our criterion for monitoring by continuing to monitor and report on the timeliness of its initial claims and appeals workloads. SSA partially met our criterion, demonstrating mixed progress. In addressing its initial claims backlogs, SSA continued to reduce the number of pending claims in each fiscal year since 2010—from about 842,000 in fiscal year 2010 to 621,000 in fiscal year 2015. However, the timeliness of its appeals workload worsened. The number of hearings pending as of the end of 2016 was over 1.1 million and the average time needed to complete appeals increased from 353 days in fiscal year 2012 to 545 days in fiscal year 2016. SSA’s goal is to eventually reduce this time to 270 days, as articulated in its appeals reform plan. Since our 2015 high-risk update, VA has demonstrated mixed progress in addressing its workload challenges. Progress is evident in regards to VA’s efforts to reduce the Veterans Benefit Administration’s (VBA) compensation claims backlog. However, VA’s appeals workload continued to grow, and several efforts to address this challenge are still underway. In particular, VA’s proposed framework to reform the appeals process—developed by VBA and the Board of Veterans’ Appeals (Board)—requires legislative authority to pursue. We have ongoing work related to VA’s efforts to address appeals workloads and timeliness that we plan to issue in the first quarter of 2017. VA continued to meet our criterion for leadership commitment. Since 2015, VA tracked progress toward eliminating the disability compensation claims backlog, an agency priority goal set for fiscal years 2014 and 2015. It also renewed its commitment to reducing appeals inventories and improving timeliness of appeals decisions by updating its appeals strategic plan in 2016, making development of a simplified appeals process 1 of VA’s 12 breakthrough priorities for 2016, and working closely with veterans service organizations (VSO) and other stakeholders to propose a new framework and associated legislation to reform the current appeals process. evidence is received. VA states that these automation capabilities will increase the efficiency of compensation claims processing; and implementing a national work queue distribution tool at all regional offices that should allow VA to electronically distribute claims across regional offices to even out workloads. According to VA, these efforts have resulted, to date, in reducing the compensation claims backlog by 88 percent from a peak of 611,073 claims in March 2013 to a low of 71,690 as of September 30, 2016. Further, VA reported that it increased compensation claim productivity per full-time equivalent (FTE) by 25 percent since 2011. However, it remains to be seen if VA can maintain these gains as workloads are projected to increase in the future. At the appellate level, VA proposed a streamlined appeals framework through which it hopes to gain efficiencies; however this new framework—which is still in the planning stages—requires legislative authority to implement. VA is developing and implementing technology improvements that could result in enhanced productivity, such as a new appeals processing system that would better support a paperless process. VA also added 300 FTEs at VBA to help process appeals in fiscal years 2015 and 2016, and according to agency officials, VA received a 42 percent increase in funding for the Board in fiscal year 2017 that will support the hiring of additional FTEs. VA plans further improvements related to capacity, such as increasing human resources and training support, and is developing a recruitment plan with the Office of Personnel Management (OPM) to hire additional staff, primarily in the attorney role. However, these staffing increases and technology improvements were underway as of January 2017, and it is too early to determine the extent to which the sum of these efforts will improve VA’s capacity to process appeals. providing veterans with a more simple, timely, transparent, and fair appeals process. While potentially promising, as of October 2016, VA was still developing implementation plans and did not have legislative authority to pursue its proposed reforms. Regarding staffing, VA officials reported in March 2016 that they were working with OPM on a strategic recruitment plan, but had not finalized this plan. VA partially met our criterion for monitoring. VA continued to have clear goals for processing compensation claims and a system for monitoring them on a regular basis; however, gaps exist in VA’s ability to measure performance and proposed process changes related to appeals. In fiscal year 2015, VA developed new measures to publicly report appeals processing performance in its Annual Performance Reports, which VA officials said focus on the discrete steps in the appeals process and help show where bottlenecks exist. However, VA no longer publicly reports the total average amount of time needed across VBA and the Board to resolve an appeal. As we noted in our 2015 update, not reporting broad measures—such as the average time needed to resolve appeals across VA—reduces the transparency of VA’s progress. Additionally, VA currently lacks data that could help it more fully understand factors currently affecting appeals decision timeliness, such as data on the number of actions taken on cases or the number of times claims were re- reviewed because new evidence was submitted. To help address this, VA officials told us that they are developing a data dashboard as a part of IT improvements, but it is too early to tell how the agency will use the dashboard to evaluate proposed improvements to the appeals process. VA partially met our criterion for demonstrating progress. VA continued to make progress with reducing its compensation claims backlog. Specifically, VA decreased the total inventory of compensation claims by 57 percent from a peak of 883,930 in fiscal year 2012 to 377,107 in fiscal year 2016. Additionally, VA has improved its claim processing timeliness by reducing the average length of time a claim is pending from an average of 282 days in fiscal year 2013 to 85 days in fiscal year 2016. 2012 to 936 days in fiscal year 2015. Appeals that were decided by the Board in fiscal year 2015 required an average of 1,789 days for a decision, compared to an average of 1,691 days in fiscal year 2012. Since 2015, SSA has continued to make progress on several fronts to update the criteria that it uses to determine eligibility for disability benefits. SSA’s progress is evident across the five high-risk criteria, especially with respect to capacity and action plans, which improved from partially met to met. However, SSA has not yet finished reviewing all medical listings, and is still developing and testing its approach for updating occupational information that is also used to determine eligibility. It is also unclear how SSA will consider incorporating the results of a study on accommodations in the workplace into its decision-making process. SSA continued to meet our criterion for leadership commitment, by maintaining focus and ensuring progress toward updating the medical criteria and occupational information used to determine eligibility for disability benefits, as well as by agreeing to study the role of assistive technologies and workplace accommodations in mitigating impairments, and how this might be considered in its disability decision making. the first update of occupational data (due to be completed in 2024) will be $178 million. We found SSA’s cost estimate to contain sufficient analysis and information to support its scaled-back and more feasible approach for developing an OIS. Thus, SSA met the intention of our prior recommendation that it develop life-cycle cost estimates for the project in accordance with best practices, which may help SSA make program decisions and ensure sufficient resources are allocated to the effort. With respect to our prior recommendation to consider the roles of assistive technologies and workplace accommodations in disability decision making, SSA built capacity by tasking the Health and Medicine Division (HMD) of the National Academies of Sciences, Engineering, and Medicine under a contract to study this issue. Its final report is due in July 2017. SSA has also met our criterion for developing action plans, improving from partially met in 2015. As we noted earlier, SSA has plans in place for updating its medical criteria, and it continued to make progress towards its goals. With respect to updating its OIS, SSA has developed a project plan for developing the OIS, and recently provided a life-cycle cost estimate as noted earlier. Lastly, SSA tasked HMD under a contract to further study the issue of how assistive technologies and workplace accommodations can affect disability determination decisions, with a proposed completion date of July 2017. SSA continued to meet the criterion of monitoring progress toward updating its medical criteria, and has project plans and schedules against which to monitor its progress toward developing a new OIS to replace its outdated Dictionary of Occupational Titles. SSA partially met our criterion for demonstrating progress. With respect to updating its medical listings, SSA officials reported that, as of October 2016, the agency had published final rules for 13 of the 14 body systems for adults, and drafted a proposed rule for the remaining system. SSA expects to publish that final rule in 2017 once OMB under the new administration has reviewed it. Officials stated they are on track to revisit the 14 body systems every 3 to 5 years once the first round of comprehensive updates is complete. SSA officials also reported steady progress updating its occupational information. In 2016, SSA and BLS completed the first year of its 3-year cycle of collecting survey data for the OIS, which followed its completion of a large-scale, preproduction test involving collecting occupational information from about 2,500 employers. In May 2016, SSA officials also reported that they are working with a contractor to develop a Web-based system to house its occupational data, which they expect to complete in fiscal year 2017. With respect to assistive technologies and workplace accommodations, officials reported progress under SSA’s contract with HMD to study workplace accommodations and assistive technologies. Officials reported that HMD held public forums in July and September 2016 and invited experts to present information on various aspects of workplace accommodations and assistive technologies, which HMD plans to incorporate into its report findings. SSA expects HMD to conclude its study by July 2017, but it remains to be seen whether and how SSA will consider the results of the study in its decision-making process. VA continued to make progress toward updating the medical criteria that it uses to determine eligibility for disability compensation, and has now improved to met for action plan and monitoring. However, VA has experienced delays, and officials told us that VA will not meet its prior target for completing this effort by March 2017. VA met our criterion for leadership commitment. As noted in sections below, VA leadership continued to dedicate attention and resources to completing an initial revision of its medical criteria and developing plans to keep them updated. VA partially met our criterion for capacity. Since 2015, VA has taken steps to ensure it has the capacity to revise and maintain its medical criteria, and officials told us that VA has drafted or is in the process of drafting revised regulations for 14 of the 15 body systems. However, VA will not meet its target date for completing a final review and revision of all body systems by March 2017. Specifically, officials told us that VA: finished impact analyses—studies of how revisions will affect veterans’ disability ratings—for 10 of 15 body systems and extended timelines for completing analyses for the remaining body systems to the end of calendar year 2017; promulgated proposed regulations for 5 of 15 body systems with plans to finalize 4 of those 5 by its original target date of March 2017, and extended its target dates for finalizing new rules for all body systems until the end of fiscal year 2018; and plans to assemble cross-functional teams to identify what changes VA will need to make to its policies, procedures, communications, training, and computer systems to implement the regulations, which VA officials said is in accordance with the agency’s standard process for implementing new and revised regulations. In addition, officials told us that VA lacks the necessary internal resources or expertise to conduct earnings loss studies, which take into account how advances in medical treatments and assistive technologies might be used to reduce functional loss due to disability. As such, VA requested funding for a new earnings loss study to begin in 2017. If funding is not provided, VA officials noted that they will use any available information to meet VA’s goal of reviewing and revising its medical criteria on a staggered 5-year cycle. We will continue to monitor VA’s efforts toward making fact-based and timely revisions to the VA ratings schedule, and ultimately implement these revisions in its decision making process. VA has now met our criterion for action plans, up from partially met in 2015. VA made noteworthy progress in accordance to its original project plan, as noted above, and updated timeframes in its plan in response to delays. VA officials currently expect to promulgate final rules for all body systems by the end of fiscal year 2018. Moreover, officials also told us that VA is on track to achieve its plans to keep criteria current once initial updates are complete by placing each of the 15 body systems into a 5- year cycle of staggered reviews, and intends to document work plans and maintain working groups for each system to ensure that medical advancements and new research are incorporated as necessary. VA met our criterion for monitoring, up from partially met in 2015. Since August 2013, VA has tracked its progress against its project plan for finishing its first round of updates of medical criteria, completing earning loss studies, and ensuring all body systems are updated once every 10 years. In doing so, it has also updated its project plan to include new timeframes for completing its first round of updates in response to delays described below. VA partially met our criterion for demonstrated progress. Since 2015, VA has continued to make progress updating its medical criteria, but, as previously mentioned, VA will not meet its target to review and revise regulations for all body systems by March 2017. Specifically, it is not on target to promulgate regulations for 11 of the 15 body systems it is updating, and now expects to promulgate proposed regulations for the 11 systems by the end of fiscal year 2017, and final regulations by the end of fiscal year 2018. Officials also reported progress in completing impact analyses; as of August 2016, VA had completed analyses for 10 of the 15 body systems. VA extended timeframes for the 5 remaining analyses to be completed by the end of 2017, prior to the new target date for promulgating final regulations. We will continue to monitor VA’s progress toward finalizing regulations for all body systems, and, as referenced earlier, how it will keep earnings loss information updated. Since our 2015 update, OMB has made some progress towards enhancing coordination and capacity across programs that support employment for people with disabilities. Some progress is evident in all five high-risk criteria. However, the scope of its current efforts to improve employment outcomes and coordination is limited to federal agencies and contractors, and OMB has not yet articulated a broader vision for supporting employment for people with disabilities outside the federal sector that includes appropriate government-wide goals and strategies for achieving them. promising, they continue to fall short of developing government-wide strategies and measurable goals to help people with disabilities attain employment in both the public and private sectors. Finally, OMB officials told us that they are preparing transition plans to help ensure current efforts continue under the new administration, but it remains to be seen whether the administration will support and sustain these efforts. OMB continued to partially meet our criterion for building capacity. In addition to proposing the creation of the Council and issuing a resource guide for employers regarding people with disabilities, OMB officials noted that the prior administration took two other actions to improve the capacity for agency coordination: The Departments of Education and Labor finalized regulations under the Workforce Innovation and Opportunity Act (WIOA), which includes a provision that requires states to set aside funds to assist students with disabilities transition from school to postsecondary education or the workforce, and allows state vocational rehabilitation agencies to prioritize serving students with disabilities. The administration proposed increased funding for supported employment programs in fiscal years 2016 and 2017 that could, for example, provide supported employment services for up to 2 years for individuals already in vocational rehabilitation programs. These efforts, however, are limited in scope or have not yet been implemented. Moreover, they do not relate to creating capacity for establishing goals and other mechanisms to ensure agencies are accountable for having a measureable impact on employment outcomes outside the federal sector. OMB continued to not meet our criterion for developing action plans. As mentioned previously, the prior administration proposed establishing the Council. While the proposed Council is a promising approach, the Council has not received—as of January 2017—funding for fiscal year 2017, and it remains to be seen whether this proposal will be funded in the future. Moreover, the administration has yet to establish government-wide goals for people with disabilities achieving employment outside the federal sector. To help ensure focus through the new administration, OMB officials noted that, in addition to OMB developing transition plans, a number of agencies have 5-year strategic plans that will span the outgoing and incoming administrations. OMB officials also noted that it is ultimately up to the new administration to decide how to plan and coordinate across federal disability programs. OMB partially met our criterion for monitoring. Since 2015, the administration continued to track and work toward increasing employment for people with disabilities at federal agencies, achieving the former President’s goal of hiring 100,000 employees with disabilities over 5 years. With respect to the goal to have people with disabilities comprise 7 percent of federal contractors, OMB officials told us that Labor is updating its case management system to track progress toward this goal. They added that Labor will collect information on contractor performance against this goal as it conducts compliance evaluations, thereby creating a good source of trend data over time. With respect to standardizing the way programs and agencies measure employment, OMB officials told us that the prior administration took a number of steps: The Departments of Labor and Education promulgated a joint final rule, pursuant to a requirement in WIOA, which defines common measures to be used by the six core job training programs under the two departments. Other programs, such as the Supplemental Nutrition Assistance Program’s Employment and Training program, have adopted similar measures. OMB officials stated that it is coordinating an interagency group to ensure all relevant agencies develop the necessary data infrastructure to collect information on these common measures. OMB officials said that the administration worked with VA to add employment-oriented measures to its Vocational Rehabilitation and Employment Program. Relatedly, officials noted that it is reasonable to expect the manner in which programs and agencies measure employment to vary to reflect the different challenges they face. While common measures are helpful in measuring across programs, they do not provide and OMB still lacks a comprehensive picture of how disparate federal efforts support employment of those with disabilities outside the federal sector. permanent employees with disabilities—including 98,000 full-time employees—exceeding the former President’s goal of hiring 100,000 over this period. However, additional hiring goals have not been set and OMB officials said it is up to the new administration whether and how to do so. With respect to the administration’s goal to have people with disabilities comprise 7 percent of most federal contractors, OMB officials reported that Labor’s initial results from this effort will not be available until mid- 2017. With respect to implementing measures across programs, OMB officials told us that, although the administration has yet to develop government-wide goals for the employment of people with disabilities across all sectors, they anticipate that demonstration projects overseen by the Council, if implemented, would identify successful early intervention approaches, which would inform the development of reasonable outcome measures. SSA Workloads: In response to a past recommendation, SSA appointed a chief strategic officer responsible for coordinating agency- wide planning efforts, including those related to managing SSA’s disability claims workloads. VA Workloads: Consistent with our past recommendation, in 2013 VA published its Strategic Plan to Eliminate the Compensation Claims Backlog, which identified implementation risks and metrics for the major initiatives mentioned in the Plan. SSA Modernizing: In response to past recommendations, SSA developed a project plan to assess risks to the success of the OIS, and has taken steps to estimate costs for necessary data collection and planned IT expenditures. SSA also worked with BLS to contract with experts to ensure they had the appropriate expertise to complete the OIS. products and technologies for adults, and a final report for SSA is expected in July 2017. VA Modernizing: In response to a past recommendation, in 2013 VA developed a project management plan that included plans for initiating subsequent updates to its disability rating schedule at regular intervals—whereby reviews of each body system are initiated on a staggered 5-year cycle to ensure no more than 10 years transpires without a review and possible revision of each body system. VA Modernizing: In response to a past recommendation, in 2014 VA updated its project management plan to reflect planned actions—such as identifying human resources to assist in developing and implementing proposed changes, and needed updates to guidance, training and systems—that would ensure smooth and timely implementation of revisions to its ratings schedule. For additional information about this high-risk area, contact Barbara Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov. Social Security Disability: SSA Could Increase Savings by Refining Its Selection of Cases for Disability Review. GAO-16-250. Washington, D.C.: February 11, 2016. Veterans Disability Benefits: VA Can Better Ensure Unemployability Decisions are Well Supported. GAO-15-464. Washington, D.C.: July 2, 2015. Veterans’ Disability Benefits: Improvements Could Further Enhance Quality Assurance Efforts. GAO-15-50. Washington, D.C.: November 19, 2014. Social Security Administration: Long-Term Strategy Needed to Address Key Management Challenges. GAO-13-459. Washington, D.C.: May 29, 2013. Veterans’ Disability Benefits: Timely Processing Remains a Daunting Challenge. GAO-13-89. Washington, D.C.: December 21, 2012. VA Disability Compensation: Actions Needed to Address Hurdles Facing Program Modernization. GAO-12-846. Washington, D.C.: September 10, 2012. Employment for People with Disabilities: Little Is Known about the Effectiveness of Fragmented and Overlapping Programs. GAO-12-677. Washington, D.C.: June 29, 2012. Modernizing SSA Disability Programs: Progress Made, but Key Efforts Warrant More Management Focus. GAO-12-420. Washington, D.C.: June 19, 2012. With nearly $100 billion in assets, the Pension Benefit Guaranty Corporation’s (PBGC) financial portfolio is one of the largest of any federal government corporation. Through its single-employer and multiemployer insurance programs, PBGC insures the pension benefits of nearly 40 million American workers and retirees who participate in nearly 24,000 private-sector defined benefit plans. PBGC’s financial future remains uncertain, due in part to a long-term decline in the number of traditional defined benefit plans and the collective financial risk of the many underfunded pension plans that PBGC insures. We designated the single-employer program as high risk in July 2003 and added the multiemployer program in January 2009. Since fiscal year 2013, PGBC’s financial deficits have more than doubled. At the end of fiscal year 2016, PBGC’s net accumulated financial deficit was over $79 billion—an increase of about $44 billion since 2013. At the same time, PBGC estimated that its exposure to future losses for underfunded plans was nearly $243 billion. The single-employer program, composed of about 22,200 plans, accounted for $20.6 billion of PBGC’s overall deficit (see figure 21). The multiemployer program, composed of only about 1,400 plans, accounted for about $59 billion. According to PBGC, these dramatic increases were attributable to broad economic factors and financial conditions of the plans PBGC insures. Various laws have been enacted to strengthen PBGC’s financial position. For instance, the Pension Protection Act of 2006 (PPA) strengthened pension funding requirements for plans, the Moving Ahead for Progress in the 21st Century Act (MAP-21) included measures to increase premium rates and the Bipartisan Budget Act of 2013 increased premium rates further. However, some of this legislation also included provisions that would allow single employer plan sponsors to defer mandatory contributions to their defined benefit pension plans. To the extent that sponsors reduce contributions in the short term, they may increase plan underfunding and expose PBGC to greater risk. Recognizing the dramatic increase in PBGC’s deficit because of particular financial and demographic challenges facing many multiemployer plans, the Multiemployer Pension Reform Act of 2014 (MPRA) was enacted in December 2014 with a number of provisions to promote the long-term viability of the multiemployer program. As with our last report in 2015, there is no rating for this high-risk area because addressing the issues in this area primarily involves congressional action, while the high-risk criteria and subsequent ratings were developed to reflect the status of agencies’ actions and the additional steps they need to take. While PBGC faces a significant long-term challenge with its single- employer program, it faces an immediate and critical challenge with its multiemployer program. In a 2013 report, we recommended that Congress consider comprehensive and balanced structural reforms to reinforce and stabilize the multiemployer system. In December 2014, Congress took action to address the growing crisis in the multiemployer pension system by passing MPRA, which enacted several reforms responsive to our 2013 report on PBGC’s multiemployer program. Specifically, MPRA provided severely underfunded plans, under certain conditions and only with the approval of federal regulators, the option to reduce the retirement benefits of current retirees to avoid plan insolvency and expanded PBGC’s ability to intervene when plans are in financial distress. In addition, MPRA doubled the premiums paid by multiemployer plans (from $13 to $26 per participant). While these reforms are intended to improve the program’s financial condition, projections suggest that the future insolvency of the multiemployer program remains likely. Prior to passage of MPRA, PBGC estimated that the multiemployer insurance fund would likely be exhausted by 2022 as a result of current and projected plan insolvencies. PBGC officials noted that the act did not fully address the crisis in the multiemployer program and they predict that the changes will only forestall insolvency of the program probably by about an additional 3 years. Current estimates indicate that these changes will allow some plans to stay solvent and will reduce the cumulative unmet need for financial assistance to multiemployer plans by about half. As of January 2017, 10 pension plans had submitted 11 applications to suspend benefits under MPRA. (4 applications have been denied, 2 were withdrawn, 4 are under review, and 1 has been approved.) In addition, the Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015 increased premium rates for the single-employer program. PBGC continues to face long-standing funding challenges for its single- employer insurance program as well, due to an overall decline in the defined benefit pension system. While tens of thousands of companies continue to offer traditional defined benefit plans, the total number of plans has declined significantly, as has participation in those plans. Since 1985, there has been a 79 percent decline in the number of plans insured by PBGC to 23,769 plans in 2014 and more than 11 million fewer workers are actively participating in these plans. As a result, PBGC’s premium base has been eroding over time as fewer sponsors are paying premiums for fewer participants. Additionally, the structure of PBGC’s premium rates—a key component of PBGC’s funding—has long been another area of concern. Despite periodic increases in premium rates, which are set according to statute, the level of premiums has not kept pace with the magnitude and multiplicity of risks that PBGC insures against. Moreover, plan underfunding is the only risk factor currently considered in determining a sponsor’s premium rate. Since 2011, the administration has proposed legislative reforms that would authorize the PBGC board to adjust premiums and to explore designing a more risk-based premium structure. Under the current premium structure for its single-employer program, PBGC collects from sponsors a per-participant flat-rate premium and a variable-rate premium that is based on a plan’s level of underfunding. In 2012, we recommended that Congress consider authorizing a redesign of PBGC’s premium structure for single-employer plans to allow incorporation of additional risk factors, such as consideration of a sponsor’s financial health. PBGC officials stated that they have continued efforts to enhance understanding of alternative premium structures by analyzing the limitations of the current system and by modeling various alternative risk-based options. However, to date no legislation incorporating additional risk factors into PBGC’s premium structure has been enacted. PBGC’s governance structure is another area of weakness noted in several of our past reports. In particular, we have long recommended that PBGC’s board—currently composed of the Secretaries of the Treasury, Commerce, and Labor—be expanded to include additional members with diverse backgrounds who possess knowledge and expertise useful to PBGC’s mission. This recommendation has not yet been enacted into law, but MAP-21 included provisions to improve PBGC’s governance by prescribing in greater detail the working relationships between its Board of Directors and its Inspector General, General Counsel, Advisory Committee, and Director. It also called for the National Academy of Public Administration (NAPA) to review PBGC’s governance structure and to report on the ideal size and composition of its board. In its September 2013 report, NAPA recommended to Congress that if the agency is provided greater responsibility over its policies, PBGC’s board should be expanded. Furthermore, we have long emphasized that PBGC requires strong and stable leadership to ensure that it can meet its future financial challenges. In August 2016, the Secretary of Labor provided updated information related to several of these areas of concern. Regarding the long-term financial stability of both insurance programs, the Secretary noted that the President’s 2017 budget again proposed that the PBGC Board be granted the authority to adjust premiums, and with that authority directed the Board to raise $15 billion in additional premium revenue from the multiemployer program. With regard to the recommendation to improve PBGC’s governance structure, the PBGC Board has declined to pursue the matter further absent authorizing legislation. PBGC has recently established an Enterprise Risk Management function and plans to hire a Risk Management Officer to identify and determine appropriate actions to mitigate the risks identified. As of October 2016, PBGC had not yet filled this position or determined the areas of potential risk to be targeted. Although Congress and PBGC have taken significant and positive steps to strengthen the agency over the past 3 years, concerns persist related to the multiemployer program and challenges related to PBGC’s overall funding structure and governance. While changes were made with passage of MPRA, PBGC officials believe there is a 50 percent chance that the multiemployer program will be insolvent by the year 2025, and after that, the risk of insolvency rises rapidly—reaching 90 percent by 2032. Further, the premium structure for PBGC’s single-employer program continues to result in rates that do not align with the risk the agency insures against and the effectiveness of PBGC’s board remains hampered by its size and composition. Moreover, PBGC continues to face the ongoing threat of losses from the termination of underfunded plans, while grappling with a steady decline in the defined benefit pension system. With each passing year, fewer employers are sponsoring defined benefit plans and the sources of funds to finance future claims are becoming increasingly inadequate. Absent additional steps to improve PBGC’s finances, the long-term financial stability of the agency remain uncertain and the retirement benefits of millions of American workers and retirees could be at risk of dramatic reductions. To improve the long-term financial stability of both PBGC’s insurance programs, Congress should consider: authorizing a redesign of PBGC’s single employer program premium structure to better align rates with sponsor risk; adopting additional changes to PBGC’s governance structure—in particular, expanding the composition of its board of directors; strengthening funding requirements for plan sponsors as appropriate given national economic conditions; working with PBGC to develop a strategy for funding PBGC claims over the long term, as the defined benefit pension system continues to decline; and enacting additional structural reforms to reinforce and stabilize the multiemployer system that balance the needs and potential sacrifices of contributing employers, participants and the federal government. For additional information about this high-risk area, contact Charles A. Jeszeck at (202) 512-7215 or jeszeckc@gao.gov. Pension Plan Valuation: Views on Using Multiple Measures to Offer a More Complete Financial Picture. GAO-14-264. Washington, D.C.: September 30, 2014. Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies. GAO-13-240. Washington, D.C.: March 28, 2013. Private Pensions: Multiemployer Plans and PBGC Face Urgent Challenges. GAO-13-428T. Washington, D.C.: March 5, 2013. Pension Benefit Guaranty Corporation: Redesigned Premium Structure Could Better Align Rates with Risk from Plan Sponsors. GAO-13-58. Washington, D.C.: November 7, 2012. Pension Benefit Guaranty Corporation: Improvements Needed to Strengthen Governance Structure and Strategic Management. GAO-11-182T. Washington, D.C.: December 1, 2010. Private Pensions: Changes Needed to Better Protect Multiemployer Pension Benefits. GAO-11-79. Washington, D.C.: October 18, 2010. The National Flood Insurance Program (NFIP) is a key component of the federal government’s efforts to limit the damage and financial effect of floods. However, it likely will not generate sufficient revenues to repay the billions of dollars borrowed from the Department of the Treasury (Treasury) to cover claims from the 2005 and 2012 hurricanes or potential claims related to future catastrophic losses. This lack of sufficient revenue highlights what have been structural weaknesses in how the program is funded. Since the program offers rates that do not fully reflect the risk of flooding, NFIP’s overall rate-setting structure was not designed to be actuarially sound in the aggregate, nor was it intended to generate sufficient funds to fully cover all losses. Instead, Congress authorized the Federal Emergency Management Agency (FEMA)—the agency within the Department of Homeland Security (DHS) responsible for managing NFIP—to borrow from Treasury, within certain limits, when needed. Until the 2005 hurricanes, FEMA had used its authority to borrow intermittently and was able to repay the loans. As of March 2016, FEMA owed Treasury $23 billion, up from $20 billion as of November 2012. FEMA made a $1 billion principal repayment at the end of December 2014—its first such payment since 2010. The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) contained provisions to help strengthen the financial solvency of the program, including phasing out almost all discounted insurance premiums (for example, subsidized premiums). However, the extent to which its changes would have reduced NFIP’s financial exposure is unclear. In July 2013, we reported that FEMA was starting to implement some of the required changes. However, on March 21, 2014, the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) was enacted. HFIAA reinstated certain premium subsidies and slowed down certain premium rate increases that had been included in the Biggert-Waters Act. Aspects of HFIAA were intended to address affordability concerns for certain property owners, but may also increase NFIP’s long-term financial burden on taxpayers. Further, an outdated policy and claims management system has also placed the program at risk. As a result of its substantial financial exposure and management and operations challenges, the program has been on our High-Risk List since 2006. Congress and FEMA have made progress in meeting the criteria for removing NFIP from the High-Risk List. In July 2012, the Biggert-Waters Act was enacted. The Biggert-Waters Act contained provisions to help strengthen the financial solvency of the program, including phasing out almost all discounted insurance premiums (for example, subsidized premiums). In March 2014, HFIAA was enacted. HFIAA reinstated certain premium subsidies and slowed down certain premium rate increases that had been included in the Biggert-Waters Act. FEMA leadership has also shown a commitment to taking a number of actions to implement our recommendations. However, implementing required changes under the Biggert-Waters Act, as amended by HFIAA, and addressing allegations of improper claims adjusting practices after Hurricane Sandy have created capacity challenges for FEMA in addressing the financial exposure created by NFIP as well as improving program administration. FEMA has identified actions to implement our recommendations, but it has not yet developed a comprehensive plan to address all the issues that have placed NFIP on our High-Risk List. For example, FEMA has a process in place to monitor progress in taking actions to implement our recommendations related to NFIP. But broader monitoring of the effectiveness and sustainability of its actions would help ensure that FEMA takes appropriate corrective actions. While FEMA has demonstrated progress toward improving NFIP’s financial stability and program efficiency, these efforts are not complete. For example, FEMA has addressed our recommendations to improve the monitoring and reporting of NFIP contractor performance and validate data system changes before they become effective. FEMA also has initiated actions to improve the accuracy of full-risk rates, but some of these efforts will continue over the next 5 to 10 years. In addition, we estimate that policyholders with certain subsidized premiums paid $216 million more in premiums as of the end of fiscal year 2015 than they would have paid prior to the enactment of the Biggert-Waters Act as a result of changes FEMA made in rates for these properties. However, FEMA still does not have all the necessary information to appropriately revise premium rates for certain subsidized properties. Other important actions, such as modernizing its policy and claims management system, also remain to be completed. While FEMA leadership has displayed a commitment to addressing the challenges that have placed NFIP on the High-Risk List and has made progress in a number of areas, FEMA needs to take the following actions. Complete Biggert-Waters Act and HFIAA requirements that have not been fully met. Develop a comprehensive plan for removing NFIP from the High-Risk List. Initiate broader monitoring of the effectiveness and sustainability of its actions to help ensure that appropriate corrective actions are being taken. Continue ongoing efforts to improve its NFIP rate-setting methods and evaluate approaches to obtain flood risk information needed to determine full-risk rates for properties with previously subsidized rates. Complete efforts to establish a new information technology system for NFIP. By completing the actions noted above, FEMA will likely improve its ability to address the financial exposure of the program and help ensure that the funds allocated to NFIP and premiums paid to the program are used effectively. In addition, Congress should continue to consider changing the program to further address the competing goals of financial solvency and affordability. FEMA partially meets this criterion. FEMA’s leadership continues to show a commitment to implement our recommendations designed to help strengthen NFIP’s future financial solvency and administrative efficiency. However, the 2014 enactment of HFIAA continues to present administrative challenges for FEMA leadership and affect the program’s capacity to address the financial exposure created by NFIP. For example, HFIAA reinstated certain premium subsidies and slowed down some premium rate increases that had been included in the Biggert-Waters Act. In addition, the Biggert-Waters Act required that FEMA establish a reserve fund to be available for meeting the expected future obligations of NFIP, and HFIAA includes an annual surcharge for all policies ($25 for most policies) to be added to the reserve fund. However, FEMA stated in its June 2016 Quarterly NFIP Reserve Fund Report to Congress that it would not reach the required reserve fund balance of $12.8 billion for fiscal year 2015. FEMA stated that as long as the NFIP maintains outstanding debt, it would expect that the reserve fund will not reach the required balance, as amounts collected may be periodically transferred to Treasury to reduce the NFIP’s debt or to pay claims and expenses in years when claims are high. For example, according to DHS officials, FEMA notified Congress in October 2016 that it planned to use reserve funds to pay for claims related to the 2016 flooding in Louisiana and Hurricane Matthew because the National Flood Insurance Fund had been exhausted. FEMA further stated in its June 2016 report that in order to make any significant progress toward increasing the reserve fund balance or paying down the NFIP debt, the reserve assessment would need to be significantly increased. In January 2017, FEMA obtained reinsurance for NFIP effective January 1, 2017 through January 1, 2018. A FEMA official noted that securing reinsurance was a key step toward building a stronger financial framework for NFIP. Under the agreement, reinsurers agreed to cover 26 percent of NFIP claims between $4 billion and $8 billion on losses from events that occur in 2017. FEMA partially meets this criterion. FEMA’s capacity continues to be strained as it deals with multiple challenges, including implementing required changes under the Biggert-Waters Act, as amended by HFIAA. For example, as we reported in December 2016, FEMA officials told us that the agency’s progress implementing the Biggert-Waters Act requirement to revise its compensation methodology had slowed as litigation over Hurricane Sandy claims escalated and more resources were assigned to that issue. FEMA has made some progress to address weaknesses that we previously noted could limit its ability to effectively and efficiently implement NFIP. For example, we made two recommendations in a January 2014 report aimed at improving FEMA’s monitoring and reporting of contractor performance, such as ensuring that federal contracting officials have complete and timely information about contractor performance. FEMA provided us with documentation describing how the agency plans to ensure the timeliness of contractor performance assessments and address our other concerns. We also recommended in a December 2014 report that FEMA institute controls to validate changes to the NFIP data system. In March 2015, FEMA instituted the use of a new procedure manual, including a testing plan, for data system programming changes required to implement NFIP rate and rule changes. This procedure manual outlines the steps and approvals needed to plan, develop, test, and deploy NFIP data system changes. However, FEMA faces challenges implementing required Biggert-Waters Act and HFIAA requirements, including the complexity of the legislation and timing of the enactment of HFIAA, resource constraints, and the competing program goals of financial solvency and affordability. In October 2016, DHS officials told us that FEMA had met requirements to complete 20 of the 34 Biggert-Waters sections and 14 of the 25 HFIAA sections and was taking action on other sections. FEMA partially meets this criterion. FEMA has identified actions to address the recommendations from our individual reports. In January 2017, a FEMA official noted that the agency tracks GAO recommendations through its internal controls program. The official added that FEMA is planning to enhance its Enterprise Risk Management approach to track those GAO recommendations that impact its risk profile. However, FEMA lacks a comprehensive plan that addresses the issues that have placed NFIP on our High-Risk List. While addressing our recommendations is part of such a plan, a comprehensive plan defines the root causes, identifies effective solutions, and provides for substantially completing corrective measures near term. Such a plan could help FEMA ensure that all important issues, and all aspects of those issues, are addressed. FEMA partially meets this criterion. FEMA has a process in place to monitor progress in taking actions to implement our recommendations related to NFIP. For example, the status of efforts to address the recommendations is regularly discussed both within FEMA and at the DHS level, according to a DHS official. However, FEMA lacks a specific process for independently validating the effectiveness or sustainability of those actions. According to a DHS official, once FEMA implements a recommendation related to NFIP, it does not track separately the effects of the actions taken to do so, but instead regularly reviews the effectiveness of the entire program. Additional monitoring of the effectiveness and sustainability of its specific actions taken to address our recommendations would help ensure that appropriate corrective actions are being taken. FEMA partially meets this criterion. FEMA has demonstrated progress toward improving NFIP’s financial stability and program operations. As previously discussed, FEMA has taken steps to address our recommendations to improve how it monitors and reports NFIP contractor performance and validates data system changes before they become effective. However, progress is needed in other areas. For example, in 2008 we recommended that FEMA take steps to ensure that rate-setting methods and the data used to set rates result in full-risk premiums that accurately reflect the risk of flooding. We found that FEMA’s method for setting its full-risk rates may not ensure that the rates accurately reflect the actual risk of flood damage. In 2013, we also recommended that FEMA develop and implement a plan to obtain flood risk information needed to determine full-risk rates for properties with previously subsidized rates. We found that FEMA generally lacks information needed to apply full-risk rates to certain subsidized properties. As of March 2016, FEMA officials identified a number of actions the agency has taken or has underway to improve its NFIP rate-setting methods, but the officials noted that some of these efforts would continue over the next 5 to 10 years. In addition, as a result of changes FEMA has made in rates for certain subsidized properties (specifically, subsidies for primary residences, non-primary residences, and residential severe repetitive loss properties), we estimate that policyholders with these subsidized premiums paid $216 million more in premiums as of the end of fiscal year 2015 than they would have paid prior to the enactment of the Biggert-Waters Act. FEMA officials also said that they are evaluating approaches, including using new technologies, to collect elevation information for subsidized properties without financially burdening policyholders. FEMA has demonstrated progress in improving other areas of the program’s operations, such as continuity planning. However, some important actions, such as modernizing its information technology systems—including those for financial reporting and its policy and claims management system—remain to be completed. In 2011, we recommended that FEMA develop guidance and a related plan for continuing operations during federal disasters to help ensure consistent day-to-day operations when staff are deployed to disaster sites or reassigned to work on disaster-related issues. As part of developing its 2012 continuity plan, FEMA identified critical staff as well as the key operations that need to continue when staff are deployed in response to a federal disaster and how operations will continue during such periods. In 2011, in our review of FEMA’s financial management, we reported that staff faced multiple challenges in their day-to-day operations due to limitations in the systems they must use to perform these operations. In this same report, we also noted that FEMA faces challenges modernizing NFIP’s insurance policy and claims management system. After 7 years and $40 million, FEMA ultimately canceled its NextGen effort in November 2009 because the system did not meet user expectations. Since that time, FEMA established a steering committee tasked with overseeing FEMA’s next attempt to modernize its policy and claims processing system and began implementing some changes to its acquisition management practices. It remains to be seen if these efforts will help FEMA avoid some of the problems that led to NextGen’s failure. In late-November 2014, FEMA officials told us that the agency was in the acquisition stage for a new system called “Phoenix” that will replace NextGen and NFIP’s current financial and reporting system. In January 2017, a FEMA official stated the DHS acquisition review board had granted FEMA permission to procure and build the new system. For additional information about this high risk area, contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov. Flood Insurance: FEMA Needs to Address Data Quality and Consider Company Characteristics When Revising Its Compensation Methodology. GAO-17-36. Washington, D.C.: December 8, 2016. Flood Insurance: Review of FEMA Study and Report on Community- Based Options. GAO-16-766. Washington, D.C.: August 24, 2016. Flood Insurance: Potential Barriers Cited to Increased Use of Private Insurance. GAO-16-611. Washington, D.C.: July 14, 2016. National Flood Insurance Program: Continued Progress Needed to Fully Address Prior GAO Recommendations on Rate-Setting Methods. GAO- 16-59. Washington, D.C.: March 17, 2016. National Flood Insurance Program: Options for Providing Affordability Assistance. GAO-16-190. Washington, D.C.: February 10, 2016. Flood Insurance: Status of FEMA's Implementation of the Biggert-Waters Act, as Amended. GAO-15-178. Washington, D.C.: February 19, 2015. Flood Insurance: Forgone Premiums Cannot Be Measured and FEMA Should Validate and Monitor Data System Changes. GAO-15-111. Washington, D.C.: December 11, 2014. Overview of GAO’s Past Work on the National Flood Insurance Program. GAO-14-297R. Washington, D.C.: April 9, 2014. Flood Insurance: Strategies for Increasing Private Sector Involvement. GAO-14-127. Washington, D.C.: January 22, 2014. National Flood Insurance Program: Progress Made on Contract Management but Monitoring and Reporting Could Be Improved. GAO-14- 160. Washington, D.C.: January 15, 2014. Flood Insurance: More Information Needed on Subsidized Properties. GAO-13-607. Washington, D.C.: July 3, 2013. FEMA: Action Needed to Improve Administration of the National Flood Insurance Program. GAO-11-297. Washington, D.C.: June 9, 2011. Since designating Department of Veterans Affairs (VA) health care as a high-risk area in 2015, we continue to be concerned about VA’s ability to ensure its resources are being used cost-effectively and efficiently to improve veterans’ timely access to health care, and to ensure the quality and safety of that care. VA’s Veterans Health Administration (VHA) operates one of the largest health care delivery systems in the nation, with 168 medical centers and more than 1,000 outpatient facilities organized into regional networks. VA has faced a growing demand by veterans for its health care services—due, in part, to servicemembers returning from the United States’ military operations in Afghanistan and Iraq and the needs of an aging veteran population—and that trend is expected to continue. For example, the total number of veteran enrollees in VA’s health care system rose from 7.9 million to almost 9 million from fiscal year 2006 through fiscal year 2016. Over that same period, VHA’s total budgetary resources have increased substantially, from $37.8 billion in fiscal year 2006 to $91.2 billion in fiscal year 2016. Although VA’s budget and the total number of medical appointments provided have substantially increased for at least a decade, there have been numerous reports in this same period of time—by us, VA’s Office of the Inspector General, and others—of VA facilities failing to provide timely health care. In some cases, the delays in care or VA’s failure to provide care at all reportedly have resulted in harm to veterans. In response to these serious and longstanding problems with VA health care, the Veterans Access, Choice, and Accountability Act of 2014 (Pub. L. No. 113-146, 128 Stat. 1754) was enacted, which provided temporary authority and $10 billion in funding through August 7, 2017 (or sooner, if those funds are exhausted) for veterans to obtain health care services from community (non-VA) providers to address long wait times, lengthy travel distances, or other challenges accessing VA health care. Under this authority, VA introduced the Veterans Choice Program in November 2014. The $10 billion is meant to supplement VA’s medical services budget and is funded through a separate appropriations account, the Veterans Choice Fund. The 2014 law also appropriated $5 billion to expand VA’s capacity to deliver care to veterans by hiring additional clinicians and improving the physical infrastructure of VA’s medical facilities. agency officials projected a fiscal year 2015 funding gap of about $3 billion in its medical services appropriation account. The projected funding gap was largely due to administrative weaknesses that slowed the utilization of the Veterans Choice Program in fiscal year 2015 and resulted in higher-than-expected demand for VA’s previously established VA community care programs. In particular, VA officials expected that the Veterans Choice Program would absorb much of the increased demand from veterans for health care services delivered by non-VA providers, but instead the slow utilization resulted in veterans continuing to receive care through previously established VA community care programs that drew funds from VA’s medical services appropriation account. To avoid a projected funding gap in VA’s medical services appropriation account, the VA Budget and Choice Improvement Act provided VA temporary authority to use up to $3.3 billion from the Veterans Choice Program appropriation for obligations incurred for other specified medical services, starting May 1, 2015, until October 1, 2015. While timely and cost-effective access to needed health care services is essential, care coordination between VA and community providers, and between VA and the Department of Defense (DOD) (for transitioning servicemembers), is also critical to preventing unfavorable health outcomes for veterans. With the increased utilization of community providers that has occurred as a result of the Veterans Access, Choice, and Accountability Act, veterans are required to navigate multiple complex health care systems—the VA health care system and those of community providers—to obtain needed health care services. The quality of veterans’ care may be adversely affected if VA and community providers do not promptly communicate important clinical information. In addition, servicemembers transitioning from DOD to VA health care may experience problems if, for example, VA inappropriately discontinues medications, such as those for mental health conditions, because of a lack of clarity in VA’s medication continuation policy, potentially increasing the risk for adverse health effects. Overall, VA has partially met the criteria for leadership commitment and an action plan to address the five areas of concern we identified when we placed VA health care on our High-Risk List in 2015. These five areas of concern are: (1) ambiguous policies and inconsistent processes; (2) inadequate oversight and accountability; (3) information technology (IT) challenges; (4) inadequate training for VA staff; and (5) unclear resource needs and allocation priorities. VA has not met the other criteria for removal: capacity to address the areas of concern, monitoring implementation of corrective actions, and demonstrating progress. Although we concluded in our overall assessment that VA’s actions partially met two of our five criteria for removal from the High-Risk List, it is worth noting that the department made significantly less progress in addressing the action plan criterion than it has in demonstrating leadership commitment. Specifically, VA partially met the action plan criterion for only one of the five areas of concern—ambiguous policies and inconsistent processes—whereas VA partially met the leadership commitment criterion for four out of five areas of concern (VA did not meet the leadership commitment criterion for inadequate training for VA staff). The department must make significant progress on the action plan criterion for all five areas of concern we identified in order to meet this criterion for removal from our High-Risk List. VA officials have expressed their commitment to addressing the department’s High-Risk List designation, and have taken actions such as establishing a task force, working groups, and a governance structure for addressing the issues contributing to the designation. For example, in July 2016, VA chartered the GAO High-Risk List Area Task Force for Managing Risk and Improving VA Health Care (task force) to develop and oversee implementation of VA’s plan to address the root causes of the five areas of concern we identified. VHA’s Deputy Under Secretary for Health (USH) for Organizational Excellence serves as the executive agent for the task force, with support from a combination of permanent and temporary staff. This senior VHA position was created in 2015 and is responsible for overseeing offices focused on assessing and improving health care quality and safety, providing VA leadership with analytics to assess VHA’s performance, and addressing issues related to public trust and integrity. For each of the five areas of concern we identified, VA has established a working group with two senior-level VA officials as leaders. These workgroups and officials are responsible for developing and executing VA’s high-risk mitigation plan for each of our five areas of concern. VA has also contracted with two entities to support VA’s actions to address the high-risk designation. The first contract—with a Federally Funded Research and Development Center operated by the MITRE Corporation—is focused on (1) developing and executing an action plan, (2) creating a plan to enhance VA’s capacity to manage High-Risk List areas, and (3) recommending changes to the organizational structure VA set up to address the high-risk designation. The total contract value is $5.2 million, with an 8-month performance period that began on June 20, 2016 and 1 option year. The second contract—with Atlas Research, LLC—is for project management staff who will help establish a program executive office within the office of the VHA Deputy USH for Organizational Excellence, and assist with establishing the management functions necessary to oversee the five high-risk area working groups. The total contract value is $2.6 million, with a 1-year performance period that began on September 9, 2016 and the option to extend services for up to 6 additional months. Since we added VA health care to our High-Risk List in 2015, VA’s leadership has increased its focus on implementing our recommendations. Between January 2010 and February 2015 (when we designated VA health care as a high-risk area), we issued products containing 178 recommendations related to VA health care. When we made our designation in 2015, the department had only implemented about 22 percent of them—39 of the 178 recommendations. In the last 2 years, VA has made good progress, but additional work is needed. Since we designated VA health care as a high-risk area, we have made 66 new recommendations related to VA health care, for a total of 244 recommendations from January 1, 2010 through December 31, 2016. VA has implemented about 50 percent of the recommendations we have made since 2010—122 of the 244 recommendations. (See table 9.) It is critical that VA implement our recommendations not only to remedy the specific weaknesses identified, but because they may be symptomatic of larger underlying problems that also need to be addressed. On August 18, 2016, VA provided us with an action plan for addressing the High-Risk List designation that acknowledged the deep-rooted nature of the areas of concern we identified, and stated that these concerns would require substantial time and work to address. Although the action plan outlined some steps VA plans to take over the next several years to address its high-risk designation, the overall document did not satisfy the action plan criterion for removal. Specifically, several sections were missing actions that support our criteria for removal, such as analyzing the root causes of the issues and measuring progress with clear metrics. In our feedback to VHA on drafts of their action plan, we highlighted these missing actions and also stressed the need for specific timelines and an assessment of needed resources for implementation. For example, VA plans to use staff from various sources, including contractors and temporarily detailed employees, to support their high-risk area working groups, so it will be important for VA to ensure that these efforts are sufficiently resourced. While VA has demonstrated partial leadership commitment in most of the five areas of concern, significant gaps remain between VA’s stated plans and its actual progress. This lack of progress is evidenced by findings from our recent work, which have led us to make new recommendations that relate to each of the five areas of concern we highlighted in 2015. (See table 10.) Managing Risks and Improving VA Health Care Number of recommendations prior to GAO high-risk designation (Jan. 1, 2010 through Feb. 11, 2015) Number of recommendations added since GAO high-risk designation (Feb. 11, 2015 through Dec. 31, 2016) Recommendation counts listed include both implemented and not implemented recommendations as of the dates indicated. Since we added VA health care to our High-Risk List in 2015, VA has acknowledged the significant scope of the work that lies ahead. VA took an important step toward addressing our criteria for removal by establishing the leadership structure necessary to ensure that actions related to the High-Risk List are prioritized within the department. It is imperative, however, that VA maintain strong leadership support as it completes its transition into a new presidential administration. strategies that link strategic goals to actions and guidance. In addition, VA will need to demonstrate that it has the capacity to sustain efforts by devoting appropriate resources—including people, training, and funds—to address the high-risk challenges we identified. VA’s action plan for addressing its high-risk designation describes many planned outcomes with overly ambitious deadlines for completion. We are concerned about the lack of root cause analyses for most areas of concern, and the lack of clear metrics and needed resources for achieving stated outcomes. This is especially evident in VA’s plans to address the IT and training areas of concern. In addition, with the increased use of community care programs, it is imperative that VA’s action plan include a discussion of the role of community care in decisions related to policies, oversight, IT, training, and resource needs. We will continue to monitor VA’s institutional capacity to fully implement and sustain needed changes, including those related to its IT transformation, comprehensive training management plan, and resourcing decisions. Finally, to help address our high-risk designation, VA should continue to implement our recommendations and recommendations from other reviews such as the Commission on Care. The Veterans Access, Choice, and Accountability Act of 2014 established the Commission on Care to examine, assess, and report on veterans’ access to VA health care and to strategically examine how best to organize VHA, locate health resources, and deliver health care to veterans during the next 20 years. The Commission’s June 2016 report to the President included 18 recommendations to improve veterans’ access to care and, more broadly, to improve the quality and comprehensiveness of that care. For example, the Commission recommended that VHA create local, networked systems of care that integrate VA-based care and community care and remove restrictions to veterans seeking care from community providers. On September 1, 2016, the President concurred with 15 of the 18 recommendations and directed VA to implement them. including its policy development and dissemination process; controls and oversight for controlled substances; Veterans Choice Program implementation; physician recruitment and retention; the process for enrolling veterans in VA health care. In particular, the following selected recommendations require VA’s immediate attention: improving oversight of access to timely medical appointments, including the development of wait-time measures that are more reliable and not prone to user error or manipulation, as well as ensuring that medical centers consistently and accurately implement VHA’s scheduling policy. improved oversight of VA community care to ensure—among other things—timely payment to community providers. improved planning, deployment and oversight of VA/VHA IT systems, including identifying outcome-oriented metrics and defining goals for interoperability with DOD. ensuring that recommendations resulting from internal and external reviews of VHA’s organizational structure are evaluated for implementation. This process should include the documentation of decisions and assigning officials or offices responsibility for ensuring that approved recommendations are implemented. It is critical that Congress maintain its focus on oversight of VA health care to help address this high-risk area. Congressional committees responsible for authorizing and overseeing VA health care programs held more than 70 hearings in 2015 and 2016 to examine and address VA health care challenges. In addition, as VA continues to change its health care service delivery in the coming years, some changes may require congressional action—such as VA’s planned consolidation of community care programs after the Veterans Choice Program expires. Sustained congressional attention to these issues will help ensure that VA continues to improve its management and delivery of health care services to veterans. When we designated VA health care as a high-risk area in 2015, we reported that ambiguous VA policies led to inconsistent processes at local VA medical facilities. Based on actions taken since 2015, VA has partially met our criteria for removal for its leadership commitment and action plan. However, VA has not met our criteria for removal for capacity, monitoring, and demonstrated progress for this area of concern. one example of an action that would contribute to meeting the leadership commitment criterion for removal from our High-Risk List. VA has not met the capacity criterion because of significant gaps between its stated goals and the resources available to achieve them. VA’s high- risk working group on ambiguous policies and inconsistent processes is a first step towards establishing the capacity necessary to address this area of concern. VA has allocated staff and awarded contracts to support the department’s overall high-risk effort, but its action plan for this area does not explain how VA will allocate staff and resources to support its plans to address ambiguous policies and inconsistent processes, such as the professional policy writers VA states it needs to ensure consistent policy content and quality. Other actions VA needs to take to demonstrate capacity in this area of concern include maintaining procedures that have recently been established; training appropriate staff in policy development, implementation, and oversight; and addressing gaps such as unofficial policy documents. One example of unofficial policy is memoranda sent by the VHA Deputy USH for Operations and Management to regional network offices and VA medical centers. These memoranda are treated as new policy, but they have not been vetted by other VA offices, potentially creating confusion at the local level between mandatory and suggested actions. fully-established policy revision process in place, or the professional policy writers available to revise policies, VA cannot effectively meet these milestones. VA needs to use the root cause analysis results to develop more realistic milestones and metrics for this area, and ensure that critical actions and outcomes are prioritized given any identified limitations in capacity. VA has not met the monitoring criterion for our concerns related to ambiguous policies and inconsistent processes. VA has many planned actions that have not yet been implemented, including plans to ensure policy is implemented consistently at local and national levels, as well as plans to identify and address unofficial sources of policy. We also have continued to find evidence in our recent work of inconsistencies in policy application that will need to be addressed to show that VA is monitoring policies. For example, we highlighted the inconsistent application of policies in two recent reports examining mental health and primary care access at VA medical facilities in 2015 and 2016, respectively. In both reports, we found wide variation in the time that veterans waited for primary and mental health care, which was in part caused by a lack of clear, updated policies for scheduling—therefore, we recommended that VA update these policies. These ambiguous policies contributed to errors made by appointment schedulers, which led to inconsistent and unreliable wait-time data. For mental health, we also found that two policies conflicted, leading to confusion among VA medical center staff as to which wait-time policy to follow. In 2015, VA resolved this policy conflict by revising its mental health handbook, but other inconsistent applications of mental health policy have not yet been addressed, such as our recommendation to issue guidance about the definitions used to calculate veteran appointment wait times, and communicate any changes to those definitions within and outside VHA. VA has not met the demonstrated progress criterion for removal. We are unable to assess VA’s actions in this area because without the clear milestones and metrics necessary to track performance, VA cannot demonstrate that its actions are linked to identified root causes and that it is effectively managing this area of concern. We have ongoing work examining VA’s actions to ensure that policies related to veterans’ health care are consistently communicated and implemented, and we will continue to monitor VA’s progress in this area. In our 2015 high-risk report, we found that VA has had problems holding its facilities accountable for their performance because it relied on self- reported data from facilities, its oversight activities were not sufficiently focused on compliance, and it did not routinely assess policy implementation. VA has partially met the leadership commitment criterion for this area of concern because it established a high-level governance structure and adopted a new model to guide the department’s oversight and accountability activities. However, VA has not met our criteria for removal for capacity, action plan, monitoring, or demonstrated progress because the department continues to rely on existing processes that contribute to inadequate oversight and accountability. yet approved the draft directive establishing this office and authorizing it to carry out its planned functions. VA has not taken sufficient actions to meet the capacity criterion for removing this area of concern from our High-Risk List. Although VA has begun to allocate staff and resources by establishing the VHA office of the Assistant Deputy USH for Integrity, the success of its new oversight and accountability model depends on establishing consistent policies and ensuring that staff at all levels are complying with them. VA staff will need sufficient guidance and training to address skills gaps and to correct identified deficiencies, and VA’s new office of Internal Audit and Risk Assessment (a key component of its new oversight and accountability model) will need to be fully resourced, staffed, and operational. In addition, VA identified a need for increased training in ethics, as well as a need for staff with this specific expertise at the local level. However, VA’s action plan does not discuss how these actions will be resourced, including hiring staff or obtaining other resources necessary to ensure that such knowledge is in place. VA also has not met the action plan criterion for addressing our concerns about oversight and accountability. In its action plan, VA identifies root causes based on an “environmental analysis” of its health care oversight structure, such as the lack of a formal audit capacity. However, the identified root causes are not linked to clear milestones, metrics, or processes for reporting on progress. VA plans to include metrics in every new or revised policy to allow officials to determine whether the policy is being appropriately implemented and meets objectives. However, as described earlier, VHA’s new policy development and revision process is still in its early stages. Without clear milestones and metrics linked to root causes of the problem, VA cannot assess its implementation status or demonstrate progress against goals. For example, in our May 2016 report on the Veterans Crisis Line (a 24-hour telephone line staffed by responders who assist veterans in emotional crisis), we found VA established key performance indicators to evaluate crisis line operations but had no measureable targets or time frames established for their completion. One of the indicators related to rate at which crisis line callers abandoned their calls prior to speaking with a responder, but VA did not set a minimum or ideal performance target for this indicator. We recommended that VA document clearly stated and measurable targets and time frames for key performance indicators needed to assess Veterans Crisis Line performance, in order to improve the timeliness and quality of crisis line responses to veterans. VA has not met the criterion for monitoring its progress in improving oversight and accountability. VA’s action plan for this area of concern does not explain how it will ensure that medical facilities are consistently reporting reliable data, which is critical to monitoring actions. We have continued to find instances where VA lacked reliable data to determine whether its medical centers were following policies, which will continue to make it difficult for VA to monitor improved oversight and accountability. For example, in 2015, as part of our review of VA’s primary care oversight, we found inaccuracies in VA’s data on primary care panel sizes, which are used to help medical centers manage their workload and ensure that veterans receive timely and efficient care. We found that while VA’s primary care panel management policy requires facilities to ensure the reliability of their panel size data, it does not assign responsibility for verifying data reliability to regional- or national-level officials or require them to use the data for monitoring purposes. As a result, VA could not be assured that local panel size data were reliable, or whether its medical centers have met VA’s goals for efficient, timely, and quality care. We recommended that VA incorporate an oversight process in its primary care panel management policy that assigns responsibility, as appropriate, to regional networks and central office for verifying and monitoring panel sizes. safety, and dignity of women veterans when they receive care at VA medical facilities. In our 2015 high-risk report, we identified limitations in the capacity of VA’s existing IT systems, including the outdated, inefficient nature of certain systems and a lack of system interoperability—the ability to exchange and use electronic health information—as contributors to VA’s IT challenges related to VA health care. These challenges present risks to the timeliness, quality, and safety of VA health care. VA has partially met our leadership commitment criterion by involving top leadership in this area of concern, but it has not met our four remaining criteria for removing IT challenges from the High-Risk List. VA has partially met the leadership commitment criterion for addressing IT challenges. Specifically, VA outlined in its action plan a high-level governance structure that designates an official within VA’s department- level Office of Information and Technology (OI&T) as responsible for this area of concern. In addition, VA’s Chief Information Officer (CIO) has recently initiated an effort to transform the focus and functions of OI&T in response to the Secretary’s goal of making VA a more veteran-focused organization. The CIO’s transformation strategy, initiated in January 2016, calls for the office to stabilize and streamline processes, mitigate weaknesses highlighted in our assessments, and improve outcomes by institutionalizing a new set of IT management capabilities. As part of this transformation, in January 2016, the CIO began transitioning the oversight and accountability of IT projects to a new project management process called the veteran-focused integration process, in an effort to streamline its systems development and delivery of new IT capabilities. intended to serve as OI&T’s portfolio management and project tracking organization; (2) account management, led by three account managers responsible for managing the IT needs of VA’s major components; (3) quality and compliance, responsible for establishing effective policy governance and standards, and ensuring VA adheres to the policies and standards; (4) data management, intended to improve both service delivery and the veteran experience by engaging with data stewards to ensure the accuracy and security of the information collected by VA; and (5) strategic sourcing, which is expected to be responsible for establishing an approach to working with vendors that can supply solutions to VA’s IT requirements. However, VA is in the early stages of implementing these new functions, and it will need to sustain leadership commitment by maintaining OI&T’s transformation through the presidential transition. VA has not taken sufficient action to demonstrate it has the capacity to address the IT challenges we identified. VA has extensive IT resources in terms of staff and funding. In fiscal year 2016, VA’s IT appropriations were approximately $4.1 billion, and in our August 2016 report on VA’s IT management, OI&T reported nearly 7,300 federal employees and approximately 7,800 contractor staff working in support of IT-related functions. However, VA has not demonstrated improvement in several capacity actions, such as establishing specific responsibilities for its new functions, improving collaboration between internal and external stakeholders, and addressing skill gaps. For example, in our August 2016 report, we found that OI&T was still in the process of fully defining the roles and responsibilities of its new organizational units, as of July 2016. With regard to collaboration, VA designated an account manager for VHA as of May 2016, which has the potential to improve VHA and VA collaboration on IT needs. However, its August 2016 action plan for IT challenges describes plans rather than actions already taken to implement the account management function. In addition, we have repeatedly reported on the importance of VA working with DOD to achieve electronic health record interoperability. In August 2015, we reported on the status of these interoperability efforts and noted that the departments have engaged in several near-term efforts focused on expanding interoperability between their existing electronic health record systems. However, we were concerned by the lack of outcome-oriented goals and metrics that would more clearly define what VA and DOD aim to achieve from their interoperability efforts. Accordingly, we recommended that the departments establish a time frame for identifying outcome-oriented metrics and define related goals for achieving interoperability. Finally, in our August 2016 report, we found that while OI&T conducted annual skill gap analyses and developed training courses, and recommended other actions for addressing these gaps, the office had not identified potential gaps that may exist in future years. This led us to recommend that OI&T identify IT skills needed beyond the current fiscal year to assist in identifying future skill gaps. By focusing on the current year, OI&T may not be aware of skill gaps that need to be filled to assure its staff can deliver long-term IT support that contributes to improved services for veterans. VA has not met the action plan criterion for addressing the IT challenges we identified. VA’s action plan for this area provides a descriptive problem statement—reflecting our previously stated concerns—and high-level information about VA-wide IT strategies and initiatives. However, it does not contain a root cause analysis that would help identify and prioritize critical actions and outcomes to address IT challenges. As a result, VA’s stated milestones and dates appear unrealistic and disconnected from the challenges identified. For example, VA set a goal of having 50 percent of its active IT projects on budget and on schedule by the end of 2016, but it does not state what supporting actions and processes would be necessary to achieve this ambitious goal. Also, without a root cause analysis, VA cannot be certain this action will address its IT challenges. A significant concern we identified in our August 2015 report on VA’s and DOD’s interoperability efforts is that the two departments had not identified outcome-oriented goals and metrics that would more clearly define what they aim to achieve from their interoperability efforts and the value and benefits these efforts are intended to yield. VA has not met the criterion related to monitoring actions to address IT challenges. Without outcome-oriented goals and metrics to measure progress, VA cannot demonstrate that it is effectively monitoring implementation and tracking progress against goals. As we have stressed in our prior work, assessing the performance of a program should include measuring its outcomes in terms of the desired results of products or services. In this case, such outcomes could include improving the quality of health care or clinician satisfaction. Establishing outcome-oriented goals and metrics is essential to determining whether a program is operating as intended and delivering value. sustained. A key action within the criterion for demonstrated progress is implementing recommendations. We have made several recommendations to VA to address outdated systems such as its scheduling and community care claims processing systems, but VA has not yet implemented these recommendations. For example, in May 2016, we recommended that VA develop a sound plan for modernizing its claims processing system. We found that, due to recent increases in utilization of community care, VA has had difficulty with the timely processing of claims from community providers and the contractors responsible for administering the Veterans Choice Program. VA officials and claims processing staff indicated that IT limitations, manual processes, and staffing challenges had delayed claims processing. The department had implemented interim measures to address some of the system’s challenges, but it did not expect to deploy solutions to address all challenges, including those related to IT, until fiscal year 2018 or later. When identifying this area of concern in our 2015 high-risk report, we described several gaps in VA’s training, as well as burdensome training requirements, that we found in our prior work. Since we issued the 2015 report, VA has expressed its desire to improve the department’s standardization and management of training, but has not met any of our criteria for removing this area of concern from the High-Risk List. process, VA’s action plan states that it will set goals that enable VA medical center involvement in training planning, but those goals are not fully articulated in the document. The high-level nature of the descriptions in the action plan and lack of action to update outdated policies and set goals for improving training shows that VA lacks leadership commitment to address the concerns that led to our inclusion of this area in the 2015 high-risk report. VA also has not demonstrated that it has the capacity to address our concerns regarding inadequate training. Since identifying these concerns in our 2015 high-risk report, we have continued to find VA health care training gaps that need to be addressed. VA needs to determine the resources needed, actions required, and systems that need to be established to support improvements in how it manages training. In our September 2015 report on nurse recruitment and retention, for example, we found that VA did not know whether its medical center staff had sufficient training to support its national initiatives to recruit and retain nurses. As a result, we recommended that VA evaluate the adequacy of these training resources to help ensure the effective recruitment and retention of nurses across VA medical centers. In our December 2016 report on VHA’s human resources (HR) capacity, we found that VA’s competency assessment tool did not address two of the three personnel systems under which VHA staff may be hired. We recommended that VHA (1) develop a comprehensive competency assessment tool for HR staff that evaluates knowledge of all three of VHA’s personnel systems and (2) ensure that all VHA HR staff complete it so that VHA may use the data to identify and address competency gaps among HR staff. Without such a tool, VHA will have limited insights into the abilities of its HR staff and be ill-positioned to provide necessary support and training. VA also has not met the action plan criterion for this area of concern. In its action plan, VA identified an outdated 2002 policy and a decentralized approach to training as potential root causes of the lack of effective training management and oversight we previously identified. VA did not, however, take the additional steps in its action plan of conducting an analysis to confirm its assumptions. It is also not clear from the action plan whether VA plans to establish clear milestones and metrics to review and measure its progress in addressing the root causes of inadequate training for VA staff. measures and its progress against goals. One key monitoring action is reporting on program progress to senior managers. VA’s action plan for this area states that VHA leadership, including the VHA Under Secretary for Health, will review and approve an annual training plan, but the action plan does not describe what data will support that review, and how it will define progress against goals. Because VA’s comprehensive training management strategy is in the early stages of development, VA has not met the criterion for demonstrated progress in addressing this high-risk area of concern. Without clear priorities and goals for improving training, an action plan with clear milestones and metrics, and data to support reports on progress, it is not possible for VA to demonstrate progress in effectively addressing this area. In our prior work, we reported on gaps in the availability of data needed for VA to identify the resources it needs and ensure they are effectively allocated across VA’s health care system. We included this area of concern when we designated VA health care as a high-risk area in 2015. Over the past 2 years, VA’s actions have partially met our criterion for leadership commitment but not met the other four criteria for removing this area of concern from the High-Risk List. cycles. However, VA’s planned actions do not make clear how VHA, as the agency managing VA health care, is or will be incorporated into VA’s department-level framework, or how that framework will be communicated and reflected at the regional network and medical center levels. Actions that will assist VA in demonstrating progress in leadership commitment for this area of concern include clarifying the role and responsibilities of VHA in the Managing for Results framework, and ensuring continued oversight and accountability of the framework’s implementation. VA has not met our criterion for capacity for this area of concern. In its action plan, VA names several initiatives that are underway to enable Managing for Results, including establishing a mission-requirements- planning function to supply the ground rules and assumptions necessary to inform cost analysis of major VA initiatives. However, VA does not explain how it intends to establish the mission-requirements-planning function, or what resources may be necessary to establish and maintain that function at the national and local levels. Understanding the resources necessary to establish a new process can help to identify skills gaps and training that VA staff may need to facilitate implementation. VA has not met our action plan criterion for this area of concern because it has not established performance measures based on a root cause analysis of its unclear resource needs and allocation priorities. VA’s action plan states that the fragmented nature of the department’s data and information management systems limits its ability to integrate priorities, requirements, and solutions. While Managing for Results is intended to facilitate that integration, the action plan does not contain an analysis or explanation for how VA determined that fragmented systems was a cause of unclear resource needs and allocation priorities, or how their chosen framework would address that cause. As a result, VA lacks reasonable assurance that planned actions are addressing the root cause of the problem. correspond to all of its strategic goals and objectives, VHA’s regional networks and medical centers had limited guidance to help them operationalize VA’s strategic goals and objectives. Moreover, the day-to- day activities and initiatives developed by VHA regional networks and medical centers may not appropriately align with national goals and objectives for VA health care. Directly aligning strategic goals and their associated strategies is important in assessing an organization’s ability to achieve those goals. VA has not met our criteria for monitoring because its planned actions do not address our previously stated concerns about data quality. VA’s planned actions to address unclear resource needs and allocation priorities include incorporating information from VHA’s resource allocation model, enrollment projection model, and health care staffing utilization data to improve the accuracy of its resource decisions. However, we have described our concerns about the accuracy of data used for health care resourcing decisions in our 2015 high-risk report, as well as in our June 2016 report examining VA’s projected fiscal year 2015 funding gap. In the 2016 report, we found that VA’s weaknesses in estimating costs and tracking obligations as use of VA’s community care programs increased was one reason for VA’s projected funding gap. To better align cost estimates for community care services with associated obligations, we reported that VA was examining options for replacing its outdated financial IT systems, a plan that is reiterated in VA’s high-risk action plan, with a projected completion date of fiscal year 2020. However, VA’s high- risk action plan states that updating its financial management system will only partly address the capability gap associated with having the systems necessary to extract cost data. VA has made previous, unsuccessful, attempts to update its financial IT systems. To show progress in monitoring actions, VA will need to ensure data quality and regularly review its status and performance compared to its goals. care to the nation’s veterans will improve. We recommended that VA develop a process to ensure that it evaluates organizational structure recommendations resulting from internal and external reviews of VHA. This process should include documenting decisions and assigning officials or offices responsibility for ensuring that approved recommendations are implemented. Such a process will help VA ensure that it is using resources efficiently, monitoring and evaluating implementation, and holding officials accountable. Both Congress and VA have taken action to address our high-risk designation. In July 2015, the VA Budget and Choice Improvement Act directed VA to, among other things, include in its annual budget submission a new appropriations account for medical care delivered by community providers. Beginning in fiscal year 2017, Congress began funding community care through this new Medical Community Care appropriations account. This should allow VA to better ensure that sufficient funds are available for community care in the future. In November 2014, we reviewed data that VA collects on veteran suicides. We found that the data were not always complete, accurate, or consistent because the medical centers we reviewed differed in how they interpreted and used templates for collecting the data. We made six recommendations, including that VA clarify guidance on how to complete these templates and ensure that medical centers have a process to review them. In response, VA took several actions in 2015, including analyzing diagnostic coding practices at medical centers, adding more specific guidance on how to complete the templates, and requiring medical center leadership to review the templates. These actions positioned VA to collect consistent data to better inform its suicide prevention efforts, and we closed all six report recommendations as implemented in fiscal year 2016. centers to assess the degree they were using alternative processes to address the root causes of adverse events when a root cause analysis is not required. By collecting this information, VA increased its awareness of medical center actions to address the root causes of adverse events. For our 2011 review of VA’s purchasing, tracking, and reprocessing of expendable medical supplies (e.g., needles) and reusable medical equipment (e.g., endoscopes), we examined VA’s requirements as well as VA central office and regional network oversight processes. We found that both the tracking and reprocessing requirements we reviewed were inadequate to help ensure the safety of veterans who receive care at medical centers. We also found that VA central office did not analyze regional network reports on noncompliance with reusable medical equipment policies to inform its oversight. As such, we made four recommendations, including that VA develop and implement an approach for providing standardized training for reprocessing reusable medical equipment; hold VAMCs accountable for implementing the training; and use the regional network reports of noncompliance to take action to improve compliance in areas such as those that occur frequently, pose high risks to veterans’ safety, or have not been addressed. In 2015 and 2016, VA took action to require standardized training for reprocessing reusable medical equipment and oversight of reprocessing activities, issue guidance to clarify regional networks’ oversight responsibility, and identify areas of noncompliance that occur frequently and issue guidance to help address this noncompliance. All recommendations from this report have been closed as implemented. For additional information about this high-risk area, contact Debra Draper at (202) 512-7114 or draperd@gao.gov, or Randall Williamson at (202) 512-7114 or williamsonr@gao.gov. Veterans Health Administration: Management Attention Is Needed to Address Systemic, Long-standing Human Capital Challenges. GAO-17-30. Washington, D.C.: December 23, 2016. VA Health Care: Improved Monitoring Needed for Effective Oversight of Care for Women Veterans. GAO-17-52. Washington, D.C.: December 2, 2016. Veterans Health Care: Improvements Needed in Operationalizing Strategic Goals and Objectives. GAO-17-50. Washington, D.C.: October 21, 2016. VA Health Care: Processes to Evaluate, Implement, and Monitor Organizational Structure Changes Needed. GAO-16-803. Washington, D.C.: September 27, 2016. Veterans’ Health Care: Improved Oversight of Community Care Physicians’ Credentials Needed. GAO-16-795. Washington, D.C.: September 19, 2016. VA IT Management: Organization Is Largely Centralized; Additional Actions Could Improve Human Capital Practices and Systems Development Processes. GAO-16-403. Washington, D.C.: August 17, 2016. Veterans Affairs: Sustained Management Attention Needed to Address Numerous IT Challenges. GAO-16-762T. Washington, D.C.: June 22, 2016. VA’s Health Care Budget: In Response to a Projected Funding Gap in Fiscal Year 2015, VA Has Made Efforts to Better Manage Future Budgets. GAO-16-584. Washington, D.C.: June 3, 2016. Veterans Crisis Line: Additional Testing, Monitoring, and Information Needed to Ensure Better Quality Service. GAO-16-373. Washington, D.C.: May 26, 2016. Veterans’ Health Care: Proper Plan Needed to Modernize System for Paying Community Providers. GAO-16-353. Washington, D.C.: May 11, 2016. VA Health Care: Actions Needed to Improve Newly Enrolled Veterans’ Access to Primary Care. GAO-16-328. Washington, D.C.: March 18, 2016. DOD and VA Health Care: Actions Needed to Help Ensure Appropriate Medication Continuation and Prescribing Practices. GAO-16-158. Washington, D.C.: January 5, 2016. VA Mental Health: Clearer Guidance on Access Policies and Wait-Time Data Needed. GAO-16-24. Washington, D.C.: October 28, 2015. VA Primary Care: Improved Oversight Needed to Better Ensure Timely Access and Efficient Delivery of Care. GAO-16-83. Washington, D.C.: October 8, 2015. VA Health Care: Oversight Improvements Needed for Nurse Recruitment and Retention Initiatives. GAO-15-794. Washington, D.C.: September 30, 2015. Electronic Health Records: Outcome-Oriented Metrics and Goals Needed to Gauge DOD’s and VA’s Progress in Achieving Interoperability. GAO-15-530. Washington, D.C.: August 13, 2015. Since 2015, the Program Manager (Program Manager) for the Information Sharing Environment (ISE) and key departments and agencies have made significant progress to strengthen how intelligence on terrorism, homeland security, and law enforcement, as well as other information (collectively referred to in this section as terrorism-related information) is shared among federal, state, local, tribal, international, and private sector partners. As a result, the Program Manager and key stakeholders have met all five criteria for addressing our high risk designation, and we are removing this issue from our High-Risk List. While this progress is commendable, it does not mean the government has eliminated all risk associated with sharing terrorism-related information. It remains imperative that the Program Manager and key departments and agencies continue their efforts to advance and sustain the ISE. Continued oversight and attention is also warranted given the issue’s direct relevance to homeland security as well as the constant evolution of terrorist threats and changing technology. As we have with areas previously removed from the High-Risk List, we will continue to monitor this area, as appropriate, to ensure that the improvements are sustained. If significant problems again arise, we will consider reapplying the high risk designation. terrorism-related information. Figure 22 depicts the relationship between the various stakeholders and disciplines involved with the sharing and safeguarding of terrorism-related information through the ISE. The federal government has made significant progress in promoting the sharing of information on terrorist threats, and has met all of our criteria for removal from the High-Risk List. The Program Manager and key departments and agencies met the leadership commitment and capacity criteria in 2015, and have subsequently sustained efforts in both these areas. For example, the Program Manager clearly articulated a vision for the ISE that reflects the government’s terrorism-related information sharing priorities. Key departments and agencies also continued to allocate resources to operations that improve information sharing, including developing better technical capabilities. Implementation Plan (Implementation Plan), which includes the overall strategy and more specific planning steps to achieve the ISE. Further, they have demonstrated that various information sharing initiatives are being used across multiple agencies as well as state, local, and private sector stakeholders. For example, the Project Manager has developed a comprehensive framework for managing enterprise architecture to help share and integrate terrorism-related information among multiple stakeholders in the ISE. Specifically, the Project Interoperability initiative includes technical resources and other guidance that promote greater information system compatibility and performance. Furthermore, the key departments and agencies have applied the concepts of the Project Interoperability initiative to improve mission operations by better linking different law enforcement databases, and facilitating better geospatial analysis, among other things. accomplishments (e.g., related to maritime domain awareness) where the Program Manager helped connect previously incompatible information systems. The Program Manager has also partnered with DHS to create an Information Sharing Measure Development Pilot that intends to better measure the effectiveness of information sharing across all levels of the ISE. Further, the Program Manager and key departments and agencies have used the Implementation Plan to track progress, address challenges, and substantially achieve the objectives in the National Strategy for Information Sharing and Safeguarding. The Implementation Plan contains 16 priority objectives, and by the end of fiscal year 2016, 13 of the 16 priority objectives were completed. The Program Manager transferred the remaining 3 objectives, which were all underway, to other entities with the appropriate technical expertise to continue implementation through fiscal year 2019. In our 2013 high-risk update, we listed nine action items that were critical for moving the ISE forward. In that report, we determined that two of those action items—demonstrating that the leadership structure has the needed authority to leverage participating departments, and updating the vision for the ISE—had been completed. In our 2015 update, we determined that the Program Manager and key departments had achieved four of the seven remaining action items—demonstrating that departments are defining incremental costs and funding; continuing to identify technological capabilities and services that can be shared collaboratively; demonstrating that initiatives within individual departments are, or will be, leveraged to benefit all stakeholders; and demonstrating that stakeholders generally agree with the strategy, plans, time frames, responsibilities, and activities for substantially achieving the ISE. For the 2017 update, we determined that the remaining three action items have been completed: establishing an enterprise architecture management capability; demonstrating that the federal government can show, or is more fully developing a set of metrics to measure, the extent to which sharing has improved under the ISE; and demonstrating that established milestones and time frames are being used as baselines to track and monitor progress. Achieving all nine action items has, in effect, addressed our high-risk criteria. Manager, departments, and agencies. Although no longer a high-risk issue, sharing terrorism-related information remains an area with some risk and continues to be vitally important to homeland security, requiring ongoing oversight as well as continuous improvement to identify and respond to changing threats and technology. Table 11 summarizes the Program Manager’s and key departments’ and agencies’ progress in achieving the action items. In our 2013 high-risk update, we reported that the federal government had fundamentally met this high-risk criterion—primarily because it had established an interagency policy committee to leverage the efforts of participating departments and agencies. In addition, the Program Manager has continued to update the vision for the ISE as information sharing initiatives have evolved. Further, since 2013, the government has issued and largely executed the Implementation Plan and taken other actions, which demonstrate continued leadership commitment. With the majority of Implementation Plan priority objectives completed in fiscal year 2016, the Program Manager has updated the vision and led the establishment of new goals to strengthen the ISE. For example, now that terrorism-related information sharing among key federal departments and agencies has matured, the Program Manger is expanding collaboration on information sharing initiatives with state, local, tribal, territorial, and private sector partners. This includes promoting the use of interoperable systems and disseminating best practices for sharing and safeguarding information. According to the Program Manager, this expanded stakeholder engagement is necessary given the increasing overlap of national security and public safety. assumed key roles in governing ISE activities. The SCC is the focal point for advancing core interoperability frameworks and standards, and the CICC is a key forum for federal and non-federal entities to develop, implement, and align information sharing platforms, according to the 2016 Information Sharing Environment Annual Report to the Congress. In addition, the SCC and CICC will have key roles in overseeing the three Implementation Plan priority objectives not completed in fiscal year 2016. Updating the vision for the ISE, including the expanded leadership roles for entities like the SCC and CICC, helps ensure terrorism-related information is accessible and identifiable to relevant federal, state, local, private, and foreign partners. As we reported in 2015, key departments and agencies have also played an increased leadership role by serving as stewards for the priority objectives in the Implementation Plan. For example, DHS led the implementation of the priority objective on fusion centers, which was completed in fiscal year 2015, and has continued to lead efforts in this area as the vision for the ISE evolves. Additionally, departments and agencies have taken various actions to govern their own information sharing activities and to coordinate with the ISE. For example, DHS has used a governance board to serve as the decision-making body for DHS information-sharing issues since 2007. This board has identified information-sharing gaps and has developed a list of key initiatives to help address those gaps. Many of these initiatives—such as those related to safeguarding information—are consistent with established priorities for the ISE. Among other things, the federal government met this high-risk criterion in 2015 by changing its approach to funding information-sharing activities. Specifically, key departments are funding ISE-related activities as part of mission activities and operations instead of seeking separate funds. Additionally, the Implementation Plan defines the fundamental technological capabilities and services for advancing the ISE. The Program Manager and key departments and agencies also satisfied this high-risk criterion through their progress in identifying technological capabilities and services that can be shared collaboratively within and across the ISE, consistent with a federated architecture approach. As we reported in 2015, regarding the government’s approach to funding, senior officials in each key department or agency explained that any incremental costs related to implementing the ISE continue to be embedded within each department’s mission activities and operations and do not require separate funding. The Program Manager and department and agency officials also noted that the Implementation Plan assigned priority objectives to those departments and agencies whose missions most align with the initiatives under each objective, thereby helping to ensure that the activities received funding. begun to adopt these standards, an important step in developing federal capabilities to establish individual accountability and facilitate the appropriate level of information access. There are multiple priority objectives in the Implementation Plan that further the capacity to identify and share technical capabilities within and across the ISE. For instance, the priority objective on discovering and accessing information addresses the ability to discover that information exists and retrieve it. According to the results of a 2014 questionnaire administered by the Office of the Program Manager, over 80 percent of agencies reported improvements over the previous year in their ability to discover, access, and retrieve information necessary to accomplish their missions. As of December 2016, the remaining milestones associated with this priority objective were expected to be completed by fiscal year 2019, according to the Program Manager and key department documentation. The Implementation Plan also contains an objective dedicated to standards-based acquisition, which seeks to ensure that future products and services are interoperable and can easily exchange and interpret data. The goal of this objective is to develop common technical standards to guide all departments and agencies when they acquire new technologies. The five milestones contained under this objective were completed in fiscal year 2016, including developing a standards handbook. The Implementation Plan also identifies capacity-related activities consistent with a federated architecture approach, such as identifying technological capabilities and services to be used across communities of interest. For example, ISE stakeholders developed a repository of capabilities and services as part of the priority objective on interoperability. These knowledge resources include a web-based collection of tools, best practices, and frameworks for improving information interoperability. The government has met this high-risk criterion by developing and largely executing the Implementation Plan, leveraging information-sharing initiatives across the government, and improving enterprise architecture management as recommended in our 2011 report on the ISE. Developing and executing the Implementation Plan were important steps for the ISE, and as we have reported, are characteristics that can enhance the usefulness of national strategies. Specifically, the Program Manager and key departments and agencies generally agreed with the plan’s actions and time frames to advance the ISE. Further, the Program Manager has demonstrated that ISE stakeholders have taken steps to implement concepts promoted by the Project Interoperability initiative, including those contained in the Information Interoperability Framework (I2F). In addition to identifying key initiatives—such as those intended to control information access, safeguard information, increase a user’s ability to search for relevant information, and increase interoperability among data systems—the Implementation Plan seeks to address gaps in information sharing that ISE stakeholders identified and that we highlighted in our 2013 and 2015 high-risk reports. For example, the plan establishes a priority objective dedicated to information sharing with the private sector. This objective seeks to ensure that processes and procedures are in place for identifying threats, including those related to cybersecurity and to critical infrastructure—such as financial institutions, commercial facilities, and energy production and transmission facilities, among others. The Program Manger and key departments and agencies reached agreement on and completed all four milestones associated with the private sector priority objective by the end of fiscal year 2016. Among other things, this effort is intended to make appropriate fusion center products accessible to critical infrastructure owners and operators, and identify systems tools that provide near real time situational awareness of critical infrastructure vulnerabilities across the law enforcement and intelligence communities. survey administered by the Program Manager, numerous agencies also mentioned that they were leveraging the fusion center information sharing initiative. Specifically, all agencies that answered the 2014 question related to fusion center progress reported satisfaction with improvements made in the last year to enhance the capabilities and performance of the national network of fusion centers. This included improving how threat and encounter information is shared between the federal government and state, local, and private partners. In November 2014, we reported on federal efforts to improve fusion center capabilities and results. Additionally, in April 2013, we reported that fusion centers, along with other field-based information sharing entities, provided a variety of analytical activities that resulted in benefits, such as intelligence products. We also recommended that DHS, DOJ, and the Office of National Drug Control Policy (ONDCP) collaborate to (1) identify practices that could enhance the coordination and reduce unnecessary overlap across field-based information sharing entities, and (2) develop a mechanism that will allow them to hold field-based information-sharing entities accountable for coordinating with each other. Since our report DHS, DOJ, and ONDCP have made significant progress toward addressing our recommendations. Specifically, the three agencies have taken the necessary steps to assess the extent to which practices that can enhance coordination are being implemented at fusion centers and other field-based information sharing entities. They have also developed a mechanism to hold fusion centers and other field-based information sharing entities accountable for coordinating their analytical and investigative activities. However, the FBI has not taken action on our recommendations for the field-based information sharing entities it leads and, as a result, the recommendations from our report have not been fully addressed. milestones associated with establishing aspects of the ISE architecture. Such milestones include developing Project Interoperability and the I2F, key elements intended to help link systems across departments to enable information sharing (i.e., interoperability). For instance, the I2F calls for a common profile for achieving interoperability among systems, which among other things, can enable a user to access different departments’ or agencies’ databases from a single workstation. In March 2014, the Program Manager issued an initial version of I2F to guide the implementation of information-sharing capabilities. In 2016, the Program Manager identified several ongoing initiatives that implemented I2F concepts. For example, officials from the Office of the Program Manager provided documentation that illustrated how I2F was used and stated that the framework helped: identify security specifications for successfully exchanging data across various maritime partners to share information via the Maritime ISE, including services to publish and search for information about a ship’s location; create a virtual nationwide event deconfliction system to alert affected agencies or officers of potential conflicts between officers who are conducting law enforcement operations at the same time and in close proximity; and bridge data standards to enhance geospatial exchange capabilities (e.g., data embedded in maps) among mission partners, such as homeland security, law enforcement, emergency management, and public safety. Information Network, Regional Information Sharing Systems, Law Enforcement Enterprise Portal, and Intelink-U) are now interoperable, providing an array of services and information through a simplified sign- on using existing credentials. The Program Manager also stated that ongoing efforts to improve information sharing have informed future architecture efforts, including guidance associated with Project Interoperability 2.0, which is to provide the framework for building the next generation of the ISE. The Program Manager has also made progress in using the Implementation Plan to hold key departments and entities accountable over time for executing priority objectives and milestones associated with establishing aspects of the ISE architecture. Specifically, the Implementation Plan established architecture-related milestones and time frames to track and monitor progress. Importantly, the Program Manager and key stakeholders collaborated to create the plan and generally agreed with its timeframes and delegation of responsibilities to advance the ISE. In September 2015 and July 2016, the Program Manager updated us on the status of executing these priority objectives, including milestones with revised target dates and new entities that will assume responsibilities to complete the priority objectives, thereby demonstrating that the priority objectives and milestones are monitored over time. The Program Manager has not yet demonstrated outcomes associated with all of the priority objectives because several milestones are not complete. We will continue to monitor these enterprise architecture activities to ensure that they are sustained over time. The Program Manager and key departments and agencies have made sufficient progress to meet this high-risk criterion of monitoring by (1) implementing initiatives that show the extent to which information sharing has improved under the ISE and (2) continuing to develop metrics and processes to measure results achieved, both from individual projects and activities, as well as from the overall ISE. Developing effective performance metrics for information sharing initiatives is challenging given the complexity of information sharing, and the Program Manger acknowledged in 2016 that additional work is needed in this area. However, considering the collective efforts of the Program Manager’s performance management framework—including the Implementation Plan—key departments and agencies, and the ongoing Information Sharing Measure Development Pilot, we consider this high-risk criterion to be met. The Program Manager has created a performance management framework to measure the performance of key departments and agencies in completing ISE initiatives, many of which are included in the Implementation Plan. At a high level, performance is monitored by executing the Implementation Plan. For example, there are clear linkages between the plan’s 16 priority objectives, which in turn are linked to the 5 overarching goals in the 2012 National Strategy for Information Sharing and Safeguarding: collective action, common standards, shared services, safeguarding, and privacy. In this context, achieving milestones are a means of measuring progress toward the overarching strategic goals. For example, the 4 completed milestones under the governance priority objective helped advance all 5 strategic goals by identifying governance best practices and establishing a governance roadmap to implement information sharing initiatives. Table 12 illustrates the alignment between Implementation Plan priority objectives and national strategic goals. The performance management framework also consists of several measures, including the Performance Assessment Questionnaire. For example, through the annual questionnaire, the Program Manager measured results from key ISE initiatives, such as the extent that information gathered from international partners is integrated into the process the government uses to screen individuals for potential terrorist threats. In 2016, the Program Manger reported that his office was revising the format of the questionnaire, in part because the Implementation Plan was mostly complete, but that collecting certain performance data would continue. The Program Manager also developed a set of homeland security scenarios in 2011 to assist key departments in planning for and executing the ISE’s initiatives. The scenarios were designed to demonstrate information-sharing capabilities relevant to an agency’s mission, as well as to allow the Program Manager and departments to determine if the ISE is achieving desired capabilities. For example, 1 scenario described how departments need to mature their capabilities over the next 7 years such that an analyst does not have to manually check numerous databases to find information related to a suspicious activity, but rather can conduct 1 search of linked databases from a single point of entry. Similarly, in 2016, the Program Manger referred to the eight “mission stories” documented on the Office of the Program Manager’s website as qualitative indicators of improved information sharing over time. The mission stories include issue areas such as cybersecurity, counterterrorism, domain awareness, and interoperability, and according to the Program Manager, represent causal outcomes of ISE initiatives and are evidence of improved decision-making capability. Although the mission story information does not encompass quantitative metrics, it provides means to demonstrate the extent to which information sharing has improved, and results have been achieved through individual projects. For example, in the cybersecurity issue area, the Program Manager partnered with the International Association of Chiefs of Police, among other entities, to create the Law Enforcement Cyber Center, an online portal to facilitate information sharing about cyber-crime investigations. safeguarding measures between 2011 and 2016. Specifically, the Program Manger solicited agency responses to 16 questionnaires that measured agency implementation of policy recommendations related to removable media, online identity management, insider threat programs, access control, and enterprise audit. The results of this program—which directly links to the Implementation Plan’s priority objective on information safeguarding—were used to inform executive and legislative leadership of the government’s progress in simultaneously sharing and protecting sensitive terrorism-related information, and provided a quantitative measure of results achieved Separately, DHS and other stakeholders have been collecting performance data on fusion center capabilities since 2011, which are assessed and reported in annual reports. DHS uses an online self- assessment survey, which in 2015 included 128 questions and 10 data tables, to collect information from individual fusion centers. The results provide various output and outcome measures related to such areas as information gathering, analysis, and dissemination, and enhanced threat and domain awareness. The Program Manager’s and DHS’s efforts to establish performance metrics for areas such as information safeguarding and fusion centers are other means to help monitor and gain insight into the overall state of the ISE. In addition, in October 2016, the Program Manager and DHS initiated a pilot to help measure and monitor the overall performance of information sharing across the ISE. Specifically, the Information Sharing Measure Development Pilot intends to develop a new set of information sharing measures by analyzing how information is exchanged in various networks. According to DHS officials, algorithms will be used to calculate an Information Sharing Index that can quantify information sharing efficiencies across organizations, agencies, and departments regardless of information topic or use. The pilot project, scheduled for completion by the end of fiscal year 2017, will focus in part on fusion center information sharing. According to the Program Manager and DHS officials, the resulting metrics will then be applied more broadly across the ISE. The Program Manager and DHS have compiled a detailed Memorandum of Agreement, which clearly defines the project’s scope, objectives, time frames, and deliverables. If completed and broadly implemented, this performance measures initiative could be a valuable tool to assess and improve information sharing across the ISE. The Program Manager and key departments and agencies have met this criterion primarily by using the Implementation Plan to track progress in implementing priority objectives and in substantially achieving the overall ISE. The Implementation Plan assigns stewards to each priority objective—in most cases, a senior official within a key department or agency—who have primary responsibility for coordinating, integrating, and synchronizing activities to achieve the priority objectives within the time frames established. The steward is responsible for ensuring that participating agencies communicate and collaborate to complete the objective, while also raising to senior management any issues that might hinder progress. Stewards are to communicate these issues via the Information Sharing Council (ISC), a body consisting of senior officials from a variety of federal departments and agencies. The Program Manager stated that 13 of the 16 priority objectives were completed by the end of fiscal year 2016. The Program Manager transferred the remaining 3 objectives—Data Tagging, FICAM, and Discovery and Access—to other entities to implement through fiscal year 2019. Table 13 describes the 13 completed Implementation Plan priority objectives and examples of demonstrated progress. For example, work on several priority objectives—such as reference architecture and standards-based acquisitions—resulted in concrete guidance based on best practices that was then made available for stakeholders to use in their own organizations. The interoperability objective resulted in products, such as the I2F framework, that were used by multiple entities to improve terrorism-related information sharing across different information systems. Among other things, the fusion center and private sector priority objectives resulted in new processes that facilitated greater and more secure information sharing with critical infrastructure owners and operators. Activity Reporting (SAR) Initiative programs while expanding training and outreach beyond law enforcement to the rest of the public safety community. and secured funding for related training materials. Achieve the four Critical Operational Capabilities, four Enabling Capabilities, and other prioritized objectives across the National Network of Fusion Centers to help them effectively and lawfully execute their role as a focal point within the state and local environment for receiving, analyzing, gathering, and sharing threat-related information. Ensured appropriate federal analytic products are posted, shared, and cataloged within DHS’s secure information network. that clearly documented the status of all priority objectives and milestones. Among other information, these tracking documents detailed whether milestones were completed, on track, needed attention, or deleted, along with due dates. The Program Manger reported that his staff request documentation from stewards—such as white papers, emails, project completion notifications, and formal memorandums—to prove that milestones are complete. In this manner, over time, the Program Manager and key departments track milestones and adjust project baselines as needed. The status of modifying milestones was documented in regular priority objective and milestone updates. For instance, in cases where milestones were added, such as under the Data Tagging and FICAM priority objectives, the Program Manger noted that the new milestones were not creating additional tasks. Rather, the new milestones were written at a finer level of detail, which allowed departments and agencies to demonstrate incremental progress that was not visible under the original milestones. Milestones were deleted if stewards and stakeholders agreed that the milestones were no longer relevant to accomplishing priority objectives. The Program Manager and officials from key departments and agencies generally agreed that the Implementation Plan and process used to track and adjust priority objectives and milestones were effective, and we reviewed documentation that justified the status determinations for several milestones. Overall, the Program Manager and key departments have demonstrated progress in advancing the ISE by using processes to track and assess the status of priority objectives and milestones, and to make adjustments if needed. The majority of milestones were met within the given timeframes of the Implementation Plan, which enabled the work of the ISE to move forward. For additional information about this high-risk area, contact Diana Maurer at (202) 512-9627, or maurerd@gao.gov. Information Sharing: DHS Is Assessing Fusion Center Capabilities and Results, but Needs to More Accurately Account For Federal Funding Provided to Centers. GAO-15-155. Washington, D.C.: November 4, 2014. Maritime Critical Infrastructure Protection: DHS Needs to Better Address Port Cybersecurity. GAO-14-459. Washington, D.C.: June 5, 2014. DHS Intelligence Analysis: Additional Actions Needed to Address Analytic Priorities and Workforce Challenges. GAO-14-397. Washington, D.C.: June 4, 2014. Intelligence, Surveillance, and Reconnaissance: DOD Has Taken Steps to Improve Data Management, but Key Guidance Is Incomplete. GAO-13-398SU. Washington, D.C.: May 8, 2013. Intelligence, Surveillance, and Reconnaissance: DOD Has Partially Implemented GAO’s Recommendations to Enhance Intelligence Information Sharing. GAO-13-440SU. Washington, D.C.: April 26, 2013. Information Sharing: Agencies Could Better Coordinate to Reduce Overlap in Field-Based Activities. GAO-13-471. Washington, D.C.: April 4, 2013. Information Sharing: Additional Actions Could Help Ensure That Efforts to Share Terrorism-Related Suspicious Activity Reports Are Effective. GAO-13-233. Washington, D.C: March 13, 2013. Terrorist Watchlist: Routinely Assessing Impacts of Agency Actions since the December 25, 2009, Attempted Attack Could Help Inform Future Efforts. GAO-12-476. Washington, D.C.: May 31, 2012. Information Sharing Environment: Better Road Map Needed to Guide Implementation and Investments. GAO‑11‑455. Washington, D.C.: July 21, 2011. The areas on our 2017 High-Risk List are shown in table 15. The following GAO reports reflect our High-Risk Series reports issued since 2000. For additional GAO related products issued specific to each of the 34 high-risk areas on our updated list, see our High-Risk List website, http://www.gao.gov/highrisk/. High-Risk Series: Key Actions to Make Progress Addressing High-Risk Issues. GAO-16-480R. Washington, D.C.: April 25, 2016. High-Risk Series: An Update. GAO-15-290. Washington, D.C.: February 11, 2015. High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 14, 2013. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 16, 2011. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 22, 2009. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 31, 2007. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 1, 2005. High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January 1, 2003. High-Risk Series: An Update. GAO-01-263. Washington, D.C.: January 1, 2001. Determining Performance and Accountability Challenges and High Risks. GAO-01-159SP. Washington, D.C.: November 1, 2000.	The federal government is one of the world's largest and most complex entities: about $3.9 trillion in outlays in fiscal year 2016 funded a broad array of programs and operations. GAO's high-risk program identifies government operations with greater vulnerabilities to fraud, waste, abuse, and mismanagement or the need for transformation to address economy, efficiency, or effectiveness challenges. This biennial update describes the status of high-risk areas listed in 2015 and actions that are still needed to assure further progress, and identifies new high-risk areas needing attention by Congress and the executive branch. Solutions to high-risk problems potentially save billions of dollars, improve service to the public, and strengthen government performance and accountability. GAO uses five criteria to assess progress in addressing high-risk areas: (1) leadership commitment, (2) agency capacity, (3) an action plan, (4) monitoring efforts, and (5) demonstrated progress. Since GAO's last high-risk update, many of the 32 high-risk areas on the 2015 list have shown solid progress. Twenty-three high-risk areas, or two-thirds of all the areas, have met or partially met all five criteria for removal from the High-Risk List; 15 of these areas fully met at least one criterion. Progress has been possible through the concerted efforts of Congress and leadership and staff in agencies. For example, Congress enacted over a dozen laws since GAO's last report in February 2015 to help address high-risk issues. GAO removed 1 high-risk area on managing terrorism-related information, because significant progress had been made to strengthen how intelligence on terrorism, homeland security, and law enforcement is shared among federal, state, local, tribal, international, and private sector partners. Sufficient progress was made to remove segments of 2 areas related to supply chain management at the Department of Defense (DOD) and gaps in geostationary weather satellite data. Two high-risk areas expanded—DOD's polar-orbiting weather satellites and the Department of the Interior's restructuring of offshore oil and gas oversight. Several other areas need substantive attention including VA health care, DOD financial management, ensuring the security of federal information systems and cyber critical infrastructure, resolving the federal role in housing finance, and improving the management of IT acquisitions and operations. GAO is adding 3 areas to the High-Risk List, bringing the total to 34: Management of Federal Programs That Serve Tribes and Their Members. GAO has reported that federal agencies, including the Department of the Interior's Bureaus of Indian Education and Indian Affairs and the Department of Health and Human Services' Indian Health Service, have ineffectively administered Indian education and health care programs and inefficiently developed Indian energy resources. Thirty-nine of 41 GAO recommendations on this issue remain unimplemented. U.S. Government's Environmental Liabilities. In fiscal year 2016 this liability was estimated at $447 billion (up from $212 billion in 1997). The Department of Energy is responsible for 83 percent of these liabilities and DOD for 14 percent. Agencies spend billions each year on environmental cleanup efforts but the estimated environmental liability continues to rise. Since 1994, GAO has made at least 28 recommendations related to this area; 13 are unimplemented. The 2020 Decennial Census. The cost of the census has been escalating over the last several decennials; the 2010 Census was the costliest U.S. Census in history at about $12.3 billion, about 31 percent more than the 2000 Census (in 2020 dollars). The U.S. Census Bureau (Bureau) plans to implement several innovations—including IT systems—for the 2020 Census. Successfully implementing these innovations, along with other challenges, risk the Bureau's ability to conduct a cost-effective census. Since 2014, GAO has made 30 recommendations related to this area; however, only 6 have been fully implemented. GAO's 2017 High-Risk List This report contains GAO's views on progress made and what remains to be done to bring about lasting solutions for each high-risk area. Perseverance by the executive branch in implementing GAO's recommended solutions and continued oversight and action by Congress are essential to achieving greater progress.	15.4	long	4,031
7	More than 80 benefit programs provide cash and noncash aid that is directedprimarily to persons with limited income. These benefit programs cost $522.2 billionin FY2002, a record high. This sum was up $45.3 billion (9.5%) from the previouspeak of FY2001, and it equaled 5% of the gross domestic product (GDP). Federalfunds provided 71.5% of the total. Higher medical spending accounted for $32.8billion of the year's net increase, and 54 cents out of every welfare dollar went formedical benefits. Federal welfare outlays represented 18.6% of the federal budget,with 8% attributed to medical assistance. See Table 1 for FY2000-FY2002summary. After adjustment for price inflation, 2002 welfare spending was up $38.2 billion (7.9%) from that of 2001, the previous peak. Real spending increases (2002 dollars)were dominated by medical assistance (up $29.1 billion). Other increases were:education benefits,$ 4.1 billion; food benefits, $3.3 billion; housing, $2.3 billion; andservices, $1.2 billion. Outlays for cash aid dropped by $1.2 billion; and for jobs andtraining, by $0.5 billion. Spending for "human capital" programs (ones providing education and employment and training activities) accounted for 7.3% of all welfare dollars(compared with 19.6% for cash assistance). This report consists of a catalog of 85 need-based programs. (1) For each programthe report provides the funding formula, eligibility requirements, and benefit levels. At the back of the report, summary Table 14 gives expenditure data (federal andstate/local) and recipient data for FY2000-FY2002 by program. Two programs arenew to this series of reports: farmers' market nutrition programs (formerly treatedas a component of the food stamp program) and housing assistance for specialpopulations -- elderly and disabled. Historical tables have been revised to accountfor these additions. Most of these programs base eligibility on individual, household, or family income, but some use group or area income tests (see Table 7 -- page 16); and afew offer help on the basis of presumed "need." Most provide income "transfers." That is, they transfer income, in the form of cash, goods, or services, to persons whomake no payment and render no service in return. However, in the case of the joband training programs and some educational benefits, recipients must work or studyfor wages, training allowances, stipends, grants, or loans. Further, the TANF blockgrant program requires adults to commence work (defined by the state) after a periodof enrollment, the Food Stamp program imposes work and training requirements,and public housing programs require recipients to engage in "self-sufficiency"activities or to perform community service. Finally, the Earned Income Tax Credit(EITC.) is available only to workers. This report excludes income maintenance programs that are not income-tested, including social insurance and many veterans' benefits, and all but two tax-transferprograms. Thus, it excludes Social Security cash benefits, unemploymentcompensation, and Medicare. Outlays for the Old-Age, Survivors, and DisabilityInsurance programs (Social Security cash benefit programs) in FY2002 totaled $456billion, financed primarily from payroll tax collections. The report also excludespayments, even though financed with general revenues, that may be regarded as"deferred compensation," such as veterans' housing benefits and medical care forveterans with a service-connected disability. The report includes two tax-transfer programs, the EITC for low-income workers with children and the child tax credit. The EITC reduces the taxes ofworking families with gross income below specified limits and makes directpayments ("refunds") to those whose income is below the tax threshold or whose taxliability is smaller than their credit. Before the 2001 tax law, the child tax credit wasrefundable only to some taxpayers with three or more children, but it now isrefundable (up to certain limits) for those with earnings above $10,000. This reporttreats the direct payment component of these credits, but not the reduction in taxliability, as a welfare expenditure. Other tax benefits are excluded from the reportbecause they are not refundable (make no direct payments). Further, in most casesthey impose no income test for eligibility. Examples of these other tax benefits arethe deductibility of mortgage interest and property taxes on owner-occupied homes(equivalent to outlays of $63.3 billion and $21.8 billion, respectively, in 2002). These tax transfers increase families' disposable income by reducing their taxliability and are known as "tax expenditures." (The standard deduction and personalexemption in the income tax code also decrease families' taxable income.) Table 1. Expenditures of Major Need-Tested Benefit Programs,by Form of Benefit and Level of Government,FY2000-FY2002 (millions of current dollars) Source: Table prepared by the Congressional Research Service (CRS). Note: Program data on which this table is based are found in summary table ( Table 14 ) at the back of the report. Total expenditures on cash and noncash welfare programs multiplied many times between 1968 and 2002 ( Table 2 ). Even after allowance for price inflation,spending sextupled (rising 523%) over the 34 years, a period when the U.S.population rose by an estimated 43%. (2) Measuredin constant 2002 dollars, (3) theannual rate of growth in spending over the whole period was 5.5%. However, thegrowth pattern was uneven. Real spending almost tripled in the first 10 years,declined in some years (1982, 1996. and 1997), and in the last 5 years rose at anannual rate of 3.9%. Total per capita welfare spending grew in real terms (constantFY2002 dollars) from $416 in FY1968 to a peak above $1,800 in FY2002. Table 2. Total Expenditures for Need-Based Benefits, FY1968-FY2002 (in millions of dollars) Source: Table prepared by the Congressional Research Service (CRS). FY1968 and FY1973 data are from: Income Security for Americans: Recommendations of thePublic Welfare Study . Report of the Subcommittee on Fiscal Policy of the JointEconomic Committee. December 5, 1974. Table 4 , p. 28 of Joint EconomicCommittee study, (1968 federal total has been increased by $54 million to correct atypographical error in that table, and the 1973 federal total has been increased by$101 million to include Title X family planning, previously omitted from this reportseries). Data for FY1975-FY1999 are from previous editions of this report (revisedto incorporate public housing capital fund costs, to account for new estimates ofsome program outlays, and to provide historical data for some newly added programs). Data for FY2000-FY2002 are from Table 1 of this report. Figure 1 shows the course of expenditures for income-tested benefits from FY1975-FY2002. The upper line shows total real spending (federal and state-localspending); the bottom line shows state-local spending alone; the space betweenrepresents federal spending. Throughout this period federal expenditures accountedfor more than 70% of the total. The federal share rose above 76% in 1978-1980, thenbegan a general decline. In the 1993-2002 decade it averaged 71.4%. Major Welfare Policy Changes (1968-2002). During 1968-1976, Congress liberalized some oldwelfare programs and established new ones. Some of the major expansions follow. Effective in 1969, Congress gave a work incentive bonus to all mothers who receivedAid to Families with Dependent Children (AFDC) checks; the bonus, virtuallyrepealed in late 1981, was the right to a welfare supplement even after their earningsrose above the state standard of need. In 1969, minimum rents for public housingwere abolished (reinstituted, at a lower level, in 1974). By 1970 amendment, theFood Stamp program was converted into a federal income guarantee in participatingcounties. By 1972 amendment, basic educational opportunity grants were adoptedfor all needy college students (extended to "middle - income" students by 1978 lawand renamed Pell grants in 1980). In 1972, effective in 1974, a federal cash incomeguarantee -- Supplemental Security Income (SSI) -- was enacted for the aged,blind, and disabled, and Congress established the Special Supplemental FoodProgram for Women, Infants, and Children (WIC). Effective in 1974, food stampswere extended to all counties, providing a national income guarantee in the form offood stamps. In 1975, a rebatable tax credit was adopted for low-income workerswith children. In 1981, Congress moved to restrict eligibility for some programs and to lower some benefits. For example, it imposed gross income eligibility limits for AFDC andfood stamps, reduced AFDC and food stamp benefits for families with earnings,raised public housing rents, and reduced subsidies for school lunches. Effective inFY1983, it temporarily reduced the food stamp guarantee. Thereafter, Congressrestored food stamp benefit rules for workers (1985), expanded Medicaid eligibilityfor some needy persons not enrolled in cash welfare, sharply expanded the EITC (andgave it inflation protection) (1986), and required all states to offer AFDC to needytwo-parent families in which the primary earner is unemployed or underemployed(1988). It also established the Job Opportunities and Basic Skills (JOBS) programfor AFDC recipients and expanded federal matching funds for work and training andfor related child care. In 1993 ( P.L. 103-66 ), Congress again expanded the EITC,with the goal of ending poverty for a family of four with a parent who works full timeat the minimum wage (counting food stamps toward the antipoverty goal). At thesame time, it established a small EITC for childless workers. In 1996, effective July 1, 1997 at the latest, Congress repealed AFDC, JOBS, and Emergency Assistance, replacing them with a fixed annual block grant forTemporary Assistance for Needy Families (TANF), through FY2002. It specifiedthat state TANF programs must condition eligibility on work, impose a lifetime limit(5 years at most) on federally funded basic ongoing aid (traditional cash aid), andachieve prescribed work participation rates for full funding. The 1996 law ( P.L.104-193 ) also ended eligibility for most welfare benefits for non-citizens, added tothe Food Stamp program a stringent work requirement for childless persons aged18-50, and sharply expanded federal funding for child care, consolidating the fundsin the Child Care and Development Block Grant. In 1997, Congress added specialwelfare-to-work grants to TANF (for FY1998 and FY1999 years only), moderatedsome of the rules affecting non-citizens (see later section on Non-Citizen Eligibilityfor Major Federal Benefits ), established a new program of State-Children's HealthInsurance (S-CHIP), and created a child tax credit (made refundable, by the 2001 taxact) for taxpayers with more than $10,000 in annual earnings. Spending Trends by Level ofGovernment. Tables 3, 4, and 5 present 1968-2002 welfarespending in constant 2002 dollars, by form of benefit; Table 3 displays federaloutlays, Table 4 , corresponding state-local data, and Table 5, total welfarespendingamounts. Measured in constant 2002 dollars, federal spending for income-testedbenefits climbed from $59.4 billion in FY1968 to $373.2 billion in FY2002, anincrease of 529%. State-local welfare spending (constant dollars) rose from $24.5billion to $149 billion over the same period, an increase of 508%. Total welfareoutlays increased from $83.9 billion to $522.2 billion in these years, an increase of523%. Cash aid was the leading form of federal welfare until 1980, when it was overtaken by medical benefits. Two years later, in 1982, federal welfare spendingdeclined for all forms of aid except subsidized housing, in which case outlaysreflected earlier commitments, and education benefits. However, beginning in 1983,real federal welfare outlays climbed steadily before declining in FY1996 andFY1997. After 1979, state-local outlays rose in all years except 1993 and 1996. Both federal and state-local outlays set successive new record highs inFY1998-FY2002. Medical Benefits. Since 1979, medical spending has accounted for more than 50 cents out of every welfare dollarspent by state-local governments. In 1989, the share climbed to 60%, and since 1979it has exceeded 70%. Medical assistance has accounted for a much smaller share offederal welfare outlays: about 25% until the mid-80s, above 30% in the 1990s, andan average of 43% in 2000-2002. Welfare Share of Federal Budget. As a component of the federal budget, welfare spending averaged 13% from1975-1979, dropped to 12% in the 1980s, and since 1994 has equaled or exceeded17% each year. In 2001 it rose above 18%, and in 2002 reached 18.6%. Refundable Income Tax Credits. The earned income tax credit has become the nation's largest program ofincome-tested cash benefits for families with children. In FY2002, the U.S. Treasurypaid out $27.8 billion in refundable earned income tax credits (chiefly for earnerswith children) and $5.7 billion in child tax credits. The total almost equaled federalSSI payments for the aged, blind and disabled ($33.9 billion) and was five times asmuch as cash assistance from TANF federal dollars ($6.5 billion). (TANFexpenditures for work activities, child care, and other services exceeded TANF cashaid. See Table 14 -- page 227.) Table 3. Federal Spending for Income-Tested Benefits by Form of Benefit, FY1968-FY2002 (millions of constant FY2002 dollars) Source : Table prepared by the Congressional Research Service (CRS). a. Rows may not add to total shown because of rounding. Table 4. State-Local Spending for Income-Tested Benefits byForm of Benefit, FY1968-FY2002 (millions of constant FY2002 dollars) Source : Table prepared by the Congressional Research Services (CRS). a. Rows may not add to total shown because of rounding. na=not available Table 5. Total Spending for Income-Tested Benefits by Form of Benefit, FY1968-FY2002 (millions of constant FY2002 dollars) Source : Table prepared by the Congressional Research Services (CRS). a. Rows may not add to total shown because of rounding. The dramatic change since 1978 in the composition of total spending forincome-tested benefits is shown in Figure 2 and in Table 6 . In FY1978spending forcash relief and medical aid was about equal. Each accounted for 29% of total welfarespending covered by this report. Thereafter, outlays for medical benefits rapidlyovertook cash aid, topping 50% in FY2000 and reaching 54% in 2002. Table 6. Outlay Trends by Form of Benefits, FY1978-FY2002 (billions of constant 2002 dollars) Source : Table prepared by the Congressional Research Service (CRS). The eligibility of noncitizens for major federal means-tested benefit programslargely depends on their immigration status and whether they arrived in the UnitedStates, or were enrolled in a benefit program, before enactment of the 1996 welfarelaw ( P.L. 104-193 ) on August 22, 1996. That law sharply restricted welfareeligibility for noncitizens, though it has since been modified. For noncitizensentering after August 22, 1996, many of the restrictions imposed by the 1996 lawremain essentially unchanged. However, for persons who legally resided in theUnited States before enactment of the new law, provisions have been significantlyrevised by 1997, 1998, and 2002 amendments. The most significant recent change(made in the 2002 farm bill, P.L. 107-171 ) opened up food stamp eligibility to alllegal permanent resident (LPR) children, regardless of date of entry or length ofresidence, and to legal permanent residents (LPRs) who meet a 5-year residence test. Those LPRs who were admitted to the United States as refugees and asylees are treated differently from other LPRs, as follows: Refugees and asylees . Eligible for SSI benefits, Medicaid, and food stamps for 7 years after arrival, and for 5 years for TANF. After this term, they generally areineligible for SSI, but states may extend federally aided TANF and Medicaid to them. Legal permanent residents (LPRs) Who have a work history or military connection. If they have (a) a substantial work history, generally 10 years (40 quarters) of work documentedby Social Security or other employment records, or (b) a military connection (activeduty military personnel, veterans, and their families), LPRs are eligible for majorbenefits; Who were legally resident as of August 22, 1996. If theyreceived SSI as of August 22, 1996, these LPRs continue to be eligible for SSI. Ifthey are disabled, they are eligible for SSI and, as a result, for food stamps (regardlessof the date of disability). If they were elderly (65+) as of August 22, 1996, they areeligible for food stamps. If they were children (under 18) as of August 22, 1996, theyare eligible for food stamps until they become 18; Who are qualified SSI recipients. If they meet SSI noncitizeneligibility tests, these LPRs must receive Medicaid; and Who entered the United States after August 22, 1996. TheseLPRs are barred from TANF, food stamps, and Medicaid for 5 years. Thereafter, thestate may extend federally-aided TANF, food stamps, and Medicaid to them. (Anotable exception is that LPR children are eligible for food stamps no matter whenthey entered the country or how long they have lived here.) The Census Bureau reports that 7.2 million families (including 5.4 million withchildren) in 2002 had total pre-tax money income -- after counting any cash from thewelfare programs of TANF, Supplemental Security Income (SSI), and GeneralAssistance (GA) -- that was below their poverty threshold. (4) The Bureau found thatthe money income poverty rate among related children in families was 16.3%, thehighest since 1999 (16.6%). Overall, 34.6 million persons were classified as poor on the basis of 2002 pre-tax money income (compared with 31.1 millions in 2000). Of these persons,66.6% were in households that received means-tested aid from at least one of eightprograms (TANF, SSI, GA, school lunch, food stamps, Medicaid, subsidizedhousing, low-income home energy assistance). By race and ethnicity, the followingpercentages of poor persons were in households that received pre-tax aid from oneor more of the eight programs: non Hispanic whites, 53.5%, blacks, 80%, andpersons of Hispanic origin, 78.6%. Figure 3 depicts income-tested aid provided to families with children who were poor before receiving any cash aid from TANF, GA, or the EITC. In 2002, thesefamilies totaled 5.7 million (compared with 5.1 million in 2000): 3.4 million witha female householder and 2.3 million with a male householder (chiefly two-parentfamilies). These numbers, based on CRS estimates, include unrelated subfamilies(the Bureau excludes these subfamilies from its "family" counts). As the chartshows, all but 8.9% of the female-headed families and 11.8% of the male-presentfamilies whose pre-tax, pre-welfare money income fell short of the poverty thresholdreceived means-tested aid. For male-present families, the EITC, which goes only topersons with earnings, was the dominant form of aid. In all, 71.7% of male-presentfamilies who were poor before transfers received the EITC (compared with 75.2%in 2000); for 25.4% it was the only aid. Among female-headed families who werepoor before transfers, 53.7% received the EITC (compared with 59.6% in 2000); for11.7% it was the only aid. Various combinations of cash assistance (TANF, GA,EITC) and noncash aid (food stamps, housing subsidies, Medicaid or coverage underthe State Children's Health Insurance Program (S-CHIP), went to 23.5% offemale-headed families and to 10.6% of male-present families. (5) More than 90% of the programs in this report have an explicit test of income. The others base eligibility on area of residence, enrollment in another welfareprogram, or other factors that presume need. The explicit income tests are of fivekinds: Income ceiling related to (1) one of the federal government's official povertymeasures (federal poverty income guidelines or Census Bureau poverty thresholds);(2) state or area median income; (3) the lower living standard income level of theBureau of Labor Statistics; (4) an absolute dollar standard; (5) level deemed toindicate "need." Table 7 classifies the programs in this report by type of income test. Tables 8-11 present, respectively, Census Bureau poverty thresholds for 2002,federal poverty income guidelines for 2003, income eligibility limits for subsidizedmeals, July 2003-July 2004, and lower living standard income levels, effective inMay 2003. Table 7. Income Eligibility Tests Used by Benefit Programs * Short titles and abbreviations are used in this table. See table of contents for full titles. a. States must extend Medicaid to certain persons whose income is below the federal poverty income guideline (or a multiple of it) but who do not receivecash aid. These persons are pregnant women, children born since September 30, 1983, the aged, the blind, and thedisabled. b. Need is decided by state, locality, Indian tribe (or Alaskan Native village). c. Eligible for Medicaid, foster care, and adoption assistance are persons who do not qualify for TANFcash assistance but who would be income-eligiblefor AFDC under the terms of July 16, 1996 (with some modifications allowed) if that program had not been replacedby TANF. Also eligible forMedicaid in most states are persons eligible for SSI. d. Veterans receiving veterans' pensions or eligible for Medicaid are automatically eligible for free VA medicalcare. e. If a state's Medicaid limit for children is at or above 200% of the poverty guideline, it may give S-CHIPto children whose family income is within150% of the Medicaid limit (thus, up to 50% above the Medicaid limit). f. The stated purpose of the Maternal and Child Health (MCH) Services Block Grant law is to enablestates to assure access to quality MCH services tomothers and children, particularly those with low income (or limited availability of health services). The law defineslow income in terms of thefederal poverty income guidelines. This block grant, which took effect in FY1981, includes funding for crippledchildren's services. g. The law limits free care to those below the federal poverty income guidelines. h. All residents of the area served are eligible, but fees must be charged the nonpoor. i. For basic federal SSI payment. j. States decide need for an optional state supplement to SSI. k. A blind or disabled child who is eligible for SSI also is eligible for adoption assistance. l. Households composed wholly of recipients of SSI or GA or of recipients of TANF cash or services automatically meet food stamp assets and incometests but their benefits must be calculated by food stamp rules. m. Food stamp eligibility is accepted as documentation of eligibility for the free school lunch and free schoolbreakfast programs. n. States may give automatic eligibility to public assistance recipients. o. The law requires preference for those with greatest economic or social need. p. Need is decided by a system known as the federal needs analysis methodology, which is set forth inPart F of Title IV of the Higher Education Act(HEA) as amended. q. There is no income test. Migratory children are presumed to be needy. r. For forgiveness of loans made to needy students who fail to complete studies. s. Need for loans is decided by the educational institution, by use of a needs analysis system approvedby the Secretary of Education "in combinationwith other information" about the student's finances. For all health professional scholarships and for loans tostudents of medicine and osteopathy,federal regulations define the required "exceptional financial need." t. Regulations require the educational institution to determine that migratory students need the financialassistance provided. u. Law makes eligible middle school and secondary students who are "economically disadvantaged." v. Federal income ceiling is 85% of state median for family of same size w. Under the law, at least 70% of entitlement Child Care Development Block Grant(CCDBG) funds must be used for families receiving TANF, tryingto leave welfare through work, or at risk of becoming eligible for TANF. x. Applies to families aided with TANF dollars transferred to Title XX (their income cannot exceed 200% of the federal poverty guidelines). y. Need is decided by agencies administering the benefits. z. The federal poverty income guideline is used if higher than 70% of the lower living standard incomelevel of the Department of Labor. aa. The law requires preference for "low-income" persons if funds are limited. bb. States have the option of setting limits below outer federal ceilings (but cannot set a ceiling below110% of the federal poverty income guideline). Table 8. Bureau of the Census PovertyThresholds for 2002 Source: U.S. Department of Commerce, Bureau of the Census (Jan. 23, 2003). Table 9. 2003 Federal Poverty Income Guidelines Source: Federal Register , v. 68, no. 26, Feb. 7, 2003, pp. 6456-6458. Table 10. Eligibility Levels for Free and ReducedPrice Meals for the Period of July 1, 2003-June 30, 2004 Source: Federal Register , v. 68, no. 49, Mar. 13, 2003. P. 12030. Table 11. Lower Living Standard Income Level (LLSIL) for a Family of Foura -- Effective May 30, 2003 (Foruse in programs under the Workforce Investment Act and the b Source: Federal Register , v. 68, no. 104, May 30, 2003. PP. 32552-32554. a. For LLSILs for other family sizes, see Federal Register entry noted above. b. The LLSIL is used for several purposes under the Workforce Investment Act(WIA). WIA defines "low income individual" for eligibility purposes in termsof the LLSIL or the poverty line. For purposes of state formula allotments, itdefines the terms "disadvantaged adult" or "disadvantaged youth" in terms ofthe LLSIL or the poverty line. c. To assess whether employment will lead to "self-sufficiency," WIA sets 100% ofthe LLSIL as the minimum pay needed. d. WIA provides that the terms "low-income" person and "disadvantaged adult" maybe defined as a member of a family that received total family income that, inrelation to family size, does not exceed 70% of the LLSIL. Further, the InternalRevenue Code provides that the term "economically disadvantaged" may bedefined as 70% of the LLSIL for purposes of the Work Opportunity Tax Credit(WOTC). Note: Effective on July 1, 1997 (earlier in most states), P. L. 104-193 endedAid to Families with Dependent Children (AFDC), a cash assistance program underwhich recipients were automatically eligible for Medicaid. The replacement blockgrant program of Temporary Assistance for Needy Families (TANF) does not entitleall TANF recipients to Medicaid coverage. However, those who meet the income,resource, and categorical eligibility criteria of the former AFDC program, as in effectin their state on July 16, 1996 (and subsequently modified, if applicable), are entitledto Medicaid. The description below summarizes Medicaid as it operated after AFDCwas replaced by TANF. The federal government shares in the cost of Medicaid services by means of a variable matching formula. The formula is inversely related to a state's per capitaincome and is adjusted annually. For FY2000-FY2002, the federal matching rate forservices averaged about 57% for the Nation as a whole. The federal share ofadministrative costs generally is 50%, but as high as 100% for certain items. Preliminary data indicate that federal outlays in FY2002 totaled $146.2 billion. The federal share of a state's medical vendor payments is called the federal medical assistance percentage (FMAP). The FMAP is higher for states with lowerper capita incomes and lower for states with higher per capita incomes. If a state'sper capita income is equal to the national average per capita income, its FMAP wouldbe 55%. The law establishes a minimum FMAP of 50% and a maximum of 83% (7) (though the highest rate in FY2003 was 76.62% for Mississippi). Federal matchingfor the territories is set at 50%, but a dollar ceiling also applies. The statutoryformula for determining the FMAP follows: FMAP = 100% -- state share (with a minimum of 50% and a maximum of 83%) State share = (state per capital income) 2 x 45% (national per capita income) 2 The percentages are based on the average per capita income of each state and the United States for the three most recent calendar years for which satisfactory dataare available from the Department of Commerce. The law provides one exception to the FMAP for benefits. Family planning services (instruction in contraceptive methods and family planning supplies) arefederally matched at a 90% rate. To provide fiscal relief to states, federal matching rates were changed temporarily by the Jobs and Growth Tax Relief Reconciliation Act ( P.L. 108-27 ),which altered the rates for certain expenditures for the last two quarters of FY2003and the first three quarters of FY2004. For these 5 quarters, the federal matching ratefor each state is held harmless for declines from the prior fiscal year, and then isincreased by 2.95 percentage points. A state is eligible for an increase in its FMAPfor any of the specified quarters only if eligibility under Medicaid in effect for thatquarter is no more restrictive than eligibility in effect on September 2, 2003. Program costs totaled $258 billion in FY2002, with $147 billion (57%) from federalfunds. The requirements of federal law, coupled with the decisions of individual states in structuring their Medicaid programs, determine who is actually eligible forMedicaid in a given state. Some groups are mandatory, meaning all states must coverthem; others are optional. In general, federal law places limitations on the categoriesof individuals that can be covered and establishes specific eligibility rules for groupswithin those broad categories. Traditionally, Medicaid eligibility was limited to thefollowing categories: low-income families with dependent children (in which oneparent was absent, incapacitated or unemployed), low-income persons withdisabilities, and low-income elderly. In addition, certain individuals with higherincome, especially those facing large costs for medical care, were eligible as"medically needy." Beginning in the 1980s, additional coverage groups were addedto Medicaid for higher income children and pregnant women. Other coverage groupsare identified in statute as needing special protection against the high cost of medicalcare. (8) Over 50 distinct population groups areidentified in federal law. Some aremandatory groups that all states must cover; some are optional eligibility groups. Contributing to the complexity of the Medicaid program are financial criteria. Medicaid is a means-tested entitlement program. To qualify, applicants' income andresources (9) must be within certain limits, most ofwhich are determined by states,again within federal statutory parameters. States have flexibility in definingcountable income and assets. Consequently, income and resource standards varyconsiderably among states, and different standards apply to different populationgroups within a state. In general, individuals in similar circumstances may beautomatically eligible for coverage in one state, but required to assume a certainportion of their medical expenses before they can obtain coverage in another state,and not eligible at all in a third state. Families, Pregnant Women, and Children. Medicaid-eligible families, pregnant women, and childrenfall into two basic groups: those meeting AFDC standards as of July 16, 1996, andthose qualifying under a series of targeted Medicaid expansions that began in the1980s. AFDC-Related Groups. Medicaid eligibility for AFDC-related groups was affected significantly by both the PersonalResponsibility and Work Opportunities Reconciliation Act of 1996 (PRWORA, P.L.104-193 ), which replaced the AFDC cash assistance program with the TemporaryAssistance for Needy Families (TANF) block grant program, and the BalancedBudget Act of 1997 (BBA 97, P.L. 105-33 ). Mandatory. Members of families that meet the eligibility requirements of the old AFDC programs in effect in their states on July 16, 1996must be covered under Medicaid. States may modify their rules governing incomeand resource standards for such AFDC-related groups. These modifications can bemade by raising income/resource standards up to the percentage increase in theConsumer Price Index (CPI) after July 16, 1996, or by lowering income standards toapplicable levels no lower than those in effect on May 1, 1988, or by usingincome/resource methodologies that are less restrictive than those in effect on July16, 1996. States must provide Medicaid assistance for recipients of adoption assistance and foster care under Title IV-E of the Social Security Act. Transitional or extendedbenefits are available to families who lose Medicaid eligibility because of increasedhours of employment, increased earnings, loss of a time-limited earned incomedisregard, or increased child or spousal support payments. If the family losesMedicaid eligibility because of increased earnings or hours of employment, Medicaidcoverage is extended for 6 to 12 months. (10) (During the second 6 months, a premiumcan be imposed, the scope of benefits might be limited, or alternate delivery systemsmight be used.) If the family loses Medicaid because of increased child or spousalsupport, coverage is extended for 4 months. Pregnant women and children areexempt from TANF work requirements and retain their Medicaid eligibility. Optional. States are permitted to cover additional AFDC-related groups. States may provide Medicaid to former foster care recipientsages 18, 19 and 20, and can limit such coverage to those eligible for Title IV-E beforeturning 18. States may also extend Medicaid to children up to age 21 in familieswhose income and resources are within AFDC standards (as of July 16, 1996), butwho do not meet the definition of a dependent child (also known as Ribicoffchildren), and may limit this coverage to reasonable subgroups, such as children intwo-parent families, those in privately subsidized foster care, or those who live incertain institutional settings. (11) Finally, states maydeny Medicaid benefits tononpregnant adults and heads of households who lose TANF benefits because ofrefusal to work. Poverty-Related (12) Pregnant Women andChildren. Beginning in 1984, Congress gradually extendedMedicaid coverage to groups of pregnant women and children who are defined interms of family income and resources, rather than in terms of their ties to cashwelfare programs. Mandatory. States must cover pregnant women and children under age 6 with family incomes below 133% of the federal poverty incomeguidelines. (The state may impose a resource standard that is no more restrictive thanthat for SSI, in the case of pregnant women, or AFDC as of July 16, 1996, in the caseof children.) Coverage for pregnant women is limited to services related to thepregnancy or complications of the pregnancy through 60 days postpartum. Childrenreceive full Medicaid coverage. States are also required to cover all children under age 19 who were born after September 30, 1983, and whose family income is below 100% of the federal povertylevel. Optional. States may cover pregnant women and infants under age 1 with family incomes up to 185% of the federal poverty level (FPL). Inaddition, through other provisions of Medicaid law, states are permitted to coveradditional pregnant women and children with incomes above applicable federalmandatory minimum levels. Such key provisions include waivers of eligibility rules(through Section 1115), use of more liberal methods for calculating income andresources for some categories of eligibles (through Section 1902(r)(2)), as well asthrough Medicaid expansions under the State Children's Health Insurance Program(SCHIP; program no. 3 in this report). For example, under SCHIP, most states nowcover at least some groups of children under age 19 in families with income at orabove 200% of the federal poverty level. Finally, states have the option of continuing Medicaid eligibility for current child beneficiaries for up to 12 months without a redetermination of eligibility. States are also allowed to extend Medicaid coverage to pregnant women and childrenunder 19 years of age on the basis of "presumptive" eligibility until formaldeterminations are completed. Aged and Disabled Persons. In general, Medicaid provides coverage to certain groups of individuals receiving (orqualifying for) cash assistance through the Supplemental Security Income (SSI)program. It also covers the Medicare cost-sharing obligations for certain individuals. In addition, Medicaid covers certain individuals needing institutional care or othertypes of long-term care services. SSI-Related Groups. The SSI program was established in 1972, replacing previous federal-state cash assistance programsfor the aged, blind, and disabled. Income and resource standards are defined infederal law. For 2003, individuals applying for SSI could not have countablemonthly income in excess of $552, and their countable resources could not exceed$2,000. Similar criteria for couples were $829 in monthly income and $3,000 inresources. However, states have the option of supplementing SSI payments (SSP)for aged persons living independently, and using the resulting higher income levelsas the applicable financial standard for determining Medicaid eligibility. Mandatory. States are generally required to cover SSI recipients under their Medicaid programs. However, states may use more restrictiveeligibility standards for Medicaid than those for SSI if they were using thosestandards on January 1, 1972 (before the implementation of SSI), as authorized underSection 209(b) of the Social Security Act. There were 11 such Section 209(b) statesin 2001. (13) States using more restrictive incomestandards must allow applicants to"spend down" -- deduct incurred medical expenses from income before determiningeligibility. For example, if an applicant has a monthly income of $600 (not includingany SSI or state supplement payment) and the state's maximum allowable income is$500, the applicant would become eligible for Medicaid after incurring $100 inmedical expenses in that month. States must continue Medicaid coverage for several defined groups of individuals who lose SSI or SSP eligibility. The "qualified severely impaired" aredisabled persons who return to work and lose SSI eligibility because of earnings, butstill have the condition that originally rendered them disabled and who meet allnondisability criteria for SSI except income. Medicaid must be continued for thesepersons if they need on-going medical assistance to continue working and theirearnings are not sufficient to provide the equivalent of SSI, Medicaid, and attendantcare benefits for which they would qualify in the absence of earnings. States mustalso continue Medicaid coverage for persons who were once eligible for both SSI andSocial Security payments and who lose SSI because of a cost-of-living adjustment(COLA) in their Social Security benefits. Similar Medicaid continuations have beenprovided for certain other persons who lose SSI as a result of eligibility for orincreases in Social Security or veterans' benefits. Finally, states must continueMedicaid for certain SSI-related groups who received benefits in 1973, including"essential persons" (persons who care for a disabled individual). Optional. States are permitted to provide Medicaid to individuals who are not receiving SSI but are receiving state-only supplementary cashpayments. Effective in August of 1997, under provisions of the Balanced Budget Actof 1997 (BBA 97), states may make Medicaid available to disabled SSI beneficiarieswith incomes up to 250% of the FPL. These individuals may "buy into" Medicaidby paying a premium based on income as determined by the state. The 1999 Ticketto Work legislation ( P.L. 106-170 ) further allows states to cover employed, disabledpersons at higher income and resource levels (i.e., income over 250% of the FPL andresources exceeding $2,000 for an individual or $3,000 for a couple). States mayalso cover financially eligible working individuals whose medical condition hasimproved such that they no longer meet the SSI definition of disability. Suchindividuals may have to buy into Medicaid by paying premiums or other cost-sharingcharges on a sliding fee scale based on income, as established by the state. Finally,states have the option of extending Medicaid to certain additional elderly or disabledpersons. These include individuals eligible for SSI but not receiving it, and elderlyand disabled persons whose income does not exceed 100% of the FPL and whoseresources do not exceed the SSI standard. Qualified Medicare Beneficiaries and Related Groups. Certain low-income individuals who are aged orhave disabilities as defined under SSI and who are eligible for Medicare are alsoeligible to have some of their Medicare cost-sharing expenses paid for by Medicaid. There are four categories of such persons: Qualified Medicare Beneficiaries (QMB) . Qualified Medicare beneficiaries are aged or disabled Medicare beneficiaries with incomes no greaterthan 100% of the FPL and assets no greater than $4,000 for an individual and $6,000for a couple. States are required to cover, under their Medicaid programs, the costsof Medicare premiums, deductibles, and coinsurance for Medicare covered benefitsfor such persons. Other Medicaid covered services, such as nursing facility care,prescription drugs and primary and acute care services, are not covered for theseindividuals unless they qualify for Medicaid through other eligibility pathways (e.g.,via SSI, medically needy, or the special income rule for institutionalized personsdescribed below). Specified Low-Income Medicare Beneficiaries (SLMB) . Specified low-income Medicare beneficiaries meet QMB criteria, except that theirincome is greater than 100% of the FPL but does not exceed 120% of the FPL. Under this Medicaid pathway, states are required to cover only the monthly MedicarePart B premium. Other Medicaid services are not covered for these individualsunless they qualify for Medicaid through other eligibilitypathways. Qualifying Individuals (QI-1) . The QI-1 eligibility pathway (14) applies to aged and disabled Medicare beneficiaries whose income is between 120%and 135% of the FPL. For these individuals, states are required to pay the monthlyMedicare Part B premium, only until the federal allotment for this purpose isdepleted. (15) These individuals are not otherwiseeligible forMedicaid. Qualified Disabled and Working Individuals (QDWIs) . Statesare required to pay the Medicare Part A premiums for persons who were previouslyentitled to Medicare on the basis of a disability, who lost their entitlement based onearnings from work, but who continue to have a disabling condition. Such personsmay only qualify if their incomes are below 200% of the FPL, their resources arebelow 200% of the SSI limit ($4,000), and they are not otherwise eligible forMedicaid. Persons Receiving Institutional or Other Long-Term Care and Related Groups (all optional). States may provide Medicaidto certain otherwise ineligible groups of persons who are in nursing facilities (NFs)or other institutions, or who would require institutional care if they were notreceiving alternative services at home or in the community. States may establish a special income standard for institutionalized persons, not to exceed 300% of the maximum SSI benefit that would be payable to a person livingat home and with no other resources ($1,656 per month in 2003). In states withouta medically needy program (described below), this "300% rule" is an alternative wayof providing NF coverage to persons with incomes above SSI or State SupplementaryPayment (SSP) levels. (16) Both the medically needy and those becoming eligible under the "300% rule" must contribute their available income to the costs of their care. Medicaid hasdistinct post-eligibility rules to determine how much of a beneficiary's income mustbe applied to the cost of care before Medicaid makes its payment. Special rules existfor the treatment of income and resources of married couples when one of thespouses requires nursing home care and the other remains in the community. Theserules are referred to as the "spousal impoverishment" protections of Medicaid law,because they are intended to prevent the impoverishment of the spouse remaining inthe community. A state may obtain a waiver under Section 1915(c) of the Act to provide home and community-based services to a defined group of individuals who wouldotherwise require institutional care. The waiver coverage may include persons whowould be eligible under the "300%" rule if they were in an institution, or thoseeligible through a medically needy program. A state may also provide Medicaid to several other classes of persons who need the level of care provided by an institution and would be eligible if they were in aninstitution. These include children who are being cared for at home, persons of anyage who are ventilator-dependent, and persons receiving hospice benefits in lieu ofother covered services. States electing these options must cover all persons who arein the class and living in the state. The Medically Needy. In 2002, 35 states and the District of Columbia provided Medicaid to at least some groups of"medically needy" persons. These are persons who meet the nonfinancial standardsfor inclusion in one of the groups covered by Medicaid, but who do not meet theincome or resource requirements for such coverage. Under medically needyprograms, individuals can spend down to the medically needy standard set by thestate by incurring medical expenses, in the same way that SSI recipients in Section209(b) states may spend down to Medicaid eligibility. Under medically needy programs, states may set income standards at any level up to 133 and 1/3% of the standard used for the most closely related cash assistanceprogram. For families with children, the maximum applicable medically needyincome standard would be up to one-third more than that which was in effect for asimilar family under the state's former AFDC program. For individuals who havea disability or are elderly, it would be up to one-third more than the SSI incomestandard. States may limit the groups of individuals who receive medically needycoverage. If the state provides any medically needy coverage, however, it mustinclude all children under 18 who would qualify under one of the welfare-relatedgroups, and all pregnant women who would qualify under either a mandatory oroptional group, if their income or resources were lower. Individuals Qualifying Under Demonstration Waivers. Demonstration waivers available under the authority ofSection 1115 (of the Social Security Act) enable states to experiment with newapproaches for providing health care coverage that promote the objectives of theMedicaid program. Section 1115 allows the Secretary of HHS to waive a number ofMedicaid rules -- including many of the federal rules relating to Medicaid eligibility. The Health Insurance Flexibility and Accountability (HIFA) Initiative, introduced bythe Bush Administration in 2001, is an explicit effort to encourage states to seekSection 1115 waivers to extend Medicaid and SCHIP to the uninsured, with aparticular emphasis on statewide approaches that maximize private health insurancecoverage options and target populations with incomes below 200% of the FPL. Some states have used such waivers to enact broad-based and sometimes statewidehealth reforms although demonstrations under Section 1115 need not be statewide. Some states have extended comprehensive health insurance coverage to low-incomechildren and families who would not otherwise be eligible for Medicaid. Aliens. Legal immigrants arriving in the United States after August 22, 1996 are ineligible for Medicaid for their first5 years in this country. Coverage of these persons after the 5-year ban is a stateoption. States are required to provide Medicaid to legal immigrants who resided inthe country and were receiving benefits on August 22, 1996 (and who continue tomeet the criteria) and to those residing in the country as of that date who becomedisabled in the future. States are also required to provide coverage to: (1) refugees for the first 7 years after entry into the United States, (2) asylees for the first 7 years after asylum isgranted, (3) individuals whose deportation is being withheld by the Immigration andNaturalization Service (INS) for the first 7 years after grant of deportationwithholding, (4) lawful permanent aliens after they have been credited with 40quarters of coverage under Social Security, and (5) lawful permanent aliens who arehonorably discharged U.S. military veterans or active duty military personnel, andtheir spouses and unmarried dependent children who otherwise meet the state'sfinancial eligibility criteria. States are required to provide emergency Medicaid services to all legal and undocumented non-citizens who meet the financial and categorical eligibilityrequirements for Medicaid. Medicaid Purchase of COBRA Coverage. COBRA (17) provides thatemployees or dependents wholeave an employee health insurance group in a firm with 20 or more employees mustbe offered an opportunity to continue buying insurance through the group for 18 to36 months (depending on the reason for leaving the group). The employer maycharge a premium of no more than 102% of the average plan cost (150% for months19 to 29 for certain disabled persons). Under OBRA 90, state Medicaid programsmay pay the premiums for COBRA continuation coverage when it is cost-effectiveto do so, and the individual otherwise meets the state's eligibility requirements. States are required to offer the following services to most groups of recipients: inpatient and outpatient hospital services; rural health clinic services; laboratory andX-ray services; nursing facility services for those over age 21; home health servicesfor those over age 21 and to those under 21 if entitled to nursing facility care; theearly and periodic screening, diagnostic and treatment program (EPSDT) for thoseunder age 21; family planning services and supplies; federally qualified health centerservices; nurse-midwife, certified family and pediatric nurse-practitioner services;and physicians' services and medical and surgical dental services furnished by adentist. States must also assure transportation of any Medicaid-eligible individualto and from providers of medical care. Federal law includes two basic coverage requirements for the medically needy. First, if a state provides medically needy coverage to any group, it must provideambulatory services to children under 18 and individuals entitled to institutionalservices, prenatal and delivery services for pregnant women (as well as 60 days ofpostpartum care for those eligible for and receiving pregnancy-related services), andhome health services to individuals entitled to nursing facility services. Second, ifthe state provides medically needy coverage for persons in institutions for mentaldiseases or intermediate care facilities for the mentally retarded (ICFs/MR), it mustoffer to all groups covered in its medically needy program all of the mandatoryservices required for the categorically needy (except services provided by pediatricand family nurse practitioners), or alternatively, any of seven categories of care andservices listed in Medicaid law defining covered benefits. Finally, states may also choose to provide one or more optional services to categorically and medically needy beneficiaries. These additional services include,for example, prescription drugs, eyeglasses, other dental services, physical therapy,and inpatient psychiatric care for individuals under age 21 or over 65. States may limit the amount, duration and/or scope of care provided under any mandatory or optional service category (such as limiting the number of days ofcovered hospital care or number of physical therapy visits). Federal law permitsstates to impose nominal cost-sharing charges on some Medicaid beneficiaries andfor some services. In FY2000, the most recent year for which enrollment data are available, 44.3 million persons were covered by Medicaid. The aged, blind and disabled represented25% of Medicaid enrollment but accounted for 70% of program spending. Non-disabled children and adults, in contrast, comprised 67% of enrollment but only26% of spending. Between FY2000 and FY2002, total federal and state Medicaidspending increased by about 25% from $206.1 billion to $258.2 billion. In FY2002,Medicaid outlays from federal funds totaled $146.2 billion. Total FY2003 Medicaidexpenditures are expected to reach roughly $278 billion, with federal outlaysestimated at $158 billion. Note: For more information, see CRS Report RS20245, Medicaid: A Fact Sheet , CRS Report RS21071 , Medicaid Expenditures, FY2000 and FY2001 , and 2003 Green Book, Section 15: Other Programs , U.S. House of Representatives,Committee on Ways and Means (forthcoming). Medical care from the Department of Veterans Affairs (VA) is funded by the federal government. VA medical services are defined as discretionary in the federalbudget. Appropriations requests are guided by estimates of the expected caseload,and for FY2003, Congress provided $23.9 billion, for an expected caseload of nearly4.9 million "unique" patients. VA is also authorized to use proceeds of the MedicalCare Collections Fund (MCCF) (18) for medical care,an amount estimated to be $1.836billion in FY2003. In addition to care provided in VA facilities and under contract, the VA provides per diem payments to states for care of eligible veterans in state facilities. The VAalso provides for medical care to certain spouses and children of certainservice-connected disabled and other veterans under the Civilian Health and MedicalProgram (CHAMPVA). The amount of FY2002 appropriations used to provide freecare to veterans who qualified because of having low income and/or low assets isestimated at $8.1 billion. (19) Unlike other medical benefit entitlements such as Medicare or Medicaid, eligibility for medical benefits from VA conveys varying degrees of rights. Inprinciple, all veterans are eligible to receive services from VA medical facilities,although the potential total amount of services available to all veterans is contingenton appropriations. Veterans with high-priority rights under VA law are generallyassured a full array of services, and those with lower-priority are provided servicesif space and resources are available. Highest priority for the full range of medicalservices is granted to veterans with severe, service-connected disabilities. Otherveterans have varying degrees of access for the different types of medical services,with distinctions based on the severity of the condition, whether or not it isservice-connected, level of income, and type of medical service provided. In practice, there is no evidence that any veterans were denied services at any VA facility in FY2002, and no denials are expected during FY2003 (except fornursing home care, which is provided only on a space-available basis, regardless ofpriority status). As a general rule, no veteran is denied medical services uponpresenting a health complaint to qualified personnel at a VA medical facility. Foradministrative purposes, and to best manage the medical needs of individual patients,veterans are encouraged to enroll in regional VA health care plans (enrollment forveterans who do not have a service-connection, whose enrollments are above thethreshold for means-tested services, or who are not already enrolled has beentemporarily halted). There are 23 of these Veterans Integrated Service Networks(VISNs) nationwide. The largest category of veterans provided free medical care by VA consists of persons who qualify for that care because their assets and income are below certainannually adjusted standards (in 2003: single person, $24,644; with one dependent,$29,576; for each additional dependent, $1,586), with possible additional adjustmentsfor regional differences in medical costs. VA estimates that out of 25 millionveterans, about 7 million would qualify for free care because they meet thelow-income standards. Veterans whose incomes in the previous calendar year wereno higher than the pension of a veteran in need of regular aid and attendance (in2003: single person, $16,169; with one dependent, $19,167; for each additionaldependent, $1,653) are also eligible for free medications; others pay copayments of$7 monthly for prescriptions filled in VA pharmacies, up to a maximum of $840 peryear. A veteran applying for care under the low-income eligibility test is advised thatreported income is subject to verification by matching the amount shown on theapplication with income reported to the Internal Revenue Service (IRS). Onceeligible under the income rules, a veteran remains eligible until determined upon(annual) reevaluation to no longer meet the income standard. VA has estimated thatabout 38% of the applications for medical services are from veterans entitled to freecare because of meeting the income standards. (21) Benefits in VA facilities include inpatient hospital care, nursing home care, domiciliary care, and outpatient care. The VA contracts with other facilities toprovide care to veterans in areas where VA medical facilities are unavailable. VAis the largest provider of inpatient psychiatric services, specializes in treatments forspinal injuries and prosthetics, and conducts or sponsors research in numerousmedical fields, with special emphasis on conditions traceable to a period of militaryservice. The VA offers medical care to the nation's 25 million veterans, although arelatively few (about 15%) of those eligible avail themselves of the services. InFY2002, the VA provided care for 4.7 million persons, through 732 thousandinpatient episodes and 47 million outpatient visits. During FY2003, the Veterans Health Administration (VHA) operated 172 hospitals, 137 nursing homes, 843 outpatient clinics, 43 domiciliaries, and anextensive pharmaceutical supply apparatus. Veterans' medical care appropriationswere $21.3 billion in FY2002, $23.5 billion in FY2003 and are projected to reach$24.8 billion in FY2004. The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33 ) established the State Children's Health Insurance Program (SCHIP) under Title XXI of the Social SecurityAct. (22) The program offers federal matching fundsfor states and territories to providehealth insurance to targeted low-income children. In the original law, Congressappropriated $39.7 billion in SCHIP federal matching grants for 10 years, FY1998through FY2007. (23) For each year from FY1998through FY2001, total federalfunding available to states and territories was approximately $4.3 billion. For eachof FY2002, FY2003, and FY2004, federal funding equals $3.2 billion. Statematching funds for FY2002 are estimated at $1.6 billion. Allotment of funds among the states is determined by a formula set in law. This formula is based on a combination of the number of low-income children andlow-income, uninsured children in the state, and includes a cost factor that representsaverage health service industry wages in the state compared to the national average. All states have submitted SCHIP program plans to the Centers for Medicare andMedicaid Services (CMS) (formerly known as the Health Care FinancingAdministration). States have 3 fiscal years in which to draw down a given year'sfunding. Under SCHIP law as enacted in 1997, allotments not spent by the end ofthe applicable 3-year period will be redistributed -- by a method to be determinedby the Secretary of Health and Human Services (HHS) -- to states that have fullyspent their original allotments for that year. Redistributed funds not spent by the endof the fiscal year in which they are reallocated will officially expire. (24) Like Medicaid, SCHIP is a federal-state matching program. For each dollar of state spending, the federal government makes a matching payment, up to the state'sallotment. The state's share of program spending is equal to 100% minus theenhanced federal medical assistance percentage (the enhanced FMAP). Theenhanced FMAP is equal to the state's Medicaid FMAP (for the regular FMAPformula, see program no. 1 of this report), increased by the number of percentagepoints that is equal to 30% multiplied by the number of percentage points by whichthe FMAP is less than 100%. (25) There is a limit on spending for SCHIP administrative expenses, which include activities such as data collection and reporting, as well as outreach and education. For federal matching purposes, a 10% cap applies to state administrative expenses. It is imposed on the dollar amount that the state actually draws down from itsallotment to cover benefits under SCHIP, as opposed to 10% of its total allotment fora given year. Each state defines the group of targeted low-income children who may enroll in SCHIP. The law allows states to use these factors in determining eligibility:geography, age, income and resources, residency, disability status, access to otherhealth insurance and duration of eligibility for SCHIP. In general, funds cannot beused for children who are eligible for the state's Medicaid program or for childrencovered by a group health plan or other insurance. Under SCHIP states may cover children in families with incomes that are either: (1) above the state's applicable Medicaid eligibility standard under the rules in effectin the state on March 31, 1997, but less than 200% of the federal poverty guideline, (27) or (2) in states with Medicaid income levels for children already at or above 200%of the poverty line, within 50 percentage points over the state's Medicaid incomeeligibility limit for children. Many states cover at least some groups of children infamilies with income at or above 200% FPL. In addition, several states have sought approval for special waivers of SCHIP rules to use SCHIP funds to cover new groups, including some categories of adults. Under Section 1115 of the Social Security Act, the Secretary of HHS has broadstatutory authority to conduct research and demonstration projects under sixprograms, including Medicaid and SCHIP. Using waiver authority, the HealthInsurance Flexibility and Accountability (HIFA) Initiative, announced by the BushAdministration in August 2001, encourages states to develop statewide projects thatcoordinate Medicaid and SCHIP with private health insurance coverage and targetsuninsured individuals with income below 200% of the federal poverty level, just asSCHIP does. Later, the Administration indicated that unspent SCHIP funds couldbe used to finance the HIFA initiative. (28) As ofJune 12, 2003, CMS approved 14SCHIP 1115 waivers (6 others were in review). Seven of the 14 approved waiversare SCHIP HIFA demonstrations. (29) Several ofthe approvals allow states to useSCHIP funds to cover new groups of individuals such as pregnant women, parentsof SCHIP and Medicaid-eligible children, and childless adults. States may choose from three options when designing their SCHIP programs. They may expand their existing Medicaid program, (30) create a new "separate state"insurance program, or devise a combination of both approaches. As of July 8, 2003,20 jurisdictions implemented Medicaid expansions (ME), 19 created separate stateprograms (SSP), and the remaining 17 developed a combination approach(COMBO). (31) States that choose to cover targeted low-income children under Medicaid must provide the full range of mandatory Medicaid benefits, as well as all optional servicesspecified in their state Medicaid plans. In creating a new separate state insuranceprogram, states may choose any of three benefit options: (1) a benchmark benefitpackage, (2) benchmark equivalent coverage, or (3) any other health benefits planthat the Secretary determines will provide appropriate coverage to the targetedpopulation of uninsured children. A benchmark benefit package is one of the following three plans: (1) the standard Blue Cross/Blue Shield preferred provider option plan offered under theFederal Employees Health Benefits Program (FEHBP), (2) the health coverage thatis offered and generally available to state employees in the state involved, or (3) thehealth coverage that is offered by an HMO with the largest commercial(non-Medicaid) enrollment in the state involved. Benchmark equivalent coverage is defined as a package of benefits that has the same actuarial value as one of the benchmark benefit packages. A state choosing toprovide benchmark equivalent coverage must cover each of the benefits in the "basicbenefits category." The benefits in the basic benefits category are inpatient andoutpatient hospital services, physicians' surgical and medical services, lab and x-rayservices, and well-baby and well-child care, including age-appropriateimmunizations. Benchmark equivalent coverage must also include at least 75% ofthe actuarial value of coverage under the benchmark plan for each of the benefits inthe "additional service category." These additional services include prescriptiondrugs, mental health services, vision services, and hearing services. States areencouraged to cover other categories of services not listed above. Abortions may notbe covered, except in the case of a pregnancy resulting from rape or incest, or whenan abortion is necessary to save the mother's life. Title XXI gives states authority to determine the amount, duration and scope of the services covered unless the state chooses to provide a benchmark plan. Benchmark equivalent plans may limit their benefit packages in any way they chooseas long as the entire package is certified to be an actuarial equivalent of thebenchmark plan. While federal law permits states to impose cost-sharing for some beneficiaries and services, cost-sharing is not permitted for well-baby or well-child care services,and American Indian and Alaskan Native children are exempt from all cost sharing.Apart from these general exceptions, states that choose to cover targeted low-incomechildren under Medicaid must follow the cost-sharing rules of the Medicaid program. Generally, Medicaid does not allow cost sharing for medical services (e.g.,deductibles, co-payments, and co-insurance), and cost sharing associated withprogram participation (e.g., enrollment fees, and premiums) is limited to nominalamounts. If the state implements SCHIP through a separate state program, premiumsor enrollment fees may be imposed, but they are subject to limits. Under separate state programs, for families with incomes under 150% of the federal poverty line, income-related charges (i.e., enrollment fees, premiums, orsimilar charges tied to the total gross family income) may not exceed the amounts setforth in federal Medicaid regulations. (32) Forchildren whose family income is at orbelow 100% FPL, service-related cost-sharing is limited to nominal amounts asdefined in Medicaid regulations. (33) For childrenwhose family income is between101% and 150% FPL, service-related cost-sharing must meet "adjusted nominalamounts." (34) These adjusted amounts reflect theenrollees' increased ability to pay. Cumulative cost-sharing maximums for each 12-month enrollment period must notexceed 5% of the family's annual income. (35) For families with income above 150% of the federal poverty line, service-related cost sharing may be imposed in any amount, provided cost-sharing for higher incomechildren is not lower than cost-sharing for lower income children. However, the totalannual aggregate cost-sharing (including premiums, deductibles, co-payments andany other charges) for all targeted low-income children in the family may not exceed5% of total family income for the year. Regardless of the family's cumulativecost-sharing maximum, states must: (1) inform families of these limits; (2) providea mechanism for families to stop paying once the cost-sharing limits have beenreached; and (3) provide reasonable notice of any missed payments prior todisenrollment. Early in the program, enrollment rates were low, but by FY2002, the pace of enrollment had increased. Estimates from CMS (36) indicated that as of December1998, nearly 1 million children (982,000) were enrolled in SCHIP under 43operational state programs, and by the end of FY1999, nearly 2 million children(1,979,459) were enrolled under 53 operational state programs. (37) Preliminary datashow that total SCHIP enrollment reached 5.3 million children in FY2002. Of thistotal, 1.3 million were targeted low-income children covered under Medicaidexpansions, and 4.0 million children were covered in separate state programs. (38) Preliminary data show that total SCHIP enrollment for adults reached 349,118 inFY2002. SCHIP spending during the first 4 years of the program, (FY1998-FY2001), was well below federal appropriations, but has increased over time. (39) For FY1998,SCHIP program federal expenditures totaled $122 million; for FY1999, $922million; for FY2000, $1.93 billion, and for FY2001 federal expenditures increasedto $2.62 billion. In FY2002, federal SCHIP expenditures equaled $3.78 billion. FY2002 is the first fiscal year in which state spending of available SCHIP funds exceeded the SCHIP program appropriations for that year. This trend is likely tocontinue as additional states spend all of their available funds and are eligible forredistributions of unspent funds from earlier annual allotments. However, whilemore states will be eligible for redistributions there will be fewer funds available forredistribution to such states. In the absence of statutory changes to SCHIP financingprovisions, CMS projects shortfalls for some states over the second half of theprogram (FY2003-FY2006). In its March 2003 baseline, CBO projected that totalfederal SCHIP spending will grow to $5.0 billion in FY2007. Note : For more information about SCHIP, see CRS Report RL30473 , The State Children's Health Insurance Program (SCHIP): A Brief Overview; CRS Report RL30642, The State Children's Health Insurance Program: Eligibility, Enrollment,and Program Funding; and CRS Report RL31977, SCHIP Financing Issues for the108th Congress. No federal funds are available for this program. As of mid-1998, medical assistance for recipients of non-federally funded cash aid (generally known as General Assistance (GA)) and for other persons ineligiblefor Medicaid (41) was offered in 32 states, includingthe District of Columbia (D.C.). In 13 jurisdictions, this aid was fully state funded; (42) in seven states, costs generallywere paid by a combination of state and local funds; (43) in seven states, medicalbenefits were wholly paid with local funds. (44) Infive states, even though they werenot in categories usually eligible for federally-funded medical assistance, recipientsof GA cash received Medicaid. (45) This aid wasallowed under waivers from Medicaidlaw, and costs were paid by federal and state funds. In the remaining 19 states,ongoing medical benefits generally were not offered to persons ineligible forfederally-funded aid. (46) Estimated GA medicalpayments (state-only dollars) inFY2002 totaled $5 billion. To receive GA medical assistance, a person generally must be deemed needy and live where the program is available. In 1998, most of the 32 states offering thisaid made eligible all recipients of GA cash payments, but several specified thatpersons had to be in medical need and some imposed special medical incomeeligibility requirements. Thus, Ohio offered medical assistance to all GA recipientsand to needy able-bodied persons who would become incapacitated withoutmedication. However, some jurisdictions set more liberal eligibility rules for GAmedical and than for GA cash benefits. Using waivers from federal law, some states in mid-1998 made all GA recipients eligible for Medicaid and its comprehensive services: Delaware (for itsDiamond State Health Plan), Hawaii (for QUEST), and Oregon (for the OregonHealth Plan). D.C. and Massachusetts also offered Medicaid to all GA cashrecipients. Among the other 27 states with medical assistance for recipients of GAcash, benefits generally were less comprehensive than those of Medicaid. Fivestates (47) offered inpatient and outpatient hospitalcare, physician services, andprescription drugs; another six (48) added nursinghome care to the foregoing list ofbenefits. Some restricted GA medical benefits to physician services and prescriptiondrugs, and some offered aid only in emergencies. Maryland's programs of PrimaryCare for the Medically Indigent and Maryland Pharmacy Assistance (for GA disabledadults and others who meet medical income eligibility limits) provided only basicphysician services and a limited list of prescription drugs. The Urban Institute studynoted that most of the states and counties without a medical component in their GAprogram have alternative medical assistance available to at least some GA cashrecipients. Examples include indigent health care programs or charity hospitalsystems. Data from the Centers for Medicare and Medicaid Services (Office of the Actuary, National Health Statistics Group) indicate that state-local outlays for GAmedical assistance in FY2002 totaled $4,955.8 million, up 5% from FY2001, butdown 10.4% from the FY1992 record high of $5,531.7 million. These data excludepremiums paid by welfare agencies for Medicare and for health maintenanceorganizations (HMOs) and health insurance, which presumably are reimbursed byMedicaid. Composition of FY2002 GA medical spending: hospital care, 37.5%;prescription drugs, 43.4%; payments to medical professionals, 12.4% (physician andclinical services, 10.2%; dentists, 0.9%; and other professionals, 1.2%); nursinghomes, 3.9%; home health care, 0.5%; other care, 2%; and durable medicalequipment, 0.2%. The composition of GA medical outlays changed over the 1993-2003 decade. Spending on prescription drugs rose from $901 million to $2.2 billion; but outlaysfor hospitals dropped from $3.2 billion to $1.9 billion. The share of expendituresattributed to prescription drugs more than doubled; the hospital share dropped by40%. Indian Health Service (IHS) appropriations are allocated among its 12 service areas through a "historical," or "program continuity" basis, under which each areacan expect to receive its recurring base budget from the previous year, plus anincrease in certain mandatory cost categories. Using a Resource AllocationMethodology (RAM), the Service distributes a small portion of its appropriation toareas and tribes based on documented health deficiencies. Tribes may assume fromthe IHS the administration and operation of health services and programs in theircommunities, and about 52% of IHS funds are used by Indian tribes to deliver IHSservices to their own communities. The Service collects reimbursements from theMedicare and Medicaid programs for services that it provides to members of itseligible population who are also eligible for those programs. In FY2001, IHScollected $484 million in reimbursements, while in FY2002, this number increasedto $514 million. For FY2002, total program appropriations were $2.824 billion, up$135 million from the FY2001 appropriation of $2.689 billion. Eligible under Public Health Service regulations are persons of American Indian or Alaskan Native (AI/AN) descent who: (1) are members of a federally recognizedIndian tribe; (2) reside within an IHS Health Service Delivery Area (HSDA); or (3)are the natural minor children (18 years old or younger) of such an eligible memberand reside within an IHS HSDA. The program imposes no income test; any eligibleAI/AN can receive health services. The program serves Indians living on federalreservations, Indian communities in Oklahoma and California, and Indian, Eskimo,and Aleut communities in Alaska. According to the 2000 census, more than 57% ofAI/AN reside in urban areas. Under the Indian Health Care Improvement Act of1976, P.L. 94-437 , as amended, the IHS contracts with 34 urban Indian organizationsto make health services more accessible to 605,000 urban Indians. Combined, allIHS programs serve between 1.6 million AI/AN. The IHS provides hospital, medical, and dental care and environmental health and sanitation services as well as outpatient services and the services of mobileclinics and public health nurses, and preventive care, including immunizations andhealth examinations of special groups, such as school children. All services areprovided free of charge to beneficiaries. If the eligible AI/AN has private insurance,IHS will be reimbursed for the services provided. Benefits are provided through 155service units, 49 IHS hospitals, 5 school health centers, 231 health centers, and over309 smaller health stations and satellite clinics; Alaskan village clinics; contractswith non-federal hospitals, clinics, private physicians and dentists; and contractualarrangements with state and local health organizations. The Health Care Safety Net Amendments of 2002, P.L. 107-251 , amended the Public Health Service Act (PHS Act) to reauthorize the health centers grant programthrough FY2006. The health centers program includes community health centers,migrant health centers, health centers for the homeless, and health centers forresidents of public housing. They are codified under Section 330 of the PHS Act. The program does not have a statutory formula. The grant applicant must assumepart of the project costs, which are determined on a case-by-case basis. Centers receive grant money to provide primary care services to groups that are determined to be medically underserved. Grants are awarded through the Bureau ofPrimary Health Care of the Health Resources and Services Administration (HRSA)of the U.S. Department of Health and Human Services (HHS). Centers are requiredto seek third-party reimbursement from other sources, such as Medicare andMedicaid. State and local governments may also contribute. Centers may receiveone or more of the following types of grants: (1) planning grants, to plan anddevelop health centers or a comprehensive service delivery network; (2) operatinggrants, to assist with operation costs of a center; and (3) infant mortality grants, toassist in the reduction of infant mortality and morbidity among children less than 3years of age and to develop and coordinate service and referral arrangements betweenhealth centers and other entities for the health management of pregnant women andchildren. FY2002 appropriations were $1.3 billion. A health center is an entity that provides health care services to a medically underserved population, or a special medically underserved population comprised ofmigratory and seasonal agricultural workers, the homeless, and residents of publichousing by providing required primary health services and additional health servicesas may be appropriate for particular centers. By regulation, medically underservedareas are designated by the HHS Secretary on the basis of such factors as: (1) ratioof primary care physicians to population, (2) infant mortality rate, (3) percentage ofpopulation aged 65 and over, and (4) percentage of population with family incomebelow the poverty level. Profit-making organizations are not eligible for healthcenter grants. All residents of an area served by a health center are eligible for its services. Regulations limit free service to families with income at or below the federal poverty income guidelines. The 2003 federal poverty income guideline in the 48contiguous states is $18,400 for a family of four. Nominal fees may be collectedfrom these individuals and families, under certain circumstances. Individuals andfamilies with annual incomes greater than the poverty guideline but below 200% ofit are required to pay for services from a fee schedule adjusted on the basis of thepatient's ability to pay. Full payment is required from those with income thatexceeds twice the poverty level. The centers provide a range of primary health services on an ambulatory basis, including diagnostic, treatment, preventive, emergency, transportation, andpreventive dental services. They can arrange and pay for hospital and othersupplemental services in certain circumstances if approved by the Secretary. Funding for the health centers for FY2003 was $1.5 billion (appropriations), and the annual service population was an estimated 9.6 million persons. Note: For more information, see CRS Report 97-757, Federal Health Centers Program . The Maternal and Child Health (MCH) Services Block Grant supports activities to improve the health status of mothers and children. Most of the funds aredistributed to state governments to pay for services; however, some funds are setaside for use by the federal government to finance special projects of regional andnational significance (SPRANS) and the community integrated service systemsprogram (CISS). State allocations are based on: (1) a state's share of FY1981 levelsof funding for programs that were combined into the block grant when it wasauthorized in 1981; and (2) the number of low-income children in the state. Statesmust contribute $3 for every $4 of federal funds awarded. States are required to useat least 30% of their block grant allocations for preventive and primary care servicesfor children and 30% for services for children with special needs. States may use theremaining 40% for services for either of these groups or for other appropriatematernal and child health services, including preventive and primary care services forpregnant women, mothers, and infants up to age 1. States may use no more than 10%of their allocations for administrative costs. Federal law requires that 15% of the appropriation for the block grant up to $600 million be set aside for SPRANS activities in categories that include research,training, genetic disease programs and newborn genetic screening, hemophiliaprograms, and maternal and child health improvement, especially infant mortality. When the appropriation for the block grant exceeds $600 million, the law authorizes that 12.75% of the amount over $600 million be set aside for CISSprojects. Funds from this set-aside are used for initiatives that include casemanagement, projects to increase the participation of obstetricians and pediatriciansin both the block grant program and Medicaid, integrated delivery systems, rural orhospital-based MCH projects, and community-based programs including day care forchildren who usually receive services on an inpatient basis. FY2002 appropriationswere $731 million, and non-federal matching funds were estimated at $548 million.(The FY2003 appropriation declined to $730 million.) States determine eligibility criteria for MCH block grant services. The law provides that block grant funds are to be used by the states "to provide and to assuremothers and children (in particular those with low income or with limited availabilityof health services) access to quality maternal and child health services." Low-incomemothers and children are those with family income below 100% of federal povertyguidelines -- $18,400 per year for a family of four in 2003 (higher in Alaska andHawaii). States determine the level of services provided under the block grant. These services may include prenatal care, well-child care, dental care, immunization, familyplanning, and vision and hearing screening services. They may also include inpatientservices for children with special health care needs, screening services for lead-basedpoisoning, and counseling services for parents of sudden infant death syndromevictims. States are allowed to charge for services; however, they may not charge mothers and children whose family incomes are below federal poverty guidelines. Chargesmust be based on a sliding scale that reflects the income, resources, and family sizefor those with family incomes above poverty. In FY2002 Title V provided services to 2.2 million pregnant women, 3.7 million infants, almost 1 million children with special health care needs, and 2.2million other women of child-bearing age. Note: For more information, see CRS Report 97-350, Maternal and Child Health Block Grant . Grants are provided for voluntary family planning services through the family planning program, established by Title X of the Public Health Service Act. There isno requirement that grantees match federal funds at a specified rate, but regulationsspecify that no family planning clinic project may be fully supported by Title Xfunds. Congress has continued to appropriate money for the program even thoughTitle X has not been reauthorized since FY1985. Grants for family planning clinicsare made to states and territorial health departments, hospitals, universities and otherpublic and nonprofit agencies. Appropriations for FY2003 were $273 million. The law requires that priority for clinic services go to persons from low-income families. Clinics must provide family planning services to all persons who requestthem, but the priority target group has been women aged 15-44 from low-incomefamilies who are at risk of unplanned pregnancy. Clinics are required to encouragefamily participation. Clinics must provide services free of charge (except to the extent that Medicaid or other health insurers cover these services) to persons whose incomes do notexceed 100% of the federal poverty income guidelines ($18,400 for a family of fourin the 48 contiguous states in 2003). A sliding payment scale must be offered forthose whose incomes are between 100% and 250% of the poverty guideline. Participating clinics must offer a broad range of family planning methods and services. Required services include natural family planning methods and supplies,counseling services, physical examinations (including testing for cancer and sexuallytransmitted diseases), infertility services, services for adolescents, pregnancy tests,periodic follow-up examinations, referral to and from other social and medicalservice agencies, and ancillary services. The law forbids use of any Title X funds inprograms where abortion is a method of family planning. In FY2002, approximately 4.8 million persons received family planning services through 4,600 clinic sites supported by 85 service grantees. The clinics administeredmore than 3 million cervical cancer screenings, 2.8 million breast cancer screenings,and 600,000 HIV tests. An estimated one-third of all clients served at Title X clinics,1.6 million per year, are adolescents. Note: For more information, see CRS Report 98-1048, The Title X Family Planning Program. The Immigration and Nationality Act (INA) authorizes 100% federally funded medical assistance for needy refugees and asylees during their first 3 years in theUnited States, and other legislation authorizes similar assistance for certain Cubanand Haitian entrants (54) and for certainAmerasians. (55) However, since FY1992,funding has been appropriated to provide medical care only for the first 8 monthsafter entry. These benefits are administered by the Department of Health and HumanService's Office of Refugee Resettlement (ORR). For refugee medical assistance(RMA), ORR expenditures amounted to an estimated $74 million in FY2002. (56) A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant,"or be a Cuban or Haitian national paroled into the United States after October 10,1980, (c) be a person who has an application for asylum pending or is subject toexclusion or deportation and against whom a final order of deportation has not beenissued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. If a needy person in one of the above groups meets the income and assets tests prescribed by his state for Medicaid eligibility but does not otherwise qualify for thatprogram because of its categorical requirements, such as family composition, theperson is eligible for RMA. Under the Personal Responsibility and WorkOpportunity Reconciliation Act of 1996 ( P.L. 104-193 ), as amended by P.L. 105-33 ,these persons are now eligible for 7 years after entry (earlier law gave permanenteligibility). After 7 years their continued participation is at state option, as it is withother legal permanent residents. (58) Medical benefits consist of payments made on behalf of needy refugees to doctors, hospitals, and pharmacists. Federal law requires state Medicaid programsto offer certain basic services, but authorizes states to determine the scope of servicesand reimbursement rates, except for hospital care. Since its January 1974 beginning, Supplemental Security Income (SSI) has provided a minimum income floor, financed by U.S. general revenue andadministered by the Social Security Administration (SSA), to persons eligible underfederal rules. Some states chose to provide additional payments to SSI recipients attheir own expense. In addition, a "grandfather" clause requires states to providesupplements to a small number of persons, previously enrolled in the pre-SSIprograms of federal-state cash aid for needy aged persons and blind or disabledadults, whose income otherwise would fall below what it was in December 1973. (59) If a state chooses to have the federal government administer its supplements, it must agree to provide supplements for all federal SSI recipients of the same class andpay an administration fee to SSA for the service. (60) If states administer their ownsupplements, they are generally free to design their own supplementary programs andmay adopt more restrictive eligibility rules than those of SSI. As of January 2003,the federal government administered supplements for 15 jurisdictions. Total SSI outlays in FY2002 were $38.5 billion, with $33.9 billion (87% of the total) from federal funds. The federal share of maximum SSI benefits ranged from50% in Alaska to 100% in the seven jurisdictions where no recipient received asupplement (Arkansas, Georgia, Kansas, Mississippi, Tennessee, West Virginia, andthe Northern Mariana Islands). Title XVI of the Social Security Act entitles to SSI payments persons who are (1) aged 65 and over, blind or disabled (adults and children of any age); (2) whosecounted income and resources fall within limits set by law and regulations, and (3)who live in one of the 50 states, the District of Columbia, or the Northern MarianaIslands. Also eligible is a child who lives overseas with a parent who is on militaryassignment, provided the child received SSI before the parent reported for overseasduty. To be eligible for SSI on grounds of disability, an adult must be unable to engage in any "substantial gainful activity" (62) because of a medically determinedphysical or mental impairment expected to result in death or that has lasted, or canbe expected to last, for at least 12 months. Under terms of the 1996 welfare reformlaw ( P.L. 104-193 ) a child under age 18 may qualify as disabled if he or she has animpairment that results in "marked and severe" functional limitations. Previously achild could qualify if his impairment were of "comparable severity" to that of aneligible adult. In addition, to qualify for SSI a person must be (1) a citizen of the United States or (2) if not a citizen, (a) an immigrant who was enrolled in SSI on August 22, 1996or who entered the United States by that date and subsequently became disabled; (b)a refugee or asylee who has been in the country or granted asylum, respectively, forfewer than 7 years, (c) a person who has worked long enough to be insured for SocialSecurity, usually 10 years (work test gives credit to work by spouse or parent of analien child); or (d) a veteran or active duty member of the armed forces (spouses orunmarried dependent children of veterans/military personnel also qualify). For basic federal benefits, countable income limits in 2003 are $582 monthly per individual and $829 per couple. These income ceilings equal maximum federalbenefits of the program (see below for benefit details and for rules about whatincome is disregarded). For states with supplementary SSI benefits, countableincome limits are higher, ranging in 2002 up to $907 monthly per individual (livingindependently) in Alaska. Since 1989, the countable resource limit has been $2,000 per individual and $3,000 per couple. Excluded assets include a home; the first $2,000 in equity valueof household goods and personal effects; the full value of an auto if needed foremployment or medical treatment, or if modified for use by a handicapped person,otherwise, the first $4,500 in market value of the auto; and a life insurance policy notexceeding $1,500 in cash surrender value and burial plots and funds, subject to alimit. P.L. 98-21 requires the Social Security Administration (SSA), when notifying Social Security beneficiaries aged 64 about their approaching eligibility for Medicare,to inform them also about SSI. The Social Security Act establishes benefit levels and requires that whenever Social Security benefits are increased because of an automatic cost-of-livingadjustment (COLA), SSI benefits be increased at the same time and by the samepercentage. SSI basic monthly guarantees: (63) From 1975 through 1982, COLAs were paid each July. In passing the Social Security Amendments of 1983, Congress accepted President Reagan's proposal todelay the 1983 COLA for 6 months, to January 1984, and thereafter to adjust benefitseach January. At the same time it voted an increase of $20 monthly in SSI benefits($30 per couple), payable in July 1983. States that supplement SSI benefits are required to "pass through" to recipients an increase in the federal basic benefit. (64) However, when Congress deferred the 1983COLA and instead enacted the $20 benefit increase (about 7%), it required states topass through only about half this amount (the 3.5% increase that the regular COLAwould have yielded). As of January 2002, state supplements for aged persons livingindependently were offered in 25 states and ranged from $1.70 in Oregon to $362 inAlaska. To assure some gain from work, SSI disregards a portion of recipients' earnings; namely, $65 per month, plus 50% of the balance. (65) Because of this rule, aged SSIrecipients without Social Security benefits or other unearned income who workremain eligible for a declining SSI payment until gross earnings equal double theirbasic benefit plus $85 monthly. (66) In a state thatdoes not supplement the basic federalbenefit, the gross income limit in 2003 for an aged SSI recipient with only wageincome is $1,189 monthly in earnings. The gross income limit is higher in states thatsupplement the federal benefit. In all but 11 states, (67) SSI recipients automatically are eligible for Medicaid. Inthe 11 states with more restrictive eligibility rules, states must deduct medicalexpenses of SSI recipients in determining their countable income. Disabled SSI recipients whose counted monthly earnings exceed the $800 "substantial gainful activity" test that determines disability status are eligible forspecial cash benefits (calculated as though they still had disability status), as long astheir gross earnings are below the regular SSI ceiling ($1,189 in 2003 in a statewithout supplementation). The special cash benefit preserves Medicaid eligibility forthe disabled worker. (68) In 1996 ( P.L. 104-121 ),Congress ended SSI (and SocialSecurity Disability Insurance) benefits for persons disabled because of their addictionto drugs or alcohol. In December 2002, federally administered SSI benefits went to 6,787,867 persons, (69) including 914,821 children. Benefitsaveraged $322 to aged recipients,$439 to the blind, $418 to the disabled (and $488 for children). About 36% of theNation's SSI recipients of federally administered payments also receive SocialSecurity, and 4.1% have earnings (December 2002 data). As of that date, SSI checkswere supplementary to Social Security benefits for 58% of aged SSI recipients, 34%of blind recipients, and 30% of disabled recipients. In December 2001, income wasearned by about 2% of aged recipients and by 7% and 5%, respectively, of blind anddisabled recipients. Social Security benefits of dual recipients averaged $414. Earnings of SSI recipients averaged $318 monthly. (70) FY2002 SSI expenditures totaled $38.5 billion (federal funds, $33.9 billion; state funds, $4.7 billion). Federal SSI spending represented 1.7% of all federaloutlays. Note: See also CRS Report 94-486 , Supplemental Security Income (SSI): A Fact Sheet . This benefit is 100% federally funded and is provided through the tax system. FY2002 outlays (tax year 2001) totaled $27.8 billion. (Another $4.5 billion in creditswas used to offset taxes and is not included in this report.) Unlike most tax credits, the EITC is a "refundable" credit. A person need not owe or pay any income tax to receive the EITC. However, an eligible worker mustapply for the credit by filing an income tax return at the end of the tax year. A personmay receive advance payment of the credit by filing an earned income eligibilitycertificate with his or her employer. (72) To beeligible for the EITC, married couplesgenerally must file a joint income tax return. The EITC is a percentage of theperson's earnings, based on the number of children, up to a maximum earned incomeamount. Beginning at the phase-out income level, the EITC is reduced by thephase-out percentage for every dollar of earnings (or adjusted gross income [AGI],whichever is greater) above the phase-out income level. Persons with earnings abovethe level at which the EITC is reduced to $0 are not eligible for the EITC. The Earned Income Tax Credit (EITC) is available to a parent (or parents) withearnings and a qualifying child. A qualifying child must be: (1) a son, daughter,grandson, granddaughter, stepson, stepdaughter or foster child of the tax filer; (2) beless than age 19 (24 if a full-time student); and reside with the tax filer for more thanone-half of the tax year (all year if a foster child). The tax filer does not have to meeta financial support test for the child and the child does not need to be claimed by thetax filer as a dependent to qualify for the earned income credit. The tax filer must bea U.S. citizen or resident alien and live in the United States for more than one-halfof the tax year, unless the tax filer is in the U.S. military and on duty overseas. The EITC also is available to workers ages 25 through 64 who have no eligible children and whose AGI is less than $11,060 ($12,060 for married couples) in taxyear 2002. (73) In 1995, Congress established a limit on investment income for EITC eligibility. (74) The 1996 welfare reform lawchanged filing procedures to make it lesslikely that undocumented workers could gain access to the EITC by requiring boththe tax filer and qualifying children to have social security numbers. In 1996 and1997, Congress broadened the definition of income used to phase out the EITC forfiling units above the phase-out income threshold. (75) In response to an Internal Revenue Service (IRS) study indicating a high incidence of unwarranted claims from tax filers, Congress enacted provisions againstfraud in the Taxpayer Relief Act of 1997 ( P.L. 105-34 ). A tax filer found to haveclaimed the credit fraudulently is barred from claiming the EITC for 10 years; onewho claimed the credit by reckless or intentional disregard of EITC rules is barredfor 2 years. The law also imposes a $100 penalty on paid preparers who fail to fulfill"due diligence requirements" (as specified by IRS) in filing EITC claims. The EITC was enacted in 1975 as a temporary measure to return a portion of the employment taxes paid by lower income workers with children. The EITC becamepermanent in 1978, with a maximum benefit of $500 and no adjustment for familysize. In the 1990s, Congress increased the credit, provided expansion of the creditbased on family size and extended the credit to childless workers. The Economic Growth and Tax Relief Reconciliation Act of 2001 ( P.L. 107-16 ), contained changes to the EITC with respect to married tax filers filingjointly. The law increased the beginning and ending of the EITC phase-out range formarried couples filing jointly by $1,000 in taxable years beginning in 2002-2004; by$2,000 in taxable years 2005-2007; and by $3,000 in years after 2007 (adjustedannually for inflation after 2008). The law also simplified the definition andcalculation of the credit: tax filers no longer must include nontaxable income fromemployment (for example, excludable dependent care or education assistancebenefits) and may use adjusted gross income (AGI - a prominent line on all taxreturns) rather than modified adjusted gross income (which required a number ofadditions and subtractions to AGI). EITC Treatment by Other Means TestedPrograms. Before 1996, the federal rules for treatment of theEITC in determining eligibility for means-tested programs varied by program andchanged several times. The Omnibus Reconciliation Act of 1990 (OBRA 1990, P.L.101-508 ) provided that EITC payments were not to be counted as income by the Aidto Families with Dependent Children (AFDC), Supplemental Security Income (SSI),Medicaid, Food Stamps, and certain low-income housing programs. The 1996welfare reform law ( P.L. 104-193 ), by repealing AFDC, ended federal rules for thetreatment of the EITC by the family welfare program; thus, states now may treat theEITC in any way they wish in their Temporary Assistance to Needy Families (TANF)programs. However, P.L. 105-34 disallowed TANF recipients engaged in workexperience or community service ("workfare") the EITC for TANF earnings to theextent the payments are subsidized. EITC Benefit Levels. The followingtable shows the parameters for the EITC for tax years 2001 through 2003. Table 12. EITC Parameters for Tax Years 2001-2003 Note: For more information about EITC, see CRS Report RL31768(pdf) , The Earned Income Tax Credit (EITC): An Overview . Note: This entry describes use of TANF block grant funds for cash aid. Federal plusstate expenditures in FY2002 for TANF cash aid (76) were estimated at $10.4 billion(excluding administrative costs). For TANF child care, TANF work programs andactivities, and TANF services, see separate entries in this report. Federal Funding. The 1996 welfare reform law ( P.L. 104-193 ) repealed Aid to Families with Dependent Children(AFDC), Emergency Assistance (EA), and the Job Opportunities and the Basic Skills(JOBS) training program, and combined recent federal funding levels for the threeprograms into a block grant ($16.5 billion preappropriated annually through FY2002)for Temporary Assistance for Needy Families (TANF). (77) The law entitles each stateto an annual family assistance grant roughly equal to peak funding received for therepealed programs in FY1992-FY1995. It also entitles the territories to TANF grants,and it permits Indian tribes, defined to include Native Alaskan Organizations, tooperate their own tribal family assistance plans with a block grant (78) deducted fromtheir state's TANF grant. Added to the basic federal block grant for qualifying states are other funds of five kinds: supplemental grants for 17 states with low TANF grants per poor person,compared with the national average, and/or high population growth ($800 million,FY1998-FY2001); (79) bonuses for up to five stateswith the greatest decline innon-marital birth ratios and a decline in abortion rates ($400 million,FY1999-FY2002); bonuses for states with "high performance" in meeting programgoals ($1 billion, FY1999-FY2003); matching grants (at the Medicaid matching rate)from a contingency fund for states with high unemployment and/or increased foodstamp caseloads ($1.96 billion, FY1997-FY2001); and Welfare-to-Work (WtW)grants (most of which required 33.3% state matching funds) for efforts, including jobcreation, to move into jobs long-term welfare recipients with barriers to employment($3 billion for FY1998-FY1999). (80) For adescription of the separate WtW program,which is administered by the Labor Department, see program no. 78 -- page 213. TANF law also established a $1.7 billion revolving loan fund for state use in TANFoperations. State-local Funding. To avoid penalties, states must spend a specified amount of their own funds on TANF-eligiblefamilies. (81) The required "maintenance-of-effort"(MOE) level is from 75% to 80%of the state's "historic" expenditures, defined as the state share of FY1994expenditures on AFDC, EA, JOBS, and AFDC-related child care. Nationally, the75% MOE level equals $10.4 billion annually; if a state fails to meet workparticipation minimums, the MOE level rises to 80%. Expenditures of state funds inseparate state programs (or in TANF programs that segregate state funds from federalfunds) are countable toward the general TANF MOE rule. However, for thecontingency fund (82) , a higher state spendingrequirement is imposed (100% of thehistoric level), and spending in separate state programs cannot be counted toward thisMOE. In FY2002, TANF outlays for cash assistance were estimated at $10.419 billion, with $4.848 billion (47%) from federal funds. Total administrative costs forthe TANF block grant (including those for child care services, work activities, andother services) were $2.6 billion, with $1.6 billion (62%) from federal funds. Basic Eligibility. TANF permits a state to give ongoing basic cash aid (84) to anyneedy family that includes (a) a minorchild who lives with his/her parent or other caretaker relative; or (b) a pregnantwoman. As under AFDC, states decide who is "needy." Unlike AFDC, TANFallows states to aid needy children with an able-bodied and employed second parentin the home. More than 30 states have expanded eligibility by adopting one of moreof these policies: treating needy two-parent families on the same basis as one-parentfamilies, liberalizing treatment of earnings as a work incentive, and increasing assetlimits. Most states also aid pregnant women, but many require them to be in the lasttrimester of pregnancy, as AFDC did. Many state policy choices tend to restrict thecaseload. They include benefit cutoff time limits shorter than the limit in federal law,tough sanctions, welfare avoidance (diversion) payments, and family caps (reducedor zero benefits for new babies born to TANF mothers). Some of these changes,expansive and restrictive, were first adopted by states under waivers from AFDC law. Ineligible Persons. Federal law makes ineligible for TANF-funded basic ongoing cash aid unwed mothers under 18(and their children) unless they live in an adult-supervised arrangement and, if theyare high school dropouts, attend school once their youngest child is 12 weeks old. Also ineligible: persons convicted of a drug-related felony for an offense occurringafter August 22, 1996 (date of enactment of TANF) unless the state exempts itselfby state law; aliens who enter the country after August 22, 1996 (barred from TANFfor 5 years after entry) and persons who fraudulently misrepresented residence toobtain TANF, food stamps, SSI, or Medicaid in more than one state. TANF may notbe paid to a person who fails to assign child support or spousal support rights to thestate. Except for limited "hardship" exemptions, (85) federal TANF funds may not beused for basic ongoing aid to a family that includes an adult who has received 60months of TANF "assistance" (86) while an adult,a minor household head, or a minormarried to a household head (benefit cutoff time limit). Seventeen jurisdictions haveadopted time limits shorter than the federal 60-month limit, and three others reducebenefits (by deducting the parent's share of the grant) before 60 months are reached. Twenty-five jurisdictions impose the federal time limit. Four continue aid (forchildren only) beyond 60 months, funding benefits with state dollars (California,District of Columbia, Rhode Island, and Washington). Five states continue fullfamily benefits with their own funds (Maine, Maryland, Michigan, New York --generally in noncash form -- and Vermont). (87) According to HHS calculations,767,241 TANF families (out of 1,825,239 families who had accrued fewer than 5years of TANF assistance in FY2002) were exempt from the time limit: 88%because they were child-only units; 6.4% because their programs were state-funded,5% because of approved welfare waivers, and 0.5% because they were in Indiancountry. In their TANF plans, more than half of the states said they would make"diversion" payments, usually one-time payments for immediate needs, in lieu ofongoing TANF aid. Work/conduct Requirements. States must require a parent or caretaker who receives federally funded TANF basicongoing aid to engage in work, as defined by the state, after a maximum of 24months of ongoing basic aid (work trigger limit); 25 out of the 54 TANF jurisdictionswith TANF have chosen a shorter work trigger limit. Adopting a work firstphilosophy, many states require immediate work, and some identify job search as theimmediate work activity. To enforce the work requirement, the law sets fiscalpenalties for states that fail to achieve minimum participation rates. (88) For thispurpose, only specified work activities are countable. (89) Furthermore, to be countedas a participant, a TANF recipient must work for a minimum average number ofhours weekly. The work week is 20 hours for single adults with a child under 6 yearsold (almost half of all TANF adults) and 30 hours for single adults with an olderchild, effective in FY2000. A longer work week is imposed on two-parent families. States may exempt single parents caring for a child under age 1 from workrequirements (and disregard them in calculating work participation rates). Accordingto the fifth annual TANF report, 23 states exempt these parents, but 19 states requirea care-giving parent to work before the child is one, and four grant no exemptions. The law imposes several sanctions for non-compliance with TANF rules. It requires states to sanction TANF recipients for refusal to engage in required work bydiscontinuing aid or by reducing aid to the family "pro rata" with respect to theperiod of work refusal. According to state plans, the penalty for a first work violationin 19 jurisdictions is loss of 100% of benefits until compliance or after a minimumpenalty period (this count includes two states that end benefits for quitting a job). For repeat offenses, penalties are increased; ultimately, under some circumstances 38states end family benefits (seven for life). The law requires TANF recipients toassign child support and spousal support rights to the state; if a recipient does notcooperate in efforts to establish paternity or to establish or enforce a support order,the state must reduce the family's benefit by at least 25%. If a TANF family'sbenefits are reduced because of failure to perform a required action, the state may notgive the family an offsetting increase in food stamps, and it may reinforce the cashpenalty by cutting food stamp benefits by up to 25%. (90) The law also allows states toreduce the family's benefit for failure to comply with a signed individualresponsibility plan. (91) Illustrative recipientobligations include school attendance,immunization of children, attendance at parenting or money management classes, andneeded substance abuse treatment. On the other hand, states that adopt a provisionknown as the Family Violence Option (FVO) are permitted under certain conditionsto waive federal TANF rules regarding work, time limits and child supportcooperation for victims of domestic violence. In FY2002, all but 10 TANFjurisdictions had adopted the FVO. Income and Resource Limits. Under TANF, states have freedom to set income and resource limits. As of January2003, all but seven states had raised countable asset limits for cash recipients abovethe AFDC ceiling of $1,000 per family (about half doubled the limit); more than halfthe states now exclude one vehicle from countable assets; some permit restrictedsavings accounts; and one (Ohio) has eliminated asset limits altogether. Cash Assistance. States determine amounts paid to families with no countable income and whether to disregard anyearnings as a work incentive and any assets as a savings incentive, (and if so, howmuch). Almost all jurisdictions have liberalized treatment of earnings to bolsterwork (two states, Connecticut and Virginia, disregard all recipient earnings below thefederal poverty guideline). One state (West Virginia) pays a $100 monthly bonus tomarried couples. At least three states (California, Hawaii, and Massachusetts) haveestablished a lower maximum benefit schedule for persons required to work than forthose exempt from work. More than 20 states pay a reduced benefit, or zero benefit,on behalf of a new baby born to a TANF mother (family cap). A CRS telephone survey found that maximum benefits for a three-person TANF family in January 2003 ranged from $170 in Mississippi to $709 in Vermont and$923 in Alaska. In half the states, TANF maximum benefits for three persons wereunchanged from those for AFDC in July 1996, just before passage of TANF. Thismeans that their real value, after adjustment for price inflation, was down almost15.7%. However, four states increased benefits in real value (Louisiana, up 10%;Maryland, 9%; Mississippi, 22%, and West Virginia, 55%). Wisconsin has made the most drastic change. Its TANF program, known as W-2 (for Wisconsin Works) no longer bases benefits on family size; it pays flatbenefits and conditions them on hours of required activity. For those in a communityservice job (CSJ), it pays $673 monthly (about 75% of full-time monthly minimumwages) plus food stamps, for 30 hours of weekly work (plus up to 10 hours ineducation and training). For those unable to participate in a CSJ, it pays $628monthly. (92) For each missed hour, it reducesbenefits by $5.15, the minimum wagerate. The Wisconsin program also seeks to create jobs for TANF recipients byoffering employers a $300 maximum wage subsidy monthly, and it establishes childcare plans and health care plans that all low-income families may join for a fee. Related Programs. Although the 1996 law ended AFDC, it retained AFDC eligibility limits for use in Medicaid andin the programs of foster care and adoption assistance. It requires states to provideMedicaid coverage and benefits to children and family members who would beeligible for AFDC cash aid (under terms of July 16, 1996) if that program stillexisted. For this purpose, states may increase AFDC income and resource standardsby the percentage rise in the consumer price index since enactment of TANF; theyalso may adopt more liberal methods of determining income and resources. The lawrequires 12 months of medical assistance to those who lose TANF eligibility becauseof earnings that lift counted income above the July 16, 1996 AFDC eligibility limit. The law also makes foster care and adoption assistance matching funds available forchildren who would be eligible for AFDC cash aid (under terms of July 16, 1996) ifthat program still were in effect. Other Benefits. Benefits other than basic ongoing assistance are known as "nonassistance." They are not subject toTANF's time limits or work requirements, but they must promote one or more of thegoals of TANF. States define who is eligible and may set different income limits fordifferent services. See entries on TANF child care, TANF work activities, andTANF services. Note: For more detail, see CRS Report RL30695, Welfare Reform: State Programs of Temporary Assistance for Needy Families, CRS Report 96-720, TANFBlock Grant Program: Current Provisions Compared with AFDC, and Section 7 ofWays and Means Committee Print 108-6, the 2003 Green Book: TemporaryAssistance for Needy Families (TANF) , available on the Committee's web site at http://waysandmeans.house.gov/media/pdf/greenbook2003/Section7.pdf Title IV-E of the Social Security Act provides federal matching funds to states for maintenance payments for the care of certain low-income children placed inlicensed foster care homes, private child care institutions (non-profit or for-profit),or public child care institutions that house no more than 25 persons. The matchingrate for a state is that state's Medicaid matching rate (see program no. 1 -- page 29). The FY2003 federal matching rate ranged from 50% to 76.62%. For certainadministrative costs of the program and expenses related to child placement, thefederal government offers 50% matching funds. States receive 75% federal matchingfor certain training expenses. FY2002 outlays were $8.6 billion, with $4.5 billion(52%) from federal funds. For a state to be eligible to claim federal foster care payments on behalf of a child, the child's removal from the home must be the result of a judicialdetermination that reasonable efforts have been made to enable the child to remainhome and that continuation in the home would be contrary to the child's welfare. States also may claim federal payments for children placed into foster care under avoluntary placement agreement between the child welfare agency and the child'sparents, if certain judicial findings are made within 180 days of the child'splacement. In addition, a child must meet the eligibility standards of the repealedAFDC program, as it existed in his state on July 16, 1996. (95) Finally, the child mustbe placed in a licensed home or institution. States determine payments to foster parents and institutions, and children are automatically eligible for Medicaid. P.L. 96-272 requires that states make reasonableefforts to prevent the need to place children in foster care, and to reunify childrenwith their families when possible. ( P.L. 105-89 , enacted in 1997, allows certainexceptions to this requirement.) Each child in foster care must have a written caseplan, and states must hold administrative and judicial reviews of each child's caseaccording to a prescribed schedule. In FY2002, administrative costs (including training and data collection expenses) were estimated to represent 54% of total federal spending for foster care. According to the most recent data collected from states by the Child Welfare Leagueof America, maintenance payments vary widely among states, ranging in FY2000from $216 monthly for a 2-year-old child in Missouri to $760 for a 16-year-old inConnecticut. Nationwide average monthly maintenance payments in FY2000 were$389 for a child age 2, $406 for a child age 9, and $465 for a child age 16. (Note: A related program, now known as the Chafee Foster Care Independence Program, was created in 1986 ( P.L. 99-272 ) and expanded in 1999 ( P.L. 106-169 )and 2001 ( P.L. 107-133 ). As most recently amended, Section 477 of the SocialSecurity Act authorizes grants to states to assist foster children who are likely to "ageout" of foster care without returning to their original homes or being placed foradoption, and former foster children, with their transition to independent living. Thelaw also authorizes a separate grant to states to provide education and trainingvouchers to these youth. These programs are not means-tested, although it isassumed that the majority of beneficiaries are low-income. Expenditures for theseprograms are not included in this report.) This benefit is 100% federally funded and is provided through the tax system. FY 2002 outlays (tax year 2001) totaled $5.1 billion. (Another $22.5 billion wasused to offset taxes and is not included in this report.) To be eligible for the credit, taxpayers must have a child under age 17 at the close of the calendar year in which their tax year begins. The taxpayer must be ableto claim a dependent exemption for the child, and the child must be their son,daughter, grandson, granddaughter, stepson, stepdaughter, or an eligible foster child.The credit is phased out at higher income levels. The Taxpayer Relief Act of 1997 ( P.L. 105-34 ) created a child credit of $400 in 1998, increasing to $500 for 1999 and thereafter. The Economic Growth and TaxRelief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16 ) increased the credit limitto $600 in tax years 2001 through 2004, to $700 in tax years 2005 through 2008,$800 in tax year 2009, and $1,000 in tax year 2010. The increases will expire in taxyear 2011 with the credit reverting to the prior law level of $500. The Jobs andGrowth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ) raised the maximumcredit to $1,000 per child for tax years 2003 through 2004. The credit is refundable for up to 10% of the taxpayer's earned income in excess of $10,000 for calendar years 2001-2004, indexed for inflation beginning in 2002(resulting in $10,500 for tax year 2003). Beginning in 2005, the credit is refundablefor up to 15% of the taxpayer's earned income above $10,000 (indexed). Beforepassage of EGTRRA, the child credit was refundable in two ways: (1) as asupplemental credit in coordination with the Earned Income Tax Credit (EITC) (thecredit was part of the child credit calculations, and had no separate form orcalculation requirements for taxpayers); and (2) as an additional credit for taxpayerswith three or more children, limited to the amount by which their social security taxesexceeded their earned income tax credit. (96) The credit is phased out at the rate of $50 for each $1,000 (or fraction thereof) by which modified adjusted gross income (AGI) exceeds certain thresholds: forsingles and heads of households, $75,000; for married couples filing jointly,$110,000; and for married couples filing separately, $55,000. Treatment by Other Means-Tested Programs. EGTRRA specified that the refundable portion of thechild credit does not constitute income and shall not be treated as a resource forpurposes of determining eligibility or the amount or nature of benefits under anyfederal program or any state or local program financed with federal funds. No federal funds are provided for General Assistance (GA). GA is a general name for state and local programs that help some of the low-income persons who donot qualify for federally aided cash payments from Temporary Assistance for NeedyFamilies (TANF) or Supplemental Security Income (SSI). (98) GA is the most commonterm, but several other names are used. (99) As of mid-1998, 25 states, including the District of Columbia (D.C.), operated statewide GA cash programs with uniform eligibility rules and, usually, uniformbenefit schedules. Of these programs, 20 were funded 100% by the state, (100) and fiverequired counties or localities to share costs with the state. (101) Nine states hadstatewide programs with county variations; in these states, all counties/localities wererequired to operate and fully fund GA programs. (102) One state (Nebraska) had auniform statewide program for the disabled and a statewide program with countyvariation for others. In addition, under state supervision, and with state/localfunding, most Virginia counties and many Wisconsin counties offered GA. In sixstates, with county funding only, some counties offered GA. (103) Finally, 10 states (104) had no program. To receive GA, a person must be judged in financial need and must live where the program is available. Further, in most states, one must be disabled, elderly, orotherwise deemed unemployable. In mid-1998, 18 states (including New York andCalifornia, the two most populous states) allowed GA for needy able-bodied adults,but 13 restricted this aid to persons with children, and most conditioned it on meetingwork requirements. Many states provided GA to disabled or elderly persons who hadapplied for SSI and were awaiting determination of SSI eligibility (states arereimbursed by the Social Security Administration for interim payments made topersons found eligible). Some aided persons with a temporary disability that did notqualify them for SSI. A few offered GA to persons enrolled in a drug or alcoholabuse treatment program. Some states made eligible "unattached" children, those notliving with a relative and hence ineligible for TANF. Eleven of the statewide programs imposed no categorical eligibility limits; they (or some of their counties or localities) offered aid to any person needy under theirstandards who did not qualify for federally funded aid: Alaska; California (LosAngeles County); Idaho (Ada County); Indiana (Center Township of MarionCounty); Iowa (Polk County); Maine; Nebraska; Nevada (Clark County); NewHampshire (City of Manchester); New York; and South Dakota (Minnehaha County). Income and asset limits for GA eligibility vary. In Florida (Dade County), Kentucky (Jefferson County), and New Hampshire (City of Manchester), onlypersons with zero income were eligible, but Hawaii, the most generous state, set themonthly income limit at $1,239 for an individual. Several states set the countableasset limit at zero, but most adopted limits between $1,000 and $2,000. Most GA programs also impose citizenship and residency tests for eligibility. The 1996 welfare law ( P.L. 104-193 ) prohibits state and local benefits for illegal aliens unless the state expressly authorizes them by law, and it permits states toexclude most legal aliens (105) from GA. Inmid-1998, some GA programs deniedeligibility (for 5 years or permanently) to legal immigrants arriving after August 22,1996, when the welfare law was enacted. Some of the GA programs open tonon-citizens require immigrants to apply for citizenship as a condition of eligibility. GA programs typically require current residence in the state, county, or municipality;and seven require a minimum residence period, ranging from 15 days to 9 months. Since 1992, coverage of many GA programs has been reduced. Montana abolished the state-run program that had operated in 12 of its counties; Wisconsinreplaced its state-required county-based program with a block grant for an optionalprogram. Connecticut, Hawaii, Minnesota, Ohio, and Pennsylvania ended benefitsfor able-bodied employable persons without children (and Pennsylvania, for familiesas well). D.C. ended GA benefits for SSI applicants. Six states tightened eligibilitycriteria for persons with disabilities. The total number of statewide programs withtime limits rose to nine, but two states (Hawaii and Michigan) removed time limitsfor persons with a disability. Since the 1996 passage of TANF, which can be usedfor cash aid to pregnant women at any stage of pregnancy, several states have ceasedusing GA funds for this group. Mid-1998 Data. GA benefit levels vary greatly among states and often within them. In mid-1998, maximum GAcash benefits reported by states with uniform statewide programs ranged from $80monthly for a single person in Missouri to $339 in Massachusetts and $645 for adisabled person in Nebraska (these amounts were unchanged from mid-1996). Maximum benefits averaged $248 monthly. About three-fourths of the states with statewide GA programs provide aid in the form of cash (except in special circumstances). Nine of these states or some of theircounties provide only vendor payments or vouchers: Idaho (Ada County); Indiana,(Center Township of Marion County); Iowa (Polk County), Kentucky (JeffersonCounty); Maine; Nebraska (non-disabled program); New Hampshire (City ofManchester); South Dakota (Minnehaha County), and Vermont. In general, ongoing assistance was provided in mid-1998, to at least some categories of recipients, by most of the 33 states with statewide programs. However,these states imposed time limits: Arizona, and Maryland, 12 months out of 36;California (Los Angeles County) 12-month limit for employable persons; Colorado,12-month lifetime limit for persons disabled by substance abuse; New Jersey,60-month lifetime limit (with extension possible); New York, 24-month lifetimelimit for cash aid (no limit for noncash aid); Pennsylvania, 9-month lifetime limit forpersons in substance abuse treatment and victims of domestic violence; Utah, 7months out of an 18-month period (for persons in program called Working TowardEmployment; and Vermont, 36-month lifetime limit, for persons in drug treatment. Recent State Data. In March 2003, enrollment in the Massachusetts program of Emergency Aid to the Elderly,Disabled, and Children (EAEDC) was up 5% from the previous year; and benefitsaveraged $324 (down $7 from 2002). In August the state announced plans to cutbenefits by 11.5% because of a budget shortfall. In April 2003, enrollment in theMichigan state-funded program of Emergency Relief was up 77% from theyear-earlier level (914 families, compared with 515); and benefits averaged $377. Maryland issued $2 million in vouchers in April 2003 under its TransitionalEmergency Medical and Housing Assistance program (TEMHA) on behalf of about14,709 persons (up 15% from a year earlier); benefits averaged $135 per person. New York spent $68 million in April 2003 for "safety net" assistance, some of whichwas in noncash form, to 283,958 persons in 159,865 cases, including familiestransferred out of TANF after reaching that program's 5-year time limit. Paymentsaveraged $425 per case. California paid a total of $22.3 million in general relief inMarch 2003 to 95,177 cases, almost all of which held only one person. Benefitsaveraged $234 per case ($335 for family cases). Census Data. The U.S. Census Bureau reports that direct cash assistance by states and localities for noncategoricalaid totaled $2.968 billion in FY2000 and $2.956 billion in FY2001. The preliminaryestimate for FY2002, based on data from states that accounted for one-third of theFY2000 census-reported total, is $3.251 billion. Most GA programs offer medicalassistance as well as cash. For medical aid provided under state-local GA programs,see program no. 4 -- page 48. The federal government provides 100% funding for veterans' and survivors' pensions. Total federal outlays for these pensions reached $3.164 billion duringFY2002. Eligibility for a veteran's pension requires a discharge (other than dishonorable) from active service of 90 days or more, at least one of which must have been servedduring a period defined in law as a period of war. The veteran must be disabled forreasons neither traceable to military service nor to willful misconduct. The survivor pension is provided to surviving spouses and children of wartime veterans who diedof nonservice-connected causes, subject to income limitations. There is no disabilityrequirement for eligible survivors. After considering other sources of income, including Social Security, retirement, annuity payments, and income of a dependent spouse or child, the Department ofVeterans Affairs (VA) pays monthly amounts to qualified veterans to bring their totalincomes to specified levels ( maximum benefits ), shown below. These levels areincreased (by $2,197 in 2003) for veterans with service in World War I or earlier inrecognition of their lack of home loan and education benefits made available toveterans of later wars. Countable income can be reduced for unreimbursed medicalexpenses, as well as some educational expenses incurred by veterans or theirdependents. Pensions are not payable to veterans with substantial assets (when it is"reasonable" that they use some of their net worth for their own maintenance). Pensions awarded before 1979 were paid under one of two programs, referred to as Old Law and Prior Law , both of which were governed by complex rulesregarding countable income and exclusions. Since January 1, 1979, applicationshave been processed under the Improved Law program, which provides higherbenefits but has eliminated most exclusions, offsetting countable incomedollar-for-dollar. The Improved Law program accounts for 98% of pension costs andabout 88% of beneficiaries. Title IV-E of the Social Security Act provides federal matching funds to states for payments to parents adopting certain low-income children with "special needs." The matching rate for a given state is that state's Medicaid matching rate (seeprogram no. 1). The FY2003 federal matching rate ranged from 50% to 76.62%. Foradministrative expenses and certain training expenses, the federal matching rates are50% and 75%, respectively. The 1986 tax reform legislation ( P.L. 99-514 ) amendedthe adoption assistance program by authorizing 50% federal matching forreimbursement of certain non-recurring adoption expenses up to $2,000, such asadoption and attorney fees and court costs. FY2002 outlays were $2.5 billion ($1.3billion from federal funds). A child must be eligible for SSI (see program no. 10) or meet the eligibility standards of the repealed AFDC program, as it existed in his state on July 16, 1996, (109) must be legally free for adoption, and must have "special needs," as determined bythe state, that prevent adoption without assistance payments. Such special needs mayinclude mental or physical handicap, age, ethnic background, or membership in asibling group. (In addition, parents who adopt children with special needs who arenot AFDC or SSI eligible are entitled to assistance under the matching program fornon-recurring adoption expenses.) The state adoption assistance agency, by agreement with the adoptive parents, decides the amount of the adoption payment; however, the payment cannot exceedwhat would have been paid to maintain the child in a foster family home. Childrenreceiving federally subsidized adoption assistance are automatically eligible forMedicaid. Benefits can continue until the child reaches age 18 or, in cases where thechild is mentally or physically handicapped, age 21. The federal government provides 100% funding for dependency and indemnity compensation, and for death compensation. Federal outlays in FY2002 wereestimated at $84 million for 7,463 parents. Under Title 38 of the United States Code, Section 1315, parents of veterans who died from a service-connected cause are eligible for Dependency and IndemnityCompensation (DIC) if their counted income is below limits in federal law andregulations. Countable annual income limits in 2003 are $11,024 for one parentalone and for each of two parents not living together; $14,817 for two parents livingtogether, or for a remarried parent living with his spouse. Chief exclusions fromcountable income are cash welfare payments and 100% of retirement income,including Social Security. Recipients of death compensation benefits are required to meet the net worth rules applicable to veterans' pensioners. (See program no. 15.) There are no networth rules for the DIC program. The Veterans' and Survivors' Pension Improvement Act of 1978 ( P.L. 95-588 ) established DIC rates for parents effective January 1, 1979, and required thatthereafter, whenever Social Security benefits were increased by an automaticcost-of-living adjustment (COLA), DIC rates must be adjusted by the samepercentage and at the same time. The maximum benefit for a sole surviving, unremarried parent in 2003 is $464 monthly. The maximum for each parent when both survive but do not live togetheris $334 per month. The maximum payment to individual surviving parents, who liveeither with the other parent, or with the spouse of the deceased veteran is $314monthly. The minimum monthly payment is $5.00. Parents in need of "aid andattendance" receive an additional monthly allowance of $250 in 2003. Note: This entry describes the program of General Assistance (GA) to Indiansoperated by the Bureau of Indian Affairs (BIA). However, tribes may design theirown GA programs, changing eligibility rules and benefit levels, provided they payany net cost increase, use any savings for tribal needs, and receive BIA approval oftheir plan. (112) Tribes may administer theirredesigned plan themselves or request BIAto do so. The Snyder Act provides 100% federal funding for General Assistance (GA) to Indians, which is administered by the Bureau of Indian Affairs (BIA). Federalobligations in FY2002 were $66.5 million. Eligible are needy Indians who are members of a tribe that is recognized by the U.S. government and Alaskan Natives with at least one-fourth degree Native blood(or who are regarded as Natives by the Native village). Federally recognized tribesare located in 34 states, of which 24 have BIA programs of GA. Persons must be deemed needy on the basis of standards established under the state's TANF program. They must apply for aid from other governmental or tribalprograms for which they are eligible, and they may not receive TANF orSupplemental Security Income (SSI). They must reside in the tribe's service area andwhere non-federally funded aid from a state or local government unit (114) is notavailable to them. Able-bodied adults must actively seek work, make satisfactoryprogress in an Individual Self-sufficiency Plan (ISP), jointly developed and signedby the recipient and the social services worker, and accept available local andseasonal employment unless they are enrolled at least half-time in a specifiedprogram of study, caring full-time for a preschool child, or would have a minimumcommuting time of one hour each way. Certain sums of earned income are disregarded in determining benefits: federal, state, and local taxes; Social Security taxes; health insurance payments; work-relatedexpenses, including reasonable transportation costs; child care costs (unless the otherparent in the home is able-bodied and not working); and the cost of special clothing,tools, and equipment directly related to the person's employment. Also deductedfrom countable income is an allowance for shelter costs; namely, 25% of the TANFstandard unless a smaller amount is designated for shelter in the state TANFstandard. Disregarded as income or resources is the first $2,000 in liquid resources annually available to the household and any home produce from garden, livestock,and poultry used by the family. Specific laws exempt certain other income. (115) Eligibility for GA must be reviewed periodically, every 3 months for persons not exempt from seeking work and every 6 months for all participants. BIA expects the GA caseload in FY2003 and FY2004 to decline from the FY2002 level of 45,000 persons. (116) (Becauseof the relatively high levels ofunemployment on Indian reservations, it is thought that many Indians enrolled inTANF will remain eligible for that program beyond 5 years, and hence will beineligible for GA. The TANF time limit does not apply to any month of aid duringwhich the recipient lived in Indian country (117) or in an Alaska native village where atleast 50% of adults were unemployed, according to the most reliable available data. General Assistance to Indians provides cash payments and work experience and training, and the regulations state that the program goal is to increase self-sufficiency. BIA GA payments are made on the basis of state need standards under the TANFprogram unless the state "ratably reduces" actual payments. In those cases, theBureau must reduce GA payments by the same percentage. This means that actualmaximum payments in the GA program are the same as in the state TANF program. For a family of three persons, maximum monthly TANF benefits ranged in January2003 from $170 in Mississippi to $923 in Alaska. If the state TANF program has noassistance standard for one adult, the Bureau standard for one adult is the greater of(a) the difference between the standard for one child and that for a two-personhousehold with an adult member or (b) one-half the standard for a household of twopersons. A GA recipient who participates in the tribe's Tribal Work Experience Program(TWEP) receives an extra monthly payment ($115 in FY2002 and 2003). Thisprogram provides work experience and job skills training. TWEP programs can beincorporated within self-determination contracts, self-governance annual fundingagreements and programs coordinated under P.L. 102-477 , which allows forintegration of federally-funded employment and training programs. The Immigration and Nationality Act authorizes 100% federally funded cash assistance for needy refugees and asylees during their first 3 years in the UnitedStates, and other legislation authorizes similar assistance for certain Cuban andHaitian entrants (118) and for certainAmerasians. (119) However, since FY1992,fundinghas been appropriated to provide cash assistance only for the first 8 months afterentry. These benefits are administered by the Department of Health and HumanService's Office of Refugee Resettlement (ORR). For refugee cash assistance(RCA), ORR expenditures were an estimated $41 million in FY2002. A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant,"or be a Cuban or Haitian national paroled into the United States after October 10,1980, (c) be a person who has an application for asylum pending or is subject toexclusion or deportation and against whom a final order of deportation has not beenissued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA; P.L. 104-193 ), as amended by P.L. 105-33 , refugees, asylees,and others in the above groups are eligible for Temporary Assistance for NeedyFamilies (TANF) for 5 years after entry, provided they meet the income and assettests prescribed by their state for TANF. Those who meet the state's financialeligibility tests but who are not categorically eligible for TANF or the federalprogram of Supplemental Security Income (SSI) qualify for RCA. (For example, asingle refugee or a childless couple could receive RCA if deemed needy by stateTANF standards.) At the end of the 5-year period, their continued participation is atstate option, as it is with legal permanent residents. The law requires employableRCA applicants and recipients to accept "appropriate" job offers and to register foremployment to receive cash assistance. Under PRWORA, refugees who qualify for SSI are eligible for 7 years afterentry (before the 1996 welfare law, there was no time limit on eligibility). (121) At theend of the 7-year period, they become ineligible until they naturalize or meet thework requirement. However, if they were here and receiving SSI by August 22,1996, the enactment date of PRWORA, they remain eligible. If they were here by theenactment date and subsequently become disabled, they are eligible also for SSI. RCA payment levels are based on the state's TANF payment to a family unit of the same size. For example, an able-bodied couple below age 65 would receive anRCA benefit equal to that of a two-person (parent and child) TANF family. Seeprogram no. 12 for description of TANF benefit levels. (Benefit levels for personswho qualify for TANF and SSI are the levels established for those programs.) The Food Stamp Act generally provides 100% federal funding for food stamp benefits. (122) Federal funds also pay for (1)federal administrative costs, (2) 50% ofstate and local administrative expenses (123) and(3) the majority of costs associatedwith employment and training programs for food stamp recipients. (124) "States" -- the50 states, the District of Columbia, Guam, and the Virgin Islands -- are responsiblefor the remainder of food stamp expenses. In Puerto Rico, American Samoa, and theNorthern Marianas, federal funds, authorized under the Food Stamp Act, provide annual grants, in lieu of food stamps, to fund nutrition assistance benefits andassociated administrative costs. The grants for Puerto Rico and American Samoa areset by law and indexed for inflation. In FY2003, they totaled $1.4 billion ($1.395billion for Puerto Rico and $5.6 million for American Samoa). The grant for theNorthern Marianas is an annually negotiated amount based on identified needs in theCommonwealth ($7.1 million in FY2003). (125) The Food Stamp program imposes four major tests for eligibility: income limits, liquid asset limitations, employment-related requirements, and limits on theeligibility of noncitizens. In addition, households composed entirely of recipients ofcash aid or services under state Temporary Assistance for Needy Families (TANF)programs, the Supplemental Security Income (SSI) program, or state/local GeneralAssistance (GA) programs are, in many cases, automatically eligible for food stamps. Automatic food stamp eligibility may continue for up to 5 months after a householdleaves a TANF program. Income. Households not automatically eligible because of receiving TANF, SSI, or GA must have counted(net) monthly income below the federal poverty income guidelines, which areadjusted annually to reflect inflation measured by the Consumer Price Index (CPI). More importantly, households without an elderly or disabled member (127) must alsohave basic (gross) monthly income below 130% of the poverty guidelines in orderto qualify. Changes in these income limits take effect each October. Basic (gross) monthly income includes all cash income of the household, except for: certain "vendor" payments made to third parties (rather than directly to thehousehold); unanticipated, irregularly received income up to $30 a quarter; loans(deferred payment education loans are treated as student aid, see below); incomereceived for the care of someone outside the household; nonrecurring lump-sumpayments such as income tax refunds (these are counted as liquid assets); paymentsof federal earned income tax credits (these are not counted as either income or -- for12 months -- as assets); federal energy assistance; reimbursements for certainout-of-pocket expenses; income earned by children who are in school; the cost ofproducing self-employment income; education assistance under Title IV of theHigher Education Act (e.g., Pell grants, student loans); other student aid to the extentearmarked or used for tuition, fees, and education-related expenses; certain paymentsunder the Workforce Investment Act (WIA); income set aside by disabled SSIrecipients under an approved "plan to achieve self-sufficiency"; and some other typesof income required to be disregarded by other federal laws. In addition, states may,within certain limits, exclude income they disregard when judging TANF orMedicaid eligibility. Counted (net) monthly income subtracts from basic (gross) income the following "deductions": (1) a "standard" monthly deduction; (128) (2) 20% of anyearned income; (3) expenses for the care of a dependent (up to $200 per dependentper month for those under age 2 or $175 for other dependents); (4) out-of-pocketmedical expenses of elderly or disabled household members, to the extent theyexceed $35 per month; (5) shelter expenses, to the extent they exceed 50% of theincome remaining after all other potential deductions and excluded expenses havebeen subtracted (up to an annually indexed ceiling standing at $378 a month inFY2003); (129) and (6) amounts paid as legallyobligated child support payments. The following tables set out the monthly net and gross income limits in the 48 contiguous states, the District of Columbia, the Virgin Islands, and Guam -- for theperiod October 1, 2003 through September 30, 2004. (130) Assets. An eligible household's liquid assets may not exceed $2,000 or $3,000 if the household includes an elderlyor disabled member. This asset test excludes the value of a residence, businessassets, household belongings, and certain other resources, such as Earned Income TaxCredits paid as a lump sum. The extent to which the value of a vehicle owned by anapplicant household is counted as an asset varies by state, often conforming to thestate's rule for its TANF program. Under the most stringent rule, the fair marketvalue of any vehicle above $4,650 is counted; however, the majority of states eitherdisregard the value of at least one vehicle or apply a more liberal threshold. The foodstamp asset test does not apply to automatically eligible TANF, SSI, and GAhouseholds; states also may, within certain limits, disregard assets that they do notcount in their TANF or Medicaid programs. Employment-Related Requirements. In order to maintain eligibility, certain nonworkingable-bodied adult household members must register for employment, accept asuitable job if offered one, fulfill any work, job search, or training requirementsestablished by administering welfare agencies, provide the welfare agency withsufficient information to allow a determination with respect to their job availability,and not voluntarily quit a job without good cause or reduce work effort below 30hours a week. Exempt from these requirements are: persons caring for dependents(disabled or under age 6); those already subject to another program's workrequirement; those working at least 30 hours a week or earning the minimum-wageequivalent; the limited number of postsecondary students who are otherwise eligible;residents of drug addiction and alcoholic treatment programs; the disabled; and thoseunder 16 or age 60 or older (those between ages 16 and 18 are also exempt if they arenot the head of a household or if they are attending school or a training program). Ifthe household head fails to fulfill any of these requirements, the state may disqualifythe entire household for up to 180 days. Individual disqualification periods differaccording to whether the violation is the first, second, or third; minimum periodsrange from 1 to 6 months and may be increased by the welfare agency, in some casesto permanent disqualification. In addition to the above work-related requirements, special rules apply to some persons without dependents. Many able-bodied adults (between 18 and 50) withoutdependents are ineligible for food stamps if, during the previous 36 months, theyreceived food stamps for 3 months while not working at least 20 hours a week orparticipating in an approved work/training activity (including "workfare," work inexchange for benefits). Those disqualified under this rule are able to re-enter theFood Stamp program if, during a 30-day period, they work 80 hours or more orparticipate in a work/training activity. If they then become unemployed or leavework/training, they are eligible for an additional 3-month period on food stampswithout working at least 20 hours a week or enrolling in a work/training activity. Butthey are allowed only one of these added 3-month periods in any 36 months -- fora potential total of 6 months on food stamps in any 36 months without half-time workor enrollment in a work/training effort. [ Note: At state request, the special rule forable-bodied adults without dependents can be waived for areas with very highunemployment (over 10%) or lack of available jobs. Moreover, states themselveshave authority to exempt up to 15% of those subject to the rule.] States must operate work and training programs under which recipients not exempt by law or by state policy must fulfill employment requirements (which caninclude workfare, training, job search, education, or other activities) as establishedby the welfare agency. These programs are described separately in this report (seeprogram no. 79). Other Limitations. Categorical eligibility restrictions include: (1) a ban on eligibility for many noncitizens; (131) (2) aban on eligibility for households containing striking members, unless eligible priorto the strike; (3) a ban on eligibility for most nonworking postsecondary studentswithout families; (4) a ban on eligibility for persons living in institutional settings,except for those in special small group homes for the disabled, persons living in drugaddiction or alcoholic treatment programs, persons in temporary shelters for batteredwomen and children, and those in homeless shelters; (5) a state-option ban oneligibility for those who have violated another welfare program's rules and beendisqualified, (6) limits on participation by boarders; (7) a requirement that SocialSecurity numbers be provided for all household members; (8) denial of eligibilitywhere assets have been transferred to gain eligibility; (9) denial of eligibility wherethere has been intentional violation of program rules or failure to cooperate inproviding information needed to judge eligibility and benefits; and (10) a ban oneligibility for SSI recipients in California. (132) The Food Stamp Act specifies that a household's maximum monthly food stamp allotment be the cost of a nutritionally adequate low-cost diet, as determined by theU.S. Department of Agriculture's Thrifty Food Plan, adjusted each October forchanges in food prices. A participating household's actual monthly allotment isdetermined by subtracting, from the maximum allotment for its size, an amount equalto 30% of its counted monthly income (after all applicable deductions, see above),on the assumption that the household can afford to spend that amount of its ownincome on food. Minimum benefits for households of one and two persons arelegislatively set at $10 per month; minimum benefits for other household sizes varybut generally are somewhat higher. Maximum monthly allotments in FY2004 areshown in the following table. Table 13. Maximum Monthly Food Stamp Allotments (October 2003 through September 2004) a. Maximum allotment levels in rural AK are 27% to 55% higher than the urban AK allotments noted here. The allotment levels noted here are those in effect as ofOct. 1, 2003. However, under legislation pending as of Oct. 28, 2003, they arescheduled to increase slightly: to $169, $309, $443, $563, $669, $803, $887,$1,014, and +$127. b. The allotment levels noted here are those in effect as of Oct. 1, 2003. However,under legislation pending as of Oct. 28, 2003, they are scheduled to increaseslightly: to $212, $389, $557, $707, $840, $1,008, $1,114, $1,273, and +$159. Food stamp benefits are issued through electronic benefit transfer (EBT) cards. These cards are used like "debit cards" to access food stamp recipients' individualfood stamp accounts when purchasing food items at approved stores. Food stampbenefits can be used only to buy food items; however, EBT cards often include accessto cash benefit programs (in which case, the card can be used to access cash). The Richard B. Russell National School Lunch Act provides a guaranteed federal subsidy for each free or reduced-price lunch served to needy children inschools and residential child care institutions (RCCIs) choosing to participate in theSchool Lunch program. The cash subsidy for free and reduced-price lunches consistsof two parts: a basic payment authorized under Section 4 of the Act for every lunchserved, without regard to the family income of the participant, and an additionalspecial assistance payment authorized under Section 11 of the Act only for lunchesserved free or at reduced price to lower-income children. Additionally, the federalgovernment provides commodity assistance for each meal served. The level offederal cash subsidies and the value of federal commodity aid are legislatively set andannually indexed. State and local government funds and children's payments alsohelp finance lunches served in participating schools and RCCIs. No charge may bemade for a free lunch, but a charge of up to 40 cents may be imposed for a reduced-price lunch. Schools may set whatever charge they wish for lunches served tochildren who do not qualify for free or reduced price lunches, or who do not applyfor them, so long as this charge does not result in a profit. The law requires that states contribute to their lunch programs revenues equal to at least 30% of the total Section 4 federal funding provided in the 1980-1981school year (about $200 million a year). However, no matching funds are requiredfor the extra federal subsidy provided for free and reduced-price lunches, underSection 11 of the Act. All children are eligible to receive at least a partially subsidized lunch in participating schools and RCCIs, although subsidies are higher for meals served freeor at a reduced price. All public schools, private nonprofit schools, and RCCIs areeligible to participate and receive federal subsidies if they serve meals that meetnutrition requirements set by the U.S. Department of Agriculture based on theDietary Guidelines for Americans, offer free and reduced-price meals to lowerincome children, and agree not to make a profit on their meal program. Children whose current annual family income is at or below 130% of the annually indexed federal poverty income guidelines are eligible for a free lunch;those children whose family income is more than 130%, but not more than 185% ofthe guidelines, are eligible for a reduced-price lunch. Annual income limits for afamily of four for the 2002-2003 school year in the 48 contiguous states, the Districtof Columbia, Puerto Rico, Guam, and the Virgin Islands were: for free lunches,$23,530; for reduced-price lunches, $33,485. (134) In addition, most children fromfamilies receiving public assistance (e.g., cash welfare, food stamps) can be certifiedfor free school lunches based on their public assistance enrollment. Benefits are provided to local "school food authorities" through state education agencies. Federal cash subsidies are provided to participating schools and RCCIs foreach lunch served. The law establishes specific reimbursement (subsidy) rates foreach type of lunch served (free, reduced-price, "full-price") and mandates that theybe adjusted each July for inflation. Cash reimbursement rates for the 2002-2003school year were: (135) (1) $2.14 for each freelunch, (2) $1.74 for each reduced-pricelunch, and (3) 20 cents for each full-price lunch. In addition to the cash assistance noted above, the federal government provides commodity assistance for all meals served in participating schools and residentialchild care institutions. This assistance rate is adjusted annually each July forinflation, and, for the 2002-2003 school year, it was a minimum of 15.25 cents permeal served (e.g., the total cash and commodity subsidy rate for free lunches wasapproximately $2.29). Schools and RCCIs in the School Lunch program also may expand their programs to cover snacks (and, in some cases, suppers) served to children throughage 18 in after-school programs . Federal subsidies are paid at the free snack/supperrate offered to child care providers if the snack/supper is served free to children inlower-income areas. In other cases, federal subsidies vary by the child's familyincome. (See program no. 24, the Child and Adult Care Food Program, for thevarious federal subsidy rates for snacks/suppers and additional authority for schoolsand public and private nonprofit organizations to receive subsidies for snacks/suppersserved in after-school programs.) In FY2002, more than 90% of schools and RCCIs received school lunch program subsidies -- some 93,000 schools, plus nearly 6,000 RCCIs. Average dailyparticipation was 28 million children; 13.3 million received free lunches, 2.6 millionate reduced-price lunches, and lunches for 12 million students were subsidized at theminimum full-price rate (for which no income test is required). While childrenreceiving free or reduced-price lunches made up 57% of those participating, subsidiesfor their lunches accounted for over 90% of federal spending on the school lunchprogram. Note: For more information, see: CRS Report RL31577, Child Nutrition and WIC Programs: Background and Funding . The Child Nutrition Act provides 100% federal funding through grants to states for food costs and nutrition services and administration (NSA); money also isprovided for to support breast-feeding initiatives and the development of localagencies' administrative infrastructure, small farmers' market nutrition programs (seeProgram 31), and research and evaluations. State allocations are based on a formulathat reflects food and NSA caseload costs, inflation, and "need" as evidenced bypoverty indices -- although small amounts are set aside for infrastructuredevelopment and other special initiatives. Except for a small matching amount forstates choosing to operate a farmers' market nutrition program, no state or localmatching funding is required. Section 17 of the Child Nutrition Act makes eligible for WIC benefits lower-income mothers, infants, and children judged to be at "nutritional risk." Theseinclude infants (up to age 1), children up to 5 years old, pregnant women,non-nursing mothers up to 6 months after childbirth, and nursing mothers up to 1year after childbirth. A competent professional authority on the staff of aparticipating local public or private nonprofit health clinic or welfare agency thatoperates a WIC program must certify that the recipient is at nutritional risk througha medical or nutritional assessment guided by federal standards. In addition to meeting the nutritional risk criterion, WIC enrollees must have annual family income below state-established limits, and public assistance recipientsmay be judged automatically income eligible. Income limits may not exceed thosefor reduced-price meals under school meal programs -- 185% of the federal povertyincome guidelines (as annually adjusted) -- $27,787 (137) for a three-person family forJuly 2002 through June 2003. States can set lower income limits, but these must notbe lower than 100% of the poverty guidelines. Unlike most other nutrition assistance programs, the ability of the WIC program to serve all those who apply and are judged eligible is largely limited by the annualamount of federal funding made available, and not all eligible applicants areguaranteed benefits. (138) State healthdepartments or comparable agencies determinewhich local health or welfare agencies are eligible for program participation orexpansion in order of greatest need based on economic and health statistics, andavailable funding. And a priority system seeks to ensure that individuals at thegreatest risk are served first. The program is estimated to serve at least 80% of theeligible population. In FY2002, average monthly participation was just under 7.5million women, infants, and children. Beneficiaries receive selected supplemental foods, as called for in federal regulations, either in the form of food or, most commonly, as vouchers/checks validfor specific prescribed food items in stores. (139) Federal regulations includerequirements about the types and quantities of food to be made available and abouttailoring food packages to meet the varying nutritional needs of the infants, children,and pregnant and postpartum women participating in the program. However, stateWIC agencies have some leeway in designing specific food packages and specifyingfoods that may be bought with WIC vouchers. In FY2002, the national averagemonthly federal cost of food in a WIC food package was $35 (after an offset forrebates by infant formula companies). The law also requires that participants receive breast-feeding support, nutrition education, and a nutritional risk evaluation (in order to qualify). Monthly NSA costsfor these services averaged $13 a recipient in FY2002. In addition to the regular WIC program, a majority of states have chosen to operate a farmers' market nutrition program that offers WIC applicants and recipientsspecial vouchers that can be used to buy fresh foods at participating farmers' markets(See program 31). Note: For more details, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and Funding . The Richard B. Russell National School Lunch Act provides 100% federal funding for this program in the form of legislatively set (and annually indexed) cashsubsidies for all meals and snacks served in participating child and adult day carecenters and family and group day care homes for children. Subsidies are varied byparticipants' family income (in day care centers), or (in the case of family day carehomes) whether the provider has a lower-income or located in a lower-income area. Payments to sponsors of day care homes (based on the number of homes sponsored)and some federal commodity assistance also are provided, as are administrativepayments to day care center sponsors. There is no requirement for matching fundsfrom non-federal sources. Licensed (or otherwise approved) public and private nonresidential nonprofit child care, adult care, and Head Start centers, some schools operating after-schoolprograms, and family and group day care homes are eligible for federal subsidies formeals, snacks, and (in some cases) suppers they serve meeting federal nutritionrequirements. For-profit child care institutions also are eligible, but their eligibilityis limited based on the degree to which they serve "lower-income" children (asmeasured by the centers' receipt of government child care subsidies or by the familyincome of children served). Participation by centers and homes is voluntary. All children and elderly clients in participating programs operated in child and adult care centers receive federally subsidized meals and snacks, although subsidiesare higher for meals served free or at a reduced price to lower-income individuals. As with the School Lunch and School Breakfast programs: free meals/snacks areavailable to those whose household income is not above 130% of the federal povertyincome guidelines ($23,530 for a family of four during the period July 2002-June2003); those whose household income is above 130%, but not above 185% of thepoverty guidelines ($33,485 for a family of four) (142) are eligible for reduced-pricemeals/snacks. Income eligibility guidelines are adjusted annually. Meals and snacksfor individuals from households with income above these limits (or who do not applyfor free or reduced-price meals/snacks) also are subsidized, but the subsidies aremuch smaller. Unlike the school meal programs, while federal cash subsidies paidto centers differ according to family income, there is no requirement that "free" or"reduced-price" meals/snacks be served. Centers may adjust their fees to account forfederal subsidies or charge (or not charge) separately for meals to account for thesubsidies, but the program itself does not regulate the fees they charge. All children in participating family day care homes receive federally subsidized meals/snacks. However, the subsidies are generally not differentiated by the child'sfamily income. Federal subsidies are provided for up to two meals and one snack per day per recipient (or three meals a day in homeless/emergency shelters). Participating centers receive cash subsidies for meals that are the same as those provided forlunches or breakfasts under the School Lunch and School Breakfast programs. Forthe period July 2002 through June 2003, these amounts were: (a) for lunches andsuppers, $2.14 each for free meals, $1.74 for reduced-price meals, and 20 cents for"full-price" meals; (b) for breakfasts, $1.17 for free meals, 87 cents for reduced-pricemeals, and 22 cents for full-price meals. Cash subsidies for snacks were set at 58cents for free snacks, 29 cents for reduced-price snacks, and 5 cents for full-pricesnacks. Finally, centers may receive the federal commodity assistance (about 15cents a meal) and are allowed to retain some of their federal subsidies foradministrative costs. All subsidy rates are annually indexed. The federal subsidy structure for family day care homes is different. Day care homes receive subsidies that generally do not differ by the family income ofindividual recipients. Instead, there are two distinct annually indexed subsidy rates. "Tier I" homes (those located in lower-income areas or operated by lower-incomeproviders) receive higher cash subsidies; for July 2002 through June 2003, alllunches/suppers were subsidized at $1.80, all breakfasts were subsidized at 98 cents,and all snacks were subsidized at 53 cents. "Tier II" homes (those not located inlower-income areas or without lower-income providers) receive lower subsidies; forJuly 2002 through June 2003, all lunches/suppers were subsidized at $1.09, allbreakfasts at 37 cents, and all snacks at 14 cents. Organizations sponsoring homesreceive monthly payments for their administrative/oversight costs, which vary by thenumber of homes sponsored; and Tier II homes may seek higher Tier I rates forindividual low-income children if the proper documentation is provided. In addition to the regular Child and Adult Care Food Program (CACFP), the law allows public and private nonprofit organizations (including child care centers andschools) operating after-school programs to receive federal CACFP subsidies forsnacks served free in their programs to children (through age 18) in lower-incomeareas -- at the free snack rate noted above. In some cases, subsidies also are offered for suppers in after-school programs. In FY2002, 42,000 child care centers and some 2,000 adult care centers with an average daily attendance of 1.8 million persons participated, and some 165,000 daycare homes received subsidies for just under 1 million children in attendance. Note: For more information, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and Funding . The Child Nutrition Act provides a guaranteed federal subsidy for each free or reduced-price breakfast served needy children in schools and residential child careinstitutions (RCCIs) that choose to participate. A small subsidy also is provided for"full-price" breakfasts to non-needy children. Certain schools, designated as "severeneed" schools, receive subsidies that exceed regular subsidies. (144) State and localgovernment funds, as well as children's meal payments, also help finance the cost ofbreakfast programs, although there is no formal matching requirement. No chargemay be made for a free breakfast, but up to 30 cents may be charged for areduced-price breakfast. As with the School Lunch program, all children are eligible to receive at least a partially subsidized breakfast in participating schools and institutions, althoughsubsidies are higher for meals served free or at a reduced price. All public schools,private nonprofit schools, and RCCIs are eligible to participate and receive federalsubsidies if they serve meals that meet nutrition requirements set by the U.S.Department of Agriculture based on the Dietary Guidelines for Americans, offer freeand reduced-price meals to lower-income children, and agree not to make a profit ontheir meal program. Children whose current annual family income is at or below 130% of the federal poverty income guidelines are eligible for a free breakfast; those children whosefamily income is more than 130%, but not more than 185%, of the guidelines areeligible for a reduced-price breakfast. Annual income limits for a family of four forthe 2002-2003 school year were: for free breakfasts, $23,530; for reduced-pricebreakfasts, up to $33,485. (146) Income eligibilityguidelines are annually adjusted forinflation. In addition, most children from families receiving public assistance (e.g.,cash welfare, food stamps) can be certified eligible for free breakfasts based on theirpublic assistance enrollment. As with the School Lunch program, benefits are provided to local "school food authorities" through state education agencies. The law provides a guaranteed federalcash reimbursement (subsidy) to participating schools and RCCIs for each breakfastserved. It establishes specific reimbursement rates for each type of breakfast served(free, reduced-price, "full-price") and mandates that they be adjusted each July forinflation. Regular cash reimbursement rates for the 2002-2003 school year were: (147) (1) $1.17 for each free breakfast, (2) 87 cents for each reduced-price breakfast, and(3) 22 cents for each full-price breakfast. In FY2002, 76% of schools in the School Lunch program (and virtually all RCCIs in the program) also operated breakfast programs. Some 71,000 schools androughly 6,000 child care institutions were in the program, with an average dailyparticipation of 8.1 million children -- 6 million received free breakfasts, 700,000ate reduced-price meals, and 1.4 million were subsidized at the full-price rate. Note: For more information, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and Funding . Nutrition services for the elderly under Title III of the Older Americans Act are supported by grants to states and territories from the U.S. Department of Health andHuman Services, Administration on Aging (HHS/AoA). The nutrition servicesprogram includes three components: congregate nutrition services; home-deliverednutrition services; and commodities or cash-in-lieu of commodities. The Act specifies that the federal share of a state's allotment for congregate and home-delivered meal services may cover up to 85% of the cost of developing and/oroperating local projects. The non-federal matching share can be paid in cash orin-kind contributions. Federal funds are allotted to the states on the basis of theirshare of the U.S. total population aged 60 and over, except that the minimum stateallotment is 0.5% of the U.S. appropriation for the year. (Minimums are smaller forGuam, the Virgin Islands, American Samoa, and the Northern Mariana Islands.) States also receive funds from HHS (148) for commodities, or cash in lieu ofcommodities, to supplement Title III grant funds for congregate and home-deliveredmeals. These funds are allocated to states on a formula that is based on a state'sshare of meals served by all states under auspices of the Title III program for thepreceding fiscal year. FY2003 appropriations for the nutrition program totaled $714 million. The Older Americans Act makes eligible persons aged at least 60 and their spouses. In addition, congregate meals may be provided to persons with disabilitiesunder age 60, who reside in housing facilities occupied primarily by the elderly wherecongregate nutrition services are provided, or who reside with and accompany olderpersons to meals. Eligible for home-delivered meals are persons who are homeboundby reason of illness or disability, or who are otherwise isolated. The law requires thatpreference be given to those with the "greatest" (1) economic need and (2) socialneed. The law defines group one to be persons whose income is at or below thepoverty guideline issued by HHS (the guideline issued in February 2003 was $8,980for a "family unit" of one person) and group two to be persons whose need forservices is caused by noneconomic factors (150) that restrict their ability to performnormal daily tasks or that threaten their capacity for independent living. The law requires that congregate meal services be located as close as possible to where most eligible older persons live, preferably within walking distance. Meanstests are prohibited. The law requires providers to offer at least one meal daily, 5 or more days per week. If the nutrition project serves one meal a day, each meal is to assure aminimum of one-third of the daily recommended dietary allowances (RDAs)established by the Food and Nutrition Board of the National Academy ofSciences-National Research Council. If the project serves more than one meal daily,nutritional requirements are higher (two-thirds of RDA for two meals, 100% forthree). Nutrition services funds also may be used to provide support services suchas outreach and nutrition education. The law requires that providers give participants an opportunity to contribute toward the cost of the meal. Service providers may establish suggested contributionschedules; but each participant is to decide for him/herself what, if anything, he/sheis able to pay. A service provider may not deny any older person nutrition servicesfor failure to contribute to the cost of the service. The law requires that voluntarycontributions be used to expand services for which the contributions were made. Note: For more information about nutrition services for the elderly, see CRS Report RL31336 , Older Americans Act: Programs and Funding , and CRS Report RS21202 , Older Americans Act Nutrition Program . The Emergency Food Assistance Program (TEFAP) provides federally donated food commodities to states for distribution to emergency feeding organizations(EFOs), including soup kitchens and food banks, serving the homeless and otherneedy persons. Cash grants also are provided to help states and local EFOs with theadministrative costs of storing, transporting, handling, and distributing thecommodities. Commodities are allocated under a poverty-unemployment allotment formula: 60% of them are distributed based on a state's share of all persons with incomesbelow the poverty level, and 40% based on its share of all unemployed persons. Administrative funding is distributed to states in the same proportion as their shareof commodities. To cover local EFO costs, states must distribute to localities at least40% of the administrative funding which they receive. Further, they are required tomatch (in cash, or in-kind) funds that they do not pass along to local agencies. In FY2002, the value of federally donated commodities distributed under TEFAP was $306 million, and federal support for distribution and administrativecosts was $55 million -- for a total of $361 million. State agencies administering TEFAP are responsible for selecting the emergency feeding organizations that will distribute food. There are no federal criteria foragency selection except that the feeding organization must serve needy persons andhave the capacity to store and handle commodities. Emergency feeding organizationsinclude food banks and pantries, soup kitchens, hunger centers, temporary shelters,community action agencies, churches, and other nonprofit agencies offering foodassistance to the indigent and needy. By law, those eligible to receive commoditypackages must be "needy," but states set the criteria for individual eligibility forbenefits under federal regulations that require each state agency to establish uniformcriteria for determining household eligibility. The criteria must includeincome-based standards that enable each agency to ensure that TEFAP commoditiesgo only to households that are in need of food assistance because of inadequateincome. The commodities donated for this program are bought by the U.S. Department of Agriculture (USDA) with appropriated funds, purchased to reduce agriculturalsurpluses, or drawn from excess holdings of the Commodity Credit Corporationwhen available. In recent years, appropriated funds have been used to acquirebetween one-third and one-half of the commodities distributed under TEFAP; theremainder were provided from surplus purchases and Commodity Credit Corporationstocks. Benefits consist of commodities provided to states for food banks, pantries,and other feeding agencies that distribute them to individuals for at-homeconsumption, or to soup kitchens and homeless shelters and central feeding centersserving meals to the poor. Commodities are packaged in sizes appropriate forprogram use: small package sizes for at-home consumption, and larger, institutionalsizes for meal service operations. Traditionally, most commodities have gone forat-home consumption. In FY2002, USDA provided roughly three dozen types offood items such as canned and fresh fruits and vegetables and juices, beans, cannedmeats, raisins, nuts, pasta, peanut butter, dairy products, and rice. Food package sizeand value generally are the same for all recipients; there is no variation by income orfamily size. By law, TEFAP benefits may not be treated as income or resources ofa recipient for any purpose. The Richard B. Russell National School Lunch Act offers federal funding in the form of legislatively set, annually indexed subsidies for all meals and snacks servedunder summer programs for children, as well as administrative payments to programsponsors. No matching funds are required from non-federal sources. There are no individual income tests for participation. Eligibility for benefits normally is tied to the location of the summer program. In general, eligible programsmust operate in areas where at least 50% of the children are from families withincomes that meet the eligibility criteria for free or reduced-price school lunches (thatis, with income at or below 185% of the annually updated federal poverty incomeguidelines: $33,485 (154) for a four-person familyin the summer of 2003). Sponsorsalso may receive federal support if at least 50% of children "enrolled" in the programmeet the above-noted income eligibility test (regardless of where they are located). Sponsorship is available to all public or private nonprofit school food authorities,local municipal or county governments, residential nonprofit summer camps, mostprivate nonprofit organizations, and colleges and universities participating in theNational Youth Sports program. The law provides federal cash subsidies to sponsors for the cost of obtaining, preparing, and serving food. They are undifferentiated by recipient child's familyincome and may be supplemented with a small amount of federally providedcommodity assistance. The summer 2003 subsidy rates were: $2.35 for each lunchor supper, $1.35 for each breakfast, and 55 cents for each snack. Sponsoringagencies also receive funds for approved administrative costs, based on the numberof meals/snacks served and the type of sponsor (sponsors located in rural areas andthose who prepare meals on site receive higher payments). The number of subsidizedmeals/snacks served is limited to two per day. In the summer of 2002, some 3,500 summer program sponsors operating 30,000 sites provided subsidized meals/snacks to 1.9 million children in the peak month ofJuly. Note: For more information, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and Funding . The Commodity Supplemental Food Program (CSFP) operates in 112 project areas in 28 states, the District of Columbia, and two Indian tribal areas; these projectsoften offer other services to program participants. The CSFP provides U.S.Department of Agriculture commodities and funds for administrative and distributioncosts to local agencies offering food packages to low-income mothers, infants, youngchildren, and elderly persons. Appropriations for the program finance purchase offood products to be used in monthly packages distributed to participants, as well asexpenses associated with this distribution (typically, about 20% of total funding); inaddition, projects can receive "bonus" commodities provided without appropriatedfunds from Agriculture Department stocks. Funding and commodities are distributedaccording to the caseload, or "slots" allocated to each project. These allocations arebased on previous participation levels of the projects. However, "expansion" fundingfor new slots or new state projects is available if added appropriations are provided. FY2002 funding (obligations) was approximately $104 million. Eligible are pregnant women, breast-feeding women, postpartum women, infants, and children up to age 6 who (a) qualify for food, health, or welfare benefitsunder a governmental program for low-income persons, (b) are determined to be atnutritional risk (if the state agency has adopted this requirement), and (c) live withinthe service area (if the state agency has adopted such a residency rule). In general,women, infants, and children must live in households with income below 185% ofthe federal poverty income guidelines (e.g., about $28,200 for a three-person familyin FY2004). More important, CSFP projects may serve elderly persons in theirservice areas whose income does not exceed 130% of the federal poverty guideline(a ceiling of about $11,700 for a single person in FY2004. The elderly make up over75% of recipients. Persons may not participate in the CSFP and the SpecialSupplemental Nutrition Program for Women, Infants, and Children (the WICprogram) at the same time; however they may participate in other nutrition programsfor the elderly. Participants receive food commodities from local agencies. Agriculture Department guidelines establish food packages for each category of participant. Commodities in the food packages include items such as infant formula, cereals,canned and nonfat dry milk, canned meats and stews, canned poultry and fish, eggmix, fruit and vegetable juices, potatoes, canned vegetables and fruits, peanut butter,pasta, and dry beans. In FY2002, a total of 427,000 individuals (75,000 mothers, infants, and children and 352,000 elderly persons) received commodity food packages valued at $16-$20a month. The Food Distribution Program on Indian Reservations (FDPIR) is an "entitlement" program -- operated and funded under the aegis of the Food Stamp Act -- providing food packages in lieu of Food Stamp benefits. Under FDPIR, the U.S.Department of Agriculture (USDA) acquires the food commodities to be included inthe program's monthly food packages either by direct purchase (with appropriatedfunds designated for Indian food assistance) or, to a lesser degree, through itsagriculture support programs. The food acquired by the USDA is given to the 94Indian Tribal Organizations (ITOs) and six state agencies operating FDPIR projectsfor distribution to eligible households -- based on the projects' number of recipients. In addition, the federal government pays at least 75% of administrative anddistribution costs of the projects. FY2002 federal spending on this program(commodity purchases and support for administrative/distribution costs) totaled $74million. The FDPIR allows ITOs or state welfare agencies to operate food distribution programs in lieu of the Food Stamp program. Recipients must reside on or near aparticipating reservation, or, in the case of Oklahoma, reside within a stipulatedservice area. Eligible households not residing on a reservation must include a NativeAmerican household member. Households must meet financial needs tests:households in which all members are included in a public assistance or SSI grant arefinancially eligible for FDPIR; for non-assistance households, the income ceilinggenerally is the income standard of the food stamp program, increased by the amountof that program's standard deduction. Except for the area of residence/NativeAmerican householder requirements, eligibility rules are similar to those for the FoodStamp program. Grantee agencies are responsible for certifying recipient eligibility,providing nutrition education, transporting and storing commodities, and distributingthem to recipient households. Both food stamps and the FDPIR may be available inthe same area, as long as no individual household participates in both programsconcurrently. In FY2002, the FDPIR operated on 243 reservations (as well as anumber of designated service areas in Oklahoma), with average monthly participationof 110,000 persons. Benefits consist of monthly food packages that meet federal guidelines for nutritional adequacy. Commodities contained in the monthly food packages consistof a variety of items, including canned meats, fish, fruits, and vegetables, fruit andvegetable juices, cereals, rice, pasta, cornmeal, cheese, butter, nonfat dry milk, flour,vegetable oil, peanut butter and peanuts, corn syrup, and (in most projects) freshfruits and vegetables. In FY2002, foods valued at about $36 per person per monthwere provided under the FDPIR. Federal funding is provided to states (typically through state agriculture agencies that operate programs in cooperation with state health or social services departments)for two farmers' market nutrition programs: (1) a program for participants in (orthose on a waiting list for) the Special Supplemental Nutrition Program for Women,Infants, and Children (the WIC Farmers' Market Nutrition program ) and (2) a SeniorFarmers' Market Nutrition program . Money for the WIC Farmers' Market Nutritionprogram is provided as a set-aside from the annual appropriation for the SpecialSupplemental Nutrition Program for Women, Infants, and Children (the WICprogram) -- e.g., $25 million in FY2002. Funds for the Senior Farmers' MarketNutrition program are made available through a mandatory directive to spend $15million a year (plus any additional amounts that Congress may provide throughannual appropriations). State grants are allocated, at the U.S. Department of Agriculture's discretion, based on the needs described in their state plans, the availability of new federalfunds, and states' past use of funds, but not all states participate in these programs. In FY2003, 36 states, the District of Columbia, Guam, and Puerto Rico -- along withfive Indian Tribal Organizations -- participated in the WIC Farmers' MarketNutrition program. This program requires that states' contribute at least 30% of thetotal cost of the program (although Indian Tribal Organizations may contribute amatch of as little as 10%). In FY2003, 35 states, the District of Columbia, PuertoRico, and three Indian Tribal Organizations participated in the Senior Farmers'Market Nutrition program. This program requires no state match. Expansion of bothprograms (both to new participants and new states) depends on the availability ofadditional federal funding. Organized farmers' markets (and, in some cases, roadside farm produce stands or special community-supported nutrition projects) approved by administering stateagencies (normally state agriculture departments) are eligible to participate in the twofarmers' market nutrition programs. In FY2002, a total of just over 3,000 marketsparticipated. For the WIC Farmers' Market Nutrition program, WIC recipients (seeprogram no. 23), or those approved but waiting for WIC benefits are eligible inparticipating jurisdictions. Under the Senior Farmers' Market Nutrition program,lower-income elderly persons -- generally defined as those at least 60 years of agewho have household income of less than 185% of the federal poverty incomeguidelines -- are eligible for benefits. However, administering agencies may acceptproof of participation in a means-tested benefit program like food stamps or theSupplemental Security Income (SSI) program when determining individuals'eligibility. Benefits under the two farmers' market programs are issued as coupons or vouchers usable only at participating markets. Vouchers/coupons may be redeemedfor fresh, unprepared fruits, vegetables, and herbs. Vouchers/coupons issued underthe WIC Farmers' Market Nutrition program may not have a value of more than $20per year per recipient (although participating states may increase this value usingnon-federal funds). Vouchers/coupons issued under the Senior Farmers' MarketNutrition program are not limited in value by law, although budgetary constraintstypically require that they be limited to amounts similar to those under the WICFarmers' Market Nutrition program. Nutrition education activities arranged by WICprogram operators also may be provided at farmers' market sites. The Child Nutrition Act provides 100% federal funding -- legislatively set, annually indexed subsidies -- to cover the cost of free half-pints of milk served tolow-income children by schools and residential child care institutions (RCCIs)choosing to participate in this program. Federal subsidies also are available forhalf-pints of milk served to non-needy children. In FY2002, approximately 5% ofthe half-pints of milk subsidized under this program were served free to low-incomechildren. No matching funds are required from non-federal sources. All children in participating schools and RCCIs are eligible to receive subsidized milk under this program. Participating schools and RCCIs must have apolicy of lowering any prices charged for milk they serve to maximum extentpossible and using their federal payments to reduce the selling price of milk tochildren. In addition, individual schools and RCCIs may choose to offer free milkto low-income children. The program operates primarily in those schools andinstitutions that do not participate in the school lunch or school breakfast programs. (159) Each half-pint served is federally subsidized at a different rate, depending on whetherit is served free or not -- but provision of free milk is not required, and most childrenare charged. To qualify for free milk (if offered), a child must meet the income eligibility standards for a free meal under the School Lunch or Breakfast programs. That is, thechild's family's income must not exceed 130% of the federal poverty incomeguidelines (e.g., $23,530 (160) for a family of fourin the 2002-2003 school year). Non-needy children and needy children in schools/RCCIs that do not offer free milkpay an amount determined by the school or RCCI. For the 2002-2003 school year, half-pints were subsidized at 13.5 cents each (if there was a charge to the child) or the net cost to the school/RCCI, typically 1.5-2.5cents higher (if the milk was served free). In FY2002, 112 million subsidized half-pints (5% free) were served to roughly 500,000 children through over 8,000 schools and RCCIs. Note: For more information, see CRS Report RL31577, Child Nutrition andWIC Programs: Background and Funding . This program is funded 100% by the federal government. Outlays were $18.5 billion in FY2002. The Section 8 rental assistance program was authorized by the Housing and Community Development Act of 1974 ( P.L. 93-383 ). The program has twocomponents; section 8 project-based rental assistance and section 8 Housing ChoiceVouchers. The project-based rental assistance component is a set of rent subsidiesattached to housing units owned by private landlords. The vouchers are portablesubsidies that eligible households take to private landlords and use to subsidize theirhousing costs. Currently, HUD is not entering into any new contracts under theproject-based rental assistance component of Section 8 and when the existingcontracts expire, the households are given vouchers. Low-income families and single persons (162) are eligible for both forms ofsubsidies. Low-income, for the purpose of this program, is defined as income at orbelow 80% of the local area median income, adjusted for family size. Althoughlow-income households are eligible for Section 8 housing subsidies, extremelylow-income households, defined as households with incomes at or below 30% of thelocal area median income, are targeted for assistance. (163) Forty percent of availableproject-based rental assistance subsidies and 75% of vouchers must be targeted toextremely low income households. In the project-based rental assistance program,project owners maintain waiting lists and can give priority to working families. Inthe voucher program, quasi-governmental local Public Housing Authorities (PHAs)maintain waiting lists for Section 8 vouchers and can develop a set of localpreferences that can be used to prioritize the list. In determining the annual countable income of a family, various deductions are made from gross income. (164) The chief onesare $480 per dependent, $400 for anelderly family, excess medical costs for an elderly family, and costs of child care andhandicapped assistance. (165) For families withnet family assets above $5,000, federalregulations include in "income" used to decide eligibility and required rent thegreater of (a) actual income from all net family assets, or (b) a percentage of theirvalue, based on the current passbook savings rate. (166) Net family assets are definedas net cash value (after costs of disposal) of real property, savings, stocks, bonds, andother forms of investment. Not included are such "necessary items" as furniture andautomobiles. (167) In 1990, the NationalAffordable Housing Act ( P.L. 101-625 )increased the deductions from gross income for Section 8 housing and publichousing, but made the changes subject to approval in an appropriations measure. Through FY2003 no appropriation bill had provided for the larger deductions, andold deductions still applied. Section 8 recipients must recertify their incomesannually. Eligibility and rental charges are based on countable family incomeexpected in the 12 months following the date of determination. Benefit levels for project-based rental assistance and vouchers are calculated using different formulas. Families who receive Section 8 project-based rental assistance pay towards rent the highest of (a) 30% of counted income, (b) 10% of gross income, or (c) aminimum rent of up to $50 monthly set by the PHA. (168) Exemptions to the minimumrent levels can be made for a variety of hardship circumstances. The federalgovernment then pays the difference between contract rent and the rent paid by thetenant. The contract rent charged by the owner of Section 8 housing must be withinlimits established by a HUD survey of fair market rents (FMRs) for standard units ineach metropolitan area or non-metropolitan county of the Nation. P.L. 98-181 revoked authority to contract for additional Section 8 project-based rental assistanceunits. In FY2002, the federal government had $4 billion in budget authority for747,093 project-based rental assistance units. The average subsidy paid per unit was$5,388. Families who receive Section 8 Housing Choice Vouchers pay towards rent an amount between 30% and 40% of their adjusted income. The federal governmentpays a Housing Assistance Payment (HAP) based on the difference between apredetermined maximum payment, called a payment standard, and 30% of thehousehold's income. A payment standard is calculated by the PHA as an amountbetween 90% and 110% of FMR, or the rent charged for the unit, whichever is less. In FY2002, HUD had $11.5 billion in budget authority for vouchers, which was usedto support 1.96 million vouchers, at an average per household subsidy of $5,891. Note: For more information about Section 8 rental assistance, see CRS Report RL31930, The Housing Choice Voucher Program: Background, Funding, and Issuesin the 108th Congress . This program is funded 100% by the federal government. However, an indirect local contribution results from the difference between full local property taxes andpayments in lieu of taxes that are made by local housing authorities. FY2002 federaloutlays for public housing were $8.2 billion (including operating subsidies andcapital grants). (169) Public housing is publicly-owned housing for low-income families that is managed by local, quasi-governmental, public housing authorities (PHA). Thefederal government subsidizes the operating and capital costs of maintaining thesebuildings through regular subsidies, as well as competitive subsidies paid to PHAs. The competitive subsidies include the HOPE VI Revitalization of Distressed PublicHousing Grants, which can be used to demolish and/or revitalize troubled publichousing developments and the Public Housing Drug Elimination Program (PHDEP),which can be used to promote safety in public housing. The public housing programwas authorized by the U.S. Housing Act of 1937 (93-383), as amended. Households (171) are eligible to live in public housing if they are low-income,which is defined as having income at or below 80% of the local area median income,adjusted for family size. Although low-income families are eligible for publichousing, since 1998, at least 40% of all public housing units must be occupied byextremely low-income families, defined as families with income at or below 30% ofarea median income. (172) However, PHAs aredirected not to concentrate extremelypoor families in public housing, rather to encourage an income mix. In determining the annual countable income of a family, various deductions are made from gross income. (173) The chief onesare: $480 per dependent, $400 for anelderly family, excess medical costs for an elderly family, and costs of child care andhandicapped assistance. (174) For families withnet family assets above $5,000, federalregulations include as "income": (a) actual income from all net family assets, or (b)a percentage of their value, based on the current passbook savings rate. (175) Net familyassets are defined as net cash value (after costs of disposal) of real property, savings,stocks, bonds, and other forms of investment. Not included are such "necessaryitems" as furniture and automobiles. (176) Eligibility and rental charges are based oncountable family income expected in the 12 months following admission orrecertification. Income is recertified annually. In order to maintain eligibility to live in public housing, certain residents are required to participate in an economic self-sufficiency program or contribute 8 hoursper month of community service. This requirement was established by the QualityHousing and Work Responsibility Act of 1998 (QHWRA) ( P.L. 105-276 ). It wassuspended during FY2002, but was reinstated as of August 1, 2003. Exempt fromthis rule are persons who are engaged in an educational program or work-relatedactivity, have a disability which would prohibit them from complying with therequirement or are 62 years of age or older. Those who do not comply with therequirement could lose the right to renew their lease. Households who live in public housing pay towards rent the highest of (a) 30% of counted income, (b) 10% of gross income, or (c) a minimum rent of up to $50monthly set by the PHA. (177) Exemptions to theminimum rent levels can be made fora variety of hardship circumstances. Under P.L. 105-276 , tenants are permitted tochoose (annually) between paying either a flat rent or an income-based rent. Thisprovision is intended to encourage families to seek employment and higher earnings. Also, if a family's income does increase as a result of work, the increase is not to beused to determine the family's portion of rental payment for 1 year. After 1 year, therental increase is phased in. The amount of subsidy paid by the federal government on behalf of the residentsof public housing is based on the difference between the cost of operating andmaintaining a public housing project and the amount collected in tenant rent. FY2002 federal outlays for public housing (including capital grants, operating subsidies, PHDEP, Hope VI, and the public housing loan fund), (178) averaged about$6,795 per unit. (179) This program is funded 100% by the federal government. Factors used to allocate loan funds: state shares of rural occupied substandard units, ruralpopulation, rural population in places of fewer than 2,500 persons, and low-incomeand very-low-income rural households. Federal obligations for direct and guaranteedloans totaled $3.5 billion in FY2002. The law permits loans for owners or potential owners of a farm, or owners of a home or nonfarm tract in a rural area, who are without decent, safe, and sanitaryhousing and unable to obtain credit elsewhere on reasonable terms. Both very-low-and low-income families are eligible for Section 502 loans and interest credits. (181) The 1983 Housing and Urban-Rural Recovery Act (Titles I through V of P.L. 99-181 )requires that at least 40% of units nationwide and 30% of the units in each statefinanced under this program be occupied by very-low-income families or persons. The law defines low-income and very-low-income families as those whose incomes do not exceed limits established for these families in public housing andSection 8 housing (adjusted for family size, these limits are 80% and 50% of the areamedian, respectively). (182) The Housing and Community Development Act of 1987 ( P.L. 100-242 ) (183) directed the Farmers Home Administration (FmHA), since replaced by the RuralHousing Service (RHS), (184) to carry out a 3-yeardemonstration program under whichmoderate income borrowers (with income at or below the area median) might obtainguaranteed loans under Section 502 for the purchase of single-family homes. Theprogram was made permanent by the Cranston-Gonzalez National AffordableHousing Act ( P.L. 101-625 ). Other eligibility requirements are set by RHS. Families must have sufficient income to make mortgage payments and to pay premiums, taxes, maintenance, andother necessary living expenses. The 1983 Act required FmHA to define adjusted annual income in accordance with criteria used by the Department of Housing and Urban Development (HUD) forSection 8 housing and public housing. Accordingly, the chief deductions fromcountable income are $480 per year per dependent, $400 for an elderly family, excessmedical costs for an elderly family, and costs of child care and handicappedassistance. (185) RHS regulations exclude someitems by definition. (186) They alsorequire that income from net family assets be counted in calculating income foreligibility and loan repayment purposes and define net family assets to include theequity value of real property other than the dwelling or site, savings, stocks, bonds,and other forms of investment. Items not counted as assets include necessary itemsof personal property, assets that are part of the business, trade, or farming operations,or irrevocable trust funds. (187) Residents of rural areas may qualify for direct loans from RHS to purchase or repair homes. The homes must be "modest" in size, design, and cost, and regulationsspecify that a new house for six persons should not exceed 1,248 square feet. Section502 direct loans generally have a term of 33 years, but the term may be extended to38 years for borrowers with incomes below 60% of the area median. Depending onthe borrower's income, the interest rate may be subsidized to as low as 1%. In agiven fiscal year, at least 40% of the funding must be made available tovery-low-income borrowers (those with income of 50% or less of the area median). The Housing and Community Development Act of 1992 permits guaranteed loans toborrowers whose income does not exceed 115% of the area median. In FY2002, direct loans from RHS totaled $1.080 billion and provided housing for 14,727 low-income families. Private lenders made about $2.419 billion inguaranteed loans to 28,364 low- to moderate-income families. Federal funds pay 25% of costs of new construction, rehabilitation or tenant-based assistance under the Home Investment Partnerships program, which wasestablished in late 1990 by P.L. 101-625 . (188) A participating jurisdiction (local or stategovernment) pays the remaining share; it may use bond or debt financing to cover nomore than 25% of its overall matching fund requirement. However, if a jurisdictionis found in "fiscal distress," its funding share is reduced or eliminated. To receive HOME funds, a jurisdiction must submit a consolidated plan identifying its housingneeds and strategies. The formula for allocating HOME funds among states and unitsof local government (metropolitan cities, urban counties, or consortia) has six factors,three of which are poverty-related measures. Federal obligations for FY2002 totaled$1.8 billion; state/local contributions totaled $704 million. To be eligible for help from this "affordable housing" block grant program, families or individuals must meet an income test. For rental housing andtenant-based rental assistance, at least 90% of recipient families must have annualincomes that do not exceed 60% of the median family income for the area (adjustedfor family size); (190) the remaining 10% offamilies may have incomes up to 80% ofthe area median. For homebuyers, the income limit is 80% of the area median. In determining the annual countable income of a family, various deductions are made from gross income. (191) The chief onesare: $480 per dependent, $400 for anelderly family, excess medical costs for an elderly family, and costs of child care andhandicapped assistance. (192) For families withnet family assets above $5,000, federalregulations include in "income" used to decide eligibility and required rent thegreater of (a) actual income from all net family assets, or (b) a percentage of theirvalue, based on the current passbook savings rate. (193) Net family assets are definedas net cash value (after costs of disposal) of real property, savings, stocks, bonds, andother forms of investment. Not included are such "necessary items" as furniture andautomobiles. (194) The goal of HOME is to increase the supply of affordable housing, especially of rental housing, for very low-income and low-income Americans (amendments in1992 added elder cottage housing opportunity (ECHO) units to the program). Themaximum rental subsidy payable under HOME is the difference between the rentstandard established for the unit and 30% of the family's monthly adjusted income,as defined for the Section 8 and public housing programs. Rents paid by most of theextremely low-income families generally exceed 30% of income unless they receiveadditional tenant-based rental assistance. Over the course of the program, as of September 30, 2002, about $6.3 billion in HOME funds and $19.2 billion in other public (and some private) funds hadassisted 687,274 housing units and provided tenant-based assistance to 83,939families. In the projects completed through the end of FY2002, 97% of the tenantsreceiving rental assistance, 81.5% of the tenants in assisted rental housing, 68.8% ofthe residents of repaired homes, and 29.4% of the assisted homebuyers, had incomesof 50% or less of the area median income. Note: This program was inadvertently omitted from previous editions of this report. Program outlays for FY1996 through FY2002 (195) have been added to historical tablesin this edition. This program is funded 100% by the federal government. Outlays were $895 million in FY2002. The Department of Housing and Urban Development's (HUD) Housing for Special Populations program is actually two programs: Section 202 SupportiveHousing for the Elderly and Section 811 Supportive Housing for the Disabled. (197) Both programs provide capital advances to finance the construction, rehabilitationor acquisition of structures that will serve as supportive housing for low-incomeelderly and/or disabled households. The capital advance is interest-free and can beforgiven as long as the property remains available for very low-income elderly ordisabled households for at least 40 years. The capital advances are paired with rentalassistance, similar to Section 8 rental assistance. Each year, up to 25% of Section811 funds provided by Congress are used to provide Section 8 Housing ChoiceVouchers to persons with disabilities to allow them to search for units in the privatemarket. Both programs (198) restrict eligibility to households with income at or below 50%of the local area median income, adjusted for family size. (199) In determining theannual countable income of a family, various deductions are made from grossincome. (200) The chief ones are: $480 perdependent, $400 for an elderly family,excess medical costs for an elderly family, and costs of child care and handicappedassistance. (201) For families with net familyassets above $5,000, federal regulationsinclude in "income" used to decide eligibility and required rent the greater of (a)actual income from all net family assets, or (b) a percentage of their value, based onthe current passbook savings rate. (202) Netfamily assets are defined as net cash value(after costs of disposal) of real property, savings, stocks, bonds, and other forms ofinvestment. Not included are such "necessary items" as furniture and automobiles. (203) Like in most HUD housing assistance programs, residents of Section 202 and Section 811 properties must recertify their incomes annually. Eligibility and rentalcharges are based on countable family income expected in the 12 months followingthe date of determination. In addition to income requirements, Section 202 and Section 811 are restricted to households who are elderly or disabled. In order to live in a Section 202 property,a household must have at least one member who is at least age 62 at the time ofinitial occupancy. In order to live in a Section 811 property, a household must haveat least one member who has a disability, such as a physical or developmentaldisability, or a chronic mental illness. Households who live in a Section 202 or Section 811 property pay towards rent the higher of (a) 30% of counted income or (b) 10% of gross income. (204) Minimumrents can be set as high as $50, however, exemptions to the minimum rent levels canbe made for a variety of hardship circumstances. The benefit level paid by thefederal government to the landlord is equal to the difference between the contract rentfor the unit and the amount of rent paid by the tenant. The contract rent must bewithin limits established by a HUD survey of fair market rents for standard units ineach metropolitan area or non-metropolitan area of the Nation. In FY2002, the federal government spent $672 million for the Section 202 program and $223 million for the Section 811 program. In 2002, these programssupported 62,694 Section 202 units and 18,649 Section 811 units. This program is funded 100% by the federal government. Factors used to allocate funds: state shares of rural population, rural housing units lacking plumbingand/or overcrowded, and poor persons living in rural areas. Federal obligations forthis program totaled $705 million in FY2002. Since 1974 the Farmers Home Administration (FmHA) and its successor, the Rural Housing Service (RHS) (206) have beenauthorized to make rental assistancepayments to owners of RHS-financed rural rental housing (Section 515) and farmlabor housing (Sections 514 and 516) to enable them to reduce rents charged toeligible tenants. Eligible tenants must have adjusted family income that does notexceed the very-low-income limit established for the area by the Department ofHousing and Urban Development (HUD) -- 50% of the area median, adjusted forfamily size. (207) Owners must agree to operatethe property on a limited profit ornonprofit basis. The term of the rental assistance agreement is 20 years for newconstruction projects and 5 years for existing projects. Agreements may be renewedfor up to 5 years. An eligible owner who does not participate in the program may bepetitioned to participate by 20% or more of the tenants eligible for rental assistance. The rental assistance payments, which are made directly to the housing owners, make up the difference between the tenants' payments and the RHS-approved rentfor the units. Originally, tenants in the program paid no more than 25% of theirincome in rent. (208) Amendments in the 1983Housing Act provide that rent paymentsof eligible families are to equal the highest of (1) 30% of monthly adjusted familyincome, (2) 10% of monthly income, or (3) for welfare recipients, the portion of afamily's welfare payment, if any, that is designated for housing costs. (209) In FY2002, this program provided assistance to about 44,298 families (in rental assistance renewal contracts and aid for newly constructed units). This program is funded 100% by the federal government. Outlays in FY2002 totaled $579 million. Authorized by the Housing and Community Development Act of 1974 ( P.L. 93-383 ), the Section 236 Interest Reduction Payments (IRP) program providesmortgage subsidies to owners of multifamily properties who agree to keep theproperty available to low-income families for a specified number of years. Section236 subsidized units often also receive some form of rent subsidy, such as Section8 rental assistance. Households are eligible to live in Section 236 properties as long as their incomes are not in excess of 80% of the area median income. The program is opento families and to single persons without regard to age, except in units alsosubsidized by Section 8, where Section 8 regulations apply. Until December 2, 1979, the law excluded from "income" for the purposes of determining eligibility and subsidy levels 5% of gross incomes, all earnings of minorchildren living at home, plus $300 for each child. For tenants admitted afterDecember 21, 1979, P.L. 96-153 provided that income should be defined inaccordance with procedures and deductions permissible under the Section 8 program. That program excludes some items (including earnings of children, lump-sumpayments, and payments for foster care) from "income" by definition. It also deducts some items from income. The chief ones are $480 per dependent, $400 foran elderly family, excess medical costs for an elderly family, and costs of child careand handicapped assistance. (211) Incomerecertification is required annually. Eligibility and subsidy amounts are based on anticipated income in the year ahead,but a shorter accounting period is permitted by regulations. A basic monthly rental charge is established for each unit on the basis of the costs of operating the project with the debt service requirements of a mortgagebearing a 1% interest rate. The Department of Housing and Urban Development(HUD) makes payments to a mortgagee to reduce the effective interest rate to theproject to 1%. A fair market rental charge is established for each unit based on costsof operation with the debt service requirements of a mortgage at the full market rate. The law provides that the tenant family shall pay the basic rent or an amount equalto 30% of "adjusted gross income," (212) (countable housing income, as defined above),whichever is greater, but not more than the market rent. However, 20% of tenantswho cannot afford the basic rent are to be provided additional help to lower theirrental payment to 30% of income. (213) Further,elderly and handicapped familiespaying more than 50% of their income for rent can receive Section 8 assistance. (214) In FY2002, benefits averaged $1,833 per dwelling unit, $153 monthly. These subsidies were paid on behalf on families in 315,976 units. (215) This program is 100% federally funded. Ninety percent of appropriated funds are distributed by formula, (217) and 10% bycompetitive awards. Three-fourths offormula grants are made to cities (for metropolitan statistical areas with a populationof more than 500,000 and more than 1,500 AIDS cases) and to eligible states (withmore than 1,500 AIDS cases in areas outside of MSAs eligible for HOPWA grantsthrough a city). Remaining formula funds are allocated among cities (in metropolitanstatistical areas with a population greater than 500,000 and more than 1,500 AIDScases) that had a higher than average per capita incidence of AIDS during the yearprevious to the appropriation year. (218) Theminimum formula grant is $200,000. Thenumber of jurisdictions that qualify for a formula allocation has been growing, from97 in 1999 to a projected 114 in 2004. Competitive awards are made for projectsproposed by states and local governments for areas not included in formulaallocations. Competitive grants also are available for projects of nationalsignificance proposed by nonprofit entities. HOPWA outlays for FY2002 were $314million. The AIDS Housing Opportunity Act (enacted as part of P.L. 101-625 ) makes eligible low-income persons with AIDS or related diseases, including HIV infection,and their families. The law defines low-income to mean a person or family whoseincome does not exceed 80% of the local area median income, adjusted for familysize. (219) However, the law authorizes theSecretary of Housing and UrbanDevelopment (HUD) to alter the income ceiling for an area if this is found necessarybecause of prevailing levels of construction costs or unusually high or low familyincomes. The program offers information about housing to all persons with AIDSregardless of income. According to a 2002 survey of providers, more than half of households served by HOPWA have extremely low incomes, below 30% of the area median. (220) HOPWA funds may be used for numerous benefits and services, including housing information services; acquisition, rehabilitation, conversion, lease, and repairof facilities to provide housing and services; new construction (for single roomoccupancy (SRO) dwellings and community residences only); project- ortenant-based rental assistance, including assistance for shared housing arrangements;short-term rent, mortgage, and utility payments to prevent homelessness; supportiveservices such as health and mental health services, drug and alcohol abuse treatmentand counseling, day care, nutritional services, intensive care when required, aid ingaining access to other public benefits; operating costs; and technical assistance inestablishing and operating a community residence. HUD data show that in FY2002, 68,000 households received housing assistance through HOPWA. HUD has projected that in FY2003, 73,000 households willreceive assistance through HOPWA. Note: For more details about HOPWA, see CRS Report RS20704, Housing Opportunities for People with AIDS (HOPWA) . This program is funded 100% by the federal government. Factors used to allocate funds state shares of: rural population, rural housing units lacking plumbingand/or overcrowded, and poor persons living in rural areas. Federal obligations forthis program totaled $114 million in FY2002. (221) The law permits loans for rural rental and cooperative housing units to be occupied by families with "very low" or "moderate" income, or by handicapped ordisabled persons or those aged at least 62. The law requires that at least 40% ofSection 515 units nationwide and 30% of units in each state be occupied by"very-low-income" families or persons. Moreover, the Housing and CommunityDevelopment Act of 1987 restricts occupancy of Section 515 housing units, ifconstructed with help of low-income housing tax credits, to families whose incomesare within the limits established for the tax credits. (223) However, this restriction doesnot apply if the Rural Housing Service (RHS) (224) finds that units have been vacant forat least 6 months and that their continued vacancy threatens the project's financialviability. The law (225) defines "low-income" and "very-low-income" families as thosewhose incomes do not exceed limits established by the Department of Housing andUrban Development (HUD) for such families in public housing and Section 8housing (that is, up to 80% or 50% of area median income, respectively, adjusted forfamily size). (226) Federal regulations issued October 1, 1985, provide that the moderate-incomelimits are $5,500 above the low-income ceilings (unless the moderate income limitin use before October 1, 1985, was higher, in which case it is continued). Sponsors can be nonprofit, profit oriented, or "limited profit," must be unable to obtain credit elsewhere on reasonable terms that would enable them to rent theunits for amounts within the payment ability of eligible tenants, and must havesufficient initial capital to make loan payments and meet costs. Applicants mustconduct market surveys to determine the number of eligible occupants in the areawho are willing and financially able to occupy the housing at the proposed rentlevels. Nonprofit sponsors and state and local public agencies are eligible for loans up to 100% of the appraised value or development cost, whichever is less. Purchaseloans for buildings less than 1 year old are limited to 80% of the appraised value. Loan amounts and terms can be determined by RHS. In FY2002, Section 515 loans financed housing for about 7,284 families. This program is funded 100% by the federal government. Two factors are used to allocate loan funds: state shares of rural occupied units and very-low income ruralhouseholds. For grants, a third factor is added: rural population aged at least 62.Federal obligations for this program totaled $57.8 million in FY2002. The law permits repair loans at a very low interest rate for "very-low-income" owners of a farm or rural home who cannot obtain credit on reasonable termselsewhere. The program uses the very-low-income limits established by theDepartment of Housing and Urban Development (HUD) for the area. (228) Income ofborrowers must be insufficient to qualify for a Section 502 loan, but adequate,including any "welfare-type" payments, to repay a Section 504 loan, as determinedby the Rural Housing Service (RHS). The law (229) provides that farm housingprograms are to use the income definition of the Section 8 (and public housing)programs (See program no. 33). Grants are made to elderly homeowners at least age62 (230) whose annual income prevents any loanrepayment. Loans are limited to $20,000 and have a 20-year term at a 1% interest rate. (231) Owners who are at least age 62 may qualify for grants of up to $7,500. Dependingon repair costs and the homeowner's income, the owner may be eligible for a grantfor the full cost of repairs or for some combination of a loan and a grant, not toexceed $20,000. In FY2002, $31.8 million in loans repaired 55,615 homes. A totalof about $30.6 million in grants was used for the repair of 6,170 homes owned by theelderly. This program is fully funded by the federal government. The funds for the programs are not allocated to the states. The funds are kept in reserve at the RHSnational office and are available as determined administratively. Federal obligationsfor these loans and grants totaled $61.7 million in FY2002. Individual farm owners, associations of farmers, local broad-based nonprofit organizations, federally recognized Indian tribes, and agencies or politicalsubdivisions of local or state governments may be eligible for loans at a very lowinterest rate from the Rural Housing Service (RHS), (233) successor to the FarmersHome Administration (FmHA), to provide low-rent housing and related facilities fordomestic farm labor. Applicants must show that the farming operations have ademonstrated need for farm labor housing, must agree to operate the property on anonprofit basis, and must be unable to obtain credit on terms that would enable themto provide housing to farm workers at rental rates that would be affordable to theworkers. Except for state and local public agencies or political subdivisions,applicants must be unable to provide the housing from their own resources andunable to obtain the credit from other sources on terms and conditions that they couldreasonably be expected to fulfill. The RHS state director may make exceptions to the"credit elsewhere" test when (1) there is a need in the area for housing for migrant farm workers and the applicant will provide such housing, and (2) there is no stateor local body or nonprofit organization that, within a reasonable period of time, iswilling and able to provide the housing. Applicants must have sufficient initial operating capital to pay the initial operating expenses. It must be demonstrated that, after the loan is made, income willbe sufficient to pay operating expenses, make capital improvements, make paymentson the loan, and accumulate reserves. Nonprofit organizations, Indian tribes, and local or state agencies or subdivisions may qualify for Section 516 grants to provide low-rent housing for farmlabor if there is a "pressing need" in the area for the housing and there is reasonabledoubt that it can be provided without the grant. Applicants must contribute at least10% of the total development costs from their own resources or from other sources,including Section 514 loans. The Housing and Community Development Act of 1987 redefined "domestic farm labor" to include persons (and the family of such persons) who receive asubstantial portion of their income from the production or handling of agricultural oraquacultural products. (234) They must be U.S.citizens or legally admitted forpermanent residence in the United States. The term includes retired or disabledpersons who were domestic farm labor at the time of retiring or becoming disabled. In selecting occupants for vacant farm labor housing, RHS is directed to use thefollowing order of priority: (1) active farm laborers, (2) retired or disabled farmlaborers who were active at the time of retiring or becoming disabled, and (3) otherretired or disabled farm laborers. Farm labor housing loans and grants to qualified applicants may be used to buy, build, or improve housing and related facilities for farm workers and to purchase andimprove the land upon which the housing will be located. The funds may be used toinstall streets, water supply and waste disposal systems, parking areas, anddriveways, as well as to buy and install appliances such as ranges, refrigerators,washing machines, and dryers. Related facilities may include the maintenanceworkshop, recreation center, small infirmary, laundry room, day care center, andoffice and living quarters for the resident manager. Section 514 loans are available at 1% interest for up to 33 years. Section 516 grants may not exceed the lesser of (1) 90% of the total development cost of theproject, or (2) the difference between the development costs and the sum of (a) theamount available from the applicant's own resources and (b) the maximum loan theapplicant can repay given the maximum rent that is affordable to the target tenants. In FY2002, $47.3 million in loans and $14.5 million in grants financed the development of 1,870 housing units for farm workers and their families. This program is funded 100% by the federal government. Outlays totaled $54 million in FY2002. Section 101 of the Housing and Urban Development Act of 1965 (P.L. 89-117), as amended, authorized the Department of Housing and Urban Development (HUD)to pay rent supplements on behalf of low income tenants who lived inprivately-owned housing or housing developed under HUD's Section 236 program. Income eligibility for new (236) recipients of rentsupplements is based on eligibility forSection 8 rental assistance and is therefore limited to low income families, definedas families whose incomes are 80% or less of the area median income, adjusted forfamily size. (237) Included in the definition ofincome are earnings from total assetsgreater than $5,000. Income recertification is required annually. Preference foravailable rent supplements is given to households who live in substandard housing,are involuntarily displaced, or are paying more than 50% of income for rent. Before 1979, families were eligible if they were: aged 62 or over or handicapped; displaced by governmental action or natural disaster; occupants ofsubstandard housing; or military personnel serving on active duty, or their spouses. The rent supplements paid by HUD under this program are set as the difference between 30% of a tenant's adjusted gross income (as defined above) or 30% of themarket rent, whichever is higher, minus a basic rent. The basic rent is established by HUD and is designed to cover the total housing costs for each unit. In FY2002, 18,600 units received subsidies, which averaged about $2,900 (238) perunit. No new commitments have been entered into under this program since 1973. Current spending under the program is only for the 18,600 contracts that have not yetexpired. These programs are funded 100% by the federal government. The funds for the programs are not allocated to the states. The funds are kept in reserve at the RHSnational office and are available as determined administratively. Federal obligationsfor these grants and loans totaled $27 million in FY2002. States, political subdivisions, public nonprofit corporations (including Indian tribes and tribal corporations), and private nonprofit corporations (240) may receiveTechnical Assistance (TA) grants from the Rural Housing Service (RHS), successorto the Farmers Home Administration (FmHA). (241) The TA grants are used to pay allor part of the cost of developing, administering, and coordinating programs oftechnical and supervisory assistance to families that are building their homes by themutual self-help method. This is the method whereby families, organized in groupsof 6 or 10 families, use their own labor to reduce construction costs. Each family isexpected to contribute labor on group member's houses to accomplish 65% of thetasks specified by RHS. (242) Applicants must demonstrate that (1) there is a need for self-help housing in the area, (2) the applicant has or can hire qualified people to carry out its responsibilitiesunder the program, and (3) funds for the proposed TA project are not available fromother sources. The program is limited to very-low-income and low-income rural families, defined as those with income below 50% and 80% of the area median, respectively,adjusted for family size. (243) The TA funds may not be used to hire construction workers or to buy real estate or building materials. Private or public nonprofit corporations, however, may beeligible for 2-year site loans under Section 523 or Section 524. Private nonprofitorganizations must have a membership of at least 10 community leaders. The siteloans may be used to buy and develop rural land, which then is subdivided intobuilding sites and sold on a nonprofit basis to low- and moderate-income families. Generally, a loan will not be made unless it will result in at least 10 sites. The sitesneed not be contiguous. Sites financed through Section 523 may be sold only to families who are building homes by the mutual self-help method. Section 524 site loans place norestrictions on construction methods. Houses built on either kind of subsidized siteusually are financed through the Section 502 rural housing loan program (seeprogram no. 35). The RHS state director may approve TA grants of up to $200,000 to eligible organizations. The state director must have written consent from the RHS nationaloffice for larger grants. Applicants must demonstrate that the self-help method willresult in net savings per house of at least $500. The TA grants may be used for hiring personnel (director, coordinator, construction supervisor, and secretary-bookkeeper), paying office and administrativeexpenses, buying and maintaining specialty and power tools (participating familiesare expected to have their own basic hand tools), and paying for technical andconsultant services that are not readily available without cost to the participatingfamilies. Section 523 site loans are made at an interest rate of 3%, but the rate on Section 524 site loans is the Treasury cost of funds. The loans may be used to buy anddevelop sites. Funds may be used to construct access roads and utility lines, providewater and waste disposal facilities if such facilities cannot reasonably be provided ona community basis with other financing, and to provide landscaping, sidewalks,parking areas, and driveways. Common areas such as playgrounds and "tot lots" maybe funded if they are legally required as a condition of subdivision approval. In FY2002, organizations received $26.5 million in mutual and self-help housing grants, and $0.5 million in site development loans. No self-help site loanswere made in FY2002. The count of families receiving assistance is reported underthe Section 502 program. This program is funded 100% by the federal government. Federal obligations for this program totaled $19.6 million in FY2002. Applicants must meet the following requirements: (1) they must be members of a federally recognized American Indian Tribe or Alaska Native Village (2) theymust live in an approved tribal service area, (3) their annual income may not exceed125% of the poverty income guidelines of the Department of Health and HumanServices, (245) (4) their present housing must besubstandard, (5) they must meet theownership requirements for the assistance needed, (6) they must have no otherresource for housing assistance, (7) they have not received assistance after October1, 1986, for repairs and renovation, replacement of housing, or down paymentassistance, and (8) they did not acquire their present housing through participationin a federal housing program that includes the assistance referred to in item seven.Priority is given to families on the basis of four factors: annual household incomeas a percent of the federal poverty income guidelines; the age of elderly occupants;whether the property is occupied by disabled individuals and the percent of thedisability; and the number of unmarried dependent children. The Housing Improvement Program (HIP) is operated by the Bureau of Indian Affairs (BIA) of the Department of the Interior. In general, the program isadministered through a servicing housing office operated by a Tribe or by the BIA. HIP grants are made in one of three categories. Category A grants are used to make interim repairs to properties that are to be made safe, more sanitary, and livableuntil standard housing is available. The condition of the housing must be such thatit is not cost effective to renovate the property. These grants are limited to $2,500per housing unit. Category B grants are made to qualified applicants who occupy housing that can economically be placed in standard condition. Grants are limited to $35,000 for anyone dwelling and the grants may be made to homeowners or renters. Occupants ofrental housing must have an undivided leasehold (the applicants are the only lessees)and the leasehold must last at least 25 years from the date that assistance is received. All applicants must sign a written agreement stating that the grant will be voided ifthe house is sold within 5 years of completion of repairs, and that the applicants willrepay BIA the full cost of repairs that were made. Category C grants are made to applicants who (1) own or lease homes which can not be brought to applicable building code standards for $35,000 or less, or (2) whoown or lease land that is suitable for housing and the land has adequate ingress andegress rights. The grants are used to provide modest replacement housing. Applicants who lease houses or land must have an undivided leasehold and theleasehold must last at least 25 years from the date that assistance is received. If thehome is sold within 10 years, the full amount of the grant must be repaid. For eachyear after the 10th year, the grantee may retain 10% of the original grant amount andrefund the remainder if the home is sold. If the home is sold after 20 years, the grantdoes not have to be repaid. In FY2002, HIP grants assisted 572 families by providing for the renovation of 389 homes, and the construction of 183 homes. Note: P.L. 100-242 (Section 401(d)(1)) terminated authority to make additionalSection 235 commitments, effective October 1, 1989. This program is funded 100% by the federal government. Federal outlays for this program totaled $11 million in FY2002. The Section 235 program, created by the National Housing Act (P.L. 90-448), provides monthly mortgage assistance to lower-income homeowners. Families (two or more related persons) and singles who are elderly (at least 62 years old) or handicapped; and whose adjusted annual incomes do not exceed 95%of the median family income for the area, adjusted for family size, are eligible forSection 235 assistance. The HUD regulations exclude from "income" for thepurposes of determining eligibility and subsidy levels 5% of gross income, allearnings of minor children living at home, plus $300 for each such child. (248) Alsoexcluded is unusual income or property income that does not occur regularly or otherincome of a temporary nature. To qualify for this program, housing units must be new or substantially rehabilitated single-family units that were under construction or rehabilitated on orafter October 17, 1975, condominium units that have never been occupied, or familyunits (in existing condominium projects) that are purchased by a displaced family. The Section 235 program provides aid, in the form of monthly payments to the mortgagee on behalf of the assisted home buyer, to reduce interest costs on aninsured market rate home mortgage to as low as 4%. The borrower must be able topay toward his mortgage payments at least 20% (249) of his or her "adjusted grossincome" (countable housing income, as defined above). Mortgage amounts forcommitments made after July 13, 1981, are limited to $40,000 for single-family andcondominium units with three bedrooms or less, and $47,500 for units with four ormore bedrooms. These limits may be raised by as much as $7,500 in high cost areas,and additionally, by 10% for a dwelling to be occupied by a physically handicappedperson, if the larger mortgage is needed to make the dwelling accessible and usableto him. Any assistance payment made pursuant to a commitment issued on or after May 27, 1981, is subject to recapture upon (1) disposition of the subsidized property, (2)a 90-day cessation of payments on its mortgage, or (3) its rental for longer than 1year. The law provides that the amount recaptured shall be equal to the assistanceactually received or at least 50% of the net appreciation in the value of the property,whichever is less. (250) Benefits averaged about $828 per dwelling unit in FY2002, about $69 monthly. (251) Approximately 13,000 dwellingunits received assistance in FY2002. This program is funded 100% by the federal government. Grantees are encouraged, however, to leverage the grants with funds from local, state, or othersources. Factors used to allocate funds: state shares of rural population, ruraloccupied substandard units, and rural poor families. Federal obligations for thisprogram totaled $8.6 million in FY2002. States, local governments, nonprofit corporations, and Indian tribes, bands, or nations may be eligible to receive grants to operate programs that finance the repairand rehabilitation of single-family housing owned and occupied by families with"low" income (not above 80% of the area median, adjusted for family size) or"very-low" income (not above 50% of the area median). The program uses the dollarlimits established by the Department of Housing and Urban Development (HUD) forthe area. (253) Grant applicants must have a staffor governing body with either (1)proven ability to perform responsibly in the field of low-income rural housingdevelopment, repair, and rehabilitation; or (2) management or administrativeexperience that indicates the ability to operate a program offering funds for housingrepair and rehabilitation. The homes must be located in rural areas and must need housing preservation assistance. Assisted families must meet the income restrictions and must haveoccupied the property for at least 1 year. Occupants of leased homes may be eligiblefor assistance if (1) the unexpired portion of the lease extends for 5 years or more,and (2) the lease permits the occupant to make modifications to the structure andprecludes the owner from increasing the rent because of the modifications. The Rural Housing Service (RHS), (254) successor to the Farmers HomeAdministration (FmHA), is authorized to provide grants to eligible public and privateorganizations. The grantees may in turn provide homeowners with direct loans,grants, or interest rate reductions on loans from private lenders to finance the repairor rehabilitation of their homes. Many housing preservation activities are authorized: (1) installation and/or repair of sanitary water and waste disposal systems to meetlocal health department requirements; (2) installation of energy conservationmaterials, such as insulation and storm windows and doors; (3) repair or replacementof the heating system; (4) repair of the electrical wiring system; (5) repair ofstructural supports and foundations; (6) repair or replacement of the roof; (7) repairof deteriorated siding, porches, or stoops; (8) alteration of the interior to providegreater accessibility for any handicapped member of the family, and (9) additions tothe property that are necessary to alleviate overcrowding or to remove health hazardsto the occupants. Repairs to manufactured homes or mobile homes are authorizedif (1) the recipient owns the home and site and has occupied the home on that site forat least 1 year, and (2) the home is on a permanent foundation or will be put on apermanent foundation with the funds to be received through the program. Up to 25%of the funding to a dwelling may be used for improvements that neither contributeto the health, safety, or well-being of the occupants; or materially contribute to thelong-term preservation of the unit. These improvements may include painting,paneling, carpeting, air conditioning, landscaping, and improving closets or kitchencabinets. The Section 533 program was authorized in 1983, and regulations for the program were published in 1986. (255) The RHSis authorized to make Section 533grants also for rehabilitation of rental and cooperative housing. Regulations toimplement these grants were issued in spring 1993, (256) even though Congress haddirected this action much earlier. (257) Fundingfor this part of the Section 533 programbecame available in FY1994. In FY2002, rural housing preservation grants financed home repairs for 2,133 families. The Homeownership and Opportunity for People Everywhere programs (HOPE 1, 2, and 3) were established in 1990 (258) to helplow-income, first-time homebuyerspurchase housing owned by federal, state, and local governments. Grants wereawarded through FY1996 on a competitive basis to nonprofit organizations, residentmanagement corporations, cooperative associations, public housing authorities, orother bodies who, in turn, carry out the economic development and homeownershipgoals. Regulations required recipients of HOPE 3 implementation grants tocontribute $1 in matching money for each $4 in federal funds awarded (for amountsgranted before April 11, 1994, the required match was higher, 33%). While there hasbeen no new funding of HOPE 1, 2, and 3 programs since FY1996 and no new grantsare being made, some money already committed and in the pipeline continues to bespent. According to figures from the Office of Management and Budget, federaloutlays from current balances were $25 million in FY2000, $21 million in FY2001and $3 million in FY2002. HOPE grantees have included Habitat for Humanity,Catholic Charities, Volunteers of America, and the Enterprise Foundation. In general, to be eligible to purchase an available home in HOPE 1, 2, or 3, a person or family must be a tenant of an eligible property, a resident of other HUDassisted housing, or have an income that does not exceed 80% of the median incomefor the area, adjusted for family size. HOPE 1 authorizes funds to develop tenant management at public and Indian housing projects, for project-related jobs, and for the eventual sale of the renovatedunits to tenants and other qualifying households. HOPE 2 authorizes grants for thesale of multifamily properties that are insured by the Department of Housing andUrban Development (HUD) or are owned by the government, and for funds for smallbusiness startups and other economic development activities. HOPE 3 providesfunds for the purchase of single-family homes held or insured by federal, state, orlocal governments. Many of the HOPE 3 properties sold were homes held by theResolution Trust Corporation, dating to the "Savings & Loan crisis." Purchasers were expected to buy fully renovated units at significant discountsfrom appraised values. There has been almost no information available on programactivity in the last few years on HOPE 1, 2, or 3. Over the years, a variety of HUD programs have sold public housing units to tenants and other low income households. Including HOPE 1, HUD has approvedthe sale of more than 4,700 public housing units since 1993. However, moving fromthe planning stage to actual sale of units can take as many as 10 years. In manycases, grantees are devoting a portion of the grant to support resident organizations,counseling, and training of residents, and other neighborhood economic developmentactivities. HOPE 1 Implementation Grants of $82.4 million were made for 30 grants during FY1992 and FY1994. In a FY2000 HUD status report, information wasavailable on only about one-third of the applicants approved. Of grantees receiving$8.2 million, approximately $4.6 million remained unspent. A number of projectsare in the process of being shut down, with grants being terminated, and money beingreturned. For example, in FY1994, a grant of $1.67 million was made to the housingauthority of Hartford, Connecticut. A grant was approved for the sale of 60 units. HUD says that its field office proposed to terminate the grant as of June 30, 2000 forfailure to execute. A total of $278,000 has been spent, but no information isavailable on whether any units have been sold. An example is from the housingauthority in Kern County, California. An implementation grant of $4.5 million wasmade in FY1994 for the sale of 168 units of public housing. As of FY2000, therewas a remaining balance of $1.9 million, although no information is available on howmany units may have been sold. It appears from previous reports that at least 261HOPE 1 grants totaling $113 million have been made, but again, no aggregateinformation is available on how many units have been sold. Under HOPE 2, grants of about $75 million were made through FY1996. No further information has been made available from HUD. As of July 1997, the cumulative amount of HOPE 3 implementation grants was $210 million for 258 grantees. As of August 1995, 2,298 homes had been acquiredunder HOPE 3 and 1,234 transferred to new buyers. (260) Under the Clinton Administration, there was a move away from the sale of multifamily units, with a shifting emphasis to the sale of both publicly and privatelyowned, scattered-site, single-family homes. In the last few years there has been aphasing down of specialized programs like HOPE 1, 2, and 3. This reflects a policyof "empowering local communities" by giving them the flexibility to developinnovative strategies to meet their local housing and community development needs. For example, currently, HUD's Federal Housing Administration (FHA) sellsHUD-owned single-family homes to approved non-profits at discounts under its"Direct Sales" program. These homes are usually resold to low- andmoderate-income homebuyers in coordinated efforts with local governments andother federal programs to stabilize and revitalize certain neighborhoods. Other HUDowned homes are sold at 50% discounts under FHA's Officer Next Door andTeacher Next Door programs. For detailed information about government-assistedhome buying, see HUD's homebuyer site at [http//www.hud.gov/buyhome.html]. Federal Pell Grants, the largest source of federal student grant assistance administered by the Department of Education (ED), are 100% federally funded. These grants are authorized by Title IV-A of the Higher Education Act. Appropriations for the 2001-2002 school year were $11.4 billion. Pell Grants, originally called "Basic Educational Opportunity Grants," are available to undergraduate students enrolled in an eligible institution ofpostsecondary education who meet a needs test, the elements of which are prescribedin the Higher Education Act (Part F of Title IV). Grantees must meet general studentaid eligibility requirements including maintaining satisfactory progress in their courseof study, not be in default on a federally assisted student loan, not owe a refund ona Pell Grant or Supplemental Educational Opportunity Grant, and register for theSelective Service, if so required. The federal need analysis methodology takes into account the income and assets of the student and his or her family, and determines the amount that a student andhis/her family might reasonably be expected to contribute toward total costs forpostsecondary education (the expected family contribution or EFC). For a dependent (262) student, the expectedfamily contribution is based on the student's andhis or her parents' income and assets. For an independent (263) student, the expectedcontribution is based on the income and assets of the student, if single, and studentand spouse, if married. Included as income are welfare benefits, including TANFpayments, child support, the earned income tax credit, untaxed Social Securitybenefits, and some other untaxed income and benefits. On May 30, 2003, the Department of Education announced updates to the need analysis tables for the 2004-2005 award year. (264) The announcement providedinflation-adjusted updates to four tables used in calculating the expected familycontribution: the income protection allowance, the adjusted net worth of a businessor farm, the education savings and asset protection allowance, and the assessmentschedules and rates. The Department publishes an annual booklet explaining theExpected Family Contribution (EFC) formula. (265) In FY1999, more than 90% of Pell Grant recipients considered to be dependent students had total parental income below $40,000. Among independent studentgrantees, more than 90% had total income below $30,000. (266) Pell Grant awards to students are the lesser of: (1) a statutorily established maximum award ($4,050 for FY2003), minus the expected family contribution (seeexplanation under Eligibility Requirements ); or (2) the cost of attendance minus theexpected family contribution. For the academic year 2001-2002, an estimated 4.8 million students received Pell Grants averaging $2,411. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking Pellgrants (or other student aid provided under the act) into account when determiningeligibility for benefits, or the amount of benefits. Note: For more information, see CRS Report RL31668 , Federal Pell Grant Program of the Higher Education Act: Background and Reauthorization and CRSReport IB10097, The Higher Education Act: Reauthorization Status and Issues . Also see the Federal Student Aid Handbook at http://www.ifap.ed.gov/IFAPWebApp/currentSFAHandbooksPag.jsp . Head Start funds are allocated among states by formula (268) but awarded directlyto local Head Start agencies. Federal assistance for a Head Start program is limitedto 80% of program costs, but the law permits a larger share if the Secretary of HHSdetermines this to be necessary for Head Start's purposes. Federal regulations permita higher federal share for a Head Start agency that is located in a relatively poorcounty (269) or one that has been "involved" ina major disaster if the Secretary findsthat the agency is "unable" to pay a 20% share despite a "reasonable effort" to do so. Also, if a Head Start agency received more than an 80% federal share for any budgetperiod within FY1973 or FY1974, it is entitled by regulation to continue to receivethe larger share. The non-federal share may be paid in cash or in kind. It may bepaid by the Head Start agency or by another party. A Head Start agency is a localpublic or private nonprofit or for profit organization designated to operate a HeadStart program. FY2003 appropriations for Head Start were $6.7 billion. Head Start is targeted by law to low-income families, but the law gives authority to HHS for determining eligibility criteria. The regulations require that at least 90%of the children in each Head Start program be from "low-income" families, (271) definedas families with incomes below the "official poverty line," and including childrenfrom families receiving public assistance and children in foster care. In addition, atleast 10% of total Head Start enrollment opportunities in each program must be madeavailable for handicapped children In 2003, federal poverty income guidelines were$15,260 for a family of three and $18,400 for a family of four for the 48 contiguousstates and the District of Columbia. Head Start does not have asset rules restrictingeligibility. The law allows certain small, remote communities to establish their own eligibility criteria as long as at least half of the families are eligible under the incomeguidelines. To qualify for this authority, communities must have a population nogreater than 1,000, be medically underserved, and lack other preschool programs ormedical services within a reasonable distance. Head Start provides comprehensive services to preschool children. Services include educational, dental, medical, nutritional, and social services to children andtheir families. Head Start agencies are forbidden by law from charging fees, althoughfamilies who want to pay for services may voluntarily do so. Note: For further information about Head Start, see CRS Report RL30952 , Head Start Issues in the 108th Congress. Subsidized Federal Stafford loans are provided to students by the Federal Family Education Loan (FFEL) program and the Ford Federal Direct Student Loan(DL) program. (272) Capital for FFEL Staffordloans is provided by banks and otherprivate lenders. Capital for Stafford/Ford loans is provided directly by the federalgovernment. In the FFEL program the federal government pays the student's interestduring certain periods, and provides interest subsidies to lenders, and federalreinsurance against borrower default, death, disability, and bankruptcy. In the Forddirect loan program, the government forgoes student interest payments during certainperiods. These subsidized loan programs are authorized by Title IV of the HigherEducation Act of 1965, as amended. Estimated net obligations for FY2002 were $7.5billion. FFEL and DL subsidized loans are available to undergraduate, graduate, or professional students enrolled on at least a half-time basis at a participating college,university, or vocational/technical school. While eligibility is not restricted toindividuals with limited income (almost a fifth of loan recipients have incomes over$50,000), applicants must satisfy a test of need. Institutions use the methodology described in Part F of Title IV as the need analysis system to calculate an expected family contribution for educational expenses(known as the EFC). The formulas in Part F use information about the student andhis or her family's income and assets to determine the amount the student and familycan reasonably be expected to contribute. This amount is subtracted from thestudent's cost of attendance to determine the amount of a subsidized loan for whichthe student is eligible. On May 30, 2003, the Department of Education announcedupdates to the need analysis tables for the 2004-2005 award year. (274) Theannouncement provided inflation-adjusted updates to four tables used in calculatingthe expected family contribution: the income protection allowance, the adjusted networth of a business or farm, the education savings and asset protection allowance,and the assessment schedules and rates. The Department publishes an annual bookletexplaining the Expected Family Contribution (EFC) formula. (275) Undergraduatestudents must receive a determination of whether they are eligible for a Pell Grantbefore applying for a subsidized loan. This rule is to assure that eligible studentsreceive grant aid before incurring loan debt. A borrower's interest rate for FFEL Stafford and Stafford/Ford loans varies annually during repayment. The variable rate is calculated based upon the bondequivalent rate of the 91-day Treasury bill plus a premium which differs dependingon whether the borrower is in-school or in repayment. For loans made from July 1,1998, through June 30, 2006, the borrower interest rate is based on the 91-dayTreasury bill plus 1.7% for those in school, and the 91-day Treasury bill plus 2.3%for those in repayment. In the FFEL program, the lender is required to pay the 3%origination fee to the federal government; the lender can choose whether or not topass the entire fee on to the borrower, within certain limitations. In the DL program,borrowers pay a 3% origination fee to the federal government. Undergraduates may borrow $2,625 for their first year of study, $3,500 for their second year, and $5,500 per year for the next 3 years of study; for graduate andprofessional school students, the limit is $10,500 per year for up to 5 years of school. The aggregate loan limit for undergraduate, graduate and professional study is$65,500. In FY2002, subsidized FFEL Stafford and DL Stafford/Ford loan disbursements totaled over $30.1 billion. The main components of FFEL annual federal expenditures are the in-school, grace period and deferment interest payments tolenders on behalf of borrowers of subsidized loans, special allowance payments tolenders, and reimbursements to guaranty agencies for losses due to borrower defaults;guaranty agencies also receive allowances from the federal government foradministrative expenses. In the DL program, the main components of annual federalcosts are the foregone interest payments for subsidized loans while students are inschool, during the grace period and deferments; defaults; and administrative costs ofcontracts for loan origination, servicing and collections, and fees to schools whoperform origination functions themselves. In both programs, there are also certainannual revenues that offset some of these costs, including fees that students orparents pay when borrowing, and collections on defaulted loans. In FFEL, otheroffsets include fees that are assessed on lenders/loan holders, and guaranty agencies. Net federal obligations for FY2002 were an estimated $4.9 billion. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues ; CRS Report RL30655, Federal StudentLoans: Terms and Conditions for Borrowers ; and CRS Report, RL30656, TheAdministration of Federal Student Loan Programs: Background and Provisions . The Higher Education Act of 1965, as amended, authorizes federal funding to partially finance part-time employment for undergraduate, graduate, and professionalstudents in eligible institutions of post-secondary education who need earnings toattend. Students may work on-campus or off-campus for a public or privatenonprofit or a private for-profit organization. Since October 1, 1993, institutionshave been required to use at least 5% of their allocation of Federal Work Study(FWS) funds for community service jobs; effective in FY2000, this rose to 7%. (277) Federal grants to institutions fund 50% to 75% of the student's wages; the remainingpercentage is paid by the post-secondary institution or other employer. Funds areallocated to institutions first on the basis of their FY1985 award and then inproportion to aggregate need. (278) FY2002appropriations were $1 billion. The law authorizes federally subsidized wages for students who are enrolled in a post-secondary program, including proprietary institutions, who demonstratefinancial need, as determined by the statutory need analysis system set forth in PartF of Title IV of the Higher Education Act. This system calculates an expected familycontribution. (280) Five percent of an institution'sFWS funds must be used for studentswho are enrolled on a less than full-time basis if the total financial need of thesestudents exceeds 5% of the need of all students attending the institution. A student's earnings under the FWS program (282) are limited to his or her need,and the rate of compensation must at least equal the minimum wage. Theinstitution's share of compensation may be provided to the student through tuitionpayments, room and board, or books. During the academic year 2002-2003, an estimated 1,073,000 students received FWS-supported earnings averaging $1,252. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking studentaid provided under the Act into account when determining eligibility for benefits, orthe amount of benefits. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31618 , Campus-BasedStudent Financial Aid Programs Under the Higher Education Act . Note: The federal TRIO programs consist of six programs authorized by TitleIV of the Higher Education Act of 1965, as amended: Upward Bound, StudentSupport Services, Talent Search, Educational Opportunity Centers, Ronald E.McNair Postbaccalaureate Achievement, and Staff Development. The first threewere the original "TRIO" programs. The Staff Development activities provideshort-term training for TRIO program staff; they are not described below. FY2002appropriations were $827 million. These are categorical grant programs. They are 100% federally funded. In addition, institutions conducting Student Support Services programs must provideassurances that each participating student will be offered aid sufficient to meet hisor her financial need for college attendance. Eligibility requirements differ slightly from program to program and are described below. At the outset it should be noted how the term "low-income" appliesin these programs. The authorizing statute for the TRIO programs defines alow-income individual as one whose family's taxable income in the preceding yeardid not exceed 150% of the "poverty level" as determined under Bureau of theCensus criteria. For the school year 2002-2003, the taxable income limits for three-and four-person families were $22,890 and $27,600, respectively (higher in Alaskaand Hawaii). (284) The program descriptionsbelow are drawn from the authorizingstatute and program regulations. Upward Bound. (285) Not fewer thantwo-thirds of the participants in any project must be low-income, potential firstgeneration college goers. The remaining one-third must be either low-income or potential first generation college goers. All participants must need academic supportin order to successfully pursue an education beyond high school. With certainexceptions, participants must have completed grade 8 but not entered grade 12, andbe 13 to 19 years of age. For veterans there is no age limit. Student Support Services. (286) Notfewer than two-thirds of program beneficiaries must be either disabled, orlow-income first generation college goers. The remaining participants must bedisabled, or low-income, or first generation college goers. All participants must needacademic support in order to successfully pursue a post-secondary educationprogram. Talent Search. (287) Not fewer thantwo-thirds of program beneficiaries must be low-income, potential first generationcollege goers. The program requires that all participants must have completed thefifth grade or be at least 11 years of age, but generally not older than 27. (Forveterans there is no age limit.) Educational Opportunity Centers. (288) Not fewer thantwo-thirds of the beneficiaries served byeach center must be low-income, potential first generation college goers. In general,participants must be at least 19 years of age. Ronald E. McNair Postbaccalaureate Achievement. (289) This program wasauthorized in 1986 to assiststudents in gaining admission to graduate programs. At least two-thirds of theparticipants must be low-income, first generation college students. The remainingparticipants must be from groups underrepresented in graduate education. Upward Bound and Student Support Services provide such services as: instruction in reading, writing, study skills, mathematics, and other subjects necessaryfor education beyond high school; personal counseling; academic counseling;tutoring; exposure to cultural events and academic programs; and activitiesacquainting students with career options. Among its services, Talent Search provides participants with information on the availability of student financial aid, personal and career counseling, and tutoring. The program's projects encourage qualified students or dropouts to complete highschool and to undertake post-secondary education. Educational Opportunity Centers provide services, such as information on financial and academic assistance available for post-secondary study, assistance toparticipants in filling out college applications and financial aid request forms, andtutoring and counseling. McNair Postbaccalaureate Achievement provides services such as summer internships, tutoring, counseling, and research opportunities. In FY2002, an estimated 865,434 participants were served in the TRIO programs, as follows: Upward Bound -- 56,324; Student Support Services -- 198,046; Talent Search -- 389,454; Educational Opportunity Centers -- 217,836;and Ronald McNair Achievement Program --3,774 Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31622 , TRIO and GEARUP Programs: Status and Issues . This program allocates funds to eligible institutions of post-secondary education for grants to needy undergraduates. The non-federal share must come from theinstitution's own resources. Funds are allocated to institutions first on the basis oftheir FY1985 award and then in proportion to aggregate need. FY2002appropriations were $760 million. The Higher Education Act of 1965, as amended, authorizes supplemental educational opportunity grants (291) forpost-secondary undergraduate students with thegreatest financial need as determined by the need analysis system set forth in Part Fof Title IV of the Higher Education Act. (292) Institutions' financial aid administratorshave, however, substantial flexibility in determining the size of individual studentawards. The first priority is for Pell Grant recipients with exceptional need. Aninstitution's supplemental educational opportunity grant funds may be used for lessthan full-time students. The law sets minimum and maximum awards at $100 and $4,000, respectively. An estimated 1,189,000 students received average grants of $772 under the programduring the 2002-2003 academic year. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking studentaid provided under the act into account when determining eligibility for benefits, orthe amount of benefits. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31618 , Campus-BasedStudent Financial Aid Programs Under the Higher Education Act . The Department of Education makes annual formula grants, under Title I, Part C of the Elementary and Secondary Education Act (ESEA), as amended, to stateeducational agencies for programs designed to meet the special needs of migratorychildren of migratory agricultural workers or fishermen. Through FY2002, fundswere allocated among states on the basis of annual counts of eligible children and apercentage of average per pupil expenditures. (294) Under P.L. 107-110 , from FY 2003forward, states are to receive the same amount as in FY2002, (295) plus a share of anyadditional appropriations (allocated on the basis of the previous formula, withupdated child counts). Most programs are administered by local school districts,which receive subgrants from the state educational agencies, though some are run byother public or private nonprofit agencies. Discretionary grants and contracts are alsoavailable to state educational agencies to improve program coordination within andamong states. As of 1995, record transfer is the sole responsibility of the states. FY2002 appropriations were $395 million. Eligible students are migratory children whose parents or guardians are migratory agricultural workers or fishers and who have moved within 3 years fromone school district to another to enable a member of their immediate family to obtaintemporary or seasonal employment in agricultural or fishing activities. Children who are 3 through 21 years of age are eligible to participate, though only younger children may receive day care services. There is no income test, butmigratory children are presumed to need special educational and other services. Title 1 migrant education programs commonly provide regular academicinstruction, remedial or compensatory instruction, bilingual and multiculturalinstruction, vocational and career education, testing, guidance and counseling, andmedical and dental screening. Preference is given to students at risk of not meetingstate academic standards or who moved during the school year. In school year1999-2000, an estimated 818,159 children were eligible. In FY2002, migranteducation programs served about 738,000 students, according to the Office ofMigrant Education. Note: For more information, see CRS Report RL31325 , The Federal Migrant Education Program as Amended by the No Child Left Behind Act of 2001 . The Perkins Loan program, authorized by Title IV of the Higher Education Act (HE) of 1965, as amended, provides federal assistance to institutions of highereducation to operate a revolving fund providing low-interest loans to students. Federal funds provide new capital contributions, and pay for the cancellation ofcertain loans authorized in the law. Since academic year 1994-1995 participatinginstitutions have been required to provide a 25% annual match to the federal capitalcontribution (previously, their match rate was 15%). FY2002 appropriations were$166 million. The law authorizes low-interest, long-term loans for (1) undergraduate, graduate, or professional students, (298) (2) whoare "in need" of the amount of the loanto pursue a course of study, and (3) who maintain good academic standing. The needanalysis system set forth in Part F of Title IV the HE is used in calculating anexpected family contribution under the Perkins Loan program. On May 30, 2003, theDepartment of Education announced updates to the need analysis tables for the2004-2005 award year. (299) The Departmentpublishes an annual booklet explaining theExpected Family Contribution (EFC) formula. (300) Effective October 1, 1981, the law authorized loans at a 5% interest rate. Loans are to be repaid over a 10-year period beginning 9 months after the end of study thatis on at least a half-time basis. No interest is charged until repayment of the principalbegins, unless the payment is deferred, as permitted under certain conditions. Inaddition, all or a portion of the loans may be canceled for those who enter specificteaching jobs, law enforcement, or military service. Annual loan limits are $4,000for undergraduate students and $6,000 for graduate or professional students. Theaggregate limits are $20,000 for undergraduate students (who have completed 2 yearsof study, but who have not completed their baccalaureate degree) and $40,000 forgraduate and professional students; and $8,000 for any other students study. Anestimated 707,000 students borrowed loans averaging $1,790 under the program inthe 2002-2003 school year. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and RL31618, Campus-Based StudentFinancial Aid Programs Under the Higher Education Act . Note: This program was known as the State Student Incentive Grant (SSIG)program until October 1, 1998, when it was revised and renamed by P.L. 105-244 . Under Leveraging Educational Assistance Partnerships, states receive federal formula grants, which are matched with equal state funds to provide for theestablishment of state student aid programs for needy post-secondary students. Aftereach state's program grant is combined with the required non-federal matching funds,resulting "state aid" awards are made either directly to students or indirectly throughparticipating institutions. The law provides that no state shall receive less from thefederal government than it received in FY1979. Funds not used by one state may bereallotted to others in proportion to their higher education enrollments. Stateallocations are based on their share of the total number of eligible students in allstates as determined by the U.S. Secretary of Education. States are permitted to use20% of funds for community service work learning jobs for eligible students. The1998 law, which reauthorized the program and renamed it as LEAP, also authorizeda new program of "Special Leveraging Education Assistance Partnerships." (301) FY2000 appropriations were $67 million. To be eligible for a LEAP grant, post-secondary students must be enrolled in or accepted for enrollment in an institution of post-secondary education, must meetcitizen/resident requirements, must demonstrate substantial financial need asdetermined in accordance with criteria of his/her state and approved by the Secretaryof Education, must maintain satisfactory academic progress, and must not default ona student loan or owe a refund for student assistance. At state discretion, part-timestudents may also be eligible. All public or private nonprofit institutions of highereducation as well as post-secondary vocational institutions are eligible to participateunless prohibited by state constitution or state statute. Maximum grants are $5,000 for full-time students and may be used, among other purposes, for work-study jobs provided through campus-based "communityservice work learning study programs." (303) (Theregulations also call these work-studyjobs "community service-learning" jobs.) In academic year 2002-2003,approximately 171,000 students received average grants of $1,000. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking studentaid provided under the act into account when determining eligibility for benefits, orthe amount of benefits. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RS21183, LeveragingEducational Assistance Partnership Program (LEAP): An Overview . The law provides 90% federal funding for student loans and 100% for scholarships. Eligible schools must contribute to the loan fund a minimum shareequal to one-ninth of the federal sum The federal government's share of the loanfund (its capital contribution) now is financed by loan repayments from participatingschools -- not by appropriations. Appropriations for scholarships (and some loanrepayments) in FY2002 were $57.8 million. Loans. (305) The Health Professions Student Loan Program(HPSL) provides long-term, low-interest rate loans to full-time, financially needystudents to pursue a degree in an accredited public or nonprofit school of medicine,dentistry, optometry, pharmacy, podiatric medicine, or veterinary medicine. TheLoans for Disadvantaged Students Program (LDS) provides long-term, low-interestrate loans to full-time, financially needy students from disadvantaged backgroundsto pursue a degree in allopathic medicine, osteopathic medicine, dentistry, optometry,podiatric medicine, pharmacy or veterinary medicine. To be eligible for LDS funds,a participating school must carry out a program for recruiting and retaining studentsfrom disadvantaged backgrounds, including racial and ethnic minorities and mustoperate a program to recruit and retain minority faculty. Students at accredited publicand nonprofit private schools of nursing are eligible for loans from the NursingStudent Loan (N.L.) program. The school selects qualified loan applicants, makesreasonable determinations of need, and determines the amount of student loans. These loan programs no longer receive appropriations. Funds that are returned to the Government by participating schools are re-awarded to schools that show aneed for additional funds. Any school that receives returned funds is required todeposit the school's share of one-ninth of the amount received into the loan fund foradditional loans to students. Scholarships. P.L. 105-392 , the Health Professions Partnerships Training Act of 1998, enacted on November 13, 1998, reauthorized andconsolidated the health professions education and training programs under the PublicHealth Service Act through FY2002. The Act repealed authority for then existingscholarship programs, namely: (1) Scholarships for Students of ExceptionalFinancial Need (EFN); (2) Financial Assistance for Disadvantaged HealthProfessions Students (FADHPS); and (3) Scholarships for Health ProfessionsStudents from Disadvantaged Backgrounds (SHPDB). It established a new programof Scholarships for Disadvantaged Students (SDS). (306) However, the law providesfunding as part of the new SDS program for recipients of EFN and FADHPS whocontinue to be enrolled after academic year 1998-1999. The SDS program makes grants to the following accredited public or private nonprofit schools for scholarship assistance: allopathic medicine, nursing,osteopathic medicine, dentistry, pharmacy, podiatric medicine, optometry, veterinarymedicine, chiropractic, allied health, or schools offering graduate programs in publichealth, behavioral and mental health or physician assistants. At least 16% of SDSfunds must be made available to schools that will provide scholarships only fornurses, and schools must give preference to former EFN and FADHPS recipients.Schools are required to agree that, in providing scholarships under SDS, preferencewill be given to students from disadvantaged backgrounds for whom the costs ofattending the school would constitute a severe financial hardship. The Secretary maynot make a grant to a school unless the school is carrying out a program for recruitingand retaining students from disadvantaged backgrounds, including racial and ethnicminorities. Loan Repayments. Two programs provide loan repayments, funded by appropriations: (1) the Disadvantaged HealthProfessions Faculty Loan Repayment and Fellowship Program (Faculty LoanRepayment Program/FLRP); and (2) the Nursing Education Loan Repayment forRegistered Nurses Entering Employment at Eligible Health Facilities Program(Nursing Education Loan Repayment Program/NELRP). (307) Eligible for FLRP are persons who (1) have a degree in medicine, osteopathic medicine, dentistry, pharmacy, podiatric medicine, optometry, veterinary medicine,nursing, graduate public health, allied health or graduate behavioral and mentalhealth; (2) are enrolled in an approved graduate training program in one of the healthprofessions listed previously; or (3) are enrolled as full-time students in accreditedinstitutions described above and in the final course of study or program leading to adegree. Eligible for NELRP are persons who (1) have received a degree in nursing; (2) have unpaid qualifying loans; (3) are a U.S. citizen, national or permanent legalresident; (4) are employed full-time at an eligible health facility; (5) have a currentunrestricted license in the State in which they intend to practice; and (6) sign acontract to work full-time as a registered or advanced practice nurse for 2 or 3 yearsat an eligible health facility. Loans. Health Profession Student Loans and Loans for Disadvantaged Students may be made in amounts that do notexceed the cost of attendance, including tuition, other reasonable educationalexpenses, and reasonable living expenses. Loans have a 5% interest rate and mustbe repaid over a period ranging between 10 years and 25 years, at the discretion ofthe institution. Excluded from the time period for repayment are certain periods of:active duty performed by the borrower as a member of a uniformed service; serviceas a Peace Corps volunteer; and periods of advanced professional training, includinginternships and residencies. The Secretary may, subject to the availability of funds, repay all or part of an individual's HPSL loan if the Secretary determines that the individual: (1) failed tocomplete the health professions studies leading to the individual's first professionaldegree; (2) is in exceptionally needy circumstances; (3) is from a low-income family(with income below the poverty guideline) or a disadvantaged family; and (4) has notresumed or cannot reasonably be expected to resume the course of study within 2years of ending them. Nursing Student loans have a maximum limit of $2,500 for an academic year, $4,000 for each of the final 2 years, or the amount of the student's financial need,whichever is less. The aggregate of the loans for all years is limited to $13,000 forany student. Preference for these loans is given to licensed practical nurses, topersons with exceptional financial need, and to persons who enter as first-yearstudents. Loans are repayable over a 10-year period, excluding periods for serviceand study similar to those listed above. A school is authorized to extend therepayment period for up to an additional 10 years for certain borrowers who failedto make consecutive payments. Loan Repayments. The program of Faculty Loan Repayment repays loans at a rate of up to $20,000 per year forpersons who have agreed to serve for at least 2 years as faculty members at aneligible school. The program of Nursing Education Loan Repayments provides forrepayment of 30% of unpaid principal and interest for each qualified loan after thefirst year of service, 30% of the principal and interest after the second year of service,and 25% of the principal and interest after the third year of service. Appropriationsin FY2002 were $1.3 million for FLRP and $10.3 million for NELRP. Scholarships. Scholarships are awarded for tuition expenses, other reasonable educational expenses, and reasonableliving expenses incurred while attending school for the year. In awarding grants toeligible health professions and nursing schools, the Secretary must give priority toeligible entities based on the proportion of graduating students going into primarycare, the proportion of under-represented minority students, and the proportion ofgraduates working in medically underserved communities. Scholarshipappropriations in FY2002 totaled about $46 million. The Higher Education Act of 1965 (HE), as amended, authorizes three need-based fellowship programs: Javits Fellowships, Title VII-A, Subpart 1;Graduate Assistance in Areas of National Need (GAANN), Title VII-A, Subpart 2;and the Thurgood Marshall Legal Educational Opportunity Program, Title VII-A,Subpart 2. (308) From FY1997 through FY2000,the Javits Fellowships were fundedunder GAANN, then reverted back to separate funding in FY2001. (309) Beginning inFY2000 funding for Javits Fellowships was specifically dictated in appropriationslanguage to provide funds a year in advance of the academic year in which thefellowships would be used. (310) Institutions mustmatch 25% of the federal GAANNfellowship grant. FY2002 appropriations were $46 million. Javits Fellowships. Title VII-A, Subpart 1, HE, authorizes the Javits Fellowships (311) in the arts, humanities, and socialsciences. Title VII-A, Subpart 1 fellowship stipends are based on financial need, andrecipients are selected by panels appointed by the Javits Program Fellowship Board. Students who are entering graduate school for the first time or who, at the time ofapplication, have not completed their first year of study are eligible to apply for aJavits Fellowship. Applicants must be accepted at or attending a post-secondaryinstitution in one of the selected fields of study. Twenty percent of the fellowshipsare awarded in the social sciences, 20% in the arts, and 60% in the humanities. (312) Fellowships are awarded for a period of up to 4 years. Recipients are selectedthrough a national competition based on "demonstrated achievement, financial need,and exceptional promise." (313) The program islimited to U.S. citizens and nationals,permanent residents, and citizens of the Freely Associated States (Republic of theMarshall Islands, Republic of Palau, and the Federated States of Micronesia). GAANN Fellowships. Title VII-A, Subpart 2, HE, authorizes a program of Graduate Assistance in Areas ofNational Need (GAANN). (314) Individualgraduate students are eligible to receive afellowship from an assisted department if they demonstrate financial need, accordingto criteria determined by their higher education institutions, and have excellentacademic records. The Secretary of Education designates areas of graduate study inwhich there are national needs. The Secretary makes grants to academic departmentsproviding courses of study leading to a graduate degree in one of these areas. Inaddition, institutions must assure that they will seek talented students frombackgrounds traditionally under-represented in these fields of graduate study. ForGAANN awards for academic year 2003-04, the Secretary has designated thefollowing areas of national need: biology, chemistry, computer and informationsciences, engineering, geological and related sciences, mathematics, and physics. (315) Thurgood Marshall Fellowships. Title VII-A, Subpart 3, HE authorizes the Thurgood Marshall Legal EducationalOpportunity Program to assist minority, low-income or disadvantaged collegegraduates to prepare for and complete law school. The Title VII-A, Subpart 3,program is administered by the Council on Legal Education Opportunity (CLEO)through a single grant award by the Secretary of Education for a period of not lessthan 5 years. (316) CLEO, a nonprofit project ofthe American Bar Association Fund forJustice and Education, began assisting disadvantaged students in 1968. (317) Javits Fellowships. Each Javits Fellowship consists of an institutional payment covering tuition and fees and astudent stipend for living expenses. The amount of the stipend is based on either thestudent's financial need or the level of support provided by the National ScienceFoundation's Graduate Research Fellowship program, whichever is less. In FY2002,57 new fellowship awards were made. GAANN Fellowships. The GAANN fellowships are provided under 3-year grants to academic programs. Grantsfor a fiscal year are for not less than $100,000 and not more than $750,000. Studentsmay receive the fellowships for up to 5 years of study. Students receive a stipend tocover living expenses, while an institutional payment covers the fellow's tuition,fees, and other expenses. The amount of the student stipend is based on either thestudent's financial need or the level of support provided by National ScienceFoundation's Graduate Research Fellowship program, whichever is less. Theinstitutional 25% match of the federal grant can be used for additional fellowshipsand to meet other costs not covered by the institutional payment. In FY2002, no newfellowship awards were made, but in FY2001, 86 new awards were made. Thurgood Marshall Fellowships. The Thurgood Marshall Fellows receive counseling for study at accredited lawschools, preparation on selecting and applying to a law school, and financialassistance. A number of services are available to Thurgood Marshall Fellows formeeting the competition of law school and to improve the student's retention andsuccess in law school including: a 6-week pre-law summer institute for at lawschools throughout the country; pre-law mentoring programs with law school faculty,bar association members and judges; tutoring, academic counseling, midyearseminars, and preparation for bar examinations. Thurgood Marshall Fellows mayalso be paid a stipend for participation in summer institutes and midyear seminars. In FY2002, the single grant awarded to CLEO provided support services for anestimated 350-450 Thurgood Marshall fellows. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RS21436(pdf) , GraduateFellowship Programs Under Title VII of the Higher Education Act (HE):Background and Reauthorization . The Department of Education makes discretionary grants to colleges and universities and other public or private nonprofit agencies cooperating with suchschools to help migrant students obtain a high school equivalency certificate. (318) Mostgrants are for a 5-year period. FY2002 appropriations were $23 million. To be served, students or their parents must have spent a minimum of 75 days during the past 24 months in migrant and seasonal farmwork; alternatively, they mustbe eligible to participate (or must have participated within the last 2 years) in theTitle 1 Migrant Education program (see program no. 56) or the WorkforceInvestment Act program for migrant and seasonal farmworkers. They must be atleast 16 years of age (or beyond the age of compulsory school attendance in the statein which they reside), not enrolled in school, and not have a high school diploma orits equivalent. (320) HEP projects typically provide instruction in reading, writing, mathematics, and other subjects tested by equivalency examinations; career-oriented work-studycourses; tutoring; and personal and academic counseling. In addition, they providefinancial assistance, housing, and various support services. In the 2002-2003 schoolyear, HEP served about 8,600 students at 23 institutions. Average federalcontribution per student was approximately $2,674. The Department of Education makes discretionary grants to colleges and universities and other public or private nonprofit agencies cooperating with suchschools to help migrant students complete their first year in college. (321) Most grantsare for a 5-year period. FY2002 appropriations were $15 million. To be served, students or their parents must have spent a minimum of 75 days during the past 24 months in migrant and seasonal farmwork; alternatively, they mustbe eligible to participate in the Title 1 Migrant Education program or the WIAprogram for migrant and seasonal farmworkers. Students must be admitted to orenrolled as first year students at a participating college or university. (323) CAMP projects typically provide tuition and stipends for room and board and personal expenses; they also provide academic and personal counseling, tutoring inbasic skills and other subject areas, and various support services. In the 2002-2003school year, CAMP served about 2,500 students at twelve institutions. Averagefederal contribution per student was approximately $6,500. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues . Note: This program, formerly called Ellender Fellowships ( Title X, Part G of theElementary and Secondary Education Act of 1965) has been funded even thoughrecent federal budgets have requested no appropriation for it. (324) Close Up Fellowshipsnow are authorized by Title I, Part E, of the Elementary and Secondary Education Act(ESEA), as amended by the No Child Left Behind Act ( P.L. 107-10 ). This entrysummarizes Ellender Fellowships and Close Up Fellowships rules under both laws. Ellender Fellowships. This program provided fellowships to economically disadvantaged students, secondaryschool teachers, economically disadvantaged older Americans, and recent immigrantsto spend 1 week in Washington, D.C. attending seminars on government and currentevents and meeting with leaders of the Federal Government. "Older American" wasdefined as an individual at least 55 years old. Economic disadvantage was notdefined in the law, and the program had no regulations. The Close Up Foundation (325) administered the program. Close Up Fellowships. The Close Up Foundation continues to administer the program by providing federal funding forfellowships to middle and secondary school economically disadvantaged students,their teachers, and recent immigrants to spend one week in Washington, D.C.attending seminars on government and current events and meeting with leaders of theFederal Government. Appropriations for FY2002 Close Up Fellowships were $1.5 million. Fellowships cover the costs of room, board, tuition, administration, and insurance for a week-long series of meetings, tours, and seminars about public affairsin Washington, D.C., sponsored by the Close Up Foundation. Students and theirteachers meet with officials from the three branches of the federal government anddiscuss pending issues. In the 2002-2003 school year, 1,334 students, 1,246 teachers,and 250 new American immigrants received fellowships, at an overall average costof $1,231 for students and $1,331 for teachers (federal share of $694 for students and$352 for teachers) and $1,450 for new American immigrants (federal share of $540). The Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) created the Child Care and Development Block Grant (CCDBG), which provides 100% federallypaid discretionary funds to states and other entities. (326) CCDBG also receivesentitlement funds, some of which require state matching funds (see below). Federaloutlays in FY2002 -- from discretionary funds, entitlement funds, and amountstransferred to CCDBG from the block grant for Temporary Assistance for NeedyFamilies (TANF) -- totaled $6.4 billion. Discretionary Funds. Of discretionary CCDBG funds, one-half of 1% is reserved for allotment to theterritories, and 1% to 2% ( determined by the Secretary of Health and HumanServices) is reserved for payments to Indian tribes and tribal organizations. Remaining discretionary funds are allocated among states, based on each state'sproportion of all children under age 5, its proportion of all children who receive freeor reduced price school lunches, and its per capita income relative to that of theNation. Through FY1995, states were required to reserve 25% of their allocation toimprove child care quality and to increase availability of early childhooddevelopment programs and before- and after-school services. Effective in FY1996,states could spend no more than 5% of their allotments for administrative costs, andno less than 4% on efforts to improve the quality and availability of child care. Entitlement Funds. Before October 1, 1997, states also received federal funds for child care services on behalfof current, former, and potential recipients of Aid to Families with DependentChildren (AFDC). For these funds states had to provide matching funds. The 1996welfare reform law repealed the AFDC-related child care programs and replacedthem with entitlement funding to states for child care services. The law appropriated$13.9 billion in entitlement child care funding for 6 years, FY1997-FY2002, withannual amounts of $2.1 billion for FY1998, $2.2 billion for FY1999, $2.4 billion forFY2000, and $2.6 billion and $2.7 billion for FY2001 and FY2002, respectively. Funding for FY2003 was extended on a quarterly basis at the FY2002 rate of $2.717billion annually. These amounts are provided under Title IV-A of the Social SecurityAct (the part governing TANF), but states are required to transfer them to the sameagency that administers the CCDBG and to spend them in accordance with CCDBGrules. The combined discretionary and entitlement funding streams are referred toby HHS and federal regulations as the Child Care and Development Fund (CCDF). Of entitlement child care funding, between 1% and 2% is reserved for payments to Indian tribes and tribal organizations. The rest is provided to states in twocomponents. First, each state receives a fixed amount each year, equal to themaximum annual amount received by the state under the repealed AFDC child careprograms in FY1994, FY1995, or in FY1992-FY1994, on average. This amount isestimated to equal $1.2 billion each year; no state match is required to receive thesefunds. Second, remaining entitlement funds are allocated to states according to eachstate's share of children under age 13. States must achieve maintenance-of-effortspending targets to qualify for these funds; they also must provide matching fundsfor them, at the Medicaid match rate, which varies among states and is relatedinversely to state per capita income (see program no. 1). As with discretionaryCCDBG funding, states may spend no more than 5% of their entitlement funds foradministrative costs, and no less than 4% on activities to improve the quality andavailability of child care. Note: States are authorized to transfer to the CCDBG upto 30% of their TANF block grants, which total $16.5 billion annually ( P.L. 105-33 ). To be eligible for subsidized child care, a child must (1) be less than 13 years old (or, at option of the grantee, under 18, (328) if disabled or under court supervision),and (2) live with at least one parent who is working or attending a job training oreducational program (unless the child is receiving protective services or in need ofthem). In addition, the income of the child's family cannot exceed 85% of the statemedian for a family of the same size (before FY1996, the income ceiling was 75%of the state median). The law requires that states give priority to children in verylow-income families and to those with special needs. According to statute, statesmust spend 70% of entitlement funds on welfare recipients working towardself-sufficiency or families at risk of welfare dependency. However, because allfamilies with income below 85% of the state median can be classified as "at risk,"the 70% targeting rule (for welfare and at-risk families) does not necessarily meanthat welfare families must be served. In theory, all funds may be used forlow-income, non-welfare, working families. However, state plans indicate that manystates guarantee child care to welfare families. For subsidized child care services, states must establish a sliding fee schedule that requires cost sharing unless the family's income is below the poverty level. Parents must be given the option to obtain care from a provider who is paid directlyby the state, through a grant or contract, or through certificates that are payable forchild care from an eligible provider of the parents' choice. Child care services mayinclude center-based care, group home care, family care, and "in-home" care. Note: See also CRS Report RL30785 , The Child Care and Development Block Grant: Background and Funding and CRS Report RL31817 , Child Care Issues inthe 108th Congress . See TANF block grant entry (program no. 12). In FY2002, expenditures for TANF-funded services (other than child care, shown separately in this report) were estimated at $6.1 billion, $4.4 billion (72%)from federal funds and $1.7 billion from state-local funds. This excludes TANFfunds transferred by states to the Social Services Block grant. TANF law permits states to use block grant funds to provide services to recipient families and to various groups of other "needy" families, so long as theservices can be expected to lead toward ending the dependence of needy parents ongovernment benefits or enabling needy families to care for children at home, two of the program's goals. States decide what income limits to set for specific services,and they may tailor services to the circumstances of individual families. States alsomay provide services to non-needy families if they are directed at the goals ofpreventing and reducing out-of-wedlock pregnancies or encouraging the formationand maintenance of two-parent families. In their TANF plans, most states said theyprovide support services to recipient families plus three categories of needy familiesnot enrolled in cash aid: former cash recipient families, families at risk of becomingeligible for cash aid, and unemployed or underemployed non-custodial parents. Generally income limits range from 150% to 250% of federal poverty guidelines (in2003, from $22,890 to $38,150 for a family of three). However, some states havehigher flat annual income limits for some services. For example, Colorado sets anouter limit of $75,000 for any TANF-funded service. Transportation subsidies, parental skill building services, home energy aid, housing aid, rehabilitation services (mental health/substance abuse counseling andtreatment), and domestic violence counseling are examples of benefits/servicesprovided (other than child care, the most frequently mentioned service). Examplesof TANF-funded services that impose no income test include teen pregnancyprevention programs, responsible parenthood counseling, abstinence programs, andfamily planning services. A broad category of TANF expenditures is for servicesauthorized under pre-TANF law (such as services for children in the juvenile justicesystem and certain child welfare and foster care services). Note: For more information, see CRS Report RL30695, Welfare Reform: State Programs of Temporary Assistance for Needy Families . The Social Security Act (Title XX) provides 100% federal funding (330) to statesfor social services up to a maximum ceiling level ($1.7 billion in FY2001-2003,lowered from $2.38 billion in FY2000). Funds are distributed among states on thebasis of population. The FY2000 appropriation of $1.775 billion was below the$2.38 billion ceiling, and appropriations in FY2001 and FY2002 dropped to $1.725billion and $1.7 billion respectively. Funding for FY2003 was maintained at $1.7billion. Note : In FY1997-FY2003 states had authority to transfer to the socialservices block grant (SSBG) up to 10% of their TANF block grants, which total$16.5 billion annually ( P.L. 105-33 ). (331) Transfers of TANF funds to SSBG totaled$1.1 billion in FY1998, $1.3 billion in FY1999, $1.1 billion in FY2000, $920 millionin FY2001, and $1 billion (or 6% of the TANF grant) in FY2002. The authorizedtransfer amount was scheduled to decline to 4.25% on October 1, 2001 under P.L.105-178 , but more recent legislation maintained the 10% transfer limit for FY2002and 2003. States are free to establish their own eligibility criteria for Title XX social services. They decide what groups to serve and what fees, if any, to charge. State expenditure reports submitted to HHS provide national data on how states spent SSBG funds in FY2001. The reporting form includes a list of 29 eligibleservice categories in which funds may be spent. The list includes categories such aschild care, home-delivered meals for the elderly, foster care, housing services, andfamily planning services. In FY2001, for the country as a whole, the servicesreceiving the greatest percentage of spending were: child protective services(11.8%), foster care services for children (10.1%), special services for the disabled(8.3%), and child day care (7.6%). For FY2000 the corresponding shares were10.8%, 10.7%, 7.8%, and 5.9%, respectively. Note: For more details about SSBG, see CRS Report 94-953 , Social ServicesBlock Grants (Title XX of the Social Security Act) . See TANF block grant entry (program no. 12). In FY2002, expenditures for TANF child care were estimated at $2.3 billion, $1.6 billion (68%) from federal funds and $0.750 billion from state-local funds. Thisexcludes TANF funds transferred to the Child Care and Development Block Grant(CCDBG) -- program no. 64. It also excludes TANF state maintenance-of-effortexpenditures that could also count toward state spending required to qualify forentitlement matching funds under the CCDBG. (333) TANF-funded child care consists of care for children in TANF families, former TANF families, and other low-income families. The law permits states to use blockgrant funds to provide child care to recipient families and to various groups of"needy" families not enrolled in the cash program, so long as the child care can beexpected to lead toward ending the dependence of needy parents on governmentbenefits by promoting work or job preparation, one of the program's goals. Statesdecide what income limits to set for TANF-funded child care (i.e., how "needy" theparents must be). In their TANF plans, most states said they provide free or subsidized child care to three groups of needy families: recipient families who needed it to work, study, orundergo training, former cash recipient families (for a transition period), and families"at risk" of becoming income-eligible for cash aid. Generally income limits forfamilies not enrolled in the cash program range from 150% to 250% of federalpoverty guidelines (in 2003, from $22,890 to $38,150 for a family of three).However, some states use a relative standard (a percentage of state median income)as the income test for families not in the cash program. For instance, Connecticut'sinitial income limit is 50% of the state's median income, adjusted for family size;eligibility ends when income reaches 75% of the median. Wisconsin providessubsidized child care for all needy Wisconsin families: for initial eligibility, 185%of the federal poverty guideline, for continued eligibility, 200%. Massachusettsprovides child care to those with income below 85% of the state median income. Illinois sets the income limit at 200% of the poverty guideline Many states set the usual age cutoff for TANF-funded care at 13 years, thegeneral limit of the Child Care and Development Block Grant (CCDBG), but theTANF plan of California promises child care only for children under age 10 (older,if funds are available). TANF repealed a requirement that states "guarantee" child care needed to enable welfare parents to work or study. However, TANF provides that singleparents who receive TANF assistance cannot be punished for refusal to performrequired work if they are unable to obtain needed care for a child under age 6 for aspecified reason. States decide what charges, if any, to impose for TANF child care and for how long to offer "transitional" child care to families who have left the cash welfare rolls. They also decide whether to provide care directly or to issue vouchers for care.Connecticut limits child care subsidies to $325 per child monthly ($425 for a childwith special needs). A few states reimburse families for child care expenses byadding the amount to the cash benefit (i.e., by disregarding income used for childcare costs when calculating benefits). Some states use the same free or co-pay rulesas those adopted by the state for the CCDBG; state TANF plans indicate that Illinois,Michigan, and South Carolina do so. Under a consolidated budget account for Homeless Assistance Grants, (335) theDepartment of Housing and Urban Development (HUD) provides funding for four programs aiding the homeless that are authorized under the Stewart B. McKinneyHomeless Assistance Act ( P.L. 100-77 ). They are the Emergency Shelter Grantsprogram, Section 8 Moderate Rehabilitation Assistance for Single-Room Occupancy(SRO) Dwellings, the Shelter Plus Care program, and the Supportive Housingprogram. Federal funding for the Emergency Shelter Grants program is provided through formula grants to states, cities, and counties in accordance with the distributionformula used for Community Development Block Grants (CDBG). Money for theother programs is awarded through competitive grants to states, local governments,nonprofit organizations, and public housing authorities. Grantees must match federal dollars (except in the case of the SRO program). Under the Emergency Shelter Grants program, a one-for-one match is required(although the first $100,000 granted to a state need not be matched); under theShelter Plus Care program, grantees must match federal funds provided for shelterwith equal money for services; and under the Supportive Housing program,dollar-for-dollar cash matching is required for grants involving acquisition,rehabilitation, or new construction of housing units. HUD homeless assistance fundsalso are used for "Supportive Services Only" projects that are linked to housingprovided by other organizations. The 2002 Appropriations Act required a 25% matchfor all HUD-funded services. Outlays for the Homeless Assistance Grants programin 2002 were $1 billion. Under a "continuum of care" strategy developed by HUD, grantees generally must develop and maintain (or participate in) consolidated plans for the integrationof programs and services for the homeless, including the four programs noted above. Grantees under the Emergency Shelter Grants program (governmental entities)receive their grants by formula. In the other programs, grantees (both governmentaland nongovernmental agencies) must compete for HUD approval of their grantproposal. Individual eligibility for assistance from any Homeless Assistance Grantproject generally depends on decisions made by the local sponsor. However, someprograms restrict beneficiary eligibility to specific categories. The Shelter Plus Careprogram is limited to homeless persons with very low incomes (336) who havedisabilities, chronic substance abuse problems, or AIDS and related diseases. TheSRO program is limited to single homeless persons. Permanent housing under theSupportive Housing program is available only to the disabled. Homeless Assistance grantees can use funding for a range of activities on behalf of homeless persons. Under the Emergency Shelter Grants program, activitiesinclude renovation, major rehabilitation, or conversion of buildings for use asemergency shelters or transitional housing for the homeless, essential social services,operating costs of facilities for the homeless, and initiatives to prevent homelessness. Supportive Housing program money may be used to assist homeless persons intransition to independent living through provision of transitional housing, follow-upservices, permanent housing (as well as services) for those with disabilities,supportive services to those in housing supported by other programs, "alternative"housing for the long-term homeless, and "safe havens" for homeless individuals. TheShelter Plus Care and SRO programs provide rental assistance. Note: For more details about homeless assistance grants, along with other targeted homelessness programs sponsored by the federal government, see CRS Report RL30442 , Homelessness: Recent Statistics and Targeted Federal Programs . The Community Services Block Grant Act (CSBG) (338) authorizes 100% federallyfunded block grants to states for community-based antipoverty activities. Stateallocations are based on the percentage of funds received in the state in FY1981 fromthe former Community Services Administration (CSA) under Section 221 of theEconomic Opportunity Act. Of total appropriations, half of 1% is reserved forallotment to the territories, and the Secretary of Health and Human Services alsomust reserve 1.5% for training, technical assistance, planning, evaluation and datacollection. For FY2003, $650 million was appropriated for the block grant, plus$89.4 million for several smaller related activities, such as community economicdevelopment, job opportunities for low-income individuals (JOLI), grants for ruralcommunity facilities, the national youth sports program, community food andnutrition activities and individual development accounts. (339) In general, beneficiaries of programs funded by CSBG must have incomes no higher than the federal poverty income guidelines. For FY2003, the guidelines were$18,400 for a family of four and $8,980 for a single person in the 48 contiguousstates. (341) Amendments enacted in 1984 allowstates to increase eligibility criteria to125% of the poverty guidelines "whenever the state determines that it serves theobjectives of the block grant." The program has no rules regarding assets. Programs funded by the Community Services Block Grant operate a wide variety of antipoverty activities, including local program coordination, nutrition,emergency services, and employment services. CSBG grantees also receive fundsfrom many other sources (such as Head Start, weatherization assistance, low-incomehome energy assistance, emergency food and shelter programs, employment andtraining, and legal services) to operate antipoverty programs, Note: For more details about the Community Services Block Grant, see CRS Report RS20124, Community Services Block Grants: Background and Funding . The law provides 100% federal funding. Funds are allocated among local legal services programs on the basis of state shares of the poverty population. The FY2003appropriation was $338.8 million, (342) up $9.5million from the FY2002 sum. Theincrease was to provide supplemental funding for states that were scheduled toreceive a cut in FY2003 funding because of use of data from the 2000 Census, whichshowed a shift in state poverty populations. The Legal Services Corporation Act of 1974 (344) provides financial aid toprograms that offer legal services in noncriminal proceedings to low-income persons. The law makes eligible "any person financially unable to afford legal assistance" andsays the Corporation should take into account not only income, but liquid assets, (345) fixed debts, cost of living, and other factors in determining an individual's capacityto pay for a lawyer. The law requires the Corporation to set national maximumincome limits and to establish guidelines that will insure preference for those leastable to afford an attorney. Regulations of the Corporation have established themaximum income limit for eligibility at 125% of the federal poverty incomeguidelines. Thus, the income limit was $23,000 for a family of four, and $11,225 fora single individual in calendar year 2003 in the 48 contiguous states, the District ofColumbia, and the outlying areas. Higher limits apply in Alaska and Hawaii. Regulations permit exceptions to the income limit in specified circumstances. Forexample, the regulations permit legal services on behalf of a person whose incomefalls between 125% and 150% of the poverty line if the purpose is to obtain benefitsfrom a "governmental program for the poor," or if warranted by certain factors suchas the individual's current income prospects, medical expenses, fixed debts andobligations, child care and other work-related expenses, expenses associated with ageor infirmity, and other factors related to financial inability to afford legal assistance. Beneficiaries receive legal aid in noncriminal proceedings. Most cases concern these areas of law: family, employment, consumer, housing, civil rights, publicbenefit programs such as cash welfare, Social Security, Supplemental SecurityIncome (SSI), workers' compensation, unemployment compensation, Medicare, andMedicaid. The Legal Services Corporation's stated goal is to provide "minimumaccess to legal services for all poor persons," defined as the equivalent of twoattorneys for every 10,000 poor persons; however, that goal was achieved only once,in FY1980. Corporation grantees are not allowed to give legal aid in criminalproceedings nor in most civil cases that are fee-generating in nature, such as accidentdamage suits. Additional restrictions include prohibitions against lobbying activities,class action lawsuits, litigation related to abortion, and representation of prisoners. On February 28, 2001, the U.S. Supreme Court invalidated a restriction that Congress had imposed on LSC in every annual appropriations act since 1996. Thiswas a prohibition against LSC funding of any organization that represented clientsin an effort to amend or otherwise challenge existing welfare law. By a 5-4 vote, theCourt found that this restriction violated the First Amendment (freedom of speech). The Court held that restricting LSC attorneys in advising their clients and inpresenting arguments and analyses to the courts distorted the legal system by alteringthe attorneys' traditional role ( Legal Services Corporation v. Velazquez , 121 S.Ct.1043 [2001]). Note: For more details about this program, see CRS Report 95-178, Legal Services Corporation: Basic Facts and Current Status . The Immigration and Nationality Act as amended by the Refugee Act of 1980 ( P.L. 96-212 ) authorizes 100% federally funded social services to assist refugees andasylees become self-sufficient. Other legislation authorizes similar assistance forcertain Cuban and Haitians entrants (346) and forcertain Amerasians. (347) The refugee,asylee and entrant social services funds are distributed among the states underformulas that usually take into account each state's proportion of persons in eligiblegroups who entered the United States within the previous 36 months. Social servicesfor these groups have been authorized through FY1999. The Department of Healthand Human Service's Office of Refugee Resettlement (ORR) administers thisprogram. For social services, ORR expenditures amounted to $144 million inFY2000, $144 million (348) in FY2001, and $159million in FY2002. A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant,"or be a Cuban or Haitian national paroled into the United States after October 10,1980, (c) be a person who has an application for asylum pending or is subject toexclusion or deportation and against whom a final order of deportation has not beenissued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. Any person mentioned above generally is eligible for social services financed by refugee program funds, but some activities so funded may have eligibilitylimitations such as age. The above groups also may benefit from services financedunder the Social Security Act (Title XX), but generally would have to meet thestate's Title XX eligibility requirements. Exceptions to Title XX rules can be madeso that refugees, asylees and entrants can receive certain particular services such aslanguage training, vocational training, and employment counseling. States determine what social services are offered. All social services funded by the refugee program are considered refugee social services rather than Title XXsocial services even if they also qualify under Title XX rules. Congress has established by statute a National Board of charitable and religious organizations to coordinate and monitor the Emergency Food and Shelter program (350) (the EFS program) under the authority and direction of the Federal EmergencyManagement Agency (FEMA). (351) The NationalBoard awards EFS funds to localboards for allocation to direct service providers. To qualify for funds, a localjurisdiction must have a relatively high rate of unemployment for the most current12-month period with available data and a high poverty rate (as measured by the mostrecent census). The National Board allocates funds to local jurisdictions on the basisof their share of the total number of unemployed persons in all qualifying areas. The National Board also uses a portion of EFS appropriations for state set-aside programs, which allow state boards to select jurisdictions for funding using a formulaestablished by the state boards. These funds are intended to enable state boards totarget pockets of homelessness or poverty in areas not qualifying under the regularnational formula. Examples include areas that suffer sudden economic changes suchas plant closings, areas with high levels of unemployment or poverty that do not meetthe minimum level of unemployment, or jurisdictions that have documentedmeasures of need that are not adequately reflected in unemployment and povertydata. Federal EFS outlays for FY2002 were $143 million. Public and private organizations that provide shelter and food to the homeless and hungry receive federal funds under this program. Providers include food banks,soup kitchens, shelters, and other organizations serving the homeless. The programis designed to purchase food and shelter to supplement and expand current availableresources to target special economic, not disaster-related, emergencies. Theeligibility of direct service providers to receive EFS funds is determined by each localboard. EFS-funded assistance is available for any individual or family whom thelocal board determines to be in need. The EFS program provides food and feeding related expenses (such as transport of the food and food preparation and serving equipment), mass shelter, other shelter(such as hotels and motels), rent/mortgage and /or utility assistance for 1 month onlyto avert homelessness, and limited repairs to feeding and sheltering facilities. Note: For further general information and individual county grant information, see the EFS program homepage at http://www.efsp.unitedway.org . See TANF block grant entry (program no. 12). In FY2002, expenditures for TANF work programs and activities were reported at $2.7 billion, $2.1 billion (78%) from federal funds and $ 0.6 billion fromstate-local funds. (This excludes funding for the separate Welfare-to-Work grantprogram administered by the Department of Labor -- program no.78 in this report.) To enforce a focus on work, TANF law allows parents and other caretakers of TANF children a maximum of 24 months of benefits without "work," as defined bythe state. It also requires states to achieve minimum rates of participation by TANFfamilies in federally recognized work activities. (354) States may use TANF block grantfunds to provide work programs and activities for recipient families and variousgroups of "needy" families not enrolled in the cash program, so long as the servicescan be expected to lead toward ending the dependence of needy parents ongovernment benefits by promoting job preparation and work, one of the program'sgoals. States decide eligibility limits, and they may tailor activities to the needs ofindividual families. If they offer work activities to noncustodial parents of TANFchildren, they may choose whether or not to include them in calculating workparticipation rates of two-parent families. TANF reporting forms require states to break down TANF expenditures on work-related activities into three categories: work subsidies, education and training,and other work activities/expenses. The FY2002 composition of spending fromFY2002 TANF grants: Education and training, 14.8%; work subsidies, 2.7%, (355) andother work activities/expenses, 82.5%. Nineteen states reported making outlays forwork subsidies and 34, for education and training. In a guidance for use of TANFfunds ( Helping Families Achieve Self-Sufficiency), HHS lists numerous ways tosupport work activities, including job search and placement, job skills training, workexperience, job retention services and counseling, and specialized training forsupervisors. Note: For more information, see CRS Report RL30767, Welfare Reform: Work Activities and Sanctions in State TANF Programs . The Job Corps is 100% federally funded. The Job Corps is authorized by Title I, Subtitle C of the Workforce Investment Act (WIA). (356) FY2002 Job Corpsappropriations were $1.5 billion. Those eligible for the Job Corps are "low-income" youths aged 16-24 (only 20% of enrolles may be older than 21) who have one or more of the followingcharacteristics: deficient in basic reading, writing, or computing skills; a schooldropout; homeless, a runaway, or a foster child for whom state or local governmentpayments are made; a parent; in need of additional education, vocational training, orintensive counseling and or help to accomplish regular schoolwork or to secure andhold employment. WIA defines a low-income person as one who (a) receives cash welfare or is a member of a family that receives cash welfare, (b) receives food stamps or is amember of family that was eligible to receive food stamps in the previous 6 months;(c) had family income (359) for the preceding 6months no higher than the federal povertyguideline (a limit in 2003 throughout the 48 contiguous states and the District ofColumbia (360) of $ 18,400 for a family of fourpersons and $8,980 for a single person)or no higher than 70% of the lower living standard income level (LLSIL) (a ceilingthat ranged, effective on May 30, 2003, for a four-person family from $18,270 innon-metropolitan areas of the South to $22,230 in metropolitan areas of the Northeast -- and higher in Alaska, Hawaii and Guam); (d) is homeless, as defined in theStewart McKinney Homeless Assistance Act; (e) is a foster child on behalf of whomstate or local government payments are made; or (f) is a disabled person whose ownincome meets the program limit, but whose family income exceeds it. The Job Corps has no asset rules. Job Corps enrollees are served primarily in residential centers where they receive basic education, vocational skills training, counseling, work experience, andhealth services. Enrollees receive personal allowances while participating in theprogram and readjustment allowances upon successful completion of the program. Job Corps centers are required to provide child day care, to the extent practicable, ator near the centers. WIA forbids needs-tested programs to take its allowances, earnings, and payments into account in determining eligibility for benefits and their amount. (361) Enrollees may remain in the Corps for up to 2 years; the average stay is about 7 months. Note: For further information about Job Corps see CRS Report 97-536 , Job Training Under the Workforce Investment Act: An overview ; and CRS Report RS20244 , The Workforce Investment Act: Training Programs under Title I at AGlance , CRS Report RS21484 : Workforce Investment Act of 1998 (WIA):Reauthorization of Title I Job Training Programs . For further information about JobCorps under JTPA see CRS Report 94-862, The Job Training Partnership Act: ACompendium of Programs . This program is 100% federally funded. Youth Activities are authorized under Subtitle B, Chapter 4 of the Workforce Investment Act (WIA). (362) Funds are allocatedto states on the basis of a three-part formula: state shares of the national distributionof "substantial" unemployment (unemployment rate of at least 6.5%), "excess"unemployment (rate above 4.5%) and the population of "disadvantaged" youth(family income below the federal poverty guideline or 70% of the lower livingstandard income level). (363) FY2002appropriations were $1 billion. Those eligible for WIA youth activities are "low-income" youths aged 14 through 21 who have one or more of the following characteristics: deficient in basicliterary skills; a school dropout; homeless, a runaway, or a foster child; pregnant ora parent; or a youth offender, in need of additional assistance to complete aneducational program or to secure and hold employment. WIA defines a low-income person as one who (a) receives cash welfare or is a member of a family that receives cash welfare, (b) receives food stamps or is amember of family who was eligible to receive food stamps in the previous 6 months;(c) had family income (365) for the preceding 6months no higher than the federal povertyguideline (a limit in 2003 throughout the 48 contiguous states and the District ofColumbia (366) of $ 18,400 for a family of fourpersons and $8,980 for a single person)or no higher than 70% of the lower living standard income level (LLSIL) (a ceilingthat ranged, effective on May 30, 2003, for a four-person family from $18,270 innon-metropolitan areas of the South to $22,230 in metropolitan areas of the Northeast-- and higher in Alaska, Hawaii and Guam); (d) is homeless, as defined in theStewart McKinney Homeless Assistance Act; (e) is a foster child on behalf of whomstate or local government payments are made; or (f) is a disabled person whose ownincome meets the program limit, but whose family income exceeds it. The program has no asset rules. WIA Program of Youth Activities. Local youth programs must include the following 10 services: tutoring, study skillstraining, and instruction leading to secondary school completion; alternativesecondary school offerings; summer employment opportunities directly linked toacademic and occupational learning; paid and unpaid work experience, includinginternships and job "shadowing," occupational skill training; leadership developmentopportunities, including community service and peer-centered activities; supportiveservices; adult mentoring for at least 12 months; followup services for at least 12months, and comprehensive guidance and counseling, including drug and alcoholabuse counseling. At least 30% of local allotments must be used to provide activitiesto out-of-school youth. Local boards may determine how much of available youthfunds to use for summer and for year-round activities, and local programs havediscretion to decide what specific services to provide to a participant. Note: CRS Report RS20244 , The Workforce Investment Act: Training Programs under Title I at A Glance , and CRS Report RS21484 : Workforce Investment Act of1998 (WIA): Reauthorization of Title I Job Training Programs . This program is 100% federally funded. Adult Activities are authorized under Subtitle B, Chapter 5 of the Workforce Investment Act. (367) Funds are allocated tostates on the basis of a three-part formula: state shares of the national distribution of"substantial" unemployment (unemployment rate of at least 6.5%), "excess"unemployment (rate above 4.5%) and the "disadvantaged" adult population (familyincome below the federal poverty guideline or 70% of the lower living standardincome level). (368) FY2002 appropriations were$950 million. Those eligible for adult activities are persons at least 18 years old. Any individual may receive "core" services (for example, job search assistance). Forintensive services, such as individual career planning, and for job training, a personmust need the services in order to become employed or to obtain or retain a job thatallows for self-sufficiency. If funds are limited, priority must go to recipients of cashwelfare and other low-income persons. The program has no asset rules. The law requires that most services for adults be provided through One Stop Career Centers. It authorizes three levels of services: "core" services, "intensive"services, and training services. Available to all job seekers are core services, whichinclude outreach, job search and placement assistance, and labor market information. "Intensive" services are available only to persons who have received at least one coreservice and need further services to obtain or retain a job. Intensive services includemore comprehensive assessments, development of individual employment plans, andcounseling and career planning. Training services linked to job opportunities in thecommunity are available for persons who cannot find a job through intensiveservices. Both occupational training and training in basic skills may be offered. Topromote individual choice, participants use an "individual training account" to selecta program from a qualified training provider. The law also authorizes supportiveservices, such as child care and transportation aid, to enable a person to participate. WIA forbids needs-tested programs to take its allowances, earnings, and payments into account in determining eligibility for benefits and their amount. (370) However, an exception applies to food stamp recipients, aged 19 or older, who areenrolled in on the-job-training. Food stamp rules treat the earnings of on-the-jobtrainees as earned income. Note: For more information see CRS Report RL30929(pdf) , Job Training: Characteristics of Workforce Training Participants . For more historical informationabout the adult and youth training programs under JTPA, see CRS Report 94-862, The Job Training Partnership Act: A Compendium of Programs . For moreinformation about the programs under WIA see CRS Report 97-536 , Job TrainingUnder the Workforce Investment Act: An Overview, CRS Report RS20244 , TheWorkforce Investment Act: Training Programs under Title I at A Glance . The law provides 90% federal funding (up to 100% in disaster or economically depressed areas) for this program. The non-federal share can be cash or in kind. Thestate allocation formula has three elements: a hold harmless factor (the 2000 levelof funding); a state's relative share of persons aged 55 years and older; and a state'srelative per capita income. For FY2003, $442 million was appropriated. Title V of the Older Americans Act makes eligible for the Senior Community Service Employment Program (SCSEP), persons aged at least 55 with low incomes. The Act defines low income as not exceeding 125% of the poverty guidelinesestablished by the Department of Health and Human Services (HHS). Departmentof Labor (DOL) regulations provide eligibility for a person who is a resident of thestate and a member of a family that either (a) received countable income in theprevious 6 months on an annualized basis, or actual income during the preceding 12months, whichever is most beneficial to the applicant, that is not higher than 125%of the HHS poverty guidelines or (b) receives regular cash welfare payments. The2003 income eligibility ceilings were $11,225 for an individual and $15,150 for atwo-person family (higher in Alaska and Hawaii). There is no asset test. Regulations give first priority to persons with the greatest economic need, second priority to persons aged 60 years or older, and third priority to eligible personsseeking reenrollment within a year of leaving the program because of no fault of theirown, or illness. Regulations forbid an upper age limit, and they require annualrecertification of income. The DOL instructions (372) require SCSEP project sponsors to disregard variouskinds of income of applicants and recipients, including welfare payments, disabilitypayments, one-quarter of Social Security benefits, unemployment benefits,employment and training benefits, trade adjustment benefits, capital gains, the first$3,000 in dividend and interest income, certain veterans' benefits, one-time unearnedincome payments or unearned income payments of fixed duration. In addition, $500of otherwise includable income is not counted as annual family income forreenrollees who were previously dropped from the program because of illness ormovement to unsubsidized employment. However, support received from absentfamily members, such as adult children supporting their aged parents, is included indeciding eligibility. Participants are placed in part-time community service jobs, for which their wages are subsidized by the federal government; when possible, project sponsors areencouraged to place enrollees in unsubsidized jobs. Upon placement in a job,enrollees receive no less than the highest of: the federal minimum wage, the state orlocal minimum wage, or the prevailing wage paid by the same employer for similarpublic occupations. Hours of unsubsidized work per enrollee are limited to 1,300 inany 12-month period. In 2002, wages under the program averaged $5.35-$5.40 perhour. Note: For more information, see CRS Report 95-917, Older Americans Act: Programs and Funding and CRS Report RL30055(pdf) , Older Americans Act: 106thCongress Legislation . Note: No part of the original TANF block grant was earmarked for workprograms, but in 1997, Congress added a 2-year $3 billion program ofwelfare-to-work (WtW) grants to help states meet TANF work requirements. The Balanced Budget Act of 1997 ( P.L. 105-33 ) created a $3 billion welfare-to-work (WtW) grant program for 2 years, FY1998 and FY1999. AlthoughWtW is a component of TANF (Section 403(a)(5) of the Social Security Act), it isadministered by the Department of Labor (DOL). After set-asides, (373) 75% of WtWfunds were designated for matching formula grants (66.7% federal matching rate)and 25% for competitive grants. Formula grants were allocated by DOL to states onthe basis of their shares of the national adult TANF population and the povertypopulation. States were required to distribute 85% of the formula grants to localworkforce investment areas. (374) DOL awardeda total of $2 billion in formula grants(to 48 states in 1998 and 45 in FY1999) and $712 in competitive grants to localitiesand nonprofit organizations. The original law gave WtW grantees 3 years from thedate of an award in which to spend WtW funds, but Congress extended the deadline2 years, allowing WtW expenditures to continue through FY2004 (ConsolidatedAppropriations for 2001, P.L. 106-554 ). WtW funds are focused on hard-to-employ TANF recipients. As first enacted, 70% of funds had to be used for the benefit of TANF recipients (and TANFnon-custodial parents) with at least two specified barriers to work who themselves(or whose minor children) were long-term recipients (30 months of AFDC/TANFbenefits) or were within 12 months of reaching the TANF 5-year time limit or ashorter state time limit. The target groups had to have at least two of these threework impediments: lack a high school diploma and have low skills in reading ormathematics, require substance abuse treatment for employment, and/or have a poorwork history. WtW eligibility was liberalized by P.L. 106-554 . Grantees now (377) may use WtW funds (and state matching funds) on behalf of four new groups: long-termTANF recipients without specified work barriers, former foster care youths 18 to 24years old, TANF recipients who are determined by criteria of the local privateindustry council to have significant barriers to self-sufficiency, and non-TANFcustodial parents with income below the poverty line. However, at least 70% ofWtW funds must be spent on long-term TANF recipients and/or noncustodial parentswithout specified work barriers. The 1999 law also set special rules for noncustodial parents. To be eligible for WtW, noncustodial parents must be unemployed, underemployed, or havingdifficulty paying child support and they must comply with an oral or written personalresponsibility contract. They also must meet one of these conditions: their minorchild (or the child's custodial parent) must be a long-time TANF recipient or within12 months of reaching a TANF time limit, the child must be a recipient ofincome-tested aid (TANF, food stamps, SSI, Medicaid or S-CHIP), or the child musthave left TANF within the last 12 months. Activities that may receive WtW funds are: the conduct and administration of community service or work experience programs; job creation through wagesubsidies, on-the-job training, contracts with providers of readiness, placement, andpost-employment services, job vouchers for placement, readiness, andpost-employment services, job retention or support services if these services are nototherwise available; and, added by P.L. 106-113 , up to 6 months of vocationaleducational or job training (effective July 1, 2000). The law specifies that a workactivity paid with WtW funds may not violate an existing contract for services or acollective bargaining agreement and that a WtW worker cannot fill a vacancyresulting from cutting the hours of a job below full time. In FY2002, WtW spendingtotaled $413 million ($342 million from formula grants and $71 million fromcompetitive grants). As of September 30, 2002, unspent WtW funds totaled about$416 million -- $293 million in formula grants and $123 million in competitivegrants. Note: For more detail, see CRS Report RS20134, Welfare Reform: Brief Summary of the Welfare-to-Work Grant Program . The Food Stamp Act provides for annual grants to state agencies administering the Food Stamp program to conduct employment and training activities for foodstamp recipients. These grants, which are automatically reserved from annual foodstamp appropriations, are set at $90 million a year. They are not limited by fiscalyear, and unspent amounts can be carried over and accumulated for use in a futureyear or reallocated to states that have spent their allocation of funds. In addition,states may receive a portion of an additional $20 million a year if they agree to serveall recipients who are able-bodied adults without dependents (ABAWDS). Employment and training grants generally are allocated among states on the basis oftheir proportion of persons to which food stamp work rules apply, with specialemphasis on the estimated number of able-bodied adults without dependents(ABAWDs) in each state's food stamp caseload as a proportion of the national total. (380) In addition to the above-noted unmatched federal grants for operating their employment and training programs, the federal government pays states 50% of (1)any additional operating costs and (2) any participant support costs (e.g., child care,transportation); in FY2002, these payments exceeded $110 million. As detailed in the description of the Food Stamp program (program no. 21), certain nonworking able-bodied adult recipients must register for employment, accepta suitable job if offered one, and fulfill any work, job search, or training requirements(participate in employment and training programs) established by administering stateagencies. (382) Major exemptions from thisrequirement incorporated in food stamp lawinclude persons caring for dependents (disabled or under age 6) and those alreadysubject to another program's work requirement. In addition, states may choose notto require participation of otherwise covered individual recipients. NonworkingABAWDs, on the other hand, must participate in an employment or training activityunder conditions noted in the description of the Food Stamp program -- unless theyreside in an area for which the state agency has obtained a waiver because of veryhigh unemployment levels or the lack of available jobs or they have been individuallyexempted by the state agency under its authority to exempt up to 15% of thosepotentially subject to ABAWD work/training rules. (383) In FY2002, states reportedsome 2.3 million new work registrants (i.e., persons potentially subject to requiredparticipation in employment and training programs); approximately 1.2 million(including about 450,000 ABAWDs) were subject to employment and trainingrequirements. State agencies have a great deal of flexibility in the types of employment and training activities they can require of food stamp recipients. These include: jobsearches and training for job searches, educational activities to improve basic skillsand employability (e.g., literacy training, high school equivalency preparation),vocational training, workfare or work experience programs. Almost two-thirds ofemployment/training program participants are typically assigned to job search or jobsearch training, and another 30% are placed in workfare/work experience "slots." Fewer than 5% participate in educational or vocational training activities. The Domestic Volunteer Service Act of 1973, as amended ( P.L. 103-82 ) provides 90% federal funding for developing and/or operating a foster grandparentsproject (up to 100% in special situations). The local project may provide itsmatching share in kind or cash. Appropriated for FY2002 was $107 million. The law makes eligible as foster grandparents persons at least 60 years old who are no longer in the regular workforce. Individuals must have an annual income,after deducting allowable medical expenses, that does not exceed 125% of the federalpoverty guideline (or 135% of the poverty line in the case of volunteers living inareas determined by the Corporation for National and Community Service to have a higher cost of living). (385) For 2003, the 125%of poverty limit was $11,225 for a singleperson and $15,150 for a two-person family in the 48 contiguous states (higher inAlaska and Hawaii). Allowable medical expenses are annual out-of-pocket medicalexpenses for health insurance premiums, health care services, and medications thatwere not and will not be paid by Medicare, Medicaid, other insurance or other thirdparty payor, and which do not exceed 15% of the applicable income guideline. Onceenrolled, a person remains eligible so long as his countable income does not exceed150% of the poverty guideline (or, in high cost areas, 162%). The program has noasset rules. The law requires low-income volunteers to be provided with a stipend plus transportation and meal costs. The stipend is set at $2.65 per hour. Stipends aretax-free and cannot be treated as wages or compensation for the purposes of anypublic benefit program. Volunteers also receive annual physical examinations andaccident and personal liability insurance. Foster grandparents provide services tochildren with exceptional or special needs. Note: For more information about the Foster Grandparent program, see CRS Report RL30186(pdf) , Community Service: A Description of AmeriCorps, FosterGrandparents, and Other Federally Funded Programs , and CRS Report RS20419, VISTA and the Senior Volunteer Service Corps: Description and Funding Levels . The Domestic Volunteer Service Act of 1973, as amended ( P.L. 103-82 ), provides 90% federal funding for developing and/or operating a senior companionproject (up to 100% in special situations). The local project may provide itsmatching share in kind or cash. Appropriated for FY2002 was $44.4 million. The law authorizes support for senior companions persons at least 60 years old who are no longer in the regular workforce. Individuals must have an annual income,after deducting allowable medical expenses, that does not exceed 125% of the federalpoverty guideline (or 135% of the poverty line in the case of volunteers living inareas determined by the Corporation for National and Community Service to have a"higher" cost of living). (387) For 2003, the 125%of poverty limit was $11,225 for asingle person and $15,150 for a two-person family in the 48 contiguous states (higherin Alaska and Hawaii). Allowable medical expenses are annual out-of-pocketmedical expenses for health insurance premiums, health care services, andmedications that were not and will not be paid by Medicare, Medicaid, otherinsurance or other third party payor, and which do not exceed 15% of the applicableincome guideline. Once enrolled, a person remains eligible so long as his countableincome does not exceed 150% of the poverty guideline (or, in higher cost areas,162%). The law requires low-income volunteers to be provided with a stipend plus transportation and meal costs. The stipend is set at $2.65 per hour. Stipends aretax-free and cannot be treated as wages or compensation for the purposes of anypublic benefit program. Volunteers also receive annual physical examinations andaccident and personal liability insurance. Senior companions provide supportiveservices to vulnerable, frail adults who are homebound and who usually live alone. Note: For more information about the Senior Companion program, see CRS Report RL30186(pdf) , Community Service: A Description of AmeriCorps, FosterGrandparents, and Other Federally Funded Programs , and CRS Report RS20419, VISTA and the Senior Volunteer Service Corps: Description and Funding Levels . Subject to available appropriations, the Immigration and Nationality Act authorizes 100% federally funded targeted assistance (primarily foremployability-related services) for refugees and asylees. Other legislation authorizessimilar assistance for certain Cuban and Haitians entrants (388) and for certainAmerasians. (389) The Department of Health andHuman Service's Office of RefugeeResettlement (ORR), which administers the program, awards grants to designatedstate agencies on behalf of counties with high concentrations of refugees, asylees orother eligible groups. States must allocate at least 95% of funds to counties. Forrefugee targeted assistance, ORR benefit expenditures amounted to $49.5 million inFY2002. A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant,"or be a Cuban or Haitian national paroled into the United States after October 10,1980, (c) be a person who has an application for asylum pending or is subject toexclusion or deportation and against whom a final order of deportation has not beenissued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. In allocating targeted assistance funds, states must give priority to the following groups, in order: (a) cash assistance recipients, particularly long-term recipients; (b)unemployed individuals who are not cash recipients; (c) employed individuals whoneed services to retain jobs or become economially independent. Counties develop their own plans for targeted assistance, which must be approved by the state. Targeted assistance funds must be used primarily foremployability services designed to enable beneficiaries to obtain jobs within a year. They may not be used for long-term training programs lasting more than a year or for educational programs that are not intended to lead to employment within a year. The 1996 welfare law ( P.L. 104-193 ), which abolished the Job Opportunities and Basic Skills (JOBS) training program, established the Native EmploymentWorks (NEW) Program (391) to continue tribalwork and training grants that existedunder JOBS. Administered by HHS, the NEW program is 100% federally funded. The law appropriated $7.6 million annually for FY1997-FY2002. This equals thesum received by Indian tribes and Alaska native organizations to operate their ownJOBS programs in FY1994. (Funding was extended through March 30, 2004, by aseries of laws.) In the year ending June 30, 2001 (program year 2000-2001) aboutone-third of the78 tribal grantees transferred their NEW funding to demonstrationprojects administered by the Bureau of Indian Affairs under P.L. 102-477 (IndianEmployment, Training, and Related Services Demonstration Act). The NEW program is not subject to federal definitions of TANF work activities, TANF work requirements, or to old JOBS rules. Indian tribes design their own NEWprograms, define who will be eligible, decide what benefits and services to provide,and specify the population and geographic area to be served. Target groups generallyinclude TANF recipients, non-custodial parents, recipients of General Assistance(GA) from the Bureau of Indian Affairs (BIA), and unemployed parents. Of NEWparticipants in program year 2000-2001, about 70% also were enrolled in TANF and6% in BIA general assistance. (In early 2003, 38 tribal TANF plans were inoperations, covering about 27,000 families in 15 states.) (393) Also, as noted in the entryon General Assistance to Indians (program no.18 in this report), some tribes operateTribal Work Experience Programs (TWEP), which pay a monthly $115 supplementto GA cash benefits. In program year 2000-2001, about 23% of the reported total of 5,615 NEW participants received child care; 35%, transportation assistance; 17%, counseling;16% other supportive/job retention services (such as equipment, tools and uniforms)and 4%, medical services. Major program activities included job search (40% ofclients); classroom training (5%); work experience (26%); on-the job training (3%);and other tribal work activity (12%). (394) A totalof 1,565 NEW participants, including616 TANF recipients, began unsubsidized jobs during the year. According to theFifth annual TANF report, many tribes with NEW programs co-located training,employment, and social services, often in "one-stop" centers. Some granteesestablished information/resource centers and learning centers, which provided avariety of job preparation services and worked closely with local colleges. The Low-Income Home Energy Assistance Act (Title XXVI of P.L. 97-35 , as amended) provides 100% federal funding for the Low-Income Home EnergyAssistance Program (LIHEAP). (395) throughannual block grants to states, the Districtof Columbia, more than 100 eligible Indian tribes, two commonwealths, and fourterritories. (396) The Department of Health andHuman Services (HHS) distributesannual federal appropriations using an allocation formula established in law. P.L. 103-252 , which reauthorized the program through FY1999, authorized a special fund of $600 million annually for emergencies (contingency funding). P.L.105-285 reauthorized LIHEAP at $2 billion annually for FY2002-FY2004. This lawalso expanded the criteria for LIHEAP contingency funding and added a sectionconcerning natural disasters. In FY2002, 29 states received contingency fundstotaling $100 million. Federal outlays for LIHEAP totaled $1.8 billion in FY2000,$1.9 billion in FY2001, and $1.8 billion in FY2002. States and other grantees design and administer their own programs under general federal guidelines. These guidelines set maximum and minimum incomeeligibility standards, and allow jurisdictions operating the LIHEAP to makecategorically eligible most households receiving Temporary Assistance for NeedyFamilies (TANF), Supplemental Security Income (SSI), Food Stamps, veterans'pension, or compensation benefits. (398) Incomeeligibility standards vary, but they may not be above 150% of the federal poverty income guidelines (a 2003 limit of $27,600for a family of four in the 48 contiguous states), or 60% of the jurisdiction's medianincome (adjusted for family size). In addition, they may not be below 110% of thefederal poverty income guidelines. The law requires that benefits and outreachactivities be targeted to those with the greatest home energy needs (as well as costs)particularly households with young children, frail elderly, and disabled individuals. (399) Eligibility for LIHEAP benefits is typically determined on a "household" basis, andgrantees may establish eligibility standards in addition to income. A household canbe an individual, or group of individuals who are living together as one economicunit for whom residential energy is customarily purchased in common or who makeundesignated rent payments for energy. Grantees operating the LIHEAP decide benefit levels and the manner in which payments are made. However, to the extent permitted by efficient administration,jurisdictions are required to provide the highest benefits to households with lowestincomes and highest energy costs in relation to their income. They also must setaside a "reasonable" portion of their allotment for energy-related emergencies (basingthe set-aside on past experience). LIHEAP funds may be used to help pay residentialheating or cooling costs, purchase/install low-cost weatherization materials, andassist households facing energy-related emergencies. Operating jurisdictions can use a maximum of 15% of their LIHEAP allotment for weatherization activities (or 25% if a federal waiver is granted). LIHEAPobligations for weatherization totaled $159 million in FY2000 and $234 million inFY2001, exceeding outlays for the weatherization program of the Department ofEnergy (program no. 85). Benefits most commonly take the form of cash payments to households, vendor "lines of credit," vouchers, and tax credits. In FY2000, some 3.9 million householdsare estimated to have received home heating benefits (and, in 17 states, coolingassistance was given to 318,438 households). In FY2002, heating benefits went to anestimated 4.7 million households. The program includes a Residential EnergyAssistance Challenge (REACH) grant program, established by 1994 law, to increaseefficiency of energy usage by low-income households. Grantees may use up to 10% of their LIHEAP allotments for administrative expenses and may carryover up to 10% of 1 year's funds for use in the next year. Note: For more information, see CRS Report RL31865 , The Low-Income Home Energy Assistance Program (LIHEAP): Program and Funding Issues. The Energy Conservation and Production Act of 1976 ( P.L. 94-385 ), as amended, provides 100% federal funding for weatherization assistance tolow-income persons through grants administered by the Department of Energy(DOE). (400) Administrative costs may not exceed10% of grant funds. Weatherizationfunds are allocated among the states on the basis of factors that include: number ofheating degree days and cooling degree days, number of low-income owner-occupiedand renter-occupied dwellings, percentage of total residential energy used for spaceheating and space cooling. Although states are not required to provide matchingfunds, (401) state and local funds often supplementfederal amounts. Appropriationstotaled $230.0 million in FY2002. States and other grantees design and administer their own programs under general federal guidelines. The law makes eligible all "low-income" households andoffers alternate definitions of this term. States are permitted to give DOEweatherization assistance to households whose (a) combined income falls at or below125% of the federal poverty income guidelines, a ceiling equal in the 48 contiguousstates to $23,000 for a family of four in 2003 (at state option, the ceiling can be liftedto 150% of the poverty guideline, if the state has adopted that income limit forLIHEAP) and (b) families with a member who received cash welfare paymentsduring the previous 12 months from TANF, SSI, or state assistance programs. Legislation allows a maximum average expenditure, adjusted annually for price inflation ($2,614 in FY2003), per dwelling unit for weatherization materials, labor,and related matters (such as transportation of materials and workers; maintenance,operation and insurance of vehicles; maintenance of tools and equipment; purchaseor lease of tools, equipment and vehicles; employment of on-site supervisors; andstorage of weatherization materials). DOE reports that it weatherized more than97,000 homes in FY2001 and 5.2 million over the 27-year history of the program. The Low-Income Home Energy Assistance Program (LIHEAP) usually spends morefunds on weatherization assistance than the DOE program. For information aboutLIHEAP weatherization assistance, see program no. 84. Note: For more information, see CRS Report RS20373, The Department ofEnergy's Weatherization Assistance Program and CRS Issue Brief IB10020, EnergyEfficiency: Budget, Oil Conservation, and Electricity Conservation Issues. For DOEsummary, see http://www.eere.energy.gov/buildings/weatherization/about.html . Table 14. Need-Based Benefits: Expenditures andEnrollment Data, by Programs and Form of Benefits FY2000-FY2002 Data in this table are based on program reports and budget documents, including departmental justifications of appropriations estimates. Details of sources areavailable upon request. Note: Programs are listed in descending order of total FY2002 expenditures. Except for sums below $100 million, figures shown are rounded to the nearest million. Totals reflect rounding of sums below $100 million to the nearest million. N.A =means "not available." N.P.= means no program. To conserve space, names of someprograms have been shortened in the table. MEDICAL BENEFITS a. Funded program costs. b. Includes these sums for administration: 2000, $5,892 million; 2001, $6,555 million; 2002, $6,601 million. c. Includes these sums for administration: 2000, $4,685 million; 2001, $5,325 million; 2002, $5,330 million. d. Unduplicated annual number of persons ever enrolled during the year, regardless of whether they receiveda service funded by the program. e. Appropriations. f. Includes these sums for administration: 2000, $23 million; 2001, $24 million; 2002, $25 million. g. VA makes grants to states to help finance construction of some states' veterans' homes and pay perdiem expenses for some veterans in state homes,but state and local expenditures are not known. h. Data include these sums for administrative costs: 2000, $116.5 million; 2001, $ 191 million; 2002,$251 million. Federal benefit expenditures arefrom state claims for federal matching dollars, submitted to HHS on Form 21C (as of 11/30/02), and may includeMedicaid administrative costs atan enhanced federal matching rate. i. Actual state and local share of administrative costs for FY2000-FY2002 are not available. j. Number ever enrolled during the year. k. Data from the Centers for Medicare and Medicaid Services, Office of the Actuary, National Health StatisticsGroup. l. Annual count. m. Minimum match required by law for block grant amount (75% of Federal sum) and SPRANS grants(50% of Federal sum). States may spend more,but data are not available. n. Includes these estimated sums for administration: 2000, $23 million; 2001, $20 million; 2002, $21million. Refugee cash and medical administrativeexpenditures actually are combined. Estimates are based on the 1998-1999 proportion of benefit dollars in eachprogram. o. Because of a high degree of overlap (and in some cases, a mixture of monthly and annual numbers), recipienttotals are not shown. CASH BENEFITS Some other programs provide aid in the form of cash intended for specific goods or services. Examples are the Low-Income Home Energy AssistanceProgram and educational loan and grant programs. a. In FY2000, 13 monthly payments of SSI were made, and in FY2001, 11 monthly payments. Expenditure data in this table have been adjusted to a12-payment basis for each year. b. Includes these sums for administration: 2000, $2,321 million; 2001, $2,397 million; 2002, $ 2,522 million. Excludes these amounts for beneficiaryservices: 2000, $54 million; 2001, $44 million; 2002 $ 54 million. c. Includes these estimated sums (calendar year) for state administration of state SSI supplements: $71million; $72 million; $ 68 million (estimatesequal 8% of state-administered benefits). d. Data include recipients of non-federally administered payments (state-administered SSI supplementsonly, data as of December of each year): 2000,83,483; 2001, 87,059; 2002, 151,989. In 2002, Texas began reporting on state-administered supplements, whichincreased estimated numbers abovethose of previous years. e. Data for 2000 and 2001 are from U.S. Treasury, Internal Revenue Service, and refer to the calendaryear (tax year ) to which the EITC applied. Benefitsexclude tax expenditures (reductions in tax owed), which totaled $4,492 million in 2000 and $ 4,376 million in 2001 Data for 2002 are estimates from the FY2004 Budget of the United States, Analytical Perspectives, and exclude tax expenditures of $4,450million. f. Estimated annual number of tax units (chiefly families). 2001 number is preliminary. g. Includes basic cash assistance, refundable tax credits, short-term nonrecurring benefits (example,diversion payments), and contributions to individualdevelopment accounts. Excludes transfers to CCDBG and SSBG. Excludes spending for TANF child care, TANFwork activities, and TANF services (reported separately under those programs). Excludes separate Welfare-to-Work grants administered by the LaborDepartment. However, includesadministrative costs for all TANF-funded benefits and services. h. Includes these sums for overall TANF administrative costs (for all benefits and services): 2000, $1,506million; 2001, $1,598 million; 2002, $1,633million. i. Includes these sums for overall TANF administrative costs (all benefits and services): 2000, $889million; 2001, $1,042 million; 2002, $983 million. j. Number of recipients. Number of families: 2000, 2.265 million; 2001, 2.116 million; 2002, 2.064. Number of children: 2000, 4.385 million; 2001,4.055 million; 2002, 3.839 million. k. Foster care benefit expenditures do not include child support payments collected on behalf of fostercare children, which are used to reimburse stateand federal costs for foster care maintenance payments. For FY2000, child support payments received on behalfof foster care children totaled $45million; for each of FYs 2001 and 2002, $49 million. l. Includes these sums for administration, data collection, training, and demonstration (waiver) costs: 2000, $2,376 million; 2001, $2,473 million; 2002,$2,641 million. Note: before FY2000, states were not asked to separately classify demonstrationspending, which may be used for either benefitsor administration. Waiver expenditures included in the foregoing sums were: 2000, $136 million; 2001, $148million; 2002, $191 million. m. Includes these estimated sums for administration, data collection, training, and demonstration (waiver)costs: 2000, $2,224 million; 2001, $ 2,311million; 2002, $2,474 million. Waiver costs included in the preceding totals were: 2000, $131 million; 2001, $142million; 2002, $186 million. n. Data for 2000 and 2001 are from U.S. Treasury, Internal Revenue Service, and refer to the calendaryear (tax year ) to which the child tax creditapplied. Benefits exclude tax expenditures (reductions in tax owed), which totaled $19.7 billion in 2000 and $ 22.5billion in 2001. Data for 2002are estimates from the FY2004 Budget of the United States, Analytical Perspectives, and exclude tax expendituresof $22.2 billion. o. Spending data relate to state fiscal years. 2000 and 2001 spending data are based on reports from theU.S. Census Bureau (state and local governmentexpenditures for noncategorical cash assistance payments). 2002 amount is an estimate, based on data obtainedfrom 4 states that accounted for 33%of the 2000 Census-reported total. Data from these states indicated that GA cash expenditures rose about 10% from2000 to 2002. p. Annual count. q. Includes these sums for administration, data collection, training, and demonstration (waiver) costs: 2000, $286 million; 2001, $299 million; 2002,$305 million. Waiver spending included in foregoing totals: 2000, $90,000; 2001, $240,000; 2002, $1 million. r. Includes these estimated sums for administration, data collection, training, and demonstration (waiver)costs: 2000, $255 million; 2001, $ 271 million;2002, $277 million. Waiver spending included in foregoing totals: 2000, $90,000; 2001, $235,000; 2002, $729,000. s. Obligations. t. Estimates. Includes these estimated sums for administration: 2000, $12 million; 2001, $11 million;2002, $12 million. Refugee cash and medicaladministrative expenditures actually are combined. Estimates are based on the 1998-1999 proportion of benefitdollars in each program. u. Recipient totals are not shown because data include monthly and annual numbers. FOOD BENEFITS See also program no. 72, Emergency Food and Shelter. a. Federal expenditures represent obligations unless otherwise marked. b. Food stamp data include spending for (1) state-financed benefits for non-citizens, to the extent that theyare funded through transfers to the federalgovernment (2) Puerto Rico's nutrition assistance program (over $1.2 billion yearly), and (3) nutrition assistancegrants to American Samoa andthe Northern Marianas totaling about $10 million yearly. State-local expenditure estimates are for administrationand do not include amountstransferred to the federal government to finance benefits for non-citizens ($35 million in 2000, $34 million in 2001,and $78 million in 2002), oramounts spent directly by states for benefits to non-citizens. c. Excludes sums spent for food stamp work/training, reported under that program (no. 79 ). Includesthese sums for food stamp administration: 2000,$1,935 million; 2001, $2,102 million; 2002, $2,264 million. Includes amounts for state-financed benefits fornon-citizens. d. Includes persons receiving nutrition assistance in Puerto Rico: 2000, 1.1 million; 2001, 1.1 million; 2002,1 million. e. Estimated cash and commodity assistance for free and reduced price lunches and after-school snacks. Includes federal funds for state administrativeexpenses for school lunch and other child nutrition programs. These administrative funds totaled: 2000, $120 million; 2001, $127 million; 2002,$ 132 million. Excludes cash assistance for "full-price"meals (44% of total lunches served), which have no incometest. f. Not reported since 1980, when federal funds provided about half the total cost of the lunch program,and children's meal payments, plus state/localrevenues, the other half. A 1994 Agriculture Department survey indicates that 40% of the total operating costs ofschool meal programs come fromchildren's meal payments and state/local government sources. The minimum state matching requirement totals justover $200 million annually. g. Estimated average daily number of children receiving free and reduced-price meals in these programs. h. Includes these federal payments for state-local administration, nutrition services, infrastructure grants,and technical services: 2000, $1,108 million;2001, $1,150 million; $2002, $1,208 million. "Administrative" expenses include costs of providing nutritional riskassessments, nutrition education,and other services such as breast feeding support services. All figures have been adjusted for year-to-year carryovers of unspent funds. I. None required. Contributions unknown. J. Federal spending for state administrative costs included under program no. 21 (school lunch). See footnotee. k. Estimates of funds (including the value of commodity assistance) for meals/snacks served to childrenand adults with family income not exceeding185% of the poverty income guideline. Includes administrative payments for day care home sponsors and auditexpenses: 2000, $136 million; 2001,$138 million; 2002, $138 million. l. Estimates of children from families who meet an income test (185% of the poverty income guideline)are based on the number of meals/snackssubsidized at the higher rate paid for meals served to such children. However, a 1999 Agriculture Departmentsurvey indicates that the figurespresented here may overstate the number of lower-income children served by approximately 200,000. m. The law prohibits an income test, but requires preference for those with greatest economic or social need. n. Sums represent (1) appropriations of Administration on Aging (AoA) before transfer of funds amongsupportive service and nutrition service categoriesplus (2) USDA obligations of funds for the elderly commodity program. For FY2002, AoA appropriations were$566.5 million, and USDAcommodity obligations were $ 176.5 million. o. The non-federal share for congregate and home-delivered nutrition is an estimate based on a 15%match requirements for these funds. No match isrequired for the nutrition services incentive component of the program. p. Annual unduplicated number. 2002 is an estimate. q. Sums represent the value of commodities plus appropriations for state and local administrative anddistribution costs and the value of "bonus"commodities provided without appropriation. Includes commodities for soup kitchens and food bank programs. r. States must match, in cash or in-kind, administrative grants that they do not pass along to local agencies. Amounts, if any, are not known. s. Includes payments to summer program sponsors for administrative costs and health inspectionpayments to states: 2000, $30 million; 2001, $30 million;2002, $ 30 million. t. July participation. u. Includes amounts obligated for administration and distribution costs): 2000, $20 million; 2001, $23million; 2002, $23 million. Not adjusted forinter-year transfer of funds. Because of carry overs of funds and commodity inventories among fiscal years, actualexpenditures are higher than thenew obligation amounts shown here. Does not include the value of "bonus" commodities provided withoutappropriation, estimated at $1 to $5million annually. v. Sums represent the value of purchased commodities plus administrative grants. Administrative costs: 2000, $21 million; 2001, $23 million; 2002,$ 23 million. Not adjusted for inter-year transfers of commodities. Does not include the value of "bonus"commodities provided without anappropriation: estimated at $5 to $10 million annually. Because of carry overs of funds and commodity inventoriesamong fiscal years, actualexpenditures are higher than the new obligation amounts shown here. w. Indian tribal organizations and state agencies operating the program must contribute up to 25% ofadministrative and distribution costs, but the amountof their contributions (estimated at $5 to $10 million annually) are not known. x. All spending is shown as benefit expenditures. No information is available on the breakout betweenbenefit and administrative spending, althoughadministrative expenses generally may not exceed 17% of a state's grant. y. Although a 30% state match is required under the WIC component of the farmers' market nutritionprogram, no information is available on the actualamount spent. z. Average number of half-pints of free milk served daily to children whose family income does notexceed 130% of the poverty income guidelines. Excludes federally subsidized milk served without regard to child's family income. aa. Recipients are not totaled because of a high degree of overlap (and/or in some cases, a mixture of monthlyand annual numbers). HOUSING BENEFITS *See also program no. 72, Emergency Food and Shelter, and program no. 68, Homeless Assistance Grants. a. Units eligible for payment at end of fiscal year. b. Outlay data include operating subsidies, capital grants, and HUD-administered Indian housing. Outlayand housing unit data exclude the Indian HousingBlock Grant. c. Localities accept payments in lieu of property taxes that are lower than normal taxes (usually equal to10% of shelter rent). No estimate is availableof the value of this benefit. d. Obligations. e. State-local governments may use up to 10% of federal HOME funds for administrative costs. f. Consists of housing units provided, constructed, or rehabilitated by HOME funds, plus tenant-basedrental assistance. Housing units: 2000, 78,968;2001, 69,712; 2002, 73,804. Families receiving tenant-based rental assistance: 2000, 6,899; 2001, 11,756; 2002,10,239. g. Units assisted under this program also are counted under the Section 515 program (rural rental housing loans)or Section 514 program (farm laborhousing loans). h. Amounts shown are appropriations. i. Beginning in FY2001, includes rehabilitation loans. j. Amount of rural housing repair loans and grants (Section 504) obligated: 2000, $27.4 million in loansand $30.4 million in grants; 2001, $ 30.3 and$31.1 million, respectively; 2002, $31.8 and $30.6 million, respectively. k. Number of rural housing units repaired with loans and grants (Section 504): 2000, 4,321 units repairedwith loans and 5,442 with grants; 2001, 5,431and 6,331, respectively; 2002, 5,615 and 6,170, respectively. Note: Some units may receiveboth a loan and a grant. l. Amount of farm labor housing loans (Section 514) and grants (Section 516) obligated: 2000, $25.9million in loans and $19.3 million in grants; 2001,$32.1 and $9.1 million, respectively; 2002, $47.3 and $14.5 million, respectively. m. Amounts shown are self-help technical assistance grants (Section 523) and site loan obligations(Sections 523 and 524). Grants: 2000, $30.4 million; 2001, $17.6 million; 2002, $26.5 million. Site loan obligations (Section 523): 2000, $1.2 million; 2001, $4 million;2002, $0.0 million. Site loanobligations (Section 524):2000, $0.6 million; 2001, $3.7 million; 2002, $0.5 million. n. These programs provide for the development of building sites. Houses constructed on these ssites generallyare financed (and counted) under theSection 502 program. o. Numbers represent new and repaired or renovated houses, as follows: 2000, 238 new and 310 repairedor renovated houses; 2001, 138 new and 225repaired or renovated houses; 2002, 201 new and 327 repaired or renovated houses. p. Columns are not totaled because they are a mixture of numbers: dwelling units, loans, and grants. Further,some units are assisted by more than oneprogram. EDUCATION BENEFITS a. Federal expenditure data represent appropriations and, unless otherwise indicated, are based upon appropriations for the program in the school yearending in the fiscal year named. For forward-funded programs, for example, "FY2002 expenditures" are totalFY2001 appropriations for the program(which generally were available for obligation from July 1, 2001 through Sept. 30, 2002). For current-fundedprograms, FY2002 expenditures areFY2002 appropriations, which generally were available for obligation throughout FY2002. b. The number of recipients is based upon counts or estimates of participants in the school year endingin the fiscal year named. For example, FY2002recipients are students who participated in (or received benefits from) programs during the 2001-2002 school year,or during the summer of 2002. c. Federal appropriations include funds for local administration. Note: Although HeadStart is classified in this report as an education program, itprovides many other services. It is administered by HHS rather than ED. d. Estimate. Based on requirement that non-federal funds equal 20% of total program costs (equivalent to 25%of federal sums). e. Dollars are for the program in the fiscal year named. They are net program obligations for subsidizedStafford and Stafford/Ford loans. Data forFY2000 are negative: -$1.7 billion for FFEL loans and -$0.6 million for Ford loans. Combined data for FY2001are positive: $4.3 billion for FFELand -$0.7 billion for Ford loans. FY2002 data are positive: $3.4 billion for FFEL loans and $4.1 billion for Fordloans. Recipient data representnumber of subsidized Stafford and Stafford/Ford loans made in the fiscal year. f. This program also receives non-governmental funds. g. Recipient data exclude TRIO staff who receive training. h. Federal funds for these migrant education programs may be supplemented by states, local schooldistricts, or public or nonprofit agencies. However,data are unavailable on this support, which is voluntary. i. Estimates. Based on requirement that non-federal funds at least equal the federal sum. J. Data here apply only to scholarships and loans funded with appropriations. Revolving funds (from loanrepayments) fund Health Professions StudentLoans and Loans for Disadvantaged Students. k. Recipients 2000, 17,679 persons received scholarships and 588, loans; 2001, 13,477 and 35, respectively;2002, 11,377 and 37, respectively. l. The program of graduate assistance in subject areas of national need requires institutions to provide matchingfunds equal to 25% of the federal grant. m. Data refer to persons receiving new awards each year; they exclude persons with continuing fellowships. n. School year 2002-2003 recipients: 1,223 students, 1,246 teachers, and 250 new Americans. SERVICES a. Includes expenditures made from funds transferred to CCDBG from TANF. b. Average monthly number of children served. c. Includes services provided solely under terms of pre-TANF law, supportive services, pregnancyprevention and family formation activities, andunclassified "other" expenditures. d. Includes these sums for transportation and other supportive services for non-employed persons (classifiedas "non-assistance"): 2001, $524 million;2002, $339 million e. Includes these sums for transportation and other supportive services for non-employed persons(classified as "non-assistance"): 2001, $133 million;2002, $245 million. f. Includes transfers from TANF: 2000, $ 1,079 million; 2001, $920 million; 2002, $1,043 million. Excluded are transfers from LIHEAP and theCommunity Services Block Grant (and reported under those programs). g. Not total TANF maintenance-of-effort (MOE) child care spending. To avoid double counting, reportedhere is only the amount by which TANF MOEspending exceeds CCDBG MOE spending. 2002 sum is estimated. h. Appropriations i. None required. Contributions unknown. j. Includes administrative costs: 2000, $16 million; 2001, $20 million; 2002, $ 19 million. k. Recipient count represents total number of cases closed during the fiscal year. l. Law places these limits on administrative spending: local recipient organizations, 2% of their funds;National board, 1%; state set-aside committees,0.5%. Note: Shelters, not individuals, are fund recipients. m. Includes these sums for administrative costs: FY2000, $2.6 million; FY2001, $3.3 million, and FY2002,$3.4 million. JOBS AND TRAINING a. Data are appropriations unless otherwise marked. b. Expenditures. c. Effective July 1, 2000, includes funds for summer employment opportunities for youth (previously a separateprogram). d. The law permits no more than 13.5% of federal funds to be used for administrative costs (butauthorizes the Secretary of Labor to increase this to 15%under certain conditions). e. Estimate, based on general requirement that non-federal funds equal at least one-ninth of federal funds(10% of total). State-local spending representscash and in-kind amounts and may include some private sums. f. FY2000, $404 million in formula grants and $164 million in competitive grants; 2001, $427 millionin formula grants and $164 million in competitivegrants; 2002, $ $329 million in formula grants and $ 18.3 million in competitive grants. g. Matching funds for formula grants h. FY2000, 141.7 thousand formula grant participants and 56.8 thousand competitive grant participants;FY2001, 170.4 thousand and 36.1 thousandparticipants, respectively; and FY2002, 107.6 thousand and 10 thousand, respectively. i. Spending for administering and operating employment and training activities for food stamp recipientsand for support costs like child care andtransportation. Funding provided (obligated) substantially exceeds expenditure amounts shown in this table. Ineditions of this report issued before2001, funding for the employment and training programs for food stamp recipients was included in figures shownfor administration of the food stampprogram, typically $150 -- $200 million annually in federal funds and $50-$100 million in state funds. j. Table shows non-federal funding (cash and in-kind amounts from state-local governments and someprivate sources), as reported in annual BudgetJustifications of the Corporation for National and Community Service. These amounts exceed the requiredminimum non-federal "matching" share(10% of the total, one-ninth of the federal amount). k. Annual number. ENERGY AID a. Recipient numbers are households served during the year with heating and winter crisis aid. Outlay data include weatherization aid. Expendituresare from regular LIHEAP appropriations plus contingency funds. In addition, some states may have access to oilprice overcharge funds (under theEmergency Petroleum Allocation Act of 1975). Those funds are limited, as most cases have been settled. InFY2000, 2 states obligated about $3million of oil overcharge funds. b. Of these funds, $400 million was released in the final weeks of FY2000, making them effectively availablefor FY2001. c. Unofficial estimate provided by the National Energy Assistance Directors' Association (NEADO), based ona survey of the states. d. By law, no more than 10% of federal funds may be used for administration. e. Total may include some duplication, as some households may receive aid from both programs.	More than 80 benefit programs provide aid -- in cash and noncash form -- that is directed primarily to persons with limited income. Such programs constitute thepublic "welfare" system, if welfare is defined as income-tested or need-basedbenefits. This definition omits social insurance programs like Social Security andMedicare. Income-tested benefit programs in FY2002 cost $522.2 billion: $373.2 billion in federal funds and $149 billion in state-local funds (Table 1) . Welfare spendingrepresented almost 19% of all federal outlays, with medical aid accounting for 8%of the budget. Total welfare spending equaled 5% of the gross domestic product andset a new record high, up $45.3 billion (9.5%) from the previous peak of FY2001. In current dollars, spending increased during the year for all forms of aid except jobsand training. Higher medical spending accounted for $32.8 billion of the netincrease, and 54 cents of every welfare dollar went for medical assistance. Expressedin constant FY2002 dollars ( Table 2) , welfare spending increased by 7.9% from the2001 level. The composition of welfare spending differed by level of government ( Tables 3 and 4 ). Medical aid consumed 80% of state-local welfare funds, but 43.9% offederal welfare dollars. Most income-tested programs provide benefits, in the form of cash, goods, or services, to persons who make no payment and render no service in return. However,in the case of the job and training programs and some educational benefits, recipientsmust work or study. Further, the block grant program of Temporary Assistance forNeedy Families (TANF) requires adults to start work after a period of enrollment, thefood stamp program imposes work and training requirements, and public housingrequires residents to engage in "self-sufficiency" activities or perform communityservice. Finally, the Earned Income Tax Credit (EITC) is available only to workers. An unduplicated count of welfare beneficiaries is not available. Enrollment in TANF and food stamps remained far below 1994/1995 peak levels during2000-2002, but Medicaid enrollment set a new record high. Average 2002 monthlynumbers: Food stamps, 20.2 million; TANF, 5.1 million; and Supplemental SecurityIncome (SSI), 6.9 million. During the year 50.9 million persons received Medicaidservices, and in 2001, EITC payments went to an estimated 16.8 million tax filers. Census Bureau data indicate that 5.4 million families with children were poor in2002 before receiving cash aid from TANF, General Assistance (GA) or the EITC,compared with 6.7 million in 1996 (last full year of the pre-TANF welfare program). Among these families, the EITC was received by 53.7% of those with a female headand by 71.7% of those with a male present ( Figure 3) .	13.4	long	13,916
8	Congress built into the Recovery Act numerous provisions to increase transparency and accountability, including requiring recipients of funds to report quarterly on a number of measures. To implement these requirements, OMB worked with the Recovery Board to deploy a nationwide system at FederalReporting.gov for collecting data submitted by the recipients of funds. OMB set the specific timeline for recipients to submit reports and for agencies to review the data. Recipients are required to submit the reports in the month after the close of a quarter, and, by the end of the month, the reports are to be reviewed by federal agencies for significant errors and missing information before being posted to Recovery.gov. For the programs discussed in this report, information was submitted by recipients for the quarter ending December 31, 2009 (second round reporting) and posted on Recovery.gov on January 30, 2010. While OMB’s role was to provide governmentwide guidance, one of the functions of the Recovery Board was to establish the Web site and to publish a variety of data, including recipient data once it was reviewed by the federal agencies. These data, collected through www.FederalReporting.gov, are made available to the public for viewing and downloading on www.Recovery.gov. The Recovery Act set a demanding schedule for implementing Recovery.gov, requiring the Recovery Board to establish the Web site within 30 days. The Recovery Board’s goals for this Web site were to promote accountability by providing a platform to analyze Recovery Act data and serving as a means of tracking fraud, waste, and abuse allegations by providing the public with accurate, user-friendly information. This was an extensive undertaking across the federal government. OMB, the Recovery Board, and federal agencies, among others, worked to design a Web site, develop the capability to handle tens of thousands of submissions, develop guidance on reporting, and assist recipients in meeting reporting requirements. More specifically, within a short period of time, OMB and the Recovery Board implemented a recipient reporting system that covered a wide-range of programs and provided detailed and up-to-date information on the use of Recovery Act funds. Our fieldwork and initial review and analysis of recipient data from www.Recovery.gov indicated that there was a range of significant reporting and quality issues that needed to be addressed, including issues with interpretations of reporting guidance. OMB told us that achieving the promised degree of transparency will be an iterative process, during which the reporting process and submitted information will improve. The Recovery Act required recipients to report specific information, including descriptive information on each award, which we discuss further in the following section. In the accountability and transparency section of the act, transparency is not specifically defined. However, the act requires that the award information on Recovery.gov be made available to enhance public awareness of the use of funds. Furthermore, both Members of Congress and the President have asserted the need for accountability, efficiency, and transparency in Recovery Act spending, with the administration pledging that the Recovery Act would “break from conventional Washington approaches to spending by ensuring that public dollars are invested effectively and that the economic recovery package is fully transparent and accountable to the American people.” Thus, the transparency of award information on Recovery.gov, particularly in narrative fields (the focus of this review) is particularly important. For this report, we reviewed the 11 energy and infrastructure programs introduced previously. (See table 1.) No awards were made for two of the programs—the Broadband Initiatives Program and the Supplemental Discretionary Grant Program—by December 31, 2009. Awards were made for the other 9 programs by this date, requiring recipients to submit reports for the second round of reporting. Both the Recovery Act and OMB require recipients to report on a wide range of items to track the uses of funds. These items include—but are not limited to—overall descriptions of the awards, projects and activities funded, funding amounts, numbers of jobs created or retained, compensation for certain executives, and awards to subrecipients. As discussed earlier, our focus is on the extent to which descriptions of awards reported by recipients and published on Recovery.gov provide a basic understanding of what funds are being spent on and what outcomes are expected. As a result, we focused on certain reporting requirements and guidance that provide that basic understanding, such as the location of the project and the nature of the award activities. The act created broad requirements for recipient reporting. Specifically, the act requires, among other types of information, that recipients report the total amount of Recovery Act funds received, associated obligations and expenditures, and a detailed list of those projects or activities. For each project or activity, the detailed list must include its name and a description, an evaluation of its completion status, and an estimate of the number of jobs created and the number of jobs retained through that project or activity. The act did not include any more specific interpretation or explanation of these requirements. To operationalize the act’s requirements, OMB provided recipients with a range of guidance through memorandums, supplemental materials, and reporting instructions. Specifically, starting for the period ending September 30, 2009 (and repeated for the quarter ending December 31), OMB’s reporting instructions for the Recipient Reporting Data Model specified that recipients would provide, among other things, the project name, which should be brief and descriptive; a project description that captures the overall purpose of the award and expected outputs and outcomes or results; an award description that describes the overall purpose, expected outputs, and outcomes or results of the award, including significant deliverables and, if appropriate, units of measure; the project status, which was specified as not started, less than 50 percent complete, completed 50 percent or more, or complete; an activity description, which categorizes projects and activities; the amount of the award; and the primary place of performance, which is the physical location of award activities. Three of these fields—project name, project description, and award description—are narrative fields. OMB’s Recipient Reporting Data Model does not specifically address the clarity of such descriptions, although OMB, in its December 2009 guidance to heads of executive departments and agencies, has stated that the narrative information must be sufficiently clear to facilitate understanding by the general public. Several of these fields are defined in ways that are inconsistent with reporting award project and activity information as required by the Recovery Act. Where, for example, funds are awarded using a single award to cover multiple projects, requiring a project description that captures the overall purpose of the award is not consistent with the requirement in the act to report a detailed list of all projects and activities each having its own name, description, completion status, and potential outcomes. Requiring that status, outcomes, or other information covered be reported in single fields on an award-by-award rather than a project-by-project or activity-by- activity basis may convey an incomplete impression if multiple projects or activities are being included. Officials from OMB agreed with this assessment but said that the agency, in creating its guidance and reporting data model, weighed the level of reporting detail required against the potential reporting burden. OMB created the guidance to require general information that could be applied broadly across a wide range of recipients. OMB defined the three narrative fields to solicit high-level information that is not overly specific to a single program. In this regard, the guidance had to be applicable to awards that are for discrete activities at a single location and for a single purpose. For example, under the Federal Highway Administration’s (FHWA) Highway Infrastructure Investment program, an award might be for a single project to widen a section of a road or to replace a substandard bridge. bundle several discrete activities at different locations. For example, under the Federal Transit Administration’s (FTA) Transit Capital Assistance Program, a transit agency could receive an award that has different purposes at different locations. are like block grants in which recipients (i.e., states, territories, and tribes) receive funds for a broad purpose and make subawards to local entities, which then decide the specific uses for which funds are to be spent. For example, under the Department of Energy’s Weatherization Assistance Program, recipients receive funding to enable low-income families to reduce their energy bills by making energy-efficiency improvements to their homes. In turn, the recipients provide grant funds to a number of local agencies to actually carry out the purposes of the program, which might involve modernizing heating equipment in one home and installing insulation in another. are components of a larger project, but are not linked to the larger project for reporting purposes. For example, under the Civil Works Program, the U.S. Army Corps of Engineers (Corps) may enter into a contract (the award) with one company to dredge a river channel and with another company to build a seawall, all for the purpose of improving navigable waters at a specific location. Each recipient reports on the activities conducted under the individual award but not the overall project being funded as each recipient works on only a piece of the larger project. OMB officials also told us the agency created generic reporting guidance because they expected the guidance to be a baseline, with agencies providing supplemental guidance that was more specific to unique program characteristics and situations that OMB’s one-size-fits-all guidance could not effectively address. According to OMB, the agencies would be better sources of program-specific individualized guidance, tailored to the awards made under their programs. As discussed in the next section of this report, most agencies included in our review did provide some type of technical assistance or supplemental materials to aid recipients in reporting. However, most did not develop formal, program-specific supplemental guidance that was approved by OMB, and OMB did not require agencies to do so. For agencies that do develop program-specific supplemental guidance, OMB officials told us that they primarily review this guidance for consistency with their agency’s general guidance, and review the supplemental guidance to ensure its overall sufficiency. OMB officials did not indicate if their review includes whether agencies developed guidance on their narrative fields. Also, while OMB reviews formal guidance, it does not monitor other forms of agency supplemental material or technical assistance provided to recipients. (See apps. I-XI for additional information on the agencies’ reporting assistance and its possible effects on the transparency of descriptions). OMB continues to update its guidance based on lessons learned from early reporting experiences, recognizing that the reporting process is a work in progress. For example, OMB clarified its guidance on calculating jobs created or retained to address issues with the jobs data reported by recipients during the first reporting round. During the course of our review, OMB officials signaled that they are willing to revise their guidance should our assessment or other input suggest that changes are needed, but would need to balance any changes in guidance against additional reporting burdens. We found two instances in which OMB’s guidance on narrative fields was unclear. First, for the award description field, the guidance provided that recipients of grants should describe the overall purpose of the award; recipients of contracts should provide a description of the overall purpose and expected outcomes including significant deliverables. OMB provided three examples of how to fill in the field, at least two of which do not conform to OMB’s expectations: “community development” and “special education – part B/preschool.” These examples provide only high-level titles but do not identify the purpose or outcomes. Furthermore, OMB allowed recipients to enter descriptions of up to 4,000 characters, providing space for more robust descriptions. As a result, based on our assessment of award descriptions, recipients are reporting widely varying types of information in this field—some of it very detailed, while other reporting is quite limited and uninformative. This issue is discussed more fully in the following section and can be seen in award information from Recovery.gov that we reproduced in appendixes I through XI. Second, for the quarterly activities/project description field, OMB instructed grantees to provide a description of the overall purpose and expected outputs and outcomes or results of the award. As mentioned, project description, as that term is used in the act, refers to listed projects or activities, not awards. Instead, OMB's guidance anticipated that, for contracts, recipients were supposed to provide a description of all significant services or supplies delivered in the current calendar quarter. The example OMB provided in its Recipient Reporting Data Model, “Powers and Gold Beach Ranger Districts Curry County OR Has Fuels Item 1 Chetco Area and Item 3 – Powers Area” is, in our opinion, unclear, and it does not meet the general requirements that OMB laid out. As discussed in the next section, the inconsistency and lack of clarity in OMB’s guidance may have contributed to the level of transparency in some of the award description information that we reviewed. We estimate that about a quarter of the awards on Recovery.gov for the nine programs we reviewed were transparent—that is, had sufficiently clear and understandable information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. Many others (an estimated 68 percent) had at least some or most of this information, and a small percentage (an estimated 7 percent) had little of this information. A few factors may have contributed to the lack of transparency in the descriptions we assessed, including the type of guidance and technical assistance provided by OMB and federal agencies. In addition to the information published on Recovery.gov, federal, state, and other public sources provide some additional information on the uses of Recovery Act funds. Because the Recovery Act did not define transparency, we developed our own set of criteria by which to measure the transparency of the awards’ descriptive fields. In order to assess the descriptions, we selected key fields required for recipient reporting from Recovery.gov that describe the uses of Recovery Act funds, including the three narrative fields. Using the Recovery Act, OMB’s guidance, and our professional judgment, we determined that these fields should collectively contain information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work—information necessary to make the use of funds transparent to the public. We also considered the extent to which information in the fields was clear and understandable. We drew a probability (simple random) sample of prime recipient awards to review for each of the nine energy and infrastructure programs that had awards in Recovery.gov for the second round of recipient reporting and compared the descriptions of these awards to our transparency criteria. (See app. XIII for more information about our transparency criteria and overall methodology.) We estimate that 25 percent of the awards for the nine programs we reviewed (out of a total of over 14,000 awards) were transparent—had sufficiently clear and understandable information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. (See table 2.) We estimate that another 68 percent had some or most of this information, but not all. Importantly, the descriptions of awards that partially met our transparency criteria varied widely. Some of these award descriptions had much of the information needed to make them transparent, but might be missing one important aspect, such as the expected outcomes. Other descriptions contained much less information and provided sufficient detail to meet only a few attributes of our criteria, such as purpose and location. Finally, an estimated 7 percent of the descriptions provided little or no information on nature, scope, purpose, location, or outcomes of the award. Recipient-reported information varied widely in its transparency. For example, a Napa, California, transit recipient provided clear information in sufficient detail for the general public to understand the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. Specifically, the description of the award states that it will be used to purchase four hybrid buses and construct a multimodal park-and-ride facility and, as a result, the transit fleet will be modernized, and the park- and-ride facility will allow hundreds of commuters to make more efficient, safe, and timely transit connections. (See table 3.) Thus, we determined that this description met our transparency criteria. Other recipient-reported information was less transparent and partially met our transparency criteria. For example, a weatherization program description for the Commonwealth of Virginia partially met our transparency criteria because it contained some, but not all of the attributes needed to make the use of funds transparent to the public. (See table 4.) For example, the description did not provide information on the scope of the award because it did not indicate how many homes would be weatherized in the state. From publicly available information on other federal and state Web sites, we found information that would have made this description more complete. Specifically, we found that approximately 9,193 homes throughout the state of Virginia will undergo weatherization activities such as tests for carbon monoxide, heating/cooling equipment inspection and repair, domestic water heater insulation, and refrigerator and stove replacement. (The extent to which federal agency and state agency Recovery Act Web sites have material that supplement Recovery.gov recipient-reported information is discussed later in this section.) Finally, some recipient-reported information contained little or no information on what funds are being spent on and what outcomes are expected. These did not meet our transparency criteria. For example information reported by the State of Michigan for a highway project did not describe the location of the roadway or the extent of the project, and used technical terminology to describe the nature of the project—chip sealing—that is not likely to be familiar to the general public. (See table 5.) As a result, this description did not meet our transparency criteria. From publicly available information on other federal and state Web sites, we found information that would have made this description more understandable and clearer. Specifically, we found that the award supports pavement improvement activities to resurface 7.8 miles of Featherstone Road from M-66 to Engle Road north of Sturgis. The award will result in improved driving quality by making the road smoother. For more information on the transparency results for each program, as well as our assessment of each of the 467 awards that we reviewed, see appendixes I-XI. Two key factors may have contributed—positively or negatively—to the transparency of the award descriptions we assessed from Recovery.gov, although we cannot directly correlate our specific transparency results to these factors. Most notably, the guidance provided may have played a role in the degree to which recipients transparently described their awards. As noted in the previous section, OMB’s guidance for reporting information on the uses of an award is unclear, which could have prevented some recipients from meeting some or all of our criteria in the transparency assessment. In addition, the type of assistance—program-specific guidance or technical assistance—as well as the level of detail, which varied across agencies, may have played a role in the extent to which awards met our transparency criteria. Some agencies supplemented OMB’s high-level guidance with program- specific technical assistance on how to meet OMB’s reporting requirements, including specific instructions on what to write in the narrative fields. For example, FTA annotated OMB’s guidance with program-specific instructions and examples for all the reporting fields in FederalReporting.gov. In the project description field, FTA suggested that recipients “describe the specific outputs and outcomes that will result from the grant. This entry should include quantitative information about the activities conducted and items purchased under the grant.” For the most part, the programs in our review for which agencies provided program-specific guidance or technical assistance—Highway Infrastructure Investment, Transit Capital Assistance, and Geothermal Technologies Program—tended to have more transparent descriptions. However, other program-specific factors, such as grant applications that involved creating project descriptions for public dissemination in advance of award selection, may have also played a role in the degree to which such descriptions met our transparency criteria. For example, when some applications required recipients to create project descriptions for public dissemination in advance of award selection, such as in the Broadband Technology Opportunities Program, the recipients may have been more prepared to describe their awards in the narrative fields. For additional information by program, see appendixes I-XI. Other agencies we reviewed only provided general reporting assistance to recipients, primarily by disseminating OMB’s guidance to help recipients navigate OMB’s reporting requirements. However, this assistance did not necessarily include specific clarification or instructions for completing narrative fields. For example, the Department of Energy provides technical assistance to Weatherization Assistance Program recipients that, for the most part, summarizes OMB’s guidance. The Federal Aviation Administration (FAA) distributes OMB’s guidance and provides recipient reporting assistance through each of its field offices, which in turn, determines how to disseminate guidance to recipients. In one FAA field office, a contractor hired to oversee Recovery Act efforts distributed information and guidance to every airport in the region by e-mail. For the most part, the programs in our review that only provided general reporting assistance to recipients, mostly through disseminating OMB’s guidance—Weatherization Assistance Program, Grants-in-Aid for Airports, and the Federal Buildings Fund—tended to have less transparent descriptions. However, other factors, such as the level of experience of the recipients in reporting on government awards, may have also played a role in the degree to which such descriptions met our transparency criteria. For additional information by program, see appendixes I-XI. Federal agencies’ data quality reviews may also have played a role in the extent to which some recipients met our transparency criteria. OMB’s guidance requires that federal agencies conduct data quality reviews to address two key data problems—material omissions and significant reporting errors—but does not specify methodologies for such reviews. However, OMB does require federal agencies to develop data quality plans to articulate how they intend to detect and correct material omissions and significant reporting errors. OMB officials told us that given the limited amount of time federal agencies have to conduct these reviews, identifying misleading or erroneous information must take priority. Officials from almost all of the programs included in this review that had awarded funds for the second reporting round told us that they conduct automated checks of data, specifically of the numerical fields. For example, Department of Energy officials told us that they ensure the quality of recipient reported data for the Weatherization Assistance Program primarily through an automated analysis of key data fields, including the award number, recipient name, award amount, and jobs calculated. In a few cases, they also manually review the data for other anomalies. However, officials from some of the programs included in our review told us they did not typically review the information provided in narrative fields, and, of the three programs that do, none had a systematic process in place to evaluate the accuracy or transparency of the information. For example, FHWA officials told us that they “spot check” the information for significant errors because of the volume of awards—over 10,000—in their program. In light of the importance of the quality of the Recovery Act data, the Recovery Board has worked with federal Inspectors General to establish a multiphased review process to look at the quality of the data submitted by Recovery Act recipients. To date, this process has focused on (1) whether agencies developed data quality reviews in anticipation of the data to be submitted and (2) identified data errors and omissions in recipients’ first cycle reports and factors that may have contributed to them and the actions taken by agencies, OMB, and the Recovery Board to improve the quality of the data that recipients will submit in future reporting cycles. The resulting report did not comment on the quality of the data in the narrative fields. According to the Recovery Board, future reports will focus on the effectiveness of the agency data quality review processes. For information on each agency’s data quality reviews, see appendix XII. Recovery.gov includes award information on Recovery Act spending from both recipients and agencies, as well as various other required agency reports, including agency-specific Recovery Act plans and weekly financial and activity reports. Aside from the information on Recovery.gov, descriptive information on the uses of awards is available through other resources. At the federal level, agency Web sites provide information on Recovery Act activities as required by OMB’s guidance. The level and type of award information provided on agency Web sites varies across the programs we reviewed. For example, FHWA has a link to a spreadsheet on its Web site that provides information such as the location and obligation amount for each award, as well as a short description. The Geothermal Technologies Program Web site has detailed information on each project, including the technology type, recipient name, location, objectives, description, and targets/milestones. The Recovery Act did not require states to establish Web sites to provide Recovery Act information. However, all 50 states and the District of Columbia do post some information on their state-specific Recovery Act Web sites. As with the federal agency Web sites, however, the state Web sites provide varying levels of detail. For example, the New York State Recovery Act Web site, NYWorks (www.recovery.ny.gov), details how the state of New York is spending its Recovery Act funds through a map that provides specific information on each project that has been announced. In addition, the Web site provides links to over 40 other federal, state, and local entities that have additional information on Recovery Act spending. Mississippi’s Recovery Act Web site (www.stimulus.ms.gov) provides links to federal guidance and the recipient reports for projects in the state, but it does not provide additional information on a project-by-project basis beyond what is published on Recovery.gov. In some cases, state auditors have also developed Web pages or sites to provide information to the public on the oversight and monitoring of Recovery Act spending. In addition to federal and state Web sites, information on the uses of Recovery Act funds can be found on some recipients’ Web sites and in other publicly available documents. For example, the Ohio Department of Transportation has a one-page description and photo for most recovery projects that provides detail on the activities and outcomes of that project, as well the expected completion date. Likewise, 36 of the 58 states, territories, and tribes receiving Recovery Act funds through the Weatherization Assistance Program have their weatherization plans on their Web sites. The Department of Energy requires all states, territories, and tribes to create these plans to outline how they will use weatherization funds, including Recovery Act funds. For the most part, the officials we spoke with said they are not systematically tracking the citizen feedback that they have received on publicly available award information. The Recovery Board tracks the total number of comments received on Recovery.gov—it receives about 125 to 200 e-mails per week—but does not categorize the e-mails by type of comment. However, Recovery Board officials told us that they plan to begin linking e-mails to specific projects in the future. OMB officials told us that the information published from the first round of reporting received public scrutiny and commentary, which they viewed as evidence that the transparency and reporting processes for the Recovery Act are working effectively. In fact, based on the comments OMB received, the agency added an automated check to FederalReporting.gov to ensure that certain numerical fields, such as zip codes or congressional districts, were correctly entered. In general, federal agency officials told us that they have received some feedback on Recovery Act awards and the award information made available to the public. Officials from the Weatherization Assistance Program and Grants-in-Aid for Airports Program told us that the public has provided little feedback on awards and the award information made available to the public, while Geothermal Technologies Program officials told us that the public and media have provided positive feedback on the program’s Web site, which provides detailed information on each project. According to officials at a few agencies, many public inquiries on the Recovery Act addressed the availability of funding and jobs, not individual awards. According to FHWA officials, the agency has no baseline information for comparing the feedback on Recovery Act awards with comments on awards made before the Recovery Act, because they did not previously track feedback on project information they provided to the public. The administration faced a daunting task in simultaneously putting in place ways to spend large sums of Recovery Act funds that required, in some instances, developing new programs and, in others, significantly expanding the size of existing ones, while also seeking to make these efforts more transparent to the public than previous efforts had been. Although OMB initially focused on quickly designing a reporting system that covered a vast array of Recovery Act programs delivered in different ways, now that such requirements are largely in place, OMB can begin focusing on other important aspects of its transparency efforts. Specifically, ensuring that the narrative portions of Recovery.gov award descriptions prepared by recipients are understandable is an important aspect of OMB’s transparency effort. These descriptions provide a key mechanism through which the public can understand clearly how their tax dollars are being spent and what is likely to be achieved from these expenditures. Looking forward, OMB has an opportunity to improve the transparency of the recipient-reported narrative information on Recovery.gov by revising its guidance to remedy the problems we found. Assuredly, the more difficult task is having tens of thousands of recipients follow this guidance and report on their awards in a way intended by the act and the administration. In our view, one promising approach is for OMB to work with the executive departments and agencies that seek to provide supplemental guidance on narrative description information. In doing so, OMB can use its central position to further mission agencies' efforts to tailor resulting guidance to their individual situations in a way that furthers the transparency goals discussed in this report. A second approach is for OMB, in partnership with federal agencies, to periodically review the descriptions of awards submitted by recipients and to work with the Recovery Board on the board’s assessments of agencies’ data quality reviews to gain a sense of whether the information reported is meeting the administration’s expectations. We are not making recommendations to individual agencies at this time because we believe that there are actions that OMB can take which may lead to substantial improvements in recipient reporting of narrative information. However, as we continue to monitor OMB’s efforts to achieve transparent Recovery Act spending, we will reassess, as needed, whether actions in these areas are needed. To further the goals of public understanding of what Recovery Act funds are being spent on and what results are expected, we recommend that the Director, Office of Management and Budget, take the following three actions: Revise OMB’s recipient reporting guidance, including the Recipient Reporting Data Model, to provide recipients with clearer general instructions and examples for narrative fields aimed at fostering more complete information on the uses of funds and expected outcomes. Work with executive departments and agencies to determine (1) whether supplemental guidance is needed to meet, in a reasonable and cost-effective way, the intent of the Recovery Act for reporting on projects and activities and (2) whether that supplemental guidance or other agency-proposed technical assistance dealing with narrative descriptions of awards provides for transparent descriptions of funded activities. Periodically (1) review, in partnership with executive departments and agencies, the descriptions of awards—in particular, the narrative fields—submitted by recipients to determine whether the information provides a basic understanding of the uses of the funds and the expected outcomes, and, if not, determine what actions to take, including encouraging agencies to develop or improve program-specific guidance and (2) work with the Recovery Board on the board’s assessments of departments’ and agencies’ data quality reviews to ensure the adequacy of these reviews and further reinforce actions to meet transparency goals. We provided a draft of this report to the Office of Management and Budget; the Departments of Agriculture, Commerce, Energy, and Transportation; the Corps of Engineers; and the General Services Administration for their review and comment. OMB officials agreed with our recommendations. The officials stated that our report would be enhanced if it better communicated information in three areas. First, regarding our findings on transparency, the large “partially met” category contains awards that have a substantial amount of the information needed to understand what funds are being spent on and what outcomes are expected as well awards that contained sufficient information on only a few attributes. Second, OMB asked that we recognize the need to balance more extensive reporting with the effort needed to comply with that reporting. Third, OMB officials suggested that we state more clearly that we assessed the transparency of award information collectively—that is, from reviewing the 12 data fields as a whole rather than from looking at the information contained in each field individually—since some information that might not appear in one data field could show up in another field. We revised our report to better communicate these aspects. The officials also provided technical and clarifying comments, many of which we incorporated. For the most part, the other agencies’ comments were limited to technical and clarifying comments, which we incorporated where appropriate. In its technical comments, the Department of Transportation provided a general comment from FTA that the transit administration believed that many of the award descriptions for transit projects that we assessed as partially meeting our transparency criteria could have been assessed as meeting the criteria. Given the procedures that we used to make our assessment, we remain confident that these assessments were fair and accurate. We do note that providing narrative information is a learning experience, with recipients having opportunities in subsequent reporting rounds to improve their narrative material to be more transparent. Finally, the Department of Commerce provided a letter in which it detailed a number of ways that it undertook to achieve transparency for its Broadband Technology Opportunities Program. (See app. XV.) As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to congressional committees and subcommittees with responsibilities for the programs discussed in this report; the Director, Office of Management and Budget; and the Secretaries of the agencies discussed in this report. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact Katherine Siggerud at (202) 512-2834 or siggerudk@gao.gov for buildings, telecommunications and transportation issues, Patricia Dalton at (202) 512- 3841 or daltonp@gao.gov for energy and Army Corps of Engineers issues. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Contributors to this report are listed in appendix XVI. Within the Department of Agriculture, the Rural Utilities Service’s Broadband Initiatives Program makes funding available for broadband infrastructure projects in rural areas that lack sufficient access to high- speed broadband service. The Recovery Act provides $2.5 billion of budget authority for the Rural Utilities Service to extend grants, loans, and loan/grant combinations to projects for the purpose of facilitating broadband deployment in rural communities. Through the use of loans, the Rural Utilities Service can support a principal amount exceeding the appropriation. On July 9, 2009, the Rural Utilities Service and the Department of Commerce’s National Telecommunications and Information Administration (NTIA) released a joint Notice of Funds Availability detailing the requirements, rules, and procedures for applying for broadband funding. Under this funding notice, the Rural Utilities Service received 401 applications requesting nearly $5 billion, and another 833 applications were joint applications to the Broadband Initiative Program and NTIA’s Broadband Technology Opportunities Program totaling nearly $13 billion. Broadband grants and loans fall into several first round project categories: Last Mile projects. Up to $1.2 billion was available for last mile infrastructure projects in remote and non-remote areas. A “last-mile” project is defined as any broadband infrastructure project that provides service to end users or end user devices. A remote area is an unserved, rural area 50 miles from the limits of a nonrural area, and an unserved area is defined as a proposed service area composed of one or more contiguous census blocks, where at least 90 percent of households in the proposed funded service area lack access to facilities-based, terrestrial broadband service. Middle Mile projects. Up to $800 million was available for Middle Mile projects. A Middle Mile project is defined as a broadband infrastructure project that does not predominantly provide broadband service to end users or to end user devices, and may include interoffice transport, backhaul, Internet connectivity, or special access. The Rural Utilities Service released a separate second funding round notice on January 22, 2010. Under this second funding notice, the Rural Utilities Service received a total of 776 applications requesting nearly $11.2 billion. The second funding notice retained funding for Last Mile and Middle Mile projects, but eliminated the funding category for Last Mile Remote projects. Several new categories have been established for satellite, rural library broadband, and technical assistance, as described below: Last Mile projects. Up to $1.7 billion is available for loans or loan/grant combinations. Middle Mile. Up to $300 million is available for loans or loan/grant combinations. Satellite, rural library broadband, and technical assistance projects. Up to $100 million is available in grants for satellite projects, as well as any and all funds not obligated for Last Mile and Middle Mile projects, and up to $5 million is available in grants for connecting rural libraries and developing regional broadband development strategies in rural areas. Second round awards are expected to be announced starting in June 2010. In the first round, the Rural Utilities Service announced over $1 billion in grants and loans for 68 broadband projects in 31 states, one territory, and 17 tribal lands and Alaska Native regions. According to the Department of Agriculture, these projects will make high-speed Internet available to an estimated 529,000 households and 96,000 rural businesses and public facilities. Of the 68 awarded projects, 49 are for Last Mile non-Remote areas, 13 are for Last Mile Remote areas, and 6 are for Middle Mile projects. As of May 3, 2010, the agency had obligated nearly $250 million for 26 of the 68 awards. There have been no program expenditures to date. The projects selected include a range of efforts to bring high-speed Internet to remote and rural communities that currently have little or no access to broadband technology. Funding has been awarded to a range of providers—small telecommunications companies, wireless providers, and rural electric and telephone providers—to build networks in rural areas. These projects feature a variety of Internet technologies, including wireline and wireless, and are expected to provide Internet connectivity to homes, business, and anchor institutions in rural communities. Since no grant or loan money had been obligated to recipients as of December 31, 2009, there were no awards reported on Recovery.gov for the second reporting round. The Rural Utilities Service did not issue supplemental technical assistance to recipients to augment the Office of Management and Budget’s (OMB) guidance on recipient reporting. Because Broadband Initiatives Program funds have not yet been expended, recipient reporting for the program will not occur until July 2010. Therefore, the agency does not have experience with how well OMB’s guidance ensures that the public has accurate information. Based on information that the Rural Utilities Service received in the first funding round, the agency developed enhanced application guide procedures and developed more comprehensive forms for the applicant’s use that should enable an applicant to submit better data. The agency held a series of workshops together with NTIA in July 2009 and January 2010 coinciding with the first and second funding round notices and agency officials said that they will be hosting upcoming workshops to discuss compliance and reporting requirements. The Rural Utilities Service makes broadband stimulus project information available to the public in several forms, including the following: Department of Agriculture Web site (www.usda.gov/recovery). This Web site includes an overview of all Recovery Act funds provided to the Department of Agriculture and a Recovery Act project map that provides the award recipient, type, and amount, among other things, for all departmental awards. The agency also publishes a blog for each state (linked to the project map), with an entry that briefly describes each award and provides a venue for public feedback. Broadband USA (www.broadbandusa.gov). This joint Rural Utilities Service/NTIA broadband portal includes an information library on Recovery Act broadband programs and an application database. The database, which includes funded applications, provides information such as the project type, proposed project area, description, and in many cases, a project executive summary. Press releases (www.usda.gov/rus). On its site, the Rural Utilities Service posts press releases announcing awards for the Broadband Initiatives Program. According to agency officials, there has been considerable interest from various groups about projects funded by the Broadband Initiatives Program. These comments range from full support for a project to questions about why the agency made an award to a community. Officials stated that, in most cases, the public is satisfied with the information that has been made to the general public, but some groups want more information than the Rural Utilities Service can make available, such as proprietary information about the award recipient. The agency plans to make all information available to the public in conformance with the requirements of the Freedom of Information Act. Within the Department of Commerce, the National Telecommunications and Information Administration’s (NTIA) Broadband Technology Opportunities Program makes grant funding available to a variety of entities for broadband infrastructure, public computer centers, and innovative projects to stimulate demand for, and adoption of, broadband. Of the $4.7 billion appropriated for the program, up to $350 million was also available for the State Broadband Data and Development Program pursuant to the Broadband Data Improvement Act for the purpose of developing and maintaining a nationwide map featuring the availability of broadband data. On July 9, 2009, NTIA and the Department of Agriculture’s Rural Utilities Service released a joint Notice of Funds Availability detailing the requirements, rules, and procedures for applying for broadband funding. Under this funding notice, NTIA received 260 applications requesting over $5.4 billion to fund broadband infrastructure projects in unserved and underserved areas. In addition, parties filed more than 320 applications with NTIA requesting nearly $2.5 billion in grants for projects that promote sustainable demand for broadband services and more than 360 applications with NTIA requesting more than $1.9 billion in grants for public computer centers. Parties submitted another 833 joint applications to the Broadband Technology Opportunities Program and the Rural Utilities Service’s Broadband Initiatives Program requesting nearly $13 billion for broadband infrastructure projects. Broadband Technology Opportunities Program funds were available through the following three categories of eligible projects during the first round: Broadband Infrastructure. Up to $1.2 billion was available for Broadband Infrastructure projects. This category consists of two components—Last Mile and Middle Mile—and funds projects to deliver access to unserved and underserved areas. An “unserved” area is defined as one or more contiguous census blocks, where at least 90 percent of households in the proposed funded service area lack access to facilities-based, terrestrial broadband service. An “underserved” area is defined as one or more contiguous census blocks where (1) no more than 50 percent of the households have access to facilities-based, terrestrial broadband service; (2) the rate of broadband adoption is 40 percent of households or less; and (3) no service provider advertises broadband speeds of at least 3 megabits per second (“mbps”). Public Computer Centers. Up to $50 million was available for projects that expand public access to broadband service and enhance broadband capacity at entities such as community colleges and public libraries that permit the public to use these computing centers. Sustainable Broadband Adoption. Up to $150 million was available for innovative projects that promote broadband demand, including projects focused on providing broadband education, awareness, training, access, equipment, or support, particularly among vulnerable population groups that traditionally have underutilized broadband technology. NTIA released a subsequent funding round notice on January 22, 2010. Under this second funding notice, the agency received a total of 886 applications requesting a total of $11 billion in funding. For the second funding notice, NTIA is adopting a “comprehensive communities” approach as its top priority in awarding infrastructure grants, focusing on Middle Mile projects that connect community anchor institutions, such as libraries, hospitals, community colleges, universities, and public safety institutions. The following project categories are funded in the second funding round: Comprehensive Community Infrastructure projects. Up to $2.35 billion is available for broadband infrastructure projects that emphasize Middle Mile broadband capabilities and new or substantially upgraded connections to community anchor institutions, especially community colleges. Under the second funding notice, a Middle Mile project is defined as any component of a comprehensive community infrastructure project that provides broadband service from one or more centralized facilities (i.e., the central office, the cable headend, the wireless switching station, or other equivalent centralized facility) to an Internet point of presence. Public Computer Centers. At least $150 million is available to provide broadband access to the general public or a specific vulnerable population and must either create or expand a public computer center or improve broadband service or connections at a public computer center, including those at community colleges, that meets a specific public need for broadband service. Sustainable Broadband Adoption. At least $100 million is available to fund innovative projects that promote broadband demand, including projects focused on providing broadband education, awareness, training, access, equipment, or support, particularly among vulnerable groups that traditionally have underutilized broadband technology. Second round awards are expected to be announced starting in July 2010. In the first funding round, NTIA awarded and obligated 82 Broadband Technology Opportunities Program grants worth more than $1.2 billion. As of May 10, 2010, more than $8.6 million had been expended; however, NTIA officials said that more funds have been spent, but not yet drawn down. NTIA has funded 49 infrastructure projects, 20 public computing centers, and 13 sustainable broadband adoption projects in 45 states and territories. In addition, NTIA has initially funded 54 broadband mapping and planning grants in 50 states, three territories, and the District of Columbia, totaling more than $100 million. We assessed the transparency of descriptive information for broadband awards available on Recovery.gov. We found that an estimated 57 percent met our transparency criteria, 43 percent partially met our criteria, and zero percent did not meet our criteria. For broadband descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet the transparency criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. Since the Broadband Technology Opportunities Program is an entirely new program, NTIA focused on developing application processes to ensure the timely distribution of project funding. NTIA did not issue supplemental technical assistance to recipients to augment OMB’s guidance on recipient reporting. The agency held a series of workshops in July 2009 and January 2010 that coincided with the first and second funding round notices, and agency officials said that they will be hosting upcoming workshops to discuss compliance and oversight requirements. According to several grant recipients that we spoke with, agency officials have been very helpful in providing assistance throughout the application and reporting process. NTIA makes broadband stimulus project information available to the public in several forms. For example: NTIA Web site (www.ntia.doc.gov/broadbandgrants/). On April 7, 2010, NTIA launched a new Web site for current information on the Broadband Technology Opportunities Program. The Web site includes sections on Recovery Act grants awarded and grants management, as well as an application database, and will make publicly available copies of reports on award recipients’ progress that contain detailed descriptions of recipient activities. For each award, the agency posts an award summary that includes the name, location, and amount of the award, as well as a detailed description of the award activities and outcomes. Broadband USA (www.broadbandusa.gov). This joint Rural Utilities Service/NTIA broadband portal includes an information library on Recovery Act broadband programs and an application database. The database, which includes funded applications, provides information such as the project type, proposed project area, description, and, in many cases, a project executive summary. Press releases (www.ntia.doc.gov/press). NTIA also posts press releases announcing awards for the Broadband Technology Opportunities Program, including the mapping grants. These press releases typically include short, narrative information on the awards. In addition, award recipients are using a variety of methods to inform the public about their projects, including company/institution Web sites, press releases, and local news media reports. Award recipients told us that they have received hundreds of phone calls or Web inquiries from individuals who were looking for employment or vendors who were attempting to sell goods or services to the award recipients. According to agency officials, there has been considerable interest from various groups about projects funded by the Broadband Technology Opportunities Program. These comments range from full support for a project to questions about why a project was funded in an area where there may already be an incumbent broadband service provider. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. . STATE LIBRARY, ARCHIVES & PUBLIC RECORDS, ARIZONA American Recovery and Reinvestment Act - PCC - Arizona Public Computer Centers The Arizona Public Computer Centers project plans to enhance existing facilities in more than 80 public libraries throughout Arizona. The project expects to deploy more than 1,000 computers across the state to meet the growing demand for public computers and broadband access. The project intends for users to access valuable e-resources and enable libraries to provide training in 21st century skills. The Arizona State Library plans to partner with a variety of government, not-for-profit, and tribal organizations. The Arizona State Library expects 84 public computer centers to serve more than 75,000 users per week or more than 450,000 residents throughout the term of the grant. The Arizona Public Computer Centers project plans to enhance existing facilities in more than 80 public libraries throughout Arizona. The project expects to deploy more than 1,000 computers across the state to meet the growing demand for public computers and broadband access. The project intends for users to access valuable e-resources and enable libraries to provide training in 21st century skills. The Arizona State Library plans to partner with a variety of government, not-for-profit, and tribal organizations. The Arizona State Library expects 84 public computer centers to serve more than 75,000 users per week or more than 450,000 residents throughout the term of the grant. Public, Society Benefit, General/Other (Information not reported) CONNECT ARKANSAS INC. Little Rock, AR 72201-1766 Less Than 50% Completed PUBLIC UTILITIES COMMISSION, CALIFORNIA For Broadband Mapping, CPUC is gathering and verifying broadband data and creating a publicly available, interactive web-based map that will display information about the broadband services and providers available at each address throughout California. For Broadband Planning, CPUC is partnering with the California State University, Chico Research Foundation (CSU), to carry out activities intended to increase broadband subscribership. Broadband Mapping: collection of certain broadband data from all broadband providers in California, specified data verification tasks, GEO-coding, and creation and on-going maintenance of a state-level broadband availability map. Data must be collected, verified, geo-coded, and submitted to the NTIA twice yearly for the entire duration of the broadband mapping portion of this Grant Program. Broadband Planning: identify subscribership levels in order to develop a plan to identify barriers to broadband adoption, develop marketing and promotional material aimed at promoting broadband adoption and usage, and work with broadband providers to encourage high speed Internet services. San Francisco, CA 94102-3214 Less Than 50% Completed 06-50-M09001 GOVERNOR'S OFFICE OF INFORMATION TECHNOLOGY, THE State Broadband Data and Development Grant Program The State of Colorado Governor's Office of Information Technology (OIT) is overseeing Colorado's State Broadband Data and Development Program which will map broadband availability across the state and provide the information regarding broadband service required by the NTIA. OIT will verify this broadband service data through a number of methods. The Broadband Data and Development Program grant also includes a planning effort, funded through five years. This planning program will start by working closely with local stakeholders in several regions of the state to develop local technology planning teams during the first two years of the grant period. The teams will assess broadband demand and barriers to adoption and will disseminate the broadband service information being mapped. Successful methods in developing these teams' work will then be generalized across the state over the last three years of the funded planning period. 12/30/09: Finalizing award documents, selection and contract development of data contractor and defining positions to be hired. 601 East 18th Avenue, Suite 250 08-50-M09032 TECHNOLOGY & INFORMATION, DELAWARE DEPT OF State Broadband Data and Development Grant The Delaware Department of Technology and Information (DTI) was designated by Govenor Markell as the Delaware entity eligible to receive a federal grant under the National Telecommunications and Information Administration's (NITA) State Broadband Data and Development Grant Program. DTI applied for $1,069,922 to cover broadband mapping activities for the first 2 years, as well as $472,811 for broadband planning purposes. DTI will oversee the broadband mapping data collection and verification, including public anchor institution information, and the development of an interactive state broadband inventory mapping system. The resulting data will be presented to NITA per their specifications and also made available to the public from a user friendly website. DTI will leverage exsisting IT infrastructure, and will partner with the University of Delaware's Information for Public Administration (UD-IPA) to achieve the overall NTIA goals. The longer term broadband planning activities will be carried out by DTI in partnership with UD-IPA. Relationships will be built with Technology Planning Teams comprised of representativies from local governments, small businesses, and agricultural communities. These teams will be formed in parallel with mapping activities and will continue for the full 5 years of the program. They will idnentify (1) broadband best practicies for their community; (2) issues affecting the deployment and full use of broadband; and (3) potential projects to expand the use and deployment of broadband in these communities. DTI signed the approved grant on December 16,2009. Internal resources for the the project have been assigned. Initial meetings have been conducted within DTI and the Delaware Office of Management and Budget to review reporting requirements. DTI is currently working on finalizing the Statement of Work with vendor to begin data collection. 10-50-M09029 PARTNERSHIP FOR A CONNECTED ILLINOIS, THE Connect Illinois Mapping and Planning American Recovery and Reinvestment Act - SBDD - The Partnership for a Connected Illinois, Inc. This project, conducted on behalf of the State of Illinois, seeks to employ GIS toolsets and experienced personnel to deliver comprehensive broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning, in a manner compliant with the National Telecommunications and Information Administration?s (NTIA) Notice of Funding Availability (NOFA) for the State Broadband Data and Development Grant Program. The ensuing deliverables will include datasets as required by the NTIA as well as web-based, interactive broadband maps to inform state and local government officials, consumers, broadband providers, community development organizations, researchers, and other stakeholders. This interactive web site (www.ConnectIllinois.org) will be critical to ensure accessibility of the broadband data, but it will also be key to increasing awareness of the mapping program and the benefit of broadband. It will also play an important role in ensuring local verification of the mapping data. Data will be compiled directly from network providers with protection to the proprietary aspects of that data provided by non-disclosure agreements. Connect Illinois partner Connected Nation will utilize the value of long-standing relationships with providers to negotiate the non-disclosure agreements, receive datasets from individual providers, develop comprehensive datasets of Illinois providers of all platforms excluding satellite, then incorporating those datasets into informative GIS mapping that will be the first of its kind in Illinois. The end product of the mapping activities will be that of a highly interactive and accessible mapping suite called BroadbandSTAT. This product will allow easily functional search activity at street levels and will be combined with U.S. Census and research data to provide users with the ability to drill down to neighborhoods, see which companies provide service in their areas, determine the density of households and populations, and county-level adoption rates. Also of great value will be the collection of datasets reflecting the presence of community anchor institutions throughout the state. Teams are already at work identifying the locations of various health care providers, K-12 schools, public and private colleges and universities, public safety answering points (PSAP?s), fire departments, police departments, and ambulance services, and, to the extent permissible, other local emergency services agencies. Community anchor institution data, including connectivity information, will be submitted as datasets to NTIA, but it will also be overlaid within a mapping context to create a remarkable graphic depiction of the locations of these critical connection points from a statewide to a local level. Community anchor institutions tend to be key junctures in the development of telecommunications systems nodes that provide greater access to households and businesses in unserved and underserved areas. Lastly, SBDD funding under this award will provide for five years of planning activities that relate to the consistent and steady communication of the ?messages? of the mapping products throughout the state, including instruction on the use of the mapping tools. Through strategic relationships with various organizations including the Illinois Resource Network, the Governor?s Broadband Deployment Council, the Illinois Library Association, the Illinois Department of Commerce and Economic Opportunity, and the Connect Illinois Broadband Resource Development Council, this project envisions a steady flow of communication and information that will ensure full statewide penetration of awareness of the mapping artifacts and how to employ them at their best and highest uses. Teams are already at work identifying the locations of various health care providers, K-12 schools, public and private colleges and universities, public safety answering points (PSAP?s), fire departments, police departments, and ambulance services, and, to the extent permissible, other local emergency services agencies. Community anchor institution data, including connectivity information, will be submitted as datasets to NTIA, but it will also be overlaid within a mapping context to create a remarkable graphic depiction of the locations of these critical connection points from a statewide to a local level. Community anchor institutions tend to be key junctures in the development of telecommunications systems nodes that provide greater access to households and businesses in unserved and underserved areas. Lastly, SBDD funding under this award will provide for five years of planning activities that relate to the consistent and steady communication of the ?messages? of the mapping products throughout the state, including instruction on the use of the mapping tools. Through strategic relationships with various organizations including the Illinois Resource Network, the Governor?s Broadband Deployment Council, the Illinois Library Association, the Illinois Department of Commerce and Economic Opportunity, and the Connect Illinois Broadband Resource Development Council, this project envisions a steady flow of communication and information that will ensure full statewide penetration of awareness of the mapping artifacts and how to employ them at their best and highest uses. The performing partners of The Partnership for a Connected Illinois, Inc. have been working diligently and proactively during the fourth quarter of 2009 to produce the requisite datasets of broadband availability in the state of Illinois. The federal award notification sent to The Partnership was dated December 29, 2009. As such, ASAP registration at this writing is incomplete. No funds have been received or invoiced as yet. Not withstanding, work continues. A total of 344 potential broadband providers in Illinois were identified. Through further research and direct contact, that number was pared to approximately 250. Non- disclosure agreements were developed, submitted, negotiated, and signed. Data from providers of various size and platform are now submitting data. Negotiations, contacts, and research continues to increase the flow of data. Foundational work has been accomplished in terms of identification and location of community anchor institutions. Recruitment has begun by one subcontractor to hire a researcher specifically assigned to community anchor institution data development. A hire in this regard is anticipated in the first two weeks of 2010. Demonstrations of the BroadbandSTAT product described in the proposal have been made to several state agencies. The combination of highly granular mapping and research will be crucial to the information and development of a statewide comprehensive broadband strategic plan. As described in the Planning Outcomes section, the Illinois Resource Network has agreed to prepare an online tutorial about the Illinois BroadbandSTAT product, increasing access and user-friendliness. Hard work lies ahead, and the performing partners of The Partnership for a Connected Illinois, Inc. remain focused on meeting federal deadlines and providing the citizens of Illinois with quality data, maps, research, education, and broadband advocacy. Partnership for a Connected Illinois, Inc., 150 E. Pleasant Hill Rd, MC 6879 Less Than 50% Completed 17-50-M09033 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Kansas. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Kansas Progress to Date * Commenced with broadband planning efforts in late February 2009 and included working groups among the public sector and provider communities * Provided a number of staff hours in-kind to the planning effort * State of Kansas contracted with professional facilitators to help with the initial organizing of the planning effort * Developed budget/finance cost model for Connect Kansas * Developed, distributed, reviewed and finalized project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Developed and launched a Connect Kansas website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Created and implemented a outreach strategy * Scheduled periodic bi-weekly Connect Kansas project team meetings * Produced bi-weekly status reports, data collection activity log and website statistics; and, distributed to the Connect Kansas project team * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Executed NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed 20-50-M09021 American Recovery and Reinvestment Act ? SBDD ? Massachusetts Technology Park Corporation dba MTC (?Mass Broadband Institute?)?. The goal of the Massachusetts Broadband Mapping Project is to develop detailed and accurate statewide broadband availability and infrastructure datasets to support the development and updating of a national broadband map that will be made available to the public. This goal will be accomplished by: developing collaborative relationships and data sharing agreements with broadband providers to develop a broadband availability database; validating and enhancing the provider database through the analysis of cable strand maps, DSL-equipped central office and remote terminal locations and wireless tower locations and various modeling methods based on the transport technology; verifying broadband availability in the field through a grassroots, civic engagement component using industry experts, partner organizations, and public participation and; making the data easily accessible and useable through an innovative web-based map library, data repository, and searchable broadband map. The MBI will collect, integrate, verify and submit five substantially complete datasets to NTIA in the first quarter of 2010 with subsequent semi-annual updates. A wireline broadband availability dataset will include availability, technology and speed of wireline broadband services by census block or street segment. A wireless broadband availability dataset will include availability, technology, speed and spectrum of wireless broadband services by census block or street segment. A residential broadband speed dataset will include average nominal speed for residential broadband users for each broadband service by metropolitan and rural statistical areas. A middle-mile infrastructure dataset will include location, ownership, technology, capacity and typical speeds of interconnect points between broadband provider services and the Internet. A community anchor institution dataset will include address, current broadband subscribership, technology and typical speed for each community anchor institution in the state (e.g., public safety entities, medical and healthcare facilities, libraries, state and local government entities, schools, community colleges and other higher education buildings). The Massachusetts Broadband Planning Project will identify barriers and assets to the deployment of broadband infrastructure and broadband adoption and then develop and implement innovative solutions to overcome barriers and best utilize assets. These solutions include: developing and supporting Local Technology Planning Teams and organizing outreach efforts to engage, inform, and energize residents, businesses, and public officials; supporting municipalities in making educated decisions on broadband issues impacting their communities, including technology, siting locations, zoning, and permitting; improving access to broadband and increasing adoption rates by providing technical assistance, support and coordination to the public, community anchor institutions, municipalities, and providers and; facilitating the development of public computing centers, training programs, and other efforts to improve broadband access and adoption Quarterly activities for the Massachusetts Broadband Mapping Project included: hiring staff and selecting consultants; purchasing hardware and software; establishing information security policies and procedures; requesting data from and negotiating non-disclosure agreements with broadband service providers; acquiring publicly available cable and DSL data; performing cable and DSL availability modeling by census block; submitting initial statewide availability datasets to the NTIA; and establishing data verification and web site development plans. Quarterly activities for the Massachusetts Broadband Planning Project included: approving a sub-award to WesternMA Connect; developing a community contact database; planning sub-regional public forums; and coordinating with other broadband initiatives in western Massachusetts. Less Than 50% Completed CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Michigan. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Michigan Progress to Date * Developed budget/finance cost model for Connect Michigan * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Developed and launched a Connect Michigan website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Conducted project kick-off meeting with public stakeholders * Scheduled periodic bi-weekly Connect Michigan project team meetings * Compiled and refined broadband provider list * Conducted introductory meeting with broadband provider community * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Started execution of NDAs with the provider community ? Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed 26-50-M09035 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Minnesota. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Bowling Green, KY 42102-3448 Less Than 50% Completed CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Nevada. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Nevada Progress to Date * Developed budget/finance cost model for Connect Nevada * Developed draft of project work plan and Work Breakdown Structure (WBS) * Assigned project team * Developed and launched a Connect Nevada website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, & Outreach Plan * Scheduled and participated in monthly Connect Nevada project team meetings with the Nevada Broadband Task Force * Presented to the broadband providers association meetings * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Started distribution of NDAs to provider community * Executed NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community (National Providers in Nevada) * Distributed broadband coverage data sets to GIS Mapping team for processing. 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed CULTURAL AFFAIRS, NEW MEXICO DEPARTMENT OF American Recovery and Reinvestment Act - SBA - Fast Forward New Mexico NM State Library, University of NM-Los Alamos, Global Center for Cultural Entrepreneurship, and 1st Mile Institute partner to sponsor 'Fast-Forward New Mexico, a broadband stimulus initiative that integrates a statewide broadband awareness campaign, a NM Broadband Conference, and a series of broadband training initiatives in public and tribal libraries across the state. Trainings are in computer literacy and e-commerce. A centralized website and on- line catalog will support current and future trainings. No activities during this quarter. Public, Society Benefit, General/Other SANTA FE, NM 87507-5166 CYBER SECURITY & CRITICAL INFRASTRUCTURE COORDINATION, NYS OFFICE OF American Recovery and Reinvestment Act - State Broadband Data and Development Grant Program - NY State Office of Cyber Security and Critical Infrastucture Coordination In keeping with the Recovery Act's direction that NTIA develop and maintain a comprehensive and interactive national broadband map, NTIA established a grant program where awardees will collect broadband-related data and conduct planning programs at the state level. In addition to supporting state level planning activities, these data will be used to construct the following deliverables: (1) Datasets detailing broadband availability, technology, speed, infrastructure and in the case of wireless broadband, the spectrum used, across New York State. (2) A dataset identifying community anchor institutions and associated broadband information. (3) Development of a statewide interactive broadband map identifying available broadband service levels, providers, unserved and underserved areas. Much of this data will be collected from broadband service providers. Other data sources, existing and to be created, will be used to validate the accuracy and completeness of these deliverables. The overall purpose and expected results of the award are stated above in the Award Description Section. The following is a summary of quarterly activities: (1) Reviewed grant documentation and identified reporting requirements and deadlines; (2) Worked with other NYS agencies to assemble a comprehensive list of companies that potentially provide end user broadband services or provide backbone/infrastructure related services. Contacted approximately 120 of these companies thus far in order to execute non-disclosure agreements and begin the data collection process; (3) Began assembling community anchor institutions dataset from existing and available information; (4) Began procurement process to purchase required hardware and software to complete the project; (5) Began development of workflows to be used to standardize, cleanse, improve, geo-process and validate data received from providers; (6) Began hiring process to staff seven open project team positions. Three were hired in late December but will not be calculated as jobs created until next quarter; (7) Began mapping related planning activities in support of the NYS Broadband Development and Deployment Council. Less Than 50% Completed 36-50-M09010 RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION State Broadband Data and Development Grant Program The purpose of the project is to develop geographic information system maps displaying levels of broadband service by connection speed and type of technology used to integrate the maps with demographic information to produce a comprehensive statewide inventory and mapping of existing broadband service and capability. Project will be compliant and consistent with requirements specified by the U.S. Department of Commerce, National Telecommunications and Information Administration (NTIA) Notice of July 1, 2009 related to the ARRA and Broadband Mapping, specifically the State Broadband Data and Development Grant Program. No activities to report for Qtr 4 - 2009 as grant was awarded on 12/28/09 315 Iron Horse Way, Suite 101 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: South Carolina. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect South Carolina Progress to Date * Developed budget/finance cost model for Connect South Carolina * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team * Developed and launched a Connect South Carolina website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Created a outreach strategy * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community (National) * Executed NDAs with the provider community (National) * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing. 1020 College Street, P.O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed STATE BROADBAND DATA AND DEVELOPMENT GRANT PROGRAM Recipient DBA Name: Tennessee. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connected Tennessee Progress to Date * Developed budget/finance cost model for Connected Tennessee * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Refined Connected Tennessee website to include Broadband Provider page to explain the program and gather information from the provider community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Communications Plan * Conducted project kick-off meeting with stakeholders * Scheduled periodic bi-weekly Connected Tennessee project team meetings * Compiled and refined broadband provider list * Conducted introductory meeting with broadband provider community * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Started execution of NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 618 Church Street Suite 305 Less Than 50% Completed VERMONT CENTER FOR GEOGRAPHIC INFORMATION, INCORPORATED The VT Broadband Mapping Initiative will initiate the development of a comprehensive and verified geographic inventory of broadband service availability in the State of VT. Landline and wireless services (fixed and mobile) will be mapped, including wireless voice and data with information from providers and other sources. The broadband mapping information collected and verified through this proposed effort will then support the broadband development objectives identified in the RUS Broadband Initiatives Program (BIP) and NTIA's Broadband Technology Opportunities Program (BTOP) in VT. Most importantly, the geographic inventory will further refine our understanding of the location of 'unserved' and 'underserved' areas, supporting targeted investments in these areas. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. ARRA SBDD Georgia Technology Authority (GTA) ARRA SBDD Georgia Technology Authority(GTA) The purpose of this project is to provide NTIA (Dept Commerce)and Georgia Public/Private sector stakeholders with broadband mapping and data collection, analysis, and broadband mapping display services for the State of Georgia residents, businesses, and community anchor institutions. The GTA Broadband office operations will utilize planning funds to promote sustainable adoption throughout the state as a part of this project's deliverable. The Georgia Technology Authority is in the process of selecting a vendor through a statement of need process with qualified vendors. We expected to select a mapping vendor by the end of January, 2010. Information GAO gathered to improve the description This award supports broadband data collection, mapping, and planning activities across Georgia over a 2-year period. Data on the availability, speed, and location of broadband across the state will be collected and verified on a semi-annual basis between 2009 and 2011. These data will be used to develop publicly available state-wide broadband maps and to inform the comprehensive, interactive, and searchable national broadband map that the National Telecommunications and Information Administration (NTIA) is required by the Recovery Act to create and make publicly available by February 17, 2011. Mapping Indiana Broadband is a project that will collect, map, verify, and distribute data that will contribute to a publicly available national broadband map to inform policymaker’s efforts and provide better information to consumers about the availability of broadband Internet services. State Broadbamd Data and Development Grant. Award letter received. Grants 100 N Senate Avenue IGCN551 Information GAO gathered to improve the description The award supports collection of information from broadband providers across the state. ADMINISTRATION, LOUISIANA DIVISION OF American Recovery & Reinvestment Act - SBDD - State of Louisiana Division of Administration Louisiana State Broadband Data & Development Program - Data Collection & Mapping; Louisiana State Broadband Data & Development Program - Planning The intent of the award is to allow the State of Louisiana to collect/verify statewide broadband availability and submit the findings to the NTIA, according to the requirements contained in the SBDD NOFA and its subsequent clarification. In this reporting period, we completed our project kickoff meeting and finalized our strategy for Service Provider Outreach. 1201 North 3rd Street, Suite 2-130 Baton Rouge, LA 70802-5243 Information GAO gathered to improve the description The award funds mapping activities including broadband availability data collection, verification, mapping and analysis. These efforts are expected to raise awareness of the availability of broadband, identify barriers to adoption, and develop a plan for sustainable broadband adoption for currently “underserved” and “unserved” businesses and households. Further, these activities will increase coordination and collaboration between the state and regional economic development efforts. Overall Approach/How grant will increase Broadband Adoption: The city's 3 partners who operate the 66 centers are established communiy anchor organizations which provide multipe services to constituents incuding public computing. PCCs are embedded in multi- muliple services organizations providing ideal institutional setting for reaching a large audience of potential broadband adopters. These partners are: The Boston Pubic Library (BPL) and its 25 neighborhood branches; Boston Centers for Youth and Families (BCYF), Boston's largest youth and human services agency serving over 90,000 resident annually in 46 facilities including 29 PCCs; and the Boston Housing Authority (BHA) operating 62 pubic housing sites, serving 11,500 household with 11 computers labs. No fund spent on infrastructure City of Boston/Auditing Dept., One City Hall Sq. R-M-4 Information GAO gathered to improve the description The city is using the award funds to wire 66 community centers and some public housing within the City of Boston for Internet use and purchase a few hundred computers for those centers. These activities will provide internet access to low-income individuals who may not otherwise have access to the Internet. NORTH DAKOTA, STATE OF ARRA-SBDD-North Dakota Information Technology Department $1,305,354 is for efforts related to mapping broadband availability across the state and year two maintenance of that data. $308,400 is for efforts related to broadband planning activities to identify how the state could leverage current organizational structure and relationships, either directly or indirectly, to provide the broadband requirements for additional anchor institutions No project activities occurred during this period (Information not reported) Information GAO gathered to improve the description The award supports broadband planning activities, including drafting non-disclosure agreements, a project plan, and a project schedule. The award covers personnel salaries, travel expenses, and equipment associated with this planning. EXECUTIVE OFFICE STATE OF OHIO State Broadband Data and Development Grant Program State Broadband Data and Development program grant - supports state broadband mapping and related planning activities. Award annouced 12/28/09 - no activities to report for quarter ending 12/31/09. 30 E. Broad Street, 39th Floor Information GAO gathered to improve the description The award supports the development of a statewide map that will pinpoint areas in Ohio that do not currently have access to broadband technology. The activities under this award include collecting broadband data, to be displayed in a national broadband map, and planning delivery of broadband services. PUBLIC UTILITY COMMISSION, STATE OF OREGON State Broadband Data and Development Grant Program Governor Theodore Kulongoski designated the Public Utility Commission of Oregon (PUC) as the single eligible entity to receive a grant under the National Telecommunications and Information Administration (NTIA) State Broadband Data and Development Grant Program. The PUC was granted a $1,609,692 million Broadband Data Collection and Mapping Grant and a $498,610 Broadband Planning Grant. The OPUC selected One Economy through the state's 'Request for Proposal' process to assist Oregon with fulfilling the requirements of these Grant Programs. None to date. 550 Capitol St NE, Suite 215 Less Than 50% Completed Information GAO gathered to improve the description The award supports the collection and mapping of specific data on broadband infrastructure and the availability of broadband services throughout Oregon, including on tribal lands. These data will identify unserved and underserved areas at the most granular level possible; identify community anchor points; be displayed on a publicly accessible and interactive state Web site in the form of a broadband map; be updated semi-annually through 2011; and be provided to the National Telecommunications and Information Administration (NTIA). These data will inform Oregon about the affordability, availability, and adoption of broadband technology in all areas of the state. These data will also provide information for analyzing and reporting on Oregon's use of broadband technology in the telehealth industry and for energy management, education and government. In year 2, additional data collection efforts will provide fresh data that may show the effects of any actions taken by the State of Oregon to address broadband adoption or availability and allow for further development of state broadband strategies. Spokane Broadband Technology Alliane: Public Computer Centers This Public Computer Centers project will provide establish 17 public computer centers throughout the Spokane Washington Area. This is a newly awarded grant. During the 8 days of the quarter the grant was active, we held a press conference, notified stakeholders and partners, had front page coverage in the local newspaper, and established a preliminary calendar. Public, Society Benefit, General/Other Grants 827 West First Avenue, Suite 121 Information GAO gathered to improve the description The award provides 3 new and expands 14 existing public computer centers in Spokane's poorest neighborhoods, and equips a vehicle to bring computers and training to other organizations and hard-to-reach populations. The training will cover basic Internet search training and links to needed services, video production, and using the Internet for small businesses. The award is anticipated to serve 298,906 unduplicated users. Spokane Broadband Technology Alliane: Sustainable Adoption This Sustainable Broadband Adoption project will provide training to individuals and organizations throughout the Spokane Washington Area. We estimate that we will train 12150 people over the three years of the project, and that about 1550 will become new broadband subscribers. This is a newly awarded grant. During the 8 days of the quarter the grant was active, we held a press conference, notified stakeholders and partners, had front page coverage in the local newspaper, and established a preliminary calendar. Place of performance - city, state, and postal code Information GAO gathered to improve the description The award supports sustainable adoption of broadband services, which includes acquiring broadband-related equipment, developing and providing education and training programs, and conducting broadband-related public outreach. The Sustainable Broadband Adoption project in Spokane will provide training at 11 not-for-profit organizations and community centers on the benefits of broadband access to enhance work/life skills. Small businesses are being trained to create an online presence, sell on the Internet, and use social media and low-cost, targeted Web advertising. Additional training will be available at 6 public libraries. GEOLOGICAL & ECONOMIC SURVEY, WEST VIRGINIA ARRA-SBDD-WV Geological and Economic Survey The purpose of this program is to develop a statewide broadband coverage map to provide a comprehensive picture of current infrastructure deployment and availability of broadband service in the State of West Virginia. Working with providers to encourage the provision of service in unserved and underserved areas, and engaging local entities to analyze current use of the technology and educate on service expansion opportunities. this quarter's activity was gathering data from broadband service providers By the way, this is the message I get when changing the number of jobs to 4, since we have not used federal funds yet. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal Amount ARRA Funds Received/Invoiced. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal Amount of ARRA Expenditure. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal ARRA Infrastructure Expenditure. 1124 Smith St, LM-10 Less Than 50% Completed Information GAO gathered to improve the description The award supports the collection and verification of the availability, speed, and location of broadband access across West Virginia. This information will be mapped on a semi-annual basis from 2009-2011, and the map will be used to increase broadband access and adoption through better data collection and broadband planning. PUGET SOUND CENTER FOUNDATION FOR TEACHING, LEARNING ANDTECHNOLOGY, THE Wyoming State Broadband Data and Development Grant Provide targeted, timely and useful information that will enable local solutions to address local broadband priorities for the State of Wyoming: Data Project Feasibility; Expedient Data Delivery; Process for Repeated Data; Updating, Planning and Collaboration In November and December 2009 the project was initiated and the team assembled. Mapping project activities included the execution of NDAs with all relevant providers and the development and release of a broadband provider survey. This online survey was designed to collect coverage and speed information in the format requested by NTIA. Outbound e-mail and telephone calling efforts helped encourage provider responses to the survey. Initial data submissions were reviewed, normalized and stored in a master database. In addition, consumer website templates were developed for the ultimate delivery of statewide maps for Wyoming. Planning activities included the establishment of planning objectives and state oversight procedures. Initial interviews with stakeholders across the State of Wyoming will begin in Q1 2010. 19020 33rd Avenue West Suite 210 Less Than 50% Completed Information GAO gathered to improve the description The award supports the development of a statewide interactive map showing (1) areas that do and do not have broadband access (or have limited access), (2) transmission speeds, and (3) the type of access (e.g., wireless, cable, etc.) available. This information will be used to help broadband providers apply for future infrastructure funding to build capacity across the state of Wyoming. SOUTH DAKOTA NETWORK, LLC South Dakota Network,LLC, $20.6 million grant with an additional $5.1 million matching funds to add 140 miles of backbone network and 219 miles of middle mile spurs to existing network, enabling the delivery of at least 10Mbps service to more than 220 existing anchor institution customers in rural and underserved areas of the state. Delivering 10 Megabit Connectivity for Community Anchor Institutions in areas currently not served. Power and Communication Line and Related Structures Construction (Information not reported) Sioux Falls, SD 57104-2543 $20,572,242.00 Information GAO gathered to improve the description The award is being used throughout the state to add 140 miles of fiber optic cable to an existing 1,850-mile network and an additional 219 miles of fiber optic cable to connect anchor institutions (such as schools, hospitals, and libraries) to the expanded network. Funds will be used for fiber construction, equipment, and end-point electronics, plus permitting and engineering fees. ION Upstate New York Rural Broadband Initiative ION will build 10 new segments for a total of 1308 plant miles of 'Middle Mile' infrastructure, which will incorporate more than 70 additional rural communities into its current statewide fiber backbone. ION will enhance its reach throughout rural New York with its Open Network design; this will enable a host of last mile service providers to bring their products and services to numerous underserved and unserved areas of rural NY. No activities this quarter we are in the planning phase of the project. Power and Communication Line and Related Structures Construction 80 State Stret, 7th floor Information GAO gathered to improve the description The award encompasses 10 projects to build Middle Mile infrastructure that will bring broadband service to 125 anchor institutions. The project will occur throughout the State of New York in a majority of the rural areas of New York and parts of Pennsylvania and Vermont. The Weatherization Assistance Program assists low-income families while improving their health and safety, by making such long-term energy- efficiency improvements to their homes as installing insulation, sealing leaks, and modernizing heating equipment, air circulation fans, and air- conditioning equipment. These improvements enable families to reduce energy bills, allowing these households to spend their money on more pressing needs, according to the Department of Energy. In 2009, the Recovery Act provided $5 billion for the program—increasing the department’s portion for local weatherization efforts by more than 20 times over a 2-year period based on fiscal year 2008 funding levels—about $227.2 million per year. The department distributes 58 awards to each of the 50 states, the District of Columbia, and seven territories and American Indian tribes (recipients) and relies on the recipients to administer the programs. The department had obligated approximately $4.73 billion of the Recovery Act’s weatherization funding to recipients for weatherization activities as of March 31, 2010, retaining about 5 percent of the funds to cover its expenses, such as those for training and technical assistance, management, and oversight for the expanded Weatherization Assistance Program. Funds are available for obligation until September 30, 2010, and the department has indicated that the recipients are to spend the funds by March 31, 2012. As of March 31, 2010, recipients had spent about $659 million, or about 14 percent of the $4.73 billion obligated, to weatherize about 82,200 homes nationwide. Many recipients are just beginning to use Recovery Act funding, in part because certain federal requirements, such as Davis-Bacon wage requirements, affected the ability of some agencies to start work in programs, including the Weatherization Assistance Program, and because they have needed time to develop the infrastructures required for managing the significant increase in weatherization assistance funding. We assessed the transparency of descriptive information for Weatherization Assistance Program awards on Recovery.gov, as described in the report. We found that an estimated: about 12 percent met our transparency criteria, 71 percent partially met our criteria, and 18 percent did not meet our criteria. For weatherization descriptions that partially met or did not meet our transparency criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our Weatherization Assistance Program sample, whether they met our criteria, and information that would complete the descriptions of award activities are provided at the end of this appendix. The department provided additional documentation to assist recipients in fulfilling Recovery Act reporting requirements but did not assess the quality of the information reported by recipients in narrative reporting fields. The department issued supporting documentation on the grant application process for the Weatherization Assistance Program in March and December 2009. This documentation includes information about requirements for a public hearing, budget, and program oversight. The department also issued supporting documentation twice in March 2010, providing additional information about requirements for quarterly reporting and calculation of jobs created. The supporting documentation is available on the department’s Web sites, as is a capability to search responses to frequently asked questions. The department also provided technical assistance restating the Office of Management and Budget (OMB) requirements in the form of reporting instructions and training for completing specific fields, including narrative description fields, to fulfill Recovery Act reporting requirements in December 2009. The department has made its technical assistance available on the Weatherization Assistance Program’s technical assistance Web site, http://www.waptac.org, and has established a call center—the Recovery Act Clearinghouse—to answer specific reporting questions from recipients. This technical assistance includes some information specific to the weatherization program, such as the definition of a completed unit, but for the most part, restates OMB’s guidance, as shown in table 6 for the project description field. However, the department did not evaluate the quality of the information in narrative fields. OMB’s guidance, issued December 2009, states that where a narrative description is required, as in the award description field, the “description must be sufficiently clear to facilitate understanding by the general public.” Department of Energy officials told us that the agency ensures the quality of data primarily through an automated analysis of key data fields, including award number, recipient name, award amount, and jobs calculated, but not including narrative fields, such as award description or project description. Instead, department officials said every weatherization award has an assigned agency reviewer who may, at his or her discretion, review the accuracy of any and all data submitted by recipients. Department of Energy officials said that they do not have a robust process for evaluating the quality of information in descriptive fields because they do not consider the narrative description fields key to reporting and could not automate a review of narrative fields. Also, they noted that the limited scope of the Weatherization Assistance Program ensures that narrative descriptions—such as the award description—are sufficiently clear to be understood by the general public. Weatherization Assistance Program award information is made available to the public by the department, recipients, and some local agencies: The Department of Energy maintains weatherization information and data on its Web site at http://apps1.eere.energy.gov/weatherization/recovery_act.cfm and http://www.energy.gov/recovery/. It also maintains a Web site housing technical assistance for recipients at http://www.waptac.org. Many of the 58 recipients have some weatherization information available on their Web sites that, for example, describes the assistance program, summarizing activities performed, eligibility requirements, the application process, and contact information. In some cases, the Web sites also provide greater detail on the program, including the amount obligated to the recipient, the number of homes weatherized, and the number of jobs created. In addition, approximately 36 of 58 recipients post their weatherization plans on their Web sites. These plans are required for each recipient receiving weatherization assistance funds and outline how funds will be used. Information available in the weatherization plans includes a description of the types of weatherization activities that could be performed, the counties or regions in which weatherization activities will occur, the number of units to be weatherized, the budget for weatherization activities, the community action agencies performing weatherization activities, the energy savings expected, and monitoring activities to ensure the quality of the weatherization activities performed. In accordance with privacy guidance, the specific location for individual homes weatherized is not reported. Several state Offices of Inspector General have issued reports on the Weatherization Assistance Program in their states. Furthermore, recipients also provide weatherization award information through press releases, hearings, public forums, and community meetings. Finally, many of the local agencies that provide weatherization services directly to residents also make information available to the public, through press releases, public service announcements, community events, or Web sites. Most of the feedback that the Department of Energy, recipients, or local community action agencies have received about the Weatherization Assistance Program has been about proposed regulations or weatherization activities performed, and few comments have been about the weatherization information available to the public. At the department, many of the comments received relate to proposed regulations on reporting frequency (and not to project description information). Recipients have received comments and inquiries from individuals wanting to apply for weatherization services or learn how to get a job and from vendors wishing to market products. Inquiries have also addressed how much money the recipient received, how many homes will be weatherized and the total amount of funding to be spent on each household—-but not the accessibility of project description information. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. HUMAN SERVICES, MICHIGAN DEPARTMENT OF Recovery Act Weatherization Award for the state of Michigan Michigan Department of Human Services has been awarded stimulus funding from the U.S. Department of Energy Weatherization Assistance Program for Low-Income Persons in the amount of $243 million dollars over the next three years. The State plan includes changes in the Weatherization Program for year 2009: average cost per unit maximum of $6,500, increase in income eligibility limits to 200% of poverty or 60% of state median income, whichever is higher, and program training plan. Changes in the plan also include the new positions; 10 weatherization inspectors, report analyst, Davis Bacon specialist, grant manager/monitor, fiscal monitor, division manager and the secretary. Funding has been allocated to the 32 Community Action Agencies and Limited Purpose Agencies that serve as Local Weatherization Operators (LWOs) in Michigan under the existing weatherization program. The funding is exclusively for weatherization, which involves the installation of energy efficiency measures on low-income homes. Applications are taken at Local Weatherization Operator offices. Approximately 33,000 homes will be weatherized in Michigan through March 2012 with the ARRA funding. Households generally realize a 25% reduction in their energy usage as a result of weatherization. We have hired 10 technical monitors and they have attended and passed the Level I & II Michigan Inspector training. They were all required to do field activities including 8 inspector shadowing events and 8 inspections where they took the lead. They had to prepare all required paperwork/audit materials for each of these 16 inspections and have submitted to supervision for review and comment. They must next go through the final step in the inspector certification process- the over-the-shoulder Inspector Observation test. This will be scheduled in January. We have acquired two training houses- one in the Upper Peninsula and one in Lansing. These houses are being used to schedule over the shoulder inspection tests, as well as hands on contractor trainings and lead safe weatherization training. As of December 2009, we have trained 180 new program inspectors to ensure an adequate number of inspectors statewide. We have also conducted lead safe weatherization training for over 200 contractor/crew members. We continue to work with local community colleges to adopt the DOE recommended curriculum for contractors/crews that will enable ongoing classroom and hands on weatherization worker training. In support of the program (and of the Jobs Created/Saved/Retained) a total of 703 persons/jobs were supported, in whole or in part, utilizing DOE ARRA funds generating 101,503 hours of work. During this reporting period we have seen an increase in the amount of ARRA funded work grow as new workers ramp up to start projects. There will continue to be a lag between actual Funds Received and actual Funds Disbursed due to the use of 'General Funds' dollars to support the sub-recipient activities until Federal Funds are drawn down to cover the actual expenditures reported. 235 S. Grand Ave., Suite 1314 Less Than 50% Completed Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for the Weatherization Assistance Program (WAP): To reduce energy costs for low-income families, particularly for the elderly, people with disabilities and children, by improving the energy efficiency of their homes while ensuring their health and safety. In October VI WAP was still in the program implementation stage. A 3 day electric base load audit training for staff was conducted on Oct. 7th, 8th, and 9th by Pure Energy Inc. Four members of VI WAP staff were trained and 3 Energy Office engineers who will serve as back up to the VI WAP auditors. VI WAP identified a home that would qualify to be weatherized and used it for a demonstration energy audit. The information obtained in this energy audit was very useful and provided very good information for DOE's technical assistance visit. Oct 19th thru Oct 23rd DOE officials conducted a Technical Assistance Visit and reviewed various VI WAP procedures on Client Intake. VI WAP has started purchasing tools, equipment, and supplies and has obligated funds for two vehicles for the program and funds to pay for the disposal of old refrigerator replaced in the program. November 2009 VI WAP Client Intake was finalized forms for the in-take application, and procedures for determining eligibility, proof of ownership, and ranking system. A web meeting was hosted with DOE on Nov. 17, 2009, regarding the Virgin Islands Priority List, for VI specific energy measures for the program. The major issue being the cost limitation on the refrigerators at $1000.00, which may cause a problem for the Virgin Islands because of the high price of refrigerators due to shipping cost. In December, Susan White a DOE consultant on Procurement and Financial Management trained staff and provided three days of technical assistance. Ms. White assisted VI WAP on finalizing VI WAP's procurement manual and developing RFP’s for the certifying agency, final inspections, and two Requests for Bids. The approved Priority list for the program has still not been approved by DOE. VI WAP also completed the Production schedule average is 15 homes a month being weatherized in the Territory. The goal is 430 home by March 2012. Less Than 50% Completed HOUSING AND COMMUNITY RENEWAL, NEW YORK STATE DIVISION OF Weatherization formula grants allocated to the New York State Division of Housing and Community Renewal (DHCR) under the American Recovery and Reinvestment Act (ARRA). Funds are provided to reduce the energy expenditures of low-income households by conducted instrumented energy audits and installing energy conservation materials such as insulation, weatherstripping and caulk, high-efficiency heating and hot water systems, high- efficiency electrical fixtures and efficient building materials such as windows and doors. Award amount includes administrative funding (up to 5%) that will be retained by DHCR for administration. Funds are allocated to eligible subrecipients throughout the state who are responsible for proper installation, compliance with program rules and quality assurance. ARRA funds are expected to provide energy conservation assistance for more than 45,000 dwelling units. Preliminary activities such as training, conducting energy audits and health and safety tests, and installation weatherization materials in eligible units. Less Than 50% Completed EXECUTIVE OFFICE OF THE STATE OF NEW HAMPSHIRE To audit and weatherize low-income residential single and multi-family units for the purpose of lowering residents' energy costs and increasing their health, safety, and comfort. The program is also designed to decrease greenhouse gas emissions, decrease our country's dependence on fossil fuels, and create jobs, especially in the hard-hit construction related trades. At least 2600 units are slated to be weatherized, coordinated by six Community Action Agencies within New Hampshire. ARRA funding is expected to greatly increase the number of residential units to be weatherized, from a few hundred over two years to 2600 over three years. As of December 31st, all six Community Action Agencies in the state are weatherizing with ARRA funds. Completed units now stand at approximately 275, with at least 100 in the process of being weatherized. Two energy auditing classroom trainings have been held, with over 27 new auditors receiving state energy auditing certification, seven new since the last quarterly report. Two combustion appliance training sessions are being planned for January '10. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. STATE, LOUISIANA DEPARTMENT OF Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. Most activities have continued to support the ramp up of workforce and infrastructure. Baton Rouge, LA 70808-0120 Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 5,646 homes throughout the state will undergo weatherization activities such as performing client education, weatherizing site-built and mobile homes, and making weatherization repairs, such as installing attic insulation and performing basic air sealing. NATURAL RESOURCES, MISSOURI DEPARTMENT OF WEATHERIZATION ASSISTANCE FOR LOW-INCOME PERSONS FUNDING TO BE USED TO INCREASE THE ENERGY EFFICIENCY OF DWELLINGS OWNED OR OCCUPIED BY LOW-INCOME PERSONS, REDUCE THEIR TOTAL RESIDENTIAL EXPENDITURES AND IMPROVE THEIR HEALTH AND SAFETY. A grand total of 1,093 homes have been weatherized by the subgrant agencies through December 31, 2009. A total of 839 homes have been weatherized by the subgrant agencies from October 1, 2009 through December 31, 2009. On October 13, 2009 the Missouri Department of Natural Resources Energy Center (MDNR/EC) staff conducted a one-day administrative and technical training for the subgrant agencies in Branson, Missouri. The training consisted of an update of the revised Weatherization Program Operational Manual and sessions concerning Davis-Bacon requirements, procurement, ARRA reporting, and technical monitoring. During December 2009 seven regional ARRA Energize Missouri Housing Initiative meetings were held throughout the state to provide information and networking opportunities to those interested in participating in the program. Also in December the Department of Labor issued a revised Weatherization wage rate determination for Missouri. The MDNR/EC has hired four weatherization employees to help with ARRA implementation. MDNR/EC has five technical staff that are BPI certified. Jefferson City, MO 65101-4272 Less Than 50% Completed Information GAO gathered to improve the description Over a period of 3 years, 21,506 homes throughout the state will undergo weatherization activities and 221 of these will be reweatherized. Weatherization activities may include air leakage reduction, attic insulation, wall insulation, foundation and floor insulation, duct insulation, heating system clean and tunes, repairs, and replacements, lighting retrofits, and replacement of hot water heaters, refrigerators, and air conditioning units. HEALTH & HUMAN SERVICES, NORTH CAROLINA DEPARTMENT OF Weatherization Assistance for Low Income Persons. American Recovery and Reinvestment Act (ARRA) The Weatherization Assistance Program’s mission is to enhance the well-being of low- income residents, particularly those persons who are most vulnerable such as the elderly, the handicapped, and children, through the installation of energy efficient and energy-related health and safety measures, thus benefiting clients through reduced energy bills, enhanced comfort, and the mitigation of energy related health risks. Sub Recipients will be responsible for weatherizing over 20,000 homes. The Weatherization Assistance Program’s mission is to enhance the well-being of low- income residents, particularly those persons who are most vulnerable such as the elderly, the handicapped, and children, through the installation of energy efficient and energy-related health and safety measures, thus benefiting clients through reduced energy bills, enhanced comfort, and the mitigation of energy related health risks. Sub Recipients will be responsible for weatherizing over 20,000 homes. Office of Economic Opportunity, 222 North Person Street Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 22,000 homes throughout the state of North Carolina will undergo weatherization measures, including air sealing, attic insulation, dense-pack sidewalls, floor insulation, sealing and insulation of ducts, and general heat waste (weatherstripping, caulking, glass patching, water heater tank wrap, pipe insulation, faucet aerators, low-flow showerheads, furnace filters). HOUSING & COMMUNITY DEVELOPMENT, MD DEPT OF Weatherization Assistance Program for low-income persons. The American Recovery and Reinvestment Act of 2009, Public Law 111-5, appropriates funding for the Department of Energy to issue/award formula-based grants under the Weatherization Assistance Program. The purpose of the program is to increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety. The priority population for the Weatherization Assistance Program is persons who are particularly vulnerable such as the elderly, persons with disabilities, families with children, high residential energy users, and households with high-energy burden. Maryland began in earnest ARRA production during the Quarter after working with the LWA's to implement the Davis-Bacon Act requirements for the prevailing wages and required reporting. Production has steadily increased during each month of the Quarter. Maryland completed training for the Hancock Energy Solutions software system for managing all program information and the system is now live. All 18 LWA's are entering client case information into the system and invoices are now being paid out. Maryland DHCD has purchased 4 vehicles (Ford Escape Hybrids) to be used by our quality control inspectors for their field work. Note that costs were two @ $29,300 and two @ $30,860., expenditures that do not show up elsewhere in this report. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 6,850 homes throughout the state of Maryland will undergo weatherization activities such as energy audits, incidental repairs, lighting retrofits, water system treatment, attic and floor insulation, furnace testing and service, blower door air sealing, and health and safety abatement. Weatherization Assistance for Low-Income Persons/ARRA ARRA Supplemental Funding for Weatherization Assitance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. The State of South Carolina plans to weatherize 5000 homes over the three year life of the grant. We anticipate completing 40% of our goal within the first year, and the remainder within the next two and half years. This will be accomplished through a collaborative partnership with both public and private entities. $58,892,771.00 Less Than 50% Completed Information GAO gathered to improve the description Weatherization activities include air sealing, attic insulation, dense-pack sidewall insulation, sealing and insulating ducts, floor insulation, and installation of a smart thermostat, compact fluorescent lamps, and refrigerator. Activities will be performed statewide. HOUSING AND COMMUNITY DEVELOPMENT, VIRGINIA DEPT OF Weatherization Assistance Program for Low-Income Persons To improve home energy efficiency for low-income families through the most cost-effective measures possible. Sub-awardees were expected to complete ramp-up activities. This includes the purchase of additional or upgraded vehicles and equipment, hiring of additional personnel, identifying additional new beneficiaries and limited production increases. 600 East Main Street, The Main Street Centre Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 9,193 homes throughout the state of Virginia will undergo weatherization activities such as tests for carbon monoxide, pre- and post-blower door tests, pressure diagnostic tests, pre- and post-health and safety tests, heating/cooling equipment inspection and repair, floor insulation, domestic water heater insulation, and refrigerator and stove replacement. DISTRICT OF COLUMBIA, GOVERNMENT OF The Weatherization Assistance Program (WAP) grant will provide assistance to reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. The stimulus Weatherization Assistance Program (WAP) will expand efforts to audit income-qualified homes and install energy efficiency measures to reduce energy use. DDOE has completed selection of community-based organizations and is preparing final grant agreements and awards to initiate partnerships with 7 organizations. DDOE has posted 6 position descriptions to hire additional program staff; candidates have been identified and are being screened and interviewed by DDOE human resources. 51 N St. NE 6th FL Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 785 units throughout the District will undergo weatherization activities, including conducting energy audits of single-family and multifamily homes/residences and performing weatherization improvements to these residences, such as installing energy-efficient lighting, insulation, and weather stripping, and replacing windows/doors; heat pump repair; hot water heater repair/replacement; faucet, showerhead replacement, and programmable thermometer installation. Under this award, inefficient air- conditioners and refrigerators will be replaced in order to reduce electric bills in low-income households. LABOR AND INDUSTRIAL RELATIONS, HAWAII DEPARTMENT OF Weatherization Assistance Program for Low -Income Persons Weatherization Formula Grants - American Recovery and Reinvestment Act of 2009 The quarter ending 12/31/09 we processed a total of 14 units have been installed. Of these 9 units are hot water solar systems and 5 are compact fluorescent lights (CFL’S). Projected units installed for the coming quarter is 137. As of this date 107 families have been assessed, 17 are currently being considered for solar installations, and 22 are approved for solar and cfl installations. Applicants to HCAP's WAP-ARRA program are currently in receipt of energy conservation education. Applicants watch a video about general energy conservation practices and receive free copies of the publications 'Power to Save: An Energy Conservation Guide to Your Home' and '101 Ways to Save.' In addition to collateral materials, income eligible applicants received dwelling-specific tips and advice from the WAP-ARRA Technical Specialist during an initial home survey and assessment. During the post-installation phase, vendors will provide information on how to use and care for energy saving devices. HCAP continues to develop and refine its process for related weatherization programming with help from the State of Hawaii, Office of Community Services. In the later part of this quarter the WAP-ARRA Program Specialist and WAP-ARRA Technical Specialist traveled to the island of Kauai to discuss procedures with neighbor island CAPs and to receive technical training from Hawaii Energy. Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 672 households in all four Hawaii counties. These activities include an energy audit service, installation of energy saving devices, and follow-up and energy monitoring of low-income homes, as well as technical assistance and training to subawardees. HOUSING & COMMUNITY SERVICES, OREGON DEPARTMENT OF DOE ARRA Weatherization Assistance Program Statewide The purpose of the Weatherization Assistance Program is to increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety. The program promotes job creation, provides energy savings, and reduces carbon emissions. The priority population for the program is persons who are particularly vulnerable such as the elderly, persons with disabilities, families with children, high residential energy users, and households with high-energy burden. Income requirements for ARRA Weatherization funds are 200 percent of the national poverty level. A DOE-approved energy audit is performed on each home to determine the greatest cost saving measures for the client's dwelling. Weatherization contractors then install the most cost-effective, energy efficient measures, address health and safety concerns, and improve comfort. The use of ARRA funds on dwelling units may include, but are not limited to auditing, testing, and installation of energy saving materials. Energy-efficiency education is also provided for each household receiving weatherization. ARRA Weatherization funds may also be used for training and technical assistance. During the quarter OHCS continued formalizing program and legal agreements with subrecipients and conducted training necessary for proceeding with Weatherization operations throughout the state. Work activities during the period covered a wide range of activities. Through various webinars, tele-conferences, and prepared group training meetings, OHCS has worked with subrecipients developing monitoring and reporting procedures. OHCS continues to analyze subrecipient needs for equipment, vehicles, training and hiring, monitoring and reporting, and feasibility analysis for special projects. OHCS has evaluated at-risk and vulnerable agencies and continues to work with those subrecipients to develop action plans. OHCS continues its coordination with the Oregon Employment Department, Workforce Development, Oregon Energy Coordinators Association and Community Action Partnership of Oregon to develop training plans and the possibilities of leveraged ARRA funding sources. Davis Bacon certified wages were determined and provided to the agencies. Follow-up training for the subrecipients regarding certified payroll issues has been provided. A payroll specialist joined the staff of OHCS during the quarter to facilitate the collection and retention of payroll the certified payroll and to provide guidance to the subrecipients. The monitoring staff has begun scheduled site visits to the subrecipient agencies across the state, evaluating completed jobs and providing weatherization technique training and guidance. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 4,635 homes throughout the state will undergo weatherization activities; the estimated energy savings is 141,368 MBtu. COMMERCE, NORTH DAKOTA DEPT OF Weatherization of Low income homes Weatherization of low income clients in the state of North Dakota. It is planned to weatherized approximately 3267 homes. Weatherization will receive general heat waste measures, insulation measures, diagnostics, windows and doors, Health and Safety measures including furnace replacement and repair. Residiential, multi-family and mobile homes will be weatherized with all measures with a SIR of Greater than 1.5. 310 homes completed as weatherized. 330 homes in-progress. Place of performance - street address (optional field) Less Than 50% Completed Information GAO gathered to improve the description Each weatherization measure to be installed must have savings-to-investment ratio (SIR) equal to or greater than 1 in order to be included as a priority. The award will result in an estimated energy savings of 85,917 MBtu. DEVELOPMENT, OHIO DEPARTMENT OF COMMUNICATIONS Recovery ACT Weatherization Award for State of Ohio Weatherization program provides services to low-income households in Ohio to reduce energy costs. The Home Weatherization Assistance Program (HWAP) weatherized over 5,500 homes with ARRA funds in the state of Ohio since July 1st, 2009. Additional training courses have been added to the Corporation for Ohio Appalachian Development (COAD) training center to meet demand due to the considerable increase of crew and contractor based personnel hiring. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 32,180 homes throughout the state will undergo weatherization activities, including water heater insulation, air leakage repair, furnace tune-up, duct insulation in nonconditioned areas, duct sealing, and the installation of low-flow showerheads. SOCIAL SERVICES, CONNECTICUT DEPARTMENT OF ARRA Supplemental Funding for the Weatherization Assistance Program (WAP): To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. DSS has provided 2 Combustion Safety, 2 Lead Safe, and one OSHA 10 training for weatherization crews and subcontractors. DSS also sponsored 2 Davis Bacon trainings and hosted one statewide ARRA WAP meeting in early December. Through the CCTCs, 1 Building Analyst course was provided to 14 students. Through two workforce investment boards, 2 Weatherization Installer courses were provided to 36 students. To date, more than 125 people have received training for the ARRA WAP program. All DSS ARRA WAP durational project positions have been filled. DSS holds monthly weatherization directors meetings. Through an agreement with the OWC and CT's workforce investment boards, regional workplans have been developed for weatherization training and job creation/retention programs. In addition, the CCTC system is in the process of developing a statewide weatherization training curriculum and building training labs at the vocational and technical high schools. DECD began its pilot project in which 500 state financed elderly housing units will be weatherized in Northwest CT. The sub recipients have finalized their procurement processes and 98 contracts for services and materials have been executed. Total FTEs for the reporting period are 34.33; however, approximately 79 persons have worked for ARRA WAP during this quarter. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 7,500 homes throughout Connecticut will undergo weatherization activities, such as attic insulation, sidewall insulation, air-sealing/infiltration measures, basement/crawlspace ceiling insulation, pipe and duct insulation, and install storm windows/doors and primary windows/doors. HEALTH AND WELFARE, IDAHO DEPARTMENT OF Department of Energy - Weatherization The Department of Energy ARRA Weatherization Award will be used to weatherize an additional 3,198 low and moderate income (at or under 200% federal poverty income guidelines) homes by March 31, 2011. This will result in job creation, projected to at least double current staffing as well as increase the use of contractors, promoting retiention. Projections indicate that the material purchased to weatherize homes will at least triple during the project period. Less Than 50% Completed Information GAO gathered to improve the description The award includes weatherization activities such as attic, floor, and wall insulation, door/window replacement, furnace repair/replacement, refrigerator replacement, duct sealing and insulation, water pipe insulation, and water heater replacement. Weatherization Assistance Program for Low Income Persons Under the Recovery Act ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. Legislative Building 416 Sid Snyder Avenue S.W. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 7,170 homes throughout the state will undergo weatherization services such as an energy audit, a complete visual assessment, assessment of electric base load measures, diagnostic tests, energy-related health and safety assessments, client education, appropriate low-cost measures, applicable weatherization-related repairs, and a thorough consideration of the client and residence. There is an estimated energy savings of 701,927 MBtu. BUSINESS AND INDUSTRY, NEVADA DEPARTMENT OF Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons; To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. With $11,572,667.00 of grants awarded in the first cycle, NHD anticipates providing weatherization assistance to approximately 2,000 homes. Production began the first week of November due to state stipulations that had to be met, and work is now moving forward. Department of Employment, Training and Rehabilitation (DETR) is contracting with nonprofit collaboratives to provide weatherization worker training to approximately 300 individuals who we anticipate will be absorbed into the workforce by our current contractors. NHD has hired a compliance auditor/inspector, project specialist, and a Davis Bacon compliance specialist with additional staff to be added as needed. 1535 Old Hot Springs Road, Suite 50 Carson City, NV 89706-0679 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities by five service providers throughout Nevada. The activities include minor home repairs, floor and duct insulation, refrigerator replacement, and shell infiltration sealing. LEGISLATIVE OFFICE OF THE STATE OF WEST VIRGINIA To increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety, especially low- income persons who are particularly vulnerable such as the elderly, persons with disabilities, familes with children, high residential energy users, and households with a high energy burden. To weatherize low-income persons homes throughout the State of West Virginia according to the Department of Energy and West Virginia Weatherization Field Standards. 950 Kanawha Blvd. E., 3rd Floor Less Than 50% Completed Information GAO gathered to improve the description The award will support weatherization activities for 3,574 homes throughout West Virginia. These activities include cleaning and tuning heating systems; air sealing; duct, attic and floor insulation; and replacement of heating systems, doors, and windows. The award is expected to result in an energy savings of 57,269 MBtu. Recovery Act - Weatherization Formula Grants - Low-Income Households Second qtr activities included ramping up by increasing the number of state monitors, issuing grants to subrecipients, and providing training on American Recovery and Reinvestment Act of 2009 (ARRA) rules, the Davis Bacon Act, and other related regulations. Weatherization-related training opportunities have been provided to new State and Service Provider Weatherization Assistance Program staff. The MN Department of Commerce (DOC) hired additional weatherization field and fiscal monitoring staff. 1,392 homes have been weatherized using ARRA funds. 101 of these homes were monitored by ARRA DOC weatherization staff. These monitoring visits were also used to train new DOC weatherization staff. 85 Seventh Place East, Suite 500 Saint Paul, MN 55101-2198 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for about 16,850 homes in all Minnesota counties and 6 of the state's 11 Native American reservations. Weatherization activities include air leakage and infiltration reduction, attic insulation, wall insulation, health and safety repairs/replacement, duct sealing and room-by-room pressure balancing, cleaning and tuning heating systems, efficiency-based heating system replacements, and belly and duct repairs/sealing. ARRA Weatherization Assistance for Low Income Persons ARRA Weatherization Assistance Program for Low Income Persons provides funding for improving the energy efficiency of low-income dwellings to decrease energy consumption and thereby decrease the cost of energy for low-income families. ARRA Weatherization Assistance Program for Low Income Persons provides funding for the improvement of energy efficiency of dwellings to decrease energy consumption and thereby decrease the cost of energy for low-income families. This is accomplished through the state's network of Community Action Agencies and is headed by Community Action of Kentucky, the subrecipient of grant funds. Grants Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 9,907 homes throughout Kentucky. These activities include attic, wall, and floor insulation; incidental repairs; infiltration reduction; and health and safety measures. The award is expected to result in an energy savings of 268,644 MBtu. COMMUNITY AFFAIRS, FLORIDA DEPARTMENT OF The U.S. Department of Energy (DOE) awarded $175,984,474 to Florida for the Weatherization Assistance Program (WAP) through the American Recovery and Reinvestment Act (ARRA). These funds are to help reduce the monthly energy burden of Florida's low-income population households by making those dwellings more energy efficient. To date, DOE has released 50% of the total award amount to the state. The funding, administered by the Florida Department of Community Affairs, will be passed through to the existing 27 provider agencies (community action agencies, non-profit entities and county governments) covering the 67 counties statewide. Each of these providers, along with the contractors and vendors participating in the program, have an integral role in job creation and retention by providing energy efficiency improvements on low-income dwellings. Weatherization activities may include: addressing air infiltration with weather stripping, caulking, thresholds, minor repairs to walls, ceiling and floors and window or door replacement; applying solar reflective coating to manufactured homes; adding ceiling and floor insulation; evaluating efficiency of heating and cooling systems, refrigerators, water heaters; and installing solar screens, low flow shower heads, compact fluorescent light bulbs, water heater and water line insulation. One hundred percent of the beneficiaries of the WAP are below the 200% federal income guidelines. During the first quarter, primary activities were focused on capacity-building and training at the local provider level. Local providers were required to complete specific benchmarks, prior to receipt of ARRA working weatherization grants. Benchmarks included: completion of one- week weatherization inspector training for existing and new employees with follow-up field testing, purchasing of additional equipment, and validation and eligibility verification of client waiting lists. During the second quarter, all but one of the 27 local providers completed the required benchmarks. Weatherization grant awards were executed with 26 agencies and those agencies began weatherizing dwellings. A new oversight measure of field monitoring was also implemented within the second quarter. Field monitors were trained by state Weatherization staff and in November the monitors began their ongoing responsibility of reviewing 100% of client files and inspecting 50% of the weatherized homes. Training on Davis Bacon requirements was also provided statewide by a representative of the U.S. Department of Labor. Statewide contractor training curriculum was developed and implementation begins in the third quarter. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 19,090 homes. HOUSING & COMMUNITY AFFAIRS, TEXAS DEPARTMENT OF Recovery Act-Weatherization Assistance Program for the State of Texas The Weatherization Assistance Program assists low-income households control energy costs to ensure an healthy and safe living environment. Qualified households may receive weatherization materials installed in their residences and/or energy conservation education. Continued administrative activities at the prime recipient level and weatherization work at the subrecipient level. $326,975,732.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for 33,908 homes across the state. Weatherization activities include measures to reduce air infiltration, such as replacement of doors and windows, repairing of holes and caulking; installation of ceiling, wall and floor insulation; replacement of energy inefficient appliances and heating and cooling units; and energy education to help families reduce their energy consumption. Subawardees will receive training that will include basic and advanced weatherization, weatherization program management, NEAT software, and Davis-Bacon administration. THE EXECUTIVE OFFIC OF THE COMMONWEALTH OF PUERTO RICO The Weatherization Assistance Program helps low-income families to attain a reduction of household energy expenditures, while securing and enhancing the health and safety of the home. Of particular concern to the program is to provide assistance to the elderly, families with children, persons with disabilities, and those with a high energy burden in their household. Due to the warm climate of the island, weatherization efforts will be directed at improving the efficiency of cooling systems, reduction in electrical energy demand of light fixtures and selected household appliances, and mitigate energy-related health and safety concerns. To maximize the benefits of the program, work will be performed by trained personnel, and the process will be monitored from initial client application to certification of completed weatherization work. The period of performance is estimated from 4-1-2009 to 3- 31-2012. The Evaluation Committee for the Call Center studied the proposals received and made their recommendations to subgrantee's, PRIFA, Board of Awards. The pre-bid meeting for the Refrigerator Replacement Services Bid was held. Refrigerator Replacement Services Bid Documents were prepared, and the newspaper bid announcement was published. The Evaluation Committee for the compact fluorescent lamps (CFLs) bid began evaluating the proposals received. Water Heater Replacement Services Bid Documents were prepared, and the newspaper bid announcement was published. Trainers (ECA) contract was signed and their first visit ocurred on December 29 and 30. The Evaluation Committee for the qualification of auditors and inspectors met and selected the inspectors to be invited for the training. Evaluation of auditors started this period. Probable intake locations were visited to evaluate the physical conditions and necessities to adjust the locations to the intake process. Evaluation of probable training facilities was finished and sent to PRIFA for their comments and final decision on which facility to use. Draft report on the Energy Audit Tool to be used by auditors in Puerto Rico WAP was prepared. After grantee's, EAA, revision, the agency will submit the document to the DOE. The document includes a brief description of the Puerto Rico housing stock, photos, climate description, explanation of audit tool for all the weatherization measures for which the Savings to Investment Ratio (SIR) needs to be calculated, samples of SIR calculations for each of the measures, and a priority list which describes SIR tendencies for the different weatherization measures. Weatherization Environmental Agencies Building Floor 8 Street 8868, PO BOX 41314 San Juan, PR 00940-0285 Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 5,500 homes throughout Puerto Rico will undergo weatherization activities such as installing reflective films; addressing air leakage in air-conditioned areas; installing solar water heaters; replacing refrigerators, water heaters, and air conditioners with Energy Star rated units; replacing incandescent lamps with compact fluorescent lamps (CFL); replacing shower heads; installing smart power strips to avoid phantom loads; and other work to mitigate energy-related health and safety concerns. GOVERNOR'S OFFICE OF ECONOMICS DEVELOPMENT Provide home weatherization services to eligible low-income households, includin furnace replacement, insulation, etc., with the goal of reducing energy usage, energy production and greenhouse gas output, as well as reducing utility bills. Weatherization staff has been hired at 9 local area agencies responsible for implementing the Weatherization Assistance Program. 558 homes have been completed and another 842 are in progress. 324 South State Street, Ste. 500, N/A Salt Lake City, UT 84111-2388 Less Than 50% Completed Information GAO gathered to improve the description Through the award, approximately 4,466 homes will undergo weatherization throughout the state. Weatherization of homes ultimately completes the plan to upgrade State Energy Infrastructure. As the primary focus being on lowering energy liabilities electricity providers are charging onto the costumers. Through education, trainning and audits/assessments the consumers can learn the benefits of using Energy Efficiency and Conservation measures in their homes. However, the State Plan wishes to initiate this program for the first time by focusing on replacing electricity appliances and other electricity devices with certified Energy Star units. Several deliverables applicable in the State plan include Solar Water Heater, Electric Stove, Refrigerator, Air Con, Microwave, Cloth Washers, and etc.. Home assessments are continued and an environmental regulatory issue needs be resolved prior to initiating any production to measures guided under the State Plan. This issue perhaps should be finalized before this quarter expires. American Samoa Government, Territorial Energy Office Pago Pago, AS 96799-0000 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 225 homes throughout American Samoa. PUBLIC HEALTH AND HUMAN SERVICES, MONTANA DEPARTMENT OF Recovery Act - Weatherization Assistance Program for Low Icome Persons ARRA - Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderlly, people with disabilities and children, by improving the energy efficiency of their homes while ensuring their health and safety. These funds will provide grants for local Human Resource Development Councils that apply to pay to weatherize homes with the oriiginal created and retained remaining active. . As with all weatherization projects, the applicants will be asked to provide planning and accountability documentation. The Weatherization Program’s mission is to increase the energy efficiency of homes occupied by low-income individuals, thereby reducing their energy costs. The program has reduced the annual heating costs of recipient households by an average of approximately 32 percent. It serves approximately 2,000 high energy burden households each year. ARRA funding will allow the Weatherization Program to serve at least 2,500 more families and to double the average labor and materials expenditure per dwelling for cost-effective energy conservation measures. As of November, 2009, 253 homes have been weatherized and audited in Montana with an additional 411 that are in the process of being weatherized. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 2,477 homes throughout Montana. These activities include stoppage of air infiltration; heating systems tune-ups; water heater, attic, floor, perimeter, and wall insulation; installation of storm windows, replacement doors, moisture controls, ventilation materials, pipes, and duct wrap. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. COMMUNITY SERVICES & DEVELOPMENT, CALIFORNIA DEPARTMENT OF Recovery Act - Weatherization Assistance Program Recovery Act - Weatherization Assistance Program Formual Block Grant - DOE WAP. The initial allocation is dedicated for CSD & Agency ramp up, this included training, new hires & vehicle purchases. The training also included creating a web based WX training ciriculum web site. 700 N 10th St Rm 258 Less Than 50% Completed Information GAO gathered to improve the description The award allows 42 subawardees to weatherize 43,400 eligible low-income dwellings in all California counties. In addition to start-up activities such as training, hiring, and vehicle purchases, this award supports weatherization activities, including the installation of ceiling insulation and carbon monoxide alarms. The award will result in an estimated energy savings of 1,742,370 MBtu. Weatherization Assistance for Low-Income Persons ARRA supplemental funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the envergy efficiency of their homes while ensuring their health and safety. As this is the first report for WAP ARRA funds, most activity has supported ramp up of workforce and infrastructure. Oklahoma City, OK 73104-3234 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for about 7,000 homes in all Oklahoma counties. These activities include cost-effective energy efficiency measures, including attic insulation, caulking, weather stripping, and air sealing. The award is expected to result in an estimated energy savings of 310,640 MBtu. HUMAN SERVICES, VERMONT DEPARTMNT OF The ARRA Weatherization Assistance Program mission in to reduce the energy burden of low income persons while ensuring their health & safety. Grants have been written to the 5 sub-awardees and training has begun. Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for approximately 1,612 homes in 15 counties in Vermont. Weatherization activities include heating system modifications; installation of cost-effective levels of attic, wall, floor, duct, and foundation insulation; and water heater and water pipe insulation and modifications. The award is expected to result in an energy savings of 60,588 MBtu. FAMILY SERVICES, WYOMING DEPARTMENT OF Recovery Act Weatherization Award for State of Wyoming (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 900 units throughout the state will undergo weatherization activities such as installing insulation, sealing and balancing ducts, and mitigating heating loss through windows and door. HUMAN SERVICES, TENNESSEE DEPARTMENT OF Weatherization Assistance for Low-Income Persons Weatherization Assistance Program, Recovery Act Reduce energy costs for low-income families through increased energy efficiency. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 10,524 homes throughout Tennessee. These activities include attic, wall, floor, and duct insulation; air sealing; heat waste reduction measures; refrigerator replacement; and window and door repairs. The award is expected to result in an energy savings of 320,952 MBtu. GOVERNMENT OF GUAM - DEPARTMENT OF ADMINISTRATION MOU being established with Guam Energy Office and Guam Housing and Urban Renewal Authority, an agency which works closely with HUD and has the qualifications and the knowledge to assist in determing which dwelling qualifies and falls under the WAP guidlines as stipulated in the grant activity. 548 N Marine Corps Dr $1,119,297.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for 204 homes throughout the territory of Guam. Weatherization activities include the replacement or repair of refrigerators, air conditioners, low-flow shower heads, and faucets, compact fluorescent lamp (CFL) fixtures, and water heaters. The award will result in an estimated energy savings of 3,060 MBtu. Within the Department of Energy, the Geothermal Technologies Program (geothermal program) provides grants, cooperative agreements, and contracts to support scientific research to find, access, and use geothermal energy in the United States. In fiscal year 2009, the geothermal program received $43.3 million in annual appropriations; the Department of Energy provided an additional $400 million in Recovery Act funds for geothermal activities and projects that should be completed within 3 years. According to program officials, the geothermal program received a tremendous and unprecedented response to its solicitations announcing Recovery Act funding opportunities. Specifically, the program office received 529 applications in response to the grant solicitations and over 50 applications in response to a solicitation for the department’s national laboratories. Out of these applications, the program office selected 151 projects—124 projects were submitted by private industry, academic institutions, tribal entities, and local governments, and 26 projects were submitted by 10 national labs. The program office also established an interagency agreement with the U.S. Geological Survey to work on 1 project. In terms of awarding grants and contracts for projects, program officials told us that a grant is equivalent to a project because the grant is awarded to one recipient and funds are provided directly to the recipient. However, this concept does not hold true for all contracts awarded to the national labs for a project. This is because a national lab can be involved in a collaborative project that includes one or more partner labs. In this case, individual “activities” from each national lab would be completed and contribute to the completion of the overall project. Unlike grants, funding from the program office is provided directly to the lab performing the work. Consequently, a national lab project can be equivalent to one contract or multiple contracts. The department selected the projects to receive grants under the Recovery Act in October 2009, but according to program officials, it had not finished awarding the grants until February 2010. The program officials told us that some lag time (e.g., 5 to 6 months) between project selection and award is typical. As of April 23, 2010, the program office had obligated almost $343 million of the $393 million in appropriations (about 87 percent); however, only 28 recipients had spent any funds, and they had only spent 2.6 percent (almost $9 million). Program officials told us that the expenditure rate was low because many projects were recently awarded and had not started. Almost 60 percent of the geothermal program obligations under the Recovery Act were split evenly between enhanced geothermal systems research and development projects and innovative exploration technologies projects. Specifically, over $101 million (30 percent) was obligated to 50 enhanced geothermal systems research and development projects, while about $98 million (29 percent) was obligated to 22 validation of innovative exploration technologies projects. (See fig. 1.) The rest of the obligations funded the following three project areas: almost $62 million (about 18 percent) was obligated to 37 ground source about $50 million (about 15 percent) was obligated to 14 geothermal about $31 million (about 9 percent) was obligated to 5 national geothermal data system projects. We assessed the transparency of the descriptive information for geothermal awards available on Recovery.gov. We found that an estimated 33 percent met our transparency criteria, 62 percent partially met our criteria, and 5 percent did not meet our criteria. For geothermal descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our criteria. The geothermal descriptions of awards in our sample, whether they met our criteria, and information that we found to provide a fuller understanding of the award are provided at the end of this appendix. Although supplemental materials were available to assist with recipient reporting, recipients did not always follow the directions in these materials. Additionally, geothermal program officials did not review narrative description fields in Recovery.gov, which may have led to some reporting errors. Both the Department of Energy and the Office of Science provided supplemental materials that directed recipients to a source document (e.g., the award letter) where information can be found to complete a required field. In addition, the department provided training on the reporting requirements through webinars, while the geothermal program office held a video conference with recipients (i.e., the national labs). Furthermore, the department has a Recovery Act Clearinghouse available to answer questions from recipients, and it posts responses to frequently asked questions on its Recovery Act Web site. Moreover, geothermal program officials told us that they do not review these narrative description fields because information in these fields is available on the geothermal Web site. Likewise, department officials told us that they do not review these fields because the information is fully described in the award documents. However, we identified two issues with the fields that may have affected the transparency of some information reported by the national labs. First, information on the overall status of four national lab projects that involve multiple labs may not come across clearly in the narrative description fields. This is because Recovery.gov was set up to track Recovery Act spending at the recipient level and not at the project level. According to geothermal program officials, Recovery Act funds are provided directly to a lab to complete its activities on a project. Consequently, multiple labs working on the same project would report their individual activities in multiple records in Recovery.gov. For example, Lawrence Berkeley National Laboratory was the prime recipient for a project on enhanced geothermal systems using carbon dioxide as a heat transmission fluid, and the Idaho National Laboratory was identified as a partner lab. As required, both national labs reported their activities on this project in two separate records in Recovery.gov. Unless narrative information disclosed that this project involved more than one lab, the expectation might be that these were two different projects. Second, six national labs did not submit a separate report for each activity as specified in the supplemental materials provided by the department. The six labs combined two to four different activities into a single report. As a result, 18 separate activities were reported in just six records. When we spoke with program officials, they were unaware of the requirement that recipients report on projects separately. They told us that their preference for national labs reporting on multiple activities is explained in the annual program guidance letter. However, based on our review of a few program guidance letters, we believe that the preference of the program office is for the labs to report each activity separately because this is how the activities are presented in the letters. According to geothermal program officials, information on the geothermal projects funded by the Recovery Act is made available to the public using other means besides Recovery.gov. For example: The Geothermal Technologies Program Web site (http://apps1.eere.energy.gov/geothermal/projects/). This Web site provides detailed information on each project, including the technology type, recipient name, location, objectives, description, and targets/milestones. It provides a database that allows the public to search for a project by, among other things, funding source, location, and technology type. The Department of Energy Recovery Act Web site (http://www.energy.gov/recovery/). It provides weekly updates on departmental projects and programs funded by the Recovery Act, including data on appropriations, obligations, and outlays. Press releases. These provide information on major announcements, such as announcements on the availability of Recovery Act funding. (http://www.eereblogs.energy.gov/geothermaltechnologies/). This provides the public with the opportunity to learn about and discuss geothermal activities. Weekly Recovery Act success stories. These highlight the results of Recovery Act funding on recipients. If the department selects a geothermal story, then it appears on the department’s Recovery Act Web site. Program officials told us that the geothermal program has become more visible to the public during the past two years. Although the program office has not conducted any surveys to determine how consumers are becoming aware of the program, they believe that new articles and the Recovery.gov Web site could be contributing to the increased awareness. Program officials also told us that the public, the community, and reporters have provided positive feedback on the geothermal Web site, noting that the Web site is easy to navigate. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Geothermal Technologies Program Enhanced Geo Science R&D Task 1) Design, develop, and field test highly integrated, high temperature data loggers using silicon on insulator and silicon carbide technologies. Task 2) Develop a drilling system based upon pneumatic down the hole hammer bits and polycrystalline diamond compact bits. Task 3) Test supercritical fluids in a pilot-scale Brayton Cycle and evaluate the performance of the working fluids. Requirements: Task 1 Milestones: Field Dewarless 240C PTC Tool-9/30/10; Evaluate existing Dewar Technology-9/30/10; Design analog MCM-01/31//11; Status report-03/31/11. Deliverables: 1) Dewarless 240C PTC Tool; 2) Report evaluating existing Dewar technology; 3) Design of analog MCM; 4) Status report. Task 2 Milestones: Year 1: Complete Initial Field Trials-9/30/10; Year 2: Implement Design Changes from Initial Field Trials-9/30/11. Deliverables: Report evaluating existing Dewar technology. Task 3 Milestones: 1) Prediction of thermodynamic properties for a single component fluid through the critical point-10/1/10. 2) Obtain full vapor-liquid equilibrium envelopes & critical points for one set of mixtures-4/1/11. 2) Milestones 1: Verification complete mixing & thermodynamic equilibrium between components can be obtained so appearance of new phase can be reliably detected (Go/no- Go).; Deliverables 1) thermodynamic properties for several candidate working fluids; 2) computational toolbox for analysis of mixtures of fluids, turbine design & cooling needs; 3) experimental results from Brayton cycle rests; & 4) recommendations for new working fluids. (For Performance outcomes & measures see Work Authorization Plan) Thie original project has been separated into three separate projects; 1) ARRA Drilling Technology (145316) with $588,600, 2) ARRA Geo Thermal Turbines (146694) with $150,000; and 3) Base Technologies ARRA (144299) with $885,600. The budget total has remained the same. The scope, deliverables and milestones are being developed. AL85000 Develop a new type of biphasic working fluid for subcritical geothermal systems that utilizes microporous nanostructured metal-organic solids as the primary heat carrier and heat transfer medium to support an organic Rankine cycle. Provide information on temperature distribution, fracture spacing, and fracture surface area in EGS (Enhanced Geothermal Systems). Develop suites of tracers with different properties that can be injected into geothermal systems, extracting the desired information by interpreting the differences in transport behavior of these compounds in the reservoir. SA 56595 - Project team members from PNNL, LANL, and BNL participated in a meeting at the Energy and Geoscience Institute (EGI) at the University of Utah on December 8, 2009. The purpose of the meeting was to share information on the geothermal tracer programs at EGI and the four national labs the project team plus INL) and to explore ways that the programs can interact. Following this meeting, the project team discussed the next steps for 2004190- EGS R&D and agreed to begin laboratory testing of PFT compounds early next calendar year. A tentative schedule was developed that included a meeting in late winter at Los Alamos to further plan laboratory testing. In parallel with the laboratory effort, PNNL and LANL will develop a modeling approach, conduct predictive simulations to identify optimal thermal and surface adsorption properties for geothermal tracers, and examine the sensitivity of the model to a range of tracer properties. Results from this sensitivity analysis will be used to guide subsequent laboratory-scale testing of candidate tracers. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Less Than 50% Completed DE-AC05-76RL01830 BATTELLE ENERGY ALLIANCE, LLC Enhanced Geothermal Systems (EGS) Technology R&D ($1.953M). This scope of work includes four scopes of work. 1) Air-Cooled Condensers in Next-Generation Conversion Systems. The Idaho National Laboratory (INL) will identify and resolve issues that are associated with using air-cooled condensers in next-generation energy conversion systems, achieve the full benefits of using mixed working fluids in air cooled binary cycles, evaluate the benefits of using air-cooled condensers with flash steam cycles, and establish criteria for designing air-cooled binary plant turbines. 2) Enhanced Geothermal Systems with CO2 as Heat Transmission Fluid. The INL will conduct experiments for evaluating the effect of supercritical carbon dioxide, at elevated temperatures, on precipitation and dissolution of mineral phases that are typical of geomedia found in geothermal reservoirs. 3) Physics-Based Fracture Stimulation, Reservoir Flow and Heat Transport Simulator. The INL will develop a physics-based rock deformation and fracture propagation simulator by coupling a discrete element model for fracture generation with a continuum-based multiphase fluid flow and heat transport model. 4) Advancing Reactive Tracer Methods for Measuring Thermal Evolution in CO2 and Water-based Geothermal Reservoirs. The INL will develop a set of tracer test planning and analysis tools to define the parameters necessary for successful testing, identify new tracers suitable to a wide range of potential reservoir volumes and permeabilities, and demonstrate the utility of newly developed tracers in a system representative of Enhanced Geothermal Systems. Quarterly activities are listed below for the four scopes of work as mentioned above. 1) Personnel have been developing power plant (conversion system) models that will be used to assess the benefits of applying different equipment concepts having the potential to increase performance from air-cooled binary plants. Emphasis has been on plants to be used with EGS resources. Model development has been largely been completed. The reasonability of model performance estimates are being assessed by comparing estimates to operating data from existing plants. 2) Experimental design for batch experiments involving supercritical CO¨2/water/mineral reactions was planned. Reactor components were ordered and/or under construction. Initiated laboratory safety review and approval process. 3) Over the past quarter, significant progress was made in the development of advanced computer models for predicting the behavior of enhanced geothermal systems. 4) A high-performance liquid chromatograph was purchased and has been installed in the laboratory to perform tracer analyses. A computer program was developed to model the migration of thermally reactive tracers through a fractured geothermal system. This code was used to evaluate testing strategies for tracer experiments. Experiments were conducted to encapsulate reactive tracers. The experiments showed that encapsulsted tracers could be made and are stable at room temperature. All Other Professional, Scientific, and Technical Services Idaho Falls, ID 83415-0001 Less Than 50% Completed DE-AC07-05-ID14517 LOS ALAMOS NATIONAL SECURITY, LLC LANL?s project will develop a multipurpose (simultaneous multiple physical parameter determination) acoustic sensor for downhole fluid monitoring in EGS reservoirs over typical ranges of pressures and temperatures and then demonstrate the capabilities and performance of this sensor for conditions in different EGS systems (with a wide range of temp/pressure and geophysical/geological conditions). Specific technical challenges are finding the right material for the sensor that can withstand working temperatures of up to 374×C and pressures up to 22 MPa; developing the most efficient design/geometry for the sensor to sustain the high temperature ? high pressure conditions specific for a typical EGS system; and the fluid flow determination requires either high flow rates or turbulent flow (vortices or disturbances) and/or impurities/gas bubbles present in the fluid. The multipurpose sensor that LANL proposes is capable of accurately measuring temperature, pressure, and fluid composition at in situ conditions expected in geothermal environments and is needed in nearly every phase of an EGS project, including testing of injection and production wells, reservoir validation, inter-well connectivity, reservoir scale-up, and reservoir sustainability. The Swept Frequency Acoustic Interferometry (SFAI) technique was originally developed at LANL for noninvasive identification of chemical warfare compounds in a multitude of weapons and a wide range of containers for international treaty verification and counterterrorism purposes. Since then, the technique has been significantly refined and expanded, and LANL will adapt SFAI and combine new approaches to extract multiple fluid parameters from a single sensor. Although the underlying basis of the SFAI technique is proven, it has never been applied to geothermal exploration primarily because the requirements of high temperature and pressure were not needed in earlier applications; this application will require some novel adaptation and sensor development and associated physics. A thorough literature search was performed in order to identify the best choice of piezoelectric materials to be used. Curie temperature (TC) is an important factor in high-temperature applications, as the transducers lose their piezoelectric property completely at temperatures close to TC. Typically, it is best not to exceed half of Tc. Piezoelectric materials and their TC, in ½C: PZT (195-300), AlN (600), LiNbO3 (1150), Langasite (1000), Langatate (>1500). The langasites and langatates are piezoelectric materials discovered recently and are still under investigation by the scientific community. We are planning to investigate the material properties at high-temperatures and determine if there are advantages in using these new piezoelectric materials in the development of the multipurpose acoustic sensor. Several PZT and Lithium Niobate transducers with different center frequencies, ranging from 1 MHz to 6 MHz, were investigated above room temperature. Langasite and/or langatate piezoelectric material has to be acquired and machined into transducers. Milestone Status As planned. Significant Procurements Investigated and identified the equipment necessary: Parr Instrument Pressure Vessel, Model 4681; Air Pressure Amplifier, Haskel AAD-30; Thermocoax cables (high temperature coaxial cables); Bode 100 Vector Network Analyzer; Tektronix Arbitrary Function Generator; Tektronix Oscilloscope; Materials for transducers (Lithium Niobate, Langatate and or/Langasite). Hiring A postdoctoral job was posted on several web-sites targeting recently graduated PhD?s. From a pool of 30+ applicants, we narrowed the list to 2 potential postdocs, which we interviewed on site. Dr. Blake Sturtevant graduated in Dec 2009 form University of Maine, and is very experienced in the field of Acoustics, with extensive experience related to high-temperature piezoelectric materials. Dr. Sturtevant has accepted the job offer, and he is planning to start in middle of January 2010. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed UNIVERSITY OF UTAH, THE ECONOMIC IMPACT ANALYSIS FOR EGS The proposed project is aimed at studying the economic development and impacts associated with electric power production resulting from Enhanced Geothermal Systems (EGS), conventional hydrothermal, low temperature geothermal, and coproduced fluid technologies. The project also involves analysis of these results to develop an impact assessment model that could be used across the Nation for impact assessments with an ability to quantify the potential employment, energy and other environmental impacts associated. Further to developing such a tool, we will also be carrying out a Utah region study to validate the GEC tool developed and will publish a detailed report on the economic impacts associated with Geothermal technologies considered for this study in the Utah State. The 24- month project is divided into three discrete phases: Phase 1: Data gathering ? collect the associated cost data for each of the different technologies Phase 2: Economic Impact Analysis ? design studies to understand all the impacts associated, and Phase 3: Outreach activities ? Communicate the findings to the industry and the research community to validate the studies used to roll out an impact assessment tool, the GEC tool. Research & Public Policy Analysis 75 S 2000 E RM 211 SALT LAKE CITY, UT 84112-8930 DE-EE0002744 LOS ALAMOS NATIONAL SECURITY, LLC Field tests (Fenton Hill, USA; Hijiori, Japan) strongly suggest that our ability to image fluid flow and temperature distribution in enhanced (engineered) geothermal reservoirs (EGS) needs to be dramatically improved to optimize the operation of injection and production wells and the placement of new wells. The objectives of this project are to (1) improve image resolution for fracture detection, (2) image the flow in the fractures with super-resolution imaging, and (3) quantify fluid flow and temperature changes during and after stimulation. This research will provide vastly improved, high-resolution images of pre-existing and created fractures and fluid flow in EGS reservoirs. Focusing on the data available from short term-stimulation treatments, while developing imaging and modeling technology of importance to the long-term operation of an EGS system, we will integrate LANL?s and NETL?s unique capabilities in seismic imaging, fluid flow modeling, and laboratory measurements. ? Develop a super-resolution, seismic imaging method for imaging fractures and fluid flow using time-lapse microearthquake (MEQ) and vertical seismic profiling data. ? Improve fracture and flow imaging using MEQ and double-difference tomography. ? Utilize imaging results, time-lapse seismic data and modified Gassmann equations to quantify fluid flow and temperature changes in EGS. ? Develop a reservoir-scale fully coupled thermal-hydrologic-mechanical (THM) model. ? Use NETL?s discrete fracture network modeling to scale up constitutive relationships for porosity and permeability needed for THM. This project is innovative in that the development of super-resolution seismic imaging for mapping features and imaging fluid flow is a novel extension of a ground-breaking technique recently developed in medical imaging, and offers great potential to break through seismic imaging resolution. Typically, the use of microseismic data has been restricted to mapping gross flow paths affected by stimulation. Our proposed high-resolution mapping will provide additional information about fracture network geometry and induced deformation. Combining this information with the active seismic images will enable a more complete conceptual model of the fracture networks and fluid flow/temperature distribution in the EGS, which is vitally needed for successful EGS operations. The ability to include stress-dependent fracture permeability in reservoir simulation models allows for (more) accurately predicting future reservoir performance and offers the possibility of help in managing thermal short-circuiting. Reservoir simulation software has evolved in the past decades to a point where complete reservoirs can be efficiently simulated with a single model. Thermal hydrologic mechanical (THM) software has also progressed to the point where large scale simulations including fluid flow, heat transfer, and stress changes can be made. This capability allows ground displacement measurements and micro earthquake (MEQ) analysis to be used to calibrate and constrain reservoir models and thereby help predict future field behavior. In the THM modeling of geothermal reservoirs, relating the fracture permeability to fracture aperture and fracture aperture to changes in stress or displacement is the key to realistic and efficient computations. We surveyed the literature and found several conceptualizations of permeability-aperture-stress relationships. We like a paper by Bai et. al. (Rock. Mech. Rock Engng., 32, 195-219, 1999) because it can represent compressive, tensile, and shear stresses. We converted this to a displacement formulation and added a thermal stress term. We are testing the model on grids we developed for this purpose. In addition, we met and discussed with our collaborators at Berkeley Lab, GeothermEx, and Ormat: one meeting at LBNL and another at San Francisco during the AGU meeting. We have obtained some geophysical well log data from GeothermEx/Ormat for building a reservoir model. Milestone Status: Programmed Initial Permeability-Aperture- Stress (PAS) models in FEHM Created 2D and 3D numerical grids to test the PAS models. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed The United Technologies Research Center (UTRC) proposes to improve the utilization of available energy in geothermal resources and increase the energy conversion efficiency of systems employed by: a) tailoring the subcritical and/or supercritical glide of enhanced working fluids to best match thermal resources, and b) identifying appropriate thermal system and component designs for the down-selected working fluids. By implementing these technologies, the overall energy conversion of binary geothermal power plants is projected to increase by at least 40%. The technical approach is: 1. Screen, evaluate, and down-select working fluids and mixtures that efficiently match source and sink conditions, meet environmental and safety requirements (flammability, global warming potential, ozone depletion potential, toxicity, etc), and increase thermodynamic cycle performance. 2. Develop necessary models to identify and evaluate opportunities for energy conversion technology advancements in subcritical, supercritical and trilateral cycles. UTRC shall identify optimal cycle configurations and component designs to take full advantage of the attributes of down- selected working fluids. UTRC shall also define a two-phase expander to best match chosen fluids and cycles and conduct a proof-of-concept demonstration. 3. Conduct property measurements and develop validated thermophysical models for down-selected working fluids. 4. Characterize the heat transfer and pressure drop performance of down-selected working fluids and perform experiments to quantify and mitigate the impact of heat transfer degradation characteristic of supercritical fluids and non-azeotropic mixtures. The deliverables of the program are: 1. A comprehensive analytical study detailing the screening, evaluation, and down-selection of working fluids and identifying the appropriate technology advancements in subcritical, supercritical, and trilateral cycles 2. Improved heat exchanger and turbine designs for down-selected working fluids 3. Validated thermophysical models and experimental data for down-selected working fluids 4. Heat transfer and pressure drop data and validated correlations for down-selected working fluids over a representative operational envelope, plus an analytical study of and recommendations for the mitigation of heat transfer degradation 5. Definition and proof-of-concept demonstration of a two-phase expander Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE We propose mathematical modeling work, using both analytical and numerical methods, to design and analyze laboratory and field experiments that would (a) identify tracers with sorption properties favorable for enhanced geothermal systems (EGS) applications, (b) apply reversibly sorbing tracers to determine the fracture-matrix interface area available for heat transfer, and (c) explore the feasibility of obtaining fracture-matrix interface area from non- isothermal, single-well injection-backflow tests. 1. We performed a first series of design calculations for the laboratory heat extraction experiments with CO2 as heat transmission fluid. 2. An improved model for the specific enthalpy of the CO2-rich phase was implemented in the evolving ECO2H fluid property module for TOUGH2. 3. We started a literature survey of rock-fluid interactions in geologic systems that may serve as (partial) analogues of EGS with CO2. Reactive transport modeling studies have also been initiated. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Contracts Less Than 50% Completed Information GAO gathered to improve the description The award funds experiments on fluid flow, heat transfer, and rock-fluid chemical interactions conducted by the Lawrence Berkeley National Laboratory, in partnership with Idaho National Laboratory. The award supports an Enhanced Geothermal System (EGS) development project that seeks to achieve a rational, science-based design that tests and interrogates critical process elements of EGS with carbon dioxide. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE 1) develop a novel model and high performance code for analysis of coupled THMC processes in EGS, 2) determine quantitatively the permeability of sheared fractures and its long term changes through THMC processes, 3) refine and validate the models and codes to laboratory experiments. and 4) model couple THMC processes in near wellbore hydrofracture systems. Thermal-Hydrological-Mechanical-Chemical Code Development: An initial coupling of TOUGHREACT V2.0 to FLAC, based on the TOUGH-FLAC code has been done. This code will be used to benchmark problems handled by the fully coupled THMC code under development. Improvements in TOUGHREACT V2.0 have been made to increase efficiency and speed for strongly coupled problems encountered in EGS. Combinations of improved code and compiler capabilities have resulted in over 30% speed increases on test problems. Initial evaluation of thermal-hydrological-mechanical processes in ROCMAS was begun, that will form the basis of the fully coupled THMC code. Background investigation into chemical- mechanical processes in fractures under EGS conditions is continuing. Experimental Design and Setup: The experimental design for the rock shearing test inside a triaxial cell was updated. The new design is based upon double shearing of two axis-parallel fractures. These fractures will be induced by sequential Brasilian loading in two perpendicular directions along the core diameter A procurement request was placed for the test vessel, with the requisite operating requirements, to be used in the THMC experiments. Evaluation of potential EGS rock samples and their suitability for experimental studies was begun. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $511,200.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports experiments at the Lawrence Berkeley National Laboratory related to Thermal-Hydrological-Mechanical-Chemical (THMC) processes with the outcome of model and code development for THMC processes, as well as optimization of enhanced geothermal system development and production. The experiments will cover four different purposes: (1) develop a novel model and high performance code for analysis of coupled THMC processes in Enhanced Geothermal Systems (EGS), (2) determine quantitatively the permeability of sheared fractures and its long-term changes through THMC processes, (3) refine and validate the models and codes to lab experiments, and (4) model couple THMC processes in near wellbore hydrofracture systems. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE Lawrence Berkeley National Laboratory will determine the feasibility of jointly using data from microseismic and electrical surveys to image the fluid distribution with Enhanced Geothermal Systems. (1) We conducted feasibility studies on using electromagnetic methods to monitor enhanced geothermal processes. The preferred approach is to use time lapse measurements to image fluids associated with the geophysical attribute of electrical conductivity. The modeling experiments were based upon the Desert Peak Geothermal field. Findings show that it is critical to isolate the fluid imaging volume for successful outcome. This volume can be provided by micro earthquake hypocenter locations, obtained through standard and double difference earthquake location algorithms. (2) We initiated evaluation of standard and double difference earthquake location and corresponding tomographic algorithms to reconstruct P and S wave seismic velocities. The double difference seismic tomography looks favorable in reconstructing velocity images of greatest resolution in the earthquake stimulated region. Our future plans will include coupling of these velocities to electrical conductivity to better image fluid stimulation. This is to be done using a common structural constraint between velocities and conductivity. (3)We have successfully implemented and tested a cross-gradient constraint in our electromagnetic imaging codes. We can now image subsurface electrical conductivity, which is associated with fluids, that is constrained by seismic velocity structural information obtained from seismic tomography. We have now just started this implementation in our seismic tomographic codes, where velocity will be constrained by electrical conductivity structural information. (4)The desert peak EGS experiment will not go forward as planned. We are now investigating two new field test sites to make measurements. Bardys Nevada or Raft River Idaho. Plans call for an earthquake monitoring networks to be installed at both sites, and we are evaluating logistics for making time lapses electromagnetic measurements. A contractor has been found that will make these measurements, pending final selection. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) BERKELEY, CA 94720-0000 Less Than 50% Completed Information GAO gathered to improve the description The award funds collection of data at an Enhanced Geothermal System (EGS) site to provide a baseline study and a large EGS injection to map fluid attributes. The project will determine the feasibility of jointly using data from micro earthquake and electrical surveys to image the fluid distribution within EGSs. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE Laboratory will conduct a series of laboratory experiments to quantify the reactivity of a suite of natural chemical and isotopic tracers as a function of fluid chemistry, temperature, surface area, and time; and incorporate the measured solute reactivities into a tracer analysis model. 1. Quantification of Bulk Reactivity and Surface Area: In collaboration with, EGI, University of Utah and PI on the Raft River EGS demonstration project, core samples from the Raft River site were examined and arrangements have been made for shipping core samples to LBNL. Preliminary assessment of potential core samples from the Desert Peak EGS demonstration site has been completed. Sample selection is underway. The core samples will be used in the surface area reactivity experiments. Arrangements have been made with rock prep lab at UC Berkeley's Department of Earth and Planetary Science for preparing the core samples for the surface reactivity tests. 2. Tracer Transport Simulation In this quarter, we have focused on Task 2.1 Tracer Transport Simulation for the modeling part of the project. Specifically, we have incorporated the analytical solution of Neretnieks (2002) into the framework of the channelized flow that is expected to occur in an EGS system. The work of Neretnieks (2002) deals with both conservative and reactive (simple kd-approach) tracers for one-dimensional flow conditions. We are also extending the analytical solution for steady-state isotopic compositions of fluids flowing through fractured rock (DePaolo, 2006) to transient conditions that are important for new fractures created in an EGS system. In addition, we are evaluating whether or not the TOUHREACT code (Xu et al., 2006) needs to be modified when bulk- reactivities for species, determined as part of the experimental phase of the project, are used in place of assumed reaction rates for specific species. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $564,600.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports activities that will quantify the mineralogy of reservoir rocks and the chemical composition of fluids needed for an Enhanced Geothermal System (EGS) to incorporate into numerical models and evaluate the reactivity of different solutes as a function of surface area, temperature, fluid chemistry and time to develop the tracer-interpretation technique. The activities will develop an innovative approach for estimating the change in fracture surface area induced by well stimulation. EGS Technology R&D (Project code 2004190) consists of the following 3 subprojects: Enhanced Geothermal -- EGS R&D for Synchrotron X-Ray Studies In accordance with the approved EERE Geothermal Technologies Program, these funds are for synchrotron X-ray studies of supercritical carbon dioxide/reservoir rock interfaces. Argonne will use synchrotron x-ray measurements to monitor all aspects of atomic to nanoscale structural changes resulting from chemical interactions of scCO2-H2O binary fluids with rocks under enhanced geothermal systems conditions. EGS R&D for Utilization of Geothermal Energy In accordance with the approved EERE Geothermal Technologies Program, these funds are for the Utilization of Geothermal Energy. Argonne will develop chemical energy carrier processes to recover heat from enhanced geothermal systems as chemical energy. EGS R&D for Waveguide-based Ultrasonic and Far-Field Electromagnetic Sensors In accordance with the approved EERE Geothermal Technologies Program, these funds are for Waveguide based ultrasonic and far- field electromagnetic sensors for downhold reservoir characterization. Argonne National Laboratory will develop waveguide-based ultrasonic and far-field electromagnetic sensors to measure Enhanced Geothermal Systems reservoir parameters. Two sensor technologies to be examined are (1) microwave (MW) radiometer and (2) ultrasonic waveguide (UW) sensor. Major activities in FY2010 include: (1) Establish a laboratory hot-rock test facility, (2) Evaluate MW antenna performance under high temperature and humidity, and (3) Evaluate UW sensor performance under high temperature and humidity. Synchrotron X-Ray Studies: Silica surfaces were prepared for synchrotron x-ray reflectivity. The roughness of the surface was found less than 1 nm. X-ray reflectivity measurements of the silica surfaces under static scCO2-scH2O fluids showed no measurable dissolution and roughening as expected. The X-ray/pressure cell was modified to accommodate thinner windows (0.5~1 mm) of synthetic diamond, boron carbides, or silicon carbides. The boron carbide windows were ordered and tested. The synthetic diamond windows were ordered and yet to be delivered. Utilization of Geothermal Energy: Potential reversible reactions have been identified. Preliminary thermodynamic analyses were performed to match the temperature conditions of some of these reactions to temperatures potentially available from EGS. Aspen Plus analysis of the methane reforming /methanantion reaction cycle was conducted. Because the reforming reaction generally occurs at higher temperatures than what may be available from EGS reservoirs, a search was conducted to identify new catalysts that may enhance the performance of this reaction system at lower temperature. Waveguide-based Ultrasonic and Far-Field Electromagnetic Sensors: Completed the literature and commercial sensor/instrumentation search and a brief knowledge capture report was documented. Both literature search and commercial instrument survey show lack of high-temperature instruments and sensing techniques and development in this area is needed. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Less Than 50% Completed Information GAO gathered to improve the description The first project on synchrotron X-Ray measurements will consist of two phases: one studies rock and superconcentrated CO2 interface and the other performs measurements under variable component binary fluids with a new flow cell. The second project on chemical energy carriers (CEC) consists of six tasks for conducting tests, analysis, and development for the CEC systems. The third project on waveguide based ultrasonic includes three phases for developing and building the ultrawave sensor and microwave radiometer. BROOKHAVEN SCIENCE ASSOCIATES, LLC The Recovery Act funds received by Brookhaven National Laboratory for the Geothermal Technologies program will be used to fund (3) separate projects: $200.4k will be used for FWP#EST436NEDA and will enable BNL to elucidate the carbonation reaction mechanisms between the supercritical carbon dioxide and reservoir rocks in aqueous and non-aqueous environments, and to develop chemical modeling of CO2-reservoir rock interactions. $347.4k will be used to fund FWP#BCH139 and will allow BNL to develop and characterize field- applicable geopolymer sealing materials. $225k will fund FWP#EE632EEDA and will be used to fund the development and implementation of suites of tracers consisting of compounds with different chemicals and physical properties. Geothermal Technologies - On FWP#EST436NEDA, we are working with Alta Rock Energy for assistance in developing core samples and analysis for EGS sites. The key technical leader on this project will start at BNL the first week of January 2010. ON FWP#BCH139, work is continuing on lab setup and equipment requirements. On FWP#EE632EEDA, a specification has been written for a subcontract to develop methods of encapsulating PFTs in temperature sensitive microbeads. We expect the process to be completed in January. All Other Professional, Scientific, and Technical Services $772,800.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports three geothermal technologies projects at Brookhaven National Laboratory. Brookhaven will collaborate with four other labs on the projects. (1) The project on elucidating a carbonation reaction mechanism of reservoir rock will result in, among other things, a report on chemical analysis. (2) The project on developing and characterizing geopolymer sealing materials will, among other things, result in field demonstrations and validations. (3) The project on determining the temperature distribution and fracture/heat transfer surface area in geothermal reservoirs will result in tracer and model development, including field test design and execution. EGS Technology R&D: Geothermal Technologies Program Enhanced Geo: This award provides funding to four subprojects in support of Enhanced Geothermal Systems technology: 1) Feasibility and Design Studies for a High Temperature Downhole Tool--ORNL will perform feasibility and design studies for a high temperature downhole tool that can measure the porosity, lithology, and density profile of geothermal wells; 2) Wear-Resistant NanoComposite Stainless Steel Coatings and Bits for Geothermal Drilling--ORNL will develop ultra hard, wear resistant nanocomposite stainless steel coatings and bulk components to increase the lifetime of drill tooling in harsh geothermal environments; 3) Working Fluids and their Effects on Geothermal Turbines--ORNL will evaluate working fluids for a geothermal turbine cycle based on property measurements, molecular dynamics modeling, and thermodynamic modeling to increase the turbine cycle efficiency in binary power plants; and 4) Properties of CO2 Rich Pore Fluids and their Effect on Porosity Evolution in EGS Rocks--ORNL will characterize CO2 and water bulk and pore fluids by vibrating tube densimetry, determine changing pore and fluid structures using neutron scattering, and conduct real time imaging of the dissolution front and evolution of porosity using x-ray and neutron computed tomography. 1) High Temperature Downhole Tool--A furnace for detector testing has been ordered but not received. Several scintillator materials for testing purposes have been ordered. Design for test apparatus for temperature and vibrations tests is in progress. Preliminary modeling studies have been performed to determine the change in tool response with the change in temperature and surrounding formation environment. 2) NanoComposite Stainless Steel Coatings and Bits-- ORNL is working with Carpenter Powder Products to gas atomize a 500 pound melt of an alloy specifically designed to devitrify from an amorphous state into a corrosion resistant alloy with increased hardness for use as coating materials in geothermal applications. Carpenter has scheduled this run for late January 2010 and ORNL should receive powder in early February. ORNL is currently processing the same alloy using conventional casting techniques. A parametric study was developed to analyze the effect of various processing parameters on the laser/metal interaction. A preliminary conceptual design for an impact-abrasion testing apparatus has been developed. 3) Working Fluids--A review has been conducted on the properties of supercritical fluids to identify where there are needs for additional or corroborative data and where models need to be developed for physical properties. Work carried out during this quarter will allow us to focus both experimental and computation efforts to address gaps and deficiencies in the thermodynamic database for the heat transfer fluids selected for binary geothermal power plant operation. 4) Properties of CO2 Rich Pore Fluids--The high temperature vibrating tube flow densimeter (VTD) was tested and disassembled to make repairs and improvements needed to restore reliable operation. Proof of principle experiment was successfully conducted to synthesize low density silica mesoporous solid inside the vibrating tubes of different geometries. Oak Ridge, TN 37830-8050 Less Than 50% Completed Information GAO gathered to improve the description The award to the Oak Ridge National Laboratory consists of four projects. (1) The high temperature down-hole tool project will investigate the feasibility of developing components for enabling operation at higher temperatures, up to 400 degrees Celsius for use in geothermal wells. (2) The project on carbon dioxide fluids will use four complementary approaches to improve geochemical modeling. (3) The project on stainless steel coatings and bits will have two stages for analyzing a specific type of metal and then showing the possibility of using complex metal-boron carbides into stainless steel matrix for a type of alloy. (4) The project for working fluids will take advantage of expertise in prediction and measurement of thermodynamic properties, and accurate modeling of complex turbine cycles based on those properties. LOS ALAMOS NATIONAL SECURITY, LLC This ARRA-funded project addresses the research topic area: Tracers and Tracer Interpretation ? to adapt or develop reservoir tracers and/or tracer interpretation techniques that provide information beyond well-to-well connectivity such as fracture surface area or fracture spacing. Commercial development of geothermal energy requires quantitative characterization of temperature distributions and surface area available for heat transfer in engineered (enhanced) geothermal systems (EGS). This project will provide integrated tracer and tracer interpretation tools to facilitate this characterization by developing and implementing 1. Suites of tracers consisting of compounds with different chemical and physical properties that can be injected into wells and will interact in different and measurable ways with the fractured rock matrix. 2. Single- and inter-well test designs and corresponding interpretation methods to extract the temperature distribution and surface area information from differences in the tracer concentration-versus-time histories (breakthrough curves). We anticipate significantly advancing tracer-based methods available to geothermal operators by developing (1) tracers that can be reliably applied to provide quantitative information on temperature distribution and fracture surface area, (2) tracer test designs (both single well and interwell) to exploit the use of these tracers, and (3) interpretive methods to allow this information to be used to provide practical guidance to operators to improve heat extraction. The members of the research team participated in a meeting at the Energy and Geoscience Institute (EGI) at the University of Utah on December 8, 2009. The purpose of the meeting was to share information on the geothermal tracer programs at EGI and the four national labs and to explore ways that the programs can interact and share information. Pete Rose opened the meeting with introductions and an overview of the geothermal tracer programs at EGI. He described laboratory programs investigating the properties of different tracer candidates under geothermal conditions and field programs where fluorescent dies have been used in actual wells. Kevin Leecaster, also of EGI, described laboratory equipment and experiments used to characterize potential tracer compounds, discussed results, and presented plans for flow through reactor experiments. Paul Reimus of Los Alamos National Laboratory (LANL) discussed methods for modeling tracer behavior in geothermal applications and described the laboratory capabilities at LANL. Contact Paul Reimus or the LANL SPO office for additional details related to the meeting. The meeting finished with a discussion of how the three programs, EGI, INL, and the combined program of BNL, LANL, and PNNL, could establish working collaborations. We agreed to share information on field programs and to work towards incorporating tracers from all three programs in future field tests as well as share in design, operation, and results of laboratory experiments. On Dec. 9th, The LANL, PNNL, BNL team discussed the next steps for 2004190- EGS R&D and agreed to begin laboratory testing of PFT compounds early next year. We developed a tentative schedule and will have a meeting in late winter at Los Alamos to plan laboratory testing. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed Information GAO gathered to improve the description The award has seven milestones, including identifying materials operable at high temperatures, developing a sensor model, and determining the optimum approach for flow measurements. Recovery Act: Decision Analysis for Enhanced Geothermal Systems, Project 2004190 Recovery Act: DECISION ANALYSIS FOR ENHANCED GEOTHERMAL SYSTEMS Project 2004190. Not started yet. Start date is Feb 1 2010 Research & Public Policy Analysis 77 Massachusetts Ave., E19-750 Information GAO gathered to improve the description The award supports the development of a decision analysis procedure to assess development of an Enhanced Geothermal System (EGS). Activities will include the development of several models: a cost/time estimation model, a simple circulation/heat transfer model, and a subsurface cost/time model. The models will be integrated to assess EGS development and made accessible to EGS stakeholders to provide feedback for improvements. Pressure Sensor and Telemetry Methods for Measurement While Drilling in Geothermal Wells The scope of the proposed project is to develop a pressure sensor system consisting of silicon on sapphire based sensor transducer and SiC-based electronics to operate at 300C in Measurement While Drilling (MWD) conditions that are expected to be found in a geothermal well. Performance and deliverables in accordance with the Grant Statement of Project Objectives. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Information GAO gathered to improve the description The award will develop a pressure sensor system operating at 300 degrees Celsius and capable of surviving shock and vibration conditions similar to measurement while drilling (MWD) environments. Activities include integrating and testing a pressure sensor system and developing and testing a telemetry module and pressure system at 300 degrees Celsius. Both systems will be tested for shock and vibration conditions typically found in measurement while drilling environments. The technology can aid in the economic completion of (Enhanced Geothermal Systems) EGS wells. ALTAROCK ENERGY, INC. This project will demonstrate the development and operation of an Engineered Geothermal System, including site and resource investigation, well drilling and completion, stimulation of wells to create a geothermal reservoir, testing of well productivity and assessment of reservoir characteristics, construction of a well field and power plant, and extended operation and monitoring of the constructed facility with continuous power generation. AltaRock Energy has not commenced the project activities as described in Section 2.0 (Task Schedule) of the Project Management Plan submitted as part of its application. AltaRock is currently negotiating the award agreement with DOE and revising budget and project activities in relation to these negotiations. Power and Communication Line and Related Structures Construction Newberry Volcano, McKay Butte Road/NF-600 La Pine, OR 97739-0000 Information GAO gathered to improve the description The award funds the building of a power plant and production facility that will be capable of generating no less than 15 MWe and operating for 30 years. This will provide long-term power generation through Engineered Geothermal System (EGS) and the first source of indigenous geothermal power in Oregon. The award will allow geothermal experts to enhance geoscience and engineering techniques that are essential to the expansion of EGS throughout the country. BAKER HUGHES OILFIELD OPERATIONS, INC. RECOVERY ACT: high Temperature 300C Directional Drilling System The scope of work will be to develop a reliable drilling and steering system for the creation of Enhanced Geothermal Systems. The drilling and steering system will provide optimum performance in temperatures of up to 300×C (572×F) in hard rock formations, and under the high pressures encountered in boreholes at depths of up to 10,000 meters (33,000 feet). The drilling and steering system will be comprised of the following components: a drill bit to break up the rock formation, a downhole drive to rotate the bit, some steering means associated with the drive unit to steer the well in a pre-determined way, and a dedicated drilling fluid (mud) to serve several purposes including carrying the rock cuttings out of the wellbore. Project not started since award made very late in quarter: 12/29/2009 Information GAO gathered to improve the description The award has four phases and 26 tasks with activities including a concept review, designing equipment like drill bits and waste management equipment, conducting design reviews, manufacturing and assembling prototype equipment, and conducting integrated testing of the prototype drilling system under geothermal conditions. COLORADO MUSEUM OF NATURAL HISTORY, THE Recovery Act: Education and Collection Facilty Ground Source Heat Pumps Demonstration Project Recovery Act: Education and Collection Facility Ground Source Heat Pumps Demonstration Project No activity; start date was 12/29/09 Denver, CO 80205-5798 Information GAO gathered to improve the description The award funds installation of a commercial scale (100 ton) ground source heat pump (GSHP) heating/cooling system that will be operated and maintained for 2 to 3 years. The project is expected to significantly reduce traditional GSHP installation costs while boosting the efficiency of the GSHP system. Activities will include, among other things, developing a detailed engineering design, procuring and installing the proposed GSHP system, operating and maintaining the system for 2 to 3 years, and developing a national awareness campaign for GSHP systems. The successful design and installation of the system can drastically reduce building energy consumption, require less area and capital to install, and be economically implemented wherever access to recycled water is available. The following award description contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. ALLIANCE FOR SUSTAINABLE ENERGY, LLC Geothermal Demonstrations; Geothermal Analysis Literature search was conducted on the status of dry/wet cooling options for power plants. Interviews with candidates are scheduled. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $1,200,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports Enhanced Geothermal Systems (EGS) research and development in air cooling. The award will identify and analyze advanced cooling strategies that allow air-cooled geothermal power plants to maintain a high electric power output during periods of high air dry bulb temperatures while minimizing any water consumption. The research will include activities such as an hour-by-hour cost/performance simulation of a cost-optimized 50 MW binary-cycle geothermal power plant at resource temperatures of 125 and 175 degrees Celsius for three different heat rejection systems. Within the Department of Transportation, the Federal Railroad Administration’s (FRA) High-Speed Intercity Passenger Rail Program is working to build an efficient, high-speed passenger rail network of between 100- and 600-mile intercity corridors, as one element of a modernized transportation system. This relatively new program is based on two pieces of legislation: the Passenger Rail Investment and Improvement Act of 2008 and the Recovery Act. The 2008 investment act established new competitive grant programs for high-speed and intercity passenger rail capital improvements, and the Recovery Act provided $8 billion for these grant programs. In order to meet the goals of the Recovery Act, FRA proposed to advance the following funding tracks: Projects. Provide grants to complete individual projects that are “ready to go” with preliminary engineering and environmental work completed. Corridor Program. Enter into cooperative agreements to develop entire phases or geographic sections of corridor programs that not only have completed corridor plans and environmental documentation but also have a prioritized list of projects to meet the corridor objectives; this approach would involve additional federal oversight and support. On January 28, 2010, the administration announced the first recipients of grant funding for the high-speed rail program. In total, 70 projects were selected for funding, but no awards have been made. (See fig. 2.) FRA is working with the selected recipients to refine the projects’ scope and descriptions. The selected projects are focused on the following three key areas that may provide transportation, economic recovery, and other public benefits: Build new high-speed rail corridors that will fundamentally expand and improve passenger transportation in the geographic regions they serve. Upgrade existing intercity passenger rail services. Lay the groundwork for future high-speed passenger rail services through smaller projects and planning efforts. Although FRA has not made any awards for rail projects, it has entered into five contracts to assist the agency with program administration and architectural and engineering issues related to the evaluation of proposals and feasibility studies. For example, FRA can use the architectural and engineering contractors for site visits to specific locations to confirm engineering assessments in proposals and check calculations of various loads and capacities. We assessed the transparency of descriptive information for these five contracts: One met our transparency criteria. One partially met our criteria. Three did not meet our criteria. For the four descriptions that partially or did not meet our criteria, we collected information necessary to make the description meet our criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. Since the program is relatively new, FRA focused on selecting projects and getting awards out and did not issue any supplemental reporting guidance to eligible applicants. FRA officials considered the Office of Management and Budget’s (OMB) guidance sufficient to outline reporting requirements. While FRA has not yet issued supplemental guidance, it may in the future. The Department of Transportation and FRA make high-speed rail project information available to the public in several forms: The department’s recovery Web site (www.dot.gov/recovery). This agencywide map provides the location, cost, and a brief description for each award. FRA Web site and high-speed rail interactive project map (www.fra.dot.gov/Pages/2243.shtml). This provides information by region. Press releases. Also on its Web site, FRA provides press releases detailing the goals and plan for the high-speed rail program. FRA is also developing a more interactive recovery Web site for the general public. FRA officials told us they have not received much public feedback about the high-speed rail awards to date. However, FRA has received questions on its Web site from the public about job opportunities, and when it was soliciting grant applications, it received questions from industry officials about the application process. The following award description contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Provide assistance consisting of mission-oriented business consulting services in support of FRA's Office of Passenger and Freight Programs, with a specific focus on advising FRA in the establishment of a grants management program that is commensurate with the significant increase in discretionary grant activity resulting from ARRA. Program Support - Coordinate information and develop processes to administer ARRA grant program. Activities include: development of tools and databases to drive workflow and assist FRA in meeting statutory objectives and deadlines; support FRA in the capture, sorting and organization of all relevant grant and stakeholder information and utilize tools and processes to provide information to program leadership for analysis and presentation to relevant stakeholder audiences. Policy / Process - Assist with tasks such as project planning, grant administration process design and execution across the grants management lifecycle (Application and Approval, Award and Disbursement, Management and Monitoring, Closeout), stakeholder policy issues tracking, risk identification and mitigation. Communications and Resourcing - Assist program and FRA leadership in managing communications planning by monitoring, cataloging and coordinating responses to stakeholder inquiries submitted via program email account and docket; work with program and FRA leadership to conduct workforce analysis to identify core capabilities, organizational structure and resourcing requirements necessary to successfully administer agency programs at current stage and into the future. The following award description did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. BOOZ ALLEN HAMILTON INC. Booz Allen Hamilton will provide general technical support in environmental engineering, historic documentation, and financial analysis and organizational planning to assist RDV in reviewing ARRA high speed rail grant applications. There were no invoices submitted for this reporting period. Administrative Management and General Management Consulting Services Information GAO gathered to improve the description The award supports a contract for activities such as conducting site visits to specific locations to confirm engineering assessments in applications and conducting calculations of various loads and capacities. The activities that will occur under this contract will allow senior engineers from the Federal Railroad Administration (FRA) to do higher level assessment work on the various applications and interface with the prospective grantees. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Archiect and Engineering Support Services for Passenger Rail Programs Architect and Engeering Support Services for Passanger Rail Programs 3101 Wilson Boulevard, 4th Floor Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates and considers the feasibility of high-speed rail proposals. Activities under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and conducting calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. PB AMERICAS, INC. A/E contract for support services in areas of intercity passenger rail programs and high speed rail programs. 465 Spring Park Technology Center $99,000.00 Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates proposals and considers feasibility of high-speed rail proposals. Activities that can occur under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and conducting calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. Provide environmental engineering and historic documentation support and financial/organizational planning support for analysis of high speed rail systems. (Information not reported) Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates and considers the feasibility of high-speed rail proposals. Activities under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. Within the Department of Transportation, the Federal Aviation Administration’s (FAA) Grants-in-Aid for Airports Program (airport improvement program) provides grants for the planning and development of public-use airports. The Recovery Act provides $1.1 billion for discretionary airport improvement program grants, with priority given to projects that can be completed within two years. FAA had obligated nearly $1.1 billion in recovery funds by April 22, 2010. As of April 22, 2010, about $650 million had been disbursed by FAA to airports. About two-thirds of obligations have been for runway and taxiway projects. Approximately $481 million (44 percent) is being used on runway construction and rehabilitation projects, while nearly $220 million (20 percent) is being used for taxiway construction and rehabilitation projects. (See fig. 3.) For example, the Denver International Airport’s taxiway project rehabilitated portions of Taxiway P by removing and replacing identified distressed concrete pavement panels. We assessed the transparency of descriptive information for aviation awards available on Recovery.gov, as described earlier in this report. An estimated 18 percent met our transparency criteria, 82 percent partially met our criteria, and zero percent did not meet our criteria. For descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our sample, whether they met our criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. For recipient reporting, FAA provided technical assistance and other support to recipients but did not issue supplemental guidance. FAA officials told us they considered the Office of Management and Budget’s (OMB) guidance sufficient to outline reporting requirements, so the agency did not issue its own supplemental guidance. However, FAA distributed guidance and provided technical assistance to recipients through each airport’s division office. FAA officials said field offices have discretion in how to distribute OMB’s guidance. One field official, for example, said the division office hired a contractor to oversee Recovery Act efforts who distributed information and guidance to every airport in the division by e- mail. In addition, FAA annotated, for a few fields, the template that recipients used to enter information into FederalReporting.gov. These annotations direct recipients to use information on their grant agreement as entered into FAA’s internal grants database. Many of the recipients we spoke with indicated that they populated the award description field with the description that was on the original grant. For example, officials we spoke with for the Quad City International Airport located in Moline, Illinois, stated that they used the amount of the award, execution date, and award description from the grant award to populate fields on FederalReporting.gov. In addition, a number of recipients we spoke with stated that they received help from FAA division office officials to complete their reporting. According to FAA officials, only a small portion of airport improvement program grantees—10 percent, or about 300—received Recovery Act funds. Specifically, according to officials at the Midland-Bay City-Saginaw International Airport in Michigan, they received a tremendous amount of support from FAA’s division office with regard to identifying and explaining reporting requirements. However, several recipients we spoke with reported problems with FederalReporting.gov or OMB’s guidance. For example, officials at the John Murtha Johnstown-Cambria County Airport had difficulty determining the correct zip code to use to accurately identify the location of the project receiving Recovery Act funds. The FAA district official was able to identify the correct zip code to enter into FederalReporting.gov. Beyond Recovery.gov, the Department of Transportation and FAA make award information available to the public through various means, including the following: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes aviation awards, provides the location, cost, and a brief description for each award. FAA web site (www.faa.gov/recovery). The Web site contains a spreadsheet that outlines each award’s location, cost, and name, among other things. In addition, the Web site provides a pie chart to display awards by category (i.e., runway, taxiway). In addition, airport improvement program recipients use Web sites and other tools to provide award information to the public. Several airport improvement program recipients we interviewed disseminate award information to the public on their Web sites. For example, the Web site for the Washington Metropolitan Airport Authority, recipient of the Dulles International Airport award includes, among other things, a narrative description of the project and the estimated cost of the investment. Another Web site, for the Midland-Bay City-Saginaw International Airport Authority, describes the ongoing construction project but does not mention that Recovery Act funds are being used. Dulles International Airport also erected a sign to alert the public that its runway project was funded by the Recovery Act. According to FAA headquarters officials, the public has provided little feedback on airport improvement program Recovery Act awards, but they were unsure if the regions had received any feedback. The airport improvement program recipients we interviewed generally reported the same experience. Officials from Los Angeles World Airports told us that they had not received many calls, but those calls were typically from construction companies or individuals looking for work. The Williamson- Sodus Airport in New York and the John Murtha Johnstown-Cambria County Airport in Pennsylvania received negative media attention because the media considered them smaller airports and maintained their funds could have been better spent at larger airports. However, recipients at both airports told us they received support from FAA and the local communities that they service. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Rehabilitate Taxiway D (+/- 3,000 feet by 50 feet) and Overlay This project consisted of the design, bid and award, and construction phases for the rehabilitation of Taxiway 'D' at the Bartow Municipal Airport. Taxiway 'D' and associated ttaxiway connectors are approximately 3000' in length and 50' wide and had severe cracking and spalling. The cracks were sealed and covered with a self-adhesive engineering fabric prior to the P-401 overlay. The project improved the quality of the pavement of our primary taxiway at the Bartow Airport. This project now provides a safer environment for aircraft by placement of the asphalt overlay on a poor pavement surface which was oxidized and raveling, creating a FOD situation. The overall purpose and expected results of this project is the project improved the quality of pavement of a primary taxiway at the Bartow Municipal Airport. The project provided a safer environment for aircraft by the placement of the asphalt overlay on a poor pavement surface which had oxidized and raveled, creating a FOD situation Highway, Street, and Bridge Construction Airport Improvement project to replace and rehabilitate runway and taxiway lighting and associated NAVAIDs. This project will bring the current airfield lighting system into compliance standards, prevent further failures and increase safety, and reduce associated maintenance and operational costs. Current system tests show that the megohm readings are out of acceptable range to by an excessive amount. The new system is designed to prevent pre-mature deterioration and reduce maintenance and operational costs while providing a more reliable and visable lighting system. An overall cost savings will be realized over the life of the new system. Contractor has run 1,137 ft of homerun conduits from the regulator station. Contractor has installed one pull box at the end of the 512 ft run. Contractor has completed 7 runs of homerun conduits to the junction box where the conduits split to the various runways and taxiways. Contractor trenched and ran conduits to Taxiways Alpha and Fox Trot. Contractor has completed the conduit runs to Taxiways Alpha and Fox Trot. Contractor started installation of the threshold lights on the north end of 12/30 and installed conduit for Taxiways Alpha and Fox Trot through the threshold. Contractor completed installation of the threshold cans on the north end of 12/30, ran 1800 feet of conduit along the north side of 12/30, and set runway light cans. Contractor completed installation of the conduit and cans on the northwest side of 12/30. Contractor installed ground rods in homerun junction boxes back to the regulator station. Contractor installed pull strings from the regulator station through the homerun conduits in prepartion for pulling wire. Contractor completed the work at the intersection of 12/30 and 18/36 and has cleared the runway safety area of 18/36. Contractor completed the installation of the cans and conduit on the west side of Runway 12/30 and is currently working on the REILs. Contractor pulled conductors on the west side of Runway 12/30 and completed the installation of the REILs on the north end. Contractor pulled the home run wiring on five active circuits. Contractor began installing lights on the northwest end of Runway 12/30. Contractor began installation of the lights and transformers on the northwest end of Runway 12/30. Contractor backfilled and grated around the newly installed cans. Contractor completed installation of the cans and lights on the west end of the runway. Contractor tied in the existing lights on the east end of the runway and tested the runway lighting. The runway was opened for air traffic. Less Than 50% Completed SIERRA VISTA, CITY OF Runway 12-30 Reconstruction and Taxiway J Realignment Design and reconstruct Runway 12-30 and construct Taxiway J realignment at the Sierra Vista Municipal Airport-Libby Army Airfield. The existing Taxiway J pavement was removed. All excavation and subgrade compaction was completed on Taxiway J. The pavement at the intersection of Runway 12-30 and Taxiway J was milled off and the existing base course was removed to finish grade. Approximately 17,042 square yards of subgrade at the intersection was repaired to eliminate unstable spots. Base Course materials have been placed and compacted on Taxiway J and Runway 12-30. Approximately 23,576 sy of concrete pavement was placed on Taxiway J and 14,445 sy concrete on Runway 12-30 that intersects with Taxiway J and D. Asphalt pavement was placed on the Taxiway J shoulders and a test strip has been placed for the P- 401 asphalt on Runway 12-30. Electrical conduit crossings and extensions have been installed, guidance signs were installed and the shoulder pavement has been cored for the new taxiway edge lights. The existing concrete storm drain pipe was extended 80 feet. Highway, Street, and Bridge Construction Sierra Vista, AZ 85635-6334 More than 50% Completed 373715-Rehabilitate Taxiway AND 377259-Runway Incursion Markings Airport Development - This project included the rehabilitation of T/W B and its adjacent apron, as well as constructing holding position markings for Runway 12-30. This project included rotomilling approximately 20,000SY of pavement, excavating and backfilling 13,000 CY of material, installing 2,300 LF of edge drain, 5000 Tons of bituminous surface course, 45,000SF of airfiled markings (including enhanced and surface painted holding position markings), and other miscellaneous airfield improvements to Taxiway Bravo. Construct new taxiway, apron, and safety markings on airport to maintain safe taxiway and airfield for commercial, jet, and general aviation fleet. Highway, Street, and Bridge Construction East Wenatchee, WA 98802-9233 More than 50% Completed 3-53-0084-030-2009 REDWOOD FALLS, CITY OF Rehabilitate Runway 12/30 and Taxiway Airport Development to include Runway 12/30 and adjacent taxiway pavement rehabilitation project at the Redwood Falls Municipal Airport (RWF). Project scope includes bituminous mill & overlay of the pavement, incidental grading, and pavement markings per FAA pavement management program requirements. Project will extend the useful life of the runway and taxiway pavement complying with the overall airport pavement management program at the Redwood Falls Municipal Airport. Project includes construction and engineering costs. Activities on this project include engineering and construction activities. Total project engineering includes preparation of engineering plans and specifications on the project, construction observation and administration, and grant assistance activities. Project construction tasks include completing a bituminous mill & pavement overlay, incidental grading, and pavement markings on Runway 12/30 and adjacent taxiway at the Redwood Falls Municipal Airport. Project plans and specifications were completed in April 2009. Construction and construction observation was completed September 25th, 2009 in the first reporting period. On-going grant administration was also completed. For this reporting period (October 1 ? December 31), construction administration, documentation, as-built plans were completed. Grant administration, reporting, and closeout procedures were also completed. Highway, Street, and Bridge Construction Redwood Falls, MN 56283-2827 WOOD COUNTY AIRPORT AUTHORITY (INC) Acquire Aircraft Rescue and Fire Fighting Vehicle Replace old worn out ARFF vehicle with new more capable and lower maintenance vehicle for this quarter all payments have been made to the engineering firm for developing bid specs and awarding the bid for construction of the new ARFF vehicle. This vehicle will be paid for in a lump sum upon delivery. The truck has been delivered, we are awaiting maintenance/operations training. Highway, Street, and Bridge Construction Grants More than 50% Completed Economic Recovery Program Construction to Remove Obstructions-Relocate Powerlines in the Runaway 30 Approach Zone at the North Las Vegas Airport. This grant is for removal and relocation of a high tension power line located beneath the final approach to runways 30L and 30R of the North Las Vegas Airport. The power line is located approximately 1,200 feet from the threshold of Runway 30L and 1,500 feet from the threshold of Runway30R. The lines are 45 feet tall (AGL) and are listed as an obstruction in the Airport Facilities Directory. The transmission and distribution ductbanks are now approximately 95% complete. Four of the six transmission vaults are in place. The next phase of construction involves the construction of the foundations for the six new towers, which will allow the transmission and distribution ductbanks to be completed. Cable installation is not expected to take place until the local power company can arrange for an outage on the existing lines. Electric Bulk Power Transmission and Control 2730 Airport Drive, Suite #101 North Las Vegas, NV 89032-0000 More than 50% Completed Airport Development: Rehabilitate runway 3/21 Survey, excavation, compacting, grinding existing asphalt, re-laying new asphalt, replace electrical lighting to insure safety of National Air Transportation System. Highway, Street, and Bridge Construction 9000 W Airport Dr, #204 More than 50% Completed Rehabilitate Taxiway E 4 from Sta.9-46.86 to Sta. 16-20.65, rehabilitate Taxiway E5 from Sta 9+46.29 to Sta 15+97.53 The objective of this grant is the rehabilitation of a portion Taxiway E-4 from the edge of the Runway 17L-35R pavement to just west of the runway hold-lines including the shoulders and electrical replacement, and rehabilitation of a portion of Taxiway E-5 from the edge of the Runway 17L-35R pavement to just west of the runway hold-line including shoulder and electrical replacement at the Colorado Springs Airport. This taxiway system supports the primary runway for passenger carriers and Peterson Air Force Base. The project includes the reconstruction of existing concrete, replacement of airfield lighting, and an upgrade of all associated drainage systems. The existing airfield pavements are deteriorating due to the existeance of Alkali-Silca Reactivity (ASR) and will experience failure if the pavement is not replaced. Project physically completed; final inspection completed in November Highway, Street, and Bridge Construction 7770 Milton E Proby Parkway Colorado Springs, CO 80916-4961 More than 50% Completed 3-08-0010-046-2009 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY (THE) ( ) McGhee Tyson Airport (TYS) is the sole commercial service airport for the greater Knoxville and East Tennessee Areas. The airport has two parallel 9000 ft. runways with RWY 5L/23R being the primary instrument approach runway equipped with an Instrument Landing System (ILS). Funds provided by the ARRA are being executed on TWY Bravo to reconstruct sections B1 to B6; TWY Bravo is the taxiway network that services our primary instrument approach runway (RWY 5L/23R) that is used by both commercial and military aircraft. In essence, TWY Bravo is our second highest priority paved aircraft movement area with RWY 5L/23R being the first priority. TWY Bravo from B1 to B2 was constructed in 1976 and received a Portland Cement Concrete (PCC) maintenance overlay in 1986. This section of taxiway had received numerous spall repairs, crack repairs and full-depth slab repairs over the past 20 years and was becoming a revolving maintenance and FOD issue. As part of this project, an aggregate surfaced access roadway to the airfields Automated Weather Observation Station (AWOS) will be improved with a durable solid surface course (asphalt). The Runway Safety Action Team (RSAT) recommended paving this section of roadway thus greatly reducing the potential for FOD on the aircraft movement areas. The ARRA funds being spent on this TWY Bravo project have a direct impact on the safety and level of service to the traveling public at McGhee Tyson Airport. Significant deliverables will be concrete measured in square yards and asphalt measured in tons. Funds provided by the ARRA are being executed on TWY Bravo to reconstruct sections B1 to B6. As part of this project, an aggregate surfaced access roadway to the airfields Automated Weather Observation Station (AWOS) will be improved with a durable solid surface course (asphalt). Highway, Street, and Bridge Construction More than 50% Completed 3-47-0037-057-2009 MOSES LAKE, PORT OF Rehabilitate T-Hangar Taxilanes; Install Enhanced Taxiway Centerline Markings Taxiway Rehabilitation and Runway Incursion Markings. This project will replace the failed pavements of that T-Hangar areas, including the Taxiway leading into the area, and the taxilanes within. The project will also complete the enhanced Runway Markings. This project is designed to replace the failing asphalt and concrete in the T-Hangar area of the airport, and also includes the installation of enhanced markings for protection of Runway Incursions. The completion of this project will do two things: 1) opens up an area of T-Hangars that have not been previously usable and 2) create a safer environment for pilots. The use of the T-Hangars will increase the need for other airport employees to handle aircraft maintenance, fueling, tower operations, etc. Highway, Street, and Bridge Construction Grant County International Airport, 7810 Andrews Street, NE, Suite 200 Moses Lake, WA 98837-3204 More than 50% Completed Construct Aircraft Rescue and Fire Fighting (ARFF) Building - Phase IV Fitiuta Airport does not have an ARFF facility to comply with FAA Regulations Part 139 for this airport. Therefore to comply and satisfy this requirement, a certified complying ARFF facility is required to be built. This project is 18% complete. Preliminary items to start the project moving as in mobilization of equipment and personnel to Fitiuta Island is completed. Excavation of project site is currently in progress. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Final project checkout and reporting, Developing grant cloesout papers. Information GAO gathered to improve the description The award funds rehabilitation of the existing general aviation apron, which is the extensive paved part of an airport immediately adjacent to the terminal area or hangers, at the Upshur County Regional Airport. The rehabilitation activities will consist of removing the existing pavement section, lowering the profile grade of the existing subgrade, installing a new pavement section, apron markings, tie-downs, and lowering of the existing taxiway lights to accommodate the change in grade. Also the taxiway hold-short markings and the replacement of the runway light globes inside the “caution zone” will be enhanced to bring the airport into compliance with current Federal Aviation Administration (FAA) standards. Rehabilitation of Apron, South Field, OIA Quarterly activities include: project surveying and marking of project limit; installation of temporary pavement striping and marking; demolition of taxiway centerline line light and edge light fixtures. Procurement and installation of new centerline and edge light fixtures, demoliton of existing jet blast fence, utilities, and storm drains; installation of water line and fire hydrant; installation of miscellaneous asphalt pavement patches. Vendors: Manufacture and furnish electrical and general co Highway, Street, and Bridge Construction 530 Water Street, PO Box 2064 Less Than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of the apron--a surface where aircraft park and are serviced--adjacent to the port maintenance shop, Terminal 1 luggage area, and Terminal 2 tug ramp area at Oakland International Airport. The award will provide long-term pavement reliability to maintain airport air cargo, flight, and baggage operations. Rehabilitate Runway 14-32 Phase 3 Airport Development - Rehabilitate Runway 14-32 - Pittsburgh International Airport - Allegheny County Airport Authority Winter weather activities only. Highway, Street, and Bridge Construction Pittsburgh International Airport, Findlay and Moon Township P.O. Box 12370 $9,770,201.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of Runway 14-32 at Pittsburgh International Airport, including activities such as improving pavement and grading, and updating pavement markings, airfield signage and lighting systems. The rehabilitation is expected to maintain the airport's primary runway for night time arrivals and noise abatement procedures, thus enabling continued environmentally friendly and efficient operations for military and civilian aircraft. Rehabilitate Taxiways D,E,F & G Airport Development - Rehabilitate Taxiways D,E,F & G - Allegheny County Airport - Allegheny County Airport Authority Project 35% complete. Winter weather activities. Highway, Street, and Bridge Construction Allegheny County Airport, Lebanon Church Road West Mifflin, PA 15122-2605 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates 75,000 square feet of new airfield asphalt pavement. Rehabilitation activities include the removal of deteriorated pavement and base materials, the rebuilding of the base and repaving of the taxiways, the rebuilding of any necessary storm water drainage infrastructure, and the remarking and relighting of the taxiways in accordance with Federal Aviation Administration (FAA) specifications. The rehabilitation will help maintain airfield safety and usefulness, preventing extensive maintenance costs, correcting an antiquated physical layout, and allowing for airport economic development. Airport Development rehabilitate Runway 17R/35L Highway, Street, and Bridge Construction Grants Less Than 50% Completed Information GAO gathered to improve the description This award completes a total rehabilitation project of Runway 17R/35L at Laredo International Airport that began roughly 7 to 10 years earlier. The rehabilitation work encompasses an area of approximately 5,900 feet long by 150 feet wide. Specific activities include engineering, surveying, and demolition of existing pavement; replacing underground drainage; compaction of the sub base, adding a 6- inch asphalt base and a 16-inch concrete pavement; and testing, grooving, cleaning, and repainting the new surface. The rehabilitation will provide a safer runway that is less costly to maintain by using a rigid Portland concrete that does not create foreign object debris (FOD) and does not require frequent sweeping. Rehabilitate Runway, Rehabilitate Taxiway The project is for Airport Development, specifically, the reconstruction/realignment of the taxiway and rehabilitation of the runway. The project will enhance safety, protect the federal investment and increase the life of the pavements. Mix designs and test strips are complete. Paving is underway. Project is 60% complete. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports airport development activities at Salinas Municipal Airport. These activities include rehabilitating runway 08/26, taxiway B, taxiway D, and converting runway 14/32 to a taxiway. DELAWARE RIVER & BAY AUTHORITY Construct Runway (design, Phase VI)-09/27 (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the design of a new runway and taxiway system at Delaware Airpark. The project will include a new Runway 9-27 (4,200 feet by 75 feet) and a parallel taxiway. The taxiway will incorporate the old runway pavement (3,582 feet by 60 feet) plus new pavement (1,300 feet by 35 feet). It also will include connector taxiways, a wetland mitigation site, lighting, signage and drainage. The award will result in a design for a new runway in accordance with the 2003 Airport Master Plan, which recommended a new runway to accommodate projected regional general aviation growth. PALM BEACH, COUNTY OF Airport development - The award purpose is to rehabilitate Runway 05/23. The overall purpose of this award is to rehabilitate runway 05/23. Highway, Street, and Bridge Construction Boca Raton, FL 33431-6409 More than 50% Completed Information GAO gathered to improve the description The award rehabilitates a runway in Boca Raton Airport in order to improve its quality. Rehabilitation activities include removing the asphalt, relaying it, and marking up the two ends of the runway. Rehabilitate Taxiways 'C'& 'L'; Rehabilitate Taxiways 'D' & 'M' This project can be described as the rehabilitation of pavements on Taxiways 'C' and 'L' and Taxilane 'K', including the replacement of existing taxiway edge lights with LED lights, the replacement of failed drainage pipes beneath affected airfield pavement areas, and re- shaping of taxiway shoulders. The project also includes the rehabilitation of pavements on Taxiways 'D' and 'M' (approximately 1,200 ft. x 50 ft.) and the adjacent Customs Apron (approximately 5,800 sf.) to include full depth pavement reconstruction, replacement of failed drainage pipes beneath affected airfield pavement areas, re-shaping of taxiway shoulders, and adjustment of existing edge lights. This project can be described as the rehabilitation of pavements on Taxiways 'C' and 'L' and Taxilane 'K', including the replacement of existing taxiway edge lights with LED lights, the replacement of failed drainage pipes beneath affected airfield pavement areas, and re- shaping of taxiway shoulders. The project also includes the rehabilitation of pavements on Taxiways 'D' and 'M' (approximately 1,200 ft. x 50 ft.) and the adjacent Customs Apron (approximately 5,800 sf.) to include full depth pavement reconstruction, replacement of failed drainage pipes beneath affected airfield pavement areas, re-shaping of taxiway shoulders, and adjustment of existing edge lights. Highway, Street, and Bridge Construction 8 Airport Rd. Information GAO gathered to improve the description The award is for rehabilitation at Morristown Municipal Airport. Upgrade Edge Lights, Taxiways A, B, C, D, and H; Upgrade Edge Light Base Housings Runway 17L/35R and Taxiway H. Upgrade airfield lighting and lighting equipment on select runway and taxiways. Electrical Contractors and Other Wiring Installation Contractors Will Rogers World Airport, 7100 Terminal Drive Oklahoma City, OK 73159-0937 Less Than 50% Completed Information GAO gathered to improve the description The award upgrades the 20-year-old lighting and lighting fixtures at Will Rogers Airport in Oklahoma City, Oklahoma, which will increase energy efficiency, improve safety, and make it easier to obtain replacement parts in the future. Saw cut groove (7400' X100'). Mark (7400'X100') & transition the connecting TWYS to overlay on RW 17-35 Stillwater Reginal Airport Rehabilitate runway to increase safety and decrease delays. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award rehabilitates the south 4,800 feet of existing Runway 17-35 to bring it to a level or quality equivalent to that of the north 2,600 feet of runway. Rehabilitation activities include a geotechnical investigation of soils analyses to determine optimum stabilization methods and parameters, as well as a field survey to determine appropriate grades and profiles for new pavement. Airport Development. Columbia Owens Downtown Airport Airfield Pavement Rehabilitation Project - Phase III (Taxiways, taxilanes, & partial apron) During the quarter ending December 31, 2009, the paving operation and pavement markings were completed. Crews began seal coating, but stopped due to weather issues. There were no hours completed during the month of December due to weather. The purpose of this project is to rehabilitate and resurface major portions of the aircraft parking ramp and active taxiway at the Jim Hamilton - L.B. Owens Airport. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award includes specific activities such as milling of old asphalt; application of asphalt overlay, pavement rejuvenator and temporary markings; quality control material testing; and application of permanent markings. The construction will improve safety, reliability, and general aviation service to the airport and surrounding area by improving the condition of the taxiway, taxi lanes, and apron pavements. (An apron is a surface where aircraft park and are serviced.) The airport provides facilities for general aviation traffic and flight training activities and serves as the reliever airport to Columbia Metropolitan Airport. The existing pavements were constructed in 1985 and were exhibiting signs of deterioration, including lane separation, block cracking, and loss of asphalt content due to aging and oxidation from sunlight exposure. This condition has the potential to contribute to Foreign Object Damage (FOD) to aircraft. COLUMBUS, CIVIL CITY OF RW RE LI Rehabilitate Runway LIghting Completed design & bid phases for project required to receive grant, substantially complete with site work. Highway, Street, and Bridge Construction 4770 Ray Boll Blvd. Columbus, IN 47203-4764 Less Than 50% Completed Information GAO gathered to improve the description The award supports the design, construction, inspection and testing of a new electrical vault at Columbus Municipal Airport. The award will ensure the safety of aircraft in the event of a power failure affecting airport lighting and communication systems. BOULDER CITY, CITY OF The project is for Airport Development, specifically, the rehabilitation of the primary runway. The project will enhance safety, protect the federal investment and increase the life of the pavements. Completed pavement mix designs , test strips and pavement preparation taking the runway project over 50% complete. Highway, Street, and Bridge Construction Boulder City, NV 89006-1350 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for Runway 9R-27L at Boulder City Municipal Airport. Rehabilitation activities include leveling and covering the safety area around the runway in aggregate to provide a stable surface, sealing cracks, constructing a 2-inch overlay, grooving and repainting. AIRPORT AUTHORITY FOR THE CITY OF GREENVILLE & COUNTY OF PITT Terminal Building Addition (Lobby/Circulation-3500 sq ft and New Departure Lounge- 10,400 sf) Terminal building improvement; footings poured, commencement of steel erection Commercial and Institutional Building Construction Grants Less Than 50% Completed Information GAO gathered to improve the description The award supports the expansion of a terminal and improvement of the facade by incorporating green technologies such as solar panels and ground source (geothermal heat pumps). The expansion will allow the Pitt-Greenville Airport's capacity to better meet the community's air service needs due to increased air traffic. Acquire Mobile Aircraft Rescue and Fire Fighting Training Facility Acquire Mobile Aircraft Rescue & Fire Fighting Training Facility Approval of Configuration Drawings and Start of Fabrication for the acqisition of a Mobile Aircraft Rescue and Fire Fighting Training Facility Regulation and Administration of Transportation Programs Less Than 50% Completed Information GAO gathered to improve the description This award will support preparations for the facility, including installing electrical components, running propane lines to and from the facility, as well as fabrication (bending steel to specification) and engineering. The award will result in improved aviation safety, as this facility will provide training to firefighting departments throughout the entire state of Virginia for the next 15 years. Asphalt overlay and pavement markings Highway, Street, and Bridge Construction (Information not reported) Dauphin Island, AL 36528-0000 Information GAO gathered to improve the description The award supports activities to fix damaged pavement on Dauphin Island Airport's runway 12/30, the only runway at this airport. The activities included reconstruction of the pavement on the entire runway, which measures 3,000 feet long and 80 feet wide. The result of the award was to improve the quality of the runway. TRANSPORTATION AND PUBLIC FACILITIES, ALASKA DEPARTMENT OF Akiachak Airport Relocation-Stage 1. This project will construct a new airport facility approximately 1.5 miles northwest of the community, consisting of a new 60 ft by 3300 ft runway, 120ft by 3900ft runway safety area, a 35ft by 400ft taxiway with a 79ft wide safety area and a 200ft by 400ft apron. The project is approximately 6% complete. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award replaces the current airport with a new airport that meets current design standards. The result of this award will be an airport that improves safety and operational efficiency by reducing injuries, fatalities, and property damage, and by improving the mobility of people and goods. Rehabilitation of the center portion of Runway 6/24 - 960 feet long by 150 feet wide - bring the entire runway up to the same length, at Decatur Airport. Decatur, Illinois Engineering & Construction Services for Decatur Airport Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports reconstruction activities for 960 feet of Runway 6-24. These activities include pavement milling, paving, grooving, and marking. The award will result in a preserved runway with strengthened pavement that meets Federal Aviation Administration (FAA) requirements. Airport Development. The rehabilitation of the primary air carrier runway and the construction of runway shoulders and blast pads. Project has been beset with weather delays. No invoices received for reporting quarter Other Support Activities for Air Transportation $5,400,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates the entire length of runway 13/31 in order to increase safety features and create a better landing surface. Additionally, two shoulders and blast pads will be added to the runway. Activities include milling, or stripping, the top layer of runway, putting down a new overlay, and repainting/restriping the runway. Reconstruct EFD Taxiways A, D, & F Airport Development -- Reconstruction of Taxiways A, D and F Taxiways A and D are complete The existing concrete on Taxiway F has been removed. The base is being laid. Anticipated completion is before March 31, 2010 More than 50% Completed Information GAO gathered to improve the description The award supports the reconstruction of around 42,000 square yards of pavement for taxiways A, F, and two portions of D at Ellington Airport. Reconstruction includes removing pavement that had been in place for over 20 years and replacing it with concrete pavement. Activities included construction phasing, sodding and seeding, pavement markings, and preservation of the existing electrical facilities along the taxiways, in order to meet new industry standards. A B WON PAT INTERNATIONAL AIRPORT AUTHORITY Rehabilitate 1000 feet of Runway 06L/24R to maintain and improve safety for aircraft operations Highway, Street, and Bridge Construction Grants Less Than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for Runway 06L-24R at A B Won Pat International Airport. These activities include removal of the existing blast pad, localizer concrete pads and steel posts, electrical conduits, wiring and signs; and construction of the runway extension subgrade and subbase, and base course. The activities also will include milling the existing asphalt pavement and construction of pavement surface pending resolution of Voids in Mineral Aggregate (VMA), a hot mix asphalt mixture property; restoration of Taxiway Julia; installation of runway lighting; runway grooving; and painting the runway and taxiway. Modify Aircraft Rescue and Fire Fighting (ARFF) Building Site work, drainage, foundation, structural steel, decking, finish exterior brick, electrical & plumbing rough-in Highway, Street, and Bridge Construction 9430 Jackie Cochran Blvd., Suite 300 Baton Rouge, LA 70807-8020 More than 50% Completed Information GAO gathered to improve the description The award supports the renovation and expansion of the existing Aircraft Rescue and Fire Fighting building. The award will result in a building that will accommodate airportwide training activities and facilitate the use of an emergency command center. ST MARY, PARISH OF Project completed/runway asphalt patched, rejuvenated, and restriped. Highway, Street, and Bridge Construction Harry P. Williams Memorial Airport Information GAO gathered to improve the description The award funds rehabilitation of a deteriorating runway, runway 06/24, which is approximately 5,400 feet long. The rehabilitation covers the entire surface of the runway, patching places where the concrete joints have come through the asphalt, and where lightning has taken out chunks. Additionally, the runway will be coated and restriped and the new runway will meet general aviation standards. WINDOM, CITY OF (INC) Windom Municipal Airport Runway Project Rehabilitate Runway 17/35 (approximately 75'x3,599') Rehabilitated runway - Concrete overlay of existing runway by placing 3 inches of gravel and 5 inches of concrete to replace runway asphalt surface. The shoulders were re-graded due to the raised concrete surface. Shoulders were filled with black dirt and seeded. Highway, Street, and Bridge Construction 48572 County Road 28, PO Box 38 $1,149,062.00 Information GAO gathered to improve the description This award replaces Runway 17-35, which was originally constructed in the late 1960s and is the only hard-surfaced runway available in Cottonwood County. The runway's condition was recently classified as "fair poor" in the Minnesota Department of Transportation annual survey of airport pavement. This award ensures continued access to aviation for business, medical, agricultural, and private use by re- constructing this runway and its taxiways. Rehabilitate Runway (Phase III)-09R/27L Survey and layout were performed, permits were obtained and contractor mobilization costs were incurred. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for runway 9R-27L, Philadelphia International Airport's longest runway. These activities include replacing the runway's pavement and lighting system. The award will result in extended life for this runway. Install Guidance Signs (Phase II) Install airfield signs. Demobilization. Highway, Street, and Bridge Construction 100 Terminal Drive More than 50% Completed Information GAO gathered to improve the description The award encompasses the signage for all of the airfield runways and taxiways. The award will update wiring for runway and taxiway edge lights installed prior to 1970 and signage last updated in 1991. PALM BEACH, COUNTY OF Airport development - The award purpose is to rehabilitate Runway 05/23. The overall purpose of this award is to rehabilitate runway 05/23. Highway, Street, and Bridge Construction Boca Raton, FL 33431-6409 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for runway 5/23, Boca Raton Airport's only asphalt runway. These activities included removing the existing asphalt, overlaying the runway with new asphalt, and marking it up. The award improved the quality of the runway. The milling and asphalt pavement are 100% complete. The striping is 95% complete. The project is 98% complete. Grants More than 50% Completed Information GAO gathered to improve the description The award supports a rehabilitation project for Runway 18-36 (75 feet by 5,002 feet) at Orlando Sanford International Airport. A Pavement Management Program evaluation conducted by the Florida Department of Transportation in 2008 determined that Runway 18-36 was past due for routine maintenance, and therefore in poor condition, requiring total rehabilitation. Reconsturct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways Airport Development - Reconstruct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways. The existing taxiways have numerous large cracks and failures throughout the surface. A site investigation has shown that organic debris (tree stumps) was used as a fill material under the existing taxiways and apron. This organic debris is causing failures in the asphalt in several locations. Full depth reconstruction is required. Reconstruct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways Highway, Street, and Bridge Construction Information GAO gathered to improve the description The award reconstructs approximately 1,330 lineal feet of parallel taxiway, including two connecting taxiways at Shoshone County Airport. Activities include removing existing pavement; constructing the parallel taxiway, including transitional pavement, shoulders, grading and reflectors; constructing connector taxiways; and relocating aircraft tie-downs. Reconstruction of the taxiway will help maintain a safe aircraft operational surface. Peoria International Airport - PIA-3912-ARRA Construction of a New Terminal Building (Phase 5 - Electrical, Doors & Windows & Site Preparation Divisions) at the Peoria International Airport, Peoria, Illinois. Architectural and Building Construction Services for an airport terminal expansion. Commercial and Institutional Building Construction 6100 W. Everett McKinley Dirksen Parkway Less Than 50% Completed Information GAO gathered to improve the description. The award supports work which will facilitate completion of the new terminal building at the Peoria International Airport, which replaces the original terminal building built in 1959. Acquire Aircraft Rescue and Fire Fighting (ARFF) Vehicle Construction of the vehicle began in December 2009, currently 19% complete. 99 Sinclair Drive, c/o Muskegon County Airport Less Than 50% Completed Information GAO gathered to improve the description This vehicle will provide necessary fire fighting capabilities as required by the Federal Aviation Regulation Part 139. Crack route and seal, 2' asphalt overlay on Runway 4/22 Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of all of runway 4/22, which is 75 feet wide by 4,000 feet long, at Mankato Regional Airport. Rehabilitation activities include obtaining materials and services to prepare the area, removing old runway pavement, laying new pavement, and repainting the runway. The rehabilitation will improve the pavement condition and extend the useful life of the runway by sealing the surface to prevent water damage. Dixon Municipal Airport C73-3914-ARRA; Waukegan Regional Airport UGN-3908-ARRA Airport Development under the State Block Grant Program, including: Dixon Municipal Airport (C73) - Rehabilitate Apron; Waukegan Regional Airport (UGN) - Rehabilitate Runway 14/32. Engineering Services for Waukegan Regional Airport and Dixon Municipal Airport. Power and Communication Line and Related Structures Construction 3580 N. McAcree Rd. $2,155,560.00 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates the apron--a surface where aircraft park and are serviced--at Dixon Municipal Airport; specific activities include 11,000 linear feet of cleaning and sealing cracks and 3,450 square feet of pavement marking. The award also rehabilitates a runway at Waukegan Regional Airport; specific activities include approximately 14,000 square feet of pavement marking, 8,200 square yards of pavement milling, and 4,100 feet of cleaning and sealing cracks. The rehabilitation at both airports will strengthen the pavement to Federal Aviation Administration (FAA) requirements and preserve the existing investments. ALBERT LEA, CITY OF Airport Development: Construct new Runway 16/34 Work this quarter involved site grading, draintile, and subbase. Highway, Street, and Bridge Construction Albert Lea, MN 56007-2081 Less Than 50% Completed Information GAO gathered to improve the description The award funds construction of a new, asphalt runway that is 5,000 feet long, reconstruction of the existing runway (as a 35-foot wide parallel taxiway), and rehabilitation of the crosswind runway that is 2,899 feet long at Albert Lea Municipal Airport. The activities will include grading, drainage and paving work for the relocated runway; new edge lighting for the runway and taxiway; new navigational aides for the runway; new airfield signage; and rehabilitation of a runway involving milling, asphalt overlay, and painting. These activities will assist in accommodation of the airport’s current and projected aircraft fleet. Rehabilitate Apron to extend life Highway, Street, and Bridge Construction Grants More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for the existing south paved asphalt apron--a surface where aircraft park and are serviced-- and taxiways leading to this apron at the Somerset Airport in Bedminster, New Jersey. These activities include an excavation to remove deteriorated asphalt surface and sub-base soils for placement of a geotextile stabilization fabric, new sub-base course, and asphalt pavement and pavement markings. The award is expected to result in improved surface drainage. TW ST CO Construct Taxiway Relocate Taxiway A (Construction Phase 3 - 5000' x 100') Construction substantially completed in 4th quarter. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award will improve the safety of the airfield geometry and correct the pavement condition of Runway 18-36 at Findlay Airport to be within the recommended Federal Aviation Administration (FAA) standards. The runway will be relocated to 400 feet from the runway centerline north of Runway 7-25. Along with relocating the runway, activities include construction of connector taxiways as appropriate, and the completion of construction of a second taxiway to access the apron (a surface where aircraft park and are serviced) from the south. TRANSPORTATION, WISCONSIN DEPARTMENT OF Construct Runway Safety Area- 01L/19R The grant to General Mitchell International Airport improves the airport's infrastructure by constructing Phase II of Runway Safety Area Improvements to runway 01L/19R. The outcome of this project will be to enhance the safety and efficiency of the airport. Power and Communication Line and Related Structures Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the second phase of a project that will construct a tunnel to provide a clear runway safety area. Airport Development. Rehabilitate Runway - 09/27. Paving, Pavement Marking Applications and Grading Highway, Street, and Bridge Construction 41771 Highway 77, P.O. Box 187 More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of a runway at Ashland/Lineville Airport. Rehabilitation activities will preserve airport infrastructure by removing old runway pavement, preparing the area, laying new pavement, and repainting the runway. SAN DIEGO COUNTY REGIONAL AIRPORT AUTHORITY Install airfield guidance signs and elevated runway guard lights Airport Development. Project mobilization including construction trailer; review of product submittals; beginning of construction of electrical dutc bank, laying conduit and surveying for location of trenches, pull boxes, and new lights and signs. Highway, Street, and Bridge Construction San Diego, CA 92101-1045 Less Than 50% Completed Information GAO gathered to improve the description The award will replace aging lights and signs throughout the San Diego International Airport with new LED lights and directional signs that meet Federal Aviation Administration (FAA) standards and improve safety. The new LED lights also will be more energy efficient, thereby reducing the cost of their operation. SAN FRANCISCO, CITY & COUNTY OF Reconstruction of a Runway (28R-10L) Airport Development. This project will overlay and reconstruct Runway 28R-10L to repair deteriorating pavement, improve the surrounding drainage system, upgrade the electrical runway and taxiway lighting system, and repaint runway markings to increase visibility and improve safety for aircraft on the airfield. Additionally, this project consists of pavement grinding, excavating, paving, runway marking, and installing of runway and taxiway lights. Activities included pavement grinding, asphalt paving, shoulders grading and watering; demolition of existing steel conduits; and installation of runway centerline light extensions, edge lights installation, wiring, transformers, and steel conduits on runway 28R-10L. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports work at San Francisco International Airport. This overall program consists of increasing the height of the existing perimeter fence to 10' in height and the installation of underground wildlife deterrent. Highway, Street, and Bridge Construction $845,698.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports increasing the height of the perimeter fence to 10 feet and installing wildlife deterrent measures. The award will result in securing the airport property from wildlife. IOWA CITY, CITY OF Rehabilitate Runway 12/30 (Phase 2) Construction, Engineering Design and Construction Observation. Highway, Street, and Bridge Construction Iowa City Municipal Airport, 1801 South Riverside Drive Iowa City, IA 52246-5704 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for approximately 2,500 feet of runway 12/30 at Iowa Municipal Airport. This runway is 60 years old and the award will result in improved safety. MADISONVILLE, CITY OF (INC) Other Heavy and Civil Engineering Construction Madisonville, KY 42431-0000 More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of the ramp and apron--a surface where aircraft park and are serviced--at Madisonville Municipal Airport. The apron is 272 feet wide and 385 feet long. This award will allow the airport to continue its mission of catering to military, corporate, private, and recreational flyers. In addition, the award will provide more space to aircraft when they are parked and tied down overnight. TRANSPORTATION, WISCONSIN DEPARTMENT OF The grant to Rhinelander-Oneida County Airport improves the airport's infrastructure by rehabilitating taxiways A, B, and D. The outcome of this project will be to enhance the safety and efficiency of the airport. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports taxiway rehabilitation activities, including removing old taxiway pavement, laying new pavement, and preparing the new taxiways for use. TRANSPORTATION AND PUBLIC FACILITIES, ALASKA DEPARTMENT OF Allakaket Airport Improvements. Repair and stabilize the runway embankment, taxiway and apron to correct areas that have experienced serious differential settlement, side slope failures and erosion. Highway, Street, and Bridge Construction Grants (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports activities to improve taxiways A-E and aprons--surfaces where aircraft park and are serviced--including resurfacing and installing new lighting. BURBANK GLENDALE PASADENA AIRPORT AUTHORITY Rehabilitation of Taxiways C, D & G Rehabilitation of Taxiways C, D & G to improve pavement Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description Taxiways C, D, and G at Bob Hope Airport are deteriorating and reaching the end of their life spans. This award funds the rehabilitation of these runways to bring them up to Federal Aviation Administration requirements and give them life spans of approximately 10 years. Activities include removing the existing pavement by milling and replacing with new asphalt pavement, installing new striping, and applying creak seal and seal coat. DENVER, CITY & COUNTY OF Rehabilitate a portion of Runway 17L/35R from Station 494+57 to Station 583+62 Rehabilitate a portion of Runway 17L/35R from Station 494 + 57 to Station 583 + 62. Pavement rehabilitation of portions runway 17L/35R complex including runway 17L/35R by removing and replacing identified distressed PCCP pavement panels and portions of asphalt shoulders. Benefits include replacement of distressed aircraft pavement to improve safety, increase overall runway and taxiway pavement life, and reduce FOD and possible aircraft damage FOD can cause. All work was completed September 3, 2009. Pavement Rehabilitation of portions Runway 17L/35R by removing and replacing identified distressed PCCP pavement panels and portions of asphalt shoulders. Benefits include replacement of distressed aircraft pavement to improve safety, increase overall runway and taxiway pavement life, and reduce FOD and possible aircraft damage FOD can cause. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award funds the removal and replacement of deteriorated concrete panels on portions of the east runway at Denver International Airport to, among other things, reduce foreign object debris (FOD). GULFPORT BILOXI REGIONALL AIRPORT AUTHORITY( INC) Mill and Overlay Runway 18/36 Overlay and groove Runway 18/36 (4,93'5 +- x 150') Completed and closed out related contract on time and under budget. Highway, Street, and Bridge Construction $1,828,988.00 Information GAO gathered to improve the description The overlay covers holes that develop in the runway concrete. The grooving reduces the slick nature of the runway to meet Federal Aviation Administration (FAA) friction requirements. The result of the award enhances the safety of landing aircraft and will help attract more general aviation aircrafts to use the airport. Airport Development - Runway 15-33 is in need of improvement to reconstruct pavement to reconstruct pavement, upgrade the lighting system, and provide better airfield drainage. Purchase construction materials & project administration. Highway, Street, and Bridge Construction Less Than 50% Completed Information GAO gathered to improve the description The award supports the reconstruction of Runway 15-33 at Harry Stern Airport. Reconstruction of this runway is a state priority because the North Dakota Aeronautics Commission determined that the runway was in poor condition. TRANSPORTATION, TEXAS DEPARTMENT OF Rehabilitate and mark Runway 17/35 and reconstruct 17/35 end in PCC Runway improvements to increase and sustain economic activity for the airport and its local community Primary runway reconstruction at the Curtis Field/Brady Municipal Airport Highway, Street, and Bridge Construction 3821 N US Hwy 377 More than 50% Completed Information GAO gathered to improve the description The reconstruction of 500 feet of runway 17/35 involves pouring Portland Cement Concrete (PCC) to fix the failures in the pavement. The rehabilitation of 4,104 feet of the runway includes resurfacing with asphalt and remarking of the runway. Demo of existing asphalt apron, add de-icing catchment and pave the area with concrete. PO Box 1677, 1801 Roeder Avenue More than 50% Completed Information GAO gathered to improve the description The award reconstructs the portion of Taxiway D at the intersection of Taxiway E and A at Bellingham International Airport. Since the runway is currently experiencing rapid pavement failures, the reconstruction will improve the pavement and add drainage to ensure the runway has a longer life. Rehabilitate Emergency Generator and Acquire Index B Air Rescue and Fire Fighting Vehicle The project involves the cosntruction of a new backup generator that will serve the airport terminal, airfield lights,FBO and ARFF building. The project also involves the purchase of a new ARFF vehicle. The generator is installed. The punchlist will be completed next week. The ARFF vehicle has been delivered. Waiting on the training which should be later this month. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award funds a backup generator at North Central West Virginia Airport, including construction of two different facilities to house the generator and installation of the generator. The award also funds the acquisition of the new Air Rescue and Fire Fighting (ARFF) vehicle including designing the specification of the ARFF and the purchase itself. TRANSPORTATION, GEORGIA DEPARTMENT OF Federal Aviation Administration-Grants-in-aid for Airports, Recovery Act FAA Airport Improvement Program Grant for Non-primary development projects in the State Block Grant Program. This grant provides 100% federal funding for five general aviation airport construction projects in Georgia. This grant provides 100% federal funding for five general aviation airport construction projects in Georgia. All five of Georgia's aviation projects received notice to proceed with construction in June 2009. All projects to be funded with this grant are under construction.: Adel-Cook County Airport: Construct Parallel Taxiway for $656,000 Alma-Bacon County Airport: Construct Parallel Taxiway for $734,000 Brunswick-McKinnon-St. Simons Airport: Rehabilitation of Terminal Area Apron for $5,864,000 McRae-Telfair-Wheeler County Airport: Rehabilitate Runway 3/21 for $890,000 Peachtree City-Falcon Field Airport: Construct Area 'C' Aircraft Parking Apron-Phase II for $2,000,000 Other Heavy and Civil Engineering Construction 600 West Peachtree Street, NW Less Than 50% Completed Information GAO gathered to improve the description This award funds projects at five Airports that not only were (1) previously delayed due to lack of funds and (2) part of the state's respective Airport Layout Plan and Airport Improvement Programs, but which (3) could begin construction within 45 days. Airport Development - design and construction of a building to house fire fighting equipment site work, framing, roofing, siding, plumbing, electrical installation Highway, Street, and Bridge Construction 143 Caruso Drive, Suite 1 More than 50% Completed Information GAO gathered to improve the description The award provides adequate space at the Hancock County-Bar Harbor Airport for fire fighting personnel, vehicle, equipment and their related functions. The Recovery Act provides funding to states for restoration, repair, and construction of highways and other eligible surface transportation activities under the Federal Highway Administration’s (FHWA) Federal-Aid Highway Surface Transportation Program and for other eligible surface transportation projects. FHWA apportioned $26.7 billion in highway funds to states and the District of Columbia through existing federal-aid highway program mechanisms, and states must follow existing program requirements and Recovery Act requirements in the use of funds. FHWA has obligated $26 billion in Recovery Act Highway Infrastructure Investment funding. (See fig. 4.) As of May 3, 2010, FHWA had reimbursed states for about $7.6 billion (29 percent). Almost two-thirds of Recovery Act highway obligations nationally have been for pavement projects, including reconstruction, resurfacing, and widening projects. In addition, $1.6 billion (6 percent) is being used on new roadway construction projects. Transportation enhancements account for about $1 billion (4 percent) of highway obligations. Of this $1 billion for transportation enhancements, the largest portion—71 percent—went to facilities for pedestrians and bicycles, while an additional 18 percent went for landscaping and other scenic beautification projects. (See table 7.) We assessed the transparency of descriptive information for highway awards available on Recovery.gov, as described earlier in this report. We found that an estimated 25 percent met our transparency criteria, 69 percent partially met our criteria, and 6 percent did not meet our criteria. For highway descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our transparency criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. FHWA established a new data system and guidance to support recipient reporting, which may have affected the transparency of reported information. For the Recovery Act, FHWA created a new database called the Recovery Act Data System (RADS) to help fulfill Recovery Act reporting requirements. In addition to oversight and agency reporting requirements, highway recipients—state highway departments—can use RADS to complete their recipient reports. RADS information, including descriptive information, can be uploaded by recipients into FederalReporting.gov. FHWA officials told us that highway recipients can also use RADS information to check the accuracy of their own state highway award data before submitting the data as part of their recipient reports. Several highway recipients we interviewed said they relied heavily on FWHA guidance, specifically RADS guidance, to fulfill their recipient reporting requirements. RADS includes several data fields to describe highway awards, including one specifically designed to provide descriptions more understandable to the public. After a state certifies a highway project, the highway recipient submits descriptive information to the database. FHWA’s guidance for RADS provides specific instructions on this information; for example, the project name data field in RADS should be consistent with the name used in state planning documents. In fall 2009, FHWA added a narrative field to RADS to describe awards in plain terms to facilitate public understanding. FHWA division offices in each state were tasked with submitting this information to RADS. In several cases, state highway department officials we spoke to helped division offices generate this information. Colorado and Ohio state highway officials, for example, told us they generated the information from various sources, such as state databases and project managers. In some cases, the addition of this plain-language description field in RADS may have improved the narrative information in recipient reports to make it more understandable for the second reporting round. For state highway recipients that used RADS data to complete recipient reports, the new RADS description field was reported on Recovery.gov. The Ohio highway department submits RADS data to fulfill its reporting requirement, and for one pavement improvement project in Ohio, the narrative information changed between reporting rounds as follows: First round project description: “It is proposed to widen SR104 from US35 to the new relocated SR207 by adding additional thru traffic lanes and a center turn lane. PE Only-100% LPA Funds.” Second round project description: “State Route 104 is currently a two- lane highway between U.S. Route 35 and the new state Route 207 extension to U.S. Route 23, and it serves as the northwest bypass of Chillicothe. The project consists of widening approximately three miles of roadway from two to four lanes. It also provides for adding traffic signals at two intersections, the rerouting of Pleasant Valley Road and the upgrading of entrances to the two state prisons located on the route. One of the signals will serve Moundsville Road, a main artery for Union Scioto Schools and one of the largest districts in the county; the other signal will serve Gateway Industrial Park.” As state highway recipients can choose whether to use RADS data for recipient reporting, the addition of this plain-language description field will not affect all highway recipient reports. Moreover, FHWA is still working to gather plain-language descriptions in all states. FHWA officials told us they regularly check that the new field in RADS contains information for each award and subsequently work with FHWA division officials in each state to get the necessary information when it is missing. Because of the fluid nature of the Office of Management and Budget’s (OMB) guidance, FHWA officials told us that aligning their agency’s supplemental guidance with OMB’s has been a challenging process. However, FHWA officials said communication with OMB has improved over time. During the first two reporting rounds, FHWA worked with OMB to revise its guidance in response to concerns over the agency’s definitions for the award amount fields, including amounts received and expended. However, OMB did not provide formal approval of this guidance. For the third reporting round, FHWA officials told us they did receive written approval for FHWA’s supplemental guidance, after again working with OMB to address problems with the award amount fields, though it took 2 to 3 months to finalize and gain approval of this guidance. In addition to the RADS database and guidance, FHWA provided other reporting assistance to recipients. First, FHWA held webconferences for recipients prior to the second reporting round. FHWA also provided targeted assistance to state highway recipients to discuss specific problems or concerns with recipient reporting. Some state-specific factors may also have affected the transparency of recipient-reported information. For the state’s transparency Web site, the Massachusetts Recovery and Reinvestment Office required the state highway department to write detailed descriptions understandable to the public. Massachusetts highway officials told us that creating these descriptions was time-consuming for the first round of reporting but that descriptions did not change for second round of reporting. In Georgia, the state highway department typically develops both a short and an extended description for a highway project. According to Georgia highway officials, the extended descriptions are written in nontechnical terms and include details beyond the project’s name and location. Georgia officials told us they used these extended descriptions in FHWA’s RADS database and used them to fulfill recipient reporting requirements. Regarding award location, several recipients we interviewed said they experienced problems entering information into FederalReporting.gov. Recipients faced difficulty entering zip code and congressional district information for awards. While highway projects can occur in more than one locality or congressional district, FederalReporting.gov allows only one zip code and congressional district per award. In these cases, highway officials in Colorado and Pennsylvania told us that multiple entries for location would be useful. In Pennsylvania, for example, a project to construct curb ramps compliant with the Americans with Disabilities Act in Chester County spanned two congressional districts, forcing the state department of transportation to select a single zip code—the geocenter of the county—and one congressional district—the lowest number—to report for the award. The Department of Transportation and FHWA make highway award information available to the public in several forms. For example: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes highway awards, provides the location, cost, and a brief description for each award. FHWA online map (fhwaapps.fhwa.dot.gov/rap/). The map provides, among other things, the cost, type (e.g., bridge improvement), and a brief description of each award. FHWA weekly summary of projects (http://www.fhwa.dot.gov/economicrecovery/index.htm). On its Recovery Act Web site, FHWA publishes location, cost, and descriptive information on awards in three stages—awarded, in construction, and completed. FHWA also provides a weekly summary of obligation and status information by state. At the state and local level, recipients provide various types and amounts of award information to the public. The six state highway departments we interviewed posted descriptive information on Recovery Act awards on their Web sites. Several state Web sites provided a list of awards, while some state highway departments provided award information in alternative formats. In Massachusetts, for example, the state highway Web site made award information available through an interactive map. Other state highway departments provided more extensive award information. For most Recovery Act awards to the state, the Ohio highway department provides cost, location, and status information, as well as a description and photos. For highway awards administered at the local level, some localities also used Web sites and other tools to promote award information. The City of Olmsted Falls in Ohio used the city Web site and newsletter to share information on the construction of a new bridge on State Road 252 to improve safety by eliminating a railroad crossing. FHWA officials and recipients we interviewed said they had not received much feedback from citizens on Recovery Act highway awards. As they have no data for comparison, FHWA officials told us that they could not determine whether Recovery Act awards received more public feedback than regular awards. Based on their experience, public feedback on the Recovery Act often involves requests for a definition of a transportation enhancement and an explanation for why it is included in a highway program. At the recipient level, state highway departments experienced varying levels of feedback from the public and the media. Massachusetts highway officials told us they were surprised at the level of inquiry received on the Recovery Act. By contrast, New Jersey and Colorado highway officials said they had received little public feedback on Recovery Act awards. According to Colorado officials, the state highway department has not had to respond to many inquiries, since award information is available on the department’s Web site. At the local level, officials from the City of Olmsted Falls in Ohio told us that they had received both positive and negative comments on the bridge project. In addition, officials told us that the availability of award information has kept public interest alive and created an outlet to publicize volunteer opportunities to landscape the project area after the new bridge is completed. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. US 6 CHANNAHON RD RAILROAD ST Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the pavement life by resurfacing 3.0 miles on US Route 6 in Channahon and Rockdale (Northeast Illinois). Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, MARYLAND DEPARTMENT OF Resurfacing Pegg Road from Forest Run Drive to Westbury Boulevard Highway Infrastructure Investment Grant: Available for Use in Any Area (Flexible) To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) 0003129 RESURFACING AND RELATED WORK ON ROUTE 2 HARVARD LITTLETON - RESURFACING & RELATED WORK ON ROUTE 2 Resurface Route 2 from the vicinity of the Littleton Road Bridge to the Boxborough town line, a distance of approximately 4.4 miles. Work includes minor box widening to extend existing sub- standard acceleration and deceleration lanes. Contract has been awarded and project advanced to 91% of scheduled construction before winter weather forced paving work to shut down. The project will resume in the Spring. Highway, Street, and Bridge Construction 10 Main St. More than 50% Completed TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Replace deficient bridge carrying NC 73 over Long Creek in Stanly County. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed 0073019 Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the bridge life by replacing the bridge deck and making other roadway improvements on 112th Place over I-57 in Chicago in Cook County. (Northeastern Illinois). Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This project provides for the acquisition of right-of-way to construct trailhead parking area to access the Lake Brandt Greenway on US 220 North of Strawberry Road in Guildofrd County. This is a locally administered project bu the Town of Summerfield. Highway, Street, and Bridge Construction (Information not reported) 0729002 TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This project adds sidewalks along SR 1149 (Lee Street/Old NC 11) in Ayden from West Barwick Street to Allen Drive in Pitt County to improve pedestrian safety. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, NEW YORK DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible), Rural Areas with Population under 5K Replace two culverts on NY Route 242 in the towns of Ellicottville and Little Valley, Cattaraugus County. This project will eliminate culvert deficiencies and ensure good structural condition. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed 5017283 HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF I-40 OFF RAMP-ON RAMP (CONWAY) (REHAB) Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) THE PURPOSE OF THIS PROJECT IS TO REHABILITATE 0.37 MILE OF HIGHWAY 65 BETWEEN THE INTERSTATE 40 OFF AND ON RAMPS IN THE CITY OF CONWAY, FAULKNER COUNTY. WORK INCLUDES PAVEMENT REHABILITATION, COLD MILLING, MAINTENANCE OF TRAFFIC, PAVEMENT MARKING AND MISCELLANEOUS ITEMS. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, GEORGIA DEPARTMENT OF SR 9 FROM CHATTAHOOCHEE RIVER TO MARIETTA HWY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a maintenance construction project in Fulton County. This project is the milling and resurfacing of SR 9 from the Chattahoochee River to Marietta Highway. This section of SR 9 needs resurfacing because the existing pavement is deteriorating. SR 9 was last resurfaced in 2000. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed M003942 Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This project will extend the pavement life by resurfacing on Wondermere Rd from Greenwood Rd to Thompson Rd in the Village of Greenwood (Northeastern Illinois) Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, GEORGIA DEPARTMENT OF CR 41/GREEN TOP RD @ CSX RAILROAD 2 MI NE OF NEWNAN Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project is the replacement of a structurally deficient bridge in Coweta County. This project will replace the bridge on County Road 41 over the CSX Railroad, 2.0 miles northeast of Newnan, Georgia. The existing bridge, constructed in 1950, is a 92-f x 21.33-f steel truss structure with a sufficiency rating of 21. County Road 41 at this location is a rural two lane roadway with 10-f lanes with variable 3-f to 8-f grass shoulders with a posted speed of 45 MPH. County Road 41 is an east-west roadway classified as an urban local road. The project will construct a new 170-f x 40-f concrete bridge over CSX Railroad at the existing bridge site. The approaches will consist of two 12-f lanes with 8-f rural shoulders. The existing bridge will be closed to traffic during construction. Traffic will be detoured using an offsite detour. Highway, Street, and Bridge Construction (Information not reported) 0006956 WEST VIRGINIA DIVISION OF HIGHWAYS Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will improve safety for motorists by replacing the McBee Bridge due to condition. The bridge is located on County Route 17 at approximately milepoint 3.68 in Wetzel County. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION , MISSISSIPPI DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K The city of Pontotoc will resurface Industrial Drive/South Industrial Circle east of First National Bank on Hwy 15 to intersection of Bolton Street. This project will make the road smoother and extend the life of the pavement. Highway, Street, and Bridge Construction (Information not reported) 0102008 TRANSPORTATION, IOWA DEPT OF US 52 From Just S. Of NCL Garnavillo N. to Just S. of IA 13 This project includes performing cracking and seating of the existing portland cement concrete pavement and then applying a hot-mix asphalt overlay on approximately 9.0 miles of US Highway 52 from just north of the northern coprporate limits of Garnavillo north to just south of Iowa Highway 13 in Clayton County. Improvements will also include the addition of 4- ft paved shoulders. The project will result in an improved driving surface and enhance safety. US 52 From Just S. Of NCL Garnavillo N. to Just S. of IA 13 Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This project will improve the surface and rebuild sections of the bridge on SR 912 over I-80 in Lake County. Highway, Street, and Bridge Construction (Information not reported) 0900336 TRANSPORTATION, INDIANA DEPARTMENT OF HMA Overlay, Preventive Maintenance Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will improve sections and extend the life of Walnut Street from Center Street to Wayne Street in Dekalb County with a pavement surface overlay. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, FLORIDA DEPARTMENT OF CR 491 (LECANTO HWY) FROM N OF PINE RIDGE BLVD TO SR 200 RESURFACING - This award was reported 3rd Quarter 2009 as 4261501ARRA091 In Citrus County, due to the poor condition of the road, this project resurfaces 6.8 miles of County Road 491 from Pine Ridge Boulevard to State Road 200. Highway, Street, and Bridge Construction (Information not reported) CITRUS (COUNTY), FL 34434-8125 Less Than 50% Completed ARRA091 TRANSPORTATION, FLORIDA DEPARTMENT OF CITRUS WAY FM CR484 (FT DADE AVE) TO KENSINGTON RD WIDEN/RESURFACE EXIST LANES - This award was reported 3rd Quarter 2009 as 4261271ARRA107 In Hernando County, due to the poor condition of the road, this project resurfaces 3.8 miles of Citrus Way and widens the 11-foot lanes to 12-foot lanes from Ft. Dade Avenue to south of Centralia Road. Highway, Street, and Bridge Construction (Information not reported) HERNANDO (COUNTY), FL 34601-8659 Less Than 50% Completed TRANSPORTATION, FLORIDA DEPARTMENT OF SW 72 ST/SUNSET DR. FROM S.W. 65 AVENUE TO S.W. 63 AVENUE RESURFACING - This award was reported 3rd Quarter 2009 as 4264161ARRA409 The City of South Miami will enhance sections of Sunset Drive by resurfacing, reconstructing sidewalks, upgrading drainage, and installing median landscaping and irrigation. This project will create a pedestrian-friendly corridor. Highway, Street, and Bridge Construction (Information not reported) MIAMI-FT LAUDERDALE-WPALM BCH, FL 33143-3242 Less Than 50% Completed ARRA409 TRANSPORTATION, IOWA DEPT OF S23 Highway: G24 Highway to IA Hwy 5 Warren County will resurface 3.2 miles of County Road S-23 with new asphalt between County Road G-24 and Iowa Highway 5 west of the City of Hartford. This project will improve driving quality by providing a more smooth riding surface. S23 Highway: G24 Highway to IA Hwy 5 Pave Highway, Street, and Bridge Construction (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, MARYLAND DEPARTMENT OF Updating Existing Traffic Barrier and Design New Median Barrier - District 4 Highway Infrastructure Investment Grant: Available for Use in Any Area (Flexible) To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) Bel Air, MD 21014-9999 More than 50% Completed Information GAO gathered to improve the description The award supports the as-needed replacement of guardrails along US 40, MD 41, I-83, and MD 151, located in Baltimore and Harford counties in Maryland. The award will result in increased safety for the traveling public. TRANSPORTATION, ALABAMA DEPT OF STMAA-0010(520) Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project involves the repaving of 2 miles of State Highway 10 (Camden Bypass) from State Highway 28 to State Highway 28 in Camden. Wilcox County Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports resurfacing of the road, which is needed for safety reasons and to prolong the life of the road. Based on current traffic patterns, the repaved road may last up to 12 years. Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the pavement life by milling, patching and resurfacing various locations throughout Kane County (Northeastern Illinois). Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports the repair of roads which had significant pavement damage from winter weather conditions. The project repaired the following locations: IL 19 (Shales Pkwy. to Barrington Rd.); IL 25 (I-88 to Banbury Rd.); IL 31 (Huntley Rd. to Miller Rd.); IL 31 (IL 64 to Indian Mound Rd.); IL 38 (IL 47 to east side of Anderson Rd.); IL 38 (Peck Rd. to West Ave.); IL 58 (IL 47 to I-88); IL 64 (IL 47 to Peck Rd.); and IL 72 (west of I-90 bridge to IL 31). TRANSPORTATION, COLORADO DEPARTMENT OF I 25 - COMMERCIAL TO MAIN ? SB (STIMULUS Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Constructs the Purgatoire River Pedestrian Trail, adds street lights, parking lot paving, curb and gutter, drainage inlets, landscaping and sidewalk along I-25 in Trinidad. Highway, Street, and Bridge Construction (Information not reported) $7,044,806.00 Less Than 50% Completed Information GAO gathered to improve the description The award funds reconstruction of I-25 for both northbound and southbound lanes from Goddard Ave. to Van Buren St., which will replace aging infrastructure and provide a safe transportation system to and from the city of Trinidad, Colorado. This award includes construction of a multi-use/pedestrian trail along the Purgatoire River, under and adjacent to the Main St. exit and entrance ramps. These activities will extend the city of Trinidad’s planned trail to Van Buren St., a distance of 2500 feet. Construction includes earthwork, pre- cast panel retaining walls, riprap, trail/path paving, and pedestrian guardrail. TRANSPORTATION , MISSISSIPPI DEPARTMENT OF UPGRADE ROADS IN SHARKEY COUNTY-STREETS IN THE TOWN OF ANGUILLA - VARIOUS STREETS Highway Infrastructure Investment Grant: Rural Areas with Population under 5K This project will resurface various roads in the town of Anguilla, Sharkey county. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award resurfaces 3.85 miles of 20 roads to improve rideability of the roads. Hot asphalt will be laid over the old road, and new grass will be planted along the shoulders. Once construction is completed, roads will be restriped and new signs will be placed along the roads. Highway Infrastructure Investment Grant: Rural Areas with Population under 5K This project will extend the pavement life by resurfacing a section of Shady Rest Road approximately 15 miles west of Champaign (East-Central Illinois) Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports road resurfacing from FAS (Federal Aid Secondary) Highway 1532 to IL10. TRANSPORTATION, MISSOURI DEPARTMENT OF Jackson County, Route 150 Widen from two lanes to four lanes from Horridge Road to Route 291 Highway, Street, and Bridge Construction (Information not reported) Kansas City, MO 64106-2706 Less Than 50% Completed Information GAO gathered to improve the description The award funds the change of the original rural section of Route 150 to a narrower urban/suburban section to reflect the community's future development and changing land uses. ROADS, NEBRASKA DEPARTMENT OF Highway N-116, Concord Southwest Highway Infrastructure Investment - Bridge replacement - From funding for use in any Area (flexible) This bridge replacement project brings this roadway to a state of good repair. It replaced a 52-year old structure with a new quintuple 10' x 8' box culvert. As of December 31, 2009, project is substantially complete. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The bridge is on Highway N-116 southwest of the town of Concord in Dixon County. TRANSPORTATION, ARIZONA DEPT OF US-95 (16th St) @ I-8 ( MP 24.2 to MP 24.8) in YUMA Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) The Arizona Department of Transportation proposes to construct a widening project in Yuma County along US 95 (16th Street), I-8 to Palms Ave. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports widening of the road in order to reduce traffic congestion. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Live Oak. The project is described as: Rehabilitate Apricot St: N St-Broadway Highway, Street, and Bridge Construction 703 'B' Street More than 50% Completed Information GAO gathered to improve the description The award repaves 0.2 miles of Apricot St. from North St. to Broadway. The resurfaced road will result in a smoother driving surface. TRANSPORTATION, WISCONSIN DEPARTMENT OF This is a reconstruction project in Dodge County on County Highway G, Beaver Dam - Randolph. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports pavement improvement activities on 2.1 miles of County Highway G in Dodge County to provide two 12-foot travel lanes and two 6-foot shoulders (including 3 feet paved). The activities will include pulverizing, injecting and relaying existing asphalt pavement, spot grading, culvert replacements, base aggregate dense, concrete curb and gutter, pavement, pavement marking and all incidental items necessary to complete work. The award will improve rideability of the road and increase safety of the road's intersections due to grading to meet current standards. TRANSPORTATION, MISSOURI DEPARTMENT OF City of Washington Resurfacing of Various Streets Resurfacing of various streets within the city of Washington. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds asphalt resurfacing on approximately 3.1 miles. The activities include sealing of cracks, providing an asphalt level course and a 2-inch surface course, and Americans with Disabilities Act (ADA) compliant curb access ramps. The streets include W. Eighth St., W. Main St., Grand Ave., Pottery Rd., Old Route 100, and Route 47 to Stafford St. These activities are a cost-effective method to extend the life of the pavement, provide a smoother riding surface, increase the structural capabilities of the pavement, and postpone a costly reconstruction project. TRANSPORTATION, OKLAHOMA DEPARTMENT OF USDOT - FHWA Transportation Infrastructure Project in partnership with the Oklahoma Department of Transportation Transportation Infrastructure Project for the Oklahoma Department of Transportation identified as RESURFACE OKC ARRA: MULTIPLE LOCATIONS ON MACARTHUR, MERIDIAN, MAY &NW 10TH Highway, Street, and Bridge Construction (Information not reported) Oklahoma City, OK 73102-3457 $2,202,725.00 More than 50% Completed Information GAO gathered to improve the description The award supports resurfacing 6 miles of road in Oklahoma City and installing new curb ramps in order to improve ride quality and extend the life of the pavement. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Gilroy. The project is described as: Rehabilitate local street Highway, Street, and Bridge Construction Information GAO gathered to improve the description This award repairs 11 street sections that are roadway corridors for arterial and collector streets and repairs sidewalks that lead to schools. The sidewalk construction project will improve the sidewalks for safety on the following streets: Welburn Ave. from Santa Teresa Blvd. to Wayland Ln.; Murray Ave. from Lincoln Ct. to Lewis St.; Sixth St. from Wren Ave. to Eigleberry St.; Princevalle St. from Sixth St. to Luchessa Ave.; Westwood Dr. from First St. to Third St.; Eighth St. from Uvas Park Dr. to Monterey St.; Forest St. from I.O.O.F Ave. to Sixth St.; Wren Ave. from First St. to Mantelli Dr.; Miller Ave./Wayland Ln. from Arnold Dr. to Eighth St.; Mantelli Dr. from Santa Teresa to Lions Creek Dr.; Church St. from First St. to Las Animas Ave. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Pedestrian and Class 1 Bike Path Highway Infrastructure Investment Grant: Transportation Enhancements This is a Facilities for Pedestrians and Bicycles project by a local agency in the City of Orange. The project is described as: Construction of a Class I bike trail along the Santiago Creek from Tustin Street to Collins Avenue and other amenities Highway, Street, and Bridge Construction Grants 3347 Michelson Dr Ste 100 Information GAO gathered to improve the description The award will result in a grade separated and safe Class I bikeway from central Orange to Main Place Mall and the Discovery Science Center. TRANSPORTATION, MONTANA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements Installation of accessible curb ramps on existing sidewalks at multiple locations within the City of Missoula. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will install between 100 to 200 sidewalk curb ramps in Missoula, Montana to make sidewalks Americans with Disabilities Act (ADA) accessible, install and repair sidewalks where the need is greatest, and upgrade existing sidewalks. The award will improve walkability in Missoula by providing a continuous sidewalk system throughout the community, provide safe and efficient pedestrian movement and meet the standards of the ADA, as well as identify pedestrian corridors for creating preferred routing for schools, children, disabled residents, elderly, community and neighborhood trips. TRANSPORTATION, RHODE ISLAND DEPARTMENT OF State CCVE/RVD Installation for Incident Detection and Data Collection Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project involves the installation of radar-based vehicle detectors, at the same location as existing traffic cameras, to collect data on traffic volume and speeds. The new detectors provide alerts to Traffic Management Center operators to announce increasing traffic congestion. Technology will allow RIDOT to post travel time on electronic message signs (40 locations). Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports the installation of radar detectors at 43 stations, including Narragansett, Warwick, North Smithfield, Lincoln, Richmond and Middletown. TRANSPORTATION, PENNSYLVANIA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Bridge deck replacements for various structures in Bedford County Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports bridge rehabilitation activities on two structurally deficient bridges in Bloomfield and Monroe Townships on State Route 2029. Rehabilitation activities include removing the existing overlay, placing a new concrete deck, and paving the new deck with asphalt. The award will extend the life of these bridges and improve safety by replacing the existing deteriorated bridge decks. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the County of Marin. The project is described as: Rehabilitate local street Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports the construction of a High-Occupancy Vehicle (HOV) lane and bike path along US 101 in San Rafael from 0.8 km south of Coleman Pedestrian Overcrossing to North San Pedro. The current HOV lane stops and starts at various locations in Marin County. This project, called the Gap Closure Project, will provide an uninterrupted HOV lane through the most densely populated section of Marin County. The award will result in an alternative to single-occupancy commuting. Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will substantially improve the roadway by reconstructing a section of Armour Road in the city of Bourbonnais (East-Central Illinois). Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award improves pavement and safety by resurfacing 1.23 miles of Armour Rd. between US 45/52 and IL 50. TRANSPORTATION, IDAHO DEPARTMENT OF STC-6762, MAIN ST; BRIDGE ST TO 6TH E, ST ANTHONY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will repair and overlay 0.5 mile of pavement on Main Street in City of St.Anthony, Fremont County and will include minor drainage improvements, replacement of traffic signal detection loops, and adjustments to manholes and valves. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description This award will repair the road, as it was in a state of disrepair. HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) THE PURPOSE OF THIS PROJECT IS TO WIDEN 4.91 MILES OF HIGHWAY 167 BETWEEN THE SALINE RIVER AND NORTH MILLERVILLE IN GRANT COUNTY. WORK WILL INCLUDE WIDENING THE EXISTING ROADWAY TO 4-LANES WITH AN 11' PAINTED MEDIAN AND 8' SHOULDERS, TWO BRIDGES, DRAINAGE IMPROVEMENTS, EROSION CONTROL AND MISCELLANEOUS ITEMS. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the widening of the road which goes to the growing town of El Dorado. This widened road, which will be 4 lanes, will connect El Dorado to the highway system. The award will result in reduced congestion and help spur economic development. TRANSPORTATION, CALIFORNIA DEPARTMENT OF RESURFACE, REPAIR, RESTRIPE AND CONCRETE REPAIRS Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K and Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of San Buena Ventura. The project is described as: Steet Rehab. Olive Street Phase I Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 Information GAO gathered to improve the description The award provides a new roadway surface on Olive St., from Stanley to Main St., because the road was in a state of disrepair. TRANSPORTATION, CALIFORNIA DEPARTMENT OF PAVEMENT REHABILITATION- 2009 ON SYSTEM ROADS. Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the County of Ventura. The project is described as: On system roads - Phase A various locations Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 More than 50% Completed Information GAO gathered to improve the description The award rehabilitates roads which were in a state of disrepair; the rehabilitation will result in new roadway surface pavement. The locations of the rehabilitation are Mission Dr., Beardsley Rd., Corsicana Dr., Simon Way, West Petrero Rd., Center School Rd., Tico Rd. and Spring Rd. TRANSPORTATION, MISSOURI DEPARTMENT OF North Sarah Street Belle To Page Preliminary engineering associated with resurfacing and sidewalk improvements from north Sarah Street to Belle. Highway, Street, and Bridge Construction (Information not reported) Saint Louis, MO 63101-1371 Information GAO gathered to improve the description The award supports widening sidewalks, improving pavement, and replacing street lights and traffic signals to improve safety. TRANSPORTATION, WYOMING DEPARTMENT OF Federal project I801176, involving microsurfacing and miscellaneous work on 23.20 miles of I-80 at various locations between Carter and LaBarge, in Sweetwater and Uinta counties. 100% of funds are under contract. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award will support preventive maintenance, including microsurfacing, to improve the pavement and safety of the road. TRANSPORTATION, OKLAHOMA DEPARTMENT OF USDOT - FHWA Transportation Infrastructure Project in partnership with the Oklahoma Department of Transportation Transportation Infrastructure Project for the Oklahoma Department of Transportation identified as BRIDGE & APPROACHES CO BR: OVER SPRING CREEK, 1.0 MI WEST & 0.7 MI SOUTH OFUS-177/SH-66 JCT. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award replaces a structurally deficient bridge that was scheduled for replacement in the next couple of years. The award provided the county with the necessary funding to accelerate the construction process. The new bridge will be approximately 1/4 mile in length and will provide improved safety and enhanced capacity for the Lincoln County road system. TRANSPORTATION, OHIO DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population Resurface a portion of the Reed Hartman Hwy. Also, perform pavement repair, curb & gutter repair, replace signal loops with video detection, replacing pavement striping, place new RPMs, and where ap Highway, Street, and Bridge Construction (Information not reported) $799,432.86 Information GAO gathered to improve the description The award supports rehabilitation activities for the Reed Hartman roadway from Cooper to Glendale-Milford Roads. These activities include removing the existing deteriorated asphalt surface and replacing it with a stress membrane and a new surface course of asphalt. In addition, ramps will be constructed at all intersections within the project area to comply with the Americans with Disabilities Act (ADA). Video vehicle detection cameras will also be installed at intersections instead of wire "loops" in the pavement to improve intersection performance. TRANSPORTATION, TEXAS DEPARTMENT OF ADD SHOULDERS : FM 372 ; Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award widens 8.58 miles of highway FM 2071, from FM 372 to FM 922, by adding shoulders to the north and southbound lanes to improve road safety. EXECUTIVE OFFICE OF THE COMMONWEALTH OF KENTUCKY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) GRIND PAVEMENT AND REHABILITATION OF PAVEMENT ON I-264 IN LOUISVILLE, KENTUCKY FROM NEWBURG ROAD AT MILEPOINT 13.710 TO BRECKINRIDGE LANE AT MILEPOINT 18.410 IN JEFFERSON COUNTY. Highway, Street, and Bridge Construction Grants (Information not reported) Louisville Urban Service Area, KY 40207-1112 Less Than 50% Completed Information GAO gathered to improve the description The award is for a section of road that is in poor condition and will help to improve pavement of the road. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Baldwin Park. The project is described as: RAMONA BOULEVARD ROADWAY PRESERVATION AND REHABILITATION (A)- INTERSTATE 605 TO FRANCISQUITO. THIS PROJECT CONSISTS Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 Less Than 50% Completed Information GAO gathered to improve the description The award supports repaving the roadway to make a smoother driving surface. TRANSPORTATION, OHIO DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Replace existing box beam bridge on SR 154, located approximately one mile east of SR 7 at Rogers, with a steel beam superstructure. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports the replacement and modernization of a bridge in Columbiana County, near Rogers, Ohio. The award will increase the bridge's life expectancy to up to 75 years. TRANSPORTATION, UTAH DEPARTMENT OF ADA PED ACCESS REGION ONE - PACKAGE 1 Highway Infrastructure Investment Grant: Transportation Enhancements This project constructed safe sidewalks and installed pedestrian ramps in various locations in Region 1(Northern Utah). Highway, Street, and Bridge Construction (Information not reported) Salt Lake City, UT 84119-5977 Information GAO gathered to improve the description The award funds construction of 43 pedestrian access ramps, 38 of which are at primary need locations--those locations that had existing curb, gutter, and sidewalk, but no curb cuts. The ramps will improve safety and compliance with Americans with Disabilities Act (ADA) standards and are located in the counties of Davis, Weber, Morgan, Box Elder, Cache and Rich. TRANSPORTATION, PENNSYLVANIA DEPARTMENT OF Hawthorn Bridge No. 4 Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Replacement of PA 28 Hawthorn Bridge over Pine Creek in Redbank Township Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will replace a bridge that was built in 1931. TRANSPORTATION, MARYLAND DEPARTMENT OF Safety and Resurfacing from Garrett County Line to East of Tisdale Street Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award improves pavement along 0.79 miles of US 40 Alt. The resurfacing will fix a deteriorating roadway and improve ride conditions. TRANSPORTATION, WASHINGTON DEPT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Reconstruct approximately 0.7 miles of Speyers Road, from the west City limits to Fremont Avenue, including curb and gutter, sidewalk, stormwater drainage system, and street lighting. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The activities under this award will improve pedestrian safety. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This is a Facilities for Pedestrians and Bicycles project by a local agency in the City of San Francisco. The project is described as: Pedestrian Enhancements Highway, Street, and Bridge Construction Less Than 50% Completed Information GAO gathered to improve the description The award covers an area in San Francisco bounded by 4th Ave., Moraga St., 9th Ave. and Lincoln Way. The sidewalk bulb-outs will encourage people to use alternative forms of transportation by improving pedestrian safety and comfort while also improving the connections between new cultural attractions in Golden Gate Park, the commercial corridor, the University of California Medical School, schools, a dense residential area, and several transit lines. TRANSPORTATION, NEW YORK DEPARTMENT OF SFY 09/10 PMI PAVING; ORANGE AND ULSTER COUNTIES Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Repave approximately 22 miles of state roadway in Orange and Ulster counties. The top layer of worn, deteriorated pavement will be removed and replaced with new asphalt and fresh pavement markings to extend the service life of pavement. Highway, Street, and Bridge Construction (Information not reported) PINE BUSH, NY 12566-0000 More than 50% Completed Information GAO gathered to improve the description The award supports repaving of short sections and intersections along state routes 10, 104, 104a, 109, 115, 116, 117, 118, 119, 120, 120a, and 121. TRANSPORTATION, TENNESSEE DEPARTMENT OF Highway Infrastructure Investment: Urbanized Areas over 200K Population This project is for improvements to the intersection of SR-8 (Ringgold Road) at Camp Jordan Parkway and including traffic signals Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds the installation of 10 traffic signals and 4 pedestrian signals at the intersection of Ringgold Rd. and Camp Jordan Pkwy. in order to help reduce congestion and improve pedestrian safety. TRANSPORTATION, GEORGIA DEPARTMENT OF CR 415/PHILLIP CAUSEY ROAD FROM SR 33 TO CR 412/SUMNER ROAD Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project is a roadway maintenance repaving project in Worth County. This project is the milling and resurfacing of County Road 415/PHILLIP CAUSEY ROAD from SR 33 to County Road 412/SUMNER ROAD for a total project length of 5.48 miles. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The pavement had deteriorated, and the resurfacing will bring the roadway into a state of good repair. TRANSPORTATION, CONNECTICUT DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Installation of epoxy pavement marking lines and intersections Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award enhances safety for both the motoring public and pedestrians in District 2 by replacing crosswalks, stop bars, and lane arrows at 396 intersections. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will improve drainage by replacing the structure on US 41 over Jane Feddeler Ditch in Lake County. Highway, Street, and Bridge Construction (Information not reported) Saint John, IN 46373-0000 More than 50% Completed Information GAO gathered to improve the description The drainage structure, called a "culvert," is located on US 41 over Jane Feddeler Ditch, 0.08 KM North of US 231. The new structure is a four-sided box culvert with a 10-foot span and 9-foot rise, and is 88 feet in length. The new structure is a sound structure satisfying contemporary design standards and has an estimated functional life of 60 to 80 years. Due to its age, overall structural condition, and, more specifically, deterioration at the widening joints, the structure is being replaced. SOUTH DAKOTA, STATE OF US18 - From the east junction with SD50 to the east junction with US281; US281 - From the east junction with US18 to the south city limits of Armour.; US18 - From the east junction with US281 to the junction with SD37; SD50 - from the East US18 Junction Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Highway, Street, and Bridge Construction (Information not reported) $6,323,010.95 Information GAO gathered to improve the description The award supports the milling and paving of sections of US Highways 18 and 281 and South Dakota Highway 50 in Charles Mix, Douglas, and Hutchinson Counties. These sections of highway were rated by the South Dakota Department of Transportation as being in "fair" condition, the project would take little time to begin, and the area that these roads are located in was economically distressed at the time of project proposal. The total length of roadway to be milled and paved is 30.2 miles and has a life span of about 15 to 18 years. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) SR 39 - 1.25 miles N of E jct of SR 10 Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The purpose of the award was to correct existing structural deficiencies and safety hazards by lining the existing pipe. The award supports lining for a corrugated metal pipe 5 feet in diameter and 58 feet in length. An High Density Polyethylene (HDPE) liner is placed in a pipe when an existing pipe is structurally deficient. A pipe liner is more cost effective in many cases than a full pipe replacement. The award will result in a newly lined pipe with an estimated functional life of 80 years. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will restore the pavement on Madison County Road 600 W with a new surface course. Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports the resurfacing of County Road 600 West from County Road 400 North to State Route 128 in Madison County. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population, Available for Use in Any Area (flexible) This project will improve the traffic signals on Market Street from State St to Vincennes Street. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports a traffic signal modernization project. This project includes the replacement of existing mast arms (with span mounted signals), controllers, signal indications (vehicular and pedestrian), and the installation of new vehicle detection at the following six intersections: three signals on East Market St. at Pearl St., Bank St., and East 7th St., and three signals on East Spring St. at Pearl St., Bank St. and East 7th St. The vehicle detection system being installed is wireless, which eliminates issues typical to wired loop detection systems such as broken loop wire. The pedestrian signal indications will visibly countdown the remaining crossing time. New controllers and antennae will be installed where State St. intersects East Market St. and East Spring St. to create a coordinated traffic signal system. Signal heads will be LED lights which are brighter, last longer, and much more energy-efficient. TRANSPORTATION, MICHIGAN DEPARTMENT OF Hot mix asphalt base crushing and shaping, resurfacing, trenching and aggregate shoulders. To improve the transportation infrastructure and the economic development capacity of the state of Michigan. Power and Communication Line and Related Structures Construction Less Than 50% Completed Information GAO gathered to improve the description The award provides resurfacing for 1.37 miles of West Holt Rd. from Heatherton Dr. to Thornburn St. in Ingham County to improve rideability and make the roadway smoother. TRANSPORTATION, MICHIGAN DEPARTMENT OF Cold mill, HMA resurfacing Hot mix asphalt base crushing, shaping, cold milling, resurfacing, ramp realignment, misc safety and drainage To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Less Than 50% Completed Information GAO gathered to improve the description In order to make the road smoother and improve driving quality, the award resurfaces 2 miles of US-10 from the west county line of Osceola to the US-131 interchange in the vicinity of Reed City. TRANSPORTATION, MICHIGAN DEPARTMENT OF Pavement remremoval, hot mix asphalt pavement, concrete curb and gutter and earth work To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description The award provides resurfacing for 0.5 mile to maintain the pavement condition and improve the ride quality of Riverside Dr. in Port Huron. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Resurfacing from Austin Rd to Airport Way Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Ripon. The project is described as: Rehabilitate roadway between Airport Way and Austin Road Highway, Street, and Bridge Construction Information GAO gathered to improve the description The award funds the resurfacing of West Ripon Rd., which is in a state of disrepair. The resurfacing will result in a smoother driving surface. TRANSPORTATION , MISSISSIPPI DEPARTMENT OF North St/Court St. (8035/8032) Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K The city of Cleveland will construct sidewalks along Court Street and North Street. This project will improve pedestrian access along these roads. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will cover 0.55 miles. TRANSPORTATION, NEW YORK DEPARTMENT OF HUDSON VALLEY RAIL TRAIL: HAVILAND ROAD TO COMERCIAL AVENUE Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) A project for a new/improved bicycle facility on the Hudson Valley Rail Trail from Haviland Road to Commercial Avenue in the town of Lloyd. All Other Specialty Trade Contractors (Information not reported) Information GAO gathered to improve the description This award converts 1.36 miles of abandoned rail corridor into a continuous multi-use trail facility for bicycles by constructing the missing links in a publicly owned bicycle/pedestrian facility. The trail will increase accessibility and mobility options, enhance the integration and connectivity of the transportation system, and preserve and improve existing transportation systems. TRANSPORTATION, IDAHO DEPARTMENT OF STP-7181, GOULD ST BR, POCATELLO Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will remove and replace existing bridge joints on Gould Street Bridge in the City of Pocatello and improve pavement markings along the roadway. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds the repair of the bridge deck joint seals and associated concrete work in order to seal the bridge expansion joint system and protect the structural components below the joint. Recent bridge inspections indicated deteriorated elements of the Gould Street Bridge, including the deck expansion joint seals, deck wearing surface, and girder bearings. Failed deck joints can cause extensive damage to bearings, abutment back walls, and diaphragms, resulting in improper movement of the bridge, diminished structural integrity of the structure, and further deterioration of the deck. TRANSPORTATION, NEW JERSEY DEPT OF Chester Branch RR Rehabilitation - Morris County Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population Rehab of existing Rail Road Highway, Street, and Bridge Construction (Information not reported) $5,800,000.00 Information GAO gathered to improve the description The award supports the rehabilitation of 4 miles of rail track alignment including five rail spurs, bridge and steel structures, and grade crossings, as well as rehabilitation of the rail right of way to include the following: change out the rails; remove and replace tie; lay new ballasts; new switches and switch timbers; surface the entire right of way; new runarounds and turnouts; and brush cutting and wood chipping. TRANSPORTATION, NEW MEXICO DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will include grinding down existing old pavement and replacing with new pavement on 12th Street from Gold Street to Mississippi Street. In addition, it will include inspection and oversight. On Silver Street from US 180 to 32nd Street, new pavement will be placed. Highway, Street, and Bridge Construction (Information not reported) Silver City, NM 88062-0000 Information GAO gathered to improve the description The award supports pavement improvements to ensure that the road complies with the Americans with Disabilities Act (ADA). TRANSPORTATION, KANSAS DEPARTMENT OF GREENWOOD HOTEL BUS DEPOT @ 300 N MAIN IN EUREKA Highway Infrastructure Investment Grant: Transportation Enhancements Restore part of the interior and exterior and establish a transportation museum/welcome center in the former bus depot of the Greenwood Hotel at 300 N Main Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports the renovation of the first floor and exterior restoration of the Greenwood Hotel. TRANSPORTATION, ALABAMA DEPT OF STMTE-TE09(927) Highway Infrastructure Investment Grant: Transportation Enhancements 'This project involves a Historic Downtown Sidewalk and Canopy Restoration for Hartselle Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description This award supports the reconstruction of .24 miles of sidewalks and the canopy above the sidewalks in the historic downtown area of Hartsell, Alabama. This reconstruction is being done so that the sidewalks meet Americans with Disabilities Act (ADA) standards and the canopy meets historical preservation standards. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award funds one shelter, four trash containers, two tables, and one bike rack at the Bayview Beach ferry terminal in Beaufort County, which will increase pedestrian access and safety. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description The award supports pavement improvement activities by the Clinton County Road Commission. The Commission will improve 4 miles of pavement on West Colony Rd. from the West Clinton County Line to Tallman Rd. The award will result in improved safety and extend the service life of the roadway. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description In order to improve road safety, the award resurfaces 2.282 miles of shoulder on County Road 498 in Schoolcraft County from Newborn Rd. to the County line. The resurfacing defines the inside edge of the shoulder, adds additional gravel material and grade shoulder to proposed slope, removes excess material, and compacts the shoulder with a roller. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Information GAO gathered to improve the description The award supports pavement improvement activities to resurface 7.8 miles of Featherstone Rd. from M-66 to Engle Rd. north of Sturgis. The award will result in improved driving quality by making the road smoother. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Information GAO gathered to improve the description The award supports the resurfacing of .1 miles of Shook Rd. in Romulus, Michigan. The award will result in improved driving quality and increase the service life of the road. The Recovery Act appropriated $1.5 billion to the Supplemental Discretionary Grants for a National Surface Transportation System—which the Department of Transportation termed “TIGER grants.” The purpose of the program is to make capital investments in surface transportation that will have a significant impact on the nation, a metropolitan area, or a region. The act required the selection of awards on a competitive basis. Although grant agreements have yet to be signed, the department announced the selection of 51 awards on February 17, 2010. Department officials said they received over 1,400 applications from all 50 states, territories, and the District of Columbia for projects totaling nearly $60 billion. With $1.5 billion available, about 3 percent of the projects will be awarded grant funds. The projects selected include a range of efforts to improve highways, bridges, rail, port, transit, and intermodal facilities. As shown in figure 5, transit projects totaled about $383 million (26 percent), and rail projects totaled about $374 million (25 percent). These were the largest transportation categories for projects to improve the movement of people and freight. These projects are geographically dispersed throughout the United States. Highways were the next largest category at $338 million (23 percent). Most of these projects are located in the West and South. According to the department, these projects were selected because they demonstrated the potential to meet all of the selection criteria, which included such key components as the ability to have a significant impact on desirable near- and long-term transportation outcomes of the nation, a metropolitan area, or a region and the creation of jobs, and the ability to apply innovation and partnership to achieve long-term transportation outcomes or new approaches to financing, contracting, or project delivery. As no TIGER grants have been awarded, the department has not issued any reporting guidance or other assistance to date. Therefore, for this program, we could not perform our transparency assessment. According to an official, the administrative oversight and reporting requirements for these awards will be similar to those for other Department of Transportation Recovery Act awards. Each TIGER grant will be administered by the modal administration responsible for the majority of the activities within the award. For example, an award for public transportation activities will be administered by the Federal Transit Administration. The modal administration will also oversee recipient reporting for these grants. Department officials have implemented steps to inform the public about the TIGER grants and selected projects: Department of Transportation Web site (www.dot.gov/recovery/ost/.) A Web site was established to provide information about the TIGER grants and to address general questions. In announcing the grant awards, the department issued a press release along with a report listing the grant amounts. The report also included for each project a brief summary that describes the project and its benefits. (See table 8.) The press release and report are also available on the Web site. Department of Transportation interactive map of awards (www.dot.gov/recovery). This interactive map will include the TIGER awards and provide the location, cost, and a brief description for each award. According to an agency official, there has been little public feedback regarding the announced grants or the information that is available on the agency’s Web site. To date, most of the public comments on TIGER grants are not from the general public but from unsuccessful applicants—that is, the 97 percent of applicants that were not selected. Under the $6.9 billion Transit Capital Assistance program, the Federal Transit Administration (FTA) apportioned Recovery Act funds to recipients through existing program formulas. Recipients of funds include both large and medium urbanized areas, as well as states, which administer transit awards for small urbanized and nonurbanized areas. These funds can be used for activities such as vehicle replacements, facilities renovation or construction, preventive maintenance, and paratransit services. The Transit Capital Assistance program also includes a new discretionary grant program to support transit projects that reduce greenhouse gas emissions or energy use. FTA had obligated nearly all the Recovery Act Transit Capital Assistance program funding as of April 5, 2010. Of the amount obligated, $1.6 billion had been reimbursed by FTA. Almost half of Recovery Act transit obligations have been for transit construction and non-vehicle infrastructure activities. This includes about $1.2 billion for station stops and terminals and about $1.1 billion for support facilities and equipment. In addition, 30 percent is being used for purchasing or rehabilitating buses; a majority of these funds are being used to replace or rehabilitate buses. (See fig. 6.) We assessed the transparency of descriptive information for transit awards available on Recovery.gov, as described in the report. We found that an estimated 50 percent met our transparency criteria, 50 percent partially met our criteria, and zero percent did not meet our criteria. For transit descriptions that partially met our transparency criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. For the first two reporting rounds, FTA created detailed assistance documents for recipients that may have affected transparency results. FTA annotated the Office of Management and Budget’s (OMB) guidance— specifically, the data reporting model—by adding a transit-specific comment and example for each reporting field. For some data fields, such as project name, FTA directed recipients to use information from FTA’s grants database, Transportation Electronic Award Management. In the award description field, FTA outlined items that recipients should include in their narrative. (See table 9.) According to FTA officials, OMB’s guidance is open to different interpretations and does not provide enough information to guide recipients to provide descriptions understandable to the public. In its reporting model, therefore, FTA provided clarification to help recipients do so. Several recipients we interviewed told us this annotated reporting model was very useful in crafting their recipient reports. Chicago Transit Authority officials, for example, told us that FTA’s annotated reporting model helped them interpret the ambiguous parts of OMB’s guidance. For many of the transit awards we reviewed in detail, the Recovery.gov reports directly reflected FTA’s annotated reporting model. Specifically, recipients included the introductory language and other conventions suggested by FTA in the award description field. For the third reporting round (for the quarter ending March 31, 2010), FTA updated its annotated reporting model. However, officials told us they called this updated reporting model and all other reporting resources “technical and training assistance” for this round. They did so because OMB’s March guidance directs agencies to not call any of their materials “guidance” unless they have been formally approved by OMB. In general, FTA officials said that the agency has had to adjust its plans and processes for recipient reporting because of the fluid nature and late release of OMB’s guidance. In addition, FTA conducted webinars for each reporting round to support transit recipients. For the second reporting round, FTA’s webinar provided tips on completing narrative fields that advised recipients to use plain language and avoid acronyms and jargon, imagine that you are writing for your mother, who will have to explain what is written to someone else, and think about the public, reporters, and auditors reading published reports. According to several recipients we interviewed, FTA’s webinars were helpful in completing reports. Officials from the Port Authority of Allegheny County told us that the FTA webinars were the main source of assistance used to complete their recipient reporting. FTA also held a webinar with recipients after the first reporting period to identify concerns and collect lessons learned for use in future reporting rounds. Other FTA efforts may have affected the transit transparency results. First, FTA produced a tip sheet to help recipients avoid and resolve problems when reporting. A few recipients we interviewed also said that FTA regional office staff helped clarify reporting guidance and solve problems. Officials from the Greater Attleboro-Taunton Regional Transit Authority in Massachusetts told us they worked closely with FTA regional staff to initially develop a description for the Recovery Act award, as it required more detail than normal. In addition, Massachusetts Bay Transportation Authority officials told us that FTA regional staff were helpful in answering questions that arose during the reporting process. Finally, FTA regional officials reviewed narrative descriptions to ensure that they were understandable and accurate, though the volume of descriptions prevented them from doing a thorough review. While FTA’s transparency results were generally positive, a few recipients we interviewed told us that space limitations in the narrative reporting fields affected their ability to fully convey award information on Recovery.gov. For example, officials from the Greater Attleboro-Taunton Regional Transit Authority said that they wanted additional space to explain activity details and status information. Massachusetts Bay Transportation Authority did not face space limitations; however, officials told us that the multiple activities under their grant, from purchasing paratransit vans to repairing fencing systemwide, did not lend themselves to a single description, as is the convention in FederalReporting.gov. Beyond Recovery.gov, the Department of Transportation and FTA make award information available to the public through various means, including the following: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes transit awards, provides the location, cost, and a brief description for each award. FTA grants digest (www.fta.dot.gov/index_9440.html). Published on FTA’s Recovery Act Web site, this searchable digest provides a short summary of each grant including location, cost, and an overview of activities. FTA spreadsheet of awards. Also on FTA’s Web site, the spreadsheet outlines information on each award like the grant number and a short, descriptive title. This spreadsheet does not include detailed descriptions of the activities within each award. The source of the data—FTA’s Transportation Electronic Award Management database—limits the length of the descriptive field. FTA fact sheets. For a limited number of awards, FTA posted on its Web site detailed fact sheets that describe the purpose and nature of the award. In addition, transit recipients use Web sites, newsletters, and other tools to provide award information to the public. Several transit recipients we interviewed disseminate Recovery Act award information to the public on their Web sites. In California, the Orange County Transportation Authority created a dedicated Web site for the county’s Recovery Act transportation awards (www.octa.net/rtw_response.aspx). This Web site includes, among other things, information on the transit activities in the authority’s transit award, including bus preventative maintenance and facility repairs in Irvine, California. On its Web site, the Chicago Transit Authority posted press releases to announce plans and progress on activities. Press releases covered the delivery of the first hybrid bus purchased under the award and a status update on the replacement of 7 miles of subway track. Similarly, the Northeast Illinois Regional Commuter Railroad Corporation—Metra— used its monthly newsletter to announce Recovery Act activities, including the construction of a new station on the Rock Island Line. A few recipients also used social media like Facebook and Twitter to make award information available to the public. The Metropolitan Transportation Authority in New York, for example, maintains a Facebook page that contains a video explaining the Long Island Rail Road Atlantic Avenue viaduct span replacement project. According to FTA officials, most of the feedback on transit Recovery Act awards has been positive. The press also reported on the use of funds for specific projects at the local level, but press coverage has decreased over time as the Recovery Act has become more routine. Many of the transit recipients we interviewed said that, in general, they had not received much public feedback. Pennsylvania state transit officials told us they had not received any public comments on the state’s rural transit award, which involved transit activities like building an intermodal transit center and replacing buses in various locations in the state. The Port Authority of Allegheny County used its transit award to pay for a portion of the ongoing construction of its light rail system from downtown Pittsburgh into the developing North Shore area of the city, which involves tunneling under the Allegheny River. While the project received some negative feedback early on, Port Authority officials told us that those remarks have faded as the benefits of using public transportation to support development of the North Shore have become evident. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Purchase of 17 replacement buses. Rehabilitaion of maintenance garage. Purchase of bus washer and vacuum cleaning system. Purchase of diagnostic equipment and tools. Invest in public transportation by purchasing 17 new compressed natural gas buses and related tools for repair, rehabilitating a bus maintenance garage, and replacing a bus wash and vacuum cleaning system. This grant has allowed the Birmingham-Jefferson County Transit Authority to begin the administrative and soliciatation process to acquire 17 compressed natural gas buses and related diagnostic equipment and tools. This grant sill also provide for the rehabilitation of a maintenance garage and replacement of a buswash and vacuum cleaning system at the same location within the next year. Bus and Other Motor Vehicle Transit Systems Preventive Maintenance and ADA Complementary Paratransit Service Sustain mass transit service by funding Alameda Contra Costa Transit's (AC Transit) Preventive Maintenance ($23,165,013), and AC Transit/Bay Area Rapid Transit jointly funded Complementary Paratransit Service (East Bay Paratransit): ($2,573,890), financed by American Recovery and Reinvestment Act Funds appropriated through the Federal Transit Administration Urbanized Area Program (Section 5307; 49 CFR). The purpose of this program is to sustain mass transit and paratransit operations in the AC Transit service area and to preserve critical jobs to ensure service can be maintained at existing levels. Purpose of grant activities is to provide regular and ongoing bus maintenance and rehabilitation, including associated administrative costs, to sustain fixed-route transit service and paratransit service. As one of the largest bus transit systems in the country, AC Transit currently provides bus service to approximately 67 Million passengers per year, in addition to nearly 500,000 paratransit riders annually . This service covers a 364-square mile service area in Alameda and Contra Costa Counties, with over 100 bus lines providing bus transportation to 13 cities and 9 unicorporated areas, as well as to the City of San Francisco via the San Francisco-Oakland Bay Bridge, and San Mateo and Santa Clara Counties via the Hayward-San Mateo and Dumbarton Bridges. American Recovery and Reinvestment Act funds allowed transit service to be sustained for nine (9) months. These funds were committed to fund jobs critical to maintain fixed-route mass transit and paratransit services. Without the American Recovery and Reinvestment Act funds, AC Transit woul dhave been forced to make mandatory layoffs in all areas and draconian service cuts would have gone into affect last year. Bus and Other Motor Vehicle Transit Systems AC Transit, 1600 Franklin Street SIMI VALLEY, CITY OF Shelters, Buses, Garage Modernization, Wheelchair Scale, Operating Assistance and Non Fixed-Route ADA Paratransit Service Fiscal Year 2009 Transportation Enhancement projects eligible for funding under the Federal American Recovery and Reinvestment Act (ARRA) for the City of Simi Valley/Simi Valley Transit include funding for the following: 1) TRANSIT SHELTER PROGRAM ($484,000) - Like-kind replacement and upgrade of 26 deteriorated bus shelters, 72 concrete benches, and other amenities at bus stops throughout the City. 2) PURCHASE OF THREE REPLACEMENT 40-FT BUSES ($1,380,000) - Like-kind replacements for Compressed Natural Gas (CNG) buses that have met their useful service life by accumulating in excess of 568,000 miles each. The replacement vehicles will be low-floor, 40-ft New Flyer buses that will have an expected service life of 12 years or an accumulation of at least 500,000 miles. These buses will meet the Clean Air Act Standards (CAA) and the Americans with Disabilities Act (ADA) requirements. 3) TRANSIT GARAGE MODERNIZATION ($563,949) - Project to include work on electrical, ventilation and mechanical systems; retrofitting the mechanic work bays; upgrading the hydraulic lifts; increased storage area and like-kind replacement of the bus washer. 4) WHEELCHAIR SCALE ($5,000) - Purchase of one scale to be used during the ADA application process to weigh wheelchairs. 5) OPERATING ASSISTANCE ($303,400) - 10% of total allocation to provide for operating assistance for the City's fixed-route and non- ADA paratransit service. 6) NON FIXED-ROUTE ADA PARATRANSIT SERVICE ($303,400) - 10% of total allocation to assist with ADA/DAR paratransit operating costs. Have entered into a cooperative purchasing agreement with Orange County Transportation Authority (OCTA) for the replacement of three (3) New Flyer of America buses. The design and locations for transit shelters is complete. Staff will be seeking authorization from City Council to solicit bids by March 2010. Architectural services on the garage modernization project have been approved. Staff will be seeking authorization from the City Council by February 2010 to solicit bids. Purchase of the wheelchair scale has not been completed. Bus and Other Motor Vehicle Transit Systems 490 West Los Angeles Ave Simi Valley, CA 93065-1646 Less Than 50% Completed LOS ANGELES, CITY OF This grant applies the 2009 ARRA Formula allocation of $8,022,665 to bus replacement. The City of Los Angeles Department of Transportation will purchase approximately sixteen 40-foot over-the-road type coaches that will have an expected useful life of 12 years or 500,000 miles. The vehicles that will be replaced have either met or exceeded their useful life of 12 years. A Federal ratio of 100/0 will apply. The buses purchased through this grant will comply with both the Clean Air Act (CAA) standards as well as with the requirements of the Americans with Disabilities Act (ADA). The goal of this project is replace approximately 16 existing buses. The new buses will have a useful life of 12 years or 500,000 miles. The new buses will also comply with current environmental standards as well as with the ADA. The City of Los Angeles initially anticipated that this project would be completed no later than June 30, 2010. During the 4th quarter of calendar year 2009, the project experienced slippage. The City currently anticipates that the project will be completed by the second quarter of 2011. Completion means that the buses will be assembled, delivered, placed into the service, and the grant closed out. During the most recent quarter (October 1, 2009 to December 31, 2009) arrangements were made with the proposed vendor to provide a sample bus for testing. The sample bus is currently being shipped to Altoona, Pennsylvania. If the sample bus performs as expected, production of the 16 buses are scheduled to begin in the summer of 2010. The City anticipates to begin taking delivery of these buses in the summer of 2010. To date, no funds have been expended nor obligated. 100 S. Main Street-10th Floor Los Angeles, CA 90012-3712 Less Than 50% Completed Transit Capital - Bus Replacement Transit Capital - Bus Replacement of 6 Hybrid Gasoline-Electric buses. Contract awarded on 8/11/09 to purchase 6 hybrid gasoline-electric buses from New Flyer. Bus and Other Motor Vehicle Transit Systems CA-96-X051 NAPA COUNTY TRANSPORTATION & PLANNING AGENCY Purchase 4 hybrid buses and construct multi-modal Park and Ride Facility Invest in Public Transportation- Replace four 15+ yeal old diesel buses with new, clean air, gasoline/electirc hybrid buses. In addition, funds will be used to construct a multi-modal Park and Ride facility featuring: commuter parking, transit hub, bicycle accomodations, and a potential future rail platform. Green building elements (such as solar power) will be incorporated into the design. This grant will allow for the modernization of the transit fleet with the purchase of 4 gasoline/electric hybrid vehicles. In addition, once the multi-modal Park and Ride lot is constructed, hundreds of residents/commuters a day will be able to make more efficient, safe and timely transit connections. Bus and Other Motor Vehicle Transit Systems (Information not reported) Preventative Maintenance, Capital Cost of Contracting, and Paratransit Offset This project invests the American Recovery and Reinvestment funds to preserve public transportation service by funding vehicle maintenance, providing fixed-route service, and help fund local transit services for the disabled community for 2010. The funds applied in this application will help reduce the potential reduction of these services as a direct result of declining local sales tax revenues. Due to declining sales tax revenues, Mountain Metropolitan Transit is facing up to a 50% reduction in local fixed route services and up to a 10% reduction in paratransit services for 2010. This ARRA grant will allow Mountain Metropolitan Transit to fund 3rd Party Captial Cost of Contracting for its fixed route service for 2010; fund a portion of the ADA Paratransit services for 2010; and fund building and vehicle Preventative Maintenance for 2010. As a result of these investments, the local match , annually budgeted for these grant funded capital expenditures, has been freed up to help preserve portions of the local fixed-route and paratransit services in 2010. Bus and Other Motor Vehicle Transit Systems Grants (Information not reported) Colorado Springs, CO 80901-1575 SANTA ROSA, CITY OF Invest in public transportation. These funds will partially finance the purchase of one replacement bus. The bus to be replaced is a 1998 40’ diesel fixed route urban public transit bus. This bus will have met the end of its 12 year useful life by 2010. The 1998 bus will be replaced with a 40-foot, low floor Gasoline Hybrid Electric Bus (GHEB) fixed route, urban public transit bus. This bus will be procured in accordance with FTA’s Procurement Requirements. The bus will meet the Clean Air Act (CAA) standards and the Americans with Disabilities Act (ADA) requirements. These funds will partially finance the purchase of one replacement bus. The bus to be replaced is a 1998 40’ diesel fixed route urban public transit bus. This bus will have met the end of its 12 year useful life by 2010. The 1998 bus will be replaced with a 40-foot, low floor Gasoline Hybrid Electric Bus (GHEB) fixed route, urban public transit bus through the exercising of options on an existing contract. This bus will be procured in accordance with FTA’s Procurement Requirements. The bus will meet the Clean Air Act (CAA) standards and the Americans with Disabilities Act (ADA) requirements. Expected contract award by March 2009. Bus and Other Motor Vehicle Transit Systems 1101 College Avenue, Suite 200 Santa Rosa, CA 95404-3940 Less Than 50% Completed CA-66-X010 TRACY, CITY OF (INC) Invest in public transportation by imrpovement of bus stop including, but not limited to, installation of bus shelters, benches, and trash recepticles at over 50 locations. The City of Tracy currently operates 5 fixed bus routes serving over 90,000 passengers annually. Additionally, the City operates a Paratransit system which services over 24,000 passengers annually. The addition of bus shelters and benches will provide a safer environment for passengers to wait for the bus. The City of Tracy has not yet started its ARRA project this quarter. Bus and Other Motor Vehicle Transit Systems (Information not reported) SAN FRANCISCO, CITY & COUNTY OF Infrastructure Enhancement and Maintenance Projects Invest in public transportation by restoring the door and step components on light rail vehicles; engaging in preventive maintenance activities to preserve/extend the functionality of the SFMTA's assets; rehabilitating articulated motor coaches; upgrading the SFMTA’s mileage and fuel tracking system for diesel and trolley coaches; equipping an interim Operations Control Center to support dispatching and rerouting of vehicles, incident detection and response, and voice communications with transit operators; replacing the inductive loop cable in the subway; procuring a customized software application for capital planning and grant management; procuring new personal computers for the bus yards; replacing sales kiosks for cable car fares; replacing change machines in the subway system; replacing track switches for light rail vehicles; replacing the SFMTA's existing subway fare collection system with a new fare collection system; and engaging in rehabilitation and upgrade activities at various sites, facilities, and right-of-way locations. This grant will allow the SFMTA to restore the worn out door and step components of approximately 143 light rail vehicles; engage in preventive maintenance activities to preserve/extend the functionality of the SFMTA's assets; rehabilitate about 35 standard and 27 articulated motor coaches; upgrade the SFMTA’s obsolete mileage and fuel tracking system for diesel and trolley coaches; equip an interim Operations Control Center to support dispatching and rerouting of vehicles, incident detection and response, and voice communications with transit operators; replace the worn out inductive loop cable in the subway; procure a customized software application for capital planning and grant management; procure about 70 new PCs for the bus yards; replace up to 2 outdated sales kiosks for cable car fares; replace obsolete change machines in the subway system; replace approximately 19 worn out track switches for light rail vehicles; obtain a new automatic fare collection system for the subway; and engage in rehabilitation and upgrade activities at various sites, facilities, and right-of-way locations, including the SFMTA's Presido and Burke facilities and right-of-way locations including 19th Avenue, Carl and Cole Streets, and Duboce Portal. All applicable projects are under contract, with the SFMTA actively working on performing preventive maintenance on its vehicles, implementing automatic fare collection equipment in the subway, rehabilitating the doors and steps of light rail vehicles, installing new workstations at bus yards, implementing various infrastructure and facility enhancements, and establishing the Central Control Interim Line Management Center. The SFMTA has completed the installation of change machines in the subway station. (Information not reported) San Francisco, CA 94103-5417 Less Than 50% Completed Lease (46) 40-Ft Buses Monterey-Salinas Transit Capitalized Preventive Maintenance;Lease (46) 40-Ft Buses, Acquire Mobile Fare Coll Equip. The project consists of the purchase up to forty (40)buses from Gillig Corp. and six (6) trolleys from Optima Bus Corp. to replace 38 buses in current fleet and expand by 8 buses. This will fund the remaining payments on bus financing payments 17, 18, 19, and 20. Buses have been paid off. Bus and Other Motor Vehicle Transit Systems 1 Ryan Ranch Road Purchase of 2 replacement paratransit vehicles. Invest in public transportation by purchasing new replacement paratransit vehicles. This grant will allow the purchase of two paratransit vehicles to replace old vehicles that are currently in the fleet. As a result of these investments, the agency will be able to continue to offer public transportation service that is safer, more reliable, and accessible for people with disabilities. (Information not reported) REDONDO BEACH, CITY OF (INC) 30' and 35' Bus Replacement and Bus Stop Improvements Invest in public transportation by purchasing replacement transit vehicles and implementing bus stop improvements. The fund will be utilized to 1) purchase up to three 18 passenger, 30', CNG-powered cut-away buses that have an expected useful life of five years or 150,000 miles; 2) purchase one 29-passenger, 32', CNG-powered bus that has an expected useful life of 10 years or 350,000 miles; and 3) to implement bus stop improvements throughout the City of Redondo Beach, which will include replacing the old concrete and terracotta bus benches with new, more durable and aesthetically pleasing corrosion resistant steel construction benches, replacing pre-existing bus stop sign poles with new standard rail poles, replacing bus stop signs with new high-visibility reflective signs, and replacing old and deteriorated or missing trash receptacles with new metal vandal resistant receptacles. This grant allows the City of Redondo Beach to move forward with the purchasing of three, up to 27', CNG powered cutaway buses and procuring of bus stop improvements. Bus and Other Motor Vehicle Transit Systems Redondo Beach, CA 90277-2836 More than 50% Completed TRANSPORTATION, FLORIDA DEPARTMENT OF FY 09 (4) ARRA Locomotives Invest the 2009 ARRA Formula allocation of $13,431,438 to purchase up to four (4) locomotives # 802,803,804 and 805. The original locomotives were manufactured in the mid 1960's and were last remanufactured in 1988. They lack any fuel efficient technology and are not required to meet any EPA emission standards. Due to the design of the HEP unit, these locomotives consume excessive fuel. The locomotives have an approximate expected useful life of 25 years. A Federal ratio of 100/100 will apply. The new locomotives wll meet the Clean Air Act (CAA) standards and the American with Disabilites Act (ADA) requirements. This grant also includes transit enhancements ($135,670) that will fund various station beautification improvements such as landscaping, painting, etc. SFRTA issued the Notice to Proceed to the Consultants on September 22, 2009. At this time the solicitation package is being prepared and is due to be advertised by the end of Januar, 2010. It is estimated that the procurement period will be sixty (60) days. The estimated Notice of Award to the manufacturer will be in late April early May. All activities are in complaince with ARRA regulations. Pompano Beach, FL 33064-2046 Less Than 50% Completed FL-96-X015-00 Purchase of 4 replacement buses; 3 replacement Trolley buses; Enhancements replacement and security equipment installation. Invest in public transportation by purchasing new 35 Ft Low Floor Clean Diesel Transit Buses, installing security cameras and annunciation systems on buses and replacing worn out transit enhancements to include, bus stops signs, bus shelters, benches and trash cans. This grant allowed the transit agency to purchase 4 low-floor clean diesel and 3 trolley clean diesel buses, replace worn out bus shelters, trash cans, benches, install security cameras on 8 existing buses and install automatic stop announcements systems on 5 buses. As a result of these investments, the transit agency will be able to offer public transportation service that is safer, more reliable, and more enviromentally friendly. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed SIOUX CITY, CITY OF 1 Medium Duty Bus - Flex Funds Purchase one (1) 31 Ft low-floor Medium Duty (MD) expansion bus. The vehicle will help to expand the spare ratio for the fleet and provide much needed reliable service backup for the aging fleet. These are flex funds through Nebraska. The vehicle will be procured via State of Minnesota consortium. One (1) 31 ft. medium duty (MD) low-floor bus. The MD bus is an expansion vehicle for enhancement of the transit service primarily for disabled passengers and to provide backup for fixed route service. This unit will increase the spare ratio to 4 units. With 21 units in peak service, the 4 spares will increase the ratio to 16% once the vehicle is acquired. 2505 East 4th Street, PO Box 447 Sioux City, IA 51102-0447 Purchase 15 biodiesel replacement buses. Invest in public transportation by purchasing new biodiesel buses. The purchase of 15 low-floor, biodiesel, replacement buses allows Madison County Transit District to continue providing safe and reliable public transportation services in a more environmentally friendly manner. Bus and Other Motor Vehicle Transit Systems Granite City, IL 62040-2868 Less Than 50% Completed PACE, THE SUBURBAN BUS DIVISION OF THE REGIONAL TRANSPORTATION AUTHORITY Purchase 58 replacement fixed route 30' buses, Puchase 190 replacement paratransit vehicles, and purchase 76 replacement support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. Invest in public transportation by purchasing 58 30' transit buses, 190 paratransit vehicles and a minimum of 76 support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. This grant allows Pace to purchase 58 30' replacement fixed route buses, 190 replacement paratransit vehicles, and 76 replacement support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. As a result of these investments, Pace will be able to provide public transportation service that is safer and more reliable. In this quarter, we have awarded a contract for inspection services. We received delivery of 10 trucks with plows for maintenance/supervisory personnel and 6 paratransit buses. Production will continue for the paratransit buses next quarter. Production will begin in February for the fixed route buses. Bus and Other Motor Vehicle Transit Systems Arlington Heights, IL 60005-4412 Less Than 50% Completed Capital Projects: Buses, vans and facility improvements. Investing in public transportation by purchasing four new 35' buses to replace four 1993 35' buses, by purchasing two new wheelchair lift vans to replace two 1999 wheelchair vans, by repairing and remodeling the bus storage building built in 1980, by installing a water recycling system in the existing bus washer to reduce the amount of water used, and by repairing and seal coating the existing asphalt parking lot and driving lanes around the Transit Administration Building. Although no jobs were created and no funds were paid out this quarter, the City of Decatur has already awarded purchase orders for 4 buses ($1,500,000) and for 2 wheelchair lift vans ($104,202). The buses are tentatively scheduled to be built by Gillig Corp. about July 15, 2010, and the 2 vans were tentatively scheduled for delivery around January 1, 2010. Staff advertised nationally for bids for the installation of a water recycling system. Since only one bid was submitted by the Dec. 3 deadline and that bid was significantly higher than the pre- bid estimate, this project will be re-bid. Staff has been preparing to advertise for bids for the other facility improvement projects. Those projects are expected to be under contract this quarter, or as soon as the weather permits. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed IL-96-X014 ARRA Funds for Buses, Lift, Generator OTS is investing in public transportation by purchasing three new transit busses, installing a commercial generator at the Transit Office, and rehabilitating the bus garage by installing a new hydraulic bus lift to assist with maintenance operations. This grant will allow the transit agency to purchase three low-floor transit busses to replace busses which have exceeded their useful life. The transit agency is also purchasing a hydraulic bus lift for the maintenance garage to assist with repairs and maintenance of the new busses. The transit agency is also installing a commercial generator at the main Transit Office, so that transit operations can continue through times when the city is without power. January 2010 Update: Three transit busses are on order from Gillig. The hydraulic lift will be installed in January 2010. The commercial generator has been ordered. Bus and Other Motor Vehicle Transit Systems Owensboro Transit Sytem, 430 Allen Street Less Than 50% Completed SHREVEPORT TRANSIT MANAGEMENT, INC Purchase buses, renovate facility, preventive maintenance, purchase miscellaneous equipment. Invest in public transportation by purchase of new compressed natural gas (CNG) buses; constructiopn of a CNG fuel station; conversion of existing maintenance facility to CNG fueling; rehabilitate/upgrade 22 year old bus terminal; acquire maintenance support ewuipment, mobile surgeillance/security equipment, and upgrade of maintenance record system; and perform preventive maintenance on existing buses. This Grnt allowd the transit agency to purchase a new computer and map software for the teminal information booth, purchase the first bus bike racks, select a bus vendor from which to purchase the first 5 CNG buses, and issue reqest for bids for an architect to design and manage consturction of a CNG fuel station and upgrade of maintenance facility. As a result of these activities the agency's customers will be able to optain accurate information on best bus route to a sepcific destination, have a means to combine bus/bike transportation and prepare to purchase the first environmentally friendly buses and their support system. Bus and Other Motor Vehicle Transit Systems Grants Less Than 50% Completed Purchase of two new vehicles and provide preventative maintenance on existing buses. Invest inpublic transportation by purchasing new wheelchair lift buses and performing preventative maintenance on existing buses. This grant will allow the transit agency to purchase two new wheelchair lift equipped vehicles to expand its fleet and to conduct preventative maintenance on 4 existing vehicles. As a result of these investments the the transit agency will be able to continue offering the public a safe, reliable and accessible service. Bus and Other Motor Vehicle Transit Systems LA-96-X013-00 This grant will allow MART to invest in public transportation by allowing us to purchase new vehicles and equipment and to construct a vehicle storage facility to protect our investment. A budget of $750,000 is allocated to the purchase of 3 new hybrid buses to replace existing diesel buses for use on our fixed route service within the Fitchburg/ Leominster/Gardner service area. This investment will allow us to bring down the maintenance costs by reducing fuel quantities and the disposal of olders buses which have higher maintenance costs than a new vehicle under warranty. A budget allocation of $2.1 million is for construction of a vehicle storage facility at 840 N. Main Street in Leominster, MA. The A&E is complete and was funded through grant MA-04-0004 for $1,485,000. The ARRA funds will pay for the actual construction. MART, at this time, has a large number of vehicles which are stored outside. The construction of this vehicle storage facility will allow us to get these vehicles out of the elements - which include a harsh New England winter. This again will drive down overall maintenance and repair costs. The remainder of the allocated funds will purchase bus maintenance equipment including a new bus washer for the Fitchburg Maintenance facility and related peripheral equipment. The existing bus maintenance equipment is old and in need of replacement. . This grant allowed MART to order the three Hybrid buses, but delivery is not expected until February 2010. One bus has been completed and sent for Altoona testing (1 of 3 tests are complete). The other 2 buses are complete but will not be delivered until the 1st bus is finished testing. The funds for these buses has been obligated but remains unliquidated at this time (no expenditures have been made). Construction of the Storage Facility started on October 1st and is progressing. The remaining items have not been ordered yet and are unobligated as of this reporting period. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed MA-96-X003-00 GREATER ATTLEBORO-TAUNTON REGIONAL TRANSIT AUTHORITY Purchase bus, minibus, vans; construct improvements at train station, bus terminal, walkway, prev. maint., scheduling software, ADA service; SmartCard & software Invest in public transportation by purchasing low-floor buses, minibuses and vans; purchase scheduling software; construction of renovations to commuter rail station; construction of improvements to bus facility; construction of accessible walkway at commuter rail station; preventative maintenance; provision of ADA paratransit service; purchase smartcard equipment and software. This grant allowed GATRA to purchase 4 transit buses, 12 minibuses, and 10 vans (all on order with delivery shortly), improvements to Attleboro Commuter Rail Station (one project completed and ongoing), improvements to Taunton Terminal and Maintenance facility (2 projects completed and ongoing), construction of ADA accessible walkway (design at 80%), preventative maintenance, provision of ADA service, purchase of dispatch/scheduling equipment and purchase of SmartCard Equipment and software. All of the above will enable GATRA to offer public transportation service that's safer, more reliable and more accessible for people with disabilities. All activities are less than 50% complete. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed ARRA Bus replacement & Bus Wash Rehab Invest in public transportation by rehabilitating a Bus Wash Facility and replacing two high maintenance low-floor buses that have exceeded their useful life of twelve years. This grant allowed recipient (City of Billings MET Transit) to rehabilitate the Bus Wash Facility, which was built in 1983, and to replace two low-floor buses that have incurred more frequent and higher than normal maintenance costs. As a result of these investments, recipient will be able to continue to offer economical public transportation service that is safer, more reliable and more environmentally friendly. Bus and Other Motor Vehicle Transit Systems 1705 Monad Road, P.O. Box 1178 Less Than 50% Completed Invest in public transportation by supporting a portion of the construction activities (30.2%) for a new Transit Maintenance and Operations Facility and Administrative Offices for the Greensboro Transit Authority. This 'LEED Gold Designed' facility is being built to address current and future service delivery needs for maintenance and operations of GTA transit vehicles and administrative functions. Phase 1 consists of the programming and schematic design of the facility, site design, permitting and the site work construction phase. Phase 2 will include a 64,000 SF facility building design and construction. Over the past five years, GTA's ridership has doubled (2M to 4M passenger trips) with the implementation of improved services and vehicles. Therefore, a new transit facility is desperately needed to replace an aging facilty that no longer meets GTA's needs. This project is one of the city's priority facility projects that will significantly enhance the GTA's service delivery, efficiency and the quality of transit services to current and future transit riders (over 200,000 population) in the Greensboro community. Completed Phase 1 project activities. Efforts to comlete the final punch list. Specifically, checking the soil bearing pressure to make ready work for the building pad for Phase 2. In addition, initiated Phase 2 of the project, which includes the 69,254 SF facility building design and construction. A ground breaking ceremony was conducted on 11/19/09. This project was initially advertised for bids on 1018/09 and bids were opened from all eight prequalified bidders on 11/19/09. All bidders had minimal DBE participation. Following discussions with FTA, NCDOT and GDOT-Public Transportation Division, it was determined that the project would need to be rebid due to the fact that the need to apply GS 143-28 and rebidding will provide an opportunity to improve DBE participation and Buy America compliance. Efforts have been continued to ensure full compliance with the applicable federal requirements. A conference call was held (December 2009) with FTA Region IV officials to discuss the DBE and Buy America compliance requirements. FTA concurrence was provided regarding the city's decision to rebid the project. On 12/15/09 City Council authorized the rebidding of the GTA Maintenance/Operations Transit Facility and Administrative Offices Phase 2 project. The Pre-Bid meeting will be held on January 7, 2010, with the Bid Opening scheduled for January 26, 2010. Bus and Other Motor Vehicle Transit Systems Greensboro, NC 27406-3607 More than 50% Completed AVL/GPS, Fareboxes, Vans, Furnishings 2009 Transit Capital Assistance Grants - This grant applies the 2009 ARRA Formula allocation of $700,000 an AVL/GPS system for complete tracking of 12 buses. This includes hardware, software, and training for a total of $700,000. This grant applies the 2009 ARRA Formula allocation of $320,000 for Automated electronic fareboxes for 10 Gillig buses, 2 LTV and 1 spare. This includes additional vaults and docking/communication systems. This project will have an estimated useful life of 12 years. This grant applies the 2009 ARRA Formula allocation of $145,000 for 2 non-revenue LTV service vans. These will be used to augment late buses and missed stops as well as serving as driver relief vehicles. These support vehicles will meet the Clean Air Act standards (CAA) and the American with Disabilities Act (ADA) requirements. They will have a useful life of 4 years. This grant applies the 2009 ARRA Formula allocation of $100,000 for furnishings and equipment for the new transit center to include cubicles, desks, chairs, passenger seating, computers, printers, copier, base station radio, antenna, phones. (1) AVL System project is 40% complete. Installation for 10 buses complete with modems, base station, software, database, AVM. Also mapping services for area. (2) Automated Farebox System is on order. (3) Light Transit Vehicles on order. (4) Transit Center Furnishings RFP to go out in January. Bus and Other Motor Vehicle Transit Systems 850 Warren C. Coleman Blvd. Less Than 50% Completed NC-96-X011-00 ARRA TOR ands TZx Buses Invest in Public Transportation by procuring two (2) 35 FT hybrid-electric buses, two (2) 40 FT hybrid-electric buses for Transport of Rockland (TOR), the County's inter-county bus system. We will also procure three (3) 45 FT hybrid-electric over-the road coach buses for the Tappan ZEExpress (TZx) service, the County's commuter coach service over the Tappan Zee Bridge to Westchester County to meet connecting Metro-North trains into New York City. This grant will allow Rockland County Public Transportation to purchase seven (7) environmentally friendly hybrid-electic replacement buses. These buses will replace older buses that have reached their useful life and have become too costly to maintain and are no longer environmentally friendly. As a result of these investments, Rockland County Public Transportation will be able to offer the riding public service that is safer, more reliable, more environmentally friendly and more accessible for people with disabilities. There were no building activities this quarter. We have reviewed our commuter coach bid and expect our County Legislature to make an award in 1st quarter 2010. Bus and Other Motor Vehicle Transit Systems New City, NY 10956-3664 NEW YORK, CITY OF Staten Island Ferry System Asset Maintenance NYCDOT operates the Staten Island Ferry (SIF) system that operates from St. George Ferry terminal in Staten Island and Whitehall ferry terminal in Manhattan, New York. It is the largest ferry system nationwide carrying 70,000 on weekdays or approximately 21 million passengers annually. It is the principal means of transportation for Staten Island residents traveling to Manhattan?s central business district and other activity centers. The major assets of Staten Island Ferry system consist of a fleet of eight passenger ferries, the St. George Ferry Terminal in Staten Island and the Whitehall Ferry Terminal in Manhattan, New York, several support floating stock, bridges, slips, ramps, a ferry maintenance facility with auxiliary buildings. This project will invest in public transportation by carrying out preventive maintenance activities of the Staten Island Ferry system assets, for two different projects: 1) Dry-docking services for ferry vessels through a third-party contract ($37,747,237) 2) Personnel costs for in-house maintenance on ferry vessels ($9,000,000) In the past quarter, the shipyard dry-docking third party contractor completed all maintenance activities for the Marchi ferry vessel including underwater hull repair, propulsion system repairs, and sea valve repairs. The in-house maintenance personnel has maintained Staten Island ferry assets in a state of good repair by executing daily maintenance work. Staten Island, NY 10301-2510 Less Than 50% Completed BUTLER, COUNTY OF OHIO Purchase of Vehicles, Equipment, Facility Improvments and Preventitive Maintenance To invest in public transportation by purchasing five replacement small buses (14 passenger), purchasing eight small vans, and purchasing four service vehicles (one service truck and three four-wheel drive vehicles to provide essential services during bad weather and to back up daily operations). All vehicles being replaced are several years past their normal useful life cycle and the new vehicles will be more fuel efficient and help reduce routine operating costs. In additon we will be replacing shop and office equipment which is past it normal useful life. This grant will also allow for some facility improvements including a covered parking area to better protect the buses and extend their useful lives. Finally this grant will allow us to do necessary maintenace on our vehicle fleet and facilty to ensure all assets are maintained to the highest standards, thus helping to reduce operating cost in the future. This grant allowed BCRTA to order and receive eight replacement transit vehicles which are being used to expand service. This investment will allow BCRTA to offer public transportation service that is safer, more reliable, environmentally friendly, and more accessible for customers with disabilities. Funds from this grant are also allowing us to replace outdated equipment, make much need facility improvements, and do preventitive maintenance on the existing fleet of vehicels and facility. All of which will result in reduced operating costs and ensure that all assets are in prime condition. Bus and Other Motor Vehicle Transit Systems Hamilton, OH 45011-5373 More than 50% Completed GREATER DAYTON REGIONAL TRANSIT AUTHORITY Preventive Maintenance, purchase of twenty five replacement 40ft diesel buses and purchase of twenty two replacement <30ft medium duty buses. To invest in Public Transit by purchasing twenty five replacement 40' low floor public transit buses. These buses meet or exceed current Clean Air Act (CAA) standards and the American with Disabilities Act (ADA) requirements and will have a service life of at least 12 years or 500,000 miles. GDRTA will also purchase twenty two replacement smaller transit buses (less than 30' long) for use with our Project Mobility service to the disabled community. In additon GDRTA is also using funds to perform preventive maintenance on existing buses, facilities and equipment to ensure that all assets are properly maintained. Both of these projects will improve customer comfort and operating efficiencies. It is anticipated that both projects will also help retain jobs in the public transit / vehicle production industries. Since the award of funds GDRTA has completed the preventitive maintenance project which has resulted in both the retention on jobs and the proper upkeep of federally funded assets. This will lead to greater operational efficiencies and passenger comfort. We have received the order of smaller buses being used for our Project Mobilty service and these buses are being placed in service. In addtion we exercised an existing option from our vehicle manufacturer and the 40' replacement buses being funded with this grant are on order. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed OH-96-X005 Renovate two separate facilities in addition to the purchase of three replacement buses and vehicle GPS/AVL systems Invest in public transportation by restoring and preserving a historic New York Central Train Station to become the Lorain County Transportation Center. The Transportation Center will be a transportation hub for Lorain County Transit, Greyhound and Amtrak as well as housing Lorain County Transit administrative offices. Renovations of an existing building to be a maintenance facility, performing preventative maintenance on buses. The maintenance facility will include office space, restrooms, parts storage and a mechanics shop. Purchase of 3- 30 Ft. buses replacing vehicles that have met their useful life of seven years. Purchase/install intelligent transportation systems technology on vehicles. This grant allowed the transit agency to renovate a historic train station and make it a transportation hub for Lorain County Transit, Greyhound and Amtrak as well as a community space available to the public for rent. The transit agency was able to renovate a building as a maintenance facility to maintain Lorain County Transit's vehicles and will include office space, restrooms, parts storage and a mechanics shop, this project is about 95% complete. The grant also gave the ability to purchase 3- 30-Ft. buses, replacing an aging fleet, the purchase of the vehicles has been completed. The vehicles were delivered the week of December 14. This grant will also give the ability to purchase/install intelligent transportation systems technology on vehicles. As a result of these investments, the transit agency will be able to offer public transportation service that is safer, more reliable, more environmentally friendly, and more accessible for people with disabilities. Bus and Other Motor Vehicle Transit Systems (Information not reported) More than 50% Completed OH-96-X023 SALEM AREA MASS TRANSIT DISTRICT 09 ARRA 5307 Buses (8);Rehab Tran Ctr Salem Area Mass Transit District is making an investment in public transportation through the following projects: purchase of three (3) 35-foot fixed route buses (the Transit District initially applied to purchase four (4) buses, but the number was decreased to three to allow funding for operational assistance), the purchase of four replacement buses and one bus for the expansion of the fleet to serve Americans with Disabilities (ADA), replacement fareboxes for fixed route buses, Performance Management Software will be purchased to maximize the gathering of information about services provided, the surface of the Transit Center Mall in downtown Salem will be re-done to provide for greater pedestrian safety, work will take place for the installation of a Transit Center in Keizer at the north-end of transit services provided in the community, and funds are designated in support of operational assistance to support tasks required to complete the above stated projects. During the October-December 2009 Quarter, Salem Area Mass Transit District paid for the shipping of Fareboxes that were purchased in the preceding quarter. The Transit District received the delivery of four replacement buses and one bus to expand the fleet of buses that serve Americans with Disabilities (ADA). The environmental study was completed on the site selected for the Keizer Transit Center. Bus and Other Motor Vehicle Transit Systems 555 Court Street NE, Suite 5230 Less Than 50% Completed This project uses a portion of the federal funds to finalize a bus driver break area and public rest room building at the new SMART Central at Wilsonville Station multi-modal facility located adjacent to the WES Commuter Rail Station in Wilsonville, Oregon. In addition the federal funds will allow SMART to construct an artistic clock tower, passenger shelters and pedestrian safety enhancements located at SMART Central station. Finally, the funds will conduct preliminary engineering/design and site plan preparation for the construction of a new SMART administrative building located adjacent to the SMART Central at Wilsonville Station multi-modal facility. All projects have been designed to ensure increased access for all users of the multi-modal facility and the design has taken into consideration eco-friendly storm water management elements and building materials. Further each element is designed to deter crime and ensure public safety at the station through the placement of security cameras, lighting and the increase of SMART personnel at the Station. This grant is funding the design and construction of an artistic clock tower, passenger shelters and pedestrian crosswalks as well as the site planning for an administrative and maintenance facility. In addition, this grant will supplement grant X003 funds for the construction of the operator breakroom. All of these projects are being completed at SMART Central at Wilsonville Station. This quarter, activities included engineering and design of the clock tower and passenger amenities. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed BERKS AREA READING TRANSPORTATION AUTHORITY Purchase 11 buses, security equipment and facility improvements. Invest in public transportation by purchasing four new hybrid-electric buses, four new hybrid- electric paratransit vans, three new diesel paratransit vans, installation of surveillance and security equipment on 25 transit vehicles, and renovation of BARTA's Intermodal Transportation Complex. This grant has allowed BARTA to purchase four hybrid-electric 40ft transit buses, which will be delivered in June 2010, in order to expand service on its fixed routes. With this grant, BARTA is also purchasing seven paratransit vans (four hybrid-electric and three diesel) to replace paratransit vans that have met the minimum 5 year useful life requirement for this size vehicle as set forth in FTA Circular 9030.1C. The three diesel paratransit vans will be delivered in November, 2009. Also, these funds will allow BARTA to purchase and install security and surveillance cameras on 25 transit vehicles that are not equipped with safety and security cameras. Furthermore, this grant will also allow BARTA to upgrade and repair its Intermodal Transportation Complex. The maintaining of this facility is critical to the overall efficiency of the operations of BARTA. Bids for the upgrade of the transportation complex will be accepted on October 30, 2009. Moreover, as a result of these investments, BARTA will be able to offer public transportation service that is safer, more reliable, more environmentally friendly, and more accessible for people with disabilities. Bus and Other Motor Vehicle Transit Systems (Information not reported) Less Than 50% Completed ARRA - Acquisition of 40 hybrid replacement units Investment in public transportation by purchasing 40 replacement hybrid units, 40-foot length, heavy duty low floor buses for fixed route service in the San Juan Metropolitan Area. As a result of this investment, the Metropolitan Bus Authority will be able to offer public transportation service that is safer, more reliable, more environmentally friendly and more accesible to people with disabilities. Contract was awarded to Daimler Buses North America on October 2009. Advance payment was isssued by December 2009 for 41 (40 plus one spare) Cummins engines delivered to Daimler Buses North America as part of the purchase order to deliver 40 buses by Summer 2010. This transaction was authorized as per FTA letter of October 20, 2009. Jobs to be created will contribute to preserve and maintain jobs in the manufacturing industry and will be reported as units are delivered and invoices paid. Bus and Other Motor Vehicle Transit Systems #37, Ave De Diego, San Fransisco, Monacillo Ward San Juan, PR 00919-0000 Less Than 50% Completed PR-96-X011-00 Acquisition of Two Minibuses and Maintenece Improvements to Public Transportation Terminals Use of ARRA funds to purchase two minibuses, make deferred maintenance improvements to Public Transportation Terminal and administration of grant program. The project includes: 1. Purchase of two cut-away small buses with a five year duty cycle, ADA access complaint to provide demand response service to areas not currently served by the Public system under ALI 11.13.04 in the amount of $138,000 of ARRA funds. 2. Renovation of the Public transportation Terminal to improve illumination, provide surveillance, repair roof and bathrooms, and install wheelstops under ALI 11.34.01 in the amount of $56,000 of ARRA funds. 3. Administration costs to comply with FTA regulations such as publication of bids and submittal of quaterly reports, under ALI 11.79.00 with $2,850 of ARRA funds. Bus and Other Motor Vehicle Transit Systems (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, ALABAMA DEPT OF This is a FY 2009 American Recovery and Reinvestment Act (ARRA) Section 5307 application in the amount of $4,033,530.00 for the State of Alabama. This application incorporates ARRA Governor Apportioned Section 5307 funds in the amount of $3,834,718.00 and Columbus, GA MPO ARRA Apportioned Section 5307 funding in the amount of $198,812.00. This application includes the purchase of 33 replacement vehicles and 6 expansion vehicles ($2,439,834), bus facilities ($25,000), equipment ($988,634), signal and communications ($4,900), and additional capital program items ($575,162). The funds will be used to fund small urban transportation programs for the following six (6) subrecipients: Auburn-Opelika, Phenix City, Anniston, Florence, Decatur, and Dothan. None for quarter ending 12/31/2009. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award supports transit improvements at six small urban public transit systems selected by the State of Alabama. These improvements include replacing old vehicles, expanding fleets, and installing bicycle racks and signal systems. These activities assisted in keeping transit systems running at current levels and enhancing public transit. Capital Assistance for Transit Projects Pre-audit completed on bus order for eight replacement buses, four replacement paratransit vans received, bus parts, shop equipment ordered and received. Replaced surveillance system, purchased 75 bus and streetcar fare boxes, waiting delivery, A&E completed for Trolley Barn expansion, construction has begun, A&E contract in place for platform stop addition, work to begin shortly. Bus and Other Motor Vehicle Transit Systems 901 Maple Street North Little Rock, AR 72114-4647 More than 50% Completed Information GAO gathered to improve the description The award will result in residents and visitors to Central Arkansas traveling more safely and easily through Little Rock and the surrounding areas. HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF ARRA funds will be used to purchase 126 replacement buses for transit providers throughout the State of Arkansas. In addition, transit providers will receive funding for ADP hardware and software; support vehicles and equipment; construction or rehabilitation of maintenance facilities, administrative facilities, and park and ride lots; and for the performance of preventive maintenance. Our expectations are that the above mentioned expenditures will enhance public transportation, retain existing jobs for Arkansas providers, enable contractors to retain and maybe create new jobs within their companies, in the state of Arkansas. To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits. Bus and Other Motor Vehicle Transit Systems Little Rock, AR 72209-4206 Less Than 50% Completed Information GAO gathered to improve the description The award supports activities in several Arkansas counties, including Pulaski, Randolph, Carroll, Benton, Saline, Boone, Jefferson, and Phillips counties. FORT SMITH, CITY OF Investment in public transportation by completing the transfer station facility at 200 Wheeler Avenue in Fort Smith, AR, purchase four demand response buses, purchase and install approximately 30 bus shelters, purchase and install security cameras/surveillance equpment for transit buildings and buses, purchase mobile data terminals and renovate the administrative and maintenance buildings. Completed projects within this ARRA grant include the purchase of 4 demand response buses, purchase of 4 automatic electronic defibrillators, replacement of 5 garage doors in the maintenance building, heaters for the maintenance shop and the purchase and installation of a bus hoist. Ongoing projects include the renovations of the administrative and maintenance facilities. An architect has been selected for the renovations and coordination will begin soon. Specifications are being completed by our Information Technology Service (ITS) Department for the purchase and installation of security cameras for the facilities and buses. Bus shelter sites are currently being selected for the placement of passenger shelters. The onboard computers to be used as mobile data terminals are being reviewed by the ITS Department at this time. The mobile data terminal software will be a one vendor source that will work in conjunction with the already existing scheduling software. Projects currently not underway at this time include the addition of the underground fuel tank and associated software as well as the fare counting equipment. These two projects will begin once the renovations to the administrative and maintenance facilities are nearing completion. Bus and Other Motor Vehicle Transit Systems 6821 Jenny Lind, PO Box 1908 Fort Smith, AR 72902-1908 Less Than 50% Completed Information GAO gathered to improve the description The activities funded by the award will improve safety and security for both passengers and staff, improve transit performance and communication, and provide cost savings. ARRA - (10) Replacement; (2) Expansion; equipment REPLACEMENT/EXPANSION OF ROLLING STOCK, ACQUISITION OF BUS SHELTER AND ACQUISITION OF RADIOS. Replacement of 12 fixed route buses; construction of bus shelter located in Bienville Square and purchase of a digital and analog 800 Mhz radio system Bus and Other Motor Vehicle Transit Systems 1224 W. I-65 Service Road S. Less Than 50% Completed Information GAO gathered to improve the description The award supported the replacement of old buses with 10 buses and 2 transit vans. The award also constructed a bus shelter in downtown Mobile to connect various bus routes. The award also replaced the obsolete radio system for the buses with a new analog and digital radio system, which aids in Mobile's emergency preparedness plans. 1.) COP Debt Service, 2.) Capital Cost of Contracting, 3.) Preventive Maintenance, 4.) Non Fixed Route ADA Paratransit Service, 5.) Transit Enhancements Invest in public transportation by providing assistance to the following projects: COP debt service payment, capital cost of contracting, capitalized preventive maintenance, non-fixed ADA paratransit service operations and transit enhancements. 1.) Semi-annual COP debt service payment processed in September 2009 for purchase of (55) 40-foot CNG buses. 2.) Contracted transit operations and maintenance to support ongoing fixed route and demand response (ADA) paratransit service. 3.) Preventive Maintenance of the agency's vehicle fleet and facilities to support the ongoing operation. 4.) Contracted transit operations and maintenance to support ongoing demand response (ADA) paratransit service. ARRA 5307 funded portion of this service completed as of September 2009. 5.) Transit Enhancement project not started. Bus and Other Motor Vehicle Transit Systems 1825 Third Street Less Than 50% Completed Information GAO gathered to improve the description The award supports transit operations in Riverside County through the purchase of items including benches, shelters, light poles and extensions, signs, and trash receptacles. The award will result in enhanced safety and security of the bus stops and transit facilities. TRANSPORTATION, COLORADO DEPARTMENT OF ARRA Summit County - Statewide Rolling stock Invest in public transportation by building a fleet maintenance facility, purchasing new buses, and providing some operating assistance This grant allowed the county to build a new 42,000 sq. foot bus maintenance facility. As a result of this project, the county will be more efficient in maintaining and servicing its fleet buses in a high altitude environment. Commercial and Institutional Building Construction 0222 County Road 1003, PO Box 2179 Less Than 50% Completed Information GAO gathered to improve the description The award supports the construction of a fleet transit and vehicle maintenance garage facility as well as a 3,147 square foot stand-alone wash bay, a diesel/unleaded multi-use fuel island, and a bulk fuel storage area in the city of Frisco, Colorado. Services at the facility will be available for Summit Stage transit buses and other vehicles providing public transit services. TRANSPORTATION, CALIFORNIA DEPARTMENT OF 5311 Transit Improvements in non-urban areas. The grant will fund a variety of transit capital projects in all 58 California counties. Projects include vehicles, bus and intermodal terminals, fare collection systems, security equipment, information signage, construction and renovation of maintenance and storage facilities, park- and-ride lots, bus shelters and signal and communications equipment, including radios. The grant will also support preventive maintenance programs and provide a source of operating assistance for ADA-required paratransit. A grant to modernize transit fleets through vehicle replacement and expansion, to modernize and upgrade physical facillities, such as bus terminals, stops, maintenance and storage facilities and park-and-ride lot, to improve fare collection, security, information and communications systems and to support preventive maintenance programs and ADA-required paratransit operation. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description This award supports transit upgrades in rural communities. The award will be used to purchase 105 buses, 2 vans, 11 automobiles, 7 trolleys and 1 commuter vehicle. The award also will be used to build and renovate facilities and bus station terminals, as well as to purchase and install bus fare collection systems, computer hardware and software, signal and communications equipment, bus route signs and bus shelters; to upgrade safety and surveillance security equipment; and to perform preventive maintenance. The award will result in promoting and enhancing public transportation in rural areas through capital infrastructure investments and stimulate local economies. SAN FRANCISCO BAY AREA RAPID TRANSIT DISTRICT Replacement of Train Auxiliary Power Equipment, Cables on Transbay Tube, and Coverboards, Improve walkway safey at a station, Car Interior Modifications, and Wheel Truing Machine Study. The overall purpose of the grant is to invest in public transportation to improve the safety and reliablity of the transit system and to improve the passenger comfort in the modified revenue vehicles. Therefore, the BART passengers should have a safer and better riding experience. Activities include soliciting bids and awarding contracts to initiate work on the projects. Less Than 50% Completed Information GAO gathered to improve the description The award supports capital improvements, including construction of a new walkway at the Balboa park station; installation of new auxiliary power supply equipment on 30 railcars; new coverboards over the electric third rail; replacement of cables in the Transbay Tube; replacement of worn-out vehicle interiors and reconfiguration of interiors for improved passenger circulation; installation of between-car safety barriers; and preliminary work on a wheel truing machine. Information GAO gathered to improve the description This award funds the purchase of nine buses. SANTA ROSA, CITY OF Transit Operations, Americans with Disabilities Act Paratransit Operations, Preventative Maintenance, Transit Enhancements Invest in public transportation by providing funds for assistance to transit operating, preventative maintenance of buses, Americans with Disabilities Act paratransit service operations, and transit enhancements, including solar bus shelters, benches and map display cases. These funds will support transit operations for Santa Rosa CityBus, which is housed in the City of Santa Rosa's Transit Department and is the municipal transit provider for the City of Santa Rosa. In addition to providing fixed route bus service, the agency is responsible for the provision of complimentary Paratransit services (required by the Federal Americans with Disabilities Act), the management of the City’s Transportation Demand Management (TDM) Program, as well as bicycle and pedestrian planning efforts. CityBus operates seventeen fixed routes within the City of Santa Rosa and Roseland and carries approximately 2.8 million passengers annually. For the provision of paratransit service, the agency contracts with MV Transportation to provide approximately 50,000 trips annually for disabled patrons that are not able to take fixed route transit. Additionally, through the TDM Program, CityBus reduces approximately 100,000 car trips and an average of 200,000 car miles annually. This grant funds fixed route transit operations (with the completion of the first amendment to this grant, due in the second quarter of Federal Fiscal Year 2010) , ADA paratransit operations (contract awarded November 17, 2009), preventative maintenance expenses ($2,182,095.78 expended and drawn down through the end of Federal Fiscal Year 2009), and Transit Enhancements (in the form of a bus stop amenity purchase order executed November 18,2009). Bus and Other Motor Vehicle Transit Systems 1101 College Avenue, Suite 200 Santa Rosa, CA 95404-3940 More than 50% Completed Information GAO gathered to improve the description The award supports the maintenance of all 500 bus stops and shelters, trash receptacles at all stops, and display cases. Maintenance includes power-washing. The award also supports preventive maintenance and upkeep of the entire fleet of 35 buses and 11 paratransit buses to Federal Transit Administration (FTA) standards, paying driver salaries, and maintaining transit facilities. The award does not support capital improvements or gains, only day-to-day operations. SAN JOAQUIN REGIONAL TRANSIT DISTRICT RTD This grant, CA-96-X045, will provide funds for preventive maintenance for upkeep of San Joaquin Regional Transit District’s buses and paratransit vehicles. Funds will also be used for the following projects: Construction of the Mall Transfer Station; Design/engineering of the Regional Operations Center; Associated capital maintenance items; Computer/communications equipment and software; Capital tire lease; Passenger amenities and transit enhancements; Development of the BRT Phase II- Airport Way Corridor that include environmental and preliminary eng/design; and, Safety and security equipment related to bus and bus facilities. This grant has allowed the San Joaquin Regional Transit District to conduct preventative maintenance on its 134 existing buses; construction of the Mall Transfer Station; design/engineering of the Regional Operations Center; purchase associated capital maintenance items; purchase computer/communications equipment and software; contract for a capital tire lease; purchase and install passenger amenities and transit enhancements; development of the BRT Phase II- Airport Way Corridor that include environmental and preliminary eng/design; and, purchase of safety and security equipment related to bus and bus facilities. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The Channel St. amenities improvement project in the downtown area provides passenger amenities and transit enhancements such as adding benches for additional seating in the boarding area, new landscaping to provide shade, and trash receptacles. Construction of the Mall Transfer Station will improve customer comfort and boarding area aesthetics at the station on Pacific Ave. near Sherwood Mall, which gives passengers easy access to the downtown area. The improvements include: construction of bus shelters; installation of passenger information kiosks, benches, and trash receptacles; reinforcing the pavement; and installation of crosswalks for increased safety of passengers. Development of the Bus Rapid Transit system design will allow the transit agency to increase capacity by extending the current system to a new corridor. The Regional Operations Center will allow the transit agency to expand and house all the buses and maintenance activities in one facility. Currently, the transit agency has three facilities that are at maximum capacity and are no longer suitable for their operations. The Center will include a service station, bus wash, and fueling center for public transit buses as well as private buses. The award also funds an extension of a transit hopper service in the Stockton Metropolitan area. Specifically, this includes activities such as branding the buses, installing bus stop signs, and rehabilitation of some buses. The hopper service is designed for elderly and disabled passengers. SOUTHERN CALIFORNIA REGIONAL RAIL AUTHORITY Track Rehab, Positive Train Control Invest in public transportation for 1) Track Rehabilitation/renovation on San Bernardino Line; 2) System Communication Improvements on SCRRA's Metrolink commuter train system in Riverside County; 3) partial funding for Positive Train Control system (PTC) on the Southern California Regional Rail Authority's (SCRRA) Metrolink commuter train system, in Los Angeles, Orange, Riverside, San Bernardino, and San Diego Counties. 1/14/10 update: 1) Project #510046 Track Rehabilitation on San Bernardino Line contracts awarded is $1,864,144. Rail Frogs, plates, ties, and turnouts ordered 10/26/09 and delivery expected 2/2010. Project completion expected 6/2010. ARRA Funds received on this project $4,909. 2) Project #510095 System Communication Improvements contracts awarded is $0. A System-Communication feasibility study to determine how to best link and integrate Riverside County Service will be completed first. Project completion expected 9/2015. ARRA Funds received on this project $49. 3)Positive Train Control (PTC) contracts awarded is $1,187,000; ARRA grant #CA-05-0007-00 also funds PTC. PTC is 10% completed. Work is progressing on Map & Validate Existing Assets/Rules; Validate Existing Locomotive Cab Systems; Validate New Locomotive/ Cab Systems; Validate Passive Braking algorithm; Initial Evaluation for General Electric Transportation Signals Systems (GETS) Module Upgrade; Map & Validate Signal Assets on San Gabriel Sub, Valley Sub, Ventura Sub, Olive Sub, and Orange Sub; Relocate & Reconfigure Signals; Operational Study; Validate System Safety Plans; Map & Validate Communications System; Validate Network Systems; finalizing Scope and Requisition Documents to our Procurement Dept; Disadvantaged Business Enterprise (DBE) Consultant Review; Agency Project Manager Review of Draft Evaluation Criteria; Prepare Development Plans; Prepare Draft Implementation Plan; Prepare Draft Development Plan; Prepare Safety Plan; Procure Spectrum in 220 MHZ Band; Prepare Interoperability Agreement with the following Railroads UP, BNSF, and NC; Re-Design Main Operation Center (MOC) backroom to accommodate for PTC. Tasks finished: Validate Train Dispatch System; NEPA-Compliant Categorical Exclusion. Substantial completion expected 12/31/12. We are using up funds first from grants that expire before the ARRA grants. 700 S Flower St, Suite 2600 Los Angeles, CA 90017-4104 Less Than 50% Completed Information GAO gathered to improve the description The award supports safety and capacity upgrades and improvements such as the replacement of approximately 5,000 feet of rail on the San Bernardino Line as well as the rehabilitation of two grade crossings on the Metrolink system in the Los Angeles area. Invest in public transportation by expansion of the commuter fleet with the purchase of three 57 passenger clean diesel buses. Awarded contract for the purchase of three 57 passenger commuter buses on November 3, 2009. Bus and Other Motor Vehicle Transit Systems Yuba-Sutter Transit Authority, 2100 B Street Information GAO gathered to improve the description The award supports fleet expansion for the Yuba Sutter Transit Authority, which provides transit services in and around Yuba City, Marysville, Linda, and Olivehurst. The commuter bus fleet will be expanded from 14 to 16 and one bus from 1997 will be replaced. The award will result in new buses which will help control air pollution. Capital equipment and security improvements Purchase 1 replacement coach for Clean Air Express, 2 ADA vans, 4 replacement buses for local service, 6 particulate safety traps for existing buses, 6 replacement bike racks and bus security cameras for all rolling stock. Bus and Other Motor Vehicle Transit Systems (Information not reported) $1,342,268.00 Information GAO gathered to improve the description The multiple activities under this award will improve security and safety equipment. The purchase of vehicles allows the agency to replace the rolling stock of buses that have reached their lifespan. The new Americans with Disabilities Act (ADA) compliant vans will have a higher ceiling and provide more head room. Security cameras for all buses will help with problems on buses, prevent problems, and respond to complaints. Bike racks are being replaced because the current racks are deteriorated due to increased use by residents. Safety traps will secure buses at night, and prevent vandalism or theft. INDIAN RIVER, COUNTY OF Invest in public transportation by constructing a new transporatation administration/bus parking facility. An RFP for architectural & engineering services for the design of the new transit administration facility has been issued. Upon completion of project design, a general contractor will be selected by a bidding process. Bus and Other Motor Vehicle Transit Systems Vero Beach, FL 32960-0000 Less Than 50% Completed Information GAO gathered to improve the description The new facility is approximately 5,000 square feet and approximately 2 acres of secured parking for the door-to-door and fixed-route transit vehicle fleet. The new building and parking area will reduce non-revenue mileage by shortening the travel distance of the transit fleet from the old depot to refueling and maintenance areas, improve safety and security, improve office efficiency--including dispatching, communications, and response times--and improve disaster planning, since the new facilities will be built to exceed current hurricane standards. Transit Vehicles, Preventive Maintenance, Surveillance equipment to enhance the operations and functionality of Transit Property in Ocala, FL, SunTran. No activities completed to date. Getting project underway. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award supports maintenance activities for the passenger bus fleet of the city of Ocala. Activities include replacing transmissions and overhauling engines to keep all nine buses running properly. The award also supports the purchase of surveillance equipment for the buses. This equipment, which includes cameras and monitoring devices, will improve safety. TRANSPORTATION, GEORGIA DEPARTMENT OF Georgia Statewide Rural Transit Grant: 182 vehicles, ITS, facilities, software Invest in public transportation in rural areas of Georgia by purchasing new vehicles, upgrading rural bus facilities, procuring scheduling software and installing intelligent transportations systems technology on vehicles. This quarter contracts have been executed with sub-recipients; however most sub-recipients will begin work in the next quarter. This grant will allow Georgia to assist rural transit agencies to purchase 182 vehicles, upgrade ITS equipment, upgrade transit facilities and purchase scheduling software. Regulation and Administration of Transportation Programs 600 West Peachtree Street, NW Less Than 50% Completed Information GAO gathered to improve the description The award funds various transit activities in 30 counties throughout Georgia. Activities include the following: installing intelligent transportations systems technology on vehicles in order to dispatch and schedule information from many transportation providers and allow the public to visit the transportation provider's Web site to schedule necessary trips on line; replacement of aged equipment in order to maintain Georgia's rural paratransit fleet in a state of good repair; purchasing scheduling and dispatching software that will allow for computer-based dispatch, integration with GPS and GIS mapping, and automated route planning, among other things; and upgrading rural bus facilities or purchasing buildings that will serve as rural transit agencies that will also house equipment for the dispatching and scheduling of trips. CAT ARRA 7 replace bus/Trans Enhancement This grant is for FY 2009 ARRA Economic Stimulus Funds. The funds will be used to purchase seven(7) 30-foot replacement vehicles. The buses will be hybrid electric/diesel buses. These vehicles have a useful life of seven(7) years/350,000 miles. CAT will acquire a security system for the facility, monitoring, security guard, and razor wire for fencing. Included in the Project Administration will be the RFP, Advertising and Procurement Cost. Chatham Area Transit Authority will follow all third party procurement policies as defined in C4220.1F. Chatham Area Transit Authority will check the Federal Excluded Parties List System (EPLS), and DOT regulations, 'Non-procurement Suspension and Debarment' 2 CFR Parts 180 and 1200 as one step in the process of determining only 'responsible' contractors that possesses the ability, willingness, and integrity to perform successfully under the terms and conditions (See 49 U.S.C. Section 5325) are awarded contracts. We understand and will follow the proper procurements procedures. 7 new buses have been ordered from the manufacturer. Manufacturing is expected to begin mid year 2010. New radios have been ordered and delivery is expected in January 2010. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description The new buses replace those past their expected life and will increase energy efficiency for the agency. The security system and cameras will cover the entire facility and increase safety measures. HONOLULU, CITY & COUNTY OF Bus and Handi-Van Acquisition Program, Pearl City Bus Transit Facility Parking Expansion Program, Wahiawa Transit Center, Middle-Street Inter-Modal Center,Bus Stop Pad Improvements Rehabilitation/Renovation, Preliminary Engineering for New Starts Honolulu- High Capacity Transit Cooridor Project. STIP #OC16, Amount budgeted this grant: $19,345,207, Bus and Handi-Van Acquisition Program - Contract for purchase of 19 buses under review by City. Funds to be used with $254,793 from ARRA HI-56-0001-00. STIP #OC17, Amount budgeted this grant: $4,000,000, Honolulu-High Capacity Transit Corridor Project - Consultant contract documents for planning and engineering work under review by City. STIP #OC19, Amount budgeted this grant: $3,104,793, (includes security and transit enhancement activities)Middle Street Inter-modal Center - Construction contract documents under review by City. STIP #OC31, Amount budgeted this grant: $2,000,000, Bus Stop Pad Improvements Rehabilitation/Renovation -Construction contract documents under review by City. STIP #OC32, Amount budgeted this grant: $7,899,148, Pearl City Bus Facility - Bus Parking Expansion - Construction contract documents under review by City. STIP #OC33, Amount budgeted this grant: $4,300,000, Wahiawa Transit Center - Letter from Mayor Mufi Hannemann to Hawaii Governor Linda Lingle was sent during the 3rd quarter of 2009 requesting release of State of Hawaii funds budgeted for this joint development project. No response from Governor's office. The City will continue its efforts to resolve the matter. New radio communication units will be installed in the replacement buses. 1% transit enhancement requirement totaling $377,398 will be met through artwork at the Wahiawa Transit Center ($200,000) and at the Middle Street Inter-modal Center ($200,000). The 1% transit security requirement of $406,491 will be met through security fencing elements at the Middle Street Inter-modal Center ($400,000) and the Wahiawa Transit Center ($16,938). 650 South King Street; 3rd Floor Information GAO gathered to improve the description The award funds multiple transit activities including construction of an interim parking facility with 100 stalls at the Middle Street Intermodal Center and completing construction of the Transit Center and the Park and Ride Facility at the Wahiawa Transit Center. Activities funded by this award will result in reducing fuel usage by replacing old buses and purchasing hybrid buses, increasing capacity at the Pearl City Bus Transit Facility by increasing the number of parking spaces for buses, and allowing the city and county of Honolulu to move forward with its bus stop pad improvements at a more rapid pace by installing 32 bus pads this year. ARRA grant to purchase three medium duty buses Purchase three medium duty buses and security cameras. Let RFP to purchase buses by 12-30-2009. We have negotiated bus purchase price with the sucessful bidder for RFP#BET2009 (Intermountain Coach Leasing Inc.)to build 3 M.D. low flooor buses. Intermountain has offered their best and final price of $179,832 for each bus for a total of $539,467.00 for three buses. The City is currently considering the bid and will make a decision to accept the offer, of to re-negotiate. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the replacement of old buses that have exceeded their lifespan according to Federal Transit Administration (FTA) standards. Buses will also be equipped with security cameras to monitor passengers, drivers, and any incidents inside or accidents outside the bus. 09 ARRA 5307 Buses (8) and Oper Vendor has delivered 6 of the 8 buses that were award, and final 2 buses are in production. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The award will support the purchase of new buses for the transit service area that includes the cities of Pocatello and Chubbuck. TERRE HAUTE, CITY OF Replacement buses and remodeling of maintenance facility Have started working on this project to improve and remodel the bus maintenance garage. Engineering cost and replacement estimate design work has been received and invoiced to the Terre Haute Transit Utility. Vendor has started estimating the replacement cost for several pieces of equipment that will be replace in bus maintenance garage. Bus and Other Motor Vehicle Transit Systems Terre Haute, IN 47807-4923 Less Than 50% Completed Information GAO gathered to improve the description This award funds the purchase of 5 30-foot replacement buses, 5 passenger shelters, 14 fare boxes, and 14 radios. Funds will also be used to renovate the transit maintenance and storage facility. These activities will renew the fleet and modernize its system. Replace 6 35' buses, rehabilitate maintenance facility, provide transit enhancements Invest in public transportation by purchasing replacement transit buses, rehabilitating a maintenance facility, installing a disaster recovery system, and providing various transit enhancements to system riders. The main objective of GPTC's service provision is to enhance the ability of Lake County, Indiana citizens to access shopping, education, recreation, public services, and employment by adequately developing, improving, and maintaining a regional passenger bus system. This award will allow GPTC the capacity to realize these objectives, which also include creating and maintaining jobs associated with funded projects. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award funds the replacement of buses because the vehicles were beyond their useful life. The new buses will allow the transit agency to provide better service to transit riders. Transit enhancements at the University Park Transit Center, a transfer center for bus routes, near Indiana University, include beautification of the center with trees and landscaping. This transfer center will improve connectivity between bus routes and improve safety for transit users. Rehabilitation of the maintenance facility includes installing new garage doors and repaving the staging area due to deteriorating pavement. This rehabilitation will extend the life of the maintenance facility. These funds will be used to purchase replacement public transit vehicles which will invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits. We are currently in the process of securing contract opportunities for the purchase of vehicles. Bus and Other Motor Vehicle Transit Systems PO Box 708, 6 East 6th Street Information GAO gathered to improve the description The award supports the replacement of up to four 40-foot buses that comply with the Americans with Disabilities Act (ADA). LAFAYETTE CITY PARISH CONSOLIDATED GOVERNMENT Pur. 1 Bus,Shelters,Security,PM,Signage Invest in public transportation by completeing funding of the final phase of the multimodal center, complete funding for one additional bus, fund bus shelters, fund safety and security equipment, fund new bus stop signs, fund bus stop ADA improvements and fund preventative maintence on the bus fleet. 1. Lafayette Multi-Modal Facility Final Phase: Went to bid and bid awarded. 2. Bus purchase: Went to bid and bid awarded. 3. Bus stop shelters: preliminary site selection. 4. Safety and security equipment: Developing specifications. 5. Bus stop signs: Selecting design and deciding on options. 6. ADA bus stops: preliminary site selection. 7. Preventive maintenance on buses: preparing for bid or option selection. Bus and Other Motor Vehicle Transit Systems (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports public transportation improvements in the City of Lafayette, Louisiana. These improvements include the purchase of one 35-foot bus, approximately 20 bus shelters, and bus stop signs. The award also supports preventive maintenance, including oil changes and bus engine inspections, as well as renovations of a small number of bus stops to make them accessible, per the Americans with Disabilities Act (ADA). The improvements also include purchasing and installing video cameras on the new bus and replacing damaged cameras on the other buses so that all buses are connected to the security system. The award also provides partial financing for the Rosa Parks Transportation Center. The center is a two-story, 41,000 square foot building which will house a U.S. Post Office and Traffic and Transportation Department offices, as well as Lafayette’s Intelligent Transportation System (ITS) center. Purchase of four replacement buses. Invest in public transportation by purchasing four new thirty-foot buses for replacement This grant allowed the transit agency to purchase four thirty foot replacement buses. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The award replaces older buses with new buses that meet the standards of the Clean Air Act and the Americans with Disabilities Act. Notification was received from FTA on July 10, 2009 that the City of Charlotte's ARRA Grant had been approved by FTA's Regional Office, the Department of Labor, and Washington's Special Committee. The City of Charlotte was, therefore, given official approval to execute the grant application in FTA's TEAM System. Relocation activities are in progress. Construction contract was awarded to Clancy & Theys Construction Company and a Notice-To-Proceed was issued November 25, 2009. Procurement activities include the selection process for Inspection Services and Safety & Security Certification. Expenditures include project administration, plans review fee, construction management services toward 3rd Party Contracts, advertisements, and relocation expenses along with pre-award expenditures eligible within the grant. (Information not reported) $20,766,306.00 Less Than 50% Completed Information GAO gathered to improve the description The award funds improvements for the North Davidson Bus Facility. Activities include updating facility conditions; upgrading mechanical, electrical, and plumbing systems; replacing original bus maintenance equipment; and constructing a new parking garage. These improvements will delay the need for a third bus facility, allow Special Transportation Services to relocate to the North Davidson Bus Facility, and provide sufficient space and support for up to 200 buses. ROCKY MOUNT, (INC) CITY OF ARRA 2 BUS, PM, EQUIP, RE, SHELTERS Purchase of new buses to expand existing urban transit routes; purchase of equipment to upgrade vehicles and maintenance operations; and facility improvements to operational facilities utilized by riders, including transfer stations and shelters. Activity in the 4th Quarter of 2009 comprised of purchasing an existing building for relocation of TRT driver opearations, along with the preparation of bids for the purchase of vehicles, equipment, and services to be funded with additional grant funds. Tar River Transit (TRT), the urban public transportation provider for the City of Rocky Mount, will utilize ARRA Transit Urban Capital Assistance funds to expand and improve transit operations through the purchase of vehicles and equipment, along with improvements to distribution and maintenance facilities. 100 Coastline St. Rocky Mount, NC 27804-5849 Less Than 50% Completed Information GAO gathered to improve the description The award funds the purchase of two 25-foot light transit vehicles; seven replacement engines; and equipment, real estate, and shelters for Tar River Transit. Work on the transfer and administrative facility includes purchasing the facility and landscaping the transit center. The transit garage improvements include work on the paint, lights, heaters, and transmission stand. Other activities include painting the bus station and renovating the taxi shelter. RUTGERS, THE STATE UNIVERSITY FTA project and construction management training To provide training for transit systems through the delivery of 34 Project Management for Transit Professionals and 6 Management of Transit Construction Projects sessions. Planning course deliveries began in September and courses will commence in the next quarter. All Other Support Activities for Transportation (Information not reported) New Brunswick, NJ 08901-8559 Less Than 50% Completed Information GAO gathered to improve the description Federal transit laws require a grant applicant for a major capital investment project to prepare and carry out a Project Management Plan (PMP) approved by the Federal Transit Administration (FTA). The award supports project and construction management training for transit management professionals so that they can prepare and carry out a PMP. The training teaches good project management skills to transit management professional and builds capacity at transit organizations. The training also includes specific emphasis on the requirements that are presented in the report Project and Construction Management Guidelines 2003 Update. PORTAGE AREA REGIONAL TRANSPORTATION AUTHORITY ARRA Maint. Facility Rehab./ Preventative Maintenance Invest in public transportation by replacing the roof of a bus storage/maintenance facility, performing preventative maintenance on existing buses, and completing preliminary engineering and design for facility projects on PARTA's property located at 2000 Summit Road, Kent, OH 44240. During the CY 4th quarter, PARTA continued to perform preventative maintenance on its 73 vehicles. The labor for the roof renovation is substantially complete and we are now in the contract close out period. PARTA has continued to complete preliminary engineering and design for facility projects on PARTA's property located at 2000 Summit Road, Kent, OH 44240. Bus and Other Motor Vehicle Transit Systems 2000 Summit Road More than 50% Completed Information GAO gathered to improve the description The award supports preventive maintenance activities to extend the life of the buses, including safety inspection, oil change, fluid change, brakes, labor for mechanics, and replacement parts if needed. The award also supports replacement of the facility’s roof. The roof was deteriorating and leaking water, which caused damage to equipment inside the building. The new roof is expected to last for 15 years. TRANSPORTATION, OKLAHOMA DEPARTMENT OF Purchase of 241 replacement buses and five over-the-road intercity buses. Invest in public transportation by replacing the nonurbanized and rural transit provider's aging fleet with efficient and reliable vehicles. A total of 246 vehicles will be purchased. The purchase will include 241 replacement buses of which 17 will be configured with Compressed Natural Gas. Also, five over-the-road buses are programmed for purchase. Awarded 19 contracts to subrecipients. Request for Bids for nine vehicle types were solicited. Awards were made for eight types of vehicles. One vehicle type was canceled due to ambiguous bid specifications. A total of 37 purchase orders were awarded during this report period. Interurban and Rural Bus Transportation (Information not reported) Information GAO gathered to improve the description The award serves 18 counties throughout the state. TRI-COUNTY METROPOLITAN TRANSPORTATION DISTRICT OR Street Maint Improve; Milwaukie Park&Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to I-205 Light Rail Tracks; Morrison/Yamhill Intersect Repairs; Portland Streetcar Signals; Rail Preventive Maintenance. Invest in public transportation by initiating Bus Priority Street Maintenance Improvements; Milwaukie Park & Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to the I-205 Light Rail Tracks; Morrison/Yamhill Intersection Repairs; Portland Streetcar Signals, Ramps, ITS; and performing rail Preventive Maintenance on existing light rail vehicles. Bus Priority Street Maintenance Improvements; Milwaukie Park & Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to the I-205 Light Rail Tracks; Morrison/Yamhill Intersection Repairs; Preventive Maintenance. More than 50% Completed Information GAO gathered to improve the description The award supports various improvement activities including (1) repaving two deteriorating major bus transit streets and adding concrete bus pads at stops in order to reduce ongoing preventive maintenance at these locations and improve the rider experience; (2) replacing the shoulder on Foster Rd. with a concrete pad and base to accommodate buses, minimize future maintenance costs, and address the degradation of the standard roadway surface and base; (3) replacing infrastructure beneath the light rail tracks at 10 corridor intersections in the Morrison and Yamhill corridors to maintain safe and reliable service; (4) extending lighting along the I-205 multi-use path from the Lents Town Center Station to Gladstone to enhance safety along the corridor and encourage more people to ride bikes and walk to transit; (5) constructing a new 315-space Milwaukie Park & Ride facility at the intersection of SE Milport Rd. and SE Main St. for the heavily traveled McLoughlin corridor, enabling more commuters to use bus lines. WEST FLORIDA REGIONAL PLANNING COUNCIL Invest in public transportation by constructing new transit facility and security fencing, performing preventive maintenance on existing revenue fleet, installing automatic passenger counters on existing revenue vehicles, installing automated fareboxes on existing revenue vehicles, installing stop annunciators on existing revenue vehicles, purchasing and installing passenger shelters, purchasing a service vehicle, for a total of $2,377,250. Received and installed automatic stop announcement (annunciator) systems in all (17) buses, received and installed automatic passenger counting system (APC) in 8 buses, received (have not installed) automated fare boxes for all (17) buses. Performed preventive maintenance for fleet vehciles. Annunciators and APCs will be configured in January. Automated fareboxes will be installed in February. Bus and Other Motor Vehicle Transit Systems Panama City, FL 32401-3485 Less Than 50% Completed Information GAO gathered to improve the description The new transit facility being constructed will house the administrative functions of the transit agency, maintenance facilities, and response system, as well as store buses. The new facility will be located in unincorporated Bay County, outside of Panama City limits on Sherman Ln. and Douglas Rd. The current transit facility in Panama City is no longer big enough to house buses, and has inadequate office and maintenance space. Invest in public transportation. Cherokee County will use the 2009 ARRA funds to purchase a 5307 fixed route expansion vehicle. The 30' passenger vehicle will provide the opportunity to increase ridership and expand fixed route service to Cherokee County residents. Preventive Maintenance vehicle surveillance, and other communications and fleet maintenance miscellaneous support equipment, and bus shelters, will be purchased. Transit enhancements, including transit technology, MDCs and AVLs, will also be purchased. We plan to add one (1) expansion vehicle with a useful life of 6-8 years. The bus will meet CAA and ADA requirements. The fleet status section of TEAM has been updated to reflect this fleet addition. We are able to operate and maintain the vehicle expansion. The County is aware of FTA C 4220.1F regarding third-party procurement and will follow federal, state and local procurement policies. County will ensure that contractors are not on the debarment and suspension list. Will adhere to any/all special conditions of this award. (4th Quarter) The Project Description has not changed, however, the activities this quarter have. Expenditures for the 4th Quarter include $188,705.06 for Miscellaneous Support Equipment (11.42.20); $12,123.80 for Landscaping under Scenic Beautification (119.00 Transit Enhancements; $11,533.00 for Preventive Maintenance (117-00 Other Capital Items). ___________________________________________ (3rd Quarter) The Cherokee County Board of Commissioners has received 15 bids relevant to the ARRA Capital expenditure to date. $20,037 for Communications Equipment (11.62.02); $20,642 for Control/Signal Equipment (11.62.01) and $151,975.59 obligated to Misc. Support Equipment (11.42.20), as well as $12,000 obligated to Scenic Beautification adn property security (11.92.03 - 11.42.09) Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description The award funds the purchase of 14 technology units (Automatic Vehicle Locators and Mobile Data Computers), 3 bus shelters in the city of Canton, and 1 set of 4 portable lifts to help perform bus maintenance. The intelligence technology system software and hardware will help map and coordinate routes and ultimately save money by providing for more efficient pick-up/delivery. The new equipment is expected to save on tire wear and outsourcing costs. ARRA Aug 3 repl bus/1 van/1 truck/misc expense Invest in public transportation by purchasing additional buses including a hybrid and replacing a totally depreciated bus. Also fund maintenance costs including mechanics salaries and additional training. Also fund ADA expenses,salaries,training, fuel maintenance costs. Invest in public transportation by purchasing additional buses including a hybrid and replacing a totally depreciated bus. Also fund maintenance costs including mechanics salaries and additional training. Also fund ADA expenses,salaries,training, fuel maintenance costs. Bus and Other Motor Vehicle Transit Systems 530 Greene Street, Room 207 Less Than 50% Completed Information GAO gathered to improve the description The award supports the transit department of the County of Augusta-Richmond in replacing buses that were scheduled to be replaced and upgrading their fleet, funding salaries and maintenance work on vehicles, and replacing an old supervisor van and maintenance truck. The award allows the transit department to maintain service levels. Renewable Energy/Retrofit-Solar Lgt&Sec Invest in public transportation by replacing conventional petroleum dependent energy/security lighting system with a photovoltaic solar system in FTA funded vehicle maintenance and storage facilities. Bus and Other Motor Vehicle Transit Systems PR-172, 2nd Floor Public Transportation Terminal $1,000,000.00 Information GAO gathered to improve the description The award supports the conversion of the Cidro Public Transportation Center from a gas-powered to a solar-powered facility. The solar system will rely on inverters for power rather than batteries. The energy backup will be the electric company. The award will lower pollution by producing clean energy. The Recovery Act appropriated $5.55 billion for the Federal Buildings Fund, which provides money for measures necessary to convert federal buildings into high-performance green buildings, renovate and construct federal buildings and courthouses, and renovate and construct land ports of entry. This fund is administered by the General Services Administration (GSA), which selects projects for funding (such as the construction of a new building), and contracts with construction and engineering professionals to complete the project. Generally, GSA issues a number of contracts for each project. Nature and Type of Projects GSA had obligated just over $4 billion as of April 23, 2010. Of this amount, GSA has spent about $315 million. This spending represents the total value of payments made to contractors for work they have already completed. Of the $5.55 billion in Recovery Act funds, about $4.3 billion was made available for measures necessary to convert GSA facilities to high- performance green buildings, $750 million was made available for federal buildings and U.S. courthouses, and $300 million was made available for border stations and land ports of entry. Overall, GSA selected 263 projects in all 50 states, the District of Columbia, and two U.S. territories. As shown in table 10, GSA’s Recovery Act projects fall into four main categories: (1) new federal construction, (2) full and partial building modernizations, (3) limited scope projects, and (4) small projects. We assessed the transparency of descriptive information for Federal Building Fund awards available on Recovery.gov, as described in the report. We found that an estimated 29 percent met our transparency criteria, 64 percent partially met our criteria, and 7 percent did not meet our criteria. For the descriptions that did not fully meet our transparency criteria, we collected additional information necessary to make the descriptions meet our criteria. The descriptions of awards, whether they met our criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. GSA has provided additional guidance to Federal Buildings Fund contract recipients, established an Outreach Call Center to help recipients fulfill reporting requirements, and reviewed the recipient reports before the reports were made public on Recovery.gov. According to GSA officials, these efforts were designed to ensure that recipients followed reporting requirements and provided information on awards that the public can understand. GSA provided technical assistance to recipients that was designed to augment the Office of Management and Budget’s (OMB) guidance on recipient reporting. GSA made this guidance available on its Web site and also mailed a copy of the guidance to each recipient. This guidance, first issued in September 2009 and updated in October 2009, December 2009, and March 2010, describes the time frames for reporting and specific data element instructions, among other things. GSA’s guidance did not supply any information that supplemented OMB’s guidance on describing projects, including how funds are being used and expected outcomes. According to GSA officials, this guidance was meant to be a synopsis of OMB’s guidance; they did not think supplemental guidance was needed to describe how funds are being used and what outcomes are expected because they considered OMB’s guidance sufficient. GSA’s Outreach Call Center has provided both outreach and support to contract recipients. Specifically, prior to each reporting quarter, staff at the center have contacted recipients to update contact information and remind recipients of the reporting deadlines. In addition, staff at the center are available to answer questions from recipients and provide technical support to recipients as they complete their reporting requirements. For the second round of recipient reporting, GSA staff also developed data quality reviews that compared the financial data in recipient reports with financial data in GSA’s financial management systems. GSA staff contacted the recipients and clarified any information that was not consistent with GSA data. In addition, GSA staff reviewed the narrative information in the “award description” and “project description” fields to ensure that the information was accurate and to clarify any technical jargon or acronyms. According to GSA officials, GSA staff did not attempt to provide additional information; instead, GSA officials clarified the information that was already in the description. GSA officials have worked with members of the media to inform the public about GSA’s work under the Recovery Act. In addition, GSA issues press releases on major project milestones and informs national and local media when GSA awards a project. However, according to GSA officials, GSA cannot communicate all of its available information to the public because of the large volume of information available on GSA projects. In addition, some information is procurement-sensitive and cannot be released to the public. In addition to information on Recovery.gov, GSA has published information on its Recovery Act program on its own Recovery Act Web site. This information includes the following: A Federal Buildings Fund Program Plan. This plan contains a summary of the objectives and activities that GSA’s Public Buildings Service plans to implement with the $5.55 billion in Recovery Act funds. The plan also includes information on the projects’ selection, delivery schedule, and performance measures. Additionally, the plan contains information on how GSA will address issues such as monitoring and evaluation, transparency, and accountability for its Recovery Act program. A Public Building Service Project Plan. This plan details how GSA will spend its $5.55 billion in Recovery Act funds; lists all the GSA building projects that will receive Recovery Act funds; and, for each project, includes the name, location (city and state), and estimated cost of the project. A Federal Buildings Fund Investments Map. This interactive map shows where GSA is spending its Recovery Act funds and provides information on spending to date, measured in obligations and outlays, for individual projects or states. According to GSA officials, they have received positive comments about GSA’s role in helping to revive the construction sector in numerous communities. GSA has also received negative comments about the pace of its spending. According to GSA officials, the pace of spending lags behind the amount of work and number of jobs that GSA projects are generating because GSA pays for work on a reimbursable basis after the work has been completed. As a result, work can be ongoing at a GSA project, even though GSA has not spent any money on the project. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. GRUZEN SAMTON ARCHITECTS PLANNERS & INTERIOR DESIGNERS LLP This contract is a for A/E services for the design of a federal employee parking garage and a master plan for the San Juan, PR FBI Field Office Consolidation project. The project as a whole will result in the design and construction of a new approx. 240,000 GSF Federal Building, on existing government property (a 27 acre site) for the Hato Rey area, San Juan FBI field offices. Design and construction of the FBI facility wil be procured under a separate contract. Delivered Final Master Plan and Final Concept Design for the Garage. (Information not reported) SAN JUAN, PR 00918-1700 More than 50% Completed GS-02P-06-DTD-0054 WESTLAKE, REED, LESKOSKY, LTD. The objective of this work order is to achieve the re-commissioning and retro-commissioning goals set forth in the ARRA for the Howard M. Metzenbaum USCH by creating bid and construction documents that describe all construction phase project work required by the NRPC identified projects and support the NRPC with project identification and definition. The design shall consist of but is not limited to the following: Mechanical Systems Upgrade/Replacement: Chillers, cooling towers, air conditioning units, boilers, hot water converters, steam pressure reducing stations, condensate return systems, primary and secondary pumping systems, domestic hot water heaters, heat exchangers, air handling units, terminal or variable air volume (VAV) boxes, heat recovery units, motors, steam traps, dampers, pumps and air ducts. Energy conservation and renewable energy projects ? Water Quarterly Activities/Project Description: During the final Quarter of 2009, WRL held an on-site kick off meeting with the GSA Project Manager, at the Metzenbaum Federal Courthouse. Field investigation was performed, and base drawings of the building were developed. WRL participated in reviews of the Commissioning agent?s reports prior to producing documents based on their Recommisioning recommendations. WRL produced 30% and 75% Documents which were used to solicit proposals from a Construction Manager. WRL participated in pre-proposal conferences with GSA and the potential Offerors for the role of Construction Manager. (Information not reported) Less Than 50% Completed PDG, INC. Wind Tunnel Testing Structural Study for the Micky Leland FOB (TX0298ZZ located at 1919 Smith Street, Houston, TX 77002). Provide engineering testing and analysis services for the site, as well as, to determine building cladding design loads. Attended meeting with Leland FOB building manager and COTR to verify existing conditions & establish working schedule. Reviewed existing architectural and engineering plans & technical reports. Verify Bldg. site climatology & develop wind speeds. Perform wind tunnel testing for the FOB that simulates the natural wind environment for the building site. Document all findings, conclusions & recommendations into a report. MESSER CONSTRUCTION CO. The Project Award includes $35,500,000 for Construction Phase Services for the GS-05P-08- GBC-0005 Fire/Life Safety and HVAC Modernization for the Minton Capehart Federal Building in Indianapolis, IN. It also includes Estimated Additional Scope Items of $4,304,513; and GSA Contingency of $2,805,739.21; M&I Services of $500,000. The base project scope (Fire/Life Safety and HVAC Modernization) includes replacement of: air handlers, fiberglass branch distribution ductwork, stair pressurization fans, temperature controls, fire alarm system, fire pump and jockey pump, fire protection system, ceilings and lighting. Electrical systems and emergency generator system are to also be upgraded as necessary to support the project scope of work. The project scope should also include LEED Silver certification. We are working to complete preconstruction services funded prior to the ARRA funding. Preconstruction services are proceeding as scheduled. We anticipate major subcontract awards to take place in first quarter of Calendar Year 2010. We are also working on M&I services, including forensic testing to verify condition of building piping systems prior to completion of design. Commercial and Institutional Building Construction Less Than 50% Completed GS-05P-08-GBC-0005 HEERY INTERNATIONAL, INC. Provide engineering and commissioning expertise to conduct recommissioning / retro- commissioning planning, identify energy conservation measures, scoping, testing, investigation, evaluation, analysis, calculations, recommendations, and report writing services for the following GSA federal buildings: (1) TX, Houston, Bob Casey US Courthouse, (2) TX, Houston, Alliance Tower, (3) TX, Houston, LaBranch Federal Building, (4) TX, Corpus Christi, US Courthouse and (5) TX, Victoria, ML King, Jr. Federal Building. Responsed to government's comments on the Draft Report (submitted last quarter) and completed Final report for submission by end of the year. (Information not reported) FORT WORTH, TX 76102-6105 More than 50% Completed GOSHOW ARCHITECTS, L.L.P. A/E Services for Bridging Documents for the high-performance, green, building modernization and other alteration work Clement Ruiz Nazario Courthouse and Federico Degetau Federal Office Building in Hato Rey, Puerto Rico. Review and evaluate site conditions, existing studies, surveys, analyses and reports, and identify additional services and tests that are required to fully document the project. Included in this phase were Courthouse/FOB Tours; Systems Upgrade Analysis; Fire Protection/Life Safety Analysis; Enviromental Hazards report; Conveyance System Study, Structural Analysis Study; Accessibility Study; Thermographic Imaging Study; Energy Model and Existing Building Analysis. Hato Rey, PR 00918-0000 More than 50% Completed Purpose is to investigate and provide recommendations for optimizing building performance through identifying energy improvements and demand reduction strategies. A feasibility study is being generated to include the following information: 1) The integration of geothermal heat pumps in the facility to offset the cost of cooling and heating the building. 2) Determine the feasibility of installing PV panels on the roof. 3) Provide suggestions for the most methods of retrofitting the roof to accept PV panels where existing roof can not supoort PV panel installation. 4) Provide conceptual renderings and drawings depicting vehicle canopies and covered walkways that use PV panels as protection from weather. 5) Provide any other suggestions for reducing the electrical load of the building. 6) Provide a fully developed Lifecycle costing, pay back period, and energy savings. The Architect/Engineer are to develop a Design-Build scope of work to implement the findings of the Retro-Commissioning Study that can be executed within the available funding. The Architects and Engineers took the findings from the Retro-Commissioning Study and began preparing a Design-Build scope of work specification report. A draft copy of the report was submitted to the agency for review and comments. More than 50% Completed GS-03P-03-CDD-0028 HEERY INTERNATIONAL, INC. Initial scope is for pre-design services for the design and construction of new office space for the Army Corp of Engineers on the Federal Center South campus in Seattle, WA. Design and construction will be procured under a design-build procurement methodology using a two- step best value competitive award. The deliverables include an update Program of Requirements, a design-build performance specification, a comprehensive bidding procurement document. The design-build contractor is expected to be under contract in early March 2010. Developed and refined concept estimate for the DB scope of work.Completed Owner Project Requirements (OPR) document. Completed development of the DB competition bid document. Participated in DB Q&A meetings with GSA and USACE. (Information not reported) More than 50% Completed JACOBS FACILITIES INC. Construction Management Services for Judges' Swing Space at Samuel M. Gibbons Federal Courthouse The purpose of this scope of work is to provide GSA guidance and direction as the Construction Manager as Advisor (CMa) Contractor who will be the government's on-site manager responsible for the successful renovation of Space Alterations at the Samuel M. Gibbons Federal CourthouseThe goal of the project is to construct the project on schedule and within budget while addressing minimum criteria for integrated design, energy and water usage, indoor environmental quality and materials usage.Major deliverables include Cost Estimating, Communications Plan, Detailed Project Schedule Development and Maintenance, Project Progress Meetings and Presentations, Meeting Minutes and Correspondence, General Progress Reports, Record Keeping, Construction Submittal and RFI Processing, Project Photography, Inspections and Testing Reports, Punch-List and Final Inspection, and Closeout Documentation. Interior buildout wall framing completed, wall rough-in of electrical completed, walls insulated and drywall has been installed and finished complete. Overhead electrical rough-in nearly complete and HVAC rough is nearly complete. All walls are painted and ceiling grid installation started.Project is ahead of schedule and going well. Commercial and Institutional Building Construction (Information not reported) More than 50% Completed The restoration project will replace the waterproofing membrane and increase the insulation of the plaza, replace the lighting systems in the below grade Post Office workroom levels with more energy efficient lighting, repair damages caused by water leaks and upgrade sidewalk access ramps to meet current ADA requirements. Further, the granite pavers will be cleaned, restored and reset at the Federal Plaza. The mnain goals are as follows: ?? Replace the waterproofing system. ?? Increase insulation of the Plaza. ?? Replace the lighting and/or lighting controls in the below grade Post Office workroom levels with more energy efficient lighting. ?? Repair structural damage. ?? Repair damages to interior structural elements and finishes caused by water leaks. ?? Ensure ease and efficiency of long term operation and cost effective maintenance. ?? Complete the design and construction per GSA P-100. ?? Develop 3D Building Information Model (BIM) for the Post Office space and Plaza. ?? Complete a project that satisfies the requirements of the existing building tenants and GSA. ?? Maintain the visual integrity and historic nature of the Plaza and all its elements after the project is complete. ?? Complete the design and construction within established schedules. ?? Complete the project within the budget by maintaining fiscal responsibility, communicating that responsibility to all parties involved, and by constantly updating and tracking project cost estimates. ?? Develop a high performance green complex. ?? Adhere to all elements and guiding principles of the LEED program where practical. ?? Per the Energy Policy Act of 2005, GSA’s targeted maximum annual energy consumption level for this project is 87,571 BTU's per gross square foot. ?? Promote and demand excellence in design and construction to produce a final project/building that reflects the dignity and significance of the United States Government. Pre-Construction Phase Services: 1) Review of the Architects design 2) Review of the Architects schedule. 3) Conduct a design review charette 4) Conduct bi-weekly meetings for the project team and maintain meeting minutes/ project directory and the distribution list. 5) Track Progress via monthly report. 230 South Dearborn Less Than 50% Completed Owner's Construction Representative services for the Modernization of the 10W. Jackson, 18 W. Jackson, and 230 S. State Street Project, located in Chicago, IL. The contract award is for the Base Services-Design/Pre-Construction Phase, Construction Year One of Option 1, and Options 2 and 3: Cost Estimating and Project Scheduling. The purpose of this project is to modernize and renovate the three buildings to create a safe and functional environement for the federal government and the public that will use the building. Owner's Construction Representative, project Kick-Off, run and organize weekly meetings, meeting minute documentation, review of existing and new documents, review drawings, site visits, project organization, tenant meetings attendnace, notes, review of plans, peer reviews, HVAC report review, schedule review, design review, final concept design review, scheduling, GMP cost estimating reconciliation, conduct value engineering work shops. (Information not reported) Less Than 50% Completed GS-05P-08-GBD-0023 The award is for Architectural/Engineering Briding Design services including, but not limited to, Pre-Design Services, Design Concepts, Briding Design-Build Services, and Contract Close our Services for th eBan Buren Land Port of Entry. The project is a new Land Port of Entry (LPOE) for the town of Van Buren, Maine, located on the St. John River approximately 320 miles north of Portland, 40 miles north of Presque Isle, and 25 miles southeast of Madawaska. The existing Border Station was damaged when the St. John River flooded in late April and early May of 2008. Rather than merely repair the undersized and outdated 40- year old facility, the GSA and the Department of Homeland Security’s Customs and Border Protection (CBP) felt that this would be an excellent opportunity to build a new port that would meet CBP’s needs for the future. This new port will be a gateway to our country and will replace a flood-damaged and obsolete border facility with a state-of-the-art commercial port of entry. It should make a distinct architectural statement that is responsive to the local community, the efficient movement of trade and commerce, the security requirements of law enforcement agencies, and the welcoming of visitors and citizens to the United States of America. Design Concepts services, including: space planning, space efficiency reporting, model building, systems life cycle assessments, design, review, and presentation of three conceptual project alternatives, cost estimating. 2400 Rand Tower, 527 Marquette Avenue Less Than 50% Completed CH2M HILL, INC. The Denver Federal center has antiquated utilities in need of repair or rehabilitation. CH2M HILL has been working with the GSA over the past three years to design a new water distribution system to replace the antiquated one, design rehabilitation and replacement of the sewer system that has been in place since the 1940's, and upgrades to the existing stormwater and electrical systems. The ARRA funding allowed this much needed project to be constructed and also allows for further design and construction to improve the Gulch that runs through the DFC to provide channel stabilization, replace the main electrical conductors, repair parking lots and provide a sewer upgrade. Provided engineering construction services for the construction of Phases I through III of the Utilities Infrastructure Project at the Denver Federal Center. Completed 30% design of Phase IV and began 60% design of Phase IV. (Information not reported) Less Than 50% Completed JACOBS FACILITIES INC. The New Custom House in Denver, CO, is an 8-story office building containing 172,502 usable square feet with 47 outdoor parking spaces on a 2.4 acre site. This 8-story stone building was constructed in 1931 and has 5 floors above grade plus a basement, sub- basement, and a partial floor below the sub-basement. In 1979, the building as listed on the National Register of Historic Places and is now designated as a level 2 historic asset. The building is primarily used as office space, the building also contains a child care center, as food service area, and provides space for US Bankruptcy court proceedings. Tenants include: the Small Business Administration, the US Bankruptcy Courts, the Military Entrance Processing Station, Department of the Army, Department of Justice, Department of Labor, Department of the Treasury, the Railroad Retirement Board, and the Department of Homeland Security.The proposed capital project will protect this 78-year old historic asset and improve the energy efficiency by upgrading air handling units, updating/replacing . Induction units and condensate piping, updating lighting and controls, updating mechanical controls, air intakes, installing isolation valves, updating/replacing domestic and mechanical plumbing, replacing ceilings and flooring, site work and new dock, updating restrooms, upgrading life safety system, and updating interior and exterior finishes. The project will also include replacement of all the windows with blast resistant construction. The amount of swing space is estimated at approximately 10,000 square feet. Construction is anticipated to begin in the summer of 2010 and the project duration is estimated at 24 - 30 months. The project is required to meet all American Recovery and Reinvestment Act (ARRA) regulations and applicable environmental and energy requirements.The contract scope of services includes Pre Design Phase Services to assist, review and provide technical support during the procurement process. Specifically, the Construction Manager will compile and/or develop the Design/Build criteria package and review offeror proposals for adequacy and completeness. After award, during the Design/Build design phase, services include review of the Design/Builders design submittals to confirm that the design meets the Solicitation for Offers, budget, and special requirements. The Construction Management team will also perform code compliance reviews; constructability reviews;conduct/participate in Value Engineering workshops; analyze Value Engineering proposals; prepare independent cost estimates, scheduling and design problem resolution. Project Construction Phase Services include monitoring/observation services and attending onsite construction coordination meetings that occur among the Government, General Contractor, and Architect. Pre-Design services have initiated with review and analysis of existing documentation. The first deliverable for the CM team is in progress. The deliverable is augmentation of the DB study, the DB specifications, the bid form, consultation on the technical proposal and DB SOW. Products from this analysis will be included in the DB RFP which will be issued to the shortlisted offerors in mid-December. Subcontracting and scheduling of geotech subconsultant is in progress. Commercial and Institutional Building Construction (Information not reported) Less Than 50% Completed This project is to study options and make recommendations for a photovoltaic system to be located at the terry Sanford Federal Building in Raleigh, NC. The complex consists of a courtroom tower and a large postal annex. The proposed PV system will be mounted on the roof of the annex, which is estimated to have 116,140 square feet of useable roof area. The project is initiated to use solar energy to generate power and reduce dependency on grid power. The overall goal of the project is to provide an alternative energy source that will provide supplemental power to the Terry Sanford Federal Building. The goal for this award is to provide a pre-project study and to develop a requirements package for construction. Project Management, Structural Engineering, Architecural Services, & Electrical Engineering Raleigh, NC 27601-1483 More than 50% Completed ENVIROSERVICES & TRAINING CENTERS LLC Ensure safe work conditions and prevent release of asbestos and lead during renovation activities at the Federal Building and US Post Office, 154 Waianuenue Ave, Hilo, Hawaii. Mobilized to the island of Hawaii. Provided oversight of asbestos related work for the 3rd Floor, rooms 302 to 305, including air monitoring and asbestos clearance testing. Asbestos clearance testing failed criteria and additional follow-up cleaning and testing is expected. Performed sampling and analysis of soil and thermal system insulation debris on bare soil to determine asbestos content. Debris contained regulated levels of asbestos. Soil in 2 of 4 sections contained detectable levels of asbestos less than 1 percent which is considered contaminated by Hawaii Dept of Health. Will provide design specifications for asbestos abatement if required. Further oversight activites are expected for lead related work and in different areas of the site. Mobilized to the island of Hawaii. Provided oversight of asbestos and lead related work for the 3rd Floor, rooms 302 to 305, including air monitoring and asbestos clearance testing. Asbestos clearance testing failed criteria and additional follow-up cleaning and testing is expected. Performed sampling and analysis of soil and thermal system insulation debris on bare soil to determine asbestos content. Debris contained regulated levels of asbestos. Soil in 2 of 4 sections contained detectable levels of asbestos less than 1 percent which is considered contaminated by Hawaii Dept of Health. (Information not reported) Less Than 50% Completed GS10F0173U KEY ENGINEERING GROUP, LTD. Overall purpose of this study was to comply with the National Environmental Policy Act (NEPA). NEPA study for the Chicago Federal Plaza restoration project. Project deliverables included preparation of an agenda (complete), meeting minutes and action items (complete), roster of team members (complete), Class I Cultural Resource Review - Section 106 Compliance (complete), preparation of a draft documented Categorical Exclusion (CATEX) checklist (complete), final checklist (complete). Significant services performed included agenda (complete), meeting minutes and action items (complete), roster of team members (complete), Class I Cultural Resource Review - Section 106 Compliance (complete), preparation of a draft documented Categorical Exclusion (CATEX) checklist (complete), final checklist (complete). In accordance with the scope of work, this project has been invoiced to 90% of completion. The remaining 10% will be invoiced after GSA public notice is completed. CHICAGO HEIGHTS, IL 60411-1001 More than 50% Completed CORNERSTONE ARCHITECTURAL GROUP, PS Provide a study to determine the condition of the Federal Center South Building's roof structural system and address potential roofing material alternatives while meeting the ARRA requirements, initial capital, sustainability, life cycle costs, good stewardship, historic preservation and performance. A cool roof, a vegetative roof, a building integrated photovoltaic or photovoltaic ballasted roof were to be considered and a recommendation provided. The study will be used to provide guidance for a future roofing construction project. The entire work under this award was completed in this quarter. Site visits, inspections, meetings, draft reports, reviews and the final report was submitted and approved. 6161 NE 175th Street JACOBS TECHNOLOGY INC. Data collection services to determine the feasibility of Project Labor Agreements in two areas and the risk associated with each (San Francisco, CA and Honolulu, HI). The report will look at the utilization of Project Labor Agreements in high union density states (such as California and Hawaii) and will determine if large-scale construction projects to be built in predominantly unionized areas would benefit from the use of a Project Labor Agreement. The report will look at the utilization of Project Labor Agreements in high union density states (such as California and Hawaii) and will determine if large-scale construction projects to be built in predominantly unionized areas would benefit from the use of a Project Labor Agreement. Research and study continued for Honolulu and San Francisco. Contract modification forthcoming to perform similar Project Labor Agreement studies on additional cities. (Information not reported) Less Than 50% Completed GS03P09DXA0025 HEERY INTERNATIONAL, INC. Heery International is providing Construction Manager as Agent (CMa) services for the San Juan FBI Consolidation Project for the Master Plan & Garage Design. The services include; attending design meetings and preparing agendas and minutes. Heery is also providing design reviews and estimates at each phase of the design. All of these services are being performed to provide quality assurance and project management oversight. Also, include in the scope of services are the design phase commissioning services required to obtain LEED Silver Certification. The expected outcome of these services is to provide a project that is completed on time, within budget, and in accordance with the contract requirements. October - Attended the kick-off meeting and prepared the 35% DD Estimate and performed the 35% DD Design Review. November - Attended periodic design meetings and prepared the 50% CD Estimate and performed the 50% CD Design Review. December - Attended periodic design meetings and prepared the 95% CD Estimate and performed the 95% CD Design Review. (Information not reported) San Juan, PR 00918-1700 Less Than 50% Completed JACOBS TECHNOLOGY INC. CM services for Clemente Ruiz Nazario Courthouse and Federico Degetau Federal Office Building The project is a High Performance Green Building Modernization. The scope of the work for the building includes the following: Redesign and replacement of HVAC system; upgrade of electrical panels and distribution system; implementation of energy conservation program; installation of photovoltaic panels; improve interior finishes; renovation of restrooms; compliance to ADA requirements; upgrade of fire protection and life safety system and partial site improvement. This quarter 100% Bridging documents were submitted by the Architect and have been reviewed and construction cost estimates prepared by Jacobs for reconciliation prior to bid. The initial phase of a two phase solicitation for a design build contractor has been completed. Jacobs was issued a modification on Dec 28, 2009 to provide design phase services in connection with the buildout of a new courtroom and ancillary space in the Jose Toledo Courthouse, Old San Juan,PR to be used as swing space during the modernization project in Hato Rey. (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our assessment: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. STL ARCHITECTS, INC. Study to investigate three existing 300 ton chillers with one that will be more fuel efficient. Preparation and presentation of a Pre-Design Report determining methods of altering existing chiller systems in order to increase energy efficiency. (Information not reported) $17,821.76 Information GAO gathered to improve the description The study of energy-efficient chiller options is part of a planning and designing effort for the recommissioning and retro-commissioning of the existing Metcalfe Federal Building in order to improve the energy efficiency and minimize the environmental impact of the existing building. The study will lead to preparation and presentation of a pre-design report highlighting areas of the subject property that may be altered or added to in order to increase energy efficiency. This particular report will focus on the chiller system. A/E Desgin Services for Land Port of Entry at Columbus, New Mexico Corpus Christi, TX 78401-3025 Less Than 50% Completed Information GAO gathered to improve the description The award was originally for expansion of the facility in its current location, but recent flooding along the border requires relocation of the facility away from the flood zone. This award will allow completion of design to incorporate flood protection and compliance with new statutory energy requirements. The facility will replace the existing, functionally obsolete facility with a new, energy-efficient facility that will meet the Customs and Border Protection (CBP) mission requirements. PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP INC. Construction Management (CM) Services for the Mondernization & Expansion of the Otay Mesa Land Port of Enty (LPOE) in San Diego California. This Delivery Order covers services A-B as indicated in the contractor's proposal date 7/17/2009. Parsons has not yet received a Notice to Proceed from the Government concerning this Task Order. Commercial and Institutional Building Construction Contracts Otay Mesa Land Port of Entry San Diego, CA 92101-2058 Information GAO gathered to improve the description The award provides the funding required to complete the design, provide construction management and inspection services, and acquire the site necessary to expand the port. The port is a multi-modal (commercial, non-commercial, and pedestrian) port of entry and is one of the 10 busiest land ports in the country. The current facility is obsolete, inefficient, and causes severe traffic congestion. The proposed project will reconfigure and expand the existing port through the purchase of adjacent properties to meet Customs and Border Protection's (CBP) mission needs while meeting General Services Administration's (GSA) energy reduction and green building requirements. Cotter Federal Building Located at 135 High Street Hartford CT, Roofing And PV Project: Will consist of a Intergraded PV & TPO Roofing system: TPO will be a fully adhered Cool Roof with the Photo Voltaic panels intergraded in the field sheet. The TPO roof will be heat welded using robotic field sheet welders and Lyister- Triack hand-held welders for detail and penetration welds. All electrical components will also be intergraded into the TPO roofing system and insulation. The project includes ongoing monitoring and support.. Asphalt Shingle and Coating Materials Manufacturing Information GAO gathered to improve the description The award modernizes the Cotter Federal Building and makes it more energy efficient by improving roofing and adding photovoltaic (PV) panels. The scope of work is focused on building systems affecting energy use and indoor environment, including shell infiltration and heat loss for the Moakley Federal Courthouse loacted in Boston, MA. Site Survey; System Review; Design Review; Energy Modeling; Functional Performance Tests, energy conservation measures, life cycle cost calculations, construction estimates. 153 Milk Street, Suite 200 Information GAO gathered to improve the description The award will result in a study that includes information on energy conservation measures. The Thurgood Marshall Courthouse infrastructure upgrade. During the period of October 1, 2009 thru December 31, 2009 Cauldwell Wingate has continued to work on the shop drawing and coordination of the MEPS Systems through out the project. In addition to this we have fabricated and installed the ductwork, sprinkler piping and electrical distribution on 7 tower floors and 2 base floors. The Main Electrical Distribution Switchboards have been fabricated and set in place with the installation of the conduit and wire throughout the electrical closets. The Basement underground plumbing was installed in the parking garage was completed. Commercial and Institutional Building Construction NEW YORK, NY 10007-1502 $64,000,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award upgrades the infrastructure and addresses life safety and accessibility issues of the building and will extend the useful life of the building. The award includes coordination of mechanical, electrical, and plumbing (MEP) systems throughout the project. JACOBS ENGINEERING GROUP INC. Provide Pre-Design and Design Review Servicesfor the building system modifications to meet NARA 2009 requirements for the VA file storage space located in Building 104 of Goodfellow Federal Complex. ARRA VA AT BLDG. 104, 4300 GOODFELLOW, ST. LOUIS, MO No project activities from Jacobs, waiting on design. (Information not reported) St. Louis, MO 63120-1703 Less Than 50% Completed Information GAO gathered to improve the description The award provides pre-design and design services for the building system modifications to meet National Archives and Records Administration (NARA) 2009 requirements for the VA file storage space. The VA file storage space does not currently have any HVAC or humidification, which is a requirement from the NARA 2009 standards for file storage. These activities will include new high efficiency chillers, new high efficiency chilled water, condenser water and hot water pumps, new high efficiency cooling tower(s), new high efficiency air-handling units and distribution ductwork, chilled and heating hot water pipe, and a humidification system for approximately 130,000 square feet of file storage. Construction management services for the design phase include, but are not limited to the following: (1) Attend the 35 percent, 65 percent, and 95 percent design review meetings; (2) Review drawings and specifications at 35 percent, 65 percent, and 95 percent; (3) Attend design kick-off meeting; (4) Attend three additional design development meetings; and (5) Evaluate construction cost estimate and attend three reconciliation meetings. PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP INC. Prepare an Environmental Impact Statment to determine whether the proposed action warrant a finding of no significant impact or the preparation of the record of decision to improve, through modernization and new construction, the functionality, operational capacity and security of the Otay Mesa (OTM) Land Port of Entry (LPOE). Conducted project kick-off meetings and site inspections, provided Environmental Impact Statement (EIS) notice of intent (NOI),provided draft and final versions of public scoping EIS fact sheet,provided draft and final versions of public scoping meeting display and project information posters, conducted public scoping meeting, provided draft and final versions of scoping report, completed a Phase I environmental site assessment (ESA) of the LPOE and submitted both draft and final versions of the Phase I, completed internal draft threatened and dangered species biological assessment(BA) for the LPOE site and surrounding area, completed cultural resources evaluation for the LPOE site and surrounding area and submitted draft and final versions of the cultural resources report, with the final version submitted, provided draft endangered and threatened species consultation letters to GSA for submittal to US Fish and Wildlife Service and California Department of Fish and Game. Otay Mesa Land Port of Entry San Diego, CA 92101-4433 Less Than 50% Completed Information GAO gathered to improve the description The Environmental Impact Statement prepared from this award will allow the agency to determine if the proposed action would significantly affect the environment. GARLAND COMPANY INC, THE Remove and replace approximately 4,950 square feet of bituminous built-up roofing, add new insulation to create an R-50 insulation value when complete, and install architectural metal at all parapet and coping locations. The project shall include all low slope or flat levels of the roof Since the project has not started, Since the last report, manufacturing had manufactured and shipped roofing materials to the site. Contracts (Information not reported) FERGUS FALLS, MN 56537-2576 Less Than 50% Completed Information GAO gathered to improve the description The award replaces the roof of the United States Postal Service Building and Courthouse located at 118 S. Mill Street in Fergus Falls, Minnesota. Replacing the roof will reduce the repair and alteration liability of the building and help reduce energy consumption. SMITHGROUP, INC. Window replacement - FaÁade Thermal Performance Improvement for the John F kenedy Federal Building in Boston, Massachusetts. The work to be performed under the Contract includes updating the existing window and curtain wall replacement documents for code compliance and energy efficiency. Typical window design was revised as an additional bidding option. The revised design is to be installed from the exterior as opposed to the interior. Additional bidding options were added for sealant joint replacement and concrete repair. 500 Griswold Street, Suite 1700 More than 50% Completed Information GAO gathered to improve the description The award supports design services for window and curtain wall replacement for the entire John F. Kennedy Federal Building in Boston, Massachusetts. HOF CONSTRUCTION, INC. The Robert A. Young Building is a high rise historic brick strucutre approximately 1 million square foot in size, housing 3000 tenants. The existing cafeteria kitchen, dish room, servery, and dining area have become outdated, and much of the equipment is aging with high energy consumption. This work is being performed under the 'Building Tune-up, Lighting Replacement, Building HVAC Systems and Energy Saving' categories as defined in the ARRA descriptions of High Performance Building Improvements. This field is not applicable yet since we haven't started work yet and no funds have been received. Commercial and Institutional Building Construction 1222 Spruce St. St. Louis, MO 63102 SAINT LOUIS, MO 63103-2818 Less Than 50% Completed Information GAO gathered to improve the description The award supports construction to upgrade the cafeteria at the Robert A. Young Federal Building. The nature of the activities is renovations to the cafeteria, including coordination and phasing to minimize disruptions to cafeteria service, building operations, and tenants. The activities under this award include construction of a new dish room with an accumulating conveyor; reconfiguring the servery with new food service equipment and all associated rough-ins; renovating the servery with new finishes on the walls, floors, and ceilings with down lighting and accent lighting; replacing the existing equipment and hoods in the kitchen with higher efficiency equipment; constructing two conference rooms at the north end in the dining room; and installing new pendant lighting, diffusers, and finishes throughout the dining room, including ceiling, wall and floor finishes. Billings, MT Federal Courthouse: ALTA/ACSM survey with boundary amendments; Amended Subdivision Plats; topographic survey; exhibit preparation 4th Quarter: topographic survey Other Activities Related to Real Estate 26th Street West More than 50% Completed Information GAO gathered to improve the description The award funds an American Land Title Association (ALTA) survey of property to be acquired in Billings, Montana for the construction of a new Federal courthouse. In addition to the ALTA survey, additional site survey work includes adjacent parking lots, land, and streets, and a topographic and power pole survey. This work is intended to survey the property and provide data for the next steps in the construction of the courthouse. STANGER INDUSTRIES INC. This award was for the ARRA-Wichita Air Handler Replacement - U.S. Courthouse - replacement of air handling units in the Wichita Courthouse.Install new high-efficiency hot water boilers, new off-hours chiller, VAV's and direct digital control upgrades. * Air handling unit replacement; * Variable frequency drive installation; * New hot water piping and mechancial insulation; * New Sheet Metal,distribution ductwork and grilles; * Accoustical ceilling removal/replacement; * Building Automation Upgrades. * Removal and replacement of three (3) air handling units; * Misc. Electrical power for the air handling units; * Minor lighting modifications; * General project clean-up; * Building Automation Engineering; * Pre- Construction Services and drawing coordination; * Value Engineering; * Quality Control; & Solicit Sub-Contracting pricing. Commercial and Institutional Building Construction Less Than 50% Completed Information GAO gathered to improve the description The award will result in decreased energy consumption and operational costs. CONSTRUCTORS HAWAII INC. Repair, alteration, and seismic upgrade to the Federal Building and U.S. Post Office at 154 Waianuenue Avenue, Hilo, Hawaii. The work includes asbestos removal work, installation of new concrete shear walls in the two wings, reconstruction of architectural concrete elements, renovations of existing toilet rooms, custom doors, windows and millwork, installation of fire sprinkler and other fire protection systems, plumbing, new electrical systems, natural stone, quarry tile, ceramic tile, and other finishes. First Quarter: Furnished payment and performance bond, mobilized on site, started erecting temporary barriers, started demolition work. Second Quarter: Constructed new concrete shear wall at West Wing from basement thru the third floor, new stairs at loading dock, new stairs and curbs at courtyard, new ramp at basement. Work is ongoing at the West Wing first floor restroom and the finishes in the West Wing first, second, and third floors. Commercial and Institutional Building Construction Less Than 50% Completed Information GAO gathered to improve the description The activities funded by the award will modernize the buildings and are part of General Services Administration's (GSA) overall effort to improve federal buildings. Install VFD on Chiller # 3 at the Federal Bldg Install new VFD or the chiller for energy efficiency Commercial and Institutional Building Construction (Information not reported) LOS ANGELES, CA 90024-3602 $72,807.65 Information GAO gathered to improve the description The award funds the installation of a variable frequency driver for a chiller at the Federal Building in Los Angeles, California. JACOBS TECHNOLOGY INC. Requirements and Estimating Sevices for facilities in GSA Region 10 Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects. This is to include high performance Green buildings. The intent is to gather project data and performancerequirmentstoprepareperformance based Statement of Objectives. Deliverables include budget estimating, initial schedule development and solicitation phase services. Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects. This is to include high performance Green buildings. The intent is to gather project data and performancerequirmentstoprepareperformance based Statement of Objectives. Deliverables include budget estimating, initial schedule development and solicitation phase services. Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects - completed 3 of 4 locations. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award provides plans for energy-efficient buildings at several sites in General Services Adminstration (GSA) Region 10, including the GSA Region 10 headquarters in Auburn, Washington; the federal Building in Baker City, Oregon; a historical building project in Spokane, Washington; and the federal building in Anchorage, Alaska. This contractor’s place of performance will be at the Jacobs office in Bellevue, Washington. URS GROUP, INC. TAS::47 4543::TAS - RECOVERY - CONSTRUCTION MANAGEMENT SERVICES IN SUPPORT OF JACKSON FEDERAL BUILDING MODERNIZATION PROJECT. SERVICES INCLUDE PRE-DESIGN AND DESIGN PHASE. Construction Management Assist services for the Jackson Federal Building Modernization Project from inception through June 20, 2011 (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The construction management services provided by this award are in support of an effort that will improve the building shell and repair or replace the building’s HVAC/electrical systems. The modernization of the building will result in the facility being an economically and operationally efficient high-performance green building. The services also include additional energy conservation measures in support of LEED Existing Building designation. BOVIS LEND LEASE LMB, INC. Moderization and facade reclad of Peter W. Rodino Federal Building in Newark, NJ 100% Bridging design and Final Report Commercial and Institutional Building Construction $542,023.00 More than 50% Completed Information GAO gathered to improve the description The award is part of a larger modernization project of the building consisting of exterior cladding for the entire building, upgrading fire egress for entire building, asbestos abatement and build out of 6 floors, upgrading HVAC for 9 floors, replacing 32 AHU’s, and a new cafeteria. This award includes repair/replacement of the HVAC system, domestic water distribution system, fire protection system, lighting and electrical systems, interior restoration, infrastructure work, exterior façade repairs, and hazardous materials remediation. Telephone, data networks, and security systems will also be upgraded and the restrooms will be modernized in compliance with Americans with Disabilities Act (ADA) and Uniform Federal Accessibility Standards (UFAS) regulations. The modernization will improve the building’s façade, which, due to the age of the building, is showing signs of significant deterioration, and replace or modernize various aging original systems. NICHOLSON & GALLOWAY, INC Façade Repair and Slate Roof Replacement at the U.S. Post Office and Courthouse located at 271 Cadman Plaza East, Brooklyn, NY 11201 Continuation of Security Clearance with the Department of Homeland Security / Mobilization of Job Site / Installation of Pipe Scaffold / Installation of Sidewalk Bridge / Temporary Electric Installed Commercial and Institutional Building Construction 271 Cadman Plaza, East Less Than 50% Completed Information GAO gathered to improve the description The award updates the original structure built in 1892 and the expansion built in 1933, including replacement of nearly all of the existing deteriorated terra cotta cladding; retention, repair, restoration, re-pointing, and cleaning of existing terra cotta and granite cladding on the facades of both structures; replacement of the entire slate roofing system on both structures, to match the appearance and character of the existing slate roof; installation of an access and fall protection/prevention system in compliance with all applicable Occupational Safety and Health Administration (OSHA) regulations at the slate mansard roof on both structures to facilitate periodic maintenance of perimeter gutters and drains; and hazardous materials investigation and abatement associated with the above work items. These activities will correct the deficiencies in the exterior envelope of the building and preclude further façade deterioration and damage to the structure and the recently renovated historic interior. NORTHERN MANAGEMENT SERVICES, INC. Northern Management Services Inc shall supply and install four cartons of polardam form in the Data Center. Based on the revised scope of work, Northern Management has received a credit for not using the special order brushed grommets. Thus adjusting the original project from $20,383.00 to $16,228.00. Sub contractor has completed approximately 100% of the work. The Airflow panels have been relocated, the installation of the 126lf of Plenum Divider is finished and the floor work has been completed. None of the completed work has been invoiced in this quarter. GSA requirement of payment after 100% completion with inspection of work and release for payment documented. Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The award provides repair work at the data center of the Bureau of Alcohol, Tobacco and Firearms (ATF) facility in Martinsburg, West Virginia. The air flow handlers in the data center--which houses many computers--were not distributing air properly. The handlers were moved to the racks at the front of the room and now work properly. The contract was reduced from $20,383 to $16,000 because they did not need to use special order grommets that were originally thought needed for installation. The award will result in air flow handlers that cool the data center to appropriate temperatures needed for computer functionality. NORTHERN MANAGEMENT SERVICES, INC. Perform testing of the EMS systems at the Giaimo building in New Haven, CT and the McMahon CH/FB in Bridgeport, CT, in support of the energy audits at these locations. The Subcontractor had been contracted and the EMS systems testings have been completed at both buildings as per the notice to proceed by General Services Administration. Northern Management Services' Project Manager and Chief Engineer oversaw the work by the Subcontractor was completed in a timely manner. This project is 100% completed.The General Services Administration has been billed in the amount of $6,437.52. Contracts Information GAO gathered to improve the description The award supports testing of the energy management systems (EMS) to improve energy efficiency. Wissahickon Building in Philadelphia, PA - PV Roof, CM Services Task#1-Design & Shop Drawings/Submittal Reviews/Meetings Commercial and Institutional Building Construction 1120 Connecticut Ave NW, Suite 310 More than 50% Completed Information GAO gathered to improve the description The award supports electrical inspection services for the roof replacement and photovoltaic (PV) array installation project at the Veteran's Affairs Center at 5000 Wissahickon Ave. in Philadelphia, Pennsylvania. The design and construction of a new modified built-up roofing system is intended to replace the existing roof, which is 10 years old and currently in poor condition, with some portions of the roof leaking. Additionally, the PV array will reduce the environmental impact of the building. SQUARE D COMPANY (INC) Energy retrofit of the ATF Facility in Martinsburg, WV. Provide and install two utility meters and all associated hardware. Provide associated monitoring services. No activity- project not started yet Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The award supports the installation of two utility meters in support of a larger effort to retrofit the Alcohol, Tobacco and Firearms (ATF) facility with a ground source heat pump system, a photovoltaic (PV) solar array and replacement of the building’s chillers and adjustments to the HVAC system in the building. The retrofit effort will provide heating and cooling and reduce the amount of energy consumed by the building. W. G. YATES & SONS CONSTRUCTION COMPANY The purpose of this award was to incorporate field changes and add VE option back into the scope work. The major options added back were the Blue fins, Pavers at the Rotunda and Granite steps at the entrance The work performed during this calendar quarter included reworking the sprinkler heads at holding cells, update walls and doors with the revised life safety drawings, revising the dimming board locations, adding blue fins on the performance mockup, changing the floor framing plan @ elevator 5, 6 & 11; adjustments to the steel framing in the field, relocating masonry walls for the Judges mantrap and elevator, relocation of the floodgate and pneumatic tube system, adding additional security conduit, revising the courtroom millwork and revising the locations of the Sally port sprinklers Commercial and Institutional Building Construction More than 50% Completed Information GAO gathered to improve the description The award allowed the contractor to incorporate value engineering (VE) into the construction of a new Federal Courthouse at 555 South President Street in Jackson, Mississippi. VE is an organized effort to analyze the functions of systems, equipment, facilities, services, and supplies to achieve essential functions at the lowest lifecycle cost, consistent with the required performance, reliability, quality, and safety. COMMUNITY SERVICES AGENCY OF THE METROPOLITAN WASHINGTON COUNCIL, AFL-CIO Pre-apprenticeship training job and placement services all staff hired, 6-week training completed for 20 individuals, job placement activities underway, recruitment for next adult and youth classes underway 888 16th Street NW, Suite 520 Less Than 50% Completed Information GAO gathered to improve the description This award provides pre-apprenticeship training and placement services to low-income area residents through September 2010. Graduates of the program will be placed at registered apprenticeship programs at construction sites to gain on-the-job experience and industry-recognized credentials. The award is expected to result in 150 individuals trained and placed in jobs by September 2010. PLATINUM ONE CONTRACTING, INC. Design and install roof replacements and improvements of the Wilke D Ferguson Federal Building. Design and install roof replacements and improvements of the Brickell Plaza Federal Office Building Mobilization : Design in process, submittals, bonding, insurance Wilkie D Ferguson Federal CH, Brickell Plaza Federal Office Building $1,377,500.00 Information GAO gathered to improve the description This award supports the evaluation and installation of new rooftops at both federal buildings. The evaluation phase of this project will test whether the current roof structures can sustain the weight associated with green roofs. After testing, the construction phase of the project will be subcontracted to local builders. The expected outcome is greater energy efficiency at both buildings. NATIONAL BUILDING CONTRACTORS, INC. ARRA-funded replacement of penthouse and stair enclosure roofs with vegetated roofs. The field survey of the roof replacement project has been completed, the asbestos testing has been performed, the 35% design submittal has been prepared and submitted, the project staging has been completed, and the demolition phase has begun. 401 West Peachtree St. Less Than 50% Completed Information GAO gathered to improve the description This award funds the design and installation of roof replacement and improvements at the Peachtree Summit Federal Office Building at 401 West Peachtree St. in Atlanta, Georgia. Architect-Engineer Services, Milwaukee, Wisconsin High Performance Green Building at the Federal Building & U.S. Courthouse 517 E. Wisconsin Avenue Less Than 50% Completed Information GAO gathered to improve the description The award provides architect-engineering design services in support of high performance green building work at the Milwaukee United States Courthouse and Federal Building in Milwaukee, Wisconsin. These services will create scopes of work for building system improvements based on the findings of a Recovery Act-funded retro-commissioning study and support the implementation of building features to increase energy efficiency. ALLIED BUILDING SERVICE COMPANY OF DETROIT, INC. Installing light sensors through out the building. Installing an A/C unit on the roof for Computer room Haven't started. NO Detais Yet Commercial and Institutional Building Construction 333 Mt. Elliot Avenue, Rosa Parks Federal Building Information GAO gathered to improve the description The award supports energy conservation activities at the Rosa Parks Federal Building in Detroit, Michigan. These activities include replacing water-cooled air conditioning unit with air-cooled air conditioning unit, replacing weather stripping at the front entrance, and installing occupancy lighting sensors throughout the facility. The award will result in reduced energy consumption. FREDERICK CONSTRUCTION, INC. Modernization Project at the Federal Building & US Courthouse. This project is in a Design Phase as a Construction Manager project. No subcontracts have been awarded as of 12-31- 09. Bids for subcontracted work will be reviewed and contracts awarded at a future date. No services have been performed in this quarter. Commercial and Institutional Building Construction ANN ARBOR, MI 48104-2129 Information GAO gathered to improve the description The award provides upgrades to the lighting and building automation systems at the Federal Building and U.S. Courthouse in Ann Arbor, Michigan. The upgrades to the HVAC and lighting controls will increase cost efficiency and energy conservation. FREDERICK CONSTRUCTION, INC. This project was awarded to conduct building automation system upgrades at the Theodore Levin US Courthouse. This project is in a Design Phase as a Construction Manager project. No subcontracts have been awarded as of 12-31-09. Bids for subcontracted work will be reviewed and contracts awarded at a future date. This project is in the final design phase and the pre-bid phase no work has been performed on site in this quarter. Commercial and Institutional Building Construction $801,980.18 Information GAO gathered to improve the description The award funds activities to modernize the building automation systems at the Theodore Levin Courthouse in Detroit, Michigan in order to make the building more energy efficient. SAINT LOUIS, MO 63103-2818 More than 50% Completed Information GAO gathered to improve the description The award funds design services for the renovation and upgrade of the cafeteria at the Robert A. Young Federal Building in St. Louis, Missouri. The work being done under this award includes: design services for the cafeteria project, completing necessary technical updates, revising the project numbers and titles on all drawings, revising the specifications to require Energy Star equipment (where available), and updating projected construction schedules. The larger renovation and upgrade project includes an upgrade to air handlers, exhaust hoods, replacement of existing water-cooled appliances, and replacing existing kitchen equipment with Energy Star or LEED certified equipment. GARLAND COMPANY INC, THE 1. Test for asbestos in or under roof (current roof may have been laid over an older roofing system). DUE: Two weeks after award of contract. 2. Specifications and schematic design for roof replacement. Documents must be sufficient to fully describe requirements for a design- build contractor, to include the design-build contractor’s requirements for design completion, but need not be stamped by a PE (although work must be by competent professional engineers as applicable). DUE: 30 calendar days after award of contract. 3. Recommendations for a PV system to be coordinated with roof replacement. DUE: two weeks after award of contract. 4. Upon GSA approval of recommended PV system, provide specifications and schematic design for the PV system. The schematic design should be flexible enough to permit competition among PV equipment manufacturers. The design must carefully avoid compromising historic aspects of the building, and must consider any other tenant impacts (e.g., glare reflected into windows). Documents must be sufficient to fully describe requirements for a design-build contractor, to include the design-build contractors requirements for design completion, but with the exception of the structural calculations need not be stamped by a PE (although work must be by competent professional engineers as applicable). DUE: Two weeks after GSA approval of PV system recommendations. 5. Provide structural calculations with the specifications and schematic design for the PV system. Structural calculations must be stamped by a PE. Since the project has not started, their have not been any significant service performed or supplies delivered. To date, project set-up service and security badging administration has been delivered. (Information not reported) Information GAO gathered to improve the description The award supports an engineering assessment and plans for roof replacement and photovoltaic (PV) system installation to be performed at the United States Courthouse in Pasadena, California. SAMUEL ENGINEERING, INC. Compile exisitng as-built drawings and site plans to display the ground areas being proposed for ground mounted PV panels. Also display the parking areas being proposed for ground mounted PV panels. Also display the parking areas of Buildings 25, 53, and 810 for the installation of carport PV s. Indicate existing electrical system on-lines at both the building 480V and/or 13.8 kV for PV tie-in. This information will be utilized to effectively portray the level of effort and existing conditions for a design-build contractor. Greenwood Village, CO 80111-2816 More than 50% Completed Information GAO gathered to improve the description The award supports the development of preliminary design build documents, including one-line diagrams, plan drawings, tie-in locations, and general design notes for potential new construction projects of photovoltaic (PV) panel systems at the Denver Federal Center in Lakewood, Colorado. The award recipient also developed cost estimates for electrical tie in at each proposed PV panel system location. The award will result in increased solar power capacity through new ground-mounted and carport PV panel systems. Parking lot lighting. Completed site survey and 90 percent of design $48,284.00 More than 50% Completed Information GAO gathered to improve the description The award provides a design draft for LED parking lot lighting installation at the Laguna Niguel Federal Building. The new lighting will provide energy-efficient lighting and reduce energy costs at the federal building. This is a Design Build Project which requires General Contractor to furnish and install two (2) new centrifugal chiller variable frequency drives at the Phillip Barton Federal Buiding and Court House located in San Francisco, California. No services have been performed as of yet, as the project has not started. We attended a pre-construction meeting on Thursday, January 14, 2009. We are now awaiting a Notice To Proceed Letter from GSA, as to when we will physically be able to start the Project. Electrical Contractors and Other Wiring Installation Contractors SAN FRANCISCO, CA 94102-3434 Information GAO gathered to improve the description The award supports activities to improve the energy efficiency of the Phillip Burton Federal Building and United States Courthouse. These activities include installing variable frequency drives, which control electronic motor speeds to modulate the power being delivered to a motor to reduce energy costs and equipment maintenance. Design and construction services as required for design build construction of a New US Federal Courthouse Selection of Winning was made and under contract Commercial and Institutional Building Construction Contracts (Information not reported) SAN JOSE, CA 95110-1347 Information GAO gathered to improve the description The award is part of a larger effort to construct a new U.S. federal courthouse in Bakersfield, California, which will meet the 10-year requirements of the courts and will satisfy federal energy standards. BPA Call is for Project Management services associated with GSA's Public Building Services. Building enevelope, including curtain wall, windows and roofing, Lighting-day lighting and energy efficient electric with sophisticated controls, HVAC energy retrofit and replacement, including boilers, chillers, cooling towers, piping, pumps and air distribution, building systems controls, including HVAC and lighting and acoustics, renewable energy generation, including photovoltaic. Administrative Management and General Management Consulting Services (Information not reported) Fort Worth, TX 76102-0181 Less Than 50% Completed Information GAO gathered to improve the description The award supports 2 people in the operations branch to provide project management support services for General Services Administration (GSA) Recovery Act construction projects. The individuals will provide project management support for all phases of ongoing construction projects from conception to commission. The location is the GSA office at 819 Taylor St., Fort Worth, Texas. The award will enable GSA to complete its Recovery Act-related construction workload. CORNERSTONE ARCHITECTURAL GROUP, PS PROVIDE LIGHTING REQUIREMENTS AS PART OF A FUTURE RELIGHTING PROJECT AT TWO FEDERAL FACILITIES. Information GAO gathered to improve the description The award will result in professional engineering and lighting services for the federal building in Fairbanks, Alaska and the General Services Administration (GSA) Region 10 headquarters in Auburn, Washington. The award will result in increased energy efficiency and cost savings. Design and construction services to include all labor, installation, tools, equipment and design-build services for new boiler system for Eugene Federal Building, Eugene, Oregon and replacement boiler system for James A. Redden Courthouse in Medford, Oregon. Administrative Co-ordination activities. Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The new boiler system for the Eugene Federal Building is an energy-efficient system. The boiler system for the James A. Redden Courthouse is being replaced because it is old and the replacement system is energy-efficient. TISHMAN/AECOM, A JOINT VENTURE Construction Management Services for the Daycare Facility, Central Utility Plant, Phase 1 B Adaptive Reuse. Construction Management Services for Security and IT upgrades Design review, Meetings, Construction Review/Coordination 2700 Martin Luther King Jr, SE Washington, DC, DC 20032-0000 Less Than 50% Completed Information GAO gathered to improve the description The award will support construction management services for the renovation of multiple buildings on St. Elizabeth's West Campus. These services include design and cost estimate review, schedule control, construction progress reporting, safety and inspecting reporting, claims prevention, and close-out services. In addition, the award will ensure that the renovation project complies with the Recovery Act and historical and environmental considerations. The award will result in renovations to the St. Elizabeth's West Campus buildings for use by the U.S. Department of Homeland Security (DHS). Provide Procurement Analyst Support Services in support of DHS Consolidation Program at St Elizabeths, SE, Washington, DC Performed procurement analyst in support of the DHS consolidation at St. Elizabeths. Services included monitoring, managing, planning, organizing, and documenting all procurement of services/construction/AE contracts, including administrative duties. Commercial and Institutional Building Construction (Information not reported) $175,400.00 Less Than 50% Completed Information GAO gathered to improve the description The award is part of a larger three-phase Department of Homeland Security (DHS) project to consolidate and develop St. Elizabeths Campus in Washington, DC. The phase of this project that is funded with Recovery Act funds incorporates the design and construction costs of: 1) U.S. Coast Guard Command; 2) U.S. Coast Guard Parking Structure; and 3) Amenity spaces for U.S. Coast Guard. The award will also fund the remaining design work (which was not completed in a previous project phase): 1) The new DHS and Federal Emergency Management Agency (FEMA) Headquarters; 2) Historical preservation of St Elizabeths buildings; 3) Design of DHS National Operations Center (NOC), and 4) DHS parking structures. ProCon Consulting, LLC will be involved in design and construction management support services. The project will help move DHS closer to completing its effort to consolidate and develop its headquarters in the National Capital Region, though it will not complete the project. The remaining work will cost an estimated $1 billion. JACOBS TECHNOLOGY INC. Provide Intergrated Planning Sessions with GSA staff managing the 17 High-Efficiency Limited Scope Projects in the New England Region (1). Identify key objectives, critical scheduling requirements, opportunities and constraints posed by the Region's 17 Limited Scope Projects. Lead interactive planning sessions that will yield defined schedules and management plans for each Limited Scope Project. Interactive planning sessions held with GSA Regional staff managing the 17 Limited Scope Projects. All significant project details and activities reviewed and scheduled through completion. Management plans for each project prepared and distributed to Regional leadership. Administrative Management and General Management Consulting Services (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports integrated planning sessions with representatives from each of the General Services Administration's (GSA) 11 regions as well as representatives from the Office of Chief Architect and other related program offices. These limited-scope projects are system upgrades--such as upgrades to lighting or cooling systems--that are discrete and do not require major space re-design or architectural changes. JACOBS TECHNOLOGY INC. Construction Management (Agency) Services for Modernization ofU.S. Department of Interior Headquarters ARRA - DOI MODERIZATION CM SVS ARRA - DOI MODERIZATION CM SVS Project has not started. Plan to start the first quarter of 2010. (Information not reported) Information GAO gathered to improve the description This award supports the renovation of the Department of Interior building in Washington, DC to make the building more energy efficient. PROJECT SUPPORT SERVICES, INC. Project management support to the office of Portfolio Management Division facilities management & services program division; providing operational, technical, and management support to the region in areas such as safety and health, concessions, childcare facilities, maintenance, energy efficiency, and accessibility. Provided project management to the GSA Budget Program, ARRA Budget Team for support of GSA Manager P. Johnson, Portfolio Management Division. (Information not reported) $216,617.84 Less Than 50% Completed Information GAO gathered to improve the description This award provides one subject matter expert to support the Office of Portfolio Management Division, Facilities Management & Services Program Division for the General Services Administration's (GSA) National Capital Region in Washington DC. Specifically, the individual provides consultation for resolving Americans with Disabilities Act (ADA) and Architectural Barriers Act (ABA) cases at GSA facilities and review of ADA/ABA construction drawings submitted by third-party architects. The award will result in assistance for GSA in approving ADA/ABA-related facility changes and reviewing specification drawings. The Project Information Portal (PIP) tracks/reports on prospectus level projects for project managers, customers and PBS executives. In an effort to support the ARRA, a host of enhancement will need to be made to the PIP. These ehancements will provide transparency and accountability over the recovery dollars applied to GSA capital projects. These enhancements will also provide PBS managers access to real time reporting tools to provide validity and consistency to the data reported to bother internal and external stakeholders. Develop field level and form anhancements for recovery tracking to expand what has already been produced in PIP. Update integrations and connections with BI to support OMB reporting requirments. 1800 West Street, NW Less Than 50% Completed Information GAO gathered to improve the description The Project Information Portal (PIP) is a Web-based tool created for project teams to share information on prospectus and non- prospectus level projects with stakeholders. General Services Administration (GSA) uses the centralized system for tracking the more than 5,000 projects throughout its 11 regions for over 14,000 users. The award will develop field level and form enhancements to allow GSA to track Recovery Act spending. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken. directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. GASTINGER AND WALKER ARCHITECTS INC Construction Management, Site Visits Commercial and Institutional Building Construction More than 50% Completed Information GAO gathered to improve the description The award provides construction management services for roof replacement at the Roman L. Hruska, United States Federal Building/Courthouse in Omaha, Nebraska. Despite being a relatively new building, the condition of the roof was poor. This roof replacement is part of a larger project to replace the roof, upgrade energy controls so that energy use can be reported back to General Services Administration (GSA), and then install photovoltaic cells (PV). A contractor will perform all construction management services from construction to commissioning. The award will result in a more energy-efficient facility and facility sustainability. Assist with Functional Perforance Testing at the Rosa Parks Federal Bulding. Other Services to Buildings and Dwellings Ann Arbor, MI 48104-2129 Information GAO gathered to improve the description The award supports the testing of a cooling system at the Rosa Parks Federal Building in Detroit, Michigan, in order to ensure that the system is working efficiently. KPH CONSTRUCTION, CORP. RECOVERY - Light Court Roof Replacement RECOVERY - Light Court Roof Replacement (Information not reported) Information GAO gathered to improve the description The award supports installation of a high performance green building light court roof located in the south building of the United States Courthouse and Federal Building in Milwaukee, Wisconsin. The activities under this award include all management, supervision, labor, materials, supplies, and equipment necessary to replace the Light Court Roof. The work will consist of removing and replacing approximately 10,000 square feet of roofing covering a first floor space at the base of the light court. The award is in the amount of $997,358.00. SAINT LOUIS, MO 63108-2208 More than 50% Completed Information GAO gathered to improve the description The award funds design services for the mechanical upgrade to the building automation system, HVAC upgrades, energy-efficient lighting, and new occupancy sensors at the Robert A. Young Federal Building in St. Louis, Missouri. NORTHSTAR PROJECT MANAGEMENT, LLC Administrative Management and General Management Consulting Services Information GAO gathered to improve the description The award supports design-build consulting services for renovation of the Byron Rogers Federal Office Building in Denver, Colorado. The proposed renovation capital project will address all major building components including the following: structural, mechanical, electrical, plumbing, fire protection, and elevators. In addition, hazardous materials such as asbestos and PCBs will be abated. The Recovery Act provides $4.6 billion to the U.S. Army Corps of Engineers’ (Corps) Civil Works program to accomplish the goals of the act through the development and restoration of the nation’s water and related resources. Funding is also provided to support the Corps’ permitting activities for protection of the nation’s regulated waters and wetlands and cleanup of sites contaminated as a result of the nation’s early efforts to develop atomic weapons. The Corps is an executive branch agency within the Department of Defense (Defense) and a direct reporting unit within the U.S. Army. Headquartered in Washington, D.C., the Corps has eight regional divisions and 38 districts that carry out its domestic civil works responsibilities. Corps headquarters primarily develops policies, based on administration guidance, and plans the direction of the organization; divisions coordinate the districts’ projects; and the districts plan and implement the projects. The Corps is the world’s largest public engineering, design, and construction management agency and leverages its expertise primarily through contracts with civilian companies for all construction work and much of its design work. Civil Works projects are generally authorized by various Water Resources Development Acts and funded by annual appropriations for energy and water development. The Civil Works program includes efforts to provide safe and reliable waterways; reduce risk to people, homes and communities from flooding and coastal storms; restore and protect the environment; provide hydroelectric power to homes and communities; provide educational and recreational opportunities; prepare for natural disasters and act when disaster strikes; and address water resource challenges. The Operations and Maintenance account focuses on preserving, operating, and maintaining river and harbor projects that have already been constructed. The Construction account funds construction and major rehabilitation projects related to navigation, flood control, water supply, hydroelectric power, and environmental restoration. The Mississippi River and Tributaries account funds planning, construction, and operation and maintenance activities associated with projects on the Mississippi River and its tributaries that reduce flood damage. The Formerly Utilized Sites Remedial Action Program account is for cleanup of contaminated sites throughout the United States where work was performed as part of the nation’s early atomic energy program. The Investigations account funds studies to determine the necessity, feasibility, and returns to the nation for potential solutions to water resource problems, as well as design, engineering, and other work. The Regulatory account funds efforts to protect the aquatic environment by regulating dredge and fill materials and other construction-related activities in jurisdictional waters of the United States. Through April 23, 2010, $3.5 billion (about 76 percent) of the $4.6 billion in Recovery Act Civil Works program funds had been obligated by the Corps. (See table 11.) Of the $3.5 billion in obligated funds, the Corps had outlayed about $1.3 billion. Of the obligated funds, the Corps obligated about 49 percent ($1.7 billion) for Operations and Maintenance and 37 percent ($1.3 billion) for Construction. As of April 23, 2010, the Corps had identified 830 Civil Works projects to receive Recovery Act funding. These included 533 Operations and Maintenance projects, 175 Construction projects, 45 Mississippi River and Tributaries projects, 10 Remedial Action Program projects, 66 Investigations projects, and funding for the Regulatory program. contracts and not for projects. According to Corps headquarters officials, and as discussed later in this appendix, it is not easy to associate individual contracts with Recovery Act projects. We assessed the transparency of descriptive information for Civil Works awards available on Recovery.gov, as described in this report. We found that an estimated 14 percent met our transparency criteria, 70 percent partially met our criteria, and 16 percent did not meet our criteria. For descriptions that partially met or did not meet our transparency criteria, we collected additional information to complete the award descriptions for the elements of transparency that we believed were missing. The descriptions of awards in our sample, whether they met our criteria, and additional information that we found to complete the narrative descriptions, are provided at the end of this appendix. In order to assist the public in better understanding how a particular contract fits into a larger project context, the Corps issued supplementary material to its district offices, directing them to instruct recipients to include the project name—information that districts would need to provide to recipients—in the award description. According to Corps headquarters officials, the Corps districts were to provide this information to recipients in a quick reference sheet that contained key award information, including the project name, which recipients were to use to report contract information. The Corps headquarters instructed the districts to provide this information to the recipients. We identified three factors that may have affected the transparency of reported information. First, because the Corps awarded multiple contracts to support its projects, depending on the nature of a contract, a recipient may not know which Corps project the contract supports. For example, a Corps district awarded a contract to purchase a boat that will be used to perform maintenance at a dam and reservoir project; however, the recipient was not aware of the intended use of the boat sold under the contract. Moreover, according to Corps headquarters officials, without receiving information from the Corps, a recipient may not know which Corps project the recipient’s contract supports and would not be able to report this information. In addition, even if the project name associated with each contract was provided to the recipient, the nature of Corps contracts may make it difficult for the recipient to report information, particularly with regard to location. For example, engineering services provided for a construction project in Texas may be provided by a recipient located in another state. Second, according to Corps headquarters officials, the Corps awarded about three-fourths of its Recovery Act contracts to small businesses that may not have experience with this type of reporting and may have limited administrative capacity. Finally, Corps headquarters officials told us that the Recovery.gov system was designed for reporting on grants and loans and was adapted for contracts; therefore, it may have been difficult for recipients to report certain information. For example, certain contract actions such as modifications to existing contracts or task orders—which can include multiple activities across multiple locations—are reported in the system as a single award, and recipients may have been unsure how to indicate this information when reporting. As a result, a single award description may appear in Recovery.gov for work involving multiple activities and locations and this information may not be explained in the award description. projects and identify some descriptive information about the projects. The information available on the Web site is specifically related to Recovery Act projects; however, detailed information about individual contracts that support these projects is not available through the Web site. Prior to awarding Recovery Act contracts, the Corps also provides information about contracts through solicitations it posts on the Federal Business Opportunities Web site. According to Corps headquarters officials, the comments they have received on the Corps’ Recovery Act awards were mainly from recipients requesting technical assistance and from reporters requesting information about a specific contract they were researching. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program TETRA TECH, INC. Contractor must review as-built information and collect supplemental data to meet the certification requirements outlines in 44 CFR 65.10 and detailed in National Flood Insurance Program for the massillon Levee, located in Massillon, Stark County, Ohio. The contractor will be responsible for determining that interaction among the companents will not result in possible failure. Responsible for producing these supporting engineering analyses and reporting the component condition and certification recommendation. Contractor will be responsible for performing the certification determination. Certification engineering analysis shall consist of Hydrology and Hydraulics, Geotechnical, Structural, Electrical, and Mechanical evaluation. Major factors to be considered in the technical evaluation include: O&M plans, levee certification field inspection, characterizing the flood hazard, capacity exceedence/failure criteria, freeboard, closure devices, embankment protection, seepage analysis, embankment and foundation stability, settlement, construction records and control testing, performance records, major maintenance and rehabilitation, interior drainage, and residual risk and public safety. A Levee Certification Report shall be prepared to document and describe the basis for the certification recommendation of the Massillon levee system. The LCR shall be sufficient to support the execution of the Independent Technical Review process described in paragraph 10.c of NFIP ETL (draft)_1110-2-570. Five copies of the draft submittals shall be submitted . Upon completion five (5) copies of the final report shall be submitted and properly bound. The report shall include all text tables, figures, and exhibits to support the findings, results, and recommendations. In addition to hardcopies, all computer files generated shall be submitted on CD rom formatted in Microsoft Word. To insure all work submitted is technically accurate the Contractor shall develop and execute an Independent Technical Review Plan. This plan shall be submitted for review and approval by the government. The Contractor is responsible for Quality Control. The Contractor is responsible for the formulation and preparation of all work required in this Statement of Work. All final reports, figures, drawings, calculation, and report cover letters will be sealed or stamped by the responsible engineer. The intermediate reports and final report will be submitted for Quality Assurance review and shall be complete and free of spelling, typographic, and grammatical errors. The 50% and 90% drafts reports will be submitted for QA review and comments by Corps of Engineers personnel. The 50% draft report shall be submitted within 5 month of the notice to proceed and the 90% draft report shall be submitted within 7 month of the notice to proceed. Task 1 - Data Collection and Review. Completed data collection and review. Reviewed readily available materials and Identified additional resources referenced Task 2 - Topographic Mapping. Obtained topographic Mapping in GIS format. Task 3 - Site reconnaissance Visit. Performed post-processing of GPS data. Prepared draft inspection log/report. Task 4 - Geotechnical Assessment. Performed review of past design data and geotechnical information. Prepared drilling plan. Performed field exploration. Task 5 - Engineering Assessment. Performed Hydrologic Evaluation. Performed Hydraulic Evaluation. Performed Initial Scour/Aggradation Analysis (Pending Internal Review) Task 7 - Levee Certification Report. Prepared Hydrologic section of the Levee System Report. Performed hydraulic section of the Levee System Report. Task 8 - Independent Technical Review. Performed review of Hydrologic section of the Levee System Report. Performed review of Hydraulic section of the Levee System Report. Task 9 - Meetings and Coordination. Coordination with City of Massillon and USACE. Task 10 - Project Management. Invoicing and reporting. Engineering Services Appendix XI Civil Works Program (Information not reported) Less Than 50% Completed DAVID FORD CONSULTING ENGINEERS INC The accelerated CWMS deployment campaign (hereinafter referred to as the project) is a component of the American Recovery and Reinvestment Act (ARRA) of 2009. The objectives of the project are as follows: 1. To enhance the capability of the Corps of Engineers offices nationwide to make well informed decisions for managing reservoirs and water control systems. This will be achieved by expanding, at an accelerated pace, the availability of advanced information technology resources for hydrometeorological data management, display, and dissemination; watershed runoff forecasting; flood stage prediction; reservoir operation analysis; and flood impact analysis. 2. To create and maintain jobs for US citizens, in keeping with the goal of the ARRA. This will be achieved by using HEC?s BPA contractors to undertake the work and manage its successful completion. Those contractors, in turn, may use local consulting resources if appropriate and useful to the project. The intended deliverable of the overall project is, for critical Corps of Engineers watersheds, a fully functional CWMS decision support system that will enhance water management. The CWMS decision support system includes HEC-HMS, HEC-RAS, HECResSim, and HEC-FIA. For each watershed, software will be installed as needed and configured by a contractor, with cooperation of HEC and Division or District staff. Contractors will configure and calibrate the models, using data and information collected from District and Division staff. Contractors will test the software under simulated real time high flow conditions, demonstrating the deployment under a stress test. Contractors will document actions taken to deploy the decision support system. Finally, contractors will transfer the technology to Corps staff in the appropriate District or Division offices. This task order is for a ?lead contractor? (LC) to assist HEC in managing rapid deployment of CWMS at Corps districts and coordinate the day-to- day activities of the blanket purchase agreement (BPA) contractors contributing to this effort. This role includes working with HEC on selecting watersheds to be implemented, identifying what models and tasks are necessary for each implementation, developing management plans, and performance work statements. The LC will recommend assignments of tasks to other BPA contractors through the Corps PM. The LC will facilitate the work of the BPA contractors, clarifying statements of work, deliverables, and schedules with the PM. The LC will monitor the progress of the BPA contractors, reporting to the PM and supply the weekly reporting information to meet ARRA requirements. The LC will take all necessary actions to ensure the project objective is met. Appendix XI Civil Works Program Task 1: Worked with HEC project manager (PM) to identify priority basins and locations for accelerated CWMS deployment, and prepare list of candidate sites for deployment. Contacted technical representative (TR) at each candidate site to confirm selection and to gather relevant information about sites. Coordinated with PM to develop a detailed project management plan (PMP). Obtained buy-in and signatures from relevant BPA contractors, Corps District staff, and HEC. Task 2: Coordinated with PM to develop detailed work plan and work statement for each deployment site (8) for initial effort by BPA contractors. Task 3: Reviewed initial Site Assessment reports submitted to HEC from BPA contractors. Advised PM on any technical or administrative issues. Wrote a summary report of the site assessments with LC recommendations. Coordinated with PM on selecting additional candidate watersheds for the second round or on deleting candidate watersheds from first round if funding is not available for all sites. Task 4: Prepared performance work statements (PWS) for each of the 8 candidate watersheds. Task 5: Reviewed work plans and schedules submitted by BPA contractors. Wrote a summary report of the work plans with LC recommendations. (Information not reported) Less Than 50% Completed FURNISH ALL DRAWINGS, LABOR, MATERIALS AND EQUIPMENT NECESSARY TO FABRICATE, DELIVER AND INSTALL ONE (1) COMPLETE NEW BOAT DOCK SYSTEM WITH THREE (3) 8-FOOT WIDE X 20-FOOT LONG ALUMINUM DOCK SECTOPMS AND ONE (1) 4-FOOT WIDE X 20-FOOT LONG ALUMINUM TAPERED GANGWAY. DOCK SYSTEM MUST BE ABLE TO USE EXISTING ANCHORING SYSTEM. FABRICATION, DELIVERY AND INSTALLATION HAS BEEN COMPLETED. ACCOUNTING COMPLETED BILLING AND OFFICE ASSISTANT IS COMPLETING FEDERAL REPORTING. SMARTSVILLE, CA 95977-0006 Appendix XI Civil Works Program Furnish all equipment, labor, layouts of work features, and supervision necessary to obtain sufficient subsurface information, perform analysis, and provide the government recommendations to help alleviate seepage at left abutment of Winfield Locks and Dam, Red House, WV. Drilling, Lab Evaluations, and Initiated Study More than 50% Completed Original Contract was awarded August 30, 2007: Contract was for the completion of foundation drilling and grouting at the Clearwater Dam in Piedmont, Missouri. This work is a continuation of Phase I which was completed Oct 15, 2007. The scope of this contract was to complete the foundation rock treatment down to elevation 325, 250 ft below the working platform, prior to the installation of the proposed cutoff wall. The lower 50 ft of the grout curtain is to be grouted to a value of 3 lugeons or less and the upper rock mass to a value of 10 lugeons or less. This type of work is highly technical in nature and will provide enormous amounts of valuable data to be used in the design and construction of the proposed cutoff wall (Phase II). Beginning with Modification P00012 executed May 6, 2009, ARRA funds were incorporated into the contract in order to provide for adjustments in quantity and scope of work required in order to meet the project objectives. The project was successfully completed, final reports have been submitted and the contractor is demobilized. In excess of 25,000 LF of drilling; over 500,000 CF of grout materials placed; over 1117 LF of borehole stage imaging; relocation of water lines in preparation of Phase II work. Appendix XI Civil Works Program Poured Concrete Foundation and Structure Contractors JACOBS/SEH, A JOINT VENTURE Main Lock Culvert Valve Machinery Study Phase I, Melvin Price Locks and Dam, Mississippi River, Preliminary Engineering report, per attached Scope of Work and proposal dated 18- Jun-09. DJ04 - MEL PRICE MAIN LOCK CULVERT This task involves static and kinematic measurement, disassembly, material inspection and testing, evaluation and reporting as part of an investigation of failures that have occurred in the culvert valve machinery components of the main lock, Illinois-side emptying valve at Mel Price Locks and Dam on the Mississippi River. All field activities are complete. The draft report was submitted this quarter. We are awaiting comments before submission of the final report. (Information not reported) St. Louis, MO 63102-2131 More than 50% Completed W912EK-09-D-0006 Appendix XI Civil Works Program In support of fish studies, perform adult Coho salmon and steelhead radio telemetry monitoring, green river Seattle, Washington. The contractor must: analyze and report on radio telemetry monitoring of adult Coho salmon released above Howard Hanson Dam, WA, (HHD) into the upper Green River in fall 2008; monitor the movement and distribution of adult Coho released above HHD into the upper green river in fall 2009; analyze and report on 2009 results incorporating information from 2008 study. Work for this project has not begun. (Information not reported) Regulatory document imaging and digital conversion to search able format. Approximately 800,000 documents. Grace Hill (Prime) has converted approximately 50% of the microfiche to digital format. We are now in the process of converting the documents to a searchable (OCR) format. We expect to be 50% complete by end of January 2010. Data Processing, Hosting, and Related Services Less Than 50% Completed W912ES-10-P-0015 Appendix XI Civil Works Program Provide all transportation, parts, materials, equipment and laborer to provide and install a complete security camera monitoring system (SCMS) designed for marine environment on board the US Army Dredge Ship Wheeler. Removed antiqated security system and installed three PTX (Pan, Tilt, Zoom) Cameras and 11 fixed cameras at various locations throughout the ship. All work was completed; however, two of the fixed cameras are working intermittantly during the first cruise and will be replaced as soon as the ship returns to port. Electrical Contractors and Other Wiring Installation Contractors New Orleans, LA 70118-3651 More than 50% Completed DIAZ CONSULTANTS, INC. PROJECT SYNOPSES: Conduct field and laboratory investigations to characterize the nature and level of contamination of sediments deposited behind three dams (Carbon Canyon Dam, Lopez Dam, and Prado Dam) and prepare a report and logs summarizing those investigations. Carbon Canyon has been awarded as the base contract; Lopez and Prado may be awarded as options to be executed at a later date. Completed Field Invetigation and Laboratory Testing. Completed and submitted draft report for review. (Information not reported) Santa Ana, CA 92701-0810 More than 50% Completed W912PL06D0004 Appendix XI Civil Works Program SECURITY CONSTRUCTION SERVICES, INC. Replace roofs at Knightville Gatehouse, Littleville Gatehouse and Intake Tower and Birch Hill Dam Gatehouse. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program MANSON CONSTRUCTION CO. Capital (deepening) dredging at the Port of Anchorage Other Heavy and Civil Engineering Construction Less Than 50% Completed Information GAO gathered to improve the description The award funds dredging, which will support the port's ongoing intermodal expansion project, planned to allow larger ships to call and offer more room for commercial cargo handling, a cruise ship terminal, and to support rapid deployment from Alaska's military bases. ROMERO GENERAL CONSTRUCTION CORP. REPAIR BADLY DETERIORATED ROADS, SUCCESS LAKE CA Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds road repair to multiple areas including the entryway to Success Lake, the South Tule Recreation Area, and the South Tule parking lot. The repairs included replacement and repaving of roads, which involved digging up the asphalt, cement treating, and paving. Success Lake is located just east of Porterville in Tulare County, California. Appendix XI Civil Works Program ROSS LABORATORIES, INC. MFG AND DELIVERED SIDESCAN SONAR SYSTEM (MODEL 4900) INCL SUB BOTTOM, PROFILING SYSTEM MFG AND DELIVERED SIDESCAN SONAR SYSTEM (MODEL 4900) INCLUDING A SUB BOTTOM, PROFILING SYSTEM. ALSO DELIVERED A VESSEL MOTION SENSING SYS AND HYDROGRAPHIC SURVEY SOFTWARE. Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing Information GAO gathered to improve the description The award supports the manufacture and delivery of a sidescan sonar system (model 4900) including a sub bottom profiling system. This award also includes the delivery of a vessel motion sensing system and hydrographic survey software. This equipment and software is for maintaining shipping/navigation channels in the New York Harbor area. BIOHABITATS, INC. Schukylkill River, Wissahickon Creek Feasibility Study Field assessment, analysis, and report preparation for restoration actions. Other Scientific and Technical Consulting Services More than 50% Completed Information GAO gathered to improve the description The award supports the completion of Feasibility Study Scoping documentation for ecosystem restoration within the Wissahickon watershed. Based on a previous study, it was determined that the primary problems within the Wissahickon watershed include stream flow variability, poor quality aquatic habitat, aquatic habitat degradation, flooding, and overall ecosystem imbalances. Various solutions exist to address these problems and will be considered in depth during feasibility investigations. This documentation will include definition of the existing conditions, the "without project" conditions, and the site selection screening process to continue the feasibility study of this critical urban watershed for ecosystem quality improvements. COMPLETE THE REHABILITATION OF THE ADA CAMPSITES AT SOUTH ABUTMENT, DUB PATTON, AND HERNANDO POINT RECREATION AREAS AT ARKABUTLA LAKE IN ACCORDANCE WITH THE ATTACHED SCOPE OF WORK - (PROJECT #1) completed installation of concrete pads, grading of disturbed areas and installing of latern hangers, picnic tables and service tables. Facilities Support Services Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of campground sites to make them Americans with Disabilities Act (ADA) accessible, allowing persons with disabilities to safely utilize the campground areas. Rehabilitation included procurement and installation of ADA-compliant items including tables, lantern holders, and grill services tables. Work also included installation of concrete pads and grading of areas to make them ADA compliant. The award provided rehabilitation of 56 campground sites at 3 recreation areas, including 18 sites at South Abutment, 14 sites at Dub Patton, and 24 sites at Hernando Point. T & C MOBILE HOME & CONSTRUCTION SERVICES, LLC Remove and replace furnaces and fuel tanks in the gate house at Whitney Point Lake, NY. The sub-contractor provided all labor, equipment, tools, and materials necessary for removing and replacing two furnaces and two 275 gallon fuel oil tanks in the gate house at Whitney Point Lake, NY. Plumbing, Heating, and Air-Conditioning Contractors Whitney Point, NY 13862-0706 Information GAO gathered to improve the description Replacing the furnaces will permit a much more efficient use of energy and replacing the fuel tanks will permit operation of flood control gates during a power outage. WILSON & COMPANY, INC., ENGINEERS & ARCHITECTS CEPD Compliance Surveys. Appendix XI Civil Works Program Land surveying, geodetic. Surveying and Mapping (except Geophysical) Services Less Than 50% Completed Information GAO gathered to improve the description The award supports surveys for Comprehensive Evaluation of Vertical Datums that will establish new vertical control, based on the North American Vertical Datum of 1988 (NAVD 88), for each of 70 projects located in New Mexico, Colorado, and Texas, within the U.S. Army Corps of Engineers Albuquerque District. This work will ensure that all of the flood control projects within the Albuquerque District are referenced to at least three vertical control benchmarks. This will take the district one step further in ensuring that all of its flood control projects are referenced to NAVD 88. This effort is needed to meet requirements of an executive order that calls for the standardization of the use of the most current vertical datum, which is NAVD 88. Vertical datums are used to reference protection elevations on flood control structures or excavated depths in navigation projects. TAS::96 3134::TAS DESIGN AND CONSTRUCT LAND PORT OF ENTRY AT SHERWOOD NORTH DAKOTA FOR CUSTOMS AND BORDER PROTECTION Commercial and Institutional Building Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports construction of a new land port of entry (LPOE) building in Renville County, North Dakota for use by Customs and Border Patrol (CBP) personnel. The award also supports interim repair and alterations activities to address immediate and emerging needs of the existing LPOE until new construction is completed. Appendix XI Civil Works Program Lower Willamette River Ecosystem Restoration General Investigation Feasibilty Study/Draft PEIS We completed the field surveys for HTRW, topography, cultural resources, and utilities. We also completed the hydraulic modeling, cross sections, and refined the preliminary drawings. at the beginning of October. We submitted the draft Notice of Intent. We got about haflway through the geotechnical section, and completed the writeup for soils and geology. Less Than 50% Completed Information GAO gathered to improve the description The award funds a study that will assess the feasibility of ecosystem restoration, including remediation of contaminated sediments over a portion of a 25-mile reach of the Willamette River in Portland, Oregon. The feasibility study will be used to examine and prioritize ecosystem restoration opportunities in the study area. The purpose of the study is (1) to identify and evaluate substantial ecosystem degradation problems in the Lower Willamette River Basin; (2) to formulate, evaluate, and screen potential solutions to these problems; and (3) to recommend solutions that are in the federal interest and are supported by a local entity willing to provide the items of local cooperation (i.e., a cost-sharing sponsor). The recommended plan will contribute to the identified restoration objectives of restoring fish and wildlife habitat and natural processes of the basin. The Lower Willamette River Ecosystem Restoration project is from Willamette Falls to its confluence with the Columbia River. ATLANTIC MARINE CONSTRUCTION COMPANY, INC. Furinsh all labor, material, equipment, incidentals, supervision and transportation for work necessary to provide security, road, and parking improvements. Job duration is 90 days from NTP. Project is in design at this time?..billed for Bond cost of $18,770.00 Commercial and Institutional Building Construction Elberton, GA 30635-5420 Appendix XI Civil Works Program Less Than 50% Completed Information GAO gathered to improve the description The award provides security, road and parking improvements to the access road at the Richard B. Russell Dam and Lake Project in Elberton, Georgia. Tidal Datum Determinations for Small Boat Harbors in southeast Alaska. The scope of work is to do a tidal determination to establish a new vertical datum and tie existing control of each harbor to its new vertical datum at Hoonah Small Boat Harbor, Hoonah, Alaska, the Kake Small Boat Harbor, Kake, Alaska, the Metlakatla New Harbor & Metlakatla Old Harbor (one station), Metlakatla, Alaska, and the Pelican Small Boat Harbor, Pelican, Alaska and re- establish the horizontal control at Hoonah Small Boat Harbor for the US Army corps of Engineers, Alaska District. Field work is complete. Installed tide gauges at the villages of Hoonah, Kake, Pelican, and Metlakatla in Southeast Alaska. Gauges collected water level information for a period of 35 days, then removed from the water. Installed new tidal bench marks at each location. Determined bench mark positions with GPS and updated positions for other historical bench marks and survey monuments at each harbor. Determined bench mark elevations by differential leveling and updated elevations for other historical bench marks and survey monuments at each harbor. Iniated data processing. Surveying and Mapping (except Geophysical) Services More than 50% Completed Information GAO gathered to improve the description The award supports the collection of tidal data published by the National Oceanic and Atmospheric Administration (NOAA) at specific locations known as tide stations. Commercial and private boats use these data to safely navigate waters and in the long run, these tidal data will help establish four tide stations at these harbors as well as inform harbor improvements. Appendix XI Civil Works Program DAVID FORD CONSULTING ENGINEERS INC This project is for HEC-RAS steady and unsteady model development for the Red River of the North (RRN) from the Canadian border to Halstad, MN. Scope tasks include review of the existing HEC-RAS steady models, consolidation to one model, cross section expansion and refinement, and calibration to the flood of record. Both steady flow HEC-RAS and unsteady flow HEC-RAS models will be completed. The completed unsteady flow model is intended to be used by the National Weather Service (NWS) North Central River Forecast Center. A brief report should also be prepared to discuss model construction and simulation results. Quarterly activities: Task 1. Completed kickoff phone conference call and began meeting coordination. Task 2. Began to review existing HEC-RAS models and data and began to complete a Memorandum for the Record (MFR). Task 9. Provided required monthly status reports. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the development of a Hydrologic Engineering Centers River Analysis System (HEC-RAS) hydraulic model for the entire Red River. The model will be used for project planning and flood forecasting. Provide labor, equipment and materials required to perform the work at the Lake Washington Ship Canal Spalling Concrete Repairs, including placement of concrete/epoxy repair system. Erection of scaffolding, cleaning of application area, application of epoxy based concrete patch material, final cleanup and gridning of finished areas, disassembly of scaffolding. Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the repair of spalling concrete on the sides of lock chambers. Spalling is the minor failure of the concrete lock sidewalls that occurs due to age. The spalling concrete is a safety issue because it could fall on boats and/or presents a hazard for boaters and employees. GUSTIN, COTHERN, & TUCKER, INC. Survey #09-079, Perform all A_E services for topographic, geodetic, property/boundary, and construction surveys for EDEN(WCS) Benchmark Monumentation ; counties of Broward, Miami-Dade, Monroe and Palm Beach GPS Sessions for completion of required benchmark monumentation Surveying and Mapping (except Geophysical) Services (Information not reported) West Palm Beach, FL 33401-0001 More than 50% Completed Information GAO gathered to improve the description The award supports benchmark documentation activities in Florida's Water Conservation Areas as part of the Comprehensive Everglades Restoration Plan, Adaptive Assessment, and Management program. These activities will provide necessary data for scientists and engineers to restore America's Everglades. BLACK & VEATCH SPECIAL PROJECTS CORP Black & Veatch is performing structural engineer anlaysis and design of mass concrete structures for the new upstream monoliths for Kentucky Lock. We are producing construction plans and specifications. The work has required structural, civil and electrical engineering, as well as, construction cost estimating and scheduling. CADD Technicians put together the construction plans. Completed final plans and specifications for New Upstream Lock Monoliths. Included foundation design and other miscellaneous features. Appendix XI Civil Works Program (Information not reported) Grand Rivers, KY 42045-0001 More than 50% Completed Information GAO gathered to improve the description This design work supported by the award is part of the Kentucky Lock Addition project to construct nine partial height monoliths--the 60- foot wide by 60-foot deep by 100-foot tall concrete blocks that hold back the water--for the upstream one-third of the new lock; this will create a more stable configuration for the existing lock. MIKE HOOKS, INC. CIN-007: Disposal Area Maintenance & CIN-008: New Spill Boxes - Calcasieu Parish, Louisiana CIN-007: Disposal Area Maintenance Work consists of ditching in the Disposal Areas. The depth and width of the ditching will be site specific. The linear footages for each disposal area are: D/A 2 = 2,300 ft., D/A = 25,450 ft., D/A 9 = 22,900 ft., D/A 10 = 16,050 ft., & D/A 11 = 16,800 ft. CIN-008: Install new spill box weirs in Disposal Areas #2, #8, #9, #10, & #11. The existing spill boxes in each disposal area shall be removed from the site. Surveys of the disposal areas to determine the location of the new spill boxes. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The work performed under this award will extend the life of the levees in Calcasieu Parish. Appendix XI Civil Works Program URS GROUP, INC. TAS::96 3135::TAS - MASTER PLANNING SERVICES FOR ALUM CREEK LAKE, LEWIS CENTER, OH. Prepared URS Project Execution Plan (PXP), performed project administrative start-up activities. Master Plan (MP) Task 1- Project Start-up: Prepared and submitted draft Plan of Study (POS). MP Task 1- Project Start-up: Participated in Kick-off Meeting. MP Task 2 - Develop Geographic Database: Began GIS setup and data acquisition. All Other Professional, Scientific, and Technical Services (Information not reported) GREAT LAKES DREDGE & DOCK COMPANY, LLC This project entails dredging of 1.2 million cubic yards of maintenance material in the Oregon Inlet Spit Channel and the Ocean Bar. Dredging is to be to -15 feet. Dredged material is to be placed on the beach at Pea Island. The only non-ARRA funding is a portion of the mobilization and demobilization ($2.5 million out of $3.6 million). Approximately 268,000 cubic yards of material were placed at the disposal site during the fourth quarter of 2009 by the Hydraulic Cutter Suction Dredge Alaska. Equipment was demobilized in the fourth quarter. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The award funds maintenance dredging operations to provide a safe, reliable navigable channel. The dredging material was then used to re-nourish the beach. W. M. SMITH & ASSOCIATES, INC. Cleaning and Janitorial Services for Alum Creek Lake, Ohio Cleaning and Janitorial Services for Alum Creek Lake, Ohio (Information not reported) Information GAO gathered to improve the description The award supports additional janitorial services for Alum Creek. These services include cleaning the Recreation Office at Alum Creek as well as grounds pick-up for half the facility, including the picnic area. The award will result in a clean recreation office and clean grounds. JENTREE FOREST PRODUCTS, INC. Landscaping Services Appendix XI Civil Works Program (Information not reported) Information GAO gathered to improve the description The award supports maintenance work being done at Sutton Lake recreational facilities. The award is a task order for mowing services for Hillside Areas 1 and 2. Hillside Area 1 covers 25 acres and includes the Downstream, Bee Run, and Bug Ridge Recreation Areas. Hillside Area 2 covers 4 acres and includes office access and dam abutments. JENTREE FOREST PRODUCTS, INC. (Information not reported) Information GAO gathered to improve the description The award supports maintenance work at Sutton Lake recreational facilities. The award is a task order for mowing services at several areas at Sutton Lake; specifically, mowing services were provided at Lower Gerald R. Freeman Campground covering 18 acres; Upper Gerald R. Freeman Campground covering 12 acres; Middle Gerald R. Freeman Campground covering 9 acres; the Downstream Day Use Area covering 10 acres; and the South Abutment Day Use Area covering 5 acres. MAINTENANCE SERVICES AT DEER CREEK LAKE, MT STERLING, OH Appendix XI Civil Works Program RESTROOM AND RECREATION AREA CLEANING (Information not reported) MT STERLING, OH 43143-9505 Information GAO gathered to improve the description The award supports trash pick-up along the river, cleaning of public restrooms below the dam, and cleaning the picnic shelters in the recreational area. The award also provides cleaning and janitorial supplies. The award will result in clean areas along the river, a clean recreational area, and a clean picnic area. W-P CONSTRUCTION SERVICES, INC. Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia 105 Centennial Heights Road, PO Box 105 Information GAO gathered to improve the description The award supports the removal of pea gravel and timber over 10 acres at the Crane's Nest Playground in the J.W. Flannagan Dam Recreation Area. The award also includes installation of pipe in the mulch to improve drainage in the area. These activities will help maintain the recreational facilities. Appendix XI Civil Works Program W-P CONSTRUCTION SERVICES, INC. Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia 105 Centennial Heights Road, PO Box 105 Information GAO gathered to improve the description The award supports work at North Fork Pound Lake, which is a U.S. Army Corps of Engineers-operated Big Sandy flood protection system project. Award activities include mowing at the Dam Access Road, overlook area, and office, which covered 2.5 acres. Construction 96-3135 TAS Demolish and Rebuild Summersville Lake Battle Run restrooms located at the campground, beach and boat launch areas. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The new restroom facility provides a healthier and safer environment for the visiting public. Appendix XI Civil Works Program ALLEN, J. F. COMPANY (INC) as part of U.S. Army Corps of Engineers - civil program financing only-Operation and Maintenance, Recovery Act on Bulltown Campground project Delivered stone to Bulltown Campground project Brick, Stone, and Related Construction Material Merchant Wholesalers (Information not reported) More than 50% Completed Information GAO gathered to improve the description This award funds 1717.72 tons of 3/4-inch crush-and-run limestone to Burnsville Lake to resurface a gravel parking area. UNITED PROCUREMENT, L.P. CAN STYLE BUOYS DELIVERED TO EAST LYNN LAKE PART DESCRIPTION: 45101 BUOY RB 962 W/ LETTERING & SYMBOL 6-MODEL B961RC H.D. RED NUN BUOY 6- MODEL B961GC H.D. GREEN CHANNEL MARKER 5-MODEL B961R H.D. BUOY 'SLOW NO WAKE' W/ CONTROL SYMBOL 3-MODEL B961R H.D. BUOY 'ROCKS' W/HAZARD SYSMBOL 2-MODEL 96R1R H.D. BUOY 'BOATS KEEP OUT' W/RESTRICTED SYMBOL DELIVERED TO EAST LYNN LAKE, EAST LYNN WV. THE JOB HAS BEEN COMPLETED AND ALL PAYMENTS HAVE BEEN RECIEVED. All Other Plastics Product Manufacturing EAST LYNN, WV 25512-9746 Information GAO gathered to improve the description The award funds the procurement of 22 buoys to the U.S. Army Corps of Engineers in order to enhance water safety for boaters and swimmers at East Lynn Lake in West Virginia. Appendix XI Civil Works Program READY TO HAUL - COLUMBUS, LLC Supply of bulk engineered wood fiber for use at Sutton Lake playground. Delivery of engineered wood fiber for playground at Sutton Lake. Engineered Wood Member (except Truss) Manufacturing Information GAO gathered to improve the description The wood supplied through this award supports the overall maintenance, including the purchase and installation of playground equipment to meet playground safety standards and provide Americans with Disabilities Act (ADA) accessibility at Gerald R. Freeman Campground. KINGSBOROUGH ATLAS TREE SURGERY, INC (Information not reported) Information GAO gathered to improve the description The award supports trimming hazardous trees and tree limbs in recreation areas near New Melones Lake, California (downstream channel) and New Hogan Lake, California. Appendix XI Civil Works Program PARAGON INDUSTRIAL APPLICATIONS, INC. Design Build Boat Storage building Information GAO gathered to improve the description This award supports the design and construction of a boat storage building that will replace the inadequate boat storage building at the Piney Woods Regional Office. This is part of a larger project to improve the health and safety of the public at Ferrells Bridge Dam, Lake O’ the Pines, Texas. WISS, JANNEY, ELSTNER ASSOCIATES, INC. RIP RAP - embankment repair recovery Aggregate testing including Loas Angeles abrasion, Magnesium soundness,unit weight, specific gravity, absorption and petrographic analysis of rip rap materials 13581 Pond Springs Road, Suite 107 Less Than 50% Completed Information GAO gathered to improve the description This award supports the testing of rip rap materials from Miller Springs Quarry in Belton, Texas to be used for embankment repair at Navarro Mills, Belton and Granger Lakes. Appendix XI Civil Works Program ENGINEERING DESIGN TECHNOLOGIES, INC. As part of construction on the Atlanta environmental infrastructure projects-Mark Ave stormwater structure in Cobb County, GA (Information not reported) Information GAO gathered to improve the description The award supports engineering design services. This structure is part of a priority storm water sewer capacity relief project in this region. MITCHELL INDUSTRIAL CONTRACTORS, INC. Millers Ferry Renovation HVAC System Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing (Information not reported) Information GAO gathered to improve the description The award supports replacement and renovation of the HVAC system at Millers Ferry powerhouse, which houses hydroelectric generators for the production of electricity. The powerhouse is located in Wilcox County, Alabama near Camden Lake. Award activities will include renovating the HVAC system by replacing air handlers, chillers, and ductwork, and performing electrical upgrades. The award will result in a more efficient and maintenance-friendly HVAC system. Appendix XI Civil Works Program ADVANCED CRANE TECHNOLOGIES, LLC Rehabilitation of the Overhead Powerhouse Bridge Cranes at the USACE Powerhouses, located in West Point, GA, Cartersville, GA & Basset, VA Rehab Powerhouse cranes, various locations Overhead Traveling Crane, Hoist, and Monorail System Manufacturing (Information not reported) Information GAO gathered to improve the description Rehabilitation activities under the award include modernizing crane controls; replacing wiring; and replacing the operators’ cabs. The rehabilitation will restore full capacity to the cranes, including critical lift capabilities; allow for safer operations; and reduce future maintenance costs. The state-of-the-art-controls will improve how the cranes operate. An overhead powerhouse bridge crane runs along the ceiling of the powerhouse and is used to set and maintain equipment in the powerhouse. Manufacture of four gearboxes. Manufacture of the gearboxes. Speed Changer, Industrial High-Speed Drive, and Gear Manufacturing (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds the purchase of secondary gearboxes at Dardanelle Lock & Dam in Russellville, Arkansas, to replace the existing gearboxes that power gates in the powerhouse. A failed gearbox renders the gate inoperable and replacement of the gearboxes reduces the risk of failure. Appendix XI Civil Works Program ADH TECHNICAL SERVICES, INC. As a part of the maintenance for the installation of a strong motion seismic instrument on the Cottonwood Springs Dam Project. None yet. Project will begin in 2010. Geophysical Surveying and Mapping Services (Information not reported) Cottonwood Springs, SD 57747-0664 Information GAO gathered to improve the description This award supports the installation of a new seismic instrument to monitor the area for the magnitude of earthquake activity, which will allow for the assessment of potential impacts to the dam and foundation. This work will ensure that dam safety instruments are installed and operating satisfactorily, thus increasing the safety of the dam and downstream residents. BRUNSWICK COMMERCIAL & GOVERNMENT PRODUCTS, INC. Small Craft (17' Guardian Boat) CB9039- Shipment date Oct 28, 2009 Information GAO gathered to improve the description The award supports the purchase of a boat for Beltzville Lake to maintain project grounds and facilities at this 4,200-foot long dam and reservoir project. The boat replaced a 30-year-old vessel, and can be used for, among other things, conducting sampling for water quality, video surveillance of the dam, bridge inspections, debris removal, and reservoir inspection to determine erosion of the rim of the reservoir. Appendix XI Civil Works Program INSTALLED MOTION GATE AT MILFORD PROJECT OFFICE All Other Specialty Trade Contractors JUNCTION CITY, KS 66441-8342 Information GAO gathered to improve the description The award supports installation of one motion gate at the Milford Lake Project Office in Junction City, Kansas. The installation activities will include removing the existing gate and fence, installing a 24-foot motion gate with accompanying accessories such as a photo eye, gate edge for safety, and additional fencing. The award will result in enhanced security at the office's equipment lot. PRUDENT TECHNOLOGIES, INC. Removal of Underground Staorage Tanks and installation of above ground storage tanks at Hillsdale Lake and Clinton Lake Sites in Kansas The underground tanks were removed and disposed. The above ground tanks were installed. Other Heavy and Civil Engineering Construction Information GAO gathered to improve the description The award supports the removal of four underground tanks (two from Clinton Lake and two from Hillsdale) and the addition of six above ground tanks (four in Clinton Lake and two in Hillsdale). The award will result in tanks which are easier to access and obtain gas for government vehicles, and easier to maintain. Appendix XI Civil Works Program UTILITIES FORESTRY SERVICES, INC. Provide all labor,material, supplies and equipment to remove all trees and stumps from Penn St to College Ave along top of Embankment At Indian Rock Dam, York County, York, PA . Operations and Maintenance-Army, the removal of all trees and stumps from the area between College Ave to Penn St. Along the top of an embankment at Indian Rock Dam, York County, York, PA was awarded utilizing ARRA funds. Information GAO gathered to improve the description The award supports the removal of trees from the York levee. The trees' rooting system was beginning to degrade the structural integrity of the Cordours River Levee. The award will ensure compliance with new U.S. Army Corps of Engineers levee safety criteria. GEO-TECHNOLOGY ASSOCIATES, INC. Preventative Maintenance of 34 relief wells No work performed - releif well inspection and rehabilitation services. Support Activities for Oil and Gas Operations (Information not reported) Information GAO gathered to improve the description The award provides funds for preventive maintenance and well inspections at Curwensville Dam in Curwensville, Pennsylvania. There are 34 relief wells located along the downstream toe of Curwensville Dam for the purpose of relieving hydrostatic pressures within the dam. Preventive maintenance of the wells will assure the project continues to operate in a safe manner. Appendix XI Civil Works Program ANDERSON PERRY & ASSOCIATES, INC. No activity this period. Job completed. Walla Walla, WA 99362-1876 Information GAO gathered to improve the description The award supports the attendance of two Anderson-Perry employees to attend levee inspection training in Portland, Oregon, for 3-4 days. The U.S. Army Corps of Engineers requires completion of this course, which includes software training, for all levee inspectors. Upon completion of the workshop, attendees acquired certification to inspect levees managed by the Corps. SEALS UNLIMITED, INC. MOOREHAVEN LOCK & DAM LOWER SECTOR GATE SEAL SETS Gasket, Packing, and Sealing Device Manufacturing 525 Ridgelawn RD. Information GAO gathered to improve the description The award supports the purchase of rubber fabricated lock and dam gate seals for use at Moore Haven Lock and Dam. Moore Haven Lock is located in Clewiston, Florida and is part of the Okeechobee Waterway Project. Purchase of these seals is part of a larger project to complete major maintenance of all four sector gates at Moore Haven Lock. The larger project provides for the continuation of operations significantly reducing the likelihood of failure for this highly utilized recreation site. Appendix XI Civil Works Program Periodic Inspection of Levees per list in the Statement of Work Conducted levee inspections and submitted activity reports 1210 Pemier Drive, Suite 200- Less Than 50% Completed Information GAO gathered to improve the description This award is for the inspection of two levee systems in the Memphis District to determine their condition and assess if repairs or additional maintenance is required. One levee system encompasses 67 miles, 6 segments, and 3 drainage structures and the other one encompasses 34 miles, 5 segments, and 5 drainage structures. Both the East Bank St. Francis Floodway System and the Big Lake Floodway West Levee System are located in Arkansas and Missouri near Rivervale, Arkansas. SCIPAR, INC. Deliver Powerplant Protective Relays per specifications. inspected, packaged, and delivered all relays per the contract requirements. A pending modification is needed for shipment of last required relay. Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers $185,265.00 Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the purchase of new protective relays, which are digital electronic equipment used to support transmission of electrical power. The U.S. Army Corps of Engineers Fort Randall Project Office, in Pickstown, South Dakota, purchased 65 protective relays of various types as well as related components and two communication processors and software. New relays are needed to support the operational system for transmitting electrical power to the customer, which enables the hydroelectric plant to continue to produce electrical power. BOWEN ENGINEERING & SURVEY INC Hydrographic Surveys, Mile 28.0 to 35.5, Kaskaskia River, Illinois Project is 100% Complete Surveying and Mapping (except Geophysical) Services 1078 Wolverine Lane, Suite J Cape Girardeau, MO 63701-9002 Information GAO gathered to improve the description The award supports the verification of older surveys and existing depths. These efforts were a precursor to the St. Louis Army Corps of Engineers performing dredging and other related work on the Kaskaskia River. ELITE ROOFING CO. - GENERAL CONTRACTOR To install Shoreline power at six lock sites along the Tennessee River including Guntersvills, AL, Chickamauga, TN, Nickajack, TN, Watts Bar, TN, Fort Loudon, TN and Grand Rivers Kentucky Lock, KY. We have completed the Guntersville project and the Chickamauga project. As of 12/29/09 we were 82% complete with the Nickajack project. Appendix XI Civil Works Program (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds the electrical wiring for the installation of shoreline power at six locks, which comprise a heavily used lock system along the Tennessee River. Power was not accessible along the shoreline of the lock system prior to this shoreline installation. Installation of electrical wiring is needed along the lock system for a variety of reasons, including powering tools needed to perform routine maintenance along the lock system. Recover-To provide labor, supplies and materials to furnish 76 pieces Hollaender 2' HD base flange mill finish fittings, 48 pieces 2' Hollaender #5-9 tees, 36 pieces 2' Hollaender #7-9 cross, 24 pieces #11-9 Hollaender side outlet tees, 20 pieces Hollaender #9-9 side outlet 90 ells, 40 pieces #3-9 Hollaender 90 ells, 408 pieces 4' toeplate bevels, 100 pieces TB brackets 3x2 angle hardware, 8 pieces Hollaender gate 2' hinge assm & pin latch hardware, and 1152 pieces 2' S40 pipe. Recover-To provide labor, supplies and materials to furnish 76 pieces Hollaender 2' HD base flange mill finish fittings, 48 pieces 2' Hollaender #5-9 tees, 36 pieces 2' Hollaender #7-9 cross, 24 pieces #11-9 Hollaender side outlet tees, 20 pieces Hollaender #9-9 side outlet 90 ells, 40 pieces #3-9 Hollaender 90 ells, 408 pieces 4' toeplate bevels, 100 pieces TB brackets 3x2 angle hardware, 8 pieces Hollaender gate 2' hinge assm & pin latch hardware, and 1152 pieces 2' S40 pipe. Plumbing and Heating Equipment and Supplies (Hydronics) Merchant Wholesalers 1850 Gravers Road, #100 Plymouth Meeting, PA 19462-2837 Information GAO gathered to improve the description The award funds the purchase of handrail components (2-inch aluminum handrails and various 2-inch aluminum handrail fittings to be placed around valve and gate pits) for Guntersville Lock, Alabama, located at Tennessee River mile 349 in Grant, Alabama. These purchases will allow the Nashville District’s Tennessee River project to address a backlog of infrastructure maintenance. Appendix XI Civil Works Program NEWLAND ENTITIES, INC. Construct and install new waste water lift station Awarded but NTP was not issued until January 2010 Other Heavy and Civil Engineering Construction Information GAO gathered to improve the description The award supports wastewater facility upgrades at Lake Mendocino's Coyote Valley Dam in Ukiah, California. The upgrades include positioning a new wastewater lift station, repairing wastewater plant tanks, and replacing leach fields. The award upgrades Lake Mendocino's 50-year-old recreational facilities for visitor health and safety. Rental of equipment to be used at the Carlyle Lake/Kaskaskia Nav Project IAW the contract specs, clauses,and provisions. CTI AND ASSOCIATES, INC. St. Louis flood protection Reach 3 pilot holes for new relief wells Geotechnical investigations, soil/laboratory soil sampling, monitoring well design, installation and documentation (Information not reported) St. Louis, MO 63108-2833 Less Than 50% Completed Information GAO gathered to improve the description This award is for drill machine borings at 13 locations landside of the St. Louis flood protection district in Reach 3 and 20 locations landside of the St. Louis flood protection district in Reach 4. These activities are part of a larger flood protection project that protects approximately 3,160 acres of industrial and commercial development from Mississippi River flooding. The flood protection system was constructed with inadequate closure structures and underseepage protection. These design deficiencies are being corrected to ensure that the system provides its authorized level of service. Appendix XI Civil Works Program HOWARD W. PENCE, INC. Provide all labor, materials and equipment for Port Oliver Phase II Project, including; 0017, Weigh in Shelter; 0018, Weigh In Area; 0019, Amphitheater; 0020, Amphitheater Restroom; 0021, ADA Sidewalk; 0022, Boat Ramp Extension; 0023, Western Boardwalk; 0024, Picnic Areas; 0025, ADA Sidewalk; 0026, Eastern Boardwalk. Project was started in November as of 12/31/09 the following progress is reported: Primary electric is 67% complete, Boat ramp restrooms are 66% complete, Western Boardwalk is 51% complete, Boat Ramp extension is 37% complete, Eastern Boardwalk is 31% complete, Picnic Area restroom is 25% complete, Amphitheater ADA Sidewalk is 22% complete, Picnic Area is 20% complete, Amphitheater restroom is 18% complete, Gravel overflow parking lot is 17% complete, Weigh-in shelter is 15% complete, Overlook is 15% complete, Picnic Loop road is 14% complete, Weigh in Area is 12% complete, Boat ramp ADA loading ramp is 10% complete, Picnic Loop Road Parking Lot is 10% complete, Amphitheater is 8% complete, Sewage treatment plant is 7% complete, Water Line (Main) is 7% complete, Picnic Area Playground is 6% complete, ADA Sidewalk is 5% complete,Picnic Area Shelter is 5% complete, Port Oliver Road Paving is 3% complete, Boat Ramp Parking Lot Paving is 1% complete, Courtesy Dock 1 & 2 are unstarted. Appendix XI Civil Works Program north springfield, VT 05150-0001 Information GAO gathered to improve the description The stairs being repaired include 3 flights and 2 landings. The work was needed to replace a 30-year-old set of stairs that were rotting and unsafe to use. The stairs allow safe access to the swimming beach and picnic area from the recreation parking lot. The Stoughton Pond Recreation Area is part of the North Springfield Lake project. North Springfield Lake is part of the system of reservoirs and local protection works for the control of floodwaters in the Connecticut River Basin. Sewer Connection from Cape Cod Canal Field Office to Town, Buzzards Bay, MA Commercial and Institutional Building Construction 42 Academy Dr. More than 50% Completed Information GAO gathered to improve the description The award connects the project office to the town sewer system in order to improve office environmental conditions and reduce future maintenance costs. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program This modification is issued to add CLIN 7001 in the funded amount of $5,000. Subsequently, the total amount of this Order is increased from $40,441.18 to $45,441.18. Senior Project Schedule services. St. Louis, MO 63103-2833 More than 50% Completed Information GAO gathered to improve the description The award supports an existing contract for one employee to provide database maintenance and project status reporting services for several Corps projects. The employee will provide these services for a base period with the option of a 12-month extension. The employee will work at the U.S. Army Corps of Engineers Office at 1222 Spruce Drive, St. Louis, Missouri. URS GROUP, INC. TAS::96 3134::TAS NON-TIME CRITICAL REMOVAL ACTION - ELIZABETH MINES SUPERFUND SITE, DESCOPE TASK 3.1 - TP-1 TOPOGRAPHIC SURVEY, EXERCISE OPTIONAL TASKS 1.1 - PROJECT MGMT. 3.1 - SURVEY JOSSLER PROPERTIES, 9.6 - LYSIMETER SAMPLING AS WELL AS AMEND SOW. Property Boundary/Survey Delineation Environmental Site Monitoring Engineering Evaluations (Hydraulics and Hydrology) Material Testing (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award is part of a larger contract for Hazardous Toxic Radioactive Waste (HTRW) cleanup at the Elizabeth Mines Superfund site. The award is for the collection of analytical data that will support the environmental engineering design for cleanup of the site. The Superfund site includes 35 acres of waste and the property boundary survey will determine how much private property is involved on a portion of the site. The work includes conducting a property boundary survey which will provide data to supplement the design report. The design will support the larger project goal of cleaning up the Superfund site and restoring the West Branch of the Ompompanoosuc River which discharges into the Connecticut River north of White River Junction, Vermont. REHIBILITATION FENCE BURNSVILLE LAKE Appendix XI Civil Works Program (Information not reported) Information GAO gathered to improve the description The award provides fencing related materials to the Corps at Burnsville Lake. Materials included 52,800 rolls of wire fence, 400 ACQ treated posts, 5,000 T fence posts, 10 lbs. of 1.25 inch galvanized fence staples, 15 steel tubular farm gates, and 56 bags of 60 lbs ready-mix concrete. HDB CONSTRUCTION, INC. Big Hill, Marion, Fall River, Elk City and John Redmond Lakes, Kansas Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The award supports maintenance and upgrades of recreation areas at Fall River, Marion, Big Hill, Elk City, and John Redmond Lakes in Kansas. The activities under this award include paving road and recreation vehicle sites, improvement or repairs of electric pedestals, and sewer and water service to a number of storm-damaged recreation sites. The award also provides for modification of a boat launching ramp at John Redmond Lake. Much of the activities are related to repairing of damage suffered during severe storms over the past 2 years. Appendix XI Civil Works Program kansas city, KS 66105-1200 Information GAO gathered to improve the description The award provides a 40-horsepower boat motor to be used for water safety purposes at Smithville Lake, Missouri. SHANNON & WILSON, INC. Time histories for Dworshak Dam Information GAO gathered to improve the description The award provides electronic time histories for the Dworshak Dam site in Idaho. Time histories, or seismological records, provide pictures of the ground and its movements. These time histories will assist the U.S. Army Corps of Engineers in modeling and evaluating the dam's ability to withstand earthquakes. Appendix XI Civil Works Program More than 50 % Complete All Other Professional, Scientific, and Technical Services More than 50% Completed Information GAO gathered to improve the description The award supports oversight and inspection of a contractor installing a riser pipe in the Yalobusha River Watershed. The project office is in Sardis, Mississippi, but the installation project covers three counties in the state. The installation of a riser pipe will help control the discharge of water so flooding does not occur in the area surrounding the river. Appendix XI Civil Works Program Less Than 50% Completed Information GAO gathered to improve the description The award provides funds to hire an Engineering Technician VI for the Levee Inspection Program. This technician will conduct inspections in various locations across the U.S. Army Corps of Engineers St. Louis District. As part of the Levee Safety/Inspection Program, inspections will examine and confirm the operations of elements of a levee system, such as pumps, relief wells and closures. Inspections include the creation of condition reports using a tool called the Levee Inspection System (LIS). The award will result in improved public safety by providing a better understanding of levee systems performance, including how to better evaluate levee systems and their predicted performance before they are tested by a flood. The award will also help ensure a nationwide standard for evaluating levees, which ultimately should provide information that will help prioritize fixes and rehabilitation, where necessary. GEOKON, INC. Geotechnical Instrumentation - Load Cells Other Measuring and Controlling Device Manufacturing (Information not reported) East Alton, IL 62024-2406 Information GAO gathered to improve the description The award funds pressure temperature humidity instruments for work being done to the upstream lift gate at Melvin Price Lock and Dam, specifically five strain gauge load cells. These were provided in support of the overall project at Melvin Price Lock and Dam and are typically used during repairs or refurbishments, when a dam may have shown leaks or needs upgrading for seismic evaluations, for example. The strain gauge load cells provided will ultimately allow the project to continue in a safe manner by measuring loads and holding the dam in place during repairs. Appendix XI Civil Works Program LAKE CONTRACTING, INC. Rip Rap Placement complet 50% or more Other Heavy and Civil Engineering Construction REND LAKE, 12220 REND CITY ROAD More than 50% Completed Information GAO gathered to improve the description The award supports the provision of vegetative management services at Rend Lake. The contractor is to furnish all labor, equipment, and material necessary to prepare sites and place rip rap. The work includes the repair of east and west side flood-damaged shoreline revetment and breakwaters. Repair of flood damaged shoreline revetment and breakwaters will stabilize the shoreline and breakwaters, increasing public safety and reliability of the features to protect valuable resources. Water and Sewer Line and Related Structures Construction Information GAO gathered to improve the description The award supports installation of individual sewer hookups for camp sites at the Littcarr Campground at Carr Creek Lake, 843 Sassafras Road, Sassafras, Kentucky. Some of these hookups will be connected to a main sewage line that in turn is connected to the sewage lift station. The hookups provide campers a means of disposing of waste material from recreational vehicles and trailers without having a negative impact on the local environment. The waste is carried to the lift station and from there to the treatment plant. This work improves the environment and also provides better services for visitors. Appendix XI Civil Works Program Install entrance gate and barriers Install entrance gate and barriers All Other Specialty Trade Contractors (Information not reported) Information GAO gathered to improve the description This award supports the installation of force protection measures at Northfield Brook Lake in Thomaston, Connecticut. Specifically, a single-arm heavy duty gate was installed to replace an older style chain-link access gate at the entrance to the lake providing access to the U.S. Army Corps of Engineers' flood control protection project. Work also included the placement of concrete jersey barriers on the dam at Brook Lake. This appendix describes federal agencies’ actions to review Recovery.gov information for accuracy. In addition, to supplement our findings on the information that describes awards (as discussed in the body of this report), we performed certain computer edit checks to test certain Recovery.gov information for apparent errors. Prime recipients, as owners of the recipient reporting data, have the principal responsibility for the quality of the data submitted, and subrecipients delegated to report on behalf of prime recipients share in this responsibility. OMB’s guidance does not explicitly mandate a methodology for conducting data quality reviews at the prime and delegated subrecipient level. In its June 22, 2009, guidance, OMB says that, at a minimum, recipients and subrecipients should establish internal controls to ensure data quality, completeness, accuracy, and timely reporting of all amounts funded by the Recovery Act. review told us they did not typically review the information provided in narrative fields, and of the three programs that do, none had a systematic process in place to evaluate the accuracy or transparency of the information. In light of the importance of the quality of the Recovery Act data, the Recovery Accountability and Transparency Board (Recovery Board) has worked with federal Inspectors General to establish a multiphased review process to look at the quality of the data submitted by Recovery Act recipients. All but one of the agencies covered in our review were included in the first phase of the Inspectors General review process—to determine if agencies had developed data quality reviews in anticipation of the data to be submitted. The first phase report revealed that all of the federal agencies in our review had designed processes to perform limited data- quality reviews intended to identify material omissions and significant reporting errors in information reported by recipients of Recovery Act funds. The second phase review included only seven agencies, three of which have programs covered in our review—Departments of Defense and Transportation and GSA. The second phase report identified data errors and omissions in recipients’ first cycle reports and factors that may have contributed to them and the actions taken by agencies, OMB, and the Recovery Board to improve the quality of the data that recipients will submit in future reporting cycles. However, the report did not comment on the quality of the data in the narrative fields. According to the Recovery Board, future reports will focus on the effectiveness of the agency data quality review processes. error message if the entry exceeds this limit. In addition to these completeness checks, FederalReporting.gov includes over 30 data quality checks that primarily focus on the numerical fields, such as the award amount and congressional district. One such edit returns an error message if the submitted place of performance congressional district does not correspond with the place of performance zip code. A senior OMB official told us that such edits were added after the first reporting round to help ensure that congressional districts are correctly entered. We conducted a number of electronic edit checks on all of the 467 prime recipient awards, and any associated subrecipients, in our probability sample, to determine whether there were anomalies that may have affected the transparency of the award information. There were 950 subrecipients associated with the 467 awards in our sample, but not all awards had subrecipients. We found that 109 awards had subrecipients, and the number of subrecipients among these 109 awards ranged from 1 to 79. At the low end of the range, 53 awards had just 1 subrecipient each, and 12 awards had 2 subrecipients. At the high end, 14 awards had 20 or more subrecipients. The 4 awards with the highest number of subrecipients per award had from 60 to 79 subrecipients. Most of the awards with 20 or more subrecipients were within the weatherization program. In total, we performed edit checks on all 1,417 prime recipient and subrecipient reports. For both prime recipient and subrecipient reports, the electronic edit checks resulted in no missing information for the following fields: award number, award date, award amount, fiscal year, fiscal quarter, status, recipient name, recipient congressional district, and recipient Data Universal Numbering System (or DUNS) number. For prime recipients only, we also checked the funding agency code, funding agency name, awarding agency code, awarding agency name, project status, and final report. There was no information missing in these fields either. 950 missing the second. However, neither prime recipients nor subrecipients were missing information on the country, state, city, or zip code. For prime recipient and subrecipient reports, we checked to see if any award dates were on or before February 17, 2009 (before the Recovery Act was enacted) and after December 31, 2009 (the end of the quarter for round two reporting). We found three cases in which the award date was on or before February 17, 2009 (one prime recipient, and two subrecipients). Six cases had award dates after December 31, 2009 (one prime recipient and five subrecipients). These nine cases amount to only about one-half of 1 percent of all prime recipient and subrecipient reports in our sample and are not material to our findings or conclusions. We also performed additional electronic checks to determine if total Recovery Act funds received exceeded the award amount, as well as whether total funds expended exceeded the award amount. There were no cases in our probability sample of prime recipients or any identified subrecipients for whom the total funds received exceeded the award amount. To identify the information that is required to be included as part of the descriptions of awards funded by the Recovery Act, we reviewed the reporting requirements contained in the act, OMB’s guidance, Recovery.gov reporting instructions, and supplemental agency reporting guidance that were applicable for the quarter ending December 31, 2009. We discussed the reporting requirements, guidance, and reporting instructions with officials from OMB, the Recovery Board, and the federal program agencies for the programs included in our review. We also discussed with federal, state, and local officials and recipients their experiences in providing descriptions of awards funded by the act, including any positive reactions to or concerns they had about the requirements and guidance. The state and local officials that we contacted were those that were part of a judgmental sample of 52 awards we selected from those that we had previously contacted as part of our work to report bimonthly on how the Recovery Act is being implemented and from our search of media stories about Recovery Act awards. We contacted officials in 15 states and the District of Columbia regarding the following programs—Grants-in-Aid for Airports, Highway Infrastructure Investment, Transit Capital Assistance, Broadband Technology Opportunities Program, and Weatherization Assistance Program—because these were the programs that we were already reviewing as part of our bimonthly Recovery Act efforts. Because we selected these awards judgmentally, we do not assert that the experiences related by state and local officials about these awards are necessarily representative of all awards in a particular program. required for recipient reporting that describe the uses of Recovery Act funds, including the 3 narrative fields previously discussed. In table 12, we reproduced OMB’s Recipient Reporting Model instructions, specifically the definitions and examples, for these fields. cost (amount awarded), status (percentage complete), and outcome (what is expected to be achieved; e.g., increased safety or reduced congestion as a result of a redesigned highway intersection or increased energy efficiency from installation of a new heating, ventilation, and air-conditioning system). To these six specific attributes we used our professional judgment to add a seventh that seemed to be a reasonable adjunct to OMB’s attributes: scope (i.e., information on the magnitude or extent of an award). For example, scope could be the number of homes to be weatherized statewide or the number of miles (or lane miles) to be repaved. Finally, using these seven attributes and our professional judgment, we assessed the clarity and understandability of the narrative text, together with the completeness of the descriptions in their entirety. Those that were clear, understandable, and complete we considered to be “transparent.” In conducting the transparency assessment, we reviewed information reported by prime recipients on Recovery.gov for the quarter ending December 31, 2009, and available to the public on February 10, 2010. While more recent information became available in April 2010 (for the quarter ending March 31), we could not have analyzed this information in the time that we had for our study. We chose to use recipient-reported data from Recovery.gov because the administration considers it to be the official information on Recovery Act spending. to try and identify recipient reports with incorrect program codes. Our population size for each of the nine programs represents the number of correctly recorded recipient reports in Recovery.gov, as of the date on which we downloaded the records. We treated the samples within each of the programs as a stratified design when producing the estimate for overall award transparency. Because we followed a probability sampling procedure, based on random selection, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 90 percent confidence interval. This is the interval that would contain the actual population value for 90 percent of the samples we could have drawn. As a result we are 90 percent confident that each of the confidence intervals in this report will include the true values in the study population. reviewed the award information without regard to the original determinations, compared his or her determination with the results of the two analysts, and made a deciding assessment. The practical difficulties of making sometimes subjective decisions about whether awards meet our transparency criteria may introduce errors, commonly called nonsampling errors. We took steps to minimize these errors, such as by developing instructions for analysts to guide assessing the transparency of award information; conducting a calibration exercise on an initial selection of 70 awards (before drawing the probability sample) to assess the transparency criteria and to ensure that all analysts were interpreting the criteria consistently; having two analysts independently review each award and reach agreement; and, after all results had been entered, reviewing all results within a program for consistency of interpretation. For descriptions that partially met or did not meet our transparency criteria, we visited publicly available federal, state, and recipient Web sites, and reviewed publicly available documents (e.g., state weatherization plans) to attempt to obtain insight into the aspects of the award information that we considered missing, nonspecific, or unclear. While we were often able to “complete” the descriptions using this approach, for some of the awards we had to call award officials to get the needed information. In all these cases, we were able to get this information. We did not attempt to quantify the proportion of awards for which we called award officials. information was missing in any address fields, particularly for the city, state, zip code, and country, but also for the award number, award date, award amount, fiscal year, fiscal quarter, status, recipient name, recipient Data Universal Numbering System (or DUNS) number, funding agency code, funding agency name, awarding agency code, awarding agency name, project status, or final report. Our second sample was a certainty sample of larger dollar awards. We drew this sample because our probability sample did not consider the size of awards. As a result, it is possible that the sample we drew contained a disproportionate number of smaller awards compared with the entire population of awards; therefore, we could not accurately determine the amount of total award dollars for each of our three levels of transparency (i.e. met, partially met, did not meet), and any association of dollars would be misleading. In drawing our large dollar sample, we selected between 2 and 28 of the largest awards in each program, for a total of 70 awards. Overall, the transparency results of this sample are consistent with those of the probability sample (31 percent met, 63 percent partially met, and 6 percent did not meet). This gives us a reasonable level of confidence that that the dollar amount of awards is not necessarily related to the level of transparency of the description. Our third sample was a judgmental sample of 52 awards described at the beginning of this appendix. Much as we did for our probability sample, we reviewed award information reported on Recovery.gov and used publicly available information from state and federal agency Recovery Act Web sites to complete the information, where needed. In addition, we gathered source documentation, such as grant documents, to gain a sense of the accuracy of the information being reported on Recovery.gov. We also discussed with award officials the feedback that they have received from the public and press. Finally, we contacted state and local auditors about issues raised about these awards, if any. activities (such as a transit agency’s purchasing buses and building transit maintenance facilities) that are part of a self-contained Recovery Act award. Other awards may be part of a larger project. For example, one award may be to install a higher-efficiency heating, ventilation, and air- conditioning system and another award may be to install a new roof, both for the same federal building under the Federal Buildings Fund Program. The Corps’ Civil Works program awards have the similar attribute of being part of a larger whole. We assessed descriptions for these two programs against the activities in the award. Because individual awards under these two programs are not tied together to an overall project in any way on Recovery.gov, we did not rate an award lower if it did not make reference to the larger goal of which the award was a part. For example, we did not mark down an award to install a seawall for the outcome of controlling erosion if the description did not state that the award was part of an overall effort by the Corps to make a waterway more navigable. As another aspect of our work to review transparency of award information, for the 11 programs we covered, we discussed with federal agency officials and reviewed efforts by federal Inspectors General to assess the reliability and usefulness of the data reported by recipients. Finally, as discussed in appendixes I through XI, we determined the nature and scope of Recovery Act funding, obligations, and expenditures for the 11 programs covered by our review. Regarding the nature and scope of funding, for each program, we reviewed the act to determine the overall level of funding. We obtained data from the program agencies on the obligations, expenditures, and general purposes of funded awards (e.g., pavement improvements for highways). We chose to analyze information from the federal agencies’ databases because it offers greater ability to parse program activities than do recipient-reported data on Recovery.gov. Relatedly, because the federal agencies keep information on these awards in different levels of detail, our ability to categorize it extends only as far as the detail in the agencies’ databases. The federal agencies update their data at different frequencies. As a result, data for the 11 programs covered by our review are as of different dates, although they all are recent. The earliest data that we report are as of March 31, 2010, for the Weatherization Assistance Program, the latest data are as of May 12, 2010, for the Broadband Technology Opportunities Program. This appendix presents the estimated error rates associated with the results of our transparency assessment, on the extent to which awards from our representative sample were transparent, presented in table 2 of this report. For example, if we had taken 100 samples of Weatherization Assistance Program awards, we would expect that in 90 of the samples, between 6.4 percent and 19.3 percent of the awards would have met our transparency criteria, established elsewhere in this report. Katherine Siggerud (202) 512-2834 or siggerudk@gao.gov for buildings, telecommunications, and transportation issues. Patricia Dalton (202) 512-3841 or daltonp@gao.gov for energy and Army Corps of Engineers issues. James Ashley, Carl Barden, Jonathan Carver, A. Nicole Clowers, Daniel Cain, Janice Ceperich, Michael Clements, Maria Edelstein, Elizabeth Eisenstadt, Susan Fleming, Mark Gaffigan, Joy Gambino, Kimberly Gianopoulos, Diana Goody, H. Brandon Haller, Daniel Hoy, Vondalee Hunt, Bert Japikse, Anar Ladhani, Hannah Laufe, Joanie Lofgren, Grant Mallie, Kristen Massey, David Maurer, Anu Mittal, Sara Ann Moessbauer, Joshua Ormond, James Ratzenberger, Amy Rosewarne, Beverly Ross, John Shumann, Larry Thomas, and Susan Zimmerman made significant contributions to this report. In addition, Laura Acosta, Silvia Arbelaez-Ellis, Paul Begnaud, Sarah Jane Brady, Laurel Breedon, Myra Watts Butler, Waylon Catrett, Sunny Chang, Richard Cheston, Chase Cook, James Cooksey, John H. Davis, Bonnie Derby, Kathleen Drennan, Daniel Egan, James Elgas, Nagla’a El-Hodiri, K. Eric Essig, Mattias Fenton, Christine Frye, Kathy Hale, John Hansen, Kay Harnish-Ladd, Barbara Haynes, Adam Hoffman, Sabur Ibrahim, Richard Jorgenson, Emily Larson, Alexander Lawrence, Jennifer Leone, Nancy Lueke, Richard Mayfield, Gail Marnik, Cory Marzullo, Ronald Maxon, Marietta Mayfield, Daniel Newman, Loren Obler, Keith O’Brien, Kathryn O’Dea, Carol Patey, Leslie Pollock, Gloria Proa, Frank Putallaz, Nadine Garrick Raidbard, Nitin Rao, Sanford Reigle, Matthew Rosenberg, Mark Ryan, Connie Sawyer Jr., Paul Schmidt, Ryan Scott, David Shoemaker, A. Paige Smith, Ray Smith, Ronald Stouffer, Rosemary Torres-Lerma, Robyn Trotter, and Stephen Ulrich contributed by conducting audit work at state and local governments. Moreover, Jennifer Andreone, Shea Bader, Steven Banovac, Deyanna Beeler, Amanda Cherrin, MacKenzie Cooper, Abbie David, George Erhart, Janida Grima, Michael Hanson, Paul Hobart, Dana Hopings, William King, Claire Li, Angela Miles, Justin Monroe, Meredith Moore, Michael Pahr, Chhandasi Pandya, Jonathan Stehle, April Van Cleef, Richard Winsor, and Katherine Wunderink contributed by conducting research that allowed us to complete descriptions for hundreds of Recovery Act awards. Finally, Joyce Evans, Jena Sinkfield, and Cynthia Taylor provided technical assistance.	A hallmark of efforts to implement the $862 billion American Recovery and Reinvestment Act of 2009 (Recovery Act) is to be transparent and accountable about what the money is being spent on and what is being achieved. To help achieve these goals, recipients are to report every 3 months on their award activities and expected outcomes, among other things. This information is available on Recovery.gov, the government's official Recovery Act Web site. As requested, this report covers 11 federal programs focused on broadband, energy, transportation, federal buildings, and civil works activities, representing $67 billion in Recovery Act funding. Primarily, the report (1) describes how the Office of Management and Budget (OMB) and federal agencies implemented the act to report funds' uses and (2) assesses the extent to which descriptions of awards meet GAO's transparency criteria. It also describes reported uses of funds for the 11 programs. GAO reviewed requirements for reporting in the act and OMB's guidance. Based on these requirements, GAO developed a transparency assessment and applied it to a probability sample of descriptions from 14,089 recipient reports. In addition, GAO reviewed 52 projects in detail in states that it had contacted as part of its bimonthly reviews and interviewed federal, state, and local officials about their experiences with reporting descriptions of awards. This report focuses on one aspect of transparency and accountability: the extent to which descriptions of awards found on Recovery.gov foster a basic understanding of award activities and expected outcomes. Section 1512 of the act created broad requirements for recipient reporting. The act does not further explain these requirements. To implement the act, OMB provided generic guidance instructing recipients to report narrative information, among other things, that captures the overall purpose of the award and expected results. GAO estimates that, for the nine programs with funds awarded by December 31, 2009, 25 percent of the descriptions met its transparency criteria; that is, they had sufficiently clear and complete information on the award's purpose, scope and nature of activities, location, cost, outcomes, and status of work. Two factors may have influenced what GAO found. First, GAO's results were somewhat more positive for programs in which the federal agencies provided program-specific materials that supplemented OMB's guidance with detailed information on what recipients should include in the narrative fields. The highway, transit, and geothermal programs that GAO reviewed tended to have more transparent descriptions compared with programs that only supplied general guidance. Second, officials in many programs told GAO that they did not typically include the narrative fields in their data quality reviews. While an estimated three-quarters of the recipient-reported information did not fully meet GAO's transparency criteria--thus potentially hampering understanding of what is being achieved with Recovery Act funding--GAO found that federal and state Recovery Act Web sites, in some cases, provided additional information that could aid the public in understanding what its tax dollars are being spent on and what outcomes are expected. GAO collected information on the reported uses of funds from federal agencies for the 11 programs it reviewed. These uses ranged from improving infrastructure to improving Internet access. Agencies have obligated program funds at different rates, which may be due, in part, to whether the programs were new, existing, or received sizable funding increases. GAO also asked the federal agencies and selected state agencies in its review about how they make Recovery Act project information available to the public and what feedback they have received. Each agency has established a Recovery Act Web site, as have states, some state auditors and Inspectors General, and some recipients. These sites contain varying amounts of information, such as program objectives, lists of projects, and interactive maps. To further public understanding of what Recovery Act funds are being spent on and the expected results, GAO recommends that the Director, OMB, (1) revise the agency's recipient reporting guidance to remedy the unclear examples and enhance instructions for completing narrative fields; (2) work with agencies to determine whether supplemental guidance is needed to meet the intent of the act and whether that supplemental guidance or other technical assistance proposed by agencies dealing with narrative descriptions of awards provides for transparent descriptions of funded activities; and (3) periodically review, in partnership with federal agencies, the recipients' descriptions of awards to determine whether the information provides a basic understanding of the uses of the funds and expected outcomes, and, if not, encourage agencies to develop or improve program-specific guidance, as well as work with the Recovery Board as the board reviews the results of agencies' data quality reviews to further reinforce actions to meet transparency goals. In commenting on a draft of this report, OMB agreed with GAO's recommendations. OMB and the federal agencies provided a number of specific comments, many of which GAO incorporated.	14.5	long	3,156
9	People and communities with limited resources are a major focus of public policy. While policymakers might disagree in theory on whether or to what extent government should act to protect the economic well-being of individuals and families, the federal government in fact spends large sums of money on numerous programs targeted toward those with limited income and assets. This report attempts to identify and analyze these programs and provide a broad overview of the policies underlying them. In FY2009, federal spending on programs for people with low income was almost $708 billion, and totaled nearly $578 billion the previous year. Most of the growth between the two years was related to the recession and associated policy responses, with almost two-thirds (64%) of the increase coming from the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). In both years, four programs accounted for almost 60% of total spending, and 10 programs accounted for more than 75%. The distinguishing feature of federal programs examined here is their explicit focus on low-income populations, as distinct from social insurance programs such as Social Security, Medicare, or Unemployment Insurance. Social insurance programs aim to protect American workers universally against lost wages and work-related benefits due to retirement, disability, or temporary periods of unemployment. They are financed in large part through contributions from workers and employers and their aggregate spending is much larger than programs intended specifically for those with low income. Social insurance programs play a major role in reducing poverty among significant segments of the population. In contrast to social insurance, programs examined in this report are funded through general revenues and provide benefits and services to people with limited income either by explicitly tying eligibility to a measure of income, or by targeting assistance through funding allocation formulas or other need-related mechanisms. They attempt to ameliorate or mitigate the effects of low income by providing cash or noncash benefits to help people meet basic needs, such as food, housing, and health care. They also seek to address root causes of economic disadvantage by providing education, training, and other services to improve people's employability and earnings capacity. Some programs combine these purposes by conditioning aid on participation in work or training or providing incentives to engage in these activities. Finally, some programs target assistance to communities with significant concentrations of low-income people to compensate for their low tax capacities, and help provide revenues to support benefits and services to residents. These programs are extremely diverse in their purpose, design, and target populations. Many were created independently of one another, at different times and in response to different perceived policy problems. They also changed over time in response to various societal and other factors. "Social welfare," "social safety net," and "public welfare" are generic terms sometimes used to refer to these programs; however, there is no single label that best describes all programs included in this report. Key findings of the report are presented in the Summary, above. The body of the report is organized as follows: The report begins with a very brief history of federal low-income policy, to provide context for the subsequent discussion of current programs. The report then gives an overview of current federal spending on benefits and services for low-income people, including a review of the budgetary classification of these funds (mandatory or discretionary). The next section looks specifically at the 10 largest programs, which together account for three-fourths of all spending in the report, followed by an overview of all programs, organized by major category in order of FY2009 spending: health care, cash aid, food assistance, housing and development, education, social services, energy assistance, and employment and training. The next two sections look in greater detail at the ways in which benefits and services are directed toward people with limited income, either by establishing explicit eligibility criteria for individuals or families, or by targeting assistance toward communities or entities based on a measure of need. These sections look at use of the federal poverty guidelines and other income measures in defining eligibility or otherwise targeting assistance, as well as criteria that enable certain categories of people to qualify automatically. The form of federal assistance—formula grants, competitive or discretionary awards, direct payments to individuals—is the focus of the next section, which also looks at the immediate recipients of federal funds, such as states, local governments, and nonprofit organizations. The section discusses matching or other requirements for nonfederal spending, and very briefly addresses the participation of Indian tribes and U.S. territories. The report generally does not discuss the value of benefits or services provided; however, the next section shows maximum benefit levels under selected cash and near-cash benefit programs. The report concludes by identifying potential questions for further analysis. The report includes several appendixes: Appendix A discusses the methodologies used to prepare the analysis; Appendix B provides overview tables of programs included in the report; and Appendix C is a series of short fact sheets on each program. Appendix D gives references to information about the federal poverty guidelines and other income measures and eligibility tests. The analysis in this report required numerous decisions about which programs to include, how to categorize them, and what measure of federal spending to use. The methodologies chosen are described in Appendix A . Readers should be aware, however, of the following caveats: The report refers to the target population of these benefits and services as persons with "low" or "limited" income, rather than "poor" people. Although some programs limit participation to individuals with income below federal poverty guidelines, income eligibility criteria vary widely and frequently include people with income above the federal definition of poverty. The number of programs included in this report is not meaningful. While fact sheets are presented for 82 "programs," some could have been characterized as more than one program and others could have been consolidated. In addition, only programs with new obligations of $100 million or more in a given year are included. If smaller programs were included, the overall number of programs would be larger, but the analysis would essentially be unchanged. The assignment of programs—and therefore dollars—to broad categories (health care, cash aid, food assistance, etc.) is not perfect. Certain programs provide multiple types of assistance and spending could not be disaggregated, so spending was assigned to a single category. Some programs are ambiguous; different analysts might categorize them differently. The analysis might be changed somewhat if different assignments had been made. The report does not include tax programs, with the exception of direct spending for the refundable portion of the Earned Income Tax Credit and the refundable Additional Child Tax Credit. The report does not provide long-term trend data on spending. For reasons explained in Appendix A , obligations are generally used as the measure of spending. While obligations are the most consistent program-specific measure available for the majority of programs included here, they are difficult to trace backward. Spending is provided for FY2009 because it is the most recent year for which final amounts are available for all programs included. Because FY2009 was an unusual year, however, with a large infusion of funding from the economic stimulus law (ARRA), FY2008 spending is also shown. The report provides a snapshot of policies and spending for low-income programs in FY2008 and FY2009. It does not address the effectiveness of these programs in meeting their policy goals. Readers familiar with the CRS series of reports entitled Cash and Noncash Benefits for Persons with Limited Income should know that this report is not an update of that earlier series. This report is meant to replace that series but it uses different methodologies and is therefore not comparable to the Cash and Noncash reports. See Appendix A for an explanation of the differences. A review of the evolution of federal policy for low-income people provides useful context for understanding today's programs and policies. The following is a quick overview of key milestones, such as the New Deal of the 1930s and the Great Society of the 1960s. While many current programs trace their roots to these eras, few exist today in the same form. Today's programs reflect policy changes enacted over many decades in response to numerous factors, particularly the shift in societal expectations about mothers working outside the home. Federal aid initially focused on groups who were not expected to work, including mothers of dependent children; however, federal policy today generally favors work among able-bodied aid recipients and includes incentives to "make work pay." Federal policy also expanded over time to include efforts to address root causes of poverty and disadvantage, in addition to helping people meet their basic needs. Federal involvement in providing benefits and services for people with low income generally began in the first part of the 20 th century, largely after the Great Depression overwhelmed the resources of states, local governments, and private organizations, which previously had borne primary responsibility for helping the disadvantaged. With some key exceptions, such as veterans' benefits and tax credits for low-wage workers, state and local governments still play a significant role in most programs intended for low-income populations, regardless of whether they are partially or fully federally funded. Benefits for veterans, initially to meet the medical needs of those who became disabled during service, are among the oldest in the United States, and date back in some form to the beginning of the country. By the early 1900s, these benefits had grown to include medical care and cash assistance for the indigent as well as veterans with disabilities, including assistance for dependents and survivors of veterans. These were the primary benefit programs administered by the federal government until the Great Depression of the 1930s. The New Deal was the federal government's response to the Depression, and the Social Security Act of 1935 was its cornerstone. The act brought the federal government into the fields of social insurance and cash relief for populations who either could not work or who society at that time did not expect to work. The original act established income security programs for aged and retired workers and for temporarily unemployed workers (the beginning of today's Social Security and Unemployment Compensation programs). It also authorized federal grants to states to make cash aid payments to two groups, in addition to the elderly, who were not expected to work. These groups were fatherless (dependent) children and the blind, although within these categories, the act gave states the authority to define specific eligibility and benefit levels. Aid to Dependent Children, as created in 1935, was amended over the succeeding decades and became Aid to Families with Dependent Children in 1962. Aid was provided to parents (typically single mothers) in addition to the children. However, at the same time, expectations about mothers' work began to change. Starting in the late 1960s and continuing over the next 30 years, Congress imposed work registration and work or training requirements on certain parents receiving cash benefits. In 1996, Congress replaced AFDC with Temporary Assistance for Needy Families (TANF), which established time limits on the receipt of benefits and conditioned cash aid on participation in work activities. States continue to make key decisions regarding eligibility and benefit levels under TANF, and have the added flexibility to use funds for noncash services. (In fact, the majority of TANF funds are now used for noncash services, such as social services and employment-related activities.) The 1996 law also gave states more federal funding for child care for low-income working families. The 1930s also marked the federal government's entry into the field of housing. In response to trouble in the mortgage market resulting from the Depression, the U.S. Housing Act of 1934 encouraged lending for housing construction through a new Federal Housing Administration. The U.S. Housing Act of 1937 subsequently created the low-rent Public Housing program, which required states to establish quasi-governmental local public housing authorities (PHAs) to administer the program. In 1949, Congress declared the federal goal of "a decent home and a suitable living environment for every American family," and over the next two decades it enacted provisions to provide affordable housing through incentives to private developers to build low-cost housing. The Housing Act of 1974 created a new rental assistance program, known as Section 8, which provided rental subsidies for private properties, in lieu of development subsidies. Section 8 was later expanded to include portable rental vouchers administered by PHAs. While Section 8 vouchers have effectively replaced subsidies for new development, many housing units that were subsidized under these earlier programs still provide affordable housing today. They are administered by PHAs or private properties, under contract with the federal Department of Housing and Urban Development (HUD). An early version of food stamps existed for several years during the Depression and was revived in 1961 as a small pilot program. The program became permanent during the Great Society, through the Food Stamp Act of 1964. Originally, states set their own eligibility rules, and benefits varied regionally. This changed in 1971 when the program was effectively converted to a national income guarantee, providing an amount of food stamps to participating households sufficient to buy items equivalent to the Agriculture Department's "economy diet." However, recipients had to contribute a monthly "purchase requirement" based on their income in order to obtain benefits. The law set nationally uniform eligibility rules and federally paid benefit levels, but states continued to administer the program. Congress enacted a number of major policy changes to the Food Stamp program over the next three decades, including removal of the purchase requirement in the late 1970s, allowing automatic eligibility for those receiving other public assistance benefits or services in 1985, and limiting access for able-bodied adults without dependents in 1996. In 2008, the Food Stamp program was renamed the Supplemental Nutrition Assistance Program (SNAP). States continue to administer SNAP and have some leeway in determining eligibility through application of the automatic eligibility rules, but benefit levels remain federally financed and nationally uniform. A central feature of the Great Society was the War on Poverty, and the Economic Opportunity Act of 1964 was its primary legislative vehicle. That act and its subsequent amendments authorized numerous programs that sought to address the causes of economic disadvantage, and to ameliorate its effects. Programs were designed to meet the multiple needs of low-income preschool children and their families, and the employability needs of low-income youth and adults, and to give low-income people a formal role in planning services for their communities. Modern-day programs with origins in the War on Poverty include Head Start, Job Corps, Adult Basic Education, components of the Workforce Investment Act, the Legal Services Corporation, Weatherization Assistance, the Low-Income Home Energy Assistance Program, School Breakfast, the Summer Food Service Program, the Child and Adult Care Food Program, and the Community Services Block Grant. The Great Society also focused on education; both the Elementary and Secondary Education Act and the Higher Education Act became law in 1965. The Great Society also saw the creation of Medicare and Medicaid, which have grown into the nation's largest health care programs. Medicare was created in 1965, providing health coverage as a form of social insurance to elderly and disabled individuals with a significant attachment to the workforce. The same legislation created Medicaid, a means-tested entitlement that finances medical services and long-term care for specified low-income and categorical groups. Medicaid replaced two earlier programs of federal grants to states that provided medical care to welfare recipients and the elderly. Both Medicare and Medicaid have been amended numerous times over the years, expanding both eligible populations and services. A prescription drug benefit was added to Medicare in 2003, which includes a subsidy for low-income beneficiaries. And most recently, the 2010 health reform law—the Patient Protection and Affordable Care Act ( P.L. 111-148 , as amended by P.L. 111-152 )—significantly expanded Medicaid, so that, beginning in FY2014 (or potentially sooner, at state option), Medicaid will cover low-income childless adults in addition to the program's traditional target populations of low-income parents and children, and elderly and disabled individuals. The original Social Security Act's grants to states for cash aid to needy blind and aged individuals were expanded over time to include people with disabilities. However, in contrast to cash aid and related programs for needy families with children, which remain state-administered, Congress "federalized" programs for low-income aged, blind, and disabled people in 1972. These earlier programs were replaced by Supplemental Security Income (SSI), which has uniform federal minimum eligibility and benefit rules (rather than state-determined policies) and serves blind and disabled children as well as adults. Also in the early 1970s, Congress considered but did not enact welfare reform legislation that would have replaced AFDC with a federal minimum cash guarantee for poor families, including working families with two parents. Instead, in 1975 Congress enacted a temporary "work bonus" or wage supplement intended to return a portion of Social Security taxes to low-income working households. This program was made permanent in 1978 and became the current Earned Income Tax Credit (EITC). The credit has been expanded several times over the past 30 years and is currently one of the largest cash assistance programs for low-income households, reflecting the prevailing policy goal of "make work pay." Consistent with the emphasis on promoting work for low-income families, the welfare reform law of 1996 created TANF, which, as noted above, conditions cash aid on participation in work activities, and also expanded funding for child care. In the year following enactment of welfare reform, low-income families not sufficiently poor for Medicaid gained access to health insurance for their children through enactment of the State Children's Health Insurance Program (CHIP) in 1997. The Child Tax Credit and refundable Additional Child Tax Credit (ACTC) also were created in 1997, although the impact of the ACTC originally was limited. In 2001 and subsequent years, the ACTC was expanded so that it now targets assistance toward low-income families. Most recently, Congress enacted the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) in 2009, in an effort to stimulate the economy during recession. While ARRA did not create significant new initiatives for people with limited income, it revised and expanded certain existing policies, at least temporarily, to make them more responsive to the needs of people and communities affected by the downturn. As the following discussion shows, ARRA resulted in a substantial increase in spending on benefits and services for low-income populations between FY2008 and FY2009. The bulk of funding provided by ARRA was intended to be spent during FY2009 and FY2010. Federal spending on benefits and services for low-income people totaled $708 billion in FY2009 and $578 billion in FY2008. These programs generally seek to mitigate the effects of low income by helping people meet basic needs such as health care, food, or shelter, or to address the root causes of economic disadvantage through services, education, or job training. Notably, few programs have poverty reduction as an explicit goal or purpose. Key target populations for many of these programs, including some of the largest, include low-income elderly and disabled individuals, and dependent children and their families. Other target groups for selected programs include veterans, students, people who are homeless, Indians, and refugees, among others. Figure 1 illustrates the composition of spending, by category, in FY2008 and FY2009. Figure 2 displays FY2008 and FY2009 spending by category, and also highlights the portion of spending in FY2009 attributable to ARRA. Table 1 shows this information, both overall and by category, and the percent change in spending from FY2008 to FY2009. See Appendix Table B -1 for a listing of specific programs in each category. As Figure 1 shows, spending for health care dominates all other categories, accounting for close to half (45%) of total spending for limited-income populations in FY2009. Cash aid is the second largest category but trails health care by a wide margin, with 18% of spending in FY2009. Food assistance is third (11% of FY2009 spending), followed by housing and development (almost 9%), education (8%), social services (6%), energy assistance (almost 2%), and employment and training (1%). Overall spending on federal benefits and services for low-income populations grew by 22% between FY2008 and FY2009, largely due to policy responses to the recession. Almost two-thirds (64%) of the additional spending was provided under ARRA, the economic stimulus enacted in February 2009. Some large entitlement programs (e.g., Medicaid, the Supplemental Nutrition Assistance Program (SNAP)) saw additional growth in spending beyond that provided under ARRA, likely due to an increase in eligible and enrolled individuals as a result of the economic downturn. Spending growth from FY2008 to FY2009 was uneven among categories. The largest percentage increase was for energy assistance, which represented less than 1% of all spending in FY2008 and more than tripled in FY2009. Spending for housing and development programs rose by 51%, education by 39%, and employment and training by 38%. Spending on food assistance increased between the two years (32%), as did spending for health care (24%) and social services (22%). Spending for cash aid appeared to drop by 3% between FY2008 and FY2009; however, this was the result of a one-time $300-per-child tax rebate, which was included as spending under the Additional Child Tax Credit (ACTC) in FY2008 but was not targeted toward low-income families. In terms of dollar increases between the two years, health care saw the largest growth, with $61 billion of additional obligations in FY2009. More than half of this increase (54%) resulted from provisions in ARRA that temporarily raised the federal share of Medicaid costs. However, growth in Medicaid spending—regardless of ARRA—accounted for another 30% of the dollar increase in low-income health spending from FY2008 to FY2009. The next largest dollar increase was for housing and development programs, which grew by $20 billion between FY2008 and FY2009. Most of this growth (71%) resulted from additional appropriations provided under ARRA for such programs as Public Housing, Homeless Assistance Grants (specifically for a new Homelessness Prevention and Rapid Re-Housing Program), and Section 8 Project-Based Rental Assistance. ARRA also funded two temporary grants related to the Low-Income Housing Tax Credit. Spending for food assistance rose by almost $19 billion between FY2008 and FY2009. More than a quarter of this growth resulted from ARRA provisions that increased the dollar value of SNAP benefits. As noted above, however, SNAP grew significantly regardless of the ARRA provisions, as more households became eligible and enrolled in the program during the recession and its aftermath. Additional SNAP obligations unrelated to ARRA accounted for 60% of the FY2009 spending increase in the food assistance category. Education spending grew by $16 billion from FY2008 to FY2009, although without additional appropriations provided under ARRA, this category would have decreased by $2 billion. However, ARRA was enacted before final decisions were made on total FY2009 appropriations, so appropriators were able to take into consideration the additional amounts already provided through ARRA. Pell Grants for postsecondary students and grants to disadvantaged school districts under Title I-A of the Elementary and Secondary Education Act were the largest beneficiaries of ARRA funding among education programs specifically targeted on low-income populations. Spending for social services rose by $8 billion between FY2008 and FY2009, with almost half of the increase coming from appropriations made by ARRA, specifically for Head Start, the Child Care and Development Fund, and the Community Services Block Grant. Energy spending grew by $7 billion, of which nearly two-thirds (64%) was ARRA funding for the Weatherization Assistance Program. Finally, employment and training saw a $2 billion increase in spending in FY2009, with more than three-quarters (77%) coming from appropriations under ARRA for the Workforce Investment Act and Job Corps. As noted above, cash assistance spending appeared to go down in FY2009, by about $4 billion. However, FY2008 obligations in this category included an unspecified amount of spending for a one-time $300-per-child tax rebate, authorized under the Economic Stimulus Act of 2008 ( P.L. 110-185 ). This one-time rebate was counted as spending under the ACTC, but was not targeted toward low-income families. Thus, FY2008 spending for low-income people under the ACTC appears higher than it actually was. While ARRA made changes in both the Earned Income Tax Credit and the ACTC, these changes did not take effect until tax year 2009, and therefore associated spending would generally not be seen until FY2010. Of total spending on programs for low-income people, about 75% is classified in budget terms as "mandatory" (also called "direct" spending) and the remainder as "discretionary." In mandatory programs, many of which are entitlements to individuals or units of government, Congress defines eligibility and payment rules in authorizing laws. These rules determine the amount of spending that will occur, so Congress generally must amend the authorizing law in order to control federal spending. The amount of federal spending for discretionary programs, on the other hand, is determined by Congress through the annual appropriations process. Mandatory spending may be structured as open-ended or capped. In an open-ended entitlement program, no predetermined ceiling is imposed on federal expenditures; instead, federal payments are made to all eligible beneficiaries for eligible expenditures as defined in law. (Medicaid is an example of an open-ended entitlement program.) In a capped program, the authorizing law limits the total amount of federal spending that can occur. (Temporary Assistance for Needy Families is an example of a capped entitlement program.) Of mandatory spending discussed in this report, more than 90% is through open-ended programs. The pattern of mandatory versus discretionary spending differs by major category of benefits and services. All cash aid spending, and most spending for health care and food assistance, is mandatory. In all three of these categories, spending occurs largely through open-ended entitlement programs. In contrast, all spending for energy assistance and employment and training, and most spending for housing and development and education, is discretionary. Social services spending is a mixture; about two-thirds is mandatory and the rest is discretionary. Of the mandatory social services spending, a little more than half is capped and the balance is open-ended. This report generally looks at spending and policy by major category, such as health care, cash aid, or food assistance. It illustrates the enormous diversity among and within categories in terms of target population and various design elements. However, it is important to note that a few individual programs account for the vast majority of spending for low-income populations, and these programs merit special attention. The four largest programs contributed almost 60% of total spending in each of FY2008 and FY2009, and the top 10 accounted for more than three-fourths. The following provides an overview of these programs; they are discussed in the context of all low-income programs in the balance of the report. Table 2 shows spending for these programs in FY2008 and FY2009, and separately under ARRA. Table 3 highlights key features of these programs. As Table 2 shows, Medicaid is the single largest program and alone accounts for nearly 40% of low-income spending. Next in size are the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), Supplemental Security Income (SSI), and the refundable portion of the Earned Income Tax Credit (EITC). Notably, SNAP became the second largest program in FY2009 but was number four in spending in FY2008, behind SSI and EITC. Rounding out the top 10 are Pell Grants, the Additional Child Tax Credit (ACTC), Title I-A of the Elementary and Secondary Education Act (ESEA), the low-income drug subsidy under Part D of Medicare, Temporary Assistance for Needy Families (TANF), and Section 8 Housing Choice Vouchers. Because of the effect of Medicaid, more than half (53% in FY2009) of spending under the top 10 programs fell into the health category. Spending for programs in the cash assistance category equaled 23% of spending under the 10 largest programs in FY2009, followed by programs categorized as food assistance (10%) and education (9%). Small percentages of total spending for the top 10 programs went to those categorized as housing (3%), social services (2%), and employment and training (less than 1%). Low-income elderly, disabled, and families with dependent children are the focus of much of the spending under the top 10 programs. Medicaid provides health care for low-income people within certain categorical groups, which are primarily the elderly, individuals with disabilities, and dependent children and their families. Low-income elderly and disabled Medicare recipients receive subsidized prescription drug insurance under Part D. Cash aid goes to low-income elderly and disabled beneficiaries under SSI, and to low-income working households through the EITC and ACTC. TANF serves families with dependent children; states define specific eligibility rules but federal law emphasizes participation in work activities for recipients of cash aid. SNAP provides assistance specifically for the purchase of food to households below a certain income threshold. While the program does not target benefits to certain demographic groups, nearly half of SNAP recipients in FY2009 were children and another 8% were age 60 or older. The law also requires able-bodied non-elderly adults without dependent children to participate in work or training to receive benefits for more than a brief period of time. The 10 largest programs also include housing vouchers for low-income families ("families" are defined by local public housing authorities and may include single individuals). Two education programs are among the top 10, including Pell Grants, which assist students whose family resources are not adequate to meet their college costs. The system used to determine benefit amounts under Pell sometimes gives aid to students with relatively high family income; however, the benefits given to these students are likely to be low. Finally, low-income school districts receive grants through Title I-A of ESEA, but individual students do not necessarily have to be low-income to be served by the program. As noted earlier, about 75% of all spending for limited-income populations is classified as mandatory. This percentage is higher for the top 10 programs; close to 90% of spending under these programs is mandatory, which means the amount spent is a function of program rules set forth in law rather than annual decisions made by congressional appropriators. Moreover, of mandatory programs in the top 10, only TANF is capped; the rest are open-ended. Three of the top 10 programs are classified as discretionary. These are Pell Grants (which also includes a mandatory component), Title I-A of ESEA, and housing vouchers. With one exception, the 10 largest programs all require that beneficiaries must be determined individually eligible to receive aid. In other words, except for Title I-A of ESEA, individuals or households must meet an income (or equivalent) test to benefit from these programs. The particular income test used, however, varies with the program. For example, Medicaid, SNAP, and the Part D subsidy all use different multiples of the federal poverty guidelines to determine eligibility, in addition to criteria that allow beneficiaries of certain other programs to qualify automatically. Specific dollar amounts are used to define eligibility for SSI and also to determine when EITC benefits begin to phase out. Section 8 housing vouchers use income limits that are based on area median income to define eligibility, and TANF income eligibility thresholds, as noted earlier, are set by states. No absolute income threshold determines eligibility for Pell Grants; however, the lowest-income students receive the largest grants. As stated above, children are not required to meet an income eligibility test to receive benefits funded by Title I-A of ESEA. Rather, the program uses allocation formulas to direct federal resources toward local educational agencies with relatively high concentrations of low-income students. Once these funds are received by an individual school, students may be served regardless of their family income. Title I-A is an example of a formula grant program. (Other mechanisms for distributing funds include competitive or discretionary awards, and direct benefits to individuals.) Medicaid, TANF, and Section 8 housing vouchers also use formulas to distribute funds, but the specifics vary. Because Medicaid is an open-ended entitlement, the federal government reimburses states for all eligible expenditures with no cap on federal spending; however, the federal "matching rate" is calculated for each state by a formula inversely related to its per capita income (poorer states get a larger federal match, and wealthier states get a smaller federal match). TANF allocates block grants to states according to a formula that considers their spending patterns under the predecessor Aid to Families with Dependent Children (AFDC) program. Funding to renew existing housing vouchers is distributed to local public housing authorities (not states) according to a formula established by Congress each year in appropriations law, which typically is related to the use and cost of vouchers in the local area. As noted above, formula grants are one of three major ways that federal programs for low-income populations distribute funds; the other two are competitive or discretionary awards, and direct benefits to individuals. None of the 10 largest programs award funds on a competitive or discretionary basis, other than a relatively small component of TANF. Instead, these large programs either allocate funds to states or another unit of government by formula, as just described, or give benefits to eligible individuals directly (or through a nongovernment intermediary). Federal benefits are provided directly under SNAP (although states administer the program), SSI (although states may supplement the federal benefit), EITC, ACTC, Pell Grants, and the Medicare Part D subsidy. Benefits provided by the federal government directly to eligible individuals typically are 100% federally funded, although, as noted above, states incur administrative costs under SNAP (which are reimbursed at a 50% federal rate) and may supplement federal payments under SSI. Some states also operate their own earned income tax credit programs, which supplement the federal EITC. Medicaid and TANF, however, are federal-state programs, and states must spend a significant amount of their own money to receive federal funds. As noted above, state Medicaid expenditures are reimbursed by the federal government at prescribed matching rates. Unlike Medicaid, TANF is not a matching grant; however, to receive TANF block grant funds, states must maintain a certain level of their own spending from prior years. Local educational agencies that receive Title I-A grants also are required to maintain a certain amount of prior-year spending and must use federal funds to "supplement and not supplant" nonfederal funds that would otherwise be used for the same purpose. The following sections provide brief overviews of the programs included in each major category of benefits and services, organized by size of spending in FY2009. Tables included in Appendix B individually list and identify key features of the programs, and brief fact sheets on each program are provided in Appendix C . As health care dominates federal spending on benefits and services for people with limited income, Medicaid dominates spending within the health care category. Medicaid accounted for 83% of health care spending in FY2009 and, as noted above, was nearly 40% of all spending in this report. Medicaid is intended to provide medical assistance to specified categories of low-income people who lack the income and resources to afford necessary medical care. Low-income parents, dependent children, the elderly, and individuals with disabilities have been the primary target populations served by Medicaid. The program finances the delivery of a wide range of primary and acute medical services as well as long-term care. The State Children's Health Insurance Program (CHIP) provides health coverage for low-income children who lack health insurance but whose family income exceeds Medicaid eligibility levels. The next largest health programs are the low-income subsidy under Medicare Part D, which helps low-income seniors and individuals with disabilities pay for prescription drugs, and medical care for low-income veterans without service-connected disabilities. The latter program pays for an array of primary care, specialized care, and related social and support services provided by the Department of Veterans Affairs (VA). The Indian Health Service also offers a wide variety of health services to its target population, who are American Indians or Alaskan Natives living on reservations or within a specified service delivery area. Consolidated Health Centers offer primary and other health services to low-income populations in medically underserved areas, and the Maternal and Child Health block grant supports preventive and primary health care services for low-income women, infants, and children. The Ryan White HIV/AIDS Program is intended to address the unmet care and treatment needs of individuals living with HIV or AIDS who lack insurance or resources to pay for core medical services, including prescription drugs, and related support services. Additional programs focus on specific health services, such as family planning and early breast and cervical cancer detection, or specific populations, such as refugees. Three programs account for the bulk of cash aid spending, and each is among the 10 largest of all programs for low-income people. SSI, which aims to provide a minimum income for aged, blind, or disabled individuals with very low income and resources, is the largest and accounted for slightly more than 40% of cash aid spending in FY2009. The refundable portion of the EITC accounted for another 33% of cash aid spending, and almost 19% resulted from the refundable ACTC. The EITC subsidizes the wages of low-income workers, with most benefits going to those with children. The ACTC is a refundable credit for families whose tax liability is too low for them to fully benefit from the regular nonrefundable Child Tax Credit. The cash aid category also includes TANF, the welfare reform program that replaced Aid to Families with Dependent Children (AFDC) in 1996. As AFDC's successor, TANF is still sometimes viewed as traditional "welfare" for poor families; however, the majority of TANF expenditures are for activities other than cash aid. TANF aims to increase the flexibility of states in meeting several statutory goals, including assisting needy families so that children can remain in their homes; ending dependence of needy parents through job preparation, work, and marriage; preventing and reducing incidence of out-of-wedlock pregnancies; and encouraging the formation and maintenance of two-parent families. In this report, TANF spending has been allocated among cash aid, social services, and employment and training, based on states' reporting of their actual expenditures. Finally, cash aid programs include pensions for needy elderly or disabled veterans and their dependents or survivors. SNAP (formerly food stamps) dominates spending for food assistance, accounting for about two-thirds of obligations in this category and registering as the second largest of all low-income programs in FY2009. SNAP attempts to alleviate hunger and malnutrition and to help low-income households purchase food to support a healthy diet. The next largest area of food assistance spending is for programs that subsidize the costs of breakfast and lunch served to low-income schoolchildren; these programs aim to support learning readiness, promote healthy eating, and protect the health and well-being of low-income children. Related programs subsidize the costs of meals and snacks for children in child care and other out-of-school settings (and some low-income elderly and disabled adults in adult care settings) and for children during the summer when they lack access to school-based meal programs. Food assistance programs also include the Special Supplemental Food Program for Women, Infants and Children (WIC), which provides supplemental food and nutrition education to low-income pregnant, postpartum, or breastfeeding women and their infants and young children who are at nutritional risk. The program seeks to protect children's health during critical developmental stages, to prevent health problems, and to improve health status. Food assistance programs also include congregate and home-delivered meals for the elderly to reduce hunger and promote socialization and well-being for older individuals, and emergency food assistance in the form of commodities for individuals defined by their states as needy. The federal government supports the housing needs of low-income people primarily by subsidizing the cost of rental units in the private market. Section 8 housing vouchers and project-based rental assistance together accounted for 43% of all housing and development spending in FY2009. (The voucher component of Section 8 is one of the 10 largest low-income programs.) The overarching goal of Section 8 is to provide low-income people with decent, safe, and sanitary housing. Public Housing, which represented 18% of spending in this category in FY2009, achieves a similar goal by making publicly owned rental units available to low-income tenants at affordable prices. Federal spending for Public Housing supports the capital needs and operating costs of publicly owned housing developments, as well as the HOPE VI program, which demolishes, rehabilitates, and replaces distressed public housing units. Additional housing programs are intended to expand the supply of supportive housing for low-income elderly and disabled households, as well as individuals living with AIDS. Homeless Assistance Grants attempt to meet the needs of homeless individuals and families, including individuals with disabilities, for basic shelter, short-term and long-term housing, and related support services. Two block grants—HOME and the Community Development Block Grant (CDBG)—target federal assistance toward communities with high rates of poverty and aging housing stock (among other factors) to help meet the housing needs of low-income homeowners, homebuyers, and renters (HOME) and to expand the community's supply of decent housing and economic development activities (CDBG). An additional block grant provides housing assistance and helps develop private housing finance mechanisms on Indian lands. To address housing needs in rural areas, loans are available to help low-income households purchase, build, or renovate homes, and rental subsidies are available for low-income tenants. Low-interest loans and grants also are available to support new and improved water and waste disposal facilities in low-income rural communities. Finally, the housing and development category includes the Public Works and Economic Development program, which provides grants to distressed communities to help them revitalize, expand, and upgrade their physical infrastructure to attract new industries, expand businesses, diversify their economies, and generate job and investment growth. Certain temporary programs are included in the housing and development category. The Neighborhood Stabilization Program-1 was established by the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) to assist in rehabilitating abandoned and foreclosed homes for occupancy by low-income tenants. Obligations under this program occurred in FY2009. Likewise, FY2009 spending includes obligations under two temporary programs created by ARRA as adjuncts to the Low-Income Housing Tax Credit (LIHTC) program. These temporary programs offered grants to states in lieu of tax credits and provided capital investments for owners of certain LIHTC-financed properties. They were enacted in response to the financial crisis, which, along with the departure of several large tax credit investors, made it difficult for developers to sell their tax credits to raise capital. Finally, ARRA added funds to HUD's Homeless Assistance Grants, specifically for a new Homelessness Prevention and Rapid Re-Housing Program. The Federal Pell Grant Program is the single largest education program for people with limited incomes, accounting for 43% of targeted federal education spending in FY2009. The program is among the 10 largest in this report. Pell Grants are one of several ways the federal government helps subsidize the costs of higher education for needy students. Other grant programs with similar goals include Federal Supplemental Education Opportunity Grants, Federal Work-Study, and the Academic Competitiveness and Smart Grant programs. In addition to direct assistance to students, the federal government provides institutional aid to help expand the capacity of colleges and universities that serve high proportions of low-income and minority students. Federal TRIO Programs offer grants to institutions of higher education and other organizations to motivate and support disadvantaged students as they move from high school through college. The GEAR-UP program provides services to low-income children in elementary and secondary schools who are at risk of dropping out and aims to increase the number of such students who enter and succeed in higher education. The second largest education program included in the report (also one of the 10 largest low-income programs) is Title I-A of the Elementary and Secondary Education Act, which accounted for more than one-third of targeted federal education spending in FY2009. Title I-A provides grants to local educational agencies with high concentrations of disadvantaged children and aims to ensure that all children have an opportunity to obtain a high-quality education and reach at least minimum proficiency on challenging academic achievement standards. A separate program has similar goals for children of migrant workers, and the Rural Education Achievement Program helps rural school districts meet academic achievement standards. The Bureau of Indian Education operates several programs to meet the educational needs of Indian children living on or near reservations. Other elementary and secondary education grant programs aim to increase student achievement through improvements in teacher and principal quality and to improve teacher knowledge and student performance in mathematics and science. Literacy is the focus of the Adult Basic Education program, which helps adults to become literate and obtain the skills necessary for employment and self-sufficiency, and to become partners in their own children's educational development. Reading First and Early Reading First also promoted literacy, focusing specifically on young children, from preschool through grade 3. Finally, 21 st Century Community Learning Centers are intended to provide a wide range of remedial education and academic enrichment opportunities during non-school hours for children in high-poverty and low-performing schools. The social services category is diverse and includes a wide variety of activities to support low-income or otherwise vulnerable populations. Of spending categorized as social services in this report, the vast majority—93% in FY2009—is focused directly on children and youth or their families. Services funded by TANF are the largest single activity in this category, accounting for almost a quarter of social services spending in this report. As noted in the earlier discussion of cash aid, TANF is often thought of as traditional welfare for poor families. However, states have flexibility in spending their TANF grants, and the majority of funds are used for noncash aid, including a wide variety of social services for families with children. TANF spending in the social services category also includes obligations under competitive grants for promotion of healthy marriage and responsible fatherhood. Head Start is the second largest program in this category, accounting for more than 20% of social services spending for low-income populations. Head Start aims to promote school readiness for young children through a full array of educational, health, nutritional, social and other services to children and their families. The Child Care and Development Fund (CCDF), with 16% of social services spending in FY2009, subsidizes the cost of child care for low-income parents while they work or attend school. Additional programs targeted toward children and families include Child Support Enforcement, which provides services on behalf of custodial parents who are seeking support for their children from the children's noncustodial parent. Foster Care grants are used by states to provide temporary homes for children who cannot remain safely with their families; Adoption Assistance helps facilitate the adoption of children with special needs as defined by their state; and the Chafee Foster Care Independence Program helps current and former foster children transition to a self-sufficient adulthood. Of social services programs not specifically targeted toward children and families, the Social Services Block Grant (SSBG) is the largest and most flexible. The program supports a continuum of services to promote self-sufficiency but decisions about target populations and services are left to the states. Other social services programs focus on specific target populations. For example, social services for the elderly are provided under the Older Americans Act; support and advocacy grants help people with developmental disabilities; and various human services are provided for American Indians. Programs that focus services at the community level include the Community Services Block Grant (CSBG), which aims to reduce poverty and empower low-income individuals and families to become self-sufficient, and Emergency Food and Shelter Grants, which provide services for homeless and hungry individuals in high-need communities. Finally, the Legal Services Corporation attempts to ensure equal access to the justice system for people who are otherwise unable to afford legal counsel. Two programs make up the energy assistance category. The Low-Income Home Energy Assistance Program (LIHEAP) helps low-income households pay their heating and cooling expenses, and the Weatherization Assistance Program helps increase the energy efficiency of homes occupied by low-income people to reduce energy costs and improve health and safety. Two programs serving disadvantaged youth comprised almost half of FY2009 employment and training spending included in this report. Specifically, youth activities under the Workforce Investment Act (WIA) provide a variety of services to improve the educational and skill competencies of eligible youth and to develop connections with employers and mentoring opportunities with adults. Job Corps focuses on those disadvantaged youth who can benefit from an intensive residential program to become employable and productive. The employment and training category also includes work-related services for needy families with children under TANF, a small employment and training program for recipients of SNAP benefits, and a program that provides employability and related services to help refugees and other humanitarian entrants find jobs quickly. Remaining programs include WIA's adult activities program; Community Service Employment for Older Americans, which helps older individuals (age 55 or older) become self-sufficient through community service jobs and training; and Foster Grandparents, which provides stipends for low-income older individuals to provide services to children with special needs. As described above, federal programs for low-income people can be grouped into several major categories of benefits and services. Key target groups for these benefits and services include the elderly, individuals with disabilities, and children and families, among others. Within these broad target populations, there is not necessarily a coherent policy regarding who should receive assistance, although some themes emerge within categories. Programs use different concepts to define who is eligible. Many programs use explicit income eligibility criteria that individuals, families, or households must meet, but the specific levels and measures of income vary. Some measures are uniform throughout the country; others vary by geography. Some are adjusted annually for inflation; others are not. In some cases, income criteria are used to set priorities for who is served but are not necessarily applied to every participant. Some programs use asset tests in addition to income tests. Many programs have categorical requirements, such as age or disability, in addition to income criteria; and some use alternative criteria that allow specified groups or categories of people to qualify automatically without having to meet an individual income test. Automatic "exclusions" exist under some programs, so that people who would otherwise qualify based on their income are excluded if they fall into specified categories. Finally, some programs establish federal parameters for eligibility but allow states or other entities to set their own income eligibility criteria within these parameters. This section of the report discusses the various ways in which individual eligibility is determined. The section looks at use of the federal poverty guidelines, as well as other measures of economic need used to define eligibility such as specific dollar amounts, percentages of area or state median income, and the "need analysis" system used for postsecondary student aid. The section briefly discusses asset limits, and then turns to nonfinancial or categorical rules. Table 4 summarizes the various concepts used in determining individual eligibility and Table B -2 in Appendix B shows the concepts used by specific programs. It is important to note that being eligible for a program does not necessarily mean that an individual will receive benefits from that program. While some of the programs included here, especially some of the larger ones, are entitlements to individuals, which means that all eligible applicants must receive benefits, most programs are either discretionary (subject to annual appropriations) or capped entitlements, and eligible individuals are served only to the extent that funds are available. Finally, not all programs require participants to be determined individually eligible. Some target federal resources toward communities or entities where low-income populations are likely to be concentrated and do not examine the income, assets, or other characteristics of a particular individual or family. Such targeting mechanisms are discussed in the next major section of this report. As already stated, programs in this report do not strictly serve the poor. Rather, target populations are more accurately characterized as people with "low" or "limited" income. Even among programs that use the federal poverty guidelines as a criterion for determining eligibility, very few limit participation to individuals or households with income at or below "poverty" as defined by the federal government. Most programs that use the federal poverty guidelines (FPG) as an element in defining eligibility use a multiple of poverty, with some programs defining eligibility as high as 200% or 300% of FPG. The poverty guidelines trace their origin to a 1963 Social Security Administration study that based poverty income cutoffs on the amount families needed to spend to meet their basic food needs (the "Economy Food Plan") and the relationship between expenditures on food and expenditures on other items. With food accounting for roughly one-third of low-income budgets in a 1950s survey of consumption, the poverty cutoffs were set at three times the Economy Food Plan for a given family size and type. These poverty cutoffs were subsequently adopted by the Census Bureau for counting the poor, and are also the basis for the HHS poverty guidelines used for administering programs. They are uniform nationwide (except for Alaska and Hawaii) and are updated annually for inflation (see Table 4 ). Most health care programs that serve people with limited income use FPG as a criterion in determining eligibility, typically in conjunction with categorical requirements. Mandatory coverage groups under Medicaid, for example, which has numerous pathways to eligibility, include different categories of children and families with income ranging from 100% to 185% of FPG. Optional coverage groups (which states may serve at their discretion) include additional categories, including certain elderly and disabled individuals, with income as high as 250% of FPG. The CHIP program serves children with family income above Medicaid eligibility levels, at income thresholds established by states with federal approval. (As of January 2009, the highest reported income standard was 350% of FPG, in New Jersey. ) Medicare beneficiaries are eligible for the low-income prescription drug subsidy under Part D if their income is no higher than 150% of FPG, although the deepest subsidy goes to those below 135% of poverty. Remaining health programs that use FPG either give priority to people below 100% of poverty (Family Planning and the Maternal and Child Health block grant), or provide services free of charge to those below 100% but allow higher-income participants on a sliding fee scale basis (up to 200% of FPG under Consolidated Health Centers and 250% for Breast and Cervical Cancer Early Detection). Cash aid, housing and development, and education programs generally do not use the poverty guidelines in determining eligibility. An exception is the TRIO programs for certain low-income postsecondary students, which cap income eligibility at 150% of FPG. TANF eligibility thresholds are established by states and are well below the federal poverty guidelines in most states. Food assistance programs typically use multiples of the federal poverty guidelines in determining eligibility, but they also provide automatic eligibility to categorical groups. The SNAP program generally serves those with gross income up to 130% of poverty. Child nutrition programs serve meals free to children with family income up to 130% of poverty, and at a reduced price to children with family income up to 185%. The WIC program caps eligibility at 185% of poverty. The nutrition program authorized by the Older Americans Act gives priority to certain groups, including seniors with the greatest economic need, defined as 100% of poverty. In the social services category, CSBG and Head Start use 100% of the federal poverty guidelines as their income eligibility limit, but they both provide flexibility to states (in the case of CSBG) or grantees (for Head Start) in adjusting this limit upwards. Likewise, the Legal Services Corporation sets eligibility at 125% of FPG, but allows it to be increased up to 200% in certain circumstances. The SSBG has no federal income eligibility limit except for services funded by TANF grants that are transferred to the SSBG, which may only be used for families with income below 200% of FPG. Like the elderly nutrition program mentioned above, the Older Americans Act grant programs for supportive services and senior centers and for family caregivers give priority to seniors with income below 100% of poverty. LIHEAP uses 150% of poverty as its income eligibility limit, or 60% of state median income, if higher. Weatherization formerly used 150% of FPG to define income eligibility, but effective in FY2009, this was increased to 200%. Both weatherization and LIHEAP allow automatic eligibility for those eligible for certain other programs. Employment and training programs for people with limited income use the federal poverty guidelines as one of several eligibility criteria, which include other measures of low income as well as categorical groups. Job Corps limits eligibility to those with income no higher than 100% of FPG; however, certain groups qualify automatically. Youth activities under WIA set eligibility at 100% of FPG, or 70% of the lower living standard income level (described below), if higher. The same criteria are used to give priority for certain adult activities under WIA. Both adult and youth activities under WIA also allow automatic eligibility for specified groups. Community Service Employment for Older Americans and Foster Grandparents (as in effect in FY2009) both limit eligibility to those with income no higher than 125% of poverty. Three alternative measures of income are most commonly used to define eligibility for programs that have individual income eligibility criteria but do not use the federal poverty guidelines. These measures are used primarily, but not exclusively, in three categories of federal benefits and services. Specifically, most cash assistance programs set an actual dollar amount that determines who is eligible; housing and development programs typically use a percentage of area median income; and student financial assistance programs use a relative concept of need that considers both available family resources and the actual cost of education. A fourth alternative measure is the lower living standard income level, which is used in conjunction with the poverty guidelines in certain employment and training programs. In the cash assistance category, specific dollar amounts are used to determine eligibility (and benefit levels) for pensions for needy veterans; the same concept is used in the health care category to determine eligibility for free medical care for needy veterans. Specific dollar amounts also are used to determine eligibility and benefit levels under SSI, and to determine when EITC benefits begin to phase out. Veterans' benefits, SSI, and EITC are generally adjusted each year for price inflation. Veterans' benefits and SSI adjustments are tied to Social Security cost-of-living adjustments (COLAs); and EITC is adjusted for price changes through indexing to the Consumer Price Index. As noted previously, under TANF, states set their own dollar limits to define who is eligible to participate. (See Appendix D for references to further information about the current VA income thresholds, SSI eligibility limits, and EITC phase-out limits.) Housing and development programs typically use the concept of area median income, with various percentages of local area median income used to define "low-income," "very low-income" and "extremely low-income." These income limits are then used to determine program eligibility. For example, Section 8 Housing Choice Vouchers serve "very low-income" families, defined as those with income no higher than 50% of the area median. However, 75% of the Section 8 vouchers that become available each year must go to "extremely low-income" people, defined as those with income no higher than 30% of area median. Under limited circumstances, vouchers may go to "low-income" households, with income up to 80% of area median. Similarly, Public Housing serves low-income families (80% of area median) but at least 40% of units that become available each year must go to extremely low-income families (30% of area median). Supportive housing programs for the elderly and disabled limit eligibility to households with income no higher than 50% of area median, while Housing Opportunities for Persons with AIDS (HOPWA) and Indian Housing Block Grants serve people with income up to 80% of area median. The single-family rural housing loan program makes guaranteed loans available to households with income as high as 115% of area median, while direct loans are limited to those with income no higher than 80% of area median. (See Appendix D for references to further information about area median family incomes published by the Department of Housing and Urban Development.) Few non-housing programs use the median income concept. Exceptions are the Child Care and Development Fund (CCDF) and LIHEAP, which both use state median income as a component of their eligibility criteria. CCDF allows states to define their own income eligibility limits within the federal maximum of 85% of state median income, and LIHEAP, as noted earlier, uses 60% of state median income as an alternative measure of low income, if higher than 150% of the federal poverty guidelines. There is no absolute income threshold for certain postsecondary student aid programs. As noted above, these programs use a relative concept to determine the amount of aid a student is eligible to receive. Applicants provide information about family income and assets through completion of the Free Application for Federal Student Assistance (FAFSA). This information is then used to determine the Expected Family Contribution (EFC), or the amount the student's family is expected to contribute toward the student's education. Different EFC formulas are applied to three different groups of students: those considered dependent on their parents; independent students with no dependents other than a spouse; and independent students with dependents other than a spouse. The federal need analysis methodology is used for Pell Grants and several smaller higher education programs such as Supplemental Educational Opportunity Grants, Federal Work-Study, and Academic Competiveness and Smart Grants. Aid is capped under the Pell Grant program, so that higher income students are likely to receive smaller awards and the majority of students who receive Pell grants are low-income. (See Appendix D for references to additional information on the need analysis system.) Employment and training programs for adults and youth under WIA, as discussed earlier, use the lower living standard income level (LLSIL) as one component in eligibility determinations. The LLSIL has its origins in a series of family budgets developed by the Department of Labor's Bureau of Labor Statistics (BLS). In 1967, BLS published estimates for family budgets at three standards of living—lower, intermediate, and higher—based on a list of goods and services needed to achieve those standards of living and their prices. These budgets were last fully priced in 1969. They were subsequently updated by summary components of the Consumer Price Index (CPI) through 1981, when the BLS family budget series was discontinued. Since 1981, the LLSIL has been updated annually based on overall changes in the CPI-U. (See Appendix D for references to further information about the current LLSILs.) Under WIA, individuals are determined eligible (or, in the case of certain adult activities, receive priority) if their income is at or below 100% of the federal poverty guidelines, or 70% of the LLSIL, whichever is higher. Unlike the federal poverty guidelines, the LLSIL vary by region and by metropolitan and non-metropolitan areas. As illustrated in the discussion above, measures of income used to determine eligibility vary widely among federal programs. It is important to note that definitions of countable income also vary. Some programs have explicit rules for counting income while many do not. A full discussion of the treatment of income is beyond the scope of this report; however, readers should know there may be differences between programs, so that income counted in determining eligibility for one program might not be counted in another, even though the programs might appear to use similar eligibility criteria. Wages are typically counted as income, although some programs disregard a portion of earned income as an incentive for aid recipients to work. Programs differ as to whether they count Social Security and retirement income, public or private disability insurance, other work-related benefits such as Unemployment Compensation and Workers' Compensation, and investment income such as interest and dividends. Benefits provided under means-tested programs often—but not always—are excluded from the definition of income when determining eligibility for another means-tested program. Programs vary as to whether they count the income of the individual applicant, or also the income of a spouse, children, or other household members; in other words, the definition of "filing unit" varies among programs. Income can be looked at before tax, or after tax; on a monthly or an annual basis. Finally, some programs specify allowable deductions from countable income. Moreover, income (and assets, as discussed below) used to determine eligibility for a particular program might be evaluated differently when determining benefit levels under that program. Individuals with the same amount of countable income or assets might qualify for different levels of benefits, because of the program's specific calculation rules. This section of the report has focused primarily on eligibility rules; benefit determinations are discussed briefly in a later section. In addition to income eligibility rules, some programs use explicit asset or resource tests to limit eligibility. In other words, applicants may not have assets (e.g., cars, bank accounts; see Table 4 ) valued above a certain level to be eligible for a particular program. As with income eligibility rules, the amount of assets or resources that are subject to limits varies widely among programs. Likewise, programs define countable assets differently, although typically they are limited to liquid assets. Many exclude the value of a primary residence and personal belongings, and some overlook all or part of the value of a car. Within the health care category, asset tests apply for the VA medical care program and the low-income subsidy under Part D of Medicare. Under CHIP, states have the option of applying an asset test, although few states currently do, and Medicaid is required to use an asset test only for certain categories of beneficiaries that are age 65 or older, have disabilities, and/or have high medical expenses. In the cash assistance category, asset rules apply to pensions for needy veterans and to the SSI program. States also may choose to apply asset tests in their TANF programs, and the majority of states currently do. SNAP is the only food assistance program with an explicit resource test, although it is not applied to households that are automatically eligible because they have already received benefits or services under another means-tested program. While housing programs do not have asset tests, several impute a certain amount of income from assets. These include single-family rural housing loans, supportive housing for the elderly and persons with disabilities, and Section 8 vouchers and project-based rental assistance. Higher education programs that use the "need analysis" system consider assets along with income and the cost of school attendance to determine how much financial aid a student may receive. Programs that were historically linked to the former AFDC program, including Foster Care and Adoption Assistance, still have remnants of the AFDC assets test. And, Legal Services Corporation grantees are required to establish "reasonable" asset limits for eligible individuals and households. For many programs, categorical requirements apply in addition to financial eligibility rules, so that an applicant must be both income-eligible and a member of the program's target population. While some programs are intended to help people in general below a certain income level, most are targeted on specific segments of the low-income population. As noted previously, key target populations for low-income programs, including many of the largest included here, are the elderly and individuals with disabilities, and dependent children and their families. Other target groups for selected programs include veterans, students, people who are homeless, Indians, and refugees, among others. Some programs also impose behavioral requirements as a condition of eligibility. For example, recipients of TANF cash assistance must comply with work and training requirements and cooperate with child support enforcement efforts; student aid recipients must generally maintain good academic standing; and certain Public Housing residents must participate in a self-sufficiency program or engage in community service. Able-bodied adults without dependent children must comply with work and training requirements to receive SNAP benefits for more than a limited time, and the EITC and ACTC go only to workers with earnings and their families. To receive CCDF-funded child care, parents must be working or in training, in addition to meeting income eligibility criteria. Certain behaviors or characteristics automatically exclude individuals from participating in some programs. For example, postsecondary students, households with members on strike (unless they were eligible before the strike), or people living in institutions are automatically disqualified from SNAP, even if they otherwise meet eligibility rules. Federal law bars individuals who are fleeing arrest or have been convicted of a drug-related felony from participation in SNAP and TANF, and individuals fleeing prosecution or confinement for a felony also are disqualified from SSI. TANF further allows states to test cash aid applicants and recipients for substance abuse and to sanction those who fail. Federal housing law prohibits individuals who have been convicted of producing methamphetamine on federally-assisted housing property or who are subject to lifetime registration on a state sex offender registry from admission to Public Housing or receipt of Section 8 vouchers. Public housing authorities have the discretion to adopt additional criteria, barring admission to households on the basis of such factors as other criminal convictions, poor credit histories, poor rental histories, or other criteria set by the PHA. Treatment of noncitizens under federal programs serving low-income populations is a complex topic that is beyond the scope of this report. Federal policy in this area is found in the various programs' authorizing statutes, but also in overarching provisions enacted in the 1996 welfare reform ( P.L. 104-193 ) and immigration reform ( P.L. 104-208 ) laws, as subsequently amended, as well as policy interpretations by executive branch agencies. Eligibility of noncitizens varies across and within programs and often depends on the noncitizens' immigration status, when they arrived in the U.S., how long they have lived here legally, their work history and military connection, and policies in the state where they live. Aliens living in the U.S. without legal authorization are generally barred from access to most federal benefits. As distinct from categorical or behavioral requirements that apply in addition to income eligibility rules, a concept of "automatic eligibility" is sometimes used as an alternative to individual income eligibility. If someone meets the eligibility criteria for one program, that person is automatically deemed eligible for another program, simplifying the process for both the applicant and the administering agency. In some programs, people are automatically determined eligible because they fit a particular demographic group or have a particular characteristic. Among health care programs, Medicaid, the low-income subsidy under Medicare Part D, and services for refugees allow some degree of automatic eligibility. For example, SSI recipients are one of several groups that automatically qualify for Medicaid; SSI and Medicaid recipients are automatically eligible for the Part D subsidy; and unaccompanied minor children are automatically eligible for transitional medical services for refugees. Cash assistance programs typically do not allow automatic eligibility for specified groups, while almost all food assistance programs do. TANF and SSI recipients automatically qualify for SNAP; TANF and SNAP recipients are automatically eligible for child nutrition programs; and TANF, SNAP and Medicaid recipients are automatically eligible for WIC, if they also are at nutritional risk. Head Start children, residents of emergency shelters, and runaway and homeless youth are examples of other groups that automatically qualify for some nutrition programs. Most housing and development programs that have individual income eligibility criteria do not allow automatic eligibility for particular groups as an alternative. Homeless Assistance Grants, however, base eligibility on a person's residential status rather than their income, and Indian Housing Block Grants allow certain non-low-income households to receive assistance if they meet other criteria related to their need for housing. In the education category, the Pell Grant program allows certain postsecondary students—dependent students and independent students with dependents other than a spouse—to qualify for an automatic zero EFC (expected family contribution). This means they would receive the maximum Pell Grant award if they enroll full-time at a school where the cost of attendance equals or exceeds the maximum award. In general, to qualify for the automatic zero EFC, these students must have received means-tested benefits from other federal programs or had been eligible to file certain federal income tax returns, or had been a dislocated worker. However, parents or students also must have family income levels at or below certain annual thresholds ($30,000 in award year 2010-2011), to qualify. Children of deceased Iraq/Afghanistan service members also may qualify for an automatic zero EFC. One of the benefits of qualifying for an automatic zero EFC is that it greatly reduces the response burden associated with completing financial aid forms. With the exception of postsecondary student aid, education programs typically do not require individuals to be determined income-eligible for assistance; rather, they target assistance toward areas or entities where low-income students are likely to be served (such targeting mechanisms are discussed later in the report). However, certain education programs use alternative criteria to identify eligible participants. For example, Adult Basic Education serves adults who lack basic skills or credentials; the Title I Migrant Education Program serves the children of migrant workers; and Education for Homeless Children and Youth bases eligibility on children's living situations. GEAR-UP serves students determined to be at risk of dropping out, and Reading First and Early Reading First based eligibility on a child's reading proficiency. Indian education programs generally serve children who are members of federally recognized tribes. Among social services programs, Child Support Enforcement automatically serves families receiving TANF, foster care payments, or who are eligible for Medicaid. Children receiving public assistance, foster children, and homeless children automatically qualify for Head Start, along with a limited number of non-low-income children if they meet other criteria related to their likelihood to benefit from the program. Individuals with developmental disabilities are eligible for services under Developmental Disabilities Basic Support and Advocacy Grants, regardless of their individual income status. Likewise, older foster children and former foster children may participate in the Chafee Foster Care Independence Program, without meeting individual income eligibility criteria. Both energy programs included in the report allow automatic eligibility for TANF and SSI recipients. Weatherization also allows states to make LIHEAP recipients automatically eligible, and LIHEAP provides automatic eligibility for beneficiaries of SNAP and certain veterans benefits. Finally, in the employment and training category, public assistance recipients, homeless youth, and certain foster youth automatically qualify for WIA youth activities and Job Corps. And, the WIA adult program gives priority for certain services to adults considered low-income, which may include those who receive public assistance or are homeless. The previous section looked at the ways in which programs define individual eligibility for federal benefits and services for low-income people. In most programs, the process of determining individual eligibility and delivering benefits and services is done through entities such as states, local governments, or private organizations. Federal funds are often provided to these entities via mechanisms that target areas with the greatest need or concentration of eligible individuals. These targeting provisions also may compensate for variation in fiscal capacity at the state and local level. This section looks at three primary concepts used to target federal resources: allocation formulas that distribute funding to states or other areas based, at least in part, on factors related to need; cost-sharing rules that vary the federal share of total program costs by a measure of need; and provisions that limit federal funds only to certain institutions or jurisdictions that serve low-income people. As with individual eligibility rules, specific targeting provisions vary widely, even within the same general concept. Moreover, some programs use a combination of these concepts; in other words, federal funds might be allocated to states according to factors related to the target population, but the federal share of the program's costs might also be determined by a measure of need. Table 5 provides a summary of these targeting concepts, and Table B -2 in Appendix B shows use of the concepts by program. There is considerable overlap between programs that impose individual eligibility criteria (those discussed in the previous section) and those that also target federal resources by a measure of need. In other words, programs may use targeting mechanisms to distribute federal funds, but individuals still must be determined income-eligible for the program. Some programs, however, rely on broad targeting mechanisms only, and do not require participants or beneficiaries to meet an individual eligibility test. Federal grant programs, especially those targeted toward a particular population, frequently use formulas to allocate funding among states or, sometimes, local governments or other entities. Many programs in this report are formula grants (as compared with competitive or discretionary awards, or direct benefits to individuals), and use population-based allocation factors as a way to direct resources toward areas with large concentrations of the program's target group. Programs that allocate funding in this way usually have a cap on total federal spending, so that allocation factors determine each jurisdiction's relative share of the total amount available. While programs for low-income people often allocate funds in part on a measure of economic need (e.g., population with income at or below the poverty guidelines), not all formula factors are need-based. Some programs base allocations in whole or in part on historic spending patterns, which may reflect a wide variety of factors; if current population-based formulas were applied to these programs, the distribution of resources might change significantly. Moreover, "hold-harmless" provisions, small-state minimums, and "ceilings" and "floors" are often used to mitigate large changes in a particular jurisdiction's formula-based allotment from one year to the next. The specific data sources to be used also are significant and sometimes are specified in statute. The following provides an overview of the types of allocation factors used in low-income programs, but does not constitute a complete explanation of any particular formula, nor does it discuss the effectiveness or efficiency of these allocation factors in actually directing resources toward areas with the greatest need. In the health care category, the CHIP program for low-income children without health insurance currently (effective FY2009) allocates funds among states according to past and projected spending. Previously, however, CHIP allocated funds among states, in part, using two relevant population factors: the number of low-income children in the state and the number of such children without health insurance. The Ryan White program for low-income people with HIV or AIDS allocates funds to metropolitan areas and states based on relative population size and incidence of AIDS cases, but does not use an income factor. The Maternal and Child Health block grant allocates funds according to states' relative shares of funding under predecessor programs, and according to their population of low-income children. TANF block grants are allocated among states according to their historic spending under the predecessor AFDC program, so that states with higher expenditures under AFDC get relatively larger grants under TANF. Among food assistance programs, WIC uses a formula that reflects actual food and caseload costs, and the Commodity Supplemental Food Program allocates resources according to caseload, based on past participation. The Emergency Food Assistance Program (TEFAP) allocates resources based on the number of poor people in each state, in combination with the number of unemployed persons. Nutrition for the elderly under the Older Americans Act allocates funds among states based on the population age 60 and older, with no income factor. Most housing and development programs use a need-based formula to allocate funds, but the formulas vary widely. Rural programs use such factors as state shares of rural population, rural poverty, overcrowded housing or housing units without plumbing, and unemployment. Housing programs for the elderly and people with disabilities use measures of elderly or disabled individuals, in addition to housing factors. Community Development Block Grants go to eligible communities and states based on poverty, population, overcrowded housing, age of housing, and slow population growth; somewhat similar factors are used for Emergency Shelter Grants and Indian Housing Block Grants. The HOME program uses the number of older housing units occupied by low-income households and number of poor families. The temporary Neighborhood Stabilization Program-1 allocated funds to states and local governments on the basis of home foreclosures, subprime mortgages, and homes in default or delinquency. In the case of Section 8 Housing Choice Vouchers, Congress establishes a formula, typically in annual appropriations laws, for allocating funding among public housing authorities to renew their existing vouchers. The formula is usually based on some measure of the utilization and cost of vouchers in the local area. However, the geographic distribution of vouchers that are renewed each year is a function of historic patterns and may not necessarily reflect the current distribution of the eligible population. Likewise, operating and capital funds for Public Housing are allocated by formula, but the distribution of public housing units that receive these funds is a reflection of decisions made by local communities to participate in the program in its earlier days. Many education programs are designed as formula grants and rely in some way on counts of poor children. Title I-A of ESEA distributes funds to local educational agencies according to four separate formulas that consider such factors as number of school-aged children in poverty and average per-pupil expenditures in the state. Areas with high concentrations of poverty receive additional weighting under two of the four formulas. Aggregate state allocations under Title I-A in turn determine state shares under other ESEA programs, including Education for Homeless Children and Youth and 21 st Century Community Learning Centers. The number of school-aged children in poverty also is an allocation factor for Reading First, Math/Science Partnerships, and Improving Teacher Quality Grants. Certain education programs use allocation factors related to the target population, but not explicitly tied to income. The Migrant Education Program (under Title I of ESEA) allocates funds according to the number of eligible migrant children and state average per pupil expenditures, and Adult Basic Education bases allocations on the number of individuals age 16 or older who have not completed high school. Federal Supplemental Educational Opportunity Grants and the Federal Work-Study Program both allocate funds to participating institutions of higher education, based on the aggregate "need" of their students, as indicated through the need analysis system discussed earlier. Most social services programs allocate funds by formulas, which often include a poverty-related allocation factor. Components of the CCDF are distributed through several formulas, which use such factors as a state's relative share of children under age 5, children who receive free or reduced-price school meals (a proxy for low-income children), and children under age 13, as well as state per capita income and historic funding patterns. Head Start allocates funds among states (from which awards are made to local grantees) according to several factors, including poor children under age 5. The Legal Services Corporation allocates funds according to each state's poverty population. As with a number of the education programs discussed above, some social services programs use allocation factors tied to their target population but not explicitly to their income. The Older Americans Act allocates funds for supportive services and senior centers according to each state's relative share of population aged 60-plus, and for the family caregiver program according to population aged 70-plus. The Chafee Foster Care Independence Program bases allocations on each state's number of foster children; the Emergency Food and Shelter Program allocates funds to local jurisdictions based on their number of unemployed persons; and SSBG allocates funds according to total state population. CSBG allocates funds based on historic funding patterns; the total amount received in 1981 by local antipoverty agencies in each state, under a now-defunct provision of the Economic Opportunity Act, determines the state's allotment of CSBG funds today. Weatherization funds go to states based on a combination of factors, including low-income population, climate conditions, and residential energy expenditures by low-income households. LIHEAP uses a particularly complex formula, which, among other things, includes total residential energy consumption, temperature variation, and low-income heating and cooling consumption. Finally, among employment and training programs, Community Service Employment for Older Americans gives states an amount based on historic funding, and then allocates funds according to state shares of the nation's population age 55-plus and state per capita income. WIA funds go to states based on their shares of "substantial" unemployment (unemployment rate of at least 6.5%), "excess" unemployment (rate above 4.5%), and the "disadvantaged" population (disadvantaged adults for the WIA adult activities program, and disadvantaged youth for the youth program). Funding for employability services for refugees (referred to as "social services and targeted assistance") are allocated according to the number of refugees, asylees, and other humanitarian cases that entered a state during the previous 36 months. Under certain programs, the federal government pays a larger share of total costs depending on the income level or concentration of poverty in the state or community to be served. This increased federal share can happen through use of a federal matching rate that is tied to income or another measure of need, or through special provisions that raise the matching rate or federal share under specified circumstances. Relatively few programs use need-related cost-sharing mechanisms; however, these programs include Medicaid which, as noted previously, is the single largest program included in this report. As discussed earlier, Medicaid is a federal-state partnership, in which the federal government and states share the costs of providing health care services to eligible beneficiaries, with no predetermined cap on federal spending. The federal government's share of expenditures for most Medicaid services is called the federal medical assistance percentage (FMAP). Generally determined annually, the FMAP varies by state and is inversely related to state per capita income, so the federal government pays a larger portion of Medicaid costs in lower-income states and a smaller portion in higher-income states. For expenditures in FY2009 (and extended through June 2011 by subsequent legislation), ARRA (the economic stimulus legislation) authorized increased FMAPs for states. Most Medicaid administrative expenditures are matched at a uniform 50% rate. The CHIP program uses an enhanced FMAP (E-FMAP) to determine the federal share of program funding, which is more generous than the regular FMAPs used under Medicaid. CHIP is a capped entitlement program and, as discussed earlier, allotments to states are based on past and projected spending, among other factors. Because CHIP is a federal-state matching program, states must spend a portion of their own money, determined through use of the E-FMAP, to receive their full formula-determined allocation of federal funds. In the social services category, the Medicaid FMAP is used to calculate the federal matching rate for certain child care funds under the CCDF, and for expenditures on maintenance payments and adoption assistance payments in the Foster Care and Adoption Assistance programs. The rural Water and Waste Disposal program varies the amount of federal support provided by the income level of the community served. The lowest interest rates are provided to projects in communities where median household income is no higher than 80% of state nonurban median income or the poverty guidelines. In addition, federal resources may cover up to 75% of costs in such communities, but no more than 45% of costs in communities where income is higher. Under the Public Works and Economic Development program, the usual 50% federal share of program costs may be increased up to 80%, depending on the relative needs of the area where a project is located, and may reach 100% for grantees that have exhausted their borrowing and/or taxing capacity. In the education category, the 21 st Century Community Learning Center program allows states to require local grantees to match federal funds; however, the match is adjusted based on the relative poverty of the grantee's target population. The developmental disabilities program requires a nonfederal match of 25%, which may be reduced to as low as 10% for projects conducted in poverty areas. As discussed previously, many programs for low-income people require individual participants or beneficiaries to meet a need-related eligibility test. Some programs also (or instead) require the geographic area or participating entity to meet an income or need-related test, which is the third general concept used to target federal resources toward low-income populations. Under this approach, funding is not necessarily distributed nationwide, but only to areas or entities meeting specified criteria. The approach is not used widely, but the following provides examples. Consolidated Health Centers assist people who are "medically underserved," defined to mean they live in an area designated by the federal government as having a shortage of personal health services. In designating such an area, economic factors such as the area's poverty population may be considered. Although TANF block grants go to all states, TANF contingency funds are available only to states that meet a test of "economic need," based on either unemployment rates or food stamp (SNAP) caseloads. TANF supplemental grants go to states that meet criteria related to high population growth and/or low historic spending for welfare. A few housing and development programs limit eligibility to communities or areas based on need. For example, Water and Waste Disposal grants and loans only go to communities that are unable to finance their projects through other means. To receive funding under the Public Works and Economic Development program, projects must be located in areas with either low per capita income (at or below 80% of the national average), high unemployment (above the national average for the most recent 24 months), or a special need arising from severe unemployment or changes in economic conditions. Education programs that target resources in this way include Institutional Aid for higher education; eligible institutions must have high proportions of students receiving need-based assistance or Pell Grants, or be minority-serving institutions. Funding goes to states by formula under the 21 st Century Community Learning Center program but must be used to serve children attending high-poverty schools. Similarly, certain formula grants to states under the Rural Education Achievement Program must go to local educational agencies where at least 20% of children are poor. To be eligible for GEAR-UP grants, partnerships must include a low-income middle school. Finally, in the social services category, eligible jurisdictions in the Emergency Food and Shelter Grant program are chosen by measures of population, unemployment, and poverty. As discussed in the previous section, federal benefits and services are frequently structured as nationwide grant programs, in which federal funds are provided to specified jurisdictions according to some type of formula; government agencies or other entities within these jurisdictions deliver the benefits and services to eligible individuals. Some programs are structured as competitive or discretionary grants, leaving decisions about specific grantees and award amounts to the federal administering agency, within parameters set forth in law. Certain federal benefits are provided to eligible individuals directly. This section looks at the three primary forms of federal assistance for low-income people—formula-based grants, competitive or discretionary awards, and direct benefits—and the immediate recipients of these funds (see Table B -3 in Appendix B ). It also discusses matching and related requirements for state or local spending, and briefly examines policies affecting participation of Indian tribes and U.S. territories. Most programs for low-income people allocate funds nationwide, dividing federal resources among jurisdictions according to a formula based on specified factors (e.g., number of children with family income below the poverty guidelines). Formula-based grants also include those that use cost-sharing formulas to determine the amount of federal funds a jurisdiction will receive (such as the Medicaid FMAP, described above, which determines the amount of state expenditures that the federal government will reimburse). Formulas are most often used to determine funding levels for states (as opposed to localities), and state governments or specified state agencies are typically the recipients of the funds. However, some programs distribute funds by formula at the local level. Moreover, programs that award formula funds to states sometimes require the states to pass through a portion (or all) of the funding to local entities, either using a substate formula specified in law or at the state's discretion. And, some programs award funds directly to local agencies, but use a state-level formula to determine the aggregate amount that grantees in the state may receive. In the health care category, Medicaid makes payments to states based on their eligible expenditures and the applicable federal matching rate. CHIP, the Maternal and Child Health block grant, and Transitional Cash and Medical Services for refugees all use formulas to allocate and award funds to states. The Ryan White program for low-income people with HIV or AIDS allocates and awards funds by formula both to states and to eligible localities. Cash aid is the only major category that does not rely significantly on formula grants. TANF operates as a formula grant to states, but all other cash programs award benefits directly to eligible individuals. Most food assistance programs operate as formula grants to states (usually state educational agencies for child nutrition programs), which then distribute resources to participating schools, institutions, or other local sponsors. SNAP is something of a hybrid; although SNAP benefits go directly to eligible individuals, states administer the program and the federal government reimburses states for part of their administrative costs, using a cost-sharing formula of 50% federal and 50% state. Housing and development formula grants typically allocate and award funds at the substate level, with a few exceptions. For example, the Water and Waste Disposal program allocates funds among the Department of Agriculture's state rural development offices using state-level formula factors, but makes loans and grants directly to local governments and organizations. Both of the temporary ARRA-created programs related to the Low-Income Housing Tax Credit made formula grants at the state level, awarding funds to state housing credit agencies. Among other housing and development formula grants, however, Community Development Block Grants go to substate "entitlement communities" and to states only on behalf of non-entitlement communities. Emergency Shelter Grants (one of HUD's homeless assistance programs), HOME, HOPWA, and the temporary NSP-1 all allocate and award federal funds to a combination of metropolitan cities and urban counties and to states on behalf of non-metropolitan areas. Funding for Public Housing and Section 8 Housing Choice Vouchers is allocated and awarded to local public housing authorities, while Indian Housing Block Grants go to Indian tribes. Education programs under ESEA are a combination of formula grants to state and local educational agencies (SEAs and LEAs). Adult Basic Education and Education for Homeless Children and Youth are non-ESEA programs that operate as formula grants to states, which in turn award funds to local projects or LEAs. Federal Supplemental Education Opportunity Grants and the Federal Work-Study program allocate and award funds by formula directly to institutions of higher education. Almost all social services programs are structured as formula grants to states. An exception is the Emergency Food and Shelter Program, which allocates funding among eligible local jurisdictions and makes grants to local boards in those jurisdictions. In addition, both Head Start and the Legal Services Corporation use state-level data to allocate funds among states, but grants are awarded from those allocations directly to local programs. CSBG requires states to pass through most of their allotments to local "eligible entities" and Older Americans Act grants are suballocated to local area agencies on aging. Weatherization and LIHEAP grants are allocated and awarded to states, which in turn use a network of local agencies and organizations to operate their programs. Among employment and training programs, WIA allocates federal funds among states by formula, but the majority of these funds are awarded directly to local workforce investment boards, with a portion given to the states. The Community Service Employment Program under the Older Americans Act allocates and awards funding by formula both to states and national organizations. Federal programs are sometimes structured as competitive or discretionary grants, in which federal agencies select specific grantees and determine amounts to be awarded. Authorizing laws provide criteria or parameters for federal agencies to follow in making such decisions, but these criteria can range from very specific to relatively broad. Grantees may be selected through an annual competition or for multi-year periods with a presumption of renewal. Competitive awards are less common than formula grants among federal benefits and services for limited-income populations. No cash, food, or energy assistance programs are structured this way; however, a number of such programs exist in other categories. In health care, Family Planning and Consolidated Health Centers are both competitive grants to eligible public and nonprofit agencies. Under the Breast/Cervical Cancer Early Detection program, states compete for grants and in turn, enter into grants or contracts with public and private nonprofits. The Ryan White program, in addition to its formula grants described earlier, makes competitive awards to specified health care providers. Under the Public Works and Economic Development program, a variety of entities are eligible to compete for grants, including designated economic development districts, states, local governments, institutions of higher education, and public and private nonprofit organizations. With the exception of the formula-driven Emergency Shelter Grants program described above, Homeless Assistance Grants award funds on a competitive basis; states, local governments, public housing authorities, private nonprofits, and (for certain grants) community mental health centers may apply. HOPWA includes a competitive grant component in addition to its formula grants, with states, local governments and nonprofit organizations eligible to apply. The HOPE VI component of Public Housing also operates as a competitive grant, open to public housing authorities. The federal government directly administers a few discretionary education programs, including Institutional Aid for colleges and universities; the TRIO programs, which are open to institutions of higher education and other public and private organizations; and GEAR-UP, which is open to states and partnerships that include an institution of higher education and a low-income middle school. While TANF is primarily a formula grant program, it includes certain grants designated for social services to promote healthy marriage and responsible fatherhood. These grants are awarded by the federal government directly to public and private nonprofit agencies through a competitive process. As described earlier, both Head Start and the Legal Services Corporation are social services programs that allocate funds among states by formula, but award funds directly to local grantees. These grantees are selected on a competitive basis, but grantees retain their designations for several years at a time. Among employment and training programs, public and nonprofit organizations may apply for sponsorship of the Foster Grandparents program, and the federal government enters into contracts for operation of Job Corps centers with selected federal, state and local agencies, area vocational schools, residential vocational schools, and other public and private organizations. A relatively small number of programs make benefits available directly to eligible individuals, or through a nongovernmental intermediary organization or entity. These programs, however, include six of the 10 largest programs in this report. Among health programs, both the Department of Veterans Affairs (VA) and the Indian Health Service (IHS) provide free medical care directly to eligible needy veterans and American Indians and Alaskan Natives, respectively, at VA and IHS facilities. The Part D Medicare program subsidizes the costs of prescription drug insurance directly through contracts with participating drug plans. Other than TANF, all cash aid is provided directly to beneficiaries. The Social Security Administration makes payments to eligible elderly and disabled individuals under SSI (although medical determinations of disability are made by state agencies). The Internal Revenue Service administers the EITC and ACTC, issuing refund checks directly to eligible workers. The VA makes direct payments to recipients of pensions for needy veterans. As noted earlier, SNAP is a hybrid of direct benefits and formula grants to states. States play a key role in SNAP—determining eligibility and benefit levels and administering a related employment and training program—but assistance to purchase food is provided directly to beneficiaries, typically through electronic benefit transfer. A few housing and development programs provide benefits directly. For example, the Department of Agriculture either makes or guarantees single-family rural housing loans, and makes direct payments to property owners who participate in the Rural Rental Assistance Payments program. Likewise, HUD makes payments directly to property owners under the Section 8 Project-Based Rental Assistance Program; these subsidies enable owners to rent units to low-income families at affordable rates. Among education programs, Pell Grants and Academic Competitiveness and Smart Grants are paid to participating institutions on behalf of eligible students; the schools receive an administrative allowance for the cost of determining students' eligibility and benefit levels. This report does not attempt to quantify nonfederal spending related to federal programs for limited-income populations. However, a significant amount of such spending occurs. For example, as already explained, Medicaid is a federal-state matching program in which states spend considerable amounts of their own money. Specifically, in calendar year (CY) 2009, national health expenditures under Medicaid totaled $385 billion, of which $254 billion were federal and $131 billion were state or local. In CY2008, national expenditures under Medicaid totaled $354 billion, of which $209 billion were federal and $145 billion were state or local. The decrease in state and local expenditures from CY2008 to CY2009 is likely a function of the increased federal medical assistance percentage (FMAP) in effect for FY2009, as authorized by ARRA ( P.L. 111-5 ). Many low-income programs have provisions that require states or other grantees to match federal funds with a specified amount of nonfederal resources ("matching" requirements), or require grantees to maintain the same level of their own spending that occurred in a previous year ("maintenance-of-effort" provisions), or prohibit grantees from substituting federal funds for nonfederal funds that would have been available otherwise ("supplement and not supplant" requirements). Matching grants are generally designed in one of two ways. Under certain programs (e.g., Medicaid), the federal government reimburses grantees for a portion of their eligible expenditures, generally based on a cost-sharing formula. Additional examples are CHIP, Child Support Enforcement, Foster Care, and Adoption Assistance. More typically, matching programs require grantees to demonstrate that they can provide nonfederal resources equal to a percentage of the federal grant, but the federal government is not necessarily reimbursing grantees for expenditures already incurred. Some federal programs require the nonfederal share to be in cash, but many also allow in-kind contributions (e.g., the value of donated real estate or other property, the services of volunteers). Programs with nonfederal matching requirements include the Ryan White program for people with HIV/AIDS, Breast/Cervical Cancer Early Detection, and the Maternal and Child Health block grant; Older Americans Act nutrition and social services programs; the Public Works and Economic Development program, certain Homeless Assistance Grants, and HOME; Adult Basic Education, Supplemental Education Opportunity Grants, and GEAR-UP; Head Start, State Councils on Developmental Disabilities, the Chafee Foster Care Independence Program; Community Service Employment for Older Americans, and Foster Grandparents. As noted above, some programs use maintenance-of-effort (MOE) requirements to ensure a minimum level of nonfederal spending. A key example is TANF, which requires states to spend annually at least 75% of the amount they had spent under the predecessor AFDC program in FY1994 (or 80% if they fail to meet certain work participation requirements). Other programs with MOE provisions include School Lunch, The Emergency Food Assistance Program (TEFAP), Title I-A of ESEA, and CCDF. Education programs in particular use the "supplement and not supplant" concept, which provides that grantees may not use federal funds to replace nonfederal (or in some cases, other federal) funds that would otherwise have been used for the same purpose. Programs with such provisions include Title I-A of ESEA, the Rural Education Achievement Program, Math and Science Partnerships, Improving Teacher Quality State Grants, and Institutional Aid for higher education. Several programs specifically for Indian populations are included in this report, namely the Indian Health Service, Indian Housing Block Grants, Indian Education, and Indian Human Services. However, tribes and tribal organizations are eligible to participate in additional programs, either by applying for competitive or discretionary awards, or through funding specifically set-aside for them. Moreover, individuals who are American Indians or Native Americans likely participate in many programs for limited-income populations, not because of their heritage or tribal affiliation but because they otherwise meet a program's eligibility rules. Examples of programs for which tribes and tribal organizations or other Indian entities are explicitly eligible to participate include the Ryan White program and Breast/Cervical Cancer Early Detection; WIC and TEFAP; Water and Waste Disposal grants and loans, Public Works and Economic Development, Homeless Assistance Grants, and HOME; Institutional Aid for colleges and universities; the Community Service Employment Program for Older Americans, Foster Grandparents and Job Corps. In addition, tribes may apply to the federal government to participate directly (rather through states) under several block grant programs, including TANF, CSBG, Weatherization Assistance, and LIHEAP. Several education programs reserve funds specifically for transfer to the Interior Department's Bureau of Indian Education (BIE) for schools overseen by BIE. These programs include Title I-A of ESEA, Education for Homeless Children and Youth, 21 st Century Community Learning Centers, Reading First, a component of the Rural Education Achievement Program, and Improving Teacher Quality State Grants. In the social services category, funds are set-aside for Indian tribes under CCDF and for Indian Head Start programs. The authorizing laws for certain programs establish a separate Indian component that is funded and administered independently of the primary program. These include SNAP (the law authorizes a separate Food Distribution Program on Indian Reservations), the Older Americans Act (Title VI authorizes separate nutrition and social services programs for Native Americans), and Community Development Block Grants (the law authorizes a separate Indian Community Development grant). United States territories or their residents are eligible to participate in the majority of federal programs that provide benefits and services to people with limited income. The specific territories that are eligible to participate, however, and the rules that apply to their participation vary by program. Territories may or may not actually participate in all programs for which they are eligible. In addition, Title V of P.L. 95-134 authorizes federal agencies to consolidate grants for certain territories, specifically American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, and the Trust Territory of the Pacific Islands (which include Micronesia, the Marshall Islands, and Palau). A detailed discussion of the eligibility of U.S. territories and their rules of participation, by program, is beyond the scope of this report. A few general observations can be made about the treatment of territories in programs included here. About two-thirds of programs included in this report have some provisions for participation by at least one of the territories. Among programs that include the territories, Puerto Rico, along with American Samoa, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands, are most commonly included; however, not every program includes every one of these territories. Some statutes also allow for participation by Micronesia, the Marshall Islands, and Palau. Puerto Rico is more likely than other territories to be defined as a state, subject to the same rules as the 50 states and the District of Columbia. However, while some formula grants apply the same general policies to Puerto Rico that apply to states, they sometimes use different criteria to determine its funding level. Formula grants often set aside a percentage or specific amount of funds to be made available to specified territories, subject to their meeting program-related criteria, while discretionary or competitive grants often include the territories among the various other entities and organizations that are eligible to apply. This report generally does not discuss the value of benefits and services received under programs targeted toward low-income people. For many of the programs included here, the process of quantifying their value is complex. Moreover, there may be different ways to look at the value of a particular benefit. For example, the value of Medicaid could be considered its "market value" (what a family would have to pay in the private insurance market to purchase comparable coverage), or it could be considered the amount of a family's resources that are "freed up" as a result of Medicaid coverage and therefore available to purchase other goods and services. Estimating the value of benefits provided under the range of education, housing, food assistance, and service programs included in this report raises similarly difficult questions. For many programs, benefit computations depend on factors that vary for each individual case. For example, rental assistance is a function of both family income and the fair market rent of a particular housing unit. Pell Grants and certain other higher education benefits are calculated based on a family's available resources and the cost of attendance at the student's particular college or university. In other words, both housing programs and student aid consider the cost of goods and services (i.e., the rent for a particular apartment or the cost at a particular school) as a component in the benefit calculation, in addition to an individual's income and/or assets. Calculating the value of cash and near-cash benefits (such as SNAP) is somewhat more straightforward. However, even with cash and near-cash benefits, the amount an individual or family receives depends on their specific circumstances, and the benefit computation can be complicated. Under certain programs, benefits are larger for larger family sizes, reflecting greater need. Benefits are generally reduced when a family has other sources of cash income, such as earnings or Social Security benefits. Table 6 shows the maximum benefit, under each program's specific rules, for certain individuals and family types from cash assistance programs, specifically SSI, EITC, ACTC, veterans' pensions, and TANF. It also shows the maximum benefit amounts under the "near-cash" SNAP program. Benefit amounts are shown for FY2008 and FY2009 (the years covered by this report) and, for comparison, FY2011. The table shows either maximum monthly benefits or maximum annual benefits, depending on the program, with annual benefits also shown as per month equivalents, to allow comparison. Benefits are shown for different family sizes; however, for the ACTC, the maximum benefit shown is per child . There is no limit on the number of eligible children for whom the credit may be claimed in an individual family. For TANF, the benefit levels shown are for families and households with no other source of family income, who also are in compliance with behavioral rules (notably, work requirements). SSI, EITC, veterans' pensions, and SNAP are generally adjusted each year for price inflation. However, SNAP benefits were raised by ARRA, which effectively suspended benefit adjustments in 2010 and 2011. SSI and veterans' benefit adjustments are tied to Social Security cost-of-living adjustments (COLAs); there were no such COLAs for 2010 and 2011 because of the low rate of price inflation accompanying the economic downturn that began in 2007. EITC benefits are also adjusted for price changes through indexing to the Consumer Price Index; ACTC benefits are not indexed. SSI, EITC, ACTC, veterans' pensions, and SNAP benefits are determined in federal law. It should be noted that states can also supplement SSI benefits with their own funds and many states also have their own EITCs that can increase benefits for families above the amounts shown in the table. TANF benefits are set by the states, and vary greatly from one state to another. States typically do not make regular adjustments for price inflation. Rather, states make ad-hoc adjustments to TANF cash benefits. The table shows maximum TANF cash benefits for states with the highest benefits (Alaska) and with the lowest benefits (Tennessee for family size of two, Mississippi for family size of three). Benefit levels remained the same for cash assistance recipients in these states in 2008 and 2009. However, some states did increase benefit amounts, as illustrated by the slight increase in the median state maximum benefit for both a family of two and a family of three. Federal programs providing benefits and services to low-income people are extremely diverse and are rarely looked at collectively. These programs and their underlying policies evolved over many decades; they were created to achieve different policy goals in response to different perceived policy problems. Their common feature is an explicit focus on low-income populations. This report provides a snapshot of policies and spending in FY2008 and FY2009 on specified categories of benefits and services for low-income people. It looks at the broad purposes of these programs and then focuses primarily on concepts used to determine eligibility for individual participants and to distribute federal resources according to need. The report also briefly examines the units of government or other entities that receive and administer these federal funds. Numerous additional questions can be raised about this collection of benefits and services targeted toward low-income people. For example, the report does not address programs' effectiveness in meeting their policy goals, either individually or by category. A comprehensive review of program evaluations is beyond the scope of this report; moreover, a consistent body of evaluation literature on all programs for low-income populations is not available. Likewise, the report generally does not attempt to quantify the benefits provided under these programs, for reasons stated in the previous section. Many programs included in this report rely on the federal poverty guidelines for determining income eligibility, or population statistics based on federal poverty thresholds to allocate funds. In addition to issues raised by use of different multiples of the poverty guidelines by different programs, the guidelines themselves—and the thresholds on which they are based—are the subject of considerable controversy. Despite different eligibility rules, using various concepts in addition to the federal poverty guidelines, many federal programs for low-income people have overlapping target populations. However, these programs were not necessarily designed intentionally to be consistent with or complementary to one another. Thus, questions can be raised—about potential duplication, the ease with which people can understand and access benefits or services, whether gaps exist among programs in terms of eligibility and available benefits, and the efficiency of service delivery mechanisms. The variety of targeting provisions raises questions about equity and whether "need" is addressed uniformly across the country. As for the level of participation in federal low-income programs, the fact sheets in Appendix C provide very limited data, primarily to give a sense of scope for each program. However, many questions can be asked about participation in these programs, both individually and collectively. For example, what percent of eligible beneficiaries are served or participate in each program? Assuming most programs do not serve everyone eligible, what are the characteristics of those who actually participate? Are programs targeting the lowest-income individuals, or do other criteria determine who gets served? For programs with overlapping target populations, to what extent are people served under multiple programs? Administrative data for some programs provide information about the number and characteristics of participants, but these data are inconsistent across programs, and cannot be used in combination to get a picture of multiple program participation. The Survey of Income and Program Participation (SIPP), administered by the Census Bureau, provides some insight. The most recent SIPP data, for the third quarter of 2008, indicate that about 28.4 million households—24% of total households in the United States—received cash or noncash benefits under one or more means-tested program in an average month. Most often, these programs were Medicaid, free and reduced-price school meals, or SNAP; other programs included housing assistance, SSI, TANF, WIC, LIHEAP, and veterans' pensions. Notably, however, the SIPP data do not identify the extent to which households receive benefits under the EITC or ACTC, although these cash assistance programs are among the 10 largest federal benefits for low-income people. Returning to the discussion of benefits and services by category, Figure 1 clearly demonstrates that certain categories—most notably health—have grown larger than others. The relative size of the programs, the budgetary classification of their spending (e.g., discretionary or mandatory, open-ended or capped), and the diversity of design elements have implications for the ability of lawmakers to enact new policies, change existing policies, or adjust spending priorities in a time of fiscal constraint. Finally, the report notes that many programs for low-income people operate through formula grants, typically to states. Many of these programs require states, or sometimes other entities within states, to spend a certain amount of nonfederal funds to access their full federal grant. Even in some programs that provide benefits directly to individuals, such as SNAP or SSI, states play a role in determining eligibility or conducting other administrative functions and, in some cases, in supplementing the federal benefits provided. In the current fiscal environment, with many state budgets in critical condition, the ability of states to fully access federal funding and to maintain their level of support for low-income benefits and services is an outstanding question. At the same time, continued federal spending on these benefits and services is at issue, in light of current concerns about the size of federal deficits and long-term debt. Appendix A. Methodology of Report Selection of Programs Programs were selected for inclusion in this report if they (1) have provisions that base an individual's eligibility or priority for service on a measure (or proxy) of low or limited income; or (2) target resources in some way (e.g., through allocation formulas, variable matching rates) using a measure (or proxy) of low or limited income. A few programs without an explicit low-income provision were included because either their target population is disproportionately poor or their purpose clearly indicates a presumption that participants will be low-income. Such programs that serve disproportionately low-income people include the Indian Health Service, Homeless Assistance Grants, Indian Education, Title I Migrant Education Program, and Indian Human Services. Programs with purposes that presume a low-income target population include Adult Basic Education and Social Services Block Grants. Federal student loan programs were considered for inclusion because they determine benefit levels through the same need analysis system that is used for Pell Grants and several smaller postsecondary education programs. However, this system can result in students from relatively well-off families receiving assistance, as there is no absolute income ceiling on eligibility. Pell Grants are structured in such a way that the majority of recipients are low-income and the lowest-income students receive the largest benefits. Student loan programs are not as strongly targeted and therefore, are not included in the report. On the other hand, deliberations about whether to include the Additional Child Tax Credit (ACTC) reached a different conclusion. The regular Child Tax Credit (CTC) is a nonrefundable credit and phases out at relatively high income levels. The ACTC is a refundable credit that allows families with no or insufficient tax liability to get all or part of the benefit they would otherwise receive from the CTC. Because of the refundable nature and other design features of the ACTC, including certain recently enacted changes, it serves predominantly low-income families. For example, for tax year 2008, 87% of returns that claimed the ACTC were filed by families with adjusted gross incomes (AGI) below $40,000 and 83% of the credit went to such families; 94% of returns that claimed the ACTC were filed by families with AGI below $50,000 and 93% of the credit went to such families. Thus, ACTC is included in the report. Categorization of Programs Most programs are easily assigned to broad categories, such as health, cash aid, food assistance, or education. A few, however, have multiple purposes or allowable activities. For some of those programs, spending can be disaggregated into the relevant categories. For example, using state reporting of actual expenditures, it is possible to estimate the amount of TANF obligations attributable to cash aid, social services, and employment and training. Other programs cannot be disaggregated, however, and must be assigned to a single category. For example, Transitional Cash and Medical Services for Refugees was categorized as health care, and Indian Human Services was categorized as social services although it also provides cash and housing assistance. The social services category, in general, is not well-defined and some analysts might assign some programs differently. Head Start, for example, could be considered an education program, since its purpose is to promote school readiness; however, it supports a very broad range of activities—including for children age 0-3 through its Early Head Start component—that can best be characterized collectively as social services. Foster Care and Adoption Assistance both give cash to families or other care providers, but income support is not the programs' purpose or sole use of funding. Foster Care subsidizes maintenance payments and administrative activities on behalf of children who cannot remain safely at home, and Adoption Assistance makes payments to facilitate the adoption of children who would otherwise lack permanent homes. Thus, in this report, these programs were categorized as social services and not cash assistance. Selection of Spending Measure New obligations incurred in the indicated fiscal year were chosen as the measure of spending for this report, although for many programs, readers may be more accustomed to seeing appropriations (budget authority) or outlays. These spending concepts are related. Congress and the President enact budget authority through appropriations measures or other authorizing laws. Budget authority in turn allows federal agencies to incur obligations , through actions such as entering into contracts, employing personnel, and submitting purchase orders. Outlays represent the actual payment of these obligations, usually in the form of electronic transfers or checks issued by the Treasury Department. Obligations are used in this report because they are the most consistent measure available at the necessary level of detail for the majority of programs. The source of obligations data is the U.S. Budget Appendix for FY2011 (for final FY2009 obligations) and FY2010 (for final FY2008 obligations). Obligations were either not available or not appropriate for a small number of programs. Because obligations were not available at the necessary program level, appropriations were used for the following: Transitional Cash and Medical Services for Refugees, Breast/Cervical Cancer Early Detection, the Title I Migrant Education Program, Social Services and Targeted Assistance for Refugees, and Foster Grandparents. For veterans' medical care, the Budget Appendix shows obligations for the entire program, and not solely the income-tested component. Thus, for this report, estimated obligations for Priority Group 5 veterans (needy veterans without service-connected disabilities) were calculated from Department of Veterans Affairs data on obligations for Priority Groups 1-6 and 7-8 and number of patients receiving care by individual priority group. The Budget Appendix also does not show obligations solely for the low-income subsidy portion of the Medicare Part D prescription drug program. Therefore, the report uses aggregate reimbursements for the low-income subsidy for the calendar year (instead of fiscal year), available from the annual report of the Medicare trustees. Loan subsidy outlays were used as the more appropriate measure of spending for the Section 502 single-family rural housing loan program. Direct and guaranteed loan subsidy outlays, available from the Budget Appendix, were adjusted for re-estimates provided in the Federal Credit Supplement to the U.S. Budget for the relevant years. Finally, as noted above, TANF obligations provided in the Budget Appendix were disaggregated into the categories of cash aid, social services, and employment and training, based on states' reporting to the Department of Health and Human Services of their actual expenditures. Spending Threshold Programs are included in this report if they had obligations in either FY2008 or FY2009 of at least $100 million. To simplify the analysis without significantly changing the overall picture, smaller programs were excluded, even if they met the low-income criteria. Only one program included in the report—Education for Homeless Children and Youth—had spending above the threshold in one year but below the threshold in the other. Therefore, spending totals for FY2009 include obligations for this program, but spending totals for FY2008 do not. Thus, each year's spending total is a snapshot of spending in that year for low-income programs which— in that year —had obligations totaling at least $100 million. Comparison with Predecessor CRS Report Series From 1979 to 2006, the Congressional Research Service issued a series of reports, typically every other year, called Cash and Noncash Benefits for Persons with Limited Income . The series was conceived and produced (except for the last edition in 2006) by [author name scrubbed], Specialist in Social Policy, who retired from CRS in 2004. The current report is meant to replace the Cash and Noncash series. However, this report uses different methodologies to select and categorize programs and measure spending; therefore, the current report cannot be considered an update of Cash and Noncash for various reasons. For example, the older series did not include certain programs that are included in this report, such as the low-income subsidy under Medicare Part D, Title I-A of the Elementary and Secondary Education Act, and Community Development Block Grants. At the same time, the older series had no minimum spending threshold, so it included several smaller programs that are not included here. In addition, the older series included student loans, which are not included in this report for reasons explained above. Several programs were also categorized differently in the previous series (e.g., Head Start was categorized as education; Foster Care and Adoption Assistance as cash aid; and Homeless Assistance Grants as social services). The older series used different measures of spending for different programs, while this report uses obligations where possible. The older series also provided estimates of state-local spending, which are not included in this report. Finally, the older series traced spending back to 1968, which is beyond the scope of the current report. Changes in programs and appropriations accounts over time make it virtually impossible to trace obligations backward with precision. Appendix B. Detailed Program Tables The following three tables identify and provide specific information about programs included in this report. Programs are organized by category. Within categories, programs are listed in order of their Catalog of Federal Domestic Assistance number (see Appendix C ). Table B -1 shows obligations (or another measure of spending, as noted) for each program for FY2008 and FY2009. ARRA amounts are included in the FY2009 amounts; they are also shown in a separate column. The table also indicates the federal administering agency for each program. Table B -2 identifies, for each program, the general target population and the concept (or multiple concepts) used to determine individual income eligibility and (if relevant) the concept used to target federal resources broadly based on need. These concepts are discussed in detail earlier in the report. The table indicates the general concept used but not the specific application of the concept. For example, the table might indicate that federal poverty guidelines (FPG) are used as a concept in determining income eligibility for a particular program, but does not indicate what percent of FPG is used. Likewise, the table might show that a program uses formula allocation factors to direct federal resources toward areas with the greatest need, but does not identify the specific factors or their weighting or any mitigating factors, such as small-state minimums or hold-harmless provisions. Readers are referred to the fact sheets in Appendix C , relevant CRS reports, or the statutes themselves for these details. Table B -3 shows the type of federal assistance provided (typically formula grants, competitive or discretionary grants, or direct benefits) and the immediate recipients of this assistance. As noted in the table, "immediate" recipient refers to the level of government or the organization that directly receives the federal grant or award. As discussed in the body of the report, many programs require that funds be further distributed (by formula or other criteria) to other units of government or organizations. For example, federal grants may be awarded by formula to states, but states are then required to subaward these funds to local governments or other entities. This table only shows the "immediate" grantee. The table also indicates whether a program has provisions for participation by U.S. territories or residents or organizations located within the territories. The specific details of these provisions are not provided in the table, however; readers are referred to statutory language or the federal agency that administers the program for this information. Appendix C. Program Fact Sheets The following fact sheets provide brief information about each program included in this report's analysis. Efforts were made to present the information in a relatively consistent manner; however, the programs are sufficiently different that the fact sheets vary in scope and level of detail. For each program, the following information is provided: Catalog of Federal Domestic Assistance (CFDA) number(s); statutory and regulatory citations; the name of the federal administering agency and (where appropriate) the specific office within that agency; the program's purpose; the type of benefit or service provided; criteria used to determine individual eligibility; the form and recipient of federal assistance; the allocation formula used if relevant; any matching or related nonfederal spending requirements; the amount of new obligations in FY2008 and FY2009; the budgetary classification of the program's spending; some limited detail on program participation in FY2009 or the most recent year for which data are available; and citations to relevant CRS reports. Information was derived from statutes, regulations, agency websites, or other authoritative sources. Only selected information is included in these fact sheets, relevant to the overall analysis in this report. Moreover, programs are generally described as they existed in FY2009, although references are provided in cases where significant changes have been enacted affecting years after FY2009. For complete information about a particular program of interest, readers are referred to the legal citations provided, the federal administering agency, or the identified CRS report. The following table provides a list of programs and page numbers, for easier reference to individual program fact sheets. Health Care Medical Care for Veterans Without Service-Connected Disability (CFDA #64.009) Authority: Statute: 38 USC Part 2, Chapter 17. Regulations: 38 CFR Part 17. Federal administering agency: Department of Veterans Affairs, Veterans Health Administration. Purpose of program: To provide primary care, specialized care, and related social and support services to eligible veterans. Benefit/service: Standardized medical benefits package including preventive services, such as immunizations, screening tests, and health education and training classes; primary health care diagnosis and treatment, prescription drugs, comprehensive rehabilitative services, mental health services, including professional counseling, home health care, respite (inpatient), hospice and palliative care; and emergency care. Some veterans also may receive long-term care, including nursing home care, domiciliary care, adult day care, and limited dental care. Individual eligibility criteria: In general, eligibility for VA health care is based on veteran status, service-connected disabilities or exposures, and other factors such as veterans who were former prisoners of war or who are awarded the Purple Heart. Veterans with no service-connected conditions and who are Medicaid-eligible, or who have income below a certain VA means-test threshold and below a median income threshold for the geographic area in which they live are eligible to enroll in the VA health care system. These veterans are classified as Priority Group 5 veterans. Form and recipient of federal assistance: Services are provided directly by the VA in VA facilities or through contracts. Allocation formula: Not applicable. Matching or related requirements: None. New obligations: FY2009: $11.644 billion. FY2008: $10.717 billion. (Estimated obligations on behalf of Priority Group 5 veterans.) Budgetary classification: Discretionary. Participation data: In FY2009, 1,484,467 Priority Group 5 veteran patients received care from the VA. CRS report: CRS Report R41343, Veterans Medical Care: FY2011 Appropriations , by [author name scrubbed]. Family Planning (CFDA #93.217) Authority: Statute: Title X of the Public Health Service Act, established in the Family Planning and Services and Population Research Act of 1970 (P.L. 91-572); 42 USC 300 et seq. Regulations: 42 CFR Part 59. Federal administering agency: Department of Health and Human Services, Office of Public Health and Science, Office of Population Affairs, Office of Family Planning. Purpose of program: To assist individuals to determine freely the number and spacing of their children through the provision of education, counseling, and medical services. Benefit/service: A broad range of family planning methods and services (including natural family planning methods, infertility services, and services for adolescents). Family planning services include clinical family planning and related preventive health services; information, education and counseling related to family planning; and referral services. Services are free for persons whose income does not exceed federal poverty guidelines (unless covered by Medicaid or other health insurers) and are provided on a sliding fee scale basis for those with incomes between 100% and 250% of federal poverty guidelines. Individual eligibility criteria: Priority is given to individuals from low-income families, defined in regulation as individuals whose family income does not exceed 100% of federal poverty guidelines, and individuals whose family income exceeds 100% of federal poverty guidelines but who otherwise are unable to afford family planning services. Form and recipient of federal assistance: Competitive grants to public and nonprofit agencies. Allows participation by agencies in territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, the U.S. Outlying Islands, the Marshall Islands, the Federated States of Micronesia, Republic of Palau, and the U.S. Virgin Islands). Allocation formula: Not applicable. Matching or related requirements: None. However, regulations provide that no project may be fully supported by Title X funds. New obligations: FY2009: $307 million. FY2008: $300 million. Budgetary classification: Discretionary. Participation data: In calendar year 2008, a total of 5.051 million users were served by Title X-funded sites. CRS report: CRS Report RL33644, Title X (Public Health Service Act) Family Planning Program , by [author name scrubbed]. Consolidated Health Centers (CFDA #93.224) Note: The following describes this program as it operated in FY2009; see CRS report listed below for discussion of changes made by the Patient Protection and Affordable Care Act ( P.L. 111-148 ). Authority: Statute: Section 330 of the Public Health Service Act, established by the Health Centers Consolidation Act of 1996 ( P.L. 104-299 ) and most recently reauthorized by the Patient Protection and Affordable Care Act ( P.L. 111-148 ); 42 USC 254b. Regulations: 42 CFR Subpart 51c and 42 CFR Parts 56.201-56.604. Federal administering agency: Department of Health and Human Services, Health Resources and Services Administration, Bureau of Primary Health Care. Purpose of program: To provide health care services to groups that are determined to be medically underserved. Benefit/service: Primary and additional health care services defined in statute, delivered by community health centers, migrant health centers, health centers for the homeless, and health centers for residents of public housing. Individual eligibility criteria: The statute defines "medically underserved" as "the population of an urban or rural area designated by the Secretary as an area with a shortage of personal health services or a population group designated by the Secretary as having a shortage of such services." Regulations provide that, in designating these populations, the Secretary may consider economic factors, such as the percentage of the population with incomes below poverty. Grant funds may be used to pay the full cost of services to individuals and families with income at or below federal poverty guidelines; services are provided on a sliding fee scale basis for those with incomes between 100% and 200% of federal poverty guidelines and no discount is provided for those with incomes above 200% of poverty. Form and recipient of federal assistance: Competitive grants to public and private nonprofit entities. Allocation formula: Not applicable. Matching or related requirements: None. Grantees are expected to collect fees from third-party payors, such as Medicare, Medicaid, and private health insurance; centers may also collect fees from patients with family income above the federal poverty guidelines; and centers may also receive funding from state, local and other federal sources. For grants serving certain populations, federal funds must supplement and not supplant other funds used by the health center to serve the same population. New obligations: FY2009: $3.665 billion (includes $1.519 billion under the American Recovery and Reinvestment Act). FY2008: $2.021 billion. Budgetary classification: Discretionary. Participation data: In FY2008, a total of 1.7 million patients were served. CRS reports: CRS Report R41278, Public Health, Workforce, Quality, and Related Provisions in PPACA: Summary and Timeline , coordinated by [author name scrubbed] and [author name scrubbed]; and CRS Report RL32046, Federal Health Centers Program , by Barbara English. Transitional Cash and Medical Services to Refugees (CFDA #93.566) Authority: Statute: Title IV, Chapter 2 of the Immigration and Nationality Act, established by the Refugee Act of 1979 ( P.L. 96-212 ) and most recently reauthorized by P.L. 106-104 ; 8 USC 1521-1524. Regulations: 45 CFR Parts 400-401. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Refugee Resettlement. Purpose of program: To provide for the effective resettlement of refugees and to assist them to achieve economic self-sufficiency as quickly as possible. Benefit/service: Cash payments to eligible individuals that are at least equal to the payment rate to a family of the same size under the state's Temporary Assistance for Needy Families (TANF) program; and medical benefits, through payments to doctors, hospitals and pharmacists. Those eligible for Supplemental Security Income (SSI) may receive refugee cash assistance while their SSI applications are pending. Individual eligibility criteria: Adult refugees, asylees, other specified humanitarian cases, and trafficking victims who meet the income and asset tests for TANF or Medicaid but who are not categorically eligible for those programs; and unaccompanied refugee minor children. Form and recipient of federal assistance: Formula grants to states, and discretionary grants to state-alternative programs and voluntary agencies. Allows participation by territories (American Samoa, Guam, Northern Marianas, Puerto Rico, the Trust Territories of the Pacific, and the U.S. Virgin Islands). Allocation formula: Formula funds are allocated to states based on their estimates of eligible expenditures. Matching or related requirements: No matching requirements for formula grants. Voluntary agencies receiving discretionary grants must provide a $1 match for each 2 federal dollars. New obligations: FY2009: $282 million. FY2008: $296 million. (Appropriations.) Budgetary classification: Discretionary. Participation data: No data available. CRS report: CRS Report R41570, U.S. Refugee Resettlement Assistance , by [author name scrubbed]. State Children's Health Insurance Program (CHIP) (CFDA #93.767) Note: The following describes this program as it operated in FY2009; see CRS reports listed below for discussion of changes made by the Patient Protection and Affordable Care Act ( P.L. 111-148 ). Authority: Statute: Title XXI of the Social Security Act, established by the Balanced Budget Act of 1997 ( P.L. 105-33 ) and most recently reauthorized by the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA, P.L. 111-3 ); 42 USC 1397aa-mm. Regulations: 42 CFR Parts 431, 433, 435. Federal administering agency: Department of Health and Human Services, Centers for Medicare and Medicaid Services. Purpose of program: To provide health coverage to uninsured, low-income children in an effective and efficient manner that is coordinated with other sources of health benefits coverage for children. Benefit/service: Health care coverage is available through expansion of a state's existing Medicaid program, creation of a separate CHIP program, or a combination of both. In general, for separate CHIP programs under which the majority of children are enrolled, states may offer one of three "benchmark" benefit packages: (1) the standard Blue Cross/Blue Shield preferred provider plan offered under the Federal Employees Health Benefits Program (FEHBP), (2) the health coverage that is offered and generally available to state employees, and (3) the health coverage that is offered by a health maintenance organization (HMO) with the largest commercial (non-Medicaid) enrollment in the state. (States also have the option of providing "Secretary-approved" coverage for which benefits are suitable for the target population.) States that use the Medicaid expansion option can provide the full range of mandatory Medicaid benefits as well as all optional services specified in their state Medicaid plans. Alternatively, under a CHIP Medicaid expansion, states may offer benchmark benefit plans similar to those listed above. States may also waive many of the basic benefit rules described above to conduct demonstration projects under Section 1115 authority that test alternative methods of meeting the overall purpose of CHIP. Medicaid expansion programs must follow the nominal Medicaid cost-sharing rules or, for certain populations, may apply alternative higher premiums and service-related cost-sharing. States with separate CHIP programs may vary cost-sharing requirements by family income, but the total annual aggregate cost-sharing (including premiums, copayments, and similar charges) for a family may not exceed 5% of total income in a year, and certain services such as preventive care are exempt from cost-sharing. Individual eligibility criteria: Target populations are defined by states within federal parameters. Children must be under age 19, lack health insurance, and not be qualified for regular Medicaid. States may set the upper income limit for targeted children at up to 200% of federal poverty guidelines or 50 percentage points above the applicable pre-CHIP (1997) Medicaid income level. States may seek federal approval to serve higher-income children. States also may cover pregnant women who lack health insurance and meet specified income thresholds. Other groups (e.g., parents) may be covered under certain circumstances (e.g., through Section 1115 waivers or CHIP premium assistance payments). Form and recipient of federal assistance: Formula grants to states. Allows participation by territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands). Allocation formula: The allotment methodology was changed by CHIPRA, beginning with FY2009. Rather than dividing the entire national appropriation among states, the law now calculates allotment amounts for each state, which they will receive unless the national appropriation is inadequate. The new allotment formula is based primarily on states' past and/or projected federal CHIP spending (depending on the year) increased by a growth factor. For FY2009 onward, annual allotments are available for two years, with unspent funds available for redistribution first to shortfall states and then for bonus payments directed at states that exceed certain child enrollment levels and that implement certain outreach and enrollment initiatives. Prior to CHIPRA, funds were allocated among states according to a formula based on a combination of the number of low-income children and low-income uninsured children in the state, and including a cost factor that represented average health service industry wages in the state compared to the national average. Matching or related requirements: State expenditures are matched at an "enhanced" federal medical assistance percentage (E-FMAP). The E-FMAP for CHIP lowers the state's share of CHIP expenditures by 30% compared to the regular Medicaid FMAP. The CHIP E-FMAP rate is subject to a ceiling of 85% and a floor of 65%. New obligations: FY2009: $9.534 billion. FY2008: $6.360 billion. Budgetary classification: Mandatory (capped entitlement to states). Participation data: During FY2009, the total number of children ever enrolled during the year was 7,717,317; and the total number of adults ever enrolled during the year was 504,915. CRS reports: CRS Report R40444, State Children's Health Insurance Program (CHIP): A Brief Overview , by [author name scrubbed] and [author name scrubbed]; and CRS Report R41210, Medicaid and the State Children's Health Insurance Program (CHIP) Provisions in PPACA: Summary and Timeline , coordinated by [author name scrubbed]. Voluntary Medicare Prescription Drug Benefit—Low-Income Subsidy (CFDA 93.770) Note: The following describes this program as it operated in FY2009; see CRS report s listed below for discussion of changes made by the Patient Protection and Affordable Care Act ( P.L. 111-148 ). Authority: Statute: Part D of Title XVIII of the Social Security Act, established by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ( P.L. 108-173 ); 42 USC 1395w-101-152. Regulations: 42 CFR Part 423. Federal administering agency: Department of Health and Human Services, Centers for Medicare and Medicaid Services. Purpose of program: To provide low-income seniors and people with disabilities with comprehensive prescription drug benefits. Benefit/service: Prescription drug coverage with reduced premiums, copayments and other out-of-pocket expenses. Individual eligibility criteria: Individuals with incomes below 150% of federal poverty guidelines and limited resources are eligible for subsidized prescription drug coverage. Those with incomes no higher than 135% of federal poverty guidelines receive the highest level of subsidy. Certain individuals are automatically eligible: those also eligible for Medicaid (i.e., "dual eligibles"); Medicare Savings Program recipients; and Supplemental Security Income (SSI) recipients. Form and recipient of federal assistance: Contracts with participating prescription drug plans; payments are made to plans for the monthly premiums, deductibles and coverage gap expenses of low-income subsidy beneficiaries. Allocation formula: Not applicable. Matching or related requirements: Not applicable. New obligations: CY2009: $20.300 billion. CY2008: $17.400 billion. (Aggregate reimbursements under Low-Income Subsidy in calendar year.) Budgetary classification: Mandatory (entitlement to individuals). Participation data: In calendar year 2009, 10 million beneficiaries received low-income subsidies. CRS reports: CRS Report R40611, Medicare Part D Prescription Drug Benefit , by [author name scrubbed]; and CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline , coordinated by [author name scrubbed]. Medicaid (CFDA #93.778) Note: The following describes this program as it operated in FY2009; see CRS reports listed below for discussion of changes made by the Patient Protection and Affordable Care Act ( P.L. 111-148 ). Authority: Statute: Title XIX of the Social Security Act, established by the Social Security Amendments of 1965 (P.L. 89-97); 42 USC 1396. Regulations: 42 CFR Parts 430-456. Federal administering agency: Department of Health and Human Services, Centers for Medicare and Medicaid Services. Purpose of program: To provide medical assistance to families with dependent children and aged, blind or disabled individuals who have insufficient income and resources to afford necessary medical care, and to provide rehabilitation and other services to help such families and individuals achieve independence and self-care. Benefit/service: Federal law requires states to cover certain health benefits under Medicaid; other services may be offered at state option. Examples of mandatory services for most eligibility groups include inpatient hospital services, services provided by qualified federal health centers, laboratory and x-ray services, physician services, pregnancy-related services, nursing facility services for individuals 21 and older, and home health care for those entitled to nursing home care. Examples of optional services provided for most eligibility groups in many states include prescribed drugs, physician-directed clinic services, other licensed practitioners (e.g., optometrists, podiatrists, psychologists), inpatient psychiatric care for the elderly and individuals under age 21, nursing facility services for individuals under age 21, physical therapy, prosthetic devices, and transportation. Individual eligibility criteria: Individuals must meet financial (i.e., income and sometimes resource) and nonfinancial (i.e., categorical) requirements. Federal law defines more than 50 potentially eligible population groups; some groups are mandatory (all states must cover them) and others are optional (states may cover them at their discretion). In some cases, income eligibility standards are tied directly to specified percentages of the federal poverty guidelines. For example, Medicaid mandatory coverage groups include pregnant women and children under age 6 with family incomes at or below 133% of poverty; children ages 6-18 with family incomes at or below 100% of poverty; certain parents and children in working families who are entitled to Medicaid for at least 6 months and up to 12 months if their income does not exceed 185% of poverty (i.e., Transitional Medical Assistance, TMA)); individuals who qualify for Medicare Part A whose incomes do not exceed 100% of poverty (Qualified Medicare Beneficiaries (QMBs)); and individuals who are entitled to Medicare Part A with incomes between 100% and 120% of poverty (Specified Low-Income Beneficiaries (SLMs)). Mandatory groups also include families who qualify via rules applicable to the former Aid to Families with Dependent Children (AFDC) program; also, families who lose Medicaid as a result of increased child/spousal support or earned income may receive TMA for four months. Medicaid optional groups with income eligibility standards tied directly to specified percentages of the federal poverty guidelines include pregnant women and infants with incomes between 133% and 185% of poverty; CHIP-financed targeted low-income children; disabled and elderly (age 65+) individuals with incomes up to 100% of poverty; disabled working individuals whose family income does not exceed 250% of poverty; and individuals who would be QMBs except that their incomes are between 120% and 135% of poverty (i.e., Qualifying Individuals (QI-1s)). Form and recipient of federal assistance: Partial reimbursement to states of eligible expenditures, with no cap on federal spending. Allows participation by territories (American Samoa, Guam, Northern Marianas, Puerto Rico and the U.S. Virgin Islands). Allocation formula: Payments to states are based on their eligible expenditures and the applicable FMAP (see below). Matching or related requirements: The federal share of expenditures on Medicaid services is called the federal medical assistance payment (FMAP) and is inversely related to a state's per capita income. The FMAP is higher for states with lower per capita income relative to the national average and vice versa for states with higher per capita income. The FMAP ranges from a statutory low of 50% to a statutory high of 83%. Medicaid administrative expenditures are generally matched at a 50% rate, with certain exceptions. For expenditures in FY2009, the American Recovery and Reinvestment Act authorized a temporary increase in FMAPs for states. (Subsequent legislation extended this increase through June 2011.) New obligations: FY2009: $265.058 billion (includes $32.632 billion in estimated additional federal matching provided under the American Recovery and Reinvestment Act). FY2008: $214.015 billion. Budgetary classification: Mandatory (open-ended entitlement to states). Participation data: During FY2009, an average of 51.1 million individuals were enrolled in Medicaid each month (including 24.9 million children); and a total of 65.2 million individuals were enrolled during the year (including 31.3 million children). CRS reports: CRS Report RL33202, Medicaid: A Primer , by [author name scrubbed]; and CRS Report R41210, Medicaid and the State Children's Health Insurance Program (CHIP) Provisions in PPACA: Summary and Timeline , coordinated by [author name scrubbed]. Ryan White HIV/AIDS Program (CFDA #93.917) Authority: Statute: Title XXVI of the Public Health Service Act, established by the Ryan White Comprehensive AIDS Resources Emergency Act of 1990 ( P.L. 101-381 ) and most recently reauthorized by the Ryan White HIV/AIDS Treatment Extension Act of 2009 ( P.L. 111-87 ); 42 USC 300ff. Regulations: no formal program-specific regulations. Federal administering agency: Department of Health and Human Services, Health Resources and Services Administration, HIV/AIDS Bureau. Purpose of program: To address the unmet care and treatment needs of persons living with HIV/AIDS who are uninsured or underinsured, and therefore are unable to pay for HIV/AIDS health care and vital health-related supportive services. Benefit/service: Primarily core medical services; i.e., outpatient and ambulatory health services, drug treatments (including through the AIDS Drug Assistance Program, ADAP), oral health, early intervention services, health insurance premium and cost-sharing assistance for low-income individuals, home health, medical nutrition therapy, hospice, home and community-based services, mental health, substance abuse outpatient care, and medical case management, including treatment adherence services; and some supportive services; i.e., outreach, medical transportation, language services, respite care for caregivers, and referrals for health care and support services. Services are provided without charge for individuals whose incomes are below federal poverty guidelines and are provided on a sliding fee scale basis for those whose incomes exceed federal poverty guidelines. Individual eligibility criteria: Individuals and families with HIV disease. Specific clinical and income eligibility criteria are set by states. Form and recipient of federal assistance: Formula grants to eligible metropolitan areas, "transitional grant" areas, and to states and territories; competitive supplemental grants are awarded based on need. Competitive grants are made to qualified health centers, family planning clinics, hemophilia centers, rural health clinics, Indian Health Service facilities and certain other health facilities and organizations; public and private nonprofit organizations; and dental schools. Allows participation by territories (American Samoa, Guam, Marshall Islands, Micronesia, Northern Mariana Islands, Palau, Puerto Rico, and the U.S. Virgin Islands). Allocation formula: Funds are allocated on the basis of number of living HIV and AIDS cases. Matching or related requirements: Any state with more than 1% of the nation's confirmed cases of HIV/AIDS must provide a nonfederal match equal to $1 for every federal $5 in the first year of payments under the grant, $1 for every federal $4 in the second year, $1 for every federal $3 in the third year, and $1 for every federal $2 in the fourth and fifth years of the grant. New obligations: FY2009: $2.227 billion. FY2008: $2.141 billion. Budgetary classification: Discretionary. Participation data: It is estimated that the program serves more than a half-million low-income people with HIV/AIDS each year. CRS report: CRS Report RL33279, The Ryan White HIV/AIDS Program , by [author name scrubbed]. Breast/Cervical Cancer Early Detection (CFDA #93.919) Authority: Statute: Title XV of the Public Health Service Act, established by the Breast and Cervical Cancer Mortality Prevention Act of 1990 ( P.L. 101-354 ) and most recently reauthorized by the National Breast and Cervical Cancer Early Detection Program Reauthorization Act of 2007 ( P.L. 110-18 ); 42 USC 300k. Regulations: no formal program-specific regulations. Federal administering agency: Department of Health and Human Services, Centers for Disease Control and Prevention, Division of Cancer Prevention and Control. Purpose of program: To provide low-income, uninsured, and underserved women access to timely breast and cervical cancer screening and diagnostic services. Benefit/service: Clinical breast examinations, mammograms, Pap tests, pelvic examinations, diagnostic testing if results are abnormal, and referrals to treatment. No fees for services may be charged for women with incomes below 100% of federal poverty guidelines. (Under the Breast and Cervical Cancer Prevention and Treatment Act of 2000, P.L. 106-354 , women who are screened through the CDC program are an optional Medicaid coverage group, which means that states may offer them medical services through their Medicaid programs.) Individual eligibility criteria: States must give priority to low-income women. CDC defines the eligible population as uninsured and underinsured women with income at or below 250% of federal poverty guidelines, aged 18-64 for cervical screening and 40-64 for breast screening. Form and recipient of federal assistance: Competitive grants to states, which enter into grants and contracts with public and private nonprofit entities. Allows participation by territories (Puerto Rico, American Samoa, Northern Mariana Islands, Marshall Islands, Micronesia, Palau) and Indian tribes and tribal organizations. Allocation formula: Not applicable. Matching or related requirements: A nonfederal match, in cash or in-kind, of $1 for every federal $3 is required. Programs must also maintain their previous level of effort before additional resources will be considered toward the matching requirement. New obligations: FY2009: $206 million. FY2008: $201 million. (Appropriations.) Budgetary classification: Discretionary. Participation data: In program year 2009 (July 2008-June 2009), a total of 324,912 women were screened for breast cancer and 320,627 women were screened for cervical cancer. Maternal and Child Health Block Grant (CFDA #93.994) Note: The following describes this program as it operated in FY2009; see CRS report listed below for discussion of changes made by the Patient Protection and Affordable Care Act ( P.L. 111-148 ). Authority: Statute: Title V of the Social Security Act, enacted in 1935 and converted into a block grant by the Omnibus Budget Reconciliation Act of 1981 ( P.L. 97-35 ); 42 USC 701. Regulations: 42 CFR Part 96. Federal administering agency: Department of Health and Human Services, Health Resources and Services Administration, Maternal and Child Health Bureau. Purpose of program: To improve the health of all mothers and children consistent with applicable health status goals and national health objectives established by the Secretary of HHS. Benefit/service: Preventive and primary health care services (excluding inpatient services with some exceptions) for women, infants and children, including children with special health care needs. Individual eligibility criteria: Defined by the states. Federal law emphasizes services to low-income mothers and children, defined as those with income at or below the federal poverty guidelines. Form and recipient of federal assistance: Formula grants to states. Allows participation by territories (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, Northern Mariana Islands, and Micronesia, Marshall Islands, and Palau). Allocation formula: Funds are allocated among states based on two factors: the amount awarded to each state in 1983 under previous programs that were consolidated into the block grant; and each state's relative share of low-income children. Matching or related requirements: States must provide $3 for every $4 in federal funding received. States must maintain their level of spending from state funds in 1989 on maternal and child health services. New obligations: FY2009: $662 million. FY2008: $666 million. Budgetary classification: Discretionary. Participation data: In FY2008, an estimated 35 million children were served. CRS report: CRS Report R41278, Public Health, Workforce, Quality, and Related Provisions in PPACA: Summary and Timeline , coordinated by [author name scrubbed] and [author name scrubbed]. Indian Health Service (no CDFA #) Note: The following describes this program as it operated in FY2009; see CRS report listed below for discussion of changes made by the Patient Protection and Affordable Care Act ( P.L. 111-148 ). Authority: Statute: Snyder Act of 1921 (P.L. 83-568) and the Indian Health Care Improvement Act of 1976 ( P.L. 94-437 ), most recently reauthorized by the Patient Protection and Affordable Care Act ( P.L. 111-148 ); 25 USC 1601 et seq. Regulations: 42 CFR Part 136. Federal administering agency: Department of Health and Human Services, Indian Health Service. Purpose of program: To elevate the health status of the Indian population to a level at parity with the general U.S. population. Benefit/service: Hospital, medical, and dental care, behavioral health, environmental health and sanitation services as well as outpatient services and the services of mobile clinics and public health nurses, and preventive care, including immunizations and health examinations of special groups, such as school children. Services are provided free of charge. Individual eligibility criteria: Persons of American Indian or Alaskan Native (AI/AN) descent who are members of a federally recognized Indian tribe, live within an Indian Health Service Health Service Delivery Area (HSDA), or are the natural minor children (18 years old or younger) of such an eligible member AI/AN and live within an HSDA. Form and recipient of federal assistance: Services are provided directly by the Indian Health Service in IHS or tribal health facilities or through contracts. Allocation formula: Not applicable. Matching or related requirements: None. The Indian Health Service collects reimbursements from Medicare and Medicaid for services that it provides to members of its eligible population who also are eligible for those programs. If an eligible AI/AN has private health insurance, IHS is reimbursed for services provided. New obligations: FY2009: $5.416 billion (includes $294 million under the American Recovery and Reinvestment Act). FY2008: $4.347 billion. (Services and facilities.) Budgetary classification: Discretionary. Participation data: In FY2009, the IHS service population was estimated at 1.9 million American Indians and Alaskan Natives. CRS report: CRS Report R41152, Indian Health Care Improvement Act Provisions in the Patient Protection and Affordable Care Act (PPACA) , by [author name scrubbed] and [author name scrubbed]. Cash Aid Pensions for Needy Veterans, their Dependents and Survivors (CFDA #64.104 and #64.105) Authority: Statute: 38 USC Chapter 15. Regulations: 38 CFR Subpart A of Part 3. Federal administering agency: Department of Veterans Affairs, Veterans Benefits Administration. Purpose of program: To provide assistance to needy veterans, their dependents and survivors. Benefit/service: Cash assistance. Individual eligibility criteria: Veterans, age 65 and older or who are permanently and totally disabled (not due to military service or willful misconduct) regardless of age, who served in the active military for a minimum duration during a period of war, whose income is below a specified amount and whose net worth is not considered excessive. Also, surviving spouses and unmarried dependent children of deceased veterans who served in the active military for a minimum duration during a period of war, whose income is below a specified amount and whose net worth is not considered excessive. Form and recipient of federal assistance: Direct payment to individuals. Allocation formula: Not applicable. Matching or related requirements: Not applicable. New obligations: FY2009: $4.134 billion. FY2008: $3.777 billion. Budgetary classification: Mandatory (entitlement to individuals). Participation data: In FY2009, benefits were paid to 315,842 veterans and 194,807 survivors. CRS report: CRS Report RS22804, Veterans' Benefits: Pension Benefit Programs , by [author name scrubbed] and [author name scrubbed]. Temporary Assistance for Needy Families (CFDA #93.558) Authority: Statute: Title IV-A of the Social Security Act, established by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ( P.L. 104-193 ) and most recently reauthorized by the Claims Resolution Act of 2010 ( P.L. 111-291 ); 42 USC 601-619. Regulations: 45 CFR Parts 260-270. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Family Assistance. Purpose of program: To increase state flexibility in operating programs designed to (a) provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; (b) end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; (c) prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and (d) encourage the formation and maintenance of two-parent families. Benefit/service: Benefits or services reasonably calculated to achieve the four statutory goals above, and certain "grandfathered" activities conducted under predecessor program (Aid to Families with Dependent Children) prior to enactment of P.L. 104-193 . (More than 70% of total TANF federal and state expenditures in FY2009 were for noncash services, including child care, work activities, child welfare services, and various social services directed toward the statutory goals of family formation and reduced nonmarital pregnancies.) Cash assistance benefit levels are defined by the individual states. Individual eligibility criteria: Families with dependent children as determined eligible under income and asset criteria defined by the states. Form of assistance: Formula grants to states; competitive awards to public and private entities for healthy marriage promotion and responsible fatherhood grants. Allows participation by territories (American Samoa, Guam, Puerto Rico and the U.S. Virgin Islands) and federally recognized Indian tribes and certain Alaskan Native organizations. Allocation formula: The basic TANF block grant is allocated among states according to their peak expenditures for pre-TANF programs during the FY1992-FY1995 period. Supplemental TANF grants are provided to states that meet certain criteria of high population growth and/or low historic grants per poor person. TANF contingency funds are available to states that meet a test of economic "need" and increase spending from their own funds above what they spent in FY1994 on cash, emergency assistance, and job training in TANF's predecessor programs. For FY2009 (and FY2010), states could draw down additional funds from the TANF Emergency Contingency Fund, created by the American Recovery and Reinvestment Act (ARRA), which reimbursed states for increased expenditures on basic assistance, nonrecurring short-term benefits, and subsidized employment. Matching or related requirements: None. The basic TANF block grant requires states to maintain spending from their own funds on TANF or TANF-related activities for needy families with children equal to 75% of what was spent from state funds in FY1994 under TANF's predecessor programs. This maintenance-of-effort (MOE) requirement increases to 80% of FY1994 spending for states that fail to meet TANF work participation requirements. For the TANF contingency fund, a higher state spending requirement applies (100% of the historic level). New obligations: FY2009: $18.761 billion (includes $616 million under the American Recovery and Reinvestment Act). FY2008: $17.469 billion. Obligations are broken down as follows in this report, based on states' reporting of expenditures: FY2009 : $6.102 billion (cash assistance); $10.826 billion (social services); and $1.832 billion (employment and training). FY2008: $6.356 billion (cash assistance); $9.416 billion (social services); and $1.697 billion (employment and training). (Cash assistance and employment and training amounts include obligations under the TANF block grant, supplemental grants, territories and tribal grants, and contingency funds. Social services amounts include obligations under these grants as well as healthy marriage promotion and responsible fatherhood grants.) Budgetary classification: Mandatory (capped entitlement to states). Participation data: In June 2009, a total of 1.8 million families, composed of 4.3 million recipients (including 3.3 million children), received TANF- or MOE-funded cash assistance. In June 2010, a total of 1.9 million families, composed of 4.5 million recipients (including 3.4 million children), received TANF- or MOE-funded cash assistance. The larger number of individuals or families receiving any TANF- or MOE-funded benefit or service is not known. CRS report: CRS Report R40946, The Temporary Assistance for Needy Families Block Grant: An Introduction , by [author name scrubbed]. Supplemental Security Income (CFDA #96.006) Authority: Statute: Title XVI of the Social Security Act, established by the Social Security Amendments of 1973 (P.L. 92-603); 42 USC 1381-1383f. Regulations: 20 CFR Part 416. Federal administering agency: Social Security Administration. Purpose of program: To provide a minimum income for aged, blind or disabled individuals who have very limited income and assets. Benefit/service: Cash assistance. The basic federal SSI benefit is the same for all beneficiaries nationwide (reduced by any countable income). States may supplement the federal benefit. Individual eligibility criteria: Individuals who are aged 65 or older, blind or disabled (adults and children of any age), whose countable income and resources fall within certain specified limits. Form and recipient of federal assistance: Direct payments to individuals. Allows participation by individuals in the Northern Mariana Islands. Allocation formula: Not applicable. Matching or related requirements: Not applicable. However, states may supplement the federal benefit with their own funds. New obligations: FY2009: $52.446 billion. FY2008: $48.926 billion. Budgetary classification: Mandatory (entitlement to individuals). Participation data: In FY2009, a total of 7,691,602 beneficiaries received benefits, of which 263,386 received state supplements only. CRS reports: 94-486, Supplemental Security Income: A Fact Sheet , by Scott Szymendera; and CRS Report RL32279, Primer on Disability Benefits: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) , by [author name scrubbed]. Additional Child Tax Credit (no CFDA #) Authority: Statute: 26 USC 24, established by the Taxpayer Relief Act of 1997 ( P.L. 105-34 ). Regulations: no formal program-specific regulations. Federal administering agency: Internal Revenue Service. Purpose of program: To assist eligible parents with dependent children whose tax liability is not sufficient to receive the full benefit of the regular nonrefundable Child Tax Credit. Benefit/service: Refundable tax credit. Individual eligibility criteria: Families with qualifying children (i.e., under age 17) who have earned income above a specified threshold, and whose tax liability is not sufficient for them to receive the full benefit of the regular nonrefundable Child Tax Credit. Form and recipient of federal assistance: The credit is provided in a refund check. Allocation formula: Not applicable. Matching or related requirements: None. New obligations: FY2009: $24.284 billion. FY2008: $34.019 billion. (Note: FY2008 amount includes an unspecified amount of spending for a one-time tax rebate of $300 per child, as authorized by the Economic Stimulus Act of 2008, P.L. 110-185 , which was not targeted toward low-income families.) Budgetary classification: Mandatory (entitlement to individuals). Participation data: For tax year 2008, 18.2 million returns claimed the Additional Child Tax Credit. Earned Income Tax Credit (refundable portion) (no CFDA #) Authority: Statute: 26 USC 32, established by the Tax Reduction Act of 1975 ( P.L. 94-12 ). Regulations: 26 CFR 1.32. Federal administering agency: Internal Revenue Service, Earned Income Tax Credit Office. Purpose of program: To offset the burden of taxes, including Social Security taxes, and provide an incentive to work. Benefit/service: Tax credit to reduce the amount of income taxes owed; an eligible worker may receive the credit regardless of whether taxes are owed (i.e., the credit is refundable). Individual eligibility criteria: Families with qualifying children (i.e., under age 19 or 24 if a full-time student, or permanently or totally disabled) and childless adults (aged 25-64) who have earned income below specified levels. Form and recipient of federal assistance: The refundable portion of the credit can be provided in a refund check, or (prior to 2011) for eligible families with children, as an adjustment to income throughout the year. (This advance payment option was repealed for tax years beginning after Dec. 31, 2010, by P.L. 111-246 .) Allocation formula: Not applicable. Matching or related requirements: None. New obligations: FY2009: $42.418 billion. FY2008: $40.600 billion. Budgetary classification: Mandatory (entitlement to individuals). Participation data: For tax year 2008, 21.7 million returns claimed the refundable portion of the EITC. CRS report: CRS Report RL31768, The Earned Income Tax Credit (EITC): An Overview , by [author name scrubbed]. Food Assistance Supplemental Nutrition Assistance Program (formerly the Food Stamp Program) (CFDA #10.551) Authority: Statute: Food Stamp Act of 1964 (P.L. 88-525), renamed and most recently reauthorized as the Food and Nutrition Act of 2008, by the Food, Conservation and Energy Act of 2008 ( P.L. 110-246 ); 7 USC 2011-2036. Regulations: 7 CFR Part 271. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To alleviate hunger and malnutrition and permit low-income households to obtain a more nutritious diet by increasing their food purchasing power. Benefit/service: Cash benefits that can be used to purchase food, typically provided through electronic benefit transfer. Allotments are determined on the basis of a low-cost model diet plan (called the Thrifty Food Plan). An individual household's allotment is equal to the inflation-indexed maximum allotment for that household's size, reduced by 30% of the household's net monthly income (gross income, less allowances for non-food living expenses). Individual eligibility criteria: Eligible households must (1) have gross monthly income no higher than 130% of federal poverty guidelines and limited liquid assets (special, higher standards apply to households with elderly/disabled members) or (2) be categorically (automatically) eligible because they receive benefits/services financed by Temporary Assistance for Needy Families (TANF) programs or the Supplemental Security Income (SSI) program. Some individuals are categorically ineligible: most noncitizens, able-bodied adults without dependents (ABAWDs) after three months (unless they are working or in a work/training program), strikers, and post-secondary students without dependents who are not working or in a work/training program. Form and recipient of federal assistance: Direct benefits to individuals; grants to states for assistance with administrative costs and operating expenses for employment/training programs for recipients. Allows participation by territories (Guam and the U.S. Virgin Islands). Separate programs operate in Puerto Rico (described later in this report), American Samoa, the Northern Mariana Islands and on Indian reservations. Allocation formula: Not applicable. Matching or related requirements: None for expenditures on benefits; 50% for state administrative and the majority of employment/training expenditures. New obligations: FY2009: $53.763 billion (includes $4.478 billion under the American Recovery and Reinvestment Act). FY2008: $37.530 billion. (Benefits, state administration, employment and training program, and other program costs.) Obligations are broken down as follows in this report: FY2009: $53.396 billion (food assistance) and $367 million (employment and training). FY2008: $37.179 billion (food assistance) and $351 million (employment and training). Budgetary classification: Mandatory (entitlement to individuals, and open-ended entitlement to states for administrative costs). Participation data: In FY2009, average monthly participation was 33.49 million persons. CRS report: CRS Report RL33829, Domestic Food Assistance and the 2008 Farm Bill , by [author name scrubbed]. School Breakfast Program (Free and Reduced-Price Components) (CFDA #10.553) Authority: Statute: Section 4 of the Child Nutrition Act of 1966 (P.L. 89-642), most recently reauthorized by the Healthy, Hunger-Free Kids Act of 2010 ( P.L. 111-296 ); 42 USC 1773. Regulations: 7 CFR Part 220. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To promote learning readiness and healthy eating behaviors through provision of nutritious breakfasts. Benefit/service: Breakfasts that meet minimum federal nutrition standards and are served free or at reduced price by participating public and private elementary and secondary schools and residential child care institutions. Individual eligibility criteria: Children are eligible to receive free school breakfasts if their family income is below 130% of federal poverty guidelines, or if they receive Temporary Assistance for Needy Families (TANF) or Supplemental Nutrition Assistance Program (SNAP) benefits or services. Children are eligible to receive reduced-price school breakfasts if their family income is between 130% and 185% of federal poverty guidelines. Form and recipient of federal assistance: Cash is allocated to state educational agencies, which distribute benefits to participating schools and institutions to subsidize the costs of school breakfasts. Meals that are served free receive a higher subsidy than meals served at reduced price. Participating schools and institutions also receive a small subsidy for meals served at full price to non-needy children. Allows participation by territories (American Samoa, Guam, the Northern Marianas, Puerto Rico, and the U.S. Virgin Islands). Allocation formula: Inflation-adjusted per-meal reimbursement rates are specified for each type of breakfast served (free, reduced-price, full-price). Matching or related requirements: None, although children's meal payments help finance the cost of the program. New obligations: FY2009: $2.513 billion. FY2008: $2.307 billion. (Free and reduced-price components only.) Budgetary classification: Mandatory (open-ended entitlement to participating schools and institutions). Participation data: In FY2009, average monthly participation in the free and reduced-price components was 9.068 million children. CRS report: CRS Report R41354, Child Nutrition and WIC Reauthorization: Issues and Legislation in the 111 th Congress , by [author name scrubbed]. National School Lunch Program (Free and Reduced-Price Components) (CFDA #10.555) Authority: Statute: Richard B. Russell National School Lunch Act (P.L. 79-396), most recently reauthorized by the Healthy, Hunger-Free Kids Act of 2010 ( P.L. 111-296 ); 42 USC 1751-1769i. Regulations: 7 CFR Parts 210 and 245. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To safeguard the health and well-being of the nation's children and to encourage the domestic consumption of nutritious agricultural commodities and other food. Benefit/service: Lunches that meet minimum federal nutrition standards and are served free or at reduced price by participating public and private elementary and secondary schools and residential child care institutions. Individual eligibility criteria: Children are eligible to receive free school lunches if their household income is below 130% of federal poverty guidelines, or if they receive Temporary Assistance for Needy Families (TANF) or Supplemental Nutrition Assistance Program (SNAP) benefits or services. Children are eligible to receive reduced-price school lunches if their household income is between 130% and 185% of federal poverty guidelines. Form and recipient of federal assistance: Cash and commodity support are allocated to state educational agencies, which distribute benefits to participating schools and institutions to subsidize the costs of school lunches. Meals that are served free receive a higher subsidy than meals served at reduced price. Participating schools also receive a small subsidy for meals served at full price to non-needy children. Allows participation by territories (American Samoa, Guam, the Northern Marianas, Puerto Rico, and the U.S. Virgin Islands). Allocation formula: Inflation-adjusted per-meal reimbursement rates are specified for each type of lunch served (free, reduced-price, full-price). Matching or related requirements: None, although children's meal payments help finance the cost of the program. States must maintain the level of support they offered in 1980. New obligations: FY2009: $8.498 billion. FY2008: $7.863 billion. (Free and reduced-price components only.) Budgetary classification: Mandatory (open-ended entitlement to participating schools and institutions). Participation data: In FY2009, average monthly participation in the free and reduced-price components was 19.45 million children. CRS report: CRS Report R41354, Child Nutrition and WIC Reauthorization: Issues and Legislation in the 111 th Congress , by [author name scrubbed]. Special Supplemental Nutrition Program for Women, Infants and Children (WIC) (CFDA #10.557) Authority: Statute: Section 17 of the Child Nutrition Act of 1966, established by the National School Lunch Amendments (P.L. 92-433) and most recently reauthorized by the Healthy, Hunger-Free Kids Act of 2010 ( P.L. 111-296 ); 42 USC 1786. Regulations: 7 CFR Part 246. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To provide supplemental food and nutrition education to eligible women and children to serve as an adjunct to good health care during critical times of development, to prevent the occurrence of health problems, including drug abuse, and improve the health status of beneficiaries. Benefit/service: Food assistance (in the form of vouchers for the purchase of specifically prescribed food packages), nutrition risk screening, and related services (e.g., nutrition education and breastfeeding support, medical care referral). Individual eligibility criteria: Eligible individuals are pregnant, postpartum or breastfeeding women, infants (to age 1) or children (to age 5) who are at nutritional risk (as defined by the Secretary), and who have family income no greater than 185% of federal poverty guidelines or who receive or are eligible for benefits or services under the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), or Medicaid. Form and recipient of federal assistance: Formula grants to states. Allows participation by territories (American Samoa, Guam, Northern Mariana Islands, and the U.S. Virgin Islands) and Indian tribes and tribal organizations. Allocation formula: State allocations are based on a formula established through regulations that reflect food and caseload costs, inflation, and "need" as evidenced by poverty indices. Matching or related requirements: None. States are required to operate a cost containment system for infant formula, which results in manufacturers' rebates that reduce the cost of WIC food packages. New obligations: FY2009: $7.028 billion (includes $72 million under the American Recovery and Reinvestment Act). FY2008: $6.400 billion. Budgetary classification: Discretionary. Participation data: In FY2009, 9.1 million participants were served. CRS report: CRS Report R41354, Child Nutrition and WIC Reauthorization: Issues and Legislation in the 111 th Congress , by [author name scrubbed]. Child and Adult Care Food Program (Lower-Income Components) (CFDA #10.558) Authority: Statute: Section 17 of the Richard B. Russell National School Lunch Act, established by the National School Lunch and Child Nutrition Act Amendments ( P.L. 94-105 ) and most recently reauthorized by the Healthy, Hunger-Free Kids Act of 2010 ( P.L. 111-296 ); 42 USC 1766. Regulations: 7 CFR Part 226. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To enable nonresidential day care institutions to integrate a nutritious food service with organized care services for enrolled children or adults. Benefit/service: Breakfasts, lunches, suppers and snacks that meet minimum federal nutrition standards. Individual eligibility criteria: Eligible children are age 12 or under, migrant children age 15 or under, disabled children of any age; also eligible are chronically impaired and elderly adults. In centers, individuals are eligible to receive free meals/snacks if their household income is below 130% of federal poverty guidelines, or reduced-price meals/snacks if their household income is between 130% and 185% of federal poverty guidelines. Children whose families receive benefits or services under the Supplemental Nutrition Assistance Program (SNAP), Food Distribution Program on Indian Reservations (FDPIR), or Temporary Assistance for Needy Families (TANF) program are automatically eligible for free meals/snacks. Children who are income-eligible for Head Start or Even Start, or who are residents of emergency shelters, also are automatically eligible for free meals/snacks. Adults who receive SNAP, FDPIR, Supplemental Security Income (SSI) or Medicaid benefits are automatically eligible for free meals/snacks. Form and recipient of federal assistance: Cash and commodity support are allocated to state agencies, which distribute benefits to eligible public or private nonprofit centers and sponsoring organizations to subsidize the costs of meals and snacks. Meals that are served free receive a higher subsidy than meals served at reduced price. Participating institutions also receive a small subsidy for meals served at full price to non-needy children and adults. Allows participation by territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, Trust Territories of the Pacific, and the U.S. Virgin Islands). Allocation formula: Centers are reimbursed for meals based on the eligibility of participating children and adults for free, reduced-price, or full-price meals/snacks. Reimbursements to day care homes differ depending on whether they are "Tier 1" homes (located in low-income areas or operated by low-income providers) or "Tier 2" homes (not located in low-income areas or operated by low-income providers). Matching or related requirements: None. New obligations: FY2009: $2.217 billion. FY2008: $2.029 billion. (Lower-income components only.) Budgetary classification: Mandatory (open-ended entitlement to participating centers and sponsoring organizations). Participation data: In FY2009, total participation was 3.33 million persons; 82% of meals served to these participants were served either free or at reduced price. CRS report: CRS Report R41354, Child Nutrition and WIC Reauthorization: Issues and Legislation in the 111 th Congress , by [author name scrubbed]. Summer Food Service Program (CFDA #10.559) Authority: Statute: Section 13 of the Richard B. Russell National School Lunch Act, established by the National School Lunch and Child Nutrition Act Amendments ( P.L. 94-105 ) and most recently reauthorized by the Healthy, Hunger-Free Kids Act of 2010 ( P.L. 111-296 ); 42 USC 1761. Regulations: 7 CFR Part 225. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To help children in low-income areas get necessary nutrition during the summer months when they are out of school. Benefit/service: Meals and snacks. Individual eligibility criteria: Children age 18 or younger and certain individuals with disabilities over the age of 18, who live in low-income areas where at least half the children are from families with incomes below 185% of federal poverty guidelines (open sites), or who are enrolled in an activity program where half the children are from families with incomes below 185% of federal poverty guidelines (enrolled sites), and children from families with incomes below 185% of federal poverty guidelines at participating camps. Automatically eligible are homeless or runaway children and children in Head Start, Early Head Start, Even Start, or state-funded pre-kindergarten programs that have received authorized waivers. Form and recipient of federal assistance: Cash and commodity support are allocated to state educational agencies, which distribute benefits to approved local public or private nonprofit sponsors to subsidize the costs of meals. Meals that are served free receive a higher subsidy than meals served at reduced price. Allows participation by territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands). Allocation formula: Inflation-adjusted per-meal reimbursement rates are specified for the type of meal served (free or reduced-price). Matching or related requirements: None. New obligations: FY2009: $356 million. FY2008: $312 million. Budgetary classification: Mandatory (open-ended entitlement to approved sponsors). Participation data: In FY2009, a daily average of 2.23 million children participated. CRS report: CRS Report R41354, Child Nutrition and WIC Reauthorization: Issues and Legislation in the 111 th Congress , by [author name scrubbed]. Commodity Supplemental Food Program (CFDA #10.565) Authority: Statute: Sections 4(a) and 5 of the Agriculture and Consumer Protection Act of 1973 ( P.L. 93-86 ), most recently reauthorized by the Food, Energy and Conservation Act of 2008 ( P.L. 110-246 ); 7 USC 612c note. Regulations: 7 CFR Part 247 and 250. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To meet the nutritional needs of low-income elderly persons and pregnant, postpartum, and breastfeeding women, infants, children. Benefit/service: Food packages and nutrition education. Individual eligibility criteria: Eligible elderly participants (60 years or older) must have incomes below 130% of federal poverty guidelines; eligible women, infants (under one year of age) and children (under six years old) may have incomes up to 185% of federal poverty guidelines. Regardless of income, individuals may participate if they are eligible for the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), or Medicaid. Individuals who participate in the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) may not also participate in this program. Form and recipient of assistance: Formula grants and commodity support to states. Allows participation by territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands). Allocation formula: Funding and commodities are allocated among states according to the caseload, or number of slots, allotted to each project, which is based on previous participation levels. Subject to available appropriations, states may request additional caseload slots. Matching or related requirements: None. New obligations: FY2009: $165 million. FY2008: $141 million. Budgetary classification: Discretionary. Participation data: In FY2009, a monthly average of 467,000 persons participated. CRS report: CRS Report RL33829, Domestic Food Assistance and the 2008 Farm Bill , by [author name scrubbed]. Nutrition Assistance for Puerto Rico (CFDA #10.566) Authority: Statute: Food Stamp Act of 1977 ( P.L. 95-113 ), renamed and most recently reauthorized as the Food and Nutrition Act of 2008, by the Food, Conservation and Energy Act of 2008 ( P.L. 110-246 ); 7 USC 2028. Regulations: 7 CFR Part 285. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To improve diets of needy persons living in Puerto Rico. Benefit/service: Nutrition assistance benefits. Benefits are provided through electronic benefit transfers, and at least 75% must be used for food purchases. Individual eligibility criteria: "Needy" is defined by Puerto Rico. Form and recipient of federal assistance: Block grant to Puerto Rico. Allocation formula: An annually indexed amount is specified in law. Matching or related requirements: No match required for costs of benefits; 50% match required for administrative costs. New obligations: FY2009: $2.000 billion (includes $240 million under the American Recovery and Reinvestment Act). FY2008: $1.623 billion. Budgetary classification: Mandatory (capped entitlement to Puerto Rico). Participation data: In FY2009, a monthly average of 1.19 million individuals participated. CRS report: CRS Report RL33829, Domestic Food Assistance and the 2008 Farm Bill , by [author name scrubbed]. The Emergency Food Assistance Program (TEFAP) (CFDA #10.568 and 10.569) Authority: Statute: The Emergency Food Assistance Act of 1983 ( P.L. 98-8 ), most recently reauthorized by the Food, Conservation and Energy Act of 2008 ( P.L. 110-246 ); 7 USC 7501 et seq. Regulations: 7 CFR 251. Federal administering agency: Department of Agriculture, Food and Nutrition Service. Purpose of program: To supplement the diets of low-income Americans, including elderly people, by providing them with emergency food and nutrition assistance at no cost. Benefit/service: Food commodities that are distributed to local feeding programs and the administrative costs necessary to store and transport the commodities. Individual eligibility criteria: Eligible individuals must be needy as defined by the state. State criteria must ensure that only households in need of food assistance because of inadequate income receive assistance under the program. At state discretion, income-based criteria may be met through participation in other income-tested health or welfare programs. Form and recipient of federal assistance: Formula grants and commodities to states, which distribute funds and commodities among eligible local feeding organizations. Allows participation by Indian tribal organizations. Allocation formula: Commodities and funding are allocated among states according to a poverty-unemployment formula; 60% is allocated on the basis of a state's share of all persons with income below the poverty level, and 40% is based on a state's share of all unemployed persons. Matching or related requirements: Funds retained by states for administrative costs must be matched with an equal cash or in-kind contribution. States may not reduce their level of spending of their own funds on commodities or services to organizations receiving TEFAP funds in the later of FY1988 or the year the state began administering the TEFAP program. New obligations: FY2009: $425 million (includes $125 million under the American Recovery and Reinvestment Act). FY2008: $240 million. (Commodities and administrative costs.) Budgetary classification: Mandatory (capped/open-ended entitlement to states) and discretionary. Participation data: No data available. CRS report: CRS Report RL33829, Domestic Food Assistance and the 2008 Farm Bill , by [author name scrubbed]. Nutrition Program for the Elderly (CFDA #93.045) Authority: Statute: Title III of the Older Americans Act of 1965 (P.L. 89-73), most recently reauthorized by the Older Americans Act Amendments of 2006 ( P.L. 109-365 ); 42 USC 3030d-21 - g-22. Regulations: 7 CFR 250.42 and 45 CFR Parts 1321, 1326, 1328. Federal administering agency: Department of Health and Human Services, Administration on Aging. Purpose of program: To reduce hunger and food insecurity, promote socialization, and promote the health and well-being of older individuals and delay adverse health conditions through access to nutrition and other disease prevention and health promotion services. Benefit/service: Meals served in congregate settings, home-delivered meals, and related nutrition services (nutrition screening, education and assessment and counseling). Individual eligibility criteria: Individuals age 60 or older and their spouses. Individuals with disabilities younger than 60 who live in housing facilities occupied primarily by the elderly and where congregate meals are served also may receive congregate meals. To be eligible for home-delivered meals, individuals must be homebound or otherwise isolated. Preference is given to individuals with the greatest economic and social needs, with particular attention to low-income older individuals (i.e., having income no higher than federal poverty guidelines), including low-income minority older individuals, those with limited English proficiency, and those living in rural areas. Form and recipient of federal assistance: Formula grants to state agencies on aging, which make subgrants to local area agencies on aging. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands). A separate nutrition program for Native Americans is authorized under Title VI of the Older Americans Act. Allocation formula: Funds are allocated to states according to their relative share of the nation's population of older individuals (age 60 and over). States develop their own formulas for allocation of funds among local agencies, which must consider the geographic distribution of older individuals and older individuals with the greatest economic and social needs, paying particular attention to low-income minority households. Matching or related requirements: A nonfederal share of 25% is required for administrative activities, and a nonfederal share of 15% is required for nutrition services. New obligations: FY2009: $905 million (includes $97 million under the American Recovery and Reinvestment Act). FY2008: $756 million. (Congregate meals, home-delivered meals, and nutrition services incentive program.) Budgetary classification: Discretionary. Participation data: In FY2008, 1,656,634 clients received congregate meals; 909,913 received home-delivered meals; and 28,358 received nutrition counseling. C RS report: CRS Report RS21202, Older Americans Act: Title III Nutrition Services Program , by [author name scrubbed]. Housing and Development Single-Family Rural Housing Loans (Section 502) (CFDA #10.410) Authority: Statute: Section 502 of the Housing Act of 1949 (P.L. 81-171); 42 USC 1471 et seq. Regulations: 7 CFR Part 3550 Subpart B and 7 CFR Part 1980. Federal administering agency: Department of Agriculture, Rural Housing Service. Purpose of program: To assist low-income households in obtaining adequate but modest, decent, safe, and sanitary dwellings and related facilities in rural areas. Benefit/service: Guaranteed or direct loans to assist in purchasing homes; loans also can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including to provide water and sewage facilities. Individual eligibility criteria: For guaranteed loans, individuals may have incomes up to 115% of area median income. For direct loans, individuals must be either low-income (with incomes no higher than 80% of area median) or very low-income (with incomes no higher than 50% of area median). Form and recipient of federal assistance: Guaranteed or direct loans to individuals. Allows participation by residents of territories (American Samoa, Guam, Marshall Islands, Micronesia, Northern Marianas, Palau, Puerto Rico and the U.S. Virgin Islands). Allocation formula: Loan funds are allocated among states according to the state's share of rural substandard housing units, rural population in very small communities, rural households with incomes between 80% and 100% of area median income, and rural renter households paying more than 35% of income for rent. Matching or related requirements: Not applicable. New obligations: FY2009: $225 million. FY2008: $121 million. (Re-estimated direct and guaranteed loan subsidy outlays.) Budgetary classification: Discretionary. Participation data: In FY2009, 131,335 units received assistance. CRS report: CRS Report RL33421, USDA Rural Housing Programs: An Overview , by [author name scrubbed]. Rural Rental Assistance Payments (Section 521) (CFDA #10.427) Authority: Statute: Section 521 of the Housing Act of 1949, established by the Housing and Urban Development Act of 1968 (P.L. 90-448); 42 USC 1490. Regulations: 7 CFR Part 3560. Federal administering agency: Department of Agriculture, Rural Housing Service. Purpose of program: To reduce the rent paid by low-income households in eligible units financed under certain Rural Housing Service programs. Benefit/service: Rental subsidies for low-income tenants provided through payments to eligible property owners; payments make up the difference between the tenant's rental payment to the owner and the approved rent for the unit. Individual eligibility criteria: Eligible tenants must have incomes no greater than 80% of area median income, although most assistance is targeted toward tenants with incomes no greater than 50% of area median. Form and recipient of federal assistance: Direct payments to property owners. Allocation formula: The number of rental assistance units that may be subsidized is allocated among states according to each state's share of the rural population, rural housing units that are overcrowded and/or lack plumbing, and poor persons living in rural areas. Matching or related requirements: None. New obligations: FY2009: $902 million. FY2008: $479 million. Budgetary classification: Discretionary. Participation data: In FY2009, 202,525 units were under contract to be subsidized. CRS report: CRS Report RL33421, USDA Rural Housing Programs: An Overview , by [author name scrubbed]. Water and Waste Disposal for Rural Communities (CFDA #10.760) Authority: Statute: Section 306 of the Consolidated Farm and Rural Development Act of 1972 (P.L. 92-419), most recently amended and reauthorized by the Food, Conservation and Energy Act of 2008 ( P.L. 110-246 ); 7 USC 1926. Regulations: 7 CFR Parts 1779-1780. Federal administering agency: Department of Agriculture, Rural Utility Service. Purpose of program: To provide basic human amenities, alleviate health hazards, and promote the orderly growth of the nation's rural areas by meeting the need for new and improved rural water and waste disposal facilities. Benefit/service: Long-term low-interest loans and grants to support the installation, repair, improvement or expansion of rural water facilities. Loan interest rates are based on the economic health of the community and are lowest in communities where the median household income is 80% of the state nonurban median or the poverty level, or less. Individual eligibility criteria: There are no individual eligibility criteria. Eligible communities have populations of 10,000 or less and are unable to finance their projects through other means. Grants are targeted toward projects serving poorer communities. Form and recipient of federal assistance: Loans and formula grants to local governments and public and private organizations. Allows participation by territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, the U.S. Virgin Islands) and Indian tribes. Allocation formula: USDA allocates grant funds among its state rural development offices based on each state's rural population, number of households in poverty, and unemployment. Matching or related requirements: Grants and loans are intended to cover no more than 75% of project development costs in communities where median household income is 80% of the state nonurban median or the poverty level, or less; or 45% of project development costs in communities where median household income is higher than 80% but less than 100% of the state nonurban median. New obligations: FY2009: $1.370 million (includes $631 million from the American Recovery and Reinvestment Act). FY2008: $685 million. Budgetary classification: Discretionary. Participation data: No data available. CRS reports: CRS Report RL30478, Federally Supported Water Supply and Wastewater Treatment Programs , coordinated by [author name scrubbed]; and CRS Report RL31837, An Overview of USDA Rural Development Programs , by [author name scrubbed]. Public Works and Economic Development (CFDA #11.300) Authority: Statute: Section 201 of the Public Works and Economic Development Act of 1965 (P.L. 89-136), most recently reauthorized by the Economic Development Administration Reauthorization Act of 2004 ( P.L. 108-373 ); 42 USC 3141. Regulations: 13 CFR Part 305. Federal administering agency: Department of Commerce, Economic Development Administration. Purpose of program: To help the nation's most distressed communities revitalize, expand and upgrade their physical infrastructure to attract new industry, encourage business expansion, diversify local economies and generate or retain long-term private sector jobs and investments. Benefit/service: Assistance in the acquisition or development of land and improvements for use for a public works, public service, or development facility; and assistance in the acquisition, design and engineering, construction, rehabilitation, alteration, expansion, or improvement of such a facility, including related machinery and equipment. Individual eligibility criteria: There are no individual eligibility criteria. Eligible projects must be located in areas that have either: low per capita income (80% of the national average or lower); unemployment for the most recent 24-month period that is at least one percentage point higher than the national average; or a special need arising from actual or threatened severe unemployment or economic adjustment problems resulting from severe changes in economic conditions. Projects may be outside such an area if they would create significant employment opportunities for unemployed, underemployed, or low-income residents of such an area. Form and recipient of federal assistance: Competitive grants to economic development districts (i.e., areas designated by EDA which have sufficient size and resources to foster economic development and which have at least one area fitting the income, unemployment or special need criteria described above), states, local governments, institutions of higher education, or public or private nonprofit organizations and associations acting in cooperation with local governments. Allows participation by territories (American Samoa, Guam, Marshall Islands, Micronesia, Northern Marianas, Palau, Puerto Rico, and the U.S. Virgin Islands) and Indian tribes. Allocation formula: Not applicable. However, no more than 15% of available funds may be spent in a single state. Matching or related requirements: In general, the federal share is 50%, plus an additional federal share of no more than 30% based on the relative needs of the area where the project is located. Nonfederal contributions may be in cash or in-kind. At the discretion of the Secretary of Commerce, the federal share may be increased up to 100% for grants to Indian tribes, states or localities that have exhausted their effective taxing and borrowing capacity, or nonprofit organizations that have exhausted their borrowing capacity. New obligations: FY2009: $285 million (includes $147 million under the American Recovery and Reinvestment Act). FY2008: $170 million. Budgetary classification: Discretionary. Participation data: No data available. CRS report: CRS Report R41162, Economic Development Administration: Reauthorization and Funding Issues in the 111 th Congress , by [author name scrubbed] and [author name scrubbed]. Supportive Housing for the Elderly (CFDA #14.157) Authority: Statute: Section 202 of the U.S. Housing Act of 1959 (P.L. 86-372), most recently reauthorized by the American Homeownership and Economic Opportunity Act of 2000 ( P.L. 106-569 ); 12 USC 1701q. Regulations: 24 CFR Part 891. Federal administering agency: Department of Housing and Urban Development, Office of Housing. Purpose of program: To help expand the supply of affordable housing with supportive services for the elderly. Benefit/service: Financial assistance for development of supportive housing for the elderly, and rent subsidies for eligible tenants. Individual eligibility criteria: Very low-income households in which at least one member is at least 62 years old at the time of initial occupancy. Very low-income is defined as having income no greater than 50% of area median, adjusted for family size. Form and recipient of federal assistance: Interest-free capital advances to finance development costs, which do not have to be repaid as long as the project serves very low-income elderly residents for at least 40 years, and project-based rental assistance contracts to cover the difference between the HUD-approved operating costs for the project and the tenant's contribution toward rent. Assistance is provided to private nonprofit organizations and for-profit general partnerships where the sole general partner is a nonprofit organization. Allows participation by territories (Puerto Rico and the possessions of the U.S). Allocation formula: HUD uses a needs-based formula to allocate funds among HUD multifamily hubs, allocating 85% of funds to metropolitan areas and 15% to non-metropolitan areas, and considering relevant characteristics of the elderly population, such as the number of single elderly renters with incomes below 50% of area median income, and various housing factors. HUD awards funds to eligible applicants on a competitive basis. Matching or related requirements: None. New obligations: FY2009: $800 million. FY2008: $778 million. Budgetary classification: Discretionary. Participation data: In FY2009, 106,663 units were eligible for payment. (Note: Not all units may have been occupied in the year and some units may have served more than one household during the year.) CRS report: CRS Report RL33508, Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents , by [author name scrubbed]. Supportive Housing for Persons with Disabilities (CFDA #14.181) Authority: Statute: Section 811 of the Cranston-Gonzalez National Affordable Housing Act of 1990 ( P.L. 101-625 ), most recently reauthorized by the Frank Melville Supportive Housing Investment Act of 2010 ( P.L. 111-374 ); 42 USC 8013. Regulations: 24 CFR Parts 891 Subparts A, C and D. Federal administering agency: Department of Housing and Urban Development, Office of Housing. Purpose of program: To allow persons with disabilities to live as independently as possible in the community by increasing the supply of rental housing with the availability of supportive services. Benefit/service: Financial assistance for development of supportive housing for persons with disabilities, and rent subsidies for eligible tenants. Individual eligibility criteria: Very low-income households (which may include a single individual) in which at least one member is age 18 or older and has a disability, such as a physical or developmental disability or chronic mental illness. Very low-income is defined as having income no greater than 50% of area median, adjusted for family size. Form and recipient of federal assistance: Interest-free capital advances to finance development costs, which do not have to be repaid as long as the project serves very low-income disabled residents for at least 40 years, and project-based rental assistance contracts to cover the difference between the HUD-approved operating costs for the project and the tenant's contribution toward rent. Assistance is provided to private nonprofit organizations. Allocation formula: HUD uses a needs-based formula to allocate funds among HUD field offices based on the number of noninstitutionalized persons within the local office jurisdiction who are between the ages of 16 and 64 and have a disability. Field offices award funds to eligible applicants on a competitive basis. Matching or related requirements: None. New obligations: FY2009: $284 million. FY2008: $256 million. Budgetary classification: Discretionary. Participation data: In FY2009, 30,221 units were eligible for payment. (Note: Not all units may have been occupied in the year and some units may have served more than one household during the year.) In addition, 14,811 tenant-based vouchers were in use. CRS report: CRS Report RL34728, Section 811 and Other HUD Housing Programs for Persons with Disabilities , by [author name scrubbed]. Section 8 Project-Based Rental Assistance (CFDA #14.195) Authority: Statute: Section 8 of the U.S. Housing Act of 1937, established by the Housing and Community Development Act of 1974 ( P.L. 93-383 ); 42 USC 1437f. Regulations: 24 CFR Parts 5, 880, 881, 883, 884, 886 and 891 Subpart E. Federal administering agency: Department of Housing and Urban Development, Office of Housing. Purpose of program: To help very low-income families afford decent, safe and sanitary housing in the private market. Benefit/service: Rent subsidies tied to units in privately-owned multifamily housing properties. Tenants are expected to pay the highest of 30% of counted income, 10% of gross income, or, in states where applicable, the "welfare" rent. The program pays owners the difference between the tenant contribution and a previously negotiated rent. Individual eligibility criteria: Eligible families must be very low-income (with incomes no higher than 50% of area median income), but 40% of units that become available each year must be given to families that are extremely low-income (incomes no higher than 30% of area median income). In some limited circumstances, families may be low-income, with incomes as high as 80% of area median income. Form and recipient of federal assistance: Project-based rental assistance contracts between HUD and private property owners. HUD has not had the authority to enter into new contracts since 1983, but does have the authority to renew existing contracts when they expire. There are properties with project-based rental assistance contracts in the territories (U.S. Virgin Islands, Puerto Rico, and Guam). Allocation formula: None. Matching or related requirements: None. New obligations: FY2009: $9.391 billion (includes $1.991 billion under the American Recovery and Reinvestment Act). FY2008: $7.004 billion. Budgetary classification: Discretionary. Participation data: In FY2009, 1.279 million housing units were eligible for assistance payments. (Note: Not all units may have been occupied in the year and some units may have served more than one household during the year.) CRS report: CRS Report RL32284, An Overview of the Section 8 Housing Programs: Housing Choice Vouchers and Project-Based Rental Assistance , by [author name scrubbed]. Community Development Block Grants (CFDA #14.218 and #14.228) Authority: Statute: Title I of the Housing and Community Development Act of 1974 ( P.L. 93-383 ), most recently reauthorized by the Housing and Community Development Act of 1992 ( P.L. 102-550 ); 42 USC 5301 et seq. Regulations: 24 CFR Part 570. Federal administering agency: Department of Housing and Urban Development, Office of Community Planning and Development. Purpose of program: To develop viable urban communities by providing decent housing and a suitable living environment and expanding economic opportunities, principally for persons of low to moderate income. Benefit/service: Assistance with the acquisition of real property, relocation and demolition, rehabilitation of residential and non-residential structures, construction of public facilities and improvements, public services within certain limits, activities related to energy conservation and renewable energy resources, and assistance to nonprofit entities and to profit-motivated businesses to carry out economic development and job creation/retention activities. Individual eligibility criteria: There are no individual eligibility criteria. At least 70% of funds must be used for activities that benefit low- and moderate-income individuals. Low-income is defined as income no greater than 50% of the state or entitlement community's median; moderate-income is defined as income above 50% but no greater than 80% of the state or entitlement community's median. Form and recipient of federal assistance: Formula grants to "entitlement communities" (i.e., principal cities in metropolitan statistical areas, other metropolitan cities with populations of at least 50,000, and qualified urban counties with populations of at least 200,000); and states, which administer funds on behalf of non-entitlement communities (i.e., cities with populations of less than 50,000 and counties with populations of less than 200,000). HUD directly administers the state component of the program for Hawaii, which has elected not to participate in the program. Allows participation by territories (Puerto Rico, American Samoa, Guam, Northern Marianas, and the U.S. Virgin Islands) and Indian tribes. Allocation formula: Of available funds, 70% are allocated to entitlement communities according to a formula that considers various measures of community need, including the extent of poverty, population size, housing overcrowding, age of housing, and lag in population growth as compared to other metropolitan areas. The remaining 30% are allocated to states according to a formula that considers population, poverty, incidence of overcrowded housing, and age of the housing. Matching or related requirements: None. New obligations: FY2009: $4.733 billion (includes $965 million under the American Recovery and Reinvestment Act). FY2008: $3.645 billion. (Community Development Formula Grants and Indian Community Development Grants.) Budgetary classification: Discretionary. Participation data: No data available. Homeless Assistance Grants (CFDA #14.231, #14.235, #14.238, #14.249) Note: The following describes this program as it operated in FY2009; see CRS report listed below for discussion of changes made by the Helping Families Save Their Homes Act ( P.L. 111-22 ). Authority: Statute: Title IV of the McKinney-Vento Homeless Assistance Act, established by the Stewart B. McKinney Homeless Assistance Act ( P.L. 100-77 ) and most recently reauthorized by the Helping Families Save Their Homes Act ( P.L. 111-22 ); 42 USC Chapter 119, Subchapter IV. Regulations: 24 CFR Parts 576, 582, 583, and 882, Subpart H. (Homeless Assistance Grants consist of four programs administered through a consolidated budget account: Supportive Housing Program (SHP), Shelter Plus Care Program (S+C), Single Room Occupancy Program (SRO), and Emergency Shelter Grants Program (ESG).) Federal administering agency: Department of Housing and Urban Development, Office of Community Planning and Development. Purpose of program: SHP: To develop supportive housing and services that will allow homeless persons to live as independently as possible. S+C: To provide housing and supportive services on a long-term basis for homeless persons with disabilities and their families who are living in places not intended for human habitation or in emergency shelters. SRO: To expand the supply of single room occupancy units and use them to assist homeless persons. ESG: To provide homeless persons with basic shelter and essential support services and to prevent at-risk persons and families from becoming homeless. Benefit/service: SHP: Transitional housing for homeless individuals and families for up to 24 months, permanent housing for disabled homeless individuals, and supportive services. S+C: Rent subsidies for homeless individuals and their families, and supportive services. SRO: Permanent housing for homeless individuals in efficiency units similar to dormitories. ESG: Renovation, rehabilitation or conversion of buildings into homeless shelters, services such as employment counseling, health care and education, assistance with rent or utility payments to prevent homelessness. Individual eligibility criteria: SHP: Homeless individuals and their families, and, for permanent housing, disabled homeless individuals. S+C: Homeless individuals with disabilities (primarily those with serious mental illness, chronic drug or alcohol problems, and AIDS) and their families. SRO: Unaccompanied homeless individuals. ESG: Homeless individuals and families and families and individuals at risk of becoming homeless. Form and recipient of federal assistance: SHP: Competitive grants to states and local governments, public housing authorities, private nonprofit organizations, and community mental health centers. S+C: Competitive grants to states and local governments and public housing authorities. SRO: Competitive grants to public housing authorities and private nonprofit organizations. ESG: Formula grants to states, metropolitan cities and urban counties. Allows participation by territories (depending on the individual program: American Samoa, Guam, Northern Mariana Islands, Palau, Puerto Rico, Trust Territory of the Pacific, the U.S. Virgin Islands, and any other territory or possession of the United States). Allocation formula: SHP, S+C, SRO: Not applicable. ESG: Funds are allocated on the basis of population, poverty population, housing overcrowding, age of housing, and extent of growth lag. Matching or related requirements: SHP: Dollar-for-dollar cash matching is required for projects involving acquisition, rehabilitation or construction of new housing units; a 20% nonfederal cash match is required for supportive services; and a 25% nonfederal cash match is required for operating expenses. S+C: Grant funds used for rental assistance must be matched with an equal amount of resources used for supportive services. SRO: None. ESG: Dollar-for-dollar match (although first $100,000 provided to a state need not be matched), which might be in the form of cash or value of buildings, staff salaries or volunteer time. New obligations: FY2009: $2.861 billion (includes $1.485 billion under the American Recovery and Reinvestment Act). FY2008: $1.538 billion. Budgetary classification: Discretionary. Participation data: No data available. CRS report: CRS Report RL33764, The HUD Homeless Assistance Grants: Distribution of Funds , by [author name scrubbed]. Home Investment Partnerships Program (HOME) (CFDA #14.239) Authority: Statute: Title II of the Cranston-Gonzalez National Affordable Housing Act of 1990 ( P.L. 101-625 ); 42 USC 12722 et seq. Regulations: 24 CFR Part 92. Federal administering agency: Department of Housing and Urban Development, Office of Community Planning and Development. Purpose of program: To increase the number of families served with decent, safe, sanitary and affordable housing and expand the long-term supply of affordable housing; and to strengthen the ability of states and local governments to provide for housing needs. Benefit/service: Assistance for existing homeowners in repairing, rehabilitating or rebuilding their homes; assistance for homebuyers in the purchase or rehabilitation of a new home; assistance for developers or other organizations in the purchase or rehabilitation of affordable rental housing; and tenant-based rental assistance. Individual eligibility criteria: Recipient households may not have incomes above 80% of area median income. At least 90% of families receiving rental housing and tenant-based rental assistance must have incomes that are no more than 60% of area median income. Form and recipient of federal assistance: Formula grants to states and local participating jurisdictions, which are metropolitan cities or urban counties that meet certain minimum funding thresholds. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands). Allocation formula: Funds are allocated according to a formula that considers various housing quality and affordability factors, as well as certain income-related factors, including the number of older units in the jurisdiction occupied by poor households and the number of poor families in the jurisdiction. Matching or related requirements: Nonfederal matching of 25% is required. New obligations: FY2009: $1.911 billion. FY2008: $1.647 billion. Budgetary classification: Discretionary. Participation data: No annual program data are available. Between 1992 and 2009, there have been 391,669 completed homebuyer units, 349,390 completed rental units, 184,268 completed homeowner rehab units assisted through HOME (for a total of 925,563 units), along with 216,563 households receiving rental assistance. CRS report: CRS Report R40118, An Overview of the HOME Investment Partnerships Program , by [author name scrubbed]. Housing Opportunities for Persons with AIDS (HOPWA) (CFDA #14.241) Authority: Statute: AIDS Housing Opportunity Act, established by the Cranston-Gonzalez National Affordable Housing Act of 1990 ( P.L. 101-625 ) and most recently reauthorized by the Housing and Community Development Act of 1992 ( P.L. 102-550 ); 42 USC 12901-12912. Regulations: 24 CFR Parts 574.3-574.655. Federal administering agency: Department of Housing and Urban Development, Office of Community Planning and Development, Office of HIV/AIDS Housing. Purpose of program: To devise long-term comprehensive strategies for meeting the housing needs of persons with AIDS. Benefit/service: Housing assistance and related supportive services, including housing information services; acquisition, rehabilitation, conversion, lease, and repair of facilities to provide housing and services; new construction (for single room occupancy dwellings and community residences only); project- or tenant-based rental assistance; short-term rent, mortgage, and utility payments to prevent homelessness; supportive services such as health and mental health services, drug and alcohol abuse treatment and counseling, day care, nutritional services, intensive care when required, and aid in gaining access to other public benefits. Individual eligibility criteria: Eligible individuals are HIV-positive or have AIDS, and have incomes no higher than 80% of area median income. Form and recipient of federal assistance: 90% of funds are awarded as formula grants to states and eligible metropolitan statistical areas (MSAs) that meet minimum AIDS case requirements; 10% are competitively awarded to states, local governments, and nonprofit agencies. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Marshall Islands, Micronesia, Northern Mariana Islands, Palau, and the U.S. Virgin Islands). Allocation formula: Of formula funds, 75% (base funding) is awarded to eligible cities (MSAs with population of more than 500,000 and more than 1,500 cumulative reported AIDS cases) and to eligible states (those with more than 1,500 AIDS cases in areas outside of eligible MSAs); and the remaining 25% (bonus funding) is awarded on the basis of AIDS incidence during the past three years to MSAs that have populations of more than 500,000, more than 1,500 cumulative reported AIDS cases, and a higher than average per capita incidence of AIDS. Matching or related requirements: None. New obligations: FY2009: $318 million. FY2008: $310 million. Budgetary classification: Discretionary. Participation data: In program year 2008-2009, 56,627 households received permanent, transitional or emergency housing assistance. CRS report: CRS Report RL34318, Housing for Persons Living with HIV/AIDS , by [author name scrubbed]. Public Housing (CFDA #14.850, #14.872 and #14.866) Authority: Statute: Sections 9(d), 9(e), 24 and 30 of the U.S. Housing Act of 1937, as amended (P.L. 75-412); 42 USC 1437. Regulations: 24 CFR Parts 5 and 901-972. (Public Housing programs include Operating Fund, Capital Fund, and HOPE VI.) Federal administering agency: Department of Housing and Urban Development, Office of Public and Indian Housing. Purpose of program: To provide cost-effective, decent, safe and affordable rental housing for eligible low-income families, the elderly, and persons with disabilities; and for HOPE VI, to improve the living environment for public housing residents through demolition, rehabilitation and replacement of severely distressed housing units. Benefit/service: Subsidized publicly-owned rental housing units; eligible households pay rent equal to the highest of 30% of counted income, 10% of gross income, or, in states where applicable, the "welfare" rent. Individual eligibility criteria: Eligible households are low-income (defined as having income at or below 80% of area median income). At least 40% of households admitted each year must be extremely low-income households (defined as having income at or below 30% of area median income). Certain residents are required to participate in an economic self-sufficiency program or contribute 8 hours per month of community service. Form and recipient of federal assistance: Operating and Capital Funds: Formula grants to public housing authorities. HOPE VI: Competitive grants to public housing authorities. Includes public housing projects located in territories (Puerto Rico, the U.S. Virgin Islands, and Guam). Allocation formula: Operating Fund: Funds to support ongoing costs of operating public housing are allocated according to a formula intended to make up the difference between the costs of maintaining public housing and the amount of tenant-paid rent received by the public housing authority; amounts are prorated to fit within the amount appropriated annually by Congress. Capital Fund: Funds to support development, financing and modernization of public housing are allocated on the basis of relative need. Matching or related requirements: None. However, an indirect local contribution results from the difference between full local property taxes and payments in lieu of taxes that are made by local housing authorities. New obligations: FY2009: $10.843 billion (includes $3.977 billion under the American Recovery and Reinvestment Act). FY2008: $6.894 billion. (Operating Fund, Capital Fund, and HOPE VI.) Budgetary classification: Discretionary. Participation data: In FY2009, 1,128,891 public housing units were eligible for payment. (Note: Not all units may have been occupied in the year and some units may have served more than one household during the year.) CRS reports: CRS Report RL34591, Overview of Federal Housing Assistance Programs and Policy , by [author name scrubbed] et al., CRS Report RS22557, Public Housing: Fact Sheet on the Operating Fund Formula , by [author name scrubbed], and CRS Report RL32236, HOPE VI Public Housing Revitalization Program: Background, Funding, and Issues , by [author name scrubbed]. Indian Housing Block Grants (CFDA #14.867) Authority: Statute: Native American Housing and Self-Determination Act of 1996 ( P.L. 104-330 ), most recently reauthorized by the Native American Housing and Self-Determination Reauthorization Act of 2008 ( P.L. 110-411 ); 25 USC 4101 et seq. Regulations: 24 CFR Part 1000. Federal administering agency: Department of Housing and Urban Development, Office of Public and Indian Housing, Office of Native American Programs. Purpose of program: To provide housing assistance and, to the extent practicable, to assist in the development of private housing finance mechanisms on Indian lands to achieve the goals of economic self-sufficiency and self-determination for tribes and their members. Benefit/service: Housing development, assistance to housing developed under the former Indian Housing Program, housing services to eligible individuals and families, crime prevention and safety, and model activities that provide creative approaches to solving affordable housing problems. Individual eligibility criteria: Low-income Indian families living on Indian reservations and other Indian lands; low-income is defined as having income no greater than 80% of the area median. Non-low-income families may be served if such families have a need for housing that cannot otherwise be met. Assistance also may be provided to non-Indian families living on Indian reservations or Indian lands if the presence of such families on the reservation or Indian land is essential to the well-being of Indian families and their housing needs cannot reasonably be met otherwise. Housing assistance also may be provided to law enforcement officers if their presence on the reservation or Indian land may deter crime. Form of assistance: Formula grants to federally recognized Indian tribes or their tribally designated housing entity, and a limited number of state recognized Indian tribes that were funded under prior law. ("State" is defined to include American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, the U.S. Virgin Islands, and any other territory or possession of the United States.) Allocation formula: Funds are allocated among tribes according to a two-part formula based on "need" (e.g., Indian households with significant housing cost burdens, households that are overcrowded or lack kitchen or plumbing facilities, and number of Indian households at different levels of low-income) and "formula current assisted stock" (housing developed under the former Indian Housing Program and owned or operated by the grantee). Matching or related requirements: None. However, grant recipients must make annual user fee payments to compensate local governments for the costs of providing governmental services or must make payments in lieu of taxes to taxing authorities. New obligations: FY2009: $1.149 billion (includes $500 million under the American Recovery and Reinvestment Act). FY2008: $556 million. Budgetary classification: Discretionary. Participation data: In FY2009, the program assisted approximately 5,936 homeowners and more than 1,410 families in rental homes. Section 8 Housing Choice Vouchers (CFDA #14.871) Authority: Statute: Section 8 of the U.S. Housing Act of 1937, established by the Housing and Community Development Act of 1974 ( P.L. 93-383 ); 42 USC 1437f. Regulations: 24 CFR Parts 5 and 982. Federal administering agency: Department of Housing and Urban Development, Office of Public and Indian Housing. Purpose of program: To help very low-income families afford decent, safe and sanitary housing in the private market. Benefit/service: Tenant-based vouchers that can be used to subsidize the cost of privately-owned rental housing, chosen by tenants in the private market. Tenants are expected to pay an amount toward rent that is at least the greater of 30% of counted income, 10% of gross income, or, in states where applicable, the "welfare" rent. The program pays the balance, up to the payment standard set by the local public housing authority at between 90% and 110% of the HUD-established fair market rent for the unit. Public housing authorities may choose to "project-base" up to 20% of their vouchers, which means the subsidy is attached to a preselected unit of housing. However, tenants living in project-based voucher units are entitled to move with a tenant-based voucher, if they so choose, after one year. Individual eligibility criteria: Eligible families must be very low-income (with incomes no higher than 50% of area median income), but 75% of vouchers that become available each year must go to families that are extremely low-income (incomes no higher than 30% of area median income). In some limited circumstances, families may be low-income, with incomes as high as 80% of area median income. Form and recipient of federal assistance: Formula grants to public housing authorities. Includes public housing authorities in the territories (Puerto Rico, the U.S. Virgin Islands, Guam and Northern Mariana Islands). Allocation formula: Congress typically specifies the allocation formula in annual appropriations laws. For FY2009, funds to renew existing vouchers were provided to public housing authorities according to their utilization rates and costs from the prior year, adjusted for inflation. Matching or related requirements: None. New obligations: FY2009: $16.289 billion. FY2008: $15.552 billion. Budgetary classification: Discretionary. Participation data: In FY2009, 2.097 million vouchers were in use. CRS report: CRS Report RL32284, An Overview of the Section 8 Housing Programs: Housing Choice Vouchers and Project-Based Rental Assistance , by [author name scrubbed]. Neighborhood Stabilization Program-1 (no CFDA #) Authority: Statute: Division B, Title III of the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ); 42 USC 5301 note. Regulations: 73 FR 58330. Federal administering agency: Department of Housing and Urban Development, Office of Community Planning and Development. Purpose of program: To assist in the rehabilitation of abandoned and foreclosed homes, to reverse blight conditions, and to stabilize home values and the property tax base of affected communities. Benefit/service: Assistance with the purchase, rehabilitation, and resale of abandoned and foreclosed homes and residential properties, demolition of blighted structures, and redevelopment of blighted and vacant properties. Individual eligibility criteria: Individuals and families who benefit from the program must have incomes no higher than 120% of area median income. At least 25% of appropriations must be used to purchase or rehabilitate residential structures that will be used to house individuals or families with incomes no higher than 50% of area median income. Form and recipient of federal assistance: Formula grants to states and local governments. Allows participation by territories (Puerto Rico, Guam, the Northern Marianas, American Samoa and the U.S. Virgin Islands). Allocation formula: Funds are allocated on the basis of the number and percentage of home foreclosures in the state or locality, the number and percentage of subprime mortgages in the state or locality, and the number of homes in default or delinquency in the state or locality. Matching or related requirements: None. New obligations: FY2009: $3.920 billion. FY2008: None (program not authorized). Budgetary classification: Mandatory. Participation data: No data available. CRS report: CRS Report RS22919, Community Development Block Grants: Neighborhood Stabilization Program; Assistance to Communities Affected by Foreclosures , by [author name scrubbed] and [author name scrubbed]. Grants to States for Low-Income Housing Projects In Lieu of Low-Income Housing Credit Allocations (no CFDA #) Authority: Statute: Section 1602 of Division B of the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). Regulations: 31 CFR Part 32. Federal administering agency: Department of Treasury. Purpose of program: To support the construction and rehabilitation of affordable housing typically financed with funds from the Low-Income Housing Tax Credit (LIHTC) program. Benefit/service: Grants are provided in lieu of tax credits to help finance the construction or acquisition and rehabilitation of qualified buildings that will provide rent-restricted rental units to low-income households. Individual eligibility criteria: Qualified projects must meet one of the following tests: at least 20% of units must be rent-restricted and occupied by households with incomes at or below 50% of area median income; or at least 40% of units must be rent-restricted and occupied by households with incomes at or below 60% of area median income. Form and recipient of federal assistance: Grants to state housing credit agencies. Allows participation by territories (American Samoa, Guam, Puerto Rico and the U.S. Virgin Islands). Allocation formula: States could elect to exchange for grants all of their unused and returned 2008 tax credit allocation, 40% of their 2009 tax credit allocation, and 40% of any allocation in 2009 made from the national LIHTC pool. Tax credits could be exchanged for grants at a rate of $0.85 on the dollar. Annual tax credit allocations are determined on the basis of each state's population. Matching or related requirements: No matching requirements for the grant program; however, the LIHTC (and this related grant program) are intended to finance only part of a project and are typically combined with other resources. New obligations: FY2009: $2.465 billion (entirely appropriated under ARRA). FY2008: None (program not authorized). Budgetary classification: Mandatory. Participation data: No data available. CRS report: CRS Report RS22389, An Introduction to the Design of the Low-Income Housing Tax Credit , by [author name scrubbed]. Tax Credit Assistance Program (no CFDA #) Authority: Statute: Division A, Title XII of the American Recovery and Reinvestment Act ( P.L. 111-5 ). Regulations: no formal program-specific regulations. Federal administering agency: Department of Housing and Urban Development, Office of Community Planning and Development. Purpose of program: To make funds available for capital investments in Low-Income Housing Tax Credit (LIHTC) projects where the additional funds can be spent within specified deadlines. Benefit/service: Assistance is provided to owners of projects who received an award of LIHTCs. Individual eligibility criteria: To qualify for LIHTCs, projects must meet one of the following tests: at least 20% of units must be rent-restricted and occupied by households with incomes at or below 50% of area median income; or at least 40% of units must be rent-restricted and occupied by households with incomes at or below 60% of area median income. Form and recipient of federal assistance: Formula grants to state housing credit agencies, which competitively award funds to project owners. Allows participation by Puerto Rico. Allocation formula: Funds are allocated among states according to each state's percentage of FY2008 HOME awards. Matching or related requirements: None. However, the LIHTC is intended to finance only part of a project and is typically combined with other resources. New obligations: FY2009: $2.250 billion (entirely appropriated under ARRA). FY2008: none (program not authorized). Budgetary classification: Discretionary. Participation data: No data available. CRS reports: CRS Report RS22389, An Introduction to the Design of the Low-Income Housing Tax Credit , by [author name scrubbed]; and CRS Report R40118, An Overview of the HOME Investment Partnerships Program , by [author name scrubbed]. Education Indian Education (CFDA #15.026, 15.028, 15.042, 15.043, 15.044, 15.046, 15.047, 15.058, 15.059, 15.060, 15.130, 15.114) Authority: Statute: Snyder Act of 1921 (P.L. 67-85), Johnson-O'Malley Act of 1934 (P.L. 73-167), Indian Adult Vocational Training Act of 1956 (P.L. 84-959), Navajo Community College Act (P.L. 92-189), Indian Self-Determination and Education Assistance Act of 1978 ( P.L. 93-638 ), Tribally Controlled College Assistance Act ( P.L. 95-471 ), Education Amendments of 1978 ( P.L. 95-561 ), Tribally Controlled Schools Act of 1988 ( P.L. 100-297 ), and Tribal Self-Governance Act of 1994 ( P.L. 103-413 ); 25 USC 13, 309 et seq., 450 et seq., 640a, Chapters 7, 20, 22, 27, 28, and 35. Regulations: 25 CFR Part 30-47, 273, 900-1001. Federal administering agency: Department of Interior, Bureau of Indian Education. Purpose of program: To provide comprehensive education programs and services for American Indians and Alaska Natives; to provide quality education opportunities from early childhood through life in accordance with the tribes' needs for educational, cultural and economic well-being in keeping with the wide diversity of Indian tribes and Alaska Native villages as distinct cultural and governmental entities. Benefit/service: Preschool, elementary, secondary, postsecondary and adult education at BIE-funded institutions, public schools, and postsecondary institutions; financial assistance for postsecondary education at accredited institutions. Individual eligibility criteria: Eligible children and postsecondary students are members of federally recognized Indian tribes or at least one-fourth degree Indian blood descendants of such members, and (for elementary and secondary students) live on or near a federal Indian reservation; members of federally recognized tribes who are accepted or enrolled at an accredited institution of higher education and are determined to have financial need by the institution's financial aid office. Form and recipient of federal assistance: Services are provided at BIE schools and institutions, public schools, and tribally controlled colleges and universities; postsecondary assistance is provided directly to students. Allocation formula: Depending on the individual program, funds are allocated to BIE-funded elementary and secondary schools based on number of students and their academic needs, commercial transportation costs, and the number of weighted bus miles driven; to tribes and tribal organizations based on the number of eligible preschool-age children and an administrative cost percentage rate; to tribes, states and public school districts based on historic funding in FY1995 and the number of Indian students served; to tribally controlled colleges based on Indian student counts and previous year allocations; and to BIE postsecondary schools based on prior allocations and unmet need. Matching or related requirements: None. New obligations: FY2009: $699 million. FY2008: $684 million. Budgetary classification: Discretionary. Participation data: In school year 2008-2009, an "average daily membership" of 40,710 students was reported at BIE-funded schools. Early childhood programs served 2,297 children and 2,286 parents in 2008-2009. BIE-funded postsecondary schools enrolled 2,042 students in academic year 2008-2009. Tribal colleges enrolled 24,572 students in academic year 2008-2009. CRS report: CRS Report RL34205, Federal Indian Elementary-Secondary Education Programs: Background and Issues , by [author name scrubbed]. Adult Basic Education Grants to States (CFDA #84.002) Authority: Statute: Adult Education and Family Literacy Act, most recently reauthorized by Title II of the Workforce Investment Act of 1998 ( P.L. 105-220 ); 20 USC 9201 et seq. Regulations: no formal program-specific regulations. Federal administering agency: Department of Education, Office of Vocational and Adult Education, Division of Adult Education and Literacy. Purpose of program: To assist adults to become literate and obtain the knowledge and skills necessary for employment and self-sufficiency, to assist adults who are parents obtain the educational skills necessary to become full partners in the educational development of their children, and to assist adults in completing a secondary school education. Benefit/service: Adult education and literacy services, including workplace literacy services; family literacy services; and English literacy programs. Individual eligibility criteria: Qualified adults are individuals age 16 or older, who are not enrolled or required to be enrolled in secondary school under their state law, and who lack sufficient mastery of basic educational skills to function effectively in society, or who lack a secondary school diploma or equivalent and have not achieved an equivalent level of education, or who cannot speak, read or write the English language. Form and recipient of federal assistance: Formula grants to state agencies (typically state educational agencies), which fund local projects on a competitive basis. Eligible providers include local educational agencies, community-based organizations, volunteer literacy organizations, institutions of higher education, public or private nonprofit agencies, libraries, public housing authorities, other nonprofits with the ability to provide literacy services to adults and families, and consortia of eligible entities. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Marshall Islands, Micronesia, Northern Mariana Islands, Palau, and the U.S. Virgin Islands). Allocation formula: Funds are allocated among states based on their relative number of qualified adults. Hold-harmless provisions apply. Matching or related requirements: A 25% nonfederal match is required for states. New obligations: FY2009: $572 million. FY2008: $555 million. Budgetary classification: Discretionary. Participation data: In FY2009, there was an estimated total of 2,537,662 participants. CRS report: CRS Report R41135, The Workforce Investment Act and the One-Stop Delivery System , by [author name scrubbed]. Federal Supplemental Educational Opportunity Grants (CFDA #84.007) Authority: Statute: Title IV, Part A, Subpart 3 of the Higher Education Act of 1965, most recently reauthorized by the Higher Education Opportunity Act ( P.L. 110-315 ); 20 USC 1070b. Regulations: 34 CFR Parts 673 and 676. Federal administering agency: Department of Education, Office of Federal Student Aid. Purpose of program: To promote access to postsecondary education for low-income undergraduate students. Benefit/service: Grants to help students with the costs of postsecondary education. Individual eligibility criteria: Eligible students are undergraduate students who demonstrate financial need. Students demonstrate financial need if the cost of attendance of their school exceeds the sum of their expected family contribution (EFC) and estimated financial assistance from other sources. A student's EFC is determined according to an analysis of income and asset information reported on the Free Application for Federal Student Aid (FAFSA). Financial aid administrators must give priority in awarding FSEOG aid to students who are Pell Grant recipients and to those with exceptional financial need. Form and recipient of federal assistance: Formula grants to institutions of higher education. Recipient institutions use federal funds and institutional matching funds to award aid to eligible students. Allows participation by citizens of Palau. Allocation formula: Federal capital contributions are allocated among participating institutions first according to a statutory formula that provides a "base guarantee" that is based on past funding amounts and, if funds remain, then according to a need-based formula that considers institutional need (as measured by the aggregate need of the institution's undergraduate students). Matching or related requirements: Participating institutions must provide a match equal to one-third of the federal funds received. New obligations: FY2009: $760 million. FY2008: $759 million. Budgetary classification: Discretionary. Participation data: In academic year 2008-2009, a total of 1,451,213 students received grants. CRS report: CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act , by [author name scrubbed]. Education for the Disadvantaged—Grants to Local Educational Agencies (CFDA #84.010) Authority: Statute: Title I-A of the Elementary and Secondary Education Act (P.L. 89-10), most recently reauthorized by the No Child Left Behind Act ( P.L. 107-110 ); 20 USC 6301-6339, 6571-6578. Regulations: 34 CFR Part 200. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Office of Student Achievement and School Accountability Programs. Purpose of program: To ensure that all children have a fair, equal and significant opportunity to obtain a high-quality education and reach, at a minimum, proficiency on challenging state academic achievement standards and state academic assessments. Benefit/service: Additional academic support and learning opportunities for students in pre-kindergarten through grade 12 to help low-achieving children master challenging curricula and meet state standards in core academic subjects. Individual eligibility criteria: Within local educational agencies (LEAs), funds are allocated to school attendance areas and schools in rank order based on their number of children from low-income families. Schools in which at least 40% of children are poor may operate schoolwide programs that serve all children. Otherwise, schools must focus services on children who are failing or most at risk of failing state academic standards. Form and recipient of federal assistance: Formula grants to local educational agencies (LEAs). Allows participation by territories (Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and Northern Mariana Islands). Allocation formula: Portions of available annual funds are allocated under four different formulas—Basic, Concentration, Targeted, and Education Finance Incentive Grants (EFIG)—although funds are then combined and used for the same purposes by recipient LEAs. Although the allocation formulas have several distinctive elements, the primary factors used in all four formulas are an eligible child count and an expenditure factor. The eligible child count includes children aged 5-17: (a) in poor families; (b) in institutions for neglected or delinquent children or in foster homes; and (c) in families receiving Temporary Assistance for Needy Families payments above the poverty level. Each element of the population factor is updated annually. The expenditure factor is the state average per pupil expenditure for public K-12 education (subject to a minimum of 80% and maximum of 120% of the national average, further multiplied by 0.40), and is the same for all LEAs in the same state. Both the Targeted and EFIG formulas include weighting schemes to increase aid to LEAs with the highest numbers or concentrations of eligible children. The EFIG formula also includes an effort factor, based on average per pupil expenditure for public K-12 education compared to personal income per capita for each state compared to the nation as a whole, and an equity factor, based on variations in average per pupil expenditures among the LEAs in each state. Each formula has a hold-harmless provision (no LEA may receive less than 85%-95% of its previous year grant, depending on the LEA's poverty level and whether the LEA continues to meet the formula's eligibility threshold). All four formulas have state minimum grant provisions. Matching or related requirements: Three requirements apply to total LEA grants under all four formulas: (1) maintenance of effort : recipient LEAs must provide, from state and local sources, a level of funding (either aggregate or per pupil) in the preceding year that is at least 90% as high as in the second preceding year; (2) funds must supplement and not supplant state and local funds that would otherwise be available for the education of disadvantaged pupils in participating schools; and (3) comparability: services provided with state and local funds in schools participating in Title I-A must be comparable to those in non-Title I-A schools of the same LEA. New obligations: FY2009: $21.495 billion (includes $9.936 billion under the American Recovery and Reinvestment Act). FY2008: $13.352 billion. Budgetary classification: Discretionary. Participation data: For school year 2008-2009, about 19.2 million public and private school students were served (of which about 217,000 students were served in private schools). The majority of students (17.2 million or 89.8%) were served through schoolwide programs in public schools. CRS report: CRS Report RL33960, The Elementary and Secondary Education Act, as Amended by the No Child Left Behind Act: A Primer , by [author name scrubbed]. Title I Migrant Education Program (CFDA #84.011) Authority: Statute: Title I, Part C of the Elementary and Secondary Education Act of 1965 (P.L. 89-10), most recently reauthorized by the No Child Left Behind Act ( P.L. 107-110 ); 20 USC 6391-6399. Regulations: 34 CFR 200 Subpart C. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Office of Migrant Education. Purpose of program: To help reduce educational and other disruptions that result from repeated moves by migratory children; to ensure that migratory children are not penalized by education disparities among states; to ensure that migratory children receive appropriate educational and supportive services; to ensure that migratory students have opportunities to meet the same challenging standards as other students; and to prepare migratory children for a successful transition to postsecondary education or employment. Benefit/service: Education and support services, including academic instruction, remedial and compensatory instruction, bilingual and multicultural instruction, vocational instruction, career education services, special guidance, counseling and testing services, health services, preschool services, professional development, and family literacy instruction. Individual eligibility criteria: Eligible children (or their parent or spouse) are migratory agricultural workers, dairy workers, or fishermen and who, in the preceding 36 months, have moved from one school district to another for employment, or have moved for employment from one administrative area to another in a state that constitutes a single school district, or who live in a school district greater than a specified size and migrate at least 20 miles to a temporary residence to engage in a fishing activity. Form and recipient of federal assistance: Formula grants to state educational agencies, consortia of states and other appropriate entities, or public or private nonprofit agencies, which may make subgrants to local operating agencies that may include local educational agencies and other public and nonprofit entities. Allows participation by Puerto Rico. Allocation formula: Federal funds are allocated by formula, based on each state's per pupil expenditure for education and counts of eligible migratory children, ages 3 through 21, residing within the state. Matching or related requirements: None. New obligations: FY2009: $395 million. FY2008: $380 million. (Appropriations.) Budgetary classification: Discretionary. Participation data: During school year 2007-2008, the program served 650,007 students. (Note: This is a duplicated count; students may be counted more than once as they migrate to different schools during a single school year.) CRS report: CRS Report RL33960, The Elementary and Secondary Education Act, as Amended by the No Child Left Behind Act: A Primer , by [author name scrubbed]. Higher Education—Institutional Aid and Developing Institutions (CFDA #84.031, #84.120, #84.382) Authority: Statute: Titles III, V and VII of the Higher Education Act of 1965, most recently reauthorized by the Higher Education Opportunity Act ( P.L. 110-315 ) and the Health Care and Education Reconciliation Act of 2010 ( P.L. 111-152 ); 20 USC 1051-1068h and 1101-1103g. Regulations: 34 CFR 606, 607, 608, 637. (Programs include Strengthening Institutions, Strengthening Tribally Controlled Colleges and Universities, Strengthening Alaska Native and Native Hawaiian-serving Institutions, Strengthening Historically Black Colleges and Universities, Strengthening Historically Black Graduate Institutions, Masters Degree Programs for Historically Black Colleges and Universities and Predominantly Black Institutions, Strengthening Predominantly Black Institutions, Strengthening Asian American and Native American Pacific Islander-serving Institutions, Strengthening Native American-serving Nontribal Institutions, Minority Science and Engineering Improvement, Developing Hispanic-serving Institutions, Developing Hispanic-serving STEM and Articulation Programs, and Promoting Postbaccalaureate Opportunities for Hispanic Americans.) Federal administering agency: Department of Education, Office of Postsecondary Education, Institutional Development and Undergraduate Education Programs. Purpose of program: To assist institutions of higher education that serve high percentages of low-income and minority students in improving their management, fiscal operations, and educational quality, to ensure access and equal educational opportunity for low-income and minority students. Benefit/service: Possible activities are broad and depend on the specific program. They may include but are not limited to assistance in planning, faculty development, and establishing endowment funds; administrative management; development and improvement of academic programs; equipment and facilities improvement, acquisition, and construction; debt reduction; staff development and tutoring. Individual eligibility criteria: There are no individual eligibility criteria. Institutional eligibility criteria differ for each program; e.g., eligible institutions must be institutions of higher education that have a high enrollment of needy students, have low educational and general expenditures per student, be accredited; be a historically black college or university; be listed in statute; be institutions of higher education with high minority enrollment; or be science-oriented societies or organizations. Form and recipient of federal assistance: Competitive and formula grants to institutions of higher education (and nonprofit organizations in the case of the Minority Science and Engineering Program). Certain grants allow participation by institutions in territories (the College of the Marshall Islands, the College of Micronesia, Palau Community College, institutions of higher education in Guam, Puerto Rico, the U.S. Virgin Islands, American Samoa, and Northern Mariana Islands) and by tribal colleges and universities. Allocation formula: Depending on the program, factors may include Indian student enrollment, enrollment of Pell Grant recipients, number of graduates, number of graduates seeking a higher degree, student enrollment, cost of education per student, and percentage of total degrees awarded to African-American students by the applicant institution. Matching or related requirements: Funds must supplement and not supplant any funds that would otherwise be used for the same purposes. Funds used for endowment must be matched, if permitted. New obligations: FY2009: $801 million. FY2008: $755 million. Budgetary classification: Discretionary and mandatory. Participation data: No data available. Federal Work-Study (CFDA #84.033) Authority: Statute: Title IV, Part C of the Higher Education Act of 1965, most recently reauthorized by the Higher Education Opportunity Act ( P.L. 110-315 ); 42 USC 2751-2756b. Regulations: 34 CFR Parts 673 and 675. Federal administering agency: Department of Education, Office of Federal Student Aid. Purpose of program: To assist students in financing the costs of postsecondary education. Benefit/service: Federally subsidized part-time employment for students. Individual eligibility criteria: Eligible students are undergraduate, graduate and professional students who demonstrate financial need. Students demonstrate financial need if the cost of attendance of their school exceeds the sum of their expected family contribution (EFC) and estimated financial assistance from other sources. A student's EFC is determined according to an analysis of income and asset information reported on the Free Application for Federal Student Aid (FAFSA). Students must be willing to work to receive Federal Work Study (FWS) assistance. Form and recipient of federal assistance: Formula grants to institutions of higher education. Recipient institutions combine federal funds and matching funds from FWS employers to compensate eligible students employed in part-time work-study jobs. Allows participation by citizens of Palau. Allocation formula: Federal capital contributions are allocated among participating institutions first according to a statutory formula that provides a "base guarantee" that is based on past funding amounts and, if funds remain, then according to a need-based formula that considers institutional need (as measured by the aggregate need of the institution's students). Matching or related requirements: Student compensation is comprised of a federal share and an employer share. In general, the federal share is 75%, but may range between 50% and 100%. The remaining share is provided by the FWS employer. New obligations: FY2009: $1.156 billion (includes $200 million under the American Recovery and Reinvestment Act). FY2008: $989 million. Budgetary classification: Discretionary. Participation data: In academic year 2008-2009, a total of 677,915 students participated. CRS report: CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act , by [author name scrubbed]. Federal TRIO Programs (CFDA #84.042, #84.044, #84.047, #84.066, #84.103, #84.217) Authority: Statute: Title IV, Part A, Subpart 2, Chapter 1 of the Higher Education Act of 1965, most recently reauthorized by the Higher Education Opportunity Act ( P.L. 110-315 ); 20 USC 1070a-11 – 1070a-18. Regulations: 34 CFR Parts 642-647. (Federal TRIO programs consist of: Student Support Services, Talent Search, Upward Bound, Educational Opportunity Centers, Staff Training, and Ronald E. McNair Postbaccalaureate Achievement.) Federal administering agency: Department of Education, Office of Postsecondary Education, TRIO Programs. Purpose of program: To motivate and support students from disadvantaged backgrounds through outreach and support programs designed to help them move through the academic pipeline from middle school to postbaccalaureate programs. Benefit/service: Depending on the program, academic instruction; personal, academic and career counseling; tutoring; exposure to cultural events and academic programs; information on the availability of financial and academic assistance available for postsecondary education; assistance in filling out college applications and financial aid request forms; summer internships; research opportunities; stipends; grant aid; and staff development. Individual eligibility criteria: Specific eligibility requirements differ among the TRIO programs but generally require that two-thirds of participants be low-income students who are first-generation college students. Low-income is defined as income no greater than 150% of federal poverty guidelines. The programs also target to varying extents students from educationally underrepresented groups, students with disabilities, low-income students, first generation college students, students at high risk of academic failure, and military veterans. Form and recipient of federal assistance: Competitive grants to institutions of higher education, public and private organizations, secondary schools, and consortia of such entities. Allows participation by agencies or institutions in territories (American Samoa, Puerto Rico, the U.S. Virgin Islands, Micronesia, the Marshall Islands, or Palau). Allocation formula: Not applicable. Matching or related requirements: None. New obligations: FY2009: $905 million. FY2008: $885 million. Budgetary classification: Discretionary and mandatory. Participation data: In FY2009, the programs served a total of 2,613,890 students. (Note: This is a duplicated count; some students may have participated in more than one TRIO program.) Federal Pell Grants (CFDA #84.063) Note: The following describes this program as it operated in FY2009; see CRS report listed below for discussion of changes made by the Health Care and Education Reconciliation Act of 2010 ( P.L. 111-152 ). Authority: Statute: Title IV, Part A, Subpart 1 of the Higher Education Act of 1965, most recently reauthorized by the Higher Education Opportunity Act ( P.L. 110-315 ); 20 USC 1070a. Regulations: 34 CFR 690. Federal administering agency: Department of Education, Office of Federal Student Aid. Purpose of program: To promote access to postsecondary education for low-income students. Benefit/service: Need-based grants (size of grant is capped by law) to eligible students at participating institutions of higher education. Individual eligibility criteria: Eligible students may be undergraduate or certain other post baccalaureate students in good academic standing, who demonstrate financial need as determined through analysis of income and asset information provided in their Free Application for Federal Student Aid (FAFSA). This need analysis determines the student's expected family contribution (EFC) toward their education and the amount of federal student aid they may be eligible to receive. Form and recipient of federal assistance: Funds are provided to participating institutions of higher education to pay eligible students; participating institutions also receive an administrative allowance per student. Individual students receive assistance either by payment to school account, direct payment (usually by check), or a combination of these methods. Allows participation by citizens of territories (American Samoa, Guam, Micronesia, the Marshall Islands, Palau Northern Mariana Islands, and U.S. Virgin Islands). Allocation formula: Not applicable. Matching or related requirements: Not applicable. New obligations: FY2009: $26.019 billion (includes $8.497 billion under the American Recovery and Reinvestment Act). FY2008: $18.000 billion. Budgetary classification: Discretionary and mandatory (entitlement to individuals). Participation data: During award year (July-June) 2009-2010, an estimated 8,151,663 students were served. CRS report: CRS Report R41437, Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current Legislative Issues , by [author name scrubbed]. Education for Homeless Children and Youth (CFDA #84.196) Authority: Statute: Title VII, Subtitle B of the McKinney-Vento Homeless Assistance Act, established by the Stewart B. McKinney Homeless Assistance Act ( P.L. 100-77 ) and renamed by the McKinney-Vento Homeless Assistance Act ( P.L. 106-400 ), most recently reauthorized by the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ); 42 U.S.C. 11431 et seq. Regulations: no formal program-specific regulations. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Office of Student Achievement and School Accountability Programs. Purpose of program: To ensure that each child of a homeless individual and each homeless youth has equal access to the same free, appropriate public education, including a public preschool education, as other children and youth. Benefit/service: Comprehensive services to facilitate the enrollment, attendance, and success in school for homeless children and youth, including, among other things, tutoring, supplemental instruction and referral services, as well as services to address barriers such as transportation, immunization, and lack of birth records. Individual eligibility criteria: Eligible children and youth are those who lack a regular, fixed and adequate nighttime residence and include those who are sharing the housing of others due to economic hardship or a similar reason; are living in motels, hotels, trailer parks, or camping grounds due to the lack of alternative adequate accommodations; are living in emergency or transitional shelters; are abandoned in hospitals; or are awaiting foster care placement; have a primary nighttime residence that is a public or private place not designed as a regular sleeping arrangement; are living in cars, parks, public spaces, abandoned buildings, substandard housing, bus or train stations, or similar settings; or are migratory children who also qualify as homeless. Form and recipient of federal assistance: Formula grants to state educational agencies, which make subgrants to local educational agencies. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands). Allocation formula: Funds are allocated among states on the basis of their relative shares of funding under Title I, Part A of the Elementary and Secondary Education Act. Matching or related requirements: None. New obligations: FY2009: $135 million (includes $70 million under the American Recovery and Reinvestment Act). FY2008: $64 million. Budgetary classification: Discretionary. Participation data: In school year 2008-2009, a total of 956,914 children were enrolled. CRS report: CRS Report RL30442, Homelessness: Targeted Federal Programs and Recent Legislation , coordinated by [author name scrubbed]. 21 st Century Community Learning Centers (CFDA #84.287) Authority: Statute: Title IV, Part B of the Elementary and Secondary Education Act, established by the Improving America's Schools Act of 1994 ( P.L. 103-382 ) and most recently reauthorized by the No Child Left Behind Act ( P.L. 107-110 ); 20 USC 7171-7176. Regulations: no formal program-specific regulations. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Office of Academic Improvement and Teacher Quality Programs. Purpose of program: To create community learning centers that provide academic enrichment opportunities during non-school hours to help students meet state and local academic achievement standards, particularly for children who attend high-poverty and low-performing schools. Also offers a variety of additional programs intended to reinforce and complement the students' regular academic program and offers families of participating students opportunities for literacy and related educational development. Benefit/service: Remedial education and academic enrichment learning programs, mathematics and science education activities, arts and music education activities, entrepreneurial education programs, tutoring services, after-school activities for limited-English-proficient students that emphasize language skills and academic achievement, recreational activities, telecommunications and technology education programs, expanded library service hours, programs to promote parental involvement and family literacy, academic assistance to students who are truant or suspended or expelled, drug and violence prevention programs, counseling and character education programs. Individual eligibility criteria: Funds must be used to serve students who attend schools that are eligible for schoolwide programs under Title I-A of the Elementary and Secondary Education Act (i.e., schools in which at least 40% of the children are poor) or schools that serve a high percentage of students from low-income families, and the families of such students. Form and recipient of federal assistance: Formula grants to state educational agencies, which make competitive subgrants to local educational agencies, community-based organizations, other public and private nonprofit organizations, or a consortium of the above. Allows participation by territories (Puerto Rico, American Samoa, Guam, Northern Mariana Islands and the U.S. Virgin Islands). Allocation formula: Funds are allocated among states on the basis of their relative shares of funding under Title I, Part A of the Elementary and Secondary Education Act for the preceding fiscal year. Matching or related requirements: States may require local grantees to match federal funds; however, the match may not exceed the amount of federal funds and may not come from other federal or state funds. The size of the match is adjusted based on the relative poverty of the grantee's target population and the grantee's ability to obtain the match. The match may be in cash or in-kind. New obligations: FY2009: $1.127 billion. FY2008: $1.082 billion. Budgetary classification: Discretionary. Participation data: In FY2009, a total of 1,481,870 students were served. CRS report: CRS Report RL33960, The Elementary and Secondary Education Act, as Amended by the No Child Left Behind Act: A Primer , by [author name scrubbed]. Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR-UP) (CFDA #84.334) Authority: Statute: Title IV, Part A, Subpart 2, Chapter 2 of the Higher Education Act of 1965, established by the Higher Education Amendments of 1998 ( P.L. 105-244 ) and most recently reauthorized by the Higher Education Opportunity Act ( P.L. 110-315 ); 20 USC 1070a21-28. Regulations: 34 CFR Part 694. Federal administering agency: Department of Education, Office of Postsecondary Education, Teacher and Student Development Programs Service. Purpose of program: To assist low-income students attain a secondary school diploma or equivalent and prepare for and succeed in postsecondary education. Benefit/service: Teacher training, scholarships and early intervention services; e.g., financial assistance necessary for attending an institution of higher education, and additional counseling, mentoring, academic support, outreach, and supportive services. Individual eligibility criteria: A cohort of students in at least one grade level of a school in which at least 50% of students are eligible for free or reduced-price lunch; a cohort of students in at least one grade level that reside in public housing; or secondary school students eligible to be counted under the basic formula for Title I-A of the Elementary and Secondary Education Act, eligible under Title IV-B or IV-E of the Social Security Act, eligible for the homeless education program under the McKinney-Vento Act, or considered disconnected. Form and recipient of federal assistance: Competitive grants to states and to partnerships consisting of at least one degree-granting institution of higher education and one or more local educational agencies, and if desired, at least two other partners (such as community organizations, businesses, and public or private agencies or organizations). Allows participation by agencies or institutions in territories (American Samoa, Guam, Marshall Islands, Micronesia, Northern Mariana Islands, Palau, Puerto Rico, and the U.S. Virgin Islands). Allocation formula: Not applicable. Matching or related requirements: A 50% nonfederal match is required, unless granted a waiver. New obligations: FY2009: $313 million. FY2008: $303 million. Budgetary classification: Discretionary. Participation data: In FY2009, the program served a total of 747,260 students. Reading First and Early Reading First (CFDA #84.357 and #84.359) Authority: Statute: Title I, Part B, Subparts 1 and 2 of the Elementary and Secondary Education Act, established by the No Child Left Behind Act ( P.L. 107-110 ); 20 USC 6361-6376. Regulations: no formal program-specific regulations. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Academic Improvement and Teacher Quality Programs. Purpose of program: Reading First: To ensure that every child can read at grade level or above by no later than grade 3. Early Reading First: To enhance the early language, literacy and prereading development of preschool-aged children, particularly from low-income families. Benefit/service: Reading First: Assistance in selecting and administering reading assessments, selecting and implementing programs of reading instruction based on scientifically based reading research (SBR) that include the essential elements of reading instruction, procuring and implementing SBR-based teaching materials, providing professional development for teachers of grades K-3 and special education teachers of grades K-12, collecting and analyzing data to document program effectiveness and identify successful schools, reporting student progress, promoting reading and library programs, supporting family literacy programs, and training parents as reading tutors. Early Reading First: High-quality oral language and literature rich environments, professional training based on SBR to early childhood staff in early reading development, SBR-based language and literacy activities and instructional materials, and SBR-based reading assessments. Individual eligibility criteria: Reading First: Children in grades K- 3 who may have reading difficulties, are at risk of referral to special education because of their reading difficulties, have been evaluated but not identified as a child with disabilities, are receiving special education services because they have been identified as having a specific learning disability related to reading, are deficient in essential reading skills, or have limited English proficiency. Early Reading First: No specific eligibility criteria; however, services are targeted toward preschool children from low-income families with limited English proficiency, disabilities, or other special needs, who are also experiencing difficulty with spoken language, prereading and early reading skills. Form and recipient of federal assistance: Reading First: Formula grants to state educational agencies, which award funds competitively to local educational agencies. Early Reading First: Competitive grants to local educational agencies eligible for Title I-A ESEA grants, or to one or more public or private organizations acting on behalf of programs that serve preschool-age children located in an area served by a Title I-A-eligible LEA, or to a consortium of the above. Reading First allows participation by territories (Puerto Rico, American Samoa, Guam, Northern Marianas, and the Virgin Islands). Allocation formula: Reading First: Funds are allocated among states according to their proportion of children aged 5-17 whose families have income below federal poverty guidelines. Early Reading First: Not applicable. Matching or related requirements: None. New obligations: FY2009: $129 million. FY2008: $560 million. (Note: No appropriations have been made for Reading First since FY2008 or for Early Reading First since FY2009, although both programs continued to have new obligations in FY2008 and FY2009.) Budgetary classification: Discretionary. Participation data: In school year 2008-2009, an estimated 1,245,353 students participated in Reading First. In FY2009, grantees proposed to serve a total of 33,278 children and 3,402 educators in Early Reading First. CRS report: CRS Report RL33960, The Elementary and Secondary Education Act, as Amended by the No Child Left Behind Act: A Primer , by [author name scrubbed]. Rural Education Achievement Program (CFDA #84.358) Authority: Statute: Title VI, Part B of the Elementary and Secondary Education Act, established by the No Child Left Behind Act ( P.L. 107-110 ); 20 USC 7341-7372. Regulations: no formal program-specific regulations. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Office of School Support and Technology Programs. Purpose of program: To help rural and rural low-income school districts meet their state's definition of adequate yearly progress under the No Child Left Behind Act. Benefit/service: Small Rural School Achievement Program (SRSA): Activities authorized under Title I-A (improving the academic achievement of disadvantaged children), Title II-A (teacher and principal training and recruiting), Title II-D (enhancing education through technology), Title III (language instruction for limited English proficient and immigrant children), Title IV-A (safe and drug-free schools), Title IV-B (21 st century community learning centers) and Title V-A (innovative programs) of the Elementary and Secondary Education Act. Rural and Low-Income School Program (RLIS): Teacher recruitment and retention, teacher professional development, educational technology, parental involvement activities, activities under Title IV-A (safe and drug-free schools) and Title I-A (improving the academic achievement of disadvantaged children) and Title III (language instruction for limited English proficient and immigrant children) of the Elementary and Secondary Education Act. Individual eligibility criteria: There are no individual eligibility criteria. Form and recipient of federal assistance: SRSA: Formula grants to small local educational agencies (LEAs). RLIS: Formula grants to state educational agencies (SEAs) for suballocation to local educational agencies that do not meet the small-size thresholds for SRSA and in which 20% of the children aged 5-17 are from families below federal poverty guidelines. RLIS allows participation by territories (American Samoa, Guam, Northern Mariana Islands and the U.S. Virgin Islands). Allocation formula: Funds are allocated among LEAs (SRSA) and SEAs (RLIS) according to a formula that considers average daily attendance. Matching or related requirements: None. Funds must supplement and not supplant any funds that would otherwise be used for these activities. New obligations: FY2009: $174 million. FY2008: $172 million. Budgetary classification: Discretionary. Participation data: In FY2009, an estimated 4,100 LEAs received SRSA grants, and 1,497 LEAs received RLIS grants. CRS report: CRS Report R40853, The Rural Education Achievement Program: Title VI-B of the Elementary and Secondary Education Act , by [author name scrubbed]. Mathematics and Science Partnerships (CFDA #84.366) Authority: Statute: Title II, Part B of the Elementary and Secondary Education Act, established by the Hawkins-Stafford Elementary and Secondary School Improvements Act of 1988 ( P.L. 100-297 ) and most recently reauthorized by the No Child Left Behind Act ( P.L. 107-110 ); 20 USC 6661-6663. Regulations: no formal program-specific regulations. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Academic Improvement and Teacher Quality Programs. Purpose of program: To improve the content knowledge of teachers and the performance of students in the areas of mathematics and science. Benefit/service: Enhanced and ongoing professional development of mathematics and science teachers, promotion of strong teaching skills through integrating reliable research methods and technology-based teaching methods into the curriculum, and summer workshops or institutes including follow-up training for elementary and secondary mathematics and science teachers. Individual eligibility criteria: There are no individual eligibility criteria. Form and recipient of federal assistance: Formula grants to state educational agencies (SEAs), which award funds to partnerships of local educational agencies (LEAs) and institutions of higher education. At a minimum, partnerships must include a high-need LEA and an engineering, mathematics or science department of an institution of higher education. Allocation formula: Funds are allocated among states according to the state's share of children aged 5-17 from families with income below federal poverty guidelines. Matching or related requirements: None. Funds must supplement and not supplant any funds that would otherwise be used for these activities. New obligations: FY2009: $176 million. FY2008: $182 million. Budgetary classification: Discretionary. Participation data: Most recent data available are for FY2006 (spending level of $182 million); in that year, more than 56,000 teachers received professional development. Improving Teacher Quality State Grants (CFDA #84.367) Authority: Statute: Title II, Part A of the Elementary and Secondary Education Act, established by the No Child Left Behind Act ( P.L. 107-110 ); 20 USC 6601-6641. Regulations: no formal program-specific regulations. Federal administering agency: Department of Education, Office of Elementary and Secondary Education, Academic Improvement and Teacher Quality Programs. Purpose of program: To increase student achievement through improving teacher and principal quality and increasing the number of highly qualified teachers, principals and assistant principals in classrooms and schools. Benefit/service: State activities include teacher and principal certification reform, professional development activities, assistance to local educational agencies in teacher and principal recruitment and retention, tenure reform, subject matter testing for teachers, across-state certification reciprocity projects, technology training for teachers, assistance to help teachers become highly qualified, and teacher recruitment and placement clearinghouses. Local activities include assistance to schools in recruitment and retention of highly qualified teachers and principals, use of such teachers to reduce class size, professional development activities, and quality improvement activities such as tenure reform, merit pay and subject-area testing for teachers. Individual eligibility criteria: There are no individual eligibility criteria. Form and recipient of federal assistance: Formula grants to state educational agencies, which make formula-based subgrants to local educational agencies, and to state agencies of higher education, which award competitive grants to partnerships of institutions of higher education and high-need local educational agencies (those with a high number or proportion of poor children). Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands). Allocation formula: Funds are allocated among states and local educational agencies based first on the amounts they received under predecessor programs in 2001; excess funds are allocated according to formulas based on number of children ages 5-17 and number of children ages 5-17 from families with incomes below federal poverty guidelines. Matching or related requirements: None. Funds must supplement and not supplant any funds that would otherwise be used for these activities. New obligations: FY2009: $2.687 billion. FY2008: $2.946 billion. Budgetary classification: Discretionary. Participation data: In school year 2009-2010, funds were used to hire an estimated 17,295 teachers. CRS report: CRS Report R41267, Elementary and Secondary School Teachers: Policy Context, Federal Programs, and ESEA Reauthorization Issues , by [author name scrubbed]. Academic Competitiveness and Smart Grant Program (CFDA #84.375 and 84.376) Authority: Statute: Title IV, Part A, Subpart 1, Section 401A of the Higher Education Act of 1965, established by the Higher Education Reconciliation Act of 2005 ( P.L. 109-171 ); 20 USC 1070a-1. Regulations: 34 CFR Part 691. Federal administering agency: Department of Education, Office of Federal Student Aid. Purpose of program: To help eligible financially needy students finance their postsecondary education by encouraging students to complete a rigorous high school curriculum, maintain a high grade point average (GPA), and major in math and science fields during their undergraduate studies. Benefit/service: Grant aid that, together with any other student aid received, cannot exceed the student's cost of postsecondary school attendance. Individual eligibility criteria: Eligible students are undergraduates who attend participating schools, are eligible to receive a Pell Grant, and meet other eligibility requirements related to—depending on their year in school—completing a rigorous high school curriculum; majoring in mathematics, science, or selected foreign languages; and maintaining a required minimum GPA. Form and recipient of federal assistance: Funds are provided to participating institutions of higher education to pay eligible students; participating institutions also receive an administrative allowance per student. Individual students receive assistance either by payment to school account, direct payment (usually by check), or a combination of these methods. Allows participation by citizens of territories (American Samoa, Guam, Micronesia, the Marshall Islands, Palau Northern Mariana Islands, and U.S. Virgin Islands). Allocation formula: Not applicable. Matching or related requirements: Not applicable. New obligations: FY2009: $690 million. FY2008: $297 million. Budgetary classification: Mandatory (entitlement to individuals). Participation data: During award year (July-June) 2009-2010, 731,653 students were served. Social Services Indian Human Services (CFDA #15.025, #15.113, #15.141, #15.144) Authority: Statute: Snyder Act of 1921 (P.L. 67-85), Indian Self-Determination and Education Assistance Act ( P.L. 93-638 ), Indian Child Welfare Act ( P.L. 95-608 ), and Indian Child Protection and Family Violence Prevention Act ( P.L. 101-630 ); 25 USC 13, 450 et seq., 1901 et seq., and 3210. Regulations: 25 CFR Parts 20, 23, and 256. (Programs include Social Services, Welfare Assistance, Indian Child Welfare, and Housing Improvement Program.) Federal administering agency: Department of Interior, Bureau of Indian Affairs, Division of Human Services. Purpose of program: To provide financial assistance for basic needs of needy eligible American Indians who live on or near reservations when such assistance is not available from state or local agencies; to fund federally recognized tribal governments to administer welfare assistance programs for American Indian adults and children, to support caseworkers and counselors, and to support tribal programs to reduce incidence of substance abuse and alcoholism in Indian country; to promote stability and security of American Indian tribes and families by protecting American Indian children, preventing separation of American Indian families, and assisting Indian tribes in the operation of child and family service programs; and to eliminate substantially substandard Indian owned and inhabited housing for very low-income Indians living in tribal service areas. Benefit/service: Assistance in processing welfare applications, determining suitable placement of American Indian children in need of foster care, operation of emergency shelters and similar services; cash payments to meet basic needs (i.e., food, clothing, shelter), assistance for nonmedical institutional or custodial care of adults not eligible for other programs, foster home care and nonmedical institutional care for American Indian children in need of protection; counseling, family assistance, protective day care, after-school care, recreational activities, respite care, education and training, foster care subsidies, legal advice and representation, home improvement programs; and renovations, repairs, or additions to existing homes. Individual eligibility criteria: Depending on the program, American Indian adults in need of financial assistance or social services, children in need of foster care, and youth requiring temporary emergency shelter; members of federally recognized Indian tribes who live on or near federally recognized reservations who are in need of financial assistance; American Indian children and families; and Indians who are members of federally recognized tribes. Form and recipient of federal assistance: Discretionary grants to federally recognized Indian tribes and tribal organizations. Allocation formula: Not applicable. Matching or related requirements: None. New obligations: FY2009: $115 million. FY2008: $118 million. Budgetary classification: Discretionary. Participation data: No data available. Older Americans Act Grants for Supportive Services and Senior Centers (CFDA #93.044) Authority: Statute: Title III, Part B of the Older Americans Act of 1965 (P.L. 89-73), most recently reauthorized by the Older Americans Act Amendments of 2006 ( P.L. 109-365 ); 42 USC 3030d. Regulations: 45 CFR 1321. Federal administering agency: Department of Health and Human Services, Administration on Aging. Purpose of program: To secure and maintain maximum independence and dignity in a home environment for older individuals capable of self-care with appropriate supportive services, to remove individual and social barriers to economic and personal independence for older individuals, and to provide a continuum of care for older individuals. Benefit/service: Supportive services, including health (and mental health), education and training, welfare, informational, recreational, homemaker, counseling, or referral services; transportation services; services to help older individuals use the services and facilities available to them (including language translation services); housing-related services; services to help older individuals avoid institutionalization, legal assistance and other counseling services; activities to attain and maintain physical and mental well-being; health and mental health screenings; preretirement counseling and assistance; ombudsman services for residents of long-term care facilities; services and assistive devices for disabled older persons; employment-related services and counseling; crime prevention and victim assistance; services to identify and meet the needs of low-income older individuals; abuse prevention; health and nutrition education services; coordinated services for mentally impaired older individuals; services for family caregivers; information and training for guardians or representative payees of older individuals; services to facilitate interaction between students and older individuals; in-home services for frail elderly; information about life-long learning programs; and any other services necessary for the general welfare of older individuals. Individual eligibility criteria: Individuals age 60 or older. Preference is given to individuals with the greatest economic and social needs, with particular attention to low-income older individuals (i.e., having income no higher than federal poverty guidelines), including low-income minority older individuals, those with limited English proficiency, and those living in rural areas. Form and recipient of federal assistance: Formula grants to state agencies on aging, which make subgrants to local area agencies on aging. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands). Separate grants are provided for Native Americans under Title VI of the Older Americans Act. Allocation formula: Funds are allocated among states according to their relative share of the nation's population of older individuals (age 60 or older). States develop their own formulas for allocation of funds among local agencies, which must consider the geographic distribution of older individuals and older individuals with the greatest economic and social needs, paying particular attention to low-income minority individuals. Matching or related requirements: A nonfederal share of 25% is required for administrative activities, and a nonfederal share of 15% is required for supportive services and senior centers. New obligations: FY2009: $361 million. FY2008: $351 million. Budgetary classification: Discretionary. Participation data: In FY2008, the number of clients participating by type of service were: 502,675 for case management; 165,349 for homemaker services; 109,488 for personal care; 38,432 for chore services; 44,437 for assisted transportation; and 25,204 for adult day care. CRS report : CRS Report RL33880, Older Americans Act: Funding , by [author name scrubbed] and [author name scrubbed]. Older Americans Act Family Caregiver Support Program (CFDA #93.052) Authority: Statute: Title III, Part E of the Older Americans Act of 1965 (P.L. 89-73), most recently reauthorized by the Older Americans Act Amendments of 2006 ( P.L. 109-365 ); 42 USC 3030s. Regulations: 45 CFR 1321. Federal administering agency: Department of Health and Human Services, Administration on Aging. Purpose of program: To provide multifaceted systems of support services for family caregivers and grandparents or older individuals who are relative caregivers. Benefit/service: Information to caregivers about available services, assistance to caregivers in gaining access to services; individual counseling, organization of support groups, and caregiver training in the areas of health, nutrition, and financial literacy, and in making decisions and solving problems related to their caregiving roles; respite care to enable caregivers to be temporarily relieved of their caregiving responsibilities; and supplemental services, on a limited basis, to complement the care provided by caregivers. Individual eligibility criteria: Family members or others providing informal care to an older individual, and those providing informal care to individuals of any age with specific cognitive disabilities. Also, grandparents or older individuals who are relative caregivers to children, including those caring for children of any age with a disability. Priority is given to older caregivers with the greatest social and economic need and to older individuals providing care to individuals with severe disabilities, including children with severe disabilities. Form and recipient of federal assistance: Formula grants to state agencies on aging, which make subgrants to local area agencies on aging. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands). Separate grants are provided for Native Americans under Title VI of the Older Americans Act. Allocation formula: Funds are allocated to states according to their relative share of the nation's population of older individuals (age 70 or older). Matching or related requirements: A nonfederal share of 25% is required for services and administrative activities. Funds must be used to supplement and not supplant any other federal, state or local funds used for the same purpose. New obligations: FY2009: $154 million. FY2008: $153 million. Budgetary classification: Discretionary. Participation data: In FY2008, the number of clients participating by type of service were: 22,948,978 for information services, 373,130 for access assistance; 141,167 for counseling services; 72,887 for respite care; and 48,268 for supportive services. CRS report : CRS Report RL33880, Older Americans Act: Funding , by [author name scrubbed] and [author name scrubbed]. Child Support Enforcement (CDFA #93.563) Authority: Statute: Title IV-D of the Social Security Act, established by the Social Services Amendments of 1974 ( P.L. 93-647 ); 42 USC 651-669. Regulations: 45 CFR Chapter 3. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Child Support Enforcement. Purpose of program: To enforce the support obligations owed by noncustodial parents to their children and the spouse (and former spouse) with whom such children are living through locating noncustodial parents, establishing paternity, obtaining child and spousal support, and assuring that assistance in obtaining support will be available to all children who request such assistance. Benefit/service: Noncustodial parent location, paternity establishment, establishment of child support orders, review and modification of child support orders, collection of child support payments, distribution of child support payments, and establishment and enforcement of medical support. Services are free for families that are automatically eligible; states may charge a fee of up to $25 for all other families. Individual eligibility criteria: Services are available to parents with custody of a child whose other parent is living outside the home. Services are automatically available for families receiving Temporary Assistance for Needy Families (TANF), federal foster care payments, or Medicaid. Form and recipient of federal assistance: Partial reimbursement to states of eligible expenditures, with no limit on federal spending. Allows participation by territories (Guam, Puerto Rico, the U.S. Virgin Islands) and Indian tribes and tribal organizations. Allocation formula: None. Payments to states are based on their eligible expenditures. Matching or related requirements: The federal government reimburses states for 66% of their eligible expenditures. New obligations: FY2009: $4.719 billion. FY2008: $4.585 billion. Budgetary classification: Mandatory (open-ended entitlement to states). Participation data: In FY2009, the total CSE caseload was 15.8 million cases, involving 17.4 million children. CRS report: CRS Report RS22380, Child Support Enforcement: Program Basics , by [author name scrubbed]. Community Services Block Grants (CFDA #93.569) Authority: Statute: Community Services Block Grant Act, established by the Omnibus Budget Reconciliation Act of 1980 ( P.L. 97-35 ) and most recently reauthorized by the Community Opportunities, Accountability, and Training and Educational Services Act of 1998 ( P.L. 105-285 ); 42 USC 9901 et seq. Regulations: 45 CFR Part 96, Subpart I. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Community Services. Purpose of program: To reduce poverty, revitalize low-income communities, and empower low-income individuals and families in rural and urban areas to become fully self-sufficient. Benefit/service: A wide range of activities may be supported to help low-income individuals and families become self-sufficient, find meaningful employment, attain an adequate education, make better use of available income, find and maintain adequate housing, obtain emergency assistance, and achieve greater participation in community affairs; address the needs of youth in low-income communities; and effectively use and coordinate with related programs. Individual eligibility criteria: In general, beneficiaries must have incomes no higher than the federal poverty guidelines, although states may set eligibility criteria at 125% of the poverty guidelines when "it serves the objectives of the block grant." (The American Recovery and Reinvestment Act, P.L. 111-5 , allowed states to set eligibility criteria at 200% of poverty during FY2009 and FY2010.) Form and recipient of federal assistance: Formula grants to states. Of funds received by each state, at least 90% must be passed through to "eligible entities," which are primarily community action agencies that had been designated prior to 1981 under the former Economic Opportunity Act or their successor agencies. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands) and Indian tribes. Allocation formula: Funds are allocated among states based on the relative amount received in each state in FY1981, under a section of the former Economic Opportunity Act. Matching or related requirements: None. New obligations: FY2009: $1.692 billion (includes $992 million under the American Recovery and Reinvestment Act). FY2008: $654 million. Budgetary classification: Discretionary. Participation data: In FY2008, states reported that local agencies served nearly 16 million individuals in more than 7 million families. CRS report: CRS Report RL32872, Community Services Block Grants (CSBG): Background and Funding , by [author name scrubbed]. Child Care and Development Fund (CFDA #93.575 and #93.596) Authority: Statute: Child Care and Development Block Grant Act, established by the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) and most recently reauthorized by the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 ( P.L. 104-193 ); 42 USC 9859. Section 418 of the Social Security Act, established by PRWORA ( P.L. 104-193 ) and most recently reauthorized by the Claims Resolution Act of 2010 ( P.L. 111-291 ); 42 USC 618. Regulations: 45 CFR Parts 98 and 99. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Child Care. Purpose of program: To develop child care programs that best suit the needs of children and parents in each state, to empower working parents to make their own decisions on the child care that best suits their family's needs, to provide consumer education to help parents make informed decisions, to provide child care to parents trying to achieve independence from public assistance, and to help states implement their child care regulatory standards. Benefit/service: Subsidized child care services for families provided on a sliding fee scale basis, which may be free for those with incomes below federal poverty guidelines (or, on a case-by-case basis, for those in foster care or receiving protective services). Child care providers may be paid directly by the state through a grant or contract, or through certificates (also known as vouchers) that parents may use to purchase child care from an eligible provider of their choice. Child care services may include center-based care, group home care, family care, and care provided in the child's own home. Individual eligibility criteria: Eligible children must be under age 13 (or under 18 if disabled or under court supervision), have a parent who is working or attending job training (unless the child is receiving protective services), and have family income no greater than 85% of state median income or lower depending on state policy. States must give priority to very low-income children and must target a certain amount of funds to welfare families working toward self-sufficiency or families at risk of welfare dependency. Form and recipient of federal assistance: Formula grants to states. Allows participation by Indian tribes, and for certain funds, by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands). Allocation formula: Discretionary funds are allocated among states according to each state's proportion of children under age 5, its proportion of all children who receive free or reduced price school lunches, and its relative per capita income. Of mandatory funds, states receive a fixed amount each year based on their spending under predecessor programs in the mid-1990s ("guaranteed" funds). Remaining mandatory funds are allocated according to each state's share of children under age 13. Matching or related requirements: No matching requirement for discretionary funds or "guaranteed" mandatory funds. States must match remaining mandatory funds at their FMAP (federal medical assistance percentage) matching rate. States also must achieve certain maintenance-of-effort targets to qualify for these funds. New obligations: FY2009: $7.034 billion (includes $1.990 billion under the American Recovery and Reinvestment Act). FY2008: $4.979 billion. Budgetary classification: Discretionary (Child Care and Development Block Grant Act) and mandatory (Section 418 of the Social Security Act) (capped entitlement to states). Participation data: In FY2007 (the most recent year for which final data are available), the average monthly number of children served by the CCDF was 1.7 million. Preliminary data for FY2008 estimate the average monthly number of children served was 1.6 million. CRS report: CRS Report RL30785, The Child Care and Development Block Grant: Background and Funding , by [author name scrubbed]. Head Start (CFDA #93.600) Authority: Statute: Head Start Act, established by the Omnibus Budget Reconciliation Act ( P.L. 97-35 ) and most recently reauthorized by the Head Start for School Readiness Act ( P.L. 110-134 ); 42 USC 9801 et seq. Regulations: 45 CFR Parts 1301-1311. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Head Start. Purpose of program: To promote school readiness by enhancing the social and cognitive development of children through the provision of educational, health, nutritional, social and other services to children and their families; and (for Early Head Start) to promote healthy prenatal outcomes, enhance the development of infants and toddlers, and promote healthy family functioning. Benefit/service: Comprehensive child development services, including educational, dental, medical, nutritional, and social services to children and their families. Services may be center-based, home-based, or a combination, and may be full- or part-day or full- or part-year. Individual eligibility criteria: Eligible children are those from low-income families (defined as having income below 100% of federal poverty guidelines, receiving public assistance or being a foster child) or who would be eligible for public assistance in the absence of child care, and homeless children. Up to 10% of participants may not meet these eligibility criteria if they would benefit from the program. An additional 35% of participants may have family incomes between 100% and 130% of federal poverty guidelines, as long as such children are not given higher priority than poor or homeless children. Form and recipient of federal assistance: Formula grants to local public and private nonprofit and for-profit entities. Allows participation by territories (Puerto Rico, American Samoa, Guam, Northern Mariana Islands, Palau and the U.S. Virgin Islands) and Indian Head Start programs. Allocation formula: Funds are allocated among states but awarded directly to local grantees. The allocation formula is intended to hold states harmless at their prior year's level, award a cost-of-living adjustment, and allocate remaining funds for quality improvement and program expansion. Allocation factors include children under age 5 whose family incomes are below poverty. Matching or related requirements: A 20% nonfederal match is required unless a waiver is granted. New obligations: FY2009: $9.077 billion (includes $578 million under the American Recovery and Reinvestment Act). FY2008: $6.877 billion. Budgetary classification: Discretionary. Participation data: In FY2009, the Head Start funded enrollment level was about 965,153 children, of whom approximately 114,389 (or 12%) were in Early Head Start programs. The term "funded enrollment" refers to the number of Head Start slots that are funded, not the total number of children served throughout the year (which would be higher, accounting for turnover). CRS report: CRS Report RL30952, Head Start: Background and Issues , by [author name scrubbed]. Developmental Disabilities Basic Support and Advocacy Grants (CFDA #93.630) Authority: Statute: Developmental Disabilities Assistance and Bill of Rights Act of 1978 ( P.L. 95-602 ), most recently reauthorized by the Developmental Disabilities Assistance and Bill of Rights Act of 2000 ( P.L. 106-402 ); 42 USC 15001 et seq. Regulations: 45 CFR Parts 1385-1386. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Administration on Developmental Disabilities. Purpose of program: To enable individuals with developmental disabilities to maximize their work potential, facilitate their ability to live independently, and foster their integration into the community. Benefit/service: State councils on developmental disabilities identify the most pressing needs of individuals with developmental disabilities in their state and conduct activities to address these needs through training, technical assistance, barrier elimination, coalition development and citizen participation, informing policymakers, advocacy and capacity-building, and demonstration of new service approaches. Special financial and technical assistance must be given to organizations that serve individuals in areas designated as urban and rural poverty areas. Protection and advocacy agencies provide services intended to protect the legal and human rights of individuals with developmental disabilities. Individual eligibility criteria: Developmental disability is defined as a severe, chronic disability that is attributable to a mental or physical impairment or combination of such impairments, that is manifested before an individual becomes 22 years old, is likely to continue indefinitely, and that results in substantial functional limitations in at least three of several specified areas: self-care, receptive and expressive language, learning, mobility, self-direction, capacity for independent living, and economic self-sufficiency. Additionally, an individual from birth to age 9, inclusive, who has a substantial developmental delay or specific congenital or acquired condition, may be considered to have a developmental disability without meeting three or more of the criteria described above if the individual, without services and supports, has a high probability of meeting those criteria later in life. Form and recipient of federal assistance: Formula grants to states. Allows participation by territories (American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands). Allocation formula: Each state receives a minimum allotment; remaining funds are allocated among states on the basis of population, extent of need for services for developmentally disabled individuals, and financial need. Matching or related requirements: For state councils on developmental disabilities, a nonfederal share of 25% is required, except for projects in poverty areas where the nonfederal share may be reduced to as low as 10%. No match is required for protection and advocacy grants or for certain state planning activities. New obligations: FY2009: $114 million. FY2008: $111 million. Budgetary classification: Discretionary. Participation data: In FY2008, 1,527,995 services were provided. CRS report: CRS Report RL34507, The Developmental Disabilities Act , by [author name scrubbed]. Foster Care (CFDA #93.658) Authority: Statute: Title IV-E of the Social Security Act, established by the Adoption Assistance and Child Welfare Act of 1980 ( P.L. 96-272 ); 42 USC 672. Regulations: 45 CFR 1355 and 1356. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Administration for Children, Youth and Families, Children's Bureau. Purpose of program: To provide temporary out-of-home care for children who cannot safely remain in their own homes, until the children may be safely returned home; placed permanently with adoptive families, in a legal guardianship, or with a fit and willing relative; or placed in another planned permanent living arrangement. Benefit/service: Payments to foster care providers to cover the costs of children's maintenance (e.g., room and board, clothing and supplies, liability insurance, certain travel expenses); and support for administrative and child placement services intended to promote safety and permanency for children and well-being for children and their families. Individual eligibility criteria: For states to receive federal reimbursement for the maintenance and related costs of providing foster care, children must have been removed from their homes pursuant to a voluntary placement agreement or certain judicial determinations and be placed in foster care settings that meet specified requirements. Children also must have been removed from homes in which they would have been considered "needy" under the former Aid to Families with Dependent Children (AFDC) program, as that program was administered in their state on July 16, 1996. Form and recipient of federal assistance: Partial reimbursement to states of eligible expenditures, with no limit on federal spending. Allows participation by territories (Puerto Rico, Guam, American Samoa and the U.S. Virgin Islands). Allocation formula: Payments to states are based on their eligible expenditures and the applicable matching (reimbursement) rate. Matching or related requirements: Maintenance payment expenditures are reimbursed at each state's federal medical assistance percentage (FMAP), which varies according to state per capita income. Certain training expenditures are reimbursed at a 75% federal rate; remaining administrative and child placement expenditures are reimbursed at 50%. New obligations: FY2009: $4.705 billion. FY2008: $4.525 billion. Budgetary classification: Mandatory (open-ended entitlement to states). Participation data: In FY2009, the average monthly number of children served was 186,303. CRS report: CRS Report RL34121, Child Welfare: Recent and Proposed Federal Funding , by [author name scrubbed]. Adoption Assistance (CFDA #93.659) Authority: Statute: Title IV-E of the Social Security Act, established by the Adoption Assistance and Child Welfare Act of 1980 ( P.L. 96-272 ); 42 USC 673. Regulations: 45 CFR 1355 and 1356. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Administration on Children, Youth and Families, Children's Bureau. Purpose of program: To facilitate the timely placement of children whose special needs (which may include age, membership in a large sibling group or a racial/ethnic minority group, physical or mental disabilities or other circumstances as determined by the state) would otherwise make it difficult to place them with adoptive families. Benefit/service: One-time nonrecurring payments to assist with the costs of adopting a special needs child (e.g., adoption fees, court costs, attorney fees) and ongoing monthly payments to adoptive families; administrative and child placement services intended to promote child safety, permanency and well-being. Individual eligibility criteria: For states to receive federal reimbursement for either nonrecurring or ongoing costs of adoption assistance, the children must have special needs, as defined by the state, which generally would make their placement for adoption difficult. For states to receive federal reimbursement for the ongoing costs of adoption assistance, children also must be eligible for Supplementary Security Income (SSI) or must have been removed from their homes pursuant to a voluntary placement agreement or certain judicial determinations. In addition, children (who are not eligible for SSI) must have been removed from homes in which they would have been considered "needy" under the former Aid to Families with Dependent Children (AFDC) program, as that program was administered in their state on July 16, 1996. (Under P.L. 110-351 , income-related eligibility criteria are phased out for children entering the adoption assistance program beginning in FY2010 and no income eligibility criteria will remain by FY2018.) Form and recipient of federal assistance: Partial reimbursement to states of eligible expenditures, with no limit on federal spending. Allows participation by territories (Puerto Rico, Guam, American Samoa and the U.S. Virgin Islands). Allocation formula: Payments to states are based on their eligible expenditures and the applicable matching (reimbursement) rate. Matching or related requirements: Adoption assistance payment expenditures are reimbursed at each state's federal medical assistance percentage (FMAP), which varies according to state per capita income. Certain training expenditures are reimbursed at a 75% federal rate; remaining administrative and child placement expenditures are reimbursed at 50%. New obligations: FY2009: $2.324 billion. FY2008: $2.038 billion. Budgetary classification: Mandatory (open-ended entitlement to states). Participation data: In FY2009, the average monthly number of children served was 416,408. CRS report: CRS Report RL34121, Child Welfare: Recent and Proposed Federal Funding , by [author name scrubbed]. Social Services Block Grants (CFDA #93.667) Authority: Statute: Title XX of the Social Security Act, established by the Omnibus Budget Reconciliation Act of 1981 ( P.L. 97-35 ); 42 USC 1397. Regulations: 45 CFR Part 96, Subpart G. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Community Services. Purpose of program: To provide services directed at the following goals: achieve or maintain economic self-support to prevent, reduce, or eliminate dependency; achieve or maintain self-sufficiency to reduce or prevent dependency; prevent or remedy abuse, neglect or exploitation of children or adults unable to protect their own interests, or to preserve, rehabilitate or reunite families; prevent or reduce inappropriate institutional care; or refer or admit individuals into institutional care when other forms of care are not appropriate or provide services to individuals in institutions. Benefit/service: Services directed at the goals listed above, such as child care services, protective services for children and adults, services for children and adults in foster care, services related to the management and maintenance of the home, day care services for adults, transportation services, family planning services, training and related services, employment services, information, referral, and counseling services, the preparation and delivery of meals, health support services and appropriate combinations of services designed to meet the special needs of children, the aged, the mentally retarded, the blind, the emotionally disturbed, the physically disabled, and alcoholics and drug addicts. Individual eligibility criteria: Eligibility criteria are determined by the states, except that any funds transferred into the Social Services Block Grant from the Temporary Assistance for Needy Families (TANF) program must be used to serve children and their families whose incomes are no greater than 200% of the federal poverty guidelines. Form and recipient of federal assistance: Formula grants to states. Allows participation by territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands). Allocation formula: Funds are allocated among states according to their relative population size. Matching or related requirements: None. New obligations: FY2009: $2.300 billion. FY2008: $1.700 billion. Budgetary classification: Mandatory (capped entitlement to states). Participation data: In FY2008, nearly 24.7 million individuals (10.9 million children, and 13.8 million adults) received services supported in whole or in part by the SSBG. CRS report: CRS Report 94-953, Social Services Block Grant: Background and Funding , by [author name scrubbed]. Chafee Foster Care Independence Program (CFDA #93.674) Authority: Statute: Section 477 of the Social Security Act, established by the Foster Care Independence Act of 1999 ( P.L. 106-169 ); 42 USC 677. Regulations: 45 CFR 1356. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Administration for Children, Youth and Families, Children's Bureau. Purpose of program: To help current and former foster youth achieve self-sufficiency. Benefit/service: Educational assistance, vocational training, employment services, life skills training, mentoring, preventive health activities, counseling, and (subject to certain limitations) room and board. Individual eligibility criteria: Children who are likely to remain in foster care until age 18, youth age 18-21 who have aged out of the foster care system, and youth who left foster care after age 16 for kinship guardianship or adoption. Form and recipient of federal assistance: Formula grants to states. Allows participation by Puerto Rico. Allocation formula: Funds are allocated among states according to their share of the nation's children in foster care, except that no state may receive less than $500,000 or the amount payable to the state under the predecessor program for FY1998, whichever is greater. Matching or related requirements: A 20% nonfederal match is required. Funds must supplement and not supplant any funds that would otherwise be used for the same general purposes. New obligations: FY2009: $140 million. FY2008: $140 million. Budgetary classification: Mandatory (capped entitlement to states). Participation data: No data available. CRS report: CRS Report RL34499, Youth Transitioning from Foster Care: Background and Federal Programs , by [author name scrubbed]. Emergency Food and Shelter Program (CFDA #97.024) Authority: Statute: Title III of the Stewart B. McKinney Homeless Assistance Act of 1987 ( P.L. 100-77 ), most recently reauthorized by the Housing and Community Development Act of 1992 ( P.L. 102-550 ); 42 USC 11331-11346. Regulations: no formal program-specific regulations. Federal administering agency: The program is administered by a National Board, which operates under the auspices of the Department of Homeland Security, Federal Emergency Management Agency. Purpose of program: To provide shelter, food, and supportive services for homeless and hungry individuals nationwide. Benefit/service: Mass shelter, mass feeding, food distribution through food pantries and food banks, one-month utility payments to prevent service cutoff, one-month rent/mortgage payments to prevent evictions or help people leaving shelters to establish stable living conditions. Individual eligibility criteria: Determined by boards that administer the program at the local level. Form and recipient of federal assistance: Formula grants to local boards in eligible local jurisdictions. Local boards further distribute funds among local service providers (called local recipient organizations), which provide direct services to homeless and hungry individuals and families. Eligible jurisdictions are chosen based on measures of population, unemployment and poverty. Some funds are set-aside for states to award to local jurisdictions that don't qualify as eligible jurisdictions but have high levels of need. Allocation formula: Funds are allocated among eligible local jurisdictions based on their number of unemployed persons relative to other eligible local jurisdictions. Allows participation by territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands). Matching or related requirements: None. New obligations: FY2009: $300 million (includes $100 million under the American Recovery and Reinvestment Act). FY2008: $153 million. Budgetary classification: Discretionary. Participation data: In FY2009, services "rendered" were estimated at 70.1 million meals and 5.4 million nights of lodging. In addition, funds were used to provide approximately 209,061 rent/mortgage payments and 226,822 utility bill payments. CRS report: CRS Report RL30442, Homelessness: Targeted Federal Programs and Recent Legislation , coordinated by [author name scrubbed]. Legal Services Corporation (no CFDA #) Authority: Statute: Legal Services Corporation of 1974 ( P.L. 93-355 ), most recently reauthorized by the Equal Access to Courts Act ( P.L. 95-222 ); 42 USC 2996 et seq. Regulations: 45 CFR Part 1600. Federal administering agency: Legal Services Corporation. Purpose of program: To provide equal access to the justice system for individuals who seek redress of grievances and to provide high quality legal assistance to those would be otherwise unable to afford legal counsel. Benefit/service: Legal services in civil cases. Individual eligibility criteria: Eligible individuals must have incomes no greater than 125% of the federal poverty guidelines, with exceptions (up to 200% of poverty) allowed in specified circumstances. Form and recipient of federal assistance: Formula grants to public and private nonprofit entities. Allows participation by territories (American Samoa, Guam, Puerto Rico, the Trust Territory of the Pacific Islands, the U.S. Virgin Islands and any other territories or possessions of the United States). Allocation formula: Funds are allocated among states but awarded directly to local grantees. The allocation formula is based on each state's share of the nation's poverty population. Matching or related requirements: None. New obligations: FY2009: $392 million. FY2008: $351 million. Budgetary classification: Discretionary. Participation data: In FY2009, 920,447 cases were closed. CRS report: CRS Report RL34016, Legal Services Corporation: Background and Funding , by [author name scrubbed]. Energy Assistance Weatherization Assistance (CFDA #81.042) Authority: Statute: Title IV of the Energy Conservation and Production Act of 1976 ( P.L. 94-385 ), most recently reauthorized by the Energy Independence and Security Act of 2007 ( P.L. 110-140 ); 42 USC 6871 et seq. Regulations: 10 CFR Part 440. Federal administering agency: Department of Energy, Office of Energy Efficiency and Renewable Energy. Purpose of program: To increase the energy efficiency of homes owned or occupied by low-income persons to reduce their total residential energy costs, and improve their health and safety. Benefit/service: Computerized energy audits and diagnostic equipment to determine the most energy-efficient measures for each individual home; labor and materials necessary to install such energy-efficient measures. Individual eligibility criteria: Homes eligible for weatherization assistance must be occupied by persons with income below 150% of the federal poverty guidelines—increased to 200% of poverty beginning in FY2009—or who have received cash assistance under Temporary Assistance for Needy Families (TANF) or Supplemental Security Income (SSI) in the previous 12 months, or (at state option) who are eligible for assistance under the Low-Income Home Energy Assistance Program (LIHEAP). Form and recipient of federal assistance: Formula grants to states. Allows participation by Indian tribes and, effective FY2009, by territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands). Allocation formula: A specified dollar "base" amount is allocated among states; the balance is allocated according to a formula that reflects each state's relative low-income population, climatic conditions, and residential energy expenditures by low-income households in each state. Matching or related requirements: None. New obligations: FY2009 : $5.240 billion (includes $4.748 billion under the American Recovery and Reinvestment Act). FY2008: $291 million. (Weatherization and Intergovernmental Activities.) Budgetary classification: Discretionary. Participation data: In FY2007 (most recent year for which data are available), program funds accounted for the weatherization of 104,283 homes. Low-Income Home Energy Assistance Program (LIHEAP) (CFDA #93.568) Authority: Statute: Low-Income Home Energy Assistance Act, established by Title XXVI of the Omnibus Budget Reconciliation Act of 1981 ( P.L. 97-35 ) and most recently reauthorized by the Energy Policy Act of 2005 ( P.L. 109-58 ); 42 USC 8621-8630. Regulations: 45 CFR Parts 96.80-96.89. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Community Services. Purpose of program: To assist low-income households, particularly those with the lowest incomes, that pay a high proportion of their income for home energy, primarily in meeting their immediate home energy needs. Benefit/service: Assistance to households in paying their heating and cooling costs, crisis intervention, home weatherization, and services (such as counseling) to help reduce energy costs. Individual eligibility criteria: States establish their own eligibility criteria within federal parameters. Maximum federal income eligibility is 150% of federal poverty guidelines or, if greater, 60% of state median income (75% of state median income in FY2009 and FY2010). States may not set eligibility at lower than 110% of federal poverty guidelines. States may grant categorical eligibility to households in which at least one member receives benefits under Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), or certain veterans' programs. Form and recipient of federal assistance: Formula block grants and contingency funds to states. Allows participation by territories (American Samoa, Guam, the Northern Marianas, Puerto Rico, and the U.S. Virgin Islands) and by Indian tribes. Allocation formula: Regular block grant funds are distributed to states based on a three-tier formula depending on the total amount of funds appropriated. Formula factors include total residential energy consumption, temperature variation, low-income heating and cooling consumption, among others; however, the formula also includes two hold-harmless provisions. Contingency funds are awarded by the President based on need. Matching or related requirements: None. New obligations: FY2009: $5.100 billion. FY2008: $2.590 billion. Budgetary classification: Discretionary. Participation data: In FY2008, 5.4 million households received heating/winter crisis assistance, and 600,000 households received cooling/summer crisis assistance. There may be duplication among those receiving heating and cooling assistance. CRS report: CRS Report RL31865, The Low Income Home Energy Assistance Program (LIHEAP): Program and Funding , by [author name scrubbed]. Employment and Training Community Service Employment for Older Americans (CFDA #17.235) Authority: Statute: Title V of the Older Americans Act of 1965 (P.L. 89-73), most recently reauthorized by the Older Americans Act Amendments of 2006 ( P.L. 109-365 ); 42 USC 3056 et seq. Regulations: 20 CFR Part 641. Federal administering agency: Department of Labor, Employment and Training Administration. Purpose of program: To enable individuals to become self-sufficient through placement in community service positions and job training. Benefit/service: Part-time temporary community service jobs that pay at least minimum wage, job-related training, and supportive services that are necessary to enable an individual to participate in the program. Individual eligibility criteria: Unemployed individuals age 55 or older with low incomes (defined as no higher than 125% of the federal poverty guidelines). Regulations require priority for certain groups, including veterans and individuals age 60 or older. Regulations also require special consideration to be given to certain groups, including individuals with the "greatest economic and social need." Form and recipient of federal assistance: Formula grants to states and national nonprofit organizations. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands) and by tribal organizations. Allocation formula: Funds are allocated to states and national organizations according to a three-part formula: a hold-harmless factor (FY2000 level of funding); each state's relative share of individuals age 55 or older; and each state's relative per capita income. Matching or related requirements: A nonfederal share of 10% is required. New obligations: FY2009: $708 million. FY2008: $504 million. Budgetary classification: Discretionary. Participation data: In program year 2009 (July 2008-June 2009), approximately 89,000 low-income workers participated in community service assignments. CRS report: CRS Report RL33880, Older Americans Act: Funding , by [author name scrubbed] and [author name scrubbed]. WIA Adult Activities (CFDA #17.258) Authority: Statute: Chapter 5 of Title I, Subtitle B of the Workforce Investment Act of 1998 ( P.L. 105-220 ); 29 USC 2861-2864. Regulations: 20 CFR Part 663. Federal administering agency: Department of Labor, Employment and Training Administration, Office of Workforce Investment. Purpose of program: To assist eligible individuals in finding and qualifying for meaningful employment, and to help employers find the skilled workers they need to compete and succeed in business. Benefit/service: Core services, including outreach, job search and placement assistance, and labor market information. Intensive services, including comprehensive assessments, development of individual employment plans and counseling and career planning. Training services, including occupational skill training and basic skills training. Supportive services, including transportation, child care, housing and needs-related payments in certain circumstances. Individual eligibility criteria: Eligible individuals are at least 18 years old. No additional eligibility criteria apply for core services. For intensive or training services, individuals must need the services in order to become employed or to obtain or retain a job that allows for self-sufficiency. If funds are limited, priority must go to recipients of cash assistance and other low-income individuals. Low-income is defined as having income below the federal poverty guidelines or 70% of the lower living standard income level, whichever is higher; receiving means-tested public assistance; being a member of a household that receives food stamps; qualifying as homeless; or being a disabled individual whose own income meets the low-income definition but whose family income exceeds it. Form and recipient of federal assistance: Formula grants to states. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Marshall Islands, Micronesia, and Palau). Allocation formula: Funds are allocated to states on the basis of a three-part formula: state shares of the national distribution of areas of "substantial" unemployment (unemployment rate of at least 6.5%), "excess" unemployment (rate above 4.5%) and the "disadvantaged" adult population (family income below the federal poverty guidelines or 70% of the lower living standard income level). Matching or related requirements: None. New obligations: FY2009: $1.357 billion (includes $495 million under the American Recovery and Reinvestment Act). FY2008: $827 million. Budgetary classification: Discretionary. Participation data: In program year 2008 (April 2008-March 2009), there were 849,738 "exiters" from adult activities, of which 540,665 received core services only, 210,859 received core and intensive services, and 98,214 received training services. An exiter is a participant (who was determined eligible and received a service funded by WIA, including individuals who accessed self-services) who has not received a service funded by WIA or a partner program for 90 consecutive calendar days. CRS report: CRS Report R41135, The Workforce Investment Act and the One-Stop Delivery System , by [author name scrubbed]. WIA Youth Activities (CFDA #17.259) Authority: Statute: Chapter 4 of Title I, Subtitle B of the Workforce Investment Act of 1998 ( P.L. 105-220 ); 29 USC 2851-2954. Regulations: 20 CFR Part 664. Federal administering agency: Department of Labor, Employment and Training Administration, Office of Workforce Investment. Purpose of program: To improve educational and skill competencies of youth and develop connections to employers, mentoring opportunities with adults, training opportunities, supportive services, incentives for recognition and achievement, and leadership opportunities. Benefit/service: Strategies to complete secondary school, alternative secondary school services, summer employment, work experience, occupational skill training, leadership development opportunities, supportive services, adult mentoring, follow-up services, and comprehensive guidance and counseling. Individual eligibility criteria: Eligible youth are low-income, ages 14 through 21, and either deficient in basic skills, a school dropout, homeless, a runaway or foster child, pregnant or a parent, or a youth offender. Low-income is defined as receiving (or being eligible to receive) cash assistance or food stamps (now the Supplemental Nutrition Assistance Program); having family income no greater than the federal poverty guidelines or 70% of the lower living standard income level; or being homeless, a foster child for whom state or local payments are made, or a disabled person whose income meets the low-income definition but whose family income exceeds it. Form and recipient of federal assistance: Formula grants to states. Allows participation by territories (Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the Marshall Islands, Micronesia, and Palau). Allocation formula: Funds are allocated to states according to a three-part formula: state shares of the national distribution of areas of "substantial" unemployment (unemployment rate of at least 6.5%); "excess" unemployment (rate above 4.5%); and population of "disadvantaged" youth (family income below the federal poverty guidelines or 70% of the lower living standard income level). Matching or related requirements: None. New obligations: FY2009: $2.218 billion (includes $1.182 billion under the American Recovery and Reinvestment Act). FY2008 : $984 million. Budgetary classification: Discretionary. Participation data: In program year 2008 (April 2008-March 2009), there were 115,083 "exiters" from youth activities. An exiter is a participant (who was determined eligible and received a service funded by WIA, including individuals who accessed self-services) who has not received a service funded by WIA or a partner program for 90 consecutive calendar days. CRS reports: CRS Report R41135, The Workforce Investment Act and the One-Stop Delivery System , by [author name scrubbed]; and CRS Report R40929, Vulnerable Youth: Employment and Job Training Programs , by [author name scrubbed]. Social Services and Targeted Assistance for Refugees (CFDA 93.566) Authority: Statute: Title IV, Chapter 2 of the Immigration and Nationality Act, established by the Refugee Act of 1980 ( P.L. 96-212 ) and most recently reauthorized by P.L. 106-104 ; 8 USC 1521-1524. Regulations: 45 CFR Part 400. Federal administering agency: Department of Health and Human Services, Administration for Children and Families, Office of Refugee Resettlement. Purpose of program: To provide for the effective resettlement of refugees and to assist them to achieve economic self-sufficiency as quickly as possible. Benefit/service: Employability and other services that address participants' barriers to employment such as social adjustment services, interpretation and translation services, day care for children, citizenship and naturalization services. Services are designed to enable refugees to obtain jobs within one year of becoming enrolled. Individual eligibility criteria: Refugees, asylees, other specified humanitarian cases, and trafficking victims. Priority goes to newly arriving refugees during their first year in the U.S. who apply for services; refugees who are receiving cash assistance; unemployed refugees who are not receiving cash assistance; and employed refugees in need of services to retain employment or to attain economic independence. Form and recipient of federal assistance: Formula grants to states and competitive grants to public and private nonprofit entities. Allocation formula: State formula grants are based on the number of refugees, asylees, and other eligible cases who arrived in the U.S. not more than 36 months before the start of the fiscal year and who are residing in the state. Matching or related requirements: None. New obligations: FY2009: $203 million. FY2008: $203 million. (Appropriations.) Budgetary classification: Discretionary. Participation data: No data available. CRS report: CRS Report R41570, U.S. Refugee Resettlement Assistance , by [author name scrubbed]. Foster Grandparents (CFDA #94.011) Authority: Statute: Domestic Volunteer Service Act of 1973, most recently reauthorized by the Serve America Act ( P.L. 111-13 ); 42 USC 5011. Regulations: 45 CFR Part 2552. Federal administering agency: Corporation for National and Community Service. Purpose of program: To provide opportunities for older low-income people to have a positive impact on the lives of children in need. Benefit/service: Employment (between 15 and 40 hours weekly), with hourly stipend, providing services to children with special or exceptional needs or with conditions or circumstances that limit their academic, social or economic development. Individual eligibility criteria: Eligible individuals must be age 60 or older (55 starting in FY2010) and, to be eligible to receive a stipend, individuals must have incomes no greater than 125% of federal poverty guidelines (200% starting in FY2010). Form and recipient of federal assistance: Discretionary grants to public and private nonprofit entities. Allows participation by entities in territories (American Samoa, Guam, Puerto Rico, the Trust Territories of the Pacific Islands, the U.S. Virgin Islands) and by Indian tribes. Allocation formula: Not applicable. Matching or related requirements: Nonfederal match of 10% required, which may be in cash or in-kind. New obligations: FY2009: $109 million. FY2008: $109 million. (Appropriations.) Budgetary classification: Discretionary. Participation data: In FY2009, 28,400 foster grandparents participated. CRS report: CRS Report RL33931, The Corporation for National and Community Service: Overview of Programs and FY2010 Funding , by Abigail B. Rudman and [author name scrubbed]. Job Corps (no CFDA #) Authority: Statute: Title I-C of the Workforce Investment Act of 1998 ( P.L. 105-220 ); 29 USC 2881-2901. Regulations: 20 CFR Part 670. Federal administering agency: Department of Labor, Employment and Training Administration, Office of Job Corps. Purpose of program: To assist eligible youth who need and can benefit from an intensive program, operated in a group setting in residential and nonresidential centers, to become more responsible, employable, and productive citizens. Benefit/service: Education and vocational training, including advanced career training; work experience; recreational activities; physical rehabilitation and development; job placement and counseling; and child care. Individual eligibility criteria: Low-income youth aged 16-24 who have one or more of the following characteristics: deficient in basic reading, writing or computing skills; a school drop-out; homeless, a runaway, or a foster child; a parent; in need of additional education, vocational training, or intensive counseling to accomplish regular schoolwork or to secure and hold a job. Low-income is defined as a person who receives or whose family receives cash assistance or food stamps, or has income no higher than federal poverty guidelines, is homeless or a foster child, or is a disabled person whose own income does not exceed federal poverty guidelines but whose family income does. Form and recipient of federal assistance: Competitive contracts and interagency agreements with federal, state or local agencies, area vocational education schools or residential vocational schools, or private organizations. Allows participation by Indian tribes and tribal organizations. Allocation formula: Not applicable. Matching or related requirements: None. New obligations: FY2009: $1.804 billion (includes $148 million under the American Recovery and Reinvestment Act). FY2008: $1.558 billion. Budgetary classification: Discretionary. Participation data: In program year 2008 (April 2008-March 2009), total Job Corps enrollment was 60,896. CRS report: CRS Report R40929, Vulnerable Youth: Employment and Job Training Programs , by [author name scrubbed]. Appendix D. Sources of Additional Information on Selected Income Measures and Eligibility Tests The following references provide additional information about selected measures of income, income thresholds, and eligibility or benefit calculations that are used under various programs discussed in this report. Federal Poverty Guidelines and Related Poverty Measures Federal Poverty Guidelines, Research and Measurement —include links to current and prior poverty guidelines and frequently asked questions about the guidelines, their use by various federal programs to determine eligibility, and the federal poverty thresholds: http://aspe.hhs.gov/ poverty/ index.shtml U.S. Census Bureau: Poverty —includes links to information about poverty data reported by the Census Bureau from several major household surveys and programs, including the Annual Social and Economic Supplement to the Current Population Survey, the American Community Survey, the Survey of Income and Program Participation, and the Small Area Income and Poverty Estimates: http://www.census.gov/ hhes/ www/ poverty/ poverty.html Department of Veterans Affairs Income Thresholds VA Health Care—National Income Thresholds for FY2011 and FY2010 : http://www4.va.gov/ healtheligibility/ Library/ pubs/ VAIncomeThresholds/ VAIncomeThresholds.pdf Questions and Answers on Veterans Pension Program : http://www.vba.va.gov/ bln/ 21/ pension/ vetpen.htm#1 Pension Rate Table, effective December 2009 —provides annual income limits for maximum annual pension rates, and includes links to prior year limits: http://www.vba.va.gov/ bln/ 21/ Rates/ pen01.htm Supplemental Security Income Monthly Federal SSI Payment (Maximum) and Monthly Income Limits, 2010 : http://www.ssa.gov/ pubs/ 10003.html Understanding Supplemental Security Income—SSI Eligibility Requirements, 2010 Edition : http://www.ssa.gov/ ssi/ text-eligibility-ussi.htm Earned Income Tax Credit Income Limits and Maximum Credit Amounts, 2010 , and links to prior year limits: http://www.irs.gov/ individuals/ article/ 0,,id= 150513,00.html Median Income State median income data published by the Census Bureau : http://www.census.gov/ hhes/ www/ income/ statemedfaminc.html FY2010 HUD Income Limits Briefing Material : http://www.huduser.org/ portal/ datasets/ il/ il10/ IncomeLimitsBriefingMaterial_FY10.pdf FY2010 Income Limits for the Public Housing and Section 8 Programs : http://www.huduser.org/ portal/ datasets/ il/ il10/ HUD-sec8.pdf Frequently Asked Questions, FY2010 Income Limits : http://www.huduser.org/ portal/ datasets/ il/ il10/ faq_10.html "Need Analysis" System The EFC Formula, 2010-2011 (June 2010 update) —explains the formula used to calculate a student's "expected family contribution" and the amount of aid the student would be eligible to receive: http://www.ifap.ed.gov/ efcformulaguide/ attachments/ 062810EFCFormulaGuideUpdate1011.pdf Lower Living Standard Income Levels Federal Register notice of determination of Lower Living Standard Income Levels for 2010 , and links to LLSILs for prior years: http://www.doleta.gov/ llsil/ 2010/	The federal government spent almost $708 billion in FY2009 on programs for low-income people, and nearly $578 billion the previous year. The increased spending between the two years was largely due to the recession, with almost two-thirds coming from the American Recovery and Reinvestment Act (ARRA, P.L. 111-5), the economic stimulus enacted in February 2009. Low-income programs discussed in this report are distinct from social insurance programs, such as Social Security or Medicare, which aim to protect American workers universally against lost wages or benefits when they retire, become disabled, or lose a job. In contrast, programs addressed here focus explicitly on low-income populations. They provide assistance in obtaining basic needs, such as health care, food, or housing, and seek to address the causes of low income through education, training, or other services. While these programs are very diverse, the analysis in this report yields certain general findings: • Health care dominates all other categories of benefits and services, accounting for nearly half of federal spending for low-income people. Cash aid is second but trails far behind, comprising 18% of spending in FY2009. Other categories, in decreasing size, are food assistance, housing and development, education, social services, energy assistance, and employment and training. • Four programs account for 60% of federal spending for low-income people and 10 programs make up more than three-fourths. Medicaid alone accounted for nearly 40% of FY2009 low-income spending; next were the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), Supplemental Security Income, and the refundable portion of the Earned Income Tax Credit. • Elderly and disabled individuals, and families with children are key target populations for much of the spending for low-income people. Federal policy toward families with children generally encourages work and includes incentives to "make work pay." Other populations served by selected programs include veterans, students, homeless people, Indians, and refugees. • Within broad target populations, programs use different concepts to determine who is eligible. Most spending is on behalf of people determined individually eligible by virtue of their low income or eligibility for another income-tested program. "Low income" is defined in a multitude of ways, using different percentages of the federal poverty guidelines, specific dollar amounts, percentages of local area median income (primarily for housing programs), or other measures. • Many programs distribute funding to states or other entities to provide benefits and services to low-income people, using population-based allocation factors, cost-sharing formulas, or other mechanisms to target resources toward areas or entities with the greatest need. Some of these programs (especially in elementary and secondary education) have no further requirements for individuals to be determined income-eligible. • Programs for low-income people are most likely to use formula grants to distribute funds to states or another unit of government. Under many of these programs, notably including Medicaid, states must spend a specified amount of their own funds to receive federal dollars. State and local governments administer most of these federal programs; however, many of the largest programs provide federal benefits directly to individuals or via a nongovernmental intermediary.	14.3	long	2,617
10	O n July 9, 2018, President Donald J. Trump announced the nomination of Judge Brett M. Kavanaugh of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) to fill the vacancy on the Supreme Court of the United States caused by Justice Anthony M. Kennedy's retirement on July 31, 2018. Nominated by President George W. Bush to the D.C. Circuit, a court once described by President Franklin Roosevelt as "the second most important court in the country," Judge Kavanaugh has served on the bench for more than twelve years. In his role as a Circuit Judge, the nominee has authored roughly three hundred opinions (including majority opinions, concurrences, and dissents) and adjudicated numerous high-profile cases concerning, among other things, the status of wartime detainees held by the United States at Guantanamo Bay, Cuba; the constitutionality of the current structure of the Consumer Financial Protection Bureau (CFPB); the validity of rules issued by the Environmental Protection Agency (EPA) under the Clean Air Act; and the legality of the Federal Communications Commission's (FCC's) net neutrality rule. Since joining the D.C. Circuit, Judge Kavanaugh has also taught courses on the separation of powers, national security law, and constitutional interpretation at Harvard Law School, Yale Law School, and the Georgetown University Law Center. Prior to his appointment to the federal bench in 2006, Judge Kavanaugh served in the George W. Bush White House, first as an associate and then senior associate counsel, before becoming an assistant and staff secretary to the President. Before his service in the Bush Administration, the nominee worked in private practice at the law firm of Kirkland & Ellis, LLP for three years and served in the Office of the Independent Counsel and the Office of the Solicitor General. Judge Kavanaugh began his legal career with three federal clerkships—two for judges on the federal courts of appeals and one for the jurist he is nominated to succeed, Justice Kennedy. Judge Kavanaugh is a graduate of Yale College and Yale Law School. This report provides an overview of Judge Kavanaugh's jurisprudence and discusses how the Supreme Court might be affected if he were to succeed Justice Kennedy. In attempting to ascertain how Judge Kavanaugh could influence the High Court, however, it is important to note that, for various reasons, it is difficult to predict accurately a nominee's likely contributions to the Court based on his or her prior experience. A section of this report titled Predicting Nominees' Future Decisions on the Court provides a broad context and framework for evaluating how determinative a judge's prior record may be in predicting future votes on the Supreme Court. Because Judge Kavanaugh would succeed Justice Kennedy on the High Court, the report then focuses on those areas of law where Justice Kennedy can be seen to have influenced the Court's approach, or provided a fifth and deciding vote, with a view toward how the nominee might approach those same issues. Justice Kennedy's retirement is likely to have significant implications for the Court, Congress, and the nation as a whole. Justice Kennedy, often described as the Roberts Court's median vote, was frequently at the center of legal debates on the High Court, casting decisive votes on issues ranging from the powers of the federal government vis-à-vis the states, to separation-of-powers disputes, to key civil liberties issues. Accordingly, a critical question now before the Senate as it considers providing its advice and consent to the President's nomination to the High Court is how Judge Kavanaugh may view the many legal issues in which Justice Kennedy's vote was often determinative. As a result, the report begins by discussing two cross-cutting issues—the nominee's general judicial philosophy and his approach to statutory interpretation. It then addresses thirteen separate areas of law, arranged in alphabetical order, from "administrative law" to "takings." Within each section, the report reviews whether and how Judge Kavanaugh has addressed particular issues in the opinions he authored. In some instances, the report also identifies other votes in which he participated (e.g., votes to join majority opinions authored by other D.C. Circuit judges, votes on whether the D.C. Circuit should grant en banc review to a decision of a three-judge panel, etc.). The report also analyzes, where relevant, Judge Kavanaugh's non-judicial work, including a number of speeches and academic articles, many of which address the role of the judiciary, separation of powers, and constitutional and statutory interpretation. While this report discusses many of Judge Kavanaugh's non-judicial writings, it does not address two types of written work. First, the report does not discuss anything written by the nominee in a representative capacity for another party, such as a brief submitted on behalf of a client to a court, as such materials may provide limited insight into the advocate's personal views on the law. For purposes of this report, this limitation also extends to writings related to Judge Kavanaugh's former government service, such as his work for the George W. Bush Administration, the Office of the Independent Counsel, and the Office of the Solicitor General. Second, the report does not discuss the nominee's writings that predate his graduation from law school, as such writings may be of limited import to gauging his educated views on the law. While the report discusses numerous cases and votes involving Judge Kavanaugh, it focuses particularly on cases in which the sitting panel was divided, as these cases arguably best showcase how he might approach a legal controversy whose resolution is a matter of dispute and is not necessarily clearly addressed by prior case law. In addition, the report highlights areas where the nominee has expressed views on the law that may contrast with those of some of his colleagues. To the extent that the nominee's votes in particular cases arguably reflect broader trends and tendencies in his decisionmaking that he might bring to the High Court, the report highlights such trends. Nonetheless, this report does not attempt to catalog every matter in which Judge Kavanaugh has participated during his service on the D.C. Circuit. A separate report, CRS Report R45269, Judicial Opinions of Judge Brett M. Kavanaugh , coordinated by [author name scrubbed], lists and briefly describes each opinion authored by the nominee during his tenure on the federal bench. Other CRS products discuss various issues related to the vacancy on the Court. For an overview of available products, see CRS Legal Sidebar LSB10160, Supreme Court Nomination: CRS Products , by [author name scrubbed]. At least as a historical matter, attempting to predict how Supreme Court nominees may approach their work on the High Court is a task fraught with uncertainty. For example, Justice Felix Frankfurter, who had a reputation as a "progressive" legal scholar prior to his appointment to the Court in 1939, disappointed some early supporters by subsequently becoming a voice for judicial restraint and caution when the Court reviewed laws that restricted civil liberties during World War II and the early Cold War era. Similarly, Justice Harry Blackmun, who served on the Eighth Circuit for a little over a decade prior to his appointment to the Court in 1970, was originally considered by President Richard Nixon to be a "strict constructionist" in the sense that he viewed the judge's role as interpreting the law, rather than making new law. In the years that followed, however, Justice Blackmun authored the majority opinion in Roe v. Wade , which recognized a constitutional right to terminate a pregnancy. He was generally considered one of the more liberal voices on the Court when he retired in 1994. The difficulty in attempting to predict how a nominee will approach the job of being a Justice remains even when the nominee has had a lengthy federal judicial career prior to nomination. Federal judges on the courts of appeals are bound by Supreme Court and circuit precedent and, therefore, are not normally in a position to espouse freely their views on particular legal issues in the context of their judicial opinions. Moreover, unlike the Supreme Court, which enjoys "almost complete discretion" in selecting its cases, the federal courts of appeals are required to hear many cases as a matter of law. As a result, the courts of appeals consider "many routine cases in which the legal rules are uncontroverted." Because lower court judges are often bound by Supreme Court and circuit precedent, moreover, the vast majority of federal appellate opinions are unanimous. Perhaps indicative of the nature of federal appellate work, the vast majority of cases decided by three-judge panels of federal courts of appeals are decided without dissent. While the D.C. Circuit, where Judge Kavanaugh serves, witnesses more dissents on average than its sister circuits, the overwhelming majority of opinions issued by the nominee's court are unanimous. Accordingly, while Judge Kavanaugh's work on the D.C. Circuit may provide some insight into his general approach to particular legal issues, the bulk of the opinions that the nominee has authored or joined may not be particularly insightful with regard to his views on specific areas of law, or how he would approach these issues if he were a Supreme Court Justice. When a federal appellate judge takes the step to write separately, however, such an opinion need not accommodate the views of other colleagues, and can therefore provide unique insight into a circuit judge's judicial approach. Even in closely contested cases where concurring or dissenting opinions are filed, however, it still may be difficult to determine the preferences of the nominated judge if the nominee did not actually write an opinion in the case. The act of joining an opinion authored by another judge does not necessarily reflect full agreement with the underlying opinion. For example, in an effort to promote consensus on a court, some judges will decline to dissent unless the underlying issue is particularly contentious. As one commentator notes, "the fact that a judge joins in a majority opinion may not be taken as indicating complete agreement. Rather, silent acquiescence may be understood to mean something more like 'I accept the outcome in this case, and I accept that the reasoning in the majority opinion reflects what a majority of my colleagues has agreed on.'" Using caution when interpreting a judge's vote isolated from a written opinion may be particularly important with votes on procedural matters. For example, a judge's vote to grant an extension of time for a party to submit a filing generally does not signal agreement with the substantive legal position proffered by that party. And while some observers have highlighted votes by Judge Kavanaugh in favor of having certain three-judge panel decisions reconsidered by the D.C. Circuit sitting en banc, these votes should be viewed with a degree of caution. A vote to rehear a case en banc could signal disagreement with the legal reasoning of the panel decision, and may suggest that a judge wants the entire court to have an opportunity to correct a perceived error by the panel. On the other hand, a vote to rehear a case en banc may be prompted by a judge's desire to resolve an intracircuit conflict between panel decisions, or may be indicative of the judge's view that the issue is of such importance as to merit consideration by the full court. Moreover, as one federal appellate judge noted in a dissent from a decision denying a petition for a rehearing en banc: Most of us vote against most such petitions . . . even when we think the panel decision is mistaken. We do so because federal courts of appeals decide cases in three judge panels. En banc review is extraordinary, and is generally reserved for conflicting precedent within the circuit which makes application of the law by district courts unduly difficult, and egregious errors in important cases. Consequently, a vote for or against rehearing a case en banc or on other procedural matters does not necessarily equate to an endorsement or repudiation of a particular legal position. Finally, it should be noted that, despite having served on the federal appellate bench for more than a decade, Judge Kavanaugh has said little about some areas of law because of the nature of the D.C. Circuit's docket and, as a consequence, it may be difficult to predict how he might rule on certain issues if he were elevated to the Supreme Court. Due to the D.C. Circuit's location in the nation's capital, and the number of statutes providing it with special or even exclusive jurisdiction to review certain agency actions, legal commentators generally agree that the D.C. Circuit's docket, relative to the dockets of other circuits, contains a greater percentage of nationally significant legal matters. For instance, the D.C. Circuit hears a large number of cases on administrative and environmental law matters. In contrast, cases at the D.C. Circuit rarely, if ever, involve "hot-button" social issues such as abortion, affirmative action, or the death penalty. Moreover, the D.C. Circuit docket has a lower percentage of cases involving criminal matters, prisoner petitions, or civil suits between private parties. As a result, this report focuses primarily on areas of law where Judge Kavanaugh has written extensively, and notes only in passing those areas where little can arguably be gleaned from his judicial record on account of his participation in few, if any, decisions directly addressing those particular areas of law. Notwithstanding the difficulty of predicting a nominee's future behavior, three overarching (and interrelated) considerations may inform an assessment of how a jurist is likely to approach the role of a Supreme Court Justice. First, the nominee's general approach to the craft of judging—a phrase that this report uses to refer to the process of how a judge approaches key aspects of the job, including writing legal opinions and resolving legal disputes on a multi-member court—may be an important consideration in predicting how a jurist would behave on the High Court. Second, the judge's overarching judicial philosophy, including how he evaluates legal questions as a substantive matter, is another central concern in gauging how a nominee may perform. Third, it may be helpful to reflect on a nominee's influences or judicial heroes, as those individuals may exhibit qualities that the nominee will aspire to emulate. On all three fronts, there are a host of clues on how President Trump's latest nominee to the High Court views the proper role of a Supreme Court Justice. Indeed, Judge Kavanaugh is a well-known jurist with a robust record, composed of both judicial opinions and non-judicial writings, in which he has made his views on the law and the role of the judge fairly clear. This section begins by discussing how the nominee has approached the craft of judging, including by examining how he prepares for a case, his writing style, his approach to working with his colleagues on the D.C. Circuit, and how his opinions have fared at the Supreme Court. The section then turns to more substantive questions about Judge Kavanaugh's judicial philosophy, noting two key aspects that have undergirded how the nominee has resolved legal disputes in the cases before him on the appellate bench. Finally, this section notes the jurists that Judge Kavanaugh has identified as judicial role models, either because of their general approach to the craft of judging or for their judicial philosophy. After his nomination to the Supreme Court, commentators noted Judge Kavanaugh's "reputation on both sides of the aisle as a solid and careful judge," highlighting his diligence throughout the process of authoring opinions for the D.C. Circuit. For instance, according to Time Magazine , the nominee requires his law clerks to create, even for routine cases, "thick black binders" "filled with memos and briefs . . . [and] every law-review article" that has been written on the relevant topic, resulting in "binders stack[ing] up in the kitchenette in [Judge] Kavanaugh's chambers." In this vein, Judge Kavanaugh's colleague, Judge Laurence Silberman, called the nominee "one of the most serious judges" he "ever encountered." Echoing these comments are anonymous evaluations in the Almanac of the Federal Judiciary from attorneys who practiced in front of the nominee, describing Judge Kavanaugh as "extremely well prepared," "careful[]," and "thorough" in his approach. Judge Kavanaugh's Writing Style . On a technical level, Judge Kavanaugh's writing has been widely praised for its clarity, including by the President, who described the nominee as "a brilliant jurist with a clear and effective writing style." And D.C. Circuit practitioners have likewise described Judge Kavanaugh's writing as "well reasoned," "thorough and clear," and "meticulous." As one commentator remarked, Judge Kavanaugh has "made a name for himself on the D.C. Circuit with clear, concise writing." It has also been observed that Judge Kavanaugh employs a number of mechanical techniques in crafting his judicial opinions, "includ[ing] strong lead-in sentences, lists, summaries, pointed questions, informal expressions and lots of repetition." Such techniques are evident throughout his written opinions wherein the nominee frequently employs bulleted lists, mathematical expressions and logical sequences —quite unusual in judicial writing—and regularly parses out the various components of his analysis through the use of introductory ordinals (i.e., first, second, third). Judge Kavanaugh also seemingly attempts to enhance the accessibility of his opinions through the occasional witticism or colloquialism. For instance, in one dissent, he equated the majority's decision to grant a writ of mandamus requiring a district court to enter a temporary stay to using a "chainsaw to carve your holiday turkey." On a more substantive level, the nominee frequently includes an extensive discussion on the background and history of a given issue or topic, particularly in his dissenting opinions. Throughout his judicial and non-judicial writings, moreover, Judge Kavanaugh relies heavily on academic scholarship, citing law review articles, treatises, and other materials, perhaps reflective of the depth of research for which the nominee is renowned. The nominee has commented: "I love looking at treatises, law review articles. The more I can read about how we got in this statute to where we are, in this constitutional provision and how it's been applied. So academic writing does matter to me." In a similar vein, he has advised his fellow jurists: [T]o be a good judge . . . we must keep learning. We do not know it all. . . . We have to constantly learn. We should draw from the law reviews and the treatises that professors have worked on for years to study a problem that we may have a couple of days to focus on. We should study the briefs and precedents carefully and challenge our instincts or prior inclinations. We are not the font of all wisdom. Working on a Multi-member Court . Given Judge Kavanaugh's industrious approach toward legal research and writing, it may be unsurprising that the nominee has been incredibly prolific both on and off the bench, perhaps providing one indication of the quality of the nominee's work. With regard to judicial opinion writing, the nominee frequently writes separately to express his particular views on the law, authoring more separate opinions than any of his colleagues on the D.C. Circuit during the 12 years he served on the appellate bench. Moreover, as Table A-1 indicates, during the nominee's tenure on the D.C. Circuit, Judge Kavanaugh also authored separate opinions at a greater rate than his colleagues who served as active judges on that court during that entire time period. While a judge's rate of concurrence or dissent in the abstract may reveal very little about the judge's ideological approach to a particular area of law, Judge Kavanaugh's tendency to write separately is somewhat probative in understanding his broad views on judging. As a general matter, some legal observers characterize a judge who tends to write separately as being more concerned with "getting the law right" than with countervailing interests that might otherwise lead a judge to join fully the opinion for the court. In a 2016 speech, Judge Kavanaugh noted that, while he "love[s] the idea of courts working together" and trying to "find common ground," he "dissent[s] a fair amount" and that "dissent is good" for a court. The frequency with which Judge Kavanaugh has authored majority opinions for divided judicial panels may also support the view that consensus is not necessarily a driving force in the nominee's approach to opinion writing. As Table A-2 demonstrates, while not as pronounced as his own propensity to author concurring or dissenting opinions, Judge Kavanaugh's majority opinions have tended to draw more separate opinions (and dissents specifically) relative to the majority opinions of his colleagues the D.C. Circuit. Jurists of various backgrounds have long debated the benefits and drawbacks of consensus on a multi-member court, and Judge Kavanaugh himself has claimed that a judge needs to "balance" various, competing interests when deciding whether to write separately. Regardless of the merits of that debate, the fact that the nominee tends to author separate opinions and prompts others to write separately may suggest that the nominee values independence and consistency in his judicial approach over consensus building, ideals the nominee has explicitly endorsed in his non-judicial writings. Moreover, Judge Kavanaugh's apparent propensity to eschew consensus in favor of candor may reflect his preference for clear rules in adjudication, as discussed in more detail below. There may be limits to the lessons that can be drawn from the frequency in which the nominee writes separately from other colleagues on the bench or prompts others to write separately. The choice to write separately is one that stems from various factors, and may simply depend on the personality and preferences of an individual judge, or the nature of the dispute before the court. More broadly, while the data contained in Table A-1 and Table A-2 may indicate Judge Kavanaugh's willingness to depart from the views of his colleagues, legal commentators have broadly noted his "very good reputation" for promoting collegiality on the D.C. Circuit and for "working with people across ideological lines." This reputation aligns with the nominee's public comments about how a judge should behave toward his colleagues. For instance, in a 2016 speech, Judge Kavanaugh described the "proper demeanor" for a judge as having empathy for one's colleagues, "demonstrat[ing] civility," and not "be[ing] a jerk." In his remarks during his Supreme Court nomination ceremony, Judge Kavanaugh described the seventeen other judges he worked with on the D.C. Circuit as "colleague[s]" and "friend[s]." While a judge's propensity to write on behalf of himself or a divided panel may suggest that the judge has idiosyncratic views on the law, Judge Kavanaugh's record on appeal to the Supreme Court appears to belie such a suggestion. As Table A-3 indicates, during the nominee's twelve years of service on the D.C. Circuit, the Supreme Court has reversed an opinion authored by Judge Kavanaugh only once, and reversed one additional opinion in which the nominee joined. Relative to his colleagues, the dearth of scrutiny by the Supreme Court of Judge Kavanaugh' s opinions is notable and could be a metric by which to gauge the nominee's work. Perhaps more telling of the strength of the nominee's record before the Court are several cases in which the Supreme Court adopted the reasoning in Judge Kavanaugh's opinions. As Table A-3 demonstrates, the Supreme Court has reversed a number of judgments from which the nominee dissented in the lower court. In at least five of these cases, the nominee's reasoning was adopted, at least in part, by the Supreme Court. Beyond the cases in which the Court directly reviewed a judgment in which Judge Kavanaugh authored a substantive opinion, in at least five other cases, the Supreme Court adopted, at least in part, reasoning from an earlier opinion of the nominee in a separate case (i.e., not the lower court opinion under review by the Supreme Court). More broadly, the Supreme Court has cited Judge Kavanaugh's opinions more frequently than it has cited other judges. As noted in Table A-4 , the Supreme Court has cited the nominee's separate opinions (i.e., dissents and concurrences), either in a majority or an individual Justice's separate opinion, eight times during the nominee's tenure on the D.C. Circuit. As Table A-5 indicates, no other D.C. Circuit judge who served on active status for Judge Kavanaugh's entire tenure on that court was cited by the Supreme Court as much during this same time period. And, as Table A-6 demonstrates, the Supreme Court cited only one other federal appellate judge who served on active duty during Judge Kavanaugh's entire tenure on the D.C. Circuit—Judge Jeffrey Sutton of the Sixth Circuit—more frequently than the nominee. While there may be limits as to what can reasonably be discerned by the sheer number of times the Supreme Court cites a particular jurist's separate opinions, these quantitative data suggest that the nominee is an influential lower court judge, and one the Justices on the Supreme Court hold in some esteem. This assessment also finds support in qualitative assessments of Judge Kavanaugh by legal commentators, who have described the nominee as one who approaches the craft of judging with "serious[ness]" and "commands wide and deep respect among scholars, lawyers and jurists." Turning to the question of judicial philosophy, while commentators have described Judge Kavanaugh's interpretative approach in various ways—including as "conservative" or "pragmatic" —the nominee's own writings have been fairly clear as to his judicial approach. Perhaps the best insights into Judge Kavanaugh's approach toward judging come from a speech he delivered in 2017 at Notre Dame Law School. Specifically, in themes that pervade both his judicial opinions and his non-judicial writing, Judge Kavanaugh focused on two central visions for adjudication in which he "believe[s] very deeply": (1) the "rule of law as a law of rules" and (2) the role of the judge as "umpire." The Rule of Law as a Law of Rules . Judge Kavanaugh's first vision for judging suggests that the nominee embraces a more formalist view of the law, favoring clarity to flexibility when rendering legal opinions. The phrase "rule of law as a law of rules" itself references Justice Antonin Scalia's famous speech from 1989 in which he argued for a more formalist approach that embraced clear rules and principles in lieu of balancing tests that, in the view of Justice Scalia, transformed the judge from a determiner of law to a finder of fact. Judge Kavanaugh has embraced legal formalism in a variety of contexts. For the nominee, critical questions for the judiciary include how "can we make the rule of law more stable, and how can we increase confidence in judges as impartial arbiters of the rule of law"? The answer to these questions for Judge Kavanaugh is to establish "stable rules of the road" for interpreting law "ahead of time," thereby enhancing the legitimacy of the judiciary by "prevent[ing] [courts] from allowing . . . personal feelings about a particular issue [to] dictate" how a case is resolved. As a result, Judge Kavanaugh has maintained that judicial decisionmaking that is not grounded in clear rules "threatens to undermine the stability of the law and the neutrality (actual and perceived) of the judiciary." With respect to statutory interpretation, the nominee has criticized binaries in which the invocation of a particular interpretive rule depends on a threshold question about whether the text being interpreted is ambiguous or clear. Ambiguity is often the threshold inquiry for determining whether a court should, for example, employ legislative history as an interpretive aid or defer to an administrative agency's legal interpretation. For Judge Kavanaugh, questioning whether text is ambiguous is problematic because "there is no objective or determinate way to figure out whether something is ambiguous." Because, in Judge Kavanaugh's view, "judgments about clarity versus ambiguity turn on little more than a judge's instincts," such an approach to interpretation threatens judicial legitimacy, as "it is hard for judges to ensure that they are separating their policy views from what the law requires of them." Instead, as discussed in more detail below, the nominee has argued that judges should "stop" using the "ambiguity trigger" in statutory interpretation and instead "strive to find the best reading of the statute" based on the text, context, and established rules of construction. Judge Kavanaugh's criticism of modern constitutional interpretation parallels his apprehensions about statutory interpretation, with the nominee expressing his broad concerns about "vague and amorphous" standards employed in constitutional interpretation, which he views as "antithetical to impartial judging." One of the nominee's primary criticisms concerns the use of tiers of scrutiny, such as strict scrutiny or rational basis review, to evaluate whether government action is permissible. Central to the nominee's criticism of the tiers of scrutiny is their requirement that a judge make a determination about whether a governmental interest is sufficiently "compelling" or "important," an inquiry that he views as lacking any objective measurement, and which puts the judge "in the position of making judgment calls that inevitably seem rooted in policy, not law." In this vein, Judge Kavanaugh's critique of the tiers of scrutiny echoes similar criticisms by Justice Clarence Thomas, who observed in a 2016 dissent that the "Constitution does not prescribe tiers of scrutiny," as well as Justice Scalia, who once described the tiers of scrutiny as adding an "element of randomness" to constitutional interpretation. While Judge Kavanaugh has been less specific as to how judges "should square up to the problem" of ambiguity in constitutional interpretation, his dissent in Heller v. District of Columbia (Heller II) suggests that he believes focusing on a constitutional provision's "text, history, and tradition" provides a more stable alternative. The "key threshold question" in Heller II concerned the constitutional test that a court should "employ to assess" whether a gun law comported with the Second Amendment. And while acknowledging that in its cases interpreting the Second Amendment, "the [Supreme] Court never said something as succinct as 'Courts should not apply strict or intermediate scrutiny but should instead look to text, history, and tradition to define the scope of the right and assess gun bans and regulations,'" Judge Kavanaugh concluded that the "clear message" to "take away from the Court's holdings and reasoning" is to eschew balancing tests "in favor of categoricalism—with the categories defined by text, history, and tradition." At the same time, there are limits to Judge Kavanaugh's formalism. As the nominee has acknowledged, "there are areas of the law that sometimes entail discretion. And it is important to acknowledge that sometimes judges must exercise reasoned decision-making within a law that gives judges some discretion over the decision." Accordingly, Judge Kavanaugh has cautioned against a vision of judging that could be "caricatured as being 'every case is simply mechanical and robotic for judges.'" To the nominee, there are certain cases where "[t]here is a body of precedent that helps inform" a decision, but nonetheless the judge must exercise some degree of discretion in reaching a decision. Judge Kavanaugh identifies a number of questions that he believes require such discretion, including, among others: "what is 'reasonable' under the Fourth Amendment?"; "[w]hat is a 'compelling government interest' under the Religious Freedom Restoration Act?"; and "what are 'unreasonable restraints of trade' for purposes of the Sherman Act." At the same time, the nominee has contended that ambiguity in the law exists in "far fewer places than one would think," and, to the extent possible, judges should avoid "injecting" ambiguity into the heart of interpretation. Judge as Umpire . The second, and closely related, pillar of Judge Kavanaugh's judicial philosophy—an embrace of the role of the judge as "umpire"—derives from an analogy Chief Justice John Roberts used during his Supreme Court confirmation hearing wherein he likened a judge's job to that of an umpire in baseball. During that hearing, the future Chief Justice described the umpire and judge as having "limited" roles in that a good judge, like an umpire, does not "make the rules," but instead "applies" them to ensure "everybody plays by the rules." Judge Kavanaugh has discussed "the notion of judges as umpires" extensively in his non-judicial writings, highlighting his "agree[ment] with that vision of the judiciary." According to the nominee: The American rule of law . . . depends on neutral, impartial judges who say what the law is , not what the law should be. Judges are umpires, or at least should always strive to be umpires. In a perfect world, at least as I envision it, the outcomes of cases would not often vary based solely on the backgrounds, political affiliations, or policy views of judges. In this vein, Judge Kavanaugh has defined "a neutral, impartial judiciary" as one "that decides cases based on settled principles without regard to policy preferences or political allegiances or which party is on which side in a particular case." This vision of a neutral, impartial judiciary is echoed throughout the nominee's non-judicial writings and speeches, as well as in his written opinions and during his confirmation hearing in 2006 as a nominee to the D.C. Circuit. For instance, Judge Kavanaugh emphasized at that hearing his view that "the worst moments in the Supreme Court's history have been moments of judicial activism . . . where the Court went outside its proper bounds . . . in interpreting clauses of the Constitution to impose its own policy views and to supplant the proper role of the legislative branch." As a result, the nominee has highlighted his belief "in judicial restraint, recognizing the primary policymaking role of the legislative branch in our constitutional democracy." These broad statements about the role of the judge as a neutral umpire may prompt the question as to how the nominee strives to achieve such neutrality. In accepting the nomination to the Supreme Court, Judge Kavanaugh articulated what he viewed as a "straightforward" means to ensure that a judge remains "independent" and "interpret[s] the law" but does "not make the law." Specifically, Judge Kavanaugh stated that a judge must interpret the Constitution "as written, informed by history and tradition and precedent." At a high level, this statement summarizes the three main aspects of the nominee's approach to ensuring that a judge remains an umpire, an approach that emphasizes (1) the primacy of the text of the law being interpreted, (2) an awareness of history and tradition, and (3) adherence to precedent. Each of these themes is examined below. Textualism. A foundational aspect of Judge Kavanaugh's judicial philosophy is his embrace of textualism, the doctrine that the words of a governing text are paramount to understanding the meaning of a law. As discussed in more detail below, Judge Kavanaugh has, like Justice Scalia, emphasized the "centrality of the words of the statute" and counseled against the use of certain "substantive principles of interpretation" that, in the nominee's view, pose risks to judges' roles as "neutral, impartial umpires in certain statutory interpretation cases." Thus, Judge Kavanaugh has advised that "[t]he judge's job is to interpret the law, not to make the law or make policy. So, read the words of the statute as written." In this vein, the nominee has described his embrace of textualism as intended to promote a neutral, impartial judiciary; in his words: "This tenet—adhere to the text—is neutral as a matter of politics and policy. The statutory text may be pro-business or pro-labor, pro-development or pro-environment, pro-bank or pro-consumer. Regardless, judges should follow clear text where it leads." In addition to figuring prominently in statutory interpretation, Judge Kavanaugh's textualist approach extends to constitutional interpretation. The nominee has remarked that the one factor that "matters above all in constitutional interpretation and in understanding the grand sweep of constitutional jurisprudence . . . is the precise wording of the constitutional text. It's not the only factor, but it's the anchor, the magnet, the most important factor that directs and explains much of constitutional law . . . ." Accordingly, Judge Kavanaugh has instructed that judges must "[r]ead the text of the Constitution as written . . . . Don't make up new constitutional rights that are not in the Constitution. Don't shy away from enforcing constitutional rights that are in the text of the Constitution. Changing the Constitution is for the amendment process. Changing policy within constitutional bounds is for the legislatures." Nonetheless, there are limits to Judge Kavanaugh's embrace of textualism. Specifically, the nominee has "emphasize[d] that the text is not the end-all of statutory interpretation," and has remarked that "on occasion the relevant constitutional or statutory provision may actually require the judge to consider policy and perform a common law-like function." Judge Kavanaugh suggests there are a variety of cases "where the judicial inquiry requires determination of what is reasonable or appropriate," and these "are less a matter of pure interpretation than of common law-like judging." Accordingly, while the nominee's writings demonstrate a clear subscription to textualism and a belief that "[m]any cases come down to interpretation of the text of the Constitution, a statute, a rule, or a contract," he also seems to leave room for a recognition that "not every case comes down to pure interpretation." History and Tradition. Beyond a reliance on a law's text to promote judicial neutrality, Judge Kavanaugh's judicial opinions are frequently guided by what he refers to as "history and tradition." The nominee, however, has not embraced a narrow view as to what particular "history" and "tradition" can inform legal interpretation, including constitutional interpretation. While some commentators have labeled Judge Kavanaugh an originalist in the Scalia tradition, others have observed that the nominee does not appear to "call himself an originalist, and his opinions on the appellate court suggest that he uses less originalist analysis than Justice Thomas or Justice Gorsuch." Indeed, in a 2017 speech, while suggesting that Justice Scalia's focus on "history and tradition" "might" be consistent with the vision of a judge as an impartial umpire, Judge Kavanaugh stated that he does not "[a]t the moment . . . have a solution" to his concerns about the indeterminacy of constitutional interpretation. In contrast to Justice Neil M. Gorsuch, who as a judge on the Tenth Circuit openly endorsed constitutional interpretations that relied on the Constitution's "original public meaning," Judge Kavanaugh has not been as explicit. In perhaps the nominee's closest embrace of originalism, Judge Kavanaugh contended in his dissenting opinion in Heller II that the "post-ratification adoption or acceptance of laws that are inconsistent with the original meaning of the constitutional text obviously cannot overcome or alter that text." Notably, the dissent continued: The Constitution is an enduring document, and its principles were designed to, and do, apply to modern conditions and developments. The constitutional principles do not change (absent amendment), but the relevant principles must be faithfully applied not only to circumstances as they existed in 1787, 1791, and 1868, for example, but also to modern situations that were unknown to the Constitution's Framers. To be sure, applying constitutional principles to novel modern conditions can be difficult and leave close questions at the margins. But that is hardly unique to the Second Amendment. It is an essential component of judicial decisionmaking under our enduring Constitution. Nonetheless, in his Heller II dissent and elsewhere, Judge Kavanaugh, when discussing history and tradition to "inform the interpretation of a constitutional provision," has looked to both pre- and post-ratification history and tradition. In a dissenting opinion in PHH Corp. v. CFPB , for instance, the nominee wrote that "in separation of powers cases not resolved by the constitutional text alone, historical practice helps define the constitutional limits on the Legislative and Executive Branches." In PHH Corp. , the majority of the D.C. Circuit sitting en banc held that the CFPB's structure of governance was constitutional under Article II. Judge Kavanaugh disagreed, canvassing the nation's historical post-ratification experience with the structure of independent agencies, and concluding that "the CFPB's departure from historical practice matters in this case because historical practice matters to separation of powers analysis." More broadly, Judge Kavanaugh's non-judicial writings might be read to suggest he elevates a textualist approach over an originalist philosophy. For instance, the nominee has suggested: When we think about the Constitution and we focus on the specific words of the Constitution, we ought to not be seduced into thinking that it was perfect and that it remains perfect. The Framers did not think that the Constitution was perfect. And they knew, moreover, that it might need to be changed as times and circumstances and policy views changed. The nominee has also cast some doubt on the reliability of some of the source materials frequently relied upon by originalists: [B]e careful about even The Federalist . . . That's not the authoritative interpretation of the words. You've got to be careful about some of the ratification debates. You've got to be careful about different people at the Convention itself. They had different views. So when there's compromise, all the more reason for me to stick as close as you can to what the text says. At the same time, while seemingly "not a dyed-in-the-wool originalist like Scalia," as one observer has put it, Judge "Kavanaugh has relied on originalist principles." In several speeches, for example, the nominee has endorsed the originalist concept of the "enduring constitution," albeit in connection with an overarching textualist approach to constitutional interpretation: "For those of us who believe that the judges are confined to interpreting and applying the Constitution and laws as they are written and not as we might wish they were written, we . . . believe in a Constitution that lives and endures." And the notion of an enduring Constitution has figured in Judge Kavanaugh's written opinions for the D.C. Circuit. Beyond his dissent in Heller II , in his dissent in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), for instance, Judge Kavanaugh stressed the importance of original meaning in conjunction with a textualist approach, asserting that "it is always important in a case of this sort to begin with the constitutional text and the original understanding, which are essential to proper interpretation of our enduring Constitution." Precedent. Judge Kavanaugh's vision of a neutral, impartial judiciary—composed of judges strictly applying stable rules of law—perhaps suggests how the nominee might view the doctrine of stare decisis and the role of precedent in deciding cases. During his confirmation hearing in 2006 as a nominee to the D.C. Circuit, Judge Kavanaugh stated: "I believe very much . . . in following the Supreme Court precedent strictly and absolutely. . . . I think that is very important for the stability of our three-level system for lower courts to faithfully follow Supreme Court precedent . . . ." Indeed, in his non-judicial writings, the nominee has emphasized the importance of stare decisis: We operate in a system built on Supreme Court precedent. As lower court judges, we must adhere to absolute vertical stare decisis, meaning we follow what the Supreme Court says. And to be a good lower court judge, you must follow the Supreme Court precedent in letter and in spirit. We should not try to wriggle out of what the Supreme Court said, or to twist what the Supreme Court said, or to push the law in a particular direction . . . . That Judge Kavanaugh's judicial philosophy incorporates adherence to precedent is also evident in his written opinions issued in a number of high-profile cases over the last decade. Recently, in Garza v. Hargan , for instance, the nominee dissented from the court's en banc order in a case involving whether an alien minor without lawful immigration status in federal custody may obtain an abortion. In so doing, Judge Kavanaugh emphasized that "our job as lower court judges is to apply the precedents and principles articulated in Supreme Court decisions to the new situations." More generally, the nominee has warned that judges should follow Supreme Court cases both "in letter and in spirit," and has stated that even where the governing precedent is controversial or has engendered "vigorous dissents," the job of the lower court is not "to re-litigate or trim or expand Supreme Court decisions," but to follow those decisions "as closely and carefully and dispassionately as we can." In another dissenting opinion, Judge Kavanaugh more colorfully stated that lower courts must "follow both the words and the music of Supreme Court opinions." Notwithstanding these broad statements about the role of precedent for lower courts , it is difficult to state with certainty how Judge Kavanaugh would apply the doctrine of stare decisis in a particular case if he were elevated to the Supreme Court due to the unique nature of that position relative to his current role. The nominee's previous judicial writings were from the perspective of a D.C. Circuit judge—one bound to follow Supreme Court precedent and able to override existing circuit precedent only with the concurrence of a majority of the en banc court. Stare decisis applies quite differently, however, when the Supreme Court reconsiders its own cases. Nonetheless, Judge Kavanaugh's writings give some clues as to how he might approach the question of whether to overturn existing precedent. In one speech, the nominee stated that horizontal stare decisis—that is, the precedential effect that a court's own decisions have on that same court—"has some flexibility." In another talk, Judge Kavanaugh doubted whether existing Supreme Court case law on stare decisis provided a principled, restraining test for when to overrule prior cases. Responding to a question as to whether there is a single standard a court could use to determine whether to overturn a prior decision, the nominee noted that it is "hard to have a set formula for overruling that's going to work in all cases." Judge Kavanaugh described the Supreme Court's existing test as one that requires the Court to overrule when a case is "really wrong and has really significant practical effects, and there hasn't been reliance interests of the kind you would have with a property or contract decision." Nevertheless, the nominee criticized this test, remarking that it does "not really" "bind[ ]," or "tell[ ] you in advance with Justices of different stripes when" to overrule a case. In line with his general judicial philosophy that tends to emphasize stability and clear rules from the judiciary, Judge Kavanaugh expressed concern that the current formula does not give "much predictability or guidance." While the nominee has not further elaborated on his overarching theory for when to diverge from precedent, his general judicial philosophy, as noted, is based in part on the theory that judges should set clear rules in advance and then follow those rules. As Judge Kavanaugh has noted, "[e]ven in those cases where there is discretion . . . [and] judges are assigned what may be described as common-law-like authority," they must still adhere to certain principles: "we try to follow precedent and have a stable body of precedent"; "we try to write our decisions in reasoned and clear ways"; "we try to be consistent in how we go about deciding like cases alike"; and "we do so candidly." This emphasis on stability and predictability may suggest a reluctance to overturn well-established precedent. At the same time, Judge Kavanaugh's opinions reveal that he is less likely to follow Supreme Court case law or prior D.C. Circuit decisions when he believes a prior case has been significantly undermined by subsequent factual developments or is inconsistent with prevailing doctrine. For example, in United States v. Burwell , Judge Kavanaugh argued in dissent that the D.C. Circuit should not have followed its prior opinion that had "been undermined" by a subsequent Supreme Court decision. And, as discussed in more detail below, in a series of cases the nominee has questioned the continuing viability of the Supreme Court's decision in Turner Broadcasting System, Inc. v. FCC , most recently and most directly in a concurring opinion in Agape Church, Inc. v. FCC . In Agape Church , Judge Kavanaugh maintained that the factual foundation for Turner —the monopolistic nature of the cable television market—had been altered since the case was written in 1994, and, therefore, "the constitutional foundation . . . collapsed with it." The nominee suggested that future courts reviewing the constitutionality of the relevant provisions could reach a different result than the Supreme Court did in Turner , stating that stare decisis required courts to follow only the "constitutional principles that undergird Turner ," and that applying those principles to the modern market would "lead[] to an entirely different result." As a consequence, Judge Kavanaugh's Agape Church concurrence seems to express a belief that in certain circumstances, a court may depart from a prior decision's result so long as it remains true to its broader, underlying principles. Finally, it should be noted that the nominee has in several opinions criticized two Supreme Court decisions that declined to strike down statutes restricting the President's power to remove certain executive officers: Humphrey's Executor v. United States and Morrison v. Olson . While judges may be reluctant or unable to overrule prior cases, they frequently distinguish precedent with which they disagree from the disputes before them. As discussed below, Judge Kavanaugh has authored a number of opinions arguing that the courts should construe the scope of Humphrey's Executor and Morrison narrowly . Perhaps his most pointed remarks on Morrison came at an event in 2016 at the American Enterprise Institute: when asked whether he would give an example of "a case that deserves to be overturned," the nominee volunteered " Morrison v. Olson ," stating that the case had been "effectively overruled, but [he] would put the final nail in." While this comment was made in off-the-cuff remarks, when viewed together with his judicial opinions, it suggests that Judge Kavanaugh disagrees with the reasoning of Morrison , and may consider the case sufficiently "wrong" that it should be reconsidered. Finally, it may be instructive to note some of Judge Kavanaugh's judicial influences or contemporaries whose approach to judging the nominee has praised, as these jurists may provide insight into who he might model his judicial approach after if he were to be elevated to the High Court. As is perhaps evident in the importance the nominee places on judicial formalism and the concept of the judge as a neutral umpire, Justice Scalia and Chief Justice Roberts are two of the nominee's judicial role models. With regard to Justice Scalia, Judge Kavanaugh has stated that "Justice Scalia was and remains a judicial hero and role model to many throughout America," one who believed "that federal judges are not common-law judges and should not be making policy-laden judgments." Of particular note, the nominee credits Justice Scalia with bringing "about a massive and enduring change in statutory interpretation," one focused on "the centrality of the words of the statute." And with regard to Chief Justice Roberts, Judge Kavanaugh has described him as "lead[ing] the Court and the judiciary with [a] firm but humble touch." But Justice Scalia and Chief Justice Roberts are not the only jurists Judge Kavanaugh has commented on when describing who has influenced his view of judging. The nominee has lauded several jurists with varying judicial philosophies, including former Chief Justice William Rehnquist, as well as Justices Robert Jackson, Byron White, and Elena Kagan. In a speech dedicated to Chief Justice Rehnquist, the nominee described him as his "first judicial hero" and stated that "few justices in history have had as much impact as [Chief Justice] Rehnquist." The nominee remarked that as early as his law school days, he found frequent agreement with Chief Justice Rehnquist's opinions. Of particular significance to Judge Kavanaugh is the "importance of [Chief Justice] Rehnquist to modern constitutional law." Judge Kavanaugh has attributed to Chief Justice Rehnquist many of the principles that inform the nominee's judicial philosophy. According to the nominee, "[d]uring [Chief Justice] Rehnquist's tenure, the Supreme Court unquestionably changed and became more of an institution of law, where its power is to interpret and to apply the law as written, informed by historical practice, not by its own personal and policy predilections." As to Justices Jackson and White, Judge Kavanaugh identified both as "role models" during his confirmation hearing in 2006 as a nominee to the D.C. Circuit. Specifically, Judge Kavanaugh pointed to Justice Jackson's concurring opinion in Youngstown Sheet & Tube Co. v. Sawyer , a landmark separation-of-powers case wherein Justice Jackson established a three-part framework for assessing executive wartime powers. The nominee described the framework as "a work of genius . . . in terms of setting out the different categories of Presidential power and Congressional power in times of war and otherwise," and has cited it throughout his writings and speeches as influential on the nominee's view of the separation of powers. Judge Kavanaugh has also identified Justice Jackson as the "role model for all executive branch lawyers turned judges," such as Judge Kavanaugh himself. As to Justice White, Judge Kavanaugh has written less about his influence, but approved of Justice White's "approach to judging" characterized by "judicial restraint." Finally, Judge Kavanaugh has suggested an affinity with Justice Kagan based, in part, on their similar backgrounds in the executive branch. He has also cited Justice Kagan throughout his judicial and non-judicial writings, often alongside citations to Justice Scalia. While citations alone may not suggest more than respect for a colleague and agreement on discrete issues, as opposed to a wholesale endorsement of a jurist's judicial philosophy, at least one commentator has suggested that "[t]he Kavanaugh-Kagan relationship may be one to watch in particular, should they serve together. As her offer—and his acceptance—to teach at Harvard suggests, both have seen advantage in detente." One cross-cutting issue foundational to understanding Judge Kavanaugh's jurisprudence is his theory of statutory interpretation. The nominee has been quite clear about his own views on this subject, actively engaging in ongoing debates within the legal community over the proper theories and tools to employ when interpreting statutes. Judge Kavanaugh is an avowed textualist—that is, a jurist who will generally favor a statute's text over its purpose when interpreting the law's meaning, only crediting statutory purpose to the extent that it is evident from the text. As the nominee remarked in a 2016 book review: "The text of the law is the law." In this vein, Judge Kavanaugh has lauded Justice Scalia's textualist influence on the field of statutory interpretation —and has also praised Justice Kagan for her more textualist opinions. Because of his commitment to textualism, Judge Kavanaugh's approach to statutory interpretation potentially differs from Justice Kennedy's, as the retiring Justice did not necessarily adhere to one single theory of statutory interpretation. In practice, though, the two jurists appear to have more in common than their general approaches toward reading statutes might suggest. Similar to Judge Kavanaugh, and many other judges, Justice Kennedy would "begin with the text" of a statute and would give that text's ordinary meaning significant weight. Moreover, Justice Kennedy, at times, disclaimed attempts to discover Congress's original intent as divorced from the text. But Justice Kennedy would also sometimes go beyond the disputed text to consider the statutory scheme as a whole, looking to its operation and the practical consequences of various interpretations. In one concurring opinion, Justice Kennedy said: "Faced with a choice between two difficult readings of what all must admit is not optimal statutory text, the Court is correct to adopt the interpretation that makes the most sense." Though Judge Kavanaugh's textualist philosophy would on its face appear to be inconsistent with Justice Kennedy's more pragmatic approach, the nominee's opinions and other writings reveal that he also considers the legislative process and gives significant weight to the way a statute will be implemented. Accordingly, if confirmed, while Judge Kavanaugh could further tip the Court toward a more textualist approach to statutory interpretation, he might still invoke some of the more pragmatic considerations that Justice Kennedy sometimes relied on in his own analyses. This section first outlines Judge Kavanaugh's general theory of statutory interpretation, as announced in his non-judicial writings and in his opinions. It then explores in more detail how the nominee has applied this theory to resolve specific cases, examining the interpretive tools the nominee has used to determine a statute's meaning. Finally, it describes the nominee's views on severability, a doctrine closely related to statutory interpretation that may arise when courts consider the constitutionality of a provision situated within a larger statutory scheme. Judge Kavanaugh's theory of statutory interpretation is based on his broader views about separation of powers. As discussed, the nominee has argued that the Constitution requires judges to adhere to a specific role: to serve as "neutral, impartial . . . umpires" who "say what the law is, not what the law should be." In his view, focusing on a statute's text is the best way to fulfill this judicial role. Because it is "Congress and the President—not the courts" who "together possess the authority and responsibility to legislate," he believes that "clear statutes are to be followed." In one article, Judge Kavanaugh described his approach to "determin[ing] the 'best reading' of a statutory text" as follows: Courts should try to read statutes as ordinary users of the English language might read and understand them. That inquiry is informed by both the words of the statute and conventional understandings of how words are generally used by English speakers. Thus, the "best reading" of a statutory text depends on (1) the words themselves, (2) the context of the whole statute, and (3) any other . . . general rules by which we understand the English language. As this statement suggests, like other textualists, Judge Kavanaugh favors text-based tools of statutory interpretation and generally eschews the use of legislative history. The nominee has argued on textualist grounds that judges should be cautious not only of legislative history, but of any interpretive tools that rely on ambiguity as a trigger for application. Judges frequently agree that a court should turn only to certain tools—like legislative history—if the statutory text is ambiguous. Judge Kavanaugh has raised concerns about this approach, arguing that it is difficult to determine whether a particular statute is ambiguous "in a neutral, impartial, and predictable fashion." In line with his broader formalist views, he has expressed concern that the ambiguity determination "turns on little more than a judge's instincts," making it "harder for judges to ensure that they are separating their policy views from what the law requires of them." Accordingly, the nominee has called for judges to examine carefully their use of any doctrines that are dependent on an initial finding of ambiguity. Using his textualist philosophy to interpret a disputed statutory provision, Judge Kavanaugh often begins by looking to a word's "plain meaning," asking how the term would be understood in "common parlance." He sometimes relies on dictionaries as evidence of a word's ordinary meaning. The nominee also looks to the surrounding statutory text for interpretive context. Judge Kavanaugh's opinion in United States v. Papagno provides a clear example of this textualist approach. In that case, the D.C. Circuit was asked to interpret the Mandatory Victims Restitution Act (MVRA), which requires, in relevant part, that defendants reimburse victims of specified crimes for, among other things, "necessary . . . expenses incurred during participation in the investigation or prosecution of the offense." The defendant in Papagno had stolen computer equipment from his employer, the Naval Research Laboratory (NRL). At issue was whether the MVRA encompassed the costs of an internal investigation conducted by the NRL, where that investigation "was neither required nor requested by the criminal investigators or prosecutors," and the NRL stated that the investigation was conducted for its "own purposes." Writing the majority opinion for a unanimous panel, Judge Kavanaugh concluded that the MVRA did not authorize restitution for the internal investigation. He relied on dictionary definitions, "common parlance," and Supreme Court cases interpreting other federal statutes to decide that the NRL was not "participat[ing] in the investigation or prosecution of the offense" when it conducted the internal investigation. Judge Kavanaugh also reviewed the statutory context, situating the disputed provision of the MVRA within the "landscape" of other federal statutes governing restitution. He compared the disputed provision of the MVRA to a 2008 amendment of a different restitution statute, noting that in the other statute, Congress had "authorized restitution for 'an amount equal to the value of the time reasonably spent by the victim in an attempt to remediate the intended or actual harm incurred by the victim from the offense.'" In his view, this other statute would "authorize the restitution" that the NRL sought. He inferred that because "Congress did not add similar language to" the MVRA provision disputed in the case before the court, Congress did not intend to authorize such restitution in the MVRA. Thus, Judge Kavanaugh's opinion in Papagno relied on quintessential textualist tools like ordinary meaning and statutory context to resolve the interpretive question. Notably, the nominee acknowledged in the opinion that "several other courts of appeals have taken a broader view of the restitution provision," and ultimately, the courts of appeals in eight other circuits concluded that the MVRA did cover the costs of private investigations. This last term, the Supreme Court resolved the split in Lagos v. United States , ultimately adopting a more narrow view of the MVRA. Judge Kavanaugh sometimes invokes the canons of construction, which provide general presumptions about how courts should read statutes. There are two types of canons: semantic canons , which reflect the ways that people ordinarily use words, often mirroring ordinary rules of grammar; and substantive canons , which create presumptions favoring or disfavoring a particular substantive outcome. Textualists generally "favor the use of canons, particularly the traditional linguistic canons." Judge Kavanaugh uses these canons, especially the semantic canons, but has called for some reforms in their use. Notably, he advocates the use of semantic canons only to the extent that they actually reflect the way people "understand the English language," and, in line with his formalist views, has argued against both semantic and substantive canons that, in his view, cannot be applied in a consistent and principled way. First, Judge Kavanaugh has argued that judges should "shed" any semantic canons that do not actually "reflect the meaning that people, including Members of Congress, ordinarily intend to communicate with their choice of words." For instance, the nominee has questioned the rule against surplusage, which states that courts should generally presume that each word and clause of a statute has a distinct, non-redundant meaning, noting that "humans speak redundantly all the time, and it turns out that Congress may do so as well." Accordingly, in one dissenting opinion, Judge Kavanaugh concluded that the language of the disputed statute made "redundancy . . . inevitable," arguing that the court should "read the provisions according to their terms, recognizing that Congress often wants to make 'double sure'—a technique so common that it has spawned its own Latin canon, ex abundanti cautela ." The nominee has also argued against using any semantic canons that "require judges to make difficult policy judgments that they are ill-equipped to make." In contrast to the semantic canons, Judge Kavanaugh has more broadly questioned the use of the substantive canons, arguing that canons should be eliminated if they are not justified by "constitutional or quasi-constitutional values." But, for example, he has applied the presumption of mens rea—the presumption that crimes include a mental state requirement—noting that it "embodies deeply rooted principles of law and justice that the Supreme Court has emphasized time and again." Based on his broader concerns about the use of any tools that are only invoked in the case of textual ambiguity, he has suggested that judges should not turn to the substantive canons until after they have sought "the best reading of the statute by interpreting the words of the statute, taking account of the context of the whole statute, and applying the agreed-upon semantic canons." For this reason, Judge Kavanaugh has, as discussed, argued that courts generally should not use legislative history to interpret statutes: "the clarity versus ambiguity trigger for resorting to legislative history means that the decision whether to resort to legislative history is often indeterminate." Accordingly, he has declined to use legislative history to interpret a statute if the text is clear. The nominee has also echoed other textualist concerns regarding the use of legislative history. For example, in a dissenting opinion in Agri Processor Co. v. National Labor Relations Board , Judge Kavanaugh argued that the court should not rely on a committee report because it was "in no way anchored in the text" of the relevant statute. At issue in that case was whether "undocumented aliens" qualified as "'employees' protected by the National Labor Relations Act [(NLRA)]." Relying primarily on the statutory text and a substantive canon, the majority opinion concluded that the NLRA covered undocumented aliens. But the court also invoked legislative history to support its conclusion, in the form of two committee reports. Judge Kavanaugh rejected these committee reports, citing "the usual cautions": Committee reports are highly manipulable, often unknown by most Members of Congress and by the President, and thus ordinarily unreliable as an expression of statutory "intent." Committee reports are not passed by the House and Senate and presented to the President, as required by the Constitution in order to become law. Ultimately, the nominee concluded that, because "the term 'employee' in the NLRA must be interpreted in conjunction with the immigration laws," that term excluded "an illegal immigrant worker." Although Judge Kavanaugh has expressed concern about doctrines that invite judges to rely on personal assessments of meaning, he has also acknowledged that in some circumstances it is unavoidable that a judge will have to "consider policy and perform a common law-like function." In many cases, he relies on his own assessments of whether a particular interpretation aligns with "common" meaning or practice, adverting to his own understanding of what is "common." In this regard, the nominee invokes more pragmatic concerns that could be seen as extra-textual, asking how a statutory scheme functions and whether a particular interpretation makes sense within that scheme. In one case, for instance, writing for a majority of the court, Judge Kavanaugh rejected a reading of a statute that would have "tie[d] the system in knots and greatly hinder[ed] (if not prevent[ed]) the Department's exercise of any discretionary authority set forth by the regulations." To take another example, dissenting in White Stallion Energy Center v. EPA , Judge Kavanaugh interpreted a statutory term by reference to "common sense, common parlance, and common practice." In that case, the D.C. Circuit considered the EPA's decision to issue a rule governing emissions from electric utilities. The governing statute gave the EPA authority to issue "appropriate and necessary" regulations. The nominee argued that the EPA violated this statute when it "exclude[d] consideration of costs in determining whether it [was] 'appropriate'" to issue the regulation. To support this "common sense" understanding of the word "appropriate," Judge Kavanaugh drew from a variety of sources, including statements from administrative law experts and past practices of the executive branch. The nominee also used legislative history to support his understanding of "the congressional compromise" that was embodied in the relevant statute. In a similar vein, Judge Kavanaugh has invoked two different substantive canons that draw from general understandings about how Congress operates: the absurdity doctrine , which allows courts to depart from the text's plain meaning if it would produce an absurd result, and the "elephants in mouseholes" canon, which provides that courts should not presume that Congress "alter[ed] the fundamental details of a regulatory scheme in vague terms or ancillary provisions." Scholars and judges have argued these two canons may be inconsistent with textualism because they are focused on congressional intent and because the trigger for application is unclear, meaning that these canons cannot be applied consistently. The nominee has himself characterized the absurdity doctrine as an "off-ramp[ ] from the text" and suggested that courts should be wary of employing the canon in a way that allows them to "adopt what they conclude Congress meant rather than what Congress said ." Nonetheless, Judge Kavanaugh has cited the canon against absurd results to support his decision in multiple cases. And he has frequently employed the relatively new "elephants in mouseholes" canon. Finally, in an issue that has prompted significant commentary on the nominee, Judge Kavanaugh has criticized the modern approach to severability, a doctrine that is closely related to statutory interpretation. When a court concludes that a particular statute violates the Constitution, it will generally declare that the statute is void and strike down the unconstitutional provision. If a law is only partially unconstitutional, a court sometimes has to decide which provisions to "sever and excise as inconsistent with" the Constitution. Courts generally attempt to retain as much of the statutory scheme as possible. Under some circumstances, however, the Supreme Court has recognized that "it is not possible to separate that which is unconstitutional . . . from that which is not." In such a case, the statutory provision is inseverable, and the court will strike the whole statute. This issue may arise when courts are considering the constitutionality of one provision within a larger, and more complicated, statutory scheme—such as the Patient Protection and Affordable Care Act (ACA). To determine whether an unconstitutional provision is severable, courts consider whether Congress would have enacted the constitutional provisions independently of the unconstitutional portions, asking whether the remaining provisions are capable "of functioning independently." If "Congress has explicitly provided for severance by including a severability clause in the statute," this creates a strong presumption in favor of severability. Recently, Justice Thomas called for the Court to reconsider the modern severability inquiry, arguing that it "does not follow basic principles of statutory interpretation. Instead of requiring courts to determine what a statute means, the severability doctrine requires courts to make 'a nebulous inquiry into hypothetical congressional intent.'" Judge Kavanaugh has expressed similar concerns. He has described severability principles as a "mess" and questioned how a court can know what Congress would have wanted, characterizing this inquiry as an "inherently suspect exercise." The nominee suggested instead that "courts might institute a new default rule: sever an offending provision from the statute to the narrowest extent possible unless Congress has indicated otherwise in the text of the statute." Judge Kavanaugh seemed to echo these concerns about the inquiry into congressional intent in his dissenting opinion in PHH Corp. v. CFPB . After concluding that the statutory provision providing the Director of the CFPB with for-cause protection for removal from office was unconstitutional, he asked whether the entire statute authorizing the CFPB must be struck down, or whether the for-cause removal protection was severable from the rest of the statute. The nominee described the usual severability inquiry requiring courts to "speculate" as to Congress's intent, but concluded that no such speculation was required in the case before the court because the relevant statute contained a severability clause providing that if any provision in the statute were found unconstitutional, "the remainder . . . shall not be affected thereby." In Judge Kavanaugh's view, this express statutory provision controlled. It remains to be seen whether other Supreme Court Justices agree with Justice Thomas and Judge Kavanaugh's concerns about the severability doctrine, and so it is unclear whether the nominee's appointment to the Court would create a majority willing to reconsider the doctrine. In any event, the nominee's writings suggest that he takes a narrow view of a court's role in striking down unconstitutional legislation, (1) favoring severing unconstitutional provisions and striking down as little as possible and (2) giving conclusive effect to statutory provisions expressly providing either for severability or for inseverability. Administrative law is another critical area to consider when evaluating Judge Kavanaugh's judicial record, as the subject raises important questions about the scope of authority Congress has granted to federal agencies, as well as the Constitution's division of power among the three branches of government. While the jurist Judge Kavanaugh may replace, Justice Kennedy, was perhaps less influential in the area of administrative law than he was in other areas, he did often find himself as a decisive vote in important administrative law cases during the Roberts Court era. In the Supreme Court's most recent term, moreover, less than a week before announcing his retirement, Justice Kennedy authored an opinion in which he called for the Court to "reconsider" the doctrine of judicial deference to agency interpretations of their statutory authority under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. Because Justice Kennedy previously provided the fifth vote to defer to an agency's statutory interpretation under Chevron several times, this move signals to some that the Court may be on the verge of recrafting foundational administrative law doctrines, depending on who replaces the recently retired Justice. Given this context, it is notable that Judge Kavanaugh has a fairly robust record on administrative law matters. This is unsurprising, considering the D.C. Circuit's location in the nation's capital coupled with the composition of its docket, which is composed of a substantial number of administrative law cases as compared to its sister circuits, as a result of various statutes vesting the court with (sometimes exclusive) jurisdiction to hear challenges to agency actions. The nominee has accordingly ruled in numerous cases posing administrative law questions, including some in which the sitting panel was divided. In such cases, he authored a considerable number of concurring and dissenting opinions that articulate his understanding of the disputed legal issue. Perhaps most notably, Judge Kavanaugh wrote a number of separate opinions to explain his disagreement with other judges' views concerning the scope of a federal agency's statutory authority, reflecting a tendency to view agency attempts to expand their regulatory power with skepticism. In particular, echoing Justice Kennedy's recent concurrence, as well as similar opinions from other Justices, the nominee has signaled some discomfort with the Chevron framework, possibly indicating a willingness to cabin that doctrine to certain circumstances. To the extent his past opinions and scholarly work reflect how he would approach such matters if confirmed to the Supreme Court, he might be a vote to limit the circumstances in which courts defer under the Chevron doctrine to federal agencies. Before delving into the nominee's views on Chevron deference, however, this section first examines Judge Kavanaugh's writings on the threshold issue of when litigants may challenge agency actions in court. It then turns to the nominee's approach to agency interpretations of their statutory authority, including the Chevron framework, and concludes with an examination of the nominee's views with regard to discretionary and factual review of agency decisions. An important threshold issue in administrative law cases concerns whether an agency action is suitable for judicial review in a particular case. The nominee's views in this area contrast somewhat with that of one of his judicial heroes, Justice Scalia, who authored a number of opinions that interpreted Article III of the Constitution to prevent federal courts from hearing challenges to agency actions. In particular, Justice Scalia had relatively influential views on the constitutional requirements for individuals to establish standing to seek judicial relief from an Article III court, considering the standing doctrine to be an important limitation on the jurisdiction of federal courts and essential to preserving the broader principle of separation of powers. In contrast, while the nominee has certainly applied the Supreme Court's case law to dismiss a case on standing grounds, Judge Kavanaugh does not appear to take an especially restrictive view of standing under Article III, especially relative to his colleagues on the D.C. Circuit. In a number of cases that divided the D.C. Circuit, Judge Kavanaugh has departed from his colleagues to vote in favor of allowing individuals to challenge agency actions in court. In particular, Judge Kavanaugh has often found that plaintiffs established standing to sue federal agencies under Article III, even when his colleagues ruled to dismiss the suit. For instance, in Morgan Drexen, Inc. v. CFPB , a corporation subject to a CFPB enforcement action and an attorney who contracted with that corporation by hiring it to perform paralegal services, brought suit in federal court challenging the agency's structure as unconstitutional. The D.C. Circuit majority panel ruled that the attorney did not have Article III standing to sue because she failed to establish an injury—an enforcement action against the corporation she contracts with was insufficient to satisfy this requirement. The nominee wrote a dissenting opinion, arguing that courts have "a tendency to make standing law more complicated than it needs to be." To Judge Kavanaugh, because the CFPB was regulating a business that the attorney engaged in through the corporation, she had established Article III standing and her suit should not have been dismissed. Similarly, in Grocery Manufacturers Ass' n v. EPA , discussed in more detail below, the majority panel ultimately denied a food group's petition to review an EPA decision because it lacked prudential standing. The majority found the food group was not within the "zone of interests" protected by the relevant statute, although one judge on the panel noted he would also have held that the food group lacked Article III standing. In that case, the EPA issued a waiver with regard to ethanol use for entities that competed with the food groups in the market for the purchase of corn, the effect of which would increase the price of corn for the food group. Judge Kavanaugh dissented, arguing, among other things, that under the D.C. Circuit's "competitor standing cases," an entity does indeed have Article III standing to challenge agency regulations in situations where an agency regulates an entity's economic competitor in a manner that harms the entity's interests. Likewise, in Ege v. Department of Homeland Security , a plaintiff brought suit seeking removal of his name from the government's No-Fly List. The majority panel found the plaintiff lacked Article III standing because, while the court had statutory jurisdiction over the Transportation Security Administration (TSA), it did not possess jurisdiction to issue an order binding on the Terrorist Screening Center, the entity with responsibility for removing names from the List. Judge Kavanaugh wrote separately, arguing that the plaintiff established Article III standing and had followed the appeals process mandated by Congress and properly petitioned the D.C. Circuit for review of the TSA's final order. The nominee observed that the TSA, the agency that actually controls access to planes, conceded it would comply with a court order directing it to allow the plaintiff on a plane. For Judge Kavanaugh, this was sufficient to establish standing under Article III. Beyond constitutional standing issues, Judge Kavanaugh has written several opinions aiming to clarify what he considers the D.C. Circuit's muddled approach to prudential standing questions. For instance, as mentioned above, in Grocery Manufacturers Ass ' n v. EPA , the majority panel ultimately denied a food group's petition to review an EPA decision because it lacked prudential standing as it was not in the "zone of interests" protected by the relevant statute. In addition to his point concerning Article III standing, Judge Kavanaugh wrote separately to argue that the majority's conclusion that the zone of interests test is jurisdictional—meaning it concerns the power of a court to hear a case and requires the court to consider the issue even though the EPA did not raise it—was incorrect in light of recent Supreme Court decisions. According to the nominee, the zone of interests test simply asks whether a statute provides a cause of action to a party to bring suit. The following year, the Supreme Court in a unanimous decision favorably cited the nominee's opinion on this point. Similarly, in White Stallion Energy Center v. EPA , also discussed in more detail below, the majority panel denied petitions challenging an EPA regulation that set emission standards for certain air pollutants emitted by electric steam generating units. With respect to one plaintiff, the majority panel found that, although the party established standing under Article III to bring its challenge in federal court, it nevertheless was not within the zone of interests protected by the Clean Air Act because it was challenging the EPA's failure to more stringently regulate its competitors. Judge Kavanaugh wrote separately to again note his concern with the D.C. Circuit's application of the "zone of interests" test, case law he described as "in a state of disorder" that "needs to be cleaned up." The nominee noted that under the Supreme Court's zone of interests test, there is a "presumption in favor of allowing suit . . . unless the [relevant] statute evinces discernible congressional intent to preclude review." Further, under Supreme Court precedent, plaintiffs challenging an agency's alleged failure to regulate sufficiently its competitors are "presumptively within the zone of interests under the APA . . . absent discernible evidence of contrary congressional intent." Despite the Supreme Court's permissive application of the zone of interests test, Judge Kavanaugh noted, the D.C. Circuit has sometimes required evidence of an intent to benefit the plaintiff class within the relevant statute in order to fall with its zone of interests, essentially applying a presumption against allowing suit. Further, the nominee asserted, the D.C. Circuit at times barred competitors from suing as they were outside of the relevant statute's zone of interest, but at others permitted such suits "without any apparent distinguishing principle." Judge Kavanaugh thus urged the court to reconsider carefully its "crabbed approach to the zone of interests test" and align its cases with Supreme Court precedent. Another critical area of administrative law to consider when evaluating Judge Kavanaugh is his approach to when a court must review an administrative agency's legal interpretations. Under the Administrative Procedure Act (APA), courts must set aside agency action that is "not in accordance with law" or that is "in excess of statutory jurisdiction, authority, or limitations." Pursuant to the Supreme Court's framework from Chevron , courts generally apply a two-step analysis when reviewing an agency's interpretation of a statute it administers. At step one, a court must generally determine whether Congress "has spoken to the precise question at issue." If so, courts must enforce the clear meaning of the statute, notwithstanding an agency's contrary interpretation. If a statute is silent or ambiguous on the matter, however, Chevron 's second step requires a court to defer to an agency's interpretation if it is reasonable. Under a related, but distinct doctrine, the Supreme Court's opinions in Auer v. Robbins and Bowles v. Seminole Rock & Sand Co . instruct courts generally to defer to an agency's interpretation of its own regulations as long as that reading is reasonable. Applying Chevron. In his writings on and off the court, Judge Kavanaugh has questioned broader readings of both Chevron and Auer . In his non-judicial writings, the nominee has argued that the Chevron doctrine establishes improper incentives for federal agencies, encouraging regulators to push the boundaries of their statutory authority and take actions unless they are " clearly forbidden ." Further, the nominee has noted that the mechanics of applying the Chevron framework are imprecise. Chevron requires courts to enforce the clear meaning of a statute at step one, and only to move to step two when a statute is "ambiguous." To Judge Kavanaugh, however, the degree of clarity required in a statute to conclude that its terms are "clear" is uncertain, resulting in uneven application of this test by federal courts. For his part, Judge Kavanaugh has indicated that his threshold for finding ambiguity in a statute—thereby triggering deference under the Chevron framework—is likely higher compared to other judges. While Judge Kavanaugh has written opinions that apply the Chevron doctrine and defer at its second step to agencies' reasonable interpretations of statutory ambiguity, his separate opinions often reflected his larger concerns about the Chevron framework. For example, when the Chevron doctrine applies to an agency's interpretation of a statutory provision, Judge Kavanaugh may be more likely than other judges to find clarity, rather than ambiguity, in a statutory provision. The nominee wrote separately, for example, when the majority found a statute ambiguous and eligible for Chevron 's second step, while Judge Kavanaugh found the statute's meaning clear and would resolve the case at Chevron 's first step. For instance, in Northeast Hospital Corp. v. Sebelius , a panel of the D.C. Circuit examined whether the Medicare statute authorized certain patients to receive benefits under separate provisions of the law. The majority opinion first applied the Chevron doctrine and held that the law did not "clearly foreclose[]" the agency's interpretation as Congress had "left a statutory gap" that the agency was entrusted to fill. The court ultimately rejected the agency's position, however, because the agency improperly applied its interpretation retroactively. Judge Kavanaugh wrote a concurring opinion to express disagreement with the majority opinion's finding of ambiguity. The nominee concluded that the statute was sufficiently clear and the agency's interpretation contradicted the law. He observed that while the legal questions in the case were "embedded within a very complex legal scheme," the ultimate issue could be resolved by interpreting a specific provision of the law, not the entire Medicare statute. While it may take time and effort to determine the meaning of a statutory provision given a complex statutory backdrop, Judge Kavanaugh noted, that did not itself mean the statute was ambiguous. "What matters," he continued, "for the Chevron analysis is not how long it takes to climb the statutory mountain; what matters is whether the view is sufficiently clear at the top." Ultimately, because of Judge Kavanaugh's apparent penchant for finding clarity in statutory terms, he is more likely to resolve a case at Chevron 's first step, rather than at step two. In other words, when reviewing a federal agency's interpretation of a statute it administers, to the extent that the nominee finds congressional intent clear in a statutory provision, he is more likely to independently analyze an agency's assertion of authority at Chevron 's first step, rather than find a statute ambiguous and potentially defer to an agency's reasonable interpretation at Chevron 's second step. In this vein, the nominee's methodology echoes the approach of a majority of the Supreme Court in Wisconsin Central Ltd. v. United States , a case last term where a five-Justice majority applied a more rigorous inquiry at Chevron's first step than the dissenters to find a statutory provision unambiguous. Judge Kavanaugh's approach to such issues might also reflect agreement with an underlying tension commentators have observed with Chevron 's second step; namely, that a court's task at step two essentially elides any distinction between questions of law and questions of policy. In other words, according to this view, when a court defers under Chevron 's second step, it sometimes upholds an agency's legal interpretation of a statutory term, but at other times it is effectively affirming a reasonable policy choice made within the limits of congressionally delegated authority. Judge Kavanaugh arguably aims to distinguish more clearly between questions of law, on which courts should, in his view, retain interpretive authority, and policy, in which agencies exercise broader discretion to reach decisions according to their respective statutory delegations. Major Questions Doctrine. Perhaps in an effort to urge more clarity and certainty in statutory review cases, Judge Kavanaugh has stressed that agencies need clear authorization from Congress to pass regulations with major economic and political significance, a concept the Supreme Court first enunciated in FDA v. Brown & Williamson Tobacco Corp. For example, as explained in more detail below, in Coalition for Responsible Regulation, Inc. v. EPA , the nominee dissented from a denial of rehearing en banc, arguing that the EPA had exceeded its statutory authority in promulgating certain regulations to curb global warming. Judge Kavanaugh explained that the agency was faced with two competing interpretations of its authority under the Clean Air Act, the broader of which would create absurd results given other requirements in the statute. But rather than choose the narrow, more plausible interpretation of its power, the EPA nevertheless adopted the broader reading of its authority—which would impose permitting requirements on a far larger number of entities—and simply, in the nominee's view, "re-wrote" via regulation those aspects of the statute that triggered implausible results. Judge Kavanaugh rejected this reading of the statute, remarking that such an approach "could significantly enhance the Executive Branch's power at the expense of Congress's." After noting several reasons why he thought the EPA's broad interpretation was not supported by the statute, the nominee observed that the EPA's proffered reading would significantly increase the number of entities subject to regulation, which, in turn, "will impose enormous costs on" businesses, homeowners, and the economy-at-large. Judge Kavanaugh argued that there was no indication that Congress intended such a "dramatic expansion" of the requirements of the statute, pointing to the Supreme Court's admonition in Brown & Williamson that when Congress intends to delegate authority to regulate matters with major "economic and political significance," it does so clearly. Another case emblematic of this approach is Judge Kavanaugh's dissenting opinion in SeaWorld of Florida, LLC v. Perez . This case concerned a citation issued by the Secretary of Labor to SeaWorld of Florida, LLC (SeaWorld) for violating the Occupational Safety and Health Act's (OSHA's) "general duty" clause, which requires employers to provide employees with a workplace free of "recognized hazards" that may cause death or serious physical harm. SeaWorld violated the statute, according to the Secretary, when it exposed animal trainers who conducted performances with killer whales to recognized hazards of injury or drowning. The D.C Circuit panel majority denied a petition for review of the citation, concluding that the agency's decision was not arbitrary and capricious, and that it was supported by substantial evidence. Judge Kavanaugh dissented, concluding that, under current law, the Department of Labor (DOL) was not authorized to regulate these activities. The nominee noted that the DOL is charged with ensuring that employers provide a reasonably safe workplace for their employees, and OSHA requires employers to provide employees with employment free from "recognized hazards" likely to cause death or physical harm. But, according to Judge Kavanaugh, the DOL had "not traditionally tried to stretch its general authority under the Act" to regulate the normal activities of participants in sports events or entertainment shows. Nonetheless, the nominee found, the Department here "departed from tradition and stormed headlong into a new regulatory arena." Judge Kavanaugh explained that, under a prior decision from the Occupational Safety and Health Review Commission that binds the Department, hazards intrinsic to an industry's normal activities are not subject to penalties under OSHA because the alternative interpretation would potentially eliminate industries that are by nature dangerous. The DOL thus lacked, in the nominee's view, the authority to "regulate the normal activities of participants in sports events or entertainment shows" such as SeaWorld. Moreover, as he did in Coalition for Responsible Regulation , Judge Kavanaugh pointed to the Supreme Court's admonition in Brown & Williamson that when Congress delegates authority to regulate substantial areas of economic and political significance, it does so clearly. Thus, the nominee concluded, when passing OSHA Congress was well aware of the dangers of various popular sports and entertainment shows, and "it is simply not plausible" that Congress intended to authorize implicitly the Department, through the vague terms of OSHA, to regulate the sports and entertainment industry, including by eliminating familiar practices in those industries. Perhaps most prominently, Judge Kavanaugh returned to these considerations in a dissent from a denial of rehearing en banc in United States Telecom Ass ' n v. FCC , wherein he articulated a fairly stringent judicial framework for evaluating certain agency regulations that implicate so-called "major questions." This case concerned the FCC's net neutrality rule, which reclassified broadband Internet service providers (ISPs) as offering a telecommunications service, rather than an information service, thereby subjecting them to common carrier regulation under the Communications Act of 1934. The panel majority, applying Chevron , concluded the FCC's regulation was a reasonable interpretation of an ambiguous statute and thus upheld the rule at Chevron 's second step. Judge Kavanaugh, however, concluded that the agency lacked authority to issue the regulations. Drawing on various Supreme Court cases establishing what he referred to as the "major rules doctrine" (or "major questions doctrine"), including Brown & Williamson , he argued that when courts review agency rules, "two competing canons of statutory interpretation come into play." According to the nominee, on the one hand, the Chevron framework applies to "ordinary rules"; but, on the other, "Congress must clearly authorize" agencies to issue "major agency rules of great economic and political significance." If Congress only " ambiguously supplies authority for the major rule, the rule is unlawful." In other words, according to Judge Kavanaugh, while the Chevron doctrine permits agencies to issue ordinary rules based on statutory ambiguity, "the major rules doctrine prevents an agency from relying on statutory ambiguity to issue major rules." While acknowledging that the Supreme Court had not established a bright-line rule distinguishing major rules from non-major ones, the FCC net neutrality rule, in Judge Kavanaugh's view, clearly qualified as a major rule for purposes of the major rules doctrine. The nominee based this conclusion on several factors that mirrored situations in which the Supreme Court previously found a rule to be "major": the agency was basing its authority on a "long-extant statute"; the net neutrality rule affected a vast number of companies and consumers by "fundamentally transform[ing] the Internet," taking its control away from the people and giving it to the government; and the financial impact of the rule was "staggering." Because Congress did not clearly authorize the FCC to promulgate the net neutrality rule, Judge Kavanaugh ultimately concluded it was invalid. Judge Kavanaugh's approach to the major questions doctrine seems notable in at least two ways. First, at least relative to his colleagues on the D.C. Circuit, the nominee appears to have a lower threshold when considering whether regulatory actions constitute "major rules" that require clear congressional authorization. To the extent that the nominee takes an expansive view of what regulations fall into the "major rules doctrine" rubric, his approach would flatly deny application of the Chevron framework to a number of agency rules. Accordingly, if confirmed to the Supreme Court, Judge Kavanaugh might be a vote to further cabin the reach of the Chevron framework in certain circumstances. Second, in those cases that do raise the question whether a major rule is supported by statutory authority, his encapsulation of a "major rules doctrine" appears to also apply a more stringent analysis of whether an agency is authorized to promulgate a rule than the Supreme Court has in some of the cases the nominee cites for establishing the doctrine. For instance, in King v. Burwell , the Court initially decided that, due to its importance, the issue of whether the ACA established tax credits for states with a federal health care exchange was ineligible for the Chevron framework, but continued by simply independently examining the statute without a presumption either way. As Judge Kavanaugh explained in United States Telecom Ass ' n , the approach in King might be appropriate in typical, non-major-questions cases where Chevron does not apply, as the court "simply determine[s] the better reading of [a] statute" in order to determine if an agency's regulation is authorized. However, under the nominee's approach to major questions, a court places a "thumb on the scale" that requires clear statutory authorization to support a regulation, meaning that not only does Chevron not apply in such cases, but that the agency has a heavy burden to demonstrate that its underlying action is lawful. Auer Deference. Judge Kavanaugh's approach to the Chevron framework might also extend to other doctrines of deference to agency actions, such as Auer deference. In a 2016 speech, the nominee predicted that the dissenting opinion in Decker v. Northwest Environmental Defense Center , in which Justice Scalia objected to Auer deference because it violates separation of powers principles, will one day become the law. While Judge Kavanaugh does not appear to have made this argument in a judicial opinion, his approach to cases requiring review of an agency's interpretation of its own regulation appears somewhat analogous to his method in statutory review cases. In Howmet Corp. v. EPA , for instance, the D.C. Circuit panel's majority opinion upheld the EPA's interpretation of what constitutes "spent material" subject to its regulations, concluding that it was a reasonable interpretation of ambiguous language. Judge Kavanaugh wrote a dissenting opinion on the grounds that the EPA's proffered interpretation contradicted the text of its own regulation by expanding its reach. The nominee noted that agencies may not broadly interpret the scope of their own rules in order to "create de facto a new regulation." In Judge Kavanaugh's view, that was precisely what the EPA did, expanding the definition of "spent material" in order to "enlarge its regulatory authority" beyond the terms of the regulation. The nominee thus concluded that the regulations were clear and declined to defer to the agency. In contrast to his views on Chevron and Auer deference, Judge Kavanaugh does not appear to have objections to the deferential approach applied by courts when conducting discretionary and factual review of agency decisions, another major area of administrative law under which courts will invalidate "agency actions, findings, and conclusions found to be arbitrary, capricious, [or] an abuse of discretion." The nominee appears comfortable with upholding an agency's reasonable policy choice made within the scope of its own statutory authority, although he has invalidated agency decisions that he considered to be arbitrary and capricious. For instance, in American Radio Relay League, Inc. v. FCC , the D.C. Circuit examined a rule issued by the FCC concerning the use of electric power lines for broadband Internet access. The majority panel voted to remand the rule for further explanation because the agency had not sufficiently explained why it chose not to change the "extrapolation factor" used to measure the interference caused by broadband over power lines. Judge Kavanaugh wrote separately to dissent from this aspect of the panel's ruling, concluding that the agency's rule should be upheld as it had sufficiently explained its reasoning. The nominee noted that the FCC's choice of an extrapolation factor was "a highly technical determination committed to the Commission's expertise and policy discretion," and the agency's explanation that the evidence was not sufficiently conclusive to merit a change was sufficient. Judge Kavanaugh also noted that lower courts have transformed the "narrow" scope of review that the Supreme Court has applied pursuant to the arbitrary and capricious test into a "far more demanding test," with "inherently unpredictable" results for federal agencies. He reiterated that while courts must carefully police the boundaries of an agency's statutory authority, when Congress has delegated policymaking discretion to an agency, courts are not permitted to substitute their own judgment for that of the agency. Judge Kavanaugh has also written to signal disagreement with the judicial application of procedural requirements on federal agencies that are not expressly required by statute. In addition to remanding to the FCC to explain its reasoning regarding its rule concerning broadband access, the majority panel in American Radio also remanded the rule for the FCC to release redacted portions of internal staff studies relied on to issue the regulation. The nominee wrote separately to emphasize that, while the majority panel's decision was consistent with D.C. Circuit precedent—namely its 1973 decision in Portland Cement Ass ' n v. Ruckelshaus —that precedent was itself inconsistent with the text of the APA, which did not impose any such requirement on the rulemaking process. Further, Judge Kavanaugh noted that then-Justice Rehnquist's 1978 opinion for the Court in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc. required invalidatation of the D.C. Circuit's imposition of additional procedural requirements on agencies beyond those found in the APA generally, ruling that the APA established the maximum procedures Congress required for agency rulemaking. The D.C. Circuit's precedent from Portland Cement , Judge Kavanaugh argued, was thus inconsistent with the text of the APA and Vermont Yankee . Judge Kavanaugh's views on administrative law are a significant consideration for his nomination, as the Court may consider issues relating to Article III standing and deference to federal agencies under the Chevron and Auer frameworks in the near future. The nominee's scholarly writings and opinions in administrative law cases at the D.C. Circuit reveal several trends that may reflect how he would approach such matters if confirmed to the Supreme Court. The nominee has not articulated particularly stringent views on establishing standing under Article III to bring suit in federal court; likewise, Judge Kavanaugh appears comfortable with the relatively deferential review applied by courts when reviewing the discretionary decisions of an agency delegated to it by statute. At the same time, the nominee has voiced concern as to the deference accorded to agencies on questions of statutory and regulatory interpretation. Specifically, Judge Kavanaugh may be a vote to cabin the reach of Chevron deference by finding that regulations pose major questions; and even when applying the doctrine, Judge Kavanaugh may more frequently find clarity in statutory language, thus resolving disputes independently at Chevron 's first step, rather than deferring to reasonable agency interpretations at Chevron step two. Judge Kavanaugh is likely to represent a key vote in the Supreme Court's business law cases. Last term, the Roberts Court issued a number of business-related decisions in which Justice Kennedy sided with bare majorities of the Court to conclude, for example, that arbitration agreements providing for the individualized resolution of disputes between employers and employees must be enforced; that federal antitrust law does not prohibit contractual provisions barring merchants from expressing a preference that customers use certain credit cards; and that foreign corporations may not be sued under the Alien Tort Statute (ATS). Decisions like these have prompted a debate among legal commentators as to whether the Roberts Court can be fairly described as overly "pro-business." Regardless of one's assessment of the Roberts Court's approach to business issues, Judge Kavanaugh would have the opportunity to influence the Court's business law jurisprudence if confirmed. However, Judge Kavanaugh's views on a range of business law issues—including class action litigation, the reach of the Federal Arbitration Act, and federal preemption of state tort law —remain unclear, as the nominee has no significant writings on these issues as the D.C. Circuit confronts "relatively few explicit business cases." Nonetheless, the nominee's rulings provide some clues as to how he might address business law issues if elevated to the Supreme Court. Many of Judge Kavanaugh's most important decisions, which are discussed in more detail elsewhere in this report, have had potentially significant implications for business regulation. In PHH Corp. v. CFPB , for example, the nominee dissented from a decision affirming the constitutionality of the CFPB's structure, reasoning that for-cause tenure protections for the CFPB's Director unconstitutionally infringed on the President's removal power in light of, among other things, the Director's "enormous power over American businesses, American consumers, and the overall U.S. economy." And in Doe v. Exxon Mobil Corp. , Judge Kavanaugh dissented in part from a D.C. Circuit decision concerning corporate liability under the ATS, concluding that certain ATS claims against a corporation for its overseas conduct should be dismissed because, among other reasons, the executive branch had "reasonably explained that adjudicating those ATS claims would harm U.S. foreign policy interests." Whether these opinions reflect Judge Kavanaugh's approach to business-related cases more generally is open to debate, as they arguably reflect broader concerns about the separation of powers and national security, rather than any specific views of business regulation. However, the nominee's decisions concerning matters of substantive business law—specifically, antitrust law, labor law, and securities law—offer some insight into his views of certain federal statutes that regulate key aspects of the nation's economy. In these decisions, Judge Kavanaugh has expressed skepticism toward broad views of administrative power over business entities, evinced hesitance to find that federal statutes establish rights and remedies that are not textually explicit, and adopted a narrower view of federal antitrust law than some of his colleagues. This section of the report discusses how the nominee might approach business law cases by examining his prominent decisions concerning antitrust law, labor law, and securities law. Among the cases the Supreme Court confronts, antitrust disputes are unique in affording economic analysis a central role in the Court's decisionmaking. As the Supreme Court has explained, "[i]n antitrust, the federal courts . . . act more as common-law courts than in other areas governed by federal statute," as judicial interpretations of general statutory terms "evolve to meet the dynamics of present economic conditions." A number of commentators have accordingly observed that the evolution of antitrust doctrine in the 20th century can be viewed largely as a story of the evolution of economic thought during that period. A judge's views on antitrust law can therefore offer insight into his broader approach to questions of federal economic regulation. While the Court has over the past forty years interpreted the antitrust laws as being principally concerned with maximizing economic efficiency, some commentators have argued for a return to an era in which courts considered other goals in antitrust cases—including promoting consumer choice and product diversity, ensuring open markets in which new businesses have a reasonable opportunity for entry, and limiting the political power of large firms. Although Judge Kavanaugh has not been involved in a large number of antitrust cases, he has authored two critical opinions in the field that suggest he is unlikely to be receptive to these attempts to reorient the Court's antitrust jurisprudence toward an emphasis on social and political goals beyond the maximization of economic efficiency, measured through short-term effects on prices and output. In United States v. Anthem, Inc. , for example, Judge Kavanaugh dissented from a panel majority opinion affirming a permanent injunction blocking the merger of Anthem and Cigna, two of the nation's four largest health insurers. In that case, the federal government, along with eleven states and the District of Columbia, sought to enjoin the Anthem-Cigna merger under Section 7 of the Clayton Act on the grounds that it would substantially lessen competition in the market for the sale of health insurance to "national accounts"—that is, employers purchasing health insurance for more than 5,000 employees across more than one state. The U.S. District Court for the District of Columbia agreed with the plaintiffs and permanently enjoined the merger after concluding that its overall effect on the relevant market would be anticompetitive in light of the market share that the merged firm would possess, and a three-judge panel of the D.C. Circuit affirmed. Judge Kavanaugh, however, dissented from the panel's decision, arguing that the merger would likely generate efficiencies that would benefit the companies' customers. Specifically, Judge Kavanaugh concluded that because the merged company would have greater bargaining power, it would be able to negotiate lower rates with healthcare providers (e.g., hospitals and doctors) and pass savings along to its customers. In his dissent, Judge Kavanaugh sharply criticized a portion of the majority opinion suggesting that "it is not at all clear" that efficiencies likely to result from a merger "offer a viable legal defense to illegality under Section 7." While the D.C. Circuit majority ultimately assumed for purposes of the case that such efficiencies are relevant in assessing a merger's impact on competition, it also observed that the Supreme Court held in a 1967 decision that efficiencies are not relevant in Section 7 cases, and that the Court had neither explicitly nor implicitly overturned that decision. The nominee criticized this portion of the majority opinion as "ahistorical drive-by dicta," reasoning that in the 1970s, the Court "shifted away from the strict anti-merger approach [it] . . . had employed in the 1960s." Judge Kavanaugh concluded that under "the modern approach" to antitrust law reflected in subsequent Supreme Court decisions, courts "must take account of the efficiencies and consumer benefits that would result from [mergers]," and not limit their analysis to an assessment of how concentrated the relevant market would become as a result of a merger. Judge Kavanaugh also expressed his preference for "the modern approach" to antitrust law over the approach taken by the 1960s Court in his dissent in F ederal Trade Commission (FTC) v. Whole Foods Market . In that case, the FTC sought a preliminary injunction to block the merger of Whole Foods and another grocery store chain, Wild Oats. The key issue in the case was the scope of the relevant "product market" in which Whole Foods and Wild Oats competed. The scope of the product market in which a firm competes is often a critical question in merger cases, because mergers are less likely to harm competition in markets with many competitors than in markets with few competitors. In Whole Foods Market , the FTC contended that the relevant market involved what it called "premium, natural, and organic supermarkets" (PNOS)—that is, supermarkets that focus on high-quality perishables and specialty organic produce, target affluent and well-educated customers, and emphasize social and environmental responsibility. Because Whole Foods and Wild Oats were the only PNOS in eighteen cities, the FTC contended that the merger violated Section 7 because it would substantially decrease competition in the PNOS market in those cities. By contrast, Whole Foods argued that because it competed with a wide range of non-PNOS grocery stores, the relevant market for purposes of Section 7 was far broader than PNOS. Whole Foods contended that because the merged company would not possess a large share of the relevant market (which included non-PNOS grocery stores), the merger would not substantially lessen competition in that broader market. While the district court sided with Whole Foods and denied the FTC's motion for a preliminary injunction, the D.C. Circuit reversed that decision on appeal. Writing separately, Judge Janice Rogers Brown and Judge David S. Tatel both concluded that the district court erred. Relying in part on the Supreme Court's 1962 decision in Brown Shoe Co. v. United States , which identified seven non-exhaustive "practical indicia" to guide courts' market definition inquiry, Judge Brown concluded that the FTC had presented strong evidence showing that PNOS constituted a distinct "submarket" that catered to a "core group" of customers who would continue to shop at the merged firm over non-PNOS grocery stores even if the merged firm raised its prices. In an opinion concurring in the judgment, Judge Tatel likewise concluded that the district court erred by rejecting the FTC's evidence suggesting that PNOS constituted a distinct product market. The court accordingly remanded the case to the district court for a determination of whether the equities favored granting the FTC's motion for a preliminary injunction. In his dissent, Judge Kavanaugh rejected his colleagues' market definition analysis, arguing that it "call[ed] to mind the bad old days when mergers were viewed with suspicion regardless of their economic benefits." Judge Kavanaugh reasoned that because the FTC had not presented evidence showing that Whole Foods was able to set higher prices in areas where Wild Oats stores were absent, the district court correctly concluded that Whole Foods competed with a range of non-PNOS grocery stores. Echoing his broader views on the importance of formal rules, the nominee also noted his "strong[ ]" disagreement with what he described as his colleagues' effort to "resuscitate[ ] the loose antitrust standards of Brown Shoe Co. v. United States ." According to Judge Kavanaugh, Brown Shoe 's malleable "practical indicia" approach to market definition "ha[d] not stood the test of time," and had been rightly abandoned in favor of more rigorous approaches that emphasize quantitative assessments of market concentration and price elasticities. While the evidence is limited, Judge Kavanaugh's general approach to antitrust law appears to be broadly similar to the approach reflected in Justice Kennedy's prominent antitrust opinions. Justice Kennedy's tenure on the Court included several rulings limiting the scope of the antitrust laws based in part on insights from what has been called the "Chicago School" of antitrust analysis—an approach to antitrust that heavily emphasizes the use of economic reasoning, rejects reliance on values other than economic efficiency, and is generally confident that markets are efficient and self-correcting even in the absence of government interventions aimed at addressing anti-competitive behavior. Notably, Justice Kennedy's key antitrust decisions and Judge Kavanaugh's antitrust dissents all cite Judge Robert Bork's seminal book The Antitrust Paradox in support of their analyses. The Antitrust Paradox , which criticized the Supreme Court's broad interpretations of the antitrust laws in the 1960s and its reliance on non-efficiency values in many antitrust cases, was instrumental in the development of the Chicago School of antitrust analysis and has been described as the scholarly work that has exerted the "great[est] influence . . . on the direction of antitrust policy" since the adoption of the Sherman Act in 1890. While the Chicago School's influence on antitrust law has recently attracted criticism from some commentators seeking to reinvigorate antitrust enforcement, Judge Kavanaugh's opinions suggest that, like Justice Kennedy, he is generally sympathetic to the School's core principles and likely to resist efforts to shift the Court's antitrust jurisprudence. Although the nominee may not alter the direction of the Court's antitrust decisions in light of this apparent similarity between his views and those of Justice Kennedy, his vote may be key in maintaining the Court's current balance in antitrust cases, the most recent of which divided the Court by a 5-4 margin. Judge Kavanaugh has been involved in a number of cases involving labor law, another area in which some commentators have argued that the Roberts Court has evinced "pro-business" tendencies. While many of these cases have involved discrete legal issues that do not lend themselves to generalizations about the nominee's business law jurisprudence, two themes emerge from his labor law decisions. First, although Judge Kavanaugh has not disagreed with his D.C. Circuit colleagues on the legal standards governing the review of decisions rendered by labor arbitrators, he has applied those standards in a more deferential fashion than some of his colleagues. Second, perhaps reflecting his broader textualist approach to statutory interpretation, Judge Kavanaugh has been hesitant to find that federal labor and workplace safety statutes provide legal rights and remedies that are not textually explicit. Under the NLRA, the National Labor Relations Board (NLRB) has the authority to review labor arbitration proceedings in cases where such review is necessary to determine whether an employer committed an "unfair labor practice." The NLRA affords the NLRB discretion over the extent to which it will defer to arbitration decisions, and the NLRB has adopted a standard pursuant to which it defers to such decisions as long as the arbitrator's decision is, in relevant part, not "clearly repugnant" to the NLRA. The NLRB has further explained that an arbitrator's decision is not "clearly repugnant" to the NLRA unless it is "palpably wrong, i.e., unless the arbitrator's decision is not susceptible to an interpretation consistent with the [NLRA]." In Verizon New England Inc. v. NLRB , Judge Kavanaugh, writing for a divided court, applied these standards in reversing an NLRB order overturning an arbitration panel's decision. In that case, an arbitration panel determined that by waiving employees' rights to engage in "picketing" in its collective bargaining agreement with Verizon, a union had waived employees' rights to display pro-union signs in cars parked at Verizon facilities. The NLRB overturned the arbitration panel's decision, concluding that the union's waiver of the right to engage in "picketing" did not amount to waiver of the right to display pro-union signs in cars—a right protected by the NLRA in the absence of waiver. However, in an opinion by Judge Kavanaugh, the D.C. Circuit reversed the NLRB's decision. Over the dissent of Judge Sri Srinivasan, Judge Kavanaugh explained that under the deferential standard of review governing labor arbitration, the NLRB should have upheld the arbitrator's decision because it was not "palpably wrong." Specifically, Judge Kavanaugh reasoned that the arbitration panel's decision was not "palpably wrong" because "[n]o hard-and-fast definition of the term 'picketing' excludes the visible display of pro-union signs in employees' cars rather than in employees' hands, especially when the cars are lined up in the employer's parking lot and thus visible to passers-by in the same way as a picket line." Judge Kavanaugh similarly deferred to a labor arbitrator's decision in National Postal Mail Handlers Union v. American Postal Workers Union . In that case, two unions of postal workers disputed which union was entitled to perform certain work at a U.S. Postal Service facility under a 1979 Postal Service directive. One union brought the matter to arbitration and prevailed, prompting the other union to sue in federal court to overturn the arbitrator's decision. Over the dissent of Chief Judge David B. Sentelle, the nominee affirmed the arbitrator's decision that the dispute was arbitrable, explaining that although the arbitrator had incorrectly interpreted a 1992 agreement between the unions and the Postal Service governing the arbitration of disputes, the court was bound by Supreme Court precedent to affirm his decision as long as he was "even arguably construing or applying the contract and acting within the scope of his authority." Because the arbitrator's interpretation of the 1992 agreement "was not outside traditional juridical and interpretive bounds," Judge Kavanaugh concluded that the arbitrator was indeed "arguably construing or applying the contract," even if his interpretation "may have been badly mistaken." Judge Kavanaugh's labor law decisions also evince hesitance to find that federal labor and workplace safety statutes provide legal rights and remedies that are not textually explicit. For example, in International Union, Security, Police & Fire Professionals of America v. Faye , the nominee dissented from a D.C. Circuit decision holding that the Labor-Management Reporting and Disclosure Act (LMRDA) provides unions with an implied cause of action for breach of a fiduciary duty owed to them. In rejecting the court's conclusion that the LMRDA established such a cause of action, Judge Kavanaugh relied principally on the statute's text, which indicates that any "member" of a union may sue a union officer for breach of a fiduciary duty owed to their union. The nominee reasoned that because the statute by its terms created a cause of action only for union "members," it did not also contain an implied cause of action for unions themselves. Judge Kavanaugh rejected the argument that Congress intended to create an implied cause of action for unions in the LMRDA based on the Act's requirement that union members bring lawsuits only after their union refused or failed to do so, reasoning that this provision in the Act referred to a union's refusal or failure to bring lawsuits under state law and not the LMRDA. Similarly, in SeaWorld of Florida v. Perez , a decision mentioned above in the discussion on administrative law, Judge Kavanaugh dissented from a decision affirming the DOL's citation of SeaWorld for violating OSHA by exposing animal trainers to the hazards of drowning or injury when working with killer whales during performances. The decision concerned the scope of OSHA's "General Duty Clause," which imposes a general duty on employers to "furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees." In dissent, Judge Kavanaugh reasoned that the DOL lacked the authority under the General Duty Clause to issue the citation because (1) DOL precedent provided that the Department lacked the authority to proscribe or penalize dangerous activities intrinsic to an industry, and (2) SeaWorld determined that close contact between trainers and whales was an important aspect of its shows and thus intrinsic to its business. Judge Kavanaugh also criticized what he characterized as the Department's "irrational[ ] and arbitrar[y]" distinction between close contact among trainers and whales and contact in other forms of sport and entertainment, such as football and NASCAR races, which the Department had denied it had the authority to regulate. The nominee reasoned that, despite the Department's claim that it lacked the authority to regulate such activities, the majority's decision affirming the citation would permit the Department "to regulate sports and entertainment activities in a way that Congress could not conceivably have intended in 1970 when giving the agency general authority to ensure safer workplaces." In the coming years, the Supreme Court is likely to confront a variety of important labor law cases. Given the close division evident in the Court's recent decisions in the field, it is likely that Judge Kavanaugh, if confirmed, would represent a critical vote in these cases. Whether the nominee's textualist approach to statutory interpretation or skepticism toward administrative authority would affect their ultimate disposition remains to be seen and would likely depend on the specific laws at issue in individual cases. Federal securities law is another significant area of business regulation that Judge Kavanaugh would likely be called upon to address if elevated to the Supreme Court. The federal securities laws impose a variety of disclosure and anti-fraud requirements on issuers and sellers of securities in order to promote the accurate pricing of securities and the efficient allocation of capital. Enforcement of the securities laws raises a variety of important questions, including issues concerning the substantive reach of individual securities law provisions and procedural issues involving the authority of administrative agencies and the certification of securities class actions. The Roberts Court has confronted a range of securities law issues, many of which Judge Kavanaugh has not addressed on the D.C. Circuit. However, the Court has also issued a series of opinions concerning one topic on which Judge Kavanaugh has expressed clear views: the scope of anti-fraud liability under Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and its corresponding rule. Section 10(b) of the Exchange Act makes it unlawful "[t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange Commission (SEC)] may prescribe." SEC Rule 10b-5, which implements Section 10(b), in turn makes it unlawful to, "in connection with the purchase or sale of any security": (1) "employ any device, scheme, or artifice to defraud"; (2) "make any untrue statement of material fact or . . . omit to state a material fact necessary in order to make the statements made . . . not misleading"; or (3) "engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person." In 1994, the Supreme Court held in a 5-4 opinion by Justice Kennedy that private plaintiffs cannot bring Section 10(b) claims against persons who aid and abet Section 10(b) violations but do not themselves personally engage in the conduct prohibited by Section 10(b). Justice Kennedy reasoned that because Section 10(b) by its terms prohibits "only the making of a material misstatement (or omission) or the commission of a manipulative act," private plaintiffs cannot sue those who merely aid and abet such conduct. The Court expanded on this decision fourteen years later in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. , another Justice Kennedy opinion. In that case—which one commentator has described as "easily the most controversial of the Roberts Court's securities decisions" —the Court held by a 5-3 vote that a corporation's vendors and customers who had allegedly facilitated accounting fraud by preparing false documentation and backdated contracts for the corporation were not liable to the corporation's investors under Rule 10b-5 for participating in a "scheme to defraud." The Court reasoned that the corporation's vendors and customers were not liable because the corporation's investors relied only upon the corporation's financial statements, and not on conduct by these "secondary" actors. Finally, in 2011, the Court held in Janus Capital Group v. First Derivative Traders by a 5-4 vote that an investment adviser who had helped an associated mutual fund prepare prospectuses containing false statements had not violated Rule 10b-5(b), which makes it unlawful to " make any untrue statement of material fact" in connection with the purchase or sale of a security. The Court concluded that the investment adviser had not violated Rule 10b-5(b) because it was not the "maker" of the relevant false statements. The Court explained that the "maker" of a statement within the meaning of Rule 10b-5(b) is "the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it," and that the investment adviser was not the "maker" of the statements because it did not have such authority. Judge Kavanaugh's dissent in Lorenzo v. SEC offers insight into his views on the scope of "secondary" liability under the federal securities laws. Lorenzo involved an investment banker the SEC charged with sending email messages to investors containing misrepresentations about key features of a securities offering. The SEC found that the banker violated three separate anti-fraud provisions of the federal securities laws by sending the emails: (1) Section 17(a)(1) of the Securities Act of 1933 (Securities Act), which makes it unlawful "for any person in the offer or sale of any securities . . . to employ any device, scheme, or artifice to defraud"; (2) Section 10(b) of the Exchange Act; and (3) Rule 10b-5. While a panel of the D.C. Circuit held that the banker was not the "maker" of the relevant statements and accordingly reversed the SEC's determination that he violated Rule 10b-5(b) based on Janus Capital Group , it affirmed the SEC's determination that the banker violated the other relevant anti-fraud provisions. The court rejected the banker's argument that he did not violate the remaining anti-fraud provisions because he was not the "maker" of the misleading statements, reasoning that the text of the remaining provisions did not require that a defendant "make" the misleading statements. Instead, the court concluded that the banker violated the remaining anti-fraud provisions by knowingly sending the misleading statements from his email account to prospective investors. Judge Kavanaugh authored a pointed dissent from the court's decision, offering two independent disagreements with the majority's reasoning. First, the nominee disagreed with the majority's conclusion that substantial evidence supported the SEC's determination that the banker sent the emails with the requisite intent to deceive, manipulate, or defraud. Judge Kavanaugh argued that while the administrative law judge (ALJ) who initially adjudicated the case had concluded that the banker acted with the required mental state (i.e., mens rea), the ALJ's factual findings—that the banker had not read the emails, which his boss drafted—did not support the ALJ's legal conclusion. In a passage that arguably reflects his broader approaches toward both administrative law and criminal law, Judge Kavanaugh argued that in reviewing the ALJ's decision, the SEC had "[i]n a Houdini-like move, . . . rewrote the [ALJ's] factual findings to make [them] . . . correspond to the legal conclusion that [the banker] was guilty." Reasoning that the ALJ's legal conclusions did not heed "bedrock mens rea principles" that are "essential to preserving individual liberty," Judge Kavanaugh concluded that the court should have examined whether the ALJ's factual findings supported those conclusions, rather than deferring to the SEC's creation of "an alternative factual record." Second, Judge Kavanaugh disagreed with the majority's conclusion that sending misstatements related to a sale of securities qualifies as a violation of the relevant anti-fraud provisions if the defendant was not a "maker" of the misstatements. The nominee argued that this interpretation of the anti-fraud provisions would allow the SEC "to evade the important statutory distinction between primary liability and secondary (aiding and abetting) liability," because it would imply that those who aid and abet a misstatement are themselves primary violators engaged in a scheme to defraud. Noting that the Supreme Court had "pushed back hard against the SEC's attempts to unilaterally rewrite the law" and expand the scope of primary anti-fraud liability in Central Bank of Denver , Stoneridge Investment Partners , and Janus Capital Group , Judge Kavanaugh rejected the conclusion that the banker was liable for participating in a fraudulent scheme by forwarding the misstatements after receiving them from his boss. Judge Kavanaugh's Lorenzo dissent not only evinces a narrow view of the scope of secondary "scheme" liability under the anti-fraud provisions of the Securities Act and the Exchange Act—a view that seems to be consistent with that of Justice Kennedy—it also reflects skepticism concerning the legitimacy of judicial deference to SEC administrative adjudications. Notably, in June, the Supreme Court granted a petition for certiorari in Lorenzo on the question of "whether a misstatement claim that does not meet the elements set forth in Janus [ Capital Group ] can be repackaged and pursued as a fraudulent scheme claim." While Judge Kavanaugh's view may accordingly be vindicated, he would likely be disqualified from participating in the case if confirmed. If confirmed, Judge Kavanaugh would likely have the opportunity to shape the Supreme Court's business-related decisions, as the Court has already granted certiorari to hear cases involving arbitration, products liability, federal preemption, class actions, and antitrust law during the October 2018 Term. While the nominee has not participated in cases involving the full range of business law issues that come before the Supreme Court, his decisions concerning antitrust law, labor law, and securities law offer some insight into his views on key aspects of federal economic regulation. Consistent with his general views on the separation of powers and statutory interpretation, Judge Kavanaugh has expressed skepticism toward broad views of the powers of administrative agencies to regulate businesses and evinced hesitance to find that federal statutes regulating economic activity establish rights and remedies that are not textually explicit. The nominee has also adopted a narrower view of federal merger regulation than some of his colleagues and, in the process, expressed a preference for modern approaches to antitrust law over the more flexible approach taken by the Court in the 1960s. Ultimately, this view of antitrust law, and Judge Kavanaugh's view of the scope of the anti-fraud provisions of the federal securities laws, suggest that the nominee's approach to business law matters may be quite similar to that of Justice Kennedy. Justice Kennedy was a critical vote in civil rights cases involving matters including voting rights, affirmative action, housing and employment discrimination, and sexual orientation discrimination. While Judge Kavanaugh, if confirmed to succeed Justice Kennedy, could be influential in shaping the Court's civil rights jurisprudence, the nominee's fairly limited record with respect to civil rights law makes it difficult to assess how he might vote on a broad range of civil rights matters. Judge Kavanaugh's approach to analyzing constitutional civil rights claims is particularly difficult to discern given his limited participation in cases involving equal protection challenges based on the Fifth or Fourteenth Amendments. For example, the nominee's only brush with the issue of affirmative action came in the form of a vote—without a written opinion—in favor of rehearing a panel decision that upheld an affirmative action program against a constitutional challenge raised by a non-minority plaintiff. The panel decision at issue rejected the plaintiff's arguments that a business development program denied him equal footing to compete with minority-owned businesses in violation of the Fifth Amendment. As noted above, however, a vote to rehear a case before the en banc court can be motivated by many factors beyond mere disagreement with the panel decision. The nominee's most significant cases addressing civil rights matters have involved claims brought under Title VII of the Civil Rights Act of 1964 (Title VII), the Americans with Disabilities Act (ADA), and other employment discrimination statutes. Here, Judge Kavanaugh's record is still relatively limited, as the nominee has not addressed a number of issues that have divided the lower courts with respect to statutory civil rights law, such as whether and to what extent Title VII prohibits discrimination based on sexual orientation. Similarly, Judge Kavanaugh has written one decision, discussed below, assessing the legality of a voter identification law under the Voting Rights Act in a fact-intensive analysis that granted preclearance of that law on behalf of a unanimous three-judge panel. This section provides an overview of the limited civil rights cases that Judge Kavanaugh has adjudicated, beginning with statutory civil rights matters and concluding with his one voting rights case. With respect to statutory civil rights claims, a closer look at Judge Kavanaugh's authored opinions provides some noteworthy reference points. Of particular note are two concurrences in which he urged a legal position that would have altered circuit precedent with respect to certain Title VII racial discrimination claims, as well as several dissenting opinions involving federal employers that concerned a potential conflict between an antidiscrimination protection and another statute or countervailing interest, such as national security. For example, in Ayissi-Etoh v. Fannie Mae , a Title VII case, Judge Kavanaugh concurred in the judgment in favor of the plaintiff, who had alleged, among other claims, a racially hostile work environment based on evidence that included the company's vice president allegedly shouting at the plaintiff "to get out of my office nigger." The panel issued a per curiam decision holding that the evidence, in its totality, was sufficient to establish the plaintiff's claims. The nominee wrote separately to "underscore an important point"—that the alleged statement by the vice president to the plaintiff " by itself would establish a hostile work environment for purposes of federal anti-discrimination laws." Judge Kavanaugh emphasized that a supervisor made this statement, and "[n]o other word in the English language so powerfully or instantly calls to mind our country's long and brutal struggle to overcome racism and discrimination against African-Americans." While other federal courts of appeals have held that similar evidence supports a racially hostile work environment claim, the nominee's position would notably go further than such precedent by expressly creating a clear rule that a supervisor's one-time use of a particular racial slur can, as a matter of law, establish the Title VII violation. Judge Kavanaugh concurred in another Title VII race discrimination case, Ortiz-Diaz v. Department of Housing & Urban Development . At issue in Ortiz was whether the denial of a Latino employee's request for a lateral transfer was actionable under Title VII, where the denial was allegedly based on his race and national origin, but the transfer itself would have been to a position of the same pay and benefits. Ordinarily, such a transfer would not have constituted a Title VII violation under D.C. Circuit precedent because it did not effect a change in the terms, conditions, or privileges of the plaintiff's employment. In a reissued decision, however, the panel held that the transfer denial at issue could be a Title VII violation, as it would have removed the plaintiff from a race-biased supervisor, and offered potential career advancement. Thus, the panel concluded, the evidence created a triable issue that the transfer denial was based on the plaintiff's race. Concurring, Judge Kavanaugh stated that he was "comfortable with the narrowing of our precedents" so that some lateral transfers—rather than none—could be actionable under Title VII. Notably, he added that in a future case, the en banc court "should go further" by establishing that, as a rule, all discriminatory transfers and denials of transfers based on an employee's race "plainly constitute[ ]" discrimination in violation of Title VII. Here, as in Ortiz-Diaz , Judge Kavanaugh construed the protections afforded under Title VII more broadly than the interpretation taken by some other federal appellate courts. While Judge Kavanaugh has construed Title VII in a manner that has been favorable to some claims raised by plaintiffs, he has also ruled against plaintiffs on occasion. In particular, in the context of certain antidiscrimination claims raised against federal employers, the nominee has differed—at times markedly so—from some of his colleagues in finding that certain legal doctrines or governmental interests bar antidiscrimination claims from proceeding. In Rattigan v. Holder ( Rattigan I ), for example, and a subsequent decision issued after the panel granted rehearing of the case ( Rattigan II ), Judge Kavanaugh filed dissenting opinions disagreeing with the majority's decision to allow a plaintiff's Title VII retaliation claim to proceed. In Rattigan I and II , the plaintiff, a Federal Bureau of Investigation (FBI) agent based in Saudi Arabia, alleged that his supervisor retaliated against him for filing a race and national origin discrimination complaint by referring him to the FBI's Security Division for possible investigation into whether his security clearance should be withdrawn. Central to the disposition of that case—and the basis for disagreement between the majority opinion and Judge Kavanaugh's dissents in Rattigan I and II —was how to interpret and apply the Supreme Court's 1988 decision in Department of Navy v. Egan to an allegedly retaliatory referral. In Egan , the Supreme Court addressed the "narrow question" of whether the Merit Systems Protection Board (MSPB) had statutory authority to review the basis for a security clearance decision, the denial of which resulted in the plaintiff's termination from a laborer's job at a Navy facility. Holding that the MSPB lacked such authority, the Court in Egan discussed the statutory text relating to MSPB review and procedures, emphasizing: (1) the President's authority as Commander in Chief in matters of national security and foreign affairs; (2) the broad discretion committed to executive branch agencies to protect classified information and determine access to it; and (3) the lack of expertise agencies like the MSPB have in matters of national security to review a security clearance decision. The majority in Rattigan I —in a matter of "first impression" —held that the FBI's decisionmaking process and clearance decision were not reviewable under Egan , but that the plaintiff's retaliation claim could nonetheless proceed because he challenged his supervisor's referral as retaliatory, not the clearance decision itself. Concluding that the plaintiff's retaliation claim could possibly be adjudicated without reviewing the agency's security clearance process, the panel instructed the district court on remand to determine whether the plaintiff had presented sufficient evidence for this claim to proceed "without running into Egan ." That application of Egan, the majority stated, "preserv[es] to the maximum extent possible Title VII's important protections against workplace discrimination and retaliation." While the majority viewed Egan as a "narrow" ruling cabined to the nonreviewability of the substance of the security clearance process and clearance decision, Judge Kavanaugh interpreted Egan more broadly to preclude categorically a court's review of any such referrals. Reading Egan as "an insurmountable bar" to the claim, the nominee criticized the majority for "slicing and dicing" the security clearance process in order to sustain the plaintiff's Title VII claim. In Judge Kavanaugh's view, the President's issuance of executive orders requiring employees to report their doubts as to another employee's continued eligibility to access classified information provided a "powerful indication" that those referrals fell within Egan 's bar to reviewability. While the nominee noted that he "share[d] the majority's concern about deterring false or wrongful reports that in fact stem from a discriminatory motive," Judge Kavanaugh stated that "there are a host of sanctions that deter" behavior, such as that alleged by the plaintiff, citing Department of Justice (DOJ) regulations. In its subsequent panel decision in Rattigan II , the majority further narrowed the type of Title VII claims that could go forward in connection with a security referral to only claims alleging that the reporting individual knowingly made the referral based on false information. Judge Kavanaugh again dissented, stating that the majority's conclusion could not "be squared" with Egan because it would still allow courts to review security clearance decisions that, in his view, are unreviewable under that precedent. In another dissent, Judge Kavanaugh took a similar approach when presented with the issue of whether privileges emanating from the Constitution's Speech or Debate Clause barred discrimination claims from proceeding against a congressional employer. In Howard v. Office of Chief Admin istrative Officer of the U.S. House of Representatives , a majority held that the Speech or Debate Clause did not require dismissal of the plaintiff's race discrimination claims brought pursuant to the Congressional Accountability Act because—based on the alleged facts specific to her claims—it was possible she could prove unlawful discrimination without necessarily inquiring into communications or legislative acts shielded by that Clause. The nominee, however, would have dismissed the claim as barred by the Clause, emphasizing the practical difficulty of challenging a congressional employer's personnel decisions without ultimately requiring it to produce evidence relating to legislative activities that the Clause protects from compelled disclosure. Describing the majority as "[t]rying to thread the needle and avoid dismissal" of the plaintiff's claims, Judge Kavanaugh stated that the majority's approach was "inconsistent with Speech or Debate Clause principles" and pointed to, as recourse for resolving allegations of discrimination, the availability of internal administrative procedures. Meanwhile, in Miller v. Clinton , the nominee, in dissent, construed general language in the Basic Authorities Act authorizing the State Department to contract with American workers in foreign locations "without regard" to "statutory provisions" concerning the "performance of contracts and performance of work in the United States" to shield the agency from a federal antidiscrimination lawsuit. In Miller , though it was uncontested that the State Department had fired an employee solely based on age (65), the agency argued that language in the Basic Authorities Act exempted it from complying with the antidiscrimination requirements of the Age Discrimination in Employment Act with respect to the plaintiff. The majority opinion rejected that argument, concluding the statute contained no express exemption to the Age Discrimination in Employment Act's broad proscription against discrimination based on age, contrasting the Basic Authorities Act to other instances in which Congress expressly authorized mandatory retirement clauses. The majority also expressed concern that accepting the State Department's argument would require reading the Basic Authorities Act to create exemptions to Title VII and the ADA, emphasizing its skepticism that Congress "would have authorized the State Department to ignore statutory proscriptions against discrimination on the basis of age, disability, race, religion, or sex through the use of ambiguous language." Judge Kavanaugh dissented, stating that as a matter of statutory interpretation, the case was "not a close call." The "plain language" of the Basic Authorities Act, as he viewed it, gave the State Department discretion to negotiate employment contracts without regard to statutes relating to the performance of work in the United States, and the Age Discrimination in Employment Act, in Judge Kavanaugh's view, was such a covered statute. Thus, he stated, "[t]he statute is not remotely ambiguous or difficult to apply in this case." In response to the majority's concern over the consequences that could result from exempting the State Department from the Age Discrimination in Employment Act and other workplace discrimination statutes, the nominee pointed to antidiscrimination protections provided for under the First and Fifth Amendments of the Constitution, calling the majority's concerns a "red herring" in light of those constitutional protections. Moreover, Judge Kavanaugh further declared that even if he agreed with the majority's concerns with respect to exempting the agency from the Age Discrimination in Employment Act, it was not for the court to "re-draw" the lines of the statute as it might prefer. Rather, he stated, "our job is to apply and enforce the law as it is written." As a general matter, Judge Kavanaugh's positions in these statutory civil rights cases suggest that his decisions in this area of law are centrally animated by his broader judicial philosophy that embraces legal formalism, textualism and, in the case of claims involving federal employers, the separation of powers. For instance, the nominee appears to prefer the articulation and application of clear rules to govern his analyses of civil rights matters, such as those he urged in Ayissi-Etoh and Ortiz-Diaz (that would establish per se liability for race discrimination based on certain evidence) and Rattigan and Howard (that would bar certain discrimination claims altogether). Meanwhile, his dissents in Rattigan , Howard , and Miller could be read to indicate a reluctance to expose the executive or legislative branches to liability under antidiscrimination laws unless binding precedent or statutory language dictate otherwise. Nonetheless, as noted, the statutory civil rights cases in which the nominee has participated are relatively limited, making it difficult to arrive at firm conclusions as to how he might approach other civil rights matters that may arrive at the Court. In the voting rights context, Judge Kavanaugh, sitting by designation, authored one notable decision, South Carolina v. United States , on behalf of a unanimous three-judge panel of the U.S. District Court for the District of Columbia. South Carolina predated the Supreme Court's 2013 decision in Shelby County v. Holder , which invalidated Section 4(b) of the Voting Rights Act (VRA), a provision containing a coverage formula for determining which states were required to obtain "preclearance" of their proposed voting laws under Section 5 of the VRA —from the DOJ or a three-judge district court panel—before such laws could take effect. Though Shelby County rendered the VRA's Section 5 preclearance requirement inoperable, Section 5 was still in effect at the time of South Carolina . At issue in South Carolina was whether that state's new voter identification (ID) law, Act R54, was valid under Section 5 of the VRA, which prohibits granting preclearance to state laws that either have the (1) "purpose" or the (2) "effect" of denying or abridging the right to vote on account of race. The DOJ previously denied prior approval of the South Carolina law, and the state sued to challenge that determination and seek a declaration that the law did not have the purpose or effect of denying or abridging the right to vote. Describing the VRA as "among the most significant and effective pieces of legislation in American history," Judge Kavanaugh, writing for a unanimous panel, ultimately granted preclearance of Act R54 for the election following 2012 under Section 5. The nominee's determination turned significantly on the facts of the case, a specific feature of the law at issue, and the deference he afforded to the state's reasons for and interpretation of the law. Specifically, R54, which generally required a voter to provide photo ID in order to vote in person, consisted of, as Judge Kavanaugh explained it, "several important components." The first would have expanded the type of photo IDs that could be used to vote, while a second provision would have created a new type of photo voter ID card and DMV photo ID card that could be obtained for free. A third provision—critical to the disposition of the case—would have continued to allow voters to cast ballots without a photo ID, provided that the voter produce a non-photo voter registration card and, pursuant to the new law, complete an affidavit at the polling site stating the reason for not obtaining a photo ID. The DOJ denied preclearance in part because that affidavit requirement—mandating that the voter identify "a reasonable impediment" that prevented him or her from obtaining a photo ID—was ambiguous and unclear in its application. Starting the analysis by evaluating the potential discriminatory effects of R54, Judge Kavanaugh focused on this "reasonable impediment" provision. The nominee explained that as the litigation unfolded, South Carolina officials responsible for interpreting and implementing the law began to solidify and provide more information—"often in real time"—as to how they would apply the provision. Those officials, the nominee stated, "have confirmed repeatedly" that they would accept any reason asserted by the voter on the reasonable impediment affidavit, including reasons such as having to work, lacking transportation to the county office, and being unemployed and looking for work. Judge Kavanaugh concluded that this official interpretation of the "reasonable impediment" provision was definitive, and he repeatedly emphasized that the state's expansive interpretation of the provision was central to the court's preclearance of the law. Indeed, the nominee noted the court may not have precleared South Carolina's proposed law without confirmation of the state's broad interpretation of the reasonable impediment provision because the law without it "could have discriminatory effects and impose material burdens on African-American voters, who in South Carolina disproportionately lack one of the R54-listed photo IDs" and "would have raised difficult questions under the strict effects test of Section 5." Judge Kavanaugh further advised that, if the state were to alter its interpretation of the reasonable impediment provision, it would have had to obtain preclearance of that change before applying it. The nominee thus concluded that R54 would not have discriminatory retrogressive effect within the meaning of Section 5 because, among other reasons, the state's broad interpretation of the "reasonable impediment" provision would mean that every voter who had a non-photo voter registration card under pre-existing law could still use that card to vote under the new law. Separately, Judge Kavanaugh's opinion also concluded that the state did not have a discriminatory purpose in enacting R54. The nominee rejected the argument that the introduction of the law in proximity to the election of the country's first African-American President, among other evidence, was indicative of a discriminatory purpose. South Carolina justified the law on the grounds that it was necessary to deter voter fraud. Judge Kavanaugh concluded that such a purpose was legitimate and could not be deemed pretextual "merely because of an absence of recorded incidents of in-person voter fraud in South Carolina." Pointing to the Supreme Court's 2008 decision in Crawford v. Marion County Election Board , the nominee stated that the Court had "specifically recognized" deterring voter fraud and enhancing public confidence in elections as legitimate interests, deeming "those interests valid despite the fact that the 'record contain[ed] no evidence of any such fraud actually occurring in Indiana at any time in its history.'" In addition, though the state legislature "no doubt" was aware that photo ID possession rates varied by race in the state, Judge Kavanaugh noted that the legislators, faced with those data, "did not just plow ahead," but instead provided for the addition "of the sweeping reasonable impediment provision," among other changes. While ongoing legislative action with the knowledge of racially disproportionate impact could be evidence of a law's discriminatory purpose, such facts and circumstances, the nominee concluded, were not present in South Carolina . In another section of the opinion, Judge Kavanaugh also compared the features of R54 to other state voter ID laws that had been recently upheld or invalidated, stating that "if those laws were to be placed on a spectrum of stringency, South Carolina's clearly would fall on the less stringent end." Two voter ID laws that had been precleared by the Justice Department—laws in Georgia and New Hampshire—were more restrictive than South Carolina's, in the nominee's view. Meanwhile, a Texas voter ID law, which had recently been denied preclearance by another three-judge panel, had "stringent" features distinguishable from the requirements of South Carolina's law. This comparison, Judge Kavanaugh stated, supported the panel's conclusion that R54 did not have discriminatory effects or purposes under Section 5. Set against the backdrop of more recent legal challenges to voter laws—a legal area that continues to evolve following the Supreme Court's Shelby County decision —Judge Kavanaugh's opinion in South Carolina does not necessarily appear to be an outlier, nor a ruling in conflict with other courts that have adjudicated voter ID disputes. In one recent challenge to a voter ID law in North Carolina, for example, the Fourth Circuit invalidated that state's law under Section 2 (not Section 5) of the VRA and the Equal Protection Clause of the 14th Amendment. The panel concluded that the law was enacted with discriminatory intent based on evidence, including that the state legislature analyzed data on voting mechanisms disproportionately used by African-American voters and then selectively introduced provisions to eliminate or reduce those very mechanisms, thereby "target[ing] African Americans with almost surgical precision." Such legislative action was not presented in South Carolina . Meanwhile, in an ongoing legal challenge to a Wisconsin law requiring photo ID to vote, the Seventh Circuit stayed a district court's preliminary injunction that would have required the state to allow registered voters to cast a ballot with an affidavit that "reasonable effort would not produce a photo ID," and would have prohibited officials from disputing any reason provided by the voter, similar to the provision in South Carolina . That litigation, brought pursuant to Section 2 of the VRA and the Equal Protection Clause of the 14th Amendment, is ongoing. The limited number of judicial opinions written by Judge Kavanaugh in the area of civil rights provides a correspondingly limited basis for drawing definitive conclusions about his judicial approach to these legal issues. South Carolina , the only voting rights decision in which the nominee participated, was itself a fact-bound determination that provides little insight into his judicial philosophy regarding voting rights cases generally. As discussed, the nominee's few opinions in statutory civil rights cases appears to be less of a product of his views on civil rights matters, and more a result of his general judicial philosophy. What is clear, nonetheless, is that Judge Kavanaugh, if confirmed, could be consequential in addressing civil rights questions that are likely to come before the Supreme Court on a range of areas in the foreseeable future. These include percolating and ongoing legal disputes relating to affirmative action in higher education and statutory civil rights protections based on sexual orientation or transgender status. Although Justice Kennedy may have exerted less influence over criminal law and procedure doctrine than other areas of the law, he did cast decisive votes in numerous criminal procedure cases. In particular, in cases implicating the Eighth Amendment's prohibition on cruel and unusual punishments, Justice Kennedy's voting record shaped much of recent Supreme Court doctrine. If confirmed, Judge Kavanaugh could therefore have a considerable impact on the Court's jurisprudence in this broad area of law. The nominee has written relatively little on criminal law and procedure, however, which makes it difficult to assess how he might influence the doctrine. The D.C. Circuit decides fewer criminal cases than other federal circuit courts. As a result, Judge Kavanaugh has written notable separate opinions on some areas of criminal law and procedure (e.g., Fourth Amendment search and seizure, the constitutional aspects of criminal sentencing, and substantive criminal law), but not others (e.g., cruel and unusual punishments under the Eighth Amendment, Fifth Amendment Miranda rights, and the Sixth Amendment right to counsel). Even on those issues that Judge Kavanaugh has addressed in multiple separate opinions—such as the Fourth Amendment—the record is too limited to support definitive conclusions about his judicial approach in such cases. The limited set of Judge Kavanaugh's writings on criminal law and procedure that does exist, however, reveals discrete strains of strongly held views, rather than one overarching philosophy susceptible to summary as "pro-defendant" or "pro-government." On Fourth Amendment issues, he has espoused a circumscribed view of the constitutional protection against unreasonable searches and seizures—arguably more circumscribed than that of Justice Kennedy, who himself generally (but not always) favored the government position in search and seizure cases. On constitutional sentencing issues, by contrast, Judge Kavanaugh has shown skepticism of advisory sentencing schemes that make use of facts not encompassed by the offense of conviction to increase a defendant's advisory sentencing range. On substantive criminal law, he has strenuously voiced the opinion, also favorable to criminal defendants, that courts generally must read mental state requirements into criminal law statutes that do not establish such requirements expressly. Accordingly, this section addresses these various aspects of Judge Kavanaugh's criminal law jurisprudence. In his separate opinions on the Fourth Amendment, Judge Kavanaugh has generally taken a more restrictive view than most of his D.C. Circuit colleagues on the reach of the constitutional right to be free of unreasonable searches and seizures. In Klayman v. Obama , for instance, he concluded that the National Security Agency's (NSA's) metadata collection program under Section 215 of the USA Patriot Act was "entirely consistent with the Fourth Amendment." A majority of the D.C. Circuit appeared to agree that the program was constitutional: a three-judge panel decided without opinion to stay a preliminary injunction against the program, and no judge dissented from the denial of a petition for a rehearing en banc. But Judge Kavanaugh, in a brief opinion concurring in the denial of the en banc petition, which no other judge joined, concluded that the collection did not constitute a search under Supreme Court precedent and that the national security needs underlying the program rendered it reasonable in any event. Moreover, the opinion reached beyond the threshold search analysis that would have sufficed to uphold the metadata collection program to express the additional view that national security needs outweighed the privacy interests implicated by the program. Judge Kavanaugh has authored other notable separate opinions on Fourth Amendment issues. He dissented from a panel decision in National Federation of Federal Employees -IAM v. Vilsack , holding that a U.S. Forest Service policy of conducting random drug testing on employees who worked with at-risk youth violated the Fourth Amendment. Judge Kavanaugh concluded that the drug testing program was "eminently sensible" and therefore reasonable under the Fourth Amendment even in the absence of individualized suspicion of drug use. In another case, Judge Kavanaugh wrote a dissent from an en banc opinion, concluding that during a Terry stop—an investigatory stop premised on reasonable suspicion of criminal activity but made without probable cause—police may manipulate or unzip the suspect's outer clothing to facilitate identification by a witness. In at least two Fourth Amendment cases— Wesby v. District of Columbia and United States v. Jones —the Supreme Court ultimately adopted an analysis substantially similar to that set forth in dissenting opinions by Judge Kavanaugh. In Wesby , Judge Kavanaugh sharply criticized a panel decision that affirmed a $1 million false arrest judgment against D.C. police officers who had arrested partygoers for trespassing in a vacant house. Judge Kavanaugh concluded that the panel decision contravened Supreme Court doctrine barring such damages liability unless police officers are "plainly incompetent" and "knowingly violate" the law. In particular, Judge Kavanaugh criticized the panel for failing to appreciate that police officers often must base arrest decisions on "credibility assessments [made] on the spot, sometimes in difficult circumstances." The Supreme Court later reversed the panel decision, agreeing with Judge Kavanaugh's conclusions that the arrests were lawful and that, even if the arrests had not been lawful, the officers had not knowingly violated the partygoers' clearly established Fourth Amendment rights. In Jones , Judge Kavanaugh's dissent from the denial of rehearing en banc endorsed the conclusion that the FBI's use of a GPS device without a warrant to track a suspect's vehicle for four weeks did not impinge upon the suspect's reasonable expectation of privacy. Specifically, Judge Kavanaugh joined a dissent by Chief Judge Sentelle that rejected the panel decision's aggregation or "mosaic" theory, pursuant to which a suspect may have a reasonable expectation of privacy in the totality of his public movements over a prolonged period even though he has no reasonable expectation of privacy in his location in public at any particular moment. Rejecting this theory, Chief Judge Sentelle (joined by Judge Kavanaugh and two other judges) concluded that "[t]he sum of an infinite number of zero-value parts is also zero." But Judge Kavanaugh, in his own dissent, also argued that the FBI's act of installing the GPS device on the suspect's vehicle without a warrant may have constituted an impermissible physical invasion of a constitutionally protected space and violated the Fourth Amendment for that reason. In other words, even though Judge Kavanaugh did not think that the warrantless GPS tracking violated the Fourth Amendment on a reasonable expectation of privacy theory, he suggested (without reaching a definitive conclusion) that the warrantless installation of the device may have violated the Fourth Amendment on a property-based theory of Fourth Amendment interpretation. A majority of the Supreme Court ultimately followed the latter analytical approach, holding that the attachment of the device to the vehicle was a Fourth Amendment search because the FBI physically intruded upon the suspect's private property (his car) for an investigative purpose. Judge Kavanaugh's dissent in Jones may indicate that he, like Justice Kennedy and an apparent minority of other Justices, favors a predominately property-based approach to determining what constitutes a "search" under the Fourth Amendment. The distinction between such a property-based approach, on the one hand, and an approach that recognizes Fourth Amendment privacy interests even over materials in which an individual does not have property rights, on the other hand, may be significant to the Supreme Court's developing doctrine on law enforcement access to information generated by digital-age technologies. In the 2018 case Carpenter v. United States , a five-Justice majority deviated from the property-based approach in holding that cell phone users have a reasonable expectation of privacy in the record of their physical movements contained in the historical cell phone location information maintained by their wireless carriers. The case broke new ground by holding that, at least in some circumstances, the Fourth Amendment protects sensitive information held by an individual's third-party service provider. Dissenting opinions by Justices Kennedy, Thomas, Alito, and Gorsuch all argued to varying degrees that cell phone users' lack of property interests in location information held by third parties undermined their assertion of Fourth Amendment interests in the information. Carpenter likely will generate substantial follow-on jurisprudence about its applicability to other types of sensitive information commonly held by third-party technology companies, such as IP addresses, browsing history, or biometric data. Although Judge Kavanaugh's Jones dissent suggests that he may favor the minority approach toward Fourth Amendment rights as being largely coterminous with property interests—a view that, if it were to gain the support of a majority of Justices, would tend to limit Carpenter 's eventual reach—Judge Kavanaugh's Jones dissent was relatively brief and may well have been influenced by Supreme Court precedent as it existed in 2012. In at least one instance, Judge Kavanaugh has made remarks off the bench that echo the more circumscribed view of Fourth Amendment protections that emerges from his jurisprudence. In a 2017 speech at the American Enterprise Institute that generally praised the jurisprudence of Chief Justice Rehnquist, Judge Kavanaugh noted Chief Justice Rehnquist's view that the Fourth Amendment exclusionary rule "was beyond the four corners of the Fourth Amendment's text and imposed tremendous costs on society." Judge Kavanaugh did not argue overtly for overruling the exclusionary rule, which he described as "firmly entrenched in American law." He nonetheless posited that Chief Justice Rehnquist successfully led the Supreme Court in "creat[ing] many needed exceptions to the exclusionary rule," including "most notabl[y]" the good faith exception to the exclusionary rule established in United States v. Leon . Judge Kavanaugh also highlighted a series of Rehnquist opinions that expanded the special needs doctrine, which allows some searches without probable cause or individualized suspicion if special needs "beyond the normal need for law enforcement . . . make the warrant and probable cause requirement impracticable." These points from the 2017 speech resonate in Judge Kavanaugh's Fourth Amendment opinions, where he has (1) argued that the NSA metadata collection program and the U.S. Forest Service randomized drug testing policy were permissible as special needs searches, and (2) rejected challenges to the permissibility of certain law enforcement activity. In sentencing cases, Judge Kavanaugh has suggested that he considers it unfair for a court to increase a defendant's advisory sentencing guidelines range based on acquitted conduct or conduct falling outside the elements of the offense of conviction. Nonetheless, Judge Kavanaugh has acknowledged that this sentencing practice does not violate the Fifth or Sixth Amendment under current Supreme Court precedent and that it would "require a significant revamp of criminal sentencing jurisprudence" to hold to the contrary. His opinions do not make clear how he would rule on the constitutional question in the absence of controlling Supreme Court case law. Some passages seem to suggest (but not clearly or uniformly) that he interprets the Sixth Amendment jury trial right to prohibit judicial determination of "key sentencing facts" even under sentencing guidelines that are advisory rather than mandatory in nature. Judge Kavanaugh's opinions make clear that he disagrees with the consideration of acquitted or uncharged conduct at sentencing, and he has encouraged federal district judges to exercise their discretion in declining to rely on such conduct when imposing sentences. To the extent that Judge Kavanaugh would view the Constitution to require such a result, it would be in tension with how Justice Kennedy tended to view sentencing issues, as he generally voted with a minority of Justices who deferred to legislative judgments about proper sentencing considerations and rejected Sixth Amendment challenges to the use of judicial fact-finding to increase binding sentencing thresholds. Judge Kavanaugh has authored few separate opinions or non-judicial publications about other major areas of constitutional criminal procedure, such as the warnings prior to custodial interrogations required under Miranda v. Arizona or the right to counsel under the Sixth Amendment. While he has not participated in any meaningful cases addressing custodial interrogations, in his 2017 speech to the American Enterprise Institute, Judge Kavanaugh praised Chief Justice Rehnquist for his opinions limiting Miranda 's application, suggesting that the nominee may take a restrictive view of that case. On the Sixth Amendment right to counsel, Judge Kavanaugh took a more expansive view of the rights of criminal defendants in what appears to be his only significant opinion on the subject. Specifically, in United States v. Nwoye , over the dissent of Judge Sentelle, he wrote a majority opinion holding that an attorney's failure to present expert testimony about Battered Woman Syndrome to support the duress defense of a criminal defendant who had been abused by her co-conspirator boyfriend was prejudicial to her case and supported her claim of ineffective assistance of counsel. In the few opinions he has written in criminal cases concerning the right to due process, Judge Kavanaugh has sided with the government position and concluded that challenged procedures do not violate due process. For example, in dissent in United States v. Martinez-Cruz , he concluded that it does not violate due process to assign the defendant the burden of proof "when challenging the constitutionality of a prior conviction that is being used to enhance or determine the current sentence." Judge Kavanaugh criticized the panel majority, which held that the government must bear the burden in some circumstances to persuade the sentencing court that the prior conviction was valid, for "carv[ing] out novel exceptions to the minimum burden of proof baseline" under the Due Process Clause. In two recent cases that produced divided panel decisions, Judge Kavanaugh authored opinions concluding that waivers of the right to appeal contained in guilty plea agreements were enforceable against criminal defendants despite flaws in the plea hearings. In rejecting the defendants' objections to enforcement of the appeal waivers, Judge Kavanaugh emphasized that such waivers play an important role in the efficient resolution of criminal cases. Justice Alito raised a somewhat similar point in a dissent last term (joined by Justices Kennedy and Thomas) in Class v. United States , where the majority held that a guilty plea does not "by itself bar[] a federal criminal defendant from challenging the constitutionality of the statute of conviction on direct appeal." Justice Alito criticized the majority for making a "muddle" of the doctrine on the appellate consequences of guilty pleas, calling it "critically important" to the proper functioning of the criminal justice system that those consequences be clearly understood. Judge Kavanaugh has argued in multiple separate opinions that courts must prevent unjust criminal punishment by interpreting criminal statutes to require high levels of proof of the defendant's mens rea (i.e., intent). Perhaps the most notable of these opinions came in an en banc case concerning the mens rea presumption, a canon of statutory interpretation pursuant to which criminal statutes that do not contain an express mental state requirement are interpreted to require purpose or knowledge for each offense element. In United States v. Burwell , the en banc majority upheld a district court determination that a defendant convicted of robbery was subject to a mandatory consecutive 30-year sentence for using an automatic weapon to commit a robbery, even though the government had not been required to prove that the defendant knew that the weapon was automatic. Judge Kavanaugh argued in a lengthy dissent that the majority should have applied the mens rea presumption to interpret the relevant statute (which did not contain an express mens rea element) to require the government to prove that the defendant knew the weapon was automatic. In another case, Judge Kavanaugh suggested in a concurring opinion that a conviction for making false statements to federal officials under 18 U.S.C. § 1001 should require "proof that the defendant knew his conduct was a crime," so as to mitigate the "risk of abuse and injustice" posed by prosecutions under the statute. Judge Kavanaugh's other opinions and publications have likewise stressed the "critical importance of accurate instructions to the jury on mens rea requirements." Judge Kavanaugh does not appear to have authored an opinion in an Eighth Amendment case during his time on the D.C. Circuit. Nominated to replace a Justice who often cast decisive votes in Eighth Amendment cases, Judge Kavanaugh's judicial record reveals little about his views regarding the scope of the constitutional ban on cruel and unusual punishments or his views on related issues like the death penalty or conditions of confinement. His 2017 speech to the American Enterprise Institute contains a brief discussion of the Supreme Court's case law regarding the constitutionality of capital punishment. That brief discussion can reasonably be interpreted as praising Chief Justice Rehnquist for taking the position that the Supreme Court overstepped its judicial function in the 1972 case Furman v. Georgia , which imposed a moratorium on capital punishment, and for his role in the jurisprudence that began upholding many revised capital punishment statutes four years later. The nominee suggested that Chief Justice Rehnquist's approach to death penalty cases aligned with the Supreme Court's "proper and limited role in the constitutional scheme." Questioning during the confirmation hearing may facilitate a better understanding of Judge Kavanaugh's views on Eighth Amendment issues. If confirmed, Judge Kavanaugh would join the Supreme Court at a significant moment for the future of its criminal procedure jurisprudence. Aspects of the Court's criminal procedure doctrine appear to be in the midst of transformation, while other aspects face potential reconsideration. Carpenter v. United States , decided last term, could prove to be a watershed precedent in the extension of Fourth Amendment protections to sensitive information held by third-party technology companies, but the decision's reach will depend on how the Court applies it in future cases. Next term, the Court is poised to reconsider the long-standing "separate sovereign" exception to the Fifth Amendment Double Jeopardy Clause, pursuant to which a state prosecution does not bar a subsequent federal prosecution for the same offense (and vice versa). The Court will also hear important Eighth Amendment cases next term, including two cases that concern the extent to which the prohibition on cruel and unusual punishments limits the execution of prisoners with mental or physical disabilities. From Judge Kavanaugh's record in Fourth Amendment cases, it seems likely that his views align with those of an apparent minority of Justices on the current Court that generally resists expanding Fourth Amendment protections beyond the scope of recognized property interests. His record offers limited insight, however, into his approach to other major issues of criminal law and procedure. Over the last decade the Supreme Court has been closely divided on various aspects of environmental law—that is, the broad range of laws that addresses human impacts on the natural environment. As was the case in other areas of law, the deciding vote in several important environmental law cases tended to be Justice Kennedy. As a consequence, Judge Kavanaugh, if elevated to the High Court to replace Justice Kennedy, could serve as a critical vote on such matters going forward. During his tenure on the D.C. Circuit, Judge Kavanaugh has authored opinions and participated in dozens of environmental cases. His opinions have addressed a wide range of environmental issues including climate change, air quality, water quality, nuclear energy and waste, chemical bans, endangered species, migratory birds, and other issues arising under federal environmental statutes. The nominee's record on environmental law is relatively robust, as a large volume of the D.C. Circuit's docket tends to be environmental law cases, in part, because several major environmental statutes require challenges to certain types of agency actions to be brought exclusively in that court. Often, environmental cases address the scope of agency authority under an environmental statute or the legality of a specific agency action. Environmental law statutes and cases can also prompt broader questions of administrative law, such as standing to sue and standards for judicial review. Accordingly, this section begins by discussing Judge Kavanaugh's record on environmental justiciability issues, before addressing the nominee's views on substantive aspects of environmental law. The outcome of an environmental case often depends on the court's resolution of threshold procedural issues, such as whether a plaintiff or petitioner has the right to bring a lawsuit in the first place. To proceed to the merits of a lawsuit, a plaintiff or petitioner will need to establish standing, a procedural threshold that has, at times, impeded environmental litigation. To establish standing under Article III of the Constitution, a plaintiff or petitioner must have suffered or will imminently suffer an injury-in-fact caused by the defendant or respondent and can be redressed by the court. Judge Kavanaugh has authored opinions in various cases that addressed whether a plaintiff or petitioner had the right to bring a lawsuit challenging an environmental regulation or federal agency action. As noted in the discussion on his administrative law rulings, some of Judge Kavanaugh's opinions reflect a willingness to conclude that regulated entities such as business industry groups have standing to challenge environmental regulations based on alleged economic harm. For example, in 2012 case, Grocery Manufacturers Ass ' n v. EPA , Judge Kavanaugh dissented from the majority opinion that held that petroleum industry and food industry associations lacked standing to challenge the EPA's Clean Air Act waivers that allowed the sale of a specific corn-based ethanol biofuel because their claims of damages were too conjectural. In his dissent, Judge Kavanaugh argued that the food industry petitioners had standing to challenge the waiver because the demand for ethanol to produce the biofuel would increase prices for corn used in food products, demonstrating injury-in-fact and causation for Article III standing. Likewise, the petroleum industry petitioners had, in Judge Kavanaugh's view, standing because the waiver would cause its members to incur "considerable" economic costs to refine, sell, transport, or store the ethanol-based fuel. Judge Kavanaugh expressed similar views on the extent that economic harm may support Article III standing in the 2015 case, Energy Future Coalition v. EPA . Judge Kavanaugh found that petitioners that produced ethanol biofuel had standing to challenge the EPA's regulation that allows only "commercially available" fuels to be used to test emissions of new vehicles. The petitioners argued that the EPA's actions to limit test fuels to only "commercially available" fuels effectively prohibited the use of E30, a fuel containing 30% ethanol. In claiming that the biofuel producers lacked standing, the EPA argued that the biofuel producers were not harmed because the test fuel regulation was directed at vehicle manufacturers and not biofuel producers. In rejecting the EPA's arguments, Judge Kavanaugh concluded in his opinion for the panel that the EPA's "direct regulatory impediment" prevented the petitioners' ethanol product from being used as test fuel, qualifying as an injury-in-fact to support their standing to challenge the EPA's regulation. The nominee also determined that the petitioners demonstrated causation and redressability because the EPA's regulation denied the petitioners "an opportunity to compete in the marketplace" and removing the "commercial available" requirement would allow their products to be used as a test fuel. Among his opinions related to environmental law, Judge Kavanaugh has seldom addressed the standing of public interest or nongovernmental organizations (NGOs), an issue at the heart of several of the Supreme Court's environmental standing cases. Some commentators have argued that, in at least non-environmental contexts, Judge Kavanaugh imposes a high bar for public interest groups to show "harm" from a government action to satisfy standing requirements. Even assuming this observation to be correct, it is unclear, however, if this perceived trend is apparent in the context of environmental litigation. For example, in Natural Resources Defense Council v. EPA , Judge Kavanaugh concluded that the environmental NGO-petitioner had standing to challenge the EPA's adoption of an affirmative defense that would limit civil penalties in a suit alleging air pollutant emissions violations because its members would suffer harm from higher emissions that could be prevented or alleviated by a ruling to vacate the defense. Nonetheless, the limited number of cases on standing in the environmental context makes it difficult to discern any broad tendencies of Judge Kavanaugh on the subject. In cases involving substantive review of federal agency action, Judge Kavanaugh has expressed broad skepticism when an agency interprets an environmental statute that would enlarge the scope of its authority, most notably in the climate change context. Near the beginning of the nominee's tenure on the D.C. Circuit, the Supreme Court issued its 2007 decision, Massachusetts v. EPA , which held in a 5-4 ruling that the agency had the authority under the Clean Air Act to regulate greenhouse gas (GHG) emissions to address climate change. Subsequently, the EPA's GHG regulations were subject to various challenges in the D.C. Circuit where Judge Kavanaugh, most often in separate opinions, expressed his views on the scope of the EPA's authority to address climate change. For example, in his dissent from the court's refusal to rehear en banc the 2012 decision in Coalition for Responsible Regulation v. EPA , Judge Kavanaugh argued that the EPA "exceeded its statutory authority" in regulating GHGs, including carbon dioxide (CO 2 ), under the Clean Air Act's Prevention of Significant Deterioration (PSD) permitting program. In Coalition for Responsible Regulation , the three-judge panel of the D.C. Circuit upheld the EPA's "tailoring" rule that raised and "tailored" the statutory emissions thresholds to avoid the "absurd result" of subjecting numerous smaller sources to the PSD permitting program for the first time because of their GHG emissions. However, Judge Kavanaugh in dissent interpreted the EPA's authority more narrowly, grounding his views on the doctrine of separation of powers. He reasoned that the EPA's "strange" and broad interpretation of the term "any air pollutant" to include GHGs was "legally impermissible" because a more narrow interpretation would have avoided the "absurd results" that necessitated the EPA's tailoring rule to raise the statutory emissions threshold. In Judge Kavanaugh's view, the EPA's interpretation of the Clean Air Act would "greatly" expand its authority and serve as precedent for other agencies to "adopt absurd or otherwise unreasonable interpretations of statutory provisions and then edit other statutory provisions to mitigate the unreasonableness." Judge Kavanaugh cautioned that "undue deference or abdication to an agency carries its own systemic costs. If a court mistakenly allows an agency's transgression of statutory limits, then we green-light a significant shift of power from the Legislative Branch to the Executive Branch." In going "well beyond what Congress authorized," the EPA's interpretation, in Judge Kavanaugh's opinion, threatened the "bedrock underpinnings of our system of separation of powers." His dissent in Coalition for Responsible Regulation v. EPA was one of several cases where Judge Kavanaugh invoked separation-of-powers principles in reviewing the EPA's authority to regulate GHGs to address climate change. In these cases, he acknowledged that climate change is an "urgent," "important," and "pressing policy issue," but argued that the EPA must act within the statutory bounds set by Congress or judicial precedent in the agency's attempts to address climate change. For instance, the nominee issued a concurring opinion in a 2013 case, Center for Biological Diversity v. EPA , which vacated the EPA's rule postponing for three years the regulation of biogenic CO 2 sources—that is, sources whose emissions directly result from the combustion or decomposition of biologically based materials —from the Clean Air Act permitting programs. Judge Kavanaugh concurred that the rule should be vacated because the EPA lacked statutory authority to distinguish biogenic CO 2 from other forms of CO 2 for purposes of the Clean Air Act permitting programs even though the agency may have "very good [policy] reasons" to do so. Although the EPA's "task of dealing with global warming is urgent and important at the national and international level," Judge Kavanaugh cautioned that "[a]llowing an agency to substitute its own policy choices for Congress's policy choices in this manner would undermine core separation of powers principles." Bound by the earlier D.C. Circuit majority ruling in Coalition for Responsible Regulation , from which he had dissented, the nominee concluded that "EPA has no such statutory discretion here. Under the statute as this Court has interpreted it, the EPA must regulate carbon dioxide" under the Clean Air Act permitting programs and had no authority to delay regulating biogenic CO 2 . In concurring with the majority to vacate the EPA's biogenic CO 2 deferral rule in Center for Biological Diversity , Judge Kavanaugh expressed his "mixed feelings" about this case because of the broader concerns he raised in his dissent in Coalition for Responsible Regulation —that is, that "contrary to this Circuit's precedent, [the Clean Air Act] does not cover [CO 2 ], whether biogenic or not." The Supreme Court in 2014 validated some of his concerns when it reviewed the earlier case. In Utility Air Regulatory Group v. EPA , a 5-4 opinion authored by Justice Scalia, the Court relied in part on Judge Kavanaugh's dissent to hold that the Clean Air Act did not authorize the EPA to require stationary sources to obtain Clean Air Act permits solely based on GHG emissions. Judge Kavanaugh has also voiced concerns regarding the EPA's statutory authority to address climate change in more recent litigation. In 2016, Judge Kavanaugh sat on an en banc panel in the case challenging the Obama Administration's Clean Power Plan (CPP), which limits GHG emissions from existing power plants under the Clean Air Act. During the oral argument, Judge Kavanaugh suggested that the EPA overstepped its authority with a rule that is "fundamentally transforming an industry," stating that "[g]lobal warming isn't a blank check" for the President to regulate GHG emissions. While sympathizing with "the frustration with Congress" in addressing climate change, he emphasized that "under our system of separation of powers, . . . Congress is supposed to make the decision" and is best tasked to devise a "balanced" and "well-rounded" policy approach to regulate GHG emissions from power plants. The D.C. Circuit has not issued a decision in the CPP litigation because the court continues to hold the case in abeyance while the EPA proposes to repeal the CPP or issue a replacement rule. Outside the climate change context, Judge Kavanaugh has likewise scrutinized federal agency efforts to interpret a statute that enlarges the scope of an agency's authority without clear congressional authorization. In EME Homer City Generation, L.P. v. EPA , Judge Kavanaugh wrote the majority decision in a 2012 case that challenged the EPA's rule requiring control of interstate transport of air pollution that impedes neighboring states from meeting air quality standards. Over the dissent of Judge Judith W. Rogers, Judge Kavanaugh's majority opinion concluded that the EPA's method to allocate emission reductions among upwind states that contribute to downwind air pollution had "transgressed statutory boundaries." He claimed it was "inconceivable" that Congress intended the EPA to "transform the narrow good neighbor provision into a 'broad and unusual authority'" under the Clean Air Act. He stressed that "'Congress could not have intended to delegate a decision of such economic and political significance to an agency in so cryptic a fashion.'" In 2013, in Judge Kavanaugh's only majority decision to be reversed by the Supreme Court, Justice Ruth Bader Ginsburg, in a 6-2 ruling, held that Congress delegated authority to the EPA to fill the "gap left open" to determine how to allocate emission reduction requirements among neighboring upwind states. In comparing the case to Chevron U.S.A. Inc. v. National Resources Defense Council , the Court deferred to the EPA's allocation method as "reasonable," "permissible, workable, and equitable." In his environmental cases challenging an agency's statutory interpretation, Judge Kavanaugh, in line with his textualist views, often determined that an agency's interpretation lacked support from the plain language of the statute. This approach obviated the need to address the extent to which judges should defer to an agency's interpretation of silent or ambiguous statutory language under the Chevron doctrine. As Judge Kavanaugh remarked in dissent in Sierra Club v. EPA , "the plain meaning of the text controls; courts should not strain to find ambiguity in clarity; courts must ensure that agencies comply with the plain statutory text and not bypass Chevron step 1." This analytical approach was illustrated in his 2017 majority opinion in Mexichem Fluor, Inc. v. EPA . There, the D.C. Circuit vacated part of a rule that would have prohibited manufacturers from using hydrofluorocarbons (HFCs), a class of GHGs, as substitutes for ozone-depleting substances (ODSs) that are commonly used in refrigerators and air conditioners. In a 2-1 decision written by Judge Kavanaugh, the majority held that the EPA's "novel" interpretation of the Clean Air Act was "inconsistent" with the plain statutory text and exceeded its statutory authority because Congress did not intend for the EPA to regulate non-ODSs that contribute to climate change under a statutory provision with a "focus" on ODSs. Similar to previous opinions he authored on the EPA's authority to regulate GHGs under the Clean Air Act, Judge Kavanaugh reiterated that "Congress's failure to enact general climate change legislation does not authorize the EPA to act. Under the Constitution, congressional inaction does not license an agency to take matters into its own hands, even to solve a pressing policy issue such as climate change." He concluded that the EPA's "strained reading" of the statutory terms "contravenes the statute and thus fails at Chevron step 1. And even if we reach Chevron step 2, the EPA's interpretation is unreasonable." The reasonableness of the EPA's statutory interpretation was the focus of several of Judge Kavanaugh's dissents to cases that challenged the agency's exclusion of cost considerations under the Clean Air Act. In 2014, he dissented in part from the majority ruling in White Stallion Energy Center v. EPA , which upheld the EPA's decision to not consider cost when determining whether it is "appropriate and necessary" to regulate mercury emissions from power plants under the Clean Air Act. In his dissent, Judge Kavanaugh argued that it was "unreasonable" for the EPA to exclude consideration of costs because "the key statutory term is 'appropriate'—the classic broad and all-encompassing term that naturally and traditionally includes consideration of all the relevant factors, health and safety benefits on the one hand and costs on the other." He explained: whether one calls it an impermissible interpretation of the term 'appropriate' at Chevron step one, or an unreasonable interpretation or application of the term 'appropriate' at Chevron step two, or an unreasonable exercise of agency discretion under State Farm ,[ ] the key point is the same: It is entirely unreasonable for EPA to exclude consideration of costs in determining whether it is 'appropriate' to regulate electric utilities . . . . On appeal, the Supreme Court in Michigan v. EPA reversed the D.C. Circuit's majority decision in a 5-4 opinion authored by Justice Scalia that quoted from Judge Kavanaugh's dissent. The Court held that the EPA's refusal to consider costs (including the cost of compliance) before deciding whether it was "appropriate and necessary" to regulate was unreasonable. Similarly, in 2016, Judge Kavanaugh's dissent in Mingo Logan Coal Co. v. EPA criticized the agency for failing to account for cost and economic impacts in determining whether to revoke previously approved and permitted waste sites for mountain-surface mining operations. The EPA had revoked specific mining waste discharge sites that were approved four years prior in a Clean Water Act permit because new information led the EPA to conclude that the discharges would have an "unacceptable adverse effect" on water supplies and aquatic life. In dissent, Judge Kavanaugh argued that the EPA should have examined the cost of its actions because the term "unacceptable" was "capacious and necessarily encompasses consideration of costs. Like the word 'appropriate' at issue in Michigan v. EPA , the words 'acceptable' and 'unacceptable' are commonly understood to necessitate a balancing of costs and benefits." In criticizing the agency's "utterly one-sided analysis" of the "benefits to animals of revoking the permit," Judge Kavanaugh argued that the EPA failed to consider the costs to "humans—coal miners, [] shareholders, local businesses" resulting from revoking the previously approved and permitted discharge sites. Echoing his dissent in White Stallion Energy Center , he explained that "whether EPA's interpretation . . . is analyzed under Chevron step one or Chevron step two or State Farm , the conclusion is the same: In order to act reasonably, the EPA must consider costs before exercising its [Clean Water Act] authority to veto or revoke a permit." In environmental cases reviewing agencies' interpretations of their own regulations, Judge Kavanaugh has broadly expressed skepticism regarding the extent to which judges should defer to agencies' interpretations of their own environmental regulations. For example, Judge Kavanaugh issued a dissent in 2010's Howmet Corp. v. EPA , which challenged the EPA's interpretation of its Resource Conservation and Recovery Act (RCRA) regulations that a particular chemical was "spent material" after it had been used in an industrial cleaning process and transported to be reused by a different company. The majority decision held that the regulation in question was ambiguous and deferred to the agency's interpretation that the "spent material" was subject to RCRA. Kavanaugh disagreed, arguing that "EPA's current interpretation is flatly inconsistent with the text of its 1985 regulations." He concluded that the EPA "enlarge[d] its regulatory authority" "by distorting the terms of the 1985 [RCRA] regulations" in "seeking to expand the definition of 'spent material'." In reviewing Judge Kavanaugh's significant body of environmental jurisprudence, most commentators note that Judge Kavanaugh tends to narrowly construe an agency's authority or sharply question an agency's statutory interpretation as a means to preserve the separation of powers among the three branches of government. Some commentary has maintained that his judicial approach would limit federal agencies' ability to regulate activities that would negatively impact the environment. However, Judge Kavanaugh's scrutiny of agency's actions has led him to uphold agency actions or side with environmental groups when he feels Congress has granted the agency discretion to do so. For example, in 2-1 opinion in American Trucking Ass'ns , Inc. v. EPA , Judge Kavanaugh upheld the EPA's approval of California's rule limiting emissions from in-use non-road engines under the Clean Air Act's "expansive" statutory language. But overall, his general formalist approach toward separation-of-power issues and his commitment to textualism have often led him to limit an agency's authority to address environmental concerns. Much of the debate over Judge Kavanaugh and environmental law is in the eye of the beholder. For example, some legal commentary has raised fears about what the nominee, if confirmed, may mean for environmental law, suggesting that the nominee would be skeptical of an agency's attempts to broaden its authority under existing environmental statutes to address new types of environmental concerns, such as climate change, that Congress may not have contemplated when the statutes were originally enacted. In contrast, other commentators have viewed the nominee's skepticism toward the authority of administrative agencies like the EPA as a blessing, arguing that Judge Kavanaugh, if confirmed, "will help reverse the trend" of "federal overreach" by "ensuring that all branches of our government act within their constitutionally assigned roles." Regardless of the merits of this debate, there are limits to any predictions that can be made regarding what the latest nomination to the High Court would mean for environmental law. After all, although his jurisprudence provides a robust picture of his environmental views, Judge Kavanaugh, during his tenure on the D.C. Circuit, has not addressed a number of issues in environmental law that could arise if he were elevated to the Supreme Court. If confirmed, Judge Kavanaugh could soon consider several potentially important environmental cases, including an Endangered Species Act (ESA) case that is scheduled for oral argument before the Supreme Court on October 1, 2018. In Weyerhaeuser Co. v. U.S. Fish and Wildlife Service , the Court is to address, among other things, whether the ESA prohibits the government from designating private land as "unoccupied" critical habitat essential for the conservation of the endangered dusky gopher frog based solely on the multiple uninhabited breeding sites on the land. Judge Kavanaugh has previously addressed the designation of private lands as critical habitat for the endangered San Diego fairy shrimp in the 2011 case, Otay Mesa Prop., L.P. v. Department of the Interior . Private property owners challenged the Fish and Wildlife Service's (FWS's) designation of the plaintiffs' property as "occupied" critical habitat under the ESA based on observing four fairy shrimp in a tire rut on a dirt road on the plaintiffs' property. In his opinion for the panel, Judge Kavanaugh concluded that a single observation of a species with no subsequent observations of the species four years later did not provide sufficient evidence that the area was "occupied" habitat for the fairy shrimp. He explained that the "thin" record could not support FWS's designation, "even acknowledging the deference due to the agency's expertise." Although the Otay Mesa case concerned "occupied" habitat as opposed to the "unoccupied" habit at issue in Weyerhauser , Judge Kavanaugh's opinion suggests that he may view FWS's record with some skepticism. The Supreme Court's ruling in the Weyerhaeuser case could provide some key guidance and potential limits on FWS's authority to designate as critical habitat areas that are not actually occupied by the listed species. The past twenty-five years have witnessed what some commentators have described as a "federalism revolution" in the Supreme Court's jurisprudence —a "revolution" in which Justice Kennedy was a key participant. This shift in the Court's federalism case law began with the Rehnquist Court, which issued a series of significant opinions resuscitating the Court's role in policing limitations on federal power. Specifically, the Rehnquist Court issued opinions (1) restricting the scope of Congress's powers under the Commerce Clause, (2) reviving the Tenth Amendment as a limit on Congress's authority, and (3) expanding the scope of state sovereign immunity. This "federalism revolution" has not ended with the Roberts Court, which has extended a number of the Rehnquist Court's federalism decisions. The Roberts Court's 2012 decision in National Federation of Independent Businesses ( NFIB ) v. Sebelius , which involved a constitutional challenge to the ACA, was perhaps its most notable federalism case. While the NFIB Court ultimately concluded that the ACA's "individual mandate"—which required individuals to maintain a minimum level of health insurance or pay a penalty—was a permissible exercise of Congress's taxing power, a majority of the Justices concluded that the mandate exceeded the scope of Congress's Commerce Clause authority because it compelled individuals to engage in commerce rather than regulating pre-existing commercial activity. Perhaps more importantly, the NFIB Court extended the Rehnquist Court's Tenth Amendment cases—which held that Congress may not coerce state and local governments into implementing federal regulatory programs—to strike down a provision of the ACA that granted the Secretary of Health and Human Services (HHS) the authority to withhold all Medicaid payments from states that did not participate in an expansion of Medicaid, marking the first time the Court invalidated a condition attached to federal spending as unconstitutionally coercive. Justice Kennedy was a key participant in this "federalism revolution," authoring or joining nearly all of the Court's key decisions. Justice Kennedy's successor will accordingly play a critical role in shaping the Court's federalism jurisprudence. Judge Kavanaugh's record on the D.C. Circuit contains limited information about his views on the various federalism issues that have confronted the Supreme Court. The nominee has not authored or joined any significant opinions concerning the Tenth Amendment or state sovereign immunity. Judge Kavanaugh's most prominent federalism case, Seven-Sky v. Holder , involved a pre- NFIB Commerce Clause challenge to the ACA. In that case, Judge Kavanaugh ultimately declined to consider the merits of the case after concluding that the court lacked jurisdiction to hear the dispute. In Seven-Sky , plaintiffs brought a constitutional challenge to the ACA's individual mandate, arguing that the mandate exceeded the scope of Congress's authority under the Commerce Clause. A majority of a three-judge D.C. Circuit panel upheld the mandate, concluding that it did not exceed the scope of Congress's power under the Commerce Clause because it addressed a national problem that had "substantial effects" on interstate commerce. However, Judge Kavanaugh dissented from the court's decision, concluding that the court lacked jurisdiction to decide the merits of the challenge because of the Anti-Injunction Act, which denies courts jurisdiction over pre-enforcement lawsuits challenging "the assessment or collection of any tax." The nominee reasoned that although Congress had labeled the exaction imposed on individuals who failed to comply with the individual mandate a "penalty" and not a "tax," the Anti-Injunction Act nevertheless deprived the court of jurisdiction because the ACA provided for the penalty to be assessed and collected "in the same manner as taxes." The nominee concluded that, because the penalty could not be assessed and collected "in the same manner as taxes" unless the Anti-Injunction Act applied to the penalty in the same manner that it applied to "taxes," the Act deprived the court of jurisdiction over the plaintiffs' pre-enforcement lawsuit challenging the penalty, just as it would deprive the court of jurisdiction over a pre-enforcement lawsuit challenging a tax. Although Judge Kavanaugh declined to take a position on whether the individual mandate was constitutional based on Congress's powers under the Commerce Clause, he noted in his dissent that the question was "extremely difficult and rife with significant and potentially unforeseen implications for the Nation and the Judiciary"—a consideration that he viewed as militating in favor of avoiding a "premature" decision on the issue. Judge Kavanaugh also argued that the importance of the constitutional questions presented by the case counseled in favor of proceeding cautiously. In developing this argument, he noted that the government's defense of the mandate as falling within Congress's Commerce Clause powers "carrie[d] broad implications" for the scope of those powers. Specifically, Judge Kavanaugh reasoned that under the government's view of the Commerce Clause, Congress could not only impose criminal penalties on individuals who failed to purchase health insurance, but also require that individuals purchase a range of other financial products, including retirement accounts, disaster insurance, and life insurance. While Judge Kavanaugh acknowledged that Congress's Commerce Clause authority may be effectively cabined by the political process, he concluded that such political checks did not "absolve the Judiciary of its duty to safeguard the constitutional structure and individual liberty" by policing the limits of federal power. At the same time, Judge Kavanaugh argued that the court should be equally cautious about prematurely rejecting the government's defense of the mandate, noting that "[s]triking down a federal law as beyond Congress's Commerce Clause authority is a rare, extraordinary, and momentous act for a federal court." The nominee also reasoned that, because the individual mandate marked "a shift in how the Federal Government goes about furnishing a social safety net for those who are old, poor, sick, or disabled and need help"—specifically, by providing such benefits via privatized social services and a mandatory-purchase requirement rather than a traditional "tax-and-government-benefit" program—courts "should be very careful before interfering with the elected Branches' determination to update how the National Government provides such assistance." Finally, Judge Kavanaugh concluded that because Congress may respond to the constitutional challenges to the individual mandate by altering the ACA's language to provide that the mandate's penalty was in fact a "tax" (thus bringing the mandate within Congress's taxing power), or by eliminating the penalty altogether, the court should not strain to sidestep the Anti-Injunction Act and prematurely decide a difficult constitutional question. Although Judge Kavanaugh declined to address squarely the merits of the Commerce Clause question presented in Seven-Sky , he delivered a speech in 2017 on Chief Justice Rehnquist's legacy that offers some clues about his general views on the Commerce Clause. In the speech, the nominee voiced general agreement with the Rehnquist Court's Commerce Clause decisions, outlining Chief Justice Rehnquist's reasoning in Lopez and Morrison and describing those cases as "critically important in putting the brakes on the Commerce Clause and in preventing Congress from assuming a general police power." Accordingly, there is a limited record from which to gauge Judge Kavanaugh's views on federalism issues. Because the nominee has not adjudicated or commented on subjects like state sovereign immunity or the Tenth Amendment's limitations on Congress's authority, it is difficult to draw firm conclusions about his views on those topics. However, Judge Kavanaugh has indicated general agreement with the Commerce Clause decisions that served as the vanguard of the "federalism revolution" of the Rehnquist and Roberts Courts, and has expressed support for the position that the judiciary has an "important role" in policing the boundaries of federal authority. If confirmed to the Supreme Court, Judge Kavanaugh could play a significant role in the Court's decisions concerning freedom of religion, an area of law encompassing the Constitution's Religion Clauses—the Free Exercise Clause and the Establishment Clause —as well as statutes like the Religious Freedom Restoration Act (RFRA). After all, Justice Kennedy, who the nominee may succeed, provided deciding votes and drafted the majority opinions in a number of significant cases concerning religious liberty. While serving on the D.C. Circuit, Judge Kavanaugh has authored or joined relatively few opinions on religious liberty. Nonetheless, three significant opinions he has written, along with his comments outside of the courtroom, suggest that Judge Kavanaugh's views on religious liberty are fairly similar to those of Justice Kennedy. Judge Kavanaugh's writings on religious freedom issues have most frequently concerned the Establishment Clause. One significant threshold issue in Establishment Clause cases is whether the plaintiffs can show that they have standing to bring their suit. The concept of standing ensures that federal courts hear only cases that qualify as "cases" or "controversies" under Article III of the Constitution, by requiring plaintiffs to demonstrate "personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." The Supreme Court, however, sometimes appears to treat standing differently in the context of the Establishment Clause, allowing certain suits to proceed even where the injury alleged would not suffice to create standing to raise other types of legal challenges. In recent years, the Court has narrowed the scope of one of the primary cases that seemed to carve out a special Establishment Clause exception to ordinary standing principles. However, the Court has not repudiated this older case law, and, more broadly, the Court has continued to hear Establishment Clause challenges to religious displays on government property and prayers at government-sponsored events, notwithstanding the fact that, as some have argued, the plaintiffs' injuries in these cases—viewing a display or listening to a prayer—seem akin to the type of "generalized grievance" that generally would not qualify as a constitutionally sufficient injury for purposes of standing. Judge Kavanaugh has authored two significant opinions ruling on whether litigants have standing to raise Establishment Clause claims. First, the nominee rejected an Establishment Clause claim on standing grounds in In re Navy Chaplaincy . In that case, a group of Protestant Navy chaplains argued that the Navy had discriminated "in favor of Catholic chaplains in certain aspects of its retirement system." Writing the majority opinion, Judge Kavanaugh held that the plaintiffs lacked standing because they had not demonstrated an injury-in-fact, where "they themselves did not suffer employment discrimination on account of their religion." He rejected the claim—one that was accepted by Judge Rogers' dissent —that "being subjected to the 'message' of religious preference conveyed by the Navy's allegedly preferential retirement program for Catholic chaplains" created standing. In contrast to cases where the Supreme Court found that being subject to a religious message caused a cognizable injury—"the religious display and prayer cases"—in this case, the government was not "actively and directly communicating a religious message through religious words or religious symbols." In Judge Kavanaugh's view, "[w]hen plaintiffs are not themselves affected by a government action except through their abstract offense at the message allegedly conveyed by that action, they have not shown injury-in-fact to bring an Establishment Clause claim." By contrast, in Newdow v. Roberts , Judge Kavanaugh concluded that a litigant had established standing under these religious display and prayer cases. The plaintiffs in Newdow argued that certain aspects of the presidential inaugural ceremony violated the Establishment Clause. Specifically, the plaintiffs challenged the prayers at the beginning of the ceremony and the use of the phrase "so help me God" in the presidential oath of office. A majority of the court rejected the suit on standing grounds. Judge Kavanaugh concurred in the judgment of the court, contending that while the plaintiffs had standing, their claims failed on the merits. First, the nominee concluded that the plaintiffs' allegations that they would "witness . . . government-sponsored religious expression to which they object . . . suffice under the Supreme Court's precedents to demonstrate plaintiffs' concrete and particularized injury." He noted that in its cases involving "government-sponsored religious display[s] or speech[es]," the Court had not "expressly" addressed standing. "But," in his view, "the Supreme Court's consistent adjudication of religious display and speech cases over a span of decades suggests that the Court has thought it obvious that the plaintiffs in those matters had standing." Judge Kavanaugh disagreed with the majority's analysis of the "causation and redressability elements of standing." In relevant part, the nominee noted that while it was "theoretically possible that Congress or the President could completely change the nature of the Inaugural ceremonies before the next Inauguration," that was, in his view, unlikely. For this point, Judge Kavanaugh cited Lee v. Weisman , a Supreme Court opinion written by Justice Kennedy that considered the constitutionality of prayers at a public school graduation ceremony. The Supreme Court concluded in Lee that the case presented "a live and justiciable controversy" because one of the plaintiffs was a high school student and it appeared "likely, if not certain, that an invocation and benediction will be conducted at her high school graduation." Judge Kavanaugh concluded that just as it was likely that "the high school's next graduation prayer likely would resemble past graduation prayers," so was it likely that the "next Inaugural ceremony likely will resemble past Inaugurals." Because Judge Kavanaugh concluded that the plaintiffs had standing in Newdow , he went on to consider the merits of their claim, offering some insight into his substantive views on the Establishment Clause. Judge Kavanaugh paused at the outset to note the importance of the sincerely held beliefs on both sides of the issue, noting that the plaintiffs, "as atheists," "have no lesser rights or status as Americans or under the United States Constitution than Protestants, Jews, Mormons, Muslims, Hindus, Buddhists, Catholics, or members of any religious group." Nonetheless, the nominee stated that he would have held that the inaugural prayers and the use of the words "so help me God" in the presidential oath did not violate the Establishment Clause. Judge Kavanaugh noted that both the prayers and the oath were "deeply rooted" in "history and tradition." His analysis invoked the Supreme Court's decision in Marsh v. Chambers , which upheld a state legislature's practice of opening its sessions with a prayer after noting that such a practice "is deeply embedded in the history and tradition of this country." This emphasis on history and tradition would later be echoed in Justice Kennedy's opinion for the Court in Town of Greece v. Galloway , which similarly upheld prayers before a town's monthly board meetings. While acknowledging that Supreme Court precedent prohibits public prayers that amount to proselytization, Judge Kavanaugh did not believe that these cases necessarily prohibited sectarian prayers, which he defined as "prayers associated only with particular faiths, or references to deities, persons, precepts, or words associated only with particular faiths." The nominee cited the following standard from the Tenth Circuit as "instructive": "the kind of [ ] prayer that will run afoul of the Constitution is one that proselytizes a particular religious tenet or belief, or that aggressively advocates a specific religious creed, or that derogates another religious faith or doctrine." Ultimately, he held that the inaugural prayers' "many references to God, Lord, and the like" "are considered non-sectarian for these purposes," and that the prayers' "limited" "sectarian references" did not impermissibly proselytize. Judge Kavanaugh's opinion in Newdow took place against the backdrop of considerable legal debate that has occurred over the past half century regarding the meaning of the Establishment Clause. For example, the Establishment Clause is often characterized as establishing "a wall of separation between church and State" —although the appropriateness of this characterization has long been contested. The Supreme Court does not always embrace a separationist view of the Establishment Clause, as suggested by its cases approving of certain government-sponsored religious practices due to their historical pedigree. Justice Kennedy, for his part, warned that the Court's statements about government neutrality toward religion should "not give the impression of a formalism that does not exist." Instead, he argued that "[g]overnment policies of accommodation, acknowledgment, and support for religion are an accepted part of our political and cultural heritage." In his work off the court, Judge Kavanaugh has similarly questioned the "wall" metaphor, along with the related principle that the First Amendment "requires the state to be a neutral in its relations with groups of religious believers and non-believers." In a speech discussing the influence of Chief Justice Rehnquist, Judge Kavanaugh stated that the Chief Justice had "persuasively criticized the wall metaphor as 'based on bad history' and 'useless as a guide to judging.'" In another speech, the nominee praised as "well said" the following statement from former Attorney General Ed Meese: "[T]o have argued . . . that the [First Amendment] demands a strict neutrality between religion and irreligion would have struck the founding generation as bizarre. The purpose was to prohibit religious tyranny, not to undermine religion generally." Judge Kavanaugh's writings on and off the bench thus suggest that he, like Justice Kennedy, while not wholly unsympathetic to those who raise challenges under the Establishment Clause, would largely oppose a strict separationist view of the Clause. Judge Kavanaugh has not authored any notable opinions on the Free Exercise Clause, but he did write a significant dissenting opinion on RFRA: Priests for Life v. HHS . As background, RFRA provides that the federal government may not "substantially burden a person's exercise of religion" unless it demonstrates that its action "is in furtherance of a compelling governmental interest" and "is the least restrictive means of furthering that compelling governmental interest." RFRA has become central to a number of controversies involving the ACA, most notably the Supreme Court's decision in Burwell v. Hobby Lobby Stores . In that case, three closely held corporations challenged the ACA's requirement that they provide their employees with health insurance covering certain contraceptive methods. The Supreme Court concluded that the mandate, as applied to these closely held corporations, violated RFRA. The Court explained that these companies "sincerely believe[d] that providing the insurance coverage demanded" was immoral because it had the "effect of enabling or facilitating the commission of an immoral act by another," and it was not for the Court "to say that their religious beliefs are mistaken or insubstantial." Because the regulatory scheme imposed "an enormous" penalty if the corporations chose not to comply with the contraceptive mandate, the Court held that it imposed a substantial burden on their beliefs. The Court further concluded that, assuming the government had demonstrated a compelling interest, the government had not shown that the mandate was the least restrictive means of achieving that interest. Following Hobby Lobby , in Priests for Life , a group of nonprofit organizations that were opposed on religious grounds to providing their employees with certain types of contraceptives again challenged the ACA's contraceptive requirement. The regulatory scheme allowed religious nonprofit organizations to opt out of this requirement by submitting certain documents to insurers to exclude contraception from the health insurance coverage they provided. Under this scheme, if employers opted out, insurers were required "to offer separate coverage for contraceptive services directly to insured women." The plaintiffs argued that the opt-out procedure itself burdened their religious beliefs by triggering the substitution of alternative coverage that would provide contraceptives, thus "facilitating contraceptive coverage." A three-judge panel of the D.C. Circuit rejected the plaintiffs' RFRA claim, concluding that the opt-out requirements did not impose a substantial burden on the challengers' religious exercise. The plaintiffs sought en banc review of this decision, but the D.C. Circuit rejected their petition. In a dissent from the denial of the petition, Judge Kavanaugh opined that the plaintiffs "should ultimately prevail on their RFRA claim, but not to the full extent that they seek." First, the nominee concluded that the plaintiffs demonstrated a substantial burden: "When the Government forces someone to take an action contrary to his or her sincere religious belief (here, submitting the form) or else suffer a financial penalty (which here is huge), the Government has substantially burdened the individual's exercise of religion." In finding a substantial burden, Judge Kavanaugh relied heavily on Hobby Lobby . He accepted the plaintiffs' view that the opt-out procedure "makes them complicit in facilitating contraception or abortion," burdening their religious beliefs. In his view, it was not the court's "call to make," because in Hobby Lobby , the Supreme Court established that "judges in RFRA cases may question only the sincerity of a plaintiff's religious belief, not the correctness or reasonableness of that religious belief." Judge Kavanaugh next concluded that the various opinions in Hobby Lobby "strongly suggest[] that the Government has a compelling interest in facilitating access to contraception for the employees of these religious organizations." Although the majority opinion in Hobby Lobby avoided the issue, the nominee noted that Justice Kennedy and the four dissenting Justices had suggested that the government's interest was compelling—and he said that this conclusion was "not difficult to comprehend," noting the "significant social and economic costs" that result from unintended pregnancies. Finally, the nominee decided that the opt-out requirements violated RFRA because they were not "the Government's least restrictive means of furthering its interest in facilitating access to contraception for the organizations' employees." But this last conclusion was based on the fact that the government could require the organizations to submit a different, "less restrictive notice" that prior Supreme Court cases suggested "should be good enough to satisfy the Government's interest." In this vein, this aspect of Judge Kavanaugh's Priests for Life dissent largely mirrored Justice Kennedy's approach in Hobby Lobby. The plaintiffs in Priest for Life sought review in the Supreme Court. The Court granted their petition for certiorari, consolidating it with similar cases from other federal courts of appeal under the caption Zubik v. Burwell , but ultimately vacated the opinion of the D.C. Circuit without reaching the merits of the claim. After oral argument, the Court "requested supplemental briefing from the parties addressing 'whether contraceptive coverage could be provided to petitioners' employees, through petitioners' insurance companies, without any such notice from petitioners.'" Both parties "confirm[ed] that such an option [was] feasible," and the Court remanded the combined cases to the lower courts to afford the parties "an opportunity to arrive at an approach going forward that accommodates" the positions of both sides. Some commentators speculated that the Court, which was then "functioning with eight Justices, was having difficulty composing a majority in support of a definite decision on the legal questions." Zubik may suggest, therefore, that the Court is closely divided with respect to religious liberty issues, demonstrating that a new Justice could be influential on these matters as the Court considers whether to hear other cases on religious liberty in the near future. First Amendment cases, particularly those involving the freedom of speech, have featured prominently on the Roberts Court. In recent years, a majority of the Court has looked with increasing skepticism on laws or government actions that restrict political speech or commercial speech, compel speech either directly or through mandatory subsidization of private speech, or regulate speech based on its content. Justice Kennedy played a pivotal role in many of these cases, including by authoring the Court's 2010 opinion in Citizens United v. F ederal E lection C ommission ( FEC ), which invalidated a federal ban on certain corporate political expenditures. In addition, in his last term, Justice Kennedy joined five-member majorities to invalidate compulsory public-sector union agency fees and hold that a state's disclosure requirements for certain pregnancy centers were likely unconstitutional. However, he has also recognized limitations on the First Amendment's reach, particularly in the context of a government employee's speech on an employment matter. For his part, Judge Kavanaugh has a relatively robust free speech record, having encountered several strands of First Amendment law as an appellate judge, and his opinions in these cases provide some limited insight into how he might approach free speech cases on the Court. Some of Judge Kavanaugh's cases required him to decide whether the reasoning undergirding a key First Amendment precedent applied to a new factual scenario. In other cases, Judge Kavanaugh offered alternative analytical frameworks to tackle First Amendment issues confronting lower courts, including on evolving areas of First Amendment law such as commercial speech regulations. This section of the report addresses Judge Kavanaugh's freedom-of-speech jurisprudence, beginning with his decisions on campaign finance law before turning to his opinions on the regulation of various types of media and commercial speech. The section concludes by noting where the nominee has recognized key limitations on the First Amendment's reach. As a circuit court judge, Judge Kavanaugh has witnessed the evolution of the Supreme Court's campaign finance jurisprudence and has applied several of its key decisions in this area in cases concerning political spending. Although these cases largely involved the application of binding Supreme Court precedent, some required the judge to reconcile what he viewed as potential incongruities in the law or to consider how the underlying First Amendment principles squared with the federal government's interests in preserving the integrity of the democratic process. Perhaps most notably, Judge Kavanaugh has openly endorsed the view—consistent with long-established Supreme Court precedent —that political spending represents speech and that limits on such speech deserve strict scrutiny under the First Amendment. During a 2016 event at the American Enterprise Institute, Judge Kavanaugh remarked that "political speech is at the core of the First Amendment, and to make your voice heard, you need to raise money to be able to communicate to others in any kind of effective way." The first notable case on political speech for which Judge Kavanaugh authored an opinion arose in 2009 in Emily ' s List v. FEC . That case, which preceded Citizen ' s United , was brought by a nonprofit group seeking to make both contributions to and expenditures in support of "pro-choice Democratic women candidates," and involved a First Amendment challenge to FEC regulations that required "covered non-profits [to] pay for a large percentage of election-related activities out of their hard-money accounts," which were "capped at $5000 annually for individual contributors." Judge Kavanaugh authored the panel opinion in the case. He began by reviewing "several overarching principles of relevance" from the Supreme Court's First Amendment cases involving campaign finance laws: (1) that campaign contributions and expenditures are "speech" within the meaning of the First Amendment; (2) that "equalization"—or restricting the speech of some speakers "so that others might have an equal voice or influence in the electoral process"—is not a permissible basis for the government to restrict speech; (3) that the government has a strong interest in combating corruption and the appearance of corruption; (4) that based on that anti-corruption interest, the Court has allowed greater regulation of contributions to candidates or political parties than of expenditures by citizens and groups on electioneering activities such as advertisements, get-out-the-vote efforts, and voter registration drives; and (5) that the Court—at least up until that point—had been "somewhat more tolerant of regulation of for-profit corporations and labor unions." Judge Kavanaugh analyzed the applicability of these First Amendment principles and holdings to EMILY's List, which sought to make both contributions and expenditures . He held that although limits on a nonprofit's direct contributions to federal candidates and parties are constitutional under relevant Supreme Court precedent, limits on their expenditures are not. In other words, Judge Kavanaugh concluded, nonprofits "are entitled to make their expenditures . . . out of a soft-money or general treasury account that is not subject to source and amount limits." In so doing, the nominee distinguished the Supreme Court's decision in McConnell v. FEC , which had upheld statutory limits on soft-money contributions to and expenditures by political parties , reasoning that the anti-corruption justification for those limits did not apply in the case of nonprofits. He explained that if the different treatment under the First Amendment of political parties and nonprofits seemed "incongruous," it was up to Congress to eliminate the "asymmetry" by raising or removing limits on contributions to political parties or candidates. Elsewhere, Judge Kavanaugh has upheld restrictions on campaign spending. A year after Emily ' s List and two months after the Court's decision in Citizens United , in Republican National Committee (RNC) v. FEC , Judge Kavanaugh rejected the RNC's challenge to the statutory "soft-money ban" that prohibited it from raising and spending unlimited contributions to support state candidates, state parties' redistricting efforts, and various "grassroots lobbying efforts." Writing on behalf of a three-judge district court panel, Judge Kavanaugh reasoned that McConnell , which had upheld the soft-money ban notwithstanding its applicability to state election activities, foreclosed the RNC's challenge. Unlike in Emily ' s List —which, as previously noted, concerned a nonprofit—Judge Kavanaugh found McConnell 's anti-corruption justification sufficiently applicable to the RNC. The nominee noted the law's differential treatment of outside groups versus candidates and political parties, but stated that "the RNC's concern about this disparity" is "an argument for the Supreme Court or Congress." The following year, in Bluman v. FEC , Judge Kavanaugh—once again on behalf of a three-judge district court panel—rejected a First Amendment challenge to a statute barring political contributions by foreign nationals temporarily living in the United States. In doing so, Judge Kavanaugh cited the U.S. government's compelling interest in "limiting the participation of foreign citizens in activities of American democratic self-government, and in thereby preventing foreign influence over the U.S. political process." He noted, however, that the court's holding addressed only political contributions and certain expenditures by foreign nationals, not their right to engage in " issue advocacy and speaking out on issues of public policy," and that its decision "should not be read to support such bans." As noted, Judge Kavanaugh has publicly endorsed the view that political spending is a form of political speech, which suggests that, if confirmed, he may be an unlikely vote to walk back the First Amendment lines that the Court has drawn to date in order to allow the government greater leeway to regulate political contributions and expenditures. If anything, Judge Kavanaugh has seemed to voice some discomfort at certain aspects of the scope and nature of government regulation in this area, particularly with respect to how the law still treats certain speakers differently in the campaign finance realm (e.g., political candidates and parties versus outside groups). His view that the consideration of whether to level the field for these speakers is one for Congress or the Supreme Court raises the question of what position the nominee would take if elevated to the Court. While stressing the importance of historical context in some First Amendment cases, Judge Kavanaugh has looked to more recent developments when evaluating the constitutionality of telecommunications and Internet regulations, citing the significance of a speaker's "market power" under the Supreme Court's "landmark decisions" in Turner Broadcasting I and Turner Broadcasting II —both authored by Justice Kennedy. In Turner Broadcasting I , the Court considered whether the so-called "must-carry provisions" in a 1992 law that "require[d] cable television systems to devote a portion of their channels to the transmission of local broadcast television stations" violated the First Amendment. In his opinion for the Court, Justice Kennedy reasoned that the First Amendment protects cable programmers and operators, who "engage in and transmit speech," and that the must-carry provisions regulate speech by "reduc[ing] the number of channels over which cable operators exercise unfettered control" and "render[ing] it more difficult for cable programmers to compete for carriage on the limited channels remaining." Reviewing the must-carry provisions under "the intermediate level of scrutiny applicable to content-neutral restrictions that impose an incidental burden on speech," Justice Kennedy reasoned that the must-carry provisions were "justified by special characteristics of the cable medium: the bottleneck monopoly power exercised by cable operators and the dangers this power pose[d] to the viability of broadcast television." However, the Court remanded the case for additional fact-finding to determine whether the provisions burdened more speech than necessary to address the threat Congress perceived to broadcast television. Three years later, following remand, the case again reached the Court in Turner Broadcasting II , where Justice Kennedy's majority opinion concluded that the must-carry provisions "do not burden substantially more speech than necessary to further [Congress's] interests," and therefore, did not violate the First Amendment. Thirteen years later, a D.C. Circuit panel that included Judge Kavanaugh considered the applicability of the Turner Broadcasting cases in Cablevision Systems Corp. v. FCC . In that case, two cable companies challenged an FCC decision to temporarily extend a statutory "exclusivity provision" barring exclusive contracts between "multichannel video programming distributors" such as cable operators and cable-affiliated programming networks. Two members of the panel rejected the companies' First Amendment argument, in large part based on the D.C. Circuit's 1996 decision in Time Warner Entertainment Co. v. FCC , which relied on Turner Broadcasting to uphold the underlying exclusivity statute against a similar First Amendment challenge. Judge Kavanaugh dissented, reasoning that the Turner Broadcasting and Time Warner courts had upheld restrictions on the "editorial and speech rights of cable operators and programmers . . . only because of the 'bottleneck monopoly power exercised by cable operators.'" In Judge Kavanaugh's view, the relevant market had "changed dramatically" since "those mid-1990s cases" to the point where cable operators "no longer possess bottleneck monopoly power." In particular, Judge Kavanaugh noted the range of video programming options available to consumers, not only through traditional cable networks, but also through cell phone companies and the Internet. The legal import of all these developments, Judge Kavanaugh concluded, is that "the FCC's exclusivity ban . . . is no longer necessary to further competition—and no longer satisfies the intermediate scrutiny standard set forth by the Supreme Court for content-neutral restrictions on editorial and speech rights." Judge Kavanaugh reasoned that in addition to the lack of market power to justify the restriction, the exclusivity rule raised special First Amendment concerns because it did not regulate evenhandedly, applying to cable operators like Cablevision but not "similarly situated video programming distributors and video programming networks" like DIRECTV, DISH, Verizon, or AT&T. Of potential significance, Judge Kavanaugh proceeded to "offer a few additional observations" about the First Amendment's applicability in the telecommunications sphere; among the various points raised in this section of the opinion, Judge Kavanaugh reasoned that Congress and regulatory agencies have more leeway to adjust to the "realities of a changing market" in "ordinary economic regulation cases," such as those involving "energy, labor relations, the environment, or securities transactions." In contrast, he posited, the First Amendment requires "a more 'laissez-faire' [regulatory] regime" when the restriction concerns "communication markets." Judge Kavanaugh further reasoned that the First Amendment may permit the government to regulate in a content-neutral manner in a noncompetitive market, but "when a market is competitive, direct interference with First Amendment free speech rights in the name of competition is typically unnecessary and constitutionally inappropriate." Judge Kavanaugh offered similar observations in another case involving the FCC's "Viewability Rule," which "requir[ed] 'hybrid' cable companies—that is, those that provide both analog and digital cable service—to 'downconvert' from digital to analog broadcast signals from must-carry stations for subscribers with analog television sets." The FCC had allowed the Viewability Rule to lapse and replaced it with a new rule, in part because of constitutional concerns. Judge Kavanaugh, in a concurring opinion, reasoned that the FCC "was right to perceive a serious First Amendment problem with the Viewability Rule," echoing many of the arguments he made in Cablevision regarding the "dramatically changed marketplace" against which the Court must evaluate the constitutionality of the "broader must-carry regime." In Judge Kavanaugh's view, "cable regulations adopted in the era of Cheers and The Cosby Show are ill-suited to a marketplace populated by Homeland and House of Cards "; furthermore, "[b]ecause cable operators no longer wield market power," Judge Kavanaugh reasoned that "the Government can no more tell a cable operator today which video programming networks it must carry than it can tell a bookstore what books to sell or tell a newspaper what columnists to publish." The significance of market power also featured prominently in Judge Kavanaugh's dissent from an en banc circuit decision not to review a panel order upholding the FCC's 2015 net neutrality rule. The rule prohibited ISPs from blocking or throttling (i.e., slowing down) legal content and from agreeing to favor the delivery of certain content for a fee or to benefit an affiliated entity. Judge Kavanaugh described the rule as "one of the most consequential regulations ever issued by any executive or independent agency in the history of the United States." In Judge Kavanaugh's view, the rule "transform[ed] the Internet by imposing common-carrier obligations on [ISPs] and thereby prohibiting [them] from exercising editorial control over the content they transmit to consumers." He reasoned that imposing such obligations on ISPs without demonstrating that they possess "market power" violates the First Amendment under the Turner Broadcasting cases. While acknowledging that the net neutrality rule pertained to ISPs, not cable television operators, Judge Kavanaugh reasoned that these businesses "perform the same kind of functions," suggesting, by way of example, that "[d]eciding whether and how to transmit ESPN and deciding whether and how to transmit ESPN.com are not meaningfully different for First Amendment purposes." Judge Kavanaugh also rejected the FCC's attempt to distinguish ISPs from cable television operators on the basis that ISPs do not exercise editorial control, reasoning that even if ISPs "have not been aggressively exercising their editorial discretion," they do not forfeit their right to do so. In view of the foregoing opinions, Judge Kavanaugh, if confirmed, could be a key voice on the Supreme Court as it continues to refine the contours of First Amendment law in the Internet age. Judge Kavanaugh's opinions suggest that he believes that, barring some sort of market irregularity, the First Amendment should apply with the same rigor to restrictions on Internet speakers and content providers as to other purveyors of speech in the communications industry, and that technological developments and increased competition could lessen the need for government regulation in the communications marketplace. Some First Amendment contexts implicate more than one of the Supreme Court's tests for evaluating the constitutionality of a speech regulation. In these circumstances, the court may not reach agreement on the governing doctrine, and, as Judge Kavanaugh has argued, the outcome of the case may depend on which test the court applies and the factors that the court considers in applying it. Debates over the appropriate First Amendment test to apply have often arisen in the context of commercial speech and commercial disclosures. In its 1980 decision in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York , the Supreme Court developed an "intermediate" standard of scrutiny for evaluating commercial regulations that implicate speech. This test requires the government to articulate more than a rational basis for its regulatory decision, but does not necessitate that the law be the "least restrictive means" of achieving the government's interest (a key feature of strict scrutiny). However, since Central Hudson , the Court has, at times, departed from using the test articulated in the 1980 decision, with some members of the Court going so far as to question the basis for treating commercial speech differently from core political speech, which receives strict scrutiny—at least in certain circumstances. The debate over the proper test for evaluating commercial speech restrictions also calls into question the scope of doctrines created for purposes of evaluating commercial disclosure requirements, which some courts have likened to rational basis review. In American Meat Institute v. Department of Agriculture , Judge Kavanaugh offered a path to reconciling the Court's current tests for commercial speech and commercial disclosures. In American Meat Institute , the full circuit considered the constitutionality of a federal regulation requiring the disclosure of certain country-of-origin information for meat products. As a threshold matter, the court considered which of two First Amendment standards developed by the Supreme Court applied to the regulation. The first standard was the "general test for commercial speech restrictions" set forth in Central Hudson : whether the regulation directly advances a substantial governmental interest and is narrowly drawn to achieve that end. The second standard involved the Court's decision in Zauderer v. Office of Disciplinary Counsel , which concerned government-mandated disclosures aimed at preventing consumer deception. Under the Zauderer standard, a "purely factual and uncontroversial" disclosure requirement comports with the First Amendment when it is "reasonably related to the [government's] interest in preventing deception of consumers." The en banc court in American Meat Institute interpreted Zauderer to apply outside the context of consumer deception and concluded that the country-of-origin labeling requirements passed muster under Zauderer . Although he agreed with the majority's conclusion that the First Amendment does not bar the country-of-origin labeling requirements, Judge Kavanaugh wrote separately to explain how the "two basic Central Hudson requirements apply to this case." With respect to Central Hudson 's first prong requiring a substantial governmental interest, Judge Kavanaugh reasoned that the need to prevent consumer deception and to ensure consumer health or safety are "historical" and "traditional" interests justifying commercial disclosures. However, Judge Kavanaugh reasoned that the "the Government cannot advance a traditional anti-deception, health, or safety interest in this case because a country-of-origin disclosure requirement obviously does not serve those interests." Moreover, Judge Kavanaugh found that the interest that the government had asserted —providing consumers with information—was insufficient for First Amendment purposes. Nevertheless, Judge Kavanaugh reasoned that "country-of-origin labeling is justified by the Government's historically rooted interest in supporting American manufacturers, farmers, and ranchers as they compete with foreign" counterparts. Judge Kavanaugh then concluded that the labeling requirement satisfied Central Hudson 's second prong "concern[ing] the fit between the disclosure requirement and the Government's interest." In doing so, he characterized the debate over the Central Hudson versus Zauderer tests as presenting a "false choice," reasoning that " Zauderer is best read simply as an application of Central Hudson , not a different test altogether." Under Judge Kavanaugh's interpretation, " Zauderer tells us what Central Hudson 's [second prong] means in the context of compelled commercial disclosures: The disclosure must be purely factual, uncontroversial, not unduly burdensome, and reasonably related to the Government's interest." Judge Kavanaugh's concurrence in American Meat Institute is potentially notable in several respects. First, while rejecting the view that the public's right to know in and of itself can justify compelled commercial disclosures, Judge Kavanaugh seemed to implicitly accept that cases like Zauderer may justify government-compelled disclosure for reasons other than preventing consumer deception —which is an open question for the Supreme Court. He did note, however, that "the compelled disclosure must be a disclosure about the product or service in question to be justified under Central Hudson and Zauderer "—a qualification that the Supreme Court recently confirmed, at least with respect to Zauderer 's application, in NIFLA v. Becerra . Second, Judge Kavanaugh interpreted the Supreme Court's precedents to require a substantial governmental interest, even under Zauderer . In doing so, he looked to "history and tradition" to discern what interests outside the context of preventing consumer deception might be "substantial." This approach raises a question as to whether Judge Kavanaugh, if confirmed, would invalidate compelled disclosures that lack a "historical pedigree." Finally, Judge Kavanaugh seemed to interpret Zauderer 's test to be as rigorous as Central Hudson 's intermediate scrutiny standard, notwithstanding contrary views of Zauderer from other courts. Although the foregoing observations could be viewed simply as the judge's attempts to interpret and reconcile existing Supreme Court precedent, they could also signal his potential alignment with the wing of the Court that has advocated for a more rigorous form of review for commercial speech and compelled speech. Like Justice Kennedy, Judge Kavanaugh's view of the First Amendment's protection of free speech is not unbounded. In cases where the challenged governmental action implicated national security or concerned government speech or a regulation directed at conduct, Judge Kavanaugh upheld the government's action. al Bahlul v. United States involved a First Amendment challenge by an assistant to Osama bin Laden who complained that "he was unconstitutionally prosecuted [by a U.S. military commission] for his political speech," which included his production of "propaganda videos for al Qaeda." In an opinion concurring in part and dissenting in part from the judgment, Judge Kavanaugh reasoned that the government based the appellant's conspiracy conviction on the appellant's conduct, not his speech, but that in any event, appellant "had no First Amendment rights as a non-U.S. citizen in Afghanistan when he led bin Laden's media operation." Judge Kavanaugh further reasoned that even if the First Amendment did apply to the appellant's production of videos in Afghanistan, it did not protect the videos described in the appellant's indictment because they were aimed at inciting imminent lawless action and thus unprotected speech under relevant Supreme Court precedent. He noted that the Supreme Court has been even less willing to recognize protections for such speech when the government seeks to prevent imminent harms as a matter of international affairs and national security. Invoking the words of Justice Jackson, Judge Kavanaugh stated that the Constitution "is not a suicide pact." In Bryant v. Gates , a former civilian employee with the military sought to publish in Department of Defense (DOD) newspapers distributed on military installations a series of advertisements soliciting readers to "blow the whistle" on alleged military cover-ups. The military denied his requests on the basis of a DOD rule prohibiting the newspapers from including partisan discussions and political commentary. The former employee challenged the rule and the DOD's application of the rule to his proposed advertisements on First Amendment grounds. Applying the test for non-public forums, the court concluded that the restriction on political advertising was reasonable "on its face and as applied to [the advertisements in question]." Although Judge Kavanaugh joined the court's opinion, he authored a separate concurrence "lest this precedent be misinterpreted." In Judge Kavanaugh's view, the "government speech" doctrine—rather than a public forum analysis—best applied to speech restrictions concerning the DOD newspapers. Pursuant to that doctrine, he explained, because the publication constitutes the government's own speech, the military "may exercise viewpoint-based editorial control in running [it]," and could reject not only political advertisements as a category, but also political advertisements conveying a particular message that the military opposes. Judge Kavanaugh also suggested an alternative analytical approach in a case involving a First Amendment challenge to a D.C. law prohibiting the defacement of public and private property. The panel rejected an anti-abortion protester's argument that the law unconstitutionally prohibited him from writing messages in sidewalk chalk on the street in front of the White House. Although Judge Kavanaugh agreed with the majority's analysis and resolution of the First Amendment issue under the public forum doctrine, he authored a separate concurrence "simply because [he did] not want the fog of First Amendment doctrine to make this case seem harder than it is." In his view, "[n]o one has a First Amendment right to deface government property." Although by no means unfailing indicators of how Judge Kavanaugh will approach future cases, some broad observations emerge from his free speech jurisprudence. First, Judge Kavanaugh has generally recognized political spending as a form of protected speech and has noted where the Court's election law jurisprudence has resulted in speaker-based distinctions, raising questions as to whether he would maintain those dividing lines. Second, Judge Kavanaugh has applied bedrock First Amendment principles to new forms of media and appears to have viewed regulations of the communications industry—where speech is the product offering—as particularly suspect under the First Amendment. Third, in a case concerning "country-of-origin" labeling requirements, Judge Kavanaugh staked a middle ground in the ongoing debate over the proper test to apply to commercial disclosures. Fourth, like Justice Kennedy, Judge Kavanaugh has recognized limitations on the First Amendment's reach. In particular, he has upheld government actions in cases that he deemed to involve unprotected speech or government speech. Because of the unique docket at the D.C. Circuit, which has exclusive jurisdiction over certain matters related to military commissions and law of war detention, Judge Kavanaugh has authored or joined a large body of opinions related to national security. Like the themes echoed in several of Justice Kennedy's opinions, the nominee has frequently argued for courts to defer to the authority of the political branches on national security matters. To Judge Kavanaugh, this deference arises from concerns that the judicial branch lacks the institutional competency to address national security and foreign policy debates in the absence of a statutory directive. At the same time, the nominee's deference has limits, as he holds the view that deference is not warranted when a governing statute or constitutional provision calls for a judicial role. Judge Kavanaugh appears less likely than Justice Kennedy to look to international law principles to inform his interpretation of a particular statute or constitutional provision in the absence of an express directive to do so. In addition to his judicial rulings on national security matters, Judge Kavanaugh's non-judicial writings express a special interest in analyzing the constitutional limits on the Executive's power to take the United States to war abroad without congressional authorization, a matter that has not received significant attention from the Supreme Court in the modern era. Parallels between Justice Kennedy's and Judge Kavanaugh's deference to the political branches are evident in their approach to cases concerning implied constitutional causes of action in the national security realm. In his opinion for the Supreme Court in Ziglar v. Abbasi , Justice Kennedy reasoned that judicial recognition of an implied cause of action—allowing certain individuals who had been detained in the aftermath of the September 11, 2001 attacks to sue the government for monetary damages—would raise separation-of-powers concerns by requiring "judicial inquiry into the national-security realm." In Meshal v. Higgenbotham , Judge Kavanaugh similarly declined to recognize an implied constitutional cause of action for monetary damages arising out of the alleged torture and detention of an American citizen during U.S. anti-terrorism operations in Africa. In a passage echoing Ziglar , the nominee wrote in an opinion concurring in dismissal of the suit that it is Congress, not the judicial branch, that "decides whether to recognize a cause of action against U.S. officials for torts they allegedly committed abroad in connection with the war against al Qaeda and other radical Islamic terrorist organizations." Judge Kavanaugh has been vocally deferential to the political branches when evaluating national security-related matters that he considered to concern policy choices rather than legal disputes. In al Bahlul v. United States —an en banc case concerning the scope of military commissions' jurisdiction—three dissenting judges argued that the government did not demonstrate that military exigency required the United States to try a defendant in a military commission, rather than in a court convened pursuant to the judicial authority established under Article III. Judge Kavanaugh responded, stating that the dissenting judges had "no business" evaluating military exigency because they had "no relevant expertise on the question of wartime strategy." The nominee has also opined that courts should not second-guess the judgment of the executive branch in other national security-related matters, such as security clearance decisions or when evaluating how a foreign country is likely to treat a U.S. detainee slated for transfer overseas. Similarly, in a dissenting opinion in an Alien Tort Statute suit against Exxon Mobil involving the Indonesian army, Judge Kavanaugh argued, among other reasons, that because the Department of State submitted a letter explaining that the case could adversely affect U.S. foreign relations and joint terrorism efforts, the suit should be dismissed. Klayman v. Obama serves as another example that Judge Kavanaugh may be deferential to national security concerns when evaluating challenges to government action. In an opinion concurring in the denial of rehearing en banc, Judge Kavanaugh wrote that the intelligence community's "bulk collection of telephony metadata serves a critically important special need—preventing terrorist attacks on the United States." In Judge Kavanaugh's view, this national security need outweighed competing privacy concerns. And, in a passage echoing his deference toward the political branches, the nominee concluded that those with concerns about the metadata program should focus their efforts on Congress and the Executive. But Judge Kavanaugh also has expressed the view that federal courts should play a role in some national security-related cases, particularly when the Executive purports to possess the power to deviate from a statutory or express constitutional restriction. "[P]residents must and do follow the statutes regulating the war effort[,]" Judge Kavanaugh wrote in 2016 article in the Marquette Lawyer . And, the nominee noted in the same article, that "in cases where someone has standing—a detainee, a torture victim, [or] someone who has been surveilled—the courts will be involved in policing the executive's use of wartime authority." Although federal courts should not create new rules to regulate the Executive's war powers, Judge Kavanaugh similarly wrote in a 2014 law review article, courts also should not "relax the constitutional principles or statutes that regulate the executive," even during the high stakes of military conflict. For example, in a 2016 speech following the death of Justice Scalia, Judge Kavanaugh expressed support for Justice Scalia's dissenting opinion in Hamdi v. Rumsf el d , which argued that courts should strictly enforce the Suspension Clause in cases challenging military detention of American citizens. The case of El-Shifa Pharmaceutical Industries Co. v. United States may illustrate how Judge Kavanaugh's views expressed outside the courtroom concerning the role of the judicial branch in national security cases apply in practice. In El-Shifa , Judge Kavanaugh disagreed with the en banc D.C. Circuit's reliance on the political question doctrine as a basis to dismiss claims against the United States arising from the 1998 U.S. bombing of a Sudanese pharmaceutical factory believed to be associated with Al-Qaeda. While Judge Kavanaugh concluded that the case should be dismissed for failure to state an actionable claim, he argued that the court's reliance on the political question doctrine amounted to de facto approval of the Executive's assertion of military authority in a case in which it was the court's responsibility to address the substance of the claims. Presaging the Supreme Court's later ruling in Zivotofsky v. Clinton , Judge Kavanaugh reasoned that the political question doctrine does not require federal courts to decline to resolve a case "simply because the dispute involves or would affect national security or foreign relations." Accordingly, as a jurisdictional matter, Judge Kavanaugh appears skeptical of the view that courts do not have a role in cases solely based on the fact that the dispute raises national security concerns. One of Judge Kavanaugh's most comprehensive bodies of national security-related jurisprudence, and one that may provide contrast between him and the jurist he may succeed, concerns the detention of enemy belligerents. Whereas Justice Kennedy was instrumental in the Supreme Court's ruling that the constitutional writ of habeas extended to foreign nationals held at Guantanamo Bay, Judge Kavanaugh ruled against detainees in a number of cases concerning the evidentiary rules that apply when adjudicating such habeas cases. Judge Kavanaugh frequently authored or joined panel opinions that concluded the government had presented sufficient evidence that a Guantanamo detainee was "part of" Al-Qaeda and its associated forces, and therefore subject to military detention. In Ali v. Obama , for example, Judge Kavanaugh's opinion for the court explained that the standard of proof to uphold military detention may be less rigorous than the standard in criminal prosecutions because—even in "a long war with no end in sight"—military detention "comes to an end with the end of hostilities." One issue in which Justice Kennedy and Judge Kavanaugh appear likely to diverge is the extent that international law may inform judicial decisionmaking. In 2004, Justice Kennedy joined a four-Justice plurality concluding that "longstanding law-of-war principles" that arise under international law informed the interpretation of the phrase "necessary and appropriate force" in the 2001 Authorization for the Use of Military Force (2001 AUMF) . And in a concurring opinion in Hamdan v. Rumsfeld , Justice Kennedy wrote that, under the Uniform Code of Military Justice, Common Article 3 of the 1949 Geneva Conventions was "applicable to our Nation's armed conflict with al Qaeda in Afghanistan and, as a result, to the use of a military commission." Justice Kennedy also occasionally considered international law in his opinions outside the national security context. Judge Kavanaugh, by contrast, at times has been critical of arguments that international legal principles should influence judicial analysis in the absence of a clear statutory reference. In a 2010 concurring opinion in Al-Bihani v. Obama , Judge Kavanaugh expressed the view that the 2001 AUMF did not incorporate judicially enforceable international law limits on the President's wartime authority. "Many international-law norms are vague, contested or still evolving[,]" Judge Kavanaugh wrote in Al-Bihani . While federal courts historically have construed federal statutes to avoid conflicts with international law, Judge Kavanaugh argued that constitutional principles and 20th century judicial developments make such a rule of construction inappropriate in some cases. Judge Kavanaugh expressed similar views in his 2016 concurring opinion in a l Bahlul where he stated that federal courts are not "roving enforcers of international law[,]" and they are not permitted to "smuggle international law into the U.S. Constitution and then wield it as a club against Congress and the President in wartime." At the same time, Judge Kavanaugh has not been exclusively critical of international law. In his 2016 a l Bahlul opinion, he described international law as "important" and stated that "the political branches have good reason to adhere" to it. Moreover, when governing statutes or regulations expressly incorporated international law into U.S. domestic law, Judge Kavanaugh interpreted and enforced international legal principles. For example, Judge Kavanaugh joined an opinion concluding that an applicable U.S. Army Regulation incorporated international legal protections afforded to medical personnel on the battlefield —although the court ultimately concluded that those protections did not apply under the facts of the case. And in a 2012 decision, Judge Kavanaugh analyzed whether international law recognized certain criminal offenses for which a defendant was convicted in a military commission because, in that case, Congress " explicitly incorporated international norms into domestic U.S. law." Finally, in several academic publications, Judge Kavanaugh explored what he believes to be one of the most important questions in American constitutional law: whether the president has the power to take the United States into war overseas without congressional authorization. Judge Kavanaugh described the Constitution's war-making power as shared between the legislative and executive branches. In the realm of congressional power, according to Judge Kavanaugh, the legislative branch has broad authority to control whether the United States wages war and to regulate some aspects of how the Executive conducts military operations, such as surveillance, detention, interrogation, and military commissions. In the field of executive power, Judge Kavanaugh noted that Article II makes the President Commander in Chief of the Armed Forces. But, according to the nominee, it is difficult to determine the extent to which the President's war powers are "exclusive and preclusive"—meaning they cannot be regulated by Congress. Other than the power to command troops on the battlefield during a congressionally authorized war, Judge Kavanaugh has stated that the scope of the President's preclusive war powers are unsettled —although he did suggest in dicta that a statute regulating the President's "short-term bombing of foreign targets in the Nation's self-defense" may not survive constitutional scrutiny. Ultimately, Judge Kavanaugh appears to believe that constitutional questions concerning war and national security will continue to be the subject of "heated debate," and that all three branches of government will play a role in resolving them. The Roberts Court has been closely divided when interpreting the Second Amendment, and Justice Kennedy's replacement will likely play an important role going forward in shaping the jurisprudence governing the scope of the Second Amendment's right to keep and bear arms. Justice Kennedy provided key deciding votes in the two landmark Second Amendment rulings of the Roberts Court. First, in 2008, he joined the five-Justice majority in District of Columbia v. Heller ( Heller I ), which held for the first time that the Second Amendment protects an individual's right to possess a firearm. Then in 2010, he joined another 5-4 majority in McDonald v. City of Chicago , which held that the Second Amendment is applicable to the states via the Fourteenth Amendment. Neither Heller I nor McDonald purported to define the full scope of the right protected by the Second Amendment, although the Court cautioned that "the right secured by the Second Amendment is not unlimited." And the Court has issued virtually no opinions meaningfully interpreting the Second Amendment since McDonald . Accordingly, in the wake of Heller I , the various federal circuit courts have examined the contours of the Second Amendment with little guidance from the High Court, requiring the lower courts to identify the appropriate standard of review for federal and state firearm restrictions. And Judge Kavanaugh undertook this task a year after McDonald was decided in Heller II , in which he authored a notable dissent construing and applying Heller I differently from the prevailing method that other federal district and circuit courts use. Heller II assessed whether the District of Columbia's Firearms Registration Amendment Act (FRA) comported with the Second Amendment. In particular, Heller II evaluated three of the FRA's provisions: (1) its firearm registration requirement; (2) its prohibition on the possession of certain semi-automatic rifles that fell within the FRA's definition of "assault weapons"; and (3) its prohibition on the possession of large-capacity magazines with a capacity for more than ten rounds of ammunition. In a 2-1 ruling over Judge Kavanaugh's dissent, the D.C. Circuit largely upheld the challenged FRA provisions. The majority began by applying the two-step framework that has been employed by nearly all federal circuit courts that have considered Second Amendment challenges post- Heller I , first asking whether the provisions implicate a right protected by the Second Amendment, and, if so, second, analyzing the provisions under the appropriate level of judicial scrutiny (e.g., rational basis review, intermediate scrutiny, or strict scrutiny). Ultimately, the D.C. Circuit generally upheld the challenged requirements. While remanding the case to review several specific registration requirements, the court concluded that the general requirement that a gun be registered with the government fell within the category of "longstanding prohibitions" on the possession and use of firearms that the Supreme Court considered to be "presumptively lawful regulatory measures" that do not garner Second Amendment protection. Further, the court concluded that the ban on semi-automatic rifles and large-capacity magazines withstood intermediate scrutiny and, thus, were lawful because the government had shown a reasonable fit between the prohibitions and its interests in protecting police officers and controlling crime. In his dissent, Judge Kavanaugh wrote at length about the meaning and import of the High Court's decision in Heller I , opining that: Heller , while enormously significant jurisprudentially, was not revolutionary in terms of its immediate real-world effects on American gun regulation. Indeed, Heller largely preserved the status quo of gun regulation in the United States. Heller established that traditional and common gun laws in the United States remain constitutionally permissible. The Supreme Court simply pushed back against an outlier local law—D.C's handgun ban—that went far beyond the traditional line of gun regulation. And, in Judge Kavanaugh's view, the FRA—like the District of Columbia's handgun ban that came before it—is an "outlier" and thus unconstitutional under Heller I . He reasoned that the FRA provisions are outliers because they are not common or traditional firearm laws: "As with D.C.'s handgun ban [struck down in Heller I ], . . . holding these D.C. laws unconstitutional would not lead to nationwide tumult. Rather, such a holding would maintain the balance historically and traditionally struck in the United States between public safety and the individual right to keep arms . . . ." Notably, unlike the Heller II majority and several other federal circuit courts, Judge Kavanaugh proposed, in line with his general skepticism of balancing tests, that firearm laws should be evaluated not according to a particular level of scrutiny but, rather, "based on the Second Amendment's text, history, and tradition (as well as by appropriate analogues thereto when dealing with modern weapons and new circumstances)." While the nominee acknowledged that Heller I did not direct lower courts as to the appropriate analytical framework for analyzing Second Amendment claims, he concluded that "look[ing] to text, history, and tradition to define the scope of the right and assess gun bans and regulations" is the "clear message" from Heller I because the Supreme Court had gauged firearms laws according to "historical tradition," including whether a measure is "longstanding" or regulates weapons that "citizens typically possess" and that are "in common use." Further, he contended that the Heller I majority rejected "judicial interest balancing," which, in his view, includes strict or intermediate scrutiny, to assess whether a government restriction on firearms is permissible. Applying this analysis in his Heller II dissent, Judge Kavanaugh would have invalidated two of the three challenged FRA provisions. With respect to the FRA's gun registration law, the nominee maintained that the "fundamental problem" with the law was that—in contrast to gun licensing and recordkeeping laws—gun registration requirements were "not 'longstanding,'" in that registration of lawfully possessed guns "has not been traditionally required in the United States and, indeed, remains highly unusual today." In arguing for striking down the District of Columbia's ban on semi-automatic rifles that fell within the FRA's definition of "assault weapons," the nominee maintained that semi-automatic rifles are "traditionally and widely accepted as lawful possessions." And with respect to the FRA's prohibition on the possession of large-capacity magazines, the nominee would have remanded the case to the lower court to determine whether large-capacity magazines have traditionally been banned and are not in common use. As the nominee's writings on the Second Amendment reveal, adding Judge Kavanaugh to the Supreme Court's bench could shape the way that Second Amendment claims are evaluated, which, in turn, could potentially affect the legality of firearm legislation at the federal, state, and local levels. For instance, were the Supreme Court to adopt Judge Kavanaugh's history and tradition test for evaluating the scope of the Second Amendment—an approach that differs from the prevailing two-step approach adopted by nearly all federal circuit courts —it is possible that renewed challenges will be raised to some firearms laws that were upheld under the previous two-step approach. That said, it is still possible that a court would reach the same result regarding a firearm law's permissibility under Judge Kavanaugh's suggested methodology as under the earlier approach. Moreover, as the nominee noted in Heller II , government bodies may have more flexibility under his proposed method of analysis than under the strict scrutiny test used at times by some circuit courts because "history and tradition show that a variety of gun regulations have co-existed with the Second Amendment right and are consistent with that right, as the Court said in Heller [I] ." Judge Kavanaugh's disagreement with how the lower courts have generally interpreted the Second Amendment has prompted some commentators to argue that the nominee would necessarily vote in favor of granting a petition for certiorari in a case involving the Second Amendment. While the decision to grant certiorari generally does not hinge on a Justice's mere agreement or disagreement with a lower court's opinion, it is certainly possible that a new Justice could result in changes to the Court's docket, including with respect to Second Amendment cases. Since Heller I , the Supreme Court has reviewed two Second Amendment challenges: first, two years after Heller I in McDonald v. City of Chicago , and then six years after that in Caetano v. Massachusetts . In Caetano , the Court, without ordering merits briefing or oral argument, issued a short per curiam opinion vacating the decision of the Massachusetts Supreme Court that had upheld a state law prohibiting the possession of stun guns. However, the two-page Caetano opinion principally opined that the state court opinion directly conflicted with Heller I , without engaging in a comprehensive analysis and offering little clarification on the Court's Second Amendment jurisprudence. Since Caetano , the Supreme Court has not granted a petition for certiorari in any Second Amendment matter. During this period, though, Justices Thomas and Gorsuch have dissented from the denial of certiorari in cases raising Second Amendment claims. Because only four Justices are needed for the Court to grant certiorari, and with a number of potentially important Second Amendment cases percolating in the lower courts, Judge Kavanaugh, if confirmed, could play an important role in deciding whether the Supreme Court adds another Second Amendment case to its docket. Separation of powers—that is, the law governing the allocation of power among the three branches of the federal government—is perhaps the most critical area of law in understanding Judge Kavanaugh's jurisprudence. Indeed, the nominee views the doctrine of separation of powers as fundamental to every aspect of adjudication, having noted that, from his perspective, "every case is a separation of powers case." Separation of powers was also an important issue for the Justice whom Judge Kavanaugh may succeed, Justice Kennedy. Like most of his fellow Justices, Justice Kennedy viewed the separation of powers as a fundamental aspect of the American constitutional system. Nonetheless, Justice Kennedy did not adopt one particular approach in separation-of-powers cases. As he was on so many other issues, Justice Kennedy was seen as a centrist of separation of powers, embracing in different cases both functional and formal analyses when providing the deciding vote in the Court's most recent decisions on the Constitution's allocation of powers among the federal branches. Like Justice Kennedy, Judge Kavanaugh views the separation of powers as "not simply [a] matter[] of etiquette or architecture," but as an essential and foundational aspect of the American constitutional system that serves primarily to protect the public from governmental abuse. His general approach is arguably formalist, placing significant emphasis on the text and history of those provisions of the Constitution that establish the "blueprint" for the fundamental design of the federal government and readily implementing the boundaries that he interprets to flow from those provisions. As such, Judge Kavanaugh stresses both the importance of the separation of powers itself and the necessity of the judiciary's role in enforcing the Framers' clear structural choices. Perhaps because of the significance he attaches to the doctrine, for Judge Kavanaugh, the separation of powers is the lens through which he approaches a wide variety of controversies, including cases relating to standing, administrative law, appropriations law, national security law, war powers, and others. Many of these aspects of Judge Kavanaugh's jurisprudence are addressed in other parts of this report and will not be discussed here. Instead, this section focuses on his general theory of the domestic separation of powers and how it shapes his views on specific topics such as the judiciary's role in checking violations of the doctrine; the President's obligation to comply with and enforce the law; legislative and executive immunity; executive privilege; requiring the President to comply with a subpoena; and the structural design of administrative agencies. As opposed to Justice Kennedy, who did not necessarily adhere to a uniform approach in separation-of-powers cases, Judge Kavanaugh appears to have a distinct doctrinal approach to implementing and enforcing the Constitution's balance of power between Congress, the courts, and the President. While some commentators have described Judge Kavanaugh's general separation-of-powers theory as one that is generally predisposed to a strong Executive, especially in cases that pit the executive branch against the legislative branch, it is does not appear that a desire for a powerful Executive necessarily drives the nominee's views. To be sure, Judge Kavanaugh has acknowledged that his views of the separation of powers, and executive power specifically, have been informed by his various experiences as an executive branch lawyer. And there are certainly areas, discussed in more detail below, in which Judge Kavanaugh has written separately to articulate a position that favors executive power, at times at the expense of congressional authority. In other instances, however, Judge Kavanaugh has written separately in order to express a position that would tend to favor Congress, at times at the expense of executive power. Instead of being solely guided by a preference toward the power of a particular branch, Judge Kavanaugh's views on the separation of powers appear to be more complex and nuanced. The nominee's opinions suggest a basic mode of interpretation in separation-of-powers cases that focuses primarily on the constitutional text and its original understanding. If the text is ambiguous, as it is in most aspects of the separation of powers, Judge Kavanaugh regularly turns to historical practice to inform the meaning of the Constitution's structural provisions. Because of this "history-focused approach," Judge Kavanaugh has generally viewed laws and actions that have few or no historical analogues as suspect. Beyond this initial interpretive framework, there appears to be a trio of conceptual principles that not only influence, but define Judge Kavanaugh's approach to the separation of powers: liberty, accountability, and governmental effectiveness. As discussed in more detail below, these three principles have consistently acted as a frame for his analyses and guided him in his ultimate conclusion in separation-of-powers cases. Liberty. Judge Kavanaugh's enforcement of separation-of-powers boundaries does not appear to be grounded in preserving a specific allocation of authority among the branches. Instead, his emphasis on policing transgressions from the constitutional scheme is a product of his concern over the protection of individual rights. The Framers made specific structural choices out of fear that an accumulation of power in any single branch would pose a threat to individual freedoms through governmental abuse. Accordingly, the starting and ending point of Judge Kavanaugh's view of separation-of-powers analysis is consistently focused on enforcing the structural provisions of the Constitution in order to protect individual liberty. Moreover, he has described "the liberty protected by the separation of powers" as "primarily freedom from government oppression, in particular from the effects of legislation that would unfairly prohibit or mandate certain action by individual citizens, backed by punishment." As a result of his focus on coercive action, his separation-of-powers concerns are most acute in cases involving governmental imposition and enforcement of law or regulations upon private entities. Accountability. Liberty, in Judge Kavanaugh's view, goes hand in hand with accountability. "Our constitutional structure is premised," Judge Kavanaugh has written, "on the notion that . . . unaccountable power is inconsistent with individual liberty." This accountability rationale is most apparent in Judge Kavanaugh's discussion of the executive branch structure, where the Constitution ensures, in the nominee's view, that the executive power be wielded by the President, and the President alone, because he is accountable to the voters. This accountability-rationale forms the foundation for Judge Kavanaugh's conclusion that the President must be able to supervise and direct those subordinate officials who exercise executive power. As a result, the nominee has viewed laws that seek to excessively insulate a government official from presidential control as a threat to democratic accountability and inconsistent with the structural separation of powers. For instance, he concluded that a "single-Director independent agency," such as the CFPB, lies "outside" of constitutional norms in part because such an agency head "is not elected by the people and is . . . not remotely comparable to the President in terms of accountability." Effectiveness. Judge Kavanaugh's view of the separation of powers does not necessarily appear to seek to preserve liberty and ensure accountability at the expense of a workable government. Instead, Judge Kavanaugh has reasoned that the Constitution's structural provisions were intended to preserve "effective" government. For example, the Founders choice of a single, unitary head of the Executive was intended, in the nominee's view, to "enhance[] efficiency and energy in the administration of the government." The legislative branch, on the other hand, was intended, according to Judge Kavanaugh, to be effective, but not necessarily efficient, as the legislative process was "designed to be difficult" in order to "protect individual liberty and guard against the whim of majority rule." For example, it is the principle of effectiveness that appears to animate Judge Kavanaugh's view that legal immunity for government officials protects effectiveness by limiting the distractions of litigation. Judge Kavanaugh's opinions and academic writings appear to support a robust role for judges in enforcing the separation of powers. As noted elsewhere in this report, Judge Kavanaugh has suggested that judges should, and indeed are required as part of their judicial duty, to take an active role in interpreting statutory delegations of authority to federal agencies, rather than deferring to the agency's view. That conception of the role of the judge extends to enforcing the structural separation of powers, where the nominee has said that deferring to Congress's or the President's views of the Constitution would be to "abdicate to the political branches" a "constitutional responsibility assigned to the judiciary." Judge Kavanaugh's view of the judiciary's role in the separation of powers is reflected in his concurring opinion in El-Shifa Pharmaceutical Industries v. United States . The en banc majority opinion in El-Shifa affirmed a district court opinion holding that the political question doctrine barred a claim under the Federal Tort Claims Act by a Sudanese pharmaceutical company whose plant had been destroyed by an American missile strike. Judge Kavanaugh wrote separately to establish his position that the political question doctrine has never, and should not be, applied to avoid judicial review when the claim is for violation of a statute, rather than violation of the Constitution. In reaching that decision, Judge Kavanaugh relied on the practical effect of an extension of the political question doctrine to statutes that regulate executive conduct, noting that dismissal in such cases would amount to an implicit holding "that the statute intrudes impermissibly on the Executive's prerogatives." Such an approach, he wrote, would "systematically favor the Executive branch over the Legislative Branch." Instead, Judge Kavanaugh concluded that such "[w]eighty" separation-of-powers questions "must be confronted directly through careful analysis of Article II—not answered by backdoor use of the political question doctrine, which may sub silentio expand executive power in an indirect, haphazard, and unprincipled manner." Judge Kavanaugh's separate opinion in Sissel v. HHS is instructive for both his general approach to the separation of powers and his views on the judicial role in enforcing the doctrine. In Sissel , Judge Kavanaugh dissented from a denial of rehearing en banc in a case asserting that certain ACA provisions requiring individuals lacking health insurance coverage to pay a penalty were grounded in an amendment introduced in the Senate and therefore violated the Origination Clause, which provides that "All Bills for raising revenue shall originate in the House of Representatives." The panel opinion concluded that whether a law is subject to the Origination Clause depends on the primary purpose of that bill. According to the panel, the ACA was not a revenue raising bill because its purpose was to "spur conduct, not to raise revenue" and, therefore, did not have to originate in the House. Judge Kavanaugh agreed with the panel's ultimate holding that the law did not violate the Origination Clause, but not its rationale. In an analysis that reflects his traditional separation-of-powers analysis—namely a focus on text, history, and personal liberty—Judge Kavanaugh instead concluded that the ACA was, in fact, a revenue raising bill that originated in the House. While it was true that the Senate had replaced the original House language, Judge Kavanaugh reasoned that such Senate alterations to House language were "permissible" under the Clause's text and history. Judge Kavanaugh took exception to the panel's purpose-focused, functionalist approach, arguing that it threatened the efficacy of a constitutional provision that was an "integral part of the Framers' blueprint for protecting people from excessive federal taxation." The Framers, Judge Kavanaugh argued, had deliberately divided power among the House and Senate, much as they had divided power among the branches, in order to "avoid the dangers of concentrated power and thereby protect individual liberty." By providing the House with the "exclusive" power to originate tax bills, the Framers adopted a structural safeguard designed to protect against the "dangers inherent in the power to tax." The panel decision, Judge Kavanaugh opined, had adopted a mode of reasoning that would "blow" open a "giant new exemption from the Origination Clause" that would functionally eliminate the judiciary's role in policing adherence to that Clause. In justifying judicial intervention, Judge Kavanaugh wrote that "the Judiciary has long played a critical role in preserving the structural compromises and choices embedded in the constitutional text." That role is the same whether a court is asked to enforce structural separation among the branches, or wholly within a branch. "It is not acceptable," argued Judge Kavanaugh, "for courts to outsource preservation of the constitutional structure to the political branches." The opinion that perhaps sheds some of the greatest light on Judge Kavanaugh's view of the scope of executive power vis-à-vis Congress is an opinion involving appropriations for nuclear waste disposal. In a portion of a 2013 ruling, In re Aiken County , Judge Kavanaugh staked out a position on a relatively unsettled area of the law: namely, the nature of the obligation the Take Care Clause imposes on the executive branch to follow and enforce federal law. The Take Care Clause, and its relationship to the President's general Article II powers, has been the subject of significant legal debate. Judge Kavanaugh's position in that case, which is generally consistent with the position expressed by the executive branch, would appear to provide the President with some, but not complete flexibility in how he approaches the execution of federal statutes. In re Aiken County concerned whether the Nuclear Regulatory Commission (NRC) was required to act on the Department of Energy's license application for a nuclear waste depository at Yucca Mountain, despite the fact that adequate appropriations were not available to complete that review. Writing for the court, Judge Kavanaugh determined that the NRC had a statutory obligation to review the license, could not simply disregard the law, and, therefore, must expend available, if insufficient, funds on that task. However, having found that the NRC's inaction violated the agency's general obligation to comply with the law, Judge Kavanaugh nevertheless addressed a pair of tangential constitutional principles that—when applicable—could permit the executive branch to "decline to act in the face of a clear statute." His opinion acknowledged at the outset that neither principle applied to the case at hand, and indeed a concurring judge found the discussion to be "unnecessary." Judge Kavanaugh nevertheless proceeded to address what he viewed as "settled, bedrock principles of constitutional law." First, Judge Kavanaugh addressed the President's authority to disregard a statutory provision the President views as unconstitutional. While each branch may independently interpret the Constitution, and Presidents have long claimed the authority to disregard laws they determine to be unconstitutional, the Supreme Court has not established clear principles to govern whether the President may unilaterally declare that a statute may be disregarded. Judge Kavanaugh's opinion concluded that the President has such authority, writing that "[i]f the President has a constitutional objection to a statutory mandate or prohibition, the President may decline to follow the law unless and until a final Court order dictates otherwise." Consistent with his history-focused approach to the separation of powers, Judge Kavanaugh claimed that Presidents have "routinely exercise[d]" such a power. The President may, he reasoned, implement a determination of unconstitutionality by directing his subordinates not to follow the law "unless and until a final Court decision in a justiciable case says that a statutory mandate or prohibition on the executive branch is constitutional." This view would appear to set a default position that favors the President's determinations over the constitutionality of a law over those of Congress, given that the President's determination controls until an explicit court ruling rejects that position. It could be taken to imply that even when existing Supreme Court precedent suggests a conclusion that runs counter to the President's determination, the President may still be authorized to disregard a law he views as unconstitutional until a court directly rules on his claim. Because, by not implementing a law, a President may make it less likely that a "case or controversy" will arise upon which a court could ultimately rule, this view of nonenforcement may necessarily enhance the executive's constitutional views. Second, Judge Kavanaugh addressed the "very controversial" topic of prosecutorial discretion. The doctrine of prosecutorial discretion provides the President and executive branch officials with leeway in deciding when, and at times whether, to enforce federal laws that place obligations on the general public. Kavanaugh's Aiken County opinion views this discretion as arising from the President's authority under Article II, and perhaps primarily, from the power to pardon. His opinion articulated broad presidential discretion in determining whether to initiate the enforcement of specific laws, noting that enforcement decisions can be based "on the President's own constitutional concerns about a law or because of policy objections to the law, among other reasons." Judge Kavanaugh's view on prosecutorial discretion appears to have also been informed by his fidelity to individual liberty principles. "One of the greatest unilateral powers a president possesses," wrote Judge Kavanaugh, "is the power to protect individual liberty by essentially under-enforcing federal statutes regulating prior behavior… ." Judge Kavanaugh maintained, however, that prosecutorial discretion has its limits, especially with regard to laws that do not require the executive branch to enforce legal mandates on the public. The doctrine does not, for example, "encompass the discretion not to follow a law imposing a mandate or prohibition on the Executive Branch," for example a statutory requirement that an agency issue a rule or administer a program. Such mandates, as a general rule, must be followed unless, in Judge Kavanaugh's view, the President has a constitutional objection. Judge Kavanaugh's views on prosecutorial discretion appear to have evolved between his 2013 Aiken County opinion and a 2016 article in the Marquette Lawyer . In discussing prosecutorial discretion in 2015, he again relied on the scope of the pardon power as informative, questioning "What sense does it make to force the executive to prosecute someone, only then to be able to turn around and pardon everyone?" However, he went on to evidently backtrack from his 2013 statement that the President's discretion in the enforcement of law was a "settled, bedrock principle of constitutional law" and instead described experiences over recent years as showing that the appropriate scope of prosecutorial discretion "is far from settled, either legally or politically." He then wrote: I will admit that I used to think that I had a good answer to this issue of prosecutorial discretion: that the president's power of prosecutorial discretion was broad and matched the power to pardon. But I will confess that I'm not certain about the entire issue as I sit here today. And I know I'm not alone in my uncertainty. As such, it would appear that Judge Kavanaugh's views on the scope of the President's power of prosecutorial discretion may not be fully settled. Judge Kavanaugh's views on maintaining an effective government, both in the legislative and executive branches, appear to have informed his views on when Members of Congress and the President may be subject to civil and criminal litigation. Congress's immunity stems from the Speech or Debate Clause, which provides that "for any Speech or Debate in either House" a Member "shall not be questioned in any other Place." The Speech or Debate Clause has generally been interpreted as providing Members with both civil and criminal immunity for "legislative acts." The Supreme Court has described the privilege as being essential to the separation of powers as it ensures that Members have "wide freedom of speech, debate, and deliberation without intimidation or threats from the Executive Branch." Presidential immunity, on the other hand, is not explicitly provided for in the Constitution. Instead, it has been asserted by some to be implicit in Article II and consistent with the separation of powers. For example, the DOJ Office of Legal Counsel has previously concluded that the criminal indictment or prosecution of a sitting President would "impermissibly interfere with the President's ability to carry out his constitutionally assigned functions." That conclusion was based on a variety of factors, including the "burdens" and "stigma" that would be associated with criminal proceedings against a President. While the Supreme Court has previously held that a sitting President enjoys immunity from civil claims for damages predicated on an official act, but is not immune while in office from civil suits for unofficial misconduct, it has not addressed the question of whether a sitting President can be investigated, indicted, or prosecuted for criminal wrongdoing. Legislative Immunity. Judge Kavanaugh has twice written separately in order to offer a broader conception of legislative immunity under the Speech or Debate Clause than supported by existing D.C. Circuit precedent. In In re Grand Jury Subpoena , the panel held that the Clause prevents a Member from being required to respond to a grand jury subpoena relating to testimony the Member provided during a disciplinary investigation by a congressional ethics committee, so long as that testimony related to official conduct. Judge Kavanaugh filed a concurring opinion in which he articulated his concerns that the panel, and previous D.C. Circuit precedent, had effectively "watered down" Speech or Debate Clause protections for Members by drawing an ambiguous distinction between statements relating to official and personal conduct. The nominee maintained that any statement made by a Member "to a congressional ethics committee is speech in an official congressional proceeding and thus falls within the protection of the clause." In so doing, Judge Kavanaugh relied principally on the plain text of the Speech or Debate Clause, writing that the panel opinion "does not square with the text of the Constitution, which gives absolute protection to 'any speech' by a Member in an official congressional proceeding." Judge Kavanaugh has also stressed that the Clause protects not only legislative independence from the executive branch, but also from the courts in the form of court ordered disclosures. For example, in Howard v. Office of the Chief Administrative Officer of the House of Representatives , Judge Kavanaugh dissented from a holding that the Speech or Debate Clause did not prevent a congressional employee from pursuing an employment discrimination claim against a congressional office under the Congressional Accountability Act, even when the congressional employer asserts that the reason for the employee's termination or demotion related to "legislative activity." Under the majority's reasoning in Howard , an employee may still proceed with his or her claim and attempt to prove that the employer's stated reason was actually pretext by "using evidence that does not implicate protected legislative matters." Judge Kavanaugh disagreed, again adopting a broader view of the protections afforded by the Speech or Debate Clause by reasoning that the majority's holding would "necessarily [] require congressional employers to either produce evidence of legislative activities or risk liability." The Speech or Debate Clause, he articulated, prevents Members and congressional employers from being "put to this kind of choice by an Article III federal court." Presidential Immunity . Judge Kavanaugh has not heard any case or written any opinion on the extent to which the Constitution provides a sitting President with immunity from criminal investigation, indictment, or prosecution. He has however, addressed the topic in his academic writings, where he has acknowledged that his views on the topic are informed by his unique personal experiences both investigating a President in Independent Counsel Kenneth Starr's office and advising a President as a White House attorney. Two academic articles—one published in 1998 and the other from 2009—suggest that Judge Kavanaugh believes that a sitting President should, as a policy matter, be accorded both civil and criminal immunity by Congress, and perhaps, that the criminal prosecution of a sitting President is prohibited by the Constitution. The more recent publication, a 2009 Minnesota Law Review article, made a series of legislative proposals to create a "more effective and efficient federal government." One of those proposals recommended that Congress enact a law providing that all civil suits, criminal prosecutions, and criminal investigations involving a sitting President be deferred until the President has left office. His rationale for the proposal was based principally on governmental effectiveness. "The indictment and trial of a sitting President" Judge Kavanaugh asserted, "would cripple the federal government, rendering it unable to function with credibility." Judge Kavanaugh also noted the unwanted burdens and distractions associated with mere investigations of the President, writing that the "lesser burdens of a criminal investigation—including preparing for questioning by criminal investigators—are time-consuming and distracting." Importantly, the article does not address the legal question of what protections may be afforded the President by the Constitution directly, but only notes that "even in the absence of congressionally conferred immunity, a serious constitutional question exists regarding whether a President can be criminally indicted and tried while in office." Judge Kavanaugh's 1998 article in the Georgetown Law Journal provided a more robust discussion of the nominee's constitutional views on the question of presidential immunity—at least as they existed at that time and in the context of an independent counsel investigation. Like his 2009 piece, the 1998 article was framed in the context of a series of legislative proposals, one of which would have provided that Congress enact a statute establishing that a sitting President not be "subject to indictment." In considering the question of presidential immunity, Judge Kavanaugh again opined that a "serious question exists as to whether the Constitution permits the indictment of a sitting President." However, his subsequent analysis may suggest that he believed indictment of a sitting President to be constitutionally impermissible on the grounds that the appropriate constitutional remedy for serious presidential misconduct, as guided by history and original understanding, is investigation, impeachment, and removal by Congress, and only then prosecution. The Framers, he argued, warned against the "ill wisdom of entrusting the power to judge the President of the United States to a single person or body such as an independent counsel." Instead, Judge Kavanaugh wrote that the original intent of the Framers and "the Constitution itself seem[] to dictate . . . that congressional investigation must take place in lieu of criminal investigation when the President is the subject of investigation, and that criminal prosecution can occur only after the President has left office." Although he framed his discussion as "what should happen," and never explicitly stated that the Constitution outright forbids indictment of the President, Judge Kavanaugh nevertheless seemed to suggest, in the context of discussing this legislative proposal, that "[i]f Congress declines to investigate, or to impeach and remove the President, there can be no criminal prosecution of the President at least until his term of office expires." This conclusion would not, however, mean that the President or other executive branch officials are "above the law" or otherwise not subject to federal criminal provisions. Instead, Judge Kavanaugh's envisioned immunity applies only to the President—and only temporarily—as a President would generally be subject to prosecution for wrongdoing after being removed from office. Related to the question of whether the President may be indicted is the role executive privilege—that is, the constitutionally based privilege that protects executive communications that relate to presidential decisionmaking—may play in an investigation of the President or executive branch officials. The Supreme Court has only rarely addressed executive privilege, but its clearest explanation of the doctrine came in the unanimous opinion issued in United States v. Nixon . That case involved President Nixon's assertion that executive privilege protected him from complying with a criminal trial subpoena—issued at the request of the Watergate Special Prosecutor—for electronic recordings of conversations he had in the Oval Office with White House advisers. The Court rejected both President Nixon's threshold argument, that the Court lacked jurisdiction over what he viewed to be essentially an "intra-branch dispute" between the President and a subordinate executive branch official, and his substantive argument that the Constitution accorded the President an absolute privilege from compliance with a subpoena. In rebuffing the President, the Nixon opinion recognized executive privilege as an implied constitutional principle, holding that the "privilege of confidentiality of presidential communications" is "fundamental to the operation of Government and inextricably rooted in the separation of powers." However, the Court determined that the President's "generalized interest" in the confidentiality of his communications was outweighed by the "demonstrated, specific need for evidence in a pending criminal trial" and ordered the tapes turned over to the district court for in camera review. The Court suggested two caveats to its holding. First, it acknowledged that the "degree of deference" accorded to a President's executive privilege claim may be higher when the privilege claim relates to "military or diplomatic secrets." And second, the Court clarified that "we are not here concerned with the balance between the President's generalized interest in confidentiality . . . and congressional demands for information." Judge Kavanaugh has expressed mixed views on the Nixon decision. During a 1999 roundtable discussion, Judge Kavanaugh expressed some skepticism as to Nixon 's rejection of the threshold issue of justiciability, suggesting that "maybe Nixon was wrongly decided—heresy though it is to say." The nominee's concern with the Nixon holding appears to have been based on his views of the separation of powers and the President's authority to control both executive branch information and subordinate executive branch officials, a view more fully articulated in Judge Kavanaugh's opinions on agency structure and the presidential removal power discussed below. As the future nominee explained: Nixon took away the power of the president to control information in the executive branch by holding that the courts had power and jurisdiction to order the president to disclose information in response to a subpoena sought by a subordinate executive branch official. That was a huge step with implications to this day that most people do not appreciate sufficiently. … Maybe the tension of the time led to an erroneous decision. In that same discussion, Judge Kavanaugh later stated: "Should United States v. Nixon be overruled on the ground that the case was a nonjusticiable intrabranch dispute? Maybe so." Legal commentators have debated the significance of these apparently off-the-cuff remarks, with some arguing that the statement was simply rhetoric used to underscore inconsistencies with a fellow panelist's arguments, while others interpreted the statement as a "radical critique of Nixon. " More recently however, Judge Kavanaugh has characterized Nixon as one of "the most significant cases in which the Judiciary stood up to the President" and one of the "greatest moments in American judicial history." Additionally, in his 1998 article, in which he engaged in a significant discussion of Watergate and the Nixon case, he never questioned the Court's holding, instead acknowledging that Nixon had "essentially defined the boundaries of executive privilege." In some ways, Judge Kavanaugh's view of Nixon is less favorable to presidential power than others who have viewed the 1974 decision as requiring an ad hoc balancing test in all cases. For example, the 1998 article reflected Judge Kavanaugh's interpretation of Nixon as establishing a strict, bright-line rule that "the courts may not enforce a President's [executive] privilege claim (other than one based on national security) in response to a grand jury subpoena or criminal trial subpoena." In line with his broader views on judicial balancing tests, Judge Kavanaugh rejected the assertion that Nixon required the courts to balance, on a case-by-case basis, the President's interest in confidentiality against the need for evidence in a particular criminal investigation or prosecution. So long as the basic requirements of relevance (with respect to a grand jury subpoena) or relevance and admissibility (with respect to a trial subpoena) are met, any claim of executive privilege not based on national security or foreign affairs must, in Judge Kavanaugh's view, fail under the principles recognized in Nixon . However, Judge Kavanaugh observed that a President could act outside the courts to protect confidential information by asserting his control over executive law enforcement in order to prevent a judicial dispute over presidential communications from ever getting to the Court. "To do so," wrote Judge Kavanaugh, "a President must order the federal prosecutor not to seek the information and must fire the prosecutor if he refuses (as President Nixon fired [special prosecutor] Archibald Cox)." Such an action would "focus substantial public attention" on the President and force him to take "political responsibility for his privilege claim," suggesting that the nominee's view of the role of executive privilege would impose significant costs on the President if he wished to shield his communications from a criminal investigation. While there is inadequate evidence to determine precisely how Judge Kavanaugh views the Nixon opinion, in light of the nominee's apparent acceptance of Nixon ' s delineation of executive privilege, it is possible that Judge Kavanaugh's statement that "maybe Nixon was wrongly decided," to the extent that the comment was intended to provide a substantive legal opinion, related primarily to the justiciability question of whether the Court should have mediated a dispute between the President and another executive branch official. A hesitancy to have a court give effect to a subordinate executive branch official's imposition on the President would appear to be consistent with Judge Kavanaugh's general view that executive officials should be accountable to, and under the supervision and control of the President, as well as his view that it should be Congress—and not the courts or an independent prosecutor—that provides the initial remedy to presidential misconduct. Judge Kavanaugh further opined on the underlying justiciability issues that were at play in Nixon in a 2009 concurring opinion he filed in another case involving a dispute between two executive branch agencies, SEC v. Federal Labor Relations Authority . In his opinion, Judge Kavanaugh articulated the general proposition that "judicial resolution of intra-Executive disputes is questionable under both Article II and Article III." Article II is violated, Judge Kavanaugh asserted, because such an internal dispute should be resolved by the President in the exercise of his executive powers, while Article III is violated because executive branch agencies are not sufficiently "adverse" so as to create the type of "case or controversy" that is necessary for Article III jurisdiction. However, Judge Kavanaugh—citing to, among other cases, Nixon— acknowledged that Supreme Court and lower court precedent have established that courts may hear an intra-branch dispute when one party to the case is an independent agency. In that scenario, "an independent agency can [] be sufficiently adverse to a traditional executive agency to create a justiciable case" because "Presidents cannot (or at least do not) fully control independent agencies." Independent agencies, as Judge Kavanaugh described them, are "agencies whose heads cannot be removed by the President except for cause and that therefore typically operate with some (undefined) degree of substantive autonomy from the President." As a result, Judge Kavanaugh's concurrence appeared to view existing precedent to allow for the adjudication of disputes involving agencies that have been afforded independence under a statute. At the same time, it is unclear whether the nominee would consider it appropriate for a court to resolve an executive branch dispute with an entity that has "substantive autonomy from the President," but is not directly endowed with statutory independence. Judge Kavanaugh's conception of presidential immunity and executive privilege may also give rise to questions about his views on whether the President may be made to comply with a subpoena for testimony in a criminal proceeding. While the courts will not "proceed against the [P]resident as against an ordinary individual," it is clear under existing jurisprudence that the President is nonetheless not immune from all compulsory judicial process. In Nixon , the Court established that a President may be ordered to comply with a judicial subpoena for documents in a criminal matter, but the opinion did not address compelled testimony . Similarly, in Clinton v. Jones , the Court held that the President is not immune from civil suits for damages arising from unofficial acts, but avoided the question of compelled presidential testimony , noting only that the case did not require the Court "to confront the question whether a court may compel the attendance of the President at any specific time or place." Instead the Court assumed that "the testimony of the President, both for discovery and for use at trial, may be taken at the White House at a time that will accommodate his busy schedule, and that, if a trial is held, there would be no necessity for the President to attend in person, though he could elect to do so." The executive branch, on the other hand, has taken a clear position on compelled presidential testimony, concluding that "sitting Presidents are not required to testify in person at criminal trials." Judge Kavanaugh has written little on the precise question of whether a President can be compelled to provide testimony in a criminal proceeding. As previously noted, his 2009 article suggested that as a policy matter, Congress should provide the sitting President with immunity from "[e]ven the lesser burdens" of "depositions or questioning in civil litigation or criminal investigations." And although arguably concluding that the Constitution does not permit indictment or prosecution of the President, his 1998 article did not explicitly extend that constitutional analysis to presidential testimony at the investigative stage. However, Judge Kavanaugh's general separation-of-powers views may raise some question of whether he would be willing to enforce a subpoena requiring the President to testify. First, assuming that the subpoena is issued by another executive branch official, the dispute raises questions on how the nominee views the justiciability holding in Nixon . And second, Judge Kavanaugh's academic writings on immunity—in which he has expressed concern over the "burdens" and "distractions" of litigation and investigations involving the President —may suggest some sympathy toward the historical executive branch argument that compelling the President's "personal attendance" would infringe upon the President's ability to carry out his "official functions." One area of the Court's separation-of-powers jurisprudence where Judge Kavanaugh's views have already proven quite influential concerns Congress's authority to provide officers and agencies with independence from the President through the use of removal restrictions and other statutory aspects of agency design. Judge Kavanaugh has played a significant role in what appears to be an ongoing revitalization of the judiciary's recognition of the President's removal power, and the corollary principle that the President, in order to maintain accountability within the executive branch, must maintain some degree of effective supervision and control over subordinate executive officers. This recognition, Judge Kavanaugh asserts, does not necessarily expand the scope of executive power, but instead only ensures that what executive power exists is exercised by the President. Some historical context is necessary to understand Judge Kavanaugh's positions in this area. Although not explicitly provided for in the Constitution, the President's authority to remove subordinate executive branch officials has historically played a central role in the President's ability to carry out his Article II powers. Removal, the Supreme Court has reasoned, is a "powerful tool for control" because "[o]nce an officer is appointed, it is only the authority that can remove him . . . that he must fear and . . . obey." The precise scope of the removal power, however, as well as Congress's authority to restrict that power through statute in order to insulate an agency or individual official from presidential influence, has been the subject of several Supreme Court opinions. In the 1926 decision of Myers v. United States , the Court invalidated a law that required Senate consent for the removal of certain executive officials, holding that the Constitution conferred the removal power "exclusive[ly]" to the President so as to ensure he maintained "general administrative control of those executing the laws." However, the Court limited the breadth of Myers in the 1935 case Humphrey ' s Executor v. United States , holding that Congress could limit the President's authority to remove members of independent agencies engaged in "quasi-judicial or quasi-legislative" functions by requiring that such officials may only be removed for "inefficiency, neglect of duty, or malfeasance in office." The use of these "for-cause" removal protections to insulate an agency official from the President's control was again upheld in 1988 in Morrison v. Olson , but this time as applied to the Independent Counsel, a single independent official with limited tenure and relatively narrow jurisdiction, rather than a member of an independent commission. Judge Kavanaugh entered the judicial fray regarding the President's removal power with an influential dissent in the 2008 case Free Enterprise Fund v. PCAOB . In Free Enterprise Fund , the D.C. Circuit panel majority upheld provisions of the Sarbanes-Oxley Act of 2002, which had created a new PCAOB and insulated its members from presidential control through dual layers of "for-cause" removal protections. Board members could be removed only "for cause" by the Securities and Exchange Commission (SEC), who in turn, could themselves be removed by the President, but only for cause. Thus, the President had no direct ability to order the removal of Board members. The panel majority upheld the law, relying primarily on Humphrey ' s Executor and Morrison and their approval of Congress's use of "for-cause" removal restrictions, while holding that the structure did "not strip the President of sufficient power to influence the Board and thus [did] not contravene separation of powers." Judge Kavanaugh dissented, calling the imposition of dual layers of for-cause removal protections between the President and Board members inconsistent with the original understanding of Article II and historical practice. The Framers, Judge Kavanaugh reasoned, established a unitary head of the executive branch to ensure accountability "by making one person responsible for all decisions made by and in the Executive Branch." The structure of the PCAOB, on the other hand, unduly limited the President's ability to exercise that control, resulting in a "fragmented, inefficient, and unaccountable Executive Branch" that the President could not "fully direct and supervise." With regard to historical practice, Judge Kavanaugh described the dual layers of removal protections as "uniquely structured," "novel," lacking any "historical analogues," and "a previously unheard-of restriction on and attenuation of the President's authority over executive officers" Judge Kavanaugh also argued that because the Sarbanes-Oxley Act "completely" stripped the President of any direct removal authority over the members of the PCAOB, upholding that structure would require an impermissible extension of Humphrey ' s Executor and Morrison . His reasoning was likely informed by his general position "that Humphrey ' s [ Executor ] and Morrison authorize a significant intrusion on the President's Article II authority to exercise the executive power and take care that the laws be faithfully executed." Viewing those rulings as narrow exceptions to the general rule of Myers , Judge Kavanaugh argued the two cases represent the "outermost constitutional limits of permissible congressional restrictions on the President's removal power." Finally, Judge Kavanaugh warned that upholding this law would "green-light Congress to create a host of similar entities," which would "splinter executive power to a degree not previously permitted." On appeal, the Supreme Court in a 5-4 ruling authored by Chief Justice Roberts embraced Judge Kavanaugh's dissent, and invalidated the PCAOB's structure. Citing Judge Kavanaugh's dissent, the Court's decision invalidated the "novel" dual for-cause removal scheme on the grounds that it "impaired" the President's "ability to execute the laws . . . by holding his subordinates accountable for their conduct." Judge Kavanaugh's general skepticism of unique structural schemes that attempt to insulate executive branch officials from presidential control was again evident in PHH Corporation v. C FPB . PHH involved a challenge to the structural design of the CFPB, an independent agency headed not by a multi-member commission, but by a single Director. Judge Kavanaugh issued two substantially similar opinions in the case, both concluding—much like his earlier dissenting opinion in Free Enterprise Fund —that the novel scheme violated the separation of powers and the President's powers under Article II. His first opinion represented an initial panel majority striking down the CFPB's current structure. That decision, however, was vacated when the D.C. Circuit granted en banc review. Upon review, Judge Kavanaugh reaffirmed his views, however this time dissenting from the en banc majority opinion that concluded the CFPB's structure was constitutionally permissible under Humphrey ' s Executor and Morrison . Judge Kavanaugh's PHH opinions focused on three primary factors, all of which relate directly to his established approach to separation of powers. First, he emphasized the novelty of the CFPB's structure—most independent agencies are headed by multiple members, rather than a single director. "Never before," wrote Judge Kavanaugh, "has an independent agency exercising substantial executive authority been headed by just one person." In his view, this departure from historical practice indicated a potentially serious constitutional defect. Second, Judge Kavanaugh concluded that the concentration of power in a single, unaccountable Director posed a serious threat to liberty. While other independent agency heads may have removal protections, Judge Kavanaugh argued that the multi-member structure demands consensus and acts as a check on the whims of an independent, individual agency head. Third, Judge Kavanaugh argued that removal protections for a unitary agency head diminished the President's Article II power to control the executive branch beyond what has been judicially approved for multi-member independent agencies. In multi-member commissions with statutory removal protections, the President may at least appoint and remove the chair of the agency, ensuring some influence over the agency's direction. With the CFPB, however, Judge Kavanaugh noted that the President may not alter the head of the agency until the end of the five-year term, which means, at least in some cases, the President might not ever be permitted to align the agency with his own policy goals. Perhaps one of the most important questions arising from Judge Kavanaugh's opinions in Free Enterprise Fund and PHH is what they suggest about his views on the constitutional permissibility of more traditional independent agencies, for example, those that operate with only one layer of for-cause protections and in the form of a multi-member commission. Judge Kavanaugh has previously signaled his discomfort with traditional independent agencies, questioning both their general effectiveness and their underlying legal foundations. For example, in PHH , Judge Kavanaugh noted that Humphrey ' s Executor was "inconsistent" with Myers , has "received significant criticism," and is "in tension with" the Supreme Court's holding in Free Enterprise Fund . On Morrison , Judge Kavanaugh has written that "the independent counsel experiment ended with nearly universal consensus that the experiment had been a mistake and that Justice Scalia had been right back in 1988 to view the independent counsel system as an unconstitutional departure from historical practice and a serious threat to individual liberty." Moreover, the very notion of a subordinate executive branch official operating with independence from the President appears to at least arguably be inconsistent with Judge Kavanaugh's interpretation of the President's constitutional authority to supervise and control " all decisions made by and in the Executive Branch." However, he has not expressly called for overturning Humphrey ' s Executor , nor for the invalidation of all independent agencies. The nominee has explicitly stated that " Humphrey ' s Executor is an entrenched Supreme Court precedent, protected by stare decisis." Ultimately, it is clear that Judge Kavanaugh has concerns about the Court's holdings in Humphrey ' s Executor and Morrison . However, there is some question whether, if confirmed to the Supreme Court, he would view the cases as establishing the "outermost" limits of a constitutional framework that he would be willing to work within, or, whether, if provided with the opportunity, he would be a vote to overturn Humphrey ' s Executor , Morrison , or both. If confirmed, a Justice Kavanaugh would likely be presented with the opportunity to present his views, as additional questions of Congress's authority to insulate executive branch officials and agencies from presidential control are likely to come before the court in the near future. In Obergefell v. Hodges , the Justice that Judge Kavanaugh might succeed, Justice Kennedy, wrote that the "identification and protection of fundamental rights is an enduring part of the judicial duty to interpret the Constitution." Many fundamental rights that the Court has identified as warranting constitutional protection stem from the Fifth and Fourteenth Amendments, which prohibit the federal government and the states from depriving any person of "life, liberty, or property, without due process of law." The Court has interpreted these Amendments not only to accord procedural protections against such deprivations, but also to contain a substantive component that prohibits the government from infringing certain fundamental rights unless the government's law or action is narrowly tailored to serve a compelling state interest. These fundamental rights include "most of the rights enumerated in the Bill of Rights," as well as additional, unenumerated rights that the Court has recognized over the years, such as the right to marry or the right to privacy in making certain intimate decisions. Justice Kennedy's legacy on the bench is closely tied to the issue of substantive due process, having authored or joined the controlling opinions in a number of closely divided cases recognizing unenumerated rights. These cases include his joint opinion in Planned Parent hood of Southeastern Pennsylvania v. Casey , which reaffirmed Roe v. Wade 's recognition of a woman's right to an abortion before fetal viability; his opinion for the Court in Lawrence v. Texas , which recognized the right of consenting adults to engage in private, sexual conduct without governmental interference; and his opinion for the Court in Obergefell , which recognized the right of same-sex couples to marry. However, Justice Kennedy has also declined to recognize due process protections in other cases, such as when he joined the Court's refusal to recognize a fundamental right to physician-assisted suicide in Washington v. Glucksberg . Justice Kennedy's central role in the development of the Court's substantive due process jurisprudence has cast Judge Kavanaugh's decisions in this area and the nominee's broader judicial philosophy on the subject into the spotlight. In particular, commentators have focused on Judge Kavanaugh's opinions in a case that reached the Supreme Court involving an unaccompanied alien minor who sought an abortion while in U.S. immigration custody, and the judge's scholarly commentary on the Glucksberg decision. These sources and certain other opinions and commentary by Judge Kavanaugh provide very limited insight into his approach to analyzing substantive due process questions, and are unlikely to serve as reliable predictors of the outcome in any given case. Of the relatively few substantive due process cases that Judge Kavanaugh encountered during his tenure on the D.C. Circuit, he authored opinions in only a handful of those cases, some of which presented unique factual and procedural scenarios or directly implicated controlling Supreme Court precedent. Nevertheless, his apparent endorsement of an approach to due process grounded in history and tradition suggests that if confirmed, Judge Kavanaugh may deploy a more narrow view of substantive due process than Justice Kennedy in defining the contours of future rights and protections. This section begins by discussing the nominee's sole opinion on the right to an abortion, before turning to his other writings and comments on substantive due process. Perhaps more than any other issue, considerable attention has been given to how Judge Kavanaugh might adjudicate cases concerning abortion. As previously noted, Justice Kennedy co-wrote the Court's 1992 opinion in Planned Parenthood of Southeastern Pennsylvania v. Casey , which, by a vote of five Justices, reaffirmed "the essential holding of Roe v. Wade " recognizing: (1) a woman's right, as a matter of substantive due process, to choose to have an abortion before fetal viability and to obtain it without undue interference from the government; (2) a state's power to restrict abortions after viability with exceptions in circumstances where the pregnant woman's life or health is in danger; and (3) a state's legitimate interests throughout the course of a pregnancy in protecting the woman's health and the fetus's life. In a separate portion of the Casey opinion authored and adopted by only three Justices—Justices Kennedy, O'Connor, and Souter—the Court replaced Roe 's "rigid trimester framework" for evaluating abortion regulations with an "undue burden standard" under which a law is invalid "if its purpose or effect is to place a substantial obstacle in the path of a woman seeking an abortion before the fetus attains viability." The Court has applied these principles and standards from Casey in subsequent cases. Twenty-five years after Casey , in Garza v. Hargan , Judge Kavanaugh was asked to consider on an emergency basis how—if at all—to apply Casey 's undue burden standard in a case involving an unaccompanied alien minor (referred to in court opinions as Jane Doe or J.D.) who entered the United States illegally and sought to terminate her pregnancy while living under U.S. custody. J.D., through her guardian ad litem, challenged the government's refusal to transport her or allow her to be transported to obtain state-mandated pre-abortion counseling and the abortion procedure itself. On October 18, 2017, the U.S. District Court for the District of Columbia issued a temporary restraining order (TRO), requiring the government to transport J.D., or to make her available for transport, "promptly and without delay to the abortion provider closest to J.D.'s [detention] shelter in order to obtain the [pre-abortion] counseling required by state law on October 19, 2017, and to obtain the abortion procedure on October 20, 2017 and/or October 21, 2017." The TRO further restrained the government, for a period of fourteen days, from "interfering with or obstructing J.D.'s access to abortion counseling or an abortion." The government immediately appealed the district court's ruling, arguing that it was not imposing an undue burden on J.D.'s purported right to an abortion under Casey , because (1) the government did not prohibit J.D. from obtaining an abortion, but rather refused to "facilitate" the abortion; (2) J.D. was free to leave the United States and return to her home country; and (3) J.D. could obtain an abortion in the United States after the government has transferred custody of J.D. to an immigration sponsor. On October 20, 2017, the assigned panel composed of Judge Kavanaugh, Judge Karen L. Henderson, and Judge Patricia Millett issued a non-precedential, per curiam (i.e., unsigned) order from which Judge Millett dissented. The order vacated the TRO insofar as it required the government to release J.D. for purposes of obtaining pre-abortion counseling or an abortion. The order also expressed apparent agreement with the government's third argument that transferring J.D. to an immigration sponsor would "not unduly burden the minor's right under Supreme Court precedent to an abortion"—at least so long as "the process of securing a sponsor to whom the minor is released occurs expeditiously." The order authorized the district court to allow the government eleven days (i.e., until October 31, 2017) to secure a sponsor for J.D. and to release her into the sponsor's custody, noting the government's agreement that, upon release, J.D. then would be "lawfully able, if she chooses, to obtain an abortion on her own pursuant to the relevant state law." In the event the government did not meet its deadline, the order permitted the district court to "re-enter" a TRO "or other appropriate order." The order concluded by noting that the government had "assumed, for purposes of this case, that J.D.—an unlawful immigrant who apparently was detained shortly after unlawfully crossing the border into the United States—possesses a constitutional right to obtain an abortion in the United States." In her dissenting statement, Judge Millett addressed all three of the government's arguments. She rejected the view that merely releasing J.D. for the abortion procedure would constitute facilitating an abortion, as well as the government's position that J.D. could leave the country, reasoning that conditioning J.D.'s right to an abortion on voluntary departure imposed an undue burden because it would require J.D. to relinquish her legal claims to stay in the United States. While acknowledging the government's "understandable" desire to find J.D. a sponsor, she argued that the sponsorship process could proceed simultaneously with the abortion and "is not a reason for forcing J.D. to continue the pregnancy." Judge Millett posited that further delay would make it more difficult for J.D. to find a local abortion provider and increase the health risks associated with the abortion procedure. Following the panel's order, on October 24, 2017, the full circuit granted J.D.'s petition for rehearing en banc, reinstated the district court's TRO, and denied the government's motion to stay the TRO pending appeal "substantially for the reasons set forth" in Judge Millett's dissenting statement. The en banc court then remanded the case to the district court to revise the dates for the government's compliance with the TRO (which had already passed). Three judges—Judges Henderson, Kavanaugh, and Thomas B. Griffith—dissented from the en banc order. Writing for herself, Judge Henderson argued that the en banc court should have addressed the "antecedent" question of whether J.D., as a minor detained after attempting to enter the United States unlawfully, had a constitutional right to an abortion, which she ultimately answered in the negative. Judge Kavanaugh, in a dissent which Judges Henderson and Griffith also joined, did not opine on whether J.D. had a constitutional right to obtain an abortion in the United States, noting that "[a]ll parties have assumed [such a right] for purposes of this case." Nor did he discuss the merits of the government's arguments about facilitating abortion or J.D.'s ability to leave the country. Instead, he argued a more narrow point: that the panel decision, rendered in emergency proceedings, "prudently accommodated the competing interests of the parties" by providing the government with a limited time period in which to find a sponsor for J.D. In Judge Kavanaugh's view, the panel order fully comported with the Supreme Court's abortion cases, which "repeatedly" recognized the government's "permissible interests in favoring fetal life, protecting the best interests of the minor, and not facilitating abortion, so long as the Government does not impose an undue burden on the abortion decision." First, Judge Kavanaugh found it "reasonable for the United States to think that transfer to a sponsor would be better than forcing the minor to make the decision [to continue or terminate her pregnancy] in an isolated detention camp with no support network available." Second, he argued that requiring the government to complete the sponsorship process expeditiously imposed no undue burden, reasoning that "[t]he Supreme Court has repeatedly upheld a wide variety of abortion regulations that entail some delay in the abortion but that serve permissible Government purposes," including "parental consent laws, parental notice laws, informed consent laws, and waiting periods, among other regulations." Although he acknowledged that "many Americans—including many Justices and judges—disagree with one or another aspect of the Supreme Court's abortion jurisprudence," the nominee explained that "[a]s a lower court, our job is to follow the law as it is, not as we might wish it to be" and argued that the "three-judge panel here did that to the best of its ability, holding true to the balance struck by the Supreme Court." Judge Kavanaugh viewed the en banc court's decision, in contrast, as "a radical extension of the Supreme Court's abortion jurisprudence" amounting to "a new right for unlawful immigrant minors in U.S. Government detention to obtain immediate abortion on demand." On June 4, 2018, the Supreme Court unanimously vacated the D.C. Circuit's en banc order, because J.D. had obtained an abortion before the case reached the Supreme Court, thus rendering her claim for injunctive relief moot. Apart from his dissent in Garza , Judge Kavanaugh has authored at least two other potentially notable substantive due process opinions. These cases involved the threshold question of how to determine whether an unenumerated right is fundamental and thus protected under the substantive component of the Due Process Clauses, an issue the Court has debated in recent years. Under the standards set forth in 1997 in Washington v. Glucksberg , in order for a right to be fundamental, it must be "deeply rooted in this Nation's history and tradition." However, in 2015, in Obergefell v. Hodges , the Court indicated that the process of identifying and protecting fundamental rights is not susceptible to one formula and that "[h]istory and tradition guide and discipline this inquiry but do not set its outer boundaries." In Doe v. District of Columbia , Judge Kavanaugh considered a pre- Obergefell due process challenge to a 2003 District of Columbia policy authorizing surgeries under certain circumstances for intellectually disabled persons in the District's care. The plaintiffs, representing a class of "intellectually disabled persons who live in District of Columbia facilities and receive medical services from the District of Columbia," argued that the 2003 policy violated the procedural due process rights of the class members because it did not require the D.C. agency responsible for their medical care to consider their wishes in the process of deciding whether to authorize surgery. They also raised a substantive due process claim, presumably based on what the district court called their "liberty interest to accept or refuse medical treatment." With respect to the procedural due process claim, Judge Kavanaugh wrote that "accepting the wishes of patients who lack (and have always lacked) the mental capacity to make medical decisions does not make logical sense and would cause erroneous medical decisions—with harmful or even deadly consequences to intellectually disabled persons." While expressing skepticism as to whether the plaintiffs' "complaint about procedures used by [the agency] can be properly shoehorned into a substantive due process claim," Judge Kavanaugh proceeded to reject that argument as well. Quoting Glucksberg , Judge Kavanaugh reasoned that the "plaintiffs have not shown that consideration of the wishes of a never-competent patient is 'deeply rooted in this Nation's history and tradition' and 'implicit in the concept of ordered liberty,' such that 'neither liberty nor justice would exist if [the asserted right] were sacrificed.'" Although he emphasized the plaintiffs' lack of evidence to support the historical foundations for recognizing a right to consultation under the circumstances, Judge Kavanaugh added an observation regarding the current legislative environment in which the plaintiffs advanced their due process arguments. Specifically, he remarked that "the breadth of plaintiffs' constitutional claims is extraordinary because no state of which we are aware applies the rule suggested by plaintiffs," intimating the unlikelihood that "all states' laws and practices" regarding medical treatment for intellectually disabled persons who have never attained competence are unconstitutional. In another case that predated Obergefell, Judge Kavanaugh applied the Glucksberg decision again in Empresa Cubana Exportadora de Alimentos y Productos Varios v. Department of the Treasury . The case concerned a 1998 law that modified an exception to a Cuban asset regulation that had allowed a company called Cubaexport to register and renew the trademark HAVANA CLUB with the U.S. Patent and Trademark Office. The 1998 law prohibited Cubaexport from renewing its trademark when it came due for renewal in 2006. Cubaexport argued, inter alia, that the 1998 law violated the substantive due process doctrine. Writing for two members of a three-judge panel, Judge Kavanaugh rejected Cubaexport's "inflated conception of substantive due process," and cited Glucksberg for the proposition that "[u]nless legislation infringes a fundamental right, judicial scrutiny under the substantive due process doctrine is highly deferential." The nominee concluded that the case did not involve a fundamental right—which Cubaexport apparently did not contest—so the court needed to consider only whether the legislation, including its retroactive application to Cubaexport's previously registered trademark, was rationally related to a legitimate government interest. Judge Kavanaugh held that the 1998 law "easily satisfied" that standard because it was "rationally related to the legitimate government goals of isolating Cuba's Communist government and hastening a transition to democracy in Cuba." In addition, "any unfairness" resulting from retroactive application of the renewal bar to previously registered trademarks was "mitigated—indeed eliminated—by the fact that [the government] has clearly warned that exceptions from trademarks were revocable at any time." Perhaps the most pointed remarks Judge Kavanaugh has made on substantive due process came in a 2017 lecture at the American Enterprise Institute, where Judge Kavanaugh offered some limited commentary on the Glucksberg decision and its place in substantive due process jurisprudence. He began by noting that the Glucksberg opinion reflected the view of its author, Chief Justice Rehnquist, that "unenumerated rights"—that is, those not specifically listed in the Bill of Rights—"could be recognized by the courts only if the asserted right was rooted in the nation's history and tradition." Judge Kavanaugh then remarked that "even a first-year law student could tell you that the Glucksberg approach to unenumerated rights was not consistent with the [earlier] approach of the abortion cases such as Roe v. Wade in 1973—as well as the 1992 decision reaffirming Roe , known as Planned Parenthood v. Casey ." Judge Kavanaugh did not explicitly question the legal reasoning underpinning the Roe and Casey decisions—though he noted that Chief Justice Rehnquist's views may not have prevailed in Casey due to stare decisis, the judicial doctrine, discussed in more detail above, that emphasizes the importance of adhering to precedent. However, his remarks do suggest that Judge Kavanaugh views the Court's pre- Glucksberg due process decisions as part of a "general tide of freewheeling judicial creation of unenumerated rights that were not rooted in the nation's history and tradition." In this regard, Judge Kavanaugh sees Glucksberg as "an important precedent, limiting the Court's role in the realm of social policy and helping to ensure that the Court operates more as a court of law and less as an institution of social policy." Judge Kavanaugh's statements about Glucksberg and judicial restraint echo remarks he made the year before concerning the recognition of unenumerated rights: I don't think . . . there's some new font [of authority] for courts to go around . . . and create a bunch of new rights that we think ourselves are important. I think we need to stick to what the Supreme Court has articulated is the test for unenumerated rights, which is deeply rooted in history and tradition. Otherwise, courts really will become politicians or political policymaking bodies. Commentators have questioned whether Judge Kavanaugh's judicial philosophy and practice in the realm of substantive due process may translate into a decision that dramatically reshapes the Court's abortion jurisprudence. The dearth of abortion cases in Judge Kavanaugh's judicial portfolio, as well as the unique posture of the Garza case—in particular, the emergency nature of the proceedings, the government's choice to assume that J.D. could avail herself of constitutional protections, and the narrow issue on which Judge Kavanaugh wrote—provide little basis to discern the nominee's position on whether Roe or Casey was wrongly decided. Even if Judge Kavanaugh would have decided Roe or Casey differently as a matter of first impression, any assessment of his willingness to overrule these decisions if nominated to the Court would need to include an evaluation of the judge's position on the role of stare decisis, including which of the stare decisis factors Judge Kavanaugh might weigh more heavily in assessing whether to uphold or overrule a constitutional decision. Nonetheless, the nominee has been skeptical of a court discovering new rights within the substantive component of the Due Process Clauses. While he may not have foreclosed Justice Kennedy's vision in Obergefell of a court guided by history and tradition but open to "new insight[s]" into the meaning of liberty, Judge Kavanaugh appears to share Chief Justice Rehnquist's more circumscribed approach to defining the contours of due process rights and protections. More so than Judge Kavanaugh's opinions applying Glucksberg— which could be viewed more narrowly as adherence to binding precedent—the Judge's statements during his 2017 lecture on Chief Justice Rehnquist, combined with his overarching judicial philosophy, suggest that the nominee might endorse Glucksberg 's emphasis on consulting history and tradition before extending constitutional protections to an asserted right. As a result, it appears that Judge Kavanaugh likely views substantive due process more skeptically than the Justice he may succeed. Relative to Justice Kennedy, who, during his tenure on the Supreme Court, cast several significant votes in eminent domain cases that decided whether and when federal and state governments may take private property for public use, Judge Kavanaugh does not appear to have significantly addressed the merits of a takings claim in a judicial opinion. This is unsurprising, as the D.C. Circuit does not hear many takings claims because the Tucker Act vests the U.S. Court of Federal Claims (CFC) with jurisdiction over such claims when the plaintiff seeks more than $10,000 in compensation from the federal government. With limited exceptions, the CFC's jurisdiction over such claims is exclusive, and appeals from the CFC are to the Federal Circuit, not the D.C. Circuit. While the Fifth Amendment applies to the District of Columbia, there are few takings cases that have arisen against the District during Judge Kavanaugh's time on the court. Of the takings cases that he adjudicated, Judge Kavanaugh has either joined the majority opinion or summarily disposed of the takings issues. As a result, there is currently an insufficient basis to evaluate Judge Kavanaugh's views regarding the scope of the Takings Clause or the extent to which the Takings Clause protects private property rights. Nonetheless, with takings cases presently pending before the Supreme Court, Judge Kavanaugh, if confirmed, will likely have the opportunity to consider the issue. Accordingly, questions concerning his views on the issue could be explored in a confirmation hearing.	On July 9, 2018, President Donald J. Trump announced the nomination of Judge Brett M. Kavanaugh of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) to fill retiring Justice Anthony M. Kennedy's seat on the Supreme Court of the United States. Nominated to the D.C. Circuit by President George W. Bush, Judge Kavanaugh has served on that court for more than twelve years. In his role as a Circuit Judge, the nominee has authored roughly three hundred opinions (including majority opinions, concurrences, and dissents) and adjudicated numerous high-profile cases concerning, among other things, the status of wartime detainees held by the United States at Guantanamo Bay, Cuba; the constitutionality of the current structure of the Consumer Financial Protection Bureau; the validity of rules issued by the Environmental Protection Agency under the Clean Air Act; and the legality of the Federal Communications Commission's net neutrality rule. Since joining the D.C. Circuit, Judge Kavanaugh has also taught courses on the separation of powers, national security law, and constitutional interpretation at Harvard Law School, Yale Law School, and the Georgetown University Law Center. Prior to his appointment to the federal bench in 2006, Judge Kavanaugh served in the George W. Bush White House, first as associate and then senior associate counsel, before becoming assistant and staff secretary to the President. Before his service in the Bush Administration, the nominee worked in private practice at the law firm of Kirkland & Ellis, LLP for three years and served in the Office of the Independent Counsel and the Office of the Solicitor General. Judge Kavanaugh began his legal career with three federal clerkships—two for judges on the federal courts of appeals and one for the jurist he is nominated to succeed, Justice Kennedy. Judge Kavanaugh is a graduate of Yale College and Yale Law School. Judge Kavanaugh's nomination to the High Court is particularly significant as he would be replacing Justice Kennedy, who was widely recognized as the Roberts Court's median vote. Justice Kennedy was often at the center of legal debates on the Supreme Court, casting decisive votes on issues ranging from the powers of the federal government vis-à-vis the states, to separation-of-powers disputes, to key civil liberties issues. Accordingly, a critical question now before the Senate as it considers providing its advice and consent to the President's nomination to the High Court is how Judge Kavanaugh may view the many legal issues in which Justice Kennedy's vote was often determinative. In this vein, understanding Judge Kavanaugh's views on the law is one method to gauge how the Supreme Court might be affected by his appointment. In attempting to ascertain how Judge Kavanaugh could influence the High Court, however, it is important to note at the onset that, for various reasons, it often is difficult to predict accurately a nominee's likely contributions to the Court based on his or her prior experience. That said, the nominee is a well-known jurist with a robust record, composed of both judicial opinions and non-judicial writings, in which he has made his views on the law and the role of the judge fairly clear. Central to the nominee's judicial philosophy is the concept of judicial formalism and a belief that the "rule of law" must be governed by a "law of rules." In addition, Judge Kavanaugh has endorsed the concept of the judge as a neutral "umpire." In order to achieve this vision of neutrality, the nominee's legal writings have emphasized (1) the primacy of the text of the law being interpreted, (2) an awareness of history and tradition, and (3) adherence to precedent. Applying these principles, Judge Kavanaugh's views on several discrete legal issues are readily apparent, including administrative law, environmental law, freedom of speech, national security, the Second Amendment, and separation of powers. At the same time, perhaps because of the nature of the D.C. Circuit's docket, less is known about the nominee's views on other legal issues, including business law, civil rights, substantive due process, and takings law. This report provides an overview of Judge Kavanaugh's jurisprudence and discusses his potential impact on the Court if he were to be confirmed to succeed Justice Kennedy. In particular, the report focuses upon those areas of law where Justice Kennedy can be seen to have influenced the High Court's approach to certain issues or served as a fifth and deciding vote on the Court, with a view toward how Judge Kavanaugh might approach these same issues if he were to be elevated to the High Court. Of particular note, the report includes an Appendix with several tables that summarize the nominee's rate of authoring concurring and dissenting opinions relative to his colleagues on the D.C. Circuit, and how Judge Kavanaugh's opinions as an appellate judge have fared upon review by the Supreme Court.	15.6	long	13,867
11	Article 1, Section 8 of the United States Constitution provides Congress with the explicit power to collect taxes. Implicit in that power to collect revenue is also the power to spend that revenue. This clause is known as the Taxing and Spending Clause of the Constitution, and the Supreme Court has found that it grants Congress wide latitude to promote social policy that the federal government supports. One way that Congress may exercise its spending power to encourage the implementation of policies that the federal government supports is through appropriations. "Appropriations are comparable to tax exemptions and deductions which are also a matter of grace that Congress can, of course, disallow as it chooses." One common example of Congress exercising spending power to impose its will is the National Minimum Drinking Age Act of 1984. That act conditioned the receipt of a percentage of federal highway funding on states agreeing to raise the minimum drinking age to 21. While states were not required by the act to raise the drinking age, they could not receive the funds if they did not, thus creating a powerful incentive for states to adopt Congress's chosen policy on the subject of the legal drinking age. Congress has wide discretion to provide subsidies to activities that it supports without incurring the constitutional obligation to also provide a subsidy to activities that it does not necessarily encourage. However, the power to spend money only on policies that Congress supports is not without limits. Congress may not place what have come to be known as "unconstitutional conditions" on the receipt of federal benefits, even benefits Congress was not required to provide in the first place. Which conditions on the receipt of federal funds are and are not constitutional is a longstanding question with somewhat unclear answers, particularly when it comes to conditions placed upon the speech of the recipients of federal funds. Most recently, the Supreme Court heard a case challenging the constitutionality of a provision of the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act). The relevant provision prohibited the government from making funds available to grant recipients that do not have a policy of opposing prostitution. The question facing the Court in this case was whether the Leadership Act's requirement that recipients affirmatively adopt a policy that applied to the entire organization, and not just to the federal funds received, violated the First Amendment. In an opinion announced on June 20, 2013, the Court held that this provision does violate the First Amendment because it requires private actors to adopt the approved opinion of the government. The decision outlines an important limitation on the ability of Congress to place conditions upon the receipt of federal funds. The Constitution grants Congress the power to subsidize some activities and speech without subsidizing all speech, or even all viewpoints on a particular topic. There is a certain amount of discrimination inherent in the choices Congress makes to provide funds or tax deductions to one organization's activities, but not to another. As noted in footnote 1 , Congress allows tax deductions for interest paid on home mortgages, but does not allow a similar deduction for those who rent their homes. Congress makes funds available to support non-commercial broadcast stations through the Corporation for Public Broadcasting, but commercial broadcast stations are ineligible to receive those funds, even though they also engage in broadcasting. In other words, Congress discriminates frequently in the types of activities it chooses to support. Congress also has a fair amount of discretion to condition the funding it provides on the recipients of those funds performing some other task ancillary to the receipt of the funds. For example, as previously discussed, in exchange for federal highway funding, states were required to raise the minimum age for the legal consumption of alcohol to 21. States were free to keep their minimum drinking age lower than the age of 21, but doing so meant they would have forfeited federal dollars. Conditions on the receipt of federal funds are, therefore, not uncommon. However, when the condition on the receipt of federal funds is an agreement to espouse, or to refrain from espousing, a particular point of view that is in line with the government's favored viewpoint, questions related to whether Congress is infringing upon the First Amendment freedoms of fund recipients may arise. While the principle that Congress may choose to subsidize whatever speech or behavior it may desire may seem simple enough; in practice, the case law has been described as complicated and contentious. Nonetheless, some core principles may be distilled from the case history. One of the first instances in which the Supreme Court addressed the question of discrimination in a tax subsidy on the basis of speech was in the case of Speiser v. Randall . The State of California had decided to deny any and all tax deductions to persons who advocated the unlawful overthrow of the United States government. In order to alleviate the administrative burdens of figuring out exactly which Californians were advocating the violent overthrow of the government, the state decided instead to require all Californian taxpayers seeking to avail themselves of tax deductions to sign a loyalty oath that affirmed that the taxpayer did not advocate the overthrow of the government by force or violence. A group of honorably discharged World War II veterans declined to sign the oath and sued claiming that the requirement violated their First Amendment rights. In this particular case, the Supreme Court did not reach the question of whether the oath violated the First Amendment because the California Supreme Court had construed the provision to apply only to speech that fell outside the First Amendment's scope. Nonetheless, the Supreme Court did make clear that "a discriminatory denial of a tax exemption for engaging in speech is a limitation on free speech" and that to deny exemptions to persons who engage in certain types of speech is tantamount to penalizing them for that speech. Therefore, discriminatory denial of tax deductions could implicate the First Amendment, depending on the nature of the discrimination. Of particular concern to the Court was whether the requirement placed on the receipt of the benefit was "aimed at the suppression of dangerous ideas." Where the suppression of an idea is the apparent object of a condition on the receipt of a benefit, the fact that a person could simply decline the benefit was not enough to overcome the concerns of the Court regarding the coercive nature of the requirement. Asserting the principle that Congress may not coerce citizens to engage in or to refrain from certain speech through the tax code, a group known as Taxation with Representation (TWR) challenged Congress's denial of certain tax deductions to organizations that engage in substantial lobbying activities as a violation of the group's core First Amendment rights. Important to this case are two federal, tax-exempt, non-profit structures: the 501(c)(3) organization and the 501(c)(4) organization. Taxpayers who donated to 501(c)(3) organizations could deduct those donations from their taxes. 501(c)(3) organizations were prohibited from engaging in substantial lobbying. Taxpayers who donated to 501(c)(4) organizations could not deduct those donations from their federal income taxes. 501(c)(4) organizations were permitted to engage in lobbying activities. TWR had been operating with a dual structure wherein its lobbying activities were accomplished via contributions to a 501(c)(4) organization and its other activities were funded through a 501(c)(3). TWR argued that the federal government was unconstitutionally discriminating against a form of fully protected speech, in this case lobbying, based solely upon its content, and that this discrimination violated the First Amendment. The Supreme Court disagreed and found that the refusal to allow a tax deduction for lobbying activities was within Congress's power to tax and spend. In short, Congress was not discriminating against lobbying. It was merely choosing not to pay for lobbying activities. The Court pointed toward "the broad discretion as to classification possessed by a legislature in the field of taxation," and found that Congress could choose not to subsidize lobbying activities without running afoul of the First Amendment, so long as adequate alternative avenues for engaging in lobbying activities remained available. The Court pointed out that TWR was not prohibited from lobbying under the statute. It was merely prohibited from lobbying with funds it received pursuant to its 501(c)(3) structure. TWR was free to continue its lobbying activities under the dual tax structure described above. The Court noted that this would be a different case if Congress had discriminated against lobbying speech in such a way as to "aim at the suppression of dangerous ideas." Finding no such circumstances in Congress's general refusal to subsidize lobbying activities, with a narrow exception for certain veterans organizations, the Court held that Congress did not have to provide a tax deduction in this circumstance. As the Court explained, "the issue in these cases is not whether TWR must be permitted to lobby, but whether Congress is required to provide it with public money with which to lobby." The Court held that it was not. This case appears to ultimately stand for the principle that as long as Congress provides other avenues for engaging in protected speech, it may constitutionally choose not to provide funds to certain classes of speech in which an organization may wish to engage. One year later, the Supreme Court considered another case in which it appeared that the federal government was refusing to subsidize a particular class of speech and refined Congress's authority to create spending conditions yet further. In FCC v. League of Women Voters , the Court examined whether Congress could constitutionally prohibit non-commercial broadcast stations that received federal funds through the Corporation for Public Broadcasting from engaging in editorializing. The government, relying on Regan v. Taxation with Representation , argued that the prohibition on editorializing was justified because Congress was simply refusing to fund the editorial activities of non-commercial broadcasters. The Court disagreed, distinguishing this case from TWR , because in TWR the organization remained free to engage in lobbying. In this case, non-commercial broadcasters were prohibited completely from editorializing if they received federal funds. A non-commercial broadcaster that received only 1% of its funding from the federal government was subject to the editorializing prohibition and could not, for example, segregate its federal funds so as to prevent the use of those funds for editorializing activities, while using its private funds to editorialize. The Court conceded, however, that if Congress were to amend the statute at issue to prohibit the use of federal funds to support editorializing activities, but allow the broadcasters to engage in such speech with private funding, the statute would then be constitutional. This case appears to stand for the proposition that, while Congress has wide discretion to control the ways in which federal funds may not be spent, its reach is more circumscribed should Congress also attempt to impose its spending conditions upon the use of private funds. The key to this case was that Congress prohibited all editorializing with whatever money the broadcasters may have possessed. The Court considered that to be too much of an imposition on First Amendment activity. Following FCC v. League of Women Voters , a few rules governing the constitutional exercise of the spending power appeared evident. First, Congress was entitled to subsidize the activities it supported, including speech activities, without being required to subsidize all activities. Congress must also allow those who might benefit from congressional largesse the freedom to express their opinions outside the bounds of the congressional subsidy. However, Congress could not prohibit speech that fund recipients might wish to engage in with non-federal dollars. Along with these principles, when designing future funding conditions, Congress was also prohibited from attempting outright to suppress dangerous ideas, because such laws, regardless of their style as a prohibition or spending prerogative, would always raise constitutional concerns. In Rust v . Sullivan , grant recipients challenged the administration of Title X of the Public Health Service Act. Title X was intended to provide federal funding to subsidize health care for women prior to the conception of a child that included counseling, preconceptive care, education, general reproductive health care, and preventive family planning. However, the regulations made clear that no federal money was to be spent to provide counseling for abortion, nor were any participants in the Title X program permitted to provide patients with a referral to an abortion provider, even when the patient may have requested such a referral. Title X programs could not advocate or lobby for abortion rights. Title X programs were also required to be kept physically and financially separate from other programs in which a grantee might be engaging in. The grantees that received Title X funds were permitted to advocate for abortions outside of the auspices of their Title X programs, however. Title X participants sued, claiming that these restrictions violated their First Amendment rights and interfered with the doctor-patient relationship. They argued that the restrictions were viewpoint discriminatory because they prohibited all discussion of abortion as a lawful option and compelled the clinic doctor or employee to espouse views that s/he might not hold (e.g., that abortion was not supported as an appropriate method of family planning). Unlike TWR , where they were permitted to lobby so long as they did not use tax-subsidized funds to do so, the plaintiffs here argued that speech about abortion was being discriminated against invidiously by Congress because Title X program participants were being forced to communicate the message of the government about abortion. The Supreme Court disagreed. The Court reasoned that Congress is entitled to subsidize the public policy message it chooses to fund without funding other opinions on the same topic. Congress was within its constitutional rights to control the message that it preferred to encourage family planning methods other than abortion with funding conditions. The Court wrote, "this is not a case of the Government suppressing a dangerous idea, but of a prohibition on a project grantee or its employees engaging in activity that was outside of the project's scope." Congress was not denying a benefit based upon the grantees' support for abortion, but was instead preventing the use of federal funds for purposes outside the intended use of the program those funds were intended to support. Important for the Court's analysis in this case was the fact that the restrictions on speech only applied to the administration and employees of the Title X program itself. The grantee, on the other hand, was free to receive funds for a variety of programs from a variety of sources and these other activities were not subject to the Title X speech restriction. As a result, Title X did not suffer from the same fatal flaw as the funding restriction in FCC v. League of Women Voters . The government had not placed a speech restriction on the recipient of the funds, as it had in League of Women Voters . Instead, the government had only restricted the types of activities for which federal funds pursuant to the Title X program could be used. Outside of that program, the organizations and doctors were free to espouse any abortion-related opinion they might choose. As in TWR , Congress had simply chosen not to fund it. Following Rust came two significant cases wherein the law of unconstitutional conditions was further refined. First, in Legal Services Corporation v. Vasquez , the Supreme Court struck down a restriction on the use of federal funds by lawyers employed by the Legal Services Corporation (LSC) to challenge existing welfare laws. In Rust , the government had used restrictions on the use of federal funds to subsidize and control the government's own message. In this case, however, the government was attempting to use restrictions on the use of federal funds to hinder private speech. In the Court's analysis, lawyers for the LSC were not speaking for the federal government or administering the federal government's message. They were representing the views and interests of their clients. The restrictions placed on LSC attorneys would have interfered with the attorney-client relationship by preventing potentially valid challenges to the welfare laws. The Court found that such restrictions unquestionably raised First Amendment questions. Because the LSC funded private expression, and not the message of the government, the Court found that Congress could not limit the types of cases that LSC attorneys could bring on behalf of their clients because such restrictions violated the First Amendment. The second case outlining some limits to Congress's ability to condition its spending was Rosenberger v. Rector and Visitors of Univ. of Va . In this case, plaintiffs challenged a University regulation that provided funds to student publications, but refused to provide funding to student publications with religious affiliations. The university claimed that it was choosing not to subsidize religious activity. The Court found the university's restriction to be unconstitutional. Where the government creates a quasi-public forum, as it had in this case by making funds generally available to all university student publications, the government could not then discriminate against students seeking to use that forum on the basis of content. Taken together these cases seem to indicate that where Congress has appropriated funds to support the government's own message, Congress has wide latitude to condition the receipt of those funds on the espousal of the government's approved message, unless that condition invidiously discriminates against the espousal of dangerous ideas. In conditioning the use of federal funds on making sure the funds are only used to support Congress's approved message, ample opportunity for the recipients of those funds to exercise their protected constitutional rights outside of the federal program in which they are participating must be preserved. However, where Congress has provided funds for private speech or created a public or quasi-public forum, the ability to restrict speech funded by that money on the basis of content is narrower. In 2003, Congress passed the United States Leadership Against HIV/AIDS, Tuberculosis and Malaria Act (Leadership Act), 22 U.S.C. 7601 et seq . The Leadership Act was intended to address Congress's finding that HIV/AIDS, Malaria, and Tuberculosis posed grave health threats around the world. Congress found that the United States had the capacity to enhance the effectiveness of the fight against these various diseases on a number of fronts including providing financial resources to various aid groups, providing needed vaccines and medical treatments, promoting research, and promoting lifestyles that would diminish the chances of spreading these diseases. Particularly in relation to HIV/AIDS, Congress found that it should be the policy of the United States to promote abstinence, marriage, and monogamy as methods of diminishing the spread of HIV/AIDS, as well as promotion of the use of condoms. In addition to advocating the promotion of monogamous lifestyles, Congress also found that "prostitution and other sexual victimization are degrading to women and children and it should be the policy of the United States to eradicate such practices." The findings went on to describe the sex industry, and sex trafficking, as an additional cause of the spread of HIV/AIDS and that eliminating or reducing prostitution and sex trafficking would reduce the spread of the virus in keeping with the goals of the act. To that end, when Congress provided funds in the Leadership Act to private entities to assist in the fight against HIV/AIDS, Congress conditioned the receipt of those funds in two important ways. First, Congress made clear that no funds received pursuant to the Leadership Act may be used to "promote or advocate the legalization or practice of prostitution or sex trafficking." Second, and more controversially, Congress also forbid any funds from being disbursed to any group or organization that did not have a policy explicitly opposing prostitution and sex trafficking. In other words, unless an organization adopted a policy explicitly opposing prostitution and sex trafficking, it could not receive funds under the Leadership Act, not even if the group remained silent as to prostitution and sex trafficking. Some organizations that wished to receive funds pursuant to the Leadership Act objected to the act's requirement that they affirmatively adopt a policy opposing prostitution. The organizations argued that they were being required to adopt and espouse the government's message on a topic that was tangential to the purpose of the act. In their view, the requirement to affirmatively speak, as opposed to simply remaining silent on the issue of prostitution and sex trafficking, was a violation of their First Amendment rights and an unconstitutional condition on the receipt of federal funds under the Leadership Act. As a result, this provision had been the subject of two circuit courts of appeal cases analyzing its constitutionality and administration, which appeared to reach opposite conclusions. In the first case, the U.S. Court of Appeals for the District of Columbia upheld the provision against a First Amendment challenge. The D.C. Circuit panel found that the federal government, through the distribution of Leadership Act funds, was essentially using private actors to deliver the government's message. Under Rust v. Sullivan , Congress has wide latitude to take measures ensuring that the agents of the government's message adhered to the government's chosen script. In this case, according to the D.C. Circuit, Congress had provided funds to combat the spread of HIV/AIDS. In Congress's estimation, one of the sources of the spread of this disease was the proliferation of prostitution and sex trafficking abroad. As a result, part of the message Congress wished to convey in its government-funded fight against the spread of the disease was an opposition to prostitution and sex trafficking. The court determined that part of Congress's prerogative in restricting the use of the federal funds was the selection of the agents for the delivery of the government's message. Under this reasoning, it appears that the D.C. Circuit believed that the government was entitled to choose vehicles for its message that explicitly agreed with its message, and could do so without running afoul of the First Amendment. In the second case, the Second Circuit Court of Appeals found that the provision likely did violate the First Amendment, and furthermore found that the guidelines issued by the United States Agency for International Development (USAID) were not sufficient to overcome the provision's constitutional deficiencies. As a result, the appeals court upheld a preliminary injunction against the provision's enforcement. The majority of the panel agreed with the plaintiffs that the funding conditions at issue in the Leadership Act fell "well beyond what the Supreme Court and [Second Circuit] have upheld as permissible." It distinguished the Leadership Act's requirement for the adoption of the policy from previous cases because it did not merely restrict expression, it pushed "considerably further and mandate[d] that recipients affirmatively say something." In the eyes of the majority of the Second Circuit panel, this requirement for affirmative adoption of the government's viewpoint was compelled speech and therefore warranted heightened scrutiny. Applying a heightened scrutiny standard to the provision, a majority of the Second Circuit panel found the policy requirement to be unconstitutional. In part to resolve this apparent circuit split, the Supreme Court agreed to hear the appeal from the Second Circuit's decision. After the Second Circuit declined to rehear the case en banc , the Supreme Court granted certiorari, and struck down the policy requirement as a violation of the First Amendment, but under different reasoning from the Second Circuit panel. The Court did not hold, as the Second Circuit did, that the policy requirement must be subjected to heightened scrutiny because it required affirmative speech on the part of grant recipients. Indeed, the Court appeared to make no distinction between compelled and prohibited speech for First Amendment purposes. Instead, the majority applied the existing precedent found in Regan , League of Women Voters , and Rust to hold that the policy requirement violated the First Amendment because "the condition by its very nature affects 'protected conduct outside the scope of the federally funded program" in contravention of the holding in Rust . The majority began its opinion, written by Chief Justice Roberts, by outlining the funding conditions for HIV/AIDS outreach in the Leadership Act. Particularly, the Court noted that there are two conditions on the receipt of federal funds under the act: the first prohibited spending any federal dollars to promote prostitution or sex trafficking, and the second required the adoption of the policy opposing prostitution. The Court pointed out that if the requirement that private persons adopt a policy opposing prostitution was directly enforced, rather than a condition on the receipt of federal funds, the requirement would be unconstitutional. However, Congress has more leeway under the Spending Clause to place restrictions, including speech restrictions, on the receipt of federal funds, and the Court reviewed the Leadership Act with that leeway in mind. To frame its opinion, the majority first distilled the relevant cases regarding unconstitutional conditions on the receipt of federal funds including Regan , League of Women Voters , and Rust . The Court pointed out that each decision turned primarily on whether the restriction at issue was cabined to control only the use of federal dollars within a federal program. If the restriction prohibited the use of funds for the delivery of a message within the scope of a federally funded program, each case upheld the restriction as constitutional. In cases in which the government had overreached, the overreach occurred when Congress attempted to regulate speech accomplished with private funds outside the federal program at issue. The Court called the distinction drawn in these cases the difference "between conditions that define the federal program and those that reach outside it" and noted that the line between the two is not always clear but it is crossed when the government seeks "to leverage funding to regulate speech outside the contours of the program itself." Turning to the Leadership Act, the majority pointed out that the government conceded that preventing the expenditure of federal funds for the promotion of prostitution, which the act does, ensures that no federal dollars would be used for any prohibited purposes. That provision, which was not challenged in this case, effectively prohibits the use of federal money to promote prostitution or sex trafficking within the federal program created by the Leadership Act. If the restriction on the expenditure of federal funds prevents the use of funds for purposes in contravention to the act, according to the Court, the added requirement for the adoption of the anti-prostitution policy "must be doing something more—and it is." Essentially, the Court found, that the policy requirement forces funding recipients to adopt the government's view as their own on an issue of public concern. "By requiring recipients to profess a specific belief, the policy requirement goes beyond defining the limits of the federally funded program to defining the recipient," and that the government cannot do. The Court went on to hold that the guidelines issued by USAID allowing funding recipients to affiliate with organizations that did not have the required policies were insufficient to save the act from being struck down. The Court explained that it has allowed speech by affiliates of funding recipients to be sufficient where an organization bound by a funding condition was thereby allowed to express its beliefs outside of the scope of the federal program. The Court held that "[a]ffiliates cannot serve that purpose when the condition is that a funding recipient espouses a specific belief as its own." Either the funding recipient is left without any avenue for expressing its true beliefs, or the recipient is forced into evident hypocrisy by espousing the government's policy in one affiliate and its own beliefs in another. In the Court's view, this is a result the First Amendment does not support. Under this decision, it is now clear that speech conditions on the receipt of federal funding are permissible insofar as they define the scope and permissible uses of funding within a federal program, and prevent undermining federal intent in appropriating and distributing the funds. The government runs afoul of this general rule when it attempts to restrict speech outside the federal program or to define the recipient of the funds rather than the program being funded. The Court found that the policy requirement at issue in the Leadership Act committed both of these errors by requiring fund recipients "to pledge allegiance to the Government's policy of eradicating prostitution." For that reason, it violated the First Amendment.	Article 1, Section 8 of the United States Constitution provides Congress with the explicit power to collect taxes. Implicit in that power to collect revenue is also the power to spend that revenue. This clause is known as the Taxing and Spending Clause of the Constitution, and the Supreme Court has found that it grants Congress wide latitude to promote social policy that the federal government supports. One way that Congress may exercise its spending power to encourage the implementation of policies that the federal government supports is through appropriations. One common example of Congress exercising spending power to impose its will is the National Minimum Drinking Age Act of 1984. That act conditioned the receipt of a percentage of federal highway funding on states agreeing to raise the minimum drinking age to 21. While states were not required by the act to raise the drinking age, they could not receive the funds if they did not. Congress has wide discretion to provide subsidies to activities that it supports without incurring the constitutional obligation to also provide a subsidy to activities that it does not necessarily encourage. However, the power to spend money only on policies that Congress supports is not without limits. Congress may not place what have come to be known as "unconstitutional conditions" on the receipt of federal funds. Which conditions on the receipt of federal funds are and are not constitutional is a longstanding question with somewhat unclear answers, particularly when it comes to conditions placed upon the speech of the recipients of federal funds. To what extent may the federal government prevent recipients of federal funds from using that money to communicate a message that may not be supported by the federal government? To what extent may the federal government require fund recipients to espouse a particular point of view as a condition upon the receipt of funds? Courts have struggled with these issues time and again. Most recently, the Supreme Court heard a case challenging the constitutionality of a provision of the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act). The relevant provision prohibited the government from making funds available to grant recipients that do not have a policy of opposing prostitution. The question facing the Court in this case was whether the Leadership Act's requirement that recipients affirmatively adopt a policy that applied to the entire organization, and not just to the federal funds received, violated the First Amendment. The Supreme Court decided that the requirement is unconstitutional and struck it down in an opinion released on June 20, 2013. The case makes it clear that, while the government has wide latitude to control the message conveyed with federal dollars within a federal program, the First Amendment prohibits the government from controlling speech outside the federal program.	14.7	0-8k	14,232
12	According to an Army Human Resource official, the Army uses the workforce-planning model—CIVFORS—for human resources management. CIVFORS is a collection of software programs that anticipate future impacts on the workforce so that management can plan for changes instead of reacting to them. The model is used to evaluate a number of critical areas in civilian workforce planning, including projected recruitment of personnel, impact of organizational realignments, and changes in workforce trends (such as aging, retention, and projected personnel shortfalls). It is a life-cycle modeling and projection tool that models the most significant events that describe the life-cycle path of personnel, which includes accessions, promotions, reassignments, retirements, and voluntary and involuntary separations over a 7-year period. Verification and validation of models are important steps to building credible models because they provide the foundation for the accreditation process to ensure the suitability of the models for their intended purposes, as stated in Army guidance, Management of Army Models and Simulations. The verification process evaluates the extent to which a model has been developed using sound and established software engineering techniques, and it establishes whether the model’s computer code correctly performs the intended functions. Model verification includes data verification, model documentation, and testing of the information technology structure that supports the model; model verification is contained in such documents as the programmer’s manual, installation’s manual, user’s guide, analyst’s manual, and trainer’s manual. According to Army guidance, assessment of the correctness and forecasting capability of the model is also required, and it should be performed by a subject matter expert independent from the model developer; however, the developer is expected to conduct in-house verification and testing to assist in the overall model development process. Validation is the process of determining the extent to which the model adequately represents the real world. The Army has taken steps to ensure the reliability of the historical personnel data used by the model and the adequacy of its information technology structure used to support the model, but it has not provided documentation that it has sufficiently tested and reviewed the most critical aspect of the model—its forecasting capability and the appropriateness of its assumptions. As a result, the forecasting credibility of the current version of the model is not sufficiently validated or documented. Without proper documentation of the abilities of the model, there is a risk that the forecasts it produces may be inaccurate or misleading and the suitability for use by other organizations may be difficult to determine. The Army’s review of the historical personnel data used to provide information for workforce planning was adequate to show that the data are sufficiently reliable for use in the workforce model. Data regarding personnel (such as date hired, education, age, grade level, and occupational series) are taken from the Army’s Workforce Analysis Support System (WASS). CIVFORS uses the most recent 5 years of historical data to forecast the civilian workforce planning needs during the next 7 years. According to Army guidance, to ensure that data are sufficiently reliable for use in the Army model, support documents should contain information about the overall characteristics of the database. Furthermore, the documents should show the intended range of appropriate uses for the model as well as constraints on its use. They should also include concise statements of the condition of the database for the purpose of indicating its stability. The Army provided most, but not all, of the documents referred to in Army guidance; we believe that the documents provided are key ones and are adequate to show that WASS data are sufficiently reliable for use in CIVFORS. In addition, the Army program manager for the CIVFORS workforce-planning model stated that the workforce data are checked by reviewing the arithmetic in the numerical algorithms to verify that there is no unexplained change in the size of the civilian personnel workforce contained in the database. Further, edit checks include matching social security numbers for personnel from one time period to another to account for actual personnel and personnel transactions processed. In addition, CIVFORS has automated checks for inappropriate numbers or characters. Such steps help to assure that the data contained in WASS accurately and completely reflect critical personnel aspects and transactions. The Army’s procedures for validating the information technology support structure (the software and hardware used to interface with and house the model) were also sufficient. For example, the Army (1) adequately documented the information technology structure to allow for continuity of operations, (2) tested its functionality, and (3) provided expertise for system modification and operation. Procedures used by the Army include documenting the model’s system description and hardware and software requirements, providing system and user manuals, planning for configuration management, and conducting functionality tests to help ensure the system’s usability and operability over time and to demonstrate the adequacy of the information technology structure to support use of the workforce model. The Army’s documentation cannot show that the forecasting ability of CIVFORS has been adequately evaluated and, therefore, we cannot fully assess the credibility of the model. According to Army guidance, validation is the process of determining the extent to which a model adequately represents the real world. According to the Army program manager, over a 7-year period, CIVFORS forecasts the anticipated impacts on the workforce based on the most significant events in the life-cycle path of personnel (to include accessions, promotions, reassignments, retirements, voluntary separations, and involuntary separations). Army guidance states that an independent, peer, and subject matter expert review of the model should be conducted. The Army guidance also suggests generally accepted methods, such as conducting a careful line-by-line examination of the model design and computer code and algorithms. The Army’s program manager said this had been done for the original certification of CIVFORS in 1987. However, no formal document of the reviews has been prepared in the years since, even though the Army has undertaken several model improvements, such as (1) an expanded scope to include more dimensions in the modeling process; (2) a more integrated, streamlined process that involves fewer steps; and (3) greater flexibility, achieved by generalizing the formulas and parameters. In addition, there is insufficient documentation regarding tests performed, since 1987, in which CIVFORS’s forecasts for prior years are compared against equivalent historical data (called an “out of sample” test) to measure the model’s forecasting capability. Such testing, which is one method to validate a model’s forecasting capability, would involve using the first 5 of the last 7 years of historical data to forecast the 2 subsequent years. The forecasts for the last 2 years could then be compared to the actual historical data. The Army, however, performed tests comparing patterns of forecasts against historical data (called “in sample” tests), showing that forecasts reflect the same patterns as the historical data used to develop them for a sample of three Army major commands. However, the draft document that was provided to us was inadequate to fully assess the sampling used by the Army and the value of the tests. Finally, the Army could not provide adequate documentation of an independent or peer review of the model. The Army’s CIVFORS program manager stated that the major commands served as peer reviewers by conducting a comparison of their workforce data to WASS and CIVFORS workforce data. We believe that such assessments by users provide important information but do not constitute a peer review as defined in Army guidance. Also, the results of these assessments were not available for us to review. The program manager also stated that an independent subject matter expert reviewed the functional design and the code in 1999, but a formal report of the activities performed and the specific changes or modifications implemented during the review were not produced. Documentation has often not been a priority for several reasons. According to the Army’s CIVFORS program manager, lack of documentation is primarily due to limited funding, which was spent on implementing changes to CIVFORS and WASS rather than on the production of formal documents. Further, a shortage of staff (only one staff person—the program manager) and loss of documents during the attack on the Pentagon on September 11, 2001, also affected the amount of documentation the Army could provide us. The program manager also stated that some documentation was not needed because CIVFORS’s design is predicated on proven methods in other Army active-duty, military manpower forecasting models. In addition, the program manager stated that the Army and contractors have primarily been adapting technology (upgrading from mainframe to personal computer to Web-based) to improve model functionality rather than creating new technology. However, without proper documentation of the abilities of the model, there exists a risk that the forecasts it produces may be inaccurate or misleading. Consequently, decisions about future workforce requirements may be questionable, and planning for the size, shape, and experience level of the future workforce may not adequately meet the Army’s needs. These issues may extend beyond the Army. In April 2002, DOD published a strategic plan for civilian personnel, which includes a goal to obtain management systems to support workforce planning. According to a DOD official responsible for civilian workforce planning tools, components within DOD have been requesting a modeling tool to assist them with civilian workforce planning. As a result, DOD has decided to test the Army’s civilian forecasting model. In October 2002, DOD purchased hardware, installed modified software, and provided training to a small number of personnel. Recently, DOD obtained a historical database of civilian personnel data from the Defense Management Data Center and provided the database to the contractor to load into the model. Two agencies have volunteered to test the model: the Defense Logistics Agency and the Washington Headquarters Service. DOD is working to develop a test for these organizations using their own civilian personnel data to test the model. At the end of the testing period, DOD will assess the model to obtain a better understanding of its logic and determine whether or not it should be implemented departmentwide. As DOD continues to transform and downsize its civilian workforce, it is imperative that the department properly shape and size the workforce. One tool that could assist in this effort is CIVFORS—the Army’s workforce planning model. However, proper documentation of the verification and validation of CIVFORS is needed before expanding its use. The Army has taken adequate steps to ensure that the historical personnel data used in the model are sufficiently reliable and the information technology structure appropriately supports the model; however, it has not fully documented that it has taken adequate steps to demonstrate the credibility of the model’s forecasting capability. Further, a model should be fully scrutinized before each new application because a change in purpose, passage of time, or input data may invalidate some aspects of the existing model. Without sufficient documentation to demonstrate that adequate steps have been taken to ensure the credibility of the model’s forecasting capabilities, decisions about the Army’s future civilian workforce may be based on questionable data and other potential users cannot determine with certainty the model’s suitability for their use. To assure the reliability of Army civilian workforce projections, as well as the appropriateness of the model for use DOD-wide and by other federal agencies, we recommend that the Secretary of Defense direct the Secretary of the Army to appropriately document the Army’s forecasting capability of the model. Although DOD stated, in written comments on a draft of this report, that it did not concur with our recommendation, the Army is taking actions that, in effect, implement it. DOD’s written comments are contained in appendix I. Regarding our recommendation that the Secretary of Defense direct the Secretary of the Army to appropriately document the Army’s forecasting capability of the model, DOD stated that the Army recognizes the need to fully document its verification and validation efforts. Further, DOD stated the staff of the Assistant Secretary of the Army, Manpower and Reserve Affairs, has begun developing a verification and validation plan to enable outside parties to assess the suitability and adaptability of the model for their organizational use. This verification and validation process is scheduled for completion in September 2003. However, during our review, DOD did not provide information about the full scope of this verification and validation effort. We believe that as the Army undertakes its verification and validation effort, it should clearly document, as we recommended, its assumptions, procedures, and the results so that future users can replicate the tests to appropriately establish the model’s validity for their purposes. DOD also did not concur with our finding that the forecasting ability of the model has not been fully established. DOD stated that the ultimate test of a system is performance and that CIVFORS has been consistently generating Army projections with high standards of accuracy. We did not independently evaluate the model’s accuracy. As our report makes clear, our basic point is that the model’s forecasting ability has not been documented in accordance with Army guidance. We continue to believe that without adequate documentation, the Army cannot show that it has taken sufficient steps to ensure the model’s credibility in terms of its forecasting capability. DOD also provided technical comments, which we incorporated where appropriate. We did not independently evaluate the model or the application of the steps; rather, we reviewed the adequacy of the steps that the Army program manager stated were taken to ensure the credibility of the model. To determine the adequacy of the steps the Army has taken to ensure the credibility of its civilian workforce-forecasting model, we discussed CIVFORS with the Army’s CIVFORS program manager in the Army G-1 office, Civilian Personnel Policy Directorate, who has overall responsibility for the workforce analysis and the forecasting system. In addition, Army contractor officials who are responsible for providing technical, analytic, and management support to operate, maintain, and enhance the planning tool and model participated in several of our discussions with the program manager. We reviewed the following CIVFORS’s documents regarding the information technology support structure: the Configuration Management Manual, the System’s Specifications, the Design/Subsystem Documentation, the Operator’s Manual, and the User’s Manual. In addition, we reviewed the 1987 and draft 2002 test analysis report on the Civilian Forecasting System and other documentation provided by the Army to obtain information on how the model operates according to model assumptions. We also reviewed the DOD Defense Modeling and Simulation Office guidance on verification and validation of models, the Army regulation and pamphlet pertaining to the management of Army models and simulations, and other literature regarding model credibility. We also interviewed DOD officials in the Civilian Personnel Management Service responsible for developing plans to adopt the Army’s workforce forecasting model to discuss the status of their efforts. We conducted our review from September 2002 to June 2003 in accordance with generally accepted government auditing standards. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, and the Secretary of the Army. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-5559. Key contributors to this report are listed in appendix II. In addition to the name above, David Dornisch, Barbara Johnson, Barbara Joyce, John Smale, Dale Wineholt, and Susan Woodward made significant contributions to this report.	Between fiscal years 1989 and 2002, the Department of Defense (DOD) reduced its civilian workforce by about 38 percent, with little attention to shaping or specifically sizing this workforce for the future. As a result, the civilian workforce is imbalanced in terms of the shape, skills, and experience needed by the department. DOD is taking steps to transform its civilian workforce. To assist with this transformation, the department is considering adopting an Army workforce-planning model, known as the Civilian Forecasting System (CIVFORS), which the Army uses to forecast its civilian workforce needs. Other federal agencies are also considering adopting this model. GAO was asked to review the adequacy of the steps the Army has taken to ensure the credibility of the model. The Army has taken adequate steps to ensure that the historical personnel data used in the model are sufficiently reliable and that the information technology structure adequately and appropriately supports the model. For example, the Army has established adequate control measures (e.g., edit checks, expert review, etc.) to ensure that the historical data that goes into the model are sufficiently reliable. Moreover, it has taken adequate steps to ensure that the information technology support structure (i.e., the software and hardware used to interface with and house the model) would enable continuity of operations, functionality, and system modification and operations. However, the Army has not demonstrated that it has taken adequate steps to ensure that the model's forecasting capability provides the basis for making accurate forecasts of the Army's civilian workforce. The Army's original certification of CIVFORS in 1987 was based on a formal documented verification and validation of the model structure that has not been formally updated since that time even though the Army has undertaken several model improvements. According to the Army's CIVFORS program manager, the Army has taken several steps, to include an independent review, peer reviews, and a comparison of forecasted data to actual data. However, documentation of these steps is incomplete and, therefore, does not provide adequate evidence to demonstrate the credibility of the forecast results. Without adequate documentation, the Army cannot show that it has taken sufficient steps to ensure the model's credibility in terms of its forecasting capability; consequently, there exists a risk that the forecasts it produces may be inaccurate or misleading. Furthermore, without documentation of CIVFORS's forecasting capability, it may be difficult for DOD and other federal organizations to accurately determine its suitability for their use.	16.5	0-8k	4,758
13	Throughout the nation's history, the governors of the states have filled most Senate vacancies by the appointment of interim or temporary Senators whose terms continued until a special election could be held. Between 1789 and 1913, the Constitution's original provisions empowered governors to "make temporary Appointments until the next Meeting of the [state] Legislature, which shall then fill such Vacancies." With the 1913 ratification of the Seventeenth Amendment, which provided for popular election of the Senate, the states acquired the option of filling Senate vacancies either by election or by temporary gubernatorial appointment: When vacancies happen in the representation of any State in the Senate, the executive authority of such State shall issue writs of election to fill such vacancies: Provided, That the legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election as the legislature may direct. Gubernatorial appointment to fill Senate vacancies has remained the prevailing practice from 1913 until the present day, with the executives of 45 states possessing some form of appointment authority, provided the candidate meets constitutional requirements. Of Senate appointments that have occurred since 1913, the vast majority have been filled by temporary appointments, and the practice appears to have aroused little controversy during that 96-year period. Aside from the death or resignation of individual Senators, vacancies may also occur when a newly elected administration is inaugurated. During the presidential transition following an election, incumbent Senators may resign to accept appointments to executive branch positions or to assume the office of President or Vice President. In 2008-2009, for instance, four vacancies were created following the presidential election: two in connection with the election of Senators Barack H. Obama and Joseph R. Biden as President and Vice President, and two more when Senator Hillary Rodham Clinton was nominated to be Secretary of State and Senator Kenneth L. Salazar of Colorado was nominated to be Secretary of the Interior. This report discusses the latest developments in vacancies in the Senate; identifies state provisions to appoint or elect Senators to fill vacancies; and reviews the constitutional origins of the appointments provision and its incorporation in the Seventeenth Amendment. One Senate vacancy was generated in connection with the 2016 election of Donald J. Trump as President. On January 20, 2017, the President nominated Alabama Senator Jeff Sessions for the office of Attorney General of the United States. Senator Sessions was confirmed by the Senate on February 8, 2017; he resigned from the Senate the same day and was sworn in the following day, February 9. In accordance with Alabama law, Governor Robert Bentley announced his appointment of state Attorney General Luther Strange III to fill the vacancy on February 9. Senator Strange, who was sworn in the same day, would serve until a special election. On April 18, Governor Kay Ivey, who succeeded Governor Bentley on April 10, ordered special primary and general elections to fill the Senate seat for the balance of the current term, which expires in 2021. The special primary was held August 15 and the runoff on September 26; the special general election was scheduled for December 12, 2017. The special election was contested by major party nominees Roy Moore (Republican) and Doug Jones (Democratic). Jones won the special election, the results of which were certified on December 28; he was sworn in on January 3, 2018. Senator Jones will serve for the balance of the term, which expires on January 3, 2021. On December 6, 2017, Minnesota Senator Al Franken announced his intention to resign from the Senate. In accordance with Minnesota law, Governor Mark Dayton announced on December 12 that he would appoint Lieutenant Governor Tina Smith to fill the vacancy until a special election could be held. Senator Franken resigned on January 2, 2018, and Senator Smith was sworn in the next day, January 3. She will serve until a special election, which will be held concurrently with Minnesota's regularly scheduled general election on November 6, 2018. At that time, the seat will be filled for the balance of the term, which expires on January 3, 2021. On March 5, 2018, Senator Thad Cochran announced that he would resign on April 1, due to reasons of health. On March 21, Governor Phil Bryant announced his appointment of Mississippi Agriculture Secretary Cindy Hyde-Smith to fill the vacancy until a special election. Under provisions of Mississippi law, the vacancy will then be filled for the balance of the term, which expires in January 2021. Senator Hyde-Smith, who was sworn in on April 9, 2018, brings the number of women Senators to a historical record of 23. The special election will be held concurrently with the regularly scheduled November 6 statewide general election. A regularly scheduled election for Mississippi's other Senate seat, the current term of which expires in 2019, and which is held by Senator Roger Wicker, is also scheduled for 2018. As a result, Mississippi voters will vote to elect two Senators on November 6: one to fill Senator Cochran's seat for the balance of his term, and the second for a full term for the other seat. Special elections for Mississippi Senate seats have certain distinctive characteristics: they are nonpartisan; there is no primary—all qualified candidates contest the special general election; and, a majority of votes is required to win. If no candidate wins a majority, the two who gained the most votes would contest a runoff election held three weeks later, on November 27. At present, five states require that vacancies can be filled only by a special election. The remaining 45 states provide some form of appointment by their governors to fill U.S. Senate vacancies. Five states currently provide that Senate vacancies be filled only by special elections; their governors are not empowered to fill a vacancy by appointment. Typically, these states provide for an expedited election process in order to reduce the period during which the seat is vacant: North Dakota Oklahoma Oregon Rhode Island Wisconsin As noted previously, 45 states authorize their governors to fill Senate vacancies by appointment. The most widespread practice is for governors to appoint temporary Senators who hold the seat until the next statewide general election, at which time a special election is held to fill the seat for the balance of the term. The National Conference of State Legislatures identifies two variations within this larger category: 36 states that provide for gubernatorial appointments to fill Senate vacancies, with the appointed Senator serving the balance of the term or until the next statewide general election; and 9 states that provide for gubernatorial appointments, but also require a special election on an accelerated schedule, often within a relatively short period after the vacancy occurs. In addition, within the first sub-category, six states also identified below require that the Senator appointed by the governor be a member of the same political party as the prior incumbent. The 36 states listed below authorize their governors to fill Senate vacancies by appointment, with the temporary Senator serving the balance of the term or until a special election is held concurrently with the next statewide general election. General elections are scheduled with relative frequency throughout the states. They are held in every state at least once in every even-numbered year, for Representatives in Congress, Senators, if applicable, and, quadrennially, for the President and Vice President, as well as for a broad range of state officials, including governors, legislators, and other state and local elected officials. In addition, a number of states schedule statewide elections for local elected officials for odd-numbered years. In several states—Hawaii, Minnesota, New Jersey, New York, and Virginia—if a Senate vacancy occurs in close proximity to a regularly scheduled statewide primary or general election, the appointed Senator serves until the following statewide election. Six of the states listed above that authorize their governors to fill vacancies by appointment also place political party-related restrictions on that power. These provisions are intended to ensure that the appointing governors respect the results of the previous election by selecting a temporary replacement who will either be of the same political party as the prior incumbent, or who has been endorsed or "nominated" by the prior incumbent's party apparatus. Arizona requires the governor to appoint a replacement Senator from the same party as the previous incumbent. Hawaii requires the governor to select a candidate from a list of three prospective appointees submitted by the political party of the previous incumbent. Maryland requires the governor to appoint a replacement Senator "from a list of names submitted by the state central committee of the political party of the vacating office holder." North Carolina requires the governor to appoint a replacement Senator from the same party at the previous incumbent. Utah requires the governor to appoint a replacement Senator from the same party as the previous incumbent. Wyoming requires the governor to appoint a replacement Senator from the same party as the previous incumbent. Some commentators have questioned these "same party" requirements on the grounds that they attempt to add extra qualifications to Senate membership, beyond the constitutional requirements of age, citizenship, and residence. Another category of states includes nine that authorize their governors to fill Senate vacancies by appointment until a special election, but require that the special election be held in relatively close proximity to the date the vacancy occurred. If the vacancy does occur close to a regularly scheduled general election, the special election may be held concurrently, but if not, the special election may be scheduled within a few months of the vacancy. This provision is intended to reduce the length of time an appointed Senator holds office before being replaced by an elected successor. In these states, the appointed Senator generally serves only until the election results for a successor are certified. The following state requirements do not include information on nomination procedures. Alabama authorizes the governor to fill a Senate vacancy by appointment. The Code of Alabama also requires the governor to order a special election if the vacancy occurs more than four months before a general election. If it occurs between 2 and 4 months before the general election, it is filled at that election, but if it occurs within 60 days of a general election, the governor shall schedule a special election to be held "on the first Tuesday after the lapse of 60 days from and after the day on which the vacancy is known to the governor." Alaska authorizes the governor to fill a Senate vacancy by appointment. Alaska statutes also require the governor to order a special election not less than 60 or more than 90 days after the vacancy. If, however, the vacancy occurs less than 60 days before the primary election in the general election year in which the term expires, no special election is held. Connecticut authorizes the governor to fill a Senate vacancy by appointment under limited circumstances. Within 10 days of a vacancy, the governor orders a special election to be held 150 days later, unless the vacancy occurs in close proximity of regular statewide state or municipal elections, in which case the special election is held concurrently with the regular elections. If it occurs after municipal elections during the year the term expires, the governor nominates an appointee to fill the vacancy for the balance of the term, subject to approval by two-thirds of the members of both houses of the legislature. If, however, the vacancy occurs in close proximity of the elections at which the seat would be filled, the seat remains vacant for the balance of the term. Louisiana authorizes the governor to fill a Senate vacancy by appointment for the balance of the term if it expires in one year or less. Otherwise, the governor orders a special election to be held in conformity with a range of dates provided in state law, but not less than 11 weeks after the election proclamation. Massachusetts authorizes the governor fill a Senate vacancy by appointment to serve only until a special election has been held. The governor calls a special election to fill a Senate vacancy between 145 and 160 days after the vacancy occurs, unless the vacancy occurs after April 10 of an even-numbered year, in which case the special election is held concurrently with the regularly scheduled statewide election. Mississippi authorizes the governor to fill a Senate vacancy by appointment until a special election has been held; if less than one year remains on the prior incumbent's term, the appointee serves the balance of the term. If more than one year remains on the term, the special election is held within 90 days of the date on which the governor ordered the election, unless the vacancy occurs during a year in which a regular statewide election is scheduled, in which case the vacancy is filled concurrently with the regularly scheduled election. Texas authorizes the governor to fill a Senate vacancy temporarily by appointment if the vacancy exists or will exist when Congress is in session. If the vacancy occurs in an even-numbered year and 62 or more days before the primary, the vacancy is filled at that year's general election. If the vacancy occurs in an odd-numbered year, or fewer than 62 days before the primary, the governor calls a special election which is scheduled for the first uniform election date falling 36 or more days after it has been ordered. Vermont authorizes the governor to fill a Senate vacancy by appointment until a successor has been elected. The governor calls a special election, which is held within three months of the vacancy, except if the vacancy occurs within six months of a general election, in which case the special election is held concurrently with the regularly scheduled general election. Washington authorizes the governor to fill a Senate vacancy by appointment until a successor has been elected. Not more than 10 days after the vacancy occurs, the governor calls a special election to be held not less than 140 days later. If the vacancy occurs less than eight months before a general election, the special election is held concurrently with the regularly scheduled election. If the vacancy occurs after the close of the filing period, a special election is held not more than 90 days following the regularly scheduled general election. The Constitutional Convention of 1787 addressed the question of Senate vacancies not long after it had approved the Great, or Connecticut, Compromise, which settled on equality of state representation in the Senate, and representation according to population in the House of Representatives. On July 24, the delegates appointed five members to serve as the Committee of Detail; the committee was charged with assembling all the points decided by that stage of the deliberations, arranging them, and presenting them to the convention for further refinement and discussion. The committee's report, presented on August 6, proposed that governors would fill Senate vacancies if they occurred when the state legislature was not in session: Article 5, Section 1. The Senate of the United States shall be chosen by the Legislatures of the several States. Each Legislature shall choose two members. Vacancies may be supplied by the Executive until the next meeting of the Legislature (emphasis added). Each member shall have one vote. On August 9, the delegates turned to Article 5; Edmund Randolph of Virginia, a member of the Committee of Detail, explained that the provision was thought ... necessary to prevent inconvenient chasms in the Senate. In some states the legislatures meet but once a year. As the Senate will have more power and consist of a smaller number than the other house, vacancies there will be of more consequence. The executives might be safely entrusted, he thought, with the appointment for so short a time. James Wilson of Pennsylvania countered by asserting that the state legislatures met frequently enough to deal with vacancies, that the measure removed appointment of the Senators another step from popular election, and that it violated separation of powers by giving the executive power to appoint a legislator, no matter how brief the period. Oliver Ellsworth of Connecticut noted that "may" as used in the provision was not necessarily prescriptive, and that "[w]hen the legislative meeting happens to be near, the power will not be exerted." A motion to strike out executive appointment was voted down eight states to one, with one divided. Hugh Williamson of North Carolina then offered an amendment to change the language to read "vacancies shall be supplied by the Executive unless other provision shall be made by the legislature," which was also rejected. The Committee on Style and Arrangement made minor alterations, and inserted the provision in Article I, Section 3, paragraph (clause) 2 in its September 12 report. The full convention made final changes and approved the provision on September 17, and it was incorporated without debate into the Constitution in the following form: and if vacancies happen by Resignation, or otherwise, during the Recess of the Legislature of any State, the Executive thereof may make temporary Appointments until the next Meeting of the Legislature, which shall then fill such Vacancies. The appointments provision does not appear to have aroused much interest during the debate on ratification. A review of available sources, including The Federalist and proceedings of the state conventions that ratified the Constitution, reveals almost no debate on the question. For the next 124 years, governors appointed temporary Senators according to the constitutional requirement with only minor controversy. During this long period, 189 Senators were appointed by state governors; 20 of these appointments were contested, but only 8 were "excluded" by the Senate. The primary grounds for these contested appointments appear to have centered on whether vacancies happened during the recess of the legislature. According to historian George Haynes, throughout much of this time, "the Senate refused to admit to its membership men who had been appointed by the governors of their several States when the legislature had had the opportunity to fill the vacancies, but had failed to do so by reason of deadlocks." Aside from this recurring controversy, the appointment of temporary Senators seems to have been otherwise unremarkable. A random survey of various states during the period from 1789 through 1913 identifies an average of 3.3 senatorial appointments per state for the period, with individual totals dependent largely on the length of time the state had been in the Union. For instance, New Hampshire, one of the original states, is recorded as having had eight appointed temporary Senators during this period, while Montana, admitted in 1889, never had an appointment under the original constitutional provision. For more than 70 years following ratification of the Constitution, there was little interest in changing the original constitutional provisions governing Senate elections and vacancies. Although an amendment providing for direct election was introduced as early as 1826, few others followed, and by 1860, only nine such proposals had been offered, all but one of which was introduced in the House. Satisfaction with the status quo began to erode, however, after the Civil War, and support grew for a constitutional amendment that would provide direct popular election of the Senate. During the last third of the 19 th century, indirect election of Senators by state legislatures came under growing criticism, while proposals for an amendment to establish direct election began to gain support. The decades following the Civil War witnessed increasing instances of both protracted elections, in which senatorial contests were drawn out over lengthy periods, and deadlocked elections, in which state legislatures were unable to settle on a candidate by the time their sessions ended. In the most extreme instances, protracted and deadlocked elections resulted in unfilled Senate vacancies for sometimes lengthy periods. According to Haynes, 14 seats were left unfilled in the Senate for protracted periods, and while "[t]he duration of these vacancies varied somewhat ... in most cases, it amounted to the loss of a Senator for the entire term of a Congress." During the same period, the Senate election process was increasingly regarded as seriously compromised by corruption. Corporations, trusts, and wealthy individuals were often perceived as having bribed state legislators in order to secure the election of favored candidates. Once in office, the Senators so elected were said to "keep their positions by heeding the wishes of party leaders and corporate sponsors rather than constituents." A third factor contributing to the rise of support for direct election of Senators was what one historian characterized as "a long-term American inclination to strengthen representative democracy." As such, the campaign for popular election might be considered part of the series of state and federal laws and constitutional amendments intended to expand the right to vote and guarantee the integrity of election procedures. As the movement for reform gained strength, "progressive" elements in both major parties, and rising political movements, such as the Populist and Socialist parties, all supported direct election of the Senate. Action for popular election of Senators proceeded on two levels. First, beginning as early as the 1870s, the House of Representatives considered popular election amendment proposals. As support for this idea gained strength, the House approved a popular election amendment for the first time in 1893. Moreover, the House continued to approve popular election amendments by increasing vote margins a total of five times between 1893 and 1902; in each case, however, the Senate took no action. Faced with the Senate's refusal to consider a direct election amendment, the House put the question aside, and the question of popular election of Senators remained quiescent for nearly a decade, at least in Congress. Efforts to secure direct election of Senators met with greater success in the states during this period. After years of experimentation with different plans by the states, Oregon voters used the newly enacted initiative process in 1904 to pass legislation that had the effect of requiring state legislators to pledge to elect the Senate candidate who received the most votes in the popular primary election. The winner of the primary, who would then be elected Senator by the state legislature, would reflect the people's choice by one degree of removal. The "Oregon Plan" spread quickly, so that by 1911, over half the states had adopted some version of indirect popular election of Senators. Pressure continued to build on the Senate in the first decade of the 20 th century. In addition to enacting versions of the Oregon Plan, a number of states petitioned Congress, asking it to propose a direct election amendment, while others submitted petitions for an Article V convention to consider an amendment. Deadlocked elections in several states continued to draw publicity, while in 1906, a sensational but influential series of articles titled "The Treason of the Senate" ran in William Randolph Hearst's Cosmopolitan . All these influences helped promote the cause of direct election. After a false start in the 61 st Congress, when the Senate failed to approve a direct amendment proposal, both chambers revisited the issue early in 1911 as the first session of the 62 nd Congress convened. H.J.Res. 39, excerpted below, was the House vehicle for the proposed amendment. The Senate of the United States shall be composed of two Senators from each State, elected by the people thereof, for six years; and each Senator shall have one vote. The electors of each state shall have the qualifications requisite for electors for the most numerous branch of the State legislature. The times, places, and manner of holding elections for Senator shall be as prescribed in each State by the legislature thereof. When vacancies happen in the representation of any State in the Senate, the executive authority of such State shall issue writs of election to fill such vacancies: Provided , That the legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election, as the legislature may direct. The language is identical to the Seventeenth Amendment as eventually ratified, except for clause 2, "The times, places, and manner of holding elections for Senator shall be as prescribed in each State by the legislature thereof." Controversy over this provision delayed congressional proposal of the amendment for a full year. This clause would have removed reference to the Senate from Article I, Section 4, clause 1, of the Constitution, and would have had the effect of eliminating federal authority over the Senate elections process. It has been described by historians as "a 'race rider' which would deny to the federal government the authority to regulate the manner in which elections were conducted." Supporters of the clause asserted it guaranteed state sovereignty and restrained the power of the federal government, while opponents characterized it as an attack on the right of black Americans to vote as conferred by the Fifteenth Amendment, at least with respect to the Senate. On April 13, 1911, the House rejected an effort to strip clause 2 from H.J.Res. 39, and then moved immediately to approve the resolution with it intact. When the Senate took up the measure on May 15, Senator Joseph Bristow offered an amended version which did not include the elections control clause. The Senate debated Bristow's amendment for almost two months. The vote, when finally taken on June 12, resulted in a tie, which Vice President James Sherman broke by voting in favor of the Bristow amendment. The Senate then overwhelmingly approved the constitutional amendment itself by a vote of 64 to 24. What is perhaps most remarkable about deliberations over the Seventeenth Amendment in both chambers is how little was said of the vacancies clause. Senator Bristow's explanation of his purpose evinced little comment from other Members; he characterized his vacancy clause as exactly the language used in providing for the filling of vacancies which occur in the House of Representatives, with the exception that the word "of" is used in the first line for the word "from," which however, makes no material difference. Then my substitute provides that—["]The legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election as the legislature may direct.["] That is practically the same provision which now exists in the case of such a vacancy. The governor of the State may appoint a Senator until the legislature elects. My amendment provides that the legislature may empower the governor of the State to appoint a Senator to fill a vacancy until the election occurs, and he is directed by this amendment to "issue writs of election to fill such vacancies." That is, I use exactly the same language in directing the governor to call special elections for the election of Senator to fill vacancies that is used in the Constitution in directing him to issue writs of election to fill vacancies in the House of Representatives. A conference committee was appointed to resolve differences between the competing House and Senate versions; it met 16 times without reaching approval, while the Senate continued to insist on its version. Almost a year passed before the House receded from its version and accepted the amendment as passed by the Senate. The "clean" amendment was sent to the states, where it was ratified in record time: Connecticut became the 36 th state to approve, on April 8, 1913, and Secretary of State William Jennings Bryan declared the Seventeenth Amendment to have been duly ratified on May 31, 1913. Within a year of the Seventeenth Amendment's ratification, two precedents concerning Senate special elections and the power of governors to fill vacant seats by appointment were decided. In 1913, the governor of Maryland issued a writ of special election to fill a Senate vacancy. The election was held, and a Senator elected, but the governor had previously appointed a temporary replacement in 1912, six months before the Seventeenth Amendment was ratified. The right of the elected Senator to supplant the appointed one was challenged on the grounds that the governor had no legal right to issue the writ of election, because neither Congress nor the Maryland legislature had enacted legislation authorizing the special elections contemplated by the Seventeenth Amendment. The Senate debated the issue, rejected this argument, and seated the elected Senator. In the second case, the governor of Alabama sought to appoint an interim Senator to fill a vacancy created in 1913, after the Seventeenth Amendment had been ratified. The Alabama legislature had not yet passed legislation providing for gubernatorial appointments, as provided in clause 2 of the Amendment, and the Senate declined to seat the appointee on the grounds that the governor could not exercise the appointment power unless so authorized by state law. The Senate Historical Office maintains records for Senators appointed since 1913, beginning with Rienzi M. Johnston of Texas, although Senator Johnston's appointment on January 14, 1913, technically antedated the Seventeenth Amendment, which was declared to be ratified on May 31. At the time of this writing, April 9, 2018, the Senate's records currently identify 198 appointments to the office of U.S. Senator since that time, including, most recently, Senator Cindy Hyde-Smith, as cited previously in this report. This total includes 195 individuals, since 3 persons were appointed to fill Senate vacancies twice. Of this figure, 16 appointees have been women: 7 of these were the widows of incumbent Senators who agreed to serve until a successor could be elected; 2 were spouses of the governor who appointed them; and 1 was the daughter of the governor who appointed her. Three men were appointed to fill vacancies created by the death of their fathers. These Senate data exclude so-called "technical" resignations, a practice which ended in 1980. Prior to that year, technical resignations, which were generally considered a separate class, occurred when a retiring Senator resigned after the election of his or her successor, but before the expiration of the term. The Senator-elect would then be appointed to serve out the balance of the term by the state governor. The purpose here was to provide the Senator-elect with the benefits of two months of extra seniority. As noted above, this practice ended in 1980 when the major parties agreed that Senators-elect would no longer accrue seniority benefits through appointment as a result of technical resignations. Of the 194 Senators appointed prior to 2017, 118, or 60.8%, sought election, while the remainder served only until the special election. Sixty-two, or 52.5%, of those who pursued election were successful, while 56 were defeated, often in the primary election. Although complete data are not available, a study of Senators appointed to fill vacancies between 1945 and 1979 found an even lower success rate in primary elections. According to William D. Morris and Roger H. Marz, writing in the political science journal Publiu s, 41.7% of appointed Senators who sought election in their own right during this period were defeated in the subsequent special primary election. The electoral fate of appointed Senators has long been the subject of investigation and speculation. Scholars have noted that appointed Senators who have run for election in their own right have mixed electoral success, at best. Morris and Marz concluded that appointed senators are a special class, at least insofar as their reception by the voters is concerned.... [They] are only half as likely to be successful in the election process, and more than one-fifth of them do not even win the nomination of their own party.... [T]hough they are constitutionally and statutorially full members of the Senate in every formal sense of the body, their low survival rate in their first election suggests the mantle of office protecting "normal" incumbents does not fully cover the appointee. Following controversies that arose in connection with appointments to fill Senate vacancies in 2008 and 2009, particularly with respect to the Illinois Senate vacancy created by the election of Senator Barack H. Obama as President, proposals to eliminate or curtail gubernatorial power to fill Senate vacancies by appointment were introduced in the 111 th Congress and in a number of state legislatures. These proposals fell into two categories, legislative and constitutional. No bills or resolutions proposing similar legislation or constitutional amendments have been introduced to date in succeeding Congresses. H.R. 899 , the Ethical and Legal Elections for Congressional Transitions Act, was introduced by Representative Aaron Schock on February 4, 2009. This bill sought to provide for expedited special elections to fill Senate vacancies, and to assist states in meeting the expenses of special elections. It sought to avoid potential conflicts with the Seventeenth Amendment by authorizing the states to continue to provide for gubernatorial appointments, but it sought considerably shorter tenures for most appointed Senators. As a secondary issue, it addressed concerns of state and local governments related to the costs of planning and administration of special elections through a program of reimbursements. H.R. 899 would have provided that when the President of the U.S. Senate issued a certification that a vacancy existed in the Senate, a special election to fill the vacancy would be held not later than 90 days after the certification was issued; the election would be conducted in accordance with existing state laws; and a special election would not be held if the vacancy were certified within 90 days of the regularly scheduled election for the Senate seat in question, or during the period between the regularly scheduled election and the first day of the first session of the next Congress. H.R. 899 also provided a rule of construction (legally clarifying language) stating that nothing in the act would impair the constitutional authority of the several states to provide for temporary appointments to fill Senate vacancies, or the authority of appointed Senators between the time of their appointment and the special election. Further, it would have authorized the Election Assistance Commission to reimburse states for up to 50% of the costs incurred in connection with holding the special election. H.R. 899 was introduced on February 4, 2009, and was referred to the House Committee on House Administration on the same day, but no further action was taken on the bill. These two identical proposals sought to amend the Constitution to eliminate the states' authority to provide for temporary appointments to fill Senate vacancies. S.J.Res. 7 was introduced by Senator Russell D. Feingold on January 29, 2009, and was referred to the Senate Judiciary Committee, and subsequently to the Subcommittee on the Constitution. A companion measure, H.J.Res. 21 , was introduced by Representative David Dreier on February 11, 2009. The resolution was referred to the House Judiciary Committee and subsequently to the Subcommittee on the Constitution, Civil Rights, and Civil Liberties. The proposed amendments would have required that "no person shall be a Senator from a State unless such person has been elected by the people thereof" and further directed state governors to issue writs of election to fill Senate vacancies. S.J.Res. 7 and H.J.Res. 21 proposed a fundamental change in the constitutional procedures governing Senate vacancies by completely eliminating the state option to provide for temporary appointments incorporated in the Seventeenth Amendment. As one of the sponsors of the Senate version asserted, the proposed amendment reflected the view that "those who want to be a U.S. Senator should have to make their case to the people.... And the voters should choose them in the time-honored way that they choose the rest of the Congress of the United States." Conversely, opponents might have argued that the proposed amendments were introduced as a too-hasty response to specific events that were unlikely to be repeated, and that the appointment clause of the Seventeenth Amendment had functioned without incident for a century. On March 11, 2009, the two constitutional subcommittees, in the House, the Subcommittee on the Constitution, Civil Rights, and Civil Liberties and in the Senate, the Subcommittee on the Constitution, held a joint hearing on the measures, and on August 6, the Senate Subcommittee on the Constitution voted to approve S.J.Res. 7 and to report it to the full Committee on the Judiciary, but no further action was taken on either measure. According to the National Council of State Legislatures, bills affecting the governor's appointment authority as provided under the Seventeenth Amendment were introduced in 12 states during 2009, and in several more since that time. As a result of these initiatives, Connecticut and Rhode Island in 2012, and North Dakota in 2015 eliminated or limited the governor's authority to fill U.S. Senate vacancies by appointment, while Arkansas in 2017 confirmed the governor's appointment power and eliminated conflicting provisions between the state code and constitution. Conversely, in 2009, Massachusetts changed its requirement from filling vacancies only by election to providing for temporary appointment by the governor followed by a special election. In addition, as noted earlier in this report, North Carolina in 2013, and Maryland in 2016, enacted legislation that required appointments to fill Senate vacancies be from the same political party as the previous incumbent. Since ratification of the Seventeenth Amendment in 1913, most of the states, with few exceptions and little evident controversy, have empowered their governors to fill Senate vacancies by appointment until a permanent replacement can be elected. The controversies surrounding appointments to fill Senate vacancies that occurred in the context of the 2008 presidential election generated considerable interest, including media analyses and commentaries, and legislative and constitutional proposals for change on both the federal and state levels. Interest in a response on the federal level, including proposals to revise Senate vacancy procedures, appears to have receded—relevant bills and constitutional amendments introduced in the 111 th Congress did not progress beyond hearings, and no similar proposal has been offered since that time. In the states, Connecticut, Massachusetts, North Dakota, and Rhode Island took action between 2009 and 2015 to limit or eliminate their governors' role in filling Senate vacancies, but the National Conference of State Legislatures reports no further legislation since then. The only other recent changes in the states, action in Maryland and North Carolina to establish "same party" requirements for appointments to fill Senate vacancies, were arguably taken in the context of divided party control of the legislature and governorship in both states. Beyond these developments, recent actions suggest that the traditional pattern of Senate vacancies and appointments has reemerged: since 2009, 10 vacancies in the Senate have been filled by temporary appointments with little controversy as to the appointment process.	United States Senators serve a term of six years. Vacancies occur when an incumbent Senator leaves office prematurely for any reason; they may be caused by death or resignation of the incumbent, by expulsion or declination (refusal to serve), or by refusal of the Senate to seat a Senator-elect or -designate. Aside from the death or resignation of individual Senators, Senate vacancies often occur in connection with a change in presidential administrations, if an incumbent Senator is elected to executive office, or if a newly elected or reelected President nominates an incumbent Senator or Senators to serve in some executive branch position. The election of 2008 was noteworthy in that it led to four Senate vacancies as two Senators, Barack H. Obama of Illinois and Joseph R. Biden of Delaware, were elected President and Vice President, and two additional Senators, Hillary R. Clinton of New York and Ken Salazar of Colorado, were nominated for the positions of Secretaries of State and the Interior, respectively. Following the election of 2016, one vacancy was created by the nomination of Alabama Senator Jeff Sessions as Attorney General. Since that time, one additional vacancy has occurred and one has been announced, for a total of three since February 8, 2017. As noted above, Senator Jeff Sessions resigned from the Senate on February 8, 2017, to take office as Attorney General of the United States. The governor of Alabama appointed Luther Strange III to fill the vacancy until a successor was elected. Doug Jones was elected at the December 12, 2017, special election; he was sworn in on January 3, 2018, and will serve through the balance of the term, which expires in 2021. Senator Al Franken of Minnesota resigned from the Senate on January 2, 2018. On December 12, 2017, Minnesota Lieutenant Governor Tina Smith was appointed by Governor Mark Dayton to fill the vacancy. Senator Smith was sworn in on January 3, 2018. She will serve until a special election is held on November 6, 2018, to fill the seat for the balance of the term, which expires in 2021. Senator Thad Cochran of Mississippi resigned from the Senate on April 1, 2018. Governor Phil Bryant appointed Cindy Hyde-Smith to fill the vacancy. Senator Hyde-Smith was sworn in on April 9, 2018. She will serve until a nonpartisan special election contested by all qualified candidates is held on November 6. A majority of votes is required to elect. If no candidate wins a majority, the two who gained the most votes will contest a November 27 runoff. The winning candidate will serve for the balance of the term, which expires in 2021. Senator Hyde-Smith brings the number of women Senators to a record total of 23. The use of temporary appointments to fill Senate vacancies is an original provision of the U.S. Constitution, found in Article I, Section 3, clause 2. The current constitutional authority for temporary appointments to fill Senate vacancies derives from the Seventeenth Amendment, which provides for direct popular election of Senators, replacing election by state legislatures. It specifically directs state governors to "issue writs of election to fill such vacancies: Provided, that the legislature of any state may empower the executive thereof to make temporary appointment until the people fill the vacancies by election as the legislature may direct." Since ratification of the Seventeenth Amendment in 1913, the Senate records currently identify 198 appointments to fill vacancies in the office of U.S. Senator. During the period since ratification of the Seventeenth Amendment, most states have authorized their governors to fill Senate vacancies by temporary appointments. At present, in 35 states, these appointees serve until the next general election, when a permanent successor is elected to serve the balance of the term, or until the end of the term, whichever comes first. Ten states authorize gubernatorial appointment, but require an ad hoc special election to be called to fill the vacancy, which is usually conducted on an accelerated schedule, to minimize the length of time the seat is vacant. The remaining five states do not authorize their governors to fill a Senate vacancy by appointment. In these states, the vacancy must be filled by a special election, here again, usually conducted on an accelerated schedule. In one notable detail concerning the appointment process, six states require their governors to fill Senate vacancies with an appointee who is of the same political party as the prior incumbent. Following the emergence of controversies in connection with the Senate vacancy created by the resignation of Senator Barack Obama in 2008, several states eliminated or restricted their governors' authority to fill Senate vacancies by appointment, while both legislation and a constitutional amendment that would have required all Senate vacancies to be filled by special election were introduced in the 111th Congress. None of these measures reached the floor of either chamber, however, and no comparable measures have been introduced since that time.	14.8	0-8k	13,954
14	DOD’s policy is to ensure that eligible personnel and their families have access to affordable, quality housing facilities and services consistent with grade and dependent status, and that the housing generally reflects contemporary community living standards. From the inception of MHPI, the military departments were provided with various authorities to obtain private-sector financing and management to repair, renovate, construct, and operate military housing in the United States and its territories. Through these authorities, the military departments have entered into a series of agreements with private partners to provide housing to servicemembers and their families. The military departments have flexibility in how they structure their privatized housing projects, but typically the military departments lease land to private developers for 50- year terms and convey existing housing located on the leased land to the developer for the duration of the lease. The developer then becomes responsible for renovating and constructing new housing and for the daily management of these housing units. At the end of fiscal year 2017, 14 private partners were responsible for 79 privatized military family housing projects—34 for the Army, 32 for the Air Force, and 13 for the Navy and Marine Corps—in the United States, each of which includes housing at one or more military installation. The Deputy Assistant Secretary of Defense for Facilities Management, under the authority, direction, and control of the Assistant Secretary of Defense for Sustainment, is responsible for all matters related to MHPI and is the program manager for all DOD housing, whether DOD-owned, DOD-leased, or privatized. In this capacity, the Deputy Assistant Secretary is to provide both guidance and general procedures related to military housing privatization, as well as required annual reports to Congress on the status of privatized military housing projects. However, it is the responsibility of the military departments to execute and manage privatized housing projects, including conducting financial management and monitoring their portfolio of projects. Each military department has issued guidance that outlines its responsibilities for privatized housing, such as which offices are responsible for overseeing privatized housing projects. We have previously reported on DOD’s privatized housing program. Table 1 provides a summary of key findings and recommendations from our prior reports and the implementation status of the recommendations. Each military department conducts a range of oversight activities—some more extensive than others—for its privatized housing projects. For example, among other things, military departments review sample work order requests and inspect housing during the change of occupancy process. DOD guidance requires that the military departments ensure eligible personnel have access to quality housing facilities and services that generally reflect contemporary living standards. Further, DOD’s housing manual states that because privatization creates a long-term governmental interest in privatized housing, it is essential that projects be attentively monitored. Through its guidance, DOD delegates oversight responsibility of the individual privatized housing projects to each of the military departments. In addition, according to documents we reviewed, individual project business agreements set guidelines that convey the management, operation, and maintenance duties to the private partner, with the caveat that the military departments still have the right to access the premises or private partner records to ensure compliance with applicable laws. We determined that OSD and the military departments’ oversight has been limited in key areas. Specifically, our ongoing review showed (1) the scope of oversight of the physical condition of privatized housing has been limited; (2) performance metrics focused on quality of maintenance and resident satisfaction may not provide meaningful information on the condition of privatized housing; (3) there is a lack of reliable or consistent data on the condition of privatized housing; and (4) past DOD reports to Congress on resident satisfaction are unreliable due to inconsistent handling and calculation of the data, and therefore may be misleading. DOD delegates oversight responsibilities of the individual privatized housing projects to each of the military departments, and each military department has subsequently issued guidance outlining oversight roles and responsibilities. Military department oversight activities generally fall into two categories—(1) daily oversight of management and operations and (2) reviews of compliance with each project’s business agreements. Daily oversight of management and operations. Daily oversight of a project’s management and operations is to be conducted by each installation’s military housing office. Military housing officials told us activities to monitor the physical condition of housing units generally include reviewing sample work order requests, following up with a sample of residents to check on their experience with recently completed work, and inspecting housing units during the change of occupancy process. Based on our preliminary observations, the implementation and scope of these activities varies and can be limited. For example, during our site visits conducted from June through August 2019, we identified the following installation-specific practices: Military housing office officials at one Army installation told us that they inspect 100 percent of housing units that have completed change of occupancy maintenance. In contrast, officials from an Air Force installation told us that they inspect 10 to 20 percent of housing units that have completed change of occupancy maintenance. Military housing officials at one Marine Corps installation told us that for one of the two partners that own housing on the base, they had access to only 3 percent of completed work order tickets from the previous month, as reported to them by the private partner. Officials from a Navy installation told us that they had access to the private partner’s maintenance record system and would pull reports on new resident housing occupants who had made 6 or more maintenance calls in a 30-day period. Military housing officials at half of the sites we visited stated that staffing levels limited their ability to carry out oversight duties, such as work order data analysis and housing inspections. Reviews of compliance with each project’s business agreements. Reviews of compliance with a project’s business agreements are a joint effort between the local military housing office, the private partners, military department installation commands, and other echelons of command. These reviews can include neighborhood tours to view project amenities such as community centers, playgrounds, and pools, all of which are owned, maintained, and operated by the private partner companies, as well as exteriors of housing units. However, our preliminary work showed these reviews have been limited in the scope of their assessment of the physical condition of the housing units, as interior walk-throughs may have been limited to just a few housing units at each installation. According to military department officials, each department is currently taking steps to revise guidance and standardize daily oversight activities in an effort to provide consistent oversight across projects and installations, and to increase the focus of oversight on the physical condition of housing. The military departments are taking additional steps, such as increasing staffing levels, improving training for military housing office officials, and ensuring that housing officials have independent access to data. However, each military department is working to implement service-specific initiatives with only limited guidance from OSD on the level of oversight expected of the services as it relates to the condition of the housing. While existing OSD guidance provides objectives to the military departments for oversight of the condition of DOD-owned housing, guidance for privatized housing is focused on the implementation of projects, construction of new housing units, and financial management. The guidance does not include objectives for monitoring the condition of privatized housing projects, such as objectives focused on both ensuring the operation and maintenance of privatized housing to standards that provide safe living conditions for servicemembers and providing authorities to installation commanders to oversee those standards. We will continue to assess any implications of the lack of OSD guidance as part of our ongoing review. The military departments each use a range of project-specific performance metrics to monitor private partner performance, but our ongoing work showed that the metrics designed to focus on resident satisfaction and on the quality of maintenance conducted on housing units may not provide meaningful information or reflect the actual condition of the housing units. Most but not all of the private partners are eligible to receive performance incentive fees based on generally meeting the performance metrics established in each individual project’s business agreement. Private partner performance is measured through a variety of metrics, such as resident satisfaction, maintenance management, project safety, and financial management. To determine how well the private partners are performing under the metrics, military housing office officials told us that they rely on a range of specific indicators established in the project business agreements. However, the indicators themselves may not provide meaningful information on the private partner’s performance in maintaining quality housing units. For example, our preliminary work identified the following: Maintenance management. One indicator of performance of maintenance management that is regularly included in project business agreements measures how often the property manager’s response time to work orders meets required time frames established in the project’s business agreements. While this indicator measures the timeliness of the private partner’s response, it does not measure or take into account the quality of the work that was conducted or whether the resident’s issue was fully addressed. Some projects include indicators that aim to more directly measure quality, such as the number of work orders placed during the first 5 business days of residency, which may indicate the extent to which change of occupancy maintenance was completed. Resident satisfaction. One example of an indicator of resident satisfaction is whether a project has met the target occupancy rates established in the business agreements. An OSD official we spoke with and private partner officials told us they use occupancy as an indicator of satisfaction based on the assumption that residents would move if they were dissatisfied with their housing unit. However, based on our focus groups, this may not be a reliable assumption. Although most residents are not required to live in military housing, residents in each of our 15 focus groups indicated a variety of reasons for choosing to live in privatized housing, many of which did not have to do with their satisfaction with the quality or condition of their homes. For example, residents cited factors influencing their decision to live in privatized housing, such as living in close proximity to military medical or educational services for children or other family members who receive benefits through the military’s Exceptional Family Member Program, access to quality schools, and a lack of safe and affordable housing in the surrounding community. OSD and military department officials we spoke with recognized that the current metrics do not consistently focus on or prioritize the private partners’ performance with maintaining housing units and ensuring resident satisfaction. In October 2019 OSD issued new guidance standardizing the performance incentive fee framework across the military departments. According to OSD and the private partners with whom we spoke, this guidance was developed through a joint effort with the military departments and the private partners; it provides a framework where the metrics for resident satisfaction and maintenance management will account for a majority of the fee, with project safety and financial performance weighted less heavily. However, according to officials from OSD and officials we spoke with from each of the military departments, the specific indicators used to drive the metrics will need to be negotiated with each of the private partners for each project. Performance indicators designed to more directly measure the quality of maintenance conducted on housing units and resident satisfaction will provide military departments more transparency into private partner performance with regard to these two important metrics—metrics that are often directly tied to the performance incentive fees provided to the private partners. The housing projects’ business agreements typically include a requirement for the private partner to maintain a records management system to record, among other things, maintenance work requested and conducted on each housing unit. According to private partner officials, each company uses commercial property management software platforms that are used for activities such as initiating maintenance work orders and dispatching maintenance technicians. Some private partner officials also stated that data from the work order tracking systems were intended to prioritize and triage maintenance work, not to monitor the overall condition of privatized housing units. While data from these work order tracking systems may be useful for point-in-time assessments of work order volume at a given installation, military department officials told us that efforts are underway to monitor work order data to increase the military departments’ oversight and the accountability of the private partners for providing quality housing. However, in our ongoing work we observed that these data are not captured reliably or consistently for use in the ongoing monitoring of the condition of privatized housing units. We received and reviewed data from each of the 14 private partners’ work order tracking systems covering each of the 79 privatized family housing projects. Based on our preliminary analysis of the initial data provided by the private partners, we noted the following: Data anomalies. We identified anomalies in work order data from each of the 14 partners. For example, we identified instances of, among other things, duplicate work orders, work orders with completion dates prior to the dates that a resident had submitted the work order, and work orders still listed as in-progress for more than 18 months. Inconsistent use of terminology. Based on our preliminary review of the data provided by the private partners and discussions with private partner officials, we noted cases where work orders were inconsistently entered into the work order tracking systems with respect to two primary factors—(1) how the request is described by the resident or interpreted by the official entering the data, which can differ for each work order, and (2) the existing range of pre- established service category options in the private partner’s work order tracking system, which differ among the partners. Differing practices for opening and closing work orders. At some installations we visited, private partners noted changes in practices for opening and closing work orders, limiting the usefulness of the data in monitoring the status of work orders over time and thus the condition of privatized housing. According to military department officials, efforts to review data from the private partners’ work order tracking systems has increased, and military department officials told us that they have found similar limitations. However, there are no standard practices currently in place for assessing the accuracy and reliability of the work order data or for setting standard terminology and practices for opening and closing work orders. DOD is statutorily required to provide reports to Congress that include, among other things, information about military housing privatization projects’ financial health and performance and backlog, if any, of maintenance and repairs. These reports have included information on resident satisfaction with privatized housing based on results of the annual military department satisfaction surveys. Based on our preliminary work, we have determined that information on resident satisfaction in these reports to Congress on privatized housing has been unreliable and may be misleading due to variances in the data the military departments collect and provide to OSD and in OSD’s calculation and presentation of these data. In May 2019, OSD issued its report for fiscal year 2017, which stated that overall resident satisfaction for calendar year 2017 was 87 percent. For OSD’s fiscal year 2017 report, the military departments provided data on resident satisfaction based on information from the annual resident satisfaction surveys. Specifically, OSD’s instructions to the military departments required the military departments to report satisfaction based on resident responses to the question that asks: “Would you recommend privatized housing,” with results indicating how many tenants responded “yes,” “no,” or “don’t know.” However, the military departments’ approaches for collecting data in their annual resident satisfaction surveys varies, which limits their ability to assess whether residents would recommend privatized housing. Instead of asking whether residents would recommend privatized housing, the military departments’ annual resident satisfaction survey asks residents the following: “How much do you agree or disagree with the following statement, ‘I would recommend this community to others.’” A resident’s satisfaction with his or her community and inclination to recommend it to others may not be reflective of satisfaction with either the privatized housing unit or privatized housing in general. Residents are then provided the following response categories on a scale of 5 to 0: (5) strongly agree, (4) agree, (3) neither agree nor disagree, (2) disagree, (1) strongly disagree, and (0) not applicable, no opinion, don’t know, or no answer. Through our analysis, we have identified variances in the methods the military departments use to translate the residents’ responses into the “yes,” “no,” or “don’t know” categories. The variances in how the military departments calculate “yes,” “no,” or “don’t know” result in inconsistencies in how resident satisfaction is ultimately reported to Congress. Specifically: For the fiscal years 2015 through 2017 reports, Navy officials told us that they counted responses reported in categories 5 and 4 as “yes,” responses in categories 2 and 1 as “no,” and responses in categories 0 and 3 as “don’t know.” For the same time period, Air Force officials told us that they counted responses in categories 5, 4, and 3 as “yes,” responses in categories 2 and 1 as “no,” and responses in category 0 as “don’t know.” The Army calculated responses differently for the fiscal years 2015, 2016, and 2017 reports. Specifically: For the fiscal year 2015 report, the Army counted responses in categories 5, 4, and 3 as “yes,” responses in categories 2 and1 as “no,” and responses in category 0 as “don’t know.” For the fiscal year 2016 report, the Army counted responses in categories 5 and 4 as “yes,” responses in categories 2, 1, and 0 as “no,” and responses in category 3 as “don’t know.” For the fiscal year 2017 report, the Army counted responses in categories 5 and 4 as “yes,” responses in categories 2 and 1 as “no,” and responses in categories 0 and 3 as “don’t know.” In our ongoing work, we have also identified instances of errors and inaccuracies in how OSD calculates these data and reports on resident satisfaction to Congress. Specifically, we found missing data points and incorrect formulas, among other errors, in OSD’s calculation of the data submitted by the military departments for OSD’s fiscal year 2017 report to Congress. For example: The formula used by OSD to calculate overall resident satisfaction for the fiscal year 2017 report did not include data for several projects, including for four Army projects that, as of September 30, 2017, accounted for over 18 percent of the Army’s total housing inventory. Additionally, we identified that OSD did not include resident satisfaction data for a Navy project in its fiscal year 2017 report to Congress, even though when we reviewed the Navy’s submission to OSD, we found that the Navy had included data for that project. For one Air Force project, OSD reported identical resident satisfaction data for the fiscal year 2015, 2016, and 2017 reports, despite the fact that Air Force officials had noted in their submissions to OSD that the resident satisfaction data were from the annual resident satisfaction survey conducted in December 2013. We also found that presentation of data in OSD’s report to Congress may be misleading because OSD did not explain the methodology it used to calculate the overall resident satisfaction percentage or include caveats to explain limitations to the data presented. Specifically, OSD did not include information on overall response rates to the annual satisfaction survey for each military department, nor did it include response rates by project. Low response rates can create the potential for bias in survey results. For example, in the report for fiscal year 2017, OSD reported that 25 percent of residents living in renovated housing units for one privatized housing project were satisfied with their housing, but we found that only four residents had provided responses to this question. Thus, only one resident reported being satisfied. In addition, we found that OSD did not provide an explanation in the report for why five projects were listed as “not applicable.” According to OSD officials, this error was a quality control issue that they plan to address. According to OSD officials, OSD and the military departments are reviewing the resident satisfaction survey questions and will be identifying and implementing measures to ensure an accurate and reliable process to compile, calculate, report and compare MHPI resident satisfaction by military department and across DOD. Military housing office officials located at each installation are available to provide resources to servicemembers experiencing challenges with their privatized housing, among other services, but these offices have not always effectively communicated this role to residents of privatized housing. The military housing office is to provide new residents with information on their local housing options, to include referral services for housing options. According to some military housing office officials, the military housing office then works with the private partner to identify the eligibility and type of home the servicemember qualifies for, if the resident chooses to live in privatized housing. According to some residents we spoke with in one of our focus groups, beyond this initial interaction, military housing office officials generally do not interact with residents on a regular basis. Additionally, residents who participated in our focus groups noted they were sometimes confused about the military housing offices’ roles and responsibilities with regard to the maintenance of their home; there was a perception that the military housing office was not working independently of the partner in the residents’ best interest; or they did not know the military housing office existed. The military department oversight agencies have acknowledged resident confusion and a lack of awareness regarding the role of the military housing offices as an issue. In May 2019, the Army Inspector General reported to the Secretary of the Army that at 82 percent of Army installations with privatized housing, residents did not know how to escalate issues to either the private partner or the Army housing office. Additionally, the Army Inspector General reported that installation command teams and staff cited multiple circumstances where military housing offices and tenant advocacy roles and responsibilities were unclear. Further, some military housing office officials with whom we spoke during our site visits acknowledged the gap in resident awareness regarding the existence and purpose of the military housing office. Some military housing officials also noted that some residents are unaware of the difference between the military housing office and the private partner office, due in part to their physical co-location and unclear building signage. Each military department has issued information that establishes that its housing offices can assist in the resident dispute resolution process. Specifically, if servicemembers are experiencing a dispute with a private partner, military department guidance establishes varying roles for their respective military housing office officials. For example, Army policy states that each installation should have an official tasked with supporting servicemembers regarding resident issues that cannot be resolved by the private property manager. This individual is also responsible for resolving every resident complaint and the military housing office, if required, can request mediation by the garrison commander. Despite this guidance, according to DOD officials, the military departments had generally decreased their staffing and oversight of daily privatized housing operations since the enactment of MHPI. For example, Army officials we spoke with in January 2019 told us that they typically filled 80 percent of available military housing office positions across their installations. Additionally, officials stated that housing offices were generally staffed with two or three officials responsible for assisting servicemembers with housing needs both on the installation as well as in the local community. Further, the officials told us that the team at one Army installation was decreased from about 15 to 3 positions. According to OSD officials, while housing offices should generally not require the number of personnel that were necessary prior to privatization, reductions following sequestration reduced housing staff below the level necessary to fully perform required privatized housing oversight as it was originally envisioned at the outset of the program. OSD has recognized that the military departments’ communication with residents about their role as a resource for them has been limited. In February 2019, the Assistant Secretary of Defense for Sustainment testified before Congress that a way forward in addressing resident concerns would require focus in three key areas: communication, engagement, and responsiveness. Some military housing office officials told us they have taken steps to increase resident awareness, such as increasing the advertising of the military housing office’s role and contact information, conducting town hall meetings, and rebranding their military housing offices to differentiate them from the private partners. For example, a Marine Corps housing office official stated that the housing office established a document, which is distributed to residents by the private partner, informing residents of housing office contact information and the service’s 3-step dispute resolution process, but efforts have not been standardized across all projects. OSD, the military departments, and the private partners have identified and begun collaborating on a series of initiatives aimed at improving residents’ experiences with privatized housing, but our preliminary work showed that these efforts face challenges. According to an OSD official, a series of initiatives has been identified and are some are currently in various phases of development and implementation. Tri-service working groups, each chaired by a designated military department and comprising officials and legal counsel from each military department as well as private partner representatives, are leading efforts to develop and implement the initiatives. In particular, DOD and the private partners are collaborating on the following key initiatives: Development of a Resident Bill of Rights. The Resident Bill of Rights is to provide clarity to residents on their rights and responsibilities while living in privatized military housing. Development of a common tenant lease. The common lease framework will be binding in all 50 states, but also include addendums to capture state and local laws, as required. The common lease would provide residents of privatized housing with similar terms in their leases, regardless of where they are living and which private partner owns their housing unit. Establishment of a resident advocate position. The resident advocate position, according to an OSD official, will be available to provide independent advice, education, and support to residents. However, an OSD official noted that the military departments have not yet determined whether this individual would be active duty or civilian and where the position would fall organizationally—specifically, whether it would be part of the military housing office. Development of a standardized adjudication process. The military departments and private partners are developing a common dispute resolution process that would apply to all projects. According to OSD, this process would provide residents the right to have housing issues heard and resolved by a neutral third party. DOD and Congress are exploring additional initiatives and legislative proposals. However, both DOD and private partner officials have noted several challenges that could impact their ability to implement some of these initiatives and legislative proposals. Key challenges include the following: The need to collaborate with and obtain input and agreement from the large number of stakeholders involved in privatized housing. Many of the initiatives aimed at improving privatized housing require not only agreement between DOD and the private housing partners, but may also require discussion with and approval by the project bond holders. This requirement could limit the military departments’ legal authority to unilaterally make changes to existing business agreements. The private partners noted that the bond holders may be reluctant to agree to changes to the business agreements that could result in higher project costs. Limited military department resources. The military departments had reduced their involvement in daily privatized military housing operations as part of the overall privatization effort. This included reducing staffing levels at the installations. Each of the military departments has plans to increase the military housing office staffing at each installation to allow for enhanced oversight. The potential for negative financial impacts to the projects that may outweigh the intended benefits of the initiatives. Representatives from many of the private partners we met with expressed concern that some proposed initiatives may result in a financial burden for their projects, such as legal fees associated with the development of a common lease and the various addendums that would be required; unanticipated costs of hiring outside third party inspections; or the potential impact to project revenue that would result from residents withholding rent. Some of the private partners noted that the financial impact of unfunded requirements to projects that are already experiencing financial distress could result in even fewer funds available to reinvest in the physical condition of the housing units. In summary, while the privatization of military housing has resulted in private partners assuming primary responsibility for military housing, DOD maintains responsibility for overseeing privatized housing and ensuring that eligible personnel and their families have access to affordable, quality housing facilities and services. While DOD and the private partners have taken steps to address concerns raised about their ability to adequately maintain and oversee the condition of these housing units and provide quality housing for servicemembers, the extent to which the efforts will be sustained and result in improvements remains unclear. We are continuing our broader review of DOD’s oversight of privatized housing, including the issues addressed in this statement and will make recommendations as appropriate in our final report, which we anticipate issuing in early 2020. Chairman Inhofe, Ranking Member Reed, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. If you or your staff members have any questions about this testimony, please contact Elizabeth A. Field, Director, Defense Capabilities and Management, at (202) 512-2775 or FieldE1@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Kristy Williams (Assistant Director), Tida Reveley (Analyst in Charge), Austin Barvin, Ronnie Bergman, Vincent Buquicchio, William Carpluk, Juliee Conde-Medina, Mae Jones, Jordan Mettica, Kelly Rubin, Monica Savoy, and John Van Schaik. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.	In 1996, Congress enacted the Military Housing Privatization Initiative in response to DOD concerns about inadequate and poor quality housing for servicemembers. Today, private partners are responsible for the ownership, construction, renovation, maintenance, and repair of about 99 percent of housing units on military bases in the continental United States. DOD's policy requires that the department ensure eligible personnel and their families have access to affordable, quality housing facilities. The Office of the Secretary of Defense is responsible for providing guidance and general procedures related to military housing privatization. The military departments are responsible for executing and managing privatized housing projects. Drawing from ongoing work, GAO discusses (1) DOD's oversight of privatized military housing for servicemembers and their families, (2) efforts of the military departments to communicate their roles and responsibilities to servicemembers and their families, and (3) DOD and private partner development and implementation of initiatives to improve privatized housing. GAO reviewed relevant policies, guidance, and legal documents; visited 10 installations; conducted 15 focus groups; analyzed maintenance work order data; and interviewed relevant DOD and private partner officials. GAO will continue its ongoing work and make recommendations as appropriate in the final report. Each military department conducts a range of oversight activities—some more extensive than others—for its privatized housing projects, but these efforts have been limited in key areas. Specifically, based on GAO's ongoing work: The Department of Defense (DOD) conducts oversight of the physical condition of housing, but some efforts have been limited in scope. Military departments have guidance for conducting oversight of the condition of privatized housing. This oversight generally consists of reviewing a sample of work order requests, visually inspecting housing during change of occupancy, and conducting other point in time assessments. However, GAO found that these efforts are limited in scope. For example, interior walk-throughs may have been limited to just a few homes at each installation. DOD uses performance metrics to assess private partners, but metrics may not provide meaningful information on the condition of housing. The Office of the Secretary of Defense (OSD) has recently issued guidance to ensure consistency in the framework used to measure project performance. However, the specific indicators used to determine if the metrics are being met may not fully reflect private partner performance. For example, a common measure is how quickly the private partner responded to a work order, not whether the issue was actually addressed. DOD and private partners collect maintenance data on homes, but these data are not captured reliably or consistently. DOD is expanding its use of work order data to monitor and track the condition of privatized housing. However, based on GAO's analysis of data provided by all 14 private partners, these data cannot reliably be used for ongoing monitoring of privatized housing because of data anomalies and inconsistent business practices in how these data are collected. DOD provides reports to Congress on the status of privatized housing, but some data in these reports are unreliable and may be misleading. DOD provides periodic reports to Congress on the status of privatized housing, but reported results on resident satisfaction are unreliable due to variances in the data military departments provide to OSD and in how OSD has calculated and reported these data. Military housing offices located at each installation are available to provide resources to servicemembers experiencing challenges with their privatized housing, but GAO's ongoing work showed these offices have not always effectively communicated this role to residents. For example, residents in GAO's focus groups noted confusion over the roles and responsibilities of these offices, and military housing officials have found that residents could not readily differentiate between military and private housing officials. DOD, working with the private partners, has made progress in developing and implementing a series of initiatives. However, both DOD and private partner officials have noted several challenges that could affect implementation, including limitations to DOD's legal authority to unilaterally make changes to the terms of the projects and limited resources to implement increased oversight.	17.4	0-8k	180
15	ROTC is the largest of the three major officer commissioning programs for DOD. The other two major commissioning officer sources include the military service academies and Officer Candidate Schools/Officer Training School. As shown in figure 1, in fiscal year 2012, the ROTC program produced nearly half of all the newly commissioned active duty officers from the three major commissioning sources. ROTC programs prepare college and university students to serve as officers in the military services. The program was established by the National Defense Act of 1916 to supplement the military academies in preparing selected students for commissioned military service and to provide officers for the reserve forces. The services organize their ROTC programs into administrative units and assign a command structure, including a commanding officer, to each unit. In addition to a commanding officer, each ROTC unit has additional staff assigned to the unit, including enlisted and officer personnel, and for Army and Navy, civilian personnel. Table 1 below provides specific information about military and civilian personnel assigned to ROTC units for each service. The ROTC units are spread across the country, as represented in figure 2. Most states have a unit from each service located within the state and all states have at least one unit located within the state. Each unit may support students at more than one school. Typically, in these cases, the unit’s command staff is assigned to the school that has been designated as the host, and students travel from their affiliate school to the host unit for their ROTC activities. The Navy maintains 12 ROTC units in which the command structure and ROTC activities are divided between more than one host school. Naval ROTC refers to these as consortium units. This typically happens no later than the junior year, prior to the service’s advanced ROTC training. regarding ROTC. The services’ headquarters determine the number of newly commissioned officers needed annually to support the services’ congressionally mandated end strength requirements for military personnel by considering beginning strength, losses, and transfers. They also provide guidance on the number of officers expected from each officer commissioning program, including ROTC. To meet the requirements set by service headquarters, the military services typically operate ROTC programs using a 5-year production cycle, beginning the year prior to school entry and culminating in the graduation year. ROTC’s relevance extends beyond its quantitative production capability. ROTC supports the concept of a citizen-soldier and the all-volunteer force with its potential to provide officers from a variety of backgrounds and experiences available within the student population on a college or university campus. ROTC also provides a method of military outreach and contact with the public. By statute, at least one ROTC unit must be established and maintained in each state if certain conditions are met. The military services’ ROTC programs each came within a few percentage points of meeting or exceeding the annual officer production goals that they established to meet their respective authorized end strengths. However, each service reported that various factors may affect their ability to meet these goals, and that they have faced challenges commissioning officers for certain occupational specialties. In addition, half of all ROTC units did not produce the minimum average annual production of officers over a 5-year period required by DOD to justify investment in an ROTC unit. In fiscal years 2008 through 2012, each service came within a few percentage points of meeting or exceeding its overall ROTC officer production goals for newly commissioned officers. The military services annually issue guidance that specifies goals for the number and types of officers that their respective ROTC programs need to produce to meet their current authorized end strength as well as future needs that are projected over a 5-year period. For the 5 years we reviewed, fiscal years 2008 through 2012, the Army’s ROTC program goal for newly commissioned officers ranged from 4,500 to 5,350; the Navy’s goal, which includes officers for the Marine Corps, ranged from 1,163 to 1,387; and the Air Force’s goal ranged from 1,788 to 1,940. The services generally met these overall production goals for newly commissioned officers. Specifically, as shown in table 2 below, the Army met at least 95 percent of its goal, the Navy met at least 91 percent of its goal, and the Air Force met at least 96 percent of its goal during this period. Furthermore, the Army and the Air Force each exceeded their production goals for 3 of the 5 years we studied. Table 2 shows the production goal, actual production, and the percent of the goal met by each service for fiscal years 2008 through 2012. Service officials told us that they manage ROTC enrollments, contract offers, and scholarship awards to help ensure that they reach but do not significantly exceed their officer production goals. In the event that an over- or underproduction of officers is anticipated, each service correspondingly adjusts the number of people they plan to admit into future classes at their respective Officer Candidate School or, in the case of the Air Force, Officer Training School. Neither OSD nor the services have established performance measures that provide a comprehensive understanding of the overall effectiveness and efficiency of ROTC programs. Specifically, current measures do not take into account a service’s investment in a particular ROTC unit, and are not clearly defined to help ensure that they are objectively applied. In addition, over the past decade, the services have conducted a total of 11 evaluations to identify units for consolidation or closure. However, the evaluations have largely occurred on an ad hoc basis and are narrowly focused on assessing the productivity of individual ROTC units, rather than the overall performance of the program. Furthermore, although the services’ evaluations of ROTC units yielded recommendations for consolidation or closures, no closures have occurred as a result. DOD’s management of ROTC programs is hampered by not having performance measures that provide a comprehensive understanding of the overall cost-effectiveness and efficiency of ROTC programs. Key attributes of successful performance measures include clearly defined, comprehensive measures that enable an organization to evaluate accomplishments, make decisions, and balance competing priorities. DOD’s instruction specifies five factors for the military services to consider before closing a unit, including, the (1) quality of the officers produced by the unit, (2) operations and maintenance cost of maintaining the unit, (3) numbers of officers produced to meet service commissioning goals from categories that are difficult to achieve, (4) number of officers produced by the unit, and (5) number and location of units in an area or state where the unit being considered for closure resides. However, several of these factors, which officials told us are the measures they currently use to assess the programs, are not clearly defined. Specifically, DOD’s instruction directs the services to consider the quality of officers produced by a unit that is being evaluated for closure. However, the instruction does not include guidance on how the services should define and assess quality, which could lead to the inconsistent application of the measure by the services. Another example is that DOD’s instruction directs the services to consider the geographic representation of ROTC units. However, the instruction does not describe how concentrated the ROTC presence in an area or state should be, which could lead the services to under- or over-emphasize the relative importance of an ROTC unit to a particular area. Furthermore, DOD’s instruction requires officer production from each unit to be adequate to justify DOD investment and generally requires ROTC units to produce a 5-year average of 15 officers annually to remain viable. However, DOD’s production requirement does not take into account a service’s investment in a particular ROTC unit because it does not account for cost-related factors, such as the differences in the cost of tuition for public and private colleges or for in-state and out-of-state students. Moreover, the tuition cost difference is not insignificant, with college tuition for some schools costing six times more than the annual average in-state tuition of about $7,100 for a 4-year college or university. Despite the significant variance in tuition, all ROTC units are subject to the same numerical production requirement regardless of the actual cost each service incurs at a particular college or university. Because such cost data are not consistently accounted for, it is not clear how the production requirement can be used to justify DOD’s investment. The absence of clearly defined measures also affects the objectivity of DOD’s unit closure consideration factors because it requires the services to subjectively determine how each factor should be defined and applied. Further, these determinations can change over time without explanation. For example, we reviewed the methodologies used by each service to identify units for potential closure and found that, in addition to the five factors to consider before closing a unit, two of the services incorporated additional factors into the closure consideration process. For example, in fiscal year 2012, the Navy included the U.S. News and World Report ranking of the schools associated with the units as 1 of 12 factors in its closure considerations, and the Air Force included “strategic partnerships” as an important consideration. However, neither service identified specifically how these factors correlate to the factors in DOD’s instruction, defined how these factors contribute to a service-specific need, or explained why these factors were added to the 2012 analysis. In comments on a draft of this report, Navy officials pointed out that the U.S. News and World report ranking correlates to the quality of applicants to the Navy Nuclear Propulsion Program, a specific Navy officer accession requirement. However it is not clear specifically how the Navy made that correlation, nor why the Navy added this ranking for its 2012 review. We recognize that the services need some flexibility to prioritize factors on the basis of their individual needs for newly commissioned officers, but inconsistent measurements limit the services’ ability to compare program progress, results, and efficiency over time. We reviewed service policies for ROTC programs and likewise found no additional guidance on how to define or apply the closure consideration factors in DOD’s instruction. Although the Army regulation specifies a process for categorizing potential closures, Army officials told us that the disestablishment categories specified in the regulation have not been used for years because, according to officials, the process was too time consuming. The variability of the factors used in considering ROTC units for closure hinders the services’ efforts to compare evaluation results over time, even within a single service. Until clearly defined and comprehensive performance measures are established to evaluate overall program performance, the services will have limited information available about their ROTC programs’ overall progress toward their goals. In the absence of fully developed performance measures, the military services have evaluated aspects of their respective ROTC programs. However, the evaluations are not routine and systematic and have not yielded closures that service officials believe are needed. Our prior work has shown that results-oriented program management practices include routine program evaluations, which are a key source of information about how well a program is working and whether it is achieving its intended results. Further, these practices indicate that a body of evidence is more valuable to decision makers than a single study; multiple studies with similar results strengthen confidence in their conclusions. The military services’ ROTC programs have, over the past decade, conducted a total of 11 evaluations—largely driven by the need to produce cost-savings to help offset DOD’s near-term budget shortfalls— to identify ROTC units that could potentially be consolidated or closed. These evaluations have provided the services with some useful information on the performance of ROTC programs, but they have largely occurred on an ad hoc basis because the services have not established a systematic process to routinely evaluate ROTC program performance using comprehensive performance measures. For example, service officials told us that the Army conducted 3 evaluations over 6 years; the Navy conducted 4 evaluations over 3 years; and the Air Force conducted 4 evaluations over 8 years on production of officers by individual ROTC units. These evaluations provided information about individual ROTC unit performance, with a focus on officer production. However, the evaluations did not assess the overall ROTC program against strategic goals and objectives. Our prior work has shown that leading organizations that have progressed toward results-oriented management use performance information to identify gaps in performance, to improve organizational processes, and to improve their performance by aligning measures with the goals and objectives at each level of the organization. Further, the commitment of managers to results-oriented management is critical to the increased use of performance information that could be measured against ROTC program goals and objectives to influence policy and program decisions. In addition, this commitment could be demonstrated by their willingness and ability to make decisions and manage programs on the basis of results, and to inspire others to embrace such a model. Without routine evaluations that measure progress toward strategic goals and objectives, decision makers cannot determine the cost-effectiveness or efficiency of ROTC programs over time and cannot reliably identify trends in program performance. Furthermore, without DOD guidance for comprehensive evaluations of ROTC programs, each service’s program managers developed a service’s own methodology to evaluate the productivity of ROTC units. Each service’s methodology varies based on their chosen combination of factors from DOD’s instruction, and how they are prioritized. As we previously noted, DOD Instruction 1215.08 requires the military services to consider the operation and maintenance cost of maintaining ROTC units that are being evaluated for productivity and possibly considered for closure. However, we reviewed the methodologies used by each service to evaluate unit productivity and found that the operations and maintenance costs of ROTC units were not routinely considered in their evaluations. Specifically, in recent evaluations of unit productivity, the Army and the Air Force did not consider any ROTC costs, and the Navy considered only the cost of tuition. As a result, the services may be using results of incomplete evaluations to draw conclusions about unit performance. Table 5 further details the methodologies used by each service in recent assessments of unit productivity. Moreover, although the services’ evaluations of ROTC units yielded recommendations for consolidation or closures, no closures have occurred as a result. DOD Instruction 1215.08 specifies that the Secretaries of the military departments shall, among other things, establish, operate, and disestablish ROTC units, and that the decision to disestablish a ROTC unit is the prerogative of the Secretary of the military department concerned. Although DOD guidance specifies service Secretary responsibilities for and the authority to close ROTC units, service officials told us that recommended closures and consolidations have not been acted on because some senior service officials have concluded that it is easier to maintain underproductive ROTC units than attempt to secure the congressional support needed for their closure. Importantly, DOD’s instruction gives service Secretaries discretion on which units to close. However, until the services conduct routine evaluations of ROTC programs that are based on a comprehensive set of performance measures, the programs risk having more units than needed or units that are not most effectively located to meet service goals for their officers. OSD and the military services are generally assigned responsibility for conducting oversight of ROTC programs. Although the Under Secretary of Defense for Personnel and Readiness conducts some oversight functions such as setting policy, DOD’s Instruction 1215.08 does not specify department-level review of performance measures. Further, services do not consistently communicate with key stakeholders, such as members of Congress and schools, about performance of ROTC programs, except when closure decisions are being considered. This has contributed to difficulty gaining political support for such closures. ROTC programs are governed by both DOD and service-level guidance. Key attributes of results-oriented program management include the cascading of goals and objectives throughout an organization and aligning performance measures with the objectives from the executive level down to the operational level. In addition, internal control standards require that management sets and monitors these objectives and that these responsibilities should be appropriately documented. At the department level, the purpose of DOD Instruction 1215.08 is to establish policy, assign responsibilities, and prescribe procedures for DOD oversight of ROTC. The instruction assigns responsibility for these actions to the Under Secretary of Defense for Personnel and Readiness and the Secretaries of the military services. Specifically, DOD Instruction 1215.08 tasks the Under Secretary of Defense for Personnel and Readiness with establishing policy and providing implementing guidance, resolving matters of conflict among the services that are operating ROTC units, approving methodologies for closure in coordination with the Under Secretary of Defense (Comptroller), and receiving annual reports on costs and budget for service ROTC programs.does not specify responsibilities for the Under Secretary to conduct oversight related to monitoring performance of ROTC programs against goals and objectives using performance measures. However, DOD’s instruction Further, we found that the Under Secretary of Defense for Personnel and Readiness is not fully implementing oversight responsibilities that exist in guidance. While the Under Secretary of Defense for Personnel and Readiness has established DOD’s policy related to ROTC in DOD Instruction 1215.08, and officials from that office told us that they resolve conflicts among the services related to ROTC, the officials acknowledged that they do not conduct the other oversight activities specified in guidance. First, OSD officials told us that they do not review and approve the services’ methodologies for proposed unit closures because they see it as encroaching on the services’ authority to man, train, and equip their respective forces. Given that DOD Instruction 1215.08 requires this approval, which is to occur when a military department proposes closure of a particular unit it is difficult to understand how this methodology approval function, in connection with a proposed decision of a military service, could be viewed as an encroachment. Moreover, DOD officials did not further elaborate on or provide additional support for their position that approving a methodology, as set forth in the DOD instruction, is not an appropriate oversight function to be performed at the department level. In light of the ad hoc reviews by the services noted earlier in this report, such oversight by the Under Secretary of Defense for Personnel and Readiness that is clearly delineated in guidance could support efforts to improve the consistency of the services’ application of performance measures and evaluations. Second, OSD officials told us that they stopped enforcing a requirement for annual reports from the services identifying the cost and budget for their respective ROTC programs—even though the officials viewed those reports as useful in facilitating oversight—in response to the department’s efficiency initiatives, which removed reporting requirements related to internally generated oversight reports. To regain some of the information on program visibility that it no longer obtains through the reports, OSD officials told us that they instead use data from service budget submissions to estimate ROTC program cost data that is less specific than the data that were previously obtained through the services’ automatic submission of these reports. Moreover, because they receive the data after it is submitted for the budget, there is little opportunity for the office to make changes or affect future management decisions. In addition, as noted previously, the DOD and service-level guidance provide performance measures that do not provide a comprehensive understanding of the overall cost-effectiveness and efficiency of ROTC programs. With (1) the absence of OSD following some requirements in existing guidance, and (2) weaknesses we identified in performance measures in both OSD and service guidance, it is unclear how OSD and the services will each conduct effective oversight of ROTC programs. The military services have had difficulty gaining buy-in for recommendations to close dozens of underproductive ROTC units collectively across the services, in part because they do not have an effective strategy for communicating with stakeholders such as Congress or school administrators about ROTC program performance. Stakeholder involvement is an important strategy that we have identified in our past work to facilitate agencies’ use of evaluations in program management and policy making. Stakeholder involvement is best facilitated when organizations reach out early to gain buy-in, engage in regular communication, and build trusting relationships—even when faced with the possibility that political or ideological concerns may override evaluation findings in decision making. In addition, our past work has shown that key elements of a results-oriented oversight framework include communicating results and using performance information to make decisions for improvement. As previously noted, the military services collectively have conducted 11 assessments of unit productivity in the past 10 years—all of which have produced proposals recommending selected ROTC units for consolidation or closure. However, no closures have occurred as a result. The military services have been unsuccessful in completing any of these politically sensitive consolidations or closures in part because and prior the services do not proactively and periodically engage congressional stakeholders on ROTC program performance. Specifically, service officials told us that DOD Instruction 1215.08 does not require congressional notification about ROTC program performance and that the decision to close units is the prerogative of the Secretary of the military department concerned. Nonetheless, as a courtesy, the services have, in the past, provided Congress with a list of units that are being recommended for consolidation or closure. Furthermore, OSD officials stated that the lack of closures in successive rounds of assessments of unit viability is producing a growing backlog of underproductive units. As a result, service officials acknowledged that this increasing number of underproductive ROTC units may make congressional acceptance of all the closures at one time difficult to achieve. We have previously reported on the department’s lack of reporting and communication of ROTC program performance. For example, in our 1973 and 1977 reports we found that the services’ reporting to DOD and Congress were inadequate to make necessary judgments on ROTC program effectiveness. Additionally, in follow-on reports on ROTC and officer commissioning programs in 1991 and 1993, we found that DOD and the services had not made any significant progress in improving their ability to report ROTC program performance. established at a college or university, school administrators have to agree to various requirements, to include granting the academic rank of professor to the senior commissioned officer assigned to the program at that institution and adopting the military coursework for ROTC into its curriculum. Further, DOD Instruction 1215.08 requires the military services—prior to recommending a unit for consolidation or closure—to advise schools whose ROTC units are not producing enough officers to justify investment, and to work closely with those schools to restore officer production to acceptable levels. However, the military services do not consistently adhere to this requirement, and thus may be missing important opportunities to build awareness about the ROTC program and to leverage the support of schools in meeting annual production goals. For example, Army and Navy officials told us that they currently do not regularly communicate with school administrators about the level of officer production at their respective college or university. In contrast, Air Force officials told us that they provide written notification annually to participating colleges and universities on their level of officer production. Until the military services establish a formal strategy to communicate with key stakeholders on ROTC program performance, the military services will find it difficult to obtain the support that is needed to make the necessary changes to improve the efficiency and effectiveness of ROTC programs. While ROTC programs continue to be the largest and most important source of newly commissioned officers for DOD, they do so with a structure where half of the units do not meet DOD’s production requirements. Further, service efforts to revise this inefficient structure are hampered by performance measures that are not clearly defined, allow for inconsistent application of factors for closure, and do not provide a comprehensive understanding of programs’ efficiency or cost- effectiveness. Moreover, the department’s management approach has not required routine program evaluations and this has led to ad hoc analyses that present challenges in supporting unit closure recommendations. Clearly defined and comprehensive performance measures and routine evaluations using these measures against strategic goals and objectives would give OSD and the services tools to identify, collect, and evaluate a range of relevant performance information for their ROTC programs. This information, particularly when available over a period of time, would allow OSD and the services to recognize the programs’ accomplishments, balance competing priorities, and address the retention or disestablishment of underproductive units. Effective oversight and regular communication with stakeholders are critical to the program’s effectiveness and continued success. Clear lines of responsibility when combined with performance measures provide leadership and decision makers with the transparency and authority required to make difficult decisions about the program. In addition, communication with key stakeholders, such as Congress and school administrators, about ROTC performance is important to raising awareness about the program and ensuring that program-related decisions can be implemented effectively. To help ensure that OSD, the military services, and congressional decision makers have a comprehensive understanding of whether ROTC programs are achieving desired results in a cost-effective and efficient manner, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness, in conjunction with the Secretaries of the military services, to establish a systematic process to routinely evaluate ROTC program performance that includes taking the following three actions: establish performance measures that are clearly defined and require routine evaluations of ROTC programs that measure progress against the strategic goals and objectives of ROTC programs; and use the performance information resulting from ROTC program evaluations to assess and document the need for the existing number of units, To help improve the oversight and accountability of the military services’ ROTC programs, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to take the following three actions: reexamine and clarify DOD Instruction 1215.08 to clearly delineate roles and responsibilities for oversight of ROTC programs; coordinate with the military services to ensure that service ROTC guidance aligns with the updated DOD instruction; and develop and implement, in conjunction with the Secretaries of the military services, a strategy to periodically communicate with Congress and other key stakeholders on ROTC program performance. In written comments on a draft of this report, DOD concurred with our six recommendations to make management, oversight, and accountability improvements to ROTC programs. DOD also described steps that it planned to take in response to our recommendations. DOD’s comments are reprinted in appendix IV. DOD also provided technical comments on the draft report, which we incorporated as appropriate. Regarding our first recommendation to establish performance measures that are clearly defined and include cost components, DOD concurred with our recommendation but stated that our report contained a “minor discrepancy” because it did not include the Navy’s explanation of how a particular unit closure consideration factor—outside of those specified in DOD Directive 1215.08—contributed to a service-specific need. Specifically, our draft report noted that, in fiscal year 2012, the Navy included the U.S. News and World Report ranking of the schools affiliated with a Naval ROTC unit as one of twelve factors included in its unit closure consideration process, but that it did not define how its use of this factor correlated to its need for a specific type of officer. We updated the draft to include the Navy’s comment that U.S. News and World Report ranking correlates to the quality of applicants to the Navy Nuclear Propulsion Program, a specific Navy officer accession requirement. We also clarified that because the services are required to subjectively determine how factors should be applied, these factors can change over time without justification. We therefore continue to believe that these inconsistent measurements limit the services’ ability to compare program progress, results and efficiencies over time. For our other five recommendations, DOD concurred with each of them and estimated actions would be completed by July 2015. We encourage DOD to begin taking actions now to facilitate implementation of these recommendations as soon as possible. We are sending copies of this report to the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, the Secretaries of the Army, the Navy, and the Air Force, and appropriate congressional committees. In addition, this report will also be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-3604 or farrellb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V. To assess the extent to which the military services’ ROTC programs met goals and minimum requirements for producing officers over a 5-year period, we obtained and analyzed ROTC unit production data from each of the military services for fiscal years 2008 through 2012 and fiscal year 2012 enrollment data. We chose to assess the officer production from each service’s ROTC program for fiscal years 2008 through 2012 because it is the most recently completed 5-year period at the time of our review. We determined the overall productivity of the services’ ROTC programs by comparing the number of ROTC officers produced to the ROTC officer goals as outlined in service-specific guidance for fiscal years 2008 through 2012. Using fiscal year 2012 data found in fiscal year 2014 budget documents and other service documents, we compared overall officer production with other major commissioning sources. We determined the productivity of ROTC units by comparing the average annual production of individual units from fiscal year 2008 through 2012 to the Department of Defense’s (DOD) minimum production requirement in the DOD Instruction for Senior ROTC (DOD Instruction 1215.08)—a minimum of 15 officers a year averaged over 5 years for 4-year schools and a minimum of 7 officers a year averaged over 5 years for 2-year schools. We also analyzed the data provided to determine the degree to which the units are not meeting minimum production requirements and the degree to which the units met minimum production requirements. In particular, we analyzed ROTC officer production data from fiscal years 2008 through 2012 to determine (1) the number and percentage of ROTC units that met and did not meet the DOD minimum production requirement for ROTC officer production and (2) the number and percentage of ROTC units that produced officers in specific ranges of officer production (e.g., fewer than 5, 5 to fewer than 10, 10 to fewer than 15, 15 to fewer than 20, 20 to fewer than 30, etc. to over 50). We also reviewed fiscal year 2012 staff data of military personnel located at each unit provided to us by the military services and DOD’s fiscal year 2012 composite rates to determine the cost of military personnel per each ROTC unit in fiscal year 2012. In addition, we reviewed the fiscal year 2014 budget documentation to identify the average operation and maintenance cost (excluding scholarships) per ROTC unit in fiscal year 2012. We used these data to determine the fiscal year 2012 cost of ROTC units that met and did not meet DOD minimum production requirements for fiscal years 2008 through 2012 .To assess the reliability of the production and cost data, we discussed these data with officials from the military services to gain an understanding of the processes and databases used to collect and record data and to understand existing data quality control procedures and known limitations of the data. When we found inconsistencies in the data, we followed up with service officials to attempt to reconcile these differences. We determined that these data were sufficiently reliable for determining the extent to which the military services are meeting ROTC production goals and unit level requirements as well as the cost per unit. To assess the extent to which the services have established performance measures and evaluations for determining the structure of ROTC programs, we reviewed relevant legislation, specifically sections 2101- 2111b of Title 10 of the U.S. Code, and department and service guidance for ROTC programs, to identify what, if any, guidelines for cost-effective program management are identified. In addition, we reviewed prior GAO reports on ROTC and officer accessions programs to determine what recommendations and actions have previously been taken in regard to improving the efficiency and effectiveness of ROTC programs. We also obtained and analyzed information from each of the services to determine the frequency with which the services evaluated unit productivity to identify units for potential consolidation or closure. Further, we identified the measures used by each service to conduct these evaluations and compared them with key attributes of effective performance measures that our prior work has shown are needed to successfully evaluate program performance. We also interviewed knowledgeable officials from the Office of the Secretary of Defense (OSD) and the military services who are responsible for officer accessions and service-specific ROTC programs. We discussed with these officials the extent to which the services were meeting ROTC requirements for producing newly commissioned officers, ROTC guidance and policies, roles and responsibilities, program performance and costs, procedures for the establishment and disestablishment of ROTC units, assessments of ROTC unit productivity, and program oversight. To assess the extent to which the military services’ ROTC programs are subject to oversight and have effective processes for communicating with key stakeholders, we reviewed and analyzed relevant OSD and military service guidance to identify guidelines and responsibilities for conducting oversight of ROTC programs and communicating with key stakeholders about ROTC program performance. We obtained and analyzed documentation on military service correspondence with schools about ROTC program performance and compared them with provisions in DOD Instruction 1215.08 pertaining to communication with schools. We also interviewed knowledgeable officials from OSD and the military services on the activities and mechanisms used to conduct oversight of, and to communicate with stakeholders on, ROTC programs. We visited or contacted the following organizations during our review: Deputy Assistant Secretary of Defense for Military Personnel Policy, Directorate of Accession Policy, Arlington, Virginia Deputy Chief of Staff, Military Personnel Management Directorate, Officer Division, Arlington, Virginia Army Cadet Command, Fort Knox, Kentucky Deputy Chief of Naval Operations, Manpower Personnel Education and Training, Arlington, Virginia Naval Service Training Command, Great Lakes, Illinois Department of the Air Force Deputy Chief of Staff for Manpower Personnel and Services, Air Staff, Jeanne M. Holm Center for Officer Accessions and Citizen Development, Montgomery, Alabama Marine Corps Recruiting Command, Quantico, Virginia We conducted this performance audit from February 2013 to November 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In fiscal year 2012, the Reserve Officers’ Training Corps (ROTC) program produced over 9,000 active duty, guard, and reserve officers. Table 6 provides a listing of the number of officers produced in fiscal year 2012 by unit, school location, and service. This appendix contains enrollment information on the number of students in each of the military services’ Reserve Officers’ Training Corps (ROTC) programs across all years of study by unit and by the schools within the unit. Table 7 presents the Army’s enrollment information as of November 2012, table 8 presents the Navy’s enrollment information as of November 2012, and table 9 presents the Air Force’s enrollment information as of December 2012. The enrollment information is alphabetized by state or U.S. territory and then by unit and then by school within the unit.enrollment data, we identified that the services’ ROTC programs had about 53,000 students enrolled across all years of study in 2012—the Army had over 33,000 students enrolled, the Navy had over 6,000 enrolled, and the Air Force had over 14,000 students enrolled. In addition to the contact named above, Margaret Best (Assistant Director), Emily Biskup, Rebekah J. Boone, Richard Burkard, Timothy Carr, Susan Ditto, Cynthia Grant, Kimberly Mayo, Michael S. Pose, Stephanie Santoso, and John Wren made major contributions to this report. Military Personnel: DMDC Data on Officers’ Commissioning Programs is Insufficiently Reliable and Needs to be Corrected. GAO-07-372R. Washington, D.C.: March 8, 2007. Military Personnel: Strategic Plan Needed to Address Army’s Emerging Officer Accession and Retention Challenges. GAO-07-224. Washington, D.C.: January 19, 2007. Reserve Officers’ Training Corps: Questions Related to Organizational Restructuring. GAO/NSIAD-96-56. Washington, D.C.: February 6, 1996. Officer Commissioning Programs: More Oversight and Coordination Needed. GAO/NSIAD-93-37. Washington, D.C.: November 6, 1992. Reserve Officers’ Training Corps: Less Need for Officers Provides Opportunity for Significant Savings. GAO/NSIAD-91-102. Washington, D.C.: May 6, 1991.	ROTC is the largest source of newly commissioned officers for DOD. GAO's analysis of DOD data identified more than 9,000 officers commissioned from ROTC in fiscal year 2012. ROTC is critical for producing officers from the nation's colleges and universities to meet the leadership and readiness needs of the armed forces. The National Defense Authorization Act for Fiscal Year 2013 mandated GAO to review the services' ROTC programs. This report assesses the extent that ROTC programs (1) met goals and minimum annual requirements for producing officers over a 5-year period, (2) have established performance measures and conducted evaluations for managing ROTC programs, and (3) are subject to oversight and have effective processes for communicating with key stakeholders. GAO analyzed ROTC production data from fiscal years 2008 through 2012; reviewed relevant legislation and DOD and service policies and guidance for ROTC; and reviewed and discussed assessments of ROTC efficiency and effectiveness, and oversight of ROTC with officials from OSD and the services. From fiscal years 2008 through 2012, each military service met at least 91 percent of their overall Reserve Officers' Training Corps (ROTC) goals for producing the number of officers needed to meet service end strength authorizations, but each has reported challenges in commissioning officers for some certain occupational specialties, such as engineers and nurses. Further, GAO's analysis found that half of the Department of Defense's (DOD) ROTC units did not meet DOD's minimum average annual production requirement over the 5-year period reviewed. Further, cost per commissioned officer varies greatly depending on unit production. For example, excluding tuition costs, the average cost per officer produced across all units was about $68,000, compared to an average cost of about $95,000 per officer for units that produced fewer than 15 officers on average annually from fiscal years 2008 through 2012. DOD's instruction specifies factors to consider before closing ROTC units, but these factors do not constitute clearly defined performance measures that provide a comprehensive understanding of the effectiveness and efficiency of ROTC programs, and service evaluations of ROTC programs are ad hoc. DOD's instruction specifies that in assessing units for closure, the services are to consider the quality of officers produced by a unit but it does not clearly define characteristics that comprise quality, which has led to the inconsistent application of the measure by the services. The services conducted 11 evaluations over the past decade to assess performance and identify units for consolidation or closure. However, the evaluations have largely occurred on an ad hoc basis because the services have not established a systematic process to routinely evaluate ROTC program performance. Key attributes of successful performance measures include clearly, defined measures. Moreover, results-oriented program management practices include routine program evaluations that determine how well a program is working. Without clearly defined performance measures and routinely conducted evaluations, it will be difficult for the services to accurately determine if ROTC programs are effectively and efficiently operating. The Office of the Secretary of Defense (OSD) conducts some oversight functions, such as setting policy for the ROTC program. However, although specified in guidance, OSD does not review the services' methodologies for closing ROTC units because OSD officials believe this is a service responsibility. Further, the services do not consistently communicate with key stakeholders, such as members of Congress and schools, about performance of ROTC programs, except when closure decisions are being considered. This may have contributed to the difficulty the services have experienced in gaining political support for such closures. GAO has noted that regular communication with stakeholders helps build trusting relationships to gain buy-in. Without clearly delineated responsibilities for oversight of ROTC programs and a formal strategy to communicate with key stakeholders on ROTC program performance, DOD will find it difficult to obtain the support that is needed to improve the efficiency and effectiveness of ROTC programs. GAO is making six recommendations to DOD, to include establishing clearly defined performance measures and conducting routine program evaluations; reexamining oversight roles and responsibilities; and developing a strategy for communicating with Congress and other key stakeholders on program performance. DOD concurred with each of GAO's recommendations.	16.4	0-8k	9,067
16	The gross tax gap is an estimate of the difference between the taxes— including individual income, corporate income, employment, estate, and excise taxes—that should have been paid voluntarily and on time and what was actually paid for a specific year. Of the estimated $345 billion tax gap for tax year 2001, IRS estimated that it would eventually recover about $55 billion of that through late payments and enforcement actions, for a net tax gap of $290 billion. The estimate is an aggregate of estimates for the three primary types of noncompliance: (1) underreporting of tax liabilities on tax returns; (2) underpayment of taxes due from filed returns; and (3) nonfiling, which refers to the failure to file a required tax return altogether or on time. We have made many recommendations over time that could address the tax gap. IRS’s tax gap estimates for each type of noncompliance include estimates for some or all of the five types of taxes that IRS administers. Underreporting of tax liabilities can occur when a taxpayer underreports income earned or overclaims deductions from income. As shown in table 1, underreporting of tax liabilities—particularly for the individual income tax—accounted for most of the tax gap estimate for tax year 2001. We have encouraged regular tax gap measurements, and IRS officials have indicated that they will be updating their tax gap estimates later in 2011 or early 2012. We believe that these estimates are important to gauge progress in addressing the tax gap and because analyzing the data used to estimate it can help identify ways to improve tax compliance. Taxpayers who underreported the amount of individual income tax they owed represented an estimated $197 billion of the 2001 tax gap, and $165 billion of that amount was due to individual tax filers underreporting their income. As shown in table 2, underreporting of individuals’ business income and nonbusiness income accounted for $109 billion and $56 billion, respectively, of the 2001 tax gap. IRS has concerns with the certainty of the tax gap estimate for tax year 2001 in part because some areas of the 2001 estimate rely on data originally gathered in the 1970s and 1980s. IRS has no estimates for other areas of the tax gap, and it is inherently difficult to measure some types of noncompliance. Some analysts believe the 2001 estimate likely underestimated the tax gap and that in absolute dollars it is likely larger now than in 2001. IRS’s overall approach to reducing the tax gap consists of improving service to taxpayers and enhancing enforcement of the tax laws. IRS seeks to improve voluntary compliance through efforts such as education and outreach programs and tax form simplification. It also uses its enforcement authority to ensure that taxpayers are reporting and paying the proper amounts of taxes through efforts such as examining tax returns and matching the amount of income taxpayers report on their tax returns to the income amounts reported on information returns it receives from third parties. In spite of IRS’s efforts to improve taxpayer compliance, the rate at which taxpayers pay their taxes voluntarily and on time has tended to range from around 81 percent to around 84 percent over the past three decades. The sum of the estimated revenue loss due to tax expenditures was over $1 trillion in 2010. Tax expenditures are often aimed at policy goals similar to those of federal spending programs. Existing tax expenditures, for example, help students and families finance higher education and provide incentives for people to save for retirement. Because tax expenditures result in forgone revenue for the government, they have a significant effect on overall tax rates—all else equal, for any given level of revenue, tax expenditures mean that overall tax rates must be higher than a tax system with no tax expenditures. In 2005, we recommended that the federal government take several steps to ensure greater transparency of and accountability for tax expenditures by reporting better information on tax expenditure performance and more fully incorporating tax expenditures into federal performance management and budget review processes. The federal tax system contains complex rules. These rules may be necessary, for example, to ensure proper measurement of income, target benefits to specific taxpayers, and address areas of noncompliance. However, these complex rules also impose a wide range of record keeping, planning, computational, and filing requirements upon businesses and individuals. Complying with these requirements costs taxpayers time and money. As shown in figure 1, these costs to taxpayers are above and beyond what they pay to the government in taxes. Estimating total compliance costs is difficult because neither the government nor taxpayers maintain regular accounts of these costs, and federal tax requirements often overlap with record keeping and reporting that taxpayers do for other purposes. Although available estimates are uncertain, taken together, they suggest that total compliance costs are large. For example, in 2005 we reviewed existing studies and reported that even using the lowest available compliance cost estimates for the personal and corporate income tax, combined compliance costs would total $107 billion (roughly 1 percent of gross domestic product ) per year; other studies estimate costs 1.5 times as large. The tax system also results in economic efficiency costs, which are reductions in economic well-being caused by changes in behavior due to taxes, government benefits, monopolies, and other forces that interfere in the market. Efficiency costs can take the form of lost output or consumption opportunities. For example, economists generally agree that the favorable tax treatment of owner-occupied housing distorts investment in the economy, resulting in too much investment in housing and too little business investment. Estimating efficiency costs associated with the tax system is challenging because it has extensive and diverse effects on behavior. In fact, in a 2005 report, we found no comprehensive estimates of the efficiency costs of the current federal tax system. The two most comprehensive studies we found suggest that these costs are large—on the order of magnitude of 2 to 5 percent of GDP each year (as of the mid- 1990s). However, the actual efficiency costs of the current tax system may not fall within this range because of uncertainty surrounding taxpayers’ behavioral responses, changes in the tax code and the economy since the mid-1990s, and the fact that the two studies did not cover the full scope of efficiency costs. Tax software and the use of paid tax return preparers may mitigate the need for taxpayers to understand complexities of the tax code. In 2010, IRS processed about 137 million returns. As we have previously reported, about 90 percent of returns are prepared by individual taxpayers or paid preparers using professional or commercial software. Software companies and paid preparers often act as surrogate tax administrators in that they keep abreast of tax law changes. A participant at the 2007 Joint Forum on Tax Compliance stated that taxpayers receiving assistance in preparing their individual tax returns, either from paid preparers or tax preparation software, are somewhat insulated from tax code complexity. However, while many paid tax preparers help taxpayers by using their expertise to help ensure that complex laws are understood, others may introduce their own mistakes. For example, in a limited investigation in 2006, all 19 of the tax return preparers who prepared returns for our undercover investigators produced errors, some with substantial consequences. IRS’s review of 2001 tax returns also found that tax returns prepared by paid preparers contained a significant level of errors. IRS audits of returns prepared by a paid preparer showed a higher error rate—56 percent—than audits of returns prepared by the taxpayer—47 percent. Income measurement is straightforward for a large proportion of the individual taxpayer population: those who earn only labor and interest income and capital income within a retirement account generally have their income reported to them (and to the IRS) by the source of the income. However, substantial numbers of taxpayers who receive income from capital gains, rents, self-employment, and other sources often deal with complex tax laws, complicated calculations, and detailed record keeping. While complexities lead some taxpayers to make mistakes when reporting their income, some misreporting is due to intentional acts of tax evasion. For example, IRS studies show that the majority of capital asset transactions and capital gains and losses were for securities transactions such as sales of corporate stock, mutual funds, bonds, options, and capital gain distributions from mutual funds. Taxpayers are required to report securities transactions on their federal income tax returns. To accurately report securities sales, the taxpayer must have records of the dates they acquired and sold the asset; sales price, or gross proceeds from the sale; cost or other basis of the sold asset; and resulting gains or losses. They must report this information separately for short-term transactions and long-term transactions. Further, before taxpayers can determine any gains or losses from securities sales, they must determine if and how the original cost basis of the securities must be adjusted to reflect certain events, such as stock splits, nontaxable dividends, or nondividend distributions. Complex income-reporting requirements for securities transactions may contribute to taxpayers’ misreporting their income. In 2006, we estimated that 8.4 million of the estimated 21.9 million taxpayers with securities transactions misreported their gains or losses for tax year 2001. A greater estimated percentage of taxpayers misreported gains or losses from securities sales (36 percent) than capital gain distributions from mutual funds (13 percent), and most of the misreported securities transactions exceeded $1,000 of capital gain or loss. This may be because taxpayers must determine the taxable portion of securities sales’ income whereas they need only add up their capital gain distributions. Furthermore, about half of these taxpayers who misreported failed to accurately report the securities’ basis, sometimes because they did not know the basis or failed to adjust the basis appropriately. Although we were not able to estimate the capital gains tax gap for securities, we were able to determine the direction of the misreporting. For securities sales, an estimated 64 percent of taxpayers underreported their income from securities (i.e., they understated gains or overstated losses) compared to an estimated 33 percent of taxpayers who overreported income (i.e., they overstated gains or understated losses). For both underreported and overreported income, some taxpayers misreported over $400,000 in gains or losses. Small businesses—which include sole proprietorships and S corporations, among other entities—are subject to multiple layers of filing, reporting, and deposit requirements. These requirements reflect IRS’s administration of a variety of tax and other policies, including income, employment, and excise taxes, as well as pension and other employee benefit programs. In considering the number of requirements, it is important to note that the requirements reflect many decisions and compromises made by Congress and administrations to accomplish their policy goals, including those that may benefit small businesses and other taxpayers. Sole proprietors face significant complexities in reporting income. This complexity may contribute to the estimated $68 billion of the tax gap caused by sole proprietors underreporting their net business income, which can stem either from understated receipts or overstated expenses. For example, sole proprietors report their business-related profit or loss on their individual income tax return, and they can use their losses to offset other categories of income on their returns in the year that they incur the loss. Identifying which of a sole proprietor’s payments qualify as business expenses and the amount to be deducted can be complex. For example, two types of payments—costs of goods sold and capital improvements—must be distinguished from other types of payments because they are treated differently under tax rules. Expenses that are used partly for business and personal purposes can be deducted only to the extent they are used for business. Individual taxpayers who are shareholders in S corporations may also experience difficulty because of complexity in income measurement. An S corporation is a federal business type that provides tax benefits and limited liability protection to shareholders. S corporations are not generally taxed at the entity level: income, losses, and deduction items pass through to the individual shareholders’ income tax returns, and the shareholders are taxed on any net income. S corporations are to provide their shareholders and IRS with information on the allocation of income, losses, and other items. As we have previously reported, one source of complexity for S corporation shareholders may arise when calculating basis—their ownership share of the corporation—in order to claim losses and deductions to offset other earned income. Shareholders generally can only claim losses and deductions up to the amount of basis the shareholder has in the S corporation’s stock and debt. While the S corporation is required to send shareholders some information that can be used to calculate basis, S corporations are not required to report any basis calculations to shareholders. IRS officials and S corporation stakeholder representatives told us that calculating and tracking basis was one of the biggest challenges in complying with S corporation rules. In 2009, we recommended that Congress require S corporations to calculate shareholder’s stock and debt basis as completely as possible and report the calculation to shareholders and IRS. In an analysis of IRS’s annual examinations of individual tax returns that closed for fiscal years 2006 through 2008, we found the amount of the misreported losses that exceeded basis limitations was over $10 million, or about $21,600 per taxpayer. The growing number of tax expenditures is among the causes of tax code complexity. Between 1974 and 2010, tax expenditures reported by the Department of the Treasury more than doubled in overall number from 67 to 173. Tax expenditures are an important means the government uses to address a wide variety of social objectives, from supporting educational attainment, to providing low-income housing, to ensuring retirement income, and many others. However, tax expenditures add to tax code complexity in part because they require taxpayers to learn about, determine their eligibility for, and choose between tax expenditures that have similar purposes. Tax expenditures also complicate tax planning, as taxpayers must predict their own future circumstances as well as future tax rules to make the best choice among provisions. Savings incentives within the tax code illustrate how tax expenditures add to complexity. While the tax code includes numerous types of savings incentives—including those for healthcare and higher education—my statement will focus on retirement savings as a key example. Taxpayers can choose between traditional Individual Retirement Arrangements (IRA) and Roth IRAs for retirement savings. Although the tax rules for distributions diverge for traditional and Roth IRAs, taxpayers may not know that a 10 percent early withdrawal penalty, with some exceptions, applies to both IRA types. Taxpayers also get confused over which IRA early withdrawals are not subject to penalties, in part because the exceptions differ for employer pension plans. Additionally, both types of IRAs have rules governing eligibility to contribute, and contributions to each are subject to an annual limit. However, taxpayers may not understand that the annual contribution limit applies across traditional IRAs and Roth IRAs in combination, which may lead them to overcontribute. With regard to record-keeping burden, taxpayers with traditional or Roth IRAs must track the total amount of contributions in a given year and reasons for distributions to accurately report this information on their tax returns. Frequent changes to IRA rules (such as increasing contribution limits and allowing workers to tap IRA assets for certain nonretirement purposes without an early withdrawal penalty) have also made tax planning more difficult for taxpayers. As we reported in 2008, IRS research and enforcement data show that—in the aggregate—many taxpayers misreported millions of dollars in traditional IRA contributions and distributions on their tax returns. We reported that in tax year 2001 the following occurred: Of the taxpayers who made deductible traditional IRA contributions, an estimated 14.8 percent (554,657 taxpayers) did not accurately report the IRA deduction on their individual tax returns—10.4 percent overstated their deductible contributions (that is, exceeded the applicable limit) and 4.4 percent underreported their deductible contributions (that is, reported less on their returns than they actually could deduct). The understated net income due to these misreported traditional IRA contribution deductions was $392 million, including both taxpayers who either overstated or understated their contribution deductions to a traditional IRA. Of the taxpayers who had taxable traditional IRA distributions, an estimated 14.6 percent (1.5 million taxpayers) misreported withdrawals from their traditional IRA distributions—13.7 percent understated (that is, reported an amount less than what the taxpayer withdrew) and 0.9 percent overstated IRA distributions (that is, reported an amount greater than what the taxpayer withdrew). The underreported net income due to misreported IRA distributions was $6.3 billion, including taxpayers who failed to report early distributions and the associated tax. Taxpayers also make costly mistakes when choosing higher-education tax incentives. In a 2008 testimony, we reported that among tax filers who appeared to be eligible for a tax credit or tuition deduction in tax year 2005, about 19 percent, representing about 412,000 returns, failed to claim any of them. The amount by which these tax filers failed to reduce their tax averaged $219; 10 percent of this group could have reduced their tax liability by over $500. In total, including both those who failed to claim a tax credit or tuition deduction and those who chose a credit or a deduction that did not maximize their benefit, we found that in 2005, 28 percent, or nearly 601,000 tax filers, did not maximize their potential tax benefit. Some tax expenditures also provide taxpayers who intend to evade taxes with opportunities to do so. For example, the Treasury Inspector General for Tax Administration (TIGTA) reported in 2011 that the First-time Homebuyer Credit (FTHBC) and the subsequent changes made to the credit have confused taxpayers and allowed individuals to make fraudulent claims for the refundable credit. For example, TIGTA reported many taxpayers claiming the credit appeared not to be first-time homebuyers because tax information indicated they had owned homes within 3 years prior to their new home purchase. The 2008 FTHBC provided taxpayers a refundable credit of up to $7,500 that must be repaid in $500 increments each year over 15 years beginning in the 2011 filing season. According to recent IRS data, the total amount to be repaid by taxpayers is $7 billion. The American Recovery and Reinvestment Act of 2009 increased the maximum FTHBC credit to $8,000, with no payback required unless the home ceases to be the taxpayer’s principal residence within 3 years. In 2009, we testified that IRS faced significant challenges in determining if taxpayers were complying with the numerous conditions for the credit. For example, to determine eligibility, IRS had to verify that taxpayers had not owned a house in the previous 3 years and verify the closing date on home purchases. Other challenges included enforcing the $500 per year payback provision in the 2008 credit. Multiple approaches are needed to reduce the tax gap. No single approach is likely to fully and cost-effectively address noncompliance since the noncompliance has multiple causes and spans different types of taxes and taxpayers. While the tax gap will remain a challenge into the future, the following strategies could help. These strategies could require actions by Congress or IRS. Enhancing information reporting can reduce complexity for taxpayers. It can also reduce the opportunities available for taxpayers to evade taxes by, for example, underreporting business income or filing fraudulent claims for tax credits. Generally, new requirements on third parties to submit information returns would require statutory changes, whereas improvements to existing information-reporting forms may be done administratively by IRS. The extent to which individual taxpayers accurately report the income they earn has been shown to be related to the extent to which the income is reported to them and IRS by third parties or taxes on the income are withheld. For example, employers report most wages, salaries, and tip compensation to employees and IRS through Form W-2. Also, banks and other financial institutions provide information returns (Forms 1099) to account holders and IRS showing the taxpayers’ annual income from some types of investments. Findings from IRS’s study of individual tax compliance indicate that nearly 99 percent of these types of income are accurately reported on individual tax returns. For types of income for which there is little or no information reporting, individual taxpayers tend to misreport over half of their income. One area where improved information reporting could help is higher- education expenses. Eligible educational institutions are required to report information on qualified tuition and related expenses for higher education to both taxpayers and IRS so that taxpayers can determine the amount of educational tax benefits that can be claimed. However, the information currently reported by educational institutions on tuition statements sent to IRS and taxpayers (on Form 1098-T) may be confusing for taxpayers who use the form to prepare their tax returns and not very useful to IRS. IRS requires institutions to report on Form 1098-T either the (1) amount of payments received, or (2) amount billed for qualified expenses. IRS officials stated that most institutions report the amount billed and do not report payments. However, the amount billed may not equal the amount that can be claimed as a credit. In order to reduce taxpayer confusion and enhance compliance with the eligibility requirements for higher- education benefits, in 2009 we recommended that IRS revise Form 1098-T to improve the usefulness of information on qualifying education expenses. Another area where improved information reporting could improve compliance is rental income. In 2008, we estimated that at least 53 percent of individual taxpayers with rental real estate misreported their rental real estate activities for tax year 2001, resulting in an estimated $12.4 billion of net misreported income. IRS enforcement officials cited limited information reporting as a major challenge in ensuring compliance because without third-party information reporting, it is difficult for IRS to systematically detect taxpayers who fail to report any rent or determine whether the rent and expense amounts taxpayers report are accurate. In 2008, we recommended that IRS require third parties to report mortgaged property addresses to help IRS identify who may have misreported their rental real estate activity, but IRS did not adopt our recommendation because of third-party burden and a lack of an IRS compliance program to use such information. We made a similar recommendation in a 2009 report, which IRS is still evaluating as of December 2010. While information reporting reduces the complexity of reporting income for individual taxpayers, this tool can create costs for the third parties responsible for reporting the income to the taxpayer and IRS. For example, we previously reported that expanding information reporting on securities sales to include basic information would involve challenges for brokers and the IRS. In particular, brokers would bear costs and burdens—even as taxpayers’ costs and burdens decrease somewhat—and many issues would arise about how to calculate adjusted basis, which securities would be covered, and how information would be transferred among brokers. In some cases it is difficult to identify third parties for whom a reporting requirement could be enforced without an undue burden on both the third parties and IRS. In a 2009 report, we found that a major reason why little information reporting on sole proprietor expenses exists is because of the difficulty identifying third parties. For example, there is no third party who could verify the business use of cars or trucks by sole proprietors. Ensuring high-quality services is a necessary foundation for voluntary compliance, so action by IRS to improve the quality of services provided to taxpayers would be beneficial. High-quality services can help taxpayers who wish to comply but do not understand their obligations. IRS taxpayer services include education and outreach programs, simplifying the tax process, and revising forms and publications to make them electronically accessible and more easily understood by diverse taxpayer communities. For example, if tax forms and instructions are unclear, taxpayers may be confused and make unintentional errors. Ensuring high-quality taxpayer services would also be a key consideration in implementing any of the approaches for tax gap reduction. For example, expanding enforcement efforts would increase interactions with taxpayers, requiring processes to efficiently communicate with taxpayers. Changing tax laws and regulations would also require educating taxpayers about the new requirements in a clear, timely, and accessible manner. For example, we previously reported that while taxpayers’ access to telephone assistance in tax year 2009 was better than the previous year, it remained lower than in 2007, in part because of calls about tax law changes. Despite heavy call volume, the accuracy of IRS responses to taxpayers’ questions remained above 90 percent. Congressional efforts to simplify the tax code and otherwise alter current tax policies may help reduce the tax gap by making it easier for individuals and businesses to understand and voluntarily comply with their tax obligations. One way to simplify the tax code is to eliminate or combine tax expenditures, thereby helping reduce taxpayers’ unintentional errors and limiting opportunities for tax evasion. As we have previously testified, the Government Performance and Results Act (GPRA) Modernization Act of 2010 (GPRAMA) could help inform reexamination or restructuring efforts and lead to more efficient and economical executive-branch service delivery in overlapping program areas. The act is intended to identify the various agencies and federal activities—including spending programs, regulations, and tax expenditures—that contribute to crosscutting outcomes. While simplification can have benefits, it can also have drawbacks. Eliminating tax expenditures would reduce the incentives for the activities that were encouraged. Also, in 2005, we stated that changes to the tax system can create winners and losers. The government may attempt to mitigate large gains and losses by implementing transition rules. Deciding if transition relief is necessary involves how to trade off between equity, efficiency, simplicity, transparency, and administrability. Similar trade-offs exist with possible fundamental tax reforms that would move away from an income tax system to some other system, such as a consumption tax, national sales tax, or value-added tax. Fundamental tax reform would most likely result in a smaller tax gap if the new system has few tax preferences or complex tax code provisions and if taxable transactions are transparent. However, these characteristics are difficult to achieve in any system and experience suggests that simply adopting a fundamentally different tax system, whatever the economic merits, may not by itself eliminate any tax gap. For example, in 2008, we reported that some available data indicate a value-added tax may be less expensive to administer than an income tax. However, we found that like other systems, even a simple value-added tax—one that exempts few goods or services— has compliance risks and, largely as a consequence, generates administrative costs and compliance burden. Similar to other taxes, adding complexity through exemptions or reduced rates for some goods or services generally decreases revenue and increases compliance risks because of the incentive to misclassify purchases and sales. Such complexity also increases the record-keeping burden on businesses and increases the government resources devoted to enforcement. Any tax system could be subject to noncompliance, and its design and operation, including the types of tools made available to tax administrators, will affect the size of any corresponding tax gap. Further, the motivating forces behind tax reform include factors beyond tax compliance, such as economic effectiveness, equity, and burden, which could in some cases carry greater weight in designing an alternative tax system than ensuring the highest levels of compliance. Policymakers may find it useful to compare any proposed changes to the tax code based on a set of widely accepted criteria for assessing alternative tax proposals. These criteria include the equity, or fairness, of the tax system; the economic efficiency, or neutrality, of the system; and the simplicity, transparency, and administrability of the system. These criteria can sometimes conflict, and the weight one places on each criterion will vary among individuals. Our publication, Understanding the Tax Reform Debate: Background, Criteria, and Questions, may be useful in guiding policymakers as they consider tax reform proposals. Devoting additional resources to enforcement has the potential to help reduce the tax gap by billions of dollars. However, determining the appropriate level of enforcement resources to provide IRS requires taking into account factors such as how effectively and efficiently IRS is currently using its resources, how to strike the proper balance between IRS’s taxpayer service and enforcement activities, and competing federal funding priorities. If Congress were to provide IRS more enforcement resources, the amount that the tax gap could be reduced depends in part on factors such as the size of budget increases, how IRS manages any additional resources, and the indirect increase in taxpayers’ voluntary compliance resulting from expanded enforcement. Providing IRS with additional funding would enable it to contact millions of potentially noncompliant taxpayers it currently identifies but cannot contact given resource constraints. However, devoting additional resources to enforcement will not completely close the tax gap. For example, in a 2009 report, we reported that IRS’s compliance programs focused on sole proprietors’ underreporting of income addressed only a small portion of sole proprietor expense noncompliance. Despite investing nearly a quarter of all revenue agent time in 2008, IRS was able to examine (audit) about 1 percent of estimated noncompliant sole proprietors. These exams are costly and yielded less revenue than exams of other categories of taxpayers, in part because most sole proprietorships are small in terms of receipts. IRS could reduce the tax gap by expanding compliance checks before issuing refunds to taxpayers. In April 2011, the Commissioner of Internal Revenue talked about a long-term vision to increase compliance activities before refunds are sent to taxpayers. In one example, IRS is exploring a requirement that third parties send information returns to IRS and taxpayers at the same time as opposed to the current requirement that some information returns go to taxpayers before going to IRS. The intent is to move to matching those information returns to tax returns during tax return processing. IRS currently matches data provided on over 2 billion information returns to tax returns only after the normal filing season. Matching during the filing season would allow IRS to detect and correct errors before it sends taxpayers their refunds, thereby avoiding the costs of trying to recover funds from taxpayers later. This approach could also allow IRS to use its enforcement resources on other significant compliance problems. However, the Commissioner made clear that his vision for more prerefund compliance checks will take considerable time to implement. One prerequisite would be a major reworking of some fundamental IRS computer systems. To the extent that implementing this vision would require additional budgetary resources or changes in tax policies, Congress would play a key role. If Congress changed the law to include more consistent definitions across tax provisions, then taxpayers could more easily understand and comply with their obligations. Higher-education tax preferences provide an example of inconsistent definitions for qualified education expenses. What tax filers are allowed to claim as a qualified higher-education expense varies between some of the various savings and credit provisions in the tax code. For example, while Coverdell education savings accounts and qualified tuition programs under section 529 of the Internal Revenue Code permit tax filers to include room and board as qualified expenses if the student is enrolled at least half time, the American Opportunity Credit and the Lifetime Learning Credit do not. These dissimilar definitions require that tax filers keep track of expenses separately, applying some expenses to some tax preferences, but not others. There are no easy solutions to the tax gap, but addressing the tax gap is as important as ever before in the face of the nation’s fiscal challenges. Innovative thinking and the combined efforts of IRS and Congress will be needed now and in the years to come. Chairman Baucus, Ranking Member Hatch, and Members of the Committee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. For further information on this testimony, please contact Michael Brostek at (202) 512-9110 or brostekm@gao.gov. In addition to the individual named above, David Lewis, Assistant Director; Shannon Finnegan, analyst- in-charge; Sandra Beattie; Amy Bowser; Barbara Lancaster; John Mingus; Erika Navarro; Melanie Papasian; and Jonathan Stehle made key contributions to this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.	Taxes are necessary because they fund the services provided by government. Several years ago, the Internal Revenue Service (IRS) estimated that the gross tax gap--the difference between taxes owed and taxes paid on time--was $345 billion for 2001. In the face of large and growing deficits, it is important to seek out potential causes and solutions to the tax gap. Achieving high levels of voluntary compliance is made more challenging as the tax code expands. Tax expenditures--preferential provisions in the code such as exemptions, exclusions, deductions, credits, and deferral of tax liability--have expanded the tax code, more than doubling in number since 1974. GAO's statement focuses on four key areas: (1) how complexity adds to taxpayer burden and economic efficiency costs; (2) how complexities in reporting income contribute to the tax gap; (3) how tax expenditures add complexity and contribute to the tax gap; and (4) possible strategies for addressing the tax gap. The statement is based largely on GAO's previous work conducted on tax compliance issues affecting individual taxpayers from 2005 through 2011. The federal tax system contains complex rules. These rules may be necessary, for example, to ensure proper measurement of income, target benefits to specific taxpayers, and address areas of noncompliance. However, these complex rules also impose a wide range of recordkeeping, planning, computational, and filing requirements upon businesses and individuals. Complying with these requirements costs taxpayers time and money. In 2005 GAO reviewed existing studies and reported that even using the lowest available compliance cost estimates for the personal and corporate income tax, combined compliance costs would total $107 billion (roughly 1 percent of gross domestic product) per year; other studies estimate costs 1.5 times as large. Economic efficiency costs, which are reductions in economic well-being caused by changes in behavior due to taxes, are estimated to be even larger. Although many taxpayers have simple forms of income, others do not--especially those who receive income from capital gains, rents, self-employment, and other sources--and they may be required to do complicated calculations and keep detailed records. This complexity can engender errors and underpaid taxes. For example, GAO has documented millions of taxpayer errors in following complex rules for determining taxpayers' "basis"--generally the taxpayer's investment in a property--in securities they sold or corporations they own. Tax expenditures add to tax code complexity in part because they require taxpayers to learn about, determine their eligibility for, and choose between tax expenditures that have similar purposes. Tax expenditures also complicate tax planning, as taxpayers must predict their own future circumstances as well as future tax rules to make the best choice among provisions. Taxpayer errors contribute to the tax gap. For example, in 2001 taxpayers underreported $6.3 billion in net income due to misreported Individual Retirement Arrangement (IRA) distributions. But taxpayers also may underclaim benefits to which they are entitled. According to GAO's past analysis, of tax filers who appeared to be eligible for a higher-education tax credit or tuition deduction in tax year 2005, about 19 percent, representing about 412,000 returns, failed to claim any of them. No single approach is likely to fully and cost-effectively address the tax gap, but several strategies could improve taxpayer compliance. These strategies could require actions by Congress or IRS. For example, Congress can simplify the tax code by eliminating some tax expenditures and by making definitions more consistent across the tax code. IRS and Congress could take steps to enhance information reporting by third parties or expand compliance checking before refunds are issued. GAO does not make any new recommendations in this testimony.	15.2	0-8k	4,356
17	The Results Act requires that the Office of Management and Budget (OMB) direct each executive agency to prepare an annual performance plan, beginning with fiscal year 1999. The performance plan is one of three components of the Results Act, the others being the strategic plan, submitted by agencies in September 1997, and the annual report due March 31, 2000. The performance plan should describe (1) annual performance goals and measures, (2) the strategies and resources to achieve those goals, and (3) procedures to verify and validate reported performance. The act requires that performance goals be linked to the program activities in agencies’ budgets and be expressed in an objective, quantifiable, and measurable form. OMB is to use agency performance plans to develop the overall federal government performance plan submitted annually to Congress, beginning with the President’s fiscal year 1999 budget. Generally, the performance goals in NASA’s plan are objective and the performance measures are quantifiable and useful for assessing progress. While the plan reflects the mission statement and strategic goals in NASA’s strategic plan and provides clear links between strategic goals and the annual performance goals and measures, it does not clearly associate the plan’s performance goals and measures with program activities in the budget. Although NASA’s plan recognizes that other agencies and partners have complementary missions and activities and acknowledges that NASA must work closely with them to achieve its goals, it does not discuss the extent to which it has coordinated either its strategies for achieving goals or its development of performance measures. The performance plan provides near-term goals for each of NASA’s four business enterprises and at least one performance target to address each of the goals for fiscal year 1999. The four enterprises, which were characterized by NASA in its fiscal year 1999 strategic plan as analogous to business units in the private sector, are Space Science; Earth Science; Human Exploration and Development of Space; and Aeronautics and Space Transportation Technology. In addition, the performance plan includes goals and measures for the internal processes it characterizes as crosscutting. NASA officials told us that the enterprise performance targets are indicators of progress toward the agency’s near-term goals. Generally, the enterprise near-term goals are objective and free from bias. The plan provides both quantitative and qualitative measures for aspects of some of the goals. For example, in addition to quantitative measures for exploring the role of gravity in physical, chemical, and biological processes, the plan provides for using “the data obtained by fluid physics experiments on suspensions of colloidal particles on MSL-1 to answer fundamental questions in condensed matter physics.....” NASA officials acknowledged that this would require the use of qualitative measures to determine whether the fundamental questions have been answered. OMB recommends that outcome goals be included in a performance plan whenever possible, but recognizes that agencies will supplement outcome goals with output goals. Some of NASA’s performance measures are outcome oriented; others are output oriented. NASA officials told us that outputs are used when demonstrating intermediate progress in support of future outcomes and often reflect program commitments made in conjunction with science users. For instance, they said that the performance target of orbiting the asteroid Eros closer than 50 kilometers—a performance measure associated with NASA’s objective of exploring the solar system—matches Near-Earth Rendezvous program expectations and specifications. A few performance goals are not specific to fiscal year 1999; rather, they span multiple years. For example, the plan provides for reducing “average spacecraft cost for Space Science and Earth Science missions to $190 million from $590 million.” However, the performance target is based on comparing spacecraft programs completed in the time period of fiscal years 1990 through 1994 with those completed between fiscal years 1995 through 1999. NASA officials told us that expressing multiple year programs in a single-year context required by the Results Act was difficult and a source of frustration for the agency. In order to provide a more comprehensive understanding of the importance of the goals and performance measures chosen for its crosscutting processes, it would have been helpful for the plan to acknowledge the agency’s major management challenges and associated corrective actions. For example, NASA officials told us that the plan’s target of achieving 70 percent or greater of resource authority obligated relates to funding carryovers—an issue we have identified as a major challengeand which the NASA Administrator has recognized in congressional testimony as a top priority. We have also identified other management challenges. These include: improving systems and information for monitoring contractor activities and complying with contract management requirements; implementing a new accounting system and the importance of this effort to providing Congress and agency management with better financial information and allowing the agency to move to full cost accounting; and resolving uneven progress toward better NASA and Department of Defense cooperation and developing a national perspective on aerospace test facilities. OMB guidance states that performance goals for corrective steps for major management problems should be included for problems whose resolution is mission-critical, such as problems that could materially impede the achievement of program goals. Recognizing those management challenges appears to meet the intent of OMB’s guidance. Furthermore, although the performance plan includes performance targets related to contracting, such as increasing the obligated funds for Performance-Based Contracts to 80 percent, the performance measure can be better understood by referencing the agency’s efforts to ensure that it has relevant and reliable methods for timely and accurate monitoring of its contract management activities. For example, the performance plan is silent on NASA’s planned corrective efforts in fiscal year 1999 to evaluate the effectiveness of its contract management activities at its field centers. NASA’s performance goals are closely aligned with the agency-wide and enterprise strategic mission, goals, and objectives, and provide good linkages between the agency’s near-term strategic goals and the enterprise near-term goals, objectives, and performance targets. This is accomplished through well-laid out charts summarizing these relationships. OMB Circular A-11 provides that the annual performance plan should also show how specific performance goals are related to the specific program activities contained in the agency’s program and financing (P&F) schedules in the President’s Budget. NASA’s performance plan contains a table that allocates NASA’s $13.5 billion fiscal year 1999 budget request among its four enterprises and several other consolidated budget accounts. Each of the enterprises is related to a set of performance goals. However, the plan does not clearly explain how NASA’s program activities relate to the budget totals presented for each enterprise. There is no crosswalk to facilitate an understanding of the relationship between the specific program activities in the budget and the goals and measures in the performance plan. Therefore, we believe NASA’s performance plan cannot help Congress understand which performance goals and measures in the plan cover which program activities or whether all program activities in NASA’s budget are covered by its performance goals. NASA officials with whom we spoke during our review indicated that these relationships can be determined by simultaneously analyzing information in its “trilogy” of documents, namely the annual budget justification, strategic plan, and performance plan. However, they recognize that a clearer connection between performance goals and the program activities in the budget needs to be provided in future performance plans to facilitate analysis. According to those officials, an initiative is underway to align these documents. The performance plan points out that collaborative efforts with other agencies and international partners will continue to be key to the successful implementation of enterprise strategies. Although the plan identifies the specific agency or international partner involved in carrying out specific efforts, it does not discuss the extent to which other agencies have been coordinated with in establishing the goals, objectives, and associated performance targets. For example, in describing the objective of developing next-generation computational design tools, the plan indicates that NASA’s efforts are part of the Federal High Performance Computing and Communications (HPCC) initiative. However, there is no discussion as to whether NASA coordinated its performance target of a 200-fold improvement with other federal partners, nor is there an explanation of how NASA’s effort will contribute to the overall federal initiative. NASA’s performance plan would be strengthened if it identified activities being undertaken to address crosscutting issues of broad national concern and discussed how achieving the agency’s goals will contribute to addressing the crosscutting issues. To indicate how NASA’s programs contribute to addressing a crosscutting issue, the plan could present output goals, output measures, intermediate outcome goals, and intermediate outcome measures that reflect the agency’s contributions to addressing the crosscutting issues. The performance plan could be improved if it discussed efforts to coordinate NASA’s programs with other federal programs performing related activities and provided evidence of coordination such as joint planning and coordination or development of partnerships aimed at improving program efficiency and effectiveness. The performance plan does not fully discuss how the agency’s strategies and resources will help achieve its goals. The implementation strategy descriptions in each enterprise section are unclear and do not provide sufficient information on how NASA will go about accomplishing its near-term enterprise goals. The plan only partially discusses resources; it does not describe the operational processes, skill and technology, human, capital, and information resources required to achieve the performance goals. The NASA plan does not fully describe how the agency will achieve its performance goals, nor does it reference other documents that show how the strategies will contribute to achieving the agency’s performance goals. Enterprise implementation strategy descriptions lack detailed information on how NASA will accomplish its enterprise goals. In several instances, these descriptions appear to outline philosophies rather than describe enabling actions. For instance, application of the “faster, better, cheaper” approach to spacecraft development identified in both the Space Science and Earth Science implementation strategy sections is not clearly explained. At a minimum, it would have been helpful if the plan had included an explicit discussion on what is involved in applying that approach and how the establishment of “prudent risks” is part of it. While not required by the Results Act, we believe that a similar discussion of external factors and discussion of how NASA will mitigate or use the identified factors to achieve performance goals could provide additional context regarding anticipated performance. With the exception of stating that NASA assumes that International Space Station partners will meet their own schedules, the plan does not explain how NASA will address external factors that could affect the agency’s performance during the coming fiscal year. In its strategic plan, NASA had identified several key external factors, such as the stability of future budgets. We believe that a similar discussion in the performance plan would be helpful. This is particularly pertinent for NASA’s budgetary programmatic priorities, including the International Space Station, which could potentially consume a large portion of NASA’s future resources and affect the timely implementation of other programs. NASA’s performance plan partially discusses the resources it will use to achieve the performance goals. Characterization of resources needed by NASA to meet its performance goals is limited to identifying fiscal year 1999 funding requirements by enterprise. In addition, the plan does not discuss operational processes, skills and technology, human and capital resources required to meet the performance goals. Information technology issues are discussed in the context of the internal crosscutting objective entitled “improving technology capability and services.” The performance target is identified as improving information technology return on investment and customer satisfaction by maintaining a positive return on investment and a “satisfactory” rating from information technology customers. The performance measure of “maintaining a positive return on investment” is vague and does not indicate how the target of improving information technology return on investment will be achieved. Likewise, although maintaining a “satisfactory” rating from customers is a positive measure, it does not indicate whether any improvement is being achieved. We observe that the information technology goal and measure identified in the performance plan do not specifically address any of the important information technology management issues that NASA currently faces. Specifically, the plan does not discuss how NASA plans to measure compliance with the Clinger-Cohen Act of 1996, which calls for agencies to implement a framework of modern technology management based on practices followed by leading private-sector and public-sector organizations that have successfully used technology to dramatically improve performance and meet strategic goals; the agency’s new Chief Information Officer (CIO) management structure, which depends on the cooperation of NASA’s diverse enterprises and field centers, will measure its success in providing strategic direction to information technology investments; and NASA plans to address the “year 2000 problem” (which requires that computer systems be changed to accommodate dates beyond the year 1999) as well as any significant information security weaknesses—two issues that we have identified as high risk across the federal government.Both the “year 2000 problem” and information security weaknesses could seriously undermine the performance and integrity of NASA’s information systems if not adequately addressed. In addition, NASA’s performance plan contains no discussion of its strategy for achieving improvements in information technology capability and services, nor does it refer to a separate information technology annual plan that might contain such information. As a result, there is no way to assess whether NASA is reasonably prepared to undertake any significant improvement in information technology capability and services or whether such a goal is attainable. Furthermore, the performance plan gives no indication of the resources associated with the information technology improvement goal. Furthermore, the performance of NASA’s major capital investments in information technology are not specifically addressed in its performance plan. For example, the Earth Science Enterprise section discusses an objective of improving dissemination of Earth Science research results but does not mention the Earth Observing System Data and Information System (EOSDIS). NASA has requested $257 million for EOSDIS in fiscal year 1999. No planned measures of the performance of EOSDIS are included. While NASA’s performance plan identifies internal and external organizations that will evaluate performance, it does not include a discussion of the procedures that will be used to verify and validate performance data and the limitations that could exist with internal sources of data that NASA plans to use to assess performance. Although the Results Act does not require that limitations of external sources of data be discussed in performance plans, we believe NASA’s performance plan would be improved with the inclusion of such a discussion. NASA’s performance plan states that performance will be evaluated by internal and external processes. Internal assessments will be conducted by agency management councils throughout the year and semi-annually by the Senior Management Council. External assessments will be conducted annually by the NASA Advisory Council and organizations such as the National Academy of Sciences. For example, the plan indicates that the Aeronautics and Space Transportation Technology Committee of the NASA Advisory Council will conduct annual assessments of the progress made by the Aeronautics and Space Transportation Technology Enterprise. This committee will provide a qualitative progress measurement, including commentary to clarify and supplement the qualitative measures. Such commentary would constitute a means to verify and validate measured values. The plan falls short in this area. NASA’s plan does not address limitations to the data from internal or external sources. To gauge its progress, NASA enterprises will likely rely extensively on internal sources of data, such as program management reports. However, the plan does not discuss any limitations that these data sources have. For example: As previously discussed, the performance target of “improving information technology” will require assessments of the trend in the ratio of benefits achieved to information technology costs. The plan would be more complete if it identified the challenges associated with determining benefits attributable to information technology investments. In describing its internal crosscutting process characterized as “Communicate Knowledge,” one of the objectives described is the development of educational outreach programs. One of the associated performance targets in fiscal year 1999 is to increase the number of students reached through its NEWEST/NEWMAST programs to 42,000 students from 37,000 students. It is not clear whether NASA will do its own survey or need to rely on other external information sources. NASA’s performance plan could also benefit from a discussion of the accuracy and reliability of data from external sources, even though such a discussion is not required by the Results Act. As previously discussed, the plan recognizes that securing collaboration and cooperation with other agencies and research partners is key to the successful accomplishment of its goals. In its description of the objective of making major scientific contributions to national and international environmental assessments, the plan can be improved by indicating whether NASA will rely on information provided by its partner, the Federal Aviation Administration (FAA), to assess atmospheric effects of aviation, and if so, how the accuracy and reliability of FAA’s data will be assessed. Since the performance target associated with this objective is to make significant contributions—further defined by NASA officials as being referenced in technical literature—such added information could influence greater use of the information generated. As previously noted, a critical component to NASA’s evaluation of its performance is the establishment of a financial management system and its integration with full cost accounting. Full cost accounting facilitates decision making and increases accountability by automating the agency’s operations and linking data results and costs to major agency activities, budgets, accounts, and reports. Unfortunately, all the information NASA needs to measure the costs associated with its performance is currently not available. NASA’s plans to implement full cost accounting are contingent upon the timely completion of its new financial management system, which NASA plans to implement in 1999. Until the new integrated financial management system is operational, performance assessments relying on cost data may be incomplete. We provided a draft of this report to NASA for review and comment. In its comments, NASA stated that it will continually improve the content of its annual plan and recognizes the usefulness of our comments and recommendations. NASA intends to use its strategic plan, budget justification, and performance plan as a “trilogy of documents” to be reviewed as a package. Even though the areas we identified in our report as lacking specificity may be addressed in NASA’s strategic plan, budget justification and other documents, we maintain that the performance plan could be more useful by better linking performance goals and measures to program activities in the budget; more fully explaining procedures for verifying and validating performance data and recognizing the limitations that affect the credibility of data that will be used to measure performance; and by acknowledging major management challenges and associated corrective actions. Including these areas in the plan would provide a more comprehensive understanding of the importance of NASA’s goals and performance measures, making it more useful for purposes of the Results Act. NASA’s comments and our evaluation of them are presented in appendix I. The scope of our work was limited to the information contained in NASA’s fiscal year 1999 performance plan and clarifying discussions we had with NASA officials. The criteria we used to conduct this review were the Results Act, OMB’s guidance on developing the plans (Circular A-11, part 2), our February 1998 guidance for congressional review of the plans (GGD/AIMD 10.1.18), and the December 17, 1997, letter to OMB Director Raines from several congressional leaders. For purposes of our analysis, we collapsed the six requirements for annual performance plans in the Results Act and the related guidance into three core questions: (1) To what extent does the agency’s performance plan provide a clear picture of intended performance across the agency? (2) How well does the performance plan discuss the strategies and resources the agency will use to achieve its performance plan? (3) To what extent does the agency’s performance plan provide confidence that its performance information will be credible? We conducted our work between December 1997 and April 1998 in accordance with generally accepted government auditing standards. As requested, we plan no further distribution of this report until 7 days after its issue date. At that time we will send copies to the Director of the Office of Management and Budget, the Administrator of NASA, and appropriate congressional committees. We will also make copies available to other interested parties on request. If you or your staff have any questions concerning this report, please contact me on (202) 512-4841. The major contributors to this letter are listed in appendix II. The following are GAO’s comments on NASA’s letter dated April 24, 1998. 1. Responding to the issues raised in this report, NASA concludes that it has complied with the requirements of GPRA. We agree. Our point in the report was that the plan contains areas that could be strengthened, making it more useful to the Congress. In discussing the strengths of NASA’s performance plan, our report recognizes that the plan provided good linkage between strategic goals and the goals in the performance plan and that performance measures were generally objective, quantifiable, and useful for assessing progress. However, our report also clearly states that NASA’s plan could provide a clearer picture of intended performance across the agency and does not fully portray how NASA’s strategies and resources will help it achieve the plan’s performance goals. The report also states that NASA’s plan does not clearly explain how program activities relate to the budget; and that there is no crosswalk to facilitate an understanding of the relationship between the specific program activities in the budget and the goals and measures in the performance plan. As stated in our report, NASA is in agreement to merge the budget justification and performance plan process in an effort to provide a crosswalk showing the relationship of performance targets to program activities and resources. 2. In commenting on measures for major management challenges, NASA recognizes that the plan does not include measures to improve the management challenges we address. While these management issues may be addressed in other management documents, such as the Chief Financial Officer’s Five-Year Plan, Chief Information Officer’s Information Technology Implementation Plan and implementation planning documents being developed by the Office of Procurement, to which NASA alludes, we did not review these documents; neither does the performance plan include reference to them. Referencing these documents in the plan would have been useful in providing specific sources for obtaining a more comprehensive understanding of the importance of these issues. We continue to believe that an acknowledgement of major management challenges and associated corrective actions would make the plan more useful for purposes of the Results Act. 3. In addressing the issue of resource requirements to achieve performance, NASA correctly restates our concern that the plan only addresses funding requirements for fiscal year 1999 at the Enterprise level. As in their comment to our point on not identifying management challenges, NASA makes the assumption that, since a discussion of operational processes, skills and technology, human and capital resources required to meet the performance goals is provided in the budget justification, it need not be included in the performance plan. Referencing these documents in the plan would have been useful in providing specific sources for obtaining a more comprehensive understanding of the importance of these issues. 4. Responding to our concern that the plan’s implementation strategy of applying the “faster, better, cheaper” approach to spacecraft development is not clearly explained, NASA contends that the statement that follows in the plan is a clear enough description of its approach. We do not agree. The statement NASA alludes to says that “Program managers are encouraged to accept prudent risk, shorten development time of technologies and missions, explore new conceptual approaches, streamline management, and incorporate innovative methods and technologies to enhance efficiency and effectiveness.” In our opinion, this statement does not provide a clear explanation of NASA’s implementation strategy. We continue to believe that a more explicit discussion of this approach is needed. 5. Our issue regarding EOSDIS is not in its lack of identification in the section discussing crosscutting information technology. Rather, we take issue with EOSDIS not being specifically mentioned either in the references cited in NASA’s comments or anywhere else in the performance plan, despite the fact that NASA plans to spend well over $1 billion on the system. NASA’s comment assumes that the reader of the plan would recognize EOSDIS as the vehicle for improving dissemination of Earth Science research results. We believe that a large investment such as EOSDIS should be explicitly addressed in the performance plan in order to ensure that its actual performance is understood. For example, a test of one part of EOSDIS in March 1998 revealed software problems that will force the launch of the EOS AM-1 satellite to be delayed by at least 6 months. We believe that the cost and schedule impact of this and other EOSDIS development problems needs to be explicitly and objectively assessed. 6. Responding to our concern about the lack of any discussion in the plan about the credibility of performance information, NASA officials expressed the belief that the data it collects will be credible and that we may be premature in passing judgement. As support, NASA references the audit of its fiscal year 1996 and fiscal year 1997 Accountability Reports by Arthur Andersen LLP, which the agency says found no significant issues with the credibility of NASA’s performance information plans. We have three points regarding NASA’s comment. First, the plan would have been strengthened by referencing the results of the Arthur Andersen LLP audit in the performance plan. Second, while a review of the Accountability Reports was not in the scope of our review, we believe that the objectives and performance measures in the performance plan are likely to be more results oriented than those included in the Accountability Reports NASA references. Third, while the plan does identify internal and external organizations that will evaluate its performance, we believe that it is not premature for NASA’s performance plan to include a discussion of procedures that will be used to verify and validate performance data and the limitations that could exist with internal sources of data that NASA plans to use to assess performance. NASA Budget: Carryover Balances in Selected Programs (GAO/NSIAD-96-206, July 16, 1996). High-Risk Program: Information on Selected High-Risk Areas (GAO/HR-97-30, May 16, 1997). Results Act: Observations on NASA’s May 1997 Draft Strategic Plan (GAO/NSIAD-97-205R, July 22, 1997). NASA: Major Management Problems (GAO/T-NSIAD-97-178, July 24, 1997). Managing for Results: Agencies’ Annual Performance Plans Can Help Address Strategic Planning Challenges (GAO/GGD-98-44, Jan. 30, 1998). Aerospace Testing: Promise of Closer NASA/DOD Cooperation Remains Largely Unfulfilled (GAO/NSIAD-98-52, Mar. 11, 1998). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.	Pursuant to a congressional request, GAO reviewed the National Aeronautics and Space Administration's (NASA) performance plan for fiscal year (FY) 1999, focusing on: (1) NASA's goals and objectives, including how the agency plans to measure its progress toward achieving these goals and objectives; (2) the agency's strategies and resources needed to achieve its goals; and (3) the availability and reliability of data necessary to achieve progress. GAO noted that: (1) NASA's FY 1999 performance plan could provide a clearer picture of intended performance across the agency, does not fully portray how NASA's strategies and resources will help it achieve the plan's performance goals, and partially provides confidence that the information NASA will use to assess performance will be accurate, complete, and credible; (2) among its strengths, NASA's performance plan reflects the mission statement and goals in its strategic plan and provides good linkage between these strategic goals and the plan's performance goals and targets; (3) it incorporates performance measures that are generally objective, quantifiable, and useful for assessing progress toward the plan's performance objectives; and provides for annual external assessments by its Advisory Council and semi-annual internal assessments by its Senior Management Council to validate progress toward meeting the agency's goals and objectives; (4) to make the plan more useful for purposes of the Government Performance and Results Act, NASA's performance plan should: (a) better link performance goals and measures to the program activities in NASA's budget; (b) more fully explain NASA's procedures for verifying and validating performance data by recognizing the limitations that affect the credibility of data that will be used to measure performance; and (c) acknowledge NASA's major management challenges and associated corrective actions in order to provide a more comprehensive understanding of the importance of the goals and performance measures chosen for its internal crosscutting processes; (5) some of the concerns GAO has regarding NASA's performance plan are similar to its observations on NASA's strategic plan issued on September 30, 1997; and (6) for example, NASA's strategic plan did not contain evidence that NASA had coordinated the plan with those agencies whose programs and activities complement NASA's and did not discuss the human, capital, and information resources needed to achieve the goals and objectives in the plan.	15.9	0-8k	8,923
18	As with servicemembers and federal workers, industry personnel must obtain security clearances to gain access to classified information. Clearances are categorized into three levels: top secret, secret, and confidential. The level of classification denotes the degree of protection required for information and the amount of damage that unauthorized disclosure could reasonably cause to national security. The degree of expected damage that unauthorized disclosure could reasonably be expected to cause is “exceptionally grave damage” for top secret information, “serious damage” for secret information, and “damage” for confidential information. DOD’s Office of the Under Secretary of Defense for Intelligence has responsibility for determining eligibility for clearances for servicemembers, DOD civilian employees, and industry personnel performing work for DOD and 23 other federal agencies, and employees in the federal legislative branch. That responsibility includes obtaining background investigations, primarily through OPM. Within OUSD(I), DSS uses OPM-provided investigative reports to determine clearance eligibility of industry personnel. DOD has responsibility for adjudicating the clearances of servicemembers, DOD civilians, and industry personnel. Two DOD offices are responsible for adjudicating cases involving industry personnel: the Defense Industrial Security Clearance Office within DSS and the Defense Office of Hearings and Appeals within the Defense Legal Agency. Accordingly, the Defense Industrial Security Clearance Office adjudicates cases that contain only favorable information or minor issues regarding security concerns (e.g., some overseas travel by the individual). The Defense Office of Hearings and Appeals adjudicates cases containing major security issues (e.g., an individual’s unexplained affluence or criminal history) that could result in the denial of clearance eligibility and possibly lead to an appeal. Recent significant events affecting DOD’s clearance program include the passage of the Intelligence Reform and Terrorism Prevention Act of 2004 and the issuance of the June 2005 Executive Order 13381, “Strengthening Processes Relating to Determining Eligibility for Access to Classified National Security Information.” The act included milestones for reducing the time to complete clearances, general specifications for a database on security clearances, and requirements for reciprocity of clearances. Among other things, the executive order stated that OMB was to ensure the effective implementation of policy related to appropriately uniform, centralized, efficient, effective, timely, and reciprocal agency functions relating to determining eligibility for access to classified national security information. Another recent event affecting DOD’s clearance program was the passage of the John Warner National Defense Authorization Act for Fiscal Year 2007 which required DOD to include in its annual budget submission to Congress a report on DOD’s industry personnel clearance investigations program. In response to that mandate, DOD’s August 2007 Annual Report to Congress on Personnel Security Investigations for Industry described DOD-specific and governmentwide efforts to improve security clearance processes. For example, one DOD-specific action described in the report is the addition of a capability to electronically submit a clearance applicant’s form authorizing the release of medical information. In addition, one governmentwide effort described in the report is that all requests for clearances are now being submitting using OPM’s Electronic Questionnaires for Investigations Processing. DOD has had a long-standing challenge in accurately projecting future industry investigation needs and is developing and implementing new methods to improve its procedures. However, DOD has not yet demonstrated the effectiveness of these changes. Since 2001, DOD has conducted an annual survey of contractors performing classified work for the government in order to estimate future clearance-investigation needs for industry personnel, but those estimates have not accurately reflected actual clearance needs. In November 2005, OMB reported a governmentwide goal whereby agencies have been asked to work toward refining their projections of required investigations to be within 5 percent of the numbers of actual requests for investigation. However, according to an OPM Associate Director’s May 2006 congressional testimony, DOD exceeded its departmentwide projection by 59 percent in the first half of fiscal year 2006. Our work has shown that DOD’s long-standing inability to accurately project its security clearance workload has had negative effects on its clearance-related budgets and staffing requirements. For example, as we reported in 2004, the services and defense agencies had to limit the number of overdue reinvestigations that they submitted for investigation in fiscal year 2000 because they did not budget sufficient funds to cover the costs of the workload. Furthermore, in April 2006, DOD temporarily stopped processing applications for clearance investigations for industry personnel, attributing the stoppage to a large volume of industry clearance requests and funding problems. In May 2004, we addressed DOD’s problems with inaccurately projecting the future number of clearances needed for industry personnel and the negative effect of inaccurate projections on workload planning. In that report, we recommended that OUSD(I) improve its projections of clearance requirements for industry personnel—for both the numbers and types of clearances—by working with DOD components, industry contractors, and the acquisition community to identify obstacles and implement steps to overcome them. At that time, DOD officials attributed inaccurate projections to (1) the use of some industry personnel on more than one contract and often for different agencies, (2) the movement of employees from one company to another, and (3) unanticipated world events such as the September 11, 2001, terrorist attacks. Because DOD continues to experience an inability to accurately project its security clearance workload, we believe that our 2004 recommendation for improving projections still has merit. In the report on security clearances we are issuing today, we note that DSS has made recent changes to the methods it uses to develop these estimates, and it is conducting research that may change these methods further. For example, DOD has modified the procedures for annually surveying contractors performing classified work for the government in order to more accurately estimate the number of future clearance investigations needed for industry personnel. To improve the response rate to this survey, in 2006, DSS made its survey accessible through the Internet, and DSS field staff began actively encouraging industry representatives to complete this voluntary survey. According to a DSS official, these changes increased the survey response rate from historically low rates of between 10 and 15 percent of the surveyed facilities providing information in previous years to 70 percent of facilities in 2007, which represented 86 percent of industry personnel with a clearance. In addition to improving the response rate for its annual survey, DSS also changed its methods for computing the projections. For example, DSS began performing weekly analyses to refine its future investigation needs rather than relying on the previous method of performing a onetime annual analysis of its survey results. DSS also changed its analysis procedures by including variables (e.g., company size) not previously accounted for in its analyses. In addition, DOD’s Personnel Security Research Center is assessing a statistical model for estimating future investigation needs in order to determine if a model can supplement or replace the current survey method. However, it is too early to determine the effect of these new methods on the accuracy of DOD’s projections. DOD must address additional long-standing challenges or issues in order to improve the efficiency and effectiveness of its personnel security clearance program for industry personnel. First, delays in the clearance process continue to increase costs and risk to national security, such as when new industry employees are not able to begin work promptly and employees with outdated clearances have access to classified documents. Second, DOD and the rest of the federal government provide limited information to one another on how they individually ensure the quality of clearance products and procedures. Third, in DOD’s August 2007 report to Congress, it provided less than 2 years of funding-requirements information which limits congressional awareness of future year requirements for this program. Fourth, DOD currently has no comprehensive DOD-specific plan to address delays in its clearance program. DOD’s August 2007 report to Congress noted that delays in processing personnel security clearances have been reduced, yet the time required to process clearances continues to exceed time requirements established by the Intelligence Reform and Terrorism Prevention Act of 2004. This law currently requires adjudicative agencies to make a determination on at least 80 percent of all applications for a security clearance within an average of 120 days after the date of receipt of the application, with 90 days allotted for the investigation and 30 days allotted for the adjudication. DOD’s August 2007 congressionally-mandated report on clearances for industry personnel described continuing delays in the processing of clearances. For example, during the first 6 months of fiscal year 2007, the end-to-end processing of initial top secret clearances took an average of 276 days; renewal of top secret clearances, 335 days; and all secret clearances, 208 days. Delays in clearance processes can result in additional costs when new industry employees are not able to begin work promptly and increased risks to national security because previously cleared industry employees are likely to continue working with classified information while the agency determines whether they should still be eligible to hold a clearance. To improve the timeliness of the clearance process, we recommended in September 2006 that OMB establish an interagency working group to identify and implement solutions for investigative and adjudicative information-technology problems that have resulted in clearance delays. In commenting on our recommendation, OMB’s Deputy Director for Management stated that that National Security Council’s Security Clearance Working Group had begun to explore ways to identify and implement improvements to the process. DOD’s August 2007 congressionally mandated report on clearances for industry personnel documented improvements in clearance processes but was largely silent regarding quality in clearance processes. While DOD described several changes to the processes and characterized the changes as progress, the department provided little information on (1) any measures of quality used to assess clearance processes or (2) procedures to promote quality during clearance investigation and adjudication processes. Specifically, DOD reported that DSS, DOD’s adjudicative community, and OPM are gathering and analyzing measures of quality for the clearance processes that could be used to provide the national security community with a better product. However, the DOD report did not include any of those measures. In September 2006, we reported that while eliminating delays in clearance processes is an important goal, the government cannot afford to achieve that goal by providing investigative and adjudicative reports that are incomplete in key areas. We additionally reported that the lack of full reciprocity of clearances is an outgrowth of agencies’ concerns that other agencies may have granted clearances based on inadequate investigations and adjudications. Without fuller reciprocity of clearances, agencies could continue to require duplicative investigations and adjudications, which result in additional costs to the federal government. In the report we are issuing today, we are recommending that DOD develop measures of quality for the clearance process and include them in future reports to Congress. Statistics from such measures would help to illustrate how DOD is balancing quality and timeliness requirements in its personnel security clearance program. DOD concurred with that recommendation, indicating it had developed a baseline performance measure of the quality of investigations and adjudications and was developing methods to collect information using this quality measure. DOD’s August 2007 congressionally mandated report on clearances for industry personnel provided less than 2 years of data on funding requirements. In its report, DOD identified its immediate needs by submitting an annualized projected cost of $178.2 million for fiscal year 2007 and a projected funding need of approximately $300 million for fiscal year 2008. However, the report did not include information on (1) the funding requirements for fiscal year 2009 and beyond even though the survey used to develop the funding requirements asked contractors about their clearance needs through 2010 and (2) the tens of millions of dollars that the DSS Director testified to Congress in May 2007 were necessary to maintain the infrastructure supporting the industry personnel security clearance program. The inclusion of less than 2 future years of budgeting information limits Congress’s ability to carry out its oversight and appropriations functions pertaining to industry personnel security clearances. Without more information on DOD’s longer-term funding requirements for industry personnel security clearances, Congress lacks the visibility it needs to fully assess appropriations requirements. Elsewhere, DOD provides such longer-term funding projections as a tool for looking beyond immediate budget priorities. Specifically, DOD annually submits the future years defense program to Congress, which contains budget projections for the current budget year and at least the 4 succeeding years. In the report we are issuing today, we are recommending that DOD add projected funding information for additional future years so that Congress can use that information in making strategic appropriation and authorization decisions about the clearance program for industry personnel. DOD concurred with that recommendation and stated that it would implement our recommendation in its 2009 congressional report. DOD currently has no comprehensive department-specific plan to address delays and other challenges in its clearance program. In our 2004 report on personnel security clearances for industry personnel, we recommended that DOD develop and implement an integrated, comprehensive management plan to eliminate the backlog, reduce the delays in conducting investigations and determining eligibility for security clearances, and overcome the impediments that could allow such problems to recur. However, DOD continues to address challenges in the security clearance process in an incremental fashion. According to OUSD(I) officials, DOD is pursuing a limited number of smaller-scale initiatives to address backlogs and delays. For example, to address delays in the process, DOD is working with OPM to introduce a new method of obtaining an applicant’s fingerprints electronically and implement a method that would enable OPM to transfer investigative records to DOD adjudicators electronically. The DSS Director said that DSS had been drafting a comprehensive plan to improve security clearance processes for industry personnel, but new governmentwide efforts have supplanted the larger-scale initiatives that DSS was planning. In particular, DOD is relying on a governmentwide effort to reform the clearance system. Agencies involved in this governmentwide effort include the Office of the Director of National Intelligence, DOD, OMB, and OPM. A description of those planned improvements are included in the team’s July 25, 2007, terms of reference, which indicate that the reform team plans to deliver “a transformed, modernized, fair, and reciprocal security clearance process that is universally applicable” to DOD, the intelligence community, and other U.S. government agencies. In our November 2007 discussions with DOD officials, the OUSD(I) Director of Security stated that the government expects to have demonstrated the feasibility for components of the new system by December 2008, but the actual system would not be operational for some additional unspecified period. We believe that our 2004 recommendation for a comprehensive management plan is still warranted because (1) many of the challenges still exist 4 years after we made our recommendation and (2) the date that the reformed system will be in operation is unknown. Mr. Chairman, we are encouraged by some department-specific and governmentwide efforts that have improved DOD’s personnel security clearance program, but the challenges identified in this testimony show that much remains to be done. Should these long-standing challenges and issues not be addressed, the vulnerability of unauthorized disclosure of national security information and additional costs and delays in completing national security-related contracts will likely continue. We will continue to monitor DOD’s program as part of our series on high-risk issues that monitors major programs and operations that need urgent attention and transformation. Chairman Ortiz and Members of the subcommittee, this concludes my prepared statement. I would be happy to answer any questions that you may have at this time. For further information regarding this testimony, please contact me at (202) 512-8246 or edwardsj@gao.gov, or Brenda S. Farrell at (202) 512-3604 or farrellb@gao.gov. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony are Grace Coleman, James P. Klein, Ron La Due Lake, Marie Mak, and Karen D. Thornton. DOD Personnel Clearances: Improved Annual Reporting Would Enable More Informed Congressional Oversight. GAO-08-350. Washington, D.C.: February 13, 2008. Defense Business Transformation: A Full-time Chief Management Officer with a Term Appointment Is Needed at DOD to Maintain Continuity of Effort and Achieve Sustainable Success. GAO-08-132T. Washington, D.C.: October 16, 2007. DOD Personnel Clearances: Delays and Inadequate Documentation Found For Industry Personnel. GAO-07-842T. Washington, D.C.: May 17, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. DOD Personnel Clearances: Additional OMB Actions Are Needed To Improve the Security Clearance Process. GAO-06-1070. Washington, D.C.: September 28, 2006. DOD Personnel Clearances: Questions and Answers for the Record Following the Second in a Series of Hearings on Fixing the Security Clearance Process. GAO-06-693R. Washington, D.C.: June 14, 2006. DOD Personnel Clearances: New Concerns Slow Processing of Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Funding Challenges and Other Impediments Slow Clearances for Industry Personnel. GAO-06-747T. Washington, D.C.: May 17, 2006. Questions for the Record Related to DOD’s Personnel Security Clearance Program and the Government Plan for Improving the Clearance Process. GAO-06-323R. Washington, D.C.: January 17, 2006. DOD Personnel Clearances: Government Plan Addresses Some Long- standing Problems with DOD’s Program, But Concerns Remain. GAO-06- 233T. Washington, D.C.: November 9, 2005. Defense Management: Better Review Needed of Program Protection Issues Associated with Manufacturing Presidential Helicopters. GAO-06- 71SU. Washington, D.C.: November 4, 2005. Questions for the Record Related to DOD’s Personnel Security Clearance Program. GAO-05-988R. Washington, D.C.: August 19, 2005. Industrial Security: DOD Cannot Ensure Its Oversight of Contractors under Foreign Influence Is Sufficient. GAO-05-681. Washington, D.C.: July 15, 2005. DOD Personnel Clearances: Some Progress Has Been Made but Hurdles Remain to Overcome the Challenges That Led to GAO’s High-Risk Designation. GAO-05-842T. Washington, D.C.: June 28, 2005. DOD’s High-Risk Areas: Successful Business Transformation Requires Sound Strategic Planning and Sustained Leadership. GAO-05-520T. Washington, D.C.: April 13, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. Intelligence Reform: Human Capital Considerations Critical to 9/11 Commission’s Proposed Reforms. GAO-04-1084T. Washington, D.C.: September 14, 2004. DOD Personnel Clearances: Additional Steps Can Be Taken to Reduce Backlogs and Delays in Determining Security Clearance Eligibility for Industry Personnel. GAO-04-632. Washington, D.C.: May 26, 2004. DOD Personnel Clearances: Preliminary Observations Related to Backlogs and Delays in Determining Security Clearance Eligibility for Industry Personnel. GAO-04-202T. Washington, D.C.: May 6, 2004. Industrial Security: DOD Cannot Provide Adequate Assurances That Its Oversight Ensures the Protection of Classified Information. GAO-04-332. Washington, D.C.: March 3, 2004. DOD Personnel Clearances: DOD Needs to Overcome Impediments to Eliminating Backlog and Determining Its Size. GAO-04-344. Washington, D.C.: February 9, 2004. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.	The Department of Defense (DOD) maintains approximately 2.5 million security clearances on servicemembers, federal DOD civilian employees, industry personnel for DOD and 23 other federal agencies, and employees in the legislative branch. Delays in determining eligibility for a clearance can heighten the risk that classified information will be disclosed to unauthorized sources, increase contract costs, and pose problems in attracting and retaining qualified personnel. In this statement, GAO addresses: (1) the status of DOD's efforts to improve its projections of the numbers of clearances needed for industry personnel, and (2) other long-standing challenges that have a negative effect on the efficiency and effectiveness of DOD's personnel security clearance program for industry personnel. This statement is based on a report GAO is issuing today (GAO-08-350) and other prior work, which included reviews of clearance-related documents and interviews of senior officials at DOD and the Office of Personnel Management (OPM). DOD has had a long-standing challenge in accurately projecting the number of clearance investigations that will be required in the future for industry personnel. The Office of Management and Budget (OMB) developed criteria for these projections in November 2005. It established a governmentwide goal for agencies to refine their projections of the number of clearance investigations that will be required in any given year to be within 5 percent of the number of actual requests for investigation. At a May 2006 congressional hearing, an OPM Assistant Director stated that DOD had exceeded its departmentwide projection by 59 percent for the first half of fiscal year 2006. The negative effects of such inaccurate projections include impediments to workload planning and funding. GAO noted the problem with the accuracy of DOD's projections in its February 2004 report and recommended that DOD improve its projections for industry personnel. In the report it is issuing today, GAO noted that DOD has initiated changes to improve its estimates of future investigation needs and is conducting research that may change these methods further. For example, in 2006, DOD took steps to increase the response rate of its annual survey used as a basis for determining its projections. In 2007, it changed its methods for analyzing data that informs its projections. However, DOD has not yet demonstrated the effectiveness of these changes. DOD must address additional long-standing challenges or issues in order to improve the efficiency and accuracy of its personnel security clearance program for industry personnel. First, continuing delays in determining clearance eligibility can result in increased costs and risk to national security. For example, when new employees' clearances are delayed, it affects their abilities to perform their duties fully since they do not have access to classified material. Second, DOD and the rest of the federal government provide limited information to one another on how they individually ensure the quality of clearance products and procedures, which affects reciprocity of clearances. Reciprocity occurs when one government agency fully accepts a security clearance granted by another government agency. GAO's September 2006 report noted that agencies may not reciprocally recognize clearances granted by other agencies because of concerns that other agencies may have granted clearances based on inadequate investigations and adjudications. Third, in DOD's August 2007 report to Congress, it provided less than 2 years of funding-requirements information, which limits congressional awareness of future year requirements for this program. Fourth, DOD does not have a comprehensive DOD-specific plan to address delays in its clearance program. While there is a governmentwide effort to reform the clearance process, it is projected not to be operational until beyond December 2008.	15.5	0-8k	8,937
19	Medicaid is a joint federal-state program that finances health care coverage for low-income and medically needy individuals. In fiscal year 2014, Medicaid covered on average an estimated 65 million beneficiaries at an estimated cost of over $500 billion. States pay for Medicaid- covered services provided to eligible individuals under a federally approved Medicaid state plan, and the federal government pays its share of a state’s expenditures. States that wish to change their Medicaid programs in ways that deviate from certain federal requirements may seek to do so under the authority of an approved demonstration. Section 1115 of the Social Security Act authorizes the Secretary of Health and Human Services to waive certain federal Medicaid requirements and to allow costs that would not otherwise be eligible for federal matching funds—through “expenditure authorities”—for experimental, pilot, or demonstration projects that, in the Secretary’s judgment, are likely to assist in promoting Medicaid objectives. The demonstrations provide a way for states to test and evaluate new approaches for delivering Medicaid services. To obtain approval, states submit applications for section 1115 demonstrations to HHS for review. Upon approval, HHS issues an award letter to the state and an approval specifying the Medicaid requirements that are being waived, the expenditure authorities approved, and the special terms and conditions detailing the requirements for the demonstration. HHS typically approves a section 1115 demonstration for a 5-year period that can be amended or extended. Under HHS policy in place since the early 1980s, section 1115 demonstrations should be budget neutral to the federal government. In other words, the Secretary should not approve demonstrations that would increase federal costs for the state’s Medicaid program beyond what the federal government would have spent without the demonstration. To have a budget-neutral demonstration, generally a state must establish that its planned changes to its Medicaid program—including receiving federal matching funds for otherwise unallowable costs—will be offset by savings or other available Medicaid funds. Once approved, each demonstration operates under a negotiated budget neutrality agreement that places a limit on federal Medicaid spending over the life of the demonstration, typically 5 years. According to HHS’s policy, demonstration spending limits are based on states’ projected costs of continuing their Medicaid programs without a demonstration. The higher the projected costs without a demonstration, the more federal funding states are eligible to receive for the demonstration. HHS’s policy calls for establishing a spending base using a state’s actual historical spending from a recent year and projecting spending over the course of the demonstration using certain growth rates established in policy. HHS approved expenditure authorities for a broad range of purposes beyond expanding Medicaid coverage to individuals, including state- operated programs and funding pools. However, how these programs and funding pools would further Medicaid objectives was not always apparent from HHS’s documentation. Recent approvals highlight the need for specific criteria and clear documentation to show how demonstrations further Medicaid purposes. In our April 2015 report examining recent demonstration approvals in 25 states, we found that HHS had approved expenditure authorities allowing 5 states to receive federal Medicaid matching funds for state expenditures for more than 150 state-operated programs. Prior to the demonstrations, these programs were not coverable under Medicaid. The 5 states were approved to spend up to $9.5 billion in Medicaid funds (federal and state) for these programs during their current demonstration approval periods, which ranged from 2.5 to 5 years. The state programs were operated or funded by a wide range of different state agencies, such as state departments of mental health, public health, corrections, youth services, developmental disabilities, aging, and state educational institutions. Prior to being included in the demonstrations, these programs could have been financed with state or non-Medicaid federal funding sources, or a combination of these, such as state appropriations or non-Medicaid federal grant funding. Under the demonstrations, states must first allocate and spend state resources for programs to receive federal Medicaid matching funds. The federal matching funds received could replace some of the state’s expenditures for the programs, freeing up state funding for other purposes. For example, states could use the freed-up state funding to invest in health care quality improvement efforts or health reform initiatives or simply to address shortfalls in states’ budgets. The expenditure authorities for state programs supported a broad range of state program costs that would not otherwise have been eligible for federal Medicaid funding. Although many of the programs offered health- related services, such as prostate cancer treatment and newborn immunizations, not all were necessarily income-based. In addition to programs providing health-related services, other state programs authorized to receive funding included those providing support services to individuals and families, for example, to non-Medicaid-eligible individuals; those providing access to private insurance coverage for targeted groups; and those funding health care workforce training programs. Overall, state programs that were approved for federal Medicaid funds appeared to be wide ranging in nature. How funding for these state-operated programs would likely promote Medicaid objectives was not always clear from HHS’s approval documents. We found that the documents did not consistently include information indicating what, specifically, the approved expenditures for state programs were for and, therefore, how they would likely promote Medicaid objectives. State programs approved by HHS were generally listed by program name in the special terms and conditions of each state’s approval, but often without any further detailed information. Examples of state program names listed in the approval documents included a healthy neighborhoods program, grants to councils on aging, childhood lead poisoning primary prevention, and a state-funded marketplace subsidies program. A full listing of the state programs funded by expenditure authorities we reviewed is included in appendix I. Further, we found that several state programs approved for federal Medicaid funds appeared, based on information in the approvals, to be only tangentially related to improving health coverage for low-income individuals and lacked documentation explaining how their approval was likely to promote Medicaid objectives. For example, the purposes of some programs approved included funding insurance for fishermen and their families at a reduced rate; constructing supportive housing for the homeless; and recruiting and retaining health care workers. For two of the five states we reviewed, HHS’s approvals included additional details beyond the program names about the programs—including program descriptions and target populations—in the special terms and conditions. Such information can help explain how the programs may promote Medicaid objectives; however, we found that even when such information was included, HHS’s basis for approving expenditure authorities for some state programs was still not transparent. For example, one state received approval to claim matching funds for spending on a state program that issues licenses and approves certifications of hospitals and other providers in the state. While the terms and conditions delineated the program’s mission and funding limits, it did not explicitly address how the program related to Medicaid objectives. The approvals for the other three states, accounting for nearly half of the more than 150 state programs in our review, lacked information on how the state programs would promote Medicaid objectives, such as how they would benefit low-income populations. We also found that HHS’s approvals varied in the extent to which they provided assurances that Medicaid funding for state programs would not duplicate any other potential sources of non-Medicaid federal funding. In two of the five states we reviewed, the terms and conditions identified all other federal and nonfederal funding sources for each state program and included specific instructions on how states should “offset” other revenues received by the state programs related to eligible expenditures. The approval for a third state did not identify other funding sources received by each program but included a general program integrity provision requiring the state to have processes in place to ensure no duplication of federal funding. In contrast, the approvals for two states did not identify other federal and nonfederal funding sources for each program and lacked language expressly prohibiting the states’ use of funding for the same purposes. Another major type of non-coverage-related expenditure authority that HHS approved allowed states to make new kinds of supplemental payments—that is, payments in addition to base payments for covered services—to hospitals and other providers. In our April 2015 report, we found that HHS approved expenditure authorities in eight states for pools of dedicated funds—called funding pools—amounting to more than $26 billion (federal and state share) over the course of the current approvals, which ranged from 15 months to over 5 years. These expenditure authorities allowed states to receive federal Medicaid funds for supplemental payments made to providers for uncompensated care or for delivery system or infrastructure improvements. In addition, some states had funding pools approved for other varied purposes, such as graduate medical education. Funding pools for hospital uncompensated care costs. In our April 2015 report, we found that HHS approved expenditure authorities in six states to establish or maintain hospital uncompensated care funding pools for a total of about $7.6 billion (federal and state) in approved spending. Funding pools for incentive payments to hospitals. HHS also approved new expenditure authorities in five states for funding pools to make incentive payments to promote health care delivery system or infrastructure improvements for nearly $18.8 billion (federal and state share) in spending. These expenditure authorities were for payments to incentivize hospitals or their partners to make a variety of improvements, such as lowering hospitals’ rates of adverse events or incidence of disease, improving care for patients with certain conditions, and increasing delivery system capacity. As with approvals of expenditure authorities for state programs, we found that HHS’s approvals of expenditure authorities for funding pools also did not consistently document how expenditures would likely promote Medicaid objectives. The approvals of incentive payment funding pools we reviewed established a structure for planning, reporting on, and getting paid for general, system-wide improvements—for example, increasing primary care capacity or lowering admission rates for certain diseases—but most provided little or no detail on how the initiatives related to Medicaid objectives, such as their potential impact on Medicaid beneficiaries or low-income populations. Further, the criteria for selecting providers eligible to participate in incentive pools were not apparent in most of the approvals we reviewed. HHS’s approvals typically listed eligible providers but with no additional information about their role in providing services to Medicaid populations. For example, none of the terms and conditions for the five states’ demonstrations that we reviewed established a minimum threshold of Medicaid or low-income patient volume as the basis for participation; however, three of the five states’ approvals required that the payment allocations be weighted in part on measures of Medicaid or low-income patient workload. We also found that the approvals for incentive payment funding pools varied in the extent to which they provided assurances that Medicaid funding for these initiatives would not duplicate other sources of federal funding. The terms and conditions for only one of the five states required the state to demonstrate that its funding pool was not duplicating any other existing or future federal funding streams for the same purpose. Two other states’ terms and conditions required hospitals to demonstrate that incentive projects did not duplicate other HHS initiatives. The extent to which approvals for uncompensated care pools included protections against potential duplication of federal funds was somewhat mixed. The approvals placed some limits on the potential overlap between payments to individual providers from the uncompensated care pool and Medicaid’s Disproportionate Share Hospital program, which provides allotments to states for payments to hospitals that serve a disproportionate share of low-income and Medicaid patients. We found that HHS consistently included a requirement that when states calculate their Disproportionate Share Hospital payment limits for individual hospitals, they include as offsetting revenue any payments for inpatient or outpatient services the hospitals may have received from the uncompensated care pool. Aside from instructions about the Disproportionate Share Hospital program, however, the approvals generally did not explicitly prohibit other potentially duplicative sources of funding, such as grants awarded under other federal programs. While section 1115 of the Social Security Act provides HHS with broad authority in approving expenditure authorities for demonstrations that, in the Secretary’s judgment, are likely to promote Medicaid objectives, as we reported in April 2015, according to HHS officials, the agency has not issued explicit criteria explaining how it assesses whether demonstration expenditures meet this broad statutory requirement. HHS officials also told us that for a demonstration to be approved, its goals and purposes must provide an important benefit to the Medicaid program, but they did not provide more explicit criteria for determining whether approved demonstration expenditures would provide an important benefit or promote Medicaid objectives. HHS officials also said that it is not in the agency’s interest to issue guidelines that might limit its flexibility in determining which demonstrations promote Medicaid objectives. Given the breadth of the Secretary’s authority under section 1115—the exercise of which may result in billions of dollars of federal expenditures for costs not otherwise allowed under Medicaid, we recommended in April 2015 that HHS issue criteria for assessing whether section 1115 expenditure authorities are likely to promote Medicaid objectives. HHS partially concurred with this recommendation, stating that all section 1115 demonstrations are reviewed against “general criteria” to determine whether Medicaid objectives are met, including whether the demonstration will (1) increase and strengthen coverage of low-income individuals; (2) increase access to, stabilize, and strengthen providers and provider networks available to serve Medicaid and low-income populations; (3) improve health outcomes for Medicaid and other low- income populations; and (4) increase the efficiency and quality of care for Medicaid and other low-income populations through initiatives to transform service delivery networks. HHS was silent, however, as to whether it planned to issue written guidance on these general criteria, and we maintain that these general criteria are not sufficiently specific to allow a clear understanding of what HHS considers in reviewing whether expenditure authorities are likely to promote Medicaid objectives. For example, although each of HHS’s four general criteria relates to serving low-income or Medicaid populations, HHS does not define low-income or what it means to serve these individuals. In our April 2015 report, we also emphasized the importance of HHS documenting the basis for its approval decisions and showing how approved expenditure authorities are likely to promote Medicaid’s objectives. Without such documentation, HHS cannot provide reasonable assurance that it is consistently applying its criteria for determining whether demonstration expenditures promote Medicaid objectives. We recommended that HHS ensure the application of its criteria for assessing section 1115 demonstrations is documented in all approvals, to inform stakeholders—including states, the public, and Congress—of the basis for its determinations that approved expenditure authorities are likely to promote Medicaid objectives. HHS concurred with this recommendation, stating that it will ensure that all future section 1115 demonstration approval documents identify how each approved expenditure authority promotes Medicaid objectives. Finally, we recommended that HHS take steps to ensure that demonstration approval documentation consistently provides assurances that states will avoid duplicative spending by offsetting as appropriate all other federal revenues when claiming federal Medicaid matching funds. In response, HHS said it would take steps to ensure approval documentation for state programs, uncompensated care pools, and incentive payment pools consistently provides assurances that states will avoid duplication of federal spending. HHS’s policy and process for approving state spending on Medicaid demonstrations lack transparency and do not provide assurances that demonstrations will be budget neutral for the federal government. Longstanding concerns support the need for budget neutrality policy and process reform. GAO’s prior work has found that HHS’s policy and process for determining state demonstration spending limits lack transparency related to the criteria and evidence used to support state spending limits, and the most recent written policy, issued in 2001, does not reflect HHS’s actual practices. Spending limits are based on states’ estimated costs of continuing their Medicaid programs without the proposed demonstration. According to HHS policy, demonstration spending limits should be calculated by estimating future costs of baseline spending—using actual Medicaid costs, typically from the most recently completed fiscal year— and applying a benchmark growth rate (which is the lower of the state- specific historical growth rates for a recent 5-year period and estimates of HHS officials reported that their policy and nationwide Medicaid growth).process allow for negotiations in determining spending limits, including adjustments to the growth rates used to project baseline costs. For example, if there are documented anomalies in historical spending data, adjustments can be made so that projected spending is accurate. However, HHS’s policy does not specify criteria and methods for such adjustments or the documentation and evidence that are needed to support adjustments. GAO, Medicaid Demonstration Waivers: Approval Process Raises Cost Concerns and Lacks Transparency, GAO-13-384 (Washington, D.C.: June 25, 2013) any adjustments. But HHS officials did not have documentation for the agency’s process or policy on when estimates are allowed or an explanation for what type of documentation of adjustments is required. Between 2002 and 2014, we have reviewed more than a dozen states’ approved comprehensive demonstrations and found that HHS had not consistently ensured that the demonstrations would be budget neutral. We found that HHS has allowed states to use questionable methods and assumptions for their spending baselines and growth rates in projecting spending, without providing adequate documentation to support them. In particular, HHS allowed states to make adjustments that allowed for cost growth assumptions that were higher than growth rates based on historical spending and nationwide spending, without adequate support for the deviations from these benchmarks included in its policy. HHS also allowed states to include costs in the baseline spending that the state never incurred. In some cases, these practices allowed states to add billions of dollars in costs to their projected spending. For example, in our 2013 report, we found that One state’s approved spending limit for 2011 through 2016 was based on outdated information on spending—1982 data were projected forward to represent baseline spending and state-specific historical spending growth for a recent period. Had baseline expenditures and benchmark growth rates been based on recent expenditure data that were available, the 5-year spending limit would have totaled about $26 billion less, and the federal share of this reduction would have been about $18 billion. Another state’s approved spending limit for 2011 through 2016 included hypothetical costs in the state’s estimate of its baseline spending; that is, costs the state had not incurred were included in the base year spending estimate. These costs represented higher payment amounts that the state could have paid providers during the base year, but did not actually pay. For example, the state base year included costs based on the state’s hypothetically paying hospitals the maximum amount allowed under federal law, although the state had not paid the maximum amount. We estimated that had the state included only actual expenditures as indicated by HHS’s policy, the 5-year spending limit would have totaled about $4.6 billion less, and the federal share of this reduction would have been about $3 billion. Allowing questionable assumptions and methods increases projected spending and allows for significant increase in federal costs. We have found that had HHS developed demonstration spending limits based on levels suggested by its policy, spending limits would have been tens of billions of dollars lower. For example, for five states’ demonstrations we reviewed in our 2013 and 2014 reports, we estimate that had HHS used growth rates consistent with its policy and allowed only actual costs in base year spending, demonstration spending limits would have been almost $33 billion lower than what was actually approved.The federal share of the $33 billion reduction would constitute an estimated $22 billion. (See table 1.) Our concerns with HHS’s process and criteria are long-standing, and our recommendations for improving HHS’s policy and process have not yet been addressed. On several occasions since the mid-1990s, we have found that HHS had approved demonstrations that were not budget neutral to the federal government, and we have made a number of recommendations to HHS to improve the budget neutrality process, but HHS has not agreed. Specifically, we have recommended that HHS (1) better ensure that valid methods are used to demonstrate budget neutrality, (2) clarify criteria for reviewing and approving demonstration spending limits, and (3) document and make public the bases for approved spending limits. In 2008, because HHS disagreed with our recommendations—maintaining that its review and approval process was sufficient—we suggested that Congress consider requiring the Secretary of Health and Human Services to improve the department’s review criteria and methods by documenting and making clear the basis for approved spending limits. In 2013, we further recommended that HHS update its written budget neutrality policy to reflect the actual criteria and processes used to develop and approve demonstration spending limits, and ensure the policy is readily available to state Medicaid directors and others. HHS disagreed with this recommendation, stating that it has applied its policy consistently. However, based on multiple reviews of Medicaid demonstrations, we continue to believe that HHS must take actions to improve the transparency of its demonstration approvals. In conclusion, section 1115 Medicaid demonstrations provide HHS and states with a powerful tool for testing and evaluating new approaches for potentially improving the delivery of Medicaid services to beneficiaries. In using the broad authority provided under section 1115, the Secretary has responsibility for the prudent use of federal Medicaid resources, including ensuring that demonstration expenditures promote Medicaid objectives and do not increase overall federal Medicaid costs. Our work has shown, however, that it has not always been clear how approved demonstration spending relates to Medicaid objectives. For example, several state programs that were approved for Medicaid spending that we reviewed appeared, based on information in the approvals, to be only tangentially related to improving health coverage for low-income individuals. HHS’s approved expenditure authorities can set new precedents for other states to follow and raise potential for overlap with other funding streams. Similarly, we have had longstanding concerns, dating back decades, that HHS’s policy and process for approving total spending limits under demonstrations have not always ensured that spending under demonstrations will not increase federal Medicaid costs. As section 1115 demonstrations have become a significant and growing proportion of Medicaid expenditures, ensuring that demonstration expenditures are linked to Medicaid purposes and are budget neutral is even more critical to ensuring the long-term sustainability of the program, upon which tens of millions of low-income beneficiaries depend to cover their medical costs. Without clear criteria, policies, appropriate methods for developing spending limits, and improved documentation of the bases for decisions, HHS’s demonstration approvals affecting tens of billions in federal spending will continue to lack transparency and to raise concerns about the fiscal stewardship of the program. Chairman Pitts, Ranking Member Green, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you might have at this time. If you or your staff have any questions about this testimony, please contact Katherine Iritani, Director, Health Care at (202) 512-7114 or iritanik@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Catina Bradley, Assistant Director; Tim Bushfield, Assistant Director; Christine Davis; Shirin Hormozi; Linda McIver; Roseanne Price; and Emily Wilson. From June 2012 through mid-October 2013, five states received approval from the Department of Health and Human Services (HHS) for section 1115 demonstrations that included expenditure authorities allowing funding for state programs. Table 2 shows examples of the names of the state programs funded in the terms and conditions of each state’s approval documentation. Often there was no further detailed information regarding the approved programs. Medicaid Demonstrations: Approval Criteria and Documentation Need to Show How Spending Furthers Medicaid Objectives. GAO-15-239. Washington, D.C.: April 13, 2015. High-Risk Series: An Update. GAO-15-290. Washington, D.C.: February 11, 2015. Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s Medicaid Expansion Waiver Raises Concerns. GAO-14-689R. Washington, D.C.: August 8, 2014. Cost Savings – Health – Medicaid Demonstration Waivers. GAO-14-343SP. Washington, D.C.: April 2014. Medicaid Demonstration Waivers: Approval Process Raises Cost Concerns and Lacks Transparency. GAO-13-384. Washington, D.C.: June 25, 2013. Medicaid Demonstration Waivers: Recent HHS Approvals Continue to Raise Cost and Oversight Concerns. GAO-08-87. Washington, D.C.: January 31, 2008. Medicaid Demonstration Projects in Florida and Vermont Approved under Section 1115 of the Social Security Act. B-309734. July 27, 2007. Medicaid Demonstration Waivers: Lack of Opportunity for Public Input during Federal Approval Process Still a Concern. GAO-07-694R. Washington, D.C.: July 24, 2007. Medicaid Waivers: HHS Approvals of Pharmacy Plus Demonstrations Continue to Raise Cost and Oversight Concerns. GAO-04-480. Washington, D.C.: June 30, 2004. SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with Program Goals. GAO-04-166R. Washington, D.C.: January 5, 2004. Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002. Medicaid Section 1115 Waivers: Flexible Approach to Approving Demonstrations Could Increase Federal Costs. GAO/HEHS-96-44. Washington, D.C.: November 8, 1995. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.	The long-term sustainability of the $500 billion joint federal-state Medicaid program is important for the low-income and medically needy populations that depend on it. Section 1115 of the Social Security Act provides the Secretary of Health and Human Services with broad authority to waive certain Medicaid requirements and to authorize federal and state expenditures that would not otherwise be allowed under Medicaid, for experimental or pilot projects likely to promote Medicaid objectives. Spending under section 1115 demonstrations has increased rapidly from about one-fifth of Medicaid expenditures in fiscal year 2011 to close to one-third in fiscal year 2014. Expenditure authorities in approved demonstrations have been used by states to expand Medicaid coverage to individuals and for other purposes. HHS policy requires that demonstrations not increase federal costs for the Medicaid program. This testimony addresses (1) the types of expenditure authorities HHS has approved for non-coverage-related purposes and whether the approval documentation shows how they promote Medicaid objectives, and (2) HHS's policy and processes for ensuring demonstrations are not likely to raise federal costs. The testimony is based on GAO's April 2015 report on expenditure authorities in demonstrations approved from June 2012 through mid-October 2013 ( GAO 15 239 ) and several GAO reports issued from 2002 to 2014 addressing HHS's policies and practices for ensuring demonstrations are budget neutral. In April 2015, GAO found that under Medicaid section 1115 demonstrations—experimental or pilot projects to test new ways of providing services which account for nearly one-third of Medicaid expenditures—the Department of Health and Human Services (HHS) had authorized expenditures not otherwise allowed under Medicaid for a broad range of purposes beyond expanding coverage. How these expenditure authorities promoted Medicaid objectives was not always apparent. In the 25 states' demonstrations GAO reviewed, two types of non-coverage-related expenditure authorities—state-operated programs and funding pools—were significant in the amounts of spending approved. GAO found that HHS allowed five states to spend up to $9.5 billion in Medicaid funds to support over 150 state-operated programs. The programs were wide-ranging in nature, such as workforce training, housing, and public health programs, and operated by a wide range of state agencies, such as educational institutions, corrections, aging, and public health agencies, and could have received funding from other sources. HHS allowed eight states to spend more than $26 billion to establish capped funding pools through which states could make payments to hospitals and other providers for a range of purposes, including payments to incentivize hospital infrastructure or other improvements. How the approved expenditures for the state-operated programs and funding pools would promote Medicaid objectives was not always clear in HHS's approval documentation. For example, some state programs approved for funding appeared to be only tangentially related to health coverage for low-income individuals. Although section 1115 of the Social Security Act provides HHS with broad authority in approving expenditure authorities that, in the Secretary's judgment, are likely to promote Medicaid objectives, GAO found that HHS has not issued specific criteria for making these determinations. In multiple reports, issued from 2002 to 2014, GAO also found that HHS's policy and process for approving state spending limits under demonstrations have lacked transparency and have not ensured that demonstrations will be budget neutral to the federal government. The criteria and methods used to set spending limits were not always clear or well supported, such that approved spending limits for some demonstrations were billions of dollars higher than what was supported. For example, for five demonstrations GAO reviewed in 2013 and 2014, using assumptions suggested by HHS's policy, GAO found that spending limits would have been $33 billion lower than what was actually approved. In its 2015 report and prior work, GAO has made multiple recommendations to HHS aimed at (1) improving the transparency of approved spending and how it furthers Medicaid purposes and (2) ensuring Medicaid demonstrations do not increase federal costs. HHS generally agreed to improve its expenditure authority approval documentation, but did not agree with several other recommendations aimed at improving its approval policies and processes and transparency. GAO maintains that, unless HHS takes the actions necessary to implement GAO's prior recommendations, tens of billions of dollars could be at risk.	15.7	0-8k	6,760
20	Links to basic static maps (non-interactive, printable image files) of Iraq and the Middle East region are provided below. Map resources are arranged in alphabetical order, with the exception of the Perry-Castañeda Library website. The Perry-Castañeda Library website description has been placed first because of the exceptional breadth of Iraq maps and links to Iraq maps offered by the library's website. Perry-Castañeda Library Map Collection: Iraq Maps http://www.lib.utexas.edu/maps/iraq.html The University of Texas Website offers a variety of maps, including many maps from the CIA. It also provides some historical maps as well as links to Iraq maps on other websites. Center for Strategic and International Studies http://csis.org/files/publication/091001_iraq_war_update.pdf The Center for Strategic and International Studies report, Recent Trends in the Iraq War: Maps and Graphs , includes such maps as "Key Areas of Shi'ite Extremist Activity" (page 3), and "Ethno-Sectarian Violence, 2006-2009" (page 15). Central Intelligence Agency Maps https://www.cia.gov/library/publications/cia-maps-publications/Iraq.html The Central Intelligence Agency (CIA) creates maps of various parts of the world and makes some available for viewing by the general public on the Internet. Purchase information is provided at this site. Global Security http://www.globalsecurity.org/military/world/iraq/maps.htm Global Security is an online resource that provides background information and news on defense, space, intelligence, WMD, and homeland security issues. Maps found on this website cover administrative, demographic, political, and military topics (including many maps from Department of Defense briefings in 2003 of early Operation Iraqi Freedom military operations). United Nations (U.N.) Iraq: Web Portal for U.N. Agencies Working in Iraq http://www.uniraq.org/library/maps.asp These U.N. maps are arranged into two sections—Geographic and Thematic—and can be searched for specific attributes through the Map Catalogue. Measuring Security and Stability in Iraq http://www.defense.gov/pubs/ This Department of Defense source ceased publishing the quarterly reports, "Measuring Security and Stability in Iraq" after June 2010, but these reports can still provide historical data. Each of the "Measuring Security and Stability in Iraq" reports contain maps showing the public views of security in Iraq and the average daily hours of electrical power per province. New York Times http://www.nytimes.com/interactive/2007/09/06/world/middleeast/20070907_BUILDUP_MAIN_GRAPHIC.html# The New York Times has put together an interactive map of post-surge Baghdad neighborhoods, with information on the makeup and outlook of various neighborhoods. ReliefWeb http://www.reliefweb.int/rw/rwb.nsf/doc404?OpenForm&cc=irq&rc=3 The Relief website is a project of the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and offers information and maps on areas of the world requiring humanitarian relief. Maps of Iraq located on this website, dated 2001 through 2010, include "Return to Iraq: 2009-2010" (a map of individuals returning to Iraq after displacement) and "Projects of Japan ODA [Official Development Assistance] Loans in Iraq (as of 31 Mar 2010)." Report to Congress on the Situation in Iraq , September 2007 http://foreignaffairs.house.gov/110/pet091007.pdf General Petraeus's September 2007 report to Congress includes a number of maps of Iraq, including "State of Al Qaeda Iraq" on page 20. Special Inspector General for Iraq Reconstruction (SIGIR) http://www.sigir.mil/publications/quarterlyreports/index.html SIGIR provides quarterly and semi-annual publically available reports directly to the U.S. Congress. The April 2010 report includes such maps as "Selected Iraqi Political Protests 2/2011 – 4/2011," "Status of ISPO/USACE Projects, as of 3/31/2011," and "Significant Security Incidents by Region: January 1, 2010 to March 31, 2010" (found below). United Nations http://www.un.org/Depts/Cartographic/map/profile/iraq.pdf This website provides the UN reference map of Iraq in a one-page PDF.	This report identifies online sources for maps of Iraq, including government, library, and organizational websites. These sources have been selected on the basis of their authoritativeness and the range, quality, and uniqueness of the maps they provide. Some sources provide up-to-the-minute maps; others have been selected for their collection of historical maps. Maps of Iraq, the Middle East, significant security incidents in Iraq, and refugees returning to Iraq have been provided. This report will be updated as needed.	13.2	0-8k	11,328
21	I n order to safeguard "the complete independence of the courts of justice," Article III of the U.S. Constitution provides that "the Judges, both of the supreme and inferior Courts" of the United States, "shall hold their Offices during good Behaviour" and receive a salary that "shall not be diminished during their Continuance in Office." By granting U.S. Supreme Court Justices, judges of the U.S. Courts of Appeals and U.S. District Courts, and other such "Article III" judges a guaranteed salary and "the practical equivalent of life tenure," the Founders sought to insulate the federal courts from political pressures that might influence judges to favor or disfavor certain litigants instead of neutrally applying the law to the facts of a particular case. Because Article III judges ordinarily hold their positions for life, and because federal judges can decide issues of great legal and political significance, the decision whether or not to elevate any particular judicial candidate to the federal bench can be momentous. The U.S. Constitution empowers the President to nominate candidates for Article III judgeships, but also vests the Senate with the role of providing "advice" and affording or withholding "consent" with respect to the President's nominees. To carry out this "advice and consent" role, the Senate typically holds a hearing at which Members of the Senate Judiciary Committee question the nominee. After conducting this hearing, the Senate generally either "consents" to the nomination by voting in favor of the nominee's confirmation or instead rejects the nominee. Ideally, "the questioning of nominees at confirmation hearings enables [S]enators to obtain useful and indeed necessary information about nominees." To that end, Senators commonly ask questions that are intended to enable the Senate "to evaluate not only the nominees' qualifications, but also their beliefs and probable voting patterns on the Court." Such questions frequently include inquiries "about specific cases, judicial philosophy, and attitudes on issues that are likely to come before the Court." However, judicial nominees have often refused to answer certain questions at their confirmation hearings—or have volunteered only perfunctory responses—claiming that fully answering certain questions could violate various ethical norms governing judges and judicial candidates or impair the independence or fairness of the federal judiciary. To name several notable examples, then-Judge Ruth Bader Ginsburg stated during her Supreme Court confirmation hearing she could offer "no hints, no forecasts, [and] no previews" of how she might rule on questions that might come before the Court. Similarly, then-Judge Antonin Scalia refused to state his opinion on any prior Supreme Court decisions, declining even to discuss Marbury v. Madison , the foundational case establishing the power of courts to review laws under the Constitution. Some commentators and Members alike have expressed frustration regarding nominees' reticence to reveal their jurisprudential views during their confirmation hearings. While by no means the consensus view, some argue that if prospective judges refuse to divulge how they will rule on controversial legal issues once they reach the bench, then Senators cannot cast a fully informed vote when deciding whether to confirm or reject the nominee. At the same time, however, even though many wish that federal judicial nominees were more forthcoming during their confirmation hearings, there is nonetheless "relative agreement among nominees, senators, and commentators" alike that "there must be some limitations on a potential Justice's answers" during the confirmation process. For instance, most commentators agree that a nominee should not make "[e]xplicit or implicit promises" to rule in a certain way in future cases during his or her confirmation hearing, as "such promises if sought and given would . . . compromise judicial independence and due process of law" by depriving litigants of their constitutional entitlement to a fair adjudicator. These commentators further maintain that the integrity of the federal judiciary would suffer if a judge's responses to Senators suggested that his "confirmation ha[d] been purchased through the pledge of future conduct in office." In response to concerns regarding the proper conduct of judges and judicial candidates, judges and bar associations have promulgated a variety of "canons" of judicial ethics—that is, self-enforcing, aspirational norms intended to promote the independence and integrity of the judiciary. Among other things, these canons provide nominees with general guidance regarding which sorts of statements by judges and judicial candidates are appropriate or inappropriate. As discussed below, most commentators agree that the canons discourage federal judicial nominees from pledging to reach predetermined results in future cases. However, scholars, nominees, and Members of Congress have not reached a consensus regarding the extent to which ethical canons otherwise constrain a nominee from answering other types of questions at his or her Senate confirmation hearing. Beyond the canons of judicial ethics, historical practice reveals the constitutional norms that have influenced what questions a federal judicial nominee should or must refuse to answer. Here, too, however, different nominees have reached different conclusions regarding which types of responses are improper. As a result, the boundaries between proper responses and improper responses remain unsettled. This report examines the relevant considerations with respect to the questioning of judicial nominees. The report begins by discussing applicable canons of judicial ethics that may discourage judicial nominees from answering certain questions posed by Members of Congress. The report then proceeds to discuss which types of questions prior federal judicial nominees have answered or declined to answer, focusing on nominees for the U.S. Supreme Court. The report concludes with some takeaways for Members. The federal judiciary, state courts, state legislatures, and various bar associations have all developed codes of ethical standards intended to guide the conduct of judges and judicial candidates. As explained below, many of these codes contain provisions that could discourage nominees for federal judgeships from answering certain types of questions during their confirmation hearings. Each of the ethical rules discussed below purport to constrain what a federal judicial nominee may permissibly say during the confirmation process; none of the ethical rules, however, affirmatively obligate nominees to respond to particular questions. Moreover, the applicable ethical rules purport only to prohibit the nominee from answering certain questions; they do not explicitly purport to prohibit Members from asking those questions. As the following sections explain, however, canons of judicial ethics are generally self-enforcing, with the result that there is virtually no case law and only minimal commentary analyzing how these codes of judicial conduct apply in the specific context of confirmation hearings for appointed federal judges. Although it is possible to draw analogies from other contexts—especially statements and promises that candidates for elected judgeships at the state level make during their campaigns—neither the canons nor the advisory opinions interpreting them definitively address how the various ethical rules apply in the specific context of a confirmation hearing before the U.S. Senate. Further complicating matters is the fact that not all of the canons discussed below apply equally to all nominees. Perhaps for these reasons, neither judicial nominees nor Members of Congress nor commentators have reached a consensus regarding the precise range of responses that are permissible under the relevant canons of judicial conduct. Some nominees have suggested that ethical considerations prohibit judicial candidates from making virtually any statement about any legal issue that could conceivably come before the federal judiciary. Some scholars, by contrast, take the opposite position—that the applicable canons "impose[] surprisingly few restraints on the scope of a nominee's responses." According to this view, "a nominee's answers before the Senate Judiciary Committee[] will violate" the applicable codes of judicial conduct "only where they evince a settled intention to decide certain cases in a certain manner," such as "promising to reach a predetermined outcome" in a future case "irrespective of the arguments of the parties or the discrete facts of the presented case." Still other commentators take the intermediate position that the applicable ethical rules grant judicial nominees the flexibility to "make a personal judgment about how to fulfill the ethical requirements of the role of a judge in responding to questions posed by Senators during the confirmation process"—and, thus, a personal judgment about which types of responses would or would not run afoul of ethical norms. The first relevant set of ethical standards is the Code of Conduct for United States Judges (Code of Conduct) promulgated by the Judicial Conference of the United States (Judicial Conference). The Code of Conduct "prescribes ethical norms for federal judges as a means to preserve the actual and apparent integrity of the federal judiciary." It contains a series of ethical "canons" intended to "provide guidance to [federal] judges and nominees for judicial office" regarding proper judicial behavior. By its terms, the Code of Conduct "applies to" most Article III judges, including "United States circuit judges" and "district judges." The Code of Conduct is therefore especially relevant for nominees to the U.S. Supreme Court, many (though not all) of whom tend to be sitting federal judges. Significantly, the Code of Conduct is not a binding set of laws per se, but is rather a set of "aspirational rules" by which federal judges should strive to abide. "The Code of Conduct contains no enforcement mechanism," and "the Code is not designed or intended as a basis for civil liability or criminal prosecution." "The only remedies for violation of the Code are the institution of a disciplinary complaint" against the offending judge "or a motion to disqualify" the judge from a pending case, and neither of those remedies is granted with great frequency. Furthermore, not every violation of the Code of Conduct warrants discipline or disqualification. Thus, while the Code of Conduct may limit the types of responses a sitting federal judge may provide during his or her confirmation hearing, a nominee who transgresses those limits might not ultimately face any practical consequences as a result of that transgression. It is uncontroversial that the Code of Conduct at least permits a judicial nominee to appear at his or her confirmation hearing for questioning. However, the extent to which the Code of Conduct restricts what the nominee can say during that hearing is less certain. Canon 3(A)(6) of the Code of Conduct provides that, with certain exceptions unrelated to judicial confirmation hearings, a "judge should not make public comment on the merits of a matter pending or impending in any court." This rule is intended to ensure that federal judges "perform the duties of the office fairly [and] impartially." While it is fairly clear that a sitting federal judge who has been nominated for elevation to a higher federal court should generally refrain from directly commenting about the merits of a pending case —especially a case arising from the nominee's own court —it is less clear whether (or to what extent) Canon 3(A)(6) discourages judicial nominees from answering more general questions about their jurisprudential views, controversial legal issues, and the soundness of judicial precedents that litigants may challenge in the future. For one, neither Canon 3(A)(6) nor the cases and commentary interpreting it specify how broadly the term "impending in any court" sweeps. As at least one court has recognized, "[t]here is almost no legal or political issue that is unlikely to come before a judge of an American court" at some point or another. Perhaps for that reason, some nominees have taken the position that "no nominee should express any view on most questions of law" because "virtually all legal issues may eventually be heard by" a federal court. However, at least one scholar has taken the opposite position—that a matter is "impending" within the meaning of Canon 3(A)(6) only if there is "a discrete controversy[] with identifiable facts" and "specific litigants" that "is poised for litigation, though not actually filed." According to this definition, "a general issue" about law or jurisprudence—"even a highly contentious one that might someday reach the Supreme Court—would therefore lack the defining characteristics of an action or proceeding until it was actually embodied in a definable controversy between known parties." This scholar therefore maintains that the Code of Conduct permits judicial nominees to "explain how they would have decided well-known Supreme Court cases" like Roe v. Wade , even though an abortion case may well come before that nominee in the future. This scholar further contends that "pure questions of law, even those likely to be considered by the court, are never 'impending'" for the purposes of Canon 3(A)(6). Apart from whether a nominee's comments would concern an "impending" case, it is also unclear what kinds of responses would amount to a public comment "on the merits." "Canon 3[(A)(6)] does not define 'on the merits,'" and few if any legal opinions provide meaningful guidance regarding what types of comments during a Senate confirmation hearing would impermissibly pertain to the "merits" of a pending or impending case for the purposes of the Code of Conduct. Thus, while it is clear that the Code of Conduct may constrain judicial nominees from answering certain questions during the confirmation process, nominees and commentators have not reached a consensus regarding the scope of those constraints. Another pertinent set of ethical standards is the ABA Model Code of Judicial Conduct (Model Code) promulgated by the American Bar Association (ABA). The Model Code "is intended . . . to provide guidance and assist judges in maintaining the highest standards of judicial and personal conduct, and to provide a basis for regulating their conduct through disciplinary agencies." Thus, like the Code of Conduct described above, the Model Code "establishes standards for the ethical conduct of judges and judicial candidates," including nominees for appointed judgeships. Nevertheless, the extent to which the ethical principles embodied in Model Code constrain federal judicial nominees remains somewhat unclear because, as the name suggests, the Model Code is merely a " model template[] of legal and judicial ethics." In other words, the Model Code is not itself "binding on judges unless it has been adopted in" the state in which the judge is stationed or in which the judicial candidate is seeking office. "The ABA does not enforce the [Model] Code or discipline judges for violating it. Instead, the ABA offers its Code as a model for jurisdictions to adopt, and those that do are responsible for creating a mechanism to enforce it." Although many states have adopted binding standards of judicial conduct that are similar or identical to those set forth in the Model Code, variances between states do exist, with the consequence that the principles discussed in this section of the report will not necessarily apply equally to every judicial nominee. Nevertheless, the Model Code still provides guidance regarding the sorts of judicial conduct that are proper and improper, and judges commonly consult the Model Code to resolve ethical quandaries. Therefore, the following subsections of this report analyze provisions of the Model Code that could discourage federal judicial nominees from answering certain questions at their confirmation hearings. First, the Model Code prohibits judges and judicial candidates from making "pledges, promises, or commitments" regarding "cases, controversies, or issues that are likely to come before the court . . . that are inconsistent with the impartial[] performance of the adjudicative duties of judicial office." As the commentary to the Model Code explains, this prohibition is intended to promote the independence, integrity, and impartiality of the judiciary by insulating the judiciary from political influence: [A] judge plays a role different from that of a legislator or executive branch official. Rather than making decisions based upon the expressed views or preferences of the electorate, a judge makes decisions based upon the law and the facts of every case. Therefore, in furtherance of this interest, judges and judicial candidates must, to the greatest extent possible, be free and appear to be free from political influence and political pressure. Significantly, the commentary to the Model Code squarely states that the prohibition against "pledges, promises, or commitments" applies when a judicial candidate is "communicating directly with an appointing or confirming authority" —a term defined to include "the United States Senate when sitting to confirm or reject presidential nominations of federal judges." As courts interpreting analogous state ethical rules have explained, "[w]hether a statement is a pledge, promise or commitment is objectively [discernible]. It requires affirmative assurance of a particular action. It is a predetermination of the resolution of a case or issue." Thus, "in determining whether a 'pledge, promise, or commitment' has been made, the question is whether 'a reasonable person would believe that the candidate for judicial office has specifically undertaken to reach a particular result.'" The clause thereby "prohibits a candidate from promising that he will not apply or uphold the law." There do not appear to be any judicial cases or advisory opinions clarifying what types of statements qualify as "pledges, promises, and commitments" in the specific context of a confirmation hearing for an appointed federal judgeship. However, because the Model Code purports to apply equally to candidates for appointed and elected judgeships alike, cases analyzing the "pledges, promises, and commitments" clause in the context of campaigns for elected judgeships are illustrative. In particular, cases discussing whether a nominee for an elected judgeship may answer surveys from advocacy groups seeking to discern the nominee's views on controversial legal issues can illuminate whether the "pledges, promises, and commitments" rule might likewise constrain a federal judicial nominee from answering similar questions during his or her Senate confirmation hearing. Advocacy groups commonly submit "questionnaires to candidates for election or retention" for state judgeships asking candidates to state their views on disputed legal questions, such as "whether they agree with Roe v. Wade , which held many forms of abortion legislation unconstitutional." As the commentary to the Model Code explicitly states, "depending upon the wording and format of such questionnaires, candidates' responses might be viewed as pledges, promises, or commitments to perform the adjudicative duties of office other than in an impartial way." Nevertheless, courts generally agree that state ethical canons derived from the Model Code do not categorically prohibit candidates from answering such questions in surveys—so long as those candidates do not pledge to issue specific rulings irrespective of the law or the facts. However, in order to clarify that such responses represent the candidate's personal views rather than a commitment to rule in specific ways, the Model Code admonishes judicial candidates to "acknowledge the overarching judicial obligation to apply and uphold the law, without regard to [the judge's] personal views," when responding to such questionnaires. Thus, by analogy, federal judicial nominees may be able to generally answer questions about their jurisprudential philosophies during their Senate confirmation hearings without running afoul of the "pledges, promises, and commitments" clause, but they should not commit to reaching particular results in specific cases if they are confirmed. To that end, state courts and disciplinary bodies most commonly impose discipline under the "pledges, promises, and commitments" clause when a judicial candidate makes campaign promises to favor or disfavor certain classes of litigants in their rulings—such as pledges to rule against criminal defendants and in favor of children, crime victims, and police officers. The rule that a judicial candidate should not attempt to garner a larger share of the popular vote by promising to mechanically rule in particular ways would appear to apply equally to a judicial nominee seeking to induce Senators to vote in favor of his confirmation. Indeed, the drafting history of the Model Code states the following: Although candidates for appointive judicial office are by definition not submitting themselves to the voting public at large, they are trying to influence a much smaller "electorate" . . . . It is just as improper in these small-scale "campaigns" to make pledges and promises that are inconsistent with the impartial performance of judicial duties as it is in campaign for elected office, with town meetings and television advertisements. The commentary to the Model Code emphasizes that "pledges, promises, or commitments must be contrasted with statements or announcements of personal views on legal, political, or other issues, which are not prohibited" so long as the judicial candidate also "acknowledge[s] the overarching judicial obligation to apply and uphold the law, without regard to his or her personal views." Thus, according to the drafting history of the Model Code, a nominee may "announce[] his or her personal views—even strongly held personal views—on a matter that is likely to come before the court" without violating the "pledges, promises, or commitments" rule as long as that announcement does not "demonstrate[] a closed mind on the subject" or "include[] a pledge or a promise to rule in a particular way if the matter does come before the court." Some courts interpreting state ethical rules derived from the Model Code have therefore concluded that most statements identifying a point of view will not implicate the "pledges or promises" prohibition. The rule precludes only those statements of intention that single out a party or class of litigants for special treatment, be it favorable or unfavorable, or convey that the candidate will behave in a manner inconsistent with the faithful and impartial performance of judicial duties . . . . The foregoing analysis suggests that federal judicial nominees will not violate the "pledges, promises, or commitments" rule if they answer questions regarding their personal opinions on controversial legal or political issues during their confirmation hearing—as long as they do not promise to rule in a particular fashion in future cases presenting those issues. Critically, however, as explained in the following subsection, a comment by a judicial nominee could conceivably qualify as an impermissible "public statement" under the Model Code even if it does not qualify as an impermissible "pledge, promise, or commitment." Moreover, as discussed in greater detail below, even if a public announcement regarding the candidate's jurisprudential views does not itself violate the "pledges, promises, and commitments" clause, successful candidates may nonetheless potentially be disqualified from hearing certain cases after taking the bench if their prior statements would lead a reasonable person to question their impartiality. With certain exceptions not relevant here, the Model Code also prohibits judges and judicial candidates alike from making "any public statement that might reasonably be expected to affect the outcome or impair the fairness of a matter pending[] or impending[] in any court." This prohibition serves to avoid the public perception that a "judge has either pre-judged [a] matter or that the judge has such a strong bias that he cannot render or provide an arena where the jury can render an impartial decision based solely on the evidence." Because this "public statement" rule applies regardless of the forum in which the judge or candidate makes the statement, the Model Code thereby discourages federal judicial nominees from making certain types of public statements during their confirmation hearings. The Model Code defines an "impending" matter to include any "matter that is imminent or expected to occur in the near future." Thus, by its plain terms, the "public statement" prohibition appears to apply to a broad array of legal disputes, including those that have not yet ripened into actual lawsuits. Nonetheless, the rule's scope is not unlimited; the annotations to the Model Code clarify that the term "impending" "does not include 'every possible social or community issue that could come before the court.'" Instead, "impending matters are those that if they continue on their regular course will end up in a court." The annotations to the Model Code also state that "[o]nce a case is fully resolved and no longer pending, a judge is free to engage in any extrajudicial comments" about the case. One might reasonably interpret this annotation to grant federal judicial nominees some leeway to comment about cases previously decided by the Supreme Court or other courts. Nevertheless, statements about a prior case which implicate issues that are likely to recur in a future case could conceivably still fall within the Model Code's prohibitions. Neither the case law nor the annotations to the Model Code provide significant guidance regarding what types of public statements made during the federal confirmation process may impermissibly "affect the outcome or impair the fairness" of a pending or impending matter within the meaning of the rule. However, the annotations to the Model Code do at least suggest that "[j]udges may . . . express their disagreement and criticism about the present state of the law as long as they do not appear to substitute their concept of what the law ought to be for what the law actually is." Public hearings are not the only occasion where a federal judicial nominee could conceivably make statements that implicate ethical norms or rules. In addition to publicly appearing before the Senate for questioning, it is common for federal judicial nominees to meet privately with Members for courtesy visits in advance of their confirmation hearings. Some commentators have expressed concern that judicial candidates may make "commitments on particular issues or cases" during these meetings. As noted above, the Model Code prohibits judicial nominees from pledging to rule in a certain way, whether they do so publicly in their confirmation hearings or privately during courtesy visits with Members. Additionally, however, the Model Code prohibits nominees who are sitting federal or state judges from "mak[ing] any nonpublic statement that might substantially interfere with a fair trial or hearing." There are no cases applying this "nonpublic statement" rule in the federal judicial confirmation context, and cases interpreting the rule tend to arise in contexts that are not factually analogous to the judicial confirmation process. Moreover, the commentary to the Model Code provides little to no guidance regarding how the prohibition on nonpublic statements applies in the judicial confirmation process. Thus, it is unclear whether and to what extent the Model Code constrains nominees' conduct during private meetings with Members beyond prohibiting them from pledging to rule in particular ways if confirmed. Beyond the need to comply with specific ethical norms, another reason that some nominees may avoid answering certain questions during their confirmation hearings is the need to refrain from making public statements that would mandate their disqualification from future cases. Several federal statutes, as well as several canons of judicial conduct, require federal judges to recuse themselves from adjudicating particular cases under specified circumstances. Of particular relevance here, 28 U.S.C. § 455(a)—with limited exceptions —affirmatively requires "any justice, judge, or magistrate judge of the United States" to "disqualify himself in any proceeding in which his impartiality might reasonably be questioned." As explained below, courts have concluded that a judge's extrajudicial statements or comments can sometimes mandate that judge's disqualification from particular cases pursuant to Section 455(a). The "need to avoid frequent disqualification"—and, by extension, a judicial nominee's need to avoid making public statements that would warrant his or her recusal in future cases—is arguably particularly pressing "in the case of Supreme Court justices." Because "the Supreme Court is the ultimate tribunal on matters that are frequently of urgent public importance," some have argued that "[t]he nation is entitled, where possible, to decisions that are made by a full Court." Unlike in the lower courts, where a district or circuit judge from the same court may step in to take the place of a disqualified judge, neither retired Justices of the Supreme Court nor lower court judges may hear a case in a recused Justice's stead. Thus, the disqualification of a Supreme Court Justice from a particular case increases the likelihood that the Court will be evenly divided and thereby unable to create binding precedent for future cases. "The standard for disqualification under § 455(a) is an objective one. The question is whether a reasonable and informed observer would question the judge's impartiality" as a result of the judge's conduct. Thus, "[t]he judge does not have to be subjectively biased or prejudiced" to mandate disqualification under Section 455(a), "so long as he appears to be so." "[D]isqualification from the judge's hearing any further proceedings in the case" is "mandatory for conduct that calls a judge's impartiality into question." Significantly, Section 455(a) "is not intended to give litigants a veto power over sitting judges, or a vehicle for obtaining a judge of their choice." Unjustified recusals "contravene public policy by unduly delaying proceedings, increasing the workload of other judges, and fostering impermissible judge-shopping." As a consequence, in order to avoid undesirable and unwarranted recusals, courts "assume the impartiality of a sitting judge and 'the party seeking disqualification bears the substantial burden of proving otherwise.'" Section 455 is generally "intended to be self-enforcing, meaning that the recusal issue is supposed to be raised first by the judge and not the parties." Nevertheless, Section 455's "standards are not completely self-policing," as "a party [to the litigation] certainly may file a motion" to disqualify a judge if appropriate, and "a federal trial judge's refusal to disqualify himself" is subject to appellate review. However, a federal appellate court will generally overturn a district court judge's decision not to recuse himself only if that "decision was not reasonable and [wa]s unsupported by the record." Section 455(a) is similar to the Code of Conduct discussed above to the extent that both strive to promote impartiality in the federal judiciary. Nonetheless, courts have recognized "that the Code of Judicial Conduct does not overlap perfectly with § 455(a): it is possible to violate the Code without creating an appearance of partiality; likewise, it is possible for a judge to comply with the Code yet still be required to recuse herself." Thus, when assessing whether a federal judge's public statement or comment mandates his or her recusal from a case, courts have considered—but have not treated as dispositive—whether the statement in question violates Canon 3(A)(6) of the Code of Conduct. As some courts have observed, however, there is "little guidance on when public comments" made outside the context of a hearing or bench ruling "create an appearance of partiality for which § 455(a) recusal is the appropriate remedy." In particular, there are very few cases analyzing whether a judge's statement in the confirmation context can mandate that judge's disqualification from particular cases once that judge reaches the bench. Instead, the most common scenario in which a judge's public comments disqualify that judge from adjudicating a case is when the judge makes statements to the media about a case over which he or she is presently presiding. Such situations are only minimally illuminating, however, as a judge who volunteers statements to the media about a case over which he is actively presiding would seem to pose a materially greater risk to judicial integrity than a nominee who simply answers questions in the abstract regarding his or her jurisprudential views during a Senate confirmation hearing. In re African-American Slave Descendants Litigation is one of the few Section 455(a) cases that directly discuss when, if ever, a federal judge must disqualify himself or herself on the basis of statements he or she made during the judicial confirmation process. The plaintiffs in African-American Slave Descendants moved to recuse the district judge assigned to the case, claiming that certain "statements [the judge] made to the United States Senate Judiciary Committee during [his] judicial confirmation" reflected "bias against either the [p]laintiffs or their lawsuit." Critically, however, the challenged statements "merely discussed [the nominee's] general legal views" on issues like "judicial restraint and the constitutional doctrine of separation of powers." The district judge therefore reasoned that his prior comments were "not so case-specific that a reasonable person would believe that they would predetermine his decision in [the plaintiffs' case] some two decades later." The court thus determined that the plaintiffs had failed to "proffer[] any valid reasons for recusal based on [the judge's] statements made in [a] questionnaire submitted to the United States Senate during his judicial confirmation." Under different circumstances, however, historical practice supports the notion that a judge's prior public comments about disputed and controversial legal issues may warrant that judge's recusal from a future case. In 2003, for instance, Justice Scalia "gave a public speech . . . in which he spoke critically of an interpretation of the Establishment Clause that would disallow the 'under God' phrase to remain in the pledge of allegiance." When the Supreme Court later granted certiorari to decide a case presenting exactly that issue, Justice Scalia "announced that he would not sit on the case." Although Justice Scalia "did not explain why he would not participate" in the case, commentators have almost uniformly surmised that Justice Scalia determined that his prior public comments mandated his recusal. The "distinction between a federal judge's expression of personal philosophy . . . and his expression of an opinion on some facet of a particular case which is before him" can potentially explain why recusal was warranted in the pledge of allegiance case but not in African-American Slave Descendants . Several judges have suggested that non-case-specific comments about jurisprudential philosophy are less likely to mandate recusal in future cases than questions about specific cases or issues that the judge may be called upon to adjudicate in the future. As a result, federal judicial nominees may be more inclined to answer general questions about their legal views than case-specific questions they may need to adjudicate if the Senate ultimately confirms them. As explained above, not only are the rules governing judicial ethics largely self-enforcing, they do not always provide clear answers regarding which types of conduct are permissible or impermissible. As a result, judges and judicial candidates often must decide for themselves whether various actions—including answering questions at a confirmation hearing—violate ethical standards. Judicial nominees developing their own standard for responding to Senators' questions may look to historical practice for guidance, customs that are informed by both ethical and constitutional considerations. More generally, historical practice can be an important resource for defining constitutional norms, particularly in interpreting the "scope and exercise" of the "respective powers" of the three branches of government. For instance, during the hearing on whether to confirm then-Associate Justice William Rehnquist to the position of Chief Justice, the nominee initially declined to respond to a question from Senator Arlen Specter asking whether he thought that Congress could strip the Supreme Court of the ability to hear constitutional challenges. Senator Specter pressed the issue, stating that he believed this was an appropriate question on a fundamental issue. Justice Rehnquist responded by saying that he thought that Justice Sandra Day O'Connor, in her own confirmation hearings, "was asked similar questions" and "took much the same position." The Senator stated that he did not believe this was true. The next day, Justice Rehnquist reversed course, stating that while he continued to "have considerable reservations about" answering the question, he would "try to give" an answer in light of the fact that "one of [his] colleagues," Justice O'Connor, "ha[d] felt that [it] was proper" to respond to such questions. The general standard that many nominees invoke when responding to Senate questioning has come to be known as the "Ginsburg Rule." During then-Judge Ruth Bader Ginsburg's confirmation hearing, she stated that she could offer "no hints, no forecasts, [and] no previews" of how she might rule on questions that would come before the Supreme Court. In her opening statement, she warned Senators that Because I am and hope to continue to be a judge, it would be wrong for me to say or to preview in this legislative chamber how I would cast my vote on questions the Supreme Court may be called upon to decide. Were I to rehearse here what I would say and how I would reason on such questions, I would act injudiciously. Judges in our system are bound to decide concrete cases, not abstract issues. Each case comes to court based on particular facts and its decision should turn on those facts and the governing law, stated and explained in light of the particular arguments the parties or their representatives present. A judge sworn to decide impartially can offer no forecasts, no hints, for that would show not only disregard for the specifics of the particular case, it would display disdain for the entire judicial process. Although the refusal to stake out a position on matters that are likely to come before the Court has become known as the Ginsburg Rule, the principle precedes Justice Ginsburg's hearing. Indeed, according to one recent study, the three Supreme Court nominees who most frequently "refuse[d] to answer a question on the ground that answering would create the reality or appear of bias, would interfere with judicial independence, or would be inappropriate for some other, similar reason," all predate Justice Ginsburg's hearing. This section of the report examines nominations to the Supreme Court and describes the norms that have developed surrounding senatorial questioning and nominees' responses. This review focuses on Supreme Court confirmation hearings rather than lower courts, because Supreme Court nominations have traditionally involved a more comprehensive examination of the nominee. This section begins by briefly reviewing the development of the modern judicial confirmation hearing, and then discusses the general constitutional concerns underlying the exchanges between Senators and judicial nominees. Finally, it explores trends in the types of questions that nominees are willing to answer. In considering this final issue, however, it is important to keep in mind that due to the wide variety of senatorial questioning and the inherently personal nature of a candidate's decision to answer a particular question, there will almost always be exceptions to the general tendencies described below. Nominees to the Supreme Court today go through a confirmation hearing before the Senate Judiciary Committee. But this was not always the case: the modern confirmation hearing, with nominees testifying in person, in a public hearing, before the Committee, is generally traced to the 1955 confirmation hearing of Justice John Marshall Harlan II. Since then, the number of questions that Senators have asked each nominee has increased, as the Senate Judiciary Committee has grown in size and as individual Senators ask more questions of the nominees. Scholars and jurists have pointed to the failed confirmation of Judge Robert Bork, in 1987, as a watershed moment in the development of the modern confirmation hearing. President Ronald Reagan nominated Bork to the Supreme Court in 1987. The confirmation hearings were highly contentious, and the nomination was ultimately defeated by a vote of 58-42. Many have argued that Bork's nomination failed because he was too forthcoming or because the Senate improperly politicized the confirmation process, and that, as a result, subsequent nominees have been less willing to express their own views on legal issues. Others have raised, as relevant here, two challenges to this conventional wisdom. First, some have argued that "Bork's nomination did not fail because he answered too many questions; it failed because he gave the wrong answers." Second, as suggested above, nominees have declined to answer certain questions since the advent of the modern confirmation hearing, predating the Bork hearing by more than thirty years: in 1955, then-Judge Harlan "avoided answering a question on civil rights" a mere "two questions into his" testimony. Studies by legal scholars suggest that as a general matter, judicial candidates' candor, or willingness to be fully forthcoming in response to questions, has not significantly decreased over time. But the types of issues discussed at these hearings have changed. According to one study, Senators today are more likely to ask questions about a nominee's judicial views, seeking a nominee's "opinions, thoughts, assessments, interpretations, or predictions." Looking to past confirmation hearings, nominees to the Supreme Court have cited three related but distinct constitutional concerns to justify not answering certain types of questions. First, nominees have voiced concerns about answering specific legal questions outside of the normal adversarial process envisioned by the Constitution. Specifically, Article III of the Constitution provides that judges may hear "cases" and "controversies." The Supreme Court has interpreted this provision to prohibit so-called "advisory opinions" that do not present a true controversy. Instead, judges resolve discrete disputes through the adversarial process. As the Supreme Court explained in one case, standing requirements "tend[] to assure that the legal questions presented to the court will be resolved, not in the rarified atmosphere of a debating society, but in a concrete factual context conducive to a realistic appreciation of the consequences of judicial action." Consequently, nominees to the Supreme Court have been reluctant to respond to hypotheticals posed by Senators, citing concerns about their ability to rule on an issue absent briefing and argument from adversarial parties. The second constitutional concern is grounded in the Constitution's due process guarantees, and specifically in the assurance that cases will be resolved by unbiased judges. An "impartial judge" is a "necessary component of a fair trial." Consequently, nominees have avoided giving answers that would appear to "prejudge" future cases that might come before the Court, so as to avoid depriving future parties of impartial due process of law. The final constitutional justification for declining to respond to certain questions is closely related to this concern about due process, but is grounded in separation-of-powers concerns. As discussed above, Article III is understood to establish an independent judiciary insulated from political pressures. Accordingly, courts have policed attempts by Congress to influence the decision of cases and controversies properly within the purview of the judicial branch, where Congress has "passed the limit which separates the legislative from the judicial power." Citing the importance of judicial independence from the legislative branch, nominees have avoided making any "pledge" or "promise" on how they would rule on a particular case or issue in exchange for confirmation. The constitutional concerns motivating judicial nominees to decline to answer certain questions, however, must be counterbalanced against the constitutional responsibility of the Senate to give advice and consent to presidential nominees. The Senate essentially holds the power to "veto . . . the President's power of appointment." Senators have stated that candidate evasiveness frustrates their ability to perform their constitutional role—and in some cases, have in fact withheld votes because a candidate declined to answer questions. Nominees themselves have acknowledged that Senators may feel obligated to ask questions that the nominees nonetheless believe that they may not answer. Supreme Court nominees have generally declined to stake out positions on issues or factual circumstances that are likely to come before the Court in future cases, resulting in a practice referred to by some as the Ginsburg Rule. This standard has required nominees to assess whether various issues are likely to come before the Court, and nominees may disagree with Senators regarding that likelihood. Nominees have also typically declined to answer questions that do not expressly ask for their views on a particular case, if answering would nonetheless "suggest[]" that the nominee has prejudged a case. Because nominees are unlikely to answer direct questions regarding their views on particular issues, to attempt to determine how a nominee might resolve cases if appointed to the Supreme Court, Senators have instead asked about a nominee's judicial philosophy, prior statements on various issues, views on previously decided cases of the Supreme Court, and views on particular issues relating to the Court's procedures. This section of the report explores each of these categories of questions in more depth, but as a general matter, nominees are more willing to talk about issues or cases that they believe are "settled" or "fundamental." One exchange from the 1971 hearing on then-Assistant Attorney General Rehnquist's confirmation to the Court as an Associate Justice illustrates this dynamic. A Senator noted that the nominee had stated during the hearings that it "would be inappropriate to advance a definition of due process." The Senator contrasted this reluctance with a prior statement of the nominee: in a 1959 law review article, Rehnquist had argued that the Senate should "thoroughly inform[] itself on the judicial philosophy of a Supreme Court nominee," asking, in reference to the 1957 confirmation of Justice Charles Evans Whittaker, "what could have been more important to the Senate than Mr. Justice Whittaker's views on equal protection and due process?" In response, the nominee said that he had not "changed [his] mind that the Senate ought to be interested in a nominee's views," but said that he had gained "an increasing sympathy for the problem of the nominee to respond to very legitimate questions from the Senators without in some way giving the appearance of prejudging issues that might come before him." He was willing to respond to the Senator's question by "advert[ing] to settled doctrines of due process," affirming doctrines that were "so well settled" that a nominee "need have no reservation" about stating them. In response to further questioning, Rehnquist also generally described how he would approach any case presenting an un settled question of due process, stating that he would look to precedent and ratification debates, but would not rule on the basis of his "subjective notions of fairness." Other nominees may stake out clear "lines" regarding the types of questions they are willing to answer and refuse to transgress those lines even with respect to settled issues. Some nominees taking this position have stated concerns about a "slippery slope." Then-Judge Samuel Alito invoked this view to avoid taking a position on a hypothetical that, from his perspective, "seem[ed] perfectly clear." A Senator had asked whether it would be constitutional for the Senate to require sixty votes, rather than a majority, to confirm a nominee to the Supreme Court. Alito responded by saying that he did not think that he should answer "constitutional questions like that." The Senator pressed him, asking whether it would be constitutional for the Senate to allow a majority vote rather than a two-thirds vote for impeachment. Judge Alito at first seemed about to answer the question, saying, "there are certain questions that seem perfectly clear, and I guess there is no harm in answering," but ultimately declined to do so, saying that this was a "slippery slope," and if he "start[ed] answering the easy questions," he would then "be sliding down the ski run and into the hard questions." Then-Judge Ginsburg made a similar statement in her confirmation hearing when she declined to discuss a certain case involving an executive branch policy that she believed might be adopted again by a future Administration. She said: I sense that I am in the position of a skier at the top of that hill, because you are asking me how I would have voted in Rust v. Sullivan . . . . Another member of this committee would like to know how I might vote in that case or another one. I have resisted descending that slope, because once you ask me about this case, then you will ask me about another case that is over and done, and another case. So I believe I must draw the line at the cases I have decided. To take another example, then-Judge Antonin Scalia refused to state his opinion on any prior Supreme Court decisions, declining even to discuss Marbury v. Madison , the foundational case establishing the power of courts to review laws under the Constitution. He acknowledged that other nominees had "tried to answer some questions and not answered the other," but concluded that he would not take that path. He reasoned that if his answer would be obvious—as if he were to endorse the holdings of Marbury v. Madison —then the Senators "do not need an answer, because your judgment of my record and my reasonableness and my moderation will lead you to conclude, heck, it is so obvious, anybody that we think is not a nutty-nutty would have to come out that way." On the other hand, if his views on an issue were not obvious, then he believed that his announcement of those views would "really prejudice[e] future litigants." Nominees seem most willing to discuss their general philosophies of law, including their approaches to constitutional and statutory interpretation. Thus, for example, then-Judge Clarence Thomas was asked repeatedly whether he believed in natural law as a principle of constitutional interpretation, to which he responded in the negative. Similarly, then-Judge Neil Gorsuch was asked to explain his commitment to originalism. And in response to a line of questioning that asked whether she believed in the idea of a living Constitution, then-Solicitor General Elena Kagan responded by explaining that while she believed the Constitution's general principles may be applied to new circumstances in new ways, she did not "like what people associate" with the term "living Constitution." Prior Supreme Court nominees have also given examples of jurists whom they admire —although then-Judge Ginsburg, at least, "stay[ed] away from the living" when naming her legal role models. Judicial candidates may also discuss their general approach to evaluating precedent and stare decisis, the doctrine governing when courts should adhere to previously decided cases. Senators will sometimes ask for a nominee's views on stare decisis as a way of gauging whether he or she would be willing to overturn certain, often controversial, Supreme Court cases. For example, Senator Arlen Specter engaged in a lengthy discussion with then-Judge John Roberts about stare decisis in the context of the two primary Supreme Court cases establishing a right to an abortion. The nominee spoke generally about the principles of stare decisis, going so far as to say that certain factors in the analysis were "critically important," but repeatedly declined to say how he would apply principles in a particular case—or whether he agreed or disagreed with those prior Supreme Court cases. Supreme Court nominees are generally willing to discuss their own prior work, including both prior judicial opinions and extra-judicial statements. If nominees have written about a particular issue, they may explain their position on that topic even if they otherwise would have declined to stake out positions on issues that are likely to come before the Court. This practice may also account for some variance in the topics that different nominees are willing to discuss: in his hearing, then-Judge John Roberts explained that he was unwilling to comment on whether particular decisions were correctly decided, notwithstanding the fact that Justice Ginsburg in her confirmation hearing had discussed some particular issues—namely, her view of Roe v. Wade —because she, unlike Judge Roberts, "had written extensively on that subject and she thought that her writings were fair game for discussion." Sometimes nominees use the hearing to disclaim prior statements or explain that they would not adhere to a particular view as a Supreme Court Justice. For example, Chief Justice Roberts was asked in his confirmation hearing about certain memoranda he wrote while working in the Reagan Administration expressing the view "that bills stripping the Court's jurisdiction were constitutionally permissible." The nominee said that if he "were to look at the question today," he did not "know where [he] would come out." He later added, "I certainly wouldn't write everything today as I wrote it back then, but I don't think any of us would do things or write things today as we did when we were 25 and had all the answers." At times, nominees have explained that they took certain positions only because they were acting as an advocate, distinguishing that role from the role of a judge. Other times, however, nominees have adhered to and explained their prior non-judicial statements. Notwithstanding the fact that nominees will usually discuss their previously expressed views, most Supreme Court candidates are reluctant to discuss their personal opinions on various issues. In two relatively recent hearings, when then-Judge Gorsuch was asked about his personal views on marriage equality and when then-Solicitor General Kagan was asked whether she personally believed that individuals possess a fundamental right to bear arms, both nominees declined to answer the questions and instead stated only that they accepted prior Supreme Court decisions on these issues. This approach likely stems from the modern belief, frequently echoed by nominees, that a judge's personal views should not provide a basis for deciding a case . Senators have asked generally whether nominees' personal or political views will influence their decisions in particular cases, including whether nominees' religious faith would influence their decisions. However, nominees' personal lives have, at times, became a central subject in their confirmation hearings. Perhaps the most obvious example comes from Justice Thomas's confirmation hearings, which were extended to examine sexual harassment allegations. Justice Anthony Kennedy was questioned at length regarding his memberships in clubs that restricted membership to white males—and on what that membership implied about his views on discrimination more generally. Justice Sonia Sotomayor was questioned about her membership on the board of the Puerto Rican Legal Defense Fund and her involvement with the various cases that the group supported. Senators generally recognize that they should not ask nominees about pending cases, but will sometimes ask nominees about previously decided cases. Senators may hope that nominees' views on past cases reveal their beliefs on issues that are still contested. Nominees' willingness to respond to these types of questions varies widely. As mentioned above, then-Judge Scalia refused as a general rule to give his opinion on any previously decided cases of the Supreme Court, going so far as to refuse to state whether he agreed with Marbury v. Madison , a case that he nonetheless acknowledged in the hearing as "fundamental" and one he had previously cited in his capacity as a federal appellate judge. Other Supreme Court nominees have felt free to agree with Marbury v. Madison . As with other issues, nominees' willingness to give their opinions on whether a prior case was correctly decided may turn on how likely they believe the issue presented in that case is to recur. Thus, a nominee might decline to discuss a case that presents historically unique factual circumstances if they believe that the legal issues or principles in that case may come again before the Supreme Court. For example, then-Solicitor General Kagan was asked for her "view of" Bush v. Gore , the decision of the Supreme Court that reversed the Florida Supreme Court's order requiring a recount of ballots in the 2000 presidential election. Kagan agreed that the particular circumstances of that case would "never come before the Court again," but said that "the question of when the Court should get involved in election contests in disputed elections is . . . one of some magnitude that might well come before the Court again." She said that if that were to occur, she would consider such a case "in an appropriate way." The correctness or incorrectness of some cases appears to be so well established—at least in the minds of some nominees—that some Supreme Court candidates are willing to affirm or disavow those cases without discussing how likely an issue is to recur. Such cases include not only Marbury v. Madison , but also cases in the "anti-canon," such as Dred Scott v. Sanford , Plessy v. Ferguson , and Korematsu v. United States , that almost all modern lawyers agree were wrongly decided. Of course, if a case is considered to be well established as part of either the canon or the anti-canon, prevailing views about that case are unlikely to be challenged, indicating that even if they do not expressly say so, nominees may be willing to comment on these settled cases because challenges are unlikely to arise. Because nominees are more likely to discuss cases that are generally considered to be well-established law, nominees' willingness to embrace certain cases may vary over time. Questions about the Supreme Court's decision in Brown v. Board of Education , the 1954 case that functionally overturned Plessy v. Ferguson and announced that "separate educational facilities" for children of different races "are inherently unequal," provide one example of how attitudes may shift over time. In the 1955 confirmation hearing of Justice Harlan and the 1959 hearing for Justice Potter Stewart, some Senators announced their disagreement with the Court's decision and attempted to discern whether these nominees agreed with the Court's result or reasoning. The nominees avoided giving their opinions on the case. Over the following decades, Senators continued to hold up Brown as an example of improper judicial legislating, pushing nominees to answer questions regarding the proper role of judges. But as attitudes towards Brown shifted, so did its treatment in confirmation hearings. By Chief Justice Rehnquist's 1971 hearing for confirmation to the Court, he was willing to say that Brown was "the established constitutional law of the land." In response to a question about whether Brown represented "lawmaking," he stated that "if nine Justices . . . all unanimously decide that the Constitution requires a particular result . . . . that is not lawmaking. It is interpretation of the Constitution just as was contemplated by John Marshall in Marbury versus Madison ." In her 1981 hearing, then-Judge O'Connor was asked whether she would characterize Brown "as judicial activism," and if so, whether that was right. She responded by noting that "[s]ome have characterized" Brown "as judicial activism," but observed that the decision was unanimous and stated that she assumed the Court had been "exercising its constitutional function to determine the meaning . . . of the Constitution." But she later declined to state whether she agreed with the statement in Justice John Marshall Harlan's dissenting opinion in Plessy characterizing the Constitution as colorblind, noting that "litigation in the area of affirmative action is far from resolved." Since then, Supreme Court nominees have more readily endorsed Brown . As mentioned, if a prior case is not considered settled law and if a nominee thinks issues from that case are likely to recur, the nominee may be unwilling to discuss the case at all. Alternatively, a nominee may merely acknowledge the existence of the case. Even then-Judge Scalia, who generally declined to express his views on cases, was willing to say that certain cases decided by the Supreme Court were "an accepted part of current law." For example, when Justice Kagan was pressed for her views on District of Columbia v. Heller , in which the Supreme Court recognized an individual right to keep and carry arms, Justice Kagan merely described the holding of the case and said that it was "settled law." At other times, nominees may be willing to discuss the general framework they would apply to analyze a given issue. Finally, nominees are sometimes asked questions relating to judicial procedure, and are often willing to speak generally on these matters. To take one recurring issue, Supreme Court nominees will generally offer their views on whether they support filming Supreme Court proceedings. Then-Judge Roberts and then-Judge Scalia both responded to questions regarding whether they believed the Supreme Court was overworked. Supreme Court candidates have also discussed the issues of judicial misconduct. In this vein, a number of nominees have been questioned about the process to impeach judges. For example, Justice Kennedy, who had previously opposed legislation proposing reforms to the impeachment process, explained his position during his hearing. And then-Judge O'Connor spoke about her experience as a state court judge subject to different processes. Moreover, then-Judge Scalia stated that he believed the impeachment process was appropriately a "cumbersome process." Conversely, then-Judge Ginsburg largely demurred, stating that she believed "there may be a real conflict of interest, possibility of bias and prejudice on my part" in responding to questions about the impeachment process. Finally, Senators have sometimes asked Supreme Court nominees whether they would recuse themselves under certain circumstances. Then-Solicitor General Kagan committed to recusing herself from any case in which she had been "counsel of record" and suggested that she might recuse herself "in any case in which [she had] played any kind of substantial role in the process." Similarly, then-Judge Sotomayor said that she would recuse herself from consideration of any decisions she had authored as a federal appellate judge. In his hearing, then-Judge Roberts stated that the fact that he had previously taken one position on an issue as an advocate would not require him to recuse himself in any future cases presenting the same issue. At other times, nominees have discussed cases in which they had previously recused themselves as lower court judges or spoken more generally about their views on recusal. In sum, the applicable codes of judicial conduct and historical practice provide some guidance regarding what sorts of questions a nominee may permissibly answer during his confirmation hearing. Scholars, nominees, and even Members of Congress generally agree that under ethical rules as well as norms like the Ginsburg Rule a nominee should refrain from pledging to uphold or overturn particular precedents or to decide cases in certain ways. Nominees likely need to avoid making statements that could mandate their recusal from future cases under the federal judicial disqualification statute or under applicable canons of judicial ethics. Beyond that, however, the boundaries between permissible and impermissible responses are murky—and still contested during confirmation hearings. Historical practice suggests that nominees will not only avoid clear commitments to resolve future cases in certain ways, but in many circumstances, will avoid even giving "hints" about how they may view potential disputes. General questions relating to the nominee's jurisprudential philosophy are more likely to elicit forthcoming responses than specific questions about how the nominee intends to rule in particular categories of cases. However, nominees have been more likely to speak about particular legal issues if they have previously commented on that issue, such as in judicial opinions or extra-judicial statements. Ultimately, however, there are few available remedies when a nominee refuses to answer a particular question. Although a Senator may vote against a nominee who is not sufficiently forthcoming, as a matter of historical practice the Senate has rarely viewed lack of candor during confirmation hearings as disqualifying, and it does not appear that the Senate has ever rejected a Supreme Court nominee solely on the basis of evasiveness.	The U.S. Constitution vests the Senate with the role of providing "advice" and affording or withholding "consent" when a President nominates a candidate to be an Article III judge—that is, a federal judge entitled to life tenure, such as a Supreme Court Justice. To carry out this "advice and consent" role, the Senate typically holds a hearing at which Members question the nominee. After conducting this hearing, the Senate generally either "consents" to the nomination by voting to confirm the nominee or instead rejects the nominee. Notably, many prior judicial nominees have refrained from answering certain questions during their confirmation hearings on the ground that responding to those questions would contravene norms of judicial ethics or the Constitution. Various "canons" of judicial conduct—that is, self-enforcing aspirational norms intended to promote the independence and integrity of the judiciary—may potentially discourage nominees from fully answering certain questions that Senators may pose to them in the confirmation context. However, although these canons squarely prohibit some forms of conduct during the judicial confirmation process—such as pledging to reach specified results in future cases if confirmed—it is less clear whether or to what extent the canons constrain judges from providing Senators with more general information regarding their jurisprudential views. As a result, disagreement exists regarding the extent to which applicable ethical rules prohibit nominees from answering certain questions. Beyond the judicial ethics rules, broader constitutional values, such as due process and the separation of powers, have informed the Senate's questioning of judicial nominees. As a result, historical practice can help illuminate which questions a judicial nominee may or should refuse to answer during his or her confirmation. Recent Supreme Court nominees, for instance, have invoked the so-called "Ginsburg Rule" to decline to discuss any cases that are currently pending before the Court or any issues that are likely to come before the Court. Senators and nominees have disagreed about whether any given response would improperly prejudge an issue that is likely to be contested at the Supreme Court. Although nominees have reached varied conclusions regarding which responses are permissible or impermissible, nominees have commonly answered general questions regarding their judicial philosophy, their prior statements, and judicial procedure. Nominees have been more hesitant, however, to answer specific questions about prior Supreme Court precedent, especially cases presenting issues that are likely to recur in the future. Ultimately, however, there are few available remedies when a nominee refuses to answer a particular question. Although a Senator may vote against a nominee who is not sufficiently forthcoming, as a matter of historical practice the Senate has rarely viewed lack of candor during confirmation hearings as disqualifying, and it does not appear that the Senate has ever rejected a Supreme Court nominee solely on the basis of evasiveness.	15.7	8k-16k	14,007
22	The policy of the U.S. government is to have in place a comprehensive and effective program to ensure continuity of essential federal functions under all circumstances. COOP planning is an effort conducted by individual agencies to fulfill that policy and assure that the capability exists to continue essential agency functions across a wide range of potential emergencies. COOP has been closely associated with continuity of government programs, which are meant to ensure the survival of our constitutional form of government. COOP was first conceived during the Cold War to ensure that the U.S. government would be able to continue to function in case of a nuclear war. However, in the wake of the demise of the Soviet Union and the reduced threat of nuclear attack in the early 1990s, COOP planning languished. Following the World Trade Center bombing in 1993 and the Oklahoma City bombing in 1995, COOP as a program was given renewed attention based on the recognition of emerging threats and the need to continue essential functions of the federal government in an all-hazards environment, which includes acts of nature, accidents, technological emergencies, and incidents related to military or terrorist attacks. A series of Presidential Decision Directives (PDD) was issued that began to link programs for terrorism, critical infrastructure protection, and COOP. In addition, as we approached the turn of the century, federal agencies also dealt with the Year 2000 computer problem by developing business continuity and contingency plans to ensure program delivery in the event of a technology failure or malfunction. Federal COOP efforts have evolved by building upon the planning for each of these events that focused on protecting critical infrastructure, both physical systems and cyber-based systems. The events of September 11, 2001, highlighted in dramatic fashion the vulnerabilities agencies face in each of these areas and focused new attention on the effects such events have on agencies’ most important assets—their people, or human capital. FEMA, the General Services Administration (GSA), and OPM are the three agencies that have the most direct impact on individual agency efforts to develop viable COOP capabilities. PDD 67, which outlined individual agency responsibilities for COOP, identified FEMA as the executive agent for federal COOP planning. As executive agent, FEMA has the responsibility for formulating guidance, facilitating interagency coordination, and assessing the status of COOP capability across the federal executive branch. PDD 67 also required GSA to work with FEMA in providing COOP training for federal agencies and to assist agencies in acquiring alternate facilities. In addition, the Federal Management Regulation requires GSA to lead federal Occupant Emergency Program (OEP) efforts, which are short-term emergency response programs that establish procedures for safeguarding lives and property during emergencies in particular facilities. As the President’s agent and advisor for human capital matters, OPM has been actively involved in federal emergency preparedness efforts. OPM has issued a series of emergency preparedness guides for federal managers, employees, and their families; issued a number of memorandums relating to planning, preparedness, and the flexibilities available to agencies in emergency situations; and held emergency planning and preparedness forums to help agencies select emergency personnel. In addition, FEMA, GSA, and OPM collaborate to implement the Federal Workforce Release Decision and Notification Protocol when emergency situations occur in the Washington, D.C., area. The current literature indicates, and experts that we consulted confirmed, that the immediate response to a crisis should give priority to securing the safety of all employees and addressing the needs of employees who perform or directly support essential operations. For example, the standard for emergency management and business continuity, which was developed by the National Fire Protection Association and endorsed by FEMA, recommends that organizations include the following priorities in their continuity program: ensuring the safety and health of employees, establishing critical functions and processes, and identifying essential representatives. Consequently, the experts said that these priorities have received most of the human capital attention in continuity efforts for both the private and public sectors, including federal agencies. Appropriately, organizations focus on minimizing the loss of life and injuries, which is key to all other recovery efforts. Such efforts commonly include first aid training, evacuation plans and drills, and dismissal policies. Organizations also focus on identifying the core group of employees that will establish and maintain essential operations as dictated by an organization’s mission. Organizations, for example, commonly identify leadership structures to manage crisis response. Even so, experts noted that organizations vary widely in their effectiveness in addressing these priorities. The continuity process, however, extends beyond the goals of life safety and the performance of essential operations. The experts identified a number of human capital considerations beyond these goals that are not well addressed. For example, the priorities discussed above do not address human capital considerations for employees who are not involved in providing essential functions. Such employees would be associated with efforts to fully resume all other operations and represent the majority of an organization. The experts identified two principles that should guide actions to more fully address human capital considerations applicable to all continuity planning and implementation efforts. The first is recognizing and remaining sensitive to employees’ personal needs during emergencies when shaping the appropriate organizational expectations of employees. The emergency event that activates continuity plans may also cause emergency events in the personal lives of individual employees. Similar to an organization placing its highest priority on the safety and well-being of its employees, employees may have high-priority responsibilities to others. These personal responsibilities may limit employees’ ability to contribute to mission accomplishment until these other obligations are satisfied. The second principle experts identified is maximizing the contributions of all employees, whether in providing essential operations or resuming full services. This should be done within the limits of an employee’s ability to contribute given the situation, as described in principle one, and within the limits of the organization to use those contributions effectively. According to the experts, the experience of organizations during emergencies has been that employees remain motivated to contribute to organizational results, which is increasingly felt the longer the emergency continues. Enabling employees to contribute promotes more effective delivery of essential operations and more rapid resumption of full operations. In addition, in extreme disruptions of employees’ personal circumstances, providing purposeful activities helps avoid the debilitating affects of a disruption on employees, including job-related anxiety and post–traumatic stress disorder. The experts we interviewed also identified six organizational actions to enhance continuity planning and implementation efforts, listed in figure 1. Each of these actions is described in more detail below. Our past work has shown that the demonstrated commitment of top leaders is perhaps the single most important element of successful change management and transformation efforts. Effective continuity efforts have the visible support and commitment of their organization’s top leadership. According to the experts, traditional continuity planning focuses on the operations side of recovery and often overlooks human capital considerations. As such, it is important for top leadership to ensure that the appropriate balance is achieved in considering physical infrastructure, technology, and human capital. In providing leadership prior to the emergency, leaders demonstrate their commitment to human capital by establishing plans that value the organization’s intention to manage employees with sensitivity to their individual circumstances, recover essential operations on a priority basis, and resume other operations as quickly as possible. Organizational leaders show commitment to continuity planning by allocating resources and setting policies that effectively meet the organization’s continuity needs. The experts told us that committed leaders provide sufficient funding and staff to conduct planning and preparation efforts effectively. While the resources needed vary from location to location within an organization, the experts said that organizations should have enough resources available to develop effective plans, test critical systems, train all staff, and conduct simulation exercises. Committed top leadership also ensures that clear policies and procedures are in place for all aspects of continuity to ensure that quick and effective decisions are made during times of emergencies. Those policies and procedures should be fair, shared with employees and their representatives in advance of an emergency, and able to be consistently applied to all employees. Experts and union leaders we met with agree that the cooperation and input from all components within the organization, including employees and their representatives, is important in developing these policies. Following a disruption to normal operations, top leadership sets the direction and pace of organizational recovery. According to the experts, top leadership sets direction by providing the legitimate and identifiable voice of the organization for employees to rally around during tumultuous times. An expert from Marsh & McLennan Companies, Inc., a company that lost over 350 people in the World Trade Center on September 11, 2001, noted that in the aftermath of an emergency there is a fundamental need for a strong, visible leader to provide constant reassurance. The expert added that “employees need to know that someone is in control, even if the leaders do not know all the answers.” In addition, top leaders set the pace of organizational recovery by providing leadership to both the management team leading recovery of essential operations and the management team leading the resumption of all other operations. As we have previously reported, effective organizations integrate human capital approaches as strategies for accomplishing their mission and programmatic goals. According to the experts, strategic decisions made to improve day-to-day operations, including human capital approaches, and those made to build continuity readiness are not exclusive of one another and may have synergies. For example, early in 2001, GAO made the business decision to supply all of its analysts with laptop computers for financial reasons and to provide employees with flexibility in carrying out their work. That business decision, however, also contributed to our ability to quickly adapt to unforeseeable circumstances in October 2001. In response to the release of anthrax bacteria on Capitol Hill, we opened our doors to the 435 members of the House of Representatives and selected members of their staffs. Over 1,000 GAO employees were immediately able to make use of their laptops to work from alternate locations. Consequently, we minimized the disruption to our operations and assisted the House of Representatives in continuing its operations. To take advantage of such synergies, the experts said that decisions regarding continuity efforts should be integrated with broader business decision making. The integration of continuity planning with broader decision making helps to ensure that the direction of all efforts is consistent and provides mutual benefits. In a limited resource environment, consideration of how continuity investments benefit other program efforts also helps to strengthen the business case for human capital investments that are meant to improve continuity capabilities, day-to-day operations, or both. The importance of communication cannot be overstated. According to the experts, two-way communication with employees, their representatives, and other stakeholders is key to building relationships and partnerships that can facilitate organizational recovery efforts. We have also previously reported that communication is most effective when done early, clearly, often, and is downward, upward, and lateral. According to a senior National Treasury Employees Union (NTEU) official, the union was able to capitalize on ongoing two-way communications with the Internal Revenue Service’s (IRS) regional leadership to provide members with information following the September 11, 2001, attacks. For example, during the recovery efforts, the union provided supplementary channels for communicating with employees, including daily joint messages from the IRS Regional Director and the NTEU Chapter President. In addition, when the local New York office reopened on September 20, 2001, both the NTEU National President and the IRS Commissioner greeted employees at the door. From the union’s perspective, communication efforts such as these helped to provide reassurance and support as well as to maintain employee trust. According to experts, roles, responsibilities, and performance expectations must be communicated to all employees, and their representatives, prior to a disruption to promote the efficient and effective use of all of an organization’s human capital assets. Early communication enables employees to assess and communicate to the organization any personal circumstances that may limit their ability to carry out those roles. The experts and union officials whom we spoke with agreed that in some cases, more formal communication vehicles, such as memorandums of understanding or addenda to collective bargaining agreements, may be necessary to negotiate changes or clarify roles and responsibilities in continuity plans. Because effective emergency two-way communication depends greatly on technology, alternate and redundant communication infrastructures are necessary. In addition to technological vulnerabilities that can render different methods of communication useless, people frequently do not remain tied to the contact number or location listed in emergency records. To address these challenges, Macy’s West, for example, has built an alternate emergency communication system that serves as an employee message retrieval system. The system, which is based outside of the region in case the local phone networks are overloaded, allows (1) the leadership of Macy’s West to leave messages with instructions for employees, (2) family members to leave messages for employees, and (3) employees to leave messages for their loved ones. Our past work has shown that organizations should consider making targeted investments in human capital approaches, such as training and development. According to the experts, training and development programs related to continuity efforts can help to raise awareness among all employees. The Social Security Administration (SSA), for example, has developed a video-training course to provide an overview of COOP, which includes an introduction from the Commissioner explaining why COOP is so important, a discussion of SSA’s critical workloads and how they would be processed during a disruption, and references to federal guides and information. The experts noted that less formal approaches, such as continuity planning awareness weeks, could also help to raise awareness. Our recent work has indicated that training and development programs build skills and competencies that enable employees to fill new roles and work in different ways, which helps to build organizational flexibility. According to experts, the training and development goals for employees assigned to the team that performs essential operations differ from those for the employees assigned to the team that is responsible for resuming all other organizational operations. The goal for the team that performs essential operations is to achieve “critical depth,” which occurs when an adequate number of employees are available to staff each critical function, in the event that a member of the team expected to perform that function is unavailable. Organizations can build critical depth in various ways, including using exercises that simulate an emergency to train backup employees alongside employees who have primary responsibility for an essential operation, or allowing backup employees to perform the operation while the primary employees oversee and critique their performance. In addition, critical depth can be built through succession planning. To be effective for this purpose, however, the scope of succession planning is extended to recognize that there is no time to develop successors in an emergency and incrementally increase levels of authority as an individual matures in a position. Therefore, organizations may have to plan to use predecessors to a position, including retirees, as successors. With regard to the team that is responsible for resuming all other organizational operations, experts said that the training and development goal is to build sufficient breadth to enable members to contribute to resumption efforts in a variety of ways. For example, development programs requiring employees to rotate within an organization to learn a variety of positions, potentially at a variety of locations, contribute to critical breadth. We have previously reported that developmental assignments place employees in new roles or unfamiliar job environments in order to strengthen skills and competencies and broaden their experience. Effective training and development initiatives also help to foster a culture that is characterized by flexible employees who are empowered to make effective decisions independently. According to experts, such a culture is often critical to agency recovery and resumption efforts. Experts from Marsh & McLennan Companies, Inc., reported that effective decision- making abilities could be developed through formal training about the parameters in which employees are empowered to make decisions and on- the-job experiences demonstrating how employees can exercise authority in making decisions that manage, rather than avoid, risk and are focused on achieving results. The events of September 11, 2001, give ample evidence of the dedication and flexibility of federal, state, and local government employees in providing services to the American public. Disruption of normal operations challenges an organization to use this dedication and flexibility to its advantage, especially with regard to employees associated with the resumption of all operations that are not considered essential. According to the experts, organizations may use approaches such as telework and geographic dispersion, which includes regional structure, to increase the ways in which employees may contribute. As OPM guidance has underscored and presenters at a recent conference held by the International Telework Association and Council noted, telework is an important and viable option for federal agencies in COOP planning and implementation efforts, especially as the duration of the emergency event is extended. However, to make effective use of telework, experts told us that organizations should identify those employees who are expected to telework during a disruption and communicate that expectation to them in advance. In addition, organizations should provide teleworkers with adequate support in terms of tools, training, and guidance. Geographic dispersion can also provide a way for employees associated with resumption activities to continue their normal functions albeit at or through other locations. For example, SSA recognizes that its field structure enables the agency to make use of both multiple locations and telework in providing its employees ways to contribute because most field functions can be transferred fairly easily from one location to another in the same region or performed remotely with laptop computers. Based on these efforts, SSA does not envision a scenario in which its field employees would not contribute to their normal functions for more than 72 hours. Employees demonstrate their flexibility by a willingness to contribute to the organization in roles that may be unusual. According to the experts, flexible employees contribute as best they can usually in the following sequence: (1) providing support to the team performing essential operations, if needed; (2) continuing to contribute to their normal mission- related functions; (3) performing an alternate contribution for their organization; or if none of these can be accomplished, (4) volunteering in their communities as a direct form of public service. Federal employees may have additional opportunities to contribute to not only their own agencies’ operations but also other agencies’ operations in serving the American people. In addition, a recent memorandum from OPM recognizes the value of federal employees contributing to the general public through community volunteer service in the range of alternative contributions. Employees associated with providing essential operations may be working under unusual pressures for extended periods of time, and organizations need to consider ways to sustain these efforts. The experts recommend that if the circumstances of the emergency continue long enough to raise concerns about burnout, organizations consider providing opportunities for working in shifts; rotating assignments among team members; providing relief through the use of qualified employees associated with resumption activities; reemploying retirees; or utilizing employees from stakeholder or networked organizations, such as suppliers or contractors. According to the experts, the ability of organizations to match staffing requirements with available skills and abilities could be enhanced through various initiatives, such as job banks, skill profile databases, and pre- arranged partnerships with other organizations or community service organizations. For example, job banks that detail additional jobs that may be required during an emergency but are not considered essential could allow employees to preselect alternate contributions that they would be able to perform. In the federal government, agencies could establish their own job banks; form interagency partnerships that link the potential needs of several agencies; and create a cache for volunteer opportunities, possibly tied to the Citizen Corps. Organizations with databases that collect employee knowledge, skills, and abilities (KSA)—even those KSAs outside the scope of an employee’s normal functions—may complement the job banks by allowing organizations to match available KSAs with the unmet needs of the organization. An evaluation process that explicitly identifies and disseminates lessons learned during disruptions, or simulations of disruptions, promotes learning among all of an organization’s human capital assets and helps to improve organizational performance. An organization that is committed to learning has an inclusive and supportive process and a framework designed prior to a disruption to gather important data. According to experts, organizations committed to learning will ensure that those employees who are key to the recovery and resumption efforts are involved in the formal evaluation process in a timely manner and will seek the input from as many other employees as possible. Such an inclusive environment will enable the organization to discover valuable lessons learned by employees in unusual circumstances. In addition, conducting evaluations in a “no- blame,” nonattribution atmosphere and taking organizational ownership of any problems that might be identified increases the openness with which participants are willing to share their experiences. To encourage such an environment, FEMA officials told us that the agency’s Office of National Security Coordination has recently implemented a reporting system that allows any employee to identify lessons learned anonymously during an emergency, instead of waiting for the formal review process. Our past work has shown that human capital approaches are best designed and implemented based on data-driven decisions. According to experts, having a framework prior to a disruption helps to gather data important to evaluating the effectiveness of human capital approaches during a disruption. Some measures that they suggested include number of employees contributing to mission-related outcomes each day; degree of contribution (e.g., part time or full time); location of employee when contributing (e.g., at alternate facility or home); type of contribution (e.g., performing same function, performing an alternate function within the department, working with another department, or volunteering); or obstacles to contribution (e.g., organizational or personal). Once identified, it is important for the lessons learned during the evaluation to be made explicit and then widely disseminated. According to experts, the manner and formality of documentation and dissemination, however, depend on the situation or needs of the organization (e.g., after- action reports, detailed analyses, executive summaries, video tapes, CDs, or Web-based reports). There are unique opportunities in the federal government for agencies to share explicit lessons learned both internally and with other federal agencies and stakeholders. For example, following the September 11, 2001, attacks, senior Department of Housing and Urban Development officials asked the New York Acting Regional Director to recount her experiences and lessons learned in front of a video camera. The accounts were edited down into a 30-minute video entitled Thinking the Unthinkable: Preparing for Disaster. That video has been used within the department as a training aid and has been shared with over 50 federal agencies with the help of the Washington, D.C.–based interagency COOP Working Group (CWG) and the FEBs in cities across the United States. In Canada, Emergency Management Alberta (EMA) employs a centralized Disruption Incident Reporting System for all government agencies, which is accessible via the Internet, to obtain timely and accurate reporting of all disruptions and “most importantly, ensure lessons learned can be documented for follow-up.” EMA has also created a Lessons Learned Warehouse Web site to share continuity lessons learned in all aspects of crisis management. As we stated earlier, the human capital considerations related to life safety and the needs of personnel performing essential operations have largely been addressed in continuity efforts. In the federal government, FEMA has issued guidance that has addressed these considerations and has recognized the opportunity to more fully address human capital considerations in its guidance. In addition, OPM has issued federal emergency preparedness guidance relevant to COOP that also addresses these considerations and is working with FEMA to more fully address human capital considerations in federal guidance. As executive agent for federal COOP planning, FEMA issued FPC 65 in July 1999 as the primary guidance for agencies developing viable COOP plans. According to FPC 65, the purpose of COOP planning is to facilitate the performance of agency essential functions for up to 30 days during any emergency or situation that may disrupt normal operations. The five objectives of a viable COOP plan listed in FPC 65 are (1) ensuring the continuous performance of an agency’s essential functions during an emergency; (2) protecting essential facilities, equipment, records, and other assets; (3) reducing or mitigating disruptions to operations; (4) reducing loss of life, minimizing damage and losses; and (5) achieving a timely and orderly recovery from an emergency and resumption of full service to customers. The guidance subsequently limits a COOP event to one that significantly affects the facilities of an organization and requires the establishment of essential operations at an alternate location. Therefore, as FEMA recognizes, the guidance does not apply to significant disruptions that leave facilities intact, such as a severe acute respiratory syndrome (SARS) outbreak that could lead a large number of employees to avoid congested areas, including their workplaces. Although a people-only event such as SARS would significantly disrupt normal operations, the current COOP guidance would not apply because facilities would remain available. FPC 65 also indicates that the guidance is for use at all levels and locations of federal agencies. FEMA officials acknowledge, however, that the priority of COOP planning to date has been focused on agency headquarters located in the Washington, D.C., area. Given the purpose of COOP and the nature of its objectives, the human capital considerations FEMA included in the guidance primarily relate to life safety for all employees and addressing the needs of employees performing essential operations. For example, the guidance states that one of the objectives of COOP is “reducing loss of life, minimizing damage and losses.” It also refers to the legal requirement that each agency develop a viable OEP, which is a short-term emergency response program that establishes procedures for safeguarding lives and property during emergencies in particular facilities. FPC 65 more broadly defines life safety by including a statement related to the need to consider the health and emotional well-being of employees on the essential operations team. Also, with respect to employees who perform essential functions, the guidance directs agencies to designate an emergency team, delegate authority, establish orders of succession, develop communication plans, develop training programs, and provide for accountability. FEMA officials we spoke with recognized that there is a need to go beyond the human capital considerations that have already been addressed within federal COOP guidance in order to achieve the full range of COOP objectives. Specifically, FEMA officials agreed that it was particularly important to deal with the human capital considerations inherent to the resumption activities needed to fully recover from an emergency. To that end, FEMA has taken several steps to more fully address these considerations. FEMA has worked with a subcommittee of the interagency CWG—a Washington, D.C.–based group that meets monthly to discuss issues related to COOP—to rewrite the federal COOP guidance. The agency has requested OPM’s assistance in incorporating these considerations into the new federal COOP guidance. FEMA has also worked in cooperation with us as we developed this report. As a result, FEMA officials told us that the draft guidance would include an augmented discussion of human capital considerations. OPM has also recognized the value of human capital in COOP and other emergency preparedness efforts. In a memorandum to the heads of executive departments and agencies, for example, the Director of OPM stated that “the American people expect us to continue essential government services without undue interruption, no matter the contingency, and Federal agencies must have the human resources to accomplish their missions, even under the most extreme of circumstances.” To this end, OPM has established the Emergency Preparedness subcommittee of the Chief Human Capital Officers Council that is tasked with recommending policy changes, legislative changes, or other strategies for moving the issue forward. In addition, OPM has initiated several efforts to help agencies address human capital considerations in emergency preparedness related to life safety and the needs of personnel performing essential operations, as well as to recognize the role that employee organizations and unions could play in supporting those efforts. These initiatives are important first steps; however, they do not fully address human capital considerations related to the resumption of all agency operations that are not considered essential. With regard to providing for the safety of all employees, OPM has issued four preparedness guides to educate federal employees, managers, and their families on how to protect themselves from a potential biological, chemical, or radiological release, whether accidental or intentional. The guides also spell out the responsibilities of the federal government and individual agencies to protect employees in the event of an emergency. In addition to the guides, OPM has addressed safety issues by revising the Washington, D.C., area emergency dismissal protocols for federal employees and contractors, in conjunction with FEMA and GSA; issuing memorandums to all agency heads detailing the “minimum obligations” agencies have to secure the safety of federal workers; issuing two emergency preparedness surveys through which federal agencies could report on their progress in ensuring the safety of their employees; and highlighting the role that Employee Assistance Programs can play in responding to employee needs in emergency situations. Related to providing for the needs of employees performing or supporting essential operations, OPM has led two forums focusing on emergency employee designations and the flexibilities that are available to agencies in emergency situations. OPM has also issued a series of memorandums outlining the existing human resource management flexibilities that agencies might employ in emergency situations. Other human capital flexibilities that are available to agencies in nonemergency situations, such as telecommuting, job sharing, and flexible scheduling, might provide additional assistance during emergency situations and are detailed in OPM’s handbook, Human Resources Flexibilities and Authorities in the Federal Government. (See app. II for a list of human resource flexibilities that agencies may use to respond to emergency situations.) In addition to initiating efforts to address several human capital considerations, OPM has highlighted the need to work with and through employee organizations and unions in developing and executing emergency management strategies. For example, OPM has held meetings with federal labor union leaders and employee associations to discuss relevant employee safety issues and has specifically encouraged agencies to work with and share information on preparedness efforts with applicable employee organizations and unions. Senior union officials whom we spoke with from the American Federation of Government Employees and NTEU agreed that it is important for unions to be involved throughout COOP planning and implementation efforts. These officials also stated that unions could be resources for agencies in communicating with employees, both before and during an emergency, as well as in engaging employees in recovery and resumption efforts. Although FEMA heads the interagency CWG to help coordinate COOP efforts in the Washington, D.C., area, the efforts of this group do not apply to the over 80 percent of federal employees who work outside of this area. While not specifically tasked with coordinating COOP efforts, FEBs are generally responsible for improving coordination among federal activities and programs in major metropolitan areas outside of Washington, D.C. Under the direction of OPM, FEBs support and promote national initiatives of the President and the administration and respond to the local needs of federal agencies and the community. OPM officials have recognized that FEBs can add value to regional emergency preparedness efforts, including COOP, as vehicles for communication, coordination, and capacity building. To make use of these capabilities, OPM has provided FEBs with relevant emergency preparedness materials, encouraged FEBs to focus on preparedness issues in their regions, requested that FEBs test their emergency communication plans, and encouraged FEBs to inform OPM of any emergency-related events affecting federal employees in the regions. The FEBs that we visited are already playing active roles in regional emergency preparedness and COOP efforts. For example, the Chicago FEB has established committees to deal with Disaster Recovery Planning and Emergency Release; surveyed its member agencies to determine the status of COOP planning in the region; sponsored a series of seminars, in conjunction with GSA and FEMA, on topics related to COOP, sheltering in place, and national security; participated in regional exercises, such as TOPOFF 2; and sponsored a COOP exercise to provide agencies with a forum for validating their COOP plans, policies, and procedures. The Cleveland FEB has established an emergency preparedness committee to promote awareness and preparation, developed an Employee Emergency Contingency Handbook that provides basic actions to respond to emergencies that may be encountered by federal employees, and helped to make training available to all federal agencies. The Philadelphia FEB has held several COOP workshops for agencies and regularly shares relevant information with agency officials via e-mail. In addition, these FEBs play a role in developing and activating dismissal and closure procedures for federal agencies located in their particular regions. Although both OPM officials and the FEB officials whom we spoke with recognized that FEBs can add value in coordinating emergency preparedness efforts, including COOP, and that such a role is a natural outgrowth of general FEB activities, a specific role and responsibilities have not been defined. In addition, the current structure in which FEBs operate results in differing capacities of FEBs across the nation. For example, each agency’s participation in FEB activities is voluntary. Consequently, FEBs can only make recommendations to agencies, without the ability to require agency compliance. Also, FEBs rely on host agencies for funding, which results in variable funding and staffing from year to year and across FEBs. OPM has recognized that the roles and capacities of FEBs vary across the nation and has established an internal working group to study the strengths and weaknesses of FEBs and develop recommendations for improving their capacity to coordinate in regions outside of Washington, D.C. According to OPM, such efforts in regard to local emergency preparedness and response will include improving dissemination of information and facilitation of COOP training and tabletop exercises; addressing the implications for strategic human capital management in continuing the operations of the federal government (e.g., alternate work schedules, remote work sites, and telecommuting capabilities); and developing strategies to better leverage the network of FEBs to help departments and agencies implement their initiatives. More fully addressing human capital considerations in emergency preparedness guidance, including COOP, could improve agency response capabilities to large-scale COOP emergencies or situations; could help minimize the impact of more common, yet less catastrophic disruptions (e.g., snowstorms and short-term power outages); and is consistent with building a more flexible workforce, which would enhance ongoing efforts across the federal government to create more responsive human capital management systems. As FEMA works to update its federal COOP guidance and OPM continues to issue emergency preparedness guidance relevant to COOP, several areas require attention to more fully address human capital considerations relevant to COOP. By limiting COOP to situations that necessitate moving to an alternate facility, agencies are left without guidance for situations in which an agency’s physical infrastructure is unharmed, but its employees are unavailable or unable to come to work for an extended period of time. While facilities and technology would not be affected by such situations, the unavailability of people to contribute to mission-related outcomes could cause a significant disruption to normal operations. Emergency guidance, including COOP, generally does not extend beyond consideration of life safety and the needs of employees performing essential operations. Therefore, the guidance excludes most agency employees—those who would be associated with resuming all other operations. FEBs are uniquely situated to improve coordination of emergency preparedness efforts, including COOP, in areas outside of Washington, D.C. However, the context in which FEBs currently operate, including the lack of a clearly defined role in emergency preparedness efforts, including COOP, and varying capacities among FEBs, could lead to inconsistent levels of preparedness across the nation. We recommend that the Secretary of Homeland Security direct the Under Secretary for Emergency Preparedness and Response to take the following two actions: Expand the definition of a COOP event in federal guidance to recognize that severe emergencies requiring COOP implementation can include people-only events. Complete efforts to revise federal COOP guidance to more fully address human capital considerations by incorporating the six organizational actions identified in this report. We recommend that the Director of OPM take the following two actions: Develop and provide additional emergency preparedness guidance to more fully address human capital considerations by incorporating the six organizational actions identified in this report. Determine the desired role for FEBs to play in improving coordination of emergency preparedness efforts, including COOP, and identify and address FEB capacity issues to meet that role. It would be appropriate for FEBs to be formally incorporated into federal emergency preparedness guidance, including COOP guidance, for areas outside of Washington, D.C. We provided the Secretary of Homeland Security and the Director of OPM a draft of this report for review and comment. We received written comments from the Under Secretary of Emergency Preparedness and Response on behalf of FEMA and the Department of Homeland Security, which are reprinted in appendix III. In his comments, the Under Secretary stated that the draft accurately addressed human capital considerations relevant to COOP guidance and coordination and noted that DHS and FEMA will continue to work with OPM and other federal partners to improve the federal government’s COOP plan by incorporating our recommendations in its federal COOP guidance. In addition, he stated that FEMA would expand its efforts with its regional offices and FEBs to improve coordination of COOP programs at the regional level. The Director of OPM also provided written comments, which are reprinted in appendix IV. In her comments, the Director noted her appreciation for our acknowledgement of the agency’s leadership role in addressing human capital considerations relevant to COOP planning. However, the Director of OPM stated that the agency has already carried out our recommendation to more fully address human capital considerations in emergency preparedness guidance, including COOP, by incorporating the key actions identified in the report. The Director provided numerous examples of actions OPM has taken to support emergency preparedness efforts, all of which she noted were influenced by the agency’s human capital framework. In addition, the Director also attached an enclosure to the agency comments that contain examples of OPM’s internal COOP-related efforts that she believes would be helpful to federal agencies. Most of the examples of emergency preparedness guidance that the Director of OPM provided were included in the draft report and deal largely with the human capital considerations related to life safety and the needs of personnel performing essential operations. While such initiatives are important first steps, there remain opportunities to improve OPM’s emergency preparedness guidance to include a fuller range of human capital considerations, particularly related to the resumption of all agency operations that are not considered essential. As such, our assessment of OPM’s guidance and our recommendation for the agency to develop and provide additional emergency preparedness guidance that incorporates the key actions identified in the report remain unchanged. With regard to our second recommendation for OPM to determine the desired role of FEBs in improving coordination of emergency preparedness efforts, including COOP, and address any resulting capacity issues, the Director of OPM stated that the leadership role the agency plays with respect to FEBs was not sufficiently developed in the report and she provided examples of OPM’s support for the FEB’s efforts. Most of the supporting examples that the Director provided were included in the draft report. Moreover, the additional examples generally do not address our larger point that the role of FEBs in coordinating emergency preparedness efforts, including COOP, needs to be clearly defined. As such, we maintain our conclusion that the context in which FEBs currently operate, including the lack of a clearly defined role in emergency preparedness efforts and the varying capacities among FEBs, could lead to inconsistent levels of preparedness across the nation. The Director of OPM suggested several clarifications to the report, which we considered and incorporated where appropriate. For example, she suggested both technical and substantive changes to a footnote describing Federal Executive Associations (FEA) and Federal Executive Councils (FEC). While we made technical changes in response to these comments, our work does not allow us to categorically exclude all FEAs and FECs as viable options for the coordination of emergency preparedness activities, as the Director suggested in her response. Instead, we recognize that any guidance provided to FEBs would likely be beneficial to FEAs and FECs despite their differences. The Director also provided additional details describing OPM’s internal working group that is studying the strengths and weaknesses of FEBs, and we have incorporated these details into the report. We are sending copies of this report to the Ranking Minority Member, Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia, Senate Committee on Governmental Affairs; the Chairman and Ranking Minority Member, House Committee on Government Reform; the Chairman and Ranking Minority Member, Subcommittee on Homeland Security, House Committee on Appropriations; the Chairman and Ranking Minority Member, Subcommittee on National Security, Emerging Threats, and International Relations, House Committee on Government Reform; and other interested congressional parties. We will also send copies to the Secretary of Homeland Security, the Under Secretary of Emergency Preparedness and Response and the Director of OPM. This report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me or William Doherty on (202) 512-6806. Key contributors to this report include Kevin J. Conway, Tiffany Tanner, Thomas Beall, Amy Choi, Amy Rosewarne, John Smale, and Michael Volpe. The objectives of this report were to identify the human capital considerations that are relevant to federal agencies’ continuity planning and implementation efforts; describe the continuity of operations (COOP) guidance provided by the Federal Emergency Management Agency (FEMA) and emergency preparedness guidance and activities of the Office of Personnel Management (OPM) to address human capital considerations relevant to COOP; and describe the role Federal Executive Boards (FEB) play, relevant to COOP, in coordinating efforts outside of the Washington, D.C., area. To address human capital considerations that are relevant to continuity planning and implementation efforts, we reviewed relevant literature, such as industry journals, federal guidance, and codes of standards on disaster/emergency management and continuity programs. Because the available literature was limited in its attention to human capital, we based our work primarily on semistructured interviews with experts from private sector businesses, federal government agencies, and public institutions. We first reviewed industry journals, magazines, and Web sites; queried state and international auditors; attended a national business continuity conference; and sought input from the National Academy of Public Administration (NAPA), the Private Sector Council (PSC), and FEMA to identify individuals or organizations with the relevant knowledge needed to address our first objective. We selected individuals or organizations that had one or more of the following characteristics: (1) experience responding to, recovering from, and resuming business activities following an emergency, from which human capital lessons may have been drawn; (2) experience incorporating human capital considerations into their organization’s continuity planning efforts; (3) specific human capital expertise that could be applied to continuity planning and implementation efforts; and (4) specific continuity expertise that is broad enough to identify those critical areas that require human capital attention. When an organization was selected, we then contacted the organization to identify the specific individuals who had the relevant expertise. On the basis of these characteristics and the input from NAPA, PSC, and FEMA, we selected organizations or individuals within organizations to obtain a diversity of views from both the public and private sector. Individuals from a total of 15 organizations, in addition to FEMA, provided their expertise in addressing our objective. The organizations include five federal agencies—the Centers for Disease Control and Prevention, the Department of Housing and Urban Development, the Department of Veterans Affairs, the General Services Administration, and the Social Security Administration; five private sector businesses—the Gillette Company, Lockheed Martin Corporation, Macy’s West, Marsh & McLennan Companies, Inc., and Science Applications International Corporation; and five public institutions—the Business Continuity Institute, the Disaster Recovery Institute International, Emergency Management Alberta (Canada), Clark-Atlanta University, and the University of Tasmania (Australia). We then conducted three cycles of work to identify the human capital considerations that are relevant to continuity, with each subsequent cycle building upon the information gathered in previous cycles. We adopted this approach because our initial conversations with experts indicated that a common perspective of the continuity process could help structure and focus our subsequent interviews with experts about the relevant human capital considerations. Cycle one involved conducting semistructured interviews with experts from FEMA and 5 of the 15 organizations. We asked each to describe a view of the entire continuity process from a human capital perspective. We used those descriptions to synthesize a framework that we then shared with each of the first cycle experts for comment. The experts generally agreed with the content of the framework and agreed that it would be useful in focusing subsequent interviews about human capital considerations. In the second cycle, we used this framework as a reference when conducting in-depth, semistructured interviews with experts from all 15 organizations and FEMA about the human capital considerations relevant to continuity. For the third cycle, we held a 1-day working group, in cooperation with FEMA, to more fully discuss the human capital considerations previously identified in cycles one and two. The interactive nature of the working group, which included a cross-section of the experts and additional representatives from GAO, helped to ensure that we had adequately captured the key considerations relevant to continuity. As a final check, we provided all of the experts with a summary document that included the statements used throughout this report and attributed to the experts. We asked the experts to review the statements for fundamental disagreement or fatal flaws. Almost all experts responded and generally agreed with our treatment of these issues. To supplement information we received in the three cycles, we held additional interviews with officials from OPM; representatives from the Chicago, Cleveland, and Philadelphia FEBs; and representatives from the National Treasury Employees Union (NTEU) and the American Federation of Government Employees (AFGE). We spoke with representatives of the FEBs because the FEBs’ role as coordinative bodies in regions across the nation gives them a unique view of federal emergency preparedness efforts outside of the Washington, D.C., area. We spoke with representatives from NTEU and AFGE because unions can play a key role in addressing human capital considerations. To describe the COOP guidance provided by FEMA and emergency preparedness guidance and activities of OPM to address human capital considerations relevant to COOP, we interviewed officials from both agencies. In addition, we reviewed and analyzed relevant documents. For example, we reviewed Federal Preparedness Circular 65, the primary guidance for federal executive branch COOP, to identify the human capital considerations that are included in federal COOP guidance. We also reviewed OPM publications, including four emergency preparedness guides and a series of memorandums that list available agency flexibilities in times of emergencies. To describe the role FEBs play, relevant to COOP, in coordinating efforts outside of the Washington, D.C., area, we held interviews with officials from OPM with responsibility for FEBs nationwide and representatives from the three FEBs discussed above. We conducted our work from February 2003 through December 2003 in accordance with generally accepted government auditing standards. OPM has issued a series of memorandums outlining the existing human resources management flexibilities that executive departments and agencies might employ in emergency situations with and without OPM approval. Other human capital flexibilities and programs, such as those detailed in OPM’s handbook, Human Resources Flexibilities and Authorities in the Federal Government, that are available to agencies in nonemergency situations may also provide additional assistance in responding to and recovering from COOP emergencies. For additional information on these flexibilities, OPM has advised that agency chief human capital officers, human resources (HR) directors, or both should contact their assigned OPM human capital officer. Employees are advised to contact their agency HR offices for assistance. A compilation of the emergency flexibilities outlined by OPM in its emergency guidance memorandums appears below. Agencies have the discretion, without OPM approval, to grant excused absence to employees who are prevented from reporting to work because of an emergency. The authority to grant excused absence also applies to employees who are needed for emergency law enforcement, relief, or recovery efforts authorized by federal, state, or local officials having appropriate jurisdiction and whose participation in such activities has been approved by the employing agency. Military leave under 5 U.S.C. § 6323(b) is appropriate for federal employee members of the National Guard or Reserves who are called up to assist in an emergency. Subject to approval by the President, OPM may establish an emergency leave transfer program, which is separate from the federal leave-sharing program, to assist employees affected by an emergency or major disaster. Under 5 U.S.C. § 6391, the emergency leave transfer program would permit employees in an executive agency to donate unused annual leave for transfer to employees of the same or other agencies who have been adversely affected by an emergency and who need additional time off work without having to use their own paid leave. If agencies believe there is a need to establish an emergency leave transfer program to assist employees affected by an emergency, they are to contact their OPM human capital officer. In certain emergency or mission-critical situations, agencies have the discretion, without OPM approval, to apply an annual premium pay cap instead of a biweekly premium pay cap, subject to the conditions set forth in 5 U.S.C. § 5547(b) and 5 C.F.R. § 550.106. In this regard, the agency head, his or her designee, or OPM may determine that an emergency exists. Agencies have the discretion, without OPM approval, to apply an annual cap to certain types of premium pay for any pay period for (1) employees performing work in connection with an emergency, including work performed in the aftermath of such an emergency, or (2) employees performing work critical to the mission of the agency. Such employees may receive premium pay under these conditions only to the extent that the aggregate of basic pay and premium pay for the calendar year does not exceed the greater of the annual rate for (1) General Schedule (GS)–15 step 10 (including any applicable special salary rate or locality rate of pay, or (2) level V of the Executive Schedule. In some emergency situations, agencies have the discretion, without OPM approval, to furlough employees, that is, to place them in a temporary status without duties and pay for nondisciplinary reasons. Under 5 C.F.R. § 752.404(d)(2), agencies are relieved of the requirement to provide employees advanced notice and an opportunity to respond when the furlough is based on “unforeseeable circumstances,” such as a sudden breakdown in equipment, an act of nature, or a sudden emergency requiring the agency to immediately curtail activities. Workers’ compensation benefits are available when federal employees are injured or killed while on duty. The Department of Labor may establish special procedures to provide direct assistance to affected employees and their families. To assist agencies in responding to employee needs during and after an emergency situation, OPM may establish special expedited arrangements for processing disability retirement applications; survivor benefits; and payments under the Federal Employees Group Life Insurance Program, currently administered by the Metropolitan Life Insurance Company. Under Section 651 of Pub. L. No. 104-208 (Omnibus Consolidated Appropriations Act, 1997), 5 U.S.C. § 8133 note, agencies have the authority, without OPM approval, to pay up to $10,000 to the personal representative of a civilian employee who dies in the line of duty. Agencies have the discretion, without OPM approval, to approve telecommuting arrangements and alternative work sites to accommodate emergency situations. According to OPM, one of the major benefits of the telework program is the ability of telework employees to continue working at their alternative work sites during a disruption to operations. In recognition of the growing importance of teleworkers in the continuity of agency operations, OPM states that agencies may wish to modify their current policies concerning teleworkers and emergency closures. Agencies may also wish to require that some or all of their teleworkers continue to work at their alternative work sites on their telework day during emergency situations when the agency is closed. Although agencies would not have to designate a teleworker as an emergency employee, OPM states that any requirement that a telework employee continue to work if the agency closes on his or her telework day should be included in the employee's formal or informal telework agreement. Under 5 C.F.R. § 213.3102(i)(2), agencies have the discretion, without OPM approval, to fill positions for which an emergency or critical hiring need exists; however, initial excepted appointments under this authority may not exceed 30 days and may be extended only for an additional 30 days. Such an extension may be made only if the appointee’s continued employment would be essential to the agency’s operations. Under 5 C.F.R. § 213.3102(i)(3), OPM may also grant agencies the authority to temporarily appoint individuals to the excepted service in positions for which OPM has determined that examination is impracticable (e.g., because of the time involved). For example, in the aftermath of the September 11, 2001, attacks, OPM granted agencies authority to fill positions affected by or that needed to deal with the attacks for up to 1 year, and later extended that authority. When OPM grants agencies the authority to appoint individuals under 5 C.F.R. § 213.3102, agencies, not OPM, are responsible for establishing the qualifications that an individual must have to fill the position. In addition, in accordance with 5 C.F.R. pt. 330, agencies are not required to comply with the regulations regarding the Career Transition Assistance Plan (CTAP), Reemployment Priority List (RPL), and Interagency CTAP (ICTAP) because these regulations do not apply to excepted appointments. Agencies have the discretion, without OPM approval, to use the authority granted by OPM under 5 C.F.R. § 213.3102 to fill senior-level positions, as well as positions at lower levels. Under appropriate circumstances, OPM may also authorize agencies to use a senior-level position allocation to appoint an individual under this section (5 C.F.R. § 319.104). Agencies have the authority to appoint candidates directly when OPM determines there is a critical hiring need, or a shortage of candidates, for particular occupations, grades (or equivalent), geographic locations, or some combination of the three. This authority can be governmentwide or limited to one or more specific agencies depending on the circumstances. OPM has granted governmentwide direct-hire authority for GS-0602 Medical Officers, GS-0610 and GS-0620 Nurses, GS-0647 Diagnostic Radiologic Technicians, and GS-0660 Pharmacists, at all grade levels and all locations, and for GS-2210 Information Technology Specialists (Information Security) positions at GS-9 and above, at all locations, in support of governmentwide efforts to carry out the requirements of the Government Information Security Reform Act and the Federal Information Security Management Act. OPM also approved a direct-hire authority that permits agencies to immediately appoint individuals with fluency in Arabic or other Middle Eastern languages to positions in support of the reconstruction efforts in Iraq. Agencies have the discretion, without OPM approval, to give individuals in the categories, occupations and specialties, and grades listed above competitive service career, career-conditional, term, temporary, emergency indefinite, or overseas limited appointments, as appropriate. In all cases, agencies must adhere to public notice requirements in 5 U.S.C. §§ 3327 and 3330 and ICTAP requirements. If agencies believe they have one or more occupations for which an agency- specific direct-hire authority may be appropriate in support of emergency relief and recovery efforts, they are to contact their OPM human capital officer. To meet a bona fide, unanticipated, urgent need, agencies have the authority under 5 C.F.R. § 317.601 to make Senior Executive Service limited emergency appointments of career employees, without OPM approval. OPM approval is required to appoint individuals who are not current career employees and OPM cannot delegate this authority; however, OPM will process such requests on a priority basis and will also consider temporary position allocations for agencies that identify the need as essential to deal with the emergency. Agencies have the discretion, without OPM approval, to employ retirees to deal with an emergency, to replace employees called to active duty military service, or both. Agencies may immediately offer reemployment to retirees under any applicable appointing authority. However, generally, dual compensation restrictions (e.g., 5 U.S.C. §§ 8344 and 8468) require agencies to reduce the pay of a federal civil service retiree by the amount of his or her annuity. For details, see the CSRS and FERS Handbook for Personnel and Payroll Offices, Chapter 100 – Reemployed Annuitants. OPM may waive these dual compensation restrictions and, upon request, may also delegate such authority to an agency head or designee to deal with emergency staffing requirements. See 5 C.F.R. pt. 553 for details. Dual compensation waivers cannot be approved retroactively. However, according to OPM guidance, annuitants who agree to work under salary offset pending a dual compensation waiver may be recognized for their special service by the agency through an individual cash award. Ordinarily, employees who resign or retire upon acceptance of a voluntary separation incentive payment (VSIP) (or buyout) can be reemployed only if they agree to repay the amount of that payment. However, upon agency’s request, OPM may waive the repayment requirement if the individual’s reemployment is necessary to deal with the emergency situation. (See 5 C.F.R. § 576.203(a)(1).) Persons being considered for VSIP repayment waivers must be the only qualified applicants available for the positions and possess expertise and special qualifications to replace persons lost or otherwise unavailable. Waivers may be limited by the agency’s specific statutory VSIP authority. Under 5 C.F.R. pt. 300, subpart E, agencies have the discretion, without OPM approval, to contract with private sector temporary employment firms for services to meet their emergency staffing needs. These contracts may be for 120 days and may be extended for an additional 120 days, subject to displaced employee procedures. Agencies have the discretion, without OPM approval, to make competitive service appointments of 120 days or less without regard to CTAP, ICTAP, or RPL eligibles. These programs do not apply to such appointments. See 5 C.F.R., pt. 330, Subparts F and G for CTAP/ICTAP conditions and 5 C.F.R. § 330.207(d) for RPL conditions. Agencies have the discretion, without OPM approval, to appoint current and former employees from RPL to temporary, term, or permanent competitive service appointments. Conversely, agencies may make exceptions to the RPL provisions to appoint others under 5 C.F.R. 330.207(d). The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files. To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail alerts” under the “Order GAO Products” heading.	Federal agencies must have the capacity to serve the public during disruptions to normal operations. This depends, in part, on continuity efforts that help agencies marshal, manage, and maintain their most important asset--their people, or human capital. GAO identified the human capital considerations relevant to federal continuity efforts; described efforts by the Federal Emergency Management Agency (FEMA) and the Office of Personnel Management (OPM) to address these considerations relevant to continuity of operations (COOP); and described the role Federal Executive Boards (FEB) play in coordinating such efforts outside Washington, D.C. According to recognized experts from the private and public sectors, continuity efforts should give priority to the immediate aftermath of a crisis--securing the safety of all employees and addressing the needs of employees who perform essential operations. However, experts noted that additional human capital considerations, especially those associated with the majority of an organization's employees who would be needed to resume all other operations, are also crucial and have not been well developed by many public and private sector organizations. To more fully address human capital considerations, experts identified two human capital principles that should guide all continuity efforts--demonstrating sensitivity to individual employee needs and maximizing the contributions of all employees--and six key organizational actions designed to enhance continuity efforts. FEMA and OPM have exhibited leadership in addressing human capital considerations relevant to COOP, but opportunities to improve exist. For example, while both agencies have issued guidance that addresses securing the safety of all employees and responding to the needs of personnel performing essential operations, neither agency's guidance addresses human capital considerations related to resuming broader agency operations. Although not specifically tasked with coordinating emergency preparedness efforts, including COOP, FEBs are uniquely positioned to do so, given their general responsibility for improving coordination among federal activities in areas outside of Washington, D.C. While some FEBs already play an active role in coordinating such efforts, the current context in which FEBs operate, including the lack of a clearly defined role and varying capacities among FEBs, could lead to inconsistent levels of preparedness across the nation.	17.3	8k-16k	6,757
23	Article I, Section 1 of the Constitution vests all federal legislative power in Congress, while Article I, Section 7 sets forth the process for effectuating this power through passage of legislation by both houses and either presidential approval or veto override. The exercise of the judicial power of the United States often requires that courts construe statutes so enacted to apply them in concrete cases and controversies. Judicial interpretation of a statute is authoritative in the matter before the court, and may guide courts in future cases. Beyond this, the methodologies and approaches taken by the courts in interpreting meaning also can help guide legislative drafters, legislators, implementing agencies, and private parties. This report provides an overview of how the Supreme Court approaches statutory interpretation, with particular emphasis on rules and conventions that focus on the text itself. That is, to inform Congress on how the Court might go about analyzing the meaning of particular legislative language, this report emphasizes "textualist"-based means of interpretation. "Textualism" considers the "law" to be embodied in the language of the statute, construed according to its "plain meaning," which can be discerned through the aid, as necessary, of various judicially developed rules of interpretation. As put by Justice Oliver Wendell Holmes in an oft-quoted aphorism: "We do not inquire what the legislature meant; we ask only what the statute means." "Textualism," as captured in Justice Holmes' quote, eschews explanatory legislative materials, and inferences drawn from them and other extrinsic sources, in applying statutory language to particular circumstances. Despite its currency in recent decades, "textualism" is not the exclusive means of statutory analysis, and this report also briefly discusses "intentionalist"-based means of interpretation and the Court's approach toward relying on legislative history and other extrinsic considerations. This report is not intended as an examination of all schools of judicial decision making, or as an analysis of the merits or limits of the many methodologies used by courts in applying statutes in specific cases. In this regard, even though textualism may be the primary approach toward interpreting statutes, individual Supreme Court opinions often employ multiple types of statutory analysis to support their conclusions and critique majority/dissenting opinions with which they do not agree. Moreover, as general approaches for inferring meaning, neither textualism nor intentionalism is rigidly mechanistic or limited to the action of the enacting Congress, with "textualists," for example, sometimes looking to broader legal contexts and "intentionalists" at times venturing beyond the enacting Congress's particular intent to preserve a statute's purposes. When reading statutory text, the Supreme Court uses content-neutral canons developed by the judiciary that focus on word usage, grammar, syntax and the like. Sometimes, the Court also brings to bear various presumptions that reflect broader judicial concerns and can more directly favor particular substantive results. Other conventions assist the Court in determining whether to go beyond the corners of a statute and judicial-based rules of interpretation to also consider the congressional deliberations that led to a statute's passage. Although there is some overlap and inconsistency among these rules and conventions, and although the Court's pathway through the mix is often not clearly foreseeable, an understanding of interpretational possibilities may nonetheless aid Congress in choosing among various drafting options. To this end, the Court has expressed an interest "that Congress be able to legislate against a background of clear interpretive rules, so that it may know the effect of the language it adopts." Of course, Congress can always amend a statute to supersede the reading given it by the Court. In interpreting statutes, the Court recognizes that legislative power resides in Congress, and that Congress can legislate away interpretations with which it disagrees. Congress has revisited statutory issues fairly frequently to override or counter the Court's interpretations. Corrective amendment can be a lengthy and uncertain process, however. The starting point in construing a statute is the language of the statute itself. The Supreme Court often recites the "plain meaning rule," that, if the language of the statute is plain and unambiguous, it must be applied according to its terms. There is no single test to assay the clarity of statutory language. The interpretive process frequently begins with a narrow focus on the meaning of particular words and phrases. This view is commonly supplemented by perspectives provided from elsewhere within the statute. How has Congress used or distinguished the same terms in other places in the statute? How does the section containing the language at issue fit within the statute's structure? What do the structure and language of a statute reveal about the statute's overall purposes? The primacy of text in statutory analysis would appear to marginalize whatever insight legislative history or other extrinsic aids might provide. The strictures of a text-based "plain meaning rule" were once thought honored more in the breach than in the observance. However, this perception has changed: More often than before, statutory text is thought to be the ending point as well as the starting point for interpretation. Under text-based analysis, the cardinal rule of construction is that the whole statute should be drawn upon as necessary, with its various parts being interpreted within their broader statutory context in a manner that furthers statutory purposes. Justice Scalia, who was in the vanguard of efforts to redirect statutory construction toward statutory text and away from legislative history, has characterized this general approach. "Statutory construction ... is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme—because the same terminology is used elsewhere in a context that makes its meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law." In 1850 Chief Justice Taney described the same process: "In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy." Thus, the meaning of a specific statutory directive may be shaped, for example, by that statute's definitions of terms, by the statute's statement of findings and purposes, by the directive's relationship to other specific directives, by purposes inferred from those directives or from the statute as a whole, and by the statute's overall structure. Beyond this, courts also may look to the broader body of law into which the enactment fits. Nevertheless, realities of the legislative process, including bundled deal making and consolidation of multiple proposals into omnibus bills, may militate against unstinting application of "whole act" or "whole code" methodologies. The Supreme Court often cites general rules, or canons, of construction in resolving statutory meaning. The Court, moreover, presumes "that Congress legislates with knowledge of our basic rules of statutory construction." It is well to keep in mind, however, that the overriding objective of statutory construction has been to effectuate statutory purpose as expressed in a law's text. As Justice Jackson put it 68 years ago, "[h]owever well these rules may serve at times to decipher legislative intent, they long have been subordinated to the doctrine that courts will construe the details of an act in conformity with its dominating general purpose, will read text in the light of context and will interpret the text so far as the meaning of the words fairly permits so as to carry out in particular cases the generally expressed legislative policy." The "language" canons of construction are neutral, analytical guides for discerning the meaning of particular text that might otherwise appear unclear. That is to say, these canons are based on general linguistic principles, many of them of the common-sense variety, for drawing inferences about the meaning of language. The meaning of a word or phrase can be shaped by its ordinary or specialized meaning, its context in the statute, the usage of similar terms in the statute, the statute's structure, and other factors. The language canons are "axioms of experience," but none "preclude[s] consideration of persuasive [contrary] evidence if it exists." Each canon provides its own perspective, and different takes from different views can give different insights into the meaning of what is being observed. Considering and weighing the value of various views would appear to be a sound process for ensuring well-reasoned interpretations. However, the language canons are intrinsic aids only, not "rules of law." Discerning what Congress probably meant by particular language for the purpose of applying it to a particular set of facts can be a difficult judicial exercise that is not amenable to formulaic resolution. The sheer number and variety of canons have been cited to emphasize their limited utility as a stand-alone method of statutory construction. Still influential, for example, is a 1950 article by Professor Karl Llewellyn that lists many canons (both language canons and substantive canons) juxtaposed to equally "correct" but opposing canons. Professor Llewellyn's main point was to argue that judges should take current circumstances into account in applying a statute in a case—he was critical of the impression that "formalism" gave of there being "only one single correct answer possible" in reading text. Nevertheless, many have broadened his message into a charge that canons are mere pretext because judges may pick and choose among them to achieve whatever result they desire. However, accepting that there may be more than one "correct" answer in resolving the meaning of a statutory provision—a premise that seems unremarkable in many cases at the Supreme Court level —does not necessarily mean that a Court majority begins with a preferred policy outcome and then marshals only those canons that support it. Given an array of established templates to guide interpretation, one may be a particularly apt fit in a given case, and the case's outcome will in large measure be driven by the rationale of the canon applied. This might particularly be so when a substantive canon of interpretation (e.g., avoidance of constitutional issues) is in play. (These canons are discussed below.) In any event, one possible suggestion of the indeterminacy of canons is that statutory construction should be a narrow pursuit, not a broader one: [C]anons of construction are no more than rules of thumb that help courts determine the meaning of legislation, and in interpreting a statute a court should always turn first to one, cardinal canon before all others.... [C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: "judicial inquiry is complete." Determining how a statute is to be applied often comes down to considering what a particular word or phrase means as used in the statute . In this exercise, a threshold inquiry is whether language is being used in the "ordinary," "general dictionary" sense or in a narrower, specialized sense or as a term of art. Also, the appropriate reference is what a term meant to Members when Congress passed the statute, not its meaning at the time the statute is being adjudicated. If the word or phrase is defined in the statute (federal statutes frequently collect definitions in a "definitions" section), or elsewhere in the United States Code , then that definition governs if applicable in the context used. Even if the word or phrase is not defined by statute, it may have an accepted meaning in the area of law addressed by the statute, it may have been borrowed from another statute under which it had an accepted meaning, or it may have had an accepted and specialized meaning at common law. In each of these situations the accepted meaning governs and the word or phrase is considered a technical term or "term of art." Justice Jackson explained why this reliance is appropriate: [W]here Congress borrows terms of art in which are accumulated the legal tradition and meaning of centuries of practice, it presumably knows and adopts the cluster of ideas that were attached to each borrowed word in the body of learning from which it was taken and the meaning its use will convey to the judicial mind unless otherwise instructed. In such a case, absence of contrary direction may be taken as satisfaction with widely accepted definitions, not as departure from them. Words that are not terms of art and that are not statutorily defined are customarily given their ordinary meanings, frequently derived from the dictionary. Thus, the Court has relied on regular dictionary definitions to interpret the word "marketing" as used in the Plant Variety Protection Act, and the word "principal" as used to modify a taxpayer's place of business for purposes of an income tax deduction, and relied on Black's Law Dictionary for the meaning of the word "cognizable" as used in the Federal Tort Claims Act to identify certain causes of action. At times, the ordinary meaning of a term in an everyday dictionary has prevailed over an interpretation given to a term in circuit court precedents. Of course application of dictionary definitions is not always a clear course; many words have several meanings, and context must guide choice among them, where possible. However, "[a]mbiguity is a creature not of definitional possibilities but of statutory context." Consider two cases in which context did not clearly point to whether a term was to be given its broadest dictionary meaning or was to be construed narrowly according to "common understanding." In one case, the Supreme Court concluded that "use of a firearm" in the commission of a drug offense or crime of violence included trading a gun for drugs; that is, "use of a firearm" was not confined to its use as a weapon. This conclusion may be compared to a finding that purchasing drugs over a cell phone did not constitute the felony of "facilitating" drug trafficking through a communication device: "[S]tatutes are not read as a collection of isolated phrases ... 'A word in a statute may or may not extend to the outer limits of its definitional possibilities.' We think the word here does not." In close cases such as these, the Court may go beyond the words of a statute for guidance and look to the statute's broader purpose or its fit with other laws. As Judge Learned Hand observed, "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning." Ordinarily, as in everyday English, use of the conjunctive "and" in a list means that all of the listed requirements must be satisfied, while use of the disjunctive "or" means that only one of the listed requirements need be satisfied. Courts do not apply these meanings "inexorably," however; if a "strict grammatical construction" will frustrate evident legislative intent, a court may read "and" as "or," or "or" as "and." Moreover, statutory context can render the distinction secondary. As in common usage, a drafter's choice between the definite and indefinite article can affect meaning. "The definite article 'the' particularizes the subject which it precedes. It is a word of limitation as opposed to the indefinite or generalizing force of 'a' or 'an.'" Use of "shall" and "may" in statutes also mirrors common usage; ordinarily "shall" is mandatory and "may" is permissive. These words must be read in their broader statutory context, however, the issue often being whether the statutory directive itself is mandatory or permissive. Use of both words in the same provision can underscore their different meanings, and often the context will confirm that the ordinary meaning of one or the other was intended. Occasionally, however, context will trump ordinary meaning. An elementary rule of statutory construction is that the singular includes the plural, and vice-versa. Thus, a statutory directive that the Secretary of Transportation require automakers to install a warning system in new cars to alert drivers "when a tire is significantly under-inflated" is only satisfied by a system capable of a separate warning for each tire, so that a driver knows when two tires on the same side, or all four tires, are significantly under-inflated. Ordinarily, specific terms in a statute prevail over general terms. "However inclusive may be the general language of a statute, it will not be held to apply to a matter specifically dealt with in another part of the same enactment." In one case citing this canon, the Court examined whether time granted to a defendant to prepare pretrial motions extended the Speedy Trial Act's deadline for the government to begin a trial. The act directed that the clock stop for "[a]ny period of delay resulting from other proceedings concerning the defendant, including but not limited to ... (D) delay resulting from any pretrial motion, from the filing of the motion through conclusion...." The Court held that this directive could not include time expended preparing motions: despite "delays from other proceedings" not being limited to those contained in a list of illustrative subparagraphs, the specific language in subparagraph (D) on delays due to pretrial motions, beginning with their being filed , left no room for delays related to preparing motions prior to their being filed. As with other canons, context is critical. Another interpretational guide used from time to time is the principle noscitur a sociis , that "words grouped in a list should be given related meaning." Thus, a tax provision that advantaged "income resulting from exploration, discovery, or prospecting" was held not to apply to income derived from patented cameras and pharmaceuticals that the taxpayers had "discovered." "Discovery," as used in conjunction with "exploration" and "prospecting," limited the scope of "discovery" to activities associated with oil and mineral extraction. Similarly, the Court inferred that "defalcation" in a bankruptcy code provision required an element of intentional wrongdoing based on its placement in the phrase "fraud [,] defalcation ..., embezzlement or larceny." Because "fraud," "embezzlement," and "larceny" require intentional wrongdoing, "defalcation" presumably is similarly intended. On the other hand, the term "administrative" in the phrase "a congressional, administrative, or Government Accounting Office [sic] report, hearing, audit or investigation" was held to extend beyond federal administrative entities to include the work of state bodies as well. Similarly, the term "report" in the same phrase was broadly construed to cover raw copies of contractor documents obtained through the Freedom of Information Act: the placement of "report" within a list including "hearings, audits, and investigations" did not, as the Second Circuit had concluded, limit "reports" to materials that also analyzed, synthesized, or explained the information presented. As with other language canons, noscitur a sociis can be a factor in interpretation, but "is by no means a hard and fast rule...." A corollary, ejusdem generis , instructs that, "where general words follow an enumeration of specific items, the general words are read as applying only to other items akin to those specifically enumerated." Thus, an exemption from arbitration for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in ... commerce" did not apply to the case of a salesperson at a consumer electronics store: only contracts for the employment of individuals who transported goods and materials were to be exempted. At times, however, discerning commonalities among particulars to guide interpretation of the general is not so straightforward. The old rule, borrowed from English law, was that "[p]unctuation is no part of the statute," and that "[c]ourts will ... disregard the punctuation, or repunctuate, if need be, to render the true meaning of the statute." Nevertheless, the modern Court now recognizes that punctuation may clarify meaning, even though it remains reluctant to place primary importance on it. "A statute's plain meaning must be enforced ..., and the meaning of a statute will typically heed the commands of its punctuation." So said the Court—not, however, in applying a plain meaning consistent with punctuation, but instead while justifying a departure from that meaning. "Overwhelming evidence from the structure, language, and subject matter" of the law led the Court to conclude that in this unusual case the punctuation at issue resulted from "a simple scrivener's error." The Court assumes that a legislative drafter writes precisely and in accordance with the rules of grammar. Verb tense and the like count. But, as with other interpretive challenges, more than one grammatical principle potentially might apply, and these principles might point to different interpretations. The interpreter is left with a choice of which principle applies most aptly. As an example, first consider the "rule of the last antecedent." That rule holds that a limiting clause or phrase should ordinarily be read as modifying only the noun or phrase that it immediately follows. One application of this rule looked at language that denies SSI disability to an individual who is able to "do his previous work ... or engage in any other kind of substantial gainful work which exists in the national economy." The claimant's job as an elevator operator had been eliminated, and her subsequent SSI application rested in part on the assertion that elevator operator work no longer existed in significant numbers in the national economy. A unanimous Court upheld the government's position that the claimant was ineligible for SSI if she was physically capable of doing elevator operator work at all: the phrase "which exists in the national economy" applied only to "other kind of substantial gainful work." Distinct from the rule of the last antecedent is a principle enunciated in Port Rico Railway, Light & Power Co. v. Mor : "When several words are followed by a clause which is applicable as much to the first and other words as the last, the natural construction of the language demands that the clause be read as applicable to all." A provision of the federal criminal code mandates restitution for the full amount of the victim's losses, which are defined to include five specific types of loss ( e.g. , medical costs, lost income) and "any other losses suffered by the victim as a proximate result of the offense." The Court held that the phrase "as a proximate result of the offense" modified each of the five separately listed types of losses. Though refusal always to be bound by the rules of grammar and punctuation gives the Court flexibility in construing statutes, this is not to say that grammatical rules should be disregarded in statutory drafting. These rules remain strong guides. There are many cases decided on the basis of what constitutes the most "natural reading" of a statute according to common rules of grammar, without extended reference to particular canons or other interpretational aids. A basic principle of statutory interpretation is that courts should "give effect, if possible, to every clause and word of a statute, avoiding, if it may be, any construction which implies that the legislature was ignorant of the meaning of the language it employed." The modern variant is that statutes should be construed "so as to avoid rendering superfluous" any statutory language: "A statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant...." A related principle applies to statutory amendments: there is a "general presumption" that, "when Congress alters the words of a statute, it must intend to change the statute's meaning." Resistance to treating statutory words as mere surplusage "should be heightened when the words describe an element of a criminal offense." There can be differences of opinion, of course, as to when it is "possible" to give effect to all statutory language – that is, to search for distinctions between similar terms or apparently redundant language without distorting the significance of those distinctions -- and when the general rule should give way to a more "common sense" interpretation. The presumption against surplusage also can guide interpretation of "redundancies across statutes," but the canon "is strongest when an interpretation would render superfluous another part of the same statutory scheme." Two overlapping statutes may be given effect so long as there is no "positive repugnance" between them. A converse of the rule that courts should not read statutory language as surplusage is that, as discussed below, courts should not add language that Congress has not included. "A term appearing in several places in a statutory text is generally read the same way each time it appears." This presumption is "at its most vigorous when a term is repeated within a given sentence." It also has been applied to the appearance of a term in inter-related programs. Additionally, the Court in at least one instance referred to a broader "established canon" that similar language contained within the same section of a statute be accorded a consistent meaning. The general presumption is not rigid, however, and "readily yields when there is such variation in the connection in which the words are used as reasonably to warrant the conclusion that they were employed in different parts of the act with different intent." Context and statutory history can override the presumption. The other side of the coin is that "where Congress includes particular language in one section of a statute but omits it in another ..., it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." The Court cited this maxim when Congress had restricted direct access by Guantanamo detainees to the courts but did not expressly restrict access in pending cases through petitions for writs of habeas corpus: "A familiar principle of statutory construction ... is that a negative inference may be drawn from the exclusion of language from one statutory provision that is included in other provisions of the same statute." In an earlier case on the availability of habeas review by a convicted murderer, the Court referred to the history of the provision that treated habeas relief and other access to the courts differently: "[N]egative implications raised by disparate provisions are strongest when the portions of a statute treated differently had already been joined together and were being considered simultaneously when the language raising the implication was inserted." This maxim has been applied by the Court—or at least cited as a justification—in distinguishing among different categories of veterans benefits and among different categories of drug offenses. A court can only go so far with the maxim, of course; establishing that language does not mean one thing does not necessarily establish what the language does mean. Occasionally the Court contrasts a party's interpretation of certain language with language that expresses the same concept more clearly and directly. There are some instances—for example, a failure to employ particular terms of art—in which this argument can be fairly persuasive. For example, the Court reasoned that, although "Congress knew how to impose aiding and abetting liability when it chose to do so," it did not use the words "aid" and "abet" in the statute at issue, and hence did not impose aiding and abetting liability. To say that Congress did not use the most precise language, however, does not necessarily aid the court in determining what the less precise language means in its statutory context. Some statutes may not be well drafted, but others represent conscious choices, born of political compromise, that may or may not signal that a different result is intended or that Congress is leaving final interpretation to agencies, courts, or future legislatures. It may be inappropriate question begging to assume, therefore, that "[i]f Congress had intended such an irrational result, surely it would have expressed it in straightforward English." Nothing compels Congress to act comprehensively when it legislates on a subject. It is not safe to assume that Congress intends to address all ancillary issues directly whenever it acts. As one court has aptly put it, "[n]ot every silence is pregnant." In some cases, Congress intends silence to rule out a particular statutory application, while in others Congress' silence signifies merely an expectation that nothing more need be said in order to effectuate the relevant legislative objective. In still other instances, silence may reflect the fact that Congress has not considered an issue at all. An inference drawn from congressional silence certainly cannot be credited when it is contrary to all other textual and contextual evidence of congressional intent. Occasionally, the Court does regard silence as a significant indicator of meaning, especially when Congress has consistently used particular language in similar laws. Nevertheless, the Court generally assumes Congress will speak to major issues directly: "Congress ... does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not ... hide elephants in mouseholes." Thus, when the Court held that the FDA's authority did not include authority to regulate tobacco products as drugs, it stated: "Congress could not have intended to delegate a decision of such economic and political significance to an agency in so cryptic a fashion." A variation on the statutory silence theme is the negative inference: expressio unius est exclusio alterius (the inclusion of one is the exclusion of others). Thus, where Congress subjected specific categories of ticket sales to taxation but failed to cover another category, either by specific or by general language, the Court refused to extend the coverage. To do so, given the "particularization and detail" with which Congress had set out the categories, would amount to "enlargement" of the statute rather than "construction" of it. Relatedly, "[w]here Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of a contrary legislative intent." The Court applied the principle, albeit without express recognition, in holding that a statute requiring payment of an attendance fee to "a witness" applies to an incarcerated state prisoner who testifies at a federal trial. Because Congress had expressly excepted another category (detained aliens) from eligibility for these fees, and had expressly excepted any "incarcerated" witness from eligibility for a different category of fees, "the conclusion is virtually inescapable ... that the general language 'witness in attendance' ... includes prisoners ...." But here again, context may render the principle inapplicable. A statutory listing may be "exemplary, not exclusive," the Court once concluded. In one case, a provision of the Fair Debt Collection Act (FDCA) authorized the award of attorney's fees and costs to defendants who were sued in bad faith for the purpose of harassment. Did this provision negatively imply that costs could not be awarded to prevailing defendants in cases not involving bad faith and harassment? A majority of the Court found that costs could indeed be awarded in these cases. According to the Court, the expressio unius cannon only applies when it is fair to assume that Congress considered broader coverage but rejected it. Here, the general rules on awarding costs, the prevalence of redundancies in costs provisions, and certain aspects of the statutory structure all indicated that the FDCA was not meant to categorically bar the award of costs to any class of defendants prevailing in FDCA actions. "The venerable maxim de minimis non curat lex ('the law cares not for trifles') is part of the established background of legal principles against which all enactments are adopted, and which all enactments (absent contrary indication) are deemed to accept.... Whether a particular activity is a de minimis deviation from a prescribed standard must ... be determined with reference to the purpose of the standard." In some circumstances, the Court subordinates the general, linguistic canons of statutory construction, as well as other interpretive principles, to overarching presumptions that, unless rebutted, favor particular substantive results. Some of the "weighty and constant values" protected by these "substantive" canons of construction are derived from the Constitution, others from notions of federalism, and yet others from interests in judicial administration and ordered governance. Application of a substantive canon often, but not always, results in some form of "clear statement" rule, requiring that Congress, if it wishes to achieve a particular result inconsistent with the Court's view of legal traditions, must state such an intent with unmistakable clarity. Congress is presumed to legislate with knowledge of existing common law. When it adopts a statute, related judge-made law (common law) is presumed to remain in force and work in conjunction with the new statute absent a clear indication otherwise. Thus, when Congress established civil actions for harms "by reason of" violations of antitrust laws and the Racketeer Influenced and Corrupt Organizations Act (RICO), the courts incorporated common law principles of "proximate cause" to determine liability. Establishing that a harm would not have occurred "but for" the violation is insufficient; as is the case under common law actions, a more direct and immediate connection between violation and harm must be shown. Similarly, when Congress adopted the common law on abandonment of property as part of the Bankruptcy Code, it was deemed to have adopted all the judge-made corollaries and exceptions that attended the abandonment law: "The normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific." In another bankruptcy case the Court declared that "[w]e will not read the Bankruptcy Code to erode past ... practice absent a clear indication that Congress intended such a departure." Further, the Court held that Congress, in adopting language stating that a patent is presumed valid, concomitantly adopted the common law rule that the presumed validity of a patent may be overcome only by clear and convincing evidence. Questions about whether common-law rights and causes of action continue come up in a variety of contexts. In some instances, the presumption of continuation has been overcome by general reference to a statute's purpose, even absent a "clear statement." In other instances, the Justices have disagreed on whether particular language sufficiently evidences an intent to overcome the presumption: Does language in the Federal Employers' Liability Act making railroads liable for employee injuries "resulting in whole or in part from [carrier] negligence" supersede (and relax) common law rules limiting liability to injuries arising from a "proximate cause"? In one case, five Justices held that it does, while four Justices held that it does not. Under the Supremacy Clause of the Constitution (Article VI, cl. 2), federal law supersedes inconsistent state law. Whether a particular statute does so is a matter of congressional intent. One substantive canon proceeds from "the assumption that the historic police powers of the States were not to be superseded by [a federal law] unless that was the clear and manifest purpose of Congress." Also, solicitude toward state police powers can lead the Court to look for a clear indication of intent from Congress when a statute implicates traditional state authorities, even if there is no conflict with state law. Many federal regulatory statutes contain an express statement preempting state law or disclaiming intent to do so. Nevertheless, both preemption and savings statements have presented the Court difficult interpretive questions of precisely what has been foreclosed or preserved. When a statute is silent on preemption, the Court has asked three questions in determining whether state law has been preempted implicitly: Is there a direct conflict between federal and state law—can they be implemented simultaneously? Would implementation of state law "frustrate congressional purpose"? Has federal law "occupied the field" of regulation? Answering these questions has very much been a case-by-case exercise. In deference to the states, the Court will not lightly infer that Congress has enacted legislation that restricts how states may constitute their own governments. In ruling that state judges are not "employees" for purposes of the Age Discrimination in Employment Act, the Court cited the lack of a plain statement to limit state authority to determine the qualifications of important government officials—an authority protected by the Tenth Amendment and by the Guarantee Clause. "This plain statement rule is nothing more than an acknowledgment that the States retain substantial sovereign powers under our constitutional scheme, powers with which Congress does not readily interfere." Also protective of state sovereignty is the rule that, in order to abrogate the states' Eleventh Amendment immunity from suit, "Congress must make its intention 'unmistakably clear in the language of the statute.'" Even then, Congress has limited authority to abrogate states' Eleventh Amendment immunity. The Court held in Seminole Tribe of Florida v. Florida , that Congress's general legislative powers under Article I may not be used to "circumvent the constitutional limitations placed upon federal jurisdiction [by the Eleventh Amendment]." This leaves Section 5 of the Fourteenth Amendment (specific power to enforce the provisions of the Amendment) as the principal source of power to abrogate state immunity. Despite these restrictions, Congress has been found to have authorized suits against states in appropriate circumstances. Congress, if it chooses, can incorporate state law into federal law. Federal law usually applies uniformly nationwide, however, and there is a presumption that, "when Congress enacts a statute ... it does not intend to make its application dependent on state law." "[T]he Government's consent to be sued 'must be construed strictly in favor of the sovereign.'" A waiver of sovereign immunity must be effected by unequivocal expression in statutory text; legislative history "has no bearing" on the issue. As a consequence, "statutes which in general terms divest pre-existing rights or privileges will not be applied to the sovereign without express words to that effect." Separate from whether Congress has clearly and unequivocally waived immunity is the availability of money damages when immunity has been waived. When the amenability of the federal government to damages is at issue, the Court at times has read a statute under a "fair interpretation" standard that is "demonstrably" less exacting than the "clear and unequivocal" test to determine whether immunity has been waived in the first place. At other times, the Court has been more demanding, saying, for example, when waiver of state immunity under the Eleventh Amendment is at stake, liability for monetary damages must be stated unambiguously. Though most commonly the issue in immunity cases is whether a sovereign's right to immunity has been waived, the issue in some cases is whether a sovereign state has extended immunity to substate or private entities. The question arises under, among other areas, anti-trust law when a political subdivision or private entity claims that the state has cloaked it with state anti-trust immunity to engage in certain anti-competitive practices. To successfully claim immunity in this circumstance, it must be established that the extension of immunity was a foreseeable result of clearly articulated, affirmatively expressed statutory language. "[A]bsent a clear direction by Congress to the contrary, a law takes effect on the date of its enactment." There is a general rule, based on the unfairness of attaching new legal consequences to past events, disfavoring retroactive application of civil statutes. Statutory provisions do not apply to events antedating enactment unless there is clear congressional intent that they so apply. "Requiring clear intent assures that Congress itself has affirmatively considered the potential unfairness of retroactive application and determined that it is an acceptable price to pay for the countervailing benefits." The prohibition on ex post facto laws, of course, imposes a constitutional bar to retroactive application of penal laws. The doctrine of "constitutional doubt" requires courts to construe statutes, "if fairly possible, so as to avoid not only the conclusion that it is unconstitutional but also grave doubts upon that score." "[W]here an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress .... 'The elementary rule is that every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.' This approach not only reflects the prudential concern that constitutional issues not be needlessly confronted, but also recognizes that Congress, like this Court, is bound by and swears an oath to uphold the Constitution." As with other issues, of course, it is the view of the majority that prevails: "Grave doubt" as to constitutionality does not arise simply because a Court minority—even a minority of four Justices—believes a statute may be constitutionally suspect. "It is a longstanding principle of American law 'that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.' This 'canon of construction' ... serves to protect against unintended clashes between our laws and those of other nations which could result in international discord." A 2010 securities fraud case reasserted the preclusive extent of the presumption against extraterritorial application. Circuit court jurisprudence had been moving toward a fact-specific reasonableness test for allowing fraud-based actions related to securities transactions abroad. The Court eschewed this approach, however. Rather, it held that no fraud-related cause of action was available under U.S. securities law for foreign transactions in foreign securities because Congress had not affirmatively indicated it intended to cover those transactions. Absent a clear indication that extraterritorial effects ( e.g. , declines in share prices on a foreign exchange) were to be remediable, it did not matter, for example, that it was fraudulent conduct in the U.S. by a U.S. subsidiary that led to the parent company's inflated stock price on a foreign exchange. A majority of the Court also interposed the presumption against extraterritoriality as an obstacle to finding jurisdiction under the Alien Tort Statute over a foreign tort against a foreign national. That statute provides that "[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." According to the majority, nothing in this language, nor its historical context, overcomes the underlying presumption against recognizing a cause of action against a foreign national occurring abroad. By comparison, four concurring Justices approached the jurisdictional issue from more neutral ground. Rather than initially proceeding from a position presuming an absence of jurisdiction, they would assess the ties each case has to the U.S., taking into consideration whether the alleged tort occurred in the U.S., was committed by an American, or substantially and adversely affected important American interests. There is a strong presumption that Congress intends judicial review of administrative action: "[A] survey of our cases shows that judicial review of a final agency action by an aggrieved person will not be cut off unless there is persuasive reason to believe that such was the purpose of Congress." The Court requires that a statute contain "clear and convincing evidence" of an intent to preclude judicial review of decisions made under it. Also, the Court tends to construe preclusions narrowly. Thus, even where a statute has barred judicial review of the merits of individual cases, the Court nevertheless has found that the regulations and practices for determining cases may be reviewed. While the presumption of reviewability predated the enactment of the Administrative Procedure Act in 1946, the APA embodied the presumption in statute. Under the APA, final agency actions for which there is no other adequate remedy in a court are subject to judicial review, "except to the extent that ... statutes preclude judicial review; or ... agency action is committed to agency discretion by law." As to the first exception, the presumption of reviewability may be overcome by specific statutory language, but it also "may be overcome by inferences of intent drawn from the statutory scheme as a whole." The second exception applies "in those rare instances where 'statutes are drawn in such broad terms that in a given case there is no law to apply.'" An aspect of the second exception is that "review is not to be had if the statute is drawn so that a court would have no meaningful standard against which to judge the agency's exercise of discretion." Thus, the Court in Webster v. Doe looked at the structure of the National Security Act and language allowing the Director of Central Intelligence to terminate an employee as the Director deemed necessary or advisable, and concluded that a court could not, as a general matter, review the necessity or advisability of terminating an employee based on sexual orientation. But, as in many other judicial review cases, the Webster Court was very precise as to what review a statute foreclosed. Though the Court found decisions on whether a dismissal was necessary or advisable resided with the Director alone, this discretion did not go so far as to preclude court consideration of colorable constitutional claims arising from the actions of the Director. In the Court's view, a clearer statement from Congress is necessary before courts should refrain from reviewing constitutional claims of administrative error. Interpreting statutes is not solely a matter for the courts. Executive agencies charged with implementing regulatory statutes adopt policies and processes to put statutes into action. Agency decisions might set operational rules of general application or might arise during agency adjudications; they might be the result of more or less formal processes; they might purport to be more or less binding. But they all involve interpreting the law to some degree, and courts considering challenges to agency decision making face the issue of how much to defer to an agency reading of the law or to proceed to interpret the law on their own. Under current precedent, when a court reviews an agency's formal interpretation of a statute that the agency administers, and when the statute has not removed agency discretion by compelling a particular disposition of the matter at issue, courts defer to any reasonable agency interpretation. This is the Chevron rule announced in 1984. In two decisions, one in 2000 and one in 2001, the Court clarified and narrowed Chevron's application, ruling that Chevron deference applies only if an agency's interpretation is the product of a formal agency process, such as adjudication or notice and comment rulemaking, through which Congress has authorized the agency "to speak with the force of law." Other agency interpretations that are made without a formal and public process often are reviewed under pre- Chevron principles set forth in Skidmore v. Swift & Co . Additional variations of deference analysis also may come into play in individual cases, depending on subject matter and other factors. As in other matters of interpretation, it is congressional intent that counts. Under Chevron , the first question is "whether Congress has directly spoken to the precise question at issue." If the court, "employing the traditional tools of statutory construction," determines that Congress has addressed the precise issue, then that is the end of the matter, because the "law must be given effect." However, if the statute does not directly address the issue, "the court does not simply impose its own construction of the statute," but rather determines "whether the agency's answer is based on a permissible construction of the statute." On its face, the Chevron rule is quite deferential, and was perceived as a significant break from the multi-factored approach that preceded it. One would expect that a court's conclusion as to whether Congress has "directly spoken" to the issue would be decisive in most cases, that most of the myriad of issues that can arise in the administrative setting would not be directly addressed by statute, and that, consequently, courts would most often defer to what are found to be "reasonable" agency interpretations. However, Chevron did not usher in a sea change of increased deference by the Supreme Court. The Court has frequently determined that in fact Congress has settled the matter, and that consequently there is no need to proceed to the second, more deferential step of the inquiry. The Court has also found that, even though Congress has left the matter for agency resolution, the agency's interpretation is unreasonable. In determining whether Congress has "directly spoken," there is much territory between an express delegation to an agency to address a particular issue and express legislative language resolving the issue statutorily. Imprecision on an issue may reflect an oversight by Congress, a failure to anticipate what might arise, a political compromise, an implicit assumption that the gap would be filled in by the agency with technical expertise, or other considerations. With this in mind, the Court has recognized circumstances in which it is less likely that Congress intended to leave resolution of statutory uncertainty to the administering agency, especially when it appears that the agency may be citing vague terms to justify jurisdiction over controversial matters with major policy implications traditionally resolved by Congress or another agency. Thus, in holding that the Food and Drug Administration lacked authority to regulate tobacco products as "drugs" and "devices" under the Federal Food, Drug, and Cosmetic Act, the Court concluded that "Congress could not have intended to delegate a decision of such economic and political significance to an agency in so cryptic a fashion." The Court ruled that Congress had "directly spoken" to the regulatory issue—not through the FDCA itself, but rather through subsequently enacted tobacco-specific legislation and through rejection of legislative proposals to confer jurisdiction on the FDA. In another case, the Court found deference to be inappropriate where the agency interpretation "invokes the outer limits of Congress' power," and there is no "clear indication" that Congress intended that result. A logical consequence of applying Chevron is to render irrelevant whether an agency interpretation was "contemporaneous" with a statute's enactment, or whether an agency's position has been consistent over the years. "Neither antiquity nor contemporaneity with the statute is a condition of validity." The fact that an agency has changed its position over the years "is not fatal," because "the whole point of Chevron is to leave the discretion provided by the ambiguities of a statute with the implementing agency." Agency interpretations that take place in the many less formal contexts where Chevron deference is inapplicable (e.g., opinion letters, policy statements, agency manuals, and enforcement guidelines, "all of which lack the force of law" ) can still be "entitled to respect," "but only to the extent that [they] have the power to persuade." As the Court put it in Skidmore v. Swift & Co. , agency interpretations "constitute a body of experience and informed judgment to which courts and litigants may properly resort.... The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." These factors may include whether an interpretation applied technical expertise on a complex matter within agency jurisdiction, whether an agency's decision was well-reasoned, and whether the agency's interpretation was longstanding or consistent. It should be emphasized that, far from being superseded by Chevron , the Court continues to consider agency interpretations under Skidmore -like analyses with some frequency. If Congress intends one statute to repeal an earlier statute or section of a statute in toto , it usually says so directly in the repealing act. There are other occasions when Congress intends one statute to supersede an earlier statute to the extent of conflict, but intends the earlier statute to remain in effect for other purposes. This too is often spelled out, usually in a section captioned "effect on existing law," "construction with other laws," or the like: "[It] can be strongly presumed that Congress will specifically address language on the statute books that it wishes to change." Not infrequently, however, conflicts arise between the operation of two federal statutes that are silent as to their relationship. In such a case, courts will try to harmonize the two so that both can be given effect. A court "must read [two allegedly conflicting] statutes to give effect to each if [it] can do so while preserving their sense and purpose." Only if provisions of two different federal statutes are "irreconcilably conflicting," or "if the later act covers the whole subject of the earlier one and is clearly intended as a substitute," will courts apply the rule that the later of the two prevails. "[R]epeals by implication are not favored, ... and will not be found unless an intent to repeal is clear and manifest." And, in fact, the Court rarely finds repeal by implication. As Judge Richard Posner has pointed out, this canon is "a mixed bag. It protects some old statutes from ... inadvertent destruction, but it threatens to impale new statutes on the concealed stakes planted by old ones." The presumption against implied repeals "is all the stronger" if both laws were passed by the same session of Congress. In the case of an irreconcilable conflict between two laws of the same session, the later enactment will be deemed to have repealed the earlier one to the extent of the conflict. Because the focus here is on legislative intent (or presumed legislative intent), time of legislative consideration, rather than effective dates of the statutes, is the key to determining which enactment was the "later" one. The doctrine disfavoring repeals by implication also "applies with even greater force when the claimed repeal rests solely on an Appropriations Act," since it is presumed that appropriations laws do not normally change substantive law. Nevertheless, Congress can repeal substantive law through appropriations measures if intent to do so is clearly expressed. The "rule of lenity" requires that "before a man can be punished as a criminal ... his case must be plainly and unmistakably within the provisions of some statute." Lenity principles "demand resolution of ambiguities in criminal statutes in favor of the defendant." The reasons for the rule are that "'fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed'" and that "'legislatures and not courts should define criminal activity.'" Consequently, the rule "places the weight of inertia upon the party that can best induce Congress to speak more clearly and keeps courts from making criminal law in Congress's stead." If statutory language is unambiguous, the rule of lenity is inapplicable. Intent is generally a required element of a criminal offense, and consequently there is a presumption in favor of a scienter or mens rea requirement in a criminal statute. The presumption applies "to each of the statutory elements which criminalize otherwise innocent conduct." The Court may read an express scienter requirement more broadly than syntax would require or normally permit, and may read into a criminal prohibition a scienter requirement that is not expressed. The Court recognizes some "strict liability" exceptions, especially for "public welfare" statutes regulating conduct that is inherently harmful or injurious and therefore unlikely to be perceived as lawful and innocent. Determining whether such an exception applies can be difficult. However, if the statute does not preclude a holding that scienter is required, and if the public welfare exception is deemed inapplicable, "far more than the simple omission of the appropriate phrase from the statutory definition is necessary to justify dispensing with an intent requirement." On the other hand, while "it is fair to begin with a general presumption that the specified mens rea applies to all elements of an offense, ... it must be recognized that there are instances in which context may well rebut that presumption." One can search in vain for recent Supreme Court reliance on the canon that "remedial statutes" should be "liberally" or "broadly" construed. This is probably due to a variety of factors, including recognition that the principle is difficult to apply and almost hopelessly general. This is because many statutes are arguably "remedial," and consequently courts have wide discretion in determining scope of application. There may also be uncertainty over what "liberal" or "broad" construction means. Nevertheless, if the principle is reformulated as merely requiring that ambiguities in a remedial statute be resolved in favor of persons for whose benefit the statute was enacted, the principle should be no more difficult to apply (once a "remedial" statute has been identified) than the rule of lenity, which counsels resolution of ambiguities in penal statutes in favor of defendants. The scarcity of this principle in the current Court's lexicon, therefore, may reflect substantive preferences of the Justices as well as recognition of its limitations. Then too, the Court may employ more specific or limited presumptions in circumstances in which earlier Courts might have cited the liberal-remedial maxim, or may instead prefer in such circumstances to analyze a statute without reliance on canonical supports. Categorizing a statute as "remedial," or even as a "civil rights statute," is often employed as a springboard to more refined analysis of the purposes of the particular statute at issue. Another subcategory of the "remedial" statutes canon is the proposition that "statutes passed for the benefit of dependent Indian tribes ... are to be liberally construed to favor Indians." Most cases resolving issues on tribal matters potentially raise this proposition, but frequently there are also statute-specific considerations that amplify or outweigh any such generalities. A 2009 case did not mention an interpretive canon to favor Indians in disallowing a protective measure taken by the Secretary of the Interior. Although "it has long been established that the title of an Act 'cannot enlarge or confer powers,'" the title of a statute or section "can aid in resolving an ambiguity in the legislation's text." As Chief Justice Marshall explained, "[w]here the mind labours to discover the design of the legislature, it seizes everything from which aid can be derived." A title or heading, however, being only "a short-hand reference to the general subject matter involved" and "not meant to take the place of the detailed provisions of the text," can provide only limited interpretive aid. Thus, a heading may shed light on the section's basic thrust, or on ambiguous language in the text, but it "cannot limit the plain meaning of the text," and "has no power to give what the text of the statute takes away." Preambles, or "whereas clauses," precede the enacted language, have no "operative effect," "are not part of the act," and consequently "cannot enlarge or confer powers, nor control the words of the act, unless they are doubtful or ambiguous." Nonetheless, "whereas clauses" sometimes serve the same purpose as findings and purposes sections, and can provide useful insight into congressional concerns and objectives. Preambles can sometimes help resolve ambiguity in enacted language. To apply the principle that statutory language be interpreted consistent with congressional intent, courts may consult the stated purposes of legislation to resolve ambiguities in the more specific language of operative sections. For example, the Court relied in part on the stated purpose of the Racketeer Influenced and Corrupt Organizations (RICO) statute to seek "the eradication of organized crime in the United States," to conclude that the term "enterprise" as used in the act includes criminal conspiracies organized for illegitimate purposes, and is not limited to legitimate businesses that are infiltrated by organized crime. The Court also cited legislative findings in the Americans with Disabilities Act in determining the scope of the act's coverage: by finding that "some 43 million Americans" suffered from one or more physical or mental disabilities, Congress indicated that the ADA was not meant to cover all individuals with uncorrected, but correctable, infirmities (e.g., severe myopia). It is easy, however, to place too much reliance on general statutory purposes in resolving narrow issues of statutory interpretation. Legislation seldom if ever authorizes each and every means that can be said to further a general purpose, and there is also the possibility that stated or inferred purposes may in some instances conflict with one another. "Sense of Congress" language is appropriate if Congress makes a statement without making enforceable law. Ordinarily, a statement that it is the "sense of Congress" that something "should" be done is merely precatory, and creates no legal rights. In the appropriate context "sense of Congress" language can have the same effect as statements of congressional purpose—that of resolving ambiguities in more specific language of operative sections of a law—but if that is the intent the more straightforward approach is to declare a "purpose" rather than a "sense." Savings (or "saving") clauses are designed to preserve remedies under existing law. "The purpose of a savings clause is merely to nix an inference that the statute in which it appears is intended to be the exclusive remedy for harms caused by the violation of the statute." A corollary is that a savings clause typically does not create a cause of action. Inclusion of a savings clause, however, does not make all pre-existing remedies compatible with the newly enacted law. If there is a conflict, the savings clause gives way. Courts will attempt to give the savings language some effect, but may have to narrow that effect to avoid eviscerating the new law. A reference to specific remedies to be preserved can ease interpretation. In some cases, the legislative context and history of the savings provision can reveal its purpose. In other cases courts must reason from the scope and purpose of the new statute. For example, when the Carmack Amendment to the Interstate Commerce Act imposed comprehensive federal regulation governing the liability of interstate carriers, the Court held that savings language preserving "any remedy or right of action ... under existing law" applied only to federal, not state remedies. To allow resort to state law remedies that were inconsistent with the federal regulation would negate the Amendment's effect. "[T]he act cannot be said to destroy itself," the Court concluded. Even very clear savings language will not be allowed to thwart what the Court views as an important element of a regulatory scheme carefully crafted by Congress and implemented by the executive branch. Congress sometimes seeks to underscore the primacy of a statutory directive by stating that it is to apply "notwithstanding" the provisions of another, specified statute or class of statutes. Courts take into account this expressed intent to override the provisions specified in a "notwithstanding" clause, but when the clause purports to override "any other provision of law," its preclusive scope often is unclear. One court, for example, ruled that a directive to proceed with timber sale contracts "notwithstanding any other provision of law" meant only "notwithstanding any provision of environmental law," and did not relieve the Forest Service from complying with federal contracting law requirements governing such matters as non-discrimination, small business set-asides, and export restrictions. "We have repeatedly held that the phrase 'notwithstanding any other law' is not always construed literally ... and does not require the agency to disregard all otherwise applicable laws." Still, there are cases that have given full measure to "any other provision of law." As a rule, though, it might be more effective to spell out which other laws are to be disregarded, and it must be kept in mind, of course, that no "notwithstanding" clause can foreclose subsequent legislation that supersedes it expressly or implicitly. From time to time courts have held that a federal statute that does not explicitly create a private cause of action nonetheless implicitly creates one. This notion traces to the old view that every right must have a remedy. As the Supreme Court put it in an early case, where "disregard of the command of a statute ... results in damage to one of the class for whose especial benefit the statute was enacted, the right to recover damages from the party in default is implied." The Court has gradually retreated from that position, and now is willing to find an implied private right of action only if it concludes that Congress intended to create one. This raises an obvious question: if Congress intended to create a cause of action, why did it not do so explicitly? While the Court has attempted to explain that it does not mean direct intent, the test now seems weighted against finding an implied private cause of action. The Court appears particularly reluctant to find that a violation of a condition placed on funding (e.g., barring education funds to schools that do not require consent for release of student records) gives rise to a private remedy. When an implied right of a private cause of action has been found, the Court tends to give it "narrow dimensions," leaving to Congress the option to expand it. Interpretational difficulties may also arise if one statute incorporates by reference provisions of an existing statute. A leading treatise declares that incorporations by "general reference" normally include subsequent amendments, but that incorporations by "specific reference" normally do not. A general reference "refers to the law on the subject generally," while a specific reference "refers specifically to a particular statute by its title or section number." When one section of a law is held unconstitutional, courts are faced with determining whether the remainder of the statute remains valid, or whether the whole statute is nullified. "Unless it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as a law." Congress frequently includes a pro forma severability clause in a statute, and this may reinforce a "presumption" of severability by removing much of the doubt about congressional intent. A severability clause does not guarantee, however, that what remains of a statute after a portion has been invalidated is "fully operative"; courts sometimes find that valid portions of a statute cannot stand on their own even though Congress has included a severability clause. Far less frequently, Congress includes non-severability language providing that remaining sections of a law shall be null and void if a part (sometimes a specified part) is held unconstitutional. Case law is sparse, but there is no apparent reason why courts should refuse to honor a clearly expressed non-severability directive. "If a statute does not specify a consequence for noncompliance with statutory timing provisions, the federal courts will not in the ordinary course impose their own coercive sanction." Absent specified consequences, such deadlines "are at best precatory rather than mandatory," and are read "as a spur to prompt action, not as a bar to tardy completion." "A statute directing official action needs more than a mandatory 'shall' before the grant of power can sensibly be read to expire when the job is supposed to be done." Thus, agency actions taken after a deadline are ordinarily upheld as valid. Although courts are loath to impose "coercive" sanctions that would defeat the purpose of the underlying agency duty, courts sometimes will lend their authority, backed by the possibility of contempt for recalcitrant agency officials, by ordering compliance with statutory directives after a missed deadline. Under the Constitution, Congress determines what cases a federal adjudicatory body has authority to consider. Most fundamentally, Congress limits the subject matter a court or administrative adjudicator can hear. These subject matter limitations are "mandatory and jurisdictional"; an adjudicator is powerless over cases that lie outside them, however meritorious. Beyond subject matter rules, the Court at times also has held that statutory deadlines and preconditions to bringing a case are similarly "mandatory and jurisdictional." Thus, the Court in Bowles v. Russell held that a court of appeals could not hear an appeal when the notice to appeal was filed after a statutory 14-day deadline, but within a 17-day deadline set forth by the district court. Nevertheless, the Court often distinguishes between rules of "jurisdiction," which speak to the power of the adjudicator, and those restrictions and conditions, sometimes referred to as "claim-processing requirements," which speak more to the rights and obligations of parties. "Jurisdictional" rules are absolute bars, but the latter types of requirement may be waived or overcome by considerations of equity. Key to the distinction is whether Congress "clearly states that a threshold limitation on a statute's scope shall count as jurisdictional...." If Congress has not, the Court likely will regard the limitation's effect more flexibly. Filing deadlines for administrative review of monetary claims, reimbursements, fees, and the like, are particularly apt to be held non-jurisdictional. Different schools of statutory interpretation regard text differently. Textualists regard the words embodied in the text of a statute as the "law": "Congress' intent is found in the words it has chosen to use." Intentionalism and related methods are less sanguine about whether statutory language alone can fully and adequately embody the "law" for purposes of applying statutes in individual cases. Yet textualists on occasion recognize the value of extrinsic perspectives, and intentionalists regard statutory language as the analytical starting point and at least strong evidence of what a law intends. The primacy of text in discerning meaning is expressed in the "plain meaning rule." That rule holds that where the language of a statute is plain, the sole role of the courts is to enforce it according to its terms. In practice, the cases vary in characterizing the rule as mandatory or prudential, and those differences often play out indirectly through arguments about whether particular language is sufficiently clear and unambiguous to preclude further inquiry. There seems to be general consensus that the plain meaning rule aptly characterizes interpretational priorities (statutory language is primary, other considerations of intent and purpose secondary). However, agreement on the basic meaning of the plain meaning rule—if it occurs—does not guarantee agreement in the rule's application. There have been cases in which Justices of the Supreme Court have agreed that the statutory provision at issue is plain, but have split 5-4 over what that plain meaning is. There are other cases in which strict application is simply ignored; courts, after concluding that the statutory language is plain, nonetheless look to legislative history, either to confirm that plain meaning, or to refute arguments that a contrary interpretation was "intended." The one generally recognized exception to the rule is that a plain meaning is rejected if it would produce an "absurd result." Nevertheless, even in cases of "absurd results" Justices can disagree over whether it is appropriate to consult legislative materials for interpretational insight. The commonest bridge from text to legislative history is a finding that the statutory language is not plain, but instead is unclear or "ambiguous." Significant differences arise, however, in the willingness of courts to label particular statutory language as "ambiguous" and thereby resort to legislative history. Some judges are more sanguine than others in the ability to interpret statutory text without resort to the "extrinsic" aid of legislative history. Some judges limit themselves to a narrow focus on the clarity or ambiguity of a particular statutory phrase, while others look more broadly to statutory context for insight into phrases that may seem ambiguous in isolation. And, inevitably, tensions may arise between apparently clear language and perceived intent. Over time, the Court has by turns been relatively more receptive or skeptical toward mining the legislative process for insight into a statute's meaning. Legislating is a collective exercise. Drafters seek to capture a sponsor's intent in words, however imperfectly. Language introduced as legislation is subjected to examination, criticism and revision in diverse congressional fora—large and small, formal and informal—as it moves toward approval—again, via diverse groups with varying degrees of expertise and interest—and eventual enactment into law. Particularly since the 1980s, some Court opinions have characterized modern congressional processes as too fractured to admit any statement or explanation made in any step along the way as an authoritative declaration by Congress as a whole (assuming Congress had a discernible "collective understanding" on the matter at issue before the Court in the first place ). Adding to this reluctance is the perception of some that the published history could be skewed by the partisanship of committee staff, the manipulation of interest groups, or the dominant influence of federal agencies. It is preferable, under this view, to re-focus on the statutory text to gain some space for judicial independence and clarity. More recently, some commentators and jurists who look at congressional processes have had a different take. They, too, see complexity and fragmentation in Congress, but argue that one can ascribe an "institutional purpose" to legislation even though the motives of individual legislators may be unknown or unknowable. Under this "busy Congress" model, for example, congressional committees, as specialists in their field, are regarded as reporting accurate accounts of information and insight to their respective chambers so that Members may better consider legislation they have limited knowledge of. The stuff of legislative history itself potentially comprises a wide variety of materials. On the one hand, a current statute may be compared to its predecessors and differences among their language and structure analyzed. This use is limited to examining language passed by Congress, which, unlike materials attending congressional deliberations, is often thought to best reflect the intent of Congress as a whole. Considering past statutes and their evolution is not a particularly controversial exercise. On the other hand are the committee reports, hearings, floor debates, and other records of deliberations and correspondence on legislation as it moves through the legislative process. One aspect of examining this material can be to compare different versions of a provision as it progresses, a use somewhat like the comparing of statutes to their predecessors, but without each version having been approved by Congress as a whole. Courts may read contemporaneous congressional materials for many reasons: background information and context, explanations of specific legislative language, or expectations of how a provision will be applied to the particular fact situation before them. Reliance on these materials varies among courts, with the circumstances of a statute's passage and its clarity or complexity being factors. Courts also may be more willing to consult committee reports and the like for insight into the particular problem Congress sought to address than they are to consult language that purports to direct certain interpretations or outcomes. The nature of the issue before a court is another variable that may bear on what materials the court uses and why. Among published history, some sources may be considered relatively more authoritative. As a rule, committee report explanations, and especially those of conference committees, are considered more persuasive and reliable than statements made during floor debates or hearings. Within floor debates, statements of sponsors and explanations by floor managers are usually accorded the most weight, and statements by other committee members of the reporting committee[s] next. Floor statements by Members not associated with sponsorship or committee consideration of a bill have little weight, and statements by bill opponents less weight still. Hearings may be useful in providing background, less so as to illuminating the meaning of particular language. This hierarchy generally characterizes where a court might go to seek to clarify an unclear statute, but several factors might tip the scales in favor of one bit of history or another of a particular bill. Final language might have arisen from a floor amendment, in which case earlier reports and debates may be of interest only as a point of contrast. Similarly, final language might have been added by the second chamber to consider a bill, in which case the history developed in it would be most pertinent, especially absent conference consideration. Also, a court's willingness to delve into the more remote reaches of legislative history can vary with the issue at hand and the point sought to be clarified. Again, courts may consult explanatory documents to gain a better feel for context or to shed light on particular language. Reference to legislative history for background is commonplace. A "proper construction frequently requires consideration of [a statute's] wording against the background of its legislative history and in the light of the general objectives Congress sought to achieve." Looking to published history to help explain the meaning of statutory terms may be more controversial, either because contrary indications may be present in other passages of legislative history, or because the degree of direction or detail may be an unwarranted narrowing of a more general statutory text. The concern in the latter instances is whether the legislative history is a plausible explanation of language actually contained in the statutory text, or whether instead explanatory language (e.g., report language containing committee directives or "understandings") outpaces that text. As the Court observed in rejecting reliance on "excerpts" said to reflect congressional intent to preempt state law, "we have never [looked for] congressional intent in a vacuum, unrelated to the giving of meaning to an enacted statutory text ... [U]nenacted approvals, beliefs, and desires are not laws." A distinct but related inquiry focuses not on the explanations that accompanied committee or floor consideration, but rather on the sequence of changes in bill language. Consideration of the "specific history of the legislative process that culminated in the [statute at issue] affords ... solid ground for giving it appropriate meaning" and for resolving ambiguity present in statutory text. Selection of one house's version over that of the other house may be significant. In some circumstances rejection of an amendment or earlier version can be important, but there is no general "rejected proposal rule." While courts are naturally reluctant to attribute significance to the failure of Congress to act, that reluctance may be overcome if it can be shown that Congress considered and rejected bill language that would have adopted the very position being urged upon the court. Even more than in the case of legislative language, discussed above, silence in the published legislative history of a bill is seldom significant. There is no requirement that "every permissible application of a statute be expressly referred to in its legislative history." The Court does, however, occasionally attach importance to the absence of any indication in a statute or its legislative history of an intent to effect a "major change" in well-established law. And sometimes the Justices disagree over the significance of congressional silence. Once a statute is enacted, later Congresses may comment on it or choose to revisit it (or not) as circumstances change. Views expressed in the documents or deliberations of a subsequent Congress generally are eschewed. It has been stated in this context that "[t]he legislative history of a statute is the history of its consideration and enactment. 'Subsequent legislative history'—which presumably means the post -enactment history of a statute's consideration and enactment—is a contradiction in terms." The Court also is wary about reading significance into the actions of a subsequent Congress, having warned that they are "a hazardous basis for inferring the intent of an earlier one.'" To the degree congressional action is considered (as opposed to the statutory language), it is the enacting Congress that is key, and interpretation is ordinarily not affected by the several different kinds of congressional actions and inactions frequently characterized as "post-enactment history." However, depending on context, including intervening developments, what a subsequent Congress does may have interpretational value. If the views of a later Congress are expressed in a duly enacted statute, then the views embodied in that statute must be interpreted and applied. Occasionally a later enactment declares congressional intent about interpretation of an earlier enactment rather than directly amending or clarifying the earlier law. Such action can be given prospective effect because, "however inartistic, it ... stands on its own feet as a valid enactment." "Subsequent legislation declaring the intent of an earlier statute is entitled to great weight in statutory construction." Other statutes may be expressly premised on a particular interpretation of an earlier statute; this interpretation may be given effect, especially if a contrary interpretation would render the amendments pointless or ineffectual. The Court closely adheres to judicial precedents in interpreting statutes, on the grounds that Congress is free to supersede the Court's interpretation of a particular statute through subsequent legislation. But it may not always be evident exactly how far Congress went in subsequent legislation to sweep aside an earlier construction. For example, when Congress acts narrowly against a result in a Court decision, is it also discrediting the Court's reasoning that led to the result? A female employee who is adversely affected by a discriminatory seniority system is barred from relief under a Supreme Court decision that holds Title VII's statute of limitation clock is intended to tick solely from the time of the discriminatory act, not from the time harm is realized. Congress adopts a provision that specifies time of harm as restarting the statute of limitations clock for those discriminated against under a seniority system. Later, a female brings suit alleging that she had been discriminated against in raise decisions over time and that consequently her pay continued to be lower than that of men in similar positions. Is the Court's more general "time of the act" interpretation in the seniority case still to be accorded weight in the later raise discrimination case, even though the interpretation no longer pertains in a seniority system context? In Ledbetter v. Goodyear Tire & Rubber Co., Inc. , five Justices substantially relied on the earlier interpretation to hold that the raise discrimination was barred by the statute of limitations, over the objection of a four-Justice dissent. If Congress reenacts a statute and leaves unchanged a provision that had received a definitive administrative or judicial interpretation, the Court sometimes holds that Congress has ratified that interpretation. The stated rationale is that "Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change." Similarly, if Congress in enacting a new statute incorporates sections of an earlier one, "Congress normally can be presumed to have had knowledge of the interpretation given to the incorporated law, at least insofar as it affects the new statute." However, congressional ratification of a judicial interpretation will not be inferred from reenactment unless "the supposed judicial consensus [is] so broad and unquestioned that Congress knew of and endorsed it." Also, the reenactment presumption is usually indulged only if the history of enactment shows that Congress conducted a comprehensive review of the reenacted or incorporated statute, and changed those aspects deemed undesirable. Though the presumption can come into play in the absence of evidence that Congress directly considered the issue at hand, the Court may require other indicia of congressional awareness of the issue before reading significance into reenactment. Congress may have simply overlooked the matter, or may have intended to leave it "for authoritative resolution in the courts." Congressional inaction is sometimes construed as approving or "acquiescing" in an administrative or judicial interpretation. There is no general presumption that congressional inaction in the face of interpretation bespeaks acquiescence, and there is no consistent pattern of application by the Court. When the Court does infer acquiescence, the most important factor seems to be congressional awareness that an interpretation has generated widespread attention and controversy. As with reenactment, however, there are other inferences that can be drawn from congressional silence. Although congressional inaction or silence is sometimes accorded importance in interpreting an earlier enactment, post-enactment explanations or expressions of opinion by committees or members are often dismissed as "isolated statements" or "subsequent legislative history" not entitled to much if any weight. As the Court has noted, statements as to what a committee believes an earlier enactment meant are "obviously entitled to less weight" than is subsequent legislation declaring such intent, because in the case of the committee statement Congress had not "proceeded formally through the legislation process." The Court has also explained that "isolated statements by individual Members of Congress or its committees, all made after enactment of the statute under consideration, cannot substitute for a clear expression of legislative intent at the time of enactment." "It is the function of the courts and not the Legislature, much less a Committee of one House of the Legislature, to say what an enacted statute means." The disfavor in which post-enactment explanations are held is sometimes expressed more strongly when the views are those of a single member. The Court has declared that " post hoc observations by a single member carry little if any weight." Under the Constitution, the President's formal role in enacting statutes is one of "take it or leave it." Article I, Section 7, clause 2 provides that, after Congress passes a bill and presents it to the President, "if he approves he shall sign it, but if not he shall return it, with his Objections to that House in which it shall have originated, who shall enter the Objections at large on their Journal, and proceed to reconsider it." Thus, the recording of a President's views as part of the constitutional lawmaking process is limited to objections attending a veto. Also, the President may not amend the language of a presented bill before acting on it. Nor may the President pick and choose which provisions of a presented bill to sign into law, while vetoing others. The President's options are "thumbs up" or "thumbs down" on a bill in its entirety. The President may have an integral role in the enactment of statutes into law, but "[a]ll legislative Powers" reside in Congress, and it is exclusively up to the houses of Congress, at least formally, to come to common agreement on statutory language. Nevertheless, recent Presidents have frequently used the occasion of signing a bill into law to issue statements that contend that portions of the bill are unconstitutional, claim a law is of limited application, or otherwise signal that a law will be implemented strictly in accord with the President's views of the office's prerogatives and authorities. Assertions in signing statements vary in specificity and purported scope; the statements would not appear to have any immediate, direct legal effect in and of themselves; and they may best be understood in the context of the enduring tension between the political branches over accountability, control of executive agencies, and similar institutional concerns. At the same time, Administrations since the 1980s have asserted that signing statements have weight as legislative history and should be taken into account by courts. There is no legal impediment to a President commenting on a statute's meaning in a signing statement, and the political reality is that an Administration is not a passive spectator during congressional deliberations. Often, the Administration forwards draft legislation for introduction, and liaisons from the executive branch regularly communicate its views on bills as they proceed. If the President or the Administration worked closely with Congress in developing legislation, and if the approved version incorporated the President's recommendations, reference to a signing statement arguably may help complete the picture of a bill's purpose, especially in the absence of published congressional documents on a bill. The same might also be said with respect to bills whose final content arose from compromise negotiations between the Administration and Congress. Citation of signing statements may be more controversial when statutory language appears clear or the meaning attributed in a signing statement conflicts with congressional history. Congress has no opportunity during the legislative process to respond as an institution to a characterization in a signing statement. Giving the President "the last word" on the meaning of a bill he approves, it may be pointed out, stands in contrast to the procedure for congressional consideration of the President's objections in the case of a vetoed bill. The Supreme Court has not accorded legal weight to signing statements. And, in longstanding litigation on a statute implicating the status of Jerusalem, the prominence of President George W. Bush's signing statement as an issue has steadily declined. Neither the latest court of appeals decision, nor recent briefs by the parties to the Supreme Court, do more than mention it in passing as part of the case's history. Also, lower courts have seldom had to resolve cases that require a choice between conflicting presidential and congressional interpretations. Presidents' routine use of signing statements to try to influence statutory interpretation by courts is a relatively recent development. Thus far, courts have not been particularly receptive, even while citing them on occasion. Judicial reluctance to consider signing statements would not appear to be contrary to judicial deference to agency action. Deference is premised on the conclusion that Congress has, by statute, authorized the agency to "speak with the force of law" through a rulemaking or other formal process. Congress has not authorized the President (or, indirectly, an agency) to speak with the force of law through signing statements. So, although signing statements may influence or even control agency implementation of statutes, it is the implementation, and not the signing statement itself, that would be measured against the statute's requirements. At most, signing statements might be considered analogous to informal agency actions, entitled to respect only to the extent that they have the power to persuade.	The exercise of the judicial power of the United States often requires that courts construe statutes to apply them in particular cases and controversies. Judicial interpretation of the meaning of a statute is authoritative in the matter before the court. Beyond this, the methodologies and approaches taken by the courts in discerning meaning can help guide legislative drafters, legislators, implementing agencies, and private parties. The Supreme Court has expressed an interest "that Congress be able to legislate against a background of clear interpretive rules, so that it may know the effect of the language it adopts." Though the feed-back loop of interpretive practices coming from the courts may not always speak well to actual congressional practice and desires, the judiciary has developed its own set of interpretive tools and methodologies, keeping in mind that there is no unified, systematic approach for unlocking meaning in all cases. Though schools of statutory interpretation vary on what factors should be considered, all approaches start (if not necessarily end) with the language and structure of the statute itself. In this pursuit, the Court follows the principle that a statute be read as a harmonious whole whenever reasonable, with separate parts being interpreted within their broader statutory context. Still, the meaning of statutory language is not always evident. To help clarify uncertainty, judges have developed various interpretive tools in the form of canons of construction. Canons broadly fall into two types. "Language," or "linguistic," canons are interpretive "rules of thumb" for drawing inferences based on customary usage, grammar, and the like. For example, in considering the meaning of particular words and phrases, language canons call for determining the sense in which terms are being used, that is, whether words or phrases are meant as terms of art with specialized meanings or are meant in the ordinary, "dictionary" sense. Other language canons direct that all words of a statute be given effect if possible, that a term used more than once in a statute ordinarily be given the same meaning throughout, and that specific statutory language ordinarily trumps conflicting general language. "Ordinarily" is a necessary caveat, since any of these "canons" may give way if context points toward a contrary meaning. Not infrequently the Court stacks the deck, and subordinates the general, linguistic canons of statutory construction, as well as other interpretive principles, to overarching presumptions that favor particular substantive results. When one of these "substantive" canons applies, the Court frequently requires a "clear statement" of congressional intent to negate it. A commonly invoked "substantive" canon is that Congress does not intend to change judge-made law. Other substantive canons disfavor preemption of state law and abrogation of state immunity from suit in federal court. As another example, Congress must strongly signal an intent to the courts if it wishes to apply a statute retroactively or override existing law. The Court also tries to avoid an interpretation that would raise serious doubts about a statute's constitutionality. Interpretive methods that emphasize the primacy of text and staying within the boundaries of statutes themselves to discern meaning are "textualist." Other approaches, including "intentionalism," are more open to taking extrinsic considerations into account. Most particularly, some Justices may be willing to look to legislative history to clarify ambiguous text. This report briefly reviews what constitutes "legislative history," including, possibly, presidential signing statements, and the factors that might lead the Court to consider it.	14.5	8k-16k	14,438
24	The Employee Retirement Income Security Act of 1974 (ERISA) created PBGC as a government agency to help protect the retirement income of U.S. workers with private-sector defined benefit plans by guaranteeing their benefits up to certain legal limits. PBGC administers two separate insurance programs for these plans: a single-employer program and a multiemployer program. The single-employer program covers about 34 million participants in approximately 26,000 plans. The multiemployer program covers 10 million participants in another 1,500 collectively bargained plans that are maintained by two or more unrelated employers. If a multiemployer pension plan is unable to pay guaranteed benefits when due, PBGC will provide financial assistance to the plan, in the form of a loan, so that benefits may continue to be made up to the guaranteed benefit limits. However, if the sponsor of a single-employer plan is in financial distress and does not have sufficient assets to pay guaranteed promised benefits, the plan will be terminated and PBGC will likely become the plan’s trustee, assuming responsibility for paying benefits to participants as they become due, up to the guaranteed benefit limits. Most of PBGC’s $102.5 billion in liabilities are due to future benefit payments owed to participants of underfunded plans terminated under the single- employer insurance program. To finance these liabilities, PBGC currently has approximately $80 billion in assets. PBGC’s funds primarily come from three sources: insurance premiums paid by sponsors of defined benefit plans, assets acquired from terminated plans, and investment income earned on these assets. For example, in 2010 all plans insured by PBGC paid a total of approximately $2.3 billion in premiums. In addition, PBGC took over the assets from 147 defined benefit plans in fiscal year 2010, which totaled approximately $1.8 billion. Finally, over the course of the same year, PBGC recorded $7.8 billion in earnings from its investment portfolio, including interest, dividends, and capital gains. PBGC holds its assets in essentially two separate funds: the PBGC trust fund and the PBGC revolving fund (see fig. 1). The PBGC Trust Fund holds assets received from terminated plans and the return on investing the assets held in the trust fund, while the PBGC Revolving Fund consists of premium receipts and the return on investing the premium receipts. Benefit payments and financial assistance are paid from the revolving fund, and then the trust fund reimburses the revolving fund through a proportional payment at least annually. PBGC has grown significantly since the end of its first year of operation. As of June 30, 1975, the agency had $34 million in assets and $1.2 million in liabilities. At the end of fiscal year 2010, however, the trust and revolving funds combined contained about $80 billion in assets (see fig. 2), to cover total liabilities of $102.5 billion, leaving a deficit of approximately $23 billion. PBGC is governed by a three-member board of directors, which consists of the Secretary of Labor (Chair), the Secretary of the Treasury, and the Secretary of Commerce. The board is responsible for policy direction and oversight of PBGC’s finances and operations. The board of directors is responsible for establishing and overseeing the policies of the corporation, including the approval of the corporation’s investment policy statement. Under its bylaws, the board is required to review the corporation’s investment policy statement at least every two years and approve the investment policy statement at least every four years. Each board member must designate an official (not below the level of an assistant secretary) to support the board’s oversight. Board representatives are given the authority to act for all purposes under the bylaws, subject to some actions—such as approving the corporation’s investment policy statement—being ratified by the board members. The board members often rely on these department representatives to conduct much of their PBGC related work on their behalf. PBGC uses institutional investment management firms to invest its assets, subject to the agency’s oversight and in accordance with the investment policy statement as approved by its board and applicable legal requirements. For example, ERISA provides different requirements concerning how the assets held in the revolving fund and the trust fund can be invested. ERISA requires the PBGC Revolving Fund to be, in part, invested in U.S. obligations. PBGC has more flexibility to invest trust fund assets in other investments, and, along with revolving fund investments, the corporation’s investment policy statement provides direction on how these assets are to be invested. With respect to the trust fund, PBGC does not determine the specific investments to be made, but instead relies on its investment managers’ discretion to invest a portion of the funds consistent with the benchmarks and risk criteria provided to each investment manager. When PBGC receives assets from terminated plans, PBGC determines whether the assets fit into the agency’s current investment policy objectives. For incoming assets that do not fit with their current policy, PBGC uses investment managers to liquidate them, as soon as practicable, and then reinvests the proceeds into assets that do align with PBGC policy. In its role as an insurer, PBGC’s responsibilities are similar to those of other institutions that conduct such functions. However, the corporation also faces structural challenges that are not shared by other insurers, which gives the corporation less control over the terms by which it insures pension plans and constrains its ability to manage its risk of loss (see table 1). For example, in contrast with information provided by pension insurers in Canada and the Netherlands, PBGC tends to have less control over the terms by which it insures pension plans. Only Congress, through legislation, can change premiums or plan funding requirements for defined benefit plans in the United States. Beginning in 2003, recognizing PBGC’s long-term financial challenges, we included PBGC’s single-employer insurance program on our list of “high- risk” programs needing attention and congressional action; in 2009, we added PBGC’s multiemployer program as a program of concern. Both programs remain on our high-risk list today. PBGC’s investment policy has changed frequently since 1990, alternating between more conservative and more aggressive approaches to investment. The frequent changes in policy have had a moderate impact on PBGC’s actual allocation of assets since 1976 because there were no allocation targets in place prior to 1990 and the policy targets after that time were rarely ever met. Meanwhile, the transaction costs for the reinvestment of assets during each policy period have fluctuated with shifts in the market. Since 1990, PBGC has shifted its investment policy five times. The shifts in investment policy that occurred in 1990 and 2004 were aimed at strategies that immunized against interest rate exposure by increasing the allocation of fixed-income securities. PBGC’s investment policy was shifted in 2009 to a more conservative strategy of taking on a higher allocation of fixed- income securities. In contrast, shifts in investment policy that occurred in 1994 and 2008 were aimed at strategies that maximized returns by increasing the allocation of equities. Shifts in policy of this frequency are thought to reflect an undisciplined approach to investing. Experts we interviewed stated that a more disciplined approach would require that PBGC change its investment policy no more than once every 5 to 7 years, except to review the policy during unusual circumstances, such as the recent market crash or when taking over the assets of a large terminated plan. They noted that it can take up to 5 years for a policy to be fully implemented and to have an impact that can be evaluated. Moreover, these experts stated that a long-term and disciplined investment policy is needed in order to minimize the costs associated with shifts in policy. Since 1990, PBGC’s investment policy was in place for more than 5 years only once— during the period from 1994 to 2004. All other policies were in place for shorter periods, generally about 2 to 4 years (see fig. 3). PBGC’s actual allocation of its total assets (both revolving fund and trust fund combined) reflects these changes in policy to some extent, but the impact has been tempered by a number of factors. First, PBGC must comply with certain statutory investment restrictions. Therefore, because PBGC only invest the assets of its revolving fund in U.S. obligations which are fixed-income securities, accomplishing its investment policy goal is, in effect, limited to reallocating the assets of its trust fund —that is assets acquired from terminated plans under PBGC trusteeship. Second, during the period between 2004 and 2008, PBGC adopted the practice of using only assets of newly terminated plans to move toward new allocation targets, rather than reinvesting assets already in its trust fund. When in place, this practice further limited the amount of assets PBGC could use to meet its target allocations. Third, market conditions, at times, hindered PBGC in reaching its allocation targets by reducing the overall value—and as a result, the proportion—of assets invested in a particular sector. Finally, the frequency with which allocation targets changed also affected PBGC’s ability to make significant changes in its allocation. During each period a policy was in place, PBGC made progress toward reaching new allocation targets with varying success before a new policy was adopted. In May 1990, PBGC adopted a new investment policy calling for a decrease in the proportion of equities to no more than 35 percent of its portfolio. This policy was initiated by PBGC’s then newly appointed executive director in response to both an increase in unfunded liabilities and to the results of a commissioned study that examined PBGC’s liabilities and investment options. The study of PBGC’s trust and revolving funds together recommended that PBGC reduce its equity exposure and increase its allocation in long-duration fixed-income assets. Accordingly, PBGC adopted a new investment policy that focused on matching its assets with its liabilities and targeted an asset allocation of no more than 35 percent in equities and no less than 65 percent in fixed income. In 4 months, PBGC decreased its equity allocation from 43 percent to 33 percent and was able to maintain this allocation range throughout the period for which the 1990 policy was in effect. In October 1994, PBGC adopted a new investment policy that focused on maximizing the return on its investments by investing more heavily in equities in order to reduce the agency’s deficit by achieving higher rates of return. Although no explicit asset allocation was specified in the investment policy statement, PBGC’s 1994 annual report stated that, along with the adoption of the new investment policy, the agency had raised its ceiling for its equity allocation to 50 percent. The assets in PBGC’s revolving fund is, pursuant partially to statute and partially to PBGC policy, invested only in U.S obligations which are fixed-income assets, hindering PBGC’s efforts to increase its overall equity allocation. However, in the years that followed, the agency attempted to raise equity levels by investing all its trust fund assets into equities. In this way, over the course of fiscal year 1994, PBGC increased its actual equity allocation from 17 percent to 30 percent. During the subsequent 7 years this policy was in place, PBGC’s equity allocation peaked in 1999 at 44 percent, and over the period, averaged about 35 percent according to data provided by the agency. In 2004, PBGC adopted a new investment policy that would, similar to the 1990 policy, match PBGC’s assets to its liabilities by emphasizing fixed- income investments and limiting exposure to market risk. The 2004 policy reduced the allocation target for equities down to the 15 to 25 percent range and raised the allocation target for fixed-income securities to 75 to 85 percent. To implement this policy, however, PBGC’s board directed staff to use only assets acquired from newly terminated plans, rather than to transition core trust fund assets already under management. As a result, according to PBGC officials, the volume of assets available to transition toward the target allocations was limited and the agency was not able to lower its allocation of equities down to the target range during the time this policy was in effect. In 2006, PBGC adopted a new policy as a result of its biennial review process. It allowed PBGC to invest in international securities, a departure from the past. The agency’s overall investment policy, however, remained the same, with equity allocation targets set at 15 to 25 percent and fixed- income allocation targets set at 75 to 85 percent. Despite this new policy, once again, PBGC officials said that the agency did not receive enough in newly trusteed assets to be able to shift its equity allocation down to this target range. Also, during most of this period, the returns on PBGC’s equity investments outpaced those of its fixed-income investments, further hindering the agency’s attempt to reach this allocation target. Equities were achieving returns of 11 to 17 percent in fiscal years 2006 and 2007, while the returns of its fixed-income investments were around 1 to 3 percent annually. Hence, according to PBGC, the actual allocation hovered between 27 to 32 percent in equities and 67 to 72 percent in fixed income throughout this period. PBGC changed its investment policy again in 2008 with the goal of seeking to maximize returns on its investment. To this end, PBGC adopted an investment policy with target asset allocations of 45 percent in equities; 45 percent in fixed income; and 10 percent in alternative investments, such as real estate and private equity. In addition, the policy called for expansion into two new subclasses of fixed-income securities: high yield and emerging market debt. In February 2008, when the policy was adopted, 28 percent of PBGC’s assets were invested in equities. To move quickly toward its newly adopted allocation targets, PBGC decided to abandon its practice of relying only on newly acquired assets from terminated plans to transitioning a portion of core trust fund assets as well. PBGC transitioned nearly $5.7 billion from its existing trust fund investments in fixed-income securities to equities. Despite these efforts, the financial crisis and a 35 percent decline in the New York Stock Exchange Composite Index between early February 2008 and May 2009 caused PBGC’s actual equity allocation to drop to as low as 23 percent during this period. In May and June 2009, PBGC’s three board members issued a resolution instructing staff to cease implementing the 2008 investment policy. This resolution was in response to an investigation, conducted by PBGC’s Inspector General, concerning potential conflicts of interest involving PBGC’s then Director with securing asset managers for the agency’s portfolio. Transactions already initiated were allowed to proceed, but no new transactions were permitted until the board representatives issued investment policy guidance in July 2009, since the board had not also issued a new investment policy statement after it ceased the 2008 policy. Instead, this new interim policy called for a return to the actual portfolio composition as it was on March 31, 2009, which was 26.5 percent in equities and 73.5 percent in fixed income. This interim guidance served as the official policy. Since then, PBGC has transitioned its newly acquired assets to fixed-income investments. Nevertheless, the performance of the equities market improved enough that as of September 2010, equities made up 31 percent of PBGC’s portfolio. While the actual distribution of PBGC assets has remained within a fairly narrow range since 1990, the transaction costs incurred for the reinvestment of assets during each period a policy was in place have fluctuated with shifts in the market. Some transaction costs are always incurred with the assumption of assets from newly terminated plans and with the management of existing investments, but the magnitude of these costs can vary dramatically depending on the volume and type of assets being transitioned, the investment policy or goal in place, and the market conditions during the transition period. PBGC does not have a routine process for tracking the transaction costs associated with different investment policies, and does not consider these costs when developing new investment strategies. Transaction costs for reinvestment of assets generally consist of commissions, fees and certain taxes (referred to as explicit costs), and opportunity costs, due to market changes during the transaction (referred to as implicit costs). PBGC typically uses specialized transition investment managers when transitioning large pools of assets to keep explicit costs down through economies of scale and by taking advantage of other services offered by these managers. However, opportunity costs can vary widely based on market conditions, and can result in either a net loss or a net gain. Taking both explicit and implicit costs together, when transactions net an amount lower than the original value of the assets, a loss occurs; when transactions net an amount greater than the original value of the assets, a gain occurs. Although PBGC does not routinely track and conduct analytics on the transaction costs associated with implementing different investment policies, we were able to compile the costs incurred during each period a policy was in place from 2004 forward by obtaining records from PBGC officials as well as PBGC’s external transition managers, as summarized in table 2. From 2004 to 2008, PBGC’s investment policy remained primarily the same: to transition assets from newly terminated plans to increase the level of fixed-income investments. When the 2004 policy was being implemented, assets valued at $8.8 billion were transitioned, and positive market conditions helped PBGC realize a net gain of $40.5 million (or 46 basis points). When the 2006 policy was being implemented, assets of about $2.6 billion were transitioned, but declining market conditions towards the end of this period contributed to a loss of $7.6 million (or 30 basis points). In 2008, PBGC’s investment policy shifted to increasing the level of equity investments and certain subclasses of fixed-income securities and the agency opted to use assets already in the trust fund, as well as newly terminated plan assets, to accelerate implementation of the policy. In total, assets of about $13 billion were transitioned while this investment policy was in place, with $5.4 billion moving from fixed-income securities to equities and $7.6 billion moving from one type of fixed-income securities to others (specifically, from long-duration securities to high- yield and emerging market debt). These transactions were completed in three phases. According to PBGC’s own records, phase one was performed in an “ad hoc” manner and transaction costs were not tracked. Assets transitioned during this phase totaled approximately $3.7 billion. Phase two was more structured (referred to as “coordinated sales”), with PBGC assigning each fixed-income investment manager an amount of trust fund assets to sell over a 5-month period, allowing trades to be made on favorable trading days at the discretion of the investment manager. About $7.9 billion in assets were transitioned during this phase. During phase three, termed the “runoff” phase, the 2008 policy had been suspended, but PBGC officials told us they decided not to cancel the trades for about $1.4 billion in assets that their investment managers already had initiated. Due in part to the market downturn during the period the 2008 policy was in place, the transaction costs associated with asset trades of about $9.3 billion that were tracked during the last two phases of the transition totaled nearly $74.6 million (or 80 basis points). According to one PBGC investment manager, some trades related to the 2008 transition incurred opportunity costs of 400 to 500 basis points. In July 2009, a new interim directive was issued to decrease the level of equity investments back to the asset distribution held as of March 31, 2009. PBGC staff estimated that implementing this new policy could incur transaction costs of as much as $52 million. In January 2011, PBGC provided data indicating that between June 2009 and September 2010, $7.4 million in transaction costs had accrued since implementation of this 2009 directive. Our analysis of PBGC’s investment performance found that PBGC’s investments performed better than most on an asset-only basis compared with the seven benchmark portfolios (see table 3). However, PBGC’s investment portfolio tended to underperform these benchmarks when returns were assessed together with the liability return (or growth in liabilities). Specifically, in the asset-only comparison, PBGC’s portfolio achieved better risk-adjusted performance on its investments than that achieved by six of the seven benchmark portfolios. When assessed with liabilities, however, all seven benchmark portfolios performed better than PBGC’s investment portfolio. This occurred for either one of two reasons: either the benchmark had a mix of assets that were better correlated (that is, moved more in tandem) with PBGC’s liability return (growth in liability), or, when this was not the case, the benchmarks had returns sufficient to compensate for the lower correlations for the period examined. The best performing benchmark (the Pension Protection Act benchmark) incorporated elements of both features, with a mix of relatively high returns on assets and relatively high correlation of their assets with PBGC’s liabilities. Our analysis looks at the single historical period from 1976 to 2009, since the purpose of the analysis is performance assessment, not asset allocation recommendations. Typically, analyses for the purpose of asset allocation would project forward over multiple potential future economic scenarios in order to more fully assess potential risk and reward. The various alternative static portfolios used in this report were analyzed for the purpose of a “what-if” analysis—a historical comparison of alternative investment strategies versus the fluctuating asset allocation that PBGC actually employed—they were not for the purpose of recommending a particular asset allocation going forward. Further, the fact that a particular portfolio performed well over the 1976 to 2009 period in this particular analysis does not necessarily mean that such a portfolio would be appropriate for PBGC going forward. We assessed performance by calculating risk-adjusted returns for PBGC’s portfolio and for each benchmark, where higher returns improve performance while higher volatility reduces performance. The comparative benchmarks used for this analysis represent a range of equity and fixed-income allocations. Six of the benchmarks are largely static (fixed) allocations among asset classes; however, we also included one Dynamic Benchmark that had allocations that varied among asset classes over time. Our analysis of PBGC’s investment returns for the period 1976 to December 2009 found that, on an asset-only basis, PBGC’s portfolio achieved better risk-adjusted performance on its investments than that achieved by six of the seven benchmark portfolios. Specifically, our analysis found that on an asset-only basis, PBGC’s portfolio outperformed five of six fixed-allocation benchmarks, as well as the Dynamic Benchmark. In each instance, the results were maintained regardless of whether or not PBGC investment returns were net of investment expenses. Within this framework, the PBGC and benchmark portfolios were evaluated solely on how well the assets performed relative to the risks taken. For details see appendix III. When consideration of changes in liabilities was included in our analysis, we found that PBGC’s investments did not perform as well as the seven benchmark portfolios. PBGC must cover the liabilities from the underfunded plans it trustees in order to pay benefits to participants and beneficiaries. Other than the premiums assessed on plan sponsors that are statutorily set, the only revenue that PBGC has to cover its liabilities is the return on the assets it manages. Given this context, analyzing PBGC’s investment performance in a framework that explicitly incorporates liabilities provides useful information. We found that PBGC’s investments underperformed all seven of the benchmark portfolios on a risk-adjusted basis when the returns were analyzed net of the liability return. In simple terms, this means that all seven of the constructed benchmarks had a mix of assets with some combination of risk, return, and correlation levels that made their investment strategies achieve a higher level of risk-adjusted performance than PBGC’s investment policy for the 1976 to 2009 period. This occurred because either the benchmark portfolio had a mix of assets that had a higher correlation with the liability return, or, in cases where the correlations were lower, the benchmark portfolio had sufficient returns to compensate for the lower correlations for the period we examined. However, the dynamic portfolio, which maintains the same asset allocation as the PBGC total fund, performed as well as the S&P 500 benchmark and out performed the Barclays Capital and Post Fiscal Year 2002 benchmarks as well as the PBGC portfolio—three portfolios that have significant allocations to bonds. (For additional information, see app. III). According to our analysis, the best performing portfolio for the 1976 to 2009 period was the PPA Benchmark Portfolio, with a mix of 40 percent bonds and 60 percent equities. Because, this analysis is strictly based on past performance, this result does not guarantee or imply that a PPA-like portfolio will perform better than the current PBGC allocation going forward. Moreover, the PPA benchmark and other portfolios with a significant weighting toward equity would likely not perform as well if incoming cash-flows from new plan terminations were included in the analysis. Rather than determining a particular asset allocation, this analysis highlights that an approach that was not only mindful of returns, but also accounted for the correlation between asset returns and the liability return, was more likely to result in an investment policy for PBGC that achieved higher risk-adjusted performance for the 1976 to 2009 period. Our analysis found no link between the frequent changes in PBGC’s investment policy since 1990 and the actual allocation between equity and fixed-asset investments. This is because while the stated policy shifts were significant, changes to the actual allocation were moderate. Hence, changes remained within a narrow range of a portfolio mix between fixed- income and equity allocations. As a result, although some shifts in actual allocations did occur, we found no conclusive evidence that fluctuations in the proportional allocation between equity and fixed-income investments had a notable adverse impact on PBGC returns. This was the case for both types of analysis—asset-only and assets net the liability return. Finally, in the assets net of liability context, our finding that PBGC’s portfolio underperformed relative to the Dynamic Benchmark suggests that factors other than asset allocation are causing the underperformance—such factors could include the inflows of new assets, timing of shifts to meet allocation goals and their associated costs, or could reflect that there are no costs or fees in the Dynamic Benchmark. However, detailed information would be required to determine the reasons for the underperformance of the PBGC total fund relative to the Dynamic Benchmark. In our review of PBGC’s internal documents, we found that the agency has largely functioned without complete investment policy statements and operating procedures. Compared to industry-recommended standards for pension funds and insurance companies, PBGC’s investment policy statements are missing important provisions that provide implementation guidance. Further, PBGC staff have largely functioned without the benefit of fully developed and documented operating procedures. The investment policies issued by PBGC’s board for strategic guidance in the planning and execution of investments have generally lacked a number of provisions recommended for sound investment management or have been insufficiently detailed to provide adequate guidance for staff concerning certain investment objectives. One expert we interviewed stated that while PBGC is unique and may not be obligated to articulate the same policy provisions as other institutions with similar responsibilities—such as foreign pension insurers, domestic pension funds, and private insurance companies—the agency faces similar investment problems, opportunities, and solutions as many investment programs do. Hence, it is equally important for PBGC to have a well- developed investment policy statement as it is for these other institutions. According to one expert, “an investment policy statement (IPS) is a foundational document for a pension fund’s investment program. The essential purposes of the IPS are to articulate the consensus view of the board regarding the overall investment program and to document policies and procedures regarding major issues.” However, we found items included in the PBGC’s policy statements often are insufficiently detailed to provide adequate guidance for staff concerning certain investment objectives. For example, we found that prior to 1990, PBGC operated without a formal investment policy statement, and that the six different policy statements the PBGC board has issued since then have been silent in many areas cited as important by professional organizations such as the Chartered Financial Analyst Institute, the Association of Public Pension Fund Auditors, and the Foundation for Fiduciary Studies. We compiled a list of 25 items these organizations recommended be included in an investment policy statement in order to provide sound strategic guidance across the key areas of governance, investment objectives, and risk management. We then examined PBGC’s policy statements against these items and found certain items were often missing (see table 4). The agency’s 2008 policy statement has been the most thorough to date (including 15 of the items) while PBGC’s most recent investment guidance, adopted by board representatives in 2009, included the fewest to date (only 6 of the items). Further, some of the provisions that were covered were, according to some staff, insufficiently detailed to offer adequate guidance. In the governance area, PBGC’s investment policy statements have not assigned responsibility for managing, monitoring, and reporting on portfolio risk. According to PBGC officials, those responsibilities were either informally communicated to staff or staff assumed responsibility for these activities on their own. Further, while most of PBGC’s statements include a discussion of hiring and monitoring asset managers, they do not assign responsibility for these tasks to a specific group. By contrast, the investment policy statement of the United Kingdom’s pension insurer, Pension Protection Fund, and most of the public pension plans that we reviewed do assign responsibility for these tasks to specific groups, such as the public plan’s investment advisory committee. Also, while PBGC’s investment policy statements assign responsibility for the execution of the investment program, they generally do not assign responsibility for developing or monitoring the implementation of the policy. According to statute, the PBGC board is responsible for establishing policy. In addition, the board has an oversight responsibility to ensure that PBGC is executing the board’s policy in appropriate ways. According to PBGC staff, because of the lack of specific guidance in the policy statements, there have been instances when staff have had to request further policy guidance from PBGC’s board and the board had not always been responsive. For example, in 2004, the board had instructed staff to limit costs by using only incoming assets to transition to the new allocation target. When adherence to this directive, together with a low level of liquid, incoming assets caused the agency to miss its new allocation targets, staff told us they asked for guidance but did not receive it. More recently, in May and June 2009, the board members issued a resolution directing staff to cease implementation of the 2008 investment policy, but did not approve a new investment policy statement and did not provide further investment guidance. In response, PBGC’s Corporate Investments Department’s (CID) staff wrote a memo to PBGC’s acting director indicating that they were concerned about the lack of a defined policy to provide direction to CID staff with respect to asset allocation. Principal areas of concern outlined were: (1) oversight and management, (2) investment of newly trusteed assets, and (3) asset allocation risk. Subsequently, policy guidance was provided by the board representatives until a new investment policy statement was approved by the board. In addition, while we have found that the board and board representatives are meeting more frequently than in the past, we could find no formal oversight or formal feedback mechanism in place for the board and board representatives—a mechanism that is a necessary element for ensuring that PBGC is executing the policy in appropriate ways. According to one expert we interviewed, the inventory of critical subjects regarding an investment program is extensive, and the board is ultimately responsible for assessing and overseeing all of them. Some of the key elements the expert noted that should require the board’s focus include clearly articulated governance policies; a comprehensive, written investment policy statement; a well thought out asset allocation process; clearly defined and appropriate measures; monitoring processes; and monitoring of investment costs. Although PBGC staff told us that these things were accomplished below the level of the board members, we could find no documentation that indicated that such a formal oversight mechanism was in place. We reviewed decades of board meeting notes—up through the most recent meetings—in search of such evidence, but could find none. In the area of investment objectives, PBGC’s statements have remained silent with respect to several items, such as return targets and statements of risk tolerance. By comparison, the United Kingdom’s Pension Protection Fund board, in its policy statement, has specifically set a long- term target investment return of 1.8 percent above liabilities and a risk level equivalent to a tracking error of 4 percent against liabilities. The Pension Protection Fund also identified nine risks that might affect its investments and identified approaches to mitigate those risks. Six of the eight public pension plans we reviewed also included a return target and a risk tolerance in their investment policies. One expert stressed, in particular, the importance of documenting tolerance for risk in the investment policy cautioning that without such documentation, a firm risks making changes at a bad time (selling at a deep discount) or in response to political pressure. In order to keep the investment policy out of the political realm, a well-documented, long-term, and disciplined view with an effective governing board is necessary, while following a well established allocation model that keeps long term perspective in mind. In the area of risk management, although most items were covered in PBGC’s policy statements, almost all lacked sufficient detail to provide adequate guidance. For example, the cost management provision of PBGC’s statements generally identified the types of investment expenses involved and offered a low-cost policy for investing, but did not provide guidance on how to monitor these costs. As noted by some experts, ultimately, investing is not about seeking returns but about managing risks, with well-grounded policies to ensure adequate monitoring of risks over time. Typically missing from PBGC’s investment policy statements has been the practice of portfolio rebalancing. A provision for rebalancing was provided for the first time in 2008. All of the public pension plans that we studied included such tolerance ranges. Most also specified a time frame for rebalancing or assigned responsibility for determining a course of action. The PBGC’s CID staff has largely operated without fully developed and documented operating procedures, although it has recently begun to create them. According to a PBGC staff member, the mission of the CID is twofold: (1) to transition newly trusteed assets into PBGC’s investment portfolio and (2) to manage PBGC assets. Further, to transition newly trusteed assets into PBGC’s investment portfolio, CID staff are responsible for transferring assets so that they are commingled in compliance with PBGC policies, and are consistent with PBGC’s asset allocation. However, the staff member also said that PBGC historically has not had formal procedures for executing the investment policy and transitioning assets. As a result, according to PBGC’s Inspector General, when the former board established the 2008 investment policy, certain tasks were not performed in the proper order by CID staff. For example, according to PBGC’s Inspector General, PBGC had actually undergone several transition related activities—such as the selection of three investment management firms for strategic partnership contracts for managing $2.5 billion in PBGC assets—before risks and mitigating methods related to the transition were even documented. In addition, CID staff provided a group of documents covering a number of transition related activities that had several notable weaknesses. For example, these documents indicated timelines for implementation, but provided no risk analysis, accountability measures to monitor progress, or a delineation of roles and corresponding responsibilities related to the transition. According to a PBGC staff member, to manage PBGC’s assets, at a high level, CID staff are responsible for five operational tasks: (1) select, hire, and terminate investment managers; (2) oversee managers: (3) oversee the aggregate investment program: (4) implement board asset allocation and any other board investment policy; and (5) oversee all aspects of the PBGC investment programs including cash management and securities lending. In 2010, CID staff began to draft more complete working procedures for their investment operations, however, PBGC’s CID staff and the Inspector General recently told us that this effort has been a slow undertaking. PBGC’s CID staff stated that creating procedures takes away from their ability to do their mission work and, thus far, they have only been able to provide preliminary and incomplete drafts of some of the needed procedures. However, while complete operational procedures are lacking for most of the operational tasks under the purview of the CID, PBGC’s CID staff have recently completed a draft compendium of formal procedures that detail processes and procedures for managing their securities lending program—the smallest program operated within the CID. According to one expert, well functioning operational policies and procedures are an essential mechanism for ensuring linkages between a fund’s governance structure, which includes policy making, and its management systems. This expert wrote that with regard to operational policies, directors should (1) identify and address aspects of the fund’s investment operations, organization, and portfolio necessary to control undue risk and expenses, minimize inefficiency, and achieve the desired long-term return; (2) evaluate the fund’s organization and procedures relative to those of its peers and industry best practices; and (3) find ways to enhance public trust and confidence in the pension insurance system. The board must oversee and approve such policies and procedures. PBGC has grown from a relatively small agency with about $34 million in assets in its first year after its establishment in 1974, to one with almost $80 billion in assets in fiscal year 2010. As the agency has grown, so too has the frequency of changes to its investment policies. The agency’s policies and procedures for asset management still reflect its small agency past. Indeed, there are few formally documented procedures and the investment policy statements are insufficiently detailed for the agency to manage its investments and apply the investment policy consistently during a transition period and during times of political change. Without a detailed investment policy and formal investment procedures, the agency operates in an environment that is ripe for costly transactions and sub-par returns. When factoring in the frequent changes to the investment policy with the incomplete policies and procedures, a picture emerges that suggests PBGC lacks a disciplined approach to investing—an unsettling picture of an agency with responsibility for a large asset portfolio and a challenging financial future. As the guarantor of basic pension benefits for 44 million Americans, PBGC must take a more disciplined and long-term approach to investment by developing and adhering to a long-term comprehensive investment policy and developing a complete compendium of operational policies and procedures. Well-functioning operational policies and procedures are an essential mechanism for ensuring linkages between pension funds’ governance structure and management systems. Current work under way by PBGC’s CID staff to develop such policies and procedure is an important first step, but greater commitment is needed from both the PBGC board and its management to assure that PBGC can effectively and consistently meet its obligation to conduct the many investment related functions it performs. We are making the following two recommendations: 1. To ensure a disciplined and long-term approach to investment, we recommend PBGC and its board of directors develop and maintain a comprehensive investment policy statement that provides clear organizational accountability, well-defined goals, and risk management parameters. 2. To ensure proper stewardship of PBGC’s assets and effective implementation of its investment policy, we recommend that PBGC develop a complete set of operating procedures and guidelines consistent with recognized best practices in industry and government. We obtained written comments on a draft of this report from PBGC and from the Department of Labor (Labor), which are reproduced in appendixes IV and V, respectively. PBGC and Labor also provided technical comments, which we incorporated into the report as appropriate. PBGC and Labor generally concurred with our recommendations and outlined actions the agency has taken to address many of the concerns we raised. For example, PBGC and its board recently issued a more comprehensive investment policy statement that has incorporated many of the policy items that we identified as missing from previously issued policy statements. In addition, PBGC is in the process of developing a complete set of operating procedures and guidelines. We are pleased to learn of the steps already taken and those underway to address our recommendations. In our view, these initial actions and continued efforts to implement our recommendations fully can only strengthen the stewardship of PBGC’s investments to better assure that PBGC can effectively and consistently meet its obligation to conduct the many investment-related functions it performs. Underscoring its concern with the importance of PBGC’s mission, Labor highlighted the increased oversight activity by the current board, its representatives and their staffs. The Secretary noted that the board also exercises its oversight responsibilities through monthly transition and investment reports written documentation and other activities. We acknowledge this increased oversight and appreciate the efforts by the current board to play a greater role in monitoring the PBGC. The increased oversight by the current board members and their representatives indeed represents an improvement in the way policies and processes are adopted and overseen at the PBGC, but we believe such improvements must be documented and institutionalized to assure that such levels of effort are sustained through subsequent boards. Our prior recommendations to Congress to improve governance at the PBGC through an expanded and restructured board continue to be needed to assure that such appropriate and continuous oversight is carried out, not only today but in the future. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of the report to the Secretary of Labor, the Director of the PBGC, and other interested parties. We will also make copies available to others on request. This report is also available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact Barbara Bovbjerg at (202) 525-7215 or bovbergb@gao.gov. Contact points for our Congressional Relations and Office of Public Affairs can be found on the last page of this report. Key contributors are listed in appendix VI. To determine how Pension Benefit Guaranty Corporation’s (PBGC) investment objectives have changed over time and whether policy goals have been met, we collected and reviewed investment policies used by PBGC from 1990 through the policy dated October 2009. We started our review with PBGC’s 1990 investment policy because it was the first investment policy that specified asset allocation targets, such as the proportion of assets to be invested in fixed-income assets versus equities. For each of these policies, we identified the overall objective, such as whether the policy attempted to maximize earnings using a higher proportion of equities or reduce risk by increasing the proportion of fixed- income securities matched to the duration of their liabilities. We also identified the percentages of each type of asset required by the policy, such as the percentage allocated to equities versus fixed-income investments, and compared these target allocations to actual allocations as stated in PBGC’s annual reports, internal trust and revolving fund data, and other financial information received from PBGC officials. We then looked at the conditions leading up to each change in policy, such as changes in investment philosophy, incoming assets from terminated plans, and changes in leadership at the executive director level. We obtained this information through interviews with PBGC officials, and from other information provided by the agency, including internal memos, e-mails, inspector general audit reports, summary information prepared for board and advisory committee members, asset and liability studies, and other reports and memos prepared by various PBGC investment managers and consultants. We also performed a detailed review of PBGC board and advisory committee meeting minutes using NVivo content analysis software. To identify and summarize discussions related to investment policy development, review, and implementation, we reviewed investment policy statements, related investment advisory committee meeting notes and documentation, and board meeting notes when available. We obtained and reviewed this information from PBGC’s inception in 1974 through the current policy, but focused our analysis on the period between 1990 and the 2009 policy because the policies in place during that period were the focus of our review. We also interviewed past PBGC directors, board representatives, advisory committee members, and the PBGC Inspector General. We also reviewed relevant federal laws and regulations. To determine how PBGC’s changes in investment policy compared to other entities, we interviewed officials from several pension consultants, investment and transition managers, life and property and casualty insurers, and large state pension plans. We also interviewed and reviewed investment policy-related information provided by foreign pension insurers in Canada, the Netherlands, Switzerland, and the United Kingdom. However, we did not conduct an independent legal analysis to verify the information provided by state pension plans or foreign pension insurers. Finally, we reviewed past our work on PBGC’s investment policies and oversight structure. To determine how PBGC transitions assets between investment policies and the resulting costs, we interviewed PBGC officials responsible for transitioning assets and reviewed transition related documentation provided by PBGC officials, as available. For transitions where data was not available from PBGC, we obtained this information directly from PBGC’s transition managers and interviewed officials from those firms to determine both implicit and explicit transaction costs associated with changing investment policies. We also looked at the procedures and costs associated with transitioning assets from terminated plans taken over by PBGC to determine whether or not it was possible to separate these costs from costs associated with changing policies. We interviewed the PBGC Inspector General and past PBGC directors to obtain additional information about PBGC’s transition related policies and other adopted practices. In order to understand asset transitions more generally, we interviewed transition and investment managers, financial industry consultants, and officials at several large state pension plans. We also looked at market conditions and returns on equity and fixed-income investments during the periods in which PBGC was transitioning assets. We limited our analysis of transaction costs to the policies in place from 2004 through 2009 because of the lack of detailed cost data available from PBGC and their transition managers for transactions made prior to the 2004 policy. To assess the performance of PBGC’s investments, we conducted a portfolio performance evaluation of the agency’s Single-Employer Total Fund monthly returns from the period October 1976 to December 2009. This analysis focused on the single-employer program, which accounted for 96 percent—or $21.08 billion—of the $21.95 billion total deficit from the single-employer and multiemployer programs, as of September 30, 2009. For those portions of this analysis involving PBGC liabilities, we used data on the liabilities associated with (terminated) trusteed plans within the single-employer program. The Single-Employer Total Fund represents the pool of trusteed assets that supports the liabilities associated with terminated defined benefit plans that have been trusteed by PBGC. As part of the portfolio performance evaluation, we compared PBGC’s Total Fund portfolio return performance to the returns on several well- diversified benchmark portfolios via a number of portfolio performance statistics. We selected well-diversified benchmark portfolios for the portfolio performance evaluation to ensure that the variability of the benchmark portfolio returns almost exclusively represented systematic risk and not the idiosyncratic risk associated with individual securities. Also, the portfolios were selected such that they represented exposure to the systematic risks that are reflected in the returns on several specific, broad asset classes. The asset classes are the domestic equity asset class (United States), the foreign equity asset class, the short maturity, risk-free asset class, and the long maturity fixed-income asset class. These particular asset classes were chosen because they are the ones emphasized in asset allocation data provided by PBGC. The benchmark portfolios used in this analysis are also distinguished by whether their asset class composition varies dynamically over time (“dynamic” composition portfolios) or is constant over time (“static” compositions portfolios). The benchmark portfolios and their characteristics are as follows: S&P 500. Asset class composition: 100 percent equities. This is a static composition portfolio that represents the equity asset class. Wilshire 5000. Asset class composition: 100 percent equities. This is a static composition portfolio. It represents the equity asset class with a greater allocation to smaller capitalization stocks than the S&P 500. Barclays Capital Long-Term Government Credit Index. Asset class composition: 100 percent fixed income. This is a static composition portfolio representing the fixed-income asset class, including both corporate and U.S. government fixed-income asset classes. Pension Protection Act Benchmark Portfolio. Asset class composition: 60 percent equities and 40 percent fixed income. This is a static composition portfolio. Life Insurance Benchmark. Asset class composition: 85 percent fixed income and 15 percent equities. This is a static composition portfolio, and is intended as a stylized representation of the asset portfolio typically held by life insurance firms in their general accounts (with grouping mortgage assets into the fixed-income category). Post Fiscal Year 2002 Benchmark. Asset class composition: 30 percent equities, 60 percent fixed income, and 10 percent cash. This is a static composition portfolio, and is intended as a stylized representation of the average asset allocation of the PBGC total fund during what is later termed “asset allocation period 4.” This roughly corresponds to the period from beginning of fiscal year 2002 to the present. Dynamic Benchmark. Asset class composition: equivalent to the asset class composition for the PBGC Total Fund. This is a dynamic composition portfolio, where the asset allocation varies over time in such a fashion so as to match that of the PBGC Total Fund for the broad asset classes domestic equity, foreign equity, fixed income, and riskless short maturity fixed-income assets (e.g., cash). The purpose of the Dynamic Benchmark in the PBGC Total Fund portfolio performance evaluation is to reflect the systematic risk exposure of the PBGC Total Fund as closely as possible while at the same time abstracting from any active tactical asset allocation undertaken by the PBGC Total Fund management, such as tactical allocations in specific subsectors within an asset class or investments in specific individual securities. The comparisons allowed us to analyze various aspects of the PBGC Total Fund’s risk-adjusted performance. Given that the primary function of PBGC is to support its liabilities—the pension benefits associated with terminated, trusteed plans—the portfolio performance evaluation was conducted using asset-only returns and asset returns net of the liability return. To determine how well PBGC’s investment policies and operations comport with best practices in the industry, we interviewed PBGC’s Inspector General, current PBGC board member’s representatives, and PBGC staff. We also reviewed relevant federal laws and regulations. To evaluate PBGC’s operational guidelines and procedures, we obtained procedures manuals and documents that PBGC’s staff uses to manage and oversee their operations. To evaluate PBGC’s investment policy statements against industry best practices, we obtained information and documentation of actual practices used by industry experts, foreign pension insurers in Canada, the Netherlands, Switzerland, and the United Kingdom, investment committee documents from large state pension plan providers, and a property and casualty insurance provider. To identify a list of items that could be included in an investment policy we first conducted a literature search for documents with guidance on investment policy statements. We found documents from expert organizations which provide standards that financial industry professionals follow to ensure they are meeting the fiduciary requirements under relevant state and federal laws. These organizations include the Chartered Financial Analyst Institute, the Foundation for Fiduciary Studies, the Association of Pension Plan Fund Auditors, the Government Finance Officers Association, and Independent Fiduciary Services. We started with the Chartered Financial Analyst Institute’s documents and listed elements of an investment policy identified in a document created by the institute and then compared that list to elements identified in the documents we reviewed created by other organizations. We also considered the investment policy statements of other entities and the elements that were frequently found in those statements. In our list, we kept items that were mentioned in more than one of the documents from the five expert organizations. We also added one item, transition policy, which was not found in the documents we used but we believe that it is specific and unique to the mission of PBGC since the agency transitions assets and liabilities from the defined benefit plans that are terminated. This list contains elements that multiple industry organizations have identified as desirable elements of investment policy statements, but, should not be considered an exhaustive, customized checklist. While we believe that PBGC should have some of the items contained in these lists, because every investor is unique, the actual items that PBGC should include in its investment policy needs to be tailored to their particular needs and situation. Receipt of newly-terminated plan assets is a multi-step process. Assets are evaluated by an analyst with PBGC’s Corporate Investment Department (CID).CID policy calls for various documents to be compiled into a file (including, for example, a plan asset listing, investment statements, trusteeship agreement, contact information), records receipt of the plan in CID’s plan tracking worksheet, and assigns the plan to a CID analyst. The analyst then reviews the file and makes contact with the party/parties that have custody of the assets (typically more than one) to initiate the transfer, and a plan asset transfer methodology is determined. PBGC officials noted that it is CID priority to transfer all assets in-kind, but that is not always permitted (per contractual agreements between the former plan sponsor and the asset custodian and/or proprietary investment products) or optimal (for example, with small dollar mutual funds). To transfer the assets, the analyst prepares a direction letter that will include a copy of the trusteeship agreement and transfer instructions at a minimum. This letter is signed by authorized PBGC personnel and sent to the asset custodian. The assets are then transferred to PBGC’s asset custodian and placed in a holding account until liquidity is determined and a certain dollar threshold is met. Illiquid assets, such as real property, are generally transferred to PBGC's Special Situation manager, where the manager seeks liquidation of the asset in a timely manner. Private equity (generally in the form of limited partnerships) is transferred to one of PBGC's private market overseers. We conducted a portfolio performance evaluation of the PBGC Single- Employer Total Fund monthly returns from the period October 1976 to December 2009. This analysis focused on the single-employer program, which accounted for 96 percent—or $21.08 billion—of the $21.95 billion total deficit from the single-employer and multiemployer programs, as of September 30, 2009. For those portions of this analysis involving PBGC liabilities, we used data on the liabilities associated with (terminated) trusteed plans within the single-employer program. The Single-Employer Total Fund represents the pool of trusteed assets that supports the liabilities associated with terminated defined benefit plans that have been trusteed by PBGC. As part of the portfolio performance evaluation, we compared PBGC’s Total Fund portfolio return performance to the returns on several well- diversified benchmark portfolios via a number of portfolio performance statistics. The comparisons allowed us to analyze various aspects of the PBGC Total Fund’s risk-adjusted performance. Given that the primary function of PBGC is to support its liabilities—the pension benefits associated with terminated, trusteed plans—the portfolio performance evaluation was conducted using asset-only returns and asset returns net of the liability return. The liability return refers to the rate of growth in the total value of the then-existing liabilities or terminated benefits, (i.e., exclusive of newly terminated plans). In computing the asset returns net of the liability return, we use what we term the “scaled” liability return—the product of the liability return and the inverse of the funding ratio (PBGC Total Fund aggregate assets to PBGC total fund aggregate liabilities). Our analysis also entailed examining patterns in the PBGC Total Fund’s asset allocations (PBGC Total Fund portfolio “weights” across asset classes) over time in order to assess the effect of fluctuations in the PBGC Total Fund asset allocations on the performance of the PBGC Total Fund. This analysis included characterizing the behavior of the PBGC Total Fund portfolio weights and identifying asset allocation periods in the PBGC Total Fund. The result of this analysis was used in selecting some of the benchmark portfolios. The results immediately below provide a two-way comparison, on an asset-only basis, of the PBGC Total Returns to the Dynamic Benchmark— the two dynamic portfolios among those included in our portfolio performance evaluation analyses. Due to the design of the Dynamic Benchmark, these results reflect PBGC Total Fund under- or over- performance linked to influences other than the asset class allocation, such as asset allocations to specific subsectors within an asset class or investments in specific securities. Then, in the following subsection, we assess the effect of variation in the PBGC Total Fund’s asset allocation in an asset-only context by comparing the performance of the Dynamic Benchmark and the PBGC Total Fund against the static benchmark portfolios. Special emphasis was placed on analyzing the differences in performance between the portfolios that have particularly strong performance and the two portfolios with dynamic asset allocations. This special emphasis allows us to then assess whether the time variation in the asset allocations associated with the PBGC Total Fund and the Dynamic Benchmark appeared to hurt or help their risk-adjusted performance. Also, we examine whether the data suggests other aspects of asset allocation aside from variation in portfolio weights that might bolster or harm risk- adjusted return performance. The performance statistics for this section are shown in table 6 unless otherwise noted. The phrases “decade subperiods” and “decade” will be used to denote the four subperiods—October 1976 through December 1979, 1980–1989, 1990–1999, and 2000–2009 for which statistical estimates are shown in table 6. The results summarized in table 6 indicate that, over the particular historical period studied, the PBGC Total Fund outperformed the Dynamic Benchmark on a risk-adjusted basis, where risk is measured in terms of the volatility of month returns. In particular, all risk adjusted measures (Sharpe, Adjusted Sharpe, Sortino, and Omega ratios) are slightly higher for the PBGC Total Fund than for the Dynamic Benchmark for the overall period. For those three decade subperiods where the Sharpe ratio is positive for the PBGC Total Fund (1980–1989, 1990–1999, and 2000–2009) the PBGC Total Fund outperformed the Dynamic Benchmark for two out of the three subperiods (1990–1999, and 2000–2009). In the sub-period where the Sharpe and Sortino ratios are negative, the Adjusted Sharpe measure for the PBGC Total Fund is greater than that of the Dynamic Benchmark, again indicating that the PBGC Total Fund outperformed the Dynamic Benchmark in that period. Disaggregation of the PBGC Total Fund’s return performance statistics reveals that PBGC Total Fund returns tended to underperform the Dynamic Benchmark returns on a risk-adjusted basis when the Total Fund’s allocation to equities is higher, not lower. For instance, during allocation period 1—when the PBGC Total Fund equity allocation had an upward trend and the fixed-income allocation had a downward trend—the PBGC Total Fund Sharpe ratio was below that of the Dynamic Benchmark. In contrast, the PBGC Total Fund outperformed the Dynamic Benchmark in terms of the Sharpe ratio in allocation period 2, when the total fund equity allocation was falling. Also, the average allocation to equities was lower in allocation regime 4 than it was in allocation period 3, and the PBGC Total Fund outperformed the Dynamic Benchmark in allocation period 4 but slightly underperformed the Dynamic Benchmark in allocation period 3. The Sortino and Omega ratios show similar (and more pronounced in the case of the Omega ratio) under- or over-performance patterns across the weight regimes, thus corroborating and affirming the Sharpe ratio results. Looking more closely at potential sources of the under- or over- performance of the PBGC Total Fund returns versus the Dynamic Benchmark returns, a driver of the PBGC Total Fund’s under- or over- performance appears to be the mean of the returns, inasmuch as the pattern of under- or over-performance in the risk-adjusted return metrics across decades matches that of the pattern of under- or over-performance in the mean. This holds whether one views the disaggregations by “decade” or by allocation period. According to our results, the Dynamic Benchmark outperformed every static benchmark except the PPA and the Post Fiscal Year 2002 Benchmark—the benchmark portfolio with composition that roughly reflects the PBGC Total Fund’s portfolio allocation during allocation period 4—while the PBGC Total Fund outperformed all the same benchmarks the Dynamic Benchmark did as well as the PPA. In addition, another finding is that all of the static benchmarks that involve mixtures of fixed income and equity securities outperform those benchmarks that allocate all funds to either bonds or equities. With regard to question of whether fluctuations in asset allocations had an adverse impact on PBGC Total Fund returns, the variable nature of the results precludes concluding that the time variation in asset allocations necessarily adversely impacted the PBGC Total Fund return performance. Both the PBGC Total Fund and the Dynamic Benchmark have fluctuating asset allocations, yet both have higher values for the risk-adjusted performance metrics—Sharpe, Adjusted Sharpe, Omega, and Sortino ratios—than the majority of the fixed allocation portfolios. On the other hand, there is one fixed-allocation benchmark—the Post Fiscal Year 2002 Benchmark portfolio—that, for the overall period, had risk-adjusted performance metrics that were superior to both the PBGC Total Fund and the Dynamic Benchmark. However, even this fixed allocation portfolio is really based upon the PBGC Total Fund, for the portfolio weights for the Post Fiscal Year 2002 Benchmark portfolio are a stylized representation of the PBGC Total Fund weights over the course of allocation period 4. In addition, note that, despite having fluctuating asset allocations, the PBGC Total Fund has outperformed the Post Fiscal Year 2002 Benchmark—in the sense of having higher risk-adjusted performance measure values— over significant subperiods of time in the past. For instance, the PBGC Total Fund has performed better than the Post Fiscal Year 2002 Benchmark portfolio on a risk adjusted basis for two out of the four “decade” subperiods—that is, the subperiods 1990–1999 and 2000–2009 for a total of 20 years out of the 33 1/4 years from October 1976 to December 2009. Thus, when returns on assets are considered in isolation from the growth in the liabilities, we did not find strong support in the data to indicate that the variations in the PBGC asset allocations adversely impacted the PBGC Total Funds’ performance. Lack of diversification across asset classes appeared to have a more adverse impact on risk-adjusted performance. Additionally, the portfolios with 100 percent allocations to equities had some undesirable characteristics. Notably, out of the eight portfolios considered in the portfolio performance analysis, all the portfolios that represented a single asset class were among the bottom half of the portfolios in terms of the Sharpe ratio for the entire data sample, including the 100 percent fixed- income benchmark. The dominant contributing factor to their relatively weak risk-adjusted return performance is risk—all three had among the highest standard deviation and kurtosis scores for the entire historical sample period. The two portfolios that were 100 percent equities—the S&P 500 and the Wilshire 5000—had an additional undesirable feature: negative skewness. These two had the “most negative” skewness scores for the total sample period out of the eight portfolios. The combination of magnified negative skewness and kurtosis evident in the returns of the two equity benchmark portfolios is undesirable because it implies that investment in such portfolios has the potential to contribute of extreme negative returns. Although both equity portfolios have the highest average returns for the overall sample, the relatively low Sharpe ratio scores associated with them imply that they do not offer enough reward per unit of risk—that is, robust enough reward to risk trade-offs—to outperform those portfolios, both static and dynamic, that contain a diversified mix of both bonds and equities. A two-way comparison of the PBGC Total Fund and the Dynamic Benchmark enabled us to evaluate PBGC Total Fund under- or over- performance associated with factors other than the PBGC Total Fund asset allocation. Next we examine the impact of fluctuations in the PBGC Total Fund’s asset allocation in the asset-liability context. A comparison of the PBGC Total Fund net-of-liability return performance to the net-of-liability return performance of the Dynamic Benchmark indicates that the PBGC Total Fund portfolio underperforms the Dynamic Benchmark in risk-adjusted terms on an asset-liability basis. In contrast to the results for the asset-only analysis, the PBGC Total Fund had weaker performance than the Dynamic Benchmark in that its Adjusted Sharpe ratio was lower for the overall time period (October 1976 to December 2009). Despite the switch in the performance rankings of the PBGC Total Fund and the Dynamic Benchmark, there are many similarities between the asset-liability performance analysis results and the asset-only performance analysis returns. The areas of similarity are as follows: 1. Under- or over-performance pattern across “decade” and asset allocation periods. The PBGC Total Fund underperformed the Dynamic Benchmark for two out of the four decade subperiods and two out of the four asset allocation regimes on a risk-adjusted, net-of- liability return basis, according to the Adjusted Sharpe ratio statistic values. 2. Lack of materiality of investment expenses. Deducting investment expenses from the PBGC Total Fund returns in the asset-liability context did not affect the performance ranking of the PBGC Total Fund relative to the Dynamic Benchmark on an Adjusted Sharpe ratio basis (in those periods for which investment expenses data were available). 3. Tendency to perform relatively worse in regimes where equity asset allocation is greater or rising. The PBGC Total Fund’s relative performance has tended to be worse in asset allocations periods where there is an elevated or rising allocation to the equity asset class. For example, as in the asset-only analysis, the PBGC Total Fund returns, net of the liability returns, had an Adjusted Sharpe ratio below that of the Dynamic Benchmark in allocation period 1 (which was characterized by a rising allocations to the equity sector). Also, as in the asset-only case, the PBGC Total Fund underperformed the Dynamic Benchmark on a net of liability return basis in allocation period 3, according to the Adjusted Sharpe ratio scores. In allocation period 4, when the average allocation to equities in the PBGC Total Fund portfolio was lower than in allocation regime 3, the PBGC Total Fund had a higher Adjusted Sharpe ratio than the Dynamic Benchmark did. However, unlike the asset-only case, the PBGC Total Fund Adjusted Sharpe ratio was less than that of the Dynamic Benchmark in allocation period 2, when the PBGC Total Fund allocation to equities was falling and to bonds was rising. The similarity of the seemingly inverse relation between the PBGC Total Fund Adjusted Sharpe ratio value and the magnitude of the allocation to the equities asset class reinforces the impression that elevated allocations of the PBGC Total Fund to the equity asset class had adverse impact on PBGC Total Fund returns net of the liability returns in an asset-liability context as well as when the portfolio returns are considered in isolation from the liability returns in an asset-only context. However the patterns in the equity asset allocation and its relationship to performance should not be viewed as implying causality. 4. Mean excess return prominence as a driver of risk-adjusted performance metric values across subperiods. In every sub-period and asset allocation regime where the excess mean return (net of the liability return) for the PBGC Total Fund exceeded the excess mean return (net of the liability return) for the Dynamic Benchmark portfolio, the Adjusted Sharpe ratio for the PBGC Total Fund exceeded the Adjusted Sharpe ratio for the Dynamic Benchmark. Given all of the similarities between the results of the performance comparisons in the asset-liability and asset-only contexts, the reason for the contrast between the PBGC Total Fund’s underperformance of the Dynamic Benchmark in the asset-liability context and its outperformance in the asset-only context appears to be risk. In the asset-only performance comparison analysis, the PBGC Total Fund’s riskiness—as measured by the standard deviation and semi-standard deviation of the returns—-was lower than that of the Dynamic Benchmark portfolio. However, in the asset-liability context, the results indicate that the PBGC Total Fund returns have greater standard deviation and semi-standard deviation values than the returns for the Dynamic Benchmark, suggesting that the PBGC Total Fund returns (net of the liability returns) are riskier and more volatile than the Dynamic Benchmark returns (net of the liability returns). One factor that likely played a role in elevating the PBGC Total Fund’s riskiness above that of the Dynamic Benchmark is the correlation of the actual asset returns with the liability returns (not the correlation between the liability returns and the asset returns net of the liability returns). For the overall sample period, the PBGC Total Fund actual returns had lower correlation with the liability returns —both scaled by the funding ratio and unscaled—than the Dynamic Benchmark. Higher correlation makes it more likely that movements in the liability return are accompanied by movements in the asset portfolio return in the same direction and of similar magnitude. Such co-movement of the actual asset returns and the liability returns helps reduce the volatility of the asset returns net of the liability returns. Lower correlation has the opposite effect of higher correlation—lower correlation reduces co-movement between asset returns and liability returns and thus elevates the riskiness of asset returns net of the liability returns. Thus, the extent to which the riskiness of the PBGC Total Fund exceeds the riskiness of the Dynamic Benchmark on a net-of-liability return basis probably reflects, at least in part, the extent to which the liability returns are less correlated with the PBGC Total Fund’s actual returns than with the Dynamic Benchmark actual returns. However, the question of why the PBGC Total Fund would be less correlated with liability returns than the Dynamic Benchmark would require a more detailed investigation. The results of comparing the performance measures of the PBGC Total Fund and the Dynamic Benchmark returns, net of the liability return, to the performance measures of the static portfolios are that the Dynamic Benchmark outperforms two out of the six static portfolios—the Post Fiscal Year 2002 Benchmark and the Barclays Capital Long-Term Government Credit Index—and is roughly tied in performance with the S&P 500. However, the PBGC Total Fund did not outperform any of the benchmarks. Moreover, two out of the three best-performing portfolios have significant allocations to bonds and equities versus representing only a single asset class. In order to detect potential sources of underperformance, as measured by the Adjusted Sharpe measure, in the PBGC Total Fund and the Dynamic Benchmark, we conducted a detailed comparison of various performance metrics for these two portfolios to performance metrics for the PPA benchmark portfolio—the portfolio that had the highest Adjusted Sharpe measure for the overall October 1976 through December 2009 sample period and, by that measure, the best risk-adjusted performance. This detailed comparison suggests that a major source of the underperformance of the PBGC Total Fund and the Dynamic Benchmark relative to the PPA benchmark portfolio was weakness in the mean excess return, for both portfolios had lower mean excess returns for the overall sample period the mean excess return of the PPA benchmark portfolio. However, both the PBGC Total Fund and the Dynamic Benchmark portfolios appeared to be less risky than the PPA portfolio inasmuch as the returns on both portfolios had lower standard deviation and semi- standard deviation than the returns on the PPA portfolio. Thus, the primary immediate reason both portfolios have lower Adjusted Sharpe ratios than the PPA benchmark is that their returns (net of the liability return) had lower mean excess returns than the PPA benchmark return (net of the liability return) not because they were more risky than the PPA benchmark. One other feature of the results that underscores the extent to which both portfolios were less risky than the PPA benchmark on an asset-liability basis is that the returns (net of the liability return) for both portfolios had lower standard deviations than the return (net of the liability return) for the PPA benchmark for every decade sub-period in the case of the Dynamic Benchmark and for three out of the four decade subperiods in the case of the PBGC Total Fund. Although the statistics clearly suggest that weakness in the mean excess return played a role in lowering the risk-adjusted performance of both the PBGC Total Fund and the Dynamic Benchmark portfolios, the evidence provided by the performance measures about whether the variation over time in asset allocations associated with both portfolios necessarily lowered the risk-adjusted performance of their returns on a net-of-liability basis is less clear. For example, on the one hand, the Dynamic Benchmark has a lower Adjusted Sharpe ratio for the overall sample period—and by that metric, weaker risk-adjusted performance—than several static portfolios; however, on the other hand, it also outperforms other fixed allocation portfolios on an Adjusted Sharpe ratio basis, which suggests that fluctuations in asset allocations alone do not immediately imply underperformance on a risk-adjusted basis. In general, the evidence from the performance metrics is too ambiguous to support the conclusion that the variation in the asset allocations inherent in the PBGC Total Fund and the Dynamic Benchmark portfolio necessarily lowered the risk-adjusted performance of the returns of both portfolios within the asset-liability analysis. Furthermore, there are subperiods where the returns (net of the liability returns) for both dynamic portfolios have higher Adjusted Sharpe ratios than the PPA benchmark, even though this portfolio had the highest Adjusted Sharpe ratio for the overall sample period. In particular, both the PBGC Total Fund and the Dynamic Benchmark have higher Adjusted Sharpe ratios than the PPA benchmark for two out of the four decade subperiods; also, the Adjusted Sharpe ratios for both portfolios exceed that of the PPA benchmark for one of the four asset allocation regimes, a period of 8 years. The lengths of time over which the PBGC Total Fund and the Dynamic Benchmark outperform, on a risk-adjusted basis, the best static portfolio over significant subperiods of the overall sample period does not indicate that the fluctuations in the asset allocations for the PBGC Total Fund and the Dynamic Benchmark alone are a preeminent source of weakness in the risk-adjusted performance of the returns for both portfolios in the asset-liability context. This analysis has primarily (although not exclusively) focused on the comparison of the risk-adjusted performance of the two dynamic portfolios to the performance of the PPA benchmark, the static portfolio which had the strongest risk-adjusted performance. However, if the focus is expanded to include comparisons across all of the static and dynamic portfolios, another feature of the results emerges. That is, the influence of the correlation between the portfolio returns and the liability return on the riskiness and the risk-adjusted performance of the portfolio returns net of the liability return. This influence is emphasized in the results for the best three performing portfolios over the period studied—the PPA benchmark, the Wilshire 5000, and the Life Insurance Benchmark portfolio performance results. The PPA benchmark and the Life Insurance Benchmark both have adjusted Sharpe ratios that equal or exceed that of the Wilshire 5000 for the overall sample period even though the mean excess return of the Wilshire 5000 for the overall sample period is 49 percent greater than that of the Life Insurance Benchmark and 31 percent greater than that of the PPA benchmark. Because both the PPA and the Life Insurance Benchmark have lower mean excess returns than the Wilshire 5000, the source of their strong adjusted Sharpe ratio performance in comparison to the Wilshire 5000 rests in the riskiness of the returns for those two portfolios (in comparison to the Wilshire 5000). As shown in table 7, both portfolios have distinctly lower standard deviations and semi-standard deviations—two measures of riskiness— than the Wilshire 5000. Specifically, the annualized standard deviation of the Life Insurance Benchmark returns is 49 percent less than that of the Wilshire 5000 returns, and the semi-standard deviation of the Life Insurance Benchmark portfolio returns is 46 percent less than the semi- standard deviation of the Wilshire 5000 returns. Similarly, the annualized standard deviation of the PPA benchmark returns is 32 percent less than the annualized standard deviation of the Wilshire 5000 returns, and the annualized semi-standard deviation of the PPA benchmark returns is 30 percent less than the semi-standard deviation of the Wilshire 5000 returns. By examining the correlation of the PPA benchmark, the Life Insurance Benchmark, and the Wilshire 5000 returns with the liability return in conjunction with the standard deviation values for the returns on those three portfolios, one can observe the potential role of the correlation in reducing the riskiness of the PPA and Life Insurance Benchmark return (net of the liability returns). In particular, the correlation of the returns on both the PPA and Life Insurance Benchmark portfolios with the liability return are distinctly higher than the correlation of the return on the Wilshire 5000 with the liability return. As shown in table 7, the correlation of the Wilshire 5000 return with the scaled liability return is 0.29, but the analogous correlation statistic for the PPA benchmark return is 0.51 (76 percent higher than the Wilshire 5000 correlation statistic) and for the Life Insurance Benchmark portfolio is 0.74 (155 percent higher than the Wilshire 5000 correlation statistic). Furthermore, it appears that, the higher the correlation, the lower the risk, since the benchmark portfolio that has returns with the highest correlation with the liability return—the Life Insurance Benchmark—has the least risk. When considering all eight portfolios being studied (instead of only the three portfolios with the strongest risk-adjusted performance), the four portfolios with the highest correlations with the liability return have the four lowest standard deviations, and the four portfolios with the lowest correlations have the four highest standard deviation estimates. Also, with the exception of the two portfolios with the highest correlation scores and lowest standard deviation values, the rankings of the standard deviation values matches the rankings of the correlation estimates (in ascending order by standard deviation and descending order by correlation). The strong relation between extent of correlation with the liability return and risk highlights how the relatively strong correlation of the PPA and the Life Insurance Benchmark returns with the liability return seems to contribute to lowering the riskiness of the returns (net of the liability return) of these two portfolios, enhancing their Adjusted Sharpe ratio values and risk- adjusted performance (according to the Adjusted Sharpe ratio statistic). The apparent linkage between the risk-adjusted performance metric and the correlation between the actual portfolio return and the liability return is most likely a reflection of the effect of the correlation between the actual portfolio returns and the liability returns on the volatility of the portfolio returns net of the liability return. As was discussed in the comparison between the performance of the PBGC Total Fund and the Dynamic Benchmark, higher correlation between the (actual) portfolio returns and the liability returns implies a greater degree of co-movement between the asset returns and the liability returns, and greater co- movement between the asset returns and the liability returns weakens or lowers the volatility of the portfolio returns net of the liability return. One reflection of the lowered volatility for the portfolio returns net of the liability return is a lowered standard deviation value, and a lower standard deviation value helps elevate the Adjusted Sharpe ratio value, implying stronger risk-adjusted performance. The strong relation between the correlation statistic and the Adjusted Sharpe measure values provide at least a partial explanation of why two out of the three portfolios that have the best risk-adjusted performance (as indicated by their Adjusted Sharpe ratio scores) all have allocations to the bond asset class sector of 40 percent or more. The portfolio of the liabilities consists mostly of annuities and annuity-like instruments, all of which are obligations of the PBGC. To the extent that annuities are fixed- income contracts, the portfolio of liabilities is essentially bond-like in nature. Hence, the fact that the asset portfolios that have a significant allocation to bonds have return behavior that is more similar to, and thus would have higher correlation with, the liability returns is not surprising. Among the three portfolios that have the returns with the strongest risk- adjusted performance, the returns for the two portfolios that have the highest allocation to bonds (the PPA benchmark and the Life Insurance Benchmark) also have other desirable characteristics. For instance, these two portfolios (as opposed to the Wilshire 5000) have returns which, net of the liability return, have higher skewness for the overall sample than the Wilshire 5000. The higher skewness of the returns for the PPA benchmark and the Life Insurance Benchmark portfolios suggests that those portfolios are less likely to have months where the return on the asset portfolio falls extremely short of the growth in the PBGC liabilities than the Wilshire 5000. Minimization of the instances where the asset returns fall extremely short of the liability returns would help prevent further growth of the already sizeable PBGC funding deficit. The desirable implications of the higher skewness can be seen through other statistics. Note that the minimum values for the PPA Benchmark and the Life Insurance Benchmark portfolios are less extreme. That is, they are less negative than for the Wilshire 5000. To get a sense of how much “less extreme” they are, note that the minimum monthly net-of-liability return for the PPA Benchmark is negative 12.39 percent and for the Life Insurance Benchmark is negative 15.09 percent in contrast to the minimum negative return value for the Wilshire 5000 of negative 24.42 percent. Because returns on the two highest-performing benchmark portfolios with significant allocations to bonds—the PPA Benchmark and the Insurance Benchmark portfolios—have less extreme negative values, lower semi-standard deviations, and lower standard deviations than the returns on Wilshire 5000, there is a strong possibility that the probability distributions associated with these returns have assign less probability to on extreme negative values than the probability distribution associated with the Wilshire 5000 returns, characteristics that are consistent with and are associated with the PPA and Life Insurance Benchmark portfolio returns having skewness statistic estimates that exceed the (negative) skewness statistic for the Wilshire 5000 returns. The fact that the three best performing portfolios over the 1976 through 2009 period in this particular analysis were the PPA benchmark, the Wilshire 5000, and the Life Insurance Benchmark does not necessarily mean that any of these portfolios would be appropriate for the PBGC going forward. The results of any particular analysis will depend on the performance statistics used and how these performance statistics balance risk and reward, and criteria would also need to be established for meaningful differences in these measurements. Also, as noted earlier, an asset allocation exercise would look at multiple possible future scenarios, not one particular historical period. High allocation to equities would be a particularly controversial matter for the PBGC because of the lower, and potentially, negative correlation between equity returns and new claims. The various alternative static portfolios used in this report were analyzed for the purpose of a “what-if” analysis—a historical comparison of alternative investment strategies versus the fluctuating asset allocation that the PBGC actually employed; they were not for the purpose of recommending a particular static asset allocation going forward. In addition to the above, Orice Williams-Brown, Charles A. Jeszeck, Thomas McCool, Frank Todisco, Serena Agoro- Menyang, James Bennett, Susan Bernstein, Lawrance Evans Jr., Charles Ford, Kimberley M. Granger-Heath, Michael Hoffman, Gene Kuehneman, Sheila McCoy, Michael Morris, Christopher Ross, Margie Shields, and Craig Winslow made important contributions to this report. Amenc, Noel and Veronique Le Sourd. Portfolio Theory And Performance Analysis. New York: John Wiley & Sons, 2003. Bacon, Carl R. Practical Portfolio Performance Measurement And Attribution. New York: John Wiley & Sons, 2008. Brealey, Richard A. and Stewart Myers. Principles Of Corporate Finance. New York: McGraw-Hill, Inc. 1981. Dowd, Kevin. Measuring Market Risk. New York: John Wiley & Sons, 2005. Israelsen, Craig L. “Refining The Sharpe Ratio.” The Journal Of Performance Measurement. (Spring 2009): 23–27. Maginn, John L., Donald Tuttle, Dennis McLeavey, and Jerald Pinto (eds.). Managing Investment Portfolios. New York: John Wiley & Sons, 2007. Matlab R2010a Documentation. Natick, MA: Mathworks, Inc., 2010. Pearson, Neil D. Risk Budgeting. New York: John Wiley & Sons, 2002. Sharpe, William F. “Budgeting And Monitoring Pension Fund Risk.” Financial Analysts Journal. Vol. 58 (2002): 74–86. Sharpe, William F. “Mutual Fund Performance.” Journal of Business. Vol. 39 (1966): 119–138. Sharpe, William F. and Lawrence Tint. “Liabilities—A New Approach.” Journal of Portfolio Management. Vol. 16 (1990): 5–10. Sortino, Frank A. and Price, Lee N. Price, “Performance Measurement in a Downside Risk Framework.” Journal of Investing. Vol. 3 (1994): 59–64. Waring, Barton M. “Liability-Relative Investing II.” Journal of Portfolio Management. Vol. 31 (2004): 40–53.	The Pension Benefit Guaranty Corporation's (PBGC) insures the pension benefits of more than 44 million people. Since its inception in 1974, PBGC's assets have grown from about $34 million to almost $80 billion in 2010, largely through assets received in plan terminations. Despite significant swings in PBGC's investment history, there has been little focus on the extent to which it has met its investment goals, the nature of its investment policies or how they compare with best practices in the industry. GAO examined (1) how PBGC's investment objectives have changed over time and the outcomes associated with those changes, (2) the performance of PBGC's investments, and (3) how well PBGC's investment policies and operations comport with best practices in the industry. To address these questions, GAO reviewed PBGC's investment policy statements and operational procedures; analyzed data on investments; and interviewed PBGC officials, officials from several state pension plans and foreign pension insurers, and other experts. PBGC's investment objectives and stated asset allocation targets have changed frequently in the last 8 years, alternating between more conservative and more aggressive approaches to investing. Yet these changes in stated objectives had only a moderate effect on PBGC's actual asset allocation because, for a variety of reasons, PBGC did not meet its targets. In our review of their investment history, we found that PBGC did not routinely monitor transaction costs related to its policy shifts and, at certain times, significant transaction costs were incurred. For example, we determined based on data obtained from PBGC's investment managers that nearly $75 million in transaction costs were incurred during the economic downturn which coincided with the period when the 2008 policy was being implemented and subsequently suspended. Using seven benchmarks, one of which was a Pension Protection Act benchmark that GAO constructed, GAO's analysis shows that PBGC's investments performed better than most benchmarks on an asset-only basis, but tended to underperform all seven of the benchmarks when returns were assessed together with the growth in liabilities. GAO notes that both analyses have limitations and can be seen by some experts as incomplete. However, GAO's method of analysis is consistent with how financial economics literature suggests investment performance analysis should be conducted. Finally, GAO's analysis found no apparent adverse effect on PBGC's investment performance as a result of changes in policy. PBGC's policy statements and operating procedures are incomplete and do not provide sufficient guidance to ensure sound implementation of its investment policies. The investment policies issued by PBGC's board for strategic guidance in the planning and execution of investments have generally lacked a number of provisions recommended by the Chartered Financial Analyst Institute; Independent Fiduciary Services; and other experts of sound investment management, such as the Government Finance Officers Association. Moreover, according to our review and based on interviews with PBGC staff, the policy statements have been insufficiently detailed to provide adequate guidance for staff. In addition, PBGC's Corporate Investments Department's staff have largely functioned without the benefit of fully-developed and documented operating procedures. Although PBGC has grown from a relatively small agency to one holding almost $80 billion in assets, its policies and procedures still reflect in many ways its small agency past. To ensure that PBGC can effectively and consistently meet its obligation to manage a fund of this size and its liabilities, PBGC's board and its management must enact better stewardship, standards, and procedures to ensure that PBGC can effectively and consistently meet its obligation to conduct the many investment related functions it performs. GAO recommends that the PBGC and its board of directors (1) develop and maintain comprehensive investment policy statements and (2) develop a complete set of operating procedures and guidelines for its investment activities. GAO received comments from the Department of Labor and the PBGC. They generally agreed with our recommendations.	15.8	8k-16k	599
25	Congress enacted the Nuclear Waste Policy Act of 1982 to establish a comprehensive policy and program for the safe, permanent disposal of commercial spent fuel and other highly radioactive wastes in one or more mined geologic repositories. The act charged DOE with (1) establishing criteria for recommending sites for repositories; (2) “characterizing” (investigating) three sites to determine each site’s suitability for a repository (1987 amendments to the act directed DOE to investigate only the Yucca Mountain site); (3) recommending one suitable site to the President, who, if he considered the site qualified for a license application, would submit a recommendation to Congress; and (4) seeking a license from NRC to construct and operate a repository at the approved site. The act created the Office of Civilian Radioactive Waste Management within DOE to manage its nuclear waste program. Since the 1980s, DOE has spent years conducting site characterization studies at the Yucca Mountain site to determine whether it is suitable for a high-level radioactive waste and spent nuclear fuel repository. DOE, for example, has completed numerous scientific studies of the mountain and its surrounding region for water flow and the potential for rock movement, including volcanoes and earthquakes that might adversely affect the performance of the repository. To allow scientists and engineers greater access to the rock being studied, DOE excavated two tunnels for studying the deep underground environment: (1) a five-mile main tunnel that loops through the mountain, with several research areas or alcoves connected to it; and (2) a 1.7-mile tunnel that crosses the mountain (see fig. 2). This second tunnel allows scientists to study properties of the rock and the behavior of water near the potential repository area. In July 2002, Congress approved the President’s recommendation of the Yucca Mountain site for the development of a repository. The Yucca Mountain project is currently focused on preparing an application to obtain a license from NRC to construct a repository. The required application information includes both repository design work and scientific analyses. DOE is engaged in necessary tasks such as compiling information and writing sections of the license application, and is conducting technical exchanges with NRC staff and addressing key technical issues identified by NRC to ensure that sufficient supporting information is provided. It also plans to further develop the design of the repository, including revised designs for the repository’s surface facilities and canisters to hold the waste. DOE is also identifying and preparing potentially relevant documentary material that it is required to make available on NRC’s Web-based information system, known as the Licensing Support Network. This is a critical step because DOE is required to certify that the documentary material has been identified and made electronically available no later than 6 months in advance of submitting the license application. In February 2005, DOE announced that it does not expect the repository to open until 2012 at the earliest, which is more than 14 years later than the 1998 goal specified by the Nuclear Waste Policy Act of 1982. More recently, the conference report for DOE’s fiscal year 2006 appropriations observed that further significant schedule slippages for submitting a license application are likely. Further delays could arise from factors such as the time needed for EPA to establish revised radiation standards for Yucca Mountain and for DOE to revise its technical documents in response. Such delays could be costly because nuclear utilities, which pay for most of the disposal program through a fee on nuclear power, have sued DOE, seeking damages for not starting the removal of spent nuclear fuel from storage at commercial reactors by the 1998 deadline. Estimates of the potential damages vary widely, from DOE’s estimate of about $5 billion to a nuclear industry’s estimate of about $50 billion, but the cost for the damages will likely rise if there are further delays to opening the repository. Given these schedule slippages, Congress has considered other options for managing existing and future nuclear wastes, such as centralized interim storage at one or more DOE sites. The conference report for DOE’s fiscal year 2006 appropriations directed DOE to develop a spent nuclear fuel recycling plan to reuse the fuel. However, according to the policy organization of the nuclear energy industry, no technological option contemplated will eliminate the need to ultimately dispose of nuclear waste in a geologic repository. In October 2005, the project’s Acting Director issued a memorandum calling for the development of wide-ranging plans for the “new path forward,” DOE’s effort to address quality assurance and other challenges prior to applying for a license. To restore confidence in scientific documents that will support the license application, some of the plans will address the need to review and replace USGS work products, a requirement for USGS to certify its scientific work products, and establishing a lead national laboratory to assist the project. Other plans are focused on a new simplified design for the waste canisters and repository facilities, a design that is expected to improve the safety and operation of the repository by eliminating the need to directly handle and process the spent fuel at the repository. Further, this aggressive effort called for management changes, including a transition plan; more rigorous project management, including a new baseline schedule; rescoping existing contracts and developing new contracts; tracking project hiring actions; a financial plan; and new reporting indicators. After DOE submits the license application, NRC plans to take 90 days to examine the application for completeness to determine whether DOE has addressed all NRC requirements. One of the reviews for completeness will include an examination of DOE’s documentation of the quality assurance program to assess whether it addresses all NRC criteria. These criteria include, among other things, organization, design control, document control, corrective actions, quality assurance records, and quality audits. If it deems any part of the application is incomplete, NRC may either reject the application or require that DOE furnish the necessary documentation before proceeding with the detailed technical review of the application. If it deems the application is complete, NRC will docket the application, indicating its readiness for a detailed technical review. Once the application is accepted and placed on the docket, NRC will conduct its 18-month technical review of the application to determine if the application meets all NRC requirements, including the soundness of scientific analyses and preliminary facility design, and NRC quality assurance criteria. If NRC discovers problems with the technical information used to support the application, it may conduct specific reviews, including inspections, to determine the extent and effect of the problem. Because the data, models, and software used in modeling repository performance are integral parts of this technical review, quality assurance plays a key role since it is the mechanism used to verify the accuracy of the information DOE presents in the application. NRC may conduct reviews, including inspections, of the quality assurance program if technical problems are identified that are attributable to quality problems. NRC will hold public hearings chaired by its Atomic Safety and Licensing Board to examine specific topics. After completing the proceedings, the board will forward its initial decision to the NRC commissioners for their review. Finally, within 3 to 4 years from the date that NRC dockets the application, NRC will make a decision to grant the construction authorization, reject the application, or grant the construction authorization with conditions. NRC will grant a construction authorization only if it concludes from its reviews that the repository would meet its reasonable expectation that the safety and health of workers and the public would be protected. DOE has repeatedly experienced quality assurance problems with its work on the Yucca Mountain project. In the late 1980s, DOE had been challenged to fix and develop adequate plans and procedures related to quality assurance. By the late 1990s, audits by GAO, DOE, and others identified recurring quality assurance problems with several aspects of key scientific data, models, and software. Currently, in preparing to submit the license application to NRC, DOE is relying on costly and time-consuming rework to resolve lingering quality assurance problems with the transparency and traceability of data and in project design and engineering documents uncovered during audits and after-the-fact evaluations. DOE has a long-standing history of attempting to address NRC concerns about its quality assurance program. Although NRC will have responsibility for regulating the construction, operation, and decommissioning (closure) phases of the project, its regulatory and oversight role does not begin until DOE submits a license application. As a result, NRC’s role in the project has been limited to providing guidance to DOE to ensure an understanding of NRC regulations and that the years of scientific and technical work will not later be found inadequate for licensing purposes. Specifically, since 1984, NRC has agreed to point out problems it identifies with the quality assurance program so that DOE can take timely corrective action. Initially, this NRC guidance was mainly focused on ensuring that DOE had the necessary quality assurance organization, plans, and procedures. As we reported in 1988, NRC had reviewed DOE’s quality assurance plans and procedures comprising the principal framework of its quality assurance program, and concluded that they were inadequate and did not meet NRC requirements. NRC also concluded that DOE’s efforts to independently identify and resolve weaknesses in the plans and procedures were ineffective. After observing DOE quality assurance audits, NRC determined that the audits were ineffective for measuring whether quality assurance procedures were being effectively implemented. Further, NRC identified additional concerns, during the 1980s, related to DOE management and organizational deficiencies relating to the quality assurance program. Specifically, among other things, NRC found the following: DOE had a small staff and relied heavily on contractors to provide quality assurance oversight. Based on its experience in regulating nuclear power plants, NRC found that these types of organizations frequently developed major quality-related problems. DOE had indirect project control, with administrative and functional control over the project split between different offices. NRC found that such project control arrangements tend to have serious quality assurance-related problems because conflicts can arise between quality and other organizational goals, such as cost and schedule. During a 1984 NRC visit to Nevada, DOE project participants had expressed the opinion that quality assurance is “unnecessary, burdensome, and an imposition.” Further, in 1986, DOE issued a stop- work order to the USGS based on a determination that USGS staff did not appreciate the importance of quality assurance and that USGS work would not meet NRC expectations. NRC believed that organizational attitudes can indicate whether a project is likely to experience problems relating to quality assurance and found such examples troublesome. Finally, based in part on the information obtained from its oversight activities, NRC concluded, in 1989, that DOE and its key contractors had yet to develop and implement an acceptable quality assurance program. However, by March 1992, NRC came to the conclusion that DOE had made significant progress in improving its quality assurance program. NRC noted that DOE had addressed many of its concerns, specifically that, among other things, (1) all of the contractor organizations had developed and were in the process of implementing quality assurance programs that met NRC requirements, (2) quality assurance management positions had been filled with full-time DOE personnel with appropriate knowledge and experience, and (3) DOE had demonstrated that it is capable of evaluating and correcting deficiencies in the overall quality assurance program. Nevertheless, in October 1994, NRC found problems with quality assurance, particularly with the site contractor’s ability to effectively implement corrective actions and DOE’s ability to oversee the site contractor’s quality assurance program. As DOE’s quality assurance program matured, it resolved NRC concerns about its organization, plans, and procedures, and in the late 1990s began successfully detecting new quality assurance problems in three areas critical to the repository’s successful performance: the adequacy of the data sources, the validity of scientific models, and the reliability of computer software developed at the site. These problems surfaced in 1998 when DOE began to run the initial version of its performance assessment model. Specifically, DOE was unable to ensure that critical project data had been collected and tracked back to the original sources. In addition, DOE did not have a standardized process for developing scientific models used to simulate a variety of geologic events or an effective process for ensuring that computer software used to support the scientific models would work properly. As required by DOE’s quality assurance procedures, the department conducted a root cause analysis and issued a corrective action plan in 1999. After corrective actions were taken, DOE considered the issues resolved. However, in 2001, similar deficiencies associated with models and software resurfaced. DOE attributed the recurrence to ineffective procedures and corrective actions, improper implementation of quality procedures by line managers, and personnel who feared reprisal for expressing quality concerns. Recognizing the need to correct these recurring problems, DOE conducted a comprehensive root cause analysis that included reviews of numerous past self-assessments and independent program assessments, and identified weaknesses in management systems, quality processes, and organization roles and responsibilities. Following the analysis, in July 2002, DOE issued its Management Improvement Initiatives (Initiatives) that addressed quality problems with software and models. In addition, DOE added other corrective actions to address management weaknesses that it found in areas such as roles and responsibilities, quality assurance processes, written procedures, corrective action plans, and work environment. However, DOE continued to face difficulties in resolving quality assurance problems concerning the data, software, and modeling to be used in support of the licensing application: Data management. As part of NRC’s quality assurance requirements, data used to support conclusions about the safety and design of the repository must be either collected under a quality assurance program or subjected to prescribed testing procedures to ensure the data are accurate for their intended use. In addition, the data supporting these conclusions must also be traceable back to its original source. In 1998, DOE identified quality assurance problems with the quality and traceability of data—specifically that some data had not been properly collected or tested to ensure their accuracy and that data used to support scientific analysis could not be properly traced back to their source. DOE again found similar problems in April and September 2003, when a DOE audit revealed that some data sets did not have the documentation necessary to trace them back to their sources; the processes for data control and management were unsatisfactory; and faulty definitions were developed, which allowed unqualified data to be used. Software management. DOE quality assurance procedures require that software used to support analysis and conclusions about the performance and safety of the repository be tested or created in such a way to ensure that it is reliable. From 1998 to 2003, multiple DOE audits found recurring quality assurance problems that could affect confidence in the adequacy of software codes. For example, in 2003, DOE auditors found problems related to software similar to those found previously in areas such as technical reviews, software classification, planning, design, and testing. Further, a team of industry professionals hired by DOE to assess quality assurance problems with software reported in February 2004 that these problems kept recurring because DOE did not assess the effectiveness of its corrective actions and did not adequately identify the root causes of the problems. Model validation. Models are used to simulate natural and environmental conditions at Yucca Mountain, and to demonstrate the performance of the future repository over time. However, before models can be used to support the license application, DOE must demonstrate through a process called validation that the models are able to accurately predict geologic events. In 1998, a team of project personnel evaluated the models and determined that 87 percent did not comply with the validation requirements. In 2001, and again in 2003, DOE audits found that project personnel were not properly following procedures— specifically in the areas of model documentation, model validation, and checking and review. Further, the 2003 audit concluded that previous corrective actions designed to improve validation and reduce errors in model reports were not fully implemented. After many years of working to address these quality assurance problems with data, software, and models, DOE had mostly resolved these problems and closed the last of the associated condition reports by February 2005. As DOE prepares to submit the Yucca Mountain project license application to NRC, it has relied on costly and time consuming rework to ensure that the documents supporting the application are accurate and complete. Specifically, DOE has relied on inspections and rework by DOE personnel to resolve quality assurance problems with the traceability and transparency of technical work products. These efforts to deal with quality problems at the end, rather than effectively ensuring that work organizations are producing quality products from the beginning, add to the project’s cost and could potentially delay DOE’s submission of the license application to NRC. In addition, DOE’s efforts indicate that some corrective actions have been ineffective in resolving problems with the quality assurance process. Further, DOE is now detecting quality assurance problems in design and engineering work that are similar to the quality assurance problems it experienced with its scientific work in the late 1990s. Although DOE did not initiate its major effort to address these problems until 2004, the department and NRC for years had known of quality assurance problems with the traceability and transparency of technical work products called Analysis and Model Reports (AMR). AMRs are a key component of the license application, and contain the scientific analysis and modeling data demonstrating the safety and performance of the planned repository. Among other quality requirements, AMRs must be traceable back to their original source material and data, and must also be transparent in justifying and explaining their underlying assumptions, calculations, and conclusions. In 2003, based in part on these problems as well as DOE’s long-standing problems with data, software, and modeling, NRC conducted an independent evaluation of three AMRs. The scope of the review was to determine if the AMRs met NRC requirements for being traceable, transparent, and technically appropriate for their use in the license application. NRC found significant problems. First, in some cases DOE was not transparent in explaining the basis on which it was reaching conclusions. For example, in some circumstances, DOE selected a single value from a range of data without sufficient justification. Other times, DOE did not explain how a range of experimental conditions were representative of repository conditions. Second, where DOE did sufficiently explain the basis for a conclusion, it did not always provide the necessary technical information, such as experimental data, analysis, or expert judgment, to trace the support for that explanation back to source materials. For example, DOE did not explain how information on one type of material provided an appropriate comparison for another material. Moreover, while DOE had identified similar problems in the past, the actions taken to correct them did not identify and resolve other deficiencies. NRC concluded that these findings suggested that other AMRs possibly had similar problems, and that if not resolved, such problems could delay NRC’s review of the license application as it would need to conduct special inspections to resolve any issues it found with the quality of technical information. To address problems of traceability and transparency, DOE in the spring of 2004 initiated an effort called the Regulatory Integration Team (RIT) to perform a comprehensive inspection and rework of the AMRs to ensure they met NRC requirements and expectations. According to DOE officials, the RIT involved roughly 150 full-time personnel from DOE, USGS, and multiple national laboratories such as Sandia, Los Alamos, and Lawrence Livermore. First, the RIT screened all of the approximately 110 AMRs and prioritized its efforts on 89 that needed additional rework. Ten AMRs were determined to be acceptable, and 11 were canceled because they were no longer needed to support the license application. According to DOE officials, approximately 8 months later, the RIT project was completed at a cost of about $20 million, with a total of over 3,700 problems and issues addressed or corrected. In February 2005, in a letter to DOE, the site contractor stated that the RIT effort was successful and that the AMRs had been revised to improve traceability and transparency. Subsequently, however, additional problems with traceability and transparency have been identified, requiring further inspections and rework. For example, after the March 2005 discovery of e-mails from USGS employees written between May 1998 and March 2000 implying that employees had falsified documentation of their work to avoid quality assurance standards, DOE initiated a review of additional AMRs that were not included in the scope of the 2004 RIT review. The additional AMRs contained scientific work performed by the USGS employees and had been assumed by the RIT to meet NRC requirements for traceability and transparency. However, according to DOE officials, DOE’s review determined that these AMRs did not meet NRC’s standards, and additional rework was required. Further, similar problems were identified as the focus of the project shifted to the design and engineering work required for the license application. In February 2005, the site contractor determined that in addition to problems with AMRs, similar traceability and transparency problems existed in the design and engineering documents that comprise the Safety Analysis Report—the report necessary for demonstrating to NRC how the facilities and other components of the repository site will meet the project’s health, safety, and environmental goals and objectives. In a root cause analysis of this problem, the site contractor noted that additional resources were needed to inspect and rework the documents to correct the problems. DOE cannot be certain that it has met continuous improvement goals for implementing its quality assurance requirements, a commitment DOE made at the closure of its Management Improvement Initiatives (Initiatives) in April 2004. At that time, DOE told us it expected that the progress achieved with the initiatives would continue and that its performance indicators would enable it to assess further progress and direct management attention as needed. However, DOE’s performance indicators, as well as a second management tool—trend evaluation reports—have not been effective for this purpose. More specifically, the indicators panel did not highlight the areas of concern covered by the initiatives and had weaknesses in assessing progress because the indicators kept changing. The trend evaluation reports also did not focus on tracking the concerns covered by the Initiatives, had technical weaknesses for identifying significant and recurring problems, had inconsistently tracked progress in addressing problems, and could not fully analyze projectwide problems. In addition, the trend reports’ tracking of problems for which corrective actions were already being taken was at times overly influenced by judgments about whether additional management action was warranted rather than the problems’ significance. By the time that the actions called for by the Initiatives had been completed in April 2004, project management had already developed the indicators panel, which DOE refers to as the annunciator panel, to use at monthly management meetings to monitor project performance. The panel was a single page composed of colored blocks representing selected performance indicators and their rating or level of performance. A manager viewing the panel would be able to quickly see the color rating of each block or indicator. For example, red indicated degraded or adverse performance warranting significant management attention; yellow indicated performance warranting increased management attention or acceptable performance that could change for the worse; and green indicated good performance. The panel represented a hierarchy of indicators in which the highest level, or primary, indicators were shown; secondary indicators that determined the primary indicators’ ratings were shown for some primary indicators; but lower third- or fourth-level indicators were not shown. Our review analyzed a subset of these indicators that DOE designated as the indicators that best predict performance in areas affecting quality. While we were conducting our review, DOE suspended preparation of the panel after August 2005 while it reconsiders its use of indicators to monitor project performance. DOE had also suspended preparation of the panel from late 2004 to early 2005 in order to make substantial revisions. These revisions were made, in part, to emphasize fewer, more important indicators for management attention. The Initiatives raised concerns about five key areas of management weakness as adversely affecting the implementation of quality assurance requirements: 1. Roles and responsibilities were becoming confused as the project transitioned from scientific studies to activities supporting licensing. The confusion over roles and responsibilities was undermining managers’ accountability for results. The Initiatives’ objective was to realign DOE’s project organization to give a single point of responsibility for project functions, such as quality assurance and the Corrective Action Program, and hold the project contractor more accountable for performing the necessary work in accordance with quality, schedule, and cost requirements. 2. Product quality was sometimes being achieved through inspections by the project’s Office of Quality Assurance rather than being routinely implemented by the project’s work organizations. As a result, the Initiatives sought to increase work organizations’ responsibility for being the principle means for achieving quality. 3. Work procedures were typically too burdensome and inefficient, which impeded work. The Initiatives sought to provide new user-friendly and effective procedures, when necessary, to allow routine compliance with safety and quality requirements. 4. Multiple corrective action programs existed, processes were burdensome and did not yield useful management reports, and corrective actions were not completed in a timely manner. The Initiatives sought to implement a single program to ensure that problems were identified, prioritized, and documented and that timely and effective corrective actions were taken to preclude recurrence of problems. 5. The importance of a safety-conscious work environment that fosters open communication about concerns was not understood by all managers and staff, and they had not been held accountable when inappropriately overemphasizing the work schedule, inadequately attending to work quality, and acting inconsistently in practicing the desired openness about concerns. Through issuing a work environment policy, providing training on the policy, and improving the Employee Concerns Program, the Initiatives sought to create an environment in which employees felt free to raise concerns without fear of reprisal and with confidence that issues would be addressed promptly and appropriately. As shown in table 1, the Initiatives’ effectiveness indicators for tracking progress in addressing these management weaknesses did not have equivalent performance indicators visible in the annunciator panel when it was prepared for the last time, using August 2005 data. Two of the Initiatives’ key areas of concern—(1) roles, responsibilities, authority, and accountability; and (2) work procedures—and their associated effectiveness indicators were not represented in the panel’s visible or underlying indicators. The Initiatives’ effectiveness indicator for tracking trends in recurring problems also was not represented. In other cases, the Initiatives’ effectiveness indicators were represented in underlying lower-level indicators that had very little impact on the rating of the visible indicator. An example is the Initiatives’ indicator for timely completion of employee concerns. The panel’s related visible indicator was work environment, whose rating was based on 4 secondary and 23 tertiary indicators. Of the third-level indicators, two were for timeliness of completion of employee concerns, and combined they contributed 3 percent toward the rating of the work environment indicator. As a result of the weighting of these many underlying indicators, ratings for individual lower-level indicators could be different from the visible indicator. For example, in August 2005, the work environment indicator showed good performance. However, the ratings of four underlying indicators from the project’s employee survey on the work environment—collectively accounting for 25 percent of the work environment indicator’s score— indicated the need for increased management attention. Moreover, some of the Initiatives’ indicators, such as the work organizations’ self- identification of significant problems, had their impact on visible indicators diluted by the inclusion of other indicators that were not focused solely on the detection of significant problems. Another shortcoming of the annunciator panel was that frequent changes to the indicators hindered the ability to identify problems for management attention and track progress in resolving them. The indicators could change in many ways, such as changes in their definition, calculation, or data sources used in calculations, or from the deletion or addition of a subindicator. When such changes were made to the indicators, progress became less clear because changes in reported performance levels may have been the result of the indicator changes rather than actual performance changes. Some of the indicators for key project processes with quality elements changed from one to five times during the 8-month period from April 2004 through November 2004. Even after the major revision of the panel in early 2005, most of the performance indicators tracking quality issues continued to change over the next 6 months—that is, from March 2005 through August 2005. As shown in table 2, only one of the five relevant indicators did not change during this period. One indicator was changed four times during the 6-month period, resulting in it being different in more months than it remained the same. Moreover, the panel was not always available to identify problems and track progress. The panel was not created for December 2004, January 2005, and February 2005 because it was undergoing a major revision. At that time, DOE told NRC that the performance indicators for the panel were revised to reflect the change in the work as the project moved into the engineering, procurement, and construction phase. DOE also reduced the total number of visible indicators from 60 to 30 to focus on fewer, more critical aspects of project management. Panels with the new indicators were then produced for 6 months, starting with March 2005 and ending after August 2005. This second interruption of the panels resulted from another major revision to the indicators; this time, indicators are being made congruent with project work as designated by DOE’s “new path forward,” again to focus on fewer, more important activities. In December 2005, a senior DOE official told us that the project would begin to measure key activities, but without use of the panel. According to DOE, some of the Initiatives’ areas of concern and their associated effectiveness indicators—for example, trends in quality problems related to roles and responsibilities—were being captured, at least partially, in the project’s quarterly trend evaluation reports rather than in the performance indicators. However, the trend reports are a management tool designed more to identify emerging and unanticipated problems than to monitor progress with already identified problems, such as those addressed by the Initiatives. In developing these reports, trend analysts seek to identify patterns and trends in condition reports (CR), which document problematic conditions through the project’s Corrective Action Program. The trend reports analyze CRs for more significant problems (Levels A and B) and minor problems (Level C), but not at Level D (opportunities for improvement). The trend analysis typically separates the reported problems into categories such as organizational unit, type of problem, and cause. These categories are intended to provide insights into the problems. For example, analysis might reveal that most occurrences of a particular type of problem are associated with a certain organization. In practice, DOE missed opportunities to use trend reports to call attention to progress in the Initiatives’ areas of concern. For example, the Initiatives sought to clarify roles and responsibilities within and between DOE and BSC to ensure clear accountability for project results during the project’s transition from scientific studies to the design and engineering activities necessary to license a repository. Similar organizational transition problems were identified in the November 2004 trend report. While that report attributed increases in the number of causal factors associated with change management, supervisory methods, and work organization to recent BSC reorganizations and changes in the project from science-based to design and engineering activities, it did not specifically mention issues of roles and responsibilities or that roles and responsibilities was an Initiatives’ area of concern. However, an analysis of the cause of the problems noted in various significant condition reports, which is performed for certain condition reports and outside of the process of developing trend reports, found evidence of weaknesses in the organizational interfaces among BSC organizations, as well as between BSC and DOE. According to this cause analysis, these organizational interface weaknesses were associated with some manner of change and represented weaknesses in the definition of roles and responsibilities. Trend reports are generally based on condition reports, and problems with roles and responsibilities seem to be identified in cause analyses rather than in the condition reports themselves. Similarly, DOE missed an opportunity to use trend reports to discuss the Initiatives’ goal that the project’s line or work organizations become more accountable for self-identifying significant problems. The August 2005 trend report briefly cited an evaluation of a CR highlighting the low rate of self-identification of significant problems during the previous quarter and reported the evaluation’s conclusion that it was not a problem warranting management attention. However, the trend report did not mention that about 35 percent of significant problems were self-identified during the previous quarter, while the Initiatives’ goal was that 80 percent of significant problems would be self-identified. Thus, the trend report missed an opportunity to either raise a performance problem or pose the question of whether the Initiatives’ goal needed to be reassessed. Beyond whether they effectively tracked the Initiatives’ areas of concern, trend reports face important obstacles, in general, to adequately identify recurrent and significant problems: Recurring or similar conditions can be difficult to clearly identify for management’s attention and resolution. A trend report noted that there will be few cases where recurrent conditions are obvious because each condition slightly differs. Trend analysis tends to focus on the number of CRs issued, but the number of CRs does not necessarily reflect the significance of a problem. For example, the number of CRs involving requirements management decreased by over half from the first quarter to the second quarter of fiscal year 2005. However, this decrease was not a clear sign of progress. Not only did the number rise again in the third quarter, but the May 2005 trend report also noted that the number of all condition reports had dropped during the second quarter. According to the report, the volume of CRs in the first quarter had been high because of reviews of various areas, including requirements management. Another example is the records management problem. The November 2005 trend report stated that a records management problem identified in various CRs, despite accounting for about 50 percent of all business administration problems, reflected an underlying error rate of less than 1 percent and thus was not a significant problem. The lack of an increasing trend in the number of reported problems does not necessarily mean the lack of a significant problem for management attention. Knowing the appropriate level of performance, regardless of the trend, is difficult without having clearly appropriate benchmarks from organizations engaged in activities similar to the Yucca Mountain project. Such benchmarks would clarify, for example, whether a project’s percentages of human performance errors compare favorably, regardless of whether the numbers are increasing. Similarly, the trend in the number and types of CRs during any period is not necessarily a sign of improvement or worsening conditions. Trends can be attributed to various factors, including increases in the number of audits or self- assessments, which can lead to more CRs being issued. At the time of analysis, some trend data may not be sufficiently reliable or complete to ensure sound findings for management’s attention. For example, although some actions were taken in December 2004 to ensure that cause and other codes were properly assigned, a BSC audit in June 2005 again raised questions about the consistency of the coding. With respect to completeness, the fourth quarter report for 2005 noted that 28 percent of the Level B CRs did not have a cause code at the time of the trend analysis, and one finding was presented even though two-thirds of the data was missing. Due, in part, to these obstacles and changes to how the analysis is done, trend reports have not consistently determined the significance of problems or performed well in tracking progress in resolving problems. For example, trend reports have questionably identified significant human performance problems and ineffectively tracked progress in resolving the problem because of no clearly appropriate or precise benchmark for performance, inconsistent focus on the problem, and unreliable data on cause codes. The February 2004 trend report identified a human performance problem based on Yucca Mountain project data showing the project’s proportion of skill-based errors to all human performance errors was two times higher than benchmark data from the Institute of Nuclear Power Operations (INPO). The report used this comparison to suggest that the project needed to adopt successful commercial nuclear practices for addressing skill-based errors. However, the report cautioned that other comparisons with these INPO data may not be appropriate because of differences in the nature, complexity, and scope of work performed, but did not explain why the report’s comparison of INPO data for skill-based errors to the Yucca Mountain project should be an exception to this caution. The May 2004 trend report repeated this comparison to INPO, finding skill-based errors three times higher than the benchmark data. However, this INPO benchmark has not been used in subsequent reports. The November 2004 trend report redefined the problem as the predominance of human performance errors in general, rather than the skill-based component of these errors—but later reports reinterpreted this predominance as not a problem. The problem with skill-based errors was unclear in the November 2004 report because these errors were showing a decreasing trend, a finding that was attributed as likely the result of unreliable assignment of cause codes. Instead, the report cited an adverse trend based on the fact that the human performance cause category accounted for over half of the total number of causes for condition reports prepared during the quarter. Under the project’s trend analysis guidelines, this large predominance of human performance causes—in contrast to management, communication or procedure, and other cause categories— was designated an adverse trend. Nevertheless, by February 2005, trend reports began interpreting this predominance as generally appropriate, given the type of work done by the project. That is, the project’s work involves mainly human efforts and little equipment, while work at nuclear power plants involves more opportunities for errors caused by equipment. In our view, this interpretation that a predominance of human performance errors would be expected implies an imprecise benchmark for appropriate performance. Although trend reports continued to draw conclusions about human performance problems, the February 2005 report indicated that any conclusions were hard to justify because of data reliability problems with cause coding. For example, the majority of problems attributed to human performance causes are minor, or Level C, problems that receive less rigorous cause analysis, such as not completing a form. This less rigorous analysis tends to reveal only individual human errors—that is, human performance problems—whereas more rigorous analysis tends to reveal less immediately obvious problems with management and procedures. Trend reports have also inconsistently tracked progress in resolving the problem associated with the “flow-down” of requirements into the project’s procedures—that is, with ensuring that program, regulatory, and statutory requirements are identified, allocated, and assigned to the project organizations that are responsible for applicable activities. Such requirements management problems can result in inadequate control over design inputs and, possibly, inputs to scientific models. Progress with this problem was less clear because of inconsistent methods of categorizing requirements management problems over time. Initially, based on reviews of annual trends in condition reports, the September 2004 and November 2004 trend reports observed a systemic and continuing problem in the flow- down of requirements from BSC’s Project Requirements Document and identified this as an adverse trend. In subsequent reports, the requirements flow-down problem was variously treated as an aspect of requirements management or records management, or as a latent management weakness or weak change management. When treated as an aspect of these broader problems, the significance of the original flow-down problem and any progress in resolving it became diluted and less clear. The primary focus eventually became requirements management, which the February 2005 trend report designated as a potential trend, whereas the flow-down problem had earlier been designated an adverse trend. Consequently, as a result of this change, the flow-down of requirements got less direct attention and analysis—for example, receiving only a footnote in the August 2005 trend report stating that the April 2004 condition report issued to address the adverse trend was still overseeing implementation of corrective actions. In addition, because trend reports examine only condition reports issued to BSC, they do not always assess the projectwide significance of problems such as requirements management. When analyzing one category of issues associated with requirements management, the November 2005 report stated that BSC and DOE shared the process problems, which cannot be adequately addressed by just one of the organizations. However, for a second category of these issues, the report did not analyze most of the condition reports because 6 of the 10 relevant reports were assigned to DOE. For a third category of issues, no analysis or recommendation was provided because all of the reports were assigned to DOE and therefore did not fall within the scope of the trend report. The tracking of problems for which corrective actions are already being taken appeared at times to be overly influenced by judgments, rather than the problems’ significance, about whether additional management action is warranted. As a result, problems might be rated as less significant, or not tracked further. The situation of assigning a lower rating to a problem’s significance was apparently caused by the fact that ratings were simultaneously an assessment of a problem’s significance and of the need for management action. In its current formulation, DOE’s rating categories cannot accurately represent both the assessment of a problem’s significance and a judgment that additional actions are not needed because the designated rating category will distort one or the other. For instance, the November 2005 trend report analyzed the four categories of requirements management issues and designated one category that included problems with requirements flow-down as a “monitoring trend”—defined as a small perturbation in numbers that does not warrant action but needs to be monitored closely. Describing this trend as a small perturbation, or a disturbance in numbers, did not accurately describe the report’s simultaneous recognition that significant process problems spanned both BSC and DOE and the fact that the numbers and types of problems were consistently identified over the previous three quarters. A more understandable explanation for the low rating is that designating the problem at any higher level of significance would have triggered guidelines involving the issuance of a condition report, which, according to the judgment expressed in the report, was not needed. Specifically, the report indicated that existing condition reports have already identified and were evaluating and resolving the problem, thereby eliminating the need to issue a new condition report. By rating the problem at the lowest level of significance and not calling for additional actions, the trend report did not sufficiently draw management’s attention to the problem. The trend report’s assessment did not convey that other serious problems might have been raised by the additional condition reports. At about the same time that the trend report judged that no new condition reports were necessary, an Employee Concerns Program’s investigation of requirements management resulted in 14 new condition reports—3 at the highest level of significance and 8 at the second-highest level of significance. For example, the Employee Concerns Program’s investigation resulted in condition reports calling for an analysis of the collective significance of the numerous existing condition reports and an assessment of whether the quality assurance requirement for complete and prompt remedial action had been met. As a result of the investigation and a concurrent DOE root cause analysis, during the December 2005 Quarterly Management Meeting with NRC, DOE stated that strong actions were required to address the problems with its requirements management system and any resulting uncertainty about the adequacy of its design products. Trend reports identified significant problems in the February 2005 report but did not continue to track the problems after a separate analysis identified ongoing improvement actions. According to the trend report, Level B condition reports collectively indicated organizational weaknesses associated with change management involving cross-departmental interfaces. The trend report recommended that management focus on these problems, and cited a condition report that would further investigate them. The cause analysis for that condition report and a related condition report found that the problems were well-known, in part through a BSC review, and related to a variety of ongoing BSC improvement actions. Since this was a broad category of problems with many initiatives under way, the cause analysis recommended no new actions other than for management to remain aware of the problems. However, the trend reports that followed provided no further analyses to focus management’s awareness on these problems or to assess progress in resolving them. In October 2005, DOE announced an aggressive series of proposed changes to the design, organization, and management of the Yucca Mountain project, but this effort—known as the “new path forward”—will face substantial challenges. Some key challenges facing DOE are (1) determining the extent of problems and restoring confidence in the documents supporting the license application after the discovery of e-mails raising the potential of falsified records, (2) settling design issues and associated problems with requirements management, and (3) replacing key personnel and managing the transition of new managers and other organizational challenges. The current Acting Director of the Office of Civilian Radioactive Waste Management (OCRWM) stated that DOE will not announce a schedule for submitting a license application until DOE addresses these important quality assurance and other challenges. Since DOE is still formulating its plans, it is too early to determine whether the new path will resolve these challenges. In March 2005, after announcing the discovery of USGS e-mails suggesting the possible violation of quality assurance requirements, including the falsification of records, DOE has taken steps to address lingering concerns about the adequacy of the scientific work related to the flow of water into the repository and whether similar quality assurance problems are evident in other e-mails relevant to the licensing application. Specifically, DOE is (1) conducting an extensive review of approximately 14 million e-mails to determine whether these e-mails raise additional quality assurance concerns and whether they might be relevant to the licensing process, and (2) reworking the technical documents created by USGS personnel to ensure that the science underlying the conclusions on water infiltration are correct and supportable in the license application. The Acting Director of OCRWM has stated that DOE will not submit a license application until these efforts are complete. Consequently, given the early planning stage of these efforts, it is unknown how long this will delay the submission of a license application. As part of the licensing process, DOE is required to publicly disclose all documents relevant to the licensing application, including e-mails, by posting them on DOE’s public Web site, which is accessible through the NRC-sponsored, Internet-based Licensing Support Network (LSN). To satisfy schedule requirements, DOE must certify that relevant documents have been posted to the network and made available for public review 6 months before the submission of the license application. In preparation for submitting the license application by December 2004, in June of that year, DOE submitted almost 700,000 e-mails to the LSN that had been reviewed by their original authors and determined to be relevant to the licensing process. They were part of a group of approximately 6 million archived e- mails authored by individuals still associated with the project. However, in August 2004, NRC’s Atomic Safety and Licensing Board ruled that DOE had not met its regulatory obligation to make all relevant documentary material available. Specifically, DOE had not reviewed a group of approximately 4 million archived e-mails authored by individuals no longer affiliated with the project to determine whether the e-mails were relevant to the licensing process. As part of its effort to address the board’s ruling, BSC began a review of e-mails authored by employees who were not currently working at the project. During this review, the contractor discovered and brought forward e-mails between USGS scientists working on water infiltration models that raised questions of the potential falsification of technical information in order to sidestep quality assurance requirements. Following the discovery of the e-mails, DOE conducted a search to determine if there were similar e-mails in the approximately 1 million e- mails previously determined relevant for licensing. However, the DOE Inspector General reported in November 2005 that there was no evidence that the project requirements for identifying and addressing conditions adverse to quality, such as those contained in the USGS e-mails, were considered during the initial review of e-mails. Further, among the approximately 10 million e-mails that had already been reviewed for the licensing process, they found additional e-mails that identified possible conditions adverse to quality that had not been identified by project personnel as requiring further review. The DOE Inspector General recommended, among other things, that DOE (1) expand the review of archived e-mails to include both those deemed relevant and those deemed not relevant to the licensing process, and ensure that conditions adverse to quality are appropriately identified, investigated, reported, and resolved; and (2) ensure that current and future e-mails are reviewed for possible conditions adverse to quality and that such conditions are appropriately addressed under the Corrective Action Program (CAP) system. DOE accepted the Inspector General’s recommendations. Specifically, DOE agreed to develop a corrective action plan to expand the review of archived e-mails to ensure that conditions adverse to quality are appropriately identified and processed under the CAP system. In addition to this review, the DOE Inspector General opened a criminal investigation into the USGS e-mails in March 2005. As of December 2005, the investigation was still in progress. According to NRC on-site representatives, completing these e-mail reviews will be challenging because DOE now has to screen millions of e-mails to ensure that records were not falsified. Further, many of these e-mails were written by employees who no longer work at the project or may be deceased, making it difficult to learn their true meaning and context. Moreover, if additional e-mails are found that raise quality assurance concerns, DOE may have to initiate further review, inspections, or rework to address the newfound problems. NRC officials stated that it takes the issue of potentially falsified documents by USGS employees very seriously, wants a full understanding of the situation regarding the USGS e-mails, and will conduct follow-up in this area. Because NRC wants DOE to submit a high-quality license application, it has encouraged DOE to take the time and actions necessary to fully and adequately resolve these and other quality assurance issues. Immediately following the discovery of the USGS e-mails, DOE undertook a scientific investigation into the technical documents created by USGS personnel. In October 2005, DOE began developing an action plan for reviewing, validating, augmenting, and replacing USGS work products that had come under scrutiny. Although the plan is not yet complete, the Acting Director told us that the license application would not be submitted until the USGS work is replaced and there is confidence that all requirements have been met. In an effort to ensure that the scientific work underlying water infiltration modeling is accurate, DOE is working to corroborate the original work by engaging multiple agencies and organizations to rework the models. For example, DOE has (1) had its lead project contractor work with the Idaho National Laboratories to extensively review the software and data used in the original science work, (2) engaged Sandia National Laboratories to rework the model and calculations using different software than was used originally, and (3) also asked USGS to rework the models. Consequently, when this additional rework is completed, DOE will have four sets of analysis (including the original scientific work) with which they can evaluate, compare, and corroborate results. DOE will then pick one set of scientific analysis for inclusion in the license application, and work to explain and defend its choice. In October 2005, DOE announced significant changes to the design of the Yucca Mountain repository to simplify the project and improve its safety and operation. However, these changes will also require additional design and engineering work that will add uncertainty about the timing of the submission of a license application. DOE had been considering a design where radioactive waste would be shipped to the Yucca Mountain site, removed from its shipping container, placed and sealed in a special disposal container, and finally moved into the underground repository. As a result, DOE contemplated handling the waste up to four separate times. In late 2003, DOE engineers began identifying potential safety problems with this approach. First, possible fissures or holes in the cladding surrounding the spent nuclear fuel accidentally caused during the handling of the waste could cause air to mix with the fuel and oxidize. Consequently, this radioactive oxidized material could then leak and be dispersed into the air. Second, DOE engineers determined that the original facility design would not be able to adequately control the levels of radioactivity in the buildings where the waste would be repackaged before being moved in the repository. To address these problems, DOE researched a series of options, including only accepting radioactive waste that had already decayed to the point where oxidization would not be problematic, and testing the waste shipments for oxidization and treating them at another site before they arrived at the repository. In addition, DOE also considered changing the design by filling the processing buildings with inert gas to prevent oxidization and revising the electrical and ventilation systems. According to a DOE official, these options were impractical or added complexity to the design. However, in October 2005, DOE proposed a new design that relies on uniform canisters that would be filled and sealed before being shipped, eliminating the need for direct handling of the waste prior to being placed in the repository. As a result, DOE will not have to construct several extremely large buildings costing millions of dollars for handling radioactive waste. DOE believes this change will improve the safety, operation, and long-term performance of the repository. However, this change will also pose a challenge to the project because of the widespread implications and the unknown time and effort required to implement it. For example, to implement the new design, DOE will need to, among other things, get approval from the Energy Systems Acquisition Advisory Board for a new project plan, which, among other things, includes details on the conceptual design, cost estimates, risk management efforts, and acquisition strategies; plan, design, and produce standardized canisters for the transportation coordinate this new approach with commercial nuclear power plants, NRC, and government organizations that plan on shipping waste to the project; and revise procurement and contracting plans to support the new design. Finally, DOE will need to perform the detailed design and engineering work required to implement the new design, and create new technical documents to support the license application. However, before it can present its new plans and perform this design and engineering work, DOE officials have stated that it will need to resolve long-standing quality assurance problems involving requirements management. Requirements management is the process that ensures the broad plans and regulatory requirements affecting the project are tracked and incorporated into specific engineering details. According to DOE’s root cause analyses, low- level documents were appropriately updated and revised to reflect high- level design changes through fiscal year 1995. However, from 1995 through 2002, many of these design documents were not adequately maintained and updated to reflect current designs and requirements. Further, a document that is a major component of the project’s requirements management process was revised in July 2002, but has never been finalized or approved. Instead, the project envisioned a transition to a new requirements management system after the planned submission of the license application in December 2004. However, for various reasons, the license application was not submitted at that time, and the transition to a new requirements management system was never implemented. As a result, the document refers to the out-of-date NRC regulations contained in 10 CFR part 60, and not the regulations in 10 CFR part 63 that were finalized in October 2002. The scope and cause of requirements management problems have been identified in multiple DOE and NRC reviews. Multiple condition reports issued in 2004 and 2005 have identified problems with requirements management. Due to these condition reports and NRC concerns that repetitive deficiencies and the failure to implement timely corrective actions could have direct implications on the quality of the planned license application, NRC performed a review of Corrective Action Program documents related to the requirements management program in the late summer of 2005. NRC determined that these reports identified approximately 35 deficiencies related to requirements management. Because the requirements management documents are not current and the new requirements management system has not been implemented, NRC concluded that there does not appear to be a requirements management mechanism in place. Further, based on the number of reports and other issues identified by DOE audits, NRC concluded that the project’s Corrective Action Program was not effective in, among other things, eliminating the repeated identification of deficiencies relating to requirements management or initiating the actions to identify and appropriately address the root cause of these problems. In September 2005, DOE began reviewing the root causes associated with CR-6278, a condition report identifying problems with requirements management. As part of the review, DOE personnel analyzed 135 condition reports and other events and allegations. Among other things, this review found that DOE expectations for requirements management were diluted and eventually neglected, that DOE reduced funding for requirements management due to reductions in its annual budget, and that these and other events caused the requirements management process to become “completely dysfunctional” from July 2002 to the time of the review in the fall of 2005. The analysis identified the root causes of these conditions as DOE’s failure to fund, maintain, and rigidly apply a requirements management system. In November 2005, a team of DOE personnel concluded an investigation into an employee’s concerns regarding requirements management. The team substantiated all of the concerns they investigated and found instances of failures and breakdowns in the requirements management process. For example, among other things, the team found that no procedure was developed to describe how requirements management was to occur; some existing requirements management procedures were not implemented; and project management was aware of these conditions but corrective actions were deferred because the planned requirements management system was expected to address the problem. As a contributing factor, the team also observed that the project’s lead contractor had not implemented a “traditional systems engineering approach” as it did not have, among other things, typical engineering management plans or a separate systems engineering organization responsible for requirements management. As a result of the investigation, the team initiated 14 condition reports, 13 of which identified quality-related problems. To address these problems, on December 19, 2005, DOE issued a stop-work order on design and engineering for the surface facility and certain other technical work. DOE stated that the root cause analysis for CR 6278 and the investigation into employee concerns revealed that the project has not maintained or properly implemented its requirements management system, resulting in inadequacies in the design control process. This stop-work order will be in effect until, among other things, the project’s lead contractor improves the requirements management system; validates that processes exist and are being followed; and requirements are appropriately traced to implementing mechanisms and products. Further, DOE will establish a team to take other actions necessary to prevent inadequacies in requirements management and other management systems from recurring. An example of the potential risks of a breakdown with requirements management was noted during a BSC audit on the design process in March 2005. NRC on-site representatives observing this audit reported that the audit team noted problems with inconsistencies between the design documents of the planned fuel-handing facility that would be receiving, preparing, and packaging the waste before it is placed in the repository. The original set of requirements specified that no water from a fire protection system was to be used in the fuel-handling areas of the facility because under certain scenarios, water used for fire suppression could facilitate an accidental nuclear reaction, a condition known as criticality. Later, as the project began to review the design of the fuel-handling facility, the design was changed to allow the use of water sprinklers in the fuel- handling areas of the facility to suppress possible fires. NRC noted that personnel working on the design knew of the inconsistencies between older and newer design documents, but no formal tracking mechanism had been provided to ensure that those issues were rectified. According to an NRC on-site representative in December 2005, this was an example of a concern with requirements management, and that repetitive and uncorrected issues associated with the requirements management process could have direct implications on the quality of the license application. While the project may be able to resolve these inconsistencies through an informal process, the lack of a formal design control and requirements management process increases the risk that not all such problems will be addressed. These requirements management problems are potentially significant because if the high-level engineering needs of the project are not accurately or completely reflected in the detailed design, then the quality of the license application may be compromised and cause delays in the license application review process. For example, according to a 1989 speech prepared by NRC’s Office of General Counsel stressing the importance of quality assurance, a West Coast nuclear power plant experienced similar quality assurance problems with requirements management. After a license was issued by NRC, power plant personnel discovered that the wrong diagrams were used to develop design requirements. As a result of this and other quality assurance weaknesses identified by NRC, the license was suspended and the power plant was required to initiate an independent program to verify the correctness of the design. Further, NRC reopened hearings on the issue of the adequacy of the power plant’s quality assurance program related to the plant’s design. In October 2005, DOE announced a “new path forward” that would create a new project schedule and financial plan to address the completion of scientific and engineering work in support of a license application. However, DOE faces challenges to successfully implementing the new path, in terms of managing the transition, program and organizational complexities, and the continuity of management. According to DOE managers involved with planning the new path forward, the organizational transition could take several months to complete. It is too early to determine whether DOE’s new effort will resolve quality assurance issues and move the project forward to the submission of a license application. Accountability for quality and results, which was identified as a significant transition issue in the Initiatives, will likely pose a challenge for managing the transition to the new path forward. The Initiatives sought to clarify roles and responsibilities within and between DOE and contractor organizations to ensure clear accountability for results and quality during the transition from OCRWM’s organization, processes, procedures, and skills supporting scientific studies to those supporting the activities necessary to license a repository. As the project realigns organizations, processes, procedures, and skills to support the new path forward, it will also be faced with the challenge of ensuring that accountability is not undermined during the transition. For instance, according one DOE manager, transitioning project work to a lead laboratory under a direct contract with DOE could pose a significant challenge for quality assurance because the laboratories are currently working under BSC quality assurance procedures and will now have to develop their own procedures. Implicitly recognizing the importance of accountability issues, elements of the new path forward seek to address issues that can negatively affect quality assurance and project management in general. For instance, the new path includes plans for developing and transmitting requirements to USGS for the certification of scientific work. In addition, a senior project official told us that the lead laboratory would provide a single point of accountability that will enhance the quality of the science work. The Acting Director indicated that OCRWM’s management structure may have to be reorganized to have a single manager clearly accountable for each of the new path’s major tasks in science, engineering, and licensing. Moreover, the project is developing new performance indicators to allow the project to assess important activities under the new path forward. Outside of the new path, as the result of a September 2005 DOE Inspector General report on accountability problems with managing contract incentives, OCRWM agreed to develop a comprehensive corrective action plan to provide clearer and more objective performance standards in the BSC contract. Program complexity and other project characteristics are also likely to pose challenges to managing quality assurance. Based on its experience with licensing and regulating nuclear power plants, NRC observed in the mid-1980s that the Yucca Mountain project’s characteristics, such as a large and complicated program, increased the likelihood of major quality-related problems. Although the new path is intended to simplify design, licensing, and construction, the project remains a complicated program that seeks to both restore confidence in its scientific studies and pursue new design and engineering activities. As a result, the project has to manage quality assurance issues simultaneously in both areas. Moreover, the project involves a complicated organizational structure. The project will continue contracting work with BSC, USGS, and the Sandia National Laboratory, which involves working with organizations in various locations. In our 1988 report, we noted that the geographic distance between the various organizations may hamper OCRWM’s quality assurance communication and oversight objectives. The project also faces management challenges related to ensuring management continuity at the project, since DOE has experienced turnover in 9 of 17 key management positions since 2001. To ensure the right managers move the project forward to licensing, the project has a recruitment effort for replacing key departing managers. In the past year, the project has lost key managers through the departures of the director of Project Management and Engineering, the director of the License Application and Strategy, the director of Quality Assurance, and the contractor’s general manager. According to NRC on-site representatives in August and October 2005, management turnover is a concern for NRC because it would like to see continuity of qualified managers rather than a series of acting managers. Recruiting replacement managers can impact project continuity, and newly acting managers may not take full rein of project tasks. However, the Acting Director told us that the recruitment process is an opportunity to improve project managers and staff, but recruiting the right people is challenging for various reasons—for example, government salaries are less than those in industry, and employment clauses restrict subsequent employment in related industries. Finally, since new directors sometimes give new direction to the project, a critical issue for sustaining the current new path forward is continuity with OCRWM’s director. This position was occupied by three individuals between late 1999 and early 2005. The last OCRWM director assumed the position in April 2002, started the Management Improvement Initiatives in 2002, and left the position in February 2005. The current Acting Director began functioning in his position in the summer of 2005, and initiated the new path forward in October 2005. DOE is currently awaiting congressional confirmation of a nominee to take the director position. However, the Acting Director told us he expects that the new path forward will be sustained because it has been endorsed by the Secretary of Energy. DOE’s Yucca Mountain project has been wrestling with quality assurance problems for a long time. Now, after more than 20 years of project work, DOE is again faced with substantial quality assurance and other challenges to submit a fully defensible license application to NRC. Unless these challenges are effectively addressed, further delays on the project are likely. Furthermore, even as DOE faces new quality assurance challenges, it cannot be certain it has resolved past problems, largely because the department has not been well served by management tools—specifically, its performance indicators and trend evaluation reports—that have not effectively identified and tracked progress on significant and recurring problems. First, the management tools have provided limited coverage of the areas of concern identified in the Management Improvement Initiatives and thus have not enabled DOE managers to effectively monitor progress in these important areas. Second, the tools have often not reflected the full extent or significance of problems because their scope has been limited and not based on projectwide analysis. Third, the trend evaluation reports have, at times, not accurately characterized problems because reliable and complete data and appropriate performance benchmarks were not available at the time of analysis. Fourth, frequent changes in performance indicators and the way analysis is done have made it difficult to accurately identify trends over time. Fifth, the tools’ rating categories have sometimes been misleading as to the significance of problems because the ratings tend to be skewed by the fact that corrective actions were already being taken, without considering their effectiveness or considering the significance of the problem on its own terms. These shortcomings with the tools limit project managers’ ability to direct and oversee such a large and complex undertaking as constructing an underground repository for nuclear wastes. Further complicating DOE’s ability to manage the project are the vacancies in key managerial positions for the quality assurance program and elsewhere on the project. The tools become even more important for new managers who need to quickly understand project management issues. To improve the effectiveness of DOE’s efforts to monitor performance in key areas at the Yucca Mountain project, including quality assurance, we recommend that the Secretary of Energy direct the Director, Office of Civilian Radioactive Waste Management, to take the following five actions to strengthen the project’s management tools: Reassess the coverage that the management tools provide for the areas of concern identified in the Management Improvement Initiatives and ensure that performance in these important areas is effectively monitored, especially in light of the more recent condition reports and associated cause analyses, trend reports, and other reviews indicating continuing problems. Base future management tools, such as the trend evaluation reports, on projectwide analysis of problems, unless there are compelling reasons for a lesser scope. Establish quality guidelines for trend evaluation reports to ensure sound analysis when reporting problems for management’s attention. Such guidelines should address, among other things, having reliable and complete data and appropriate benchmarks. To the extent practicable, make analyses and indicators of performance consistent over time so that trends or progress can be accurately identified and, where changes to analyses or indicators are made for compelling reasons, provide a clear history of the changes and their impact on measuring progress. Focus the management tools’ rating categories on the significance of the monitored condition, not on a judgment of the need for management action. We provided DOE and NRC with draft copies of this report for their review and comment. In oral comments, DOE agreed with our recommendations and provided technical and editorial comments that we have incorporated in the report, as appropriate. We also incorporated, as appropriate, NRC’s oral editorial comments, which primarily served to clarify its role. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to interested congressional committees and Members of Congress, the Secretary of Energy, and the Chairman of the Nuclear Regulatory Commission. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or wellsj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. The objectives of this review were to determine (1) the history of the Yucca Mountain project’s quality assurance problems since the project’s start in the 1980s, (2) the Department of Energy’s (DOE) tracking of quality problems and progress implementing quality assurance requirements since our April 2004 report, and (3) challenges that DOE faces as it continues to address quality assurance issues within the project. In addition, we were asked to provide information about implementation of the project’s Employee Concerns Program and the types of concerns raised in recent years through the program. To determine the history of the project’s quality assurance problems, we reviewed our prior reports and those of DOE’s Office of the Inspector General concerning the Yucca Mountain project. We also reviewed internal DOE evaluations and audit reports written about the quality assurance program and Nuclear Regulatory Commission (NRC) reports and NRC- prepared summaries of NRC and DOE quarterly management meetings, technical exchange meetings, and quality assurance meetings dating to early 2004. In addition, we reviewed letters and communications between DOE and NRC regarding quality assurance from the NRC Web archives from the late 1980s. Furthermore, we reviewed plans for the Regulatory Integration Team (RIT) and subsequent correspondence between Bechtel/SAIC Company, LLC (BSC), DOE’s management contractor for the Yucca Mountain project, and DOE. Moreover, we discussed quality assurance issues with officials of DOE’s Office of Civilian Radioactive Waste Management (OCRWM), including the Acting Director and Deputy Director, at DOE headquarters in Washington, D.C., and at its field office in Las Vegas. In addition, we interviewed representatives of Navarro Quality Services, a DOE subcontractor, as well as BSC, and NRC officials in the agency’s field office in Las Vegas, Nevada, and at its headquarters in Rockville, Maryland. To determine DOE’s tracking of quality problems and progress implementing quality assurance requirements since our April 2004 report, we interviewed OCRWM, BSC, and NRC officials about the status of these efforts since the issuance of our prior report. We also reviewed DOE’s Management Improvement Initiatives (2002), DOE’s Management Improvement Initiatives Transition Approach (2003), and our 2004 report to understand the history of the improvement efforts. To understand DOE’s management tools to monitor problems and progress, we reviewed the available performance indicators panels from April 2004 through August 2005, when it was last produced; the documentation on the individual indicators applied to August 2005 data; and the quarterly trend reports from the fourth quarter of fiscal year 2003 through the fourth quarter of fiscal year 2005. We also reviewed information from condition reports and examined documentation on DOE’s Quality Assurance Requirements and Description (issued in August 2004), BSC’s Trend Evaluation and Reporting, and DOE’s Procedure: Condition Reporting and Resolution (issued in November 2005). To determine challenges that DOE faces as it continues to address quality assurance issues within the project, we reviewed information from condition reports, NRC on-site representative reports, DOE Inspector General reports, and an OCRWM Office of Concerns Program’s investigative report on past quality assurance problems and DOE’s efforts to address them. We obtained information on turnover in key management positions at DOE and BSC since 2000. In addition, we discussed with DOE and NRC officials DOE’s difficulties in addressing recurring quality assurance problems and the quality assurance implications of the Yucca Mountain project moving from the site characterization phase to design and licensing. Also, to better understand issues and challenges, we attended quarterly meetings held between DOE and NRC in Rockville in September 2005 and Las Vegas in December 2005. To identify recent employee concerns related to quality assurance, such as falsification of records and a safety-conscious work environment, as well as to identify the actions taken to address those concerns, we reviewed all concerns received by the OCRWM and BSC Employee Concerns Programs from January through November 2005. For the OCRWM program, we reviewed all employee concerns files to identify concerns related to quality assurance. For the BSC program, we first read summary descriptions of each concerns file, and reviewed the concerns files for only those we identified as related to quality assurance. We then conducted a content analysis of all concerns files that we reviewed. Next, our three team members reached consensus about the correct classification of a concern as a quality assurance problem, such as potential falsification of records. Finally, through a second review of concerns files, we verified our recorded information for those concerns that seemed to be important illustrations of problems. In addition, we also spot-checked a sample of OCRWM and BSC concerns received in 2005 to verify the accuracy of their placement in various concerns categories. We found that the concerns were generally categorized accurately. We performed our work from July 2005 through January 2006 in accordance with generally accepted government auditing standards. NRC expects licensees to establish a safety conscious work environment— that is, one in which (1) employees are encouraged to raise concerns either to their own management or to NRC without fear of retaliation and (2) employees’ concerns are resolved in a timely and appropriate manner according to their importance. NRC encourages but does not require licensees to establish employee concerns programs to help achieve such a work environment, and both DOE and BSC have established such programs. DOE’s Employee Concerns Program is currently operated under the requirements of DOE Order 442.1A, but the department, in anticipation of becoming a licensee, is in the process of establishing the program to meet NRC expectations. DOE and contractor employees at the Yucca Mountain project may raise concerns about quality, safety, or other work environment issues—such as harassment, intimidation, retaliation, and discrimination—through various means. Employees are encouraged to resolve concerns at the lowest possible level in the organization, in the following order: Use normal supervisory channels, such as by raising an issue to a manager for resolution. Initiate a condition report through the Corrective Action Program—a process in which any employee can formally identify a problem on the project, such as with policies, procedures, or the work environment, and have the issue investigated and, if necessary, fixed through corrective actions. Submit a concern via e-mail, telephone, or in person to one of the project’s two Employee Concerns Programs—a BSC program for BSC employees and other subcontractors and another run by DOE for either DOE or BSC employees. Contact NRC directly. The DOE and BSC concerns programs are intended to supplement rather than replace the resolution of problems through managers or the Corrective Action Program. DOE and BSC Employee Concerns Programs have each established a communication network to allow employees to register concerns. These networks include brochures and regular newsletters on the programs and numerous links to the program on the project’s intranet, where employees can obtain concerns forms. Both the DOE and BSC concerns programs of the Yucca Mountain project have four main steps: 1. Employees notify the concerns program staff about issues that they feel should be corrected, such as safety or health issues; harassment, intimidation, retaliation, or discrimination; concerns raised through the Corrective Action Program; and quality assurance problems. 2. The concerns program staff document and handle the concern in accordance with the requirements of DOE Order 442.1A. 3. The concerns program notifies the employees of the results of the investigation and notifies management of any deficiencies. 4. Project management develops corrective actions for deficiencies, and the program validates that the concerns have been effectively addressed by the actions. Under DOE Order 442.1A, concerns may be addressed through an investigation by the concerns program staff, an independent investigation, a referral, a transfer, or a dismissal of the concern. Employees can request or waive confidentiality. If a concern is submitted anonymously, interpreting the main issues and problems is left up to the concerns program staff, and action on the concern may be limited if the submitted information does not clearly or sufficiently define the concern. The concerns program may conduct its own investigation of the concern. Alternatively, it may refer the concern to another project organization for investigation or resolution. After the results of the investigation or resolution are reported to the concerns program within a specified period, the concerns program accepts the results or requires additional actions. In other cases, concerns may be transferred to another organization with the appropriate subject matter responsibility or expertise, such as the Office of Human Relations, Office of General Counsel, or Office of the Inspector General. After investigating a concern, the concerns programs determines whether the concern is substantiated, partially substantiated, unsubstantiated, or indeterminate. If a concern is substantiated or partially substantiated, the investigation results are presented to the responsible senior managers. A concern is considered indeterminate when evidence is insufficient to substantiate a concern or allow for a conclusion to be drawn. Some concerns can be resolved through a noninvestigative resolution, a method to address concerns promptly when minimal effort is required for resolution. Some resolutions involve the development of management corrective action plans that are tracked until they are closed. In addition, for deficiencies that identify systemic problems, the concerns programs may file a condition report through the Corrective Action Program. Moreover, DOE and contractor employees are required to report certain conditions or alleged conditions to DOE’s Office of the Inspector General under DOE Order 221.1, which covers waste, fraud, and abuse. The concerns program handles some employee concerns in this way. From January through November 2005, DOE’s concerns program opened 139 employee concerns for investigation, and the BSC concerns program opened 112 concerns for investigation. DOE’s concerns program places concerns into 14 categories, while the BSC program uses 20 categories. For both DOE and BSC, the category receiving by far the most concerns for calendar year 2005 was management: “management/mismanagement” for DOE and “management practices” for BSC. According to DOE, management concerns generally involved conditions related to management behavior, policy practice, budget allocation, or use of resources. According to the manager of BSC’s program, about half of the concerns in the management practices category involve hiring and human relations issues and the other half involve organizational policies and other issues. The “quality” category accounts for a relatively small portion of total concerns—18 percent of concerns for the DOE program and 4 percent for the BSC program. Tables 3 and 4 show the concerns received by the DOE and BSC programs for January through November 2005. The Employee Concerns Programs, which are designed to provide an alternative to raising issues through the Corrective Action Program and issuing condition reports, have been playing an active and sometimes key role in identifying and addressing quality assurance problems, as can be seen in the following examples: As part of an effort to identify e-mails relevant to the licensing process and that therefore should be included in the Licensing Support Network, BSC employees in late 2004 discovered e-mails suggesting potential falsification of technical records. The e-mails were submitted to the Employee Concerns Program in March 2005 and were eventually reported to the DOE Inspector General for investigation. The quality assurance issues raised by the e-mails have resulted in a substantial effort by DOE to restore confidence in the quality of technical documents that will support its license application to construct the repository. In mid-2005, the DOE concerns program referred to the project’s senior management an employee’s allegation that the project’s schedule was taking priority over quality in the review of technical documents. In this instance, the Office of Concerns Program Manager negotiated with senior management to address the time and resource needs for ensuring quality assurance, rather than simply communicating to the organization that quality should take priority over the schedule. As the result of an employee’s concerns referred to DOE by NRC in mid- 2005, the Employee Concerns Program initiated an extensive investigation of issues related to requirements management. That investigation substantiated the employee’s concerns and led to the issuance of 14 condition reports for problem resolution. Signifying the importance of this issue, DOE discussed problems with requirements management with NRC at their quarterly meeting in December 2005. The Employee Concerns Programs’ role in identifying and addressing quality assurance and other issues is dependent upon employees’ willingness to submit concerns, but the employees’ willingness has sometimes been in doubt. A late 2004 DOE survey of project employees indicated, for example, that less than two-thirds of employees were confident that submitted concerns would be thoroughly investigated and appropriately resolved. DOE recognizes the need to improve employee trust and willingness to use the concerns program, and both the DOE and BSC program are engaged in outreach efforts. However, employees’ willingness to submit concerns may be affected by factors outside the programs’ control. According to a DOE manager, the project’s recent and pending workforce reductions may account for a decreasing number of concerns submitted to the DOE program in late 2005. Based on OCRWM Employee Concerns Program data, the program averaged about 13 concerns a month from January through November 2005. However, the number of monthly concerns dropped to 5 in October and 3 in November 2005. During our review of concerns opened for investigation from January 2004 through November 2005, we did not identify any concerns alleging problems similar to the falsification of technical records suggested by the USGS e-mails. Although we found records of an early 2004 concern about an instance of inappropriate management of a technical document, this instance was resolved and did not appear to be an intentional or systematic effort to falsify records. The manager of the BSC program told us of a concern raised about another set of e-mails, but this concern was not about record falsification. The manager of the DOE program told us that she had not seen any reportable allegations of falsification of technical records since she took her position in July 2004. In addition to the contact named above, Raymond Smith (Assistant Director), Casey Brown, John Delicath, James Espinoza, and Terry Hanford made key contributions to this report.	The Department of Energy (DOE) is working to obtain a license from the Nuclear Regulatory Commission (NRC) to construct a nuclear waste repository at Yucca Mountain in Nevada. The project, which began in the 1980s, has been beset by delays. In a 2004 report, GAO raised concerns that persistent quality assurance problems could further delay the project. Then, in 2005, DOE announced the discovery of employee e-mails suggesting quality assurance problems, including possible falsification of records. Quality assurance, which establishes requirements for work to be performed under controlled conditions that ensure quality, is critical to making sure the project meets standards for protecting public health and the environment. GAO was asked to examine (1) the history of the project's quality assurance problems, (2) DOE's tracking of these problems and efforts to address them since GAO's 2004 report, and (3) challenges facing DOE as it continues to address quality assurance issues within the project. DOE has had a long history of quality assurance problems at the Yucca Mountain project. In the 1980s and 1990s, DOE had problems assuring NRC that it had developed adequate plans and procedures related to quality assurance. More recently, as it prepares to submit a license application for the repository to NRC, DOE has been relying on costly and time-consuming rework to resolve lingering quality assurance problems uncovered during audits and after-the-fact evaluations. DOE announced, in 2004, that it was making a commitment to continuous quality assurance improvement and that its efforts would be tracked by performance indicators that would enable it to assess progress and direct management attention as needed. However, GAO found that the project's performance indicators and other key management tools were not effective for this purpose. For example, the management tools did not target existing areas of concern and did not track progress in addressing them. The tools also had weaknesses in detecting and highlighting significant problems for management attention. DOE continues to face quality assurance and other challenges. First, DOE is engaged in extensive efforts to restore confidence in scientific documents because of the quality assurance problems suggested in the discovered e-mails between project employees, and it has about 14 million more project e-mails to review. Second, DOE faces quality assurance challenges in resolving design control problems associated with its requirements management process--the process for ensuring that high-level plans and regulatory requirements are incorporated into specific engineering details. Problems with the process led to the December 2005 suspension of certain project work. Third, DOE continues to be challenged to manage a complex program and organization. Significant personnel and project changes initiated in October 2005 create the potential for confusion over roles and responsibilities--a situation DOE found to contribute to quality assurance problems during an earlier transition.	16.9	8k-16k	7,895
26	In 1986, the Congress called for the establishment of a joint service special operations capability under a single command. In April 1987, the Secretary of Defense established the Special Operations Command with the mission to provide trained and combat-ready special operations forces to DOD’s geographic combatant commands. Section 167(e) of Title 10, U.S. Code directs that the Commander of the Special Operations Command be responsible for and have the authority to conduct all affairs of such command related to special operations activities. Under this section, the Commander is also responsible for and has the authority to conduct certain functions relating to special operations activities whether or not they relate to the Special Operations Command, including: preparing and submitting to the Secretary of Defense program recommendations and budget proposals for special operations forces and for other forces assigned to the Special Operations Command; exercising authority, direction, and control over the expenditure of funds; training assigned forces; and monitoring the promotions, assignments, retention, training, and professional military education of special operations forces officers. In addition, Section 167 directs the Special Operations Command to be responsible for the following activities as they relate to special operations: (1) direct action, (2) strategic reconnaissance, (3) unconventional warfare, (4) foreign internal defense, (5) civil affairs, (6) psychological operations, (7) counterterrorism, (8) humanitarian assistance, (9) theater search and rescue, and (10) other activities such as may be specified by the President or the Secretary of Defense. Appendix II defines these activities assigned to the Special Operations Command. DOD has also assigned additional activities to the Special Operations Command. Over the past 3 years, DOD has expanded the role of the Special Operations Command to include responsibility for planning and leading the department’s efforts in the Global War on Terrorism. In addition to training, organizing, equipping, and deploying combat-ready special operations forces to the geographic combatant commanders, the Command has the mission to lead, plan, synchronize, and, as directed, execute global operations against terrorist networks. The specific responsibilities assigned to the Special Operations Command include: integrating DOD strategy, plans, intelligence priorities, and operations against terrorist networks designated by the Secretary of Defense; planning campaigns against designated terrorist networks; prioritizing and synchronizing theater security cooperation activities, deployments, and capabilities that support campaigns against designated terrorist networks in coordination with the geographic combatant commanders; exercising command and control of operations in support of selected campaigns, as directed; and providing military representation to U.S. national and international agencies for matters related to U.S. and multinational campaigns against designated terrorist networks, as directed by the Secretary of Defense. In addition, the National Military Strategic Plan for the War on Terrorism establishes the approach DOD will take in fulfilling its role within the larger national strategy for combating terrorism. The strategy provides guidance on the department’s military objectives and their relative priority in the allocation of resources. In addition, this strategy implements the designation of the Special Operations Command as the supported combatant command for planning, synchronizing, and, as directed, executing global operations against terrorist networks. The Special Operations Command has received considerable increases in funding to meet its expanded responsibilities in the Global War on Terrorism. Specifically, funding for the Command has increased from more than $3.8 billion in fiscal year 2001 to more than $6.4 billion in fiscal year 2005. In addition, the Command received more than $5 billion in supplemental funds from fiscal year 2001 through fiscal year 2005. During this time, funding for military personnel costs for the Special Operations Command increased by more than $800 million, representing a 53 percent increase. DOD plans further increases in funding for the Command. The President’s fiscal year 2007 budget request for the Special Operations Command is $8 billion, and the department plans additional increases for the Command through fiscal year 2011. The Special Operations Command is comprised of special operations forces from each of the military services. In fiscal year 2005, personnel authorizations for Army special operations forces military personnel totaled more than 30,000, the Air Force 11,501, the Navy 6,255, and the Marine Corps 79. Roughly one-third of special operations forces military personnel were in DOD’s reserve components, including the Army, Navy, and Air Force Reserve, and the Army and Air National Guard. Figure 1 provides a summary of DOD’s special operations forces military authorizations in the active component and reserve component. Special operations forces are organized into several types of units. For example, Army special operations forces are organized into Special Forces, Rangers, Aviation, Civil Affairs, Psychological Operations, and support units. Air Force special operations forces are organized into fixed and rotary wing aviation squadrons, special tactics squadrons, a combat aviation advisor squadron, and an unmanned aerial vehicle squadron. Naval Special Warfare forces include SEAL Teams and SEAL Delivery Vehicle Teams and Special Boat Teams. When fully operational, Marine Corps special operations forces will include foreign military training units and marine special operations companies. Table 1 provides an overview and description of DOD’s special operations forces. Special operations forces personnel possess highly specialized skill sets including cultural and regional awareness. Duty in special operations is undertaken on a voluntary basis, and many personnel volunteering for special operations, particularly those in Army Special Forces and Air Force flight crews, have already served for some time in the military before becoming qualified for special operations forces. In order to become qualified, military personnel must complete a rigorous assessment, selection, and initial training process that, on average, takes between 12 and 24 months. This difficult training regime causes high attrition, and often over 70 percent who start special operations training do not finish. In general, servicemembers who are unable to complete the special operations training return to their previously held specialty or are retrained into another specialty, depending on the needs of their military service. The Special Operations Command’s Army, Air Force, and Navy service components have schools to train and develop special operations forces. For example: The U.S. Army Special Operations Command, located at Ft. Bragg, North Carolina, operates the John F. Kennedy Special Warfare Center and School. This school assesses, selects, and trains Special Forces soldiers, and trains civil affairs and psychological operations soldiers. In addition, the school provides advanced special operations training courses. The Air Force Special Operations Command, located at Hurlburt Field, Florida, has several subordinate training squadrons that provide initial and advanced training for Air Force rotary and fixed wing special operations pilots, special tactics personnel, combat aviation advisors, and unmanned aerial vehicle personnel. The Naval Special Warfare Command, located on the Naval Amphibious Base Coronado, California, operates the Naval Special Warfare Center. This school trains SEAL candidates through the Basic Underwater Demolition SEAL course and the SEAL Qualification Course, and trains special warfare combatant crewmen through the Special Warfare Combatant Crewmen course. In addition, the school provides advanced special operations training courses. The Special Operations Command has not yet fully determined all of the personnel requirements needed to meet its expanded mission. While the Command has determined the number of special operations forces personnel who are needed to increase the number of its warfighter units, it has not completed analyses to determine (a) the number of headquarters staff needed to train and equip these additional warfighters or (b) the number of headquarters staff needed to plan and synchronize global actions against terrorist networks—a new mission for the Command. Although the Command’s analyses for these determinations were in progress at the time of our review, DOD has nonetheless planned to increase the number of positions for the Command’s headquarters, and has requested related funds beginning in fiscal year 2007. Several recent DOD studies have concluded that additional special operations forces warfighters are needed in order for the Special Operations Command to achieve the national military objectives in the Global War on Terrorism. A December 2002 report conducted by the Office of the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict found that efforts should be made to expand the size of special operations forces and institute a more sustainable rotational base of forces, while realigning the force to meet current and future challenges. Furthermore, the February 2006 Quadrennial Defense Review Report stated that one of the key programmatic decisions the department proposes to launch in fiscal year 2007 is to increase special operations forces to defeat terrorist networks. The Special Operations Command has determined the number of special operations forces personnel needed to meet increases in its warfighter units. To determine the requirements for special operations forces warfighter units, the Command uses its Joint Mission Analysis process. Based on planning scenarios provided by DOD that special operations forces will be needed to support, the Command determines the minimum number of warfighters necessary to achieve its military objectives with the least amount of risk to mission success. This level of special operations forces is the baseline force used to measure risk, and is the starting point for developing a more attainable force based on fiscal constraints. Beginning in fiscal year 2002, DOD increased the number of positions for the Special Operations Command to augment the increase in the number of its warfighter units. Specifically, from fiscal year 2001 through fiscal year 2005, DOD increased the number of military positions for special operations forces by more than 5,000 positions, or about 12 percent. With these increases in military positions, the Special Operations Command has also increased the number of special operations forces units, including Army Civil Affairs and Psychological Operations units. DOD plans to further increase the number of military positions for the Command through fiscal year 2011, and the Command plans to increase other special operations forces units such as Army Special Forces, Navy SEALs, and Air Force unmanned aerial vehicle and intelligence squadrons. The increase in military positions will also support the establishment of a Marine Corps component to the Special Operations Command, which was approved in October 2005. Table 2 provides examples of increases in the number of active duty special operations forces warfighter units from fiscal year 2001 through fiscal year 2011. DOD’s budget request for fiscal year 2007 includes increases in the number of personnel for the Special Operations Command’s headquarters, even though the Command had not completed studies for headquarters’ personnel requirements in two key areas. First, the Commander of the Special Operations Command is responsible for training assigned special operations forces, and developing and acquiring special operations- peculiar equipment. Accordingly, the Command believes that it has a commensurate need for additional headquarters staff to perform these responsibilities to support the increased number of warfighters necessary to win the Global War on Terrorism. Second, DOD’s decision to expand the mission of the Special Operations Command calls for the Command to be responsible for planning and synchronizing global actions against terrorist networks. The Command further believes that it needs additional headquarters personnel to fulfill this responsibility. The Special Operations Command determines personnel requirements for its headquarters by conducting formal personnel studies. These studies are directed and approved by the Special Operations Command’s leadership. The study teams conduct a variety of analyses to determine personnel requirements and interview individuals within the reviewed organization to determine the tasks they perform and the level of effort necessary to fulfill the workload requirements. The studies are used to validate the personnel requirements and support data-based decisions for allocating additional resources during the Special Operations Command’s planning, programming, and budgeting processes. The Command is currently conducting studies to determine the number of military and civilian personnel who are needed at its headquarters to meet the Command’s expanded responsibilities. Although these studies were in progress at the time of our review, DOD has already made the decision to increase the number of military and civilian positions for the Command’s headquarters, beginning with its fiscal year 2007 budget request. According to currently approved plans, DOD will increase the number of military and civilian positions for the Special Operations Command headquarters by more than 75 percent between fiscal years 2007 and 2011. These increases include more than 700 additional positions for the Command’s Center for Special Operations, which combines the intelligence, operations, and planning functions at the headquarters to plan and direct the Global War on Terrorism. However, given the fact that the Command’s internal analyses of personnel requirements were ongoing at the time of our review, the intended increase is not based on a comprehensive analysis of personnel requirements. Our prior work has shown that strategic workforce planning addresses two critical needs for an organization. First, strategic workforce planning aligns an organization’s human capital program with its current and emerging mission and programmatic goals. Second, such planning develops long-term strategies for acquiring, developing, and retaining the staff needed to achieve programmatic goals. A key principle in strategic workforce planning calls for determining the critical skills and competencies that will be needed to achieve current and future programmatic results. However, until the Special Operations Command fully completes its analyses of the personnel requirements needed to carry out its Title 10 responsibilities and its expanded mission, it cannot provide assurances to the Secretary of Defense and the Congress that currently planned growth in the number of personnel for the Command’s headquarters will meet, exceed, or fall short of the requirements needed to address the Command’s expanded mission. The military services and the Special Operations Command have made progress since fiscal year 2000 in recruiting, training, and retaining special operations forces personnel; however, the military services and the Special Operations Command must overcome persistently low personnel inventory levels and insufficient numbers of newly trained special operations forces personnel in some cases to meet DOD’s plan to increase the number of special operations forces personnel through fiscal year 2011. In addition, the Special Operations Command does not have complete information from its service components on human capital challenges, including low personnel inventory levels and training limitations, and planned corrective actions, which it needs to evaluate the success of its service components’ human capital approaches. The military services and the Special Operations Command have taken measures to recruit and train greater numbers of special operations forces personnel. In addition, DOD has implemented a set of initiatives intended to retain greater numbers of experienced special operations forces personnel. The Army and Navy have increased the recruiting goals for several of their special operations forces occupational specialties. These goals are set by the military services to determine the number of accessions, or new recruits, who will enter training each year. From fiscal year 2000 to fiscal year 2005, the Army increased the recruiting goal for active duty enlisted Special Forces soldiers by 72 percent, or 1,300 recruits. Similarly, the Navy increased its annual goal for enlisted SEAL recruits from 900 in fiscal year 2004 to 1,100 in fiscal year 2005. In addition, the Navy established an annual goal for enlisted special warfare combatant crewman recruits for the first time in fiscal year 2005. To meet these recruiting goals, the military services have offered enlistment bonuses to enlist a sufficient number of new recruits. Collectively, the military services paid more than $28 million in these bonuses during fiscal year 2005 to enlist servicemembers in their special operations forces occupational specialties. Beginning in fiscal year 2003, the Army offered these bonuses to its initial accession Special Forces recruits and in fiscal year 2005 the Army paid up to $20,000 per soldier. Similarly, in fiscal year 2005, the Air Force offered enlistment bonuses of up to $10,000 to recruits in the combat controller and pararescue occupational specialties. In fiscal year 2005, the Navy paid enlistment bonuses for enlisted SEAL and special warfare combatant crewman recruits up to a maximum of $15,000. The Army met or exceeded its recruiting goals for active duty enlisted Special Forces soldiers in 5 out of the 6 years between fiscal years 2000 and 2005. From fiscal year 2000 through fiscal year 2005, the Air Force increased the number of enlisted airmen recruits for the combat controller and pararescue occupational specialties by about 400 percent and 60 percent, respectively. In fiscal year 2005, the Navy exceeded its recruiting goal for enlisted special warfare combatant crewmen. However, while the Navy met its recruiting goal for enlisted SEALs for fiscal year 2004, it met 80 percent of its recruiting goal in fiscal year 2005. The Special Operations Command and the service components have taken several actions to train greater numbers of special operations forces recruits. For instance, the Command and the service components have increased the number of instructors at several special operations forces schools to produce a larger number of newly trained personnel, with additional increases in the number of instructors planned through fiscal year 2011. The U.S. Army Special Operations Command, for example, hired 45 additional civilian instructors in fiscal year 2004 as part of its Institutional Training Expansion program, and plans to add more than 300 additional civilian instructors through fiscal year 2011. Similarly, beginning in fiscal year 2006, the Naval Special Warfare Command plans to add 145 military and civilian instructors through fiscal year 2008. The Special Operations Command’s service components have also expanded the capacity of some schools to train more students and have reorganized some of their curricula so that their recruits move through the training programs more efficiently. Beginning in fiscal year 2006, the U.S. Army Special Operations Command increased the frequency of a phase of its Special Forces qualification training that is focused on core battle skills. The U.S. Army Special Operations Command plans to increase the frequency of this phase from starting four courses per year, to starting a new course approximately every 2 weeks. This increase in frequency will expand the capacity of the training course from 1,800 student spaces to about 2,300 per year. The Air Force Special Operations Command established a training program in fiscal year 2001 to provide advanced skills training for combat controllers. In addition, the training program was intended to provide standardized training for special operations pararescue personnel, special operations combat weathermen, and special tactics officers. Since its inception, the program has increased the graduation rate of combat controllers, and in addition, the training program has provided special operations pararescue airmen, combat weathermen, and special tactics officers with advanced special operations training. In fiscal year 2005, the Naval Special Warfare Command reorganized the training course for SEALs intended to reduce student attrition. Specifically, the Naval Special Warfare Command eliminated the class administered during the winter months, which historically had the highest attrition, while increasing the class sizes for the remaining classes. In addition, the Naval Special Warfare Command has begun providing focused training for those students who have completed the most physically challenging portion of the training but who require additional practice in specific skills, rather than requiring students to begin the training from the start. In some cases, the Special Operations Command and the service components have increased the number of newly trained special operations forces personnel. From fiscal year 2000 through fiscal year 2005, for example, the school that trains new Special Forces soldiers increased the number of active duty enlisted graduates by 138 percent, or 458 additional Special Forces soldiers. DOD has also taken action to retain experienced special operations forces personnel in order to meet the planned growth in these forces. According to the Special Operations Command, it cannot accomplish planned growth solely by adding new special operations forces personnel. Rather, the growth must be accomplished by balancing an increase in the number of new personnel with the retention of experienced special operations forces servicemembers. In 2004, DOD authorized a set of financial incentives to retain experienced special operations forces personnel. These incentives include reenlistment bonuses of up to $150,000 for personnel in several special operations forces occupational specialties with 19 or more years of experience who reenlist for an additional 6 years. The military services spent more than $41 million in fiscal year 2005 to retain 688 special operations forces servicemembers with this reenlistment bonus, according to data provided by the Office of the Secretary of Defense for Personnel and Readiness. Additionally, DOD authorized increases in special pays for warfighters assigned to the Special Operations Command, for some special operations forces personnel who remain on active duty with more than 25 years of experience, and bonuses for new Special Forces and Naval Special Warfare warrant officers. While the military services and the Special Operations Command have taken steps to increase the number of newly trained special operations forces personnel and to retain its experienced operators, the military services and the Special Operations Command face several human capital challenges in fully meeting planned growth in special operations forces. These challenges include persistently low personnel inventory levels for many special operations forces occupational specialties and insufficient numbers of new graduates in some cases to meet current authorized personnel levels or planned growth targets. We reported in November 2005 that DOD faced significant challenges in recruiting and retaining servicemembers, and that the military services were unable to meet authorized personnel levels for certain occupational specialties, including several special operations forces occupational specialties. At that time, we reported that several of these specialties in the Army, Air Force, Navy, and Marine Corps were underfilled for 5 out of the previous 6 fiscal years. Such occupational specialties included active duty enlisted Army Special Forces assistant operations and intelligence sergeants and Special Forces medical sergeants, enlisted Navy SEALs and special warfare combatant crewmen, and enlisted Air Force combat controllers and pararescue personnel. According to DOD officials, the special operations forces occupational specialties were underfilled for several reasons, including extensive training or qualification requirements and recent increases in the number of authorized personnel positions. Our analysis of the personnel inventory levels for the special operations forces active component occupational specialties identified by the Special Operations Command’s Directive 600-7 shows that hundreds of authorized positions for special operations forces personnel within each of the Command’s service components have been persistently unfilled. As shown in table 3, from fiscal year 2000 through fiscal year 2005, 74 percent to 87 percent of the active component occupational specialties in this directive were underfilled, each year, by an amount ranging from less than 5 percent to more than 86 percent. In fiscal year 2005, more than 50 percent of these specialties were underfilled by at least 10 percent. For example: personnel authorizations for active duty enlisted Special Forces assistant operations and intelligence sergeants were underfilled by 58 percent, personnel authorizations for active duty enlisted pararescue airmen were underfilled by 27 percent, and personnel authorizations for active duty enlisted SEALs were underfilled by 14 percent. Given the military services’ inability to fill current and past positions in their special operations forces specialties, it may be increasingly difficult to meet DOD’s plan to increase the number of special operations forces through fiscal year 2011. During our review, the Special Operations Command’s service components provided data indicating that, in several cases, the measures the military services and the Special Operations Command are taking to recruit and train greater numbers of special operations forces personnel may enable the military services and the Command to meet the increases in the numbers of authorized positions. However, the data also show that some of the special operations forces specialties that are currently underfilled are likely to remain so after additional authorizations have been added. For example, Navy officials told us that although additional authorizations for enlisted SEALs will be added by fiscal year 2008, it will not be able to fill all of these positions until at least 2011, at the earliest. Similarly, the Air Force projects that the additional active duty enlisted combat controller positions that have been added in fiscal year 2006 will remain underfilled through at least fiscal year 2008. Not only do current low personnel inventory levels suggest that the military services and the Special Operations Command will be challenged to meet planned growth goals, but officials told us that low personnel levels in certain occupational specialties have created challenges at the unit level as well. For example, officials from the U.S. Army Special Operations Command told us that low personnel inventories of Special Forces warrant officers and medical sergeants have resulted in their having fewer numbers of these personnel per unit, which has limited the manner in which some Special Forces units have deployed on the battlefield. Similarly, the low personnel inventory levels in the Air Force combat controller and pararescue occupational specialties have resulted in the Air Force’s special tactics squadrons being underfilled. According to Air Force officials, the low personnel inventory levels in these units have increased the frequency of personnel deployments, which has had an impact on the amount of time available to conduct training and has adversely affected retention. One reason that personnel inventory levels have been low in several special operations forces occupational specialties is the schools that train new special operations forces personnel have not graduated a sufficient number of these personnel, in some cases, to meet authorized personnel levels. Furthermore, the number of newly trained personnel in several special operations forces specialties has been insufficient to meet planned growth targets. For example: The U.S. Army Special Operations Command is not graduating enough new pilots for the 160th Special Operations Aviation Regiment to meet future growth targets. In fiscal year 2005, the Command graduated only 58 percent of the MH-47 Chinook helicopter pilots and 47 percent of the MH- 60 Blackhawk helicopter pilots that the Army determined were needed to meet planned growth for this unit. According to Army officials, the capacity of the school that trains new pilots has been insufficient to meet the requirements for future personnel levels. Officials stated that the Special Operations Command has provided additional funding beginning in fiscal year 2006 for the school to hire a greater number of instructors, which will increase the capacity of the school to train these pilots. The Air Force has not produced a sufficient number of active duty enlisted special tactics personnel, such as combat controllers and pararescue personnel. For example, from fiscal year 2000 through fiscal year 2005, the Air Force trained only 53 percent of the active duty enlisted combat controllers and 40 percent of the active duty enlisted pararescue airmen needed to meet authorized personnel levels. Air Force officials stated that several constraints have limited the number of students who could attend the schools that train these personnel. Officials explained the Air Force has taken steps to increase the number of personnel that will graduate from its special tactics training programs. For example, in August 2005, the Air Force began construction on a new classroom and aquatic facility to train greater numbers of combat controllers, and it recently opened a new combat dive course to meet both combat controller and pararescue training requirements. Such measures are intended to reduce the constraints on the ability of the Air Force to train new special tactics personnel. From fiscal year 2000 through fiscal year 2005, the Naval Special Warfare Command did not produce an adequate number of enlisted SEALs to sustain authorized personnel levels. While the Naval Special Warfare Command needed to graduate 200 new enlisted SEALs each year to meet authorized personnel levels, only about 150 new enlisted personnel graduated each year during this period. In addition, Navy officials stated that to meet the planned growth for SEALs, the Naval Special Warfare Command must produce 250 enlisted SEALs annually. According to Navy officials, it has recruited an insufficient number of enlisted candidates who could successfully pass the physical test to qualify for SEAL training. As a result, the Navy has not filled the SEAL school to capacity each year, and this in turn has resulted in insufficient numbers of graduates to fill the requirements for enlisted SEALs. According to officials, the Navy began to implement several measures in January 2006 that, in part, are intended to increase the quantity and quality of enlisted recruits entering SEAL training, thereby improving the chances that more of these recruits will successfully graduate from the training. The Special Operations Command does not have complete information, including measurable performance objectives and goals, to evaluate the progress that the Command’s service components have made in meeting the human capital challenges that could impede the Command’s ability to achieve planned growth. The Special Operations Command has an established program through which it monitors the status of its personnel. The goal of the program is to ensure there are sufficient numbers of special operations forces personnel to meet current and future mission requirements. The implementing directive requires the special operations component commanders to provide the Special Operations Command with annual reports that contain data on several topics related to the human capital management of special operations forces, including personnel inventory levels, accession plans, reenlistments and loss management programs, and military education opportunities for special operations forces officers. Command officials told us they use these reports to monitor the status of special operations forces. Our analysis of the service components’ annual reports for fiscal years 2000 through 2005 shows that the reports provide some of the information required by the directive, such as information on personnel inventory levels and professional military education opportunities. However, the reports have not provided information for several key requirements called for by the directive that would provide information on the service components’ progress in meeting the planned growth targets. For example, the service components are required to provide accession plans for several of the special operations occupational specialties, including Army Special Forces, Navy SEALs, and Air Force special tactics personnel. The accession plans should provide detailed information on the number of new accessions for initial training and projections for the following year. Our review of the annual reports shows that since fiscal year 2003, none of the service components’ submissions contained this information. Additionally, the directive requires the service components to provide detailed analyses to support each category discussed in the annual report, including trends developed over recent years and predictions for the future. Further, the annual reports should fully discuss any concerns by describing the concern in context, providing past actions taken to resolve the concern, and presenting recommendations to address the concern in the future. However, our analysis of the components’ annual submissions shows that the reports have often failed to provide detailed analyses of their human capital challenges and the corrective actions that should be taken to address these challenges. For instance: The U.S. Army Special Operations Command’s annual report for fiscal year 2005 did not identify a 79 percent personnel fill rate for the Special Forces medical sergeant occupational specialty as a challenge. However, officials with whom we spoke indicated that insufficient numbers of these personnel have limited both the operational capabilities of some deployed Special Forces units and the ability to provide medical life-support to personnel in these units. In other cases, the U.S. Army Special Operations Command’s annual reports identified challenges but did not propose corrective actions. For example, the report for fiscal year 2005 states a concern that, because the 160th Special Operations Aviation Regiment had insufficient training resources, it produced only 50 percent of the requirement for MH-47 Chinook helicopter pilots. However, the report did not discuss in detail what actions should be taken to address this challenge. Since its fiscal year 2000 annual report, the Air Force Special Operations Command has identified a concern that the experience level of its rated pilots has been decreasing. As a result, there have been an insufficient number of aircraft commanders and instructor pilots within several of the special operations squadrons. However, the Air Force Special Operations Command’s annual reports do not contain any information to support the specific decrease in the number of experienced pilots in its special operations forces units. Moreover, the reports do not specify how the actions taken to address the issue have impacted the level of experience of pilots, or what further actions are needed to address this challenge. In addition, although the combat controller and pararescue occupational specialties have been underfilled since at least fiscal year 2000, the Air Force’s annual reports have not provided detailed information on the specific actions that should be taken to overcome the challenges of low personnel inventory levels in these specialties. The Naval Special Warfare Command’s annual reports have consistently identified a critical challenge regarding the insufficient number of new enlisted Navy SEALs who have graduated from the school each year. Further, the reports provide some information on the actions taken in the previous fiscal year to address this concern. However, the annual reports have not included detailed information on the Naval Special Warfare Command’s accession plans, or the effects that recruit shortfalls have had on personnel inventory levels, which are specifically required by the directive. Furthermore, the service components’ annual reports lack performance objectives and goals that link key personnel data with future growth plans and assessments of personnel needs. Our prior work has shown that high- performing organizations use relevant and reliable data to determine performance objectives and goals that enable them to evaluate the success of their human capital approaches. These organizations identify current and future human capital needs, including the appropriate number of employees, the key competencies and skills mix for mission accomplishment, and the appropriate deployment of staff across the organization, and then create strategies for identifying and filling gaps. However, our analysis of the Command’s Directive 600-7 shows that the requirements for the annual reports do not include instructions for the service components to develop performance objectives, goals, and measures of progress for achieving planned growth. As an example, the Command requires the service components to provide personnel reenlistment data within these reports. Specifically, the Command requires information and analysis on the number of eligible special operations forces personnel who chose to reenlist and comparative information on the number of personnel reenlistments in each military service. However, the service components’ annual reports do not clearly link the number of experienced warfighters who have been retained with the number who are needed to meet planned growth. This is particularly important because the parent military services have not set goals for the reenlistments of their special operations forces personnel in a way that is clearly linked with the planned growth in these forces. Each of the active component military services tracks retention according to years of service and whether a servicemember is on a first, second, or subsequent enlistment. Moreover, the Special Operations Command has not established specific performance objectives or goals for the special operations forces retention initiative that DOD authorized in December 2004. As a result, it is difficult to assess the progress that DOD has had with this initiative in retaining a sufficient number of experienced personnel to meet planned growth—a key rationale for the initiative. Many of the special operations forces servicemembers who were eligible for the bonuses offered as part of this initiative did reenlist, as shown by information provided to us. However, Special Operations Command officials were unable to provide specific goals to measure the effectiveness of the retention initiatives because they lacked clear performance objectives that are linked to comprehensive analyses of personnel needs. Special Operations Command officials stated the Command had not fully enforced the reporting requirements in its directive because it is outdated and some of the information required in the annual reports is less relevant, given the Command’s expanded role in the Global War on Terrorism. However, the Command most recently updated this directive in April 2003, and at that time, it maintained the annual reporting requirements. In addition, officials stated that data and information on the status of special operations forces personnel are available to the Special Operations Command through other processes, including monthly and quarterly readiness reports, monthly personnel status summaries, and annual conferences hosted by the Command to discuss personnel issues. The Defense Manpower Data Center also provides the Command with analyses on the trends in the continuation rates of special operations forces personnel. While these processes may provide information on the status of special operations forces, they do not provide detailed analyses and discussions of concerns and corrective actions that are required by the Command’s directive. In addition, the annual reports are a means by which the Command has provided information to stakeholders within the department—including the Office of the Secretary of Defense and the military services—on the status of special operations forces. Without complete information on human capital challenges, the Special Operations Command will be unable to determine whether the service components’ human capital management approaches, including their recruiting, training, and retention strategies, will be effective in meeting the planned growth targets. Since fiscal year 2000, special operations forces have experienced a substantial increase in the deployment of personnel for operations and a simultaneous decrease in the deployment of personnel for training. To its credit, the Special Operations Command has taken action to manage the challenge of increased deployments by establishing a policy intended to maintain the readiness, retention, and training of special operations forces personnel. However, the Command’s service components have not yet consistently or fully implemented this policy. The Special Operations Command Directive 525-1 establishes the Command’s policy to collect and monitor information on the deployments of special operations forces personnel. Accordingly, the Command gathers deployment information on a weekly basis from the service components and the geographic combatant commands. These reports include information on the number of special operations forces personnel and special operations forces units that are deployed around the world. In addition, the components report the type of the deployment, such as deployments for operations or for training. From these weekly updates, the Special Operations Command develops a comprehensive deployed forces report, which is presented to the Commander of the Special Operations Command and included in updates for the Chairman of the Joint Chiefs of Staff. Our review of Special Operations Command data shows that since fiscal year 2000, deployments of special operations forces personnel have substantially increased. Specifically, as shown in figure 2, the average weekly number of deployed special operations forces personnel was 64 percent, or about 3,100 personnel, greater in fiscal year 2005 than in fiscal year 2000. Our analysis also shows that the vast majority of recent deployments outside of the United States were to the Central Command area of responsibility, which accounted for 85 percent of deployed special operations forces in fiscal year 2005. Significantly, more than 99 percent of these deployments supported ongoing combat operations. In contrast, in fiscal year 2000, only 20 percent of special operations forces deployments were to the Central Command. As shown in figure 3, the percentage of special operations forces personnel deployed to the European Command, the Pacific Command, and the Southern Command decreased between fiscal year 2000 and fiscal year 2005. While special operations forces have experienced a substantial increase in deployments for operations, there has been a simultaneous decrease in deployments for training. As shown in table 4, from fiscal year 2000 through fiscal year 2005, the percentage of special operations forces personnel deployed for operations increased, while the percentage of personnel deployed for training decreased. The decrease in deployments for training appears to have had at least two effects. From fiscal year 2000 through fiscal year 2005, for example, the amount of time for which special operations forces deployed for training to maintain proficiency in battle skills decreased by 50 percent. Officials with the Army, Navy, and Air Force service components told us that since many of their units have been deployed to the Central Command area of responsibility, they have had fewer opportunities to conduct proficiency training for all mission tasks. As a result, special operations forces units are focusing their training on the tasks that are required for operations in the Central Command and are assuming some risk by not training for other mission tasks. For example, officials with the U.S. Army Special Operations Command told us that specialized training such as military free fall and underwater combat operations have been reduced to a minimum, since these skills are not required to support ongoing operations. Similarly, officials with the Air Force Special Operations Command stated that increased deployments for operations had affected the ability of its air crews and special tactics squadrons to achieve all required mission- essential training. However, officials stated that this has not degraded overall readiness, because not all of these training tasks are currently being performed in the Central Command. In addition, officials stated that if mission priorities were to shift away from the Central Command and different missions needed to be performed, not all of its special operations forces personnel would be required to have achieved those training tasks in order for a mission to be successfully carried out. Additionally, although our analysis shows that special operations forces deployed less frequently for skills proficiency training from fiscal year 2000 through fiscal year 2005, we were told that the amount of training that special operations forces accomplished may not have been greatly affected. In particular, we were told that Army special operations forces units do not necessarily have to deploy in order to accomplish training that can be done at their home station. In addition, the fact that many special operations forces units are deploying for combat operations results in ample opportunities to maintain proficiency in essential skills. Officials with the U.S. Army Special Operations Command explained that special operations forces no longer train to fight because they are training as they fight. However, not all special operations forces can accomplish training tasks at their home station. According to Naval Special Warfare Command officials, Naval Special Warfare units do not have adequate home station training ranges and are required to deploy in order achieve most training tasks. Yet, from fiscal year 2000 to fiscal year 2005, the amount of time that Naval Special Warfare personnel deployed for skills proficiency training decreased by more than 30 percent. Special operations forces have also deployed less frequently to train with foreign military forces overseas. As we have previously reported, this type of training is important because it enables special operations forces to practice mission skills such as providing military instruction in a foreign language and maintaining language proficiency and familiarity with local geography and cultures, which are essential in the foreign internal defense and unconventional warfare missions. These deployments of special operations forces to train with the armed forces and other security forces of friendly foreign countries are commonly referred to as joint combined exchange training. Between fiscal year 2000 and fiscal year 2005, however, the amount of time in which special operations forces personnel deployed for joint combined exchange training decreased by 53 percent. Our analysis of DOD data reported to the Congress also shows the participation of special operations forces in joint combined exchange training events decreased since fiscal year 2000. As shown in figure 4, from fiscal year 2000 through fiscal year 2005, the number of these events that special operations forces completed decreased by about 50 percent. Further analysis shows that the number of events conducted in most of the geographic combatant command areas of responsibility decreased from fiscal year 2000 through fiscal year 2005. Specifically, joint combined exchange training events conducted in the European Command decreased by about 75 percent, while events conducted in the Southern Command and Pacific Command also decreased during this time. Conversely, the number of such training events conducted in the Central Command increased from 7 exercises in fiscal year 2000 to 14 exercises in fiscal year 2005. The increase in the amount of time that special operations forces have deployed to support operations in the Central Command has, to some extent, resulted in an increase in the number of cancelled joint combined exchange training events. Officials with the Special Operations Command, European Command, Pacific Command, and Southern Command with whom we spoke stated that joint combined exchange training can be cancelled for various reasons, including the availability of funding for the training, the availability of host nation forces, or the operations tempo of U.S. special operations forces. Officials stated, however, that due to the increased requirement for special operations forces deployments to support operations in the Central Command, there has been a corresponding increase in the number of cancelled joint combined exchange training events. Our analysis shows that from fiscal year 2000 through fiscal year 2005, the percentage of cancelled training events due to the operations tempo of special operations forces increased from 0 percent to more than 60 percent. While the primary purpose of joint combined exchange training is to train U.S. forces, this training can also have an ancillary benefit in that it can be used by the geographic combatant commanders and ambassadors to fulfill regional and country engagement objectives. For instance, the geographic combatant commands use joint combined exchange training to help achieve foreign engagement objectives in their designated areas of responsibility. DOD documents regarding the department’s strategy for the Global War on Terrorism identify combined training, such as joint combined exchange training, as an important element to strengthen partner nations’ counterterrorism capabilities. However, with continuing support being required for operations in the Central Command’s area of responsibility, there have been fewer special operations forces available to execute these types of training activities. The Special Operations Command has taken action to manage the challenge of increased personnel deployments. Monitoring the status of personnel deployments has been an area of congressional and DOD concern. The management of personnel tempo is important to the quality of life and retention of military personnel. Section 991 of Title 10 of the U.S. Code states that the deployment (or potential deployment) of a member of the Armed Forces shall be managed. Moreover, DOD has recognized that failure to effectively manage personnel tempo can result in the continued loss of trained personnel, a consequent loss of readiness capability, and an increased recruiting challenge. In addition, we have previously reported that high personnel tempo for special operations forces can affect readiness, retention, and morale. In August 2005, the Special Operations Command established a policy intended to maintain the readiness, retention, and training of active duty special operations forces personnel. The policy requires the Command’s active duty personnel to remain at least an equal amount of time at their home station as they do deployed for operations and training. The policy also requires that the Special Operations Command’s service components develop internal tracking mechanisms to ensure that their active duty special operations forces personnel remain within the policy’s deployment requirements. However, the Command’s service components have not consistently or fully implemented the deployment policy. One challenge lies in the fact that the policy’s guidelines are not clear. Officials with the Command’s service components noted a lack of clear guidance regarding how the components should implement the deployment guidelines, and consequently they were implementing it differently from one another. For example, the policy does not identify the length of time for which the components must ensure that personnel remain within the deployment guidelines. In addition, it does not state whether a servicemember must remain at a home station immediately following one deployment for an equal amount of time before a next deployment. Because of the lack of clear guidance, the Special Operations Command’s service components have had to interpret the intent of the policy’s requirements to ensure that their personnel remain in compliance. A second challenge lies in the difficulty of achieving full implementation. Officials with the Naval Special Warfare Command stated that they have been unable to comply with the deployment guidelines because personnel lack adequate home station training ranges. Specifically, Naval Special Warfare personnel must deploy for both unit training and operations. This combination of deployments has resulted in personnel having exceeded the policy’s requirement. Naval Special Warfare Command officials indicated that they were working with the Special Operations Command and the Navy to implement the deployment policy. According to Navy officials, the Navy plans to provide the Naval Special Warfare Command with additional funds to improve the home station ranges used to train the SEAL force, which is anticipated to reduce the current pace of operations tempo due to deployments for training. However, because these personnel have been required to deploy for most unit training, they have been unable to comply with the policy’s requirement. To determine whether special operations forces are meeting the intent of the policy requires the service components to maintain internal tracking systems with complete, valid, and reliable data on their personnel deployments. However, officials with the Command’s Army and Navy components expressed concerns regarding the reliability of the information they use to track the individual deployments of their personnel. While we did not independently validate the reliability of the data for personnel deployments, an official with the U.S. Army Special Operations Command stated the Army did not have a high level of confidence in the data recorded by the U.S. Army Special Operations Command’s units in the Army’s system on personnel deployments. Officials told us that they are developing a separate internal management tool in order to fully comply with the deployment policy; however, that tool will not be ready until July 2006. Naval Special Warfare Command officials told us that comprehensive reporting of personnel tempo information was suspended after the onset of the Global War on Terrorism. The reporting of this information was suspended because the Naval Special Warfare Command could not meet the Navy’s personnel tempo standards due to an increase in the pace of deployments in support of ongoing operations. As a result, the Naval Special Warfare Command does not have comprehensive and reliable data on Naval Special Warfare personnel deployments. Officials stated that the Naval Special Warfare Command was in the process of reestablishing personnel tempo reporting with a goal of full reporting for all units by the end of April 2006. Without consistent and reliable data, the Special Operations Command does not have the information it needs to effectively manage the personnel deployments of special operations forces, which affects the Command’s ability to maintain the readiness, retention, and training of special operations forces personnel. The decision by DOD to expand the responsibilities of the Special Operations Command in the Global War on Terrorism has created new challenges to determine personnel requirements and acquire, train, and equip a greater number of warfighters to support ongoing military operations. The Congress and DOD have provided resources to enable the Command to augment its personnel. Given the Command’s expanded mission, however, it is critical that the Command complete its analyses of personnel requirements and fully determine the number of personnel, who possess the right knowledge and skill sets, for the Command to meet its new role. Without this information, the Command cannot reasonably assure the Secretary of Defense and the Congress that the currently planned growth in the number of personnel for the Command will meet, exceed, or fall short of the requirements necessary to carry out its expanded mission. The military services and the Special Operations Command have faced human capital challenges in recruiting, training, and retaining a sufficient number of these forces, and many of these challenges continue. In large part, these challenges are attributable to the rigorous selection and training processes set for these personnel. Nonetheless, we believe the Command would be better able to address these challenges if it had a clearer understanding of the progress its service components have made in achieving planned growth, which is clearly linked with appropriate goals and measures. Furthermore, the Command is attempting to meet its growth goals at a time of heightened personnel deployments. However, the Command is managing these deployments without reliable data. Such information would further enable the Command to meet the full range of its missions while maintaining the readiness, retention, and training of its personnel. We recommend that the Secretary of Defense direct the Commander, U.S. Special Operations Command, to 1. establish specific milestones for completing the Command’s ongoing analyses of personnel requirements and, once completed, make any needed adjustments to the current plans for personnel increases for the Command’s headquarters and related future funding requests; 2. revise the Command’s directive for its program to monitor the status of special operations forces to include performance objectives, goals, and measures of progress for achieving planned growth; and enforce all of the directive’s reporting requirements; and 3. clarify the methodology that the Command’s service components should use for enforcing the deployment policy, and take steps to ensure that the service components have tracking systems in place that utilize reliable data to meet the requirements of the policy. In written comments on a draft of this report, DOD concurred with one recommendation and partially concurred with our two remaining recommendations. DOD’s comments are included in appendix III. DOD also provided technical comments, which we incorporated into the report, as appropriate. DOD partially concurred with our recommendation to require the Special Operations Command to establish specific milestones for completing its ongoing analyses of personnel requirements and, once completed, make any needed adjustments to the current plans for personnel increases for the Command’s headquarters in related future funding requests. DOD stated that the personnel requirements for the Command’s headquarters are being determined by an extensive study scheduled for completion in March 2007. DOD stated that it will monitor the progress and validate the results of this study, which we believe to be important steps. However, as we noted in this report, DOD has already requested funding to substantially increase the number of military and civilian positions at the Command’s headquarters beginning in fiscal year 2007, without the benefit of the results from the Command’s study of personnel needs. As a result, we would expect DOD to re-evaluate its funding needs upon completion of the Command’s study, and adjust its requests accordingly. DOD concurred with our recommendation to require the Special Operations Command to revise the Command’s directive for its program to monitor the status of special operations forces, to include performance objectives, goals, and measures of progress for achieving planned growth, and enforce all of the directive’s reporting requirements. DOD stated that the Special Operations Command is updating the directive for its program to monitor the status of special operations forces, and that the department and the Command are continuously developing new tools and metrics to more accurately measure the actual health of special operations forces. DOD further stated that it is difficult to compare personnel data across the services because each of the Command’s service components presents data using the metrics of its parent service, adding that it is highly desirable to have each component format its service-derived data in a common database. While we recognize the military services have different metrics, the intent of our recommendation is that the Special Operations Command develop a set of reporting metrics that would give the Command the data it needs to monitor progress in meeting growth goals. Finally, DOD partially concurred with our recommendation to require the Special Operations Command to clarify the methodology that its service components use for enforcing the Command’s deployment policy, and take steps to ensure that the service components have tracking systems in place that utilize reliable data to meet the requirements of the policy. DOD stated that the Special Operations Command leadership and all of its service components have implemented the Command’s deployment policy, which is in compliance with the department’s force deployment rules for Operations Iraqi Freedom and Enduring Freedom. In addition, DOD stated that the department will work toward developing a multi-service database and metrics to standardize deployment and other metrics across the joint community to overcome the challenge associated with the fact that each service uses different metrics for calculating deployment time. While we recognize the use of different metrics presents a challenge, our point, as we state in this report, is that the Command’s policy is unclear concerning the length of time for which the components must ensure that personnel remain within the deployment guidelines, and whether a servicemember must remain at a home station immediately following one deployment for an equal amount of time prior to a subsequent deployment. As a result, the Command’s service components have interpreted the intent of the policy’s requirements inconsistently. We continue to believe that additional clarification to the Command’s deployment policy is warranted to assist its service components in ensuring that special operations forces personnel remain in compliance with this policy. We also believe that the planned actions to standardize deployment and other metrics should include establishing procedures for recording reliable and relevant data on personnel deployments since, as we reported, officials with two of the Special Operations Command’s service components did not have confidence in the reliability of the information that was used to track the individual deployments of their special operations forces personnel. Such data are an important tool to enable the Command to maintain the readiness, retention, and training of special operations forces personnel. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this report. At that time, we will send copies of this report to the Secretary of Defense, the Secretary of the Army, the Secretary of the Air Force, the Secretary of the Navy, the Commandant of the Marine Corps, and the Commander, United States Special Operations Command. We will make copies available to others upon request. In addition, this report will be made available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9619 or pickups@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. To assess the extent to which the Special Operations Command (Command) has identified all of the personnel requirements needed to meet its expanded mission, we identified the Joint Mission Analysis process and the Command’s formal manpower studies as the primary processes in which the Command develops its force structure and personnel requirements. To assess the plans to increase the number of special operations forces units and personnel requirements for the Command’s headquarters, we conducted site visits and interviewed officials involved with determining personnel requirements with the Special Operations Command, and the Army, Navy, and Air Force service components. We also met with Marine Corps officials to discuss plans for growth in Marine Corps special operations forces. We analyzed the plans for growth in these personnel through fiscal year 2011. We reviewed Department of Defense (DOD) documents identifying the increases in the Special Operations Command’s military authorizations and funding since fiscal year 2000 and its plans for personnel growth through fiscal year 2011. We reviewed past reports prepared by GAO that discuss effective strategies for workforce planning. However, we were unable to determine whether all of the Special Operations Command’s personnel requirements had been identified because, at the time of our review, the Command had not completed all of its analyses of the personnel requirements needed for its expanded mission responsibilities. To assess the progress the military services and the Special Operations Command have made since fiscal year 2000 in increasing the number of special operations forces personnel, we discussed the processes used by the military services and DOD to recruit, train, and retain these forces with officials from the Office of the Secretary of Defense, the Special Operations Command, and the military services. We focused on these processes for the active components of the military services. To determine what challenges the military services and the Special Operations Command face to meet future growth, we analyzed personnel inventory levels for special operations forces in the active component military services for fiscal years 2000 through 2005. We collected and analyzed data to determine whether the schools that train new special operations personnel are producing enough newly trained personnel in order to meet current authorized personnel levels or planned growth targets. We reviewed relevant Special Operations Command directives and analyzed annual reports prepared by the service components to determine the extent to which the information in these reports met reporting requirements. To assess the effect of increased special operations forces deployments, we analyzed deployment data from the Special Operations Command for fiscal years 2000 through 2005. We analyzed the trends in deployments for operations, training, and administrative activities and the trends in deployments by geographic region. We discussed the impact of decreased deployments for training and increased deployments for operations with officials from the military services and the Special Operations Command. We reviewed the Special Operations Command’s policy to manage special operations forces personnel deployments and conducted interviews with component command officials to determine their ability to implement and fully comply with this policy. We reviewed available data for inconsistencies. Our assessments of data reliability revealed some concerns which are discussed in this report. Specifically, some of the personnel inventory data provided by the military service headquarters were incomplete. To overcome this challenge, we gathered additional information from the Special Operations Command’s service components. In addition, we interviewed officials with the service headquarters and the Special Operations Command’s service components who were knowledgeable about the data to discuss the validity of the information provided to us. We concluded the data were sufficiently reliable to answer our objectives. We conducted our review from April 2005 through June 2006 in accordance with generally accepted government auditing standards. We interviewed officials and obtained documentation at the following locations: U.S. Army Headquarters, Washington, D.C. U.S. Army Reserve Command, Ft. McPherson, Georgia U.S. Army Special Operations Command, Fort Bragg, North Carolina Chief of Naval Operations, Arlington, Virginia Naval Recruiting Command, Millington, Tennessee Naval Special Warfare Command, Coronado, California U.S. Marine Corps Headquarters, Washington, D.C. U.S. Air Force Headquarters, Washington, D.C. Air Education and Training Command, Randolph Air Force Base, Texas Air Force Special Operations Command, Hurlburt Field, Florida Office of the Secretary of Defense Office of the Secretary of Defense (Comptroller), Washington, D.C. Office of the Secretary of Defense (Personnel and Readiness), Washington, D.C. Office of the Secretary of Defense (Special Operations and Low Intensity Conflict), Washington, D.C. Section 167(j) of Title 10, U.S. Code lists 10 activities over which the Special Operations Command exercises authority insofar as they relate to special operations. Table 5 defines these activities. In addition to the contact named above, David Moser, Assistant Director; John Pendleton, Assistant Director; Colin Chambers, Jeremy Manion, Stephanie Moriarty, Joseph Rutecki, Christopher Turner, Matthew Ullengren, Cheryl Weissman, and Gerald Winterlin also made key contributions to this report.	Since the Global War on Terrorism, the Department of Defense (DOD) has taken steps to expand the role of the United States Special Operations Command (Command) and its forces. In response, the Command has transformed its headquarters to coordinate counterterrorism activities, and DOD has increased funding and the number of special operations forces positions. Given the expanded mission, it is critical that the Command has personnel with the right knowledge and skill sets. GAO was asked to assess: (1) whether the Command has determined all of the personnel requirements needed to meet its expanded role; (2) the progress and challenges in meeting growth goals; and (3) any effect of deployments on the Command's ability to provide trained forces, and the progress made in managing deployments. GAO performed its work at the Special Operations Command and its service components, analyzed personnel data against requirements, and examined policies and directives. Although DOD plans to significantly increase the number of special operations forces personnel, the Special Operations Command has not yet fully determined all of the personnel requirements needed to meet its expanded mission. While it has determined the number of personnel needed to increase its number of warfighter units, it has not completed analyses to determine (a) how many headquarters staff are needed to train and equip these additional warfighters or (b) how many headquarters staff are needed to plan and synchronize global actions against terrorist networks--a new mission for the Command. DOD plans to begin increasing the number of headquarters positions and has requested funds for these positions in its fiscal year 2007 budget request. Until these analyses are completed, the Special Operations Command cannot provide assurances to the Secretary of Defense and the Congress that currently planned growth in the number of personnel for the Command's headquarters will meet, exceed, or fall short of the requirements needed to address the Command's expanded mission. The military services and the Special Operations Command have made progress since fiscal year 2000 in recruiting, training, and retaining special operations forces personnel, but they must overcome persistently low personnel inventory levels and insufficient numbers of newly trained personnel, in certain specialties, to meet DOD's plan to increase the number of special operations forces. In addition, GAO's review of the service components' annual reports required by the Special Operations Command shows that the reports have not provided the information needed to determine whether they have enough personnel to meet current and future requirements. Without such information, the Command will be unable to determine whether the service components' human capital management approaches, including recruiting, training, and retention strategies, will be effective in meeting the planned growth targets. Since fiscal year 2000, the number of special operations forces personnel deployed for operations has greatly increased, and the number deployed for training has simultaneously decreased. The Special Operations Command has taken action to manage the challenge of increased deployments; in August 2005, it began requiring active duty personnel to remain at least an equal amount of time at home as deployed. But the Command's service components have not consistently or fully implemented this policy. This is because the policy lacks clear guidance on the length of time that the components must ensure that personnel remain within the deployment policy guidelines. In addition, officials with the Command's Army and Navy service components expressed concerns regarding the reliability of their information required to track the deployments of their personnel. Without consistent and reliable data, the Special Operations Command does not have the information it needs to effectively manage the personnel deployments of special operations forces, which affects its ability to maintain the readiness, retention, and training of these personnel.	16.4	8k-16k	335
27	Ammonium nitrate products are manufactured and sold in various forms, depending upon their use. For example, ammonium nitrate fertilizer may be produced and sold in liquid form or as solid granules. According to The Fertilizer Institute, solid ammonium nitrate fertilizer is used heavily by farmers in Alabama, Missouri, Tennessee, and Texas primarily on pastureland, hay, fruit, and vegetable crops. In addition to its agricultural benefits, ammonium nitrate can be mixed with fuel oil or other additives and used by the mining and construction industries as an explosive for blasting. While ammonium nitrate can increase agricultural productivity, use of this chemical poses a safety and health risk because it can intensify a fire and, under certain circumstances, explode. Ammonium nitrate by itself does not burn, but it increases the risk of fire if it comes in contact with combustible materials. Ammonium nitrate that is stored in a confined space and reaches high temperatures can explode. An explosion is more likely to occur if ammonium nitrate is contaminated by certain materials, such as fuel oil, or if it is stored in large stacks. Because of ammonium nitrate’s potential to facilitate an explosion, facilities storing ammonium nitrate may pose a security threat in part because it can be used to make weapons. Ammonium nitrate fertilizer has been used by domestic and international terrorists to make explosive devices. For example, on April 19, 1995, ammonium nitrate fertilizer— mixed with fuel oil—was used by a domestic terrorist to blow up a federal building in Oklahoma City, Oklahoma. The explosion killed 168 people and injured hundreds more. Ammonium nitrate has been involved in several major chemical accidents over the past century, including explosions in the United States and Europe. In addition to killing at least 14 people and injuring more than 200 others, the explosion in West, Texas severely damaged or destroyed nearly 200 homes; an apartment complex; and three schools that were, at the time, unoccupied (see fig. 1). Prior to that incident, an explosion in 1994 involving ammonium nitrate at a factory in Port Neal, Iowa killed four workers and injured 18 people. In 1947, explosions aboard two ships holding thousands of tons of ammonium nitrate fertilizer killed more than 500 people, injured approximately 3,500, and devastated large areas of industrial and residential buildings in Texas City, Texas. In Europe, accidents involving ammonium nitrate have occurred in Germany, Belgium, and France. A 1921 accident in Germany and one in Belgium in 1942 caused hundreds of deaths after explosives were used to break up piles of hundreds of tons of ammonium nitrate, resulting in large scale detonations. In France, a ship carrying more than 3,000 tons of ammonium nitrate exploded in 1947, a few months after the Texas City disaster, after pressurized steam was injected into the storage area in an attempt to put out a fire. In 2001, an explosion at a fertilizer plant in Toulouse, France involving between 22 and132 tons of ammonium nitrate resulted in 30 deaths, thousands of injuries requiring hospitalization, and widespread property damage. Past accidents also indicate that smaller quantities of ammonium nitrate can cause substantial damage. For example, in 2003, an explosion of less than 6 tons of ammonium nitrate in a barn in rural France injured 23 people and caused significant property damage. OSHA and EPA play key roles in protecting the public from the effects of chemical accidents, with EPA focusing on the environment and public health and OSHA focusing on worker safety and health. Under the Occupational Safety and Health Act of 1970 (OSH Act), OSHA is the federal agency responsible for setting and enforcing regulations to protect workers from hazards in the workplace, including exposure to hazardous chemicals. In addition, the Clean Air Act Amendments of 1990 designated roles for both OSHA and EPA with respect to preventing chemical accidents and preparing for the consequences of chemical accidents. In response to requirements in this act, OSHA issued Process Safety Management (PSM) regulations in 1992 to protect workers engaged in processes that involve certain highly hazardous chemicals, and EPA issued Risk Management Program (RMP) regulations in 1996 to require facilities handling particular chemicals to plan how to prevent and address chemical accidents. The PSM and RMP regulations each apply to processes involving a specified list of chemicals above threshold quantities, and require covered facilities to take certain steps to prevent and prepare for chemical accidents. However, neither OSHA’s PSM regulations nor EPA’s RMP regulations cover ammonium nitrate. The Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA) establishes authorities for emergency planning and preparedness and emergency release notification reporting, among other things. Under section 312 of EPCRA and EPA regulations, facilities with certain hazardous chemicals in amounts at or above threshold levels— including ammonium nitrate in some circumstances—are required to annually submit chemical inventory forms to state and local authorities to help emergency response officials prepare for and respond to chemical incidents. For purposes of enhancing chemical facility security, the Department of Homeland Security (DHS) Chemical Facility Anti-Terrorism Standards (CFATS) program requires facilities possessing certain chemicals at or above threshold quantities–including some types of ammonium nitrate–to submit reports to DHS with information about the facility and the regulated chemicals present on site. Among other things, DHS collects information on the quantities of certain hazardous chemicals held at facilities, the location of the facilities, and their industry codes. DHS set different threshold quantities for reporting based on the type of ammonium nitrate and the type of security risk presented (see table 1). Not all facilities with ammonium nitrate, however, are required to file CFATS reports with DHS. First, facilities are only required to report if they are holding amounts equal to or greater than threshold quantities of specific types of ammonium nitrate. Also, DHS does not require certain agricultural producers to report their chemical holdings to DHS. In addition, DHS’s reporting threshold for ammonium nitrate fertilizer only applies to quantities held in transportable containers such as cylinders, bulk bags, bottles (inside or outside of boxes), cargo tanks, and tank cars. Finally, there are several statutory exemptions to CFATS requirements. Specifically, CFATS does not apply to public water systems or treatment works, any facility that is owned or operated by the Department of Defense or the Department of Energy, facilities regulated by the Nuclear Regulatory Commission, or facilities covered by the Maritime Transportation Security Act of 2002 administered by the Coast Guard. Other federal agencies regulate different aspects of the use of hazardous chemicals. For example, the Department of Transportation regulates the transport of hazardous materials, the Coast Guard inspects containers of hazardous materials at ports and waterways, and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) in the Department of Justice regulates the manufacture, distribution, and storage of explosive materials, including blasting agents and other explosive materials containing ammonium nitrate. State and local government agencies are also involved in regulating hazardous chemical facilities under federal laws and their own state or local laws. Federal laws may authorize or assign state and local governments certain roles and responsibilities for overseeing chemical facilities. For example, as permitted by the OSH Act, OSHA has approved state plans that authorize about half the states to operate their own occupational safety and health programs. As a result, private sector workplaces in 21 states and Puerto Rico are regulated and inspected by state occupational safety and health agencies rather than OSHA. Similarly, EPA has delegated its authority to implement and enforce the Risk Management Program to nine states and five counties. As previously mentioned, both state and local governments play a role in implementing EPCRA, which requires covered facilities to report basic information about their hazardous chemical inventories to certain state and local authorities, including estimates of the amounts of chemicals present at facilities. In addition, state and local governments may establish and enforce their own laws, regulations, or ordinances to protect the public from chemical accidents. For example, state and local governments may adopt and enforce fire codes or zoning laws that specify how far chemical facilities must be located from residential areas. The Executive Order issued on August 1, 2013 established a Chemical Facility Safety and Security Working Group co-chaired by the Secretary of Homeland Security, the Administrator of EPA, and the Secretary of Labor. The Executive Order includes directives for the working group to: improve operational coordination with state and local partners; enhance federal agency coordination and information sharing; modernize policies, regulations, and standards; and work with stakeholders to identify best practices. The order includes tasks focused specifically on ammonium nitrate. Specifically, it directs the Secretaries of Homeland Security, Labor, and Agriculture to develop a list of potential regulatory and legislative proposals to improve the safe and secure storage, handling, and sale of ammonium nitrate. In addition, the Department of Labor and EPA are directed to review the chemical hazards covered by the RMP and PSM regulations and determine whether they should be expanded to address additional hazards. The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization with 34 member countries, issued guidance in 2003 on the prevention of, preparedness for, and response to chemical accidents. This publication was developed with other international organizations active in the area of chemical accident safety, such as the World Health Organization. The document—OECD Guiding Principles for Chemical Accident Prevention, Preparedness and Response—includes detailed guidance for industry, public authorities, and the public on how they can help prevent chemical accidents and better respond when accidents occur. The total number of facilities in the United States with ammonium nitrate is not known because of the different reporting criteria used by different government agencies, reporting exemptions, and other data limitations. While the total number is unknown, over 1,300 facilities reported having ammonium nitrate to DHS. DHS’s data, however, do not include all facilities that work with ammonium nitrate, in part because some facilities, such as farms, currently do not have to report to DHS and, according to DHS officials, other facilities that are required to report may fail to do so. As of August 2013, 1,345 facilities located in 47 states reported to DHS under CFATS that they had ammonium nitrate. The facilities that reported to DHS as having reportable quantities of ammonium nitrate were most often engaged in supplying and supporting the agriculture and mining industries. Many of these facilities were concentrated in the South. About half of these facilities were located in six states: Alabama, Georgia, Kentucky, Missouri, Tennessee, and Texas. Table 2 shows the number of facilities that reported to DHS that they had ammonium nitrate and the number of states in which they were located. Our review of additional state data, including EPRCA data, from Texas and Alabama, which have different reporting criteria than CFATS, indicated that there are more facilities with ammonium nitrate than those that report to DHS. We compared the data they provided to the data on facilities that reported to DHS under CFATS. In these two states, we found that the data from each of the sources provided to us differed and that no single count of such facilities, whether from the state or DHS, represented a comprehensive picture of facilities with ammonium nitrate. For Texas, we reviewed three sources of data on facilities that have ammonium nitrate: (1) EPCRA data from the Texas Department of State Health Services; (2) a list of facilities that registered with the Office of the Texas State Chemist as having plans to produce, store, or sell ammonium nitrate; and (3) DHS’s CFATS data. We compared data from all three of these sources and found 189 facilities that reported having ammonium nitrate (see fig. 2). Of these 189 facilities, 52 filed CFATS reports with DHS. Data were not readily available to determine whether the remaining facilities were required to file CFATS reports. DHS officials told us the agency has begun an effort to obtain lists of chemical facilities the states have compiled and compare them with its CFATS data to identify facilities that should have filed CFATS reports but did not. This effort is still under way. As shown in figure 2, 17 of the 189 facilities in Texas were listed in all three data sources. For Alabama, we reviewed data from two sources on facilities that reported having ammonium nitrate: (1) EPCRA data from Alabama’s Department of Environmental Management, and (2) DHS’s CFATS data. From these two sources, we found 91 facilities that reported having ammonium nitrate— 57 that filed EPCRA reports with the state Department of Environmental Management and 71 that filed CFATS reports with DHS. Thirty-seven of the facilities filed reports with both the state and DHS. (See fig. 3.) Our analysis of federal trade data collected by DHS’s Customs and Border Protection agency also suggests that a greater number of facilities have ammonium nitrate than those that reported to DHS under the CFATS program. Using the data from the Customs and Border Protection agency, we identified 205 facilities that imported ammonium nitrate products and 81 facilities that exported ammonium nitrate products in fiscal year 2013. The majority of these facilities reported importing or exporting mixtures of ammonium nitrate and calcium carbonate or mixtures of urea and ammonium nitrate. Eight of these facilities filed CFATS reports with DHS. Moreover, we found about 100 facilities that imported or exported a form of ammonium nitrate that may be subject to DHS’s CFATS requirements for reporting quantities over 2,000 pounds but did not file a report. These facilities, however, may not be required to file CFATS reports. For example, they may meet one of the statutory exemptions, or the composition of their ammonium nitrate (or their ammonium nitrate mixture) may not trigger the reporting requirements. Data were not readily available to determine whether they met all of DHS’s reporting requirements for the CFATS program. In addition, according to DHS officials, other data limitations could explain some of the differences between the CFATS data and the federal trade data. For example, facilities may submit reports to the different agencies using different names and addresses. According to DHS, different people in the facility may prepare the different reports; the facility may define the perimeters of each site differently; or the corporate structure or nomenclature may have changed from the time one report was submitted to the next reporting period. The total number of facilities with ammonium nitrate is also difficult to determine because of the variation in reporting criteria, including exemptions for some facilities from reporting to either their state or to DHS. For example, farmers could be exempt from reporting under both EPCRA and CFATS because EPCRA’s reporting requirements do not apply to substances used in routine agricultural operations and DHS does not currently require certain agricultural producers to report their chemical holdings to DHS. In addition, DHS’s reporting threshold for ammonium nitrate fertilizer only applies to quantities held in transportable containers such as cylinders, bulk bags, bottles (inside or outside of boxes), cargo tanks, and tank cars. Also, EPCRA does not require retailers to report fertilizer held for sale to the ultimate customer. However, an August 2013 chemical advisory on ammonium nitrate issued jointly by EPA, OSHA, and ATF clarified that EPCRA requires fertilizer distributors to report ammonium nitrate that is blended or mixed with other chemicals on site. In addition, some facilities may not report to DHS or their state because they have amounts of ammonium nitrate that are below the applicable reporting thresholds. Some facilities may not be included in either DHS’s or states’ data because they fail to submit their required reports, but the magnitude of underreporting is not known. DHS officials acknowledged that some facilities fail to file the required forms. The facility in West, Texas had not filed a CFATS report to DHS but, in 2012, this facility filed an EPRCA form with the state, reporting that it had 270 tons of ammonium nitrate. According to DHS officials, the agency does not know with certainty whether the West, Texas facility should have reported its ammonium nitrate to DHS because the agency did not visit the facility after the explosion and it does not know the manner in which the facility held its ammonium nitrate prior to the explosion. Following the explosion at the facility in West, Texas, DHS obtained data from the state of Texas and compared the state data to the facilities that reported to DHS. As a result of this data matching effort, DHS sent out 106 letters to other potentially noncompliant facilities in Texas. According to DHS, many of the Texas facilities that received the letter said they do not actually possess ammonium nitrate or do not meet the criteria to require reporting under CFATS. DHS has used EPA’s Risk Management Program (RMP) database to try and identify such facilities holding other chemicals, but it cannot use the RMP database to identify all facilities with ammonium nitrate because ammonium nitrate is not covered by EPA’s RMP regulations. In addition, DHS officials told us the agency is in the process of comparing its list of facilities that reported to DHS under the CFATS program to ATF’s list of facilities that have federal explosives licenses and permits to identify potentially noncompliant facilities, but this effort had not been completed at the time of our review. OSHA has limited access to data collected by other agencies to use in identifying facilities with ammonium nitrate. DHS does not currently share its CFATS data with OSHA, although DHS officials told us they were not aware of anything prohibiting DHS from doing so. While EPA shares data from its RMP with OSHA on a quarterly basis, the data do not include information on ammonium nitrate because ammonium nitrate is not covered by EPA’s RMP regulations. As previously discussed, under section 312 of EPCRA, facilities are required to annually report information to state and local authorities on the types and quantities of certain hazardous chemicals present at their facilities, which may include ammonium nitrate. Facilities that possess reportable quantities of ammonium nitrate submit this information electronically or on paper forms, and the state and local entities maintain copies of these forms. However, according to agency officials, the EPCRA data are not shared directly with federal agencies, including OSHA, EPA, or DHS (see fig. 4). EPA officials, however, noted that EPCRA is primarily intended to provide information to state and local officials, not to other federal agencies. Any person may submit written requests to the designated state or local authority for information on individual facilities that may have ammonium nitrate, but lists of all facilities in a state that have submitted these data, including those that reported having ammonium nitrate, are not publicly available. In certain states we contacted, officials indicated that data on individual facilities could be requested from the state, but the requester would have to request data on specific facilities to obtain information on the chemicals they hold. OSHA officials cited the lack of access to data on facilities with ammonium nitrate as a reason they would have difficulty designing an inspection program to target such facilities. The University of Texas at Dallas has a database (called E-Plan) that contains EPCRA data from over half of the states for the 2012 reporting year, but federal agencies have made limited use of it. University staff originally developed the E-Plan database in 2000 with funding from EPA to facilitate EPCRA reporting and provide first responders rapid access to information on chemical facilities in emergency situations. In many local areas, first responders and emergency services personnel can use the E- Plan data when they prepare for and respond to emergencies such as fires. According to E-Plan administrators, OSHA staff helped develop the database, but currently OSHA does not use E-Plan. EPA staff told us that some EPA regional offices have used the E-Plan database to assess compliance with the agency’s RMP reporting requirements. DHS officials told us the agency does not use E-Plan data to assess compliance with CFATS requirements. DHS officials also explained that, while the database could contain useful information, it is incomplete. Some states do not submit data to E-Plan at all, and other states’ data are incomplete. In addition, participation in E-Plan is voluntary and, even among those states that participate, some states do not choose to allow their E-Plan data to be shared with federal agencies. The Chemical Facility Safety and Security Working Group established by the August 2013 Executive Order has begun its efforts to develop proposals for improving information sharing, but this work has not been completed. The working group has held listening sessions throughout the country seeking input from interested parties on options for making improvements in chemical safety and security. It also has launched a pilot program in New York and New Jersey aimed at improving access to data on chemical facilities for federal, state, local, and tribal governments. In addition, the working group is evaluating how federal agencies can work with states to enhance the states’ roles as information sharing organizations, including options for sharing RMP, CFATS, and EPCRA data. Finally, it is exploring ways for federal and state agencies to share information and exchange data to, among other things, identify chemical facilities that are not in compliance with safety and security requirements. For example, DHS and EPA are comparing their CFATS and RMP data to determine if the CFATS data include facilities that should also have reported under the RMP. As a result, EPA has begun sending notification letters to facilities requesting information to help determine if the facility is subject to RMP requirements. Because the RMP regulations do not currently cover ammonium nitrate, however, this strategy would not be useful for identifying facilities that have ammonium nitrate. The federal working group is also sharing information to, among other things, identify whether additional facilities have failed to report under CFATS and is exploring whether EPA software offered to states to facilitate EPCRA reporting could also provide a vehicle to enhance access to the reports while meeting security objectives. OSHA has regulations for the storage of ammonium nitrate, but the agency has not focused its enforcement resources on the use of ammonium nitrate by the fertilizer industry, which is a primary user. EPA, on the other hand, has regulations requiring risk management planning by facilities that have certain hazardous chemicals, but these regulations do not apply to ammonium nitrate. OSHA’s Explosives and Blasting Agents regulations—issued in 1971— include provisions for the storage of both explosives grade and fertilizer grade ammonium nitrate in quantities of 1,000 pounds or more. OSHA based these regulations on two 1970 consensus standards developed by the National Fire Protection Association (NFPA). Few significant changes have been made to these regulations since they were issued, although the National Fire Protection Association periodically reviews and updates its standards. OSHA’s regulations include requirements that could reduce the fire and explosion hazards associated with ammonium nitrate, such as required fire protection measures, limits on stack size, and requirements related to separating ammonium nitrate from combustible and other contaminating materials. However, the regulations do not categorically prohibit employers from storing ammonium nitrate in wooden bins and buildings. In addition, if the facilities were in existence at the time the regulations were issued in 1971, OSHA’s regulations allow the use of storage buildings not in strict conformity with the regulations if such use does not constitute a hazard to life. Some of the provisions of OSHA’s ammonium nitrate storage regulations are described in table 3. Recently, OSHA, EPA, and ATF jointly issued a chemical advisory that recommends that facilities store ammonium nitrate in non-combustible buildings. Similarly, following the explosion in West, Texas, the National Fire Protection Association is considering changes to its ammonium nitrate storage provisions, which are part of its hazardous materials consensus standard, including restricting the use of wood to store ammonium nitrate. In addition to storage requirements, OSHA’s Hazard Communication regulations require that employers whose workers are exposed to hazardous chemicals, including ammonium nitrate, inform their workers of the dangers and train them to handle the materials appropriately. Employers are required to use labels, training, and safety data sheets to inform workers of chemical hazards in the workplace. Safety data sheets are written documents with details on the hazards associated with each chemical, measures workers can take to protect themselves, actions workers should take in case of an emergency, and safety precautions for handling and storing the chemical. Until the explosion in West, Texas, OSHA had not reached out to the fertilizer industry to inform its members of OSHA’s requirements for the storage of ammonium nitrate fertilizer. An OSHA official told us the agency has not traditionally informed the fertilizer industry about these regulations. However, another OSHA official said agency officials met with industry representatives after the explosion at the facility in West, Texas and, based on that meeting, concluded that the fertilizer industry is “well aware” of the agency’s storage regulations. OECD’s Guiding Principles for Chemical Accident Prevention, Preparedness, and Response recommend that public authorities provide clear, easy-to- understand guidance to facilities on how regulatory objectives and requirements can be met. OSHA recently published information about how the agency’s Explosives and Blasting Agents regulations apply to ammonium nitrate fertilizer. The agency provides employers with training, technical assistance, and information through its website on a variety of safety and health topics. Recently, OSHA updated its website to refer to its storage regulations for ammonium nitrate fertilizer. The August 2013 chemical advisory contains information on OSHA’s ammonium nitrate storage regulations, stating that OSHA’s Explosives and Blasting Agents regulations contain requirements for the storage of all grades of ammonium nitrate, including fertilizer grade ammonium nitrate. In addition, in February 2014, OSHA announced that the agency is working with the fertilizer industry to remind employers of the importance of safely storing and handling ammonium nitrate. OSHA published a letter on its website that provides employers with legal requirements and best practice recommendations for safely storing and handling ammonium nitrate. In the letter, OSHA states that the agency will enforce the requirements of 29 C.F.R. § 1910.109(i) for storage of ammonium nitrate, including at facilities in non-explosives industries. According to the announcement, fertilizer industry associations will share the letter with facilities across the country. Fertilizer industry representatives we interviewed said that, prior to the explosion in West, Texas, they did not know that OSHA’s ammonium nitrate storage regulations applied to the fertilizer industry, and they suggested that OSHA reach out to the fertilizer industry to help prevent another incident. Industry representatives explained that their understanding was based on a proposed rule published by OSHA in the Federal Register on April 13, 2007, which proposed revisions to the Explosives and Blasting Agents regulation. In that notice, OSHA proposed a change to the ammonium nitrate storage requirements “to clarify that OSHA intends the requirements to apply to ammonium nitrate that will be used in the manufacture of explosives.” Although this proposed rule was never finalized, the industry representatives told us they relied on this statement to mean OSHA did not intend the storage requirements to apply to ammonium nitrate fertilizer. In addition, we reviewed the safety data sheets developed by four U.S. producers of solid ammonium nitrate fertilizer and found that only one company’s sheet listed OSHA’s Explosives and Blasting Agents regulations as applicable to the storage and handling of ammonium nitrate fertilizer. An industry representative who assists agricultural retailers with regulatory compliance said he reviewed the regulatory information sections in his clients’ safety data sheets for ammonium nitrate fertilizer and none of them referred to OSHA’s Explosives and Blasting Agents regulations. A representative from one national fertilizer industry association said it would be helpful if OSHA took additional steps to explain its interpretation of the applicable requirements and reach out to the fertilizer industry so that affected companies are better informed. A representative from another national agricultural industry group suggested that OSHA develop and disseminate a compliance assistance tool or checklist to ensure that facilities are aware of and in compliance with the applicable regulations. The fertilizer industry is developing a voluntary program called Responsible Ag to promote compliance with federal regulations among fertilizer facilities. Officials from the Fertilizer Institute and the Agricultural Retailers Association told us they plan to consolidate federal regulatory requirements for fertilizer retail facilities into one comprehensive checklist and provide third party audits to retailers based on a checklist they have developed. In addition, officials with the Asmark Institute, a nonprofit resource center for agricultural retailers in the United States, said they developed their own compliance assessment tool for agricultural retailers. The Fertilizer Institute and the Agricultural Retailers Association selected the Asmark Institute to develop a database that will include information on audit reports and scores from the third party audits. This initiative will be modeled after a voluntary audit program in Minnesota for agricultural retailers to help them improve compliance with federal and state regulations. According to OSHA officials, OSHA has not been involved in the development of this industry initiative. Although OSHA has a national enforcement program that targets certain chemical facilities for inspection, this program does not systematically cover facilities with ammonium nitrate. OECD chemical safety guidance suggests public authorities periodically inspect the safety performance of hazardous facilities. OSHA conducts inspections of worksites, as authorized under the OSH Act. As part of its enforcement efforts, OSHA randomly selects facilities for inspection as part of a national emphasis program for chemical facilities it initiated in 2011. However, these inspections are for facilities and chemicals covered under its Process Safety Management (PSM) regulations, which do not include ammonium nitrate. According to OSHA officials, facilities that blend and store ammonium nitrate fertilizer fall outside the scope of this national emphasis program. When we asked whether OSHA might expand its national emphasis program to focus on ammonium nitrate fertilizer facilities, officials said that the agency is not planning on targeting these facilities, in part because OSHA has no means of identifying them. In addition, OSHA is not likely to target facilities with ammonium nitrate for inspection because of its limited resources, and because these facilities often do not meet OSHA’s current inspection priorities. OSHA conducts inspections with its own personnel and the number of inspections OSHA and the states can perform each year is limited by the size of their inspection workforce. According to OSHA officials, OSHA and the states have about 2,200 inspectors who inspected about 1 percent of the 8 million covered employers in fiscal year 2012. Among OSHA’s highest priorities for inspecting worksites are responding to major accidents and employee complaints. In fiscal year 2012, OSHA reported that 44 percent of the agency’s inspections were unplanned inspections, which include inspections initiated in response to an accident or complaint. OSHA also targets certain industries for planned inspections that have high rates of workplace injury and illness. For example, OSHA reported that 55 percent of OSHA’s planned inspections in fiscal year 2012 were inspections of worksites in the construction industry. OSHA has rarely issued citations for violations of its ammonium nitrate storage regulations at fertilizer facilities. OSHA officials told us a citation for a violation of the agency’s ammonium nitrate storage regulations was issued as the result of an inspection of a fertilizer facility only once before the explosion in West, Texas. In that case, OSHA inspected a Florida- based fertilizer manufacturer in 1997 in response to a complaint, and cited the company for 30 violations, one of which was a violation of its ammonium nitrate storage requirements. In addition, according to OSHA officials, within the last 5 years, none of the 21 states that operate their own safety and health programs have cited any employers for improper storage or handling of ammonium nitrate. Under a provision regularly included in the annual appropriations act, OSHA is prohibited from conducting planned safety inspections of small employers—those with 10 or fewer employees—in certain low hazard industries, as determined by their injury and illness rates. Although the number of facilities exempted from OSHA inspections under this provision is unclear, we found that, of the facilities that reported having ammonium nitrate to DHS as of August 2013, 60 facilities—about 4 percent of the 1,345 facilities that reported to DHS— reported having 10 or fewer employees and had an industry code with a lower than the average workplace injury and illness rate (see table 4). As a result, according to OSHA officials, this provision could have hindered the agency’s enforcement of its ammonium nitrate storage regulations at these facilities. OSHA’s fiscal year 2015 budget request asks Congress to consider amending OSHA’s appropriation language to allow the agency to perform targeted inspections of small establishments that have the potential for catastrophic incidents, such as those with processes covered by OSHA’s PSM or EPA’s RMP regulations. In the budget request, OSHA states that the current appropriations language limits the agency’s ability to conduct inspections, and neither the number of workers in a company nor low injury and illness rates is predictive of the potential for catastrophic accidents that can damage whole communities. OSHA’s PSM regulations for chemical safety do not cover ammonium nitrate. In response to a requirement in the Clean Air Act Amendments of 1990, OSHA issued its PSM regulations in 1992 to help prevent accidents involving highly hazardous chemicals, including toxic, flammable, highly reactive, and explosive substances. These regulations apply to processes involving listed chemicals in amounts at or above threshold quantities. Employers subject to the PSM regulations are required to take specified steps, which include evaluating the hazards associated with the process, as well as developing and implementing operating procedures, employee training, emergency action plans, and compliance audits at least every 3 years, among other requirements. Despite the hazards of ammonium nitrate, this chemical is not listed as one of the chemicals subject to these regulations. OSHA officials told us they did not know why ammonium nitrate was not included when the regulation was first issued. According to the August 2013 chemical advisory, although ammonium nitrate is not covered by the PSM regulations, the production or use of ammonium nitrate may involve PSM- listed chemicals, and the manufacture of explosives, which may involve ammonium nitrate, is covered by the regulations. In the late 1990s, OSHA staff drafted a proposal for expanding PSM regulations to cover ammonium nitrate and other reactive chemicals, but it was not reviewed by agency policy officials and was never published in the Federal Register for public comment. In addition, retail facilities, which may include facilities that store and blend fertilizer for direct sale to end users, are exempt from OSHA’s PSM regulations. In the preamble to the final rule for the PSM regulations, OSHA stated that retailers are not likely to store large quantities of hazardous chemicals, and that a large chemical release would be unlikely. While the facility in West, Texas stored large quantities of anhydrous ammonia, a chemical covered by the PSM regulations, OSHA officials told us that the PSM regulations would not apply to the facility because it was a retail outlet. In addition, other chemical safety regulations issued by EPA do not apply to facilities with ammonium nitrate. EPA’s RMP regulations, issued in 1996 in response to a provision of the Clean Air Act Amendments of 1990, require covered chemical facilities to develop and implement a risk management program, but ammonium nitrate is not included on the list of chemicals that would trigger the requirements. EPA’s RMP regulations require facilities that handle more than threshold amounts of certain chemicals to implement a risk management program to guard against the release of chemicals into the air and surrounding environment. Covered facilities must develop their own risk management plans, and some facilities must also develop an emergency response program and conduct compliance audits, among other requirements. Covered facilities must also submit their risk management plans to EPA, including data on the regulated substances handled, and prepare a plan for a worst-case chemical release scenario. Although EPA initially included high explosives in its list of regulated substances, which would include explosives grade ammonium nitrate, these explosives were subsequently removed from the list as a result of a legal settlement. EPA officials also told us that fertilizer grade ammonium nitrate was not considered for its list for RMP because the agency had determined that it did not meet the criteria EPA established to implement the statute. Specifically, EPA officials told us that ammonium nitrate could have been included in the RMP regulations, but ammonium nitrate was not included because it was not considered a toxic or flammable chemical, which were among the criteria EPA used when the agency first developed the regulations. Accordingly, ammonium nitrate is not a covered chemical and EPA inspectors do not review facilities’ risk management plans for this chemical during their RMP inspections. In 2006, EPA conducted an on-site inspection of the West, Texas facility, but the inspection focused on anhydrous ammonia, not ammonium nitrate. In response to the August 2013 Executive Order on Improving Chemical Facility Safety and Security, OSHA and EPA, as part of the federal working group, have invited public comment on a wide range of policy options for overseeing the housing and handling of hazardous chemicals in the United States. Because they are still evaluating these options, the agencies have not issued any notices of proposed rulemaking. As directed by the Executive Order, in December 2013, OSHA issued a Request for Information on potential revisions to its PSM and related regulations, including its ammonium nitrate storage regulations. OSHA’s Request for Information also seeks public input on changing the agency’s enforcement policy concerning the retailer exemption in the PSM regulations. In the Request for Information, OSHA states that “The West Fertilizer facility is not currently covered by PSM, however it is a stark example of how potential modernization of the PSM standard may include such facilities and prevent future catastrophe.” In addition, as chair of one of the workgroups established to implement the Executive Order, OSHA solicited public input in January 2014 on federal policy options for improved chemical safety and security, including whether to expand OSHA’s PSM regulations and EPA’s RMP regulations to cover ammonium nitrate, among other options. This solicitation also sought public input on whether federal agencies should examine the use of third party audits to promote safe storage and handling of ammonium nitrate. The solicitation defined third party audits as inspections conducted by independent auditors, retained by a chemical facility, who make process safety and regulatory compliance recommendations. In an ongoing pilot project in selected states implemented in response to the Executive Order, federal agencies report improved coordination of inspections, such as sharing inspection schedules, cross‐training inspectors, and inter‐agency referrals of possible regulatory non‐compliance. According to foreign officials and government documents, Canada and the three EU countries we contacted—France, Germany, and the United Kingdom—require facilities with specified quantities of ammonium nitrate, including fertilizer grade ammonium nitrate, to assess its risk and develop plans or policies to control the risks and mitigate the consequences of accidents. Like the United States, these countries are members of the OECD, which has published best practices for managing the risks of chemical accidents. The OECD publication includes guidance on preventing and mitigating the consequences of chemical accidents, preparedness planning, and land use planning, among other things. For example, OECD’s guidance recommends that regulatory authorities ensure that facilities with hazardous substances assess the range of possible accidents and require hazardous facilities to submit reports describing the hazards and the steps taken to prevent accidents. With respect to assessing the risks of ammonium nitrate, according to Canadian officials and Canadian government documents, ammonium nitrate is regulated under the country’s Environmental Emergency Regulations, which include risk management provisions. According to guidance published by Environment Canada, a federal-level regulatory agency, facilities that store 22 tons or more of ammonium nitrate must develop and implement an environmental emergency plan. In developing an emergency plan, facilities are directed to analyze the risks posed during the storage and handling processes for certain chemicals and adopt practices to reduce the risks, taking into consideration the impact a chemical accident would have on the surrounding community. According to information provided by EU officials, facilities in the 28 member countries of the EU with specific quantities of ammonium nitrate fertilizer are subject to the Seveso Directive, the EU legislation for facilities that use or store large quantities of certain toxic, explosive, and flammable substances, among other types of chemicals. At a minimum, EU officials told us that EU member countries must comply with the Seveso Directive, although they have the option to adopt more stringent requirements. The legislation was adopted after a chemical accident in Seveso, Italy in 1976 that exposed thousands of people to the toxic chemical known as dioxin. Under the Seveso Directive, last updated in 2012, member countries are to require facilities with large amounts of ammonium nitrate fertilizer to notify the appropriate authority in their respective country, adopt a major accident prevention policy, and in some cases, develop a detailed safety report (see table 5). Some countries, such as France and the United Kingdom, have other requirements for notifying authorities about the types and quantities of chemicals at facilities, including certain types of ammonium nitrate. In the United Kingdom, officials told us that facilities with 28 tons or more of certain types of ammonium nitrate must notify the Health and Safety Executive or local authority and the fire authorities. French officials said that facilities with more than 276 tons of ammonium nitrate fertilizer must notify local authorities about their holdings. The selected countries we reviewed generally reported having more centralized land use policies that specify where facilities with large quantities of ammonium nitrate should be located. For example, EU officials explained that the Seveso Directive requires member countries to develop and implement land use policies. Through controls on the siting of new Seveso facilities and new developments in the vicinity of such facilities, such as transportation routes and residential areas, they told us, member countries’ policies aim to limit the consequences of chemical accidents for human health and the environment. In the United Kingdom, officials told us that facilities intending to store more than 1,102 tons of ammonium nitrate must first receive permission from their local planning authority to do so for relevant ammonium nitrate materials. They explained that these local planning authorities consider the hazards and risks to people in surrounding areas and consult with the Health and Safety Executive prior to granting permission to such facilities. Three of the countries we reviewed—France, Germany, and the United Kingdom—restrict the use of wood for storage purposes in certain instances, according to information and documents provided by relevant officials. EU officials told us that the Seveso Directive does not prescribe how chemicals, including ammonium nitrate, should be stored. EU countries have developed their own technical standards or rely on industry standards for storing and handling ammonium nitrate. For example, according to information provided by French officials, after several accidents involving ammonium nitrate fertilizer, the government in France launched a working group to update existing ammonium nitrate regulations, including storage and handling requirements. They described the most recent regulations in France, issued in 2010, which include updated fire resistance provisions for new and existing facilities banning or restricting the use of materials such as wood and asphalt flooring for storing ammonium nitrate. Specifically, according to documents provided by French officials, the regulations direct facilities not to store ammonium nitrate fertilizer in structures with wood walls or sides. According to an official in Germany, strict storage requirements for using certain types of ammonium nitrate fertilizer have led many farmers to voluntarily use an alternative type of fertilizer, known as calcium ammonium nitrate., For example, she explained that, in Germany, certain kinds of ammonium nitrate must be divided into quantities of 28 tons prior to storage, and quantities are separated by concrete walls. In addition, certain ammonium nitrate and ammonium nitrate-based preparations must be separated from combustible materials, for example by brick or concrete walls. Guidance in the United Kingdom also recommends that buildings for storing ammonium nitrate should be constructed of material that does not burn, such as concrete, bricks, or steel, as does the recent advisory in the United States published by OSHA, EPA, and ATF. Guidance on Safe Practices. In the countries we reviewed, government entities developed materials to help facilities with ammonium nitrate fertilizer comply with safety regulations. For example, in the United Kingdom, the government published guidance on storing and handling ammonium nitrate that illustrates proper storage practices and is written in plain language. The United Kingdom also developed a checklist that facilities can use as a compliance tool to determine whether they are meeting safe storage requirements. In Canada, Environment Canada issued a guidance document in 2011 so that facilities covered by its Environmental Emergency Regulations, including facilities with certain types and amounts of ammonium nitrate, can better understand and comply with regulatory requirements. The EU compiles information about chemical accidents and disseminates publications that include guidance on how facilities can prevent future incidents. Specifically, the EU has a system for reporting major accidents, including accidents involving ammonium nitrate, and tracks the information in a central database. For example, as of January 2014, this database contained information on several incidents involving ammonium nitrate dating back to 1986. EU researchers use this information to develop semi-annual publications in order to facilitate the exchange of lessons learned from accidents for both industry and government regulators. Each publication focuses on a particular theme such as a specific substance, industry, or practice, and summarizes the causes of related accidents and lessons learned to help prevent future accidents. EU officials told us that the next publication will be issued in the summer of 2014 and will focus on the hazards of ammonium nitrate in part as a result of the explosion that occurred in West, Texas. Routine Inspections. In the EU, member countries are required to inspect facilities with large quantities of chemicals covered by the Seveso Directive, which includes facilities with ammonium nitrate. According to EU officials and documents, the EU’s Seveso Directive requires covered facilities to be inspected either annually or once every 3 years, depending on the amount of hazardous chemicals a facility has—the greater the amount, the more frequent the inspection. EU officials also explained that member countries are required to report information to the European Commission every 3 years on how they are implementing the Seveso Directive requirements, including the number of facilities that have been inspected in their country. According to a report published by the European Commission in June 2013, member countries reported in December 2011 that they had 10,314 covered facilities. According to the report, of those facilities to be inspected annually, 66 percent were inspected, on average, in 2011, and of those facilities to be inspected once every 3 years, 43 percent were inspected, on average, in 2011. Voluntary Initiatives and Third Party Audits. In the countries we reviewed, the fertilizer industry has actively promoted voluntary compliance with national safety requirements among facilities with ammonium nitrate fertilizer. For example, Fertilizers Europe, which represents the major fertilizer manufacturers in Europe, published guidance in 2007 for the storage and handling of ammonium nitrate-based fertilizers. This guidance recommends that buildings used to store ammonium nitrate- based fertilizers be constructed of non-readily combustible materials such as brick, concrete, or steel and that wood or other combustible materials be avoided, among other things. Fertilizers Europe has also developed a compliance program that is a key requirement for membership, which consists of independent third party audits. As part of the program, it developed a self assessment tool for fertilizer manufacturers to use to identify gaps and possible improvements. In the United Kingdom, the government and the fertilizer industry worked together in 2006 to develop a voluntary compliance program for facilities that manufacture and store fertilizers, among other activities, including ammonium nitrate-based fertilizers. According to a United Kingdom official, the government provided some of the initial funding for this initiative, and the voluntary compliance program is now self financed. Although the program was initially focused on fertilizer security, it has evolved over the years to also address fertilizer safety in the United Kingdom. As part of the voluntary compliance program, participating facilities carry out risk assessments. These facilities are audited annually by an independent audit team comprised of specialists to determine whether they comply with industry and government standards, including standards for safely storing and handling ammonium nitrate fertilizer. Officials we interviewed in the United Kingdom told us that the government encourages and supports this industry initiative and that about 90 percent of facilities with ammonium nitrate in the United Kingdom, including those that have small quantities, are members of the voluntary program. A United Kingdom official said, in his opinion, one would expect facilities participating in this industry initiative to be more likely to be found in compliance by the government when it conducts its own inspections. Furthermore, government officials, industry representatives, and program administrators meet twice a year to discuss how the program is being implemented and monitored. Large quantities of ammonium nitrate are present in the United States, although the precise number of facilities with ammonium nitrate is not known. While incidents involving ammonium nitrate are rare, this chemical can react in ways that harm significant numbers of people and devastate communities. Facilities may be required, in certain circumstances, to report their chemical holdings to federal, state, and local authorities for security and emergency planning purposes. However, given the various reporting requirements and numerous reporting exemptions, some facilities may be uncertain about what to report to whom. Through the new Executive Order, federal agencies including DHS, EPA, and OSHA have the opportunity to work together on data sharing initiatives to help identify facilities with ammonium nitrate fertilizer. Such data sharing could help federal agencies identify facilities that are not complying with their regulations and enable OSHA to target high risk facilities with ammonium nitrate for inspection. Without improved coordination among the various federal and state agencies that collect data on facilities that store potentially hazardous chemicals, identifying facilities with ammonium nitrate for purposes of increasing awareness of the hazards and improving regulatory compliance will remain a challenge. Although OSHA has requirements for storing ammonium nitrate fertilizer in its Explosives and Blasting Agents regulations that could reduce the likelihood of an explosion, OSHA has done little to ensure that the fertilizer industry, which is one of the primary users of ammonium nitrate, understands how to comply with its existing regulations. The August 2013 chemical advisory and OSHA’s February 2014 letter to facilities help clarify how OSHA’s Explosives and Blasting Agents regulations apply to fertilizer facilities. However, without additional action by OSHA to promote awareness of how to comply with its regulations, fertilizer facilities may not know whether their practices are in compliance with OSHA’s existing ammonium nitrate storage regulations or if changes need to be made. Moreover, unless OSHA takes steps to leverage additional resources to support its enforcement efforts, whether through enhanced targeting or coordination with other agencies or outside parties, beginning with encouraging voluntary compliance with ammonium nitrate regulations through various industry initiatives, it will not know the extent to which dangerous conditions at some facilities may continue to exist. While much can be achieved under current regulations, OSHA and EPA’s regulations contain gaps with respect to ammonium nitrate that may allow unsafe facilities to operate and poor planning to persist. OSHA has not significantly changed its ammonium nitrate storage regulations since they were issued in 1971, which means that fertilizer facilities may be adhering to outdated practices. For example, other countries we reviewed have revisited and updated their ammonium nitrate regulations and the National Fire Protection Association is considering making changes to its ammonium nitrate storage standards as a result of the explosion in West, Texas. In addition, as a result of incidents involving ammonium nitrate abroad, countries in the European Union and Canada require facilities to assess the risks of working with ammonium nitrate fertilizer, and the European Union requires member countries to routinely inspect facilities that have very large quantities of it. These approaches offer examples of how the risks of ammonium nitrate can be managed. Although increased regulation may be more burdensome to industry, without some means of ensuring that high risk facilities plan for and manage the risks associated with ammonium nitrate, such facilities may not be prompted to adequately address the risks the chemical creates for workers and neighboring communities. 1. To improve federal oversight of facilities with ammonium nitrate, we recommend that the Secretary of Labor, the Administrator of EPA, and the Secretary of Homeland Security, as part of their efforts as members of the Chemical Facility Safety and Security Working Group established by the Executive Order issued in August 2013, develop and implement methods of improving data sharing among federal agencies and with states. 2. We also recommend that the Secretary of Labor direct the Assistant Secretary for Occupational Safety and Health to take the following three actions: Extend OSHA’s outreach to the fertilizer industry. For example, OSHA could work with the fertilizer industry to develop and disseminate informational materials related to storage of ammonium nitrate. Take steps to identify high risk facilities working with ammonium nitrate and develop options to target them for inspection. Consider updating regulations for the storage of ammonium nitrate taking into consideration, as appropriate, other related standards and current practices. 3. To strengthen federal oversight of facilities with ammonium nitrate, we recommend that the Secretary of Labor and the Administrator of EPA direct OSHA and EPA, respectively, to consider revising their related regulations to cover ammonium nitrate and jointly develop a plan to require high risk facilities with ammonium nitrate to assess the risks and implement safeguards to prevent accidents involving this chemical. We provided a draft of this report to the Administrator of EPA, the Secretary of Homeland Security, and the Secretary of Labor for review and comment. We received written comments from EPA, DHS, and OSHA, which are reproduced in appendices I, II, and III. EPA, DHS, and OSHA agreed with our recommendation that the agencies improve data sharing and described their current efforts to address this issue as part of their implementation of the Executive Order on Improving Chemical Facility Safety and Security. The agencies stated that a status report by the Executive Order Working Group, which will be submitted to the President by the end of May, 2014, will include proposals for enhancing data sharing among federal agencies and with states. OSHA agreed with our recommendation that the agency conduct additional outreach to the fertilizer industry, stating that additional outreach efforts will be identified in the Executive Order status report and that these efforts should help the fertilizer industry understand OSHA’s safety requirements and industry best practices. OSHA also agreed with our recommendation that the agency target high risk facilities for inspection, stating that the agency is evaluating options for targeting high risk fertilizer facilities for inspection. OSHA and EPA agreed with our recommendation that the agencies consider revising their regulations to cover ammonium nitrate. OSHA is currently reviewing public comments submitted in response to a Request for Information on a proposed revision to the agency’s Process Safety Management and Prevention of Major Chemical Accidents regulations and the a request for public input on issues associated with Section 6 of the Executive Order, which addresses Policy, Regulation, and Standards Modernization. EPA stated that the agency will be publishing a Request for Information seeking public input on its proposed revision to process safety and risk management issues relevant to its Risk Management Program regulations, including coverage of ammonium nitrate. In addition, EPA, DHS, and OSHA provided technical comments, which we have incorporated as appropriate. We also provided portions of the draft report related to each of the four countries we reviewed to relevant officials from each country, and incorporated their technical comments, as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Administrator of EPA, the Secretary of Homeland Security, the Secretary of Labor, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions concerning this report, please contact me at (202) 512-7215 or moranr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. In addition to the contact named above, Betty Ward-Zukerman, Assistant Director; Catherine Roark, Analyst in Charge, Theodore Alexander, Nancy Cosentino, Joel Marus, and Meredith Moore, made significant contributions to all phases of the work. Also contributing to this report were Hiwotte Amare, Jason Bair, James Bennett, Susan Bernstein, Stephen Caldwell, Sarah Cornetto, Charles Johnson, Jr., Kathy Leslie, Ashley McCall, Sheila McCoy, Jean McSween, John Mortin, Vincent Price, Stephen Sanford, Sushil Sharma, Linda Siegel, Maria Stattel, and Kathleen van Gelder.	In April 2013, about 30 tons of ammonium nitrate fertilizer detonated during a fire at a facility in West, Texas, killing at least 14 people and damaging nearby schools, homes, and a nursing home. This incident raised concerns about the risks posed by similar facilities across the country. OSHA and EPA play a central role in protecting workers and communities from chemical accidents, and DHS administers a chemical facility security program. GAO was asked to examine oversight of ammonium nitrate facilities in the United States and other countries. This report addresses (1) how many facilities have ammonium nitrate in the United States, (2) how OSHA and EPA regulate and oversee facilities that have ammonium nitrate, and (3) what approaches selected other countries have adopted for regulating and overseeing facilities with ammonium nitrate. GAO analyzed available federal data and data from selected states with high use of ammonium nitrate; reviewed federal laws and regulations; and interviewed government officials, chemical safety experts, and industry representatives in the United States and selected countries. Federal data provide insight into the number of facilities in the United States with ammonium nitrate but do not provide a complete picture because of reporting exemptions and other data limitations. The Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA) do not require facilities to report their ammonium nitrate holdings. The Department of Homeland Security (DHS) requires facilities with certain quantities of ammonium nitrate to report their holdings for security purposes. While the total number of facilities in the United States with ammonium nitrate is unknown, as of August 2013, at least 1,300 facilities in 47 states reported to DHS that they had reportable quantities of ammonium nitrate. Federal law also requires certain facilities to report their ammonium nitrate holdings to state and local authorities for emergency planning purposes, but these data are not routinely shared with federal agencies. According to EPA, states are not required to report these data to federal agencies, and each state determines how to share its data. As part of an Executive Order on Improving Chemical Facility Safety and Security issued in August 2013, federal agencies are exploring options for improving data sharing, but this work is not yet complete. OSHA and EPA provide limited oversight of facilities that have ammonium nitrate. OSHA's regulations include provisions for the storage of ammonium nitrate, but the agency has done little outreach to increase awareness of these regulations within the fertilizer industry, a primary user. In addition, the regulations have not been significantly revised since 1971 and allow storage of ammonium nitrate in wooden buildings, which could increase the risk of fire and explosion. Other OSHA and EPA chemical safety regulations—which require facilities to complete hazard assessments, use procedures to prevent and respond to accidents, and conduct routine compliance audits—do not apply to ammonium nitrate. Furthermore, although OSHA targets worksites in certain industries for inspection, its inspection programs do not target facilities with ammonium nitrate and, according to OSHA officials, information on these facilities is not available to them to use for targeting the facilities. International chemical safety guidance suggests authorities should provide facilities information on how regulatory requirements can be met and periodically inspect them. GAO reviewed approaches to overseeing facilities with ammonium nitrate in Canada, France, Germany, and the United Kingdom, selected in part based on recommendations from chemical safety experts. According to foreign officials and government documents, these countries require facilities with specified quantities of ammonium nitrate to assess its risk and develop plans or policies to prevent chemical accidents. For example, Canadian officials said facilities with 22 tons or more of ammonium nitrate are required to complete a risk assessment and an emergency plan. Some countries' storage requirements also restrict the use of wood to store ammonium nitrate. For example, officials told GAO that France restricted the use of wood for storing ammonium nitrate fertilizer after several incidents involving ammonium nitrate fertilizer, and German officials told GAO that certain ammonium nitrate and ammonium nitrate-based preparations must be separated from combustible materials by brick or concrete walls. GAO is recommending that federal agencies improve data sharing, OSHA and EPA consider revising their related regulations to cover ammonium nitrate, and OSHA conduct outreach to the fertilizer industry and target high risk facilities for inspection. DHS, EPA, and OSHA agreed with GAO's recommendations and suggested technical changes, which GAO incorporated as appropriate.	16.9	8k-16k	4,614
28	OAM resources are divided among 70 air and marine locations across three regions (southeast, southwest, and northern); the National Capital area; and National Air Security Operations Centers (NASOC) throughout the continental United States, Puerto Rico, and the U.S. Virgin Islands as shown in figure 1. OAM also has mission support facilities including those for maintenance, training, and radar-tracking to detect and direct interdiction of illegal aircraft and maritime vessels. OAM strategic assumptions in deploying its resources include the ability to provide a 24- hour, 7-day a week response to border penetrations anywhere along the U.S. border, with a 1-hour response time for areas designated as high priority. Considerations in OAM allocation decisions include historical location, congressional direction, and differences in geography and relative need for air and marine support to address threats. As of May 2011, OAM had placed about half of its air assets on the southwest border region and the remainder on the northern and southeast regions, while marine resources were distributed fairly evenly across the northern, southwest, and southeast regions. OAM has 23 branches and 6 NASOCs across these regions, and within the branches, OAM may have one or more air or marine units. OAM performs various missions in response to requests for air and marine support from other DHS components—primarily Border Patrol and ICE; as well as other federal, state, and local law enforcement agencies. In addition, OAM is a representative on the Joint Interagency Task Force- South, located in Key West, Florida, a unified command sponsored by the White House Office of National Drug Control Policy that facilitates transnational cooperative counter-narcotic and counterterrorism efforts throughout the South America source zone and the Caribbean, eastern Pacific, Central America, and Mexico transit zone. OAM’s NASOCs perform specialized missions nationwide and in the Caribbean, eastern Pacific, and Central America, using unmanned aircraft systems, long- range patrol aircraft, and other aircraft. Control of OAM resources to respond to these support requests differs by location. For the northern and southwest regions, OAM branches and units are under the tactical control of the local Border Patrol sector chief, who has authority to approve, deny, and prioritize requests for air and marine support. In contrast, OAM branch directors have the authority to control how air and marine resources are used in the southeast region— where there is less Border Patrol presence, as well as in the National Capital area and in NASOCs. The majority of OAM operations is in support of customer or self-initiated law enforcement missions.patrols to detect illegal activity; search for illegal aliens; surveillance; and transport of Border Patrol, ICE, and other law enforcement officers and their equipment. OAM also performs non-enforcement missions including those to support maintenance, training, public relations, and to provide humanitarian aid. Over the last 3 years, the proportion of air and marine mission hours (flight hours or hours a vessel was on duty) for law enforcement related missions has increased, as shown in table 1. The percentage of OAM air and marine support requests met differed by location, customer, and mission type, with unmet air support requests primarily due to aircraft maintenance and unmet marine requests due to adverse weather in fiscal year 2010. In addition, OAM, Border Patrol, and ICE officials reported that OAM resources were constrained in some locations. Further, although OAM has taken actions to address challenges in providing air and marine support, its efforts to increase aircraft availability have not been fully realized. OAM met 73 percent of the 38,662 total air support requests that it received in fiscal year 2010, according to our analysis of AMOR data.OAM tracks its ability to meet air support requests by location, customer, and mission in its AMOR system. Our analysis of these data showed that the percentage of air support requests OAM met differed by region or branch location, and to a lesser extent, by customer and mission type. Specifically, the percentage of air support requests met ranged by 29 percentage points across regions (from 60 to 89 percent) and ranged by over 50 percentage points across branches (from 43 to 96 percent), while the percentage of requests met across customers ranged by about 14 percentage points (from 76 to 90 percent) and the percentage of requests met across mission types ranged by 24 percentage points (from 61 to 85 percent). OAM air support requests met differed by up to 29 percentage points across five different OAM regional areas of responsibility (i.e., regions). The highest percentage of support requests met was provided to OAM’s NASOCs and the lowest percentage of support requests met was provided to the U.S. southeast region, as shown in figure 2. The percentage of air support requests met across branches and NASOCs showed greater differences than across regions, particularly across branches in the southwest region, as shown in table 2. There were smaller differences in OAM’s ability to meet requests for air support across customers than across locations. The overall percentage of air support requests met across customers ranged from a low of 76 percent for Border Patrol and OAM to a high of 90 percent for all other federal agencies, as shown in figure 3. Border Patrol has control over OAM mission support priorities in the northern and southwest regions, and OAM has control over its priorities in the southeast region. To increase transparency of ICE support requests, OAM, Border Patrol, and ICE established a process requiring that ICE requests that are denied at the field level be elevated to management. Finally, our analysis of AMOR data showed that there were few concurrent support requests that resulted in denial of one agency’s request to support another agency. For example, of the 38,662 requests for air support in fiscal year 2010, 2 percent (915) could not be met due to a competing mission request from the same or another agency. OAM headquarters officials gave the following possible explanations as to why state and local, and all other federal agencies had higher support rates than Border Patrol or OAM. State and local support frequently involved OAM diverting a flight already in progress; in such cases, aircraft availability challenges were not an issue. As a result, OAM was able to provide the support to the state and local agency resulting in higher support rates. Federal agencies (as in the “all other federal agencies” category in figure 3) and state agencies (as in the “state and local agencies” category in figure 3) often require types of aircraft that have greater availability in general. Standing, daily requests—which were most common to Border Patrol—were more likely than ad hoc requests to be canceled as a result of adverse weather, maintenance, or aircraft and personnel restrictions. As a result, Border Patrol may have more unmet requests than other agencies. The difference in percentage of support requests met across mission categories ranged from 61 to 85 percent, with higher levels of support for miscellaneous enforcement activities such as reconnaissance, photography, or information. The percentage of air support was lower for mission activities classified as search, interdiction, or radar patrol, as shown in figure 4. OAM officials told us that there were too many variables, such as budget and resource constraints, weather, and conflicting mission priorities, to explain why there were differences in percentages of support requests met for different mission types. OAM was unable to meet 27 percent, or 10,530 of the 38,662 air support requests it received from customers in fiscal year 2010. The primary reason for unmet requests was the unavailability of aircraft in maintenance, but adverse weather and unavailable aircrew were also factors, as shown in figure 5. OAM survey respondents were generally satisfied with the type and number of air assets they had to perform various missions; however, some survey respondents and field officials we interviewed identified capability gaps, such as the lack of maritime patrol aircraft. In addition, survey respondents and field officials reported general dissatisfaction with the number of personnel to perform air operations. Finally, OAM has taken actions to increase aircraft availability—including creating an aircraft modernization plan and conducting an aged-aircraft investigation—but these efforts have not been fully realized. The majority of officials that responded to our survey questions from 18 OAM air locations across the southwest, northern, southeast, and National Capital regions, and NASOCs generally reported that they were either satisfied with, or neutral—neither satisfied nor dissatisfied—toward the type and number of OAM aircraft they had at their locations to perform various mission activities. For example, 16 of 18 respondents reported satisfaction with the type of aircraft available for surveillance; and 12 of 18 respondents reported satisfaction with the number of aircraft they have to perform information gathering. A majority of respondents also expressed satisfaction or neutrality toward the type and number of aircraft they have to perform 12 other mission activities. Some respondents, however, identified capability gaps and resource limitations for certain mission activities. For example, officials from 7 of the 14 air locations that perform air-to-water radar patrols reported that they were very dissatisfied with the type of aircraft available to conduct these missions.respondents from 7 of the 17 air locations that perform interdictions expressed dissatisfaction with the number of aircraft available to conduct these missions. One respondent reported that his/her location had no maritime or air radar interdiction capabilities, despite having a border that was entirely water. See appendix IV for a summary of survey results by location for respondents’ satisfaction with the type and number of assets for various mission activities. The Northern Border Regional Director said, among other things, he would like to see an additional interceptor aircraft placed in one branch location, but that the runway is too short—the current runway is 4,000 feet and a Citation needs at least 7,000 feet. OAM headquarters officials said that the branch is routinely required to get additional support from neighboring branches. the maritime environment and that two branches needed more maritime patrol aircraft. The Southwest Regional Director said he did not have information regarding what the southwest region’s needs were in terms of air assets because the southwest region had not performed an assessment in 2 years. OAM, Border Patrol and ICE officials at field locations we visited in the northern, southeast, and southwest regions expressed various levels of satisfaction with OAM’s air support and capabilities. For example, Border Patrol and ICE officials in one northern border location said they were generally satisfied with OAM’s air support. Similarly, the Acting Special Agent in Charge for the ICE office in the southeast region said he was generally satisfied with OAM’s air support; however, a Border Patrol Assistant Chief for a southeast region sector said OAM had not been responsive to their air support requests. branch officials said the air assets at their location were barely sufficient to meet support requests for its various missions, and ICE officials said they would like to see OAM procure better aircraft for their surveillance needs. In addition, Border Patrol officials in the same southwest location said that while the sector receives substantial OAM air support, OAM as an agency is not adequately resourced in budget, facilities, air frames, or technology to meet operational requirements. Similarly, Border Patrol, OAM, and ICE field officials in another southwest region location said OAM lacked the capability to perform effective maritime (air to water) patrols, and ICE officials in that southwest region location said that helicopters were often not available on short notice. A Border Patrol Assistant Chief for one southeast sector said that in some instances, Border Patrol agents may not have asked for air support in fiscal year 2010 because they thought they might not receive it. He said that agents are currently encouraged to ask for support whether or not they believe they will receive it. Lastly, officials from the Joint Interagency Task Force-South (JIATF-S) said they were pleased with the support they received from OAM, but they would like higher levels of support. According to OAM officials, OAM provided aircraft support to JIATF-S primarily for long-range patrols in the source zones of South America and the transit zones of the Caribbean, eastern Pacific, Central America, and Mexico. JIATF-S officials said that OAM had specialized aircraft that were instrumental to their operations. While OAM provided more than its committed 7,200 flight hours in fiscal year 2010 to support the anti-drug mission in this area, JIATF-S officials said they would like to receive higher levels of OAM support, particularly as support from Department of Defense and other partners had been decreasing. Our survey of 18 OAM air locations found that the majority of respondents (11 of 18) were either somewhat or very dissatisfied with the extent to which they had adequate air personnel to effectively meet mission needs. In addition, field officials we interviewed in the southwest and southeast regions reported shortages in air personnel. Although the Northern Border Regional Director told us most air branches along the northern border were staffed sufficiently to meet mission needs, the Southeast and Southwest Regional Directors cited shortfalls in the level of air personnel. The Southeast Regional Director said air staff were frequently assigned to temporary duty in support of UAS and surge operations in the higher priority southwest region; and the Southwest Regional Director said they did not have adequate personnel to be able to respond 24-hours a day at each of its locations. OAM officials at the field locations we visited reported shortages in air personnel. For example, the Director of Air Operations at a northern border branch said that the branch was originally slated to have 60 pilots, but instead had 20 pilots. In addition, officials from two branches in the southwest region told us they lacked personnel due to staff being away for such reasons as temporary duty assignments, military leave, sick leave, and training, among other reasons; they said these shortages were negatively affecting their ability to meet air support requests. Further, the Deputy Director of Air Operations for one southeast region branch told us that when they received the new DASH-8 maritime patrol aircraft, they did not receive the necessary increases in personnel to operate them, and as a result, the branch could not fully utilize the capabilities of these technologically advanced aircraft. According to the branch officials, personnel problems were further exacerbated by budget constraints. OAM reported that it had taken actions to increase aircraft availability, but the results of these efforts have not yet been fully realized. OAM created an aircraft modernization plan in 2006 to replace aging aircraft, and updated this plan in 2007 with a model of projected investments over the next 10 years. OAM officials told us that due to changes in mission needs and changes in the aviation market, as well as limited funding, they have had to modify the plan and continue to maintain older and less supportable aircraft, which require more maintenance. OAM officials reported that because they have not been able to replace aircraft as postulated, they have not been able to standardize their fleet by reducing aircraft types—which would reduce costs associated with training materials and equipment, parts and spares inventories, and personnel Due to the slow pace of aged aircraft replacement and qualifications. the prospect of a constrained resource environment, OAM conducted an aged aircraft investigation in fiscal year 2010 to determine the operating life limitations of aircraft most at risk. Based on the results of this investigation, OAM plans to either retire aircraft or create sustainment regimens for certain aircraft to lengthen their service lives. Finally, OAM headquarters officials said they still plan to acquire new aircraft and reduce the number of older aircraft to eventually achieve the needed type reductions, consistent with available funding. In its 2006 aircraft modernization plan, OAM planned to reduce the number of aircraft types from 18 to 8, but as of September 2011, OAM had 20 aircraft types (including unmanned aircraft systems). OAM headquarters officials said they have deployed all-weather aircraft to locations where their capabilities will yield the highest operational dividends. They also said they would like to acquire additional all- weather aircraft, but current funding structures preclude the acquisition of more all-weather assets beyond what is currently approved. OAM officials said they are exploring additional technology and instrumentation solutions to increase their ability to conduct missions in adverse weather conditions, and that this is an ongoing process. OAM headquarters officials stated that they were also limited in their ability to increase the availability of aircrew due to staff reductions and budgetary constraints. OAM conducted a re-evaluation of its staffing in 2009, but it was never approved, as OAM had significant reductions to its work force in fiscal year 2010. Headquarters officials said the effort to redefine their work force is on hold since future funding projections prohibit program growth. OAM officials told us they have not increased staff over the past 2 fiscal years. OAM met 88 percent of the 9,913 total marine support requests that it received in fiscal year 2010, according to our analysis of AMOR data.Similar to our analysis of air support data, our analysis of marine data showed that the percentage of requests OAM supported differed by location; specifically, the percentage of marine support requests met ranged by 9 percentage points across regions (from 84 to 93 percent), and by as much as 28 percentage points across branches (from 71 to 99 percent). AMOR tracks OAM’s ability to meet marine support requests by location, customer, and mission; but data by customer were not reliable for our reporting purposes due to inconsistencies in OAM data entry practices. The percentage of marine support requests met ranged from 84 to 93 percent across three OAM regional areas of responsibility. The percentage of support requests met was fairly similar for the northern and southwest regions, exceeding 90 percent; however, support was lower (84 percent) for the southeast region, as shown in figure 6. OAM officials said possible reasons for the differences in support rates could include the fact that OAM has placed higher priority on the northern and southwest regions, and that since 2008 OAM has added assets to these regions in response to congressional direction. Within each region, the percentage of marine support requests met across branches showed disparities, particularly across branches in the southwest region. Marine support requests met ranged by 15 percentage points across branches in the southeast region (from 80 to 95 percent), by about 10 percentage points across branches in the northern region (from 89 to 99 percent), and by about 28 percentage points across branches in the southwest region (from 71 to 99 percent). Our analysis of AMOR data indicated that 94 percent of all support requests in fiscal year 2010 were for radar patrol missions, while the remaining 6 percent of requests involved interdiction, surveillance, and other miscellaneous enforcement missions. The percentage of support requests met for the remaining 6 percent of requests varied but was 86 percent overall, while the support rate for radar patrol missions was 88 percent. We were unable to report on the percentage of marine support by customer due to reliability concerns associated with data in AMOR. Specifically, when inputting data into the AMOR system for unmet marine requests, OAM staff left the data field blank that identified the customer making the request in over 90 percent of the cases in fiscal year 2010. OAM reported that they are replacing the AMOR system with a web- based system, which officials said will not allow users to leave important fields blank. Officials also said they are strengthening other internal controls—such as training and supervisory review of data entry—to ensure complete and accurate reporting. Such actions, if implemented effectively, should help improve the reliability of marine customer data— as well as other air and marine operations data—maintained in OAM’s system. OAM was unable to meet 12 percent, or 1,176 of the 9,913 marine support requests they received in fiscal year 2010. OAM officials said one reason that the percentage of support requests met was higher for marine support than for air support is because the requirements for launching aircraft are more stringent than for launching marine vessels, due to the relative risk of failure. The primary reason for unmet marine requests was adverse weather (6 percent of total requests),with an additional 4 percent due to other mission priorities and crew unavailability, as shown in figure 7. According to our survey of 27 OAM marine units, respondents reported they were generally satisfied with the type and number of vessels at their location. However, OAM Regional Directors and field location officials cited limitations, such as the lack of platform class vessels to perform undercover operations and funding for fuel. In addition, survey respondents and field officials cited shortages in personnel. Lastly, OAM has taken actions to increase its ability to meet marine requests, including purchasing “all-weather” vessels and cold-weather marine gear. Our survey of 27 OAM marine locations across the northern, southwest, and southeast regions found that respondents were generally satisfied with the type and number of OAM marine vessels they had at their locations to perform various mission activities. For example, greater than 21 of 27 respondents reported that they were satisfied with both the type and number of vessels they had to perform radar patrol and interdiction missions. Of the remaining 10 activities we asked about, the majority of respondents expressed satisfaction toward the type and number of vessels they had to perform in 7 activities. The activity where respondents expressed the greatest dissatisfaction with the type and number of vessels they had was undercover support—with 12 of the 24 marine units that perform undercover support expressing dissatisfaction with the type of vessels, and 10 of the 24 units expressing dissatisfaction with the number of vessels. See appendix IV for a summary of survey results by location for satisfaction with the type and number of assets provided by mission activity. OAM Regional Directors expressed differing levels of satisfaction with the type and number of marine vessels in their regions. The OAM Northern Regional Director said the northern region had the appropriate number and type of vessels to meet mission needs. Although the Southeast Regional Director said the southeast region had the appropriate number of interceptor vessels to meet mission needs, he also said the southeast region needed two other types of vessels to increase mission capability. The Southwest Regional Director said that given the region’s distribution of personnel, it had the appropriate number of assets; however, he said the region did not have the appropriate number of qualified marine personnel to meet mission needs. Field officials at locations we visited in the northern, southeast, and southwest regions expressed varied levels of satisfaction with OAM’s marine support and capabilities. For example, while Border Patrol and ICE officials in a northern border location said they were satisfied with the marine support they received from OAM, the Director of Marine Operations for an OAM branch in the northern region said that it was not feasible to provide a sufficient number of vessels and crew to ensure full coverage of the maritime border, and that the greatest need was for marine radar to queue marine assets to perform interdictions. An OAM branch official from the southeast region said that while the number and type of vessels met their needs, for a period of time, they could use their vessels only about half of each month due to budget constraints limiting fuel. Finally, officials at an OAM branch in the southwest region told us one of their chief resource needs was platform vessels to perform undercover operations. Our survey of 27 OAM marine units found that the majority of respondents (18 of 27) reported they were either somewhat or very dissatisfied with the extent to which they had adequate personnel to effectively meet mission needs. The OAM Regional Director for the Northern Region said that marine personnel levels across his region were adequate; however, Regional Directors for the Southeast and Southwest Regions cited shortages in marine personnel. Specifically, the Southeast Regional Director said that one southeast branch did not have an adequate number of marine personnel to address increasing threat, and the Southwest Regional Director said one location in the southwest region did not have an appropriate number of personnel to meet mission needs. OAM officials at field locations reported shortages of personnel. For example, an official at one OAM marine unit in the northern region said that sometimes the lack of marine personnel affects operational readiness and that allowing for training and leave are consistently concerns. Similarly, OAM officials from a southwest branch said that sufficient numbers of personnel were not always available due to training, sick days, annual leave, and reservists being called to active duty; and an ICE official in a southwest border location agreed that OAM needed additional marine interdiction agents. Lastly, an OAM survey respondent from a marine unit in the southeast region said that although marine staffing was increased in the past few years for new locations, the pre-existing locations were short on manpower and a realignment of personnel was needed. OAM headquarters officials reported that they have taken actions to address capability gaps due to adverse weather. For example, OAM officials told us that they purchased “all-weather” vessels with enclosed cabins, and that along with additional vessels acquired from USCG, they will have sufficient assets to meet mission needs. Officials said that while enclosed cabins do not enable OAM to launch in rough sea states, they do enable marine agents to operate in cold weather. They said that while larger vessels could reduce the impact of adverse weather on marine operations, these vessels would not be capable of achieving sufficient speeds to conduct interdictions or, if they were capable of maintaining sufficient speeds, would be cost prohibitive.said they purchased marine dry suits and cold weather gear to further address their ability to operate in adverse weather. In addition, OAM officials In regards to personnel, OAM officials told us that with the rapid growth in the marine program during fiscal years 2008 and 2009, OAM will be able to meet its immediate needs for marine agents, but some of those hired were still in the process of being trained and certified. OAM headquarters officials said unmet requests due to other mission priorities are often the result of exigent and unanticipated requests for marine support that are outside of the normal mission-tasking process, and that they continually evaluate the need to re-assign marine assets to meet evolving mission needs. OAM has not documented its analyses to support its resource mix and placement decisions across locations, and challenges in providing higher rates of support to high priority sectors indicate that a reassessment of its asset mix and placement may provide benefits. OAM action to document analyses behind its deployment decisions and reassess where its assets are deployed using performance results could better ensure transparency and help provide reasonable assurance that OAM is most effectively allocating its scarce resources to respond to mission needs and threats. OAM could also improve public accountability by disclosing data limitations that hinder the accuracy of OAM’s reported performance results for fiscal year 2011. OAM has not documented significant events, such as its analyses to support its asset mix and placement across locations, and as a result, lacks a record to help demonstrate that its decisions to allocate resources are the most effective ones in fulfilling customer needs and addressing threats. To help ensure accountability over an agency’s resource decisions, Standards for Internal Control in the Federal Government call for agencies to ensure that all significant events be clearly documented and readily available for examination. OAM issued a National Strategic Plan in 2007 that included a 10-year plan for national asset acquisitions, and a strategic plan briefing the same year that outlined strategic end- states for air assets and personnel across OAM branches.documents included strategic goals, mission responsibilities, and threat information, we could not identify the underlying analyses used to link these factors to the mix and placement of resources across locations. The 2010 update to the strategic plan stated that OAM utilized its forces in areas where they would pay the “highest operational dividends,” but OAM did not have documentation of how operational dividends were determined or analyzed to support deployment decisions. Furthermore, while OAM’s Fiscal Year 2010 Aircraft Deployment Plan stated that OAM deployed aircraft and maritime vessels to ensure its forces were While these positioned to best meet the needs of CBP field commanders and respond to the latest intelligence on emerging threats, OAM did not have documentation that clearly linked the deployment decisions in the plan to mission needs or threats. Similarly, OAM did not document analyses supporting the current mix and placement of marine assets across locations. In addition, DHS’s 2005 aviation management directive requires operating entities to use their aircraft in the most cost-effective way to meet requirements. Although OAM officials stated that it factored cost-effectiveness considerations, such as efforts to move similar types of aircraft to the same locations to help reduce maintenance and training costs into its deployment decisions, OAM does not have documentation of analyses it performed to make these decisions. OAM headquarters officials stated that they made deployment decisions during formal discussions and ongoing meetings in close collaboration with Border Patrol, and considered a range of factors such as operational capability, mission priorities, and threats. OAM officials said that while they generally documented final decisions affecting the mix and placement of resources, they did not have the resources to document assessments and analyses to support these decisions. However, such documentation of significant events could help OAM improve the transparency of its resource allocation decisions to help demonstrate the effectiveness of these resource decisions in fulfilling its mission needs and addressing threats. OAM did not meet its national air support goal and did not provide higher rates of support to locations Border Patrol identified as high priority, which indicates that a reassessment of OAM’s resource mix and placement could help ensure that it meets mission needs, addresses threats, and mitigates risk. According to DHS’s Annual Performance Report for fiscal years 2008 through 2010, the primary and most important measure for OAM is its capability to launch an aircraft when a request is made for aerial support. In addition, DHS’s May 2010 policy for integrated risk management stated that components should use risk information and analysis to inform decision making, and a key component of risk management is measuring and reassessing effectiveness. OAM assessed its effectiveness through a performance goal to meet greater than 95 percent of Border Patrol requests for air support in fiscal year 2010, excluding unmet requests due to adverse weather or other factors OAM considered outside of its control. Our analysis showed that OAM met 82 percent of the 22,877 Border Patrol air support requests in fiscal year 2010. While OAM officials stated that this goal does not apply to specific locations, we used their stated performance measure methodology to determine support rates across Border Patrol sectors and found that they ranged from 54 to 100 percent in fiscal year 2010, and that OAM did not provide higher rates of support to locations Border Patrol identified as high priority (see table 3). This occurred at both the regional and sector levels. For example, while the southwest border was Border Patrol’s highest priority for resources in fiscal year 2010, it did not receive a higher rate of OAM air support (80 percent) than the northern border (85 percent). At the sector level, while Border Patrol officials stated that one sector was a high priority based on the relative threat of cross-border smuggling, our analysis showed that the sector had the fifth highest support rate across all nine sectors on the southwest border. Findings were similar on the northern border, where the Border Patrol’s and OAM’s 2007 Northern Border Resource Deployment Implementation Plan prioritized four sectors based on potential terrorist threats.found that two high-priority northern border sectors had lower support rates than three other sectors in the region that were not designated as high-priority. OAM headquarters officials said that they did not use support rate performance results to assess whether the mix and placement of resources is appropriate. OAM officials stated that they managed operations by allocating assets, personnel, and flight hours across locations, but these factors do not assess the outcomes of their operations, specifically the extent to which OAM provided air and marine support when requested to meet mission needs and address threats. GAO, Executive Guide: Effectively Implementing the Government Performance and Results Act, GAO/GGD-96-118 (Washington, D.C.: June 1996), and GAO/AIMD-00-21.3.1. they will begin to replace the AMOR system in March 2012.headquarters officials expect that the new information system will be more reliable, user-friendly, and have more robust reporting capabilities; however, officials stated that they did not have plans to change how they will use these capabilities to inform resource mix and placement decisions. OAM officials stated that while they deployed a majority of resources to high-priority sectors, budgetary constraints, other national priorities, and the need to maintain presence across border locations limited overall increases in resources or the amount of resources they could redeploy from lower-priority sectors. For example, in fiscal year 2010, 50 percent of OAM’s assets and 59 percent of OAM’s flight hours were in the southwest border, Border Patrol’s highest-priority region. While we recognize OAM’s resource constraints, the agency does not have documentation of analyses assessing the impact of these constraints and whether actions could be taken to improve the mix and placement of resources within them. Thus, it is unclear the extent to which the current deployment of OAM assets and personnel, including those assigned to the Southwest border as cited above, most effectively utilizes its constrained resources to meet mission needs and address threats. Looking toward the future, Border Patrol, CBP, and DHS have strategic and technological initiatives under way that will likely affect customer requirements for air and marine support and the mix and placement of resources across locations. Border Patrol officials stated that they are transitioning to a new risk-based approach and Border Patrol National Strategy in fiscal year 2012 that would likely affect the type and level of OAM support across locations. Border Patrol officials said that the new strategy would likely rely more heavily on intelligence, surveillance, and reconnaissance capabilities to detect illegal activity and increased rapid mobility capabilities to respond to changing threats along the border. OAM headquarters officials said that they have received a high-level briefing of the anticipated changes in June 2011, but have not yet received information necessary to incorporate these changes into its current mix and placement of air and marine resources. CBP and DHS also have ongoing interagency efforts under way to increase air and marine domain awareness across U.S. borders through deployment of technology that may decrease Border Patrol’s use of OAM assets for air and marine domain awareness. Border Patrol officials in one sector, for example, stated that they prefer deployment of technology to detect illegal air and marine activity; OAM officials there said that air patrols are used due to the lack of ground-based radar technology. OAM officials stated that they will consider how technology capabilities affect the mix and placement of air and marine resources once such technology has been deployed. OAM’s fiscal year 2010 aircraft deployment plan stated that OAM deployed aircraft and maritime vessels to ensure its forces were positioned to best meet the needs of CBP Field Commanders and respond to emerging threats; however, our analysis indicates that OAM did not provide higher rates of air support in response to customer need in locations designated as high priority based on threats. In addition, as discussed, OAM did not use performance results to assess the mix and placement of resources. Standards for Internal Control in the Federal Government stresses the need for agencies to provide reasonable assurance of the effectiveness and efficiency of operations, including the use of the entity’s resources. As such, to the extent that the benefits outweigh the costs, reassessing the mix and placement of its assets and personnel, and using performance results to inform these decisions could help provide OAM with reasonable assurance that it is most effectively allocating its scarce resources and aligning them to fulfill its mission needs and related threats. OAM officials continue to use performance data from its AMOR system to meet requirements of the Government Performance and Results Act (GPRA), but have not disclosed limitations affecting the accuracy of these data reported to Congress and the public in CBP’s Performance and Accountability Report. OAM inaccurately reported its performance results from fiscal years 2007 to 2010. OAM headquarters officials stated that they were not aware that they had calculated their performance results inaccurately—due to limitations with AMOR reporting functions— before we brought it to their attention in July 2010. In fiscal year 2010, for example, OAM reported that it exceeded its performance goal and met Border Patrol support requests greater than 98 percent of the time, but the actual rate of support based on our subsequent analysis was 82 percent. After we informed them of the error, OAM officials stated they plan to use the same methodology for calculating GPRA performance results in fiscal year 2011 because they plan to continue to generate the results from the AMOR system. Thus, OAM’s performance results will continue to be calculated and reported inaccurately. The GPRA Modernization Act of 2010 requires that agencies identify (1) the level of accuracy required for the intended use of the data that measures progress toward performance goals and (2) any limitations to the data at the required level of accuracy. Disclosure of the data limitations relating to the accuracy of OAM’s reported performance results for fiscal year 2011 could help improve transparency for achieving program results and provide more objective information on the relative effectiveness of the program, as intended by GPRA. This is also important because, if a performance goal is not met, GPRA, as amended, requires agencies to explain why the goal was not met and present plans and schedules for OAM headquarters officials initially stated that its achieving the goal.new information system will allow OAM to calculate and analyze performance results starting in fiscal year 2012; however, this may not be possible due to the technical problems that have delayed its implementation to March 2012. OAM and USCG officials we surveyed across proximately located air and marine units reported varying levels of coordination across missions, activities, or resources and that to different extents, the coordination that occurred between the agencies was effective and resulted in reduced duplication and cost savings. However, OAM and USCG officials identified one or more areas where improved coordination was needed, and several officials identified opportunities to colocate facilities that, if implemented, could achieve cost savings. DHS oversight to maximize interagency coordination across locations could better ensure the most efficient use of resources for mission accomplishment. Our survey showed that the extent of coordination between OAM and USCG air and marine units varied by mission activity. We surveyed officials from 86 OAM and USCG air and marine units that were proximately located about the frequency of interagency coordination across five mission-related and four mission support activities.cited a multilayered approach to border security which relies on close coordination with partner agencies to reduce reliance on any single point or program that could be compromised and extends the zone of security. Across mission-related activities, 54 percent of responding units reported sharing intelligence on a frequent basis and 43 percent reported sharing schedules, on a frequent basis. For example, personnel from USCG, Department of Defense, and Federal Aviation Administration are assigned to OAM’s Air and Marine Operations Center to facilitate interagency CBP has coordination.mission activities, such as prioritizing missions (22 percent) and dividing up mission assignments (20 percent), as shown in figure 8. OAM and USCG headquarters officials told us that a number of factors may affect the opportunities and frequency of interagency coordination including the extent that there is overlap between agency missions and geographic areas of responsibility. For detailed survey results, see appendix II. The limited resources that OAM has to provide support to OBP, ICE, and other customers highlights the importance of effectively assessing the extent to which the mix and placement of OAM resources best meets competing needs and addresses threats across locations and documenting analyses to support those decisions. While OAM has developed strategic and deployment plans, it did not document analyses that clearly linked such factors as threats and mission needs to its resources deployment decisions. Further, while OAM has taken actions that could increase its ability to meet support requests, our analysis indicates potential issues with the mix and placement of resources, such as challenges in meeting its support goal and lower support rates in locations identified as high priority based on threats. As such, documenting analyses to support decisions regarding the mix and placement of OAM assets and personnel could help improve transparency of OAM’s resource decisions. Moreover, to the extent that the benefits outweigh the costs, taking action to ensure reassessment of the mix and placement of its assets could help provide OAM with reasonable assurance that it is most effectively allocating its scarce resources and aligning them to fulfill its mission needs and related threats. Furthermore, while OAM has established a performance measure to assess support provided to its customers, OAM did not disclose data limitations relating to the accuracy of its reported performance results for support provided. Such disclosure could help improve transparency for achieving program results and provide more objective informative on the relative effectiveness of the program. With regard to coordination, survey respondents reported that coordination that occurred between OAM and USCG, such as intelligence sharing, was effective and resulted in reduced duplication and cost savings. However, our survey and interviews also highlighted activities where additional coordination could help leverage existing resources, eliminate unnecessary duplication and enhance operational efficiencies, including an assessment of whether proximate OAM and USCG units should be colocated. Thus, DHS could benefit from assessing actions it could take to improve coordination across a range of air and marine activities, including reconstituting the DHS Aviation Management Council and Marine Vessel Management Council. To help ensure that OAM assets and personnel are best positioned to effectively meet mission needs and address threats, and improve transparency in allocating scarce resources, we recommend that the Commissioner of U.S. Customs and Border Protection take the following three actions: document analyses, including mission requirements and threats, that support decisions on the mix and placement of OAM’s air and marine resources; to the extent that benefits outweigh the costs, reassess the mix and placement of OAM’s air and marine resources to include mission requirements, performance results, and anticipated CBP strategic and technological changes; and disclose data limitations relating to the accuracy of OAM’s reported performance results for support provided. To help DHS to better leverage existing resources, eliminate unnecessary duplication and enhance efficiencies, we further recommend that the DHS Deputy Secretary assess the feasibility of actions that could be taken to improve coordination across a range of air and marine activities, including reconstituting the DHS Aviation Management Council and Marine Vessel Management Council. Areas under consideration for increased coordination could include the colocation of proximate OAM and USCG units and the five activities identified by officials as resulting in cost savings, including sharing intelligence, dividing up responsibilities for missions, advance sharing of mission schedules, joint training, and logistics. We provided a draft of this report to DHS and DOD for their review and comment. DOD did not comment on the report, but DHS provided written comments which are reprinted in Appendix V. In commenting on the draft report, DHS concurred with the recommendations and described actions underway or planned to address them. While DHS did not take issue with the recommendations, DHS provided details in its response that merit additional discussion in two areas. In its letter, DHS states that additional context regarding CBP’s processes and documentation was necessary to provide a more balanced assessment of the manner in which OAM allocates scarce resources in support of its air and marine asset deployment and describes the historical development of OAM as well as its processes for allocating resources. We believe that the report presents appropriate context, balanced and fair analyses of the allocation of OAM personnel and flight hours using OAM’s data, and measures OAM’s performance results using its primary and most important performance measure for fiscal year 2010—OAM’s capability to launch an aircraft when a request is made for support. In addition, in commenting on the draft report, DHS also states CBP was unable to verify or duplicate GAO’s analysis of fiscal year 2010 data from TECS, but was taking steps to confirm actual figures. As the report states, we worked closely with OAM system officials to extract the underlying data from the AMOR system and discussed our preliminary analyses with OAM officials along with the methodology we used in calculating OAM’s performance results. OAM officials stated that they could not duplicate our analyses due to limitations with AMOR’s reporting capabilities. DHS states that OAM has coordinated with the Office of Information and Technology to develop and test a TECS report following a methodology that will accurately report performance results within 60 days. In regard to the recommendation that CBP document analyses, including mission requirements and threats, that support decision on the mix and placement of OAM’s air and marine assets, DHS concurred. DHS stated that CBP is finalizing its Fiscal Year 2012-2013 Aircraft Deployment Plan and that in the next iteration of this plan, which CBP plans to initiate in the third quarter of fiscal year 2013; CBP will provide additional documentation of its analysis supporting decision of the mix and placement of air and marine resources, including mission requirements and threats. Such actions should increase transparency and demonstrate that resource deployment decisions are responsive to customer need and threat. DHS also concurred with the recommendation to reassess the mix and placement of OAM’s air and marine resources to include mission requirements, performance results, and anticipated CBP strategic and technological changes to the extent that the benefits outweigh the costs stating that it planned to complete such actions as part of the next iteration of the Aircraft Deployment Plan. Further, DHS states that based on budgetary forecasts, OAM expects that its budget will continue to decrease and that as a result, OAM will meet a lower percentage of requests for air support in coming years. We acknowledge these concerns and believe that a reassessment of the right mix and placement of resources is particularly important in a constrained budgetary environment and should provide reasonable assurance that it is most effectively allocating its scarce resources and aligning them to fulfill its mission needs and related threats. Regarding the recommendation to disclose data limitations relating to the accuracy of OAM’s reported performance results for support provided, DHS concurred. It also reported that CBP is modifying its performance measure beginning with the reporting of fiscal year 2011 results and plans to disclose applicable data limitations related to performance results. Such actions should improve transparency for achieving program results and provide more objective information on the relative effectiveness of the program. In regard to the recommendation that DHS assess the feasibility of actions it could take to improve coordination across a range of air and marine activities, including reconstituting the DHS Aviation Management Council and Marine Vessel Management Council, DHS concurred and described multiple initiatives it had underway to improve coordination across air and marine activities. Such activities included DHS meetings between CBP and USCG aviation officials to explore options for joint acquisitions, colocation, air operations, and aviation governance; and a cost-benefit assessment analyzing potential efficiencies with DHS aviation activities including maintenance, training, and ground handling equipment. DHS also identified coordination efforts of its component-level Boat Commodity Council to transfer used vessels from USCG to CBP. DHS discussed attendance at a January 2012 interagency meeting hosted by CBP that discussed helicopter and marine vessel acquisitions, the P-3 aircraft Service Life Extension Program, potential opportunities for consolidation of facilities and locations of new support units and the Fiscal Year 2012-2013 Aircraft Deployment Plan. While these are positive initial steps and could help improve coordination, we continue to believe that it will be important for DHS to assess the feasibility of actions to further improve coordination of air and marine activities on a more permanent basis, such as reconstituting the DHS Aviation Management Council and Marine Vessel Management Council, among other possible actions. DHS also provided technical comments that we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Homeland Security, the Secretary of Defense, and interested congressional committees as appropriate. The report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any further questions about this report, please contact me at (202) 512-8777 or gamblerr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors are listed in appendix VI. This report addresses the extent that the U.S. Customs and Border Protection (CBP) has the right mix of air and marine assets in the right locations to meet customer needs, and effectively coordinated with the U.S. Coast Guard (USCG). Specifically, we reviewed the extent that the Office of Air and Marine (OAM): (1) met air and marine support requests across locations, customers, and missions, (2) has taken steps to ensure that its mix and placement of resources met its mission needs and addressed threats, and (3) coordinated the operational use of its air and marine assets and personnel with the USCG. For all three objectives, we collected and analyzed relevant operational documents; annual reports; cooperation agreements and memoranda among federal agencies; budget information; and other relevant information issued by the Department of Homeland Security (DHS), DHS’s Program Analysis and Evaluation office, CBP’s Office of Border Patrol and OAM, U.S. Immigration and Customs Enforcement (ICE), USCG, and the Department of Defense (DOD). We also collected relevant information, data and documentation, such as cooperative agreements between local agencies, at each of the site visits. We also interviewed officials from DHS’s Program Analysis and Evaluation office, Division of the Office of the Chief Financial Officer, as well as headquarters officials from CBP, OAM, Border Patrol, ICE, and USCG. In addition, we met with DOD officials responsible for programs intended to enhance maritime and air domain awareness and obtained relevant reports and documents on these efforts. We also reviewed past GAO reports and DHS studies discussing opportunities for increased coordination and discussed ongoing DHS efforts to increase oversight over air and marine assets with officials from DHS’s Chief Administrative Officer. We also conducted a site visit to OAM’s Air and Marine operations Center at Riverside, California where we interviewed officials and were provided a briefing on the Air and Marine Operations Center operations, including a tour of the center. We conducted site visits to 4 of the 23 OAM branch offices, including air and marine units associated with those branches. At the site visits, we conducted semi-structured interviews with personnel from OAM operational air and marine units, USCG, ICE, and the Border Patrol, as well as some local law enforcement officials (OAM marine and the USCG are not present at one location we visited). We selected these 4 locations because they illustrated OAM operations at both the northern and southern U.S. borders, a mix of threats (terrorism, drug smuggling, and illegal immigration), operating environments for air (desert, forest, urban and rural), as well as marine operations along the coasts, on the Great Lakes, and, in the case of a southeast location, interactions with the Joint Interagency Task Force-South (JIATF-S) at Key West, Florida. All 4 also provide support for ICE and Border Patrol operations in the interior of the country. In addition, the 4 sites provided coverage in terms of the three geographic regions into which OAM units are divided administratively (southwest, southeast, northern). Three of the 4 sites include both OAM and USCG entities with air and/or marine assets in close geographic proximity, and the agencies use an array of air and marine assets under varying operational conditions. We also interviewed officials from JIATF-S to obtain information on that location’s coordinated operations covering parts of the Gulf of Mexico, the straits of Florida, the Caribbean and the Central and South America transit zone for illegal smuggling of persons and contraband. To address objectives 1 and 2, we obtained performance data for fiscal year 2010 covering the time period of October 1, 2007, through September 30, 2010, from OAM’s system of record—the Air and Marine Operations Reporting System (AMOR)—which is a module in ICE’s Case Management System, which is in turn part of TECS, a legacy DHS system. This performance data primarily included the number of air and marine support requests that were met and not met, and the reasons why the requests were not met. Due to the lack of (1) documentation as to the number and identity of the AMOR tables, (2) the keys required to join them, (3) the business rules required to use the data correctly, and (4) AMOR subject matter experts, we were unable to obtain copies of the AMOR data files. Instead, we obtained copies of the temporary data extract files produced when individual reports are requested and produced by the AMOR system for the following reports: Enforcement Support Report 02: Support Requests by Agency Miscellaneous Report 01: No Launch Activities by Branch Flight Hours Report 06: Flight Hours by Type of Aircraft Flight Hours Report 09: Flight Hours by Mission Service Hours Report 03: Service Hours by Type of Vessel We found that data on unmet air and marine support requests prior to fiscal year 2010 may not have been entered consistently and only used data from fiscal year 2010 in our analysis. For example, at two of the four locations we visited, we found that a number of unmet air support requests were not entered properly prior to fiscal year 2010. We also found that many of the data entries for unmet support requests identifying which agency an activity (e.g., flight) supported were left blank for fiscal year 2010, including 16 percent in support of requests for air enforcement activities and 93 percent in support of requests for marine enforcement activities. In interviews with OAM officials, they said these blank entries represented unmet support requests most likely in support of OAM. Based on these limitations, we did not report unmet support requests by customer for marine activities. We used the 2010 Air data from Enforcement Support Report 02 and Miscellaneous Report 01 to replicate OAM’s performance measure calculation by branch. First, we determined which Miscellaneous Report 01 no launches were in support of Border Patrol (BPL) as follows: Include only no launches where BPL is listed in any of the five in support of codes Exclude the following no launch categories: 39: Canceled by requester 01: Target Legal 03: Lost Target- prior to launch 07: Visual sighting 08: Locate only 11: Insufficient/Inadequate 16: Weather 17: Information not timely 27: Target return to foreign 40: Request did not meet GSA requirements 41: Suspect no show 42: Geographic limitation/Distance too 44: No launch/Ground 45: No launch/NAV violation 46: No country clearance 56: Static display—not operated for display 57: Certificate of Authorization Restrictions We then determined the number of BPL launches from Enforcement Report 02 and calculated the OAM performance measure for BPL support as follows: Total requests = launches + no launches Percentage of support requests met = launches / total requests Finally, we mapped the Border Patrol sectors to the OAM branches as follows: As part of our data reliability assessment, we performed electronic data testing for the data elements in the report extract files that we used; reviewed available system and user documentation, including user guides and data dictionaries; compared totals for the same time periods between similar variables from different reports; and reviewed our preliminary analyses with knowledgeable OAM officials, including the TECS Systems Control Officer. We determined that the AMOR data used in the report were sufficiently reliable for the purposes of this report. To address objectives 1 and 3, we conducted a web-based, self- administered questionnaire survey about coordination and related issues with all OAM air, OAM marine, USCG air and USCG marine units nationwide and in the Caribbean identified as being likely to coordinate with each other by OAM and USCG headquarters. We asked OAM and USCG headquarters points of contact to identify the USCG units that were most likely to be coordinating their operations in some regard with proximately located OAM air and marine units. A total of 86 OAM and USCG units were identified by the headquarters’ points of contact and senior officers from these units were asked to respond. The survey questions, although nearly identical, were tailored specifically to each type of unit—OAM air, OAM marine, USCG air and USCG marine. OAM air and OAM marine were asked about the sufficiency of their assets to perform certain types of missions; this was not included in the USCG questionnaires, as it was considered outside the scope of the engagement. The survey questions and summary results are included in appendix II. The questionnaire was pre-tested with two OAM air units and two OAM marine units. In addition, draft versions were reviewed by cognizant OAM and USCG headquarters’ personnel, and by a survey methodologist at GAO. We made adjustments to question wording and order based on pre-test results and review comments we received. The survey was conducted using a self-administered questionnaire posted on the web. We contacted intended recipients via e-mail before the survey to establish that the correct respondent had been identified, and later with passwords and links to the questionnaire. We made follow- up contacts with nonrespondents by e-mail and phone throughout the field period. Headquarters (USCG and OAM) points of contact were also sent email reminders to those not yet responding. The survey data were collected from May 4 through May 24, 2011. We received completed questionnaires from all the recipients, for a 100 percent unit-level response rate, although not all units answered each question in the survey. Table 5 below shows the proximately located OAM and USCG air and marine units to which the survey was sent. We conducted this performance audit from June 2010 through February 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The questions we asked in our survey of OAM and USCG air and marine units are shown below. Our survey was comprised of closed-ended and open-ended questions. In this appendix, we include all the survey questions and aggregate results of responses to the closed-ended questions; we do not provide responses to the open-ended questions for ease of reporting. The tables of aggregated response totals to each question are broken down by branch and type of unit. Not all eligible respondents answered each question. Questions 16, 17, and 18 were included only in the OAM surveys. For a more detailed discussion of our survey methodology see appendix I. Survey of Coordination of Air Operations and Assets at OAM/USCG Locations U.S. Government Accountability Office The U.S. Government Accountability Office (GAO) is reviewing the assets and operations of CBP's Office of Air and Marine (OAM). As part of this effort, GAO is reviewing the coordination between OAM and the U.S. Coast Guard (USCG). This questionnaire gathers information on coordination-related issues regarding air missions (including air patrols, interdiction of contraband or other illegal activities, surveillance, etc.), air-related training, determining air asset requirements, and the extent to which you have the appropriate resources for mission activities. If you would like to see or print the questionnaire before completing it online, click here to open. You will need Adobe Acrobat Reader to view this. If you do not have this program, click here to download this software. About You and Your Location Question 1: Who is the person primarily responsible for completing this questionnaire whom we can contact in case we need to clarify a response? Enter text or numbers in each of the spaces below. (e.g., Great Lakes Air and Marine Branch) Coordination of Air/Maritime Mission Activities Question 2: We realize that different OAM locations may have varying needs for coordination with the USCG unit there or nearby, and may not need to coordinate if operating areas and activities do not overlap. The next two questions ask whether your unit participates in any formal or informal entities intended to enhance or promote coordination, and in what specific ways, if any, it coordinates with the USCG. IF OTHER: Question 4: IF ANY AIR/MARITIME MISSION COORDINATION TAKES PLACE: What is the one USCG/OAM unit with which your unit has the most coordination? Please enter approximate distance between your unit and the coordinating unit as a whole number of miles. IF NO AIR/MARITIME MISSION COORDINATION IN QUESTIONS 2 AND 3: Click the link below to skip to question 13, the next applicable question. (If you do coordinate, continue with next page.) Click here to skip to Question 13 Question 6A: Are any of the following types of written guidance (including policies, agreements, MOUs) used to govern, guide or carry out any coordination prior to air/maritime missions between OAM and USCG at or near your location? Please click yes or no for each type. agreements - Used? USCG guidance - Used? MOU - Used? Other guidance - Used? Question 6B: If yes, how helpful are they to furthering coordination on air/maritime missions? For those used, please additionally click one "helpfulness" button. [Table II.6 Answers to Survey Question 6] Question 7: IF YES TO ANY GUIDANCE: If an electronic copy of the guidance is available, please upload that file(s) by browsing to its location on your computer, using the box below. Please only upload files under 2Mb in size. [Open-ended answers not displayed] Question 13: In your opinion, should there be more, less, or about the same amount or frequency of coordination on air/maritime missions, activities, or resources between OAM and USCG at or near your location in each of the following ways? If there is currently no coordination in a particular way, and that is the appropriate level, click "About the same" for that row. IF OTHER: [Open-ended answers not displayed] Question 18: Overall, considering the number, availability, and qualifications of personnel at your location, how satisfied or dissatisfied are you with the extent to which you have adequate personnel to effectively meet mission needs? [Table II.15 Answers to Survey Question 18] Question 19: Do you have any additional explanations of your answers or comments on any of the issues in this questionnaire? [Open-ended answers not displayed] Question 20: Are you done with this questionnaire? Clicking "Yes" below tells GAO that your answers are final. We will not use your answers unless the "Yes" button is checked when you last exit the questionnaire. Figure 14 displays the number of air and marine assets assigned to OAM’s regions, which include its 23 branches and 6 National Air Security Operations Centers (NASOCs). In this appendix, survey responses from questions 16 and 17 are presented. Only Office of Air and Marine (OAM) air and marine units were surveyed about their satisfaction with aircraft and marine vessels (USCG was not) respectively. Not all eligible respondents answered all parts of each question. Respondents who did not report performing a specific type of mission or who answered “don’t know” to a question about that type of mission were not included in the response counts. For a more detailed discussion of our survey methodology see appendix I and for complete survey responses, see appendix II. Rebecca Gambler, (202) 512-8777 or gamblerr@gao.gov. In addition to the contact named above, Cindy Ayers (Assistant Director), Chuck Bausell, Alexander Beata, Richard D. Brown, Frances A. Cook, Jeff R. Jensen, Nancy Kawahara, Stanley Kostyla, Linda S. Miller, Carl M. Ramirez, Richard M. Stana, Clarence Tull, Jonathan Tumin, and Johanna Wong, made significant contributions to this report.	Within DHS, the U.S. Customs and Border Protections (CBP) OAM deploys the largest law enforcement air force in the world. In support of homeland security missions, OAM provides aircraft, vessels, and crew at the request of the its customers, primarily Border Patrol, which is responsible for enforcing border security, and tracks its ability to meet requests. GAO was asked to determine the extent to which OAM (1) met its customers requests; (2) has taken steps to ensure its mix and placement of resources effectively met mission needs and addressed threats; and (3) coordinated the use of its assets with the USCG, which is to execute its maritime security mission using its assets. GAO reviewed DHS policies, interviewed OAM, Border Patrol, U.S. Immigration and Customs Enforcement, and USCG officials in headquarters and in 4 field locations selected on factors, such as threats and operating environments. Results from these field visits are not generalizable. GAO analyzed OAM support request data for fiscal year 2010, and surveyed OAM and USCG officials at 86 proximately located units to determine the extent of cooperation between the two agencies. This report is a public version of a law enforcement sensitive report GAO issued in February 2012. Information deemed sensitive has been redacted. GAOs analysis of the Office of Air and Marine (OAM) data found that OAM met 73 percent of the 38,662 air support requests and 88 percent of the 9,913 marine support requests received in fiscal year 2010. The level of support differed by location, customers, and type of mission. For example, in its northern region OAM met air support requests 77 percent of the time and in its southeast region, it met these requests 60 percent of the time. The main reasons for unmet air and marine support requests were maintenance and adverse weather, respectively. OAM has taken actions, such as developing an aircraft modernization plan and purchasing all-weather vessels, to address these issues. OAM could benefit from taking additional steps to better ensure that its mix and placement of resources meets mission needs and addresses threats. GAOs analysis of OAMs fiscal year 2010 performance results indicate that OAM did not meet its national performance goal to fulfill greater than 95 percent of Border Patrol air support requests and did not provide higher rates of support in locations designated as high priority based on threats. For example, one high-priority Border Patrol sector had the fifth highest support rate across all nine sectors on the southwest border. OAM could benefit from reassessing the mix and placement of its assets and personnel, using performance results to inform these decisions. Such a reassessment could help provide OAM with reasonable assurance that it is most effectively allocating scarce resources and aligning them to fulfill mission needs and related threats. Additionally, OAM has not documented its analyses to support its asset mix and placement across locations. For example, OAMs fiscal year 2010 deployment plan stated that OAM deployed aircraft and maritime vessels to ensure that its forces were positioned to best meet field commanders needs and respond to emerging threats, but OAM did not have documentation that clearly linked the deployment decisions in the plan to these goals. Such documentation could improve transparency to help demonstrate the effectiveness of its decisions in meeting mission needs and addressing threats. GAOs analysis of OAM and U.S. Coast Guard (USCG) air and marine survey responses indicated that they coordinated with their proximately located counterparts more frequently for activities directly related to carrying out their respective agencies missions (mission-related activities) than for mission support activities. For example, within mission-related activities, 54 percent of the 86 respondents reported sharing intelligence on a frequent basis and, within mission-support activities, about 15 percent reported that they frequently coordinated for maintenance requests. Survey respondents, the Department of Homeland Security (DHS) analyses, and GAO site visits confirm that opportunities exist to improve certain types of coordination, such as colocating proximate OAM and USCG units, which currently share some marine and no aviation facilities. In addition, DHS does not have an active program office dedicated to the coordination of aviation or maritime issues. DHS could benefit from assessing actions it could take to improve coordination across a range of air and marine activities, including reconstituting departmental oversight councils, to better leverage existing resources, eliminate unnecessary duplication, and enhance efficiencies. GAO recommends, among other things, that CBP reassess decisions and document its analyses for its asset mix and placement, and that DHS enhance oversight to ensure effective coordination of OAM and USCG resources, and DHS concurred.	16	8k-16k	8,233
29	Following enactment of PAEA in 2006, USPS updated its delivery service standards for market-dominant products, which define the number of days USPS is to take to deliver the mail in a timely manner. USPS’s delivery service standards are set forth in federal regulations and differ depending on the type of mail, the time of day and location at which USPS receives the mail, and the mail’s final destination. For example, USPS standards for delivery of 2-day single-piece First-Class Mail require the mail to be received by a specified cutoff time on the day it is accepted, which varies depending on geographic location and where the mail is deposited (e.g., in a collection box, at a post office, or at a mail processing facility). This mail must then be delivered on the second regular delivery day (Monday to Saturday) to be considered “on time.” USPS measures delivery performance against its delivery service standards. For a given piece of mail, USPS first measures the transit time—that is, the number of days it takes from the point that the mail is accepted into USPS’s system until its delivery to a home or business. Then USPS compares this delivery time against delivery service standards to determine whether the mail was delivered on time. See figure 1 for USPS’s delivery performance of single-piece First-Class Mail from fiscal years 2011 to 2015. The second quarter of fiscal year 2015 experienced a significant decline in on-time delivery performance that USPS attributes to operational changes enacted in January 2015 coupled with adverse winter weather. However, performance improved in the next quarter. Since 2012, USPS has instituted several initiatives aimed at reducing expenses in its mail delivery and processing operations and networks as part of broader efforts to address its fiscal challenges and move toward financial viability. These initiatives included changing mail delivery service standards for some types of mail and then consolidating 141 mail processing facilities in 2012 and 2013. As we reported in September 2014, USPS changes to its delivery service standards increased the number of days for some mail to be delivered and still be considered on time. Further, effective January 5, 2015, USPS changed the delivery service standard for single-piece First-Class Mail sent to a nearby destination from 1 to 2 days. Table 2 presents these changes for market- dominant mail, which consists of First-Class Mail (e.g., correspondence, bills, payments, and statements); Standard Mail (mainly advertising); Periodicals (mainly magazines and local newspapers); and Package Services (mainly Media/Library Mail and Bound Printed Matter). To understand how changes in service standards affected expected transit times for First-Class Mail, we asked USPS to estimate the volumes of First-Class Mail subject to 1-day, 2-day, and 3-5-day delivery service standards for fiscal years 2011 through the second quarter of fiscal year 2015—the first quarter after USPS made its most recent changes to delivery service standards. USPS estimated that the percentage of First- Class Mail volume subject to a 1-day standard decreased from 38 percent in fiscal year 2011 to 13 percent in the second quarter of fiscal year 2015 (see fig. 2). When on-time delivery of First-Class Mail is redefined from a 1-day standard to a 2-day standard, USPS can take longer to deliver the mail for it to be considered “on time.” Based on delivery service standards, USPS sets annual performance targets for the percentage of mail that is to be delivered on time, and PRC annually assesses and reports USPS’s performance towards meeting these targets. PRC has responsibility for assuring delivery performance data are complete and accurate, and must approve any internal delivery performance measurement systems (i.e., systems administered by USPS as opposed to an external contractor). USPS is subject to legal requirements to create delivery service standards for market-dominant products, measure delivery performance, and report the results. Likewise, PRC is subject to legal requirements to specify how USPS should measure and report delivery performance, as well as requirements for using these data to provide oversight over USPS delivery performance. Key requirements for USPS and PRC are summarized in table 3. USPS uses two primary methods for measuring delivery performance: Tracking Barcoded Mail: Since 2011, USPS has measured and reported delivery performance for most types of market-dominant mail by using the time it is accepted at postal facilities to “start the clock” and scans of barcoded mail pieces to “stop the clock” by external, third-party reporters who receive the mail. This mail transit time is compared against delivery service standards to determine whether mail is delivered within the standard and thus considered on time. Most barcoded mail is tracked through USPS’s Full-Service Intelligent Mail program, which requires participating mailers that send bulk mail (i.e., mail entered in bulk quantities such as bills, advertisements, and magazines) to apply unique Intelligent Mail barcodes to mail pieces and provide USPS with electronic documentation for each mailing. Under this program, USPS uses a census approach that aims to measure all qualifying mail pieces in its mail processing network rather than a sampling approach. USPS commented that a census- type approach enables it to use the information to better manage day- to-day conditions throughout its network and that such visibility would not be available through sampling. Sending Test Mail Pieces: Since 1990, USPS has measured and reported on-time delivery performance for single-piece First-Class Mail through the External First-Class Mail measurement system (EXFC). Under this sampling system, an external contractor arranges for anonymous droppers to send test mail pieces from street collection boxes and private office-building lobby chutes to external, third-party reporters at residences and businesses. As will be discussed in more detail below, in January 2015, USPS proposed replacing its EXFC measurement system for single-piece First-Class Mail in favor of a system based on tracking barcoded mail. USPS’s measurement of on-time delivery performance has expanded greatly over the past 9 years, but remains incomplete because only about 55 percent of market-dominant mail volume is currently included in measurement. The remaining 45 percent is not included in measurement for two main reasons: (1) lack of trackable barcodes or (2) lack of needed information. USPS told us that it wants to include virtually all market-dominant mail in delivery performance measurement. To assess completeness, we determined measurement coverage—the percentage of mail included in measurement—as well as the various causes for why mail is not included in measurement and their possible effect on measured results. To the extent that mail is not included in measurement, performance data are not complete and may not be representative. There is not a minimum threshold of mail that is to be included in measurement for it to be considered representative. In general, the risk that measurement is not representative is greater if mail not included in measurement may be systematically different than mail included in measurement. In particular, if the unmeasured mail has different characteristics than the measured mail, and those characteristics are associated with the likelihood of on-time delivery, then the risk of a non-representative measurement is greater. As of the second quarter of fiscal year 2015, USPS measured on-time delivery performance for about half (55 percent) of market-dominant mail volume—up from only one-sixth of volume (16 percent) in fiscal year 2006 (see fig. 3). This increase in measurement coverage represents noteworthy progress by USPS and the mailing industry, which have devoted management commitment and significant resources to implement and participate in measurement systems for bulk mail that comprise most mail volume. Notably, USPS implemented measurement systems for bulk First-Class Mail, Standard Mail, and Periodicals. The number of pieces of market-dominant bulk mail included in delivery performance measurement has increased greatly in recent years—from 96 million pieces in the first quarter of fiscal year 2010 to 14.9 billion pieces in the second quarter of fiscal year 2015. Thus, the percentage of market-dominant bulk mail included in measurement increased from less than one percent in the first quarter of fiscal year 2010 to 48 percent in the second quarter of fiscal year 2015. Meanwhile, USPS provides performance measurement that covers virtually all single-piece First- Class Mail through mailing test pieces as part of its long-standing EXFC system. However, single-piece First-Class Mail comprises a small and declining percentage of market-dominant mail volume—down from 20 percent in the first quarter of fiscal year 2010 to 14 percent in the second quarter of fiscal year 2015. USPS’s measurement coverage has varied by class of mail (see fig. 4). The percentage of mail included in measurement is greatest for First- Class Mail (both bulk and single-piece mail), followed by Standard Mail, Periodicals, and market-dominant Package Services (mainly Media Mail/Library Mail and Bound Printed Matter) and has improved over time for each class. Most progress began in fiscal year 2011, when mailer participation increased significantly in Full-Service Intelligent Mail—a program that enables business mailers to track the progress of their barcoded mail through USPS’s mail processing system. Meanwhile, USPS’s EXFC measurement system continues to send test mail pieces to measure delivery performance of single-piece First-Class Mail. USPS’s measurement of on-time delivery performance for market- dominant mail remains incomplete because, as noted above, only about half of bulk mail volume was included in measurement as of the second quarter of fiscal year 2015. USPS tracks bulk mail using barcodes and electronic information about the mailing. The main causes for incomplete measurement of bulk mail can be broadly grouped into two different reasons: (1) mailers not applying a unique Intelligent Mail barcode to each mail piece to enable tracking (trackable barcodes)needed information. In addition, some mailers may not apply trackable barcodes due to the type of mail they are entering, such as certain types of locally-entered and delivered mail that are not eligible for barcode-based postage discounts. at a USPS facility. About 4.2 billion pieces of mail (about 45 percent of all exclusions) were excluded in the second quarter of fiscal year 2015 due to “no start-the-clock.” 2. No mail piece barcode scan was recorded by USPS’s automation equipment: This prevents USPS from being able to track the barcoded mail. About 1.5 billion pieces of mail (16 percent of all exclusions) were excluded in the second quarter of fiscal year 2015 due to a lack of a barcode scan recorded by USPS automated equipment. 3. Inaccuracies in mail preparation: These include deficiencies in preparing bundles of mail or the quality of barcodes on mail pieces. About 1.2 billion pieces of mail (13 percent of all exclusions) were excluded in this quarter due to inaccuracies in mail preparation. The percentage of market-dominant mail volume that was eligible for measurement but excluded for various reasons increased from 21 to 26 percent over the period from the fourth quarter of fiscal year 2013 to the second quarter of fiscal year 2015. Thus, exclusion of eligible mail from measurement has become a more important cause for why measurement data are not complete. USPS officials told us that the increase in excluded mail volume can be attributed to the overall increase of mail volume eligible for inclusion in measurement. USPS told us about several actions it has taken to reduce exclusions, including steps to improve the scanning of barcoded mail. USPS also reported that it is collaborating with the mailing industry and working with individual mailers to improve the quality of mail preparation and compliance with requirements that can reduce the volume of mail excluded from measurement. As previously discussed, delivery performance may be different for mail included in measurement compared to mail that is not included in measurement. USPS told us that it has not studied whether on-time delivery performance varies for mail sent by mailers that do not participate in its measurement programs. Thus, the effect of non-participation on delivery performance measurement is unknown. However, available information indicates that non-participation can affect results for some Standard Mail products— particularly if product-specific results are not weighted to reflect key characteristics of the mail. Large volume mailers, which are most likely to apply barcodes and thus have on-time delivery performance measured, reportedly use additional mailing practices to facilitate the timely delivery of their mail, such as entering large volumes of advertising mail close to its final destination. Destination-entered Standard Mail is more likely to be included in measurement than other “end-to-end” Standard Mail and is more likely to be delivered on time than end-to-end Standard Mail. For example, in its latest Annual Compliance Determination Report, PRC noted that 86 percent of Standard Mail Flats (a Standard Mail product generally consisting of large flat-sized advertising such as catalogs) were delivered on time in fiscal year 2014 when they were destination entered (entered at a postal facility generally closer to the final destination of the mail), but only 50 to 66 percent were delivered on time when they were not destination entered. USPS told us that the mail volume and preparation of destination-entry Standard Mail enable it to be more likely to be included in measurement as well as be delivered on time. Destination-entry mail also has sufficient volume and preparation to enable it to bypass various postal network processing and transportation (e.g., locally-entered and delivered so it is handled by only one processing facility), which according to USPS, is the reason this mail is more likely to be delivered on time. In January 2015, USPS proposed replacing its EXFC measurement system for single-piece First-Class Mail in favor of a system based on tracking barcoded single-piece mail. USPS stated its proposed system is intended to incorporate a larger and more representative population of mail pieces in measurement than EXFC does today. PRC established a public inquiry docket (a type of proceeding) to review USPS’s proposal,which is still ongoing as of September 21, 2015. In this proceeding, USPS said it expected the data from its proposed system to provide PRC with the ability to perform its responsibilities with a high degree of confidence and to reasonably inform the public regarding the quality of service provided for market-dominant products. However, some parties that commented on USPS’s proposal questioned whether the proposed system would produce representative results. For example, one concern was that the proposed system would measure mail deposited in blue collection boxes and at postal retail counters, but not measure the 38 percent of single-piece First-Class Mail that carriers pick up from customer mailboxes. Some parties commented that mail picked up by carriers may arrive at mail processing facilities a day later than mail deposited into collection boxes, such as situations where carriers return too late to the office for the mail to be transferred to transportation that day to a local mail processing facility. Others expressed concern that only barcoded single-piece mail would be eligible for measurement, which would exclude stamped mail without a barcode (such as personal correspondence and greeting cards). In USPS’s written reply to comments made on its proposal, USPS responded that critics overstated the difference between handling of mail left for carrier pickup and collection mail, and that the barcoded mail measured by its proposed system would provide a reasonable indicator of performance for all mail collected and transported to the processing facility. Among other comments, USPS responded that mail processing for single-piece First-Class Mail is conducted over a range of hours each day, offering a substantial window of opportunity to accommodate mail arriving later than normal, including mail that missed the last scheduled dispatch from facilities where carriers bring stamped mail for forwarding to processing facilities. USPS further responded that it is not yet feasible for it to measure delivery performance for single-piece First-Class Mail left for carrier pickup, but added that it was revising its proposal to measure stamped and metered mail left at postal retail lobby chutes. In its June 2015 interim order, PRC commented that because USPS’s proposal is still in development, PRC lacked sufficient information to make decisions concerning whether or not the proposed systems will be suitable for reporting service performance to PRC. PRC added that given that EXFC appears to have been producing reliable results for a considerable number of years, PRC cannot approve a new system to replace EXFC until the new system is similarly operational and verifiable. PRC directed USPS to plan to run EXFC and the proposed new system in parallel for a sufficient time to ensure it is operational and verifiable. PRC explained that test results demonstrating that the EXFC and new system generate objective and reliable measurements for all affected products over a period of four consecutive quarters would appear to be an acceptable demonstration. On August 25, 2015, USPS filed its statistical design plan for its proposed new system with the PRC, which explained the sampling methodology and the methodology for calculating results and their margins of error. However, USPS had not yet made public some other major aspects of its proposed new system—such as quality control procedures and internal controls including methods to address errors in collecting data. Since USPS has relied on the EXFC system since 1990 to measure delivery performance for single-piece First-Class Mail, a thorough review of detailed information on its proposed system will be important not only to PRC, but to stakeholders including Congress and the mailing industry. In this regard, PRC’s proceeding to evaluate this new system continues and the time frame for completion remains open-ended since there is no statutory deadline and PRC has not established a deadline. Although PRC reports have provided data on the amount of mail included in measurement of delivery performance, these reports have not fully assessed why these measurements were incomplete or whether USPS actions will achieve complete performance data. In addition, USPS officials told us that they have not established a time frame for achieving complete measurement. PRC uses these performance data to annually assess USPS’s delivery performance against targets that USPS has established for on-time delivery. Thus, delivery performance data that are complete and representative are essential for PRC to correctly determine whether USPS has met its delivery performance targets. Complete information is vital for effective management, oversight, and accountability purposes. Further, representatives of mailing industry groups and some mailers told us and commented in PRC proceedings that PRC should become more involved in issues regarding the quality of measurement data for on-time delivery performance, including issues regarding the exclusion of mail from measurement. These representatives provided us with a variety of suggestions in this regard, such as performing more in-depth and frequent oversight to ensure USPS measurement is complete. One said that USPS is still struggling to scan barcoded mail despite joint USPS- mailer efforts over the past decade. Another representative said that although PRC has oversight of USPS service performance, measurement, and reporting, there is little consequence to USPS as a result of not meeting its targets for on-time delivery or for deficiencies in its measurement and reporting practices. A third said that PRC should hold USPS accountable for improving measurement data by requiring a business plan where USPS would lay out the steps it needs to take and time frames for implementing its initiatives. PRC’s annual compliance reports have discussed how much mail volume for each type of mail is included in measurement and when USPS did not report performance results due to a lack of measurable data. However, PRC has not fully pursued the main causes for incomplete data (i.e., lack of trackable barcodes and lack of information causing data to be excluded from measurement). PRC reports have expressed concern with low levels of participation for certain types of mail, stating that low levels cause unreliable measurement. However, these PRC reports have not fully assessed the effectiveness of USPS actions taken or planned and associated timeframes with respect to the main causes for incomplete data. PRC could pursue the causes for incomplete data within its annual compliance reviews or it may initiate a separate proceeding. Furthermore, as previously discussed, by law, PRC may initiate a proceeding to improve the quality, accuracy, or completeness of data that USPS annually provides to PRC for its annual compliance determination whenever it appears the data have become significantly inaccurate or can be significantly improved. PRC officials told us that they have not been asked by any stakeholder to initiate such a proceeding. Nor has PRC exercised its option to initiate a proceeding on its own authority to address issues that impact the completeness of performance data. PRC and USPS officials told us that they are both opposed to having PRC initiate a proceeding focused on issues for improving the completeness of delivery performance measurement for two key reasons. 1. PRC officials believe that USPS’s delivery performance measures are generally sufficiently accurate, reliable, and representative for PRC to meet its legal responsibilities for assessing USPS’s compliance with service performance standards at the national level. Further, PRC officials told us that they believe non-measured mail has about the same on-time performance results as measured mail. However, PRC and USPS officials told us that neither have compared the performance of mail included and not included in measurement to determine if any differences exist. As previously discussed, available information indicates that non-participation in measurement can affect reported results for on-time delivery performance. Large volume mailers, who are most likely to have their mail barcoded and thus have on-time delivery performance measured, reportedly use additional mailing practices to facilitate timely delivery, such as entering large volumes of advertising mail close to its final destination. Destination-entered advertising mail is more likely to be included in measurement and is more likely to be delivered on time. 2. USPS officials stated that a new proceeding to consider data quality and completeness issues is not necessary because the current proceeding before the PRC (the performance measurement to replace EXFC) provides a public forum for consideration of the quality of service performance data, as well as mail excluded from measurement. However, according to publicly available documents in the current proceeding, PRC has not explored issues of delivery performance measurement data for bulk mail that are excluded from USPS’s current measurement systems, the multiple causes for these exclusions, and USPS actions under way and planned to address the causes. The proceeding also has not thoroughly explored mailers’ concerns regarding data exclusions, such as exclusion rules and mailer views regarding time frames for making progress on reducing exclusions. A PRC proceeding that focuses solely on issues of data quality and completeness—particularly the problem of data exclusions—may facilitate these issues receiving the fullest attention and making more rapid progress by USPS and the mailing industry toward achieving more complete measurement. As previously noted, while USPS has made progress toward achieving completeness since 2006—as illustrated by figure 3 earlier in this report—45 percent of market-dominant mail is still not measured. Performance information is sufficiently complete when it has the coverage to enable representative measurement of the percentage of mail delivered on time. While there is not a minimum threshold of mail that is to be included in measurement for it to be representative, the risk that measurement is not representative increases as more mail is not included in measurement because on-time delivery performance may be different for mail that is included in measurement from mail that is not included. Therefore, having a proceeding solely focusing on data quality and completeness could give USPS and postal stakeholders such as PRC, Congress, business mailers, and the general public the opportunity to conduct an in-depth evaluation of the quality of delivery performance data, identify practical opportunities to improve data quality, and establish actions and time frames for making progress. Having such a proceeding also could help PRC develop a better understanding of issues regarding the quality of delivery performance data and thereby be in a better position to conduct ongoing oversight of data quality and its annual compliance determination. USPS and PRC reports on delivery performance are not as useful as they could be for effective oversight. USPS and PRC annual compliance reports provide delivery performance analysis, as legally required. This information is reported at the national level. This analysis, however, does not facilitate an understanding of results and trends below the national level, such as for USPS’s 67 districts, to identify variations and areas where improvements in performance may be needed. USPS and PRC annual and quarterly reports on delivery performance information are not as useful for other oversight purposes or management and congressional decision making. For example, these reports do not include sufficient analysis to hold USPS accountable for meeting its statutory mission to provide prompt, reliable, and efficient services in all areas of the nation and regular postal services to rural areas. Further, delivery performance information is not sufficiently transparent as it is not readily available on respective USPS and PRC websites. Thus, it is difficult for effective oversight and for stakeholders to understand trends and develop analysis of USPS performance information. We have reported that ensuring information is useful to assist management and congressional decision making is key to the principles embodied in GPRA and the GPRA Modernization Act of 2010 framework for meeting fiscal, management, and performance challenges. USPS and PRC reports, however, provided little analysis to facilitate an understanding of results and trends below the national level. USPS and PRC websites do provide annual and quarterly delivery performance results on the national level and for each of USPS’s 7 areas and 67 districts. In addition, PRC provided annual delivery performance trend data at the national level in its annual compliance determinations covering fiscal years 2013 and 2014.however, are not sufficiently useful for determining variations in delivery performance across the nation or determining whether performance has improved in areas where performance has not met service standards or targets. National averages aggregate the mail delivery performance of different parts of the country into an average for the entire nation. Thus, on-time delivery performance in one section of the country may be masked by on-time delivery performance in another section of the country. A national average alone does not enable stakeholders to understand if certain areas of the country are experiencing poor delivery performance. Trend data solely at the national level, To better understand the range and variations in delivery performance across the nation, we analyzed trends in quarterly delivery performance at the district level. Our analysis showed how national data can mask wide variations in performance by various districts over time. For example, we analyzed quarterly performance for single-piece First-Class Mail with a 3-to-5-day delivery service standard for each of the 64 postal districts in the contiguous 48 states and the District of Columbia for the second quarter of fiscal years 2013 to 2015. For the second quarter of fiscal year 2015, none of the districts met that quarter’s performance target of 95 percent of mail delivered on time. Performance for that quarter ranged from 44 percent to 80 percent (see fig. 5). However, when analyzing the second quarter of the previous 2 fiscal years, of the 10 districts with the lowest scores in the second quarter of fiscal year 2015, 9 were below the national average in fiscal year 2014, and all 10 were lower than the national average in fiscal year 2013, but to a much lesser degree. Of the 10 districts with the highest scores in the second quarter of fiscal year 2015, 8 were above the national average in the second quarter of fiscal years 2014 and 2015. In addition, USPS’s reporting of delivery performance information is not sufficiently transparent. To be considered transparent, the criteria we identified suggest that delivery performance information is to be reported in a manner that is easily accessible and readily available. USPS, however, posts only its most recent quarterly report of area and district- level data on its public website.request numerous files from USPS to compile data necessary for understanding performance trends, such as whether on-time delivery is As a result, stakeholders would have to improving or getting worse. USPS told us that its reporting of delivery service information meets statutory requirements, and that it is not required to maintain quarterly trend data for delivery performance on its website. However, USPS can elect to maintain quarterly trend data on its website. A large mailer association we spoke with stated that USPS should be so transparent that everyone understands general performance and any factors contributing to good and poor performance. Similar to USPS, PRC’s reporting of delivery performance information is not readily available to stakeholders. While PRC also posts delivery performance information provided by USPS on its public website, stakeholders would have to find numerous files in multiple locations on its website to compile data necessary for understanding performance trends, such as whether on-time delivery is improving or getting worse. In addition, PRC’s reports are not easily accessible. PRC has reported its annual assessment of USPS’s delivery performance in fiscal year 2014 in two reports that are filed on its website at different times and at different links, while USPS’s quarterly data are posted at another link on PRC’s website. The lack of easily accessible and readily available performance information on USPS’s and PRC’s part impedes the ability of Congress, mailers, and customers to review and hold USPS accountable for its performance and to use the information to develop realistic expectations for when their mail will be delivered. USPS and PRC are not required to report—and do not report—delivery information for rural and non-rural areas, thus limiting effective oversight in these areas. USPS and PRC officials told us that they do not provide information or analysis to assess delivery performance specifically for rural areas because they are not legally required to do so. Without data on rural delivery performance, Congress cannot determine the extent delivery performance is timely in rural versus non-rural areas, and neither USPS nor PRC can prove or disprove any perceptions that rural areas may be affected differently than non-rural areas. Several Members of Congress and others have raised questions about whether delivery performance in rural areas has been negatively affected by changes USPS has implemented since fiscal year 2012 to reduce its expenses. For example, according to the National Newspaper Association (NNA), community newspapers have been negatively affected since USPS consolidated some postal facilities. Further, problems have emerged when newspapers, often in rural areas, had to be delivered outside of the local area and experienced a decline in service. NNA has requested that PRC gather information about the data that could be produced about rural mail to identify the sources of delivery problems, such as manual processing, increased travel distances, or inefficient processing plants. NNA has argued that “the possibility that what ails NNA newspapers also ails rural mail in general is more than a random guess.” In May 2015, two Members concerned about the lack of digital tracking in rural areas requested a PRC study on the feasibility of reporting on rural mail delivery performance. Other congressional requests for rural delivery performance information are also pending. For example, in a recent Senate report, the Senate Appropriations Committee directed USPS to take steps related to reporting delivery performance in rural areas. In July 2015, the Senate report accompanying the Senate Financial Services and General Government Appropriations Bill, 2016 directed USPS and PRC to report mail delivery performance to specifically include mail delivery from rural towns to other rural towns; from rural towns to urban areas; and from urban areas to rural towns. The Committee requested the methodology used to develop this information within 60 days of enactment of the Act with a subsequent report due by March 1, 2016. USPS has not reported data on on-time delivery performance based on a rural or non-rural distinction. USPS officials told us that no overall assessment of rural delivery service, separate and apart from urban/suburban delivery, has been undertaken since PAEA required delivery performance measurement, reporting, and assessment. USPS officials added that its delivery performance data provide a basis for internal diagnosis and assessment of operations and service, and satisfy USPS’s reporting obligations to PRC. USPS officials noted that its reports are generated at the national, area, and district level for these purposes, but are not routinely further disaggregated on the basis of whether particular districts or ZIP Codes are rural, suburban or urban in nature. On-time delivery performance information at the district level cannot inform stakeholders on delivery performance in rural areas since each of USPS’s 64 districts in the continental United States contains at least one core area with a population over 10,000 and thus is not entirely rural. USPS officials told us that USPS’s service performance measurement systems do not differentiate between rural and urban locations and that it may be cost prohibitive to attempt to measure performance of mail pieces in rural areas using an external data system. However, in response to the recent congressional request for PRC to report on rural mail delivery performance, USPS told us that it has begun collaborating with the technical staff at PRC to determine how measurement may account for rural origin and destination points and that its new, proposed internal service performance measurement plan might provide greater insight on service performance measurement specific to rural areas, assuming USPS and PRC can arrive at a reasonable definition of “rural” origin and destination points. At this time, however, USPS officials added that USPS was at an exploratory stage of the analysis and were not able to offer definitive conclusions on the feasibility of adding this feature to USPS’s measurement plans. PRC officials told us that they are currently working with USPS to determine how they will respond to the congressional request for rural delivery performance information. PRC officials also told us that PRC has limited its previous assessments regarding whether USPS met its delivery service standards for market-dominant types of mail to national results and has not conducted any rural-level analysis. PRC officials told us that PRC does not play a direct role (e.g., either annually or quarterly) in monitoring or reporting on USPS’s universal delivery service obligation (aside from annually estimating the cost of universal postal service), noting that PRC is not legally required to do so, nor has PRC been directed by Congress to play this role. PRC officials added that PRC has not considered requiring USPS to report quarterly and annual information on delivery speed and reliability in urban versus rural areas, because 1) PRC has not been specifically mandated by statute to require USPS to provide delivery service performance information separately for rural and urban areas and 2) in PRC’s previous assessments, Congress has not provided specific direction requiring USPS to implement such measurement and reporting. As noted previously, USPS officials told us that the costs of additional requirements for USPS to collect and report urban and rural delivery performance information through existing measurement systems would likely greatly outweigh the benefits. However, USPS and PRC were not able to provide specific cost estimates related to having USPS measure and report on delivery performance in rural and urban areas. We asked USPS for this information, but it did not provide such cost information, with USPS officials explaining that there is no clear definition or defined approach to measure what should be considered rural. USPS officials also told us that the cost would depend on the specificity of the data, such as whether there would be national-level results for urban and rural areas or detailed geographic breakdowns. We also asked PRC about the costs of providing delivery performance information in rural and urban areas. PRC responded that it has the authority to specify requirements for USPS’s delivery performance measurement, but that when considering reporting requirements for USPS, it is to give consideration to unnecessary or unwarranted administrative effort and expense by USPS. On this matter, PRC officials said that they do not know what the costs might be for USPS to collect data on delivery performance in rural and urban areas. Neither of the congressional directives mentioned above regarding studying delivery performance in rural areas directly address the costs associated with requiring rural delivery performance information. Without cost estimates, Congress may not have all the information it needs to understand the full implications of requiring data on delivery services in rural and non-rural areas. Quality delivery performance information is needed for USPS and postal stakeholders such as PRC, Congress, business mailers, and the general public to develop useful analysis that can help oversee or assess the balance between USPS’s cost-cutting to address its poor financial situation while maintaining affordable postal rates and providing timely, universal delivery service. Thus, it is important for both USPS and PRC to report delivery performance information in a sufficiently complete, transparent, and useful manner. Although USPS has made progress since PAEA was enacted in 2006, its delivery performance information is not complete, and it is unclear when USPS will achieve its goal of measuring on-time delivery for nearly all market-dominant mail volume. USPS measured on-time delivery for only 55 percent of market-dominant mail volume in the second quarter of fiscal year 2015. As a result, data may not be representative because performance may be different for mail not included in measurement. Although PRC’s reports provide data on the amount of mail included in measurement, they have neither fully assessed the reasons why these measurements are incomplete, nor specified what actions USPS needs to take and the related time frames needed to achieve complete performance measurement. PRC may initiate proceedings to improve the completeness and quality of delivery performance data, but it has not exercised this option. Although USPS and PRC are opposed to such a proceeding, we believe that a PRC proceeding that focuses on issues of data completeness—particularly the problem of excluding mail due to a lack of information—could facilitate more rapid progress by USPS and the mailing industry toward complete measurement. USPS and PRC annual and quarterly reports on delivery performance information are not as useful for oversight purposes beyond the annual compliance assessments because they do not include sufficient analysis that would facilitate holding USPS accountable for meeting its statutory mission to provide prompt, reliable, and efficient services in all areas of the nation, including rural areas. For example, neither USPS nor PRC reports trend data below the national level for all of USPS’s 67 districts to indicate whether performance is improving or getting worse in different parts of the nation. Further, delivery performance information is not sufficiently transparent as it is not readily available or easily accessible on either USPS’s or PRC’s website. Also, postal stakeholders—such as PRC, Congress, business mailers, and the general public—cannot determine whether delivery performance is a problem in rural areas because USPS and PRC are not required to report delivery performance information separately for rural versus non-rural areas. USPS believes that such an analysis would be costly, even though it does not know how much it would actually cost. Such cost information would be useful for Congress to have in order to assess whether developing this information would be appropriate. In addition, USPS and PRC are in the process of responding to a recent congressional request to determine the feasibility of reporting on rural mail delivery performance, which could facilitate determining the associated costs. To assist in determining whether to require USPS and PRC to report on delivery performance for rural and non-rural areas, Congress should direct USPS to provide cost estimates related to providing this information. To improve the completeness of USPS delivery performance information, we recommend that the Acting Chairman of PRC and the other PRC Commissioners exercise PRC’s statutory authority to hold a public proceeding involving USPS, the mailing industry, and interested parties to address how USPS can improve the completeness of USPS’s delivery performance information. To improve the usefulness and transparency of USPS’s and PRC’s reporting of delivery performance information, we recommend that: The Postmaster General provide additional and readily available delivery performance information, such as trend data for on-time delivery performance for all 67 postal districts. The Acting Chairman of PRC and the other PRC Commissioners provide readily available data and additional analysis of USPS’s delivery performance information so that stakeholders can better understand trends and variations in mail delivery performance. We provided a draft of this report to USPS and PRC for review and comment. USPS and PRC provided written responses, which are reproduced, respectively, in appendixes II and III of this report. PRC and USPS agreed with the recommendations addressed to them. Specifically, PRC agreed to hold a proceeding to address how USPS can improve the completeness of USPS’s delivery performance—after, as we reported, initially indicating it was opposed to such a proceeding. Although not the addressee of this recommendation, USPS disagreed with it stating that its measurement systems conform to the Office of Management and Budget’s standards and guidelines for statistical surveys, and that it employs a contractor with long-standing expertise in developing statistically valid and reliable systems. However, we found that key data quality issues involve the lack of completeness of census-type measurement and the associated risk of non-sampling error—issues that are separate from matters of statistical design. Further, USPS said its continuing collaboration with the mailing industry is more likely to stimulate industry cooperation and buy-in rather than lengthy, time- consuming proceedings before the PRC. We continue to believe that a new PRC proceeding on data quality would add value to its continuing collaboration with USPS and the mailing industry. Our report notes that representatives of mailing industry groups and some mailers told us, and commented in PRC proceedings, that PRC should become more involved in issues of the quality of measurement data for on-time delivery performance, including issues regarding the exclusion of mail from measurement. Both USPS and PRC agreed with our recommendations to improve the usefulness and transparency of delivery performance information that they report. USPS acknowledged that the delivery service performance data it reports on its website lacks the granularity of the reports it publicly files with PRC, and does not serve the purposes of in-depth congressional oversight. USPS added that although it is not clear that typical household mailers would use or find value in that level of data granularity, it will pursue establishing a distinct portal for public access to delivery service performance reports, in an effort to be more transparent. Likewise, PRC agreed that information it receives and produces regarding performance measures for USPS can be better organized, and it has updated its website in response to our recommendation. We are encouraged by USPS’s and PRC’s willingness to adopt these the Congress’s recommendations since, as we have recently reported,and the public’s confidence in the quality of performance information that federal agencies are using to assess and achieve results requires that information be publicly reported in a clear and readily accessible way. Although both agencies agreed with the recommendations addressed to them, they disagreed with certain findings, conclusions, and the supporting analytical basis used in this report. Key among the disagreements were our treatment of the completeness of USPS’s data, the appropriateness of the criteria we used for our assessment of PRC’s oversight and analysis, and the usefulness of USPS’s and PRC’s reporting on delivery performance. Regarding our treatment of data completeness, USPS said it understood in the abstract the basis for our finding that delivery performance may differ for mail included in measurement than mail that is not measured. However, it disagreed that this is the case in practice. Specifically, USPS stated that mail pieces that are included in performance measurement should have virtually the same performance results as mail not included in measurement. Additionally, PRC stated that data reliability has markedly improved as a result of PRC’s directives to USPS regarding measurement systems. As discussed in our report, although the completeness of measurement has improved over the past 9 years, 45 percent of market-dominant mail is still not included in measurement. Also, we identified a number of reasons to be concerned that delivery performance may be different for mail that is included in measurement than mail not included in measurement. For example, large-volume mailers, who are most likely to apply barcodes and thus have on-time delivery performance measured, use additional mailing practices to facilitate the timely delivery of their mail, such as entering large volumes of advertising mail close to its final destination. In addition, destination- entry mail has sufficient volume and preparation to enable it to bypass various postal network processing and transportation (e.g., locally entered and delivered so it is handled by only one processing facility)—a strategy that, according to USPS, is the reason this mail is more likely to be delivered on time. As we reported, USPS has set a goal of including virtually all market-dominant mail in measurement, using a census-type approach, and continues to strive for including more mail volume in measurement. Further, USPS raised concern that increasing the proportion of mail included in measurement data may come at potential significant costs, which we believe is a topic that could be further explored in the recommended proceeding. USPS disagreed with the specific example given in our report that destination-entered Standard Mail is more likely to be included in measurement than other “end-to-end” Standard Mail and is more likely to be delivered on time. This example suggests that results for Standard Mail as a whole are higher than they would be if all Standard Mail were included in measurement. USPS said that when compiling the national on-time delivery percentage for all Standard Mail, it weights results for measured mail pieces by shape and entry type so they are compiled in proportion to their prevalence in the entire population of Standard Mail. However, it does not appear that USPS applies weighting procedures when compiling results for individual Standard Mail products—such as Standard Mail Flats and Standard Mail Letters that have significant proportions of both destination-entry and end-to-end mail. Therefore, we have clarified our report to state that available information indicates that non-participation can affect results for some Standard Mail products, particularly if product-specific results are not weighted to reflect key characteristics of the mail. In addition, USPS and PRC made various comments on the importance of the statistical properties of USPS systems that measure on-time delivery performance. USPS said it employs a firm with long-standing expertise in developing measurement systems that are statistically valid and reliable, and provided a letter from this contractor that the measurement systems are designed in a manner to be statistically valid and representative. PRC said it reviews USPS data using statistical principles that determine whether service performance data are sufficient and the results are meaningful. Specifically, PRC said sampling fractions, confidence intervals, and margins of error are the primary factors it uses to determine whether data are accurate and reliable. We agree statistical considerations should inform the assessment of data collected through sampling. However, we also note that such statistical principles are not relevant to evaluate the quality of incomplete data collected using census- type measurement, which is the case for most types of market-dominant mail. An error created when non-measured mail has different on-time delivery performance than measured mail is a “non-sampling error”—as opposed to a “sampling error” that is associated with measurement based on a random sample. Non-sampling errors can affect results, regardless of how valid the statistical design of USPS’s measurement systems may be. As previously discussed, results based on incomplete data can be affected when the measurement process disproportionately includes mail that is more likely to be delivered on time. PRC also was critical of our focus on data completeness, stating that it is not a meaningful statistical measure and that PRC has not concluded that the percentage of mail in measurement should be the primary determinant of accurate, reliable, or representative measurement data. USPS stated that our report does not specify what an appropriate level of measurement may be. However, PRC has not defined what an appropriate percentage of mail in measurement would be for measuring on-time delivery based on census- type measurement, while USPS has set a goal of including virtually all mail volume in measurement. For most types of market-dominant mail, measuring on-time delivery performance involves census-type measurement as well as measurement based on sampling. For the mail that is included in the measurement based on a census-type approach, to assess non-sampling error would require determining whether the mail not included in measurement systematically differed from the mail included in the measurement, particularly regarding characteristics associated with on-time delivery. Regarding the appropriateness of the criteria we used for our assessment of PRC’s oversight and analysis, PRC stated that our assessment was based on GAO-created criteria rather than the statutory requirements in PAEA. We agree that our assessment was not intended to determine PRC’s compliance with its statutory requirements. Rather, our review used criteria that are appropriate for assessing an organization’s practices for reporting delivery performance information that would be useful for management and congressional decision-making. As noted in our report, the criteria we used to assess USPS’s and PRC’s measurement and reporting of delivery performance information are based on current laws—including PAEA—and regulations, as well as previously identified practices used by high-performing agencies, and prior GAO reports. Specifically, our criteria are a result of reviewing delivery performance measurement and reporting provisions applicable to USPS and PRC in PAEA, and PRC regulations, which we summarized in table 3. In addition, we believe that certain government principles can help inform congressional and executive branch decision-making to address challenges. For example, USPS should disclose more information about the accuracy and validity of its performance data and actions to address limitations to the data. Our prior work has found that without useful performance information, it is difficult to monitor agencies’ progress toward critical goals. PRC also disagreed with a statement in our draft report that its reports have not assessed why USPS’s delivery performance measurements were incomplete nor specified what actions USPS needs to take to achieve complete performance-measurement data. PRC said it has assessed the primary reasons measured mail may be inaccurate, unreliable, or not representative of nationwide performance, including data not in Full-Service Intelligent Mail, uncategorized mail, invalid data, and low district-level volumes. PRC said its reports have regularly directed USPS to improve data reliability and accuracy by increasing participation in Full-Service Intelligent Mail, increasing measured volumes for mail product categories in certain districts, and increasing the number of districts providing results. We agree that PRC reports have addressed some issues related to the quality of delivery performance data, such as providing data on the amount of mail included in delivery performance measurement and expressing concern with low levels of participation for certain types of mail. However, as we discuss in our report, PRC has not fully assessed why these measurements were incomplete, whether USPS actions will achieve complete performance data, why lack of participation remains a significant issue, and whether there are practical opportunities to make progress. Further, recent PRC reports have not assessed what have become the primary causes for excluding mail pieces from measurement, including no “start-the-clock” information, no mail piece barcode scan recorded by USPS automation equipment, and inaccuracies in mail preparation. Thus, we continue to believe that PRC has opportunities to improve its oversight and encourage PRC and all stakeholders to explore these causes in its forthcoming proceeding. Regarding the usefulness of reporting, PRC and USPS disagreed with our characterization that USPS’s and PRC’s reports are not sufficiently useful for effective oversight. PRC objected to the implication that it is not fully successful in meeting its oversight responsibilities, and added that it has provided strong oversight in achieving the transparency and accountability required by Congress and that its reports are useful. While we recognize that PRC is not statutorily required to assess USPS’s performance in providing mail to all parts of the country—including rural areas—USPS is still responsible for adhering to these requirements and no other oversight agency exists to hold USPS accountable to these requirements. Given the broad scope of recent changes in postal operations, network consolidations, and service standard changes, Members of Congress and other postal stakeholders have raised concerns about the impact of these changes on delivery performance. Thus, effective oversight is even more critical to ensure that any delivery performance problems are promptly identified and addressed. USPS and PRC also provided technical comments that we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Postmaster General, the Acting Chairman of the Postal Regulatory Commission (PRC), the other PRC Commissioners, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions about this report, please contact me at (202) 512-2834 or rectanusl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff making key contributions to this report are listed in appendix IV. This report assesses (1) the U.S. Postal Service’s (USPS) measurement of mail delivery performance and the Postal Regulatory Commission’s (PRC) oversight of this measurement and (2) USPS’s and PRC’s reporting of this information. To conduct this work, we assessed whether USPS’s measurement of its delivery performance is complete and whether USPS’s and PRC’s reporting on this performance is useful and transparent. To make our assessments, we compared USPS’s and PRC’s measurement and reporting efforts to specific elements associated with these criteria. We originally developed these criteria for a 2006 report that assessed USPS’s delivery service standards, measures, and reporting. In developing those criteria, we identified applicable laws related to USPS’s mission, ratemaking, and reporting, and practices used by high-performing organizations related to delivery service standards, measurement, and reporting, including practices identified through our past work. For this review, as table 4 below illustrates, we adapted and updated each criteria identified in the 2006 report. We reviewed current laws, previously identified practices used by high-performing agencies, and prior GAO reports to identify specific, observable elements associated with each criteria, in order to make a more direct assessment on the extent delivery performance information is complete, useful, and transparent. For example, we reviewed provisions in the Postal Accountability and Enhancement Act (PAEA) and implementing PRC regulationsestablished the legal framework for measurement of mail delivery that performance, PRC’s oversight of this measurement, and reporting of this information. To identify practices for reporting delivery performance information that would be useful for management and congressional decision making, we reviewed the Government Performance and Results Act of 1993 (GPRA), and the GPRA Modernization Act of 2010 framework for meeting fiscal, management, and performance challenges, practices used by high-performing agencies, and prior GAO reports. To assess delivery performance measurement, we reviewed documentation of mail delivery performance, the measurement systems used to develop this information, and limitations of these systems. We also reviewed USPS’s annual reports to Congress and PRC, PRC’s annual compliance determinations, Mailers’ Technical Advisory Committeemeasurement systems and the data USPS collects. In addition, we reviewed relevant documentation regarding USPS’s proposal to replace its External First-Class Mail measurement system (EXFC), including USPS’s proposal, stakeholder comments on the proposal, and USPS’s reply responses to stakeholder comments. Between December 2014 and June 2015, we received written responses and data from USPS and PRC related to mail delivery performance measurement and associated limitations and interviewed USPS and PRC officials. USPS’s responses contained data on the amount of mail ineligible for delivery performance measurement and excluded from delivery performance measurement in fiscal years 2010 through the second quarter of fiscal year 2015. We assessed the reliability of USPS’s data through a review of related documents, such as written responses from USPS. We found these data sufficiently reliable for providing a general description related to the completeness of delivery performance information. To assess PRC’s oversight of delivery performance information, we reviewed PRC’s annual compliance determinations and other reports, obtained written responses from PRC and USPS, and interviewed PRC and USPS officials. We also interviewed representatives of mailing industry groups and business mailers with expertise on delivery performance measurement and postal issues to discuss the completeness of delivery performance information reported by USPS and PRC’s assessment of this information. We used our professional judgment to select these representatives; thus, the responses we received from them are not generalizable to the entire mailing industry. We also reviewed laws, regulations, and PRC orders and determinations to identify any guidance or requirements for USPS and PRC related to the quality of delivery performance information. presentations, and other documentation on USPS’s current To assess reported delivery performance information, we reviewed the mail delivery performance information reported in USPS annual reports to Congress, PRC annual compliance determinations and other reports, and on the USPS and PRC websites. We assessed the usefulness of the reported information to provide oversight over how effectively USPS fulfills its statutory mission to provide prompt, reliable, and efficient services to all areas of the country (universal delivery service), and a maximum degree of effective service in rural areas. We also interviewed representatives of mailing industry groups and business mailers with expertise on delivery performance measurement and postal issues to discuss the usefulness of delivery performance information reported by USPS and PRC. We used our professional judgment to select these representatives; thus the responses we received from them are not generalizable to the entire mailing industry. To determine the extent that the delivery performance information is transparent, we reviewed delivery performance information USPS and PRC disclose on their websites to assess the extent to which it is easily accessible and readily available. We also reviewed laws and statutory regulations to identify any requirements related to reporting delivery performance information in a transparent manner. We conducted this performance audit from October 2014 to September 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the individual named above, key contributors to this report were Teresa Anderson (Assistant Director); Samer Abbas; Kenneth John; Thanh Lu; Malika Rice; Amy Rosewarne; Kelly Rubin; and Crystal Wesco.	USPS is in the difficult position of balancing cost-cutting actions to address its poor financial situation with efforts to provide prompt, affordable, and reliable mail service. GAO has previously reported that complete, useful, and transparent delivery performance information is essential for USPS and stakeholders to understand USPS's success in achieving this balance. GAO was asked to review how USPS measures delivery performance and how PRC assesses this information. GAO assessed (1) USPS's measurement of mail delivery performance and related oversight by PRC and (2) USPS's and PRC's reporting of this information. GAO reviewed USPS and PRC delivery performance data for fiscal years 2010-2015, delivery service standards, and measurement system documents, as well as applicable laws and leading practices identified in GAO's prior work. U.S. Postal Service (USPS) measurement of on-time delivery performance has expanded greatly over the past 9 years, but remains incomplete because only 55 percent of market-dominant mail (primarily First-Class Mail, Standard Mail, Periodicals, and Package Services) is included (see fig.). The remaining 45 percent is excluded due to various limitations, such as not having barcodes to enable tracking. Incomplete measurement poses the risk that measures of on-time performance are not representative, since performance may differ for mail included in the measurement, from mail that is not. Complete performance information enables effective management, oversight, and accountability. In addition, the Postal Regulatory Commission (PRC) has not fully assessed why USPS data are not complete and representative. While PRC's annual reports have provided data on the amount of mail included in measurement, they have not fully assessed why this measurement was incomplete or whether USPS actions will make it so. PRC may initiate a public inquiry docket (a type of proceeding) to improve data quality and completeness, but has not done so. Such a proceeding could facilitate evaluating data quality and identifying areas for improvement, as well as actions and time frames to complete improvements. USPS's and PRC's reports on delivery performance are not as useful as they could be for effective oversight because they do not include sufficient analysis to hold USPS accountable for meeting its statutory mission to provide service in all areas of the nation. USPS's and PRC's reports provide analysis, as legally required. However, this national-level analysis does not facilitate an understanding of results and trends below the national level, such as for USPS's 67 districts, to identify variations and areas where improvements are needed. Further, delivery performance information is not sufficiently transparent or readily available. USPS posts only the most recent quarterly report on its website making it difficult for stakeholders to access trend data. Also, USPS and PRC are not required to provide—and do not report—performance information for rural areas. While several Members of Congress have recently requested studies on rural delivery performance, USPS has stated that such analysis would be costly, even though it could not provide specific cost estimates. Such cost information would be useful for Congress to assess whether developing this information would be appropriate. To assist in determining whether to require USPS and PRC to report on delivery performance for rural areas, Congress should direct USPS to provide cost estimates related to providing this information. Further, GAO recommends that USPS and PRC take steps to improve the completeness, analysis, and transparency of delivery performance information. USPS and PRC agreed with the recommendations addressed to them, but disagreed with certain findings on which they are based. GAO believes these findings are valid, as discussed in this report.	17.2	8k-16k	3,956
30	In March 2003, DHS began operations and set about the daunting task of merging 22 separate and autonomous federal agencies with homeland security-related missions under the centralized leadership of a single department. In doing so, DHS assumed operational control of about 209,000 civilian and military positions from these agencies. As we have previously reported, the creation and transformation of DHS is critically important and poses significant management and leadership challenges, and failure to address these challenges could have serious consequences for our national security. Consequently, in 2003, we first designated the department’s implementation and transformation as high risk, and we continue to do so today. IT is a critical tool in DHS’s quest to transform itself and carry out the department’s critical missions on a day-to-day basis. For fiscal year 2008 alone, the department is requesting almost $4 billion in IT budgetary authority. The department’s ability to effectively and efficiently invest these funds and deliver IT systems and infrastructure that perform as intended depends in large part on the capabilities of its IT human capital. As we have reported, DHS and the other federal agencies historically have been challenged in their ability to strategically manage human capital. For this reason, we first designated strategic human capital management as a governmentwide high-risk area in 2001, and we continue to do so today. To accomplish its mission, the department is organized into various agencies and directorates, each of which is responsible for specific homeland security missions and for coordinating related efforts with other DHS organizations, as well as external entities. Table 1 shows DHS’s principal organizations and their respective missions. Within DHS, responsibility for IT human capital management resides with the Management Directorate—specifically, the Offices of the CIO and the CHCO—and with component agency CIO and human capital offices. More specifically, the management directive of the DHS Office of the CIO’s states that the office is responsible for leveraging the best available technologies and applying proven IT management and human capital practices to provide shared services, coordinate acquisition strategies, maintain an enterprise architecture, and advocate and enable business transformation, among other things. To assist in managing these matters, DHS established the DHS CIO Council made up of the CIOs from each of DHS’s component organizations. The council identified eight priorities, including IT human capital, and for each priority, it assigned an executive sponsor that is responsible for overseeing the department’s efforts in that area. The council also established the IT Human Capital Resource Center (formerly called the IT Human Capital Center of Excellence) to support the council and the executive sponsor responsible for IT human capital. In short, the center is responsible for setting a DHS-wide vision and strategy for IT human capital and the functions that IT staff perform. The center is staffed by the component CIO organizations and, among other things, is responsible for coordinating the implementation of the department’s IT human capital initiatives. Figure 1 shows a simplified and partial DHS organizational structure, including the CIO IT human capital-related entities. According to the DHS overall strategic human capital plan, which covers IT and non-IT personnel, the Office of the CHCO is responsible for implementing initiatives to achieve strategic human capital goals in support of the department’s mission. With regard to IT, this includes planning and managing human capital to meet current and future mission needs, recruiting a high-quality workforce, developing a strong and capable workforce, motivating and retaining high performers, and fostering a culture of continuous learning and improvement. It also includes applying human capital best practices in carrying out these responsibilities. Each of the department’s component agencies has its own CIO and human capital director to, among other things, manage the implementation of their respective IT human capital initiatives. According to DHS, this includes recruiting staff to close competency and skill gaps, coordinating and delivering mission-essential training, analyzing workforce data, and aligning component human capital plans with the department human capital plans to achieve agency and department missions. To accomplish its mission, DHS relies extensively on IT. For example, in fiscal year 2007, about $4.16 billion dollars in funding was requested to support 278 major IT programs. Table 2 shows the fiscal year 2007 IT funding for key DHS components. To manage the use of these funds and carry out these programs, the department reports that it employs about 2,600 IT personnel. While these personnel represent about 1 percent of the department’s total workforce, they nonetheless perform critical mission functions. Specifically, IT personnel develop, manage, and operate mission-critical systems that are intended to unify the department under a common IT infrastructure and to facilitate agencies’ ability to analyze intelligence to identify threats, guard U.S. borders and airports, protect critical infrastructure, coordinate national responses to emergencies, and implement other security measures. Moreover, IT staff track and oversee the efforts of a sizable workforce of support contractors. According to DHS, the need to successfully manage its IT human capital is essential to effectively and efficiently leveraging technology in achieving the department’s mission. This need is compounded by the fact that the department faces major near-term IT human capital challenges. For example, DHS estimates that between 2005 and 2010, approximately 35 percent of its IT workforce will be eligible for retirement. Moreover, it reports that in light of the continued growth in demand of experienced IT professionals and the high rate of turnover experienced thus far, the department faces significant risk of critical skill shortages, which could hamper its mission imperatives. During the last 3 years, we have reported on the importance of DHS adopting a strategic approach to addressing its IT human capital challenges. For example, in August 2004, we reported that DHS had begun strategic planning for IT human capital at the headquarters level, but it had not yet systematically gathered baseline data about its existing workforce. We also reported on CIO staffing concerns and slow progress in this area. Accordingly, we recommended that the department analyze whether it had appropriately allocated and deployed IT staff with the relevant skills to obtain its institutional and program-related goals. In response, the DHS CIO approved funding for the IT Human Capital Resource Center in July 2004. Among other things, the center subsequently began work to complete an IT human capital plan. Consistent with our recommendation, the center was to ensure that the completed plan provided for an analysis of IT workforce skill sets. In May 2005, the DHS CIO issued a draft version of the IT human capital plan. This draft version was sent to the Senate and House Appropriations Committees on August 30, 2006, as part of the CIO’s report pursuant to requirements in DHS’s fiscal year 2006 appropriations act. According to the CIO Council senior executive leading the effort to develop this plan, it was developed in partnership with the DHS CHCO’s office and intended to direct the department’s IT human capital efforts. In March 2006, we testified on a number of IT human capital and other management challenges at DHS. We noted that DHS had undertaken a departmentwide human capital initiative, MAXHR, which was to provide greater flexibility and accountability in the way employees are paid, developed, evaluated, afforded due process, and represented by labor organizations. Part of this initiative involved the development of departmentwide workforce competencies. We testified that the department had intended to implement MAXHR in the summer of 2005 but had encountered delays. More recently, DHS officials stated that MAXHR had been canceled and is to be replaced by another initiative called the Human Capital Operational Plan. In May 2007, we reported that while DHS continues work to develop and implement departmentwide human capital initiatives, its overall progress in managing its IT and non-IT human capital had been limited. Since 2002, we have also reported on human capital management weaknesses associated with key DHS IT programs. For example: In September 2005, we reported that the program office for the Atlas program was not adequately staffed. Accordingly, we recommended that the Atlas program conduct a staffing needs assessment to determine the positions and the level of staffing needed for all Atlas projects, and that it develop a human capital strategy for meeting its staffing needs. DHS agreed with our recommendations and has since completed a needs assessment, developed a human capital strategy, and used it to staff the program office and projects. In February 2006, we reported that the US-VISIT program had developed a human capital strategy, as we had recommended 2 years earlier, and had begun implementing it. However, we also reported that several activities in the plan had not been implemented, such as assessing the extent of current employees’ competency gaps and developing a listing of competency-based training courses. To address this shortfall, among other things, the program recently developed a new human capital plan. We have not yet reviewed the new plan. In May 2006, we reported that the Automated Commercial Environment (ACE) program had yet to develop and implement a human capital management strategy, as we had recommended several years earlier. Instead, program officials told us that they were following a less formal approach to bolstering ACE’s workforce. Accordingly, we recommended that the department report to its appropriations committees on its strategy for managing ACE human capital needs. DHS agreed with our recommendation and has since been working to develop a strategy. A strategic approach to human capital management includes viewing people as assets whose value to an organization can be enhanced by investing in them. Such an approach enables organizations to effectively use their people and determine how well they integrate human capital considerations into daily decision making and planning for mission results. It also helps organizations remain aware of and be prepared for current and future needs as an organization, ensuring that they have the knowledge, skills, and abilities needed to pursue their missions. On the basis of our experience with leading organizations, we issued a model in 2002 for strategic human capital management. The model is built around four cornerstones: (1) leadership; (2) strategic human capital planning; (3) acquiring, developing, and retaining talent; and (4) results- oriented organizational cultures. We also issued a set of key practices in 2003 for effective strategic human capital management. These practices are generic, applying to any organization or component, such as an agency’s IT organization. Since then, OPM, in conjunction with OMB and us, issued a strategic human capital framework—called the Human Capital Assessment and Accountability Framework—to provide a consistent, comprehensive representation of human capital management to guide federal agencies. Consistent with our 2002 model, OPM’s framework provides six standards, along with associated indicators (practices) for achieving success. The six standards for success and related definitions are as follows: Strategic alignment. The organization’s human capital strategy is aligned with mission, goals, and organizational objectives and integrated into its strategic plans, performance plans, and budgets. Workforce planning and deployment. Among other things, the organization strategically uses staff in order to achieve mission goals in the most efficient ways. Leadership and knowledge management. The organization’s leaders and managers effectively manage people, ensure continuity of leadership, and sustain a learning environment that drives continuous improvement in performance. Results-oriented performance culture. The organization has a diverse, results-oriented, high-performance workforce and a performance management system that effectively differentiates between high and low performance and links individual, team, or unit performance to organizational goals and desired results. Talent management. The organization makes progress toward closing gaps or making up deficiencies in most mission-critical skills, knowledge, and competencies. Accountability. The organization’s human capital decisions are guided by a data-driven, results-oriented planning and accountability system. Our recent work has shown that DHS and other federal agencies, such as the Securities and Exchange Commission, have begun to use OPM’s framework as the basis for preparing strategic IT and other human capital plans. According to DHS CIO officials, they used the OPM framework in developing the IT human capital plan that they included in the August 2006 report to Congress. DHS has developed an IT human capital plan that is largely consistent with OPM guidance. Specifically, of 27 key practices in OPM’s framework, the department’s plan and related documentation fully address 15 practices and partially address the other 12, meaning that these 12 are missing elements that are essential to having a well-defined and executable plan. DHS officials responsible for developing the plan attributed the missing elements to, among other things, the department’s decision to focus its resources on other IT priorities. These officials also stated that until the missing elements are fully addressed, it is unlikely that the plan will be effectively and efficiently implemented, which in turn will continue to put DHS at risk of not having sufficient people with the right knowledge, skills, and abilities to manage and deliver its mission-critical IT systems. Examples of the key practices that DHS has fully and partially addressed in its IT human capital plan and related documentation, organized according to OPM’s six standards for success, are given in the following text. Also, table 3 is a summary of the DHS plan’s satisfaction of all 27 key practices. Appendix II contains our full analysis of the plan’s satisfaction of these 27 practices. Both the summary and full analysis contain examples to demonstrate full or partial satisfaction of the practices. They do not contain all examples of DHS’s accomplishments or limitations to a given key practice. Strategic alignment. DHS’s plan and related documentation satisfy a number of strategic alignment practices. For example, they specify human capital goals for the IT organization and provide for linking them to departmental human capital goals. More specifically, the plan identifies such IT human capital goals as meeting current and future mission needs, recruiting a high-quality IT workforce, and motivating and retaining high performers. The plan further states that IT human capital programs and initiatives should produce performance outcomes that support the overall DHS strategic goal of operational excellence. In addition, the plan calls for involving key stakeholders—such as the CIO, the CHCO, and their component agency counterparts—in carrying out a range of workforce planning activities, such as conducting a workforce analysis, developing an inventory of current staff skills, and identifying the future skills that are needed for mission-critical positions. By addressing these key practices, the plan helps set the overall direction and tone for strategic management of IT human capital and lays a foundation for demonstrating management commitment and promoting buy-in across the organization. However, the plan and related documentation do not fully satisfy other key practices. For example, they do not include specific milestones for when most defined activities and steps are to be completed. This is a serious limitation because milestones help to ensure that resources needed to execute plans are allocated, and they provide a basis for measuring progress. In addition, although the plan provides for involving key stakeholders, it does not assign stakeholders responsibility and accountability for specific activities. Without fully addressing these practices, the plan does not provide an adequate basis for promoting accountability for results, and thus ensuring that the plan will be effectively implemented. Workforce planning and deployment. The plan and related documentation satisfy a number of key practices in this standards area, including provision for incentives for new recruits, training for existing staff, and an exchange program to draw on private sector personnel with necessary skills. This is important because such practices are essential ingredients to acquiring, training, and deploying an effective workforce. However, the plan does not provide for regular collection and analysis of data on promotions, conversions, separations, and retirements to show an understanding of trends and related indicators of performance. Without this information, DHS will be limited in its ability to know whether the techniques being employed are effective, and thus performance results and accountability goals are being met. Leadership and knowledge management. DHS’s plan and supporting documentation provide for a number of leadership and knowledge management practices. For example, DHS planning documents (e.g., DHS Succession Management Plan FY 2006–2009) supporting the IT human capital plan describe and encourage leadership development across all DHS components through application of the department’s Leadership Competency Framework and succession approach to workforce planning efforts. The plan also identifies succession planning goals and objectives, implementation strategies, and program evaluation critical success factors to achieve expected leadership outcomes. These efforts are important because they show how the department and components plan for and minimize the impact of changes to its leadership team arising from retirements and separations. However, the plan does not address how these activities are to be linked to and reflected in department annual performance plans and budgets. Having performance plans and budgets that address the IT human capital goals is vital to ensuring that the plan is properly funded to ensure implementation. Results-oriented performance culture. DHS’s plan and supporting documentation satisfy key practice elements under this standards area, such as identifying outcome-based human capital goals for its IT workforce and linking these goals to departmental strategic plans. However, the plan does not address linking each work unit’s efforts and performance to these goals. Linking the work units to goals is important because it provides a framework for setting performance expectations, determining whether expectations are met, and establishing accountability, each of which is critical to effective and efficient plan implementation. Talent management. DHS’s plan addresses important practices related to talent management, including documenting mission-critical occupations, strategizing how to reduce competency gaps between the workforce’s current skills and those needed to achieve mission goals, and tracking efforts to implement strategies. In particular, it provides for a monthly forum hosted by the IT Human Capital Resource Center for DHS components to share ideas and strategies for recruitment, retention, and training of their workforces. These initiatives are important because they provide a disciplined and systematic approach to identifying and reducing organizational skill shortfalls, and thus contribute to better ensuring that DHS has the right people with the right skills. However, neither the plan nor supporting documents fully provide for measuring whether its recruitment and training efforts are closing competency gaps. Such performance measurement is vital to effective plan implementation because it provides feedback on the effectiveness of efforts and the need for corrective action. Accountability. The plan addresses the key practice for establishing and using applicable merit principles and standards in appraising IT staff performance, and for establishing a process for employee grievances to be considered and addressed. However, the plan does not fully address other accountability-related practices. For example, it does not provide for proactively identifying where the department is at risk with regard to attaining its IT human capital goals and developing initiatives to mitigate any high risks. This is a significant omission because proactively managing risks is a proven means for avoiding problems before they can occur. According to DHS officials responsible for developing the plan, the 12 key practices were not fully addressed for several reasons. Specifically, they stated that uncertainty surrounding the source of resources for implementing the plan led to a lack of a clear definition of stakeholder roles and responsibilities, which in turn made setting realistic milestones impractical. They added that a number of other IT priorities that were competing for resources, such as consolidation of data centers, also contributed to the 12 practices not being addressed, while other omissions were purely an unintended oversight, such as not addressing central management of risks. According to the officials, the next version of the plan, which is tentatively scheduled to be released in the second quarter of fiscal year 2008 based on the assumption that resources are made available, is to address all of these omissions. Without a comprehensive IT human capital plan, DHS does not have an effective means for ensuring that it has the right people in the right place at the right time to achieve the department’s mission-related IT goals. The department has acknowledged this risk and estimates there is currently a medium-to-high level of risk of not meeting DHS’s mission due to personnel and competency and skill shortages. The DHS departmental offices and component agencies that share responsibility for implementing the IT human capital plan have collectively made little progress in doing so. In general, the DHS Offices of the CHCO and the CIO have done more to implement the plan than have the DHS component agencies, as described in the following text. The plan’s state of implementation is due to both a lack of clarity around the respective implementation-related roles and responsibilities of the various DHS organizations involved, as well as the lower funding priority that these organizations have given to the plan’s implementation relative to other competing IT efforts. Until a complete and well-defined IT human capital plan is effectively and efficiently implemented, the department will continue to run the risk of not having the people it needs to leverage technology in achieving organizational transformation and mission goals. At the department level, the CIO and the CHCO organizations, working with the CIO Council’s Human Capital Resource Center, have together performed some of the tasks in the plan. For example, they have performed a gap analysis between existing and future skill needs and have begun examining strategies for reducing the identified gaps. They have also identified mission-critical occupations and skills necessary to achieve departmental goals. However, it is unclear which organization has primary responsibility for the plan. According to officials from both the Offices of the CHCO and the CIO, primary responsibility for the IT human capital plan and its implementation has recently moved from the CIO to the CHCO. However, these officials have yet to provide us with documentation of this transfer in responsibility. Despite the previously noted positive steps toward implementing the plan, officials from the CIO and the CHCO offices told us that the plan is largely not implemented. For example, while DHS is collecting information on the number of increasing, decreasing, and new mission-critical occupations, it is not identifying and analyzing year-to-year changes and trends to determine whether recruitment and retention strategies need to be updated to meet current organizational needs. In addition, although the department has documented performance goals and objectives for some work units (e.g., managers in Customs and Border Protection) and linked them to department-level organizational goals, it had not done so for much of the department. At the component level, none of the three agencies that we reviewed had begun implementing the plan, as described in the following text. The Coast Guard had not implemented the plan. According to Coast Guard officials, including the Director, Future Force, and the Chief of Human Resource Information Services, they were aware of the plan’s existence, but were unaware of any requirement to implement it. However, they stated that their own human capital efforts satisfy everything in the plan. For example, these officials said that they had performed workforce analyses to determine skill and competency gaps and have employed a range of strategies, such as strategic recruitment through direct hiring authority and internal training, to fill the gaps. The Coast Guard has yet to provide us with documentation to substantiate these statements. Customs and Border Protection had not implemented the plan, although officials from its Office of Information Technology and the Office of Human Resources Management told us that they were aware of the plan and the need to implement it. According to these officials, the agency is in the process of developing a strategy to implement the plan. They also stated that the strategy was to be completed in June 2007, but it is still under development. On August 30, 2007, the officials reported that the strategy had been completed. We have not yet received the strategy and had an opportunity to analyze it. The Federal Emergency Management Agency had not implemented the plan. Agency officials, including the Deputy CIO and the Chief of the Human Capital Branch, stated that they were aware of the plan but were unaware of a requirement to implement it. They also stated that their agency human capital efforts nevertheless were fully consistent with the plan. However, the officials have yet to provide analysis and related documentation to support these statements. In addition, the officials added that they are in the process of developing an agencywide human capital plan—addressing both IT and non-IT personnel—that is to be consistent with the plan and is to be issued on October 1, 2007. The lack of implementation progress can be attributed in part to ambiguity surrounding implementation roles and responsibilities. In particular, the plan itself is in large part silent on implementation roles and responsibilities as well as implementation accountability mechanisms. Moreover, as we have previously noted, the plan does not address important aspects of OPM’s key practices that are implementation related. To help clarify the plan, including implementation roles and responsibilities, the DHS CIO Council’s Human Capital Resource Center developed an implementation briefing and provided it to the CIO Council members in November 2005. However, the briefing does not assign specific implementation activities to specific organizations. Rather, it groups implementation activities into solution sets and then broadly assigns these sets to department and component agency CIOs, CHCOs, and human capital directors. As a result, department and component agency officials told us that they were not clear on who was responsible for what, particularly with regard to the sources of funding and staff. Moreover, as we have previously noted, officials for at least one component agency were not even aware that they were required to implement it, or what their roles and responsibilities were relative to implementation. The lack of implementation progress can also be attributed to resources being assigned to competing IT initiatives that were judged to be higher priorities. According to DHS CIO officials, including the CIO Council senior executive leading the effort, when it came time to fund implementation of the plan, the department and components decided to fund other priorities, such as DHS’s effort to consolidate multiple component data centers and create a unified departmental network. Furthermore, the IT Human Capital Resource Center program manager responsible for implementing the plan resigned in January 2006, and his replacement left in November 2006. According to DHS CIO and CHCO officials, the department has not provided funding to fill the position, which still remains vacant. Department and component officials agreed that the IT human capital plan is largely not implemented. However, they stated that they are nonetheless following many of the OPM framework practices in the plan as a by- product of fulfilling their periodic reporting requirements to OMB on the President’s Management Agenda human capital initiatives. Specifically, the department and its components are required to report quarterly to OMB on progress in meeting certain human capital goals, such as filling mission-critical positions and delivering training to strengthen key IT knowledge, skills, and abilities. For example, the actions reported to OMB require the department and components to identify mission-critical occupations and competencies, develop recruitment strategies to maintain mission-critical competencies at desired levels, and report on progress toward achieving human capital goals, which are also called for by the plan and OPM’s framework. Our analysis showed that efforts related to this reporting requirement align with about 12 of the 27 practices that we examined. DHS officials did not disagree with this analysis. This means that despite a number of IT human capital-related activities, the department and its component agencies are not implementing the full range of practices needed for effective management of IT human capital. An effective DHS IT workforce is essential to the department’s efforts to leverage technology in transforming itself and achieving mission goals and outcomes. Central to creating and sustaining such a workforce is developing a comprehensive IT human capital plan that reflects relevant guidance and best practices, and ensuring that the plan is effectively implemented. While much of such a plan has been developed, and thus a planning foundation exists upon which to build, this plan is nevertheless lacking with respect to relevant guidance and best practices aimed at, among other things, ensuring that the plan is effectively implemented. Moreover, actual implementation of the plan to date has been limited, with much remaining to be accomplished by the department CIO and CHCO organizations as well as their DHS component agency counterparts. The status of the plan and its implementation is largely attributable to the lack of clarity surrounding implementation roles and responsibilities, and the lack of priority being given to the plan’s implementation relative to competing IT priorities at the department and component agency levels. Until DHS has a comprehensive plan and follows through to ensure that it is effectively implemented departmentwide, it will remain challenged in its ability to have sufficient people with the right knowledge, skills, and abilities to effectively leverage technology in support of transformation and mission goals. To strengthen DHS’s management of IT human capital, we recommend that the Secretary of Homeland Security direct the Under Secretary for Management and the head of each DHS component agency to instruct their respective CIOs and human capital directors to make development and implementation of a comprehensive IT human capital plan an imperative within each organization. In this regard, we recommend that the Secretary direct the Under Secretary and the component agency heads to ensure that (1) IT human capital planning efforts fully satisfy relevant federal guidance and related best practices, (2) roles and responsibilities for implementing the resulting IT human capital plan and all supporting plans are clearly defined and understood, (3) resources needed to effectively and efficiently implement the plans are made available, and (4) progress in implementing the plans is regularly measured and periodically reported to DHS leadership and Congress. In written comments on a draft of this report, signed by the Director, Departmental GAO/Office of Inspector General Liaison and reprinted in appendix III, the department stated that it agreed with our recommendations. Consistent with our report, it also stated that the state of IT human capital management varies widely across DHS component organizations, and it acknowledged that a lower priority has been assigned to IT human capital relative to other IT-related matters. In addition, DHS stated that it understands the importance of IT human capital planning and that it will dedicate the resources needed to ensure that it has a highly skilled and effective IT workforce. DHS also provided what it termed additional information about ongoing and planned activities to update and clarify the status of its IT human capital efforts, particularly with regard to the key practices that we determined to be “partially satisfied.” Among other things, DHS stated that some of our determinations were based on the DHS IT Human Capital Strategic Plan (2005), which was not intended to include certain details relative to achieving results, such as milestones, time frames, and roles and responsibilities. According to DHS, this plan is a high-level strategy and not a “blueprint for execution.” Rather, it said that the IT Gap Analysis Report and Improvement Plan (2007) is the department’s “operative diagram” for achieving its human capital goals and results. We agree that the IT Gap Analysis Report and Improvement Plan (2007) is relevant to our determinations. However, we disagree that our determinations were based solely on the strategic plan. As described in our report’s scope and methodology, our determinations were based on examining all relevant documentation that the department provided for each key practice, including the IT Gap Analysis Report and Improvement Plan (2007), as well as on interviews with key officials from DHS’s Offices of the CIO and CHCO, the CIO Council executive sponsor for Human Capital issues, and officials from the department’s IT Human Capital Resource Center. Accordingly, the determinations in our draft report already recognized most of the additional information that DHS provided. In cases where new information was provided, we have incorporated, or otherwise recognized, this information in our report as appropriate. We are sending copies of this report to the Chairmen and Ranking Members of the Senate and House committees that have authorization and oversight responsibilities for homeland security and other interested congressional committees. We are also sending copies to the Directors of OMB and OPM; the DHS Secretary, Undersecretary for Management, CHCO, and CIO; the component agency heads; and other interested parties. In addition, the report will also be available without charge on GAO’s Web site at http://www.gao.gov. Should you have any questions about matters discussed in this report, please contact me at (202) 512-3439 or by e-mail at hiter@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. The objectives of our review were to determine (1) whether the Department of Homeland Security’s (DHS) information technology (IT) human capital plan is consistent with federal guidance and associated best practices and (2) the status of the plan’s implementation. To address our first objective, we reviewed the department’s May 20, 2005, IT human capital plan, which DHS labeled as “Draft Final for Discussion Purposes” and submitted on August 30, 2006, to the Senate and House Appropriations Committees pursuant to requirements in DHS’s fiscal year 2006 appropriations act. We evaluated this plan and supporting documentation against selected practices in the Office of Personnel Management’s (OPM) Human Capital Assessment and Accountability Framework. We used this framework because it is the federal guidance that DHS used in developing its plan, and because the framework reflects the human capital best practices in GAO’s strategic human capital model. In addition, this framework provides a method for assessing the adequacy of a human capital plan. In applying this method, we focused on 27 practices in the framework that are essential to a well-defined and useful plan and that span the six standards areas in the framework. We also validated our use of the 27 practices with OPM. Using the framework’s method, we compared the DHS IT human capital plan and supporting documentation with each of the elements comprising the 27 practices. We also interviewed (1) officials from DHS’s Offices of the Chief Information Officer (CIO) and the Chief Human Capital Officer (CHCO); (2) the CIO Council executive sponsor for Human Capital issues; and (3) officials from the department’s IT Human Capital Resource Center, which helped develop the IT human capital plan and supporting documentation. In performing our comparative analysis, we determined if the practice was fully satisfied, partially satisfied, or not satisfied. For purposes of this review, we defined “fully satisfied” to mean that the agency demonstrated, through verifiable evidence, that it had addressed all aspects of the key practice; “partially satisfied” to mean that such evidence showed that some, but not all, aspects of the key practice had been addressed; and “not satisfied” to mean that such evidence showed that none of the aspects of the key practice had been addressed. In addition, we shared all of our preliminary determinations with officials from the DHS CIO Council and the DHS Office of the CHCO and provided them with an opportunity to comment on these determinations. These officials agreed with many of our determinations but also provided additional evidence to support revising others, which we have done and incorporated in this report. For our second objective, we reviewed plan implementation activities within the DHS Offices of the CIO and the CHCO and three DHS component agencies: the Coast Guard, Customs and Border Protection, and the Federal Emergency Management Administration. We selected these components because based on DHS’s fiscal year 2006 budget, they were among the largest with respect to total budget, IT budget, and IT staff positions. Thus, the scope of our component agency coverage extended to about $20 billion of DHS’s $40 billion total budget; $720 million of the department’s $2.2 billion IT budget; and 60 percent of its IT personnel. In each of these organizations, we requested and reviewed available documentation on its respective efforts to implement the plan, including development of supporting implementation plans, completion of tasks, and the status of ongoing efforts related to IT human capital. We also interviewed responsible officials from DHS’s Offices of the CIO and the CHCO; the Coast Guard’s Human Resources Directorate; Customs and Border Protection’s Office of Human Resources Management; and the Federal Emergency Management Administration’s Office of the CIO and its Office of Human Resources Management. We performed our work at DHS headquarters in Washington, D.C., from October 2006 through July 2007, in accordance with generally accepted government auditing standards. Key stakeholders—identified by DHS as including the CIO, the CHCO, component agency CIO and human capital directors, and the IT Human Capital Resource Center— participated in the development of the department’s IT human capital plan and workforce planning and analysis efforts. For example, in March 2005, DHS held an off-site meeting with these stakeholders to facilitate collaboration and to gather stakeholder input as part of plan development efforts. DHS’s IT human capital plan also states that the department intends to involve these stakeholders in efforts to periodically revise the plan to reflect current priorities and conditions. Furthermore, the plan and supporting documentation identify these stakeholders as participating in analyzing and identifying the department’s workforce needs and in developing a departmentwide workforce plan to fill identified gaps. The organization defines successful achievement of its mission in terms of valid and reliable data, including both long- and short-term human capital performance goals. In its IT human capital plan and supporting documentation, DHS defines accomplishing its near-term and long-term IT human capital goals and objectives in terms of qualitative and quantitative measures that are to be based on valid and reliable data, and links them to accomplishing DHS’s mission. Specifically, the plan identifies departmental human capital goals, such as recruiting a high-quality IT workforce, training its IT workforce to be capable, and retaining high performers. It also describes how these goals support the strategic goal of empowering the IT workforce and how this helps to achieve DHS’s mission. Trends in mission-critical occupations are analyzed in terms of suggested factors in order to continually adjust the agency’s recruitment and retention strategy to its current state of need. In the IT human capital plan and supporting documentation, the department provides updates for fiscal years 2004 and 2005 on, for example, the number of mission-critical occupations that are increasing, decreasing, or new. However, the plan and supporting documentation generally do not identify and analyze the year-to-year trends. For example, supporting documentation (e.g., the DHS Workforce Plan FY 2005–2008) has data for 2003 and 2004, but the year-to-year changes and trends in occupations are not identified and analyzed to determine whether the recruitment and retention strategy needs to be updated to meet the current state of organizational need. In addition, while DHS officials noted an example of one component agency (Transportation Security Administration) adjusting its recruitment and retention strategy to meet the current state of need, they stated that most components are not adjusting recruitment strategies on the basis of available occupation data. An integrated human capital planning process is in use, including representatives from the agency/unit human capital team, the primary IT human capital officer, and senior leaders and managers from mission- specific program areas. DHS’s IT human capital plan and supporting documentation identify use of a human capital planning process that includes stakeholders from across the department and component agencies. For example, in developing the IT human capital plan, the department used a process involving representatives from the department’s CHCO, CIO, and component offices, among others. This was also the case with regard to other supporting documentation. For example, in developing the DHS Workforce Plan FY 2005–2008, the department brought together stakeholders from across the department to collaborate on and produce this product. This workforce plan also defines a human capital planning process whose stated purpose is to help identify, in an integrated and cost- effective manner, the human capital resources needed to meet mission goals and develop strategies for developing or acquiring those resources. Mission-critical occupations and competencies are identified in the agency’s strategic plan and/or performance plan, and its strategic human capital plan. Although documentation supporting DHS’s IT human capital plan identifies mission-critical occupations (e.g., IT project managers and IT security specialists), the IT human capital plan and other DHS strategic and human capital plans do not. Specifically, DHS’s IT Human Capital Plan to Mitigate IT Competency and Skill Gaps and the DHS Workforce Plan FY 2005–2008 identify technical competencies and skills needed for IT occupations. However, the DHS IT human capital plan and the departmentwide strategic and human capital plans do not identify mission-critical IT occupations and competencies. While documents supporting DHS’s IT human capital plan (e.g., the November 2005 implementation briefing and the May 2007 IT Gap Analysis Report and Improvement Plan) include milestones and assign roles and responsibilities, neither these documents nor the IT human capital plan include specific time frames or milestones for when most defined activities and steps are to be completed. In addition, although the supporting documents and the plan provide for involving key stakeholders, they do not assign stakeholders responsibility and accountability for specific activities. Key human capital leaders and agency stakeholders utilize collaborative mechanisms/forums that provide a venue for consistent dialogue in the planning process (e.g., team members of review boards, working groups, or executive off-sites). DHS’s IT human capital plan and supporting documentation describe the department’s collaborative mechanisms and forums for planning strategic human capital activities. They include, for example, the DHS CIO Council, which is made up of component agency CIOs and which has monthly meetings to discuss, among other things, human capital matters. The council used this forum and off-site meetings to collaborate with the DHS CHCO office, the IT Human Capital Resource Center, and component human capital directors, among others, in developing the IT human capital plan. In addition, the department tasks the Human Capital Resource Center to bring together representatives from DHS and the components on a monthly basis to share ideas and strategies on emerging IT human capital issues. Furthermore, DHS established a Workforce Planning Council, comprising department and component agency officials, to develop a workforce plan and provide for analysis across DHS. In the IT human capital plan and supporting documentation, DHS documents a change management process that identifies human capital practices needed to achieve the department’s human capital objectives. For example, in the DHS Workforce Plan FY 2005–2008, the department describes its change management process that includes steps such as identifying departmental goals, identifying workforce requirements, developing a workforce strategy, and evaluating the effectiveness of the planning process. In addition, the IT human capital plan identifies certain practices—such as analyzing workforce needs and capabilities, developing an IT training strategy, implementing an IT leadership development program, and developing performance measures for accountability—as being critical to achieving DHS human capital objectives. Moreover, supporting documentation (e.g., DHS’s November 2005 implementation briefing) identifies traceable linkages between the practices it is intended to implement and IT human capital goals and objectives. Studies indicate which occupations and competencies are essential to achieving the agency’s strategic goals. Documentation supporting the IT human capital plan (e.g., DHS’s IT Human Capital Plan to Mitigate IT Competency and Skill Gaps) identifies occupations and competencies to achieve the agency’s strategic goals. For example, the department identified competencies within IT project management, information security, and enterprise architecture as being critical to achieving the department’s mission goals. Line managers and key staff, including human resources, consider and prepare for possible workforce changes in areas such as mission/goals, technology, program additions or deletions, functions, and outsourcing initiatives. DHS’s IT human capital plan and supporting documentation include guidance for managers and key staff to consider, plan, and prepare for changes in the department’s mission, programs, and workforce composition. Specifically, DHS’s IT human capital plan states that DHS managers should consider and prepare for changes in organizational goals, personnel, and technology. In addition, supporting documentation (e.g., the DHS Workforce Plan FY 2005–2008) acknowledges the possibility of workforce changes due to retirements and attrition. The workforce plan also states that it will serve as an integrated approach for addressing future business needs, and identifies steps that department managers should go through in planning for changes, including considering how changes will impact mission goals, programs, functions, and workforce composition. The workforce plan also states that managers should consider using alternative strategies, such as outsourcing. Turnover indicators are monitored regularly. Documentation supporting the IT human capital plan (specifically, the DHS Workforce Plan FY 2005–2008) identifies several factors to be monitored, including appointments, separations, and retirements, and assigns the responsibility for monitoring the factors to the department’s Office of the CHCO. This documentation also reports on the department’s appointments, separations, and retirements during fiscal years 2004 and 2005. A workforce analysis process is used on a regular basis for assessment and planning, and to drive human capital decisions. The IT human capital plan and supporting documentation show that DHS uses a workforce analysis process for human capital assessment, planning, and decisions. For example, supporting documentation (e.g., the DHS Workforce Plan FY 2005–2008) identifies workforce trends analyzed among cross-cutting and high-profile mission- critical occupations and the process established and followed to develop such trend data. Furthermore, the documentation also shows that DHS established a Workforce Planning Council that is responsible for ensuring that workforce planning and human capital initiatives are integrated consistently and cost-effectively across DHS. According to DHS CHCO officials, the department intends to conduct workforce analysis efforts every 2 years. However, these officials also report that not all components are using the workforce data on a regular basis to drive human capital decisions. The agency has a clearly defined strategy and plan to facilitate human capital changes. The IT human capital plan and supporting documents clearly identify human capital strategies and goals, but do not fully provide for how and when human capital changes will be made. For example, the plan defines strategic goals and objectives and states that an implementation plan is to be developed and executed with performance measures, such as milestones, deadlines, and assignment of personnel responsible for achieving them. However, as we have previously discussed, DHS developed such a plan in November 2005 (i.e., the November 2005 implementation briefing) and later updated it in the May 2007 IT Gap Analysis Report and Improvement Plan, but these documents do not include specific time frames or milestones for when most defined activities and steps are to be completed. In addition, although the document provides for involving key stakeholders, it does not assign stakeholders responsibility and accountability for specific activities. Staffing data showing trends in appointments, promotions, conversions, separations, and retirements are analyzed regularly, and management decisions regarding workforce deployment are based on documented data. The IT human capital plan and supporting documentation include analyses of staffing data for appointments, separations, and retirements that are reported to the Office of Management and Budget (OMB) on a quarterly basis. In addition, these documents (e.g., the DHS Workforce Plan FY 2005–2008) include workforce trends analyses among cross-cutting and mission-critical occupations. However, trends in these data are not fully analyzed, and, according to DHS CHCO officials, not all components are using the data on a regular basis to drive human capital decisions. The agency uses multifaceted techniques to close competency gaps within the organization (e.g., strategic recruitment, midcareer hiring, and training). The IT human capital plan and supporting documentation provide for a variety of recruitment and training techniques to be used in closing competency gaps. For example, supporting documents (e.g., DHS’s IT Human Capital Plan to Mitigate IT Competency and Skill Gaps) describe efforts planned and under way to mitigate gaps using strategic recruitment through outsourcing, private/public cross training, internal training, and e-training. Leadership development and succession needs are considered, reflected in human capital plans and strategies, and addressed through related human capital management efforts/programs. The IT human capital plan and supporting documentation, in particular DHS’s Succession Management Plan FY 2006–2009, describe practices to be followed in developing the leadership skills of DHS personnel. These documents also identify succession planning goals and objectives, implementation strategies, and program evaluation critical success factors to measure whether expected outcomes are being achieved. The agency has a strategy and plan for communication of human capital changes and progress, and to capture employee feedback related to human capital practices and needs. In its IT human capital plan and supporting documentation, DHS identifies strategies and plans for communicating changes and progress to employees. For example, the IT human capital plan includes initiatives to improve communication on human capital changes and progress, such as developing training materials and courses to educate supervisors on how to (1) take advantage of hiring flexibilities; (2) promote the use and accessibility of departmentwide training opportunities, including e-learning; and (3) provide Web-based information on training and human capital policies and procedures. In addition, supporting documentation, such as the DHS Workforce Plan FY 2005–2008, includes a communications plan on how to keep DHS personnel informed on workforce changes, including the department’s progress in implementing them. Furthermore, according to DHS CHCO and CIO officials, the department captures employee feedback on its practices through representatives to the IT Human Capital Resource Center and also through annual IT staff surveys. Annual performance plans, budgets, and performance reports document plans for and progress toward human capital goals. As directed by OMB, DHS reports quarterly on its progress on human capital goals. However, DHS’s IT human capital plan and supporting documentation do not provide for developing annual performance plans, budget documents, or performance reports that discuss plans for and progress against human capital goals. In addition, the information reported to OMB is primarily on DHS efforts to close IT competencies and skills gaps, which is just one of the multiple goals and objectives in DHS’s plan and supporting documentation. Work units have documented performance goals and objectives linked to the agency strategic plan and performance plan. Although DHS’s IT human capital plan and related documentation support having measurable performance goals for work units, such performance plans and measures have not been fully developed. For example, DHS CIO and CHCO officials stated that although the department has documented performance goals and objectives for some work units (e.g., managers in Customs and Border Protection) and linked them to department-level organizational goals, it had not done so for much of the department. Specifically, only managers in the DHS CHCO’s office and also at Customs and Border Protection have performance objectives that are linked to strategic plans. The agency’s strategic planning process documents and tracks mission-critical occupations and competency gap-reduction efforts. DHS’s IT human capital plan and supporting documentation provide details on the department’s strategic planning process, including the reporting and tracking of mission-critical occupations and efforts to reduce competency gaps. For example, in supporting documentation (e.g., the DHS Workforce Plan FY 2005– 2008), the department describes a workforce planning process that is to help identify the human capital resources needed to meet mission goals and develop strategies for developing or acquiring those resources. In addition, other supporting documentation (e.g., the IT Human Capital Plan to Mitigate IT Competency and Skill Gaps) identifies mission-critical IT occupations and high-level efforts needed to close its competency gaps. The department uses its OMB quarterly reports to document and track the status of efforts to close those competency gaps. Strategies are developed and implemented for reducing competency gaps through training, development, or alternative sources. As described in its IT human capital plan and supporting documentation, DHS’s strategies to close its competency gaps consist of a number of human capital initiatives, including training, staff development, and an outside executive exchange program. Specifically, DHS’s IT Human Capital Plan to Mitigate IT Competency and Skill Gaps details planned and ongoing efforts to mitigate gaps using, for example, strategic recruitment through outsourcing, private/public cross training, internal training, and e-training. The IT human capital plan and supporting documentation state that data on its progress toward meeting human capital goals will be reported to OMB and DHS management as required; they do not, however, specify what data are to be reported. The department reports quarterly to OMB on the status of efforts to close competency gaps. In addition, a recently completed (May 2007) DHS workforce survey and gap analysis identify existing IT competency gaps, but do not indicate any progress in closing them. According to DHS CHCO and CIO officials, the department to date has had limited resources and data available to assess the effectiveness of ongoing efforts to close competency gaps. They further stated that they intend to use the newly completed analysis as a baseline for measuring the success of future efforts. Recruitment strategies are created to maintain mission-critical competencies at the desired level using business forecasting and workforce analysis results. Documentation supporting DHS’s IT human capital plan provides for developing recruiting strategies based on workforce forecasting and analysis results. For example, the DHS Workforce Plan FY 2005–2008 states that the department is to use a strategic approach to recruitment and workforce planning. In addition, it identifies a DHS corporate recruitment workgroup, which includes senior human resources and civil rights staff throughout DHS, who are to assess departmentwide recruitment activities and tools; coordinate participation in recruitment fairs; and develop recruitment strategies and activities for crosscutting occupations, primarily entry-level positions. In May 2007, the department developed an improvement plan that provides updated strategies for addressing competency gaps and maintaining mission-critical competencies. This plan is based on the analysis of a recently completed workforce survey. Human capital risks are tracked, documented, and reported to a central advisory or management board, and action is taken to mitigate high-risk areas. Documents supporting DHS’s IT human capital plan (e.g., the IT Human Capital Plan to Mitigate IT Competency and Skill Gaps and the IT Gap Analysis Report and Improvement Plan) identify and document some but not all key human capital risks and do not provide for reporting risks to management or a management board. More specifically, these plans document that failure to fill critical competency and skill sets (e.g., IT project management and IT security) poses a medium-to-high human capital risk to DHS’s ability to achieve mission goals. However, DHS CHCO and CIO officials acknowledged that the department does not track these risks through any formal mechanism. In addition, they stated that DHS has not established a comprehensive effort to identify and track the full range of human capital risks facing the department, as well as reporting those risks to management or a central advisory or management board. Applicable merit principles and standards are upheld, and employee grievances are considered and addressed. DHS’s IT human capital plan and supporting documentation provide for the application and enforcement of merit principles and standards and for considering and addressing employee grievances. For example, the plan recognizes that the department has legislative and regulatory requirements to implement performance-based management practices, including merit principles and standards, for its IT workforce. In addition, an OPM analysis of DHS’s human resources management operations reports that the department’s human resources management operates in a consistent manner with merit principles. Moreover, DHS has a policy directive that defines the process for administering its employee grievance system. The department also regularly reports to management and employees on the number of grievances filed and resolved as well as the number of cases outstanding. Program and initiative implementation efforts include published plans that clearly outline periodic review of performance and desired outcomes. DHS’s IT human capital plan and supporting documentation provide for performance reviews of desired outcomes. For example, supporting documentation (specifically, DHS’s IT Human Capital Plan to Mitigate IT Competency and Skill Gaps and IT Gap Analysis Report and Improvement Plan) provides analyses and snapshots of the department’s performance in trying to close gaps in mission-critical competencies. However, these competency gap snapshots do not constitute a comprehensive review and evaluation of progress against all of the objectives established in the human capital plan. In addition, DHS’s IT human capital plan and supporting documentation do not clearly outline or identify time frames for periodic review. DHS CHCO and CIO officials stated that they intend to address this in future revisions to the plan. DHS’s IT human capital plan does not clearly assign accountability for human capital improvements or provide for regular assessments of that accountability. However, documents supporting the plan (specifically, the department’s November 2005 implementation briefing and the May 2007 IT Gap Analysis Report and Improvement Plan) do assign accountability and responsibility for human capital improvements. For example, the documents assign accountability to the DHS CHCO, DHS CIO, and component agency heads to make improvements related to closing selected competency gaps. However, the documents do not provide for assessing accountability on a regular basis and using the results as an input into future planning and resource allocation decisions. DHS CHCO and CIO officials stated that while data related to competency gaps are used as an input, data regarding accountability are not. In addition to the individual named above, Gerard Aflague, Mathew Bader, Justin Booth, Barbara Collier, S. Mike Davis, Bill Doherty (Assistant Director), and Gary Mountjoy (Assistant Director) made key contributions to this report.	In performing its missions, the Department of Homeland Security (DHS) relies extensively on information technology (IT). Recognizing this, DHS's fiscal year 2006 appropriations act required its Chief Information Officer (CIO) to submit a report to congressional appropriations committees that includes, among other things, an IT human capital plan, and the act directs GAO to review the report. GAO's review addressed (1) whether the IT human capital plan is consistent with federal guidance and associated best practices and (2) the status of the plan's implementation. In performing its review, GAO compared DHS's plan and supporting documentation with 27 practices in the Human Capital Assessment and Accountability Framework of the Office of Personnel Management, and examined plan implementation activities at three DHS component agencies. DHS's IT human capital plan is largely consistent with federal guidance and associated best practices; however, it does not fully address a number of important practices that GAO examined. Specifically, the plan and supporting documentation fully address 15 practices; for example, they provide for developing a complete inventory of existing staff skills, identifying IT skills that will be needed to achieve agency goals, determining skill gaps, and developing plans to address such gaps. They also provides for involving key stakeholders--such as the CIO, the Chief Human Capital Officer (CHCO), and component agency CIOs and human capital directors--in carrying out the skill gap analyses and other workforce planning activities. Nevertheless, elements of 12 of the 27 practices are not included in the plan or related documentation. For example, although the plan and supporting documents describe the department's IT human capital goals and steps necessary to implement them, most steps do not include associated milestones. In addition, although the plan and supporting documents provide for involving key stakeholders, they do not specifically assign these stakeholders responsibility and accountability for carrying out planned activities. These and other missing elements of the practices are important because they help ensure that the plan is implemented efficiently and effectively. DHS officials provided various reasons why the missing practices were omitted, including uncertainty surrounding the source of resources for implementing the plan and the demands of other IT priorities, such as consolidating component agency data centers. To date, DHS has made limited progress in implementing the plan, according to officials from the offices of the department's CIO and CHCO and three DHS agencies (the Coast Guard, Customs and Border Protection, and the Federal Emergency Management Agency). These officials said that they are nonetheless following several of the practices because they are required to report quarterly to the Office of Management and Budget on progress in meeting such human capital goals as filling mission-critical positions and delivering key IT training. DHS officials stated that the department's limited progress in implementing the plan was due to its focus on other priorities, and ambiguity surrounding plan implementation roles and responsibilities. Until DHS has a complete plan that fully addresses all practices and the department and components implement the plan, DHS will continue to be at risk of not having sufficient people with the right knowledge, skills, and abilities to manage and deliver the IT systems that are essential to executing the department's mission and achieving its transformation goals.	15.5	8k-16k	4,502
31	DOD’s Office of the Under Secretary of Defense for Personnel and Readiness is the adviser to the Secretary of Defense for total force management, and as such the Under Secretary, among other things, is responsible for identifying civilian requirements for Senior Executive Service, Senior Level, and Senior Technical positions. Specifically, the Office of the Under Secretary of Defense for Personnel and Readiness directed the last review of DOD’s Senior Executive Service, Senior Level, and Senior Technical positions in a 2008 baseline review. The Principal Deputy directed that the review be completed in 60 days and stated that the results would be used to respond to reporting requirements in the National Defense Authorization Act for Fiscal Year 2007. This act required DOD to, among other things, assess its requirements for senior management, functional, and technical personnel (including scientists and engineers) in light of recent trends. Similarly, the Office of the Under Secretary of Defense for Intelligence exercises overall supervision and policy oversight for human capital within the defense intelligence community. In 2007, this office sent DOD’s intelligence community guidance for a review of Defense Intelligence Senior Executive Service and Defense Intelligence Senior Level civilian leader workforce requirements. This review, according to the guidance, was intended to spur an examination and validation of senior civilian requirements, provide DOD management with evidence that resources were being used wisely, and provide an explanation of what resources the intelligence community required and why, so that officials could make budget allocations decisions and defend those requirements before Congress. The intelligence community had 120 days to conduct its review. Recently, however, a September 3, 2010, memorandum directed the department to perform a similar study of these positions to support efficiency initiatives that are expected to result in a reduction of at least 150 civilian senior leader positions. In addition to the above, the Office of the Under Secretary of Defense for Personnel and Readiness oversees the process for identifying the need for additional Senior Executive Service, Senior Level, and Senior Technical personnel. When an entity in DOD identifies a need for an additional Senior Executive Service, Senior Level, or Senior Technical allocation, the need is sent to either an executive board or office that reviews the request. Once the executive board or office has reviewed all requests, they are forwarded to an approving official, typically the secretary of the service, an under secretary, or someone in an equivalent position. Once the list is approved, it is sent to the Civilian Personnel Management Service within the Office of the Under Secretary of Defense for Personnel and Readiness, which aggregates, levels, and forwards the list to the Under Secretary of Defense for Personnel and Readiness who reviews and approves the list before it is sent to OPM. OPM, in consultation with the Office of Management and Budget, assigns Senior Executive Service, Senior Level, and Senior Technical allocations every 2 years to DOD and all other federal agencies. During the biennial review, OPM establishes guidelines for executive branch agencies to follow when requesting additional Senior Executive Service, Senior Level, and Senior Technical allocations; evaluates agency requests for new allocations; and authorizes increases in the number of allocations for each agency. OPM conducted the most recent biennial review in 2009 for allocations to be granted for fiscal years 2010 through 2011. Figure 1 depicts DOD’s process for identifying and communicating the need for additional DOD Senior Executive Service, Senior Level, and Senior Technical requirements for the services, the Office of the Secretary of Defense, the defense agencies, the Joint Staff, and DOD’s combatant commands. Because the maximum number of Defense Intelligence Senior Executive Service allocations is established by law, DOD uses a separate process to communicate the need for additional Defense Intelligence Senior Executive Service personnel. On the basis of requirements identified by the military services’ intelligence branches and the defense intelligence community agencies, the Office of the Under Secretary of Defense for Intelligence develops legislative proposals to request increases in the number of Defense Intelligence Senior Executive Service allocations. The office provides the legislative proposal to the Office of the Under Secretary of Defense for Personnel and Readiness, which submits the proposal to DOD’s General Counsel for inclusion in DOD’s general legislative proposal program. The Secretary of Defense was provided with authority to create a separate Defense Intelligence Senior Executive Service workforce by section 1632 of the National Defense Authorization Act for Fiscal Year 1997. The legislation also stipulates that the Defense Intelligence Senior Executive Service workforce is equivalent to the Senior Executive Service workforce. A DOD draft directive—which department officials said was in use at the time of our review—states that individuals serving in Defense Intelligence Senior Executive Service positions have the same administrative requirements and responsibilities as federal Senior Executive Service personnel. Figure 2 depicts DOD’s process to support requests to Congress for additional Defense Intelligence Senior Executive Service allocations. As of September 2009, DOD was authorized 2,934 allocations for its civilian senior leader workforces, representing less than 1 percent of DOD’s total civilian workforce. Table 1 provides the number of DOD Senior Executive Service, Senior Level, and Senior Technical allocations authorized by OPM, the number of Defense Intelligence Senior Executive Service allocations authorized by statute, and the number of Defense Intelligence Senior Level allocations authorized by the Under Secretary of Defense for Intelligence as of September 2009. For perspective, appendix II provides information on the number of employees working in selected federal agencies across the government and their respective number of civilian senior leader personnel, as of September 2009. Appendix III provides three tables on the number of Senior Executive Service, Senior Level, and Senior Technical allocations OPM made to selected executive branch agencies from fiscal year 2000 through fiscal year 2009. In 2008, DOD conducted a baseline review to assess and validate Senior Executive Service, Senior Level, and Senior Technical workforce requirements and reported to Congress that this was a rigorous analysis. However, while the department’s approach appears reasonable, some of the information the components submitted in response to the review was incomplete and DOD did not document and summarize the information so that it could be readily traced back to the component submissions. Standards for internal control in the federal government state that documentation of transactions and other significant events is to be complete and accurate and is to facilitate the tracing of the transaction or event and related information. This applies to the entire process or life cycle of a transaction or event—from its initiation and authorization through its final classification in summary records. DOD’s April 2008 memorandum for the baseline review provided components a key opportunity to, among other things, validate and align DOD’s civilian senior leader workforce requirements, assess gaps in resource requirements, and identify component-specific strategic priorities. This memorandum was sent to the secretaries of the military departments, the Chairman of the Joint Chiefs of Staff, the under secretaries of defense, the commanders of the combatant commands, the assistant secretaries of defense, the General Counsel of DOD, the Director of Operational Test and Evaluation, the DOD Inspector General, the assistants to the Secretary of Defense, the Director of Administration and Management, the Director of Program Analysis and Evaluation, the Director of Net Assessment, the directors of the defense agencies, and the directors of DOD field activities. We found that the 2008 memorandum presents a reasonable way to validate baseline requirements. However, during the course of our review officials provided us with available data and information obtained from 21 components, and we found that some of the components submitted information that was incomplete and not all of the components submitted information specified in the baseline review. For example, DOD provided us with the data and information received from components, including the Defense Logistics Agency, the Defense Finance and Accounting Service, the Defense Information Systems Agency, the Defense Threat Reduction Agency, the Department of the Navy, and the Joint Chiefs of Staff. However, our review of the documents provided showed that at least 6 of the 21 defense components did not submit complete responses. For example, the Office of the Joint Chiefs of Staff provided information on its civilian senior leader positions, such as the responsibility of the positions; the operation, project, or program managed; and whether the positions are responsible for managing resources. However, the Joint Staff did not provide required narrative responses, such as position validation and missions and strategies supported. Additionally, according to a DOD official the Army and the Air Force did not submit information as specified in the 2008 memorandum for the baseline review. This official stated that the Army and the Air Force chose to use assessments of their Senior Executive Service, Senior Level, and Senior Technical workforces that had been conducted in response to OPM’s 2008-2009 Biennial Review of Executive Resources Allocations. However, this DOD official was unable to provide us with copies of the assessments completed by the Army and Air Force. It is therefore unclear if these documents addressed the objectives of the baseline review, which include such elements as aligning positions with the department’s 21st Century Leader criteria and proposing any new executive categories for optimum development, management, and utilization of executive talent. Additionally, DOD did not document or summarize the information so it could be readily traced back to the component submissions. Specifically, DOD was unable to provide us with documentation of aggregate, bottom- line conclusions from the analysis the department conducted after considering the individual component submissions. Moreover, department officials stated that they did not present their aggregate analysis in a report summarizing the results of the baseline review. DOD officials with knowledge of the baseline review told us that they did not intend to summarize the baseline review analysis or provide a final report on that review. They further stated that DOD did not summarize the analysis because the information was only intended to be used to support a variety of human capital management processes taking place in the department. For example, the department said it used information from the baseline review in DOD’s 2009 update to its Civilian Human Capital Strategic Plan. This update, which was provided to Congress, stated, for instance, that “Within DOD there are more than 1,300 Senior Executive Service positions.” However, this information about the number of senior executives shows how many positions existed at the time of the update and not how many were required. In addition, because there was no summary analysis of the components’ submissions, this number was not readily traceable to information provided by the individual components. Without clearly documenting or summarizing the information in an analysis that could be readily traced back to the component submissions, DOD is not providing Congress and other stakeholders—such as those in the chain of command—clear insight and visibility into DOD’s validation of requirements for its civilian senior leader workforces and whether those validated requirements reflect the results of its baseline review. In 2007, the Office of the Under Secretary of Defense for Intelligence conducted a review to examine and validate DOD’s Defense Intelligence Senior Executive Service and Defense Intelligence Senior Level positions; however, during the final months of our review, officials from this office were unable to provide us with information submitted by the defense intelligence components or with a summary analysis. As mentioned previously, standards for internal control in the federal government state that documentation of transactions and other significant events are to be complete and accurate and facilitate the tracing of the transaction or event and related information. This applies to the entire process or life cycle of a transaction or event—from its initiation and authorization through its final classification in summary records. According to DOD, information from this review was included in DOD’s 2008 update to its Civilian Human Capital Strategic Plan. Specifically, per a September 28, 2007, e-mail from the Office of the Under Secretary of Defense for Intelligence to the military service intelligence branches and the defense intelligence agencies, the review was intended to be a serious examination and validation of senior civilian requirements. The guidance also stated that the review was intended to encourage the most effective use of limited senior civilian resources. The 2007 memorandum presents a reasonable way to validate baseline requirements. According to a responsible defense intelligence official, the Office of the Under Secretary of Defense for Intelligence received submissions from all eight of the defense intelligence components to which the 2007 guidance was sent. This official told us that the responses consisted of information and data on each of the Defense Intelligence Senior Executive Service and Defense Intelligence Senior Level positions, such as the span of control and span of influence for these positions, along with their role in supervising and managing personnel and resources. In addition, this official told us that the overall results of the review were used to provide information to DOD’s 2008 strategic human capital plan. Specifically, when referring to the 2007 defense intelligence community’s review of senior leaders, the 2008 plan that was submitted to Congress stated, among other things, that the defense intelligence components (1) confirmed their positions had been validated, (2) examined the utilization of senior leader positions, and (3) identified the impact of organization and mission change. However, we were not able to verify such statements because the information from the defense intelligence components was not provided to us during the final months of our review. A defense intelligence official responsible for this review told us that the analysis associated with the review of senior leaders resulted in several changes to requirements in the defense intelligence agencies. For example, the official told us and the 2008 human capital plan states that the National Security Agency identified about 70 positions that were categorized as Defense Intelligence Senior Executive Service positions that could be reclassified at or below the General Schedule 15 level—therefore reducing overall requirements for the agencies’ civilian senior leaders. However, as mentioned previously, without the information from DOD that clearly documents or summarizes an analysis that could be readily traced back to the component submissions, we could not verify these statements. DOD officials told us that, while they were eager to do so they were not able to respond to requests for this information during the final months of our review due to other priorities. Furthermore, without this information, DOD is not able to provide Congress and other users of the information clear insight and visibility into the defense intelligence community’s validation of requirements for its civilian senior leader workforces and whether those validated requirements reflect the results of its review. For most entities—the Army, the Navy, the Air Force, the Office of the Director of Administration and Management, the Office of the Chairman of the Joint Chiefs of Staff, and other offices—DOD conducted an analytical assessment of needs using standard criteria. Specifically, in preparation for OPM’s 2010-11 Biennial Review of Executive Resource Allocations, the Office of the Under Secretary of Defense for Personnel and Readiness provided guidance to these entities; the entities used the criteria in the guidance to identify their most urgent needs for additional Senior Executive Service, Senior Level, and Senior Technical allocations. These entities, in turn, submitted evaluations of those needs and their justifications to the Civilian Personnel Management Service within the Office of the Under Secretary of Defense for Personnel and Readiness. The criteria specified in the DOD guidance included identifying the strategic mission requirement to be addressed by the allocation, the reporting relationship of the position and where it will be placed in the component’s organizational structure, the number of personnel expected to report to the person in the proposed position, and the source of funding expected to pay for the allocation. The Civilian Personnel Management Service considered these evaluations and then used nine standard, weighted criteria to score each request for additional Senior Executive Service, Senior Level, and Senior Technical allocations. Table 2 lists these nine standard, weighted criteria. Using these criteria, the Civilian Personnel Management Service developed a final list in priority order of the additional Senior Executive Service, Senior Level, and Senior Technical allocations needed and forwarded that list to the Office of the Under Secretary of Defense for Personnel and Readiness for approval. After approving the list, the Office of the Under Secretary of Defense for Personnel and Readiness sent it to OPM for consideration during its Biennial Review of Executive Resource Allocations process. In its request, the Office of the Under Secretary for Personnel and Readiness identified the aggregate number of Senior Executive Service, Senior Level, and Senior Technical allocations needed by all of the aforementioned entities, a list of all proposed allocations in order of priority, and the justification for each proposed allocation. During this process, DOD requested an additional 51 Senior Executive Service allocations and OPM allocated it 25. During the same process, DOD requested 19 additional Senior Technical personnel and OPM allocated it 8. OPM officials told us that they did not approve all of DOD’s requested allocations because the department’s vacancy rate—the number of existing allocations DOD was authorized but were not filled—was too high. According to DOD officials, at the time of our report the department’s Senior Executive Service vacancy rate was about 8 percent and over the past 3 years the department’s average vacancy rate has been about 12 to 14 percent. From the identification of needs at the component level to the communication of those needs to OPM at the Office of the Under Secretary of Defense for Personnel and Readiness level, this process was well-defined and clearly documented. At the start of the process OPM provided all agencies, including DOD, submission timelines and guidance on how to justify allocation increases. In response, DOD generated the list of additional civilian senior leaders needed using a consistent process across the services that was clearly documented and transparent. While ultimately OPM did not allocate to DOD all of the leaders that it had requested, DOD’s approach for identifying and communicating the needs for additional civilian senior leaders allowed for informed decision making both by the senior levels of DOD and by OPM. Appendix IV provides detailed information on how many additional Senior Executive Service, Senior Level, and Senior Technical allocations DOD has requested and OPM has authorized since 2004. While DOD used OPM’s process to request additional Senior Executive Service, Senior Level, and Senior Technical allocations, for fiscal years 2007 through 2009 and 2011, DOD submitted its request for additional Defense Intelligence Senior Executive Service allocations in the form of a legislative proposal to Congress. To support the proposals requesting additional allocations from Congress, the Office of the Under Secretary of Defense for Intelligence requested the Army, the Navy, the Air Force, and the defense intelligence community agencies to identify and arrange by priority the additional Defense Intelligence Senior Executive Service allocations they needed. However, unlike the process that the Under Secretary of Defense for Personnel and Readiness used—in which DOD used common criteria—the military service intelligence branches and defense intelligence community agencies used different sets of criteria to verify their most urgent needs for additional civilian senior leaders and did not communicate the justification for those needs to congressional decision makers. Regarding the criteria used by the defense intelligence community to verify that new Defense Intelligence Senior Executive Service allocations met the minimum qualifications of the executive level, the military service intelligence branches used the same criteria, while the four defense intelligence community agencies used their own unique criteria. According to DOD officials, the Office of the Under Secretary of Defense for Intelligence reviewed the military services intelligence branches’ and defense intelligence agencies’ requests for additional positions to verify that the requests met statutory definitions. Table 3 describes the different sets of criteria used by the military service intelligence branches and agencies in the defense intelligence community to ensure any additional Defense Intelligence Senior Executive Service allocations meet statutory minimum requirement to be classified above the General Schedule 15 level. Once their needs were identified, each of the military service intelligence branches and defense intelligence community agencies reported them to the Office of the Under Secretary of Defense for Intelligence. According to defense intelligence officials, these reports had detailed justification statements that included a description of each position, its reporting relationships, the number of people directly supervised, the position’s total supervisory span of control, and a justification/mission-critical requirement statement. Unlike the process that the Office of the Under Secretary of Defense for Personnel and Readiness used—which required various DOD entities to provide justifications for additional positions—the Office of the Under Secretary of Defense for Intelligence communicated its request for positions to the Office of the Under Secretary of Defense for Personnel and Readiness only as an aggregate number without justifications. The Office of the Under Secretary of Defense for Personnel and Readiness, in turn, as part of DOD’s general legislative program, communicated that aggregated number to Congress. According to officials in the Office of the Under Secretary of Defense for Intelligence, they had detailed information on the justifications for each position needed; however, these officials stated that by communicating the need for additional allocations only as an aggregate number, they did not provide sufficient details about their need for additional Defense Intelligence Senior Executive Service allocations. When the National Defense Authorization Act for Fiscal Year 1997 authorized the Secretary of Defense to create the Defense Intelligence Senior Executive Service, it set the maximum number of allocations at 492. The current maximum is 594. As stated above, to increase the statutory cap on the number of allocations for that workforce, the defense intelligence community must submit legislative proposals. According to DOD directives, the Under Secretary of Defense for Intelligence is responsible for the overall supervision and policy oversight for human capital within the defense intelligence community. Typically, the Office of the Under Secretary for Intelligence communicates its legislative proposals to Office of the Under Secretary for Personnel and Readiness, which then approves and submits them for potential inclusion in DOD’s general legislative program. While we have not validated DOD’s Defense Intelligence Senior Executive Service requirements, we note that during the past 10 years, Congress has enacted increases to the maximum number of Defense Intelligence Senior Executive Service positions only three times—in the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001, the National Defense Authorization Act for Fiscal Year 2002, and the National Defense Authorization Act for Fiscal Year 2006. In January 2006, for example, section 1125 of the National Defense Authorization Act for Fiscal Year 2006 increased the maximum number of positions by 50 while DOD’s legislative proposal requested an increase of 150. Our prior work has shown that when agencies are working toward a common goal establishing common criteria and communication strategies strengthens agency processes by providing stakeholders with shared expectations to guide stakeholder efforts. Because the intelligence agencies submit a single request for additional allocations, the individual components should use common criteria for making that request. Regarding the absence of common criteria used to identify the need for additional positions, in its 2008 update to DOD’s Civilian Human Capital Strategic Plan, the Office of the Under Secretary of Defense for Intelligence stated that while the criteria being used by the components are not uniform, the situation should be resolved by development of unifying guidance in a dedicated volume of the Defense Civilian Intelligence Personnel System—DOD’s overarching evaluation and performance-based pay framework for agencies and departments in the intelligence community. However, according to DOD officials, this guidance is not yet final, and the defense intelligence community continues to operate without common criteria. Without the use of common criteria and without better communication of its justifications for additional positions, requests to Congress to increase the number of Defense Intelligence Senior Executive Service personnel will not appear to be well-supported. DOD relies on several different human capital strategies when it experiences gaps in its Senior Executive Service, Senior Level, or Senior Technical workforces. It may request additional civilian senior leader workforce allocations from OPM, reassign existing civilian senior leader allocations, temporarily fill civilian senior leader positions with other DOD personnel when an allocation is not available for the position, float unused allocations to fill pressing needs throughout the department, and maintain reserve allocations. Requesting additional civilian senior leader workforce allocations from OPM: DOD may request additional civilian senior leader workforce allocations at any point between OPM’s Biennial Review of Executive Resource Allocations cycles. Reassignment of civilian senior leader workforce existing allocations: Entities within DOD can reassign existing allocations to manage their civilian senior leader workforces to meet changing mission requirements and accommodate organizational structures. Temporary filling of civilian senior leader positions with other personnel: According to DOD officials, when DOD does not have an allocation for a civilian senior leader position, it sometimes assigns a military officer or a high-level, civilian non-senior leader employee to temporarily fill the position until an allocation for the position is made available. In some cases, DOD has assigned a civilian senior leader to temporarily fill an unallocated position. Floating allocations: OPM requires currently filled Senior Executive Service, Senior Level, and Senior Technical positions to be covered by the allocations OPM grants to federal agencies. However, agencies often have positions that are vacant for reasons such as an employee’s retirement. Accordingly, agencies have some flexibility to move their vacant allocations in the periods between OPM’s biennial reviews to meet their civilian senior leader requirements. The Office of the Under Secretary of Defense for Personnel and Readiness, for example, established policy to address certain pressing needs by “floating” or borrowing unused allocations from vacant positions to cover those needs. While this is based on the assumption that some vacant positions will always exist, the policy states that the office tracks, on a monthly basis, the number of float allocations to ensure that DOD does not exceed its total OPM-authorized senior leader allocations. The policy provides specific allocations for each component and identified purpose, but in the aggregate DOD’s components are authorized 10 percent (138) of their Senior Executive Service, 6 percent (2) of their Senior Level, and 6 percent (8) of their Senior Technical allocations for use as floats. Reserve allocations: The Office of the Under Secretary of Defense for Personnel and Readiness maintains 25 of the 138 Senior Executive Service floating allocations as a reserve, which it can distribute among DOD’s components to meet emergent needs when other strategies are fully utilized or otherwise unsuitable. When the defense intelligence community has experienced gaps in its Defense Intelligence Senior Executive Service workforce, it has used three strategies to fill them. First, the defense intelligence community has reassigned existing allocations to positions of greater need. For example, in 2007, during a restructuring of the defense intelligence community, the Under Secretary of Defense for Intelligence transferred Defense Intelligence Senior Executive Service allocations within the community to meet new civilian senior leader requirements. Second, the defense intelligence community also has filled Defense Intelligence Senior Executive Service positions temporarily with Defense Intelligence Senior Level personnel when it lacked allocations. Third, officials explained that, at times, they will divide up the responsibilities of a senior leader position and distribute those responsibilities among other existing positions. In addition to identifying the need for civilian senior leaders, DOD has recently established overarching policy for managing and developing its Senior Executive Service workforce. In a directive issued in 2007 and an instruction issued in 2009, DOD noted the importance of focusing on talent management and on the exposure to enterprisewide perspectives, as part of its process, to prepare civilian personnel to move into leadership positions. The directive identified as a goal the development of a Senior Executive Service workforce that is fully integrated with other components of DOD’s executive leadership, DOD’s general and flag officers, and political leaders. The instruction defines enterprisewide perspective as a broad point of view of DOD’s missions and an understanding of individual or organizational responsibilities in relation to larger DOD strategic priorities, which is shaped by experience and education and characterized by a strategic, top-level focus on broad requirements, joint experiences, fusion of information, collaboration, and vertical and horizontal integration of information. More specifically, the instruction indicates that enterprisewide perspective is a core competency for civilian leaders, and includes, among other things, understanding DOD’s roles and responsibilities and comprehending the relationships between all elements of power. In addition, chief among DOD’s efforts to develop its Senior Executive Service workforce is DOD’s new Defense Senior Leader Development Program, which DOD established in 2008 and, according to program officials, costs an average of $6.5 million per fiscal year. According to DOD documents, the Defense Senior Leader Development Program is designed to span 2 years and support the enterprisewide effort to foster interagency cooperation and information sharing by providing opportunities for participants to understand and experience, firsthand, the issues and challenges facing leaders across DOD and the broader national security arena. Specifically, career civil service personnel at General Schedule 14 and General Schedule 15 and equivalent grades are eligible to apply for this program and, if accepted, attend seminars and a professional service school and enhance their individual development through substantive enterprise-spanning activities. Furthermore, individuals who are already members of DOD’s Senior Executive Service workforce provide feedback to participants on strengths and competency gaps. Beyond the Defense Senior Leader Development Program, DOD and the services have other programs focused on developing career civilian and current Senior Executive Service personnel. Appendix V provides examples and descriptions of some of these programs. DOD created the Defense Senior Leader Development Program to address problems identified in the Defense Leadership and Management Program—a predecessor program that was discontinued at the end of fiscal year 2010. In 2009, we reported on problems that DOD had identified with that program. In our report we noted that DOD concluded that the program lacked involvement by senior leadership in the career path or progression of potential Senior Executive Service candidates, lacked interaction and camaraderie among participants, and had no plan for how participants would be used after graduation. The House Armed Services Committee’s Subcommittee on Oversight and Investigation has also expressed concerns about the quality of the graduates produced under this program. Table 4 lists some key differences between the Defense Leadership and Management Program and the Defense Senior Leader Development Program. DOD has replaced the Defense Leadership and Management Program with the Defense Senior Leader Development Program and has emphasized a focus on developing future leaders with an enterprisewide perspective. However, according to DOD officials, the department does not have specific metrics for the program. Specifically, at the time of our review, there were metrics in place to evaluate applicants prior to their being admitted to the program and metrics in place to track their success while enrolled; however, there were no metrics to measure the success of the overall program. Without clearly defined program metrics to measure them DOD cannot determine whether the implementation of the Defense Senior Leader Development Program has been an improvement over the Defense Leadership and Management Program. Our prior work on effective strategic workforce planning has shown that high-performing organizations recognize the importance of measuring both the outcomes of human capital strategies as well as the ways that these outcomes have helped the organizations accomplish their missions and programmatic goals. Furthermore, program officials said that the department had not sought OPM certification for its new Defense Senior Leader Development Program, but is researching the requirements for OPM certification. While agencies are not required to operate an OPM-certified Senior Executive Service Candidate Development Program, federal regulations state that agencies that wish to operate OPM-certified Senior Executive Service Candidate Development Programs must obtain approval from OPM and provide training that addresses OPM’s Executive Core Qualifications. These core qualifications include leading change, leading people, being results driven, possessing business acumen, and building coalitions. Were DOD to obtain OPM certification for the Defense Senior Leader Development Program, OPM would be required by law to monitor the implementation of the program and, when appropriate, take necessary corrective action to bring the program into compliance with OPM- prescribed criteria. DOD would also be required by regulation, to recruit candidates for the program from (at a minimum) all groups of qualified individuals within the civil service. According to DOD officials, the department has not sought OPM certification for the Defense Senior Leader Development Program because the program is still in the early stages of implementation. These officials noted, however, that they will consider certification sometime in the future. The range of missions DOD faces in the 21st century is broad, and DOD is turning increasingly to its civilian workforce to perform essential functions to accomplish those missions. Accordingly, especially in light of a fiscally constrained environment, it is important for DOD to be able to identify requirements for civilian senior leaders and be able to justify and identify civilian senior leader positions of greatest need. Similarly, DOD must be able to communicate those needs in a manner that facilitates informed decision making. Where DOD has not been able to do this, key decision makers have been left with insufficient information to determine if requests for additional senior leaders are warranted. If decision makers do not have a clear understanding of the highest-priority needs across the department, they risk having a civilian senior leader workforce inappropriately sized to meet DOD’s missions. Additionally, while DOD has undertaken efforts to create a new senior leader development program, at the time of our review, it has not yet identified program measures. As a result, it is not in a position to know if its newly developed program is meeting its senior leader development needs. We are making the following four recommendations: To provide supportable information about what DOD’s requirements are for the Senior Executive Service, Senior Level, and Senior Technical workforces, we are recommending that in future reviews of the civilian senior leader workforces the Secretary of Defense direct that the Office of the Under Secretary of Defense for Personnel and Readiness document the analysis conducted. To improve the management and development of DOD’s civilian senior leader workforces, we are recommending that the Secretary of Defense take the following three actions: direct the Under Secretary of Defense for Intelligence to finalize and issue common criteria for the military service intelligence elements and the defense intelligence agencies to use in their assessments of Defense Intelligence Senior Executive Service requirements; direct the Under Secretary of Defense for Personnel and Readiness and the Under Secretary of Defense for Intelligence to better communicate key information, including justifications for each Defense Intelligence Senior Executive Service position needed, during the development and presentation of legislative proposals to congressional decision makers; and direct the Office of the Under Secretary of Defense for Personnel and Readiness to establish clearly defined metrics for the Defense Senior Leader Development Program in order to measure the overall success of the program. In commenting on a draft of our report, the Office of the Under Secretary of Defense for Personnel and Readiness partially concurred with two of our recommendations, and the Office of the Under Secretary of Defense for Intelligence fully concurred with the remaining two recommendations. Comments from both DOD offices are reprinted in appendix VI. Additionally, both offices provided general/technical comments on our draft report, which we incorporated as appropriate. In written comments, the Office of the Under Secretary of Defense for Personnel and Readiness agreed with the overall findings of our draft but stated that the report took an overly broad view of some of the areas covered by the review. The office noted that this approach affected the resulting conclusions, and as a result, they were either inaccurate or incomplete. We disagree and have addressed DOD’s comments in detail in appendix VI. DOD partially concurred with our recommendation that in future reviews of its civilian senior leader workforces the department document the analysis conducted. Specifically, the department noted that its April 2008 review was a milestone activity of DOD’s 21st Century Senior Executive Leadership initiative and was one of the department’s Top 21 Transformational Priorities. It further stated that, because of the wide application and multipurpose use of the results of the baseline review, summarizing the analysis was not the best use of resources. However, the department concurred with GAO’s recommendation to document the analysis conducted in future reviews of its civilian senior leaders when such reviews are specifically targeted for an intended outcome. For example, the department noted that a September 3, 2010, memorandum issued jointly by the Under Secretary of Defense for Personnel and Readiness and the Director of Administration and Management directed a review of all civilian senior leaders within the department in support of the Secretary’s Efficiency Initiative. According to the department, the review will include clear documentation of information and analysis that can be easily traced back to component submissions. In addition, the department explained that the results of the Civilian Senior Executive study group’s review will be summarized and presented to senior DOD officials to provide clear insight and visibility into the recommendations of the civilian senior leader review. We believe these actions, if implemented as stated, will meet the intent of our recommendation. DOD also partially concurred with our recommendation to establish clearly defined goals and metrics for the Defense Senior Leader Development Program in order to measure the overall success of the program. The department stated that our recommendation should be rewritten because the purpose and goals of the program are defined in DODI 1430.16 (Growing Civilian Leaders). We agree and have revised our recommendation accordingly. The department further noted that two types of metrics are being refined and will be used to measure the programs success. The department acknowledged that our report stated that DOD has specific metrics in place to measure applicants prior to their admission to the program as well as metrics in place to track participants’ success while enrolled in the program. The department noted that summative metrics, including return on investment for graduate utilization, are being refined and will be implemented for cohorts after the first cohort has completed the program in 2011. Although DOD did not provide or discuss documentation of these metrics during our review, we believe that DOD’s efforts to develop such metrics are a positive step. However, until additional metrics are finalized and implemented, it is unclear to what extent they will meet the intent of our recommendation. In written comments, the Office of the Under Secretary of Defense for Intelligence stated that the office appreciated the opportunity to comment on the report and that it generally agreed with the overall findings of our report. The office further stated that it believed that some facts pertaining to processes for determining defense intelligence senior civilian requirements were misstated and provided technical comments on the portions pertaining to its office. Detailed responses on these comments are provided in appendix VI. Regarding the recommendations, the Office of the Under Secretary of Defense for Intelligence fully concurred with our recommendation to finalize and issue common criteria for the military service intelligence elements and the defense intelligence agencies to use in their assessments of Defense Intelligence Senior Executive Service workforce requirements. The office also fully concurred with our recommendation to better communicate key information, including justifications for each Defense Intelligence Senior Executive Service position needed, during the development and presentation of legislative proposals to congressional decision makers. Furthermore, in its comments on our report, the Office of the Under Secretary of Defense for Personnel and Readiness stated that it will work with the Under Secretary of Defense for Intelligence to establish a framework for joint review and assessment of senior intelligence positions as part of meeting total force management requirements. We are sending copies of this report to the appropriate congressional committees and the Secretary of Defense. The report also is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions regarding this report, please contact me at (202) 512-3604 or farrellb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VII. For our first objective, to evaluate the Department of Defense’s (DOD) approach to assessing its civilian senior leader workforce requirements, we obtained and reviewed documents and information related to the Office of the Under Secretary of Defense for Personnel and Readiness’ 2008 baseline review of DOD’s Senior Executive Service, Senior Level, and Senior Technical workforces. We also interviewed knowledgeable officials within the Office of the Under Secretary of Defense for Personnel and Readiness’ Civilian Personnel Management Service about the baseline review, how the information was collected, and the results of the review. We did not, however, validate DOD’s overall civilian senior leader workforce requirements. In addition, we obtained and reviewed documents related to the Office of the Under Secretary of Defense for Intelligence’s 2008 review of DOD’s Defense Intelligence Senior Executive Service and Defense Intelligence Senior Level workforces. We interviewed knowledgeable officials in the Office of the Under Secretary of Defense for Intelligence’s Human Capital Management Office about the information collected and the results of the review. We did not, however, assess or validate DOD’s requirements for its Defense Intelligence Senior Executive Service or Defense Intelligence Senior Level workforces. Pub. L. No. 109-163, § 1125 (2006). Human Capital Management Office, the Defense Intelligence Agency, the National Geospatial-Intelligence Agency, the National Security Agency, and the Defense Security Service. For our third objective, to evaluate DOD’s approach for developing and managing civilian senior leaders capable of leading DOD’s workforce, we obtained and reviewed DOD’s civilian human capital strategic plans and workforce planning documents, analyzed applicable laws, and reviewed our prior work on DOD and federal government human capital planning efforts. During our work, we met with officials responsible for implementing succession planning and leadership development policy and programs. Specifically, we met with DOD officials in the Office of the Under Secretary of Defense for Personnel and Readiness, the Office of the Deputy Under Secretary of Defense for Civilian Personnel Policy, and the office of Civilian Personnel Management Service. At the services, we met with officials in the Office of the Deputy Under Secretary of the Army, the Office of the Army Assistant Deputy Chief of Staff for Manpower and Personnel, the Army’s Office of Civilian Senior Leader Management, the Navy’s Executive Management Program Office, the Navy’s Office of Civilian Human Resources, and the Air Force’s Airmen Development Division. We also met with the Washington Headquarters Service’s Director of Administration and Management and Program Executive Office for Executive Lifecycle Management and the Human Resources Directorate Office. Additionally, we obtained and reviewed documents related to the Defense Senior Leader Development Program and met with officials in the Civilian Personnel Management Services’ Office of Leadership and Professional Development. We obtained and reviewed policies and guidance related to the qualifications of Defense Intelligence Senior Executive Service personnel and met with knowledgeable officials in the Under Secretary of Defense for Intelligence’s Human Capital Management Office, the Defense Intelligence Agency, and the National Geospatial-Intelligence Agency. Further, we obtained and reviewed OPM documents and guidance related to the life cycle planning and development of federal government civilian senior leader workforces, Senior Executive Service qualification requirements, and Senior Executive Service candidate development programs. At OPM, we interviewed the Acting Program Manager of Enterprise Human Resources Integration and the Manager of Human Capital Officers. We also met OPM officials in the Office of the Assistant Director for Leadership and Human Resources Development, Human Resources Solutions. We also obtained and reviewed federal laws applicable to senior leader development and federal career development programs. In addition, we reviewed our prior work regarding measuring both the outcomes of human capital strategies and how outcomes have helped organizations accomplish their missions and programmatic goals through the use of program metrics. We conducted this performance audit from October 2009 through October 2010 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. For comparison across the federal government, we extracted data for civilian workforces by Chief Financial Officers Act agencies in September 2009. Section 205 of the Chief Financial Officers Act identified 23 major executive branch agencies (later expanded to 24) that as of 2009 employed 98 percent of federal employees. Table 5 shows the onboard number of non-Senior Executive Service civilian employees and Senior Executive Service, Senior Level, and Senior Technical employees for each of the Chief Financial Officers Act agencies as of September 2009. For comparison across the federal government, we extracted data from OPM’s Executive Schedule C System on the number of Senior Executive Service, Senior Level, and Senior Technical allocations OPM approved for each of the Chief Financial Officers Act agencies from 2000 through 2009. Section 205 of the Chief Financial Officers Act identified 23 major executive branch agencies (later expanded to 24) that as of 2009 employed 98 percent of federal employees. Table 6 shows the number of Senior Executive Service allocations OPM approved for each of the Chief Financial Officers Act agencies from 2000 through 2009. Table 7 shows the number of Senior Level allocations OPM approved for each of the Chief Financial Officers Act agencies from 2000 through 2009. Table 8 shows the number of Senior Technical allocations OPM approved for each of the Chief Financial Officers Act agencies from 2000 through 2009. Every 2 fiscal years, OPM asks that federal agencies reassess their need for Senior Executive Service, Senior Level, and Senior Technical allocations and request additional allocations through OPM’s Biennial Review of Executive Resource Allocations. OPM also allows agencies to make out-of-cycle requests for additional allocations if a pressing, unforeseen need arises. If OPM approves fewer allocations than the agency requested, the difference constitutes a gap that the agency must address internally. Table 9 shows DOD’s requests for additional allocations through OPM’s Biennial Review of Executive Resource Allocations process and out-of-cycle requests, the allocations approved by OPM, and the resulting gap. In addition to the Defense Senior Leader Development Program, DOD and the components have implemented other programs that are designed to train and develop future and current civilian senior leaders. For example: DOD’s Executive Leadership Development Program, established in 1985, exposes civilian employees at the General Schedule 12 through General Schedule 14 levels to the roles and missions of the entire department. The program provides these employees with an increased understanding and appreciation for the challenges DOD’s military warfighters face. Among other things, the program’s curriculum includes training in areas such as team building, problem solving, decision making, and communication skills. The Air Force Civilian Strategic Leader Program is designed to execute talent management programs for General Schedule 14 and 15 or equivalent personnel and, among other things, identifies civilians with senior leadership potential; targets developmental opportunities for those with the highest potential; places those with the highest potential, when ready, into key jobs; and fills command equivalent positions with high-potential civilian employees who have not already held a similar leadership positions. The Army Senior Fellows Program identifies high-potential civilian leaders and strengthens their executive competencies through executive education, executive leadership assignments, and executive mentoring and includes joint development assignments that vary in length from 6 to 12 months, the opportunity to attend one of DOD’s senior service colleges, mentoring from a member of the federal Senior Executive Service, and the possibility of placement (upon program completion) in positions with greater scope and responsibility. Once an individual becomes a member of DOD’s civilian senior leader workforce, he or she can continue development, training, and education by participating in development programs. For example: APEX is supported by a contract with Booz Allen Hamilton; the program provides opportunities for new Senior Executive Service personnel to interact with DOD senior leadership at the Pentagon and in the combatant commands. Among other things, APEX offers individuals an overview of DOD’s structure and the processes and opportunities to expand leadership and strategic thinking skills. The Joint Executive Management Program, which is held at the University of North Carolina, is designed to broaden the business acumen of DOD’s Senior Executive Service personnel. The course provides DOD and interagency senior leaders the opportunity to collaborate and share ideas and viewpoints in an educational setting. Program topics include the role of senior leaders in the joint environment, managing people, and driving organizational change. GAO Draft Report – Dated October 2010 GAO Code Number: GAO-10-777 “Human Capital – Opportunities Exist for DOD to Enhance its Approach for Determining Civilian Senior Leader Workforce Needs” DEPARTMENT OF DEFENSE INTELLIGENCE COMMENTS DOD appreciates the opportunity to review and comment upon GAO’s proposed report for areas related to the Defense intelligence components. Generally, DOD agrees with the overall findings of the proposed report. However, we also believe the report misstates some facts that pertain to the review of processes for determining Defense intelligence senior civilian requirements. This document provides overall technical comments on the portions of the proposed report and the recommendations that specifically reference Defense intelligence. 1. On pages 4, 15-16, and 17, the draft report states that “during the course of our review” officials were unable to provide supporting information from the defense intelligence components or analysis related the 120-day review of intelligence senior civilian requirements. Such statements do not accurately portray the circumstances or timing of the GAO request. The request to see or receive copies of such supporting information or analysis was made in late August 2010, nearly a full year after announcement of the GAO review and a full seven months after GAO met on January 26, 2010, with Human Capital Management staff of the Office of the Under Secretary of Defense for Intelligence (OUSD(I)) and executive resources officers from all of the Defense Intelligence components to conduct interviews regarding our processes for determining senior civilian requirements. We had occasional telephone contacts from GAO after the January 26, 2010, meeting to clarify their understanding of our processes, but did not receive the informal request to see or receive copies of the 120-day review supporting data and analysis until late August 2010, when our subject-matter expert was out of town on business. The subject-matter expert was needed to assemble the requested documentation from classified and unclassified systems. We regret not being able to provide access to the supporting documentation at the time it was requested and remain eager to do so. However, characterizing our inability to respond to that late August 2010 request as “during the course of our review” is misleading. We request you change all of the statements with phrase “during the course of our review” to “DoD officials were not able to respond to requests we made in the last month of our review to see or receive copies of supporting documentation.” 2. Page 17, the third sentence of the last paragraph: For the reasons described in item 1 above, this sentence should be changed to read, “We could not verify these statements, however, because DoD officials were not able to respond to requests we made in the last month of our review to see or receive copies of supporting documentation to show analysis that could be readily traced back to component submissions.” 3. Page 17, the fourth sentence of the last paragraph: This sentence assumes that certain information does not exist and declares DoD unable to provide clear insight into requirements for senior civilian senior leaders. The sentence should be replaced with “DoD’s ability to provide Congress and other stakeholders clear insight and visibility into the defense intelligence community’s validation of requirements for its civilian senior leader workforces can be improved by clearly documented analysis that can be traced back to component submissions.” 4. Page 21, the last sentence: This sentence implies the military service intelligence branches and agencies in the defense intelligence community use position grading standards as the sole measure of the need for new Defense Intelligence Senior Executive Service (DISES) allocations. That is not accurate and contradicts the last sentence of the first paragraph on page 23, which states OUSD(I) officials confirmed they had “detailed information on the justifications for each position needed.” As discussed with GAO, in addition to validating that any additional DISES requirements involve responsibilities that exceed the GS-15 level as required by statute, we also required the Defense intelligence components to submit a description and detailed justification statements for each new DISES requirement, covering the same kinds of criteria as for the Department’s SES positions, to include reporting relationships, the number of people directly supervised, the position’s total supervisory span of control, and a justification/mission-critical requirement statement. While we did not employ the weighted evaluation methodology used by the Civilian Personnel Management Service to assess the relative importance of the new SES, SL and ST requirements, our Human Capital Management staff carefully reviewed any new requirements against the statutory criteria using the detailed justification information submitted by the Components. The last half of the sentence should be changed to read “to ensure any additional Defense Intelligence Senior Executive Service allocations meet the statutory minimum requirement to be classified above the GS-15 level.” 5. Page 22, description of Table 3: For the reasons stated above, change the phrase “Evaluate the Need for” to “Validate” and add after the word “Allocations” the phrase “Meet the Statutory Requirement to Be Classified Above GS-15.” 6. Page 22, the paragraph after Table 3: For the reasons described in item 4 above, make the following changes: Add the following phrase at the end of the first sentence: “with detailed justification statements that included a description of each position, its reporting relationships, the number of people directly supervised, the position’s total supervisory span of control, and a justification/mission-critical requirement statement.” Change the remainder of the paragraph to read as follows: “The Office of the Under Secretary of Defense for Intelligence evaluated the detailed justification statements submitted by the Defense intelligence components, but did not employ the weighted evaluation methodology used for DOD’s Senior Executive Service requirements. The Office of the Under Secretary of Defense for Intelligence communicated its request for positions to the Office of the Under Secretary of Defense for Personnel as an aggregate number without submitting the detailed justifications or its analysis. The Office of the Under Secretary of Defense for Personnel and Readiness, in turn, as part of DOD’s general legislative program, communicated that aggregated number to Congress. By submitting solely the aggregate number, DOD may not have provided sufficient details about the need for additional Defense Intelligence Senior Executive Service allocations.” 7. Page 24, third, fourth, and fifth sentences : Because these sentences refers to the criteria in Table 3 (discussed in item 4 and 5 above), add the words “position grading” after the word “common” in each of these sentences. 8. Page 28, line 7 from top of page: Change the word "levels" to "and equivalent grades" and change footnote 46 to read "Equivalent grades include those under the National Security Personnel System and other authorized pay plans." Rationale: This language is adapted from DoDI 1430.16, enclosure 3, page 11, paragraph 2c(1), the official description of eligibility for DSLDP. 9. Page 30, footnote 50: Add the word “equivalent” before the word “employees”. Defense intelligence employees are not General Schedule employees, but hold equivalent positions under the Defense Civilian Intelligence Personnel System. RECOMMENDATION 2: The GAO recommends that the Secretary of Defense direct the Under Secretary of Defense for Intelligence to finalize and issue common criteria for the military service intelligence elements and the defense intelligence agencies to use in their assessments of Defense Intelligence Senior Executive Service requirements. DOD RESPONSE: Concur. RECOMMENDATION 3: The GAO recommends that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness and the Under Secretary of Defense of Intelligence to better communicate key information, to include justification for each Defense Intelligence Senior Executive Service position needed, during the development and presentation of legislative proposals to Congressional decision-makers. DOD RESPONSE: Concur. The following are GAO’s comments DOD’s letters. Comments 1 through 21 are on specific sections in the Department of Defense (DOD) letter dated October 25, 2010, and received by GAO on October 28, 2010. The specific section is entitled, “Department of Defense Comments to the Recommendations.” Comments 22 through 30 are on specific sections in the DOD letter dated October 23, 2010, and received by GAO on October 28, 2010. The specific section is entitled “Department of Defense Intelligence Comments to the Recommendations.” 1. DOD asserted that our statement that “some of the components’ information was incomplete” was not accurate. DOD further asserted that for its baseline review submission, certain DOD components incorporated by reference their biennial allocation activities they undertook in support of their requests for additional civilian senior leaders, rather than duplicate those efforts. The department further asserts that a copy of the component’s work in this regard was provided to the GAO review team. We disagree. As we stated in our report, a DOD official told us that the Army and the Air Force chose to use assessments of their Senior Executive Service, Senior Level, and Senior Technical workforces that had been conducted in response to OPM’s 2008-2009 Biennial Review of Executive Resources Allocations. However, this DOD official was unable to provide us with copies of the assessments completed by the Army and Air Force. Contrary to DOD’s comments, information the Army and Air Force submitted for the 2008-2009 biennial review was not provided to us. As stated in our Scope and Methodology, the only information we obtained related to the Biennial Review of Executive Resources Allocations was for 2010-2011. 2. DOD comments stated that the April 9, 2008, memorandum had a number of objectives for the baseline review. We agree. Nonetheless, we were unable to include all of those objectives on the Highlights page, which is a summary of our report. However, we have since added some of the objectives in other sections of our report. 3. DOD noted that the April 2008 memorandum results would be used to respond to the National Defense Authorization Act for Fiscal Year 2007. This information was referenced in the Background section of our report. 4. DOD explained that, given the multipronged application of results of the baseline review and intent to inform a variety of strategic human capital management initiatives, the department stands by its decision to rely on the component submissions as source material, reference material, or both, rather than summarizing and reporting the analysis for any single initiative. In light of the internal control standards, which we reference in our report, we continue to believe that the department should have documented and summarized its analysis. 5. DOD stated that the second to the last sentence on the Highlights page should be revised to read that the new program “has developed and is continuing to refine” metrics and that the new program “did not have” clearly defined metrics to measure progress or success. However, during the course of our review, DOD neither discussed metrics to measure the success of the program nor provided of such metrics. We therefore made no change to our report. 6. DOD stated that the reference to the “Senior Executive Service” on the first page of the report should be changed to say “reduce by 150 the number of senior civilian executive positions.” We have revised our report accordingly. 7. DOD noted that “Senior Technical” should be “Scientific/Professional.” We clarified our use in a footnote in our report. 8. DOD’s commented that “Under Secretary” should be “Principal Secretary.” We revised our report accordingly. 9. DOD’s commented that pages 7 and 8 of our draft report described some but not all aspects of the allocation process and failed to mention the criteria provided to the components and upon which biennial allocation requests are justified. We disagree. DOD’s comments focused on the background of the report. The criteria are clearly specified in the report on pages 17, 18, and 19. 10. DOD’s commented that pages 7 and 8 of the draft report did not mention the analysis and evaluation aspect of the leveling process utilized by the Civilian Personnel Management Service is omitted and the ability of any component to submit an out-of-cycle request for allocations outside of the biennial process is not mentioned. We disagree. Information on out-of-cycle request is clearly specified on page 25 and in appendix IV of our report. Per comment 11, we have changed “prioritized” to “leveling.” 11. DOD’s comments stated that the department objects to the characterization of the leveling process as “reprioritizes” and DOD evaluates all component biennial allocation submissions as a whole against the criteria developed for the biennial process. The department notes that the leveling process is used to ensure that all components have applied the criteria in a consistent manner and prioritized their positions in a similar manner. We have revised our report accordingly. 12. DOD’s commented that the decision to submit the combatant commands’ request for the fiscal year 2010-2011 biennial allocation process was a reflection of an increased demand on those organizations and was never intended to be a standard approach for future combatant command allocation requests. We have revised our report accordingly. 13. DOD’s comments asserted that the department’s full 2008-2009 biennial allocation request was made available to GAO. We disagree. While DOD provided 2010-2011 biennial review documents, we were not provided, even though we asked, any documents related to DOD’s 2008-2009 biennial review submissions. As indicated in our Scope and Methodology, we reviewed documents related solely to DOD’s 2010-2011 biennial review submissions. 14. DOD commented that our report stated that the department’s vacancy rate is about 20 percent but notes that the current Senior Executive Service vacancy rate is approximately 8 percent and the department’s average over the last 3 years is 12 to 14 percent. We have revised our report accordingly. 15. DOD asked that we change “levels” to “and equivalent grades” and the corresponding footnote to read “Equivalent grades include those under the National Security Personnel System and other authorized pay plans.” We revised our report accordingly. 16. DOD asked that we change “shadow professionals” to “enhance their individual development through substantive enterprise- spanning experiential activity and feedback on strengths and competency gaps from Talent Development Executives.” We paraphrased this passage in our report. 17. DOD asked that we “will be” to “was” in recognition that fiscal year 2010 has ended. We revised our report accordingly. 18. DOD asked that GAO make several minor word changes to table 4. We have revised our report accordingly. 19. DOD commented that the statement “the department does not have clearly defined goals and specific metrics for the program and has not sought OPM certification” should be changed. The department stated that its goals and purposes were identified in DODI 1430.16, enclosure 3, page 11, paragraph 2b. We have made modifications to our report to reflect this information. Further, the department acknowledged, as we stated, that it has specific metrics in place to evaluate applicants prior to their admission to its program as well as metrics to track participants. The department also stated that summative metrics were currently being refined and will be implemented for each cohort after the first cohort has completed the program in April, 2011. However, at the time of our review, DOD did not have summative metrics that are associated with the program and did not provide documentation or information on these metrics. Furthermore, the department’s comments noted that as these metrics are implemented the results would provide a more complete evaluation of the entire program. Accordingly, we made no modifications to our report. 20. DOD asked that we add the following to the end of the first sentence on page 30: “…but is researching the requirements for OPM certification.” We revised our report accordingly. 21. DOD asked us to make the following changes in our conclusion paragraph: delete the phrase “it has not yet identified program goals and measures” and add the phrase “it continues to refine the program metrics.” We made some modifications in accordance with our response in comment 20. 22. DOD commented that the statement “during the course of our review officials were unable to provide supporting information from the defense intelligence components or analysis related to the 120- day review of intelligence senior civilian requirements” did not accurately portray the circumstances or timing of the GAO request. The department stated that the request to see or receive copies of such reporting information was made in late August nearly a year after the announcement of the GAO review and 7 months after GAO met on January 26, 2010, with Human Capital Management staff of the Under Secretary of Defense for Intelligence and executive resources officers from all of the defense intelligence components. Accordingly, DOD asked that the statement be revised from “during the course of our review” to “DOD officials were not able to respond to requests made in the last month of our review to see or receive copies of supporting documentation.” We note, however, that we requested the information in July 2010 and stated at our entrance conference that the scope of our work may expand as we obtained additional information. In fact, we obtained DOD’s 2009 update to its Civilian Strategic Workforce Plan, which identified a baseline review of DOD’s civilian senior leader workforce and a 120-day review of the defense intelligence senior leader workforce requirements—both of which were key to this review. As a result, the scope of our work was expanded in July 2010. We made some revisions to clarify our report. 23. DOD asked, in light of the changes related to comment 22, that the third sentence of the last paragraph on page 17 be revised to “We could not verify these statements, however, because DOD officials were not able to respond to requests we made in the last month of our review to see or receive copies of supporting documentation to show analysis that could be readily traced back to component submissions.” In light of our response in comment 22 and the fact that we included a statement that the department needed to clearly document or summarize an analysis that could be readily traced back to the component submissions, we determined that this information would be stated twice in our report. As a result, we did not make this latter revision. 24. DOD stated that the fourth sentence of the last paragraph on page 17 assumes that certain information does not exist and declares DOD unable to provide clear insight into requirements for senior civilian senior leaders. The department asked that the sentence be changed to “DOD’s ability to provide Congress and other stakeholders clear insight and visibility into the defense intelligence community’s validation of requirements for its civilian senior leader workforces can be improved by clearly documented analysis that can be traced back to component submissions.” We disagree with the assumption that certain information does not exist, and we did not add the phrase “clearly documented analysis that can be traced back to components submissions” because it was already stated in a prior sentence in our report and would therefore be duplicative. Accordingly, we did not make this revision. 25. DOD’s comments stated that the last sentence on page 21 implies that the military service intelligence branches and agencies in the defense intelligence community use position grading standards as the sole measure of the need for new Defense Intelligence Senior Executive Service allocations. They further stated that this is not accurate and asked us to change the last half of the sentence to read: “…to ensure any additional Defense Intelligence Senior Executive Service allocations meet the statutory minimum requirement to be classified above the GS-15 level.” We agree and have changed the report accordingly. 26. DOD stated that the description of table 3 on page 22 should change the phrase “Evaluate the Need for” to “Validate” and add after the word “Allocations” the phrase “Meet the Statutory Requirement to Be Classified Above GS-15.” We agree and have changed the report accordingly. 27. DOD asked that the following changes be made to the paragraph after table 3 on page 23: at the end of the first sentence, add “with detailed justification statements that included a description of each position, its reporting relationships, the number of people directly supervised, the position’s total supervisory span of control, and a justification/mission-critical requirement statement.” We agree and have made changes to the report accordingly. The department also asked that we change the remainder of the paragraph to read as follows: “The Office of the Under Secretary of Defense for Intelligence evaluated the detailed justification statements submitted by the defense intelligence components, but did not employ the weighted evaluation methodology used for DOD’s Senior Executive Service requirements. The Office of the Under Secretary of Defense for Intelligence communicated its request for positions to the Office of the Under Secretary of Defense for Personnel and Readiness as an aggregate number without submitting the detailed justifications or its analysis. The Office of the Under Secretary of Defense for Personnel and Readiness, in turn, as part of DOD’s general legislative program, communicated that aggregated number to Congress. By submitting solely the aggregate number, DOD may not have provided sufficient details about the need for additional Defense Intelligence Senior Executive Service allocations.” We note that the only additional DOD text that was not covered in our report was the phrase, “the weighted evaluation methodology.” The focus, however, of our paragraph was the absence of detailed justifications and not the methodology. Accordingly, we did not make this latter change. 28. DOD asked that the third, fourth, and fifth sentences on page 24 be changed because these sentences refer to the criteria in table 3 (discussed in comments 25 and 26 above) by adding the words “position grading” after the word “common” in each of these sentences. We disagree. The text is referring to GAO’s prior work on human capital management and not specifically to the defense intelligence community criteria. 29. DOD asked that we change the word “levels” to “and equivalent grades” and change footnote 46 to read “Equivalent grades include those under the National Security Personnel System and other authorized pay plans.” We agree and have changed our report accordingly. 30. DOD asked that in footnote 52 on page 28 we add the word “equivalent” before the word “employees.” We agree and have changed the report accordingly. In addition to the contact named above, David Moser, Assistant Director; Marion Gatling, Assistant Director; Alysia Darjean; Scott Doubleday; Mae Jones; Brian Pegram; Steven Putansu; Amie Steele; and Michael Willems made key contributions to this report. Human Capital: Further Actions Needed to Enhance DOD’s Civilian Strategic Workforce Plan. GAO-10-814R. Washington, D.C.: September 27, 2010. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Human Capital: Opportunities Exist to Build on Recent Progress to Strengthen DOD’s Civilian Human Capital Strategic Plan. GAO-09-235. Washington, D.C.: February 10, 2009. Human Capital: Diversity in the Federal SES and Processes for Selecting New Executives. GAO-09-110. Washington, D.C.: November 26, 2008. Ensuring a Continuing Focus on Implementing Effective Human Capital Strategies. GAO-09-234CG. Washington, D.C.: November 21, 2008. Human Capital: Corps of Engineers Needs to Update Its Workforce Planning Process to More Effectively Address Its Current and Future Workforce Needs. GAO-08-596. Washington, D.C.: May 7, 2008. The Department of Defense’s Civilian Human Capital Strategic Plan Does Not Meet Most Statutory Requirements. GAO-08-439R. Washington, D.C.: February 6, 2008. DOD Civilian Personnel: Comprehensive Strategic Workforce Plans Needed. GAO-04-753. Washington, D.C.: June 30, 2004. Military Personnel: General and Flag Officer Requirements Are Unclear Based on DOD’s 2003 Report to Congress. GAO-04-488. Washington, D.C.: April 21, 2004. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003. Foreign Assistance: Strategic Workforce Planning Can Help USAID Address Current and Future Challenges. GAO-03-946. Washington, D.C.: August 22, 2003. DOD Civilian Personnel: Improved Strategic Planning Needed to Help Ensure Viability of DOD’s Civilian Industrial Workforce. GAO-03-472. Washington, D.C.: April 30, 2003. Internal Control Standards: Internal Control Management and Evaluation Tool. GAO-01-1008G. Washington, D.C.: August 2001. Internal Control: Standards for Internal Control in the Federal Government. GAO/AIMD-00-21.3.1. Washington, D.C.: November 1999.	The Department of Defense (DOD) relies heavily on its civilian workforce to perform duties usually performed by military personnel--including combat support functions such as logistics. Civilian senior leaders--some of whom occupy positions that might be cut during DOD's latest attempts to reduce overhead costs--are among those who manage DOD's civilians. In 2007, Congress mandated that DOD assess requirements for its civilian senior leader workforce in light of recent trends. DOD reported its recent reply to this requirement in its 2009 update to the Civilian Human Capital Strategic Plan, which used information from a 2008 baseline review to validate its senior leader requirements. GAO was asked to review DOD's approach for (1) assessing its civilian senior leader workforce requirements, (2) identifying and communicating the need for additional senior leaders, and (3) developing and managing this workforce. GAO reviewed submissions for DOD's baseline review and requests for additional senior leaders, including DOD's intelligence agencies. GAO also interviewed DOD and Office of Personnel Management officials. DOD conducted a baseline review to assess and validate its civilian senior leader requirements but did not document its analysis or summarize the results of the review. Standards for internal controls call for significant events to be documented and summarized to facilitate tracing transactions and related information. Specifically, in April 2008, DOD issued guidance for components outside its intelligence community to conduct a baseline review of its senior leader needs. While DOD reported to Congress that this was a rigorous analysis, GAO found that some of the components' information was incomplete and DOD was unable to provide documentation of an analysis summarizing its results. DOD officials said that they did not summarize the analysis because the information was only intended to support a number of human capital management efforts, including a report to Congress on DOD's Civilian Human Capital Plan. Similarly, DOD's intelligence community, in 2007, issued guidance for assessing its workforce needs but also did not summarize its analysis. DOD officials stated that while the analysis was not summarized, it resulted in a number of key decisions--for example, a reduction in one agency's senior leader needs. However, without documenting and summarizing information in an analysis that could be traced to component submissions, DOD may not be able to provide Congress and stakeholders in its chain of command insight into how it assessed its senior leader needs. While most DOD entities used a consistent, clearly documented approach to identify and communicate needs for additional civilian senior leaders, the defense intelligence community's approach lacked similar consistency. Outside of the defense intelligence community, DOD used common criteria to identify its most urgent needs for additional senior leaders and communicated those needs and justifications through the chain of command. The defense intelligence community, however, assessed its needs for additional personnel using various sets of criteria and communicated those needs as one aggregate number without providing specific justifications to stakeholders and, ultimately, to Congress. GAO's prior work has shown that establishing common criteria and clear communication strategies strengthens agency processes. Without such criteria and a well-defined set of communication expectations, requests to increase senior leaders in the defense intelligence community will not appear to be supported and justified. DOD's approach for managing and developing civilian leaders includes policies and an executive education program but has some limitations. For example, the executive education program--which, according to program officials, costs an average of $6.5 million per year--was created to address problems of a predecessor program, including the lack of a plan for how graduates would be used in the future. The new program, however, does not have clearly defined metrics to measure the progress or success of the program. GAO previously reported that high-performing organizations recognize the importance of measuring how programs meet their goals. GAO recommends that DOD (1) document analyses and clarify assessment criteria for determining certain senior leader requirements and (2) create clearly defined metrics for its executive education program. DOD generally concurred with GAO's recommendations.	17.1	8k-16k	9,167
32	The American Recovery and Reinvestment Act of 2009 (Recovery Act) required the Secretary of Education to provide grants to states that show promise in meeting the objectives of four broad education reform areas outlined in law. Education subsequently established the RTT grant fund to encourage states to reform their K-12 education systems and to reward states for improving certain student outcomes, such as making substantial gains in student achievement and improving high school graduation rates. The reforms contained in RTT were expected to help prepare students to graduate ready for college and career, and enable them to successfully compete with workers in other countries. Providing a high-quality education for every student is also vital to a strong U.S. economy. States competed for RTT grant funds based on reforms across the following four core reform areas: 1. Standards and assessments: adopting standards and assessments that prepare students to succeed in college and the workplace and to compete in the global market; 2. Data systems: building data systems that measure student academic growth and success and inform teachers and principals about how they can improve instruction; 3. Effective teachers and leaders: recruiting, developing, rewarding, and retaining effective teachers and principals, especially where they are needed most; and 4. School turnaround: turning around the lowest-achieving schools. Education awarded RTT grants to states in three phases, with award amounts ranging from approximately $17 million to $700 million (see appendix II for list of grantees and award amounts). States are generally required to sub-grant at least 50 percent of their RTT funds to school districts within their state that signed a Memorandum of Understanding stating their agreement to implement all or significant portions of the state’s RTT plan (participating districts). According to Education officials, providing a competitive grant with substantial funding to implement ambitious plans in the four core education reform areas was meant to encourage states to create the conditions for reform and achieve significant improvement in student outcomes (see fig. 1). The 4- year grant period began on the date funds were awarded to the state. Education officials stated that, of the Recovery Act funding used in 2010 for the first two phases of RTT, under federal law, any funds not obligated and liquidated by September 30, 2015, will no longer be available. Education made grants for the third phase of RTT from fiscal year 2011 funding, and officials told us that those funds must be liquidated by September 30, 2017. In awarding the RTT grants, Education used a peer review process to evaluate applications. Capacity to implement, scale up, and sustain RTT reforms was one of 19 primary criteria Education used to guide the selection of RTT grantees (see appendix III for a list of these criteria). Education did not provide a definition of capacity, but it provided guidance to peer reviewers on how to assess the specific criterion related to capacity: building strong statewide capacity to implement, scale up, and sustain proposed plans. Peer reviewers evaluated states on the extent to which they demonstrated that they would: (1) provide strong leadership and dedicated teams to implement the reforms; (2) support participating districts in implementing the reforms through a variety of activities, such as identifying and disseminating promising practices; (3) provide efficient and effective operations and processes for grant administration and performance measurement, among other functions; (4) use RTT funds to accomplish the state’s plans; and (5) use fiscal, political, and human capital resources to continue successful grant-funded reforms after RTT funds are no longer available. The capacity of grantees is a key issue in grants management that can affect program success. Capacity involves both maintaining appropriate resources and the ability to effectively manage those resources. For the purposes of this report, we defined capacity as the ability to successfully support, oversee, and implement reform efforts. It includes the following types of capacity: Organizational Capacity: degree of preparedness for grants management and implementation including having the appropriate leadership, management, and structure to efficiently and effectively implement the program and adapt as needed. Human Capital Capacity: the extent to which an organization has sufficient staff, knowledge, and technical skills to effectively meet its program goals. Financial Capacity: the extent to which an organization has sufficient financial resources to administer or implement the grant. Stakeholder Capacity: the extent to which an organization has sufficient support from its stakeholders, including their authority and commitment to execute reform efforts. We and other researchers have noted that capacity concerns may have important implications for competitive grants generally. For example, in 2011 and 2012, we reported on the School Improvement Grant program, another competitive grant awarded by Education, and found that human capital and stakeholder capacity issues influenced the implementation of In addition, a 2011 Journal of School Improvement Grant interventions. Federalism study demonstrated that applicant capacity is an important factor likely to influence how competitive grants are administered and that an applicant’s chances of winning competitive grants are strongly related to their capacity.capacity given relatively modest levels of investment in school improvement activities, as well as human resources, organization, and political challenges. In a January 2014 report, Education’s Inspector General identified common capacity-related causes for delays, such as changes in state leadership; staffing and organizational challenges at Other researchers also raised concerns about states’ state educational agencies; acquisitions issues; and stakeholder issues, particularly regarding the new evaluation systems. In 2011, Education established the Implementation and Support Unit, within the Office of the Deputy Secretary, to administer the RTT program. The purpose of the Implementation and Support Unit was to support the implementation of comprehensive reforms at the state level, pilot new approaches to strengthen and support state reforms, and act as a single point of contact for the Education programs that were housed in that office.of all aspects of RTT, including monitoring and technical assistance. The office was responsible for fiscal and programmatic oversight The Implementation and Support Unit established a program review process to monitor RTT states’ progress toward meeting their RTT goals and to tailor support based on individual state needs. The program review process emphasized outcomes and the quality of RTT implementation by states rather than focusing solely on a compliance-driven approach. Program officials and other staff in the Implementation and Support Unit were to work directly with states to understand their RTT plans and objectives, observe benchmarks, and monitor the quality of implementation. Education considered each state’s progress toward its goals and timelines, risk factors and strategies for addressing them, and the state’s own assessment of its quality of implementation, among other factors. In October 2014, Education established a new Office of State Support, which replaced the Implementation and Support Unit in the administration and oversight of RTT. Education provides technical assistance to RTT states via the Reform Support Network (RSN), which it established in 2010 through a 4-year, $43 million technical assistance contract with ICF International. The RSN is intended to work with RTT states to build capacity to implement and sustain reform efforts and achieve improvements in educational outcomes, identify and share promising and effective practices, as well as facilitate collaboration across states and among the many education stakeholders who implement and support state reform efforts. RSN is to provide RTT grantees one-on-one technical assistance that is tailored to the grantee’s RTT reform plans. RSN is to ensure that the state requesting individualized technical assistance receives the best available and relevant expertise by identifying specific experts that a state can contact for help. RSN also provides collective technical assistance to RTT states through communities of practice. Communities of practice use a variety of mechanisms to support states in meeting their RTT goals, including the use of working groups, publications, and various forms of direct technical assistance, such as webinars and individualized technical assistance. RSN established a capacity-building community of practice designed to strengthen the organizational capacity of RTT states and a working group to help states assess the sustainability of their reform initiatives and take action if needed. RTT accelerated reforms under way or spurred new reforms in all 19 states and in an estimated 81 percent of districts that were awarded RTT grants, according to states and districts we surveyed (see fig. 2 for district survey responses). For example, several state officials reported in their survey comments that their states began implementing reform activities— such as developing standards, longitudinal data systems, and new teacher evaluation systems—before they received RTT funds. In addition, 16 states reported that RTT provided the opportunity to accelerate or enhance existing reform plans or existing priorities. For example, one state official reported that RTT allowed their state to increase courses in science, technology, engineering, and math for students and teachers and provide professional development opportunities for pre-kindergarten teachers. In addition, RTT may have helped promote reforms not only within the 19 states that received RTT grants, but also in the states that applied but did not receive RTT funding. A 2014 Education study found that although RTT states implemented more reform activities in the four core reform areas than non-RTT states, many non-RTT states also adopted similar reforms. Specifically, many of the 47 states that applied for the grant had aligned their educational policies and actions to RTT’s four core education reform areas to develop a competitive application. For example, 43 states had adopted Common Core State Standards (Common Core) in both math and reading/English language arts in the 2010-11 school year. Adopting college- and career-ready standards was one of the 19 criteria peer reviewers used to select RTT grantees. Similarly, our prior work on RTT found that four states that applied for but were not awarded a RTT grant reported enacting new state legislation or making formal executive branch policy changes to be more competitive for RTT. Further, our 2011 report found that sharing information with all states carrying out initiatives similar to RTT initiatives can accelerate the pace and scope of reform efforts. Education developed RTT resources and subsequently made them available to all states on its website. In our survey of states and districts that received RTT funds, we asked officials to identify capacity challenges they faced in implementing and sustaining RTT and the level of difficulty associated with each challenge identified. In general, capacity issues posed a somewhat moderate level of challenge to states and currently participating districts implementing RTT, according to our survey of states and districts that received RTT funds. However, some states and districts described particular aspects of the four types of capacity—organizational, human capital, financial and stakeholder—as very or extremely challenging. For example, RTT states rated stakeholder capacity as the greatest challenge faced while implementing RTT reform initiatives. Overall, they rated this challenge as moderate; however, about one-quarter to one-third of RTT states reported that obtaining support from state legislatures, organizations that represent teachers and/or administrators, and district leaders was very or extremely challenging. Further, in implementing changes in two of the four core reform areas—standards and assessments and effective teachers and leaders—more than one-third of RTT states found stakeholder capacity to be very or extremely challenging. Although states were encouraged to show in their grant applications that they had garnered support for reforms from stakeholders, some states said that they had difficulty maintaining that support throughout the grant period. One state official told us that the state’s teachers’ union was seeking to reverse elements of their evaluation system linking teacher performance to student achievement, and the legislature was seeking to reverse the adoption of the Common Core—key elements of the state’s RTT application. RTT states rated organizational capacity as the second greatest challenge faced while implementing RTT. Although they rated this challenge as moderate overall, officials from 4 of the 19 states reported that consistency in leadership at the state educational agency was a specific aspect of organizational capacity that was very or extremely challenging. One state official we spoke with explained that frequent turnover at the superintendent level made implementing its teacher evaluation system difficult because they had to constantly educate new superintendents on how to use the evaluations to improve instruction. School districts reported facing different types of capacity challenges than did states. For example, school districts currently participating in RTT reforms reported that financial capacity was the most challenging. In each of the four core reform areas, about one-third of currently participating districts reported that financial capacity was very or extremely challenging to implementing RTT initiatives (see appendix IV). District officials we surveyed stated in their written comments that decreased state funding, the effects of the 2008 recession, and increasing enrollments affected their financial capacity to fund reform at the local level. While RTT grant funding to currently participating districts represented an estimated 1 to 2 percent of their budgets during each school year of the grant period, district officials told us that RTT funds were crucial to their ability to implement reforms. Districts also reported particular difficulties with human capital capacity— the second greatest challenge they faced implementing RTT. currently participating in RTT reported the most challenging aspect of human capital capacity was recruiting staff through competitive compensation, with an estimated 45 percent of districts reporting that doing so was very or extremely challenging. An estimated one-third of currently participating districts also cited retaining staff and having the appropriate number of staff among the most challenging aspects of human capital capacity, as well as issues related to Common Core implementation, such as having staff prepared to develop and/or implement curricula meeting the new standards. Human capital capacity is the extent to which an organization has sufficient staff, knowledge, and technical skills to effectively meet its program goals. States and districts reported taking various actions to build and increase their capacity overall throughout the grant period (see fig. 3). However, both indicated that human capital and financial capacity would be the most challenging to sustain after the RTT grant period ends. State and district officials we spoke with explained that these issues were inter- related; that is, staff shortages and skill gaps required continued funds for professional development. Throughout the grant period, more than half of the 19 states reported putting great or very great effort into building stakeholder capacity—the area that state officials cited as the most challenging—most frequently by consulting with organizations that represent teachers and/or administrators (17 states), consulting with district leadership (16 states), and building political relationships (15 states). Similarly, most states reported building organizational capacity—another area that presented great challenges as they implemented reforms—by, for example, establishing an RTT point of contact or office (18 states) and establishing communication mechanisms for RTT staff, such as group email lists (17 states). To a lesser extent, states reported that reorganizing an existing office (12 states) and appointing new RTT leadership (13 states) were also helpful in building organizational capacity. According to one state official we spoke with, the state reorganized its entire state educational agency into departments aligned with its RTT reforms. The official noted that the RTT grant helped the state fund the reorganization which, in turn, helped them mitigate capacity challenges throughout implementation. Another state official explained that the state focused on reorganizing how staff conduct their work by fostering collaboration among program officers. School districts—whose second greatest capacity challenge related to human capital—reported making great or very great effort to build human capital capacity for RTT reform by training existing staff (80 percent), expanding the responsibilities of current staff (74 percent), and shifting responsibilities among staff (64 percent). Similarly, all three district officials we spoke with in our follow-up interviews noted that efforts to build human capital capacity focused on training and shifting the roles of their current staff. One district official explained that they avoided funding new staff positions that they might not be able to retain after RTT funds ended. To build financial capacity, an estimated 23 percent of currently participating districts reported receiving supplemental funding from their state general fund. Additionally, an estimated 7 percent of districts reported receiving funds from foundations to build capacity. Despite their efforts, state and district officials reported that capacity struggles would likely remain once the RTT grant period ends. For both states and districts, financial capacity and human capital capacity represented the greatest challenges to sustaining reforms (see fig. 4). However, states and districts also reported planning to take various actions to help sustain their capacity for reform. All 19 states, as well as an estimated 84 percent of currently participating districts, indicated that retaining staff with requisite knowledge and skills is part of their plan to sustain RTT reform efforts. For example, one district official explained that they used a large portion of their RTT funds on training for teachers and administrators. Using the RTT funds for this purpose—as opposed to hiring many new staff—helped them build capacity and institutional knowledge that would be easier to sustain once the RTT funding ends. Additionally, 17 states indicated that modifying existing staff roles and responsibilities was the second most planned action to sustain RTT reforms. An estimated 72 percent of districts indicated that building institutional knowledge was their second most planned action to sustain RTT reforms. Rural school districts reported facing significantly greater challenges than urban districts in the standards and assessments and data systems core reform areas when implementing RTT, according to our survey results (see fig. 5). These survey results are consistent with our past work on the capacity challenges rural districts face. For example, in a 2013 report, we found that a rural district in New York faced unique difficulties implementing its teacher evaluation system because its small student population required some teachers to teach more than one subject, which made the evaluation process more complex and time-consuming. Similarly, our prior work on implementation of School Improvement Grants showed that rural districts faced difficulties because attracting and retaining high- quality teachers and implementing increased learning time requirements were difficult, in part due to higher transportation costs in rural areas. In addition, in responding to our survey, rural districts reported anticipating more difficulty than urban districts in sustaining all four types of capacity after the RTT grant period ends; and anticipated more difficulty than suburban districts in sustaining three of the four capacity types. For example, according to our survey, an estimated 40 percent of rural districts anticipated that human capital capacity would be very or extremely challenging in sustaining RTT reform efforts compared to 26 percent for urban and suburban districts (see fig. 6). One expert participating on our panel agreed, noting that rural districts would also face challenges sustaining reforms because constrained budgets and a lack of human capital capacity are often particularly challenging for rural districts. In addition, a rural district official told us that they have a small number of employees, and attracting and retaining skilled employees who can perform multiple work functions can be more difficult for them. The official also noted that recruiting staff is a challenge because rural districts are often also among the poorer districts and do not have the resources to implement large-scale hiring efforts. Although states and districts across the country likely face capacity challenges and resource limitations to some degree, research suggests that some rural districts—and states that have many rural districts—may be less likely to have the skills, knowledge, or expertise to overcome these challenges. For example, one 2013 report recommended that states may have to play a much more direct role in guiding school improvement in smaller, rural districts, where capacity is lacking.addition, a 2014 Education Office of Inspector General report indicated In this approach may be effective in reducing project delays and provided an example of a state that planned to help districts build capacity in order to better support low-performing schools in rural areas. Our prior work and other research demonstrate that states with many rural districts need additional supports in this area. Given that rural districts reported that they faced challenges implementing and sustaining reforms that were statistically significantly greater than urban and suburban districts, a greater understanding of these challenges could help Education provide more targeted support to rural districts. According to Education’s Handbook for the Discretionary Grant Process, Education is to provide technical assistance to grantees to help them achieve successful project outcomes. also required to hold grantees accountable for meeting the commitments made in their approved RTT applications. Education has recognized and reported on challenges facing rural districts. In addition, Education officials stated that they have supported RTT grantees and their rural districts through a series of convenings, work groups, publications, webinars, and individual technical assistance, and provided examples of these activities. However, we reviewed RSN’s technical assistance documents and found that most of the activities were not provided in the manner that RTT states reported finding most helpful—as discussed later in this report—nor were they tailored to helping states address the unique capacity challenges that rural districts reported facing in the reform areas identified in our survey. Unless Education provides assistance specifically designed to help states support their rural districts in addressing their capacity challenges in implementing and sustaining high-quality reform, states may not be able to help the districts that need it the most. U.S. Department of Education, Handbook for the Discretionary Grant Process, Handbook OS-01 (Washington, D.C.: January 2009). According to our state survey, individualized technical assistance provided by Education program officers was the most helpful resource when building capacity to implement and sustain reform plans (see fig. 7). This was consistent with the views of officials we interviewed in four RTT states, who described very positive interactions with their Education program officer. For example, state officials explained that the program officers practiced collaborative problem-solving and provided a significant amount of support to the state as it implemented reform activities. The next most helpful resources, according to our state survey, were technical assistance provided by other staff in the Implementation and Support Unit and RSN. One state official we spoke with noted that Implementation and Support Unit staff provided useful information on how other states were implementing their reform activities. An official from another state explained that the state is working closely with RSN to better understand how to work with its participating RTT districts to better leverage federal funding to improve student outcomes. As shown in figure 7, RSN’s communities of practice ranked fourth in terms of helpfulness to build capacity to implement and sustain RTT reform. According to state officials and one expert participating on our panel, these communities of practice encouraged collaboration across states, which has helped them leverage knowledge, talent, and resources, as well as facilitate the sharing of promising practices. Education officials observed similar value in RSN’s communities of practice, noting that through them, states had a forum in which to learn from each other and discuss RTT implementation issues. It is worth noting that state officials we interviewed commented that communities of practice may have been more helpful to states that were in the early stages of implementing RTT reforms. For example, one official noted that their state was farther along in implementing its teacher and principal evaluation system and school turnaround efforts and therefore did not gain as much from those communities of practice. State officials ranked RSN’s capacity-building community of practice and web-based resources from Education and RSN among the least helpful to states. Education officials similarly noted that while webinars were an easy way to disseminate information, they are likely not as valuable as other RTT resources because they are not as tailored to a particular state’s needs. Two experts participating on our panel noted that although an abundance of school reform-related information exists on websites, little is known about the effectiveness of the information. In December 2013, RSN published the results of an evaluation of its technical assistance activities that generally aligned with the results of our state survey. For example, according to RSN’s evaluation report, participants indicated they were satisfied with the quality of the support, the format and content of the technical assistance activities provided by RSN. Individualized technical assistance had the highest ratings because, according to the evaluation report, it was designed to address a state’s specific implementation challenges. In addition, participants in the RSN evaluation indicated that on average, technical assistance activities had a moderate effect on states’ ability to build capacity overall. The results of the RSN evaluation also showed that while webinars were useful for disseminating information to larger audiences and convening states on a regular basis, they received lower ratings than other forms of assistance. Our body of work on performance measures and evaluations has shown that successful organizations conduct periodic or ad hoc program evaluations to examine how well a program is working. These types of evaluations allow agencies to more closely examine aspects of program operations, factors in the program environment that may impede or contribute to its success, and the extent to which the program is operating as intended. Information from periodic reviews of RSN’s technical assistance efforts are an important factor in determining if adjustments are needed to help grantees meet their goals for education reform. State officials we surveyed also identified additional activities that Education could undertake that would better assist states with implementing RTT. Specifically, 10 of 19 states reported wanting ongoing professional development throughout the grant period, as opposed to during the early stages of the grant. Ten of 19 states reported wanting training to be provided in their respective states to make it more easily accessible, rather than having to travel to Washington, D.C. Further, 11 of 19 states reported wanting assistance identifying skilled contractors who could assist with reform efforts. Education officials stated that any assistance it provides to identify contractors cannot compromise the fairness and objectivity of the states’ procurement processes. Education officials also pointed out other legal challenges to identifying contractors, such as prohibitions against endorsements of private entities. However, Education officials stated they can assist grantees by, for example, helping them to develop objective criteria, analysis, or research regarding the qualifications of skilled contractors. They said they can also provide resource lists using objective criteria, as well as technical assistance in this area. In October 2014, Education created the Office of State Support to expand and sustain the collaborative approach to providing oversight and technical assistance that began under the Implementation and Support Unit. More specifically, the purpose of the Office of State Support is to design a coordinated approach across multiple Education programs to reduce redundancy and improve the efficiency and effectiveness of Education’s oversight efforts. The Office of State Support will provide states with one point of contact for multiple education programs that will provide support and technical assistance. The Office of State Support plans to establish advisory committees, involve staff from other education programs in decision making, and maintain close communication with staff from other education programs that have similar goals and activities as programs covered under the new office. Officials from the Office of State Support stated that the lessons learned from the RTT monitoring and technical assistance processes will inform their work in the new office for programs they oversee—many of which are helping states to facilitate comprehensive education reforms similar to those started under RTT. However, officials stated that they will need to eventually transition to a longer-range plan for monitoring and reconsider how they provide technical assistance because Education’s contract with RSN ends on June 30, 2015. Education officials noted that it was unlikely that the department would receive such a large amount of funding ($43 million) for technical assistance again. They explained that the type and extent of technical assistance efforts to states after the end of the RSN contract will, in turn, be dependent upon the funding available for that purpose. Lastly, they said that they will look to leverage existing technical assistance funds, such as those provided for the Comprehensive Centers program, to help increase state capacity to assist districts and schools. Education’s Handbook for the Discretionary Grant Process requires program offices to develop a monitoring and technical assistance plan for each grant program. In addition, according to Federal Standards for Internal Control, policies and procedures help ensure that necessary actions are taken to address risks to achieving the entity’s objectives. Education has a monitoring and technical assistance plan for RTT, which it has been using for the past four years and has continued to use during the transition from the Implementation and Support Unit to the Office of State Support. However, officials from the Office of State Support stated that they planned to establish coordinated technical assistance processes and procedures for all of the programs administered by the new office, while meeting the needs of the states and their particular initiatives. For example, they said they need to consider how to bring the various kinds of monitoring and technical assistance conducted by different program offices together to provide support for and make connections across programs, and be less burdensome for states. Officials stated that they formed a working group of staff from various Education program offices, including former Implementation and Support Unit staff, to help inform the new office’s coordinated technical assistance policies. However, officials noted that the working group was in the early stages of this process, and had not yet developed any draft policies or established a definitive deadline for accomplishing this task. Given the valuable technical assistance that RSN provided to states, and that Education has not determined the type or amount of technical assistance to be provided, there could be a gap in the type of support that Education can provide to states when the contract expires. Until the Office of State Support develops and finalizes policies and procedures that include support activities states identified as most helpful, Education runs the risk of not providing the most effective assistance to its grantees to help them successfully implement and sustain reform efforts. Our analysis of our expert panel transcript revealed key lessons that could help states and districts address their greatest capacity challenges and help sustain reforms after the RTT grant period ends. To address challenges with financial capacity, five of the 10 experts participating on our panel noted that federal formula grants are better suited than competitive grants for building and sustaining capacity because they provide a more stable funding source. Three experts stated that there are several ways that states and districts can leverage the funds they receive annually in formula grants to help sustain reforms. The Title I formula grant—designed to improve schools with high concentrations of students from low-income families—gives districts and schools flexibility to use federal funds to support instructional strategies and methods that best meet local needs. For example, schools where at least 40 percent of students are from low-income families may operate “school-wide” Title I programs, which allow schools to combine Title I funds with other federal, state, and local funds to improve the overall instructional program for all children in a school. In the 2012–2013 school year, approximately 40,632 schools, or 74 percent of all Title I schools, operated school-wide programs. Despite the large number of schools running a school-wide program, districts and schools may not be using the flexibilities to combine Title I funds with other federal funds to their fullest extent due, in part, to a lack of organizational capacity at the state and district levels. According to Education officials and two experts on our panel, states and districts are often uncertain about whether they are allowed to combine federal formula grants in new ways to support comprehensive reforms. For example, Education officials told us that historically, states and districts have used Title II funds—formula grants designed in part to increase student academic achievement through strategies such as improving teacher and principal quality—to reduce class size. However, according to Education’s guidance, states and districts could also choose to combine Title I and Title II funds to sustain reforms initiated under RTT, such as providing academic support coaches and financial incentives and rewards to attract and retain qualified and effective teachers to help low- performing schools. According to five experts on our panel, uncertainties about what is allowed may stem from lack of communication and coordination among the multiple federal education program and financial management offices, and because these offices are not always focused on helping states and districts better leverage their funds. GAO/AIMD-00-21.3.1. programs to support the four core reform areas. Further, in 2013, the Council of Chief State School Officers developed a toolkit for states to help clarify how districts and schools may spend K-12 federal formula grants. This toolkit encourages states to improve collaboration among offices supported by federal grants to help ensure they effectively leverage federal funds. Currently, Education is working with RSN to develop another toolkit for states and districts on ways to leverage federal formula grants to sustain educational reforms. Education officials could not provide definitive time frames for the release and dissemination of the toolkit, but noted that they are hoping to release it sometime in 2015. This toolkit, when finalized, may help states and districts better understand how to leverage their formula grants to sustain reform activities and help raise student achievement—a primary objective of education reform. Education officials and one expert participating on our panel also said that states and districts do not use funding flexibilities to their fullest extent because they have concerns about compliance with state audit requirements. Education officials explained that states and auditors may believe that federal law prohibits certain activities, even when the law and its implementation rules do not. Education officials told us they tried to address these uncertainties by issuing guidance to clarify how states and districts can leverage federal funds to support reforms. According to this guidance, states may use Title I funds to provide technical assistance to low-achieving schools, and districts may consolidate Title I, Title II, and IDEA funds in schools under the school-wide program to support comprehensive reforms by, for example, extending the school day or school year. However, Education officials said that there is still confusion about this issue, particularly among the audit community, and that it needs to provide new guidance to help auditors better understand allowable spending within federal formula grants, especially with Title I funds. However, it does not have a definitive plan for developing and implementing this guidance. Such guidance—when developed and fully implemented—may help auditors better understand funding flexibilities in existing formula grants and help states and districts fully leverage these flexibilities. Further, the pending reauthorization of ESEA also provides an opportunity to address these capacity issues. Education told us that it is exploring new options to help states and districts build capacity to implement comprehensive reforms, including increasing the portion of Title I grant funds that can be set aside for administrative purposes. Currently, two of the set-asides in the Title I program limit the maximum percentage of funds that can be set aside to support state administrative functions and districts’ school improvement activities. Specifically, ESEA requires that a state generally spend no more than 1 percent (or $400,000, whichever is greater) of its Title I funds on state administration and 4 percent on district school improvement activities. Education told us that the current portion of funds under the ESEA Title I grant that may be used for administrative functions may be inadequate given the range and complexity of state-level work in supporting effective implementation of local Title I projects. In its fiscal year 2016 budget proposal, the Administration proposed increasing the funds a state can spend on administration from 1 percent to 3 percent. According to Education officials, the trade-off, particularly in a tight fiscal environment, is that larger set-asides may reduce the portion of available funds that would transfer to districts and schools to implement programs. In the current Congress, the Student Success Act, which was reported out of the House Committee on Education and the Workforce, would make changes to both of these set-asides. To help address human capital and stakeholder capacity challenges, five experts on our panel noted the importance of fostering partnerships between a state and its districts, among districts within a state, and with non-governmental entities by, for example, convening groups of experts across the state to share expertise, solve problems, and share lessons learned to help leverage knowledge and talent. They further noted the potential for such a strategy to solve common challenges, such as how to develop effective strategies for evaluating teachers who teach subjects that are not assessed using standardized tests (e.g. foreign language or art). Universities with research and professional development institutes are another potential resource to help states and districts build and sustain human capital capacity. For example, one expert noted that strong relationships with higher education institutions and teacher unions are needed to revamp teacher, principal and superintendent training programs and teacher licensure requirements. Lastly, three panelists said that to maintain key stakeholder support for reforms, states need to show progress in meeting their established time frames for RTT reform, or increase student achievement. Three experts on our panel noted that competitive grants may be better suited than formula grants for spurring reforms and innovative approaches, but varying levels of capacity among states and districts raises concerns about their ability to win competitive grants and successfully implement large-scale education reforms. Research suggests that states’ capacity was an important variable in helping to predict who applied for RTT funds and which states scored well during the competition. In particular, a 2011 study found that states with quality standards and accountability procedures, and that had achieved overall student gains, were more likely to receive higher scores during the RTT grant competition. When making competitive grant awards in the future, Education officials told us they expect to look at demonstrated capacity as evidenced by a state’s performance under previous grants and may offer a competitive priority for previous success. To help states and districts that may be struggling in these areas, experts participating on our panel made four observations that they believe could be incorporated into the design of future competitive grants to help level the playing field between high- and low-capacity states and districts. Education has incorporated some of the observations into its competitive grant programs to varying degrees and pointed out some advantages and disadvantages of each. Observation 1: Allow joint applications so that states and districts with greater capacity can partner with those with less capacity. Education noted that it used this approach in recent grant competitions. Education encouraged states that opted to adopt a common set of college- and career-ready standards to form collaborative groups to apply for RTT assessment grants to develop assessments aligned with the new standards. A 2011 study proposed that such arrangements could help states with less capacity more easily benefit from the initiatives of ones with more capacity by helping them identify partners and providing them access to funds that may help valuable reforms gain traction. Education officials told us, however, that when they have allowed joint applications or consortia for some competitive grants, the complexity of implementing the grants increased because states have different procurement rules which take longer to navigate. Education officials also noted that these joint initiatives sometimes take longer to implement because states have to establish a framework for how they are going to coordinate. Observation 2: Staggering or “phasing” competitive grant funding to allow for varying capacity needs of grantees. Education officials told us that they have had mixed success using planning grants to allow grantees additional time to build capacity to implement plans. For example, Education used a two-phase strategy for awarding competitive grants under its Promise Neighborhoods grant program, including 1-year planning grants to organizations to enhance the grantees’ capacity and a separate competition for a 5- year implementation grant to organizations that demonstrated they were ready to implement their plans. However, we recently reported that Education did not communicate clearly to grantees about its expectations for the planning grants and the likelihood of receiving implementation grants. Education officials told us that they do not always have the authority to offer this feature, but they consider it where it is possible. Education officials told us that they are considering adding a planning year to the School Improvement Grant, which is federal money awarded to states that states, in turn, award to districts using a competitive process. Education officials told us that they believe that low-capacity districts could benefit from this approach, but noted that it will be important to emphasize their expectation that grantees use the planning year to build capacity to implement their reform plans. Observation 3: Allowing intermediary entities that often help coordinate or provide technical assistance to districts to apply for competitive grants. Education officials told us that they see a benefit to using partners such as nonprofit organizations to drive reform, noting, for example, that the Investing in Innovation program allows nonprofits to partner with school districts as part of the application process and throughout the grant period. Research supports such an approach as well. A 2011 RAND study examining the federal and state role in improving schools in 15 states found that although some states assumed primary responsibility for assisting low-performing schools, others relied on regional organizations, area education agencies, or intermediate school districts to fill this role.However, Education officials noted that applicant eligibility is generally defined in statute. Observation 4: Streamlining Education’s grant application processes to make it easier for states and districts with less capacity to apply. Education officials told us that one example of streamlining the grant process was allowing states that did not win an award in the first phase of a competition to revise the same application and resubmit for subsequent phases. Education adopted this strategy in the RTT grant competition. Another way to streamline the grant application process is by encouraging shorter applications. Education officials said it used this approach in a grant competition for the Investing in Innovation program. Education officials noted that, in general, one disadvantage to shorter applications is that there may not be sufficient detail in the applications to hold grantees accountable for implementing their plans. As Education’s technical assistance contract for RSN comes to a close, and it develops new processes for technical assistance under the new Office of State Support, it has an opportunity to apply the technical assistance that RTT states reported as most helpful, such as individualized technical assistance and professional development, to other grant programs that the office oversees. Such technical assistance could help states implement and sustain the comprehensive education reforms which will continue to be supported by other grant programs managed by the Office of State Support. In addition, because rural districts face unique challenges implementing and sustaining RTT reforms, focusing efforts to enhance Education’s understanding of the types of additional supports they may need could help these districts successfully implement and sustain their reform efforts, and ultimately improve student achievement. Further, as the RTT grant period comes to an end, RTT states may need to better leverage their federal formula grants to continue to support comprehensive reform in the absence of RTT funds. Education officials and other experts have emphasized the importance of leveraging existing funding flexibilities in education formula grants to help states implement and sustain large-scale reform efforts. However, concerns about a lack of communication between states’ program and financial management offices, as well as concerns about non-compliance with state and federal requirements may be limiting states’ willingness to use the funding flexibilities present in current law to develop and implement strategies tailored to their unique local needs. By taking actions to address these issues, Education can help states and districts better use their federal funding in the most effective way to improve student achievement and to support comprehensive school reform. To help ensure that states are better able to sustain RTT reforms and that Education can effectively support other grant programs managed by the Office of State Support, we recommend that the Secretary of Education direct the Office of State Support to fully implement and incorporate into its coordinated technical assistance policies and procedures the types of support that would be useful in sustaining RTT reforms and providing effective support to grantees in other programs supporting education reform that the Office of State Support oversees. These could include: providing individualized technical assistance to states, such as that currently provided by Education program officers; facilitating communities of practice to promote opportunities for collaboration across states; providing professional development (or training) throughout the grant period, as opposed to only during the early stages of the grant; making training more easily accessible by conducting training locally in their respective states, when possible; and to the extent permissible in the context of federal and state requirements and restrictions, exploring the possibility of assisting states in identifying skilled contractors to help implement reform efforts. To help states address capacity challenges as they sustain comprehensive education reforms similar to RTT, we recommend that the Secretary of Education direct the Office of State Support to take steps, such as: providing ongoing individualized technical assistance to states to help them target assistance to rural districts, particularly in the reform areas that were most challenging for rural districts; finalizing and disseminating guidance to be included in Education’s toolkit to help states leverage federal formula grants to sustain education reforms; and clarifying and improving understanding of how funding flexibilities in existing formula grants could be used to support education reform efforts to help states and the audit community address impediments to using formula grants in different ways. We provided a draft of this report to the Department of Education for comment. Education provided technical comments, which we incorporated into the report as appropriate. Education’s written comments are reproduced in appendix VI and summarized below. Education did not explicitly agree or disagree with our recommendations, but outlined steps to address many elements contained in them. It also provided additional information related to our findings and recommendations. In response to our first recommendation, Education stated that it shares our interest in supporting states as they sustain RTT reforms and supporting other grant programs under the Office of State Support through performance management and technical assistance. To this end, Education described plans to build on its generally successful RTT monitoring strategy to develop a consolidated technical assistance strategy for all programs under the auspices of the Office of State Support. We have added clarifying language in the body of the report to better reflect existing elements of the RTT monitoring and technical assistance plan. Education’s plan to provide coordinated policy development, performance management, technical assistance, and data analysis services through a structure intended to more effectively support the implementation of key reforms and provide individualized support is a positive step. These coordinated policies and procedures could continue to support RTT grantees as well as other grantees under other Office of State Support programs that have a role in helping states implement comprehensive education reforms. However, we continue to believe that until these policies are fully implemented, Education risks providing less effective support than it otherwise might. Further, as Education’s technical assistance contract for RSN comes to an end, we continue to believe that Education should take explicit steps to incorporate into its new consolidated assistance strategy for all programs under the Office of State Support the technical assistance activities that RTT grantees identified as being most helpful to them in sustaining their reforms. In addition, Education should incorporate those additional supports that states reported as desirable. We have clarified the intent of our recommendation accordingly. In response to our second recommendation, Education agreed that it is important to identify ways to help states target assistance to rural districts. Education stated, however, that the draft report does not adequately recognize the actions it has taken to support RTT grantees in rural states and districts, and provided a list of 17 activities it has undertaken through RSN to support rural areas. We acknowledge Education’s efforts to provide support to rural areas and have incorporated additional information in the draft report, as appropriate, to reflect this. However, in further reviewing these 17 activities, we found significant limitations and believe our overall finding and corresponding recommendation is still warranted. Specifically: Nearly all of the activities (16 of 17) were in the form of working groups, convenings, webinars, toolkits, and publications developed by the RSN, many of which were located on the RSN website. According to our survey of all 19 RTT states, web-based resources were among the least helpful to RTT states in building and sustaining the necessary capacity to implement reforms. Only one of the 17 activities provided individualized technical assistance which, according to our survey, was the most helpful form of assistance to RTT states. We realize that Education formed RSN to provide support in a variety of formats and agree that RSN has generally well supported RTT grantees. However, given the unique capacity challenges that rural districts face, we believe there is value in offering technical assistance tailored to the individual needs of rural areas. According to our generalizable survey of districts that received RTT funds, rural districts faced statistically significantly greater challenges than urban districts in implementing reforms in two areas: standards and assessments and data systems. However, 14 of the 17 RSN activities focused on the other two reform areas (school turnaround and effective teachers and leaders). RSN’s efforts to focus resources on assisting states in implementing RTT reforms are important ones, and we believe that many states and districts may have benefitted from these efforts. However, in order to best support states that are working to implement and sustain reforms in their rural districts, Education should target future support in the reform areas in which rural districts most struggled: standards and assessments and data systems. Accordingly, we modified our recommendation to clarify that Education should take steps to provide targeted assistance to states in those reform areas that we have identified as statistically significantly more challenging for rural districts. Many of the activities undertaken to support rural districts were conducted in 2012 and 2013 (6 of the 11 that included specific dates) when states and districts were fully engaged in implementing RTT reforms. However, our survey of districts that received RTT funds was deployed from June through September 2014, and the results indicated that rural districts continued to face challenges long after they would have availed themselves of these resources. Some of the activities (6 of 17) provided support that was not specifically tailored for rural districts; rather, it could be applied in rural, suburban, and urban school settings alike. We continue to believe that opportunities exist to help states better target support to rural districts. Without a better understanding of the unique capacity challenges that rural districts face, and a more focused approach to providing support, Education may not be able to help the states and districts that need it the most. Finally, Education recognized the importance of clarifying its guidance on the use of funding flexibilities and provided several examples of “Dear Colleague” letters it has provided to states. We referenced one of these letters in the draft of the report. We did not include the other two “Dear Colleague” letters (guidance related to leveraging federal funds to support school counselors and digital education) because they do not address the use of funding flexibilities in support of education reform initiatives, which was at the heart of our finding and corresponding recommendation. To address this apparent confusion we have clarified our recommendation accordingly. We noted in our report, and Education emphasized, that it is working with RSN to release new guidance in 2015 on ways to leverage federal grants to sustain educational reforms. However, as stated in our report, Education officials could not provide definitive time frames for the release and dissemination of the toolkit. We continue to believe that until this guidance is fully implemented, states and districts will continue to lack clarity on how to leverage their formula grants to sustain reform activities. We are sending copies of this report to the appropriate congressional committees, the Secretary of Education, and other interested parties. In addition, the report will be available at no charge on GAO’s web site at http://www.gao.gov. If you or your staff should have any questions about this report, please contact me at (617) 788-0580 or nowickij@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VII. We framed our study of capacity challenges faced by states and districts implementing Race to the Top (RTT) reforms around three objectives: (1) What effect did RTT have on education reform, and what capacity challenges did states and districts face in implementing and sustaining RTT initiatives?; (2) How helpful was the assistance the U.S. Department of Education provided to states to build capacity to implement and sustain RTT reforms?; and (3) What lessons have been learned from RTT that could inform future education reform efforts? In addressing these objectives, we incorporated elements of “grounded foresight,” a methodological approach developed by GAO to examine future implications by identifying key trends, emerging challenges, and opportunities to inform government’s future role and responsibilities. According to GAO’s internal grounded foresight methodology paper, the heart of the proposed approach consists of three elements of grounding, designed to support GAO’s core values of integrity and reliability: (1) a strong factual-conceptual base, (2) one or more methods for discussing or anticipating the future, and (3) transparent communication of the outcomes. We developed a strong factual-conceptual base to assure that relevant trends and occurrences related to capacity issues and competitive grants are documented, recognized, and understood as part of the study. We reviewed and analyzed existing literature on capacity issues and competitive grants in K-12 education using GAO’s prospective We examined the features of RTT, and evaluation synthesis approach.reviewed findings from published reports to identify capacity challenges. We also deployed two web-based surveys of state educational agency and district officials; reviewed relevant federal laws, regulations, and guidance; and conducted interviews with a variety of federal, state, and local officials. We then convened a panel of experts who were knowledgeable about capacity issues and federal grants to obtain their views on the implications of capacity challenges on the sustainability of RTT reform efforts and potential future competitive grants. We made the results of the two web-based surveys publicly available to help ensure transparent communication of the capacity challenges states and districts reported facing. To obtain information on capacity challenges states faced in implementing and sustaining RTT reforms we conducted a web-based survey of RTT points of contact at each state educational agency in all 19 We conducted the survey from May through July 2014. In grantee states.the survey, we asked RTT states about their capacity to implement RTT efforts, the support received to do so, and efforts to build and sustain capacity for RTT reform, among other things. We received responses from all 19 RTT states for a 100 percent response rate. We reviewed state responses and followed up by telephone and e-mail with selected states for additional clarification and context. We also published survey responses in an e-publication supplemental to this report, RACE TO THE TOP: Survey of State Educational Agencies’ Capacity to Implement Reform (GAO-15-316SP, April 2015). To obtain information on capacity challenges districts faced in implementing and sustaining RTT reform efforts we conducted a web- based survey of a sample of district officials whose districts received RTT funds. We selected a stratified random sample of 643 from 3,251 school districts that received RTT funds from a population of 18,541 school districts in the 19 RTT states (see table 1). Although the focus was on districts that currently receive RTT funds, we also included districts that initially were participating in RTT but later decided to formally withdraw. We obtained data from Education’s National Center for Education Statistics, which maintains the Common Core of Data for public school districts, for the 2011-12 school year. Our sample allowed us to make estimates to all RTT districts and to subpopulations by urban status of the district. We conducted the school district survey from June through September 2014 and had a 76.7 percent final weighted response rate. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we expressed our confidence in the precision of our particular sample’s results as a 95 percent confidence interval (e.g., plus or minus 6 percentage points). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. Unless otherwise noted, all percentage estimates in this report have confidence intervals within plus or minus 6 percentage points. For other estimates, the confidence intervals are presented along with the estimates themselves. In the survey, we asked questions about school districts’ capacity to implement RTT efforts, the support received to do so, and efforts to build and sustain capacity for RTT reform, among other things. We reviewed survey responses and followed up by telephone and e-mail with selected districts, as needed for additional clarification and to determine that their responses were complete, reasonable, and sufficiently reliable for the purposes of this report. We also published survey responses in an e-publication supplement to this report, RACE TO THE TOP: Survey of School Districts’ Capacity to Implement Reform (GAO-15-317SP, April 2015). The quality of the state and district survey data can be affected by nonsampling error, which includes variations in how respondents interpret questions, respondents’ willingness to offer accurate responses, and data collection and processing errors. To minimize such error, we included the following steps in developing the survey and in collecting and analyzing survey data. We pretested draft versions of the instrument with state educational agency officials in three states and officials in four districts to check the clarity of the questions and the flow and layout of the survey. On the basis of the pretests, we made revisions to both surveys. We contacted respondents to clarify any questions or responses where appropriate. Further, using a web-based survey and allowing state and district officials to enter their responses into an electronic instrument created an automatic record for each state and district and eliminated the errors associated with a manual data entry process. In addition, the programs used to analyze the survey data were independently verified to ensure the accuracy of this work. To obtain information on lessons learned from RTT that could inform future education reform efforts, we convened a group of knowledgeable individuals for an expert panel. In identifying the experts, we compiled a preliminary list of 15 individuals with research or professional experience related to RTT reforms, state and district capacity, federal grant making, and state or federal education policy. These experts represented the following entities: state educational agencies, school districts, education associations, academia, and education think tanks. They also included a former Education official and a representative from Education’s Office of Inspector General. We identified a state educational agency official based on participation in RTT and the state’s proximity to Washington, D.C. where the panel was convened. To obtain a different local perspective, we selected a school district official from a different state. In addition, we selected the school district based on proximity to Washington, D.C. and the extent to which the district had completed questions in our district survey. An external expert who conducted extensive research on K-12 education and federal policy vetted our initial list of panelists. We used feedback from this expert, along with biographical information about the experts, to determine which experts would be invited to participate. The resulting 10 experts participated in a 1-day panel focused on capacity challenges and their implications for RTT reforms and future competitive grants (see appendix V for list of participants). Each panelist completed a questionnaire to document any conflicts of interest. This information was not used to determine the qualification of the expert for the panel, but to ensure that we were aware of circumstances that could be viewed by others as affecting the expert’s point of view on these topics. We developed discussion topics and questions for the panelists based on information gathered from the surveys, interviews, and academic literature. A contractor recorded the panel and transcribed the discussion. We performed a content analysis of the transcript of the panel discussion to develop common themes among the experts on lessons learned from RTT that could help sustain reform efforts, inform the design or implementation of future education competitive grants, and inform future education reform efforts. We tallied responses for each panelist who commented on those themes. This analysis was independently verified to ensure the accuracy of this work. For all three objectives, we reviewed relevant federal laws, regulations, and guidance—including federal internal control standards and Education’s Handbook for the Discretionary Grant Process—and interviewed federal, state, and district officials and other experts regarding capacity to implement and sustain RTT reforms. We reviewed RTT applications to identify commitments states made to build capacity to implement RTT initiatives. To identify actions taken to build capacity, we compared the states’ commitments to information provided in their progress reports for school year 2012-2013. We also reviewed information on Education’s efforts to assist states with building capacity, such as guidance, technical assistance, webinars, and other information on the RTT website. We interviewed federal officials from the Implementation and Support Unit in Education’s Office of the Deputy Secretary and staff from the newly established Office of State Support. In addition, we conducted interviews with a variety of interested parties, such as educational organizations, researchers, and university professors. For example, we met with representatives from the American Association of School Administrators, the Council of Chief State School Officers, and the Center on Reinventing Public Education, among others. We also conducted follow-up interviews with officials in four state educational agencies and three districts to obtain more detailed information and illustrative examples. We selected these state and district officials based on their responses to our surveys and representation across award phase. We conducted this performance audit from November 2013 to April 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix IV: Capacity Challenges by Race to the Top Reform Area and Type of Capacity, as Reported by States and Estimated by Districts STATES (Percent and Number) DISTRICTS (Estimated Percentage) 11% (2) 17% (3) 11% (2) 39% (7) 24% (4) 18% (3) Effective Teachers and Leaders Organizational 24% (4) 24% (4) 22% (4) 11% (2) 22%(4) 44% (8) 22% 33% 16% 40% (6) 27% (4) 33% (5) 33% (5) In addition to the contact named above, Elizabeth Morrison (Assistant Director), Jamila Jones Kennedy (Analyst-in-Charge), Sheranda Campbell, Kathryn O’Dea Lamas, Amanda Parker, and Stacy Spence made significant contributions to this report. Assistance, expertise, and guidance were provided by David Chrisinger, Nancy Donovan, Alexander Galuten, Catherine Hurley, Jill Lacey, Jean McSween, Mark Ramage, Walter Vance, and Mimi Nguyen.	Education created RTT under the American Recovery and Reinvestment Act of 2009. From 2010 through 2011, Education awarded $4 billion in competitive grant funds to 19 states to reform core areas of K-12 education. RTT states also committed to building capacity to implement and sustain reforms. GAO and others previously reported that capacity challenges had adversely affected RTT implementation and could hinder efforts to sustain the reforms. GAO was asked to further examine these challenges. This report examines: (1) the effect of RTT on reform and capacity challenges states and districts faced, (2) how helpful Education's assistance was to states in building and sustaining capacity, and (3) lessons learned that could inform future reform efforts. GAO surveyed all 19 RTT states and a generalizable sample of RTT districts; held an expert panel; reviewed RTT applications, progress reports, relevant federal laws and regulations, and literature; and interviewed officials from seven selected states and districts, chosen based on survey responses. GAO selected expert panelists based on research or experience with RTT, capacity issues, and federal grants. The Department of Education's (Education) Race to the Top (RTT) program encouraged states to reform their K-12 educational systems, but states and districts faced various capacity challenges in implementing the reforms. RTT accelerated education reforms underway and spurred new reforms in all 19 RTT states and in an estimated 81 percent of districts, according to GAO's surveys of RTT grantees and districts that received RTT funds. At the same time, states and districts noted various challenges to their capacity to successfully support, oversee, and implement these reform efforts. For example, about one-quarter to one-third of RTT states reported that their greatest challenges involved obtaining support from stakeholders such as teacher organizations. In contrast, districts primarily reported that their greatest challenges involved financial and human capital capacity, especially with competitive compensation and standards and assessments. Additionally, rural districts reported facing greater challenges than urban and suburban districts. Education is to assist grantees in achieving successful project outcomes according to its grants handbook, while holding them accountable for their RTT reform plans. Yet, GAO found no specific activities tailored to rural needs in areas grantees identified as most challenging. A better understanding of the capacity challenges rural districts face could help Education better target its technical assistance to districts that need it the most. In response to GAO's survey, many RTT states reported that technical assistance from Education officials and its contractor was more helpful than other RTT resources, such as web-based materials. Ten states also reported they would benefit from additional support in areas such as training and professional development. Education created a new office to oversee and provide coordinated support to RTT and other programs, and intends to develop office-wide coordinated technical assistance policies. Federal internal control standards note that adequate policies help ensure that actions are taken to address risks to achieving an agency's objectives. However, Education has not determined the type or amount of technical assistance to be provided and its policies are still being developed. RTT's $43 million technical assistance contract ends in June 2015, which may create a gap in assistance to states. Unless Education focuses on technical assistance activities that states found most useful, it risks providing ineffective assistance to programs supporting these education reforms. GAO's panel of RTT and grant experts identified key lessons learned, such as leveraging existing funding flexibilities under federal formula grants, to help address capacity needs and sustain reforms when RTT ends in September 2015. Districts and schools may not, however, be using these flexibilities to their fullest extent, in part because of uncertainty about what is allowed under federal requirements. Federal internal control standards state that information should be communicated in a form that enables an agency to achieve its objectives. Education lacks time frames for finalizing and disseminating new guidance for states to clarify federal formula grant flexibilities; and recognizes the need for, but has not developed guidance to help auditors better understand these flexibilities. Such guidance, when finalized, may help states and districts sustain education reforms, thereby raising student achievement – a primary objective of reform. GAO recommends that Education incorporate into its coordinated policies technical assistance grantees found most useful, target assistance to rural districts, and issue guidance to help states and auditors with funding flexibilities. Education did not explicitly agree or disagree with GAO's recommendations, but outlined steps to address many aspects of them. To view the e-supplements online, click:	16.9	8k-16k	7,026
33	In 2007, VA established the VCL, a 24-hour crisis line staffed by responders trained to assist veterans in emotional crisis. Through an interagency agreement, VA collaborated with SAMHSA to use a single, national toll-free number for crisis calls that serves both Lifeline and the VCL. Through this interagency agreement, VA and SAMHSA set out to establish a seamless crisis-management system through a collaborative and cooperative relationship between the agencies that would provide consistent suicide-prevention techniques to callers. The national toll-free number presents callers with choices. Callers are greeted by a recorded message that explains the function of the crisis line and prompts individuals to press “1” to reach the VCL. Callers who do not press “1” by the end of the message are routed to one of Lifeline’s 164 local crisis centers. All callers who press “1” are routed first to the VCL primary center. Calls that are not answered at the VCL primary center within 30 seconds of the time that the caller presses “1” during the Lifeline greeting are automatically routed to one of five VCL backup call centers. If a call is not answered by the VCL backup call center that initially receives it, the call may be sent to another VCL backup call center. VA entered into a contract with a firm to oversee the operations of the VCL backup call centers. There are a total of 164 Lifeline local crisis centers, 5 of which also serve the VCL. (See fig. 1.) The number of calls reaching the VCL has increased substantially since the VCL’s first full year of operation. Increases in the number of VCL calls received have corresponded with increased annual funding obligations for the VCL. (See fig. 2.) VA added online chat and text message capabilities to the VCL in fiscal years 2009 and 2012, respectively. The number of online chats and text messages handled by the VCL generally increased every year, though the number of online chats decreased in fiscal year 2015. (See fig. 3.) To determine how well VA performed against its goal for responding to VCL callers, we covertly tested the VCL’s call response time in July and August 2015. During this testing we found that it was uncommon for VCL callers to wait an extended period before reaching a responder since all of our calls that reached the VCL were answered in less than 4 minutes. According to VA officials, VA established a goal that the VCL primary center would answer 90 percent of calls to the VCL within 30 seconds. Our test included a generalizable sample of 119 test calls that can be used to describe all callers’ wait times when calling the VCL during this period. On the basis of our test calls, we estimate that during July and August 2015 about 73 percent of all VCL calls were answered at the VCL primary center within 30 seconds. (See fig. 4.) VA officials told us that, during fiscal year 2015, about 65 to 75 percent of VCL calls were answered at the VCL primary center and about 25 to 35 percent of VCL calls were answered at the backup call centers. These VA-reported results indicate that about 65 to 75 percent of VCL calls were answered within either 30 or 60 seconds. These results are consistent with our test results for July and August 2015. According to VA officials, VA attempts to maximize the percentage of calls answered at the VCL primary center because these responders have additional resources— including access to veterans’ VA electronic medical records—that are unavailable to VCL backup call center responders. All responders receive specialized training to assist callers in crisis. To improve its performance toward meeting the goal of answering 90 percent of calls at the VCL primary center within 30 seconds, VA implemented two changes in fiscal year 2015—namely, staggered work shifts for responders and new call-handling procedures. Staggered work shifts. VA implemented staggered shifts for responders at the VCL primary center on September 6, 2015. Staggered shifts are work schedules that allow employees to start and stop their shifts at different times as a way to ensure better coverage during peak calling periods. Specifically, it helps schedule more employees to work when call volume is highest and fewer employees to work when call volume is lowest. Additionally, staggered shifts help limit disruptions in service as responders begin and end their shifts. By comparing VCL telephone call data from September through December of 2014 to that of September through December of 2015, we found that VA’s implementation of staggered shifts at the VCL primary center had mixed results. Overall: The average percentage of calls answered per hour at the VCL primary center from September through December 2015—after staggered shifts were implemented—was 75 percent, slightly less than the average of 79 percent answered during the corresponding period in 2014 before staggered shifts were implemented. However, the VCL received an average of about 1.3 more calls per hour during this period in 2015 than it received during the corresponding period in 2014 and, according to VA officials, the VCL primary center employed fewer responder staff in 2015 than 2014. By day of the week: The average percentage of calls answered per hour at the VCL primary center increased on Mondays to 89 percent and Tuesdays to 83 percent after VA implemented staggered shifts, up from 78 percent and 79 percent, respectively, during the corresponding period in 2014. These increases suggest that staggered shifts may have helped VA answer more calls at the VCL primary center on these days because VCL call data from our analysis indicate that these days of the week typically experienced the highest number of calls prior to implementing staggered shifts, and VA officials told us that they used the implementation of staggered shifts to schedule more responders on these days. However, the average percentage of calls answered per hour at the VCL primary center decreased on Saturdays to 61 percent and Sundays to 70 percent after VA implemented staggered shifts, down from 78 percent and 80 percent, respectively, during the corresponding period in 2014. By hours of the day: VA answered a higher percentage of calls at the VCL primary center during the mid-day and evening hours after the implementation of staggered shifts. Specifically, from 11:00 a.m. to 4:00 p.m. and from 9:00 p.m. to 11:00 p.m. the VCL primary center answered a higher percentage of calls compared with the corresponding periods in 2014. However, VA answered a lower percentage of calls at the VCL primary center during overnight hours—midnight to 9:00 a.m.—and in the early evening—5:00 p.m. to 8:00 p.m.—compared to corresponding periods in 2014. To address staffing limitations and align the number of responders available for each staggered shift according to demand, VA officials said that VA planned to hire 63 additional responders for the VCL primary center in fiscal year 2016 and assign these new responders to weekend and evening shifts. This change would likely help improve the mixed results we identified in our analysis of VA’s implementation of staggered shifts for responders. As of February 2016, VA officials said that 22 applicants had accepted employment offers and that VA planned to extend employment offers to an additional 15 applicants. These officials also noted that recent attrition at the VCL primary center was largely due to VCL primary center responders being promoted into new positions at the VCL primary center or to VCL primary center responders leaving because their work with the VCL did not qualify as clinical hours required for licensure in their specialties. New call-handling procedures. VA implemented new call handling procedures at the VCL primary center beginning in June 2015 that provided responders with specific guidance to more efficiently handle “noncore” callers—those callers who were not seeking crisis assistance but rather seeking help with other issues, such as help with veterans’ benefits questions. For example, if a caller reached the VCL with a question about VA disability benefits, the VCL primary center responder would verify that the caller was not in crisis and transfer the caller to the Veterans Benefits Administration to address the question. VCL telephone call data provided by VA suggest that the average time VCL primary center responders spend handling noncore calls decreased by approximately 30 percent over a 5-month period after responder training began on these new call-handling procedures. We would expect that as the average time VCL primary center responders spend handling noncore calls decreases, these responders should have more time available to answer additional incoming calls. To determine the timeliness of the VCL’s responses to online chats and text messages, we conducted a covert test in July and August 2015 using nongeneralizable samples of 15 online chats and 14 text messages. All 15 of our test online chats received responses within 60 seconds, 13 of which were within 30 seconds. This result is consistent with VA data that indicate VCL responders sent responses to over 99 percent of online chat requests within 1 minute in fiscal years 2014 and 2015. VA officials said that all online chats are expected to be answered immediately. Although this is an expectation, VA does not yet have formal performance standards for how quickly responders should answer online chat requests and expects to develop them before the end of fiscal year 2016. However, our tests of text messages revealed a potential area of concern. Four of our 14 test text messages did not receive a response from the VCL. Of the remaining 10 test text messages, 8 received responses within 2 minutes, and 2 received responses within 5 minutes. VA officials stated that text messages are expected to be answered immediately, but, as with online chats, VA has not yet developed formal performance standards for how quickly responders should answer text messages. VA data indicate that VCL responders sent responses to 87 percent of text messages within 2 minutes of initiation of the conversation in both fiscal years 2014 and 2015. VA officials said that VA plans to establish performance standards for answering text messages before the end of fiscal year 2016. VA officials noted and we observed during a site visit that some incoming texts were abusive in nature or were not related to a crisis situation. According to VA officials, in these situations, if this is the only text message waiting for a response, a VCL responder will send a response immediately. However, if other text messages are awaiting responses, VA will triage these text messages and reply to those with indications of crisis first. This triage process may have contributed to the number of our test texts that did not receive responses within 2 minutes. The VCL’s text messaging service provider offered several reasons for the possible nonresponses that we encountered in our test results. These included: (1) incompatibilities between some devices used to send text messages to the VCL and the software VA used to process the text messages, (2) occasional software malfunctions that freeze the text messaging interface at the VCL primary center, (3) inaudible audio prompts used to alert VCL primary center responders of incoming text messages, (4) attempts by people with bad intentions to disrupt the VCL’s text messaging service by overloading the system with a large number of texts, and (5) incompatibilities between the web-browsers used by the VCL primary center and the text messaging software. VA officials told us that they do not monitor and test the timeliness and performance of the VCL text messaging system, but rather rely solely on the VCL’s text messaging service provider for such monitoring and testing. They said that the provider had not reported any issues with this system. According to the provider, no routine testing of the VCL’s text messaging system is conducted. Standards for internal control in the federal government state that ongoing monitoring should occur in the course of normal operations, be performed continually, and be ingrained in the agency’s operations. Without routinely testing its text messaging system, or ensuring that its provider tests the system, VA cannot ensure that it is identifying limitations with its text messaging service and resolving them to provide consistent, reliable service to veterans. VA has sought to enhance its capabilities for overseeing VCL primary center operations through a number of activities—including establishing a call center evaluation team, implementing revised performance standards for VCL primary center responders, implementing silent monitoring of VCL primary center responders, and analyzing VCL caller complaints. Establishment of a call center evaluation team. In October 2013, VA established a permanent VCL call center evaluation team that is responsible for monitoring the performance of the VCL primary center. The call center evaluation team analyzes VCL data, including information on the number of calls received and the number of calls routed to backup call centers from the primary center. VA officials told us that they use these data to inform management decisions about VCL operations. For example, these data were used as part of its decision to implement staggered shifts for VCL primary center responders in an attempt to increase the number of calls answered at the VCL primary center. Implementation of revised performance standards for VCL primary center responders. In October 2015, VA implemented new performance standards for all VCL primary center responders that will be used to assess their performance in fiscal year 2016. According to VA officials, these performance standards include several measures of responder performance—such as demonstrating crisis-intervention skills, identifying callers’ needs, and addressing those needs in an appropriate manner using VA approved resources. VA officials told us that by the summer of 2016 VCL primary center supervisors will have access to real-time information on VCL primary center responders’ performance against these standards and can track their workload and performance periodically. These officials explained that they anticipate these performance standards will be reviewed and revised as needed for the fiscal year 2017 performance year. Silent monitoring of VCL primary center responders. In February 2016, VA officials reported that they were beginning silent monitoring of all VCL responders using recently developed standard operating procedures, standard data collection forms, and standard feedback protocols. These officials explained that the VCL primary center silent monitoring would begin in mid-February 2016 with four VA medical center–based suicide-prevention coordinators completing silent monitoring of 15 to 20 calls a week to the VCL primary center through March 2016. These officials explained that six full-time silent monitors had been hired as part of the VCL quality assurance staff and would begin conducting silent monitoring of VCL primary center calls in April 2016 once their training had been completed. During the initial rollout, the four VA medical center–based suicide-prevention coordinators will remotely access VCL primary center calls, complete the standard data collection form, and send the information to the observed VCL primary center responders’ supervisors for feedback delivery. Once the six full- time silent monitors begin completing these activities, they will complete all call monitoring and deliver feedback to VCL primary center responders and will coordinate with VCL primary center supervisors on an as-needed basis. VA officials explained in February 2016 that they were unsure how many VCL primary center calls these six full-time silent monitors would be able to observe and will clarify this expectation once these silent monitors begin their duties in April 2016. Analysis of VCL caller complaints. In October 2014, VA created a mechanism for tracking complaints it receives from VCL callers and external parties, such as members of Congress and veterans, about the performance of the VCL primary and backup call centers. Complaints can be about services provided by either the VCL primary center or one of the VCL backup call centers. In fiscal year 2015, the VCL received over 200 complaints from veterans and others regarding call center operations. These complaints included issues with VCL primary center and backup call center customer service and wait times to reach a responder. According to VA officials, each complaint is investigated to validate its legitimacy and determine the cause of any confirmed performance concerns. This validation process includes speaking with the complainant and VA staff, as applicable. The results and disposition of each complaint are documented in VA’s complaint tracking database. For complaints that include details on specific responders, VA officials told us that they investigate complaints and use legitimate complaints as part of the performance evaluation process for VCL primary center responders. Specifically, these officials explained that when a complaint about a VCL primary center responder’s customer service is verified as accurate by a VA psychologist or supervisor after it is investigated, it can affect a VCL primary center responder’s annual performance appraisal. The investigation process also includes verifying any associated documentation of the activities at the source of the complaint. In 2011, VA established key performance indicators to evaluate VCL primary center operations; however, we found these indicators did not have established measureable targets or time frames for their completion. VCL key performance indicators lack measurable targets. We found that VA’s list of VCL key performance indicators did not include information on the targets the department had established to indicate their successful achievement. For example, VA included a key performance indicator for the percentage of calls answered by the VCL in this list but did not include information on what results would indicate success for (1) the VCL as a whole, (2) the VCL primary center, or (3) the VCL backup call centers. As another example, VA did not establish targets for the percentage of calls abandoned by callers prior to speaking with VCL responders. Measureable targets should include a clearly stated minimum performance target and a clearly stated ideal performance target. These targets should be quantifiable or otherwise measurable and indicate how well or at what level an agency or one of its components aspires to perform. Such measurable targets are important for ensuring that the VCL call center evaluation team can effectively measure VCL performance. VCL key performance indicators lack time frames for their completion. We found that VA’s list of VCL key performance indicators did not include information on when the department expected the VCL to complete or meet the action covered by each key performance indicator. For example, for VA’s key performance indicator for the percentage of calls answered by the VCL, the department did not include a date by which it would expect the VCL to complete this action. As another example, VA did not establish dates by which it would meet targets yet to be established for the percentage of calls abandoned by callers prior to speaking with VCL responders. Time frames for action are a required element of performance indicators and are important to ensure that agencies can track their progress and prioritize goals. Guidance provided by the Office of Management and Budget states that performance goals—similar to VA’s key performance indicators for the VCL—should include three elements: (1) a performance indicator, which is how the agency will track progress; (2) a target; and (3) a period. VA officials reported that they are currently implementing a comprehensive process improvement plan, discussed later in this report, that will help ensure the right structures and processes are in place, which they believe are logical precursors to examining VCL outcomes and establishing targets and time frames for performance indicators. Without establishing targets and time frames for the successful completion of its key performance indicators for the VCL, VA cannot effectively track and publicly report progress or results for its key performance indicators for accountability purposes. VA’s backup call coverage contract, awarded in October 2012 and in place at the time of our review, did not include detailed performance requirements in several key areas for the VCL backup call centers. Clear performance requirements for VCL backup call centers are important for defining VA’s expectations of these service partners. However, VA has taken steps to strengthen the performance requirements of this contract by modifying it in March 2015 and beginning the process of replacing it with a new contract. October 2012 backup call coverage contract. This contract provided a network of Lifeline local crisis centers that could serve as VCL backup call centers managed by a contractor. This contractor was responsible for overseeing and coordinating the services of VCL backup call centers that answer overflow calls from the VCL primary center. This contract as initially awarded included few details on the performance requirements for VCL backup call centers. For example, the contract did not include any information on several key aspects of VCL backup call center performance, including: (1) the percentage of VCL calls routed to each VCL backup call center that should be answered, (2) VA’s expectations on whether or not VCL backup call centers could use voice answering systems or caller queues for VCL calls, and (3) VA’s documentation requirements for VCL calls answered at the VCL backup call centers. Detailed performance requirements on these key aspects of VCL backup call center performance are necessary for VA to effectively oversee the performance of the contractor and the VCL backup call centers. By not specifying performance requirements for the contractor on these key performance issues, VA missed the opportunity to validate contractor and VCL backup call center performance and mitigate weaknesses in VCL call response. For example, representatives from one VCL backup call center provided data that showed that the backup call center answered about 50 percent of the VCL calls it received. However, without a performance requirement establishing a standard for the percentage of calls each VCL backup call center should answer, VA could not determine whether this was acceptable performance for a VCL backup call center. As of December 2015, this VCL backup call center reported that it had improved its performance and answered about 66 percent of calls it received from July 2015 to December 2015. VA officials told us about several concerns with the performance of the backup call centers operating under the October 2012 contract based on their own observations and complaints reported to the VCL. These concerns included the inconsistency and incompleteness of VCL backup call centers’ responses to VCL callers, limited or missing documentation from records of VCL calls answered by VCL backup call center responders, limited information provided to VA that could be used to track VCL backup call center performance, and the use of voice answering systems or extended queues for VCL callers reaching some VCL backup call centers. For example, VA officials reported that some veterans did not receive complete suicide assessments when their calls were answered at VCL backup call centers. In addition, VA officials noted that they had observed some VCL backup call centers failing to follow VCL procedures, such as not calling a veteran who may be in crisis when a third-party caller requested that the responder contact the veteran. According to VA officials, these issues led to additional work for the VCL primary center, including staffing one to two responders per shift to review the call records submitted to the VCL primary center by backup call centers and to determine whether these calls required additional follow-up from the VCL primary center. These officials estimated that 25 to 30 percent of backup call center call records warranted additional follow-up to the caller from a VCL primary center responder, including approximately 5 percent of backup call center call records that needed to be completely reworked by a VCL primary center responder. March 2015 backup call coverage contract modification. Given these concerns, in March 2015 VA modified the October 2012 backup call coverage contract to add more explicit performance requirements for its backup call coverage contractor, which likely took effect more quickly than if the department had waited for a new contract to be awarded. These modified requirements included (1) the establishment of a 24- hours-a-day, 7-days-a-week contractor-staffed emergency support line that VCL backup call centers could use to report problems, (2) a prohibition on VCL backup call centers’ use of voice answering systems, (3) a prohibition on VCL backup call centers placing VCL callers on hold before a responder conducted a risk assessment, (4) documentation of each VCL caller’s suicide risk assessment results, and (5) transmission of records for all VCL calls to the VCL primary center within 30 minutes of the call’s conclusion. Development of new backup call coverage contract. In July 2015, VA began the process of replacing its backup call coverage contract by publishing a notice to solicit information from prospective contractors on their capability to satisfy the draft contract terms for the new contract; this new backup call coverage contract was awarded in April 2016. We found that these new proposed contract terms included the same performance requirement modifications that were made in March 2015, as well as additional performance requirements and better data reporting from the contractor that could be used to improve VA’s oversight of the VCL backup call centers. Specifically, the proposed contract terms added performance requirements to address VCL backup call center performance—including a requirement for 90 percent of VCL calls received by a VCL backup call center to be answered by a backup call center responder within 30 seconds and 100 percent to be answered by a backup call center responder within 2 minutes. In addition, the proposed contract terms include numerous data reporting requirements that could allow VA to routinely assess the performance of its VCL backup call centers and identify patterns of noncompliance with the contract’s performance requirements more efficiently and effectively than under the prior contract. The proposed terms for the new contract also state that VA will initially provide and approve all changes to training documentation and supporting materials provided to VCL backup call centers in order to promote the contractor’s ability to provide the same level of service that is being provided by the VCL primary center. We found that when callers do not press “1” during the initial Lifeline greeting, their calls may take longer to answer than if the caller had pressed “1” and been routed to either the VCL primary center or a VCL backup call center. As previously discussed, VA and SAMHSA collaborated to link the toll-free numbers for both Lifeline and the VCL through an interagency agreement. The greeting instructs callers to press “1” to be connected to the VCL; if callers do not press “1,” they will be routed to one of SAMHSA’s 164 Lifeline local crisis centers. To mimic the experience of callers who do not press “1” to reach the VCL when prompted, we made 34 covert nongeneralizable test calls to the national toll-free number that connects callers to both Lifeline and the VCL during August 2015 and we did not press “1” to be directed to the VCL. For 23 of these 34 calls, our call was answered in 30 seconds or less. For 11 of these calls, we waited more than 30 seconds for a responder to answer— including 3 calls with wait times of 8, 9, and 18 minutes. Additionally, one of our test calls did not go through, and during another test call we were asked if we were safe and able to hold. VA’s policy prohibits VCL responders from placing callers on hold prior to completing a suicide assessment; Lifeline has its own policies and procedures. According to officials and representatives from VA, SAMHSA, and the VCL backup call centers, as well as our experience making test calls where we did not press “1,” there are several reasons why a veteran may not press “1” to be routed to the VCL, including an intentional desire to not connect with VA, failure to recognize the prompt to press “1” to be directed to the VCL, waiting too long to respond to the prompt to press “1” to be directed to the VCL, or calling from a rotary telephone that does not allow the caller to press “1” when prompted. VA officials said they had not estimated the extent to which veterans intending to reach the VCL did not press “1” during the Lifeline greeting. These officials explained that their focus has been on ensuring that veterans who did reach the VCL received appropriate service from the VCL primary center and backup call centers. In addition, SAMHSA officials said that they also do not collect this information. These officials reported that SAMHSA does not require the collection of demographic information, including veteran status, for a local crisis center to participate in the Lifeline network. However, they noted that SAMHSA could request through its grantee that administers the Lifeline network that local crisis centers conduct a onetime collection of information to help determine how often and why veterans reach Lifeline local crisis centers. SAMHSA officials explained that they could work with the Lifeline grantee to explore optimal ways of collecting this information that would be (1) clinically appropriate, (2) a minimal burden to callers and Lifeline’s local crisis centers, and (3) in compliance with the Office of Management and Budget’s paperwork reduction and information collection policies. The interagency agreement between VA and SAMHSA assigns SAMHSA responsibilities for monitoring the use of the national toll-free number— 1-800-273-TALK (8255)—that is used to direct callers to both the VCL and Lifeline. These responsibilities include monitoring the use of the line, analyzing trends, and providing recommendations about projected needs and technical modifications needed to meet these projected needs. Using the information collected from the Lifeline local crisis centers on how often and why veterans reach Lifeline, as opposed to the VCL, VA and SAMHSA officials could then assess whether the extent to which this occurs merits further review and action. Although the results of our test are not generalizable, substantial wait times for a few of our covert calls suggest that some callers may experience longer wait times to speak with a responder in the Lifeline network than they would in the VCL’s network. Without collecting information to examine how often and why veterans do not press “1” when prompted to reach the VCL, VA and SAMHSA cannot determine the extent veterans reach the Lifeline network when intending to reach the VCL and may experience longer wait times as a result. In addition, limitations in information on how often and why this occurs do not allow VA and SAMHSA to determine whether or not they should collaborate on plans to address the underlying causes of veterans not reaching the VCL. Standards for internal control in the federal government state that information should be communicated both internally and externally to enable the agency to carry out its responsibilities. For external communications, management should ensure there are adequate means of communicating with, and obtaining information from, external stakeholders that may have a significant impact on the agency achieving its goals. In June 2014, VA assessed the operational state of the VCL and, based on its findings, designed a performance-improvement plan that outlined actions to address problems VA identified regarding the VCL’s workforce, processes, technology, and infrastructure. To implement this plan, in March 2015 VA began a series of rapid process-improvement events, such as improvements to VCL primary center responder training, designed to solve problems identified by VCL staff and stakeholders with actions that could be implemented within 60 to 90 days. According to VA officials and documentation provided by these officials, these rapid process-improvement events led to several changes at the VCL primary center in 2015 and 2016. As we previously noted, these changes include implementation of staggered shifts; development of silent monitoring procedures, and the hiring of dedicated staff to complete this monitoring; and new call-handling procedures previously discussed. They also include some remaining follow-up activities, such as completing the implementation of remaining planned quality-assurance activities in fiscal year 2016. These measures—if fully implemented—represent positive steps to improve VCL operations. VA has developed additional plans to address other concerns with VCL operations. These plans address issues at the VCL primary center related to renovation of new space, upgrades to telecommunications, and the introduction of a caller queue. Renovation of new space for VCL primary center operations. We found that the VCL primary center responders are housed in two different buildings originally designed for patient care delivery. According to VA officials, these buildings do not reflect call center leading practices that recommend large, open rooms that provide supervisors greater access to the responders they oversee. However, in February 2016, VA officials reported that the department committed funding to relocate the VCL primary center operations to a renovated space on the VA medical center campus. The relocation is to be implemented in two phases. VA officials expect that the first phase, which includes moving administrative and monitoring staff, will be completed in June 2016; the second phase will relocate the rest of the VCL staff, including all responders. VA officials said they anticipate that the second phase will be completed in fiscal year 2017. VA officials told us that they plan on using the National Call Center- Health Resource Center’s large open-space layout as a model in designing the VCL primary center’s new space. According to VA officials, the National Call Center-Health Resource Center follows leading practices for call center operations as set by the International Call Management Institute. Upgrade of VCL primary center telecommunication infrastructure. VA officials told us that the VCL primary center uses the telephone infrastructure of the VA medical center rather than a separate telephone system that would be more conducive to operating a call center. According to a telephone infrastructure change justification that VA information-technology officials prepared, the VCL primary center’s existing telephone system does not meet the requirements for operating a call center of its size. This documentation indicates that improvements are needed in several features of the VCL’s existing telephone system— including call routing, call recording, data capture, and automatic callback. In February 2016, VA officials reported that planned improvements to the VCL primary center’s telephone system would be implemented by June 2016; however, the VCL primary center will continue to operate using part of the VA medical center’s telephone system. Introduction of VCL primary center caller queue. VA’s evaluation of the VCL conducted in 2014 noted that a possible option for improving VCL call response would be to implement a queue at the VCL primary center that would allow callers to wait a longer period for a VCL primary center responder before being sent to a VCL backup call center. Currently, VA allows VCL primary center responders 30 seconds to answer calls before routing them to VCL backup call centers for a response. In February 2016, VA officials told us that they are considering implementing this type of queue. According to these officials, they are considering allowing VCL calls to remain at the VCL primary center for up to 5 minutes and they explained that this 5-minute period was determined based on feedback they received from veterans on how long they would be willing to wait for a responder. These officials further explained that voice prompts would offer callers options as they waited in the queue to reach the next available VCL primary center responder or to be transferred to other VA call centers for concerns unrelated to crisis situations. The VCL plays an important role in providing a means by which veterans and those concerned about them can discuss unique challenges and crises they face, and provides a way to access VA’s mental health care services. However, the rapid growth of the VCL in recent years has coincided with operational and planning challenges that constrain its ability to serve veterans in crisis in a timely and effective manner. To its credit, VA has taken some interim but noteworthy steps to address these challenges. Building on these steps, VA and SAMHSA need to take additional actions to provide reasonable assurance that the VCL’s mission to serve veterans and others in crisis situations is met. As our testing demonstrates, VA has not yet achieved its goal of answering 90 percent of all VCL calls within 30 seconds at the VCL primary center, but its planned and recently implemented changes, such as staggered shifts and enhanced call-handling procedures, are intended to gain VA system efficiencies that will help the department meet its goal once additional responders are hired. However, VA has not applied the same level of attention to its text messaging service and does not regularly test the VCL’s text messaging system. Without doing so, VA cannot ensure that veterans are receiving timely responses from VCL responders to their text messages. In addition, while VA has taken a number of steps to improve its monitoring of the VCL, VA continues to experience challenges related to weaknesses in VCL key performance indicators—including a lack of measurable targets and time frames. If left unresolved, these weaknesses will likely have negative effects on VA’s ability to ensure the VCL is providing the best service possible to veterans. Despite efforts to coordinate the operations of the VCL and Lifeline through an interagency agreement, VA and SAMHSA have not collected information necessary to determine how often and why veterans intending to reach the VCL reach Lifeline instead. As a result, neither VA nor SAMHSA can assess the extent this occurs and the underlying causes that may need to be addressed. To improve the timeliness and quality of VCL responses to veterans and others, we recommend that the Secretary of Veterans Affairs direct the Under Secretary for Health to take the following two actions: regularly test the VCL’s text messaging system to identify issues and correct them promptly; and document clearly stated and measurable targets and time frames for key performance indicators needed to assess VCL performance. We further recommend that under the applicable terms of their interagency agreement, the Secretary of Veterans Affairs and the Secretary of Health and Human Services direct the Under Secretary for Health and the Administrator of the Substance Abuse and Mental Health Services Administration (SAMHSA), respectively, to collaborate and take the following two actions: collect information on how often and why callers intending to reach the VCL instead reach Lifeline local crisis centers; and review the information collected and, if necessary, develop plans to address the underlying causes. We provided a draft of this report to VA and HHS for review and comment. In their written comments, summarized below and reprinted in appendixes II and III, both agencies concurred with our recommendations. VA and HHS described ongoing or planned actions and provided a timeline for addressing our recommendations. HHS also provided technical comments, which we incorporated as appropriate. In response to our first recommendation, to regularly test the VCL’s text messaging system to identify issues and correct them promptly, VA said that the VCL’s analytics department will develop and implement a more robust and proactive system to test daily the VCL’s text messaging service by July 2016. In the interim, VA stated that it has a process for identifying, addressing, and troubleshooting problems that utilizes e-mail templates to notify its contract text service provider of issues or errors that require a response to troubleshoot the error. In response to our second recommendation, to document clearly stated and measurable targets and time frames for key performance indicators needed to assess VCL performance, VA said that it is in the process of developing a monthly scorecard with elements assessing call center, staffing, quality-assurance, and crisis-response metrics with specific performance targets. VA estimates that by October 2016 it would establish targets and time frames for its performance indicators. In response to our third recommendation, to collaborate with SAMHSA to collect information on how often and why callers intending to reach the VCL instead reach Lifeline local crisis centers, VA said that the VCL’s newly formed Clinical Advisory Board would foster collaboration amongst capable experts and leverage their collective expertise in facilitating an improved experience for callers, greater operational efficiencies, and increased access to the VCL for veterans in crisis. VA noted that the Clinical Advisory Board included members of SAMHSA, the VA Suicide Prevention Office, and other VA clinical offices. VA estimates that it would collect sufficient data, conduct a collaborative analysis with SAMHSA, and complete reporting to both agencies on this issue by October 2016. HHS said that in response to this recommendation it would review ways to collect data on callers intending to reach the VCL but instead reaching Lifeline local crisis centers. In response to our fourth recommendation, to collaborate with SAMHSA to review the information collected and, if necessary, develop plans to address the underlying causes for callers intending to reach the VCL instead reaching Lifeline local crisis centers, VA said that the Clinical Advisory Board referenced above would evaluate this issue as a standing agenda item in its monthly meetings. VA said that the Clinical Advisory Board would establish a baseline regarding the frequency of this issue’s occurrence, monitor reported complaints about the press “1” functionality, and provide us with data from Clinical Advisory Board meetings to demonstrate action taken toward implementing our recommendation. VA expects to complete these actions by January 2017. HHS said that in response to this recommendation it would review the data collected as described above and, if necessary, address the underlying causes as appropriate. These VA and HHS actions, if implemented effectively, would address the intent of our recommendations. In its technical comments, HHS emphasized the distinction between the Lifeline network and the VCL, noting that the two programs operate with different policies, procedures, and resources. We revised the draft to more clearly reflect this distinction. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time we will send copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, the Secretary of Health and Human Services, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact Seto J. Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov, or Randall B. Williamson at (202) 512-7114 or williamsonr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. To determine the extent to which the Department of Veterans Affairs (VA) meets response-time goals for calls, online chats, and text messages received through the Veterans Crisis Line (VCL), we conducted several tests of VCL services during July and August 2015. These tests were designed to measure the timeliness of the VCL’s response to calls, online chats, and text messages. We conducted a covert test of the VCL’s call response time using a generalizable sample of 119 test calls placed in July and August 2015. To develop this generalizable sample, we interviewed VA officials with knowledge about VCL primary and backup call center operations; obtained the VCL primary center’s historical call volume data in hourly increments for fiscal year 2013 through the end of the second quarter of fiscal year 2015; and generated a schedule of days and times during which our test calls would be made. This test call schedule was created by dividing the 62-day sample period into 496 primary sampling units, which we defined as 3-hour blocks of time. We then defined secondary sample units as 10-minute increments within each 3-hour block of time and selected a stratified two-stage random cluster sample of 144 10- minute increments during which our test calls would be made. We selected the 144 10-minute increments by: (1) stratifying the primary sampling units into four strata—overnight, morning, afternoon, and evening—based on time of day; (2) identifying a stratified sample of 36 primary sampling units that were allocated across the four strata based on call volume and our available resources; and (3) randomly selecting four 10-minute increments from each selected primary sampling unit. The results of this test can be used to estimate all VCL callers’ wait times for July and August 2015. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval (i.e., a margin of error of within plus or minus a certain number of percentage points). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. Percentage estimates from our analysis included in this report have a margin of error of within plus or minus 9 percentage points at the 95 percent confidence level. Estimates of the median wait time have a margin of error of within plus or minus 10 percent at the 95 percent confidence level. When placing test calls, we used 20 telephone numbers with randomly selected area codes to mask the origin of the calls. Two analysts then independently measured and documented wait times by reviewing audio recordings of each test call. Wait times were measured from the time that the caller pressed “1” to reach the VCL and the time that a responder answered the test call. The final wait time for each test call was the lowest of the two wait times recorded by these analysts. We successfully completed and measured the wait times for 119 test calls in 30 of the 36 selected primary sampling units. We did not complete calls in 25 of our selected 10-minute increments due to technical or scheduling issues. The resulting completion rate for our test calls was 83 percent (119 out of 144). The omitted test calls were distributed across all four strata and were unrelated to the time of day. To test VA’s online chat and text message response timeliness, we reviewed VA’s procedures and training materials for operating both services. We then interviewed and observed VCL responders at the VCL primary center who responded to online chat and text messages. We also spoke with the VCL text messaging service provider to learn about the text messaging operations. To test the VCL’s online chat and text message response, we scheduled one covert test online chat or text message during each of the 30 primary sampling units used for the generalizable sample described above and recorded our wait times for a response. We measured the wait time for online chats and text messages as the elapsed time between when we sent the online chat or text message to the VCL and when we received a response from a responder. We initiated our test online chats through a link provided on the VCL’s website. We sent test text messages to the VCL through an Internet text messaging service provider in order to record our test data electronically. We removed one test text message attempt from the sample because of technical issues we experienced that may have prevented the message from reaching the VCL. As a result, our final samples consisted of 15 test online chats and 14 test text messages. We verified the reliability of VA’s reported VCL call data by interviewing officials responsible for managing them and reviewing reports that VA’s backup call coverage contractor provided to VA that documented the time, duration, and routing of every VCL call. The routing information included details on the call centers where each call was routed and identified the call center that ultimately answered each call. We were able to identify our test calls in these reports and confirmed that the data matched records we maintained for our test calls. This exercise also allowed us to confirm whether our test calls were answered at the VCL primary center or a VCL backup call center. On the basis of these actions, we found these data to be sufficiently reliable for the purposes of describing the quantity of requests for services reaching the VCL. We used these data to evaluate the timeliness of the VCL’s call response and compared the data to the department’s own goals. To assess the effectiveness of the implementation of staggered shifts for responders at the VCL primary center, we compared VCL call data from September 6, 2015, through December 31, 2015, to that of September 1, 2014, through December 31, 2014. We selected September 6, 2015, as the start date for our 2015 period of analysis because it was the first day that VA fully implemented staggered shifts at the VCL primary center. We chose the cutoff of December 31, 2015, because it corresponded to the most recent complete month of data available at the time of our analysis. We used call data from September 1, 2014, through December 31, 2014, because they reflected a comparable period from the year prior. We used these 2014 data as a comparison group to account for any seasonality patterns, variations, or fluctuations that might affect the demand for VCL services within a particular season, day of the week, or other periods. Our evaluation compared the average hourly call response percentages of the periods we examined and included analysis for the time of day using hourly intervals, day of the week, and holidays within each period. The average hourly response percentages are likely affected by several factors—such as call volume, staffing levels, and complexity of calls, for which we did not control. Our analysis examined differences by day of the week, time of day, and holidays, but did not control for the above- mentioned or other factors that may affect the percentage of calls answered at the VCL primary center. To determine whether callers attempting to reach the VCL who did not press “1” experienced longer wait times than those that did, we conducted a nongeneralizable test. The VCL is accessed by calling a single national toll-free number—1-800-273-TALK (8255)—shared by both the VCL and the National Suicide Prevention Lifeline (Lifeline). This toll-free number is managed by the Substance Abuse and Mental Health Services Administration (SAMHSA). To conduct our nongeneralizable test, we used a random sample of 34 covert test calls to conduct these tests where we mimicked the experience of VCL callers who do not follow the instructions of the voice prompt on this single national toll-free number to press “1” in order to reach the VCL. To do this, we placed two test calls where we did not press “1” as prompted to reach the VCL during each of the scheduled primary sampling units in August 2015. We recorded the wait times for each of the 34 test calls by calculating the amount of time that elapsed between the moment that an automated message informed us that the call was being transferred to a Lifeline local crisis center and when a responder answered our call. We masked the origin of these calls in a manner similar to that described for our generalizable sample of 119 test calls placed to the VCL. Although the 34 test calls were randomly made, the results of these test calls are not generalizable due to the small number of calls included in our sample. In addition to the contacts named above, Gabrielle M. Fagan (Assistant Director), Marcia A. Mann (Assistant Director), James D. Ashley, Dean Campbell, Shaunessye D. Curry, Amber D. Gray, Katherine Nicole Laubacher, Olivia Lopez, Maria McMullen, Brynn P. Rovito, Amber H. Sinclair, and Shana B. Wallace made key contributions to this report. Members of our investigative staff also contributed to the report.	VA established the VCL in July 2007 to provide support to veterans in emotional crisis. Between fiscal years 2008, its first full year of operation, and 2015, the number of calls received by the VCL increased almost 700 percent, exceeding VA's expectations. As VA began to address increasing numbers of requests for assistance, reports of dissatisfaction with VCL's service periodically appeared in the media. GAO was asked to review VA's administration of the VCL. This report, among other issues, examines (1) the extent to which VA meets response-time goals for VCL calls and text messages, (2) how VA monitors VCL primary center call center operations, and (3) how VA works with VCL service partners to help ensure veterans receive high-quality service. GAO visited the VCL's primary center and two backup call centers; tested VCL response time through a generalizable sample of covert telephone calls and a nongeneralizable sample of text messages in July and August 2015; reviewed internal reports and policies and plans; and interviewed VA and SAMHSA officials. GAO found that the Department of Veterans Affairs (VA) did not meet its call response time goals for the Veterans Crisis Line (VCL), although extended call wait times were not common. VA's goal is to answer 90 percent of VCL calls at the VCL primary center within 30 seconds. Currently, calls not answered within 30 seconds route to VCL backup call centers; however, for 5 months of fiscal year 2015, calls were routed to VCL backup call centers after 60 seconds. VA officials told GAO that VA data show about 65 to 75 percent of VCL calls were answered at the VCL primary center in fiscal year 2015 within either 30 or 60 seconds. GAO's covert testing in July and August 2015 confirms VA's data. Specifically, 119 covert test calls show that an estimated 73 percent of calls made during this period were answered within 30 seconds. GAO also estimates that 99 percent of all VCL calls during this period were answered within 120 seconds. GAO also covertly tested the VCL's text messaging services and found that 4 of 14 GAO test text messages did not receive responses. VA officials said they do not monitor or test the timeliness and performance of the VCL text message system and instead rely solely on the VCL's text messaging provider for these functions. VA officials told GAO that the provider had not reported any issues with the system, but the provider told GAO that routine testing of the VCL system is not conducted. Without routinely testing its text messaging system or ensuring that its provider does so, VA cannot identify limitations to this service. While VA has taken a number of steps to improve its monitoring of the VCL primary center operations, VA has not developed measurable targets and time frames for its key performance indicators, such as the program's percentage of abandoned calls. VA established a permanent VCL call center evaluation team and created a mechanism for tracking complaints about the performance of the VCL primary center from VCL callers or external parties. However, GAO found that VA has not specified quantifiable or otherwise measurable targets and has not included dates for when it would expect the VCL to complete actions covered by each key performance indicator. This is inconsistent with guidance provided by the Office of Management and Budget. As a result, VA cannot ensure that the VCL is providing consistent, high-quality services to callers and cannot effectively track and publicly report progress or results. VA established an interagency agreement with its service partner, the Department of Health and Human Services' (HHS) Substance Abuse and Mental Health Services Administration (SAMHSA), to manage the shared operations of the VCL and the National Suicide Prevention Lifeline (Lifeline), which include a single national toll-free number used by both. Despite these efforts to coordinate, VA and SAMHSA do not collect information needed to assess how often and why callers intending to reach the VCL do not follow voice prompts and instead reach Lifeline local crisis centers. VA officials told GAO that the type of information that would be needed to do so is not collected because VA has focused on addressing the concerns of those callers who did reach the VCL. In addition, SAMHSA officials said that they do not require Lifeline local crisis centers to collect this type of information, noting that it would be possible to collect it. As a result, VA and SAMHSA do not know the extent to which this occurs and cannot determine the underlying causes that may need to be addressed. GAO recommends that VA regularly test VCL's text messaging system and document targets and time frames for key performance indicators. GAO also recommends that VA and SAMHSA collect information on how often and why callers reach Lifeline when intending to reach the VCL, review this information, and, if necessary, develop plans to address the causes. VA and HHS concurred with GAO's recommendations and described planned actions to address them.	15.4	8k-16k	8,180
34	Congress has long been concerned about the movement of government officials from DOD to private employers who do business with their former agencies and has passed laws that place limitations on the employment of former government officials. The laws include penalties for violations by the former government employee and civil or administrative penalties for the contractors who employ them. There are acknowledged benefits to employing former government officials for both DOD and defense contractors; for example, former DOD officials bring with them the knowledge and skills in acquisition practices they have developed at DOD which also benefit DOD when communicating with these contractor personnel. However, a major concern with post- government employment has been that senior military and civilian officials and acquisition officials working for defense contractors immediately after leaving DOD could lead to conflicts of interest and affect public confidence in the government by creating the following perceptions, among others: DOD personnel who anticipate future employment with a defense contractor might be perceived as using their position to gain favor with the contractor at the expense of the government, and former DOD personnel who work for a defense contractor might be perceived as using their contacts with former colleagues at DOD to the benefit of the defense contractor and to the detriment of the public. The principal restrictions concerning post-government employment for DOD and other federal employees after leaving government service are found in 18 U.S.C. § 207 (post-employment conflict of interest) and 41 U.S.C § 423 (restrictions on former officials’ acceptance of compensation from a contractor). Importantly, the laws do not prohibit an individual from working on a contract under the responsibility of the official’s former agency or even a contract that was under the official’s direct responsibility if the appropriate cooling-off periods are met or if the former officials restrict their activities to behind-the-scenes work and do not represent their new company to their former DOD employer. The laws are complex, and brief summaries here are intended only to provide context for the issues discussed in this report. The title 18 U.S.C. § 207 provision generally prohibits an individual from representing a contractor to their former agency on particular matters involving specific parties that they handled while working for the federal government; for example, a specific defense contract. The law restricts representing the contractor to the official’ s former agency for defined cooling-off periods that vary according to the former official’s involvement and seniority (i.e., high-level) for example: former personnel are permanently barred from representing their new employer to their former agencies for matters on which they were personally and substantially involved; even if the officials were not directly involved in the matter, former personnel may not represent their new employer to their former agency on matters that were pending under their official responsibility in their last year of service for 2 years after leaving federal service; and former senior-level officers and employees may not contact their former agency on particular government matters (such as a contract) that is pending or is of substantial interest to the former agency for 1 year after leaving federal service. The 41 U.S.C. § 423 provision more narrowly applies to the work former DOD and other government acquisition officials may do after leaving federal service. The law restricts former DOD acquisition officials from accepting compensation from a defense contractor during a 1 year cooling-off period. Specifically, this provision prohibits employment with a contractor if the acquisition official performed certain duties at DOD involving the contractor and a contract valued in excess of $10 million. However, the law permits former acquisition officials to accept employment from “any division or affiliate of a contractor that does not produce the same or similar products or services” that were produced under the contract. The laws establish penalties for individuals and contractors who do not comply with the restrictions. Recent high-profile cases involving former senior DOD officials’ violations of these laws or related conflict of interest law on seeking post- government employment with contractors have resulted in serious consequences for both the officials and their defense contractor employers. Examples are as follows: In July 2007, a retired Navy rear admiral pleaded guilty to a charge of violating 18 U.S.C. § 207. The former admiral admitted to signing a major contract proposal and cover letter on behalf of his new contractor employer and sending it to his former Navy command in San Diego within the 1-year cooling-off period. In his plea, the former officer admitted that his intent in sending the letter was to influence the Navy’s decision and obtain the contract award for his new company. The former admiral was sentenced to a year’s probation and fined $15,000. In response to the conflict of interest, the Navy also eliminated the contractor’s bid before awarding the contract. In 2006, the Boeing Company was fined $615 million and had a lease contract valued at $20 billion canceled, in part, due to the failure of Ms. Darleen Druyun, a former senior Air Force procurement officer, to obey conflict of interest laws that prohibit officials from continuing to participate in work with a company while pursuing future employment. Specifically, when she was working for the Air Force, Ms. Druyun negotiated a job with Boeing for her daughter, son-in-law, and herself, while Boeing was seeking a $20 billion contract to lease tanker aircraft to the Air Force. Ms. Druyun served a prison sentence for the violations, and the Boeing Company’s Chief Financial Officer pleaded guilty to aiding and abetting fraud and was sentenced to 4 months in prison, fined $250,000, and given 200 hours of community service. About 86,000 military and civilian personnel who had left DOD service in a 6 year period since 2001 were employed in 2006 by the 52 major defense contractors, including 2,435 former DOD officials who were senior civilian executives, generals, admirals, and acquisition officials including program managers, deputy program managers, and contracting officers. This latter group of contractor employees, hired between 2004 and 2006, served at DOD in positions that made them subject to post-government employment restrictions. Contractors’ employment of former DOD officials was highly concentrated—1,581 former DOD officials were employed by seven of the 52 contractors. To estimate how closely related work assignments of former DOD officials were to their previous assignments at DOD, we examined in greater detail the job histories of a randomly selected sample of former DOD senior and acquisition officials employed by the contractors. While there may be proper justification for their post- government employment with a contractor, on the basis of this sample we estimate that at least 422 individuals could have been working on defense contracts directly related to their former DOD agency and we estimate at least nine could have been working on the same defense contracts for which they had program oversight responsibilities or decision-making authorities while at DOD. The information we analyzed to make this estimate was not designed to identify, nor should this estimate be used to suggest, that we found any violations of the restrictions on post- government employment. Moreover, contractors provided justification for the former government employees in our sample to work on the contracts. However, the estimated number of former DOD officials who could have worked on defense contracts related to their prior agencies or to their prior direct responsibility indicates why there is concern over how contractors monitor their former DOD employees. The 1,857,004 military and civilian employees who left DOD service over 6 years since 2001 included 35,192 who had served in the type of senior or acquisition official positions that made them subject to post-government employment restrictions if they were to subsequently be hired by defense contractors. As shown in table 1, our analysis of the major defense contractors’ employment found that contractors employed 86,181 former DOD military and civilian personnel in 2006. This tally includes 2,435 former senior-level and acquisition officials who one or more of the contractors hired since 2004 and employed in 2006. Although the number of former DOD senior-level and acquisition officials employed in 2006 varied greatly across the 52 defense contractors, as shown in table 2, post-DOD employment was highly concentrated at seven contractors—Science Applications International Corporation, Northrop Grumman Corporation, Lockheed Martin Corporation, Booz Allen Hamilton, Inc., L3 Communications Holding, Inc., General Dynamics, and Raytheon Company. These contractors accounted for about 65 percent of the former DOD senior and acquisition officials hired at the 52 companies and for over 40 percent of the value of contract awards for the 52 contractors. Employment of former DOD senior and acquisition officials at the remaining 45 contractors was much less concentrated. Specifically, in 2006, employment of the former DOD officials totaled 10 or fewer at 24 of the contractors, and 4 of these contractors did not employ any former DOD senior or acquisition officials in 2006. Appendix III presents more detail on the employment of former DOD senior and acquisition officials in 2006 for each of the 52 contractors. To obtain an understanding of the characteristics of the major defense contractors’ employment of former DOD senior and acquisition officials in relationship to these officials’ prior DOD positions—i.e., military or civilian, senior-level, or acquisition-related, and DOD employer (such as Air Force or Army)—we analyzed contractor employment at the 52 companies to look for significant differences, if any, across categories related to the officials’ former DOD positions. As shown in table 3, of the total former DOD officials that the contractors employed in 2006, we found there were nearly five times as many former acquisition officials (2,021 individuals) as former senior officials (414 individuals). In their former DOD positions, these 2,021 acquisition officials served in key procurement-related positions—such as program manager, deputy program manager, or contracting officer—and generally had the type of critical responsibilities, relationships, and influence that characterize DOD’s business interactions with its contractors. Also shown in table 3, in 2006 the contractors employed 414 former senior DOD officials. Our analysis of these senior officials’ DOD positions before their post-government employment with the contractors found they had served in a range of high-level positions—including generals, admirals, and civilian senior executives. As such, in their former positions, these DOD senior officials had served in key positions that could influence DOD’s mission-related decision-making. We also found contractors’ post-DOD employment was almost evenly divided across former military and civilian officials, as shown in table 4. In addition, most of the former DOD officials employed by the contractors in 2006 had previously served in positions at the Air Force and Navy, followed by those who had previously served in Army positions. To provide information about former DOD officials work assignments with contractors, we analyzed job histories and work assignments for a stratified random sample of former DOD officials to determine if these individuals worked on defense contracts or programs for which they had direct responsibility at DOD or which were the responsibility of their former DOD agency, office, or command. We estimate that many former DOD officials could have been working on defense contracts under the responsibilities of their prior DOD agencies and a few could have been working on the same defense contracts for which they had program oversight responsibilities or decision-making authorities while working at DOD. It is important to keep in mind, however, that post-government employment in these instances could be lawful depending on the role the employee had with the government, the role the employee had with the contractor, and the length of time between government service or work relating to the contract and the private employment. Also, contractors responding to our survey were self-reporting on a sensitive issue dealing with circumstances that could indicate potential conflicts of interest. As such, the information we sought from contractors was not designed or expected to elicit specific cases of post-government employment violations, nor did we identify any. Further, contractors provided justifications for the former DOD officials in our sample working on the defense contracts. Nevertheless, the results provide insight on the estimated magnitude of former officials’ post-government employment with major defense contractors tied to their prior agencies and direct responsibilities. In our view, the results also indicate the importance of careful monitoring to ensure that conflicts of interest do not occur. To estimate how many former DOD officials were working on assignments that were the responsibilities of their former DOD agencies or for which they had program oversight responsibilities or decision-making authorities at DOD, we drew a stratified random sample of 125 individuals from the former DOD senior and acquisition officials identified by contractors as being employed in 2006. We sent a questionnaire asking the contractor for information concerning the individual’s job history, including the circumstances of the assignment if the job history showed that they were working on assignments related to their former positions while they were at DOD. (App. IV provides a copy of the questionnaire we used.) Extrapolating from the sample results, we estimate that at least 422 officials could have had contractor assignments working on defense contracts that were the responsibilities of their former DOD agencies. We estimate that at least nine could have worked on contracts for which they had program oversight responsibilities or decision-making authority at DOD. The contractors reported other information about the sampled individuals that justified why these work assignments would not involve potential conflicts of interest or violations of post-government employment restrictions, including the following: The individuals’ cooling-off (i.e., restriction) periods had expired. The individuals were performing behind-the-scenes work and did not have direct contacts with their former DOD agencies about the particular defense contracts. The individuals were working on different defense projects than they had worked on while at DOD but for the same agencies. For example, while the contractors reported that 20 former Navy officials in our sample worked on Navy contracts, the contractors also reported that none of the individuals were working on the same project they were responsible for when in the Navy. Most of the 47 major defense contractors who responded to our survey on practices related to post-government employment report using a range of techniques to ensure awareness of and employee compliance with restrictions, although we found contractors were challenged to provide accurate information identifying their former DOD officials. Notably, information from the contractors showed little more than half the level of employment of former DOD officials than information we derived from matching IRS and DOD data, suggesting the information challenge defense contractors and DOD face in monitoring former DOD officials. Moreover, what information the contractors may have on former DOD officials’ assignments on defense contracts is, for the most part, not available to DOD. New legislation requiring former officials to obtain ethics advisory letters and DOD to keep them in a central database could provide some additional information, but will not give DOD the kind of information needed—that is, the names of contractor employees who are former DOD officials and are working on a particular contract and the contractor’s assurance that these employees are in compliance with their post- government employment restrictions related to the contract. Post-government employment restrictions on former DOD officials can affect every aspect of defense contractors’ hiring practices, including when employment discussions may occur, who may be hired, and what tasks they may perform during a 1 to 2 year period after leaving DOD. Post-government employment laws do not require contractors to identify, monitor, or provide reports on former DOD employees regarding compliance with their restrictions. However, violating existing laws may result in civil and criminal penalties for aiding misconduct of former government officials and thus, according to contractors’ ethics and personnel representatives, provide an impetus for adopting a range of practices to ensure awareness and compliance. In initial interviews with some of the major defense contractors on the need for and scope of corporate compliance with post-government employment practices, ethics and personnel representatives told us about a variety of ways and means for identifying, screening, tracking, training, and keeping personnel records for former DOD officials. To gain a better understanding of the scope of major defense contractors’ practices in these areas, we surveyed the 52 contractors on their practices. The following is a summary and analysis of information from the 47 contractors who responded. Appendix V presents detailed results from the contractor survey. Our survey asked contractors if they seek affirmation about a potential employee’s previous DOD or other government status prior to offering employment. As shown in table 5, most of the contractors reported that they ask potential permanent hires if they were formerly a DOD official, and a majority of contractors ask the same question of independent contractors (e.g., self-employed consultants), temporary employees, and members of the Board of Directors. Contractors were about evenly split on the use of the question on a job application and use of a special form to capture this information from job applicants. Similarly, contractors were divided on the use of electronic or paper collection of an applicant’s information with some contractors citing the use of both methods. Our survey asked contractors if they request that employees provide a copy of their written ethics advice letters and if so, how long, if at all, do they keep these letters on file once they hire these applicants. As shown in table 6, a majority of contractors responded that they request permanently hired employees, temporary employees, and members of the Board of Directors to provide a copy of their DOD ethics advice letters from the agencies’ ethics counselors detailing their DOD experience and providing an opinion on whether employment with a specific contractor is permitted under post-government employment restrictions. Nearly half of the contractors said they also ask for these letters from independent contractors they hire. Some contractors indicated that they were not sure if the DOD ethics advice letters were requested from applicants who are potential job candidates. Regarding how long the DOD ethics advice letters are kept on file, the contractors reported varying practices, with many keeping them throughout the former DOD official’s employment and other contractors keeping them for the period of restriction or for a specified time. Our survey asked contractors to describe what steps, if any, they take to ensure that former DOD officials working for them comply with their post- government employment restrictions. As shown in table 7, a majority of contractors cited counseling/legal review and recruitment/hiring processes as the primary methods to ensure former DOD employees comply. Further analysis of contractor survey responses indicates that 12 contractors track former DOD employees’ government-project-related job assignments electronically to ensure compliance and nine indicated that such records are not kept. However, more than half of the contractors indicated that they use internal and external audits to ensure the sufficiency of their procedures to track assignments, including post-government assignments of former DOD officials. Our survey asked contractors about training requirements to inform employees about policies regarding post-government employment restrictions for former federal employees or to reinforce them. As shown in table 8, a majority of contractors indicated that they require training for at least some employees. Further analysis of contractor responses indicates that their training is targeted to one or more employee groups such as senior-level managers, human resources staff, middle-level managers, or former federal government employees. Also, the training varies in timing and frequency. Training can take place initially upon employment with refresher training, annually or every 2 years, for example. Twelve contractors reported they mandated training for all employees; five contractors reported mandatory annual training. As noted, most major defense contractors report using a range of practices for monitoring their DOD hires to ensure compliance with restrictions, even though no laws or regulations require them to track or provide reports to that effect. However, the contractors’ ability to access and provide information on former DOD officials’ employment and work on specific defense contracts proved challenging. For example, contractor-provided data on the numbers of former DOD officials working with them was significantly less than what we determined through our match with IRS information. Specifically, our analysis of the status of major defense contractors’ employment of former DOD officials in 2006, which was based on matching contractor-supplied information with DOD personnel data, found that the contractors employed a total of 1,263 former DOD senior and acquisition officials, while our match of IRS information and DOD personnel data showed the contractors employed a total of 2,435 former DOD officials, or almost twice as many. In addition, as shown in table 9, only 15 of the 30 major defense contractors who responded to our questionnaire were able to provide ethics advice letters for at least one of the individuals in our stratified random sample. Specifically, 24 of the 30 who responded to our survey on their practices said that they asked employees for their DOD ethics advice letters as one of their practices for ensuring compliance with post- government employment restrictions and many reported keeping these letters on file throughout the former officials’ employment. However, 10 of the contractors that reported asking for the letters did not provide any ethics advice letters in response to our questionnaire. As noted earlier in this report, contractors are not required to keep copies of these letters. In the future however, information on DOD ethics advice letters for former DOD senior and acquisition officials could be more readily available to all DOD contractors as a result of a provision in the National Defense Authorization Act for Fiscal Year 2008 imposing new requirements on defense officials and contractors. Specifically, with this provision (enacted January 28, 2008), defense contractors may not knowingly compensate (i.e., employ) former DOD officials who are subject to post-government employment restrictions without first determining that the official has sought and received a written ethics advice opinion from DOD within 30 days of seeking the opinion. To implement this requirement however, defense contractors are likely to face new information challenges in keeping records that adequately document that they did not knowingly employ a former DOD official who did not seek or receive the applicable DOD written ethics opinion. Contractors responding to our survey were generally able to provide information about DOD- and contractor-job histories for most of the former DOD officials in our sample. However, according to the corporate headquarters staff for several contractors—who had to collect the detailed job histories from information submitted from across their companies in order to respond to our survey—accumulating this information was challenging. According to these contractor staff, the absence of automated assignment tracking or standardized personnel information systems across their companies made it difficult for them to centrally compile the information. That is, to respond to our survey, for some contractors it appears the currently available information on former officials’ post-DOD work on specific pending or awarded contracts is decentralized at the various business units responsible for those defense contracts. We found that the scope and quality of the job histories contractors provided to us were sufficient for our analysis on the magnitude of post-DOD work related to prior agencies and responsibilities. However, our questionnaire was not designed or expected to elicit contractor information on specific conflicts of interest or noncompliance cases, such as whether cooling-off periods were unexpired, for example. Similar to the requirements of defense contractors, no laws or regulations require DOD ethics or acquisition officials to track or monitor former DOD employees after they begin their new contractor jobs to ensure compliance with applicable post-government employment restrictions. As discussed earlier in this report, past legislative requirements to make the employment of former officials with defense contractors more transparent to DOD by having individuals or contractors report to DOD on the post- government employment with contractors were not successful and were repealed by 1995. However, the changed requirements left DOD without a mechanism to obtain information about its former senior and acquisition officials who go to work for its contractors. In our view, and DOD ethics and procurement officials agree, the information currently available to DOD from providing written ethics opinions to former DOD senior and acquisition officials who request them regarding prospective employment restrictions has limited utility for monitoring compliance with post- government employment restrictions once former DOD officials go to work for defense contractors for several reasons: while officials have been encouraged to seek an ethics advisory opinion, they were not required to obtain them, nor were contractors required to ask for them; DOD’s record-keeping for its written ethics opinions is decentralized at the many defense ethics offices that issued them; and DOD lacks a mechanism for providing the information to contracting officers or program managers for a particular contract. Nonetheless, for DOD’s purposes, ethics advisory opinions may now be more readily available and centrally located because of the 2008 defense authorization act provision that requires former officials to obtain written ethics opinions on applicable post-government employment restrictions from their DOD ethics officials before accepting compensation from defense contractors for a period of 2 years after leaving DOD service. DOD also has a new record-keeping requirement to retain each request and each written opinion provided in a central database or repository for at least 5 years. While this requirement may help to increase transparency over which former officials are working with contractors and what may raise a potential conflict of interest, its utility may be limited because information is not being tied to specific contracts. Senior ethics officials in DOD’s Standards of Conduct Office and the director of Defense Procurement and Acquisition Policy and Strategic Sourcing (DPAP), for example, told us that DOD currently does not have a mechanism to link information on former officials’ post-DOD work for their new employers for specific defense contracts that are pending or awarded before their former agencies, offices, or commands. They believed that such a mechanism would be valuable to program managers and contracting officers who need to ensure that contracted work being done in their programs is free of conflicts. They also believed that such a mechanism would be relatively cost-effective to implement. After learning of the results of our data collection efforts, in fact, these officials were concerned that current mechanisms do not provide DOD a clear picture of how many former officials are working with contractors and what risks of conflicts are present. The public needs to be assured that decisions related to the hundreds of billions of dollars spent each year on defense contracts comply with the applicable post-government employment restrictions and are free of conflicts of interest. But this task is highly challenging when it comes to monitoring whether former DOD officials are in compliance with these rules or have a conflict of interest by working for a defense contractor. Our review illustrated aspects of this challenge, including difficulties associated in collecting data on thousands of employees working for just 52 contractors. It is likely our surveys would have been more difficult to accomplish if they had been applied to the entire spectrum of defense contractors, which includes hundreds of small companies that may not have automated or complete information on their employees. Further, requirements that have been imposed in the past to collect information on former DOD officials working for contractors have not been effective for a variety of reasons. These include difficulties associated with asking private citizens to report back to the government on their employment for extended periods of time and disparities in the way information was collected and reported. Moreover, when information was collected, its value was limited, according to DOD officials, because it could not be tied to specific programs or contracts, where it could inform those responsible for ensuring integrity at the front line of acquisitions. Despite these challenges, there may be ways that more accurate and useful information could be collected, for example, by asking potential contractors to certify that their employees are in compliance with post- government employment restrictions when contracts are being awarded. The results of our review—particularly results relating to the estimated numbers of former DOD senior and acquisition officials who could be working in areas that tie back to their work at DOD—show that examining such options is worthwhile. To provide greater transparency during the acquisition process given the fact that former DOD officials can and do work on defense contracts related to their prior agencies or their direct responsibilities, the risk of conflicts of interest and the appearance of conflicts of interest, and the need to maintain public trust in the integrity of defense contracting, we recommend that the Secretary of Defense direct the Under Secretary of Defense (Acquisition, Technology, and Logistics) to consider the relevant recent statutory changes and determine if changes in procurement policy are needed to impose additional reporting requirements or other requirements to guard against violations of the government’s post- employment rules. For example, DOD could consider requiring defense contractors who are awarded a contract, within a set number of days after contract award, to (1) disclose to the contracting officer the names of employees who are certain former DOD officials (e.g., civilian senior executives, high-level military officers, or acquisition officials) who worked on the response to the solicitation and (2) certify that these employees are in compliance with the applicable post-government employment restrictions. In addition, after assessing the benefits and costs associated with the certification process, DOD could consider whether and to what extent it should apply a similar mechanism throughout the term of the contract. In responding to a recent report we issued on contractor employee personal conflicts of interest, DOD tasked its Panel on Contracting Integrity to examine issues we raised and potential solutions. It may also want to do the same with regard to post- government employment reporting. We provided a draft of this report to DOD for comment. The DPAP director wrote that DOD concurs with our recommendation. Specifically, he wrote that the recommendation will be referred to the Panel on Contracting Integrity for consideration and action. DOD’s Acting General Counsel also provided written technical comments, which we incorporated into the report as appropriate. DOD’s comments are reproduced in appendix II. We are sending copies of this report to the Secretary of Defense, the Director of the Office of Management and Budget, the Director of the Office of Government Ethics, and other interested parties. We will make copies available to others upon request. We will make this report available to the public at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report or need additional information, please contact me at (202) 512-4841 or chaplainc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VI. Congress included a provision in the John Warner National Defense Authorization Act for Fiscal Year 2007 requiring us to report on the recent employment of former Department of Defense (DOD) officials by major defense contractors. In response, our report objectives were to (1) develop information on how many former DOD military and civilian personnel recently worked for major defense contractors and develop an estimate of how many of these were former DOD senior or acquisition officials who worked on defense contracts for these employers that were related to their former positions at DOD and (2) identify the practices used to monitor compliance with post-government employment restrictions and the information challenges that contractors and DOD face in monitoring the movement of former DOD employees to defense contractors. This report does not address any government employment restrictions which might be applicable when former private sector employees are employed by DOD or other federal government agencies. In November 2007, in part to meet our reporting requirement, we provided an interim briefing to the Senate and House Armed Services Committees. Section 851 of the National Defense Authorization Act for Fiscal Year 2007 defined major defense contractors as any company that received at least $500 million in contract awards from DOD in fiscal year 2005. To identify those contractors, we analyzed data on the values of contracts awarded to all companies from DOD’s Statistical Information Analysis Division. As a result, we identified the 52 contractors meeting the major defense contractor criteria to include in our review. As shown in table 10, which ranks the 52 major defense contractors by the value of their fiscal year 2005 DOD contract awards, these companies accounted for more than half of DOD’s total contract awards in 2005—$142.8 billion of the total $269.2 billion. We conducted this performance audit from November 2006 through May 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The scope and methods we used to perform this audit are described in greater detail in the remainder of this appendix. To develop information on how many former DOD military and civilian personnel worked for major defense contractors, section 851 required us to report on employment during the most recent year for which data were available. Through initial discussions with five of the major defense contractors and the IRS, we determined that data on former DOD officials’ employment were reasonably available for 2006. To determine how many military and civilian personnel left DOD service, as agreed with committee staff, we limited our analysis to data from the Defense Manpower Data Center’s databases for all military and civilian employees who left DOD service for any reason other than being deceased in a 6-year period between January 1, 2001, and December 31, 2006 (N=1,857,004). We determined that data from the data center were sufficiently reliable to accurately support our analysis in support of this objective. DOD’s data included personally-identifiable characteristics for each former employee such as name, social security number (SSN), end date of employment, branch of service, military rank, civilian grade, and if the employee’s job specialty was coded as any of the several defense acquisition workforce positions. To analyze defense contractors’ post- government employment for a subgroup of former DOD senior and acquisition officials, we used DOD’s personnel data to include in the subgroup the following range of former DOD officials: senior officials such as military officers ranked O-7 and above (e.g., generals, admirals) and members of the Senior Executive Service (SES) regardless of whether they also were coded as serving in a defense acquisition workforce position. Acquisition officials include military (from O-3 to O-6) and civilian (from grades GS-12 through 15) officials for which DOD coded their status as members of its acquisition workforce, including program managers, deputy program managers, and contracting officers (N=35,192 individuals). To determine how many of the 1,857,004 former military and civilian personnel (including the 35,192 former DOD senior and acquisition officials) worked for the 52 major defense contractors in 2006, we matched DOD’s personnel data with (1) income tax data from IRS and (2) personnel data from the contractors on former DOD senior or acquisition officials they directly compensated in 2006 as employees or independent contractors. The data obtained from IRS included Form W-2 and Form 1099- Miscellaneous information. We used data from the returns identifying the contractor who submitted the income tax data and the SSN and name for all individual taxpayers for whom the 52 major defense contractors reported taxable income for the 4-year period between 2003 and 2006. Because contractor-supplied data identified DOD officials they hired between 2004 and 2006, we compared SSNs from 2003 income tax data to the 2006 income tax data and eliminated SSNs for individuals that matched because this showed the contractors hired those individuals prior to 2004. We also obtained data from 51 of the 52 contractors on individuals who we or they matched to our criteria for former DOD senior and acquisition officials they compensated in 2006 and hired between 2004 and 2006. Contractors were permitted to provide the SSNs for either (1) all individuals compensated in 2006 and hired in the 3-year period between 2004 and 2006 or (2) the individuals they identified as matching our criteria for being a former DOD senior or acquisition official and hired between 2004 and 2006. In either case, we analyzed the contractors’ SSN data to match against the SSNs in DOD’s personnel data. From the matches we determined that 1,263 individuals matched our criteria as former DOD senior and acquisition officials. For each of the 51 contractors who provided us this SSN data, we assessed the accuracy and completeness of their information by analyzing how many former DOD senior and acquisition officials their information showed were employed in 2006 (N=1,263) compared with our analysis of IRS data for the same purpose (N=2,435). We based our analysis of demographic data for this objective on the IRS and DOD data. To develop an estimate of how many of the former DOD senior or acquisition officials subject to post-government employment restrictions the major defense contractors assigned to work on defense contracts related to their former DOD agencies or their direct responsibilities, as shown in table 11, we used the contractor-identified population of 1,263 individuals. To ensure that we had adequate representation of these officials from contractors with fewer former DOD officials, we stratified the population into two strata based on the number of former DOD officials reported by each contractor as employees—contractors reporting 50 or more former DOD officials were assigned to one stratum and contractors reporting less than 50 former DOD officials were assigned to another stratum. From this population we selected a statistically based random sample of 125 individuals who worked for 32 of the contractors. We asked the contractors to respond to a questionnaire on related DOD and contractor job histories for the sampled individuals. We analyzed responses from 30 contractors on job histories and contractor work assignments for their respective individuals in our sample. Based on the sample size and the response rate, the estimate from the results achieves a precision of ± 8 percent at a 95-percent confidence level. To obtain the job histories, we used a Web-based questionnaire to collect data on work histories of the individuals in our sample. (App. IV reproduces the Web-based questionnaire used for this survey). The questionnaire was designed to obtain individual information for each of the former DOD senior and acquisition officials in our sample, such as his or her previous DOD assignments and contractor assignments over a 3-year period as well as to request a copy of any DOD ethics advice letters. Our questionnaire was intended to develop information on defense contracts or programs on which former DOD officials were assigned in order to consider whether the former officials were assigned to work on contracts they or their agencies had previously been responsible for. Recognizing that the contractors responding to our survey were self- reporting on a sensitive issue, the information sought from contractors was not designed or expected to identify specific violations of post- government employment restrictions. Instead, the survey also asked contractors for information on circumstances surrounding the post-DOD work in relationship to prior DOD positions and responsibilities. To protect the confidentiality of the responses concerning these individuals, we took steps to remove personally identifiable information from our analysis and evidentiary files. We projected the results of our sample to estimate the extent that former DOD officials in our study group population of 1,263 individuals engaged in post-government employment tied to their former DOD agencies or to their direct responsibilities. We used these estimates to assess the magnitude of such post-DOD work tied to former DOD agencies, offices, or commands or to direct responsibilities. To identify the practices major defense contractors report using to ensure awareness of and compliance with post-government employment restrictions for employing former DOD officials, we interviewed ethics and personnel officials with five of the contractors to gain an initial understanding of the variety and scope of information reasonably available concerning a range of practices used for these purposes. We also conducted a survey to collect additional information from all 52 contractors on personnel assignment record-keeping and practices for identifying, screening, tracking, and training former DOD officials for purposes of compliance with post-government employment restrictions To conduct this survey, we pre-tested it with three contractors before e-mailing a questionnaire to all 52 contractors to collect information on their reported practices. (Appendix V reproduces the questions used for this survey as well as the aggregated responses.) The survey was designed to obtain information on contractors’ reported practices to ensure awareness and compliance in various key ways such as (1) how contractors identified new hires with potential post-government employment restrictions, (2) how they tracked post-DOD assignments of former DOD officials during their cooling off periods, (3) whether they collected and maintained copies of DOD ethics advisory letters for former DOD officials, and (4) whether they provided training in post-government employment restrictions to various employee categories in their workforce. We analyzed responses from the 47 contractors who responded to the survey. This is a survey response rate of 90 percent. Our survey results cannot be generalized for the purpose of describing nonrespondent contractors’ practices. To identify information challenges contractors and DOD face, we reviewed post-government employment laws and implementing regulations, prior GAO reports, and other studies; and held discussions with and obtained information from officials at the Office of Government Ethics concerning any requirements and performance problems DOD and defense contractors have had regarding the adequacy of monitoring former DOD officials’ compliance with restrictions. To identify information challenges that defense contractors face in monitoring employees’ compliance with post-government employment restrictions, we analyzed the extent to which the 52 major defense contractors were able to submit sufficient information to us in response to our data requests. Specifically, we analyzed the extent to which the contractors were able to submit sufficient data on how many former DOD officials worked for them in 2006 and provide us with copies of DOD’s written ethics opinions and related job histories for the pre-selected former DOD officials sampled for our survey on post-government employment. We also met with and reviewed information from ethics officials in the Office of the Secretary of Defense’s Standards of Conduct Office and Defense Procurement and Acquisition Policy (DPAP) officials from the Office of the Undersecretary of Defense (Acquisition, Technology, and Logistics). We held these discussions to obtain information and views on DOD’s practice of providing written ethics advice concerning prospective employment and restrictions to former DOD senior and acquisition officials who request them. We discussed the sufficiency of this information for DOD transparency on certain former DOD officials’ compliance with post-government employment restrictions after these officials begin their new jobs. We also discussed their views on the sufficiency of information available to DOD’s contracting officials from defense contractors regarding the names of former DOD senior and acquisition officials who are working on a particular pending defense procurement or defense contracts and whether or not they are in compliance with their post-government employment restrictions. We used this information to assess whether DOD has sufficient insight into post- government employment to reduce the risk for conflicts of interest or apparent conflicts of interest that could undermine public trust in the integrity of defense contracting. Table 12 presents our analysis of how many former DOD senior and acquisition officials were employed by each of the 52 defense contractors in 2006, ranked in descending order according to how many they employed. In order to prevent reporting of information that could be used to identify specific former officials with post-DOD employment with contractors, the table presents summary analysis that discloses which of the 28 major defense contractors employed 11 or more such individuals in 2006. For those 20 major defense contractors who employed fewer than 11 such individuals, the table presents a limited summary that discloses that they employed “10 or fewer” such individuals. Also shown in table 12, four of the contractors did not employ any former DOD senior and acquisition officials in 2006. Table 13 shows in greater detail our analysis of the major defense contractors who employed more than 50 former DOD senior and acquisition officials in 2006 and a breakout of their former status as DOD military and civilian employees. The purpose of the questionnaire was to understand how defense contractors identify former DOD officials, maintain information about the job assignments of former DOD employees, and provide training on post- government employment restrictions. Q1. How many individuals did your company compensate directly either as employees, independent contractors (individuals for whom a form 1099 was generated) or members of the board of directors during any part of calendar year 2006? Q2. How many of the individuals listed in question 1, were hired directly, engaged as independent contractor, or added to the board of directors on or after January 1, 2001? Q3. For each of the following compensated positions, does your company ask job candidates whether or not they are former DOD military or civilian employees before offering employment? a. Permanently hired employees 38 9 47 b. Directly hired contractors (Form 1099 contractors) Asked Not asked Subtotal Not applicable c. Directly hired temporary employees Asked Not asked Subtotal Not applicable d. Members of the Board of Directors Asked Not asked Subtotal Not applicable 47 Q3e. If your company currently asks candidates whether they are former DOD employees, what means does it use to collect this information? Application only Form only Other only App and form App and other Form and other All three Subtotal Not applicable 8 10 6 8 3 1 3 39 Q3f. If your company does collect information on an individual’s prior DOD employment status, in what form is this information maintained? Electronic Paper only Other only Electronic and paper Electronic and other Subtotal Not applicable 47 Q4. How many of the individuals who were compensated by your company during calendar year 2006 and who joined your company in some capacity on or after January 1, 2001, were previously employed by DOD? Do not know Number given Subtotal Not applicable Total Q5. Does your company ask individuals it is compensating or considering for each of the following positions if they have any restrictions on their employment as a result of being former DOD military or civilian employees? a. Permanently hired employees Asked Not asked Not sure Total b. Directly hired contractors (Form 1099 contractors) Asked Not asked Not sure Subtotal Not applicable 47 c. Directly hired temporary employees Asked Not asked Not sure Subtotal Not applicable d. Members of the Board of Directors Asked Not asked Not sure Subtotal Not applicable Q6. Does your company request compensated individuals in each of the following positions who have current employment restrictions as a result of previous DOD employment to provide a copy of the written advice from DOD Ethics Counselors regarding post-government employment restrictions known as a “Safe Haven” letter? a. Permanently hired employees Requested Not requested Not sure Total 34 6 7 47 b. Directly hired contractors (Form 1099 contractors) Requested Not requested Not sure Subtotal Not applicable c. Directly hired temporary employees Requested Not requested Not sure Subtotal Not applicable d. Members of the Board of Directors Requested Not requested Not sure Subtotal Not applicable 47 Q6e. How long, if at all, does your company keep “Safe Haven” letters on file for individuals it compensates? Not kept Employment Other Employment + Other Subtotal Not applicable 3 23 15 2 43 Q7. What steps, if any, does your company take to ensure that former DOD employees comply with their post-government employment restrictions? N=45 (Open-ended responses) Personnel Record Systems for Compensated Individuals Q8. Did your company compensate directly any INDEPENDENT CONTRACTORS (individuals for whom a form 1099 was generated) during 2006? Q8a. How, if at all, does your company maintain records of which government project related assignments independent contractors worked on while paid by your company? N=42 (Open-ended responses) Q9. In what form does your company maintain records of which government project related job assignments EMPLOYEES have worked on? Not kept Electronic only Paper only Other only Electronic and paper Electronic and other Three forms used Subtotal Not Applicable Q10. How is information on which government project related job assignments employees’ have worked on entered into your records? N=36 (Open-ended responses) Q11. What procedures, if any, are in place to ensure that the record of government project related job assignments for each employee accurately record ALL of the assignments the employee has worked on? N=35 (Open-ended responses) Q11a. Are any of these procedures documented? 47 Q12. Are any audit checks performed to assure that ALL of an employee’s government project related job assignments are included in their record? Yes No Subtotal Not applicable a. What checks are performed to assure all assignments are included? N=28 (Open-ended responses) b. How often are these checks performed? N=26 (Open-ended responses) c. Who performs these checks? N=26 (Open-ended responses) d. What are the procedures to correct any errors found? N=26 (Open-ended responses) Q13. How often are the records of government project related job assignments updated? N=36 (Open-ended responses) Q14. How would you characterize the completeness of your personal data records regarding the government project related job assignments employees have worked on at your company? Very complete Somewhat complete Not very complete Subtotal Not applicable 47 Q15. What limitations, if any, are there of the government project related job assignments data your company maintains? N=36 (Open-ended responses) Q16. What reviews, if any, have there been of the integrity of your company’s government project related job assignments record keeping system? N=36 (Open-ended responses) Q17. Does your company require training that informs and reinforces its policies regarding post-employment restrictions for former federal government employees? Yes No Subtotal Not applicable Continue to question 18. Which groups are required to take this training? Yes No Subtotal Not applicable 47 Q17b1. about how often are they required to take this training? 1 per year < 1 per 2 yrs Other Subtotal Not applicable Continue to question 17c. If all employees are not required to take this training, which of the following groups of employees are? Yes No Subtotal Not applicable Q17b5. about how often are they required to take this training? 5 2 2 3 12 1 per year 1 per 2 yrs < 1 per 2 yrs Other Subtotal Not applicable 47 Q17a6. Other [please specify] Yes No Subtotal Not applicable Q17b6. about how often are they required to take this training? 1 per year 1 per 2 yrs < 1 per 2 yrs Other Subtotal Not applicable 3 4 1 6 14 Q17c. Does your company maintain records of whether people who are required to take the training have completed it? Yes No Subtotal Not applicable 47 Q18. Has any government agency or independent entity assessed the adequacy of your company’s procedures for hiring current and former government employees?	Department of Defense (DOD) officials who serve in senior and acquisition positions and then leave for jobs with defense contractors are subject to the restrictions of post-government employment laws, in order to protect against conflicts of interest. Congress required GAO to report on employment of such officials by contractors who received more than $500 million in DOD's 2005 contract awards. In response, this report (1) provides information on how many former DOD employees worked for contractors in 2006 and estimates how many worked on contracts that were related to their former agencies or to their direct responsibilities and (2) identifies the practices used to monitor restrictions and information challenges in monitoring post-DOD employment. To do this work, GAO matched data from DOD for all employees who left DOD over a 6 year period with data from the Internal Revenue Service (IRS) and from 52 contractors; conducted surveys; and interviewed DOD and contractor officials. In 2006, 52 contractors employed 2,435 former DOD senior and acquisition officials who had previously served as generals, admirals, senior executives, program managers, contracting officers, or in other acquisition positions which made them subject to restrictions on their post-DOD employment. Most of the 2,435 former DOD officials were employed by seven contractors. On the basis of a stratified random sample of contractor-supplied information, GAO estimates that at least 422 former DOD officials could have worked on defense contracts related to their former agencies and that at least nine could have worked on the same contracts for which they had oversight responsibilities or decision-making authorities while at DOD. The information GAO obtained from contractors was not designed to identify violations of the restrictions. While contractors could have employed quite a few former DOD officials on assignments related to their prior DOD positions, there could be appropriate justification for each of these situations. Most of the contractors who responded to our survey reported using a range of practices to ensure awareness and compliance with post-government employment restrictions, although GAO's request proved challenging for contractors to provide accurate information identifying their former DOD officials. According to the surveyed contractors, they can identify former DOD officials with post-government employment restrictions and track their assignments during their cooling-off periods. However, GAO's analysis found a significant under-reporting of the contractors' employment of former DOD officials. Specifically, contractor-supplied data showed they employed 1,263 former DOD officials in 2006, while IRS data showed the contractors employed 2,435. New post-government employment requirements enacted in January 2008 are likely to make written ethics opinions for former DOD officials more readily available to contractors. DOD also must now keep ethics opinions in a central database. This information was not designed to provide a mechanism for DOD to effectively monitor former DOD officials' post-government employment compliance after they begin working for contractors on specific contracts.	16.7	8k-16k	2,366
35	There are three types of dialysis, which is a process that removes excess fluids and toxins from the bloodstream: (1) hemodialysis performed in a facility (referred to as in-center hemodialysis in this report); (2) hemodialysis performed at home; and (3) peritoneal dialysis, which is generally performed at home. In-center hemodialysis is the most common type of dialysis and was used by about 89 percent of dialysis patients in 2012; the remaining patients received either peritoneal dialysis (9 percent) or home hemodialysis (2 percent). Similarly, almost all— approximately 96 percent of—dialysis facilities had in-center hemodialysis patients in 2012; just over two-fifths of facilities had peritoneal dialysis patients and nearly one-fifth had home hemodialysis patients. The processes for hemodialysis—performed either in a facility or at home—and peritoneal dialysis differ. (See fig. 1.) For in-center hemodialysis treatments, blood flows from the patient’s body through a surgically created vein or a catheter, known as a vascular access site, and through tubing to the dialysis machine. The machine pumps the blood through an artificial kidney, called a dialyzer, to cleanse the excess fluids and toxins from the bloodstream and then returns the cleansed blood to the body. Patients typically receive in-center hemodialysis for 3 to 4 hours three times per week. For home hemodialysis treatments, the process is the same, but the patient performs the treatments and may perform treatments more frequently and at night. For peritoneal dialysis treatments, a catheter is used to fill the patient’s abdomen with a dialysis solution that collects excess fluids and toxins over several hours; those excess fluids and toxins are removed from the body when the patient drains the dialysis solution from the abdomen. To conduct the exchanges—draining and then refilling the abdomen with the dialysis solution—most peritoneal dialysis patients use a machine that performs several exchanges during the night while they are asleep, and other patients do manual exchanges during the day. The three types of dialysis are also associated with various clinical advantages and disadvantages. For example, some studies have suggested that more frequent use of home hemodialysis can achieve better health outcomes for certain patients such as those with hypertension. In another example, some studies have suggested that peritoneal dialysis may have a lower risk for death in the first few years of dialysis therapy, and peritoneal dialysis can also help patients retain residual kidney function. However, the causes of some differences in clinical outcomes between the types of dialysis can be challenging to determine because of differences in patient characteristics; younger patients, for example, were more likely to receive peritoneal dialysis than other types, according to USRDS data. In addition, there may also be clinical disadvantages. For example, home hemodialysis patients’ more frequent use of the vascular access site may result in a higher risk for complications such as damage to the site that requires repair. Additionally, peritoneal dialysis patients may develop peritonitis, an infection of the peritoneal membrane, and the peritoneal membrane may become less effective over time, meaning a patient may eventually have to switch to either home or in-center hemodialysis. Patients’ preferences may influence whether patients receive home dialysis (either peritoneal dialysis or home hemodialysis) or in-center hemodialysis. For example, some patients may prefer home dialysis because they do not need to travel to the facility three times per week, giving them greater flexibility to work during the day and undergo dialysis at night in their home. Some patients also may prefer home dialysis because there may be fewer diet and fluid restrictions and less recovery time following each dialysis treatment. On the other hand, successfully performing home dialysis requires patients to undergo training and assume other responsibilities that they would not otherwise have if they dialyzed in a facility. As a result, patients who feel unprepared to accept such responsibilities or who lack a spouse or caregiver to help them may be less likely to choose home dialysis. For similar reasons, some experts and stakeholders have indicated that switching from in-center to home dialysis can be challenging once patients become accustomed to in- center hemodialysis. Furthermore, the greater complexity of home hemodialysis training—including learning to place needles in the vascular access site and how to respond to alarms from the dialysis machine— relative to peritoneal dialysis training could lead some patients to prefer one type of home dialysis over the other. In addition to patients’ preferences, clinical factors may affect whether patients receive home dialysis or in-center hemodialysis. One factor is whether a patient has received care from a nephrologist prior to beginning dialysis. Patients who did not receive such care and who have an urgent need to start dialysis often do so with in-center hemodialysis because training is not required and because a venous catheter can be placed and used immediately. More lead time can be required for peritoneal dialysis to allow the site where the peritoneal dialysis catheter was placed to heal. As another example, a patient with poor vision or dexterity may have difficulty performing the tasks associated with home dialysis. In addition, a patient who has received multiple abdominal surgeries may not be an appropriate candidate for peritoneal dialysis. Finally, patients with multiple comorbidities (i.e., multiple chronic diseases or disorders) may choose in-center hemodialysis because it can allow the nephrologist to more closely manage those other conditions. Medicare uses different methods to pay (1) dialysis facilities for providing dialysis treatments to patients and for training them to perform home dialysis and (2) physicians for managing patients’ dialysis care and educating them about their condition. For dialysis treatments—including any training that occurs in the first 4 months of treatment—Medicare has paid facilities a single bundled payment per treatment since 2011. The bundled payment is designed to cover the average costs incurred by an efficient facility to provide the dialysis, injectable drugs, laboratory tests, and other ESRD-related items and services. In 2015, Medicare paid a base rate of $239.43 per treatment for up to three hemodialysis treatments per week, and Medicare sets the daily rate for peritoneal dialysis such that payments for 7 days of peritoneal dialysis would equal the sum of payments for three hemodialysis treatments. Medicare adjusts the base rate to account for certain factors that affect the cost of a treatment, including costs to stabilize patients and to provide training during the first 4 months of dialysis treatments, as well as certain other patient and facility factors. CMS implemented its Quality Incentive Program beginning in 2012, which can reduce Medicare payments for dialysis treatments to facilities by up to 2 percent based on the quality of care they provided. When training occurs after the first 4 months of the patient’s dialysis treatments, Medicare pays dialysis facilities the bundled payment plus an additional fixed amount (often referred to as the training add-on). The training add-on is for the facilities’ additional staff time to train the patient. This training, which can happen in an individual or group setting, is required to be furnished by a registered nurse. The number of treatments that include home dialysis training—called training treatments—varies by type of dialysis and by patient. Medicare currently pays facilities a training add-on amount of $50.16 per treatment for up to 25 home hemodialysis training treatments or a daily equivalent rate for up to 15 days of peritoneal dialysis training; CMS increased the training add- on payment from $33.44 to $50.16 in 2014. Medicare pays physicians (typically nephrologists) a monthly amount per patient to manage patients’ dialysis care. This monthly amount covers dialysis-related management services such as establishing the frequency of and reviewing dialysis sessions, interpretation of tests, and visits with patients. To receive the payment, Medicare requires the physician to provide at least one face-to-face visit per month to each patient for examining the patient’s vascular access site. The monthly amount paid to the physician for managing in-center patients varies on the basis of the patient’s age and the number of visits provided to the patient, but the amount for managing the care of a home patient varies only on the basis of the patient’s age and not the number of visits. Besides the monthly payment for patients’ dialysis care, Medicare provides a one-time payment to physicians of up to $500 for each patient who completes home dialysis training under the physician’s supervision; this payment is separate from Medicare’s payments to facilities for training patients. Medicare also pays physicians to provide kidney disease education to patients who have not yet started dialysis. Congress established the Kidney Disease Education (KDE) benefit as part of the Medicare Improvements for Patients and Providers Act of 2008 to provide predialysis education to Medicare patients with Stage IV chronic kidney disease. Topics to be covered include the choice of therapy (such as in- center hemodialysis, home dialysis, or kidney transplant) and the management of comorbidities, which can help delay the need for dialysis. Historical trends in the overall percentage of all dialysis patients on home dialysis—including both Medicare and non-Medicare patients—show a general decrease between 1988 and 2008 and a more recent increase thereafter through 2012. According to USRDS data, 16 percent of 104,200 dialysis patients received home dialysis in 1988. Home dialysis use generally decreased over the next 20 years, reaching 9 percent in 2008, and then slightly increased to 11 percent of 450,600 dialysis patients in 2012—the most recent year of data available from USRDS. (See fig. 2.) More generally, the percentage of all patients on home dialysis declined from 1988 through 2012 because the number of these patients increased at a slower rate than the total number of all patients on dialysis. During the time period from 1988 through 2012, most home dialysis patients received peritoneal dialysis as opposed to home hemodialysis. The more recent increase in use of home dialysis is also reflected in CMS data for adult Medicare dialysis patients, showing an increase from 8 percent using home dialysis in January 2010 to about 10 percent as of March 2015. Literature we reviewed and stakeholders we interviewed suggested several factors that may have contributed to the trends in home dialysis use from 1988 through 2012. Looking at the initial decline between 1988 and 2008, contributing factors may have included increased capacity to provide in-center hemodialysis and changes in the dialysis population. Increased capacity to provide in-center hemodialysis. The growth in facilities’ capacity to provide in-center hemodialysis from 1988 to 2008 outpaced the growth in the dialysis patient population over the same time period. Specifically, the number of dialysis stations, which include the treatment areas and dialysis machines used to provide in-center hemodialysis, increased at an average annual rate of 7.3 percent during this time period, while the number of patients increased at an average annual rate of 6.8 percent. As a result, dialysis facilities may have had a greater financial incentive to treat patients in facilities in an effort to use this expanded capacity, according to literature we reviewed. Changes in the dialysis population. The increased age and prevalence of comorbidities in the dialysis population may have reduced the portion considered clinically appropriate for home dialysis. Dialysis patients who are older and those with comorbid conditions may be less physically able to dialyze at home. From 1988 to 2008, the mean age of a dialysis patient rose from 52.2 years to 58.6 years. Similarly, the proportion of the dialysis population affected by various comorbid conditions increased during this time period. For example, the percentage of dialysis patients with diabetes as the primary cause of ESRD increased from 24.6 percent in 1988 to 43.1 percent in 2008. Medicare payment methods and concerns about the effectiveness of peritoneal dialysis may have played a role in the decline in home dialysis use between 1988 and 2008, but changes in both factors may have also contributed to recent increases in use. Medicare payment methods for injectable drugs. Medicare payment methods prior to 2011 may have given facilities a financial incentive to provide in-center rather than home dialysis. Before 2011, Medicare paid separately for injectable drugs rather than including them in the bundled payment. As a result, Medicare payments to facilities for dialysis care—including the payments for injectable drugs—could have been lower for home patients because of their lower use, on average, of injectable drugs. However, the payment changes in 2011 reduced the incentive to provide in-center hemodialysis relative to home dialysis because the Medicare payment for dialysis treatments and related services, such as injectable drugs, no longer differed based on the type of dialysis received by the patient. Concerns about effectiveness of peritoneal dialysis. Several studies published in the mid-1990s indicated poorer outcomes for peritoneal dialysis compared to hemodialysis, and these studies may have made some physicians reluctant to prescribe peritoneal dialysis, according to stakeholders and literature we reviewed. However, stakeholders identified more recent studies indicating that outcomes for peritoneal dialysis are comparable to hemodialysis. These newer studies may have contributed to the recent increases in home dialysis use by mitigating concerns about the effectiveness of peritoneal dialysis and by making physicians more comfortable with prescribing it. Estimates from dialysis experts and other stakeholders suggest that further increases in the use of home dialysis are possible over the long term. The home dialysis experts and stakeholders we interviewed indicated that home dialysis could be clinically appropriate for at least half of patients. However, the percentage of patients who could realistically be expected to dialyze at home is lower because of other factors such as patient preferences. For example, at a meeting in 2013, the chief medical officers of 14 dialysis facility chains jointly estimated that a realistic target for home dialysis would be 25 percent of dialysis patients. To achieve this target, they said that changes, such as increased patient education and changes to payment policies, would need to occur. As another example, physician stakeholders we interviewed estimated that 15 to 25 percent of dialysis patients could realistically be on home dialysis. In the short term, however, an ongoing shortage of peritoneal dialysis solution has reduced the use of home dialysis, and this shortage could have a long-term impact as well. Medicare claims data analyzed by CMS show that the percentage of Medicare dialysis patients on home dialysis had reached 10.7 percent in August 2014, when the shortage was first announced, but has since declined to 10.3 percent, as of March 2015. CMS officials attributed this decline to the shortage in the supply of peritoneal dialysis solution because the decline did not occur among facilities owned by one large dialysis facility chain that manufactures its own peritoneal dialysis solution and has not experienced a shortage. Some dialysis facility chains told us that, because of this shortage, they limited the number of new patients on peritoneal dialysis. In addition, one physician association stated that the shortage could have long-term implications. They said that some physicians are reluctant to prescribe this type of dialysis, even when a facility has the capacity to start a patient on peritoneal dialysis, because of uncertainties about peritoneal dialysis supplies. Medicare payments to dialysis facilities, including those that provided home dialysis, gave them an overall financial incentive to provide dialysis, as shown by their generally positive Medicare margins. The average Medicare margin for all 3,891 freestanding facilities in our analysis was 4.0 percent in 2012—that is, Medicare payments exceeded Medicare allowable costs for dialysis treatments by 4.0 percent. Similarly, the average Medicare margin for the 1,569 freestanding facilities that provided one or both types of home dialysis was 4.20 percent in 2012. (See table 1.) Focusing on those facilities that provided home dialysis, nearly all (94 percent) provided both in-center and one or both types of home dialysis. In addition, although margins were positive, on average, for these facilities, we found that the Medicare margin for large facilities (7.21 percent) was considerably higher, on average, than for small facilities (-3.49 percent). We also found that most of the patient years (81 percent) were devoted to in-center hemodialysis, followed by peritoneal dialysis (15 percent) and home hemodialysis (4 percent). Small and large facilities followed the same pattern. In addition to giving an incentive to provide dialysis in general, Medicare payments to facilities likely encourage the use of peritoneal dialysis—the predominant type of home dialysis—over the long term. The payment rate for peritoneal dialysis is the same as the rate for hemodialysis provided in facilities or at home, but the cost of providing peritoneal dialysis is generally lower, according to CMS and stakeholders we interviewed. When CMS established the current payment system, it stated that its decision to have a single payment rate regardless of the type of dialysis would give facilities a powerful financial incentive to encourage the use of home dialysis, when appropriate. Another financial incentive that exists for both peritoneal dialysis and home hemodialysis is that facilities can receive additional months of payments for patients under 65 who undergo home dialysis training. Specifically, for patients under age 65, Medicare coverage typically begins in the fourth month after the patient begins dialysis, but coverage begins earlier if the patient undergoes home dialysis training. This incentive is augmented because payments to facilities are significantly higher during the first 4 months of dialysis. These incentives to provide home dialysis, compared to in-center hemodialysis, are consistent with CMS’s goal of fostering patient independence through greater use of home dialysis among patients for whom it is appropriate. Although over the long term facilities may have a financial incentive to encourage the use of one or both types of home dialysis, the impact of this incentive could be limited in the short term. This is because, in the short term, we found that expanding the provision of in-center hemodialysis at a facility generally tends to increase that facility’s Medicare margin and that the estimated increase is more than would result if the facility instead expanded the provision of either type of home dialysis. In particular, we found that, on average, facilities that provided home dialysis could improve their financial position in the short term by increasing their provision of in-center hemodialysis. An additional patient year of in-center hemodialysis improved the margin by an estimated 0.15 percentage points—for example, from 4.20 to 4.35 percent. (See fig. 3.) In contrast, increasing home dialysis resulted in a smaller benefit. Adding a patient year of peritoneal dialysis improved the margin by an estimated 0.08 percentage points and adding a patient year of home hemodialysis had no statistically significant effect on the margin; the estimated 0.04 percentage point reduction on average in the margin was not statistically different from zero. The pattern of the results in figure 3 for the three types of dialysis was similar for small and large facilities. (See results in app. I.) Our findings on the relative impact of the incentives in the short term are generally consistent with information on the cost of each type of dialysis provided to us by CMS and stakeholders we interviewed. First, consistent with our finding that facilities have a greater short-term incentive for in- center hemodialysis, stakeholders we interviewed said that facilities’ costs for increasing their provision of in-center hemodialysis may be lower than for either type of home dialysis. For example, although the average cost of an in-center hemodialysis treatment is typically higher than the average cost of a peritoneal dialysis treatment, facilities may be able to add an in- center patient without incurring the cost of an additional dialysis machine because each machine can be used by six to eight patients. In contrast, when adding a home patient, facilities generally incur costs for additional equipment, which is dedicated to a single patient. Second, some stakeholders said that the cost of providing home hemodialysis, in particular, can be higher than other types of dialysis in part because home hemodialysis patients often receive more than three treatments per week and Medicare’s policy is not to pay for these additional treatments unless medically justified. Finally, when comparing the two types of home dialysis, CMS and the stakeholders generally reported that the cost of home hemodialysis, including training, was higher than for peritoneal dialysis. They said that home hemodialysis training is more costly because of the greater complexity such as learning to place needles in the vascular access site and to respond to alarms. Stakeholders also told us that Medicare payments cover only a portion of the upfront costs for training a patient, particularly one on home hemodialysis. CMS increased the training add-on payment beginning in 2014 in response to public comments it received on the cost of home hemodialysis training, but the agency lacks reliable data for determining whether the revised payment is adequate. Specifically, CMS lacks reliable data on the cost of home dialysis treatment and training and on the staff time needed to provide training. We found that the cost report data on facilities’ costs for each type of dialysis, including costs for home dialysis training, were not sufficiently reliable. Although we determined that data on facilities’ total costs across all types of dialysis were sufficiently reliable for purposes of our analysis, stakeholders reported that these total costs were not accurately allocated to each type of dialysis and to training. One reason for this inaccuracy may be that some facilities allocated certain types of costs, such as dialysis-related drugs and supplies, based on the number of treatments for each type of dialysis. Representatives of these facilities reported that CMS’s Medicare Administrative Contractors had approved this allocation method. However, the number of treatments by type of dialysis may not be a reliable basis for allocating such costs. For example, studies have shown that utilization of dialysis-related drugs differs by type of dialysis, and stakeholders reported that supply costs can as well. In addition, CMS officials told us that they do not regularly review the reliability of these data. We also found that CMS lacks consistent data on the staff time required to provide home dialysis training even though the agency used the number of hours of nursing time as the basis for its training add-on payment rate. For example, in 2012, CMS acknowledged that 1 hour did not necessarily correspond to the amount of time needed to train a patient, even though CMS used 1 hour as the basis. More recently, despite the fact that CMS increased the training add-on by basing it on 1.5 hours of nursing time, CMS said that the public comments it received did not provide consistent information on the number of hours spent on training; the number of hours reported in these comments varied from 2 to 6 hours per treatment. The adequacy of training payments could affect facilities’ incentives for providing home dialysis, but it is unclear whether these payments are adequate given CMS’s lack of reliable data on the cost of training and by type of dialysis. Reliable cost report data are important for CMS to be able to perform effective fiscal management of the program, which involves assessing the adequacy of payment rates. In particular, if the training payments are inadequate, facilities may be less willing to provide home dialysis, which could undermine CMS’s goal of encouraging the use of home dialysis when appropriate. Medicare physician payments for dialysis care do not consistently result in incentives for physicians to prescribe home dialysis. In addition, few Medicare patients have used Medicare’s KDE benefit, and this low usage may be due to statutory payment limitations on the types of providers permitted to furnish the benefit and on the Medicare patients eligible to receive it. Finally, physicians’ limited exposure to home dialysis during nephrology training programs is a third factor that may constrain the extent to which physicians prescribe home dialysis. We found that the structure of Medicare’s monthly physician payments— one of several factors that could affect the use of home dialysis—may give physicians a disincentive for prescribing home dialysis, which could undermine CMS’s goal of encouraging the use of home dialysis when appropriate. CMS, when it established the current method of paying physicians a monthly payment to manage patients’ dialysis, stated that this method would encourage the use of home dialysis by giving physicians an incentive to manage home patients. According to CMS, this incentive would exist because the monthly payment rate for managing the dialysis care of home patients, which requires a single in- person visit, was approximately equal to the rate for managing and providing two to three visits to in-center patients. However, we found that, in 2013, the rate of $237 for managing home patients was lower than the average payment of $266 and maximum payment of $282 for managing in-center patients. (See table 2.) This difference in payment rates may discourage physicians from prescribing home dialysis. Physician associations and other physicians we interviewed told us that Medicare payments may give physicians a disincentive for prescribing home dialysis. They stated that, even though the payment levels for managing home patients are typically lower, the visits with home patients are often longer and more comprehensive; this is in part because physicians may conduct visits with individual home patients in a private setting, but they may be able to more easily visit multiple in-center patients on a single day as they receive dialysis. The physician associations we interviewed also said that they may spend a similar amount of time outside of visits to manage the care of home patients and that they are required to provide at least one visit per month to perform a complete assessment of the patient. In addition, while physicians can receive a higher payment for providing more than one visit to in-center patients, these additional visits may be provided by nurse practitioners and certain other nonphysician practitioners, who may be less costly. CMS has not revised the overall structure for paying for physicians to manage dialysis patients’ care since 2004, although it has addressed some stakeholder concerns such as how it paid physicians when home patients were in the hospital. In contrast to the monthly payments, Medicare physician payments related to patients’ training may provide physicians with financial incentives for prescribing home dialysis. For certain patients who start home training—those under 65 who are eligible for Medicare solely due to ESRD—the monthly payments to physicians can begin in the first month rather than the fourth month of treatment, which may provide physicians with an incentive to prescribe home dialysis. In addition, Medicare makes a one-time payment of up to $500 for each patient who has completed home dialysis training under the physician’s supervision. One stakeholder told us that this training payment may provide an incentive for physicians to prescribe home dialysis. Few Medicare patients have used the KDE benefit, which covers the choice of therapy (such as in-center hemodialysis, home dialysis, or kidney transplant) and the management of comorbidities, and stakeholders generally told us this low usage was related to payment limitations on the types of providers who are permitted to furnish the benefit and on the Medicare patients eligible to receive it. According to USRDS, less than 2 percent of eligible Medicare patients used the KDE benefit in 2010 and 2011—the first two years it was available—and use of the benefit has decreased since then. When CMS implemented the KDE benefit, the agency identified specific categories of providers—physicians, physician’s assistants, nurse practitioners, and clinical nurse specialists—as eligible to receive payment for furnishing the benefit. Stakeholders, including physician associations, told us that other categories of trained healthcare providers (such as registered nurses, social workers, and dieticians who may be part of the nephrology practice) are also qualified to provide predialysis education. However, when asked if other types of providers could be eligible to receive payment, CMS officials said that the statute specified the categories of providers and that the agency was limited to those providers. Dialysis facilities are also not eligible to receive payment for the KDE benefit. Although facility representatives said that they were equipped to provide education to these patients, including education on the choice of type of dialysis, CMS and some other stakeholders said that one reason facilities are not eligible to provide the KDE benefit is their financial interest in treatment decisions. For example, the KDE benefit is designed to provide objective education to patients on steps that can be taken to delay the need for dialysis and on the choice of therapies, which includes kidney transplant, as well as home dialysis and in-center hemodialysis. Some of these options could be contrary to dialysis facilities’ financial interest. Similarly, CMS identified a specific category of patients—those with Stage IV chronic kidney disease—as eligible to receive the KDE benefit. Physician stakeholders said that certain other categories of patients, such as those in Stage III or those in Stage V but who have not started dialysis, may also benefit from Medicare coverage of timely predialysis education. However, when asked if other categories of patients could be eligible to receive the KDE benefit, CMS officials said that the agency was limited by statute to Stage IV patients. The low usage of the KDE benefit, which may be a result of these payment limitations, suggests that it may be difficult for Medicare patients to receive this education, which is designed to help them make informed treatment decisions. Literature and stakeholders have underscored the value of predialysis education to help patients make informed treatment decisions, and also indicated that patients who receive it may be more likely to choose home dialysis. Literature we reviewed and nearly all of the stakeholders we interviewed indicated that physicians have limited exposure to home dialysis during nephrology training programs and thus may not feel comfortable prescribing it. One study found that 56 percent of physicians who completed training said they felt well trained and competent in the care of peritoneal dialysis patients, and 16 percent felt this way in the care of home hemodialysis patients. Furthermore, another study found that physicians who felt more prepared to care for peritoneal dialysis patients were more likely to prescribe it. Literature we reviewed and stakeholders identified two main factors that may limit physicians’ exposure to home dialysis while they undergo nephrology training: The nephrology board certification examination administered by the American Board of Internal Medicine does not emphasize home dialysis, particularly home hemodialysis. The examination blueprint published by the board shows that approximately 9 percent of the board certification examination is dedicated to questions regarding ESRD, which may include hemodialysis and peritoneal dialysis but, according to one board official, is unlikely to include home hemodialysis. Literature and stakeholders suggested that greater emphasis on home dialysis on certification examinations might lead to a greater emphasis on home dialysis in nephrology training. According to an Institute of Medicine report, the way Medicare provides graduate medical education payments may discourage nephrology training outside of the hospital, and one stakeholder said this system may impede physician exposure to home patients. Medicare pays teaching hospitals directly to help cover the costs of graduate medical education, including the salaries of the physicians in training. Hospitals have the option to allow physicians to train at a second, off-site location—for example, a dialysis facility with a robust home dialysis program—if the hospital continues to pay the physicians’ salaries. However, the stakeholder said that hospitals may be reluctant to allow physicians to train at a second, off-site location, such as a dialysis facility, because patients at such locations may not be served primarily by the hospital. The American Society of Nephrology has acknowledged that nephrology training in home dialysis needs to improve. As a result, the society has developed and disseminated guidelines identifying training specific to home dialysis and providing suggestions on curriculum organization to increase physician exposure to home patients. For example, the guidelines suggest physicians in training should demonstrate knowledge of the infectious and noninfectious complications specific to peritoneal dialysis and home hemodialysis. They also suggest a program’s curriculum should include observation of and participation in a patient’s training to conduct home dialysis. The number and percentage of patients choosing to dialyze at home have increased in recent years, and our interviews with home dialysis experts and stakeholders indicated potential for future growth. To realize this potential, it is important for the incentives associated with Medicare payments to facilities and physicians to be consistent with CMS’s goal of encouraging the use of home dialysis among patients for whom it is appropriate. One aspect of payment policy—training add-on payments to facilities—has a direct impact on facilities’ incentives for providing home dialysis. However, whether these training payments are adequate continues to be unclear because CMS lacks reliable data on the cost of home dialysis treatment and training for assessing payment adequacy. If training payments are inadequate, facilities may be less willing to provide home dialysis. In addition, the way Medicare pays physicians to manage the care of dialysis patients may be discouraging physicians from prescribing home dialysis. Finally, the limited use of the KDE benefit suggests that it may be difficult for Medicare patients to receive this education, which is designed to help them make informed decisions related to their ESRD treatment, including decisions on the choice of the type of dialysis, as well as options such as kidney transplant and steps to delay the need for dialysis. To determine the extent to which Medicare payments are aligned with costs for specific types of dialysis treatment and training, the Administrator of CMS should take steps to improve the reliability of the cost report data for treatment and training associated with specific types of dialysis. The Administrator of CMS should examine Medicare policies for monthly payments to physicians to manage the care of dialysis patients and revise them if necessary to ensure that these policies are consistent with CMS’s goal of encouraging the use of home dialysis among patients for whom it is appropriate. To ensure that patients with chronic kidney disease receive objective and timely education related to this condition, the Administrator of CMS should examine the Kidney Disease Education benefit and, if appropriate, seek legislation to revise the categories of providers and patients eligible for the benefit. We received written comments on our draft report from the Department of Health and Human Services (HHS). These comments are reprinted in appendix II. Because Medicare payments for home dialysis have implications for patients and the dialysis industry, we also obtained comments on our draft from groups representing home dialysis patients, large and small dialysis facility chains and independent facilities, and nephrologists. Following is our summary of and response to comments from HHS and these patient and industry groups. In written comments on a draft of this report, HHS reiterated its goal of fostering patient independence through greater use of home dialysis among patients for whom it is appropriate and pointed out that home dialysis use has increased since 2011 when the bundled payment system was implemented. HHS concurred with two of our three recommendations. In response to our first recommendation that CMS improve the reliability of cost report data for training and treatment associated with specific types of dialysis, HHS said that it is willing to consider reasonable modifications to the cost report that could improve the reliability of cost report data. HHS also stated that it was conducting audits of cost reports as required by the Protecting Access to Medicare Act of 2014. HHS also concurred with our second recommendation to examine Medicare policies for monthly payments to physicians to manage patients’ dialysis to ensure that these policies are consistent with CMS’s goal of encouraging home dialysis use when appropriate. HHS said that it would review these services through CMS’s misvalued code initiative, which involves identifying and evaluating physician services that may not be valued appropriately for Medicare payment purposes and then adjusting Medicare payment as needed. We believe that this examination and any resulting revisions to these payment policies have the potential to address our recommendation. HHS did not concur with our third recommendation that CMS examine the KDE benefit and, if appropriate, seek legislation to revise the categories of providers and patients eligible for the benefit. HHS said that CMS works continuously to appropriately pay for ESRD services and must prioritize its activities to improve care for dialysis patients. While we acknowledge the need for HHS to prioritize its activities to improve dialysis care, it is important for HHS to help ensure that Medicare patients with chronic kidney disease understand their condition, how to manage it, and the implications of the various treatment options available, particularly given the central role of patient choice in dialysis care. The limited use of the KDE benefit suggests that it may be difficult for Medicare patients to receive this education and underscores the need for CMS to examine and potentially revise the benefit. We received comments from five groups: (1) Home Dialyzors United (HDU), which represents home dialysis patients; (2) the National Renal Administrators Association (NRAA), which represents small dialysis facility chains and independent facilities; (3) DaVita, which is one of the two large dialysis facility chains; (4) Fresenius, which is the other large dialysis facility chain; and (5) the Renal Physicians Association (RPA), which represents nephrologists. The groups expressed appreciation for the opportunity to review the draft, and the three groups that commented on the quality of the overall report stated that it accurately addressed issues related to the use of home dialysis. Three of the groups commented on some or all of our recommendations, while the remaining two groups did not comment specifically on this aspect of our report. Specifically, HDU, NRAA, and RPA agreed with our first recommendation that CMS improve the reliability of cost report data for treatment and training associated with specific types of dialysis. A fourth group—Fresenius—expressed concern about the reliability of data on the costs of home dialysis, which was consistent with our recommendation that CMS needs to improve the reliability of these data. RPA, in addition to agreeing with this recommendation, questioned the reliability of the data on total facility costs that we used for our analysis. Although it was beyond the scope of our report to verify the accuracy of each facility’s cost report, we took several steps to assess the cost report data that we analyzed. These steps included verifying the cost report data for internal consistency and checking the number of dialysis treatments reported against Medicare claims. The fact that implementing these steps caused us to exclude some facilities’ data from our analysis suggests that the potential exists to improve the accuracy of these data. CMS’s implementation of our recommendation and auditing of cost reports under the Protecting Access to Medicare Act of 2014 create the opportunity for CMS to begin addressing this issue. NRAA, another group that agreed with our first recommendation, recommended that we or CMS develop mechanisms in addition to the cost reports to more accurately capture the resources devoted to providing home dialysis to each patient, but developing such mechanisms was beyond the scope of this report. One group (HDU) agreed with our second recommendation that CMS examine and, if necessary, revise Medicare payment policies for physicians to manage the care of dialysis patients, but a second group (RPA) urged us to reconsider the recommendation out of concern that implementing it could lead to cuts in physician payments for home dialysis. While RPA agreed that the current payment method gives physicians a disincentive for prescribing home dialysis, the group emphasized that it was only one of numerous factors that affect this treatment decision. RPA also stated that it would support certain payment changes that would increase physicians’ incentives to prescribe home dialysis, which could include using performance measures to promote home dialysis use. However, RPA expressed concern that the process CMS may use for examining and potentially revising this payment method could lead to cuts in physician payments for home dialysis, which RPA asserted would further discourage its use and be contrary to the intent of our recommendation. We agree that Medicare’s current method of paying physicians to manage patients’ dialysis care is one of several factors that could influence physicians’ decisions to prescribe home dialysis and described these factors in our report. In addition, while we do not know what changes, if any, CMS will make to physician payments for managing patients’ dialysis care, we believe the intent of our recommendation—to ensure that these payments are consistent with CMS’s goal to encourage the use of home dialysis when appropriate—is clear. Three groups (HDU, NRAA, and RPA) agreed with our third recommendation that CMS examine the KDE benefit and if appropriate seek revisions to the categories of providers and patients eligible for the benefit. RPA also emphasized its agreement with our findings that the statutory limitations on the providers and patients eligible for the benefit have contributed to the limited use of the benefit. These groups also urged other changes to the KDE benefit such as removing the requirement for a copayment and making documentation requirements more flexible. The limitations in the categories of eligible providers and patients were cited in our interviews with stakeholders as the main reasons for the limited use of the KDE benefit, but we acknowledge that other opportunities may exist for improving the benefit’s design. NRAA also pointed out that facilities currently educate patients with chronic kidney disease on the choice of type of dialysis but are not reimbursed by Medicare for doing so. We stated in the report that, according to the large and small dialysis facility chains we interviewed, they have the capacity to educate such patients about their condition. However, we also reported the concern raised by CMS and certain other stakeholders that the education provided by facilities may not be objective because they have a financial interest in patients’ treatment decisions. The patient and industry groups also made several comments in addition to those described above. DaVita, NRAA, and RPA stated that the use of telehealth by physicians to manage the care of dialysis patients could facilitate the use of home dialysis. We noted in the report that certain visits for managing in-center patients can be provided via telehealth. CMS has established a process for identifying other services—such as managing home patients—that could be provided via telehealth under Medicare, and examining this process was beyond the scope of this report. HDU, NRAA, and RPA stressed the importance of patient-centered dialysis care and of ensuring that patients have sufficient information to make informed decisions on the type of dialysis. We agree that patient preferences and patient education are central to decisions regarding the type of dialysis and have described these and other factors that could affect these decisions. DaVita and RPA stressed the impact of the ongoing shortage of peritoneal dialysis solution. In particular, DaVita said the shortage is the biggest barrier to the use of home dialysis. We agree that this shortage could have a long-term impact on the use of home dialysis and revised the report to incorporate this perspective. DaVita and HDU asserted that Medicare’s method of paying for dialysis care separately from other services, such as inpatient care, could affect incentives for providing home dialysis. For example, DaVita suggested that the incentive to provide home hemodialysis could increase if a single entity were financially responsible for all Medicare services provided to a Medicare patient. This incentive could increase because, according to DaVita, the cost of inpatient care may be lower for home hemodialysis patients than for in-center hemodialysis patients. We agree that choosing one type of dialysis over another could affect the use of other types of Medicare services, but examining such implications was beyond the scope of this report. NRAA and RPA appreciated that our report addressed the role of nephrology training programs in the use of home dialysis, and both groups said that we or CMS should further examine how physicians can receive greater exposure to home dialysis through these programs. RPA said that this examination could also address the role of Medicare payments for graduate medical education. While we acknowledge the importance of these issues, further examination of them was beyond the scope of our report. In addition to the comments described above, the patient and industry groups provided technical comments on the draft, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health & Human Services and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114, or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of our report. GAO staff who made key contributions to this report are listed in appendix III. This appendix describes the data and methods we used for our analysis of Medicare margins, which was part of our effort to examine incentives associated with Medicare payments to dialysis facilities. We analyzed Medicare cost report data for 2012 from freestanding facilities located in the 50 states and the District of Columbia. We took steps to restrict our analysis to data from facilities with similar cost and payment structures. We did not include hospital-based facilities in our analysis because these facilities’ reported costs may be driven in part by hospitals’ methods for allocating overhead costs within these hospitals rather than by the costs of the dialysis facility itself. Because of possible differences in cost structures, we excluded facilities that (1) provided any pediatric or intermittent peritoneal dialysis treatments, (2) were government-owned, or (3) had cost reporting periods not equal to calendar year 2012, which generally occurred when facilities changed ownership, opened, closed, or changed Medicare status during the year. Because of possible differences in payment structures, we also limited our analysis to facilities that elected to be paid fully under the bundled payment system. Implementing these steps resulted in the exclusion of approximately 19 to 20 percent of the 5,380 freestanding facilities originally in the cost report data set. We also took several steps to assess the reliability of facilities’ cost report data on total costs, total Medicare payments, and the number of dialysis treatments provided. In particular, we checked for and excluded facilities with internal inconsistencies among variables such as reporting that they provided more treatments to Medicare patients than to Medicare and non- Medicare patients combined or reporting negative treatment numbers. In addition, we excluded facilities that reported unusually high or low average costs or average Medicare payments, which may be indicative of data entry errors. Finally, we compared the number of Medicare-covered treatments reported on the cost reports to similar data from Medicare claims on the number of paid treatments, and we excluded facilities with inconsistencies. Implementing these steps to assess the reliability of the data resulted in the exclusion of an additional approximately 8 to 9 percent of the 5,380 freestanding facilities originally in the cost report data set, leaving 3,891 (72 percent) of these facilities in our analysis. We focused our analysis primarily on the 1,569 of these 3,891 freestanding facilities that provided home dialysis (defined as either home hemodialysis and/or peritoneal dialysis) to Medicare dialysis patients in 2012. We determined that the data on total costs, total Medicare payments, and number of dialysis treatments provided were sufficiently reliable for the purposes of our analysis. (𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑝𝑝− 𝐸𝐸𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑀𝑀 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑀𝑀𝑐𝑐𝑝𝑝𝑝𝑝𝑝𝑝) We calculated the Medicare margin for all facilities that provided home dialysis. (See table 3.) When calculating the average margin for facilities in our analysis, we weighted the average by the total number of Medicare-covered patient years of dialysis. We classified facilities as small or large based on whether their number of Medicare patient years was below or above the median number of patient years among the facilities in our analysis that provided home dialysis. To examine incentives associated with each type of dialysis, we used multiple linear regression analysis to estimate the extent to which adding a patient year of peritoneal dialysis, home hemodialysis, and in-center hemodialysis was associated with an increase or decrease in facilities’ Medicare margins. The explanatory variables of our regression model included, for each type of dialysis, a binary variable for whether or not the facility provided that type of dialysis and a continuous variable with the number of patient years for that type of dialysis. To control for other factors that could affect a facility’s Medicare margin, our model also included binary variables for whether or not the facility was located in an urban area or whether or not the facility was affiliated with a large dialysis facility chain. See table 4 for more information about the characteristics included in the model. As shown in table 5 and discussed further in the report, the results of our regression model show the effect on facilities’ Medicare margin from adding one patient year of a given type of dialysis. In addition to the contact named above, William Black, Assistant Director; George Bogart; Andy Johnson; Corissa Kiyan; Hannah Marston Minter; Richard Lipinski; Elizabeth T. Morrison; Vikki Porter; and Eric Wedum made key contributions to this report.	In 2013, Medicare spent about $11.7 billion on dialysis care for about 376,000 Medicare patients with end-stage renal disease, a condition of permanent kidney failure. Some of these patients performed dialysis at home, and such patients may have increased autonomy and health-related quality of life. GAO was asked to study Medicare patients' use of home dialysis and key factors affecting its use. This report examines (1) trends in home dialysis use and estimates of the potential for wider use, (2) incentives for home dialysis associated with Medicare payments to dialysis facilities, and (3) incentives for home dialysis associated with Medicare payments to physicians. GAO reviewed CMS policies and relevant laws and regulations, and GAO analyzed data from CMS (2010-2015), the United States Renal Data System (1988-2012), and Medicare cost reports (2012), the most recent years with complete data available. GAO also interviewed CMS officials, selected dialysis facility chains, physician and patient associations, and experts on home dialysis. The percentage of dialysis patients who received home dialysis generally declined between 1988 and 2008 and then slightly increased thereafter through 2012, and stakeholder estimates suggest that future increases in the use of home dialysis are possible. Dialysis patients can receive treatments at home or in a facility. In 1988, 16 percent of 104,200 dialysis patients received home dialysis. Home dialysis use generally decreased over the next 20 years, reaching 9 percent in 2008, and then slightly increased to 11 percent of 450,600 dialysis patients in 2012—the most recent year of data for Medicare and non-Medicare patients. Physicians and other stakeholders estimated that 15 to 25 percent of patients could realistically be on home dialysis, suggesting that future increases in use are possible. In the short term, however, an ongoing shortage of supplies required for peritoneal dialysis—the most common type of home dialysis—reduced home dialysis use among Medicare patients from August 2014 to March 2015. Some stakeholders were also concerned the shortage could have a long-term impact. Medicare's payment policy likely gives facilities financial incentives to provide home dialysis, but these incentives may have a limited impact in the short term. According to the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS), setting the facility payment for dialysis treatment at the same rate regardless of the type of dialysis gives facilities a powerful financial incentive to encourage the use of peritoneal dialysis when appropriate because it is generally less costly than other dialysis types. However, GAO found that facilities also have financial incentives in the short term to increase provision of hemodialysis in facilities, rather than increasing home dialysis. This is consistent with information from CMS and stakeholders GAO interviewed. For example, facilities may be able to add an in-center patient without paying for an additional dialysis machine, because each machine can be used by six to eight in-center patients. In contrast, for each new home patient, facilities may need to pay for an additional machine. The adequacy of Medicare payments for home dialysis training also affects facilities' financial incentives for home dialysis. Although CMS recently increased its payment for home dialysis training, it lacks reliable cost report data needed for effective fiscal management, which involves assessing payment adequacy. In particular, if training payments are inadequate, facilities may be less willing to provide home dialysis. Medicare payment policies may constrain physicians' prescribing of home dialysis. Specifically, Medicare's monthly payments to physicians for managing the care of home patients are often lower than for managing in-center patients even though physician stakeholders generally said that the time required may be similar. Medicare also pays for predialysis education—the Kidney Disease Education (KDE) benefit—which could help patients learn about home dialysis. However, less than 2 percent of eligible Medicare patients received the benefit in 2010 and 2011, and use has declined since then. According to stakeholders, the low usage was due to statutory limitations in the categories of providers and patients eligible for the benefit. CMS has established a goal of encouraging home dialysis use among patients for whom it is appropriate, but the differing monthly payments and low usage of the KDE benefit could undermine this goal. GAO recommends that CMS (1) take steps to improve the reliability of the cost report data, (2) examine and, if necessary, revise policies for paying physicians to manage the care of dialysis patients, and (3) examine and, if appropriate, seek legislation to revise the KDE benefit. HHS concurred with the first two recommendations but did not concur with the third. GAO continues to believe this recommendation is valid as discussed further in this report.	15.2	8k-16k	602
36	Since the mid-1980s, Congress has passed legislation that is intended to support older youth in foster care who are expected to leave care without being reunited with their parents or having another permanent family placement. At the center of these policies is the Chafee Foster Care Independence Program (CFCIP), authorized in 1999 ( P.L. 106-169 ) to provide services, including housing, for older foster youth. With funding from the CFCIP and other sources, states have developed independent living programs that supplement youth's own efforts to attain self- sufficiency. Additionally, federal law directs child welfare agencies to develop policies, where appropriate, targeted to older youth that assist in their transition from care, such as written case plans outlining the services they will receive to prepare for independent living. Despite these services and supports, research has demonstrated that compared to their counterparts in the general population, current and former foster youth are more likely to have difficulty making the transition to adulthood. The limited research literature on this topic demonstrates that during their early adult years, former foster youth are much more likely than their peers to forego higher education, describe their general health as fair or poor, become homeless, and rely on public supports. This research, along with the efforts of policy makers and child welfare advocates, has brought greater attention to the challenges facing youth transitioning from care. Congress has focused on efforts to ensure that youth have connections to caring adults and can continue to receive support from the state after they reach the legal age of majority—usually age 18—to help ease the challenges associated with the transition to adulthood. Asserting that most youth are not ready to live independently at age 18, federal policy makers have expressed special interest in providing a safety net for youth who are wards of the state. The 110 th Congress conducted a series of hearings on child welfare reforms, some of which focused on older youth in care. These hearings culminated in the passage of the Fostering Connections to Success and Increasing Adoptions Act of 2008 ( P.L. 110-351 ), an omnibus child welfare bill that addresses several aspects of the child welfare system. P.L. 110-351 is arguably one of the most significant laws that pertain to older youth in foster care. More recently, the 113 th Congress held hearings on child welfare topics that focus, in part, on older youth. Following these hearings and other efforts, Congress passed the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ). President Obama signed the bill into law on September 30, 2014. The law specifies protections for older youth in care, seeks to promote "normalcy" among children in foster care so they can participate in age and developmentally-appropriate extracurricular and other activities, and requires child welfare agencies to respond to children who are victims of sex trafficking or may be at risk for such victimization. This report presents issues affecting older youth as they transition from foster care into adulthood, particularly with regard to implementation of P.L. 110-351 and P.L. 113-183 . Perhaps the most pressing implementation issue concerning P.L. 110-351 is the challenges states may face in extending foster care to older youth. As of FY2011, states may extend care after age 18 by authorizing partial reimbursement for the cost of that continued support. One possible challenge in implementing this provision is that even with assistance from the federal government, states may be hesitant to extend care because of the cost. In addition, states are required to assist youth in developing a transition plan within 90 days of exiting care that identifies the supports and services available when they transition from care. In carrying out the plan, states can take a variety of approaches, such as beginning the transition planning process well before the 90-day requirement and engaging adults who can have meaningful connections to the youth when they emancipate from care. Even with the option to extend foster care, policy makers and advocates remain concerned that older foster youth and those who have aged out will continue to experience challenges during the transition to adulthood. Emancipated youth face particular obstacles in fostering permanent connections with caring adults, securing health insurance and housing, and staying connected to work and school. Further, little is known about youth as they transition from foster care, although a new national database will likely provide some insight into their outcomes across a number of areas, such as education, employment, and contact with social service and criminal justice systems. Another concern is that youth in foster care are vulnerable to child sex trafficking, which refers to adults sexually exploiting children under age of 18 for commercial purposes. P.L. 113-183 requires, one year after the law's enactment, that child welfare agencies have policies in place to serve these youth. Congress may wish to monitor how states are implementing these and related requirements, including how many victims have been reported by state child welfare agencies to the federal government and any best practices that have been identified for serving these victims. After a brief background on federal child welfare policies concerning transitioning youth, this report will include discussions on implementation of select aspects of P.L. 110-351 and other ongoing issues. The report is a companion to another report that provides context about older foster youth and related federal policy. See CRS Report RL34499, Youth Transitioning from Foster Care: Background and Federal Programs . The overall number of children in foster care has been declining in the past decade or so. On any given day in FY2002, approximately 523,000 children were in foster care, while the corresponding figure for FY2012 was 397,122. The share of older children in care also increased but then declined slightly over this period. Children ages 13 through 17 comprised about 29% of the caseload in FY2002, 35% in FY2010, and 34% in FY2012. The share of older youth who exited care because they reached the state's legal age of majority followed this same trend. In FY2002, just over 20,000 children "aged out" of foster care, making up 7% of all children who exited care that year. These figures increased in each subsequent year through FY2010, when slightly more than 26,000 youth aged out, making up 11% of all children who exited that year. However, the number (and share) of youth emancipating reached a recent all-time low of 23,396 (10%) in FY2012. A growing body of research on youth who spend some of their teenage years in foster care demonstrates that they tend to experience more negative outcomes in adulthood than their peers generally. A leading study of former foster youth—known as the Midwest Evaluation on the Adult Functioning of Former Foster Youth ("Midwest Evaluation")—is tracking outcomes of former foster youth in three states: Illinois, Iowa, and Wisconsin. All of the surveyed youth entered care prior to their 16 th birthday. Surveyed youth responded to researcher questions about outcomes in four data collection waves: at wave 1, when they were ages 17 and 18, at which time most were in foster care; at wave 2 when they were ages 19 and 20, at which time some remained in care; at wave 3, when they were age 21 and no longer in care; wave 4, when they were ages 23 and 24; and wave 5, when youth were age 26. These outcomes have been compared to outcomes of their peers in the general population. The most recent results of the study, based on survey data of youth at age 26, found that former foster youth and youth generally shared some common characteristics, but that the former foster youth experienced more negative educational and employment outcomes, among other outcomes. For example, former foster youth were less likely to have attained a four-year college degree compared to youth in general (2.5% versus 23.5%). Youth in the Midwest Evaluation who were not currently in school reported barriers to enrolling or staying in school, including that they could no longer afford school, became employed, needed to care for a child, or had no transportation, among other reasons. While youth formerly in care were almost as likely to report ever holding a job as youth in general (93.6% versus 98.2%), a smaller share were currently employed (48.3% versus 79.9%). Their mean annual income was about $13,000, compared to about $32,000 for their peers. The state child welfare agency, with oversight by the court, is responsible for the care and placement of children who have been removed from their homes due to abuse, neglect, or for some other reason that does not allow them to remain in their homes. The child welfare agency uses both federal and state funds to facilitate children reuniting successfully and safely with their parents, and when this is not possible, to find them a permanent and safe home. A primary federal source of funding is Title IV-E foster care, authorized under the Social Security Act. To be eligible to receive federal funds (under both the Title IV-E foster care program and related Title IV-B child welfare services program), states must agree to carry out activities that are intended to promote the safety, permanency, and well-being of all children in foster care. These include that a state has a written case plan detailing, among other things, where the child is placed and what services are to be provided to ensure that a permanent home is re-established for the child. Further, for each child in foster care, this plan must be reviewed on a regular basis. The case review is to be conducted not less often than every 6 months by a judge or an administrative review panel, and at least once every 12 months by a judge who must consider the child's permanency plan. As part of any permanency hearing, the court must consult "in an age appropriate" manner with the child. Specific case plan and case review procedures pertain to older youth in care, some of which go into effect one year after enactment of P.L. 113-183 . For youth age 14 and older, the written case plan must include a description of the programs and services that will help the child prepare for a successful transition to adulthood. Additionally, for any child in foster care at age 14 or older, the state child welfare agency is required to include in the child's case plan a document listing certain rights with respect to (1) education, health, visitation, and court participation; (2) provision of certain identification documents and information, if leaving foster care at age 18 or older; and (3) the right to be safe and avoid exploitation. The case plan also needs to include a signed acknowledgement by the child that he/she was given a copy of the list of rights and that they were explained. In addition, any child in foster care who is age 14 or older must be consulted in the development of, and about any revisions to, his/her case plan and permanency plan. The child may choose up to two members of the case planning and permanency planning teams (subject to state disapproval of any individual that it has good cause to believe would not act in the child's best interest). One of the individuals selected by the child is permitted to be the child's advisor and advocate for applying what is referred to as "the reasonable and prudent parenting standard" for purposes of determining whether a foster child can participate in extracurricular activities. As discussed in a subsequent section, states must also assist youth in developing what is known as a transition plan, which addresses housing and other needs when they have emancipated from foster care. For many children who enter foster care, returning to their parents is the way permanence is re-established. For some children, however, it is not safe or possible to reunite with their parents. In those cases, states must work to find adoptive parents or legal guardians who can provide a permanent home and family. Yet despite efforts to find a permanent home for older youth while they are in care, some age out upon reaching the state's legal age of majority. The Chafee Foster Care Independence Program is designed to provide services that will prepare these youth for when they are no longer under the custody and care of the state. The 110 th Congress held a series of hearings on reforms to the child welfare system, which culminated in the enactment of the Fostering Connections to Success and Increasing Adoptions Act ( P.L. 110-351 ) on October 7, 2008. P.L. 110-351 addresses some of the concerns that were raised in the hearings, and it made significant changes to federal child welfare statutes. Several provisions pertained to older youth in foster care and those transitioning out of care. These provisions focus not on youth living independently, but rather on their connections to adults and the state as they transition to adulthood. Notably, states are authorized to extend foster care to youth age 18 and older, until age 19, 20, or 21 (at state option). More recently, the 113 th Congress has focused on the needs of older youth in foster care and child sex trafficking. Following hearings and roundtables on these topics, Congress passed the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), which was signed into law on September 30, 2014. The law specifies protections for older youth in care, seeks to promote "normalcy" among children in foster care so they can participate in age and developmentally-appropriate extracurricular and other activities, and requires child welfare agencies to respon d to sex trafficking of children. Figure 1 summarizes the provisions and programs in federal child welfare law that pertain specifically to older youth in care and those aging out. The following sections discuss these provisions, programs, and related issues . Under Title IV-E of the Social Security Act, states and Indian tribes may seek federal funds for partial reimbursement of the room and board costs needed to support eligible children who are in out-of-home foster care. Funding for the Title IV-E foster care program is appropriated out of the general treasury and is available on an open-ended entitlement basis. This means the federal government is obligated to reimburse states for every eligible expenditure made on behalf of an eligible child. A child or youth is eligible for Title IV-E foster care if he or she is in the care and under the responsibility of the state and, among other things the child or youth is a citizen or qualified alien and meets certain income/assets tests, age, and family structure/living arrangement rules in the home he/she was removed from; a judge has determined that (1) the home the child was removed from was "contrary to the welfare" of the child; (2) the state made reasonable efforts to initially prevent the child's placement in a foster care setting; and (3) on a continuing basis, the state makes reasonable efforts to secure a permanent home for the child; and the child is placed in an eligible licensed setting with an eligible provider. The state or tribal child welfare agency must provide a "foster care maintenance payment" on behalf of every Title IV-E eligible child in foster care. This payment is made to the licensed foster family home or institution where the eligible child is placed to provide for his or her care and safety. A Title IV-E maintenance payment is defined as "payments to cover the cost of (and the cost of providing) food, clothing, shelter, daily supervision, school supplies, a child's personal incidentals, liability insurance with respect to a child, reasonable travel to the child's home for visitation, and reasonable travel for the child to remain in the school in which the child is enrolled at the time of placement." Federal reimbursement of these costs may only be sought for children placed in a licensed child care institution or foster care home, except that eligible young people who remain in extended care may be placed in an independent living setting, as described in a subsequent section. States and tribes that receive federal child welfare funds must also carry out activities that are designed to promote the safety, permanency, and well-being of all youth in care, regardless of whether they are eligible for a federal maintenance payment. A child remains eligible for Title IV-E foster care maintenance payments until his or her 18 th birthday, or 19 th birthday if the child is still completing secondary school or equivalent training; however, beginning with FY2011, states and tribes may also provide these payments to youth until age 21. States may seek reimbursement for a youth age 18 or older who is Title IV-E eligible and (1) completing high school or a program leading to an equivalent credential; (2) enrolled in an institution that provides post-secondary or vocational education; (3) participating in a program or activity designed to promote, or remove barriers to, employment; or (4) employed at least 80 hours per month (i.e., at least part-time). States and tribes may also seek reimbursement for an older youth's foster care if the youth has a medical condition that makes him or her incapable of participating in the activity and this incapacity is supported by regularly updated information in the youth's case plan. The law does not describe programs that may help to remove barriers to employment, or what constitutes a medical condition that could preclude a youth from working or attending school. States are permitted to seek federal foster care reimbursement for all eligible youth (including those who remain in care) who live in licensed foster homes or a licensed "child care institution." A child care institution is defined as a private child care institution or a public child care institution for no more than 25 children that is licensed by the state. The definition excludes a detention facility, forestry camp, training school, or any other facility operated primarily to detain delinquent children and youth. As authorized by P.L. 110-351 , and beginning with FY2011, states may also seek reimbursement for youth ages 18 or older who remain in foster care at state option and are placed in a "supervised setting in which the individual is living independently." The act directs HHS to establish in regulation what qualifies as such a setting. In July 2010, HHS issued program instructions on certain provisions of P.L. 110-351 , including extended care. HHS encourages states and tribes to extend federal foster care assistance to eligible youth until age 21, and if they extend to a lower age (19 or 20), they must describe the "programmatic or practice rationale" rationale for doing so. The state or tribe is to submit this description as part of their Title IV-E plan, which describes how they administer or supervise the administration of programs under Title IV-E. Funding under Title IV-E is contingent upon an approved plan. According to the HHS guidance, states and tribes must establish the criteria they will use to determine whether young people meet the employment or education conditions and/or whether youth have a medical condition that renders them incapable of pursuing these options. States and tribes must also determine how they will verify or obtain assurances that the youth continues to meet the conditions of remaining in care. The program instructions give examples of education or employment activities that youth in extended care can pursue, such as finishing high school; taking classes to prepare for the general equivalency diploma (GED) exam; enrolling in a college, university, or vocational or trade school; enrolling in a Job Corps program; attending interview and resume-writing classes; and working part-time or full-time. Students are considered enrolled in school even when they are on a summer or other break. Notably, HHS advises that states and tribes may establish select requirements for extended foster care. For example, extended care could be provided only to those youth enrolled in post-secondary education. Still, the guidance advises that states and tribes should "consider how [they] can provide extended assistance to youth age 18 and older to the broadest population possible consistent with the law to ensure that there are ample supports for older youth." Separately, the program instructions address issues related to four criteria pertaining to Title IV-E foster care eligibility. These instructions apply to young people who reach the state age of majority and either continue in care or seek to reenter care at some point before the age of 21. They also apply to youth who enter foster care for the first time at age 18 or older. AFDC Program Criteria: To continue to be eligible for federal foster care, a youth who remains in care must have met the Title IV-E requirements pertaining to income, assets, and living arrangements at the time of removal from the home of their parents or legal guardians (or others). States are not required to make redeterminations of AFDC eligibility for these youth. For a youth age 18 or older "entering or reentering care," eligibility is based on the youth without regard to the parents, legal guardians, or others in the home from which the youth was removed as a younger child. Removal from Home: Youth in extended care must also have entered care via a court order or voluntary placement agreement. The program instructions state that for youth who came into care before age 18 and remain in care after age 18, the court ordered removal or the voluntary agreement that was in place before age 18 still stands. The instructions also address removal criteria for youth who are age 18 or older. The instructions specify that (1) a court can make a determination about whether the home from which the youth was removed is "contrary to the welfare" of the youth, to the extent that the court has the jurisdiction to do so; or (2) the youth can sign a voluntary placement agreement as his or her own guardian, so long as it meets Title IV-E requirements for voluntary placement agreements. This provision is subject to the requirement that there be a judicial determination that remaining in care is in the child's best interest if Title IV-E payments extend beyond the first 180 days of the voluntary placement agreement. Placement and Care: The instructions also address the ways that state and tribal child welfare agencies can meet the placement and care rules for older youth—that is, with written authorization by the youth prior to reaching age 18; or through a voluntary placement agreement or court order for youth who have already reached age 18. Placement Setting: P.L. 110-351 permits youth in extended care to be placed in a supervised independent living setting or, like all younger children in care, in a licensed foster family home or child care institution. The program instructions state that HHS does not "at this time" have "forthcoming regulations" that describe the kinds of living arrangements considered to be independent living settings, how these settings should be supervised, or any other conditions for a young person to live independently. The instructions advise that states and tribes have the discretion to develop a range of supervised independent living settings that "can be reasonably interpreted as consistent with the law, including whether or not such settings need to be licensed and any safety protocols that may be needed." The instructions give examples of the types of settings that could be eligible for reimbursement, such as host homes, college dormitories, shared housing, and supervised apartments, among other settings. Child welfare agencies are to ensure that youth in supervised independent living settings have opportunities to form connections to caring adults, such as through guardianship arrangements, adoption, or living with caring adults. According to the program instructions, Title IV-E foster care maintenance payments, which must otherwise be paid to the foster care provider (i.e., the foster parent or child care institution), can be paid directly to a young person who is living in an independent living setting. States and tribes are further advised that they must apply "in a developmentally appropriate manner" the same case planning and case review requirements to youth in extended care as they already do for children under age 18. The program instructions explain that case plan and case review requirements for youth age 18 and older should address a youth's needs. For example, the case plan is to be developed jointly with the youth and include benchmarks that indicate how the youth and child welfare agency "both know when independence can be achieved." Further, periodic reviews (every six months) are to involve youth and focus on whether the youth is safe in his or her placement. States and tribes are also to make reasonable efforts to finalize a permanency plan every 12 months for older youth who were removed through a court-ordered placement agreement. According to the guidance, the permanency plan may reflect the goal of emancipation or independence and address the child welfare agency's efforts to prepare the young person for this goal. As allowed under law for children of any age in foster care, the court overseeing the child's case can make a determination regarding reasonable efforts to finalize a permanency plan without calling a court hearing, so long as an authorized member of the judiciary makes that determination. The program guidance goes on to advise that states and tribes that choose to extend care to youth who are ineligible for federal foster care are not required to fulfill the IV-E requirements, including those related to case planning and case review and certain data collection and reporting requirements, for these youth (although they must continue to do so for all children under the age of 18, or age 19 for children completing school). Given that children in foster care who are IV-E eligible are also categorically eligible for Medicaid, the guidance states that this eligibility is to be extended to youth who remain in care after age 18 (up to the age the state or tribe elects) and receive federal foster care maintenance payments. As of May 2014, nearly half (21) of jurisdictions had amended their Title IV-E state plans with the intent to extend the maximum age of foster care and submitted these plans for HHS to review. HHS had approved plans for 18 states (Alabama, Arkansas, California, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New York, North Dakota, Oregon, Tennessee, Texas, Washington, and West Virginia) and the District of Columbia, and was reviewing plan amendments for two other states (Connecticut and Pennsylvania). All states with approved plan amendments, except for Indiana and Nebraska, extend care until age 21; Indiana extends care to age 20 and Nebraska extends care until age 19. Nebraska enacted legislation in 2013 to extend care to 21, and HHS is reviewing this change. Except for three states—Tennessee, Washington, and West Virginia—jurisdictions with approved plan amendments allow youth to remain in care under the four conditions listed previously and exempt youth from these conditions if a youth is incapable of meeting them for medical reasons. Tennessee allows youth to remain in care so long as youth are in school or participating in a program to address barriers to employment, or are incapable of performing these activities for medical reasons. Washington and West Virginia limit this care to otherwise eligible youth who are completing high school or completing a program leading to an equivalent credential. In taking up the option to extend care, other states (and tribes) likely need to consider a number of factors: (1) the outcomes of youth who remain in care; (2) potential costs and benefits; (3) which youth are permitted to stay in care; (4) the role of the courts in overseeing extended care; (5) rethinking extended care; (6) the extent to which older youth can return to care after they initially leave; (7) the extent to which older youth in general can be placed in foster care settings after age 18; (8) the type of placements that qualify as independent living settings. The research literature on youth who emancipate from care—or stay in care beyond age 18—is scarce. The Midwest Evaluation is one of the few studies in this area. The study demonstrates that youth who remained in care as late as age 20 tended to have somewhat more positive outcomes, at least while they were still in care, than their counterparts who emancipated at age 18. The study examined outcomes for former foster youth in three states: Illinois, Iowa, and Wisconsin. These three states offered a natural experiment for comparing youth outcomes. Iowa and Wisconsin emancipated nearly all of their foster youth in the study by age 18, while approximately three-fourths of foster youth in Illinois who reached age 18 in care remained under the custody of the state until age 21. Remaining in care appeared to be associated with higher earnings and delayed pregnancy. The Midwest Evaluation found that while the young people in Illinois were less likely to be employed at age 21, likely due to being in school, each additional year in care after age 18 was associated with a $470 increase in average annual earnings. Average annual earnings for youth who remained in care longer increased by $924 after controlling for certain characteristics of the young adults (measured when they were age 17) that are likely to affect later earnings (e.g., work history, education attainment, mental health problems, and criminal behavior), as well as unobserved characteristics. Further, young people in Illinois were 38% less likely to become pregnant between ages 17 and 19. Although there was a reduction in the risk of pregnancy after age 19 for youth in care compared to their counterparts, this difference was not statistically significant. Youth in Illinois were also much more likely than their peers to have received a variety of transitional living services between ages 19 and 21, such as those services funded through the CFCIP. Some of the benefits of remaining in care appear to have faded two years after the youth in Illinois aged out. While the study found that by age 23 these young people were more likely to have completed one year of college, they were no more likely than their peers to have earned a two- or four-year degree. Researchers suggest that this could be because they lost access to the services and supports that made it possible for them to pursue their educational goals. In addition, these young people may have had to refocus their efforts on meeting their basic needs, like securing and maintaining housing. Further, even with assistance from the Chafee Education and Training Voucher (ETV) program and programs in some states that waive college tuition, these youth may not have necessarily received other support to help them in school, such as academic and social/emotional support. States face significant challenges in extending care, given the current fiscal environment and competing budgetary considerations. As part of a Government Accountability Office (GAO) review of state policies on extending federal foster care in 2014, 17 states that did not extend care cited budget constraints as the major factor for not doing so. In considering whether to extend care, the Jim Casey Youth Opportunities Initiative, an organization that seeks to assist youth transition from foster care to adulthood, suggests that states can do the following: (1) convene a planning group of critical stakeholders such as state child welfare agency staff, service providers, legal advocates, young people in care, and others; (2) review federal requirements and options (transition planning requirement and option to extend care to age 18, 19, or 20, among other provisions); (3) consider existing supports and services and seek input from young people; (4) reach agreement on key design issues (e.g., which youth are eligible, the settings in which they can live, and what type of case management and court oversight will be needed); (5) project costs and revenues; and (6) consider next steps. The advantages of youth remaining in foster care after age 18 appear significant, as demonstrated by the Midwest Evaluation (at least for youth who stay in care until age 21) and a small number of studies that hypothesize about the benefits and costs of extending care. These studies posit that extending foster care or providing intensive transitional living services can offset the costs that individuals or society would incur, such as in the form of admissions to state prison and welfare payments, in the absence of these interventions. One of these studies evaluated the cost to government and benefits to individual youth of extending foster care. Researchers calculated the costs of extending care based on the experience of Illinois in providing care beyond age 18 (as reported in the Midwest Evaluation) and data on public assistance receipt in Illinois. Based on the average length of stay in care beyond age 18 in Illinois—until approximately age 20, or two years total—researchers estimated the cost to be about $20,800 annually, or about $19,000 if the costs of providing certain public assistance to youth (if they did not remain in care) were subtracted. The benefits (to youth) of remaining in care were evaluated only in the context of additional wages that the youth could earn because remaining in care would enable them to attend at least some college. Based on several factors, the analysis found an average return of about $2 for every $1 spent on a youth remaining in care, which translates into an average of approximately $72,000 additionally earned over the course of the youth's lifetime. The analysis did not examine any cost to the state child welfare agencies or courts, such as the additional time caseworkers devote to these cases and hiring any additional child welfare and court personnel, among certain other cost considerations. In addition, the analysis did not examine the potential benefits to society of extending care, such as higher tax revenues and reductions in homelessness, as well as nonmarket benefits to former foster youth, such as improved personal and familial health choices. The cost of providing foster care to eligible youth after age 18 is likely be a consideration for most states. Based on administrative data, just under half of children meet the criteria to be eligible for federal foster care maintenance payments (this share varies greatly by state). With the exception of eligibility determination and certain data collection costs (both counted as administrative costs), state foster care expenditures may only be partially reimbursed by the federal government if incurred on behalf of Title IV-E eligible children and youth. As discussed in more detail above, a child or youth is eligible for Title IV-E if he or she (1) meets income/assets tests and family structure/living arrangement rules in the home he/she was removed from; (2) has specific judicial determinations made related to reasons for the removal and other aspects of his/her removal and placement; and (3) is placed in an eligible licensed setting with an eligible provider(s). Currently, the reimbursement rate for federal foster care maintenance payments is pegged to a state's Federal Medical Assistance Percentage (FMAP), which ranges from a low of 50% (for highest per capita income states) to as high as 73% (for lowest per capita income states). The reimbursement rate for program administration costs, including child placement activities is 50%; and the reimbursement rate for training costs is 75%. The federal government does not explicitly require that a state make foster care maintenance payments on behalf of children who are ineligible for federal foster care. Given the expense, states that choose to extend care may decide to cover only youth who are IV-E eligible. States are expected to pay the full costs for children and youth who do not meet the Title IV-E eligibility criteria, either out of state or local treasuries or, if allowable, some other federal funding source. Although permissible under law, extending care only to certain youth who meet the eligibility criteria established in the law may raise equity concerns. States that extend care to all youth beyond their 18 th birthday could in practice establish different levels of reimbursement for those youth who are Title IV-E eligible than for those who are not, and possibly different levels of services and supports. Federal law specifies that eligible youth may remain in care after age 18 if they undertake certain activities, such as by attending school; working part-time or full-time; participating in a program or activity designed to promote, or remove barriers to, employment; or having a condition that would preclude them from these activities. As noted earlier, HHS advises that states and tribes can make remaining in care conditional upon whether youth pursue certain pathways. Three states that seek federal reimbursement to extend foster care restrict eligibility based on certain activities. This could raise equity concerns if states and tribes preclude youth who have pursued other opportunities specified under the law. These youth may decide that college is not the right choice for them, or they may decide to work now and pursue college later. If states were, for example, to make extended care available only to those youth in post-secondary education, they may be reinforcing that only some youth should have the opportunity to stay in care. Youth who attend college may already be at an advantage relative to other youth in care who could not get into college or chose to work instead. Federal child welfare law provides state courts (including tribal or other court of competent jurisdiction) an important role in overseeing the safety and appropriateness of the child's placement and ensuring that each child has an appropriate permanency goal—regardless of whether the child is IV-E eligible and whether entry to care was via involuntary removal or a voluntary placement made by the parent or guardians. As mentioned, a case review must be conducted no less often than every six months by a judge or an administrative review panel in order to review the safety and appropriateness of the child's placement and to address the extent to which progress has been made toward addressing the reasons the child entered care, among related requirements. In addition, no later than 12 months after a child is removed to foster care, a permanency plan must be established for each child in care. This plan must be determined at a permanency hearing held in a court of competent jurisdiction or by a court-appointed/court-approved administrative body. Subsequently, the court or court-appointed/approved body must review the continued appropriateness of the permanency plan no less often than every 12 months for the child's entire length of stay in care. The court must consult with the child about the permanency plan in an age appropriate manner. HHS stipulates in its program instructions that case review system protections apply to all children under age 18 regardless of their IV-E eligibility and to those children in care age 18 and older who are IV-E eligible . In other words, children who are ineligible for IV-E would not necessarily be subject to this same court oversight. This appears to be consistent with "long-standing Departmental policy" that permits states to exclude from case review and other protections any child who has reached the state's age of majority (typically age 18) and was not receiving a Title IV-E payment. HHS program instructions also state that permanency hearings are not required for youth under a voluntary placement agreement; however, a case review must be conducted every six months. In states that choose to extend care to all youth beyond their 18 th birthday, this could, in practice, establish different levels of services and supports, depending on whether the child is IV-E eligible. For example, the requirements for background checks of foster parents and monthly caseworker visits may not be enforced for non-IV-E eligible youth. In addition, these young people may not have the same level of state (child welfare agency and court) oversight and supervision as IV-E eligible youth. Little may be known about the young people who remain in care and are IV-E ineligible, which may in turn preclude policy makers and others from determining whether the needs of all young adults in extended care are being met. A separate issue is whether juvenile courts have jurisdiction over cases involving children who legally become adults upon reaching age 18, and how hearings for older youth ought to be conducted. The American Bar Association (ABA), which represents the interests of legal professionals, has made recommendations to juvenile courts pertaining to older youth in care. The ABA recommends that states enact legislation to ensure that juvenile court involvement can continue beyond age 18, to ensure that the child welfare agency and others are accountable for carrying out the requirements of the law. The ABA also encourages courts to adopt procedures and modify hearings so that older youth in care are present and involved in their hearings. The ABA encourages young adults to be the "lead planner, and the central participant other than the judge, in their hearings." Some child welfare stakeholders articulate that foster care for youth age 18 and older must provide a different set of supports than these youth received at a younger age. Stakeholders have urged states to reconceptualize their current models for older youth in care and those who remain in foster care at age 18 and older. As articulated by the Jim Casey Foundation, an organization that seeks to promote the well-being of children and youth in foster care and those aging out: On the one hand, foster youth are eager to leave a foster care system that has not met their needs, yet they also may have considerable anxiety about the dramatic changes that can occur when they reach 18. They typically are expected to shift from ... having little say in their lives and being given few opportunities to practice making decisions to ... being largely on their own.... Young people in foster care are not given the opportunity to grow up gradually; they suddenly age out of a system.... Simply extending traditional foster care will not provide them with the developmentally appropriate supports and services that they need to become healthy and productive adults. Further, child welfare stakeholders call for extended care to have particular features. One such feature is that it is developmentally appropriate. This means that extended care is geared toward young adults as opposed to children, accounts for the trauma and loss young people have faced, and enables them to be engaged in decisions about their lives. Such an approach is based on emerging research about adolescent brain development, which shows that adolescents and young adults have a "second window" of neurological growth and development. This research suggests that young people take many years to transition to adulthood and need strong social supports as they make the transition. The research also emphasizes the need for youth to have opportunities to make and learn from mistakes and have meaningful opportunities to take on increasing responsibility. Another aspect of extended care is to assist young people in identifying and maintaining permanent connections while also developing the skills they need to have healthy relationships with family members, friends, and others. This approach emphasizes that young people should be the drivers of who they want to connect with. Overall, extended care may involve graduated levels of supervision and supports for young people in care. It may also involve redesigning case planning for these youth. For example, young people can take on specific roles and responsibilities at an earlier age. In addition, the case planning team can work closely with the young person to identify and provide experiences that lead to increased autonomy for him or her. Further, the case planning team also focuses on supporting the youth in building their social networks. Other research focuses on the factors that help young people remain in extended care. In a study by the Chapin Hall Center for Children at the University of Chicago, researchers identified the reasons a significant share of youth in some parts of Illinois do not remain in care despite the state's policies to retain youth beyond age 18. Child welfare services in the state are administered by the Department of Child and Family Services' (DCFS') four regional offices. In the Cook County region, which includes Chicago, over 81% of youth remain in care beyond age 18 (and nearly 60% until age 21), compared to the 54% of youth who are collectively retained in the three other regions (and about 15% to just over 40% until age 21, for each of the three regions).To determine the factors that influence whether some youth leave care before age 21, Chapin Hall evaluated administrative data, conducted a statewide survey of caseworkers, held focus groups with caregivers and youth, and interviewed court personnel across the state. The study identified five such factors: (1) some juvenile courts in the state play an active role in retaining youth by keeping their cases open, even with resistance from stakeholders—caseworkers, caregivers, youth, and court personnel—involved in the case; (2) stakeholders in the child welfare system did not have a uniform understanding of laws and DCFS policy that allow youth to remain in care until age 21; (3) in regions where caseworkers believed that there were few appropriate foster care placements for the oldest youth in care, youth tended not to stay in care after age 18; (4) youth who had stable and supportive relationships with adults—foster parents, relatives, caseworkers, or other professionals—tended to remain in care longer; and (5) youth attitudes about staying in care beyond the age of majority was identified as a challenge in keeping them in care, and youth often request to leave or become uncooperative because of the restrictions imposed by their case worker. Though Illinois is not necessarily representative of all states, these factors may be relevant to other states, particularly those that currently do not extend care beyond age 18, and have not yet had to address these issues. In states that extend foster care, youth age 18 or older who emancipate from foster care may later determine, prior to their state's optional older age, that they would like to return to care because of the challenges they face living on their own, or for other reasons. The July 2010 program instructions issued by HHS permit states and tribes to extend foster care assistance in a way that permits a youth to stay in care continuously or "leave care and return at some point after attaining age 18" (up to age 19, 20, or 21, depending on the state) so long as the original court order remains in effect and other IV-E eligibility criteria are satisfied. In a 2014 report on implementation of the Fostering Connections Act, the Government Accountability Office (GAO) examined the extent to which 19 states that elected to extend federal foster care enable young people to leave and re-enter care. All states reported having such policies. GAO further reported that in 12 of the 19 states, youth could stay in care under voluntary placement agreements. Youth who remain in foster care at age 18 and older may live in "a supervised setting in which the individual is living independently" for youth who remain in care after age 18 in states that take up the extended care option. The law directs HHS to clarify this phrase through the rulemaking process; however, HHS signaled in the July 2010 instructions that it does not plan to issue a regulation "at this time" on independent living settings. The instructions do not provide guidance on what independent living settings entail or how they should be overseen. Under such an arrangement, the child welfare agency continues to provide supervision. The parent or guardian is not the foster care provider to the youth and the youth has not been formally reunified. In the absence of further instructions on oversight of youth in these settings, states could establish very distinct protocols for supervising older youth in care. Regardless of setting, advocates and others have asserted that young adults in care should have the experience of learning "what it takes" to live as adults and manage their budget and other responsibilities, while still having the support of the state. States with foster youth in independent living settings would need to consider several issues: Should the child welfare agency purchase independent living units and/or contract with organizations that own such units? To what extent would the child welfare agency (or its contractor(s)) screen other youth and adults who live with youth in care? What share of the rent and utilities, if any, should youth cover? How often should case workers visit youth at the independent living setting, and where would the case worker visit the youth? To what extent would the youth be responsible if he or she violated the terms of a lease or damaged his or her placement? Can youth move to less or more restrictive independent living settings depending on their progress? Should the youth be directly provided with the maintenance payment to pay the landlord? For those youth who receive the maintenance payment, how should the state respond if the youth squanders the money? For youth who live in an independent supervised setting that is the home of their parent or guardian, what types of supports will be in place to help the youth with transitioning back into the home? In a 2014 GAO survey of 19 states that had extended care, all but two reported providing supervised independent living settings. States also reported challenges with finding appropriate housing options for these youth. States that extend care to youth age 18 and older have outlined which settings youth may live in. For example, in Minnesota youth can live in apartments, homes, dorms, and other settings. The state has explained that it is trying to determine how best to assist youth who pursue postsecondary education out of state, given that caseworkers must continue to meet with these youth at least once a month. Youth may live with roommates; the state does not allow youth to live with their parent(s) from whom they were removed or significant others. The state does not require independent living settings to be licensed, and each county is given discretion on how to handle background checks for roommates and any safety concerns at the independent living setting. Other provisions of the law address the connection of youth to caring adults, through adoption or placement with relatives. With limited exceptions, monthly federal (Title IV-E adoption and kinship guardianship) assistance has not generally been available for a child who has reached his or her 18 th birthday and who left foster care for a permanent family via adoption or kinship guardianship. However, as of FY2011, states and tribes that choose to provide adoption or kinship guardianship subsidies on behalf of eligible children who leave foster care after their 16 th birthday, so long as those youth have not yet reached their 21 st birthday and are enrolled in school, employed at least 80 hours a month, or participating in an activity designed to promote or remove barriers to employment. States and tribes may also cover an older youth with a medical condition that makes him or her incapable of participating in the activity and this incapacity is supported by regularly updated information in the child's case plan. In addition, a state or tribe is allowed to continue this assistance up to the 21 st birthday on behalf of any child, regardless of the age at which the child left foster care, if the state determines that "the child has a mental or physical handicap that warrants the continuation of assistance." (This was and remains true with regard to adoption assistance; P.L. 110-351 extended this, as of FY2011, to kinship guardianship assistance.) With regard to kinship guardianship, the child must have been "residing for at least six consecutive months in the home of the prospective relative guardian," among other requirements. HHS's July 2010 program instructions direct states that opt to extend foster care beyond age 18 to provide adoption and kinship guardianship subsidies to youth age 18 and older, up to the age the state has elected. The instructions advise that the term "relative" for purposes of kinship guardianship assistance can include biological and legal familial ties or refer more broadly to tribal kin, extended family and friends, or other "fictive" kin. States and tribes are further advised that they may establish conditions under which a person may qualify to be a child's guardian or enter into a legal guardianship arrangement. For example, such conditions can include requiring a child to be in care for more than a six-month period, and targeting certain age groups for guardianship, such as children over age 12. The Chafee Foster Care Independence Program (CFCIP) funds services to assist youth who are expected to emancipate from foster care. As enacted by the Foster Care Independence Act of 1999 ( P.L. 106-169 ), the purposes of the CFCIP are to identify youth who are likely to remain in foster care until age 18 and provide them with support services to help make the transition to self-sufficiency; assist these youth in obtaining employment and preparing for and entering postsecondary training and educational institutions; provide personal and emotional support to youth aging out of foster care through mentors and other dedicated adults; enhance the efforts of former foster youth ages 18 to 21 to achieve self-sufficiency through supports that connect them to employment, education, housing, and other services; and assure that these former foster youth recognize and accept personal responsibility for preparing for and then making the transition from adolescence to adulthood. P.L. 110-351 explicitly enables states and tribes to provide independent living services to youth who leave foster care after attaining age 16 for placement in an adoptive home or with a legal kinship guardian. The Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), signed into law on September 30, 2014, added a purpose area to the Chafee program that is effective one year after the law's enactment—to ensure children who are likely to remain in foster care until 18 years of age have regular, ongoing opportunities to engage in age- or developmentally appropriate activities. The CFCIP is a capped entitlement with an annual ceiling set at $140 million. States and tribes are entitled to an amount based on their share of the nation's foster care population, in the most recent year for which information is available. However, no state may receive less than the greater of $500,000 or the amount received by the state in FY1998. States must provide a 20% match. With funding from the CFCIP and other sources, states have developed independent living programs consistent with the purposes of the law. These programs provide direct services to youth such as housing, career exploration, education services, preventative health activities, counseling, mentoring, training in financial management, and other services. To be eligible for CFCIP funds, states and tribes must describe in their five-year Child and Family Services Plan how they will carry out their independent living program. Among other things, they must ensure statewide coverage (although not necessarily uniform) of the program and ensure that the program serves children of various ages and at various stages of achieving independence. States and tribes must also certify in their plans that they meet certain requirements pertaining to the youth served and how funding will be spent. For example, no more than 30% of program funds may be used for the room and board of youth ages 18 to 21. Separately, the Chafee Education and Training Voucher Program (ETV) was authorized by the Promoting Safe and Stable Families Amendments of 2001 ( P.L. 107-133 ) for children who have emancipated from care or were adopted from care at age 16 or older. P.L. 110-351 also permits youth who leave foster care for guardianship at age 16 or older to be eligible. Congress authorized $60 million in discretionary funds for the program, which is allocated to states based on their relative share of the foster care population. Congress has appropriated approximately $45 million each year for the program. The program authorizes vouchers worth up to $5,000 annually per eligible youth for the cost of full-time or part-time attendance at an institution of higher education, as defined by the Higher Education Act of 1965. "Cost of attendance" refers to tuition, fees, books, supplies, equipment and materials, room and board, and related expenses. Students are eligible for the vouchers if they are in good academic standing and making progress toward completing their program or graduating, though states may have additional requirements. Only youth receiving a voucher at age 21 may continue to participate in the voucher program until age 23. P.L. 110-351 explicitly authorizes states to provide independent living services to youth who have left foster care under a permanent arrangement before reaching age 18, either by adoption or kinship guardianship, in addition to the traditional CFCIP population of foster youth who age out without a permanent home. This means that independent living services—with their focus on connecting youth to school, work, and other resources—may be available to these youth until they reach age 21. States currently provide CFCIP services to youth "likely to remain in foster care until age 18," and they have broad discretion in defining this term. Going forward, as states prioritize which youth to serve in the program, they may need to determine whether independent living programs have the capacity to serve any additional youth. In addition, states will need to determine how to fulfill the purpose that addresses youth participating in age- or developmentally appropriate activities. This purpose area will go into effect in FY2016, before new mandatory funding is available under the program (in FY2020). Child welfare law, as amended by P.L. 110-351 , requires that a youth's caseworker, and as appropriate, other representative(s) of the youth, assist and support him or her in developing a transition plan. The plan is to be directed by the youth, and is to include specific options on housing, health insurance, education, local opportunities for mentors, workforce supports, and employment services. The plan must be implemented 90 days prior to a youth's 18 th birthday (or the 19 th , 20 th , or 21 st birthdays of youth in states that take up the option to extend foster care), "whether during that period foster care maintenance payments are being made on the child's behalf or the child is receiving benefits or services under [the Chafee Foster Care Independence Program]." The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148 ), added another element to the transition plan. The law requires that the plan must address the importance of designating another individual to make health care treatment decisions on behalf of the youth if he or she becomes unable to participate in these decisions and does not have a relative who would be authorized to make these decisions under state law, or he or she does not want a relative to make these decisions. In addition, the transition plan must provide the youth with the option to execute a health care power of attorney, health care proxy, or other similar document recognized under state law. The transition plan is distinct from a case plan , which is required for every child and youth in foster care, but the two would appear to be somewhat complementary. The case plan is implemented and modified as needed while the youth is in care. In the case plan , the child welfare agency must describe in a written document the youth's placement and a plan for ensuring the youth receives safe and proper care, among other items. For youth ages 16 or older, the case plan must also address the programs and services that will help the youth make a successful transition to adulthood "where appropriate." In contrast, the transition plan is to include options about the services and supports that the youth may receive (presumably) when he or she is no longer in the custody of the state or receiving CFCIP-funded independent living services. Further, the transition plan requires that youth and other stakeholders identify specific options that will help youth live independently. For example, the plan must specify which type of housing options the youth will have (and presumably alternative options if housing is not available). The transition plan must also be directed by the youth in consultation with others, and can be as detailed as the youth would like. Finally, the case plan is reviewed by a court as part of annual hearings to review the youth's (or child's) permanency goal(s). The transition plan is not reviewed by a court or other body. The July 2010 program instructions issued by HHS on P.L. 110-351 provide additional guidance on the transition plan. The instructions encourage child welfare agencies to use transition planning to build on earlier efforts to assist young people in making the transition from foster care, including through the case planning process and permanency hearings. Child welfare agencies are encouraged to begin engaging youth in the transition plan process "well in advance" of the 90-day period. The July 2010 program instructions state that the transition plan is not required for a youth who leaves foster care more than 90 days before his or her 18 th birthday, or an older age in states that elect to extend care. This raises questions about those youth who emancipate at any earlier age. Thousands of youth emancipate from care at age 17, raising the possibility that without a transition plan, they could leave care less prepared than their peers in care who are emancipated at ages 18 or older. (These youth might also be less likely to benefit from the Medicaid pathway for emancipated youth, who must have been in care on their 18 th birthday to be eligible for this pathway, effective in 2014.) Similarly, states and tribes would not necessarily help develop transition plans for youth who remain in care beyond age 18 but leave at least 90 days before reaching age 19, 20, or 21 (depending on the state). Those in the field of social work have begun to develop guidance on how to carry out a transition plan. This guidance emphasizes that the plan should engage youth and stakeholders in a process, and not serve solely a checklist of skills, and further that the transition planning process should focus on helping the youth achieve permanency with caring adults that will provide lifelong and possible legal relationships to youth. The guidance stresses that plans should be developed with the strengths of the young people in mind; be directed by the youth to ensure they actively participate in the process; and encourage service providers and those closest to the youth to share information and jointly help the youth in planning for their future; among other principles. In a 2014 report, GAO found that states have adopted policies to engage youth in the transition planning process and providing essential supports as part of the transition from foster care. For example, of 53 jurisdictions nearly all (49) require that youth input on the plan is documented and that the plan includes ensuring that youth have key documents (e.g., birth certificate). Further, 35 jurisdictions require that the transition plan is separate from other transition planning efforts, such as plans developed in connection with permanency hearings. Over half (28) of jurisdictions require a transition planning specialist or outreach worker to assist the youth with the plan. Nonetheless, several jurisdictions reported challenges with transition planning, including a lack of staff training or time to effectively engage youth in transition planning (21 jurisdictions), identifying and engaging supportive adults from the youth's life in the transition planning process (21), and identifying appropriate housing for youth transitioning from care (31). Some states, including Hawaii and Nebraska, have developed transition planning processes that provide detailed directives about engaging youth and others who are involved in these processes. In Hawaii, youth and others hold transition planning "circles" to celebrate the young person becoming an adult and assisting the youth plan for their future. These conferences are intended to be driven by the youth and to draw on the youth's support system to generate options and resources that help the youth make decisions about their future and meet their goals. They include specific options that are outlined in federal law, as well as options for transportation and spirituality. Foster Club, an advocacy organization for youth in foster care, has developed a transition planning kit for older youth in Nebraska. It specifies the roles of the transition plan team and courts in oversight. It also includes a transition proposal checklist that is revisited six months after it is initially created, and again 90 days before the youth ages out. In addition, it includes what is referred to as a "permanency pact," whereby youth consider which individuals can assist them as they transition and the specific types of supports they may be able to provide (e.g., a place to spend the holidays, job search assistance, assistance with medical appointments, co-signer, emergency cash, inclusion in social circle/community activities). Even with the passage of P.L. 110-351 , policy makers and child welfare advocates remained concerned that older foster youth and those who have aged out face challenges as they transition to adulthood. The Midwest Evaluation and other research demonstrate that youth have difficulty in fostering permanent connections with caring adults, securing health insurance and housing, and staying connected to work and school. Further, little is known about youth as they transition from foster care and the effectiveness of the services they receive, although a new national database will likely provide some insight into their outcomes across a number of areas, such as education, employment, and contact with social service and criminal justice systems. Finally, a recent focus of Congress has been on increasing protections for children who are vulnerable to going missing from care, or may go missing, and responding to youth in foster care who may be vulnerable to sex trafficking or have been victims of sex trafficking. The Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), enacted in September 2014, seeks to address some of these issues. The Midwest Evaluation shows that youth who aged out of foster care are less likely to have permanent, positive relationships with caring adults, and that youth continue to remain in close contact with their biological families after emancipating. Still, they also appear to be estranged from these family members. The Midwest Evaluation on the Adult Functioning of Former Foster Youth, a study that is tracking young people who emancipated from care in three states, shows that at age 26, these youth were more likely than their peers to be married (35.7% vs. 26.1%) and much less likely to live with their parents (3.9% vs. 17.2%). Further, about half or less than half of alumni reported being "very close" or "somewhat close" to their biological mother (52.0%), biological father (30.8%), grandparents (46.2%), or "other relatives" (38.8%). (Comparable data were not reported for youth generally.) This suggests that a significant share of former foster youth in the study did not have strong relationships with at least some of their relatives after having been out of care for a few years. Despite federal protections to ensure that child welfare agencies help youth plan for their futures, child welfare practitioners and young people in care continue to advocate for additional policies that improve the transition to adulthood by encouraging strong, long-term connections to caring adults. They argue that these connections can help youth achieve more successful outcomes by providing emotional, financial, and other support. In some jurisdictions, the child welfare agency plays an active role to ensure permanent adult connections for youth aging out. According to practitioners, permanency can mean different types of relationships for a youth in foster care, but generally refers to a connection with at least one committed adult who provides a safe, stable, and secure relationship, unconditional commitment, and a legal relationship where possible. Practitioners point out that relationships can be developed by (1) reconsidering whether youth can achieve permanency without resorting to the case goal of "another planned permanent living arrangement (APPLA); (2) helping youth identify permanent connections through the case planning and transition planning processes; (3) assisting youth, up to their early twenties, pursue adoptive relationships with adults; and (4) helping youth develop relationships with caring adults such as teachers or mentors. Child welfare researchers advise that practitioners should be cautious in designing and implementing policies that help foster youth develop lasting connections with adults. For example, young people in care have experienced failed relationships with adults who were supposed to care for them, and youth could be harmed if they form unsustainable relationships with other adults. Further, as the Midwest Evaluation and other studies have shown, youth who age out tend to have regular contact with their biological family. Little research has been conducted on how best to facilitate healthy relationships between foster youth and their family members. Advocates have urged policy makers and practitioners to require that permanency planning be initiated before a youth leaves care. This could be achieved through the case planning process. At a child's annual permanency hearing, the judge must determine the permanency plan (or goal) for the child, including, as appropriate, (1) returning home, (2) referral for adoption and termination of parental rights (TPR), (3) guardianship, or (4) placement with a "fit and willing" relative. If none of these goals is possible or appropriate, "another planned permanent living arrangement" (APPLA) may be selected. In selecting APPLA, states must document a "compelling reason" for determining that the other case permanency goals would not be in the child's best interests." APPLA was added to the statute as part of reforms enacted in the Adoption and Safe Families Act (ASFA) of 1997, in which advocates sought to address concerns that long term foster care (a previous placement option) is not stable and can lead to frequent moves for a child. Advocates envisioned APPLA as a permanent arrangement for a child and "not a catchall for whatever temporary plan is needed when none of the preferred permanency plans are practical." According to advocates, a permanency plan with APPLA should involve a specific adult or couple, as opposed to an organization, who will care for the young person; likely live with him or her; and have a permanent and caring role in the child's life. Since ASFA's enactment, concerns have been raised by child welfare advocates and others that APPLA has been used as a replacement for "foster care on a permanent or long term basis" and that APPLA has become a default permanency goal for some children in foster care. They caution that certain settings, such as group care, should not be pursued unless there is clear evidence that the young person would not be able to function in a family before reaching the age of emancipation. In December 2010, the Senate Caucus on Foster Youth, co-chaired by Senators Grassley and Landrieu, issued a white paper that drew on a series of meetings held with foster youth and other stakeholders to discuss policy and practice changes that could improve outcomes for children in foster care. The executive summary noted that while permanency is a goal for all children in foster care, "too often" the goal was not attained and, further, that youth reported not always understanding what permanency meant. Among a wide range of policy options, the white paper included two that were directly related to APPLA. These were to (1) eliminate APPLA as a case plan goal entirely, or (2) make APPLA available only to older teenagers in care but "only after efforts at intensive family finding have been undertaken, and only if APPLA is determined or re-determined necessary by the court at each permanency hearing held with regard to the youth." The Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ) incorporates some of the recommendations made in the white paper. The law stipulates that no child under the age of 16 may have a permanency plan of APPLA. Generally this requirement is effective one year after the bill's enactment, although for children in foster care who are under the responsibility of an Indian tribe the effective date is three years after the bill's enactment. The law requires that if a child is assigned a permanency plan of APPLA, the state must meet additional requirements for the child as part of the child's annual permanency hearing and, separately, as part of the periodic review (every six months) of a child's status in foster care. These requirements are designed to ensure that the state child welfare agency continues to look for a permanent family for children with an APPLA designation, that the court continues to revisit whether APPLA is an appropriate permanency plan for the child, and that the child is consulted about his/her desired permanency outcome and ability to participate in age- or developmentally appropriate activities. The transition plan requirement may be one way to help ensure that youth are fostering permanent connections in adulthood. The requirement directs youth and other stakeholders to consider local opportunities for mentoring. This could mean that, at minimum, youth and others have a conversation about the relationships the youth can forge as they leave care. Further, as proposed in previous Congresses, changes could be made to federal child welfare law to assist youth achieve permanency. For example, written case plan requirements could be amended to include the steps taken to ensure that a child has a permanent living arrangement if they emancipate, and for older youth, documentation of the permanent living arrangement the youth will enter after foster care. Further, the case plan requirements could include documentation of the steps the agency takes to find a permanent placement with a family or other adult connection for the youth, as well as a permanent living arrangement. As part of its 2014 report on implementation of the Fostering Connections Act, GAO surveyed states about their transition planning process and found that 36 jurisdictions (including the District of Columbia) require that it includes intensive efforts to ensure young people have adult connections if these connections are not already established. Some transition processes in particular focus heavily on permanent connections. During the transition process in Texas, youth receive assistance in determining which caring adults can provide them support when they leave care. As part of the youth's case plan, a youth is asked to identify someone who is over age 18 and not necessarily a placement option, but will provide consistent and significant support and help the youth make important decisions and work through emergency situations. As mentioned, Foster Club's Permanency Pact is intended to help youth aging out connect with caring adults. The pact is a tool that can be used to "define, substantiate, and verbalize" a lifelong commitment of an adult to a youth leaving care. The pact seeks to ensure that the young person leaving care has emotional and tangible supports. Other efforts to support permanency have focused on adoption for older youth. Beginning in 2005, HHS funded a five-year pilot demonstration project to support adoption for older youth, known as Adoption Opportunity Grants. Two of the multiple purposes of the grants were to demonstrate effective strategies of open adoption for youth who prefer to maintain contact with their biological families, and to demonstrate effective implementation strategies for securing permanent connections for youth, particularly through adoption, open adoption, guardianship, and kinship care. The grants funded 10 projects throughout the country. Other changes could be made at the federal level to achieve permanency for current and former foster youth. For example, federal grants could be funded to provide mentoring. The Department of Justice has provided funding to a small number of grantees for mentoring teens in care. Legislation has also been introduced in Congress that seek to permanently authorize funding for grants that provide mentoring to foster children. The bills have proposed to authorize grants to states and other entities to support, establish, and expand networks of public and private community entities to provide this mentoring. State and local child welfare agencies are responsible for carrying out child welfare policies that are intended to promote the safety, well-being, and permanency of all children. Child victims of sex trafficking may come to the attention of the child welfare agency if they are reported to the agency's child protective services (CPS) hotline. In addition, children in foster care—who are typically placed out of their homes due to abuse or neglect by their parents or caregivers—may be vulnerable to trafficking. Youth who run away from foster care are perceived to be especially susceptible to this type of victimization. The capacity for state and local child welfare agencies to respond to the needs of sex trafficking victims is believed to be limited. This may be due, in part, to inadequate training, insufficient resources, high caseloads, and the perception that victims should be handled in the juvenile justice system. In addition, states may not have mechanisms in place to "screen in" cases involving children who are sex trafficked because the perpetrator involved is not the child's parent or caregiver as these terms are defined under state law. As part of its report on child sex trafficking, the National Academy of Sciences recommends, among other items, improving collaboration and information sharing across multiple sectors such as the federal government, state and local governments, academic and research institutions, foundations and nongovernmental organizations, and the commercial sector. In the 113 th Congress, the House Ways and Means Subcommittee on Human Resources and the Senate Finance Committee held hearings about child sex trafficking and the opportunities and challenges for child welfare agencies to respond. Witnesses testified about how children become victimized and the strategies that selected child welfare agencies have taken to recognize and combat child sex trafficking. These hearings and other efforts culminated in passage of the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ). The act amends the Title IV-E foster care program to require state child welfare agencies to develop and implement procedures to identify, document in agency records, and determine appropriate services for certain children or youth who are victims of sex trafficking, or at risk of being such victims as defined under the Trafficking Victims Protection Act. The procedures must be developed in consultation with state and local law enforcement, juvenile justice systems, health care providers, education agencies, and organizations with experience in dealing with at-risk children and youth. The procedures must also ensure relevant training for caseworkers. The law provides that these procedures need to be developed within one year of the bill's enactment (on September 30, 2014) and implemented within two years of that date. Further, no later than two years after the enactment of P.L. 113-183 , the law requires state child welfare agencies to report to law enforcement authorities immediately, or in no case later than 24 hours, after they receive information about child or youth victims of sex trafficking. Additionally, within three years of the law's enactment, state child welfare agencies are required to annually report to HHS the total number of children and youth who are sex trafficking victims. HHS in turn is required, within four years of that date, to annually report to Congress and the public (via the HHS website) the total number of children and youth who are reported by state child welfare agencies as victims of sex trafficking. P.L. 113-183 also directs HHS to submit a written report to Congress, no later than two years after enactment of the bill, summarizing demographic information and discussing state efforts to provide specialized services, foster family homes, child care institutions, or other forms of placement for children who are victims of sex trafficking, and related requirements. Under the law, HHS must also establish the National Advisory Committee on Domestic Sex Trafficking and to appoint all members of the committee (in consultation with the Attorney General) within 180 days after the bill's enactment. The committee is charged with advising the HHS Secretary and the Attorney General on policies concerning improvements to the nation's response to domestic sex trafficking of minors from the child welfare system and developing recommended best practices for states to follow in combating the domestic sex trafficking of minors, among other responsibilities. Congress may wish to monitor how states implement these requirements when they go into effect one to four years after the law's enactment. Some considerations include (1) the type of guidance and technical assistance HHS provides states to make them aware of the child welfare agency's role in responding to child sex trafficking, (2) whether states are serving youth who are not or were not previously in foster care, (3) how many victims are reported by state child welfare agencies to the federal government, and (4) any best practices that have been identified for serving these victims. In addition, state child welfare agencies are required to serve only children and youth victims (or possible victims) who are already in the child welfare system, and not necessarily those who may come to the attention of the agency as a victim. As Congress examines implementation of the new law, it may wish to consider the extent to which state child welfare agencies should take on responsibilities to screen in victims (or possible victims). Pending legislation (including H.R. 5081 , passed by the House in July 2014) would require state child welfare agencies to have procedures in place to identify and assess reports involving children who are sex trafficking victims, and train child protective services (CPS) workers to identify and assess child victims of sex trafficking, among other changes. Children who are removed from their parents or guardians and placed in foster care homes because of abuse and neglect may go missing. Federal law and policy have generally provided limited guidance to states on serving children missing from care, and the focus of this guidance is exclusively on children who run away from their placements. Further, the federal Runaway and Homeless Youth program and the Missing and Exploited Children's program do not target services and supports specifically for children in foster care. Some child welfare stakeholders have sought a more uniform and robust response to children missing from care. In an unpublished survey from 2004 conducted by the Child Welfare League of America (CWLA), a child welfare organization, many states reported that they had policies and procedures in place to prevent children from going missing from foster care or recovering them when they do. Still, it is unclear the extent to which these states carry out the policies they have established and whether implementation differs across jurisdictions within states. The recently enacted Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ) provides a directive to state child welfare agencies on children missing from care. It focuses on responding to children who go missing and directing the child welfare agency to involve other entities when a child goes missing. Specifically, the law requires the state child welfare agency (as part of its Title IV-E plan) to develop protocols for (1) expeditiously locating any child missing from foster care; (2) determining the primary factors contributing to the child running away or otherwise going missing from care and responding to those factors in the current and subsequent placements of the child; (3) learning about the child's experience while absent from care, including determining if the child is a possible victim of sex trafficking; and (4) reporting any related information as required by HHS. These protocols must be developed and implemented within one year of the law's enactment. P.L. 113-183 further requires state child welfare agencies to report information it receives on missing and abducted children or youth to the National Center on Missing and Exploited Children (NCMEC), a federally funded resource center on missing children, and to law enforcement authorities for inclusion in the Federal Bureau of Investigation's (FBI) National Crime Information Center (NCIC) database. Children missing from care raise several issues about the role of child welfare agencies and the federal government in responding to these cases. For example, child welfare agencies may need to examine larger issues that may play a role in whether a child goes missing. Best practice guidelines issue by the Child Welfare League of America (CWLA) in 2005 recommend that state child welfare agencies have certain procedures and policies in place, such as (1) recruit, retain, and train a sufficient and competent workforce and maintain caseload standards that permit workers to perform the duties necessary to achieve successful outcomes; (2) include youth, birthparents, extended family, tribal members, and caregivers in all decision making as appropriate; (3) examine the structure and operation of foster and group homes, residential facilities, or agencies that display higher rates of runaways; and (4) implement remedial action if necessary to correct the structural and operational deficiencies that cause or contribute to running behavior of children in care. Another consideration is how states define missing, and whether to report all missing children to law enforcement agencies. For example, at least a couple of states define "missing" to include children whose whereabouts are known but are not at their foster care placements. This raises questions about whether children who are missing, including those whose whereabouts are known, ought to be reported to law enforcement. States could restrict reporting children who are missing from care to circumstances where law enforcement can be most helpful. This may be necessary because law enforcement agencies often have competing demands from other pressing public safety threats, and smaller law enforcement agencies may not have dedicated staff for missing persons cases. Further, law enforcement agencies may choose not to respond as vigorously to certain types of missing incidents such as frequent runaways, due to a variety of factors such as competing demands, the time it takes to process paperwork and transport juveniles, the frustration of runaway cases involving juveniles who do not want to return home, and the likelihood that juveniles will run again. Nonetheless, even children and youth whose whereabouts are known may still be at risk of endangerment. A related issue is the extent to which coordination between the child welfare agency and law enforcement and the courts can help prevent children from going missing. Federal child welfare policy provides some general requirements related to child welfare agency work and courts and law enforcement. None of these are provided necessarily in the context of children missing from care but they might be a starting point for any needed collaboration. The CWLA Best Practices guidelines, and the guidelines written by NCMEC, encourage law enforcement agencies and child welfare agencies to delineate roles and share clear, consistent definitions of missing children. Finally, little is known about children missing from foster care. Currently, state child welfare agencies must report to HHS, via the reporting system known as AFCARS, on the number of children who run away from their foster care placement settings and have not returned as of the last day of the six-month reporting period, and children who remained in that runaway status when they were discharged from foster care (i.e., exited care). AFCARS does not have a separate reporting category for children who may go missing for other reasons, such as abductions or negligence by the child welfare agency. To enable states to identify and work to locate children who are no longer living where they were placed by child welfare agencies, states may need to more completely track these children. For example, they might also need to identify and count those children who were abducted or are otherwise missing. Child welfare stakeholders have raised concerns that child welfare agencies may limit the opportunity for foster youth to participate in "normal," age-appropriate activities because of policies that prioritize safety above other considerations. At a House Ways and Means Subcommittee hearing on balancing safety with opportunities to let foster youth have normal experiences, witnesses testified about the restrictions foster youth face. For example, they may be prevented from having sleepovers at the homes of their friends, dating, using the phone, obtaining a driver's license, driving a vehicle, working, going on school trips, and participating in sports. Or youth may be able to participate in these activities only after friends' parents (or other adults such as chaperones and coaches) have been subject to background screenings. Witnesses asserted that youth naturally also want to take on more risk as they test out their independence, and their behaviors may put them at risk of injury. One witness explained that changes in brain development during adolescence often mean that teenagers exhibit more risk taking behaviors: "[B]ecoming an adult and taking on adult responsibilities involves taking on risks ... [A] teenager's brain is literally primed for risk-taking since chemicals in the brain that act to link such action to pleasure are shifting during adolescences." Prior to the enactment of the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), few federal child welfare provisions specifically addressed efforts to promote normalcy for youth in foster care. P.L. 113-183 includes several such provisions, and Congress will likely be interested in monitoring how the law is implemented when the provisions generally go into effect one year after the law's enactment. For example, the law established a "reasonable and prudent parenting" standard under which foster parents and other caregivers apply knowledge and skills necessary to make decisions that enable children and youth in care to participate in age and developmentally-appropriate activities. HHS must help states identify best practices for assisting foster parents in using the standard. The law also requires child welfare agencies to provide training to prospective foster parents on children's developmental stages and on how to apply the reasonable and prudent parent standard when determining whether a foster child's participation in school or other social, extracurricular, or cultural activities (e.g., sports teams, field trips, overnight events and related transportation) is age- or developmentally-appropriate. States are further required to revise their licensing standards for foster family homes and child care institutions to reflect provisions around normalcy, among other related changes. A major concern for youth aging out of foster care is the lack of adequate and affordable housing. Several studies have examined rates of homelessness among former foster youth, and the share of youth reported homeless varies from 11% to 36%. The studies were conducted using differing methodologies, localities, length of time since exit, and other variations. The Midwest Evaluation, which has examined outcomes of foster youth in three Midwestern states, found that 24% of 23-year-olds reported being homeless at least once since exiting care. Some youth have also couch surfed, wherein they do not have permanent housing and stay at the homes of family and friends. Estimates of emancipated youth who couch surf range from one-quarter to one-half. The housing status of former foster youth is often affected by individual characteristics (e.g., their lack of financial supports and ties to family members and other caring adults, early parenthood, and involvement with the juvenile justice system); their involvement with the child welfare system (e.g., lack of preparation in making the transition to adulthood and lack of coordination with other systems that may be able to assist young people in securing housing); and the housing market (e.g., ability to secure affordable housing). Youth who lack housing may have difficulty staying in school and/or maintaining employment. Although the CFCIP authorizes states to spend up to 30% of their allotment on room and board for youth ages 18 to 21 who emancipate from care, child welfare researchers point out that these funds alone cannot adequately cover the cost of housing for many former foster youth. Nonetheless, former foster youth may have access to housing programs operated by nonprofit organizations, sometimes in combination with a housing developer or property management agency. In a review of nearly 60 housing programs for former foster youth in 21 states and the District of Columbia, researchers found that these programs provide housing options that include single-site locations (e.g., apartments in one building), scattered-site locations (e.g., housing provided by different landlords throughout a community), and host homes (e.g., homes hosted by a foster family or other adults). Most of the programs focused on providing independent living supports to former foster youth and required the youth to be working or in school. None of the programs have been rigorously evaluated to determine if they prevent homelessness or reduce housing stability, or otherwise have helped young people achieve positive outcomes such as attainment of a high school diploma. In addition, youth who live in states that take up the extended foster care option under P.L. 110-351 can be housed in a foster home or independent living setting. Still, states that extended care report challenges with finding appropriate housing options. Another housing issue concerns current and former foster youth in college who are unable to stay with family or friends over school breaks, when college facilities are often closed. Some states require public universities to provide housing for these youth. For example, California law requires that the California State University system and the community college system, "review housing issues for those emancipated foster youth living in college dormitories to ensure basic housing during the regular academic school year, including vacations and holidays other than summer break." The Higher Education Act (HEA), as amended, seeks to address some of these housing concerns by authorizing services specifically for youth in foster care or recently emancipated youth, including housing services, among other related changes. The law authorizes services for these youth (and homeless youth) through Student Support Services—a program intended to improve the retention and graduation rates of disadvantaged college students—that can include temporary housing during breaks in the academic year. HEA further allows additional uses of funds through the Fund for the Improvement of Postsecondary Education to establish demonstration projects that provide comprehensive support services for students who were in foster care (or homeless) any time before age 13. As specified in the law, the projects can provide housing to the youth when housing at an educational institution is closed or unavailable to other students. Nevertheless, authority to fund housing during breaks does not mean that universities and colleges will necessarily use funds from the two programs for this purpose. Separately, federal law enables owners of properties financed in part with Low-Income Housing Tax Credits (LIHTC) to claim as low-income units those units occupied by low-income students who were in foster care. Owners of LIHTC properties are required to maintain a certain percentage of their units for occupancy by low-income households; students (with some exceptions) are not generally considered low-income households for this purpose. The law does not specify the length of time these students must have spent in foster care nor require that youth are eligible only if they emancipated. In its February 2008 report on disconnected youth, the U.S. Government Accountability Office defined this population as individuals ages 14 to 24 who are not in school and not working, or lack family or other support networks. As identified in the report, youth in care and certain other groups of youth are at greater risk of becoming disconnected from employment and education. Young people who have aged out of care tend to have low rates of employment and low earnings. One study of youth who emancipated in three states—California, Minnesota, and North Carolina—linked child welfare, Unemployment Insurance (UI), and public assistance administrative data to determine the employment outcomes of these young people. At age 24, about three out of five youth who aged out in the three states were working, a rate lower than that of youth nationally and youth from low-income families. These young people were also less likely to earn as much as their counterparts. The average monthly earnings for emancipated youth in all three states were substantially lower than earnings for youth nationally, who earned $1,535 a month on average. On the education front, young people in care or who have aged out face numerous challenges. While in care, youth tend to experience multiple school placements, delays in enrollment, loss of academic credit, and lack of a consistent education advocate who is knowledgeable about their needs in the special education process, among other challenges. Foster care alumni, even those who remain in care beyond age 18, are far less likely to attend college. The Midwest Evaluation demonstrates that by age 26, only about 7% of youth who aged out of care in three states attained an associate's degree or bachelor's degree. About one-third of the general youth population had the same. This suggests that young foster care alumni may need additional supports to facilitate completing their education. For example, they may benefit from academic, social/emotional, and logistical support, including year-round housing. Federal child welfare law addresses the educational needs of youth who are in or were in foster care. State child welfare agencies are required to also give assurances in each child's written case plan that when selecting a child's placement in foster care, the agency had taken into account the setting's proximity to the school in which the child was enrolled at the time of placement in foster care. The law also stipulates that a state child welfare agency must include certain education-related records in the child's case plan (i.e., names and addresses of educational providers, grade level performance, and school and immunizations records). Further, state child welfare agencies must work with relevant state and local education authorities to ensure that a child remains in the same school in which he or she is enrolled at the time of foster care placement, or, if this is not in the best interests of the child, to ensure immediate and appropriate enrollment for the child in a new school. To help support this requirement, the law permits states to claim federal funding for the cost of transporting children to their "school of origin" at the same reimbursement rate that is provided for foster care maintenance payments. Separately (under the Title IV-E plan), the law requires states to assure that children who have reached the minimum age for mandatory school attendance in their state, and who are receiving federal foster care maintenance payments, adoption assistance, or kinship guardianship assistance, are enrolled in school or have completed high school. Finally, educational records must be reviewed, updated, and supplied to a child's foster care parent (or other foster care provider) at the time of each foster care placement. Federal agencies are collaborating to address the multiple needs of vulnerable youth populations, including the education needs of current foster youth. The U.S. Departments of Health and Human Services and Education convened a summit in November 2011 that brought together state teams representing education and child welfare agencies, along with the judicial branch, to discuss how best to promote educational stability and improve educational outcomes for children in foster care. Teams were charged with creating a plan for collaborating across systems that were to be implemented following the conference. Despite this collaboration, federal education law does not address the educational needs of children in foster care. Recent legislation seeks to improve access to education for children and youth in foster care via federal education statute. For example, S. 1094 (a bill reported by the Senate Committee on Health, Education, Labor, and Pensions (HELP) to reauthorize the Elementary and Secondary Education Act in the 113 th Congress) would amend federal education law to reflect related provisions in child welfare law. The bill would require state education agencies (SEAs) to ensure that a child in foster care remain in the same school in which he or she is enrolled at the time of foster care placement, or, if this is not in the best interests of the child, to ensure immediate and appropriate enrollment for the child in a new school. The bill would also require SEAs to have policies in place to ensure that a child in care who is changing schools can transfer school credits and receive partial credit. Federal education law does, however, address the postsecondary educational needs of current and former foster youth. The Higher Education Act includes provisions that authorize supportive educational services for foster youth. The law stipulates that youth in foster care (including youth who have left foster care after reaching age 16) and homeless children and youth are eligible for what are collectively called the federal Trio programs. The law directs the Department of Education to require applicants seeking Trio funds to identify and make available services, including mentoring, tutoring, and other services, to these youth. The Trio programs are designed to identify potential post-secondary students from disadvantaged backgrounds, prepare these students for higher education, provide certain support services to them while they are in college, and train individuals who provide these services. The programs are known individually as Talent Search, Upward Bound, Student Support Services, and Educational Opportunity Centers. Finally, the FY2014 appropriations law ( P.L. 113-76 ) directs the Department of Education (ED) to modify the FAFSA form so that it includes a box for applicants to identify whether they are or were in foster care, and to require ED to provide these applicants with information about federal educational resources that may be available to them. At the time of this writing, it does not appear that ED has issued guidance on this modification. The Chafee Foster Care Independence Program is a major source of funding for independent living services for youth who are in care or have aged out. Yet little is known about the effectiveness of these services or the outcomes of foster youth after they leave care. The few studies of independent living programs and other interventions have not been rigorous, or have shown that the interventions have not been effective at improving outcomes for youth. Further, no studies have provided a national picture of how well former foster youth make the transition to adulthood. The Midwest Evaluation and other studies have focused on the transition for youth in select regions of the country. Though a new national database—known as the National Youth in Transition Database (NYTD)—will provide insight into the lives of youth when they leave care, full implementation of the database will likely take several years. The Chafee Foster Care Independence Program is the only dedicated source of funding for independent living services for transition-age young people in and recently emancipated from foster care. An annual appropriation of $140 million for the program is distributed to states based on their relative share of children in care. States must provide a 20% match in order to receive the funds. Nearly all states routinely draw down their maximum amount of CFCIP dollars. Based on a 2008 survey of 45 states by the University of Chicago's Chapin Hall Center for Children, 31 of the states (68.9%) spend additional funds—beyond the 20% match—to provide independent living services and supports to eligible youth. This suggests that federal funding alone is not likely enough for states to carry out their independent living programs. Given that funding for independent living services is somewhat limited, states can likely benefit from learning about which services are the most effective. The research literature on independent living programs is scarce. However, pursuant to the law that established the CFCIP, HHS was required to conduct evaluations of independent living programs funded by the CFCIP deemed to be innovative or of national significance. HHS contracted with the Urban Institute and its partners to conduct an evaluation known as the Multi-Site Evaluation of Foster Youth Programs. The goal of the evaluation was to determine the effects of independent living programs funded by P.L. 106-169 in achieving key outcomes, including increased educational attainment, higher employment rates and stability, greater interpersonal and relationship skills, reduced non-marital pregnancy and births, and reduced delinquency and crime rates. The evaluation involved randomly assigning 1,400 eligible foster youth to four programs in California and Massachusetts—an employment services program in Kern County, CA; a one-on-one intensive, individualized life skills program in Massachusetts; and a classroom-based life skills training program and tutoring/mentoring program, both in Los Angeles County, CA. The 1,400 youth participating in the evaluation at the four sites were assigned to intervention and control groups and were surveyed at three points: baseline, one year after baseline, and two years after baseline. The researchers also conducted in-person interviews with the youth, program administrators, community advocates, and directors of community provider agencies. Further, the evaluation team held focus groups with youth, independent living program staff, and other agency staff responsible for referring youth to the programs. The team used extracts of state administrative data to determine child and family demographics, child welfare placement history, physical and mental health status, and delinquency history. In short, the evaluation of the Los Angeles and Kern County programs found no statistically significant impacts as a result of the interventions; however, the life skills program in Massachusetts showed impacts for some of the education outcomes that were measured. The program is known as the Massachusetts Adolescent Outreach Program for Youth in Intensive Foster Care, or Outreach. The program assists youth who enroll voluntarily with preparing to live independently and with having permanent connections to caring adults upon exiting care. Outreach is intended to help youth achieve a range of outcomes, including receiving a high school diploma, continuing their education, avoiding non-marital childbirth and high-risk behaviors, and gaining employment, among other outcomes. The program provides services that are tailored to each youth and it emphasizes a youth development approach, which emphasizes that youth can be empowered to make positive decisions about their lives. A core feature of the Outreach model is that the social workers in the program oversee a small caseload (approximately 15 youth each) and have regular (approximately once a week) interactions with the youth. The workers seek to develop a close relationship with the youth, with the goal of the youth viewing the worker as his or her advocate. Caseworkers assist youth with tasks like obtaining their driver's licenses, applying for college, and gaining employment. Caseworkers may also refer youth to service providers as needed. The evaluation examined educational, employment, and other outcomes that can reflect how well a young person is transitioning to adulthood. Outreach youth were more likely than their counterparts in the control group to report having ever enrolled in college, and they were more likely to stay enrolled. Outreach youth were also more likely to experience outcomes that were not a focus of the evaluation: youth were more likely to remain in foster care and to report receiving more help in some areas of educational assistance, employment assistance, money management, and financial assistance for housing. According to the study, remaining in care and enrolling and persisting in college appear to be strongly interrelated. In short, the Outreach youth may have been less successful on the educational front if they had not stayed in care. Youth in the program reported similar outcomes as the control group for multiple other measures. For example, Outreach youth did not report better outcomes in employment, economic well-being, housing, delinquency, pregnancy, or preparedness for various tasks associated with living on one's own. This evaluation raises questions about the efficacy of independent living programs, and whether classroom-based instruction is effective in helping youth make the transition to independent living. The Outreach program, which assigns case workers to a small number of transitioning youth, appears promising; however, as discussed above, youth in this program did not fare any better than similarly situated foster youth in areas other than education and remaining in foster care. The National Youth in Transition Database (NYTD), authorized by the Chafee Foster Care Independence Act ( P.L. 106-169 ), is intended to track demographic and outcome information of current and former foster youth. This database is beginning to provide insight into the outcomes of foster youth throughout the country, and may help to identify promising approaches to serving these youth; however, states have reported information to the database. P.L. 106-169 required that HHS consult with state and local public officials responsible for administering independent living and other child welfare programs, child welfare advocates, Members of Congress, youth service providers, and researchers to (1) "develop outcome measures (including measures of educational attainment, high school diploma, avoidance of dependency, homelessness, non-marital childbirth, incarceration, and high-risk behaviors) that can be used to assess the performance of States in operating independent living programs;" (2) identify the data needed to track the number and characteristics of children receiving independent living services, the type and quantity of services provided, and state performance on the measures; and (3) develop and implement a plan to collect this information beginning with the second fiscal year after the passage of P.L. 106-169 . The final rule establishing the NYTD became effective April 28, 2008, 60 days after publication. The rule required states to begin collecting data on youth in FY2011. HHS is using NYTD to engage in two data collection and reporting activities. First, states (as of FY2011) collect and report information twice each fiscal year on eligible youth who currently receive independent living services (provided or funded by the state). Information will include whether they continue to remain in foster care, were in foster care in another state, or received child welfare services through an Indian tribe or privately operated foster care program. Second, states collect data on the outcomes of current and former foster youth on or about their 17 th birthday, two years later on or about their 19 th birthday, and again on or about their 21 st birthday. These youth are tracked regardless of whether they receive independent living services at ages 17, 19, and 21. States have the option of tracking a sample of youth who participated in the outcomes collection at age 17 to reduce the data collection burden. The rule imposes financial penalties on states that do not meet data and data submission requirements.	Recent research has demonstrated that compared to their peers current and former foster youth are more likely to experience negative outcomes in adulthood. This research, along with the efforts of policy makers and child welfare advocates, has brought greater attention to the challenges facing older youth in care and those transitioning from foster care. In response, Congress has sought to improve existing services and provide additional supports for this population through legislation. The 110th Congress passed the Fostering Connections to Success and Increasing Adoptions Act of 2008 (P.L. 110-351), which is arguably one of the most significant laws enacted in the past two decades that expands services and supports for older foster youth. The 113th Congress expanded on these efforts through the Preventing Sex Trafficking and Strengthening Families Act (P.L. 113-183), enacted on September 30, 2014. The law adds requirements (effective one year after enactment) that are intended to engage older youth in case planning and provide them with certain protections. This report discusses issues affecting older youth as they transition from foster care into adulthood, particularly those that pertain to implementation of the two laws. P.L. 110-351 extended eligibility, beginning in FY2011, for federal foster care assistance to youth who remain in care after age 18 (at state option until 19, 20, or 21). The law additionally authorized this assistance on behalf of older youth eligible for federal foster care if they reside in an independent living setting (as well as foster family homes or other eligible settings). One possible challenge in extending care is that even with assistance from the federal government, states may be hesitant to extend care to older youth because of the cost. Further, child welfare stakeholders assert that states should ensure that youth who remain in care have opportunities to take on increasing responsibilities to prepare them for the transition from care. Despite federal protections to ensure that child welfare agencies help youth as they enter adulthood, stakeholders have called for additional policies to improve this transition by encouraging strong, long-term connections to adults. For example, some policy makers have articulated that child welfare agencies should ensure that all children in foster care have a permanency goal of reunification or other more permanent outcomes, and not a case goal of another planned permanent living arrangement (APPLA). Policy makers assert that APPLA is often used as a default option when a permanent option has not been identified. P.L. 113-183 requires that beginning one year after enactment only youth age 16 and older may have a case goal of APPLA and that additional court oversight is required for these youth. Another concern is that youth in foster care are vulnerable to child sex trafficking, which refers to adults sexually exploiting children under age 18 for commercial purposes. P.L. 113-183 requires, one year after enactment, that child welfare agencies have policies in place to serve child sex trafficking victims. Congress may wish to monitor how states are implementing these and related requirements, including how many victims have been reported by state child welfare agencies to the federal government and any best practices that have been identified for serving these victims. P.L. 113-183 further requires states to develop protocols for responding to children who run from foster care. This may prompt child welfare agencies to examine larger issues that may play a role in whether a child goes missing. A related consideration is how states define "missing" and whether to report all missing children to law enforcement. For background information about older foster youth and the current federal policies and programs for this population, see CRS Report RL34499, Youth Transitioning from Foster Care: Background and Federal Programs, by [author name scrubbed].	14.4	16k+	14,186
37	This report examines the legal procedures for effecting either a liquidation or a business or consumer reorganization under one of three of the five operative chapters of the United States Bankruptcy Code, 11 U.S.C. § 101 et seq . Chapter 7 of the Code governs liquidation of the debtor's estate and is often referred to as a "straight bankruptcy." Chapter 11 of the Code governs business reorganizations, and chapter 13 governs consumer reorganizations which conform to prescribed statutory debt limits. The United States Constitution expressly delegates to the Congress the power "To establish. . .uniform Laws on the subject of Bankruptcies throughout the United States." It was not until 1800, however, that the United States enacted its first bankruptcy law, and that act was repealed shortly thereafter in 1803. Enactment of the law was motivated by severe financial panics in the 1790's that resulted in the imprisonment of many debtors. A second act was approved August 19, 1841 and repealed in 1843. Like its predecessor, the act of 1841 arose from a period of economic hardship and was short-lived. A subsequent law, the act of 1867, followed the financial disturbances incident to the Civil War. In effect for more than a decade, it was repealed in 1878. Thus, throughout a period of some 78 years, a national bankruptcy law was operative for only 16. After the repeal of the act of 1867, a period of some 20 years would pass before another bankruptcy act was forthcoming—the act of 1898. The act of 1898 followed a depression of several years duration beginning in 1893. Among the reasons cited by Congress in support of a new and permanent bankruptcy law was the increasing availability to the public of an expanding network of federal courts, and increasing national growth of both population and commerce. The 1898 Act was amended at various times but underwent a comprehensive revision and modernization in 1938. These amendments, effected by a law known as the Chandler Act, recast the relief provisions that had been added to the 1898 Act, established wage earner plans, and substituted or replaced provisions dealing with real property arrangements and corporate reorganizations. Changes in the act subsequent to the 1938 amendments were relatively slight. Eventually, Congress perceived a need to modernize the bankruptcy laws, and, in 1970, it created a Commission on the Bankruptcy Laws of the United States to study and recommend changes in the law. The Commission became operational in June, 1971, and filed its final report with the Congress on July 30, 1973. Among the reasons expressed by Congress for enactment of a new and modernized Bankruptcy Code was that the substantive law of bankruptcy embodied in the act of 1898 reflected "the horse and buggy" era of consumer and commercial credit; that the widespread adoption of the Uniform Commercial Code in the early 1960's changed and expanded commercial financing; that bankruptcy relief for the consumer debtor was inadequate; and, that the bankruptcy court system was too frequently an inefficient and unfair forum. Hence, the stage was set for a national debate on the bankruptcy laws. In 1978, Congress repealed the act of 1898 in its entirety and enacted the present Bankruptcy Code, the Bankruptcy Reform Act of 1978. Since the Code's enactment in 1978, it has undergone several major amendments. The Bankruptcy Amendments and Federal Judgeship Act of 1984 cured constitutional deficiencies in the bankruptcy court system and made a wide variety of substantive and technical amendments to the Code. The Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 instituted a nation-wide U.S. Trustee system and added a new operative chapter governing reorganizations of "family farmers." In 1988, Congress enacted several substantive amendments to the Code, including the Retiree Benefits Bankruptcy Protection Act, which added a new section governing the rights of retirees of a corporation undergoing a chapter 11 reorganization. During the 101 st Congress, more amendments were enacted. In addition to technical amendments affecting swap agreements and forward contracts, legislation was passed altering the dischargeability under chapters 7 and 13, respectively, for debts for liability incurred while driving while intoxicated, criminal restitution, and student loans. The Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990 made many amendments designed to strengthen criminal prosecution of and recovery from crimes against banks. The most recent congressional enactment making wide-reaching substantive and procedural amendments to the Code took place pursuant to the Bankruptcy Reform Act of 1994. Among its highlights was the creation of a National Bankruptcy Review Commission, patterned after the 1970 Commission, to study and report within two years recommendations for legislative or administrative action to the President, the Congress, and the Supreme Court. The Commission issued its report on October 20, 1997. In a lengthy report of approximately 1300 pages, the Commission adopted as many as 172 recommendations dealing with, inter alia, consumer bankruptcy, business bankruptcy, municipal bankruptcy, and, bankruptcy jurisdiction, procedure, and administration. On the subject of consumer bankruptcy reform, the Commission could not reach consensus. Recommendations were adopted by a 5-4 split vote, which undermined the persuasive value and influence on the Congress of the Commission's report. Important procedural reform effected by the 1994 Act included express authorization for bankruptcy courts to conduct jury trials with the consent of parties thereto. The act also encouraged nation-wide creation of Bankruptcy Appellate Panels as intermediary, specialized review tribunals positioned between U.S. district court and the circuit courts of appeals. This law also incorporated sanctions into the Code for negligent or fraudulent bankruptcy petition preparers and amends federal criminal law to establish additional penalties for bankruptcy fraud. The 105 th Congress considered, but did not enact, major bankruptcy reform legislation. Several provisions were enacted, however, including the Religious Liberty and Charitable Donation Protection Act, permitting debtors to make substantial charitable donations prior to filing and during the course of a chapter 13 reorganization. Other provisions narrowed the dischargeability of student loans, and effected amendments to the automatic stay. During the 106 th and 107 th Congresses, bankruptcy reform legislation, including provisions to effect major changes to consumer bankruptcy, continued to be debated. Enactment did not occur and reform proposals are still under consideration in the 109 th Congress. The Code is divided into eight chapters—chapters 1, 3, 5, 7, 9, 11, 12, and 13. Chapters 1, 3, and 5 govern general procedures involving management and administration of the bankruptcy estate which are applicable, as specified, to the operative chapters. Chapters 7 through 13, the operative chapters, address the different forms of bankruptcy relief, i.e., liquidation or the various categories of reorganization—municipal, business, family farmer, and consumer. Also codified under Title 11 of the United States Code are Rules of Bankruptcy Court and officially authorized bankruptcy forms. Examined below are substantive highlights of the procedural and operative provisions of the U.S. Bankruptcy Code governing liquidation and reorganization. Any debtor that is a person, partnership or corporation residing, domiciled, having property or a place of business in the United States may file for relief under the Bankruptcy Code, except that: 1. Several entities may not file for liquidation under chapter 7, namely, a railroad, an insurance company, bank, savings bank, cooperative bank, savings and loan association, homestead association, small business investment company, credit union, or federally guaranteed industrial bank. 2. A chapter 11 reorganization may only be filed by debtors that may file under chapter 7 (with the exception of railroads, stockbrokers, and commodity brokers who may also file under chapter 11.) 3. A chapter 13 reorganization is limited to an individual (and spouse) with regular income (except stockbrokers and commodity brokers) whose aggregate unsecured and secured debts are less than $307,675 and $922,975 respectively. 4. No individual or family farmer may file who has been a debtor in a case pending in the preceding 180 days if the case was dismissed for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case, or if the debtor obtained a voluntary dismissal following the filing of a request for relief from the automatic stay. 11 U.S.C. § 109. A voluntary case is commenced when the debtor files a petition under the operative chapter of the Code in which the debtor desires to proceed. A husband and wife may file jointly, in which case the court will determine the extent, if any, to which the debtor's estate shall be consolidated. Commencement of a voluntary case constitutes an order for relief. 11 U.S.C. §§ 301, 302. An involuntary, that is, a creditor-initiated bankruptcy may be commenced under chapter 7 or 11 of the Code. Among the creditor groups entitled to file is a group comprised of three or more creditors who hold at least $12,300 in noncontingent, nondisputed claims. Farmers, family farmers, and non-moneyed, noncommercial corporations may not be forced into bankruptcy involuntarily. Although creditors may file a petition under the Code, it does not operate as an order for relief. The debtor may controvert the petition at trial, and until the court finds for the creditors and enters an order for relief, the debtor may operate its business as if a petition had not been filed. The court may, however, appoint either an interim trustee or a U.S. Trustee to manage the estate of the debtor pending an order for relief if the court believes it is necessary to preserve the estate. The court may enter an order for relief against a debtor if, at trial, it finds that the debtor is generally not paying debts as they become due, or, if, within 120 days before the filing of the petition, a custodian was appointed or took possession of substantially all of the debtor's property. If the court dismisses an involuntary petition against a debtor after trial other than on consent of all petitioners and the debtor, it may award the debtor costs, a reasonable attorney's fee, and, if any of the petitioners filed in bad faith, damages or punitive damages. 11 U.S.C. § 303. The bankruptcy court may dismiss a case or suspend all proceedings if, among other reasons, it finds that to do so would be in the best interests of creditors and that the debtor would be better served thereby. An order dismissing or suspending an action is nonreviewable by appeal or otherwise. 11 U.S.C. § 305. Attorneys representing debtors are required to file a statement of their compensation agreement with the court. It the court finds that the agreed to compensation exceeds the reasonable value of the services to be provided by the attorney, the court may cancel the agreement or order the return of the excess compensation paid to either the estate, or to the entity that made the payment if the property would not have come into the estate. 11 U.S.C. § 329. Within a reasonable time after an order for relief is entered, the United States Trustee must convene and preside at a meeting of creditors. The Trustee may order a meeting of any equity security holders. The bankruptcy court may not preside over or attend these creditor meetings. In a chapter 7 case, the trustee must orally examine the debtor to ensure that he or she is aware of: the potential consequences of seeking a discharge in bankruptcy, including the effects on credit history; the debtor's ability to file under a different chapter; the effect of receiving a discharge; and, the effect of reaffirming a debt that would otherwise be dischargeable in bankruptcy. 11 U.S.C. § 341. The debtor must be available for examination under oath at the creditor's meeting. "Use" immunity may be granted to all persons required to testify, be examined, or provide information in a bankruptcy case. 11 U.S.C. §§ 343, 344. After notice, a case may be converted from one chapter to another. Conversion does not change the date of the original filing of the petition, the commencement of the case, or the order for relief, but it does terminate the services of the trustee serving in the case prior to conversion. Claims against the debtor that arise after the petition but before the conversion shall be treated as prepetition claims. 11 U.S.C. § 348. A debtor may convert a case from chapter 7 to one under chapters 11, 12, or 13, if the case has not already been converted from one of those chapters. A party in interest may request a conversion of the debtor's case from chapter 7 to chapter 11, but not to chapter 12 or 13. 11 U.S.C. § 706. A debtor may convert a case from chapter 11 to one under chapter 7 unless (1) the debtor is not in possession of the estate, (2) the case was filed as an involuntary case under chapter 11, or (3) the case was already converted to one under chapter 11 upon another party's request. The court itself may convert the case from a chapter 11 reorganization to a chapter 7 liquidation "for cause," which includes continuing loss or diminution of the estate and absence of a reasonable likelihood of rehabilitation; inability to effectuate a plan; unreasonable delay by the debtor that is prejudicial to creditors; or, failure to meet the statutory requirements to effect and implement a reorganization plan. The court may not convert a case to chapter 7 if the debtor is a farmer, and may convert a case to chapter 12 or 13 only if the debtor requests the conversion. A case may also be converted to one under chapter 7 on request of the U.S. Trustee when a debtor fails to file its list of creditors, schedule of assets and liabilities, and other required information in conformance with statutory requirements. 11 U.S.C. § 1112. A debtor under chapter 13 may convert a case to one under chapter 7 at any time. Property of the estate in the converted case shall consist of property as of the date of the initial filing. If the conversion occurs in "bad faith," property of the estate may be valued as of the date of conversion, thereby encompassing after-acquired property. 11 U.S.C. § 348(f). A party in interest in chapter 13 may request that the court convert the case to one under chapter 7 "for cause," but may request conversion to either chapter 11 or 12 at any time before confirmation of a plan. The court may not convert a chapter 13 case to another chapter if the debtor is otherwise ineligible to be a debtor thereunder, or if the debtor is a farmer, unless the debtor requests such conversion. 11 U.S.C. § 1307. Unless otherwise ordered by the court, dismissal of a case does not bar discharge in a later case of debts that were dischargeable in the dismissed case. Dismissal does reinstate prior, superseded custodianships and proceedings, voided transfers and liens, and revests estate property in the entity in which the property was vested immediately prior to the commencement of the case. 11 U.S.C. § 349. The court may dismiss a case only "for cause," including unreasonable delay by the debtor that is prejudicial to creditors; nonpayment of fees; or, failure by the debtor to file a list of creditors, a schedule of assets and liabilities, and other necessary information. The court, on its own motion, or on the motion of a U.S. Trustee, may dismiss a case filed by an individual debtor whose debts are primarily consumer debts if it finds that granting relief would be a substantial abuse of the provisions of chapter 7. There is a presumption in favor of granting the requested relief. 11 U.S.C. § 707. As in the case of conversions requested by a party other than a debtor, the court may dismiss a case only after notice and hearing "for cause." 11 U.S.C. § 1112. The court may dismiss a case only "for cause," including— unreasonable delay or gross mismanagement by the debtor that is prejudicial to creditors; nonpayment of necessary fees and charges; failure to file a plan; failure to begin payments required by a plan; denial of confirmation of a plan; material default by the debtor under a confirmed plan; or continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation. Additional grounds for dismissal in a chapter 13 case include the debtor's failure to file required information concerning consumer debt. 11 U.S.C. § 1307. Parties commencing a bankruptcy case must pay the clerk of the bankruptcy court the prescribed filing fees. Currently, filing fees are $155 for a case under chapter 7 or 13, and $800 for a case under chapter 11 that does not concern a railroad. An individual filing a voluntary case or a joint case may pay the fee in installments. For converting, on request of the debtor, a case from chapter 7 or 13 to one under chapter 11, the debtor must pay a fee of $645. An individual filing under chapter 11 may pay the filing fee in installments. In addition to a filing fee, chapter 11 debtors pay a quarterly fee to the U.S. Trustee for each quarter until a plan is closed or the case is converted or dismissed. The fee is derived from a sliding scale based upon the amount of disbursements per quarter. 28 U.S.C. § 1930. In chapter 13 cases, a standing trustee is permitted to charge a percentage fee, established by the U.S. Attorney General, not to exceed ten percent, from all payments received by the trustee for disbursement under the reorganization plan. 28 U.S.C. § 586. When the Bankruptcy Reform Act was enacted in 1978, one of its basic goals was to remove bankruptcy judges from case administration. Congress found bankruptcy judges to be too mired in the administrative details of bankruptcy cases and the creation of the office of the U.S. Trustee was designed to permit bankruptcy judges to handle only judicial matters. Under the 1978 Act, the U.S. Trustee program was implemented on an experimental basis with 10 "pilot" districts, one in each federal judicial circuit. The Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 established the U.S. Trustee system permanently and nation-wide. United States Trustees are appointed by, are subject to removal by, and remain under the direction of the United States Attorney General through the Executive Office for United States Trustees in the Department of Justice. The U.S. Trustee system is funded through bankruptcy filing fees and "user" fees, that is, percentage fees charged by a trustee administering either a chapter 12 or 13 reorganization plan which are remitted to the United States Trustee System Fund. 28 U.S.C. §§ 586, 589a. Although U.S. Trustees may serve directly as trustees in a chapter 7, 11, 12, or 13 bankruptcy, their duties are administrative. They establish and supervise panels of private trustees that are eligible to serve in chapter 7 liquidations, and supervise the administration of cases and trustees under chapters 7, 11, 12 and 13. U.S. Trustees may, when necessary, appoint one or more individuals to serve as standing trustees in chapter 12 or 13 cases. 28 U.S.C. §§ 581, 586. Pursuant to amendments of the Bankruptcy Reform Act of 1994, the U.S. Trustee is directed to review professional fee applications under procedural guidelines adopted by the Executive Office of the U.S. Trustee. 11 U.S.C. § 321; In addition to those responsibilities specifically delegated to the U.S. Trustee under the operative chapters of the Code, the U.S. Trustee is permitted to raise and appear and be heard on any issue in any case under the Code. 11 U.S.C. § 307. A trustee is always appointed to oversee a chapter 7 liquidation and a reorganization under chapter 13. A trustee is appointed in a chapter 11 reorganization only "for cause" or when the court finds that to do so would be in the best interest of creditors. 11 U.S.C. §§ 702, 1104, 1302. In addition to those qualifications which may be established by the Attorney General to guide the U.S. Trustee in selecting panels of private trustees, the Code itself contains certain eligibility criteria. An individual must reside in the judicial district or adjacent to the district in which the case is pending, and may not have served as an examiner in the case. A person selected to serve as trustee must file with the court a bond (the amount of which is determined by the U.S. Trustee) in favor of the United States conditioned on the faithful performance of official duties. 11 U.S.C. §§ 321, 322. The court may, after notice and hearing, remove a trustee, other than a U.S. Trustee, for cause. 11 U.S.C. § 324. The trustee is permitted, with the court's approval, to employ attorneys, accountants, appraisers, or other professionals to assist in the administration of the bankruptcy case. When a trustee operates a debtor's business, and the debtor had regularly employed such professionals, the trustee may retain or replace them. The court may authorize the trustee to serve as attorney or accountant to the estate if it would be in the best interests of the estate. The court oversees compensation of professionals retained by a trustee. 11 U.S.C. §§ 327, 328. The court may award reasonable compensation for services rendered by a trustee or professional or paraprofessional and reimbursement for actual, necessary expenses. The court may, on its own motion or on motion of the U.S. Trustee, or any party in interest, award compensation that is less than the amount requested. Factors to be considered by the court measure the nature, extent, and value of the services, including the time spent rendering the service and the rate charged; whether the services were necessary or beneficial towards completion of the estate; whether the services were performed within a reasonable amount of time commensurate with the complexity, importance and nature of the problem; and, whether the compensation is reasonable based on the customary rates charged by comparably skilled practitioners in cases other than bankruptcy. 11 U.S.C. § 330. The Code imposes limits upon private trustee compensation in chapters 7 and 11. A trustee may not realize more than 25% on the first $5,000 or less, 10% on any amount in excess of $5,000 but less than $50,000, 5% on any amount in excess of $50,000 but less and $1,000,000, and compensation not to exceed 3% of money in excess of $1,000,000 disbursed by the bankruptcy estate. 11 U.S.C. § 326. A chapter 7 trustee also receives $45 to be paid from the filing fee, which may be increased by an additional $15 from fees prescribed by the Judicial Conference of the United States. 11 U.S.C. § 330(b). The automatic stay is triggered when an order for relief is filed. The stay is generally acknowledged to be one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a "breathing spell" from his creditors because it stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. By halting all collection activities, the stay provides creditor protection as well. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. The stay prevents the piecemeal dismantling of the debtor's property in ways that would be preferential to some creditors and detrimental to others. The bankruptcy petition, which in a voluntary case is the order for relief, operates to stay: all prepetition process or proceedings of an administrative or judicial nature, or to recover a claim, that were or could have been brought before commencement of the case; enforcement of prepetition judgments against the debtor or his property; acts to obtain possession of estate property; acts to create, perfect or enforce property liens securing prepetition claims; acts to create, perfect, maintain, or continue perfection, or enforce any lien against estate property; acts to collect, assess or recover on prepetition claims; the set-off of prepetition debts owed to debtor against any claim against the debtor; United States Tax Court proceedings. But, there are exceptions to actions stayed by the order for relief. They include: criminal proceedings; actions to establish paternity; to establish or modify an order for alimony, maintenance or support; or, to collect alimony, maintenance or support from nonestate property; actions to enforce a governmental unit's police or regulatory power, or a judgment (other than a money judgment) obtained by such power; the set-off of any mutual debt and claim for specified transactions involving commodity brokers, forward contracts merchants, stockbrokers, securities clearing agencies, repo participants, or swap agreement participants; actions by the Secretary of Housing and Urban Development to foreclose or take possession in a case of a loan insured under the National Housing Act; an audit by a governmental unit to determine tax liability; the issuance of tax deficiency notice; a demand for tax returns; or, the making of an assessment and issuance of a notice for demand and payment (although tax liens that might otherwise attach to estate property will be stayed unless such tax is nondischargeable and such property or its proceeds are transferred out of the estate and revested in the debtor); actions by a lessor to the debtor under a lease of nonresidential real property that has terminated before or during the case to obtain possession of such property; presentation, notice, and protest of the dishonoring of a negotiable instrument; actions by a state licensing agency regarding the accreditation status or licensure of a debtor education institution, or by a guaranty agency or the Secretary of Education regarding the eligibility of the debtor to participate in authorized programs; or the creation or perfection of a statutory lien for an ad valorem property tax imposed by the District of Columbia, or a political subdivision of a state, if such tax comes due after the filing of the petition. 11 U.S.C. § 362(a)&(b). A creditor, or other party in interest, may request the court to terminate, modify, annul, or condition a stay with respect to a specific asset of the debtor. The court, after notice and hearing, may grant relief: a) for cause, including the lack of adequate protection of the interested party's interest in such property; or b) with respect to a stay of an act against property, if— (i) the debtor has no equity in such property; (ii) such property is not necessary to a reorganization; or (iii) a "single asset" debtor, has not, within 90 days of the order for relief, filed a feasible plan for reorganization, or has commenced monthly payments to secured creditors which represent an amount equal to interest at a current fair market rate on the value of the creditor's interest in the real estate. If the court does not rule within 30 days from a request by motion for relief from the stay, the stay is automatically terminated with respect to the property in question. The court may, however, grant relief without a hearing when necessary to prevent irreparable damage to the interest of an entity in property if the damage will occur before there is an opportunity for notice and hearing. 11 U.S.C. § 362(d),(e)&(f). A stay may terminate by reason of provisions relating to its duration, for example, the property is no longer property of the estate. The stay of any other act continues until the case is closed, dismissed, or a discharge is granted or denied. 11 U.S.C. § 362(c). The concept of "adequate protection" of a secured creditor's interest in property is derived from the fifth amendment protection of property interests as enunciated by the U.S. Supreme Court. When an automatic stay, or the sale, use or lease of estate property by the trustee or debtor in possession results in a decrease in value of the legal or equitable interests of the secured creditor or co-owner with the debtor of such property, such decrease in value may be adequately protected by: periodic cash payments to the extent of such decrease; or providing additional or replacement liens to the extent of such decrease; or granting other relief which results in the realization by the secured creditor of the "indubitable equivalent" of such entity's interest in the property. 11 U.S.C. § 361. The Code sets out in detail the rights of a trustee or debtor in possession to use, sell, or lease property of the estate in the operation of the debtor's business in either a liquidation or reorganization. The thrust of this section is the protection of secured creditors and other parties who have interests in the property involved, and they are framed primarily as limitations or conditions upon the debtor's right to use, sell, or lease estate property. Estate property may be used, sold, or leased by the trustee: other than in the ordinary course of business only after notice and hearing; in the ordinary course of business, without notice and hearing if the operation of the debtor's business is authorized and the court has not ordered otherwise; on consent of all parties having an interest, or on court authority after notice and hearing, if the property involved is defined as cash collateral, namely, cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents; if it is not inconsistent with any relief from an automatic or other stay granted to a party having an interest in estate property; if adequate protection of an entity's interest in the property has been provided. 11 U.S.C. § 363(a)-(e). Subject to specified conditions, the trustee may sell property free and clear of the interests of spouses and co-owners so long as they receive either a right of first refusal at the price at which the sale is being consummated, or an appropriate portion of the sale proceeds. 11 U.S.C. § 363(h),(i),(j). Unless the court orders otherwise, a trustee authorized to operate a debtor's business may obtain and incur unsecured credit and debt in the ordinary course of business. In order to enhance a debtor's ability to obtain credit throughout the course of a bankruptcy, such credit is treated as a high priority administrative expense, which means it is paid out of the estate's assets before other pre-existing claims. Credit may be obtained and debt incurred other than in the ordinary course of business only upon court authorization after notice and hearing. If the trustee is unable to obtain credit or incur debt even with the assurance that it will be treated as an administrative expense, the court, after notice and hearing, may authorize additional priority. A postpetition creditor could receive, as an additional priority over competing claims: priority over any or all administrative expenses; a lien on unencumbered assets of the estate; or, a junior lien on property of the estate already subject to a lien. If a trustee is unable to obtain credit otherwise, and can provide adequate protection to the interest of a pre-existing lien holder, the court, after notice and hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is already subject to a lien. 11 U.S.C. § 364(a)-(d). A trustee, subject to the court's approval, may assume or reject an executory contract or unexpired lease. This permits the bankruptcy estate to shed obligations which are burdensome and impede the likelihood of a successful reorganization, or conversely, to retain advantageous commitments which will benefit the estate and its creditors. The Code does not define what constitutes an "executory contract," but the legislative history suggests that "it generally includes contracts on which performance remains due to some extent on both sides." The trustee's power to assume or reject a contract is conditioned. In order to assume, the trustee must cure any default in the contract or lease (other than a default by virtue of filing in bankruptcy) and provide adequate assurance of future performance if there has been a default. Special forms of "adequate assurance" obtain with respect to shopping center leases when the debtor is a lessee. The trustee is prohibited from assuming or assigning a contract or lease if applicable nonbankruptcy law excuses the other party from performance to someone other than the debtor, unless the other party consents. The trustee must assume or reject within specified time frames. In a liquidation case, the trustee must assume within 60 days (or within an additional 60 days if the court, for cause, extends the time). If not, the contract is deemed rejected. In a reorganization case, the time limit is not fixed, although a party to the contract may request the court to specify a time by which the trustee must make a determination. The Code invalidates bankruptcy clauses in executory contracts which purport to automatically terminate the contract or lease in the event of bankruptcy. Likewise, the trustee may assign the contract, notwithstanding a contrary provision within it, if assignment is permissible under applicable nonbankruptcy law. Special provisions govern unexpired leases of real property of the debtor in which the debtor is the lessor, unexpired leases of personal property in which the debtor is lessee, timeshare interests under a timeshare plan in which the debtor is the seller, contracts for the sale of property in which the debtor is seller, executory contracts governing licensing agreements for intellectual property under which the debtor is a licensor, and commitments by a debtor to maintain the capital of an insured depository institution. When a contract or lease is rejected by the debtor, the other party to the agreement may assert a claim for damages arising from the breach. Such a claim is treated as a prepetition, unsecured claim against the estate. Assumption of the contract is an act of administration of the estate, and the expenses and liabilities connected therewith are high priority expenses of administration. 11 U.S.C. § 365. A utility may not discontinue service to or discriminate against the debtor solely on the basis of the commencement of a case in bankruptcy, or because a debt owed to the utility was not paid when due prior to the filing. The utility may discontinue service, however, if, within 20 days after the order for relief, the debtor does not furnish adequate assurance of payment in the form of a deposit, or other security, for service after that date. The court, after notice and hearing, may adjust the amount of the deposit or other security necessary to provide adequate assurance. 11 U.S.C. § 366. The filing of a case under the Code creates a bankruptcy estate composed, in part, of the following property, wherever located: all legal or equitable interests of the debtor in property as of the commencement of the case; all interests of the debtor and spouse in community property under debtor control; or liable for an allowable claim against the debtor, or against the debtor and the debtor's spouse, to the extent such interest is liable; property interest received or recovered by the trustee from a custodian, an avoided transfer, a setoff, or general partners in a partnership; property acquired by the debtor within 180 days of the commencement of the case—by bequest, devise, or inheritance; as a result of a property settlement agreement or a divorce decree; or, as a beneficiary of a life insurance policy or death benefit plan; income from estate property, except income from earnings from services performed by an individual debtor after commencement of the case; and any property interest acquired by the estate after commencement of the case. The estate does not include: any power that the debtor may only exercise for the benefit of an entity other than the debtor; any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated under its terms before the filing in bankruptcy, or that expires in the course of the bankruptcy; eligibility of a debtor educational institution to participate in programs authorized under the Higher Education Act, or any accreditation status or state licensure of the debtor; certain interests in oil and gas production payments; certain interests in cash that constitute proceeds of a sale by the debtor of a money order under an agreement with a money order issuer that prohibits the commingling of such proceeds with property of the debtor; or an interest in a spendthrift trust where the restriction on transfer is enforceable under applicable nonbankruptcy law. With the exception of an enforceable spendthrift trust, other terms of agreements, transfer instruments, or applicable nonbankruptcy laws that restrict or condition transfers of a debtor's interest in property, or that condition transfers on financial insolvency, will not prevent property from coming within the bankruptcy estate. 11 U.S.C. § 541. When a case is commenced, anyone holding estate property—except a custodian —that the trustee may use, sell, or lease, or that the debtor may exempt from the estate (see infra ), must deliver it to the trustee and account for such property or its value. Likewise, anyone owing a debt that is property of the estate and is matured, payable on demand or order, must (except if it may be setoff against a claim against the debtor) pay it over to the trustee. The court may order attorneys, accountants, other persons holding recorded information (i.e., books, records, documents, and other papers related to the debtor's financial affairs, etc.) to disclose such information to the trustee. There are specified exceptions to the turnover provisions. A life insurance company may continue to make automatic premium loans from property that may otherwise be property of the estate. And, an entity having no actual notice or knowledge of the commencement of a case by the debtor may transfer estate property, or pay a debt owing to the debtor, to a person other than the trustee, with the same effect as if the debtor had not commenced the case. 11 U.S.C. § 542. When a custodian of the debtor's property becomes aware of the commencement of a case by or against the debtor, he is prohibited from making any disbursement thereafter, or taking any action (other than an action to preserve the property) in the administration of the property in his custody and is further required to turn over such property, or proceeds thereof, to the trustee, and to file an accounting of his custodianship. The bankruptcy court must protect all entities to which the custodian became obligated with respect to such property; provide reasonable compensation to the custodian for services rendered; and, surcharge a custodian for improper or excessive disbursements, unless they were approved by a court or were made in accordance with applicable law. The bankruptcy court may, however, excuse compliance with these requirements if the interests of creditors and equity security holders would be better served by permitting a custodian to continue in possession of the property. 11 U.S.C. § 543. Many provisions in the Bankruptcy Code permit the trustee to nullify or "avoid" prepetition transfers from the debtor to others, including certain liens. The purpose of requiring creditors in specified situations to disgorge monies received from the debtor prior to the bankruptcy is to maximize the bankruptcy estate to ensure equitable distribution among all creditors. Constraints on the trustee's avoidance powers are necessary to protect normal commercial transactions. Although the provisions governing avoidance are extremely complex, they are surveyed below. As of the commencement of the case, and without regard to knowledge of the trustee or any creditors, and regardless of whether such creditor or purchaser exists, the trustee has the rights and powers of, or may avoid any property transfer or obligation of the debtor that is voidable by: a creditor on a simple contract with a judicial lien on the property; a creditor with an unsatisfied writ of execution against property of the debtor; bona fide purchasers of debtor's property; and an unsecured creditor under applicable law. This provision is known as the Bankruptcy Code's "strong arm clause." It permits the trustee to assume the attributes of specified hypothetical creditors or bona fide purchasers who, under applicable nonbankruptcy law, would be afforded priority in the interest that the trustee seeks to avoid. 11 U.S.C. § 544. The trustee may avoid the fixing of a statutory lien to the extent that such lien: (a) first becomes effective against the debtor when— a bankruptcy (or other insolvency proceeding not under the Code) is commenced, a custodian is appointed, the debtor becomes insolvent, the debtor's financial condition fails to meet a specified standard, or an entity other than a statutory lien holder levies execution against the debtor's property; (b) is not perfected or enforced against a bona fide purchaser on the date the case commences, whether the purchaser exists or not; (c) is for rent; or (d) is a lien for distress of rent. Many of the above-described liens are created under state law to establish priorities for distribution consistent with state plans for insolvency. These priorities have not been incorporated into the federal scheme embodied in the Code. 11 U.S.C. § 545. The trustee's rights and powers under certain of the avoiding powers are limited. The use of such power with respect to statutory liens, preferences, fraudulent transfers and obligations, and as a lien creditor, is subject to a general statutory limitation of the later of two (2) years after the case is filed or one (1) year after the first trustee's appointment under chapter 7, 11, 12, or 13, if this occurs before the case is closed or dismissed, whichever occurs first. If, under generally applicable law as of the date of the filing of the petition, an interest holder against whom the trustee would have rights (as a lien creditor, or with respect to statutory liens and post-petition transactions) still has the opportunity to perfect, or to maintain or continue perfection of, his lien against an intervening interest holder, then he may perfect his interest against the trustee. If the generally applicable law requires seizure of the property to accomplish perfection and the property has not been seized, then perfection is by notice to the trustee instead. The trustee may not avoid the seller's right of reclamation if the right asserted was created by statute or common law; the debtor received the goods while insolvent; and, the seller made written demand for reclamation within 10 days after debtor's receipt of the goods (or, if the 10 days expire after the commencement of the case, before 20 days after receipt of such goods by the debtor). In a chapter 11 case, the court may, on motion, permit the trustee to return goods shipped to the debtor by the creditor before the commencement of the case, and the creditor may offset the purchase price of such goods against any prepetition claim of the creditor. The Code places additional restraints upon a trustee's avoiding powers when the debtor operates specified businesses, e.g., grain storage facility, fish processing facility, commodity broker, forward contract merchant, stockbroker, swap agreement participants, financial institution or securities clearing agency. 11 U.S.C. § 546. A "preference," in essence, is a prebankruptcy transaction which has the effect of favoring one creditor over others. In the absence of the Code's provisions which permit a trustee to avoid such transactions, preferences—like other avoidable transfers—might otherwise be perfectly valid transactions. In order to facilitate the Code policy of "equality of distribution," the trustee may avoid a transfer of property of the debtor if it (1) was made for the benefit of a creditor, (2) on account of an antecedent debt, (3) while the debtor was insolvent, (4) within 90 days before the date of the filing of the petition or between 90 days and one year before the filing of the petition if the creditor was an insider, and (5) enables the creditor to receive more than he would otherwise receive if the debtor's estate were in liquidation or were otherwise distributed under the Code. Among the transactions that are excluded from attack as a preference and which the trustee may not avoid are: a transfer which is intended to be and is in fact a contemporaneous exchange for new value (money or money's worth in goods, services, or new credit) given to the debtor; a transfer made according to ordinary business terms in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee; a transfer that creates a security interest securing new value in property acquired by the debtor that meets specified conditions and is perfected on or before 20 days after the debtor receives possession of the property; a transfer to or for the benefit of a creditor, to the extent that, after such transfer, the creditor gave "new value" to or for the benefit of the debtor and such "new value" is not secured by an otherwise unavoidable security interest; and on account of which the debtor did not make an otherwise unavoidable transfer to the creditor; a transfer that creates a perfected security interest in inventory or a receivable or the proceeds of either, except to the extent that the aggregate of all such transfers to the transferee caused a reduction, as of the date of filing of the petition and to the prejudice of other creditors holding unsecured claims, of any amount by which the debt secured by such security interest exceeded the value of all security interests for such debt on the later of specified dates; a transfer that is the fixing of a statutory lien that is not avoidable under the Code; a transfer which is a bona fide payment to a spouse or former spouse for alimony, maintenance or child support; or a transfer in a case filed by an individual debtor whose debts are primarily consumer debts, if the aggregate value of all property that constitutes or is affected by such transfer is less than $600. The trustee has the burden of proving the avoidability of a transfer which is generally avoidable under this section, while the creditor or party in interest against whom recovery is sought has the burden of proving that the transfer is nonavoidable. 11 U.S.C. § 547. Fraudulent transfers and obligations basically fall in two categories—those made with intent to hinder, delay or defraud creditors, and those made while the debtor is insolvent (or which render the debtor insolvent) where the exchange is for less than reasonably equivalent value. The trustee may avoid any transfer or obligation incurred by the debtor within one year prior to the commencement of the case if the debtor voluntarily or involuntarily: made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud an existing or future creditor; received less than a reasonably equivalent value in exchange for such transfer and obligation and (a) was insolvent on the date of such transfer or obligation; (b) was, or was about to engage in business or a transaction for which his remaining property was an unreasonably small capital; or, (c) intended to incur, or believed the debtor would incur debts beyond his ability to repay at maturity. The trustee of a partnership debtor may avoid transfers and obligations incurred by the debtor, within one year prior to commencement of the case to a general partner in the debtor if the debtor was insolvent on the date of such transfer, or was made so because of it. However, so long as a transfer voidable under any of the above is not also voidable by the trustee as a lien creditor, or as a voidable statutory lien or preference, then a transferee or obligee who takes for value and in good faith (i.e. absence of actual intent to defraud) has a lien on the interest transferred, may retain the lien transferred, or may enforce any obligation incurred, to the extent of the value furnished by the transferee or obligee to the debtor. This section was amended in 1998 to expressly provide that prepetition contributions of up to 15 percent of a debtor's gross annual income—or more than 15 percent if the contribution is consistent with the debtor's past practice—to qualified religious or charitable organizations may not be avoided. Reference is made to the Internal Revenue Code of 1986 for definitions of "charitable contribution" and "qualified religious or charitable" organizations. As of the commencement of a case—which is usually synonymous with the filing of the petition—the property of the debtor becomes property of the estate. Generally, the trustee may avoid transfers that occur after the filing of the petition which are not expressly authorized by either the Code, without court order, or the court. In an involuntary case, the trustee may not avoid certain "involuntary gap" transactions, i.e., those which occur between the filing of the petition and the entering of an order for relief, in which the transferee has given new value for the transfer. Likewise, the trustee may not avoid a transfer of real property to a good faith purchaser if the real property is located outside the county where the case is commenced; if a present, fair equivalent value is paid for the property; if the purchaser does not know of the commencement of the case, and, if a copy of the petition has not been filed in the proper county office for recording real property conveyances before the transfer is perfected against a bona fide purchaser. Proceedings by a trustee to avoid postpetition transactions may not be commenced after the earlier of two years after the date of transfer or the time the case is closed or dismissed. 11 U.S.C. § 549. When the trustee seeks to avoid a transfer pursuant to the Code, the trustee may recover the property transferred, or, if the court orders, the value of such property not only from the initial transferee, but from others who may have received the property, i.e., any immediate or mediate transferee of the initial transferee. The trustee may not, unless the specific avoidance statute provides otherwise, recover from an immediate or mediate transferee who takes for value without knowledge of the avoidability of the transfer, or who accepts the transfer in good faith. If a transfer is an avoidable transfer because it was made within 90 days to one year before the filing of the petition; is avoidable under section 547(b); and was made for the benefit of a creditor who at the time of the transfer was an insider, then the trustee may not recover under this section from a transferee that is not an insider. When the trustee may recover property from a good faith transferee, the latter retains a lien on the property recovered to secure the lesser of (a) the cost, to such transferee of any improvement made after the transfer, less the amount of any profit realized by the transferee, and (b) any increase in the value of the property as a result of improvements. A proceeding against a subsequent transferee must be brought by the earlier of either one year after the avoidance of the transfer on account of which the recovery is sought or the time the case is closed or dismissed. 11 U.S.C. § 550. Under Article 9 of the Uniform Commercial Code, creditors may take security interests in after-acquired property. The Bankruptcy Code, however, governs the effect of such a security interest in postpetition property. As a general rule, if a security agreement is entered into before the commencement of the case, then property acquired by the estate is not subject to the security interest created by a provision in the security agreement extending the security interest to after-acquired property of the debtor. When the security agreement, by its terms, extends to property acquired by the debtor before commencement of the case and to proceeds, products, offspring, rents or profits of such property, then the security interest may survive the bankruptcy filing to encompass the after-acquired property to the extent provided in the security agreement and by applicable nonbankruptcy law, except as the court, after notice and hearing, may otherwise provide based on the equities of the case. The Code specifies that a prepetition security agreement for property paid as rents or charges for the use or occupancy of hotel or motel rooms may be treated as encumbered after-acquired property. 11 U.S.C. § 552. A setoff occurs when there are two debts which arise out of separate transactions, one owed from the debtor and one owed to the debtor, and the party who owes the debt to the debtor reduces the debt to account for that which the debtor owes. Although a setoff may appear to be the type of transaction which is avoidable by a trustee, the Code generally permits it. Subject to two exceptions and three general restrictions or prohibitions, the Code does not affect a creditor's right under applicable nonbankruptcy law to offset prepetition debts owing by him to the debtor. The exceptions to the right of setoff are the automatic stay and the right of the trustee to use, sell, or lease estate property that is subject to a right of setoff. Offset is not allowed if the creditor's claim is not allowed; if the claim was transferred to the creditor by someone other than the debtor after commencement of the case, or after 90 days before the commencement of the case, and while the debtor was insolvent. if the debt owed to the debtor by the creditor was incurred by the creditor after 90 days before the commencement of the case, while the debtor was insolvent, and for the purpose of obtaining a right of setoff against the debtor. Subject to certain exceptions, when an offset occurs prior to the commencement of a case, the trustee may recover the setoff to the extent that any "insufficiency", i.e., any amount by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim, exists on the later of 90 days before commencing the case, or the first date during such 90 days on which there is an insufficiency. 11 U.S.C. § 553. After notice and hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. A party in interest may request the court to order the trustee to abandon any property of the estate that is burdensome. 11 U.S.C. § 554. A creditor or an indenture trustee may file a proof of claim. An equity security holder may file a proof of interest. 11 U.S.C. § 501. This requirement is permissive only, and does not require filing of a proof of claim by any creditor. The debtor is generally responsible for filing a schedule of debt and creditors. However, when a debt is incorrectly listed, or when a creditor with a lien is undersecured and asserts a claim for the balance of the debt owed him, this section facilitates filing. If a creditor fails to file a claim, then the debtor, trustee, or anyone who is liable to the creditor with the debtor (i.e., a codebtor, surety, guarantor, etc.) may file a proof of claim. All unsecured creditors, except those holding claims entitled to administrative priority, and equity security holders must file a proof of claim if they wish to be eligible to receive a distribution under chapters 7 and 13. In a chapter 11 case, the debtor's schedule of liabilities is adequate unless the creditor takes issue with the amount of the claim, or unless it is not listed, or is listed as disputed, contingent or unliquidated. In a chapter 7 liquidation or chapter 13 reorganization, the proof of claim must be filed by nongovernmental creditors within 90 days after the first date set for the meeting of creditors; in chapter 11 reorganizations, the court sets the date for filing proofs of claim. Bankruptcy Rules 3002, 3003. When proof of a claim or interest is properly filed, it is deemed allowed unless a party in interest objects. After notice and a hearing, the amount of a disputed claim is determined by the court. The Code expressly disallows many types of claims. Among those which are disallowed is a claim which: is unenforceable against the debtor or his property for any reason other than because it is contingent or unmatured; is for unmatured interest; is a property tax claim and the amount due exceeds the value of the estate's interest in the property; is for the services of an insider or attorney and exceeds the reasonable value of such services; is an unmatured and nondischargeable claim for alimony, maintenance or support to a spouse and children under a divorce decree, separation agreement, or property settlement agreement; is a damage claim arising out of a lease termination and, without acceleration, it exceeds the greater of the reserved rental for one year, or fifteen percent, not to exceed three years, of the remaining lease term following the earlier of the date of filing and the date of repossession or surrender of the property, plus the unpaid rent due, without acceleration, under the lease; is for damages by an employee arising out of termination of an employment contract which exceed one year's compensation plus any unpaid compensation due under the contract; results from a reduction, due to late payment, of an otherwise applicable credit available to the debtor in connection with an employment tax on wages, salaries or commissions earned from the debtor; proof of such claim is not timely filed, except as authorized elsewhere in the Code or Bankruptcy Rules, except that the claim of a government unit is timely if it is filed within 180 days after the order for relief; is a claim of a claimant who has received a voidable transfer unless the claimant has paid the amount or turned over the property received. Contingent and unliquidated claims which cannot be fixed or liquidated without delaying the administration of the case may be estimated. Certain types of claims which may be allowed or disallowed are treated as prepetition claims even though they may arise after the filing of the petition. These include claims arising in the ordinary course of the debtor's business after the commencement of the case but before the order for relief is entered in an involuntary case; claims arising from the rejection of an executory contract or unexpired lease; and specified claims concerning the recovery of property and taxes. A claim that has been allowed or disallowed may be reconsidered for cause. 11 U.S.C. § 502. Claimants may file a request for payment of an administrative expense. Administrative expenses are extremely important because they are "high priority claims" which are paid first out of the debtor's assets. They may be paid prior to or upon confirmation of a reorganization plan, or upon distribution of the estate's assets in a liquidation. Payment of administrative expenses requires notice and hearing. Allowable administrative expenses include: the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case; certain taxes incurred by the estate, e.g., taxes attributable to an excessive allowance of a tentative carryback adjustment that the estate received, whether the taxable year to which the adjustment related ended before or after the commencement of the case, including any fine, penalty, or reduction in credit relating to taxes entitled to administrative relief; compensation and reimbursement of trustees, examiners, and professional persons employed by the estate. Persons rendering professional services must obtain court approval; actual necessary expenses of a creditor who, after court approval, recovers property for the benefit of the estate; prosecutes a criminal offense relating to the case, or to the debtor's property or business; parties, including certain creditors' committees, who make a substantial contribution in a case under chapter 9 or 11; and, the actual and necessary expenses of a chapter 11 committee member and those of a superseded custodian; reasonable compensation for professional services rendered by an accountant or attorney, and their actual, necessary expenses; reasonable compensation of an indenture trustee; and certain fees and mileage. 11 U.S.C. § 503. With two exceptions, the sharing of compensation (i.e. fee splitting) among trustees, examiners, professionals, attorneys and accountants is prohibited. Partners and associates in the same professional association are excepted, as are attorneys for petitioning creditors that join in a petition commencing an involuntary case. 11 U.S.C. § 504. The court may determine the amount or legality of any tax, any fine, or any penalty relating to tax, whether or not previously assessed, paid, or contested. The bankruptcy court may not make such a determination with respect to taxes when the issues have been adjudicated by an administrative or judicial tribunal before the commencement of the case. Nor may the court determine the right of the estate to a tax refund unless at least 120 days have passed since the trustee properly requested such refund, or, after such time, the governmental unit has not made a determination with respect to the refund request. The trustee may request a determination of any unpaid tax liability of the estate incurred during the administration of the case by submitting a tax return and a request for such a determination to the government. Upon payment of the tax due, or, unless the government notifies the trustee of its intent to examine the return and actually does so within specified time frames, the trustee and debtor will be discharged from any liability with respect to such tax. 11 U.S.C. § 505. The Code distinguishes secured from unsecured claims. A secured creditor is secured only to the extent of the value of the property securing the creditor's claim. To the extent that a lien secures a claim that is not allowed, it is void. The distinction between secured and unsecured is particularly import to the undersecured creditor, i.e., a creditor whose secured collateral is worth less than the amount of his claim. An undersecured creditor's claim is bifurcated—it is an allowed secured claim to the extent of the value of the collateral, and an unsecured claim for the balance of the allowed claim. The same treatment applies to a creditor who has a right to offset a mutual debt owing to the debtor, i.e., he will have an allowed secured claim to the extent of the setoff and an allowed unsecured claim for the balance. An oversecured creditor, that is, one whose collateral is worth more than the amount of the claim, will be allowed to receive interest on his claim and reasonable fees (including attorney fees), costs, or other charges provided under the agreement which is the basis for the claim. The trustee, however, may recover from the collateral the reasonable and necessary costs of preserving or disposing of such property to the extent that any benefit inures to the creditor. 11 U.S.C. § 506. The Code establishes priorities for the distribution of unsecured claims which may be divided into two categories—priority and nonpriority. Nonpriority unsecured claims will be paid only after payment of priority claims. Unfortunately, there is often little left in a bankruptcy estate for distribution to nonpriority unsecured creditors who may therefore receive only a scant percentage of the amount due. Although these priorities may be more important in a liquidation, or in reorganizations when a debtor's business ceases to operate, a reorganization plan must provide for unsecured creditors in ways consistent with the distributions contemplated under the statute. First priority is accorded to administrative expenses of the estate; Second priority goes to "involuntary gap" creditors, i.e., creditors whose claims arise in the ordinary course of the debtor's business or financial affairs after the filing of an involuntary petition but before either a trustee is appointed or an order for relief is entered; Third priority is designated for unsecured claims for wages, salaries, or commissions, but only to the extent of $4925 for each individual, including vacation, severance and sick leave pay earned by an individual or corporation within 90 days before the date of filing or the date of the cessation of the debtor's business, whichever occurs first; or, for sales commissions earned by an individual or by a corporation with only one employee acting as an independent contractor in the sale of goods or services for the debtor; Fourth priority is similar to the third but governs unsecured claims for contributions to an employee benefit plan arising from services rendered within 180 days before the filing or cessation of the debtor's business, but only to the extent of the number of employees covered by each such plan multiplied by $4925 less the aggregate amount paid to such employees under the third priority, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan; Fifth priority goes to the unsecured claims of persons engaged in the production or raising of grain against a debtor who owns or operates a grain storage facility, and of persons engaged as a United States fisherman against a debtor who operates a fish produce storage or processing facility, but only to the extent of $4925 for each such individual; Sixth priority is for allowed unsecured claims of individuals, to the extent of $2225 for each individual, arising from the deposit, before the commencement of the case, of money for the purchase, lease or rental of property, or the purchase of services for personal, family or household use that were not delivered or provided; Seventh priority—with no monetary limits—was added in 1994 and goes to allowed claims for debts to a spouse, former spouse, or child of the debtor, for alimony or support, in connection with a separation agreement, divorce decree, or property settlement; Eighth priority addresses unsecured claims by governmental units for a wide range of taxes, including income taxes, property taxes, withholding taxes, employment taxes, excise taxes, customs duties, and an erroneous tax refund or credit; and Ninth priority—with no monetary limits—is for allowed unsecured claims based upon a commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution. With respect to secured creditors, the Code grants a "super" priority to creditors for losses incurred by a secured creditor arising when it is determined that he received inadequate protection of his interests during the automatic stay, or in the trustee's use, sale or lease of estate property, and in credit transactions with a trustee authorized to operate a debtor's business. 11 U.S.C. § 507. An additional "super" priority exists for administrative expenses incurred after conversion of a chapter 11, 12, or 13 case to a chapter 7 liquidation. 11 U.S.C. § 726(b). A codebtor (i.e., surety, guarantor, or co-maker) who pays a claim is subrogated to the rights of the creditor to the extent of the payment. The court is required to subordinate the claim of a surety or codebtor of an obligation to a creditor of the estate, unless the creditor has been paid in full. 11 U.S.C. § 509. A subordination agreement is enforceable in bankruptcy to the same extent that such agreement is enforceable under applicable nonbankruptcy law. The Code also recognizes principles of equitable subordination, which generally hold that a claim or interest may be subordinated only if its holder is guilty of inequitable conduct. The bankruptcy court makes a determination of equitable subordination on a case-by-case basis. 11 U.S.C. § 510. The Code specifies five duties of the debtor that pertain to all cases. Although it is by no means exhaustive of all of the debtor's responsibilities in bankruptcy, the debtor must: file a list of creditors with the court, and, unless the court orders otherwise, a schedule of assets and liabilities and a statement of the debtor's financial affairs; if the debtor's debts include consumer debts which are secured by property of the estate and a petition is filed under chapter 7, the debtor must file a statement of his intention to retain or surrender the property and, if applicable, specify property that is claimed as exempt, property that he intends to redeem, or debts that he intends to reaffirm; cooperate with the trustee, if one is serving; surrender to the trustee all estate property and any recorded information (i.e. books, papers, records, documents relating to estate property); and appear at any hearing on discharge. 11 U.S.C. § 521. A legal treatise observes that "[f]ew people would voluntarily take any legal action which meant the surrender of so much of their possessions as to leave them destitute and virtually helpless." Hence, when an individual debtor's assets are liquidated, the law permits him or her to retain a certain minimum of money and property necessary to realize a "fresh start." Although it would be within Congress' authority to establish a uniform set of bankruptcy exemptions which would be binding upon the states by virtue of the Supremacy Clause, the Code does not do so. For policy considerations, including deference to states' rights, Congress permits not just that the debtor make an election between federal and state created exemptions, but permits the states to deny debtors the use of federal exemptions as well. Consequently, even though there is a significant variance between the states in the generosity of their exemptions, more than half have enacted laws that deny debtors the use of federal exemptions. When the debtor's state of domicile has not enacted legislation which precludes a debtor from electing federal exemptions, the following are available: the debtor's aggregate interest, not to exceed $18,450, in real or personal property that the debtor uses as a residence, or in a burial plot for the debtor or a dependent; the debtor's interest, not to exceed $2,950, in a motor vehicle; the debtor's interest, not to exceed $475, in any one item or $9,850 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held for personal or family use of the debtor; the debtor's aggregate interest, not to exceed $1,225, in jewelry held primarily for the personal use of the debtor; the debtor's aggregate interest in any property, not to exceed $975, plus up to $9,250 of any unused amount of the exemption for housing above; the debtor's aggregate interest, not to exceed $1,850, in any implement, professional books, or tools of the trade of the debtor; any unmatured life insurance contract owned by the debtor; the debtor's aggregate interest, not to exceed $9,850, in any accrued dividend under, or loan value of, any unmatured life insurance contract under which the insured is the debtor; professionally prescribed health aids; the debtor's right to receive social security benefits, unemployment compensation, public assistance benefits, veterans' benefits, disability, illness or unemployment benefits, alimony and support to the extent reasonably necessary; benefits under certain pension, profit sharing, stock bonuses, annuity or similar plan or contract, to the extent necessary for the support of the debtor; the debtor's right to receive property traceable to an award under a crime victim's reparation law; a payment on account of a wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor; a personal injury award not exceeding $18,450 for actual compensation (not including pain and suffering); and, payment in compensation for loss of future earnings, to the extent reasonably necessary for support. In states where federal elections are not permitted, the debtor would be limited to his exemptions under applicable state and nonbankruptcy federal statutes. In addition, property held by the debtor which would be exempt from process under applicable state nonbankruptcy law, including property held as a tenant by the entirety or joint tenant, may be exemptible. Exempt property is exempt from all prepetition claims, including nondischargeable ones, with specified exceptions. They include debts for certain nondischargeable taxes, alimony, maintenance and child support, debts secured by certain nonavoidable liens, and specified debts owned by a financial institution-affiliated party to a federal depository institutions regulatory agency. A debtor may be permitted to avoid certain judicial and nonpossessory, nonpurchase money liens which might otherwise impair a claim to exemptible property. These are liens created by the courts or by the debtor's consent which encumber property of the debtor that would be exemptible in bankruptcy but for the subject lien. In 1991, the Supreme Court held that judicial liens can be eliminated in bankruptcy even though a state has defined exempt property in such a way as to specifically exclude property encumbered by a judicial or nonpossessory, nonpurchase money lien. In other words, even if state law honored the encumbrance against property which would ordinarily be exemptible, the debtor nonetheless may avoid the subject liens. The 1994 amendments to the Code carve out a limited exception to this principle. In cases where the debtor is limited to, or has chosen, state law exemptions, if state law honors judicial or consensual liens on certain property that might otherwise be claimed as exempt, namely, implements, professional books, or tools of the trade, the debtor may not avoid the security interest to the extent that the value of such property is in excess of $5,000. A lien is considered to "impair" an exemption to the extent that the sum of the lien, all other liens on the property, and the amount of the exemption that the debtor could claim if there were no liens on the property exceeds the value that the debtor's interest in the property would have in the absence of any liens. Waiver. A debtor's waiver of an exemption in favor of an unsecured claim is unenforceable. Since a debtor is permitted to exempt property recovered by the trustee pursuant to his avoiding power, or recovered pursuant to a setoff, a waiver of those rights against property which may otherwise be exempted may also be unenforceable. 11 U.S.C. § 522. A "discharge" in bankruptcy affords the debtor a "fresh start." If a discharge is granted, the debtor's obligation to pay prepetition debt is extinguished. The manner of obtaining a discharge, and its effect, varies between individuals and businesses. The Code specifies what types of debt are dischargeable and nondischargeable, and the latter category includes many debts which the court will examine and decide upon on a case-by-case basis. A discharge voids any judgment to the extent that it is a determination of the personal liability of the debtor with respect to a prepetition debt, and operates as an injunction against the commencement or continuation of all legal and nonlegal actions to offset, recover, or collect a debt from the debtor or his property, whether or not discharge of such debt is waived. 11 U.S.C. § 524(a). In 1994, the Code was amended to ratify the approach taken by the Johns-Manville Corp., which established a trust under the auspices of the bankruptcy court to satisfy present and future personal injury claims against it based on exposure to asbestos-containing products. The Code expressly authorizes the creation of a trust to pay future claims for an asbestos-related disease, coupled with an injunction to prevent future claimants from suing the debtor. 11 U.S.C. § 524(g). Whether or not discharge has been waived, a reaffirmation by the debtor of a dischargeable debt is enforceable only to any extent enforceable under nonbankruptcy law and only if the agreement is made before discharge, and is not rescinded by the debtor within thirty days after it becomes enforceable. In the case of an individual who enters into a reaffirmation agreement, the court will scrutinize the agreement to determine that the debtor has entered into it with knowledge of his rights under Title 11 and with an understanding of its consequences. If the debtor was not represented by an attorney during the course of negotiating a pre-discharge reaffirmation agreement, the court must approve the agreement as (i) not imposing an undue hardship on the debtor and (ii) being in the best interest of the debtor. Nothing contained within the provisions addressing reaffirmation agreements is intended to prevent a debtor from voluntarily repaying any debt that is otherwise dischargeable under the Code. 11 U.S.C. § 524(c)(d)&(e). Certain debts are excepted from discharge under chapters 7, 11, and 13; the dischargeability of other types of debt must be determined by the court. Among those obligations which are excepted from discharge are: a customs duty or tax (income, property, employment, etc.) with respect to which a return was not filed; was filed after the due date and after two years before the date of filing the petition; was fraudulently prepared for the purpose of willfully evading or defeating the tax; debts which are not listed or scheduled by the debtor identifying the creditor so as to permit him to timely file a proof of claim (unless the creditor has actual knowledge of the case); debts to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, or under a property settlement agreement; a debt for a fine, penalty, or forfeiture payable to a governmental unit that is not compensation for actual pecuniary loss, other than a tax penalty relating to a tax that is otherwise dischargeable, or imposed with respect to a transaction or event that occurred three years before the bankruptcy filing; a debt for an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under a program funded by a governmental unit or a nonprofit institution unless failure to grant a discharge will impose an undue hardship on the debtor and the debtor's dependents; a debt which arises from death or personal injury caused by the debtor's operation of a motor vehicle while legally intoxicated; a debt that was or could have been listed by the debtor in a prior case under the Bankruptcy Code or its predecessor, the Bankruptcy Act, in which the debtor waived discharge or was denied discharge; a debt provided for in any final judicial judgment, order, or consent decree, or issued by a federal depository institutions regulatory agency, or contained in a settlement agreement, arising from any act of fraud or defalcation while the debtor was acting in a fiduciary capacity with respect to a depository institution or insured credit union; a debt arising from malicious or reckless failure to fulfill a commitment by the debtor to a federal depository institutions regulatory agency to maintain the capital of an insured depository institution; a debt for any payment of an order of restitution issued under Title 18 of the U.S. Code; a debt incurred to a third-party to pay a tax to the United States that would be nondischargeable under the provisions above; a debt for a postpetition fee or assessment from the debtor's condominium or cooperative membership association, but only if the fee or assessment is payable for a period during which the debtor physically occupied or rented the dwelling unit; a debt for costs, expenses, or a fee imposed by a court for filing a case, motion, complaint, or appeal regardless of an assertion of poverty by the debtor, or the debtor's status as a prisoner; a debt owed under state law to a state or municipality that is in the nature of support and is enforceable under part D of title IV of the Social Security Act, 42 U.S.C. § 601 ; a debt that arises from the violation of federal or state securities laws and regulations or settlement agreement, or from common law fraud, deceit, or manipulation in connection with the purchase or sale of any security. Certain types of debt may be discharged unless, at the request of a creditor to whom the debt is owed, the court, after notice and a hearing, finds the debt to be nondischargeable, namely: debts for money, property, services, or credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's financial condition; or, by use of a statement in writing that is materially false with respect to the debtor's financial condition which the creditor reasonably relied on, and that the debtor caused to be made or published with intent to deceive; or, for consumer debts owed to a single creditor aggregating more than $1,225 for "luxury goods or services" incurred by the debtor within sixty days before the order for relief, or cash advances aggregating more than $1,225 obtained by an individual debtor within sixty days before the order for relief. debts for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; debts for willful and malicious injury by the debtor to another entity or to the property of another entity; and a debt incurred by the debtor in the course of a divorce decree, separation agreement or court order (other than those described above for alimony, maintenance, or support) unless the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance and support of the debtor and the debtor's dependents, and, if the debtor is engaged in a business, for the payment of expenditures necessary for continuation and preservation of such business; or, discharging the debt would result in a benefit to the debtor that outweighs the detrimental consequence to a spouse, former spouse, or child of the debtor. 11 U.S.C. § 523. A governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to a debtor, or condition such grant or discriminate with respect to such grant solely because a debtor is insolvent prior to, or has filed for protection under the Code; it may not discriminate against, deny, or terminate the employment of, or discriminate with respect to employment against a person solely because the debtor is or has been a debtor under the Bankruptcy Code, or has not paid a debt that is discharged. No private employer may terminate the employment of, or discriminate with respect to employment against an individual who is or has been a debtor under the Code solely because of the insolvency prior to bankruptcy, the bankruptcy filing, or because the debtor has not paid a debt that is dischargeable or was dischargeable in bankruptcy. No government unit or private lender may deny a student loan or loan guarantee to an individual on account of the individual having filed in, or received a discharge in bankruptcy. 11 U.S.C. § 525. This section does not, however, prevent lenders from considering the fact of a bankruptcy when deciding to extend credit. Pursuant to 15 U.S.C. § 1681c, credit reporting agencies may report an individual's action under the Bankruptcy Code for 10 years after the filing of the order for relief or the date of adjudication; the 10 year limit does not apply to credit transactions involving a principal amount of $50,000 or more, the underwriting of life insurance involving a face amount of $50,000 or more, or the employment of an individual at an annual salary of $20,000 or more. A trustee is always appointed to preside over the consolidation and ultimate distribution of the estate in a chapter 7 liquidation. Promptly after an order for relief is entered, the U.S. Trustee is directed to appoint an interim trustee. If necessary, the U.S. Trustee may serve as an interim trustee. 11 U.S.C. § 701. At the first meeting of creditors, they may vote to elect one person to serve as trustee if election is requested by creditors who may vote. A creditor may vote only if he (i) holds an allowable, undisputed, fixed, liquidated, unsecured claim that is not entitled to priority, but is entitled to distribution; (ii) does not have an interest materially adverse to the general unsecured creditors; and (iii) is not an insider. A candidate for trustee is elected if general unsecured creditors holding 20% of the amount of such claims actually vote, and if the candidate receives a majority of those votes. The interim trustee serves as the permanent trustee in the case if a trustee is not so elected. 11 U.S.C. § 702. If an elected trustee fails to qualify, dies, resigns, or is removed for cause during the case, the creditors may elect another trustee in the manner described above to fill the vacancy. Pending such election, or if the creditors do not elect a successor trustee, the United States Trustee may appoint an interim or successor trustee, or, if necessary, serve as trustee in the case. 11 U.S.C. § 703. A chapter 7 trustee must: collect and reduce to money the property of the estate and close the estate as expeditiously as is compatible with the best interests of the parties involved; be accountable for all property received; ensure that the debtor performs his declared intention with respect to property to be retained, surrendered, exempted, or redeemed, and with respect to debts which the debtor intends to reaffirm; investigate the debtor's financial affairs; if a purpose would be served, examine proofs of claims and object to the allowance of claims that appear to be improper; if advisable, oppose the discharge of the debtor; unless the court orders otherwise, furnish such information concerning the estate that is requested by a party in interest; if the business of the debtor is authorized to be operated, file with the court, with the U.S. Trustee, and with appropriate governmental tax units, periodic reports and summaries of the operation of such business, including a statement of receipts and disbursements; and make a final report and a final account of the administration of the estate with the court and with the U.S. Trustee. 11 U.S.C. § 704. Unsecured creditors entitled to vote for a trustee may also elect a creditors' committee composed of not less than three nor more than eleven creditors. The committee may consult with the trustee or the U.S. Trustee in connection with the administration of the estate, make recommendations respecting the performance of the trustee's duties, and submit to the court or to the U.S. Trustee any question affecting the administration of the estate. 11 U.S.C. § 705. If it is consistent with the orderly liquidation of the estate, and in the estate's best interest, the court may authorize a trustee to operate the debtor's business for a limited period. 11 U.S.C. § 721. The debtor may redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt by paying the lienholder the amount of his allowed claim secured by such lien. 11 U.S.C. § 722. This statute provides that each general partner in a partnership debtor is liable to the partnership's trustee for any deficiency in partnership assets to pay in full all administrative expenses and all claims against the partnership to the extent that the general partner is personally liable under applicable nonbankruptcy law. The trustee may seek recovery of any deficiency from any general partner who is not a debtor in a bankruptcy case. The court may order the nondebtor partner to indemnify the estate or not to dispose of property pending a determination of the deficiency. If the aggregate recovered by the trustee from the estates of the general partners exceeds the deficiency, the court, after notice and hearing, shall determine an equitable distribution for the surplus which the trustee shall distribute to the estates of the general partners. 11 U.S.C. § 723. The trustee is permitted to avoid a lien that secures a fine, penalty, forfeiture, or multiple, punitive, or exemplary damages claims to the extent that the claim is not compensation for actual pecuniary loss. The statute also deals with the order of distribution of property upon which there may be an unavoidable tax lien. The Code subordinates payment of certain tax liens in favor of other interests. Property, or proceeds would first be distributed to a holder of an allowed claim secured by a lien on the property that is senior to the tax lien; second, for administrative expenses and to holders of specified high-priority unsecured claims; third, to the holder of the tax lien; fourth, to the holder of an allowed claim secured by a lien that is junior to the tax lien; fifth, to the holder of the tax lien, if there are still proceeds for distribution; and sixth, to the estate. 11 U.S.C. § 724. The order for distribution of property of the estate which is not designated as collateral for a secured interest is set forth at 11 U.S.C. § 726, namely: in payment of administrative expenses and high-priority unsecured claims set forth at 11 U.S.C. § 507, discussed supra ; to general unsecured creditors whose claims are timely filed (either by the creditor, or a trustee, debtor or codebtor on behalf of the creditor) or are tardily filed because the creditor had no notice or actual knowledge of the case, and proof of such claim is filed in time to permit its payment; to general unsecured creditors who tardily file their claim; in payment of secured or unsecured allowed claims for a fine, penalty, forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that they are not compensation for actual pecuniary loss suffered by the claimholder; in payment of post-petition interest (at the legal rate) on any claim above; and to the debtor. Claims within a particular class are to be paid pro rata when there are not enough funds to pay each claimant in full. A superpriority, however, is conferred upon administrative expenses incurred under chapter 7 over administrative expenses which arose in another chapter (i.e., 11, 12, or 13) before it was converted to chapter 7, and over expenses incurred by a custodian in preserving a debtor's property prior to its turnover by the custodian to a trustee. Community property of the debtor and spouse are segregated and dealt with separately. The discharge is at the heart of the "fresh start" for the debtor. The court is required to grant the debtor a discharge in bankruptcy unless one of ten of the following conditions are met: the debtor is not an individual; the debtor has, with intent to hinder, delay, or defraud a custodial officer of the estate, or a creditor, transferred, removed, destroyed, mutilated, or concealed his property within one year before the filing date of the petition; or property of the estate after such filing date; or has permitted such acts to be done; the debtor has concealed, destroyed, mutilated, falsified or failed to keep or preserve records, books, documents, papers, etc. from which his financial condition or business transactions might be ascertained—unless the failure is justified under the circumstances; the debtor knowingly and fraudulently made a false oath or account; presented a false claim; gave, received, or attempted to obtain money, property, or advantage, for acting or forbearing to act; or, withheld from an officer of the estate any information relating to the debtor's financial affairs; the debtor, before determination of a denial of discharge, fails to satisfactorily explain a deficiency of assets to meet his liabilities; the debtor refuses to obey lawful court orders (other than one to respond to a material question or to testify); to respond to a material question approved by the court on the ground of the privilege against self-incrimination after the debtor has been granted immunity; to respond to a court approved question on a ground other than a properly invoked privilege against self-incrimination; the debtor commits any act specified above on or within one year before the filing of the petition, or during the case, or in connection with another bankruptcy case concerning an insider; the debtor has been granted a discharge under chapter 7 or chapter 11 in a case commenced within six years before the filing of the petition; the debtor has been granted a discharge under either chapter 12 or 13 in a case commenced within six years before the date of the filing of the petition, unless payments under the reorganization plan totaled at least (i) 100 percent of the allowed unsecured claims in the case, or (ii) 70 percent of such claims and the plan was proposed by the debtor in good faith and was the debtor's best effort; or the court approves a written waiver of discharge executed by the debtor after the order for relief is entered. 11 U.S.C. § 727(a). With the exception of debts that are nondischargeable, a chapter 7 discharge, when granted, discharges the debtor from all debts and liability on claims that arose before the date of the order for relief. It is irrelevant whether or not a proof of claim was filed with respect to the debt, and whether or not the claim based on the debt was allowed. 11 U.S.C. § 727(b). The trustee, a creditor, or the U.S. Trustee may ask the court to revoke a discharge if it was obtained through the fraud of the debtor and the requesting party did not know of the fraud until after the discharge was granted. The complaint for revocation must be made within one year of the grant of discharge. Other grounds for revocation are the debtor's having acquired property of the estate, having become entitled to acquire property, and knowingly and fraudulently failing to report the acquisition or entitlement, or to surrender the property to the trustee; or, if the debtor refused to obey lawful orders of the court and failed to testify when required to do so. Complaint must be made before the later of one year after the granting of the discharge or the date the case is closed. The court, after notice and a hearing, may revoke the discharge on these grounds. 11 U.S.C. § 727(c), (d), & (e). For purposes of state and local income taxes, the taxable period of a debtor that is an individual terminates on the date the order for relief is entered under chapter 7, unless the case was converted from chapter 11 or 12. If an individual or corporate debtor has net taxable postpetition income, or if the debtor is a partnership, the trustee shall file a return for each taxable period during which the case was pending. Special provision is made for the taxation of partnerships. 11 U.S.C. § 728. Most individuals or businesses that are eligible to file under chapter 7 may file for reorganization under chapter 11. This chapter, however, is designed to accommodate complicated, publicly-held corporate reorganizations as well as those of lesser magnitude and, consequently, it is procedurally more elaborate and expensive to effectuate than a reorganization under chapter 12 or 13. To illustrate, this chapter contemplates the creation of creditor committees, the employment of professionals to assist the committees, the solicitation of creditor votes to accept or reject a reorganization plan, and the exchange and issuance of new securities by the debtor. The applicable time frames for action under chapter 11 are adjusted accordingly. The Bankruptcy Reform Act of 1994 amended chapter 11 to expedite procedures for "small business" reorganizations. A qualified small business debtor would be permitted to dispense with creditor committees; would have an exclusivity period for filing a plan of 100 days; and, would be subject to more liberal provisions for disclosure and solicitation of acceptances for a proposed reorganization plan. Highlights of the statutory requirements for a chapter 11 reorganization are examined below. As soon as practicable after entry of an order for relief in a chapter 11 reorganization case, the U.S. Trustee appoints a committee of unsecured claim holders, and such additional committees as may be requested by a party or parties in interest. A small business debtor may, for cause, request the court to waive appointment of a creditors committee. Ordinarily, the committee is composed of creditors willing to serve holding the seven largest claims of the kind represented by the committee (e.g., an equity security holders' committee would be composed of those persons holding the seven largest amounts of equity securities). Or, the committee might be comprised of the members of a creditor's committee organized before the order for relief if it was fairly chosen and is representative of the different kinds of claims to be represented. If the committee membership is not representative of the different claims and interests, the court, on request of a party in interest, may order the appointment of additional committees. The U.S. Trustee will appoint the committees. 11 U.S.C. § 1102. A creditors' committee may: with court approval, employ accountants, attorneys, or other agents to represent or perform services for the committee; consult with the trustee or debtor in possession concerning the administration of the case; investigate the debtor's financial condition, the operation of its business and the desirability of continuing such business, and any other matter relevant to the case or the formulation of the plan; participate in the formulation of a plan and collect and file acceptance of the plan; request the appointment of a trustee or examiner if one has not been previously appointed; and perform such other services as are in the interest of those represented. 11 U.S.C. § 1103. At any time after the commencement of the case but before confirmation of a plan, on request of a party in interest or the U.S. Trustee, the court, after notice and a hearing, may order the appointment of a trustee (1) for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management; or (2) if the appointment is in the interest of creditors. If the court does not order the appointment of a trustee to run the debtor's business, it may appoint an examiner to conduct an investigation of the debtor, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity, if the appointment is in the interests of creditors, or the debtor's unsecured debts to an insider exceed $5,000,000. 11 U.S.C. § 1104. The court may, at any time before confirmation of a plan, terminate the trustee's appointment and restore the debtor to possession and management of the debtor's business. 11 U.S.C. § 1105. If a trustee or examiner is appointed in the manner discussed above, he or she must perform the following duties: account for all property received; if a purpose would be served, examine proofs of claims and object to improper claims; unless otherwise ordered by the court, furnish such information requested by a party in interest concerning the estate's administration; if operation of the debtor's business is authorized, file periodic reports and summaries of such operation, including a statement of receipts and disbursements, with those governmental units responsible for collecting and determining a tax; make and file a final report and account of the estate's administration with the court; if the debtor has not done so, file a list of creditors; a statement of the debtor's financial affairs; and a schedule of assets and liabilities; except to the extent the court orders otherwise, investigate the conduct and the financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of the business; file a statement with the court and with appropriate creditors' committee summarizing the investigation, including any facts pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor, or to a cause of action available to the estate; as soon as practicable, file a reorganization plan or a report of why the trustee will not file a plan, or recommend conversion of the case to one under chapter 7, 12, or 13, or dismissal; furnish information required by taxing authorities for any year for which the debtor has not filed a tax return; and after confirmation of a plan, file such reports as are necessary or as the court orders. An examiner may be required to perform the investigative duties specified above, or any other duties of the trustee that the court orders the debtor in possession not to perform. 11 U.S.C. § 1106. This section places a debtor in possession in the shoes of a trustee in every way. A debtor in possession has all the rights of a trustee with respect to management of the bankruptcy estate during reorganization, subject to such limitation or conditions as the court prescribes, and excluding the investigative and reporting duties which a trustee would perform. 11 U.S.C. § 1107. Unless the court orders otherwise, a chapter 11 debtor's business may continue to operate, i.e., it is not necessary to go to court to obtain an order authorizing the business' operation. 11 U.S.C. § 1108. This provision grants the Securities and Exchange Commission the right to appear, raise, and be heard on any issue in a reorganization case, but not to appeal from any judgment, order, or decree entered in the case. The same right to be heard is extended also to creditors, equity security holders, creditors' and equity security holders' committees, the debtor, the trustee, or any indenture trustee or other party in interest. 11 U.S.C. § 1109. In a chapter 11 reorganization, every unsecured creditor and equity security holder need not file a proof of claim. The debtor's schedules of claims will be accepted unless a claim is listed as disputed, contingent, or unliquidated. A secured claim is treated as a recourse claim whether or not the claim is non-recourse. Thus, when a secured creditor is undersecured, the creditor will have an unsecured claim for the deficiency, regardless of whether a claim for the deficiency was permitted in the original loan. An additional benefit is conferred upon chapter 11 secured creditors which permits them to elect to be treated as secured up to the full amount of the allowable claim, even if it exceeds the value of the collateral. This preferred status terminates if the property securing the claim is sold during the proceeding or under the plan. The preferred status also terminates if the class (by at least 2/3 rd s in amount and more than ½ in number of the allowed claims) elects not to be so treated. A class may elect the application only if the security is not of inconsequential value and, if the creditor is a recourse creditor, the collateral is not sold during the proceeding or under the plan. If the election is made, the claim is a secured claim to the extent that such claim is allowed (rather than, as provided elsewhere in the Code, a secured claim being secured only to the extent of the value of the collateral). 11 U.S.C. § 1111. Prior to enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984, the Supreme Court held that collective bargaining agreements were executory contracts that could be rejected by a debtor. In response to the Court's interpretation of a debtor's ability to reject a collective bargaining agreement in reorganization, Congress enacted a statute which prescribes the procedures that a trustee or a debtor in possession must take before it may alter the terms of or terminate a collective bargaining agreement. After a petition is filed, if the debtor wishes to alter or terminate the collective bargaining agreement, it must supply the authorized representative of the employees complete and reliable information to demonstrate the need, in order to facilitate a reorganization, for the modifications to the employees' benefits and protections. The employee and debtor must engage in good faith negotiations with respect to proposals for alteration or termination of such agreements. If the debtor files an application to reject a collective bargaining agreement, the court is directed to schedule a hearing for not later than fourteen days after the filing. All interested parties may attend and participate in the hearing and the court should rule on the application within thirty days after the beginning of the hearing. The court may approve the application for rejection only if it finds (i) that the debtor, prior to the hearing, provided the authorized representative of the employees with the necessary information; (ii) the authorized representative has refused to accept the proposal without good cause; and, (iii) the balance of the equities clearly favors rejection. In addition the court may, after a hearing, authorize interim changes in the terms, conditions, wages, benefits or work rules provided by a collective bargaining agreement, when it is still in effect, if it is essential to the continuation of the debtor's business or is necessary to avoid irreparable damage to the estate. The implementation of interim changes does not, however, moot the procedures and requirements for an application for rejection. 11 U.S.C. § 1113. Like § 1113 above, § 1114 of the Code deals with the treatment of a corporate debtor's employees, i.e., retirees, throughout the period of reorganization. Specifically, the debtor may not terminate retirees' health and life insurance benefits unless permitted to do so by the court, or with the consent of the retirees. The debtor must, subsequent to filing the bankruptcy petition and prior to filing an application to modify retiree benefits, negotiate with the authorized representatives of the retirees and demonstrate the need for modifications in the retiree benefits based upon the most complete and reliable information available to permit the reorganization of the debtor and assure that all creditors, the debtor, and all affected parties will be treated fairly and equitably. The court may enter an order providing for modification of retiree benefits if it finds that the debtor has fulfilled its disclosure and negotiation requirements, the authorized representative of the retirees has refused to accept the proposal without good cause, and, the modification is necessary to permit the reorganization of the debtor. The court may not enter a modification order which provides for benefits at a level lower than that proposed by the debtor. Nor does the entry of a modification order prohibit authorized representatives from applying to the court for an order increasing benefits at a later time. When a modification order is filed, the court must schedule a hearing to be held not later than fourteen days after the filing of the application; it must rule on the application within ninety days after the commencement of the hearing. The court may, however, after notice and a hearing, authorize interim modifications at any time prior to its issuing a final order if essential to the continuation of the debtor's business, or in order to avoid irreparable damage to the estate. Payments of benefits to retirees prior to confirmation of a reorganization plan are to be treated as high priority administrative expenses. Such payments may not be deducted or offset from the amount allowed as claims for any benefits which remain unpaid, or from the amounts to be paid under the reorganization plan. The limitations on the modifications of retiree benefits do not apply to any retiree, or the spouse or dependents of the retiree, if the retiree's gross income for the year preceding the bankruptcy filing exceeds $250,000 unless the retiree can demonstrate to the court that he is unable to obtain comparable health, medical, life, and disability coverage for himself, his spouse, and his dependents—who would otherwise be covered by the debtor's insurance plan. The debtor may file a plan with the petition in a voluntary case, or at any time in a voluntary or involuntary case. After the order for relief is entered, the debtor has an exclusive 120 day period to file a plan. Any other party in interest, other than a U.S. Trustee, may file a plan if (i) a trustee has been appointed; (ii) the debtor has not filed a plan before 120 days after the order for relief; or, (iii) the debtor has not filed a plan that has been accepted by each class of impaired creditors (see infra ) before 180 days after the entry of the order for relief. The court may extend the respective 120-day and 180-day periods "for cause." A small business debtor has an exclusive 100 day period to file a plan. All plans must be filed within 160 days of the order for relief. On request of a party in interest, the court may, for cause, extend or reduce the time periods involved. But, the court may increase the debtor's 100-day period of exclusivity only if the debtor demonstrates the need for an increase "caused by circumstances for which the debtor should not be held accountable." 11 U.S.C. §§ 307, 1121. The reorganization plan must place each claim or interest in a class that is substantially similar. An exception is provided in that the plan may designate a separate class of claims consisting only of every unsecured claim that is less than, or reduced to, an amount that the court approves as reasonable and necessary for administrative convenience, e.g., unsecured claims under $500. 11 U.S.C. § 1122. In order to be confirmed, the reorganization plan must meet specified statutory criteria. The plan must: designate classes of claims and interests as described above; specify any class of claims or interests that is not impaired under the plan; specify the treatment of impaired classes of claims and interests under the plan; provide the same treatment for each claim or interest of a particular class, unless the holder thereof agrees to a less favorable treatment of his claim or interest; provide adequate means for the plan's implementation, such as: i) the debtor's retention of all or any part of the estate property; ii) the transfer of part or all of the estate property to one or more entities organized before or after the plan's confirmation; iii) merger or consolidation of the debtor with one or more persons; iv) sale of all or any part of estate property either free of or subject to any lien, or the distribution thereof among those having an interest in such estate property; v) satisfaction or modification of any lien; vi) cancellation or modification of any indenture or similar instrument; vii) curing or waiving any default; viii) extending the maturity date, interest rate or other term of outstanding securities; ix) amendment of the debtor's charter; or x) issuance of securities of the debtor, or of any entity, for cash, property, existing securities, or in exchange for claims or interests, or for any other appropriate purpose; provide for inclusion in the corporate debtor's charter, or any corporate successor to the debtor, of a provision prohibiting the issuance of nonvoting equity securities and providing for an appropriate distribution of voting power. In the case of a class of equity securities having a dividend preference, the plan must have adequate provisions for the election of directors representing such a preferred class in the event of a default in the payment of such dividends; and contain only provisions that are consistent with the interest of creditors and equity security holders and with public policy with respect to the manner of selection of any officer, director, or trustee under the plan and any successor to such officer, director, or trustee. Subject to the above conditions, the plan may: impair, or leave unimpaired, any class of claims, secured or unsecured, or of interests; subject to the Code provisions respecting executory contracts and unexpired leases, the plan must also provide for the assumption or rejection of any executory contract or unexpired lease not previously rejected pursuant to the Code; provide for the settlement or adjustment of any claim or interest belonging to the debtor or to the estate, or for the retention or enforcement of any claim or interest; provide for the sale of all or substantially all of the estate property with the distribution of the proceeds of sale among creditors and equity security holders; modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims; and any other provision that is not inconsistent with the Code. In a case concerning an individual, a plan proposed by a party other than the debtor may not provide for the use, sale, or lease of the debtor's exempt property unless the debtor gives his consent. If a plan proposes to cure a default, the amount necessary to cure it shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law. 11 U.S.C. § 1123. Simply put, an "impaired" claim is one that is materially and adversely affected by the bankruptcy and reorganization plan. Impaired creditors have a greater role in the acceptance or rejection of a reorganization plan than those whose claims are relatively unaffected thereby. To be unimpaired, the treatment of a claim under the reorganization plan must satisfy one of three statutory criteria: a) the plan must leave unaltered the legal, equitable, or contractual rights to which the claim or interest entitled its holder; or b) the plan must cure the effect of a default that occurred before or after the commencement of a case, reinstate the maturity of such claim or interest, compensate the holder for damages incurred as a result of the reinstatement, and, leave unaltered the legal, equitable, or contractual rights to which the claim or interest entitles the holder. 11 U.S.C. § 1124. In order to have a reorganization plan accepted, the debtor, other than a small business debtor, must provide creditors with information about the proposed plan and solicit votes accepting it. Although the debtor may not solicit votes accepting the plan without prior court approval, the debtor may negotiate with various creditors and creditor committees throughout the period in which the plan is formulated. The Code prohibits solicitation of votes accepting or rejecting a plan after the filing of a case unless, at the time of or before such solicitation, there is transmitted to the solicitee (creditor) either the plan or a summary of the plan, and a written disclosure statement approved by the court as containing adequate information. A small business debtor may solicit acceptances based on a disclosure statement that is conditionally approved by the bankruptcy court and mailed to creditors at least 10 days prior to the confirmation hearing so long as the debtor provides adequate information to creditors. "Adequate information" is defined to mean information in sufficient detail to enable a hypothetical reasonable investor to make an informed judgment about the plan, but need not include information about any other possible or proposed plans. Although a court may approve a disclosure statement without a valuation of the debtor or his assets, in some cases a valuation and appraisal may be necessary to develop adequate information. The bankruptcy court's decision whether a disclosure statement contains adequate information is not governed by any otherwise applicable nonbankruptcy law, rule, or regulation. However, the official or agency responsible for administering or enforcing such law, rule, or regulation, e.g., the Securities and Exchange Commission or a State Corporation Commission, may appear and be heard on the issue, but may not appeal an order approving a disclosure statement. Likewise, an individual who solicits acceptance or rejection of a plan, in good faith and in compliance with the applicable provisions of the Code, or who participates in the offer, issuance, sale or purchase of a security offered or sold under the plan, is not liable on account of such activities for violation of securities laws that are rendered nonapplicable in the bankruptcy forum. 11 U.S.C. § 1125. Claim and interest holders, or, in the case of the United States, the Secretary of the Treasury, are permitted to accept or reject a plan of reorganization. With respect to prepetition solicitation, an acceptance or rejection is valid so long as the solicitation was in compliance with applicable nonbankruptcy laws governing disclosure, or if it occurred after disclosure of "adequate information" in compliance with the Code. The Code makes certain presumptions with respect to postpetition solicitation and acceptance. A class of claims or interests is deemed to accept a plan if it is not impaired thereunder. In this case, solicitation is not required. Contrarily, if the reorganization plan provides that the claims or interests of a certain class do not entitle its holders to any payment or compensation, they are deemed to reject the plan. Of the classes of claim holders who actually vote, a class has accepted a plan when creditors (excluding any whose acceptance or rejection was not in good faith) holding two-thirds in amount and more than one-half in number of the allowed claims cast votes in favor therefor. A class of interests has accepted a plan if it has been accepted, in good faith, by holders of two-thirds in amount of the allowed interest of such class. 11 U.S.C. § 1126. The proponent of a plan may modify it at any time before confirmation. After confirmation and before substantial consummation, it may be modified at any time by the plan's proponent or the reorganized debtor. The modified plan must be in compliance with chapter 11's provisions regarding classification of claims and interests; contents of a plan; and post-petition disclosure and solicitation. The pre-confirmation modified plan becomes the plan when it is filed with the court. The post-confirmation modifications take place only if the court, after notice and hearing, confirms the plan as modified. Any holder of a claim or interest that has accepted or rejected the plan is deemed to have accepted or rejected, as the case may be, the plan as modified unless, within the time fixed by the court, such holder changes the previous acceptance or rejection. 11 U.S.C. § 1127. After notice, the court holds a confirmation hearing at which a party in interest may appear and enter any objections to the plan's confirmation by the court. 11 U.S.C. § 1128. In order for the court to confirm a reorganization plan, it must satisfy all of the statutory requirements: (1) The plan, and its proponent, have complied with the applicable provisions of the chapter; (2) the plan was proposed in good faith and not by any means forbidden by law; (3) payments made, or promised, for services, costs, or expenses, either in or incident to, or in connection with a case or plan, must (i) be disclosed to the court, (ii) be reasonable, or (iii) be approved as reasonable by the court if such payment is to be fixed after confirmation; (4) the plan's proponent has disclosed the identity and affiliation of any individual proposed to serve as an officer of the reorganized debtor after confirmation, and the appointment is consistent with the interests of the creditors, equity security holders, and public policy; and, the proponent has disclosed the identity of any insider that will be employed or retained by the reorganized debtor, and the nature of any compensation for such insider; (5) any regulatory commission having jurisdiction over the debtor after confirmation of the plan has approved any rate change provided for in the plan, or, in the alternative, such rate change is expressly conditioned on such approval; (6) with respect to each class of impaired claims or interests, (i) each holder of a claim or interest has accepted the plan, or will receive under the plan property of a value that is not less than the amount that the holder would receive if the debtor were liquidated under chapter 7; or (ii) if a class of undersecured creditors has elected to be treated as a secured creditor to the extent of the value of the collateral securing their claim, and as an unsecured creditor for the amount of the deficiency between their debt and such value, each claimholder of the class will receive or retain, on account of such claim, property of a value that is not less than the value of such creditor's interest in the estate's interest in the property securing the claim; (7) with respect to each class, such class has accepted the plan or is not impaired under the plan; (8) except to the extent that a holder of a particular claim has agreed to a different treatment of such claim, the plan provides that each holder: (A) of an administrative expense claim and an "involuntary gap" claim will receive cash equal to the allowed amount of such claim; (B) in a class of claims for (i) wages, salaries, commissions, vacation, severance and sick leave pay; (ii) contributions to employee benefit plans; and, (iii) deposits in connection with the purchase, lease or rental of property, each claimholder of a claim of such class will receive cash equal to the allowed amount of such claim if the class has not accepted the plan; or, deferred cash payments equal to the allowed amount of such claim if the class has accepted the plan; (9) at least one class of claims has accepted the plan, determined without including any acceptance of the plan by an "insider" holding a claim of such class; (10) confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization of the debtor, or any successor to the debtor under the plan unless such liquidation or reorganization is proposed in the plan; (11) all bankruptcy fees have been paid, or will be paid under the plan. The Code does permit the court, in specified circumstances, to confirm a reorganization plan when one or more classes of impaired creditors have voted not to accept it. The court may do so when it finds that "the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted the plan." In order for a plan to meet the statutory criteria of "fair and equitable," it must satisfy the following requirements: (1) Secured creditors must retain the lien and receive on account of the claim deferred cash payments equal to the value of the allowed claim as of the effective date of the plan; or, if the property securing the claim is sold, the lien must attach to the proceeds; or, the creditors must receive the "indubitable equivalent" of the claim; (2) Unsecured creditors must receive property of a value as of the effective date of the plan equal to the allowed amount of such claim; or, no junior claim or interest holder will receive anything; (3) Each class of interests must receive or retain property of a value equal to the greater of (i) the allowed amount of any fixed liquidation preference to which such holder is entitled; (ii) any fixed redemption price to which such holder is entitled; or, (iii) in the absence of such value, then no junior interest holder will receive anything. The court may confirm only one reorganization plan, unless a confirmation order has been revoked. If confirmation requirements are met by more than one submitted plan, the court must consider the preferences of creditors and equity security holders in determining which plan to confirm. The court may not confirm a plan if its principal purpose is the avoidance of taxes or the avoidance of specified provisions under federal securities law. 11 U.S.C. § 1129. The provisions of a confirmed plan bind the debtor and any entity issuing securities or acquiring property under the plan; it binds all impaired, unimpaired, accepting and unaccepting creditors, equity security holders, and general partners. Except as otherwise provided in the plan, confirmation vests all of the property of the estate in the debtor, and the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners. Except as otherwise provided, confirmation discharges the debtor from all debts in existence when the case was filed, debts which arose after the filing and before the order of confirmation, all debts arising from the rejection of executory contracts and unexpired leases, claims arising from the recovery of property, and specified post-petition debts with priority status owing to taxing authorities. Confirmation does not discharge an individual debtor from any debt excepted from discharge under § 523 of the Code. Nor does it discharge a debtor if the plan provides for the liquidation of all or substantially all of the property of the estate; if the debtor does not engage in business after consummation of the plan; and, if the debtor would be denied a discharge under chapter 7 if the case were a case under chapter 7. 11 U.S.C. § 1141. On request of a party in interest at any time before 180 days after the entry date of the confirmation order, the court, after notice and hearing, may revoke such order if and only if it was procured by fraud. A court order revoking the confirmation must revoke the discharge of the debtor and contain any provision necessary to protect any entity acquiring rights in good faith reliance on the confirmation. 11 U.S.C. § 1144. Notwithstanding any otherwise applicable nonbankruptcy law, rule, or regulation relating to financial condition, the debtor and any entity organized to carry out the plan shall do so and comply with any order of the court. The court may direct the debtor, and any other necessary party, to execute or deliver any instrument required to effect a transfer of property dealt with by a confirmed plan, and to perform any other act, including the satisfaction of any lien, that is necessary for the consummation of the plan. 11 U.S.C. § 1142. The Code fixes a five year limitation (running from the date of entry of the order of confirmation) for presentment or surrender of securities or the performance of any other act that is a condition to participation in distribution under the plan. Failure to take the appropriate action bars the entity from participation in the distribution under the plan. 11 U.S.C. § 1143. The Code grants limited exemptions from the registration and prospectus requirements of § 5 of the Securities and Exchange Act of 1933, 15 U.S.C. § 77e, and state and local registration requirements respecting the offer of sale of a security and the registration or licensing of an issuer or underwriter of, or a broker or dealer in, securities. The limited exemption applies to: the offer or sale, under the plan, of securities in exchange for a claim (including an administrative expense claim) against, or an interest in, the case of the debtor, an affiliate in a joint case, or a successor; the offer or sale of a security through, or upon the exercise of, any warrant, option, subscription right, or conversion privilege; offers and sales of a limited amount of unregistered portfolio securities owned by the debtor; creditors and equity interest holders who receive a security pursuant to the plan if they resell the security within 40 days of the public offering by the issuer or underwriter, provided a disclosure statement approved under the Code has been provided at or before the time of such transaction by such stockholder. The Code also provides that an offer of sale of securities under the plan is deemed a public offering; and, that the Trust Indenture Act of 1939, 15 U.S.C. § 77aaa et seq ., does not apply to a commercial note issued under the plan and maturing not later than one year after the plan's effective date. 11 U.S.C. § 1145. For state and local income tax purposes, the taxable period of a debtor that is an individual terminates on the date of the order for relief under chapter 11 unless the case was converted from chapter 7. The trustee must file state or local income tax returns for the estate of an individual debtor under chapter 11 for each taxable period after the order for relief during which the case is pending. The issuance, transfer, or exchange of a security of a confirmed plan may not be taxed under any law imposing a stamp tax or similar tax. The court may authorize the proponent of a reorganization plan to request a determination from a state or local income tax authority of questions of law regarding the tax effect of the plan. In the event of an actual controversy, the court may declare such effects after either the response of the governmental unit or 270 days after the request is made. 11 U.S.C. § 1146. Chapter 13 contemplates a more expedited and streamlined procedure for individual, i.e., consumer reorganization than that provided for under chapter 11. In contrast to chapter 11, a chapter 13 reorganization always requires the participation of a standing trustee. It does not establish creditor committees, nor do creditors vote to accept or reject a plan of reorganization, although they are given the opportunity to accept certain provisions and interpose objections. Only the debtor may propose the reorganization plan, which must be completed within a specified three to five year time frame. A debtor receives a discharge of indebtedness not upon confirmation, but upon completion of all payments under the plan. The more significant procedural features are examined below. In addition to the automatic stay, which operates to prevent creditors from engaging in collection activities after an order for relief is filed, chapter 13 imposes an additional stay on creditor attempts to collect on consumer debts against those who may be liable with the debtor. The purpose of this provision is to protect a chapter 13 debtor by insulating him from indirect pressures from his creditors exerted through friends or relatives that may have cosigned an obligation of the debtor and who otherwise may be subject to the creditor's collection efforts. Specifically, a creditor may not act, commence, or continue any civil action to collect a consumer debt from any individual that is liable on the debt with the debtor, or that secured such debt unless (1) the individual became liable on the debt in the ordinary course of the individual's business, or (2) the case is closed, dismissed, or converted to a case under chapters 7 or 11. A creditor may, however, present a negotiable instrument and give notice of dishonor to preserve his rights under applicable nonbankruptcy law. Likewise, a party in interest may ask the court for relief from the stay on the grounds that: as between the debtor and the nonbankrupt codebtor, the codebtor received the consideration for the claim held by the creditor; the plan filed by the debtor proposes not to pay such claim; or the creditor's interest would be irreparably harmed by continuation of such stay. If the court has not ruled on the request for relief from the stay within twenty days of the creditor's request therefor, the stay will be terminated unless the debtor or the codebtor files a written objection thereto. 11 U.S.C. § 1301. The U.S. Trustee may appoint a standing trustee from a panel of eligible, private trustees. Otherwise, the U.S. Trustee may appoint a disinterested individual to serve, or the U.S. Trustee may serve. 11 U.S.C. § 1302(a); 28 U.S.C. § 586. Among the duties which the trustee, as principal administrator in the case, must perform are: be accountable for all property received; make sure the debtor files a statement of intent with respect to the retention or surrender of certain consumer goods; investigate the debtor's financial affairs; if a purpose would be served, examine proofs of claims and object to the allowance of improper claims; if advisable, oppose the debtor's discharge; unless otherwise ordered by the court, furnish such information as may be requested by a party in interest concerning the estate and its administration; make, and file with the court, a final report and account of the administration; appear and be heard at any hearing that concerns (i) the value of property subject to a lien, (ii) confirmation of a plan, or (iii) modification of a plan after confirmation; advise, other than on legal matters, and assist the debtor in the performance of the plan; ensure that the debtor commences making timely payments under the plan; if the debtor is in business, investigate the financial condition of the debtor, the operation of the debtor's business, and the desirability of continuing the business, and report such information to the court. 11 U.S.C. § 1302. A debtor may sell, use, or lease estate property: other than in the ordinary course of business, after notice and hearing; in the ordinary course of business without a hearing so long as such use is not inconsistent with conditions imposed or relief granted under the automatic stay, and so long as the creditor's interest in the property is adequately protected; the debtor may sell property free and clear of any creditor's interest in the property only if applicable nonbankruptcy law permits sale of such property, the creditor consents, the price at which the property is to be sold is greater than the aggregate value of all liens on the property, the interest is in a bona fide dispute or the creditor could be compelled to accept a money satisfaction of the interest; notwithstanding any provision of a contract, a lease, or applicable law that is conditioned on the insolvency or financial condition of the debtor, or on the commencement of a case in bankruptcy. 11 U.S.C. § 1303. The Code stipulates that a self-employed debtor who incurs trade credit in the production of income from such employment is engaged in business. Because chapter 13 is limited to individuals, any business being operated can only be a sole proprietorship if the debts of the business are to be dealt with under chapter 13. Unless the court orders otherwise, a debtor engaged in business may operate the business and use, sale or lease property of the estate in the ordinary course of business without notice and hearing. The debtor may not use, sell or lease cash collateral (i.e., cash, negotiable instruments, documents of title, securities, deposit accounts, etc.) unless the entity having an interest in the collateral consents or the court, after notice and hearing, authorizes the use. The debtor may obtain unsecured credit and incur unsecured debt as an administrative expense in the ordinary course of business; he may obtain trade credit and incur trade debt with some special priority or superpriority if necessary if the court, after notice and hearing, authorizes it. In addition, a debtor operating a business must file periodic reports and summaries of its operation, including a statement of receipts and disbursements, with any governmental unit charged with the responsibility for determining and collecting any tax arising out of such operation. 11 U.S.C. § 1304. This provision is applicable exclusively to chapter 13 and supplements other provisions of the Code, 11 U.S.C. §§ 501-510, which deal with the filing and allowance of claims. It permits the filing of a proof of claim for taxes that become payable while the case is pending; or, for a consumer debt that arises after the order for relief, and that is for property or services necessary for the debtor's performance. The allowance of such claims is governed by § 502, except that its standards are applied as of the date of the claim's allowance rather than as of the date of the filing of the petition. A postpetition consumer debt claim that is for property or services necessary for the debtor's performance under the plan will be disallowed if the claimholder knew or should have known that the trustee's prior approval for the debtor's incurring of the obligation was practicable and was not obtained. 11 U.S.C. § 1305. In addition to the other Code provisions delineating what constitutes property of the bankruptcy estate, chapter 13 includes earnings from all services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to one under chapter 7 or 11. A chapter 13 debtor is permitted to remain in possession of all property of the estate despite Code provision elsewhere requiring a debtor to surrender to a trustee all property of the estate, including books, documents, records, and papers relating to property of the estate. 11 U.S.C. § 1306. Only the debtor may file a chapter 13 reorganization plan. 11 U.S.C. § 1321. The Code specifies no time period for filing, but Bankruptcy Rule 3015 provides that if a plan is not filed with the petition, it must be filed within 15 days thereafter. A chapter 13 reorganization plan must: provide for the submission of all or such portion of future earnings of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan; provide for the full payment, in deferred cash payments, of all claims entitled to priority under the Code, 11 U.S.C. § 507, unless the holder of a particular claim agrees to a different treatment of such claim; and if the plan classifies claims, provide the same treatment for each claim within a particular class. The plan may: divide unsecured claims which are not entitled to priority into classes, provided that no class is discriminated against unfairly. The plan may, however, treat claims for a consumer debt of the debtor for which a third-party is liable with the debtor differently than other unsecured claims; modify the rights of secured and unsecured claimholders, other than a claim secured only by a security interest (i.e., a lien created by agreement, such as a mortgage) in real property that is the debtor's principal residence; provide for the curing or waiving of any default; provide for concurrent payments on secured and unsecured claims; cure any default on any secured or unsecured claim on which the final payment under the plan is due; provide for payment of all or any part of a postpetition claim; provide for the assumption or rejection of executory contracts and unexpired leases; provide for payment of all or any part of a claim from the debtor's property or estate property; on confirmation of the plan, or at a later time, provide for the vesting of estate property in the debtor or any other entity; and include any other provision not inconsistent with the Code. The plan may not provide for payments over a period that is longer than three years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than five years. A debtor may cure a default with respect to a lien upon the debtor's principal residence until such time as the residence is sold at foreclosure; when a final payment is due under a home mortgage before the date on which the final payment under the plan is due, the plan may provide for the claim as modified for the duration of the reorganization plan. If a plan proposes to cure a default, the amount necessary to cure it shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law. 11 U.S.C. § 1322. Unless the court orders otherwise, the debtor must begin making payments proposed by a plan within 30 days after the plan is filed. Payments are retained by the trustee until confirmation or denial of confirmation. If the plan is confirmed, the trustee will distribute payments in accordance with the plan as soon as practicable. If the plan is not confirmed, the trustee will return payments to the debtor after deducting administrative expenses. Before or at the time of each payment to creditors under the plan, the trustee will pay outstanding administrative expenses and trustee fees. Except as otherwise provided in the plan or the confirmation order, the trustee will make the payments to the creditors under the plan. 11 U.S.C. § 1326. The debtor may modify the plan at any time before confirmation, so long as the modifications are consistent with Code requirements. After the debtor files the modifications, the plan as modified becomes the plan. Any holder of a secured claim that has accepted or rejected the plan is deemed to have accepted or rejected, as the case may be, the plan as modified, unless the modification provides for a change in the rights of the holder, in which case the holder may change his previous acceptance or rejection. 11 U.S.C. § 1323. After notice, the court will hold a hearing on confirmation of the plan during which any party in interest may interpose an objection. The court shall confirm a plan if it meets the following criteria: it complies with all applicable Code provisions; the required filing fees and court costs have been paid; the plan was proposed in good faith and is not in any way forbidden by law; the value of the property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid if the debtor's estate were liquidated under chapter 7; with respect to each allowed secured claim provided for by the plan, the holder has accepted the plan, or the plan provides that the claimholder retain the lien securing the claim and the value of the property to be distributed on account of such claim is not less than the allowed amount of such claim, or the debtor surrenders the property securing the claim to the holder; the debtor will be able to comply with, and make all payments under the plan. If the trustee or a holder of an allowed unsecured claim objects to the confirmation, the court may not approve it unless (a) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim, or (b) the plan provides that all of the debtor's projected disposable income to be received during the three-year period will be applied to make payments under the plan. "Disposable income" means income which is not reasonably necessary for the maintenance and support of the debtor and his or her dependents and for the payment of necessary business expenses if the debtor is in business. Necessary maintenance and support includes charitable contributions of up to 15 percent of the debtor's gross annual income. After the confirmation of a plan, the court may order any entity from whom the debtor receives income to pay all or any part of such income to the trustee. 11 U.S.C. § 1325. The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of the creditor is provided for by the plan or whether or not the creditor has accepted or rejected the plan. Except as otherwise provided in the plan or the order confirming it, confirmation vests all estate property in the debtor free and clear of any creditor's claim or interest provided for by the plan. 11 U.S.C. § 1328. At any time prior to completion of payments under the confirmed plan, the plan may be modified upon the request of the debtor, the trustee, or the holder of an allowed unsecured claim to: increase or reduce payments to creditors of a particular class; extend or reduce the time for such payments; or alter the payment to a creditor to take account of payment of his claim from sources other than under the plan. The previously delineated requirements relating to the contents and confirmation of a plan, as well as those relating to a creditor's acceptance or rejection of a pre-confirmation modification of a plan, apply to a post-confirmation modification. Additionally, the modification must take place within the original three-year time period, with extensions to no longer than five years. 11 U.S.C. § 1329. On request of a party in interest and after notice and hearing, the court may revoke a confirmation order at any time within 180 days after its entry, if the confirmation was procured by fraud. Thereafter, unless a modified plan is confirmed, the court must either dismiss the case or convert it to a chapter 7 or chapter 11 case. 11 U.S.C. § 1330. As soon as practicable after the debtor's completion of payments under the plan, unless the court approves a written waiver of discharge executed by the debtor, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed by the court. Although narrowed significantly by amendments to the Code in 1990, a chapter 13 discharge remains potentially of broader scope than one under chapters 7, 11, or 12. Debts which are nondischargeable under chapter 13 are: those for any unsecured or secured claim on which the last payment is due after the date on which the final payment under the plan is due; for debts to a spouse, former spouse, or child of the debtor, for alimony, maintenance and support; for liability for death or injury caused by the debtor while driving while intoxicated; for criminal restitution; criminal fines; and, for student loans. There is no prohibition against a plan provision for partial or no payment of a debt based on fraud, fiduciary defalcation, embezzlement or larceny, willful or malicious injury to person or property, a governmental fine or penalty (excluding criminal restitution obligations)—all of which are nondischargeable under chapters 7, 11, and 12 pursuant to 11 U.S.C. § 523. 11 U.S.C. § 1328(a). Despite the fact that a debtor does not complete all the payments provided for under the plan, the court may grant the debtor a discharge if: the debtor's failure to complete payments is due to circumstances for which he should not justly be held accountable; the value of the property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on the claim if the debtor's estate had been liquidated under chapter 7; and modification of the plan is impracticable. 11 U.S.C. § 1328(b). A hardship discharge relieves the debtor from all unsecured debts provided for by the plan or disallowed by the court, but reinstates the nondischargeability of debts under § 523(a). Long term secured and unsecured debts which were not due until after the date on which final payment would have been due under the plan are also nondischargeable. Hence, the "superdischarge" which might otherwise be available under chapter 13 is unavailable in connection with the nonperforming hardship discharge. 11 U.S.C. § 1328(c). A postpetition consumer debt is not discharged if prior trustee approval of the incurring of the debt was practicable and was not obtained. 11 U.S.C. § 1328(d). At the request of any party in interest within one year after the discharge was granted, the court, after notice and hearing, may revoke the discharge if it was obtained through fraud and the requesting party learned of the fraud after the discharge was granted. 11 U.S.C. § 1328(e).	This report examines the legal procedures for effecting either a liquidation or a business or consumer reorganization under the United States Bankruptcy Code, 11 U.S.C. § 101 et seq., through an analysis of its individual sections. The Code, in chapters 1, 3, and 5, establishes general procedures that are applicable to the operative chapters. Chapter 7 governs liquidation of the debtor's estate; chapter 11 governs business reorganization; and, chapter 13 addresses reorganization of an individual with regular income. This report presents an overview of the Code's legislative history, its procedural chapters 1, 3, and 5, and operative chapters 7, 11, and 13. Reference is made to the impact of major U.S. Supreme Court decisions and the effect of recent legislative amendments.	18.2	16k+	12,058
38	Workers have a variety of options to save for retirement. While personal savings accounts and home equity can be used in retirement, many workers who save for retirement do so in tax-advantaged accounts available through their workplace. Their employers may sponsor an employee benefit plan, such as a 401(k) plan, or make arrangements for employees to contribute to Individual Retirement Accounts (IRAs), such as payroll deduction IRAs, to help employees save for retirement. (See table 1.) Workers may also choose to save on their own in an IRA to increase their retirement savings. However, our recent work shows that approximately 95 percent of money contributed to traditional IRAs in 2008 was from rollovers, primarily from employee benefit plans. Despite the various options available for employers to offer a workplace retirement savings program, our prior work and other research shows a persistent gap in coverage among private sector workers. While estimates of participation rates can vary depending on the nature of the study sample (e.g., whether it includes full and part-time workers or is based on household or firm-level data), research consistently indicates that many workers do not participate in a workplace retirement savings program. For example, one study using household data from the Current Population Survey (CPS) shows that the participation rate of private sector workers has declined slightly from about half of full- and part-time workers in the late 1990s to 43 percent in 2012. Similarly, another study using CPS data found that the participation rate among private sector workers ages 21 to 64 has fluctuated over the time period from 2000 to 2012 from a high of about 47 percent in 2000 to a low of about 39 percent in 2012. In addition, a study using firm-level data from the 2014 National Compensation Survey reports that 48 percent of private sector workers participate in a retirement plan. The President and some members of Congress have proposed various efforts over the years to expand workplace retirement savings program coverage among private sector workers. These efforts generally strive to overcome obstacles for employers to offer workplace retirement savings programs or for workers to participate. In particular, our prior research found that small employers may be reluctant to offer these programs because of administrative burden and potential fiduciary risk. Some workers, on the other hand, may lack the financial literacy or resources to participate. To foster retirement saving among the portion of the workforce who have been offered an employee benefit plan but do not participate, some employers have adopted automatic enrollment policies for their defined contribution plans. Under automatic enrollment, eligible workers are enrolled into the plan, unless they explicitly choose to opt out, as opposed to the more traditional method in which workers must take action to join a plan. Employers who have adopted automatic enrollment must also establish default contribution rates and default investment vehicles for workers who do not specify these choices. Employers may also adopt automatic escalation policies, which increase contribution rates on a predetermined schedule—even without active decisions by employees— typically up to a pre-defined maximum contribution rate. The Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA) were amended by the Pension Protection Act of 2006 (PPA) to facilitate the use of automatic enrollment, and Department of Labor (DOL) and the Department of the Treasury (Treasury) promulgated implementing regulations. To encourage low- and middle-income individuals and families to save for retirement, the IRC was amended by the Economic Growth and Tax Relief Reconciliation Act of 2001 to allow a credit against federal income taxes of up to $2,000 for qualified retirement savings. Eligibility for the Saver’s Credit is based on workers’ adjusted gross income (AGI) and contributions to employee benefit plans and IRAs with the credit phasing out at certain income limits, depending on the size of the household. Since the adoption of the Saver’s Credit, bills have been introduced to further encourage low-income workers to save for retirement, including making the tax credit refundable and increasing the rate of the tax credit for retirement contributions. In January 2014, the President directed Treasury to create the My Retirement Account (myRA) program, a new retirement savings account for Americans looking for a simple, safe, and affordable way to start saving. Individuals who voluntarily open myRA accounts will be able to set up recurring payroll deduction contributions that will be invested in nonmarketable retirement savings bonds only available to participants in the program. The savings bond is backed by the Treasury, will not go down in value, and will earn interest equal to the rate of return provided in a fund offered in the federal employee retirement plan. The retirement savings bonds will mature at the earlier of 30 years from the date the bond is first issued or when the total value of the bond reaches $15,000. At that time balances will be transferred to a private-sector Roth IRA. Participants are not charged fees for myRA accounts—administrative costs are paid by the Treasury. myRA accounts follow Roth IRA rules, so contributions are made with after-tax income but may be withdrawn tax- free at any time. Moreover, not all Americans will be eligible to participate due to IRA contribution limits based on modified adjusted gross income. Unlike some commercial IRA accounts, myRA does not impose minimum balance or minimum contribution requirements—individuals will be able to open accounts with no start-up cost and can choose to automatically contribute any amount each payday. Members of Congress have also introduced bills over the years to foster retirement savings among those who work for employers that do not sponsor employee benefit plans. One group of proposals would establish “automatic IRAs” for workers not covered by an employee benefit plan. Under an automatic IRA, employers would be required to make available an arrangement in which employees would be automatically enrolled and contributions would be made through automatic payroll deduction, with an opt-out provision for participants. In addition, some bills would allow for more widespread adoption of multiple employer plans by enabling employers without a common interest to sponsor such plans. Appendix III provides a description of the bills we identified. In the United States, employers are generally not required to provide employee benefit plans, including pension plans, to any employees. When they do, however, employee benefit plans are generally regulated at the federal level, providing employers with largely uniform nationwide standards. Most significantly, plans are subject to the requirements of ERISA, which are generally enforced by DOL’s Employee Benefits Security Administration (EBSA) and various provisions of the Internal Revenue Code (IRC), which is enforced by the Internal Revenue Service (IRS). ERISA was enacted to, among other things, protect the interests of plan participants and their beneficiaries and set minimum standards for most private sector pension plans, including rules for fiduciary conduct and prohibited transactions. The IRC and ERISA define prohibited transactions and list exemptions to them. In addition DOL may grant exemptions. To carry out its responsibilities under ERISA, EBSA promulgates regulations and issues various forms of guidance. The IRS is primarily responsible for ensuring that plans meet certain requirements for tax-favored treatment. ERISA and relevant provisions of the IRC establish minimum requirements and standards for private-sector employee benefit plans. ERISA establishes minimum participation, vesting, and funding standards for plans. For example, ERISA limits the age and the length-of-service that employers can require employees to meet to be eligible for a plan. To qualify for tax benefits under IRC, plans must also meet minimum participation, vesting, and funding standards. An employer may also establish a plan that excludes certain groups of employees as long as the ERISA and IRC requirements are met. For example, an employer may establish and maintain a plan that excludes workers in certain job categories or geographic locations. Lastly, IRS is responsible for enforcing IRA tax requirements but IRS and DOL share responsibility for overseeing prohibited transactions relating to IRAs that are not ERISA-covered plans. ERISA includes a provision stating that ERISA supersedes any and all state laws as they “relate to” any employee benefit plan covered under ERISA. This ERISA preemption provision has a relatively small number of exceptions and reflects a policy judgment that nationwide uniformity respecting employee benefit plans outweighs the value of state differentiation. In addition to statutory provisions, “state laws” encompasses decisions, rules, regulations, and any other state action having the effect of law. Based on statutory interpretation and its review of the legislative history of ERISA, in 1983 the Supreme Court held that a state law “relates to” an employee benefit plan and is preempted “if it has a connection with or reference to such a plan.” The Court has emphasized that state law may be preempted even if not specifically designed to affect such plans. Furthermore, even if a state law is not in conflict with ERISA but is, in fact, consistent with it because, for example, it promotes retirement security, it is not spared from ERISA preemption if it “relates to” an employee benefit plan. The broad scope of ERISA’s preemption provision has permitted large employers to provide pension plans to their employees without having to establish multiple plans or plan policies depending on differing requirements from state to state. In addition, ERISA’s preemption provision helps to ensure that participants are protected by several safeguards. For example, ERISA establishes minimum participation and vesting standards, imposes fiduciary duties on plan sponsors, and authorizes DOL to enforce its requirements. A 1995 Supreme Court case, however, raised some question regarding the Court’s prior attempts to construe “relate to” and the expansiveness of ERISA. Furthermore, in 2010 a federal appeals court appeared to limit the scope of ERISA preemption when it upheld a local law requiring, among other things, that covered employers make a certain level of health care expenditures on behalf of their employees. About half of private sector workers did not participate in a workplace retirement savings program in 2012. While some workers chose not to participate, we found that most workers who did not have coverage lacked access to such programs. Among those not participating, the majority worked for an employer that did not offer a program or they were not eligible for the programs that were offered. In particular, lower income workers and those employed by smaller firms were much less likely to have access to programs, after controlling for other factors. In addition to lacking access, certain workers, such as lower income, service sector, and younger workers, were also less likely to participate in programs even when provided access. However, the majority of these workers participated when they had workplace access. Roughly half of private sector workers participate in a workplace retirement savings program, according to 2012 data. Specifically, self- reported SIPP data indicate that 45 percent of all private sector workers were participating in a program. However, prior research using SIPP data linked with W-2 tax records has shown that some individuals under- report their participation. To address this issue, we examined similarly linked data to correct for under-reporting and the resulting participation rate increased to 54 percent (see fig. 1). While the W-2 adjusted data show a moderate increase in participation, both measures indicate that many workers lack coverage in a workplace retirement program. Our findings are similar to estimates from our prior work and other studies. For example, the prior research that linked 2006 SIPP data with W-2 tax records shows, using this approach, that the measure of participation among private sector workers increased from 45 percent to 58 percent. A more recent update to this study found that participation further increased to 62 percent in 2012, although the age range of this study differed from our work—this study examined private sector workers ages 21 to 64, while we focused on private sector workers ages 18 and over. Other more recent data from the 2014 National Compensation Survey, a firm level survey conducted by the Bureau of Labor Statistics, show that 48 percent of private sector workers participated in a retirement plan. Among workers who are not participating, we found that the gap in coverage is mainly due to a lack of access rather than a failure to participate. The vast majority of workers who do not participate–84 percent—reported they did not have access to a workplace retirement program. Access depends on two essential factors: (1) The employer must offer a program, and (2) the worker must be eligible to participate (see fig. 2). Of these two factors, we found that the lack of access was primarily due to employers not offering a retirement program. Specifically, among those who do not participate, 68 percent reported they worked for an employer that did not offer a program, and another 16 percent reported they were not eligible for the program their employer offered (see fig. 3). Only 16 percent of those who did not participate reported being eligible and not participating. Certain types of workers, such as those with lower incomes, are much less likely to have coverage compared to other workers. Lower-income workers, in particular, are much less likely to have access to workplace retirement programs and to choose to participate when programs are available. Compared to workers in the lowest income quartile, our analysis found workers in the highest income quartile were nearly 4 times as likely to work for an employer that offers a program, after controlling for other factors. The gap in access exists across the income distribution and is even larger when it comes to eligibility—workers in the third and fourth quartiles were, respectively, 4.4 and 7.5 times as likely to be eligible for a program offered by their employer than workers in the lowest income quartile. In addition, lower-income workers had a lower likelihood of participating even when they were eligible (see fig. 4). The combined effects of lower access and lower participation result in large gaps in coverage across income groups (see fig. 5). Overall, approximately 14 percent of workers in the lowest income quartile participated in a program compared to 57 percent and 76 percent of those in the third and fourth income quartiles, respectively. Similarly, according to the W-2 adjusted data, 22 percent of workers in the lowest income quartile participated in a program compared to 67 percent and 84 percent of those in the third and fourth income quartiles. In addition to income, working for a small or mid-size firm is one of the most important factors associated with a lack of coverage. In particular, workers at smaller firms were much less likely to have coverage than workers at larger firms because their employer did not offer a program. Workers at the largest firms were more than 9 times as likely to have an employer that offered a program compared to those who worked for firms with 50 or fewer workers, after controlling for other factors. Even outside the smallest firms, the difference in the likelihood of an employer offering a program was considerable when comparing mid-size and larger firms (see fig. 6). As we have previously reported, smaller firms face challenges in offering programs, such as the perceived complexity and risk of establishing and administering a program. Moreover, smaller and newly formed firms have higher rates of “churn”—business formation and dissolution—and are less likely to offer a program initially. Certain characteristics associated with small employers may also contribute to the challenges of starting and maintaining a program. For example, small employers are more likely to encounter higher rates of worker turnover. In addition, small employers’ operating revenue can be uncertain from year to year. Outside of whether an employer offers a program, firm size had little to no effect on eligibility or participation. Workers at small or mid-size firms that offer a program were just as likely to be eligible as workers at larger firms with up to 1,000 workers, after controlling for other factors. And workers at the largest firms—more than 1,000 workers—were only slightly more likely than workers at the smallest firms—50 or fewer workers—to be eligible. Similarly, among those who were eligible, workers at the largest firms were only slightly more likely to participate compared to workers at the smallest firms, although this effect was only statistically significant using the W-2 adjusted data. Overall, about 23 percent of workers at firms with 50 or fewer workers participated in a program compared to 60 percent of workers at firms with more than 1,000 workers. Corresponding participation rates from the W-2 adjusted data were 31 percent and 68 percent, respectively. In addition to income and firm size, other characteristics were also significantly associated with whether a worker has coverage, after controlling for other factors. For example: Part-time: Part-time workers were less likely to have coverage, primarily due to a lack of access. Specifically, compared to part-time workers, full-time workers were about 2.6 times more likely to be eligible for a program offered by their employer. Full-time workers were also more likely to work for an employer that offers a program, but the difference in likelihood was considerably smaller—by a factor of 1.2. Among those who were eligible, full-time workers were only slightly more likely to participate than part-time workers; however this result was not significant using the W-2 adjusted data. Occupation: Workers in management, business, science, and arts occupations were nearly twice as likely to work for an employer that offers a program compared to workers in service occupations. Those in service sector occupations were also less likely to participate in programs when they had access. However, occupation was not associated with whether workers were eligible for programs offered by their employers. Age: Compared to older workers, younger workers were generally less likely to be eligible for a program and to participate when eligible. For example, among those eligible, workers ages 18 to 24 were roughly one-half as likely to participate as workers ages 25 to 34. This pattern holds when comparing progressively older age categories of workers with younger workers, with the exception of workers ages 65 and older. Workers ages 65 and older were less likely to have access to a program compared to workers ages 25 to 34, but were no less likely to participate if they were eligible. Among workers who are least likely to participate—such as lower income, service sector, and younger workers—the majority did so when they had workplace access. The share of workers in the lowest and 2nd income quartiles who participated when eligible was 63 percent and 74 percent, respectively (see fig. 7). Corresponding figures from the W-2 adjusted data were 68 percent and 79 percent. Similarly, the participation rate for eligible service sector workers was 70 percent (74 percent according to W-2 adjusted data). Among the categories of workers we examined, the lowest participation rate among eligible workers was for those ages 18 to 24, but still more than half, 54 percent, participated (59 percent according to W-2 adjusted data). In the six states we studied, proposals were made and, in some, laws enacted in an effort to expand coverage that would combine workplace access to a retirement savings program with automatic enrollment and financial incentives —an approach that has helped increase worker participation in countries we studied. For example, the United Kingdom (U.K.) implemented reforms that require private sector employers to automatically enroll eligible workers in a workplace retirement savings program, allowing workers to contribute to individual accounts and receive financial incentives in the form of employer contributions and tax preferences. A government study published in March 2015 found that since implementation of these reforms began in October 2012, various stakeholders generally perceived them as successful to date by bringing millions of new people into retirement savings programs, with significantly fewer individuals opting out than predicted. In fact, the government reported that by the end of 2014 more than 5 million workers had been automatically enrolled and only 12 percent of workers had opted out in 2014. Similar to the U.K. and other countries, state efforts we reviewed in the United States would use a range of approaches to combine workplace access, automatic enrollment, and financial incentives to expand coverage. The six state efforts we reviewed would expand workplace access for uncovered workers in two ways. Some of the states are encouraging small employers to offer workplace access by creating state-run programs or state-facilitated marketplaces by which employers can voluntarily offer workers access to a retirement savings program and payroll deduction. For example, Massachusetts is developing a state-run 401(k) plan that not-for-profit employers with fewer than 20 employees in the state can adopt. Similarly, Washington plans to create a state-facilitated marketplace that would list a variety of qualified providers from which employers with fewer than 100 employees could choose to offer their workers. Laws or bills in other states, such as California, Illinois, and Maryland, would require employers with more than a certain number of employees, and which do not already offer an employee benefit plan to make their payroll systems available for workers to contribute via payroll deduction. To ensure these employers are able to find a reasonable option to meet this requirement, these states would create state-run programs. (See table 2.) State stakeholders told us that state efforts to expand coverage in workplace retirement savings programs were designed to provide workplace access because research and experience by employee benefit plans in the United States has shown that workers are more likely to save for retirement if their employer offers a retirement savings program. DOL and the Small Business Administration (SBA) note that payroll deduction—an amount of salary taken from a worker’s paychecks— allows workers to save smaller amounts each pay period instead of waiting until the end of the year to set aside money in an IRA. And a study prepared for SBA concluded that the biggest step small employers could take to increase worker retirement savings was to offer them access to a plan. Workplace access enables workers to take advantage of payroll deduction for retirement savings. Federal and state officials and state stakeholders noted that using payroll deductions makes contributing easy for most workers, helping them develop a habit of saving. The countries we reviewed have also taken steps to encourage or require employers to provide workplace access for uncovered workers that use similar approaches as state efforts (see fig. 8). As part of the U.K.’s effort, the government created the National Employment Savings Trust (NEST) to provide employers with a reasonable option to meet the requirement to provide workers access. This approach is similar to efforts in California, Illinois, and Maryland, and to some state efforts without an employer requirement that still create a state-run program, such as Massachusetts and West Virginia. In addition, New Zealand and Canada would encourage or require certain employers to offer workplace access. Instead of creating a state-run program for employers, though, New Zealand and Canada license service providers to offer programs that meet established criteria—an approach similar to the marketplace in Washington State. In combination with workplace access, each of the six state efforts we reviewed would require or allow employers to automatically enroll workers in a workplace retirement savings program to increase participation. Specifically, efforts in California, Illinois, and Maryland would require eligible employers that do not offer an employee benefit plan to automatically enroll their workers in the state-run program. In addition, state officials told us that the program for not-for-profit employers in Massachusetts would require employers who adopt the state plan to use automatic enrollment. In each of these programs, workers would have the ability to opt out. For example, California’s Secure Choice program would require that employers enroll workers, but an official said workers would have a 90-day opt out period. In West Virginia, on the other hand, employers who would sign up to participate in the state-run program would have the option of automatically enrolling their workers, but it is at the employer’s discretion. Similarly, Washington would provide an online marketplace with multiple vehicles—a SIMPLE IRA, payroll deduction IRA, and myRA—and employers that choose to use the marketplace would be encouraged, but not required, to automatically enroll workers. State officials and stakeholders emphasized the importance of automatic enrollment in increasing participation and contributions, which can, in turn, help reduce costs. For example, in California, members of the Secure Choice program’s board said that automatic enrollment helps increase participation and promote better outcomes by nudging workers to save. A representative from the Maryland task force also said that without automatic enrollment fewer workers would participate, and the burden to provide financial education would increase. Similarly, our prior work and other research show that automatic enrollment is effective in overcoming workers’ inertia and considerably increases participation. For example, we previously found that automatic enrollment has considerably increased participation in programs adopting this feature, with some participation rates reaching as high as 95 percent. In addition to expanding participation, state officials and stakeholders we interviewed said that automatic enrollment can reduce the costs of managing programs as the overall amount of savings increase. Government officials and stakeholders in the countries we reviewed also emphasized the importance of automatic enrollment in increasing participation. According to the former Retirement Commissioner in New Zealand, automatic enrollment has been essential to the success of their KiwiSaver program and, without it, they would need a massive education campaign. Similarly, other government officials in New Zealand said that automatic enrollment is critical because too many people—even those who want to save—will not actively seek out participation. Government officials and stakeholders in the U.K. and Canada also highlighted the importance of automatic enrollment in increasing participation. According to a report to Parliament submitted by the largest organization representing unionized workers in the U.K., initial opt-out rates have been lower than expected, and their experience has shown the value of harnessing inertia to improve outcomes for workers. Moreover, the program was designed to further reduce opt-outs because it requires automatic re-enrollment of those who opted-out after 3 years. Government officials in Canada said that the PRPP program utilizes automatic enrollment to increase participation, but it is unclear how successful it will be because the program is voluntary for employers. While all six state efforts we reviewed anticipate using tax-advantaged vehicles to encourage participation, state officials and others said Roth IRAs, in particular, could help partially address concerns over limited tax benefits for lower-income workers. Financial incentives for participation in retirement savings programs include preferential tax treatment and employer contributions and multiple stakeholders noted that such incentives encourage worker participation. The state efforts we reviewed all seek to incentivize participation by using vehicles—employer- sponsored 401(k) plans or workplace-based IRAs—that typically qualify for preferential tax treatment. But they do not allow for other financial incentives, such as employer contributions, or do so only to a limited extent. In the absence of other financial incentives, some states, such as Illinois and California, are using or considering a Roth IRA vehicle to address concerns that lower-income workers may realize little or no current tax benefit from savings. Treasury officials and stakeholders said a Roth IRA may be beneficial for workers who have little or no current tax liability but may pay higher taxes in the future. Moreover, Treasury officials said that Roth IRAs can benefit workers with limited resources by allowing them to withdraw contributions tax free under certain circumstances. In light of these issues, Illinois enacted the Secure Choice program, which uses a Roth IRA vehicle, and California’s Secure Choice board commissioned a feasibility study to examine this issue. Government officials and stakeholders in the countries we reviewed pointed to the importance of additional financial incentives, such as employer and government matching contributions, in increasing participation. For example, New Zealand’s KiwiSaver used a one-time “kick-start” contribution of $1,000 New Zealand Dollars (NZD), about $650 U.S. dollars (USD), as well as matching employer contributions and tax benefits, as financial incentives to encourage worker participation in the program. The former Retirement Commissioner in New Zealand and other stakeholders noted that the kick-start has been very popular and effective because it is so easily understood by participants, while the tax incentive is less well-understood. Government officials attributed the higher than expected rate of participation, particularly for those opting in to KiwiSaver, to the success of the financial incentives. Similarly, in the U.K., the automatic enrollment requirement includes matching contributions from the employer and government—employers are currently required to contribute 1 percent for a specified range of earnings, which will gradually increase to 3 percent in 2018, while the government contribution will increase from 0.2 percent to 1 percent. One academic noted that these matching contributions are very important for low-income workers who can only afford a modest contribution rate. In addition to the key strategies discussed above, state efforts would take steps to simplify the overall design and implementation of their programs to reduce employer burden and complexity for workers. Specifically, in order to mitigate some of the challenges of setting up workplace retirement savings programs, state officials seek to (1) limit the responsibility and cost for employers, and (2) reduce complexity, cost, and investment risk for workers. These efforts would simplify program administration and investment management with the goals of lowering fees and encouraging broad employer adoption and worker participation. However, state officials also noted that this may elevate the role of the state in administering these programs and create implementation challenges, including how to fund them. Since no state effort has been implemented to date, states may be able to draw lessons from experiences in the countries we reviewed, as well as other state programs. (See appendix II for a full description of the actions states and other countries have taken to reduce administrative burden and cost for employers.) To reduce administrative burden and cost for employers, states plan to take a number of actions that could offload or help employers with typical employer duties in workplace retirement savings programs (see fig. 9). Other countries have taken similar steps to reduce administrative burdens and costs for employers. For example, the U.K. government created NEST to ensure that all employers, particularly small employers, would have access to a low-cost program, with the added benefit of diminishing the burden on employers of choosing an appropriate provider. NEST stakeholders said the existence of a low-cost program with a universal public service obligation reduces the burden on small employers who might otherwise expend considerable time and effort in identifying a provider willing to serve them at an acceptable cost. Among other things, NEST’s governing board selects and monitors providers, takes on fiduciary liability for management of the program’s investments, and does not charge employers to set up and use NEST. Lastly, NEST is responsible for sending out welcome packages to new participants with information on how to access the website and create accounts. In addition to addressing challenges for employers, state and country efforts we reviewed address issues of complexity, cost, and investment risk for workers through a variety of approaches (see table 3). While successful implementation of these efforts by states will likely increase coverage for many private sector workers, some workers in those states may remain uncovered. In particular: Workers at employers that continue to not offer access to a workplace retirement savings program: While all the states that we reviewed would allow small employers of varying sizes and self- employed workers to choose whether to offer access to the state program to avoid creating a burden for these employers, many stakeholders felt this would leave some key worker populations uncovered. For state efforts that would create a voluntary program for all employers who are eligible to offer it to their workers, such as Massachusetts’ not-for-profit program, stakeholders said many employers would still likely not choose to offer workplace access. Specifically, one national industry representative said, by definition, the employers targeted by state programs have already chosen not to offer retirement programs to their workers. Similarly, state and national stakeholders felt that the absence of a requirement for employers to offer workers access to workplace retirement savings programs would significantly lessen any expansion of coverage. Yet even those state efforts that would require eligible employers to offer workplace access, such as Illinois’ and California’s Secure Choice programs, would apply only to employers above a certain employee size threshold, 25 and 5 employees, respectively. According to one academic, there could be many employers under that size threshold. In addition, there are many self-employed workers who may continue not to have access to a workplace retirement program. For example, while California’s target population is 6.3 million workers who lack access to an employer-sponsored plan, California Secure Choice board members estimated that there are an additional 2 million uncovered Californians who are contractors or self-employed. For this reason, California officials said that the Secure Choice program may allow self-employed workers to opt in. Ineligible workers: National industry stakeholders said that the state efforts would not cover some of the traditionally ineligible populations—including part-time and temporary workers—at employers that already offer qualifying employee benefit plans. Some state efforts that would require employers of a certain size to offer workplace access, such as California and Illinois, exempt those employers that already offer employee benefit plans, for which existing law allows employers to determine which populations are eligible. By contrast, Maryland’s proposed program would cover workers who are ineligible for the employee benefit plan offered by their employer, but only if the employer has 5 or more workers eligible for the state program. Workers who choose not to participate: Since none of the state efforts we studied would require workers to contribute—all of these efforts allow workers to either opt in or opt out—some workers will choose not to participate. As noted above, state efforts that would require the use of automatic enrollment will likely achieve broader increases in participation than efforts that allow workers to choose whether to opt in. For example, one industry study found that 41 percent of those surveyed postponed saving for retirement in order to pay down student loan debt. In addition, a member of the California Secure Choice board said that some workers may not understand the value of earning investment returns on savings. To help address this, a California official said that the marketing materials for Secure Choice would need to clearly explain the benefits of participation. Workers with very low earnings who cannot afford to participate: Several stakeholders noted that it may be difficult for very low income workers to afford contributions. For example, a representative from the California Secure Choice board said that lower income workers may need the money for more immediate expenses. Our prior work indicates that while Social Security retirement benefits replace a higher percentage of earnings for lower income workers, this alone may not ensure an adequate retirement income. In Canada, a representative of an association representing program providers said that the PRPP program is targeted to middle income workers, while lower income workers who are eligible for other federal government income supplements in retirement. Moreover, a representative of an employer group noted that the government is motivated to provide programs to ensure a minimum level of income in retirement because Canadian provinces assume responsibility for the welfare of their citizens, and increased purchasing power can have a positive impact on the overall economy. In particular, outside of PRPP, Canada provides a targeted benefit, Guaranteed Income Supplement, which supplements the Canadian universal Old Age Security program to ensure low income seniors have a minimum level of income in retirement. States face legal uncertainty that could result in legal challenges in connection with efforts to expand coverage in workplace retirement savings programs for private sector workers, which will continue if no action is taken by Congress or relevant agencies, including DOL and Treasury. For over a decade legal uncertainty has influenced the design of state efforts. More recently, four of the six states we studied have enacted legislation to increase coverage in workplace retirement savings programs and legislators in other states have introduced similar bills or have studied potential solutions to expand coverage. However, state and national stakeholders said these efforts face potential challenges because of legal uncertainties created by existing federal law—ERISA—and various agency regulations, depending on the type of program state efforts intend to create (see fig. 10). While stakeholders noted multiple issues causing legal uncertainties for state efforts, the most prevalent and pervasive was ERISA preemption. Specifically, ERISA preempts, or invalidates, any and all state laws that “relate to” any private-sector employee benefit plan. Generally, the “relate to” provision in ERISA could be applicable to state laws that either directly regulate employee benefit plans or, in some cases, only indirectly affect such plans. For example, a state law that mandates the way in which employee benefit plans are administered may be determined to “relate to” such plans and may, therefore, be preempted. In this way, ERISA’s preemption provision enables employers to establish uniform plans and administrative schemes, preventing them from having to comply with different requirements for employees located in different states. Whether ERISA preempts a state law has historically been determined by federal courts, so states may face litigation. One national stakeholder indicated that it might be beneficial for a state to implement a program and go through resulting litigation to resolve some of the areas of legal uncertainty and clear the way for other states to implement similar programs. However, other state and national stakeholders were concerned about the potential consequences for workers and employers should an implemented program later be preempted. Noted implications for employers and workers included that the state program might lose its preferential tax treatment or create risk for employers that choose to offer the programs. Given these implications of uncertainty regarding ERISA preemption, state efforts to expand access to millions of workers and address the retirement savings shortfall may be delayed or deterred. Based on our interviews with state and national stakeholders and government officials, none of the state efforts we reviewed are immune from legal uncertainty caused by ERISA preemption, but the type of uncertainty differs depending on the details of the state efforts. Employee benefit plan programs. For states that are attempting to use an employee benefit plan, such as a 401(k) plan or SIMPLE IRA, DOL officials told us that it is unclear whether a state could create a program without being preempted by ERISA because it is unclear what level of state effort would “relate to” employee benefit plans. For example, Massachusetts is the furthest along implementing an effort that would create a 401(k) plan that not-for-profit employers with 20 or fewer employees could adopt, but national stakeholders had mixed opinions about whether its program will be preempted if legally challenged. Among other things, a Massachusetts official said that the state plans to take on administrative responsibilities and oversight of the program’s service providers and will charge employers who choose to offer the program, but employers will still be plan fiduciaries. Payroll deduction IRA programs. Partly to avoid uncertainty caused by ERISA preemption, four of the six states we examined would create programs using payroll deduction IRAs because by complying with relevant DOL regulations such IRAs are not employee benefit plans and are not subject to ERISA. However, programs relying on payroll deduction IRAs could run into similar preemption uncertainty as state efforts with employee benefit plans because the DOL regulation does not address some key questions. First, the regulation was promulgated primarily to provide guidance to employers and, as DOL officials noted, it does not specify whether a state can offer payroll deduction IRAs to private sector workers. In addition, DOL officials said the regulation does not address whether certain program features states intend to use would cause the programs to be considered employee benefit plans. For example, some states would like to capitalize on the potential advantages of using automatic enrollment for workers and requiring certain employers to offer workplace access to retirement savings programs. If these features cause the programs to be considered employee benefit plans, stakeholders said there would be uncertainty regarding preemption. To address this uncertainty, state and national stakeholders thought DOL and Treasury should provide guidance and one thought DOL should clarify its regulation on payroll deduction IRAs. On July 13, 2015, the President announced that DOL will propose a set of rules by the end of the year to provide a clear path forward for states to create retirement savings programs. DOL officials said the agency’s role is limited under ERISA without further Congressional action—it can revise and promulgate regulations but there is nothing in ERISA that would allow it to waive preemption for state efforts. In one case, Illinois law explicitly requires the state to request an opinion or ruling from DOL on the status of the program with respect to ERISA before the program can be implemented. An Illinois stakeholder said that the state does not have to wait for a DOL opinion to implement the program, but implementation would stop if DOL sent a letter saying the Illinois program had to comply with ERISA. While Illinois and other states may reach out to DOL for an opinion, in June 2015, DOL officials told us they had not received any such requests. Even if they did, DOL officials said the department does not have a formal process for issuing such opinions, and the opinion would not necessarily be binding in court. As a result, DOL’s opinion may not give states the level of certainty regarding preemption they need to proceed. Similarly, state and national stakeholders said state experimentation with various approaches could help determine which work best for expanding coverage in workplace retirement savings programs, so some have called for increased flexibility with respect to ERISA preemption. Given the need of many workers to increase their retirement savings, and limitations on DOL’s ability to provide flexibility regarding ERISA preemption, stakeholders have suggested a number of ways to address uncertainty and facilitate state efforts to expand coverage in workplace retirement savings programs: Amend ERISA’s preemption provision. Some stakeholders suggested Congress could amend ERISA’s preemption provision by adding an exception for state efforts that expand coverage in workplace retirement savings programs. Pilot program. DOL officials told us a pilot program proposed in the Fiscal Year 2016 President’s Budget Submission, issued February 2, 2015, could help identify actions states could take to effectively expand coverage in workplace retirement savings programs and determine if new, or changes to, DOL regulations or guidance are needed. Under this proposal DOL would select a small number of states to implement different approaches to increasing coverage in workplace retirement savings programs. As part of such a pilot program, DOL officials said the department would need statutory authority from Congress to temporarily waive ERISA preemption for the pilot program timeframe in the selected states. They said some of the appropriations DOL may receive pursuant to the program, should it be authorized, could be used to fund start-up costs for state efforts given the potential implementation challenges noted by states. A key part of the pilot program would also involve data collection on state efforts to provide government and experts an opportunity to see which strategies will actually increase coverage before making more permanent changes to permit state efforts. Safe harbor. DOL and a national stakeholder said Congress could authorize DOL to establish a regulatory safe harbor for certain state efforts. DOL officials said the pilot program could even be considered a less permanent version of a safe harbor—albeit limited to a small number of states. To address other areas of legal uncertainty under ERISA, Congress has sometimes authorized DOL to prescribe safe harbors setting out conditions under which entities can operate without running afoul of the law. For example, PPA provided for DOL to prescribe by regulation a safe harbor for plans adopting automatic enrollment that, among other things, invest plan contributions in a qualified default investment alternative (QDIA). DOL promulgated a regulation describing the type of investments that qualify as QDIAs. In addition to the uncertainty caused by ERISA preemption, state and national stakeholders and government officials shared other issues causing legal uncertainty. For example, DOL officials were concerned with states offering payroll deduction IRA programs because they would presumably fall outside of ERISA and DOL regulation. They said the protections provided by ERISA are important for employee benefit plan participants and that DOL has already developed a proven regulatory framework. Stakeholders said other legal uncertainty is caused by conflicting DOL and Treasury policies related to multiple employer plans, and questions about whether certain Treasury regulations allow states to implement a guaranteed return, or pool assets to achieve scale. For these other issues, states will continue to face uncertainty under existing DOL and Treasury regulations (see table 4). Millions of workers in the United States have little or no retirement savings, an issue exacerbated by the lack of access to workplace retirement savings programs for many of them. Without this coverage, a significant number of Americans face the prospect of financial insecurity in retirement, and federal and state safety net programs face the potential for bearing increased financial burdens. Despite several major changes to federal law during the last few decades, federal action has not spurred such an increase in coverage. Recognizing this need to increase coverage, and thereby increase retirement savings, some states have undertaken efforts that would require or encourage employers to expand access to workplace retirement savings programs. However, the existing framework of federal law and regulation was not designed to foster a state role in providing coverage to private sector workers, and the resulting uncertainties about the application of that framework raise questions about the future and success of such efforts. Changes at the federal level—Congressional action combined with revised regulations and guidance within the authority of relevant agencies, particularly DOL— could help address these uncertainties. These actions would require difficult policy choices and involve weighing the benefits of uniformity and consistency provided by ERISA preemption against the potential value of state efforts to adopt innovative approaches to address the lack of sufficient retirement savings by their citizens. Moreover, along with the known regulatory challenges already identified by state officials and experts we interviewed, other areas of uncertainty could emerge through the experience of states implementing these programs. Congress has several options for legislative action, each of which highlight some of the difficult policy choices and trade-offs that would need to be considered. For example, amending the ERISA preemption provision to add exceptions for any of the state efforts discussed here would provide states with certainty about which types of efforts they could undertake. It might also set a precedent for additional exceptions that could diminish the nationwide uniformity and stability the preemption provision is intended to create. Alternatively, a pilot program could permit states to test, with DOL involvement, innovative approaches to increasing coverage. However, by their very nature, pilot programs involve a limited number of states and therefore would not create certainty for states not included in the pilot that wish to expand coverage. Pilot programs are generally temporary in nature so even included states may not have the benefit of long-term certainty about the feasibility of their efforts. Finally, through the creation of a statutorily authorized safe harbor, DOL could identify a small number of options available to states that would not run afoul of ERISA’s preemption provision, thereby retaining some degree of ERISA uniformity for employers. However, the development of a safe harbor option that would appeal to states and employers while retaining key protections for workers could be challenging, and little is known about the relative effectiveness of any particular model to actually increase coverage and retirement savings. To address the legal uncertainty stemming from ERISA preemption of state laws while maintaining the advantages of ERISA for both employers and workers, Congress should consider providing states limited flexibility to pursue efforts to increase coverage under workplace retirement savings programs. To do this, Congress could, for example, direct or authorize the Secretary of Labor, in consultation with the Secretary of the Treasury, to (1) promulgate regulations prescribing a limited safe harbor under which state workplace retirement savings programs with sufficient safeguards would not be preempted and would receive tax treatment comparable to that provided to private sector workplace retirement savings programs, or (2) create a pilot program under which DOL could select a limited number of states to establish workplace retirement savings programs subject to DOL and Treasury oversight. In either case, any such initiative should ensure that state programs include adequate participant protections and are subject to agency oversight, appropriate reporting requirements, and meaningful evaluation. To facilitate state efforts to expand coverage in workplace retirement savings programs, we recommend that the Secretary of Labor and Secretary of the Treasury consider their authority and review and revise, if necessary, existing regulations and guidance causing uncertainty for state efforts. For example, the Secretary of Labor could direct the Employee Benefits Security Administration’s (EBSA) Assistant Secretary to revise Interpretive Bulletin 99-1 to clarify whether states can offer payroll deduction Individual Retirement Accounts (IRAs) and, if so, whether features in relevant enacted state legislation—such as automatic enrollment and/or a requirement that employers offer a payroll deduction—would cause these programs to be treated as employee benefit plans. We provided a draft of this report to DOL, Treasury, the Pension Benefit Guarantee Corporation (PBGC), and the Social Security Administration (SSA) for their review and comment. PBGC and SSA did not provide comments. DOL provided written comments, which are reproduced in appendix VII. DOL also provided technical comments, which we have incorporated where appropriate. Treasury provided oral and written technical comments, which we have incorporated where appropriate. Treasury generally agreed with the findings, conclusions, and recommendation of this report. In its written comments, DOL generally agreed with the findings and conclusions of the report. They noted that inadequate retirement savings has a detrimental impact on the well-being of older Americans and increases the burden on state and federal retirement income support programs. In addition, DOL noted that many of the states engaged in efforts to address this issue by expanding coverage in workplace retirement savings programs have questions about preemption by ERISA. DOL generally agreed with the recommendation of the report. To address uncertainty facing state efforts, EBSA is initiating a regulatory agenda entitled “Saving Arrangements Established by States for Non- Governmental Employees,” which will appear in the Fall 2015 Semi- Annual Regulatory Agenda. EBSA expects to publish a Notice of Proposed Rulemaking by the end of 2015. We agree that DOL should review and revise existing regulations and guidance to accomplish all that can be done administratively to facilitate state efforts to expand coverage As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Labor, the Acting Director of the PBGC, the Acting Commissioner of the Social Security Administration, the Secretary of the Treasury, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VIII. Our objectives for this study were to examine: (1) recent estimates of workplace retirement savings program coverage, including eligibility and participation, and characteristics of workers who lack coverage, (2) strategies used by states and other countries to expand coverage among private sector workers, and (3) potential challenges states could face given existing federal law and regulations. To answer our research objectives, we used several different approaches. We examined data on private sector workers. We reviewed relevant research, selected state and federal legislation, and federal laws, regulations, and guidance. In addition, we interviewed state, national, and international industry stakeholders and government officials, including those at the Department of Labor’s (DOL) Employee Benefits Security Administration, the Department of the Treasury (Treasury), the Pension Benefit Guaranty Corporation, and the Social Security Administration (SSA). Section 1 describes the information sources and empirical methods we used to examine workplace access and participation across various characteristics of workers. Section 2 describes the methodology by which we identified state efforts and selected case studies, and reviewed the strategies they use and the potential challenges they could face. Section 3 describes similar methodology for our international review. To answer this question, we obtained information from the Survey of Income and Program Participation (SIPP) along with taxpayer data from W-2 filings, reviewed relevant literature, and conducted interviews with academics, industry stakeholders, and agency officials. SIPP is a nationally representative survey conducted by the U.S. Census Bureau. This panel survey is conducted generally every 4 years and resurveys participants every 4 months in a series of “waves” for the duration of their panel. Within each wave, Census administers a core survey consisting of questions that are asked at every interview, and several modules relating to a particular topic. We used data from the core survey and the topical module on retirement and pension coverage fielded from January-April 2012, the most recent data available. The survey collected data on about 52,000 individuals, including detailed information on work history, demographics, assets, and income. In comparison to other nationally representative surveys, SIPP has several main advantages. First, SIPP collects separate information on defined benefit (DB) and defined contribution (DC) plans. Other surveys, such as the Current Population Survey, do not distinguish between income from and participation in DB and DC plans. Second, the SIPP sample is larger than comparable surveys, such as the Survey of Consumer Finances (SCF). Consequently, it is possible to produce point estimates for demographic subcategories with a higher degree of reliability. Further, in comparison to SCF, which oversamples wealthy households, SIPP oversamples lower-income households—arguably an important component of an analysis of income security. Despite its advantages, SIPP has two limitations for our analysis. First, as with most survey data, SIPP data are self-reported. This can be problematic for the reporting of data on income sources and retirement program participation. For example, respondents might incorrectly report that they participate in a workplace retirement savings program when they do not. Second, despite the fact that SIPP differentiates between participation in a DB or DC plan, it does not contain full information on whether an individual’s employer offers a DB plan. Previous research has also found evidence of under-reporting of retirement program participation by comparing self-reported survey responses to W-2 tax records. Specifically, W-2 records include information on contributions to tax-advantaged retirement programs. By comparing the SIPP data to W-2 tax records, researchers can identify under-reporting of program participation. Similar to the approach used in prior research, we worked with Census to create a W-2 adjusted indicator of participation. If a respondent reported they did not participate, but actually had positive contributions to a workplace retirement program reported on their W-2, they were re-classified as participating. The data did not allow us to correct for the possibility that some participants may report they are participating when in fact they did not. Specifically, if the respondent said “yes, they do participate” but there is no contribution evident in the W-2, we did not recode them as a no because we cannot rule out the possibility that their employer offers a defined benefit plan or defined contribution plan in which only the employer contributes. We conducted a data reliability assessment of selected SIPP variables by conducting electronic data tests for completeness and accuracy, reviewing documentation on the dataset, or interviewing knowledgeable officials about how the data are collected and their appropriate uses. For the purposes of our analysis, we found the variables we ultimately reported on to be sufficiently reliable. We compared our estimates to estimates provided by Census using the SIPP data linked to tax records on retirement program contributions. Census replicated our analysis using the public use SIPP data with consistent results. Further, the results of our regression analysis of participation using the self-reported measure in the public use data and the W-2 adjusted measure were very similar in the size and significance of variables included in our analysis. In our sample we included respondents who are age 18 and older working in private sector jobs. For all SIPP analyses, we used SIPP individual-level weights to compute point estimates. Table 5 provides an overview of the number of private sector workers participating in workplace retirement savings programs using the W-2 adjusted data. To determine the extent to which private sector workers are covered by workplace retirement savings programs and the characteristics of those who lack coverage, we reviewed relevant literature and interviewed researchers, stakeholders, and agency officials to discuss relevant research methodologies and findings. This review informed our analysis of SIPP and Census data. Specifically, we examined the likelihoods, or odds, of the following outcomes: 1) participating in a retirement program (among all private sector workers), 2) having an employer that offers a retirement program (among all private sector workers), 3) being eligible (among those offered programs), and 4) participating in a program (among those who are eligible). The regression models we used to estimate these likelihoods included variables for the following characteristics of workers: income, occupation, education, age, gender, marital status, race/ethnicity, size of the firm they worked for, whether they worked full-time or part-time, whether they worked for the full year or only part of the year, and whether they were or were not union members. We examined regression results from the SIPP public-use data and the linked W-2 data. As described in the body of this report and appendix VI, the results were very similar in the size and significance of variables included in our analysis for both measures of participation. To understand factors that may be associated with access to workplace retirement programs and inform the methodology for our study, we conducted a literature review. A formal literature search was conducted by a GAO reference librarian using the Proquest database. In addition, we coordinated with the Congressional Research Service and Congressional Budget Office to identify relevant studies, and checked with DOL and SSA officials as to whether they would recommend any additional materials. Finally, during interviews with outside researchers, we asked for recommendations for other noteworthy studies. We performed these searches and identified articles from June 2014 to September 2014. Our review primarily focused on studies from the last five years (2009- 2014). The team reviewed article abstracts and identified those which were most relevant to our research objectives and developed detailed spreadsheet summaries of study goals, methodology, and findings. To review the strategies used in state efforts to expand private sector retirement coverage and the potential challenges they could face given existing federal law and regulations, we compiled a list of recent state efforts and conducted case studies in six states. To provide context on the number and type of recent state efforts we (1) developed a list of recent efforts in 29 states by reviewing industry websites and publications, interviewing federal officials and knowledgeable industry representatives, and conducting targeted searches of legislative databases; (2) confirmed the completeness of the list of states we identified at multiple points during the process with knowledgeable stakeholders; and (3) described the strategies in these state efforts. See appendix IV for a full description of our methodology and results. We selected a limited number of state efforts for case studies in October 2014 to provide non-generalizable examples of the types of efforts underway to expand coverage. To do so, we asked officials from DOL and Treasury and representatives from the Pension Rights Center, the American Society of Pension Professionals and Actuaries, and the retirement issues group AARP to recommend “leading” state efforts. They recommended eight states: California, Connecticut, Illinois, Maryland, Massachusetts, Oregon, Washington, and West Virginia. From those eight states, we selected six for case studies based on the following criteria: States that enacted, or were expected to enact, legislation that leads to implementation of a substantive effort to expand coverage. Some parity in the numbers of states from each of the two broad categories of state efforts we initially identified—automatic IRA- and other voluntary account-type programs. State efforts with some differences in how the broad categories were approached. Based on these criteria, we selected California, Illinois, Maryland, Massachusetts, Washington, and West Virginia. We did not select Oregon because the state’s Retirement Savings Task Force had just completed a study that recommended the program have certain characteristics, but any legislative proposal that might utilize those recommendations would not be available until 2015 at the earliest. We did not select Connecticut because its recent legislation and historical context were similar to other states we selected. To conduct case studies in the six states, we reviewed applicable GAO and academic research and legislative documentation on each state’s effort. Where available, we reviewed status updates and final reports by the state government or appointed task force or board. In addition, we interviewed national industry stakeholders and academics with knowledge of state efforts, and key stakeholders in the states including, where applicable, elected state officials, state government officials, board or task force members, and employer, worker, and industry representatives. We asked about key features of the state efforts and advantages, disadvantages, and challenges of the strategies in the state efforts. We conducted some of these interviews in person in California, Illinois, and Washington. To examine strategies used by other countries to expand coverage and identify lessons learned for the United States, we studied efforts in three countries that have voluntary workplace retirement systems—Canada, New Zealand, and the United Kingdom (U.K.). Our review provides non- generalizable examples of the types of efforts underway to expand coverage outside the U.S. We conducted an initial review of workplace retirement savings programs in Organisation for Economic Co-operation and Development (OECD) countries and consulted with knowledgeable industry stakeholders at the OECD and World Bank, among others. Given this information, we selected countries that met the following criteria: Private sector, workplace retirement savings programs are an important pillar of the country’s retirement system. The country has well-developed financial markets. Reforms designed to increase coverage have been implemented or are in the process of being implemented. Reforms use similar strategies as state efforts we identified. Specifically, the reforms use a voluntary approach or require employers to offer a program but allow workers to opt out. It was identified through our research and the consensus of knowledgeable external stakeholders as having strong potential for yielding useful lessons for the United States. It is not duplicative. Where similar programs exist in multiple countries we will select the one that best addresses the other selection criteria. As part of our review, we examined available documentation and analyzed the selected countries’ systems based on strategies used to increase coverage and the potential effectiveness in the United States. In particular, we examined eligibility and enrollment features, as well as measures targeted to workers who tend to lack coverage (e.g., those who work for small employers or are self-employed). We interviewed knowledgeable industry stakeholders and government officials from each country, as well as academics and national stakeholders based in the United States, about each strategy’s strengths, weaknesses, tradeoffs, and lessons learned for the United States. We did not conduct an independent legal analysis to verify the information provided about the laws, regulations, or policies of the countries selected for this study. Instead, we relied on appropriate secondary sources, interviews, and other sources to support our work. We submitted key report excerpts to agency officials in each country for their review and verification, and we incorporated their technical corrections as necessary. We note also that the fact that a legal feature was successful in one or more of the countries we visited, which may have significantly different cultures, histories, and legal systems than the United States, does not necessarily indicate that it would be successful in the United States. We conducted this performance audit from June 2014 through September 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. States we reviewed would attempt to use employers’ existing payroll processes to reduce administrative burden for employers, but some stakeholders said this may create challenges that could be mitigated based on state experience with other programs. For example, Maryland’s Task Force found that the best way to minimize administrative burden on small employers is to use their existing payroll process. While some stakeholders were concerned with employers’ payroll deduction capabilities, research shows that the majority of employers already use electronic payroll services. Because of this, state and national stakeholders told us that deducting and remitting contributions from a worker’s paycheck would not substantially increase the burden or cost for most employers. However, California stakeholders noted that using employers’ existing payroll processes would create a large state role in educating employers about their responsibilities and collecting payroll deductions. For example, the California Secure Choice program would need to be able to accept contributions from millions of small employers and one stakeholder noted that the program would likely have to deal with privacy issues if employers use tax identification information to remit payments. However, some states hoped to utilize the experience of state agencies that accept payroll deduction for other employer deductions and payments. For example, board members said that the California Secure Choice program may utilize the services of the state’s Employment Development Department that already collects employment taxes from employers in the state. While implementation details still need to be decided, board members hoped to capitalize on the department’s connection with California employers, infrastructure for processing payroll deductions, and experience with enforcing employer requirements. Similarly, Illinois’ Department of Revenue currently oversees employers’ payroll deposits for taxes, so Illinois stakeholders thought that the Illinois Secure Choice program might be able to leverage its administrative and enforcement experience. Government officials and stakeholders in New Zealand noted that this approach has worked well for KiwiSaver. Inland Revenue, New Zealand’s tax collection agency, is the interface between employers and providers, which officials said simplifies the administrative role for employers. Employers do not have to engage with various KiwiSaver providers a worker may select nor administer worker requests for opting out. Employers simply send a worker’s contributions to Inland Revenue and the agency sends the worker’s contribution to their KiwiSaver provider. In recognition of resource limitations for small employers, all of the state efforts would allow small employers of varying sizes to choose whether to participate in the state program. While stakeholders and research indicate that payroll deduction is readily accessible for the majority of employers, some of the smallest employers may not yet have migrated to an electronic payment system. As a result, each of these state efforts allows the smallest employers to choose whether to participate in the program. In particular, states that are considering requiring employers to offer workplace access have exempted the smallest employers from the requirement, but would allow them to choose to offer access to the program. For example, Illinois law exempts employers with fewer than 25 employees and California law exempts employers with fewer than 5 employees. Stakeholders did note a drawback to allowing small employers—as well as self-employed workers—to choose whether to offer the state program. Specifically, if too few employers choose to offer a purely voluntary program, it may not be able to achieve the scale necessary to ensure that costs are reasonable. In contrast, some of the countries we studied required even small employers to offer workplace access but they took other actions to recognize the resource limitations of small employers, including phasing in the employer requirement and creating specific programs that support small employers. For example, in the U.K. the employer requirement to offer access and automatically enroll workers is being phased in gradually between October 2012 and February 2018 based on employer size, which provides smaller employers additional time to prepare for meeting the new requirements. However, without any other action by the government, U.K officials concluded that small employers may find it difficult to meet the automatic enrollment requirements because of a supply gap—the Pensions Commission concluded that existing providers would find it unprofitable to serve employers that did not previously offer workers access, the overwhelming majority of which had fewer than 15 employees, at a reasonable cost to workers. To address the supply gap, it created the National Employment Savings Trust (NEST) to ensure that all employers, particularly small employers, would have access to a low- cost program, with the added benefit of diminishing the burden on employers of choosing an appropriate provider (see text box 1). Similarly, the Australian government recognized the specific needs of small employers by creating a Small Business Superannuation Clearing House in 2010 to simplify administrative requirements and lessen the administrative burden on small employers. The Clearing House is a free service that allows eligible employers to make one payment at least quarterly on behalf of all of the employer’s workers. The Clearing House then disburses the payments to each of the worker’s choice of fund (see text box 2). Text Box 1: The United Kingdom’s National Employment Savings Trust (NEST) has a public service obligation to accept any employer (and any qualifying worker) that wishes to use it, and in this way serves all those employers and workers who are unable to find another provider of a retirement savings program. The existence of a low-cost program with a universal public service obligation reduces the burden on small employers who might otherwise expend considerable time and effort in identifying a provider willing to serve them at an acceptable cost. In addition, there are no charges for employers to set up and use NEST. Finally, NEST has worked with the major payroll software providers in the United Kingdom to integrate their platforms with NEST in order to reduce data compliance burdens on employers. NEST representatives thought that this effort could make NEST even easier to use for small employers. Text Box 2: Australian officials explained that the Small Business Superannuation Clearing House was set up to help employers make contributions on behalf of their workers as required by the Australian Superannuation system. They thought that these contributions could represent a heavy administrative burden for small employers because workers are allowed to choose the provider to which they want the employer to send their contributions, employers must make payments at least quarterly, and superannuation providers all have slightly different forms and payment delivery methods. Created in 2010, the purpose of the Small Business Superannuation Clearing House was to simplify administrative requirements, lessening the administrative burden for small employers— those with 19 or fewer workers or, from July 1, 2015, those with total income of less than $2 million Australian dollars (AUD) (about $1.4 million USD). Employers log onto the Clearing House’s website and are required to complete a one-time registration, after which their involvement is low. As of July 31, 2015, about 120,000 employers are registered to use the service, approximately 15 percent of those eligible. The majority of employers who use the service generally have between 3 and 19 workers. The government has found that these employers typically do not have payroll software. Officials said that employers who use the Clearing House say it saves them time and gives them peace of mind because use of the system guarantees they have met their obligation. The Clearing House is funded through government appropriations and costs the government about $6 million AUD annually. States would also take other actions to reduce administrative burden for employers and may be able to learn from other countries’ implementation experiences, especially those of NEST in the U.K., and their own experiences with other state savings programs, including college savings plans and public pension plans (see table 6). These actions to reduce administrative burden for employers elevate the state’s role in the programs, which could create implementation challenges, including how to fund state actions. Stakeholders generally noted the importance of the state’s acceptance of some of the employer’s administrative duties and liability in encouraging employers to offer workplace access. However, this state role is particularly important for efforts that would require eligible employers to participate, such as in California, Illinois, and Maryland. While enabling legislation provides the intent and the direction of these state programs, the state effort’s governing body will have to make many decisions to develop and implement the programs, including how to educate employers about their responsibilities. In three of the four states we studied that had enacted such legislation—Massachusetts, California, and Illinois—the states have already taken or planned at least 2 years to study options and design their programs. In addition, stakeholders noted that the six states we reviewed would likely incur potentially significant startup and ongoing costs and saw potential challenges in determining how to fund those costs. For example, a California official expects the feasibility study and related legal analysis will cost $1 million, but total startup costs could be much larger. Since the feasibility study has to be funded without a state appropriation, the state official said that an immediate challenge was to raise the necessary funds for the feasibility study so they could better determine cost estimates for developing the program and ongoing administration. The U.K. recently dealt with this issue when it created NEST and received a loan from the government. A NEST representative said it had spent about 300 million British pounds (GBP) (about $459 million USD) over the last 2.5 years to (1) develop systems infrastructure and architecture; (2) enroll employers; and (3) fund the program in the first few years while contributions are very low. For the latter, the NEST representative said that current members are contributing 2 percent of their generally low wage—at these rates contributions could be 20 GBP (about $31 USD) a month—so NEST does not receive revenue from these accounts to pay back the loan and, in fact, runs into a cash flow shortfall. In these early years, NEST is running a slightly higher shortfall than expected because the income levels of members are lower than expected. To provide federal context, we interviewed federal agency officials and knowledgeable industry representatives, and we conducted targeted searches of legislative databases. Then from all bills in the 113th Congress and the 114th Congress categorized in the Legislative Information System as having retirement as a topic, we selected and discuss in the table below those that would make or would have made efforts to expand coverage in workplace retirement savings programs (see table 7). Because this is a select list, however, and we did not include bills that may have had an indirect effect on workplace retirement savings program coverage, this list should not be viewed as exhaustive. We developed the following list of 29 states with recent efforts to expand retirement savings program coverage for private sector workers— including the introduction, action on or enactment of legislation, an executive action, or a study—by (1) reviewing information posted online by industry stakeholders, including the National Council of State Legislatures, the Pension Rights Center, and other industry publications; (2) conducting targeted searches of enacted and proposed state legislation using LexisNexis and WestLaw, in consultation with a law librarian; and (3) interviewing federal officials and knowledgeable industry representatives, including stakeholders at the Pension Rights Center, the American Society of Pension Professionals and Actuaries, and AARP. At multiple points during this process, we confirmed completeness of our list of states with knowledgeable industry stakeholders, including a more in-depth review by a representative of the Center for Retirement Initiatives at Georgetown University, a public policy center created to promote retirement savings solutions at the state level in the United States. (See fig. 11.) We described the strategies proposed in the state efforts based on documentation we obtained from state legislative or executive office websites. We use “state efforts” to refer to a range of activities that may have occurred in a state, including the introduction of a bill, executive action, studies, or the enactment of legislation. While states are exploring various approaches, a number of state efforts seem to incorporate strategies, such as payroll deduction individual retirement accounts (IRAs) and automatic enrollment, that are similar to those incorporated into “automatic IRA” proposals submitted by the President and some members of Congress. We compiled this list, shown in table 8, by interviewing state officials and knowledgeable industry representatives and conducting targeted searches of legislative databases. We did not conduct an independent, legal analysis to determine whether the features and strategies used by states will hold up under scrutiny and this list may unintentionally exclude relevant state efforts that we did not identify. Workplace Access and Automatic Enrollment Federally regulated and most provincially regulated employers can voluntarily offer PRPPs to their workers, while Quebec will require employers with five or more eligible workers to offer VRSP. If a federally or provincially regulated employer chooses to offer a PRPP, or is required to offer VRSP, the employer will contract with a licensed provider who will manage the set-up process. Eligible workers will be automatically enrolled. However, workers have 60 days to opt out or may, 12 months after their contributions begin, set their contribution rate to zero for a fixed period of up to five years. Full-time workers are immediately eligible to join a PRPP and part-time workers are eligible after 24 months of continuous service. Eligible workers for Quebec’s VRSP are those who are ages 18 and older, have 1 year of continuous service, and who otherwise do not have the opportunity to contribute to a workplace retirement plan. Financial Incentives and Worker Contributions PRPPs and VRSPs offer workers tax benefits to encourage participation, but contribution requirements vary. Worker contributions to PRPP receive a corresponding tax deduction up to a set contribution limit. Default contribution rates will be set by the plan administrator for their PRPP, but providers may permit workers to adjust the contribution rate. For VRSP, the default contribution rate is set by regulation at 2 percent until 2017, increasing to 3 percent in 2018 and 4 percent in 2019. However, workers can alternatively set their contribution rate to zero. Employers are not required to make financial contributions to their workers PRPP or VRSP accounts. Plan Providers Service providers, like banks or insurance companies, must apply for a license to become an administrator of PRPPs or VRSPs, and take on the fiduciary responsibility for administering the plans. Investment Options Licensed administrators will offer a limited number of investment options including a default option that will be either a balanced fund or a target date fund, and up to five additional investment options with varying degrees of risk. According to research by a Canadian financial institution, VRSP is estimated to enroll 1 million workers in the province by 2018. Because the PRPP is voluntary for employers and implementation is in the early stages, estimates on participation rates remain unclear. Fees To ensure fees are reasonable, government regulation requires that PRPP providers charge fees equivalent to or below those charged to members of defined contribution plans with 500 or more members. As of July 2015, VRSP fees for the default option range between 1.09 and 1.25 percent. At a glance To increase national savings and address the declining trend in private sector retirement plan coverage of the under 65 population—from about 20 percent in 2001 to about 15 percent in 2007—the New Zealand government passed the KiwiSaver Act. The act established KiwiSaver in 2007 as a government- sponsored defined contribution workplace program. KiwiSaver requires employers to automatically enroll all new workers into a qualified plan, with a worker opt- out. Workers are encouraged to participate in KiwiSaver through a series of incentives that include employer contributions, tax benefits, and a one-time government contribution. Workplace Access and Automatic Enrollment Employers are required to automatically enroll new workers ages 18 to 65 into a KiwiSaver plan. In addition, existing workers, as well as the self- employed and unemployed, can choose to opt into a KiwiSaver plan by notifying their employer or by contacting a provider directly. Employers can select a preferred provider for workers who do not choose their own, but workers have the right to change providers anytime. Following automatic enrollment, workers have between 2 and 8 weeks to opt out. Financial Incentives and Worker Contributions Participation in KiwiSaver offers eligible workers employer contributions, tax benefits, and a one-time government contribution, to complement workers’ own contributions. For workers who do not opt out, employers are generally required to contribute 3 percent of earnings. In addition, workers who contribute a minimum of $1,043 New Zealand dollars (NZD) (about $663 USD) or more annually get a $521 NZD ($331 USD) tax credit. Until May 21, 2015, the government also made a one-time kick start contribution of $1,000 for new accounts. After this date, new members are no longer eligible for this payment. Workers generally contribute 3, 4, or 8 percent of earnings. After an initial 12 month period, workers have the option of a contributions holiday from 3 months to 5 years. As of June 2014, KiwiSaver had grown to include 2.35 million members. Of this total, approximately 61 percent chose to opt into KiwiSaver either through their employer or through a plan provider. The remaining 39 percent were automatically enrolled by their employer. Approximately 20 percent of enrolled workers have chosen to opt out of KiwiSaver. Plan Providers KiwiSaver service providers, such as banks, insurance companies and investment firms, are registered to offer qualifying plans, and deal directly with workers after the initial set-up process. If an employer does not have a preferred KiwiSaver provider and a worker does not select one, Inland Revenue, the government tax collection and social programs agency, allocates workers to one of the nine government-appointed default service providers. All service providers are registered with and monitored by the Financial Markets Authority, the government regulator. Investment Options KiwiSaver service providers offer a range of products with different investment options and risk levels with the default being a conservatively invested fund. Approximately 25 percent of KiwiSaver participants are in a default investment fund. Fees Default service providers are licensed by Inland Revenue and establish reasonable fees for participants by submitting a fee schedule as part of the application process. Inland Revenue must also approve any changes to the fee structure. In addition, the Commission for Financial Capability established Fund Finder, an online tool that allows participants to compare plan features and fee structures. Over half of KiwiSaver plans charge between 1 and 1.5 percent in fees—New Zealand uses a Total Expense Ratio tool to measure fees, which is a ratio of total fees to funds under management in percentage terms. At a glance To address the declining proportion of private sector workers participating in a workplace retirement plan—down from 47 percent in 2002 to about 32 percent in 2012—the United Kingdom government passed legislation in 2008 requiring employers to automatically enroll all eligible workers into a retirement plan. Employers can meet their obligation by enrolling workers in a plan that meets minimum standards or the new National Employment Savings Trust (NEST) set up by the government. Workplace Access and Automatic Enrollment Employers are required to automatically enroll workers to a qualified workplace retirement plan if they are between age 22 and State Pension Age—which is variable based on age, gender, years of employment, and national insurance status—and have earnings over 10,000 British pounds (GBP) (about $15,353 USD) for the 2015/2016 tax year. The U.K. government reviews the threshold annually and may adjust it. Once they have been automatically enrolled, workers have 1 month to opt out. Some workers earning less than 10,000 GBP, ages 16 to 21, and over the State Pension Age have the option to opt in. Every 3 years, employers are required to automatically re-enroll workers who have previously opted out. Automatic enrollment is being phased in over the course of several years beginning with the largest employers. Since its implementation began, the rollout had reached over 50,000 employers and 5.3 million workers by end of June 2015. An additional 1.2 million employers are scheduled to implement automatic enrollment for approximately 4 million employees by April 2017. The rollout is scheduled to be completed by 2018, when it will cover employers of all sizes. Worker opt-out rates were approximately 9 to 10 percent in 2013 and 12 percent in 2014, below the initial government estimates of 33 percent. Financial Incentives and Worker Contributions For workers who do not opt out, the total minimum contribution from the employer, government, and worker will combine to reach 8 percent by 2018. Employers are required to contribute 1 percent of qualified earnings—a band of earnings between 5,824 GBP and 42,385 GBP (about $8,941 USD and $65,073 USD) as of 2015—gradually increasing to 3 percent by 2018. In addition, the U.K. government will contribute the equivalent of 1 percent of qualified earnings in the form of tax relief by that date. Workers currently pay 0.8 percent of qualified earnings, gradually increasing to 4 percent by 2018, through payroll deduction. Plan Providers Employers may offer a plan through a commercial provider, such as an insurance company, if it meets or exceeds certain legal criteria. If an employer does not offer a qualifying plan, they must enroll workers into NEST, which was established to act as a low-cost default provider. It has a public service obligation to accept any employer that wants to use it, including smaller employers that may not be able to find suitable commercial providers. Investment Options NEST offers a limited number of investment options to reduce complexity and fees. The default fund is a diversified target date fund, which is conservatively invested to avoid capital loss during initial years of saving to discourage workers from opting out. In addition to the default, NEST offers five other options with varying levels of risk. Fees NEST does not charge employers to use the program. Workers enrolled in NEST pay an annual management fee of 0.3 percent. A temporary additional fee of 1.8 percent on contributions is also deducted until NEST start-up costs are recovered. According to NEST officials, this is equivalent to a total fee of about 0.5 percent annually, which is comparable to fees charged by larger workplace retirement programs. From April 2015 onward, workers who enroll with non-NEST commercial providers pay an annual charge fee capped at 0.75 percent. In this appendix we summarize the results of our analyses of factors affecting retirement program participation. We first looked at the likelihood of participating in retirement programs overall, or among all workers. We then examined, among all workers, the likelihood of their employers offering them retirement programs. Then, among workers whose employers offered programs, we looked at the likelihoods of workers being eligible for them. And finally, we looked at the likelihood of participating in retirement programs among workers who were offered programs and eligible for them. In all of these analyses, we estimated how these different likelihoods were associated with different characteristics of the workers, including their income, occupation, education, age, gender, marital status, race/ethnicity, the size of the firm they worked for, whether they worked full-time or part-time, whether they worked for the full year or only part of the year, and whether they were or were not union members. For our analyses, we used publicly available data from the Survey of Income and Program Participation (SIPP) from 2012, as shown in tables 9 – 12 of this appendix. To correct for under-reporting of participation we also used W-2 data as described in appendix I. Results from the public use data and W-2 data were very similar in the size and significance of variables included in our analysis, as shown in table 13 at the end of this appendix. In all of the tables, the numbers and estimates derived from them use weighted data to reflect population estimates, using weights provided by SIPP. Table 9 shows how various categories of workers differ in their likelihood (expressed both as percentages and odds) of participating in retirement programs. In the first column of numbers in the table we show the number of workers in each group (or category) defined by the different factors. The next two columns of numbers reflect the percentages in each group that were and were not participating in retirement programs. The traditional way of comparing groups involves considering the difference in those percentages, and those differences are in many cases quite sizable. For example, only 14 percent of the workers in the lowest income quartile were participating in retirement programs, while 76 percent of the workers in the highest income quartile were participating in retirement programs. Only 18 percent of workers with less than a high school diploma, but 62 percent of workers with at least a bachelor’s degree, were participating in retirement programs. And while only 23 percent of the workers in firms with fewer than 50 workers were participating in retirement programs, 60 percent of workers in firms with more than 1,000 workers were retirement program participants. Sizable differences also exist between most of the categories of workers defined by the other characteristics shown in the table. An alternative method of estimating the likelihood of participating in retirement programs and the differences in those likelihoods between groups involves calculating odds and odds ratios. The odds on participating (vs. not participating) in retirement programs are calculated by taking, overall or for any one group, the number (or percent) of workers participating in retirement programs and dividing it by the number (or percent) of workers not participating in retirement programs. Overall, using the percentages in the final row of table 9, the odds on participating in retirement programs in our (weighted) sample of workers is 45.4 ÷ 54.6 = .832, apart from rounding. While somewhat different and less traditional than percentages, the odds have a fairly direct and simple interpretation: In this case it implies that overall there are .83 retirement program participants for every 1 non-participant, or 83 participants for every 100 non-participants. In the fourth column of numbers in table 9, we show the odds on participating for each subgroup defined by the different worker characteristics shown in the table. There we see, for example, that the odds on participating in retirement programs increases from 0.167 for workers in the lowest income quartile to 0.514 for workers in the second income quartile to 1.338 for workers in the third income quartile and, finally, to 3.176 for workers in the highest income quartile. The unadjusted odds ratios in the penultimate column of table 9 show how the odds on participating in retirement programs vary across the different subgroups. Where the factors or worker characteristics distinguish only two groups, like union membership, we simply take the ratio of the odds for one group to the other – e.g., 2.103 ÷ 0.774 = 2.72, which implies that the odds on union members participating in retirement programs are 2.7 times higher than the odds for workers who are not union members. Where the factors involve more than two subgroups, we choose one subgroup as the referent category and calculated the ratios of the odds for the other subgroups relative to that one. To make comparisons across income categories, for example, the lowest income quartile was chosen as the referent category, and the ratios shown for the other subgroups (i.e., 0.514 ÷ 0.167 = 3.08; 1.338 ÷ 0.167 = 8.01; and 3.176 ÷ 0.167 = 19.01) indicate that workers in the second, third, and highest income quartiles have higher odds on participating than workers in the lowest quartile, by factors of 3, 8, and 19, respectively. The full set of unadjusted odds ratios shown in the table indicate that virtually all of the subgroups differ from one another, in most cases significantly, and in many cases by a substantively large amount. Workers in the broad category of occupations involving Management, Business, Science, and Arts, for example, were 6.5 times as likely to be participating in retirement plans (or have odds that are 6.5 times higher) as workers working in Service occupations. Workers with bachelor’s degrees were 2.7 times as likely as workers with less than a high school education to be participating in retirement programs. And, to offer a final example, Hispanics were less likely than white non-Hispanics to be participating in a retirement program by a factor of 0.37. These unadjusted odds ratios may seem to inflate the differences between groups, especially to those who are accustomed to comparing percentages. That is, while the odds ratio comparing workers in the highest and lowest income quartiles suggests a 19-fold difference between the two groups, there is only slightly more than a 5-fold difference between the two groups in the percentage participating (i.e., 76.1 ÷ 14.3 = 5.3). Focusing on the difference between groups in the percent participating, however, ignores the implicit difference in the percent not participating between groups, which differed by a factor of 23.9 ÷ 85.7 = 0.28. One advantage of the odds ratio (also referred to as the cross-product ratio) is that in estimating the ratios of participants to non-participants it makes fuller use of the data involved in the comparisons, and considers both differences at once. In fact, the odds ratio we obtain in this case, equal to 19.01, could just as easily have been obtained by taking the ratio of these two percentage differences (i.e., 5.3 ÷ 0.28 = 19.01, apart from rounding). Another advantage of odds ratios is that, unlike percentage differences, they can be adjusted using multivariate models (logistic regression models) so that they reflect the net effect of each variable, rather than the gross (or unadjusted) effect. The odds ratios in the final column of table 9 show how different the odds on participating are when we consider all of the variables in the table simultaneously. Because of the correlations among some of the variables in the table (like income and education), the effects of the different variables, or the differences between the categories of workers they define, are in many cases substantially attenuated (or smaller) when we look at them simultaneously than when we look at each individually. The odds ratio estimating the income difference just discussed, for example, is reduced when we estimate its effect net of the other variables, from 19.0 to 6.8. Even after adjusting the ratios to take account of the interrelatedness of many of the factors in the table, most of the subgroups compared remain significantly different from one another, and in many cases the differences are sizable. In addition to the income difference mentioned above we find, even after adjustment, that the likelihood of participating varies significantly for many of the variables we examined (see table 9). For example: 1. Workers in all other occupational categories have significantly higher odds on participating in retirement programs than workers in Service occupations, and the odds are nearly twice as high (OR = 1.95) for workers in Management, Business, Science, and Arts occupations as for those in Service occupations. 2. Workers with less than a high school diploma were less likely (by a factor of 0.6) than those with less than a high school education to be participating, though after adjustment those with some college or with a Bachelor’s degree are not statistically distinguishable from those with a high school diploma. 3. Workers in larger firms had higher odds on participating in retirement programs than workers in smaller firms. Workers in firms with 51 to 100 workers were about twice as likely (OR = 2.1) as workers in firms with 50 or fewer workers to participate, and workers in firms with more than 1,000 workers were about five times (OR = 4.9) as likely. 4. The youngest category of workers (ages 18-24) were only roughly one-third as likely (OR =0.37) as workers 25-34 to be participating in retirement programs; workers 35-44 were not significantly different from workers 25-34; and workers 45-54 and 55-64 were both more likely than those 25-34 to be participating in retirement programs, in both cases by a factor of 1.4. Workers 65 and over had lower odds on participating than all groups except the very youngest, and odds that were lower than workers 25-34 by a factor of 0.68. 5. Additionally, full-time workers were 1.6 times more likely than part- time workers to be participating in retirement programs; full-year workers were 2.5 times more likely than part-year workers to be participating in retirement programs; and union workers were twice as likely (OR = 2.0) as non-union workers to be participating in retirement plans. 6. Finally, male workers were less likely than female workers to be participating in retirement programs, by a factor of 0.91; currently married workers were 1.2 times more likely than never married workers to be participating in retirement programs, while widowed, divorced, and separated workers were not significantly different from those who were never married; and Black, Hispanic, and Asian workers had lower odds on participating than White, non-Hispanic workers, by factors of 0.8, 0.6, and 0.7, respectively. Some of these differences in the likelihood of participating in retirement programs are likely due to the fact that some categories of workers are more likely than others to work for employers that offer retirement programs. Table 10 shows that a great many categories of workers differ in terms of whether their employer offers a program. As in the table above, the unadjusted odds ratios indicating the differences between groups in the odds on their employers offering a program (in the penultimate column of the table) tend to be somewhat larger than the adjusted odds ratios, or the odds ratios obtained from multivariate models in which all of the different factors are considered simultaneously using a multivariate model (in the final column). But even the adjusted odds ratios reveal some sizable and significant differences, including the following: 1. Workers with higher incomes are more likely to work for employers that offer retirement programs. Workers in the 2nd, 3rd, and highest income quartiles have higher odds on working for employers that offer retirement programs than workers in the lowest income quartile, by factors of 1.7, 2.7, and 3.9, respectively. 2. Workers in all occupational categories except for Natural Resources, Construction, and Maintenance Occupations have significantly higher odds on working for employers that offer retirement programs than workers in Service occupations, and the odds are nearly twice as high (OR = 2.0) for workers in Management, Business, Science, and Arts occupations as for those in Service occupations. 3. Workers with less than a high school education were less likely to work for employers that offer retirement programs than those with a high school diploma, by a factor of 0.73, while workers with some college or a Bachelor’s degree were more likely (in both cases) by a factor of roughly 1.2. 4. Workers in larger firms had substantially higher odds on working for employers that offer retirement programs than workers in smaller firms. Workers in firms with 51 to 100 workers were about three times as likely (OR = 2.95) as workers in firms with 50 or fewer workers to work for employers that offer retirement programs, workers in firms with 101 to 500 workers and with 501 to 1,000 workers were 5 and 6 times as likely, respectively, and workers in firms with more than 1,000 workers were about 9 times (OR = 9.1) as likely to work for employers that offer retirement programs. 5. The youngest category of workers (ages18-24) were only roughly three-fourths as likely (OR =0.76) as workers 25-34 to be working for employers that offer retirement programs; workers 35-44 were also somewhat less likely than workers 25-34 to work for employers that offer retirement programs (OR = 0.88); and workers 45-54 and 55-64 did not significantly differ from those 25-34 in working for employers that offer retirement programs. Workers 65 and over had lower odds on working for employers that offer retirement programs than all groups, and odds that were lower than workers 18-24 by a factor of 0.62. 6. Additionally, full-time workers were 1.2 times more likely than part- time workers to be working for employers that offer retirement programs; full-year workers were 1.5 times more likely than part-year workers to be working for employers that offer retirement programs, and union workers were twice as likely (OR = 2.0) as non-union workers to be working for employers that offer retirement programs. 7. Finally, male workers and female workers did not significantly differ in their chance of working for employers that offer retirement programs (OR = 0.96); currently married workers were slightly but significantly (OR = 1.1) more likely than never married workers to be working for employers that offer retirement programs, while widowed, divorced, and separated workers were not significantly different from those who were never married; and Black, Hispanic, and Asian workers had lower odds on working for employers that offer retirement programs than White, non-Hispanic workers, by factors of 0.8, 0.6, and 0.6, respectively. Some of these differences in the likelihood of participating in retirement programs are also likely due to the fact that some categories of workers are more likely than others to be eligible for the retirement programs that their employers offer. Table 11 shows that a number of categories of workers differ in terms of whether they are eligible for the retirement programs their employers offer, though fewer factors are significantly associated with eligibility than participation. The differences that do exist, like those described above, are in virtually all cases somewhat smaller when we estimate them simultaneously than when we estimate them separately; nonetheless, the odds ratios from the multivariate models indicate that: 1. Workers with higher incomes are more likely to be eligible for the retirement programs their employers offer than workers with lower incomes. Workers in the 2nd, 3rd, and highest income quartiles have higher odds on being eligible than workers in the lowest quartile, by factors of 2.0, 4.4, and 7.5, respectively. 2. Occupation was not significantly associated with whether workers were eligible for the retirement programs their employers offer. Education was significantly related to eligibility, however; workers with some college and with a college degree were less likely than those with a high school degree to be eligible, by factors of 0.8 and 0.7, respectively. 3. Workers in mid-size firms were not significantly different from workers in the smallest firms in their chance of being eligible for the retirement programs their employers offer, though workers in firms with more than 1,000 workers were 1.3 times as likely to be eligible as workers in firms with 50 or fewer workers. 4. The youngest category of workers (ages 18-24) were less than one- half as likely (OR = 0.44) as workers 25-34 to be eligible for retirement programs their employers offer, while workers 35-44, 45-54, and 55- 64 were more likely to be eligible than those 25-34, by factors of 1.4, 1.6, and 1.6, respectively. Workers 65 and over were less likely to be eligible than workers 18-24, by a factor of 0.73. 5. Full-time workers were 2.6 times more likely than part-time workers to be eligible for the retirement programs their employers offer; full-year workers were 3.1 times more likely than part-year workers to be eligible for the retirement programs their employers offer; and union workers were 1.4 as likely as non-union workers to be eligible for the retirement programs their employers offer. 6. Finally, male workers and female workers did not significantly differ in their chance of being eligible for the retirement programs their employers offer (OR = 1.1); currently married workers were significantly more likely (OR = 1.4) than never married workers to be eligible for the retirement programs their employers offer, while widowed, divorced, and separated workers were not significantly different from those who were never married; and race and ethnicity was not significantly associated with eligibility. Given these results indicating that participation in retirement programs is partly the result of whether programs are offered, and whether workers are eligible for them, in table 12 we show how various categories of workers differ in their likelihood of participating in retirement programs when we restrict our attention to workers whose employers offer programs for which they are eligible. While differences are in most cases smaller than they appeared when we looked at all workers, regardless of whether they worked for companies that offered retirement programs and whether they were eligible for them, many still remain sizable and statistically significant. Focusing again on the multivariate odds ratios in the final column of the table, the results are as follows among those who were eligible for the programs their employers offered: 1. Workers with higher incomes are more likely to participate than workers with lower incomes. Workers in the 2nd, 3rd, and highest income quartiles have higher odds on participating in retirement programs than workers in the lowest income quartile, by factors of 1.2, 2.2, and 4.4, respectively. 2. Workers in all occupational categories except for Production, Transportation, and Material Moving Occupations have significantly higher odds on participating in retirement programs than workers in Service occupations, by factors ranging from 1.3 to 1.5. 3. Workers with less than a high school diploma were less likely (by a factor of 0.7) than those with a high school education to be participating, though after adjustment those with some college or with a Bachelor’s degree are not significantly different from those with a high school diploma. 4. Workers in firms with 51 to 100 workers were somewhat less likely (OR = 0.75) as workers in firms with 50 or fewer workers to participate, while workers in each of the larger firm categories (with more than 100 workers) were not significantly different from the smallest firms. 5. The youngest category of workers (ages 18-24) were only roughly one-half as likely (OR =0.46) as workers 25-34 to be participating in retirement programs; workers 35-44, 45-54, and 55-64 were more likely than those 25-34 to be participating in retirement programs, by factors of 1.3, 1.7, and 1.9, respectively. Workers 65 and over had odds of participating that were not statistically distinguishable from the odds for workers 25-34 (OR = 0.9). 6. Full-time workers were slightly more likely (OR =1.1) than part-time workers to be participating in retirement programs; full-year workers were 1.3 times more likely than part-year workers to be participating in retirement programs, though the result was not statistically significant; and union workers were 1.7 times as likely as non-union workers to be participating in retirement programs. 7. Finally, male workers were less likely than female workers to be participating in retirement programs, by a factor of 0.8; marital status was not statistically associated with participation; and Black and Hispanic workers had lower odds on participating than White, non- Hispanic workers, by factors of roughly 0.7 in both cases. Asians and other non-Hispanics were not significantly different from Whites. Ignoring for the moment the numbers in parentheses, table 13 summarizes how the differences in participating across groups change when we look at the different group characteristics (1) one at a time among all workers, (2) all at once among all workers, and (3) all at once among workers who are eligible for the retirement programs offered by their employers. Some of the differences that appear sizable and significant when we look at them in isolation (column 1) diminish in size and become insignificant when all of the different factors are considered simultaneously (column 2). This is true of the differences between 1) workers with more than a high school education vs. workers with only a high school diploma, 2) workers ages 35-44 vs. workers ages 25-34, 3) workers who are widowed, divorced, or separated vs. workers who were never married, and 4) other non-Hispanic workers and white non-Hispanic workers. Further, some of the differences that remain sizable and significant even when they are considered simultaneously (column 2) diminish and become insignificant when we restrict the sample to workers who were offered programs and were eligible for them (column 3). Such is the case with the differences between 1) workers in Production, Transportation, and Material Moving Occupations vs. workers in Service Occupations, 2) workers in each of the larger firm categories with more than 100 workers vs. those in firms with 50 or fewer workers, 3) workers 65 and older vs. workers 25-34, 4) full-year vs. part-year workers, 5) married vs. never married workers, and 6) Asian non-Hispanic vs. white non-Hispanic workers. Most of the differences that remain significant after taking account of eligibility, which are noted in the bullets above associated with table 12, are smaller than they appeared before taking account of eligibility, though some of the age differences are exceptions to this. The factors that have the most pronounced effects when they are considered jointly and restricted to eligible workers are income, occupation, age, and union membership. The numbers in parentheses in the table show these same coefficients from the same bivariate and multivariate models for the same subgroups that we obtain when we use the “corrected” data which combines W-2 information from the Census with the self-reported data from SIPP. In virtually all cases the coefficients are very similar, and only in a few instances, involving the adjusted education effect for all workers, and the adjusted differences between part-time and full-time workers and workers in firms with 1,000+ workers and in firms with fewer than 50 workers among those who are eligible, are the estimated odds ratios significant in one set of results but not in the other. In virtually all other instances, the effects are similar in both size and significance. Odds Ratio (Multivariate) Odds Ratio (Multivariate) Odds Ratio (Multivariate) Odds Ratio (Multivariate) Odds Ratio (Multivariate) Odds Ratio (Multivariate) (1) Unadjusted Odds Ratios (All Workers) (2) Adjusted Odds Ratios (All Workers) (3) Adjusted Odds Ratios ( Eligible Workers) 3.08 (2.82) 2.00 (1.94) 1.22 (1.30) 8.01 (7.07) 4.04 (3.79) 2.23 (2.44) 19.01 (18.05) 6.84 (6.84) 4.43 (5.42) 1. Management, Business, Science, and Arts Occupations 6.48 (6.46) 1.95 (1.95) 1.53 (1.56) 3. Sales and Office Occupations 2.78 (2.92) 1.54 (1.71) 1.34 (1.45) 4. Natural Resources, Construction, and Maintenance Occupations 2.23 (1.98) 1.25 (1.18) 1.37 (1.47) 5. Production, Transportation, and Material Moving Occupations 2.74 (2.68) 1.44 (1.50) 1.17 (1.22) 0.37 (0.40) 0.61 (0.66) 0.74 (0.68) 1.31 (1.39) 1.03 (1.14) 0.97 (0.97) 2.74 (2.95) 1.06 (1.18) 1.18 (1.18) 1. More Than 1,000 Workers 4.85 (4.77) 4.93 (4.89) 1.17 (1.29) 2. 501 to 1,000 Workers 3.87 (4.03) 3.57 (3.82) 0.92 (1.05) 3.57 (3.57) 3.01 (3.10) 0.86 (0.90) 2.37 (2.32) 2.07 (2.07) 0.75 (0.71) (1) Unadjusted Odds Ratios (All Workers) (2) Adjusted Odds Ratios (All Workers) (3) Adjusted Odds Ratios ( Eligible Workers) 0.18 (0.24) 0.37 (0.50) 0.46 (0.43) 1.32 (1.28) 1.08 (1.06) 1.26 (1.20) 1.69 (1.65) 1.43 (1.41) 1.67 (1.63) 1.78 (1.68) 1.44 (1.34) 1.87 (1.75) 0.77 (0.73) 0.68 (0.63) 0.90 (0.76) 3.26 (3.34) 1.62 (1.76) 1.14 (1.14) 4.46 (3.69) 2.47 (1.93) 1.27 (1.28) 2.72 (2.55) 2.00 (1.75) 1.73 (1.60) 1.17 (1.15) 0.91 (0.92) 0.84 (0.79) 2.62 (2.48) 1.19 (1.21) 1.08 (1.11) 1.69 (1.59) 0.97 (0.97) 0.86 (1.06) 2.32 (2.17) 0.99 (0.96) 0.86 (0.85) 1.33 (1.35) 0.92 (1.01) 0.73 (0.78) (1) Unadjusted Odds Ratios (All Workers) (2) Adjusted Odds Ratios (All Workers) (3) Adjusted Odds Ratios ( Eligible Workers) 0.66 (0.72) 0.75 (0.83) 0.74 (0.75) 0.37 (0.37) 0.58 (0.58) 0.67 (0.71) 0.90 (0.89) 0.66 (0.64) 0.97 (0.91) 0.73 (0.77) 0.86 (0.91) 0.91 (0.85) In addition to the contact named above, Kimberly Granger (Assistant Director), Sharon Hermes and Jessica Gray (Analysts-in-Charge), Melinda Bowman, Gustavo Fernandez, Grant Mallie, Douglas Sloane, Walter Vance, and Seyda Wentworth made key contributions to this report. Also contributing to this report were David Chrisinger, Peter Del Toro, Cynae Derose, Helen Desaulniers, Jennifer Gregory, Stephen Komadina, Kathy Leslie, Andrea Levine, Ashley McCall, Sheila McCoy, Ty Mitchell, Matthew Nattinger, Drew Nelson, Mimi Nguyen, Susan Offutt, Mark Ramage, Margie Shields, Joseph Silvestri, Jeff Tessin, Kimberly Walton, Margaret Weber, Craig Winslow, and Paul Wright. Retirement Security: Most Households Approaching Retirement Have Low Savings. GAO-15-419. Washington, D.C.: May 12, 2015. Automatic IRAs: Lower-Earning Households Could Realize Increases in Retirement Income. GAO-13-699. Washington, D.C.: Aug. 23, 2013. Retirement Security: Women Still Face Challenges. GAO-12-699. Washington, D.C.: July 19, 2012. Private Sector Pensions: Federal Agencies Should Collect Data and Coordinate Oversight of Multiple Employer Plans. GAO-12-665. Washington, D.C.: Sept. 13, 2012. Private Pensions: Better Agency Coordination Could Help Small Employers Address Challenges to Plan Sponsorship. GAO-12-326. Washington, D.C.: March 5, 2012. Private Pensions: Some Key Features Lead to An Uneven Distribution of Benefits. GAO-11-333. Washington, D.C.: March 30, 2011. Retirement Savings: Automatic Enrollment Shows Promise for Some Workers, but Proposals to Broaden Retirement Savings for Other Workers Could Face Challenges. GAO-10-31. Washington, D.C.: Oct. 23, 2009. Private Pensions: Alternative Approaches Could Address Retirement Risks Faced by Workers but Pose Trade-offs. GAO-09-642. Washington, D.C.: July 24, 2009. Individual Retirement Accounts: Government Actions Could Encourage More Employers to Offer IRAs to Employees. GAO-08-590. Washington, D.C.: June 4, 2008. Private Pensions: Low Defined Contribution Plan Savings May Pose Challenges to Retirement Security, Especially for Many Low-Income Workers. GAO-08-8. Washington, D.C.: Nov. 29, 2007.	Millions of U.S. workers have little or no savings for retirement, potentially adding to future strains on state and national safety net programs. In addition to federal efforts, a growing number of states have proposed efforts to expand coverage in private sector workplace retirement savings programs. Other countries have also implemented similar efforts. GAO was asked to study these state and international efforts. GAO examined: (1) recent estimates of coverage, including access and participation, as well as characteristics of workers who lack coverage; (2) strategies used by states and other countries to expand coverage; and (3) challenges states could face given existing federal law and regulations. GAO primarily used SIPP data from 2012 (the most recent available). GAO also interviewed federal officials, national industry stakeholders, and officials and stakeholders in six states (California, Illinois, Maryland, Massachusetts, Washington, and West Virginia) and three countries (Canada, New Zealand, and the United Kingdom) selected based on the range of strategies used in efforts to increase coverage and recommendations from knowledgeable stakeholders. About half of private sector workers in the United States—especially those who are low-income or employed by small firms—lack coverage from a workplace retirement savings program primarily because they do not have access. According to GAO's analysis of 2012 Survey of Income and Program Participation (SIPP) data, about 45 percent of private sector U.S. workers participated in a workplace retirement savings program—an estimate that is consistent with prior GAO work and other research. Using tax data to correct for under-reporting raised the share of workers participating to 54 percent, but still indicates many workers lack coverage. Among those not participating, the vast majority—84 percent—lacked access because they either worked for employers that did not offer programs or were not eligible for the programs that were offered, for example, because they were new employees or in specific jobs that were excluded from the program. In particular, lower-income workers and those employed by smaller firms were much less likely to have access to programs. However, among those who had access, the majority of these workers participated. Key strategies to expand private sector coverage identified in the states and countries GAO reviewed include encouraging or requiring workplace access, automatic enrollment, financial incentives, and program simplification. For example, pending implementation, programs in two of the states GAO studied—California and Illinois—would require certain employers to automatically enroll workers in a state-run program, though workers could choose to opt-out. In the countries GAO studied, combining workplace access with automatic enrollment and financial incentives—tax preferences or employer contributions—has helped increase participation. Moreover, states and countries have tried to simplify program designs to (1) limit the responsibility and cost for employers and (2) reduce complexity, cost, and risk for workers. For example, some states intend to not only reduce burdens for employers by selecting and monitoring providers, but also reduce complexity for workers by limiting the number of investment options. State and national stakeholders reported potential challenges with uncertainty created by the Employee Retirement Income Security Act of 1974 (ERISA) and agency regulations that could delay or deter state efforts to expand coverage. Generally, ERISA preempts, or invalidates, any state law relating to “employee benefit plans” for private sector workers, but different areas of uncertainty arise based on the details of each state effort. For example, four of the six states GAO reviewed intend to create payroll deduction individual retirement account (IRA) programs that would not be considered employee benefit plans. However, due to uncertainty created by ERISA, it is unclear whether a state can offer such programs or whether some of the program features would lead a court to find that they are, or relate to, employee benefit plans. Stakeholders also noted uncertainty caused by regulations from the Departments of Labor (DOL) and the Treasury meant to assist workers and employers. For example, DOL's regulation on payroll deduction IRAs was written before these state efforts were proposed and omits detail that, if included, could help reduce uncertainty. Given these uncertainties, states may face litigation and stakeholders noted that state programs could lose tax preferences if they were ruled preempted by ERISA. GAO suggests that Congress consider providing states limited flexibility regarding ERISA preemption to expand private sector coverage. Agency actions should also be taken to address uncertainty created by existing regulations. Agencies generally agreed with GAO's recommendation. DOL plans to issue a proposed rule on state programs by the end of 2015.	14.1	16k+	5,676
39	President Bush announced in a July 18, 2005, joint statement with Prime Minister Manmohan Singh that he would "seek agreement from Congress to adjust U.S. laws and policies" and "work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India." Implementing these changes was contentious; both U.S. law and the export guidelines of the Nuclear Suppliers Group (NSG) restricted nuclear cooperation with India because New Delhi possesses nuclear weapons and is not a recognized nuclear weapon-state under the Nuclear Nonproliferation Treaty (NPT). (For more background, see Appendix A and Appendix B .) Passage of the Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act of 2006 ( P.L. 109-401 ), which then-President Bush signed into law December 18, 2006, provided the President with the means to waive a U.S. nuclear cooperation agreement with India from several requirements of the Atomic Energy Act (AEA) of 1954, as amended. India and the United States announced July 27, 2007, that they had reached agreement on the text of such an agreement. President Bush submitted the text of the proposed agreement to Congress September 10, 2008. Additionally, the President submitted a written determination, also required by the AEA, "that the performance of the proposed agreement will promote and will not constitute an unreasonable risk to, the common defense and security." President Bush also submitted several documents, including classified and unclassified versions of a Nuclear Proliferation Assessment Statement, required by the AEA. The Department of State also submitted a report, which is required by Section 104 of P.L. 109-401 , on various aspects of the agreement. President Bush also determined that P.L. 109-401 's requirements for the President to exercise his waiver authority have been met. President Bush submitted the agreement after the IAEA Board of Governors approved India's safeguards agreement August 1, 2008. The NSG decided at the end of a September 2008 meeting to exempt India from the group's export guidelines. Procedures for congressional approval of the nuclear cooperation agreement are described in both P.L. 109-401 and the AEA. According to P.L. 109-401 , the agreement cannot enter into force without a joint resolution of approval from Congress. Section 123 b. of the AEA requires the President to submit the text of the agreement to the Senate Foreign Relations Committee and the House Committee on Foreign Affairs. The President is then to consult with the committees "for a period of not less than thirty days of continuous session." According to Section 123 d., the two committees shall, after that time, "each hold hearings on the proposed agreement for cooperation and submit a report to their respective bodies recommending whether it should be approved or disapproved." Therefore, the minimum amount of time that must elapse before Congress can vote on a joint resolution of approval is 30 days of continuous session, in addition to the amount of time Congress would take to hold hearings. On September 27, 2008, however, by a vote of 298-117 (1 Present), the House passed H.R. 7081 , which approved the agreement and waived "the provisions for congressional consideration and approval of a proposed agreement" contained in Sections 123 b. and 123 d. of the AEA. The Senate Foreign Relations Committee had approved identical legislation, S. 3548 , September 23. The Senate passed H.R. 7081 October 1 by a vote of 86-13. On October 8, President Bush signed P.L. 110-369 , the United States-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act, into law. The President's signing statement did not indicate any differences with the legislation. According to its text, the July 2007 agreement "shall enter into force on the date on which the Parties exchange diplomatic notes informing each other that they have completed all applicable requirements for its entry into force." Then-Secretary of State Condoleezza Rice and India's then-External Affairs Minister Shri Pranab Mukherjee signed the agreement October 10, 2008. Ten days later, President Bush transmitted two certifications required by P.L. 110-369 in order for the two governments to exchange diplomatic notes. Washington and New Delhi exchanged diplomatic notes and the agreement entered into force December 6, 2008. The final document of the 2010 NPT Review Conference urged all states-parties "to ensure that their nuclear-related exports ... are in full conformity" with Article III of the treaty, which requires non-nuclear-weapon states-parties to accept safeguards on all nuclear material for the purpose of "preventing diversion of nuclear energy from peaceful uses to nuclear weapons or other nuclear explosive devices." India has not signed the NPT and does not have such safeguards, but other countries have still been increasing their nuclear cooperation with New Delhi. India has stated its intention to engage in nuclear cooperation with U.S. companies. A September 10, 2008, letter from India's then-Foreign Secretary Shivshankar Menon states that it is the intention of the Government of India and its entities to commence discussions with U.S. nuclear energy firms and conclude agreements after entry into force of the [U.S.-India] Agreement for cooperation in the construction of nuclear power units at least at two sites approved by the Government of India, which would be capable of generating a minimum of 10,000 MW. However, Menon appeared to qualify this claim, adding that such deals would be concluded on the basis of mutually acceptable technical and commercial terms and conditions that enable a viable tariff regime for electricity generated. It is the expectation of the Government of India that this partnership will contribute towards providing energy to India's population in a manner that takes into account affordability, sustainability of nuclear fuel resources and credibility of nuclear waste management. New Delhi announced October 16, 2009, the specific sites that it has designated for U.S.-supplied reactors. P.L. 110-369 requires that, before the Nuclear Regulatory Commission can issue licenses for U.S. nuclear exports to India, the President must determine and certify to Congress that New Delhi's IAEA safeguards agreement has entered into force and that India's declaration of its nuclear facilities to the agency "is not materially inconsistent with the facilities and schedule" described in a separation plan that New Delhi has provided to Washington. India's safeguards agreement entered into force May 11, 2009, and New Delhi has filed the declaration with the IAEA. President Obama submitted the required certification to Congress February 3, 2010, determining that India has satisfied the legal requirement described above. Although Assistant Secretary of State Robert Blake stated November 15, 2010, that "U.S. firms have already begun negotiations with their Indian counterparts," U.S. firms may be reluctant to engage in nuclear trade with India if the government does not resolve concerns regarding its policies on liability for nuclear reactor operators and suppliers. India signed the Convention on Supplementary Compensation for Nuclear Damage (CSC), which has not yet entered into force, October 27, 2010. In 2008, the State Department described India's decision to "become a party" to the convention as "an important step in ensuring that U.S. nuclear firms can compete on a level playing field with other international competitors" because many other countries' nuclear firms "have other liability protections afforded to them by their governments." However, as discussed below, Russia and France are also discussing with India means of resolving their concerns about the liability issue. Shrikumar Banerjee, chair of India's Atomic Energy Commission, argued September 16, 2010, that India's Civil Liability for Nuclear Damage Bill, which both houses of India's Parliament adopted in August 2010, is compatible with the CSC. Many observers, however, have disagreed, citing the provisions that make reactor suppliers, as well as operators, liable for damages caused by a reactor accident. U.S. officials have argued that India's law should be consistent with the convention. Blake stated in a June 9, 2010, interview with India Abroad that the U.S. interest is to "ensure that the bill that ultimately is enacted is compliant" with the CSC. Although Under Secretary of State William Burns described New Delhi's signing of the CSC as a "very positive step" during an October 27, 2010, press briefing, he also indicated that India will need to take additional steps in order to resolve U.S. concerns regarding India's liability policies. Secretary of State Hillary Clinton indicated during a July 19, 2011, press conference that the United States wants India to ratify the CSC by the end of 2011, as well as adopt a liability regulatory regime that "fully conforms with the international requirements" under the CSC. India's then-Foreign Secretary Nirupama Rao stated in a July 29, 2011, interview that India would ratify the CSC "before the end of the year." She also explained that "the rules and regulations concerning the civil nuclear liability bill ... are in the process of being framed and in this process we are consulting with both the domestic companies and the foreign companies concerned." The Indian government published the regulations November 11, 2011, but they have not yet taken effect. The United States, however, has argued that the regulations may not satisfy U.S. concerns; State Department spokesperson Victoria Nuland told reporters November 22 that "this is an issue we have not yet resolved with the Government of India, and we're continuing to work on it." In addition, some observers have argued that the regulations are not compatible with the CSC and that suppliers' concerns may not be assuaged by the regulations. During a November 17 meeting with President Obama, Singh told him that India would "address any specific [U.S.] grievances" within the parameters of the 2010 law, the Prime Minister told reporters. Singh also stated that New Delhi would ratify the CSC. Indian Foreign Secretary Ranjan Mathai told a Washington audience February 6, 2012, that "we will provide a level playing field to U.S. companies, and are prepared to address specific concerns of U.S. companies within the framework of that law." Referring to an early February meeting, Mathai said that the two countries "have just had a round of discussions between our legal experts," adding that "[t]he commencement of discussions between the Indian operator, NPCIL, and U.S. companies in regard to an Early Works Agreement is an encouraging development." Westinghouse Electric Company announced June 13, 2012, that it had signed a Memorandum of Understanding with NPCIL agreeing to negotiate such an agreement. According to a Westinghouse press release, the agreement is to "include preliminary licensing and site development work." Nevertheless, Assistant Secretary Blake stated the next day that Washington still has "some concerns about the liability law." Washington and New Delhi are also discussing necessary monitoring arrangements for U.S. nuclear exports. Section 104 (d)(5) of the Hyde Act requires the President to "ensure that all appropriate measures are taken to maintain accountability with respect to nuclear materials, equipment, and technology sold, leased, exported, or re-exported to India," including a "detailed system of reporting and accounting for technology transfers, including any retransfers in India, authorized by the Department of Energy pursuant to section 57 b. of the Atomic Energy Act." India has provided retransfer assurances covering several state-owned entities, but has not yet provided them for private entities. The nuclear cooperation agreement grants New Delhi consent to reprocess nuclear material transferred pursuant to the agreement, as well as "nuclear material and by-product material used in or produced through the use of nuclear material, non-nuclear material, or equipment so transferred." However, India must first "establish a new national reprocessing facility dedicated to reprocessing safeguarded nuclear material under IAEA safeguards." In addition, the agreement requires the United States and India to "agree on arrangements and procedures under which such reprocessing or other alteration in form or content will take place in this new facility." The agreement states that the two governments must begin "consultations," to be "concluded within one year," on the relevant arrangements and procedures within six months of a request from India. New Delhi made such a request February 3, 2009, and the two governments held meetings in July and October of that year. India and the United States completed negotiations on the agreement March 29, 2010; Indian Ambassador Meera Shankar and Under Secretary of State William Burns signed the agreement July 30, 2010. India had reportedly insisted that New Delhi and Washington conclude an agreement on a reprocessing facility in India before New Delhi would sign contracts with U.S. nuclear firms. The agreement describes the "arrangements and procedures under which such reprocessing or other alteration in form or content may take place in India at two new national reprocessing facilities," which will reprocess safeguarded spent nuclear fuel from both U.S.-supplied and other reactors. The agreement also describes the procedures for U.S. officials to inspect and receive information about physical protection measures at the new facilities. Secretary of Energy Steven Chu submitted the subsequent arrangement to Congress May 11, 2010, along with a Nuclear Proliferation Assessment Statement, a report required by the AEA, and a report and certification required by P.L. 110-369 . These materials conclude that the arrangement will not increase the risk of proliferation or aid India's nuclear program. Chu also certified that the Administration is pursuing "efforts to ensure" that other countries entering into similar arrangements with New Delhi do so under "similar arrangements and procedures" as the United States (see " Procedures for Subsequent Arrangements "). The arrangement would not have taken effect if Congress had adopted a joint resolution of disapproval within 30 days of continuous session; Congress did not adopt such a resolution. The July 30, 2010, agreement indicates that India may construct additional facilities to reprocess fuel from U.S.-supplied reactors. However, any such facilities would require a new subsequent arrangement, which would also be submitted to Congress. Since a September 2008 NSG decision to exempt India from some of its export requirements, New Delhi has negotiated nuclear cooperation agreements with NSG countries other than the United States. On September 30, 2008, India and France signed a civil nuclear cooperation agreement that includes the possible provision of nuclear reactors and nuclear fuel. The agreement, which entered into force January 14, 2010, does not, however, include the transfer of enrichment or reprocessing technology, according to French Ambassador to India Jerome Bonnafont. France would like India to reprocess spent nuclear fuel in an IAEA-safeguarded facility, Bonnafont said in late January 2009, but added that France would consider reprocessing the spent fuel for India. According to a December 17, 2008, agreement between the French company AREVA and India's Department of Atomic Energy, AREVA agreed to supply the Nuclear Power Corporation of India Limited (NPCIL) with 300 metric tons of uranium; AREVA has supplied the fuel, according to a March 28, 2012, statement from the Prime Minster's office. Those two companies also signed a memorandum of understanding February 4, 2009, expressing their "willingness to build up to six" nuclear reactors. Both parties "intend to discuss the elements of a commercial contract to supply" two reactors "as a first step," according to the memorandum. AREVA and NPCIL took another step on this project by signing several agreements December 6, 2010, for the construction of these reactors, including a "General Framework Agreement" for the supply of the reactors and associated fuel. However, several steps remain before construction on the reactors can begin. As noted, press reports and French nuclear energy executives have indicated that France still has concerns about India's nuclear liability policies. According to a December 6, 2010, joint statement, "both countries stand ready to further exchange views" on India's nuclear liability legislation "so as to ensure the appropriate framework for the sound development of their cooperation." Russia and India signed a nuclear cooperation agreement December 5, 2008. According to a joint declaration issued that day, "the two countries have agreed to collaborate on constructing additional nuclear power plants" and "to expand and pursue further areas for bilateral cooperation in the field of peaceful uses of nuclear energy." Russia is currently constructing two reactors in India at Kudankulam. Notably, Russian President Dmitry Medvedev reportedly amended in February 2009 a 1992 presidential decree on nuclear export controls in order to permit Russian nuclear exports to a country without comprehensive IAEA safeguards. However, the decree now states that nuclear materials, as well as technologies, equipment and special non-nuclear materials intended for their processing, utilization or production may be exported from the Russian Federation to India only if they are used in nuclear installations placed under IAEA guarantees. The Russian TVEL Corporation also reportedly signed a nuclear fuel supply contract in February 2009 with India's Department of Atomic Energy. The two countries initialed another agreement December 7, 2009, which expands on the 2008 agreement. According to a statement from India's Ministry of External Affairs, the agreement includes cooperation on research and development, the construction of additional nuclear power plants, and fuel-supply arrangements. The agreement also grants "up-front consent" for India to reprocess spent reactor fuel and says that Russia would continue to supply fuel even if the agreement is terminated in the future. Russian and Indian officials indicated in December 2010 that Moscow, as noted, still has concerns about New Delhi's nuclear liability policies. Medvedev stated December 20 that "[a]s for civil liability for nuclear damage ... and we seek to solve the relevant problems in a constructive way through negotiations with our Indian partners." India's minister of external affairs stated the previous day that the two governments are still attempting to resolve concerns over the liability issue. March 2012 comments from Russian Ambassador to India Alexander M. Kadakin indicated that the two sides had not yet resolved these concerns. New Delhi has also concluded other fuel-supply agreements. NPCIL and KazAtomProm, a Kazakh national company, signed a memorandum of understanding January 24, 2009, that includes a provision for Kazakhstan to supply uranium to India. Kazakhstan has been supplying natural uranium ore concentrate to India pursuant to this agreement, which is to last for six years. The two countries also signed on April 16, 2011, what an Indian official described that day as "an umbrella agreement for cooperation in the peaceful uses of civil nuclear energy." The agreement "covers the area of R&D, science and technology and various things associated with nuclear energy," the official added. Additionally, India and Namibia signed an "Agreement on Cooperation in Peaceful Uses of Nuclear Energy" in late August 2009. The scope and terms of the agreement are unclear, but the statement "resolved to encourage Indian investments" in the Namibian uranium sector. Similarly, India and Mongolia signed a "Memorandum of Understanding on Development of Cooperation in the Field of Peaceful Use of Radioactive Minerals and Nuclear Energy" in mid-September 2009. The agreement would reportedly enable India to explore for uranium in Mongolia. Additionally, India and Canada signed an "Agreement between India and Canada for Co-operation in Peaceful Uses of Nuclear Energy" June 27, 2010, which provides for cooperation in nuclear reactor design and construction, as well as the "supply of uranium." New Delhi has concluded other nuclear agreements unrelated to nuclear fuel supply. India and Argentina, according to an October 14, 2009, joint statement, agreed to "encourage and support scientific, technical and commercial cooperation for mutual benefit" in the "peaceful uses of nuclear energy." The two countries signed a nuclear cooperation agreement September 23, 2010. Furthermore, India and the United Kingdom signed a "Civil Nuclear Cooperation Declaration" February 11, 2010, which will allow for the transfer of nuclear-related technology and equipment to India. A British official explained two days later that the agreement "opens the door to a discussion that can begin between some of the best UK-based engineering companies and the nuclear authorities in India." Additionally, on July 25, 2011, India and South Korea signed an agreement for "Cooperation in the Peaceful Uses of Nuclear Energy," which an Indian official described the same day as "like any other civil nuclear agreement signed with any other country" without providing more details. However, the agreement, which entered into force in September 2011, is a "requirement and provides legal ground for South Korea's participation in India's atomic power plant construction," the South Korean news agency Yonhap reported. According to a March 14, 2012, statement from the Prime Minster's office to the Lok Sabha, India "is exploring the possibility to acquire stake in uranium mine abroad." However, "no precise proposal in this regard has emerged," the statement added. As noted, P.L. 109-401 allows the President to exempt a U.S. nuclear cooperation agreement with India from several AEA requirements. However, the law requires the President to certify, before such an agreement can enter into force, that several steps have been completed. President Bush did so September 10, 2008. The following section describes the completion of these steps. The law's relationship to the Atomic Energy Act is explained in a later section. P.L. 109-401 requires (1) provision of a credible separation plan for India's nuclear facilities; (2) approval by the IAEA Board of Governors of India's new nuclear safeguards agreement; (3) substantial Indian progress toward concluding an Additional Protocol to its safeguards agreement; (4) India's active support for the conclusion of a treaty to ban fissile material production for nuclear weapons; (5) India's support for U.S. and international efforts to halt the spread of sensitive nuclear fuel cycle technologies (enrichment and reprocessing); (6) India taking necessary steps to secure nuclear and other sensitive materials and technologies through adherence to multilateral control regimes, such as the NSG and the Missile Technology Control Regime; and (7) a consensus decision by the NSG to except India from some of the Group's export control guidelines. U.S. and Indian officials agreed on India's separation plan in March 2006. The key elements of that plan are: Eight indigenous Indian power reactors will be placed under an India-specific safeguards agreement, bringing the total number of power reactors under safeguards to 14 of 22 (six are already under safeguards); Future power reactors may also be placed under safeguards, if India declares them as civilian; Some facilities in the Nuclear Fuel Complex (e.g., fuel fabrication) will be specified as civilian in 2008; and Nine research facilities and three heavy water plants would be declared as civilian, but are "safeguards-irrelevant." The following facilities and activities were not on the separation list: Eight indigenous Indian power reactors, Fast Breeder test Reactor and Prototype Fast Breeder Reactors under construction, Enrichment facilities, Spent fuel reprocessing facilities (except for the existing safeguards on the Power Reactor Fuel Reprocessing plant), Research reactors: CIRUS (which was shut down December 31, 2010), Dhruva, Advanced Heavy Water Reactor, Three heavy water plants, and Various military-related plants (e.g., prototype naval reactor). The separation plan stated that India would begin placing facilities under safeguards in 2006 and complete the process in 2014. However, since the IAEA did not approve New Delhi's safeguards agreement until 2008, India updated that timeline. Then-Acting Deputy Assistant Secretary of State for International Security And Nonproliferation Richard Stratford told the Senate Foreign Relations Committee September 18, 2008, that New Delhi stands by its initial plan to bring its facilities under safeguards by 2014. India's Implementation Document noted that facilities were excluded from the civilian list if they were located in a larger hub of strategic significance, even if the facilities themselves were not normally engaged in activities of strategic significance, thereby calling into question whether the plan really will result in a "separation" of civilian and military facilities. Moreover, the plan stated that electricity grid connectivity is not relevant to the separation exercise and that grid connectivity would be necessary "irrespective of whether the reactor concerned is civilian or not civilian." This means that "military" reactors will continue to provide civilian electricity. After the United States and India concluded the nuclear agreement in July 2007, New Delhi delayed beginning talks with the IAEA about a safeguards agreement because of domestic opposition from Communist and other leftist parties, known as the Left Front. Until July 2008, the United Progressive Alliance government, led by Prime Minister Singh, depended on those parties' support in order to stay in power. In India, the executive can enter into international agreements without parliamentary approval, but the Left Front threatened to withdraw its support if the government went ahead with the safeguards discussion. Indian officials had indicated multiple times that the government would not risk prompting early elections in order to push the deal through. In November 2007, the Left Front agreed to allow the government to engage in discussions with the IAEA. The talks were announced November 21, 2007, and the two parties subsequently met five times. New Delhi had indicated that, once a safeguards text had been agreed upon with the IAEA Secretariat, the government would seek approval from an ad hoc political committee (which includes the Communists) before proceeding further with the agreement. Speaking before a Calcutta audience February 3, 2008, External Affairs Minister Mukherjee said that when "the draft agreement [with the IAEA] is ready it will be brought back to the United Progressive Alliance (UPA)-Left Coalition committee for its approval and suggestion." Similarly, Communist Party of India (Marxist) General Secretary Prakash Karat stated the previous November that "we have come to an understanding that the government can go to the IAEA secretariat. But the outcome of the talks should be brought to the committee before moving to the IAEA board of governors." The committee last met June 25, 2008. The government, however, never presented the text of the safeguards agreement to the committee, and at New Delhi's request, the IAEA Secretariat circulated the draft text (GOV/2008/30) July 9, 2008, to the agency's board. Pakistan, along with several unidentified board members, had "voiced strong reservations" about the safeguards agreement, according to a July 24, 2008, Nucleonics Week article, but the Board of Governors approved the agreement by consensus August 1, 2008. Four Left Front parties withdrew their support for the coalition government July 9, 2008, shortly after Singh announced that India would approach the IAEA board. However, the coalition government narrowly won a July 22, 2008, vote of confidence, staving off the threat of early elections. Karat stated September 7, 2008, that the Left Front would only support a government that would terminate the nuclear agreement with the United States. However, despite the loss of the Left Front's support, the coalition government considerably bolstered its standing in April-May 2009 parliamentary elections, thereby obtaining a more stable coalition. The opposition Bharatiya Janata Party has expressed its opposition to the deal and has stated that it would attempt to renegotiate it if the party regains power. Former IAEA Director General ElBaradei described India's safeguards agreement as an "umbrella agreement" that allows for any facility identified by New Delhi in the future to become subject to safeguards. Since New Delhi has committed to place additional reactors under safeguards, Elbaradei added, concluding an umbrella agreement was more efficient than negotiating different agreements for each facility. India signed the agreement February 2, 2009, and it entered into force May 11, 2009. The safeguards agreement requires India to provide the IAEA with a declaration of its nuclear facilities. India is to implement this provision in a two-step process. First, according to paragraph 13 of the agreement, New Delhi will provide a declaration of nuclear facilities that it intends to place under safeguards in the future. Second, according to paragraph 14 of the agreement, India is to notify the IAEA when specific facilities are to be safeguarded. Those facilities will be placed on an Annex to the agreement. India will also have to notify the agency of imported items that are required to be safeguarded, but these will not be listed in the Annex. On July 25, 2008, India provided to the IAEA a document—a copy of New Delhi's 2006 separation plan—containing a list of its nuclear facilities. A State Department official said that India's submission of this document did not constitute submission of the declaration required by paragraph 13 of the safeguards agreement, but did satisfy P.L. 109-401 's requirement regarding New Delhi's declaration. India subsequently provided the declaration pursuant to paragraph 13 of the agreement, but exactly when it did so is unclear. In October 2009, New Delhi provided the IAEA, "in accordance with" paragraph 14 of the agreement, with a list of 14 nuclear facilities that are to be placed on the safeguards agreement's Annex. Six nuclear reactors listed in the separation plan were not included in this submission, but India intends, in accordance with the separation plan, to place them under safeguards by 2014. An Indian official previously indicated that New Delhi's placement of nuclear facilities under safeguards was contingent on India's conclusion of nuclear supply agreements with other countries. Anil Kakodkar, then-chairman of India's Atomic Energy Commission, said in a July 20, 2008, interview that India's identification of "any facility as civilian is conditional on that facility benefitting from full civil nuclear cooperation" with other countries. Some observers have expressed concerns about the agreement's preamble, which contains language suggesting that India could withdraw nuclear facilities or fuel from safeguards if New Delhi so chooses. For example, the preamble states that India "may take corrective measures to ensure uninterrupted operation of its civilian nuclear reactors in the event of disruption of foreign fuel supplies." New Delhi has not defined "corrective measures," although Kakodkar described them in July 2008 as "unspecified sovereign actions." The preamble also states that [a]n essential basis of India's concurrence to accept Agency safeguards is ... support for an Indian effort to develop a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of India's reactors. New Delhi may want such a stockpile to hedge against a cut-off of fuel supplies in the event that, for example, India tests a nuclear weapon. However, ElBaradei stated August 1, 2008, that the agreement's specific termination clauses "override any general clauses in the agreement." Additionally, the State Department stated in January 2008 responses to Questions for the Record submitted by the House Committee on Foreign Affairs that New Delhi "has expressed its view that for purposes of implementing the U.S.-India Agreement," IAEA safeguards "can and should be regarded as being 'in perpetuity.'" It is also worth noting that, if India were to terminate IAEA safeguards on U.S. nuclear exports (or special nuclear material produced from or with such exports), Section 123 a. (1) of the AEA requires that fall-back safeguards be maintained on those exports. The nuclear cooperation agreement states that safeguards will be maintained with respect to all nuclear materials and equipment transferred pursuant to this Agreement, and with respect to all special fissionable material used in or produced through the use of such nuclear materials and equipment, so long as the material or equipment remains under the jurisdiction or control of the cooperating Party. The State Department noted that if IAEA safeguards "fail to be applied," the two countries "must enter into arrangements for alternative measures to fulfill" the above requirement. Furthermore, also stated that "it would not be consistent with the proposed agreement text for ... corrective measures to detract from the applicability" of safeguards to the relevant nuclear items "including after termination or expiration of the agreement," according to the department's January 2008 responses. Following formal and informal U.S. consultations with NSG members, the United States presented during a March 2006 Consultative Group meeting a draft decision for potential discussion during the NSG plenary in May 2006. That draft sought an exception for India to the NSG requirements of full-scope safeguards, notwithstanding the exceptions for safety assistance and for those agreements signed before the full-scope safeguards requirement came into effect in 1992. It did not contain any restrictions on enrichment or reprocessing cooperation, nor on heavy water or highly-enriched uranium or plutonium sales. The United States subsequently developed a second draft decision, which incorporated the suggestions of supporting NSG members. After revising that draft following consultations with New Delhi, Washington submitted it to the NSG chair in early August 2008. The second version did not contain any additional restrictions on India. Indeed, it weakened one section of the 2006 draft which stated that NSG members could engage in nuclear trade with New Delhi if "the participating Government intending to make the transfer is satisfied that India continues to fully meet all" of its nonproliferation and safeguards commitments. The new draft stated only that Participating Governments shall maintain contact and consult through regular channels on matters connected with the implementation of the Guidelines, taking into account relevant international commitments and bilateral agreements with India. The NSG considered the new draft decision during an August 21-22, 2008, Extraordinary Plenary meeting and decided during a similar meeting held the next month to exempt India from some of its export guidelines. This decision means that members' decisions to export previously restricted nuclear items to India are now governed by individual governments' policies. Although several countries argued that certain conditions (such as an explicit ban on the transfer of enrichment and reprocessing technology, as well as a provision that nuclear supplies to India would end if New Delhi were to test a nuclear weapon) should be included in an exemption for India, the final language contains no such explicit conditions. Instead, it states that the exemption is "based on" Indian commitments and actions, which are essentially the same as the requirements in P.L. 109-401 . The NSG statement also notes that India has agreed to continue its "unilateral moratorium on nuclear testing." The NSG agreed to exempt India from the portions of its guidelines that require India to have full-scope IAEA safeguards "provided that transfers of sensitive exports [enrichment and reprocessing technology] remain subject to paragraphs 6 and 7 of the Guidelines." The relevant portions of those paragraphs stated that suppliers should exercise restraint in the transfer of sensitive facilities, technology and material usable for nuclear weapons or other nuclear explosive devices. If enrichment or reprocessing facilities, equipment or technology are to be transferred, suppliers should encourage recipients to accept, as an alternative to national plants, supplier involvement and/or other appropriate multinational participation in resulting facilities.... [and] For a transfer of an enrichment facility, or technology therefor, the recipient nation should agree that neither the transferred facility, nor any facility based on such technology, will be designed or operated for the production of greater than 20% enriched uranium without the consent of the supplier nation, of which the IAEA should be advised. Ireland reportedly stated after the NSG decision that, "on the basis of consultations during the meeting, it 'understands that no [NSG member] currently intends to transfer to India any facilities, equipment, materials, or technology related to the enrichment of uranium, or the reprocessing of spent fuel.'" Then-Under Secretary of State for Arms Control and International Security John Rood made a similar assertion during a September 18, 2008, Senate Foreign Relations Committee hearing. Berman explained September 26, 2008, that he chose to support H.R. 7081 , the bill approving the agreement, partly because Secretary Rice "made a personal commitment" to him that the United States would make its "highest priority" at the November 2008 NSG meeting "the achievement of a decision by all of the nuclear suppliers to prohibit the export of enrichment and reprocessing equipment and technology" to non-NPT states. Asked the same day about Berman's statement, Rice told Reuters that the United States would advocate for "strict limits" on the export of such technology. The NSG announced following its June 23-24, 2011, Plenary meeting that the Group had reached agreement on criteria for exporting enrichment and reprocessing technology. One of these criteria requires a potential recipient of such technology to be an NPT state-party in good standing—a requirement that India obviously does not meet. According to the September 2008 NSG statement, participating governments will meet "and act in accordance with paragraph 16 of the [group's] Guidelines" if one or more members "consider that circumstances have arisen which require consultations." Paragraph 16 provides a list of potential steps for NSG members to take if one or more suppliers believe that there has been a violation of supplier/recipient understanding resulting from these Guidelines, particularly in the case of an explosion of a nuclear device, or illegal termination or violation of IAEA safeguards by a recipient. Under such circumstances, NSG members could agree to cut off nuclear supplies; indeed, New Zealand stated September 6, 2008, that "in the event of a nuclear test by India, this exemption will become null and void." However, the NSG would have to agree by consensus to cut off nuclear exports. Several NSG governments indicated in statements after the vote that a September 5, 2008, statement from Mukherjee describing India's "stand on disarmament and nonproliferation" played a decisive role in persuading them to agree to the exemption. However, Mukherjee simply reiterated previous Indian policies and articulated no new commitments. For example, he stated that India "remain[s] committed to a voluntary, unilateral moratorium on nuclear testing," but New Delhi is already committed to such a moratorium. Furthermore, Congress Party spokesperson Manis Tiwari stated September 4, 2008, that "[i]f the need arises and if it is in our national interest, we are ready to test not once, not twice but a hundred times." Section 104 (b) (3) of P.L. 109-401 requires a presidential determination that "India and the IAEA are making substantial progress toward concluding an Additional Protocol consistent with IAEA principles, practices, and policies that would apply to India's civil nuclear program." According to the State Department, ElBaradei concluded September 10, 2008, that India has made substantial progress toward concluding such a protocol. The IAEA Board of Governors approved the protocol March 3, 2009, and India signed it May 15, 2009. Additional Protocols, which are based on a Model Additional Protocol, are designed to augment the IAEA's ability to detect undeclared nuclear activities in an NPT member-state. Since New Delhi has nuclear weapons and is keeping some of its nuclear facilities outside of safeguards, "there are bound to be important differences between" India's Additional Protocol and the Model Protocol, according to the NPAS. Indeed, India's Additional Protocol does not contain most of the Model Protocol's provisions, requiring only that India provide the IAEA with information about its nuclear exports. Section 104 (b) (1) requires that India file "a declaration regarding its civil facilities and materials with the IAEA." As noted, a State Department official said that India's submission of this plan does not constitute submission of the declaration required by the safeguards agreement, but does satisfy P.L. 109-401 's requirement. India has, as noted, submitted its declaration to the IAEA. New Delhi is neither required to place any new facilities under safeguards, nor to adhere to the separation plan. However, an Indian facility must be placed under safeguards in order for that facility to receive foreign assistance. Section 104 (b) (6) (B) requires a presidential determination that India has harmonized "its export control laws, regulations, policies, and practices with the guidelines and practices" of the Missile Technology Control Regime (MTCR) and the NSG. Section 104 (b) (6) (B) requires a determination that New Delhi adhere to the NSG guidelines. The State Department report assesses that India has harmonized its export control laws with the NSG and MTCR guidelines "up through the 2005 revisions, and has the means in place to make future updates to its guidelines and control lists." New Delhi stated its adherence to the NSG guidelines in a September 8, 2008, letter to the IAEA and its adherence to the MTCR guidelines in a September 9, 2008, letter to the MTCR point of contact. According to the September 2008 NSG statement, the group's chair (which rotates each year) "is requested to consult with India regarding changes to and implementation of" the group's guidelines. This provision gives New Delhi what is essentially a non-binding consultative role in formulating changes to the guidelines. India had been reluctant to adhere to the guidelines because they sometimes change and New Delhi, as a non-member, will not be able to participate in the group's decisions regarding such changes. The United States has since agreed to support India's membership in the NSG. According to a November 8, 2010, White House fact sheet, the United States "intends to support India's full membership" in the NSG, as well as the MTCR, the Australia Group, and the Wassenaar Arrangement "in a phased manner." As part of its effort to help India's membership bid, the United States circulated a paper in May 2011 to the NSG regarding India's prospective membership. However, U.S. support for India's NSG membership will apparently be less vigorous than Washington's support for the 2008 exception for New Delhi. The NSG considered India's membership during its June 2011 and June 2012 plenary meetings but did not make a decision regarding the topic. As noted, the House passed H.R. 7081 , which approved the nuclear cooperation agreement, September 27, 2008. The Senate Committee on Foreign Relations had, following a September 18 hearing and subsequent markup, approved identical legislation, S. 3548 (introduced by Senator Christopher Dodd), September 23. The Senate passed H.R. 7081 October 1. President Bush signed P.L. 110-369 into law October 8, 2008. P.L. 110-369 , the United States-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act, obviated the 30-day consultative period, as well as other procedures cited in sections 123 b. and d. of the AEA. Section 101 states that "notwithstanding the provisions for congressional consideration and approval of a proposed agreement for cooperation" in those two sections, "Congress hereby approves the United States-India Agreement for Cooperation on Peaceful Uses of Nuclear Energy." It also states that the agreement "shall be subject to" applicable U.S. law as if it had been approved according to Section 123's provisions. P.L. 110-369 contains several declarations of U.S. policy. Section 102 (a) states that "it is the understanding of the United States" that the agreement's provisions have the meanings conveyed in the authoritative representations provided by the President and his representatives to the Congress and its committees prior to September 20, 2008, regarding the meaning and legal effect of the Agreement. As noted, some lawmakers had previously expressed concern about ambiguities in the agreement and whether it met the requirements of P.L. 109-401 . During the debate over the bill, Berman stated September 26, 2008, that "I continue to have concerns about ambiguities in the agreement" and inserted the State Department's January 2008 responses to the committee's questions into the record in order to "clarify the meaning of these and other important issues." The documents "constitute key and dispositive parts of the 'authoritative representations' described in Section 102," he added. The law contains two other provisions apparently designed to clarify that the agreement's fuel reserve and fuel supply provisions are not intended to provide New Delhi a way to test nuclear weapons without fear of consequence. The first, Section 102 (b) (1), states that "in the event that nuclear transfers to India are suspended or terminated" pursuant to U.S. law, "it is the policy of the United States to seek to prevent the transfer to India of nuclear equipment, materials, or technology" from other NSG participants "or from any other source." This provision is also contained in Section 103 (a)(6) of P.L. 109-401 . The second, Section 102 (b)(2), restates a provision contained in Section 103 (b) (10) of P.L. 109-401 regarding the fuel reserve: Any nuclear power reactor fuel reserve provided to the Government of India for use in safeguarded civilian nuclear facilities should be commensurate with reasonable reactor operating requirements. P.L. 110-369 contains two certification requirements that had to be met before the United States could exchange diplomatic notes with India—a step which, as noted, was necessary for the agreement to enter into force. Section 102 (c) requires the President to certify to Congress that the agreement is "consistent with" U.S. obligations under Article I of the NPT. Section 204 (a) requires the President to certify to the Senate Foreign Relations Committee and the House Foreign Affairs Committee that it is U.S. policy to work with NSG members "to agree to further restrict the transfers of equipment and technology related to the enrichment of uranium and reprocessing of spent nuclear fuel." President Bush transmitted the certifications, along with a Memorandum of Justification, October 20, 2008. The memorandum did not explain the reasoning underlying the determinations. In addition, Section 204 (b) states that the President shall seek to achieve, by the earliest possible date, either within the NSG or with relevant NSG Participating Governments, the adoption of principles, reporting, and exchanges of information as may be appropriate to assure peaceful use and accounting of by-product material in a manner that is substantially equivalent to the relevant provisions [of the nuclear cooperation agreement]. There is no certification requirement for this provision, although section 204(c) requires the President to submit a report every six months on U.S. efforts to achieve these changes. Section 104 of P.L. 110-369 requires that, before the NRC can issue export licenses, the President must determine and certify to Congress that India's IAEA safeguards agreement has entered into force and that New Delhi's declaration of its nuclear facilities to the IAEA "is not materially inconsistent with the facilities and schedule" described in India's separation plan. As noted, India signed its safeguards agreement February 2, 2009, and it entered into force May 11, 2009. New Delhi has also, as noted, submitted its declarations of nuclear facilities pursuant to paragraphs 13 and 14 of its safeguards agreement. President Obama submitted the required certification to Congress February 3, 2010, determining that India has satisfied the legal requirement described above. The certification did not describe the reasoning underlying the determination. P.L. 110-369 adds several reporting requirements to P.L. 109-401 . It amends Section 104 (g)(1) to require that the President inform the Senate Foreign Relations Committee and the House Foreign Affairs Committee of "any material inconsistencies" with respect to content or timing between India's separation plan and the notifications New Delhi is to provide to the IAEA pursuant to paragraph 14 of India's safeguards agreement. P.L. 110-369 also amends Section 104(g)(2) to require the President to report on a variety of activities that could be undertaken pursuant to the nuclear cooperation agreement. Section 202 of P.L. 110-369 amends Section 123 of the AEA to require the President to keep the Senate Foreign Relations Committee and the House Foreign Affairs Committee "fully and currently informed of any initiative or negotiations relating to a new or amended agreement for peaceful nuclear cooperation." As noted, the United States and India signed an agreement July 30, 2010, concerning the arrangements and procedures for India to reprocess spent nuclear fuel in a new reprocessing facility. Section 201 of P.L. 110-369 specifies procedures for Congress to consider such a subsequent arrangement. First, the President must transmit to the Senate Foreign Relations Committee and the House Foreign Affairs Committee a report describing the reasons for the proposed arrangement, a description (including the text) of the arrangement, and a certification that the United States will pursue efforts to ensure that any other nation that permits India to reprocess or otherwise alter in form or content nuclear material that the nation has transferred to India or nuclear material and by-product material used in or produced through the use of nuclear material, non-nuclear material, or equipment that it has transferred to India requires India to do so under similar arrangements and procedures. In addition, 30 days of continuous session must elapse after the President has submitted the report. The proposed arrangement shall not take effect if Congress adopts a joint resolution of disapproval within this 30-day period. Section 201 requires that such a resolution "be considered pursuant to the procedures set forth in Section 130 i" of the AEA. Section 205, however, shortens from 45 to 15 days the amount of time that the Senate Foreign Relations Committee and the House Foreign Affairs Committee have to report the resolution. Secretary of Energy Steven Chu submitted the subsequent arrangement and related materials to Congress May 11, 2010. Under existing law (Atomic Energy Act [AEA] of 1954; P.L. 95-242 ; 42 U.S.C. §2153 et seq.) all significant nuclear cooperation requires an agreement for cooperation. The Nuclear Non-Proliferation Act of 1978 (NNPA) amended the Atomic Energy Act of 1954 to include, among other things, a requirement for full-scope IAEA safeguards for significant nuclear exports to non-nuclear-weapon states. At issue are the requirements for full-scope nuclear safeguards contained in Section 123 a. (2) for approval of an agreement for cooperation and in Section 128 for licensing nuclear exports. India, a non-party to the NPT, does not have full-scope safeguards, nor is it ever expected to adopt full-scope safeguards, since it has a nuclear weapons program that would preclude them. Also at issue is the requirement in Section 129 to stop exports if a non-nuclear-weapon state has detonated a nuclear device after 1978, among other things. India detonated several nuclear devices in 1998. These three sections of the AEA provide mechanisms for the President to waive those requirements and sanctions, which are spelled out in more detail below. Sections 126 and 128 also provide legislative vetoes, in the form of concurrent resolutions, of the presidential determinations. In 1983, however, the Supreme Court decided in INS v. Chadha that legislative veto provisions that do not satisfy the bicameralism and presentment requirements of Article I of the Constitution were unconstitutional. In 1985, some parts of the AEA were amended to provide for joint resolutions of approval or disapproval (e.g., Section 123 d.). The Chadha decision affects how Congress would disapprove of such presidential determinations under existing law and therefore affects the impact of the Administration's proposed legislation. Section 123 of the AEA (42 U.S.C. 2153) specifies what must happen before nuclear cooperation can take place: Section 123 a. states that the proposed agreement shall include the terms, conditions, duration, nature, and scope of cooperation and lists nine criteria that the agreement must meet. It also contains provisions for the President to exempt an agreement from any of the nine criteria, and includes details on the kinds of information the executive branch must provide to Congress; Section 123 b. specifies the process for submitting the text of the agreement to Congress; Section 123 c. specifies how Congress approves cooperation agreements that are limited in scope (e.g., do not transfer nuclear material or cover reactors larger than 5 MWe.); and Section 123 d. specifies how Congress approves agreements that do cover significant nuclear cooperation (transfer of nuclear material or reactors larger than 5 MWe), including exempted agreements. The United States has more than 20 agreements for cooperation in place now, and had an agreement with India from 1963 to 1993. Such agreements for cooperation are "framework" agreements—they do not guarantee that cooperation will take place or that nuclear material will be transferred, but rather set the terms of reference and provide authorization for cooperation. The 1963 U.S.-India cooperation agreement is anomalous in that it did guarantee fuel for the Tarapur reactors, even though other U.S. nuclear cooperation agreements reportedly have not included any such guarantees. Section 123 a. lists nine criteria that an agreement must meet unless the President determines an exemption is necessary. These are listed in Section 123 a., paragraphs (1) through (9), 42 U.S.C. 2153. They are guarantees that (1) safeguards on nuclear material and equipment transferred continue in perpetuity; (2) full-scope safeguards are applied in non-nuclear-weapon states; (3) nothing transferred is used for any nuclear explosive device or for any other military purpose; (4) the United States has the right of return if the cooperating state detonates a nuclear explosive device or terminates or abrogates an IAEA safeguards agreement; (5) there is no transfer of material or classified data without U.S. consent; (6) physical security is maintained; (7) there is no enrichment or reprocessing by the recipient state without prior approval; (8) storage is approved by United States for plutonium and highly enriched uranium; and (9) anything produced through cooperation is subject to all of the above requirements. In the case of India, the most difficult of these requirements to meet is the full-scope safeguards requirement for non-nuclear-weapon states (Section 123 a. (2)). India is considered to be a non-nuclear-weapon state because it did not, as defined by the NPT, explode a nuclear device before January 1, 1967. The President may exempt an agreement for cooperation from any of the requirements in Section 123 a. if he determines that meeting the requirement would be "seriously prejudicial to the achievement of U.S. non-proliferation objectives or otherwise jeopardize the common defense and security." An exempted agreement would not become effective "unless the Congress adopts, and there is enacted, a joint resolution stating that the Congress does favor such agreement." In other words, both chambers of Congress must approve the agreement if it does not contain all of the Section 123 a. requirements. If Congress votes to approve an agreement for cooperation that was exempted because the recipient state did not have full-scope safeguards (Section 123 a. (2)), such approval would essentially waive the Nuclear Regulatory Commission's (NRC) obligation to consider full-scope safeguards as an export license authorization criterion under Section 128. However, Congress would still have the authority to review one export license authorization approximately every 12 months after the agreement for cooperation has entered into force (see discussion below). Section 123 d., in part, states the following: if Congress fails to disapprove a proposed agreement for cooperation which exempts the recipient nation from the requirement set forth in subsection 123 a. (2), such failure to act shall constitute a failure to adopt a resolution of disapproval pursuant to subsection 128 b. (3) for purposes of the Commission's consideration of applications and requests under Section 126 a. (2) and there shall be no congressional review pursuant to Section 128 of any subsequent license or authorization with respect to that state until the first such license or authorization which is issued after twelve months from the elapse of the sixty-day period in which the agreement for cooperation in question is reviewed by the Congress. In addition to specifying criteria for framework agreements, the AEA sets out procedures for licensing exports (Sections 126, 127, and 128 codified as amended at 42 U.S.C. 2155, 2156, 2157). The NRC is required to meet criteria in Sections 127 and 128 for authorizing export licenses; Section 128 contains the requirement for full-scope safeguards for non-nuclear-weapon states. Section 126 b. (2) contains a provision for the President to authorize an export in the event that the NRC deems that the export would not meet Section 127 and 128 criteria. The President must determine "that failure to approve an export would be seriously prejudicial to the achievement of U.S. nonproliferation objectives or otherwise jeopardize the common defense and security." In that case, the President would submit his executive order, along with a detailed assessment and other documentation, to Congress for 60 days of continuous session. After 60 days of continuous session, the export would go through unless Congress were to pass a concurrent resolution of disapproval. In the case of exports pursuant to an exempted agreement for cooperation as described above, the NRC does not have to meet the full-scope safeguards requirement in assessing whether it can issue export licenses (Section 128 b. (3)). If the NRC were to issue such a license, Congress would review one license every 12 months. If Congress were to pass a resolution of disapproval, no further exports could be made during that Congress. In both cases, Section 128 contains a provision for the President to waive termination of exports by notifying the Congress that the state has adopted full-scope safeguards or that the state has made significant progress toward full-scope safeguards, or that U.S. foreign policy interests dictate reconsideration. Such a determination would become effective unless Congress were to disagree with the President's determination. Section 129 of the AEA (42 U.S.C. 2158) requires ending exports of nuclear materials and equipment or sensitive nuclear technology to any non-nuclear-weapon state that, after March 10, 1978, the President determines to have detonated a nuclear explosive device; terminated or abrogated IAEA safeguards; materially violated an IAEA safeguards agreement; or engaged in activities involving source or special nuclear material and having "direct significance" for the manufacture or acquisition of nuclear explosive devices, and "has failed to take steps which, in the President's judgment, represent sufficient progress toward terminating such activities." In addition, Section 129 would also halt exports to any nation the President determines to have materially violated the terms of an agreement for cooperation with the United States; or assisted, encouraged, or induced any other non-nuclear-weapon state to obtain nuclear explosives or the materials and technologies needed to manufacture them; or re-transferred or entered into an agreement for exporting reprocessing equipment, materials or technology to another non-nuclear-weapons state. The President can waive termination if he determines that "cessation of such exports would be seriously prejudicial to the achievement of United States nonproliferation objectives or otherwise jeopardize the common defense and security." The President must submit his determination to Congress, which is then referred to the House Foreign Affairs Committee and the Senate Foreign Relations Committee for 60 days of continuous session. The determination becomes effective unless Congress opposes it. On March 9, 2006, the Administration submitted its proposed legislation to Representative Hyde and Senator Lugar, and on March 16, 2006, Representatives Hyde and Lantos introduced H.R. 4974 , and Senator Lugar introduced S. 2429 . Following public hearings and committee markups, the House passed H.R. 5682 on July 26, 2006, by a vote of 359 to 68 and the Senate passed its version of H.R. 5682 , substituting the text of the amended S. 3709 , on November 16, 2006, by a vote of 85 to 12. One issue that held up the Senate bill was the inclusion, in Title II, of the implementing legislation for the U.S. Additional Protocol—an agreement between the United States and the IAEA to provide for enhanced information, access, and inspection tools for IAEA inspectors as they inspect U.S. nuclear and other facilities under the U.S. voluntary safeguards agreement. The House and Senate versions of H.R. 5682 were remarkably similar, with four differences. The Senate version contained an additional requirement for the President to execute his waiver authority, an amendment introduced by Senator Harkin and adopted by unanimous consent that the President determine that India is "fully and actively participating in U.S. and international efforts to dissuade, sanction and contain Iran for its nuclear program." This provision was changed to a reporting requirement in the conference report. The Senate version also had two unique sections related to the cooperation agreement, Sections 106 and 107, both of which appear in the conference report. Section 106 (now Section 104 (d) (4)) prohibits exports of equipment, material or technology related for uranium enrichment, spent fuel reprocessing, or heavy water production unless conducted in a multinational facility participating in a project approved by the IAEA or in a facility participating in a bilateral or multilateral project to develop a proliferation-resistant fuel cycle. Section 107 (now Section 104 (d) (5)) would establish a program to monitor that U.S. technology is being used appropriately by Indian recipients. Finally, the Senate version also contained the implementing legislation for the U.S. Additional Protocol in Title II, which was retained in the conference report. P.L. 109-401 allows the President to exempt a proposed agreement for cooperation with India from the full-scope safeguards requirement of Section 123 a. (2) of the Atomic Energy Act; exempt an agreement from any export review by the Congress under Section 128 of the AEA; and exempt the agreement from restrictions resulting from India's nuclear weapons activities under Section 129 a. (1) (D) of the AEA, and exempt the agreement from a cutoff in exports because of India's 1998 nuclear test. It does not exempt the agreement from a future cutoff in exports if India tests a nuclear explosive device again. For the President to exercise his waiver authority, seven requirements, as outlined earlier, must be met. P.L. 109-401 contains numerous statements of policy and reporting requirements, as well as restrictions on certain kinds of transfers. There are specific prohibitions on (as outlined in Section 104 (d)): (1) transfers that would violate U.S. obligations under Article 1 of the NPT not to in any way assist any country to manufacture or otherwise acquire nuclear weapons; (2) transfers that would violate NSG guidelines in force at the time; (3) enrichment and reprocessing cooperation, except to "a multinational facility participating in an IAEA-approved program to provide alternatives to national fuel cycle capabilities; or ... a facility participating in, and the export, reexport, transfer, or retransfer is associated with, a bilateral or multinational program to develop a proliferation-resistant fuel cycle." Additionally, the law requires a cutoff in exports if India is found to have violated NSG or MTCR guidelines. P.L. 109-401 also provides for a nuclear export accountability program (formerly Section 107 of the Senate version of H.R. 5682 ). In President Bush's signing statement, he noted that the act "will strengthen the strategic relationship between the United States and India." With respect to particular provisions, President Bush stated that the executive branch would construe two sections of the bill as "advisory" only: policy statements in Section 103 and the restriction contained in Section 104 (d)(2) on transferring items to India that would not meet NSG guidelines. On the first, the President cited the Constitution's "commitment to the presidency of the authority to conduct the Nation's foreign affairs;" on the second, the President raised the question of whether the provision "unconstitutionally delegated legislative power to an international body." In other words, the President was questioning whether Congress was ceding authority to approve U.S. exports to the NSG. However, U.S. officials, including Secretary of State Rice, have formally told Congress multiple times that the United States government would abide by NSG guidelines. The President's signing statement also noted that the executive branch would construe provisions of the Act that mandate, regulate, or prohibit submission of information to the Congress, an international organization, or the public, such as sections 104, 109, 261, 271, 272, 273, 274, and 275, in a manner consistent with the President's constitutional authority to protect and control information that could impair foreign relations, national security, the deliberative processes of the Executive, or the performance of the Executive's constitutional duties. This seems to suggest that the executive branch might limit the scope of reporting required by Congress in those sections, not just on national security grounds, but to protect executive branch processes or performance. The implications of the approach outlined in this signing statement will not be clear until the executive branch produces (or does not produce, as the case may be) required reports. The agreement announced in July 2007 by the United States and India lists a variety of civilian nuclear projects on which the two countries "may pursue cooperation." Although the Bush Administration argued that the agreement "is consistent with applicable U.S. law," some Members of Congress expressed concern that it may be inconsistent with parts of P.L. 109-401 . For example, H.Res. 711 , which was referred to the House Committee on Foreign Affairs October 4, 2007, stated that "it is the sense of the House of Representatives" that the Bush Administration should not propose changes to NSG guidelines until it has resolved "all differences of interpretation" of the agreement with New Delhi and "answered all outstanding questions raised by Congress regarding apparent inconsistencies between the nuclear cooperation agreement" and P.L. 109-401 . Non-governmental experts also raised questions about several aspects of the agreement, arguing that they may be inconsistent with P.L. 109-401 . Despite restrictions in P.L. 109-401 regarding U.S. exports of equipment, material or technology related to uranium enrichment, spent fuel reprocessing or heavy water production, the agreement states that Sensitive nuclear technology, heavy water production technology, sensitive nuclear facilities, heavy water production facilities and major critical components of such facilities may be transferred under this Agreement pursuant to an amendment to this Agreement. However, the agreement also states that "transfers of dual-use items that could be used in enrichment, reprocessing or heavy water production facilities will be subject to the Parties' respective applicable laws, regulations and license policies." Such transfers would, therefore, be subject to the same restrictions described in P.L. 109-401 . Any other transfers of such technology would require changes to existing U.S. law. The State Department has said that Washington does not intend to negotiate an amendment to the agreement. Furthermore, "as a matter of policy, the United States does not transfer dual-use items for use in sensitive nuclear facilities" and "will not assist India in the design, construction, or operation of sensitive nuclear technologies through the transfer of dual-use items, whether under the [nuclear cooperation] Agreement or outside the Agreement," according to the State Department. P.L. 109-401 does not exempt the agreement from a future cutoff in exports if India tests a nuclear explosive device again. However, the agreement does not explicitly mention U.S. responses to such a test of such a device. Instead, the agreement states that "either Party shall have the right to terminate this Agreement prior to its expiration on one year's written notice to the other Party"—that is, the agreement does not limit the grounds upon which the agreement may be terminated. Similarly, the agreement provides that the party seeking termination has the right to cease further cooperation under this Agreement if it determines that a mutually acceptable resolution of outstanding issues has not been possible or cannot be achieved through consultations. This provision means that nuclear cooperation under the agreement may be terminated by a party during the one-year notice period for termination of the agreement. The agreement also specifies that the two governments are to "hold consultations" prior to ceasing cooperation or terminating the agreement. The United States and India are to take into account whether the circumstances that may lead to termination or cessation resulted from a Party's serious concern about a changed security environment or as a response to similar actions by other States which could impact national security. This provision suggests that, in the event that India conducts a nuclear explosive test, New Delhi may argue that the agreement should not be terminated (and nuclear cooperation should not cease) because geopolitical circumstances justified the test. However, in such cases, the U.S. right to terminate and cease cooperation under this provision would not be constrained by the results of the consultations. With regard to the U.S. right of return, Section 123 a. (4) of the AEA requires that nuclear cooperation agreements include a stipulation that the United States shall have the right to require the return of any nuclear materials and equipment transferred pursuant thereto and any special nuclear material produced through the use thereof if the cooperating party detonates a nuclear explosive device or terminates or abrogates an agreement providing for IAEA safeguards. The July agreement states that, following the cessation of cooperation under this agreement, either party has the right to require the return of "any nuclear material, equipment, non-nuclear material or components transferred under this Agreement and any special fissionable material produced through their use." However, the agreement does not say explicitly that a future Indian test of a nuclear explosive device would allow the United States to exercise its right of return. Rather, it provides for a right of return whenever a party has given notice of termination of the agreement and has ceased nuclear cooperation, which would include but not be limited to the circumstances specified in Section 123.a(4) of the AEA. The agreement also provides that a "notice by a Party that is invoking the right of return shall be delivered to the other Party on or before the date of termination of this Agreement." This means that the right of return cannot be exercised after the one-year interval prior to the agreement's termination. A closely related issue is the agreement's four assurances regarding India's future nuclear fuel supply: The United States is willing to incorporate assurances regarding fuel supply in the bilateral U.S.-India agreement on peaceful uses of nuclear energy under Section 123 of the U.S. AEA, which would be submitted to the U.S. Congress. The United States will join India in seeking to negotiate with the IAEA an India-specific fuel supply agreement. The United States will support an Indian effort to develop a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of India's reactors. If, despite these [above] arrangements, a disruption of fuel supplies to India occurs, the two governments would jointly convene a group of friendly supplier countries (including countries such as Russia, France, and the United Kingdom) to pursue such measures as would restore fuel supply to India. The last two provisions are particularly controversial because they could potentially provide India a way to mitigate the effects of a U.S. cessation of nuclear exports (in the event that, for example, India were to test a nuclear weapon). Indeed, India's then-Foreign Secretary Saran asserted in a February 18, 2008, statement that, under the 123 agreement, India is entitled to build a strategic fuel reserve "to last the lifetime of such reactors." And a spokesperson for India's ruling Congress Party indicated in September 2008 that reserve supplies of fuel would enable New Delhi to continue operating its reactors even if other countries were to halt cooperation in response to an Indian nuclear test. P.L. 109-401 contains several provisions that could be in tension with the July agreement. For example, Section 103 (b) (10) addresses the issue of a fuel reserve: Any nuclear power reactor fuel reserve provided to the Government of India for use in safeguarded civilian nuclear facilities should be commensurate with reasonable reactor operating requirements. With regard to supplying India with nuclear fuel after a nuclear test, Section 103 a. (6) says that the United States should Seek to prevent the transfer to a country of nuclear equipment, materials, or technology from other participating governments in the NSG or from any other source if nuclear transfers to that country are suspended or terminated. Similarly, Section 102 (13) expresses the sense of Congress that the United States "should not seek to facilitate or encourage the continuation of nuclear exports to India by any other party if such exports are terminated under United States law." However, President Bush's September 10, 2008, message transmitting the agreement to Congress characterizes the agreement's fuel-supply assurances as "political commitments" that are not "legally binding" because the agreement is only a "framework agreement" that does not compel specific nuclear cooperation. Furthermore, according to the State Department, the "disruption of fuel supplies" referred to in the agreement refers only to disruptions "that may result through no fault" of India's. Regarding the question of non-U.S. suppliers, Washington has not sought commitments from any other country to supply fuel to India. The "United States would be compelled to encourage transfers of nuclear fuel to India by other" NSG members if supply disruptions "occur through no fault of India's own," according to the State Department. However, these assurances "are not ... meant to insulate India against the consequences of a nuclear explosive test or a violation of nonproliferation commitments." Indeed, such U.S. commitments "would no longer apply" if the United States were to terminate the agreement in response to an Indian nuclear test. With respect to fuel reserves, the agreement does not define what it means to "support an Indian effort to develop a strategic reserve." Furthermore, the State Department suggests that the United States may not supply India with a fuel reserve sufficient for the lifetime of India's reactors, though the department's 2008 responses to Questions for the Record do not specify the size of any such reserve. Appendix A. U.S. Nuclear Cooperation with India: History and Bush Administration Policy The United States actively promoted nuclear energy cooperation with India from the mid-1950s, building nuclear power reactors (Tarapur), providing heavy water for the CIRUS research reactor, and allowing Indian scientists to study at U.S. nuclear laboratories. However, India refused to join the 1970 Nuclear Nonproliferation Treaty (NPT), arguing that it was discriminatory. The NPT defines a nuclear-weapon state as "one which has manufactured and exploded a nuclear weapon or other nuclear explosive device" prior to January 1, 1967. These states are China, France, Russia, the United Kingdom, and the United States. The treaty allows these states to retain their nuclear weapons, although they are also to pursue negotiations "in good faith" on nuclear disarmament by an unspecified date. All other parties to the NPT, are non-nuclear-weapon states. Although India conducted a "peaceful" nuclear test in 1974 and tested nuclear weapons in 1998, it is not a recognized nuclear-weapon state. India's 1974 nuclear test reinforced the notion that nuclear technology transferred for peaceful purposes could be used to produce nuclear weapons. Congress responded to that test by passing the Nuclear Non-Proliferation Act of 1978 (NNPA, P.L. 95-242 ), which imposed tough new requirements for U.S. nuclear exports to non-nuclear-weapon states. These included a requirement that recipients of nuclear exports must have full-scope safeguards on their nuclear facilities, as well as a requirement that the United States terminate nuclear exports if a recipient state detonates a nuclear explosive device or engages in activities related to acquiring or manufacturing nuclear weapons. The United States created the Nuclear Suppliers Group (NSG), a voluntary nuclear export regime, in 1975. The NSG published guidelines in 1978 "to apply to nuclear transfers for peaceful purposes to help ensure that such transfers would not be diverted to unsafeguarded nuclear fuel cycle or nuclear explosive activities." The full-scope safeguards requirement created a problem for U.S. fuel supplies to India's reactors at Tarapur, which were built by U.S. firms and fueled by U.S. low-enriched uranium, pursuant to a 1963 nuclear cooperation agreement. After passage of the NNPA, the Carter Administration exported two more uranium shipments under executive order after the Nuclear Regulatory Commission refused to approve an export license on nonproliferation conditions. Although the House voted to disapprove the President's determination, the Senate voted 46-48 on a resolution of disapproval. After 1980, all nuclear exports from the United States to India were cut off under the terms of the NNPA. France supplied fuel under the terms of the U.S. agreement with India until France also adopted a full-scope safeguards requirement in 1995. After the NSG adopted the full-scope safeguards condition in 1992, China supplied the reactor. Russia supplied fuel from 2001 to 2004. Although the NPT requires safeguards on items going to non-nuclear-weapon states, it does not explicitly prohibit nuclear commerce with states outside the NPT. However, the 1995 NPT Review and Extension Conference, NPT states-parties supported the principle that non-NPT parties should not be eligible for the same kinds of assistance as NPT parties in good standing. Nevertheless, as noted, India tested several nuclear weapons in 1998; Pakistan followed suit shortly thereafter. Later that year, the U.N. Security Council adopted Resolution 1172, which called upon those countries to "stop their nuclear weapon development programmes, to refrain from weaponization or from the deployment of nuclear weapons, to cease development of ballistic missiles capable of delivering nuclear weapons and any further production of fissile material for nuclear weapons." Bush Administration Policy The Bush Administration had been considering a strategic partnership with India as early as 2001. Indian officials identified their growing energy needs as an area for cooperation, particularly in nuclear energy. The U.S.-India 2004 Next Steps in Strategic Partnership (NSSP) initiative included expanded cooperation in civil nuclear technology as one of three goals. Phase I of the NSSP, completed in September 2004, required addressing proliferation concerns and ensuring compliance with U.S. export controls. On July 18, 2005, President Bush announced the creation of a global partnership with India in a joint statement with Prime Minister Manmohan Singh. Noting the "significance of civilian nuclear energy for meeting growing global energy demands in a cleaner and more efficient manner," President Bush said he would "work to achieve full civil nuclear energy cooperation with India" and would "also seek agreement from Congress to adjust U.S. laws and policies." The joint statement noted that the United States will work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India, including but not limited to expeditious consideration of fuel supplies for safeguarded nuclear reactors at Tarapur. The United States committed to encouraging its partners to consider this request—a reversal in the U.S. position, which has been to ban fuel to Tarapur—and to consulting with its partners on Indian participation in ITER (collaboration on fusion research) and in the Generation IV International Forum for future reactor design. Prime Minister Singh conveyed that India "would take on the same responsibilities and practices and acquire the same benefits and advantages as other leading countries with advanced nuclear technology, such as the United States." India agreed to identify and separate its civilian and military nuclear facilities and programs; declare its civilian facilities to the IAEA; voluntarily place civilian facilities under IAEA safeguards; sign an Additional Protocol for civilian facilities; continue its unilateral nuclear test moratorium; work with the United States to conclude a Fissile Material Cut Off Treaty (FMCT); refrain from transferring enrichment and reprocessing technologies to states that do not have them, as well as support international efforts to limit their spread; secure its nuclear materials and technology through comprehensive export control legislation and through harmonization and adherence to MTCR and NSG guidelines. Issues of Controversy The AEA requires congressional approval and oversight of peaceful nuclear cooperation agreements. As Senator Lugar noted, "Ultimately the entire Congress ... must determine what effect the Joint Statement will have on U.S. efforts to halt the proliferation of weapons of mass destruction." Congress held eight hearings in 2005 and 2006 on the global partnership and has consulted with the Administration on various aspects of the U.S.-India nuclear agreement. The discussion of the following issues is drawn in part from the hearings and from the emerging debate. Strategy vs. Tactics The Bush Administration described its "desire to transform relations with India" as "founded upon a strategic vision that transcends even today's most pressing security concerns." There is clearly broad congressional support for cultivating a close relationship with India, yet some Members of Congress have suggested that civil nuclear cooperation may not be the most appropriate vehicle for advancing our relationship. In a House International Relations Committee hearing on September 8, 2005, then-Representative Jim Leach stated, I don't know any member of Congress that doesn't want to have a warming of relations with the government of India.... I also don't know many members of Congress who are pushing for the precise commitment that the administration has made. Representative Leach suggested instead that U.S. support for a permanent seat for India on the United Nations Security Council might have been a more appropriate gesture. Other observers outside of Congress have questioned whether U.S. energy assistance should focus on expanding nuclear power, in contrast to other energy alternatives. Henry Sokolski of the Nonproliferation Policy Education Center has argued that Indian energy needs might be better met through free market allocation, including improved efficiency. He asserts that nuclear power is the least leveraged of India's options to meet India's energy needs, given that it currently provides only 2.7% of installed electrical capacity. India's projections of its nuclear energy needs are predicated on an estimated annual growth rate of 8%, which some observers believe may be unrealistic. One well-known Indian commentator, Brahma Chellaney, argued in the International Herald Tribune that the premise that India should meet its rapidly expanding energy needs through importing nuclear power reactors was flawed. Chellaney argued that a better approach for India would be to secure clean-coal and renewable energy technologies. The Senate Foreign Relations Committee's November 2, 2005, hearing sought, among other things, to answer the question of why civil nuclear cooperation was so important to the U.S.-Indian strategic relationship. Then-Under Secretary of State Nicholas Burns told committee members that "India had made this the central issue in the new partnership developing between our countries." Impact on U.S. Nonproliferation Policies The Bush Administration characterized civil nuclear cooperation with India as a "win" for nonproliferation because it would bring India into the "nonproliferation mainstream." In short, the Administration proposed that India should be courted as an ally in U.S. nonproliferation policy, rather than continue as a target of U.S. nonproliferation policy. According to this reasoning, India should become an ally for three reasons: past policies have not worked; India has a relatively good nonproliferation record; and India could be a useful ally in the nonproliferation regime. Some observers, however, are concerned that India may not support U.S. nonproliferation policies sufficiently to warrant nuclear cooperation, particularly where the United States faces its greatest nuclear proliferation threat: Iran. For example, at the September 8, 2005, House Foreign Affairs Committee hearing, several Members of Congress questioned whether the United States had obtained assurances from India of its support on Iran before it issued the July 18, 2005, joint statement. Iran Two factors may present challenges to Indian support for U.S. policies toward Iran. First, India has a growing strategic relationship with Iran, not limited to its interest in a proposed $7.4 billion, 2800-km-long gas pipeline between Iran, Pakistan, and India. Second, India has a strong tradition of foreign policy independence, as a long-time leader of the Non-Aligned Movement (NAM) states and as a vigorous opponent of the discriminatory nature of the Nuclear Nonproliferation Treaty. One witness before the House International Relations Committee hearing on November 16, 2005, suggested that opposition from the United States on the gas pipeline project is considered to be "interference with India's autonomy in foreign relations, as well as disregard for its security and energy needs." On Iran's nuclear program, Indian officials have stated they do not support a nuclear weapons option for Tehran. However, they did not agree with the United States on the urgency of reporting Iran's nuclear program to the U.N. Security Council, which the United States has proposed since 2003, nor on the need to limit Iran's nuclear fuel cycle development. When the IAEA Board of Governors passed a resolution (GOV/2005/77) on September 24, 2005, finding Iran in noncompliance with its safeguards agreement, India voted with the United States, provoking significant domestic dissent. According to India's then-Foreign Secretary Shyam Saran, India voted for the resolution and against the majority of NAM states which abstained, because it felt obligated after having pressured France, Germany, and the United Kingdom to omit reference to immediate referral to the U.N. Security Council. Moreover, India explained its vote this way: In our Explanation of Vote, we have clearly expressed our opposition to Iran being declared as noncompliant with its safeguards agreements. Nor do we agree that the current situation could constitute a threat to international peace and security. Nevertheless, the resolution does not refer the matter to the Security Council and has agreed that outstanding issues be dealt with under the aegis of the IAEA itself. This is in line with our position and therefore, we have extended our support. On February 4, 2006, following Iran's resumption of some uranium enrichment research and development, the IAEA Board of Governors met in an emergency session and voted to report Iran's noncompliance to the U.N. Security Council. India voted with the United States to report Iran, although this followed a controversial remark to the press the previous week by Ambassador David Mulford that India would have to support the United States on Iran in Vienna or the U.S. Congress would not support the peaceful nuclear cooperation agreement. Several years later, New Delhi voted in support of a November 27, 2009, IAEA Board resolution that criticized Iran's failure to comply with its IAEA and U.N. Security Council obligations. Iran may also test India's support for curtailing peaceful nuclear programs. New Delhi has always been an advocate of states' rights to develop the peaceful uses of nuclear energy and for 30 years has derided the NPT and nonproliferation policies as discriminatory. The official Iranian press agency reported Prime Minister Singh as telling President Ahmadinejad on September 22, 2005, that solutions to Iran's nuclear problem should be based on the principle that Iran as an NPT member should retain its lawful rights. On September 26, 2005, Foreign Secretary Saran told the press that "With respect to Iran's right to peaceful uses of nuclear energy, that is something which we have ourselves no reservations about." In September 2006, India joined in the 118-nation Nonaligned Movement NAM summit statement that expressed support for Iran's "choices and decisions in the field of peaceful uses of nuclear technology and its fuel cycle policies." Concerns about India's relationship with Iran extend, for some, to the transfer of weapons of mass destruction (WMD)-related items. Entities in India and Iran appear to have engaged in very limited nuclear-, chemical-, and missile-related transfers over the years. There are no publicly- available indications of activities related to biological weapons. In the early 1990s, when Iran actively sought nuclear-related assistance and technology from many foreign sources, India appears to have played only a minor role in contrast to other states. India signed an agreement in November 1991 to provide a 10 megawatt research reactor to Tehran, but cancelled under pressure from the United States. Nonetheless, India reportedly trained Iranian nuclear scientists in the 1990s. In September 2004, the United States imposed sanctions on two Indian nuclear scientists, Dr. Y.S.R. Prasad and Dr. C. Surendar, under the Iran Nonproliferation Act. Indian officials protested, stating that cooperation had taken place under the auspices of the IAEA Technical Cooperation program. Other reports suggest that the scientists, who had served as chairman and managing director of the Nuclear Power Corporation of India, Limited, which runs India's power reactors, passed information to Iran on tritium extraction from heavy water reactors. Sanctions were lifted on Dr. Surendar in 2005. In the chemical area, there is one confirmed transfer of 60 tons of thionyl chloride, a chemical that can be used in the production of mustard gas, from India to Iran in March 1989. Other shipments in that time frame reportedly were halted under U.S. pressure. India does not appear in the CIA's unclassified nonproliferation report to Congress as a supplier of chemical-weapons-related exports to Iran since the report began publication in 1997. India signed the Chemical Weapons Convention in 1993 and deposited its instrument of ratification until 1996. However, in December 2005, the United States imposed sanctions on Sabero Organic Chemicals Gujarat Limited and Sandhya Organic Chemicals Pvt. Limited, pursuant to the Iran Nonproliferation Act of 2000. In July 2006, the United States imposed sanctions on Balaji Amines and Prachi Poly Products, chemical manufacturers, pursuant to the Iran and Syrian Nonproliferation Act. Enrichment and Reprocessing One of India's commitments in the July 2005 statement was to refrain from transferring enrichment and reprocessing technologies to states that do not already have those technologies and to support international efforts to limit their spread. As discussed in greater detail below, the NSG is considering adopting criteria for exporting enrichment and reprocessing technology. India's External Affairs Minister Shri Pranab Mukherjee stated September 5, 2008, that India will not be the source of proliferation of sensitive technologies, including enrichment and reprocessing transfers. We stand for the strengthening of the non-proliferation regime. We support international efforts to limit the spread of [enrichment and reprocessing] equipment or technologies to states that do not have them. David Albright, president of the Institute for Science and International Security (ISIS), published a report on March 10, 2006, asserting that India had potentially exported centrifuge enrichment-related technology by virtue of tendering public offers and providing blueprints for technology to interested parties. A September 18, 2008, ISIS report described Indian sales of documents related to centrifuges, as well as illicit Indian procurement of a chemical used in reprocessing. It is not clear whether New Delhi's procurement practices facilitate transfer of technology, but the U.S. nuclear cooperation agreement will have no impact on those procurement practices. Although the State Department asserted in responses to questions for the record from Senator Lugar that the United States will not engage in reprocessing or enrichment technology cooperation with India, other NSG members may transfer such technology. The Nuclear Proliferation Assessment Statement (NPAS) notes that India, by concluding an Additional Protocol to its IAEA safeguards agreement, "will commit to reporting to the IAEA on exports of all NSG Trigger List items." Impact on the Nuclear Nonproliferation Regime India's status outside the nuclear nonproliferation regime raised possible concerns that the nuclear agreement could negatively affect nuclear nonproliferation efforts. Some considerations include cohesion within the NSG, effects on non-nuclear-weapon member states of the NPT, potential missed opportunities to strengthen the nuclear nonproliferation regime, and whether U.S. nuclear cooperation might in any way assist, encourage, or induce India to manufacture nuclear weapons, in possible violation of our Article I obligation under the NPT. NSG Cohesion Cohesion within the Nuclear Suppliers Group (NSG) is critical to effective implementation of export controls. As noted, the NSG has followed the U.S. lead on requiring full-scope safeguards as a condition of nuclear supply. During the September 8, 2005, hearing, then-House International Relations Committee Chairman Henry Hyde noted that "many of us are strong supporters of the NSG and would not want to see it weakened or destroyed." Chairman Hyde asked whether the Administration could assure the committee that no matter what else happens, that the administration will continue to abide by NSG guidelines, and if you are unable to gain consensus within the NSG for the amendments you need, you will not implement the new India policy in violation of NSG guidelines. Then-Ambassador Joseph told the committee that "we intend to take no action that would undercut the effectiveness of the NSG," and further, that the Administration did not intend to change the consensus procedure or even change the NSG full-scope safeguards condition of nuclear supply. P.L. 109-401 states that the NSG should decide "by consensus to permit supply to India of nuclear items covered by" the NSG guidelines. Dissent within the NSG could be counterproductive to achieving other U.S. nuclear nonproliferation objectives, such as discouraging enrichment and reprocessing, persuading North Korea to give up its nuclear weapons, and constraining Iran's suspected nuclear weapons program, all of which rely on the considerable support of friends and allies. Moreover, harmonizing export controls has played a key role in U.S. counter- and non-proliferation policies and is particularly important for interdiction efforts. U.S.-India cooperation could prompt other suppliers, like China, to justify supplying other non-nuclear-weapon states, like Pakistan. China, which joined the NSG in 2004, has reportedly favored an NSG decision based on criteria, not just an exception for India. Indeed, Beijing has apparently agreed to construct two additional nuclear power reactors in Pakistan. Russia, which only halted fuel supplies to the Indian Tarapur reactors in December 2004 at the insistence of the NSG, agreed in 2006 to resume fuel supplies to Tarapur under the guise of the safety exception, reportedly to the dismay of many NSG members. Effect on NPT Member States India has complained for years that it has been excluded from regular nuclear commerce because of its status outside the NPT. Some observers believe this is a good thing and shows that the treaty works. Others believe that a new paradigm is needed for India because it will not join the NPT as a non-nuclear-weapon state. The NPT is basically a two-way bargain. Non-nuclear-weapon states under the NPT give up the option of developing nuclear weapons in exchange for the promise of peaceful nuclear cooperation. Nuclear weapon states under the treaty commit to eventual disarmament. India, as a state outside the NPT, is bound by neither of these commitments. Some observers may see the offer of nuclear cooperation previously reserved for states under the NPT with full-scope safeguards not only as undermining the agreements made by non-nuclear-weapon states, but also the commitments made by nuclear weapon states to disarm. In this view, India's continued unilateral testing moratorium is insufficient, compared with signing the Comprehensive Test Ban Treaty (CTBT). Similarly, its support for Fissile Material Cutoff Treaty (FMCT) negotiations is insufficient, compared with capping its nuclear weapons fissile material production now, as four of the five nuclear weapon states formally have done. Some have suggested that the absence of an Indian cap on fissile material production for weapons may make it difficult for China to declare it has halted fissile material production for weapons. Others have suggested that, absent a cap on fissile material production, it would be difficult to ensure that peaceful nuclear cooperation was not indirectly assisting or encouraging India's nuclear weapons program. The revelations during the early 1990s of the Iraqi and North Korean clandestine nuclear weapons programs led to the strengthening of the NPT and export control regimes. At the 1995 NPT Review and Extension Conference, NPT parties affirmed the NSG's decision to require full-scope safeguards for nuclear exports, supporting the principle that non-NPT parties should not be eligible for the same kinds of assistance as NPT parties in good standing. At the 2000 Review Conference, NPT parties again supported that principle. According to the U.S. ambassador to the conference at that time, "reinforcement of this guideline is important given some who have questioned whether this principle should be relaxed for India and Pakistan, which have not accepted full-scope IAEA safeguards. The answer from NPT parties is clearly no." In the past 10 years, virtually all states agreed to strengthen the nonproliferation regime, sacrificing some sovereignty by allowing additional, intrusive inspections under the Additional Protocol. In the wake of 2004 revelations about Pakistani scientist A.Q. Khan's nuclear black market sales, non-nuclear-weapon states under the NPT are also being asked to consider further restrictions on their sovereignty by voluntarily restricting their access to sensitive nuclear technologies like uranium enrichment and reprocessing. If some states view the U.S.-Indian nuclear cooperation agreement as a breach of faith in the basic bargain of the NPT, they might be less inclined to accept additional sacrifices, to the detriment of the nonproliferation regime. Missed Opportunities Then-Ambassador Joseph described the nuclear initiative as representing "a substantial net gain for nonproliferation. It is a win for our strategic relationship, a win for energy security, and a win for nonproliferation." Joseph said he was "convinced that the nonproliferation regime will emerge stronger as a result." However, some experts have suggested the United States asked for too little. For example, Fred McGoldrick, Harold Bengelsdorf, and Lawrence Scheinman argued in the October 2005 issue of Arms Control Today that It is open to serious doubt whether the proposed Indian concessions were significant enough to justify the accommodations promised by the United States and whether the steps the United States and India agreed to take in the civil nuclear area will, on balance, be supportive of global nonproliferation efforts.... If the Bush Administration is able to implement the joint declaration without significant modification, it will have given the Indians a great deal—acknowledgment as a de facto nuclear weapon state and access to the international nuclear energy market—in return for largely symbolic concessions in the nonproliferation area. Special Advisor for Nonproliferation and Arms Control to the Secretary of State Robert Einhorn, then of the Center for Strategic and International Studies, told Members of the House International Relations Committee on October 26, 2005, that several of the steps pledged by India are "simply reaffirmations of existing positions." The Indian embassy itself has downplayed the depth and breadth of its nonproliferation commitments, describing all but its safeguards commitments under the July 2005 statement in the following way: A number of existing policies were also reiterated by India, among them a unilateral moratorium on nuclear testing, working towards conclusion of a multilateral Fissile Material Cut-off Treaty, non-transfer of enrichment and reprocessing technologies, securing nuclear materials and technology through export control, and harmonisation with MTCR and NSG guidelines. India has had a self-imposed nuclear test moratorium for years, although supporters of this agreement note that this agreement would bind India bilaterally to honoring that pledge. India has supported FMCT negotiations for years, despite continuing to produce fissile material for use in nuclear weapons. Since the pace of the Conference on Disarmament's discussions regarding an FMCT has been glacial, support for negotiations could allow India to continue producing fissile material indefinitely. Prime Minister Singh told his Parliament on August 17, 2006, that "India is willing to join only a non discriminatory, multilaterally negotiated and internationally verifiable FMCT." The most far-reaching of the commitments is to separate civilian and military facilities, declare civilian facilities, and place them under safeguards. Administration officials have pointed to this aspect of the agreement as a nonproliferation "plus." Yet, allowing India broad latitude in determining which of its facilities to put under international safeguards is a privilege accorded currently only to nuclear weapon states under the NPT. Although the United States has said that it does not recognize India as an NPT nuclear-weapon state, excluding military facilities from inspections is a tacit recognition of their legitimacy. Then-IAEA Director General Dr. Mohamed ElBaradei said that he has "always advocated concrete and practical steps towards the universal application of IAEA safeguards." In remarks to the Carnegie Endowment's Nonproliferation Conference in November 2005, Dr. ElBaradei cited additional safety benefits of putting more Indian facilities under safeguards. However, it should be noted that the NSG already has an exception to its full-scope safeguards requirement for safety-related items. The Bush Administration asserted that India has an "exceptional" record of nonproliferation and, despite a few isolated sanctions, most of the evidence supports the view that India has exercised restraint in export controls. As such, however, New Delhi's promise to refrain from transferring enrichment and reprocessing technologies to states that do not have them, as well as its promise to adhere to NSG guidelines, may be little more than a formality. Many observers have noted that India has not taken any measures to restrain its nuclear weapons program. For example, India has not agreed to end fissile material production for nuclear weapons. Although then-Ambassador Joseph stated in 2005 that the United States remained "committed to achieving Indian curtailment of fissile material production," he added that the Bush Administration would "not insist on it for purposes of this civil nuclear initiative." Moreover, Indian officials to pointed out that "there is no commitment at all to cease production of fissile material ahead of the conclusion of such a multilateral [FMCT] treaty." Prime Minister Singh told the Parliament in August 2006 that "our position on this matter is unambiguous. We are not willing to accept a moratorium on the production of fissile material." Furthermore, although India committed to a moratorium on testing nuclear weapons, New Delhi did not commit to signing the CTBT. U.S. NPT Article I Obligations/Aiding India's Nuclear Arsenal Article I of the NPT states that each nuclear-weapon State Party to the Treaty undertakes not to transfer to any recipient whatsoever nuclear weapons or other nuclear explosive devices or control over such weapons or explosive devices directly, or indirectly; and not in any way to assist, encourage, or induce any non-nuclear-weapon State to manufacture or otherwise acquire nuclear weapons or other nuclear explosive devices, or control over such weapons or explosive devices. Given that India will continue to make nuclear weapons, but is considered under the NPT to be a non-nuclear-weapon state, the question arises as to whether U.S. assistance might in any way violate Article I. In testimony before the House International Relations Committee, David Albright of ISIS stated that "without India halting production of fissile material for its nuclear weapons programs, nuclear assistance, particularly any in the areas involving the fuel cycle, would likely spill over to India's nuclear weapons program." Three areas raise potential concerns: whether the separation plan is adequate to ensure that cooperation does not in any way assist in the development or production of nuclear weapons; whether cooperation confers nuclear weapons state status on India, with an unintended consequence of encouraging the Indian nuclear weapons program; and whether opening up the international uranium market frees up India's domestic uranium for use in its weapons program. Separation Plan Credibility Bush Administration officials repeatedly have stressed that India's separation plan must be credible, transparent, and defensible from a nonproliferation standpoint, and that "the resultant safeguards must contribute to our nonproliferation goals." To those observers who interpreted that statement to mean that a separation plan would need to take into account India's past commitments (e.g., use of purportedly "peaceful" nuclear reactors like CIRUS to produce plutonium for nuclear weapons) and the impact on its nuclear weapons program (e.g., capping India's fissile material production), the separation plan may not appear credible. To those observers who interpreted "credible" to mean that all power reactors that supplied electricity would be declared civilian because they have a civilian use, the separation plan also may not appear credible. Bush Administration officials defended the separation plan as credible and defensible because it covers more than just a token number of Indian facilities, provides for safeguards in perpetuity, and includes upstream and downstream facilities. However, although IAEA safeguards ensure that nuclear material is not diverted, there are no procedures or measures in place to ensure that information, technology and know-how are not transferred from the civil sector to the military sector. This issue, which the September 2008 NPAS does not appear to address, could become a key loophole. For example, U.S. assistance to one of the eight indigenous power reactors, whether focused on nuclear safety, improving operational efficiency, or extending its lifetime, could easily be applied by Indian personnel to one of the similar, but unsafeguarded indigenous power reactors. Some Indian commentators, however, have suggested that the United States has little technology to offer India, and others have doubted whether U.S. assistance would be provided to those indigenous power reactors. Conferring Nuclear Weapon-State Status A second area that raises concerns is whether nuclear cooperation confers nuclear weapon state status on India, which could encourage its weapons program. Senator Lugar noted in a hearing on November 2, 2005, that prior to the July 18 joint statement India had repeatedly sought unsuccessfully to be recognized as an official nuclear weapons state, a status the NPT reserves only for the United States, China, France, Russia and the United Kingdom. Opponents argue that granting India such status will undermine the essential bargain that is at the core of NPT, namely, that only by foregoing nuclear weapons can a country gain civilian nuclear assistance. Under Secretary of Defense for Acquisition, Technology & Logistics Dr. Ashton Carter, then of Harvard's Kennedy School of Government, stated during the same hearing that India obtained de-facto recognition of its nuclear weapons status. The United States will behave, and urge others to behave, as if India were a nuclear weapons state under the NPT. We won't deny it most civil nuclear technology or commerce. We won't require it to put all of its nuclear facilities under IAEA safeguards—only those it declares to be civil. Beyond these technicalities, nuclear recognition confers an enormous political benefit on India. Secretary Rice, in response to a question for the record in April 2006 on India's nuclear weapon state status, stated that "while India has nuclear weapons and we must deal with this fact in a realistic, pragmatic manner, we do not recognize India as a nuclear weapon state or seek to legitimize India's nuclear weapons program." However, other officials' statements appear to lend more support to India. Then-Under Secretary of State Nicholas Burns told reporters on March 2, 2006, that "India is a nuclear weapons power, and India will preserve part of its nuclear industry to service its nuclear weapons program." Former IAEA Director General ElBaradei argues that the U.S.-India deal is "neutral" because "it does not confer any 'status,' legal or otherwise, on India as a possessor of nuclear weapons." Nonetheless, the successful U.S. effort to create an exemption in its nuclear cooperation law for New Delhi has placed India in the company of only four other nations—the United Kingdom, France, China, and Russia—all de jure nuclear weapon states. Many observers believe that this legitimizes India's nuclear weapons program by providing de facto recognition. Indian official statements repeatedly have used the term "advanced nuclear states" as synonymous with nuclear weapon states; Prime Minister Singh told the Parliament in August 2006 that The July Statement did not refer to India as a Nuclear Weapons State because that has a particular connotation in the NPT, but it explicitly acknowledged the existence of India's military nuclear facilities. It also meant that India would not attract full-scope safeguards such as those applied to non-nuclear weapon states that are signatories to the NPT and there would be no curbs on continuation of India's nuclear weapon related activities. In these important respects, India would be very much on par with the five Nuclear Weapon States who are signatories to the NPT. Similarly, the Separation Plan provided for an India specific safeguards agreement with the IAEA with assurances of uninterrupted supply of fuel to reactors together with India's right to take corrective measures in the event fuel supplies are interrupted. We have made clear to the US that India's strategic programme is totally outside the purview of the July Statement, and we oppose any legislative provisions that mandate scrutiny of our nuclear weapons programme or our unsafeguarded nuclear facilities. Offsetting India's Uranium Shortage Finally, critics of U.S.-Indian civil nuclear cooperation have argued that giving India access to the international uranium market would free up New Delhi's domestic uranium resources for use in its weapons program. India has limited indigenous uranium reserves and apparently has difficulty producing reactor fuel from these reserves. New Delhi has reportedly reduced its power reactors' electricity output because of fuel shortages. Since the NSG's 1992 adoption of the full-scope safeguards condition for exports, New Delhi has not had access to the international uranium market. Foreign Secretary Saran pointed out on February 18, 2008, that "a major expansion in nuclear power in the medium term" would require India to import "higher capacity reactors and uranium fuel." Similarly, the NPAS states that "India must import fuel, reactors, and other technologies ... to meet its nuclear electricity-generating targets." India's current fuel situation means that New Delhi cannot produce sufficient fuel for both its nuclear weapons program and its projected civil nuclear program. A panel of nuclear experts concluded in 2006 that India's production of weapon grade plutonium is currently constrained by the competing demands of India's nuclear-power reactors for its limited domestic supply of natural uranium. If India could import fuel for its civilian nuclear reactors, it could use more domestic uranium for the production of weapon materials. Acknowledging the country's uranium limitations, a leading Indian nuclear strategist K. Subrahmanyam suggested December 12, 2005, in The Times of India , that New Delhi should use imported nuclear fuel to preserve its domestic uranium reserves for nuclear weapons: Given India's uranium ore crunch and the need to build up our minimum credible nuclear deterrent arsenal as fast as possible, it is to India's advantage to categorize as many power reactors as possible as civilian ones to be refueled by imported uranium and conserve our native uranium fuel for weapon-grade plutonium production. Proponents of U.S.-Indian nuclear cooperation have made several arguments regarding the Article I issue. None of these claims, however, refute the fact that India's access to the international uranium market will result in more indigenous Indian uranium available for weapons because it will not be consumed by New Delhi's newly safeguarded reactors. For example, proponents of the deal argue that India already has sufficient uranium to increase its nuclear arsenal and that New Delhi does not plan to increase that arsenal. The NPAS states that "India is capable of maintaining and expanding its existing nuclear arsenal within the limit of its indigenous resources and capabilities." Secretary Rice made a similar argument during an April 5, 2006, House International Relations Committee hearing. But these arguments do not address the constraints India faces in pursuing its civilian and military nuclear programs using only indigenous uranium. The NPAS also addresses New Delhi's intentions regarding its future nuclear arsenal. First, the statement says that Washington has "no evidence indicating that India plans to use additional domestic uranium reserves in its nuclear weapons programs as a consequence of implementing" the nuclear cooperation agreement. Second, the NPAS argues that New Delhi has "a posture of nuclear restraint," citing India's stated no-first-use nuclear weapon policy and need for only a "credible minimum deterrent." India, however, has never defined what it means by such a deterrent; Saran stated during an April 2006 television interview that "there is no responsibility on part of India to declare what its minimum deterrent is." Moreover, New Delhi's intentions are irrelevant to determining U.S. compliance with its Article I obligations. Furthermore, the NPAS appears to argue that the agreement may reduce India's potential to produce additional fissile material for weapons, because the additional indigenous Indian reactors placed under safeguards "will no longer be available for this purpose." However, the statement characterizes the reactors' potential to produce fissile material for weapons as "theoretical." Moreover, as noted, India is not obligated to place future reactors under safeguards. The State Department report submitted with the agreement notes that IAEA safeguards will prevent India from using its civil nuclear facilities for its nuclear weapons program. It also describes the ways in which U.S. export control policies prevent exported U.S. dual-use nuclear technologies from being used for military purposes. Appendix B. India's September 5, 2008, Statement on Disarmament and Nonproliferation Statement by External Affairs Minister of India Shri Pranab Mukherjee on the Civil Nuclear Initiative. To reiterate India's stand on disarmament and nonproliferation, EAM has made the following statement: A Plenary meeting of the Nuclear Suppliers Group to consider an exception for India from its guidelines to allow for full civil nuclear cooperation with India is being held in Vienna from September 4-5, 2008. India has a long-standing and steadfast commitment to universal, non-discriminatory and total elimination of nuclear weapons. The vision of a world free of nuclear weapons which Shri Rajiv Gandhi put before the UN in 1988 still has universal resonance. We approach our dialogue with the Nuclear Suppliers Group and all its members in a spirit of cooperation that allows for an ongoing frank exchange of views on subjects of mutual interest and concern. Such a dialogue will strengthen our relationship in the years to come. Our civil nuclear initiative will strengthen the international non-proliferation regime. India believes that the opening of full civil nuclear cooperation will be good for India and for the world. It will have a profound positive impact on global energy security and international efforts to combat climate change. India has recently submitted a Working Paper on Nuclear Disarmament to the UN General Assembly, containing initiatives on nuclear disarmament. These include the reaffirmation of the unequivocal commitment of all nuclear weapon States to the goal of complete elimination of nuclear weapons; negotiation of a Convention on the complete prohibition of the use or threat of use of nuclear weapons; and negotiation of a Nuclear Weapons Convention prohibiting the development, production, stockpiling and use of nuclear weapons and on their destruction, leading to the global, non-discriminatory and verifiable elimination of nuclear weapons within a specified timeframe. We remain committed to a voluntary, unilateral moratorium on nuclear testing. We do not subscribe to any arms race, including a nuclear arms race. We have always tempered the exercise of our strategic autonomy with a sense of global responsibility. We affirm our policy of no-first-use of nuclear weapons. We are committed to work with others towards the conclusion of a multilateral Fissile Material Cut-off Treaty in the Conference on Disarmament that is universal, non-discriminatory and verifiable. India has an impeccable non-proliferation record. We have in place an effective and comprehensive system of national export controls, which has been constantly updated to meet the highest international standards. This is manifested in the enactment of the Weapons of Mass Destruction and their Delivery Systems Act in 2005. India has taken the necessary steps to secure nuclear materials and technology through comprehensive export control legislation and through harmonization and committing to adhere to Missile Technology Control Regime and Nuclear Suppliers Group guidelines. India will not be the source of proliferation of sensitive technologies, including enrichment and reprocessing transfers. We stand for the strengthening of the non-proliferation regime. We support international efforts to limit the spread of ENR equipment or technologies to states that do not have them. We will work together with the international community to advance our common objective of non-proliferation. In this regard, India is interested in participating as a supplier nation, particularly for Thorium-based fuel and in establishment of international fuel banks, which also benefit India. India places great value on the role played by the IAEA's nuclear safeguards system. We look forward to working with the IAEA in implementing the India-specific Safeguards Agreement concluded with the IAEA. In keeping with our commitment to sign and adhere to an Additional Protocol with respect to India's civil nuclear facilities, we are working closely with the IAEA to ensure early conclusion of an Additional Protocol to the Safeguards Agreement.	India, which has not signed the Nuclear Nonproliferation Treaty and does not have International Atomic Energy Agency safeguards on all of its nuclear material, exploded a "peaceful" nuclear device in 1974, convincing the world of the need for greater restrictions on nuclear trade. The United States created the Nuclear Suppliers Group (NSG) as a direct response to India's test, halted nuclear exports to India a few years later, and worked to convince other states to do the same. India tested nuclear weapons again in 1998. However, President Bush announced July 18, 2005, he would "work to achieve full civil nuclear energy cooperation with India" and would "also seek agreement from Congress to adjust U.S. laws and policies," in the context of a broader partnership with India. U.S. nuclear cooperation with other countries is governed by the Atomic Energy Act (AEA) of 1954 (P.L. 95-242). However, P.L. 109-401, which President Bush signed into law on December 18, 2006, allows the President to waive several provisions of the AEA. On September 10, 2008, President Bush submitted to Congress, in addition to other required documents, a written determination that P.L. 109-401's requirements for U.S. nuclear cooperation with India to proceed had been met. President Bush signed P.L. 110-369, which approved the agreement, into law October 8, 2008. Then-Secretary of State Condoleezza Rice and India's then-External Affairs Minister Shri Pranab Mukherjee signed the agreement two days later, and it entered into force December 6, 2008. Additionally, the United States and India signed a subsequent arrangement in July 2010 which governs "arrangements and procedures under which" India may reprocess U.S.-origin nuclear fuel in two new national reprocessing facilities, which New Delhi has not yet constructed. The NSG, at the behest of the Bush Administration, agreed in September 2008 to exempt India from some of its export guidelines. That decision has effectively left decisions regarding nuclear commerce with India almost entirely up to individual governments. Since the NSG decision, India has concluded numerous nuclear cooperation agreements with foreign suppliers. However, U.S. companies have not yet started nuclear trade with India and may be reluctant to do so if New Delhi does not resolve concerns regarding its policies on liability for nuclear reactor operators and suppliers. Taking a step to resolve such concerns, India signed the Convention on Supplementary Compensation for Nuclear Damage, which has not yet entered into force, October 27, 2010. However, many observers have argued that Indian nuclear liability legislation adopted in August 2010 is inconsistent with the Convention. The Obama Administration has continued with the Bush Administration's policy regarding civil nuclear cooperation with India. According to a November 8, 2010, White House fact sheet, the United States "intends to support India's full membership" in the NSG, as well as other multilateral export control regimes.	14.7	16k+	1,573
40	Advances in the use of IT and the Internet are continuing to change the way that federal agencies communicate, use, and disseminate information; deliver services; and conduct business. For example, electronic government (e-government) has the potential to help build better relationships between government and the public by facilitating timely and efficient interaction with citizens. To help the agencies more effectively manage IT, the Congress has established a statutory framework of requirements and roles and responsibilities relating to information and technology management. Nevertheless, the agencies face significant challenges in effectively planning for and managing their IT. Such challenges can be overcome through the use of a systematic and robust management approach that addresses critical elements, such as IT strategic planning and investment management. The Congress established a statutory framework to help address the information and technology management challenges that agencies face. Under this framework, agencies are accountable for effectively and efficiently developing, acquiring, and using IT in their organizations. In particular, the Paperwork Reduction Act of 1995 and the Clinger-Cohen Act of 1996 require agency heads, acting through agency CIOs, to, among other things, better link their IT planning and investment decisions to program develop and maintain a strategic IRM plan that describes how IRM activities help accomplish agency missions; develop and maintain an ongoing process to establish goals for improving IRM’s contribution to program productivity, efficiency, and effectiveness; methods for measuring progress toward these goals; and clear roles and responsibilities for achieving these goals; develop and implement a sound IT architecture; implement and enforce IT management policies, procedures, standards, establish policies and procedures for ensuring that IT systems provide reliable, consistent, and timely financial or program performance data; and implement and enforce applicable policies, procedures, standards, and guidelines on privacy, security, disclosure, and information sharing. Moreover, under the government’s current legislative framework, OMB has important responsibilities for providing direction on governmentwide information and technology management and overseeing agency activities in these areas. Among OMB’s responsibilities are ensuring agency integration of IRM plans, program plans, and budgets for the acquisition and use of IT and the efficiency and effectiveness of interagency IT initiatives; developing and maintaining a governmentwide strategic IRM plan; developing, as part of the budget process, a mechanism for analyzing, tracking, and evaluating the risks and results of all major capital investments made by an executive agency for information systems; directing and overseeing the implementation of policy, principles, standards, and guidelines for the dissemination of and access to public information; encouraging agency heads to develop and use best practices in IT developing and overseeing the implementation of privacy and security policies, principles, standards, and guidelines. Further, in 2002, the Congress passed, and the President signed, legislation intended to improve the collection, use, and dissemination of government information and to strengthen information security. Specifically, Public Law 107-347, the E-Government Act of 2002, which was enacted in December 2002, includes provisions to promote the use of the Internet and other information technologies to provide government services electronically. The E-Government Act also contains the Federal Information Security Management Act (FISMA) of 2002, which replaced and strengthened the Government Information Security Reform legislative provisions (commonly referred to as “GISRA”). Among other provisions, FISMA requires each agency, including national security agencies, to (1) establish an agencywide risk-based information security program to be overseen by the agency CIO and ensure that information security is practiced throughout the life cycle of each agency system; and (2) develop, maintain, and annually update an inventory of major information systems (including major national security systems) operated by the agency or under its control. Even with the framework laid out by the Congress, the federal government faces enduring IT challenges. Specifically, in January 2003, we reported on a variety of challenges facing federal agencies in continuing to take advantage of the opportunities presented by IT. Unless and until the challenges outlined below are overcome, federal agencies are unlikely to optimize their use of IT, which can affect an organization’s ability to effectively and efficiently implement its programs and missions. Pursuing opportunities for e-government. E-government offers many opportunities to better serve the public, make government more efficient and effective, and reduce costs. Federal agencies have implemented a wide array of e-government applications, including using the Internet to collect and disseminate information and forms; buy and pay for goods and services; submit bids and proposals; and apply for licenses, grants, and benefits. Although substantial progress has been made, the government has not yet fully reached its potential in this area. Recognizing this, a key element of the President’s Management Agenda is the expansion of e-government to enhance access to information and services, particularly through the Internet. In response, OMB established a task force that selected a strategic set of initiatives to lead this expansion. Our review of the initial planning projects associated with these initiatives found that important aspects—such as collaboration and customer focus—had not been thought out for all of the projects and that major uncertainties in funding and milestones were not uncommon. Accordingly, we recommended that OMB take steps as overseer of the e-government initiatives to reduce the risk that the projects would not meet their objectives. Improving the collection, use, and dissemination of government information. The rapid evolution of IT is creating challenges in managing and preserving electronic records. Complex electronic records are increasingly being created in a decentralized environment and in volumes that make it difficult to organize them and make them accessible. Further, storage media themselves are affected by the dual problems of obsolescence and deterioration. These problems are compounded as computer hardware and application software become obsolete, since they may leave behind electronic records that can no longer be read. Overall responsibility for the government’s electronic records lies with the National Archives and Records Administration (NARA). Our past work has shown that while NARA has taken some action to respond to the challenges associated with managing and preserving electronic records, most electronic records remain unscheduled; that is, their value had not been assessed and their disposition had not been determined. In addition, records of historical value were not being identified and provided to NARA; as a result, they were at risk of being lost. We recommended that NARA develop strategies for raising agency management’s awareness of the importance of records management and for performing systematic inspections. In July 2003 we testified that although NARA has made progress in addressing these issues, more work remains to be done. The growth of electronic information—as well as the security threats facing our nation—are also highlighting privacy issues. For example, online privacy has emerged as one of the key—and most contentious— issues surrounding the continued evolution of the Internet. In addition, our survey of 25 departments and agencies about their implementation of the Privacy Act—which regulates how federal agencies may use the personal information that individuals supply when obtaining government services or fulfilling obligations—found that a key characteristic of the agencies’ 2,400 systems of records is that an estimated 70 percent contained electronic records. Our survey also found that although compliance with Privacy Act provisions and related OMB guidance was generally high in many areas, according to agency reports, it was uneven across the federal government. To improve agency compliance and address issues reported by the agencies, we made recommendations to OMB, such as to direct agencies to correct compliance deficiencies, to monitor agency compliance, and to reassess its guidance. Strengthening information security. Since September 1996, we have reported that poor information security is a high-risk area across the federal government with potentially devastating consequences. Although agencies have taken steps to redesign and strengthen their information system security programs, our analyses of information security at major federal agencies have shown that federal systems were not being adequately protected from computer-based threats. Our latest analyses of audit reports published from October 2001 through October 2002 continue to show significant weaknesses in federal computer systems that put critical operations and assets at risk. In addition, in June 2003 we testified that agencies’ fiscal year 2002 reports and evaluations required by GISRA found that many agencies have not implemented security requirements for most of their systems, such as performing risk assessments and testing controls. In addition, the usefulness of agency corrective action plans may be limited when they do not identify all weaknesses or contain realistic completion dates. One of the most serious problems currently facing the government is cyber critical infrastructure protection, which is protecting the information systems that support the nation’s critical infrastructures, such as national defense and power distribution. Since the September 11 attacks, warnings of the potential for terrorist cyber attacks against our critical infrastructures have increased. In addition, as greater amounts of money are transferred through computer systems, as more sensitive economic and commercial information is exchanged electronically, and as the nation’s defense and intelligence communities increasingly rely on commercially available information technology, the likelihood increases that information attacks will threaten vital national interests. Among the critical infrastructure protection challenges the government faces are (1) developing a national critical infrastructure protection strategy, (2) improving analysis and warning capabilities, and (3) improving information sharing on threats and vulnerabilities. For each of the challenges, improvements have been made and continuing efforts are in progress, but much more is needed to address them. In particular, we have identified and made numerous recommendations over the last several years concerning critical infrastructure challenges that still need to be addressed. As a result of our concerns in this area, we have expanded our information security high-risk area to include cyber critical infrastructure protection. Constructing and enforcing sound enterprise architectures. Our experience with federal agencies has shown that attempts to modernize IT environments without blueprints—models simplifying the complexities of how agencies operate today, how they want to operate in the future, and how they will get there—often result in unconstrained investment and systems that are duplicative and ineffective. Enterprise architectures offer such blueprints. Our reports on the federal government’s use of enterprise architectures in both February 2002 and November 2003 found that agencies’ use of enterprise architectures was a work in progress, with much to be accomplished. Nevertheless, opportunities exist to significantly improve this outlook if OMB were to adopt a governmentwide, structured, and systematic approach to promoting enterprise architecture use, measuring agency progress, and identifying and pursuing governmentwide solutions to common enterprise architecture challenges that agencies face. Accordingly, we made recommendations to OMB to address these areas. Employing IT system and service management practices. Our work and other best-practice research have shown that applying rigorous practices to the acquisition or development of IT systems or the acquisition of IT services improves the likelihood of success. In other words, the quality of IT systems and services is governed largely by the quality of the processes involved in developing or acquiring each. For example, using models and methods that define and determine organizations’ software-intensive systems process maturity that were developed by Carnegie Mellon University’s Software Engineering Institute, which is recognized for its expertise in software processes, we evaluated several agencies’ software development or acquisition processes. We found that agencies are not consistently using rigorous or disciplined system management practices. We have made numerous recommendations to agencies to improve their management processes, and they have taken, or plan to take, actions to improve. Regarding IT services acquisition, we identified leading commercial practices for outsourcing IT services that government entities could use to enhance their acquisition of IT services. Using effective agency IT investment management practices. Investments in IT can have a dramatic impact on an organization’s performance. If managed effectively, these investments can vastly improve government performance and accountability. If not, however, they can result in wasteful spending and lost opportunities for improving delivery of services to the public. Using our information technology investment management maturity framework, we evaluated selected agencies and found that while some processes have been put in place to help them effectively manage their planned and ongoing IT investments, more work remains. Complicating the government’s ability to overcome these IT management challenges are these challenges’ interdependencies. As a result, the inability of an organization to successfully address one IT management area can reduce the effectiveness of its success in addressing another management function. For example, a critical aspect of implementing effective e-government solutions and developing and deploying major systems development projects is ensuring that robust information security is built into these endeavors early and is periodically revisited. The government’s many IT challenges can be addressed by the use of effective planning and execution, which can be achieved, in part, through strategic planning/performance measurement, and investment management. For example, strong strategic planning is focused on using IT to help accomplish the highest priority customer needs and mission goals, while effective performance measurement helps determine the success or failure of IT activities. Finally, IT investment management provides a systematic method for minimizing risks while maximizing the return on investments and involves a process for selecting, controlling, and evaluating investments. These processes, too, are interdependent. For example, the investment management process is a principal mechanism to ensure the effective execution of an agency’s IT strategic plan. Our objectives were to determine the extent to which federal agencies are following practices associated with key legislative and other requirements for (1) IT strategic planning/performance measurement and (2) IT investment management. To address these objectives, we identified and reviewed major legislative requirements and executive orders pertaining to IT strategic planning, performance measurement, and investment management. Specifically, we reviewed the Paperwork Reduction Act of 1995; the Clinger-Cohen Act of 1996; the E-Government Act of 2002; the Federal Information Security Management Act of 2002; Executive Order 13011, Federal Information Technology; and Executive Order 13103, Computer Software Piracy. Using these requirements and policy and guidance issued by OMB and GAO, we identified 30 IT management practices that (1) can be applied at the enterprise level and (2) were verifiable through documentation and interviews. These 30 practices focused on various critical aspects of IT strategic management, performance measurement, and investment management, including the development of IRM plans, the identification of goals and related measures, and the selection and control of IT investments, respectively. We selected 26 major departments and agencies for our review (23 entities identified in 31 U.S.C. 901 and the 3 military services). At our request, each agency completed a self-assessment on whether and how it had implemented the 30 IT management practices. We reviewed the completed agency self-assessments and accompanying documentation, including agency and IT strategic plans, agency performance plans and reports required by the Government Performance and Results Act, and IT investment management policy and guidance, and interviewed applicable agency IT officials to corroborate whether the practices were in place. We did not evaluate the effectiveness of agencies’ implementation of the practices. For example, we did not review specific IT investments to determine whether they were selected, controlled, and reviewed in accordance with agency policy and guidance. However, we reviewed applicable prior GAO and agency inspector general reports and discussed whether agency policies had been fully implemented with applicable agency IT officials. On the basis of the above information, we assessed whether the practices were in place, using the following definitions: Yes—the practice was in place. Partially—the agency has some, but not all, aspects of the practice in place. Examples of circumstances in which the agency would receive this designation include when (1) some, but not all, of the elements of the practice were in place; (2) the agency documented that it has the information or process in place but it was not in the prescribed form (e.g., in a specific document as required by law or OMB); (3) the agency’s documentation was in draft form; or (4) the agency had a policy related to the practice but evidence supported that it had not been completely or consistently implemented. No—the practice was not in place. Not applicable—the practice was not relevant to the agency’s particular circumstances. We also collected information from the Department of Homeland Security (DHS) but found that since it had been established so recently, it was too early to judge its IT strategic planning, performance measurement, and investment management. As a result, although we provided information on what DHS was doing with respect to these areas, we did not include it in our assessment. We also interviewed officials from OMB’s Office of Information and Regulatory Affairs regarding OMB’s role in establishing policies and overseeing agencies’ implementation of the identified practices. We performed our work at the agencies’ offices in greater Washington, D.C. We conducted our review between April and mid-December 2003 in accordance with generally accepted government auditing standards. The use of IT strategic planning/performance measurement practices is uneven (see fig. 1), which is of concern because a well-defined strategic planning process helps ensure that an agency’s IT goals are aligned with that agency’s strategic goals. Moreover, establishing performance measures and monitoring actual-versus-expected performance of those measures can help determine whether IT is making a difference in improving performance. Among the practices or elements of practices that agencies largely have in place were those pertaining to establishing goals and performance measures. On the other hand, agencies are less likely to have fully documented their IT strategic planning processes, developed comprehensive IRM plans, linked performance measures to their enterprisewide IT goals, or monitored actual-versus-expected performance for these enterprisewide goals. Agencies cited various reasons, such as the lack of support from agency leadership, for not having strategic practices/performance measurement practices in place. Without strong strategic management practices, it is less likely that IT is being used to maximize improvement in mission performance. Moreover, without enterprisewide performance measures that are being tracked against actual results, agencies lack critical information about whether their overall IT activities, at a governmentwide cost of billions of dollars annually, are achieving expected goals. Critical aspects of the strategic planning/performance measurement area include documenting the agency’s IT strategic planning processes, developing IRM plans, establishing goals, and measuring performance to evaluate whether goals are being met. Although the agencies often have these practices, or elements of these practices, in place, additional work remains, as demonstrated by the following examples: Strategic planning process. Strategic planning defines what an organization seeks to accomplish and identifies the strategies it will use to achieve desired results. A defined strategic planning process allows an agency to clearly articulate its strategic direction and to establish linkages among planning elements such as goals, objectives, and strategies. About half of the agencies fully documented their strategic planning processes. For example, the General Services Administration (GSA) documented an IT governance structure that addresses the roles and responsibilities of various organizations in strategic planning and investment management. In addition, in its IT strategic plan, GSA describes how it developed the plan, including its vision, business- related priorities, and goals. In contrast, the Department of Agriculture has not completely documented its IT strategic planning process or integrated its IT management operations and decisions with other agency processes. According to Agriculture IT officials, the department’s ongoing budget and performance integration initiative is expected to result in a more clearly defined and integrated IT strategic management planning process. Such a process provides the essential foundation for ensuring that IT resources are effectively managed. Strategic IRM plans. The Paperwork Reduction Act requires that agencies indicate in strategic IRM plans how they are applying information resources to improve the productivity, efficiency, and effectiveness of government programs. An important element of a strategic plan is that it presents an integrated system of high-level decisions that are reached through a formal, visible process. The plan is thus an effective tool with which to communicate the mission and direction to stakeholders. In addition, a strategic IRM plan that communicates a clear and comprehensive vision for how the agency will use information resources to improve agency performance is important because IRM encompasses virtually all aspects of an agency’s information activities. Although the Paperwork Reduction Act also requires agencies to develop IRM plans in accordance with OMB’s guidance, OMB does not provide cohesive guidance on the specific contents of IRM plans. OMB Circular A-130 directs that agencies have IRM plans that support agency strategic plans, provide a description of how IRM helps accomplish agency missions, and ensure that IRM decisions are integrated with organizational planning, budgets, procurement, financial management, human resources management, and program decisions. However, Circular A-130 does not provide overall guidance on the plan’s contents. As a result, although agencies generally provided OMB with a variety of planning documents to meet its requirement that they submit an IRM plan, these plans were generally limited to IT strategic or e-government issues and did not address other elements of IRM, as defined by the Paperwork Reduction Act. Specifically, these plans generally include individual IT projects and initiatives, security, and enterprise architecture elements but do not often address other information functions, such as information collection, records management, and privacy, or the coordinated management of all information functions. OMB IT staff agreed that the agency has not set forth guidance on the contents of agency IRM plans in a single place, stating that its focus has been on looking at agencies’ cumulative results and not on planning documents. In addition, these staff also noted that agencies account for their IRM activities through multiple documents (e.g., Information Collection Budgets and Government Paperwork Elimination Act plans). However, the OMB IT staff stated that they would look at whether more guidance is needed to help agencies in their development of IRM plans, but have not yet made a commitment to provide such guidance. Half the agencies indicated a need for OMB to provide additional guidance on the development and content of IRM plans. Strong agency strategic IRM plans could also provide valuable input to a governmentwide IRM plan, which is also required by the Paperwork Reduction Act. As we reported last year, although OMB designated the CIO Council’s strategic plan for fiscal years 2001-2002 as the governmentwide strategic IRM plan, it does not constitute an effective and comprehensive strategic vision. Accordingly, we recommended that OMB develop and implement a governmentwide strategic IRM plan that articulates a comprehensive federal vision and plan for all aspects of government information. In April 2003, we testified that OMB had taken a number of actions that demonstrate progress in fulfilling the Paperwork Reduction Act’s requirement of providing a unifying IRM vision. However, more remains to be done. In particular, we reported that although OMB’s strategies and models are promising, their ability to reduce paperwork burden and accomplish other objectives depends on how OMB implements them. One element required by the Clinger-Cohen Act to be included in agency IRM plans is the identification of a major IT acquisition program(s), or any phase or increment of that program, that significantly deviated from cost, performance, or schedule goals established by the program. However, few agencies met this requirement. In these cases, a common reason cited for not including this information was that it was not appropriate to have such detailed information in a strategic plan because such plans should be forward thinking and may not be developed every year. Agencies also identified other mechanisms that they use to track and report cost, schedule, and performance deviations. Because agencies generally do not address this Clinger-Cohen Act requirement in their IRM plans, they may benefit from additional guidance from OMB on how to address this requirement. IT goals. The Paperwork Reduction Act and the Clinger-Cohen Act require agencies to establish goals that address how IT contributes to program productivity, efficiency, effectiveness, and service delivery to the public. We have previously reported that leading organizations define specific goals, objectives, and measures, use a diversity of measure types, and describe how IT outputs and outcomes impact operational customer and agency program delivery requirements. The agencies generally have the types of goals outlined in the Paperwork Reduction Act and the Clinger-Cohen Act. For example, the Social Security Administration (SSA) set a goal of achieving an average of at least a 2 percent per year improvement in productivity, and it expects that advances in automation will be a key to achieving this goal along with process and regulation changes. In addition, the Department of Veterans Affairs’ (VA) latest departmental strategic plan has a goal that includes using business process reengineering and technology integration to speed up delivery of benefit payments, improve the quality of health care provided in its medical centers, and administer programs more efficiently. The VA goal includes strategies such as using its enterprise architecture as a continuous improvement process, implementing e-government solutions to transform paper-based electronic collections to electronic-based mechanisms, and establishing a single, high-performance wide area data network. Five agencies do not have one or more of the goals required by the Paperwork Reduction Act and the Clinger-Cohen Act. For example, the Department of Labor’s single IT strategic goal—to provide better and more secure service to citizens, businesses, government, and Labor employees to improve mission performance—which it included in its fiscal year 2004 performance plan, does not address all required goals. Further, in contrast to other agencies, Labor does not have goals in its IRM plan. It is important that agencies specify clear goals and objectives to set the focus and direction of IT performance. IT performance measures. The Paperwork Reduction Act, the Clinger- Cohen Act, and Executive Order 13103 require agencies to establish a variety of IT performance measures, such as those related to how IT contributes to program productivity, efficiency, and effectiveness, and to monitor the actual-versus-expected performance of those measures. As we have previously reported, an effective performance management system offers a variety of benefits, including serving as an early warning indicator of problems and the effectiveness of corrective actions, providing input to resource allocation and planning, and providing periodic feedback to employees, customers, stakeholders, and the general public about the quality, quantity, cost, and timeliness of products and services. Although the agencies largely have one or more of the required performance measures, these measures are not always linked to the agencies’ enterprisewide IT goals. For example, the Department of Defense (DOD), Air Force, and Navy have a variety of enterprisewide IT goals but do not have performance measures associated with these goals. Each of these organizations are in the process of developing such measures. To illustrate, the Air Force’s August 2002 information strategy includes nine goals, such as providing decision makers and all Air Force personnel with on-demand access to authoritative, relevant, and sufficient information to perform their duties efficiently and effectively, but does not have performance measures for these goals. The Air Force recognizes the importance of linking performance measures to its goals and is developing such measures, which it expects to complete by the fourth quarter of fiscal year 2004. Leading organizations use performance measures to objectively evaluate mission, business, and project outcomes. Such organizations also focus on performance measures for gauging service to key management processes and tailoring performance measures to determine whether IT is making a difference in improving performance. Few agencies monitored actual-versus-expected performance for all of their enterprisewide IT goals. Specifically, although some agencies tracked actual-versus-expected outcomes for the IT performance measures in their performance plans or accountability reports and/or for specific IT projects, they generally did not track the performance measures specified in their IRM plans. For example, although the Department of Health and Human Services’ (HHS) IT strategic plan identifies enterprisewide goals and performance measures, these measures generally do not identify quantified outcomes (e.g., the measures indicate that the outcome will be a percentage transaction increase or cost decrease in certain areas but do not provide a baseline or target). In addition, the HHS plan does not describe how the department will monitor actual-versus-expected performance for these measures. HHS’s Director of Business Operations in its IRM office reported that the department recognizes the need to develop an integrated program for monitoring performance against the enterprisewide measures in the IT strategic plan. He stated that HHS has recently begun an initiative to establish such a process. By not measuring actual-versus-expected performance, agencies lack the information to determine where to target agency resources to improve overall mission accomplishment. Benchmarking. The Clinger-Cohen Act requires agencies to quantitatively benchmark agency process performance against public- and private-sector organizations, where comparable processes and organizations exist. Benchmarking is used by entities because there may be external organizations that have more innovative or more efficient processes than their own processes. Our previous study of IT performance measurement at leading organizations found that they had spent considerable time and effort comparing their performance information with that of other organizations. Seven agencies have mechanisms—such as policies and strategies—in place related to benchmarking their IT processes. For example, DOD’s information resources and IT directive states that DOD components shall routinely and systematically benchmark their functional processes against models of excellence in the public and private sector and use these and other analyses to develop, simplify, or refine the processes before IT solutions are applied. In general, however, agencies’ benchmarking decisions are ad hoc. Few agencies have developed a mechanism to identify comparable external private- or public-sector organizations and processes and/or have policies related to benchmarking; however, all but 10 of the agencies provided examples of benchmarking that had been performed. For example, the Small Business Administration (SBA) does not have benchmarking policies in place, but the agency provided an example of a benchmarking study performed by a contractor that compared SBA’s IT operations and processes against industry cost and performance benchmarks and best practices and resulted in recommendations for improvement. Table 1 provides additional detail on each strategic planning/performance measurement practice and our evaluation of whether each agency had the practice in place. The table indicates that work remains for the agencies to have each of the practices fully in place as well as that several agencies reported that they were taking, or planned to take, actions to address the practices or elements of practices. Agency IT officials could not identify why practices were not in place in all cases, but in those instances in which reasons were identified, a variety of explanations were provided. For example, reasons cited by agency IT officials included that they lacked the support from agency leadership, that the agency had not been developing IRM plans until recently and recognized that the plan needed further refinement, that the process was being revised (in at least one case because of changes that are needed to reflect a loss of component organizations to the new DHS), and that requirements were evolving. In other cases, the agency reported that it had the information but it was not in the format required by legislation. For instance, FISMA requires agencies to include in the performance plans required by the Government Performance and Results Act the resources, including budget, staffing, and training, and time periods to implement its information security program. None of the agencies included this information in their performance plans. However, the agencies commonly reported that they had this information but that it was in another document. Nevertheless, this does not negate the need for having the agency report to the Congress in the required form. This is particularly important since, as in the example of the FISMA requirement, the reporting requirement involves a public document, whereas other reports may not be publicly available. In the case of DHS, while we did not include the department in our assessment and in table 1, the department is in the process of developing its first IT strategic plan. According to DHS, it expects to complete this plan by mid-February 2004. The use of IT investment management practices is mixed (as shown in fig. 2), which demonstrates that agencies do not have all the processes in place to effectively select, control, and evaluate investments. An IT investment management process is an integrated approach to managing investments that provides for the continuous identification, selection, control, life-cycle management, and evaluation of IT investments. Among the investment management practices that are most frequently in place are having investment management boards and requiring that projects demonstrate that they are economically beneficial. Practices less commonly in place are those requiring that IT investments be performed in a modular, or incremental, manner and that they be effectively controlled. Only by effectively and efficiently managing their IT resources through a robust investment management process can agencies gain opportunities to make better allocation decisions among many investment alternatives and further leverage their IT investments. Critical aspects of IT investment management include developing well- supported proposals, establishing investment management boards, and selecting and controlling IT investments. The agencies’ use of practices associated with these aspects of investment management is wide-ranging, as follows: IT investment proposals. Various legislative requirements, an executive order, and OMB policies provide minimum standards that govern agencies’ consideration of IT investments. In addition, we have issued guidance to agencies for selecting, controlling, and evaluating IT investments. Such processes help ensure, for example, that investments are cost-beneficial and meet mission needs and that the most appropriate development or acquisition approach is chosen. The agencies in our review have mixed results when evaluated against these various criteria. For example, the agencies almost always require that proposed investments demonstrate that they support the agency’s business needs, are cost-beneficial, address security issues, and consider alternatives. To demonstrate, the Department of Transportation requires that proposed projects complete a business case to indicate that the project (1) will meet basic requirements in areas such as mission need, affordability, technical standards, and disabled access requirements, (2) is economically beneficial, and (3) has considered alternatives. One element in this area that agencies were not as likely to have fully in place was the Clinger-Cohen Act requirement that agencies follow, to the maximum extent practicable, a modular, or incremental, approach when investing in IT projects. Incremental investment helps to mitigate the risks inherent in large IT acquisitions/developments by breaking apart a single large project into smaller, independently useful components with known and defined relationships and dependencies. An example of such an approach is DOD’s policy stating that IT acquisition decisions should be based on phased, evolutionary segments that are as brief and narrow in scope as possible and that each segment should solve a specific part of an overall mission problem and deliver a measurable net benefit independent of future segments. However, 14 agencies do not have a policy that calls for investments to be done in a modular manner. For example, although the Environmental Protection Agency (EPA) reported that it worked with program offices to try to segment work so that the scope and size of each project is manageable, it does not have a policy that calls for investments to be done in a modular manner. The absence of a policy calls into question whether EPA is implementing incremental investment in a consistent and effective manner. Investment management boards. Our investment management guide states that establishing one or more IT investment boards is a key component of the investment management process. According to our guide, the membership of this board should include key business executives and should be responsible for final project funding decisions or should provide recommendations for the projects under its scope of authority. Such executive-level boards, made up of business-unit executives, concentrate management’s attention on assessing and managing risks and regulating the trade-offs between continued funding of existing operations and developing new performance capabilities. Almost all of the agencies in our review have one or more enterprise- level investment management boards. For example, HUD’s Technology Investment Board Executive Committee and supporting boards have responsibility for selecting, controlling, and evaluating the department’s IT investments. HUD’s contractor-performed maturity audits also have helped the department validate its board structure and its related investment management processes. However, the investment management boards for six agencies are not involved, or the agency did not document the board’s involvement, in the control phase. For example, the National Science Foundation (NSF) has a CIO advisory group that addresses only the select phase of the IT investment management process. NSF’s CIO explained that the agency reviews the progress of its major information system projects through other means, such as meetings with management. In providing comments on a draft of this report, the CIO stated that he believes that NSF has a comprehensive set of management processes and review structures to select, control, and evaluate IT investments and cited various groups and committees used as part of this process. However, NSF’s summary of its investment management process and memo establishing the CIO advisory group include only general statements related to the oversight of IT investments, and NSF provided no additional documentation demonstrating that its investment management board plays a role in the control and evaluation phases. Our investment management guidance identifies having an IT investment management board(s) be responsible for project oversight as a critical process. Maintaining responsibility for oversight with the same body that selected the investment is crucial to fostering a culture of accountability by holding the investment board that initially selected an investment responsible for its ongoing success. In addition, 17 agencies do not fully address the practice that calls for processes to be in place that address the coordination and alignment of multiple investment review boards. For example, we recently reported that the Department of the Interior has established three department- level IT investment boards and begun to take steps to ensure that investment boards are established at the bureau level. However, at the time of our review, the department (1) could not assert that department-level board members exhibited core competencies in using Interior’s IT investment approach and (2) had limited ability to oversee investments in its bureaus. We made recommendations to Interior to strengthen both the activities of the department-level boards and the department’s ability to oversee investment management activities at the bureaus. Selection of IT investments. During the selection phase of an IT investment management process, the organization (1) selects projects that will best support its mission needs and (2) identifies and analyzes each project’s risks and returns before committing significant funds. To achieve desired results, it is important that agencies have a selection process that, for example, uses selection criteria to choose the IT investments that best support the organization’s mission and prioritizes proposals. Twenty-two agencies use selection criteria in choosing their IT investments. In addition, about half the agencies use scoring models to help choose their investments. For example, the working group and CIO office officials that support the Department of Education’s investment review board used a scoring model as part of deciding which IT investments to recommend for the board’s consideration and approval. This model contained two main categories of criteria: (1) value criteria that measured the impact and significance of the initiative, given project goals and the strategic objectives of the department; and (2) health criteria that measured the potential for the success of the initiative and helped to assess both the performance and the associated risks that are involved in project and contract management. In the case of DOD, in February 2003 we reported that it had established some, and was establishing other IT investment criteria, but these criteria had not been finalized. Accordingly, we recommended, and DOD concurred, that DOD establish a standard set of criteria. In September we reported that this recommendation had not been implemented. DOD officials stated that the department was developing the criteria but that the proposed governance structure had not yet been adopted. Control over IT investments. During the control phase of the IT investment management process, the organization ensures that, as projects develop and as funds are spent, the project is continuing to meet mission needs at the expected levels of cost and risk. If the project is not meeting expectations or if problems have arisen, steps are quickly taken to address the deficiencies. Executive level oversight of project- level management activities provides the organization with increased assurance that each investment will achieve the desired cost, benefit, and schedule results. Although no agencies had the practices associated with the control phase fully in place, some have implemented important aspects of this phase. For example, Labor requires project managers to prepare a control status report based on a review schedule established during the selection phase, which is reviewed by the Office of the CIO and its technical review board as part of determining whether to continue, modify, or cancel the initiative. For initiatives meeting certain criteria, the technical review board makes recommendations to the management council, which serves as the department’s top tier executive investment review council, is chaired by the Assistant Secretary of Administration and Management, and consists of component agency heads. Nevertheless, in general, the agencies are weaker in the practices pertaining to the control phase of the investment management process than in the selection phase. In particular, the agencies did not always have important mechanisms in place for agencywide investment management boards to effectively control investments, including decision-making rules for project oversight, early warning mechanisms, and/or requirements that corrective actions for under-performing projects be agreed upon and tracked. For example, the Department of the Treasury does not have a department-level control process; instead, each bureau may conduct its own reviews that address the performance of its IT investments and corrective actions for under- performing projects. In a multitiered organization like Treasury, the department is responsible for providing leadership and oversight for foundational critical processes by ensuring that written policies and procedures are established, repositories of information are created that support IT investment decision making, resources are allocated, responsibilities are assigned, and all of the activities are properly carried out where they may be most effectively executed. In such an organization, the CIO is specifically responsible for ensuring that the organization is effectively managing its IT investments at every level. Treasury IT officials recognize the department’s weaknesses in this area and informed us that they are working on developing a new capital planning and investment control process that is expected to address these weaknesses. Similarly, the Department of Energy is planning on implementing the investment control process outlined in its September 2003 capital planning and investment control guide in fiscal year 2004, which addresses important elements such as corrective action plans. However, this guide does not document the role of Energy’s investment management boards in this process. Table 2 provides additional detail on each investment management practice and our evaluation of whether each agency had the practice in place. The table indicates those practices in which improvement is needed as well as which agencies reported that they were taking, or planned to take, actions to address the practices or elements of practices. Among the variety of reasons cited for practices not being fully in place were that the CIO position had been vacant, that not including a requirement in the IT investment management guide was an oversight, and that the process was being revised. However, in some cases the agencies could not identify why certain practices were not in place. Regarding DHS, although we did not include the department in our assessment or table 2, the department has investment management processes that it has put in place or is in the process of putting in place. Federal agencies did not always have in place important practices associated with IT laws, policies, and guidance. At the governmentwide level, agencies generally have IT strategic plans or information resources management (IRM) plans that address IT elements, such as security and enterprise architecture, but do not cover other aspects of IRM that are part of the Paperwork Reduction Act, such as information collection, records management, and privacy. This may be attributed, in part, to OMB not establishing comprehensive guidance for the agencies detailing the elements that should be included in such a plan. There were also numerous instances of individual agencies that do not have specific IT strategic planning, performance measurement, or investment management practices fully in place. Agencies cited a variety of reasons for not having these practices in place, such as that the CIO position had been vacant, not including a requirement in guidance was an oversight, or that the process was being revised. Nevertheless, not only are these practices based on law, executive orders, OMB policies, and our guidance, but they are also important ingredients for ensuring effective strategic planning, performance measurement, and investment management, which, in turn, make it more likely that the billions of dollars in government IT investments will be wisely spent. Accordingly, we believe that it is important that they be expeditiously implemented by individual agencies. To help agencies in developing strategic IRM plans that fully comply with the Paperwork Reduction Act of 1995, we recommend that the Director, OMB, develop and disseminate to agencies guidance on developing such plans. At a minimum, such guidance should address all elements of IRM, as defined by the Paperwork Reduction Act. As part of this guidance, OMB should also consider the most effective means for agencies to communicate information about any major IT acquisition program(s) or phase or increment of that program that significantly deviated from cost, performance, or schedule goals established by the program. One option for communicating this information, for example, could be through the annual agency performance reports that are required by the Government Performance and Results Act. We are also generally making recommendations to the agencies in our review regarding those practices that are not fully in place unless, for example, (1) we have outstanding recommendations related to the practice, (2) the agency has a draft document addressing the practice, or (3) implementation of the practice was ongoing. Appendix I contains these recommendations. We received written or oral comments on a draft of this report from OMB and 25 of the agencies in our review. We also requested comments from the Department of Homeland Security and the Office of Personnel Management, but none were provided. Regarding OMB, in oral comments on a draft of this report, representatives from OMB’s Office of Information and Regulatory Affairs and Office of the General Counsel questioned the need for additional IRM plan guidance because they do not want to be prescriptive in terms of what agencies include in their plans. We continue to believe that agencies need additional guidance from OMB on the development and content of their IRM plans because OMB Circular A-130 does not provide overall guidance on the contents of agency IRM plans and half the agencies indicated a need for OMB to provide additional guidance on the development and content of IRM plans. Further, additional guidance would help to ensure that agency plans address all elements of IRM, as defined by the Paperwork Reduction Act. A strategic IRM plan that communicates a clear and comprehensive vision for how the agency will use information resources to improve agency performance is important because IRM encompasses virtually all aspects of an agency’s information activities. In commenting on a draft of the report, most of the agencies in our review generally agreed with our findings and recommendations. The agencies’ specific comments are as follows: Agriculture’s CIO stated that the department concurred with the findings in this report and provided information on action it was taking, or planned to take, to implement the recommendations. Agriculture’s written comments are reproduced in appendix II. The Secretary of Commerce concurred with the recommendations in this report and stated that, in response, the department is updating its policies and procedures. Commerce’s written comments are reproduced in appendix III. DOD submitted a single letter that included comments from the Departments of the Air Force, Army, and Navy. recommendations in this report. DOD also provided additional documentation and information on actions that it is taking, or planned to take, to address these recommendations. We modified our report based on these comments and documentation, as appropriate. DOD’s written comments, along with our responses, are reproduced in appendix IV. Education’s Assistant Secretary for Management/CIO stated that the agency generally agreed with our assessment of the department’s use of IT strategic planning/performance measurement and investment management practices. Education provided additional comments and documentation related to two of our practices. We modified our report on the basis of these comments and documentation, as appropriate. Education’s written comments, along with our responses, are reproduced in appendix V. Energy’s Director of Architecture and Standards provided e-mail comments stating that the department believes that GAO fairly depicted where the department currently stands in the IT investment management process. The director also provided other comments that were technical in nature and that we addressed, as appropriate. EPA’s Assistant Administrator/CIO generally agreed with our findings and recommendations on the need to complete work currently under way to formalize the documentation of IT management practices. However, EPA questioned our characterization of the agency’s IT management and strategic planning and provided other comments, which we addressed, as appropriate. EPA’s written comments, along with our responses, are reproduced in appendix VI. GSA’s CIO stated that the agency generally agreed with the findings and recommendations in the report. GSA provided suggested changes and additional information and documentation related to nine of our practices and two recommendations. We modified our report on the basis of these comments and documentation, as appropriate. GSA’s written comments, along with our responses, are reproduced in appendix VII. HHS’s Acting Principal Deputy Inspector General stated that the department concurred with the findings and recommendations of the report. HHS’s written comments are reproduced in appendix VIII. HUD’s Assistant Secretary for Administration/CIO stated that the department was in agreement with the recommendations in this report. HUD’s written comments are reproduced in appendix IX. Interior’s Acting Assistant Secretary for Policy, Management and Budget stated that the recommendations in our report would further improve the department’s IT investment management. Interior’s written comments are reproduced in appendix X. Justice’s CIO stated that, overall, the department concurred with the findings and recommendations in this report, noting that our recommendations will assist in further defining IT strategic planning, performance measurement, and investment management practices. Justice’s written comments, along with our response, are reproduced in appendix XI. Labor’s Assistant Secretary for Administration and Management/CIO reported that the department generally concurred with this report and provided suggested changes in two areas, which we addressed, as appropriate. Labor’s written comments, along with our responses, are reproduced in appendix XII. NASA’s Deputy Administrator reported that the agency generally concurred with the recommendations in this report and provided additional information on actions that it is taking, or planned to take, to address these recommendations. NASA’s written comments, along with our response, are reproduced in appendix XIII. NSF’s CIO provided e-mail comments disagreeing with three areas of this report. First, NSF did not agree with our assessment of practice 1.1, stating that the agency has a comprehensive agency-level planning framework that includes a suite of planning documents and internal and external oversight activities that it believes addresses IT planning requirements. However, our review of the planning documents cited by NSF in its self-assessment found that it did not address the elements of the practice. In particular, the agency did not describe the responsibility and accountability for IT resources or the method that it uses to define program information needs and how such needs will be met. Moreover, in our exit conference with NSF officials, the CIO indicated agreement with our assessment. Since NSF provided no additional documentation, we did not modify the report. Second, the CIO disagreed with our characterization of the agency’s enterprisewide investment management board. We modified the report to reflect the CIO’s comments; however, we did not change our overall assessment of the role of the board because NSF’s summary of its investment management process and memo establishing the CIO advisory group include only general statements related to the oversight of IT investments, and NSF provided no additional documentation demonstrating that its investment management board plays a role in the control and evaluation phases. Third, the CIO stated that NSF has established processes, management, and oversight controls over IT investments. However, NSF provided limited documentation on the control phase of its investment management process. In particular, NSF’s summary of its investment management process and memo establishing the CIO advisory group include only general statements related to the oversight of IT investments, and NSF provided no additional documentation demonstrating that its investment management board plays a role in the control and evaluation phases. Accordingly, we did not modify the report. NRC’s Executive Director for Operations stated that this report provides useful information and agreed that the practices are important for ensuring effective use of government IT investments but had no specific comments. NRC’s written comments are reproduced in appendix XIV. SBA’s GAO liaison provided e-mail comments questioning the need to have its enterprise investment management board have final decision- making authority over IT investments. Our IT investment management guidance states that enterprise-level IT investment boards be capable of reviewing lower-level board actions and invoking final decision-making authority over all IT investments. In particular, if disputes or disagreements arise over decision-making jurisdiction about a specific IT investment project, the enterprise board must be able to resolve the issue. Accordingly, we did not modify the report. SBA also provided technical comments that we incorporated, as appropriate. SSA’s Commissioner generally agreed with the recommendations in the report and provided comments on each recommendation that we addressed, as appropriate. SSA’s written comments, along with our responses, are reproduced in appendix XV. State’s Assistant Secretary/Chief Financial Officer stated that the findings in the report are consistent with discussions held with its IT staff and provided additional information on four practices. On the basis of this additional information, we modified our report, as appropriate. State’s written comments, along with our response, are reproduced in appendix XVI. A program analyst in the Department of Transportation’s Office of the CIO provided oral comments that were technical in nature that we addressed, as appropriate. The Acting Director, Budget and Administrative Management in Treasury's Office of the CIO, provided oral comments stating that the department concurred with our findings and recommendations. The official further stated that the department recognized its shortcomings and was working to correct them. USAID’s Assistant Administrator, Bureau for Management, did not address whether the agency agreed or disagreed with our overall findings or recommendations but commented on our evaluation of two practices, which we addressed, as appropriate. USAID’s written comments, along with our response, are reproduced in appendix XVII. The Secretary of VA stated that the department concurred with the recommendations in the report and provided comments on actions that it has taken, or planned to take, in response. We modified the report based on these comments, as appropriate. VA’s written comments, along with our responses, are reproduced in appendix XVIII. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the secretaries of the Departments of Agriculture, the Air Force, the Army, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, the Navy, State, Transportation, the Treasury, and Veterans Affairs; the administrators of the Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, Small Business Administration, and U.S. Agency for International Development; the commissioners of the Nuclear Regulatory Commission and the Social Security Administration; and the directors of the National Science Foundation, Office of Management and Budget, and Office of Personnel Management. We will also make copies available to others upon request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions on matters discussed in this report, please contact me at (202) 512-9286 or Linda J. Lambert, Assistant Director, at (202) 512-9556. We can also be reached by e-mail at pownerd@gao.gov and lambertl@gao.gov, respectively. Other contacts and key contributors to this report are listed in appendix XIX. To improve the department’s information technology (IT) strategic planning/performance measurement processes, we recommend that the Secretary of Agriculture take the following six actions: document the department’s IT strategic management processes and how they are integrated with other major departmental processes, such as the budget and human resources management; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by the Federal Information Security Management Act (FISMA) and include a description of major IT acquisitions contained in its capital asset plan that bear significantly on its performance goals; implement a process for assigning roles and responsibilities for achieving the department’s IT goals; develop performance measures related to the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for the department’s enterprisewide IT performance measures in its information resources management (IRM) plan; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of Agriculture take the following four actions: include a description of the relationship between the IT investment management process and the department’s enterprise architecture in its IT capital planning and investment control guide and require that IT investments be in compliance with the agency’s enterprise architecture; document the alignment and coordination of responsibilities of the department’s various IT investment management boards for decision making related to IT investments, including cross-cutting investments; establish a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of commercial-off- the-shelf (COTS) software; and establish a policy requiring modularized IT investments. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of the Air Force take the following two actions: establish a documented process for measuring progress against the department’s IT goals and assign roles and responsibilities for achieving these goals; and develop IT performance measures related to the IT goals in the department’s information strategy, including measures such as those contained in practice 1.9 in our report, and track actual-versus-expected performance. To improve the department’s IT investment management processes, we recommend that the Secretary of the Air Force take the following four actions: include a description of the relationship between the IT investment management process and the department’s enterprise architecture, and an identification of external and environmental factors in its portfolio management guide; include costs, benefits, schedule, and risk elements as well as measures such as net benefits, net risks, and risk-adjusted return-on-investment in the department’s project selection criteria; implement a scoring model and develop a prioritized list of IT investments as part of its project selection process; and document the role, responsibility, and authority of its IT investment management boards, including work processes, alignment, and coordination of decision making among its various boards, and document processes for controlling and evaluating IT investments, such as those outlined in practices 2.15, 2.16, 2.17, and 2.18. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of the Army take the following action: complete the development of IT performance measures related to the Army’s enterprisewide IT goals, including measures such as those in practice 1.9 in our report, and track actual-versus-expected performance. To improve the department’s IT investment management processes, we recommend that the Secretary of the Army take the following four actions: include a description of the relationship between the IT investment management process and the department’s enterprise architecture in the department’s IT capital planning and investment control guide; document the alignment and coordination of responsibilities of its various IT investment management boards for decision making related to IT investments; include costs, benefits, schedule, and risk elements as well as measures such as net benefits, net risks, and risk-adjusted return-on-investment in the department’s project selection criteria; and involve the department’s IT investment management boards in controlling and evaluating IT investments, including the development and documentation of oversight processes such as those in practices 2.15, 2.16, 2.17, and 2.18. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Commerce take the following four actions: include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; document its process of developing IT goals in support of agency needs, measuring progress against these goals, and assigning roles and responsibilities for achieving these goals; develop performance measures related to the department’s IT goals in its IRM plan, and track actual-versus-expected performance for these IT performance measures; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of Commerce take the following eight actions: document the alignment and coordination of responsibilities of the department’s various IT investment management boards for decision making related to IT investments; establish a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of COTS software; include net risks and risk-adjusted return-on-investment in the department’s project selection criteria; establish a policy requiring modularized IT investments; develop decision-making rules to help guide the investment management board’s oversight of IT investments during the control phase; require that reports of deviations in systems capability in a project be submitted to the IT investment management board; develop an early warning mechanism that enables the investment management board to take corrective action at the first sign of cost, schedule, or performance slippages; and require postimplementation reviews be completed and the results reported to its investment management board. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Defense take the following three actions: include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA, align its performance measures with the goals in the plan, and include a description of major IT acquisitions contained in its capital asset plan that bear significantly on its performance goals; establish a documented process for measuring progress against the department’s IT goals; develop IT performance measures related to its IT goals, including, for example, the measures contained in practice 1.9 in our report and track actual-versus-expected performance. To improve the department’s IT investment management processes, we recommend that the Secretary of Defense take the following action: document, as part of its planned IT portfolio management process, how this process relates to other departmental processes and the department’s enterprise architecture, and document the external and environmental factors that influence the process. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Education take the following four actions: include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; establish and document a process for measuring progress against the department’s IT goals in its IRM plan and for assigning roles and responsibilities for achieving these goals; develop performance measures related to how IT contributes to program productivity, the effectiveness and efficiency of agency operations, and the effectiveness of controls to prevent software piracy; and track actual-versus-expected performance for the department’s enterprisewide IT performance measures in its IRM plan. To improve the department’s IT investment management processes, we recommend that the Secretary of Education take the following five actions: document the alignment and coordination of responsibilities of the department’s various IT investment management boards for decision making related to IT investments; establish a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs; include net risks and risk-adjusted return-on-investment in the department’s project selection criteria; develop a process to use independent verification and validation reviews, when appropriate; and track the resolution of corrective actions for under-performing projects and report the results to the investment management board. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Energy take the following six actions: document how its IT management operations and decisions are integrated with human resources management; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a goal related to how IT contributes to program productivity; develop performance measures related to how IT contributes to program productivity and the effectiveness of controls to prevent software piracy; develop and link performance measures to the department’s enterprisewide goals in its IRM plan and track actual-versus-expected performance for these measures; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of Energy take the following four actions: include interfaces in its inventory of the agency’s major information systems, implement a standard, documented procedure to maintain this inventory, and develop a mechanism to use the inventory as part of managerial decision making; prioritize the department’s IT proposals; establish a policy requiring modularized IT investments; and document the role, responsibility, and authority of its IT investment management boards, including work processes, alignment, and coordination of decision making among its various boards, and document the processes for controlling and evaluating IT investments, such as those in practices 2.15, 2.16, 2.17, and 2.18. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Administrator of the Environmental Protection Agency take the following six actions: document the agency’s IT strategic management processes and how they are integrated with other major departmental processes, such as the budget and human resources management; include in the agency’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a documented process to develop IT goals in support of agency needs, measure progress against these goals, and assign roles and responsibilities for achieving these goals; develop performance measures related to the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for the agency’s measures associated with the IT goals in its IRM plan; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Administrator of the Environmental Protection Agency take the following three actions: include net risks, risk-adjusted return-on-investment, and qualitative criteria in the agency’s project selection criteria; establish a policy requiring modularized IT investments; and fully implement an IT investment management control phase, including the elements contained in practices 2.15, 2.16, and 2.17. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Administrator of the General Services Administration take the following four actions: include in the agency’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop performance measures related to the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for each of the agency’s measures associated with the IT goals in its IRM plan; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Administrator of the General Services Administration take the following four actions: develop work processes and decision-making processes for the agency’s investment management boards; establish a policy requiring modularized IT investments; help guide the oversight of IT investments by developing clear decision- making rules for its IT investment management board and by requiring that IT projects report on deviations in system capability; and track the resolution of corrective actions for under-performing projects and report the results to the investment management board. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Health and Human Services take the following six actions: document the department’s IT strategic management processes and how they are integrated with its budget processes; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA and include a description of major IT acquisitions contained in its capital asset plan that bear significantly on its performance goals; establish a documented process for measuring progress against the department’s IT goals; develop performance measures related to the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for its enterprisewide IT performance measures in its IRM plan; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of Health and Human Services take the following 10 actions: revise the department’s IT investment management policy to include (1) how this process relates to other agency processes, (2) an identification of external and environmental factors, (3) a description of the relationship between the process and the department’s enterprise architecture, and (4) the use of independent verification and validation reviews, when appropriate. develop procedures for the department’s enterprisewide investment management board to document and review IT investments; document the alignment and coordination of responsibilities of the department’s various IT investment management boards for decision making related to IT investments; implement a standard, documented procedure to maintain the department’s inventory of major information systems and develop a mechanism to use the inventory as part of managerial decision making; establish a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness; implement a structured IT selection process that includes processes and criteria such as those in practices 2.12 and 2.13; develop decision-making rules to help guide the investment management board’s oversight of IT investments during the control phase; require the investment management board to review projects at major track the resolution of corrective actions for under-performing projects and report the results to the investment management board; and revise the department’s investment management policy to require postimplementation reviews to address validating benefits and costs, and conduct such reviews. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Housing and Urban Development take the following six actions: document the roles and responsibilities of the chief financial officer and program managers in IT strategic planning and how the department’s IT management operations and decisions are integrated with human resources management; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a documented process to develop IT goals in support of agency needs, measure progress against these goals, and assign roles and responsibilities for achieving these goals; develop performance measures related to how IT contributes to program productivity and the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for the department’s enterprisewide IT performance measures in its IRM plan; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of Housing and Urban Development take the following five actions: establish a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of COTS software; include net risks and risk-adjusted return-on-investment in the department’s project selection criteria; establish a policy requiring modularized IT investments; require IT projects to report on deviations in system capability and monitor IT projects at key milestones; and develop a process to use independent verification and validation reviews, when appropriate. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of the Interior take the following six actions: document the department’s IT strategic management processes and how they are integrated with other major departmental processes, including organizational planning, budget, financial management, human resources management, and program decisions; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA and include a description of major IT acquisitions contained in its capital asset plan that bear significantly on its performance goals; develop a documented process to develop IT goals in support of agency needs, measure progress against these goals, and assign roles and responsibilities for achieving these goals; develop performance measures related to the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for the department’s enterprisewide IT performance measures in its IRM plan; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of the Interior take the following five actions: establish a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness; include cost and schedule in the department’s project selection criteria and prioritize its IT proposals; establish a policy requiring modularized IT investments; require that corrective actions be undertaken, tracked, and reported to the investment management board for under-performing projects; and implement an evaluation process for IT investments that addresses the elements of practice 2.18. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Attorney General take the following six actions: document the department’s IT strategic management processes; document how the department’s IT management operations and decisions are integrated with human resources management processes; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a documented process to develop IT goals in support of agency needs, measure progress against these goals, and assign roles and responsibilities for achieving these goals; develop performance measures related to the department’s IT goals in its IRM plan, and track actual-versus-expected performance for these IT performance measures; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Attorney General take the following five actions: develop work processes and procedures for the department’s investment management boards, including aligning and coordinating IT investment decision making among its various boards; establish a policy requiring that IT investments be in compliance with the agency’s enterprise architecture; include net risks and risk-adjusted return-on-investment in the department’s project selection criteria; implement a scoring model and develop a prioritized list of investments as part of the department’s project selection process; and require that corrective actions be undertaken, tracked, and reported to the investment management board for under-performing projects. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Labor take the following five actions: include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a documented process to develop IT goals in support of agency needs, measure progress against these goals, and assign roles and responsibilities for achieving these goals; develop a goal related to how IT contributes to program productivity; develop performance measures related to how IT contributes to program productivity, efficiency, and the effectiveness of controls to prevent software piracy, and track actual-versus-expected performance; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of Labor take the following five actions: include a description of the relationship between the IT investment management process and the department’s enterprise architecture in the department’s IT capital planning and investment control guide; include net risks and risk-adjusted return-on-investment in its project selection criteria; establish a policy requiring modularized IT investments; develop decision-making rules to help guide the investment management board’s oversight of IT investments during the control phase; and develop an early warning mechanism that enables the investment management board to take corrective action at the first sign of cost, schedule, or performance slippages. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Administrator of the National Aeronautics and Space Administration take the following seven actions: document the agency’s IT strategic management processes; document how the agency’s IT management operations and decisions are integrated with human resources management processes; include in the agency’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a documented process to develop IT goals in support of agency needs, measure progress against these goals, and assign roles and responsibilities for achieving these goals; develop performance measures related to the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for the agency’s enterprisewide IT performance measures in its IRM plan; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Administrator of the National Aeronautics and Space Administration take the following four actions: revise the agency’s IT investment management policy and guidance to describe the relationship of this process to the agency’s enterprise architecture; include interfaces in its inventory of the agency’s major information systems, implement a standard, documented procedure to maintain this inventory, and develop a mechanism to use the inventory as part of managerial decision making; within the agency’s IT investment selection process, implement a mechanism to identify possible conflicting, overlapping, strategically unlinked, or redundant proposals; implement a scoring model; and develop a prioritized list of investments; and document the role, responsibility, and authority of its IT investment management boards, including work processes, alignment, and coordination of decision making among its various boards, and document the processes for controlling and evaluating IT investments, such as those in practices 2.15, 2.16, 2.17, and 2.18. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Director of the National Science Foundation take the following five actions: document the agency’s IT strategic management processes; include in the agency’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; implement a process for assigning roles and responsibilities for achieving its IT goals; develop performance measures related to the effectiveness of controls to prevent software piracy; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Director of the National Science Foundation take the following four actions: develop an IT investment management guide that includes a description of the relationship between the IT investment management process and the agency’s other organizational plans and processes and its enterprise architecture, and identify external and environmental factors that influence the process in the agency’s IT capital planning and investment control policy; implement a structured IT selection process that includes the elements of practices 2.12 and 2.13; involve the department’s IT investment management board in controlling and evaluating IT investments, including the development and documentation of oversight processes such as those in practices 2.15, 2.16, 2.17, and 2.18; and define and document the elements of the agency’s postimplementation reviews. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of the Navy take the following three actions: develop a documented process to measure progress against the department’s enterprisewide IT goals and assign roles and responsibilities for achieving these goals; develop an IT goal related to service delivery to the public; and develop IT performance measures related to the department’s IT goals, including, at a minimum, measures contained in practice 1.9 in our report, and track actual-versus-expected performance. To improve the department’s IT investment management processes, we recommend that the Secretary of the Navy take the following four actions: include net risks and risk-adjusted return-on-investment in the department’s project selection criteria; implement a structured IT selection process that includes the elements involve all elements of the department’s IT investment management board governance process in selecting, controlling, and evaluating IT investments; and document the role, responsibility, and authority of its IT investment management boards, including work processes, alignment, and coordination of decision making among its various boards, and document the processes for controlling and evaluating IT investments, such as those outlined in practices 2.15, 2.16, 2.17, and 2.18. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Commissioner of the Nuclear Regulatory Commission take the following five actions: document the agency’s roles and responsibilities for its IT strategic management processes and how IT planning is integrated with its budget and human resources planning; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a documented process to assign roles and responsibilities for achieving its enterprisewide IT goals; develop performance measures related to the effectiveness of controls to prevent software piracy; and develop performance measures for the agency’s enterprisewide goals in its IRM plan, and track actual-versus-expected performance for these measures. To improve the agency’s IT investment management processes, we recommend that the Commissioner of the Nuclear Regulatory Commission take the following five actions: include a description of the relationship between the IT investment management process and the department’s other organizational plans and processes and its enterprise architecture, and identify external and environmental factors that influence the process in the agency’s IT capital planning and investment control policy; develop work processes and procedures for the agency’s investment implement a standard, documented procedure to maintain its IT asset inventory, and develop a mechanism to use the inventory as part of managerial decision making; develop a structured IT investment management selection process that includes project selection criteria, a scoring model, and prioritization of proposed investments; and document the role, responsibility, and authority of its IT investment management boards, including work processes and control, and evaluate processes that address the oversight of IT investments, such as what is outlined in practices 2.15, 2.16, 2.17, and 2.18. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Director of the Office of Personnel Management take the following four actions: include in the agency’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop performance measures related to the effectiveness of controls to prevent software piracy; track actual-versus-expected performance for the agency’s enterprisewide IT performance measures in its IRM plan; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Director of the Office of Personnel Management take the following four actions: develop work processes and procedures for the agency’s investment management board, including establishing criteria for defining major systems and documenting a process for handling cross-functional investments; implement a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of COTS software; establish a policy requiring modularized IT investments; and require that corrective actions be undertaken, tracked, and reported to the investment management board for under-performing projects. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Administrator of the Small Business Administration take the following five actions: document the agency’s IT strategic management processes; include in the agency’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a documented process to develop IT goals in support of agency needs, measure progress against these goals, and assign roles and responsibilities for achieving these goals; develop performance measures related to the agency’s IT goals in its IRM plan, including, at a minimum, measures related to how IT contributes to program productivity, efficiency, effectiveness, the overall performance of its IT programs, and the effectiveness of controls to prevent software piracy, and track actual-versus-expected performance for these IT performance measures; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Administrator of the Small Business Administration take the following two actions: document a process that the investment management board can invoke final decision-making authority over IT investments addressed by lower- level boards; and implement a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Commissioner of the Social Security Administration take the following three actions: include in its annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop performance measures related to the performance of the agency’s IT programs and the effectiveness of controls to prevent software piracy; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Commissioner of the Social Security Administration take the following four actions: develop work processes and procedures for the agency’s investment establish a policy requiring modularized IT investments; document the role, responsibility, and authority of its IT investment management board for the oversight of IT investments, such as what is outlined in practices 2.15, 2.16, and 2.18; and require that corrective actions be tracked and reported to the investment management board for under-performing projects. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of State take the following two actions: include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of State take the following five actions: implement a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of COTS software; establish a policy requiring modularized IT investments; include risk-adjusted return-on-investment in the department’s project revise the department’s draft IT investment management policy to include reviewing projects at major milestones; and fully implement an IT investment management control phase, including the elements contained in practices 2.16 and 2.17. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Transportation take the following five actions: document its IT strategic planning process; include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop a goal related to how IT contributes to program productivity; develop performance measures related to the department’s IT goals in its IRM plan, and track actual-versus-expected performance for these IT performance measures; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of Transportation take the following six actions: document the alignment and coordination of responsibilities of the department’s various IT investment management boards for decision making related to IT investments; implement a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of COTS software; prioritize the department’s IT proposals; establish a policy requiring modularized IT investments; develop and document decision-making rules to help guide the investment management board’s oversight of IT investments during the control phase; and as part of the department’s control phase, employ an early warning mechanism, and use independent verification and validation reviews, when appropriate. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of the Treasury take the following four actions: include in the department’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; develop performance measures related to the effectiveness of controls to prevent software piracy; develop performance measures related to the department’s IT goals in its IRM plan, and track actual-versus-expected performance for these IT performance measures; and develop a mechanism for benchmarking the department’s IT management processes, when appropriate. To improve the department’s IT investment management processes, we recommend that the Secretary of the Treasury take the following eight actions: develop a capital planning and investment control guide that includes, for example, the elements of practice 2.1; develop work processes and procedures for the agency’s IT investment management board, and document the alignment and coordination of responsibilities of its various boards for decision making related to investments, including the criteria for which investments—including cross-cutting investments—will be reviewed by the enterprisewide board; use the department’s IT asset inventory as part of managerial decision making, including using it to identify the potential for asset duplication; establish a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of COTS software; implement a structured IT selection process that includes the elements of practices 2.12 and 2.13; establish a policy requiring modularized IT investments; implement an IT investment management process that includes a control phase that addresses, for example, the elements of practices 2.15, 2.16, and 2.17; and implement an IT investment management process that includes an evaluation phase that addresses, for example, the elements of practice 2.18. To improve the agency’s IT strategic planning/performance measurement processes, we recommend that the Administrator of the U.S. Agency for International Development take the following two actions: include in the agency’s annual performance plan the resources and time periods required to implement the information security program plan required by FISMA; and develop a mechanism for benchmarking the agency’s IT management processes, when appropriate. To improve the agency’s IT investment management processes, we recommend that the Administrator of the U.S. Agency for International Development take the following nine actions: develop work processes and procedures for the agency’s IT investment establish a policy requiring that IT investments be in compliance with the agency’s enterprise architecture; develop a policy requiring that proposed IT investments support work processes that have been simplified or redesigned to reduce costs and improve effectiveness and that makes maximum use of COTS software; include net risks, risk-adjusted return-on-investment, and qualitative criteria in the agency’s project selection criteria; within the agency’s IT investment selection process, implement a mechanism to identify possible conflicting, overlapping, strategically unlinked, or redundant proposals; develop a policy requiring modularized IT investments; develop decision-making rules, review projects at major milestones, and require projects to report on deviations in system capability to help guide the oversight of IT investments by the agency’s investment management board during the control phase; as part of the agency’s control phase, employ an early warning mechanism, and use independent verification and validation reviews, when appropriate; and require that corrective actions be undertaken, tracked, and reported to the investment management board for under-performing projects. To improve the department’s IT strategic planning/performance measurement processes, we recommend that the Secretary of Veterans Affairs take the following four actions: include in the department’s annual performance plan the resources required to implement the information security program plan required by FISMA; develop a documented process to measure progress against the department’s IT goals, and assign roles and responsibilities for achieving these goals; develop performance measures related to the effectiveness of controls to prevent software piracy; and track actual-versus-expected performance for the department’s enterprisewide IT performance measures in its IRM plan. To improve the department’s IT investment management processes, we recommend that the Secretary of Veterans Affairs take the following two actions: document the alignment and coordination of responsibilities of the department’s various IT investment management boards for decision making related to IT investments, including cross-cutting investments; and within the agency’s IT investment selection process, implement a mechanism to identify possible conflicting, overlapping, strategically unlinked, or redundant proposals, and prioritize its IT investments. The following are GAO’s comments on the Department of Defense’s (DOD) letter dated December 5, 2003. 1. DOD provided its annual report to the President and the Congress, which included its fiscal year 2004 performance plan. Based on a review of this plan, we modified our report. 2. We disagree that the cited objective fully addresses this issue. Specifically, although this objective addresses e-government, the wording of the objective, its description, and the discussion of related initiatives do not explicitly address service delivery to the public. Accordingly, we did not modify our report. 3. Our review of the acquisition management process documentation provided by the Navy did not support that the department’s selection criteria include net risks and risk-adjusted return-on-investment. Accordingly, we did not modify our report. The following are GAO’s comments on the Department of Education’s letter dated December 10, 2003. 1. We agree that Education requires IT investments to have performance measures. However, our practice dealt with enterprise-level measures, such as those found in the department’s IRM plan, not project-specific measures. Education reported that the performance measures in its IRM plan do not measure how IT contributes to program productivity and the efficiency and effectiveness of agency operations. Accordingly, we did not modify our report. 2. We modified our assessment of practice 2.6 in this report and deleted the related recommendation based on our evaluation of additional documentation provided by Education. The following are GAO’s comments on the Environmental Protection Agency’s (EPA) letter dated December 9, 2003. 1. As we reported and EPA acknowledged, its documentation on IT strategic planning and investment management was not complete or finalized. For example, the partial rating we gave EPA for its IT management and strategic planning practices—practices 1.1 and 1.2— matched the agency’s own self-assessment in these areas. Specifically, our review of planning documents cited by EPA in its self-assessment found that while the agency had documented agencywide roles and responsibilities for planning and managing IT resources and had documented its process to integrate the IT investment management process with the budget, EPA had not addressed other key elements of the practices. As an example, EPA had not fully documented the method by which it defines program information needs and develops strategies, systems, and capabilities to meet those needs. Since EPA provided no additional documentation, our practice assessment and our related recommendations remain unchanged. 2. As stated in our report, practice 1.7 refers to the documentation of the process used to develop IT goals and measures and the responsibility for achieving them. As EPA states in its comments, it is currently working on documenting this process. Accordingly, we did not modify our report. The following are GAO’s comments on the General Services Administration’s (GSA) letter dated December 9, 2003. 1. We based our evaluation on the agency’s self-assessment and comments made by GSA’s Director, Office of Policy and Plans. However, based on GSA’s representation in commenting on our draft, we changed our evaluation of the referenced practice. 2. The Clinger-Cohen Act requires agencies to include in its information resources management (IRM) plan the identification of a major IT acquisition program(s), or any phase or increment of that program, that significantly deviated from cost, performance, or schedule goals established by the program. As we acknowledge in this report, agencies, which would include GSA, identified other mechanisms that they use to track and report cost, schedule, and performance deviations. Moreover, we evaluated agencies as a “partially” instead of a “no” in this practice to take into account that the agency had the required information, although it was not in the prescribed format. Accordingly, we did not modify our report. 3. The Federal Information Security Management Act of 2002 requires agencies to include in the performance plans required by the Government Performance and Results Act the resources and time periods to implement their information security program. As we noted in this report, agencies, which would include GSA, commonly stated that they had this information but that it was in another document. Nevertheless, this does not negate the need for having the agency report to the Congress in the form that it requires. This is particularly important since performance plans are public documents. Accordingly, we did not modify our report. 4. GSA’s new documentation illustrates that it has performance measures for each of the IT goals in its IRM plan. However, GSA did not provide evidence that it was tracking actual versus expected performance for measures associated with one of its goals. We revised our report to reflect GSA’s new documentation and our evaluation. 5. We revised our report on the basis of this new documentation. 6. GSA’s highest-level IT investment management board is its Executive Committee. GSA did not provide a charter or any other evidence of policies and procedures for this committee. We therefore did not modify our report. 7. The additional documentation provided by GSA (1) does not address decision-making rules and (2) illustrates that GSA uses a monthly project control report on cost, schedule, and performance status, but the report does not explicitly address deviations in system capability. In addition, according to GSA’s capital planning and investment control order, the format of the report is left to the applicable organization, thereby making it less likely that the investment management boards are obtaining consistent information. We therefore did not modify our report. 8. We agree that GSA’s capital planning and investment control order requires that projects that have significant variances are to provide “get well” plans and that monthly control reports are used to report on project cost, schedule, and performance status. However, it is not clear that these status reports can be used to systemically track corrective actions. Moreover, according to GSA’s capital planning and investment control order, the format of the monthly control report is left to the applicable organization, thereby making it less likely that the status of corrective actions is being consistently reported. We therefore did not modify our report. 9. See comment 8. 10. We modified our recommendations based on our evaluation of GSA’s documentation. See comment 4 for our assessment. 11. Executive Order 13103 requires agencies to use software piracy performance measures that comply with guidance issued by the federal CIO Council. The Council, in turn, called on the agencies to develop such measures. The additional documentation that GSA provided was an order requiring agency employees to use properly licensed software, but it does not include performance measures that would demonstrate that this requirement is being honored. Measuring how well agencies are combating software piracy is important because it can verify that the controls that they have put in place are working. Accordingly, we did not change this part of the recommendation. 12. We modified our recommendation to reflect that GSA requires projects that have significant variances to develop corrective action plans. However, the other elements of the recommendation pertaining to the tracking and reporting on corrective actions remain outstanding. See comment 8 for additional information. The following are GAO’s comments on the Department of Justice’s letter dated December 2, 2003. 1. GAO has ongoing work looking at OMB’s initiative. However, the Federal Information Security Management Act of 2002 requires agencies to include in the performance plans required by the Government Performance and Results Act the resources and time periods to implement its information security program. Accordingly, we did not change the recommendation. The following are GAO’s comments on the Department of Labor’s letter dated December 2, 2003. 1. Because Labor did not disagree with our characterization of its IT goal, no changes were made to our report. 2. We agree with Labor’s characterization of its IT strategic goal and order 3-2003. Nevertheless, the recommendation, and related practice 1.7, refers to the documentation of the process used to develop IT goals and measures and the responsibility for achieving them. Labor neither provided documentation of such a process nor took issue with our assessment of practice 1.7, in which we stated that the agency did not have this practice in place. Moreover, Labor’s self-assessment referenced a draft performance measurement guidebook and quarterly review process in support of this practice. However, these mechanisms relate to performance measures associated with IT projects, not Labor’s enterprisewide IT goal. Finally, as we noted in our report, unlike other agencies in our review, Labor does not have goals in its IRM plan. Accordingly, we did not change this recommendation. The following are GAO’s comments on the National Aeronautics and Space Administration’s (NASA) letter dated December 8, 2003. 1. Our practice dealt with enterprise-level measures, not project-specific measures. In addition, although we agree that NASA’s IRM plan included performance measures, the agency generally does not track actual-versus-expected performance for these enterprisewide measures. The following are GAO’s comments on the Social Security Administration’s (SSA) letter dated December 3, 2003. 1. We agree that SSA needs to consider the level of detail that is appropriate to include in its performance plans so as not to compromise security. 2. We requested documentation to support SSA’s assertion that it has performance measures associated with the performance of IT programs (e.g., the percentage of IT projects that are meeting cost, schedule, and performance goals), but none were provided. Accordingly, we did not modify our report. 3. We agree that it is not appropriate to include measures related to the effectiveness of controls to prevent software piracy in agency performance plans. Neither our practice nor our recommendation specifies the document or process that should be used to address software piracy. 4. As we noted in this report, SSA performs benchmarking in an ad hoc manner. We believe that taking a more systematic approach is necessary to ensure that benchmarking is performed at suitable times using an appropriate methodology. Without a systematic approach, it is not possible to validate that the agency performs benchmarking “when appropriate.” Accordingly, we did not modify our report. 5. References to OMB’s Circular A-11 in agency policy documentation alone do not ensure that these practices are met. In particular, we believe that agency policies related to modularized IT investments should be explicit and that it is neither prudent nor practical to rely on users of SSA’s documentation of its capital planning and investment control process to review a secondary source. The following are GAO’s comments on the Department of State’s letter dated December 9, 2003. 1. We based our evaluation on the agency’s draft Capital Planning and Investment Control Program Guide that was provided during our review. However, based on State’s newly finalized Capital Planning and Investment Control Program Guide, we changed this evaluation in our report. 2. We based our evaluation on the agency’s draft Capital Planning and Investment Control Program Guide that was provided at the time of our review. Based on the final version of the Capital Planning and Investment Control Program Guide provided by State in its response, we modified the language in our report, as appropriate. 3. See comment 2. 4. See comment 2. The following are GAO’s comments on the U.S. Agency for International Development’s (USAID) letter dated December 9, 2003. 1. References to OMB’s Circular A-11 in agency policy documentation alone do not ensure that these practices are met. In particular, we believe that agency policies related to practices 2.11 and 2.14 should be explicit and that it is neither prudent nor practical to rely on users of USAID’s directives to review a secondary source. Regarding USAID’s comments that it uses the criteria in practices 2.11 and 2.14 as part of its evaluation and scoring of investments, we agree that the agency does ask some questions on the use of commercial-off-the-shelf software and whether the agency uses “successive chunks” within its proposed IT investment scoring model. However, addressing these criteria as part of a scoring model does not address our practice because scoring projects on the basis of the questions asked does not necessarily preclude projects from continuing if they do not fully meet the criteria. Additionally, the questions asked as part of the scoring model do not fully meet the requirements of the practices. Accordingly, we did not modify our report. The following are GAO’s comments on the Department of Veterans Affairs’ (VA) letter dated December 5, 2003. 1. VA’s response indicates that the department will address this recommendation in the future and, therefore, we did not remove this recommendation. 2. See comment 1. 3. See comment 1. 4. VA’s monthly performance reports track project-specific measures, not enterprisewide IT performance measures. VA’s draft IRM plan states that it will establish metrics to measure performance for IT strategic initiatives. However, progress toward doing so was not addressed by VA in its comments. Therefore, we do not believe this recommendation has been fully addressed. 5. See comment 1. 6. Although VA describes a process followed for reviewing investment proposals, it did not provide evidence to support that this practice was actually followed. In addition, VA did not address the element of our recommendation related to prioritizing its IT investments. Therefore, we did not remove this recommendation. 7. On the basis of the additional information provided, we agree that the recommendation has been implemented and modified our report accordingly. Joseph P. Cruz, Lester P. Diamond, Laurence P. Gill, David B. Hinchman, Robert G. Kershaw, David F. Plocher, Susan S. Sato, and Patricia D. Slocum made key contributions to this report. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. 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Over the years, the Congress has promulgated laws and the Office of Management and Budget and GAO have issued policies and guidance, respectively, on (1) information technology (IT) strategic planning/performance measurement (which defines what an organization seeks to accomplish, identifies the strategies it will use to achieve desired results, and then determines how well it is succeeding in reaching resultsoriented goals and achieving objectives) and (2) investment management (which involves selecting, controlling, and evaluating investments). To obtain an understanding of the government's implementation of these key IT management policies, congressional requesters asked GAO to determine the extent to which 26 major agencies have in place practices associated with key legislative and other requirements for (1) IT strategic planning/ performance measurement and (2) IT investment management. Agencies' use of 12 IT strategic planning/performance measurement practices--identified based on legislation, policy, and guidance--is uneven. For example, agencies generally have IT strategic plans and goals, but these goals are not always linked to specific performance measures that are tracked. Without enterprisewide performance measures that are tracked against actual results, agencies lack critical information about whether their overall IT activities are achieving expected goals. Agencies' use of 18 IT investment management practices that GAO identified is also mixed. For example, the agencies largely have IT investment management boards, but no agency had the practices associated with the control phase fully in place. Executive-level oversight of project-level management activities provides organizations with increased assurance that each investment will achieve the desired cost, benefit, and schedule results. Agencies cited a variety of reasons for not having practices fully in place, such as that the chief information officer position had been vacant, that not including a requirement in guidance was an oversight, and that the process was being revised, although they could not always provide an explanation. Regardless of the reason, these practices are important ingredients for ensuring effective strategic planning, performance measurement, and investment management, which, in turn, make it more likely that the billions of dollars in government IT investments are wisely spent.	18.6	16k+	7,718
41	The influx of recent advanced communications technologies, coupled with changing incentives in the health care marketplace, has resulted in a resurgence of interest in the potential of telemedicine. This technology is expected to affect health care providers, payers, and consumers in both the public and private sectors. Telemedicine is also expected to impact how medical care is delivered, who delivers it, and who pays for it. Although many players throughout the federal government and the private sector are involved in telemedicine, the Department of Defense (DOD) is considered a leader in research related to telemedicine efforts. DOD has devised ways to use this new technology to deliver health care on the battlefield or during peacetime operations. Currently, DOD has a major telemedicine effort underway to provide medical support for U.S. peacekeeping forces in Bosnia. As with other emerging technologies, telemedicine has not been precisely defined. An October 1996 Congressional Research Service report noted that the definition of telemedicine continues to be debated. The problem centers on what to include in the concept. The essence of telemedicine is providing medical information or expertise to patients electronically that would otherwise be unavailable or would require the physical transport of people or information. Telemedicine can be described in many different ways, depending on the level of technology used, main purpose of its use, and transmission timing. At the lowest level, telemedicine could be the exchange of health or medical information via the telephone or facsimile (fax) machine. At the next level, telemedicine could be the exchange of data and image information on a delayed basis. A third level could involve interactive audio-visual consultations between medical provider and patient using high-resolution monitors, cameras, and electronic stethoscopes. This level is currently receiving much attention in literature and demonstrations. A more comprehensive telemedicine system would integrate all components of technology for clinical, medical education, medical information management (also called informatics), and administrative services within a common infrastructure. The relationship of these components is shown in figure 1.1. Under its broadest definition, telemedicine has been practiced in some form in the United States for almost 40 years. Most projects have demonstrated that this technology can be used to exchange medical information between sites in both rural and urban settings. The first telemedicine project in the United States was established in 1959, when the University of Nebraska transmitted neurological examinations across campus. In 1964, the university established a telemedicine link with a state mental hospital 112 miles away. The National Aeronautics and Space Administration (NASA) was a telemedicine pioneer in the 1960s with its satellite support of a telemedicine project, conducted by the National Library of Medicine, that provided health services to the Appalachian and Rocky Mountain regions and Alaska. In the 1970s, NASA also sponsored a project, implemented with the Indian Health Service and the Department of Health, Education, and Welfare, on an Indian reservation in Arizona. According to a report issued by the Institute of Medicine, only one telemedicine project that started before 1986 has survived. Evaluations of these projects indicated that the equipment was reasonably effective and users were satisfied. However, when external funding sources were withdrawn, the programs could not be sustained, indicating that the high cost of complex, technically immature systems was a problem. In 1993, several members of Congress established the Senate and House Ad Hoc Steering Committee on Telemedicine to advise legislators on integrating new technologies into health care reform strategies. In 1994, the House Committees on Veterans Affairs and Science, Space, and Technology held hearings to examine economic and legal barriers that threatened to inhibit the expansion of telemedicine. In March 1995, the Vice President directed the Secretary of Health and Human Services (HHS) to lead efforts to develop federal policies that foster cost-effective health applications using communications technologies, including telemedicine. HHS was required to prepare a report on current telemedicine projects, the range of potential telemedicine applications, and public and private actions to promote telemedicine and remove existing barriers to its use. The Vice President also directed that this effort include representatives from several specific departments and agencies. As a result, HHS organized the Joint Working Group on Telemedicine (JWGT). DOD is providing the funding to carry out JWGT’s taskings related to constructing a telemedicine database. In addition, other agencies are providing personnel support. HHS issued a status report on JWGT’s efforts to the Vice President in March 1996. In 1996, the Senate and House Ad Hoc Steering Committee on Telemedicine sponsored a series of discussions by government and private organizations on telemedicine issues, such as financing, malpractice, and clinical standards. Also, the Telecommunications Act of 1996 (P.L. 104-104) directed the Secretary of Commerce, in consultation with the Secretary of HHS, to submit a report to Congress by January 1997 concerning the activities of JWGT regarding patient safety; the efficacy and quality of the services provided; and other legal, medical, and economic issues related to the utilization of advanced telecommunications services for medical purposes. The Secretaries of Commerce and HHS plan to jointly issue a final report to Congress and the Vice President on January 31, 1997. The Telecommunications Act of 1996 also directed the Federal Communications Commission to explore actions that would provide basic telecommunications services to all rural users. The act further required telecommunications companies to provide discounts to health care providers in rural areas. As a result of congressional concerns about the federal government’s role in advancing telemedicine, the Chairman and Ranking Minority Member, Subcommittee on Research and Development, House National Security Committee, asked us to help determine the steps that DOD and the federal government need to take to realize the full potential of telemedicine and achieve cooperation with the private sector. Specifically, this report addresses the (1) scope of public and private telemedicine investments; (2) telemedicine strategies among DOD, other federal agencies, and the private sector; (3) potential benefits that the public and private sectors may yield from telemedicine initiatives; and (4) barriers facing telemedicine implementation. Our overall approach was twofold. First, we conducted a broad data collection and analysis effort across nine federal departments and agencies and selected private sector entities. Second, we performed a cross-cutting case study of DOD, other public agencies, and private telemedicine projects in Georgia that provided us with examples for each objective. We chose Georgia because it had state, academic, and private sector funding for telemedicine efforts as well as collaboration with DOD on telemedicine projects. We used a comprehensive definition of telemedicine that included all four applications of telemedicine linked together within a common infrastructure. We excluded the lowest level of this technology—telephones and fax machines—from our data collection efforts. To determine what role DOD and other federal agencies played in the development of telemedicine, we collected and analyzed data on ongoing federal projects and applicable funding levels for fiscal years 1994-96. We also interviewed officials within numerous DOD components and eight federal departments and agencies. In addition, we reviewed DOD Inspector General reports, conference reports, and relevant information available through the Internet. To determine the efforts of the public and private sectors to advance telemedicine technology, we compared federal projects and funding levels and efforts to identify redundancy among projects. We categorized federal projects by one of the components of telemedicine identified through our analysis of definitions. We reviewed relevant literature on state and private sector efforts. We held discussions with state and private sector representatives involved with telemedicine projects. In addition, we attended bimonthly JWGT meetings to keep abreast of its ongoing efforts. To obtain an overview of state programs, we interviewed state officials and users from Georgia, North Carolina, and Texas who were involved in their state’s telemedicine network. We also interviewed officials of the Western Governors Association and George Washington University on their recent study on state initiatives. To identify information on private sector involvement in telemedicine, we interviewed officials and obtained data from many national associations and organizations. We also talked with representatives from private sector health care facilities in Georgia and Minnesota and equipment and telecommunications companies in Georgia and the Washington, D.C., area. To determine the potential benefits of and barriers facing telemedicine, we interviewed officials involved with telemedicine in DOD, other federal and state agencies, and the private sector. Also, we analyzed telemedicine evaluations and studies of potential barriers. We did not validate potential cost savings data. Appendix I contains a comprehensive listing of all of the federal, state, and private organizations we visited. We conducted our work from January to December 1996 in accordance with generally accepted government auditing standards. Numerous federal, state, and private organizations are sponsoring hundreds of telemedicine initiatives, but the total investment is unknown. Even though the federal government’s total investment cannot be determined, we identified nine federal departments and independent agencies that invested a minimum of $646 million in telemedicine initiatives for fiscal years 1994-96. During that time, DOD invested the most, $262 million, followed by the Departments of Veterans Affairs (VA), HHS, and Commerce, each investing over $100 million. The focus of the investments varied depending on the agency’s mission, but most projects were directed toward medical information systems, such as computerized patient records or digitized imagery. Other projects were directed toward infrastructure development, clinical applications for rural or remote areas, and medical education and training. The Defense Advanced Research Projects Agency (DARPA), working with some academic and private sector entities, is doing unique near- and long-term research for battlefield applications. Over 40 states have some type of telemedicine initiative underway funded by federal agencies, the private sector, or the states themselves. Ten of these states, especially Georgia and Texas, have taken an active role in sponsoring telemedicine initiatives. Estimates of telemedicine and related technology investments in the private sector have not been quantified because telemedicine costs are difficult to separate from health care delivery costs and most cost data is proprietary. Most private sector organizations, including telecommunication companies, private hospitals, and managed care organizations, have focused their telemedicine efforts on the telecommunications infrastructure. Other private sector efforts include developing the computer and medical equipment needed for telemedicine applications and delivering health care directly via telemedicine. Estimating total costs for telemedicine is difficult because agencies that deliver health care, such as VA, embed telemedicine costs within their health care programs. Also, the lack of a consistent definition of telemedicine may result in an agency not including certain project costs, whereas another agency would include the same type of projects in its costs. We identified over 35 federal organizations within 9 departments and independent agencies that were investing in telemedicine projects. Most officials from these departments did not know the amount their departments had invested in telemedicine. However, as table 2.1 shows, the federal government invested at least $646 million for fiscal years 1994-96. Details of federal telemedicine projects appear in appendix II. Although some agencies have attempted to develop an inventory of federal telemedicine projects, a governmentwide inventory has not been completed. For example, NASA had contracted with the Center for Public Service Communications in 1993 to develop an inventory of public and private telemedicine initiatives. Funding was cut in 1994, and the inventory subsequently became outdated. In 1995, the DOD Inspector General developed a directory of DOD telemedicine demonstrations and projects. According to the DOD Inspector General, this effort represented a starting point to track DOD’s telemedicine initiatives. JWGT expected to complete a federal inventory in January 1997. DOD and each of the military services have collectively invested more in telemedicine initiatives than any other federal department or agency. However, DOD and the services have not established telemedicine budgets. They currently initiate projects by reprogramming funds from other programs and are developing budget estimates for fiscal years 1998-2003. Nearly half of DOD’s $262 million telemedicine investment was devoted to unique long-term research and development of battlefield applications of telemedicine. For example, DARPA is developing devices to treat wounded soldiers, such as a hand-held, physiologic monitor that will help a combat medic locate a wounded soldier and monitor the soldier’s vital signs. The Army is investing in the development of a “virtual reality” helmet that will allow combat medics to consult with a physician during the first critical hour, referred to as the golden hour by DOD, after a soldier is wounded. The Navy has directed most of its telemedicine investments to establish telecommunications connectivity between its deployed ships and U.S.-based medical centers. The remaining DOD investment focused on peacetime health care. The Army, for example, is building medical communications networks to link its medical centers with each other. These networks will support numerous medical functions, particularly digitized, filmless x-rays or teleradiology. The most significant Air Force telemedicine effort will establish communications links between several Army, Navy, and Air Force medical centers, hospitals, and clinics in TRICARE Region 6. DOD’s investment helps provide medical care in several functional applications within a telemedicine system, including clinical health care delivery, medical information management, education, and administration. Figure 2.1 shows DOD’s investment according to functional application. DOD’s investment in telemedicine could double or even triple by the year 2003 depending on key budget decisions to be made in fiscal year 1997. Each service is currently developing its program objective memorandum for fiscal years 1998-2003. With regard to telemedicine, the services estimate that $464 million will be needed for the Theater Medical Information Program. This program is designed to link all the medical information systems within a battlefield or operational theater, including medical command and control, medical logistics, medical intelligence, blood management, and aeromedical evacuation. Such information will be used to collect and analyze environmental health data, and the analysis will help battlefield commanders make tactical decisions that may reduce disease and non-battle-related injuries. The current deployment of telemedicine to Bosnia, known as Primetime III, is an early test of some of the Theater Medical Information Program’s information management concepts. For example, Primetime III will use telemedicine to provide medical units access to numerous medical capabilities at any time during the day or night. These capabilities include computerized medical records; full-motion remote video consultation between theater medical units and tertiary care facilities; far forward delivery of laboratory and radiological results and prescriptions; digital diagnostic devices, such as ultrasound and filmless teleradiology; and medical command and control technologies. To achieve this access, DOD established an integrated electronic network between (1) the Landstuhl Regional Medical Center in Germany, (2) field hospitals in Hungary and Bosnia, (3) smaller brigade operating base medical units and forward operating base medical support units in Bosnia, (4) the U.S.S. George Washington in the Adriatic Sea, and (5) nine DOD medical centers located within the continental United States and Hawaii. To date, Primetime III expenditures totaled $14.6 million—the Office of the Assistant Secretary of Defense for Health Affairs funded $12.4 million, and Army’s 5th Corps in Europe funded $2.2 million. Total costs are estimated to be $30 million. Eight civilian federal departments or independent agencies with various roles in providing or supporting health care delivery invested $384 million in telemedicine from fiscal years 1994 to 1996. In some cases, these investments represented the estimated total costs of projects for the year first awarded and not the costs agencies actually incurred during those years. Most expenditures provided clinical services, telecommunications infrastructure, and information management resources, as shown in figure 2.2. In many instances, the agencies’ investments were directed toward rural populations or focused on teleradiology. In May 1995, the Primary Care Resource Center at George Washington University completed a comprehensive review and analysis of the states’ telemedicine activities. The report, entitled State Initiatives to Promote Telemedicine, explores the role that states have played in telemedicine and identifies their various initiatives, but it does not quantify total investments. The study found that overall state involvement in telemedicine has been expanding, particularly to provide health care to rural or remote areas. Although over 40 states have some initiatives underway that are funded by federal agencies, the private sector, or the states themselves, 10 actively sponsor telemedicine initiatives. Some states focus on the high costs of providing a telecommunications infrastructure by requiring carriers to subsidize services to certain educational and health care institutions, particularly in rural or remote areas. We reported in 1996 that three states—Iowa, Nebraska, and North Carolina—worked with the private sector and potential users to encourage private investment and ensure the availability of services in less densely populated areas. These states encouraged private investments in advanced telecommunications infrastructure by offering to become major customers of these services from the telephone companies. As a result of the states’ efforts, the telephone companies made improvements faster than they would have on their own. Georgia’s telemedicine program began when the governor signed the Georgia Distance Learning and Telemedicine Act of 1992, which established a telecommunications network to ensure that all residents of Georgia have access to quality education and health care. The act allowed the Public Service Commission to set a special flat-rate structure across the state and allowed one communications company to cross other companies’ service areas to set up a statewide infrastructure. The program received about $70 million from the state’s Economic Development Fund, which was established using fines paid by a telecommunications company. As of February 1996, approximately $9 million had been allocated for the telemedicine portion of the network, and the remaining $60 million was spent on distance education using telecommunications. The telemedicine money funded the network infrastructure, equipment for the sites, one-half of the monthly line charges for the first 2 years of operations, and one-half of the maintenance costs per site in the second year. The sites pay for personnel, administration costs, and remaining line charges. In addition, the state’s Department of Human Resources provides approximately $350,000 annually to advance telemedicine in rural communities. The Georgia telemedicine network includes 60 sites serving 159 counties. Seven of the sites are state correctional facilities. Three of these facilities have permanent telemedicine systems, with the other four serviced by a mobile telemedicine van. The network is primarily used to provide inmates with more timely access to specialty care. Before telemedicine, non-emergency specialty care services took 30 to 90 days to schedule. With the implementation of the system, inmates can see a specialist in 7 to 21 days. Several Georgia departments and agencies are actively involved in the statewide network. A governing board sets policies and awards funding for the network. The state’s Department of Administrative Services develops and administers the infrastructure network. The Medical College of Georgia plans, coordinates, and implements the daily operations of the network’s medical system, and the Office of Rural Health and Primary Care, within the Department of Human Resources, approves proposed expenditures, ensuring that funding is used entirely to advance telemedicine in rural communities. Texas uses state-operated networks to provide telemedicine consultations and continuing medical education to small rural clinics. For example, the University of Texas Health Science Center at San Antonio operates the South Texas Distance Learning and Telehealth infrastructure network. In addition, the Texas Tech Health Sciences Center and the University of Texas Medical Branch at Galveston provide all of the medical care to the 130,000 inmates at 104 state prison facilities. These facilities have physicians and other clinical staff to provide primary care, but patients who require specialized care are referred to the Galveston and Texas Tech hospitals. The state has funded a telemedicine project to link specialists in Galveston with four state prisons and has plans to expand the project to other locations. Texas officials estimated that telemedicine has greatly reduced the number of patients transferred from their home facilities to the hospitals. The state has arranged with the private owners of the telecommunications systems to charge a flat rate for usage. Specifically, rural clients and other low utilization users are charged $425 per month for up to 40 hours of usage. Commercially, a facility would pay an access charge of $475 plus a use charge of $60 to $100 per hour. In 1992, the East Carolina University Medical School began providing telemedicine consultations to the state prison in Raleigh, 100 miles away. Physicians see and talk to the patients via the telemedicine link and then diagnose and prescribe medications when necessary. A digital stethoscope, graphics camera, and miniature hand-held dermatology camera are used to aid patient examinations. These tools, along with a computerized patient record system and a comprehensive scheduling system, form the basis of an integrated health care information system being implemented across a wide area network in North Carolina. The model developed for the prison system is now being expanded to six rural hospitals within the state and the naval hospital at Camp Lejeune. Estimates of private sector investments have not been quantified because telemedicine costs are difficult to separate from health care delivery costs and most cost data is proprietary. The Koop Institute estimates that the U.S. telemedicine market totals $20 billion for telecommunications infrastructure, computer hardware and software, and biomedical equipment. A breakdown of this funding is unavailable. Further, any estimate of private sector investments would partially duplicate amounts reported by the public sector because of contract and grant relationships. Also, the Koop Foundation, a sister organization to the institute, is expected to compile an inventory by the year 2000 of private sector telemedicine projects. Dozens of private interests, including telecommunications companies, equipment manufacturers, private hospitals, and managed care organizations, have positioned themselves to capture future telemedicine market shares. For example, telecommunications companies are providing the infrastructure that allows telemedicine consultations and data transfers to occur. Private companies built and own the National Information Infrastructure and lease the lines to telemedicine users and others. Most telemedicine end users do not own high-technology telecommunications lines and thus rely on private enterprise to provide this infrastructure. Equipment manufacturers use their own funds and federal financial support to develop data transmission technologies, such as digital coding and decoding equipment, to facilitate telemedicine consultations. Private firms also develop medical sensory devices, such as electronic stethoscopes, specialized cameras, and robotic surgical assistance devices. Until recently, most telemedicine efforts in the health care delivery area either received some federal or state funds or were limited to teleradiology. Some providers have now invested in their own telemedicine networks, seeking to achieve cost and operational efficiencies. For example, a large managed care organization in Minnesota established telemedicine networks between its facilities to expand specialty care to members in rural areas. Another provider established telemedicine links among its three facilities in Minnesota, Florida, and Arizona and became one of several health care providers seeking to expand to international telemedicine linkages. One manufacturer of medical robotics, Computer Motion, Inc., believes that improved automation has been fundamental in opening huge new markets. For example, many surgeons, nurses, and medical assistants all see the use of robotics for laparoscopic surgery as extremely positive. The movements of the laparoscope are smooth, and the video image remains steady throughout the procedure. The physician who, in August 1993, performed the first laparoscopic surgery using the robotic arm said the biggest advantage is that surgeons have complete control and do not have the difficult task of communicating to assistants where to move the laparoscope. Literature indicates that giving directional instructions can be a distraction from the procedure itself; most surgeons can be more efficient if they do not have to keep asking someone to correct the positioning of the scope. The manufacturing company has been working closely with Yale University in support of research and education programs in telesurgery and robotically assisted laparoscopy. One university official said that the partnership would allow the university to bring robotics into the education system and demonstrate how it could be used effectively to reduce costs and improve the quality of patient care. Medical robotics continues its rapid expansion into the worldwide marketplace. European countries and various training centers have begun to launch collaborative efforts in medical robotics education. According to the manufacturer, more than 100 robotic arms have been used in approximately 13,000 minimally invasive surgical procedures. Voice control will be a feature of the next generation of robotic arms, which will require clearance by the Food and Drug Administration (FDA). No overarching, governmentwide strategy exists to ensure that the most is gained from numerous federal telemedicine efforts. Until recently, there was little or no coordination of telemedicine activities among federal agencies. Although JWGT is a first step toward providing a mechanism to help coordinate federal support of telemedicine, federal departments have not developed agencywide strategies to manage their own telemedicine efforts. Without clear goals and priorities for telemedicine investments, some programs are difficult to justify and may be in jeopardy. Federal agencies have recognized the need for a strategic plan to fulfill their telemedicine visions. Even as the largest single federal investor and perhaps the main sponsor of long-term telemedicine research, DOD does not have a plan to ensure it is maximizing the value of its investments. As a result, DOD’s (1) organizational structure to ensure the infusion of telemedicine into application is still evolving, (2) telemedicine program has not been precisely defined, (3) budgets do not reflect a comprehensive telemedicine program, and (4) partnerships with the private sector have not been fully explored. DOD’s telemedicine experiences may be indicative of telemedicine activities throughout the federal government. In addition, the private sector has recognized that telemedicine technologies have developed to the point at which telemedicine strategies are needed to guide investments. No formal mechanism or strategic plan exists to ensure that telemedicine development is fully coordinated among federal agencies and that telemedicine efforts have a common purpose. A well-coordinated plan is important because over 35 federal government organizations directly or indirectly conduct or sponsor (1) research and development; (2) demonstrations using telemedicine for health care delivery; or (3) evaluations of telemedicine’s effects on the quality, accessibility, cost, and acceptability of health care. Some of the involved federal organizations are shown in table 3.1. The organizations involved with telemedicine initiatives are seeking solutions to narrowly defined problems that fall under their purview. For example, the Department of Justice, specifically the Federal Bureau of Prisons (BOP), is responsible for the detention and care of approximately 95,000 prisoners, nearly 4,000 of whom receive medical attention on any given day. A small but growing percentage of these prisoners must currently be moved under guard from detention sites to distant medical facilities for diagnosis and treatment. BOP is interested in telemedicine because of the opportunity to reduce the significant cost of providing medical care to prisoners. In addition, telemedicine offers the chance to reduce the number of times prisoners are taken to outside medical facilities, thus reducing the potential for escape and risk to the attending medical staff and citizens within the local communities. Other organizations are using telemedicine to meet their mission needs. For example, NASA is interested in telemedicine primarily to understand its application to medical care in space for future long-duration platforms, such as a space station, and minimize the risk of inadequate medical care for astronauts, which would increase the probability of mission success. The Department of Commerce has two core programs that promote private sector development of advanced telecommunications and information technologies for health-related projects. Within the Department of Agriculture, the Rural Utilities Service plays a key role in the rural aspect of the National Information Infrastructure. One grant awarded in 1996 will help the Rural Utah Telemedicine Associates to implement a mobile health clinic that will provide primary care and specialty consultation via telemedicine technology to rural communities with few or no health care providers. Some interagency coordination occurs on an ad hoc or narrow basis (e.g., through symposiums, technology demonstrations, and joint programs), but this approach does not necessarily provide a firm basis for technology exchange. Many agency officials we met with cited the lack of an established coordination mechanism as an obstacle to determining information that could help advance telemedicine. Further, some agency officials were concerned about possible redundant efforts, especially those related to teleradiology—the most common current application of telemedicine supported by federal funds. However, the officials lacked information to determine whether the work was redundant or actually complemented other’s efforts. Several agency officials said that some federal telemedicine efforts repeated previous mistakes rather than benefited from them because information on previous efforts was not available. To help fill the information gap, DOD funded JWGT’s project to develop a database of all federally funded telemedicine projects. JWGT considers such an inventory a critical first step toward achieving coordination across federal agencies. The database should allow federal agencies to more easily learn about the federal investment in various telemedicine projects. JWGT will make this database available to the public on the Internet to assist states and communities with their own telemedicine plans. Because of the magnitude of the federal government’s involvement in telemedicine development, JWGT has thus far been unable to develop an accurate, comprehensive inventory of federal projects. JWGT believes that its efforts to develop an inventory have demonstrated the weaknesses in the information maintained by federal agencies and highlighted the need for greater attention to routine data collection on federally funded programs. For example, departments or agencies have many different definitions of telemedicine, making it difficult to collect compatible data. The inventory, originally scheduled for release in June 1996, was expected to be released by the end of January 1997. JWGT stated that each participating agency would be responsible for maintaining the inventory. However, members of JWGT have expressed concern as to whether each of the agencies would be supportive of maintaining their inventories. In addition, JWGT meets approximately twice a month to help coordinate federal telemedicine activities and share relevant information. JWGT meetings include over 60 individuals representing executive branch agencies. However, no representatives from each service’s Surgeon General’s office or DARPA attend these meetings. Further, private sector participation was limited mostly to professional medical associations. In addition to the lack of an overall federal telemedicine strategy, federal agencies do not have departmentwide strategies to maximize the value of their telemedicine investments. If each agency involved in telemedicine had its own strategy, a governmentwide strategy could be built from it. The absence of departmentwide strategies has contributed to unclear definitions of telemedicine and the lack of a comprehensive inventory of telemedicine projects among all involved federal agencies. DOD, as well as other federal agencies, are beginning to recognize that an intra-agency strategy may be the first step to target their investments in telemedicine. According to the Assistant Secretary of Defense for Health Affairs, who oversees the Military Health Services System (MHSS), telemedicine will be a major enabling technology in reengineering health care delivery in DOD and throughout the United States. The Assistant Secretary believes that a mature telemedicine infrastructure can reduce health care delivery costs, but mechanisms must be put in place to manage the infusion of telemedicine into application while still proceeding with appropriate research and development or prototype efforts. However, no such mechanisms are currently in place in DOD. DOD has recognized the need for a strategic plan to fulfill its telemedicine vision, as stated in the December 1994 testbed plan published by the U.S. Army Medical Research and Materiel Command. This document also stated that the Telemedicine Technology Integrating Committee, led by the Commanding General of the Medical Research and Materiel Command, would develop a plan that would provide a framework for multispecialty integration of entrepreneurial efforts and ensure the optimum use of scarce resources for DOD’s peacetime and wartime medical activities. However, no milestones were established for accomplishing this plan. Health Affairs officials told us that they are responsible for developing an overall strategic plan for telemedicine. As of December 1996, the Assistant Secretary of Defense for Health Affairs had not approved this plan. Officials told us that the DOD telemedicine organizational structure resulting from this plan would be modeled after the one established for DOD’s information management and information technology systems. However, no other details were available. Some defense organizations have begun developing their own strategic plan. For example, in June 1996, the Center for Total Access, which includes TRICARE Region 3 and the Army’s Southeast Regional Medical Command, published a 5-year strategic plan to support both commands.The plan recognizes the need for telemedicine projects to adhere to specific guidelines and provides a framework for ensuring that the projects and initiatives undertaken conform to an open standards environment and that new telemedicine initiatives can easily be integrated with existing systems. However, this regional telemedicine plan could be fundamentally different than the strategic plans of the other 11 TRICARE regions. Many officials expressed concern as to how telemedicine would be integrated into the continuum of DOD medical care—from the battlefields overseas to the medical treatment facilities in the United States—with so many activities underway and no overriding strategy to link them together. For example, the Army Medical Department must provide mobile, flexible support for its own forces across long distances in a variety of wartime environments. The Army has developed a mission needs statement for medical communications in combat casualty care and established a program manager under an Army program executive office for this work. The Air Force’s medical forces are responsible for most of the air evacuations from the theater of operations to the United States in wartime, but the Air Force is not part of the Army’s medical communications initiative. Army officials acknowledged that this initiative should eventually be a triservice program. Further, no parallel mission needs statement ensures the continuum of care from theater to the continental United States. Without a formal strategy to define the goals and objectives of DOD’s telemedicine initiatives, some DOD programs may be difficult to justify and therefore may be in jeopardy. For example, research and development efforts led by DARPA are subject to discontinuation due to a change in the agency administrator’s priorities. DARPA initiated its telemedicine efforts in fiscal year 1994 with a defined program to find ways to improve medical care on the battlefield. Even though DARPA’s efforts are starting to mature, there is no clear plan regarding how individual projects will be infused into application. DARPA will be looking to the individual services to continue its research and development function. NASA, a pioneer in developing telemedicine technologies for almost 40 years, is developing a strategic plan for its telemedicine initiatives. The plan will address the use of telemedicine in the human space flight program and the use of NASA-developed technology in telecommunications, computers, and sensors to enhance health care delivery for humans in space. The plan will also incorporate industry input into these areas. According to 1994 VA testimony, the use of telemedicine is having a major impact on VA’s approach to health care, but VA does not have a telemedicine strategic plan. To provide overall leadership to its telemedicine program, VA recently established the position of Chief of Telemedicine. This official serves as the principal advisor on telemedicine to the Offices of the Under Secretary for Health, Patient Care Services, and Chief Information Officer. VA officials told us that the Chief of Telemedicine would develop a strategic plan. Other responsibilities of the Chief include facilitating the coordination of VA facilities undertaking telemedicine projects; overseeing VA activities regarding selection, funding, and evaluation of telemedicine projects; consulting with medical centers about the application of telemedicine standards; and identifying needs for telecommunications and infrastructure support. HHS does not have a strategic plan linking the efforts of its six agencies investing in telemedicine. HHS officials believe that JWGT effectively communicates information about telemedicine development to the six applicable HHS agencies. However, agency officials acknowledged that a strategic plan may be needed. The officials also stated that such a plan should strengthen, support, and build on the work of JWGT and not create a new bureaucracy. Although DOD has a large and growing investment in telemedicine, it has not yet structured its telemedicine initiatives, which are led by numerous organizations, to determine if, collectively, their cost is commensurate with potential benefits DOD stands to gain. Within DOD (1) the roles of numerous key players are still evolving, (2) the telemedicine domain is unclear, (3) comprehensive program budgeting has not occurred, and (4) partnerships with the private sector have not been fully explored. Further, DOD’s telemedicine activities may be indicative of other federal agencies’ telemedicine efforts. Many different DOD organizations generate telemedicine projects, including the ones shown earlier in table 3.1. The problems of organizational responsibilities are exacerbated by the large number of organizations involved in telemedicine activities. In September 1994, the Assistant Secretary of Defense for Health Affairs designated the Army Surgeon General as the DOD Executive Agent for telemedicine and established the “DOD Telemedicine Testbed Project” to explore and develop new clinical approaches for using telemedicine. The Commander of the Army’s Medical Research and Materiel Command was designated as the testbed’s Chief Operating Officer, and the Command’s Medical Advanced Technology Management Office (MATMO) was designated the principal manager and administrator for the testbed. However, the responsibilities for the Executive Agent, Chief Operating Officer, and MATMO were never approved in a charter. Air Force, Navy, and other agency officials told us that an office similar to MATMO is needed to bring focus and coordination to telemedicine within DOD. They also said that MATMO has been too focused on mainly supporting Army deployable telemedicine projects and excluding the other services’ needs. It was difficult for us to distinguish between what MATMO initiates for the DOD-wide testbed and what it is pursuing for the Army. Most of MATMO’s accomplishments are associated with the Medical Diagnostic Imaging Support system, which the Medical Research and Materiel Command was involved with before the Army became the DOD Executive Agent for telemedicine. Further, many service officials we met with, except from specific Army programs, were either not familiar with MATMO or were not getting guidance from them. For example, the Air Force program manager responsible for initiating a program in TRICARE Region 6, which Health Affairs expects to be a model for other TRICARE regions, had not received any assistance from MATMO in designing the program. The official told us that he relied on officials from the Medical College of Georgia for assistance. In addition, Navy telemedicine program officials at Camp Lejeune, North Carolina, were familiar with MATMO but relied on East Carolina University for advice. Further, this official stated that a group of TRICARE regions were attempting to develop their own coordinating mechanism on the Internet. Other layers of oversight have evolved without clear responsibilities, with the Army fulfilling many key positions. Executive oversight of the testbed was vested in a Board of Directors, chaired by the Assistant Secretary of Defense for Health Affairs. Board members include the Director, Defense Research and Engineering; the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence; the Joint Staff Director for Logistics; the three Surgeons General; and the Director of DARPA. At one point the Army Surgeon General served as both the Executive Secretary of the Board and as the Chief Executive Officer of the testbed. With the retirement of the former Army Surgeon General, the Navy Surgeon General became the Chief Executive Officer. However, the Chief Executive Officer’s responsibilities have not been defined. In addition, the Army Medical Department and MATMO had been responsible for overseeing evaluations of telemedicine projects, such as those being demonstrated in Bosnia. Army officials informed us that this responsibility was being transferred to another service; as a result, the future of some of the Army’s and MATMO’s efforts was undecided. Other officials told us that the change was being made to prevent any conflict of interest on the Army’s part, since the Bosnia telemedicine deployment is primarily an Army effort. In August 1996, Health Affairs officials told us that its Information Management Proponent Committee would soon be responsible for providing oversight of telemedicine initiatives, including those under MATMO’s purview. However, officials could not provide additional insight at that time regarding the concept of this structure. In addition, another organizational change is underway that will impact on telemedicine, including DOD’s research and development initiatives. In June 1996, the Deputy Secretary of Defense directed the Army to take the lead in establishing an Armed Forces Medical Research and Development Agency. The future impact of this new agency on the organizations responsible for telemedicine functions and funding is unknown. A 1995 DOD Inspector General report suggested that DOD needed to define telemedicine more clearly. Without a consistent definition to describe telemedicine initiatives, responsible officials from the various DOD organizations participating in telemedicine efforts do not know precisely what their programs encompass. Although defense officials generally agree that telemedicine involves the use of communications technology to deliver health care, they have not agreed on the types of initiatives to include within the scope of telemedicine oversight. For example, some Army and DARPA officials consider patient identifiers that allow the electronic storage of medical information on a card or dog tag-like device to be the first element in an integrated telemedicine system, but the Navy does not view these devices in the same manner. Air Force officials initially classified one of their projects as telemedicine but later said that the project fell outside of its definition of telemedicine. The project, called Provider Workstation, is intended to provide medical personnel with the capability to access medical records on a personal desktop computer no matter where the patient or the relevant information is located. Air Force officials now identify this project as one of its many medical management information systems. However, a 1996 DOD Inspector General report noted that Provider Workstation was a successful DOD telemedicine project. Although MATMO tried to identify the full scope of telemedicine projects that might fall within its oversight function, our analysis revealed that its inventory (1) did not include the services’ actual telemedicine efforts and DARPA-initiated projects and (2) contained inaccurate information. During the course of our review, MATMO and Health Affairs provided us information on six different inventories that included anywhere from 22 to 94 projects. In addition, a Health Affairs official told us that Health Affairs did not directly fund any telemedicine projects, but several telemedicine project managers informed us that they received funding from Health Affairs. DOD has not developed a comprehensive telemedicine budget or program objective memorandum. In a 1994 memorandum to the Army Chief of Staff, the Director for Program Analysis and Evaluation noted that the concept of telemedicine needed to be defined by the Office of the Army Surgeon General to compete for funding during the budget process. Funding for telemedicine has been derived from other programs or congressionally directed. Some service officials are especially concerned about budgeting for MATMO projects because MATMO managed about $47 million during fiscal years 1995 and 1996 in telemedicine initiatives that were funded by Health Affairs or reprogrammed through the Medical Research and Materiel Command. Service officials have pointed out that MATMO does not have an approved funding line and therefore can operate outside the normal DOD development and acquisition process. As a result, none of MATMO’s telemedicine projects are subject to milestone decisions, cost-benefit analyses, or life-cycle management decisions, which are all required in the acquisition process. MATMO officials believe that their approach is necessary at this time because technology is changing at such a fast pace that the normal acquisition cycle would prevent DOD from capitalizing on the newest telemedicine technology. Other than the telemedicine initiatives led by DARPA, few partnerships between the private sector and DOD are planned. The Medical Research and Materiel Command attempted to promote a collaborative working relationship between the Army and the private sector. The Command was planning to develop state-of-the-art telemedicine technologies—called the U.S. Army Federated Laboratory Concept—that are focused on combat casualty care. In May 1995, the Command issued a broad agency announcement. Interested parties were required to form consortiums involving health service providers, industry, and academia. Two parties whose proposals had not been accepted stated that DOD needed a more defined plan to which the private sector could respond. However, funding for the laboratory concept had not been programmed and was therefore subject to the availability of reprogrammed funding. Although the Navy is seeking to form partnerships with academia, industry, and other government agencies, East Carolina University School of Medicine and Pitt Memorial Hospital, instead of Portsmouth Naval Medical Center, took the initiative to integrate the Camp Lejeune Naval Hospital in a telemedicine network. The TRICARE region that encompasses Camp Lejeune does not have a telemedicine strategy that identifies goals for pursuing such partnerships. Also, according to Army Medical Department officials, the Army’s Great Plains Health Service Support Area, responsible for managing medical care at Army facilities in 14 states and Panama City, has attempted to establish cost-sharing agreements with Texas Tech and a VA clinic in the area, but these attempts have been unsuccessful because of the lack of clear goals and objectives. Given the wide range of private sector players in the implementation of telemedicine, it is understandable that no single private sector strategy exists to advance this emerging technology. For example, manufacturers develop new products, utility companies build the telecommunications infrastructure, professional organizations develop health care standards, health providers deliver medical care, and special interest groups promote the use of new technologies. Each of these groups has its own interests and strategies for advancing telemedicine. Nonetheless, the private sector is an important player in furthering the development and application of telemedicine technologies. Two private sector health care providers—the Mayo Clinic and Allina Health Systems—and a major telecommunications company—American Telephone and Telegraph (AT&T)—illustrate the critical role played by the private sector in advancing telemedicine and developing strategies for greater usage of this emerging technology. Telemedicine at the Mayo Clinic evolved to facilitate integration of group practices at three separate locations—Jacksonville, Florida; Scottsdale, Arizona; and Rochester, Minnesota. In 1986, the Mayo Foundation installed a satellite-based video system that enabled physicians, researchers, educators, and administrators to communicate with each other. When the Jacksonville and Scottsdale facilities were not fully staffed, they used specialists from Rochester via telemedicine for four or five consultations per week. However, with the addition of specialists at the Jacksonville and Scottsdale locations, the telemedicine system was increasingly used for education, research, and administrative purposes. According to Mayo, in 1995, its telemedicine system was used for over 700 telemedicine consultations in echocardiology between Rochester and the other two sites. Mayo is also involved in a project supported by NASA and DARPA to explore the combination of satellite communication and terrestrial services in an economic telemedicine model. To conduct the project successfully, Mayo has assembled a consortium of leaders in the industry (Hewlett-Packard, General Electric Medical Systems, Sprint, U.S. West, Martin Marietta, Healthcom, and Good Samaritan Hospital in Arizona), along with Mayo Foundation entities. The results from this project will help determine a strategic policy for telemedicine at the Mayo Clinic and provide knowledge about the use of asynchronous transfer mode technology for local area and wide area networks. Mayo officials told us that there has to be a need for which telemedicine is a solution—otherwise telemedicine applications will not be financially viable. These officials believed that managed care organizations may ultimately drive the development of telemedicine. A representative from Allina Health Systems, a managed care organization and insurer from Minneapolis, Minnesota, stated that the market will determine the pace and extent to which it expands its telemedicine services. Along with an alliance of eight rural hospitals, Allina has operated since 1995 a telemedicine network that links hospital emergency rooms. Allina believes that emergency medicine in rural areas is the best application of telemedicine currently available for its operation. As of October 1996, Allina’s telemedicine network had been used for about 130 medical consultations and about 450 emergency service consultations. Allina’s network is a single-state system, which eliminates concerns about licensure requirements that plague many telemedicine efforts. The use of Allina’s telemedicine network in urban areas is quite different than its use in rural areas. For example, in urban areas there is more extensive use of the system for administrative and educational purposes and virtually no use for consultative purposes. Allina recognizes the need for better cost-benefit data to justify major investments in telemedicine and prove that the applications are worthy. Toward this goal, the company plans to improve the development of project evaluations and its marketing strategy. Allina must decide in the near future whether to view its telemedicine initiative as a service and thus a cost of business or as a separate business entity or profit center. One of the complicating issues is that so many variables in measuring costs are difficult to separate (i.e., normal operating costs versus special costs associated specifically with telemedicine). AT&T’s strategy for telemedicine development involves developing services for telecommunication applications, transactions, and networking and providing telecommunications and some training for computer-based medical systems. These efforts have accelerated since the creation of the National Information Infrastructure. AT&T’s involvement in telemedicine efforts is largely due to the company’s perception, which was confirmed by clients, of a need for reliable and secure communication lines for health care. AT&T is making a substantial investment—both financially and from a personnel resource perspective—in telemedicine development. For example, an official told us that by December 1996 AT&T expected to assign about 100 staff members to servicing or managing one agency’s telemedicine system. Even though it has contracts with federal agencies and is assisting many private sector groups, AT&T plans to seek FDA review of its products and services. AT&T said that many products involving telemedicine are possible but that customers may not be willing to pay for them. As a result, manufacturers must make certain that there is a market for the products being developed. HHS commented that our report should acknowledge the role that the High Performance Computing and Communications Program has played in the coordination of federal telemedicine research and development activities. During our review, we collected data from the National Library of Medicine on funding from this program specifically for telemedicine initiatives. However, agency officials did not highlight to us the role that this program plays in coordination of telemedicine activities across the federal government or with JWGT. We believe that the program is one of several federal initiatives supporting telemedicine initiatives. However, we did not evaluate the program, since it was beyond the scope of our review. Telemedicine offers numerous benefits for the military, other federal and state government organizations, the private sector, and individual patients because it eliminates distance as a factor in treating patients. Such benefits include access to care where it is not otherwise available; improved quality of care; and, in many instances, reduced costs. However, costs could increase due to investments in infrastructure and increased utilization of health care services. No comprehensive studies have been completed to prove that telemedicine delivers cost-effective, quality care. Early efforts included few consultations and only provided anecdotal, or retrospective, observations about the benefits. Several federal agencies and the private sector are beginning to implement some comprehensive studies, but results from most of these studies will not be known for several years. By eliminating distance as a factor in treating patients, telemedicine benefits health care providers and patients, no matter whether the setting is a military site, rural hospital, or correctional facility. Without telemedicine, persons who need specialized care could be left untreated; improperly treated; or, if time and circumstances permitted, transferred to another facility for the care. Telemedicine provides benefits to the various groups by allowing access to care where it is not otherwise available and improving the quality of care delivered. In addition, telemedicine may, in many instances, reduce health care delivery costs. For the medic on the battlefield, telemedicine provides immediate access to a clinician with greater skills so that they can work together to save a soldier’s life. DOD believes telemedicine could reduce the mortality and morbidity rates on the battlefield by as much as 30 to 50 percent. Quality trauma care depends on the timely, efficient, and accurate flow of information at each step of the crisis management process. Telemedicine can provide the vehicle for this flow of information, which includes patient information, treatment records, and medical knowledge. Telemedicine could provide a “bridge” for the 100,000 to 150,000 personnel deployed on military ships around the world who have limited access to medical diagnostic and consultant services. For example, during a 6-month Western Pacific deployment in 1995, sailors aboard the aircraft carrier U.S.S. Abraham Lincoln had access to enhanced specialist medical care from the Naval Medical Center in San Diego, California, 6,000 miles away. That access proved critical for one sailor who injured his hand on a gun mount. The injured sailor was transferred from another ship to the Abraham Lincoln with the gun mount part still implanted in his hand. X-rays and video of his injury were transmitted to San Diego where a specialist consulted with the ship’s surgeon to treat the injury. The sailor returned to light duty on his ship 3 days later. Another case involved a sailor aboard the U.S.S. Enterprise who sustained a neck injury on the flight deck. Immediate telemedicine consultation was able to rule out a cervical fracture. For peacetime military health care, telemedicine allows remote military treatment facilities to link up with DOD medical clinics to obtain specialized health care. Similarly, telemedicine allows rural communities to communicate with larger medical facilities to obtain specialized care. For example, a physician in remote Montana can send a trauma victim’s x-rays to a large hospital in Seattle, where a radiologist can confirm that the patient has a broken vertebra and needs to be evacuated immediately. The states and private sector can also benefit from improved access to health care. For example, an emergency medical technician on an ambulance call or at a disaster site can use telemedicine to provide immediate access to an emergency room physician who has greater knowledge and can provide guidance to the technician to perform skilled procedures to save an individual’s life or limbs. Improved access to health care is especially important to patients in remote areas. For example, the University of Washington’s telemedicine network serves four communities in remote locations in the states of Washington, Alaska, Montana, and Idaho. Each site is located in an area with rugged terrain and extreme cold weather, which can make travel extremely dangerous or impossible. In addition, the Georgia Statewide Academic and Medical System is dispersed among 60 health care facilities to ensure that all state residents have immediate access to quality health care. Many of the state’s large, poor rural populations may lack adequate access to health care without traveling long distances. Of the state’s 159 counties, 9 have no physician, 85 have no pediatrician, and 140 have no child psychiatrist. Finally, telemedicine may allow physicians to provide medical care to patients in their homes. For example, VA’s Eastern and Western Cardiac Pacemaker Surveillance Centers routinely use standard telephone lines to monitor the electrocardiograms of pacemaker patients from their homes. A 1996 VA testimony indicated that the surveillance centers save time and effort, provide pacemaker expertise to remote and underserved areas, and decrease the need for pacemaker clinic appointments. In addition, pacemaker monitoring improves health care quality and is convenient for veterans, since they can be monitored 24 hours a day from any place that has a telephone. VA estimates it has made over 386,000 “house calls” from 1982 to 1996, or about 2,300 a month, using this system. In another effort, the Army’s Center for Total Access at Eisenhower Army Medical Center joined the Medical College of Georgia, the Georgia Institute of Technology, and a local cable company to develop a telemedicine home health care network, known as Electronic Housecall. This program, which became operational in February 1996, links a nursing home and the homes of 25 chronically ill patients with their health care providers. Through daily monitoring, the health care practitioners should be able to detect early changes in the patients’ condition. If practitioners find changes, they can prescribe a different treatment or request that patients come in and see their physician. By detecting problems earlier, hospital stays may be avoided or reduced. Each patient selected for this project was chronically ill and averaged six or more hospitalizations per year at an average cost per hospital stay of about $25,000. Telemedicine gives health care providers a chance to enhance their skills and expand their professional knowledge by linking providers with experts. In remote locations, health care is provided by general practitioners. When the practitioner believes a patient needs specialized care, the practitioner frequently has to refer the patient to a specialist in a different location and may not be present in the consultation between the patient and the specialist. With telemedicine, the general practitioner is present during the consultation and can learn from the specialist. Telemedicine advocates expect that such experiences will increase a practitioner’s medical knowledge, which in the future may help the practitioner to diagnose and treat illnesses earlier or determine that the patient needs to see a specialist right away. Enhanced knowledge would have been helpful to general practitioners and medics during the Vietnam War. According to an Army dermatologist, if telemedicine had been used during the war, the number of hospitalizations, evacuations, and days lost due to skin diseases could have been reduced by about one-third. Skin disease was the primary reason for outpatient visits to Army medical facilities during the war. Between 1968 and 1969, skin diseases accounted for 47 percent of total days lost for the U.S. 9th Infantry Division. According to the dermatologist, if the general practitioners and the medics at the forward facilities had been able to consult with skin specialists via telemedicine, they would have learned to recognize and treat skin diseases earlier. Telemedicine also has the ability to deliver continuing medical education to deployed medical units and remote health care practitioners so that they have the opportunity to enhance their professional knowledge without having to travel. For example, medical units in Bosnia received weekly continuing education classes via telemedicine from a DOD medical center in the United States. Two of the classes covered acute care of burn victims. One week after the classes, two soldiers in Bosnia were severely burned in an explosion. The medical unit used what it had learned in the classes to stabilize and treat the soldiers until they could be transferred to a facility with more skilled care. According to medical unit personnel, without the classes the soldiers would not have received the same quality of care at the site. The Medical College of Georgia offers one continuing professional education credit for the referring health care practitioner participating in telemedicine consultations. The University of Washington’s School of Medicine is the only medical school directly serving the states of Washington, Alaska, Montana, Idaho, and Wyoming. The medical school operates a medical education program via a telecommunications network to affiliate teaching facilities in these states. In California, a health maintenance organization provides continuing medical education over its telecommunications networks. One of the organization’s programs delivers monthly lunch-hour medical education classes that reach about 1,000 of its 3,500 physicians. An Arthur D. Little Foundation study published in 1992 on the U.S. health care crisis said that just the video conferencing component of telemedicine used for remote medical consultations and professional training could reduce health care costs annually by over $200 million. For example, video consultations can shorten diagnostic time, reduce treatment time, and decrease hospital stays. Telemedicine can also reduce evacuation or travel costs incurred when patients and specialists have to travel for consultations. Several service officials believe that telemedicine’s biggest cost benefit to DOD will be its application to the reengineering of health care delivery during peacetime. In fiscal year 1997, MHSS’ budget is over $15 billion and includes 115 hospitals and 471 medical and dental clinics operating worldwide. In a case involving 12 patients over a 4-month trial period, Eisenhower Army Medical Center’s critical care telemedicine project with Fort Stewart’s hospital saved DOD at least $54,000 in transportation costs and expenses associated with the Civilian Health and Medical Program of the Uniformed Services. Two patients did not need to be transferred to Eisenhower or the local hospital, and one patient’s stay at a non-DOD hospital was shortened. Teleradiology used on a 4-month deployment of the U.S.S. George Washington in the Mediterranean Sea and Indian Ocean eliminated the need for 30 evacuations and saved about $100,000. Telemedicine also saved DOD $63,000 in evacuation costs during its deployment to Somalia. Telemedicine can provide cost savings to states in prison health care transportation costs. For example, since Georgia began using telemedicine in its prisons in 1993, only about 25 percent of the prisoners seen via telemedicine had to be transferred to another facility for further treatment. In the first 10 months of 1995, 218 consultations were done, saving between $82,000 and $246,000 in transportation costs for those consultations that did not result in a transfer to another facility. In Texas, the Department of Criminal Justice contracts with the University of Texas Medical Branch at Galveston and Texas Tech Health Sciences Center to provide health care to its inmates in correctional facilities. In the first 20 months of operation, 2,607 telemedicine consultations were conducted with high patient satisfaction. An evaluation showed that about 96 percent of the consultations saved at least one trip to the Galveston Medical Center at an estimated cost of about $190 per trip, or about $495,000. Telemedicine can also provide savings in hospital costs. Initial data from the Medical College of Georgia showed that over 80 percent of patients seen via telemedicine did not need to be transferred from their primary medical facility to a specialized care facility. Given the cost difference of between $500 and $740 per day per bed between rural hospitals and the Medical College of Georgia, cost savings resulting from telemedicine may be significant. In Minnesota, a managed health care company and a rural health care company formed a partnership to develop a rural telemedicine network. As part of this network, eight rural hospitals were connected to a larger community hospital for emergency room consultations. Early indications have pointed to overall cost savings for the participating facilities. For example, one referring rural hospital was able to decrease its emergency room operating costs by $47,500 a year, even after paying an additional $50,000 fee to the community hospital for consultations. Due to the increased referrals from the eight rural hospitals and the yearly fees, the community hospital was able to eliminate its yearly $300,000 emergency room operating deficit. In addition, because telemedicine brings specialized health care to the patient, the patient does not need to take as much time away from work or duty to receive care. This results in increased productivity for the worker and the employer and fewer lost wages. In DOD’s case, reducing the time away from work results in increased readiness of its military forces. For example, Tingay Dental Clinic at Fort Gordon, Georgia, used telemedicine to provide specialized dental consultations to active duty personnel at Forts McPherson and Benning, Georgia; Fort McClellen, Alabama; Soto Cano Air Force Base, Honduras; Gorgas Army Hospital, Panama; and the Naval Dental Detachment, Key West, Florida. Without these consultations, the soldiers would have to take time away from duty and travel for specialized dental care. A study done by the clinic showed that soldiers at Fort McPherson saved at least one-half day away from duty for each consultation. A telemedicine project at Fort Jackson, South Carolina, decreased the amount of time a soldier missed basic training. Typically, a soldier on sick call would lose a whole day of training because of the time to drive to the clinic, wait to see the physician, get a prescription filled, and return to the field. Of 101 soldiers seen via telemedicine, about 20 percent returned to training without going to the clinic. DOD officials believe that as the practitioners get more familiar with the equipment and the medical procedures are streamlined, more than 50 percent of the soldiers will be able to return to training without going to the clinic. Although some data show that telemedicine can save costs, other data indicate that there is a high cost for using telemedicine both in total dollars and per consultation. Main factors include infrastructure start-up costs and operational costs of the systems and equipment. For example, the infrastructure start-up, equipment, and operational costs for DOD’s telemedicine deployment to Bosnia are estimated to total about $30 million, and only about 60 consultations, excluding teleradiology cases, have been performed to date. Also, recurring basic telemedicine line charges in rural communities can run about $1,500 a month. Various officials expressed concern whether the volume of rural telemedicine consultations can ever be high enough to pay the recurring line charges as well as initial equipment expenditures. Another factor that will affect the cost of telemedicine is increased utilization by persons who previously did not have access to such care. According to the Institute of Medicine’s report on telemedicine, home monitoring via telemedicine may result in earlier identification and treatment of problems that would be more costly to treat if not caught early, but it may also identify more borderline problems that would generate more home or office visits. The potential cost impact of inappropriate utilization of health services via telemedicine is a concern for many third-party payers, such a Medicare. These concerns are not as apparent in managed health care settings, including DOD and VA, where many costs are fixed, including physician salaries. On the other hand, fee-for-service providers receive their income from the volume and type of services provided. In such settings, some providers may use complex and costly medical technologies when less costly techniques may suffice. Without a payment support mechanism, infrastructure or health care providers may not consider telemedicine alone to be capable of delivering a sufficient return to justify their investment. However, if multiple applications are available to use the infrastructure, such as those related to business, education, or entertainment, the infrastructure cost can be shared among the various users. Officials at the Health Care Financing Administration (HCFA) are also concerned that Medicare expenditures could significantly increase if Medicare were to begin reimbursing for telemedicine consultations. Various reports have cited an estimate that telemedicine consultations could increase the total Medicare budget by $30 billion to $40 billion annually by the year 2000. Our review found no evidence to support this increase. HCFA officials indicated that the agency could not estimate what the impact would be to the Medicare budget if the federal government began reimbursing for telemedicine consultations, but the amount should be much less than the $30 billion to $40 billion increase cited by various reports. Although many individuals strongly believe that telemedicine is a good value, no one has quantified the benefits through a comprehensive cost-benefit analysis. Evidence supporting these beliefs is mainly based on anecdotal examples, small retrospective reviews, or personal opinions. In fact, the lack of comprehensive evaluations was a major theme throughout the 1996 American Telemedicine Association Conference. In the past, such studies have not been done because adequate sample sizes were not available or the financial resources for conducting the evaluations were lacking. However, several agencies are now funding or conducting comprehensive studies. Early telemedicine programs concentrated on demonstrating that the technology would enable the health care practitioner to diagnose and treat patients at remote sites. The primary focus was on whether the technology worked, and cost-benefit analyses were not built into these early projects. Despite 12 telemedicine deployments since 1993, DOD’s only documented studies appear in three articles in professional journals. DOD has compiled some lessons learned from Army deployments, the Advanced Warfighter Experiments, and Joint Warfighter Interoperability Demonstrations. These studies, however, had a limited scope and raised additional questions. A 1996 Army study on telemedicine deployments showed that telemedicine significantly changed the diagnosis in 30 percent of the cases seen and the treatment in 32 percent of the cases. However, the study noted that because of limitations, such as lack of follow-up and outcome data, response time, and user satisfaction, the data may provide limited results. Additionally, the exclusion of incomplete records may have also skewed the results. For example, the use of telemedicine may have precluded air evacuations, but there was little or no information on whether the patient had a worse outcome or needed evacuation after the consultation. Because of the lack of a central records system, it was impossible to follow individual cases to determine case outcomes. This study also noted that the types of patients seen in operations other than war differ from those seen in active combat, suggesting that the results may not be indicative of the benefits of battlefield telemedicine. For example, combat support hospitals are staffed to treat previously healthy young soldiers suffering from trauma and are not configured for pediatric patients and chronic infectious disease cases. The study concluded that further analysis may help determine if a combat support hospital in an operation other than war needs modification. It also suggested that the large number of dermatology consultations may indicate that dermatologists should routinely deploy with combat support hospitals. During its Advanced Warfighter Experiments in 1994 and 1996, the Army Medical Department demonstrated that medics using lightweight, hands-free, two-way radios were able to communicate with medical officers at battalion aid stations to provide lifesaving medical treatment. This communication impacted the number of soldiers who may have never been evacuated off the battlefield. However, few trends become apparent from analyzing the data from the different experiments. Some data showed that medics utilized the consultations more if the number of casualties was small. As the number of casualties increased, consultations went down. Because the time required to treat each casualty increased, other wounded could die while the medic was in a consultation. The Joint Warfighter Interoperability Demonstrations showed that the different services’ medical communication systems were incompatible with each other and the warfighter. Early rural health demonstrations have also provided some lessons learned about network structure, personnel, funding, and equipment considerations when establishing telemedicine networks. For example, HHS’ Office of Rural Health Policy (ORHP) compiled results and preliminary lessons learned from 1995—the first year of experience of 11 of its 25 telemedicine grantees—but it is too early to know whether these projects will be successful in improving access to care for rural residents. It is also unclear how the projects will affect the multispecialty hospitals, rural hospitals, and clinics that are part of these networks. Further, an ORHP internal study reported that developing a telemedicine network is complex, requiring coordination and cooperation from multiple players both within and outside the health care arena. A number of DOD organizations are planning and implementing telemedicine evaluations. However, there is little coordination among the sites in developing these evaluations. In addition, the evaluations may not be used outside each organization to develop a DOD-wide database or collective evaluation to provide DOD policymakers with data they can use to establish a DOD strategic plan or prioritize funding. Some TRICARE regions are planning to evaluate telemedicine costs and benefits. Tripler Regional Medical Center in Hawaii allocated $700,000 to fund an evaluation of its telemedicine initiatives. The evaluation will address (1) clinical outcomes, (2) patient and provider satisfaction, (3) costs and benefits, (4) human behavior factors such as personnel and training, and (5) organizational impact. According to officials, the telemedicine protocols and evaluation tool were developed without coordination with other TRICARE regions, although they were shared among DOD agencies during an August 1995 workshop in Hawaii on telemedicine evaluation methodologies. Two separate evaluations are planned for Madigan Army Medical Center’s teleradiology and telemedicine systems. The teleradiology evaluation, being developed and conducted by a Department of Energy contractor, will address the impact of the Medical Diagnostic Imaging Support/teleradiology on radiology operations, procedures, costs, and patient satisfaction. The evaluation of other telemedicine systems will identify (1) the impact of telemedicine procedures on the costs of collecting clinical information for consultations conducted at the military treatment facilities and VA’s Puget Sound Healthcare System and (2) the correlations of user and service characteristics to clinical information acquisition costs of telemedicine procedures. The study will result in lessons learned and a proposed methodology for future projects. VA’s medical center in Seattle is developing the study, which will be tested at all DOD and VA facilities in the Puget Sound area. The VA official responsible for developing the evaluation said that she has not received any input or assistance from DOD personnel, except for Madigan Army Medical officials. The Center for Total Access plans to evaluate its telecardiology program once it is operational. Center personnel are working with a MATMO contractor that is developing software, including cardiac protocols or standardized procedures. The Center’s director was unaware that a project at Tripler Regional Medical Center had already developed cardiac protocols. Wilford Hall Air Force Medical Center in San Antonio is planning to conduct a cost-benefit analysis of some of its telemedicine efforts. A goal of the analysis is to compare average costs per consultation for certain specialties with and without telemedicine. The project will gather information on referral patterns to the specialties and sites. This information will then be used to calculate an average cost to the government per consultation by site and specialty. The study will examine both active and non-active duty patients. Officials have not developed an approach to coordinate the evaluation with other TRICARE regions. Other federal agencies that are now funding or conducting large-scale, comprehensive evaluations of telemedicine include VA, the National Library of Medicine, HCFA, ORHP, and the Agency for Health Care Policy and Research. However, these evaluations are in the early stages and frequently have not been coordinated among or within agencies. Several civilian agencies have recently required their grantees and contractors to perform evaluations as part of their projects. Because most of these projects have not reached completion, evaluation results have not been reported. Some of these evaluations examine broad issues, and some will have a limited focus. For example, each HCFA telemedicine payment demonstration grantee in Iowa, Georgia, North Carolina, and West Virginia is evaluating the costs and benefits of reimbursing specialists for providing medical services via telemedicine to Medicare patients. Eleven of ORHP’s 25 telemedicine grantees will evaluate the relative effectiveness of their telemedicine project in a rural environment and identify barriers to effective implementation. Similarly, one project involving six rural Texas communities, funded by the Agency for Health Care Policy and Research, includes an analysis of the factors that facilitate or hinder the long-range commitment to telemedicine use for interactive video and continuing education. Each of the 22 contractors involved in the National Library of Medicine’s High Performance Computing and Communications Program will evaluate the impact telemedicine can have on health care access, quality, and cost. For example, a hospital in Boston will use telemedicine to provide educational and emotional support to families of high-risk newborns both during their hospitalization and following discharge. The program will examine the potential of telemedicine to decrease the cost of care for infants with very low birth weights by increasing the efficiency of care. A number of federal civilian agencies are working with the private sector to conduct comprehensive evaluations of telemedicine. For example, in fiscal year 1996, ORHP awarded $200,000 for the Telemedicine Research Center of Portland, Oregon, to develop a standard data set for telemedicine evaluation and conduct an objective and scientific evaluation of telemedicine programs. The project will last 2 years and cost $330,000. The purpose of the project is to collect basic information about the operations, utilization, costs, benefits, and sustainability of the rural telemedicine projects that ORHP funds. This report is expected to be issued in 1998. The evaluations will also develop an evaluation methodology rather than assess the success of a specific telemedicine project. For example, an Institute of Medicine study, titled “A Guide to Assessing Telecommunications in Health Care,” develops a framework for evaluating telemedicine’s effects on the quality, accessibility, costs, and acceptability of health care compared with alternative health services. The framework includes strategies or questions that could be used by anyone planning to perform an evaluation. One question is whether a teledermatology consultation provides the same quality of patient care and therefore the same outcome as a face-to-face consultation. Another question is whether the teleconsultation result provides more timely access to the dermatologist than a scheduled face-to-face consultation. Officials hope that this framework will standardize evaluations enough to promote comparability so that the results from individual studies can be combined to provide the evidence needed to quantify the benefits of telemedicine. JWGT also developed a discussion paper outlining a broad evaluation framework for telemedicine. The goal of this paper was to provide a document for an entity to design its own evaluation to meet its needs but at the same time be comparable to other studies. The Puget Sound VA evaluation will closely follow JWGT’s evaluation framework paper. Other evaluations will be follow-up or more comprehensive views of specific grants that had required their own evaluations. For example, ORHP sponsored a study by Abt Associates to estimate the use of telemedicine in rural hospitals and identify and describe those rural hospitals that are actively involved in telemedicine. The initial screening survey generated valuable information about the extent of telemedicine use in rural communities, but it also raised many new questions that must be addressed through a detailed follow-up survey. The final report, which included an in-depth follow-up survey, was issued in December 1996. Among other issues, the report addressed utilization, technologies employed, infrastructure costs, and accessibility. In another case, HCFA has signed a cooperative agreement with the Center for Health Policy Research at the University of Colorado to evaluate the effects of teleconsultation payments on access to services and quality of care for the five telemedicine projects HCFA supports. Under these projects HCFA will experiment with alternate payment schemes, including separate payments to providers at each end of the network as well as a single “bundled” payment to cover both providers. The center will collect information about diagnoses, health service utilization, patient and provider satisfaction, quality of care, and patient outcomes. This report is expected to be issued in early 2000. Several barriers, in addition to the lack of project evaluation, prevent patients and providers from realizing widespread benefits of telemedicine. Experts in telemedicine generally agree that these barriers can be primarily categorized as legal and regulatory, financial, technical, and cultural. Legal and regulatory barriers involve such issues as interstate licensing, malpractice liability, privacy and security, and regulation of medical devices. Financial barriers relate to reimbursement of providers and high infrastructure costs. Technical barriers are created by lack of standards and equipment incompatibility. Cultural barriers involve physician and patient acceptance. Most U.S. telemedicine networks that are not limited to teleradiology enjoy some financial support from federal grants and contracts for limited periods. Unless these networks can overcome telemedicine barriers, their sustainability is jeopardized once federal support lapses. The private sector, particularly fee-for-service providers, is generally affected by all barriers—legal and regulatory, financial, technical, and cultural. Federal sector agencies that directly deliver health care services, such as VA and DOD, are less affected than the private sector by legal and regulatory barriers, but cultural (particularly physician acceptance) and technical barriers hinder both sectors’ development of telemedicine. However, VA has an extensive telecommunications system that is available for health care applications. As a result, DOD, the Indian Health Service (IHS), BOP, and VA may be better positioned to advance the development of telemedicine. Figure 5.1 shows the segments that are affected by each of the barriers we have identified. Many groups and organizations in the public and private sectors are working individually and as partners to develop strategies and options for overcoming barriers to telemedicine. Legal and regulatory barriers to implementing telemedicine activities are licensure issues, malpractice liability, privacy and security, and regulation of medical devices. These barriers will require federal, state, and private efforts to solve them. Federal and state health policymakers and working groups representing federal and private sector interests (including national organizations and companies) are working individually and collectively on approaches for overcoming these barriers. As a focal point, JWGT is conducting an in-depth review of legal and regulatory barriers, among others, to gain a clearer understanding of the impediments that hinder the advancement of telemedicine. According to individuals we contacted and literature we reviewed, one of the major legal barriers encompasses the licensure of health care professionals providing telemedicine services in multiple states. In the United States, physicians must be licensed in each state in which they practice medicine to protect the health, safety, and welfare of the public. One issue facing many states is whether a physician who provides medical advice to someone in another state via telemedicine is in effect practicing medicine in the patient’s state. Another issue is that obtaining and maintaining licenses in other states can be a time-consuming and expensive effort. For physicians who regularly or frequently engage in the practice of medicine across state lines, the Federation of State Medical Boards of the United States, a private organization, developed a model act in April 1996 that would create a special license for physicians to practice telemedicine in a state where they are not currently licensed. If the model act is adopted by states, this special license could remove the need for physicians to obtain a full license in each state where they practice telemedicine. Physicians who merely consult with other physicians in certain states concerning medical diagnosis and treatment, however, are less likely to encounter licensing barriers than physicians having direct and frequent contact with patients in other states. In opposition to the model act, various national associations, such as the American Medical Association, recommended full and unrestricted licensure by individual states for physicians who wish to practice telemedicine across state lines. In contrast, the National State Board of Nursing has recommended one national license instead of numerous state special licenses. Our review of literature and other reports revealed that some states are beginning to restrict medical practice through telemedicine. At least 12 states have taken specific action regarding licensure of out-of-state physicians. Of the 12 states, 10 require out-of-state physicians to be licensed in their states. In the 11th state, Florida, out-of-state physicians who conduct telemedicine services do not need a Florida license as long as the physician who ordered medical services is authorized to practice medicine in Florida. In the 12th state, California, the state’s medical board is authorized to establish a registration program that would permit a practitioner located outside the state to practice in the state upon registration with the board. Licensing is generally not a barrier for federal agencies. Federally employed physicians who treat patients in government facilities are required to be licensed in only one state, which does not have to be the one in which they are practicing. However, if a federal physician treats a patient not eligible for federal benefits, the physician is required to have a license in the patient’s state. Similarly, licensing would apply if, for example, a VA hospital joined a telemedicine network that included private hospitals and VA physicians were required to see private patients. This licensing requirement would generally apply to all federal physicians. Malpractice exposure is always present in a doctor-patient relationship. The risk of additional malpractice liability constitutes another barrier to the practice of telemedicine in the private sector, particularly in networks that cross state lines. There is uncertainty whether a physician who uses telemedicine to “see” a patient in another state will be subjected to the jurisdiction of the courts in the patient’s state. Fundamental issues regarding telemedicine encounters remain vague. In its March 1996 report, the Council on Competitiveness noted that the issue of malpractice is perhaps the greatest unknown barrier. The Council believes that a key question is whether a distant physician who performs a telemedicine consultation will be held subject to the jurisdiction of the courts in the patient’s judicial district. It is unclear under what circumstances a remote encounter via telemedicine could subject a practitioner to malpractice litigation in the remote state. For example, one report suggests that the risk of malpractice is heightened when the practitioner is in one location and the patient, in another location, is in the presence of only a nurse or physician’s assistant. Even when physicians are at both ends of the telemedicine transmission, the specialist who guides or supervises the less skilled physician performing the procedure could be sued in a distant court for malpractice. Given this uncertainty and the relatively little guidance that the small number of lawsuits throughout the country can offer, the malpractice insurance industry is still considering whether the expansion of telemedicine requires a change in coverage to specifically include telemedicine in rating bases. Thus, if an individual physician believed his or her malpractice coverage was not sufficiently comprehensive to include the many facets of telemedicine, that practitioner’s willingness to engage in telemedicine could pose a barrier. These concerns are also expressed by the American Medical Association, which believes that the law is currently unclear where liability falls when two or more practitioners cooperate on a medical problem using telemedicine. One representative of an association of physician-owned malpractice insurance companies told us that she was aware of only four malpractice suits concerning telemedicine (all of which were settled out of court), but she believed that others might reach the courts soon because of the length of time for a case to come to trial. Medical malpractice issues in the federal sector differ from the private sector. In the federal sector, the controlling law is the Federal Tort Claims Act (FTCA), which for more than 40 years “has been the legal mechanism for compensating persons injured by negligent or wrongful acts of Federal employees committed within the scope of their employment.” FTCA provides that a suit against the United States for a wrongful act or omission by a federal employee or officer shall be the exclusive remedy permitted to a claimant and that no federal employee can be sued. Additionally, parallel provisions pertaining to VA, DOD, and HHS expressly state that malpractice and negligence suits against medical personnel of those agencies are barred and that the exclusive remedy is an action against the United States. Therefore, even though telemedicine is a potential cost to the government, the threat of malpractice suits against individual federal physicians is not a barrier. The protections of FTCA generally extend only to federal employees and officers acting within the scope of their employment and authority. The protections generally do not apply to a contractor of the United States. To date, no suits have been filed against the federal government involving telemedicine. Such suits, which are decided according to the law of the jurisdiction where the act or omission occurred, may help determine the scope of liability of the federal government for the practice of medicine. In the private sector, medical malpractice suits may be vulnerable to “venue shopping,” under which a patient can elect to bring suit against a practitioner in any state where that practitioner does business, regardless of where the act or omission occurred. A physician or institution that practices medicine in multiple states could be sued, therefore, in the state where jury awards are most favorable, even if the particular telemedicine consult being sued upon occurred elsewhere. Another barrier to widespread deployment of telemedicine applications and computer-based patient record systems is the public’s concern that the privacy and security of personally identifiable medical data will be jeopardized. One example that underscores concerns over the handling of medical records involved the leak of a confidential list of Pinellas County, Florida, residents with AIDS (Acquired Immune Deficiency Syndrome). The release of this list, which was on computer disc and had close to 4,000 names, revived concern about the proper handling of sensitive medical records. Among many federal agencies, there is strong interest in the development and use of computer-based patient record systems and other transmission of medical data via telecommunications networks in support of patient care, clinical research, health services research, and public health. An integrated information system (1) allows medical providers to have access to a patient’s medical record, even if the paper record is not available, and quickly assembles patient information from multiple sources (x-rays, pharmacy, and lab). Once this information is assembled, provider organizations, practitioners, payers, and the public sector would be able to move critical information among themselves. Such exchanges may enhance the ability of providers to render services across the continuum of care, reduce duplication, and improve the quality of care. The benefits of an integrated information system come with risks. A 1995 report from the Physicians Payment Review Commission acknowledged that the benefits of data integration capabilities offered by telemedicine systems are accompanied by risks of violating a patient’s right to privacy.The report stated that patients’ data privacy rights should be protected by obtaining a patient’s permission before participating in teleconsultations, including written agreement for recording of sessions and storage of tapes as part of medical records. Further, using data protection techniques during transmission could prevent disclosure. Even when patients are properly informed about the transmission or electronic storage of medical records, concern remains about the protection of such records by telemedicine providers, including security for the computer systems and other media on which they are stored. Several reports indicate an absence of state-to-state uniformity in confidentiality and privacy laws that could have an adverse impact on the transfer of medical data for use in telemedicine encounters. One study by the Office of Technology Assessment expressed concern that a videotaped consultation that becomes part of a patient’s medical record would be treated as the state treats other videotaped information on the patient.Because state laws governing the transmission and retrieval of patient medical records vary, officials are concerned about user verification, access, authentication, security, and data integrity. Efforts are underway to (1) identify the privacy-related issues that arise particularly from the electronic environment of computerized records and network information systems and (2) recommend policies to address those issues. In March 1995, the Vice President asked HHS to lead efforts to develop model institutional privacy policies and model state laws for health information in the context of the National Information Infrastructure. An interdepartmental working group on privacy is currently identifying privacy issues related to transmission of health information and other issues involving electronic communications technology and integrated data systems. The group will make policy recommendation to address these issues. The results of their efforts are being discussed at JWGT meetings. FDA has responsibility for ensuring that medical devices are safe and effective and minimizing exposure from radiation-emitting electronic products. However, FDA has not clarified which telemedicine components fall within its definition of medical devices. Further, some of FDA’s policies are out-of-date, particularly for computer software used in diagnosing patient conditions. Some manufacturers and others believe that these FDA policies and procedures have limited marketing of new products. FDA’s role has generated controversy in the telemedicine community. Some believe that telemedicine systems are medical devices in need of FDA review. Others believe that (1) these systems require FDA review no more than a telephone or fax machine used to communicate information used in patient diagnosis/treatment and (2) FDA regulation of telemedicine equipment may be unwarranted. In some instances, FDA’s review process for medical devices is complicated and lengthy. FDA’s basis for regulating certain software as medical devices is contained in its 1987 draft guidance and a 1989 update. According to the Council on Competitiveness’ March 1996 report, the review process for medical devices—which would also guide review of certain types of software—imposes an unworkable burden on software developers. In its July 1996 report to JWGT, FDA stated that major efforts are underway to define and develop software policy. The policy is expected to clarify the factors that determine which types of software are medical devices and the degree of regulatory scrutiny required. As a first step in developing a policy, FDA conducted a forum in September 1996 to address its role in regulating software for clinical decision-making and proposed future directions related to software distribution issues, risk categories, and notification requirements. Further FDA efforts will be subject to comment by relevant public and private sector interests to ensure broad input into future decisions. As of November 1996, FDA had not yet revised its policy. The lack of reimbursement for consulting physicians’ services and the prohibitive high cost of telecommunication transmission services have deterred the expansion of telemedicine. Without good management plans to ensure future sources of funds, some telemedicine networks may not be sustained after federal funding subsidies lapse. Currently, HCFA does not reimburse for telemedicine consultations for Medicare patients. One report indicated that HCFA’s current position is one of the major obstacles to telemedicine’s current use and future development. Fee-for-service providers who treat Medicare patients are affected by this obstacle, as well as those providers who are paid by insurers that follow HCFA’s lead when deciding what costs to reimburse. HCFA is concerned that reimbursing consultant services via telemedicine could significantly increase expenditures from Medicare trust funds, which are already facing threats to their solvency. A HCFA official stated that Medicare does not pay for telemedicine because it believes the standard practice of medicine requires an “in-person, face-to-face consultation” between the patient and practitioner for most medical specialties. In contrast, HCFA pays for telemedicine involving radiology and pathology because these specialties do not typically require face-to-face contact with the patient. HCFA also notes that with the exception of the American College of Radiology, the medical community has not developed practice guidelines for telemedicine. In the area of Medicaid, a recent JWGT report indicates that at least 12 states now cover some aspect of telemedicine under Medicaid, and other Medicaid programs are pursuing coverage. Since Medicaid does not mandate a face-to-face encounter, a waiver is not needed for states to add telemedicine as an optional covered service. In October 1996, HCFA announced that it will begin limited Medicare payments for telemedicine consultations in four states under a demonstration project. HCFA will evaluate those ongoing projects to (1) demonstrate the effectiveness of rural telemedicine systems and (2) develop, test, and evaluate payment methodologies for telemedicine consultations. Project evaluations are focused on the effects of telemedicine systems on accessibility, quality, and cost of health care. However, HCFA reports that until the analyses of the demonstration projects are completed, Medicare will not reimburse for video consults beyond the demonstration projects. Without proper research results and guidelines, HCFA, as well as other insurers, are concerned that reimbursement for these services will further increase the cost of medical services. An official from a managed care organization agrees with HCFA’s concern that increased access may result in increased utilization and thus increased cost. However, that official believes that expanded use of capitated managed care systems will enhance the appeal of telemedicine and reduce the need for HCFA reimbursement. Another frequently cited barrier to implementing telemedicine is lack of infrastructure in rural areas due to the prohibitive cost of running fiber optics or providing satellite, T-1, or Integrated Services Digital Network transmission service to a small end-user population. According to a 1995 HHS report, supporting the high fixed costs of maintaining a telecommunications infrastructure is clearly beyond the capability of small hospitals, particularly without subsidies or cost-sharing arrangements among multiple users. Small disparate rural telemedicine networks and other users do not have sufficient market power to negotiate favorable rates and service from telecommunications providers. Some states, including Texas, have intervened and directed utility companies to limit charges to nonprofit health and education organizations. An official of one network told us that, after state intervention, the long distance carrier reduced its monthly charge for T-1 lines from $2,500 to $250 a month. Our Georgia case study revealed that officials were concerned about the high costs of recurring line charges. VA, DOD, state, and private sector officials told us their recurring line charges ranged from $1,100 to $1,500 a month. In Georgia, the state temporarily subsidized line charges for remote sites on the state network. Some public officials, as well as private organizations within the state, worry that some smaller rural communities might have to close their centers once state funding is exhausted because they may not be able to afford the recurring monthly communication charge. Universal service and advanced telecommunications service provisions of the Telecommunications Act of 1996 are intended to reduce costs in two ways. First, it will promote competition among local access and long-distance providers to make the National Information Infrastructure affordable and widespread. Therefore, a larger array of services may be available to select from at competitive prices. Second, the act will require utility companies to equalize rates between urban and rural users. Strategic partnerships between the health care industry and infrastructure providers may also speed the development of advanced telemedicine systems. The Federal Communications Commission is implementing these provisions of the act but has not made official recommendations in this area. Local end users need a continuing source of revenue to support telemedicine programs once demonstration grant funds have lapsed, and some supporting programs have addressed that need. For example, the Department of Agriculture’s Distance Learning and Medical Link Grant Program requires applicants to demonstrate local financial support by providing evidence that their projects will be self-sustaining. The Institute of Medicine’s 1996 report acknowledges that few projects appeared to be guided by a business plan or the project features and results necessary for a sustainable program. In contrast, federal agencies are not required to earn a profit on their telemedicine networks, but substantial usage is necessary to achieve their goals of access to quality care. The Council on Competitiveness’ March 1996 report points out that those who do not have access or have limited access to quality care may stand to benefit the most from telemedicine, but they also may be the least able to pay for these services. Without some payment support mechanism, infrastructure or health care providers may not consider telemedicine alone to be capable of delivering a sufficient return to justify their investment. However, if multiple applications are available to use the infrastructure, such as those related to education or entertainment, the infrastructure costs can be shared, and the overall return on investment can be increased. The lack of clinical and technical standards for transmitting data is a major inhibitor to networking information systems. Many agencies and organizations will need to work together to resolve this problem. Radiology is the only medical specialty to develop technical standards, which are still being revised. Also, federal and other users experienced another barrier—difficulties with telemedicine equipment compatibility. Many challenges will be encountered in overcoming this obstacle. Another issue complicating telemedicine is the general lack of standards. These standards relate to data definitions, coding or content, and transmission of diagnostic images (e.g., speed, resolution, and image size). The general lack of documented record formatting standards has been a major inhibitor to networking information systems within and across managed care organizations and for other players in the health care system. Today, much of the data content exchanged, such as the patient’s relationship to the member, is left to the interpretation of individual managed care organizations; providers must make assumptions when coding claim data elements and frequently use coding standards employed by the provider’s system. According to our 1993 and 1994 reports, these distinctions are very important to the payor and provider, since they can affect which insurance company will be liable for a claim. Also, the Council on Competitiveness’ March 1996 report states that data requirements should be clearly articulated by health care entities, including (1) definitions of the data they need, (2) the format in which they expect to receive such data, (3) the way in which data should be submitted (e.g., electronically), and (4) the frequency with which data should be submitted. The standard that allows formatting and exchanging of images and associated information is known as the Digital Imaging and Communications in Medicine. This standard was developed by the American College of Radiology, the first to publish standards for any application for telemedicine, and the National Electrical Manufacturers Association, which represents companies that manufacture medical equipment. Numerous government agencies and other national organizations are involved in the health care information standards process. A number of other medical specialty organizations are working on standards for clinical practice for their profession, such as the American Academy of Dermatology and American College of Cardiology. Technology limitations, as well as equipment incompatibility, present challenges for both the public and private sectors. To successfully implement telemedicine within the framework of the National Information Infrastructure, interconnectivity and interoperability of multiple systems need to be ensured. For example, after purchasing one manufacturer’s telecommunication system, an Alabama VA hospital learned that its equipment could not fully interface with another manufacturer’s equipment purchased by another VA hospital. Worried that this incompatibility problem could surface again, one of the VA’s Veteran’s Integrated Service Network offices appointed a special committee to handle the procurement needs for all facilities in Alabama. As health care providers increase use of telemedicine, they will face increased challenges to coordinate equipment, hardware, and software components. The military has also experienced equipment incompatibility problems. In 1994 and 1995, the battle lab at Fort Gordon, Georgia, sponsored a Joint Warfighter Interoperability Demonstration in which industry, academia, and others were given an opportunity to demonstrate medical communication products with war-fighter applicability. Several officials associated with the demonstration told us that, during the exercises, some demonstrations were less than successful due to equipment incompatibility. In one demonstration, the Army found that its telemedicine equipment was not compatible with other Army command, control, and communication systems. In another exercise, a joint service demonstration failed because one service’s medical communications equipment could not “talk” to the others. From the perspective of the Army Signal Corps community, these sorts of impediments could pose serious problems on the battlefield. The Director of Combat Developments at Fort Gordon stated that, during an armed conflict, the Signal Corps assumes command and control over all communication systems, including medical communications. The Signal Corps worries that telemedicine equipment brought to the front will not be able to successfully integrate with the established battlefield communication infrastructures and therefore not be functional during a conflict. Also, the emphasis placed on high-technology systems without sufficient consideration of the specific clinical and health care requirements and infrastructure capabilities in each setting has created a poor fit between telemedicine system design and end-user needs. Given the constraints on financial resources in most communities in need of telemedicine services, every effort should be made to design scaleable systems that can serve the immediate and essential clinical and health care needs at minimal cost. Upgrading can follow as further needs are identified and the financial capabilities of communities increase. As the technology expands and the cost of equipment becomes more competitive, telemedicine systems will be able to increase their technical capabilities. In discussing telemedicine and deployed scenarios with service officials, we learned of circumstances that present unique challenges for the military. Traditionally, communications within the military have been used to enable command and control. Telemedicine requires communications that are provided in a functional manner and cross lines of command. In addition to new linkages, more sophisticated telemedicine technologies require the transmission of image data, which places considerable demands on bandwidth communications. DOD does not have a dedicated medical communications network. Therefore, telemedicine communications transmissions have to compete with other critical transmissions. In time of war, these requests could be for enemy coordinates or attack and defend commands. An Army official stated that if a medical facility used a secure military satellite to transmit medical information to and from the battlefield during an armed conflict, that facility would lose its neutral zone classification. Under the Geneva Rules of Conduct for Warfare, the enemy can engage any facility transmitting communication data over secured lines. This rule makes medical facilities in theater, normally protected from attack, open to enemy assault. Today, the combat medic does not have adequate means for video communication, and military medical treatment facilities have limited bandwidth available for telemedicine communications, both within the theater of operations and with connections to the sustaining base. Further, the Navy has an extremely challenging problem, since all data used must be transmitted and received using data links that are already used to capacity on most ships. Navy ships are deployed every day, regardless of national security posture. Our study revealed that military personnel are concerned about technical limitations associated with size and weight in relation to deploying telemedicine to the battlefield. For example, the Army’s prototype battlefield telemedicine unit in Bosnia, the Deployable Telepresence Unit, weighs about 3 tons and takes up about 400 square feet of space. Until the unit’s size and weight constraints can be overcome, advancing telemedicine to the front, where the majority of casualties occur, is not feasible. The Army is currently using data communications provided by the Defense Information Systems Agency for both Primetime III deployment to Hungary and Bosnia as well as peacetime regional telemedicine in Region 6 (Fort Hood, Brooke Army Medical Center, and Wilford Hall Air Force Medical Center). This agency is leasing commercial circuits. Future telemedicine requirements supported by this agency will be provided to the services as part of the agency’s Global Combat Service Support System, which is the unclassified part of the Global Command and Control System. According to Army Medical Command officials, the Warfighter Information Network, which embraces developing technologies, such as asynchronous transfer mode, fiber optic connectivity, and personal communications system cell phones, is expected to satisfy telemedicine bandwidth requirements on the battlefield and provide the needed link to the combat medic serving the combat arms. Cultural barriers must be overcome to sustain telemedicine networks with little usage after government subsidies lapse. These barriers fall into two categories: physician acceptance (which includes their discomfort with using high-technology equipment and their skepticism about diagnosing and treating patients at a distance) and patient satisfaction with using telemedicine. One way to increase utilization of telemedicine networks is to foster higher physician acceptance. Some telemedicine projects that experienced high usage have factors that may help other users. For example, officials from the Texas Department of Corrections believe they have alleviated physician acceptance concerns through the following actions: (1) caregivers from referring facilities visit the consulting physicians to discuss how consultations should be conducted; (2) technicians at both ends of the consultation operate the telecommunications equipment, thus freeing caregivers to perform clinical procedures; and (3) consultants seek clinicians’ advice on how to provide better care to patients. The findings of the Texas study are supported by the 1995 annual report to Congress by the Physicians’ Payment Review Commission, which concluded that physician acceptance issues may become less important as physicians gain experience and familiarity with telemedicine services. However, physician acceptance continues to be an issue, according to expert opinion and our data. According to an American Medical News article, among the many obstacles facing telemedicine, proponents say “people issues” worry them the most. Literature reveals that the reluctance of physicians to use telemedicine services may be influenced by their attitudes about quality, control of patient care and referral relationships, convenience, and fear that urban medical centers would steal rural patients. For example, some uninterested doctors reported scheduling difficulties, inability to actually examine patients, and unfamiliarity with the technology as reasons that have deterred them from participating in telemedicine activities. During our Georgia case study, various telemedicine officials often spoke about resistance to change. In one instance, medical personnel at a military clinic stated they were reluctant to use the teleradiology system primarily because they preferred having a radiologist on hand that they knew, trusted, and could rely on. In addition, the radiologists at the consulting facility were occasionally slow to respond to requests for consultations. Some physician resistance is due in part to the relative complexity of the systems currently in use. The equipment is not user-friendly; therefore, additional training is required to learn how to operate the equipment. Some VA telemedicine projects have also experienced low utilization because of physician reluctance. A 1995 journal article by HHS and the Telemedicine Center, Medical College of Georgia, states that the designs of current systems are driven more by technology than by the needs of physicians. To be successful, the article noted that telemedicine technologies may need to adapt to the needs of physicians and patients, not vice versa. Training was cited as a key component of any successful telemedicine system to help physicians with limited experience and comfort with computers. A June 1994 report of the Council on Medical Service, part of the American Medical Association, cited a need for physician education as it relates to instruction covering the spectrum from basic computer literacy to familiarity with expert diagnostic systems and knowledge databases. The association’s policy recommends that designers of clinical information systems involve physicians in all phases of system design and select technologies that are easily mastered, flexible, and acceptable to physician users. Patient acceptance with using telemedicine for consultations may be less of a barrier than physician acceptance, particularly in rural settings. A few limited patient satisfaction surveys found that the convenience of not needing to drive hundreds of miles to an appointment with a specialist outweighs any uneasiness of not seeing that specialist face to face. According to one researcher, patients in South Dakota and Florida have uniformly shown acceptance to telemedicine. An evaluation of the Texas criminal justice telemedicine project found that about 70 percent of the patients preferred telemedicine consultations to transportation to the tertiary care hospital and another 14 percent were neutral. A project sponsored by the University of Kansas found that patients were happy not to have to drive 300 or 400 miles just to see their physician. They also appreciated receiving a videotape of their visits. On the negative side, the Kansas patients found being candid on video to be difficult and were not eager to repeat their experiences. In commenting on a draft of this report, HHS said that a clearer depiction of the role of FDA in telemedicine was needed. Accordingly, we clarified this information. Telemedicine has the potential to revolutionize the way health care is delivered. The recent increased interest in telemedicine technology has resulted in widespread applications throughout the United States. Collectively, DOD, other federal agencies, state governments, and the private sector have already invested hundreds of millions of dollars on numerous telemedicine projects, sometimes in collaboration with each other. However, it is impossible to determine the full scope of these initiatives. They range from long-term research efforts exploring robotic or telepresence surgery to pilot programs at medical facilities where some clinical application, such as teledentistry, is actually practiced. The most common current clinical application is teleradiology. DOD and other federal agencies are actively sponsoring telemedicine projects that individually seem justifiable and fall under the purview of the sponsoring agency’s mission. However, not enough comprehensive, accurate information exists to determine the collective value of these projects. For example, it is difficult to tell whether DOD’s investment is commensurate with the potential benefits it stands to gain. DOD is currently the largest federal investor with $262 million. On a case-by-case basis, many projects seem justifiable, but the collective value of the DOD telemedicine program cannot be easily assessed. In fact, DOD’s telemedicine program is actually the sum of many individual parts and not an interrelated group of projects prioritized to accomplish specific goals. Some agencies, including DOD and VA, have recognized the need for a telemedicine strategy to define their programs but have not moved beyond the conceptual stage. Private sector organizations are reluctant to share their market observations and data for fear of revealing helpful information to their competition. Further, because priorities differ among the public and private sectors, working together is even more difficult without clear and common goals. Successful expansion and sustainment of telemedicine will require resolution of many legal and regulatory, financial, technical, and cultural barriers. Some of the more critical barriers, such as licensure, privacy, and infrastructure costs, are too broad and have implications too far-reaching for any single sector to address. On the other hand, some barriers, such as physician acceptance, can be overcome at the local level with proper planning and management. Because federal agencies that directly deliver health care, such as DOD, VA, IHS, and BOP, are less affected by licensure and reimbursement barriers, they are better placed to provide comprehensive information to help determine the course of telemedicine. The numerous telemedicine initiatives funded by the public and private sectors could be more productive if they were linked by common goals, such as interdependent utilization of the information superhighway to provide cost-effective and quality health care. Such a goal should complement, not supplant, individual missions, such as improving rural or remote health care delivery, by serving as a vehicle for sharing technical progress and avoiding duplication. The challenge is how to find such a link without impeding progress of an emerging technology so difficult to define. By nature, telemedicine issues cut across public and private sectors and across agencies within the federal sector. Although there is a need to develop national goals and objectives to guide federal telemedicine investments, it would be difficult for an individual department or agency to be the architect of a governmentwide strategy. JWGT is already performing some interagency coordination associated with carrying out the Vice President’s charge to the Secretary of HHS to prepare a comprehensive report on telemedicine issues. Therefore, JWGT is in a good position to expand its work and take the lead in proposing a coordinated federal approach for investing in telemedicine. Such efforts should provide a framework to optimize the value of federal telemedicine investments with activities sponsored by the states and private sector. Accordingly, we recommend that the Vice President direct JWGT, in consultation with the heads of federal departments and agencies that sponsor telemedicine projects, to propose a federal strategy that would establish near- and long-term national goals and objectives to ensure the cost-effective development and use of telemedicine. In addition, the proposed strategy should include approaches and actions needed to establish a means to formally exchange information or technology among the federal government, state organizations, and private sector; foster collaborative partnerships to take advantage of other telemedicine investments; identify needed technologies that are not being developed by the public or private sector; promote interoperable system designs that would enable telemedicine technologies to be compatible, regardless of where they are developed; encourage adoption of appropriate standardized medical records and data systems so that information may be exchanged among sectors; overcome barriers so that investments can lead to better health care; and encourage federal agencies and departments to develop and implement individual strategic plans to support national goals and objectives. Further, because DOD is the major federal telemedicine investor and manages one of the nation’s largest health care systems, it is in a good position to help forge an overall telemedicine strategy. A first step is to develop a departmentwide strategy. Therefore, we recommend that the Secretary of Defense develop and submit to the Congress by February 14, 1998, an overarching telemedicine research and development and operational strategy. The strategy should clearly define the scope of telemedicine in DOD; establish DOD-wide goals and objectives and identify actions and appropriate milestones for achieving them; prioritize and target near- and long-term investments, especially for goals related to combat casualty care and operations other than war; and clarify roles of DOD oversight organizations. We provided a draft of this report to DOD, VA, HHS, and the Office of the Vice President. Both DOD and VA concurred with our recommendations. DOD stated that it “. . . is not alone in finding itself behind the technological bow wave of telemedicine” (see app. III). DOD said that one of its first priorities will be the development of a definition and scope of DOD telemedicine activities. DOD also agreed to establish departmentwide goals and objectives and prioritize investments as part of its strategic telemedicine plan. According to DOD, many pieces of this plan are already in place. VA commented that it would be beneficial for DOD to include VA in its development of an operational strategy for telemedicine activities (see app. IV). After subsequent discussions with HHS officials regarding agency comments, HHS generally agreed with the concept of our recommendation for JWGT to play a leadership role in proposing national goals and objectives (see app. V). HHS was concerned that a governmentwide strategy could be overly prescriptive. Our recommendation was not intended to imply that JWGT direct federal agencies investments in telemedicine initiatives but rather that JWGT develop a roadmap for federal agencies to use as a guide for their investments. HHS also stated that it might be better to require individual departments to develop their own strategies before an overarching federal strategy is proposed. We believe that individual strategies should be developed but that these strategies would not ensure an interagency commitment to common goals and objectives or serve as a guide to prevent duplicative investment efforts. We further believe that some agencies, such as DOD and VA, might be in a better position than others to move forward with individual strategies, whereas other agencies would benefit from an overall federal plan to help develop their individual strategies. HHS commented that JWGT had accomplished much of what we were recommending. We believe that JWGT should be commended for its efforts toward fulfilling the reporting requirements to the Vice President and the Congress. Many indirect benefits toward informal coordination of federal telemedicine activities are occurring. However, drafts of JWGT reports to the Vice President and the Congress provided to us do not reflect a proposal for the type of governmentwide strategy we are recommending for agencies to maximize their telemedicine investments. Rather, these draft reports mostly reflect information on issues to be pursued related to barriers, such as physician licensure, that may prevent the widespread application of telemedicine. Our draft report recommended that JWGT membership be expanded to include private and state representation. HHS expressed concerns about implementing this portion of the recommendation due to requirements in the Federal Advisory Committee Act. According to HHS, the act would require reimbursement for expenses of any state or private sector representative to attend the group’s bimonthly meetings and could otherwise impair JWGT’s operations. As an alternative, HHS suggested the addition of an annual telemedicine summit with state and private participation to JWGT’s activities. We believe the specific vehicle chosen is not important as long as it improves the interaction of federal, state, and private sectors along the lines noted in our recommendations. Accordingly, we modified our recommendation by deleting suggestions to expand JWGT beyond federal agency membership. For the same reasons, the merits of HHS’ proposal for an annual summit—certainly a constructive step—would have to be judged against the summit’s ability to foster the actions sought by our recommendation. We believe that JWGT should have the flexibility to make this determination. Within the Office of the Vice President, the Chief Domestic Policy Advisor and the Senior Director for the National Economic Council did not provide us with written comments. The Senior Director for the National Economic Council, however, raised questions regarding the impact of the Federal Advisory Committee Act on expanding the membership of JWGT to include state and private membership. Further, DOD and HHS provided specific technical clarifications that we incorporated in the report as appropriate.	Pursuant to a congressional request, GAO reviewed the steps that the federal government needs to take to realize the full potential of telemedicine and achieve cooperation with the private sector, focusing on: (1) the scope of public and private telemedicine investments; (2) telemedicine strategies among the Department of Defense (DOD), other federal agencies, and the private sector; (3) potential benefits that the public and private sectors may yield from telemedicine initiatives; and (4) barriers facing telemedicine implementation. GAO found that: (1) collectively, the public and private sectors have funded hundreds of telemedicine projects that could improve, and perhaps change significantly, how health care is provided in the future; (2) however, the amount of the total investment is unknown; (3) 9 federal departments and independent agencies invested at least $646 million in telemedicine projects from fiscal years 1994 to 1996; (4) DOD is the largest federal investor with $262 million and considered a leader in developing this technology; (5) state-supported telemedicine initiatives are growing; (6) estimates of private sector involvement are impossible to quantify because most cost data are proprietary and difficult to separate from health care delivery costs; (7) opportunities exist for federal agencies to share lessons learned and exchange technology, but no governmentwide strategy exists to ensure that the maximum benefits are gained from the numerous federal telemedicine efforts; (8) the Joint Working Group on Telemedicine (JWGT) is the first mechanism structured to help coordinate federal programs; (9) however, its efforts to develop a federal inventory, a critical starting point for coordination, have been hampered by definitional issues and inconsistent data; (10) in addition, DOD and other federal departments do not have strategic plans to help guide their telemedicine investments, assess benefits, and foster partnerships; (11) telemedicine is an area in which public and private benefits converge; (12) many anecdotal examples demonstrate how telemedicine could improve access and quality to medical care and reduce health care costs; (13) however, comprehensive, scientific evaluations have not been completed to demonstrate the cost benefits of telemedicine; (14) the expansion of telemedicine is hampered by legal and regulatory, financial, technical, and cultural barriers facing health care providers; (15) some barriers are too broad and have implications too far-reaching for any single sector to address; (16) telemedicine technology today is not only better than it was decades ago, it is becoming cheaper; (17) consequently, the questions facing telemedicine today involve not so much whether it can be done but rather where investments should be made and who should make them; (18) the solution lies in the public and private sectors' ability to jointly devise a means to share information and overcome barriers; and (19) the goal is to ensure that an affordable telecommunications infrastructure is in place and that the true merits and cost benefits of telemedicine are attained in the most appropriate manner.	14.6	16k+	5,488
42	Scientific research has traditionally been considered to be valuable to society. The knowledge gained from federally supported research leads to the development of new products and processes. Research results also provide information needed to make policy decisions. The Congress is concerned that quality research is used to provide a rational basis for federal rule- making, as with regulations established to protect human health and safety and the environment. Peer review has been used to judge the quality of science for over 3 centuries. Historically, peer review has been used extensively in the selection of proposed research projects and to a lesser extent to evaluate R&D programs and their likely effects. The Congress and the President have taken steps to help improve the management of and accountability for federal R&D spending. In 1976, the Congress established the Office of Science and Technology Policy, which serves as a source of scientific, engineering, and technological analysis and judgment for the President and assists him in providing leadership and coordination for federal R&D programs. In November 1993, by executive order, the President also established the Cabinet-level National Science and Technology Council to coordinate federal R&D and to establish clear national goals for science and technology investments. Through this Council, the Office of Science and Technology Policy helps the President coordinate science, space, and technology policy and programs across the federal government and leads an interagency effort to develop and implement science and technology policies and budgets across federal agencies. In 1993, the Congress passed the Government Performance and Results Act to encourage efficiency, effectiveness, and accountability in federal programs. The act requires federal agencies to produce strategic performance plans with annual targets and annual performance reports that explain whether those targets have been met. A recent report by the Committee on Science, Engineering, and Public Policy concluded that the most effective means of evaluating federally funded research programs is expert review. The best known form of expert review is peer review; two other forms are relevance review that examines whether the research program focuses on an agency’s mission and international benchmarking that determines whether the research is at the forefront of scientific and technological knowledge. There is no written definition of peer review that applies across the federal government. Officials at the Office of Science and Technology Policy described peer review as a merit-based process or independent merit assessment, generally used in decisions about which research projects to fund. Individual agencies define peer review somewhat differently; however, all of the agencies’ definitions or descriptions of peer review contained the fundamental concept of a review of technical or scientific merit by individuals with sufficient technical competence and no unresolved conflict of interest. Peers generally are considered to be scientists or engineers who have qualifications and expertise equivalent to those of the researcher whose work they review. In addition, peers must be capable of making an independent judgment of the merits and relevance of the research. Officials at the Office of Science and Technology Policy said that peers do not have to be external to the funding agency, as long as there is no unresolved conflict of interest. Officials at the Office of Science and Technology Policy said that there is no governmentwide legislation or policy that requires agencies to conduct peer reviews or dictates how the reviews should be conducted. However, the office advocates the use of peer review and provides guidance to agencies on the use of peer review to assess the quality of research. For example, the office works with the Office of Management and Budget to promote peer review. Beginning with the fiscal year 1996 budget cycle, the two offices have jointly provided annual direction to agencies encouraging them to emphasize the funding of peer-reviewed research over nonpeer-reviewed research. As a result, Office of Science and Technology Policy officials said that agencies have shifted funding toward more peer-reviewed research. The guidance also encourages agencies to solicit proposals from many researchers on how to solve research problems. Officials at the Office of Science and Technology Policy said that agencies’ peer review practices should be flexible and tailored to agency missions and type of research, and that specific uniform practices should not be dictated for every agency or all federally funded research. A variety of peer review methods is viewed by the agencies as both appropriate and essential, reflecting the varying nature of the research and its purposes, the differences in research timelines, the broad spectrum of R&D performers, and the varying funding mechanisms, such as grants, contracts, and cooperative agreements. For example, agency officials noted that specific peer reviews can have quite different purposes such as the review of research results prior to publication versus the review of agency or program performance. While peer review has come to be viewed by some observers as the best assurance that quality criteria will prevail over social, economic, and political considerations, others view peer review as an element of elitism in science that tends to discount such concerns as economic considerations. Officials at the National Science Foundation said that under certain conditions, over emphasis on peer review for funding decisions may discourage funding of innovative research because peers generally tend to view research somewhat conservatively. Officials at the Office of Science and Technology said that this phenomenon has been noted by other agencies, and the Office is initiating an interagency effort to examine how peer review practices (and other federal R&D policies) might better facilitate innovation. “Science agencies must devise assessment strategies that are appropriate to the nature of scientific processes and to the enabling role of fundamental science in support of over-arching national goals... should be designed to...respond to surprises, pursue detours, and revise program agendas in response to new scientific information and technical opportunities essential to the future well-being of all our people.” All the agencies that we contacted identified policies, orders, or other internal guidance regarding the conduct of peer review. Some of these policies are legislatively mandated. For example, the Agricultural Research, Extension, and Education Reform Act of 1998 requires the U.S. Department of Agriculture to peer review Department-funded research.The law also requires grantees to arrange for a peer review of special grants mandated by the Congress. Overall, we found that eight agencies—the Agricultural Research Service, the Cooperative State Research, Education, and Extension Service, the National Institute of Standards and Technology, the National Institutes of Health, the Department of Energy, the Environmental Protection Agency, the National Aeronautics and Space Administration, and the Federal Aviation Administration—have laws or regulations that require peer review of competitively selected grant proposals. The peer review practices differ among and within federal research agencies in two ways. First, agencies use peer review in varying degrees to assess the merit of research at different stages in the research process, including selecting research projects for funding; monitoring in-progress research; and evaluating research products prior to publication. Second, the implementation of the peer review process varies. The following highlights the extent to which agencies use peer review and some of the various ways they implement peer review. Appendixes I through XII provide descriptions of the agencies’ peer review practices, to the extent that peer review is used, for each of the 12 agencies included in our review. All the agencies conduct peer reviews to help determine which competitive research proposals to fund. All 12 agencies also use peer review to help determine funding for at least a portion of their other research, including peer reviews of the agencies’ intramural or internal research proposals or plans. The agencies use a combination of external and internal reviewers with subject matter expertise. However, Federal Aviation Administration officials said that their peer reviewers are primarily agency employees who are not involved in the project but have the required subject matter expertise. The agencies conduct the peer reviews by mail, panels or committees, or a combination of methods. They also differ in the number of reviewers used in the process. For example, the Cooperative State Research, Education, and Extension Service uses panels of outside experts to review competitive research proposals. One Cooperative State Research, Education, and Extension Service program, the National Research Initiative, uses panels that meet throughout the year. Each panel member reviews about 30 research proposals and provides written comments on about 20 of the proposals. Mail reviews and ad hoc reviewers are also used when additional expertise is needed. In contrast, the National Aeronautics and Space Administration generally conducts reviews by mail to obtain specialized expertise on technical issues and approaches, followed by reviews by panels of 7 to 10 experts with broader perspectives to reconcile differences among the mail reviewers’ comments. The agencies use various criteria to assess proposed research, including technical or scientific merit, relevance to agency mission and priorities, and the qualifications of the researcher. Agency officials responsible for selecting research for funding generally consider the peer reviewers’ advice or recommendations along with other financial and management factors to make their funding decisions. In some circumstances, agencies use these same types of peer review processes to assess the merit of research that is not funded through competitive selection, generally this research is internal to the agencies. For example, the Forest Service conducts peer reviews of its scientists’ research study plans prior to approval by project leaders. The U.S. Geological Survey conducts peer reviews of all intramural project proposals to ensure technical quality prior to final approval and implementation. At the Agricultural Research Service, internal peers, who are not involved in the funding decision, review detailed project plans. While all 12 agencies provided examples of peer reviews of research that are in-progress, there is much variation in the frequency and purpose of those reviews. The purposes of these reviews include assessments of research projects to determine if funding should be renewed or to assess the progress of on-going research at the program level, or at research stations or laboratories. For example, in-progress Cooperative State Research, Education, and Extension Survey projects that are assessed for renewal within 2 to 3 years compete with new proposals in the same merit review process. If the review panel considers the research progress to be unsatisfactory, the research project will not receive additional funding. The National Aeronautics and Space Administration requires that for any project that continues for more than 3 years, the researcher must submit a new proposal, which is subject to external peer review. The National Institutes of Health uses boards of outside experts to peer review its on-going intramural research, and the Agricultural Research Service convenes panels in a workshop format to review intramural research projects. The U.S. Geological Survey’s peer review guidance requires that on-going programs undergo external peer review about every 5 years. The National Oceanic and Atmospheric Administration also has peer reviews of the work funded and completed at its laboratories. Every 3 to 5 years, qualified peers evaluate program accomplishments and impacts in the context of the resources invested in them. At the National Institute of Standards and Technology, the National Research Council’s Board on Assessment of the Institute’s programs annually conducts reviews of the technical quality and relevance of planned, ongoing, and completed laboratory programs. On a cyclical basis, the Forest Service Deputy Chief’s Program Reviews use external peers in the evaluations of a research station’s overall program to improve program results. Generally, the agency officials said that their agencies encourage their scientists to publish research results in professional journals that conduct peer reviews of manuscripts prior to accepting them for publication. Some agencies also peer review draft work products, manuscripts, or other research results prior to publication. For example, the Agricultural Research Service, the Forest Service, the Environmental Protection Agency, the National Oceanic and Atmospheric Administration’s National Marine Fisheries Service, the National Institutes of Health, and the U.S. Geological Survey review their scientists’ manuscripts prior to publication in in-house technical reports or professional journals. Agencies also use peer-review techniques to aid priority setting, program development, and personnel evaluation. For example, the Federal Aviation Administration’s annual programming and budgeting process includes program-level peer reviews of proposed and in-progress research by a 30-member, legislatively authorized Research, Engineering, and Development Advisory Committee, established under the Aviation Safety Research Act of 1988, as amended. This process results in recommendations about the merit of the research and funding priorities in the Federal Aviation Administration’s six program areas. The Environmental Protection Agency’s Science Advisory Board, consisting of scientists, engineers, and economists from academia, industry, and environmental communities, reviews the technical basis for the agency’s science policy positions, including scientific documents used to support environmental regulations. Independent scientists provide advice to the Department of Energy on the quality, relevance, and productivity of its laboratory research, in conjunction with program reviews and advisory committee oversight. Last, the Agricultural Research Service and the Forest Service also consider the required peer reviews of their individual scientist’s research accomplishments to constitute additional checks of the quality of their research. In addition to peer reviews, most agencies also conduct various types of internal reviews as checks on the quality of their research. These reviews are generally conducted by supervisors or managers and are, therefore, not independent reviews of the research. Agencies conduct these quality assurance reviews to assess the merit of proposed research, to assess the progress of on-going research, and to evaluate research results. These reviews occur at both the project and program level. TThe following are examples of agencies’ internal reviews. Scientists at the Cooperative State Research, Education, and Extension Service review noncompetitive proposals for formula-funded awards and for congressionally mandated research. Cooperative State Research, Education, and Extension Service scientists also review annual progress reports prepared by the researchers. Likewise, Agricultural Research Service line managers review annual project progress reports submitted by the Service’s lead scientists. These reviews may lead to revisions of program plans. National Institute of Standards and Technology officials track the results of research funded by the Advanced Technology Program, using quarterly progress reports and annual meetings with recipients. The National Aeronautics and Space Administration project managers and staff frequently comment on technical, management, and financial aspects of a proposal, since science reviewers may not be qualified experts in these fields. The Federal Aviation Administration’s Civil Aeromedical Institute, which conducts mostly intramural research, reviews the technical details of proposed projects. According to Federal Aviation Administration officials, the Institute employs some of the world’s best scientists, so the number of outside experts is limited. Research performed under Federal Aviation Administration procurement contracts is reviewed during the annual programming and budgeting process. Subsequently, when a decision is made to fund research through a contract, Federal Aviation Administration technical staff monitor the work. In addition, the Agricultural Research Service, the Cooperative State Research, Education, and Extension Service, the Forest Service, the National Institute of Standards and Technology, the National Institutes of Health, the National Oceanic and Atmospheric Administration, the Department of Energy, and the National Science Foundation use advisory committees to help establish research programs or priorities. For example, section 103 of the Agricultural Research, Extension, and Education Reform Act of 1998 requires that the National Agricultural Research, Extension, Education, and Economics Advisory Board annually review the Department of Agriculture’s research priority setting. A Forest Research Advisory Committee to the Secretary of Agriculture, made up of university, industry, and interest group representatives, also reviews and comments on the Forest Service’s current and future research priorities. The National Institute of Standards and Technology statutory Visiting Committee on Advanced Technology meets quarterly to review agency research policies, budget, organization, and programs. A few agency officials also discussed their use of peer review in their efforts to comply with the Results Act requirements for reporting performance measures, goals, and outcomes of their research. For example, the Federal Aviation Administration’s annual programming and budget process includes reviews of research outcomes and outputs and is performed in the context of the Results Act. A Department of Agriculture report stated that the Cooperative State Research, Education, and Extension Service’s Results Act report might potentially provide a mechanism to more systematically monitor and report research performance and accomplishments. The National Science Foundation is trying to track the results of its research efforts through annual and final reports on each project and plans to follow-up for years after completion to identify retrospective impacts from the research. While the agencies said that they conduct either peer reviews or other quality reviews for almost all of their research, there are small amounts of research that may not be reviewed. For example, officials from the Agricultural Research Service, the National Institute of Standards and Technology, and the Department of Energy said that they did not always review specific research proposals when the agency is directed to perform the research. In addition, research performed jointly with outside entities, such as with cooperative research and development agreements, may not always be fully subjected to review, depending on factors such as the nature of the partnership and the presence of proprietary information. The Congress directs the Agricultural Research Service to allocate about $10 million annually to external researchers for specific cooperative agreements. While the Agricultural Research Service does not usually peer review this research prior to funding, it does review progress reports that the researcher is required to submit annually. Officials from the National Institutes of Health said that supplemental funding requested to carry on previously reviewed and funded research might not be subject to peer review. The Environmental Protection Agency’s peer review guidance recognizes circumstances that might preclude peer review, including research methodology that is widely accepted and research for which the regulatory activity has been terminated. We provided a draft of this report to the Agricultural Research Service, the Cooperative State Research, Education, and Extension Service, and the Forest Service within the U.S. Department of Agriculture; the Department of Commerce; the Department of Energy; the Environmental Protection Agency; the National Institutes of Health; the Department of the Interior; the National Aeronautics and Space Administration; the National Science Foundation; the Department of Transportation; and the Office of Science and Technology Policy for review and comment. We obtained comments from each of the above agencies. Generally, the agencies concurred that the report provided an accurate portrayal of their peer review practices. Some of the agencies suggested technical changes to the report to help ensure an accurate description of their peer review practices, and we incorporated the agencies’ comments. An official at the Department of Energy pointed out that our statement that peer review practices vary is not without policy connotations and is subject to misinterpretation. He said that peer review practices should vary among and within the agencies. To address this concern, we added additional agency views on the need for flexibility in the peer review process. To define what is meant by peer review and to describe the federal government’s peer review policy, we reviewed studies of government peer review, previous GAO reports, and documentation provided by the 12 agencies included in our review. We also interviewed officials from the Office of Science and Technology Policy and reviewed that office’s guidance and its and the Office of Management and Budget’s annual budget direction to federal agencies. To describe the peer review practices of 12 agencies, we obtained and compared descriptive information on peer review at each agency to identify what the various practices were and to determine whether the practices were uniform among and within the agencies. The agencies provided legislation, policies, manuals, and other documentation, which we reviewed, related to the agencies’ implementation of peer review. The agencies also provided fiscal year 1999 research and development budget data. To obtain the agencies’ rationales for their practices and the reasons for the variations among the agencies and programs and to obtain information about practices that were not formally documented, we interviewed officials knowledgeable about and responsible for conducting peer reviews of scientific research at each agency’s Headquarters headquarters office. To identify other quality assurance reviews the agencies conducted in addition to or in lieu of peer reviews, we reviewed agency documentation and interviewed agency officials. Because the 12 agencies’ practices were carried out at numerous research sites at headquarters, field offices, laboratories, research stations, and grantee locations across the United States, we did not attempt to verify the extent to which the many different practices reported by the agencies were being implemented and carried out. From our interviews with agency officials, we also identified research that did not receive any peer review or other quality assurance review and the agencies’ rationale for not conducting reviews of this research. Our work was performed from August 1998 through March 1999 in accordance with generally accepted government auditing standards. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days after its date. At that time, we will send copies of this report to Dan Glickman, Secretary, Department of Agriculture; William M. Daley, Secretary, Department of Commerce; Bill Richardson, Secretary, Department of Energy; Donna E. Shalala, Secretary, Department of Health and Human Services, ; Bruce Babbitt, Secretary, Department of the Interior; Rodney E. Slater, Secretary, Department of Transportation; D. James Baker, Under Secretary, National Oceanic and Atmospheric Administration; Floyd P. Horn, Administrator, Agricultural Research Service; Colien Hefferan, Acting Administrator, Cooperative State Research, Education, and Extension Service; Mike Dombeck, Chief, Forest Service; Daniel S. Goldin, Administrator, National Aeronautics and Space Administration; Carol M. Browner, Administrator, Environmental Protection Agency; Jane F. Garvey, Administrator, Federal Aviation Administration; Raymond G. Kammer, Director, National Institute of Standards and Technology; Harold E. Varmus, Director, National Institutes of Health; Rita R. Colwell, Director, National Science Foundation; Jacob J. Lew, Director, Office of Management and Budget; Neal Lane, Director, Office of Science and Technology Policy; and Thomas Casadevall, Director, U.S. Geological Survey. We will also make copies available to others on request. If you or your staff have any questions concerning this report, please call me at 202-512-3841. Major contributors to this report are listed in appendix XIII. The following presents a description of the Agricultural Research Services’ (ARS’) peer review and other quality assurance review practices. The Agricultural Research Service, an agency of the U.S. Department of Agriculture, conducts research on foods, fibers, soil, water, and other natural resources. ARS’ mission is to solve technical agricultural problems of broad scope and high national priority. ARS carries out this mission through 23 national programs. ARS does not have a regulatory mission but develops methods and technologies used by other regulatory agencies within the Department, such as the Animal and Plant Health Inspection Service and the Food Safety Inspection Service, and by other federal agencies such as the Food and Drug Administration and the Environmental Protection Agency. ARS’ funding for fiscal year 1999 is about $813 million. Most research projects are conducted in-house by ARS scientists and between ARS scientists and states, local governments, private firms, and institutions through cooperative research and other types of agreements. Only about $4 million of ARS’ annual appropriation is competitively awarded to external scientists. According to agency officials, ARS spends about $800,000 annually to conduct peer reviews. ARS defines peer review as the evaluation of the conceptual, relevance, and technical soundness of research by highly qualified scientists active in the same or closely related research fields. ARS has a multilayered system of complimentary peer reviews that includes reviews of the technical merit of planned research projects prior to funding, reviews of research results prior to the publication of the results, and reviews of ongoing research programs. Various ARS directives and manuals provide the guidance for conducting these peer reviews, which are performed by both internal and external experts and external customers and stakeholders. ARS is revising its project merit review system during fiscal year 1999 to satisfy the additional requirements of the Agricultural Research, Extension, and Education Reform Act of 1998, which requires merit review panels composed of a majority of external peers for all ARS research projects. ARS’ Research Project Documentation Manual provides the guidance for conducting the project plan merit reviews prior to deciding which projects to fund. The agency manages 1,100 on-going research projects, which operate at 102 locations and are assigned to specific laboratories based on program plans. The projects span 3 to 5 years, and each year 200 to 300 projects require funding or reduction decisions. ARS’ internal peers, who are not involved in the funding decision, review detailed project plans. In addition, the list of peers must include three individuals from universities and three individuals from customer or stakeholder groups. Each reviewer provides comments by mail. ARS managers request the reviews and act on the results. The ARS scientist who prepared the project plan must respond in writing to reviewers’ comments. ARS officials said that the new project merit review system will consist of peer review panels that will review the merit of research project proposals related to each of the 23 national programs. To ensure that the new system meets the letter and spirit of the law, ARS officials said that they will draw on the expertise of other science agencies, such as the National Science Foundation, the National Academy of Sciences, and the Cooperative State Research, Education, and Extension Service. ARS’ national program staff manages the peer review process. Currently, peers are selected by ARS area directors in consultation with both in-house and external experts in relevant fields. Under the revised system, the national program staff will select peer reviewers from candidate pools. The ARS scientist whose plan is reviewed suggests names of scientific peers for consideration. Criteria for all reviewer selections include a high level of subject matter knowledge and accomplishment in scientific research. According to ARS officials, the majority of reviewers come from outside ARS, and the continuous involvement of customers, stakeholders, and ARS managers helps ensure high-quality research. ARS reviews of proposals and all scientific research are based on six assessment criteria: overall scientific value; probability of success; adequacy of approach and excellence of research procedure; adequacy of literature review and the researcher’s knowledge; extent of duplication of other research; and reviewers’ suggestions for improvement. As congressionally mandated, about $4 million of ARS’ annual appropriation is competitively awarded through grants to external scientists to conduct research in specific program areas. These proposals are peer- reviewed by a mix of internal and external peer reviewers. Periodically, ARS area offices organize in-depth location reviews. These reviews are conducted by panels, usually in a workshop format with panel members from ARS, other agencies, academia, and the private sector and generally require several days to complete. Location reviews may evaluate the quality and impact of research performed on several projects. These reviews have multiple objectives and provide input to a variety of management issues such as personnel, productivity, quality, and financial management. In addition, ARS forms ad hoc panels to address more immediate research issues as needed. These panels gather information on specific problems and identify possible corrective actions. ARS requires its scientists to report research results, generally through peer-reviewed scientific journals. ARS research leaders may require that research manuscripts be reviewed by two or more internal or external peers prior to submission to a scientific journal. These reviews are obtained by mail, and the authors must address reviewers’ comments before the manuscript is approved for publication. According to ARS officials, publication in a peer-reviewed journal is a means to ensure the quality and productivity of the research. ARS also uses panels of in-house scientific peers to evaluate scientists’ research accomplishments every 3 to 5 years. The panels anonymously evaluate the scientist’s research contributions by documenting the impact of the research using peer and stakeholder input. The results of these reviews determine a scientist’ grade promotion. An ARS directive documents the panel procedures, including the assurance of diversity in panel selection. Supervisors and line managers also conduct reviews of research. National program staff research managers conduct internal project level reviews to help determine the impact of the research, correct problems, and plan future direction. ARS lead scientists prepare annual project progress reports, which document accomplishments, published manuscripts, and patents. The reports are reviewed by line managers and submitted to the national program staff, and are used to adjust or revise program plans. ARS is now introducing a revised system, which will include an annual summary progress report highlighting major research accomplishments for each of the 23 national programs. ARS plans to place these reports on the Internet and to solicit comments from customers, stakeholders, and scientific peers. The national program staff reportedly spends about one-third to one-half of their time conducting reviews of projects and programs in the 23 major program areas. ARS officials said that the individual scientist’s annual performance appraisal is also a basic tool for assessing scientists’ accountability for the accomplishment of research project objectives. ARS’ program planning process includes setting priorities and ensuring that research is relevant to the agency’s mission. Internal sources and external customers and stakeholders, including the Congress, policymakers, consumer groups, private industry, and academia, provide input to the planning process through national program planning workshops. These reviews help with the development of the agency’s strategic plan and the national programs. ARS also plans to utilize the National Agricultural Research, Extension, Education, and Economics Advisory Board to oversee the implementation of the peer review system and ARS’ priority-setting process. The Congress directs ARS to allocate about $10 million annually to external researchers for specific cooperative agreements. ARS usually does not conduct peer review of this research prior to awarding the funds. However, outside researchers must provide annual progress reports that are reviewed by ARS’ managers. The following presents a description of the Cooperative State Research, Education, and Extension Service’s (CSREES’) peer review and other quality assurance review practices. The Cooperative State Research, Education, and Extension Service, within the U.S. Department of Agriculture, was created in 1995 through a merger of the Cooperative State Research Service and the Extension Service. CSREES funds research to address problems of national and regional importance to agriculture, forestry, and related sciences. The agency’s fiscal year 1999 research budget is about $465 million. About $237 million is designated for noncompetitive formula funding land grant universities. The remainder of the budget funds competitive grants ($150 million) and congressionally mandated special research grants ($78 million). CSREES has no regulatory role, but its research can be used by regulatory agencies. For example, the Environmental Protection Agency may use results from CSREES’ Pesticide Management Alternatives Program to determine if changes should be made to regulations on pesticide use. CSREES does not have a formal definition of peer review. However, the agency is developing definitions of both peer review and merit review as part of an agency initiative studying how the agency will comply with the Agriculture’s new legislative mandates related to peer review. Section 103 of the Agricultural Research, Extension, and Education Reform Act of 1998 (the act) requires “peer review” of all CSREES research grants issued on a competitive basis and “merit review” of competitive extension and education grants but does not define these terms. A CSREES official said that merit review would probably be defined as an evaluation of a project or program to determine its technical quality and relevance to program goals. Peer review will probably be defined as a method for conducting merit review that uses people with qualifications and expertise to conduct research similar to that being reviewed. CSREES funds both competitive and noncompetitive research, but generally external peer review applies only when entities compete for funding. The act requires that all research funded by Agriculturethe Department be peer-reviewed and that a peer review panel assess the merit and relevance of the research at least every 5 years. A CSREES official said that flexibility will be critical in developing methods used to select reviewers and conduct reviews, depending on the types of decisions required and the field of science involved. For example, a goal of the Pesticide Alternatives Program is to determine the most important pesticides and crops to investigate. Therefore, two peer review panels were convened to review proposals: one with experts in the related scientific field and another with experts in policy and in research and funding priorities. All programs that award competitive grants use formal documented peer review methods and select external peers. The $100 million National Research Initiative Competitive Grants Program, which funds high-priority, fundamental, and mission-linked research revised its peer review rules in 1994. A program description that includes peer review-related instructions is now published annually. The competitive grant application process is open to anyone in the United States, including other Agriculture scientists. The requirement to conduct peer reviews of research grant applications is found in 7 C.F.R. part 3411, which specifies the requirements for composition of peer review groups and ad hoc reviewers, including the need to include experts from universities, industry, and private consultants and from a variety of locations. This regulation also lists detailed evaluation criteria in three categories: scientific merit; qualifications of proposed project personnel and adequacy of facilities; and relevance to long-range improvements in, and sustainability of, U. S. agriculture. In fiscal year 1998, the National Research Initiative Competitive Grants Program, CSREES’ largest competitive grant program, with an appropriation of $98 million, spent $4.3 million for its peer reviews of competitive research proposals. An agency official said that peer review is expensive because of the cost of the panel process. The agency pays panel managers on an hourly basis for up to 40 days of work plus travel expenses; panel members receive $150 a day honorarium plus travel expenses. CSREES has legislative authority to use program rather than administrative funds to pay for peer review panel costs. In the case of the National Research Initiative Competitive Grants Program, specific peer review procedures differ among the 27 research areas. Generally, panels of outside experts conduct reviews, but mail and ad hoc reviewers are also used when additional scientists are needed or the subject is specialized. A rotating position of Panel Manager chairs the review panel for each program. These positions are generally filled by outside experts who work for approximately 3 weeks a year. Each panel member reviews about 30 proposals and provides written comments for about 20. Three written reviews are required for any project recommended for award. According to a departmental report on the quality of research,CSREES scientists select panel members and provide leadership by overseeing the review process. The scientists may share administrative responsibilities with panel managers, serve as panel Chairs if there is no outside panel manager, and are to ensure adherence to documented conflict of interest and confidentiality rules. Most peer review panels are exempt from the Federal Advisory Committee Act. For this reason, the panels can reach consensus on their recommendations for funding proposals while maintaining confidentiality. According to a CSREES official, the selecting officials accept the panels’ recommendations with few exceptions. CSREES funds about 20 percent of the applications it receives. A summary and copies of written reviews are sent to the researcher, and only names of awardees are made public. There is no appeals process for applicants that are turned down, but feedback is provided, and applicants can reapply the following year. Section 103 of the aAct requires colleges to peer review all research as criteria for submitting grant proposals. However, a CSREES official said that although many colleges peer review their research, CSREES will continue to conduct peer reviews. When competitively funded research projects are scheduled for renewal either annually or every 2 to 3 years, progress reports are peer-reviewed, and the projects compete for funding with new proposals under the competitive grants merit review process. If the review panel considers the progress unsatisfactory, the project will not be funded. A CSREES official said that 40 to 50 percent of renewals are funded through this process. CSREES internally reviews the noncompetitive research proposals it funds, as well as the progress of research projects and programs. Authority to approve noncompetitive research projects is delegated to CSREES scientists. Academic institutions submit research project proposals that are funded noncompetitively through legislatively established formulas. To comply with the requirement in the Agricultural Research, Extension, and Education Reform Act, grantees are now required to certify that the proposal has received a peer review at the institution level. CSREES scientists will continue to conduct a merit review of the technical quality. In addition, section 212 of the act requires that grantees arrange for peer review of research funded through congressionally mandated special grants. CSREES scientists review the technical merit of the special grant proposals and may obtain views from nationally recognized experts in the research area. If a proposal is found lacking, CSREES staff work with the author to improve the proposal. Department heads and experiment station directors, within the originating region of the proposal, review proposals for regional research projects, which involve collaborative efforts of researchers at several universities and laboratories. Criteria for the selection of regional projects are: significance and scope of problem, level of interdependency and cooperation among participants, quality of science, and the avoidance of unnecessary duplication of research. According to Agriculture’s report, department or program reviews are conducted internally at the request of land-grant institutions, with some outside scientists conducting evaluations of programs. Site visits are made when possible to laboratories and regional project locations. Annual progress reports, which are required by CSREES’ “Special Terms and Conditions” for research grants, are reviewed internally. All grantees are required to provide a final technical report for review when the grant expires. While CSREES has not had a formal systematic process for evaluating research performance, other than through annual progress reports, a CSREES official said that the agency is reporting the performance and outcomes of its research, as required by the Results Act. One reporting concern is that research may not always have a positive outcome, as negative outcomes are part of good science and the learning process. The departmental report states that potentially, the performance report required by the Results Act will provide a mechanism to more systematically monitor and report research performance and accomplishments. University partners provide information on research performance and outcomes that CSREES uses in developing its performance report. Consensus regarding national CSREES funding priorities is developed through input from a wide array of private and public sector stakeholders, including various commodity groups, and associations. In addition, CSREES receives advice from the National Agricultural Research Extension, Education, and Economics Advisory Board. The national research initiatives program receives advice and oversight from its Board of Directors, which meets twice a year. Peer review panels also evaluate programs and make suggestions for revising the annual call for grant proposals. All research, either at the project or program level, is peer reviewed by CSREES or grantee institutions. The following presents a description of the Forest Service’s (FS’) peer review and other quality assurance review practices. The Forest Service, within the U.S. Department of Agriculture, has two primary authorities for conducting research. The first, the Forest and Rangeland Renewable Resources Planning Act of 1974, which authorizes FS to conduct natural resource assessments, provide periodic reviews of its research activities, and to project a research program every 5 years.The second, the Forest and Rangeland Renewable Resources Research Act of 1978, which authorizes the forestry research program. In response, FS conducts primarily intramural research through seven Forestry Research Stations. The stations manage a total of 550 scientists in 163 Research Work Units located at various sites across the nation, including land grant colleges. The agency’s fiscal year 1999 R&D budget is $197 million. Approximately 10 percent of the budget will fund extramural research, which generally is performed through standard research agreements with outside research partners at academic institutions or companies, or cooperative agreements with individual consultants. Under these agreements, which usually span 1or 2 years, FS scientists are substantially involved in conducting the research. Peer reviews are considered to be essential research activities, and FS does not track the costs of conducting the reviews. FS scientists spend about 10 percent of their time serving as peer reviewers for FS research, external journals, and other agencies, including the National Science Foundation. FS defines peer review as technical or scientific review and defines peers as scientists who have scientific expertise in and knowledge of the discipline that is being reviewed. Peers include researchers and administrators from other research stations, FS headquarters staff scientists, university researchers and research administrators, and interest group scientists. Reviewers must be independent of the research under review. They are selected or invited to participate in reviews for which they are deemed best qualified, based on their scientific reputation, standing in their discipline, and specific knowledge of the research area. Peers are sometimes selected to provide training or personal growth opportunities in different programs and issues. Particular attention is paid to obtaining a balanced set of viewpoints and ensuring gender and ethnic diversity, and research administrators are responsible for ensuring that a wide range of peers are used. Although peer review is not explicitly required by statute, agency officials said that peer review requirements documented in FS’ manual satisfy the law’s requirement that FS encourage cooperators and grantees to use the best available scientific skills from a variety of disciplines in and outside the fields of agriculture and forestry. FS officials said that peer review is the foundation of scientific credibility and reputation and the cornerstone of its quality assurance and control efforts. Therefore, all research is peer reviewed. The peer reviews occur at six different points in the research process: preparation of when research work unit descriptions are prepared; when preparation of problem analyses are prepared; when preparation of study plans are prepared; when the Deputy Chief’s makes his or her program reviews and the Chief’s overviews of research stations; when preparation of research publications, articles, and other research products are prepared; and when scientists’ position descriptions are evaluated Research Grade Evaluation Guide evaluations of scientist position descriptions. To help determine research priorities and direction, and which research to perform, FS research work unit descriptions, problem analyses, and study plans are subject to peer review. A research work unit description is a concise summary of the work unit’s mission, problems to be solved through research, reason the problems were selected, proposed research approach, planned accomplishments, and staffing needs. The criteria for setting research priorities or selecting specific problems for study are subjective and depend on the nature of the decision being made. Peer reviews lead to decisions about prioritizing problems and general approaches to solving them, level of resources needed, accomplishments, and likely benefits. The descriptions are revised about every 5 years and are finalized after several iterations of review and comment. Technical assistance visits to research stations provide peer review of the research details. Prior to final approval, the descriptions are submitted to FS headquarters for another peer review. The Station Director then approves the description and the Deputy Chief for Research and Development concurs with decisions contained in the description. The problem analysis contains precise definitions of the research problem, benefits to customers, and the likelihood that the research will provide a solution. The analysis is a detailed plan prepared by a project leader or designated scientist after approval of the research work unit description. The author selects peer reviewers based on his or her knowledge of their interests and capabilities. Following the peer review, an Assistant Station Director for Research or a Program Manager must approve the problem analysis. Last, a study plan is prepared, usually by the scientist assigned to perform the research. The plan defines the research objectives and detailed methods to be applied. The plan is submitted usually by mail, to peers who are selected by the author or project leader. Following peer review, the researcher modifies the study plan as needed needed, and the Project Leader or another research manager approves the plan. The peer review comments and researcher responses are documented with the study plan files. FS does not have any documented instructions regarding conflict of interest in peer reviews and considers this to be an ethics issue. A FS task group is currently developing a policy on professional ethics to ensure against misconduct in scientific research. FS officials said that the peer review process has built in checks and balances to ensure independence. For example, obtaining a minimum of three reviews, or inviting 10 to 20 people to participate in a research work unit description review, ensures that a diversity of views will be obtained. The officials said that often researchers seek out their harshest critics to review their work to get early insight into concerns. Individual researchers are responsible for soliciting peer reviews and deciding how to respond to review comments. These decisions ultimately affect their scientific reputation and standing in their field. Less than 5 percent (or about $1 million) of the extramural budget funds competitive and noncompetitive research grants. For example, grants are awarded to university researchers in response to solicitations for mission-related research. The grant agreements include study plans that are subject to the same review process as is the intramural research discussed above. A study plan can span many years, such as a 45-year study of the impacts of tree- cutting methods. Such long-range plans are reviewed every 3 to 5 years. Program reviews and technical assistance visits help station and headquarters managers reach agreement on research priorities and direction and ensure the research is still needed to address priorities. Program reviews normally cover several research work units, and technical assistance visits usually cover a single unit’s research. All program reviews have peers, including senior external customers, such as state foresters and university deans. In addition, the Deputy Chief’s program reviews and Chief’s overview of research stations evaluate a research station’s overall program and are conducted on a cyclical basis to improve the station’s overall research program results. Seven review topics are addressed during these reviews, with the objective of uniformly evaluating the research program to ensure appropriate quality and quantity of results. According to FS officials, publications play a key role in the quality assurance and quality control process for research and development. Peer reviews of manuscripts prior to publication are part of the process and help ensure that the quality of the research is high and results are significant enough to warrant dissemination. Other indicators of quality exist, such as science citation abstracts, book reviews, publication request rates, book sales by vendors, invitations to speak, and requests for consultations, but these are not substitutes for the peer review of publications. Three peers generally review research products prepared by FS researchers or external research partners. Products include manuscripts for publication in external journals, research papers, research notes, and general technical reports. For extramural research, the necessity to obtain peer review is part of the cooperative agreement. The research partner, the FS, or both may conduct the reviews. For internal FS publications, and publications in external journals that do not require peer review, the names of reviewers are documented on a manuscript approval form, and the author must provide a justification for any reviewer’s comments to which he or she did not respond. A FS official said that users of FS’ research results or members of stakeholder groups also assist in performing peer reviews of various programs. Their opinions on the utility and quality of the results and program priorities help the agency fulfill its responsibilities to improve customer service. Another type of peer review that helps ensure the quality of FS research is the evaluation of individual scientist position descriptions performed by panels of four peers, two from the same general discipline as the position being evaluated and two from a different discipline. Reviews include the nature of the scientist’s research assignment, level of supervision received, originality and creativity required by the assignment, and qualifications and scientific contributions. Personnel specialists select the peers with advice from research administrators. FS’ Manual describes other reviews of stations’ research in addition to peer review. Station Directors and Assistant Directors for Research conduct reviews of a unit’s overall research as necessary, but at least biennially. Informal reviews are conducted with research work units, as needed, to evaluate individual scientist’s programs and improve research results. Under the cooperative agreements, FS monitors the research conducted by its partners by comparing required progress reports with the tasks outlined in the study plan. In addition, the Forest Research Advisory Committee to the Secretary of Agriculture, a formal group of university, industry, and interest group representatives, annually reviews the President’s budget and offers advice on current and future priorities. Research stations often waive the requirement that three individuals review a manuscript prior to publication if the journal has a policy of securing “blind” peer reviews of drafts. Peer reviews are also not required if the research has previously been published in a peer-reviewed journal or FS publication. The following presents a description of the National Institute of Standards and Technology’s (NIST’s) peer review and other quality assurance review practices. The National Institute of Standards and Technology (NIST), founded as the National Bureau of Standards in 1901, is a nonregulatory agency within the Department of Commerce. NIST’s primary mission is to promote U.S. economic growth by working with industry to develop and apply technology, measurements, and standards. NIST carries out this mission through four major programs: the Measurement and Standards Laboratories, the Advanced Technology Program, the Manufacturing Extension Partnership, and the Malcolm Baldrige National Quality Program. The following information focuses on the Measurement and Standards Laboratories and the Advanced Technology Program, NIST’s primary R&D programs. The Measurement and Standards Laboratories in Gaithersburg, Maryland, and Boulder, Colorado, work with industry and government agencies to advance measurement science and develop standards. NIST’s standards for weight, size, volume, and other physical quantities are used to ensure accuracy, fairness, and efficiency for more than $3 trillion worth of goods and services annually. For example, the standards for x-rays, drugs, and DNA testing ensure the safety and efficacy of millions of medical procedures each year. NIST also develops new standards to support advances in semiconductor electronics manufacture, communications, and information technology. In 1988, NIST’s mission was expanded to include new programs designed to further support U.S. industry. One of these programs, the Advanced Technology Program, provides co-funding to companies to initiate high-risk research to develop promising technologies with potential for broad economic and technological benefits across society. For fiscal year 1999, NIST’s budget authority of $641 million includes about $233 million for R&D in the Measurement and Standards Laboratories and about $178 million for external R&D co-funded by the Advanced Technology Program. NIST defines peer review as an evaluation by at least two internal or external technical experts familiar with the technical aspects of the proposals or programs and able to offer informed judgments about the technical quality of proposed external research and of internal research programs. The Department of Commerce’s administrative procedure provides guidance on competitive reviews for the award of external funding in discretionary grant programs, including research grants co-funded by the Advanced Technology Program and external grants awarded by the Measurement and Standards Laboratories. NIST uses a mix of internal and external reviewers to guide decision-making in the award of external R&D grants and to evaluate the technical quality of its internal research programs. The reviews are tailored to the particular purpose and structure of each program. The Advanced Technology Program uses a combination of internal and external reviewers at various stages to determine which research project proposals to fund. In addition, NIST is developing an external program-level peer review for the evaluation of the technical quality of the Advanced Technology Program. In the Measurement and Standards Laboratories, NIST uses external peer review to evaluate the technical quality of the laboratories’ programs. NIST also uses separate internal peer review processes to competitively award the small number of external research grants the laboratories fund each year to supplement their internal R&D efforts. Using a combination of internal and external reviewers, the Advanced Technology Program uses peer review to determine which proposed research projects to fund. NIST’s extramural Advanced Technology Program provides multiyear funding to single companies and industry-led joint ventures. Research proposals are peer reviewed, as specified in 15 C.F.R. 295.4. At the beginning of each competition, a Source Evaluation Board is formed. Board members are government employees, including technical experts and specialists in business and economics from NIST and other government agencies. After the proposals are screened by the Board and determined to be complete and responsive, the Board arranges to have the proposals reviewed by external technical and business experts. Generally, the Board obtains three technical and three business reviews. All board members and reviewers must sign nondisclosure statements, agree to protect proprietary information, and certify that they have no conflict of interest. The reviewers score each proposal numerically and also provide a written critique for Board consideration. The proposals deemed by the Board to be of highest quality are designated semifinalist proposals, and the proposers are invited to NIST for an oral question and answer session with the Board. Following the oral reviews, the Board ranks the proposals based on a number of factors, including the scientific and technical merit of the research and the potential for broad-based economic benefits. The Source Selecting Official, a senior official from the Advanced Technology Program named by NIST for each competition, makes the final funding decisions. The selection officials can deviate from the Source Evaluation Board’s ranking to attain portfolio balance. NIST uses both internal and external peer review to evaluate the effectiveness of its programs. Internal peer review, including program reviews by upper management, is used extensively in all programs. External peer review is used principally to evaluate the technical quality of the Measurement and Standards Laboratories’ programs. Each year since 1959, the National Research Council, an advisory group within the National Academy of Sciences, has coordinated an external peer review of NIST laboratory programs by members of industry and academia. Currently, about 150 scientists and engineers assess the technical quality of NIST’s laboratory programs through the Council’s Board on Assessment of NIST Programs. Panel members visit NIST both individually and in groups, meeting with laboratory management and staff to discuss planned, on-going, and completed programs to determine the technical quality and relevance of the laboratory programs. The evaluation process typically entails a review of specific projects and consultation with individual researchers. Board members use the following criteria: technical merit, appropriateness to NIST missions, effectiveness, adequacy of planning, adequacy of human and physical resources, appropriateness of other agency funding, industrial impact of research, and the integration of the laboratories and NIST missions. The Board annually issues a report on its assessment. The National Academy of Sciences reviews the report according to procedures approved by its Report Review Committee. NIST and the Measurement and Standards Laboratories use the findings and recommendations to improve program quality and to guide decision-making. Subsequent Board assessments and reports consider how NIST has addressed previous findings. NIST’s statutory advisory committee, the Visiting Committee on Advanced Technology, meets quarterly to review NIST’s policies, budget, organization, and programs. The committee, composed of members of industry, academia, and government, is appointed by the Secretary of Commerce. The committee examines the programmatic direction and management of all of NIST’s programs, providing broad external review and guidance. Committee findings and recommendations are summarized each year in an annual report that is submitted to the Secretary of Commerce and transmitted by the Secretary to the Congress. Agency officials also track the results of research efforts funded by the Advanced Technology Program. Using quarterly progress reports and annual meetings with the recipient, the assessments look at the economic impact of the research projects. Program officials monitor completed projects for 6 years. NIST occasionally conducts congressionally earmarked projects that are not separately reviewed. Such projects account for a tiny fraction of NIST’s program funds and are reviewed according to the procedures of the sponsoring program. For example, earmarked projects in the Measurement and Standards Laboratories are reviewed as part of the National Research Council’s Board of Assessment process. Currently, NIST is funding only one earmarked grant. The Board on Assessment does not review the small amount of intramural research conducted under Cooperative Research and Development Agreements. These agreements cover joint research efforts in which both NIST and a cooperating company provide staff, equipment, facilities, and/or funds for a project of mutual interest. These projects can involve intellectual property owned by the private companies and are protected by law from disclosure by NIST. The nonproprietary NIST contribution is subject to the same internal review as all projects and is not excluded from the scope of the annual assessment. The following presents a description of the National Oceanic and Atmospheric Administration’s (NOAA’s) peer review and other quality assurance review practices. Established in 1970, the National Oceanic and Atmospheric Administration (NOAA) is a bureau within the Department of Commerce. NOAA’s mission is to describe and predict changes in the Earth’s environment and to conserve and manage wisely the nation’s coastal and marine resources. NOAA’s research is used to support policy decisions about fishery management, disseminate data about the Earth’s climate, and issue weather reports/warnings. NOAA consists of five major offices: the National Marine Fisheries Service, the National Ocean Service, the Office of Oceanic and Atmospheric Research, the National Weather Service, and the National Environmental Satellite Data and Information Service. The Office of Oceanic and Atmospheric Research, the National Ocean Service, and the National Marine Fisheries Service do much of the research within NOAA. There are 12 environmental research laboratories, 11 joint academic institutes, 29 sea grant colleges, and 6 undersea research centers that conduct research within the Office of Oceanic and Atmospheric Research. The National Ocean Service sponsors research through its coastal ocean research centers and focussed programs with other offices. The National Marine Fisheries Service conducts its’ research through 5 regional science centers in about 30 laboratories. These laboratories are overseen by the National Marine Fisheries Service Science’s Advisory Board, composed of five5 Science Center Directors and the Director of Science and Technology. The National Marine Fisheries Service also has extensive collaborations with academia, many through cooperative agreements and grants. NOAA’s fiscal year 1999 R&D budget is $577 million. NOAA defines peer review as an organized and objective method for evaluating proposed, ongoing, and completed scientific work, by individuals and/or committees who have equal or pre-eminent standing in the pertinent field of research and knowledge of the type of work being reviewed. Virtually all of NOAA’s research portfolio is evaluated by some type of peer review process. Peer review is used at both the project and program levels to certify the correctness of procedures, establish the plausibility of results, and allocate scarce resources. Currently, NOAA has no comprehensive peer review policy. Thus, each office has its own policies, which have accrued over time. For the most part, all external research and internal research is peer reviewed; however, the peer review methods differ among and within the offices. For example, the Office of Oceanic and Atmospheric Research, the National Ocean Service, and the National Marine Fisheries Service conduct their peer reviews by either peer panel, mail, or a combination of the two. Reviewers are selected from a variety of sources, including academia, industry, government, the international science community, and from within NOAA. The Office of Oceanic and Atmospheric Research has two ways that it peer reviews competitive research proposals. If the Office puts out a request for proposals itself, the proposals that are submitted are peer reviewed by the Office and then assigned to individual research universities or institutes funded by the Office. If the research universities or institutes put out a request for proposals, then the individual university or institute peer reviews the proposals submitted. However, each laboratory, university, or institute has its own way of conducting peer reviews within the Office’s guidelines. Research is judged on rationale, scientific merit, innovativeness, the qualifications of the principal investigator, user relationships, relationships to NOAA’s priorities, programmatic justification, linkages, and costs. In the National Ocean Service, competitive research proposals are peer reviewed in a two two-step process. First, the proposals are distributed to knowledgeable individuals for anonymous review. Second, a review panel of knowledgeable individuals are provided of knowledgeable individuals are provided the proposals and reviews for discussion and separate ranking by each panel member. Proposed research is judged on scientific rationale, technical merit, qualifications of the researchers, and the cost of the proposed work. Within the National Marine Fisheries Service, each proposal’s peer review method depends on the products or programs reviewed and is developed by its sponsoring organization—a particular fisheries laboratory, a Regional Fishery Management Council, and/or the peer review panel itself. The schedule or format may also depend on whether or not the proposal is legislatively mandated. Within the Service, proposals are reviewed by mail, peer panels, committees, and agency staff. Every 3 to 5 years, qualified peers review the research programs of research universities, laboratories, or institutes in the Office of Oceanic and Atmospheric Research. This review evaluates the programmatic accomplishments and impacts in the context of resources invested. Each set of reviewers visiting the site consists of representatives from the program, stakeholders, external technical experts, or members of established Office of Oceanic and Atmospheric Research review panels. The university, laboratory, or institute reviewed develops the review presentation based on Office of Oceanic and Atmospheric Research criteria. Most of NOAA’s research is published in peer-reviewed journals. Principal scientists at each laboratory are evaluated in large part on their publications in peer-reviewed journals. The National Marine Fisheries Service’s Scientific Publications Office publishes two peer-reviewed journals of fishery science work performed by NOAA and non-NOAA scientists. Scientific publications undergo an internal technical review by two management levels within the Service. Additional peer review may be requested during the internal technical review. NOAA has recently established a Science Advisory Board that is officially chartered in accordance with the Federal Advisory Committee Act. The 15-member Board is composed of eminent scientists, engineers, resource managers, and educators reflecting the full breadth of NOAA’s responsibilities, as well as the ethnic and gender diversity of the United States. The Board advises NOAA’s Administrator on long- and short-range strategies for research, education, and the application of science to resource management. The Board is currently considering its potential role in the oversight of NOAA’s various science review panels. The Board’s operations and support functions are within the Office of the Chief Scientist. NOAA’s Office of Research and Technology Applications conducts the technical review and selection process for applicants to the Small Business Innovative Research Program. The program was established, among other things, to foster participation by minority and disadvantaged researchers. A certain portion (2.5 percent in fiscal year 1999) of NOAA’s external research and development budget is set aside for program funding. The review is performed by a variety of experts whose views are collected by mail. Scientific findings and conclusions of the National Marine Fisheries Service programs are sometimes reviewed by opposing parties in court when fisheries management decisions are litigated. Since all NOAA research is evaluated by some type of peer review process, agency officials provided no examples of other quality assurance reviews. All NOAA research is subjected to peer review or other technical reviews by NOAA or its customers. The following presents a description of the U.S. Department of Energy’s (DOE’s) peer review and other quality assurance review practices. Created in 1977, DOE’s mission is to foster a secure and reliable energy system that is environmentally and economically sustainable, to be a responsible steward of the nation’s nuclear weapons, to clean up its facilities, and to support continued U.S. leadership in science and technology. The agency conducts research and development on a variety of topics, including fossil, fusion, and nuclear energy production; energy conservation; renewable energy; biological and environmental research; materials science; engineering and geoscience; advanced computing; high-energy and nuclear physics; nuclear waste management; environmental remediation; radiation; nuclear stockpile management; nuclear nonproliferation; and the Human Genome Project. DOE’s research can affect a broad spectrum of federal policies and regulations. For example, DOE generates federal energy-efficiency rules for the manufacture, testing, and labeling of major home appliances and certain commercial products. The Environmental Protection Agency’s Office of Radiation Protection and the Nuclear Regulatory Commission have used the results of DOE’s research as part of the background used to set radiation standards. In addition, agency research was used to set standards for mobile pollution sources and fuel regulations under the Motor Vehicle Information and Cost Savings Act. DOE’s research and development budget for fiscal year 1999 is $7.8 billion. Approximately 80 percent of the budget will support research, research facilities, and related activities within the Department and its national laboratory system. The remaining 20 percent will support external research conducted by industry, universities, public and private research institutions, not-for-profit organizations, and research and development consortia through Department-awarded grants, cooperative agreements and contracts, and laboratory-awarded research subcontracts. Because of its diversity, DOE’s peer review practices are guided by a variety of laws and regulations. The Federal Acquisition Regulation, the DOE Acquisition Regulation, and the Competition in Contracting Act guide the agency’s peer review practices for research and development contracts. Research grants and cooperative agreements, which are awarded through a merit-based selection process, follow the Department’s Financial Assistance Rules, as promulgated in the Code of Federal Regulations 10 C.F.R. Part 600. DOE has no formal definition of peer review, but practices peer review as merit review with peer evaluation—a formal, competent, and objective evaluation process using specified criteria and the review and advice of qualified peers. Peers must be technically competent in the scientific or technical field under review and must be free from conflict of interest. Peers may come from any source, including industry, academia, private and nongovernmental institutions, government agencies, and their associated laboratories. DOE uses merit review with peer evaluation to guide research direction and to assess research progress. External research is peer-reviewed in conjunction with the preaward competitive selection process. This research is also reviewed as part of the award renewal process. Reviews of laboratory research occur at both the laboratory and departmental oversight levels. In addition, laboratories, user facilities, and major research divisions have committees of outside experts that provide periodic peer reviews of research relevance and quality. Research results are also extensively published in peer-reviewed journals. The methods for conducting reviews are tailored to each situation. The following provides examples of the different peer review practices among DOE’s programs. With few exceptions, merit review with peer evaluation guides DOE research, including that by its research laboratories. For example, regulations governing the Financial Assistance Program require peer review and competitive selection. The regulations specify that each grant proposal normally receive a minimum of three reviews per proposal by technically qualified experts in the proposed field, followed by a peer review panel. Proposals are peer-reviewed for scientific excellence. The Office of Science & Technology, in the Environmental Management Program, Project Selection Reviews, for new research and development activities, combine the judgments of technical peers and potential users of the results. In addition, research subcontracted by DOE’s national laboratories to outside researchers is governed by contract provisions, unless otherwise justified through formal documentation. These provisions require competitive selection processes, including merit review with peer evaluation. Peer review is applied to the selection and approval of most laboratory field work proposals. Field work proposals are the means by which the laboratories formally propose future work and seek authorization for expending research and development funds. In the Office of Science, all field work proposals are required to be peer-reviewed for quality by external, independent experts. Each laboratory research program is reviewed annually. For example, the Technology Development Program of the Office of Environmental Management uses teams of subject matter specialists from technical, regulatory, business, and stakeholder perspectives. In addition, peer review is used to allocate available time and to select the experiments conducted at specialized research facilities located at DOE’s laboratories. Such facilities include accelerators for the study of high-energy physics and the world’s most powerful computers and lasers. At the laboratories, each director’s discretionary research and development program and the laboratory field work proposals are reviewed. The Laboratory Directed Research and Development Program provides certain laboratory directors discretionary funds (up to 6 percent of their laboratory’s budget) to develop new scientific ideas and opportunities and to initiate new directions. The laboratories rely on individual scientific investigators and the scientific leadership of the laboratory to identify opportunities that will contribute to scientific and institutional goals. Peer review is also used in conjunction with the evaluation of on-going research. While the substance of the reviews is similar, such as considering the quality and relevance of the research and the investigator’s or research group’s record of accomplishment, the nature of the reviews can differ. For example, the Office of International Health Programs uses independent, external review panels to conduct in-progress reviews. The Office of Science & Technology within the Environmental Management Program conducts technical reviews of continuing projects in their third year of support or when reaching engineering demonstration, or when considered a new start, through a formal process externally managed by the American Society of Mechanical Engineers. The Society selects reviewers who assess technical excellence, relevance, progress, and productivity. In addition, for new environmental-management technologies, mid-year progress reviews are held annually for each program element, with potential users assessing the applicability and performance requirements. Publication in open literature constitutes another form of peer review. Publication of original work is considered essential at DOE, and the scientists it supports (both external and internal) are continually evaluated by the quality of their original research, as indicated, in part, by publications in archival, peer-reviewed journals. Retrospectively, scientists who are independent of the laboratory conduct reviews of laboratory research in conjunction with program reviews and advisory committee oversight. These reviews provide advice on the quality, relevance, and productivity of laboratory-conducted research. The following are three examples of such reviews. The Office of Science regularly conducts retrospective peer reviews of research and development programs throughout the Department, which includes an evaluation of a sampling of research projects. Individual programs also conduct reviews. . The Office of Defense Programs uses an Inertial Confinement Fusion Advisory Committee, constituted under the Federal Advisory Committee Act, which reports directly to the Assistant Secretary for Defense Programs, to assess program results. For highly classified research, the Department interacts with the Department of Defense for customer feedback on program performance. The Office of Civilian Radioactive Waste Management uses peer review to help assess the quality and validity of completed technical work and to ensure the quality of data for use in adjudicatory hearings. Because of the U.S. Nuclear Regulatory Commission’s role under the Nuclear Waste Policy Act, the Commission has provided guidance on the conduct of peer review. A primary selection criterion for peer reviewers is independence. When there is a potential or an apparent conflict of interest that may bring the independence of a participant into question, a documented rationale is included in the peer review report. Many of DOE’s energy technology development and related research and development programs are deliberately designed to accommodate industrial partners. In various ways, these industrial partners provide opportunities for external merit review by engaging themselves as full participants in planning, executing, and commercializing the research and development. Such reviews extend beyond the peer review procedures that characterize science programs. For most major technological development programs, the formulation and enforcement of a comprehensive Quality Assurance Program is required. For the Energy Efficiency Program, quality control involves three stages: peer review for basic research, merit review for applied research, and market review for judging commercial application. Under reforms begun in 1994, all of the Department’s new contracts for the management and operation of its national laboratories require regular, performance-based merit reviews of the contractor’s performance. Colleagues, laboratory superiors, and administrators at DOE headquarters evaluate the research and development projects. The 9 nine multiprogram national laboratories also have various industrial advisory panels to review research. In addition, all research subcontracted by the laboratories to outside researchers is governed by contract provisions that generally require periodic evaluations of the subcontractor’s performance. Panels constituted under the Federal Advisory Committee Act frequently advise DOE program administrators on program content, quality, future directions, and priorities. For example, the Office of Science uses advisory committees for recommendations on basic energy sciences, biological and environmental research, high-energy physics, nuclear sciences, and fusion energy. Similarly, the Office of civilian Radioactive Waste Management has standing advisory committees and just completed a 2-year participatory peer review. For classified nuclear weapons design-related research, where no broad industrial, university, or other independent source of expertise exists, a process of merit review exists within DOE’s Defense Programs laboratories. For example, every 5 years, with annual updates, the three Defense Programs laboratories review the nuclear weapons in the active stockpile through a formal internal peer review “Weapons Appraisal Process.” The University of California, the contractor that operates the Lawrence Livermore and Los Alamos laboratories, also uses a President’s Council Panel on National Security to assess the nuclear weapons program. Each of the laboratories’ directors also appoints review committees for each of the laboratories’ divisions, with members coming almost exclusively from industry and academia but sometimes from DOE and its contractors. The committees report to the laboratory directors with an assessment of the division’s technical and scientific quality. The directors, in turn, file a self-assessment with a review Council convened by the President of the University of California. From this process, the president reports to DOE on the laboratories’ technical and scientific quality. Finally, additional reviewing bodies such as JASON (a civilian science advisory group), the National Academy of Sciences, the Nuclear Weapons Council, and other senior advisory groups review DOE’s Defense Program’s research and development program. According to DOE officials, most congressional mandates and earmarks, which designate projects and the institutions to conduct them, are not subject to the peer review process in deference to the congressional directives. However, once a grant is funded, it is likely to receive merit review before being competitively renewed, unless waived with a written determination by the project administrator. When merit review is not conducted before an award’s renewal, the award must be considered to be noncompetitive and must meet different selection requirements.Whenever the merit review system is not used for applications and proposals, the Director of Grants and Contracts must obtain written prior approval for a different review procedure. Very rarely are contracts peer-reviewed when sole-source selection is used, but the administrator making this decision must justify this process. In addition, nonreviewed grants cannot be extended for more than 6 years; periodic reviews of the research results are another check. The following presents a description of the Environmental Protection Agency’s (EPA’s) peer review and other quality assurance review practices. The mission of the Environmental Protection Agency, established in 1970, is to protect human health and to safeguard the natural environment. EPA is organized into 10 geographic regions and nine major offices: Administration and Resources Management; Air and Radiation; the Chief Financial Officer; International Activities; Policy; Prevention, Pesticides, and Toxic Substances; Research and Development; Solid Waste and Emergency Response; and Water. EPA’s fiscal year 1999 operating budget is about $547 million, excluding state revolving funds for the design and construction of waste water and drinking water systems. Peer review is defined as a documented critical review of a specific, major scientific or technical work product, conducted by qualified, independent individuals. EPA distinguished this peer review definition from what it classifies as “peer input” which is interaction during the development of an evolving agency work product, to provide an open exchange of data, insights, and ideas. The difference between peer review and peer input is the independence of the peer reviewers and their level of involvement. Peer reviewers should have no material stake in the proposal reviewed and should have had no substantial involvement in the development of the proposal. Generally, all research funded by the Office of Research and Development is peer peer-reviewed, as legislatively mandated. In 1993, the administrator issued a policy that statement that major and scientifically and technically based work products related to major agency decisions should normally be peer-reviewed. In response to one of our 1994 reports, each assistant and regional administrator developed a set of standard operating procedures for peer review. In June 1994, the current administrator reissued to a policy statement reaffirming the central role of peer review to ensure that EPA policy decisions rest on sound, credible science and data. After one of our 1996 reports found that EPA’s implementation of these peer review procedures remained uneven, EPA’s Science Policy Council issued a peer-review practices handbook for agencywide use in February 1998. This handbook concentrates mainly on guidelines for the retrospective review of work products used to support EPA decisions. The following provides examples of the different peer review practices among EPA’s offices. The Office of Research and Development’s Science to Achieve Results Program issues requests for research proposals. These proposals are selected through a rigorous peer review process in which panels of independent researchers from relevant fields review all proposals. The reviewers use evaluation criteria that emphasize the quality of science as well as the responsiveness to the program request. Proposals that are rated very good or excellent by the panels are subjected to a programmatic review within EPA to ensure a balanced research portfolio. Office for Research and Development scientists and Program or Regional Office staff conduct the programmatic reviews, based on their knowledge of program priorities and how the research proposals complement the intramural research program. The reviewers recommend proposals for funding to the National Center for Environmental Research and Quality Assurance. Research proposals not under the Science to Achieve Results Program, such as congressional earmarks and unsolicited research proposals, are also peer reviewed for technical merit. For EPA contracts and other assistance agreements, the approach used to peer review a major scientific or technical work is left up to the peer review leader and the EPA’s decision maker who base their decision on the nature of the topic and the intended final product. The Office of Research and Development has established the Board of Scientific Counselors, composed of nationally-recognized scientific and engineering experts. The primary functions of the board are to evaluate office science and engineering research programs, laboratories, and research management practices; recommend actions to improve their quality and strengthen their relevance to the mission of EPA; and to evaluate and provide advice concerning the utilization of peer review within the office to enhance the quality of science in EPA. In addition, the Science Advisory Board—a Federal Advisory Committee Act committee with deliberations open to the public—functions as a technical peer review panel, providing consultation and advisory reviews of work products at various points prior to their completion. Consisting of 10 committees covering such topics as health, radiation, air quality and drinking water, the board draws scientists, engineers, and economists from academia, industry, and the environmental community. EPA has always encouraged the publication of its scientific and technical material in peer-reviewed literature as a means of obtaining independent, external review of its work products. The Science Advisory Board often evaluates and reviews the technical basis for a science policy position adopted by EPA. For example, the board sometimes serves as a council of peers in cases where action is necessary in order to address emerging environmental risk before all the rigors of scientific proof are met. The board also reviews selected scientific documents that are used as the basis for environmental regulations. Important, major EPA rulemakings, including those determined as “significant” ($100 million impact or more) by the Office of Management and Budget, lend themselves to extensive external peer review. Generally, more extensive and involved peer review with external peers is indicated for work with more complex science, greater cost implications, or a more controversial issue. Other projects that are under strict time constraints, are of lesser impact or less controversial, may be reviewed internally, or by a combination of internal and external peer review. Group discussions among the reviewers can be very helpful, but individual reviews are easier, faster, and less expensive and may be more appropriate at the early stages of a product’s development or for products with less impact and complexity. The Office of Research and Development tracks how many peer reviews are conducted each year across EPA and does a qualitative review of whether or not the reviews were conducted according to EPA policies. Managers and peer review leaders are also expected to document the results of completed peer reviews. These results, in conjunction with discussions during the peer review process, are intended to help EPA to ensure that the scientific and technical support for its decisions withstand independent scrutiny. EPA’s Science Policy Council Peer Review Handbook recognizes some circumstances that might preclude the peer review of a major work product. These include products prepared using widely accepted methodology; those for which the regulatory activity has been terminated; those with court-ordered deadlines that may limit or eliminate time for an adequate peer review; those for which resources to conduct reviews are limited; and products that were previously reviewed, if a new application does not differ significantly from the original application. The following presents a description of the National Institutes of Health’s (NIH’s) peer review and other quality assurance review practices. Begun in 1887, the National Institutes of Health (NIH) has grown to become one of the world’s foremost biomedical research centers and the federal government’s focal point for biomedical research in the United States. NIH is one of eight agencies in the U.S. Department of Health and Human Services’ Public Health Service. Comprised of 18 Institutes, 6 Centers, and a Library, NIH has 75 buildings on more than 300 acres in Bethesda, Maryland. NIH’s mission is to uncover new knowledge that will lead to better health for everyone. To this end, NIH conducts research in its own laboratories; supports the research of nonfederal scientists in universities, medical schools, hospitals, and research institutions in the United States and abroad; helps to train research investigators; and fosters the communication of biomedical information. Research ranges from basic understanding of biological processes and the human genome to clinical trials for ways to control infectious diseases and tests of dental sealants for children’s teeth. NIH research is used by regulatory agencies such as the Food and Drug Administration, whose mission is to ensure that food, drugs, and medical devices are safe. In fiscal year 1999, NIH’s budget for R&D is $14.9 billion. About 82 percent of the budget will be spent on grants, contracts, or similar awards to organizations outside the agency. These awards comprise the extramural, or external, research program. The remainder of the budget supports NIH’s intramural research and administrative support for both the extramural and intramural programs. Peer review is conducted under authority of the Public Health Service Act, as amended. More specific policies and procedures are outlined in the U.S. Department of Health and Human Services and Public Health Service regulations, the Public Health Service Grants Administration Manual, the Public Health Service Grants Policy Statement, and NIH’s manuals and handbooks. The Public Health Service Act states that members of peer review group shall be individuals who by virtue of their training or experience are eminently qualified to give expert advice on scientific and technical merit. The act also includes provisions to ensure that there is no conflict of interest among the reviewers. Agency officials said that peer review includes the expert evaluation of scientific merit by independent reviewers. Almost all research funded by NIH is peer- reviewed. Panels of outside experts review extramural research projects for scientific merit prior to funding the research project. Institute directors have the legal funding responsibility for both extramural and intramural research. Outside reviewers generally review the intramural research program retrospectively. Advisory council and institute/center staffs also conduct numerous program-level reviews. The Center for Scientific Review, formerly the Division of Research Grants, is the focal point for the conduct of peer review for the external research program. Referral officers review the contents of some 10,000 applications each grant cycle and, using written guidelines, assign an application to a Scientific Review Group. These review groups judge a proposal’s or project’s scientific and technical merit, assign priority scores, and make budget recommendations. The specific criteria used to assess the merit of research project applications vary with the types of applications reviewed. Criteria for grants include significance, approach, innovation, investigator, and environment. Criteria for contract projects and proposals include significance, availability of technology and resources, anticipated practical uses of the results, and adequacy of the methodology. In addition, NIH policy requires that all applications are reviewed for the adequacy of their plans to include, recruit, and retain both genders, minorities, and children as research subjects and the adequacy of proposed protection for humans, animals, or the environment. To ensure independence, almost all peer review is performed by outsiders. The act and NIH regulations require that no more than 25 percent of reviewers are from within the agency; the average is only about 1 percent. The Scientific Review Groups are generally composed of 18 to 20 individuals, primarily from academia, to review as many as 60 to 100 proposals. The Scientific Review Administrator recommends and the Director of NIH appoints review group members from among the active and productive researchers in the biomedical community to serve for multiyear terms. Criteria for selecting the reviewers include demonstrated scientific expertise, a doctoral degree or its equivalent, mature judgment, balanced perspective and objectivity, an ability to work effectively in a group, an interest in serving, and an adequate representation of women and minority scientists. Membership is frequently supplemented by temporary members and written outside opinions. When a proposed research topic does not match a review group’s specialties, or when an application sent to the appropriate review group might create a conflict of interest, NIH may convene a Special Emphasis Panel to conduct the review. The Scientific Review Groups usually meet together in person three times a year for 2 to 3 days but sometimes use teleconferencing. Mail reviews are used only as an adjunct to a full panel review. NIH officials said that by definition, peer review recommendations are considered as advice only. However, while other factors such as maintaining a variety of research topics and the need to support newly emerging areas of science are considered, most extramural awards follow peer review recommendations. Of about 40,000 grant applications submitted to NIH each year, up to 30 percent are funded. For each institute, a National Advisory Council mandated by the Congress meets three to four times a year to conduct second-level reviews of all eligible grant applications. As mandated by the Congress, these advisory groups typically include about two-thirds outside scientists and one-third lay members, such as lawyers, economists, and members of patient and disease advocacy groups. These councils may also have ex officio members representing other federal agencies. Councils make recommendations to the Institute director about funding particular meritorious grants that are seen as very important but which may not have received the best scores from the scientific reviewers and, in general, ensure that the scientific peer review process has been conducted appropriately. The need to continue funding projects over multiple years is an important criterion when deciding to fund new projects. In any given year, only about 25 percent of the total funds allocated for research projects is available for new projects that may change the course of a line of research or move research into an entirely new area. Peer review of ongoing external projects occur at the time a request is made for renewed support. The Scientific Review Groups evaluate these efforts with the new proposals. Boards of scientific counselors reviews the technical and scientific quality of each institute’s ongoing intramural research. Like the other NIH advisory committees discussed previously above, the boards are established under the Federal Advisory Committee Act to review, discuss, and evaluate institute, center, and division research programs, projects, and investigators. The boards meet two or three times a year. The boards also review and evaluate tenured NIH investigators at least once every 4four years and tenure-track scientists must be reviewed mid-point in their tenure-track and prior to conversion to tenure. In addition, the boards may choose to review the work of permanent staff scientists or other intramural scientists. Chosen mainly from outside the government, board membership includes internationally recognized authorities in one of the fields of research under review. For continuity, NIH policy states that members generally serve for overlapping 5-year terms, if possible. NIH administrators encourage scientists they fund externally or employ internally to publish the results of their work. Abstracts, manuscripts, or written material by employees must be reviewed and approved prior to publication. Typically, this process also entails further peer review by the journal. NIH administrators can follow citation indexes, in which peer-reviewed articles that are cited are compiled, in order to gauge the relevance and success of funded researchers. To review agency policies, each institute convenes national advisory councils with members from the public and from the medical and scientific communities with expertise relevant to the NIH’s missions. These councils may also review and comment on special initiatives proposed by the institute or, for example, on research training policies. In addition, the boards of scientific counselors provide evaluation and advice on scientific directions of the laboratory, tenure actions under consideration, resource allocation, specific projects projects, including new areas of development, and other administrative matters. In 1996, the NIH Director created a Peer Review Oversight Group to advise on the development and implementation of trans-NIH policies to ensure that the review processes keep pace with current advances in research. NIH also conducts reviews of its directors, the senior executives who manage the agency’s institutes and centers. In each institute and center, Scientific Directors supervise research. An ad hoc committee with at least four members reviews each Scientific Director’s performance every 4 to 6 years. This committee is established by and reports to the Institute or Center Director’s Advisory Council or Board, which, in turn, makes recommendations to the Institute or Center Director. Membership on the ad hoc committees varies and can include an Advisory Council or Board member, a former Institute intramural scientist, a senior scientist, and a scientific administrator. Occasionally, administrative supplements–additional funds necessary to carry on approved work–are not peer- reviewed. However, the project and its administrative supplement are reviewed if the project is continued beyond its original schedule, at which time it competes with new projects. The following presents a description of the United States Geological Survey’s (USGS’s) peer review and other quality assurance review practices. The United States Geological Survey (USGS), as the principal research agency of the Department of the Interior, provides biological, geologic, topographic, and hydrologic information that contributes to the wise management of the Nation’s natural resources and promotes the health, safety, and wellbeing of the people. USGS has four research divisions: Biological Resources, Water Resources, Geologic, and National Mapping Program. The divisions support research conducted by USGS scientists, and through competitive grants to external scientists. USGS provides information resulting from its research that consists of maps, databases, and descriptions and analyses of the water, energy, biological, and mineral resources, land surface, underlying geologic structure, and dynamic processes of the Earth. USGS’ fiscal year 1999 R&D budget is $567 million. The four divisions’ research spending for fiscal year 1998 was about $545 million with about $507 million spent on intramural research. The USGS defines peer review as scientific and technical review by qualified scientific or technical experts in the relevant discipline(s). Individuals chosen as reviewers are recognized experts in the appropriate field. However, reviewers are not to be involved in the preparation, development, or execution of the program, project, or product being reviewed. USGS policy provides for peer review of all research. In early 1996, a draft Department of the Interior policy called for each Bureau to develop a peer review policy. In response, USGS implemented a Bureau-wide peer review policy. At that time, the USGS divisions had review policies that varied in content and scope. The divisions were directed to submit proposed review policies or guidelines for evaluation by USGS’ Program Council and approval by the Policy Council. The “USGS Review Policy” covers (1) subjects for review; (2) review definitions; (3) the management of reviews; (4) timing, frequency, and documentation of reviews;, and (5) the departmental peer review guidelines. USGS directed that the peer review policy be applied to all aspects of the acquisition, interpretation, application, and dissemination of scientific and technical information. USGS’ peer reviews are conducted to select among competitive grant proposals and intramural projects, to evaluate a proposal’s application to questions of public policy, and to ensure the technical quality and relevance of research at all stages of development. USGS’ guidance to the divisions allowed them to manage reviews in different ways and at different stages, depending on the subjects under review, and required them to retain independence and rigor in the review process. In general, managers who supervise research programs are responsible for ensuring that reviews are conducted and the findings are documented. The four divisions have each developed different peer review practices that reflect USGS’ guidance. USGS’ policy states that scientific proposals for new projects and programs or for significant changes in existing projects and programs will be subject to peer review or other review as appropriate prior to final approval and implementation. Reviews must comply with the Department-level guidelines. The guidelines present factors that indicate the need for peer review, including large commitments of funds to new or extended research projects, communications regarding scientific subjects of a controversial nature, and major research projects performed for USGS under contract. Determining the need for peer review is the responsibility of the project or program supervisor. When peer reviews are conducted, in most cases, reviewers should be external to the bureau and should include two or more peer scientists. Officials of the Biological Resources Division, Water Resources Division, and the Geologic Division said the divisions review all research proposals prior to funding. The National Mapping Program is planning to implement a process to review all proposals for its research program beginning in fiscal year 1999. Generally, the criteria applied by divisions to select reviewers for project and program level reviews are knowledge and expertise in an area. Divisions’ evaluations of the research criteria include determining whether objectives are met, results are relevant and timely, and evidence is adequate. USGS guidance stipulates that subsequent periodic review of projects and programs are to be conducted. Ongoing programs are to undergo an independent external peer review about every 5 years, with the number and mix of internal and external reviewers determined by the individual responsible for the review. Each division determines the specific frequency of reviews for ongoing projects. The divisions’ implementations of the review guidelines have resulted in some deviations among reviews of projects. All four divisions review research projects and programs while in-progress, but the timing of the reviews differs. For example, all Geologic Division projects are peer-reviewed annually after the work has been undertaken, and each program is subjected to formal external review every 5 years by groups such as the National Academy of Sciences. The National Mapping Program conducts quarterly project reviews. The Water Resources Division has a standing contract with the National Research Council for broad reviews of the division, which address different subjects each year. These reviews result in recommendations for changes to program direction and improvement. Scientific products require the Director’s approval prior to general release and a peer review, if appropriate, is required. Qualified, technical experts in the relevant discipline(s) review research products prior to dissemination. For example, the Water Resources and the National Mapping divisions require review of manuscripts by two peer colleagues. Procedures, implemented by the Divisions for peer review of publications, call for review by scientists who do not have any involvement in the project. The Geologic and Water Resources Divisions also hold authors of reports and other products responsible, through the peer review process associated with the release of publications, to interact with fellow scientists in addressing comments, suggestions, and criticisms. The “USGS Review Policy” identifies three types of reviews that are to be conducted in addition to peer review: management review, policy review, and editorial review of publications. USGS supervisors and managers conduct the management reviews of programs, proposals, projects, products, and customer information. For example, these reviews are used to select and approve peer reviewers and types of reviews; ensure technical soundness, relevance, and priority; confirm that objectives are met; ensure proper animal care and use; and verify that the media, style, technical level, and content of publications fit the intended audience. Policy reviews include review of programs, proposals, projects, and products to ensure compliance with pertinent policies and mandates prior to receiving “Director’s Approval” for general release of research products. Editorial reviews conducted by qualified personnel check for expression, clarity, mechanical condition, organization and layout, effective and appropriate presentation and use of illustrations and tables for the intended audience, completeness of annotation for references, and, if appropriate, conformity with USGS’ style, usage, and format. The divisions also implement additional reviews. For example, the Biological Research Division has administrative, national program, and science center reviews in addition to the cited USGS reviews. Most Biological Resources Division programs and projects receive annual and or “mid-point” management and technical reviews. The Water Resources Division and National Mapping Program conduct numerous reviews of programs and technical disciplines that include biannual and 3-year reviews. The National Mapping Program does not require peer review for directed research projects being performed for an external customer. However, such research is reviewed for its relevance to the goals and objectives of the National Mapping Program. The customer reviews the projects, and the contract or other written agreement establishes the review criteria. All USGS research is subjected to peer review or other technical reviews. The following presents a description of the National Aeronautics and Space Administration’s (NASA’s) peer review and other quality assurance review practices. The National Aeronautics and Space Administration (NASA) conducts research in earth science; space science; life and microgravity sciences, and applications; and aeronautics and space transportation technology. Within these program areas, 10 NASA centers fund research. NASA’s fiscal year 1999 R&D budget is $10.1 billion. In fiscal year 1998, NASA spent $3.5 billion of its $10.5 billion budget on research funded through grants, cooperative agreements, and contracts with other agencies, industry, and academia. The remainder of the R&D budget funded procurement contracts for nonscientific investigations such as the development of hardware for the international space station, communication satellites, shuttle modifications, and facilities construction. The funding mechanism is determined by the research goal. For example, NASA officials said that a contract agreement is appropriate for a product or service that will be used by NASA. Grants and cooperative agreements are appropriate when research is conducted to accomplish a public purpose. NASA’s research may be used to support other agencies’ policy decisions, such as those related to regulations of the Environmental Protection Agency or Federal Aviation Administration. NASA defines peer review as scientific evaluation by an independent in-house specialist, a specialist outside NASA, or both, of proposals submitted in response to NASA research announcements, announcements of opportunity, and cooperative agreement notices. Peer Review is also used to evaluate unsolicited proposals. Peer reviews evaluate relevance to NASA’s objectives, intrinsic merit that includes scientific or technical merit of research methods, the researcher’s capabilities and qualifications, and cost. All NASA research, including research resulting from unsolicited proposals, is subject to peer review, and peer review is conducted primarily to award funds on the basis of scientific merit. NASA officials said that external peer review is essential for high-quality, relevant research. NASA’s Federal Acquisition Regulations Supplements dictate that peer review will be the method used to evaluate and select research for funding. NASA is developing a series of instructions on the implementation of peer review. Currently, each NASA office works with its own contractors that arrange and manage the logistics of peer reviews. Policies for peer review are documented through the instructions in the research announcements, which are written by NASA scientists. NASA’s Sponsored Research Business Activity, which is responsible for implementing research business policies and procedures, has a competitive procurement effort underway to obtain a single contract to manage the logistics of peer reviews to gain consistency among programs in the reviews of proposals. NASA’s offices now have five different contracts providing logistical support for peer reviews. NASA also has efforts underway to develop uniform instructions for submitting research proposals and to increase uniformity in development of research announcements. Intramural research conducted by NASA scientists is normally funded through awards resulting from the same open competitive solicitations that are used to select extramural research. Research proposals from NASA centers and other federal laboratories are considered together and treated identically to those from industry and academia. Specific peer review methods differ somewhat among NASA offices or disciplines depending on, for example, cost, resources brought to bear, or the experience of the reviewers. Some offices have standing committees, some ad hoc committees, and some a combination of these for individual announcements. However, the use of NASA experts to evaluate and document findings of proposal reviews is universal across NASA. Peers include scientists from public and private academic institutions, industry, government laboratories, and foreign countries. Criteria for peer selection include the research they have conducted, publications, knowledge and experience, and ability to conduct an impartial review. NASA and peer review support contractors maintain databases of discipline experts to identify peers. Acknowledged experts in a discipline and proposal authors may also suggest other qualified reviewers. The officials said that using external peers ensures fresh view points, alternative perspectives, and state-of-the-art understanding. The authors of a proposal are not involved in its review, and peers are screened to ensure that they have no conflict of interest. Reviews are conducted by mail or by panel meetings, depending on the logistics specific to the review. Mail reviews are conducted to allow for the selection of reviewers with very specialized expertise on technical and scientific issues and technical approach. Often a panel review is conducted to reconcile differences among mail reviews and put the proposed research in a larger scientific and programmatic context. In fiscal year 1998, five NASA research offices released a total of 57 research announcements and received 5,048 proposals. Of these, 3,778 proposals were peer-reviewed by mail, and 136 panels met with a total membership of 1,287 peers. An official of the Office of Space Science, which received 2,599 proposals, said that his office held 91 peer review panel meetings throughout the year. Each panel consisted of 7 to 10 members. NASA receives a few unsolicited proposals, and these are usually peer-reviewed only by mail. Panel members are solicited by telephone or letter and are reimbursed for their travel costs to attend panel meetings. NASA officials said that peers working on a voluntary basis contribute to the integrity of the process. Specific criteria for reviews are unique to each research solicitation, but the criteria should be modeled after basic evaluation factors, including relevance to NASA objectives, intrinsic merit, and cost. Panels do not apply overall scores, but rate each proposal on scientific and technical merit using a 5-point scale. In addition, NASA program goals and objectives, and cost-effectiveness of proposed budgets are factors in the review process for individual proposals. However, a NASA official said that there are wide variations among NASA offices in the extent that they rely on peer review panels to assess these factors. Panels are sometimes asked to recommend assemblages of proposals that best meet focused program objectives. Program managers weigh results of the panels’ reviews against program requirements, costs, and scientific risk to ensure a focused and well- balanced program. If the NASA selecting official determines a proposal is relevant to the agency’s mission, it generally will be funded if the panel rated it high in technical merit. Peer reviews are not normally used to evaluate in-progress or completed research, although a yearly progress report is required before a yearly funding allotment is provided to the researcher. However, if a research project continues beyond 3 years, the researcher must submit a new proposal that is subject to full external peer review and competes with new proposals for funding. According to NASA, the amount and quality of the research results are judged by the research community and through publication in scientific journals and NASA’s Scientific and Technical Information Program. This program manages and disseminates results of basic and applied R&D to reduce unnecessary duplication and improve the productivity and cost-effectiveness of the research. The program requires conformance with review requirements prior to acceptance of research for publication. Project managers and staff are frequently asked to comment on management and financial aspects of research proposals, since as a rule science reviewers are not qualified experts in these fields. These nontechnical reviews are presented with scientific reviews to the selecting official. There are a few instances where internal or program reviews alone may be conducted for proposals that involve minor funding for nonresearch activities, such as presentations at workshops or symposia, or a situation which requires a quick response to an unexpected research opportunity. Normally, the program manager conducts mid-point or annual reviews of research projects without input from multiple experts. NASA managers also annually review required research progress reports to determine whether funding should be continued. Also, reports of findings and new knowledge presented at the conclusion of a research effort are evaluated internally to determine if additional support should be provided to the grantee. A final report that is required at the conclusion of a grant or research effort must include citations of all published papers resulting from the work. Internal reviews of research results are based primarily on the publications that have appeared in the peer-reviewed literature, the importance of the results or, in some cases, the rigorous evaluation of results as a part of international research assessments. All research is reviewed, through either external peer review or internal NASA review. The following presents a description of the National Science Foundation’s (NSF’s) peer review and other quality assurance review practices. The National Science FoundationNSF is an independent federal agency, with the goal of promoting and advancing scientific and engineering progress in the United States as well as ensuring the nation’s supply of scientists, engineers, and science educators. Of its fiscal year 1999 R&D budget of $2.7 billion, $2.5 billion is allocated for basic and applied research. NSF supports extramural research and education in most fields of science and engineering, through about 200 programs. The research is funded through grants and cooperative agreements with almost 2,000 colleges, universities, and other research and education organizations from all parts of the United States. NSF annually receives about 30,000 proposals requesting new or renewed support for research, graduate and postdoctoral fellowships, and math, science, and engineering education projects. About 10,000 new awards are made annually. NSF uses the terms peer review and merit review interchangeably, and reviews of research proposals are “merit review with peer evaluation.” NSF reviews involve knowledgeable peers from the scientific and engineering communities as the keystone of their system. conducted appropriately, and the Director of NSF reports annually to the Board on the merit review system. Proposals received for research under the competitive grants program are reviewed by a scientist, engineer, or educator serving as an NSF program officer, and usually by 3 to 10 other persons outside NSF who are experts in the particular field represented by the proposal. Authors of proposals are invited to suggest names of persons they believe are especially well qualified to review the proposal or persons they would prefer not review the proposal. These suggestions serve as one source in the reviewer selection process at the program officer’s discretion. Program officers may obtain comments on proposals from mail reviews, assembled review panels, or site visits before recommending final action on proposals. Senior NSF staff further review the program officer’s recommendations for awards. The division director receives a recommendation and decides whether the proposal should be declined or recommended for award. Normally, final programmatic approval occurs at the division level. Then, the Division of Grants and Agreements reviews the business, financial and policy implications of the proposal, before issuing a grant or other agreement. The judgments of the peers as to the extent that proposals address the review criteria are vital for informing NSF staff and influencing funding recommendations. NSF relies on the judgment of program officers to make funding recommendations that address NSF strategic goals. NSF research grants are awarded for 1 to 5 years, and large ongoing projects (in terms of the number of investigators involved, the time frames of the project, or the dollar amount of the grant) are evaluated by outside experts who visit the research sites. The reviewers are familiar with the scientists and engineers who are conducting the research. The results of these reviews are used in decisions on whether to continue funding of these projects. track results of the research efforts it supports, through annual and final reports on each project and plans to follow-up for years after the research is completed to identify impacts resulting from the research. Investigators receiving grants submit annual progress reports that are reviewed by the program director. At a program director’s prerogative, up to 5 percent of the research budget can be used for newly emerging research areas that are reviewed by NSF staff but are not necessarily subjected to external peer review. This is done because the nature of peer review to select research for funding that is somewhat conservative and may not normally result in the funding of high risk or exploratory projects. NSF believes it is important to conduct some exploratory research to further expand knowledge in certain areas. In some instances, these grants are awarded for ideas that may need quick decisions, such as a case where earthquake information requires immediate study. All research funded by NSF is reviewed through internal NSF review and, in most cases, also through external peer review. The following presents a description of the Federal Aviation Administration’s (FAA’s) peer review and other quality assurance review practices. Within the Department of Transportation, the Federal Aviation Administration’s (FAA) mission is to provide for the safe, secure, and efficient movement of air traffic consistent with national security concerns. The FAA’s Research, Engineering, and Development Program develops and validates the technologies, systems, designs, and procedures for the full range of the agency’s operational and regulatory activities. The agency’s 1999 budgets for research, engineering, and development and Advanced Technology Development and Prototyping is $202.6 million. During the agency’sFAA rulemaking process, the Aviation Rulemaking Advisory Committee, an FAA and industry group, discusses the confidence level in the research that supports a proposed rule. failure, and to counteract terrorist acts. FAA grants are generally awarded to applicants from colleges, universities, and other nonprofit research institutions. Other appropriate research institutions, such as for-profit organizations and governmental entities, may also qualify to perform research in aviation security. Peer reviews are technical reviews performed by in-house and external experts with qualifications equal with those of the researcher whose work is being reviewed. Peers must be knowledgeable about the area to be reviewed. FAA conducts peer reviews of proposed research projects funded through FAA grants and cooperative agreements. Through an advisory council, the agency also conducts program-level peer reviews of planned research, ongoing research, and the outputs of completed research for their usefulness to FAA and industry. The 1990 FAA Research, Engineering, and Development Authorization Act provided grant authority to the agency for the first time and required a review and evaluation process to ensure that research proposals have adequate merit and relevancy to FAA mission. FAA officials also said that they are cognizant of the annual budget guidance from OSTP and OMB regarding the need to conduct peer review of competitively awarded research proposals. FAA has developed a formal grant application process. Grants and cooperative agreements are administered by FAA’s Office of Aviation Research, and the Research Grants Program Office also reports to the Research, Engineering, and Development Advisory Committee. FAA issues one broad solicitation each year outlining major categories for needed research and receives proposals to undertake specific R&D projects on an on-going basis. Each proposal is evaluated on its own merit, rather than being compared with other proposals. The Research Grants Program documentation states that following an administrative review; each proposal will be reviewed carefully for merit by a technical evaluation team consisting of three or more qualified people. A FAA representative is to be designated as the team leader and is responsible for developing an overall rating based on the ratings of the team members. FAA officials said that peer reviewers are primarily FAA employees, because they have the required subject matter expertise. Ninety percent of the proposals are reviewed by three individual peers not involved in the project, who are selected by the program experts. Reviewers attest they have no conflict of interest. Reviewers receive guidance on the use of four review criteria: intrinsic value, relevance to FAA mission, technical soundness of the proposal, and research performance competence. However, a FAA official said that these reviews are highly subjective. FAA also conducts peer reviews of on-going research projects and programs. For example, FAA provides annual funding for the Joint FAA/NASA University Program, a consortium comprised of the Massachusetts Institute of Technology, Ohio University, and Princeton University. FAA and NASA’s technical experts conduct triannual reviews of the program’s ongoing research in areas such as intelligent flight control systems, weather hazard avoidance, satellite navigation, cockpit displays, and intelligent air traffic management. The agency also conducts reviews of the work in progress in its Centers of Excellence. For example, for the Operations Research Center of Excellence, the agency and the center’s partners from industry and academia conduct an annual research review as well as hold biannual steering committee meetings to ensure that the research is on track and pertinent to the needs of FAA. The agency encourages intramural and extramural researchers to publish results in journals that conduct peer review prior to the acceptance of the results for publication. The Civil Aeromedical Institute reported that it conducts peer reviews of manuscripts and other work products prior to publication. objectives, plans, approaches, content, and accomplishments. The Federal Aviation Administration Research, Engineering, and Development Authorization Act of 1990 expanded the committee’s responsibilities and set the membership to not more than 30 representatives from research Centers of Air Transportation Excellence, universities, corporations, user groups, associations, consumers, and other government agencies. During the annual process, subcommittees of the advisory committee review FAA’s proposed research and research that is already in-progress and make recommendations about priorities and merit of the research. Evaluation criteria for assessing research project descriptions include, among others, Results Act considerations, congressional mandates, mission relevance, research outcomes and outputs, and whether the project plan describes a credible, well understood, work effort. Documented procedures are used to develop merit scores assigned to proposed research project descriptions. During the annual programming and budgeting process FAA target area teams, which include internal research sponsors from the six program areas, are heavily involved in prioritizing and planning all research efforts and in decisions about what research to fund. In addition, FAA program staff conduct reviews of some research programs once or twice a year, or as needed. For example, a FAA official said that program review teams include a FAA Associate Administrator, Department of Transportation representatives, and FAA stakeholders. On an ad hoc basis, FAA solicits assistance from external organizations such as the National Academy of Science to review its research efforts. between FAA and industry or opportunities to share data from related research. The Civil Aeromedical Institute conducts intramural research, and reviews are primarily internal. The Institute employs some of the world’s best scientists in its narrow fields of research, so the number of outside experts is limited. Internal reviews are conducted of Aeromedical Research Resumes, which describe technical details of proposed research projects. In addition, an Internal Medical Research Group of FAA laboratory and headquarters staff, and one outside expert, meets four times a year to review research proposals and quarterly progress reports. Research performed under procurement contracts is reviewed during the annual programming and budgeting process. After this process establishes research needs and budgets, FAA technical staff prepare statements of work for research they want to perform under contracts. These same staff review subsequent proposals, and after contracts are awarded, they are expected to monitor the researcher’s performance. In addition, contract deliverables are reviewed by internal experts prior to acceptance by the agency. All FAA research is reviewed by FAA, its industry stakeholders, or others. Arleen L. Alleman James S. Crigler The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.	Pursuant to a congressional request, GAO studied the peer review and other quality assurance processes that federal agencies use in conducting scientific research and development, focusing on: (1) defining what is meant by peer review; (2) describing the federal government's peer review policy; (3) describing the peer review practices of 12 federal agencies that conduct scientific research; (4) describing other agencies' quality assurance reviews; and (5) identifying which research is not subject to review. GAO noted that: (1) there is no written governmentwide definition of peer review; (2) officials at the Office of Science and Technology Policy (OSTP) and at the agencies GAO contacted generally concur that peer review is defined as a process that includes an independent assessment of the technical, or scientific merit of research by peers who are scientists with knowledge and expertise equal to that of the researchers whose work they review; (3) there is no uniform federal policy for conducting peer reviews; (4) through annual budget guidance to federal agencies, OSTP and the Office of Management and Budget encourage funding of research projects that are peer reviewed over those that are not reviewed; (5) officials at OSTP said that peer review practices should not be dictated uniformly for every agency or for all types of federally funded research; (6) rather, the practices should be tailored to agency missions and type of research; (7) each of the 12 agencies that GAO contacted had a variety of policies, orders, or other internal guidance regarding the conduct of peer review; (8) to varying degrees, the 12 agencies use peer review to: (a) assess the merit of competitive and noncompetitive research proposals; (b) determine whether to continue or renew research projects; (c) evaluate the results of the research prior to the publication of those results; (d) establish annual budget priorities for research programs; and (e) evaluate program and scientist performance; (9) all of the agencies use peer review to assess competitive research proposals; (10) the methods for conducting peer reviews vary among and within the agencies; (11) most of the agencies that GAO reviewed also use reviews by agency supervisors or program managers to assess the quality of research proposals, to check the quality of in-progress research, and to evaluate program performance; (12) generally, these quality assurance reviews are not considered independent assessments--a key criterion in the peer review process; (13) these quality assurance reviews occur at both the project and program levels; (14) while agencies reported that almost all research is reviewed either through peer reviews or other quality assurance reviews, a small amount of research may not be reviewed by the agencies in certain circumstances; and (15) examples of research that may be funded without being reviewed include projects that are congressionally mandated or projects that use widely accepted methodologies.	14.2	16k+	8,890
43	Over the last few decades, the number of participants and the complexity of the market for home mortgage loans in the United States has increased. In the past, a borrower seeking credit for a home purchase would typically obtain financing from a local financial institution, such as a bank, a savings association, or a credit union. This institution would normally hold the loan as an interest-earning asset in its portfolio. All activities associated with servicing the loan including accepting payments, initiating collection actions for delinquent payments, and conducting foreclosure if necessary would have been performed by the originating institution. Over the last few decades, however, the market for mortgages has changed. Now, institutions that originate home loans generally do not hold such loans as assets on their balance sheets but instead sell them to others. Among the largest purchasers of home mortgage loans are Fannie Mae and Freddie Mac, but prior to the surge in mortgage foreclosures that began in late 2006 and continues today, private financial institutions also were active buyers from 2003 to 2006. Under a process known as securitization, the GSEs and private firms then typically package these loans into pools and issue securities known as mortgage-backed securities (MBS) that pay interest and principal to their investors, which included other financial institutions, pension funds, or other institutional investors. As shown in figure 1, as of June 30, 2010, banks and other depository institutions that originate and hold mortgages accounted for about 28 percent of all U.S. mortgage debt outstanding. Over 50 percent of the mortgage debt was owned or in MBS issued by one of the housing GSEs or covered by a Ginnie Mae guarantee. About 13 percent were in MBS issued by non-GSEs—known as private-label securities, with the remaining 5 percent being held by other entities, including life insurance companies. With the increased use of securitization for mortgages, multiple entities now perform specific roles regarding the loans, including the mortgage servicer, a trustee for the securitized pool, and the investors of the MBS that were issued based on the pooled loans. After a mortgage originator sells its loans to another investor or to an institution that will securitize them, another financial institution or other entity is usually appointed as the servicer to manage payment collections and other activities associated with these loans. Mortgage servicers, which can be large mortgage finance companies or commercial banks, earn a fee for acting as the servicing agent on behalf of the owner of a loan. In some cases, the servicer is the same institution that originated the loan and, in other cases, it may be a different institution. The duties of servicers for loans securitized into MBS are specified in a contract with investors called a pooling and servicing agreement (PSA) and are generally performed in accordance with certain industry-accepted servicing practices—such as those specified in the servicing guidelines issued by the GSEs. Servicing duties can involve sending borrowers monthly account statements, answering customer service inquiries, collecting monthly mortgage payments, maintaining escrow accounts for property taxes and hazard insurance, and forwarding proper payments to the mortgage owners. In exchange for providing these services, the servicer collects a servicing fee, usually based on a percentage of at least 0.25 percent, of the loans’ unpaid principal balance annually. In the event that a borrower becomes delinquent on loan payments, servicers also initiate and conduct foreclosures in order to obtain the proceeds from the sale of the property on behalf of the owners of the loans, but servicers typically do not receive a servicing fee on delinquent loans. When loans are sold, they are generally packaged together in pools and held in trusts pursuant to the terms and conditions set out in the underlying PSA. These pools of loans are the assets backing the securities that are issued and sold to investors in the secondary market. Another entity will act as trustee for the securitization trust. Trustees act as asset custodians on behalf of the trust, keeping records of the purchase and receipt of the MBS and holding the liens of the mortgages that secure the investment. Trustees are also the account custodians for the trust—pass- through entities that receive mortgage payments from servicers and disperse them among investors according to the terms of the PSA. Although trustees are the legal owners of record of the mortgage loans on behalf of the trust, they have neither an ownership stake nor a beneficial interest in the underlying loans of the securitization. However, any legal action a servicer takes on behalf of the trust, such as foreclosure, generally is brought in the name of the trustee. The beneficial owners of these loans are investors in MBS, typically large institutions such as pension funds, mutual funds, and insurance companies. Figure 2 shows how the mortgage payments of borrowers whose loans have been securitized flow to mortgage servicers and are passed to the trust for the securitized pool. The trustee then disburses the payments made to the trust to each of the investors in the security. The mortgage market has four major segments that are defined, in part, by the credit quality of the borrowers and the types of mortgage institutions that serve them. Prime—Serves borrowers with strong credit histories and provides the most attractive interest rates and mortgage terms. This category includes borrowers who conform to the prime loan standards of either Fannie Mae or Freddie Mac and are borrowing an amount above the GSE federally mandated upper limit, known as “jumbo loans.” Nonprime—Encompasses two categories of loans: Alt-A—Generally serves borrowers whose credit histories are close to prime, but loans have one or more high-risk features such as limited documentation of income or assets or the option of making monthly payments that are lower than required for a fully amortizing loan. Subprime—Generally serves borrowers with blemished credit and features low down payments and higher interest rates and fees than the prime market. borrowers who may have difficulty qualifying for prime mortgages but features interest rates competitive with prime loans in return for payment of insurance premiums or guarantee fees. The Federal Housing Administration and Department of Veterans Affairs operate the two main federal programs that insure or guarantee mortgages. Across all of these market segments, two types of loans are common: fixed-rate mortgages, which have interest rates that do not change over the life of the loan; and adjustable-rate mortgages (ARM), which have interest rates that can change periodically based on changes in a specified index. The nonprime market segment recently featured a number of nontraditional products. For example, the interest rate on Hybrid ARM loans is fixed during an initial period then “resets” to an adjustable rate for the remaining term of the loan. Another type of loan, payment-option ARM loans, allowed borrowers to choose from multiple payment options each month, which may include minimum payments lower than what would be needed to cover any of the principal or all of the accrued interest. This feature is known as “negative amortization” because the outstanding loan balance may increase over time as any interest not paid is added to the loan’s unpaid principal balance. If a borrower defaults on a mortgage loan secured by the home, the mortgage owner is entitled to pursue foreclosure to obtain title to the property in order to sell it to repay the loan. The mortgage owner or servicer generally initiates foreclosure once the loan becomes 90 days or more delinquent. Once the borrower is in default, the servicer must decide whether to pursue a home retention workout or other foreclosure alternative or to initiate foreclosure. State foreclosure laws establish certain procedures that mortgage servicers must follow in conducting foreclosures and establish minimum time periods for various aspects of the foreclosure process. These laws and their associated timelines may vary widely by state. As shown in figure 3, states generally follow one of two methods for their foreclosure process: judicial, with a judge presiding over the process in a court proceeding, or statutory, with the process proceeding outside the courtroom in accordance with state law. Because of the additional legal work, foreclosure generally takes longer and is more costly to complete in the states that primarily follow a judicial foreclosure process. Several federal agencies share responsibility for regulating the banking industry and securities markets in relation to the origination and servicing of mortgage loans. Chartering agencies oversee federally and state- chartered banks and their mortgage lending subsidiaries. At the federal level, OCC oversees federally chartered banks. OTS oversees savings associations (including mortgage operating subsidiaries). The Federal Reserve oversees insured state-chartered member banks, while FDIC oversees insured state-chartered banks that are not members of the Federal Reserve System. Both the Federal Reserve and FDIC share oversight with the state regulatory authority that chartered the bank. The Federal Reserve also has general authority over lenders that may be owned by federally regulated holding companies but are not federally insured depository institutions. Many federally regulated bank holding companies that have insured depository subsidiaries, such as national or state-chartered banks, also may have nonbank subsidiaries, such as mortgage finance companies. Under the Bank Holding Company Act of 1956, as amended, the Federal Reserve has jurisdiction over such bank holding companies and their nonbank subsidiaries that are not regulated by another functional regulator. Other regulators are also involved in U.S. mortgage markets. For example, Fannie Mae’s and Freddie Mac’s activities are overseen by the Federal Housing Finance Agency. Staff from the Securities and Exchange Commission also review the filings made by private issuers of MBS. Federal banking regulators have responsibility for ensuring the safety and soundness of the institutions they oversee and for promoting stability in the financial markets and enforcing compliance with applicable consumer protection laws. To achieve these goals, regulators establish capital requirements for banks, conduct on-site examinations and off-site monitoring to assess their financial condition, and monitor their compliance with applicable banking laws, regulations, and agency guidance. Among the laws that apply to residential mortgage lending and servicing are the Fair Housing and Equal Credit Opportunity Acts, which address credit granting and ensuring non-discrimination in lending; the Truth in Lending Act (TILA), which addresses disclosure requirements for consumer credit transactions; and the Real Estate Settlement Procedures Act of 1974 (RESPA), which requires transparency in mortgage closing documents. Entities that service mortgage loans that are not depository institutions are called nonbank servicers. In some cases these nonbank servicers are subsidiaries of banks or other financial institutions, but some are also not affiliated with financial institutions at all. Nonbank servicers have historically been subject to little or no direct oversight by federal regulators. We have previously reported that state banking regulators oversee independent lenders and mortgage servicers by generally requiring business licenses that mandate meeting net worth, funding, and liquidity thresholds. The Federal Trade Commission is responsible for enforcing certain federal consumer protection laws for brokers and lenders that are not depository institutions, including state-chartered independent mortgage lenders. However, the Federal Trade Commission is not a supervisory agency; instead, it enforces various federal consumer protection laws through enforcement actions when complaints by others are made to it. Using data from large and subprime servicers and government-sponsored mortgage entities representing nearly 80 percent of mortgages, we estimated that abandoned foreclosures are rare—the total from January 2008 to March 2010 represents less than 1 percent of vacant homes. When servicers’ efforts to work out repayment plans or loan modifications with borrowers who are delinquent on their loans are exhausted, staff from the six servicers we interviewed said they analyze certain loans to determine whether foreclosure will be financially beneficial. Based on our analysis of loan data provided by these six servicers covering the period of January 2008 through March 2010, servicers most often made this decision before initiating foreclosure, but in many cases did not discover that foreclosure would not be financially beneficial until after initiating the process. While we estimated that instances in which servicers initiate but then abandon a foreclosure without selling or taking ownership of a property had not occurred frequently across the United States, certain communities experienced larger numbers of such abandoned foreclosures. Specifically, we found abandoned foreclosures tended to be for properties in economically distressed communities and low-value properties and nonprime and securitized loans. When borrowers default on their loans, home mortgage loan servicers take a variety of actions in an effort to keep them in their homes, by, for example, working out repayment plans and loan modifications. The stakeholders that we interviewed—including servicers, regulators, and government and community officials—agreed that pursuing efforts to keep borrowers in their homes were preferable to foreclosure. According to servicers’ representatives, servicers engage in various efforts to reach borrowers during the delinquency period through letters, phone calls, and personal visits. For example, representatives of one servicer noted that on a typical foreclosure company representatives make over 120 phone calls and send 10 to 12 inquiries to borrowers in an effort to bring payments up to date or modify the loan. As borrower outreach continues, servicers also send “breach” letters after borrowers have missed a certain number of payments warning borrowers of the possibility of foreclosure. However, if these initial efforts to bring the borrower back to a paying status are not successful, staff from the six servicers we contacted— representing about 57 percent of U.S. first-lien mortgages—told us they typically determine whether to initiate foreclosure as a routine part of their collections and loss mitigation process after a loan has been delinquent for at least 90 days. Representatives of servicers told us that they might decide to initiate foreclosure even though they were still pursuing loan workout options with a borrower. One noted that the initiation of foreclosure, in certain instances, might serve as an incentive for the borrower to begin making mortgage payments again. According to the staff of the six servicers we interviewed, they usually conduct an analysis of certain loans in their servicing portfolio before initiating foreclosure to determine if foreclosure will be financially beneficial. These analyses—often called an equity analysis—compare the projected value the property might realize in a subsequent sale against the sum of all projected costs associated with completing the foreclosure and holding the property until it can be sold. Servicers use the results of these equity analyses to decide whether to foreclose on a loan or conduct a charge-off in lieu of a foreclosure. In general, if the equity analysis indicates that the projected proceeds from the eventual sale of the property exceeds that of the projected costs of reaching that sale by a certain amount, the servicer will proceed with the foreclosure. However, when the costs of foreclosure exceed the expected proceeds from selling the property, servicers typically decide that foreclosure is not financially beneficial. In these cases servicers will usually cease further foreclosure- related actions, operationally charging off the loan from its servicing roles, and advising the mortgage owner—GSEs or other private securitized trusts—that the loan should be acknowledged as a loss by the loan’s owner. In determining which loans to charge off in lieu of foreclosure, some servicers maintain thresholds for property values or potential income from pursuing foreclosure. For example, some of the servicers we interviewed told us that they usually, but not always, considered charge- offs in lieu of foreclosure on properties with values roughly below $10,000 to $30,000. Freddie Mac servicing guidance requires a review for charge off in lieu of foreclosure when the unpaid principal balance of a loan is below $5,000 on conventional mortgages or less than $2,000 on government insured or guaranteed loans, such as Federal Housing Administration or Department of Veterans Affairs mortgages. Based on our reviews of bank regulatory guidance and discussions with federal and state officials, no laws or regulations exist that require servicers to complete foreclosure once the process has been initiated. Therefore, servicers can abandon the foreclosure process at any point. Furthermore, according to staff from the servicers we interviewed, initiating foreclosure can cost as little as $1,000, and these costs may be recovered from the proceeds of any subsequent sale of the property. Based on our analysis of servicer data, servicers most often charged off loans in lieu of foreclosure without initiating foreclosure proceedings. However, in many cases the decisions to charge off loans in lieu of foreclosure were made after foreclosure initiation, and a significant portion of these represented abandoned foreclosures. We obtained data from six servicers including four of the largest servicers and two servicers that specialized in nonprime loans. These six servicers collectively serviced about 30 million loans, representing 57 percent of outstanding first-lien home mortgage loans as of the end of 2009. According to our analysis of the servicer-reported data, these six servicers decided to conduct charge-offs in lieu of foreclosure for approximately 46,000 loans between January 2008 and March 2010, as shown in table 1. For over 27,600 loans, or about 60 percent, the servicers made the decision to charge off in lieu of foreclosure without initiating foreclosure proceedings. Of these loans, over 19,400, or 70 percent of the properties, were occupied by the borrower or a tenant. As will be discussed later in this report, when properties remain occupied they are less likely to contribute to problems in their neighborhoods generally associated with foreclosed and vacant properties. However, in other cases, servicers initiated foreclosure but later decided to conduct a charge-off in lieu of foreclosure. Charge-offs in lieu of foreclosure that occurred after a foreclosure was initiated were more likely to result in a vacant property than charge-offs that occurred without a foreclosure initiation. As shown in table 1 earlier, these six servicers initiated foreclosure on over 18,300 loans between January 2008 and March 2010 that they later decided to charge off in lieu of foreclosure. For over 8,700, or 48 percent of these loans, this decision was associated with a vacancy and, therefore, an abandoned foreclosure–that is, a property for which foreclosure was initiated but not completed and is vacant. We found a statistically significant association between foreclosure initiation and vacancy for the charge-offs in lieu of foreclosure in our sample. That is, we found that initiating and then suspending foreclosure was associated with a higher probability that a property will be vacant. A potential reason that vacancies occur more frequently when servicers decide to pursue a charge-off in lieu of foreclosure after initiating foreclosure than before is confusion among borrowers about the impact of the foreclosure initiation. Specifically, local and state officials, community groups, and academics told us that borrowers may be confused about their rights to remain in their homes during foreclosure and vacate the home before the process is completed. Alternatively, servicers could be more likely to pursue a charge-off in lieu of foreclosure if a property becomes vacant before foreclosure initiation since the value of the property may deteriorate rapidly. Nevertheless, as the data show even when servicers opt to conduct a charge-off in lieu of foreclosure before initiating foreclosure, some borrowers may still vacate the home. Anecdotally, we heard from a variety of stakeholders that this decision could be due to financial hardship or pressure exerted by the lender in collecting delinquent mortgage payments, among other reasons. Data indicating the overall number of abandoned foreclosures in the United States did not exist nor was such information being collected by the federal government agencies we contacted or by organizations in the states or local communities that we reviewed. Local governments, bank regulators, and private organizations collect information on foreclosures, vacancies, and housing market conditions, but for various reasons the phenomenon of abandoned foreclosures goes largely unrecorded. Local officials we spoke with in Baltimore, Chicago, Cleveland, Detroit, and Lowell, Massachusetts, identified similar difficulties in tracking abandoned foreclosures. For example: Accurately identifying the lender and borrower on a given property is often difficult due to outdated or incorrect mortgage information. Ascertaining which properties are abandoned foreclosures is often difficult because formal data on the foreclosure status of properties often do not exist. Determining whether properties are actually vacant is often difficult if a house has been used seasonally or as a rental. Nonetheless, researchers in some cities we visited are attempting to compile data. In Cleveland, academic researchers have used court documents in an attempt to ascertain the reason a sample of foreclosure cases have stalled. In a number of cities, such as Chula Vista, California, the city governments have enacted ordinances that require lenders to register homes that become vacant. In Buffalo, a nonprofit organization has collected information on the status of foreclosure cases in Erie county, where Buffalo is located. Although subject to uncertainty, we estimated that the number of abandoned foreclosures that occurred in the United States between January 2008 and March 2010 was between approximately 14,500 and 34,600. As will be discussed, although the potential number of abandoned foreclosures creates significant problems for certain communities, they represent less than 1 percent of vacant properties and an even smaller percentage of the total housing stock. Table 2 shows abandoned foreclosures as a percent of various housing market metrics. To determine the prevalence of abandoned foreclosures in the entire U.S. market, we estimated the number of properties (1) were charged off in lieu of foreclosure after a foreclosure was initiated and (2) that are vacant. In developing our estimate, we used the data from the six mortgage servicers and data from Fannie Mae and Freddie Mac—which together represent roughly 80 percent of outstanding U.S. mortgages—and augmented this information with vacancy data from USPS. Using this information, we estimated the total number of abandoned foreclosures nationwide under varying assumptions about the remaining 20 percent of the mortgages outstanding. According to the data reported to us, abandoned foreclosures represent a small portion of overall vacancies in the United States, but are highly concentrated in a small number of communities. Based on our analysis of servicer data from January 2008 to March 2010, we found abandoned foreclosures in 2,452 of the approximately 43,000 postal zip codes throughout the country, but only 167 of those zip codes have 10 or more of these properties. From January 2008 through March 2010, several zip codes in Chicago, Cleveland, Detroit, Indianapolis, and other large cities had 35 or more abandoned foreclosures. We found several zip codes in Detroit that had over 100 abandoned foreclosures. In addition, several smaller areas contain zip codes with high concentrations of the properties, such as those including Toledo, Akron, and Youngstown, Ohio; Flint, Michigan; Fort Myers, Florida; and Gary and Fort Wayne, Indiana. Analyzing abandoned foreclosures at the U.S. Census-designated Metropolitan Statistical Area (MSA) level also suggests that such cases are likely to be concentrated in a limited number of communities. According to our analysis, 80 percent of the total abandoned foreclosures that we identified in our servicer data were in 50 of the roughly 400 MSAs; 20 MSAs account for 61 percent of the properties; and 30 MSAs account for 72 percent. Table 3 shows the MSAs with the most abandoned foreclosures. Because the data we used to produce these estimates may not be generalizeable, the location of the remaining abandoned foreclosures could differ from that suggested in table 3. For example, the Flint, Michigan; Orlando-Kissimmee, Florida; South Bend-Mishawaka, Indiana; and Canton-Massillon, Ohio, MSAs are notable examples just outside the top 20. Although not having a large number of abandoned foreclosures, some small MSAs throughout the Midwest are likely to be similarly challenged by the existence of such properties given their size. As shown above in table 3, these 20 MSAs had roughly 5,090 properties that were charged off in lieu of foreclosure by the servicer without initiating foreclosure but were also vacant in our sample. Because these also are properties on which the servicer will no longer be conducting any maintenance or attempting to sell to a new owner, the properties can create similar problems for their communities as those resulting from abandoned foreclosures. Certain community, property, and loan characteristics may help to explain some of the concentrations of abandoned foreclosures. In particular, based on our sample, abandoned foreclosures occured most frequently in economically struggling areas and distressed urban areas of particular cities We also found these properties in areas that experienced significant recent booms and declines in housing. In general abandoned foreclosures are also more likely to involve low-value properties and nonprime and securitized loans. Economically struggling cities appear to experience the greatest number of charge-offs in lieu of foreclosure and therefore, abandoned foreclosures. As shown in figure 4, most of the abandoned foreclosures have occurred in Midwestern industrial MSAs. In particular, our analysis of servicer data indicates that over 50 percent of all the abandoned foreclosures we identified were in Michigan, Indiana, and Ohio. Seven of the 20 MSAs with the most abandoned foreclosures are located in Ohio. Recent research also supports that this type of phenomenon is occurring largely in industrial Midwestern states. Although the deterioration of economic conditions in 2008 and 2009 has impacted the entire nation, these Midwestern areas have been especially hard hit with population declines, high unemployment, and decreases in housing values. For example, Detroit lost about 28 percent of its population from 1980 to 2006 and the unemployment rate in Michigan was 13.0 percent versus 9.6 percent nationally as of September 2010. According to a recent report, although Michigan did not seem to experience a dramatic appreciation in housing prices before the surge in mortgage foreclosures that began in late 2006, it did witness a significant decline in housing prices after 2006, largely because the automobile manufacturing industry was severely hit by the current crisis. Like many areas in the United States, several of the MSAs in table 3 experienced significant increases in unemployment rates. For example, the unemployment rate in the Detroit-Warren-Livonia MSA increased from 4.2 percent in December 2000 to 16.1 percent in December 2009. Similarly, in the Flint, Michigan, MSA, the unemployment rate increased by more than 10 percentage points between 2000 and 2009. High unemployment may have exacerbated the negative consequences of nonprime lending activity. For example, community development officials in Detroit explained that many people who did not have mortgages on their homes were enticed to obtain a home equity loan to make repairs, then lost their homes to foreclosure because they lost their jobs or the payments were not sustainable. However, many of the economic problems facing areas such as Cleveland, Detroit, and other Midwest cities where we identified large numbers of abandoned foreclosures predate the economic turmoil that started around 2008. For example, in 2007, the poverty rate in Flint, Michigan, was 16.8 percent, the poverty rate in Memphis, Tennessee, was 18.8 percent, and the poverty rates in both Toledo and Youngstown, Ohio, were 14.8 percent. Consequences of these challenges include weak real estate markets and other characteristics that are associated with abandoned foreclosures. Abandoned foreclosures are also likely concentrated in distressed urban areas. Our analysis shows that distressed urban areas within MSAs had significant numbers of abandoned foreclosures. In cities with high property values like Chicago, we found that abandoned foreclosures were largely driven by activity in a few zip codes. Our analysis also shows that, on average, the zip codes with the most abandoned foreclosures had larger declines in home prices (37 percent) compared to the national average of 32 percent following peak levels in 2005. Some distressed zip codes in Detroit, Michigan, had an over 60 percent drop in home prices from the peak levels between 2004 and 2006. Stakeholders also told us that abandoned foreclosures were most often associated with urban areas with largely minority populations, high foreclosure rates, blight, crime, and vandalism. For example, one academic speculated that there may be pockets of distressed housing in the inner parts of cities whose housing markets as a whole may not be so bad; these areas likely have low value houses that may end up as abandoned foreclosures. In addition, one servicer representative said that abandoned foreclosures could be found in the urban core of any large city. Concentrations of abandoned foreclosures have also occurred in areas that experienced significant house price increases followed by declines. States such as California, Florida, Nevada, and Arizona experienced the largest increase in property values prior to 2006 also have experienced the largest decreases in property values in the last few years. For example, according to a recent report, property values in these states spanned 47 percent from peak to trough. As a result, these states have many underwater borrowers—that is, borrowers who owe more on their mortgages than their properties are worth (negative equity). Significant overdevelopment and overspeculation prior to the economic crisis also may have caused investors to abandon their properties after housing prices declined. For example, representatives of a community group in Atlanta told us that starting in 2000 in a neighborhood close to downtown Atlanta investors increasingly constructed new housing on speculation. Representatives said that some of this new construction was never occupied, and after house prices began to decline in early 2007, much of it was vandalized. Without a market for these properties servicers may have subsequently abandoned foreclosures on many of these properties because they would not earn enough at foreclosure sale to cover losses associated with foreclosure and disposition of these properties. Among the 20 MSAs in table 3, Jacksonville, Cape Coral-Fort Myers, Tampa-St. Petersburg-Clearwater, Miami-Fort Lauderdale-Pompano Beach, and, to a lesser extent, Atlanta, appear to fit into the category of housing boom- related abandoned foreclosures. For example, according to Global Insight estimates, average home prices in the Miami-Fort Lauderdale-Pompano Beach increased 144 percent from the end of 2000 to the second quarter of 2007 before declining by 40 percent from 2007 to the third quarter of 2010. Regardless of the city or neighborhood, most abandoned foreclosures occur on low-value properties. Data from servicers, Fannie Mae, and Freddie Mac indicate that foreclosures are most often not completed on properties with low values. Evidence from the econometric model that we applied to GSE loan-level data also suggests that lower property values increased the likelihood that a loan would be charged off in lieu of foreclosure rather than being subject to alternative foreclosure actions such as a deed-in-lieu of foreclosure or short sale. For example, the median value of the properties Freddie Mac decided to charge of in lieu of foreclosure was $10,000 compared to $130,000 for deeds in lieu of foreclosure, $158,000 for modifications and $160,000 for short sales. Similarly, the median value of loans for which the six servicers decided to charge off in lieu of foreclosure in Michigan and Ohio was $25,000. In addition, servicer representatives told us properties with low values—such as those valued under $30,000—were the most likely candidates for decisions to not pursue foreclosure. Some properties may even have negative values because of the liabilities attached to them. For example, a property in Cleveland valued at $5,000 may have an $8,000 demolition lien levied against it; therefore, it may actually cost more to pay off the demolition lien than the property is worth. Abandoned foreclosures also occurred most frequently on nonprime loans. Our analysis shows that about 67 percent of all abandoned foreclosures that we identified were associated with nonprime loans. Adjustable rates were also a prominent feature of these loans. Anecdotally, stakeholders also told us that abandoned foreclosures most likely occurred on properties where borrowers had nonprime loans and unstable financing. For instance an official for a community development corporation in greater Cleveland told us he had seen about 12 instances of abandoned foreclosures in the past year, and many of the borrowers in these cases had two mortgages or subprime loans originated in 2003 or later. The vast majority of abandoned foreclosures were loans that involved third-party investors including those that were securitized into private label MBS. GSE-purchased loans account for a very small portion of our estimated number of abandoned foreclosures. Although the GSE loans made up roughly 63 percent of the data we collected from servicers, they accounted for less than 8 percent of the total abandoned foreclosures during 2008 through the first quarter of 2010. Similarly, we found that only about 0.3 percent of abandoned foreclosures were associated with FHA, VA, and Ginnie Mae insured loans. The potential for abandoned foreclosures to occur on loans associated with Fannie Mae also appears to have been reduced as Fannie Mae representatives told us that as of April 2010 they have instructed servicers to complete all foreclosures pending Fannie Mae’s revision of its charge-off in lieu of foreclosure procedures to make sound economic decisions as well as stabilize neighborhoods. About 66 percent of the total abandoned foreclosures were associated with non-GSE third-party investors. We estimate that a significant portion of these loans were securitized into residential MBS, although data issues precluded us from distinguishing between private label MBS and whole loans held by third parties in some cases. Abandoned foreclosures, similar to other vacant properties, further contribute to various negative impacts for the neighborhoods in which they occur, for the local governments, and for the homeowners. In addition, because local governments are not aware of servicers’ decisions to no longer pursue foreclosure on these properties, they cannot take expedited actions to return the properties to productive use. Properties for which the mortgage servicers have abandoned the foreclosure proceedings are often left without any party conducting routine care and maintenance, which often results in properties with poor appearance and sometimes unsafe conditions. As a result, abandoned foreclosures can create unsightly and dangerous properties that contribute to neighborhood decline. Academics, housing and community groups representatives, local government officials, and others in the 12 locations we collected information from generally told us that, like other vacant and abandoned properties, abandoned foreclosures often deteriorated quickly. They explained what types of damage can result, including structural damage, mold, broken windows, and trash, among other things. Representatives of a national community reinvestment organization described the impact of vacant homes nationwide, from swimming pools filled with dirty, discolored water in Florida to homes in the Midwest that have sustained damage from falling trees that no one removes. A Cleveland official said that, in a 2-year period, about 20 vacant homes in one ward had caught fire and that people used vacant properties to dump trash and asphalt. While touring abandoned foreclosures in some of the neighborhoods in the communities we visited, we observed several vacant and abandoned properties that showed various signs of property deterioration, including overgrown grass, accumulated trash or other debris, and broken windows. Because abandoned foreclosures, by definition, are vacant properties, they create similar problems as other vacant properties do for communities. Figure 5 presents pictures of abandoned foreclosures and other vacant properties in several of the communities we visited. Abandoned foreclosures also create problems in communities because homes in foreclosure proceedings that become vacant in certain neighborhoods are often quickly stripped of valuable materials, furthe depressing their value. Housing and community group representatives, a local government officials, told us that looters strip vacant houses of copper piping, wiring, appliances, cabinets, aluminum siding, and o ther valuables, usually within a few weeks of the time at which the property became vacant, but sometimes within 24 hours. An official from a foreclosure response organization in one Midwestern city told us that a thriving industry of home salvage thieves exists in the city and an official from a non-profit housing organization in another Midwestern city told u that junkyards in the area accept things they should not, such as aluminum siding and refrigerators—and this provides an incentive for criminals to strip houses of any materials of potential salvage value. Representatives from a national property maintenance company that operates across the country told us a house can be secured, including having its windows and doors boarded up and entrances locked, only to be broken into and stripped of any valuable parts. Similarly, a local official told us that many houses in Chicago are secured with steel grates, but vandals will bypass these and cut a hole in the roof or brick to gain access—and, once inside, they will rip the house apart by sawing into the walls and cutting out the wiring and piping. A local official in another city reported that several ga explosions have occurred at vacant properties there recently due to vandals stealing pipes while the gas was still flowing to the home. Staff from a national property maintenance company told us that mortgage servicers contract with them to inspect the properties of homeowners whose loans become delinquent and that in certain locations, they often have to re-secure properties at every monthly inspection because such properties are constantly being broken into and damaged. In addition, a code enforcement official told us that vandalism had become such an issue for the city that a sign left on a property’s door indicating that it had a code violation would serve as a flag to thieves to strip the house. F representatives from two national co told us that, as a result of vandalism, exposure, and neglect, vacant properties can become worthless. Similar to other vacant and uncared for properties, abandoned foreclosures also can create public safety concerns. Staff from an entity that advises local governments on community development explained abandoned foreclosures that remain vacant for extended periods pose significant public health, safety, and welfare issues at the local level. Although unable to identify which properties were abandoned foreclosures, local government officials in Detroit said that safety issues that associated with vacant properties were the primary reason they had identified 3,000 vacant properties that were to be demolished in 2010. Of these, they said that 2,100 had been deemed dangerous and that 400 were considered so hazardous that they were considered emergency situation noting that a firefighter had recently been killed when he entered a property and a floor caved in. Likewise in Fort Myers, Florida, officials told us that 1,200 to 1,300 of the city’s 1,600 vacant and abandoned properties were considered unsafe. A Cleveland official told us that, wh housing inspectors discovered a vacant property with a code violation, th city was compelled to act to address the potential danger, or it may be liable for any subsequent injuries. Officials from this same office further noted that the public money that is used to fund the land bank—which may take in unsafe and abandoned properties—may have otherwise been used for civic uses, such as teacher salaries. Like other vacant properties, abandoned foreclosures also contribute to neighborhood decline by providing venues for a wide variety of crimes. Local government and other officials told us that vacant and abandoned properties were subject to break-ins, drug activity, prostitution, arson, and squatting, among other things. A study of the City of Chicago noted that some vacant building fires were the result of arson by owners seeking to make insurance claims and that others were started by squatters making fires to keep warm. Other empirical studies have found relationships between vacant or foreclosed properties and crime. For example, a national organization representing municipal governments reports that crime is moderately correlated with vacant and abandoned properties, deteriorating housing and high divestments in the neighborhood. Another study of central city Chicago found that a 2.87 percentage point increase in the foreclosure rate would yield a 6.68 percent increase in the rate of violent crimes such as assault, robbery, rape, and murder. The author of this study explains the weaker positive relationship between foreclosure and property crimes, such as theft and vandalism, may be due to an under- reporting of such crimes in lower-income areas. Another impact of abandoned foreclosures is that, like other vacant and uncared for properties, they negatively affect the value of surrounding properties. Although property values have fallen sharply in many region around the country as part of the recent economic recession, man those we interviewed said that vacant properties and abandoned foreclosures compounded this problem. One local official explained th once a few properties in a neighborhood became vacant, the negative effects tended to spiral and lead to further foreclosures and vacancies, particularly in low-income neighborhoods. In addition, empirical s have found that vacant and abandoned properties, together with foreclosures, can cause neighboring property values to decline. For example, using data from 2006 in Columbus, Ohio, a recent study found that each vacant property within 250 feet of a nearby home could d h its sales price by about 3.5 percent, whereas the impact from eac foreclosure was less severe, but had a wider impact out into the neighborhood. In addition, an author for a federal research organization reviewed several research papers on foreclosure’s price-depressing impact on sales of nearby properties and reported that, according to the lite rature, this impac percent. t can range from as little as 0.9 percent to as much as 8.7 Because local government officials are not aware that foreclosure are no longer being pursued, these properties remain vacant and contribute to neighborhood decline for longer periods of time. Instead of actions learning that servicers are charging off loans in lieu of foreclosure a not assume responsibility for maintenance, local government staff responsible for enforcing housing codes told us they typically find out about vacant and abandoned properties through citizen complaints, vaca property registration ordinances, or on their own initiative. They noted that, by the time they become aware of a property for which a servicer is no longer taking responsibility, the property may have been vacant and deteriorating for months or years, which exacerbates the overall neighborhood decline. Several stakeholders noted that, if local governments were made aware of properties for which servicers were charging off the loans in lieu of foreclosure, they may be able to take mor timely action. For example, they could take expedited actions to acquire the vacant property—such as through the use of a land bank—and return it to productive use. Abandoned foreclosures also increase costs for local governments because they must expend resources to inspect properties and mitigate their unsafe conditions. Within local communities, code enforcemen t departments are largely responsible for ensuring that homeowners maintain their properties in accordance with local ordinances regarding acceptable appearance and safety. In cases in which such ordinances are not being complied with, code enforcement departments can typically f violating property owners or take actions themselves, such as making repairs or boarding up doors or windows and billing the property owner for these expended costs. However, code enforcement and other o told us that it is often difficult to locate the owners of abandoned foreclosures because they have left their homes; they also told us that it is difficult to locate current mortgage lien holders—who generally have interest in maintaining the properties. Officials said that one reason identifying lien holders is difficult is because they often fail to record changes in ownership with local jurisdictions. To address the challenge, the code enforcement manager of one of the cities we visited told us that he had made one of his field staff a full-time “foreclosure specialist” who job it was to research owners and lien holders of foreclosed properties with identified code violations. The new foreclosure specialist told us that he uses several different avenues to find property owners and lien h including county court records, local realtors, property manager property maintenance companies, and the Mortgage Electronic s, Registration Systems (MERS®). In addition, another code enforcement manager told us that he had developed a team of investigators train ed in skip tracing violators. to increase the division’s ability to identify and locate Local governments are often burdened by having to pay for the maintenance or demolition of abandoned foreclosures. In the interest of public safety, code enforcement departments will often take action when they cannot identify or contact another responsible party. Researchers tallied total costs of over $13 million for code enforcement activities to address and maintain all vacant and abandoned properties for eight Ohio cities in 2006. In addition, the City of Cleveland, Ohio, has budgeted over $8 million of federal grant money for demolition and has already expend nearly $5 million. Recent literature, as well as our interviews with local officials, further revealed the burden some local governments are experiencing due to an increase in the amount of vacant and abandoned properties: A 2005 report estimated the direct municipal costs of an abandoned foreclosure to be $19,227 in the City of Chicago with a fire, the cost can be as high as $34,199. —and if it is a severe case The same study reported that the cost of boarding up a single-family hom one time was $900, but noted that, because multiple times, the true cost was $1,445. In a 2008 study, the City of Baltimore report police and fire services showed an annual increase of $1,472 for each vacant and unsafe property on that block. Code enforcement officials for a city in Fl orida reported that they spent ver $120,000 to mow lawns of vacant properties in 2008; this was up from o less than $30,000 in 2006 and prior years. for another city in Florida told us they have 850,000 in outstanding code invoices for boarding up or mowing lawns $ for abandoned properties. Code enforcement officials for a county in Florida reported that prior to 2007, the number of code enforcement cases against properties in foreclosure was not significant enough to warrant tracking; however, in 2008, after the department began to identify and track these properties because of the noticeable increase in citizen complaints, statistics reveal at 25 percent of all their cases involved properties in foreclosure—and th as of May 2010, they had 443 active cases against properties in foreclosure. A Cleveland official reported an approximately $80,000 increase in rior year. She said these osts were related to hiring additional staff to support existing staff with personnel costs for code enforcement over the p c research, documentation, and court testimony. When local governments maintain or demolish properties, they typically may place liens against the properties for the associated costs. I jurisdictions, these liens may have the same first-priority status as tax liens and may, therefore, be relatively easily recovered, but in other jurisdictions these liens may have lower priority. In one jurisdiction, were told that code enforcement liens were wiped out when the foreclosure was completed. A case study of Chicago estimated that between 2003 and 2004 the city recovered only about 40 cents on each dollar it spent for demolition. we Abandoned foreclosures also burden local governments with reduced property tax revenues. Local jurisdictions directly lose tax revenue from vacant and abandoned properties in two ways: (1) property taxes owed the property owner sometimes go unpaid and are not recouped, (2) a loss of tax value of a property when a structure is demolished. In addition, abandoned foreclosures contribute to falling housing values, wh erode the property tax base. For example, researchers calculated tha 2006, the City of Cleveland lost over $6.5 million due to the tax delinquency on vacant and abandoned structures, and over $409,000 demolished. Moreover, one local official told us because structures were that every 1 percent decline in home values costs the City of Cleveland $1 million in tax revenue. Abandoned foreclosures also contribute to an increased demand for cit services. As discussed, abandoned foreclosures result in an increased demand for code enforcement related services—including demolition, boarding of windows, removing trash, mowing the lawn, and a range of other activities intended to keep the unit from becoming an eyesore. Abandoned foreclosures also result in a variety of other muni including increased policing and firefighting, building inspections, legal fees, and increased demand for city social service programs. Abandoned foreclosures also increase the difficulty of transferring the property to another owner, which can increase the potential for the property to contribute to problems within a community. If a borrower remains in the home or in contact with the servicer, title to the property u of can be transferred to a new owner through short sales or deed-in-lie foreclosure actions. If homeowners vacate their properties and cann reached, these alternative means of transferring title cannot occur. However, in these cases, the servicer can complete the foreclosure process where title is transferred to a new owner—either a third par buyer or the lien holder where the property is then held in its or the servicer’s real estate-owned inventory. However, when the servicer abandons the foreclosures, this transfer of title does not occur. Without this transfer, abandoned foreclosures may remain vacant for extended periods of time, with recent media and academic reports labeling such properties as being in “legal limbo” or having a “toxic title.” One academic we interviewed said abandoned foreclosures result in property titles that lack transparency and cannot be easily transferred; another academic told ty us that uncertainty about a property’s ownership and status may make it hard for neighborhood groups or cities to determine what actions can be taken to dispose or sell such property. According to a recent report by a national rating agency, most properties associated with charged-off loans will ultimately be claimed by municipalities for back taxes, which according to stakeholders may not be an efficient process. Abandoned foreclosures can also create confusion among the bor over the status of their properties and their responsibilities for such properties. According to representatives of counseling agencies, community groups, and some of the homeowners we interviewed, borrowers are often surprised to learn that the servicer did not complete the foreclosure and take title to the house—and that they still own the property and are responsible for such things as maintenance, taxes, an d code violations. A nonprofit law firm representative said that borrowers who thought that they had lost their homes through foreclosure were sometimes brought to housing court for code violations. For example, a court record from Buffalo City indicates that one individual appeared in court to address code violations 3 years after receiving a judgment of foreclosure. According to the record, after the judgment o there was no sale of the property. While in court, this individual claimed that she did not believe that she still owned the property. Although creating various negative impacts on neighborhoods and communities, abandoned foreclosures have not significantly affected state s and federal foreclosure-related programs because most of these programtry to prevent foreclosure and some only apply to properties still occupied by homeowners. In response to the surge in mortgage foreclosures t began in late 2006 and continues today, several states created task forces to address the crisis. According to a 2008 report by a national trade association, the main objectives of almost every task force created as of March 2008 was to get practical help directly to “at risk” homeown for example, creating consumer hotlines, and developing outreach and educational programs designed to encourage homeowners to get counseling. In addition, we spoke with a legislative analyst for a nation organization who told us that over the past 3 years state legislatures have enacted many laws focusing on such topics as payment assistance and loan programs, regulating foreclosure scam artists, ensuring homeow and tenants receive proper foreclosure notice, shortening or lengt the foreclosure process, and implementing mediation or counseling programs. The federal government has also implemented several foreclosure-related programs, most of which focus on foreclosure prevention and require that borrowers live in their homes. For example, the federal Home Affordable Modification Program (HAMP) is a program designed to help borrowers avoid foreclosure and stay in their homes by providin g incentives for servicers to perform loan modifications; however, HAMP requires as a pre-condition that borrowers currently live in thei homes. The term “abandoned” was originally defined as a property that had been foreclosed upon and was vacant for at least 90 days. HUD expanded the definition to include properties where (a) mortgage, tribal leasehold, or tax payments are at least 90 days delinquent, or (b) a code enforcement inspection has determined that the property is not habitable and the owner has taken no corrective actions within 90 days of notification of the deficiencies, or (c) the property is subject to a court-ordered receivership or nuisance abatement related to abandonment pursuant to state, local, or tribal law or otherwise meets a state definition of an abandoned home or residential property. Therefore, there is no longer a programmatic barrier preventing NSP grantees from acquiring abandoned foreclosures. On behalf of GAO, a national nonprofit organization e-mailed structured questions to 25 NSP grantees, including NSP 1 and NSP 2 grantees, and their subrecipients. Various servicer practices may be contributing to the number of abandoned foreclosures. These practices include initiating foreclosure without obtaining updated property valuations and obtaining valuations that did not always accurately reflect property or neighborhood conditions or other costs, such as delinquent taxes or code violation fines. By not always obtaining updated property valuations at foreclosure initiation, servicers appeared to increase the potential for abandoned foreclosures to occur. As described earlier, after a certain period of loan delinquency—usually around 90 days—has passed, officials from the six servicers that we interviewed representing about 60 percent of the nation’s home mortgages told us that they make a determination about whether to initiate foreclosure. Representatives of servicers told us they take into account various information about the property when deciding whether to initiate foreclosure and some servicers conduct an equity analysis on certain loans to determine if the expected proceeds from a sale will cover foreclosure costs. However, the valuations used in these analyses might be outdated at the time of foreclosure initiation and staff from four of the six servicers told us that they did not always obtain updated information on the value of the property at the time they conducted this analysis and initiated foreclosure. The representatives from one servicer told us that the company performs an equity analysis on loans in its own portfolio before foreclosure initiation. However, for loans serviced for Fannie Mae, Freddie Mac, or third-party investors, this servicer follows the applicable servicing agreement or guidance, which may not require such analyses or updated property valuations. Instead, the company initiates foreclosure automatically when one of these loans reaches a certain delinquency status. Only two of the six servicers we interviewed reported updating property valuations on all loans before initiating foreclosure. Even when servicers obtain updated property valuations, this information does not always reflect actual property or neighborhood conditions, which can also increase the likelihood of servicers commencing foreclosure but then abandoning it. Representatives of the six servicers we interviewed said that property inspections begin in the early stages of delinquency and continue on a regular basis, but that information collected during inspections—information relevant to the resale value of a property, such as vacancy status and property damage—is not used in developing property valuations. Most of the servicers we interviewed reported using automated valuation models (AVM) to estimate property values, not necessarily taking into consideration property-specific conditions. Furthermore, servicers we interviewed said they do not incorporate information on property and neighborhood conditions obtained from property inspections in their valuations. Simply using a BPO or AVM without consideration of up-to-date property or neighborhood conditions may result in abandoned foreclosures because the actual resale value and accurate expected proceeds from foreclosure sale may not be reflected in the valuation. Another servicer practice that appeared to increase the potential for an abandoned foreclosure was that servicers generally were not considering local conditions that can affect property values prior to initiating foreclosure. Our interviews with the six servicers indicated that they did not always adjust property valuations to take into consideration potential steep declines in value due to factors specific to neighborhoods or city blocks. Staff from most of the servicers we interviewed reported that in some areas a property that was occupied and well-maintained when foreclosure was initiated could become vacant and be vandalized and decline in value. Similarly, local government officials said that homes with resale value could be stripped of raw building materials during the foreclosure process, leaving them practically worthless. As previously discussed, representatives of community groups and local governments told us that properties are sometimes vandalized within 24 hours of becoming vacant. In Detroit, for example, according to officials, property values can be seriously impacted by vacancy due to vandalism and rapid decay of vacant properties. Data from one property maintenance company contracted to inspect and secure homes undergoing foreclosure indicated that 29 percent of the properties it oversaw nationwide had some property damage in the 6 months from January to June 2010. In Detroit, about 54 percent of its properties had incurred damage. In addition, not considering other costs, such as local taxes and potential for code violation fines, associated with a property before initiating foreclosure can increase the likelihood that a foreclosure would be abandoned. For example, local taxes owed or code violations and fines can add significant costs to the foreclosure process. Servicers told us that they may abandon foreclosures because of the amount of tax owed on the property. Tax liens are commonly placed on delinquent properties when borrowers are unable to pay property taxes. Unattended properties or those with damage can often accumulate local municipality code violation fines that can also decrease the net proceeds that the servicer will gain from completing a foreclosure. These fines vary widely, but in some cities fines may accrue while a property is in delinquency and foreclosure, and over time the assessed fines can exceed a property’s value. The unpaid taxes and code violation fees that may accumulate during foreclosure can encourage servicers to abandon the foreclosure because they serve to reduce the net proceeds that the servicer would realize in completing the foreclosure. In some cases, the circumstances that lead to servicers initiating but then abandoning a foreclosure appeared to be those that could not have been anticipated at the time the decision to initiate foreclosure was being made. For example, property inspections and valuations usually include only information about external conditions of properties, potentially leaving internal damage or conditions such as lead paint or contaminated drywall undetected. Addressing these internal problems could be costly. Unexpected fires or other natural disasters can also leave properties with very low values. If such damages are discovered or occur after foreclosure was initiated, servicers may decide that completing the foreclosure is not warranted. When servicers do not have updated or complete information about property and neighborhood values and conditions before initiating foreclosure, the likelihood that they will commence then abandon foreclosures increases. Representatives of servicers said that they did not always obtain updated valuations before initiating foreclosure because they did not think it was necessary or because they were not required to do so. Instead, they generally obtained more current information only after foreclosure initiation, such as when preparing for the foreclosure sale. In cases where this valuation indicates that the value of the property was insufficient to justify completing the foreclosure process, the servicers generally stop the foreclosure and charge off the loan in lieu of foreclosure. However, by that time the property may already be vacant and negatively impacting the neighborhood. As previously discussed, our servicer data indicates that charge-offs in lieu of foreclosure that occurred after foreclosure was initiated were associated with a higher rate of vacancy than when the charge-off occurred prior to foreclosure initiation. Academics, local government officials, community groups, servicers, and others expressed mixed views on whether mortgage servicers have financial incentives to initiate foreclosure even in cases in which they were unlikely to complete the process. For example, accounting requirements for mortgage loans do not appear to provide incentives for servicers to initiate foreclosures but then not complete them. First, most mortgage loans that servicers are managing are being serviced on behalf of other owners. As a result, any accounting requirements applying to such loans do not financially affect the servicer’s financial statements because these loans are not their assets. However, servicers that service loans for other owners do carry the expected value of the servicing income they earn on such loans on their own financial statements as an asset. The reported value of this servicing rights asset would be reduced if a serviced loan is charged off and no more servicing income is expected from it. However, this reduction would occur regardless of whether foreclosure has been initiated or not. If the servicer of a mortgage loan is also the holder (owner) of the loan, accounting requirements also do not appear to provide incentive to initiate foreclosure. For the six servicers from whom we obtained data, 7 percent of the loans were owned by the servicing institution, meaning accounting decisions made by the servicer directly affect the institution financially. For these loans, bank regulatory rules require servicers to mark the value of delinquent loans down to their collateral value (or charge off the loan) after the loan is 180 days past due, regardless of whether foreclosure has been initiated or not. As a result, servicers then cannot avoid recognizing the loss by, for example, abandoning the foreclosure, because the loan’s loss of value is already reflected in their accounting statements. Furthermore, financial institutions holding loans in their own portfolio must develop reserve accounts for expected losses on their books. Thus, they have to anticipate any declines in property values for loans in their portfolio and start setting aside funds to cover any losses at specific points in the delinquency cycle. Whether the property is carried to foreclosure sale or charged off, the loss has already been reflected in their loan value accounts. For private label securitized loans that are being sold to private investors and serviced in pools, servicers do not appear to have incentives to delay or abandon foreclosure due to investors’ potential motivation to postpone accounting for losses on those securities. According to OCC officials, a single charge-off for a loan held in a pool would not necessarily lead to a devaluation or write-down of the value of the overall pool of loans. In addition, they said that whether the value of a security is written down depends on several factors, including overall losses to the pool, liquidity, and interest rate changes. Thus, investors have some discretion under accounting guidance in deciding when to write down securitized assets. Further, public accounting standards require investors holding mortgage- backed securities to either set aside loss reserves and write down the value of impaired assets. Therefore, abandoning or postponing foreclosure completion would be unlikely to have an advantage to the security. Some academics or local government officials we interviewed were concerned that servicers may have an incentive to initiate foreclosures even though they might later abandon the process in order to continue profiting from servicing mortgages. However, in servicers’ and experts’ descriptions of servicing practices, such incentives were called into question. Servicers can derive part of their revenue from imposing fees to borrowers who are past due with payments, and do not need to forward this revenue on to investors. Therefore, some stakeholders suggested servicers might initiate foreclosure in an effort to accrue late fees and other charges associated with servicing the loan during the foreclosure process. In addition, some stakeholders suggested that servicers might continue earning income from other financial interests they might own on the property, such as a second lien mortgage. However, five of the six servicers we interviewed reported that they stopped charging fees once a loan enters foreclosure as assessed fees are unlikely to be fully collected on loans in foreclosure. In addition, servicers might not continue yielding profits on second-lien mortgages because second-lien mortgages were much less prevalent on subprime first lien mortgages, which were often found in areas with very low housing values, such as Detroit and Cleveland, compared to high-price areas, such as California, according to a 2005 study. 59, 60 Finally, servicers and other experts told us that servicers do not have to initiate foreclosure in order to stop advancing payments on loans. Sean Dobson, Laurie Goodman, Mortgage Modifications: Where Do We Go From Here, Amherst Securities Group LP (July 2010). Charles A. Calhoun, The Hidden Risks of Piggyback Lending (Annandale, Va.: June 2005). government and private mortgage insurance and guarantees require that foreclosure be completed before claims are paid. For example, FHA mortgage insurance and VA guarantees, which cover a portion of potential losses from loan defaults, require a claimable event, such as a foreclosure sale, short sale, or deed-in-lieu of foreclosure before servicers can collect on a claim. Representatives of mortgage insurers also said that they could not pay an insurance claim on an abandoned foreclosure because the bank did not hold the title. Similarly, the GSEs may provide servicers incentives to complete foreclosures in order to receive reimbursements. Fannie Mae requires servicers to submit final requests for reimbursement of advances after the foreclosure sale and after any claims have been filed with other insurers or guarantors. Mortgage servicers’ foreclosure activities were not always a major focus of bank regulatory oversight, although federal banking regulators have recently increased their attention to this area, including the extent to which servicers were abandoning foreclosures. Various organizations have regulatory responsibility for most of the institutions that conduct mortgage servicing, but some of these institutions do not have a primary federal or state regulator. According to industry data, OCC—which oversees national banks—is the primary regulator for banks that service almost two-thirds of loans serviced by the top 50 servicers. The Federal Reserve oversees entities that were affiliated with bank holding companies or other state member banks that represented about 7 percent of these loans. Entities that are not chartered as or owned by a bank or bank holding company accounted for about 4 percent of the top 50 servicers’ volume. Some states require mortgage servicers (including state-chartered banks) to register with the state banking department, according to state banking supervisors we interviewed. These supervisors also told us that most banks that were chartered in their states did not service mortgage loans. According to our analysis, only a few of the top 50 servicers were state-chartered banks that were not members of the Federal Reserve System. According to our interviews with federal banking regulators, mortgage servicers’ practices, including whether they were abandoning foreclosures, have not been a major focus covered in their supervisory guidance in the past. The primary focus in these regulators’ guidance is on activities undertaken by the institutions they oversee that create the significant risk of financial loss for the institutions. Because a mortgage servicer is generally managing loans that are actually owned or held by other entities, the servicer is not exposed to losses if the loans become delinquent or if no foreclosure is completed. As a result, the extent to which servicers’ management of the foreclosure process is addressed in regulatory guidance and consumer protection laws has been limited and uneven. For example, guidance in the mortgage banking examination handbook that OCC examiners follow when conducting examinations of banks’ servicing activities notes that examiners should review the banks’ handling of investor-owned loans in foreclosure, including whether servicers have a sound rationale for not completing foreclosures in time or meeting investor guidelines. In contrast, the guidance included in the manual Federal Reserve examiners use to oversee bank holding companies only contained a few pages related to mortgage servicing activities, including directing examiners to review the income earned from the servicing fee for such operations, but did not otherwise address in detail foreclosure practices. In addition, until recently, the extent to which these regulators included mortgage servicing activities in their examinations of institutions was also limited. According to OCC and Federal Reserve staff, they conduct risk- based examinations that focus on areas of greatest risk to their institutions’ financial positions as well as some other areas of potential concern, such as consumer complaints. Because the risks from mortgage servicing generally did not indicate the need to conduct more detailed reviews of these operations, federal banking regulators had not regularly examined servicers’ foreclosure practices on a loan-level basis, including whether foreclosures are completed. For example, OCC officials told us their examinations of servicing activities were generally limited to reviews of income that banks earn from servicing loans for others and did not generally include reviewing foreclosure practices. Staff from the federal banking regulators noted that no federal or state laws or regulations require that banks complete the foreclosure process; therefore, banks are not prohibited from abandoning foreclosures. In addition, many of the federal laws related to mortgage banking, such as the TILA, are focused on protecting borrowers at mortgage origination, and Federal Reserve officials reported that none of the federal consumer protection laws specifically addressed the process for foreclosure. As a result, the Federal Reserve staff who conduct consumer compliance exams also have not focused on how servicers interact with borrowers during the default and foreclosure process. Further, OCC officials said that, even if examiners observed banks they supervised abandoning the foreclosure process, the practice would not negatively impact the bank’s overall rating for safety and soundness. These officials said that a bank’s need to protect its financial interest might override concerns about walking away from a home in foreclosure. However, in recognition of the ongoing mortgage crisis in the United States, staff from OCC and the Federal Reserve told us that their examiners have been focusing on reviewing servicers’ loan modification programs, including those servicers participating in the federal mortgage modification program, HAMP. As potential problems with foreclosure- related processes and documentation at major servicers emerged, these two regulators have also increased examination of servicer foreclosure practices. OCC staff responsible for examinations at one of the large national banks that conducts significant mortgage servicing activities told us that they had obtained data on loans that were charged-off and foreclosure was not pursued and found that the practice was very rare and typically involved loans on low-value properties. OCC examiners acknowledged that abandoned foreclosures—due to their association with neighborhood crime and blight—could pose a reputation and litigation risk to the bank. For example, we found that some servicers and lenders have been sued by various municipalities over their servicing or lending activities. The Federal Reserve has also recently increased its attention to mortgage servicing among the institutions over which it has oversight responsibility. In the past, the Federal Reserve has not generally included nonbank subsidiaries of bank holding companies that conduct mortgage servicing in their examination activity because the activities of these entities were not considered material risks to the bank holding company. However, in 2007, the Federal Reserve announced a targeted review of consumer compliance supervision at selected nonbank subsidiaries that service loans. Additionally, in October 2009, the Federal Reserve began a loan modification initiative, including on-site reviews, to assess whether certain servicers under its supervisory authority—including state member banks and nonbank subsidiaries of bank holding companies—were executing loan modification programs in compliance with relevant federal consumer protection laws and regulations, individual institution policies, and government program requirements. In addition, as part of its ongoing consumer compliance examination program, the Federal Reserve incorporated loan modification reviews into regularly scheduled examinations of state member banks, as appropriate. Federal Reserve officials noted that as of October 2010 these reviews and examinations were still in progress; however, initial work identified two institutions that were engaging in abandoned foreclosure practices. Federal Reserve officials reported that, in general, no federal regulation or law explicitly requires that servicers notify borrowers when they decide to stop pursuing a foreclosure after the foreclosure process had been initiated. Nevertheless, Federal Reserve staff instructed the servicers to do so as a prudent banking practice. According to Federal Reserve officials, the institutions agreed to do so. Because abandoned foreclosures do not necessarily violate any federal banking laws, supervisors did not take any actions against the institutions. Other federal and state regulators that review servicers’ activities also reported having little insight into servicers’ foreclosure practices and decisions to abandon foreclosures, particularly those with non-GSE loans, which account for the greatest numbers of abandoned foreclosures. Officials from the Securities and Exchange Commission, which receives reports on publicly traded residential mortgage-backed securities, told us that they did not examine servicers’ policies or activities for these securitized assets. Furthermore, SEC’s accounting review of publicly traded companies engaged in mortgage servicing included aggregate trends in foreclosure activity but not incomplete foreclosures on individual loans. While the Federal Housing Finance Agency Federal Property Manager’s Report includes data on charge-offs in lieu of foreclosure, FHFA also does not routinely examine whether Fannie Mae and Freddie Mac are abandoning foreclosures. Like the banking regulators, they also said they had focused most of their oversight on the institutions’ loan modification and pre-foreclosure efforts. In addition, the Federal Trade Commission (FTC) may also pursue enforcement actions against nonbank institutions that violate the FTC Act or consumer protection laws. However, FTC staff told us they did not think that either the unfair and deceptive acts and practices provision of the FTC Act or the Fair Debt Collections Practices Act would apply to an institution that walked away from a home in foreclosure, as a general matter. State banking regulators that we interviewed said that they conduct little oversight of servicers’ foreclosure practices given the limited number of state-chartered banks that conduct mortgage servicing activities. However, several examiners and industry association officials we interviewed acknowledged the need to obtain further information about the foreclosure process and improve their examination process for nonbank mortgage servicers. Other entities that review servicers’ activities also do not review servicers’ foreclosure practices or decisions to abandon foreclosures. Representatives from private rating agencies that evaluate mortgage servicers’ told us that although they review servicers’ handling of loans in default and the overall average length of time servicers take to complete foreclosure, they do not track specific loans to see if foreclosure was completed because it would not be a specific trigger for downgrading that security’s rating. In addition, representatives of institutions that serve as trustees for large numbers of pooled assets in an MBS pool told us that they sought to ensure that servicers forwarded payments to investors and noted that trustees did not provide management oversight of servicers’ decisions on how to handle loans. We identified various actions that some communities are taking to reduce the likelihood of abandoned foreclosures occurring or reduce the burden such properties create for local governments and communities. Communities dealing with abandoned foreclosures may benefit from implementing similar actions, but they may need to weigh the appropriateness of the various actions for their local circumstances as these actions can require additional funding, have unintended consequences, and may not be appropriate for all communities. In addition, these actions generally were designed to address vacant properties overall; therefore, they may not fully address the unique impacts of abandoned foreclosures. Officials from local governments, community groups, and academics told us that borrowers often leave their homes before the foreclosure sale even though they are entitled to stay in their homes at least until the sale. Although borrowers may leave for a variety of reasons, we consistently heard that many borrowers leave because they believe that servicers’ initial notices of delinquency and foreclosure initiation mean that they must immediately leave the property. For example, a representative of a counseling group in Chicago told us that many people, especially the elderly and non-native English speakers, do not understand notices that they receive from servicers and think that they are being told to leave their homes. Some jurisdictions are taking steps to increase borrowers’ awareness of their rights during foreclosure through counseling. A variety of counseling and mediation resources are already available to borrowers. For example, HUD sponsors housing counseling agencies throughout the country to provide free foreclosure prevention assistance and provides references to foreclosure avoidance counselors. In addition, according to a national research group, at least 25 foreclosure mediation programs were in operation in 14 states across the country as of mid-2009 to encourage borrowers and servicers to work together to keep people in their homes and avoid foreclosure. Officials from local governments and community groups, servicers, and an academic noted that increasing the use, visibility, and resources of counseling efforts could provide avenues to educate borrowers about their rights to remain in their homes during the foreclosure process and prevent vacancies. To increase the visibility and use of counseling resources, the state of Ohio implemented a hotline phone number to help refer borrowers to counselors and a Web site to provide information about foreclosure. In addition, local officials have credited a recent law in Michigan with helping to educate borrowers about their rights during the foreclosure process. The Michigan law allows borrowers a 90-day delay in the initiation of foreclosure proceedings if they request a meeting with a housing counselor and a servicer representative to try to arrange for a loan modification. Representatives of community groups, local governments, and servicers were generally supportive of efforts to educate borrowers about their rights during foreclosure, and a recent study has demonstrated the effectiveness of such counseling on keeping people in their homes. In our interviews, representatives of a servicer and local government and a researcher noted that counseling could be more effective at educating borrowers about their rights than servicers’ efforts because borrowers might be more willing to talk to a counselor than to a bank representative. Representatives of a law firm also noted that local staff might reach more borrowers and achieve better results than bank representatives because the local individuals have a better understanding of local conditions and homeowners could work with the same individual rather than with bank representatives who change with each contact. Community group and servicer representatives also noted that counseling is most effective at keeping people in their homes if it is offered soon after a borrower first becomes delinquent because they are more likely to leave their homes later in the foreclosure process. In addition, a November 2009 study found that homeowners who received counseling were about 1.6 times more likely to get out of foreclosure and avoid a foreclosure sale—possibly allowing them to remain in their homes—with counseling than without. Local community representatives noted that increased counseling may not completely prevent abandoned foreclosures for several reasons. First, counselors cannot reach every borrower needing assistance. For example, officials from a community group and counseling agencies said that some borrowers might not be aware that counseling is available or might be too embarrassed about their situation to seek assistance. Second, the quality of counseling may limit its effectiveness. Researchers noted that the quality of counseling can be uneven and organizations that are not HUD- approved or foreclosure rescue scams could mislead borrowers about their rights. Third, representatives of research and advocacy groups we interviewed also noted that increased funding for counseling efforts would allow counseling agencies to expand and help more homeowners. Another action that some local governments are taking to address the problems of vacant properties, including abandoned foreclosures, is to require servicers to register vacant properties. As previously discussed, one of the major challenges confronting code enforcement officials is identifying those responsible for maintaining vacant properties. Vacant property registration systems can attempt to address this problem by requiring servicers to provide the city with specific contact information for each vacant property they service. According to a national firm that contracts with servicers to maintain properties, nearly 288 jurisdictions have enacted vacant property registration ordinances as of February 2010. Although the structures of these ordinances vary, researchers generally classify them into two types. The first type of systems tracks all vacant and abandoned properties and their owners. For example, among the cities we studied, Baltimore, Maryland has implemented this type of registration system. The second type of systems attempts to hold the lender and servicer responsible for maintenance of vacant properties during the foreclosure process. According to the Fannie Mae and Freddie Mac uniform mortgage documents, although these mortgage contracts typically give servicers the right to secure abandoned properties and make repairs to protect property values, they do not necessarily obligate them to do so. The cities of Chula Vista, California, Cape Coral and Fort Myers, Florida, and Chicago, Illinois, for example, have implemented this second type of ordinance. New York state also enacted a similar law statewide. According to some local officials and researchers, the contact information in vacant property registration systems makes it easier for local code enforcement officials to identify the parties responsible for abandoned foreclosures and that holding mortgage owners accountable for vacant properties can reduce the negative impact of these properties on the community. For example, local officials we interviewed in some cities with vacant property registries said that most owners complied with their city’s registry requirements and noted that the registries had been effective at providing contacts for officials to call to resolve code violations on vacant properties. Several stakeholders, including local officials, researchers, and representatives of a community group also recommended the type of vacant property ordinance that holds servicers accountable for maintaining vacant properties during foreclosure. They noted that these types of ordinances could provide servicers with needed incentives to keep up vacant properties to avoid incurring additional costs and help them in determining whether to initiate foreclosure. Local officials and industry representatives told us that, while vacant property registration systems can help local governments identify some owners, they might not capture all owners, and some servicers found certain requirements overly onerous and outside of their legal authority to perform. Local officials in a couple of cities and one servicer representative told us that these systems might not capture all owners because those who did not want the responsibility of maintaining certain properties would choose not to register. Further, systems that do not require that properties be registered until after the foreclosure sale would not help officials identify those responsible for maintaining abandoned foreclosures. In addition, servicers’ representatives told us that complying with these ordinances can be burdensome. For example, servicers consider ordinances that require them to secure doors and windows with steel, install security systems, and perform capital improvements to vacant properties as onerous, according to an industry association. Servicers also reported having difficulty tracking and complying with multiple systems and said that they would prefer a uniform system with consistent requirements. Further, servicers and other industry representatives we spoke to believe servicers’ authority to perform work on properties they did not yet own as limited. Holding a mortgage on a property does not give the servicer right of possession or control over the property. Therefore, servicers argue that they cannot be held liable for conducting work on properties because they are not the titleholders until after a foreclosure sale. For example, representatives of one servicer told us that the company would take steps to prevent a property from deteriorating but was cautious about going onto a property it did not own. In addition, community groups, researchers, and other industry analysts have expressed concerns that such laws could have the unintended consequence of encouraging servicers to walk away from properties before initiating foreclosure to avoid the potential maintenance and related costs, which could have the same negative effects on neighborhoods and communities as abandoned foreclosures do now. State or local actions to streamline the foreclosure process for vacant properties could also reduce the number of abandoned foreclosures by decreasing servicers’ foreclosure costs and preserving the value of vacant properties. As we have seen, the length of the foreclosure process affects servicers’ foreclosure costs as well as the condition and value of a property. Some areas are implementing streamlining efforts. For example, a law was recently enacted in Colorado allowing servicers to choose a shortened statutory foreclosure process for vacant properties that provides for a foreclosure sale to be scheduled in half the time of the typical process, according to a state press release on the new law. In addition, some courts in Florida have created expedited foreclosure court dockets for uncontested cases in order to move a higher number of cases forward in the process. Shortening the time it takes to complete foreclosure could result in less decrepit properties that servicers could resell more easily and at a higher price than they might have been able to otherwise—thereby encouraging servicers to abandon fewer foreclosures. However, some stakeholders raised concerns about streamlined actions. First, servicers and other industry analysts note that determining whether properties were actually vacant could be difficult. Second, shortening foreclosure times is contrary to the trend among state and local governments across the country to enact laws such as foreclosure moratoriums that extend foreclosure timelines. Therefore, some raised concerns about ensuring that homeowners had appropriate opportunities to work out a solution within a shortened time frame. Third, another potential unintended consequence is that in judicial states, shortening the time frame for foreclosing on vacant properties by moving these cases to the head of the queue could lengthen the time frames for other cases, increasing servicers’ carrying costs on those properties. Other jurisdictions have attempted to require servicers to complete foreclosures once they have initiated them. For example, staff in one court we visited told us the judge requires a foreclosure sale to be scheduled within 30 days after the court enters a foreclosure judgment. If servicers do not comply, they can be held in contempt of court, fined, and perhaps serve jail time. Many local officials and researchers we interviewed suggested that foreclosure cases should be dismissed, that servicers should face fines, or that servicers should lose their right to foreclose or take other actions on a property if they do not take action on foreclosure proceedings or schedule a sale within a certain amount of time. These actions could reduce abandoned foreclosures because servicers would more thoroughly consider the benefits and costs of foreclosure before initiating the process, and once initiated, foreclosures would be completed in a timely manner. Others also said that these actions would quickly move properties out of the foreclosure process and into the custody of a servicer that local officials could then hold responsible for the property’s upkeep. However, others noted that such a requirement could result in missed opportunities to work out solutions with the borrower and that it could be difficult to enforce. For example, representatives of servicers and others told us that borrowers often sought such alternatives at the last minute before a foreclosure sale and that requiring servicers to complete all foreclosures would limit their ability to explore alternatives late in the foreclosure process. An academic and regulatory officials expressed concerns that servicers would incur additional expenses if they had to complete sales and take ownership of properties when doing so was not in their best interest and they would not be able to recover their costs. In addition, regulatory staff cautioned that such a requirement could cause servicers to walk away from properties before initiating foreclosure. This type of action also would be difficult to implement in a state with a statutory foreclosure process because there is not the same degree of public records tracking foreclosures in these states. Local actions to establish reliable outlets for servicers to easily and cheaply dispose of low-value properties could reduce the number of abandoned foreclosures by providing incentives for servicers to complete the process. As previously discussed, servicers told us that many properties that were abandoned foreclosures were those that would likely have been either too costly for servicers to take ownership of or not likely to have resulted in sufficient sale proceeds. Taking foreclosed properties into their own real estate ownership inventories can be costly to servicers as they must continue to pay for taxes and insurance, maintain a deteriorating property, and hire a broker to market the property for sale. According to a recent report, if servicers and their investors know that they will not be further burdened by costs for the property, they may be more willing to take title and transfer it to a government or nonprofit entity that will be able to begin moving the property back into productive use. The use of land banks is one alternative that some jurisdictions are attempting to use to address problems arising from large numbers of foreclosures and vacant properties. Land banks are typically governmental or quasi-public entities that can acquire vacant, abandoned, and tax-delinquent properties and convert them to productive uses, hold them in reserve for long-term strategic public purposes such as creating affordable housing, parks, or green spaces, or demolish them. Land banks can reduce the incidence of abandoned foreclosures by providing servicers a way to dispose of low-value properties that they might otherwise abandon. Sales or donations to land banks could help servicers reduce their foreclosed property inventories. For example, Fannie Mae and the Cuyahoga County Land Reutilization Corporation have an agreement whereby on a periodic basis Fannie Mae sells pools of very low- value properties to the land bank for 1 dollar, plus a contribution toward the cost of demolition. This agreement allows Fannie Mae to reliably dispose of pools of properties in a recurring transaction at pre-defined terms. Land bank officials from Cuyahoga County noted that they are in the process of negotiating similar agreements with several large servicers. Once it has acquired the properties, a land bank can help stabilize neighborhoods, such as by reducing excess and blighted properties through demolition or transferring salvageable properties to local nonprofits for redevelopment. According recent research, the Genesee County Land Bank in Flint, Michigan, has been credited with acquiring thousands of abandoned properties, developing hundreds of units of affordable housing, and being the catalyst for increasing property values in the community by more than $100 million between 2002 and 2005 through its demolition program. Although land banks can help reduce abandoned foreclosures or their negative effects, our interviews revealed potential challenges of implementing these banks. First, many of the local government officials we interviewed noted that land banks did not have enough resources to manage a large volume of properties. Land banks may be dependent on local governments for funding, and without a dedicated funding source it may be difficult for land banks to engage in long-term strategic planning. However, recently created land banks, such as those in Genesee and Cuyahoga counties, have developed innovative funding mechanisms that do not depend on appropriations from local governments. Second, some mentioned that contributions from servicers—such as the agreement between Fannie Mae and the Cuyahoga County Land Reutilization Corporation—could help defray land banks’ property carrying costs. Second, land banks may be limited in their authority to acquire or dispose of properties. For example, by design land banks tend to passively acquire and convert abandoned properties with tax delinquencies into new productive use. However, land banks can also be designed to actively and strategically acquire properties from multiple sources. The Cuyahoga County Land Reutilization Corporation, for example, has the authority to strategically acquire properties from banks, GSEs, federal or state agencies, and tax foreclosures. Third, some municipalities face political challenges in establishing land banks or local officials question whether they are needed. For example, according to an advisor to local governments on establishing land banks and a representative of a community group, the Maryland state legislature authorized the creation of a land bank in Baltimore, but its implementation fell through due to political differences at the city level. Further, some local officials we interviewed in Florida did not think land banks were needed in their areas because they expected the housing market to recover so that vacancies would not be a long-term problem. Similar to land banks, other methods for cities to acquire properties before or following foreclosure could also provide incentives to servicers to complete the foreclosure process for low-value properties rather than abandoning it. Some cities have negotiated specialized sale transactions with Fannie Mae and HUD. For example, HUD recently announced a partnership with the National Community Stabilization Trust (NCST) and leading financial institutions that account for more than 75 percent of foreclosed property inventory to provide selected state and local governments and nonprofit organizations the first opportunity to purchase vacant properties quickly, at a discount, and before they are offered on the open market. In addition, some cities have worked with Fannie Mae to purchase foreclosed and low-value properties. According to Fannie Mae, the City of St. Paul, Minnesota, has purchased 45 properties from the entity and has access to review Fannie Mae’s available properties to be able to submit an offer for a pool of properties before they are marketed. And, according to a representative of a national community development organization, with the broadened definitions of abandoned and foreclosed properties under the NSP program, local governments and other grantees will be able to work with servicers earlier in the foreclosure process to acquire such properties through short-sales, for example, which could discourage abandoned foreclosures. For example, one organization in Oregon is pursuing purchasing notes prior to foreclosure using some of the state’s Hardest Hit Fund money, which would save the servicer the costs of initiating and completing foreclosure. However, the ability of these types of programs to fully address the issue of abandoned foreclosures may be limited. For example, local officials and researchers said cities’ capacity to receive donations or acquire properties was limited because they did not have enough resources to manage properties. According to recent research, capacity constraints prevent most community development organizations from redeveloping enough vacant homes to reverse the decline of neighborhood home values. In addition, according to industry observers, and HUD and local government officials, local governments have not pursued many pre-foreclosure acquisitions, such as short sales and note sales, because they can be time-consuming and technically difficult to complete. The overall estimated number of abandoned foreclosures nationwide is very small. However, the communities in which they are concentrated often experience significant negative impacts, including producing vacant homes that can be vandalized, reduce surrounding neighborhood property values, and burden local government with the costs associated with maintenance, rehabilitation, or demolition. Given the large number of homeowners experiencing problems in paying their mortgages and the negative impacts on communities when properties become vacant, avoiding additional abandoned foreclosures would help reduce any further potential problems that another vacant and uncared for property can create for communities already struggling with the impacts of the current mortgage crisis. Various servicer practices appear to be contributing to the potential for additional abandoned foreclosures. First, no requirement currently exists for mortgage servicers to notify borrowers facing foreclosure of their right to continue to occupy their properties during this process or of their responsibilities to pay taxes and maintain their properties until any sale or other title transfer activity occurs, and regulatory officials told us that they were not sure they had the authority to require servicers to do so. The lack of awareness among borrowers about their rights and responsibilities contributes to the problems associated with abandoned foreclosures. With such information, more borrowers might not abandon their homes, reducing the problems that vacancies create for neighborhoods, their surrounding communities, and the local government of the community in which the property exists. Second, no requirement exists for servicers to notify the affected local government if they abandon a foreclosure. Without such notices, local government officials often are unaware of properties that are now at greater risk of damage and create potential problems for the surrounding neighborhood. With such information, local governments could move more quickly to identify actions that could ensure that such properties are moved to more productive uses. Third, servicers are not always obtaining updated property value information that consider local conditions that can affect property values when initiating foreclosure. As a result, the likelihood that servicers may initiate foreclosure only to later abandon it after learning that the likely proceeds from the sale of the property would not cover their costs is increased. If servicers had more complete and accurate information on lower-value properties that were more at risk for such declines in value, they may determine that foreclosure is not warranted prior to initiating the process for some properties. Having servicers improve the information they use before initiating a foreclosure could result in fewer vacant properties that cause problems for communities. To help homeowners, neighborhoods, and communities address the negative effects of abandoned foreclosures, we recommend that the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System take the following four actions: require that the mortgage servicers they oversee notify borrowers when they decide to charge off loans in lieu of foreclosure and inform borrowers about their rights to occupy their properties until a sale or other title transfer action occurs, responsibilities to maintain their properties, and their continuing obligation to pay their debt and taxes owed; require that the mortgage servicers they oversee notify local authorities, such as tax authorities, courts, or code enforcement departments, when they decide to charge off a loan in lieu of foreclosure; and require that the mortgage servicers they oversee obtain updated property valuations in advance of initiating foreclosure in areas associated with high concentrations of abandoned foreclosures. As part of taking these actions, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should determine whether any additional authority is necessary and, if so, work with Congress to ensure they have the authority needed to carry out these actions. We requested comments on a draft of this report from the Board of Governors of the Federal Reserve System, Department of Housing and Urban Development, Department of the Treasury, Department of Veterans Affairs, Fannie Mae, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Freddie Mac, Federal Trade Commission, Office of Comptroller of Currency, Office of Thrift Supervision, and Securities and Exchange Commission. We received technical comments from Federal Reserve, FDIC, FHFA, FTC, OCC, and OTS, which we incorporated where appropriate. The Comptroller of the Currency did not comment on the recommendations addressed to him. We also received written comments from Treasury and the Federal Reserve that are presented in appendices II and III. The Acting Assistant Secretary for Financial Stability at the Department of the Treasury noted that, although the number is small, abandoned foreclosures are a serious problem that underscores the importance of holding servicers accountable. The Director of the Division of Consumer and Community Affairs at the Board of Governors of the Federal Reserve System agreed with our findings but neither agreed nor disagreed with our recommendations. Instead, the Director’s letter described ongoing actions the Federal Reserve is taking to address these issues and noted that the agency is concerned about the effects abandoned foreclosures may have in communities where they are concentrated. In response to our recommendation that the agency require the servicers the Federal Reserve oversees to notify borrowers that their loans are being charged off in lieu of foreclosure, the Director’s letter states they agreed that such notification represents a responsible and prudent business practice and will advise institutions they supervise to notify affected borrowers in the event of abandoned foreclosures. While this would ensure that borrowers are notified in cases where examiners identify instances of abandoned foreclosures, we believe that a more affirmative action by the Federal Reserve to communicate this expectation to all servicers it supervises would be more effective at reducing the impact of abandoned foreclosures on homeowners. Regarding our recommendation that the Federal Reserve require mortgage servicers to notify local authorities when loans are being charged off in lieu of foreclosure, the Consumer and Community Affairs Division Director stated that the Federal Reserve expects servicers to comply with any local laws requiring registration of vacant properties. While this would ensure that local authorities are notified in those communities, we reiterate that the Federal Reserve should take steps to ensure that the servicers it oversees are notifying local authorities that would likely be in a position to take action to mitigate the impact of an abandoned property, such as tax authorities or code enforcement departments, in all areas—not just those with existing vacant property registration systems—to ensure that all communities have such information that could help them better address the potential negative effects of abandoned foreclosures. We also encourage the Federal Reserve, along with other banking regulators with responsibilities to oversee mortgage servicers, to work with Congress to seek any additional authority needed to implement such a requirement. In response to our recommendation that the Federal Reserve require servicers to obtain updated property valuations in advance of initiating foreclosure in certain areas, the Consumer and Community Affairs Division Director letter notes they agree with the importance of servicers having the most up-to-date information before taking such actions, but noted that servicers’ ability to obtain optimal information could be limited. Even without the ability to conduct interior inspections of properties, having servicers take additional steps to improve the accuracy of their valuations prior to initiating foreclosure would still be possible. We acknowledge that updating property valuations can be challenging, which is why our recommendation encourages a risk-based approach to identifying properties where an updated evaluation could assist servicers in making a more well-informed decision about initiating foreclosure. The Director’s letter also cites existing Federal Reserve guidance outlining expectations for obtaining property valuations, which, according to Federal Reserve staff, applies to actions that institutions should take before and after they have acquired properties through foreclosure. According to this guidance, an individual who has appropriate real estate expertise and market knowledge should determine whether an existing property valuation is valid or whether a new valuation should be obtained because of local or property-specific factors including the volatility of the local market, lack of maintenance on the property, or the passage of time, among others. Having the Federal Reserve take further steps to ensure that servicers understand and implement this guidance and evaluate properties in advance of initiating foreclosure would likely help to reduce the prevalence of abandoned foreclosures as well. We are sending copies of this report to interested congressional committees, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Office of Controller of Currency, Office of Thrift Supervision, Department of Housing and Urban Development, Department of the Treasury, Department of Veterans Affairs, and Securities and Exchange Commission, and other interested parties. The report is also available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or clowersa@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VI. This report focuses on the prevalence, causes, and effects of abandoned foreclosures. Specifically, this report addresses (1) the nature and prevalence of abandoned foreclosures, including how they occur; (2) the impact of abandoned foreclosures on communities and state and federal efforts to mitigate the effects of foreclosure; (3) certain practices that may contribute to why mortgage servicers initiate but not complete foreclosures and the extent of federal regulatory oversight of mortgage foreclosure practices; and (4) the various actions some communities are taking to reduce abandoned foreclosures and their impacts. To determine the nature and prevalence of abandoned foreclosures— where servicers initiated but decided not to complete foreclosure and the property is vacant—we analyzed mortgage loan data from January 2008 to March 2010 reported to us from selected servicers and two government- sponsored enterprises (GSE). We obtained aggregated and loan-level data from six servicers—including large servicers and those that specialize in servicing nonprime loans—Fannie Mae, and Freddie Mac on loans that were categorized as charge-offs in lieu of foreclosure (loans that were fully charged off instead of initiating or completing a foreclosure). After eliminating overlapping loans, the institutions contributing data to our sample collectively account for nearly 80 percent of all first-lien mortgages outstanding. The database we have assembled is unique and, therefore, difficult to cross-check with other known sources to check its reliability. Because we were able to cross-check the loan level information provided by the GSEs with official reports submitted by Federal Housing Finance Agency (FHFA) to Congress we believe that these data are sufficiently reliable for our reporting purposes. However, because some of the servicers compiled the information requested differently or were reporting information that is not a part of their normal data collection and retention apparatus, our dataset contains various degrees of inconsistency, missing data and other issues. In reviewing these data we found a number of concerns with some elements of the database and some sources of the data. For example, we believe that some servicers (1) submitted data that included second liens, (2) contained elements that appeared to be irregular or (3) may not have provided the total charge-offs in lieu of foreclosure associated with their servicing portfolio. While the number of potential second liens were not significant especially among those that we identified as abandoned foreclosures, it is difficult to know with certainty how the remaining issues impacted our results including the descriptive statistics report. For this reason, we have characterized our results in a manner that minimizes the reliability concerns and emphasizes the uncertainty regarding the total number of abandoned foreclosures in the United States. Moreover, we conducted a variety of tests on this data. For example, we were able to use GSE data as a reliability check on some elements of the servicer database. We also cross-checked some of the properties in our database against property tax records for a portion of the data for Baltimore and Chicago. We were able to visually inspect some properties in a few cities. Given these and other steps we have taken, we believe the data is sufficiently reliable for the purposes used in this study. We used two methods to code the data as vacant or occupied in our database. First, the servicers provided data on whether the property was vacant at the time the loan was charged off in lieu of foreclosure. We found this data to be reliable based on cross-checks with property tax records and visual inspection for a small sample of the database. However, 32 percent of the field was either blank or the servicer indicated that occupancy status was unknown. Moreover, an occupied property may eventually become vacant weeks or even months after charge-off in lieu of foreclosure. Therefore, we augmented this information by using a second method. The second method involved determining occupancy status using U.S. Postal Service (USPS) administrative data on address vacancies. These data represent the universe of all vacant addresses in the United States. We obtained lists of vacant properties from USPS for 6-month increments from June 30, 2008, through June 30, 2010. The USPS codes a property as vacant if there has been no mail delivery for 90 days. The data also included properties the USPS codes as a “no-stat” for urban areas. A property is considered a “no-stat” if it is under construction, demolished, blighted and otherwise identified by a carrier as not likely to become active for some time. We matched these USPS data on address vacancies to actual addresses in our loan database. Therefore, we considered a property vacant if it was either coded as vacant at the time of charge-off in lieu of foreclosure by the servicers or was coded as vacant based on the vacancy lists obtained from USPS. Users of the report should note the difficulty in determining vacancy and that our exercise may have resulted an understatement or overstatement of the number of vacant properties in our sample. In particular, determining vacancy by matching to USPS data has limitations including, (1) long lags before vacancy is determined, (2) mail carrier delays in reporting vacancies, (3) coding seasonal and recreational properties as vacant, and (4) matching errors due to differences in address formats or incomplete addresses in the loan file. Due to privacy concerns we were not able to leverage USPS expertise to ensure a higher quality match based on lists that included all known delivery points. As a result, our analysis will miss any property that was demolished upon the determination of vacancy or any property deemed a “no-stat” in rural areas. Because of the 90-day lag in determining vacancy and the fact that we are dealing with properties from 2008 to 2010 largely in major metropolitan areas, this is not likely to have a significant impact on our estimates of vacant properties. It should be noted that the data collected by the USPS are designed to facilitate the delivery of mail rather than make definitive determinations about occupancy status. For example, USPS residential vacancy data do not differentiate between homeowner and rental units nor identify seasonal or recreational units. Once vacancy is determined and the number of abandoned foreclosures is estimated, our projections of the prevalence of abandoned foreclosures in the United States are based on an extrapolation designed to highlight the uncertainty in the results. While we estimated the total number of abandoned foreclosures directly for a large portion of the mortgage market, we simulated the total number based on assumptions about the remaining mortgage loans not covered in our sample. To form estimates of prevalence we conducted several analyses. First, we formed base prevalence estimates using information from the servicer and GSE databases alone. Second, we combined servicer and GSE databases to produce some estimates of prevalence based on information contained in both databases. Third, we made a determination of the possible error rate in determining vacancy through various runs of our matching analysis to USPS data and examining the output. Lastly, we conducted a series of simulations to extrapolate our findings to the 20 percent of the mortgage market not covered in our database and to capture the uncertainty inherent in our data. Although the loans reflected in this report represent servicers that service a large percentage of the overall mortgage industry, they likely do not represent a statistically random sample of all charge-offs in lieu of foreclosure. Rather than assume the large sample can be generalized and produce a point estimate with confidence interval, we simulated the likely number of abandoned foreclosures for the remaining loans under a number of different assumptions about the characteristics of the population. For example, in some runs we assumed a 10 percent error matching rate and that the remaining servicers resemble some combination of the subprime specialty lenders and the large servicers in our sample. In some cases we assumed no error in our matching analysis but formed our estimates eliminating a servicer that raised some concern over the reliability of their data. Lastly, we produced estimates combining elements of both of these sets of assumptions. In extrapolating the findings from our sample we provided a range of estimates that reflect the fact that the characteristics of these loans may differ from the remaining population of mortgages as well as our concerns over data reliability and potential matching error in determining vacancy. We believe these simulations properly characterized the sources and nature of uncertainty in the results. We also acknowledged, throughout the report, cases in which data issues may have affected the results. To supplement this data analysis and to determine the impacts of incomplete foreclosures on communities and homeowners, we conducted case studies and a literature review. We selected 12 locations to provide a range of states with judicial and statutory foreclosure processes, from different regions of the country, and that had variations in local economic circumstances and responses to abandoned foreclosures. Our case study locations were Atlanta, Georgia; Baltimore, Maryland; Buffalo, New York; Chula Vista, California; Chicago, Illinois; Cleveland, Ohio; Detroit, Michigan; Lowell, Massachusetts; and Cape Coral, Fort Myers, Manatee County, and Hillsborough County, Florida. We conducted in person site visits or phone calls with city and county officials, community development organizations, academic researchers, foreclosure assistance providers, and state banking supervisors in these locations to gain perspectives on the impact and prevalence in each location. Although we selected the case study locations to provide broad representation of conditions geographically and by type of foreclosure process, these locations may not necessarily be representative of all localities nationwide. As a result, we could not generalize the results of our analysis to all states and localities. In two of the locations we visited, officials provided us with pictures and examples of abandoned foreclosures and vacant properties. In Detroit, Baltimore, and Florida, we visited selected vacant and abandoned properties and took pictures to document property conditions. After the conclusion of our fieldwork, we analyzed the information obtained during the interviews to find common themes and responses. To supplement our case study interviews, we reviewed various relevant journal articles, reports, law review articles, and other literature on the impacts of vacant and abandoned properties. We consulted with internal methodologists to ensure that any literature we used as support for our findings was methodologically sound. To determine what impacts abandoned foreclosures were having on state foreclosure mitigation efforts, we reviewed the findings and recommendations of several state foreclosure task forces and interviewed staff from a national policy research organization who tracks state foreclosure-related legislation. We also contacted the housing finance agencies in the 10 states that were determined as of March 2010 to have been hardest hit by the foreclosure crisis. These states received funding from the Department of the Treasury through its Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest-Hit Fund), and included Arizona, California, Florida, Michigan, Nevada, North Carolina, Ohio, Oregon, Rhode Island, and South Carolina. To determine what impacts abandoned foreclosures were having on federal foreclosure mitigation efforts, we reviewed current federal foreclosure efforts and obtained information from Neighborhood Stabilization Program (NSP) grantees. The current federal foreclosure efforts we reviewed include the Home Affordable Modification Program (HAMP), Federal Housing Administration HAMP, Veterans Affairs HAMP, Second Lien Modification Program, Home Affordable Refinance Program, Home Affordable Foreclosure Alternatives Program, Housing Finance Agency Innovation Fund for the Hardest-Hit Housing Markets, Hope for Homeowners, Hope Now, Mortgage Forgiveness Debt Relief Act and Debt Cancellation, and the Neighborhood Stabilization Program. In conjunction with a separate GAO review of the first phase of the Neighborhood Stabilization Program (NSP 1), we interviewed officials from 12 of the 309 NSP 1 grantees that were selected based on factors including the magnitude of the foreclosure problem in their area, geographic location, and progress made in implementing the program. The grantees were Orange County, Lee County, and City of Tampa (Florida); State of Nevada, Clark County, City of Las Vegas, City of North Las Vegas, and City of Henderson (Nevada); State of Indiana, City of Indianapolis, and City of Fort Wayne (Indiana); and City of Dayton (Ohio). Additionally, we worked with a national nonprofit organization to obtain written responses to structured questions on the extent to which abandoned foreclosures have impacted their efforts to acquire properties from an additional 25 NSP 1 and NSP 2 grantees and subrecipients from across the country. These grantees may not necessarily be representative of the all grantees. As a result, we could not generalize the results of our analysis to all NSP grantees. To identify the reasons financial institutions decide to not complete foreclosures, we interviewed six servicers, including some of the largest and those that specialize in subprime loans. These servicers represented 56 percent of all mortgages outstanding. We also analyzed Fannie Mae and Freddie Mac policies and procedures for servicers in handling foreclosures and compared them to other guidance servicers follow, such as pooling and servicing agreements (PSA). We did not do a systematic analysis of a sample of PSAs ourselves, rather we relied on interviews with servicers and academics who research PSAs, relevant literature, and reports to better understand how the terms of PSAs might influence servicers’ decisions to pursue or abandon foreclosure under different circumstances, and how losses associated with delinquency and foreclosure are accounted for. Thus, descriptions contained in this report are the opinions of these academics and authors only about those specific PSAs they provided to us or were discussed in their reports. While there may be things that are similar across PSAs, they are contracts between two parties—the trust and the servicer—and the terms apply to just these parties. We reviewed federal regulatory guidance that covers the examination process for reviewing institutions’ foreclosure and loss reserve process. We also reviewed whether abandoned foreclosures may violate consumer protection laws such as the Fair Debt Collections Practices Act, and the Federal Trade Commission Act (Unfair or Deceptive Acts or Practices). In addition, we interviewed representatives of Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Controller of Currency, Office of Thrift Supervision, Department of Housing and Urban Development, Department of Veterans Affairs, and Securities and Exchange Commission. To determine what actions have been taken or proposals offered to address abandoned foreclosures, we reviewed academic literature and interviewed academics, representatives of nonprofit organizations, local, state, and federal officials, and other industry participants. We also obtained information about the advantages and disadvantages of these actions through our literature review and interviews. We summarized these potential actions and conducted a content analysis of interviewee viewpoints on their advantages and disadvantages. We conducted this performance audit from December 2009 through November 2010 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. As part of our assessment of how abandoned foreclosures (properties on which a foreclosure has been initiated but not completed and are vacant) might affect federal foreclosure-related programs, we reviewed several current programs and their eligibility requirements. Most programs listed below were designed to help homeowners avoid foreclosure and require that those who receive assistance be owner-occupants of their homes. The following information appears as interactive content in the body of the report when viewed electronically. The content associated with various states on the map describes housing market conditions that likely explain the elevated levels of abandoned foreclosures in three different groups of states. The content appears in print form below. This categorization is based in part on judgment and trends in the data for the MSAs with the most abandoned foreclosures in these states. Because other researchers may posit alternative categorizations that may also fit the data and other types of abandoned foreclosure exist, this analysis should not be considered definitive. In addition to the contact named above, Cody Goebel (Assistant Director); Emily Chalmers; William R. Chatlos; Kate Bittinger Eikel; Lawrance Evans, Jr.; Simon Galed; Jeff R. Jensen; Matthew McHale; Courtney LaFountain; Tim Mooney; Marc Molino; Jill Naamane; Rhiannon Patterson; Linda Rego; Jeff Tessin; and Jim Vitarello made key contributions to this report.	Entities responsible for managing home mortgage loans--called servicers--may initiate foreclosure proceedings on certain delinquent loans but then decide to not complete the process. Many of these properties are vacant. These abandoned foreclosure--or "bank walkaway"--properties can exacerbate neighborhood decline and complicate federal stabilization efforts. GAO was asked to assess (1) the nature and prevalence of abandoned foreclosures, (2) their impact on communities, (3) practices that may lead servicers to initiate but not complete foreclosures and regulatory oversight of foreclosure practices, and (4) actions some communities have taken to reduce abandoned foreclosures and their impacts. GAO analyzed servicer loan data from January 2008 through March 2010 and conducted case studies in 12 cities. GAO also interviewed representatives of federal agencies, state and local officials, nonprofit organizations, and six servicers, among others, and reviewed federal banking regulations and exam guidance. Among other things, GAO recommends that the Federal Reserve and Office of the Comptroller of the Currency (OCC) require servicers they oversee to notify borrowers and communities when foreclosures are halted and to obtain updated valuations for selected properties before initiating foreclosure. The Federal Reserve neither agreed nor disagreed with these recommendations. OCC did not comment on the recommendations. Using data from large and subprime servicers and government-sponsored mortgage entities representing nearly 80 percent of mortgages, GAO estimated that abandoned foreclosures are rare--representing less than 1 percent of vacant homes between January 2008 and March 2010. GAO also found that, while abandoned foreclosures have occurred across the country, they tend to be concentrated in economically distressed areas. Twenty areas account for 61 percent of the estimated cases, with certain cities in Michigan, Ohio, and Florida experiencing the most. GAO also found that abandoned foreclosures most frequently involved loans to borrowers with lower quality credit--nonprime loans--and low-value properties in economically distressed areas. Although abandoned foreclosures occur infrequently, the areas in which they were concentrated are significantly affected. Vacant homes associated with abandoned foreclosures can contribute to increased crime and decreased neighborhood property values. Abandoned foreclosures also increase costs for local governments that must maintain or demolish vacant properties. Because servicers are not required to notify borrowers and communities when they decide to abandon a foreclosure, homeowners are sometimes unaware that they still own the home and are responsible for paying the debt and taxes and maintaining the property. Communities are also delayed in taking action to mitigate the effects of a vacant property. Servicers typically abandon a foreclosure when they determine that the cost to complete the foreclosure exceeds the anticipated proceeds from the property's sale. However, GAO found that most of the servicers interviewed were not always obtaining updated property valuations before initiating foreclosure. Fewer abandoned foreclosures would likely occur if servicers were required to obtain updated valuations for lower-value properties or those in areas that were more likely to experience large declines in value. Because they generally focus on the areas with greatest risk to the institutions they supervise, federal banking regulators had not generally examined servicers' foreclosure practices, such as whether foreclosures are completed; however, given the ongoing mortgage crisis, they have recently placed greater emphasis on these areas. GAO identified various actions that local governments or others are taking to reduce the likelihood or mitigate the impacts of abandoned foreclosures. For example, community groups indicated increased counseling could prevent some borrowers from vacating their homes too early. Some communities are requiring servicers to list properties that become vacant properties on a centralized registry as a way to identify properties that could require increased attention. In addition, by creating entities called land banks that can acquire properties from servicers that they otherwise cannot sell, some communities have provided increased incentives for services to complete instead of abandon foreclosures. However, these actions can require additional funding, have unintended consequences, such as potentially encouraging servicers to walk away from properties before initiating foreclosure, and may not be appropriate for all communities.	16.7	16k+	2,149
44	Over the last decade, telework has emerged as a management tool in the federal government. Congress and the executive branch have shown interest in telework, primarily based upon the belief that its use will benefit the federal government. Benefits of telework include reducing traffic congestion and pollution, improving recruitment and retention of employees, increasing productivity, and reducing the need for office space. Employees also can realize benefits from teleworking, including reduced commuting time; lowered costs in areas such as transportation, parking, food, and wardrobe; removal of barriers for those with disabilities who want to be part of the workforce; and improvement in the quality of worklife and morale accruing from the opportunity to better balance work and family demands. Guidance issued by the Federal Emergency Management Agency, along with telework-related literature, also suggests that telework programs can facilitate emergency preparedness by helping agencies to maintain continuity of operations in emergency situations, thereby increasing agencies’ effectiveness. In light of the uncertainties facing the United States today, telework can be a particularly relevant and useful tool. The importance of telework to federal employees has been highlighted in recent studies. Based on its 2000 Merit Principles Survey, the U.S. Merit Systems Protection Board (MSPB) reported that, of all the family-friendly programs studied, telework showed the greatest disparity between importance and availability, potentially making it the most desired but least available family-friendly program. In addition, the MSPB said that, of all the work-life programs it asked about in the survey, only telework appeared to have a relationship to employees’ intentions regarding leaving their employment in the coming year, with those who considered telework important being more likely to plan to leave when it is not available (55 percent) than when it is available (44 percent). According to OPM’s 2002 Federal Human Capital Survey, almost 74 percent of federal employee respondents said that telework was at least somewhat important to them. Despite this level of importance, more than 59 percent of the respondents reported that this flexibility was not available to them. Since 1990, Congress has supported the telework initiative by holding hearings and passing a number of laws related to telework, including laws that provided for the establishment and funding of the GSA telework centers. Most significant was the Department of Transportation and Related Agencies Appropriations Act, 2001, Pub. L. No. 106-346, October 23, 2000. Section 359 of this law provides the current mandate for telework in the executive branch of the federal government. This law, which was to be implemented in 25 percent increments over 4 years, required each federal agency to “establish a policy under which eligible employees of the agency may participate in telecommuting to the maximum extent possible without diminished employee performance” and instructed OPM to provide for the law’s requirements to be met. Telework has also received significant attention in the executive branch since 1990, when the President’s Council on Management Improvement approved plans for the implementation of a governmentwide pilot flexiplace program. In the executive branch, telework has been proposed as a tool to address a number of issues, including establishing a family- friendly workplace, reducing traffic congestion and pollution, and enabling people with disabilities to join the federal workforce. Currently, GSA and OPM share responsibilities for the federal government’s telework initiative, providing federal agencies with services and resources related to this initiative. To this end, both GSA and OPM have included strategies, goals, and measures directly related to their efforts to support the governmentwide telework initiative in their fiscal year 2003 annual performance plans and their related strategic plans. For example, GSA’s fiscal year 2003 performance plan includes a goal to increase the percentage of federal employees that telework to 5 percent by the end of fiscal year 2003 under its performance goal to increase the number of agency programs meeting their social and environmental responsibilities in areas of GSA’s Office of Governmentwide Policy responsibility. Also among efforts in the executive branch was the formation of an Interagency Telework Issues Working Group, with participants from 15 federal agencies. GSA and OPM jointly established and led this group, which canvassed agencies to identify policy actions needed to facilitate agency use and expansion of telework. A final report, issued in August 2002, contained a series of recommendations related to such policy actions. Interest in and implementation of telework programs has also occurred in states and foreign countries. Several states piloted telework programs in state government agencies in the mid- to late 1990s and have since implemented telework in individual agencies or on a statewide basis. For example, in Florida, telework became a permanent option for state employees in October 1998 after two 3-year pilot studies. In Europe, about 6 percent of the workforce was teleworking as of 1999 and, in some countries, the participation rate for telework was higher. Finland, for example, had a telework participation rate of about 17 percent of the workforce in 1999. However, only 4 percent of all teleworkers in European countries worked for government entities. According to OPM’s January 2003 report to Congress on the status of telework in the federal government, 77 executive agencies reported that, as of November 2002, 90,010 of their employees teleworked on either a regular or episodic basis, which is 5 percent of those agencies’ 1,806,192 employees. The U.S. Department of Labor reported that, in May 2001, 19.8 million persons, accounting for 15 percent of total employment, usually did some work at home as part of their job. However, only 17 percent of these workers had a formal arrangement with their employer to be paid for the work they did at home. Legislation related to telework began to emerge from Congress in 1990. Since then, these provisions have typically, but not always, been included in a variety of appropriations acts and have covered a wide range of issues related to telework. The statutory framework for telework includes provisions that require agencies to take certain actions related to telework, provide agencies with tools for supporting telework, and provide both GSA and OPM with lead roles in the implementation of telework in the federal government. Within this framework, the most significant congressional action was the enactment of Section 359 of Pub. L. No. 106-346 in October 2000, which provides the current mandate for telecommuting in the executive branch of the federal government. This law, for the first time, required each executive branch agency to establish a telework policy “under which eligible employees of the agency may participate in telecommuting to the maximum extent possible without diminished employee performance.” It also directed OPM to provide that the law’s requirements were applied to 25 percent of the federal workforce by April 2001 and to an additional 25 percent of the federal workforce in each subsequent year, until 2004 when the law is to be applied to 100 percent of the federal workforce. The requirements of this law should also be considered in combination with its conference report and guidance that has been issued by OPM. The conference report accompanying Pub. L. No. 106-346 stated that agencies shall “develop criteria to be used in implementing [a telecommuting] policy” and “ensure that managerial, logistical, organizational, or other barriers to full implementation and successful functioning of the policy are removed.” Furthermore, it stated that agencies “should also provide for adequate administrative, human resources, technical, and logistical support for carrying out the policy.” It also clarified what constitutes eligibility for telework by defining an eligible employee as “any satisfactorily performing employee of the agency whose job may typically be performed at least one day per week [by telecommuting].” On February 9, 2001, OPM sent a memorandum to department and agency heads containing guidance on the requirements of Pub. L. No. 106-346 that directed agencies to examine the barriers that inhibit the use of telecommuting, act to remove them, and increase participation. This memorandum went on to say, “The law recognizes that not all positions are appropriate for telecommuting; therefore, each agency must identify positions that are appropriate in a manner that focuses on broad objective criteria. Once an agency has established eligibility criteria, subject to any applicable agency policies or bargaining obligations, employees who meet them and want to participate must be allowed that opportunity if they are satisfactory performers.” OPM recently clarified this statement in a publication entitled, Telework: A Management Priority—A Guide for Managers, Supervisors, and Telework Coordinators. This guide, which was released on May 8, 2003, indicates that agencies should offer eligible employees the opportunity to telework by having supervisors extend the option of teleworking to all employees they determine are eligible, using established criteria. Congress also passed other laws that require agencies to take certain actions related to telework. One such provision requires executive agencies to consider whether needs for additional space can be met using alternative workplace arrangements, such as telework. Another recent provision, contained in the fiscal year 2003 appropriations for the Departments of Commerce, Justice, and State, the Judiciary, and the Small Business Administration, makes $100,000 available to each of the departments and agencies covered by this provision only for the implementation of telecommuting programs. These departments and agencies are required to provide the committees on appropriations with a report on the status of their telecommuting programs every 6 months and to designate a “Telework Coordinator” to oversee the implementation of telecommuting programs. In addition to these provisions, another provision directs executive agencies to make a minimum of $50,000 available annually for the necessary expenses to carry out telecommuting programs, which would permit employees of 20 specified federal departments and agencies, including Education, GSA, OPM, VA, the Department of the Interior (DOI), and the Department of Energy (DOE), to perform all or a portion of their duties at GSA telework centers. However, a provision has been included in the appropriations acts for DOI and related agencies since fiscal year 2001 prohibiting several departments and agencies, including DOI and DOE, from using appropriated funds for the use of “GSA telecommunication centers.” GSA officials believe that the provisions contained in these appropriations laws were intended to apply to GSA telework centers. However, this remains unclear, because these statutes pertain to “GSA telecommunication centers,” which is not a title by which the GSA telework centers are known. At least in some instances, though, this provision has not been applied to the telework centers. OPM’s January 2003 report to Congress identified two of the agencies prohibited from using funds as described by this provision—DOI and DOE—as having provided funds for telework center usage fees in fiscal year 2002. Generally, when statutory provisions in separate laws are in conflict, as may be the case with the laws detailed above, the requirements of the most recently passed law supercede the requirements of the earlier law. In this case, the provision prohibiting the use of funds for “GSA telecommunication centers” would take precedence over the provision that requires specified agencies to make $50,000 available annually for use of the GSA telework centers, but only for those departments or agencies that are common to both provisions. However, because of the lack of a definition or explanation for “GSA telecommunication centers” in the appropriations law and the fact that the legislative history does not provide any insight, it is not clear whether the provisions are in conflict. Given that both of these provisions refer to one or more types of GSA operations, GSA should work with Congress to determine what was meant by the phrase “GSA telecommunication centers” and then issue guidance to the relevant agencies to clarify these provisions and explain the impact of these laws on agencies’ telework programs. Congress has also provided agencies with several tools to support telework. For example, federal agencies were authorized to spend money for installation of telephone lines, related equipment, and monthly charges for federal teleworkers through legislation that was originally enacted in 1990 and made permanent in 1995. In 1992, Congress established the first federal telework centers, which were to be maintained by GSA. Since then, Congress has passed several laws to continue funding the centers, change the formula for funding the centers, and add new telework center locations. The legislative framework for telework also contains provisions that provide both GSA and OPM with lead roles in the implementation of telework in the federal government. As stated above, Pub. L. No. 106-346 directs OPM to provide that the requirements of the law are applied as specified with regard to the federal workforce. In addition, $500,000 of the money appropriated for OPM’s salaries and expenses for fiscal year 2003 is intended to be used by OPM to provide a telecommuting training program to educate managers in executive branch agencies, where less than 2 percent of employees telework, about the benefits and logistics of telework. According to OPM’s comments on a draft of this report, the agency plans to conduct focus groups for managers in four locations across the country this summer to identify reasons why some managers resist permitting telework. OPM plans to use the focus group data to tailor agency telework training. OPM indicated that it plans to train agencies’ human resources directors and telework coordinators and provide them promotional telework materials. Congress has also provided GSA with a lead role in the federal government’s telework initiative, giving the agency responsibility for maintaining the federal telework centers and the authority to provide guidance, assistance, and oversight regarding the establishment and operation of telework and other distributive work arrangements. Until recently, OPM had not defined a statement contained in its February 2001 guidance regarding the implementation of Pub. L. No. 106-346, which told agencies that employees who wanted to participate in teleworking must be allowed that opportunity. Without such a definition, we found that the agencies we reviewed did not use equivalent interpretations of this statement, resulting in their reporting incomparable data to OPM. These data were subsequently included in OPM’s 2003 report to Congress on the status of telework in the federal government. After we discussed this issue with OPM officials, OPM reacted promptly by issuing new guidelines that defined what it meant by allowing this opportunity. Our discussions with officials at the four agencies we reviewed and analysis of data in OPM’s January 2003 report to Congress revealed that, without a definition from OPM regarding what constituted being allowed the opportunity to telework, agencies had not always used equivalent interpretations of this statement in reporting their data. For example, telework program officials at both GSA and OPM told us that, for their internal programs, they considered eligible employees to have been allowed the opportunity to telework if they chose to apply for telework or discuss the option of teleworking with their managers, regardless of whether they were actually approved for telework. In keeping with this interpretation, these two agencies reported, in response to OPM’s 2002 governmentwide telework survey, that essentially the same number of employees who were eligible for telework had also been given that opportunity. On the other hand, Education and VA reported significant differences between the number of employees who were eligible for telework and those who were given the opportunity to telework, which demonstrated that they were using different interpretations of opportunity than GSA and OPM. Because these agencies were not applying equivalent interpretations of the term “opportunity,” the data that they provided in response to OPM’s survey and that OPM included in its report to Congress were not comparable across agencies. Moreover, OPM’s 2003 report to Congress showed these data as the number of eligible employees “offered” telework, although OPM had not made it clear, in either the survey or in its previously issued guidance, that agencies should interpret allowing the opportunity to mean directly offering eligible employees the option to telework. Furthermore, characterizing all agencies’ data in this manner is misleading because, as shown above, some agencies did not use that interpretation in reporting the data. We met with OPM officials in late April 2003 and informed them that the lack of a written definition of what OPM meant when it asked agencies to report how many eligible employees had been allowed the opportunity to telework had resulted in incomparable telework data. To its credit, OPM reacted promptly by defining the statement in a set of frequently asked questions that were distributed at its quarterly telework coordinators’ meeting on May 6, 2003, and in a new telework guide for managers, supervisors, and telework coordinators that was released 2 days later. Both the frequently asked questions and the guide indicate that agencies should offer eligible employees the opportunity to telework by having supervisors extend the option of teleworking to all employees they determine are eligible, using established criteria. To ensure that the information contained in the guide reaches all federal telework coordinators, an OPM official said that a hard copy of this guide would be mailed to each coordinator. In addition, the guide has been posted at www.telework.gov. OPM also further clarified the statement about allowing eligible employees an opportunity to telework by including a definition in the draft survey it plans to send to agencies in the fall to obtain data for its January 2004 status report to Congress. Immediately following our meeting with OPM officials, this draft survey was distributed at OPM’s May 2003 quarterly telework coordinators meeting. As in last year’s survey, respondents would be asked for the number of eligible employees given the opportunity to telework. However, the following additional wording has been proposed for that question: “How many eligible employees are given the opportunity to telework, i.e. are actively asked if they wish to telework or are able to telework because their supervisor informed them they could telework on some basis?” If this new definition is properly applied by all agencies in reporting data to OPM, this should address the issue we found. Also included in the draft survey are two new proposed questions related to allowing employees the opportunity to telework. These questions ask how employees were presented with the option to telework and how many turned it down. The steps taken by OPM in response to our findings show a ready willingness to address issues that are hindering telework implementation. Continued efforts by OPM to publicize these new telework guidelines will help to ensure that telework coordinators in federal agencies have a clear understanding of the information they need to fully implement their own telework programs. As discussed earlier, the legislative framework for telework has provided both GSA and OPM with lead roles in the implementation of telework in the federal government, providing each agency with responsibilities for the telework initiative. Given these responsibilities, GSA and OPM provide federal agencies with a range of services and resources related to this initiative. Table 1 summarizes their efforts in this regard. As shown in table 1, some of the services and resources are offered jointly by both agencies, while others are offered individually by both agencies or uniquely by either GSA or OPM. For example, each of these agencies independently provides consulting, marketing, and training services, but only OPM has undertaken an outreach effort to meet face to face with agencies’ telework coordinators and GSA has sole responsibility for federal telework centers. In addition, although a GSA official told us that GSA has been promoting its E-Connected Intelligent Remote Operations (EIRO) feature as a mobile solution for government agencies, we found that this feature was not functioning for a period of at least 5 months in 2003. According to its Web site, EIRO was supposed to have launched in March 2001 and was intended to offer services and products from GSA Federal Supply Schedules for mobile government work, including telework. The EIRO Web site also states that customers seeking mobile solutions could identify providers that are highlighted as EIRO contractors by the EIRO logo at “GSA Advantage!”, GSA’s online shopping and ordering system; however, a GSA official told us that this function was never operational. Also, although this official told us that EIRO had launched on schedule, from a period of at least January 2003 through May 2003, we observed that this feature was not functional. We asked numerous GSA officials about the status of this feature, but they were all unaware of the problems we were experiencing. In fact, one official told us that GSA had been promoting EIRO to federal agencies as if it were a functioning feature. Ultimately, a GSA official told us that changes to the agency’s Web portals must have disabled the EIRO feature and assured us that GSA is pursuing solutions to get it back online. Although GSA and OPM share responsibilities for the governmentwide telework initiative and a GSA official recently indicated that GSA and OPM have expressed a new commitment to working together, their past efforts did not always demonstrate coordination. According to officials at both agencies, GSA and OPM have not developed a Memorandum of Understanding or other formal agreement regarding their responsibilities for the federal government’s telework initiative or regarding which agency will provide specific services, resources, and guidance. Therefore, these agencies have not established a delineation of their respective roles. In comments on a draft of this report, GSA and OPM said that they have recognized the need to better outline separate and shared responsibilities and that a Memorandum of Understanding was among the options they were considering to clearly designate each agency’s responsibilities. Despite the fact that GSA and OPM hold quarterly partnership meetings to discuss telework-related issues in the federal government, officials from both agencies told us that very little coordination has occurred at these meetings. Rather, the meetings have actually served as a means to raise differences of opinion that have been identified by either agency, but the resolution of those differences has proven to be difficult. In addition, according to the GSA and OPM officials, these meetings are used to present updates on the status of the two agencies’ independent governmentwide telework efforts, not to collaborate on these efforts. On occasion, officials from each agency have asked officials from the other agency to provide comments on their independent draft guidelines or other information. In addition, a GSA official told us that agencies had expressed concern about conflicting messages they had received from GSA and OPM on several topics, including dependent care and emergency government office closings. For example, officials from both GSA and OPM confirmed that they had different positions with regard to dependent care. GSA’s position is that employees can care for dependents when teleworking, as long as it does not interfere with accomplishing tasks, while OPM’s position was, until recently, that dependents should not be in the home when an employee is teleworking. An OPM official told us that the agency held this position because having dependents in the home while teleworking could foster managerial resistance to telework. In its recently released telework guide for managers, supervisors, and telework coordinators, OPM revised its position on this issue, stating that a teenager or elderly dependent might be at home while the employee teleworks if those dependents are independently pursuing their own activities. It also said that teleworkers should not generally be engaged in caregiving activities while working and that dependent care arrangements should not typically change because the employee is teleworking. Also, despite the fact that both GSA and OPM shared responsibility for developing the governmentwide telework information Web site (www.telework.gov), a GSA official told us that OPM, which hosts the joint Web site, independently changed the layout and content of the site in late 2002 without consulting with or informing GSA about the changes. The GSA official also said that GSA subsequently met with OPM and the contractor that redesigned the site to try to resolve some of GSA’s concerns. According to the official, the contractor ultimately agreed with GSA and recommended that OPM make changes to the site, because it looked too much like an OPM site and not like the telework site for the entire federal government. While an OPM official confirmed this information, she said that OPM has rejected these changes because of “internal Web design policies.” In their combined comments on a draft of this report, however, GSA and OPM indicated that there was no disagreement regarding the Web site and that “both agencies continue to actively and successfully collaborate on www.telework.gov.” Furthermore, a GSA official told us that GSA had asked OPM to place a link to the Interagency Telework Issues Working Group report on the governmentwide telework Web site, but OPM had refused to do so, despite the fact that the working group was jointly formed by both agencies. An OPM official told us that OPM has been hesitant to post this report because many of its recommendations were directed at OPM and could not be readily implemented. In their combined comments on a draft of this report, however, GSA and OPM said that the two agencies had jointly determined it would be inappropriate to post the “pre-decisional” Interagency Telework Issues Working Group report on the federal telework information Web site until they had had the opportunity to analyze its findings, address issues contained therein, and fully consider all recommendations. GSA, though, has already independently posted this report on its own Web site with a disclaimer, stating: “This final report does not in any way, specific or implied, represent the official views, positions, or policies of the U.S. Government, OPM, GSA, nor any of the agencies participating on the Working Group. This report is currently under review by both OPM and GSA.” Given that GSA and OPM co-led this group with participation from 15 federal agencies to identify policy actions needed to facilitate agency use and expansion of telework and then make recommendations, we believe that the report should be posted on www.telework.gov, with the same or a similar disclaimer, in the interests of transparency. After we discussed the issues created by the lack of coordination between GSA and OPM with both agencies, a GSA official indicated that GSA and OPM expressed a new commitment to coordination, especially with regard to the governmentwide telework Web site. Such a commitment reflects a promising start for better assisting federal agencies in improved implementation of their telework programs. However, the key to success will be sustained efforts by both agencies to work together in assisting agencies and providing consistent and straightforward guidance, services, and resources on the governmentwide telework initiative. Conflicts that have arisen from the lack of coordination in the past underscore the need for GSA and OPM to work together to reach a formal agreement establishing a delineation of their respective roles regarding the governmentwide telework initiative in areas where their respective responsibilities are not clear. In areas where the responsibility is clearly aligned with the mission of a particular agency, that agency should be responsible for providing official guidance related to telework. However, the agencies should consult with each other and attempt to reach consensus in providing that guidance. Care should be taken to avoid situations in which agencies are either left without needed guidance or provided with conflicting guidance because GSA and OPM cannot reach agreement. We identified 25 key practices in telework-related literature and other sources as those that federal agencies should implement in developing their individual telework programs. For the purposes of analysis, we grouped the key practices into the following seven categories: program planning, telework policy, performance management, managerial support, training and publicizing, technology, and program evaluation. Based on our interviews with agency officials at four selected agencies—Education, GSA, OPM, and VA—and review of program documentation and other information related to those agencies, we then determined the extent to which the agencies had implemented each of the practices that were identified in developing their telework programs. While all four agencies we reviewed have taken at least some steps to implement most of the key practices, we found that only 7 of the 25 key practices had been fully implemented by all four agencies. Our analysis also revealed that almost half of the key practices had not been fully implemented by at least three of the four agencies, demonstrating a need for these agencies to focus greater attention on the remaining key practices to develop successful telework programs. Although some telework-related resources from GSA and OPM, including GSA’s telework implementation manual and OPM’s recently released telework guide for managers, supervisors, and telework coordinators, already provide federal agencies with information on how to implement several of the key practices we identified, agencies may need additional guidance, guidelines, and/or individualized technical support to fully implement these practices. Regular attention to the practices we identified can help to foster program growth and remove barriers to telework participation. Figure 2 illustrates the extent to which the agencies reviewed had implemented each of the practices. Importantly, the table above is intended to provide an overall summary of the history and status of the telework programs at the respective agencies. For some of the practices that are historical in nature, such as developing an implementation plan and establishing a pilot program, we recognize that agencies with existing telework programs cannot, and should not, attempt to implement these practices at this point. However, existing programs that did not initially implement some of the more developmental practices can still be successful with sustained attention to the other practices we identified. Below is a summary of the practices contained in each category and an overview of what we found for each practice. Appendix II also includes a detailed discussion of the steps each agency has taken to implement the practices. In planning for an effective telework program, agencies need to take several important steps. Agencies should designate a telework coordinator, establish a cross-functional project team, establish measurable telework program goals, develop an implementation plan for the telework program, develop a business case for implementing a telework program, provide funding to meet the needs of the telework program, and establish a pilot program. As shown in figure 2, our analysis of the telework programs at the four agencies reviewed revealed that only two of the seven practices in the program planning category—designating a telework coordinator and establishing a cross-functional project team— have been fully implemented by all of these agencies. The remaining five practices, including establishing measurable program goals and providing funding to meet the needs of the telework program, still need to be implemented by some or all of the agencies. According to Pub. L. No. 106-346, agencies must establish a telework policy that allows eligible employees to participate in telework. Telework-related literature suggests that, in addition to or within an agencywide telework policy, agencies should establish eligibility criteria to ensure that teleworkers are selected on an equitable basis using criteria such as suitability of tasks and employee performance; establish policies or requirements to facilitate communication among teleworkers, managers, and coworkers; develop a telework agreement for use between teleworkers and their managers; and develop guidelines on workplace health and safety issues to ensure that teleworkers have safe and adequate places to work off-site. As shown in figure 2, our analysis indicates that two of the five practices in this category, including establishing an agencywide telework policy, have been fully implemented by all of the agencies. The remaining three practices, including establishing eligibility criteria to ensure that teleworkers are selected on an equitable basis, still need additional attention to be fully implemented by some or all of the agencies we reviewed. Our recent work identified key practices that high-performing organizations need to employ to develop effective performance management systems. Such a system should be designed, implemented, and continually assessed by how well it helps the employees help the organization achieve results and pursue its mission. Using standards derived from a modern, effective, credible, and validated performance system, telework-related literature suggests that agencies need to take steps to ensure that the same performance standards are used to evaluate both teleworkers and nonteleworkers. In addition, agencies need to establish guidelines to minimize adverse impacts that telework can have on nonteleworkers before employees begin to work at alternate worksites. Figure 2 shows that two of the four agencies we reviewed have taken some steps to implement the practice of setting the same performance standards for teleworkers and nonteleworkers and three of the four agencies had fully implemented the practice of establishing guidelines to minimize adverse impacts of telework on nonteleworkers. Telework-related literature has shown that it is critical to obtain support from top management and to address managerial resistance in establishing an effective telework program. As our earlier work has shown, and others recognize, changes in an organization’s culture, such as the acceptance of flexibilities like telework by managers throughout the organization, are highly dependent on top management’s support for and commitment to those changes. In addition, our 1997 report on agencies’ policies and views on telework in the federal government identified managerial resistance as the largest barrier to implementing telework. This resistance can be attributed to several factors, including general resistance to change, since telework requires managers to shift from managing by observation to managing by results. However, as shown in figure 2, both of these practices still need attention by most of the agencies we reviewed. Because telework involves new ways of working, as well as supervising, telework-related literature suggests that both employees and supervisors should receive training to ensure a common understanding of the program. The Interagency Telework Issues Working Group report highlighted the need for telework training in its report. In addition, the report states that telework training should consist of two key components. One of these components should address policy issues and include general information, such as policy updates and an orientation to telework, while the other component should focus on telework program activities, including such topics as information technology (IT) applications, performance management, and time management. Telework-related literature also suggests that it is important to inform the workforce about the telework program. Despite their importance, figure 2 illustrates that both of these practices still need attention by some or all of the agencies we reviewed. OPM’s January 2003 report to Congress on the status of telework in the federal government identified data security and IT issues as the two most frequently cited barriers to telework, as reported by federal agencies. In addressing technology barriers, telework-related literature suggests that agencies should conduct an assessment of teleworker and organization technology needs; develop guidelines about whether the organization or employee will provide necessary technology, equipment, and supplies for telework; provide technical support for teleworkers; address access and security issues related to telework; and establish standards for equipment in the telework environment. Generally, as shown in figure 2, the four agencies we reviewed did better in this category than in any other. One of the agencies—Education—has fully implemented all of the technology practices and the other three agencies each have only one practice out of the five that had not been fully implemented. However, given the rapidly changing nature of technology and the fact that, in OPM’s 2002 telework survey, many agencies governmentwide identified data security and IT as barriers to growth in their telework programs, federal agencies should provide specific and ongoing attention to these technology practices. Telework-related literature recommends that agencies develop program evaluation tools and use such tools from the very inception of the program to identify problems or issues with the program and to develop an action plan to guide any necessary changes for telework or for the organization. The literature also emphasizes the need for tracking systems that can help to accurately ascertain the status of telework implementation in the agencies and, subsequently, the federal government. Such a tracking system should include, at the very least, a formal head count of regular and episodic teleworkers, as well as nonteleworkers. To this end, the Interagency Telework Issues Working Group report recommended that OPM require all federal agencies to establish a system for collecting the information that OPM requests for its annual report to Congress on the status of telework in the federal government. It further recommended that OPM provide agencies with the necessary specifications, guidance, and technical assistance to establish these systems. Despite the fact that accurate data are absolutely integral to assessing the status of a telework program and identifying areas that require additional attention, figure 2 shows that none of the agencies we reviewed have fully implemented the practice of establishing processes, procedures, and/or a tracking system to evaluate their telework programs. In addition, all of the four agencies still need to take at least some steps to fully implement the practice of identifying problems and/or issues with their telework programs and making appropriate adjustments. In addition to the key practices we identified as being integral to developing successful federal telework programs, we asked agency program officials and union representatives at GSA, Education, OPM, and VA for their views on what governmentwide actions could be taken to increase telework participation in federal agencies. We also spoke with officials representing federal employees governmentwide, such as the National Treasury Employees Union and the National Federation of Federal Employees, to obtain their views on potential governmentwide actions. In addition, OPM’s November 2002 telework survey asked agencies about what OPM’s governmentwide telework initiative could do to assist agencies in fully implementing telework policies. Some agency and union officials identified governmentwide actions that are closely related to the key practices we identified, such as the need for funding of telework programs, the need for training, and the importance of obtaining top-level support for telework. In addition, several officials identified the need for GSA and OPM to provide more guidance or information about telework and the need for clarification regarding the implementation of the telework provisions in Pub. L. No. 106-346. In particular, agency officials identified a need for additional guidance related to their data reporting and collection methods for OPM. Two agency officials stated that OPM has changed the data that it requests from agencies from year to year, which has made it difficult for them to establish systems to collect the necessary data. Telework has received significant attention in Congress and the executive branch and is an increasingly popular flexibility among federal employees. Not only is telework an important flexibility from the perspective of employees, but it has also become a critical management tool for coping with potential disruptions to the workplace, including terrorism. However, the federal government’s telework initiative needs further development to become an effective human capital flexibility. Congress’ most significant demonstration of support for telework was the enactment of Section 359 of Pub. L. No. 106-346. In guidance related to that law, OPM told agencies that eligible employees who wanted to telework must be allowed that opportunity, but did not provide a definition for what constituted such an opportunity. Although the lack of a definition for that statement resulted in the reporting of incomparable telework data to Congress, OPM promptly released publications defining the previously ambiguous statement following a discussion in which we highlighted this issue for OPM officials. On the other hand, the relationship between two other provisions—one that requires specified agencies to set aside $50,000 each year for the use of GSA telework centers and one that prohibits some of the same agencies and several others from spending funds on GSA telecommunication centers—remains in need of clarification. Although GSA telework centers are not known by the term “GSA telecommunication centers,” GSA officials believe that this term does in fact refer to GSA telework centers. Despite this belief, it has not been made clear to all applicable agencies that the provision prohibiting certain agencies from spending appropriated funds on GSA telecommunication centers applies to GSA telework centers. This was supported by the fact that two of the relevant agencies used appropriated funds for GSA telework centers in fiscal year 2002, even though the provision prohibiting them from spending appropriated funds on GSA telecommunication centers was in effect. Although GSA and OPM are lead agencies for the governmentwide telework initiative, they have not fully coordinated their efforts in leading the governmentwide telework initiative and have had difficulty in resolving their conflicting views on telework-related matters. This lack of coordination created confusion for federal agencies in implementing their individual telework programs. Both GSA and OPM officials recently indicated a willingness to work together to resolve this issue, but sustained attention and actions that result in actual solutions will still be needed. In addition, the key telework practices we identified are integral to the success of the telework initiative in the federal government and need to be considered individually by each federal agency within the context of its own mission, programs, and telework programs. However, as our work at four agencies has shown, agencies face numerous difficulties in implementing their individual agency programs. Regular attention by agencies to the key practices is important to foster program growth and remove barriers to telework participation. We recommend that the Administrator, GSA, work with Congress to determine what was meant by the phrase “GSA telecommunication center” in Section 314, Division F, title III of Pub. L. No. 108-7 and whether this provision is in conflict with the provision contained in 40 U.S.C. 587(d)(2). Once these determinations are made, GSA should issue guidance to the relevant agencies to clarify these provisions and explain the impact of these laws on agencies’ telework programs. We also recommend that the Administrator, GSA, and the Director, OPM, ensure that the offices in their agencies with responsibilities for the governmentwide telework initiative improve coordination of their efforts to provide federal agencies with consistent, inclusive, unambiguous support and guidance related to telework. To do so, they should clearly delineate their responsibilities for this initiative and work together to resolve existing areas of difference. The Memorandum of Understanding that the agencies are considering could be very helpful in making progress on this key issue. Furthermore, to enable agencies to more effectively implement the key practices that we identified as those that should be used for successful implementation of federal telework programs, we recommend that the Administrator, GSA, and the Director, OPM, use their lead roles in the federal telework initiative to assist agencies in implementing these practices. Using the key telework practices, GSA and OPM should identify areas where more information about implementation of the practices may be needed and provide agencies with the additional guidance, guidelines, and/or individualized technical support necessary to assist them in implementing those practices that are still in need of attention. Additionally, OPM agreed with a recommendation included in our recent report for OPM to serve as a clearinghouse in sharing and distributing information about the broad range of human capital flexibilities available to federal agencies. In implementing that recommendation, OPM should include information about telework, because it is such a flexibility. To provide agencies with the capabilities to effectively implement telework, both GSA and OPM should continue to monitor agencies’ telework programs and align their efforts with areas that are still in need of attention. We provided a draft of this report in June 2003 to the Secretaries of Education and VA, the Administrator, GSA, and the Director, OPM. The Director of Human Resources Services from Education provided comments via e-mail (see app. III for a summary of these comments). In addition, we received written comments from the Secretary, VA, and joint written comments from the Administrator, GSA, and the Director, OPM, in response to a draft of this report (see app. IV and V). Where appropriate, we made changes in our report in response to these comments. In its comments, Education generally agreed with the contents of the draft report and stated that the department was pleased that we recognized its efforts to advance telework. Additionally, the comments stated that the department’s “most significant comment” was, as our draft noted, the need for a clear, unambiguous, and universally accepted definition for what it means to allow employees the opportunity to telework. VA agreed with our conclusion that there is a need for further guidance and assistance from GSA and OPM regarding federal telework implementation and suggested two areas where such guidance would be helpful. Specifically, VA indicated that OPM needs to redefine participant eligibility criteria and that OPM and GSA should provide guidance on how to effectively use telework in emergency situations. In addition, VA expressed concern that the draft report, which stated that we used participation rate as one of the criteria used in our selection of agencies, did not recognize that VA’s mission is a significant factor accounting for its limited telework participation rate. VA also disagreed with several of our findings related to the status of VA’s implementation of the telework practices we identified. However, when we asked for documentation to support the statements that VA made in its comments, VA was unable to provide such information. Absent any evidence that would support VA’s comments, our assessment remains unchanged. In their combined comments, GSA and OPM agreed that telework is an important tool for federal agencies and stated that they would encourage and champion telework as a key human capital flexibility and do everything possible to facilitate its acceptance and use. The agencies also agreed to implement our recommendation that they use their lead roles in the federal telework initiative to assist agencies in implementing the key telework practices we identified. In this regard, GSA and OPM stated that they will provide agencies with a checklist of the practices we identified and recommend that agencies do a self-assessment of their telework programs using our analytical framework. Both GSA and OPM will then offer to help agencies to improve in the identified areas of deficiency. OPM will also include the key telework practices that we identified in telework training, which, as we had noted in the draft report, is being developed for launch on its Web-based training site during fiscal year 2003. In addition, GSA agreed with our recommendation that it work with Congress to determine what was meant by the phrase “GSA telecommunication center” in Section 314, Division F, title III of Pub. L. No. 108-7 and whether this provision is in conflict with the provision contained in 40 U.S.C. 587(d)(2). GSA stated that it will coordinate internally and with the appropriate congressional committees to resolve the conflicting language in the statutes and then provide clarification to its customer agencies. On the other hand, both GSA and OPM disagreed with several of our findings relating to their lead roles in the governmentwide telework initiative. For example, GSA and OPM strongly disagreed with our finding that they have not fully coordinated their governmentwide telework efforts in the past. This contradicts information that was conveyed to us by agency officials during our review. However, we have added to the report, where appropriate, to reflect the agencies’ new position on the issue of coordination. Interestingly, despite the fact that GSA and OPM disagreed with our finding relating to coordination, the agencies also said in their comments that they have recognized the need to better outline separate and shared responsibilities and that a Memorandum of Understanding was among the options they were considering to clearly designate each agency’s responsibilities. OPM also raised a number of issues with our analysis of its internal telework program. In its comments, OPM stated “ach comment listed was conveyed to GAO during the interview process.” On the contrary, OPM’s comments, for the most part, contain new information and/or information that does not correspond with what was conveyed to us by OPM officials during our review. Much of this information contradicts what was conveyed to us by agency officials during our review. However, we have changed the report where appropriate to reflect OPM’s new positions on some issues. GSA did not disagree with our findings pertaining to its internal telework program. However, the agency did note several areas where it would like us to revise statements relative to its implementation of the key practices we identified. We considered these comments and incorporated new language into the report where appropriate. As agreed with your office, unless you announce the contents of this report earlier, we plan no further distribution until 30 days after its issue date. At that time, we will send copies to the Secretary of Education, the Administrator of GSA, the Director of OPM, and the Secretary of VA. We will also provide copies of this report to other interested congressional parties and make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me or Boris Kachura on (202) 512-6806. Key contributors to this report were Joyce Corry, Ellen Grady, Tiffany Tanner, and V. Bruce Goddard. The objectives of this report were to characterize the federal laws and their requirements that currently apply to telecommuting within the federal agencies in the executive branch; determine what the General Services Administration (GSA) and the Office of Personnel Management (OPM) are doing, as lead agencies, to coordinate and promote telecommuting in the federal government; determine what selected federal agencies are doing to implement key practices in developing telecommuting programs; and identify additional governmentwide actions that could be taken to encourage federal agencies to increase telecommuting participation. To address these objectives, we gathered information from a variety of sources using several different data collection techniques and analyzed this information. In order to characterize the federal laws and their requirements that currently apply to telecommuting within the federal agencies in the executive branch, we identified and analyzed the relevant laws and discussed the requirements of selected laws with agency officials. To determine what GSA and OPM are doing to coordinate and promote telecommuting in the federal government, we interviewed GSA and OPM officials regarding their governmentwide telework efforts and analyzed relevant documents related to these efforts. We took several steps to determine what selected executive agencies are doing to implement key practices in developing telecommuting programs. First, we conducted a review of literature and guidelines related to telework in the federal government to identify the key practices that executive agencies should implement in developing telework programs. These guidelines and this literature were obtained from both government and nongovernment sources including studies and reports issued by interest groups, associations, consulting firms, GSA, OPM, and other federal government agencies. A practice was considered to be “key” if it was recommended in three or more sources as a practice that organizations should use in implementing a telework program. After identifying the key telework practices, we conducted semi-structured interviews of selected telework program officials and other relevant agency officials and analyzed documents related to telework implementation at four agencies—the Department of Education (Education), GSA, OPM, and the Department of Veterans Affairs (VA). These agencies were selected from the 24 executive agencies covered by the Chief Financial Officers (CFO) Act of 1990 for various reasons, including function, size, and reported level of telework participation. GSA and OPM were selected because of their lead roles in the governmentwide telework initiative. In addition, OPM was reported to have the highest telework utilization rate among the CFO Act agencies. Education was included because its reported utilization rate was the second highest among the CFO Act agencies. VA was selected based on its distinction as the second largest CFO Act agency combined with its having the lowest reported telework utilization rate among the CFO Act agencies. This agency selection process was not designed to produce findings that could be considered representative of telework implementation in the federal government as a whole, but rather to provide illustrative examples of the extent to which selected individual agencies with varied sizes, reported utilization rates, and missions had implemented the key practices identified in our literature review. We interviewed officials and union representatives from the four selected agencies to obtain their views on additional governmentwide actions that could be taken to encourage federal agencies to increase telecommuting participation. In addition, we contacted other unions representing federal employees, including the National Treasury Employees Union, the American Federation of Government Employees, and the National Federation of Federal Employees, to solicit their views on such additional actions. (Officials for the American Federation of Government Employees did not respond to our request.) Our work was conducted from May 2002 through May 2003 in accordance with generally accepted government auditing standards. We identified 25 key practices in telework-related literature and other sources as those that agencies should implement in developing their telework programs. This appendix contains descriptions of how the four agencies reviewed—the Department of Education (Education), the General Services Administration (GSA), the Office of Personnel Management (OPM), and the Department of Veterans Affairs (VA)—are implementing each practice. Although attention to each of these practices is integral to the success of the federal telework initiative, the four agencies we reviewed have not fully implemented many of them. Regular attention to the practices can help to foster program growth and remove barriers to telework participation. Telework resources provided by both GSA and OPM in their roles as lead agencies for the federal telework initiative state that, in implementing their telework programs, federal agencies need to designate agency telework coordinators and contacts. All four of the agencies in our study have a designated telework coordinator. At Education, the coordinator works on the agency’s telework program full time. At the other three agencies, the telework coordinator has other responsibilities in addition to telework. Our 2002 report on the effective use of flexibilities identified stakeholder input as a key practice for effectively using human capital flexibilities, such as telework. According to this report, agency leaders, managers, employees, and employee unions need to work together to develop policies and procedures, because such involvement helps in reaching agreement on the need for change, the direction and scope that change will take, and how progress will be assessed. Stakeholder input should also be used to ensure that the policies surrounding the use of flexibilities are clear and the procedures to implement them are uncomplicated. Telework-related literature suggests that stakeholder involvement should be obtained by establishing a committee with members from human resources, information management, risk management, facilities management, and senior management, as well as employee and union representatives. All four of the agencies we reviewed established cross-functional project teams in implementing their telework programs. According to the International Telework Association and Council’s (ITAC) e-Work Guide, research conducted by the American Management Association in 2000 indicated that “68 percent of ‘highly successful’ telework programs felt it was ‘critical’ to develop clear and reasonable program objectives for their program” and another 27 percent considered it to be helpful. None of the four agencies we examined have taken any steps to implement this practice. In comments on a draft of this report, both OPM and VA said they had established measurable telework program goals. However, neither agency was able to provide documentation of such goals. Therefore, our assessments of these agencies on this practice remain unchanged. Guidelines issued by OPM in its capacity as a leader of the governmentwide telework initiative suggest that agencies should establish a strategic plan with definitive timelines to accomplish implementation of telework including an evaluation tool. The ITAC e-Work Guide states that such a plan should include, at a minimum, objectives and how their achievements will be measured; definitions and policy details; a business case, including start-up and ongoing costs; a technology plan; and an implementation plan. Two of the agencies reviewed, Education and OPM, have fully implemented this practice in their internal telework programs, while VA has not taken any steps to implement this practice. However, in comments on a draft of this report, VA said that it had developed an implementation plan for the telework program. When we requested documentation of such a plan, VA responded that, in fact, it did not establish an implementation plan for its current telework policy. Therefore, our assessment of VA on this practice remains unchanged. During our review, GSA’s telework coordinator told us that there was not a written implementation plan for the telework program when it was first started. However, in comments on a draft of this report, GSA indicated that it had an implementation plan that was utilized 10 years ago when the program was first developed, but this plan was not kept in the files, because it was no longer in use. Therefore, we were unable to assess GSA’s implementation of this practice, and have modified the report accordingly. ITAC’s e-Work Guide states that “successful telework programs reside in organizations that understand why they support telework, address the relevant issues, minimize business risk and make the investment when it supports their objectives.” To achieve such success, the guide recommends that organizations develop business cases for implementing telework programs. The April 2002 report issued by Booz Allen Hamilton on home-based telework technology barriers also recommends that agencies develop business cases for implementing telework in their organizations, because such an approach has proven effective in engaging management on the benefits of telework to an organization. Through business case analysis, organizations have been able to identify cost reductions in the post-telework office environment that offset additional costs incurred in implementing telework and the most attractive approach to telework implementation. Of the four agencies we reviewed, Education was the only agency to have taken some steps to implement this practice. A program official at this agency said that she has developed a PowerPoint presentation of a business case for implementing a telework program at Education. However, she has never actually given this presentation to anyone at Education. Telework-related literature suggests that agencies should incorporate requirements for home-based telework into their IT capital planning and budgeting processes and provide for consistent allocation of the resources necessary to establish telework arrangements, such as the equipment and technology needed for remote access to agency networks. However, providing funding to meet the needs of the telework program is a practice that the four agencies have only partially implemented. Under the provisions of 40 U.S.C. 587(d)(2), the only legislated funding for telework programs that applies to the executive agencies that we reviewed, specified agencies are to make at least $50,000 of the funds appropriated for salaries and expenses available each fiscal year for their employees’ use of GSA telework centers. However, the agencies covered under this legislation are not required to spend the money made available. While this provision pertains to all four of the agencies in our study, neither VA nor OPM actually spent at least $50,000 for telework center use in fiscal year 2002. In contrast, both Education and GSA spent more than this minimum set aside. Although VA’s telework policy states that the agency’s telework assignments may be established at community-based telework centers when determined to be consistent with the agency’s mission, a program official said that VA generally does not choose to support use of the centers. In fiscal year 2002, VA spent only $6,800 for two users at one telework center. OPM’s expenditures for telework center use in that year were about $36,400. At Education, the telework program requests at least a 10 percent increase in funds to be made available each year over those requested the preceding year. For example, for fiscal year 2002, $82,000 was requested and approved, while for fiscal year 2003, $125,000 was requested and approved. An Education program official said that the 2003 request was much greater than the 2002 request because, in 2002, the agency actually spent over $87,000 for use of the centers and the demand was far greater than she had anticipated or could fund. The expenditures for telework center use at GSA in 2002 were about $97,000. In addition to the funds made available for employees to work at telework centers, each of the four agencies pays the salaries of telework coordinators. In its comments on our draft report, GSA said that it did not have a central telework fund. Instead, it said that individual organizations within GSA provided their own funding for telework. We had considered this information in our assessment of GSA’s level of implementation of this practice. OPM said in its comments that the agency funds staff time to provide oversight and evaluation for the telework program, as well as outreach and program promotion, but it is not clear whether such funding would go beyond the already cited salary payment for OPM’s part-time telework coordinator or would even be related to OPM’s internal telework program as opposed to OPM’s governmentwide efforts. In addition, OPM stated that it had identified resources to accommodate “every employee (who is otherwise eligible and wants to telecommute) with appropriate computer equipment, technology support, and remote connections.” However, OPM did not provide documentation of this funding. Also, an IT official at OPM said that there were times that the agency has been short on the older computers it loans to teleworkers. He said that the people who absolutely need to telework get computers immediately, if they require one, but that people who would like to telework, but do not have a “need” to do so, have had to wait to begin teleworking until computers became available. According to this IT official, managers usually make the decision about whether telework is a “need,” although employees will sometimes decide for themselves that it is not necessary for them to telework. Given these considerations, we did not change our assessment that GSA and OPM had taken some steps to implement this practice. Beyond these situations, the four agencies have not directly allocated other funds to meet the functional needs of their telework programs. Moreover, both Education and VA cited funding as a major barrier to their agencies’ telework programs in their responses to OPM’s November 2002 telework survey. Education’s response also characterized telework as an unfunded mandate that agencies had to support with funds from their appropriations for salaries and expenses. Establishing a Pilot Program Booz Allen Hamilton’s April 2002 report on barriers to home-based telework stated that well-structured pilot programs have led to successful telework programs. Guidelines issued by Commuter Connections, a program coordinated through the Metropolitan Washington Council of Governments, suggests that a telework pilot program may be the best way to prove the concept and test the integration plan by demonstrating effects on performance and productivity, evaluating policies and procedures, testing remote access and technology support, identifying resource requirements, evaluating new workplace concepts, testing training effectiveness, and evaluating manager-team-remote worker relationships. Of the four agencies we reviewed, only Education had a pilot related to the implementation of its agencywide telework program. Although GSA and OPM did not have individual pilot programs for their internal telework programs, both agencies were involved in the year-long governmentwide telework pilot program that was implemented in 1990. In comments on a draft of this report, VA said that it had two pilot programs. However, when we requested documentation of a pilot relating to implementation of its current program, VA responded that, in fact, it did not conduct a pilot program for its current telework policy. Therefore, we did not change our assessment of VA on this practice. OPM’s January 2003 report to Congress stated that of the 77 reporting agencies, 63 reported having approved and implemented their telework policies, 9 were in the process of policy development, 3 were in the implementation stages, and 2 reported no policies or policy development activity. All 4 of the agencies in our study have implemented telework policies and, according to agency officials at all of these agencies, they have given some consideration to updating their policies to reflect changes within the agency and more recent trends in telework. At VA, a program official provided us with a draft for an updated policy, which was developed to modernize the agency’s policy and expand the eligible population at VA. According to this official, the draft policy was going through the approval process at that time. Program officials at all 4 of the agencies told us that revisions to their policies would involve obtaining union input on those revisions. Telework program officials at GSA and OPM said that reaching such agreement with the unions can take a year or more. Several telework-related sources have emphasized the need for eligibility criteria to ensure that teleworkers are selected on an equitable basis. Most of these sources advise that these criteria should be based on the suitability of both the tasks and the employee for telework. According to the Interagency Telework Issues Working Group report, criteria for determining the suitability of the employee should be based on objective criteria that are equitable, reasonable, and clearly stated and not on general personal characteristics that are assessed using subjective measures, such as being organized, conscientious, highly disciplined, and a self-starter. The report went on to say that using such criteria can lead to subjective supervisory assessments, which can inaccurately or inappropriately impede telework participation. To address this concern, the report recommended that OPM establish a policy that all federal employees are potentially eligible to participate in telework, unless excluded by their agency based on objective criteria that are supportive of the intent of the telework requirements in Public Law 106-346. The group also recommended that OPM require each individual agency to identify and define, in its telework policy, positions excluded from telework arrangements, based strictly on tasks performed in the excluded positions. Education has included eligibility criteria in its policy that are similar to those that the Interagency Telework Issues Working Group cautioned against using. Education’s policy states that an employee who is suitable to telework should exhibit self-starter characteristics, good organizational skills, and the ability to function independently. Education and OPM also require that teleworkers are performing at or above a specified rating level such as “fully successful.” In addition, OPM’s telework policy states that employees approved for telework should be able to manage workloads with minimum supervision and that generally, telework is not appropriate for new employees such as those who need to be in the office to learn the organization and those who require on-the-job training. GSA’s policy does not include eligibility criteria, but states that criteria for selecting occupations and employees for telework are not hard and fast rules. However, the policy also refers to a separate GSA Office of Human Resources document for selection factors particularly relevant to telework. A GSA program official said that she had been trying to locate that document for a while, but to date has not been able to do so. VA’s current policy includes eligibility criteria based solely on position classifications. However, a VA program official acknowledged that there is variation in the application of eligibility requirements among parts of that agency, given the subjective nature of the approval process. She added that the proposed revisions to VA’s current policy would require supervisors to give reasons for denial on the application form, which she hoped would provide needed information to help assess equitable treatment. Because none of the four agencies have yet taken steps to ascertain whether teleworkers are being selected on an equitable basis, these agencies cannot ensure that their eligibility criteria are being applied equitably. Although telework-related sources suggest that establishing policies or requirements to facilitate communication among teleworkers, managers, and coworkers is helpful in addressing managerial concerns about telework, teleworker isolation, and morale issues that may arise with nonteleworkers, two of the four agencies, Education and OPM, have fully implemented this practice. Education’s telework policy states that supervisors should ensure that efforts are made to include teleworkers as part of the team in order to reduce employee isolation and communication problems, and to facilitate integration of the employee with those in the office. As a means of accomplishing this, the policy recommends that teleworkers plan to work from the office at least 1 day per week in order to be available for meetings or anything that needs to be handled face-to-face and on days when staff meetings are scheduled. The policy also suggests that developing fixed times during the day for supervisor/employee telephone conversations may be helpful to ensure ongoing communication. OPM’s policy also includes language about the importance of communication and recommends that employees plan to be in the office at least 1 day per week. In addition, OPM’s policy states that the telework agreement must include means of communication with the employee when telecommuting (phone, fax, e-mail, etc.). OPM’s alternate worksite agreement includes an area specifically addressing assignments and communication. It says that the information provided in the designated space “should include work assignments, agreements on checking voice mail and email or contacting the supervisor as well as the requirement for employees to come into the office as needed.” While program officials at GSA and VA acknowledged that communication was an important issue, the telework policies at these agencies did not establish means of facilitating communication. Telework-related literature recommends that agencies develop a telework agreement to be signed by both teleworkers and their supervisors. According to ITAC’s e-Work Guide, such an agreement should establish job duties and expectations, performance standards, and measurable outcomes and deliverables. All four agencies reviewed have developed telework agreements, but have different requirements for their use. For example, GSA does not require the use of these agreements for ad hoc telework arrangements. In contrast, OPM’s telework policy states that “employees must sign a work agreement with their supervisor.” Despite this requirement, an OPM program official told us that this does not always happen in practice and she does not require them to do so. However, she does accept e-mail agreements between employees and supervisors when she receives them. Telework-related literature describes several means for employers to ensure that teleworkers have safe and adequate alternate workplaces. These include specifically addressing health and safety issues related to telework in policies, including health and safety issues in telework training, having teleworkers fill out a safety checklist, and performing on-site inspections with adequate notice to the teleworker. Three of the four agencies we reviewed, Education, GSA, and OPM, have developed safety checklists, which are to be completed along with the telework agreement, to ensure that teleworkers have certified the safety of their alternate workplaces. However, Education is the only agency that requires all teleworkers to complete and sign such a checklist before they begin teleworking. GSA includes a safety checklist with the telework agreement, but episodic teleworkers are not required to complete an agreement or, therefore, a checklist. OPM’s telework policy recommends that the telework agreement include a safety checklist, but such a checklist is not required. According to a program official from VA, the agency’s current policy does not contain health and safety guidelines, but the revised draft policy, which is currently going through the agency’s approval process, includes a safety checklist. Although none of the agencies have fully implemented the practice of ensuring that the same performance standards are used to evaluate both teleworkers and nonteleworkers, Education and OPM have taken some steps to implement this practice. Education’s telework policy states that employees participating in the telework program shall be treated equally with other employees in decisions that affect conditions of employment for awards, promotions, and/or any other condition of employment. A program official at OPM said that work performed by teleworkers is supposed to be evaluated using the same performance standards used for nonteleworkers and that managers are supposed to communicate this. Although such a statement was not included in OPM’s telework policy, the policy does state that the employees’ current performance standards will be used to govern all telecommuting assignments as well as those in the telecommuters’ current traditional federal offices. A GSA program official told us that the agency incorporated this concept into its telework policy and reiterated it in counseling sessions with managers and staff. We did not find any support of this in GSA’s policy, although it did indicate that “ime spent and quality of products will be measured by correlation with previous and similar efforts.” VA’s current telework policy does not contain any statements related to using the same performance standards for both teleworkers and nonteleworkers. In comments on a draft of this report, VA stated that the department consistently advises supervisors and managers that performance standards for teleworkers and nonteleworkers should be the same. However, VA could not provide us with any information to support this comment. In fact, VA responded that it provides such advice “on an as-requested basis,” which does not constitute “consistently advising.” Therefore, our assessment of VA on this practice remains unchanged. Telework-related literature suggests that performance and morale issues can arise if guidelines are not established to address and minimize adverse impacts of telework on nonteleworkers. The literature describes several issues that can contribute to such issues among nonteleworkers, including eligibility criteria that are perceived as unfair and cause nonteleworkers to feel left out or discriminated against, teleworkers that allow their in-office responsibilities to fall on the shoulders of nonteleworkers, and reduced communication between the teleworker and nonteleworker. To mitigate these situations, care should be taken to establish fair and equitable eligibility criteria and means of distributing work. Three of the four agencies, Education, OPM, and VA, have fully implemented this practice by including specific guidelines in their policies. Education’s telework policy states that telework should not affect the performance of other employees and that it shall not put a burden on staff remaining in the office. It also says that an equitable distribution of work must be maintained and methods should be instituted to ensure that employees working in the office do not have to handle the teleworker’s work. OPM’s policy says that supervisors should consider the effect of telework on all employees in the work unit, especially if it means there are fewer employees in the office to handle customer requests. At VA, supervisors are charged with ensuring that participating and nonparticipating employees are treated equitably. According to a program official at GSA, the agency’s policy sets out guidelines for effective use of telework, including that a unit should use whatever systems it deems necessary to ensure that there is a balance of work between those teleworking and those in the office. However, we did not see any support of this in GSA’s policy. Although program officials from all four agencies recognized support from top management as being critical to the success of a program such as telework, a program official at OPM was the only one to state, unequivocally, that telework has the full support of that agency’s top management. She said that the agency’s director leads by example, since she and various members of her staff telework. The director has also demonstrated support by sending e-mails encouraging telework in response to certain events, such as Green Day. A GSA program official believes support for telework from that agency’s top management has varied by administration. However, she said that, although the current administrator has not made a statement specifically supporting telework, he has made several overtures in support of the program, including teleworking occasionally himself, supporting GSA’s promotional free trial offer for use of the telework centers, and attending meetings related to telework. Officials at the other two agencies cited lack of support from top management as a challenge in implementing the telework program. An Education program official also specifically discussed the difficulties that frequently changing administrations and leadership can create because of having to repeatedly work to overcome the barriers that new top managers bring to the agency. Our 1997 report identified managerial resistance as the largest barrier to implementing telework, attributing it to several factors, including general resistance to change, since telework requires managers to shift from managing by observation to managing by results. Officials from three of the four agencies that we spoke with—Education, GSA, and VA—also cited this as a challenge that they face and identified it as a barrier to telework in their responses to OPM’s November 2002 telework survey. Current and former program officials at OPM stated that managers at that agency do not exhibit signs of managerial resistance to telework and thus this practice has been fully implemented. A former program official directly linked the presence of top management support for telework at OPM to the prevention of managerial resistance, because managers were told that they have to allow telework and that they must give a business case for rejecting an employee’s request to telework. Program officials at two of the agencies presented some ideas for addressing managerial resistance. A VA program official would like to bring in outside consultants to hold an information forum or educational briefings for supervisors and managers, which would tie telework to the shift from the industrial age to the information age and walk managers through the process of approving a telework arrangement. VA’s draft Telework Proposal form, included in its revised draft telework policy, will help to address managerial resistance, if it is implemented in its current form, by requiring that supervisors provide a written reason if a telework application is not approved. In its response to OPM’s 2002 telework survey, VA also said that it is using initiatives to gain top management support to overcome barriers that include managerial resistance. According to a program official, GSA has considered handling the approval process for telework agreements by committee instead of by individual supervisors as a means of alleviating managerial resistance, but this has not yet happened because of managerial resistance to such a change. Three of the four agencies that we reviewed provide some telework training. At Education, training for teleworkers is mandatory before they can begin to telework. Training is available at monthly training sessions, by telephone, or by requesting the telework coordinator’s training slides. These training opportunities are also available, but optional, for managers and nonteleworkers. GSA’s telework policy states that new program participants, including employees and immediate supervisors, must receive training except for those participating in episodic arrangements. However, a program official said that while GSA trained all employees when its telework program was first implemented, currently the agency only does occasional briefings on the telework program, usually in town hall meetings or on an as-needed basis with individuals. A former program official at OPM told us that all managers were required to attend telework briefings when the program first started in 2001. These sessions addressed performance management, office coverage and work unit issues, equipment issues, providing business reasons for denials, and handling Privacy Act implications. Other employees were offered the opportunity to attend briefings about the roles and responsibilities of a teleworker, but they were not required to attend. However, a current OPM program official told us that the agency does not currently offer telework training, that there has been no discussion of offering such training, and that she does not see a need for it at this time. Although a program official at VA believes training is very important and is critically needed for supervisors and new employees, she said that telework training has never been done at the agency. She noted that VA has considered developing an interactive training program for supervisors, but it is waiting for the release of an Internet training package that OPM’s office with responsibility for the governmentwide telework initiative has developed before making any decisions. It is anticipated that this training for managers and teleworkers will be available to all federal government employees from OPM during fiscal year 2003 at no charge on www.golearn.gov—an OPM-provided on-line learning center. The availability of such training may help to address any disparity in the provision of telework training among agencies. Telework-related literature suggests that it is important to inform the workforce about opportunities to telework. Two of the agencies, GSA and OPM, have fully implemented this practice for their internal telework programs, using means such as intranet sites, newsletters, posters, and brochures to disseminate information about the telework program. At Education, a program official told us that she stopped actively marketing the telework program in response to pressure from top management. However, Education’s internal Web site has information on telework, including forms for participation and e-mail links. Education also publicizes information about telework training opportunities in its internal weekly newsletter. A program official from VA indicated that she would like to do more to market the program, but is limited by budgetary constraints. Currently the only means of publicizing VA’s telework program is through its intranet site, which includes a copy of the telework policy, helpful hints for supervisors and employees, information about telecenters, telework questions and answers, and guidance about what would make a good teleworker. However, the program official acknowledged that this form of communication has a drawback in that only those employees with access to computers can retrieve this information. Since teleworkers often require the use of IT equipment to access files, internal networks, and e-mail, the Environmental Protection Agency (EPA) suggests that agencies assess both their own and their employees’ technology needs for telework with a mind toward providing employees with access to equipment similar to what they have in the office. In addition, ITAC’s e-Work Guide reports that research conducted by the American Management Association found that 73 percent of “highly successful” telework programs regarded it as “critical” to do an analysis and review of the organization’s technology base and its compatibility with teleworker requirements. According to Booz Allen Hamilton’s report on technology barriers to home-based telework, the technologies acquired in response to such assessments, including document management systems, collaboration tools, and performance measurement systems, can result in benefits for both teleworkers and those in the office environment as well. Two of the four agencies we reviewed, Education and OPM, have fully implemented this practice and GSA has partially implemented the practice. According to an IT official at Education, the department did an engineering analysis to determine both current and future infrastructure needs for telework. In addition, a program official from Education told us that each applicant for telework must complete a technology assessment worksheet. OPM conducted a technology assessment as part of its program planning. As part of this effort, OPM’s IT staff chose the technologies to be used for remote access and decided that government-issued equipment was preferred to personal equipment for security purposes. OPM’s IT department also distributes virus software to employees who use their personal computers for telework. GSA has not conducted an agencywide assessment of teleworker and organization technology needs. According to a GSA program official, this is done on a case-by-case basis at the organization level because each organization is responsible for its own budget and for providing its workers with the appropriate tools for doing the job. According to another GSA official, GSA’s Office of Governmentwide Policy is conducting a pilot with laptops and docking stations to minimize the agency’s costs of maintaining two workstations for teleworkers. According to an IT official, VA has not conducted an assessment of technology needs with respect to teleworkers. As it currently stands, the process at VA is handled individually between the supervisor and employees. Guidelines issued by GSA for the governmentwide telework initiative indicate that, while agencies are permitted, but not required, to provide teleworkers with equipment for use at alternate worksites, each agency must establish its own policies on the provision and installation of equipment for telework. All of the agencies we reviewed have established policies in this regard, stating that the agency will make decisions about providing equipment for telework on a case-by-case basis in light of funding and other considerations, such as the work to be performed at the alternate site, the type of equipment and software that is needed, and the availability of equipment. For those agencies that allow employees to use personal equipment for telework, one program official acknowledged that such a policy can result in a “digital divide” between those employees who have the option of using or acquiring personal equipment for telework when the agency is not able to provide them with equipment and those who do not have such equipment available to them. According to the Interagency Telework Issues Working Group report, establishing technical support for both government-owned and personal equipment used to perform official duties for remote users, especially for teleworkers, is a relatively new issue for agencies. Some concerns associated with this issue focus on the availability and consistency of such support for teleworkers. To address these concerns, the report recommends that GSA establish a policy requiring that telework arrangements are covered in each agency’s IT technical support policies and that agencies refer to relevant sources of information on technical support in their telework policies. All four of the agencies reviewed have fully implemented this practice. According to an IT official at Education, the same technical assistance is available to all Education employees, whether they are in the office or teleworking. There is no special technical support for teleworkers. A program official from Education also said that customer service center staff can provide technical support for nongovernment-owned equipment, but this support is limited to whatever help can be provided over the telephone. An IT official at GSA said that the agency has two levels of technical support for users. The first level of technical support for all users, regardless of where they are working, is from their own unit’s support staff. The second level of support for remote access users, including teleworkers, is the Remote Access Team in the Chief Information Officer’s office. This level of support is called upon when the first level cannot resolve the problem. According to an IT official at OPM, the agency has a telework group that manages the servers, the virtual private network, and communication software. There is a separate phone number for people to call with computer problems associated with personal or agency- provided computers encountered while teleworking. At VA, teleworkers have remote access to the same technical support as office-based workers. The Interagency Telework Issues Working Group report states that remote access is a key component of telework programs, because “low-tech” solutions, such as floppy disks, are inadequate for most situations. It goes on to say that remote access solutions, especially the speed of the connection, are necessary to maintain productivity in a telework arrangement. However, both the Interagency report and Booz Allen Hamilton’s report on technology barriers to home-based telework identified concerns among managers about security and the protection of agency information when systems are accessed remotely. Although the Booz Allen Hamilton report stated that the need to provide information security was not seen by any of the organizations they analyzed as a reason to inhibit home-based telework, OPM’s January 2003 report to Congress on the status of telework in the federal government identified data security as the most frequently cited barrier to telework. All four of the agencies we reviewed said they had addressed access and security issues related to telework by using remote access systems with adequate safeguards. Booz Allen Hamilton’s report on technology barriers to home-based telework recommends that federal organizations specifically define technical requirements, or standards, for the home environment to ensure that sufficient systems and support services are available to teleworkers. According to the report, such requirements should also be included in the longer-term IT and capital planning processes at each agency. Three of the four agencies we reviewed, Education, GSA, and VA, have fully implemented this practice and OPM has taken some steps to implement this practice. According to IT officials at both Education and GSA, these agencies use the same standards for equipment in both the home and office environments. Neither agency has established separate standards for equipment in the telework environment. If an employee wants to use his own equipment at home, the equipment would have to meet the network standards. According to a program official at Education, the department’s Web site identifies the minimum technology requirements and is regularly updated with the latest information on viruses, security issues, and other information. According to an IT official at VA, the department has established a standard for its IT equipment, whether at a VA locale or not. This official reported that all IT investments and procurements are required to undergo review and concurrence from VA’s Enterprise Architecture Service. In addition, the draft policy includes a security checklist, including security requirements for equipment, which must be completed, reviewed, and certified by the Information Security Officer before a telework arrangement can begin. OPM has taken some steps to implement this practice. In comments on a draft of this report, OPM stated that it has a standard platform for connectivity and has established a protocol for requesting necessary equipment and connectivity. However, an IT official from OPM reported that, while OPM has a target standard machine, this standard has not been fully applied. In addition, this IT official also told us that OPM does not really have a standard for employee-provided equipment and that employees are only made aware of the need to upgrade to the standard when they raise an issue about their current equipment. Even though the four agencies we studied have processes and procedures to collect data on their telework programs, none of them currently does a survey specifically related to telework or has a tracking system that provides accurate participation rates and other information about teleworkers and the program. Such lack of information not only impedes the agencies in identifying problems or issues related to their telework programs, it also prevents these agencies from providing OPM, and subsequently Congress, with complete and accurate data. Education’s process to collect data provides some useful information, but it is not complete. To compile information on telework at Education, a database was developed, which uses information from telework agreements and the department’s payroll system. Using this database, Education can produce reports on a number of topics, including the number of teleworkers, whether they telework on a regularly scheduled or ad hoc basis, what regions or offices they work for, who their supervisors are, and their grade levels. However, an Education program official acknowledged that although this system is designed to track telework agreements, some agreements are not accounted for, such as informal agreements that are unbeknownst to her or agreements that have not gone through the whole process. Furthermore, because it tracks agreements and not actual usage, the system cannot measure telework utilization. VA currently does not have a database for telework and uses decentralized data collection methods, but a program official indicated that the agency plans to implement telework tracking via the time and attendance system. Although this official said that she hopes this new tracking system will address data inconsistency issues within the agency, she could not provide a time frame for its implementation. OPM tracks its teleworkers by counting telework agreements and recently developed a database to keep track of these agreements, although a program official acknowledged that informal e-mailed telework agreements that are sometimes used at OPM might not all be included in the database because she did not receive them. As stated above, systems that rely on agreements to track telework participation do not actually provide information about utilization rates. At OPM this weakness is compounded by the fact that the agency does not ensure that telework agreements are used in all cases. GSA does not have an agencywide tracking system. Coordinators for individual units at GSA calculate telework data from telework agreements once a year in order to provide the information GSA submits for OPM’s annual governmentwide telework survey. However, no documentation is required for intermittent telework arrangements at GSA, and, as a result, a program official acknowledged that the number of these types of arrangements reported to OPM for its 2002 telework survey was a rough estimate. She also said that the survey instruments and reporting mechanisms used by OPM’s governmentwide telework initiative for its annual report on telework in the federal government were a challenge in this area because of changes in the data requested from year to year, which made it difficult to determine the kind of system an agency needed to develop to best track the requested data. ITAC’s e-Work Guide recommends that organizations choose an evaluation design that 1) allows the clearest judgment of the program’s effectiveness and 2) uses the evaluation results to develop an action plan to guide any necessary changes for telework or for the organization. It states that organizations should use reliable and valid measures of all outcomes and processes, including benchmarking and follow-up assessment questionnaires, interviews, behavioral observations and ratings, or organizational data, because the quality of measurement is extremely important to enabling one to draw the proper conclusions regarding the effectiveness of telework and whether or not it has met the original objectives. Despite the importance of using data to evaluate and improve telework programs, none of the four agencies we reviewed had fully implemented this practice. A program official at Education told us she had collected data on the telework program and used these data to identify some potential problem areas. For example, she identified offices that had low telework program participation rates and an office that had teleworkers working only on an as-needed schedule and no one working on a fixed schedule. She used this information to target marketing efforts until she was told to stop actively marketing the program. In addition, a private contractor conducted a survey about Education’s telework program in 1999. Although the survey’s response rate was very low due, in part, to technology incompatibilities across the department and a lack of support by union officials, the survey yielded four recommendations, none of which have been fully implemented. According to a GSA program official, GSA does not collect data to identify problems or make adjustments to its telework program. An OPM program official stated that she does not use the telework data she collects to identify issues with the program. Rather, she relies on employees to bring problems to her attention and responds accordingly. At VA, a program official identified an issue with the data collected for OPM’s 2003 report to Congress on the status of telework. She believed the data collected within VA was inconsistent and needed to be reexamined. For example, 102,000 positions were identified as being eligible for telework for the January 2003 report, as opposed to 80,000 that had been identified for the January 2002 report. Since the program official thinks VA’s true eligible population is between 55,000 and 75,000 employees, she asked the local human resources representatives to reexamine the numbers they reported. The Director of Human Resources Services from the Department of Education provided comments on a draft of this report via e-mail. In these comments, Education generally agreed with the contents of the draft report and stated that the department was pleased that we recognized its efforts to advance telework. Additionally, the comments stated that the department’s “most significant comment” was, as our draft noted, the need for a clear, unambiguous, and universally accepted definition for what it means to allow employees the opportunity to telework. 1. VA agreed with our conclusion that there is a need for further guidance and assistance from GSA and OPM regarding federal telework implementation and suggested two areas where such guidance would be helpful. Specifically, VA indicated that OPM needs to redefine participant eligibility criteria and that OPM and GSA should provide guidance on how to effectively use telework in emergency situations. 2. VA expressed concern that the draft report, which stated that we used participation rate as one of the criteria used in our selection of agencies, did not recognize what VA considers to be a significant factor accounting for its limited telework participation rate. In this regard, VA stated that a “significant number of VA employees are engaged in direct patient care and benefit service delivery to veterans, which precludes large-scale participation in telework.” As our draft noted, agencies were selected to provide illustrative examples of the extent to which individual agencies with varied sizes, reported utilization rates, and missions had implemented the key practices identified in our literature review. Nonetheless, we have added additional language to our scope and methodology section regarding the service delivery focus of VA’s mission. 3. VA also had several comments on our findings related to the status of VA’s implementation of the telework practices that we identified. The specific issues that VA raised and our response to each are summarized as follows: a. In its comments, VA noted that it had conducted two pilot programs. When we requested additional information from VA to support its comment, VA provided us with information about two pilot programs that did not relate to their current telework program. VA also stated that it did not conduct a pilot program for its current telework policy. Because VA could not provide information about a pilot program for its current telework policy, we did not change our assessment that VA has not taken any steps to implement this practice. b. VA said it had established measurable telework program goals and an the course of our work that VA did not have any measurable telework goals or an implementation plan. Therefore, we have not changed our assessment that VA has not taken any steps to implement these practices. c. VA commented, as our draft report had noted, that its revised telework policy has a “Self-Certification Safety Checklist.” However, as we also noted in our draft report, this policy is still in draft form and was not in use during our review. Because VA’s current telework policy does not contain a safety checklist and the draft checklist is not in use, we have not changed our assessment that VA has not taken any steps to ensure that teleworkers have safe and adequate places to work off-site. d. VA indicated that it had developed a Telework Proposal form that was designed to facilitate communication among supervisors, employees, and managers. However, that form is part of VA’s revised telework policy, which, as noted in our draft report, has not yet been approved for use at VA and, therefore, was not considered in our evaluation. Moreover, this form, once approved, will not serve to establish policies or requirements to facilitate communication between managers and teleworkers, such as detailing the methods of communication that should be used or the frequency with which communication should occur while teleworking. More importantly, VA’s existing telework policy does not establish such policies or requirements to facilitate communication. Given these considerations, our assessment that VA has not taken any steps to implement this practice remains unchanged. e. VA stated that the Telework Proposal form, which, as we noted, is still a draft, allows it to track and evaluate the effectiveness of its program as well as VA’s success in achieving targeted participation goals. This form simply allows VA to count how many employees have applied for telework and how many have been approved for such an arrangement. Such information will be important and valuable. However, the form would not fully enable VA to evaluate the effectiveness of its program or its success in achieving participation goals in terms of the number of employees actually teleworking and, equally important, the extent to which telework is being used. As we had noted in our draft report, a VA program official had indicated to us that the agency plans to implement telework tracking via the time and attendance system, which she hopes will address data inconsistency issues within the agency. Such a tracking mechanism, if implemented, could be helpful in tracking telework participation. Based on these considerations, our assessment that VA has taken some steps to implement this practice remains unchanged. f. VA also stated that the department consistently advises supervisors and managers that performance standards for teleworkers and nonteleworkers should be the same and said that this was consistent with the criteria under our category of “Performance Management.” However, VA could not provide us with any information to support this comment. In fact, VA responded that it provides such advice “on an as-requested basis,” which does not constitute “consistently advising.” Furthermore, VA’s current telework policy does not contain any statements related to using the same performance standards for both teleworkers and nonteleworkers. Given these considerations, we have not changed our assessment that VA has not taken any steps to ensure that the same performance standards are used to evaluate both teleworkers and nonteleworkers. g. In addition, VA noted that its ability to conduct a technology assessment for telework is compromised by the lack of clear guidance regarding which positions are suitable to telework. This further illustrates our finding, as stated in our draft report, that agencies may need additional guidance, guidelines, and/or individualized technical support to fully implement the practices we have identified. However, VA’s comment does not affect our assessment that VA has not taken any steps to implement this practice. 1. In their combined comments, GSA and OPM agreed that telework is an important tool for federal agencies and stated that they would encourage and champion telework as a key human capital flexibility and do everything possible to facilitate its acceptance and use. The agencies also agreed to implement our recommendation that they use their lead roles in the federal telework initiative to assist agencies in implementing the key telework practices we identified. In this regard, GSA and OPM stated that they will provide agencies with a checklist of the practices we identified and recommend that agencies do a self- assessment of their telework programs using our analytical framework. Both GSA and OPM will then offer to help agencies to improve in the identified areas of deficiency. OPM will also include the key telework practices that we identified in telework training, which, as we had noted in the draft report, is being developed for launch on its Web- based training site during fiscal year 2003. 2. In addition, GSA agreed with our recommendation that it work with Congress to determine what was meant by the phrase “GSA telecommunication center” in Section 314, Division F, title III of Pub. L. No. 108-7 and whether this provision is in conflict with the provision contained in 40 U.S.C. 587(d)(2). GSA stated that it will coordinate internally and with the appropriate congressional committees to resolve the conflicting language in the statutes and then provide clarification to its customer agencies. 3. GSA and OPM disagreed with several of our findings relating to their lead roles in the governmentwide telework initiative. Below are summaries of GSA’s and OPM’s comments and our responses: a. These agencies stated that, given the efforts they have made in promoting telework, they were “taken aback” by language in the draft that noted confusion at the “implementation level” throughout the federal government regarding the policy guidance that they had put forth to date. However, as detailed in our draft report, our finding was actually that conflicting messages from GSA and OPM on certain telework-related matters had created confusion. Apart from this finding, we recognize GSA’s and OPM’s efforts to promote telework and had included in our draft report many of the examples of those efforts that GSA and OPM cited in their response, such as jointly running the telework Web site to provide information and guidance, OPM’s rapid issuance of guidance in response to our finding related to the lack of a definition for providing employees with the opportunity to telework, and GSA’s management and promotion of the telework centers. Also, our draft report discussed OPM’s outreach effort to meet face to face with agencies’ telework coordinators and, as GSA’s and OPM’s comments noted, this effort was also described in our May 2003 report entitled Human Capital: OPM Can Better Assist Agencies in Using Personnel Flexibilities. However, while such promotional efforts can be constructive, they do not address the confusion we identified as a result of GSA’s and OPM’s conflicting messages. b. GSA and OPM strongly disagreed with our finding that they have not fully coordinated their governmentwide telework efforts in the past. In one instance, they said that the draft report stated there were unresolved disagreements between GSA and OPM on telework policy issues concerning dependent care and emergency closing of government offices, and that they believed there were no such disagreements. However, GSA and OPM also stated that, while they believed that their responses to the dependent care and emergency closing issues were not in conflict, they clarified them to avoid any confusion. We believe this is a noteworthy development because, as stated in our draft report, agencies had expressed concern about conflicting messages they had received from GSA and OPM on several topics, including dependent care and emergency closings. More generally, we also indicated in our draft report that, because GSA and OPM have not developed a Memorandum of Understanding or other formal agreement regarding their responsibilities for the governmentwide telework initiative, they should work together to reach a formal agreement establishing a delineation of these responsibilities. In their comments, the agencies said that they have recognized the need to better outline separate and shared responsibilities and that a Memorandum of Understanding was among the options they were considering to clearly designate each agency’s responsibilities. We have added language to reflect GSA’s and OPM’s commitment to address these areas. c. In addition, GSA’s and OPM’s comments said that it was unnecessary for OPM to re-coordinate with GSA on the final version of the telework guide for managers, supervisors, and telework coordinators because GSA’s comments had already been incorporated into the guide. Although we found that OPM had made substantive changes to the guide subsequent to GSA’s review, we now believe that, given the concerns expressed by agencies, and underscored by Education’s and VA’s comments on our draft report, it was sufficiently important to issue the guide in a timely fashion, without a final review by GSA. Relevant changes have been made to our report. d. According to GSA’s and OPM’s comments, GSA’s senior program executive for telework disputed our finding that GSA had expressed concerns about OPM’s changes to the joint OPM/GSA telework Web site (www.telework.gov). However, this statement varies from information provided to us both by GSA and OPM officials during the course of our review and by the senior OPM official for the governmentwide telework initiative at our exit conference with OPM. For example, during our exit conference, the senior OPM official for the governmentwide telework initiative acknowledged changing the telework Web site without GSA being informed or OPM getting input from GSA. She said that GSA was not very happy with the new look, adding that GSA felt the changes were imposed on it by OPM without any consultation. Nonetheless, we have adjusted the report to reflect the view of the GSA senior program executive. e. In their comments, GSA and OPM also said that the two agencies had jointly determined it would be inappropriate to post the “pre- decisional” Interagency Telework Issues Working Group report on the federal telework information Web site (www.telework.gov) until they had had the opportunity to analyze its findings, address issues contained therein, and fully consider all recommendations. However, GSA has already independently posted this report on its own Web site with a disclaimer, stating: “OPM and GSA co-led the Interagency Telework Issues Working Group by offering technical guidance, support, and resources. The findings and recommendations made in this final report reflect the opinions of the Working Group members. This final report does not in any way, specific or implied, represent the official views, positions, or policies of the U.S. Government, OPM, GSA, nor any of the agencies participating on the Working Group. This report is currently under review by both OPM and GSA.” Given that GSA and OPM co-led this group with participation from 15 federal agencies to identify policy actions needed to facilitate agency use and expansion of telework and then make recommendations, we believe that the report should be posted on www.telework.gov, with the same or a similar disclaimer, in the interests of transparency. 4. OPM also raised issues with our analysis of its internal telework program. OPM stated that our draft report indicated that 12 of our 25 identified key practices still needed to be implemented at OPM. While our draft report showed that OPM had “fully implemented” 13 of the practices, it went on to say that OPM had “taken some steps to implement” 5 of the remaining practices and had “not taken any steps to implement” the other 7 practices. OPM’s comments related to its internal telework program maintained that it has fully implemented 24 of the 25 practices, stating that the 25th practice should not apply to it. As we clarified in this report, some of the practices, such as developing an implementation plan and establishing a pilot program, are historical in nature and cannot be implemented at this time by agencies with existing telework programs. However, as we also clarified in the report, agencies with existing programs that did not initially implement some of the more developmental practices can still be successful with sustained attention to the other practices we identified. In its comments, OPM stated that “ach comment listed was conveyed to GAO during the interview process.” On the contrary, OPM’s comments, for the most part, contain new information and/or information that does not correspond with what was conveyed to us during our meetings with OPM officials. Summaries of OPM’s comments, and our responses, are discussed below: a. OPM disputed our finding that the agency had not established measurable telework program goals, saying that it had done so by meeting, even exceeding, the requirements of Section 359 of Pub. L. No. 106-346. OPM said that, “n effect, the legislation has provided the program goals for Federal agencies through 2004.” However, in its May 2003 telework guide for managers, supervisors, and telework coordinators, OPM discusses the importance of establishing program goals and objectives for telework because they will be helpful in conducting program evaluations of a telework program. OPM’s guide notes that “ey issues for evaluation for most agencies include the effect of telework on productivity, operating costs, employee morale, recruitment, and retention” and that the evaluation plan “should be based on quantifiable program goals and objectives to allow for ease of measurement.” Section 359 of Pub. L. No. 106- 346 refers broadly to the federal workforce and OPM has not provided any documentation illustrating how it has converted the law’s requirements into program goals to measure the effect of telework on productivity, operating costs, employee morale, recruitment, retention, or any other such desirable outcome. Moreover, OPM’s telework coordinator told us during the course of our review that goals have not been set for OPM’s internal program. Given these considerations, our assessment of OPM for this practice remains unchanged. b. OPM disagreed with our finding that it had not established a business case for implementing a telework program, stating that the business case for telework has been developed through various means, including statements made in its governmentwide guidance, information provided in training sessions for its managers, and by referring its managers to the OPM/GSA telework Web site. As described in a source from which we drew our key practices, a comprehensive business case for a telework program entails identifying full costs and benefits to the extent practicable, prior to implementation of the program, that are specific to the organization, including IT components, facilities, recruiting, retention, contingency support, and security and risk assessments. The business case that OPM refers to in its comments does not fully meet these criteria. Furthermore, this comment does not correspond with what was conveyed to us during our meetings with OPM officials. Instead, OPM’s telework coordinator at the time its current program was developed in 2001 told us that a business case for telework had not been developed prior to implementing the telework program. Given these considerations, our assessment of OPM for this practice remains unchanged. c. OPM disputed our finding that it has only taken some steps to provide funding to meet the needs of the telework program. The agency said that it has provided “full funding” for its telework program and that it has identified resources that have allowed it to accommodate “every employee (who is otherwise eligible and wants to telecommute) with appropriate computer equipment, technology support, and remote connections.” OPM did not provide documentation of this funding. As our draft report indicated, OPM has taken important steps to implement this practice, by paying the salary for a telework coordinator and setting aside $50,000 in fiscal year 2002 for telework center use, as required by law. However, an IT official at OPM said that there were times that the agency has experienced shortages of the older computers it loans to teleworkers. He said that the people who absolutely need to telework get computers immediately, if they require one, but that people who would like to telework, but do not have a “need” to do so, have had to wait to begin teleworking until computers become available. According to this IT official, managers usually make the decision about whether telework is a “need,” although employees will sometimes decide for themselves that it is not necessary for them to telework. Given these considerations, we did not change our assessment that OPM had taken some steps to implement this practice. d. OPM questioned the validity of our having assessed its telework program against the practice of establishing a pilot program because “the founding legislation” did not include a requirement for establishing pilot programs and because OPM is confident that a pilot would not have added significant value to its program. As noted in our draft, we used a variety of sources, including GSA’s and OPM’s telework guidance, to identify key practices. Successful telework experiences and related telework literature suggest that pilot programs can be valuable at the outset of telework initiatives by providing a means to test the concept and its integration within a particular organization’s environment. However, as we recognize in this report, agencies with existing telework programs that did not implement this practice when the program was initially developed can still have successful telework programs with sustained attention to the other practices. Because OPM did not establish a pilot program at the outset of its telework program, our assessment of OPM for this practice remains unchanged. e. OPM disagreed with our finding that it had taken some steps to establish eligibility criteria to ensure that teleworkers are selected on an equitable basis using criteria such as suitability of tasks and employee performance, stating that it had fully implemented this practice by providing objective eligibility criteria in its telework policy. Our draft report noted the progress OPM had made in this area and that guidance was in place on eligibility criteria. However, OPM’s telework coordinator also told us that the eligibility criteria varied by OPM unit and may not be consistently applied. Therefore, while the OPM guidance is an important step, its consistent application is not being ensured. Thus, we continue to believe that OPM has taken some steps to implement this practice. f. OPM disagreed with our finding that it had taken some steps to establish policies or requirements to facilitate communication among teleworkers, managers, and coworkers, stating that its policy and associated forms serve to facilitate communication. Based on further analysis of the policy and its associated forms, we have changed the report to reflect that OPM has fully implemented this practice. g. OPM disagreed with our finding that it has taken some steps to develop guidelines on workplace health and safety issues to ensure that teleworkers have safe and adequate places to work off-site, because one of the appendixes included with OPM’s telework policy is a safety checklist for the alternate worksite. As we noted in our draft report, OPM’s telework policy states that the telework agreement should include a safety checklist. Importantly, however, the suggested checklist, included as an appendix to OPM’s policy, states that the employee “may use” it to “assist them in a survey of the overall safety and adequacy of their alternate worksite.” It goes on to say “the following are only recommendations and do not encompass every situation that may be encountered.” Moreover, the checklist does not have a signature line or any way for it to be certified by the employee. Because this checklist is only recommended, not required, and does not need to be certified by the employee, it is not sufficient to ensure that teleworkers have a safe and adequate place to work off-site. Therefore, we continue to believe that OPM has taken some steps to implement this practice. h. OPM disagreed with our finding that it has not taken any steps to ensure that the same performance standards, derived from a modern, effective, credible, and validated performance system, are used to evaluate both teleworkers and nonteleworkers, saying that the performance standards that employees are evaluated against annually are based on the duties and responsibilities of the employee’s position and not on whether the employee is a teleworker or nonteleworker. OPM further stated that the performance standards are the same, regardless of where the work is performed. As we stated in the draft report, although OPM’s policy does state that the employees’ current performance standards will be used to govern all telecommuting assignments, as well as those in the telecommuters’ current traditional federal offices. However, it does not include a statement requiring that the same performance standards be used for teleworkers and nonteleworkers. Without such a statement, at a minimum, OPM cannot fully ensure that the same performance standards are used to evaluate both teleworkers and nonteleworkers. Nonetheless, we have revised the report to acknowledge that OPM has taken some steps to implement this practice. While these steps are important, there are steps that OPM can take to more fully ensure that the criteria have been consistently applied, such as periodically checking the performance appraisals for consistency. i. OPM disagreed with our finding that it had not taken any steps to train all involved in its telework program, including, at a minimum, managers and teleworkers, saying that it has provided extensive training to both managers and employees. However, this comment does not correspond with what was conveyed to us during our meetings with OPM officials. According to both the current and past OPM telework coordinators, OPM had provided mandatory training to managers and optional training to employees when the telework program began, more than 2 years ago. In addition, they told us that OPM has not provided any training since then. Even the initial training would not have been sufficient to train “all involved” in the telework program, because employees were not required to attend. In response to OPM’s comments, we have revised our report to reflect OPM’s initial training efforts by indicating that OPM has taken some steps to implement this practice. We are also pleased that OPM indicated in its comments that, now that its agency restructuring has been completed, it plans to provide continued outreach and training on telework. However, OPM cannot be considered to have fully implemented the practice of training all involved in its telework program until this training is actively provided to and required of all relevant parties. j. OPM disputed our finding that it had not taken any steps to establish standards for equipment in the telework environment, saying that OPM has a standard platform for connectivity and has established a protocol for requesting necessary equipment and connectivity. During our review, an IT official from OPM told us that the equipment standards had not yet been fully applied to agency-owned equipment, but he expected this to be done between July and October 2003. Based on OPM’s more recent comments, we have revised our report to reflect that OPM has taken some steps to implement this practice. However, the IT official also told us that OPM does not have a standard for employee-provided equipment. Until OPM establishes and applies its standards to employee-provided equipment, it will not have fully implemented this practice. k. OPM disputed our finding that it had taken some steps to establish processes, procedures, and/or a tracking system to collect data to evaluate the telework program, stating that it collects and tracks a variety of data that is used to evaluate and report on its telework program. According to OPM, because its policy states “ompleted work agreements must be forwarded to the organizational telecommuting contact for record keeping purposes,” the agency has fully implemented this practice. In our draft report, we recognize OPM’s policy that employees sign a work agreement with their supervisor. However, OPM’s telework coordinator told us that work agreements, whether in hard copy or e-mail form, are not always completed and forwarded to her. Additionally, while OPM endeavors to track participation rates through these work agreements, the agreements only provide information on how many employees have been approved to telework, not how many are actually participating. Without a tracking and evaluation system that accurately measures program participation, OPM cannot be considered to have taken more than some steps to implement this practice. One such system was suggested by OPM itself in the section of GSA’s and OPM’s comments on our draft report that is related to those agencies’ governmentwide leadership roles. These comments said, “OPM has concluded from research that the best telework data is collected through time and attendance tracking systems. OPM will be issuing guidance to agencies later this year on the use of this data source for its next survey.” Such guidance will be an important step toward helping all agencies to more accurately track and report such data and so that they can use the data for evaluation and program improvement purposes. l. OPM disputed our finding that it had not taken any steps to identify problems and/or issues with the telework program and make appropriate adjustments, indicating that the various surveys and data it collects are used, not only to report on the number of employees teleworking in the agency, but also to help inform enhancements to its program. However, OPM’s telework coordinator indicated that she does not actively seek to identify issues using any evaluation tools. Instead, as OPM pointed out in its comments, she relies on employees to bring issues to her attention. While employees can be an important source of information, such data sources are complements to, and not substitutes for, formal feedback mechanisms and well-designed evaluations, as described in OPM’s recently released telework guide to managers, supervisors, and telework coordinators. Nonetheless, given these considerations, we have revised our assessment of OPM for this practice to reflect that it has taken some steps to implement this practice. 5. GSA did not disagree with our findings pertaining to its internal telework program. However, the agency did note several areas where it would like us to revise statements relative to its implementation of the key practices we identified. Below is a summary of GSA’s comments and our responses: a. GSA said that, since its program has been in place for more than 10 years, it does not have or need a current implementation plan. Furthermore, GSA indicated that it had an implementation plan that was utilized 10 years ago, when the program was first developed. However, GSA stated that this plan was not kept in the files, because it is no longer in use. We agree that GSA should not develop an implementation plan for a program that is already in place. Our analysis was focused on whether an agency had developed an implementation plan to shape the design and implementation of its program to ensure future success. In this regard, GSA’s telework coordinator had told us that there was not a written implementation plan for the telework program when it was first started. Nevertheless, we have revised our report to indicate that we were unable to assess GSA on this practice. b. GSA indicated that it does not have a central telework fund and that individual organizations within GSA provide their own funding. We had considered this information in our analysis of the level of GSA’s implementation of this practice. However, we have added GSA’s statement to our report to provide additional context. Also, as already noted in our draft report, GSA said that it had set aside the required central funding for telecenter utilization. c. GSA noted that it has an operational telework program and, consequently, there is no further need for piloting. We agree with GSA that there is no further need for piloting. Our analysis in this regard assessed whether or not an agency had established a pilot at the beginning of its individual telework program. GSA did not establish a pilot program prior to implementation of its telework program. Therefore, our assessment of GSA for this practice remains unchanged. d. In addition, GSA provided comments related to several other areas, including: 1) its position on establishing telework eligibility criteria, 2) its emphasis on fairness toward teleworkers and others, and 3) its existing lines of communication regarding telework, including its network of telework coordinators in regions and organizations throughout the agency, its provision of e-mail and on-line information on telework, and its “strong emphasis on communication.” While these comments were helpful in setting the context for GSA’s internal telework program, they were not relevant to our analysis and, therefore, are not reflected in the body of our report. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files. To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail alerts” under the “Order GAO Products” heading.	Telework--work done at a location other than a traditional office--has gained widespread attention over the past decade as a human capital flexibility offering various potential benefits to employers, employees, and society. Using such flexibilities as management tools can help the federal government address its human capital challenges. GAO did this study in response to a congressional request to assess the federal government's progress in implementing telework programs and to determine what else can be done to give federal employees the ability to telework under appropriate circumstances. The statutory framework for federal telework requires agencies to take certain actions related to telework, provides agencies with tools for supporting telework, and provides both the Office of Personnel Management (OPM) and the General Services Administration (GSA) with lead roles and shared responsibilities for the federal telework initiative. Both agencies offer services and resources to support and encourage telework in the federal government. However, these agencies have not fully coordinated their telework efforts and have had difficulty in resolving their conflicting views on telework-related matters. As a consequence, agencies have not received consistent, inclusive, unambiguous support and guidance related to telework. After we discussed the issues created by the lack of coordination between GSA and OPM with both agencies, a GSA official then indicated that GSA and OPM expressed a new commitment to coordination. Such a commitment reflects a promising start for better assisting federal agencies in improved implementation of their telework programs. However, the key to success will be sustained efforts by both agencies to work together in assisting agencies and providing consistent and straightforward guidance, services, and resources on the governmentwide telework initiative. GAO identified 25 key practices in telework-related literature and guidelines as those that federal agencies should implement in developing telework programs and grouped these practices under seven categories. While the four selected executive agencies we reviewed--the Department of Education (Education), GSA, OPM, and the Department of Veterans Affairs (VA)--have taken at least some steps to implement most of the key practices, only 7 of the 25 key practices, such as establishing a cross-functional project team and establishing an agencywide telework policy, had been fully implemented by all four agencies. Although some telework-related resources from GSA and OPM provide federal agencies with information on how to implement several of the key practices we identified, agencies may need additional guidance, guidelines, and/or individualized technical support to fully implement these practices.	15.4	16k+	10,005
45	SEC consists of a five-member Commission that oversees the agency’s operations and provides final approval over staff interpretation of federal securities laws, proposals for new or amended rules to govern securities markets, and enforcement activities. The Commission, which is headed by the SEC Chair, oversees 5 divisions, 23 offices, and 11 regional offices. Figure 1 illustrates SEC’s organizational structure. SEC’s divisions and offices are organized by functional responsibility. Table 1 summarizes the roles and responsibilities of the one office and five divisions that primarily implement SEC’s mission: the Office of Compliance Inspections and Examinations and the Divisions of Corporation Finance, Enforcement, Investment Management, Economic and Risk Analysis, and Trading and Markets. The mission-critical office and divisions are supported by other offices, such as the Office of Financial Management, the Office of Information Technology, and the Office of Human Resources. The Office of Information Technology supports SEC and its employees in all aspects of information technology (IT) and has overall management responsibility for SEC’s IT program, including application development, infrastructure operations and engineering, user support, IT program management, capital planning, security, and enterprise architecture. SEC’s Office of Human Resources provides overall responsibility for the strategic management of SEC’s personnel management and assesses compliance with federal regulations for areas such as recruitment, retention, leadership and staff development, and performance management. However, certain divisions have internal human resource coordinators that liaise between the Office of Human Resources and their respective division heads. The Office of Information Technology and the Office of Human Resources report to SEC’s Office of the Chief Operating Officer (COO), which in turn reports to the Office of the Chair. To carry out its mission, SEC employs staff with a range of skills and backgrounds, including attorneys, accountants, and economists. As of February 2016, SEC employed 4,674 staff. Of these, approximately 40 percent were attorneys, 21 percent were accountants or financial analysts, and 6 percent were examiners. The remaining 33 percent were other professional, technical, administrative, and clerical staff. From fiscal years 2013 through 2015, SEC hired 1,310 employees. To help SEC attract and retain qualified employees, Congress enacted the Investor and Capital Markets Fee Relief Act (Pay Parity Act) in 2002, which allowed SEC to implement a new compensation system with unique pay scales comparable to those of other federal financial regulators. SEC staff are represented by the National Treasury Employees Union (which we refer to in this report as the SEC employees’ union). Effectively carrying out its regulatory responsibilities requires that SEC attract and retain a high-quality workforce. However, we and others have previously reported on the personnel management challenges SEC has faced in building and retaining such a workforce. These personnel management challenges included challenges related to establishing a constructive organizational culture and developing effective personnel management practices. For example, a 2011 SEC Inspector General (IG) report found that the level of communication between the Office of Compliance Inspections and Examinations (OCIE) and the Division of Enforcement after a referral—that is, the extent to which noteworthy information from an examination was passed on to the Division of Enforcement for further investigation or action—was not always consistent in the regional offices, which the IG noted can hinder SEC’s ability to achieve its mission. In addition, a Boston Consulting Group report also noted in 2011 that SEC’s culture impaired communication and collaboration between divisions. According to the report, each division’s internal structure was tailored to division-specific needs, and SEC historically placed limited emphasis on using formalized mechanisms for cross-divisional collaboration. More recently, in July 2013, we found that SEC’s organizational culture hindered its ability to effectively fulfill its mission and identified a number of personnel management deficiencies. We also noted that organizations with more constructive cultures generally perform better and are more effective. Within constructive cultures, employees exhibit a stronger commitment to mission focus, accountability, coordination, and adaptability. We found a number of deficiencies in four areas related to SEC’s personnel management and made seven recommendations to help SEC address personnel management challenges: Workforce planning: We found that SEC had not developed a comprehensive workforce plan. In addition, we found that SEC had not developed a comprehensive management succession plan to fill agency supervisory positions. As a result, we recommended that the Chairman of SEC direct the COO and Office of Human Resources to (1) prioritize efforts to expeditiously develop a comprehensive workforce plan, including a succession plan, and establish time frames for implementation and mechanisms to help ensure that the plans are regularly updated; and (2) incorporate OPM guidance as they develop the workforce and succession plans by developing a formal action plan to identify and close competency gaps and fill supervisory positions and institute a fair and transparent process for identifying high-potential leaders from within the agency. Performance management: We found that while SEC had performance standards related to supervisors’ use of the performance management system, we did not identify specific mechanisms to monitor supervisors’ use of the system. In addition, we found no evidence that SEC had validated the system with its staff to help ensure its credibility. As a result, we recommended that the Chairman of SEC direct the COO and Office of Human Resources to (1) create mechanisms to monitor how supervisors use the performance management system to recognize and reward performance, provide meaningful feedback to staff, and effectively address unacceptable performance, for example, by requiring ongoing feedback discussions with higher-level supervisors; and (2) conduct periodic validations (with staff input) of the performance management system and make changes, as appropriate, based on these validations. Communication and collaboration: We found that although SEC had taken steps to improve intra-agency communication and collaboration, barriers still existed. In addition, we found that staff continued to identify barriers to effective communication and collaboration among the divisions, within the divisions, and between staff and management, contrary to collaborative best practices. As a result, we recommended that the Chairman of SEC direct the COO to (1) identify and implement incentives for all staff to support an environment of open communication and collaboration, such as setting formal expectations for its supervisors to foster such an environment, and recognizing and awarding exceptional teamwork efforts; and (2) explore communication and collaboration best practices and implement those that could benefit SEC. Human capital accountability: We found that SEC had not developed an accountability system to monitor and evaluate its personnel management programs and systems. As a result we recommended that the Chairman of SEC direct the COO and Office of Human Resources to prioritize and expedite efforts to develop and implement a system to monitor and evaluate personnel management activities, policies, and programs, including establishing and documenting the steps necessary to ensure completion of the system. SEC agreed with our recommendations and acknowledged that improvements could be made in its personnel management. We discuss the progress SEC has made toward addressing these recommendations throughout this report. In addition, appendix I summarizes the status of our 2013 recommendations, as of December 2016. OPM advocates the use of HCAAF, which is a set of tools and strategies available to federal agencies that assist officials in achieving results in personnel management programs. HCAAF is designed to guide the assessment of agency efforts, while allowing enough flexibility for agencies to tailor these efforts to their missions, plans, and budgets. The framework uses five standards for success, lists key questions to consider, and suggests performance indicators for measuring progress and results. The five standards for success are as follows: Strategic alignment: Agency strategies for human capital management are aligned with mission, goals, and organizational objectives and are integrated into its strategic plan and performance budget. Leadership and knowledge management: Agency leaders and managers effectively manage people, ensure continuity of leadership, sustain a learning environment that drives continuous improvement in performance, and provide a means to share critical knowledge across the organization. Results-oriented performance culture: The agency has a diverse, results-oriented, high-performing workforce and a performance management system that effectively differentiates between high and low levels of performance and links individual/team/unit performance to organizational goals and desired results. Talent management: The agency has closed gaps or deficiencies in skills, knowledge, and competencies for mission-critical occupations and made meaningful progress toward closing such gaps or deficiencies in all occupations used in the agency. Accountability: A data-driven, results-oriented planning and accountability system guides the agency’s decisions on human capital management. OPM has provided some updates to the HCAAF model to federal agencies and recently revised its personnel management regulations (the basis for HCAAF). According to OPM, the revised regulations, which are scheduled to go into effect April 11, 2017, should reinforce existing content and streamline the systems to make the framework more practical to use. The new framework, called the Human Capital Framework, will replace HCAAF and reduce the number of systems from five to four (strategic planning and alignment, talent management, performance culture, and evaluation). Based on responses to our surveys of all SEC employees, we determined that views of the agency’s organizational culture have generally improved since 2013. Organizational culture is the underlying assumptions, beliefs, values, attitudes, and expectations shared by an organization’s members that affect their behavior and the behavior of the organization as a whole. In July 2013, we reported that SEC’s organizational culture was not constructive and could hinder its ability to effectively fulfill its mission. We previously found that organizations with more constructive cultures generally perform better and are more effective at fulfilling their mission; within constructive cultures, employees also exhibit a stronger commitment to mission focus, accountability, coordination, and adaptability. Although we determined that employee views of SEC’s organizational culture have generally improved, employee perceptions about management’s efforts to improve cross-divisional collaboration remain low and have not changed since 2013. While some staff continue to raise concerns, generally employees’ views related to morale, trust, hierarchy, and risk aversion have improved since 2013. Our survey and other evidence indicate that both nonsupervisors’ and supervisors’ views of morale have improved since 2013 (see fig. 2). Based on our 2016 survey results, about 43 percent of nonsupervisors responded positively (strongly or somewhat agree) when asked whether employee morale is generally high most of the time, compared with about 30 percent in 2013. Also, about 51 percent of supervisors responded positively to this question in 2016, up from about 39 percent in 2013. Similarly, in response to a related question about morale, around 17 percent of nonsupervisors who completed our 2016 survey said that senior officers in their division or office worked (to a great extent) to make improvements in workforce morale, up from about 10 percent in 2013. Also in 2016, about 28 percent of supervisors responded to our survey that senior officers in their division or office worked to a great extent to make improvements in workforce morale, about a 10 percentage point increase from 18 percent in 2013. While our survey results suggest that morale has improved, many SEC employees we spoke with cited concerns related to favoritism and a lack of workplace diversity and promotion opportunities that resulted in low morale among some employees. Additionally, SEC employees from the mission-critical office and divisions provided 369 written responses to our survey questions that addressed challenges related to morale at SEC. For example, one employee described a work environment that promoted staff based on favoritism and an unwillingness by senior officers to make the necessary changes (including addressing low performing staff) to improve employee morale. (We discuss our assessment of SEC’s policies and practices related to promotions and addressing unacceptable performance later in this report.) However, our positive survey findings are generally consistent with the 2016 OPM Federal Employee Viewpoint Survey (FEVS). OPM estimated that SEC’s overall Global Satisfaction Index score—which measures employee satisfaction with job, pay, and their organization and is calculated based on FEVS results—increased from about 59 percent in 2012 to 77 percent in 2016. Although this index score may not directly correlate to employee perceptions of morale, it is an important indicator of employee views about whether the agency sufficiently values its staff. Our survey indicates that nonsupervisors’ views about an atmosphere of trust at SEC have improved, increasing from approximately 45 percent in 2013 to 55 percent in 2016. However, SEC employees from the mission- critical office and divisions provided 112 written responses to our survey, raising concerns about SEC’s atmosphere of distrust. In addition, 1 former employee described SEC’s promotion process as lacking transparency and favoring certain employees. This perceived lack of transparency and favoritism can erode trust between staff and management because it raises questions about the fairness of SEC’s promotion process. The views of supervisors on this issue improved slightly between 2013 and 2016, and positive responses from senior officers increased from about 81 percent in 2013 to 83 percent in 2016, as illustrated in figure 3. Similar to our findings, OPM recently found a slight increase in employee trust at SEC. OPM estimated that the engagement index for supervisors calculated based on FEVS results increased from an estimated 72 percent in 2012 to 73 percent in 2016. SEC scores are similar to those of the National Credit Union Administration (NCUA), which had an estimated score of 79 percent in both 2012 and 2015 according to OPM and a score identical to SEC’s in 2016 (73 percent). According to OPM, the government-wide average score was 65 percent in 2016. Our 2016 survey and other evidence indicate that both nonsupervisors’ and supervisors’ views about a hierarchical culture have improved. We reported in 2013 that some SEC staff described the agency’s culture as “hierarchical” (that is, decisions are made from the top with little if any solicitation of input from staff). In 2013, about 38 percent of nonsupervisory staff who responded to our survey strongly or somewhat agreed that they had a voice in decisions that affected them; in contrast, about 50 percent of nonsupervisory staff strongly or somewhat agreed with this statement in 2016 (see fig. 4). Supervisors’ positive responses to this statement also increased slightly—about 64 percent strongly or somewhat agreed in 2013, compared to about 67 percent in 2016. Similar to our survey results, when OPM surveyed SEC employees about whether they have a feeling of personal empowerment with respect to work processes, OPM estimated that 33 percent of staff had a positive attitude (agreed and strongly agreed) in 2012, which increased to 51 percent of staff in 2016. Despite significantly more positive survey results from nonsupervisory staff, senior officers held less positive views than they did in 2013; about 100 percent strongly or somewhat agreed in 2013, compared to about 84 percent in 2016. Regarding excessive risk aversion—that is, the condition in which an agency’s ability to function effectively is hindered by the fear of taking on risk—our survey and other evidence indicate that nonsupervisors’ and supervisors’ views have improved significantly since 2013. The percentage of survey respondents who agreed that fear of public scandals had made SEC overly cautious and risk averse fell from about 55 percent in 2013 to about 46 percent in 2016 for nonsupervisory staff, and from about 58 percent in 2013 to about 49 percent in 2016 for supervisory staff (see fig. 5). While our survey results show improvements, SEC employees from the mission-critical office and divisions provided 125 written survey comments related to concerns about risk-averse leaders. A few staff who provided written comments stated that some supervisors and peers fear bad publicity and are still risk-averse, which results in a refusal to admit wrongs or a dislike of being questioned by subordinates. One employee noted that the fear of the appearance of impropriety limits SEC’s ability to bring in industry experts. In addition, one former nonsupervisory employee described a work environment that did not encourage change or innovation. This employee stated that she would have been reprimanded for presenting new ideas. Furthermore, the percentage of staff responding to our survey who agreed that the fear of being wrong had made some senior officers reluctant to take a stand on important issues fell from about 47 percent in 2013 to about 38 percent in 2016 for nonsupervisory staff; from about 44 percent in 2013 to about 39 percent in 2016 for supervisors; and from about 23 percent to about 19 percent for senior officers (see fig. 6). Similarly, OPM estimated that employees’ views of SEC leaders improved from 2012 to 2016. OPM created an engagement index based on the FEVS results that measures employees’ views about the integrity of their leaders, including their perceptions of their leaders’ behavior related to communication and workforce motivation. OPM estimated that the engagement index score for SEC in this area increased from 49 percent in 2012 to 63 percent in 2016. While this index captures elements of leadership behaviors beyond top-down decision making and risk aversion, it reflects employees’ perceptions of how well senior leaders communicate the goals and priorities of the organization, among other things, and, as such, captures staff attitudes toward the perceived levels of hierarchy. When compared with the average government-wide score in 2016 of 53 percent, SEC’s estimated score of 63 percent is 10 percentage points higher. Our 2016 survey results indicate that SEC continues to operate in a compartmentalized manner. In 2013, we reported that such an environment can hinder SEC’s ability to effectively carry out its mission by limiting communication and collaboration among the divisions. For example, consistent with our 2013 findings, with the exception of the Division of Enforcement, at least one-third of nonsupervisory staff responding to our 2016 survey never contacted staff in other divisions or offices in headquarters in the past 12 months for work-related issues (see fig. 7). According to a number of staff who provided written comments to our 2016 survey, SEC is comprised of “silos”—that is, work is compartmentalized in each division or office, and little communication or collaboration occurs between the divisions. Several current and one former SEC employees we spoke with expressed similar views. For example, some employees cited a culture that was not supportive of cross-divisional communication. Of the 187 employees we interviewed, 78 considered issues around siloed communication, which includes communication and collaboration between and within units and divisions, as an area where SEC needs to improve. Further, one former employee stated that communication between offices was only encouraged at the most senior levels in the agency. This employee also said that although SEC’s Commission required the breaking up of silos after the collapse of Bernard L. Madoff Investment Securities, LLC, this requirement was never implemented at the staff level. Additionally, we received 597 written responses to our survey questions (of a total of 1,947 responses) citing various issues and challenges related to communication and collaboration at SEC. Finally, supervisors we interviewed said that it is sometimes difficult to know who to contact if you need to collaborate with a particular individual or a group with whom you do not normally work. (We discuss our assessment of SEC’s efforts to improve communication and collaboration later in this report.) OPM found improvement at SEC related to cross-divisional communication and collaboration. In OPM’s 2016 FEVS survey, an estimated 60 percent of SEC employees responded positively (agree and strongly agree) when asked if managers promote communication among different work units (for example, about projects, goals, needed resources), compared to an estimated 47 percent in 2012. In addition, one former employee who had been a senior officer at SEC described a substantial improvement in communication after the 2007–2009 financial crisis. SEC has developed mechanisms to monitor supervisors’ use of its performance management system and developed and implemented a system to monitor and evaluate personnel management activities, consistent with our 2013 recommendations in these areas, but progress to improve personnel management in other areas has been limited. Since our prior review, SEC has developed mechanisms to monitor supervisors’ use of the performance management system to provide performance feedback, reward strong performance, and address unacceptable performance. In addition, SEC has implemented an accountability system to evaluate personnel management activities, policies, and programs. However, SEC’s actions to address personnel management practices in the areas of workforce and succession planning, performance management, and cross-divisional communication and collaboration have not been sufficient to address our 2013 recommendations. Further, we found that SEC lacks controls over some aspects of its hiring and promotions. We found that SEC has implemented mechanisms to monitor how supervisors use the performance management system. According to OPM guidance, an effective performance management system provides mechanisms to monitor how supervisors use that system and provide feedback to staff. OPM does not provide specific requirements on the structure of these mechanisms, allowing agency discretion. In our July 2013 report, we recommended that SEC create mechanisms to monitor how supervisors use the performance management system to provide meaningful feedback to staff, recognize and reward performance, and effectively address unacceptable performance. Based on our review, SEC’s efforts to implement mechanisms to monitor supervisors’ use of the system in these areas are sufficient to address our 2013 recommendation. SEC has taken steps to monitor the performance feedback supervisors provide to employees. While we did not independently assess the quality of feedback provided to employees, we examined SEC’s process for monitoring feedback as well as our survey results that relate to the performance feedback employees receive. Consistent with the OPM guidance, each year SEC monitors whether supervisors are providing the required feedback by reviewing a random sample of 5 percent of performance work plans each fiscal year; these work plans contain documentation that the supervisor provided the interim and final performance feedback to the employee. SEC’s review of the random sample of the performance work plans involves assessing the documentation to determine whether employees and supervisors have completed the formal performance appraisal process and whether the supervisor provided feedback to the employee. We found that while SEC’s random selection of 5 percent of performance work plans produces results which are not generalizable, the methodology is sufficient to gauge general compliance with SEC policies. SEC’s review of performance work plans for fiscal year 2014, the most recent review available, found that 96 percent of the sampled employees had discussed performance expectations with their supervisors, 92 percent had a midyear performance review, and 98 percent had received end of year feedback. While the fiscal year 2014 review did not make any new recommendations for improvement, SEC’s fiscal year 2013 review of performance work plans, the first time SEC had conducted these reviews, made recommendations that included providing additional online resources to supervisors and uploading copies of performance work plans to an electronic OPM database. In response to the 2013 review, SEC provided supervisors with more online resources about the performance management process in SEC’s shared database and continued to upload performance work plans into staffs’ electronic official personnel folders. In addition, SEC plans to continue these reviews annually, according to SEC officials. Overall, survey responses by nonsupervisors related to feedback improved modestly since 2013 (see fig. 8). The percentage of nonsupervisory staff who agreed that their current direct supervisor provided useful and constructive feedback increased from about 65 percent to about 70 percent from 2013 to 2016. A few employees who provided written responses to our survey noted that supervisors in their workgroup provided constructive feedback. In addition, SEC’s level of positive responses on performance feedback was similar to that of other agencies in OPM’s 2016 FEVS. Specifically, when employees were asked whether they agreed with the statement “Discussions with my supervisor about my performance are worthwhile,” OPM estimated that 66 percent of SEC respondents agreed or strongly agreed with the statement, compared to 63 percent of respondents government-wide. While employees’ views related to the quality of feedback provided have generally improved since 2013, some supervisors and staff we met with identified some areas of concern that are common across the government. For example, we interviewed two groups of supervisors and both groups told us that the quality of feedback an employee receives can be inconsistent and is often dependent on their particular supervisor. In addition, supervisors in one group stated that they are sometimes reluctant to provide negative feedback to staff for fear of retaliation by the SEC employees’ union. Finally, in our conversations with SEC employees and in comments on our survey, some employees told us that feedback was not consistently substantive and timely. In response to our July 2013 recommendation, SEC has also implemented mechanisms to monitor how supervisors recognize and reward performance. For example, during the course of our review, the accountability group in the Office of Human Resources issued a report on its review of SEC’s award program. The purpose of the review was to help ensure that SEC’s Employee Recognition Program and performance-based cash awards were in compliance with applicable federal laws, rules, and regulations and SEC policies and procedures, and to determine how awards were distributed across the agency. According to the report, SEC’s accountability group took a number of steps to monitor how awards were being distributed to SEC employees. First, they reviewed the criteria and justification for the incentive awards. Second, they analyzed demographic data to determine the distribution of incentive awards throughout SEC. Third, they interviewed key staff responsible for the SEC awards program to help ensure they understood how to administer the program in compliance with relevant SEC policies and procedures and federal laws and regulations. We found that SEC’s actions to review the program are consistent with OPM guidance on monitoring supervisors’ use of the performance management system. Overall, SEC’s accountability group found that the awards program had improved over time and that information about the program was well- communicated and highly visible to staff, automated, and sufficiently funded. However, the group recommended that supervisors ensure that nominating staff document the justification for all awards that are not based on a rating of record, as required by regulation. SEC officials responsible for the awards program agreed with the recommendation and, according to the accountability group’s report, are taking actions to review submitted awards to ensure all program requirements are met, including the requirement for supervisors to ensure that each award recommendation is justified. According to the accountability group’s planning document, the group plans to evaluate the awards program every 3 years through 2027. In addition, SEC officials told us that they plan to make additional program improvements based on a 2014 SEC Office of Equal Employment Opportunity initial review of SEC’s awards data. In response to this initial review, SEC is conducting an analysis to determine if SEC’s policies, practices, or procedures are creating any barriers in recognition and awards. SEC expects to complete this analysis in March 2017. Similar to SEC findings, we also found that SEC’s award program is designed and implemented consistent with OPM’s HCAAF, which notes, among other things, that an agency’s award system should have clear criteria and include a variety of types of awards. We performed our own independent analysis of SEC’s awards program by reviewing a nongeneralizable sample of 71 award packages and found that SEC is implementing its awards program consistent with its policies and procedures. We reviewed these packages to determine whether awards packages are consistent with awards criteria, which includes whether the awards have written justifications and required signatures by the staff submitting award recommendations and staff reviewing the awards, and whether the awards are accurately reflected in the employees’ personnel records. We found that all award packages we reviewed had a written justification describing what the employee or group of employees had accomplished to receive consideration for the award and had the requisite signatures from the division or office, as well as from the Office of Human Resources, indicating that the relevant officials had reviewed the awards package and approved it. Finally, we found that for all award packages we reviewed, the approved cash award or time-off award was accurately reflected in all the employees’ personnel records. In response to our 2013 recommendation, SEC has implemented mechanisms to monitor supervisor practices to address unacceptable performance. Consistent with OPM guidance and federal regulations, SEC supervisors are required to gather relevant information, such as examples of work products that do not meet performance standards and any relevant e-mails discussing the individual’s performance. They must also document the unacceptable performance prior to putting a permanent employee on a performance improvement plan or terminating employment for a probationary employee (generally employees who have been on the job for less than 1 year). According to SEC officials, the Office of General Counsel, which is now responsible for coordinating SEC’s practices related to addressing unacceptable performance, tracks employees who receive an annual performance rating of “unacceptable” (which would generally precipitate a performance improvement plan). It also follows up with the employee’s supervisors to ensure the supervisors are taking the required steps to address the performance issue. As documented in the performance improvement plans, the Office of General Counsel is to ensure that supervisors (1) describe the unacceptable performance, (2) describe what actions the employee needs to take to address the unacceptable performance, (3) specify the amount of time the employee will have to improve his or her performance, and (4) describe the consequences if the employee’s performance fails to improve. Based on our review of performance improvement plans for permanent employees and actions taken against probationary employees, we found that SEC has implemented its practices related to addressing unacceptable performance consistent with its policies and procedures. Specifically, we reviewed all 16 performance improvement plans SEC issued in fiscal years 2013 through 2015 and found that these plans contained all the required information. We also reviewed all files related to terminations of employees during probationary periods for fiscal years 2013 through 2015 (20 in all) and found that they all contained the required information under the regulations. Specifically, these files described the unacceptable performance and the effective date of the termination, which in all cases was within the 1-year probationary period. In response to our 2013 recommendation, SEC has designed and implemented a human capital accountability system (that is, a system designed to facilitate regular assessments of an agency’s personnel management programs). In our July 2013 report, we found that SEC had not implemented a way to monitor and evaluate its personnel management. As a result, we recommended that SEC prioritize and expedite efforts to develop and implement a system to monitor and evaluate personnel management activities, policies, and programs, including establishing and documenting the steps necessary to ensure completion of the system. Since that time, SEC has taken steps to address the recommendation. In 2015, SEC designed a human capital accountability system, including an underlying plan and standard operating procedures. According to OPM’s HCAAF, a human capital accountability system should evaluate results and provide consistent means for an agency to monitor and analyze its performance on all aspects of its human capital management policies, programs, and systems. OPM guidance also states that the accountability system should contribute to an agency’s performance by identifying and monitoring necessary improvements. An accountability system should also provide for annual assessments of an agency’s progress and results related to human capital management. SEC’s accountability system requires that staff in the Office of Human Resources review programs, recommend corrective actions and track the status of those actions, and provide an annual assessment of the progress. Steps SEC has taken to implement the system include the following: SEC evaluated its Student Loan Repayment Program in October 2015 and found weaknesses in internal controls—for example, controls related to documentation of the decision to accept or reject an application for the program—and made recommendations for strengthening these controls. Since September 2014, SEC has also conducted quarterly reviews of personnel actions and recruitment case files and identified weaknesses such as incorrect offer letters and missing evidence of rankings of job candidates, which we discuss in more detail later. SEC’s quarterly reviews also identified some positive findings, including that SEC’s job opportunity announcements had few significant errors. In April 2016, SEC provided its first annual human capital accountability report to the Chief Human Capital Officer. This report summarizes the actions SEC took to review its human capital programs in fiscal year 2015 and lists the remaining steps necessary to fully implement the system. In addition, the results of SEC’s human capital accountability system have informed the agency’s human capital goals and spending priorities. According to HCAAF, the results of the human capital accountability system should inform an agency’s human capital goals and objectives as well as its spending priorities. For example, SEC relied on the results of its review of the Student Loan Repayment Program to set goals related to attracting and retaining talent. Specifically, SEC found that the program lacked a process to document why some employees’ applications were denied and therefore was unable to ensure that qualified and talented employees benefited from the program. According to SEC officials, in response to the results of the review, SEC broadened its goal of attracting and retaining talented employees by incorporating goals related to improvements to the management and oversight of the program. Likewise, officials said that SEC used the results of its quarterly reviews of its recruitment case files, which found improvements in aspects of the recruitment and hiring process, to set more challenging goals to hire larger numbers of staff in a more efficient manner. Based on the results of these reviews, SEC requested additional Office of Human Resources staff in its 2017 budget justification request, according to SEC officials. These linkages are important for providing assurance that SEC’s human capital accountability system is contributing to its human capital goals and priorities. As a result of these findings, we have concluded that SEC addressed our 2013 recommendation to develop and implement a system to monitor and evaluate personnel management activities, policies, and programs. In addition, although SEC completed only about half of its planned reviews of human capital programs for fiscal years 2015 and 2016, it is taking steps to address this issue. SEC staff told us that because this was their first human capital accountability system, they had not developed specific criteria for selecting programs to review, other than those they were required to review by regulation. After discussions we held with relevant SEC officials throughout the course of our review, in January 2016 SEC established criteria for programs to be reviewed through fiscal year 2027. SEC staff in the Office of Human Resources now assign a priority level to each program, function, or activity they plan to review based on its regulatory review requirement, the necessary implementation costs, and the number of employees affected. The higher the priority, the more often the program, function, or activity is to be evaluated. SEC staff also told us that they are in the process of updating the standard operating procedures for the accountability system and that these procedures would be finalized by early calendar year 2017. In addition, when SEC staff planned the fiscal years 2015 and 2016 reviews, they said that they did not anticipate the resources required to complete them. As such, they now plan in a way that takes into account available resources, which will limit the number of reviews in the future. By applying these newly established priorities and planning procedures, SEC should be in a better position to complete key program reviews that are an essential component of its human capital accountability system. While SEC has taken some actions to address our 2013 recommendations on workforce and succession planning, performance management, and cross-divisional communication and collaboration, we found that these actions were insufficient to address our 2013 recommendations. In addition, we found that while SEC’s hiring and promotion policies and procedures are generally consistent with OPM and other relevant criteria, SEC lacks adherence to controls over some aspects of hiring and promotions. Consistent with our 2013 recommendation that SEC prioritize efforts to create a workforce and succession plan consistent with OPM guidance, SEC has recently developed plans, but they do not include some key components of strategic workforce and succession planning identified by OPM and our previous work. In our July 2013 report, we found that SEC had not yet developed a comprehensive workforce and succession plan. We recommended that the COO and the Office of Human Resources (1) develop a comprehensive workforce and succession plan and (2) incorporate relevant OPM guidance as they develop this plan. SEC has not yet fully addressed these recommendations. In July 2016, SEC finalized its workforce plan for fiscal years 2016 through 2018, which included some elements of OPM guidance and best practices we have previously identified. For example, OPM guidance states that effective workforce planning aligns workforce requirements with agency strategic plans. Furthermore, key principles for effective workforce planning we have identified call for agencies to include plans to monitor and evaluate the agency’s progress toward meeting its human capital goals. SEC’s workforce plan is aligned with its strategic plans, references the goals outlined in those plans, and includes performance measures to monitor and evaluate SEC’s progress toward its goals. In addition, key principles for effective workforce planning we have identified also call for agencies to involve top management, staff, and other stakeholders in the workforce planning process. SEC’s workforce plan involves relevant stakeholders, including division and office leadership, SEC University (SEC’s lead office for training), and focus groups of SEC employees. However, the workforce plan does not meet all the key principles for effective workforce planning: Skills gap analysis. SEC’s workforce plan lacks a comprehensive skills gap analysis. OPM has stated, and our past work has shown, that an agency should identify the critical skills its workforce needs, develop a comprehensive assessment of the gaps in those skills, and develop strategies to address those gaps. In 2015, SEC entered into a contract with OPM to conduct a skills gap analysis of mission-critical occupations, but the contract did not include an analysis of all occupations at SEC because the agency chose to prioritize select occupations in the mission-critical office and divisions and the Office of Information Technology. As a result, the skills gap analysis did not include an assessment of the competency of 33 percent of SEC’s workforce, including mission-support staff, such as staff in the Office of Human Resources, and supervisors. Without assessing the skills of these key positions, SEC does not have assurance that its personnel across the agency, including those responsible for carrying out critical personnel management functions, have the skills necessary to fulfill SEC’s mission. Workforce structure. SEC’s workforce plan does not inform decision making about the structure of the workforce. OPM guidance states that an agency’s workforce plan should inform decision making about how best to structure the organization and deploy the workforce. However, the plan does not identify the optimal number of attorneys (key staff responsible for carrying out SEC’s mission) SEC should employ or the percentage of the workforce that should be located in the regional offices. It also lacked information on the type of skills needed by, for example, attorneys. Links to budget. SEC’s workforce plan is not clearly linked to its budget formulation, which we and OPM have previously identified as a best practice. For example, the workforce plan does not identify the personnel costs of the current workforce, nor does it identify the number of employees SEC intends to hire and their associated cost. When linked to the budgeting process, workforce planning provides information that agencies need to help ensure that their annual budget requests include adequate funds to implement their human capital strategies. In addition, the component of SEC’s workforce plan that addresses succession planning lacks information on workforce attrition and lacks a process for identifying future leaders. OPM guidance states that agencies should have a leadership succession planning and management system that is based on accurate data on the current workforce and accurate projections of attrition at all leadership levels. OPM guidance also states that agencies should develop a fair and accurate process to identify a diverse pool of high-potential leaders. SEC’s succession plan describes the various levels of leadership at SEC and what is required for successful performance at each level. It also includes the leadership competencies for all leadership positions and senior officers and the courses and services available to develop those competencies. However, it does not include data on SEC’s current workforce and attrition projections for SEC leaders, which are important for determining current and future workforce needs. In addition, the succession plan does not identify a fair and accurate process for identifying and selecting leaders, which may prevent the process from being transparent to employees. Developing a clearer process for selecting leaders could help to address employee concerns related to the promotion process. For example, only 15 percent of the nonsupervisory staff who responded to our 2016 survey agreed that the criteria for promoting staff are clearly defined, a modest improvement from our 2013 survey but still a relatively small percentage (see fig. 9). Since our 2013 report, SEC has provided us with various documents and plans to demonstrate their response to our recommendations. However, as we previously discussed, SEC’s recently developed workforce plan lacks a comprehensive skills gap analysis plan, does not inform decision making about the structure of the workforce, and is not clearly linked to its budget formulation. As a result, SEC has not fully addressed the recommendations from our July 2013 report related to workforce planning, and we maintain that these 2013 recommendations are still valid. In 2014, SEC decided to redesign its performance management system without formally assessing it, which is inconsistent with our previous recommendation that SEC periodically validate the system in order to enhance its credibility. In our July 2013 report, we found that the design of SEC’s performance management system reflected many elements of OPM guidance, but SEC staff expressed concerns about implementation of the system. Consistent with best practices, we recommended that SEC’s COO and Office of Human Resources conduct periodic validations (with staff input) of the performance management system and make changes, as appropriate, based on these validations. At the time of this review, SEC had not conducted periodic validations of its performance management system as we recommended—nor are any planned, according to SEC staff—and therefore the recommendation is still unaddressed. While SEC’s policies state that the Office of Human Resources is to perform an assessment of the system on an annual basis, Office of Human Resources officials told us that SEC has not conducted a formal assessment of the performance management system because the agency is in the process of developing a new system. Office of Human Resources officials stated that they decided to develop a new performance management system in 2014 due to continued criticism of the current system by the SEC employees’ union. In developing its new performance management system, SEC did not follow best practices that we and OPM have identified. For example, OPM’s HCAAF states that agencies should base their human capital management decisions (including those related to changes to the performance management system) on the results of data and planning. Additionally, key practices for effective performance management we have identified call for agencies to involve employees and other stakeholders when they design and periodically evaluate their performance management systems. However, since our 2013 report, SEC has not reviewed the effectiveness of its existing system and has had limited stakeholder involvement in the development of the new performance management system. SEC management did not assess the existing system to understand if the issues raised by employees were related to the system’s design or its implementation. As a result, SEC lacked information on if and what changes needed to be made and how best to make them. Instead, SEC developed a new performance management system with some limited consultations with the union in 2015 and conducted a pilot of the new system with non-bargaining staff in May 2016. We maintain that our prior recommendation should be implemented and that SEC should conduct periodic validations of any performance management system it has in place by, for example, obtaining staff input and general agreement on the competencies, rating procedures, and other aspects of the system. Only then should SEC make changes, as appropriate, based on these validations. Without evaluating its performance management system to identify problems and potential solutions, SEC may not have assurance that the new system will perform better than the current system. Furthermore, SEC’s planned changes to its performance management system will require additional resources that could be targeted toward its other personnel management challenges. SEC has not addressed our previous recommendations targeted at improving collaboration and communication across SEC. While SEC has created some incentives to support communication and collaboration across divisions, barriers related to cross-divisional communication and collaboration still remain. In our July 2013 report, we found that SEC faced barriers to communication and collaboration, especially among the various divisions and offices. We recommended that the SEC COO (1) identify and implement incentives for all staff to support an environment of open communication and collaboration and (2) explore communication and collaboration best practices and implement those that could benefit SEC. SEC has not yet addressed these recommendations. Since our 2013 report, SEC has demonstrated some improvement in communication and collaboration within divisions and offices. For example, in group interviews, supervisors from five of the six largest divisions and offices at SEC agreed that there is sufficient communication and collaboration within their division. Furthermore, our 2016 survey results showed some improvements related to communication and collaboration. For example, 44 percent of nonsupervisory staff agreed that information is adequately shared across groups in their division or office, compared to 34 percent in our 2013 survey (see fig. 10). SEC has also implemented some incentives and procedures for staff to communicate and collaborate. For example, SEC’s annual agency-wide awards program includes awards that recognize outstanding teams, including cross-divisional teams. SEC has also implemented tools and procedures to facilitate collaboration. For example, SEC developed a tracking system that facilitates collaboration on interdivisional memorandums, and the Division of Economic and Risk Analysis developed an electronic system that allows other divisions to request data it collects. In addition, the Division of Enforcement created formal liaisons that other divisions and offices can contact. Managers in four of the five largest divisions and offices told us that these liaisons help to facilitate cross-divisional communication and collaboration with the Division of Enforcement. However, incentives for staff to support an environment of open communication and collaboration are not present for all staff across SEC. According to OPM guidance, supervisors and managers should foster an environment of communication and collaboration. SEC has added performance expectations for 53 percent of supervisors to encourage communication and collaboration, including intra-agency communication and collaboration. For example, the Office of Compliance Inspections and Examinations sets expectations for its Assistant Directors (SK-17 level) to “promote and maintain an environment of cooperation and create a high level of team cohesion by empowering all staff” and “work with other Program areas and Offices, especially by pro-actively sharing relevant information.” In addition, the Division of Corporation Finance sets expectations for its accountants to “engage in appropriate internal and external communications to resolve issues” and to “provide relevant technical information and work-related knowledge, skills, and lessons learned within and/or beyond the work unit.” However, we found that these expectations were not present for 47 percent of all supervisors across divisions and occupations. As a result, SEC has not fully addressed our 2013 recommendation to identify and implement incentives for all staff to support an environment of open communication and collaboration. In addition, SEC has not demonstrated the use of best practices to improve communication and collaboration within and across SEC divisions and offices. We have previously identified best practices related to collaboration, including supervisors fostering an environment of open communication, promoting frequent communication among collaborating divisions, and establishing compatible policies and procedures to operate across agency boundaries. When we asked officials from the COO’s office whether they had researched best practices for improving communication and collaboration across SEC, they provided two examples. First, SEC officials told us that they reached out to officials at the Federal Deposit Insurance Corporation (FDIC) to discuss how FDIC had obtained high survey scores related to communication and collaboration. This outreach resulted in the creation of SEC’s “All Invested” initiative, which SEC described as an initiative to encourage collaboration and community to help the agency achieve its mission and make SEC the best place in government to work. Second, SEC officials mentioned a best practice in which they launched a “values campaign” to promote important values, including teamwork, as a part of the “All Invested” initiative. However, many of the supervisors and staff we spoke with told us that the “All Invested” initiative was more of a marketing campaign than a substantive change. SEC has also established a number of working groups to improve communication and collaboration, but these working groups are often focused on specific topics and do not provide a means for divisions and offices to collaborate on the full range of their day-to-day work activities. As a result of SEC’s limited action, we maintain that SEC has not taken sufficient steps to fully address our 2013 recommendation to explore and implement best practices to improve communication and collaboration within and across SEC divisions and offices. Of the seven recommendations that we made in 2013, SEC has made the least progress on the recommendations related to enhancing intra-agency communication and collaboration. One reason for this may be that, other than the Office of the Chair, there is no senior-level office or official that has authority over the daily operations of all SEC divisions and offices (see previous fig. 1). For example, the COO is responsible for approving budget requests, staffing levels, and reorganization requests for the SEC as a whole. However, each mission-critical office and division has its own director that is responsible for policies and programs that affect the operations of each individual office and division. For example, the Director of Enforcement and his staff facilitate communications with other divisions and offices to conduct investigations and coordinate on policy or legislative briefings. According to the March 2011 Boston Consulting Group report, the function of the SEC COO has historically focused on the annual congressional appropriation cycle, internal budgeting process, and administrative duties. Based on a number of interviews with relevant staff in the Office of Human Resources, we found that this structure and the limited authority of the COO may help to explain in part the inability of the COO to explore and implement best practices that could affect the daily operations throughout SEC. For example, these staff told us that the divisions and offices play the key roles in exploring and implementing best practices that could affect daily operations throughout SEC, not the COO. Key principles we have identified for organizational transformation call for agencies to create a position such as a COO or Chief Management Officer with authority over all operations of the agency; such a position is one approach to help agencies address long-standing management challenges. For example, there needs to be a single point within the agency with the responsibility and authority to ensure successful implementation of functional management and transformational change efforts. Further, it is not practical to expect an official like the Chair’s Chief of Staff to undertake this vital responsibility due to competing demands on their time in helping to execute the Chair’s policy and program agendas. The lack of a central position or office with authority over the daily operations of all SEC divisions and offices makes it difficult to lead SEC- wide changes to address long-standing management challenges related to communication and collaboration. Because of the COO’s limited authority and the absence of another SEC official, other than the SEC Chair, with the authority over the divisions and offices to take action to facilitate efforts to improve cross-divisional communication and collaboration, progress in this area will likely continue to be limited. An environment of limited intra-agency communication may continue to increase the risk of inefficiencies and less-than-optimal decision making, which may affect SEC’s ability to achieve its mission, as was the case with SEC’s actions related to the Bernard Madoff ponzi scheme and other enforcement failures. SEC’s hiring and promotion policies and procedures are generally consistent with OPM and other relevant criteria, but SEC lacks assurance that staff, particularly hiring specialists, know how to implement the policies and procedures correctly. OPM’s HCAAF specifies, among other things, that agencies’ hiring processes should help ensure that positions are developed and validated by appropriate staff, that position descriptions are established, and that appropriate assessment tools (e.g., processes for comparing application packages to qualifications and conducting panel interviews) are developed prior to initiating a hiring request. In addition, agencies should follow merit system principles and must observe prohibited personnel practices to ensure a fair process and may have to follow veterans’ preference requirements. Key principles for hiring that we have identified call for agencies to use vacancy announcements that are clear, user friendly, and comprehensive. Finally, federal internal control standards note that agencies should have procedures to determine whether a particular candidate fits the organizational needs and has the competence for the proposed role. Consistent with these criteria, SEC’s hiring and promotion policies and procedures require hiring specialists from the Office of Human Resources and hiring managers from the divisions and offices to follow specific steps and document these steps in recruitment case files. These steps include the following: documenting consultations between SEC hiring specialists and division hiring managers over the position to be filled by a hiring or promotion action; including descriptions of the position, job analysis, and the vacancy announcement in the case file for the position; documenting the review of applications to help ensure they meet issuing a certificate of eligibles, which lists all the applicants who are determined to be best qualified for the position posted; providing evidence of whether hiring managers reviewed each certificate of eligibles within established time frames and made a selection from the list of certified eligibles; and obtaining signed offer letters and supporting documentation, including starting salary. In addition, in 2015, SEC finalized standard operating procedures related to the review and maintenance of case files. These procedures require hiring specialists to complete checklists at various stages in the hiring and promotion process to help ensure that documents are uploaded appropriately. Supervisors are responsible for reviewing and approving the checklists before moving to the next stage in the process. In addition, they are also responsible for conducting periodic compliance reviews to ensure adherence to these procedures. However, although these policies and procedures meet relevant criteria, we found a large number of deficiencies when we tested the policies’ implementation. We reviewed a random sample of cases files from fiscal years 2013 through 2015 to determine if SEC was following its hiring and promotion policies and procedures. Based on our analysis of this sample, we estimate that for 94 percent of the case files for fiscal years 2013 through 2015, SEC staff did not consistently follow at least one policy or procedure for hiring and promotion actions, including the following examples: Documentation missing: Based on our analysis of the sample, we estimate that 16 percent of case files during these fiscal years had no evidence that applicants were reviewed to ensure they met the minimum job requirements. Further, we estimate that 16 percent of the case files had no certificate of eligibles, which makes it difficult to determine how officials selected the best qualified applicants. We also found deficiencies once candidates were selected for the position. For example, for 23 job offers made, we found no documents that showed how the initial salary was determined. Supervisory approvals missing: Based on our analysis of the sample, we estimate that 18 percent of case files for fiscal years 2013 through 2015 contained documents describing the consultation between the hiring specialist and the hiring manager about the position that were not completed or signed. As a result, determining if the hiring specialist and hiring manager reviewed and developed the documentation that is meant to support and defend the hiring decision is difficult. In addition, we estimate that 16 percent of case files had certificates of eligibles that were not signed by the responsible officials. The selecting officials are responsible for returning the certificate with their selection indicated, and their signature serves to assure the Office of Human Resources that they have provided their approval to extend an offer of employment, according to SEC staff. Time frames not observed: Based on our analysis of the sample, we estimate that 29 percent of case files for fiscal years 2013 through 2015 had certificates of eligibles that were not returned on time, nor was there documentation on why they were not returned on time. This is particularly important because some SEC employees told us that SEC cannot always hire the most qualified people due to slow processing times. In addition, for 20 job offers, the offer letter was sent before the initial salary determination was made, which is against SEC policy. SEC has also conducted reviews of its case files and identified deficiencies similar to those we found during our review. As discussed previously, as part of SEC’s implementation of its human capital accountability system, SEC has implemented an internal quality control process to help ensure that case files are accurate and complete, but this process occurs after hiring and promotion decisions are made. The purpose of this quality control process is to identify common deficiencies in case files in order to improve the hiring and promotion process. SEC has conducted four quarterly reviews of case files since September 2014 and continues to identify weaknesses similar to those we found, such as missing evidence of ranking of job candidates and missing documentation to support the initial salary of the candidate. SEC categorized the deficiencies into five levels of severity and found that the frequency of the minor (e.g., missing checklists) and moderate (e.g., missing descriptions of the position) deficiencies has slowly decreased over time, with minor deficiencies decreasing from 48 percent of case files reviewed during its September 2015 quarterly review to 41 percent in the most recent March 2016 review. Likewise, according to SEC, the moderate deficiencies decreased from 16 percent to 9 percent of case files reviewed over this same time period. However, the frequency of significant (e.g., missing reviews of whether applicants meet minimum qualifications) and major (e.g., missing audit of certificate of eligibles) deficiencies had slowly increased over time. Significant deficiencies have increased from 24 percent of case files reviewed during the September 2015 quarterly review to 33 percent in the most recent March 2016 review. Likewise, the major deficiencies increased from 12 percent to 17 percent of case files reviewed over the same time period. SEC had no critical deficiencies (e.g., violation of veterans’ preference) over this period. OPM, the National Credit Union Administration (NCUA), and an outside consultant also reviewed SEC’s hiring and promotion practices and identified similar deficiencies in a sample of case files they reviewed, including the following examples. OPM found that although SEC had various options for staff to document their rationale for deeming an applicant who did not meet minimum qualifications as “best qualified,” in some cases, staff did not provide sufficient documentation. As a result, OPM had difficulty reconstructing some minimum qualifications to assess whether a candidate met the minimum qualifications for the job posting. However OPM did find that the qualifications were accurate. NCUA found that applicants were not consistently notified of the status of their application at key stages. OPM has noted that it is a good practice to keep applicants notified of their status. An outside consultant that reviewed SEC’s internal promotion actions from fiscal years 2011 through 2014 found, for example, that SEC’s lack of full adherence to uniform personnel practices and guidelines appeared to result in a loss of promotional opportunities and unequal treatment in the selection stage for certain groups. Specifically, the consultant found that disparities existed in the way human resources specialists processed promotion actions and that they failed to apply processes and procedures established by OPM to promote fair and equal opportunities for all employees. These practices included restricting vacancy announcements to specific offices within SEC and early closing of vacancy announcements. As a result of these practices, the consultant reported that well-qualified applicants who perform similar functions in another area of SEC may not be selected or applicants may not have sufficient time to apply. SEC has taken a number of actions to address deficiencies identified by OPM, NCUA, and the consultant. For example, in December 2015 during our review, SEC began to mandate that all case file documents be uploaded to an electronic case file. Previously, SEC case files were maintained in a paper format. According to SEC staff, the electronic case files allow for easier access and monitoring than paper files, allow for controls over what documents are stored in the case files, and avoid problems with documents being misplaced or lost. To address issues that NCUA found, SEC now notifies applicants at key stages of the application process. SEC’s actions in response to recommendations in the consultant’s report include providing general training to all staff on how SEC promotes staff, publicizing the promotion process to all staff, and providing resources to staff interested in promotions, including guidance regarding writing resumes and preparing for interviews. SEC has recently taken some steps to improve its hiring and promotion practices, which may help to address the types of errors that we found in our review of files from fiscal years 2013 through 2015. As discussed previously, we found that hiring specialists failed to include the required documentation for 94 percent of case files we reviewed. The presence of errors in a large percentage of case files indicates that Office of Human Resource supervisors, who are responsible for overseeing the work of the hiring specialists, did not identify and resolve these issues as required by SEC policy. According to federal internal control standards, managers should perform ongoing monitoring as part of the normal course of operations. Ongoing monitoring includes regular supervisory activities and reconciliations, and may include automated tools, which can increase objectivity and efficiency. SEC officials told us that the electronic case files they began to create in December 2015, during the course of our review, should allow them to more easily monitor and audit whether all documentation is complete and properly uploaded at every stage of the hiring and promotion process, and these actions are consistent with federal internal control standards. Few completed electronic case files were available during our review, and therefore it is too early to evaluate the effectiveness of the new process. However, SEC’s steps may help to ensure that staff adhere to policies and procedures and may help to address the types of errors that we found in our file review. We also found issues related to the training of SEC’s hiring specialists, which may be another factor contributing to the high rate of errors in the case files we reviewed. When we spoke to SEC hiring managers, they expressed some concern over the competence of hiring specialists in the Office of Human Resources. Hiring specialists also told us that they received only limited training. Based on our review of training offered by SEC University, we did not find any specific training on hiring and promotions targeted at hiring specialists. Further, SEC’s 2015 training plan for the Office of Human Resources has a course on adjudicating veterans preference, but no courses are specifically targeted at how to implement each stage of the hiring and promotion process. A key principle of an effective control environment states that managers should demonstrate a commitment to recruit, develop, and retain competent individuals. For example, managers should establish expectations of competence for key roles to help the entity achieve its objectives. This competence is gained largely from professional experience, training, and certifications. In addition, as previously discussed, we found that SEC has not assessed whether some of its mission-support staff, including key hiring specialists, have the necessary skills to conduct their work. OPM has stated that agencies should conduct a learning needs analysis to identify skills gaps across their entire workforce, and we found that SEC has yet to fully address our 2013 recommendation to conduct such an analysis. Rather, SEC only conducted a skills gap analysis of staff in the mission-critical office and divisions and in the Office of Information Technology. Without providing necessary training that is informed by a comprehensive skills gap analysis, SEC may lack assurance that hiring specialists have the skills required to conduct their work effectively, and that it is hiring and promoting the most qualified applicants. A high-performing workforce is critical to SEC effectively carrying out its regulatory responsibilities in increasingly complex markets. While SEC has taken steps to address our 2013 recommendations, its progress has been limited, and five of the seven recommendations are not fully addressed. We maintain that these five recommendations—in the areas of workforce and succession planning, the performance management system, and communication and collaboration—should be addressed in order for SEC to fulfill its mission effectively. One of the most protracted personnel management challenges at SEC remains communication and collaboration, and SEC’s limited progress in addressing our 2013 recommendations in this area points to a lack of leadership in breaking down silos that prevent divisions and offices from working more efficiently and effectively with each other. Apart from the office of the Chair, which has broader responsibilities both within and outside the agency, heads of each division and office are responsible for their daily operations and are not accountable to any senior-level official, such as the Chief Operating Officer. Our prior work has found that having a senior-level position within the agency that has the responsibility and authority to ensure that changes are implemented can help address protracted personnel management challenges such as communication and collaboration. Finally, our review found that SEC’s training related to hiring and promotion practices may be inadequate. According to federal internal control standards, managers should demonstrate a commitment to recruit, develop, and retain competent individuals, which depends in part on adequate training. Because SEC has not conducted a skills gap analysis across its entire workforce as we previously recommended in 2013, including its hiring personnel, it lacks the information needed to develop an effective training program. Training for hiring specialists that is informed by a comprehensive skills gap analysis should better enable SEC management to hire and promote the most qualified applicants. To help SEC address identified personnel management challenges, the Chair should take the following two actions: Enhance or expand the responsibilities and authority of the COO or other official or office so they can help ensure that improvements to communication and collaboration across SEC are made. For instance, if the duties of the COO were expanded, the COO could establish liaisons in each mission-critical office and division for SEC employees to contact or develop procedures to help facilitate communication and collaboration among the mission-critical office and divisions. Develop and implement training for hiring specialists that is informed by a skills gap analysis. We provided SEC a draft of this report for its review and comment. SEC provided written comments that are reprinted in appendix IX. In its written comments, SEC agreed with the majority of our findings and one of our two recommendations, but it disagreed with the other. In its letter, SEC stated that it has made a number of improvements in its personnel management since our 2013 report. The letter also highlighted that the released rankings of the Best Places to Work in the Federal Government show that SEC’s workforce is among the most engaged in the Government, ranking now 6 out of 27 mid-sized agencies; SEC has climbed nine places in the rankings since our 2013 report. According to the letter, this improvement, among other indicators, illustrates the agency's success in building, sustaining, and growing an organization that fosters and values innovation, communication, collaboration, and transparency. In its letter, SEC also acknowledged that further improvements could be made, and it noted that our report contained useful information to strengthen personnel management at the Commission. Related to personnel management, SEC acknowledged our second recommendation in this report to develop and implement training for its hiring specialists. Specifically, the letter stated that SEC University in coordination with the Talent Acquisition Group in SEC’s Office of Human Resources will prioritize its competency assessment of its human resource specialists (which includes hiring specialists) and develop training plans to address any skill gaps identified. SEC also agreed that it still needs to conduct periodic validations of its performance management system. According to the letter, SEC worked with OPM recently to validate the new system that it is piloting and that the Commission will continue to work with OPM to conduct additional surveys of supervisors and employees regarding the efficiency and effectiveness of SEC's performance management program. SEC also stated in its letter that improvements can be made to its workforce and succession planning. In its letter, SEC stated that it had already begun the planning process to conduct a competency skills gap analysis on the non-mission critical workforce in fiscal year 2017, and will develop appropriate action plans to address the skill gaps that are identified. In addition SEC stated that the Office of Human Resources is in the process of enhancing its current succession planning program, and it will work with all SEC division directors and office heads to institute additional fair and transparent processes for identifying high-potential employees and communicating to them opportunities for leadership development. SEC disagreed with our characterization of the current state of its intra- agency communication and collaboration. In its letter, SEC stated that it believes that significantly more progress has been made by the Commission to resolve the recommendations from our 2013 report (addressing interdivisional communication and collaboration) than our report recognizes. SEC also stated that interactions at both the staff and senior leadership levels are continuous, and that it has instituted both formal and informal mechanisms for additional coordination where it is required, which have proven to be successful. SEC also stated that cross-divisional interaction may not be necessary, or even appropriate, for some non-supervisory staff, and it noted concern with our reliance on anecdotal accounts from one former employee. We acknowledged the improvement SEC has made, for example, by noting that the percentage of non-supervisory and supervisory staff responding that information is adequately shared across groups in their division or office increased from 2013 to 2016. However, we found substantial evidence that siloed communication remains a challenge at SEC. For instance, 78 of the 187 employees we interviewed (over 40 percent) cited issues around siloed communication as an area where SEC needs to improve. Additionally, of the 1,947 written responses we received to our survey questions, 597 of them cited various challenges related to communication and collaboration. We provided examples from several current and one former employee to illustrate the siloed communication at SEC. Further, we recognize that not all staff at SEC may need to coordinate and collaborate for work-related issues. However, staff in mission-critical offices and divisions should be enabled to collaborate and communicate with staff in other offices and divisions. As acknowledged in our report, the Division of Enforcement created formal liaisons that other divisions and offices can contact, and these liaisons help to facilitate cross-divisional communication and collaboration within the division. Based on our survey results, staff in the Division of Enforcement more frequently interacted with staff from other mission-critical offices and divisions. As SEC acknowledged in its response, the Division of Economic and Risk Analysis is similar to the Division of Enforcement in that staff should be routinely communicating and collaborating with them. However, unlike the Division of Enforcement, the Division of Economic and Risk Analysis lacks a mechanism to easily facilitate cross-divisional communication and collaboration. Our survey results show that interaction between Division of Economic and Risk Analysis staff and staff from other mission-critical offices and divisions is limited. SEC also disagreed with our recommendation related to enhancing the responsibilities and authority of the COO or other official or office to help ensure that improvements to communication and collaboration across SEC are made. In its letter, SEC stated that given the current legal and management structure of SEC, as well as the requirements of its mission, SEC does not believe that a position of that description would improve the ability of SEC to discharge its obligations to protect investors. SEC also stated that the agency’s structure and the authority of the Chief of Staff and the Deputy Chiefs of Staff enables them, in close consultation with the Chair, to effectively pursue changes to enhance coordination and collaboration throughout SEC. We are not suggesting that an additional layer of management is needed to help improve the ability of SEC to discharge its obligations to protect investors. Rather, we are recommending that the authority of the COO or some other official be enhanced in order to ensure that each mission-critical office and division establish a mechanism or develop procedures to facilitate communication and collaboration. SEC provided no evidence to illustrate why relevant best practices that GAO has identified can work in other federal agencies that have varied structures cannot benefit the Commission. The best practices we have identified call for institutionalized accountability for addressing management issues and leading transformational change because the management weaknesses in some agencies are deeply entrenched and long-standing, and it can take at least 5 to 7 years of sustained attention and continuity to fully implement transformations and change management initiatives. The typical tenure of an SEC Chair is shorter than the time needed to affect such change. Since 2001, SEC has had 6 Chairs and none of them have had a tenure that lasted 4 years. SEC also noted that our conclusions would have been better informed with the full perspectives of the agency’s Chief of Staff and Deputy Chiefs of Staff. We met with the Chief of Staff and Deputy Chief of Staff during our review and they discussed efforts by SEC to address cross-divisional communication and collaboration changes. While we acknowledge efforts SEC has made to improve collaboration and communication across the agency, the evidence we present indicates that SEC should do more to identify a single point of contact with the responsibility and authority to ensure the successful implementation of a communication and collaboration process. As a result, we maintain that the recommendation would help ensure such change. We are sending copies of this report to the appropriate congressional committees, the Chair of the Securities and Exchange Commission, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at 202-512-8678 or clementsm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix X. Table 2 provides the status of recommendations we made to the Securities and Exchange Commission (SEC) in 2013. As the table shows, five of the seven recommendations remain open, as of December 2016. This report examines (1) employees’ views of the Securities and Exchange Commission’s (SEC) organizational culture and personnel management, and the extent to which these views have changed since our 2013 report and (2) the extent to which selected SEC personnel management practices have been implemented consistent with relevant standards. To examine employees’ views of SEC’s organizational culture and the extent to which they have changed since 2013, we conducted surveys of all SEC staff, a content analysis of open-ended responses to our survey, individual interviews with SEC staff, and structured group interviews with SEC supervisors: Surveys: To examine employees’ views of SEC’s organizational culture and the extent to which these views have changed since 2013, we implemented three web-based surveys of all 4,236 nonsupervisory and supervisory staff and 148 senior officers. The three surveys were administered to the following number of staff during the following time periods: 1. the survey to the mission-critical office and divisions was administered to 2,627 staff from October 2015 to March 2016; 2. the survey to all other offices and divisions was administered to 1,609 staff from May 2016 to September 2016; and 3. the survey to all 148 senior officers was administered from April 2016 to July 2016. The surveys were administered to the different groups at various timeframes to, for example, allow for the maximum response rate given the competing demands of SEC staff at different times of the year. We chose to survey all staff at SEC instead of a sample to obtain information from the largest feasible number of SEC employees. We analyzed the results of our 2016 survey of all supervisory and nonsupervisory staff and senior officers and also compared the results from 2016 surveys to the mission-critical office and divisions and the senior officers to the results from the 2013 surveys. In addition, we reviewed the Office of Personnel Management’s (OPM) 2016 Federal Employee Viewpoint Survey (FEVS) results to obtain additional perspectives from SEC staff on the agency’s personnel-management-related issues. Each GAO survey to SEC staff included questions on (1) personnel management issues related to recruitment, training, staff development, and resources; (2) communication between and within divisions and offices; (3) leadership and management; (4) performance management and promotions; and (5) organizational culture and climate. The separate survey of all SEC senior officers (those at the SO-1, SO-2, and SO-3 pay grades) covered the same topic areas but omitted questions not relevant for senior officers and included additional questions specifically relevant for senior officers. The survey to all other offices and divisions also covered the same topic areas, but had some questions omitted, such as the question related to the number of times they had interacted with the mission-critical office and divisions over the past year. Our survey included both multiple-choice and open-ended questions. For our survey of the mission-critical office and divisions, 1,819 nonsupervisors and supervisors responded to our survey for a response rate of 69 percent; for our survey of all other offices and divisions, 969 nonsupervisors and supervisors responded for a response rate of 60 percent. A total of 104 of the 148 senior officers responded to our survey of all senior officers for a response rate of 70 percent. For all surveys, except the one for senior officers, we carried out a statistical nonresponse bias analysis using available administrative data and determined that we could not assume that the nonrespondents were missing at random. For this reason, the results of the staff survey are presented as tabulations from a census survey. 31 percent of mission-critical employees and 40 percent of all other employees who chose not to complete our survey. To minimize certain types of errors, commonly referred to as nonsampling errors, and enhance data quality, we employed recognized survey design practices in the development of the questionnaires and the collection, processing, and analysis of the survey data. To develop our survey questions, we drew on information from one-on-one interviews, focus group sessions held during our 2013 review, and prior GAO SEC personnel management surveys. For the surveys of the mission-critical office and divisions and senior officers, we took steps to ensure our survey questions from 2013 were still relevant and to determine if new issues warranted new questions. To do this, we sent draft survey questions to SEC officials in the mission-critical office and divisions and senior officers who volunteered to review our draft questions to obtain their feedback on the survey questions. For the survey of the other offices and divisions within SEC, we pretested the questionnaire with SEC employees to validate the survey questionnaire and to ensure that we were not omitting relevant questions from the survey. We met with six SEC staff for the pretest of the survey. During survey development, we reviewed the survey to ensure the ordering of survey sections was appropriate and that questions in each section were clearly stated and easy to comprehend. A GAO survey expert reviewed and provided feedback on our survey instrument. To reduce nonresponse, another source of nonsampling error, we undertook an intensive follow-up effort that included multiple e-mail reminders to encourage SEC employees to complete the questionnaire and a series of phone call reminders to nonrespondents to encourage participation and to troubleshoot any potential logistical issues with access to the questionnaire. We minimized processing errors by having a second independent data analyst conduct an accuracy check of the computer programs used for data analysis. We also had respondents complete questionnaires online to eliminate errors associated with manual data entry. On the basis of our application of these practices and follow-up procedures, we determined that the data were of sufficient quality for our purposes. Content analysis: To analyze the information we obtained from the open-ended survey responses, we conducted a content analysis on the 1,947 responses to the six open-ended survey questions from the survey of the mission-critical office and divisions using a text analytics tool. Two analysts developed coding categories based on requirements in section 962 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), our researchable objectives, and information collected during individual interviews, as well as findings from our July 2013 report. Coding categories were as follows: (1) communication and collaboration, (2) hierarchy, (3) risk aversion, (4) atmosphere of trust, (5) morale, (6) performance management, (7) training and hiring, and (8) awards. The team provided a “lexicon” of key words and phrases associated with each of the eight coding categories to the text analytics subject matter expert. For example, the key words and phrases associated with communication and collaboration included “communication,” “transparency,” and “working together.” For each of the six open-ended questions, the subject matter expert developed a computer program using the lexicon and provided the team with the categorized open-ended responses. The goal of this analysis was to determine the number of respondents who mentioned at least one challenge in the respective coding category. After obtaining the categorized open-ended responses, two GAO analysts collaboratively reviewed the output and revised or “calibrated” the lexicon based on each result. This review involved verifying the coding of a judgmental sample of responses. The subject matter expert then reran the program with the updated lexicon. This iterative process allowed the subject matter expert to refine the program to isolate comments focused on challenges associated with the coding categories. While human correction and evaluation of the content can help improve the quality of the machine generated coding, a certain, undetermined error remains. To minimize error and improve accuracy, the calibration process continued for three iterations. Comments that were flagged by the text analytics tool as capturing a challenge within a particular coding category were coded with a “1.” Once coding was completed and the discrepancies were resolved, an analyst tallied the total number of responses with a “1” in each of the coding categories. This number indicated the proportion of respondents who expressed concern in their open-ended responses for each category. This process was repeated for each of the eight challenge categories. We do not make any attempt to extrapolate the findings to the eligible staff who chose not to complete our surveys. Individual interviews: We interviewed or obtained written responses from 185 employees (144 nonsupervisory staff, 17 supervisory staff, and 24 staff who chose not to disclose their supervisory status)—in person for those at SEC headquarters and by telephone or e-mail for those in headquarters and regional offices—during 2 weeks in September 2015 and 1 week in February 2016 to obtain their views on personnel management challenges at the agency. We coordinated with SEC to send a broadcast message over its internal system to all staff to invite them to meet with us either in person or to call a GAO toll-free number or use a GAO e-mail account to provide their views on SEC’s organizational culture. At headquarters, we established office hours during which employees could speak with GAO analysts. During the same period, we set up a GAO toll-free phone number and e-mail account to communicate with employees in the regional offices or headquarters who could not attend the office hours. We asked certain key questions of every person we interviewed and interjected additional questions as appropriate. We also explained that our review was initiated due to a provision in section 962 of the Dodd-Frank Act, and provided a description of this section when asked by SEC employees. We then asked them about (1) what personnel management practices were working well, (2) what challenges existed in personnel management, (3) what initiatives, if any, SEC had taken to address these challenges, and (4) whether these individuals had any recommendations to address such challenges. For those staff who were not familiar with what areas encompassed personnel management, we presented them with a list of areas for them to think about. Employees were encouraged to talk openly and freely. To maintain the confidentiality of individual responses, we did not record individual names in our transcripts. Instead, we collected and analyzed the information by division and rank only, and we aggregated our findings so that no individual comments could be identified. We conducted a separate analysis to summarize key themes that emerged from these individual interviews. GAO analysts independently reviewed notes taken from these interviews and made a judgment about appropriate codes that described the themes. The analysts compared their decisions and reconciled any disagreements, resulting in the following set of coding categories: (1) staff competence; (2) appropriate levels of supervisory and non-supervisory staff; (3) effectiveness of supervisors; (4) promoting staff criteria; (5) siloed communication issues; and (6) other cross-cutting challenges. Once the coding structure was finalized, one GAO analyst separately reviewed and coded each response and tabulated the frequency of statements expressing certain themes, while a second analyst verified the information to ensure the tabulation was correct and that the analyst concurred with the results. Where there were discrepancies, a third analyst was asked to review the statements and to make a final determination about how a specific statement would be coded. We also interviewed former SEC employees, officials from the SEC Office of Inspector General (IG), and self-selected representatives and members of the SEC employees’ union. We selected a nonprobability sample of former employees to interview that reflected the diversity of former employees in terms of pay grade, occupational category, and tenure, among other factors. The results of these interviews with SEC employees, former SEC employees, and members and representatives of the SEC employees’ union are not generalizable, but provide views and experiences. Structured group interviews: We also conducted structured group interviews with supervisors from the mission-critical office and divisions at SEC, including supervisors in regional offices. The purpose of these structured group interviews was to obtain their views on the following personnel management practices related to: hiring, promotions, supervision, strong and unacceptable performance, training, and communication and collaboration. Our universe of supervisors consisted of staff at the SK-15 or SK-17 level, with the exception of staff at the SK- 15 level in the Division of Enforcement, who are not considered management. We obtained the e-mail addresses of all supervisors in these divisions and sent them an invitation to participate in our structured group interviews. We held eight meetings with the supervisors who agreed to participate in our structured group interviews. We held a meeting with each of the mission-critical office and divisions on communication and collaboration. At two of these meetings, we had both SK-15s and SK-17s, including staff from regional offices. In addition, we had two meetings that covered the noncommunication topics. One of the meetings consisted of SK-15s and the other consisted of SK-17s from each of the mission-critical office and divisions. These meetings also included regional office staff. The results of these meetings are not generalizable, but provide views on selected personnel management practices. To determine the extent to which selected SEC personnel management practices have been implemented consistent with relevant standards, we first assessed whether these practices were designed consistent with OPM’s Human Capital Assessment and Accountability Framework (HCAAF), key human capital practices we have identified in prior work, and federal internal control standards. As part of this effort, we reviewed actions SEC had taken to address the seven recommendations from our 2013 report related to four personnel management areas: (1) workforce and succession planning, (2) performance management, including performance feedback, (3) communication and collaboration, and (4) human capital accountability. In addition to these four personnel management areas, we also assessed the design and implementation of four personnel management practices based on information we obtained from SEC staff. Specifically, they identified these as potential areas of concern (or areas of improvement) during individual interviews with us as well as in responses to our surveys—actions to recognize and reward performance, actions to address unacceptable performance, hiring and promotions, and training. Workforce and succession planning: To determine whether SEC’s workforce and succession planning practices were designed consistent with relevant criteria, we obtained a copy of SEC’s 2016 strategic workforce plan. We reviewed this strategic plan and compared it to OPM’s HCAAF and our prior work on strategic workforce planning. For example, we reviewed the skills gap analysis from the plan and compared it to OPM’s HCAAF related to identifying critical skills for an agency’s workforce. As part of this effort, we worked with our Director of Workforce Planning to review SEC’s strategic workforce plan and determine whether the plan was sufficient to address our 2013 recommendations. In addition, we met with SEC’s Workforce Policy Group, Office of Human Resources, and senior leaders from the divisions to obtain information on what actions they had taken to address our recommendations related to workforce and succession planning. Performance feedback: To determine what steps SEC had taken to address our 2013 recommendation, in conjunction with staff from our Human Capital Office, we examined SEC’s process for monitoring feedback as well as our survey results that relate to the performance feedback employees receive. We obtained information on SEC’s process for monitoring feedback by reviewing documentation and interviewing staff from the Office of Human Resources. As part of this effort, we obtained a description of their audit of a sample of performance work plans. Performance management: In our prior review (GAO-13-621), we determined that the design of SEC’s performance management system reflected many elements of OPM guidance, but SEC staff expressed concerns about implementation of the system. However, since our prior review, SEC decided to make changes to its performance management system. Therefore, in this review, we set out to determine the extent to which SEC’s changes to its performance management system were consistent with relevant standards. To do this, we met with SEC staff from the Office of Human Resources and union officials to inquire about what actions SEC had taken to address our 2013 recommendations. Upon learning that SEC decided to redesign its performance management system in 2014, we assessed the actions SEC took to redesign its system and compared these actions to OPM’s HCAAF, our previous work on performance management systems, and federal internal control standards. We also worked with staff from our Human Capital Office to assess the actions SEC had taken to redesign its system against the relevant criteria. Communication and collaboration: To determine whether SEC’s communication and collaboration practices were designed consistent with relevant criteria, we assessed SEC’s actions to address our 2013 recommendations against OPM’s HCAAF, our previous work, and federal internal control standards. Specifically, we reviewed SEC’s award program to determine if the program provided incentives to support an environment of open communication and collaboration, including determining whether SEC provided awards for teamwork. In addition, we reviewed 79 performance expectations, known as performance work plans; all 28 supervisory performance work plans (including 5 plans under the pilot performance management system), and 51 nonsupervisory performance work plans for the mission-critical office and divisions. For the nonsupervisors, we selected the performance work plans for the “mission-critical” staff we identified in our 2013 review—accountants, attorneys, economists, examiners, and financial analysts at the SK-12 through SK-16 levels. The results of our review of performance work plans are not generalizable, but provide us with information on how communication and collaboration are addressed as part of an employee’s performance expectations. To determine whether the performance work plans contained expectations that addressed our 2013 recommendation, one GAO analyst read through each performance work plan and determined whether it contained all four of the following categories that were derived from the recommendation:(1) communication, (2) collaboration, (3) intra-agency communication and collaboration, and (4) fostering an environment of open communication and collaboration—for example, encouraging acceptance, exchanging of information, and sharing of diverse points of view regardless of individual differences. A second GAO analyst independently conducted a similar analysis of each performance work plan. A third GAO analyst reviewed the results of both sets of reviews to reconcile any differences. In cases where the reviews differed, the third GAO analyst reviewed each analyst’s assessment and made a judgment on which one was correct. In addition, we met with SEC staff in the Office of Human Resources and senior officials from the divisions to discuss what actions they had taken to address our 2013 recommendations. Human capital accountability: To determine whether SEC’s human capital accountability system was designed consistent with relevant criteria, we obtained and reviewed SEC documentation on its recently developed human capital accountability system, including policies establishing the system, standard operating procedures, and evidence of the system’s implementation, such as a review of SEC’s student loan repayment program. We compared SEC’s documentation on its human capital accountability system to OPM’s HCAAF and federal internal control standards to determine whether this system addresses the recommendation from our 2013 review. For example, we reviewed SEC’s schedule of human capital program reviews, the reports generated from reviews of specific human capital programs, and actions taken by SEC to address any identified weaknesses in internal controls and compared them to OPM’s HCAAF related to human capital accountability. We also met with staff from SEC’s Human Capital Strategy Group in the Office of Human Resources to determine what criteria they used to determine which human capital programs to review. Actions to recognize and reward performance: To determine whether SEC’s policies on awards have been designed consistent with relevant criteria, we compared these policies to OPM’s HCAAF and our prior work on linking individual performance to organizational success. Specifically, we reviewed the following policies and documents related to awards: SEC’s administrative regulations that govern its recognition programs SEC’s collective bargaining agreement; and SEC’s guidance for cash and time-off awards. We worked with staff from our Human Capital Office to assess these policies against OPM’s HCAAF and our prior work, and determined that they were consistent with relevant criteria. For example, we reviewed SEC’s processes for monitoring how supervisors recognize and reward performance and compared them to OPM’s HCAAF related to awarding staff. We next determined whether SEC’s practices related to awards were being implemented consistent with the agency’s policies. To do this, we obtained a list of all incentive awards (cash and time-off) for fiscal years 2013 through 2015. We randomly selected 96 award packages from fiscal years 2013 through 2015. Of these 6 were from fiscal year 2012 and out of the scope of our review, 19 were performance-based compensation amounts, which were out of the scope of our review, and 1 was later found by SEC to be out of our scope, thus 71 were analyzed. Because the database we used to draw our sample contained data that was out of the scope of our review (such as some packages from fiscal year 2012 and others that were not incentive awards), we did not attempt to generalize the results of the sample. We were, however, able to use the 71 award packages to assess SEC’s implementation of its awards program. Each package should have contained the following information: written justification for the award; the dollar amount or hours off for the award; evidence of approval (i.e., signatures) by the recommending official, reviewing official (both usually from the divisions or office that nominated the person for the award), and the office of human resources staff in the awards program area; evidence of the Chief Operating Officer’s approval for certain high dollar amount or time-off awards; and a copy of the award recipient’s official personnel record (SF-50) with the correct dollar amount or time-off hours noted. We then had one GAO analyst review each of the 71 award packages and complete a checklist noting whether the package contained the information previously mentioned. A second GAO analyst then reviewed each of the 71 packages and reviewed how the first analyst coded the checklist. If the second analyst did not agree with the coding of the first analyst, that information was noted and both analysts met to discuss any disagreements. During this meeting, the two analysts were able to discuss their disagreements and reach consensus on the proper coding of the award packages. We also analyzed the award data for fiscal years 2013 through 2015, which we present in appendix IV. In addition, we met with staff from SEC’s Office of Human Resources who are responsible for the awards program to obtain a better understanding of SEC’s awards program. Actions to address unacceptable performance: To determine whether SEC’s policies to address unacceptable performance have been designed consistent with relevant criteria, we compared these policies to OPM’s HCAAF and our prior work on linking individual performance to organizational success. Specifically, we reviewed the following policies and documents related to addressing unacceptable performance: SEC’s overview of its employee misconduct and nonperformance support program, SEC’s collective bargaining agreement, the performance management standard operating procedures for non- bargaining-unit employees, and SEC’s senior officer performance management administrative regulation. We worked with staff from our Human Capital Office to assess these policies against OPM’s HCAAF and our prior work, and determined that they were consistent with relevant criteria. For example, we examined the processes SEC has to monitor supervisors’ practices to address unacceptable performance and compared them to OPM guidance and federal regulations on addressing such performance. We next determined whether SEC’s practices related to addressing unacceptable performance were being implemented consistent with the agency’s policies. To do this, we obtained all performance improvement plans for fiscal years 2013 through 2015 (16 in all) and compared the information in these plans against what SEC’s policies require. We first had one GAO analyst review each performance improvement plan, compare the information in these plans and supporting documents to what SEC requires for these plans, and record the findings in a spreadsheet. We then had a second GAO analyst review the work of the first analyst to determine if the spreadsheet was coded correctly. The two analysts conferred on any differences in the coding and were able to reach consensus on the proper coding. We also reviewed documentation associated with probationary employees who are terminated due to performance issues. SEC’s policies related to addressing unacceptable performance do not apply to probationary employees. The actions SEC can take against these employees are governed by federal regulations related to actions taken against probationary employees for unsatisfactory performance or conduct. Similar to our approach with the performance improvement plans, we obtained all files related to probationary employees terminated due to unacceptable performance for fiscal years 2013 through 2015 (20 in all). We again had one GAO analyst review each file and compare the information in these files and any supporting documents to what OPM regulations require, such as a description of the unacceptable performance, and record the findings in a spreadsheet. We then had a second GAO analyst review the work of the first analyst to determine if the spreadsheet was coded correctly. The two analysts conferred on any differences in the coding and were able to reach consensus on the proper coding. We also reviewed our recent work on the federal government’s actions to address unacceptable performance to compare actions SEC had taken with actions taken across the federal government. In addition, we met with the Office of General Counsel at SEC to obtain an understanding of the agency’s policies to address unacceptable performance. Hiring and promotions: To determine whether SEC’s hiring and promotion policies have been designed consistent with relevant criteria, we compared these policies to OPM’s HCAAF, the President’s 2011 memorandum on improving federal recruitment and hiring, our prior work on best practices in human capital management, and federal internal control standards. Specifically, we reviewed the following policies and documents related to hiring and promotions: SEC’s hiring program overview, which describes the entire hiring process, including specific responsibilities of staff in the Office of Human Resources and the divisions; a description of the various hiring authorities available to SEC; a description of how SEC establishes initial pay for new hires; SEC policies on promotions for non-bargaining-unit positions; and SEC’s collective bargaining agreement. We worked with staff from our Human Capital Office to assess these policies against OPM’s HCAAF and our prior work, and determined that they were consistent with relevant criteria. For example, we assessed SEC’s processes for hiring and promotions and compared them to OPM’s HCAAF related to hiring. We next determined whether SEC’s hiring and promotion policies were being implemented consistent with the agency’s policies. To do this, we reviewed recruitment case files, which are the documentation that supports a hiring or promotion announcement, to determine if SEC was following its hiring and promotion policies. We randomly selected 102 recruitment case files for review. Of these, 3 were duplicates and 18 recruitment case files could not be analyzed because they had already been audited by OPM or SEC. This left us with a final sample of 81 recruitment case files. We express our confidence in the precision of estimates derived from the sample of recruitment case files as 95 percent confidence intervals. This is the interval that would contain the actual population values for 95 percent of the samples that we could have drawn. We then developed a checklist that contained steps SEC should take during various stages of the hiring and promotion process. We provided this checklist to staff from our Human Capital Office for their review and also ensured that our checklist was consistent with the checklists that SEC had developed to assess its hiring and promotion processes. We then assembled a group of GAO analysts to review the case files and complete the checklists. In order to ensure consistent completion of the checklist, each GAO analyst’s first few checklists were independently reviewed by another analyst. After this stage, the two GAO analysts compared the results of the checklists. Any discrepancies were discussed among the two analysts as well as shared with the entire group of GAO analysts. Once the entire group reached consensus on how to address the discrepancies identified during this stage, all 81 case files were reviewed against the checklist. The next step in the process involved an independent second review of the completed 81 case file checklists. All 81 case files were checked by a GAO analyst who was not involved in the initial review. Any discrepancies found during this stage were discussed among the analysts, and a consensus was reached on how to address the discrepancy. Once this process was completed, the information from the checklists was tallied to identify any deficiencies in the hiring and promotion process. To obtain the views of the key SEC staff involved in the hiring and promotion process, we developed a set of structured interview questions and conducted interviews with 18 of the 23 hiring specialists in the Office of Human Resources and 16 hiring managers from the divisions. We provided the set of structured interview questions to staff from our Human Capital Office for review and revised the questions based on their expertise. We attempted to interview all 23 hiring specialists, but 5 did not respond to our request. We chose the 16 hiring managers to interview by obtaining the list of names, titles, e-mail addresses, and phone numbers of all hiring managers from the six mission-critical office and divisions. For divisions that had more than two hiring managers, we randomly selected two managers, except for the Division of Enforcement and the Office of Compliance Inspections and Examinations. For this division and office, we selected a judgmental sample of hiring managers, based on input from SEC on what types of staff or regions would more likely be involved in the hiring process. We used this approach for the Division of Enforcement and the Office of Compliance Inspections and Examinations because they have a large regional presence, and we interviewed 2 managers in headquarters and 2 in the regional offices for each. The responses to the structured interview questions are not representative of the views of all SEC staff involved in the hiring process but provide useful information on the types of views and concerns held by these staff. We also reviewed OPM’s 2014 review and the National Credit Union Administration’s 2015 review of SEC’s hiring and promotion practices, as well as an outside consultant group review of SEC’s internal promotion actions from fiscal years 2011 through 2014. We assessed the methods used in these reviews and determined that they were reliable for our purposes. Finally, we reviewed SEC’s internal quality reviews of its hiring and promotion practices that were implemented as part of its human capital accountability system. Training: To determine whether SEC’s policies on training for staff who work in the mission-critical office and divisions were designed consistent with relevant criteria, we compared these policies to OPM’s HCAAF and our prior work on assessing strategic training and development efforts in the federal government. Specifically, we reviewed SEC’s training policy—SEC Administrative Regulation 6-28: Training and Development—and the collective bargaining agreement. We also met with our Chief Learning Officer to help us determine how to assess these policies against OPM’s HCAAF and our prior work, and determined that they were designed consistent with relevant criteria. In order to assess the implementation of SEC’s training practices, we, in conjunction with our Chief Learning Officer, determined that the best measure of a training program is the views of the supervisors because they are in the best position to determine if their staff have the necessary skills to accomplish their work. As a result, we asked selected SEC supervisors about the effectiveness of training during structured group interviews of SEC supervisors. We selected these supervisors based on whether they worked in the mission-critical office and divisions, pay grade and occupation, geographic location, and willingness to meet with us. We also analyzed survey results on training collected from our 2016 surveys of mission-critical office and divisions and senior officers and compared them to the results of our 2013 survey. We also compared SEC responses on training from the 2016 OPM FEVS to that of other agencies. Finally, for all of the personnel management practices we assessed, we reviewed responses from our surveys and from our individual and structured group interviews, and we included relevant responses to provide SEC staffs’ perspectives on these practices. We assessed the reliability of all of the data we used during this review and determined they were sufficiently reliable for our purposes, which include describing trends and views on personnel management practices at SEC. To assess the reliability of the FEVS data, we examined descriptive statistics, data distribution, and reviewed missing data. We also reviewed FEVS technical documentation as well as the statistical code OPM uses to generate the index and variance estimates, and we interviewed officials responsible for collecting, processing, and analyzing the data. We used SEC data derived from the Department of the Interior’s Federal Personnel/Payroll System to construct our sample frames for the three surveys, test the implementation of various personnel management practices, and develop summary tables in our appendixes. To determine the reliability of these data, we interviewed SEC staff responsible for these data to determine how data were collected, what controls existed over the data, and any limitations on the data. In addition, where possible, we compared data elements to the original source documents to corroborate the accuracy of the data where available. We conducted this performance audit from July 2015 to December 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The Office of Personnel Management (OPM) conducts an annual survey of federal employees to obtain their views about their work experiences, agencies, and leaders. The following tables provide information on Securities and Exchange Commission (SEC) employee responses to selected survey questions in fiscal year 2015. Tables 3 through 9 provide responses by employee group: race, ethnicity, gender, and tenure. For the demographic variables we tabulate survey responses by, the rate of missing data ranges from 5 percent to 10 percent of SEC employees. SEC employees with missing data for a particular demographic variable are not included in that tabulation. The Securities and Exchange Commission (SEC), among other things, provides cash and time-off incentive awards to motivate staff and recognize their contributions to the agency. The following tables provide information on all cash awards for all SEC staff for fiscal years 2013 through 2015. Table 10 provides information on individual cash awards broken out by supervisory status. Tables 11 through 13 provide information on individual cash awards broken out by age, gender, and race, respectively. The following tables provide additional information on time-off awards for fiscal years 2013 through 2015. Table 14 provides information on individual time-off awards broken out by supervisory status, including a separate breakout by senior officers. Tables 15 through 17 provide information on individual time-off awards broken out by age, gender, and race, respectively. As part of our review of the Securities and Exchange Commission’s (SEC) workforce planning practices, we reviewed SEC’s practices related to employee training for staff who are primarily responsible for implementing the agency’s mission: the Office of Compliance Inspections and Examinations; and the Divisions of Corporation Finance, Enforcement, Investment Management, Economic and Risk Analysis, and Trading and Markets (hereinafter, mission-critical office and divisions). We determined that SEC’s practices related to training employees have been designed and implemented consistent with relevant criteria. Our prior work notes that one of the core characteristics of a strategic training and development process is strategic alignment. Our prior work also notes that other core characteristics of strategic training and development include communication from agency leadership, involvement of stakeholders, a system of accountability, and effective use of resources. In addition, the Office of Personnel Management’s (OPM) Human Capital Assessment and Accountability Framework notes, among other things, that agency leaders and supervisors should sustain a learning environment that drives continuous improvement, invest in training to help employees build mission-critical competencies, and use a variety of learning methods. SEC’s policies on training and development specify that the intent of SEC University and its programs is to support the mission of SEC, its strategic plan, and performance objectives and to enable employees to perform their current functions at the maximum level of proficiency. SEC’s training policies also provide specific responsibilities for senior officers, supervisors, and nonsupervisory staff, including requiring senior officers to provide fair opportunities for training. In addition, SEC supervisors and managers are responsible for supporting fair selection for training, ensuring the training meets the definition of mission-related training, and ensuring the availability of funds for a variety of internal and external training. SEC’s collective bargaining agreement specifies the purpose of training, which is to enable employees to perform their official duties at the maximum level of proficiency. The collective bargaining agreement also specifies the responsibilities of the agency, including determining the training needs, ensuring consideration of employee requests for training that supports the agency’s strategic plan, and supporting attorney and accountant opportunities to obtain mandatory continuing education credits. According to SEC staff in SEC University, they serve as liaisons with stakeholders from across SEC on the design, implementation, and evaluation of a variety of training methods to ensure that training is meeting the needs of the various offices and divisions within the agency. SEC supervisors we met with and staff we surveyed noted that training has improved since 2013. When asked to what extent their employees received training that was applicable and sufficient for them to perform their jobs, the supervisors we interviewed told us that training for staff and supervisors equipped staff with the necessary skills, and had improved in recent years. They also said the training they received as supervisors was applicable and sufficient for them to do their jobs. In addition, staff surveyed in 2016 had more positive views on training than in 2013. The percentage of staff surveyed who agreed that new staff were given enough guidance and training increased for nonsupervisors from about 38 percent in 2013 to 48 percent in 2016 and for supervisors from approximately 66 percent to 72 percent in 2016, as shown in figure 11. In addition, the percentage of staff who agreed (to a moderate or great extent) that senior officers work to make improvements in training focused on specific competencies increased for nonsupervisors from about 42 percent in 2013 to 46 percent in 2016, and for supervisors from approximately 60 percent in 2013 to 62 percent in 2016. SEC staff also had more positive views on training than staff in other government agencies. In OPM’s 2016 Federal Employee Viewpoint Survey, an estimated 66 percent of SEC employees surveyed were satisfied with the training they received for their present job, which was higher than that of other federal agencies, with an estimated 53 percent of all respondents satisfied with training. Section 962 of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act included a provision for us to review whether there is an “excessive number of low-level, mid-level, or senior-level managers” at the Securities and Exchange Commission (SEC). We did not find any standards that have been established for evaluating excessive numbers of supervisors. Therefore, we are reporting on the ratio of SEC employees at the various levels for fiscal years 2008 through 2015. Table 18 illustrates the ratio of nonsupervisors to supervisors at SEC. Table 19 illustrates the ratio of nonsupervisors to senior officers, and table 20 illustrates the ratio of supervisors to senior officers. Among its provisions, Section 962 of the Dodd-Frank Wall Street Reform and Consumer Protection Act included a provision for us to review turnover rates within Securities and Exchange Commission (SEC) subunits. While staff turnover rates could be used to identify potential areas for improvement and further develop current supervisors, officials from the Merit Systems Protection Board noted that turnover was not a good indicator of poor supervision for several reasons. For example, they said that staff may leave to pursue opportunities with a different employer or a different career path, or for personal reasons. SEC officials also indicated that staff facing potential removal or termination often would resign or retire, rather than going through removal or termination. Tables 21 and 22 show the percentage of staff who left SEC from fiscal years 2008 through 2015 from headquarters and the 11 regional offices, respectively. Table 23 shows the total number of staff who left SEC during the same period. The Securities and Exchange Commission’s (SEC) current performance appraisal system is designed to rate employees on a numerical scale from 1 to 5. However, due to an agreement with the SEC employees union, bargaining-unit employees are officially rated as either meets expectations (that is, needs improvement, meets expectations, exceeds expectations, or greatly exceeds expectations) or unacceptable. Table 24 shows the distribution of performance ratings for fiscal years 2013 through 2015. The initial rating for bargaining-unit staff is on the five-point scale. The final rating translates that initial rating to either meets expectations or unacceptable, based on the agreement reached between SEC and the union. 1. We address these issues in our responses to comments 3 and 4. 2. According to officials from the SEC union and the Office of Human Resources, the pilot has only been implemented for non- bargaining-unit staff. Moreover, SEC did not provide us with information on its agency-wide pilot of its new performance management system, nor did it provide an implementation plan that identified key milestone dates or schedules to pilot or fully implement the new performance management system to all employees in fiscal year 2017. 3. We recognize that not all staff at SEC may need to coordinate and collaborate for work-related issues. However, staff in mission- critical offices and divisions should be enabled to collaborate and communicate with staff in other offices and divisions. As acknowledged in our report, the Division of Enforcement created formal liaisons that other divisions and offices can contact, and these liaisons help to facilitate cross-divisional communication and collaboration within the division. Based on our survey results, staff in the Division of Enforcement more frequently interacted with staff from other mission-critical offices and divisions. As SEC acknowledged in its response, the Division of Economic and Risk Analysis is similar to the Division of Enforcement in that staff should be routinely communicating and collaborating with them. However, unlike the Division of Enforcement, the Division of Economic and Risk Analysis lacks a mechanism to easily facilitate cross-divisional communication and collaboration. Our survey results show that interaction between Division of Economic and Risk Analysis staff and staff from other mission-critical offices and divisions is limited. SEC also expressed concern that our report cited an anecdotal account from one former employee. However, we found substantial evidence that siloed communication remains a challenge at SEC. For instance, 78 of the 187 employees we interviewed (over 40 percent) cited issues around siloed communication as an area where SEC needs to improve. Additionally, of the 1,947 written responses we received to our survey questions, 597 of them cited various challenges related to communication and collaboration. We provided examples from several current and one former employee to illustrate the siloed communication at SEC. 4. SEC expressed concern with our recommendation to expand the responsibilities and authority of the COO or other official or office. We are not suggesting that an additional layer of management is needed. Rather, we are recommending that the authority of the COO or some other official be enhanced in order to ensure that each mission-critical office and division establish a mechanism or develop procedures to facilitate communication and collaboration. In addition to the contact above, Triana McNeil (Assistant Director), José R. Peña (Analyst-in-Charge), Carl Barden, Michelle Batie, Bethany Benitez, Laura Chase, Pamela Davidson, Tom Gilbert, Jill Lacey, Wati Kadzai, Steven Lozano, Marc Molino, Janice Morrison, Alexander Ray, Ginelle Sanchez-Leos, Jerome Sandau, Jennifer Schwartz, Ebonye Watson, and William White made key contributions to this report.	The Dodd-Frank Wall Street Reform and Consumer Protection Act contains a provision for GAO to report triennially on SEC's personnel management. GAO's first report in 2013 (GAO-13-621) identified a number of challenges, such as SEC's lack of a mechanism to monitor supervisors' use of its performance management system, and included seven recommendations. This report examines (1) employee views on SEC's organizational culture since 2013 and (2) SEC's current personnel management practices. GAO surveyed all SEC employees (staff in its six key divisions and offices, staff in all other offices and divisions, and all senior officers, with response rates of 69, 60, and 70 percent, respectively); evaluated SEC policies and procedures against relevant criteria; and analyzed information on SEC's practices. Employee views on the Securities and Exchange Commission's (SEC) organizational culture have generally improved since 2013. Employees GAO surveyed cited improved levels of morale and trust within the agency compared to 2013 and noted that SEC was less hierarchical and risk-averse. However, GAO's survey indicated that SEC still operates in a compartmentalized way and that there is little communication and collaboration between divisions. SEC made limited progress on improving personnel management. SEC has addressed two of seven recommendations from GAO's 2013 report, but it faces added challenges in cross-divisional collaboration and hiring and promotion. Mechanisms to monitor supervisors' use of performance management system . Recently, SEC began to monitor how supervisors (1) provide feedback to staff, (2) recognize and reward staff, and (3) address poor performance. SEC's efforts address the related 2013 recommendation. Accountability system . SEC implemented a system to monitor its human capital programs and inform its human capital goals consistent with Office of Personnel Management (OPM) guidance. SEC's efforts address the related 2013 recommendation. Workforce and succession planning . SEC has developed a workforce and succession plan in response to two of GAO's recommendations, but the plan does not include some elements of OPM guidance, such as a skills gap analysis for all SEC staff. As a result, SEC continues to lack assurance that all staff have the necessary skills. Performance management. Although GAO found in 2013 that SEC's performance management system was generally consistent with relevant criteria, SEC redesigned it in 2014 without first examining its effectiveness—a recommendation GAO made in 2013. SEC officials stated they do not plan any future reviews because they are piloting a new system. As a result, SEC lacks assurance that the new system will perform better than the current one. Communication and collaboration . SEC has made little progress to address GAO's two recommendations related to improving cross-divisional collaboration. While SEC has recognized some staff for collaborating, it has yet to set expectations for all staff to collaborate across divisions as needed or implement relevant best practices to break down existing silos. As a result, SEC staff still report that divisions operate in isolation. Other than the SEC Chair's Office, which has competing demands on its time, no official has authority to affect the daily operations of the entire agency. Other organizations rely on their Chief Operating Officer (COO) to make such changes, but because SEC's COO lacks such authority, the agency will likely continue to face challenges. In addition, GAO found that because SEC has not identified skills gaps among its hiring specialists, its training of these staff is limited. As a result, SEC lacks assurance that its hiring specialists have the necessary skills to hire and promote the most qualified applicants, in accordance with key principles of an effective control system. SEC should (1) provide authority to the COO or other official to enhance cross-divisional collaboration and (2) develop and implement training for hiring specialists that is informed by a skills gap analysis. GAO also reiterates the need to address the remaining five prior unaddressed recommendations on workforce planning, performance management, and intra-agency collaboration. SEC agreed with the second recommendation but disagreed with the first one. In particular, SEC disagreed that enhancing the role of the COO would be the optimal means to achieve further enhancements. GAO maintains that this recommendation will help improve cross-divisional communication and collaboration, as discussed in the report.	16.6	16k+	1,394
46	This section provides an overview of material criticality and federal agencies’ critical materials roles. There is no single federal government-wide definition or list of what constitutes a critical material and different assessments have demonstrated that there are a wide variety of materials that are critical to U.S. economic and national security interests. In a 2008 study on critical minerals, the National Academies of Sciences, Engineering, and Medicine’s Committee on Critical Mineral Impacts on the U.S. Economy developed a matrix to assess the criticality of a given mineral (see fig. 1). The horizontal axis represents the availability and reliability of the mineral supply (supply risk), and the vertical axis represents the importance of the mineral (impact of supply restriction). The degree of criticality increases from the lower-left to the upper-right corner of the figure, such that mineral A is considered more critical than mineral B. A determination that a mineral or other type of material is critical is generally based on some measure of the material’s importance, combined with a measure of the supply risk for the material. Supply risks include potential physical interruptions in the supply chain, market imbalances, and government interventions. For example, see the following: Physical disruptions in the supply chain may include war or natural disasters. Market imbalances may include oligopoly market power or inability to adjust supply quickly in response to changes in demand. Government interventions may include export bans or restrictions on mining for environmental considerations. Vulnerability to potential supply disruption varies depending on the importance of the material in question and other factors, such as the extent to which acceptable substitute materials are available and the extent to which supply of a critical material can be adjusted quickly in response to changes in demand. For materials that are extracted as coproducts or by-products of other mining operations, increased demand may not cause mining companies to produce more of them without additional sustained demand for their primary products. For example, according to a journal article, ruthenium is obtained almost entirely as a by-product of platinum production. In late 2006, demand for ruthenium expanded rapidly, in part, because of its increased use in hard disk drives. However, the supply of ruthenium did not respond to this increased demand, and the price of ruthenium rose rapidly to $870 per troy ounce by mid-February 2007, a ninefold increase from the previous year and a 29-fold increase from a low point in 2003. The materials supply chain in figure 2 shows the steps by which materials are extracted from mines, processed, transformed into semifinished components, and incorporated into end-use applications. The supply chain also shows the potential for recycling and reusing materials from finished applications, although materials can be reclaimed at any stage of the supply chain. There are a variety of ways in which federal agencies’ activities intersect with critical materials supply issues. For example, the federal government relies on advanced technologies in which critical materials may be used to support DOD’s national defense mission. DOD is responsible for determining which materials are strategic and critical for national defense and acquiring those materials. In addition, DOE, in support of its mission of ensuring the United States’ security and prosperity by addressing its energy, environmental, and nuclear challenges through transformative science and technology solutions, is focused on the supply of critical materials given the importance of such materials to certain energy and nuclear security technologies. The federal government may also affect the development of critical materials resources through its land management and regulatory activities. For example, the Department of the Interior’s Bureau of Land Management (BLM) manages approximately 950 million acres of the nation’s land, including subsurface acres, and has a role in reviewing and approving resource extraction projects on this land. The 1980 Act establishes a national policy of promoting an adequate and stable supply of materials necessary to maintain national security, economic well-being, and industrial production with appropriate attention to a long-term balance among resource production, energy use, a healthy environment, natural resources conservation, and social needs. The 1980 Act generally does not ascribe desired outcomes and responsibility for critical materials activities to individual agencies. However, the act does require the Secretary of Commerce, in consultation with other agencies, to continually identify and assess material needs cases to ensure an adequate and stable supply of materials to meet national security, economic well-being, and industrial production needs. The act also charges the President, through the Executive Office of the President, with coordinating federal departments and agencies to undertake a variety of activities to implement this policy, including establishing early warning systems for materials supply problems; promoting a vigorous, comprehensive, and coordinated program of materials research and development; encouraging federal agencies to facilitate availability and development of domestic resources to meet critical materials needs; providing for improved collection, analysis, and dissemination of scientific, technical, and economic materials information and data from federal, state, and local governments and other sources as appropriate; and assessing federal policies that adversely or positively affect all stages of the materials cycle, from exploration to final product recycling and disposal. The Subcommittee was organized as an interagency working group to help understand the issues that surround the production and use of critical materials, and to focus the government’s resources on mitigation of critical materials supply risks. The Subcommittee, initially chartered in 2010, was rechartered in April 2016. According to its charter, the Subcommittee is to facilitate a strong, coordinated effort across federal agencies to identify and address important policy implications arising from critical and strategic mineral supply issues. The charter identifies the following federal agencies and Executive Office of the President organizations as members of the Subcommittee. Federal agencies Department of Agriculture Department of Commerce Department of Defense Department of Education Department of Energy (co-chair) Department of Homeland Security Department of the Interior (co-chair) Department of Justice Department of Labor Department of State Department of the Treasury Environmental Protection Agency National Aeronautics and Space Administration National Science Foundation Executive Office of the President organizations Council on Environmental Quality National Economic Council National Security Council Office of Management and Budget Office of Science and Technology Policy (co-chair) Office of the U.S. Trade Representative Although the Subcommittee was not chartered to implement the 1980 Act, many of the functions identified in its charter are similar to policies outlined in the act. Examples of functions identified by the Subcommittee charter that are similar to policies in the act include implementing and, as necessary, updating the methodology developed cooperatively by Subcommittee member agencies for dynamically assessing mineral criticality and for signaling emerging critical or strategic minerals; reviewing and analyzing domestic and global policies that affect the supply of critical and strategic minerals, assessing their implications on U.S. manufacturing, and evaluating potential strategies for risk mitigation, as needed; identifying cross-agency opportunities in research and development and in education and training for addressing critical and strategic minerals across the life cycle spectrum, including extraction, processing, and recycling; and considering and offering recommendations for enhanced U.S. minerals data collection and economic analysis. The Subcommittee meets several times per year at varying intervals, according to OSTP officials. Subcommittee meeting agendas are developed by the co-chairs with input from member agencies. According to OSTP and DOE officials, agency participation on the Subcommittee is voluntary. Federal agencies are primarily focused on two areas of activity related to critical materials supply—assessing risk and supporting research—in addition to conducting a range of other activities. Agencies’ other critical materials activities include stockpiling or producing materials and reviewing and approving resource extraction projects, among other efforts. Agencies’ critical materials supply activities focus on two primary areas— assessing risk and supporting research. Federal agencies engage in a variety of activities to identify and assess risks related to critical materials supply. These activities include collecting and disseminating information on material supply and demand, conducting targeted analyses of specific sectors, and conducting broader assessments to determine which materials are critical for the U.S. economy or security. Commerce, DOD, DOE, DHS, Interior, and NASA conduct activities to identify and assess critical materials supply risk, as shown in figure 3. The following federal agencies conduct activities to identify and assess critical materials supply risk: Interior. Interior’s U.S. Geological Survey’s (USGS) National Minerals Information Center develops and provides statistics and information on the worldwide production, consumption, and flow of minerals and materials essential to the United States economy and national security. The center, established in 1996 under USGS upon the dissolution of the U.S. Bureau of Mines, produces a number of reports, including the annual Minerals Yearbook and the Mineral Commodity Summaries. The Minerals Yearbook is an annual publication that provides statistical data on approximately 90 commodities. It also includes data from over 175 countries on mineral production and trade, among other things. The Mineral Commodity Summaries is based on the data reported in the yearbook and includes data over a 5-year period. The annual summary includes similar historical data as reported in the Minerals Yearbook, as well as production estimates from the current reporting year. Interior’s BLM also collects information related to mineral resources. Although BLM generally relies on data provided by USGS, it periodically issues mineral potential reports to assess the mineral resource occurrence and development potential on land related to particular mining applications or projects. For example, in 2012 BLM issued an assessment of the mineral potential of public lands located within a proposed solar energy zone in New Mexico. As part of the assessment, BLM evaluated whether certain minerals produced in New Mexico and that are classified as strategic and critical minerals for national defense purposes, including bismuth, copper, fluorspar, manganese, tungsten, vanadium, and zinc, were found within the proposed solar energy zone. DOE. As part of its efforts to advance a clean energy economy, DOE conducted two criticality assessments on materials important to clean energy applications, such as wind turbines, electric vehicles, photovoltaic cells, and fluorescent lighting. DOE’s first assessment, published in a 2010 Critical Materials Strategy, evaluated 14 materials and identified 10, including 7 rare earth materials, as critical or near critical over the short or medium terms. DOE’s second assessment, published in a 2011 Critical Materials Strategy, assessed 16 materials and identified 10 of them as critical or near critical over the short or medium terms. As part of its 2015 Quadrennial Technology Review, DOE also published a critical materials technology assessment that reported on major trends driving future material criticality for selected clean energy applications. Additionally, DOE manages the Isotope Development and Production for Research and Applications program (Isotope Program) through which it produces and distributes radioactive and stable isotopes that are in short supply but are critical for either federal government or U.S. commercial use. As part of the Isotope Program, DOE has a process to identify high-priority isotopes by monitoring long-term changes in demand within the isotope community that could affect isotope availability. DOD. Three DOD organizations have related responsibilities for managing risks from DOD’s use of “critical” and “strategic and critical” materials: the Defense Logistics Agency-Strategic Materials (DLA- Strategic Materials), the Office of the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, and the Strategic Materials Protection Board. DOD periodically issues two reports analyzing critical materials for defense needs according to statutory definitions of “critical” and “strategic and critical” materials. The Annual Industrial Capabilities Report to Congress provides analyses of sectors of the defense industrial base, such as aircraft and ground vehicles. The biennial Strategic and Critical Materials Report on Stockpile Requirements summarizes DLA-Strategic Materials’ analyses of materials for the National Defense Stockpile. According to DLA-Strategic Materials officials and an official with DOE’s Oak Ridge National Laboratory, DLA-Strategic Materials also collaborated with DOE’s Oak Ridge National Laboratory and a private company to develop the Strategic Material Analysis and Reporting Topography software tool, which is a computer-based supply chain mapping tool that can visually represent the supply chain for any number of materials. Commerce. The department’s Bureau of Industry and Security is responsible for analyzing the capabilities of the U.S. industrial base to support national defense. The bureau conducted a strategic materials survey to evaluate the supply chains associated with several materials considered important to defense programs and systems. The resulting data set and report are intended to assist DOD in developing planning and acquisition strategies designed to ensure the availability of materials critical to defense missions. In addition to its work supporting DOD, Commerce’s International Trade Administration (ITA) convened two roundtables of industry and government participants to gather information on critical materials issues that may affect U.S. manufacturers and the competitiveness of U.S. industry. ITA’s Office of Materials Industries hosted the first roundtable in 2009 to discuss issues related to access to rare earth materials that could affect important end uses, such as clean energy technologies. ITA convened the second roundtable in 2012, in cooperation with the Subcommittee, to identify the materials, technologies, and supply chains that should be prioritized to develop an interagency assessment of critical minerals. DHS. Under the Critical Foreign Dependency Initiative, DHS identifies critical foreign infrastructure that, if disrupted, could significantly affect U.S. public health, economic vitality, industrial capability, or security. The initiative is a collaborative effort co-led by DHS and State, with other relevant agencies. According to a DHS official, such infrastructure can include mines or other production facilities that are foreign sources of critical materials, as determined by an interagency process. This assessment process involves both public and private sector partners responsible for critical infrastructure and key resources. Also, the DHS Science and Technology Directorate funded academic research examining the extent to which critical chemicals in the U.S. supply chain are being produced in foreign countries. NASA. Agency officials stated that NASA is analyzing its supply chains for materials that it deems essential to its mission. According to a 2012 presentation on its approach to critical materials management, NASA’s research and evaluation efforts target applied challenges in support of spaceflight, planetary and earth exploration, and aeronautics/aviation. NASA officials stated that many of the materials that the agency relies on are commonly used by both NASA and DOD and can include elements such as tungsten, chromium, and nickel that are used in making alloys. In the view of one NASA official we spoke with, these actions are aligned with the 2010 National Space Policy, which called for agencies to engage with industrial partners to improve processes and effectively manage supply chains, among other things. In addition to these six agencies’ efforts, the Subcommittee has also coordinated an interagency effort to develop a methodology to identify potentially critical materials for the U.S. economy or security, which it has described as an early warning screening. OSTP, DOE, and Interior’s USGS, through their participation as co-chairs of the Subcommittee, have led the effort to develop the early warning screening, with other Subcommittee members providing key input. In March 2016, the Subcommittee published a criticality assessment in which it reported on its progress in developing a screening methodology for critical minerals and the results of the initial application of this methodology. The methodology described in the Subcommittee’s report is the first step in a two-stage process to identify which minerals pose a risk of becoming critical. The Subcommittee screened 78 mineral resources using its methodology and identified 17 minerals as potentially critical. According to the March 2016 report, the next steps for the second stage of the process include (1) developing a prioritized list of a subset of the 17 potentially critical minerals for in-depth investigation, (2) developing individual project plans for those minerals for further study, and (3) carrying out the targeted studies in the next annual cycle. Federal agencies support research that encompasses a range of approaches to address critical materials supply issues, including projects to (1) discover or develop substitutes that can duplicate the unique properties of critical materials, (2) develop new approaches or technologies that minimize the use of critical materials, and (3) develop new approaches or technologies to increase the efficiency of domestic production of critical materials or enable the recycling of specific materials. Figure 4 shows federal activities related to critical materials research. The following federal agencies support research related to critical materials supply: DOE. The Critical Materials Institute (CMI), based at DOE’s Ames Laboratory in Iowa, is a 5-year, $120 million public-private partnership, with partners from other national laboratories, universities, and industry. CMI began operations in June 2013, and its mission is to help ensure supply chains of materials critical to clean energy technologies (see sidebar). CMI’s research efforts focus on diversifying the supply of materials, developing substitute materials, and improving the efficiency of material use and reducing waste, among other efforts. DOE officials told us that CMI collaborates informally with other DOE offices with efforts related to critical materials research. For example, CMI collaborated with DOE’s Advanced Research Projects Agency- Energy, which awarded $40.8 million to 14 projects in the Rare Earth Alternatives in Critical Technologies program to support early stage development of rare earth-free magnetic materials, novel motor designs that reduce or eliminate the need for rare earth materials, and High Temperature Superconductor wires for large-scale wind generators with no rare earth magnets. Another example DOE officials cited was collaboration with the DOE Office of Fossil Energy’s National Energy Technology Laboratory to fund research on the recovery of rare earth elements from coal and coal by-products. According to the Department of Energy, as of May 1, 2016, Critical Materials Institute (CMI) research projects have resulted in 42 invention disclosures, 17 patent applications and 1 licensed technology. One example is the development of a membrane solvent extraction system that aids in the recycling, recovery, and extraction of rare earth materials. The system was developed by researchers at Oak Ridge and Idaho National Laboratories and has been licensed to a U.S. company. According to CMI researchers, the recycling of critical materials from electronic waste has been limited by processing technologies that are inefficient, costly, and environmentally hazardous. The researchers report that this new simplified process, shown in the figure above, eliminates many of these limitations. The technology uses a combination of hollow fiber membranes, organic solvents, and neutral extractants to selectively recover rare earth elements such as neodymium, dysprosium, and praseodymium. In laboratory testing, the membrane extraction system demonstrated the potential to recover more than 90 percent of neodymium, dysprosium, and praseodymium in a highly pure form from scrap neodymium-based magnets. The licensing company has indicated that it intends to apply the technology to recover rare earth elements from old electronics and from its mining claims in the United States. DOD. DOD funds critical materials research both through component agencies that support the entire department and through the Army, Navy, and Air Force research organizations. DOD’s research approach to mitigating the risk associated with the supply of critical materials used in weapon components has varied, but according to officials, critical materials have been studied as part of meeting mission requirements to increase performance and capabilities and to reduce costs of DOD technologies. For example, the Army Research Laboratory collaborated with academic and industrial partners to explore how to resolve the technical barriers to achieving a reliable domestic supply chain for certain rare earth materials. NSF. In fiscal year 2013, NSF started an initiative to encourage and foster research in sustainable chemistry, engineering, and materials to address the interrelated challenges of sustainable supply, engineering, production, and use of chemicals and materials. Examples of research topics in this area include replacing rare, expensive, or toxic materials with earth-abundant, inexpensive, and benign materials; discovering new techniques to facilitate recycling and producing valuable materials; and developing and characterizing low cost, sustainable, and scalable-manufactured materials with improved properties. NSF also supports the Center for Resource Recovery and Recycling, which addresses challenges related to materials recovery and recycling. Researchers from the center developed a method of extracting rare earth elements from drive units and motors of discarded electric and hybrid vehicles. The goal of that work is to recycle rare earth materials that would otherwise be lost and create an alternative source of these materials. Interior. The department’s USGS supports research on nonfuel mineral resources. According to a senior USGS official, a priority area in this research is identifying and characterizing critical mineral resources through activities such as mineral resource assessments, mineral deposit models, and remote sensing exploration techniques. According to the official, the focus of these activities is on domestic mineral resources. In addition to activities in the primary areas described above, federal agencies conduct a wide range of other activities related to the supply of critical materials. Addressing trade issues. USTR plays a key role in the federal government’s efforts to address trade issues. While USTR does not have a specific program or focus area related to critical materials, the agency has worked, in collaboration with other federal agencies and international partners, to address trade issues affecting materials that are critical for a range of industries. For example, USTR led the federal government’s World Trade Organization (WTO) dispute against China’s export restrictions on rare earth materials, tungsten, and molybdenum, resulting in a finding that the export restrictions were inconsistent with China’s WTO obligations, and continues to monitor China’s actions to ensure compliance with the WTO decision. According to USTR officials, the agency also engages in activities to create more transparency about export restraints, such as maintaining ongoing trade dialogues on raw materials and working with other countries within the Organisation for Economic Co- operation and Development to create an inventory of trade restrictions related to raw materials and energy. In addition to USTR’s efforts, the Subcommittee has also played a role in addressing trade issues. For example, in 2013 the Subcommittee requested changes to the Harmonized Tariff Schedule of the United States that according to OSTP officials, provided more granular data on U.S. imports of rare earth materials, among other changes. Similarly, in 2014 the Subcommittee submitted a request for additional changes to the Harmonized Tariff Schedule to provide more granular data on U.S. imports of permanent magnets, among other changes. Coordinating internationally. Federal agencies have coordinated with international partners on critical materials issues through different forums. For example, the EU-US-Japan Trilateral Conference on Critical Materials—which is jointly organized by the European Commission; DOE; and the Japanese Ministry of Economy, Trade, and Industry (METI)—has taken place for 5 consecutive years to exchange information on recent developments in critical materials research and development. According to a DOE official, the first few conferences began with high-level policy discussions, but they have become focused more on researcher-to-researcher exchanges about technology efforts. Another example is the Transatlantic Economic Council, which, in 2011, agreed to launch a cooperative platform on raw materials focusing on five areas: (1) trade cooperation; (2) raw materials data, flows, and information sharing; (3) resource efficiency and recycling; (4) research and development on raw material substitution and reduction; and (5) waste shipment. According to a State Department official, individual federal agencies have led U.S. efforts in each focus area based on their individual missions. For example, USTR led efforts in trade cooperation; USGS led efforts in raw materials data; and DOE led efforts in research and development and recycling, with EPA’s assistance on recycling. Other examples of international coordination that were described to us by federal agency officials include annual reviews of strategic stockpile issues between the United States, Japan, and the Republic of Korea, and U.S. participation in the G7 Alliance on Resource Efficiency. Reviewing and approving mining projects. BLM and the U.S. Forest Service oversee the extraction of minerals on federal land. BLM and Forest Service officials said that their agencies do not consider mineral criticality in their administration of mining projects. When a mining operator submits a plan for a new mine on federal land, either BLM or the Forest Service analyzes the potential impact of the proposed mine on the environment, human health, and cultural resources by conducting an analysis under the National Environmental Policy Act. The National Environmental Policy Act requires federal agencies to evaluate the likely environmental effects of a proposed project using an environmental assessment or, if the project is likely to significantly affect the environment, a more detailed environmental impact statement. From fiscal years 2010 through 2014, BLM and the Forest Service approved 68 hardrock mine plans, 2 of which were for materials that have been identified as critical by DOD—magnesium and manganese. Stockpiling or producing materials. DLA-Strategic Materials is responsible for storing select materials in the National Defense Stockpile to mitigate potential shortages based on certain national emergency planning assumptions. Based on the biennial analyses described previously, DLA-Strategic Materials makes recommendations to acquire specific forms and amounts of materials and then maintains these materials in the stockpile. Additionally, in 2005, DOD invested in a public-private partnership with the leading U.S. beryllium producer to build a new $90.4 million primary beryllium facility in Ohio to ensure current and future availability of high-quality domestic beryllium to meet critical defense needs. The federal government has also been extensively involved in the production, storage, and use of helium since the early part of the 20th century. BLM is responsible for managing the federal helium program, including an underground reservoir for the storage of federally and privately owned helium. The reserve provides a supply of federal helium to such agencies as DOD, DOE, and NASA that rely on the rare gas for research and medical and national defense applications. Further, under DOE’s Isotope Program, DOE produces and distributes radioactive and stable isotopes in short supply for commercial or federal needs. According to DOE officials, the federal government is uniquely suited to produce certain isotopes as production may require recycled or reused national security-related source materials, big accelerators, and research facilities that are only available within the federal government, or it is not profitable for industry to provide the small amounts of isotopes needed for research applications. Promoting technical education and workforce development. DOE’s CMI offers a variety of educational opportunities through several partners, including the Colorado School of Mines, Iowa State University, and the University of Tennessee, Knoxville. For example, in November 2015, CMI announced the development of a three-credit on-line course, offered through Iowa State University for the 2016 spring semester, focused on rare earth materials. According to CMI’s announcement, the course covers a wide range of topics related to rare earth materials, including extraction, separation, preparation and purification; properties related to these materials; and other topics. Additionally, students at the University of Tennessee, Knoxville, have been evaluating conceptual processes for recovery of rare earths from unconventional resources. CMI also provides science and engineering outreach to elementary and high school students through its partnership with the Colorado School of Mines. As described above, NSF supports critical materials research. According to NSF’s research proposal and award policies and procedures guidance, one of the strategic objectives in support of NSF’s mission is to foster integration of research and education through the programs, projects, and activities it supports at NSF awardee organizations. NSF supports development of a strong science, technology, engineering, and mathematics (STEM) workforce by investing in building the knowledge that informs improvements in STEM teaching and learning. NSF expects research proposals to discuss the broader impacts of proposed activities, such as improved STEM education and educator development, and development of a diverse, globally competitive STEM workforce. Recycling and sustainable materials management. Through its Sustainable Materials Management program, EPA engages with public and private stakeholders to advance the productive and sustainable use of materials across their life cycles. According to EPA officials, the agency is in a unique position to lead in the effort of getting industry involved in addressing critical materials consumption. In 2009, EPA published a report outlining measures it could take to promote efforts to manage materials and products on a life cycle basis with a goal of sustainable materials use. Additionally, EPA co- chaired an interagency task force on electronics stewardship, which produced a 2011 National Strategy for Electronics Stewardship that included goals and recommendations, among other things, to improve the ability to recover and market valuable materials from used electronics, especially precious metals and rare earth materials. Supporting commercialization of new technologies. The National Institute of Standards and Technology provides support for industrial adoption of rare earth materials substitutes by providing material measurement science and developing data and models. For example, the institute provides standard reference materials that measure the intensity of magnetism that can be induced by magnetic fields, which is of interest to the permanent magnet industry—a major user of rare earth materials. Additionally, the Materials Genome Initiative—under the National Science and Technology Council’s Subcommittee on the Materials Genome Initiative—is a multiagency initiative designed to discover, develop, and manufacture the next generation of materials to meet national needs. The EU, Japan, and Canada have different approaches to address critical materials supply issues. According to the EU policy documents that we reviewed, the EU has a collaborative, economy-wide approach that incorporates sustainability. According to the government officials that we interviewed, Japan’s approach focuses on securing access to foreign sources and conducting materials science research to bolster industrial competitiveness. According to government reports that we reviewed, Canada encourages resource production by providing tax incentives and improving the efficiency of regulatory reviews. The EU has developed a collaborative, economy-wide approach to addressing the supply of critical materials that incorporates a focus on developing a more sustainable and resource-efficient economy. The EU’s Raw Materials Initiative, which was outlined by the European Commission in its 2008 communication to the European Parliament and Council, has three pillars: (1) ensure access to raw materials from international markets under the same conditions as other industrial competitors, (2) set the right framework conditions within the EU in order to foster a sustainable supply of raw materials from European sources, and (3) boost overall resource efficiency and promote recycling to reduce the EU’s consumption of primary raw materials and decrease the relative import dependence. The Raw Materials Initiative is implemented, in part, through the European Innovation Partnership on Raw Materials (Partnership)—a stakeholder platform that brings together EU countries, companies, researchers, and nongovernmental organizations to promote innovation in the raw materials sector. According to EU officials, the Partnership has defined 95 actions to be carried out both within the EU and internationally, in order to secure the EU supply of raw materials via innovation. In 2014, an independent expert group studied the Partnership model and found that it has been a useful vehicle in bringing partners together with a view to align priorities, leverage investments, and form future partnerships. The group’s report stated that European innovation partnerships have generally been good in ensuring extensive participation of all relevant stakeholders, and they have also created effective channels for the interested actors to become engaged in the partnerships, including through invitations for commitments. Figure 5 shows key information about the Partnership. According to EU officials, the majority of the Partnership’s priorities have been reflected in Horizon 2020, the EU research and development funding program for 2014 to 2020. Horizon 2020 has several broad pillars, one of which is climate action, environment, resource efficiency, and raw materials. According to a European industry association we interviewed, an example of efforts in this area involves trying to find ways to provide more supply for raw materials from the EU. Association officials told us that mining ventures tend to raise significant social opposition, which can diminish potential for getting projects under way. According to the officials, this aspect of the Horizon 2020 program tries to take a social approach to mining by using advanced technology to help address social opposition. This focus on public awareness is also an action area outlined in the Partnership’s 2013 Strategic Implementation Plan. The action area is mostly industry led but is also supported by concerned stakeholders— communities, institutions, and regulatory bodies—at all levels. It aims to first increase public awareness of the benefits and potential costs of raw materials supply and then gain public acceptance and trust by improved communication and transparency, notably during the permitting process and the production cycle (i.e., exploration, mine operation, and after mining). The Partnership states that it will play an important role in meeting the objectives of Resource Efficient Europe—an initiative under the Europe 2020 strategy that supports the shift toward a resource-efficient, low- carbon economy to achieve sustainable growth—by ensuring the sustainable supply of raw materials to the European economy. This illustrates the connection within EU policy between the criticality of certain raw materials and the goal of shifting towards a more resource-efficient economy and sustainable development. This connection is also evident in the second and third pillars of the Raw Materials Initiative, listed above, which focus on sustainability and recycling. As stated in the European Commission’s 2008 communication on the raw materials initiative, the EU views boosting overall resource efficiency as a key part of a path toward a secure supply of raw materials. The Raw Materials Initiative also called for the EU to identify a common list of critical raw materials for the EU’s economy. To develop this list of critical raw materials, the EU set up the Ad-Hoc Working Group on Defining Critical Raw Materials, which comprises experts across government, industry, and academia, as described in the Working Group’s 2010 report. The European Commission, with the Ad-Hoc Working Group, published its first criticality analysis for raw materials in 2010. In that analysis, 14 critical raw materials were identified from a candidate list of 41 nonenergy, nonagricultural materials. In 2013, the commission and the working group, in cooperation with a group of researchers, updated this work and analyzed 54 nonenergy, nonagricultural materials, identifying 20 of them as critical raw materials. EU officials we interviewed stated that they believe that the list of critical materials is useful for prioritizing and identifying relevant research, raising awareness, fostering trade negotiations, and communicating with stakeholders, such as trade and industry groups. According to the officials, the list is also used to incentivize the European production of critical raw materials and facilitate the launching of new mining and recycling activities. In addition to the Ad-Hoc Working Group on Defining Critical Raw Materials, which conducts official criticality analyses, there are a number of stakeholder organizations in the EU and in EU member states that support collaboration between industry, government and academia. Examples include the European Institute of Innovation and Technology Knowledge and Innovation Community on Raw Materials and a future Expert Network on Critical Raw Materials, which will be launched under Horizon 2020 by the European Commission. According to a report on the raw materials strategies of industrialized countries, Japan’s heavy dependence on metal and mineral imports has led it to focus on securing access to foreign sources of materials and exploring substitute materials through materials science research as a way to ensure its continued industrial competitiveness. According to government officials we interviewed, Japan’s METI sets policy for raw material supplies. Officials told us that METI has established a five pillar strategy for the supply of rare metals: (1) promoting initiatives to secure resources overseas, (2) promoting recycling and development of smelting technology, (3) developing resource-saving and substitute materials, (4) stockpiling rare metals, and (5) developing marine resources. According to government officials we interviewed, the Japanese government, through the Japan Oil, Gas and Metals National Corporation (JOGMEC), secures access to critical materials by providing direct funding to exploration and development projects around the world. JOGMEC’s efforts fit into METI’s policy framework under four of the five pillars—it is not involved in developing resource-saving and substitute materials. JOGMEC officials said that a primary aspect of JOGMEC’s critical materials supply efforts is to provide financial and other types of assistance, such as liability protection, to Japanese companies for overseas mineral exploration or development projects. For example, JOGMEC officials said that they can engage in joint venture exploration projects with foreign companies. If the exploration proves fruitful, JOGMEC officials said that they can transfer JOGMEC’s contractual interest in a project to a Japanese company. The officials said that this type of assistance can help to insulate Japanese companies from the impact of price shocks in individual materials markets. JOGMEC is also involved in a seabed exploration project seeking to help verify the feasibility of collecting rare earth materials from the ocean floor. In addition, government officials told us that JOGMEC also engages with experts from across Japan’s domestic industries, including recycling, automobile manufacturing, and telecommunications, to develop a material flow analysis that can pinpoint bottlenecks in the supply chain. JOGMEC started doing this kind of analysis more than a decade ago, more to identify bottlenecks in the supply chain than to provide material supply forecasts, officials told us. The officials told us that currently JOGMEC conducts material flow analyses for 42 materials. Officials also said that JOGMEC’s critical materials efforts reflect a strong relationship between the government and the private sector in Japan. According to JOGMEC officials, investors tend to be more focused on new technologies, whereas the important role for the government is to take a medium-to-long-term view of the trends. According to government officials, Japan has also been a leader in materials science research, and in 2007 the Japanese government began funding the Element Strategy, which was aimed at overcoming the limitation of natural resources by finding alternative materials for new and existing goods and processes. Under the Element Strategy, the Japanese government initiated a research collaboration between industry and academia wherein researchers worked to identify the unknown physical properties of all the elements in the periodic table in order to use each element to the fullest extent possible. In 2012, the Japanese government began a successor research and development program, which has been funded for 10 years. Figure 6 shows key information about Japan’s Element Strategy. Canada’s focus on raw materials is to attract investment in its mining sector through tax incentives, research, and increased efficiency of regulatory reviews. Officials from Natural Resources Canada, the government ministry responsible for natural resources, energy, minerals and metals, forests, earth sciences, mapping, and remote sensing, stated that critical raw materials are important in the context of leveraging opportunities for economic development through the production and export of mineral products. According to a Canadian report to the United Nations (UN) Commission on Sustainable Development, Canada’s mining sector plays an important part in the overall economic development of Canada. According to that report, provincial governments are largely responsible for the exploration, development, and extraction of mineral resources and the construction, management, reclamation, and closeout of mine sites in their jurisdiction. The report also states that the Canadian federal government’s responsibilities mainly pertain to international affairs, trade, and investment, including development assistance; fiscal and monetary policy; science and technology; and regulation of all activities related to mineral development in the territory of Nunavut. According to officials from Natural Resources Canada, the Canadian federal, provincial, and territorial governments share responsibilities for the protection of the environment, and proposed mine developments. Projects usually require separate federal and provincial environmental impact assessments and regulatory approvals. Canada has taken a number of actions at both the federal and provincial levels to encourage investment in the mining sector, according to officials from Natural Resources Canada. According to officials we interviewed and reports we reviewed, tax incentives are a way the Canadian government encourages investment in the mining sector. According to officials from Natural Resources Canada, junior mining companies have no regular source of income and often have difficulty raising capital to finance their exploration and development activities. According to officials from Natural Resources Canada, Canada’s flow-through share (FTS) mechanism allows principal business corporations, particularly junior mining companies, to obtain equity financing for mineral exploration and development in Canada, whereby a mineral exploration or mining company can transfer or flow-through the tax deductions arising from its eligible exploration expenses to the FTS investors, giving them the benefit. In addition, investors can receive an additional 15 percent Mineral Exploration Tax Credit (METC) for qualifying surface or above-surface exploration expenditures. According to information from the Natural Resources Canada website, for the individual investors, the advantages of investing in an FTS can be that they (1) receive a 100 percent tax deduction for the amount of money they invested in the shares, plus the 15 percent METC in the case of an eligible expense, and (2) may see the value of their investment appreciate in the event of successful exploration. According to the report to the UN Commission on Sustainable Development, a number of provinces also have a tax credit that harmonizes with the federal package, which makes individual investors’ net costs of FTS investment less than half of their initial amounts. Another example of Canada’s investment in the mining sector is through its research investments. According to officials from Natural Resources Canada, Canada invested C$100 million (U.S. $78 million) over 7 years (2013 through 2020) in the Geo-mapping for Energy and Minerals program to develop new energy and minerals resources and promote responsible land development. Officials told us that Canada also dedicated C$23 million (U.S. $18 million) over 5 years (starting in 2015- 2016), to stimulate the technological innovation needed to separate and develop rare earth elements and chromite. In addition to providing financial incentives for investing in the mining industry, the Canadian government has also focused on improving the efficiency of regulatory reviews of mining and other major projects. In 2007, the Canadian government launched the Major Projects Management Office (MPMO) Initiative to improve the effectiveness and efficiency of the federal regulatory review process, while ensuring careful consideration of environmental protection, consultation obligations, and industry competitiveness. According to a 2012 report from Natural Resources Canada on its evaluation of the MPMO Initiative, there are eight participating departments and agencies that have agreed to implement the initiative both individually and in collaboration: the Aboriginal Affairs and Northern Development Canada, the Canadian Environmental Assessment Agency, Fisheries and Oceans Canada, Environment Canada, Transport Canada, the Canadian Nuclear Safety Commission, the National Energy Board, and Natural Resources Canada. The report states that through the initiative, the MPMO was established to conduct a range of activities that according to Natural Resources Canada officials, were intended to improve the accountability, transparency, timeliness, and predictability of the federal regulatory review process for major resource projects. The report further states that the mandate of the MPMO is to provide (1) major project management and coordination and (2) policy leadership, including problem-solving of short- to medium-term issues. In the area of project management and coordination, the MPMO’s role includes coordinating the development of project agreements that include target timelines, ongoing project and performance monitoring, tracking and reporting, and administering the MPMO Tracker—a publicly accessible web-based monitoring system for major resource projects that can be updated in real time. The 2012 evaluation of the MPMO Initiative by the Canadian government covered a number of issues, including the achievement of expected outcomes and demonstration of the efficiency and economy of the permitting process for mining projects. According to the report on the evaluation, the Canadian government found that the integration and federal coordination of environmental assessments and regulatory reviews increased under the initiative. In addition, as noted in the report, the evaluation also found that transparency and accountability of the federal regulatory process within the Canadian government increased significantly through the initiative. According to the evaluation, the Canadian government timelines were viewed by internal and external stakeholders to be improving because of increased capacity and improved integration and coordination, but efforts to quantitatively demonstrate to what extent these improvements had translated into increased overall predictability of the Canadian government’s permitting process were limited. According to officials from Natural Resources Canada, Canada’s 2015 Economic Action Plan proposed providing C$135 million (U.S. $105 million) over 5 years, (starting in 2015-16) to continue to improve the efficiency and effectiveness of project approvals through the MPMO Initiative. Figure 7 shows key information about Canada’s MPMO. The federal government’s approach to addressing critical materials supply issues has areas of strength, according to experts we surveyed, but is not consistent with selected key practices for enhancing and sustaining interagency collaboration and has other limitations. For example, federal government efforts to assess risks and conduct critical materials research have been identified by experts as strengths. However, the federal government’s approach to addressing critical materials supply issues has not been consistent with selected key practices for interagency collaboration, such as ensuring that agencies’ roles and responsibilities are clearly defined. In addition, the federal critical materials approach faces other limitations, including data limitations and a focus on only a subset of critical materials, a limited focus on domestic production of critical materials, and limited engagement with industry. Experts that we surveyed identified areas of strength in the federal government’s approach to addressing critical materials supply issues. The most commonly cited strengths were in federal efforts to identify and assess risks in certain industrial sectors and to conduct research related to critical materials. Among the strengths cited by experts in identifying and assessing risks was USGS’s collection of data to support assessing critical materials supply risks. In particular, experts responding to the first round of our survey identified efforts by USGS to compile and provide data on mineral deposits and supply and demand for minerals as strengths. One expert lauded USGS data and knowledge about the distribution of critical materials throughout the United States and the rest of the world. Another strength cited by an expert in the area of identifying and assessing risks included DLA-Strategic Materials’ critical materials assessments. In the area of conducting research related to critical materials, experts cited DOE’s CMI as a strength in the federal approach to developing methods that address the supply of critical materials, primarily rare earth materials. For example, one expert stated that the formation of CMI was a very positive step to address specific material shortages (rare earth materials, especially) from a scientific perspective, and to develop methods for using less material in specific applications, develop substitutes, and improve recycling of such materials. We found that the research funded by DOE’s CMI has largely focused on projects related to rare earth materials. Specifically, according to DOE officials, 30 out of 34 of CMI’s funded projects as of April 2016 have been related to rare earth materials. In addition, experts in the second-round survey rated as adequate certain available data collected by the federal government in its effort to identify and assess risks with regard to the supply of critical materials. For example, when asked in the second-round survey to rate the adequacy of different types of critical materials data available, a majority of experts who responded described available data on (1) actual U.S. domestic production of materials and (2) resource potential and inventory for sources or deposits of materials located within the United States as somewhat or very adequate, as shown in table 1. The federal government’s approach to addressing critical materials supply issues is not consistent with selected key practices that we have previously identified that can help enhance and sustain interagency collaboration. Collaboration can be broadly defined as any joint activity that is intended to produce more public value than could be produced when the organizations act alone. As described above, a number of federal agencies conduct activities related to critical materials supply across the primary areas of effort—assessing risk and supporting research—as well as a range of other activities. In our April 2015 guide to evaluating and managing fragmentation, overlap, and duplication, we define fragmentation as those circumstances in which more than one federal agency, or organization within an agency, is involved in the same broad area of national need, and opportunities exist to improve service delivery. This definition applies concerning federal agencies’ critical materials activities, with more than one agency involved in the same broad area of national need. However, as shown by the agencies’ critical materials activities described above, agencies’ activities sometimes differ in meaningful ways or leverage the efforts of other agencies. In this context, we have reported that collaboration is an option that can reduce or better manage fragmentation of federal programs. As an interagency working group and according to its charter, the Subcommittee is to facilitate a strong, coordinated effort across its member agencies on critical minerals activities. However, we identified aspects of the Subcommittee’s efforts, which represent the federal approach, that are not consistent with key practices for enhancing and sustaining interagency collaboration. These practices include agreeing on roles and responsibilities; establishing mutually reinforcing or joint strategies; and developing mechanisms to monitor, evaluate, and report on results. One practice we identified that can help enhance and sustain interagency collaboration is agreeing on roles and responsibilities, including leadership. We reported that collaborating agencies should work together to define and agree on their respective roles and responsibilities, including how the collaborative effort will be led. In doing so, agencies can clarify who will do what, organize their joint and individual efforts, and facilitate decision making. Consistent with this practice, OSTP, DOE, and USGS have taken key roles as co-chairs of the Subcommittee. However, there are a number of Subcommittee member agencies, such as Education, Labor, EPA, DHS, and USDA, that are designated as members in the Subcommittee charter but do not have clear roles within the Subcommittee’s efforts and have had limited or no involvement in the Subcommittee’s work on critical materials. For example: EPA officials stated that EPA is in a unique position to lead in certain government-wide efforts, such as electronic waste recycling, that could be important for facilitating the recycling and reuse of critical materials. However, one EPA official stated that EPA viewed its role on the Subcommittee as limited. Specifically, EPA has had some involvement as a member of the Subcommittee but has not been coordinating with the Subcommittee on federal efforts to facilitate the recycling and reuse of critical materials. EPA officials stated that the Subcommittee’s activities were being driven primarily by other agencies, and EPA officials did not view the Subcommittee’s activities as being focused on sustainable materials management—an area where EPA has expertise. Education and Labor lead federal efforts on education and workforce issues. A 2013 National Academies of Sciences, Engineering, and Medicine report on workforce trends in the U.S. energy and mining industries highlighted the role that Education and Labor could play in helping to address education and workforce issues related to those industries, which include industries related to the supply of critical materials. Among the report’s recommendations was for Education to collaborate with Labor, state departments of education, and national industry organizations to convene workshops with industry, government, and educational leaders. However, although Education and Labor are designated as members in the Subcommittee charter, neither has shown that it ever participated in Subcommittee meetings. Officials from Labor stated that they were unaware of the Subcommittee and their agency’s designation as a member on the Subcommittee until we contacted them during the course of this review. Officials from Education stated that they were unable to identify anyone who participated on the Subcommittee and that there were no records of anyone from Education having participated. USDA’s Forest Service reviews and approves mine plans for operations that have included the mining of critical materials on the lands it manages. Although USDA is designated a member of the Subcommittee in its charter, according to agency officials, USDA did not have representation on the Subcommittee until August 2015 when a mining operator applying for a permit informed Forest Service officials about the Subcommittee. Forest Service officials told us that because they now know about their role on the Subcommittee, they plan to attend meetings regularly and be more involved in activities. DHS analyzes U.S. dependence on foreign infrastructure, including foreign sources of critical materials. The agency is designated as a Subcommittee member in the charter; however, DHS officials stated that, until we contacted them during the course of our review, no one had been tasked to represent the agency on the Subcommittee. A DHS official told us that he is now on OSTP’s list of agency contacts for the Subcommittee. DHS analyses of foreign infrastructure could help to inform the analysis that the Subcommittee has developed for the early warning screening system, as well as DOD’s analyses for its stockpiling assessments. Some experts we surveyed also noted the lack of clarity in agencies’ roles and responsibilities with regard to federal coordination efforts in addressing the supply of critical materials. Sixteen out of 36 experts responding to our survey indicated that the roles and responsibilities of government agencies with respect to critical materials were not very clearly defined or not defined at all. For example, one expert stated that too many agencies have their own agendas and therefore the federal effort is not coordinated. Relatedly, another expert noted that Commerce does not have a clearly defined role to support critical materials important to the economy. Our work has shown that although collaborative mechanisms differ in complexity and scope, they all benefit from certain key features, including the clarity of roles and responsibilities and ensuring that the relevant participants are included in the collaborative effort. Specifically, key practices call for participating agencies to consider clarifying their roles and responsibilities and whether all relevant participants have been included. We have reported that clarity about roles and responsibilities can be codified through laws, policies, memorandums of understanding, or other requirements. By agreeing on and clearly defining roles and responsibilities of their members, collaborating agencies clarify which agency will do what, organize their joint and individual efforts, and facilitate decision making. Furthermore, experts we contacted for our 2012 report on key considerations for implementing interagency collaborative mechanisms said, among other things, that it is helpful when the participants in a collaborative mechanism have full knowledge of the relevant resources in their agency and the ability to commit these resources and make decisions on behalf of the agency. We noted earlier that the EU has created a mechanism to bring together relevant stakeholders in the area of critical materials to align priorities, leverage investments, and form future partnerships. According to OSTP officials, the Subcommittee’s efforts are generally based on the level of involvement and resources of member agencies, with certain agencies taking the lead for certain activities. However, OSTP, as part of the Subcommittee’s leadership, did not point to efforts made to engage member agencies in more active participation in the Subcommittee. By taking steps to actively engage all member agencies in its efforts and clearly define roles and responsibilities, the Subcommittee will have more reasonable assurance that it can effectively marshal the potential contributions of all member agencies to take full advantage of their expertise and resources to help identify and mitigate critical materials supply risks. Moreover, the 1980 Act outlines a range of policies to promote an adequate and stable supply of materials, including assessing the availability of technically trained personnel, as well as supporting research related to recovery and recycling of materials, among others. In addition to enhancing interagency collaboration on critical materials activities, actively engaging all member agencies may also present an opportunity for the Subcommittee to more fully incorporate the policies of the 1980 Act into the federal approach for addressing critical materials supply issues. Another key practice we identified that can enhance and sustain interagency collaboration is establishing mutually reinforcing or joint strategies designed to help align activities, core processes, and resources to achieve a common outcome. However, federal critical materials efforts are not guided by joint strategies to achieve a common outcome. The Subcommittee’s charter outlines general areas of effort for its work but does not specify the outcome or outcomes that the Subcommittee plans to achieve. The Subcommittee’s member agencies have not worked together to develop joint strategies to guide their activities. OSTP officials indicated that member agencies are responsible for determining which activities to undertake based on the agencies’ resources and mission. The Subcommittee does not direct member agency activities, and there has been no discussion within the Subcommittee of creating a joint strategy. Experts also identified issues with the extent to which the federal approach to addressing critical materials supply issues supports achieving desired outcomes in response to our survey. For example, 28 out of 36 experts responding to our survey indicated that the federal government’s objectives with respect to critical materials were not clearly defined or not defined at all, and 20 out of 36 indicated that the extent to which federal agencies’ activities are mutually reinforcing with regard to critical materials was small or nonexistent. We have previously reported that to achieve a common outcome, collaborating agencies need to establish strategies that work in concert with those of their partners or are joint in nature. Developing joint strategies can help align partner agencies’ activities, core processes, and resources to accomplish a common outcome. Developing joint strategies to articulate common outcomes and identify member agencies’ efforts could help the Subcommittee better coordinate agencies’ critical materials activities to ensure that they are mutually reinforcing. An additional key practice we identified that can enhance and sustain interagency collaboration is developing mechanisms to monitor, evaluate, and report results. Federal agencies engaged in collaborative efforts need to create the means to monitor and evaluate their efforts to enable them to identify areas for improvement. However, the Subcommittee does not have a mechanism to monitor and evaluate progress across all areas of its activities. OSTP officials did not think that monitoring the progress of activities was the Subcommittee’s responsibility because individual activities are funded by member agencies, and therefore those agencies would be responsible for tracking progress. However, without a mechanism to monitor and evaluate its efforts, the Subcommittee may be missing an opportunity to fulfill a policy of the 1980 Act, which calls for establishing a mechanism to evaluate federal materials programs. Also, key practices call for reporting on the activities of agencies engaged in collaborative efforts to help key decision makers within the agencies, as well as clients and stakeholders, obtain feedback for improving both policy and operational effectiveness. OSTP officials stated that they provide reports as necessary on specific Subcommittee activities, in line with the reporting practices for other NSTC subcommittees. For example, as noted earlier, in March 2016, the Subcommittee published a report on its progress in developing a screening methodology for critical minerals and the results of the initial application of this methodology. However, since it was established in 2010, the Subcommittee has not reported periodically on the progress of all of its efforts to address critical materials supply issues. According to OSTP officials, the Subcommittee leaves regular reporting on the progress of activities to the member agencies as part of their standard agency oversight measures. However, there is no member agency that is responsible for reporting on all of the Subcommittee’s efforts. Periodic reporting on the progress of the Subcommittee’s activities could help key decisionmakers within the member agencies and Congress, as well as other stakeholders, to obtain feedback for improving both policy and operational effectiveness. We identified other limitations in the federal approach to addressing critical materials supply issues through our expert survey, review of the Subcommittee’s criticality assessment, and analysis of other information we collected. These include limitations in the federal government’s engagement with industry to identify U.S. critical material needs, with data to identify and assess risks and the Subcommittee’s focus on only a subset of critical materials, and in the Subcommittee’s focus on domestic production of critical materials. The federal government’s engagement with industry on an economy-wide basis to identify critical materials supply issues has been limited, according to our analysis and responses from the experts we surveyed. Although DOE and DOD have engaged with industry stakeholders in the clean energy and defense sectors through their efforts to address critical materials supply issues, we found that there has been limited federal government engagement with industry stakeholders outside of energy and defense. For example, officials that we interviewed from the semiconductor industry told us that they have concerns about the availability of certain gases that are critical to the semiconductor manufacturing process. However, company officials stated that they had not spoken with anyone within the federal government about their concerns; one trade association official stated that the organization did not know where in the federal government it should go to raise these concerns and that it was not aware of mechanisms to communicate information about supply disruptions to the government. Additionally, in response to our survey, a majority of experts, 25 out of 36, indicated that the level of attention that the federal government has paid to the criticality of materials important to industrial sectors outside of energy and defense was very or somewhat inadequate. In comparison, slightly more than half of the experts we surveyed, 19 out of 36, indicated that the level of attention paid to materials important to sectors related to energy and defense was very or somewhat adequate. Commerce is responsible for soliciting information from a range of industry sectors to help identify and assess cases of materials needs. The 1980 Act requires Commerce, in consultation with other agencies, to continually identify and assess cases of materials needs, as necessary, to ensure an adequate and stable supply of materials to meet national security, economic well-being, and industrial production needs. In the early 1980s after the legislation was enacted, Commerce conducted two such assessments on critical materials related to the aerospace and steel industries. Both assessments were conducted by Commerce’s Minerals and Materials Task Force, which was chaired by the Director of ITA’s Office of Strategic Resources. However, Commerce officials could not identify any recent assessments on critical materials by the department. Commerce’s Office of Technology Evaluation within the Bureau of Industry and Security conducts industrial base surveys and assessments, but according to Commerce, those assessments are focused exclusively on the U.S. defense industrial base. Within Commerce, nondefense assessment functions reside in ITA. ITA held two industry roundtables related to critical materials, one in 2009 focused on rare earth materials and another in 2012 that was intended to help inform the Subcommittee’s assessment of critical minerals. According to ITA officials, roundtables are convened periodically, often when there is something new or important affecting industry, such as the concerns about the decreased global supply of rare earth materials. According to the officials, ITA’s role on the Subcommittee is to provide support by sharing and exchanging information from an industry and trade perspective. The officials indicated that ITA has no specific plans to conduct additional roundtables to identify industry concerns related to critical materials supply. ITA officials also stated that it was not within the purview of ITA’s industry-specific offices—Office of Energy and Environment Industries, Office of Health and Information Technology, and Office of Transportation Machinery—to meet with industry to engage on issues related to critical materials supply. ITA officials stated that they were not aware of Commerce’s responsibilities under the 1980 Act prior to our review. Proactive engagement with a range of industry stakeholders to identify critical materials needs was a feature we identified in other countries’ or regions’ approaches to address critical materials supply issues. For example, the Japanese government’s approach features close collaboration between government and industry through engagement with industrial stakeholders to develop materials flow analyses that can identify critical materials and pinpoint bottlenecks in supply chains. Because Commerce is not engaging with industry stakeholders across a range of industrial sectors to identify materials of concern, it may not have the comprehensive, current information it needs to fulfill its responsibilities under the 1980 Act to continually identify and assess cases of materials needs. The federal approach to addressing critical materials supply issues is limited by the inadequacy of certain data and a focus on a subset of critical materials. While experts we surveyed were generally positive about data on domestic production, resource potential and inventory, and imports and exports associated with the supply of critical materials, as described earlier, a majority of them found available data to identify and assess risks associated with the supply of critical materials to be very or somewhat inadequate. As shown in table 2, a majority of experts who responded to the survey thought that the availability of data was inadequate in a number of areas, including data to identify and assess risks on (1) actual foreign production; (2) the resource potential of critical materials in other parts of the world, including in and below the oceans; and (3) the quantity of material recycled. In addition, the Subcommittee’s March 2016 criticality assessment reporting on the development and initial application of a screening methodology represents an important step toward developing an early warning system. However, the report focuses on a subset of potential critical minerals, which it defined as nonfuel resources—elements or compounds—that are obtained by mining or refined from mined products, and in some cases includes such substances at various stages of processing. According to the Subcommittee’s report, the subset of minerals assessed in this initial screening was determined by the availability of suitable and consistent data. The report noted that, in addition to limitations of scope, a significant weakness common among all known criticality assessments is that they are not updated regularly, likely because of the complexity of the models employed, lack of necessary data, or lack of resources needed to perform such updates. Relatedly, the Subcommittee’s 2010 charter established that one of the functions of the Subcommittee would be to develop and periodically update methods for assessing the criteria for material designations as critical or strategic in the short, medium, and long terms, including an early warning mechanism for emerging critical or strategic materials. However, the Subcommittee’s 2016 charter narrowed this function to implement and, as necessary, update the methodology developed cooperatively by its member agencies for dynamically assessing mineral criticality and for signaling emerging critical or strategic minerals—notably replacing the word material with mineral. The Subcommittee’s focus on minerals excludes other materials that are important to industry and federal scientific research, such as rare gases like neon and argon. For instance, we learned from industry officials we interviewed that beginning in 2014 during the conflict between the Ukrainian government and Russian-backed separatist groups, there was a decrease in the global supply of neon gas that led to a 20-fold price increase. Neon is generally produced as a by-product of steelmaking, and most of the global supply of neon comes from Ukraine and Russia. Neon is used for many industrial and research applications, including in the medical field and in the semiconductor industry to design computer chips. For instance, an NIH official stated that the agency found out about the decreased global supply of neon through one of its grantees that needed the gas for medical research. According to the NIH official, the decreased supply of neon gas has resulted in researchers rationing the gas, which restricts research activities. The official stated that in one case the agency provided supplemental funds to assist a researcher in conducting experiments using alternative laser systems that did not depend on neon gas, but the experiments were unsuccessful using those lasers. According to the NIH official, federal intervention to ensure the availability of neon and other rare gases would improve the agency’s ability to advance its mission. The Subcommittee’s criticality assessment report notes that the development of the screening methodology and the regular publication of its results address aspects of the 1980 Act. As noted above, the 1980 Act calls for the creation of early warning systems for materials supply problems, and defines “materials” as substances, including but not limited to minerals, needed to supply the industrial, military, and essential civilian needs of the United States. The Subcommittee’s report indicated that additional minerals could be included in the early warning screening in the future as additional data become available. However, the Subcommittee has not developed a plan or strategy to prioritize additional materials needed by industry and federal research and to determine how to obtain data that would allow them to be included in the early warning screening in the future. One potential mechanism for obtaining data on additional materials is the North American Industry Classification System, which is the standard used by federal statistical agencies—several of which are part of Subcommittee member agencies (e.g., Labor’s Bureau of Labor Statistics and DOE’s Energy Information Administration)—in classifying business establishments to collect, analyze, and publish statistical data related to the North American economy. The system is reviewed through an international process every 5 years and uses a production-oriented conceptual framework to group establishments into industries based on the activity in which they are primarily engaged. Establishments using similar raw material inputs, similar capital equipment, and similar labor are classified in the same industry, so that establishments that do similar things in similar ways are classified together. The current 2012 industry classifications in use under this system were issued in 2011. The U.S Economic Classification Policy Committee is reviewing comments on its recommendations for the 2017 revisions to the system, after which it will begin the process of soliciting proposed revisions for implementation in 2022. During the revision process, the Economic Classification Policy Committee solicits and evaluates requests for revisions to the North American Industry Classification System. A Labor official said that if there is a need to classify segments of industries at a more granular level, it would be important to communicate these needs for the next revision cycle. For example, there is one North American Industry Classification System code that covers all industrial gases. If the Subcommittee found that there was the need for additional information on a specific industrial gas, such as neon, it could use the upcoming revision process to request a change to incorporate additional granularity into the system to differentiate between different industrial gases. This would be similar to the changes the Subcommittee worked with the United States International Trade Commission to incorporate in the Harmonized Tariff Schedule to provide more visibility into the imports of specific rare earth materials and permanent magnets. Since the publication of the Subcommittee’s criticality report, the Subcommittee narrowed its charter to focus on minerals. In narrowing the charter, the Subcommittee is missing the opportunity to fulfill in its early warning screening methodology one of the policies of the 1980 Act, which applies to all critical materials. By taking the steps necessary to broaden future applications of the early warning screening methodology to include potentially critical materials beyond minerals, such as a plan or strategy for prioritizing the materials, the Subcommittee could better work with member agencies to address existing data limitations and broaden the scope of the early warning system to better achieve the policy outlined in the 1980 Act. Experts we surveyed noted the importance of domestic production in addressing the supply of critical materials but also indicated that the federal government’s approach to date has included a limited focus on domestic production. The 1980 Act calls for the coordination of federal agencies to facilitate the availability and development of domestic resources to meet critical materials needs, and the assessment of federal policies that affect all stages of the materials cycle, including mining. A majority of experts who responded to the survey, 24 out of 36, indicated that the federal government should play a major role in encouraging the domestic production of critical materials, and 19 out of 36 indicated that federal efforts to encourage domestic production of critical materials to address supply issues are somewhat or very inadequate. As shown in table 3, experts we surveyed identified several factors with the potential to limit domestic production of critical materials. As described above, one aspect of domestic production of critical materials is the review and approval by federal agencies of mining projects on federal land. As shown in table 3, most experts we surveyed indicated that the length of the permitting process for new mines has the potential to limit the domestic production of critical materials. In January 2016, we reported on the permitting process involving BLM and the Forest Service and found, among other things, that agency officials felt that there was limited or ineffective interagency coordination and collaboration during the mine plan review process. We reported that officials in nine BLM and two Forest Service locations said that coordination and collaboration had been limited in both quantity and quality and had resulted in adding from 2 months to 3 years to the review process. As part of the review process, BLM and the Forest Service need to coordinate and collaborate with other federal agencies, state agencies, and Native American tribes on issues such as assessing impacts to water quality, wildlife, and cultural resources. However, BLM and Forest Service officials said it can be difficult to do. For example, Forest Service officials said that a federal agency delayed the review process for one mine plan because the agency did not provide the necessary data in a timely fashion. As a result, Forest Service officials had to redo some analyses needed for the mine plan’s environmental impact statement, which added time to the review process. To help address this key challenge, some officials said that they have developed memorandums of agreement with state agencies, are holding regular meetings with these state agencies, and the mine operators, and are communicating and consulting with tribes. As noted above, other countries’ or regions’ approaches to addressing critical materials supply issues have incorporated taking steps to facilitate domestic production of materials. For example, Canada’s MPMO Initiative was established to improve the accountability, transparency, timeliness, and predictability of Canada’s federal regulatory review process for major resource projects, and internal and external stakeholders believe that federal project review timelines have improved because of better coordination. The Canadian government has also taken steps to provide tax incentives for domestic production. Similarly, as described above, fostering communication with stakeholders related to new mining projects has been a facet of the EU approach to facilitating domestic production of critical materials. Although its charter calls for the Subcommittee to review and analyze global and domestic policies that affect the supply of critical and strategic minerals, the Subcommittee has addressed these issues only to a limited degree. As noted above, the Subcommittee has done some work to look at trade issues to critical materials through its work with USTR and other member agencies to address China’s export restrictions through dispute settlement at the WTO. However, the Subcommittee has not focused on increasing the supply of critical materials through facilitating domestic production. Until recently, the Forest Service was not an active participant on the Subcommittee, and according to BLM officials we interviewed, BLM has not participated on the Subcommittee. There are a number of global and domestic policies related to the supply of critical materials that the Subcommittee could review and analyze, including examining the approaches taken by other countries or regions to facilitate domestic production by, for example, improving coordination and streamlining the mine-permitting process. By examining the approaches taken by other countries or regions to facilitate domestic production of critical materials, the Subcommittee could determine if there are any lessons learned that could be applied to the United States. The availability of certain materials is essential for national security, economic well-being, and industrial production. Recognizing this need, Congress passed the 1980 Act to promote an adequate and stable supply of needed materials. Although this legislation has been in place for over 30 years, a number of the key federal activities we examined that are focused on addressing critical materials supply risk did not begin until after 2010, when China tightened its export restrictions on rare earth materials. U.S. government agencies are now carrying out some of the policies outlined in the 1980 Act, and experts have identified strengths in agencies’ efforts to assess critical materials supply risks and mitigate those risks through research activities. Although the Subcommittee is to facilitate a strong, coordinated effort across its member agencies on critical minerals activities, its efforts to coordinate agencies’ activities are not consistent with selected key practices for enhancing and sustaining interagency collaboration. The Subcommittee has not taken steps to actively engage all member agencies in its efforts and has not clearly defined the roles and responsibilities of member agencies. By ensuring that all relevant member agencies are engaged in its efforts and have agreed on and clearly defined roles and responsibilities, the Subcommittee will have more reasonable assurance that it can effectively marshal the potential contributions of all member agencies to take full advantage of their expertise and resources in addressing critical materials supply issues. The Subcommittee also has not developed joint strategies to articulate common outcomes and identify contributing agencies’ efforts, or developed a mechanism to monitor, evaluate, and periodically report on the progress of these efforts. Developing joint strategies to articulate common outcomes and identify member agencies’ efforts could help the Subcommittee better coordinate agencies’ critical materials activities to ensure that they are mutually reinforcing. In addition, developing a mechanism to monitor, evaluate, and periodically report on the progress of member agencies’ efforts could help the Subcommittee fulfill a policy of the 1980 Act, which calls for the establishment of a mechanism for the evaluation of federal materials programs. The U.S. government is also missing other key opportunities to address critical materials supply risks because of its limited engagement with industry to continually identify and assess materials needs, a focus on a subset of critical materials, and a limited focus on developing domestic production capabilities. The Subcommittee has taken an important step toward developing an early warning system for critical minerals as called for by its charter, but it excludes nonmineral materials that may be important to industry and federal research. Currently, the Subcommittee does not have a documented plan or strategy to prioritize potentially critical materials beyond minerals and determine how to obtain data on such materials that would allow them to be included in the early warning screening in the future. By taking the steps necessary to broaden its future applications of the early warning screening methodology to include potentially critical materials beyond minerals, including a plan or strategy for prioritizing such materials, the Subcommittee could better work with member agencies to address existing data limitations and broaden the scope of the early warning system to better achieve the policy outlined in the 1980 Act. The Subcommittee is also not taking steps to identify opportunities to facilitate domestic production as a way to mitigate critical materials supply risks. As provided for by the Subcommittee’s charter, examining how other countries or regions, such as Canada and the EU, are improving coordination and streamlining the mine-permitting process could help the Subcommittee determine if there are any lessons learned that could be applied to the United States. Finally, Commerce has not engaged with industry stakeholders to solicit information across a range of industrial sectors. While Commerce has coordinated with industry at certain times or on specific issues, these coordination efforts have been ad hoc and have generally focused on the defense industrial base. As a result, Commerce may not have the comprehensive, current information it needs to fulfill its responsibilities under the 1980 Act to continually identify and assess cases of materials needs. To enhance the ability of the Executive Office of the President to coordinate federal agencies to carry out the national materials policy outlined in the 1980 Act, we recommend that the Director of the Office of Science and Technology Policy, working with the National Science and Technology Council’s Subcommittee on Critical and Strategic Mineral Supply Chains and agency leadership, as appropriate, take the following five actions: To strengthen the federal approach to addressing critical materials supply issues through enhanced interagency collaboration, the Subcommittee should agree on and clearly define the roles and responsibilities of member agencies and take steps to actively engage all relevant federal agencies in the Subcommittee’s efforts; develop joint strategies that articulate common outcomes and identify contributing agencies’ efforts; and develop a mechanism to monitor, evaluate, and periodically report on the progress of member agencies’ efforts. To broaden future applications of the early warning screening methodology, the Subcommittee should take the steps necessary to include potentially critical materials beyond minerals, such as developing a plan or strategy for prioritizing additional materials for which actions are needed to address data limitations. To enhance the federal government’s ability to facilitate domestic production of critical materials, the Subcommittee should examine approaches other countries or regions are taking to see if there are any lessons learned that can be applied to the United States. To fulfill the role assigned to it under the 1980 Act, the Secretary of Commerce should engage with industry stakeholders and continually identify and assess critical materials needs across a broad range of industrial sectors. We provided a draft of this report to USDA, Commerce, DOD, Education, DOE, HHS, DHS, Interior, Justice, Labor, State, Treasury, EPA, NASA, NSF, CEQ, NEC, NSC, OMB, OSTP, and USTR for review and comment. We received the following comments: OSTP provided written comments, which are reproduced in appendix III. Of the five recommendations directed to it, OSTP neither agreed nor disagreed with four of the recommendations, but expressed some concerns with three of the recommendations as described below, and concurred with the fifth recommendation. Commerce provided written comments, which are reproduced in appendix IV. Specifically, in its comments Commerce stated it agreed with the recommendations and that it will consult with other agencies in order to develop an action plan with details on implementation. USDA provided written comments, which are reproduced in appendix V. USDA stated that it generally agreed with the draft report, stating that it supported the Subcommittee and that it agreed that there are limitations, including limited engagement with industry and limited focus on domestic production. USDA did not comment on the recommendations. In an email from an audit analyst in its Office of the Chief Financial Officer, DOE provided general comments, which we discuss below. Commerce, DOD, DOE, Interior, NASA, and USTR provided technical comments, which we incorporated as appropriate. Officials from Education, HHS, DHS, Justice, Labor, State, Treasury, EPA, NSF, and NSC stated via email that they had no comments on the report. An NEC official stated that NEC had no comments on the report. CEQ and OMB did not provide comments. Additionally, we provided a draft of this report to Natural Resources Canada, the European Commission Directorate-General for Internal Market, Industry, Entrepreneurship and Small and Medium-sized Enterprises, METI, and Japan’s Ministry of Education, Culture, Sports, Science and Technology for their views and comments on the completeness and accuracy of GAO’s information on their programs and practices. Officials from the EU and Canada provided technical comments via email, which we incorporated as appropriate. Officials from Japan stated in emails that they had no comments on the report. In its written comments, OSTP neither agreed nor disagreed with our first three recommendations that the Subcommittee should (1) agree on and clearly define the roles and responsibilities of member agencies and take steps to actively engage all relevant federal agencies in the Subcommittee’s efforts; (2) develop joint strategies that articulate common outcomes and identify contributing agencies’ efforts; and (3) develop a mechanism to monitor, evaluate, and periodically report on the progress of member agencies’ efforts. In its comments, OSTP stated that the roles and responsibilities of member agencies are defined by their existing missions and that further specification of roles and responsibilities within the context of the Subcommittee is either redundant, if aligned with agency missions, or may raise confusion if not. However, as we state in the report, there are a number of Subcommittee member agencies that do not have clear roles within the Subcommittee’s efforts and have had limited or no involvement in the Subcommittee’s work on critical materials. By clearly defining roles and responsibilities within the context of the Subcommittee, member agencies could organize their joint and individual efforts, and facilitate decision making. Moreover, more actively engaging all member agencies by clearly defining roles and responsibilities and identifying contributing activities could help the Subcommittee more fully incorporate the range of policies of the 1980 Act into the federal approach for addressing critical materials supply issues. OSTP further stated that agencies have in place mechanisms to monitor, evaluate, and report on the progress of their efforts in support of their missions, and the Subcommittee reports directly to its parent committee and in other ways (public documents) on its collective actions. However, as we state in the report, the Subcommittee has not reported periodically on the progress of all of its efforts to address critical materials supply issues, and there is no member agency that is responsible for reporting on all of the Subcommittee’s efforts. We continue to believe that OSTP should fully implement our three recommendations to enhance interagency collaboration on critical materials supply issues. OSTP neither agreed nor disagreed with our fourth recommendation that the Subcommittee should take the steps necessary to include potentially critical materials beyond minerals, such as developing a plan or strategy for prioritizing additional materials. In its comments, OSTP stated that plans to address additional materials are under discussion as the Subcommittee evaluates feedback on the published assessment methodology and that other approaches may be considered to add potentially critical materials that cannot be screened using the methodology because of data limitations or other factors. DOE, which co- chairs the Subcommittee along with OSTP and Interior, stated in its general comments that the report would more accurately present the issue of the federal focus on only a subset of materials by including a more comprehensive discussion of the data availability issues that limit the Subcommittee’s early warning screening methodology. We acknowledge that existing data limitations present a challenge for the Subcommittee. As we state in the report, our recommendation that the Subcommittee take steps such as developing a plan or strategy for prioritizing additional materials to be included in the early warning screening methodology is intended to help the Subcommittee better work with member agencies to address existing data limitations. In its general comments, DOE also suggested that we clarify that the plan or strategy for prioritizing additional materials should focus on those that require augmented data collection activities. As we state in our report, addressing data limitations is a key factor in the Subcommittee’s ability to apply its early warning screening methodology to additional materials. Therefore, we clarified in the recommendation the role of data limitations. Without taking steps to include potentially critical materials beyond minerals, such as developing a plan for prioritizing additional materials, the Subcommittee may miss opportunities to obtain the data it needs, such as by proposing a revision to the North American Industry Classification System. We continue to believe that the Subcommittee should implement our recommendation by taking such steps. In written comments, OSTP stated it concurred with our fifth recommendation that the Subcommittee should examine approaches other countries or regions are taking to see if there are any lessons learned that can be applied to the United States. OSTP stated that it looks forward to exploring the experiences and approaches of other countries and regions. In its general comments, DOE expressed concerns that our evaluation of the federal government’s approach to addressing critical materials supply issues is based largely on a nongeneralizable sample of critical materials experts and that it is not clear in the report that we considered how the composition of survey respondents could present significant bias in the results. DOE stated that a majority of the survey respondents fall under the ‘Industry/Association’ category and that representatives from industry could be expected to say that there is more the government can do to support domestic industries. As we state in the report, our survey results are not generalizable and only represent the views of those who responded. However, both the total number of experts from industry sampled (24) and the number of experts from industry that responded in the second round of the survey (19) represent about half of the experts we included in the survey. The remaining represent government experts (6 sampled and 5 who responded in the second round of the survey) and academic/nonprofit experts (16 sampled and 12 who responded in the second round of the survey). DOE’s statement assumes that all of the industry respondents think government should do more—which may or may not be true. There could also be bias if the respondents’ views differed from the views of nonrespondents. However, we do not know whether this is the case, and this type of bias can occur in any survey. Our findings are supported not only by our survey results, but also through our review of relevant documents and interviews with officials from government and industry in the United States and in other countries and regions. Therefore, we did not make any changes to the report as a result of DOE’s comment. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Director of the Office of Science and Technology Policy, the Secretary of Commerce, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or neumannj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. This report (1) describes federal agencies’ activities related to the supply of critical materials; (2) describes the approaches of selected countries and regions to address critical materials supply issues; and (3) evaluates the federal government’s approach, such as coordination of activities, to addressing critical materials supply issues. For our first and third objectives, we reviewed laws, regulations, and guidance related to the supply of critical materials, such as the National Materials and Minerals Policy, Research and Development Act of 1980 (1980 Act) and a law related to the Department of Defense’s stockpiling of materials. We also collected and reviewed prior GAO reports on issues related to the federal effort to address the supply of critical materials, as well as congressional hearings, industry reports, and academic studies on the U.S. supply of critical materials. We also reviewed the charters of the Subcommittee on Critical and Strategic Mineral Supply Chains (Subcommittee), which is under the National Science and Technology Council’s Committee on Environment, Natural Resources, and Sustainability. To describe federal agencies’ activities related to the supply of critical materials, we contacted the 20 federal agencies and Executive Office of the President organizations that are designated as members of the Subcommittee. These agencies and organizations are the Departments of Agriculture, Commerce, Defense, Education, Energy, Homeland Security, the Interior, Justice, Labor, State, and the Treasury, as well as the Environmental Protection Agency, National Aeronautics and Space Administration, National Science Foundation, Council on Environmental Quality, National Economic Council, National Security Council, Office of Management and Budget, Office of Science and Technology Policy, and Office of the U.S. Trade Representative (OSTP). We interviewed and obtained reports and analyses from officials from those agencies as appropriate. We also interviewed officials from a federal agency that was not designated as a member of the Subcommittee—the Department of Health and Human Services’ National Institutes of Health—about its role in activities related to the supply of critical materials, as it relies on rare gases, for example, for research and medical applications. To describe the approaches of selected countries and regions to address critical materials supply issues, we interviewed officials across government, academia, and industry from the European Union (EU), Japan, and Canada and obtained relevant documentation from officials. We also met onsite with EU officials in Brussels, Belgium, and Japanese officials in Tokyo. While in the EU, we also met with German officials in Berlin and Bonn, to understand the impact of multinational planning on national laws and policies related to critical materials. We selected these countries and regions based on the efforts they have under way to address critical materials supply risks and our ability to collect information about those efforts. To evaluate the federal government’s approach to addressing critical materials supply issues, we developed and disseminated a two-stage, web-based survey to a nongeneralizable sample of 46 critical materials experts. The sample was selected with the goal of obtaining a balance of perspectives across the industrial, academic, and government sectors on the critical materials supply chain. We also identified subject matter areas relevant to the critical materials supply chain. Based on background research and interviews with experts, we identified the following relevant subject matter areas: Materials science—basic or applied research or experience related to materials that could be used in the production of advanced technologies, including methods for recycling materials. Industrial ecology—research or experience related to the flow of energy and materials through an industrial system, including, but not limited to, resource constraints and life cycle analysis. Mining and raw materials—research or experience related to extraction or processing of minerals or materials, including exploration and permitting for such activities. Markets and trade policy—research or experience related to commodity markets, supply and demand for materials, or trade policies that affect the flow of materials. Supply chain management—research or experience related to the management of an industry or government supply chain or the collection, dissemination, or analysis of information on material supply chains and the risk associated with them. Workforce issues—research or experience related to the adequacy of technically trained personnel in the fields of mining or material science. To identify experts from the industrial, academic, and government sectors who are knowledgeable about matters involving the critical materials supply chain, the team used resources that included professional and government publications; participant lists of knowledge-sharing events, such as workshops, symposia, and conferences; recent congressional testimonies related to critical materials issues; members of a federal advisory committee; and outreach to research and academic programs, trade associations, companies, and other industry groups. In addition, the team identified a number of potential experts based on interviews with federal agencies and other knowledgeable stakeholders conducted as part of the audit work for the engagement. We identified and reached out to more than 100 experts based on their expertise across the range of subject matter areas and sectors. Out of those experts we contacted, 49 expressed an interest in participating in the survey. In total, 47 experts (of 49 considered) were selected for participation in the survey. After the first round of the survey was sent out to all participants, one participant declined to participate and was removed from the list of participants resulting 46 experts. The makeup of the 46 experts consisted of 6 in government, 16 in academia and nonprofit organizations, and 24 in industry and trade group associations. Table 4 shows the breakdown of experts’ expertise across sectors. The first round of the survey was conducted from September 22, 2015, to October 30, 2015, and asked the experts to respond to five open-ended questions about the primary strengths and weaknesses of the U.S. federal government’s policies and activities related to critical materials and options for improving these efforts. Out of the 46 experts sampled for the survey, 33 responded to the survey, resulting in a response rate of 72 percent. The 33 who responded were experts who successfully submitted their conflict-of-interest forms and completed the electronic survey. After the experts completed the open-ended questions, we analyzed the responses to identify key issues raised by the experts. Based on those key issues raised by the experts, we identified topic categories related to the supply of critical materials. We then developed closed-ended questions for the second round of the survey in which we asked each expert to rate the ideas and other information that came from the first round of the survey. Two of the 33 respondents from the first round of the survey did not participate in the second round of the survey. The second round of the survey was conducted from February 3, 2016, to March 4, 2016, and contained 30 questions. The first 29 questions were closed-ended questions, with many containing follow-up questions to further explore experts’ responses. The last question was open-ended to capture experts’ views on issues that had not been previously covered in the survey. Out of the 46 experts sampled for the second round of the survey, 36 responded, resulting in a response rate of 78 percent. We conducted follow-up phone calls around mid-February 2016 to participants who had not completed the survey, had not turned in their conflict-of-interest forms, or both. The 36 who responded to the survey were those experts who successfully submitted their conflict-of-interest forms and completed the electronic survey. Five of the 36 respondents who participated in the second round of the survey had not participated in the first round of the survey. Because we selected a nongeneralizable sample of experts, their views are not generalizable to other experts in these subject matter areas, but their views can provide illustrative examples of critical materials supply issues. The quality of survey data can be affected by nonsampling error. Nonsampling error includes variations in how respondents interpret questions, respondents’ willingness to offer accurate responses, and data collection and processing errors. In developing the web survey, we pretested draft versions of the instrument in December 2015 with 5 experts who later participated in the second round of the survey. On the basis of the pretests, we made revisions to the survey. We included steps in developing the survey and collecting, editing, and analyzing survey data, to minimize such nonsampling error. Furthermore, using a web- based survey also helped remove errors in our data collection effort. Allowing experts to enter their responses directly into an electronic instrument automatically created a record for each expert in a data file and eliminated the errors associated with a manual data entry process. To determine the extent of collaboration among agencies that are members of the Subcommittee, we collected documents and interviewed officials in OSTP and other agencies that are Subcommittee members to obtain additional information on the federal approach, including efforts to coordinate federal activities. To evaluate the federal approach, including coordination, we compared federal efforts against the national policy outlined in the 1980 Act and key practices for interagency collaboration. We reviewed the eight key practices for interagency collaboration based on which of the practices were most relevant to the operations of the Subcommittee. The key practices for interagency collaboration are among the options for reducing or better managing fragmentation to improve the efficiency of federal programs and more effectively achieve their objectives. We identified all but one of the key practices (reinforce individual accountability for collaborative efforts through performance management systems) as relevant to the Subcommittee’s functions. We conducted this performance audit from March 2015 to September 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Table 5 provides information on the results of selected criticality assessments that have been conducted on a variety of materials that are important to U.S. economic and national security interests. In addition to the contact named above, Chris Murray (Assistant Director), Darnita Akers, Martin Campbell, Antoinette Capaccio, Mackenzie Doss, Lorraine Ettaro, Cheryl Harris, Holly Hobbs, Jill Lacey, Dan C. Royer, Tind Shepper Ryen, Jerome Sandau, Alexandra Stone, Vasiliki Theodoropoulos, and Reed Van Beveren made key contributions to this report.	Certain metals, minerals, and other “critical” raw materials play an important role in the production of advanced technologies across a range of industrial sectors and defense applications. Recently, concentration of the supply of some critical materials under foreign control has renewed questions about the U.S. government's and industry's ability to address potential supply disruptions. GAO was asked to examine U.S. efforts to identify and strategically plan for critical materials supply issues. Among other objectives, this report (1) describes federal agencies' activities related to the supply of critical materials and (2) evaluates the federal government's approach to addressing critical materials supply issues. GAO reviewed relevant laws, agency documents, and academic studies; interviewed federal officials; and conducted a two-stage web-based survey of a nongeneralizable sample of critical materials experts selected to cover a range of subject matter areas. Federal agencies are primarily focused on two areas of activity related to critical materials supply—assessing risk and supporting research. For example, the Department of Energy (DOE) has conducted two criticality assessments on materials important to clean energy applications and manages the Critical Materials Institute—a 5-year, $120 million investment aimed at mitigating risks by diversifying supply, providing alternatives to existing materials, and improving recycling and reuse. In addition, agencies conduct a range of other critical materials related activities, including stockpiling or producing materials, and reviewing and approving resource extraction projects, among other efforts. The federal approach to addressing critical materials supply has areas of strength but is not consistent with selected key practices for interagency collaboration and faces other limitations, as shown below. According to its charter, the Subcommittee on Critical and Strategic Mineral Supply Chains (Subcommittee)—co-chaired by the Office of Science and Technology Policy (OSTP), DOE, and the Department of the Interior—is to facilitate a strong, coordinated effort across its member agencies on critical materials activities. However, the Subcommittee's efforts have not been consistent with selected key practices for interagency collaboration, including agreeing on roles and responsibilities; establishing mutually reinforcing or joint strategies; and developing mechanisms to monitor, evaluate, and report on results. For example, some member agencies do not have a clear role in the Subcommittee's efforts and have had limited or no involvement in its work. By taking steps to actively engage all member agencies in its efforts and clearly define roles and responsibilities, the Subcommittee would have more reasonable assurance that it can effectively marshal the potential contributions of all member agencies to help identify and mitigate critical materials supply risks. Other limitations to the federal approach to addressing critical materials supply include limited engagement with industry and a limited focus on domestic production. For example, the Department of Commerce (Commerce) is required by law to identify and assess cases of materials needs. However, Commerce does not solicit information from stakeholders across a range of industrial sectors. As a result, Commerce may not have comprehensive, current information across a range of industrial sectors to help it identify and assess materials needs. GAO is making six recommendations, including that OSTP take steps to improve interagency collaboration by, for example, defining Subcommittee member roles and responsibilities and that Commerce engage with stakeholders to continually identify and assess critical materials needs across industrial sectors. Commerce agreed. OSTP agreed with one and neither agreed nor disagreed with the other four recommendations but discussed how roles and responsibilities are defined, among other things. GAO continues to believe these steps are needed, as discussed in the report.	18	16k+	4,879
47	PPACA directed each state to establish and operate a health insurance marketplace by January 1, 2014. In cases where states elected not to establish and operate a marketplace, the law directed the federal government to establish and operate a health insurance marketplace on their behalf. These marketplaces were expected to provide a seamless, single point-of-access for individuals to enroll in private health insurance plans and apply for income-based financial assistance established under the law. PPACA and HHS regulations and guidance require every state to have marketplace capabilities that enable them to carry out four key functions, among others: Eligibility and enrollment. The marketplace must enable individuals to assess and determine their eligibility for enrollment in healthcare coverage. In addition, the marketplace must provide individuals the ability to obtain an eligibility determination for other federal healthcare coverage programs, such as Medicaid and the Children’s Health Insurance Program (CHIP). Once eligibility is determined, individuals must be able to apply for and enroll in applicable coverage options. Plan management. The marketplace is to provide a suite of services for state agencies and health plan issuers to facilitate activities such as submitting, monitoring, and renewing qualified health plans. Financial management. The marketplace is to facilitate payments of premiums to health plan issuers and also provide additional services such as payment calculation for risk adjustment analysis and cost- sharing reductions for individual enrollments. Consumer assistance. The marketplace must be designed to provide support to consumers in completing an application, obtaining eligibility determinations, comparing coverage options, and enrolling in healthcare coverage. To provide these capabilities, PPACA further required the states, as well as HHS (who delegated this role to CMS) to establish supporting automated systems and capabilities. Toward this end, states and CMS undertook projects to design, develop, implement, and operate health insurance marketplace systems. States electing to establish their own marketplaces (hereafter referred to as a state-based marketplace) were required, in accordance with CMS guidance and regulations, to develop their own IT solutions, including a web portal for individual consumers to interact with and select healthcare coverage, as well as supporting systems that perform functions such as real-time eligibility queries, transferring application information to state Medicaid/CHIP agencies, sending taxpayer information to the Internal Revenue Service, and exchanging enrollment information with issuers of qualified health plans. In addition, state-based marketplace IT solutions were required to interface with CMS systems designed to exchange information with external partners, including other federal agencies and states, and facilitate the electronic payment of insurance premiums to plan issuers. As an alternative to their web portals, these states were also required to set up call centers through which consumers could apply for coverage. A state that operates its own marketplace can request that CMS perform eligibility and enrollment functions using federal IT systems. We refer to this as a state-based marketplace using the federal marketplace IT solution. This type of marketplace evolved when certain states encountered IT-related challenges during the development of their state marketplace solutions. Further, if a state elected not to establish its own marketplace, CMS assumed some or all aspects of the marketplace operations for that state using two additional marketplace types: Federally facilitated marketplace: CMS is responsible for all aspects of establishing and operating the marketplace including the four key functions. Federally facilitated partnership: CMS is responsible for establishing and operating the eligibility enrollment and financial management functions, while the state assists with plan management and/or consumer assistance. In these cases, states rely to varying degrees on the systems developed by CMS to support a federally facilitated marketplace. These include Healthcare.gov—the federal website that serves as the user interface for individuals to obtain information about health coverage, set up a user account, select a health plan, and apply for healthcare coverage—and several supporting systems. The supporting systems include a system for verifying an applicant’s identity and establishing a login account; a transactional database to facilitate eligibility and enrollment, plan management, financial services, and other functions; and a data services hub that serves as a single portal for exchanging information with external partners. For example, federal agencies such as the Social Security Administration (SSA), Department of Homeland Security (DHS), and Internal Revenue Service (IRS) provide or verify information used in making determinations of a person’s eligibility for coverage and financial assistance. For plan year 2015, 14 states had a state-based marketplace, 3 had a state-based marketplace using the federal marketplace IT solution, 27 had a federally facilitated marketplace, and 7 had a federally facilitated partnership (see fig. 1). Depending on the type of marketplace established in his or her state, an individual user would apply for health coverage through either their state’s web portal or through Healthcare.gov. The key functions required to enroll that individual would then be carried out by a combination of state and federal systems specific to the type of marketplace. A general depiction of both the state and federal marketplace IT solutions is provided in figure 2. States had access to two sources of federal funding to establish their marketplaces: federal marketplace grants and Medicaid matching funds. CMS allows states to use both Medicaid matching funds and marketplace grants to pay for shared system services and functions that states needed to establish for marketplace operations, such as developing a rules engine system and establishing interfaces to the federal data services hub. Various offices within CMS were tasked with overseeing grant reviews, Medicaid advanced planning document reviews, and IT gate reviews to ensure that states followed a standardized funding process for their marketplace-related IT projects. These offices included the Center for Consumer Information and Insurance Oversight (CCIIO), Center for Medicaid and Chip Services (CMCS), and the Office of Technology Solutions (OTS). PPACA authorized HHS to award federal exchange grants (now referred to as marketplace grants) for planning and establishing marketplaces. The act did not specify an exact amount of marketplace grant funding, but appropriated to HHS, out of any moneys in the Treasury not otherwise appropriated, an amount necessary to make marketplace grant awards. The act directed HHS to determine the total amount of funding that it would make available to each state for each fiscal year and authorized the department to award marketplace grants to states through December 2014. On the basis of this authority, HHS established four separate programs for awarding marketplace grants to states. Planning Grants: Provided states with resources to conduct the initial research and planning needed to build a marketplace and determine how it would be operated and governed. The grants were awarded to states in 2010 and 2011 and provided 1 year of funding. A state could receive only one planning grant. Early Innovator Grants: Provided funding to a state or group of states that were identified as early leaders in building their marketplaces, to assist in designing and implementing the IT infrastructure needed to operate the marketplaces. All marketplace IT components, including software and data models, developed with these grants could be adopted and modified by other states to fit their specific needs. The grants were awarded in February 2011 and the grant funds were available for 2 years. A state could only receive one of these grants. Establishment Grants (Level 1): Provided funding for a 1-year project period to states pursuing any marketplace type. This funding was intended to help states undertake additional marketplace establishment activities, such as changes in response to legislative or regulatory requirements, developing IT systems, and consulting with key stakeholders. The grants were awarded between May 2011 and December 2014. Once awarded, the funds were available for 1 year, and a state could apply for multiple grants. Establishment Grants (Level 2): Provided funding for a multi-year project period to states that have legal authority to implement a marketplace and are further along in marketplace development and are pursuing a state-based marketplace. This funding was designed to help the states carry out all marketplace activities, including consumer and stakeholder engagement and support, eligibility and enrollment, plan management, and technology development. The grants were awarded between May 2011 and December 2014. Once awarded, the grant funds remain available for up to 3 years. A state could receive only one grant. States establishing state-based marketplaces were expected to carry out activities in a number of areas to receive these marketplace grants. These activity areas included stakeholder consultation, program integration, IT systems development, financial management, oversight and program Integrity, health Insurance market reform, and business operations of the marketplace. Once grants were awarded, funding was disbursed using the Payment Management System, which is an HHS-administered system that provides federal agencies and grant recipients the tools to manage grant payments. Grantees submitted progress reports documenting financial expenditures and program progress through an online data collection system on a monthly and semi-annual basis. As of December 31, 2014, CMS had awarded approximately $5.51 billion in federal marketplace grants to states. Of these grant funds awarded, CMS had authorized states to spend approximately $2.16 billion on IT to support state-based marketplaces and federally facilitated partnerships as of March 2015. According to CMS, funds authorized for IT contracts could be designated as restricted and required prior approval from the various CMS offices mentioned previously before the funds could be spent. For states that opted to use the federally facilitated marketplace, IT funds were not provided after it was determined that these states were not establishing a state-based marketplace. With the enactment of PPACA, changes to Medicaid eligibility and enrollment systems were needed in order for the Medicaid program to operate seamlessly with the marketplaces, as well as to implement new Medicaid eligibility policies. Specifically, in all states, the Medicaid eligibility and enrollment system had to be replaced or modernized to meet the more streamlined enrollment process requirements of PPACA and its implementing policies, which included real-time transfer of applications between the state Medicaid agencies and the marketplace and immediate Medicaid eligibility determinations, regardless of the type of marketplace a state elected to use. Under federal law, states are eligible to receive funding, in the form of an enhanced federal matching rate of 90 percent (referred to as 90/10 funding), for the design, development, or installation of their Medicaid claims processing and information retrieval systems. Because states’ Medicaid eligibility and enrollment systems had to be replaced or modernized to meet the PPACA requirements, CMS expanded the availability of federal Medicaid funds at the enhanced matching rate of 90 percent to help states pay for required changes, including their interfaces to establish connections to the federal marketplace IT solution through the federal data services hub or the state marketplace IT solution. This enhanced federal matching rate is available to cover costs incurred by the states related to changes to their Medicaid eligibility systems from April 19, 2011, to December 31, 2015. All states are eligible to obtain the 90/10 funds for IT-related changes they make to their Medicaid eligibility and enrollment systems. In addition, a state may receive funding in the form of a 75 percent federal matching rate for the maintenance and any ongoing costs of operating its upgraded Medicaid eligibility and enrollment system. The funding is generally available when the upgraded system becomes operational, and it does not expire. In updating their Medicaid eligibility and enrollment systems, states could use federal funds for full system replacements or for more limited modifications, with the scope of a state’s changes depending on a number of factors, including the age of the system and the extent of integration among state programs. Federal regulations require the approval of advanced planning documents in order for states to be able to draw down the 90/10 and 75/25 matching funds. To access Medicaid matching funding, states must first submit these planning documents to CMS. In its role as the agency that oversees the Medicaid program and provides guidance and technical assistance to states related to Medicaid eligibility and enrollment system changes, CMS is to review these documents to ensure that certain technical and operational criteria are met before states are eligible for the funding. To receive approval, states must develop IT systems that meet technical standards and conditions. These standards and conditions require states to develop systems that are flexible, align with the Medicaid Information Technology Architecture principles, and promote data exchanges and the reuse of Medicaid technologies across systems and states. Figure 3 provides a timeline of the health insurance marketplaces’ major activities previously mentioned, including dates when federal funding became available and enrollment time frames. During the first enrollment period, states faced difficulties developing and operating their marketplace IT solutions. For state-based marketplaces, various sources reported that technical issues varied widely, contributing to websites that froze midway through the process of applying for coverage, system crashes, and systems taken offline for days at a time, ultimately causing applicants to face long waits for eligibility determinations. One state reported technical problems serious enough to prevent any online enrollment; thus, thousands of individuals had to enroll manually using paper applications. The problems experienced in state-based marketplaces for the first enrollment period were different in each state, but they included poor system performance and delays in addressing information partially completed software functionality, enrollment errors causing long wait times and applications to get stuck difficulties getting individuals’ identities verified through the systems, the inability to easily make changes to individuals’ insurance coverage in response to events such as births or income changes. States that relied on the federally facilitated marketplace and federally facilitated partnerships also encountered problems in the development and operation of their IT solutions during the first enrollment period. For example, in these states, consumers attempting to enroll in health plans through Healthcare.gov and its supporting systems were met with confusing error messages, slow load times for forms and pages, and in some cases, website outages. We previously reported that Healthcare.gov and its supporting systems were hindered by inadequate system capacity, numerous errors in software code, and limited system functionality—all of which impeded the systems’ performance and their availability for consumers’ use. Regarding state Medicaid systems, states with a federally facilitated marketplace, federally facilitated partnership, or state-based marketplace using the federal marketplace IT solution reported challenges in implementing the requirement to transfer or send and receive applications. For example, none of these types of states were able to transfer applications via the marketplace by the start of the first enrollment period on October 1, 2013. Over the past 2 years, we have issued various reports highlighting challenges that CMS and the states have faced in implementing and operating health insurance marketplaces. For example, in an April 2013 report, we described the actions of seven states that were in various stages of developing an information technology infrastructure to establish marketplaces, including redesigning, upgrading, or replacing their outdated Medicaid and CHIP eligibility and enrollment systems. Six of the seven states were also building the IT infrastructure needed to integrate systems and allow consumers to navigate among health programs, but identified challenges with the complexity and magnitude of the IT projects, time constraints, and guidance for developing their systems. In September 2014, we reported that while CMS had taken steps to protect the security and privacy of data processed and maintained by the systems that support Healthcare.gov, weaknesses remained in both the processes used for managing information security and privacy as well as the technical implementation of IT security controls. Specifically, we noted that Healthcare.gov and the related systems had been deployed despite incomplete security plans and privacy documentation, incomplete security tests, and the lack of an alternate processing site to avoid major service disruptions. Accordingly, we recommended that CMS implement 22 information security controls. We also recommended that the agency improve its system security plans, privacy documentation, security tests, and alternate processing site for the systems that support Healthcare.gov. HHS concurred with all 22 of the recommendations to improve the effectiveness of its information security control and fully or partially concurred with our remaining information security program-related recommendations. The department stated that it intends to take steps to address the weaknesses, including updating its security plans, developing required computer matching agreements, and developing a backup site for Healthcare.gov. In December 2014, we reported that all states using the federal marketplace IT solution had faced challenges transferring applications to and from that system. We pointed out that none of the states using the federal marketplace IT solution in the first enrollment period were able to implement application transfers, which required the establishment of two IT connections: one connection to transfer applications found ineligible for Medicaid coverage from the state Medicaid agency to the federal marketplace IT solution, and another connection to transfer applications found ineligible for coverage from the federally facilitated marketplace to the state Medicaid agency. Most recently, in March 2015, we reported that several problems with the initial development and deployment of Healthcare.gov and its supporting systems had led to consumers encountering widespread performance issues when trying to create accounts and enroll in health plans. We noted, for example, that CMS had not adequately conducted capacity planning, adequately corrected software coding errors, or implemented all planned functionality. In addition, the agency did not consistently apply recognized best practices for system development, which contributed to the problems with the initial launch of Healthcare.gov and its supporting systems. In this regard, weaknesses existed in the application of requirements, testing, and oversight practices. Further, we noted that HHS had not provided adequate oversight of the Healthcare.gov initiative through its Office of the Chief Information Officer. We made recommendations aimed at improving requirements management, system testing processes, and oversight of development activities for systems supporting Healthcare.gov. HHS concurred with all of our recommendations and subsequently took or planned steps to address the weaknesses, including instituting a process to ensure functional and technical requirements are approved, developing and implementing a unified standard set of approved system testing documents and policies, and providing oversight for Healthcare.gov and its supporting systems through the department-wide investment review board. States reported to CMS that they spent federal marketplace grant funds, as well as Medicaid matching funds, on various IT projects to establish, support, and connect to health insurance marketplaces. Specifically, states reported spending about $1.45 billion in federal marketplace grant funds from September 2010 through March 2015. The states also reported spending federal funds designated for Medicaid eligibility and enrollment systems on marketplace-related IT projects, although the actual amount spent was uncertain, as only a selected number of states reported on our survey that they tracked or estimated this information. In this regard, from April 2011 through December 2014, states reported spending $2.78 billion in combined federal and state Medicaid funds, a portion of which was spent to support the marketplaces. States that chose to establish state-based marketplaces were responsible for the majority of the federal marketplace grant spending. These states’ efforts typically included developing web portals and supporting data processing systems to carry out key marketplace-related functions, and establishing electronic connections in order to exchange information with various states, federal partners, and issuers. Fourteen states with state-based marketplaces had developed and were operating IT systems to support their marketplaces; however, not all system functions were complete as of February 2015. In addition, according to a CMS status report, as of November 2014, 7 of 37 states using the federal marketplace IT solution could not transfer applications for health insurance coverage between their state Medicaid systems and the federal data services hub or had not completed testing or certification of these functions. According to CMS officials, states operating IT systems and states using the federal marketplace IT solution were continuing to improve the development and operation of their marketplaces in the second enrollment period. States reported to CMS spending approximately $1.45 billion in federal grant funds on IT projects to establish, support, and connect to health insurance marketplaces from September 2010 to March 2015. States that established state-based marketplaces, including state-based marketplaces using the federal marketplace IT solution, reported having spent approximately $1.37 billion of these funds. In addition, states with a federally facilitated marketplace reported spending approximately $47 million, while those with a federally facilitated partnership reported spending approximately $32 million. Table 1 provides a summary of the states’ reported use of marketplace grant funds for their IT projects as of March 2015. In addition to the $1.45 billion of reported IT spending, approximately $703 million of authorized grant funding for IT projects had not been spent as of mid-March 2015. For additional details on the amount of marketplace grant funding awarded and spent, see appendix II. States with state-based marketplaces were authorized by CMS to spend $2.02 billion for IT until December 2015, and this authorized amount per state ranged from approximately $55 million to $325 million as of March 2015. As shown in figure 4, the reported spending of grant funds among the 17 states that were approved to establish state-based marketplaces, (i.e., the 14 state-based marketplaces and the 3 state-based marketplaces using the federal marketplace IT solution), ranged from approximately $29 million (in Minnesota) to approximately $254 million (in California), as of March 2015. Regarding states with a federally facilitated marketplace or federally facilitated partnership, 19 of these states were authorized by CMS to spend $378 million for IT, and this authorized amount per state ranged from approximately $158,000 to $81 million as of March 2015. These states reported marketplace grant IT spending that ranged from approximately $30,000 (in Alabama) to approximately $20 million (in Iowa), as of March 2015 (see fig. 5). The 15 other states that used these two types of marketplaces were not authorized to spend grant funds for IT projects. In June 2015, CCIIO officials told us that, with the exception of Arkansas, Mississippi, and Utah, states with a federally facilitated marketplace or federally facilitated partnership are no longer authorized to spend marketplace grant funding for information technology because they are no longer investing in the long-term creation of a modern eligibility system to be shared between a state-based marketplace and the state Medicaid program. CMS required the states to report their grant spending for marketplace IT projects in five broad budget categories: contracts, consultants, personnel, equipment, and supplies. In this regard, the 17 states that established state-based marketplaces, including state-based marketplaces that used the federal marketplace IT solution, reported spending the following approximate amounts in these categories, as of March 2015: $1.13 billion on contracts, $76.18 million on consultants, $39.00 million on state personnel, $21.06 million on equipment, and $720,000 on supplies. The largest part of these reported expenditures—nearly 89 percent—was on contracts for services such as systems integration, project management, and independent validation and verification. In addition to costs in these five categories, CMS also asked the states to report the amount of early innovator IT marketplace grant funding that they had spent. In response, these states reported that they had spent approximately $112.4 million of such funding. The 34 states with a federally facilitated marketplace or federally facilitated partnership reported spending, as of March 2015, approximately $69.68 million on contracts, $2.19 million on consultants, $1.66 million on state personnel, $5.68 million on equipment, and $.03 million on supplies. These states also reported spending $.06 million of early innovator IT marketplace grant funding. Table 2 shows marketplace grant spending for IT, by category, as of March 2015. During the course of our work, in October 2014, CMS began collecting data on IT contract costs in new categories aimed to gather a greater level of detail across states with state-based marketplaces. These new reporting categories are system integration, project management, independent verification and validation, middleware software, rules engine software, and “other.” As of May 2015, 11 state-based marketplaces had reported costs in some of these new detailed cost categories. However, CMS’s documentation indicated that not all states reported using all the new categories. For example, not all states reported costs in the rules engine and middleware software categories because those costs were included in the system integration category or marked in the “other” category. Specifically, only five states reported costs for developing rules engine software or middleware software. According to CCIIO officials, CMS is following up with states on missing amounts. Following through on these efforts to collect more detailed information on states’ IT contract costs would increase CMS’s insight into states’ IT spending. States also spent Medicaid funds for marketplace-related IT projects, such as modifying Medicaid eligibility and enrollment systems to interface with the marketplaces. Specifically, states spent some portion of approximately $2.78 billion in combined federal and state Medicaid funding from April 2011 through December 2014 for marketplace-related IT projects. Of this amount, $2.42 billion was from 90/10 funding and $364 million was from 75/25 funding. An undetermined portion of this spending was used to develop and maintain eligibility and enrollment systems connections to the marketplaces. States that established state-based marketplaces, including state-based marketplaces using the federal marketplace IT solution, reported having spent approximately $757 million of the 90/10 Medicaid funds for Medicaid eligibility and enrollment systems. Further, states with a federally facilitated marketplace reported spending approximately $1.32 billion of these funds, and those with federally facilitated partnerships reported spending approximately $340 million. The amounts spent included expenditures for marketplace-related IT projects. Of the $364 million in 75/25 Medicaid funds, states that established state- based marketplaces, including state-based marketplaces using the federal marketplace IT solution, reported having spent approximately $56 million. Those with a federally facilitated marketplace reported spending approximately $285 million, and those with a federally facilitated partnership reported spending approximately $23 million. Table 3 provides a summary of states’ Medicaid 90/10 and 75/25 expenditures for Medicaid eligibility and enrollment systems by marketplace type, as of December 2014. While CMS required states to report the ratio of Medicaid funds to grant funds in allocating their planned spending for marketplace-related IT projects, the agency did not require states to track the actual amount of Medicaid funds spent specifically on these IT projects. Thus, the total portion of Medicaid funds spent for those purposes is unknown. However, as part of our survey, 26 states were able to track or estimate the portion of marketplace-related IT spending for Medicaid 90/10 funds, and 17 states were able to track or estimate the portion of marketplace- related IT spending for Medicaid 75/25 funds. The states that tracked or estimated their use of Medicaid funds reported spending approximately $750 million of these funds—both 90/10 and 75/25 funds—for marketplace-related IT projects through June 2014. The remaining states in our survey did not track the amount or could not provide the actual or estimated amount of Medicaid funds spent. Based on the survey responses, states may have tracked or estimated these amounts using a variety of approaches, thus state-reported data may not be consistent across states. Table 4 shows the approximate state-reported amounts of combined federal and state 90/10 and 75/25 Medicaid funding used for marketplace-related IT projects by marketplace type. Generally, the states used federal funds (both marketplace grant and Medicaid matching funds) for various IT projects, including the establishment and operation of their marketplaces and their connection to the federal marketplace. Accordingly, the nature and extent of their efforts varied depending on which marketplace type they chose to establish. The 17 states that were approved to establish state-based marketplaces, (i.e., the 14 state-based marketplaces and the 3 state-based marketplaces using the federal marketplace IT solution) undertook various IT projects to establish their marketplaces. These states generally used the funds to develop their IT solutions, including the web portal for individual consumer interaction (to set up user accounts, select health plans, and apply for health coverage); systems to perform the key marketplace functions (eligibility and enrollment, plan management, financial management, and consumer assistance); functionality for determining Medicaid and CHIP eligibility using new income standards; functionality for sharing marketplace enrollment data with qualified health plan issuers; and interfaces with federal systems through the federal data services hub (needed to conduct eligibility verifications). In documents provided to supplement the survey responses, states also reported using their funds to cover numerous other expenses for state personnel, systems integrator contracted services, interface development and maintenance, independent verification and validation services, project management, technical support, and software licenses. Among the 34 states with a federally facilitated marketplace or federally facilitated partnership, IT projects typically involved system development to connect the states’ existing Medicaid systems to CMS’s federal data services hub. In addition, 17 of these states reported on our survey that they conducted projects to explore the option of developing IT systems to support a state-based marketplace (even though they ultimately chose to participate in the federally facilitated marketplace). For example, one state reported to CMS that it used grant funds to develop technical requirements and an architectural design, along with a request for proposals to obtain a systems integrator for the implementation of a marketplace. Another state using the federally facilitated marketplace was awarded marketplace grant funds to support technology projects in anticipation of becoming a state-based marketplace. According to CMS officials, states that initially planned for, but did not pursue, a state-based marketplace were required to return the funds to CMS or to re-budget the funds for non-IT costs. In addition, two federally facilitated partnership states used marketplace grant funds to develop new integrated Medicaid eligibility and enrollment systems needed to support new requirements, such as determining income eligibility for Medicaid using new income standards. As of February 2015, the 14 states with state-based marketplaces had developed and were operating systems to support their marketplaces; however, not all IT functions were complete. In particular, CMS reported that these 14 states’ marketplace systems were performing some, but not all, key functions, including those related to eligibility and enrollment, financial management, hub services, and IRS reporting: With regard to eligibility and enrollment functions, CMS status reports indicated that eight state-based marketplace systems were fully operational and operating without interruptions in service. The other six state-based marketplace systems were partially operational, meaning that these functions were operational but did not work as intended and may have required manual processes to supplement automated functionality. States with partially operational functions used business process workarounds to complete eligibility and enrollment functions, such as manually entering and verifying individuals for healthcare coverage. For example, in one state, applications to the state-based marketplace were sent by Medicaid as portable document format (PDF) files and processed by data entry specialists. In another state, data transferred from the marketplace to Medicaid was automated, but other information was manually entered. With regard to financial management functions such as collecting premium payments, remitting payments to issuers, and payment calculation for reinsurance, 4 state-based marketplace systems were fully operational without interruptions in service and 8 state-based marketplace systems were partially operational and may have required manual workarounds. (These functions were not applicable for 2 state-based marketplace systems that decided to rely on issuers to conduct premium billing and processing functions.) Although all states developing state IT solutions had received approval from CMS to connect to the federal data hub, only 1 state- based marketplace state had fully completed development of hub services functions such as verifying an individual’s identity and citizenship and retrieving tax information for evaluating taxpayer eligibility for insurance affordability programs. Thirteen state-based marketplace states had partially completed hub services functions, meaning that they had not yet implemented all hub services because the testing or development had not been completed or independent verification and validation attestation had not yet been received. With regard to submissions to IRS regarding information such as premium tax credits, 1 state had fully completed performance testing of these functions, 10 states had partially completed performance testing, and 2 states had not completed any performance testing of these functions. Additionally, these functions were not applicable for 1 state, which used the federal IT system in the previous enrollment period and was not responsible for IRS reporting. The operational status of the state-based marketplace IT systems by functional category, as of February 2015 is summarized in table 5. Further, between the first and second enrollment periods, 6 of the 17 states with state-based marketplaces and state-based marketplaces using the federal marketplace IT solution changed their IT solution. In response to our survey, these states cited a variety of reasons for doing so, such as significant flaws in the system, unsuccessful system roll out, and non-working technology. The primary IT development and operations changes, as reported by the 6 states to CMS, were the following: Two states with state-based marketplaces, Oregon and Nevada, stopped development on their marketplace IT solutions and decided instead to use the federal marketplace IT solution (i.e., Healthcare.gov and related systems) for eligibility and enrollment functions. New Mexico had delays in developing and operating its marketplace and used the federal marketplace IT solution as its platform for eligibility and enrollment for the first enrollment period. For the second open enrollment, the state continued to use the federal marketplace IT solution for the eligibility and enrollment functionality and subsequently decided to continue using the federal marketplace IT solution indefinitely. Maryland changed its IT solution to one that had been successfully implemented in Connecticut for the second enrollment period. Massachusetts replaced its existing system and implemented a commercial-off-the-shelf technology solution for the second enrollment period. Idaho, which previously used the federal marketplace IT solution, developed and operated its own marketplace IT solution for the second enrollment period. According to CMS documentation regarding marketplaces using the federal marketplace IT solution, as of November 2014, 7 of 37 states using the federal marketplace IT solution could not transfer applications for health insurance coverage between their state Medicaid systems and the federal data services hub or had not completed testing or certification of these functions. Specifically, 3 of the states could not transfer—send and receive—applications for health insurance coverage between the state Medicaid and federal marketplace IT solution. The other 4 states had not completed testing and certification of those functions. CMS officials stated that the agency was continuing to work with the 7 states that had not fully implemented these functions to ensure implementation as soon as possible. In addition, as of April 2015, the transfer of applications between state Medicaid systems and the federal marketplace IT solution were not taking place in real time, and according to a CMCS official, achieving this capability is a goal for 2015 or 2016. For example, in one state, it took about 15 minutes to send applications between state Medicaid systems and the federal marketplace IT solution in either direction. In another example, a state held on to applications received and sent them at the end of the day. According to CMCS officials, states using the federal marketplace IT solution continue to focus on completing their eligibility system modernization, resolving defects, and making improvements to systems so that business processes require less manual intervention. To address the requirements of PPACA and its implementing policies, CMS engaged in various activities to oversee the states’ marketplace IT projects. In particular, the agency assigned oversight roles and responsibilities, put in place various reporting systems, and established a series of reviews that were to help ensure that states’ systems were adequately tested and functioning as intended. Nonetheless, even with these steps, CMS did not clearly document, define, and communicate its oversight roles and responsibilities to state officials, and it did not consistently involve senior executives in the review and approval of federal funding for states’ IT marketplace projects. In addition, CMS’s reviews of the states’ progress were not always effective in ensuring that systems and capabilities being developed to support the states’ marketplaces were fully tested before they became operational. States that established and operated their own (state-based) marketplaces generally used quasi-governmental entities to oversee their marketplace IT projects; they also relied on various oversight mechanisms, including executive steering committees, management change control boards, and technical review boards. Meanwhile, states with a federally facilitated marketplace or federally facilitated partnership oversaw their IT projects through existing state agencies. To oversee states’ efforts in undertaking IT projects to support the establishment and operation of their marketplaces, CMS identified numerous internal offices and groups to which it had assigned roles and responsibilities. As previously mentioned, three key offices—CCIIO, OTS, and CMCS—were responsible for overseeing states’ efforts in establishing the marketplaces. These three offices were to conduct oversight activities, such as being involved in joint grant reviews, Medicaid advanced planning document reviews, and IT gate reviews, to ensure that states followed a standardized funding process. Their primary roles and duties included the following: CCIIO led the marketplace implementation, and within that office, State Officers were assigned to be accountable for day-to-day communications with the state marketplace officials. CCIIO officials were also involved in grant funding decisions. OTS was responsible for systems integration and software development efforts to ensure that the functions of the marketplaces were carried out. A primary participant within OTS was the IT project manager, who was the individual responsible for monitoring, among other things, state-based marketplaces’ IT development activities and support for states that transitioned from one marketplace type to another. OTS officials also provided technical reviews to State Officers to inform grant funding decisions. CMCS was the office responsible for coordinating and approving Medicaid matching fund requests and implementation activities related to the state health insurance marketplaces. The office carried out these responsibilities in conjunction with CCIIO. CMCS officials identified the enrollment and eligibility specialists as the primary contacts within their office. In addition, CMS established a group called the Cross Component Committee to address marketplace-related issues across states. The committee, which included members from OTS, CCIIO, and CMCS, was tasked with overseeing the states’ progress to ensure that all marketplace requirements were aligned with CMS policy. Major policy issues identified through the committee were raised to business unit directors within the agency. CMS also informed us of other offices and groups within the agency that had roles and responsibilities for overseeing states’ marketplace IT projects. Based on written and oral descriptions of the various offices and groups, as provided by CCIIO, CMCS, and OTS officials, we compiled the information in table 6 to summarize CMS’s identified roles and responsibilities for overseeing state marketplace IT projects. In addition to establishing marketplace roles and responsibilities, CMS identified various reporting systems that were to be used to assist federal officials in overseeing state marketplace IT project funding and progress. For example, the agency relied on state marketplace information that it compiled in multiple computer systems to make funding decisions and provide technical assistance to state officials. CMS also maintained or utilized other systems that allowed states to apply for marketplace grant funding online and to transfer funds to states to establish and operate their marketplace. Additional systems allowed states to report to CMS on their grant IT expenditures; upload documentation related to their marketplace IT projects, such as project plans and testing and requirements documents; and share best practices with each other. Project management best practices emphasize the importance of clearly documenting, defining, and communicating project roles and responsibilities during the organizational planning process. During this process, to make the most effective use of the people involved with a project, best practices cite the importance of identifying, documenting, and clearly assigning project roles, responsibilities, and reporting relationships. Effective communication means that the information is provided in the right format, at the right time, to the right audience, and with the right impact. Adequate communications planning avoids problems such as delays in message delivery, insufficient communication to stakeholders, and misunderstanding or misinterpretation of the message communicated. According to best practices identified in the Project Management Institute’s Guide to the Project Management Body of Knowledge, a key document needed to ensure that communication is carried out effectively is a communications management plan. The communications management plan describes how project communications will be planned, structured, monitored, and controlled in a comprehensive document, including stakeholder communication requirements; the method of updating and refining the communications management plan as the project progresses and develops; and charts the information flow in the project. Among other things, it should include persons or groups who are responsible for communicating and receiving the information, the process and associated time frames for escalating issues that cannot be resolved at lower levels, and workflows that show the order of information authorization. In addition, according the Project Management Institute’s Guide to the Project Management Body of Knowledge, a communications management plan is a comprehensive document that contains the entire scope of the project and is updated regularly to reflect the current communication and stakeholders. However, while CMS established roles and responsibilities to help oversee marketplace activities, the agency did not always clearly document, define, and communicate marketplace IT project roles and responsibilities to the states. Despite the complexity inherent in overseeing marketplace IT project efforts across 50 states and the District of Columbia, CMS did not have a comprehensive communication plan that clearly documented and defined its state marketplace oversight structure and all the associated roles and responsibilities of key organizations and officials that were involved in state marketplace oversight. Instead, the agency’s definition and communication of roles and responsibilities were dispersed among various websites, operating procedures, and other documents, such as those we used in developing table 6. For example, roles for officials such as the CMS Administrator and Principal Deputy Administrator were located on the agency’s website, while other roles and responsibilities, such as those of the CCIIO State Officers, were described in one of the agency’s standard operating procedures. Additionally, CMS officials within CCIIO and CMCS stated that some roles and responsibilities are embedded in memorandums of agreement. Further, while the agency had documented selected stakeholder responsibilities in a matrix that CCIIO, OTS, and CMCS officials said applied to state marketplace IT projects, this document only identified responsibilities specifically associated with CMS’s development of the Healthcare.gov web portal supporting the federally facilitated marketplace and did not include all the personnel associated with oversight of the state marketplaces. Specifically, it did not identify all stakeholders that would be included in a more comprehensive communications plan developed for the management of state marketplace IT projects, including the CCIIO State Officers, the Marketplace Chief Executive Officer, and relevant state officials. The agency also provided a standard operating procedure for marketplace communications and technical assistance that contained selected CMS roles and instructions for providing technical assistance to states. However, the procedure was identified as a draft document from January 2013, and was limited to addressing technical assistance, which did not represent the full range of stakeholder and IT oversight activities. For example, the document did not identify all groups that are to receive pertinent information, a process identifying time frames and the management chain for escalating the communication of information, or workflows for issuing and disseminating guidance to states. Further, officials within CCIIO, CMCS, and OTS did not recognize certain organizations as having a role in marketplace IT activities, even though they should have done so. For example, while the officials told us that the Office of Communications does not have a role in states’ marketplace IT oversight, this office is identified as a member in the charters of key committees and boards responsible for state marketplace IT project oversight, including the Cross Component Committee, Marketplace Oversight Board, and Health Reform Operations Board. In discussing this matter, CCIIO and CMCS officials acknowledged that they had not created a comprehensive communication plan containing all relevant oversight roles and responsibilities. According to these officials, certain roles and responsibilities were not defined and documented because they were considered to be general public knowledge for which no detailed documentation was necessary. They added that, in the absence of a specific document or process, states were informed of who their points of contact were by e-mail or weekly calls. Further, these officials noted that all communications to the states were routed through the CCIIO State Officers, thus replacing the need for a comprehensive communications management plan. As previously described, CMS provided oversight and technical assistance to states in establishing their marketplaces. In responding to our survey, states with a state-based marketplace, including those using the federal marketplace IT solution, provided generally positive ratings of the clarity, completeness, and timeliness of CMS’s communication, while federally facilitated states, including federally facilitated partnerships, provided a higher rate of dissatisfaction. Similarly, state-based marketplace states provided generally positive ratings of the clarity, completeness, and timeliness of CMS’s guidance, while federally facilitated states provided a higher rate of dissatisfaction. While states with all marketplace types reported in our survey being generally satisfied with the level of CMS oversight and assistance, several states identified instances of delayed or insufficient communications with CMS. Specifically, of the 36 states that responded to our survey question regarding CMS’s overall oversight and assistance, 25 states rated it as just right, 4 rated it as more than enough, and 7 rated it as less than enough. Further, of the 17 states that provided comments, 5 spoke positively about CMS’s support and 1 spoke positively about the completeness and timeliness of CMS guidance. The remaining 11 states provided both mixed and negative comments regarding the completeness and timeliness of CMS guidance that included roles and responsibilities. For example, these states noted that they generally had experienced some type of delay in message delivery from CMS, insufficient communication with the stakeholders, and misunderstandings or misinterpretations of the messages communicated. For example, these states generally reported that they lacked complete and timely policy and business guidance from CMS, which impacted their IT development deadlines, created rework, and necessitated moving forward to develop solutions without knowing if the agency would approve or disapprove of their marketplace solutions. Overall, responses to our survey questions indicate that CMS may not have always provided the level of consistent and comprehensive communication of roles and responsibilities that is necessary to support states in effectively establishing and operating their marketplace systems. Having a comprehensive communications management plan that identifies and conveys the roles and responsibilities of key organizations and officials could be a valuable resource as states move forward on any further marketplace IT efforts. To oversee its own IT projects, such as the development of Healthcare.gov and related systems, CMS created a process called the eXpedited Lifecycle Process. This process required reviews and approvals by senior-level CMS executives, generally the Director or Deputy Director of the agency’s IT unit—OTS—and business units, including CCIIO, CMCS, and OAGM. According to the agency’s guidance, these senior-level executives should be individuals who have the authority to speak for, vote for, and otherwise make commitments on behalf of their business units. This approach is consistent with best practices in GAO’s IT investment management framework, which emphasizes the importance of having senior executive-level decision makers, such as the heads of IT and business units, involved in investment decisions. Such involvement by senior executives provides accountability for investment decisions and helps ensure that these decisions are consistent and reflect the goals of the agency. Similar to the eXpedited Lifecycle Process, CMS created its Establishment Review process, which states were required to comply with (as part of their cooperative agreements with CMS) in order to receive marketplace grant funding. The Establishment Review process is a structured grant monitoring approach that consists of multiple technical reviews for assessing the state’s progress and associated IT project documentation. States must obtain CMS approval to access restricted IT grant funds by passing technical review gates associated with the planning, design, and implementation of their projects. However, unlike the eXpedited Lifecycle Process that CMS uses to manage its own investments at the federal level, the Establishment Review process did not include representation from all relevant senior executives in the agency to review and approve the planned marketplace IT projects prior to releasing federal funding to the states. Specifically, CMS’s standard operating procedure for State Officers identified the IT and business units involved in the Establishment Review process, which included CCIIO, CMCS, OTS, and OAGM, among others. However, with the exception of the Director of CCIIO, it did not clearly require involvement by the heads of the other IT and business units involved in this process. For example: CMS did not demonstrate that senior-level executives from all relevant business and IT units were involved in the initial approval of grant awards. According to the operating procedure and officials from these business and IT units, the agency’s Objective Review Committee was tasked with reviewing state applications for federal marketplace grants. This committee consisted of subject matter experts from both inside and outside the federal government who scored applications during a review in which the State Officer participated to answer questions. The State Officer then prepared federal marketplace grant funding recommendations to OAGM and the Deputy Director of the State Exchange Group within CCIIO, who made the final decision on grant awards. However, it was unclear who these subject matter experts were or whether there were executives at the appropriate level involved with these decisions. CMS did not provide evidence that senior executives from all relevant business and IT units were involved in approving the release of restricted IT funds from marketplace grants as states progressed with their projects. According to CMS’s standard operating procedure and officials in CCIIO and OAGM, decisions to release restricted state IT funding were made by the Deputy Director of the State Exchange Group within CCIIO and OAGM grant management officers, who were responsible for reviewing and providing guidance on grant services for state marketplaces. These decisions were based on input from CCIIO State Officers, who served as primary points of contact to assigned states, and IT project managers in OTS, who were responsible for monitoring state-based marketplaces’ IT development activities. However, these officials did not hold executive-level positions. CMS did not provide evidence of executive-level involvement in the approval of Medicaid funds for marketplace IT projects. CMCS officials stated that they followed CMS’s Establishment Review process in order for states to receive Medicaid matching funds and that the approval of these funds was a coordinated effort between CCIIO and CMCS. However, they did not identify the specific officials responsible for approving these funds or provide evidence to show the approval process included senior executives from CMCS, CCIIO, and other relevant business units. CCIIO, CMCS, and OTS officials told us that they believed their Establishment Review process included the appropriate officials to review and approve state requests for federal funding. These officials added that they used their existing organizational structure to oversee decisions regarding marketplace grants and Medicaid funds. However, without the involvement of senior executives from all relevant IT units, such as OTS and business units such as CCIIO and CMCS to review and approve all federal funds invested in the state marketplace IT projects, CMS has less assurance that decisions are being coordinated among officials with a perspective across their respective business units and the agency as a whole. By ensuring such executive involvement, CMS would increase accountability for decisions to fund states’ IT projects and better ensure these decisions are well informed and make efficient use of federal funds. As part of its marketplace oversight, CMS established a process to review states’ progress on related IT projects. This framework, called the Enterprise Life Cycle, requires states to provide CMS specific artifacts supporting their projects, such as the concept of operations, system test documents, and project plans, among others. The framework focuses on incremental reviews of the projects at distinct stages, or “gates.” For each review, states are expected to show CMS an acceptable level of progress and maturity in their projects’ development before proceeding to the next project phase. Table 7 describes the various Enterprise Life Cycle gate reviews. These reviews were important because they were intended to demonstrate that the state marketplaces were ready to go live. In particular, during the operational readiness reviews, states establishing state-based marketplaces were required to demonstrate that they had met requirements, such as concluding all system testing, before the IT projects could proceed from development to operations. The Enterprise Life Cycle guidance defines this review as the agency’s determination that the state marketplace is ready to go into production. Based on these operational readiness reviews, CMS was to either approve the state’s system for operation or grant a conditional approval to proceed if the system was substantially compliant with the requirements of the review. However, the operational readiness reviews did not always meet the agency’s stated goal to ensure that states’ marketplace systems were ready for production. For the first enrollment period, CMS conducted operational readiness reviews of 15 state-based marketplaces in August and September 2013. However, CMS conditionally passed all of those states without fully ensuring that they had conducted all required system testing and demonstrated that their systems were ready for production as called for in its Enterprise Life Cycle guidance. For example, CMS documentation from these operational readiness reviews showed the following: Maryland demonstrated several eligibility and enrollment functions. However, the state had only completed approximately half of the planned user acceptance testing and had over 100 outstanding high- priority defects. In addition, almost 500 total defects had yet to be resolved. Nevada also demonstrated several eligibility and enrollment functions. However, the state had not submitted test reports for all end-to-end system testing, and user acceptance testing was in progress. The report identified 42 critical or major defects that needed to be addressed. Massachusetts demonstrated several eligibility and enrollment functions. However, the state had not completed testing and reported 1,170 open defects. Nonetheless, all state-based marketplace systems were conditionally approved and went live on October 1, 2013. Consumers in many states subsequently experienced widespread problems when using these IT solutions to apply for health insurance coverage during the first enrollment period, and in four states these problems were so severe that the states switched to a different solution. According to CMS officials, these four states implemented new marketplace IT solutions or used the federal marketplace IT solution in the second open enrollment period and successfully conducted enrollment even if some states had to create manual workarounds. However, according to CMS documentation, as of November 2014, eight states continued to have outstanding follow-up items from their operational readiness reviews that had not been addressed. In May 2015, officials in CCIIO, CMCS, and OTS stated they were actively working with these states to complete their outstanding open items. CCIIO officials further noted that the Enterprise Life Cycle gate reviews were not intended to be “pass or fail,” but to set the appropriate level of expectations for the status and progress of marketplace development and implementation and to identify areas where states may require assistance. In addition, CCIIO officials stated that, if all the milestones were not met during the gate review, they planned to conduct more frequent follow-up to improve the state’s position. They also said that although the IT component did not work for certain states, the agency granted conditional approvals because the states were able to build workarounds and put manual processes in place to allow individuals to submit applications and enroll in health coverage. Officials in OTS added that, although they made suggestions for improvements, states could choose whether or not to implement CMS’s recommendations. However, when CMS granted states conditional approval to go live, they did not ensure states’ systems had been fully tested, which is part of the structured and disciplined approach to oversight that is outlined in the agency’s Enterprise Life Cycle. By not ensuing that systems were completely tested, the agency lacked assurance that the states’ marketplace IT systems would performed as intended which, in some cases, resulted in applicants facing long waits for eligibility determinations, websites freezing midway through the process of applying for coverage, and systems being taken offline for days at a time, forcing applicants to enroll manually. The extent and manner of oversight that states exercised over marketplace IT projects depended in large part on the type of marketplace they chose to establish. For state-based marketplaces, state officials were responsible for overseeing various IT activities associated with the development and operations of their marketplaces. Specifically, states were required to oversee the planning involved with becoming a state-based marketplace. Thus, among other things, state officials were responsible for ensuring that key functionality requirements in areas such as eligibility and enrollment, plan management, consumer assistance, and financial management, were included in the development of the marketplace. Additionally, these states were responsible for overseeing contractors, who carried out various marketplace IT project-related activities, such as system integration, platform builds, project management, independent verification and validation, and security assessments. State officials were to follow CMS policy and guidance when establishing the marketplaces, including preparing project artifact deliverables, such as the marketplace concepts of operation, system test documents, and project plans. They also were to comply with financial and performance reporting requirements of CMS’s Enterprise Life Cycle process. To oversee their marketplaces, 13 of 17 states with state-based marketplaces, including those using the federal marketplace IT solution, reported on our survey that they established “quasi-governmental” entities, which were created by state legislation to oversee marketplace activities and interface with CMS to fulfill the state’s marketplace responsibilities. These entities are governed by a board made up of representatives from consumer groups and health insurance issuers, since CMS policy requires a balance of consumer and business interests on the board. The board is responsible for governance of the marketplace, making key marketplace decisions, and holding regularly scheduled meetings. By contrast, 4 of these 17 states reported on our survey that they chose to operate their marketplace through an existing state agency, such as a state department of health or Medicaid agency. If a state-based marketplace was housed within an existing state agency, then that marketplace was typically led by directors or an advisory board, and the leadership team typically reported to the governor’s office. States with state-based marketplaces, including those using the federal marketplace IT solution, reported on our survey that they also established various committees and boards to assist state officials in overseeing the marketplace’s IT funding and progress. These oversight committees and boards included steering committees, management change control boards, and technical review boards, among others. Steering committees: All states with state-based marketplaces had established this type of committee. A steering committee is to provide leadership, direction, and support for IT projects. For example, one state’s steering committee was reported to be made up of senior leadership from various agencies within the state and was responsible for ensuring that marketplace IT goals aligned with various state agencies’ goals. In addition, the committee served as a forum for project strategy development and operations, policy, and technology recommendations to its board of directors. Management change control boards: Thirteen of the 17 states with state-based marketplaces established this type of board. A management change control board is to oversee a project’s scope and requirements. For example, one state reported that its management change control board was chaired by its project director and oversaw not only changes to the scope and requirements, but also its marketplace project schedule, costs, and deliverables. Technical review boards: Nine of the 17 states with state-based marketplaces established this type of board. A technical review board provides technical findings and recommendations to project stakeholders. For example, one state reported that its technology committee provided leadership and helped to analyze the impact of the marketplace on existing IT standards and informed other teams and stakeholders about policy changes that could impact the project. In addition, 7 of the 17 states with state-based marketplaces, including those using the federal marketplace IT solution, reported on our survey that they used additional oversight mechanisms beyond these three. Specifically, one state reported that its marketplace and state administration established an integrated project management office to assist with coordination of Medicaid and tax credit applications and eligibility functions. Another state reported using a cross-agency group made up of agencies involved in marketplace eligibility functions from both IT and policy perspectives. Further, all states relying on the federally facilitated marketplace and federally facilitated partnerships that responded to our survey indicated that they used existing state agencies to oversee implementation of their marketplace IT projects. Existing state agencies included state departments of health or Medicaid agencies, which coordinated directly with CMS. In addition, these states’ officials oversaw the contractors who were responsible for various marketplace-related activities, such as building interfaces to connect the state systems to the federal data services hub for transferring information between the federally facilitated marketplace and state Medicaid programs. States encountered various challenges in their efforts to design, develop, and implement marketplace IT systems. States with state-based marketplaces reported experiencing challenges in each of five areas identified in our survey: project management and oversight, marketplace IT solution design, marketplace IT solution development, resource allocation and distribution, and marketplace implementation and operation. In addition, states with a federally facilitated marketplace reported facing challenges in two areas identified in the survey: project management and oversight and system design and development. While states operating both state-based and federally facilitated marketplace IT solutions reported in the survey that they faced similar issues, various challenges were more common for states developing their own IT solution because the scope of their efforts was larger than that of states with a federally facilitated marketplace. For example, those with state-based marketplaces generally reported experiencing issues with marketplace eligibility and enrollment functions; while for states with a federally facilitated marketplace, those functions were performed by CMS. To varying extents, states identified lessons learned and best practices from their experiences with and efforts to address the challenges. CMS was aware of state challenges and took various actions to provide technical assistance. It also has taken steps to facilitate the sharing of the lessons learned and related best practices, which will continue to be important as states work to complete the remaining functions for their marketplace systems. Compressed time frames was rated as the greatest challenge by officials of both states with a state-based marketplace and states with a federally facilitated marketplace. Specifically, 13 of 17 states with state- based marketplaces and 20 of 30 states with a federally facilitated marketplace considered compressed time frames a great or very great challenge, and it was also reported as a factor driving other challenges. State officials noted that their IT project schedules were constrained by the need to deliver functionality in time for the first enrollment period beginning on October 1, 2013. For example, one state-based marketplace official reported that compressed time frames affected the state’s development and testing time, which impacted all phases of testing (system, integration, performance, and user acceptance). Project governance, oversight, and decision making was also rated as one of the greatest challenges in the project management and oversight area by officials of both states with a state-based marketplace and states with a federally facilitated marketplace. Specifically, 10 of 17 states with state-based marketplaces and 8 of 30 states with a federally facilitated marketplace rated project governance, oversight, and decision making as a great or very great challenge. Based on our analysis of narrative survey responses, 14 states with state- based marketplaces and 15 states with a federally facilitated marketplace also identified lessons learned or best practices in the area of project management and oversight. For example, regarding compressed time frames, a best practice identified by 1 state was to double the amount of lead time normally expected when planning for implementation of complex IT projects. Another state reported a lesson learned regarding compressed time frames, which was related to IT systems design and development. This state learned that taking a two-phased approach whereby the state modified its legacy Medicaid eligibility system first, and then proceeded with a full-scale system upgrade, helped meet deadlines while avoiding significant problems that had arisen in other states. States also reported lessons learned and best practices related to project governance, oversight, and decision making. For example, one state reported reshaping its project management team and, thus, making progress for the second open enrollment season. A second state realized too late that it needed more governance and a dedicated program management office. This state’s officials also said that it was important to recognize that the marketplace is an IT project as well as an insurance project, and that it was critical to have a proper mix of both sides to ensure success. Developing interfaces and interoperability with insurers was rated as one of the greatest challenges by 9 of 17 states with state-based marketplaces. For example, 1 state reported challenges with a system that was supposed to allow users to pay for and enroll in insurance plans; however, that basic feature was not appropriately developed by launch or for months afterward. The state hired a contractor to reconcile enrollment and premium tax credit issues between its insurance carriers and its IT solution, but all issues were not resolved, and the state was still working through this process when officials responded to our survey. Developing state marketplace website eligibility functions for both state Medicaid and Qualified Health Plans was also rated as one of the greatest challenges by 9 of the 17 states. For example, one state official reported that their applicants could not have their eligibility determined for Qualified Health Plans, Medicaid, and premium tax credits without the assistance of specially trained customer service representatives or community partners and agents. Another state’s original IT solution was not working appropriately, so officials approached CMS, who offered to let the state use the Healthcare.gov platform for eligibility and enrollment. A third state cited numerous multi-stage workarounds to circumvent defects in eligibility and enrollment functionality. This included, for example, 100 percent manual validation of all enrollment files. Although 8 states with state-based marketplaces identified lessons learned or best practices in the marketplace IT solution design and development area, with one exception, states did not specifically identify lessons learned related to developing interfaces and interoperability with insurers or developing state marketplace website eligibility functions. One state reported that it learned that projects like this should begin with simple rules on eligibility, and then add complexity. Further, this state decided to maintain Medicaid and CHIP enrollees in its legacy system using a close approximation of eligibility rules to ensure that there was no disruption in coverage with the launch of a new system. New applications for Medicaid and CHIP were determined in the new system while renewals for current enrollees were determined in the legacy system. This was to enable more time for adequate testing and further development of Medicaid and CHIP rules in the new system. Conducting systems integration testing was rated as one of the greatest challenges by 12 of 30 states with a federally facilitated marketplace. For example, 1 state reported that limited development and testing time affected all phases of testing including system, integration, performance, and user acceptance testing. Another state reported that the interface between the state and the federally facilitated marketplace was delayed due to implementation delays in the federal marketplace IT solution. These delays resulted in last-minute changes to the federal systems, both known (but communicated late) and unknown. Each federal system change required the state to also change, and such changes and delays resulted in the state missing deadlines. Other states specifically cited a lack of end-to-end testing between the federal IT systems and states, as well as integrating and testing with the federal marketplace and the federal data services hub, as challenges. Changes to requirements was rated as one of the greatest challenges by 19 of 30 states with a federally facilitated marketplace. For example, one state official said that “the aggressive time frame made an impact to the design. Systems always evolve, but the aggressive schedule forced design trade-offs along the way.” A second state reported that the compressed time frame caused CMS to continually define requirements throughout implementation and into operations, resulting in the reprogramming of multiple design changes. Lastly, another state official commented on multiple challenges related to changes in requirements. This state official said that changes and delays due to clarification of CMS requirements in areas such as use of the federal data services hub and identity proofing caused significant rework and some critical functionality to be deferred, which, because of the aggressive time frame, impacted operations. A second state official emphasized developing a comprehensive set of requirements. The state invested time to develop a comprehensive set of requirements for all known areas of the system and included broad requirements referencing CMS guidance documents when detail from CMS was insufficient. The state then required vendors to explicitly identify which requirements would be met with delivered functionality, and which requirements would need to be augmented with customizations or additional software applications. This kept most of the systems development in scope and resulted in less than a 10 percent increase in the negotiated fixed price due to change orders. A third state identified a best practice regarding guidance and policy—which drive requirements— noting that they should be finalized before states are tasked with implementing system changes and testing. Our analysis of narrative survey responses showed that 14 states with a federally facilitated marketplace reported lessons learned or best practices related to IT systems design and development, including those associated with changes to requirements or the development of requirements. For example, one state official said that there were many changes leading all the way up to open enrollment. Only after this occurred did officials recognize that they needed to lock down the scope of work and disallow “nice-to-haves” to focus on critical functionality. Adequate number of staff was rated as one of the greatest challenges by 9 of 17 states with state-based marketplaces. In one case, a state official reported that the state had only approved the hiring of approximately one- third of the staff it requested and, as of October 2014, had never hired a certified project manager to oversee their state’s marketplace-related IT projects. Similarly, staffing limitations forced another state to ask its staff to work overtime, in some cases more than 60 hours a week for months on end, in order to complete the work required prior to open enrollment, resulting in burnout and the loss of key staff soon after the start of the first open enrollment period. Adequate funding to sustain a state’s marketplace system was rated as one of the greatest challenges by 6 of 17 states with state-based marketplaces. For example, one state official reported that, in order to meet open enrollment deadlines and reduce schedule risks, the state decided to use a commercial off-the-shelf product instead of open-source products, which led to an increase in life-cycle costs. Our analysis of narrative survey responses found that five states reported lessons learned or best practices related to resource allocation and distribution. For one state, the most significant lesson learned was the amount of testing resources required for all associated types of IT testing. Due to this, the state has identified a need for additional business analyst positions and subject matter expert knowledge. Call center operations was rated as one of the greatest challenges by 9 of the 17 states with state-based marketplaces. For example, one state official reported that due to challenges with system performance, their call center experienced high-traffic volume, and this affected the average time to handle a call, abandonment rates of calls, and operations. Another state reported that insufficient time for staff training led to inefficiencies in call center operations. System performance was rated as one of the greatest challenges by 7 of the 17 states with state-based marketplaces. For example, 1 state cited significant challenges in implementation and operation because its software did not work as advertised. Also, as mentioned above, system performance problems affected call center operations. This was compounded in part because of the surge in users attempting to use the online marketplace that occurred in the period immediately after going live. Our analysis of narrative survey responses showed that two states with state-based marketplaces identified best practices or lessons learned related to the operation and implementation of marketplace-related IT systems. For example, one state cited the importance of contingency planning that enabled state deployment of additional system capacity when volume exceeded expectations. Another state reported that the inability to develop and refine marketplace technology resulted in significant operational costs, which could have been avoided with a less aggressive time frame. Figure 6 summarizes the challenges in each of the five areas rated by states with state-based marketplaces. Figure 7 depicts the challenges that states with a federally facilitated marketplace rated in each of their two respective areas. CMS was aware of states’ challenges and responded to them by engaging in various outreach to and communication efforts with the states. According to CCIIO officials, once an issue or challenge was identified, CMS responded in a number of ways. Specifically, according to these officials, the agency provided technical assistance that included discussions with CMS subject matter experts to ensure that appropriate information and resources were available to address challenges. For example, the officials said they conducted site visits with state marketplace officials during which they discussed management and other issues and made recommendations for improvement, as needed. Other state challenges that CMS officials indicated they were aware of included issues with compressed schedules, state governance, legislative requirements, vendor management, personnel and resources, and call- center operations. Additionally, CMS made efforts to both directly share and facilitate the sharing of identified lessons learned and best practices among the states. CCIIO officials reported that lessons learned and best practices were shared through various methods such as discussion forums, including bi- weekly forum meetings with senior state officials, conference calls, and weekly newsletters distributed to grantees, and through various reporting and document sharing systems maintained by CMS. In taking steps to respond to state challenges, identify lessons learned, and share best practices with states, CMS performs an essential role of advising state officials and others involved with health insurance marketplace IT projects. It will be important for CMS to continue doing so as states work to complete the remaining functions for their marketplace systems. States spent approximately $1.45 billion in federal marketplace grant funds to help establish IT systems supporting their health insurance marketplaces, as well as a portion of Medicaid funds. As of the second enrollment period, states had largely established these systems, although some of their functions remain to be implemented. While CMS was tasked with overseeing states’ development of their marketplace IT systems, limitations in CMS’s efforts resulted in oversight that was not always effectively executed. Specifically, because roles and responsibilities were not always clearly defined, documented or communicated, as recommended by leading practices for project management, a number of states faced hurdles in communicating with stakeholders and receiving timely CMS guidance. In addition, although called for by leading practices in investment management, relevant senior executives in the agency were not always involved in overseeing decisions to fund states’ marketplace IT projects, resulting in less accountability for such decisions. Further, because CMS’s reviews of state IT projects did not ensure state systems were fully tested as called for in CMS’s guidance, systems were put into place that, in some cases, did not perform as intended. States also had a key oversight role, which varied depending on the type of marketplace. Finally, states reported a number of challenges and lessons learned in establishing their marketplaces, with state-based marketplaces encountering some unique challenges. CMS has taken various actions to facilitate the sharing of these challenges and lessons learned, as well as best practices among the states, and it will be important for CMS to continue these efforts as states work to complete the remaining functions for their marketplace systems. To improve the oversight of states’ marketplace IT projects, we recommend that the Secretary of Health and Human Services direct the Administrator of the Centers for Medicare & Medicaid Services to take the following three actions: clearly document, define, and communicate to all state marketplace officials and stakeholders the roles and responsibilities of those CMS officials involved in overseeing state marketplaces in a comprehensive communication management plan; ensure that all CMS senior executives from IT and business units who are involved in the establishment of state marketplace IT projects review and approve funding decisions for these projects; and ensure that states have completed all testing of marketplace system functions prior to releasing them into operation. We received written comments on a draft of this report, signed by HHS’s Assistant Secretary for Legislation. In the comments (reprinted in appendix III), the department stated that it concurred with all three of our recommendations. The department added that it had taken various actions that were focused on improving its oversight and accountability for states’ marketplace efforts. While the actions discussed are important, the department did not always identify specific activities being taken or planned that would address the full extent of the recommendations. Specifically, with respect to our recommendation that CMS clearly document, define, and communicate its roles and responsibilities for overseeing state marketplaces in a comprehensive communication management plan, the department noted that a State Officer is assigned to each state to serve as the primary point of contact and that CMS’s roles and responsibilities are communicated through this official. The department also stated that these roles and responsibilities are documented in several resources, including standard operating procedures and weekly newsletters to state officials. However, the department did not indicate that CMS would develop a communications management plan to provide a comprehensive and consistent means of identifying and conveying the roles and responsibilities of key CMS organizations to all states and the District of Columbia. As we noted in our report, CMS’s standard operating procedures and other documents did not identify all the relevant stakeholders or activities involved in its oversight process. Thus, we maintain that a comprehensive communications management plan would be a valuable resource as states move forward on any further marketplace IT efforts. With respect to our recommendation that CMS include senior executives from all relevant IT and business units in funding decisions for state marketplace IT projects, HHS stated that the department already includes senior executives in its funding decisions for these projects. However, as noted in our report, CMS did not provide evidence that key senior executives from CCIIO, CMCS, and OTS were involved in various funding decisions associated with the states’ IT projects. For example, CMS did not demonstrate that senior-level executives from all relevant business and IT units were involved in the initial approval of grant awards or the release of restricted IT funds from marketplace grants as states progressed with their projects. In addition, CMS did not provide evidence of senior executive involvement in the approval of Medicaid funds for marketplace IT projects. By ensuring such executive involvement, CMS would increase accountability for decisions to fund states’ IT projects and ensure that these decisions are well informed in order to make efficient use of federal funds. With respect to our recommendation to ensure that states have completed all testing of marketplace system functions prior to releasing them into operation, HHS noted that it will continue to follow its guidelines to determine if state marketplace system functions are ready for release. The department added that it will continue to work closely with state- based marketplaces to improve their systems and verify that system requirements are met. We agree that following its review guidance as defined is important. In particular, as noted in our recommendation, CMS should ensure that states’ systems are fully tested before approving them for release into production, rather than relying on workarounds and manual processes. HHS also provided technical comments, which we incorporated in the report as appropriate. Among these comments, the CMS liaison in the Office of Legislation sent an e-mail on September 10, 2015, stating that the amount of total marketplace grant spending for the District of Columbia that CMS provided to us based on its March 2015 report was incorrect. Accordingly, we revised our analysis and relevant areas of our report to reflect the new amount provided by the agency. We also provided relevant excerpts of this report to each of the 50 states and the District of Columbia and received responses, via e-mail or in writing, from officials in 15 states. Officials from 5 of these states (Alaska, Arizona, Maine, Nevada, and Rhode Island) said they had no comments. Among the remaining 10 states, 6 states (Alabama, Idaho, Indiana, Minnesota, Washington, and Wisconsin) commented on our discussion of their marketplace grant data. According to these states, the data we reported on marketplace grant funding were not always consistent with their own data. However, the grant funding discussed in our report reflects state-reported data that CMS provided and represents a consistent source and time frame of data for all states as of March 2015; thus, we did not revise our discussion of the reported data in the report. However, we did revise the report to clarify that the state-reported data that CMS provided could lag behind actual state marketplace grant data for a specific date. In addition, officials from 6 of the 10 states commented on the status of their systems development and operation. In e-mail comments, the Grant Compliance Officer of Covered California provided details on specific functionality Covered California was still implementing. For example, its small business marketplace was using manual workarounds for its automated payment functionality until the system is completed. Regarding the hub services and IRS reporting submission functions, the official said that California will continue to enhance and improve efficiencies of the hub services for the health insurance renewal process, and will complete performance testing of IRS reporting submissions. In written comments, the Executive Director of the District of Columbia Health Benefit Exchange Authority did not agree with some of the characterizations in our report. Specifically, the Executive Director concurred with our characterization of the status of the financial management functions as fully complete and IRS reporting functions as partially complete, but did not agree that the District of Columbia’s eligibility and enrollment and hub services functions were only partially complete. Regarding the eligibility and enrollment functions, the Executive Director said that our characterization was misleading and unsupported because these functions were only partially operational for one specific function and that the marketplace received permission from CMS to implement an alternate method for implementing another specific function; thus, the overall eligibility and enrollment function should have been considered fully operational. Our characterization of eligibility and enrollment functions as partially operational was based on CMS’s February 2015 operational status report which consisted of a larger list of functions than the Executive Director cited and states were expected to automate all these functions. While we recognize that the District of Columbia was able to enroll applicants through its system, CMS’s report indicated that these specific functions, which support important provisions of PPACA, were not complete or fully automated. Regarding hub services, the Executive Director said that the District of Columbia requested and received permission from CMS not to deploy a specific function for plan year 2015 but has begun testing this function for plan year 2016. Since the District of Columbia was still testing this hub service, it had not fully developed, tested, and implemented this functionality required by CMS. The District of Columbia Health Benefit Exchange Authority’s comments are reprinted in appendix IV. In e-mail comments, the Executive Director of the Office of the Kentucky Health Benefit Exchange requested that we clarify the partial rating for IRS required submissions because the Executive Director believed that the state had been fully compliant with these requirements. However, according to CMS’s February 2015 operational status report, Kentucky had not completed the most recent annual submission of IRS data which is used to ensure that individuals received the correct amount of premium tax credit. In written comments, the Interim Chief Executive Officer of MNsure, the Minnesota marketplace, generally agreed with the operational status ratings for the functional categories. But the official also noted that while the functions may be rated as partially operational, our report did not recognize that MNsure delivered the required services and in some cases used manual workarounds to temporarily meet the functional requirements. We recognized that states implemented workarounds to deliver services, but our report focuses on the status of fully automated functionality delivered by states’ IT projects. For example, regarding eligibility and enrollment functions, although MNsure sent automated notices for most consumers, due to system limitations it was unable to issue automated notices to some consumers renewing coverage and therefore created manual notices for these consumers. In addition, regarding financial management functions, the Interim Chief Executive Officer said MNsure was billing small business customers using a manual process in February 2015, but has since incorporated automation into the process. Further, the official noted that MNsure opted to have certain financial management functions performed by CMS. While MNsure made progress in this area, we are reporting the status according to CMS’s February 2015 operational status report, which is a consistent source and time frame of data for all states, and these financial management functions were categorized as not operational in the report. Regarding hub services, the Interim Chief Executive Officer generally agreed with the status and stated that MNsure will continue to plan for testing of these functions. Regarding IRS reporting, the official generally agreed with the status and stated that the delays for submitting files to IRS were due to additional quality assurance work. The MNsure Minnesota marketplace’s comments are reprinted in appendix V. In e-mail comments, the Deputy Director of the New York State Department of Health disagreed that financial management, hub services and IRS reporting file submissions functions were partially operational as of February 2015, and believed that the ratings should reflect fully operational or fully complete. In addition, the Deputy Director stated that the state should not receive partial ratings because it opted to have CMS perform certain financial management functions, determined alternate methods for completing certain hub services functions, and was waiting for solutions from CMS regarding IRS reporting file submissions. Although New York opted to have certain financial management functions performed by CMS, the agency’s February 2015 operational status report categorized these functions as not operational. Further, while CMS may have allowed certain alternate methods or workarounds for hub services functions, CMS’s operational status report indicated that these specific functions were not complete or fully automated. Even though New York may have been waiting for a solution from CMS to complete its IRS reporting file submissions, CMS’s report noted that this function was not fully complete. In written comments, the Chief Executive Officer of the Washington Health Benefit Exchange concurred with our characterization of the status of eligibility and enrollment functions and IRS reporting file submissions but did not agree that its financial management and hub services functions were only partially operational. The Chief Executive Officer stated that our report lacked the necessary details for him to review in order to respond to these characterizations. We later provided details from CMS’s February 2015 operational status report that we evaluated to determine the status of the state’s marketplace. Subsequently, the official stated that certain financial management functions were incomplete because the state opted to have these functions performed by CMS. Nonetheless, CMS’s February 2015 operational status report categorized these functions as not operational. For hub services, the official noted that the Washington Healthplanfinder successfully used multiple services offered by the federal hub to verify Social Security numbers, citizenship, lawful presence, income, and other eligibility factors and that the marketplace has tested these services. However, CMS’s February 2015 operational status report noted that it had only partially completed certain hub services for verifying eligibility. The Washington Health Benefit Exchange’s comments are reprinted in appendix VI. Other technical comments provided via e-mail by marketplace and Medicaid officials within these states were considered and incorporated into our final report as appropriate We are sending copies of this report to the Secretary of Health and Human Services and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. Should you or your staffs have questions on matters discussed in this report, please contact me at (202) 512-6304. I can also be reached by e- mail at melvinv@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VII. Our objectives were to (1) determine how states have used federal funds for IT projects to establish, support, and connect to health insurance marketplaces, including amounts spent, and the overall status of their development and operation; (2) determine CMS’s and states’ roles in overseeing these state IT projects; and (3) describe IT challenges that states have encountered in developing and operating their marketplaces and connected systems, and lessons learned from their efforts. To address the three objectives, we designed and administered a web- based survey to collect information about the state health insurance marketplace IT projects in the 50 states and the District of Columbia. We developed two versions of this survey: one for states with state-based marketplaces, including those using the federal marketplace IT solution, and one for states with a federally facilitated marketplace or federally facilitated partnership. Seventeen states received the state-based version of the survey, and 34 states received the federally facilitated version. Generally, the survey asked state program officials about federal and state funding for developing and operating state marketplace-related IT projects, state marketplace and project types, CMS’s and state’s marketplace oversight roles and tools, and challenges and lessons learned with state marketplace IT development and operations. Out of the original population of state health marketplaces in the 50 states and the District of Columbia, 46 states and the District of Columbia submitted survey responses; however, not all respondents provided answers to every question. We did not independently verify the data the states provided in each case, but we did, in selected cases, compare them to equivalent CMS data. We also relied on CMS-provided data, rather than survey data, in most cases because we received more up-to- date and complete information from CMS. The survey was administered between September 30, 2014, and November 19, 2014. The status of state marketplace types is as of the end of the second enrollment period—which ended on February 15, 2015. Several weeks before the survey period began, we notified recipients that they would be receiving it and confirmed that they were the appropriate state contacts. We also followed up with non-respondents several times before the survey period ended. In developing the surveys, we took steps to ensure the accuracy and reliability of responses. We pre-tested the survey with marketplace and Medicaid officials from seven states to ensure that the questions were clear, comprehensive, and unbiased, and to minimize the burden the questionnaire placed on respondents. To determine how states have used federal funds to establish, support, and connect to health insurance marketplaces and the overall status of their development and operation, we reviewed CMS guidance regarding federal funding and development for marketplaces such as the marketplace grant funding opportunity announcement, instructions for marketplace reporting, guidance for marketplace and Medicaid IT systems, and blueprint guidance for approval of state marketplace types. We also reviewed best practices for IT investment management and managing program costs. We then reviewed CMS funding and status documentation, including notices of grant awards and state IT spending and status summaries. We also analyzed state survey responses on costs and development status, including state documentation on federal grant and Medicaid costs. To assess the reliability of CMS’s data on state-reported IT spending to establish, support, and connect to marketplaces, we assessed the reliability of the systems used to collect the information. We asked officials responsible for entering and reviewing the grants information a series of questions about the accuracy and reliability of the data. Among the sources of data used for our study, we reviewed a spreadsheet compiled by CMS Center for Consumer Information and Insurance Oversight officials that contained state-reported grant funding data and marketplace IT project status information drawn from three separate information systems: CMS’s On-Line Data Collection System, Grant Solutions, and the Payment Management System. The spreadsheet was a consistent source of information that reflected the same cost factors for all states as of March 2015. Specifically, the spreadsheet tracked, among other things, the type and total amount of grant funding provided and available to each state, as well as the time period for expending those funds. We also reviewed the data to determine if there were any outliers and other obvious errors in the data. For any anomalies in the data, we followed up with CMS to either understand or correct those anomalies. We determined that the data were sufficiently reliable for our purposes and noted any limitations in our report. While our report discusses state-reported IT spending based on CMS data, we did not verify the accuracy of the data states reported to CMS. We also reviewed our recent report on Medicaid funding for eligibility IT system changes, which addressed state-reported Medicaid expenditure data from CMS-64—a form that states complete quarterly to obtain federal reimbursement for services provided or administrative costs incurred. We updated our review of states’ reported expenditures, beginning with the quarter ending June 30, 2011, the first quarter for which 90/10 funds were available to states, through the quarter ending December 31, 2014. To determine the reliability of the CMS-64 data, we reviewed related documentation and our prior records of interviews with CMS officials describing how these data are collected and processed; we also examined other research that has used these data to report state expenditures. We determined that the data we used in this report were sufficiently reliable and noted any limitations in our report. In addition, we reviewed and analyzed CMS documentation of states’ marketplace status and operation progress and challenges to summarize the status of marketplaces. We reviewed states’ survey responses regarding changes in and the status of developing and operating their marketplace IT solutions. We also reviewed CMS state marketplace operational status reports as of February 2015 and the CMS State Exchange Resource Tracking System as of April 2015. We did not independently verify the accuracy of CMS’s data on states’ operational status. We also obtained input from CMS regarding funding and status of marketplaces through interviews with knowledgeable officials. To determine CMS’s and states’ roles in overseeing these state IT projects, we analyzed applicable federal laws and regulations, CMS marketplace policies and guidance, documentation on applicable CMS marketplace roles and responsibilities and state marketplace governance structures, state survey responses regarding their governance structures, and state survey responses and ratings regarding the effectiveness of CMS guidance, oversight, and related systems. We also compared CMS’s policies and procedures to best practices included in GAO’s IT investment management framework and to the Project Management Institute’s A Guide to the Project Management Body of Knowledge (PMBOK® Guide) to determine whether CMS had roles and responsibilities clearly documented and communicated in its policies and procedures. Further, we reviewed CMS’s funding oversight processes and compared them to relevant sections of GAO’s IT investment management framework to determine if CMS followed best practices for overseeing IT investments. We used our survey results to describe how the states viewed CMS’s oversight and guidance in regard to the marketplace-related IT projects. We also reviewed CMS’s Enterprise Life Cycle guidance for systems development reviews and reports from states’ operational readiness reviews from August and September 2013 to assess the extent to which CMS followed its process. In addition, we reviewed state survey responses and other state-provided documents to determine states’ marketplace oversight roles. Further, we interviewed CMS officials responsible for the oversight and implementation of the state marketplaces to obtain their perspective on their marketplace roles. To describe IT challenges encountered in developing and operating the marketplace and connected systems as well as lessons learned from these efforts, we analyzed state survey responses related to challenges, lessons learned, and best practices identified by state officials and documentation such as CMS meeting presentations. For the state surveys, we identified a variety of marketplace-related IT challenges based on our analysis of CMS and state documentation and interviews, and grouped these challenges according to several broad areas. State- based marketplace challenges were divided into five areas in the survey (project management and oversight, marketplace IT solution design, marketplace IT solution development, resource allocation and distribution, and marketplace implementation and operation), while federally facilitated challenges were divided into two areas (project management and oversight and system design and development) based on the IT work each marketplace performs. For the purposes of our report, we consolidated the marketplace IT solution design and marketplace IT solution development challenge areas for the state-based marketplaces. In both the state-based and federally facilitated versions of our survey, we asked states to rate their experience with each of these identified challenges using a 5-point scale with the following response options: very great challenge, great challenge, moderate challenge, somewhat of a challenge, or little or no challenge. In our report, we combined the very great and great state ratings. We then analyzed states’ ratings of challenges and using counts of the “very great” and “great” responses, we selected the greatest (i.e., the top two) challenges from each area for discussion in this report. If a challenge area applied to both states using a state-based marketplace and states with a federally facilitated marketplace, the greatest challenges from each marketplace type were selected. Further, we asked each state to identify whether they had identified best practices or lessons learned within each challenge area of our survey, and to include specific examples of those best practices and lessons. We reviewed all written survey responses regarding states’ lessons learned to ensure these lessons were appropriately categorized into each identified challenge area. Based on our qualitative analysis of the states’ survey responses, we identified the number of states that provided lessons learned and then provided examples of the best practices or lessons learned that related to the greatest challenges in each area, if there were any. We also interviewed CMS and state officials responsible for the oversight and implementation of the state marketplaces to determine what the agency did to identify and share states’ challenges, best practices, and lessons learned. We conducted this performance audit from April 2014 to September 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. To help states establish a marketplace, the Patient Protection and Affordable Care Act (PPACA) authorized the Department of Health and Human Services (HHS) to award federal exchange (now referred to as marketplace) grants for planning and implementation activities, as well as for the first year of a marketplace’s operation. States were required to report marketplace grant spending, including IT spending, to HHS’s Centers for Medicare & Medicaid Services (CMS). The following table shows the amount of marketplace grants awarded; the amount of grants spent or drawn down; the amount authorized for IT; and the amount spent for IT as of March 2015, for the four different marketplace types—state-based, state-based using the federal marketplace IT solution, federally facilitated, and federally facilitated partnership marketplaces. In addition to the contact named above, Tammi Kalugdan (assistant director), Christie Motley (assistant director), Christopher Businsky, Debra Conner, Sandra George, David Hong, Kendrick Johnson, Lee McCracken, Monica Perez-Nelson, Jerome Sandau, Brandon Sanders, Andrew Stavisky, Karin Wallestad, Merry Woo, and Elizabeth Wood made key contributions to this report.	The Patient Protection and Affordable Care Act required the establishment of health insurance exchanges—or marketplaces—to allow consumers and small employers to compare, select, and purchase health insurance plans. States can elect to establish a state-based marketplace, or cede this authority to CMS to establish a federally facilitated marketplace. To assist states in establishing their marketplaces and supporting IT systems, federal funding was made available, including grants and Medicaid matching funds. CMS has responsibilities for overseeing states' use of these funds and the establishment of their marketplaces. The objectives of this study were to (1) determine how states have used federal funds for IT projects to support their marketplaces and the status of the marketplaces, (2) determine CMS's and states' roles in overseeing these projects, and (3) describe IT challenges states have encountered and lessons learned. To do this, GAO surveyed the 50 states and the District of Columbia, reviewed relevant documentation from the states and CMS, and interviewed CMS officials. States reported to the Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS) that they spent about $1.45 billion in federal marketplace grant funding on information technology (IT) projects supporting health insurance marketplaces, as of March 2015. The majority of this spending was for state-based marketplaces (i.e., marketplaces established and operated by the states). These marketplaces reported spending nearly 89 percent of the funds on IT contracts, and CMS has ongoing efforts to track states' IT spending in more detailed categories. States also reported spending, as of December 2014, $2.78 billion in combined federal and state funds designated for Medicaid eligibility and enrollment systems—a portion of which was used for marketplace IT projects. However, the specific amount spent on marketplace-related projects was uncertain, as only a selected number of states reported to GAO that they tracked or estimated this information. Regarding the status of states' marketplace IT projects, 14 states with state-based marketplaces had developed and were operating IT systems to support their marketplaces, but, as of February 2015, not all system functions were complete. In addition, as of November 2014, 7 of 37 states using the federal marketplace system could not transfer health insurance applications between their state Medicaid systems and a key component of the federal marketplace or had not completed testing or certification of these functions. According to CMS officials, states operating their own IT systems and states using the federal marketplace system were continuing to improve the development and operation of their marketplaces in the enrollment period that began in November 2014. CMS tasked various offices with responsibilities for overseeing states' marketplace IT projects. However, the agency did not always clearly document, define, or communicate its oversight roles and responsibilities to states as called for by best practices for project management. According to some states, this resulted in instances of poor communication with CMS, which adversely affected states' deadlines, increased uncertainty, and required additional work. CMS also did not involve all relevant senior executives in decisions to approve federal funding for states' IT marketplace projects; such involvement, according to leading practices for investment management, can increase accountability for decision making. Further, while CMS established a process that required the testing of state marketplace systems to determine whether they were ready to be made operational, these systems were not always fully tested, increasing the risk that they would not operate as intended. For their part, states oversaw their IT projects through state agencies or quasi-governmental entities, depending on marketplace type, as well as using other oversight mechanisms. States reported a number of challenges in establishing the systems supporting their marketplaces. These fell into several categories, including project management and oversight, system design and development, resource allocation and distribution, and marketplace implementation and operation. States also identified lessons learned from dealing with such challenges, including the need for strong project management and clear requirements development. CMS has taken various actions to respond to state challenges, identify lessons learned, and share best practices with states; continuing these efforts will be important as states work to complete their marketplace systems. GAO is recommending that CMS define and communicate its oversight roles and responsibilities, ensure senior executives are involved in funding decisions for state IT projects, and ensure that states complete testing of their systems before they are put into operation. HHS concurred with GAO's recommendations.	16.3	16k+	8,519
48	State and local governments generally have the principal responsibility for meeting mass care and other needs in responding to a disaster; however, governments largely carry out this responsibility by relying on the services provided by voluntary organizations. Voluntary organizations provide sheltering, feeding, and other services, such as case management, to disaster victims and have long supported local, state, and federal government responses to disasters. Voluntary organizations have historically played a critical role in providing services to disaster victims, both on a routine basis—in response to house fires and local flooding, for example—and in response to far rarer disasters such as devastating hurricanes or earthquakes. Their assistance can vary from providing immediate services to being involved in long-term recovery efforts, including fund-raising. Some are equipped to arrive at a disaster scene and provide immediate mass care, such as food, shelter, and clothing. Other charities address short-term needs, such as providing case management services to help disaster victims obtain unemployment or medical benefits. Other voluntary organizations provide long-term disaster assistance such as job training or temporary housing assistance for low- income families. In addition, local organizations that do not typically provide disaster services may step in to address specific needs, as occurred when churches and other community organizations began providing sheltering after the Gulf Coast hurricanes. The American Red Cross, a nongovernmental organization founded in 1881, is the largest of the nation’s mass care service providers. Operating under a congressional charter since 1900, the Red Cross provides volunteer humanitarian assistance to the armed forces, serves as a medium of communication between the people of the United States and the armed forces, and provides direct services to disaster victims, including feeding, sheltering, financial assistance, and emergency first aid. An additional key player in the voluntary sector is NVOAD, an umbrella organization of nonprofits that are considered national in their scope. Established in 1970, NVOAD is not itself a service delivery organization but rather coordinates planning efforts by many voluntary organizations responding to disaster, including the five organizations in this review. In addition to its 49 member organizations, NVOAD also coordinates with chartered state Voluntary Organizations Active in Disaster (VOAD) and their local affiliates. The occurrence in 2005 of Hurricanes Katrina and Rita revealed many weaknesses in the federal disaster response that were subsequently enumerated by numerous public and private agencies—including the GAO, the White House, and the American Red Cross. These weaknesses included a lack of clarity in roles and responsibilities among and between voluntary organizations and FEMA and a need for the government to include voluntary organizations in national and local disaster planning. According to several post-Katrina reports, the contributions of voluntary organizations, especially faith-based groups, had not been effectively integrated into the earlier federal plan for disaster response—the 2004 National Response Plan. These reports called for better coordination among government agencies and voluntary organizations through cooperative relationships and joint planning and exercises. Under the Homeland Security Act, which President Bush signed in 2002, as amended by the Post-Katrina Emergency Management Reform Act of 2006 (Post-Katrina Act), FEMA has been charged with responsibility for leading and supporting a national, risk-based, comprehensive emergency management system of preparedness, protection, response, recovery, and mitigation. In support of this mission, FEMA is required to partner with the private sector and nongovernmental organizations, as well as state, local, tribal governments, emergency responders, and other federal agencies. Under the act, FEMA is specifically directed, among other things, to build a comprehensive national incident management system; consolidate existing federal government emergency response plans into a single, coordinated national response plan; administer and ensure the implementation of that plan, including coordinating and ensuring the readiness of each emergency support function under the plan; and update a national preparedness goal and develop a national preparedness system to enable the nation to meet that goal. As part of its preparedness responsibilities, FEMA is required to develop guidelines to define risk-based target capabilities for federal, state, local, and tribal preparedness and establish a comprehensive assessment system to assess, on an ongoing basis, the nation’s prevention capabilities and overall preparedness. FEMA is also required to submit annual reports which describe, among other things, the results of the comprehensive assessment and state and local catastrophic incident preparedness. FEMA may also use planning scenarios to reflect the relative risk requirements presented by all kinds of hazards. As we noted in previous reports and testimony, the preparation for a large-scale disaster requires an overall national preparedness effort designed to integrate what needs to be done (roles and responsibilities), how it should be done, and how well it should be done. The principal national documents designed to address each of these questions are the National Response Framework, the National Incident Management System, and the National Preparedness Guidelines. A core tenet of these documents is that governments at all levels, the private sector, and nongovernmental organizations, such as the Red Cross and other voluntary organizations, coordinate during disasters that require federal intervention. (See fig. 1.) DHS’s National Response Framework, which became effective in March 2008, delineates roles for federal, state, local, and tribal governments; the private sector; and voluntary organizations in responding to disasters. The new framework revises the National Response Plan, which was originally signed by major federal government agencies, the Red Cross, and NVOAD in 2004. Under the National Response Framework, voluntary organizations are expected to contribute to these response efforts through partnerships at each level of government. In addition, FEMA, in conjunction with its voluntary agency liaisons, acts as the interface between these organizations and the federal government. (See fig. 2.) The Framework also creates a flexible and scalable coordinating structure for mobilizing national resources in a large-scale disaster. Under the Framework, local jurisdictions and states have lead responsibility for responding to a disaster and can request additional support from the federal government as needed. In addition, for catastrophic incidents that almost immediately overwhelm local and state resources and result in extraordinary levels of mass casualties or damage, the Framework—through its Catastrophic Incident Supplement—specifies the conditions under which the federal government can proactively accelerate the national response to such disasters without waiting for formal requests from state governments. The Supplement was published in 2006 after Hurricane Katrina. The National Framework organizes the specific needs that arise in disaster response into 15 emergency support functions, or ESFs. Each ESF comprises a coordinator, a primary agency, and support agencies—usually governmental agencies—that plan and support response activities. Typically, support agencies have expertise in the respective function, such as in mass care, transportation, communication, or firefighting. In a disaster, FEMA is responsible for activating the ESF working groups of key federal agencies and other designated organizations that are needed. For the voluntary organizations in our review, Emergency Support Function 6 (ESF-6) is important because it outlines the organizational structure used to provide mass care and related services in a disaster. These services are mass care (e.g., sheltering, feeding, and bulk distribution of emergency emergency assistance (e.g. evacuation, safety, and well-being of pets), disaster housing (e.g., roof repair, rental assistance), and human services (e.g., crisis counseling, individual case management). Under ESF-6, FEMA is designated as the primary federal agency responsible for coordinating and leading the federal response for mass care and related human services, in close coordination with states and others such as voluntary organizations—a role change made in 2008 in response to issues that arose during Katrina. FEMA carries out this responsibility by convening federal ESF-6 support agencies during disasters and coordinating with states to augment their mass care capabilities as needed. Under ESF-6, the Red Cross and NVOAD are each named as support agencies to FEMA, along with numerous federal departments, such as the Department of Health and Human Services. FEMA’s voluntary agency liaisons, located in FEMA regions, are largely responsible for carrying out these coordinating duties with voluntary organizations. As private service providers fulfilling their humanitarian missions, the voluntary organizations in our review have historically served as significant sources of mass care and other services in large-scale disasters and play key roles in national response—in coordination with local, state, and federal governments—under the National Response Framework. While their response structures differ in key ways—with some having more centralized operations than others, for example—these voluntary organizations coordinate their services through formal written agreements and through informal working relationships with other organizations. In recognition of their long-standing leadership in providing services to disaster victims, these organizations, especially the American Red Cross and NVOAD, have considerable roles in supporting FEMA under the nation’s National Response Framework. While this new Framework shifted the Red Cross from a primary agency for mass care to a support agency, largely because the Red Cross cannot direct federal resources, the 2006 Catastrophic Incident Supplement has not been updated to reflect this change. FEMA does not currently have a timetable for revising the Supplement, as required under the Post-Katrina Act, and while FEMA and Red Cross officials told us that they have a mutual understanding of the Red Cross’s role as a support agency in a catastrophic disaster, this understanding is not currently documented. While the major national voluntary organizations in our review differ in their types of services and response structures, they have all played important roles in providing mass care and other services, some for over a century. According to government officials and reports on the response to Katrina, the Red Cross and the other voluntary organizations we reviewed are a major source of mass care and other disaster services, as was evident in the response to Hurricane Katrina. The five voluntary organizations we reviewed differ in the extent to which they focus on providing disaster services and in the types of services they provide. Four of the five organizations directly provide a variety of mass care and other services, such as feeding and case management, while the fifth—the United Way—focuses on fund-raising for other organizations. As the nation’s largest disaster response organization, the Red Cross is the only one of the five in our review the core mission of which is to provide disaster response services. In providing its services, the Red Cross typically coordinates with state and local governments to support their response and has formal agreements with state or local emergency management agencies to provide mass care and other disaster services. For example, the Red Cross serves as a support agency in the Washington, D.C., disaster response plan for mass care, feeding, and donations and volunteer management. In contrast to the Red Cross, The Salvation Army, the Southern Baptist Convention, and Catholic Charities are faith-based organizations that provide varying types and degrees of disaster services – some for decades—as an extension of their social and community service missions. The United Way raises funds for other charities and provides resources to local United Way operations, but does not directly provide services to survivors in response to disasters. (See table 1.) While voluntary organizations have traditionally played an important role in large-scale disasters, their role in response to Hurricane Katrina, the largest natural disaster in U.S. history, was even more significant, especially for the three mass care service providers in our study—the Red Cross, The Salvation Army, and the Southern Baptist Convention. For example, after Katrina, the Red Cross provided more than 52.6 million meals and snacks and opened more than 1,300 shelters across 27 states, while the Southern Baptist Convention provided more than 14.6 million meals and The Salvation Army provided 3.8 million articles of clothing. While Catholic Charities USA and its affiliates do not generally provide mass care services, during Katrina it assisted with feeding by donating food. (See table 2.) The four direct service providers in our study—the Red Cross, The Salvation Army, the Southern Baptist Convention, and Catholic Charities—each have distinct disaster response structures, with their national offices having different levels of authority over the organization’s affiliates and resources, reflecting a continuum from more centralized operations, such as the Red Cross, to more decentralized operations, such as Catholic Charities USA. For example, in a large-scale disaster, the national office of the Red Cross directly sends headquarters-based trained staff, volunteers, and equipment to the affected disaster site, while Catholic Charities USA’s disaster response office provides technical assistance to the affected member dioceses but does not direct resources. (See table 3.) Similarly, to facilitate its ability to direct a nationwide response from headquarters, the Red Cross has a national headquarters and service area staff of about 1,600 as of May 2008, maintains a 24/7 disaster operations center at its headquarters, and has a specially trained cadre of over 71,000 volunteers who are nationally deployable, according to the Red Cross. In contrast, the Southern Baptist Convention and Catholic Charities each have 1 or 2 staff at their national offices who are responsible for disaster response coordination for their organizations. These differences in the national offices’ roles within the voluntary organizations means that when voluntary organizations respond to disasters of increasing magnitude by “ramping up”—a process similar to the scalable response described in the National Response Framework— they do so in different ways and to different extents. While the voluntary organizations in our review coordinate with one another and with the government, their disaster response structures are not necessarily congruent with the response structures of other voluntary organizations or aligned geographically or jurisdictionally with those of government. In essence, the voluntary organizations’ response structures do not necessarily correspond to the local, state, and federal structures of response—as described in the National Framework. For example, The Salvation Army and Catholic Charities are not aligned geographically with states, while the Southern Baptist Convention is aligned roughly along state lines, called state conventions, and the Red Cross’s organizational structure supports regional chapter groupings, which are also aligned generally by state. Furthermore, while the Red Cross and The Salvation Army have regional or larger territorial units, these are not necessarily congruent with FEMA’s 10 regions. (See table 4). In a similar vein, these service providers do not necessarily follow the command and control structure typical of the federal incident command system set forth in the National Incident Management System (NIMS) for unifying disaster response. These organizations vary in the extent to which they have adopted this command system, according to officials we spoke with. For example, organization officials told us that the Red Cross, The Salvation Army, and the Southern Baptist Convention use this command system, while Catholic Charities does not. The voluntary organizations in our review coordinate and enhance their service delivery through formal written agreements at the national level. While not all of the voluntary organizations have such agreements with each other, the Red Cross maintains mutual aid agreements with the national offices of The Salvation Army, the Southern Baptist Convention, and Catholic Charities USA, as well as 39 other organizations with responsibilities under ESF-6. For example, under a 2000 agreement between the Red Cross and the Southern Baptist Convention, a feeding unit addendum describes operations and financial responsibilities when the two organizations provide mass feeding services cooperatively. According to Southern Baptist Convention officials, the general premise of this agreement is that the Convention will prepare meals in its mobile feeding units, while the Red Cross will distribute these meals using its emergency response vehicles. According to many of the voluntary organization officials we interviewed, another essential ingredient for response is to have active, informal working relationships with leaders of other organizations that are well established before disasters strike. These relationships are especially important when organizations do not have formal written agreements or when the agreements do not necessarily represent the current relationship between two organizations. Regular local VOAD meetings and joint training exercises with local and state governments facilitate these working relationships by providing an opportunity for relationship building and informal communication. For example, a Florida catastrophic planning exercise in 2006-2007 brought together 300 emergency management professionals and members of the Florida VOAD to develop plans for two types of catastrophic scenarios. According to disaster officials, relationships built through this type of interaction allow participants to establish connections that can be drawn upon during a disaster. The National Response Plan that was instituted after September 11, and the 2008 National Response Framework, which superseded it, both recognized the key role of the Red Cross and NVOAD member organizations in providing mass care and other services by giving the Red Cross and NVOAD responsibilities under the ESF-6 section of the Framework. The 2008 National Response Framework, which revised the National Response Plan, clarified some aspects of the Red Cross’s role that had been problematic during the Katrina response. Under the 2008 ESF-6 section of the Framework, the Red Cross has a unique federally designated role as a support agency to FEMA for mass care. As noted in our recent report, the Red Cross was previously designated as the primary agency for mass care under ESF-6 in the 2004 National Response Plan, but the Red Cross’s role was changed under the 2008 Framework to that of a support agency. This role change was made in large part because FEMA and the Red Cross agreed—in response to issues that arose during Katrina—that the primary agency responsible for coordinating mass care nationwide needs to be able to direct federal resources. As a support agency under ESF-6, the Red Cross helps FEMA and the states coordinate mass care activities in disasters. In particular the Red Cross is charged with providing staff and specially trained liaisons to work at FEMA’s regional offices and other locations, and providing subject matter expertise on mass care planning, preparedness, and response. In addition, the Red Cross is expected to take the lead in promoting cooperation and coordination among government and national voluntary organizations that provide mass care during a disaster, although it does not direct other voluntary organizations in this role. (See fig. 3.) ESF-6 also acknowledges the Red Cross’s separate role as the nation’s largest mass care service provider, which is distinct from its role under the Framework. When providing mass care services, the Red Cross acts on its own behalf and not on behalf of the federal government, according to the ESF-6. In recent months, the Red Cross has reported a significant budget deficit that has led it to substantially reduce its staff, including those assigned to FEMA and its regional offices, and to seek federal funding for its ESF-6 responsibilities—a major policy shift for the organization. According to Red Cross officials, the Red Cross has experienced major declines in revenues in recent years, and the organization reported a projected operating budget deficit, for fiscal year 2008, of about $150 million. To address this shortfall, in early 2008 the Red Cross reduced the number of its staff by about 1,000, with most of these staffing cuts made at its national headquarters and in service areas, in departments that support all Red Cross functions, such as information technology, human resources, and communications. These cuts included eliminating its full-time staff at FEMA’s 10 regional offices and reducing staff that supported state emergency management agencies from 14 to 5. While it is too soon to tell the impact of these changes, Red Cross officials we spoke with told us these staffing cutbacks will not affect its ability to provide mass care services. For example, several positions were also added to its Disaster Services unit to support local chapters’ service delivery, according to Red Cross data, including area directors and state disaster officers—a new position at the Red Cross. However, with regard to its ESF-6 responsibilities, Red Cross officials also said that while the organization will continue to fulfill its ESF-6 responsibilities, it is changing the way it staffs FEMA’s regional offices during disasters by assigning these responsibilities, among others, to state disaster officers and using trained volunteers to assist in this role. According to the Red Cross, its costs for employing a full-time staff person in each FEMA regional office and for staffing its headquarters to support federal agencies during disasters is $7 million annually, for an operation that the Red Cross says is no longer sustainable. Consequently, in May 2008 testimony before the Senate Committee on Homeland Security and Governmental Affairs, the Red Cross requested that Congress authorize and appropriate funding to cover these positions and responsibilities under the ESF-6. In addition, the Red Cross requested $3 million to assist it in funding its role of integrating the mass care services provided by the nongovernmental sector, for a total of $10 million requested. In addition to the Red Cross, NVOAD is also designated as a support agency under the 2008 ESF-6 section of the Framework, as it was in the previous national plan. In its role as a support agency for mass care, NVOAD is expected to serve as a forum enabling its member organizations to share information, knowledge, and resources throughout a disaster; it is also expected to send representatives to FEMA’s national response center to represent the voluntary organizations and assist in disaster coordination. A new element in the 2008 ESF-6 is that voluntary organizations that are members of NVOAD are also specifically cited in ESF-6 under NVOAD, along with descriptions of their services or functions in disaster response. According to NVOAD and FEMA officials, listing the individual NVOAD members and their services in the ESF-6 does not change organizations’ expected roles or create any governmental obligations for these organizations to respond in disasters, but rather recognizes that NVOAD represents significant resources available through the membership of the voluntary organizations. While the Red Cross’s role for ESF-6 has been changed from that of a primary agency under the National Response Plan to that of a support agency under the new Framework, the Catastrophic Incident Supplement still reflects its earlier role, requiring the Red Cross to direct federal mass care resources. The Supplement provides the specific operational framework for responding to a catastrophic incident, in accordance with federal strategy. When the Supplement was issued, in 2006, the Red Cross was the primary agency for coordinating federal mass care assistance and support for the mass care section of ESF-6 under the National Response Plan. As previously mentioned, in January 2008 the Red Cross’s role under ESF-6 changed from that of a primary agency to that of a support agency, partly because the Red Cross lacks the authority to direct federal resources. The Supplement has not yet been updated to reflect this recent change in the Red Cross’s role. However, FEMA and Red Cross officials agreed that in a catastrophic incident, the Red Cross would serve as a support agency for mass care—not as the lead agency—and therefore would not be responsible for directing federal resources. According to FEMA, in a catastrophic incident, the management, control, dispensation, and coordination of federal resources will change, shifting this responsibility from the Red Cross to FEMA, so as to be consistent with the National Response Framework and the ESF-6. In addition to describing its ESF-6 support agency responsibilities in a catastrophic disaster, the Supplement lays out the mass care services the Red Cross would provide in a catastrophic disaster—acting as a private organization—and FEMA and Red Cross officials agreed that the Red Cross would continue to provide these services as part of its private mission, regardless of the change to its role in the ESF-6 or any future revisions to the Supplement. The Red Cross’s services and actions as a private service provider are integrated into the Supplement for responding to catastrophic disasters. In an event of catastrophic magnitude, the Red Cross is expected to directly provide mass care services to disaster victims, such as meals and immediate sheltering services to people who are denied access to their homes. The Supplement also includes the Red Cross in a schedule of actions that agencies are expected to automatically take in response to a no-notice disaster, such as a terrorist attack or devastating earthquake. For example, within 2 hours after the Supplement is implemented, the Red Cross is expected to inventory shelter space in a 250-mile radius of the disaster using the National Shelter System, dispatch specially trained staff to assess needs and initiate the Red Cross’s national response, coordinate with its national voluntary organization partners to provide personnel and equipment, and deploy Red Cross kitchens and other mobile feeding units. However, according to the ESF-6, in providing these mass care services, the Red Cross is acting on its own behalf and not on the behalf of the federal government or other governmental entity, and the Supplement similarly states that the Red Cross independently provides mass care services as part of its broad program of disaster relief. According to Red Cross officials, if the Supplement were implemented, the Red Cross would continue providing the same mass care services that it has always provided as a private organization. FEMA officials agreed that its expectations of the services the Red Cross would provide in a catastrophic event have not changed, and that its role as a service provider has not been affected by the changes to the ESF-6. According to FEMA, FEMA will augment the Red Cross’s resources in a catastrophic disaster, and the two organizations are working together to develop a memorandum of agreement to ensure that the Red Cross is provided with adequate federal support for logistics, human resources, and travel in a catastrophic event. Although FEMA is charged with revising the Supplement under the Post- Katrina Reform Act, agency officials told us that the agency does not currently have a time frame for updating the Supplement and does not have an interim agreement documenting FEMA’s and the Red Cross’s understanding of the Red Cross’s role as a support agency under the Supplement. FEMA officials told us that the agency was revising the 2004 Catastrophic Incident Annex—a brief document that establishes the overarching strategy for a national response to this type of incident—but that it does not yet have a time frame for updating the more detailed Supplement, which provides the framework for implementing this strategy, although the agency told us that it is in the process of establishing a review timeline. According to FEMA, future revisions to the Supplement will shift responsibility for directing federal mass care resources from the Red Cross to FEMA, in order to remain consistent with the National Response Framework and ESF-6. Furthermore, FEMA and the Red Cross told us that they have a mutual understanding of the Red Cross’s role as a support agency in a catastrophic disaster. However, this understanding is not currently documented. As the experience in responding to Hurricane Katrina demonstrated, it is important to have a clear agreement on roles and responsibilities. Crafting such agreements in writing ahead of time—before the need to respond to a catastrophic event—would help clarify potentially unknown sources of misunderstanding and communicate this understanding not just to FEMA and the Red Cross, but also to FEMA’s many support agencies for ESF-6 and the Red Cross’s partner organizations in the voluntary sector. There is also precedent for having an interim agreement on changed roles: In 2007, while the National Response Plan was being revised, FEMA and the Red Cross developed an interim agreement on roles and responsibilities that set forth the Red Cross’s shift from primary to support agency. In response to weaknesses in service delivery that became evident during Hurricane Katrina, the American Red Cross, The Salvation Army, the Southern Baptist Convention, and Catholic Charities have acted to expand their service coverage and strengthen key aspects of their structures. The Red Cross has reorganized its chapters and established new partnerships with local community and faith-based organizations, particularly in rural areas with hard-to-reach populations. While Red Cross officials did not expect these improvements to be undermined by the organization’s budget deficit, the effect of recent staff reductions at headquarters and elsewhere remains to be seen. Meanwhile, all four organizations, to varying degrees, have made changes to strengthen their ability to coordinate services by collaborating more on feeding and case management and improving their logistical and communications systems. In recognition of the fact that its service coverage had been inadequate during the 2005 Gulf Coast hurricanes, the Red Cross subsequently reorganized its service delivery structure and initiated or strengthened partnerships with local community organizations—a process that is still ongoing. During Katrina, when approximately 770,000 people were displaced, the Red Cross was widely viewed as not being prepared to meet the disaster’s unprecedented sheltering needs, in part because some areas—particularly rural areas—lacked local chapters or were not offering services; furthermore, the Red Cross had weak relationships with faith- based and other community groups that stepped in during this crisis to assist disaster victims. To address these problems, the Red Cross is implementing two main initiatives: First, to expand and strengthen its service delivery, including its capacity to respond to catastrophic disasters, the Red Cross is reorganizing its field structure by Establishing a more flexible approach to service delivery to accommodate varying needs of diverse communities within the same jurisdiction. According to the Red Cross, the jurisdiction of many chapters consisted of urban, suburban, and rural counties. Previously, chapter services were based on an urban model, but this one-size-fits-all approach, according to the Red Cross, did not well suit the needs and capacities of suburban and rural areas. The Red Cross now differentiates among three service levels, and each chapter can match service levels to the communities within its jurisdiction according to the community’s population density and vulnerability to disasters. As part of this differentiated approach, the chapters also use a mix of methods for providing services—from teams of disaster-trained volunteers to toll-free numbers and the Internet to formal partnerships—depending on the service level needed. Realigning its regional chapter groupings—each consisting of three to eight local chapters—to cover larger geographic areas, additional populations, and better support their local chapters. Regional chapters were established based on factors such as population density, total geographic area, and community economic indicators. According to the Red Cross, streamlining administrative back-office functions, such as human resources and financial reporting, through an organization-wide initiative to reduce duplication will free up chapter resources for service delivery. With this realignment, regional chapters now are expected to provide their local chapters with technical assistance, evaluate local chapters’ overall service delivery capacity, and identify strategies to maximize service delivery, according to the Red Cross. Second, the Red Cross is working to strengthen its local chapters’ relationships with local faith- and community-based organizations so as to help better serve diverse and hard-to-reach populations. During Katrina, the Red Cross lacked such relationships in certain parts of the country, including hurricane-prone areas, and did not consistently serve the needs of many elderly, African-American, Latino, and Asian-American disaster victims and people with disabilities. To remedy this, the Red Cross initiated a new community partnership strategy under which local chapters identify key community organizations as possible disaster response partners and enter into agreements with them on resources to be provided, including reimbursements for costs associated with sheltering disaster victims. The partnership strategy’s goals include improving service to specific communities by overcoming linguistic and cultural barriers; increasing the number of possible facilities for use as shelters, service centers, and warehouses; and enlisting the support of organizations that have relationships with the disabled community. According to Red Cross officials, local chapters around the country have initiated thousands of new partnerships with faith-based and local community organizations. However, because these partnerships are formed at the local chapter level, the national office does not track the exact number of new agreements signed, according to the Red Cross. In addition, the Red Cross has also taken some actions to better address the mass care needs of disaster victims with disabilities—a particular concern during Katrina—although concerns still remain about the nation’s overall preparations for mass care for people with disabilities. For example, the Red Cross developed a shelter intake form to help volunteers determine if a particular shelter can meet an individual’s needs as well as new training programs for staff and volunteers that specifically focus on serving the disabled, as we previously reported. It has also prepositioned items such as cots that can be used in conjunction with wheelchairs in warehouses to improve accessibility to shelters. However, as we reported in February 2008, Red Cross headquarters officials told us that some local chapters were not fully prepared to serve people with disabilities and that it was difficult to encourage local chapters to implement accessibility policies. In the report we also noted that FEMA had hired a disability coordinator to improve mass care services for the disabled, but it had not yet coordinated with the National Council on Disability, as required under the Post-Katrina Act. More specifically, we recommended that FEMA develop a set of measurable action steps, in consultation with the disability council, for coordinating with the council. According to the National Disability Council, while FEMA and the council have met on several occasions to discuss their joint responsibilities under the Post- Katrina Act, FEMA has not yet developed action steps for coordination in consultation with the council. FEMA officials told us they are preparing an update for us on their response to the recommendation. Although the Red Cross recently significantly reduced its staffing levels, the staffing cutbacks were designed to uphold the organization’s delivery of disaster services, according to the Red Cross. Red Cross national officials told us that overall, these and other staffing cuts were designed to leave service delivery intact and that the Red Cross plans to maintain the reorganization of its chapter and service level structure as well as its community partnership initiative. However, since these changes are so recent, it remains to be seen how or whether the cuts and realignment of responsibilities will affect the organization’s post-Katrina efforts to expand and strengthen its service delivery. On the basis of their experiences with large-scale disasters, including Katrina, the national offices, and to some extent the local offices, of the direct service providers in our study reported to varying degrees increasing coordination with each other. In particular, they collaborated more on feeding operations and information sharing and made logistical and communications improvements to prevent future problems, according to organization officials. With regard to mass care services, officials from the national offices of the Red Cross, The Salvation Army, and the Southern Baptist Convention—the three mass care providers in our review—reported increasing their collaboration on delivering mass feeding services. During Katrina, mass care services were duplicated in some locations and lacking in others, partly because voluntary organizations were unable to communicate and coordinate effectively. One reason for this confusion, according to the Southern Baptist Convention, was that many locally based volunteers were unaware that the national offices of the Red Cross and the Southern Baptist Convention had a mutual aid agreement to work with each other on feeding operations and as a result did not coordinate effectively. Since Katrina, the Southern Baptist Convention and the Red Cross have developed a plan to cross-train their kitchen volunteers and combine their core curricula for kitchen training. Similarly, The Salvation Army and the Southern Baptist Convention—who also collaborate on mass feeding services—created a joint training module that cross-trains Southern Baptist Convention volunteers to work in Salvation Army canteens and large Salvation Army mobile kitchens. The two organizations also agreed to continue liaison development. In addition, the voluntary organizations in our study told us that they shared case management information on the services they provide to disaster survivors through the Coordinated Assistance Network (CAN)— which is a partnership among several national disaster relief nonprofit organizations. After September 11, CAN developed a Web-based case management database system that allows participating organizations to reduce duplication of benefits by sharing data about clients and resources with each other following disasters. This system was used in Katrina and subsequent disasters. The Red Cross, The Salvation Army, and the United Way were among the seven original partners that developed and implemented CAN. According to officials from the Red Cross’s national headquarters office, CAN has served as a tool for improving coordination and maintaining consistency across organizations and has also fostered collaboration at the national level among organization executives. An official from Catholic Charities USA told us it has seen a reduction in the duplication of services to clients since it began participating in CAN. Two of the local areas we visited participated in CAN—New York City and Washington, D.C.—and officials from some local voluntary organizations and VOADs in these two cities said they participate in CAN. In New York City, Red Cross officials said CAN was used to support the Katrina victims who were evacuated to the area. Catholic Charities officials told us that following September 11, CAN helped ease the transition between the Red Cross’s initial case management services and longer-term services provided by other organizations. In addition, an official from the local VOAD said using CAN is a best practice for the sector. The three voluntary organizations that provide mass care services have taken steps to improve their supply chains by coordinating more with each other and FEMA to prevent the breakdown in logistics that had occurred during Hurricane Katrina, according to officials we spoke with. In responding to Hurricane Katrina, the Red Cross, FEMA, and others experienced difficulties determining what resources were needed, what was available, and where resources were at any point in time, as we and others reported. Since then, the Red Cross and FEMA’s logistics department have communicated and coordinated more on mass care capacity, such as the inventory and deployment of cots, blankets, and volunteers, according to national office Red Cross officials. The Red Cross also said the logistics departments of the Red Cross and FEMA meet regularly and that the two organizations are working on a formal agreement and systematically reviewing certain areas, such as sharing information on supplies and warehousing. In addition to the Red Cross, the Southern Baptist Convention and The Salvation Army made changes to improve their supply chain management systems. In Katrina, the Southern Baptist Convention experienced a breakdown in the system that prevented it from replenishing its depleted mobile kitchen stock, according to officials from the organization. While FEMA ultimately helped with supplies, the Southern Baptist Convention has since collaborated with the Red Cross and The Salvation Army to develop a supply chain management system to minimize logistical problems that could interfere with its ability to provide feeding services, according to national office officials from the Southern Baptist Convention. To ensure that disaster staff and volunteers can receive and share information during a disaster, the voluntary organizations in our review told us they had to varying degrees strengthened their communications systems since Katrina. Hurricane Katrina destroyed core communications systems throughout the Gulf Coast, leaving emergency responders and citizens without a reliable network needed for coordination. Since then, to prevent potential loss of communication during disasters, the Red Cross increased the number of its disaster response communications equipment and prepositioned emergency communications response vehicles that had Global Positioning Systems. According to organization officials, the Red Cross prepositioned communications equipment in 51 cities across the country, with special attention to hurricane-prone areas. The Red Cross also provided some communications equipment to the Southern Baptist Convention for its mobile kitchens and trucks. According to Red Cross national office officials, the organization’s long-term goal for communications is to achieve interoperability among different systems such as landline, cellular, and radio networks. Furthermore, the Red Cross reported that it can communicate with FEMA and other federal agencies during a disaster through its participation in the national warning system and its use of a high-frequency radio program also used by federal agencies; in contrast, communication with nonfederal organizations is through liaisons in a facility or by e-mail or telephone. In addition to these Red Cross efforts, the Southern Baptist Convention enabled its ham radio operators throughout the country to directly access its national disaster operations center through a licensed radio address, began including a communications officer in each of its incident command teams, and established a standard communications skill set for all of its local affiliates, among other improvements. Local Salvation Army units also reported upgrading their communications system since Katrina. In Washington, D.C., The Salvation Army began developing an in-house communications system in the event that cellular and satellite communications networks are down, and in Miami, The Salvation Army equipped its canteens with Global Positioning Systems to help disaster relief teams pinpoint locations if street signs are missing due to a disaster. In addition, Catholic Charities in Miami purchased new communications trailers with portable laptop computer stations, Internet access, a generator, and satellite access, according to a Catholic Charities official. Although initial assessments do not yet fully capture the collective capabilities of major voluntary organizations, the evidence suggests that without government and other assistance, a worst-case large-scale disaster would overwhelm voluntary organizations’ current mass care capabilities in the metropolitan areas we visited. The federal government and voluntary organizations have started to identify sheltering and feeding capabilities. However, at this point most existing assessments are locally or regionally based and do not provide a full picture of the nationwide capabilities of these organizations that could augment local capabilities. Furthermore, attempts to develop comprehensive assessments are hindered by the lack of standard terms and measures in the field of mass care. In the four metro areas we visited, the American Red Cross, The Salvation Army, and the Southern Baptist Convention were able to provide information on their local sheltering and feeding resources, and in large- scale disasters their substantial nationwide resources could be brought to bear in an affected area. Nevertheless, the estimated need for sheltering and feeding in a worst-case large-scale disaster—-such as a Katrina-level event—would overwhelm these voluntary organizations. We also found, however, that many local and state governments in the areas we visited, as well as the federal government, are planning to use government employees and private sector resources to help address such extensive needs. Red Cross and FEMA officials also told us that in a catastrophic situation, assistance will likely be provided from many sources, including the general public, as well as the private and nonprofit sectors, that is not part of any prepared or planned response. Because the assessment of capabilities among multiple organizations nationwide is an emerging effort—largely post-Katrina—it does not yet allow for a systematic understanding of the mass care capabilities that voluntary organizations can bring to bear to address large-scale disasters in the four metropolitan areas in our review. Assessments help organizations identify the resources and capabilities they have as well as potential gaps. To assess capabilities in such disasters in any metro area, it is necessary to have information not only on an organization’s local capabilities but also its regional and nationwide capabilities. Under this scalable approach—which is a cornerstone of the Framework and the Catastrophic Supplement as well—local voluntary organizations generally ramp up their capabilities to respond to large-scale disasters, a process that is shown in figure 4. Voluntary organizations are generally able to handle smaller disasters using locally or regionally based capabilities, but in a large-scale disaster their nationwide capabilities can be brought to bear in an affected area. While our focus in this review is on voluntary organizations’ resources and capabilities, governments at all levels also play a role in addressing mass care needs in large-scale disasters. In anticipation of potential disasters, the federal government and the Red Cross have separately started to assess sheltering and feeding capabilities, but these assessments involve data with different purposes, geographic scope, and disaster scenarios. Consequently they do not yet generate detailed information for a comprehensive picture of the capabilities of the voluntary organizations in our review. (See table 5.) FEMA is currently spearheading two initiatives that to some extent address the mass care capabilities of voluntary organizations in our review. FEMA’s Gap Analysis Program, which has so far looked at state capabilities in 21 hurricane-prone states and territories, has begun to take stock of some voluntary organizations’ capabilities. According to FEMA officials, states incorporated sheltering data from organizations with which they have formal agreements. In the four metro areas we visited, however, we found that—unlike the Red Cross—The Salvation Army and the Southern Baptist Convention did not generally have formal agreements with the state or local government. For this reason, it is unlikely that their resources have been included in this first phase, according to FEMA officials. Also, this initial phase of analysis did not assess feeding capabilities outside of those available in shelters, a key facet of mass care for which voluntary organizations have significant resources. Another form of assessment under way through FEMA and the Red Cross—the National Shelter System database—which collects information on shelter facilities and capacities nationwide—largely consists of shelters operated by the Red Cross, and states have recently entered new data on non-Red Cross shelters as well. While The Salvation Army and other voluntary spokesmen told us they have shelters at recreation centers and other sites that are not listed in this database, FEMA officials told us the accuracy of the shelter data is contingent upon states reporting information into the system and updating it frequently. FEMA has offered to have its staff help states include non-Red Cross shelter data in the database and has also provided or facilitated National Shelter System training in 26 states and 3 territories. As of July 2008, shelters operated by the Red Cross account for about 90 percent of the shelters listed, and according to FEMA officials, 47 states and 3 territories have entered non-Red Cross shelter data into the database. In commenting on the draft report, FEMA noted that in addition to these assessments, the agency is conducting catastrophic planning efforts to help some states develop sheltering plans for responding to certain disaster scenarios. For example, the states involved in planning efforts for the New Madrid earthquake are developing plans to protect and assist their impacted populations and identifying ways to augment the resources provided by voluntary organizations and the federal government. Of the voluntary organizations in our review, the Red Cross is the only one that has, to date, undertaken self-assessments of its capabilities. First, its annual readiness assessments of individual local chapters provide an overview of locally based capabilities for disasters of various scales and identify shortfalls in equipment and personnel for each chapter. Second, the Red Cross has also conducted comprehensive assessments of its sheltering and feeding capabilities in six high-risk areas of the country as part of its capacity-building initiative for those areas. Focusing on the most likely worst-case catastrophic disaster scenario for each area, this initiative reflects the Red Cross’s primary means of addressing its responsibilities under the federal Catastrophic Supplement. Red Cross officials said that while they incorporated data from The Salvation Army and the Southern Baptist Convention into this assessment, many of their other partner organizations were unable to provide the Red Cross with such information. The Salvation Army and Southern Baptist Convention officials with whom we spoke said they have not yet assessed their organizations’ nationwide feeding capabilities, although they were able to provide us with data on the total number of mobile kitchens and other types of equipment they have across the country. Also underlying the problem of limited data on voluntary organizations is the lack of standard terminology and measures for characterizing mass care resources. For example, voluntary organizations do not uniformly use standard classifications for their mobile kitchens. This makes it difficult to quickly assess total capacity when dozens of mobile kitchens from different organizations arrive at a disaster site or when trying to assess capabilities. While DHS requires all federal departments and agencies to adopt standard descriptions and measures—a process defined in NIMS as resource typing—voluntary organizations are not generally required to inventory their assets according to these standards. Red Cross officials report that their organization does follow these standards, but The Salvation Army and Southern Baptist Convention officials said their organizations currently do not, although the latter has taken steps to do so. Specifically, national Southern Baptist officials said they are working with the Red Cross and The Salvation Army to standardize their mobile kitchen classifications using NIMS resource definitions. We also found indications of change at the local level in California with regard to The Salvation Army. Officials there told us they used NIMS resource typing to categorize the organization’s mobile kitchens in the state and that they have provided these data to California state officials. Meanwhile, FEMA is also working with NVOAD to standardize more ESF-6 service terms, in accordance with its responsibilities under the Post- Katrina Reform Act. This initiative currently includes terms and definitions for some mass care services such as shelter management and mobile kitchens. However, FEMA officials said it may be several years before additional standard terms and measures are fully integrated into disaster operations. Although systematic assessments of mass care capabilities are limited, it is evident that in large-scale, especially worst-case, catastrophic disasters, the three mass care voluntary organizations would not likely be able to fulfill the need for sheltering and feeding in the four metropolitan areas in our review without government and other assistance, according to voluntary organization officials we interviewed as well as our review of federal and other data. Red Cross officials, as well as some officials from other organizations we visited, generally agreed that they do not have sufficient capabilities to single-handedly meet all of the potential sheltering and feeding needs in some catastrophic disasters. While the mass care resources of these voluntary organizations are substantial, both locally and nationally, our analysis indicates a likely shortage of both personnel and assets. Anticipating such shortages, the voluntary organizations we spoke with are making efforts to train additional personnel. According to local, state, and federal government officials we spoke with, government agencies—which play key roles in disaster response—told us that they were planning to use government employees and private sector resources in such disasters in addition to the resources of voluntary organizations. Red Cross and FEMA officials also told us that in a catastrophic situation, assistance will likely be provided from many sources, including the general public, as well as the private and nonprofit sectors, that are not part of any prepared or planned response. Within the past few years, DHS, the Red Cross, and others have developed estimates of the magnitude of mass care services that might be needed to respond to worst-case catastrophic disasters, such as various kinds of terrorist attacks or a hurricane on the scale of Katrina or greater. The estimates vary according to the type, magnitude, and location of such disasters and are necessarily characterized by uncertainties. (See table 6.) Although sheltering resources are substantial, in a worst-case large-scale disaster, the need for sheltering would likely exceed voluntary organizations’ current sheltering capabilities in most metro areas in our study, according to government and Red Cross estimates of needs. The preponderance of shelters for which data are available are operated by the Red Cross in schools, churches, community centers, and other facilities that meet structural standards, but The Salvation Army and other organizations also operate a small number of sheltering facilities as well. The Red Cross does not own these shelter facilities, but it either manages the shelters with its own personnel and supplies under agreement with the owners or works with its partner organizations and others to help them manage shelters. At the national level, the Red Cross has identified 50,000 potential shelter facilities across the country, as noted in the National Shelter System database. In addition, the Red Cross has enough sheltering supplies, such as cots and blankets, to support up to 500,000 people in shelters nationwide. However, while disaster victims can be evacuated to shelters across the country if necessary, as happened after Katrina, Red Cross officials told us they prefer to shelter people locally. In the four metro areas we visited, the Red Cross has identified shelter facilities and their maximum or potential capacities, as shown in table 7. Despite local and nationally available resources, the kinds of large-scale disasters for which estimates of need exist would greatly tax and exceed the Red Cross’s ability to provide sheltering. For example, for a major earthquake in a metropolitan area, DHS estimates that 313,000 people would need shelter, but in Los Angeles—a city prone to earthquakes— Red Cross officials told us they are capable of sheltering 84,000 people locally under optimal conditions. The Red Cross’s own analyses of other types of worst-case disaster scenarios also identified shortages in sheltering capacity in New York and Washington, D.C., as well. For example, for a nuclear terrorist attack in Washington, D.C., the Red Cross estimates that 150,000 people would need sheltering in the National Capital Region and identified a gap of over 100,000 shelter spaces after accounting for existing capabilities. The ability to build or strengthen sheltering capabilities depends on several elements, including the availability of trained personnel and supplies, the condition of shelter facilities, and the particular disaster scenario and location, among other things. Chief among these constraints, according to national and local Red Cross officials, is the shortage of trained volunteers. Red Cross officials said there are 17,000 volunteers and staff in the Red Cross’s national disaster services human resources program that have received extensive training in sheltering as of May 2008 and an additional 16,000 Red Cross workers trained in mass care that can be deployed across the country. However, local chapters are still expected to be self-sufficient for up to 5 days after a large-scale disaster occurs, while staff and volunteers are being mobilized nationwide. According to the Red Cross’s annual chapter assessments, personnel shortages limit the ability of all four chapters we visited to manage the local response beyond certain levels. In New York City, Red Cross officials noted that it has identified enough shelters to optimally accommodate more than 300,000 people, but that it has only enough personnel locally to simultaneously operate 25 shelters, for a total sheltering capability of 12,500 people. The Red Cross is working with its local chapters to develop action plans to address personnel shortages. For example, in New York, the Red Cross has set a goal of recruiting 10,000 additional volunteers—in addition to the 2,000 it had as of December 2007 to operate shelters—and plans to attract 850 new volunteers each quarter. In addition, supply chain and warehousing challenges affect the ability to maximize sheltering capabilities. According to Red Cross officials, it is not necessary to maintain large inventories of some supplies, such as blankets, if they can be quickly and easily purchased. However, obtaining other supplies such as cots requires a long lead time since they may need to be shipped from as far away as China, a fact that can be particularly problematic in no- notice events such as major earthquakes. While purchasing supplies as needed can reduce warehousing costs, this approach can also be affected by potential disruptions in the global supply chain, according to officials we spoke with. In DHS’s Catastrophic Incident Supplement, an underlying assumption is that substantial numbers of trained mass care specialists and managers will be required for an extended period of time to sustain mass care sheltering and feeding activities after a catastrophic disaster. In recognition of the need to increase the number of trained personnel to staff existing shelters, state and local governments in the four metropolitan areas we visited told us they are planning to train and use government employees to staff shelters in such large-scale disasters. For example, in New York City, the Office of Emergency Management is preparing to use trained city government employees and supplies to provide basic sheltering care for up to 600,000 residents in evacuation shelters. The city-run evacuation shelters would be located at schools for the first few days before and after a catastrophic hurricane. After this initial emergency plan is implemented, the city expects the Red Cross to step in and provide more comprehensive sheltering services to people who cannot return to their homes. As Red Cross officials told us, the New York City government is the only local organization with the potential manpower to staff all the available shelters, but the Red Cross will also provide additional personnel to help operate some of the city’s evacuation shelters and special medical needs shelters. As of November 2007, 22,000 New York City employees had received shelter training through a local university, with some additional training from the Red Cross. Similarly, in Los Angeles, as of January 2008, approximately 1,400 county employees had been trained in shelter management so far, and the Red Cross has set a goal to train 60,000 of the county’s 90,000 employees. In addition, state governments have resources, equipment, and trained personnel that can be mobilized to provide mass care, according to state and FEMA officials. States can also request additional resources from neighboring states through their mutual aid agreements. According to Red Cross and FEMA officials, in a catastrophic disaster, sheltering assistance would likely be provided from many sources, such as churches and other community organizations, as occurred in the aftermath of the Katrina hurricanes, and they also noted that such assistance was not part of any prepared or planned response. Although voluntary organizations’ feeding resources are also substantial, the feeding needs in a worst-case large-scale disaster would likely exceed the voluntary organizations’ current feeding capabilities for most metro areas in our review, according to government and Red Cross estimates of needs. In their feeding operations, voluntary organizations make use of mobile kitchens or canteens to offer hot meals and sandwiches, prepackaged meals known as meals-ready-to-eat (MRE), and hot and cold meals prepared by contracted private vendors. The Red Cross, The Salvation Army, and the Southern Baptist Convention have locally based resources for feeding disaster victims in the four metro areas we visited. For example, The Salvation Army and the Southern Baptist Convention have mobile kitchens stationed in close proximity to each of the four metro areas we visited. Some of these mobile kitchens are capable of producing up to 25,000 meals per day. The Red Cross also has feeding resources in these metro areas including prepackaged meals, vehicles equipped to deliver food, and contracts with local vendors to prepare meals. In addition, by mobilizing nationwide resources, such as mobile kitchens and prepackaged meals, the Red Cross reports that it currently has the capability, together with the Southern Baptist Convention, to provide about 1 million meals per day—about the maximum number of meals served per day during Katrina. Across the country, The Salvation Army has 697 mobile kitchens and other specialized vehicles and the Southern Baptist Convention has 117 mobile kitchens that can be dispatched to disaster sites, according to organization officials. Furthermore, Red Cross officials also said they have 6 million prepackaged meals stockpiled in warehouses across the country that can be quickly distributed in the first few days after a disaster, before mobile kitchens are fully deployed to the affected area. Red Cross officials also said that they can tap into additional food sources, such as catering contracts with food service providers, during prolonged response efforts. Despite these substantial resources nationwide, in a worst-case large-scale disaster, feeding needs would still greatly exceed the current capabilities of these voluntary organizations, according to government and Red Cross estimates of needs under different scenarios. For example, DHS estimates that feeding victims of a major earthquake would require approximately 1.5 million meals per day, but this need is considerably greater than the 1 million meals per day currently possible, leaving a shortfall of about 500,000 meals per day. According to state government estimates, the gap is even larger for other types of disaster scenarios. For example, according to Florida state estimates, a category IV hurricane could produce the need for 3 million meals per day, which is considerably greater than the 1 million meals per day that the Red Cross can provide. In addition, a nuclear terrorist attack in Washington, D.C., would require 300,000 meals per day more than the Red Cross’s current capabilities allow, according to the Red Cross’s internal assessments. The ability to build or strengthen feeding capabilities depends on the availability of trained personnel, equipment, and supplies. As with sheltering, some voluntary organization officials told us that the key constraint is the limited availability of trained personnel. Feeding services are a labor-intensive process. For example, Southern Baptist Convention officials said it takes a team of 50 trained people to operate a large mobile kitchen, and an additional 50 people are needed every 4 days because teams are rotated in and out of disaster sites. Southern Baptist Convention officials said that although they have 75,000 trained volunteers in their organization, there are still not enough trained volunteers, especially experienced team leaders. They said the shortage of experienced team leaders is particularly challenging because mobile kitchens cannot be deployed without a team leader. The voluntary organizations are addressing these personnel shortages by promoting training programs for new staff and volunteers and also utilizing additional unaffiliated, untrained volunteers who join during response efforts. For example, according to The Salvation Army, its national disaster training program has trained more than 16,000 personnel throughout the United States since 2005. In addition, supply disruptions are also a major concern in large- scale disasters because mobile kitchens and other feeding units need to be restocked with food and supplies in order to continue providing meals. Red Cross officials told us they are in the process of expanding their food supply by contracting with national vendors to provide additional meals during disasters. In addition, as previously mentioned, the Southern Baptist Convention faced problems resupplying its mobile kitchens during the response to Hurricane Katrina and has since taken steps to develop a supply chain management system with the Red Cross and The Salvation Army to minimize future logistical problems. In the four metro areas we visited, some state and local government officials we met with told us they are planning to fill these gaps in feeding services by contracting with private sector providers. In Florida, the state is planning to use private sector contractors to fill gaps in feeding services in preparation for a catastrophic hurricane. A Florida state official said obtaining and distributing the estimated 3 million meals per day that would be needed is a huge logistical challenge that would require the state to use 20 to 40 private vendors. In Washington, D.C., the emergency management officials said they are also establishing open contracts with private sector providers for additional prepackaged meals and other food supplies. As a result of FEMA’s new responsibilities under the Post-Katrina Act and its new role as the primary agency for mass care under the National Framework, FEMA officials have told us that the agency was working to identify additional resources for situations in which the mass care capabilities of government and voluntary organizations are exceeded. FEMA officials said that FEMA has developed contracts with private companies for mass care resources for situations in which the needs exceed federal capabilities. After Katrina, FEMA made four noncompetitive awards to companies for housing services. Since then, contracts for housing services have been let through a competitive process and broadened in scope so that if a disaster struck now they could also include facility assessment for shelters, facility rehabilitation—including making facilities accessible—feeding, security, and staffing shelters. According to the FEMA official in charge of these contracts, the contracts gave the federal government the option of purchasing the resources it needs in response to disasters. FEMA officials said, however, that they prefer using federal resources whenever possible because private sector contract services are more expensive than federal resources. FEMA also has a mass care unit that is responsible for coordinating ESF-6 partner agency activities and assessing state and local government shelter shortfalls. According to FEMA, the members of the mass care unit based in Washington, D.C., are composed of subject matter experts trained in various mass care operations, including sheltering. Mass care teams have been deployed to assist with sheltering operations, such as the California wildfires of 2007 and the Iowa floods of 2008. FEMA regional offices have also begun to hire staff dedicated to mass care. Shortages in trained personnel, identifying and dedicating financial resources for preparedness activities, and strengthening connections with government agencies continue to challenge the voluntary organizations in our study. Voluntary organizations in our review continue to face shortages in trained staff to work on preparing for future disasters, among other things, and volunteers to help provide mass care services, even though voluntary organizations and government agencies we met with made efforts to train additional personnel. Identifying and dedicating financial resources for disaster planning and preparedness become increasingly difficult as voluntary organizations also strive to meet competing demands. In addition, the level of involvement and interaction of voluntary organizations in disaster planning and coordination with government agencies is an ongoing challenge, even for the American Red Cross, which has recently changed the way it works with FEMA and state governments. The most commonly cited concern that voluntary organizations have about their capabilities is the shortage of trained staff or volunteers, particularly for disaster planning and preparedness, according to voluntary organization officials. State and local governments are primarily responsible for preparing their communities to manage disasters locally— through planning and coordination with other government agencies, voluntary organizations, and the private sector. However, voluntary organization officials we met with told us it was difficult for them to devote staff to disaster planning, preparedness activities, and coordination. At the national level, the Southern Baptist Convention and Catholic Charities USA maintained small staffs of one or two people that work on disaster preparedness and coordination, which they said made preparedness and coordination for large-scale disasters challenging. At the local level, we also heard that staff who were responsible for disaster planning for their organization had multiple roles and responsibilities, including coordinating with others involved in disaster response as well as daily responsibilities in other areas. This was particularly an issue for the faith-based organizations, such as The Salvation Army and the Southern Baptist Convention, for whom disaster response, while important, is generally ancillary to their primary mission. For example, in Florida the state Southern Baptist Convention has a designated staff member solely focused on disaster relief and recovery, but other state Southern Baptist Conventions expect disaster staff to split their time among other responsibilities, such as managing the men’s ministry, and generally do not have the time or ability to interact with the state emergency management agency, according to an official from the Florida Southern Baptist Convention. Similarly, a Salvation Army official in Miami commented that The Salvation Army could do more if they had a dedicated liaison employee to help with their local government responsibilities, including coordinating the provision of mass care services, which the organization provides in agreement with the local government. According to a national official from Catholic Charities USA, local Catholic Charities that provide disaster services usually have one employee to handle the disaster training and response operation, in addition to other responsibilities. While it would be ideal for all local Catholic Charities to have at least two or three employees trained in disaster response, she said, the organization currently does not have resources for this training. In New York and Los Angeles, officials from Catholic Charities confirmed that the lack of personnel capable of responding to disasters is an ongoing challenge for their organization. These shortages in trained staff affected the ability of some local voluntary organizations and VOADs we met with to develop and update business continuity and disaster response plans, according to officials from these organizations. In Los Angeles, an official from Catholic Charities told us that it does not have a disaster or continuity-of-operations plan tailored to the organization’s needs, because it does not have dedicated disaster staff to develop such plans. Voluntary organization officials in Miami emphasized the importance of having such continuity plans, because after Hurricanes Katrina and Wilma struck Florida in 2005, most of the local voluntary organizations in the area were unable to provide services due to damage from the storm. In addition, organizations and VOADs we visited said that they struggle to update their disaster response plans. For instance, in Los Angeles, an official from the local VOAD told us that the organization’s disaster response plan needed to be updated, but that the VOAD has not addressed this need because of staffing limitations. This official also told us the VOAD was planning to hire two full-time staff sometime in 2008 using federal pandemic influenza funds received through the county public health department. In addition, as mentioned earlier, voluntary organization officials both nationally and locally told us that they face a shortage of trained volunteers, which limits their ability to provide sheltering and feeding in large-scale, and especially catastrophic disasters. This continues to be an ongoing concern despite the efforts of voluntary organizations and government agencies to build a cadre of trained personnel. Identifying and dedicating funding for disaster preparedness is a challenge for voluntary organizations in light of competing priorities, such as meeting the immediate needs of disaster survivors. Officials from voluntary organizations in our review told us that they typically raised funds immediately following a disaster to directly provide services, rather than for disaster preparedness—or, for that matter, longer-term recovery efforts. Although the Red Cross raised more than $2 billion to shelter, feed, and provide aid to disaster survivors following Katrina, the Red Cross recently acknowledged that it is less realistic to expect public donations to fund its nationwide disaster capacity-building initiatives. Similarly, the biggest challenge for Catholic Charities USA is identifying funds for essential disaster training—a key aspect of preparedness, according to an official. At the local level, an official from Catholic Charities in New York noted also that incoming donations tend to focus on funding the initial disaster response. As we previously reported, vague language and narrowly focused definitions used by some voluntary organizations in their appeal for public donations following the September 11 attacks contributed to debates over how funds should be distributed, particularly between providing immediate cash assistance to survivors or services to meet short- and long-term needs. An indication of this continuing challenge is that officials from Catholic Charities in Washington, D.C., and New York reported that they are still working with September 11 disaster victims and communities, and that they struggle to raise funds for long- term recovery work in general. Besides public donations, while federal grant programs could provide another potential source of preparedness funding for voluntary organizations, local voluntary organization officials told us it was difficult to secure funding through these programs without support from the local government. Local voluntary organizations officials we met with said that federal funding for disaster preparedness, such as the Urban Area Security Initiative Grant Program, could be useful in helping their organization strengthen their capabilities. For example, such grants could be used to coordinate preparedness activities with FEMA and other disaster responders, better enable voluntary organizations to develop continuity of operations plans, and train staff and volunteers. However, although voluntary organizations are among those that play a role in the National Response Framework—especially in relation to ESF-6—these organizations received little to no federal funding through programs such as the Homeland Security Grant Programs, according to some local voluntary organization and VOAD officials we visited. Under most of these grants, states or local governments are the grant recipients, and other organizations such as police and fire departments can receive funds through the state or local governments. Of the local voluntary organizations and VOADs in our study, two Red Cross chapters received DHS funding in recent years, according to the Red Cross. In Los Angeles, Red Cross officials told us that the chapter had to be sponsored and supported by the local government in order to receive DHS funding for shelter equipment and supplies. While the director of FEMA’s grant office told us that FEMA considered voluntary organizations as among the eligible subgrantees for several preparedness grants under the Homeland Security Grant Program, the grant guidance does not state this explicitly. According to fiscal year 2008 grant guidance, a state-designated administrating agency is the only entity eligible to formally apply for these DHS funds. The state agency is required to obligate funds to local units of government and other designated recipients, but the grant guidance does not define what it means by “other designated recipient.” In addition, FEMA strongly encourages the timely obligation of funds from local units of government to other subgrantees, as appropriate, but possible subgrantees are not identified. State agencies have considerable latitude in determining how to spend funds received through the grant program and which organizations to provide funds to, according to the FEMA grant director. However, for fiscal year 2005, approximately two-thirds of Homeland Security Grant Program funds were dedicated to equipment—such as personal protective gear, chemical and biological detection kits, and satellite phones—according to DHS, while 18 percent were dedicated to planning activities. An official from FEMA’s grants office told us that following the September 11 attacks, the grant program focused on prevention and protection from terrorism incidents, but it has evolved since Katrina. According to this official, the fiscal year 2008 grant guidance encourages states to work with voluntary organizations, particularly for evacuations and catastrophic preparedness. Furthermore, this official said it is possible that DHS grant funding has not yet trickled down to local voluntary organizations. It is possible that the tendency of DHS funding programs to focus on equipment for prevention and protection rather than on preparedness and planning activities could also shift as states and localities put equipment and systems into place and turn to other aspects of preparedness. Local VOADs can play a key role in disaster preparation and response through interactions with local emergency management agencies of local governments, although the local VOADS in the areas we visited varied in their ability and approach to working with local governments on disasters. Like NVOAD, local VOADs are not service providers. Instead, like NVOAD nationally, local VOADs play an important role in coordinating response and facilitating relationship building in the voluntary sector at the local level, according to government officials. Generally, most of the voluntary organizations in the locations we visited were members of their local VOADs. Several local government emergency managers told us they relied on the local VOADs as a focal point to help them coordinate with many voluntary organizations during disasters. Some local VOADs in our review met regularly and were closely connected to the local governmental emergency management agency—including having seats at the local emergency operations centers. More specifically, the Red Cross was a member of the local VOADs in the areas we visited. It also directly coordinated with government agencies during a disaster and had a seat at the local emergency operations center in all four locations. In New York and Miami, The Salvation Army units were VOAD members and had seats as well. Other VOADs were less active and experienced and were not as closely linked to governmental response. In Washington, D.C., the local VOAD has struggled to maintain a network and continually convene since its inception, according to the current VOAD Chair. In Miami, a local VOAD member told us that the VOAD had little experience with large-scale disasters, because it re-formed after Hurricane Katrina and the area has not experienced major hurricanes since then. In addition, one of the local VOADs was tied to a local ESF-6 mass care operating unit, while others were more closely connected to an emergency function that managed unaffiliated volunteers and donations. The local VOAD in Los Angeles worked with the local government on ESF-6, issues while the VOADs in Miami and Washington, D.C., coordinated with government agencies through managing volunteers and donations during disasters. Currently, NVOAD has few resources to support state and local VOADs. NVOAD’s executive director told us that NVOAD plans to provide state and local VOADS with more support using Web-based tools and guidance, but these plans are hindered by a lack of funding to implement them. As we recently reported, NVOAD is limited in its ability to support its national voluntary organization members, and also lacks the staff or resources to support its affiliated state and local VOADs. Because of these limitations, we recommended that NVOAD assess members’ information needs, improve its communication strategies after disasters, and consider strategies for increasing staff support after disasters. NVOAD agreed with this recommendation and reported that the organization is looking to develop communications systems that take better advantage of current technologies. Since our previous report was issued, NVOAD has expanded its staff from two to four members, some of whom are working to build the collective capacity of state and local VOADs and providing training and technical assistance to state VOADs. At the federal level, although FEMA plays a central role in coordinating with voluntary organizations on mass care and other human services, its difficulties in coordinating activities with the voluntary sector due to staffing limitations were also noted in this earlier report. At the time of our report, FEMA only had one full-time employee in each FEMA region—a voluntary agency liaison—to coordinate activities between voluntary organizations and FEMA, and FEMA liaisons did not have training to assist them in fully preparing for their duties. In light of FEMA’s responsibilities for coordinating the activities of voluntary organizations in disasters under the National Framework, we recommended that FEMA take additional actions to enhance the capabilities of FEMA liaisons in order to fulfill this role. FEMA agreed with our recommendation; however, it is too early to assess the impact of any changes to enhance liaisons’ capabilities. Last, because of its current budget deficit, the Red Cross faces new challenges in fulfilling its ESF-6 role as a support agency. The Red Cross noted that it is working closely with its government partners in leadership positions to manage the transition, following its staffing reductions at FEMA’s regional offices and elsewhere and the subsequent realignment of staff responsibilities. The Red Cross reported that it will monitor the impact of these changes and make adjustments as needed. At the same time, as was previously mentioned, the Red Cross has also requested $10 million in federal funding to cover its staffing and other responsibilities under the ESF-6. According to FEMA officials, FEMA funded 10 regional positions to replace the Red Cross mass care planner positions that were terminated. FEMA also said that while it is too early to assess the long- term impact of these Red Cross staffing changes, FEMA was experiencing some hindrance to effective communications and limits on the Red Cross’s participation in planning at FEMA headquarters, regional offices, and field offices. Regarding the Red Cross strategy of relying on shared resources and volunteers instead of full-time dedicated staff in FEMA regional offices, FEMA officials noted that dedicated staff has proven to be a more reliable source for an ongoing relationship and interaction between agencies. They expressed concern that the lack of dedicated staff, frequent rotations, and inconsistent skill level of volunteers—used instead of full- time Red Cross staff—will hamper communications and may impede coordination efforts. These concerns are similar to the difficulties Red Cross ESF-6 staff faced during Katrina, as we noted in a previous review. Because the American Red Cross and other major voluntary organizations play such a vital role in providing mass care services during large-scale disasters, the importance of having a realistic understanding of their capabilities cannot be underestimated. FEMA has taken initial steps by having states assess their own capabilities and gaps in several critical areas and has completed an initial phase of this analysis. However, this broad assessment effort has yet to fully include the sheltering capabilities of many voluntary organizations and has not yet begun to address feeding capabilities outside of shelters. We understand that when a large-scale disaster strikes, some portion of mass care services will be provided by local voluntary organizations that did not specifically plan or prepare to do so, and that their capabilities cannot be assessed in advance. However, without more comprehensive data from voluntary sector organizations that expect to play a role, the federal government will have an incomplete picture of the mass care resources it could draw upon as well as of the gaps that it must be prepared to fill in large-scale and catastrophic disasters. Unless national assessments more fully capture the mass care capabilities of key providers, questions would remain about the nation’s ability to shelter and feed survivors, especially in another disaster on the scale of Katrina. To the extent that local, state, and federal governments rely on voluntary organizations to step in and care for massive numbers of affected people, the challenges these organizations face in preparing for and responding to rare—but potentially catastrophic—disasters are of national concern. Reliant on volunteers and donations, many of the organizations we visited said that federal grant funding could help them better prepare for and build capacity for large-scale disasters, because they struggle to raise private donations for this purpose. Federal grants, while finite, are available to assist in capacity building, and voluntary organizations can be among those who receive federal grant funds from states and localities, according to FEMA officials. However, most of the voluntary organizations in our review have not received such funding, although they told us it would be beneficial. While there are many competing demands and priorities for such funds, clearer grant guidance could at least ensure that those making grant decisions consider voluntary organizations and VOADs as among those able to be subgrantees under these grants. Unless voluntary organizations are able to strengthen their capabilities and address planning and coordination challenges, the nation as a whole will likely be less prepared for providing mass care services during a large- scale disaster. An additional area of concern is the expected role of the Red Cross in a catastrophic disaster of a scale that invokes the federal government’s Catastrophic Incident Supplement. As the experience with responding to Katrina showed, it is important to agree on roles and responsibilities, as well as have a clear understanding of operating procedures in the event of a catastrophic disaster. However, FEMA officials said they have not yet revised or updated the Supplement, as required under the Post-Katrina Reform Act, with the result that the mass care section of the Supplement still reflects Red Cross’s previous role as primary agency for mass care, and not its current role as a support agency under ESF-6. While both FEMA and the Red Cross told us they expected the Red Cross to play a support agency role in a catastrophic event—consistent with the ESF-6— unless this understanding is confirmed in writing and incorporated into federal planning documents for responding to a catastrophic event, the nature of that understanding cannot be transparent to the many parties involved in supporting mass care. Finally, while it is too early to assess the impact of the changes in how the American Red Cross expects to coordinate with FEMA in fulfilling its responsibilities under ESF-6, its capacity to coordinate with FEMA is critical to the nation’s mass care response in large-scale disasters. As a result, the continued implementation, evolution, and effect of these changes bear watching. In our recently released report (GAO-08-823), we made three recommendations to FEMA. First, to help ensure that the Catastrophic Incident Supplement reflects the American Red Cross’s current role under ESF-6 as a support agency for mass care, we recommended that the Secretary of Homeland Security direct the Administrator of FEMA to establish a time frame for updating the mass care section of the Supplement so that it is consistent with the changes in the ESF-6 under the new Framework, and no longer requires the Red Cross to direct federal government resources. In the meantime, FEMA should develop an interim agreement with the Red Cross to document the understanding they have on the Red Cross’s role and responsibilities in a catastrophic event. Second, to more fully capture the disaster capabilities of major voluntary organizations that provide mass care services, we recommended that the Secretary of Homeland Security direct the Administrator of FEMA to take steps to better incorporate these organizations’ capabilities into assessments of mass care capabilities, such as FEMA’s GAP Analysis, and to broaden its assessment to include feeding capabilities outside of shelters. Such steps might include soliciting the input of voluntary organizations, such as through NVOAD; integrating voluntary organization data on capabilities into FEMA’s analyses; and encouraging state governments to include voluntary mass care organization data in studies. Finally, to help these voluntary organizations better prepare for providing mass care in major and catastrophic disasters, we recommended that the Secretary of Homeland Security direct the Administrator of FEMA to clarify the Homeland Security Grant Program funding guidance for states so it is clear that voluntary organizations and local VOADs are among those eligible to be subgrantees under the program. In commenting on a draft of GAO-08-823, FEMA agreed with our recommendations on establishing a time frame for updating the role of the American Red Cross in the Catastrophic Incident Supplement and clarifying federal guidance to states on potential recipients of preparedness grants. However, FEMA criticized certain aspects of our methodology, asserting that the draft did not address the role of states in coordinating mass care. As stated in our objectives, the focus of the report, by design, was on voluntary organizations’ roles and capabilities in disaster response. While focusing on voluntary organizations, the report also acknowledges the disaster response role and responsibilities of governments—local, state, and federal—under the National Response Framework. Accordingly, we interviewed local, state, and federal government emergency management officials, as described in the more detailed description of our report’s methodology. FEMA also raised concerns about whether the voluntary organizations discussed in our report provided a comprehensive picture of mass care capabilities. However, our report does not attempt to address all the services and capabilities of the voluntary sector but acknowledges that other voluntary organizations also provide mass care and other services. It also includes the caveat that we do not attempt to assess the total disaster response capabilities in any single location we visited. FEMA also disagreed with our recommendation to better incorporate voluntary organizations’ capabilities in assessments because the government cannot command and control private sector resources. However, FEMA is required under the Post-Katrina Act to establish a comprehensive assessment system to assess the nation’s prevention capabilities and overall preparedness. A comprehensive assessment of the nation’s capabilities should account as fully as possible for voluntary organizations’ capabilities in mass care. Assessing capabilities more fully does not require controlling these resources but rather cooperatively obtaining and sharing information. Without such an assessment, the government will have an incomplete picture of the mass care resources it can draw upon in large-scale disasters. In its comments, FEMA also asserted that our report incorrectly assumes that if funding was made available, it would enable voluntary organizations to shelter and care for people in catastrophic events. However, we discuss potential federal funding in relation to voluntary organizations’ preparedness and planning activities, not direct services. As noted in the report, such funding could be used to strengthen voluntary organizations’ disaster preparedness, such as coordination with FEMA, training of personnel, and developing continuity of operations plans. FEMA also provided some technical clarifications, which we incorporated as appropriate. The American Red Cross, in comments on a draft of GAO-08-823, further explained its role in providing post-evacuation sheltering under New York City’s coastal storm plan and provided technical clarifications. We added information as appropriate to further clarify the American Red Cross’s role in providing sheltering in New York City. We also provided excerpts of the draft report, as appropriate, to The Salvation Army, the Southern Baptist Convention, Catholic Charities USA, and NVOAD. The American Red Cross, The Salvation Army, and NVOAD all provided us with technical comments, which we incorporated as appropriate. Madam Chair, this concludes my remarks. I would be happy to answer any questions that you or other members of the subcommittee may have. For further information, please contact, Cynthia M. Fagnoni, Managing Director, (202) 512-7215 or fagnonic@gao.gov. Also contributing to this statement were Gale C. Harris, Deborah A. Signer, and William W. Colvin. We designed our study to provide information on (1) what the roles of major national voluntary organizations are in providing mass care and other human services in response to large-scale disasters requiring federal assistance, (2) what steps these organizations have taken since Katrina to strengthen their capacity for service delivery, (3) what is known about these organizations’ current capabilities for responding to mass care needs in such a large-scale disaster, and (4) what the remaining challenges are that confront voluntary organizations in preparing for such large-scale disasters. We focused our review on the following five major voluntary organizations based on their contributions during Hurricane Katrina and congressional interest: the American Red Cross, The Salvation Army, the Southern Baptist Convention, Catholic Charities USA, and the United Way of America. Since the United Way of America does not provide direct services in disasters, we did not include it in our analysis of recent improvements to service delivery, response capabilities, and remaining challenges. For our review of voluntary organizations’ response capabilities, we limited our focus to the three organizations in our study that provide mass care services: the Red Cross, The Salvation Army, and the Southern Baptist Convention. To obtain information for all of the objectives, we used several methodologies: we reviewed federal and voluntary organization documents; reviewed relevant laws; interviewed local, state, and federal government and voluntary agency officials; conducted site visits to four selected metropolitan areas; and collected data on the voluntary organizations’ capabilities. We reviewed governmental and voluntary organization documents to obtain information on the role of voluntary organizations, recent improvements to service delivery, response capabilities, and remaining challenges. To obtain an understanding of the federal disaster management framework, we reviewed key documents, such as the 2008 National Response Framework, the Emergency Support Function 6—Mass Care, Emergency Assistance, Housing, and Human Services Annex (ESF- 6), the 2006 Catastrophic Incident Supplement, and the 2007 National Preparedness Guidelines, which collectively describe the federal coordination of mass care and other human services. We also reviewed pertinent laws, including the Post-Katrina Emergency Management Reform Act of October 2006. In addition, we reviewed documents for each of the five voluntary organizations in our review, which describe their roles in disasters and explained their organizational response structures. These documents included mission statements, disaster response plans, and statements of understanding with government agencies and other voluntary organizations. We also reviewed key reports written by federal agencies, Congress, voluntary organizations, policy institutes, and GAO to identify lessons learned from the response to Hurricane Katrina and steps voluntary organizations have taken since then to improve service delivery. We interviewed federal government and national voluntary organization officials to obtain information on the role of voluntary organizations, recent improvements to service delivery, response capabilities, and remaining challenges. At the federal level, we interviewed officials from the Federal Emergency Management Agency (FEMA) in the ESF-6 Mass Care Unit, the FEMA Grants Office, and the Disaster Operations Directorate. We also interviewed the executive director of the National Voluntary Organizations Active in Disaster (NVOAD). We interviewed these officials regarding the role of the voluntary organizations in disaster response, grants and funding offered to voluntary organizations, voluntary organization and government logistics in disasters, assessments of capabilities, and the types of interactions each of them has with the organizations from our review. We also interviewed national voluntary organization officials from the five organizations in our review about the roles of their organizations in disaster response, improvements the organizations had made to coordination and service delivery since Hurricane Katrina, their organizations’ capabilities to respond to disasters, and what remaining challenges exist for the organizations in disaster response. We visited four metropolitan areas—Washington, D.C.; New York, New York; Miami, Florida; and Los Angeles, California—to review the roles, response structures, improvements to service delivery, response capabilities, and challenges that remain for the selected voluntary organizations’ in these local areas. We selected these metropolitan areas based on their recent experiences with disaster, such as September 11; their potential risk for large-scale disasters; and the size of their allotments through the federal Urban Areas Security Initiative grant program. The metropolitan areas that we selected also represent four of the six urban areas of the country considered most at risk for terrorism under the 2007 Urban Areas Security Initiative. During our visits to the four metropolitan areas, we interviewed officials from the five voluntary organizations, local and state government emergency management agency officials, the heads of the local Voluntary Organizations Active in Disaster (VOAD), and FEMA’s regionally based liaisons to the voluntary sector, known as voluntary agency liaisons (VAL). During our interviews, we asked about the roles and response structures of voluntary organizations in disaster response, improvements the organizations had made to coordination and service delivery since Hurricane Katrina, the organizations’ capabilities to respond to disasters, and what challenges exist for the organizations in disaster response. To review voluntary organizations’ sheltering and feeding capabilities, we collected data through interviews and written responses from the three organizations in our study that provide mass care: the Red Cross, The Salvation Army, and the Southern Baptist Convention. By capabilities we mean the means to accomplish a mission or function under specified conditions to target levels of performance, as defined in the federal government’s National Preparedness Guidelines. We collected data on both their nationwide capabilities and their locally based capabilities in each of the four metropolitan areas we visited. To obtain capabilities data in a uniform manner, we requested written responses to questions about sheltering and feeding capabilities from these organizations in the localities we visited, and in many of these responses, voluntary organizations described how they derived their data. For example, to collect data on feeding capabilities, we asked voluntary organization officials how many mobile kitchens they have and how many meals per day they are capable of providing. To assess the reliability of the capability data provided by the voluntary organizations, we reviewed relevant documents and interviewed officials knowledgeable about the data. However, we did not directly test the reliability of these data because the gaps between capabilities and estimated needs were so large that greater precision would not change this underlying finding. It was also not within the scope of our work to review the voluntary organizations’ systems of internal controls for data on their resources and capabilities. To identify potential needs for mass care services, we used available estimates for catastrophic disaster scenarios in each of the selected metropolitan areas: Washington, D.C.—terrorism; New York, New York— hurricane; Miami, Florida—hurricane; and Los Angeles, California— earthquake. We reviewed federal, state, and Red Cross estimates of sheltering and feeding needs resulting from these potential catastrophic disasters: Federal catastrophic estimates—We reviewed the earthquake estimates from the Target Capabilities List that were developed by the Department of Homeland Security (DHS) after an in-depth analysis of the Major Earthquake scenario in the National Planning Scenarios. The National Planning Scenarios were developed by the Homeland Security Council–-in partnership with the Department of Homeland Security, other federal departments and agencies, and state and local homeland security agencies. The scenario assumes a 7.2 magnitude earthquake with a subsequent 8.0 earthquake occurs along a fault zone in a major metropolitan area with a population of approximately 10 million people, which is approximately the population of Los Angeles County. State catastrophic estimates—We reviewed catastrophic hurricane estimates from the Florida Division of Emergency Management’s Hurricane Ono planning project. The project assumes a Category V hurricane making landfall in South Florida, which has a population of nearly 7 million people. Red Cross catastrophic estimates—We reviewed catastrophic estimates from the Red Cross’s risk-based capacity building initiative. To develop these estimates, the Red Cross worked with state and local officials and other disaster experts to develop “worst case” disaster scenarios in six high-risk areas of the country, including the four metropolitan areas in our study. The scenarios for these four metropolitan areas were: a 7.2 to 7.5 magnitude earthquake in Southern California; a chemical, biological, radiological, nuclear, or major explosion terrorist attack in the Washington, D.C. region; a Category III/IV hurricane in the New York metropolitan area; and a Category V hurricane in the Gulf Coast. To identify general findings about nationwide preparedness, we compared the capabilities data provided by the voluntary organizations to these catastrophic disaster estimates. We did not attempt to assess the total disaster response capabilities in any single location that we visited or the efficacy of any responses to particular scenarios, such as major earthquakes versus hurricanes. We conducted this performance audit from August 2007 to September 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Voluntary Organizations: FEMA Should More Fully Assess Organizations’ Mass Care Capabilities and Update the Red Cross Role in Catastrophic Events. GAO-08-823. Washington, D.C.: September 18, 2008. Emergency Management: Observations on DHS’s Preparedness for Catastrophic Disasters. GAO-08-868T. Washington, D.C.: July 11, 2008. Homeland Security: DHS Improved its Risk-Based Grant Programs’ Allocation and Management Methods, but Measuring Programs’ Impact on National Capabilities Remains a Challenge. GAO-08-488T. Washington, D.C.: March 11, 2008. National Disaster Response: FEMA Should Take Action to Improve Capacity and Coordination between Government and Voluntary Sectors. GAO-08-369. Washington, D.C: February 27, 2008. Homeland Security: Observations on DHS and FEMA Efforts to Prepare for and Respond to Major and Catastrophic Disasters and Address Related Recommendations and Legislation. GAO-07-1142T. Washington, D.C.: July 31, 2007. Emergency Management: Most School Districts Have Developed Emergency Management Plans, but Would Benefit from Additional Federal Guidance. GAO-07-609. Washington, D.C.: June 12, 2007. Homeland Security: Preparing for and Responding to Disasters. GAO-07-395T. Washington, D.C.: March 9, 2007. Disaster Assistance: Better Planning Needed for Housing Victims of Catastrophic Disasters. GAO-07-88. February 2007. Catastrophic Disasters: Enhanced Leadership, Capabilities, and Accountability Controls Will Improve the Effectiveness of the Nation’s Preparedness, Response, and Recovery Systems. GAO-06-618. Washington, D.C.: September 2006. Hurricanes Katrina and Rita: Coordination between FEMA and the Red Cross Should Be Improved for the 2006 Hurricane Season. GAO-06-712. June 8, 2006. Homeland Security Assistance for Nonprofits: Department of Homeland Security Delegated Selection of Nonprofits to Selected States and States Used a Variety of Approaches to Determine Awards. GAO-06-663R. Washington, D.C.: May 23, 2006. Hurricane Katrina: GAO’s Preliminary Observations Regarding Preparedness, Response, and Recovery. GAO-06-442T. Washington, D.C.: March 8, 2006. Emergency Preparedness and Response: Some Issues and Challenges Associated with Major Emergency Incidents. GAO-06-467T. Washington, D.C.: February 23, 2006. Statement by Comptroller General David M. Walker on GAO’s Preliminary Observations Regarding Preparedness and Response to Hurricanes Katrina and Rita. GAO-06-365R. Washington, D.C.: February 1, 2006. Hurricanes Katrina and Rita: Provision of Charitable Assistance. GAO-06-297T. Washington, D.C.: December 13, 2005. September 11: More Effective Collaboration Could Enhance Charitable Organizations’ Contributions in Disasters. GAO-03-259.Washington, D.C.: December 19, 2002.	Voluntary organizations have traditionally played a major role in the nation's response to disasters, but the response to Hurricane Katrina raised concerns about their ability to handle large-scale disasters. This testimony examines (1) the roles of five voluntary organizations in providing mass care and other services, (2) the steps they have taken to improve service delivery, (3) their current capabilities for responding to mass care needs, and (4) the challenges they face in preparing for large-scale disasters. This testimony is based on GAO's previous report (GAO-08-823) that reviewed the American Red Cross, The Salvation Army, the Southern Baptist Convention, Catholic Charities USA, and United Way of America; interviewed officials from these organizations and the Federal Emergency Management Agency (FEMA); reviewed data and laws; and visited four high-risk metro areas--Los Angeles, Miami, New York, and Washington, D.C. The five voluntary organizations we reviewed are highly diverse in their focus and response structures. They also constitute a major source of the nation's mass care and related disaster services and are integrated into the 2008 National Response Framework. The Red Cross in particular--the only one whose core mission is disaster response--has a federally designated support role to government under the mass care provision of this Framework. While the Red Cross no longer serves as the primary agency for coordinating government mass care services--as under the earlier 2004 National Plan--it is expected to support FEMA by providing staff and expertise, among other things. FEMA and the Red Cross agree on the Red Cross's role in a catastrophic disaster, but it is not clearly documented. While FEMA recognized the need to update the 2006 Catastrophic Incident Supplement to conform with the Framework, it does not yet have a time frame for doing so. Since Katrina, the organizations we studied have taken steps to strengthen their service delivery by expanding coverage and upgrading their logistical and communications systems. The Red Cross, in particular, is realigning its regional chapters to better support its local chapters and improve efficiency and establishing new partnerships with local community-based organizations. Most recently, however, a budget shortfall has prompted the organization to reduce staff and alter its approach to supporting FEMA and state emergency management agencies. While Red Cross officials maintain that these changes will not affect improvements to its mass care service infrastructure, it has also recently requested federal funding for its governmental responsibilities. Capabilities assessments are preliminary, but current evidence suggests that in a worst-case large-scale disaster, the projected need for mass care services would far exceed the capabilities of these voluntary organizations without government and other assistance--despite voluntary organizations' substantial resources locally and nationally. Voluntary organizations also faced shortages in trained volunteers, as well as other limitations that affected their mass care capabilities. Meanwhile, FEMA's initial assessment does not necessarily include the sheltering capabilities of many voluntary organizations and does not yet address feeding capabilities outside of shelters. In addition, the ability to assess mass care capabilities and coordinate in disasters is currently hindered by a lack of standard terminology and measures for mass care resources, and efforts are under way to develop such standards. Finding and training more personnel, dedicating more resources to preparedness, and working more closely with local governments are ongoing challenges for voluntary organizations. A shortage of staff and volunteers was most commonly cited, but we also found they had difficulty seeking and dedicating funds for preparedness, in part because of competing priorities. However, the guidance for FEMA preparedness grants to states and localities was also not sufficiently explicit with regard to using such funds to support the efforts of voluntary organizations.	17.1	16k+	417
49	Sponsors of defined benefit pension plans are responsible for managing the financial risks associated with their plans’ general administration. Such risks can include fluctuations in the value of plan assets and in interest rates, either of which can cause volatility in the plan’s funded status and plan contributions. This type of volatility has been exacerbated by recent fluctuations in the national economy, while a 2006 accounting standard change caused pension funding status to take a more prominent role on private sector plan sponsors’ balance sheets, making such volatility more visible.sponsors have chosen to lessen their exposure to such financial risks by shifting away from defined benefit plans and choosing to offer or emphasize defined contribution plans, such as 401(k) plans, whereby the Over the past several decades, many various risks are borne by the participants whose sustainable retirement income will depend on factors such as the participants’ contribution decisions, the investment returns on their personal accounts, their spend- down decisions in retirement, and their longevity. Likewise, sponsors who have chosen to retain their defined benefit plans have taken steps to reduce their plans’ financial risks by other means. In some cases, these steps have also resulted in the transfer of risk to participants. The steps sponsors can take to limit the financial risks they see posed by their plans are commonly referred to as pension “de-risking.” Broadly speaking, de-risking actions can be divided into two groups, internal and external methods. Internal methods of de-risking—although beyond the scope of our study—allow the plan sponsor to reduce risk without directly removing liabilities, or participants, from the plan. These methods may include restricting plan participation or modifying the benefit formula to reduce future benefit accruals. They may also include adjustments to the allocation of plan assets, such as by liability-driven investing. This may involve shifting away from equities and toward fixed income securities that match the duration of plan liabilities in order to shield the plan from risks associated with market fluctuations in both stock market values and interest rates. Although these internal methods allow sponsors to mitigate some of the risks associated with their plans, the existing liabilities remain in the plans and, as a result, continue to expose sponsors to certain remaining risks. For example, plan sponsors continue to be subject to the longevity risk of plan participants living longer than anticipated. External approaches, on the other hand, involve permanently removing a portion of pension liabilities from the plan, discharging the obligation to pay a lifetime annuity to plan participants. Two of these approaches can be appropriately termed “risk transfers” because the risks of providing pension income or managing pension assets are essentially transferred to another party outside the plan. One form of risk transfer—also beyond the scope of our study—is the purchase of a “buy-out” group annuity, whereby plan assets are transferred to an insurance company that then assumes the responsibility for making pension benefit payments to participants removed from the plan. When a sponsor implements an annuity buyout, the risks associated with providing promised pension benefits are shifted from the plan sponsor to the insurer. In 2012, two large plan sponsors, General Motors and Verizon, purchased group annuities from Prudential Insurance Company involving the transfer of a reported $32.6 billion in plan liabilities. A second form of risk transfer is a “lump sum window” offer—the form of risk transfer that is the focus of our study. Any lump sum window offer must satisfy applicable requirements under the Internal Revenue Code. In a lump sum window offer, the participant is offered a choice between three optional forms of his or her benefits accrued to date. Generally, the participants who are given the offer will be separated participants— participants no longer employed by the sponsor—waiting for their pension annuity to begin in the future, or retirees already receiving their pension annuity payments. The three options are as follows: 1. Annuity at normal retirement age (or current annuity) – In the case of a separated participant not yet in pay status, this is their lifetime annuity promised under the plan that would begin at a future date, often age 65. In the case of a retiree in pay status, it is the lifetime annuity they are currently receiving. 2. Immediate annuity (or alternate annuity) – In the case of a separated participant not yet in pay status, this is their lifetime annuity promised under the plan, with payments beginning at the time of the lump sum offer rather than at their normal retirement age. The payments are reduced by a specified factor to account for the earlier commencement of benefits. In the case of a retiree in pay status, it is the lifetime annuity they are currently receiving, but they may have the option of changing to another form of benefit offered under the plan. 3. Lump sum – In the case of both a separated participant not yet in pay status or a retiree in pay status, this is the actuarial equivalent of the remaining expected payments of their lifetime annuity, given to them in a single immediate payment. The participant then has a limited amount of time, or window, to choose between the three options. When participants elect to receive their benefit as a lump sum, the risks involved in providing retirement income are thus transferred from the sponsor to the participants. ERISA establishes protections for plan participants and their beneficiaries, and sets minimum funding standards for pension plans that are sponsored by private employers, among other provisions. One broad protection offered by ERISA is the requirement that sponsors be subject to fiduciary standards in their management and administration of the plan. As fiduciaries under ERISA, sponsors are required to administer the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and defraying plan expenses. However, some functions, such as those related to establishing a plan and choosing its design features, are considered settlor functions that are not subject to ERISA’s fiduciary standards. For example, a sponsor’s decision to take risk transfer actions, such as offering a lump sum window, is a matter of plan design, generally making it a settlor function rather than a fiduciary function. However, once the sponsor embarks on implementation of the strategy, such action would fall within the realm of its fiduciary role, requiring the sponsor to operate in the best interest of participants and beneficiaries. The administration of ERISA is divided among three federal agencies: the Department of Labor (DOL), the Department of the Treasury (specifically the Internal Revenue Service ), and the Pension Benefit Guaranty Corporation (PBGC). DOL takes primary responsibility for ERISA reporting and disclosure requirements. In addition, DOL promulgates regulations and produces guidance related to reporting and disclosure. Within DOL, the mission of the Employee Benefits Security Administration (EBSA) includes efforts to ensure the security of Americans’ retirement benefits by assisting and educating plan participants, plan sponsors, service providers, and fiduciaries. To that end, EBSA develops regulations and enforces the law, including ERISA’s fiduciary standards. As GAO has reported previously, certain disclosures are specifically required to be written in a manner calculated to be understood by the average participant, and for disclosures that do not include such a requirement, DOL officials have noted that ERISA’s basic fiduciary standards require that fiduciaries consider how understandable the disclosures are. ERISA also created the ERISA Advisory Council to advise the Secretary of Labor. The council has carried out its role by studying testimony and deliberating on various topics and submitting recommendations regarding the Secretary’s functions under ERISA. Due to the recent heightened interest in risk transfers and their perceived increase in popularity, the council held hearings in 2013 exclusively focused on such actions and the effects they may have on plan participants.summarizing the hearings, the council observed that there had been an increased level of activity by sponsors to reduce or eliminate the risks associated with their pension plan liabilities and concluded with several recommendations to DOL. For example, the council recommended that disclosures associated with lump sum windows include information which In its final report enables a participant to make an informed decision. In addition, the council recommended DOL consider collecting relevant information at the time sponsors take risk transfer actions. For its part, the IRS determines whether private sector pension plans qualify for preferential tax treatment under the Internal Revenue Code. Qualified pension plans receive favorable tax treatment, generally including the deferral of taxes on contributions and investment earnings until benefits are received. To be qualified, a plan must meet a number of requirements. Plan sponsors can request a determination letter that addresses the qualified status of the plan. In addition, a plan sponsor can request that the IRS address a unique issue requiring immediate guidance that is not likely to be provided through the determination letter process. If the IRS determines that it is in the interest of good tax administration to respond to this request, its response, known as a private letter ruling, will interpret and apply tax laws to the sponsor’s represented set of facts. By law, this specific ruling may not be used or cited as precedent by other taxpayers or by IRS personnel. Also, to protect the value of each participant’s pension benefit, the Internal Revenue Code prescribes the interest rate and mortality table that the sponsor must use to calculate the minimum amount of any lump sum option. A plan may pay a larger lump sum, but it may not pay less than this prescribed minimum. Further, sponsors are required to provide several specific pieces of information to the participant as part of the offer. For example, sponsors, when distributing pension benefits in any form, are required to provide notices to participants detailing tax implications, rollover options, and a description of the financial effect of electing an optional form of benefit. As part of this description, the participant must receive a statement comparing the relative value of the new form of benefit to their original benefit. For instance, when an optional lump sum would replace a monthly annuity, participants must be shown how the lump sum compares to the value of that annuity. Also, in order to receive the benefit in a form other than an annuity, such as a lump sum, the participant (and if married, the spouse) must receive and sign a waiver consenting to this alternative form of payment. The PBGC, also established by ERISA, acts as an insurer of private- sector defined benefit pension plans by guaranteeing participants’ benefits up to certain statutory limits. In the case of covered single- employer plans, PBGC protects participants if the plan terminates with insufficient assets to pay all benefits, such as in the bankruptcy of a plan sponsor with an underfunded plan. Under ERISA, plan sponsors pay premiums to PBGC to help fund its guarantees. The law currently requires sponsors to pay both a per-participant flat rate premium and a variable rate premium based on the plan’s level of underfunding. PBGC also collects a termination premium from sponsors who terminate their plans under certain criteria. In both the case of a sponsor’s buyout through a group annuity purchase and the case of a participant’s acceptance of a lump sum payment, the participant loses the protections of ERISA and the guarantees offered by PBGC. Group annuities provided by an insurance company are guaranteed by state benefit guaranty associations up to certain levels established by the state. Lump sum payments carry no guarantees with respect to the amount and duration of future retirement income they may ultimately provide. Data are lacking about the prevalence of lump sum windows, as there are no requirements that sponsors report when they use this practice. However, experts in the field of retirement pensions, including DOL’s ERISA Advisory Council, generally maintain that since 2012 an increasing number of sponsors have used lump sum window offers to shed plan liabilities. The offers we identified included offers made to separated vested participants not yet receiving benefits, as well as offers targeted to retirees who were already receiving benefit payments. While lump sum windows have the effect of reducing the size of sponsors’ pension plans, thereby reducing sponsors’ financial risk, the recent reported increase in use may reflect enhanced financial cost-saving incentives for such actions. These include changing federal laws and regulations governing the interest rates and mortality tables used to calculate lump sums, and those affecting PBGC premium rates. Likewise, other longstanding rules may also serve as incentives to act. Sponsors must also take into account their unique business circumstances and certain disincentives associated with lump sum windows. Comprehensive data on the details and the number of lump sum window offers are not publicly available. Although DOL takes primary responsibility for ERISA reporting requirements, neither it nor the other two agencies that oversee ERISA provisions, IRS and PBGC, are required to track or compile comprehensive data on such offers. As a result, the information currently required to be reported by sponsors when they implement lump sum windows is insufficient to provide a complete picture of the extent of the practice. For example, whenever lump sums are paid out from a pension fund, the sponsor is required to report the payout to IRS.associated with a lump sum window from other types of payouts from pension funds, such as monthly annuity payments. In addition, some However, such reporting does not distinguish payouts sponsors may choose to disclose limited information about lump sum window offers within their annual corporate reports and some may do so as part of periodic filings to the SEC. However, absent more specific requirements to report on lump sum window offers, meaningful data on the extent of their use do not exist. Nevertheless, pension experts generally agree that sponsors’ use of lump sum windows has become more frequent in recent years. In summarizing its 2013 hearings on pension de-risking, the ERISA Advisory Council concluded that the testimony they had heard served to confirm that risk transfer actions, such as lump sum windows, are on the rise. Studies cited by leading pension consulting firms, albeit without full disclosure of their data and study methods, have furthered this perception. Citing proprietary data, one firm has estimated that nearly 200 sponsors implemented lump sum windows during 2012. That firm reported that its survey of 180 plan sponsors found that 26 percent had implemented a lump sum window in 2012, and another 41 percent were in the process of, or considering, taking such action between 2013 and 2015. Another firm reported that its study indicated that of 223 sponsors surveyed, 12 percent had recently implemented a lump sum window. Of the remaining sponsors, 43 percent were reported to have said they were very or somewhat likely to do so in 2014. We based our analysis on publically available information from a variety of sources, including information collected from PBGC, a participant advocacy group, SEC filings, corporate reports, and media reports. We verified this information to the extent possible. In October 2014, PBGC informed us, based on limited sources of information, that they were aware of at least 17 additional lump sum windows announced by sponsors during 2013 and 2014. However, we were not able to verify this information before the publication of this report. time, these 22 cases alone involved offers to approximately 498,000 participants. Public data on the dollar amount of lump sums paid were limited, but for the 16 sponsors providing this information, we found the total payouts to be just over $9.25 billion in 2012. Based on its study of lump sum windows completed during 2012, a pension consulting firm reported acceptance rates ranging between 25 and 85 percent, with a majority being between 45 and 65 percent. Most (19 of 22) of the lump sum windows we identified only targeted participants who were not yet receiving their retirement annuity. However, three of the actions involved lump sums being offered to retired participants who had already begun receiving annuity payments. According to many pension experts, the lump sum windows implemented by Ford Motor Company and General Motors Company in 2012 could be viewed as a new approach to the practice, as they were reported to be the first known instances of lump sum offers to retirees in payment status rather than to separated vested participants not yet retired. Prior to implementation, it was also widely reported that both sponsors had requested and obtained IRS private letter rulings stating that their actions would “not fail to satisfy” certain provisions of the Internal Revenue Code. According to the letters, one important question was whether such lump sums would violate existing rules governing the amount and benefit payment period. In both private letter rulings, IRS concluded that such actions were permissible because the lump sum option was being offered pursuant to a plan amendment and only during a limited window period. Substantial financial advantages exist for plan sponsors considering implementing lump sum windows. In general, sponsors’ use of lump sum windows reduces the size of their pension plans, which can result in reduced financial volatility for the sponsor’s cash flow, income statement, and balance sheet, as well as reduced administrative burden and costs. However, changing federal laws and regulations concerning interest rates, mortality tables, and PBGC premiums may be providing additional cost-saving incentives for more plan sponsors to offer lump sums to their plans’ participants in recent years. Moreover, certain longstanding rules can also afford savings to sponsors by allowing them to offer lower lump sums by choosing an advantageous interest rate and excluding certain additional plan benefits, such as early retirement subsidies, when calculating lump sums. Lump sum windows also offer sponsors an opportunity to reduce oversized plan liabilities, such as in cases where the pension plan is large relative to the size of the plan sponsor’s business. They also offer sponsors an opportunity to target specific groups of individuals, such as vested terminated participants who may have had no prior relationship to the plan sponsor because they were in a plan that had been taken over as part of a merger or acquisition deal. At the same time, implementation of lump sum windows also involves costs. Sponsors have to weigh both the incentives and disincentives before taking such actions in order to determine if implementing a lump sum window addresses their unique business goals in a cost-effective manner. The federal laws and regulations regarding how lump sums are calculated have been changing in recent years. From the sponsor’s perspective, these changes make it more advantageous to implement a lump sum window at this time. Rules concerning interest rates have become more favorable, making it more advantageous to implement a lump sum window now and in the future than it was in the past. Impending changes to mortality tables provide an incentive to implement a lump sum window now to realize a potential financial cost-savings, an opportunity that will likely disappear when new mortality tables are adopted. Rising PBGC premiums also provide an ongoing and rising incentive for some plan sponsors to remove liabilities from the plan via a lump sum window or some other means. Switch to More Favorable Interest Rates Recent changes to the rules regarding how lump sums are calculated allow the use of interest rates that can result in lower lump sums for participants, which would be advantageous to plan sponsors trying to minimize the cost of implementing a lump sum window offer. Prior to enactment of the Pension Protection Act of 2006 (PPA), sponsors were required to calculate lump sums using interest rates on 30-year Treasury bonds. Since PPA, sponsors have been allowed to use generally higher corporate bond interest rates, which can serve to lower the amount of the lump sums offered to many participants. A consulting firm estimated that, because of the general reduction in lump sum amounts resulting from this rule change, one of their client sponsors paying out $40 million in lump sums could potentially save about $10 million due to the switch to the higher rates. The PPA switch from Treasury bond rates to corporate bond rates became fully effective in 2012, and some experts believe that this timing may partly explain the reported recent increase in risk transfers since 2012. Illustration of How PPA Rules on Interest Rates Can Affect Lump Sums Bob is 45, has a lifetime deferred retirement pension of $10,000 a year starting at age 65, and was offered a lump sum in October 2012. Prior to PPA, Bob’s immediate lump sum would have been $62,643, calculated based on a 30-year Treasury interest rate of 3.65 percent. After PPA, Bob’s immediate lump sum is $32,453, calculated based on a corporate bond interest rate of 6.02 percent, or 48 percent less than it would have been under rules prior to PPA. In addition, the Moving Ahead for Progress in the 21st Century Act (MAP- 21) allowed more sponsors to take advantage of this rule change by temporarily raising the interest rates that can be used to value plan liabilities, significantly improving many plans’ reported funded status, which in turn allowed more plan sponsors to consider offering lump-sum payouts. The mortality tables which sponsors must use in determining minimum lump sum amounts provide another incentive to conduct a lump sum window at this time. This is because the tables currently required for this purpose under IRS regulations do not reflect the accelerated rate of longevity improvements that have occurred in recent years. These longevity improvements have been reflected in updated mortality tables recently released by the Society of Actuaries (SOA) and they are expected to be adopted by IRS for lump sum calculations, but possibly not until 2016. The new SOA tables reflect a longer life expectancy for individuals, and when used to calculate lump sums will yield correspondingly larger lump sum amounts. Thus, sponsors making lump sum offers prior to IRS’s anticipated adoption of the new tables can realize substantial financial savings since their lump sum calculations will still be based on older tables. According to SOA, the new mortality tables reflect a 10.4 to 11.3 percent longer life expectancy for individuals age 65 in 2014—increases that could translate into lump sums that are markedly greater than those based on the current tables used for 2014 lump sum calculations. Therefore, sponsors with lump sum payouts exceeding, for example, $100 million could potentially save millions of dollars by taking action before the adoption of new mortality tables, all other factors remaining the same. Prior to SOA’s release of the new tables, in August 2013, IRS announced that the currently required tables will continue to be used for the calculation of minimum lump sum payments in 2014 and 2015, and IRS officials we interviewed said there is currently no timetable for when it will adopt new tables. They said nothing precludes IRS from adopting new tables prior to 2016, but they said it will not occur until the agency completes its issuance process. Several pension experts are of the opinion that the switch is not likely to occur until at least 2016. Until then, sponsors can continue to use the current mortality tables and generate relatively lower lump sums, providing a window of opportunity to implement a lump sum window at lower cost than in the future. Illustration of How Use of Current versus New Mortality Tables Can Affect Lump Sums Jane is 45, has a lifetime deferred retirement pension of $10,000 a year starting at age 65, and was offered a lump sum in October 2012. Jane’s immediate lump sum would be $35,944, calculated based on new mortality tables reflecting more up-to-date longevity estimates. Jane’s immediate lump sum is $32,453, calculated based on current mortality tables, or 10 percent less than it would be using the new tables. Recent federal legislation that has increased PBGC premium rates, as well as scheduled additional future increases, creates another potential cost-saving incentive for sponsors to conduct a lump sum window offer. PBGC premiums are based, in part, on the number of participants in a plan, so reducing the number of participants via a lump sum window directly reduces the total amount of the annual premium for that sponsor. The flat rate portion of the single-employer premium rose 63 percent— from $35 to $57 per participant—between 2012 and 2015. Further, this rate is scheduled to increase another 12 percent, to $64 per participant, in 2016, for an overall rate increase of 83 percent from 2012 to 2016. Thus, for each participant that had been removed from a plan prior to 2015, the sponsor reduced its 2015 PBGC single-employer, flat rate premium costs by $57. Likewise, removal of participants in 2016 will result in similar savings. Terminated vested participants can be a particularly attractive group through which to achieve PBGC premium savings through a lump sum offer since they often represent a large portion of a population but a small portion of the participant liabilities. According to a leading consultant’s analysis of selected plans, terminated vested participants can represent less than one-sixth of the total amount of liabilities in single-employer pension plans but nearly a third of the total plan participant counts. As a result, terminated vested participants can account for a significant portion of a plan’s ongoing administrative expense, such as PBGC premiums. A sponsor can generate significant administrative cost savings, especially for large plans, if they can remove participants and their associated premium costs from the plan. Experts differ in their opinion of the extent to which rising PBGC premium rates act as an incentive for sponsors to implement a lump sum window. Notably, two of the sponsors we spoke to said the rate increases did not factor into their decision to any great extent. However, one said they were a concern and that the impending premium increases could prompt them to take further action in the future. In addition to recent and impending changes in federal rules, certain longstanding federal rules can also act as financial incentives to sponsors considering implementing a lump sum window by potentially reducing the size of lump sum amounts or by allowing the sponsor to avoid potential plan costs. Ability to Choose a “Lookback” Rate One longstanding IRS rule that can sometimes provide a significant financial incentive for offering a lump sum window is the provision that permits plan sponsors to select the interest rate used for lump sum calculations from up to 17 months prior to the month of the lump sum offer. This interest rate is commonly known as a “lookback” rate. IRS officials we interviewed pointed out that when used for the calculation of lump sums that are part of a plan’s ongoing design (not a lump sum window situation), this rule can work to the advantage of either the plan sponsor or the plan participant at different points in time, depending on whether interest rates have decreased or increased since the “lookback” month. However, when used in association with a one-time lump sum window with a fixed payment date, the “lookback” rate can be selectively used to financial advantage by plan sponsors when interest rates have decreased. This is because it allows sponsors to choose favorable interest rates that are higher than prevailing rates, resulting in smaller lump sum payouts. In 2012, as interest rates were declining, this rule allowed plans to look back to higher rates from as early as August 2011. Of the 11 sponsors whose information packets we examined, all sponsors who disclosed the interest rates used for the lump sum calculations had used sponsor-favorable “lookback” interest rates from between 11 and 16 months prior to the lump sum payment date. Illustration of How the “Lookback” Rules on Interest Rates Can Affect Lump Sums Dan is 45, has a lifetime deferred retirement pension of $10,000 a year starting at age 65, and was offered a lump sum in October 2012. Dan’s immediate lump sum would have been $46,967, calculated based on prevailing interest rates as of September 2012, the month prior to the lump sum offer. Dan’s immediate lump sum is $32,453, calculated based on “lookback” rates as of August 2011, or 31 percent less than it would have been using a rate as of the month prior to the offer. Ability to Exclude Certain Additional Plan Benefits Another longstanding rule that provides an incentive for offering a lump sum window is the rule that allows sponsors to exclude certain additional plan benefits when calculating the amount of the lump sum. These additional plan benefits that are sometimes provided by pension plans include subsidized early retirement benefits, subsidized joint-and-survivor benefits, and supplemental early retirement benefits. Although a separated participant, in the absence of a lump sum window, might have gone on to be eligible for and collect such additional benefits in the future, or might already be eligible for such benefits, the lump sum may still be calculated assuming the participant would have collected a normal retirement benefit without any additional benefits. Illustration of How the Exclusion of Early Retirement Subsidies Can Affect Lump Sums Pam is 45, has a lifetime deferred retirement pension of $10,000 a year starting at age 65, but also qualifies for a subsidized, unreduced early retirement benefit starting at age 60. She was offered a lump sum in October 2012. Pam’s immediate lump sum would have been $54,301, if the lump sum is calculated assuming that Pam would have retired at age 60, i.e., if the early retirement subsidy had been included in the lump sum calculation. Pam’s immediate lump sum is $32,453, if the lump sum is calculated assuming that Pam would have retired at age 65, i.e., if the early retirement subsidy was not included in the lump sum calculation, or 40 percent less than it would have been if the subsidized, unreduced early retirement benefit was included. In addition to these potential incentives, sponsors and experts say the decision to implement a lump sum window is often driven by how large the sponsor’s pension liabilities have become in comparison to the overall size of the business. This consideration takes on particular importance when a business downsizes or, conversely, acquires other companies. Indeed, two of the three sponsors we spoke to said recent restructuring of their companies had resulted in their plan’s liabilities becoming unacceptably large relative to the overall size of the business. Both had recently experienced significant downsizing of their core business, yet both had retained large amounts of benefit obligations owed to participants. This particular issue was also mentioned by one of the sponsors who requested an IRS private letter ruling prior to offering lump sums to retirees in pay status. The sponsor had stated that the pension obligations reported on the company’s financial statements had become “disproportionately large” and very sensitive to swings in interest rates. They explained that such volatility increases the cost of financing, makes cash flow management more difficult, and makes the company less competitive in the marketplace. The sponsors we talked to said their decision to reduce their pension liabilities was a means to shore up their overall balance sheet. The other sponsor we interviewed told us that, in their case, their business had grown due to the acquisition of other companies. However, with the mergers had come additional pension liabilities and costs associated with the defined benefit plans of the acquired companies. They said they were now burdened with pension costs associated with separated vested participants who had never been directly associated with their corporation. This sponsor told us they implemented a lump sum window primarily on the advice of their pension consultant, who presented the action as a cost-effective means of reducing administrative burden and costs associated these types of separated participants. Implementing a lump sum window is not cost-free for plan sponsors. Despite the potential incentives, many experts point out that the decision to implement a lump sum window will be based on each sponsor’s unique business considerations, and potential downsides must be considered. Disincentives include the administrative costs involved, future costs associated with adverse selection, the need to make sizeable immediate payments, interest rate uncertainty, and foregone potential returns. Administrative costs. Conducting a lump sum window requires sponsors to collect and verify data on their participant population to properly value their benefit obligations, which in some cases may involve the reconciliation of thousands of participant data records. In addition, participant communications, including information materials, must be prepared, and call centers may need to be set up, requiring staffing and training. If these administrative tasks are performed in- house, it will take time and resources; if outsourced to a third party, the sponsor will likely incur service fees. Adverse selection. When lump sums are offered, it is possible that relatively unhealthy participants will be more likely to accept the lump sum and, conversely, healthier participants will choose to keep their existing deferred annuity. If so, the remaining plan participants may outlive the mortality assumptions used to value liabilities, requiring additional plan funding in the future to cover benefit payments. Sizeable immediate payments. The payment of lump sums results in an immediate depletion of plan assets. In such cases, it is possible that the sponsor might have to sell assets at a poor time, when their position in the market is low. In addition, lump sum payouts could reduce the funded ratio of an underfunded plan, potentially increasing minimum required contributions. Interest rate uncertainty. Future interest rate increases can reduce the lump sum amounts to be paid, so that the sponsor might have achieved greater benefits if action had been postponed. However, the potential effect of interest rate increases on the value of plan assets would also be a consideration. For example, if a sponsor anticipates that interest rates will rise in the future, they will need to determine whether the cost savings associated with paying lower lump sum amounts then is offset by the potential for investment losses on plan assets before the lump sum window is executed. Foregone potential returns. Lump sum payments can come at the expense of future market earnings, if future rates of return on the assets would have exceeded the interest rate used to calculate the lump sums. Foregone potential returns is a flipside of risk reduction, as reduced risk often means reduced potential rewards as well. When participants of defined benefit pension plans accept lump sums, they are waiving their right to receive a lifetime income stream from their pension plan and must manage the payment received on their own from that point forward. Some may try to replicate an income stream by using their lump sum to purchase an annuity on the retail market. Others may roll over their lump sum into an Individual Retirement Account (IRA) and then invest and withdraw funds at their discretion. Still others may choose to use the lump sum to pay off debt or purchase consumer goods. While the participant may manage or spend their lump sum in ways that are beneficial to their circumstances, participants in all three of these situations are at risk of losing value from their retirement savings in various ways. In cases where participants accept the lump sum and then wish to replicate a lifetime income stream by purchasing an annuity on their own, the amount of their monthly benefit could be significantly lower than what would have been provided by their plans. It might seem counterintuitive for an individual to use a lump sum to purchase a lifetime annuity, since the individual could have just kept the lifetime annuity he or she already had from the defined benefit plan. Most of the participants we interviewed who accepted lump sum payments told us that they did not trust the security of their plan benefit (discussed further in the next section), and some said they were encouraged by others to purchase a retail annuity. Using the lump sum to purchase a retail annuity could result in significantly less annuity income than what would have been provided by the plan because different factors are at play for sponsors converting pension annuities to lump sums than for insurance companies selling Insurers in the retail market use lifetime annuities on the retail market.different interest rate assumptions and mortality tables than those used by plan sponsors to calculate minimum required lump sums, and also include other factors such as profit margins in their pricing. Additionally, unlike plan sponsors, insurers can price annuities differently for men and women when selling annuities outside the qualified retirement plan environment. These reductions in retirement income can also be thought of as the gap between the amount of lump sum offered and the amount of lump sum that would be needed to replicate the pension benefit. valuation of a plan lump sum payment can be pronounced for reasons such as 1) discount rate (interest rate) differences and mortality assumption differences, 2) gender differences, and 3) differences between group and retail annuity pricing. As illustrated in figure 1, on average, lump sum values were insufficient to meet the group annuity purchase rates in order to replace the coverage in the retail market. This is likely due in large part to differences in the actuarial factors used to value minimum lump sums, as set by law and regulation, versus those used by insurance companies to price annuities. One such factor is the discount rates, or interest rates used to convert future projected annuity payments into a lump sum amount or an annuity price. The generally higher lump sum discount rates have the effect of making the lump sum less than the amount needed to purchase a corresponding annuity, with the gap increasing at younger ages. A second factor is the mortality (or longevity) assumption. As noted earlier, the mortality assumption for determining minimum lump sums has not kept up with increases in longevity and, all else equal, has the effect of making lump sums today lower than they would be with up-to-date tables. In contrast, insurance companies will factor this increased longevity into their pricing, so that this factor will also tend to make minimum lump sums insufficient to purchase a corresponding annuity. The reduction in retirement income, or the gap between the amount of the lump sum offered and the amount needed, varies significantly by both the age and gender of the participant. Regarding gender differences, for example, figure 1 shows a 36 percent reduction in income for a 55 year- old male, compared to a 41 percent reduction for a 55-year-old female, from accepting a lump sum and purchasing an annuity. This gender differential occurs because federal law requires a sponsor calculating the amount of the lump sum payment to assume both men and women have the same life expectancy, while an insurer offering retail annuities outside the qualified retirement plan environment generally can charge different rates to men and women. On average, women live longer than men and thus collect benefits over a longer period of time. The insurer will thus require a woman to pay more than a man of the same age to purchase an equivalent lifetime monthly benefit. Most participants accepting the lump sum payment, but then wishing to still have an annuity, will be subject to purchasing a more costly individual retail annuity rather than a group annuity. One reason for this cost difference is that the individual retail annuity market is also subject to adverse selection, which means that when given a choice, relatively healthier individuals will tend to purchase or select annuities, increasing average costs because such individuals are expected to live longer. According to the American Academy of Actuaries, adverse selection can add about a 10 percent increase to the annuity price. Retail annuities can also include additional distribution, administrative and sales charges that can add further to their cost differential over group annuities. Moreover, certain individuals, particularly older retirees, may find that regardless of cost, they do not have the ability to purchase a lifetime annuity on their own. For example, one retail annuity site we examined would not offer lifetime annuities to individuals older than age 85. An expert also told us that some insurers will not sell a retail annuity for less than a certain price. Although in many instances the acceptance of a lump sum payment with the intention of purchasing a retail annuity essentially results in the exchange of a cheaper plan annuity to purchase a more expensive retail annuity, some participants have received contacts encouraging them to do so. One financial planner we spoke with told us that he noticed that a few participants who had been offered lump sums were approached by financial service providers trying to sell retail annuity products. Additionally, our interviews of participants found that a few (3) participants had received unsolicited contacts about purchasing an annuity with the lump sum. However, none of the participants that accepted a lump sum actually purchased an annuity with most of their lump sum payment. The financial planner, who advised participants affiliated with two prominent lump sum window offers in 2012, said he counseled many of the participants considering the purchase of a retail annuity to simply stay in their plan and receive lifetime annuity income through the plan. Participants who elect lump sum payments and roll them over into IRAs now have the ability to control and manage their own funds. But they must also manage the risks and challenges associated with decisions regarding the investment and withdrawal of the funds that were previously the responsibility of their DB plan sponsor.earn a rate of return that allows them to accumulate and withdraw the monies in amounts that replicate the benefit they gave up under the plan, or to provide protection over their entire retirement period should they live to an old age. As with any investment strategy, the participant will face a tradeoff between maximizing return with riskier investments, such as stocks, versus maintaining their assets with lower return, lower volatility investments, such as bonds. Participants who roll over their lump sums into IRAs will face risks in managing and investing the monies for later drawdown. Specifically, by making this choice, participants must contend with 1) the potential of outliving their assets; 2) complex decisions concerning the investment of the lump sum and the drawdown of the assets; and 3) the difficulty of finding trusted advice. A major risk that participants face overall is that they may outlive their lump sum assets. Figure 2 shows how long a hypothetical lump sum, based on a $10,000 annual ($833 monthly) benefit, would last for a 45- year-old participant if the participant invested the lump sum and drew down the monies beginning at age 65. The illustration shows that the age at which the drawdown exhausts the monies is highly sensitive to the rate of return. For example, at an annualized 2 percent rate of return, the participant’s monies will exhaust after 5 years at age 70. However, at an annualized 7 percent rate of return, the participant’s monies will last an additional 30 years, exhausting after 35 years at age 100. While these drawdown scenarios are not specific to a participant’s gender, they do highlight that women may be particularly vulnerable to outliving their assets as women tend to have longer life expectancies than men. Managing Assets Prior to and through Retirement Participants face challenges in managing the many complex decisions involving their lump sum during both the accumulation phase prior to retirement and the spend-down phase after they begin drawing down their lump sum. These decisions are further complicated by the ups and downs of financial markets, including fluctuating rates of return, effect of fees, and deciding when and how much to withdraw, especially when spouses or other beneficiaries need to be taken into consideration. Fluctuating rates of return. Unlike the constant rates of return reflected in the preceding spend-down scenario (see figure 2), participants’ investments may fluctuate, and the sequence of fluctuating rates of return can pose additional risks. For example, due to net cash outflows from a retiree’s spend-down of his or her lump sum, the lump sum account has a diminishing asset base that can be particularly at risk if the retiree encounters periods of low returns or losses, as the account will have less time to recover from such downturns. Further, the continued draw-down of the account during such periods means that assets might have to be sold at depressed values, and less money will remain in the account to benefit from any future market upturn. Effect of fees. As prior GAO work on fees has shown, fees can significantly decrease retirement assets. Even a small fee deducted from one’s assets annually could represent a large amount of money years later had these funds remained in the account to be reinvested. This means that participants will have to carefully consider fees as they review alternative investment options. Compared to participant controlled investment in account-based pension plans, this can be more difficult in the retail market. Loss of budgeting signal. A monthly pension has the advantage of providing a retiree a budgeting signal as to how much can reasonably and safely be spent each month. During the spend-down phase, this valuable information is lost when a participant converts a monthly pension into a single lump sum. The retiree may spend more of the lump sum each month than is sustainable. In addition, the retiree may have to make large unforeseen expenditures at certain times without realizing the likely negative impact on the exhaustion date of the lump sum, whereas for a retiree receiving a monthly pension, a large expenditure can be seen relative to the monthly pension amount and may lead the retiree to take other remedial measures. Additionally, in some cases the retiree may unnecessarily restrict his or her standard of living by spending less each month than a steady pension would have permitted. Diminished capacity. Managing assets through retirement may be particularly challenging for retirees who experience diminished physical or mental capacity as they age. For example, a retiree with dementia may find it more difficult to manage the many decisions involved with investing and drawing down an IRA compared to the relative simplicity of receiving a monthly pension check. As one scholar has noted, if the retiree misuses a monthly pension check, another check will arrive the following month. However, if the retiree makes investments that result in significant losses for their IRA, there may be no additional funds for future withdrawal. Planning for spouses. Our previous illustration assumes the money is drawn down for an individual’s lifetime. Acceptance of a lump sum over $5,000 for married or formerly married individuals requires spousal consent to waive the right to a future annuity based on the combined lifetime of participant and spouse, known as a joint and survivor annuity. However, this does not preclude the participant from including a spouse or beneficiary in his retirement planning. If the participant wishes to account for his spouse’s lifetime as well, he may need to add more years of spend-down, either by lowering the amount paid out per month or taking on additional investment risk in an attempt to achieve greater returns. Participants assuming responsibility for managing their funds may find dealing with all these challenges difficult and may seek out professional advice to assist them. According to a DOL official, many participants are unlikely to understand the full complexity of accepting a lump sum and may not be well-equipped to manage the lump sum assets on their own. Ideally, a financial planner should be able to help people navigate the myriad decisions required to accept and manage a lump sum payment. However, participants could face additional challenges finding trusted advice in managing their assets if they do not feel comfortable managing investment and drawdown decisions on their own. Others might find it challenging to afford a financial planner. In previous work, we have found that participants can receive conflicted advice because the financial interests of those giving advice may not be aligned with the best interests of the participant. Those offering investment advice to participants may be motivated by financial gain through sales of preferred financial products, commissions, or other fees for services. that their advisor might have benefited more financially had they elected the lump sum, noting that the advisor was interested in managing a large sum of money. The specific investment products held in 401(k) plans and IRAs, as well as the various financial professionals who service them, are subject to oversight from applicable securities, banking, or insurance regulators, which can include both federal and state regulators. For example, mutual funds, offered in both plans and IRAs, are generally regulated by the Securities and Exchange Commission (SEC), which requires funds to disclose fees and to inform investors of products’ potential risks. An investment adviser provides a wide range of investment advisory services, including management of client portfolios. Investment advisers manage the portfolios of individuals as well as the portfolios of pension funds and mutual funds. Broker-dealers provide brokerage services where they act as an agent for someone else; a dealer acts as a principal for its own account. SEC has primary responsibility for oversight of investment advisers and broker- dealers, while those who sell insurance products are also subject to state insurance regulation. Investment advisers, broker-dealers, and insurance agents are subject to different standards of practice. Results of our participant questionnaire reveal that participants given lump sum offers often received unsolicited financial advice, for example, from financial planners, investment advisors, or even other plan participants. About a quarter (10 of 37) of the participants who completed our questionnaire reported being contacted by individuals not formally connected with the pension plan who offered unsolicited services directly related to the lump sum payment. For example, participants reported being contacted by individuals offering to provide tax advice, help create a retirement or financial plan, or invest the funds. Some (9) participants noted unsolicited mail and email invitations they received at the time of the lump sum offer, and being contacted by individuals offering to help them manage the money. GAO-13-30. participants who accepted lump sums directly rolled over their distribution into a 401(k) or an IRA. One of the most critical decisions that participants must make with their lump sums is whether they will continue to manage their lump sum payments as part of their retirement planning goals. When participants choose to use the lump sums to pay off debts or spend the money on consumer goods, rather than keep the funds in the tax-qualified retirement system, this is often referred to as “leakage.”“leakage” may be appropriate for some participants. They may have other uses for their payment that are beneficial to their circumstances, for example, paying health care expenses, paying for additional education that may lead to more secure employment, or bequeathing the money. Besides potentially diminishing their retirement savings, participants who do not directly roll over all of their lump sum payment into a tax-preferred account may be subject to certain additional taxes or withholding. For example, when a participant cashes out their lump sum payment, there is an additional tax of 10 percent, in addition to ordinary income tax, if the participant is younger than age 59½. In addition, the sponsor must withhold 20 percent of the value of the lump sum to cover federal and, if applicable, state taxes. The ultimate tax liability will depend on the participant’s individual circumstances, but he or she is likely to witness some erosion in the value of the initial lump sum. Studies have found that younger workers, lower earners, and persons with smaller distributions are most likely to take lump sums and not keep them as retirement savings. On the other hand, individuals may have important immediate spending needs that must be addressed prior to retirement. Our interviews of participants presented with lump sum window offers found that only 2 of the 15 participants who accepted the lump sum cashed it out to pay for immediate expenditures. In both cases, the participants had important immediate needs associated with their expenditures. In one case the former participant used most of the lump sum to pay for living expenses; in the other the former participant used most of the monies to pay down mortgage debt. Participants need information in certain key areas to make an informed decision about their options when provided a lump sum offer. While our analysis of materials provided by plan sponsors showed that they appeared to include certain required information, they often lacked other key information. Most participants we interviewed cited fear that their sponsor would not deliver on their pension promise as a primary reason for accepting the lump sum offer, but many of these participants were not aware of the protections afforded by PBGC. Based on a review of publications by federal agencies, the ERISA Advisory Council, financial advisors, investment firms, financial services firms, and participant advocacy groups, as well as relevant federal laws and regulations, we identified eight key areas of information that participants need to weigh their options and determine what is in their best interest when faced with a lump sum window offer (see table 1). Under existing federal law and regulations, plan sponsors who offer a lump sum in place of a retirement annuity are required to provide certain disclosures to participants related to some of the eight key areas we identified. For example, the sponsors’ disclosures to participants are required to include information on the need for spousal consent, the tax implications of taking a lump sum, and the relative value of the lump sum compared with the plan’s benefits. However, this information, even when provided as required, may not be sufficient to enable participants to make an informed decision. During the ERISA Advisory Council hearings in 2013, several experts testified about their concerns for participants being offered lump sums. In their testimony, some experts noted that participants may not fully understand their retirement benefits or the risks involved in taking their benefits in the form of a lump sum payment. For example, participants electing a lump sum assume responsibility for investing their retirement assets and thus bear the risk of both market losses and of outliving their retirement assets. The council recommended that the disclosure materials include additional information to clarify, among other things, the tax implications of a lump sum payment, the treatment of early retirement subsidies in the lump sum calculation, and how participants’ benefit options compare against each other. In our review and analysis of 11 packets of information that sponsors— representing about 248,000 participant offers—provided to participants regarding a lump sum window offer, we found that all of the packets lacked important information that could have helped participants. However, all packets appeared to include information that is required by For current federal law and regulations governing benefit distributions.example, all packets included a spousal waiver for electing a lump sum and information about the tax implications associated with the participant’s decision. In addition, all of the packets included the required relative value statement. Further, one packet GAO reviewed was commendable in that it provided 7 of the 8 key pieces of information GAO identified, and provided several resources beyond this threshold information. Most packets (8 of 11) provided at least 5 of the 8 key pieces of information GAO identified as necessary to make an informed decision. However, our review also revealed that all 11 packets lacked at least one key piece of information a participant would need to make a more fully informed decision about his or her benefit choices, as described below. Our interviews with 33 plan participants revealed they may have lacked key information, as many (13 of 33) told us that more information would have helped them assess whether or not to accept the lump sum. We found that all the sponsors’ packets initially presented at least two benefit options: the lump sum payment and the monthly benefit amount for an immediate annuity. Most packets (9 of 11) also presented a deferred annuity option: the estimated monthly benefit amount promised under the plan once the participant reached the plan’s normal retirement age. Only one packet provided the amount of the monthly annuity at the plan’s early retirement age. In the cases involving the two packets that did not provide information about a deferred annuity option at normal retirement age, the participants were separated participants who had not begun to receive monthly pension benefits. While some participants might have on file the estimated monthly benefit amount at normal retirement Without that information, it would be challenging age, others may not.for participants to determine if deferring receipt of benefits until reaching normal retirement age should be an option worth considering. One participant we interviewed whose sponsor did not provide this information said that she was glad she had retained records showing her estimated pension amount because otherwise it would have been difficult to assess her lump sum offer effectively. Three participants we interviewed (affiliated with one plan sponsor) were very concerned that their sponsor did not provide information on the estimated monthly benefits that participants could receive once they qualified for an early retirement. According to that plan’s provisions, participants who had enough years of employment could receive unreduced monthly benefits as early as age 60 rather than at the normal retirement age of 65. If participants are not informed of this option, they may not realize that they could be eligible to receive the same monthly benefit 5 years sooner. With respect to the lump sum calculation, we found that the information in only 2 of the 11 packets fully explained how the lump sum had been generated, providing sufficient information to facilitate an understanding of the interest rate, mortality table, and benefit used by the sponsor. The remaining 9 packets lacked some key information used in calculating the lump sum amount, such as the interest rates or mortality assumptions. For example, 8 of the 11 packets did not disclose the interest rates used for the calculation. about the specific mortality assumptions used in the calculation. Lastly, 4 packets did not explain whether certain additional plan benefits, such as early retirement subsidies, were included in the calculation. Although not all participants would necessarily use information about interest rates, mortality assumptions, or treatment of additional plan benefits to help them arrive at a decision, our discussions with participants informed us that some (7) likely would. Six packets provided the interest rates used to develop the relative value notice, but no mention was made regarding whether these rates were also used in calculating the lump sum. GAO did not consider the inclusion of these interest rates sufficient for participants’ purposes in assessing the lump sum offer. interest rates or mortality assumptions had been used so they could assess whether the assumptions were fair. Some participants (7 of 15) said they wanted the underlying assumptions and a clearer explanation as to how the lump sum was calculated to confirm it had been calculated correctly. A few of these participants (4 of 15) said they had been able to obtain information on mortality assumptions or interest rates through a call center, and all of these participants said they should not have had to track down this information themselves. For example, one participant said that she had to contact the call center several times before learning she would have to write a formal request to receive the information. This individual believed the information should have been provided clearly in the information materials. In all the packets we reviewed, we found the relative value notice required by IRS to inform participants how the overall value of the lump sum compares to that of the plan’s annuity. These statements typically took the form of a table. We found little additional explanation in any of the packets to help participants understand what the numbers meant. Some participants (7 of 33) said the relative value statements were not user friendly or particularly helpful for them in assessing whether to accept the lump sum. 26 C.F.R. § 1.417(a)(3)-1(c)(1)(iv) and (v). In its bulletin accompanying the issuance of the final regulations on the Relative Value Notice (Internal Revenue Bulletin 2006-16), IRS states that the regulations were developed to help plan participants compare different forms of their pension benefits “without professional advice.” The regulation offers some flexibility as to how sponsors should convey this information. Specifically, the sponsor can 1) state the lump sum amount as a percentage of the actuarial present value of the monthly annuity, 2) state the amount of the annuity that is the actuarial equivalent of the lump sum, or 3) state the actuarial present value of both the lump sum and the annuity. statement showed that the lump sum payment was less valuable than the annuity. In two other cases, the relative value statement showed that the lump sum payment was actually worth significantly more than the annuity (114 and 120 percent). Plan participants may not understand the importance and effect of assumptions used to calculate the relative values, and the materials we reviewed did not explain why the lump sum values may be more or less valuable than an annuity. In the absence of any further explanation, it is unclear how participants could have interpreted the results or to what extent the notice could help them reach an informed decision. In addition, in many (5 of 11) of the packets, the relative value statements compared the lump sum payment amount to the value of an immediate annuity starting at the same time as the lump sum payment would occur, but not the value of the deferred annuity available when the participant reached full retirement age, often at age 65. It also was not clear if any of these packets included the value of a deferred annuity beginning at early retirement age with any additional plan benefits. A number of the packets did not disclose whether the participant would be eligible for any additional plan benefits, such as early retirement subsidies, if they waited to claim their annuity (4 of 11). IRS guidance allows sponsors to show a relative value notice for an immediate annuity, which may exclude consideration of certain additional plan benefits that have not yet been earned. However, this may limit the usefulness of the relative value statement for participants, who may be eligible for early retirement benefits at some point in the future or who could qualify for other types of additional plan benefits. Further, none of the relative value statements included information about how much it would cost on the open market to replicate the same stream of payments from the plan’s lifetime annuity. While there is no obligation for sponsors to do so, and it might not be reasonable to expect sponsors to research the open market to provide such an estimate, many participants trying to assess the relative value of a lump sum could benefit from researching and considering this cost. Several participants (4 of 33) said they had either researched or asked their financial advisor to estimate how much it would cost to buy a market annuity equal to their promised lifetime annuity. Two others had tried to determine the monthly benefit they would be able to secure if they used their lump sum to purchase a market annuity. After reviewing the figures provided, all 6 participants who analyzed the cost of a market annuity relative to either their plan’s monthly annuity benefit or the lump sum amount rejected the lump sum offer. To make an informed decision about accepting a lump sum, individuals also need to understand potential positive and negative ramifications of their decisions. All 11 of the packets we reviewed discussed at least one of the potential negative ramifications of accepting a lump sum payment, and about half (6) also discussed at least one of the positive ramifications of accepting an offer (see table 2). A few participants (4 of 33) said that more information related to the positive and negative ramifications would have helped them decide whether or not to accept the lump sum. beneficiary other than a spouse when they die. For instance, one woman wanted to ensure that her daughter would benefit from the pension funds, and one man we interviewed lived in a state that did not recognize same- sex marriages at the time the lump sum offer was made and wanted to ensure his partner would be able to access the funds. Participants’ understanding of the positive and negative ramifications of accepting a lump sum offer would be enhanced to the extent the participants have adequate levels of financial literacy (combined with adequate disclosure of information as discussed above). For example, understanding the risk of outliving one’s assets could help participants make a more informed decision. In addition, for participants who do elect a lump sum, financial literacy could help with the challenges of managing that lump sum. Participants’ elections are also influenced by factors other than rational analysis of benefits and risks. combined with financial literacy, could potentially help counteract behavioral tendencies that sometimes might not result in the best outcomes for participants. As demonstrated by research from the field of behavioral finance and economics, emotion and intuition can play a role in financial decision-making, as people are not always rational as would be assumed under conventional financial and economic theory. provided to them about the tax implications of their decision was understandable, and almost all the individuals who accepted a lump sum rolled it into an IRA. To make an informed decision regarding lump sums, individuals also need to assess the risk that a plan might not have sufficient funds to fully make promised payments, and understand the extent to which their promised pension would be guaranteed by PBGC if that were to happen. Indeed, most participants we interviewed (10 of 15) who accepted lump sums said that one of the main reasons they chose to accept the lump sum was because they were worried the sponsor would default on its pension promise. explained the role of PBGC or provided information on the level of PBGC protections to an individual’s lifetime annuity. Technically, pension payments are paid out of the plan, not by the plan sponsor. The sponsor’s obligation is to make required, actuarially determined contributions to the plan. So a plan sponsor cannot “default on its promise to pay pension benefits,” but can default on its required contributions to the plan. could lose some or all of their benefits. Many of these individuals (6 of 10) were not aware of the protections offered by PBGC. Pension Benefit Guaranty Corporation (PBGC) Protections PBGC is a government corporation created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect pension benefits in private defined benefit plans. When plans insured by PBGC end—known as a plan termination—without enough money to pay all benefits, PBGC’s single-employer insurance program pays participants the benefit they would have received from their pension plan up to certain limits set by law. PBGC’s maximum benefit guarantee is set each year under ERISA. The maximum guarantee applicable to a plan is generally fixed as of that plan’s termination date. For 2014, the maximum guaranteed amount for singe-employer plans is about $59,320 per year for workers who begin receiving payments from PBGC at age 65. The maximum guarantee is lower for participants who begin receiving payments from PBGC before age 65, or if the pension includes benefits for a surviving spouse or other beneficiary. The maximum benefit is higher for participants who are over age 65 when they begin receiving benefits. In addition, PBGC’s guaranteed benefit amounts are subject to the “phase-in” limit (related to benefit increases made in the previous 5 years) and the “accrued-at-normal” limit (which excludes supplemental benefits). Participants can find out whether their pension plan is insured by PBGC by obtaining a copy of the plan’s “Summary Plan Description,” or SPD, from the employer or plan administrator. A table showing PBGC’s maximum guarantee at various ages can be found at http://www.pbgc.gov/wr/benefits/guaranteed-benefits/maximum-guarantee.html. The other participants (4 of 10) were aware of PBGC’s protections, but said they were worried they would not receive their full benefit or any benefit at all from PBGC if their pension plan defaulted. Specifically, a few individuals we interviewed (3 of 15) told us that they had accepted the lump sum—even though they believed it to be a bad deal—because they were afraid they might ultimately be left with nothing if their plan sponsor went out of business or mishandled the pension funds. For example, one participant said he was afraid he would “walk away with nothing,” and another said he was concerned he would “only get pennies on the dollar.” Yet another participant said he had decided to “get out while the going is good.” Understanding how to complete the administrative process of making a benefit election and who to contact for help are two other important pieces of information plan participants need in order to make an informed decision. All 11 of the election material packets we reviewed provided clear administrative instructions on how to elect a lump sum, immediate annuity, or deferred annuity. Similarly, all packets provided a contact, such as a call center, for asking general questions about the lump sum offer. In addition, almost all the plan sponsors provided contact information for at least one source of federal assistance, typically the IRS. Participants responding to our questionnaire generally did not raise concerns related to the administrative steps needed to elect a lump sum or retain their annuity, or the length of time they had to make their decision. Specifically, most said the data included in the election materials (such as years of service and age) were accurate (29 of 37) and that they found the process of completing the paperwork fairly straightforward (23 of 37). Few (2 of 37) reported experiencing significant administrative burdens in gathering the required information (identification, notarized consents, etc). A few themes emerged regarding the primary reasons participants who completed our questionnaire either accepted or rejected their lump sum offer, and how they went about making their decisions (see figure 3). Specifically, most participants accepting the lump sum offer were motivated by fear that retaining their annuity would hurt their prospects for a secure retirement (10 of 15), either because the pension plan would default on its promise (10 of 15) or because the plan sponsor would not In contrast, many manage the pension benefits responsibly (6 of 15).participants who chose to reject the lump sum offer indicated that their retirement might be more secure if they retained their annuity. Specifically, most of these participants (17 of 22) did not think the lump sum amount would last as long as they expected to live and a majority (14 of 22) believed that the calculation was unfair or not to their benefit. Most participants (27 of 37) reported taking at least three steps to assess whether or not to accept the lump sum. Specifically, most participants reported conducting research using the Internet and reading articles about lump sum offers. Many participants (20) also reported trying to estimate the lump sum’s value based on anticipated life expectancy and using various interest rates. About a third of participants (11 of 37) reported receiving a tool from their sponsor—such as a spreadsheet or calculator—they could use to assess the lump sum offer and of those, many (7 of 11) said it was very helpful. Two participants who did not receive such a tool from their sponsor said they wished they had. Most (30 of 37) participants also consulted with professionals, such as financial advisors or tax professionals, to help them assess the lump sum offer. About a quarter of participants (9 of 37) reported receiving unsolicited contacts by individuals not formally connected with the pension plan while trying to decide whether to accept the lump sum. While plan sponsors may be permitted by law to choose to offer their participants lump sum windows to reduce the financial risks associated with their defined benefit plans, the full extent of their use is unknown. It is apparent that lump sum windows affect a significant number of plan participants and can involve very large amounts of lump sum payments. Some of the recent lump sum window offers may have been driven by federal rules that may serve as cost-saving incentives for sponsors to take such actions. Through lump sum payments, sponsors transfer the risks and responsibility of retirement security away from themselves—and the defined benefit system more generally—and onto participants. As the proportion of the U.S. population over age 65 increases, the importance of retirement security for our country’s well-being increases as well. Yet the federal agencies charged with pension oversight have not been able to fully examine how these risk transfers impact workers and retirees— and thus cannot take steps to ensure any potential adverse effects on participants are minimized. Given the likelihood that plan sponsors will continue to use lump sum window offers as a means of reducing current pension liabilities, we share a number of the 2013 ERISA Advisory Council’s concerns about these risk transfers. For example, the pension oversight agencies lack data about when and where these actions occur, who is affected, and how these actions impact participants. This means that the agencies may not have sufficient information to determine whether additional participant protections are needed when sponsors implement lump sum windows. For participants being asked to choose between a lifetime benefit option and a lump sum, it is important that they understand how the two compare. As our analyses show, once a participant cashes out a lifetime annuity by taking a lump sum, the participant’s retirement savings can be diminished in a number of ways or used on other expenses. Participants may not be aware of the effect that certain allowable assumptions used to determine their lump sum—such as outdated mortality tables and favorable “lookback” interest rates—may have on their ultimate payment amount. In most cases, the lump sum payment received is unlikely to purchase an equivalent annuity on the retail annuity market. Furthermore, the lump sum is exposed to potential erosion over the years, as the participant assumes all the risks inherent in managing both the investment and drawdown of their lump sum amount. Regrettably, such challenges may become more acute as the participant ages and the effort required for sound financial management becomes more burdensome. Ultimately, the greatest risk associated with accepting a lump sum is the risk of outliving it, which may occur despite the most savvy management. Participants presented with a lump sum offer may not have a full appreciation of the range of risks involved in forfeiting their lifetime annuity under their sponsor’s plan. While we found that some sponsors did a commendable job in their efforts to inform participants about their benefit choices, it is notable that such efforts often fell short of fully preparing the participant to make an informed decision based on many of the eight key factors we identified. The relative value statements were often confusing, explanations of how the lump sum was calculated were often lacking, and many participants did not understand the PBGC protections they would be giving up by taking a lump sum. To ensure that federal regulators have better information about lump sum windows and to better ensure that participants have ready access to key information they need to make a decision when presented with a lump sum offer, the Department of Labor should: 1. Require plan sponsors to notify DOL at the time they implement a lump sum window offer, including the number and category of participants being extended the offer (e.g., separated vested; retiree) as well as examples of the materials provided to them. 2. Coordinate with IRS and PBGC to clarify the guidance regarding the information sponsors should provide to participants when extending lump sum window offers and place the guidance on the agency’s website. Guidance should include clear and understandable presentations of information, such as the relative value of the lump sum, the role and level of protections provided by PBGC, and the positive and negative ramifications of accepting the lump sum. Such guidance could also include promising practices for information materials from plan sponsors which are particularly effective in facilitating informed participant decision-making. In addition, to provide participants with useful information and to provide for lump sums that are based on up-to-date assumptions, Treasury should: 1. Review its regulations governing the information contained in relative value statements to ensure these statements provide a meaningful comparison of all benefit options, especially in instances where the loss of certain additional plan benefits may not be disclosed. 2. Review the applicability and appropriateness of allowing sponsors to select a “lookback” interest rate for use in calculating lump sums associated with a lump sum window that can serve to advantage the interests of the sponsor. 3. Establish a process and a timeline for periodically updating the mortality tables used to determine minimum required lump sums— including a means for monitoring when experts’ views may indicate that mortality tables may have become outdated, and for taking expedited action if warranted. We provided a draft of this report to DOL, Treasury (including IRS), and PBGC for their review and comment. Treasury and PBGC did not provide written comments. DOL provided written comments, which are reproduced in appendix III. DOL, Treasury (on behalf of IRS) and PBGC provided technical comments, which we incorporated where appropriate. In oral comments, Treasury officials generally agreed with our recommendations. In its written comments, DOL generally agreed with the findings and conclusions of the report. They noted the challenges participants may face when they take on the risks of pension management themselves. Specifically, DOL noted that EBSA is especially committed to increasing awareness of lifetime income options because participants are increasingly taking on many retirement management responsibilities. GAO agrees that increasing awareness of lifetime income options in retirement is a worthy goal. Additionally, understanding the scope of lump sum window offers and the informational needs participants have under such offers could help focus efforts to educate participants on the importance of lifetime income options at the point of decision. DOL generally agreed with the recommendations of the report. Specifically, they agreed that the type of information that would be collected pursuant to our first recommendation would be helpful in determining the extent to which lump sum window offers are made and the types of disclosures participants receive. However, DOL noted that ERISA does not clearly grant the department the authority to impose such a requirement on plan sponsors and said that it will be necessary for EBSA to determine whether DOL has such authority. We agree that DOL should determine whether there is any action it could take within the scope of its existing authority to implement this recommendation. Should DOL conclude as a result of its analysis that the department lacks authority to require plan sponsors to notify the department at the time they implement a lump sum window, we would encourage DOL to pursue appropriate legislative changes. DOL agreed with the second recommendation on coordinating with Treasury (including IRS) and PBGC to clarify guidance regarding information sponsors should provide to participants when extending a lump sum window offer. They noted the manner of publishing such guidance would depend on the coordination process with IRS and PBGC. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of this report until 30 days from the report date. We are sending copies of this report to the Secretary of Labor, the Secretary of the Treasury, Commissioner of Internal Revenue, the Acting Director of PBGC, and other interested parties. This report is also available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-7215 or jeszeckc@gao.gov Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this report. Key contributors are listed in appendix IV. Our objectives were to examine 1) the extent to which sponsors of defined benefit plans are transferring risk through the use of lump sum windows, and the incentives for sponsors to take such actions, 2) the implications for participants who accept a lump sum payment, and 3) the extent to which sponsors’ lump sum window informational materials enable participants to make an informed decision. To address these objectives we collected and analyzed available information about pension risk transfers. We also interviewed managers from three plan sponsors and other stakeholders, such as consultants, insurance company representatives, independent fiduciaries, and subject matter experts. In addition, we administered a questionnaire to plan participants, interviewed selected participants, and collected and analyzed disclosure materials given to participants. We developed a lump sum calculator to analyze lump sum calculations. Lastly, we reviewed literature, as well as federal laws and regulations relevant to pension risk transfers. We conducted this performance audit from March 2013 to January 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We reviewed literature, laws, and regulations relevant to risk transfer activities. Most literature was obtained from ERISA Advisory Council testimonies, pension expert and consultant presentations, and other materials obtained during pension-related conferences, as well as publications and whitepapers issued by subject matter experts, pension- related organizations, business associations, consulting firms, and insurance companies. Legal research primarily focused on the Employee Retirement Income Security Act of 1974 (ERISA), Pension Protection Act of 2006 (PPA), Moving Ahead for Progress in the 21st Century Act (MAP- 21), and the Internal Revenue Code, but also included additional research on laws and regulations governing retirement income, benefit distributions, and participant disclosures. We used a variety of sources to collect information about recent pension risk transfer actions that U.S. plan sponsors have taken. Prior to identifying these actions, we asked relevant federal agency officials and pension experts what sources of information were available and we were told such sources were limited. To identify sponsors who had implemented a lump sum window during 2012, we first used lists provided to us by the Pension Benefit Guaranty Corporation (PBGC) officials and the Pension Rights Center. We verified the lists to the extent possible, primarily with information contained in sponsors’ SEC filings and corporate reports. We removed sponsors from the lists if we could not find sufficient evidence that they had performed a lump sum window during 2012. We made efforts to contact managers associated with 18 risk transfer actions in order to collect additional information and schedule interviews. For all but three sponsors, we either were not able to establish contact with the appropriate manager, the sponsor was unresponsive to our efforts, or we were told that the sponsor did not wish to participate in our study. During the interviews with the three sponsors who agreed to speak with us, we asked questions regarding the lump sum window implementation process they followed, the reasons behind their decision to transfer pension risk, and to the extent possible, the outcomes of the action. In some cases, we also collected informational materials that had been provided to participants offered lump sums. To supplement the sponsor interviews, we interviewed other stakeholders, such as pension consultants, insurance company representatives, an independent fiduciary, and subject matter experts. We asked them about several aspects related to lump sum offers, such as recent trends, what is driving the practice, and their potential effect on plan participants. We also reviewed written reports, papers, and studies conducted by consulting firms and other pension experts to gain a better understanding about the prevalence of pension risk transfers, in general, and why sponsors may be conducting or considering them. To collect information to provide the participant perspective of lump sum windows, we first used social media to identify corporate alumni groups associated with the sponsors we had identified as having offered lump sums during 2012. From those groups we solicited participants who had been offered lump sums and received over 65 responses from participants who were interested in participating in our study. From those, we selected 37 participants across as many sponsors as possible. To those individuals we administered a questionnaire that asked them to provide information on their overall experience when offered a lump sum, what they considered when making their decision, their opinion on the understandability and usefulness of the information packet they had received from the sponsor, and why they ultimately made the choice they did. We also conducted phone interviews with 33 of the 37 participants in order to gain additional insight into their questionnaire responses, and to supplement the information captured by the instrument. We did not independently verify information presented by participants in these interviews. Consequently, no legal conclusions can be drawn from our work as to whether plan sponsors complied with any applicable legal requirements. Our selection of participants to survey was also designed to yield a group of participants that represented a relatively broad variety of attributes, such as gender, age, and whether they had accepted the lump sum offer or not. The selected participants represented 11 different sponsors. Most of these individuals were ages 50 to 59, with the remaining individuals fairly evenly split between the 40 to 49 and 60 to 69 year old age groups. Almost all the participants had been salaried employees. Most individuals in the survey group were currently working full time. Most, including those who were working and those who were fully retired, had other sources of retirement income in addition to the defined benefit plan for which they were offered a lump sum, including Individual Retirement Accounts, 401(k) or 403(b) plans, and Social Security benefits. Of these 37 participants, 15 accepted the lump sum offer and 22 rejected the lump sum offer. While not generalizable, we used the participants’ responses from the questionnaires and phone interviews to inform our discussion about the factors participants weighed when making their benefit choices. In addition, we developed a lump sum calculator to generate lump sum amounts based on participant information obtained during our interviews, such as age, gender, and deferred annuity amount. Using the calculator, we mimicked sponsor lump sum calculations to gain a better understanding of how mandated assumptions affect lump sum amounts, and how changes in those assumptions affected amounts for participants across differing ages and gender. For details of those analyses, see appendix II. During participant interviews we asked participants if they could provide us the written materials that sponsors gave them when offering the lump sum. We asked participants to redact any personally identifiable information such as names or offer amounts, and asked for as many materials as they could provide. Because these materials were participant-provided, we cannot be certain whether the materials we reviewed were accurate and complete representations of the materials provided by each sponsor to its affected participants. Similarly, participants provided us materials in hardcopy, so, for example, materials that sponsors provided electronically might not have been transmitted to GAO unless the participant had printed and retained this information. Electronic information likely would have been password protected and not available for GAO’s review. We collected at least one packet for each of the 11 sponsors executing lump sum offers to the participants we interviewed. These 11 sponsors represent, according to our review of SEC filings, about 248,000 participant offers. To analyze participant packets, we identified eight key areas of information participants would need to understand in order to make an informed decision about a lump sum offer. To identify these areas, we gathered information from federal agencies, the ERISA Advisory Council, financial advisors, investment firms, financial services firms, participant advocacy groups, and federal laws and regulations. Since these key factors were gathered from diverse sources, they were also vetted and reviewed by GAO’s Chief Actuary and a research methodologist to ensure they could be applied when we analyzed the materials for informational content. To apply the eight key factors to the informational materials, we identified specific pieces of information, or sub-factors, that the packet would need to contain in order to fully satisfy the main factor. GAO developed decision rules for each main factor regarding how many of these sub- factors were needed in order to fully satisfy the main factor. Under these decision rules, for seven of the eight key factors, all sub-factors needed to be present to fully satisfy the main factor. However, for one of the eight factors, our decision rule only required that one of the elements be present. Specifically, for our factor on “What are the potential positive and negative ramifications of accepting the lump sum?,” we identified many potential positive or negative ramifications that could be highlighted in the materials, but specified that a packet only need to list at least one negative ramification of accepting the lump sum to satisfy this factor. Table 3 has more detail on the extent to which the packets, in aggregate, met our main factors and sub-factors. As noted earlier, this review was an information review and did not constitute a compliance or legal review. Our only purpose in conducting this review was to determine whether the information packets provided to participants in connection with lump sum offers contained sufficient information to enable them to make informed decisions. Consequently, no legal conclusions can be drawn from our work as to whether plan sponsors complied with any applicable legal requirements. As with the development of these factors for analyzing the information packets, the process for implementing the factors was vetted and reviewed by GAO’s Chief Actuary and a research methodologist. An analyst reviewed the materials for informational content based on the implementation sub- factors and a second, independent analyst verified the process and validated determinations of the review. At the most basic level, determining a lump sum is converting a stream of projected future monthly benefits into a present value. A present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return, also known as an interest rate or discount rate. The future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value. In the context of a monthly benefit provided by a defined benefit pension plan, the stream of payments generally commences at an age specified by the plan, known as the normal retirement age, or at an optional early retirement age for eligible participants, and ends when the participant dies (or when the later of the participant and beneficiary dies, for a joint annuity). How long the stream of benefits will last depends on how long the participant lives, and lump sums take into account the probability that the participant will be alive at each future date. A mortality table is a common actuarial convention which shows, for each age, the probability that a person will die before his or her next birthday. For ease of reference, we refer to this simply as § 417(e)(3) throughout this appendix. segments of a corporate bond yield curve.term corporate bond interest rate applied to projected pension payments payable within 5 years; the second segment is a medium-term corporate bond interest rate applied to payments payable 5 years or more, but less than 20 years, into the future; and the third segment is a long-term corporate bond interest rate applied to payments payable in 20 years or more. We constructed a calculator of minimum lump sums to show some of the effect certain methods and assumptions can have on the calculation. We constructed a number of illustrative individuals to show how the minimum lump sums may vary according to key participant characteristics, namely age, gender, and retirement age, and key input calculation parameters, namely interest rates, mortality tables, and the inclusion or exclusion of certain additional plan benefits. While we performed lump sum calculations across a number of illustrative individuals, throughout this appendix we present the results for single individuals in 10-year age increments, from age 35 to age 95. We assumed all individuals are full integer ages—that is, the participant has his or her birthday on the measurement date of the lump sum offer. For terminated vested participants, we assumed a normal retirement age of 65. For retired participants, the present value of their lump sum is calculated and commences at their current age and is based on the remaining payments that are expected to be due from that point forward. Technically, our calculator projects an annual lump sum factor, which produced a lump sum based on an annual benefit. We used a common actuarial adjustment factor to account for monthly payments. We verified our lump sum calculations in two ways. First, when we started our study we asked Pension Benefit Guaranty Corporation (PBGC) officials with actuarial expertise to furnish us with lump sum amounts based on varying age and benefit commencement assumptions using various mortality and interest rate assumptions consistent with § 417(e)(3).to base our calculations on annual benefit amounts, and asked the officials to perform the calculation using such a method. Additionally, to determine if we could come reasonably close to actual offers, we reviewed lump sum offers in two participant packets for which we had enough information to calculate or approximate the lump sum in that packet. Our calculations differed by 1.5 percent and nearly zero percent for the two offers we reviewed. The 1.5 percent difference is very modest and may be due to the fact that the birth date or the date of normal retirement age of the participant we used differed from the date of the offer by a few calendar months. Based on these small differences, and since our purpose was to then estimate changes to lump sums based on changes in certain assumptions, we deemed our calculator to be adequate for such purposes. We discuss our lump sum results below and show how values can change depending on certain key factors. Generally, we are comparing alternative assumptions to our baseline assumptions. We found, of the materials we reviewed, that many of the lump sum election windows occurred between September and December 2012. Based on our review of election materials, we found that many of these sponsors elected to use August 2011 interest rates for the 2012 plan year. Thus, our “baseline” assumption is an offer made in October 2012, using a methodology under § 417(e)(3) for August 2011 interest rates for the 2012 plan year, along with the IRS published unisex mortality table for the 2012 plan year, and without including any additional plan benefits. Comparisons and deviations from this baseline are noted with the figures. Figure 4 compares, for our range of ages, the PPA interest rate basis (our baseline) against the pre-PPA interest rate basis for minimum lump sums, for a lump sum payment offer made in October 2012. As noted, our baseline uses August 2011 corporate bond segment rates (for the 2012 plan year), which under PPA uses corporate bond rates published by IRS as the interest rate used to determine minimum required lump sums. The comparison uses the August 2011 30-year Treasury Securities Rate (TSR), as the 30-year TSR was used to determine minimum required lump sums prior to PPA. Figure 4 shows that lump sum payments are most disparate for younger individuals. This occurs because these individuals have their payments discounted at the second or third segment rates, which are much higher than the 30-year TSR in this instance, and because lump sum amounts for younger participants are more sensitive to changes in interest rates because of the greater length of the discounting period. As shown, minimum lump sums for 35-year-old participants would have increased by 142 percent if an August 2011 30- year TSR was used instead of the baseline. Figure 5 compares the effect of using the “lookback” interest rates that sponsors are allowed to select (our August 2011 interest rates baseline used for the 2012 plan year) against using interest rates as of the month immediately preceding the month of the lump sum offer (September 2012 rates). As noted previously, sponsors may elect a stability period of one year with a maximum lookback of 5 months. This means that the rates used at the time of the offer may be nearly 17 months old compared to rates that are current just before the offer. As shown, minimum lump sums would have been higher at all ages, as much as 65 percent higher for 35-year-olds, if more current interest rates were used instead of the “lookback” rates. Figure 6 compares the effect of using current prescribed mortality tables (baseline) against using more up-to-date mortality tables on a participant’s minimum lump sum amount at selected ages. Here we show lump sums that are calculated using the new mortality tables and projection scales devised by the Retirement Planning Experience Committee of the Society of Actuaries and compare that to the current mortality tables used for lump sum payments under § 417(e)(3). The differences in lump sum values, which are also sensitive to the assumed interest rate, vary significantly depending on the age of the participant. As shown, the more up-to-date mortality method improves lump sums by as little as 5 percent for 95-year-olds but as much as 13 percent for 35-year- olds. Figure 7 compares baseline lump sums against an estimate of what they would be if based on group annuity purchase rates. It shows how a lump sum payment, calculated in 2012 using sponsor-elected August 2011 corporate bond interest rates (for the 2012 plan year) and the prescribed mortality tables, would compare to lump sum payments calculated in the month before the offer was made, or September 2012, using the interest rate, mortality assumptions, and loading factors used by PBGC. This method uses the survey that PBGC takes of recent prices of group annuities to derive the interest factors that are used to calculate the present value of future benefit-payment obligations under section 4044 of the Employee Retirement Income Security Act of 1974 (ERISA). These future benefits are obligations that PBGC must pay to participants in the plans that they have taken over as trustee. As observed earlier in the report, figure 7 shows that lump sum payments under the minimum method prescribed under § 417(e)(3) can be significantly smaller than the lump sums that would be necessary to repurchase an annuity that matches the benefit forgone under the participant’s plan. In this case, and because retail annuity data is not easily available, we used a group annuity methodology consistent with For example, a 55-year-old female PBGC section 4044 assumptions. would receive a lump sum payment of $67,020 under the § 417(e)(3) minimum, while she would need $114,460, or a 71 percent larger lump sum, to purchase an annuity that would have been provided under her plan (in this case, a $10,000 annual, or $833 monthly, benefit starting at age 65). As noted earlier in the report, group annuities are generally only available to large pension plans, and retail annuities are generally more expensive due to adverse selection and administrative charges or other fees, so an individual would likely need an even larger lump sum payment to replicate their prior benefit on the retail market. Additionally, a loading factor consistent with 4044 assumptions is added to the lump sum. In the case of the annuity prices, which are all less than $200,000, this is a charge of 5 percent of the preliminary annuity price plus $200. For a more detailed description of loading assumptions for all annuity prices, see Appendix C to 29 C.F.R. Part 4044. In addition to the contact named above, Kimberly Granger (Assistant Director); Frank Todisco (Chief Actuary); Amy Buck; Chuck Ford; David Perkins; Walter Vance; Roger Thomas; and Sheila McCoy made key contributions to this report. Also contributing to this report were Gene Kuehneman; James Bennett; Sue Bernstein; Margie Shields; Amber Yancey-Carroll; Angie Jacobs; David Lin; and Marissa Jones.	Since 2012, a number of large pension plan sponsors have given selected participants a limited-time option of receiving their retirement benefits in the form of a lump sum. Although sponsors' decisions to make certain lump sum “window” offers may be permissible by law, questions have been raised about participants' understanding of the financial tradeoffs associated with their choice. GAO was asked to review critical issues associated with these types of offers. This report focuses on 1) the prevalence of lump sum offers and sponsors' incentives to use them, 2) the implications for participants, and 3) the extent to which selected lump sum materials provided to participants include key information. To conduct this work, GAO identified sponsors offering lump sum windows and used social media to identify participants given offers. GAO reviewed 11 informational packets acquired through interviews with selected plan sponsors and participants. GAO also analyzed lump sum calculations and interviewed federal officials and pension experts. Little public data are available to assess the extent to which sponsors of defined benefit plans are offering participants immediate lump sums to replace their lifetime annuities, but certain laws and regulations provide incentives for use of this practice. Although the U.S. Department of Labor (DOL) has primary responsibility for overseeing pension sponsors' reporting requirements, it does not require sponsors to report such lump sum offers, making oversight difficult. Pension experts generally agree that there has been a recent increase in these types of offers. By reviewing the limited public information that is available, GAO identified 22 plan sponsors who had offered lump sum windows in 2012, involving approximately 498,000 participants and resulting in lump sum payouts totaling more than $9.25 billion. Most of these payouts went to participants who had separated from employment and were not yet retired, but some went to retirees already receiving pension benefits. Sponsors are currently afforded enhanced financial incentives to make these offers by certain laws and regulations issued by the U.S. Department of the Treasury (specifically the Internal Revenue Service) governing the interest rates and mortality tables used to calculate lump sums. Participants potentially face a reduction in their retirement assets when they accept a lump sum offer. The amount of the lump sum payment may be less than what it would cost in the retail market to replace the plan's benefit because the mortality and interest rates used by retail market insurers are different from the rates used by sponsors, particularly when calculating lump sums for younger participants and women. Participants who assume management of their lump sum payment gain control of their assets but also face potential investment challenges. In addition, some participants may not continue to save their lump sum payment for retirement but instead may spend some or all of it. GAO reviewed 11 packets of informational materials provided by sponsors offering lump sums to as many as 248,000 participants and found that the packets consistently lacked key information needed to make an informed decision or were otherwise unclear. Using various sources, including financial advisors, federal agency publications, laws, and regulations, GAO identified eight key types of information that participants need to have a sound understanding of a lump sum offer. While GAO did not review the packets for compliance or legal adequacy, most packets provided a substantial amount of this key information. However, all of the packets GAO reviewed lacked at least some key information. For example, the relative value notices were often unclear about how the value of the lump sum compared to the value of the lifetime monthly benefit provided by the plan. Similarly, many packets did not clearly indicate the interest rate or mortality assumptions used, limiting participants' ability to assess how the lump sum payment was calculated. Further, few of the packets informed participants about the benefit protections they would keep by staying in their employer's plan—full or partial protections provided by the Pension Benefit Guaranty Corporation, the agency that insures defined benefit pensions when a sponsor defaults. This omission is notable because many participants GAO interviewed cited fear of sponsor default as an important factor in choosing the lump sum. GAO recommends that DOL improve oversight by requiring plan sponsors to notify the agency when they implement lump sum windows, and coordinate with Treasury to clarify guidance on the information sponsors provide to participants. Further, Treasury should reassess regulations governing relative value statements, as well as the interest rates and mortality tables used in calculating lump sums. Agencies generally agreed with GAO's recommendations.	15.1	16k+	5,451
50	Nuclear waste is long-lived and very hazardous—without protective shielding, the intense radioactivity of the waste can kill a person within minutes or cause cancer months or even decades after exposure. Thus, careful management is required to isolate it from humans and the environment. To accomplish this, the National Academy of Sciences first endorsed the concept of nuclear waste disposal in deep geologic formations in a 1957 report to the U.S. Atomic Energy Commission, which has since been articulated by experts as the safest and most secure method of permanent disposal. However, progress toward developing a geologic repository was slow until NWPA was enacted in 1983. Citing the potential risks of the accumulating amounts of nuclear waste, NWPA required the federal government to take responsibility for the disposition of nuclear waste and required DOE to develop a permanent geologic repository to protect public health and safety and the environment for current and future generations. Specifically, the act required DOE to study several locations around the country for possible repository sites and develop a contractual relationship with industry for disposal of the nuclear waste. The Congress amended NWPA in 1987 to restrict scientific study and characterization of a possible repository to only Yucca Mountain. (Fig. 2 shows the north crest of Yucca Mountain and a cut-out of the proposed mined repository.) After the Congress approved Yucca Mountain as a suitable site for the development of a permanent nuclear waste repository in 2002, DOE began preparing a license application for submittal to NRC, which has regulatory authority over commercial nuclear waste management facilities. DOE submitted its license application to NRC in June 2008, and NRC accepted the license application for review in September 2008. NWPA requires NRC to complete its review of DOE’s license application for the Yucca Mountain repository in 3 years, although a fourth year is allowed if NRC deems it necessary and complies with certain reporting requirements. To pay the nuclear power industry’s share of the cost for the Yucca Mountain repository, NWPA established the Nuclear Waste Fund, which is funded by a fee of one mill (one-tenth of a cent) per kilowatt-hour of nuclear-generated electricity that the federal government collects from electric power companies. DOE reported that, at the end of fiscal year 2008, the Nuclear Waste Fund contained $22 billion, with an additional $1.9 billion projected to be added in 2009. DOE receives money from the Nuclear Waste Fund through congressional appropriations. Additional funding for the repository comes from an appropriation which provides for the disposal cost of DOE-managed spent nuclear fuel and high-level waste. NWPA caps nuclear waste that can be disposed of at the Yucca Mountain repository at 70,000 metric tons until a second repository is available. However, the nation has already accumulated about 70,000 metric tons of nuclear waste at current reactor sites and DOE facilities. Without a change in the law to raise the cap or to allow the construction of a second repository, DOE can dispose of only the current nuclear waste inventory. The nation will have to develop a strategy for an additional 83,000 metric tons of waste expected to be generated if NRC issues 20-year license extensions to all of the currently operating nuclear reactors. This amount does not include any nuclear waste generated by new reactors or future defense activities, or greater than class C nuclear waste. According to DOE and industry studies, three to four times the 70,000 metric tons—and possibly more—could potentially be disposed safely in Yucca Mountain, which could address current and some future waste inventories, potentially delaying the need for a second repository for several generations. Nuclear waste has continued to accumulate at the nation’s commercial and DOE nuclear facilities over the past 60 years. Facility managers must actively manage the nuclear waste by continually isolating, confining, and monitoring it to keep humans and the environment safe. Most spent nuclear fuel is stored at reactor sites, immersed in pools of water designed to cool and isolate it from the environment. With nowhere to dispose of the spent nuclear fuel, the racks holding spent fuel in the pools have been rearranged to allow for more dense storage of assemblies. Even with this re-racking, spent nuclear fuel pools are reaching their capacities. Some critics have expressed concern about the remote possibility of an overcrowded spent nuclear fuel pool releasing large amounts of radiation if an accident or other event caused the pool to lose water, potentially leading to a fire that could disperse radioactive material. As reactor operators have run out of space in their spent nuclear fuel pools, they have turned in increasing number to dry cask storage systems that generally consist of stainless steel canisters placed inside larger stainless steel or concrete casks. (See fig. 3.) NRC requires protective shielding, routine inspections and monitoring, and security systems to isolate the nuclear waste to protect humans and the environment. NRC has determined that these dry cask storage systems can safely store nuclear waste, but NRC considers them to be interim measures. In 1990, NRC issued a revised waste confidence rule, stating that it had co that the waste generated by a reactor can be safely stored in either wet or dry storage for 30 years beyond a reactor’s life, including license extensions. NRC further determined that it had reasonable assurance thate safe geologic disposal was feasible and that a geologic repository would b operational by about 2025. More recently, NRC has published a notice of proposed rulemaking to revise that rule, proposing that waste generated by a reactor can be safely stored for 60 years beyond the life of a reac tor and that geologic disposal would be available in 50 to 60 years beyond a NRC is currently considering whether to republish its reactor’s life. proposed rule to seek additional public input on certain issues. Forty-fi reactor sites or former reactor sites in 30 states have dry storage faci for their spent nuclear fuel a sites storing spent nuclear fuel is likely to continue to grow until an alternative is implemented. s of June 2009, and the number of reactor Implementing a permanent, safe, and secure disposal solution for the nuclear waste is of concern to the nation, particularly state governmentsand local communities, because many of the 80 sites where nuclear wast e is currently stored are near large populations or major water sources or consist of shutdown reactor sites that tie up land that could be used for other purposes. In addition, states that have DOE facilities with nuclear waste storage are concerned because of possible contamination to aquifers, rivers, and other natural resources. DOE’s Hanford Reservation, located near Richland, Washington, was a major component of the nation nuclear weapons defense program from 1943 until 1989, when operat ions ceased. In the settlement of a lawsuit filed by the state of Washin 2003, DOE agreed not to ship certain nuclear waste to Hanford until environmental reviews were complete. In August 2009, the U.S. government stated that the preferred alternative in DOE’s environmen review would include limitations on certain nuclear waste shipments to Hanford until the process of immobilizing tank waste in glass begins, tal expected in 2019. Moreover, some commercial and DOE sites where the nuclear waste is stored may not be able to accommodate much additional waste safely because of limited storage space or community objections. These sites will require a more immediate solution. The nation has considered proposals to build centralized storage facilities where waste from reactor sites could be consolidated. The 1987 amendment to NWPA established the Office of the Nuclear Waste Negotiator to try to broker an agreement for a community to host a repository or interim storage facility. Two negotiators worked with local communities and Native American tribes for several years, but neither was able to conclude a proposed agreement with a willing community by January 1995, when the office’s authority expired. Subsequently, in 2006 after a 9-year licensing process, a consortium of electric power companies called Private Fuel Storage obtained a NRC license for a private centralized storage facility on the reservation of the Skull Valley Band of the Goshute Indians in Utah. NRC’s 20-year license—with an option for an additional 20 years—allows storage of up to 40,000 metric tons of commercial spent nuclear fuel. However, construction of the Private Fuel Storage facility has been delayed by Department of the Interior decisions not to approve the lease of tribal lands to Private Fuel Storage and declining to issue the necessary rights-of-way to transport nuclear waste to the facility through Bureau of Land Management land. Private Fuel Storage and the Skull Valley Band of Goshutes filed a federal lawsuit in 2007 to overturn Interior’s decisions. Reprocessing nuclear waste could potentially reduce, but not eliminate, the amount of waste for disposal. In reprocessing, usable uranium and plutonium are recovered from spent nuclear fuel and are used to make new fuel rods. However, current reprocessing technologies separate weapons usable plutonium and other fissionable materials from the spent nuclear fuel, raising concerns about nuclear proliferation by terrorists or enemy states. Although the United States pioneered the reprocessing technologies used by other countries, such as France and Russia, presidents Gerald Ford and Jimmy Carter ended government support for commercial reprocessing in the United States in 1976 and 1977, respectively, primarily due to proliferation concerns. Although President Ronald Reagan lifted the ban on government support in 1981, the nation has not embarked on any reprocessing program due to proliferation and cost concerns—the Congressional Budget Office recently reported that current reprocessing technologies are more expensive than direct disposal of the waste in a geologic repository. DOE’s Fuel Cycle Research and Development program is currently performing research in reprocessing technologies that would not separate out weapons usable plutonium, but it is not certain whether these technologies will become cost-effective. The general consensus of the international scientific community is that geologic disposal is the preferred long-term nuclear waste management alternative. Finland, Sweden, Canada, France, and Switzerland have decided to construct geologic disposal facilities, but none have yet completed any such facility, although DOE reports that Finland and Sweden have announced plans to begin emplacement operations in 2020 and 2023, respectively. Moreover, some countries employ a mix of complementary storage alternatives in their national waste management strategies, including on-site storage, consolidated interim storage, reprocessing, and geologic disposal. For example, Sweden plans to rely on on-site storage until the waste cools enough to move it to a centralized storage facility, where the waste will continue to cool and decay for an additional 30 years. This waste will then be placed in a geologic repository for disposal. France reprocesses the spent nuclear fuel, recycling usable portions as new fuel and storing the remainder for eventual disposal. The Yucca Mountain repository—mandated by NWPA, as amended— would provide a permanent nuclear waste management solution for the nation’s current inventory of about 70,000 metric tons of waste. According to DOE and industry studies, the repository potentially could be a disposal site for three to four times that amount of waste. However, the repository lacks the support of the administration and the state of Nevada, and faces regulatory and other challenges. Our analysis of DOE’s cost projections found that the Yucca Mountain repository would cost from $41 billion to $67 billion (in 2009 present value) for disposing of 153,000 metric tons of nuclear waste. Most of these costs are up-front capital costs. However, once the Yucca Mountain repository is closed—in 2151 for our 153,000- metric-ton model—it is not expected to incur any significant additional costs, according to DOE. The Yucca Mountain repository is designed to isolate nuclear waste in a safe and secure environment long enough for the waste to degrade into a form that is less harmful to humans and the environment. As nuclear waste ages, it cools and decays, becoming less radiologically dangerous. In October 2008, after years of legal challenges, the Environmental Protection Agency (EPA) promulgated standards that require DOE to ensure that radioactive releases from the nuclear waste disposed of at Yucca Mountain do not harm the public for 1 million years. This is because some waste components, such as plutonium 239, take hundreds of thousands of years to decay into less harmful materials. To meet EPA’s standards and keep the waste safely isolated, DOE’s license application proposes the use of both natural and engineered barriers. Key natural barriers of Yucca Mountain include its dry climate, the depth and isolation of the Death Valley aquifer in which the mountain resides, its natural physical shape, and the layers of thick rock above and below the repository that lie 1,000 feet below the surface of the mountain and 1,000 feet above the water table. Key engineered barriers include the solid nature of the nuclear waste; the double-shelled transportation, aging, and disposal canisters that encapsulate the waste and prevent radiation leakage; and drip shields that are composed of corrosion-resistant titanium to ward off any dripping water inside the repository for many thousands of years. The construction of a geologic repository at Yucca Mountain would provide a permanent solution for nuclear waste that could allow the government to begin taking possession of the nuclear waste in the near term—about 10 to 30 years. The nuclear power industry sees this as an important consideration in obtaining the public support necessary to build new nuclear power reactors. The industry is interested in constructing new nuclear power reactors because, among other reasons, of the growing demand for electricity and pressure from federal and state governments to reduce reliance on fossil fuels and curtail carbon emissions. Some electric power companies see nuclear energy as an important option for noncarbon emitting power generation. According to NRC, 18 electric power companies have filed license applications to construct 29 new nuclear reactors. Nuclear industry representatives, however, have expressed concerns that investors and the public will not support the construction of new nuclear power reactors without a final safe and secure disposition pathway for the nuclear waste, particularly if that waste is generated and stored near major waterways or urban centers. Moreover, having a permanent disposal option may allow reactor operators to thin- out spent nuclear fuel assemblies from densely packed spent fuel pools, potentially reducing the risk of harm to humans or the environment in the event of an accident, natural disaster, or terrorist event. In addition, disposal is the only alternative for some DOE and commercial nuclear waste—even if the United States decided to reprocess the waste— because it contains nuclear waste residues that cannot be used as nuclear reactor fuel. This nuclear waste has no safe, long-term alternative other than disposal, and the Yucca Mountain repository would provide a near- term, permanent disposal pathway for it. Moreover, DOE has agreed to remove spent nuclear fuel from at least two states by certain dates or face penalties. Specifically, DOE has an agreement with Colorado stating that if the spent nuclear fuel at Fort St. Vrain is not removed by January 1, 2035, the government will, subject to certain conditions, pay the state $15,000 per day until the waste is removed. In addition, the state of Idaho sued DOE to remove inventories of spent nuclear fuel stored at DOE’s Idaho National Laboratory. Under the resulting settlement DOE agreed to (1) remove the spent nuclear fuel by January 1, 2035, or incur penalties of $60,000 per day and (2) curtail or suspend future shipments of spent nuclear fuel to Idaho. Some of the spent nuclear fuel stored at the Idaho National Laboratory comes from refueling the U.S. Navy’s submarines and aircraft carriers, all of which are nuclear powered. Special facilities are maintained at the Idaho National Laboratory to examine naval spent nuclear fuel to obtain information for improving future fuel performance and to package the spent nuclear fuel following examination to make it ready for rail shipment to its ultimate destination. According to Navy officials, refueling these warships, which necessitates shipment of naval spent nuclear fuel from the shipyards conducting the refuelings to the Idaho National Laboratory, is part of the Navy’s national security mission. Consequently, curtailing or suspending shipments of spent nuclear fuel to Idaho raises national security concerns for the Navy. The Yucca Mountain repository would help the government fulfill its obligation under NWPA to electric power companies and ratepayers to take custody of the commercial spent nuclear fuel and provide a permanent repository using the Nuclear Waste Fund. When DOE missed its 1998 deadline to begin taking custody of the waste, owners of spent fuel with contracts for disposal services filed lawsuits asking the courts to require DOE to fulfill its statutory and contractual obligations by taking custody of the waste. Though a court decided that it would not order DOE to begin taking custody of the waste, the courts have, in subsequent cases, ordered the government to compensate the utilities for the cost of storing the waste. DOE projected that, based on a 2020 date for beginning operations at Yucca Mountain, the government’s liabilities from the 71 lawsuits filed by electric power companies could sum to about $12.3 billion, though the outcome of pending and future litigation could substantially affect the ultimate total liability. DOE estimates that the federal government’s future liabilities will average up to $500 million per year. Furthermore, continued delays in DOE’s ability to take custody of the waste could result in additional liabilities. Some experts noted that without immediate plans for a permanent repository, reactor operators and ratepayers may demand that the Nuclear Waste Fund be refunded. Finally, disposing of the nuclear waste now in a repository facility would reduce the uncertainty about the willingness or the ability of future generations to monitor and maintain multiple surface waste storage facilities and would eliminate the need for any future handling of the waste. As a 2001 report of the National Academies noted, continued storage of nuclear waste is technically feasible only if those responsible for it are willing and able to devote adequate resources and attention to maintaining and expanding the storage facilities, as required to keep the waste safe and secure. DOE officials noted that the waste packages at Yucca Mountain are designed to be retrievable for more than 100 years after emplacement, at which time DOE would begin to close the repository, allowing future generations to consider retrieving spent nuclear fuel for reprocessing or other uses. However, the risks and costs of retrieving the nuclear waste from Yucca Mountain are uncertain because planning efforts for retrieval are preliminary. Once closed, Yucca Mountain will require minimal monitoring and little or no maintenance, and all future controls will be passive. Some experts stated that the current generation has a moral obligation to not pass on to future generations the extensive technical and financial responsibilities for managing nuclear waste in surface storage. There are many challenges to licensing and constructing the Yucca Mountain repository, some of which could delay or potentially terminate the program. First, in March 2009, the Secretary of Energy stated that the administration planned to terminate the Yucca Mountain repository and to form a panel of experts to review alternatives. During the testimony, the Secretary stated that Yucca Mountain would not be considered as one of the alternatives. The administration’s fiscal year 2010 budget request for Yucca Mountain was $197 million, which is $296 million less than what DOE stated it needs to stay on its schedule and open Yucca Mountain by 2020. In July 2009 letters to DOE, the Nuclear Energy Institute and the National Association of Regulatory Utility Commissioners raised concerns that, despite the announced termination of Yucca Mountain, DOE still intended on collecting fees for the Nuclear Waste Fund. The letters requested that DOE suspend collection of payments to the Nuclear Waste Fund. Some states have raised similar concerns and legislators have introduced legislation that could hold payments to the Nuclear Waste Fund until DOE begins operating a federal repository. Nevertheless, NWPA still requires DOE to pursue geologic disposal at Yucca Mountain. If the administration continues the licensing process for Yucca Mountain, DOE would face a variety of other challenges in licensing and constructing the repository. Many of these challenges—though unique to Yucca Mountain—might also apply in similar form to other future repositories, should they be considered. One of the most significant challenges facing DOE is to satisfy NRC that Yucca Mountain meets licensing requirements, including ensuring the repository meets EPA’s radiation standards over the required 1 million year time frame, as implemented by NRC regulation. For example, NRC’s regulations require that DOE model its natural and engineered barriers in a performance assessment, including how the barriers will interact with each other over time and how the repository will meet the standards even if one or more barriers do not perform as expected. NRC has stated that there are uncertainties inherent in the understanding of the performance of the natural and engineered barriers and that demonstrating a reasonable expectation of compliance requires the use of complex predictive models supported by field data, laboratory tests, site-specific monitoring, and natural analog studies. The Nuclear Waste Technical Review Board has also stated that the performance assessment may be “the most complex and ambitious probabilistic risk assessment ever undertaken” and the Board, as well as other groups or individuals, have raised technical concerns about key aspects of the engineered or natural barriers in the repository design. DOE and NRC officials also stated that budget constraints raise additional challenges. DOE officials told us that past budget shortfalls and projected future low budgets for the Yucca Mountain repository create significant challenges in DOE’s ability to meet milestones for licensing and for responding to NRC’s requests for additional information related to the license application. In addition, NRC officials told us budget shortfalls have constrained their resources. Staff members they originally hired to review DOE’s license application have moved to other divisions within NRC or have left NRC entirely. NRC officials stated that the pace of the license review is commensurate with funding levels. Some experts have questioned whether NRC can meet the maximum 4-year time requirement stipulated in NWPA for license review and have pointed out that the longer the delays in licensing Yucca Mountain, the more costly and politically vulnerable the effort becomes. In addition, the state of Nevada and other groups that oppose the Yucca Mountain repository have raised technical points, site-specific concerns, and equity issues and have taken steps to delay or terminate the repository. For example, Nevada’s Agency for Nuclear Projects questioned DOE’s reliance on engineered barriers in its performance assessment, indicating that too many uncertainties exist for DOE to claim human-made systems will perform as expected over the time frames required. In addition, the agency reported that Yucca Mountain’s location near seismic and volcanic zones creates additional uncertainty about DOE’s ability to predict a recurrence of seismic or volcanic events and to assess the performance of its waste isolation barriers should those events occur some time during the 1-million-year time frame. The agency also has questioned whether Yucca Mountain is the best site compared with other locations and has raised issues of equity, since Nevada is being asked to accept nuclear waste generated in other states. In addition to the Agency for Nuclear Projects’ issues, Nevada has taken other steps to delay or terminate the project. For example, Nevada has denied the water rights DOE needs for construction of a rail spur and facility structures at Yucca Mountain. DOE officials told us that constructing the rail line or the facilities at Yucca Mountain without those water rights will be difficult. Our analysis of DOE’s cost estimates found that (1) a 70,000 metric ton repository is projected to cost from $27 to $39 billion in 2009 present value over 108 years and (2) a 153,000 metric ton repository is projected to cost from $41 to $67 billion and take 35 more years to complete. These estimated costs include the licensing, construction, operation, and closure of Yucca Mountain for a period commensurate with the amount of waste. Table 1 shows each scenario with its estimated cost range over time. As shown in figure 4, the Yucca Mountain repository costs are expected to be high during construction, followed by reduced, but consistent costs during operations, substantially reduced costs for monitoring, then a period of increased costs for installation of the drip shields, and finally costs tapering off for closure. Once the drip shields are installed, by design, the waste packages will no longer be retrievable. After closure, Yucca Mountain is not expected to incur any significant additional costs. Costs for the construction of a repository, regardless of location, could increase based on a number of different scenarios, including delays in license application, funding shortfalls, and legal or technical issues that cause delays or changes in plans. For example, we asked DOE to assess the cost of a year’s delay in license application approval from the current 3 years to 4 years, the maximum allowed by NWPA. DOE officials told us that each year of delay would cost DOE about $373 million in constant 2009 dollars. Although the experts with whom we consulted did not agree on how long the licensing process for Yucca Mountain might take, several experts told us that the 9 years it took Private Fuel Storage to obtain its license was not unreasonable. This licensing time frame may not directly apply to the Yucca Mountain repository because the repository has a significantly different licensing process and regulatory scheme, including extensive pre-licensing interactions, a federal funding stream, and an extended compliance period and, because of the uncertainties, could take shorter or longer than the Private Fuel Storage experience. A nine-year licensing process for construction authorization would add an estimated $2.2 billion to the cost of the repository, mostly in costs to maintain current systems, such as project support, safeguards and security, and its licensing support network. In addition to consideration of the issuance of a construction authorization, NRC’s repository licensing process involves two additional licensing actions necessary to operate and close a repository, each of which allows for public input and could potentially adversely affect the schedule and cost of the repository. The second action is the consideration of an updated DOE application for a license to receive and possess high-level radioactive waste. The third action is the consideration of a DOE application for a license amendment to permanently close the repository. Costs could also increase if unforeseen technical issues developed. For example, some experts told us that the robotic emplacement of waste packages could be difficult because of the heat and radiation output from the nuclear waste, which could impact the electronics on the machinery. DOE officials acknowledged the challenges and told us the machines would have to be shielded for protection. They noted, however, that industry has experience with remote handling of shielded robotic machinery and DOE should be able to use that experience in developing its own machinery. The responsibility for Yucca Mountain’s costs would come from the Nuclear Waste Fund and taxpayers through annual appropriations. NWPA created the Nuclear Waste Fund as a mechanism for the nuclear power industry to pay for its share of the cost for building and operating a permanent repository to dispose of nuclear waste. NWPA also required the federal taxpayers to pay for the portion of permanent repository costs for DOE-managed spent nuclear fuel and high-level waste. DOE has responsibility for determining on an annual basis whether fees charged to industry to finance the Nuclear Waste Fund are sufficient to meet industry’s share of costs. As part of that process, DOE developed a methodology in 1989 that uses the total system life cycle cost estimate as input for determining the shares of industry and the federal government by matching projected costs against projected assets. The most recent published assessment, published in July 2008, showed that 80.4 percent of the disposal costs would come from the Nuclear Waste Fund and 19.6 percent would come from appropriations for the DOE-managed spent nuclear fuel and high-level waste. In addition, the Department of the Treasury’s judgment fund will pay the government’s liabilities for not taking custody of the nuclear waste in 1998, as required by DOE’s contract with industry. Based on existing judgments and settlements, DOE has estimated these costs at $12.3 billion through 2020 and up to $500 million per year after that, though the outcome of pending litigation could substantially affect the government’s ultimate liability. The Department of Justice has also spent about $150 million to defend DOE in the litigation. We used input from experts to identify two nuclear waste management alternatives that could be implemented if the nation does not pursue disposal at Yucca Mountain—centralized storage and continued on-site storage, both of which could be implemented with final disposal, according to experts. To understand the implications and likely assumptions of each alternative, as well as the associated costs for the component parts, we systematically solicited facts, advice, and opinions from experts in nuclear waste management. Finally, we used the data and assumptions that the experts provided to develop large-scale cost models that estimate ranges of likely total costs for each alternative. To identify waste management alternatives that could be implemented if the waste is not disposed of at Yucca Mountain, we solicited facts, advice, and opinions from nuclear waste management experts. Specifically, we interviewed dozens of experts from DOE, NRC, the Nuclear Energy Institute, the National Association of Regulatory Utility Commissioners, the National Conference of State Legislatures, and the State of Nevada Agency for Nuclear Projects. We also reviewed documents they provided or referred us to. Based on this information, we chose to analyze (1) centralized interim dry storage and (2) on-site dry storage (both interim and long-term). Centralized storage has been attempted to varying degrees in the United States, and on-site storage has become the country’s status quo. Consequently, the experts believe these two alternatives are currently among the most likely for this country in the near-term, in conjunction with final disposal in the long-term. The experts also told us that current nuclear waste reprocessing technologies raise proliferation concerns and are not considered commercially feasible, but they noted that reprocessing has future potential as a part of the nation’s nuclear waste management strategy. Because nuclear waste is not reprocessed in this country, we found a lack of sufficient and reliable data to provide meaningful analysis for this alternative. Experts have largely dismissed other alternatives that have been identified, such as disposal of waste in deep boreholes, because of cost or technical constraints. We developed a set of key assumptions to establish the scope of our alternatives by initially consulting with a small group of nuclear waste management experts. For example, we asked the experts about how many storage sites should be used and whether waste would have to be repackaged. These discussions occurred in an iterative manner—we followed up with experts with specific expertise to refine our assumptions as we learned more. Based on this input, we formulated several key assumptions and defined the alternatives in a generic manner by taking into account some, but not all, of the complexities involved with nuclear waste management (see table 2). We made this choice because experts advised us that trying to consider all of the variability among reactor sites would result in unmanageable models since each location where nuclear waste is currently stored has a unique set of environmental, management, and regulatory considerations that affect the logistics and costs of waste management. For example, reactor sites use different dry cask storage systems with varying costs that require different operating logistics to load the casks. In addition, there were some instances in which we made assumptions that, while not entirely realistic, were necessary to keep our alternatives generic and distinct from one another. For example, some electric power companies would likely consolidate nuclear waste from different locations by transporting it between reactor sites, but to keep the on-site storage alternative generic and distinct from the centralized storage alternative, we assumed that there would be no consolidation of waste. These simplifying assumptions make our alternatives hypothetical and not entirely representative of their real-world implementation. We also consulted with experts to formulate more specific assumptions about processes that reflect the sequence of activities that would occur within each alternative (see fig. 5). In addition, we identified the components of these processes that have associated costs. For example, one of the processes associated with both alternatives is packaging the nuclear waste in dry storage canisters from the pools of water where they are stored. The component costs associated with this process include the dry storage canisters and operations to load the spent nuclear fuel into the canisters. To generate cost ranges for the centralized storage and on-site storage alternatives, we developed four large-scale cost models that analyzed the costs for each alternative of storing 70,000 metric tons and 153,000 metric tons of nuclear waste and created scenarios within these models to analyze different storage durations and final dispositions. (See table 3.) We generated cost ranges for each alternative for storing 153,000 metric tons of waste for 100 years followed by disposal in a geologic repository. We also generated cost ranges for each alternative of storing 70,000 metric tons and 153,000 metric tons of nuclear waste for 100 years, and for storing 153,000 metric tons of waste on site for 500 years without including the cost of subsequent disposal in a geologic repository. For each of the models, which rely upon data and assumptions provided by nuclear waste management experts, the cost range was based on the annual volume of commercial spent nuclear fuel that became ready to be packaged and stored in each year. In general, each model started in 2009 by annually tracking costs of initial packaging and related costs for the first 100 years and for every 100 years thereafter if the waste was to remain on site and be repackaged. Since our models analyzed only the costs associated with storing commercial nuclear waste management, we augmented them with DOE’s cost data for (1) managing its spent nuclear fuel and high-level waste and (2) constructing and operating a permanent repository. Specifically, we used DOE’s estimated costs for the Yucca Mountain repository to represent cost for a hypothetical permanent repository. One of the inherent difficulties of analyzing the cost of any nuclear waste management alternative is the large number of uncertainties that need to be addressed. In addition to general uncertainty about the future, there is uncertainty because of the lack of knowledge about the waste management technologies required, the type of waste and waste management systems that individual reactors will eventually employ, and cost components that are key inputs to the models and could occur over hundreds or thousands of years. Given these numerous uncertainties, it is not possible to precisely determine the total costs of each alternative. However, much of the uncertainty that we could not easily capture within our models can be addressed through the use of several alternative models and scenarios. As shown in table 3, we developed two models for each alternative to address the uncertainty regarding the total volume of waste for disposal. We then developed different scenarios within each model to address different time frames and disposal paths. Furthermore, we used a risk analysis modeling technique that recognized and addressed uncertainties in our data and assumptions. Given the different possible scenarios and uncertainties, we generated ranges, rather than point estimates, for analyzing the cost of each alternative. One of the most important uncertainties in our analysis was uncertainty over component costs. To address this, we used a commercially available risk analysis software program that enabled us to model specific uncertainties associated with a large number of cost inputs and assumptions. Using a Monte Carlo simulation process, the program explores a wide range of values, instead of one single value, for each cost input and estimates the total cost. By repeating the calculations thousands of times with a different set of randomly chosen input values, the process produces a range of total costs for each alternative and scenario. The process also specifies the likelihood associated with values in the estimated range. Another inherent difficulty in estimating the cost of nuclear waste management alternatives is the fact that the costs are spread over hundreds or thousands of years. The economic concept of discounting is central to such long-term analysis because it allows us to convert costs that occur in the distant future to present value—equivalent values in today’s dollars. Although the concept of discounting is an accepted and standard methodology in economics, the concept of discounting values over a very distant future—known as “intergenerational discounting”—is still subject to considerable debate. Furthermore, no consensus exists among economists regarding the exact value of the discount rate that should be used to discount values that are spread over many hundreds or thousands of years. To develop an appropriate discounting methodology and to choose the discount rates for our analysis, we reviewed a number of economic studies published in peer-reviewed journals that addressed intergenerational discounting. Based on our review, we designed a discounting methodology for use in our models. Because our review did not find a consensus on discount rates, we used a range of values for discount rates that we developed based on the economic studies we reviewed, rather than using one single rate. Consequently, because we used ranges for the discount rate along with the Monte Carlo simulation process, the present value of estimated costs does not depend on one single discount rate, but rather reflect a range of discount rate values taken from peer-reviewed studies. (See app. IV for details of our modeling and discounting methodologies, assumptions, and results.) Centralized storage would provide a near-term alternative for managing nuclear waste, allowing the government to begin taking possession of the waste within approximately the next 30 years, and giving additional time for the nation to consider long-term waste management options. However, centralized storage does not preclude the need for final disposal of the waste. In addition, centralized storage faces several implementation challenges including that DOE (1) lacks statutory authority to provide centralized storage under NWPA, (2) is expected to have difficulty finding a location willing to host a centralized storage facility, and (3) faces potential transportation risks. The estimated cost of implementing centralized storage for 100 years ranges from $15 billion to $29 billion for 153,000 metric tons of nuclear waste, and the total cost ranges from $23 billion to $81 billion if the nuclear waste is centrally stored and then disposed in a geologic repository. As the administration re-examines the Yucca Mountain repository and national nuclear waste policy, centralized dry cask storage could provide a near-term alternative for managing the waste that has accumulated and will continue to accumulate. This would provide additional time—NRC has stated that spent nuclear fuel storage is safe and environmentally acceptable for a period on the order of 100 years—to consider other long- term options that may involve alternative policies and new technologies and allow some flexibility for their implementation. For example, centralized storage would maintain nuclear waste in interim dry storage configurations so that it could be easily accessible for reprocessing in case the nation decided to pursue reprocessing as a waste management option and developed technologies that address current proliferation and cost concerns. In fact, reprocessing facilities could be built near or adjacent to centralized facilities to maximize efficiencies. However, even with reprocessing, some of the spent nuclear fuel and high-level waste in current inventories would require final disposal. Centralized storage would consolidate the nation’s nuclear waste after reactors are decommissioned, thereby decreasing the complexity of securing and overseeing the waste and increasing the efficiency of waste storage operations. This alternative would remove nuclear waste from all DOE sites and nine shutdown reactor sites that have no operations other than nuclear waste storage, allowing these sites to be closed. Some of these storage sites occupy land that potentially could be used for other purposes, imposing an opportunity cost on states and communities that no longer receive the benefits of electricity generation from the reactors. To compensate for this loss, industry officials noted that at least two states where decommissioned sites are located have tried to raise property taxes on the sites, and at one site, the state collects a per cask fee for storage. In addition, the continued storage of nuclear waste at decommissioned sites can cost the power companies between about $4 million and $8 million per year, according to several experts. Centralized storage could allow reactor operators to thin-out spent nuclear fuel assemblies from densely packed spent fuel pools and may also prevent operating reactors from having to build the additional dry storage capacity they would need if the nuclear waste remained on site. According to an industry official, 28 reactor sites could have to add dry storage facilities over the next 10 years in order to maintain a desired capacity in their storage pools. These dry storage facilities could cost about $30 million each, but this cost would vary widely by site. In addition, some current reactor sites use older waste storage systems and are near large cities or large bodies of fresh water used for drinking or irrigation. Although NRC’s licensing and inspection process is designed to ensure that these existing facilities appropriately protect public health and safety, new centralized facilities could use state-of-the-art design technology and be located in remote areas with fewer environmental hazards, in order to protect public health and enhance safety. Finally, if DOE uses centralized facilities to store commercial spent nuclear fuel, this alternative could allow DOE to fulfill its obligation to take custody of the commercial spent nuclear fuel until a long-term strategy is implemented. As a result, DOE could curtail its liabilities to the electric power companies, potentially saving the government up to $500 million per year after 2020, as estimated by DOE. The actual impact of centralized storage on the amount of the liabilities would depend on several factors, including when centralized storage is available, whether reactor sites had already built on-site dry storage facilities for which the government may be liable for a portion of the costs, how soon waste could be transported to a centralized site, and the outcome of pending litigation that may affect the government’s total liability. DOE estimates that if various complex statutory, regulatory, siting, construction, and financial issues were expeditiously resolved, a centralized facility to accept nuclear waste could begin operations as early as 6 years after its development began. However, a centralized storage expert estimated that the process from site selection until a centralized facility opens could take between 17 and 33 years. Although centralized storage has a number of positive attributes, it provides only an interim alternative and does not eliminate the need for final disposal of the nuclear waste. To keep the waste safe and secure, a centralized storage facility relies on active institutional controls, such as monitoring, maintenance, and security. Over time, the storage systems may degrade and institutional controls may be disrupted, which could result in increased risk of radioactive exposure to humans or the environment. For example, according to several experts on dry cask systems, the vents on the casks—which allow for passive cooling—must be periodically inspected to ensure no debris clogs them, particularly during the first several decades when the spent nuclear fuel is thermally hot. If the vents become clogged, the temperature in the canister could rise, which could impact the life of the dry cask storage system. Over a longer time frame, concrete on the exterior casks could degrade, requiring more active maintenance. Although some experts stated that the risk of radiation being released into the environment may be low, such risks can be avoided by permanently isolating the waste in a manner that does not require indefinite, active institutional controls, such as disposal in a geologic repository. A key challenge confronting the centralized storage alternative is the lack of authority under NWPA for DOE to provide such storage. Provisions in NWPA that allow DOE to arrange for centralized storage have either expired or are unusable because they are tied to milestones in repository development that have not been met. For example, NWPA authorized DOE to provide temporary storage for a limited amount of spent nuclear fuel until a repository was available, but this authority expired in 1990. Some industry representatives have stated that DOE still has the authority to accept and store spent nuclear fuel under the Atomic Energy Act of 1954, as amended, but DOE asserts that NWPA limits its authority under the Atomic Energy Act. In addition, NWPA provided authority for DOE to site, construct, and operate a centralized storage facility, but such a facility could not be constructed until NRC authorized construction of the Yucca Mountain repository, and the facility could only store up to 10,000 metric tons of nuclear waste until the repository started accepting spent nuclear fuel. Therefore, unless provisions in NWPA were amended, centralized storage would have to be funded, owned, and operated privately. A privately operated centralized storage facility alternative, such as the proposed Private Fuel Storage Facility in Utah, would not likely resolve DOE’s liabilities with the nuclear power companies. A second, equally important, challenge to centralized storage is the likelihood of opposition during site selection for a facility. Experts noted that affected states and communities would raise concerns about safety, security, and the likelihood that an interim centralized storage facility could become a de facto permanent storage site if progress is not being made on a permanent repository. Even if a local community supports a centralized storage facility, the state may not. For example, the Private Fuel Storage facility was generally supported by the Skull Valley Band of the Goshute Indians, on whose reservation the facility was to be located, but the state of Utah and some tribal members opposed its licensing and construction. Other states have indicated their opposition to involuntarily hosting a centralized facility through means such as the Western Governors’ Association, which issued a resolution stating that “no such facility, whether publicly or privately owned, shall be located within the geographic boundaries of a Western state without the written consent of the governor.” Some experts noted that a state or community may be willing to serve as a host if substantial economic incentives were offered and if the party building the site undertook a time-consuming and expensive process of site characterization and safety assessment. However, DOE officials stated that in their previous experience—such as with the Nuclear Waste Negotiator about 15 to 20 years ago—they have found no incentive package that has successfully encouraged a state to voluntarily host a site. A third challenge to centralized storage is that nuclear waste would likely have to be transported twice—once to the centralized site and once to a permanent repository—if a centralized site were not colocated with a repository. Therefore, the total distance over which nuclear waste is transported is likely to be greater than with other alternatives, an important factor because, according to one expert, transportation risk is directly tied to this distance. However, according to DOE, nuclear waste has been safely transported in the United States since the 1960s and National Academy of Sciences, NRC, and DOE-sponsored reports have found that the associated risks are well understood and generally low. Yet, there are also perceived risks associated with nuclear waste transportation that can result in lower property values along transportation routes, reductions in tourism, and increased anxiety that create community opposition to nuclear waste transportation. According to experts, transportation risks could be mitigated through such means as shipping the least radioactive fuel first, using trains that only transport nuclear waste, and identifying routes that minimize possible impacts on highly populated areas. In addition, the hazards associated with transportation from a centralized facility to a repository would decline as the waste decayed and became less radioactive at the centralized facility. As shown in table 4, our models generated cost ranges from $23 billion to $81 billion for the centralized storage of 153,000 metric tons of spent nuclear fuel and high-level waste for 100 years followed by geologic disposal. For centralized storage without disposal, costs would range from $12 billion to $20 billion for 70,000 metric tons of waste and from $15 billion to $29 billion for 153,000 metric tons of waste. These centralized model scenarios include the cost of on-site operations required to package and prepare the waste for transportation, such as storing the waste in dry- cask storage until it is transported off site, developing and operating a system to transport the waste to centralized storage, and constructing and operating two centralized storage facilities. (See app. IV for information about our modeling methodology, assumptions, and results.) Actual centralized storage costs may be more or less than these cost ranges if a different centralized storage scenario is implemented. For example, our models assume that there would be two centralized facilities, but licensing, construction, and operations and maintenance costs would be greater if there were more than two facilities and lower if there was only one facility. Some experts told us that centralized storage would likely be implemented with only one facility because it would be too difficult to site two. But other experts noted that having more sites could reduce the number of miles traveled by the waste and provide a greater degree of geographic equity. The length of time the nuclear waste is stored could also impact the cost ranges, particularly if the nuclear waste were stored for less than or more than the time period assumed in our model. For periods longer than 100 years, experts told us that the dry storage cask systems may be subject to degradation and require repackaging, substantially raising the costs, as well as the level of uncertainty in those costs. Transportation is another area where costs could vary if, for example, transportation was not by rail or if the transportation system differed significantly from what is assumed in our models. Furthermore, costs could be outside our ranges if the final disposition of the waste is different. Our scenario that includes geologic disposal is based on the current cost projections for Yucca Mountain, but these costs could be significantly different for another repository site or if much of the nuclear waste is reprocessed. A different geologic repository would have unique site characterization costs, may use an entirely different design than Yucca Mountain, and may be more or less difficult to build. Also, reprocessing could contribute significantly to the cost of an alternative. For example, we previously reported that construction of a reprocessing plant with an annual production throughput of 3,000 metric tons of spent nuclear fuel could cost about $44 billion. Studies analyzed by the Congressional Budget Office estimate that once a reprocessing plant is constructed, spent nuclear fuel could be reprocessed at between $610,000 and $1.4 million per-metric-ton, when adjusted to 2009 constant dollars. This would result in an annual cost of about $2 billion to $4 billion, assuming a throughput of 3,000 metric tons per year. Finally, the actual cost of implementing one of our centralized storage scenarios would likely be higher than our estimated ranges indicate because our models omit several location-specific costs. These costs could not be quantified in our generic models because we did not make an assumption about the specific location of the centralized facilities. For example, a few experts noted that incentives may be given a state or locality as a basis for allowing a centralized facility to be built, but the incentive amount may vary from location to location based on what agreement is reached. Also, several experts said that rail construction may be required for some locations, which could add significant cost depending on the distance of new rail line required at a specific location. Experts could not provide data for these location-dependent costs to any degree of certainty, so we did not use them in our models. Also, the funding source for government-run centralized storage is unclear. The Nuclear Waste Fund, which electric power companies pay into, was established by NWPA to fund a permanent repository and cannot be used to pay for centralized storage without amending the act. Without such a change, the cost for the federal government to implement this alternative would likely have to be borne by the taxpayers. On-site storage of nuclear waste provides an intermediate option to manage the waste until the government can take possession of it, requiring minimal effort to change from what the nation is currently doing to manage its waste. In the meantime, other longer term policies and strategies could be considered. Such strategies would eventually be required because the on-site storage alternative would not eliminate the need for final disposal of the waste. Some experts believe that legal, community, and technical challenges associated with on-site storage will intensify as the waste remains on site without plans for final disposition because, for example, communities are more likely to oppose recertification of on-site storage. The estimated cost to continue storing 153,000 metric tons of nuclear waste on site for 100 years range from $13 billion to $34 billion, and total costs would range from $20 billion to $97 billion if the nuclear waste is stored on site for 100 years and then disposed in a geologic repository. Because of delays in the Yucca Mountain repository, on-site storage has continued as the nation’s strategy for managing nuclear waste, thus its continuation would require minimal near-term effort and allow time for the nation to consider alternative long-term nuclear waste management options. This alternative maintains the waste in a configuration where it is readily retrievable for reprocessing or other disposition, according to an expert. However, like centralized storage, on-site storage is an interim strategy that relies on active institutional controls, such as monitoring, maintenance, and security. To permanently isolate the waste from humans and the environment without the need for active institutional controls some form of final disposal would be required, even if some of the waste were reprocessed. The additional time in on-site storage may also make the waste safer to handle because older spent nuclear fuel and high-level waste has had a chance to cool and become less radioactive. As a result, on-site storage could reduce transportation risks, particularly in the near-term, since the nuclear waste would be cooler and less radioactive when it is finally transported to a repository. In addition, some experts state that older, cooler waste may provide more predictability in repository performance and be some degree safer than younger, hotter waste. However, NRC cautioned that the ability to handle the waste more safely in the future also depends on other factors, including how the waste or waste packages might degrade over time. In particular, NRC stated that there are many uncertainties with the behavior of spent nuclear fuel as it ages, such as potential fracturing of the structural assemblies, possibly increasing the risks of release. If the waste has to be repackaged, for example, the process may require additional safety measures. Some experts noted that continuing to store nuclear waste on site would be more equitable than consolidating it in one or a few areas. As a result, the waste, along with its associated risks, would be kept in the location where the electrical power was generated, leaving the responsibility and risks of the waste in the communities that benefited from its generation. With on-site storage of DOE-managed spent nuclear fuel and high-level waste, DOE would have difficulty meeting enforceable agreements with states, which could result in significant costs being incurred the longer spent nuclear fuel remains on site. In addition to Idaho’s agreement to impose a penalty of $60,000 per day if spent nuclear fuel is not removed from the state by 2035, DOE has an agreement with Colorado stating that if the spent fuel at Fort St. Vrain is not removed by January 1, 2035, the government will, subject to certain conditions, pay the state $15,000 per day until it is removed. Other states where DOE spent nuclear fuel and high-level waste are currently stored may seek similar penalties if the spent fuel and waste remain on-site with no progress toward a permanent repository or centralized storage facility. A second challenge is the cost due to the government’s possible legal liabilities to commercial reactor operators. Leaving waste on site under the responsibility of the electric power companies does not relieve the government of its obligation to take custody of the waste, thus the liability debt could continue to mount. For every year after 2020 that DOE fails to take custody of the waste in accordance with its contracts with the reactor operators, DOE estimates that the government will continue to accumulate up to $500 million per year beyond the estimated $12 billion in liabilities that will have accrued up to that point; however, the outcome of pending litigation could substantially affect the government’s total liability. The government will no longer incur these costs if DOE takes custody of the waste. Some representatives from industry have stated that it is not practical for DOE to take custody of the waste at commercial reactor sites. Moreover, some electric power company executives have stated that their ratepayers are paying for DOE to provide a geologic repository through their contributions to the Nuclear Waste Fund, and the executives believe that simply taking custody of the waste is not sufficient. A DOE official stated that if DOE were to take custody of the waste on site, it would be a complex undertaking due to considerations such as liability for accidents. Third, continued use of on-site storage would likely also face community opposition. Some experts noted that without progress on a centralized storage facility or repository site to which waste will be moved, some state and local opposition to reactor storage site recertification will increase, and so will challenges to nuclear power companies’ applications for reactor license extensions and combined licenses to construct and operate new reactors. Also, experts noted that many commercial reactor sites are not suitable for long-term storage, and none has had an environmental review to assess the impacts of storing nuclear waste at the site beyond the period for which it is currently licensed. One expert noted that if on- site storage were to become a waste management policy, the long-term health, safety, and environmental risks at each site would have to be evaluated. Because waste storage would extend beyond the life of nuclear power reactors, decommissioned reactor sites would not be available for other purposes, and the former reactor operators may have to stay in business for the sole purpose of storing nuclear waste. Finally, although dry cask storage is considered reliable in the short term, the longer-term costs, maintenance requirements, and security requirements are not well understood. Many experts said waste packages will likely retain their integrity for at least 100 years, but eventually dry storage systems may begin to degrade and the waste in those systems would have to be repackaged. However, commercial dry storage systems have only been in existence since 1986, so nuclear utilities have little experience with long-term system degradation and requirements for repackaging. Some experts suggested that only the outer protective cask would require replacement, but the inner canister would not have to be replaced. Yet, other experts said that, over time, the inner canister would also be exposed to environmental conditions by vents in the outer cask, which could cause corrosion and require a total system replacement. In addition, experts disagreed on the relative safety risks and costs associated with using spent fuel pools to transfer the waste during repackaging compared to using a dry transfer system, which industry representatives said had not been used on a commercial scale. Finally, future security requirements for extended storage are uncertain because as spent nuclear waste ages and becomes cooler and less radioactive, it becomes less lethal to anyone attempting to handle it without protective shielding. For example, a spent nuclear fuel assembly can lose nearly 80 percent of its heat 5 years after it has been removed from a reactor, thereby reducing one of the inherent deterrents to thieves and terrorists attempting to steal or sabotage the spent nuclear fuel and potentially creating a need for costly new security measures. As shown in table 5, our models generated cost ranges from $20 billion to $97 billion for the on-site storage of 153,000 metric tons of spent nuclear fuel and high-level waste for 100 years followed by geologic disposal. For only on-site storage for 100 years without disposal, costs would range from $10 billion to $26 billion for 70,000 metric tons of waste and from $13 billion to $34 billion for 153,000 metric tons of waste. On-site storage costs would increase significantly if the waste were stored for longer periods— storing 153,000 metric tons on site for 500 years would cost from $34 billion to $225 billion—because it would have to be repackaged every 100 years for safety. The on-site storage model scenarios include the costs of on-site operations required to package the waste into dry canister storage, build additional dry storage at the reactor sites, prepare the waste for transportation, and operate and maintain the on-site storage facilities. Most of the costs for the first 100 years would result from the initial loading of materials into dry storage systems. (See app. IV for information on our modeling methodology, assumptions, and results.) Actual on-site storage costs may be more or less than these cost ranges if a different on-site storage scenario is implemented. For example, to keep it distinct from the centralized storage models, our on-site storage models assume that there would be no transportation or consolidation of waste between the reactor sites. However, several experts noted that in an actual on-site storage scenario, reactor operators would likely consolidate their waste to make operations more efficient and reduce costs. Also, as with the centralized storage alternative, costs for the on-site storage scenario that includes geologic disposal could differ for a repository site other than Yucca Mountain or for additional waste management technologies. Finally, our models did not include certain costs that were either location- specific or could not be predicted sufficiently to be quantified for our purposes, which would make the actual costs of on-site storage higher than our cost ranges. For example, the taxes and fees associated with on- site storage could vary significantly by state and over time. Also, repackaging operations in our 500-year on-site storage scenario would generate low-level waste that would require disposal. However, the amount of waste generated and the associated disposal costs could vary depending on the techniques used for repackaging. Finally, the total amount of the government’s liability for failure to begin taking spent nuclear fuel for disposal in 1998 will depend on the outcome of pending and future litigation. Like the centralized storage alternative, the funding source for the on-site storage alternative is uncertain. Currently, the reactor operators have been paying for the cost to store the waste, but have filed lawsuits to be compensated for storage costs of waste that the federal government was required to take title to under standard contracts. Payments resulting from these lawsuits have come from the Department of the Treasury’s judgment fund, which is funded by the taxpayer, because a court determined that the Nuclear Waste Fund could not be used to compensate electric power companies for their storage costs. Without legislative or contractual changes—such as allowing the Nuclear Waste Fund to be used for on-site storage—taxpayers would likely bear the ultimate costs for on-site storage. Developing a long-term national strategy for safely and securely managing the nation’s high-level nuclear waste is a complex undertaking that must balance health, social, environmental, security, and financial factors. In addition, virtually any strategy considered will face many political, legal, and regulatory challenges in its implementation. Any strategy selected will need to have geologic disposal as a final disposition pathway. In the case of the Yucca Mountain repository, these challenges have left the nation with nearly three decades of experience. In moving forward, whether the nation commits to the same or a different waste management strategy, federal agencies, industry, and policy makers at all levels of government can benefit from the lessons of Yucca Mountain. In particular, stakeholders can better understand the need for a sustainable national focus and community commitment. Federal agencies, industry, and policymakers may also want to consider a strategy of complementary and parallel interim and long-term disposal options—similar to those being pursued by some other nations—which might provide the federal government with maximum flexibility, since it would allow time to work with local communities and to pursue research and development efforts in key areas, such as reprocessing. We provided DOE and NRC with a draft of this report for their review and comment. In their written comments, DOE and NRC generally agreed with the report. (See apps. V and VI.) In addition, both DOE and NRC provided comments to improve the draft report’s technical accuracy, which we have incorporated as appropriate. We also discussed the draft report with representatives of the Nuclear Waste Technical Review Board, the Nuclear Energy Institute, and the State of Nevada Agency for Nuclear Projects. These representatives provided comments to clarify information in the draft report, which we have incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to other appropriate congressional committees, the Secretary of Energy, the Chairman of NRC, the Director of the Office of Management and Budget, and other interested parties. The report also will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-3841 or gaffiganm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VII. For this report we examined (1) the key attributes, challenges, and costs of the Yucca Mountain repository; (2) alternative nuclear waste management approaches; (3) the key attributes, challenges, and costs of storing the nuclear waste at two centralized sites; and (4) the key attributes, challenges, and costs of continuing to store the nuclear waste at its current locations. To provide information on the key attributes and challenges of the Yucca Mountain repository, we reviewed documents and interviewed officials from the Department of Energy’s (DOE) Office of Civilian Radioactive Waste Management and Office of Environmental Management; the Nuclear Regulatory Commission’s (NRC) Division of Spent Fuel Storage and Transportation and Division of High Level Waste Repository Safety, both within the Office of Nuclear Material Safety and Safeguards; and the Department of Justice’s Civil Division. We also reviewed documents and interviewed representatives from the National Academy of Sciences, the Nuclear Waste Technical Review Board, and other concerned groups. Once we developed our preliminary analysis of Yucca Mountain’s key attributes and challenges, we solicited input from nuclear waste management experts. (See app. II for our methodology for soliciting comments from nuclear waste management experts and app. III for a list of these experts.) To analyze the costs for the Yucca Mountain repository through to closure, we started with the cost information in DOE’s Yucca Mountain Total System Lifecycle Cost report, which used 122,100 metric tons of nuclear waste in its analysis. We asked DOE officials to provide a breakdown of the component costs on a per-metric-ton basis that DOE used in the Total System Lifecycle Cost report. We used this information to calculate the costs of a repository at Yucca Mountain for 70,000 metric tons and 153,000 metric tons, changing certain component costs based on the ratio between 70,000 and 122,100 or 153,000 and 122,100. For example, we modified the cost of constructing the tunnels for emplacing the waste for the 70,000- metric-ton scenario by 0.57, the ratio of 70,000 metric tons to 122,100 metric tons. We applied this approach to component costs that would be impacted by the ratio difference, particularly for transporting and emplacing the waste and installing drip shields. We also incorporated DOE’s cost estimates for potential delays to licensing the Yucca Mountain repository into our analysis and made modifications to the analysis based on comments by cognizant DOE officials. Finally, we discounted DOE’s costs, which were in 2008 constant dollars, to 2009 present value using the methodology described in appendix IV. To examine and identify alternatives, we started with a series of interviews among federal and state officials and industry representatives. We also gathered and reviewed numerous studies and reports on managing nuclear waste— along with interviewing the authors of many of these studies— from federal agencies, the National Academy of Sciences, the Nuclear Waste Technical Review Board, the Massachusetts Institute of Technology, the American Physical Society, Harvard University, the Boston Consulting Group, and the Electric Power Research Institute. To better understand how commercial spent nuclear fuel is stored, we visited the Dresden Nuclear Power Plant in Illinois and the Hope Creek Nuclear Power Plant in New Jersey, which both store spent nuclear fuel in pools and in dry cask storage. We also visited DOE’s Savannah River Site in South Carolina and Fort St. Vrain site in Colorado to observe how DOE- managed spent nuclear fuel and high-level waste are processed and stored. As we began to identify potential alternatives to analyze, we shared our initial approach and methodology with nuclear waste management experts—including members of the National Academy of Sciences and the Nuclear Waste Technical Review Board to obtain their feedback—and revised our approach accordingly. Many of these experts advised us to develop generic, hypothetical alternatives with clearly defined assumptions about technology and environmental conditions. Industry representatives and other experts advised us that trying to account for the thousands of variables relating to geography, the environment, regional regulatory differences, or differences in business models would result in infeasible and unmanageable models. They also advised us against trying to predict changes in the future for technologies or environmental conditions because they would purely conjectural and fall beyond the scope of this analysis. Based on this information, we identified two generic, hypothetical alternatives to use as the basis of our analysis: centralized storage and on- site storage. Within each of these alternatives, we identified different scenarios that examined the costs associated with the management of 70,000 metric tons and 153,000 metric tons of nuclear waste and whether or not the waste is shipped to a repository for disposal after 100 years. Once we identified the alternatives, we again consulted with experts to establish assumptions regarding commercial spent nuclear fuel management and its associated components to define the scope and specific processes that would be included in each alternative. To identify a more complete, qualified list of nuclear waste management experts with relevant experience who could provide and critique this information, we used a technique known as snowballing. We started with experts in the field who were known to us, primarily from DOE, NRC, National Council of State Legislators, the State of Nevada Agency for Nuclear Projects, the Nuclear Energy Institute, and the National Association of Regulatory Utility Commissioners and asked them to refer us to other experts, focusing on U.S.-based experts. We then contacted these individuals and asked for additional referrals. We continued this iterative process until additional interviews did not lead us to any new names or we determined that the qualified experts in a given technical area had been exhausted. We conducted an initial interview with each of these experts by asking them questions about the nature and extent of their expertise and their views on the Yucca Mountain repository. Specifically, we asked each expert: What is the nature of your expertise? How many years have you been doing work in this area? Does your expertise allow you to comment on planning assumptions and costs of waste management related to storage, disposal, or transport? If you were to classify yourself in relation to the Yucca Mountain repository, would you classify yourself as a proponent, an opponent, an independent, an undecided or uncommitted, or some combination of these? We then narrowed our list down to those individuals who identified themselves or whom others identified as having current, nationally recognized expertise in areas of nuclear waste management that were relevant to our analysis. For balance, we ensured that we included experts who reflected (1) key technical areas of waste management; (2) a range of industry, government, academia, and concerned groups; and (3) a variety of viewpoints on the Yucca Mountain repository. (See app. III for 147 experts we contacted.) Once we developed our list of experts, we classified them into three groups: Those whose expertise would allow them to provide us with specific information and advice on the processes that should be included in each alternative and the best estimates of expected cost ranges for the components of each alternative, such as a typical or reasonable price for a dry cask storage. Those who could weigh in on these estimates, as well as give us insight and comments on assumptions that we planned to use to define our alternatives. Those whose expertise was not in areas of component costs, but who could nonetheless give us valuable information on other assumptions, such as transportation logistics. To define our alternatives and develop the assumptions and cost components we needed for our analysis, we started with the experts from the first group who had the most direct and reliable knowledge of the processes and costs associated with the alternatives we identified. This group consisted of seven experts and included federal government officials and representatives from industry. We worked closely with these experts to identify the key assumptions that would establish the scope of our alternatives, the more specific assumptions to identify the processes associated with each alternative, the components of these processes that we could quantify in terms of cost, and the level of uncertainty associated with each component cost. For example, two of the experts in this first group told us that for the on-site alternative, commercial reactor sites that did not already have independent spent nuclear fuel storage installations would have to build them during the next 10 years and that the cost for licensing, design, and construction of each installation would range from $24 million to $36 million. Once we had gathered our initial assumptions and cost components, we used a data collection instrument to solicit comments on them from all of our experts. We then used the experts’ comments to refine our assumptions and component costs. (See app. II for our methodology for consulting with this larger group of nuclear waste management experts.) DOE officials provided assumptions and cost data for managing DOE spent nuclear fuel and high-level waste, which we incorporated into our analysis of the centralized storage and on-site storage alternatives. These assumptions and cost information covered management of spent nuclear fuel and high-level waste at DOE’s Idaho National Laboratory, Hanford Reservation, Savannah River Site, and West Valley site. To gather information on the key attributes and challenges of our alternatives, we interviewed agency officials and nuclear waste management experts from industry, academic institutions, and concerned groups. We also reviewed the reports and studies and visited the locations that were mentioned in the previous section. To ensure that the attributes and challenges we developed were accurate, comprehensive, and balanced, we asked our snowballed list of experts to provide their comments on our work, using the data collection instrument that is described in appendix II. We used the comments that we received to expand the attributes or challenges on our list or, where necessary, to modify our characterization of individual attributes or challenges. To generate cost ranges for the centralized storage and on-site storage alternatives, we developed four large-scale cost models that analyzed the costs for each alternative of storing 70,000 metric tons and 153,000 metric tons of nuclear waste for 100 years followed by disposal in a geologic repository. (See app. IV.) We also generated cost ranges for each alternative of storing the waste for 100 years without including the cost of subsequent disposal in a geologic repository for storing 153,000 metric tons of waste on site for 500 years. For each model, which rely upon data and assumptions provided by nuclear waste management experts, the cost range was based on the annual volume of commercial spent nuclear fuel that became ready to be packaged and stored in each year. In general, each model started in 2009 by annually tracking costs of initial packaging and related costs for the first 100 years and for every 100 years thereafter if the waste was to remain on site and be repackaged. Since our models analyzed only the costs associated with storing commercial nuclear waste management, we augmented them with DOE’s cost data for (1) managing its spent nuclear fuel and high-level waste and (2) constructing and operating a permanent repository. Specifically, we used DOE’s estimated costs for the Yucca Mountain repository to represent cost for a hypothetical permanent repository. We conducted this performance audit from April 2008 to October 2009 in accordance with generally accepted government auditing standards. These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. As discussed in appendix I, we gathered the assumptions and associated component costs used to define our nuclear waste management alternatives by consulting with experts in an iterative process of identifying initial assumptions and component costs and revising them based on expert comments. This appendix (1) describes the data collection instrument we used to obtain comments on the initial assumptions and component costs, (2) describes how we analyzed the comments and revised our assumptions, and (3) provides a list of the assumptions and cost data that we derived through this process and used in our cost models. To obtain comments from a broad group of nuclear waste management experts, we compiled the initial assumptions and component costs that we gathered from a small group of experts into a data collection instrument that included a description of the Yucca Mountain repository and our proposed nuclear waste management alternatives—on-site storage and centralized storage— and attributes and challenges associated with them; our initial assumptions that would identify and define the processes, time frames, and major components used to bound our hypothetical centralized and on-site storage alternatives; the major component costs of each alternative, including definitions and initial cost data; and components associated with each alternative with a high degree of uncertainty that we did not attempt to quantify in terms of costs. The data collection instrument asked the experts to answer specific questions about each piece of information that we provided (see table 6). We pretested our instrument with several individual experts to ensure that our questions were clear and would provide us with the information that we needed, and then refined the instrument accordingly. Next, we sent the instrument to 114 experts who were identified through our snowballing methodology (see apps. I and III). Each expert received the sections of our data collection instrument that included the attributes and challenges of the alternatives and the initial assumptions, but only those experts with the type and level of expertise to comment on costs received the cost component sections. We received 67 sets of comments from independent experts and experts representing industry, federal government, state governments, and other concerned groups. These experts also represented a range of viewpoints on the Yucca Mountain repository. Each of their responses was compiled into a database organized by each individual assumption or cost element for the on-site storage and centralized interim storage alternatives. To arrive at the final assumptions and cost component data for our models, we qualitatively analyzed the experts’ comments. The comments we received on the assumptions differed in nature from those we received on the component costs, so our analysis and disposition of comments differed slightly. For the assumptions, we took the comments on each assumption that were made when an expert did not believe it was entirely reasonable and grouped comments that were similar. We determined the relevance of a comment to our assumption based on whether the comment provided a basis upon which we could modify the assumption or was within the scope or capability of our models. For example, we received several comments about how an assumption may be affected by nuclear waste from new reactors, including potential liabilities if the Department of Energy (DOE) does not take custody of that waste, but in the key assumptions defining our alternatives, we explicitly excluded new reactors because we could not predict how many new reactors would be built, when they would operate, and the amount of waste that they would generate. For those comments that were relevant, we weighed the expertise of those making the comments and determined whether the balance of the comments warranted a modification to our preliminary assumption. In some instances, we conducted followup interviews with selected experts to clarify issues that the broad group of experts raised. For the component costs, we organized the comments on a particular component based on whether an expert thought the cost and uncertainty range was reasonable, too high, too low, the range was too broad, or the range was too narrow. We developed a ranking system to identify which experts had the greatest degree of direct experience or knowledge with the cost and weighed their comments accordingly to determine whether our preliminary cost should be modified. Also, we took into account the incidence of expert agreement or disagreement when deciding how much uncertainty to apply to a particular cost. Through this analysis, we determined that the preponderance of our preliminary assumptions and cost data were reasonable for use in our models either because the experts generally agreed it was reasonable, or the experts who thought it was reasonable had a greater degree of relevant expertise or knowledge than those who commented otherwise. However, some of the experts’ responses indicated that a modification to our model was needed. Table 7 presents a summary of the modifications we made to our model assumptions and cost data based on the expert comments received. U.S. Nuclear Waste Technical Review Board (member) National Academy of Sciences/Nuclear and Radiation Studies Board U.S. Nuclear Waste Technical Review Board (member) California State University, Northridge U.S. Nuclear Waste Technical Review Board (retired) (staff) DOE/Office of Civilian Radioactive Waste Management (retired) DOE/Office of Civilian Radioactive Waste Management Nuclear Regulatory Commission (NRC)/Division of Spent Fuel Storage and Transportation State of Nevada Agency for Nuclear Projects NRC/Office of Nuclear Security and Incident Response Dominion Resources, Inc. Idaho Department of Environmental Quality The Yankee Nuclear Power Companies U.S. Nuclear Waste Technical Review Board (member) M.S. Chu & Associates University of Nevada Las Vegas Nuclear and Radiation Studies Board, National Research Council of the National Academies U.S. Department of Justice/Civil Division NRC/Division of High Level Waste Repository Safety Lawrence Livermore National Laboratory (retired) Nuclear and Radiation Studies Board, National Research Council of the National Academies U.S. Nuclear Waste Technical Review Board (member) State of Nevada Nuclear Waste Project Office U.S. Nuclear Waste Technical Review Board (chairman) Department of Defense/Department of the Navy Bechtel SAIC Company, LLC University of New Mexico Nuclear and Radiation Studies Board, National Research Council of the National Academies Bechtel SAIC Company, LLC Transportation Advisor, State of Nevada Agency for Nuclear Projects DOE/Office of Civilian Radioactive Waste Management Bechtel SAIC Company, LLC Bechtel SAIC Company, LLC DOE/Office of Civilian Radioactive Waste Management Department of Defense/Department of the Navy U.S. Nuclear Waste Technical Review Board (member) Stanford University Lawrence Livermore National Laboratory Nuclear and Radiation Studies Board, National Research Council of the National Academies Council of State Governments, Midwestern Office U.S. Nuclear Waste Technical Review Board (member) NRC/Division of High Level Waste Repository Safety DOE/Office of Civilian Radioactive Waste Management Nye County, State of Nevada DOE/Office of Civilian Radioactive Waste Management DOE/Office of Civilian Radioactive Waste Management U.S. Nuclear Waste Technical Review Board (member) Institute for Energy and Environmental Research Department of Defense/Department of the Navy Carnegie Institution for Science Nuclear and Radiation Studies Board, National Research Council of the National Academies Department of Defense/Department of the Navy Department of Defense/Department of the Navy U.S. Nuclear Waste Technical Review Board (member) U.S. Nuclear Waste Technical Review Board (member) Utah Department of Environmental Quality Transnuclear, Inc. National Association of Regulatory Utility Commissioners Nuclear Information and Resource Service Bechtel SAIC Company, LLC University of California at Berkeley U.S. Nuclear Waste Technical Review Board (member) DOE/Office of Civilian Radioactive Waste Management U.S. Nuclear Waste Technical Review Board (staff) U.S. Nuclear Waste Technical Review Board (staff) National Conference of State Legislators Department of Defense/Department of the Navy DOE/Office of Civilian Radioactive Waste Management DOE/Office of Civilian Radioactive Waste Management Energy Resources International, Inc. Mike Thorne and Associates Limited Bechtel SAIC Company, LLC Dominion Resources, Inc. The methodology and results of the models we developed to analyze the total costs of two alternatives for managing nuclear waste are based on cost data and assumptions we gathered from experts. Specifically, this appendix contains information on the following: The modeling methodology we developed to generate a range of total costs for the two nuclear waste management alternatives with two different volumes of waste. The Monte Carlo simulation process we used to address uncertainties in input data. The discounting methodology we developed to derive the present value of total costs in 2009 dollars. The individual models and scenarios within each model. The results of our cost estimations for each scenario. Caveats to our modeling work. Appendixes I and II describe our methodology for collecting cost data and assumptions and how we ensured their reliability. The general framework for our models was an Excel spreadsheet that annually tracked all costs associated with packaging, transportation, construction, operation, and maintenance of nuclear waste facilities as well as repackaging of nuclear waste every 100 years when applicable. The starting time period for all models was the year 2009, but the end dates vary depending on the specifics of the scenario. The cost inputs were collected in constant 2008 dollars, but the range of total costs for each scenario was converted to and reported in 2009 present value dollars. Our analysis began with an estimate of existing and future annual volume of nuclear waste ready to be packaged and stored. We chose to model two amounts of waste: 70,000 metric tons and 153,000 metric tons. For ease of calculation, we converted all input costs to cost per-metric-ton of waste, when applicable. The total cost range for each scenario was developed in four steps. First, we developed the total costs for commercial spent nuclear fuel volumes of about 63,000 metric tons and 140,000 metric tons, respectively. Second, we added DOE cost data for its managed waste. Third, we discounted all annual costs to 2009 present value by a discounting methodology discussed later in this appendix. Finally, for scenarios where we assumed that the waste would be moved to a permanent repository after 100 years, we added DOE’s cost estimate for the Yucca Mountain repository to represent cost for a permanent repository. To ensure compatibility of cost data that DOE provided with cost ranges generated by our models, we converted DOE cost data to 2009 present value. To address the uncertainties inherent in our analysis, we used a commercially available risk analysis software program called Crystal Ball to incorporate uncertainties associated with the data. This program allowed us to explore a wide range of possible values for all the input costs and assumptions we used to build our models. The Crystal Ball program uses a Monte Carlo simulation process, which repeatedly and randomly selects values for each input to the model from a distribution specified by the user. Using the selected values for cells in the spreadsheet, Crystal Ball then calculates the total cost of the scenario. By repeating the process in thousands of trials, Crystal Ball produces a range of estimated total costs for each scenario as well as the likelihood associated with any specific value in the range. One of the inherent difficulties in developing the cost for a nuclear waste disposal option is that costs are spread over thousands of years. The economic concept of discounting is central to such analyses as it allows costs incurred in the distant future to be converted to present equivalent worth. We selected discount rates primarily based on results of studies published in peer reviewed journals. That is, rather than subjectively selecting a single discount rate, we developed our discounting approach based on a methodology and values for discount rates that were recommended by a number of published studies. We selected studies that addressed issues related to discounting activities whose costs and effects spread across the distant future or many generations, also known as “intergenerational discounting.” In general, we found that these studies were in near consensus on two points: (1) discounting is an appropriate methodology when analyzing projects and policies that span many generations and (2) rates for discounting the distant future should be lower than near term discount rates and/or should decline over time. However, we found no consensus among the studies as to any specific discount rate that should be used. Consequently, we developed a discounting methodology using the following steps: We divided the entire time frame of our analysis into five different discounting intervals: immediate, near future, medium future, far future, and far-far future. We assumed that within each interval the discount rates were distributed with a triangular distribution. Based on all published rates, we developed the maximum, minimum, and mode values for each of the five specified intervals. We discounted all costs, using Crystal Ball to randomly and repeatedly select a rate from the appropriate interval and discount cost values using a different rate for each trial. Using these steps, we discounted all annual costs to 2009 present value. Our methodology builds on a wide range of published rates from a number of different sources in concert with the Crystal Ball program. This enabled us, to the extent possible, to address the general lack of consensus on any specific discount rate and, at the same time, address the uncertainties that were inherent in intergenerational discounting and long-term analyses of nuclear waste management alternatives. We developed the following four models to estimate the cost of several hypothetical nuclear waste disposal alternatives, and we incorporated a number of scenarios within each model to address all uncertainties that we could not easily capture with Crystal Ball: Model I: Centralized storage for 153,000 metric tons, which included the Scenario 1: Centralized storage for 100 years. Scenario 2: Centralized storage for 100 years plus a permanent repository after 100 years. Model II: Centralized storage for 70,000 metric tons, which included one Scenario 1: Centralized storage for 100 years. Model III: On-site storage using total waste volume of 153,000 metric tons which included the following scenarios: Scenario 1: On-site storage for 100 years. Scenario 2: On-site storage for 100 years plus a permanent repository after 100 years. Scenario 3: On-site storage for 500 years. Model IV: On-site storage using total waste volume of 70,000 metric tons, which included one scenario: Scenario 1: On-site storage for 100 years. For this model we assumed that nuclear waste would remain on site until interim facilities are constructed and ready to receive the waste. Two centralized storage facilities would be constructed over 3 years—from 2025 through 2027—and then start accepting waste. The first scenario for this model includes the costs to store waste at the centralized facilities through 2108. In the second scenario, these facilities would stay in operation through 2155, or 47 years after a permanent repository for the waste would become available. The total analysis period for the cost of this alternative plus permanent repository continues until 2240, when a permanent repository would be expected to close. In general, the costs include the following: Initial costs, which include costs of casks, costs for loading of casks, cost of loading campaigns, and operating and maintenance costs by three types of nuclear sites, i.e., operating sites with dry storage, decommissioned sites with dry storage, and decommissioned sites with wet storage. The uncertainty ranges for these costs were from plus or minus 5 percent to plus or minus 50 percent, depending on specific cost variable. Costs associated with centralized facilities, including construction costs for centralized facilities, transportation cost for transfer of nuclear waste to centralized facilities, capital and operation and maintenance costs for transportation of waste to centralized facilities and operation and maintenance of centralized facilities. The uncertainty ranges for these costs are from plus or minus 10 percent to plus or minus 40 percent, depending on the cost category. This model was developed under the assumption that total existing and newly generated waste from the private sector and DOE will be 70,000 metric tons. The stream of new annual waste ready to be moved to dry storage will continue through 2030. The cost categories and uncertainty ranges assumed for this storage alternative are the same as those assumed in the centralized storage model for 153,000 metric tons. We developed this model under the assumption that total existing and newly generated nuclear waste by the private sector and DOE would be 153,000 metric tons. The stream of new waste ready to be moved to dry storage would continue through 2065. In general, the costs include the following: Initial costs, which include costs of casks, costs for loading of casks, cost of loading campaigns, and operating and maintenance costs by three types of nuclear sites, i.e., operating sites with dry storage, decommissioned sites with dry storage, and decommissioned sites with wet storage. The uncertainty ranges for these costs were from plus or minus 5 percent to plus or minus 50 percent, depending on specific cost variable. Repackaging costs, which include the costs for casks; construction of transfer facilities, site pools, and other needed infrastructure; and repackaging campaigns. Because these costs are first incurred after 100 years and then every 100 years thereafter, they are included only in the model scenarios covering more than 100 years. The uncertainty for these costs range from plus or minus 10 percent to plus or minus 50 percent, depending on the specific cost variable. Dry storage pad costs, including initial costs when dry storage is first established, as well as replacement costs. Because the replacement costs are first incurred after 100 years and then every 100 years thereafter, they are included only in the model scenarios covering more than 100 years. The cost of these pads, collectively referred to as independent spent fuel storage installations, include costs related to licensing, design, and construction of dry storage. The independent spent nuclear fuel storage installation costs have an uncertainty range of plus or minus 40 percent. We developed this model under the assumption that total existing and newly generated nuclear waste by the private sector and DOE will be 70,000 metric tons. The stream of new annual waste ready to be moved to dry storage will continue through 2030. The cost categories and uncertainty ranges assumed for this storage alternative are the same as those for the on-site model for storing 153,000 metric tons for 100 years. For two scenarios, we assumed that at the end of 100 years the nuclear waste would be transferred to a permanent repository for disposal. To estimate the cost for a repository, we used DOE’s cost data for the Yucca Mountain repository and made three adjustments to ensure compatibility with costs generated by our models. First, we included only DOE’s future cost estimates for the Yucca Mountain repository. Second, because DOE provided costs in 2008 constant dollars, we converted all costs for the permanent repository to costs to 2009 present value using corresponding ranges of interest rates as previously described in this appendix. Finally, we assumed that repository construction and operating costs would be incurred from 2098 to 2240 when we added these cost ranges to our alternatives after 100 years. Table 8 shows the results of our analysis for all scenarios. Figures 10 and 11 show ranges of total costs, as well as the probabilities for two selected scenarios. In the figures, each bar indicates a range of values for total cost and the height of the each bar indicates the probability associated with those values. Figure 12 shows the present value of the total cost ranges of storing the nuclear waste on site over 2,000 years. The shaded areas indicate the probability that the values fall within the indicated ranges and are the result of combinations of uncertainties from a large number of input data. Specifically, we estimate that these costs could range from $34 billion to $225 billion over 500 years, from $41 billion to $548 billion over 1,000 years, and from $41 billion to $954 billion over 2,000 years, indicating and substantial level of uncertainty in making long-term cost projections. Our models are based on ranges of average costs for each major cost category that is applicable to the alternative under analysis. As a result, the costs do not reflect storage costs for any specific site. Since we did not attempt to capture specific characteristics of each site, our values for any cost factor, if applied to any specific site, are likely incorrect. Nevertheless, since we used ranges rather than single values for a wide range of cost inputs to the models, we expect that our cost range for each variable includes the true cost for any specific site. Moreover, we expect the total cost point estimate for any scenario is within the range of total costs we developed. Our models are designed to develop total cost ranges for each scenario within each alternative, regardless of who will pay or is legally responsible for the costs. Issues related to assignment of the costs and potentially responsible entities are discussed elsewhere in this report but are not incorporated into our ranges. Also, our cost ranges focus on actual expenditures that would be incurred over the period of analysis and do not assume a particular funding source and do not necessarily represent costs to the federal government. Finally, because a number of cost categories are not included in our final estimated ranges, we cannot predict their impact on our final costs ranges. For example, we did not include (1) decontamination and decommissioning costs for existing facilities or facilities yet to be built within each scenario and (2) estimates for local and state taxes or fees, which would be required to establish new sites or for continued operation of on-site storage facilities after nuclear reactors are decommissioned. Table 8 and figures 10 and 11 present the results of our analysis by individual scenario. Because the purpose of our analysis was primarily to provide cost ranges for various nuclear waste management alternatives, we did not attempt to provide a comparison of results across scenarios. For a number of reasons, we believe such a comparison would have been misleading. The alternatives we have considered are inherently different in a large number of characteristics that could not be captured in our modeling work or they were not within the scope of our analysis. For example, differences in safety, health, and environmental effects, and ease of implementation characteristics of these alternatives should have an integral role in the policy debate on waste management decisions. However, because these effects cannot be readily quantified, they were outside the scope of our modeling work and are not reflected in the total cost ranges we generated. In addition to the individual named above, Richard Cheston, Assistant Director; Robert Sánchez; Ryan Gottschall; Carol Henn; Anne Hobson; Anne Rhodes-Kline; Mehrzad Nadji; Omari Norman; and Benjamin Shouse made key contributions to this report. Also contributing to this report were Nancy Kingsbury, Karen Keegan, and Timothy Persons.	High-level nuclear waste--one of the nation's most hazardous substances--is accumulating at 80 sites in 35 states. The United States has generated 70,000 metric tons of nuclear waste and is expected to generate 153,000 metric tons by 2055. The Nuclear Waste Policy Act of 1982, as amended, requires the Department of Energy (DOE) to dispose of the waste in a geologic repository at Yucca Mountain, about 100 miles northwest of Las Vegas, Nevada. However, the repository is more than a decade behind schedule, and the nuclear waste generally remains at the commercial nuclear reactor sites and DOE sites where it was generated. This report examines the key attributes, challenges, and costs of the Yucca Mountain repository and the two principal alternatives to a repository that nuclear waste management experts identified: storing the nuclear waste at two centralized locations and continuing to store the waste on site where it was generated. GAO developed models of total cost ranges for each alternative using component cost estimates provided by the nuclear waste management experts. However, GAO did not compare these alternatives because of significant differences in their inherent characteristics that could not be quantified. The Yucca Mountain repository is designed to provide a permanent solution for managing nuclear waste, minimize the uncertainty of future waste safety, and enable DOE to begin fulfilling its legal obligation under the Nuclear Waste Policy Act to take custody of commercial waste, which began in 1998. However, project delays have led to utility lawsuits that DOE estimates are costing taxpayers about $12.3 billion in damages through 2020 and could cost $500 million per year after 2020, though the outcome of pending litigation may affect the government's total liability. Also, the administration has announced plans to terminate Yucca Mountain and seek alternatives. Even if DOE continues the program, it must obtain a Nuclear Regulatory Commission construction and operations license, a process likely to be delayed by budget shortfalls. GAO's analysis of DOE's cost projections found that a repository to dispose of 153,000 metric tons would cost from $41 billion to $67 billion (in 2009 present value) over a 143-year period until the repository is closed. Nuclear power rate payers would pay about 80 percent of these costs, and taxpayers would pay about 20 percent. Centralized storage at two locations provides an alternative that could be implemented within 10 to 30 years, allowing more time to consider final disposal options, nuclear waste to be removed from decommissioned reactor sites, and the government to take custody of commercial nuclear waste, saving billions of dollars in liabilities. However, DOE's statutory authority to provide centralized storage is uncertain, and finding a state willing to host a facility could be extremely challenging. In addition, centralized storage does not provide for final waste disposal, so much of the waste would be transported twice to reach its final destination. Using cost data from experts, GAO estimated the 2009 present value cost of centralized storage of 153,000 metric tons at the end of 100 years to range from $15 billion to $29 billion but increasing to between $23 billion and $81 billion with final geologic disposal. On-site storage would provide an alternative requiring little change from the status quo, but would face increasing challenges over time. It would also allow time for consideration of final disposal options. The additional time in on-site storage would make the waste safer to handle, reducing risks when waste is transported for final disposal. However, the government is unlikely to take custody of the waste, especially at operating nuclear reactor sites, which could result in significant financial liabilities that would increase over time. Not taking custody could also intensify public opposition to spent fuel storage site renewals and reactor license extensions, particularly with no plan in place for final waste disposition. In addition, extended on-site storage could introduce possible risks to the safety and security of the waste as the storage systems degrade and the waste decays, potentially requiring new maintenance and security measures. Using cost data from experts, GAO estimated the 2009 present value cost of on-site storage of 153,000 metric tons at the end of 100 years to range from $13 billion to $34 billion but increasing to between $20 billion to $97 billion with final geologic disposal.	15.5	16k+	5,208

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