{"id":"crs_R46111","pid":"crs_R46111_0","input":"\tIntroduction\n\nMedicaid is a joint federal-state program that finances the delivery of primary and acute medical services, as well as long-term services and supports (LTSS), to a diverse low-income population. This population includes children, pregnant women, adults, individuals with disabilities, and those aged 65 and older. Medicaid is authorized under Title XIX of the Social Security Act (SSA) and financed by the federal government and the states. Federal Medicaid spending is an entitlement, with total expenditures dependent on state policy decisions and enrollees' use of services.\nParticipation in Medicaid is voluntary, though all states, the District of Columbia, and the territories choose to participate. States design and administer their Medicaid programs based on broad federal guidelines. The federal government requires states to cover certain mandatory populations and services but allows states to cover other optional populations and services. In addition, several waiver and demonstration authorities in statute allow states to operate their Medicaid programs outside of certain federal rules. Due to this flexibility, factors such as eligibility, covered benefits, and provider payment rates vary substantially by state. At the federal level, the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS) is responsible for administering Medicaid.\nThis report focuses on Medicaid eligibility for adults aged 65 and older\u00e2\u0080\u0094referred to as older adults\u00e2\u0080\u0094and adults under the age of 65 and children with disabilities. Specifically, this report examines the statutory provisions that provide Medicaid eligibility for individuals who are considered to be aged, blind, or disabled. These populations are of interest to lawmakers primarily for two reasons: (1) they are more likely to need LTSS, and (2) they account for a large share of Medicaid spending. \nOlder adults and individuals with disabilities are more likely to need LTSS due to physical limitations, cognitive impairment, or chronic disabling health conditions. Those with LTSS needs are a diverse group that range in age from very young children to older adults. Disabilities can be wide ranging, including, for example, physical limitations, visual impairments (i.e., blindness), intellectual or developmental disabilities, cognitive and behavioral health conditions, traumatic brain injuries, and HIV\/AIDS. \nFederal policymakers have an interest in understanding Medicaid eligibility as the program is an important source of coverage for those with long-term care needs. Medicaid provides LTSS coverage (e.g., extended nursing facility care, personal care, and other home and community-based services) that is generally not covered by Medicare or major health insurance plans offered in the private market. As the largest single payer of LTSS in the United States, Medicaid plays a key role in providing LTSS coverage. In 2016, total Medicaid LTSS spending (federal and state combined) was $154 billion, accounting for 42% of all LTSS expenditures nationally. \nBecause many older adults and individuals with disabilities use LTSS, they tend to account for a disproportionate share of Medicaid spending, which has implications for both federal and state budgets. In FY2016, Medicaid provided health care services to about 71 million enrollees, with expenditures of approximately $538 billion (federal and state combined). Although older adults and individuals with disabilities made up only about one-quarter (23%) of all Medicaid enrollees that year, they accounted for more than half (54%) of all benefit spending. Among all Medicaid enrollees, 30% of Medicaid spending in FY2013 was on LTSS, compared with 62% among older adults (i.e., aged) and 36% among individuals with disabilities (i.e., disabled).\nThe next section of this report provides an overview of Medicaid eligibility, followed by a summary of eligibility pathways for older adults and individuals with disabilities. The report then describes specific information about each eligibility pathway for older adults and individuals with disabilities. The Appendix includes summary tables with statutory references and general financial eligibility criteria for each of the eligibility pathways described in this report.\n\n\tOverview of Medicaid Eligibility\n\nEligibility for Medicaid is determined by both federal and state law, whereby states set individual eligibility criteria within federal minimum standards. This arrangement results in substantial variability in Medicaid eligibility across states. Therefore, the ways that individuals can qualify for Medicaid reflect state policy decisions within broad federal requirements. \nIn general, individuals qualify for Medicaid coverage by meeting the requirements of a specific eligibility pathway (sometimes referred to as an eligibility group) offered by the state. Some eligibility groups are mandatory, meaning all states with a Medicaid program must cover them. Other eligibility groups are optional, meaning states may elect to cover them. Within this framework, states may have some discretion to determine certain eligibility criteria for both mandatory and optional eligibility groups. In addition, states may apply to CMS for a waiver of federal law to expand health coverage beyond the mandatory and optional eligibility groups specified in federal statute.\n\n\t\tEligibility Pathways\n\nAn \"eligibility pathway\" is the federal statutory reference(s) under Title XIX of the SSA that extends Medicaid coverage to one or more groups of individuals. Each eligibility pathway specifies\nthe group of individuals covered by the pathway (i.e., the categorical criteria), the financial requirements applicable to the group (i.e., the financial criteria), whether the pathway is mandatory or optional, and the extent of the state's discretion over the pathway's requirements.\nIndividuals who have met the categorical and financial requirements of a given eligibility pathway and are in need of Medicaid-covered LTSS must also meet additional requirements. In general, they must demonstrate the need for such care by meeting state-based level-of-care criteria. They may also be subject to a separate set of Medicaid financial eligibility rules to receive LTSS coverage. All Medicaid applicants, regardless of their eligibility pathway, must meet federal and state requirements regarding residency, immigration status, and documentation of U.S. citizenship.\nNot all Medicaid enrollees have access to the same set of services. An applicant's eligibility pathway often dictates the Medicaid services that a program enrollee is entitled to (e.g., women eligible due to their pregnancy status are entitled to Medicaid pregnancy-related services). Most Medicaid beneficiaries receive services in the form of what is sometimes called \"traditional\" Medicaid\u00e2\u0080\u0094an array of required or optional medical assistance items and services listed in statute. However, states may furnish Medicaid in the form of alternative benefit plans (ABPs). In addition, states may also offer LTSS under traditional Medicaid or through a waiver program for individuals who meet state-based level-of-care criteria for services.\nLow-income older adults and individuals with disabilities may qualify for Medicaid through a number of eligibility pathways. In general, Medicaid data report the following broad categorical eligibility groups: children, adults, aged, and disabled. This report focuses on the eligibility of older adults and individuals with disabilities based on their age or disability status; that is, the pathways where the categorical criteria are being aged, blind, or disabled (sometimes referred to as \"ABD\" or \"ABD eligibility\"). \nIndividuals who qualify for Medicaid on the basis of being blind or disabled include adults under the age of 65 as well as children. Most (but not all) ABD pathways recognize blindness as a distinct condition from other disabilities and, as such, provide separate categorical criteria for this condition. However, when reporting data on broad categorical eligibility groups, CMS includes statutorily blind individuals in the \"disabled\" category. \nIndividuals with disabilities may also be eligible for Medicaid under pathways available more broadly to able-bodied children and adults for a number of reasons; for example, because they do not meet the definition of disability under an ABD eligibility pathway, have income or assets above certain limits, do not meet the state-based level-of-care criteria, or have one or more chronic condition(s) but have not developed a chronic-disabling condition. Adults under the age of 65 and children who qualify for Medicaid on the basis of a reason other than being blind or disabled are classified by CMS as \"adults\" and \"children,\" respectively.\nIndividuals applying for Medicaid may be eligible for the program through more than one pathway. In this situation, applicants may choose the pathway that would be most beneficial to them\u00e2\u0080\u0094both in terms of how income and sometimes assets are used to determine Medicaid eligibility, and in terms of the available services associated with each eligibility pathway. \nThis report classifies the ABD eligibility pathways for older adults and individuals with disabilities into two broad coverage groups: (1) Supplemental Security Income (SSI)-Related Pathways and (2) Other ABD Pathways (see Table 1 ). The SSI-Related Pathways consist of mandatory and optional eligibility groups that generally meet the requirements of the federal SSI program. These groups include older adults and individuals with disabilities who are SSI eligible, are deemed to be SSI eligible, or would be SSI eligible if not for a certain SSI program rule. \nThe Other ABD Pathways consist of optional eligibility groups that have levels of income or resources above SSI program rules. These groups generally use SSI categorical criteria to define older adults and individuals with disabilities and may use certain SSI financial criteria to determine their financial eligibility for Medicaid. Each of the specific pathways under these broad coverage groups are described in more detail below. Table A-1 in the Appendix lists the statutory references and certain eligibility criteria for each Medicaid ABD eligibility pathway.\n\n\t\t\tCategorical Eligibility Criteria\n\nMedicaid categorical eligibility criteria are the characteristics that define the population qualifying for Medicaid coverage under a particular eligibility pathway; in other words, the nonfinancial requirements that an individual must meet to be considered eligible under an eligibility group. Medicaid covers several broad coverage groups, including children, pregnant women, adults, individuals with disabilities, and individuals aged 65 and older (i.e., aged). Each of these broad coverage groups includes a number of distinct Medicaid eligibility pathways.\nHistorically, Medicaid eligibility was limited to poor families with dependent children who received cash assistance under the former Aid to Families with Dependent Children (AFDC) program, as well as poor aged, blind, or disabled individuals who received cash assistance under the SSI program. Medicaid eligibility rules reflected these historical program linkages\u00e2\u0080\u0094both in terms of the categories of individuals who were served, and because the financial eligibility rules were generally based on the most closely related social program for the group involved (e.g., AFDC program rules for low-income families with dependent children and pregnant women, and SSI program rules for aged, blind, or disabled individuals). Over time, Medicaid eligibility has expanded to allow states to extend coverage to individuals whose eligibility is not based on the receipt of cash assistance, including the most recent addition of the ACA Medicaid expansion population (i.e., individuals under the age of 65 with income up to 133% of the federal poverty level). Moreover, Medicaid's financial eligibility rules have been modified over time for certain groups.\n\n\t\t\tFinancial Eligibility Criteria\n\nMedicaid is a means-tested program that is limited to those with financial need. However, the criteria used to determine financial eligibility\u00e2\u0080\u0094income and, sometimes, resource (i.e., asset) tests\u00e2\u0080\u0094vary by eligibility group. These income and resource tests are expressed separately as an income standard and a resource standard . The income standard is expressed as a dollar amount or as a share of the federal poverty level (FPL). The resource standard is expressed as a dollar amount. The ways in which income and resources are counted for the purposes of applying the respective standard are referred to as the income - counting methodology and resource - counting methodology (see text box \"Medicaid Financial Criteria: Terminology\").\nUnder the income-counting methodology, certain types of income may be disregarded before comparing a person's (or household's) income against the income standard, enabling individuals with higher amounts of gross income to meet the income standard and qualify for Medicaid. Similarly, certain rules determine how an applicant's resources (i.e., assets) are counted before they are compared to the specified resource standard.\nFor most eligibility groups\u00e2\u0080\u0094nonelderly and nondisabled individuals, children under the age of 18, and adults and pregnant women under the age of 65\u00e2\u0080\u0094the financial criteria used to determine Medicaid eligibility are based on Modified Adjusted Gross Income (MAGI) income-counting rules. No resource or asset test is used to determine Medicaid financial eligibility for MAGI-eligible individuals. \nAlthough MAGI applies to most Medicaid eligible populations, certain populations (e.g., older adults and individuals with disabilities) are statutorily exempt from MAGI income-counting rules. Instead, Medicaid financial eligibility for MAGI-exempted populations is based on the income-counting rules that match the most closely related social program for the group involved (e.g., SSI program rules for the aged, blind, or disabled eligibility groups). Thus, SSI program rules form the foundation of Medicaid eligibility for older adults and individuals with disabilities under mandatory and optional eligibility pathways and include both an income and a resource or asset test (see the next section for more information on SSI rules).\nHowever, under optional SSI-Related and Other ABD eligibility pathways, states may modify SSI program rules when determining income- and resource-counting methodologies. For example, some optional eligibility pathways allow states to choose their own income- or resource-counting methodology. Other eligibility pathways allow states to use Section 1902(r)(2) of the SSA, which lets them choose more liberal income- or resource-counting methodologies than those under the SSI program. Thus, for certain optional eligibility pathways, a state can choose to include or disregard certain sources of income or resources, in part or in whole, when determining whether an applicant meets the income or resource standards for that optional eligibility pathway. (See Table A-2 in the Appendix , which lists the financial eligibility criteria\u00e2\u0080\u0094income standard and counting methodologies and resource standard and counting methodologies\u00e2\u0080\u0094for each Medicaid eligibility pathway identified in this report.)\nIn addition, state Medicaid programs are required to establish an Asset Verification System (AVS) that meets certain minimum requirements to determine and re-determine Medicaid eligibility for aged, blind, or disabled Medicaid applicants and enrollees. Further discussion of AVS is beyond the scope of this report.\n\n\t\tMedicaid Eligibility and SSI Program Rules\n\nSSI program rules form the foundation of Medicaid categorical and financial eligibility criteria for older adults and individuals with disabilities. Medicaid generally uses SSI categorical criteria to define the ABD populations. In addition, Medicaid often uses or adapts SSI's financial standards and counting methodologies to specify the financial eligibility requirements applicable to the SSI-Related Pathways and the Other ABD Pathways. Thus, understanding SSI program rules is important to understanding Medicaid eligibility rules for older adults and individuals with disabilities. \nSSI is a federal assistance program authorized under Title XVI of the SSA that provides monthly cash payments to aged, blind, or disabled individuals who have limited income and resources. SSI is intended to provide a guaranteed minimum income to adults who have difficulty covering their basic living expenses due to age or disability and who have little or no Social Security or other income. It is also designed to supplement the support and maintenance of needy children under the age of 18 who have severe disabilities. Unlike Medicaid, SSI eligibility requirements and benefit levels are based on nationally uniform standards. SSI is administered by the Social Security Administration but is not part of the Old Age, Survivors, and Disability Insurance program, commonly known as Social Security. \nThe following sections provide a brief overview of SSI's categorical and financial eligibility criteria. For more information on these and other SSI criteria, see CRS Report R44948, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI): Eligibility, Benefits, and Financing . \n\n\t\t\tSSI Categorical Eligibility Criteria\n\nTo be categorically eligible for SSI, a person must be an \"aged, blind, or disabled individual,\" as defined in Title XVI of the SSA ( Table 2 ). The term \"aged\" refers to individuals aged 65 and older. The term \"blind\" refers to individuals of any age who have central visual acuity of 20\/200 or less in the better eye with the use of a correcting lens, or a limitation in the fields of vision so that the widest diameter of the visual field subtends an angle of 20 degrees or less (i.e., tunnel vision). \nAdults aged 18 and older are considered \"disabled\" if they are unable to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. The Social Security Administration uses a monthly earnings standard to determine whether an individual's work activity constitutes SGA. The agency adjusts this standard annually to reflect changes in national wage levels. In 2019, the SGA earnings standard is $1,220 per month. (The SGA earnings standard is a proxy measure for total disability; it is not used to determine financial eligibility for SSI.) Adults generally qualify as disabled if they have an impairment (or combination of impairments) of such severity that they are unable to perform any kind of substantial work that exists in the national economy in significant numbers, taking into consideration their age, education, and work experience.\nChildren under the age of 18 are considered \"disabled\" if they have a medically determinable physical or mental impairment that (1) results in marked and severe functional limitations and (2) can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months. Children typically qualify as disabled if they have a severe impairment (or combination of impairments) that limits their ability to engage in age-appropriate childhood activities at home, in childcare, at school, or in the community. In addition, the child's earnings must not exceed the SGA standard.\nThe Social Security Administration periodically reevaluates blind or disabled SSI recipients to determine if they continue to meet the applicable definition of blindness or disability. In general, the Social Security Administration schedules continuing disability reviews (CDRs) of blind or disabled SSI recipients at least once every three to seven years, depending on the likelihood of medical improvement. In addition, the agency reevaluates child SSI recipients under the adult definition of disability when they attain age 18.\n\n\t\t\tSSI Financial Eligibility Criteria\n\nTo be financially eligible for SSI, a person must have income and resources within certain limits ( Table 2 ). The SSI income standard is equal to the SSI federal benefit rate (FBR), which is the maximum monthly SSI payment available under the program. In 2019, the SSI FBR is $771 per month for an individual and $1,157 per month for a married couple if both members are SSI eligible. Expressed as a share of the federal poverty level (FPL), the SSI FBR in 2019 is about 74% of FPL for an individual and 82% of FPL for a couple. The SSI FBR is adjusted annually for inflation by the same cost-of-living adjustment (COLA) applied to Social Security benefits. The SSI resource standard is $2,000 for an individual and $3,000 for a couple. These amounts are not adjusted for inflation and have remained at their current levels since 1989.\nUnder the SSI program, a person's income and resources are counted against the income and resource standards unless they are excluded by federal law or by the Commissioner of Social Security pursuant to discretionary authority provided in statute. The SSI income-counting methodology excludes, among other things, the first $20 per month of any income, as well as the first $65 per month of earned income plus one-half of any earnings above $65. These amounts are not adjusted for inflation and have remained in place since SSI was enacted in 1972. The SSI resource-counting methodology excludes, among other things, a person's primary residence, household goods and personal effects, one automobile used for transportation, and property essential to self-support.\nFor an eligible individual without an eligible spouse, the SSI income- and resource-counting methodologies are generally person-based, meaning the program counts the income and resources owned or used by the individual to determine eligibility for SSI and the amount of the payment. In certain situations, however, SSI may count a portion of the income or resources of certain ineligible family members toward the eligible individual's income or resource standard. This process, known as \"deeming,\" applies primarily to eligible children under the age of 18 who live in the same household as their ineligible parent(s) and to eligible married adults who live in the same household as their ineligible spouse. SSI deeming rules are complex and beyond the scope of this report.\nThe Social Security Administration calculates a person's countable income and resources (i.e., gross income and resources less applicable exclusions) and then subtracts those amounts from the income and resource standards to determine financial eligibility and the amount of the cash payment (if any). Individuals with countable income and resources at or below the applicable standards are eligible for SSI. The Social Security Administration periodically reevaluates an SSI recipient's financial circumstances (i.e., income, resources, and living arrangements) to determine if the person is still eligible for SSI and receiving the correct payment amount. Automatic redeterminations are scheduled annually or once every six years, depending on the likelihood of change in a recipient's circumstances. \n\n\t\tAdditional Eligibility Requirements for LTSS Coverage\n\nMedicaid enrollees\u00e2\u0080\u0094including the ABD populations\u00e2\u0080\u0094may have long-term care needs as well. In general, to receive Medicaid LTSS coverage, enrollees must also meet state-based level-of-care eligibility criteria. In other words, they must demonstrate the need for long-term care. In addition, such individuals may be subject to a separate set of Medicaid financial eligibility rules to receive LTSS coverage.\nLevel-of-care eligibility criteria for most Medicaid-covered LTSS specify that individuals must require care provided in a nursing facility or other institutional setting. A state's institutional level-of-care criteria, in general, are also applied to Medicaid Home and Community-Based Services (HCBS) eligibility. That is, eligibility for Medicaid LTSS, both institutional care and most HCBS, is tied to needs-based criteria that require an individual to meet an institutional level-of-care need. \nThere is no federal definition for Medicaid institutional level-of-care, and each state defines its level-of-care criteria. To define institutional level-of-care criteria, states may use \"functional\" criteria, such as an individual's ability to perform certain activities of daily living (ADLs). States may also use \"clinical\" level-of-care criteria, such as the diagnosis of an illness, injury, disability or other medical condition; treatment and medications; and cognitive status or behavioral issues, among other criteria. Most states use a combination of functional and clinical criteria in defining the need for LTSS.\nCertain optional ABD eligibility pathways (as described in the section entitled \" Other ABD Pathways \") are available for older adults and individuals with disabilities \u00e2\u0080\u0094Special Income Level, Special Home and Community-Based Waiver Group, Home and Community-Based Services (HCBS) State Plan, and Katie Beckett. These optional eligibility pathways establish eligibility to Medicaid, in general, along with Medicaid-covered LTSS for individuals who receive institutional care, or for those who need the level of care provided in an institution and receive Medicaid-covered HCBS. Medicaid enrollees in other mandatory or optional eligibility pathways may also be eligible to receive LTSS if they meet the level of care criteria.\nApplicants seeking Medicaid-covered LTSS are subject to a separate set of Medicaid financial eligibility rules (e.g., limits on the value of home equity and asset transfer rules). These additional financial rules are in place to ensure that program applicants apply their assets toward the cost of their care and do not divest them to gain eligibility sooner. In addition, Medicaid specifies rules for equitably allocating income and assets to non-Medicaid-covered spouses to determine LTSS coverage eligibility for nursing facility services and some HCBS. Commonly referred to as spousal impoverishment rules , these rules are intended to prevent the impoverishment of the spouse who does not need LTSS.\nMedicaid has another set of rules for the treatment of income after an individual is determined eligible for certain Medicaid-covered LTSS, referred to as Post-Eligibility Treatment of Income (PETI) rules. In general, eligible beneficiaries whose income exceeds specified amounts are required to apply their income toward the cost of their care. Within federal guidelines, a participant may retain a certain amount of income for personal use based on the services he or she receives. This amount varies by care setting (i.e., institutional versus HCBS). These specific financial eligibility rules for Medicaid-covered LTSS are not described in this report; for more information, see CRS Report R43506, Medicaid Financial Eligibility for Long-Term Services and Supports .\nIn addition, most states offer Medicaid-covered LTSS under waiver programs that operate outside requirements under the Medicaid State plan. Under SSA Section 1915(c), states can cover HCBS, which includes a wide variety of nonmedical, social, and supportive services that allow individuals who require an institutional level of care to live independently in the community. SSA Section 1915(c) authorizes the HHS Secretary to waive requirements regarding comparability of services and offering services statewide (i.e., referred to as statewideness). In addition, states may waive certain income and resource rules applicable to persons in the community, so that a spouse's or parent's income (and, to some extent, resources) are not considered available to the applicant for the purposes of determining Medicaid financial eligibility. States may use Section 1915(c) concurrently with other waiver authorities. For example, states may combine Section 1915(b) and 1915(c) authorities to offer mandatory managed care for HCBS. States may also limit or cap program enrollment in the waiver. For each Section 1915(c) waiver program, states must identify the Medicaid eligibility groups receiving waiver services from those groups already covered under the Medicaid State plan. In doing so, states may include both mandatory and optional groups.\nTo expand LTSS coverage, states may use Section 1115 of the SSA to waive certain state plan requirements. States have used Section 1115 waivers to expand eligibility to groups beyond those the statute allows, to cap program enrollment, and to impose waiting periods prior to enrollment. States have also used Section 1115 waiver programs to modify the income- and resource-counting rules and methodologies for specified groups\u00e2\u0080\u0094for example, to encourage participation in managed LTSS, and to otherwise liberalize or limit income-counting rules for specified subpopulations. Moreover, states have used Section 1115 waiver authority to modify spend-down requirements, and to modify periods of retroactive eligibility and\/or periods for eligibility redeterminations, among other eligibility-related purposes. Further discussion of Medicaid eligibility under these waiver programs is beyond the scope of this report.\n\n\tSSI-Related Pathways\n\nSSI-Related Pathways consist of mandatory and optional eligibility groups that meet the general requirements of the SSI program. These groups include aged, blind, or disabled individuals who are SSI eligible, deemed to be SSI eligible, or would be SSI eligible if not for a certain SSI program rule. This report organizes the SSI-Related Pathways into three subgroups, each of which contains multiple eligibility pathways: (1) SSI Recipients, (2) Special Groups of Former SSI Recipients, and (3) Other SSI-Related Groups.\n\n\t\tSSI Recipients\n\nThe pathways for SSI Recipients extend Medicaid coverage to individuals who are enrolled in the SSI program and who either receive SSI, are deemed to receive SSI, or receive only state supplementary payments (SSPs, discussed below). States are generally required to provide Medicaid coverage for SSI recipients. However, states may use more restrictive eligibility criteria than those of the SSI program if they were using such criteria in 1972. Individuals in receipt of SSI for a given month are usually eligible for Medicaid for that month. SSI recipients typically become ineligible for Medicaid whenever their cash payments are suspended or terminated. In December 2018, 8.1 million individuals received SSI or federally administered SSP. \n\n\t\t\tSSI Recipients in \"1634 States\" or \"SSI Criteria States\"\n\nUnless states elect the option discussed in the next section, they must provide Medicaid coverage for all SSI recipients. Most states that provide Medicaid coverage for all SSI recipients do so automatically. Section 1634 of the SSA allows states to enter into an agreement with the Social Security Administration for the agency to conduct Medicaid eligibility determinations and redeterminations for SSI recipients on the state's behalf. In these states, an SSI application is also an application for Medicaid, and an SSI redetermination is also a redetermination of Medicaid eligibility. States that choose to contract with the Social Security Administration under Section 1634 of the SSA are known as \"1634 states.\" In 2019, 34 states and the District of Columbia provide Medicaid coverage for SSI recipients using this option (see Table 3 ).\nSome states that provide Medicaid coverage for all SSI recipients choose to conduct their own Medicaid eligibility determinations and redeterminations. These states use the same standards and methodologies of the SSI program to determine Medicaid eligibility but require SSI recipients to file a separate Medicaid application with the state or local Medicaid office. States that elect this option are known as \"SSI criteria states.\" In 2019, eight states provide Medicaid coverage for SSI recipients using this option (see Table 3 ).\n\n\t\t\tSSI Recipients and Other ABD Individuals in \"209(b) States\"\n\nUnder Section 1902(f) of the SSA, states have the option of applying eligibility criteria that are more restrictive than those of the SSI program in determining Medicaid eligibility for SSI recipients. However, any more restrictive eligibility criteria that are applied to SSI recipients may not be more restrictive than those contained in the state's Medicaid plan that was in effect on January 1, 1972. States that provide Medicaid coverage for only those SSI recipients who meet more restrictive eligibility criteria than SSI criteria are known as \"209(b) states,\" after the section of the Social Security Amendments of 1972 (P.L. 92-603) that established the option. In 2019, eight states provide Medicaid coverage for SSI recipients using this option (see Table 3 ).\n209(b) states apply at least one eligibility criterion that is more restrictive than SSI criteria in determining Medicaid eligibility for SSI recipients, such as a stricter definition of blindness or disability, a lower income or resource standard, a less generous methodology for counting income or resources, or some combination of those factors. For example, New Hampshire imposes a longer duration-of-impairment requirement for individuals with a disability other than blindness (48 months instead of SSI's 12-month standard), and Virginia limits ownership of property contiguous to an individual's home (i.e., land other than the lot occupied by the home) to $5,000. 209(b) states may also use eligibility criteria that are more liberal than those of the SSI program under the authority provided in Section 1902(r)(2) of the SSA; however, they must retain at least one eligibility criterion that is more restrictive than SSI criteria to remain in 209(b) status.\n209(b) states are required to deduct the value of SSI and any optional state supplementary payments (discussed below) from an SSI recipient's income in determining Medicaid eligibility. They must also allow SSI recipients to \"spend down\" or deduct incurred medical expenses from their income to the point where they meet the applicable income standard needed for Medicaid eligibility. Because SSI program rules form the foundation of Medicaid eligibility criteria for the ABD populations, 209(b) states may apply their more restrictive eligibility criteria to most other eligibility pathways for ABD individuals, subject to the same terms and conditions discussed above.\n\n\t\t\tIndividuals Eligible for Only Optional SSPs\n\nSome states complement federal SSI payments with optional state supplementary payments (SSPs), which are made solely with state funds. SSPs are intended to help individuals whose basic needs are not fully met by the SSI federal benefit rate (FBR). States may provide SSPs to all SSI recipients, or they may limit payments to certain individuals, such as residents of domiciliary-care facilities or blind individuals. SSP amounts, standards, and methodologies are determined by the states, pursuant to certain federal requirements. States may self-administer their SSP program (i.e., state administered SSP), or they may contract with the Social Security Administration for the agency to administer the program on the state's behalf (i.e., federally administered SSP). In 2019, 44 states and the District of Columbia provide optional SSPs to some or all SSI recipients.\nStates have the option to provide Medicaid coverage for individuals who receive only an optional SSP. Individuals receive an optional SSP, but no SSI payment, if their countable income is at least equal to the SSI income standard but less than the state-established income standard used to determine optional SSPs. The \"SSP income standard\" is effectively the combined amount of the SSI FBR and the maximum applicable SSP. For example, in 2019, the SSP income standard for a disabled individual living independently in California is $931.72 per month: the SSI FBR of $771 per month plus the maximum applicable SSP of $160.72 per month. In this case, the disabled individual would receive only an optional SSP if his or her countable income were at least $771 per month but less than $931.12 per month.\nIn general, states must apply the same standards and methodologies to individuals under this pathway that they apply to individuals receiving SSI, including any standards or methodologies that are more restrictive than those of the SSI program in the case of 209(b) states. However, 209(b) states and SSI criteria states that self-administer their SSP program may apply a more restrictive income-counting methodology to individuals under this pathway than the one they apply to individuals receiving SSI. According to the Medicaid and CHIP Payment and Access Commission (MACPAC), 43 states and the District of Columbia provide Medicaid for individuals who receive only an optional SSP.\n\n\t\t\tIndividuals Receiving Mandatory SSPs\n\n(This pathway is closed to new enrollment and applies to relatively few people.)\nSection 212 of P.L. 93-66 requires nearly all states to maintain the December 1973 income levels of individuals who were transferred from the former federal-state cash assistance programs for the aged, blind, and disabled (hereinafter \"former adult assistance programs\") to the SSI program in January 1974. To receive federal Medicaid funding, states must provide a special payment, known as a mandatory SSP, to individuals who were converted from the former adult assistance programs to the SSI program if the individual's SSI payment plus other income from the current month is less than his or her December 1973 state grant amount plus certain other income. The amount of the mandatory SSP is the difference between the current SSI payment and the individual's December 1973 payment under the former adult assistance program. Section 13(c) of P.L. 93-233 requires states to provide Medicaid coverage for individuals who receive mandatory SSPs. \n\n\t\t\tIndividuals with Earnings Above Certain Limits (1619[a] and 1619[b])\n\nAll states (including 209[b] states) are required to provide Medicaid coverage for individuals who are enrolled in the SSI program but have earnings above certain SSI limits. Under Section 1619(a) and 1619(b) of the SSA, individuals who would continue to be eligible to receive SSI if not for their earnings may be deemed to be receiving SSI for Medicaid eligibility purposes if they continue to work and meet certain other requirements. To qualify under the 1619 provisions, individuals must have been eligible for and received SSI for at least one month before the month the 1619 determination is made. (Adults aged 65 and older may qualify for the 1619 provisions, provided they meet the SSI definition of blindness or disability.) Individuals who live in 209(b) states must also have been eligible for Medicaid in the month immediately prior to becoming eligible for 1619 status.\nSection 1619(a) of the SSA provides for the continuation of cash payments for disabled SSI recipients with earnings that would otherwise disqualify them from SSI. Under this provision, disabled individuals who have earnings at or above the substantial gainful activity (SGA) standard ($1,220 per month in 2019) but whose countable income is less than the SSI income standard are eligible to receive special SSI payments in lieu of regular SSI payments. (SSI does not require blind individuals to meet the SGA standard; thus, 1619[a] does not apply to blind SSI recipients.) These 1619(a) payments are calculated in the same manner as regular SSI payments and are payable for as long as an individual performs SGA and meets all other SSI eligibility criteria. In addition to providing special payments, Section 1619(a) requires all states to provide Medicaid coverage for 1619(a) recipients on the same basis as they provide Medicaid coverage for regular SSI recipients. \nSection 1619(b) of the SSA requires all states to provide Medicaid coverage for blind or disabled individuals who would continue to be eligible for regular SSI payments or 1619(a) payments if not for their earnings. Under this provision, blind or disabled individuals who lose SSI eligibility because their countable income exceeds the SSI income standard (or applicable SSP income standard) due to excess earnings are deemed to be receiving SSI for Medicaid eligibility purposes. To qualify under this pathway, individuals must (1) continue to be blind or disabled, (2) meet all SSI financial eligibility requirements except for earnings, (3) need Medicaid to continue working, and (4) have earnings that are considered insufficient to provide a reasonable equivalent of the benefits that would be provided if they did not have those earnings (i.e., SSI, SSP, Medicaid, and publically funded personal or attendant care).\nThe Social Security Administration uses an annual earnings standard to determine when 1619(b) eligibility ends. The agency calculates this standard based on the sum of\nthe amount of gross earnings that would reduce the SSI payment (or the combined amount of the SSI payment and the SSP) to zero for an individual living independently with no other income, and the state's average annual per capita Medicaid expenditures for blind or disabled SSI recipients. \nThe standard varies from state to state, depending on the amount of the SSP (if any) and per capita Medicaid expenditures. In 2019, the annual earnings standard for disabled 1619(b) participants ranges from $27,826 in Alabama to $66,452 in Connecticut, with the median being $36,548. If an individual's annual earnings exceed the predetermined standard, then the Social Security Administration will determine his or her eligibility using an individualized standard that takes into account the person's actual Medicaid expenditures, as well as the value of any publicly funded personal or attendant care that the individual receives from a program other than Medicaid.\n\n\t\tSpecial Groups of Former SSI Recipients\n\nThe pathways for Special Groups of Former SSI Recipients extend Medicaid coverage to special former SSI\/SSP recipients who would continue to be eligible for SSI\/SSP if not for receipt of certain Social Security benefits. Special former recipients are deemed to be receiving SSI\/SSP for Medicaid eligibility purposes; however, unlike 1619 participants, they no longer have a current connection to the SSI program (i.e., they have been formally terminated from the rolls). In determining Medicaid eligibility, most states must disregard the applicable Social Security benefit or increases in that benefit from the special former recipient's countable income. In most instances, 209(b) states have the option to disregard all, some, or none of the applicable Social Security benefit or increases in that benefit from the special former recipient's countable income in determining Medicaid eligibility. However, 209(b) states must provide Medicaid coverage for special former recipients on the same basis as they provide Medicaid coverage for individuals who receive SSI\/SSP.\n\n\t\t\tRecipients of Social Security COLAs After April 1977 (\"Pickle Amendment\")\n\nSection 503 of P.L. 94-566 generally requires states to provide Medicaid coverage for individuals who would continue to be eligible for SSI\/SSP if not for increases in their Social Security benefits due to COLAs. Individuals qualify under this pathway it they\nare receiving Social Security benefits, lost SSI\/SSP but would still be eligible for those benefits if Social Security COLAs received since losing SSI\/SSP were deducted from their income, and were eligible for and receiving SSI\/SSP concurrently with Social Security for at least one month after April 1, 1977.\n209(b) states may exclude all, some, or none of the Social Security benefit increases that caused ineligibility for SSI\/SSP. This pathway is often known as the \"Pickle Amendment\" after the late Representative J.J. Pickle.\n\n\t\t\tDisabled Widow(er)s Receiving Benefit Increases Under P.L. 98-21 (\"ARF Widow[er]s\")\n\n(This pathway is closed to new enrollment and applies to relatively few people.)\nSocial Security provides widow(er)'s benefits starting at age 60, or at age 50 if the individual is disabled and meets certain other criteria. The amount of the aged or disabled widow(er)'s benefit is based on the deceased insured worker's past earnings from covered employment, subject to a permanent reduction for each month of entitlement before the widow(er)'s full retirement age (65-67, depending on year of birth). Under P.L. 98-21 , lawmakers eliminated the additional reduction factor (ARF) for disabled widow(er)s aged 50-59, meaning their reduction penalty for claiming benefits before their full retirement age was capped at the percentage applicable to aged widow(er)s who first claim at age 60.\nAll states (including 209[b] states) are required to provide Medicaid coverage for individuals who would continue to be eligible for SSI\/SSP if not for increases in their widow(er)'s benefits due to the elimination of the ARF (known as \"ARF Widow[er]s\"). Individuals qualify under this pathway if they\nwere entitled to Social Security benefits in December 1983 and received disabled widow(er)'s benefits and SSI\/SSP in January 1984, lost SSI\/SSP eligibility because of the elimination of the ARF, have been continuously entitled to widow(er)'s benefits since January 1984, filed for Medicaid continuation before July 1, 1988 (or a slightly later date in some cases), and would continue to be eligible for SSI\/SSP if the value of the increase in disabled widow(er)'s benefits under P.L. 98-21 and any subsequent COLAs were deducted from their countable income. \n\n\t\t\tDisabled Adult Children\n\nDisabled adult children of retired, disabled, or deceased insured workers typically qualify for Social Security disabled adult child's (DAC) benefits if they are at least age 18 and became disabled before they attained age 22. States are generally required to provide Medicaid coverage for individuals who lose eligibility for SSI\/SSP due to entitlement to or an increase in DAC benefits. Individuals qualify under this pathway if they\nlose eligibility for SSI\/SSP due to receipt of DAC benefits on or after July 1, 1987, and would continue to be eligible for SSI\/SSP if not for their entitlement to or an increase in DAC benefits.\n209(b) states may exclude all, some, or none of the DAC benefit or increases in that benefit that caused ineligibility for SSI\/SSP.\n\n\t\t\tWidow(er)s Not Entitled to Medicare Part A (\"Early Widow[er]s\")\n\nStates are generally required to provide Medicaid coverage for individuals aged 50 to 64 who lose eligibility for SSI\/SSP due to entitlement to Social Security widow(er)'s benefits but who are not yet entitled to Medicare Part A (Hospital Insurance). Individuals qualify under this pathway if they\nare at least age 50 but have not yet attained age 65, received SSI\/SSP in the month before their widow(er)'s benefits began, are not entitled to Medicare Part A, and would continue to be eligible for SSI\/SSP if not for their entitlement widow(er)'s benefits. \nEligibility for Medicaid under this pathway continues until the individual becomes entitled to Medicare Part A. 209(b) states may exclude all, some, or none of the widow(er)'s benefit that caused ineligibility for SSP\/SSI. \n\n\t\t\tRecipients of a 1972 Social Security COLA\n\n(This pathway is closed to new enrollment and applies to relatively few people.)\nSection 249E of P.L. 92-603 requires states to provide Medicaid coverage for individuals who would be eligible for SSI\/SSP in the absence of a Social Security COLA enacted in 1972 under P.L. 92-336. Individuals qualify under this provision if they\nwere entitled to Social Security benefits in August 1972, were receiving cash assistance under the former adult assistance programs in August 1972 (or would have been eligible for such assistance in certain instances), and would be eligible for SSI\/SSP had the COLA under P.L. 92-336 not been applied to their Social Security benefits.\n\n\t\tOther SSI-Related Groups\n\nThe pathways for Other SSI-Related Groups extend Medicaid coverage to certain individuals who were eligible for Medicaid just prior to SSI's start in 1974, and to aged, blind, or disabled individuals who would be eligible for SSI\/SSP today if not for a certain requirement in those programs. Although these groups may have received SSI\/SSP in the past, their eligibility for Medicaid under these pathways is not conditional on their prior receipt of such payments.\n\n\t\t\tGrandfathered 1973 Medicaid Recipients\n\n(These pathways are closed to new enrollment and apply to relatively few people.)\nSections 230 to 232 of P.L. 93-66 require states to provide Medicaid to three groups that were eligible for Medicaid in December 1973: (1) essential spouses, (2) institutionalized individuals, and (3) blind or disabled individuals.\nEssential spouses are the spouses of cash assistance recipients under the former adult assistance programs whose needs were included in determining the amount of the cash payment to the recipient. Institutionalized individuals are inpatients of medical institutions or residents of intermediate care facilities who received cash assistance under the former adult assistance programs (or who would have been eligible for such assistance if they were not institutionalized). Blind or disabled individuals are individuals who met the state-established criteria for blindness or disability under the state's Medicaid plan in December 1973.\nStates must provide Medicaid for these groups if they continue to meet the respective eligibility criteria that were in effect in December 1973, in addition to meeting certain other requirements.\n\n\t\t\tIndividuals Eligible For but Not Receiving SSI\/SSP\n\nStates have the option to provide Medicaid coverage for aged, blind, or disabled individuals who meet the income and resource requirements for SSI\/SSP but who do not receive cash payments. Individuals may be eligible for but not receiving SSI\/SSP because they have not applied for benefits. According to estimates from HHS' Office of the Assistant Secretary for Planning and Evaluation, about 60% of single adults aged 18 and older who were eligible for SSI in 2015 participated in the program that year. In 209(b) states, eligibility under this pathway is determined before the deduction of any incurred medical expenses recognized under a state plan (i.e., before spend-down).\n\n\t\t\tIndividuals Who Would be Eligible for SSI\/SSP if They Were Not Institutionalized\n\nResidents of public institutions are generally ineligible for SSI. However, residents of certain medical institutions are eligible for a reduced SSI payment if more than 50% of the cost of their care is paid for by Medicaid (or in the case of a child under the age of 18, by any combination of Medicaid and private health insurance). The reduced SSI payment, known as a personal needs allowance (PNA), is used to pay for small comfort items not provided by the facility. Capped at $30 per month, or $60 per month for couples in certain situations, the PNA is not indexed to inflation and has remained at its current level since July 1988. Some states supplement the PNA (i.e., provide an SSP) for institutionalized individuals who meet certain requirements. Any countable income reduces the PNA for institutionalized individuals; however, the SSI\/SSP income standard is used in determining their eligibility for the SSI program. \nStates have the option to provide Medicaid coverage for institutionalized individuals who are ineligible for SSI\/SSP because of the lower income standards used to determine eligibility for the PNA but who would be eligible for SSI\/SSP if they were not institutionalized. In other words, states may provide Medicaid to individuals who reside in certain Title XIX-reimbursable institutions who have countable income at or above the PNA standard ($30 for an individual) but within the SSI\/SSP income standard ($771 for an individual in 2019).\n\n\t\t\tIndividuals Who Would be Eligible for SSI\/SSP if Not for Criteria Prohibited by\u00c2 Medicaid\n\nStates are generally required to provide Medicaid coverage for aged, blind, or disabled individuals who would be eligible for SSI\/SSP if not for an eligibility requirement used in those programs that is prohibited by Medicaid. For example, Section 4735 of the Balanced Budget Act of 1997 ( P.L. 105-33 ) requires states to exclude from eligibility determinations certain settlement payments made to hemophilia patients who were infected with HIV. However, federal law does not exempt such payments from being counted as income or resources under the SSI program. CMS regulations require states to provide Medicaid coverage for individuals who lost SSI eligibility because they received settlement payments.\n\n\tOther ABD Pathways\n\nStates may extend Medicaid coverage to older adults and individuals with disabilities who have higher levels of income or resources than those permitted by SSI program rules under optional aged, blind, or disabled (ABD) eligibility pathways. In addition, some optional ABD eligibility pathways allow states to choose their own methodology for counting income and resources; others permit states to use less restrictive income- or resource-counting methodologies compared with SSI rules. As previously mentioned, certain optional eligibility pathways for older adults and individuals with disabilities (e.g., Special Income Level, Special Home and Community-Based Waiver Group, Home and Community-Based Services [HCBS] State Plan, and Katie Beckett) establish eligibility to Medicaid, in general, along with Medicaid-covered LTSS. In addition, Medicaid gives states the option to extend eligibility to individuals who \"spend down\" or deplete their income on medical expenses, including LTSS, to specified levels. Therefore, some individuals with higher levels of income and resources compared with those permitted under SSI rules may be Medicaid-eligible. \nThis section describes the following optional Medicaid eligibility pathways for ABD individuals: (1) Poverty-Related; (2) Special Income Level; (3) Special Home and Community-Based Services Waiver Group; (4) Home and Community-Based Services State Plan Option; (5) Katie Beckett; (6) Buy-In Groups; and (7) Medically Needy.\n\n\t\tPoverty-Related\n\nEnacted under the Omnibus Budget Reconciliation Act of 1986 (OBRA '86; P.L. 99-509 ), the optional Poverty-Related eligibility pathway allows states to cover aged and\/or disabled individuals who have incomes that are higher than SSI standards, with family income up to 100% of the federal poverty level (FPL), provided that the state also covers certain eligible pregnant women and children. Aged individuals are defined as being 65 years old and older, and disabled individuals must meet the SSI program's applicable definition of disability. States may employ a reasonable definition of a \"family\" for purposes of the individual's countable income. In general, states must use SSI rules in determining what income is counted or not counted. An individual's resources cannot exceed the SSI resource standard with SSI rules used in determining countable resources. However, states may use Section 1902(r)(2) of the SSA to disregard additional countable income or resources. In 2018, 24 states and the District of Columbia (DC) offered the optional Poverty-Related eligibility pathway. Seventeen states and DC had an income standard that was set at 100% of the FPL under the Poverty-Related pathway; seven maintained a more restrictive income standard than 100% of the FPL. For example, Florida's standard was 88% of the FPL, and Idaho's was 77% of the FPL.\n\n\t\tSpecial Income Level\n\nThe optional Special Income Level eligibility pathway allows states to establish a higher income standard for Medicaid coverage of nursing facility services and other institutional services, sometimes referred to as the special income rule , or the \"the 300% rule.\" To be eligible for Medicaid through this pathway, individuals must\nrequire care provided by a nursing facility or other medical institution for no less than 30 consecutive days, and have an income standard that does not exceed a specified level\u00e2\u0080\u0094no greater than 300% of the SSI FBR (i.e., the maximum SSI payment), which is approximately 222% of the FPL.\nOnly the applicant's income (i.e., no income from spouses) is counted, and all income sources are counted in determining eligibility; there are no income disregards or deductions. For individuals seeking eligibility based on being aged 65 and older, or having blindness, or disability, the SSI resource standard and resource-counting methodology are used to determine eligibility. States may also use Section 1902(r)(2) of the SSA to disregard additional income or resources. Under the Special Income Level pathway, eligibility starts on the first of the 30 days that the individual resides in an institution. Thus, Medicaid can cover all of the care an individual receives in a nursing facility. In 2018, 42 states and the District of Columbia used the Special Income Level to enable persons to qualify for Medicaid coverage of institutional care. \n\n\t\tSpecial Home and Community-Based Services Waiver Group\n\nThe Special Home and Community-Based Services (HCBS) Waiver Group eligibility pathway allows states to extend Medicaid eligibility to individuals receiving HCBS under a waiver program who require the level of care provided by a nursing facility or other medical institution. This eligibility pathway is sometimes referred to as the \"217 Group\" in reference to the specific regulatory section for this group, 42 C.F.R. Section 435.217. States use the highest income and resource standard of a separate eligibility group covered by the state plan under which an individual would otherwise qualify if institutionalized. For example, states that offer the Special Income Level pathway described above can extend eligibility to waiver program participants with income up to 300% of the SSI FBR. States must use the income- and resource-counting methodologies used to determine eligibility for this same eligibility group. States may also apply Section 1902(r)(2)'s more liberal income-counting rules to this group.\n\n\t\tHome and Community-Based Services State Plan Option\n\nStates may establish an independent eligibility pathway into Medicaid through the Home and Community-Based Services (HCBS) State Plan option. This option is made available by extending the required and optional Medicaid state plan services, sometimes referred to as \"traditional\" Medicaid services, to individuals who are also receiving a targeted package of HCBS state plan services. In general, receipt of the Medicaid HCBS State Plan option is conditional on an individual having a need for long-term care (i.e., individuals must meet certain level-of-care criteria). Unlike Section 1915(c) HCBS waiver programs, which require that eligible individuals need the level of care provided in an institution (e.g., hospital or nursing facility), the HCBS state plan option delinks this requirement so that individuals with long-term care needs are not required to meet an institutional level of care need. The HCBS State Plan option was first enacted under the Deficit Reduction Act of 2005 (DRA; P.L. 109-171 ) and amended under the ACA.\nThe income standard for the HCBS State Plan option applies to individuals who have income no higher than 150% of the FPL. For individuals who otherwise meet the requirements for an approved waiver program, the income standard can be no higher than 300% of the SSI FBR. States may choose to cover individuals under either or both income standards. Generally, states use SSI income-counting methodologies; however, states have some discretion to apply alternative methodologies, subject to the approval of the Secretary of HHS. There are no resource standards for this eligibility group, with the exception for those individuals who seek to establish eligibility based on an approved waiver program. For these individuals, states must use the same income and resource standards and counting methodologies as applied to those individuals eligible under the applicable waiver program. States may also use Section 1902(r)(2) of the SSA to disregard additional income or resources.\nIn 2018, the most recent year for which data are available, 15 states and the District of Columbia offered at least one Section 1915(i) HCBS State Plan option; however, only two states (Indiana and Ohio) used this state plan authority as an independent eligibility pathway to Medicaid. As another option, states may choose to provide HCBS state plan services to those who are eligible for Medicaid under one of the state's existing Medicaid eligibility pathways.\n\n\t\tKatie Beckett\n\nEnacted under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA; P.L. 97-248 ), the Katie Beckett optional pathway provides coverage to severely disabled children whose parents' income is otherwise too high for the child to qualify for Medicaid LTSS at home. Under the Katie Beckett pathway, states may extend Medicaid coverage to disabled children who meet the applicable SSI definition of disability and who are age 18 or younger and live at home. In addition, the state must determine that (1) the child requires the level of care provided in an institution, (2) it is appropriate to provide care outside the facility, and (3) the cost of care at home is no more than institutional care. States electing this option are required to cover all disabled children who meet these criteria.\nStates must use SSI income and resources rules to determine eligibility; however, only the child's income and resources, if any, are counted. Parents' income and resources are not counted. A child's income cannot exceed the highest income standard used to determine eligibility for any separate group under which the individual would be eligible if institutionalized. In general, states set income standards up to 300% of the SSI FBR, which is about 222% of the FPL. States may not use Section 1902(r)(2) of the SSA to use more liberal income- or resource-counting methodologies. In 2018, the most recent year for which data are available, 24 states and the District of Columbia offered the Katie Beckett pathway under their Medicaid state plan. \n\n\t\tBuy-In Groups\n\nThere are several optional Medicaid Buy-In eligibility pathways for working individuals with disabilities or working families who have a child with a disability. In general, individuals eligible under Buy-In pathways would be eligible for Medicaid except for the fact that their income is higher than the income standard allowed by the SSI program under Section 1619(b) of the SSA, which varies by state. Medicaid Buy-In pathways are designed to allow disabled individuals to work and still retain their Medicaid coverage, or to use their Medicaid coverage to access wraparound services that are not covered under an employer-sponsored plan. States can also impose premiums or other types of cost-sharing requirements on eligible individuals, which can be done on a sliding scale based on income. The extent to which states impose premiums and cost-sharing varies by state. \nMedicaid Buy-In pathways include the BBA 97 Eligibility Group, the Basic Eligibility Group, and the Medical Improvement Group. There is also a separate Buy-In pathway for disabled children, called the Family Opportunity Act. In 2018, the most recent year for which data are available, 44 states and the District of Columbia chose to offer coverage through at least one Buy-In pathway.\n\n\t\t\tBBA 97 Eligibility Group\n\nEnacted under Section 4733 of the Balanced Budget Act of 1997 (BBA 97; P.L. 105-33 ), this optional pathway is available to individuals with disabilities who work and have family income below 250% of the FPL, based on the size of the family. Individuals with disabilities must meet the SSI program's applicable definition of disability. Each state determines what constitutes a \"family\" for the purposes of this eligibility group. Family income is determined by applying the SSI income-counting methodology. In addition to the family income requirement, the applicant's unearned income must be less than the SSI income standard. All earned income is disregarded. An individual's countable resources must be less than or equal to the SSI resource standard using the SSI resource-counting methodology. However, states may use Section 1902(r)(2) of the SSA to disregard additional income or resources.\n\n\t\t\tTicket to Work Basic Eligibility Group\n\nEnacted under Section 201 of the Ticket to Work and Work Incentives Improvement Act of 1999 (TWWIIA; P.L. 106-170 ), this optional pathway is similar to the BBA 97 Eligibility Group but is available to people with higher levels of income (i.e., above 250% of the FPL). There are no federal income or resource standards for the Basic Eligibility Group; rather, states can determine the income and resource standards, including no standards, rather than using the SSI program's requirements. However, if a state chooses to establish an income and\/or resource standard, SSI income- and resource-counting methodologies apply. States may use Section 1902(r)(2) of the SSA to disregard additional earned income above the SSI-earned-income disregard, including disregarding all earned income. Individuals with disabilities eligible under this pathway must be aged 16 to 64 and meet the SSI program's applicable definition of disability.\n\n\t\t\tTicket to Work Medical Improvement Group\n\nThe Medical Improvement Group pathway was also enacted under Section 201 of TWWIIA. For states to cover this eligibility group, they must also cover the TWWIIA Basic Eligibility Group. Individuals eligible under the Medical Improvement Group were previously eligible under the Basic Eligibility Group but lost that eligibility because they were determined to have \"medically improved,\" meaning they no longer meet the definition of disability under the SSI or Social Security Disability Insurance (SSDI) programs but continue to have a severe medically determinable impairment. Eligible individuals must be aged 16 to 64, earn at least the federal minimum wage, and work at least 40 hours per month or be engaged in a work effort that meets certain criteria for hours of work, wages, or other measures, as defined by the state and approved by the Secretary of HHS. As with the Basic Eligibility Group, states may determine the income and resource standards, including no standards, for this pathway. Similarly, states may use Section 1902(r)(2) of the SSA to disregard additional earned income above the SSI-earned-income disregard, including disregarding all earned income.\n\n\t\t\tFamily Opportunity Act\n\nEstablished under Section 6061 of the DRA, the Family Opportunity Act (FOA) optional pathway allows families with income up to 300% of the FPL to buy Medicaid coverage for their disabled child aged 18 or younger (states can exceed 300% of the FPL without federal matching funds for such coverage). When determining a child's Medicaid eligibility, states choosing this pathway use the SSI program's applicable definition of disability, as well as SSI's income-counting methodology for a family, based on its size. There is no resource standard or applicable resource-counting methodology. States may use Section 1902(r)(2) of the SSA to disregard additional earned income above the SSI-earned-income disregard. States must require certain parents of eligible children under the FOA optional coverage group to enroll in, and pay premiums for, family coverage through employer-sponsored insurance as a condition of continuing Medicaid eligibility for the child. \n\n\t\tMedically Needy\n\nThe Medically Needy option is targeted toward individuals with high medical expenses who would otherwise be eligible for Medicaid except that their income exceeds the income standards for other state-covered eligibility pathways. Individuals may qualify in one of two ways: either (1) their income or resources are at or below a state established standard, or (2) they spend down their income to the state-established standard by subtracting incurred medical expenses from their income. For example, if an individual has $1,000 in monthly income and the state's income threshold is $600, then the applicant would be required to incur $400 in out-of-pocket medical expenses during a state-determined budget period before being eligible for Medicaid. Examples of medical expenses that may be deducted from income include Medicare and other health insurance premiums, deductibles and coinsurance charges, and other medical expenses included in the state's Medicaid plan or recognized under state law. For individuals who spend down to Medicaid eligibility, states select a specific time period for determining whether or not the applicant meets the spend-down obligation, often referred to as a \"budget period,\" which generally ranges from one to six months.\nStates that choose to offer the Medically Needy option must cover pregnant women and children under the age of 18, and may choose to extend eligibility to the aged, blind, or disabled, among other groups. The Medically Needy option allows aged and disabled individuals who need expensive institutional LTSS to qualify for Medicaid nursing facility services. However, nursing facility services are optional services that states may elect to cover for Medically Needy individuals. \nUnder the Medically Needy option, states establish the income eligibility standard; however, it may be no higher than 133\u00e2\u0085\u0093% of the state's AFDC level in 1996. Typically, the AFDC level is lower than the income standard for SSI benefits. For example, in 2015 the median Medically Needy income standard for an individual was $483 per month, or about 49% of the FPL. States use the SSI income-counting methodology for aged, blind, or disabled individuals. States also set the resource standards within certain federal requirements. For aged, blind, or disabled individuals, the resource standard is generally the same as in the SSI program. In general, states must use SSI's applicable definition of disability when determining eligibility for the disabled eligibility group. In 2018, 32 states and the District of Columbia offered coverage to the Medically Needy.\n\n\t\t\tAppendix. Medicaid Eligibility Pathways That Cover Older Adults and Individuals with Disabilities\n\n Table A-1 lists selected Medicaid eligibility pathways that cover older adults and individuals with disabilities. These eligibility pathways are organized into two broad coverage groups: (1) SSI-Related Pathways and (2) Other ABD Pathways. The table includes a brief description of each pathway, the age criterion for eligibility, whether the pathway is mandatory or optional, the Social Security Act citation, and any applicable regulatory citations.\n Table A-2 lists the income and resource standards, as well as the counting methodology, that applies to each standard for the selected Medicaid eligibility pathways that cover older adults and individuals with disabilities. In general, standards or limits on the amount of income and resources required for eligibility are expressed in relationship to the federal poverty level (FPL) or the SSI federal benefit rate (FBR). Where applicable, the income standard is presented as a monthly dollar amount for an individual in 2019. For state-specific information on Medicaid eligibility pathways for older adults and individuals with disabilities, see the following resources:\nM. Musumeci, P. Chidambaram, and M. O'Malley Watts, Medicaid Financial Eligibility for Seniors and People with Disabilities: Findings from a 50-State Survey , The Kaiser Family Foundation, June 2019, https:\/\/www.kff.org\/medicaid\/issue-brief\/medicaid-financial-eligibility-for-seniors-and-people-with-disabilities-findings-from-a-50-state-survey\/ . MACPAC, MACStats: Medicaid and CHIP Data Book , Exhibit 37, pp. 109-111, December 2018, https:\/\/www.macpac.gov\/wp-content\/uploads\/2018\/12\/December-2018-MACStats-Data-Book.pdf .","output":null}
{"id":"crs_R45916","pid":"crs_R45916_0","input":"\tBackground\n\nThe Transportation Investments Generating Economic Recovery (TIGER) grant program is a discretionary program providing grants to projects of national, regional, or metropolitan-area significance in various surface transportation modes on a competitive basis, with recipients selected by the federal Department of Transportation (DOT). It originated in the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ), where it was called \"national infrastructure investment\" (as it has been in subsequent appropriations acts). Beginning with the FY2018 round of grants, DOT renamed the program the Better Utilizing Investments to Leverage Development (BUILD) program.\nUnless otherwise noted, all dollar amounts in this report are expressed in 2019 dollars to adjust for inflation over the life of the program, and all percentages are calculated on that basis. These figures therefore do not correspond to DOT data, which in general are not adjusted for inflation.\n\n\tThe Origin of the Program\n\nThe TIGER program began in the depths of the 2007-2009 recession as a way to both improve transportation infrastructure and stimulate economic activity. For much of its existence it was virtually the only significant discretionary surface transportation grant program, and virtually the only program that allowed local communities to apply for and receive highway funding directly from the federal government rather than through their state's department of transportation, which might have different priorities than the community.\nOne of President Obama's first acts after taking office in January 2009 was to propose an economic stimulus bill. Congress passed ARRA after roughly a month of intense debate. The bill provided over $700 billion to stimulate the economy, mostly through reductions in taxes. It authorized $43 billion for transportation infrastructure, including $1.5 billion for a discretionary grant program to make capital investments in surface transportation infrastructure, which Congress labeled \"national infrastructure investment.\" In implementing this new program, DOT retitled it Transportation Investments Generating Economic Recovery, although the annual DOT appropriations act continues to refer to it as national infrastructure investment.\nThe program initially had two goals: to make investments that would improve the condition of the nation's surface transportation infrastructure, and to do so quickly to provide immediate stimulus to the economy. Thus ARRA required DOT to give priority to projects that were expected to be completed by February 17, 2012, three years after the legislation was enacted. Since it took nearly a year for DOT to set up an office to manage the program, solicit applications, review them, and select which projects to award, the process favored projects that could be completed within two years. The initial awards were announced on February 17, 2010.\nIn that first round, DOT received 1,497 applications requesting $72.5 billion. It awarded 51 grants totaling $1.69 billion. See Table 3 for details about annual applications and awards.\nUnless otherwise noted, all dollar amounts in this report are expressed in 2019 dollars to adjust for inflation over the life of the program, and all percentages are calculated on that basis. These figures therefore do not correspond to DOT data, which in general are not adjusted for inflation.\n\n\tAfter Earmarks Ended\n\nDuring the early 2000s, transportation authorization and appropriations bills included growing numbers of earmarks directing discretionary grants to specific projects. In response to criticism of this practice, in 2011 the Republican conferences in both the House and the Senate prohibited Members from requesting earmarks. In his State of the Union Address on January 25, 2011, President Obama vowed to veto any legislation containing earmarks.\nIn the 2012 surface transportation reauthorization legislation, the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ), Congress reduced opportunities for earmarking by abolishing most of DOT's discretionary grant programs, providing virtually all federal surface transportation funding to recipients based on formulas. The TIGER grant program, which has been funded in the annual DOT appropriations acts and was not included in MAP-21, became one of the few remaining discretionary transportation grant programs.\nThe Obama Administration did not support continuing the program in its FY2010 and FY2011 budgets, but requested funding in FY2012 and following years. A pattern emerged in which the Republican majority in the House of Representatives proposed cutting funding or eliminating it altogether, the Senate supported the program, and the program ultimately received funding in each year's appropriations legislation. Since the Democratic Party regained the House majority in the 2018 midterm election, the House has supported sizable increases in the program ( Table 1 ).\n\n\tEvolution of the Program's Grant Criteria\n\nSince Congress has continued the TIGER\/BUILD program on an annual basis, the annual DOT appropriations act gives Congress the opportunity to adjust the criteria for the program each year. Some criteria, such as a requirement that DOT must ensure an equitable distribution of grant funds geographically and between urban and rural areas, have been the same since the first year. Other criteria, such as the minimum and maximum grant size, have changed frequently. In general, the trend has been toward distributing the funding to a larger number of grantees (through such measures as lowering the maximum grant size). Table A-1 summarizes the changes in many of the program's grant criteria over the past decade.\n\n\t\tMerit Criteria: Considerations Beyond Economic Stimulus\n\nBorn in the anxious days of early 2009, when there was genuine concern about the state of the U.S. economy, the initial focus of the TIGER\/BUILD grant program was twofold: to make grants to surface transportation projects that would improve the nation's transportation infrastructure and that would be able to spend the money quickly in order to stimulate the economy. Other considerations included the likelihood of on-time completion and the benefits of the project compared to the costs.\nIn subsequent years, as the economy began to recover, DOT added additional merit criteria to its project selection, as shown in Table 2 .These criteria were determined administratively, and have not been specified in appropriations legislation providing funds for the program.\nSome of these criteria can conflict with each other in specific instances. For example, a project could reduce congestion-related emissions on a roadway by supporting alternatives (e.g., transit improvements) or by altering the roadway to reduce congestion (e.g., adding lanes, adjusting traffic signal timing, reshaping intersections). The first option might also reduce dependence on oil, whereas the second might increase dependence on oil while reducing emissions and improving the efficiency of the movement of goods and people. How DOT reconciles such conflicts has not been disclosed.\n\n\tProgram Issues\n\n\t\tDemand and Supply in Program Funding\n\nBeginning with the first round of awards in FY2009, each annual grant announcement has noted that the amount of funding applied for has greatly exceeded the amount of funding available through the program (see Table 3 ). After the relatively large first-year appropriation, in succeeding years the amount provided was around one-third of the first year of funding. The total amount applied for also dropped significantly after the first year. The reasons for the decline in funding may include the opposition of the House of Representatives to funding the program (see Table 1 ), the general limitations on the amounts provided in appropriations bills, and the competition for that funding among the proponents and constituencies of different programs.\nOne possible reason for the dramatic decline in the amount applied for from FY2016 to FY2017 was the reduction in the maximum grant size that Congress decreed for FY2017 (and succeeding years), from a maximum of $100 million in FY2016 to $25 million in FY2017. Of the $9.8 billion applied for in FY2016, $3.8 billion was represented by a total of 87 applications that exceeded $25 million (nominal) and thus exceeded the maximum limit for FY2017. The combination of that lowered cap on grant amounts, combined with the introduction of several new discretionary transportation grant programs beginning in FY2017, may explain part of the decline in the amount applied for in FY2017. The amount applied for rose in FY2018, when the amount of funding available tripled.\n\n\t\tCongressional Directives for Distribution of Grants\n\n\t\t\tGeographic Distribution\n\nOne of the directives Congress gave DOT regarding the distribution of TIGER\/BUILD grants was that DOT \"shall ensure an equitable geographic distribution.\" Beyond using the term \"equitable,\" the only other legislative guidance on this point is the limitation on the amount of the program funding that can be awarded to projects in a single state. That limit ranged from a high of 25% to a single state during the FY2010-FY2015 rounds to a low of 10% during the FY2017-FY2019 rounds.\nThere have been a total of 553 grants awarded over the period FY2009-FY2018. Every state and most territories have received at least one grant; America Samoa and the Northern Marianas Islands have not received a grant. California has received the most funding, 6.9% of the total over that period; that is considerably less than California's share of the total U.S. population (12.1%). Of the top 10 states by share of grant funding received, Texas, New York, Pennsylvania, and Florida also received smaller shares of funding than their shares of the nation's population, while Illinois, Washington, Massachusetts, and Missouri received larger shares of funding than their shares of the population (see Table 4 ).\nIt would be difficult for DOT to match the funding awarded to each state's share of the nation's population, since projects are not distributed proportionally among the states on the bases of cost, merit, and number.\n\n\t\t\tUrban and Rural Area Grants\n\nAnother congressional directive, in place since the second year of the program, is that DOT \"shall ensure an appropriate balance in addressing the needs of urban and rural areas.\" DOT has responded to this directive in different ways over time.\n\n\t\t\t\tFY2009-FY2016\n\nIn the first year (FY2009) of the program, 7% of the funding went to projects in rural areas. Since then, Congress has directed that a specific minimum share of the grant funding go to projects located in rural areas. That share has typically been around 20% to 30% (see Table 5 and Figure 1 ).\nThe definition of rural and urban areas used by the TIGER\/BUILD Grant program has varied from that used by the U.S. Census Bureau. The Census Bureau defines urban areas as both\nUrbanized Areas of 50,000 or more people;\nUrban Clusters of at least 2,500 and less than 50,000 people.\nRural areas are defined as those areas not included within an urban area.\nBy this definition, 81% of the U.S. population lived in urban areas and 19% in rural areas over the 2011-2015 period.\nFor most of its history, the TIGER\/BUILD program has defined urban areas as areas located in an Urbanized Area, and rural areas as everything else. Urban Clusters as defined by the Census Bureau were thus considered rural areas for purposes of the program. By this definition, roughly 70% of the U.S. population lived in urban areas and 30% in rural areas in 2015. During the period FY2009-FY2016, the proportion of TIGER\/BUILD grant funding awarded to projects in rural areas as defined by the program, measured in 2019 dollars, was around 21%.\n\n\t\t\t\tFY2017-FY2018\n\nIn the program's 2017 Notice of Funding Opportunity (NOFO), the new Trump Administration announced that it would give special consideration to projects in rural areas. No rationale for this special consideration has been given, but one is implied in the observation that \"While only 19 percent of the nation's population lives in rural areas, 51 percent of all traffic fatalities occurred on rural roads (2014).\"\nIn announcing the FY2017 round of awards, the Secretary of Transportation noted that \"an effort was made to re-balance the under-investment in rural communities\u00e2\u0080\u0094to address overlooked needs.\" This assertion that there had been under-investment in the transportation needs of rural communities was reiterated in the FY2018 NOFO; that assertion is not included in the FY2019 NOFO, but that document reiterates that special consideration will be given to project applications from rural areas.\nUnder this new policy, the proportion of program funding requested for rural areas rose from 35% in the FY2016 round to 44% in the FY2017 round, and the share of program funding awarded to rural areas rose from 21% to 65% (see Table 5 ). Another factor that may have influenced this shift is that although the amount of grant funding available in the FY2017 round ($500 million) was the same as in the previous couple of rounds, the number of applications and amount of funding applied for dropped significantly in FY2017, particularly from urban areas (see Table 6 ). Why that happened is not clear. The current surface transportation authorization act (MAP-21), which was enacted in December 2015, created several new discretionary grant programs for surface transportation; that, combined with the new lowered cap of $25 million on maximum TIGER\/BUILD grant sizes that took effect in FY2017, may have led sponsors of more expensive projects, which are often located in urban areas, to seek funding from the new grant programs rather than from the TIGER\/BUILD program.\nThe Administration's stated rationales for prioritizing funding for projects in rural areas are open to question. While 71% of the nation's roads are in rural areas, they account for only 30% of total vehicle miles traveled, and over the period FY2009-FY2015, 37% of federal highway funding went to rural roads. Rural roads are on average in better condition than urban roads; in 2012 93% of the vehicle miles traveled on rural roads were on roads with pavement conditions rated as acceptable or good, compared with 78% of the vehicle miles traveled on urban roads.\nThe Administration's claim that safety factors justify directing two-thirds of BUILD grants to rural areas is only partially supported by available data. While a disproportionate share of highway deaths occurs on rural roads, that proportion has been trending downward, declining from around 60% in the early 2000s to 46% in 2017. The number of traffic fatalities in rural areas declined by 18% from 2008-2017, while the number of fatalities in urban areas increased by 17% over the same period. Moreover, road conditions are only one factor among the reasons why the share of highway fatalities in rural areas exceeds the share of population in those areas. Other factors include driver behavior (e.g., higher typical speeds, lower rates of seat belt use, and higher driver fatigue rates), typically longer travel times for emergency medical care, and vehicle condition.\nIn the FY2019 DOT appropriations act, Congress made two changes that may constrain the Administration's discretion to steer funding toward projects in rural areas: limiting the share of program funding that can go to rural areas to 50%, and changing the definitions of urban and rural areas used in the BUILD program. Urban areas would be defined as areas \"located within (or on the boundary of) a Census-designated urbanized area that had a population greater than 200,000 in the 2010 Census.\" Areas outside that are considered rural. By this definition, roughly 60% of the U.S. population lived in urban areas, and roughly 40% in rural areas, in 2015. Thus, some areas that in previous rounds of applications would have been considered urban areas would now be considered rural for the purposes of the BUILD program. How this change will affect the distribution of funds in FY2019 and subsequent years is unclear.\n\n\t\t\tGrants to a Variety of Modes\n\nSince the second year of the program, Congress has directed DOT to ensure that the program makes \"investment in a variety of transportation modes.\" A unique feature of the BUILD grant program is its flexibility: any surface transportation infrastructure is eligible for funding. Throughout most of the program's life, this flexibility has been reflected in the grants awarded; while road projects received more funding than projects in other modes, other modes collectively received two-thirds of the total program funding (see Table 7 ). This situation changed beginning with the FY2017 round of grants; for FY2017-FY2018, road projects received over two-thirds of the funding awarded, with the remainder divided among four other modes, one of which\u00e2\u0080\u0094bicycle-pedestrian projects\u00e2\u0080\u0094receiving no funding at all.\n\n\t\tDistribution Requirements Versus Economic Impact in Grant\u00c2 Awards\n\nFrom the first round of funding through FY2017, Congress directed that grants be made for projects that will have a significant impact on the nation, a metropolitan area, or a region. Surface transportation projects that are likely to have a significant impact on the nation, or even a multistate region, are typically quite expensive; for example, Amtrak's Hudson River Tunnel Project, to replace the deteriorating tunnels that carry Amtrak and commuter trains under the Hudson River between New Jersey and New York, is estimated to cost over $11 billion.\nGiven the relatively modest amounts of funding available for TIGER\/BUILD grants each year and Congress's directive that grant funding be awarded equitably across the nation, between rural and urban areas, and among surface transportation modes, the amount of money any single project is likely to receive limits the ability of the TIGER\/BUILD program to provide more than a small share of the funding needed to complete projects that could have a significant impact on the nation. The largest single grant awarded during the FY2009-FY2018 period was for $118.5 million, and that was for a project that spanned two states (see Table 8 ). Three grants have been awarded for more than $100 million; of the 553 grants awarded, few have been for more than $50 million. Of the 10 largest grants awarded, nine were awarded in the first year of the program, when available funding was far larger than in any subsequent year (see Table 8 ). Even though the maximum grant size permitted was $200 million from FY2010 to FY2015 and $100 million in FY2016, the largest grant awarded since FY2010 has been $25 million.\nThe first year of grants also saw the largest average grant size, $33 million; in subsequent rounds of funding, the average size of grants in each round has fluctuated between $9 million and $17 million (see Table 9 ). In addition to the lower limit on the maximum grant amount, one factor that may have led to the decrease in the average size of grants after the first year was that the total amount of TIGER\/BUILD grant funding available in each year until FY2018 was less than half the amount in FY2009, so DOT may have chosen to make smaller grants in order to distribute the available funding widely.\nIn a 2014 review of the program, the U.S. Government Accountability Office (GAO) reported that while DOT had selection criteria for the TIGER grant program, it had sometimes awarded grants to lower-ranked projects while bypassing higher-ranked projects without explaining why it did so, raising questions about the integrity of the selection process. DOT responded that while its project rankings were based on transportation-related criteria, such as safety and economic impact, sometimes it had to select lower-ranking projects over higher-ranking ones to comply with other selection criteria established by Congress, such as geographic balance and a balance between rural and urban awards.\n\n\t\tAttempt to Increase the Program's Funding Leverage\n\nIn FY2018, the Notice of Funding Opportunity soliciting grant applications noted two changes to the program under the Trump Administration: the program was renamed the Better Utilizing Investments to Leverage Development (BUILD), and the practical reflection of that name change was a statement that DOT would give priority to grant applicants that provided new, nonfederal revenue for projects for which they were seeking BUILD funding. \"New revenue\" was defined as \"revenue that is not included in current and projected funding levels and results from specific actions taken to increase transportation infrastructure investment.\" Examples given in the notice included sales or gas tax increases, tolling, tax-increment financing, and asset recycling. Borrowing (issuing bonds) did not count as a new revenue source. DOT would not consider any source of revenue that had been authorized prior to January 1, 2015, as new revenue.\nThe Administration presented this new stance as a way of increasing the leverage of federal funding to raise more revenue from other sources. Critics charged that the policy penalized states and localities that had already acted to raise more revenue for transportation projects. Critics also noted the irony of the Administration encouraging states and localities to provide additional revenue for transportation investment when Congress had been unable to increase the federal excise tax on motor fuel, the primary source of federal surface transportation revenues, since 1993. Critics also noted that favoring projects involving additional revenue from new sources posed a particular challenge for rural areas, as the number of residents who might pay a new sales tax or highway toll is by definition relatively low.\nDespite that concern, in the FY2018 round of awards, projects in rural areas received a higher proportion of the program's funding than ever before in the history of the program: 69% (see Table 5 ). The information about the projects receiving grants is not sufficiently detailed to show how much additional nonfederal revenue was raised in connection to the projects. In the FY2019 DOT Appropriations Act, Congress directed DOT not to use an applicant's ability to generate nonfederal revenue as a selection criterion in approving future BUILD grants.\n\n\t\tMeasures of Program Impact\n\nIn 2016 and 2018 DOT published reports measuring the performance of projects that received TIGER grants. The reports state that, given the array of projects that can receive TIGER grants, measuring their performance is challenging and, for the same reason, valuable. DOT has required grantees to develop performance plans and measures for each project, beginning before the construction of the project and continuing for years after the project is completed. The sponsor of each project is responsible for setting up performance measures it considers relevant to its project. There is no requirement for comparability of the measures across projects.\nThe DOT reports do not summarize the projects and their benefits. Rather, each presents a number of case studies of individual projects, including the performance measures chosen by each grantee.\n\n\t\t\tAppendix. TIGER\/BUILD Grant Program Criteria, FY2009-FY2019","output":null}
{"id":"gao_GAO-19-544T","pid":"gao_GAO-19-544T_0","input":"\tTop Leadership Commitment Is Critical to Sustained Progress in Strengthening Management Functions\n\nWith top leadership support and commitment, DHS has made important  progress in strengthening its management functions, but considerable  work remains. As shown in figure 1, as of March 2019, DHS had met  three out of five criteria for removal from our High Risk List\u2014leadership  commitment, action planning, and monitoring progress.\nDHS has partially met the remaining two criteria: capacity (i.e., people  and other resources) and demonstrated, sustained progress. To address  the criteria for capacity, DHS needs to make additional progress in  identifying and allocating resources in certain areas\u2014namely, acquisition,  information technology, and financial management\u2014to fully demonstrate  its capacity. For the criteria for demonstrated, sustained progress, we  reported in March 2019 that DHS had fully addressed 17 out of the 30  outcomes that are the basis for gauging DHS\u2019s progress across  management areas, as shown in table 1.\nTo fully meet the criteria for demonstrated, sustained progress, DHS  needs to continue implementing its Integrated Strategy for High-Risk  Management and maintain engagement with us to show measurable,  sustainable progress in implementing corrective actions and achieving  outcomes. DHS can accomplish this by, among other things, maintaining  a high level of top leadership support and sustained commitment to  ensure continued progress in executing its corrective actions through  completion, and increasing employee engagement and morale.\nExamples of important programs and remaining work in the key  management functions include:  In the key management function of human capital management, DHS  leadership is needed to address skills gaps that have had a significant  role in the DHS management high-risk area. For example, we have  found that DHS lacks guidance on how to identify critical cybersecurity  and acquisition skills needed to support its new information  technology delivery model. We have also found that DHS has  insufficient technical skills to support its biometric identification  services program. Addressing these skill gaps could help DHS fully  demonstrate its capacity to strengthen and integrate its management  functions.\nAdditionally, within human capital management, DHS has struggled  with low employee morale scores since it began operations in 2003.  DHS\u2019s 2018 score ranked 20th among 20 large and very large federal  agencies. Increasing employee engagement and morale is critical to  strengthening DHS\u2019s mission and management functions. DHS has  continued to strengthen its employee engagement efforts by  implementing our 2012 recommendation to establish metrics of  success within components\u2019 action plans for addressing its employee  satisfaction problems. Further, DHS has conducted audits to better  ensure components are basing hiring decisions and promotions on  human capital competencies. In addition, OPM\u2019s 2018 Federal  Employee Viewpoint Survey data showed that in the past 2 years,  DHS\u2019s score on the Employee Engagement Index (EEI) increased by  4 points\u2014from 56 in 2016 to 60 in 2018\u2014which was 1 point more  than the government-wide increase over the same period. While this  improvement is notable, DHS\u2019s current EEI score is 1 point below its  EEI baseline score in 2010, suggesting that DHS is still working to  regain lost ground after an 8 point drop between 2010 and 2015.\nIn the key management function of financial management, DHS  officials have faced challenges modernizing DHS components\u2019  financial management systems and business processes that affect the  department\u2019s ability to have ready access to timely and reliable  information for informed decision-making. Effectively modernizing  financial management systems for the Coast Guard, FEMA, and ICE  would help improve the reliability of their financial reporting.\nAs we have reported, perhaps the single most important element of  successful management improvement and transformation initiatives is the  demonstrated commitment of top leaders, as shown by their personal  involvement in reform efforts. With regard to leadership commitment,  DHS\u2019s top leadership, including leaders at the Secretary and Deputy  Secretary level, has demonstrated exemplary commitment and support  for addressing the department\u2019s management challenges. They have also  taken actions to institutionalize this commitment to help ensure the long- term success of the department\u2019s efforts. One such effort is the Under  Secretary for Management\u2019s Integrated Priorities initiative to strengthen  the integration of DHS\u2019s business operations across the department.\nDuring monthly leadership meetings with the Under Secretary for  Management, the department\u2019s Chief Executive Officers have been  providing status updates on their respective actions to address this high- risk designation. Furthermore, top DHS leaders, such as the Under  Secretary for Management and the department\u2019s Chief Executive  Officers, routinely meet with our management to discuss progress on  high-risk areas.\n\n\tContinued Leadership Commitment Is Critical to Addressing Priority Open Recommendations\n\nIn April 2019, we sent a letter to the Acting Secretary of Homeland  Security detailing 26 open recommendations that we deem highest  priority for implementation. Priority recommendations are those that we  believe warrant priority personal attention from heads of key departments  or agencies. These 26 recommendations fall into six major areas\u2014 emergency preparedness and response, border security, transportation  security, infrastructure and management, cybersecurity, and chemical  and nuclear security. Many of these recommendations cut across DHS\u2019s  mission areas that are critical for national security. Given that these  recommendations are often the most complex and difficult to implement,  top DHS leadership will play a critical role in addressing them.\nFourteen of the 26 priority open recommendations we identified in the  April 2019 letter are directed to acting officials serving in vacant positions.  We have issued 12 recommendations to the Secretary of Homeland  Security who is currently an acting official. We have also issued two  recommendations to FEMA which is currently operating under acting  leadership.\nCommitted and consistent leadership at the department and component  levels will be critical for addressing our priority recommendations. For  example:  In September 2014, we recommended that the Secretary of  Homeland Security work jointly with the Administrator of the General  Services Administration to strengthen management of the ongoing  acquisition project to develop the multi-billion dollar headquarters  facilities at the St. Elizabeth\u2019s campus in Washington, D.C.\nLeadership is critical in this effort, given the magnitude of the project  and the impact of headquarters consolidation on DHS operations.\nIn October 2008, we recommended actions that FEMA should take to  improve its administration of the National Flood Insurance Program  high-risk area. We also recommended in September 2012 that  FEMA develop a methodology to better assess a jurisdiction's  capability to respond to and recover from a disaster without federal  assistance. In July 2015, we further recommended that the  Mitigation Framework Leadership Group establish an investment  strategy to identify, prioritize, and guide federal investments in  disaster resilience. Implementing these actions could limit the  federal government\u2019s fiscal exposure and increase the nation\u2019s  resilience to extreme weather events as the costs and impacts of  weather disasters resulting from floods, drought, and other events are  expected to increase in significance as previously \u201crare\u201d events  become more common and intense.\nIn July 2018, we recommended that U.S. Customs and Border  Protection (CBP) analyze the costs associated with future barrier  segments along the southwest border and include cost as a factor in  the Impedance and Denial Prioritization Strategy. Obtaining this key  information could help CBP evaluate designs and prioritize locations  for future border barrier segments to deter cross-border illegal  activity.\nIn February 2017, we recommended that DHS establish metrics and  methods by which to evaluate the performance of DHS\u2019s National  Cybersecurity and Communications Integration Center in relation to its  statutorily-required cybersecurity functions. Until it develops metrics  and methods to evaluate its performance, the center cannot ensure  that it is effectively meeting its statutory requirements, while cyber- based intrusions and attacks on federal systems and systems  supporting our nation\u2019s critical infrastructure are becoming more  numerous, damaging, and disruptive. We also recommended in  February 2018 that DHS take steps to better manage and assess its  cybersecurity workforce gaps and areas of critical need. Given its  important role in the nation\u2019s cybersecurity, taking steps to address  these issues will be critical.\nWe will continue to monitor DHS\u2019s progress in strengthening  management functions and addressing priority recommendations. We  also plan to continue to meet quarterly with DHS management to gauge  leadership commitment, discuss progress, and review DHS\u2019s goals and  corrective action plans in its Integrated Strategy for High-Risk  Management, which DHS issues twice per year.\nThank you, Chairman Thompson, Ranking Member Rogers, and  Members of the Committee. This concludes my testimony. I would be  pleased to answer any questions.\n\n\tGAO Contact and Staff Acknowledgments\n\nFor further information on this testimony, please contact Christopher P.  Currie at (404) 679-1875 or curriec@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. Other individuals making key contributions  to this work include Alana Finley, Assistant Director; Luis E. Rodriguez,  Analyst-in-Charge; Karin Fangman; Andrew Howard; and Thomas  Lombardi. Key contributors for the previous work that this is based on are  listed in each product.\nThis is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.","output":null}
{"id":"crs_RL31675","pid":"crs_RL31675_0","input":"\tCongressional Notification Requirements\n\nThis report reviews the process and procedures that currently apply to congressional consideration of foreign arms sales proposed by the President. This includes consideration of proposals to sell major defense equipment, defense articles and services, or the retransfer to other states of such military items. In general, the executive branch, after complying with the terms of applicable U.S. law, principally contained in the Arms Export Control Act (AECA) (P.L. 90-629, 82 Stat. 1320), is free to proceed with an arms sales proposal unless Congress passes legislation prohibiting or modifying the proposed sale. The President has the obligation under the law to submit the arms sale proposal to Congress, but only after he has determined that he is prepared to proceed with any such notifiable arms sales transaction.\nThe Department of State (on behalf of the President) submits a preliminary or informal notification of a prospective major arms sale 20 calendar days before the executive branch takes further formal action. This informal notification is provided to the committees of primary jurisdiction for arms sales issues. In the Senate, this is the Senate Foreign Relations Committee; in the House, it is the Foreign Affairs Committee. It has been the practice for such informal notifications to be made for arms sales cases that would have to be formally notified to Congress under the provisions of Section 36(b) of the AECA. The informal notification practice stemmed from a February 18, 1976, letter from the Department of Defense making a nonstatutory commitment to give Congress these preliminary classified notifications. Beginning in 2012, the State Department implemented a new informal notification process, which the department calls a \"tiered review,\" in which the relevant committees are notified between 20 and 40 calendar days before receiving formal notification, depending on the system and destination in question. \nDuring June 2017 testimony, Acting Assistant Secretary of State Tina Kaidanow described this process as \nCongressional review period during which the Committees can ask questions or raise concerns prior to the Department of State initiating formal notification. The purpose is to provide Congress the opportunity to raise concerns, and have these concerns addressed, in a confidential process with the Administration, so that our bilateral relationship with the country in question is protected during this process.\nIf a committee \"raises significant concerns about a sale or [export] license,\" the State Department \"will typically extend the review period until we can resolve those concerns,\" Kaidanow explained.\nUnder Section 36(b) of the AECA, Congress must be formally notified 30 calendar days before the Administration can take the final steps to conclude a government-to-government foreign military sale of major defense equipment valued at $14 million or more, defense articles or services valued at $50 million or more, or design and construction services valued at $200 million or more. In the case of such sales to NATO member states, NATO, Japan, Australia, South Korea, Israel, or New Zealand, Congress must be formally notified 15 calendar days before the Administration can proceed with the sale. However, the prior notice threshold values are higher for NATO members, Japan, Australia, South Korea, Israel, or New Zealand. These higher thresholds are $25 million for the sale, enhancement, or upgrading of major defense equipment; $100 million for the sale, enhancement, or upgrading of defense articles and defense services; and $300 million for the sale, enhancement, or upgrading of design and construction services, so long as such sales to these countries do not include or involve sales to a country outside of this group of states. Section 36(i) requires the President to notify both the Senate Foreign Relations Committee and House Foreign Affairs Committee at least 30 days in advance of a pending shipment of defense articles subject to the 36(b) requirements if the chairman and ranking member of either committee request such notification. Certain articles or services listed on the Missile Technology Control Regime are subject to a variety of additional reporting requirements.\nCommercially licensed arms sales also must be formally notified to Congress 30 calendar days before the export license is issued if they involve the sale of major defense equipment valued at $14 million or more, or defense articles or services valued at $50 million or more (Section 36(c) AECA). In the case of such sales to NATO member states, NATO, Japan, Australia, South Korea, Israel, or New Zealand, Congress must be formally notified 15 calendar days before the Administration can proceed with such a sale. However, the prior notice threshold values are higher for sales to NATO members, Japan, Australia, South Korea, Israel, or New Zealand, specifically: $25 million for the sale, enhancement, or upgrading of major defense equipment; $100 million for the sale, enhancement, or upgrading of defense articles and defense services; and $300 million for the sale, enhancement, or upgrading of design and construction services, so long as such sales to these countries do not include or involve sales to a country outside of this group of states. Furthermore, commercially licensed arms sales of firearms (which are on category I of the United States Munitions List) valued at $1 million or more must also be formally notified to Congress for review 30 days prior to the license for export being approved (15 days prior notice is required for proposed licenses for sales to NATO members, Japan, Australia, South Korea, Israel, or New Zealand).\nSection 36(b)(5)(A) contains a reporting requirement for defense articles or equipment items whose technology or capability has, prior to delivery, been \"enhanced or upgraded from the level of sensitivity or capability described\" in the original congressional notification. For such exports, the President must submit a report to the relevant committees at least 45 days before the exports' delivery that describes the enhancement or upgrade and provides \"a detailed justification for such enhancement or upgrade.\" This requirement applies for 10 years after the Administration has notified Congress of the export. According to Section 36(b)(5)(C), the Administration must, in the case of upgrades or enhancements meeting certain value thresholds, submit a new notification to Congress and the export will be considered \"as if it were a separate letter of offer ... subject to all of the requirements, restrictions, and conditions set forth in this subsection.\" The threshold values are higher for sales to NATO members, Japan, Australia, South Korea, Israel, or New Zealand.\nA congressional recess or adjournment does not stop the 30 calendar-day statutory review period. It should be emphasized that after Congress receives a statutory notification required under Sections 36(b) or 36(c) of the AECA, for example, and 30 calendar days elapse without Congress having blocked the sale, the executive branch is free to proceed with the sales process. This fact does not mean necessarily that the executive branch and the prospective arms purchaser will sign a sales contract and that the items will be transferred on the 31 st day after the statutory notification of the proposal has been made. It would, however, be legal to do so at that time.\n\n\tCongressional Disapproval by Joint Resolution\n\nAlthough Congress has more than one legislative option it can use to block or modify an arms sale, one option explicitly set out in law for blocking a proposed arms sale is the use of a joint resolution of disapproval as provided for in Section 36(b) of the AECA. Under that law, the formal notification is legally required to be submitted to the chairman of the Senate Foreign Relations Committee and the Speaker of the House. The Speaker has routinely referred these notifications to the House Foreign Affairs Committee as the committee of jurisdiction. As a courtesy, the Defense Department has submitted a copy of the statutory notification to the House Foreign Affairs Committee when that notification is submitted to the Speaker of the House. Under this option, after receiving a statutory Section 36(b) notification from the executive branch, opponents of the arms sale would introduce joint resolutions in the House and Senate drafted so as to forbid by law the sale of the items specified in the formal sale notification(s) submitted to Congress. If no Member introduces such a measure, the AECA's provisions expediting congressional action, discussed below, do not take effect.\nThe next step would be committee hearings in both houses on the arms sale proposal. If a majority of either the House or the Senate committee supported the joint resolution of disapproval, they would report it to their respective chamber in accordance with its rules. Following this, efforts would be made to seek floor consideration of the resolution.\n\n\t\tSenate Procedures\n\nAt this point, it is important to take note of procedures crafted to expedite the consideration of arms sales resolutions of disapproval. Since 1976, Section 36(b)(2) of the AECA has stipulated that consideration of any resolution of disapproval in the Senate under Section 36(b)(1) of the AECA shall be \"in accordance with the provisions of Section 601(b) of the International Security Assistance and Arms Export Control Act of 1976\" ( P.L. 94-329 , 90 Stat. 729). Since 1980, this stipulation has also applied to resolutions of disapproval in the Senate relating to commercially licensed arms sales under Section 36(c)(1) of the AECA. The purpose of Section 601(b) was to establish rules to facilitate timely consideration of any resolution of disapproval in the Senate. The rules set forth in Section 601(b) supersede the standing rules of the Senate and include the following:\nGive the committee with jurisdiction [the Senate Foreign Relations Committee] 10 calendar days from the date a resolution of disapproval is referred to it to report back to the Senate its recommendation on any such resolution (certain adjournment periods are excluded from computation of the 10 days); Make it in order for a Senator favoring a disapproval resolution to move to discharge the committee from further consideration of the matter if the committee fails to report back to the Senate by the end of the 10 calendar days it is entitled to review the resolution (the AECA expressly permits a discharge motion after 5 calendar days for sales to NATO, NATO countries, Japan, Australia, South Korea, Israel, and New Zealand); Make the discharge motion privileged, limit floor debate on the motion to one hour, and preclude efforts to amend or to reconsider the vote on such a motion; Make the motion to proceed to consider a resolution of disapproval privileged and preclude efforts to amend or to reconsider the vote on such motion; Limit the overall time for debate on the resolution of disapproval to 10 hours and preclude efforts to amend or recommit the resolution of disapproval; Limit the time (one hour) to be used in connection with any debatable motion or appeal; provide that a motion to further limit debate on a resolution of disapproval, debatable motion, or appeal is not debatable.\nThe Senate is constitutionally empowered to amend its rules or to effect a rule change at any time. The fact that an existing rule is in Section 601 of the International Security Assistance and Arms Export Control Act of 1976 is not an obstacle to changing it by Senate action alone should the Senate seek to do so.\n\n\t\tHouse Floor Procedures12\n\nThe House of Representatives is directed by Sections 36(b)(3) and 36(c)(3)(B) of the AECA to consider a motion to proceed to the consideration of a joint resolution disapproving an arms sale reported to it by the appropriate House committee as \"highly privileged.\" Generally, this means that the resolution will be given precedence over most other legislative business of the House, and may be called up on the floor without a special rule reported by the Rules Committee. Unlike for the Senate, however, the AECA contains no provision for discharge of the House committee if it does not report on the joint resolution. If reported and called up, the measure will be considered in the Committee of the Whole, meaning that amendments can be offered under the \"five-minute rule.\" Nevertheless, amendments to joint resolutions disapproving arms sales have apparently never been offered in the House.\nThe Rules Committee usually sets the framework for floor consideration of major legislation in the House of Representatives, however, and could do so for a joint resolution of disapproval. Upon receiving a request for a rule to govern consideration of such a resolution, the House Rules Committee could set a time limit for debate, exclude any amendments to, and waive any points of order against the resolution. If the House adopted the rule reported by the committee, it would govern the manner in which the legislation would be considered, superseding the statutory provision.\n\n\t\tFinal Congressional Action\n\nAfter a joint resolution is passed by both the House and the Senate, the measure would next be sent to the President. Once this legislation reaches the President, presumably he would veto it in a timely manner. Congress would then face the task of obtaining a two-thirds majority in both houses to override the veto and impose its position on the President.\n\n\tCongressional Use of Other Legislation\n\nCongress can also block or modify a proposed sale of major defense equipment, or defense articles and services, if it uses the regular legislative process to pass legislation prohibiting or modifying the sale or prohibiting delivery of the equipment to the recipient country. While it is generally presumed that Congress will await formal notification under Section 36(b) or 36(c) of the AECA before acting in opposition to a prospective arms sale, it is clear that a properly drafted law could block or modify an arms sale transaction at any time\u00e2\u0080\u0094including before a formal AECA notification was submitted or after the 30-day AECA statutory notification period had expired\u00e2\u0080\u0094so long as the items have not been delivered to the recipient country.\nCongressional use of its lawmaking power regarding arms sales is not constrained by the AECA reporting requirements. In order to prevail, however, Congress must be capable of overriding a presidential veto of this legislation, for the President would presumably veto a bill that blocked his wish to make the arms sale in question. This means, in practical terms, that to impose its view on the President, Congress must be capable of securing a two-thirds majority of those present and voting in both houses.\nThere are potentially important practical advantages, however, to prohibiting or modifying a sale, if Congress seeks to do so, prior to the date when the formal contract with the foreign government is signed\u00e2\u0080\u0094which could occur at any time after the statutory 30-day period. These likely advantages include (1) limiting political damage to bilateral relations that could result from signing a sales contract and later nullifying it with a new law; and (2) avoiding financial liabilities which the U.S. Government might face for breaking a valid sales contract. The legislative vehicle designed to prohibit or modify a specific arms sale can take a variety of forms, ranging from a rider to any appropriation or authorization bill to a freestanding bill or joint resolution. The only essential features that the vehicle must have are (1) that it is legislation passed by both houses of Congress and presented to the President for his signature or veto and, (2) that it contains an express restriction on the sale and\/or the delivery of military equipment (whether it applies to specific items or general categories) to a specific country or countries.\n\n\tPresidential Waiver of Congressional Review\n\nIt is important to note that the President also has the legal authority to waive the AECA statutory review periods. For example, if the President states in the formal notification to Congress under AECA Sections 36(b)(1), 36(c)(2), 36(d)(2) that \"an emergency exists\" which requires the sale (or export license approval) to be made immediately \"in the national security interests of the United States,\" the President is free to proceed with the sale without further delay. The President must provide Congress at the time of this notification a \"detailed justification for his determination, including a description of the emergency circumstances\" which necessitated his action and a \"discussion of the national security interests involved.\" AECA Section 3(d) (2)(A) provides similar emergency authority with respect to retransfers of U.S.-origin major defense equipment, defense articles, or defense services.\nSection 614(a) of the Foreign Assistance Act of 1961 (FAA), as amended, also allows the President, among other things, to waive provisions of the AECA, the FAA, and any act authorizing or appropriating funds for use under either the AECA or FAA in order to make available, during each fiscal year, up to $750 million in cash arms sales and up to $250 million in funds. Not more than $50 million of the $250 million limitation on funds use may be made available to any single country in any fiscal year through this waiver authority unless the country is a \"victim of active aggression.\" Not more than $500 million of cash sales (or cash sales and funds made available combined) may be provided under this waiver authority to any one country in any fiscal year. To waive the provisions of these acts related to arms sales, the President must determine and notify Congress in writing that it is \"vital\" to the \"national security interests\" of the United States to do so. Before exercising the authority granted in Section 614(a), the President must \"consult with\" and \"provide a written policy justification to\" the House Foreign Affairs and the Senate Foreign Relations Committees and House and Senate Appropriations Committees.\nIn summary, in the absence of a strong majority in both houses of Congress supporting legislation to block or modify a prospective arms sale, the practical and procedural obstacles to passing such a law\u00e2\u0080\u0094whether a freestanding measure or one within the AECA framework\u00e2\u0080\u0094are great. Even if Congress can pass the requisite legislation to work its will on an arms sale, the President need only veto it and secure the support of one-third plus one of the Members of either the Senate or the House to have the veto sustained and permit the sale.\nIt should be noted that Congress has never successfully blocked a proposed arms sale by use of a joint resolution of disapproval, although it has come close to doing so (see section below for selected examples). Nevertheless, Congress has\u00e2\u0080\u0094by expressing strong opposition to prospective arms sales, during consultations with the executive branch\u00e2\u0080\u0094affected the timing and the composition of some arms sales, and may have dissuaded the President from formally proposing certain arms sales.\n\n\t\t2019 Sales to Jordan, Saudi Arabia, and the United Arab Emirates\n\nOn May 24, 2019, Secretary of State Michael Pompeo stated that he had directed the State Department \"to complete immediately the formal notification of 22 pending arms transfers\" to Jordan, Saudi Arabia, and the United Arab Emirates. In a determination to Congress, Pompeo invoked the AECA Section 36 emergency provisions described above. The transfers included a variety of defense articles and services, as well as an agreement to coproduce and manufacture components of Paveway precision-guided munitions in Saudi Arabia. On June 20, 2019, the Senate passed S.J.Res. 36 , which prohibited both the Paveway coproduction agreement described above and the transfer of additional such munitions, and S.J.Res. 38 , which prohibited transfers of \"defense articles, defense services, and technical data to support the manufacture of the Aurora Fuzing System for the Paveway IV Precision Guided Bomb Program.\" The same day, the Senate passed en bloc another 20 resolutions of disapproval prohibiting the remaining notified transfers. \nThe House passed S.J.Res. 36 and S.J.Res. 38 on July 17, 2019. The same day, the House also passed S.J.Res. 37 , which prohibited the transfer to the UAE of \"defense articles, defense services, and technical data to support the integration, operation, training, testing, repair, and operational level maintenance\" of the Maverick AGM-65 air-to-surface guided missile and several Paveway systems for use on a number of Emirati-operated aircraft. The resolution also prohibited the transfer of a number of Paveway munitions to the UAE. President Donald Trump vetoed the three bills on July 24. A July 29 Senate vote failed to override these vetoes. \n\n\t\tExamples of AECA Resolutions of Disapproval\n\nOn October 14, 1981, the House adopted a resolution ( H.Con.Res. 194 ) objecting to President Reagan's proposed sale to Saudi Arabia of E-3A airborne warning and control system (AWACS) aircraft, Sidewinder missiles, Boeing 707 refueling aircraft, and defense articles and services related to F-15 aircraft. An October 28, 1981, Senate vote on identical legislation failed, however, after President Reagan made a series of written commitments to Congress regarding the proposed sale. Congress later enacted legislation requiring the President to certify that the commitments made in 1981 regarding the proposed sale had been met prior to the delivery of the AWACS planes (Section 127 of the International Security and Development Cooperation Act of 1985; P.L. 99-83 ).\nOn April 8, 1986, President Ronald Reagan formally proposed the sale to Saudi Arabia of 1,700 Sidewinder missiles, 100 Harpoon missiles, 200 Stinger missile launchers, and 600 Stinger missile reloads. On May 6, 1986, the Senate passed legislation to block these sales ( S.J.Res. 316 ) by a vote of 73-22. The House concurred with the Senate action on May 7, 1986, by passing H.J.Res. 589 by a vote of 356-62. The House then passed S.J.Res. 316 by a voice vote and (in lieu of H.J.Res. 589 ) sent it to the President. On May 21, 1986, President Reagan vetoed S.J.Res. 316 . But, in a letter that day to then-Senate Majority Leader Robert Dole, President Reagan said he would not include the controversial Stinger missiles and launchers in the sales proposal. On June 5, 1986, the Senate, by a 66-34 vote, sustained the President's veto of S.J.Res. 316 , and the sale of the Sidewinder and Harpoon missiles to Saudi Arabia proceeded.\nMore recently, on March 10, 2016, the Senate Foreign Relations Committee rejected a motion to discharge a joint resolution ( S.J.Res. 31 ) prohibiting the sale of several defense articles, particularly eight F-16 Block 52 aircraft. H.J.Res. 82 was the House companion bill. On May 5, 2016, a State Department spokesperson, noting congressional objections to using Foreign Military Financing funds for the aircraft, told reporters that the United States had \"told the Pakistanis that they should put forward national funds for the purchase.\" In late May, the U.S. offer expired after Islamabad failed to submit a letter of acceptance by the required deadline.\nOn June 13, 2017, the Senate voted to reject a motion to discharge from the Senate Foreign Relations Committee a joint resolution ( S.J.Res. 42 ) prohibiting certain proposed defense exports to Saudi Arabia, such as \"technical data, hardware, and defense services\" to support the Royal Saudi Air Force's deployment of the Joint Direct Attack Munition and integration of the FMU-152A\/B JPB Fuze System into several warhead types. The bill also would have prohibited the transfer of \"defense articles, defense services, and technical data to support the assembly, modification, testing, training, operation, maintenance, and integration\" of certain precision guided munitions for the certain Royal Saudi Air Force planes. H.J.Res 102 was the House companion bill.","output":null}
{"id":"gao_GAO-20-99","pid":"gao_GAO-20-99_0","input":"\tBackground\n\n\t\tU.S. Missions in Afghanistan\n\nThe United States currently has two primary missions in Afghanistan: the  U.S-led counterterrorism mission and the NATO-led Resolute Support  mission to train, advise, and assist the ANDSF. For U.S. purposes, both  of these missions are a part of Operation Freedom\u2019s Sentinel,  commanded by U.S. Forces-Afghanistan. Combined Security Transition  Command-Afghanistan is the command under NATO\u2019s Resolute Support  mission that conducts the train, advise, and assist mission in Afghanistan.  These efforts are carried out via the regional Train Advise Assist  Commands (TAACs) that collectively cover all of Afghanistan.  Specifically, Train Advise Assist Command\u2013Air (TAAC-Air) focuses on  developing and advising the Afghan Air Force.\n\n\t\tThe Afghanistan Security Forces Fund\n\nThe ASFF is generally a 2-year appropriation that is used to provide  assistance, with the concurrence of the Secretary of State, to the security  forces of Afghanistan, including the provision of equipment, supplies,  services, training, facility and infrastructure repair, renovation,  construction, and funding. The ASFF presently comprises four budget  activity groups: Afghan National Army, Afghan National Police, Afghan Air  Force, and Afghan Special Security Forces. Each budget activity group  includes four sub-activity groups: sustainment, infrastructure, equipment  and transportation, and training and operations. According to officials, the  training and operations sub-activity group encompasses most of CSTC- A\u2019s efforts to train the ANDSF, including the Afghan National Army.\n\n\tDOD Processes for Identifying Afghan National Army Training Needs and Associated Funding Requirements\n\nCSTC-A has established processes to identify capability gaps within the  ANDSF, develop and select training needed to address those gaps, and  identify associated funding requirements. To do so, CSTC-A works with  various requiring activities\u2014partner organizations, such as the Train  Advise Assist Commands\u2014to identify ANDSF training needs. CSTC-A  then incorporates these needs and associated funding requirements into  the ASFF budget request, typically a year or more before the training is  initiated.\n\n\t\tCSTC-A Works with Its Partner Organizations to Identify ANDSF Capability Gaps and Training Needs\n\nCSTC-A has established processes to identify capability gaps within the  ANDSF, develop and select training needed to address those gaps, and  identify associated funding requirements for inclusion in ASFF budget  justification documentation. To help execute these processes, CSTC-A  has developed standard operating procedures and other guidance for  planning, resourcing, and executing the ASFF. These procedures and  other guidance include information on processes to validate training  requirements and associated resources. CSTC-A works with various  partner organizations\u2014referred to as \u201crequiring activities\u201d\u2014to identify  capability gaps and training needs for the ANDSF. Requiring activities are  the organizations that request the resourcing of ANDSF capability needs  through ASFF. They include CSTC-A, the TAACs, and other U.S. or  NATO organizations partnered with the ANDSF.\nAccording to DOD officials, a partner organization can identify capability  gaps in a number of ways. For example, Train Advise Assist Command\u2013 Air, which develops and advises the Afghan Air Force, works with subject  matter experts from the relevant U.S. military services and other  organizations to identify potential Afghan Air Force capability gaps.\nAdditionally, according to DOD officials, in 2015 DOD tasked the MITRE  Corporation to conduct a study of Afghan Air Force capabilities.  According to DOD officials, MITRE\u2019s November 2015 study highlighted  capability gaps within the cadre of Afghan Air Force fixed- and rotary-wing  pilots and maintenance personnel. Further, officials stated that the study  concluded that the training of additional pilots constituted a critical need  for the Afghan Air Force.\nOnce a capability gap has been identified, the requiring activity develops  potential courses of action to address it, such as proposals to train the  ANDSF to develop needed capabilities. Through CSTC-A\u2019s procedures  these proposals are validated, along with associated resources. The  validation process is intended to ensure that a transparent and  accountable process is followed when allocating ASFF resources to  emerging requirements.\nFor example, as part of the fiscal year 2018 budget process, TAAC-Air  identified a capability gap within the Afghan Air Force and then worked  with various subject matter experts to develop courses of action to  address the gap. Specifically, TAAC-Air worked with personnel from the  Program Executive Office for Simulation, Training, and Instrumentation  (PEO-STRI), which provides simulation, training, and testing solutions for  the Army and joint community. Subject matter experts from PEO-STRI  provided details regarding various options for addressing the capability  gap. PEO-STRI officials noted that they also provided cost estimates for  delivering the solution based on historical data. According to PEO-STRI  officials, this was a highly interactive process entailing frequent formal  and informal discussions among multiple organizations to develop the  most effective solution for pilot training for the Afghan Air Force. Once  details and cost estimates were solidified, the requirement owner  presented them to a Council of Colonels, an officer group responsible for  requirement validation for training needs, among other capability needs.  The requirement was then taken to the General Officer Steering  Committee, which votes to validate the requirement and approve the  proposed solution.\n\n\t\tCSTC-A Process Incorporates Validated Training Needs into ASFF Budget Request\n\nCSTC-A\u2019s process incorporates validated training needs and their  associated funding requirements as part of DOD\u2019s annual budget  process. DOD\u2019s planning, programming, budgeting, and execution  (PPBE) process, which is governed in part by DOD Directive 7045.14,  along with other DOD guidance, is conducted under four phases (see  figure 1). Specifically, DOD uses the PPBE process to determine and  prioritize requirements and allocate resources to provide capabilities  necessary to accomplish the department\u2019s missions. According to  officials, as part of this process, CSTC-A provides inputs, including  training requirements and associated funding needs, and later works with  various contracting commands to execute appropriated funds.\nIn the case of ASFF, CSTC-A\u2019s guidance indicates that a proposed  activity (for example, fixed-wing pilot training classes) should generally be  included in the ASFF budget justification book in order to later use ASFF  funds for that activity. To do so, CSTC-A\u2019s Program and Analysis  Division develops and incorporates the requests from requirement owners  for funding for the operations, sustainment, and development of the  ANDSF into the ASFF budget request and associated budget justification  materials. The Program and Analysis Division works with the  requirement owners to write a narrative describing their proposed activity  and associated cost estimate for delivering the activity. The division then  works with the OUSD-Comptroller to consolidate requirements for all  budget activities and sub-activity groups into a single draft budget  justification book.\nOne significant aspect of this process is that many of the key decisions,  and associated cost assumptions, on how CSTC-A and TAAC-Air (in the  case of Afghan pilot training) intend to carry out ASFF training efforts are  proposed 18-24 months before the training will occur. For example, as  shown in figure 2, preparation of the ASFF budget justification book for  fiscal year 2019 began in the summer of 2017. In turn, the budget  justification book was subsequently submitted to the OUSD-Comptroller  in December 2017, and funds were not available for use until the start of  the new fiscal year, in October 2018.\nThese time frames can present a challenge in developing accurate cost  estimates for CSTC-A, given that situations in Afghanistan can change  significantly in the time between CSTC-A\u2019s developing a proposed  capability requirement and associated cost estimate for inclusion in the  ASFF budget justification book and the execution of that requirement,  according to officials. If conditions change, officials noted, the proposed  actions and associated cost estimates for a given requirement may no  longer be appropriate or accurate. For example, the Special Inspector  General for Afghanistan Reconstruction reported in January 2019 that  CTSC-A may have overestimated the cost for UH-60 Blackhawk rotary- wing pilot training by as much as $1 billion over a 7-year period\u2014 attributing the overestimation mainly to unrealistic assumptions regarding  student or pilot attrition and the English language program.\nIn the case of initial entry fixed-wing pilot training classes, CSTC-A\u2019s  original proposal, as reflected in its budget justification book was to have  classes of 25 students. However, during the implementation of this  training, the class size fell to 12 students because not all 25 students  achieved the required English language proficiency, and one student had  dropped out of the program. Consequently, the resulting class was half  the projected size underlying the estimated funding requirement, which  resulted in funds being excess to CSTC-A\u2019s actual need. CSTC-A officials  acknowledged the challenges they faced in filling classes with the  expected number of students, adding that they had purposely built in  significant flexibility in the training approach to be able to adjust to the  realities of the ANDSF\u2019s ability to generate qualified students. According  to CSTC-A officials, the number of English-proficient Afghan student  candidates varies from year to year.\nFor cases like these, where CSTC-A requested more funding than it  ultimately obligated, in some circumstances DOD may reprogram the  unobligated amounts within the same appropriation account, or may  transfer it to other appropriation accounts, if there is authority to do so.  Otherwise, time-limited appropriations, such as the ASFF, expire after  their period of availability and are unavailable for new obligations.  According to CSTC-A officials, in cases where they have unobligated  funding due to changing conditions such as smaller-than-expected class  sizes, they try to reprogram that money for related needs within the same  sub-activity group in the ASFF budget prior to expiration. For example, if  certain Afghan Air Force training costs are lower than expected, the  money could be reprogrammed for other efforts within the Afghan Air  Force training and operations sub-activity group.\n\n\tCSTC-A\u2019s Process for Developing and Overseeing ASFF Training Contracts\n\nASFF-funded training contracts for the ANDSF are developed and  executed through a process that is modeled on the U.S. government\u2019s  foreign military sales process. Until April 2019, ASFF-funded orders to  train the Afghan National Army were generally filled under a contract with  a single provider. At that point, DOD began to transition to an approach  using several contracts, including one with multiple providers.\n\n\t\tASFF-Funded Training Contracts Are Developed and Executed Under a Process Modeled on the Foreign Military Sales Program\n\nASFF-funded training contracts are developed and executed under a  process modeled on the U.S. government\u2019s foreign military sales (FMS)  program, referred to as \u201cpseudo-FMS.\u201d As indicated by CSTC-A  guidance, these pseudo-FMS procurements are FMS-like cases and use  U.S. funds to purchase items, services, and training for ANDSF capability  requirements. The process is outlined in the Security Assistance  Management Manual, which provides DOD-wide guidance to DOD  components engaged in the management or implementation of DOD  security assistance and security cooperation programs over which the  Defense Security Cooperation Agency has responsibility. We have  previously reported that while the many steps of the process used for  FMS and pseudo-FMS cases can be grouped in different ways, they fall  into five general phases: assistance request, agreement development,  acquisition, delivery, and case closure.\nFirst, CSTC-A works with the resource coordinator, requirement owner,  and other elements to develop a Memorandum of Request, and it submits  that memorandum to the implementing agency and the Defense Security  Cooperation Agency, requesting assistance to contract for ANDSF needs  using ASFF funds. For example, when developing the Memorandum of  Request for initial entry fixed-wing pilot training, CSTC-A worked with  TAAC-Air, the requirement owner, to identify details regarding the agreed- upon training solution. Officials noted that CSTC-A also worked with the  subject matter experts from PEO-STRI to develop the independent  government cost estimate.\nSecond, as described by officials, the agreement development phase  begins with the Defense Security Cooperation Agency\u2019s receiving the  Memorandum of Request. The Defense Security Cooperation Agency  opens a case and assigns it to an implementing agency\u2014that is, the  military department or defense agency responsible for overall  management of the actions that will result in the delivery of materials or  services. According to contracting officials, the implementing agency for  training foreign military ground and air forces outside of the United  States\u2014such as the Afghan National Army\u2014is the U.S. Army Security  Assistance Command. The implementing agency then works with the  appropriate Program Executive Office to develop the Letter of Offer and  Acceptance\u2014which serves to document the transfer of articles and  services to the U.S. government requesting authority. For example, for  the out-of-country fixed-wing pilot training requirement, contractors  delivered the training, and the appropriate implementing agency was  PEO-STRI, according to officials. Once the Letter of Offer and  Acceptance is completed and signed by the implementing and requesting  agencies, it is reviewed and approved by the Defense Security  Cooperation Agency and Department of State, as appropriate.\nThird, the Program Executive Office works with the appropriate  contracting command to acquire the requested defense goods or services  as part of the acquisition phase. According to contracting officials, the  contracting command solicits and receives bids from contractors and  selects the best value option (including price plus deliverables). Fourth,  the contractor delivers the required good or service. According to officials,  the relevant Program Executive Office is responsible for monitoring the  contractor\u2019s performance by ensuring compliance with applicable contract  clauses. Fifth, following contract completion and payment of outstanding  obligations, the implementing agency initiates case closure with the  Defense Security Cooperation Agency.\n\n\t\tTraining Requirements for the Afghan National Army Were Generally Provided by a Single Vendor Prior to April 2019, but Are Now Provided by Multiple Vendors\n\nPrior to April 2019, ASFF-funded training requirements for the Afghan  National Army, including out-of-country fixed- wing pilot training, were  generally executed under a single award indefinite delivery, indefinite  quantity contract known as the Warfighter Field Operations Customer  Support (WFF) contract. The WFF contract provided integrated training  system sustainment and training services world-wide for the U.S. Army,  Marine Corps, Navy, Air Force, and Special Operations Command.  According to Army contracting officials, WFF was the most expedient way  to contract for various types of training for the Afghan National Army due  to the contract\u2019s broad scope and $11.2 billion ceiling. These officials said  it provided the capacity and flexibility needed to fulfill the Afghan National  Army\u2019s requirements and time frames in a streamlined way because the  competition and award process had already occurred, enabling officials to  move directly to awarding task orders for support.\nHowever, while the single award indefinite delivery, indefinite quantity  contract streamlined the process for contracting ANDSF training, it limited  DOD\u2019s ability to negotiate some costs. According to contracting officials,  only certain types of costs could be negotiated, such as those associated  with housing, travel, and the number of advisors supporting the training.  The officials stated that other costs were established as a per-unit cost at  the time of the contract award. In addition, various administrative fees  were established when the WFF contract was awarded in 2007 and could  not be renegotiated, according to contracting officials. As a result, any  task orders under this contract, including those to train the Afghan  National Army, had to include these administrative fees and established  labor wages.\nTo illustrate the various costs associated with the Afghan Air Force  training program, we reviewed documentation associated with training  provided under the WFF contract. One training program cost $12.1 million  for the delivery of an 86-week fixed-wing pilot training course (from  February 2018 through September 2019) for 13 Afghan Air Force  students at the Fujairah Aviation Academy in the United Arab Emirates.  The pilot training was conducted by contractors and comprised aviation  English language training, theory of flight, basic and advanced instrument  ground school, advanced flight instrumentation, and simulation training for  the Afghan Air Force Cessna C-208 Caravan aircraft. The $12.1 million  total included amounts paid to the contractor and administrative charges  to cover the costs of entities within the U.S. government. The costs  associated with the training are shown in figure 3 below.\nThe largest cost factor in this task order was the cost of the flight school  itself, which accounted for 68.4 percent (or $8.2 million) of the total cost,  according to contracting officials. The flight school included ground  school, simulation, advanced instruments, and flying hours training, and it  represented a cost per each of the 13 students who actually attended the  training. The flight school also included the cost of housing, electronic  books \/ manuals, and campus security, some of which costs were  negotiable, according to officials. Other costs, such as the Defense  Security Cooperation Agency 3.5 percent surcharge and contract  administration services 1.2 percent surcharge, were established based  upon rates current at the time of the letter of offer and acceptance.  According to officials, the contractor\u2019s profit was established at the time of  award of the contract in 2007. Officials stated that the costs that could be  negotiated were limited and included costs associated with travel,  lodging, and adding more advisors to augment the training. According to  contracting officials, these limitations were not unique to this ASFF  training but applied broadly to all ASFF training task orders they executed  under WFF.\nIn 2018 DOD decided to replace WFF, which was nearing expiration, with  a series of new contracts. DOD has begun to transition work previously  performed under WFF to these new contracts, the first of which was  awarded in 2018. According to contracting officials, ASFF-funded training  efforts are expected to be executed primarily under two of the new  contracts \u2013 the Enterprise Training Services Contract and the Training,  Instructor Operator Support Services Contract. The Enterprise Training  Services Contract is a multiple award indefinite delivery, indefinite  quantity contract with a total contract ceiling of $2.4 billion that was  awarded to multiple contractors in June 2018. According to officials, the  Training, Instructor Operator Support Services Contract is a single award  indefinite delivery, indefinite quantity contract with a ceiling of $197.6  million that was awarded in July 2018.\nAccording to Army contracting officials, the contracting process for ASFF  training services will include competition among multiple contractors for  each task order under the Enterprise Training Services Contract. Army  contracting officials stated that under a multiple-award contract, each  contract holder is to be provided a fair opportunity to compete for each  task order, in part to use competition to ensure that the proposed prices  are fair and reasonable. According to Army contracting officials, the  Enterprise Training Services Contract also affords the opportunity to  negotiate more elements than previously under the WFF contract, such  as labor rates or travel costs associated with training. The first training  task order under the Enterprise Training Services Contract in support of  Afghan forces was issued in April 2019. As this task order has only  recently been issued, it is too early for us to comment on the efficacy of  these contracts.\n\n\tDOD Processes to Provide Visibility over ASFF-Funded Training Contracts\n\nDOD has varying degrees of visibility over ASFF-funded training  contracts. At the broadest level, OUSD-Comptroller and contracting  officials stated that they have visibility of the overall execution of the  ASFF budget, including funding associated with Afghan National Army  training. For example, OUSD-Comptroller tracks and reports ASFF  obligations and disbursements in monthly status-of-funds reports, known  as Defense Financial and Accounting Services 1002 Reports. In addition,  the Special Inspector General for Afghanistan Reconstruction tracks and  reports ASFF obligations and disbursements via its Overseas  Contingency Operations quarterly reports to Congress.\nAt the individual contract level, the military services\u2019 contracting  commands, such as PEO-STRI and Army Contracting Command,  develop and maintain contract files for individual ASFF-funded contracts  and task orders. However, according to officials, DOD does not have a  centralized system or reporting mechanism for tracking all ASFF training  contracts, because the systems used by the services for managing  funding and those used for contract management do not interface with  each other. According to OUSD-Comptroller officials, the systems used  for financial management were not designed or intended to identify ASFF  funds specifically obligated for training contracts because there is no  requirement for them to do so.\nOfficials said that consequently, in the single instance in which they have  had to develop a comprehensive list of all ASFF-funded training  contracts, they had to work with the contracting commands at the  respective military services to gather this information. For example, to  respond to congressional direction related to contracts funded with ASFF,  OUSD-Policy contacted all of the military services to request a list of all  training contracts funded through the ASFF under the respective services\u2019  responsibilities, according to OUSD officials. In turn, Army contracting  officials stated that they identified the requested information by using the  lines of accounting fields in their contract management systems to identify  those training contracts funded with ASFF. OUSD-Policy officials  provided us with the resulting list of 40 contracts and task orders, totaling  over $483 million in estimated contract value, but they acknowledged that  the list was likely incomplete.\nOUSD-Policy officials who compiled the list of training contracts told us  that the precision of the list was affected by inconsistent interpretations  among the services of what constitutes a training contract. According to  these officials, training for the Afghan National Army can also occur under  procurement or maintenance contracts that have embedded training  components. For example, according to officials, the Army\u2019s National  Maintenance Strategy contract provides logistic support to the Afghan  National Army and includes a training component. Similarly, the Navy\u2019s  ASFF-funded ScanEagle unmanned aerial vehicle reconnaissance  procurement contract includes a training component. Because these  contracts are not primarily training-oriented, according to contracting  officials, they were not identified under the training and operations  subactivity group in the ASFF budget, and therefore would not be easily  identifiable as ASFF training contracts. Despite these limitations, DOD  officials stated that, given their existing systems and processes and their  ability to reach out to contracting officials to obtain additional data when  needed, they believe they have sufficient tools to identify most ASFF- funded training contracts. Additionally, DOD officials stated that the  congressional direction associated with ASFF-funded training was a one- time request, not a recurring task.\n\n\tAgency Comments\n\nWe provided a draft of this report to DOD, and DOD responded that it  would not be providing formal comments. DOD also provided technical  comments, which we incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional  committees and to the Secretary of Defense. In addition, the report is  available at no charge on our website at http:\/\/www.gao.gov.\nIf you or your staff have any questions about this report, please contact  Cary Russell at (202) 512-5431 or russellc@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. Key contributors to this report are listed in  the appendix.\n\nAppendix I: GAO Contact and Staff Acknowledgments\n\n\tGAO Contact\n\n\tStaff Acknowledgments\n\nIn addition to the contact named above, James A. Reynolds, Assistant  Director, and Jerome Brown, William Chatlos, Alfonso Garcia, Steve  Pruitt, Michael Shaughnessy, McKenna Stahl, and Cheryl Weissman  made key contributions to this report.","output":null}
{"id":"gao_GAO-19-573","pid":"gao_GAO-19-573_0","input":"\tBackground\n\nEEOC provides leadership and guidance to federal agencies on all  aspects of the federal government\u2019s EEO program. EEOC assures  federal agency and department compliance with EEOC regulations,  provides technical assistance to federal agencies concerning EEO  complaint adjudication, monitors and evaluates federal agencies\u2019  affirmative employment programs, develops and distributes federal sector  educational materials, conducts training for stakeholders, provides  guidance and assistance to Administrative Judges who conduct hearings  on EEO complaints, and adjudicates appeals from administrative  decisions made by federal agencies on EEO complaints.\n\n\t\tEEOC\u2019s MD-715 Reporting Requirements\n\nEEOC\u2019s MD-715 requires agencies to take appropriate steps to establish  a model EEO program and to ensure that all employment decisions are  free from discrimination. It also sets forth the standards by which EEOC  will review the sufficiency of agency Title VII and Rehabilitation Act  programs, which include periodic agency self-assessments and the  removal of barriers to free and open workplace competition.\nUnder MD-715, federal agencies, and any subordinate component that  enjoys autonomy from its parent agency, are required to submit annual  MD-715 EEO program status reports to EEOC. Completed MD-715 reports include:\nPart F: Requires designated agency officials to certify that the agency has completed an annual self-assessment (Part G) and established plans to correct any program deficiencies (Part H), as well as conducted comprehensive barrier analyses and established plans to eliminate identified barriers (Part I).\nPart G: Contains a self-assessment checklist for an agency to assess its compliance with essential EEO program elements to operate a model EEO program and identify any deficiencies.\nPart H: Describes the agency\u2019s plans to address identified deficiencies.\nPart I: Shows identified EEO triggers and barriers for race, gender, and national origin; how the agency plans to address them; and who the responsible officials are.\nPart J: Contains the agency\u2019s affirmative action plan for individuals  with disabilities and individuals with targeted disabilities.\nAdditionally, federal agencies are required to identify and eliminate  barriers that impede free and open competition in their respective  workplaces. EEOC reporting requirements state that a barrier is an  agency policy, procedure, practice, or condition that limits or tends to limit  employment opportunities for members of a particular gender, race, or  ethnic background, or for individuals based on disability status. According  to EEOC\u2019s instructions, many employment barriers are built into the  organizational and operational structures of an agency, and are  embedded in the day-to-day procedures and practices of the agency.\nAgencies are also required to identify EEO program deficiencies and  develop plans to address them. According to EEOC\u2019s instructions,  deficiencies are weaknesses in an agency\u2019s EEO program where agency  officials need to provide more attention. For example, a deficiency might  be that the EEO director is not under the direct supervision of the agency  head, or that an EEO Director or Officer lacks a regular, effective means  of informing the agency head and other top management of the  effectiveness, efficiency, and legal compliance of the agency\u2019s EEO  program.\nEEOC\u2019s Office of Federal Operations instructs agencies on how to  complete their MD-715 reports, provides training and technical  assistance, and offers additional informal assistance, such as sharing  best workplace practices. Based on agency MD-715 reports, EEOC  includes assessments of agency progress in its Annual Report on the  Federal Workforce, and in notice and feedback letters addressed to  individual agencies. In addition, according to EEOC officials, EEOC  meets with each agency every 3 years to review the status of its  compliance with federal EEO laws, regulations, and management  directives.\nIf EEOC determines that areas of noncompliance exist in an agency\u2019s  program, it may take compliance actions. Compliance actions include  requiring the agency to provide an update on the status of its plans to  correct deficiencies in its MD-715 submission, or to submit a Compliance  Report to EEOC explaining the agency\u2019s progress in correcting  deficiencies within 6 months of the date of a feedback letter. If agencies  do not comply, EEOC may choose to initiate its noncompliance process,  which could include conducting a program evaluation, issuing a notice to  the Secretary of Homeland Security, or publicly identifying DHS as a  noncompliant agency.\nAs part of its noncompliance process, EEOC has conducted program  evaluations of DHS components. In 2013, EEOC initiated a program  evaluation at TSA to determine the adequacy and appropriateness of the  EEO complaint framework in all offices and directorates within TSA.  EEOC reported in 2014 that TSA\u2019s EEO complaint process was adequate  and complied with its regulations. However, EEOC made eight  recommendations to TSA, including one that called for TSA to modify the  EEO information in its training materials and presentations. In response to  EEOC\u2019s report, TSA submitted a letter to EEOC stating that it planned to  address all of the EEOC recommendations and had already taken steps  to implement several of them. In addition, in 2018, EEOC conducted a  multiagency program evaluation that included U.S. Customs and Border  Protection (CBP). It found that CBP had no women serving in positions  that involve intercepting prohibited commodities or persons, and that  women comprised only 5 percent of its border patrol agents. EEOC  stated that the report\u2019s recommendations may help CBP with its hiring  efforts.\n\n\t\tDHS\u2019s EEO Program\n\nCRCL, through the Deputy Officer for EEO and Diversity, is responsible  for processing complaints of discrimination; establishing and maintaining  EEO programs; fulfilling reporting requirements as required by law,  regulation, or executive order; evaluating the effectiveness of EEO  programs; leading the department\u2019s diversity management program; and  preparing and submitting DHS\u2019s annual MD-715 report to EEOC.\nAccording to EEOC policy, a second-level reporting component is one  that enjoys autonomy from its parent agency, and has 1,000 or more  employees. EEOC instructions require second-level reporting  components submit MD-715 reports to their agency headquarters for  inclusion in the agency-wide report in addition to submitting them directly  to the EEOC. DHS\u2019s Headquarters EEO Office, a part of CRCL,  implements the EEO program for all headquarters employees and  applicants. DHS has nine second-level reporting components, including  DHS Headquarters, that are required to submit individual MD-715 reports  to EEOC. Each component has an office headed by a director charged  with implementing its EEO program.\nFigure 1 shows the officials who are primarily responsible for EEO at  DHS.\n\n\t\tDHS\u2019s MD-715 Reporting Process\n\nCRCL develops DHS\u2019s annual MD-715 EEO program status report and  submits it to EEOC. CRCL works with components to gather and analyze  necessary data and information, and to perform the required MD-715  exercises that are ultimately used to complete the overall DHS MD-715  report. CRCL includes components\u2019 identified deficiencies in the DHS- wide MD-715 report. The Secretary of Homeland Security (or its  designee) and CRCL\u2019s Deputy Officer for EEO and Diversity are to certify  DHS\u2019s MD-715 report before CRCL sends the report to EEOC.\nFigure 2 illustrates DHS\u2019s MD-715 report development process. This  process includes conducting a self-assessment checklist of DHS\u2019s and its  components\u2019 efforts to achieve a model EEO program and barrier  analysis to eliminate identified EEO barriers.\n\n\tDHS Has Plans to Address the EEO Barriers It Identified, but Could Better Measure Its Progress toward Eliminating the Barriers\n\n\t\tDHS Has Taken Steps to Follow EEOC Guidance to Identify and Address EEO Barriers\n\nDHS has taken steps to follow EEOC\u2019s guidance by using and analyzing  various information sources, investigating possible causes of potential  barriers or triggers, and planning activities to address and eliminate  barriers. EEOC MD-715 guidance calls for federal agencies to continually  work towards preventing all forms of discrimination and eliminating  barriers that may impede free and open competition in the workplace.  Figure 3 shows the barrier identification and elimination steps under MD- 715.\nDHS generally uses the information sources that EEOC guidance  recommends in addition to workforce data to help identify potential  barriers. As directed by EEOC guidance, DHS analyzes its workforce  data to help identify triggers or indicators of potential EEO barriers by  comparing the racial, national origin, gender, and disability profiles of its  total workforce, and for various occupational categories to relevant civilian  labor workforce data. In fiscal year 2017, DHS analyzed all available  workforce data including:\nTotal Workforce \u2013 Distribution by Race\/Ethnicity, Gender, and\nParticipation Rates by Major Occupations \u2013 Distribution by  Race\/Ethnicity, Gender, and Disability, and\nApplicants and Hires by Major Occupations \u2013 Distribution by  Race\/Ethnicity, Gender, and Disability.\nIn addition to analyzing workforce data, in each of the fiscal years 2014  through 2017, DHS utilized the U.S. Office of Personnel Management\u2019s  Federal Employee Viewpoint Survey (FEVS) and DHS\u2019s employee exit  survey results to help identify and address barriers. For example,  CRCL, in DHS\u2019s fiscal year 2017 MD-715 report, used FEVS and exit  survey results to help investigate the possible causes of higher-than- expected nonretirement separations for white females and several other  ethnic and racial groups. According to the report, possible causes  included the lack of advancement opportunities, insufficient work\/life  programs, and the lack of alternate work schedules.\nDuring our small group discussions, DHS employee groups told us that  through the MD-715 report development process, they helped identify and  address triggers and barriers. For example, Special Emphasis Program  Managers we spoke with told us that DHS components conduct climate  surveys to obtain input from employees on workforce practices every 1 or  2 years. Further, several DHS components\u2019 MD-715 reports referenced  soliciting employee input, such as obtaining Disability Employment  Program Managers\u2019 input via quarterly disability employment advisory  council meetings where they share best practices and discuss issues and  topics including barriers.\n\n\t\t\tDHS Has Identified Workforce Demographics Data Anomalies That Indicate Potential EEO Barriers\n\nOur review of DHS\u2019s MD-715 reports showed that DHS identified three  department-wide triggers in fiscal years 2014 through 2017. The three  triggers were (1) high rate of nonretirement separations for certain  groups, particularly white women; (2) low participation rates of women  and various ethnic and racial groups in the permanent workforce; and (3)  low participation rates of individuals with disabilities and targeted  disabilities.\n\n\t\t\tWhile Investigating Various EEO Anomalies, DHS Identified Three Barriers\n\nSubsequent to its trigger identification and department-wide barrier  analysis, from fiscal years 2014 through 2017, DHS identified three  barriers: (1) problems with supervision\/management, lack of  advancement opportunities, lack of alternate work schedules, insufficient  work\/life programs, and personal\/family related reasons causing higher- than-expected nonretirement separations for white females and several  ethnic and racial groups; (2) the geographic location of jobs which has  contributed to the low hiring rates of racial groups in certain major  occupations; and (3) medical and physical requirements of law  enforcement positons, such as the ability to engage in moderate to  arduous physical exertion, which limit the eligibility of some applicants  with targeted disabilities. DHS identified these barriers by analyzing  component and DHS level workforce data and reviewing DHS FEVS and  exit survey results. DHS identified barriers in its MD-715 reports for fiscal  years 2014 through 2017. However, EEOC noted that for fiscal years  2015 to 2017, DHS had not identified any policies, procedures, practices,  or conditions causing (1) low hiring rates for women in certain major  occupations, and (2) the high separation rate of employees with  disabilities.\n\n\t\t\tDHS\u2019s Planned Activities to Address the Identified EEO Barriers\n\nAs stated in EEOC\u2019s guidance, barrier elimination is a vital step to  addressing identified barriers and working towards the goal of making the  federal government a model employer. To address and eliminate  identified barriers, EEOC\u2019s instructions direct agencies to include in their  MD-715 reports measurable objectives, an action plan that includes  planned activities and completion dates, as well as officials responsible  for overseeing the plan, and a summary of accomplishments.\nSince our 2009 recommendations, DHS has included interim milestones  in its MD-715 reports. Our 2009 report showed that DHS had modified  nearly all of its target completion dates. We recommended that DHS  identify essential activities and establish interim milestones necessary for  the completion of all planned activities to address identified barriers to  EEO. In its fiscal year 2011 MD-715 report to EEOC, DHS identified  essential activities and established interim milestones. Based on its MD- 715 reporting for fiscal years 2014 through 2017, DHS has continued to  identify planned activities and establish interim milestones.\nOur review of DHS\u2019s MD-715 reports from fiscal years 2014 through 2017  also shows that DHS has planned activities and targeted completion  dates to address each identified barrier, and each trigger for a potential  barrier. For example, to address the low participation rates of women  and several ethnic and racial groups in DHS\u2019s overall workforce, DHS\u2019s  planned activities included researching where to conduct outreach for the  identified groups, and producing a plan to integrate data from the multiple  applicant data-tracking systems used across DHS. DHS\u2019s outreach  activities included identifying colleges and universities with large  populations of underrepresented groups, identifying relevant job fairs in  selected service areas, and conducting focus group meetings with  employees from underrepresented groups to determine how to improve  recruitment and retention, among other events. These events were  initiated in 2011, but are to be reviewed and updated annually. For  example, DHS reported that it develops a \u201cTop 25\u201d list of annual outreach  and recruitment activities that include law enforcement focused events.  DHS also reported developing a framework in 2016 for applicant flow data  analysis\u2014important for identifying and addressing potential recruitment  and outreach barriers. In 2017, activities included conducting more robust  department-wide analysis of applicant data. Many of the activities were  initiated in prior years and target dates for completion were met. To  address the high nonretirement separation rate of certain groups, notably  white women, DHS\u2019s planned activities included updating and  augmenting previously instituted exit survey methods, and identifying and  implementing retention interventions.\nFurther, in its fiscal year 2014-2017 reports, DHS has identified essential  activities, established interim milestones, and met recurring interim  milestones for its planned activities. For example, DHS reported that it  planned to research where to conduct outreach for groups in occupations  with underrepresentation. DHS components completed this outreach  activity in 2012, and components and facilities are to annually identify (1)  colleges with substantial populations of underrepresented groups, (2)  relevant job fairs in the service area, and (3) relevant local affinity groups  and community groups, among other outreach activities. Additionally,  DHS\u2019s Office of the Chief Human Capital Officer (OCHCO) has lead  responsibility for implementing a multiyear plan for targeted recruitment of  applicants from identified underrepresented groups. OCHCO completed  its initial multiyear plan in 2012 and is to annually update its established  goals for intern programs, job fairs, and local advertising.\n\n\t\tSelected DHS Components Took Steps to Conduct Barrier Analyses\n\nAll four selected DHS components have taken steps to follow EEOC  guidance to conduct barrier analyses. Of the components, Federal Law  Enforcement Training Centers (FLETC), the U.S. Secret Service (Secret  Service), the Transportation Security Administration (TSA), and U.S.  Citizenship and Immigration Services (USCIS), only one, TSA, identified  any EEO barriers. However, each of the components identified triggers  and analyzed potential barriers by  reviewing workforce data (i.e., data on total workforce, new hires, and  mission critical occupations) and comparing the data to relevant  benchmarks,  reviewing various information sources to help identify possible barriers  that may be resulting in the current condition highlighted by the  analysis of workforce data, and  reporting action plans and time frames for addressing potential or  actual barriers.\nThe Secret Service\u2019s fiscal year 2017 MD-715 report showed that after  analyzing demographic data to identify triggers, the Secret Service used  FEVS data to identify potential barriers to the employment of individuals  with disabilities in occupations where the triggers were identified. In  addition, USCIS stated in its fiscal year 2017 MD-715 report that its  review of exit survey data provided reasons that men, Hispanics, and  whites left the agency, but data were inconclusive regarding the  continuing underrepresentation of those groups. USCIS also reported that  it would continue analyzing exit data in fiscal year 2018.\nIn fiscal year 2017, TSA identified two barriers in its MD-715 report\u2014(1)  medical and physical restrictions limit opportunities for individuals with  disabilities and individuals with targeted disabilities in Transportation  Security Officer and Federal Air Marshal occupations, and (2) women are  not applying to Transportation Security Officer or Federal Air Marshal  positions at the same rate as men. TSA reported that it analyzed  workforce data and policies, procedures, and practices related to  recruiting, hiring, and promotions to try to determine what may be  contributing to low participation rates for women and individuals with  disabilities. TSA also interviewed employees involved in those processes,  and conducted focus groups with supervisors and leadership at airports  and field offices. TSA\u2019s plans to address barriers include developing a  communication plan to promote TSA programs that support persons with  disabilities and with targeted disabilities; making sure training modules  are accessible; conducting training to increase awareness of unconscious  bias towards working with individuals with disabilities; and working with its  human capital office and others to assist with recruiting and hiring to more  effectively target women.\nAlthough FLETC, Secret Service, and USCIS did not identify EEO  barriers in fiscal year 2017, they each developed action plans that  identified activities designed to help address and correct undesired  conditions, identified responsible officials, and set time frames for  addressing the conditions. Examples of selected components\u2019 plans and  activities include:\nFLETC. To address low participation rates of persons with targeted  disabilities in the permanent workforce, FLETC-planned activities  include working with human resource specialists to identify data and  timelines needed to create reports in its applicant data flow system  that would help identify any barriers in the selection process, and  working to resolve issues concerning applicant flow data in the  applicant pool.\nSecret Service. To address low participation rates of certain groups  in the general workforce and new hires, planned activities include  quarterly tracking and reporting ethnicity, race, and gender data net  changes, hires, resignations, and retirements. Other activities would  involve working closely with the Office of Human Resources Talent  and Employee Acquisition Management Division in recruitment  activities.\nUSCIS. To address the lower-than-expected participation rate of  certain groups in the permanent workforce\u2014for example, white males  and females and Hispanic males\u2014planned activities include  conducting comprehensive applicant flow data analysis of the top five  major occupational categorizes, and administering and analyzing a bi- annual EEO and Diversity Climate Survey.\nDHS has provided training for its components on how to conduct EEO  barrier analysis. In 2016 and 2018, DHS trained DHS component EEO  officials on methods for identifying the root of specific triggers in the  workplace, as well as steps for eliminating identified barriers. According to  DHS\u2019s analysis of participant training evaluations, the majority of  participants believed they would be able to apply what they learned from  the training. In 2017, DHS provided a 2-day barrier analysis training to  agency and component affirmative employment practitioners that  introduced various barrier analysis methods. It included an exercise  involving a hypothetical federal agency. Based on our review of  participant evaluations, participants were satisfied with the training.\n\n\t\tDHS Reports Some Improvements in Employee Engagement and Representation of Minorities and Women, but Lacks Performance Metrics for Tracking Progress\n\nDHS reported improvements in EEO indicators in its MD-715 reports from  fiscal years 2014 through 2017. DHS cited its higher FEVS scores under  employee engagement. For example, although DHS\u2019s employee  engagement remained 7 percent below the government-wide average, it  increased from 54 percent in 2014 to 60 percent in 2017. According to  DHS, this score was largely driven by TSA and U.S. Customs and Border  Protection employees, who accounted for 46.8 percent of DHS\u2019s  completed surveys.\nOur review of DHS\u2019s workforce data from fiscal years 2014 through 2017  showed that every minority group as well as individuals with disabilities  and individuals with targeted disabilities had been trending in a positive  direction since fiscal year 2014. Further, DHS officials told us that  minority representation was up 3 percent and female representation was  up 2 percent since 2015.\nIn addition, DHS has produced barrier analysis reports that address  underrepresentation of women and various ethnic and racial groups. In  2018, DHS completed a barrier analysis report on Hispanic employment  in General Schedule pay scale grades 12 and higher, as required by  EEOC and the U.S. Office of Personnel Management. The report  identified several potential triggers, such as Hispanic women separating  from DHS, and related barriers, such as possible harassment of Hispanic  employees and women, and glass walls. DHS also developed action  plans focused on enhancing elder and family care programs, offering  training on preventing harassment in the workforce, increasing  recruitment into job series with substantial promotion opportunities, and  ensuring interview panels were diverse and interviewers properly trained.\nAlthough DHS has reported positive trending in various underrepresented  groups, DHS officials said they were unable to fully identify the barriers  contributing to the underrepresentation of women in its workforce despite  conducting the required barrier analysis. In 2014, DHS conducted a  barrier analysis of women in law enforcement to help identify any barriers.  While specific barriers were not identified, DHS\u2019s report, Women in Law  Enforcement Study, provided insight into why DHS employed lower rates  of female law enforcement officers than federal government-wide. For  example, study participants shared anecdotal instances of where they or  their colleagues did not pursue promotional opportunities because they  perceived their work environment made them choose between the job  and family. The study also highlighted steps DHS could take to help  address its underrepresentation of women, such as being more creative  in its approach to attracting qualified women through use of social media,  and by creating more family-friendly environments.\nAccording to EEOC, one important tool in examining the fairness and  inclusiveness of the federal government\u2019s recruitment efforts is applicant  flow data. By reviewing the yield of an agency\u2019s recruitment effort, the  organization can reassess and improve its effort to reach all segments of  the population. EEOC guidance states that having department-wide  applicant flow data could aid in analyzing differences in selection rates  among different groups for a particular job. In July 2017, EEOC informed  DHS that the agency\u2019s applicant flow data were incomplete. DHS has  reported challenges in collecting department-wide data that could help  identify potential barriers. EEOC found that DHS\u2019s workforce data tables  do not always contain all of the agency\u2019s applicant flow data. According to  EEOC, without such data, it becomes much more difficult to pinpoint the  specific policies, procedures, or practices in which barriers might be  embedded.\nDHS does not have a consolidated applicant flow data system. According  to DHS, four of its components use one system (USA Staffing), while five  other components use a different system (Monster Government  Solutions). Office for Civil Rights and Civil Liberties (CRCL) officials told  us DHS is developing a new system to integrate applicant flow data  department-wide. However, the officials could not give us a time frame for  when the system is expected to be completed. As a work-around, DHS  explained that it obtains these data directly from each component that  uses Monster Government Solutions. CRCL officials said they will report  complete applicant flow data in fiscal year 2019.\nIn addition to creating a model EEO environment, progress in eliminating  EEO barriers can help DHS avoid costs related to workplace disputes.  According to EEOC guidance, the elimination of barriers may help an  agency avoid expensive costs, such as back pay awards, compensatory  damages, and attorney\u2019s fees, from findings of discrimination. EEOC  found 81 instances of discrimination from fiscal years 2014 through 2017  resulting in DHS paying nearly $30 million to cover judgments, awards,  and settlements for these EEO cases, or an average of $7.4 million per  year. These expenses were nearly equal to the average annual cost of  DHS\u2019s EEO program, which DHS estimated at about $7.63 million in  fiscal year 2019.\n\n\t\t\tDHS Lacks Metrics for Tracking Progress towards Eliminating Identified EEO Barriers\n\nDHS does not have complete performance metrics or mechanisms for  tracking progress towards eliminating its identified EEO barriers. For  example, CRCL does not maintain numerical objectives or goals for  eliminating barriers involving certain EEO groups, such as workplace  satisfaction of white females or the retention rate of women in law  enforcement positions. According to CRCL officials, they are not required  to establish performance metrics or mechanisms for tracking progress  towards eliminating barriers beyond what is included in the department- wide MD-715 report. DHS reported one performance measure for its EEO  program\u2014the percent of timely merit Final Agency Decisions (FADs).\nStandards for Internal Control in the Federal Government states that  management should establish specific and measureable objectives, and  ways to assess progress including performance metrics and milestones. It  also states that management should design control activities to achieve  objectives and respond to risks. Such control activities may include the  establishment and review of performance metrics. Further, EEOC  guidance states that agencies are not prevented from establishing  additional practices that exceed its requirements. DHS officials  acknowledged that their EEO program performance measurement does  not reflect all the work that they do.\nAccording to CRCL officials, CRCL has proposed additional performance  measures for its MD-715 activities, but they were rejected by DHS\u2019s  Office for Policy because they were not directly related to national  security or public safety. DHS\u2019s Office for Policy is responsible for  approving new performance measures. CRCL officials told us that  adopting hiring goals for individuals with disabilities and individuals with  targeted disabilities\u2014which had previously been identified as potential  barriers\u2014has been beneficial in garnering support and commitment  towards meeting them. They said that DHS incorporated these goals into  its efforts and initiatives to increase the recruitment, hiring, advancement,  and retention of individuals with disabilities. Implementing performance  metrics could help DHS better assess its progress in eliminating EEO  program barriers.\n\n\tDHS and Its Components Have Taken Steps to Identify EEO Program Deficiencies, but Lack Action to Fully Address Them\n\n\t\tDHS and Its Components Have Identified Various Deficiencies in Their EEO Programs\n\nAs shown in table 1, our analysis of DHS\u2019s MD-715 reports found that  DHS did not meet about a quarter of the compliance measures for a  model EEO program for each fiscal year from 2014 through 2017.  Specifically, over this 4-year period, DHS did not meet 26 percent of its  compliance measures (128 out of 487). The largest percentage of unmet  measures occurred under the model EEO essential element D\u2014which  focuses on proactive steps taken by an agency to prevent unlawful  discrimination\u2014where about 53 percent or 21 of 40 measures were  unmet. According to DHS officials, in Part G of its MD-715 report, DHS  includes deficiencies identified and reported at the component level as  well as deficiencies directly attributable to the department. For example,  in each of the fiscal years 2015 through 2017, DHS reported that it did not  meet a compliance measure under element D that senior managers  successfully implement EEO action plans and incorporate EEO action  plan objectives into agency strategic plans. Specifically, in fiscal years  2015 through 2017, DHS noted that USCIS had not met this measure,  and in fiscal year 2017, the Federal Emergency Management Agency  (FEMA) and DHS Headquarters did not meet this measure.\nOur analysis of components\u2019 MD-715 reports showed that components  did not meet 9 percent of the compliance measures for a model EEO  program from fiscal years 2014 through 2017. Specifically, over this 4- year time frame, components had a combined total of 369 program  deficiencies out of a total of 4,229 compliance measures. DHS  Headquarters, one of the nine second-level reporting components,  accounted for 36 percent of deficient measures (134 of 369), while the  other eight components accounted for 64 percent (235 of 369) of deficient  measures. Examples of DHS\u2019s deficient measures included EEO  directors not under the direct supervision of the agency head, and the  lack of established timetables or schedules for the agency to review its  employee development and training programs for systemic barriers that  may be impeding full participation in training opportunities by all groups.\n\n\t\tDHS and Its Components Lack Action Plans to Address Some EEO Program Deficiencies\n\nDHS and its components did not have action plans to address some of  their self-identified deficiencies from fiscal years 2014 through 2017.  Specifically, DHS did not have action plans to address 56 percent, or 72  of the 128 reported deficiencies, and components did not have action  plans to address nearly half, or about 179 of the 369 deficiencies reported  by all of the components during the four year period. For example, in  fiscal year 2017, four out of nine DHS components\u2014U.S. Customs and  Border Protection (CBP), DHS Headquarters, FEMA, and Federal Law  Enforcement Training Centers (FLETC)\u2014did not have action plans to  ensure that their EEO directors report directly to their agency heads.\nEEOC guidance requires agencies to demonstrate meaningful progress  toward the removal of deficiencies, and to develop action plans for how  agencies will attain the essential elements of a model EEO program.  Specifically, for each deficient measure, agencies are to develop an  action plan for correcting the deficiency. The plan should  identify and briefly describe the deficiency; provide a measurable objective, including the reason for the  deficiency, and target date for completion;  identify officials responsible for overseeing implementation of planned  activities to accomplish the objective; and provide for a yearly update on status of activities until objective is  completed (i.e., the deficiency is removed).\nIn addition, Standards for Internal Control in the Federal Government  states that management should design control activities to achieve  objectives. Control activities, such as policies or procedures to enforce  directives, can help identify if a required activity is not being achieved  (e.g., action plan completion) or implemented.\nThe four selected DHS components told us that they do not have  standard operating procedures for completing their MD-715 reports,  including review and assessment of deficiencies and action plans, but  have various processes in place to review their reports for accuracy and  completeness. For example, according to USCIS, its process for the  preparation and review of its MD-715 report includes providing a self- assessment checklist to each of its subcomponents; a review of their  responses for accuracy; and follow-up with subcomponents to address  any questions. In addition, USCIS stated that its MD-715 report  undergoes multiple levels of reviews by subject matter experts and  managers that include collaboration with human capital and chief counsel,  and obtaining review and approval from the Director and other agency  officials. The other three components\u2014FLETC, TSA, and Secret  Service\u2014also reported having MD-715 review processes in place,  including report review and approval by senior management; however,  none specifically cited a review and approval of action plans to address  reported deficiencies.\nCRCL officials told us that DHS and its components\u2019 MD-715 reports met  EEOC requirements for action plans for fiscal years 2014 through 2017  by providing explanations for, or briefly stating plans to address, the  majority of their deficiencies rather than developing action plans  identifying how each deficiency would be addressed. During our review of  the MD-715, we noted that the Part G self-assessment checklist form  gave respondents the option of providing a brief explanation in a  comment box on the form or completing an action plan for each  deficiency in Part H of the MD-715 report. For fiscal year 2018, EEOC  revised its MD-715 report form and instructions to clarify that a plan is  required for each identified program deficiency.\nFor example, one component responded to a measure that asks whether  an agency implemented an adequate data collection and analysis system  that permits tracking of the information required by MD-715 and these  instructions by stating \u201cselected offices were currently working on the  initiative.\u201d The same component responded to a measure that asks  whether an agency tracked recruitment efforts and analyzed efforts to  identify potential barriers in accordance with MD-715 standards by  stating, \u201cThe inconsistencies with the reporting of applicant flow data will  need to be addressed to help identify potential barriers.\u201d Another  component responded to this measure by stating that, while its  participation in various events are tracked, a clear, concise, and efficient  system to track and analyze recruitment efforts according to MD-715  standards is currently not in place. Neither component provided a plan for  how these deficient measures would be addressed.\nEEOC continues to identify areas of noncompliance in DHS component  EEO programs. For example, in fiscal year 2017, EEOC noted that three  of four selected components had areas of noncompliance. The areas of  noncompliance included (1) failure to timely issue FADs, and (2) not  establishing timetables or schedules to review its merit program policies  and procedures, employee recognition awards programs, and employee  developmental training programs for potential barriers. Developing  policies or procedures, in consultation with the Deputy Officer for EEO  and Diversity, to help ensure component EEO programs have action  plans with measurable objectives for addressing deficiencies could help  DHS components better comply with EEOC requirements.\n\n\t\tDHS and Its Components Lack Adequate Staffing to Address EEO Program Deficiencies\n\nDHS continues to report insufficient staffing to support its EEO program.  In 2009, we reported that, according to CRCL, DHS modified the target  dates for planned activities to address identified barriers primarily  because of staffing shortages in both CRCL and the Office of the Chief  Human Capital Officer. We also reported that DHS had not conducted  barrier analyses of policies, procedures, and practices that were  established or used after fiscal year 2004 because of resource limitations,  such as staffing and limited funding to contract for this activity.  According to CRCL\u2019s MD-715 and Notification and Federal Employee  Antidiscrimination and Retaliation (No FEAR) Act reports from fiscal years  2014 through 2017, certain aspects of DHS\u2019s EEO program did not have  sufficient staffing. In addition, in fiscal years 2014 through 2017, DHS  reported that staffing shortages contributed to it not meeting its target for  the percent of timely decisions on discrimination complaints. In fiscal year  2017, DHS reported deficiencies for five out of seven staffing measures in  its MD-715 report. In February 2019, CRCL officials told us they lacked  staffing to issue timely decisions on discrimination complaints, to increase  the number of mediators in the alternative dispute resolution program,  and to provide them with training.\nFrom fiscal years 2014 through 2017, DHS and its components reported  funding and staffing challenges in components\u2019 EEO programs. As shown  in table 2, DHS and its components reported that certain aspects of  components\u2019 EEO programs do not have sufficient funding or staffing  from fiscal years 2014 through 2017.\nEEOC guidance states that an agency must provide its EEO program with  sufficient budget and staffing to be able to successfully implement various  activities, including (1) conducting a self-assessment of the agency for  possible program deficiencies; (2) conducting a thorough barrier analysis  of its workforce; and (3) ensuring timely, thorough, and fair processing of  EEO complaints.\nCRCL and component EEO officials told us that they do not have formal  staffing models to assess appropriate staffing of their EEO program  sections. CRCL officials explained that each component EEO program  section is unique with its own assessments and measures by the leaders  in charge of their funding and staffing resources. Using these informal  processes to identify staffing needs, CRCL and component EEO officials  told us that they have requested additional staffing and funding to  address some of their EEO program deficiencies from their top  leadership. However, they said that additional staffing has not been  granted. Our analysis of DHS\u2019s congressional budget justifications show  that DHS\u2019s EEO program funding requests have decreased each year  from nearly $8 million in fiscal year 2016 to nearly $7 million in fiscal year  2019. CRCL officials told us that DHS\u2019s overall resources for the EEO  program have not significantly increased.\nA staffing model could be a computer-based formula that estimates the  number of staff needed to conduct varying numbers of EEO activities,  such as processing a certain number of complaints or providing a certain  number of training courses on an annual or ad hoc basis. As we have  reported, a staffing model is a helpful tool that could better justify requests  for resources to top leadership. Staffing models can identify resources  required to enable program delivery to a sufficient degree and in a timely  manner, or to adapt to changes in program delivery. According to DHS,  the department has contracted support to help components develop  models for Mission Support areas as part of a larger effort to ensure that  all positions are eventually covered by a staffing model. Developing and  utilizing a formal staffing model for its EEO program could help CRCL  better identify, request, and obtain the staff it needs. Further, developing  staffing models, in collaboration with the Deputy Officer for EEO and  Diversity, would help components to better assess the staff they need.\n\n\tDHS Has Plans to Address the Nine Areas of EEOC Identified Noncompliance\n\nDHS did not respond timely to EEOC\u2019s findings of noncompliance and  EEOC did not follow up with DHS concerning the untimely response. In  July 2017, in its most recent review of DHS compliance with EEOC  requirements, EEOC reported nine areas of noncompliance in DHS\u2019s  EEO program. For example, EEOC found that DHS lacked resources to  process EEO complaints and to conduct trend analyses of workforce  data. EEOC stated in its feedback letter to DHS that it would initiate its  noncompliance process if DHS did not submit a report explaining the  agency\u2019s progress in correcting its EEO program deficiencies by January  2018. However, according to DHS officials, due to an administrative  oversight, DHS was unaware of EEOC\u2019s July 2017 feedback letter until  October 2018, when we asked about it. In February 2019, DHS submitted  a report to EEOC that responded to each area of noncompliance. EEOC  officials told us that it had not initiated its noncompliance process against  DHS, but that it had placed DHS in its queue for agencies to be held in  noncompliance.\nAs discussed earlier, DHS Headquarters, a second-level reporting  component, is required by EEOC to submit a separate MD-715 report to  EEOC. However, DHS\u2019s Headquarters EEO Office did not submit a  separate MD-715 report to EEOC during fiscal years 2014 through 2017.  DHS Headquarters EEO Office staff told us that the office had not  submitted the required reports due to staff vacancies, including its EEO  director position. They explained that the component\u2019s EEO data and  information were subsumed in DHS\u2019s department-level MD-715  submission. In October 2018, CRCL filled its Headquarters EEO director  position, which had been vacant for 8 months. DHS officials told us they  plan to submit Headquarters\u2019 fiscal year 2018 MD-715 report to EEOC by  the due date. In February 2019, EEOC officials told us that DHS could  be subject to EEOC\u2019s noncompliance process if the report is not received.\n\n\tDHS\u2019s EEO and Human Capital Offices Have Taken Steps to Oversee and Support Components, but Need to Strengthen Oversight over Components\n\n\t\tDHS\u2019s EEO and Human Capital Offices Use a Variety of Means to Oversee and Support Components in Identifying and Addressing EEO Barriers\n\nAs shown in figure 4, CRCL and the Strategic, Recruitment, Diversity, and  Inclusion (SRDI) Office support and oversee components in their efforts  to identify and address EEO barriers.\nFor example, CRCL convenes an EEO council consisting of EEO  directors from each component that meets monthly and, among other  things, shares best practices for identifying and addressing barriers. In  addition, CRCL hosts EEO and Diversity Training Conferences for EEO  staff that includes barrier analysis training.\nFurther, CRCL provides midyear feedback to component EEO officials on  components\u2019 planned action items and plans for inclusion in their  respective MD-715 reports. For example, based on our review of the  CRCL statistician\u2019s notes, during feedback meetings with components in  2017, he suggested that components consider opportunities for improving  their draft MD-715 reports. The notes show that at least two out of nine  components\u2014CBP and DHS Headquarters\u2014were given feedback to  conduct more robust barrier analyses.\nSRDI supports component EEO program efforts to address EEO barriers  related to recruitment, hiring, veterans, and individuals with disabilities.  For example, to increase the participation of women in law enforcement  across the department, SRDI held a joint hiring event in Dallas based on  its analysis that a large number of female veterans live in Texas.  According to SRDI officials, SRDI also assists DHS components with their  evaluations of their human capital policies, procedures, or practices that  may represent EEO barriers, such as awards, promotions, and career  development.\nFor example, in fiscal year 2016, SRDI analyzed the representation of the  DHS Senior Executive Service Candidate Development Program  applicant pool by various ethnic and racial groups, and by actual selectee  participation. When it found that the representation rate of women  decreased from 32.5 percent in the application stage to 23.4 percent in  the selection stage, SRDI stated that the results, among other things,  triggered the need for further analysis. Two cohorts later in 2018, the  representation rate of women increased from 23.3 percent to 41.4 percent  in the selection\/participant stage.\nFurther, CRCL and SRDI officials said they collaborate on a number of  EEO activities to identify and address EEO barriers. For example, SRDI  works together with CRCL to provide input for completing MD-715 report  sections that address human capital-related EEO barriers. In addition,  SRDI and CRCL worked together to conduct a barrier analysis of  Hispanic employee representation.\n\n\t\tDHS Components Are Generally Satisfied with CRCL\u2019s Collaboration Practices to Identify and Address EEO Barriers\n\nDHS components told us that its collaboration practices are generally  working well and provided examples. In our interviews of nine DHS  components, they told us they are generally satisfied that DHS has:  clearly defined its short- and long-term outcomes, bridged the organizational cultures of participating agencies,  clearly defined roles and responsibilities for participating agencies,  included all relevant DHS participants when identifying and  addressing EEO barriers,  funded and staffed its collaborative mechanisms, such as monthly  EEO council meetings, and documented its agreements on how participating agencies will be  collaborating in identifying and addressing barriers.\nAll nine components told us that CRCL regularly meets with them and  provides guidance on identifying and addressing barriers. Four  components specifically stated that CRCL provided assistance for  reviewing and processing EEO data. For example, USCIS officials said  that CRCL\u2019s statistician provided direction on analyzing workforce data  when conducting barrier analysis. Components also said that they find the  training and technical assistance provided by CRCL helpful, and  specifically commented that DHS\u2019s EEO and Diversity Training  Conferences have helped improve their barrier analyses.\nWhile DHS components are generally satisfied with DHS\u2019s collaboration  practices, some components provided examples of collaboration  practices that could be improved. Three components\u2014CBP, the U.S.  Secret Service (Secret Service), and USCIS\u2014told us that collaboration  on funding or staffing efforts could be improved. For example, USCIS  officials said CRCL lacks sufficient staffing to provide needed training,  tools, and assistance to components to meet new MD-715 reporting  requirements. Three components\u2014CBP, the Transportation Security  Administration, and USCIS\u2014cited the lack of written guidance and  agreements regarding collaboration between CRCL and components as  areas that could be improved. For example, USCIS officials said that its  collaborative efforts with CRCL were guided by informal best practices,  feedback, and guidance, but having formal written guidance and  agreements could clarify roles and responsibilities for identifying and  addressing component EEO triggers and barriers.\n\n\t\tCRCL Does Not Review DHS Components\u2019 EEOC Feedback Reports and DHS\u2019s Organizational Structure Does Not Ensure Its Components Comply with EEOC Requirements\n\nCRCL officials and component EEO officials stated that component EEO  directors report directly to their respective component heads and not to  CRCL. While CRCL requires components to meet to discuss midyear  updates on their EEO efforts, CRCL officials explained that DHS  components are responsible for developing, certifying, and submitting  their own MD-715 reports to EEOC. They also said that if EEOC finds  areas of noncompliance in DHS components\u2019 EEO programs, EEOC  requires DHS components to submit their compliance reports directly to  EEOC.\nIn fiscal year 2017, EEOC provided notice to six out of eight DHS  components for having areas of noncompliance in their EEO programs.  For five out of six DHS components, EEOC required components to  establish plans to correct deficiencies, submit compliance reports  explaining the agency\u2019s progress in correcting these deficiencies, and  showing meaningful progress in implementing its plans within 6 months.\nWe found that three out of five DHS components\u2014CBP, FEMA, and  USCIS\u2014did not submit timely compliance reports in response to EEOC\u2019s  feedback letters. Due to an administrative oversight, CBP officials  explained that the component did not submit a compliance report that was  due in February 2018 until we asked about it during our review. Although  CBP submitted the report in March 2019, the report did not include plans  to correct three out of seven areas of noncompliance. As of July 2019,  CBP has taken steps to address the areas of noncompliance but has not  yet responded to EEOC. As a result, CBP remains at risk of EEOC  initiating the noncompliance process against it.\nFEMA also did not submit a compliance report that was due in February  2018 until we asked about it during our review. In June 2019, FEMA  responded to EEOC\u2019s feedback letter and included plans to correct three  areas of noncompliance. FEMA\u2019s response stated that the component  would provide another update on its plans to correct these areas to EEOC  in October 2019. FEMA\u2019s response also stated that it would update its  actions on 12 other areas of noncompliance in its fiscal year 2018 MD- 715 report.\nEEOC guidance states that an agency\u2019s EEO Director ultimately is  responsible for ensuring equal opportunity throughout the entire agency.  In addition, Standards for Internal Controls in the Federal Government  states that management should implement control activities through  policies. According to CRCL officials, CRCL does not have policies and  procedures to ensure that components have addressed EEOC\u2019s feedback  letters completely and timely. CRCL officials said CRCL does not have  the authority to ensure components\u2019 responses completely and timely  address EEOC\u2019s feedback letters. They explained that components  interact directly with EEOC and are not required to discuss EEOC\u2019s  feedback with CRCL. CRCL officials further said that components may  address EEOC\u2019s feedback in their MD-715 reports instead of sending  compliance reports to EEOC. For example, in response to the EEOC\u2019s  2017 feedback letter, in its MD-715 report for fiscal year 2017, the U.S.  Coast Guard discussed ways to assist DHS with improving its issuance of  Final Agency Decisions.\nCRCL reported in its MD-715 reports from fiscal years 2015 through 2017  that it had authority for components\u2019 EEO programs. A DHS delegation of  authority order states that CRCL can recommend EEO program  improvements to the component head before he or she responds to  EEOC\u2019s feedback letters. In addition, CRCL could use its existing  practices to discuss EEOC\u2019s feedback letter with components, such as  midyear update meetings and monthly council meetings. However, CRCL  officials stated they did not meet to discuss EEOC\u2019s feedback letters with  components in 2018. EEOC officials told us they send component  feedback letters to both the component and CRCL, and invite CRCL  officials to participate in component site visits. They also explained that  DHS could be found noncompliant if a component\u2019s EEO program does  not comply with EEOC guidance. Developing policies and procedures for  responding completely and timely to EEOC\u2019s feedback letters may help  the department comply with EEOC guidance.\nWhile DHS officials told us that ensuring DHS components\u2019 compliance  with MD-715 guidance is EEOC\u2019s responsibility, EEOC officials explained  that DHS\u2019s responsibility equaled the responsibility that EEOC has to  ensure DHS components\u2019 compliance with MD-715 guidance. In addition,  MD-715 guidance states that federal agencies, such as DHS, have the  primary responsibility to ensure nondiscrimination in employment.\nOur prior work has found that an agency can benefit from periodically  evaluating its organizational structure. Additionally, Standards for Internal  Control in the Federal Government states that agency management  should establish an organizational structure to achieve the agency\u2019s  objectives. According to these standards, an effective management  practice for attaining this outcome includes periodically evaluating the  organizational structure to ensure that it meets its objectives.\nAs we previously discussed, EEOC found areas of noncompliance in the  EEO programs of six out of eight DHS components, and two of the six  components did not have plans to correct all of the areas of  noncompliance until we asked about them during our review. While CRCL  officials told us that they lack authority to certify that components\u2019 MD-715  reports comply with MD-715 guidance, EEOC guidance states that an  agency\u2019s EEO Director ultimately is responsible for ensuring equal  opportunity throughout the entire agency. EEOC guidance allows DHS  components to report to either the Deputy Officer for EEO and Diversity  or the Secretary of Homeland Security. However, DHS has not taken  steps\u2014in consultation with EEOC and other agencies as relevant\u2014to  analyze options to address EEO program management weaknesses,  such as analyzing alternatives for granting additional authorities to the  Deputy Officer for EEO and Diversity to ensure DHS components comply  with MD-715 guidance, and assessing benefits and trade-offs of each  alternative. In the absence of these steps, DHS may not be positioned to  effectively manage its EEO program.\n\n\tConclusions\n\nAs the third largest U.S. government department, the challenges DHS  has faced to fully implement effective EEO programs may result in  widespread negative consequences, including monetary expenses borne  by the agency in connection with workplace disputes and decreased  morale and productivity resulting from the ineffective and inefficient use of  human capital resources.\nMD-715 requires DHS and its components to report annually on the  status of their EEO activities and include plans that set forth steps they  will take to correct deficiencies or improve EEO efforts. From fiscal years  2014 through 2017, DHS and its components have reported deficiencies  in their EEO programs and identified EEO barriers in their workforces. We  found areas for improvement in DHS and its components\u2019 EEO programs  that could help ensure success and compliance with MD-715.\nSpecifically, DHS does not have complete performance metrics for the  department\u2019s EEO program, including a mechanism for tracking progress  towards eliminating barriers. Developing performance metrics for the  department\u2019s EEO program could help improve progress in eliminating  identified EEO barriers.\nIn addition, DHS and its components reported that they lack action plans  for addressing deficiencies in their MD-715 reports. Developing policies  and procedures could help DHS component EEO Directors correct  deficiencies in their EEO programs.\nDHS and its components also reported that areas of their EEO programs  do not have sufficient staffing to successfully implement EEO activities.  Developing formal staffing models could help DHS and its components  better assess their resource needs to correct their deficiencies and  eliminate their barriers.\nFurther, from fiscal years 2014 through 2017, EEOC found areas of  noncompliance in DHS and its component EEO programs. Without  developing policies and procedures for responding completely and timely  to EEOC\u2019s feedback letters, DHS components may not correct areas of  noncompliance and remain at risk of financial penalties and lost employee  potential.\nFinally, DHS has not taken steps to address the key EEO program  management weaknesses. Analyzing options for granting additional  authorities to the Deputy Officer for EEO and Diversity can help position  DHS to ensure its components are complying with MD-715 guidance.\nThe commitment of DHS\u2019s leadership is essential to successfully  addressing these issues. By focusing leadership attention on developing  performance metrics, policies and procedures, and staffing models, DHS  and its components can help improve their EEO programs by making  progress towards eliminating barriers, obtaining sufficient staffing, and  addressing areas of noncompliance.\n\n\tRecommendations\n\nWe are making the following six recommendations to DHS:  1.  The Secretary of Homeland Security should develop performance  metrics for the department\u2019s EEO program including a mechanism for  tracking progress towards eliminating barriers. (Recommendation 1)  2.  DHS component EEO Directors, in consultation with the Deputy  Officer for EEO and Diversity, should develop policies and procedures  to help ensure that their component EEO programs have action plans  for addressing deficiencies in their MD-715 reports. (Recommendation  2)  3.  The Deputy Officer for EEO and Diversity should develop a formal  staffing model for its EEO program. (Recommendation 3)  4.  DHS component EEO Directors, in collaboration with the Deputy  Officer for EEO and Diversity, should develop component formal  staffing models. (Recommendation 4)  5.  The Deputy Officer for EEO and Diversity should develop policies and  procedures for responding in a complete and timely manner to  EEOC\u2019s feedback letters. (Recommendation 5)  6.  The Secretary of Homeland Security\u2014in consultation with CRCL and  EEOC, and other agencies and components, as relevant\u2014should  analyze options for granting additional authorities to the Deputy  Officer for EEO and Diversity to ensure DHS components comply with  MD-715 guidance, including the authority of the Deputy Officer for  EEO and Diversity to certify components\u2019 MD-715 reports.  (Recommendation 6)\n\n\tAgency Comments\n\nWe provided a draft of this report to DHS and to EEOC for review and  comment. In its official comments, reproduced in appendix I, DHS agreed  with all six of our recommendations, and DHS and EEOC provided  separate technical comments to the draft of our report, which we  incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional  committees, the Acting Secretary of Homeland Security, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http:\/\/www.gao.gov.\nIf you or your staff have any questions about this report, please contact  me at (202) 512-6806 or jonesy@gao.gov, or Christopher P. Currie at  (404) 679-1875 or curriec@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix II.\n\nAppendix I: Comments from the Department of Homeland Security\n\nAppendix II: GAO Contacts and Staff Acknowledgments\n\n\tGAO Contacts\n\nYvonne D. Jones, (202) 512-6806 or jonesy@gao.gov.  Christopher P. Currie, (404) 679-1875 or curriec@gao.gov.\n\n\tStaff Acknowledgments\n\nIn addition to the contacts named above, Clifton G. Douglas, Jr.  (Assistant Director), Luis E. Rodriguez (Analyst-in-Charge), Adam J.  Brooks, Carla D. Brown, Andrew Howard, Haley Klosky, and Steven  Putansu made key contributions to this report.","output":null}
{"id":"gao_GAO-19-517","pid":"gao_GAO-19-517_0","input":"\tBackground\n\nEstablished by the National Housing Act, FHA\u2019s single-family mortgage  insurance program helps home buyers obtain financing by providing  insurance on single-family mortgage loans. The mortgage insurance  allows FHA-approved private lenders to provide qualified borrowers with  mortgages on properties with one to four housing units and generally  compensates lenders for nearly all the losses incurred on such loans. To  support the program, FHA imposes up-front and annual mortgage  insurance premiums on FHA borrowers. The agency has played a  particularly large role among first-time, minority, and low-income home  buyers. For example, in fiscal year 2017, about 82 percent of FHA- insured home purchase loans went to first-time home buyers and more  than 33 percent went to minority home buyers.\n\n\t\tForeclosure Mitigation and Property Disposition Methods\n\nFHA requires servicers to undertake certain home retention and  foreclosure mitigation actions to help delinquent homeowners catch up on  late mortgage payments. Before initiating foreclosure actions, FHA  requires servicers to contact the borrower, collect information on the  borrower\u2019s finances, and attempt informal methods of resolving the  delinquency. If informal steps are not appropriate for a borrower\u2019s  circumstances, the servicer evaluates the borrower for a series of home  retention actions, which include a formal forbearance and repayment plan  and a loan modification. Under certain circumstances, the servicer may  consider a foreclosure mitigation option, such as a preforeclosure (short)  sale or a deed-in-lieu of foreclosure. If the home retention and  foreclosure mitigation actions are unsuccessful, the servicer or mortgage  note holder is generally entitled to pursue foreclosure to obtain title to the  property. The foreclosure process is governed by state laws, but  foreclosed properties are typically auctioned at a foreclosure sale. Most  foreclosed properties are disposed of in one of two ways.\nClaims without Conveyance of Title (CWCOT). Through FHA\u2019s  CWCOT program, the servicer attempts to secure a third-party  purchase of an eligible property for an adjusted fair market value that  is less than the amount of the servicer\u2019s projected claim.\nConveyance. If the foreclosure process is completed and no third  party purchases the home at the foreclosure sale, the home usually  becomes the property of the servicer. Servicers convey these  properties to FHA, which sells them out of its REO inventory.\nDuring the default and foreclosure process, servicers must meet two FHA  time requirements. The first requires servicers to initiate a foreclosure  (first legal action) or utilize a loss mitigation option within 6 months of  borrower default. The second requirement, for the \u201creasonable diligence\u201d  period, requires servicers to obtain good and marketable title and  possession of a property within a specified time frame that varies by  state. The servicer secures the property and obtains possession once the  property is vacant. Servicers are subject to financial penalties for missing  these deadlines. In both cases, servicers must curtail the debenture  interest that they otherwise would be entitled to collect from the date of  the missed time frame.\nServicers are responsible for maintaining vacant foreclosed properties in  accordance with FHA requirements, which specify allowable reimbursable  amounts to preserve and protect the property. A servicer needing  additional funds to complete the required maintenance must submit an  \u201coverallowable\u201d request to FHA.\n\n\t\tProperty Conveyance Process\n\nWhen a servicer forecloses on a property with an FHA-insured mortgage  and the property is not sold to a third party through CWCOT, the property  is held in the servicer\u2019s name until the servicer conveys the title to FHA.  As seen in figure 1, these properties span a range of home types and  ages. FHA requires servicers to preserve and protect the property and  ensure it meets FHA\u2019s conveyance condition standards before conveying  title. FHA\u2019s preservation and protection requirements include a number of  specific steps for securing, maintaining, and repairing properties and  documenting property conditions. FHA reimburses the servicer for up to  $5,000 per property for required work, and the servicer may request  overallowable funds if needed. FHA\u2019s conveyance condition standards  are broader requirements, including that a property be undamaged by  natural disaster and in \u201cbroom swept\u201d condition, have all damage covered  by hazard insurance repaired, and be undamaged by the servicer\u2019s failure  to properly secure or maintain the property.\nHUD regulations state that the servicer must obtain good and marketable  title and convey the property to HUD within 30 days of the date on which  the servicer filed the foreclosure deed for record or certain other key  dates, whichever is later. If a servicer does not believe it will be able to  convey the property by this time, it may request an extension from FHA.  The servicer files an insurance claim with FHA when it conveys the title. If  a servicer does not convey the property within the required time frame  and has not received an approved extension, the servicer must curtail the  debenture interest and property preservation and protection expenses it  claims as of the date of the missed deadline.\nShortly after conveyance, FHA pays the Part A claim to the servicer,  which includes the unpaid principal balance and debenture interest on the  insured mortgage. At this time, FHA becomes responsible for maintaining  the property until it is sold. FHA pays the part of the claim that covers  eligible property preservation and protection expenses incurred by the  servicer once the servicer submits title evidence and documentation of  expenses (in Part B of the claim form). FHA inspects the property and  reviews title evidence before selling the property out of its REO inventory.  In some cases, FHA reconveys the title to the servicer if it finds the  servicer did not comply with requirements related to property condition or  title. When a property is reconveyed, FHA reassigns the title to the  servicer and requests repayment of the claim amount. The servicer then  must correct any title or property condition issues before it may convey  the property and submit a claim to FHA again.\nThroughout this process, FHA and servicers use the P260 Asset  Disposition and Management System (asset disposition system) to  communicate and upload documentation about the properties. FHA  articulates its property preservation and protection requirements and  conveyance condition standards in a mortgagee letter and policy  handbook that we refer to collectively as FHA\u2019s conveyance condition  policies and procedures.\nFrom 2010 through 2017, servicers conveyed about 610,000 properties to  FHA. The number of properties conveyed annually peaked in 2012 at  about 111,000 (see fig. 2). In 2017, servicers conveyed fewer than 32,000  properties to FHA. The decline in recent years is consistent with  improvements in the housing market since the 2007\u20132011 housing  crisis.\n\n\t\tRoles and Responsibilities in the Conveyance Process\n\nIn this report, we define FHA\u2019s property conveyance process as beginning  when the servicer both obtains good and marketable title and takes  possession of a property and ending when FHA assigns a marketing  contractor to sell the property out of its REO inventory (see fig. 3).\nSeveral FHA contractors and offices play key roles in the conveyance  process.\nCompliance contractor. A nationwide compliance contractor called  the mortgagee compliance manager is responsible for protecting  FHA\u2019s interests in properties conveyed to FHA and communicates  directly with servicers about the properties. The compliance contractor  reviews property inspections to ensure properties meet conveyance  condition standards, reviews requests from servicers for extensions of  conveyance times or for overallowable expenses, reviews servicer  claims for compliance with requirements, and responds to servicer  inquiries about pre- and postconveyance responsibilities. The  compliance contractor is located in Oklahoma City, Oklahoma, and is  overseen by FHA\u2019s National Servicing Center.\nMaintenance contractor. Maintenance contractors, called field  service managers, are responsible for inspecting properties recently  conveyed to FHA and preserving properties in FHA\u2019s REO inventory.  FHA has multiple maintenance contractors; they are responsible for  properties in different regions. Upon conveyance, the maintenance  contractor conducts a comprehensive property inspection to  determine if the property meets conveyance condition standards and  completes the HUD Property Inspection Report. The maintenance  contractor also conducts other inspections at a property before  conveyance, as warranted, including a preconveyance inspection at  the request of the servicer and an overallowable inspection if  requested by the compliance contractor. While these contractors  conduct general maintenance on the property, they typically do not  make major repairs, because FHA generally sells conveyed properties  in as-is condition.\nMarketing contractor. Marketing contractors, called asset managers,  are responsible for marketing and selling the homes in FHA\u2019s REO  inventory.\nFHA homeownership centers. FHA carries out its mortgage  insurance and REO disposition programs through four regional offices  called homeownership centers (HOC). The centers are located in  Atlanta, Georgia; Denver, Colorado; Philadelphia, Pennsylvania; and  Santa Ana, California. Officials in each HOC are responsible for  overseeing the maintenance and marketing contractors for their  region and reviewing HUD Property Inspection Reports to determine if  conveyed properties should be reconveyed to the servicer due to  condition issues. This determination is then forwarded to the  compliance contractor for an additional review.\nHUD\u2019s Office of Finance and Budget. Staff from this office are  responsible for reviewing servicer mortgage insurance claims for  compliance with FHA requirements. The office selects a sample of  claims from the past 3 years to review whether the property  preservation and protection expenses were within allowable limits and  whether the servicer curtailed debenture interest and property  preservation and protection expenses accurately, among other things.\n\n\t\tOther Participants in the Mortgage Market\n\nA number of other federal and federally sponsored entities participate in  the mortgage market. Along with FHA, the Department of Veterans Affairs  and the Department of Agriculture operate programs that guarantee  single-family mortgages made by private lenders. Additionally, two  government-sponsored enterprises\u2014Fannie Mae and Freddie Mac  (enterprises)\u2014purchase and securitize single-family mortgages.\nHowever, the property disposition programs for these entities are not  directly analogous to FHA\u2019s. In contrast to FHA, the Department of  Veterans Affairs and the enterprises take custody of and are responsible  for properties closer to the time of the foreclosure sale. The enterprises  require servicers to convey properties to them within 24 hours of  foreclosure sale or deed-in-lieu of foreclosure, while the Department of  Veterans Affairs requires servicers to provide notice of their intent to  convey properties within 15 days of foreclosure sale. Also in contrast to  FHA, the Department of Agriculture does not take possession of  foreclosed properties with guaranteed loans, but rather oversees their  disposition by lenders.\nIn FHA\u2019s case, properties are often held in the lender\u2019s or servicer\u2019s name  for an extended period after the foreclosure sale. Following the  foreclosure sale, FHA requires servicers to oversee properties during  redemption periods, to evict residents if properties not in redemption  periods are occupied, and to continue property preservation and  protection activities. In addition, before conveyance, servicers must  identify and pay any homeowners association (HOA) fees and utility bills  that are due. As described in figure 3, servicers also must make any  required repairs, meet other conveyance requirements, and pass an FHA  property inspection, or face the prospect of having the property  reconveyed. FHA officials said this approach reduces FHA\u2019s holding time  and costs and that the agency does not have the infrastructure to manage  and fund property repairs itself.\n\n\tFHA\u2019s Property Conveyance Process Often Takes a Long Time, and Servicers and Contractors Performance against Time Requirements Varied\n\n\t\tConveyance Times Increased after 2011, Partly Due to Greater Use of Other Disposition Methods and Extended Default and Foreclosure Periods\n\n\t\t\tData on Time Frames for Conveyance and Reconveyance\n\nFrom July 2010 through December 2017, the property conveyance  process took a median of 70 days, but this figure varied widely by year.  Our analysis of FHA data found that, from 2011 through 2015, the median  number of days to complete the conveyance process increased four-fold  (from 41 to 161 days) and varied more widely around the median each  successive year (see fig. 4). Conveyance time frames declined  substantially in 2016 and 2017 (to a median of 137 days and 112 days,  respectively) while continuing to vary considerably around the median. In  comparison, FHA officials said the conveyance process generally should  take about 37 days to complete\u201430 days for servicers to make  necessary repairs and convey title to FHA and 7 days for FHA to inspect  the property, communicate any condition issues identified during the  inspection, and assign a marketing contractor to promote and sell it.\nWe also found that the time it took properties to complete the conveyance  process varied by HOC region. For the entire July 2010\u2013December 2017  period, the Philadelphia HOC had the highest median time frame (91  days) and the Atlanta HOC the lowest (56 days). The Santa Ana and  Denver HOCs had medians of 78 and 67 days, respectively. A number of  factors may have contributed to differences among the HOCs, such as  the number of properties conveyed in each region (which can affect  servicer and HOC capacity) and the age of the housing stock (which can  affect the time needed to make repairs).\nThe time to complete the conveyance process includes, when applicable,  the time needed for FHA to reconvey a property\u2014that is, transfer  ownership to the servicer due to condition or title issues\u2014and for the  servicer to convey it to FHA a second time. FHA officials said they try to  avoid reconveyances because they prolong the conveyance process and  result in FHA incurring additional preservation and protection costs.  Figure 5 shows examples of condition issues at properties we visited in  the Baltimore, Maryland, and Atlanta, Georgia, metropolitan areas that  were in the reconveyance process.\nOur analysis of FHA data found that reconveyances were not common  enough to significantly affect median conveyance time frames, but  substantially lengthened the conveyance process when they did occur. As  shown in table 1, servicers conveyed 406,863 properties to FHA from  2012 through 2017\u2014the period within our scope for which FHA had  reliable reconveyance data. In comparison, FHA reconveyed 8,874  properties to servicers during that time frame. The annual number of  reconveyances rose from 1,019 in 2012 to 1,935 in 2015, before declining  to 1,099 in 2017.\nWe also found that the median time to complete FHA\u2019s conveyance  process in 2012\u20132017 was more than 614 days longer for reconveyed  properties than the median for properties not reconveyed. However, the  difference between the medians declined over time, dropping from 777  days in 2012 to 267 days in 2017 (see fig. 6).\nServicers and FHA must take several steps to complete the conveyance  process for reconveyed properties, which may account for some of the  length of the time frames. Once the compliance contractor has notified  the servicer that a property has condition issues that must be resolved to  avoid reconveyance, the servicer may appeal. FHA officials said appeals  can add up to 120 days to the conveyance process. If the servicer is  unable to resolve the issues and the appeals are denied, FHA reconveys  the property and the servicer must reimburse FHA for the original claim  amount. The servicer then must complete any required repairs, resolve  any title issues, prepare a new evidence package for FHA showing that  condition and title issues were addressed, and submit a request to FHA\u2019s  compliance contractor to convey the property again. FHA\u2019s compliance  contractor then has 10 business days to review the evidence package  and notify the servicer of its decision. Once conveyance is approved, the  servicer may resubmit a new mortgage insurance claim form and  evidence that the property deed has been filed in FHA\u2019s name.\n\n\t\t\tFactors Likely Contributing to Increased Length of Conveyance Process\n\nTwo factors that likely contributed to the increase in the time to complete  FHA\u2019s conveyance process are increased use of other disposition  methods and property damage stemming from extended default and  foreclosure periods.\nIncreased use of third-party sales. FHA data indicate that from 2010  through 2017 servicers increasingly disposed of properties through third- party sales using the CWCOT program. As previously noted, in 2014 FHA  began requiring servicers to offer all eligible properties for sale through  CWCOT before using the conveyance process. According to our analysis  of FHA property disposition data, in fiscal years 2010\u20132017, the share of  properties disposed of through CWCOT rose from about 1.4 percent to  almost 44 percent, while the share of conveyance and REO sales  dropped from about 84 percent to 42 percent (see fig. 7). The remaining  properties were disposed of through notes sales or preforeclosure  sales.\nIncreased use of CWCOT may have extended property conveyance time  frames for two reasons. First, servicers must attempt to sell all eligible  properties through CWCOT while simultaneously preparing them for  conveyance, which may add additional time to the conveyance process  according to FHA officials. Second, properties conveyed to FHA because  they are not eligible for or sold through the CWCOT program are  generally in poorer condition and require more repairs, according to  servicer representatives. This may contribute to extended conveyance  time frames. For example, a representative from one mortgage industry  group told us that properties ineligible for CWCOT and conveyed to FHA  generally require more than the $5,000 in preservation and protection  costs that FHA allows. In these cases, servicers may request additional  funds from the compliance contractor, but processing the requests may  prolong the conveyance process, as discussed later in this report.\nRepresentatives from one servicer and two mortgage industry groups  stated they prefer the CWCOT program because it reduces the need to  convey properties. They said the conveyance process is costly and  comes with the risk of reconveyance. FHA data show that REO sales  generally had higher loss severity rates (the financial loss on a defaulted  loan as a percentage of the unpaid principal balance) than properties  disposed of through alternative methods, including the CWCOT program.  For example, for the last quarter of fiscal year 2017, FHA reported that  the loss severity rate for properties sold through REO was 54.8 percent,  while the combined loss severity rate for properties disposed of through  alternative methods was 43.8 percent. However, some of this difference  may be attributable to the poorer condition of conveyed properties, as  discussed previously.\nNational Mortgage Settlement  In February 2012, the Department of Justice  and 49 states settled with the five largest  mortgage servicers\u2014 Ally Financial, Inc.  (formerly GMAC), Bank of America  Corporation, Citigroup Inc., J.P. Morgan  Chase & Co., and Wells Fargo & Company \u2014 to address mortgage servicing, foreclosure,  and bankruptcy abuses. The agreement  settled state and federal investigations finding  that these servicers routinely signed  foreclosure-related documents without  verifying their validity and without the  presence of a notary public\u2014a practice known  as \u201crobosigning.\u201d\nExtended default and foreclosure periods. According to FHA officials,  properties with long default and foreclosure periods may be in poor  condition because they deteriorate if servicers delay property  maintenance and repairs. FHA officials said this was common for  properties conveyed to FHA after the 2012 National Mortgage Settlement  because some servicers delayed foreclosure proceedings to limit their  exposure to litigation in 2010 and 2011 (see sidebar).\nFHA officials said that after the Department of Justice issued the National  Mortgage Settlement in February 2012, servicers who had been delaying  default and foreclosure started conveying large numbers of properties.  According to FHA and servicer representatives, damaged properties can  take longer to convey because they require extensive repairs to meet  FHA\u2019s conveyance condition standards.\nThe results of our analysis of FHA data are broadly consistent with these  observations. The number of properties conveyed to FHA increased by  31 percent (from 84,363 to 110,567) between 2011 and 2012, the year of  the settlement. Additionally, the default and foreclosure period for  conveyed properties (the time between the borrower defaulting on the  mortgage and the servicer obtaining title to and possession of the  property) increased over most of the July 2010\u2013December 2017 time  frame. As shown in figure 8, the median default and foreclosure period  was 416 days for properties conveyed in July\u2013December 2010, peaked at  664 days (about 60 percent higher) for properties conveyed in 2015, and  fell to 612 days for 2017 conveyances. The overall upward trend was  even more pronounced for properties with default and foreclosure periods  at the 75th percentile. The 75th percentile was 555 days for properties  conveyed from July through December 2010, peaked at 1,152 days  (about 108 percent higher) for properties conveyed in 2016, and declined  to 1,068 days for 2017 conveyances.\nCertain regulatory and policy changes also may have increased the  default and foreclosure periods since 2013. HUD issued a mortgagee  letter in 2013 that increased the reasonable diligence time frames and  allowed servicers additional time to complete foreclosures in certain  states. For example, the reasonable diligence time frame for properties  in New York increased from 13 to19 months. Also, in 2014 mortgage  servicing rules issued by the Consumer Financial Protection Bureau went  into effect that restricted servicers\u2019 ability to initiate a foreclosure and  gave borrowers additional time to pursue loss mitigation options.  Specifically, servicers may not initiate foreclosure proceedings if a  borrowers\u2019 application is pending for a loan modification or other  alternatives to foreclosure.\nIn addition, we found that properties with longer default and foreclosure  periods generally took longer to complete the conveyance process than  properties with shorter default and foreclosure periods (see fig. 9).  Specifically, from July 2010 through December 2017 properties with the  longest default and foreclosure periods\u2014those in the highest quartile\u2014 took 93 days at the median to complete the conveyance process and 238  days at the 75th percentile. In comparison, properties with the shortest  default and foreclosure periods\u2014those in the lowest quartile\u2014took 57  days at the median to complete the conveyance process and 136 days at  the 75th percentile for that same period. As previously stated, FHA  officials told us that properties with long default and foreclosure periods  may have deteriorated if servicers were not maintaining them. These  properties may have required additional repairs to bring them into  conveyance condition.\nAs previously noted, overall conveyance time frames declined in 2016  and 2017 from their peak in 2015. FHA officials attributed this  improvement largely to the decreasing number of conveyances affected  by the National Mortgage Settlement. As discussed earlier, the settlement  contributed to a wave of properties that took a long time to convey,  potentially due to damage sustained during extended default and  foreclosure periods. FHA officials also indicated that the improved  housing market in recent years has resulted in fewer foreclosures and,  therefore, fewer property conveyances to FHA. Consequently, servicers  and contractors may be better able to manage the workload associated  with property conveyances and complete the process more quickly.\n\n\t\tServicers Often Did Not Convey Properties within the Required Time Frame, but Usually Provided Title Evidence on Time\n\nFrom July 2010 through December 2017, servicers generally did not  convey properties to FHA within the regulatory 30-day time frame  (preconveyance period). During the preconveyance period, servicers  must ensure the property has good and marketable title, conduct routine  inspections and maintenance on the property, and ensure the property  meets conveyance condition standards. If servicers do not believe they  will be able to convey a property within 30 days, they may request an  extension. The median number of days servicers took to complete the  preconveyance period increased from 31 in July\u2013December 2010 to 140  in 2015 (see fig. 10). This figure declined after 2015, dropping to 101  days in 2017. Variation around the median was considerable, especially  in more recent years. For example, in 2017 the time to complete the  preconveyance period was 43 days at the 25th percentile, compared with  268 days at the 75th percentile.\nThe percentage of properties for which servicers did not convey in 30  days plus any approved extension grew from about 31 percent in July\u2013 December 2010 to about 72 percent in 2017. For the entire period from  July 2010 through December 2017, the corresponding percentage was 55  percent. Representatives of 13 of the 20 servicers we interviewed said  that meeting the 30-day timeline was one of their top challenges with the  conveyance process.\nRepresentatives of servicers and mortgage industry groups cited several  reasons for servicers needing additional time to convey. For example,  representatives of 11 servicers cited the heavily damaged condition of the  properties they acquired as one of the primary reasons for not conveying  properties within 30 days. Servicer representatives also noted other  reasons, including four who cited waiting for responses on hazard  insurance claims and five who cited difficulty in obtaining HOA bills to  pay. In addition, representatives of two mortgage industry groups and  three servicers told us that meeting all the conveyance and title  requirements simultaneously is a major challenge. For example,  representatives of one mortgage industry group said a servicer may have  completed required property repairs and paid HOA fees and utility bills,  but if the property were subsequently vandalized, the servicer would have  to delay conveyance to complete repairs. By that point, the servicer might  no longer be current on HOA and utility payments. Servicers have the  option to request an extension to the preconveyance time frame if they  think they will be unable to convey a property in 30 days. Servicers  requested a conveyance extension for about 40 percent of the properties  conveyed from July 2010 through December 2017. FHA approved the  extensions in about 40 percent of these cases.\nIn addition, representatives from six of the 20 servicers we interviewed  said FHA\u2019s process for reviewing servicers\u2019 overallowable requests  (additional funds needed to complete work) negatively affected their  ability to convey properties in 30 days. Once a servicer makes an  overallowable request, FHA\u2019s compliance contractor has 5 business days  to review it and either reject the request or approve all or some of the  requested amount. (We discuss the compliance contractor\u2019s ability to  meet this and other time requirements in the following section.) Servicers  may appeal any rejections, in which case the compliance contractor has 3  business days to make a final determination. Six servicer representatives  said that the time it takes the compliance contractor to make  overallowable decisions may cause them to exceed the 30-day time  frame, especially when they submit multiple requests for the same  property. For context, our analysis of FHA data found that in 2017, the  median number of servicer overallowable requests per property was 13,  and the median number of appeals per property was six.\nIn contrast to the preconveyance requirement, servicers usually met the  time requirement for giving title evidence to FHA. Title evidence includes  documentation that FHA is the legal owner of the property, including a  copy of the mortgage documentation, a legal description of the property,  and a copy of the recorded deed in FHA\u2019s name. Servicers may provide  title evidence to FHA at any point during the conveyance process up to 45  days after filing the deed. If servicers believe they will be unable to  provide title evidence within 45 days, they may submit an extension  request to the compliance contractor. According to FHA data, servicers  were able to provide title evidence within 45 days plus any approved  extension for 84 percent of properties conveyed from July 2010 through  December 2017.\n\n\t\tFHA Contractors Involved in Property Conveyances Largely Met Time Requirements\n\nFHA\u2019s compliance and maintenance contractors generally met the  required time frames for key conveyance tasks for properties conveyed  from 2011 through 2017. However, when the contractors did not meet  their required time frames, the delays may have lengthened the time to  complete the conveyance process for some properties.\nCompliance contractor. FHA established a time frame of 5 business  days for the compliance contractor to conduct various reviews in the pre-  and postconveyance periods. In the preconveyance period, the  compliance contractor reviews requests for overallowables, conveyance  extensions, and conveyance of a property with surchargeable damage.  The contractor also reviews title evidence and extension requests for title  evidence, which are generally submitted after conveyance. Table 2 shows  the percentage of properties conveyed from 2011 through 2017 for which  the compliance contractor met the 5 business day requirement, according  to our analysis of FHA data.\nAlthough the contractor mostly met the required time frames, when it did  not, the delay may have lengthened the time to complete the conveyance  process. Our analysis of FHA data indicates that when the compliance  contractor missed the deadlines, it missed them by a median of 4\u201310  days, depending on the requirement. The compliance contractor\u2019s  review of overallowable requests, conveyance extension requests, and  surchargeable damage requests generally occurs during the  preconveyance period when servicers have 30 days to convey the  property to FHA. As noted earlier, some servicer representatives we  interviewed said that waiting for the compliance contractor to approve or  deny overallowable requests hindered their ability to convey the property  in 30 days.\nThe compliance contractor must complete at least 95 percent of the  reviews within the 5-day time frame to meet FHA\u2019s standard for minimum  acceptable performance. FHA uses monthly scorecards when reviewing  the contractor\u2019s performance against this standard. FHA officials told us  they had not issued any deficiency notices to the current compliance  contractor, but that discussions with the contractor can occur when it  does not meet the 95 percent standard in particular months. FHA officials  also noted that some of the contractor\u2019s reviews may take longer than 5  days if resolving them requires obtaining additional documentation or  substantial back-and-forth communications with the servicer.\nMaintenance contractors. After conveyance, FHA\u2019s maintenance  contractors have 2 calendar days from the date they are assigned a  property to conduct the comprehensive property inspection and upload  the results into a HUD Property Inspection Report in FHA\u2019s asset  disposition system. They then have 5 calendar days to complete a  Property Condition Report, which details the functionality of the property\u2019s  systems, the existence of any transferable warranties, and any legal  actions, such as code violations or pending demolition orders. FHA starts  measuring compliance with these time requirements 24 hours after the  properties are assigned to the compliance contractor (to account for  holidays and late afternoon assignments).\nAccording to our analysis of FHA data, the maintenance contractors  completed property inspections and uploaded the results within 3 days  (the 2-day requirement plus 24 hours) for about 90 percent of properties  conveyed from 2011 through 2017. The contractors met the 5-day  requirement to complete the Property Condition Report about 77 percent  of the time. When the maintenance contractors missed these time frames,  they missed them by a median of 1 and 2 days, respectively. The longer a  property remains uninspected after the servicer has conveyed it, the  greater the chance that it will be damaged or vandalized before  inspection. If a property is damaged during this period, disputes may arise  between FHA and the servicer about which entity is responsible for the  damage. FHA is responsible for maintaining the property once the  servicer complies with all HUD regulatory requirements leading to  conveyance, including filing the deed (in FHA\u2019s name) for record and filing  the conveyance claim. However, FHA may hold the servicer responsible  for the damage if the claim was suspended due to the need for review or  correction resulting from certain types of noncompliance with HUD  requirements or if the servicer could not prove the damage occurred after  FHA became responsible for maintaining the property. Disagreement over  this issue can add time to the conveyance process.\nFHA measures each maintenance contractor\u2019s performance monthly  using a formula that considers both the contractor\u2019s timeliness in  completing property inspections and uploading the results (2-day  requirement plus 24 hours) and in completing the Property Condition  Report (7-day requirement plus 24 hours) for each property. If the  contractor misses either deadline, it is not considered timely for that  property. FHA considers timeliness for 95 percent of properties each  month as satisfactory. According to FHA officials, FHA has taken actions  when the performance of maintenance contractors was not satisfactory. A  HOC official said that the actions may include issuing a defective  performance letter, which requires the contractor to provide a remedy  plan, and issuing a cure notice in coordination with HUD\u2019s contracting  office.\n\n\tFHA Changed Aspects of the Conveyance Process, but Policies and a Pilot Program Still Have Limitations\n\n\t\tFHA\u2019s Updates to Property Preservation Allowances and Data Systems Partly Addressed Certain Servicer Challenges\n\nFHA updated aspects of the conveyance process in recent years to help  address some of the challenges experienced by servicers and the  agency. For example, FHA increased property preservation and  protection allowances in 2016 to help address servicer feedback and to  better align allowances with other mortgage industry participants,  according to FHA officials. In February 2016, FHA issued Mortgagee  Letter 2016-02, which increased allowance amounts that servicers may  claim for specific types of property preservation and protection work. It  also increased the total maximum amount servicers may claim for a  property without submitting an overallowable request from $2,500 to  $5,000. However, the mortgagee letter eliminated all exclusions from the  maximum amount, which previously included one-time major repairs,  such as a roof replacement. FHA officials said the agency increased the  allowance amounts to account for the standard increases in property  preservation costs over time, and to align allowances with those of the  enterprises and the Department of Veterans Affairs.\nSeventeen of the 20 servicers we interviewed said that FHA\u2019s current  property preservation and protection allowances are not sufficient to  complete the work needed to convey properties. While representatives of  eight of the 20 servicers told us the changes FHA made to allowances in  2016 helped them complete work within allowance amounts,  representatives of the remaining 12 servicers said the changes did not  help or helped in some ways but presented more challenges in other  ways. Representatives of an association of mortgage lenders and  servicers said that they preferred the previous system, because some  work was excluded from the maximum allowance. For example,  representatives of one servicer said that due to the 2016 changes, they  now must submit an overallowable request for standard maintenance  items, such as grass cuts, once they have exceeded the maximum  allowance amount.\nOur analysis of FHA data found that the percentage of properties with at  least one overallowable request increased steadily from 2011 through  2017\u2014from about 53 percent to about 90 percent\u2014despite the 2016  changes (see fig. 11). For properties with at least one overallowable  request, the median number of requests before the 2016 changes (from  July 1, 2010, through February 4, 2016) was seven, compared with eight  after the changes (from February 5, 2016, through the end of 2017). In  2017 alone, the median number of overallowable requests per conveyed  property was 13. However, it may be too early to tell what effect the 2016  mortgagee letter will have on servicer\u2019s ability to conduct work within the  allowances. FHA officials said that although the change in the allowance  amounts was partly intended to reduce overallowable requests, the poor  condition of many properties with extended default and foreclosure  periods may have increased such requests. The officials stated that some  of these properties were still being conveyed to FHA in 2017.\nFHA enhanced the information system servicers and contractors use to  manage conveyed properties, but officials noted the need to update  another system FHA uses to process and pay claims. In March 2018,  FHA incorporated its preconveyance inspection pilot, discussed in more  detail later in this report, into the asset disposition system, the information  system servicers use to convey properties to FHA. FHA officials and  contractors also use the system to track properties from conveyance  through REO sale. With the update, servicers may request a  preconveyance inspection and see the results of the inspection in the  system, according to FHA officials. Before FHA added the pilot to the  asset disposition system, servicers and FHA used email to communicate  about properties in the pilot.\nIn October 2016, FHA added a feature to the asset disposition system  that enables FHA officials, contractors, and servicers to electronically  monitor the status of reconveyed properties. According to FHA officials,  all communication between FHA and servicers on reconveyed properties  previously was by email, including the servicer\u2019s notification to FHA that it  was ready to convey a property again, and the photographs required to  document property condition. However, according to FHA officials, FHA\u2019s  claims system is not equipped to process more than one claim per  property, so claims for properties FHA reconveys and which the servicer  then conveys to FHA a second time must be processed manually.  Officials from FHA\u2019s Office of Financial Services said that manual  processing delays claim payments to servicers\u2014sometimes by more than  a year. Seven of the 20 servicers we interviewed identified delayed claim  payments for reacquired properties as a challenge. FHA officials said that  they have made an internal business case for funding to modernize the  system, but have not succeeded in securing the funding in prior years.\n\n\t\tFHA Updated Its Policies and Procedures on Conveyance Condition, but Limitations Remain\n\nFHA updated its written direction to servicers on conveyance condition in  2016, but limitations in the contents and methods of communicating these  policies and procedures have contributed to compliance challenges for  some servicers. In its February 2016 mortgagee letter, FHA re- emphasized its existing directions to servicers about property  conveyance, provided additional details on how to calculate claim  amounts and document property preservation and protection work, and  clarified descriptions of some preservation and protection requirements.  Additionally, in December 2016, FHA issued an updated single-family  housing policy handbook that consolidated all policies and procedures for  servicers into one document, including those on maintaining and  conveying foreclosed properties. However, servicers and other industry  stakeholders with whom we spoke and our review of FHA\u2019s policies and  procedures on conveyance condition identified several limitations, as  follows.\nLack of clarity or specificity. Representatives from 15 of the 20  servicers we interviewed said they found FHA\u2019s policies and procedures  on conveyance condition to be unclear or subjective, and 13 cited specific  parts of the conveyance condition standards they found to be unclear or  missing. For example, one servicer was unsure about the extent of  repairs required when a property had water seepage in the basement. We  found that FHA\u2019s policies and procedures include information on how to  treat a basement that is flooded or a property with moisture damage, but  does not address basement leaks, cracks, or seepage. Representatives  of four servicers said that FHA\u2019s policies and procedures do not  sufficiently address how servicers should handle properties with potential  structural or foundation damage. Consistent with this viewpoint, we found  that FHA\u2019s handbook and mortgagee letter do not explain what a servicer  should do if it believes a property has damage affecting its structural  integrity. In addition, representatives of three servicers said FHA\u2019s  expectations of them are unclear when a roof is damaged but does not  currently have a leak. According to FHA\u2019s policies and procedures,  servicers must ensure all roofs \u201care free of active leaks or other sources  of water intrusion.\u201d However, FHA does not specify what servicers should  do if there is roof damage but no active leak. Two of the servicers said  they were uncertain whether they should replace the damaged roof that is  not leaking, or convey the property and risk reconveyance if it rains  before FHA inspects the property and the roof leaks.\nPerceived inconsistency in interpretation. Representatives from 10 of  the 20 servicers we interviewed said FHA is somewhat or not at all  consistent in determining whether properties meet FHA\u2019s conveyance  requirements. Among the remaining 10, one stated that FHA is  completely consistent and nine said that FHA is mostly consistent. In  addition, two of the 20 servicers said the answers they receive from FHA  to the same question differ depending on whom they ask. HOC officials  also noted cases in which their interpretation of policies and procedures  differed from the compliance contractor\u2019s. For example, officials from  three HOCs told us that the compliance contractor sometimes disagrees  with their determination that a property is not in conveyance condition  when the contractor reviews the HOC\u2019s reconveyance decision.\nLimited communication methods. In addition to formal written policies  and procedures on conveyance condition, FHA fields servicer questions,  primarily through its compliance contractor, by phone. The compliance  contractor also issues an annual newsletter on topics such as common  reconveyance triggers and best practices for submitting successful  overallowable and extension requests. However, some servicers we  interviewed suggested other possible ways to communicate policies and  procedures that they said they would find helpful, including the following:\nRepresentatives of five servicers said they would like FHA to publish an authoritative set of frequently asked questions (FAQ) on conveyance condition. FHA has an FAQ web page that includes information on conveyance condition, but, as of April 2019, did not include FAQs about the specific property preservation and protection issues discussed above (water seepage, structural integrity, and roof damage with no active leaks). In addition, a link in the web page labeled \u201cforeclosure\/conveyance\u201d led to a few FAQs on conveyance condition and property preservation requirements, but the answers consisted solely of language from FHA\u2019s existing policies and procedures.\nOne servicer\u2019s representatives suggested that FHA could issue policies and procedures in a format similar to Fannie Mae\u2019s Property Preservation Matrix and Reference Guide. This guide has features that FHA\u2019s policies and procedures do not have, as discussed below, including photographic examples, detailed requirements for photographic documentation, and \u201cif-then\u201d statements detailing what servicers should do if they encounter certain challenges at a property.\nRepresentatives of two servicers suggested that FHA host regular industry calls. While the compliance contractor told us that it takes ad hoc calls and holds regular teleconference calls with a number of individual servicers, an FHA official told us the contractor is only authorized to respond to servicer questions by providing relevant parts of FHA\u2019s written policies and procedures and is not supposed to respond with interpretations (clarifications, or explanations) of existing policies and procedures. Representatives from one servicer said industrywide calls with FHA staff would give servicers a way to obtain fuller explanations of FHA\u2019s expectations.\nOne servicer suggested that FHA provide training to servicers about the conveyance process. The servicer noted that while FHA provides training on other aspects of its program, including loss mitigation, it does not do so for the conveyance process or submitting claims.\nLimited direction on photographic evidence. FHA\u2019s policies and  procedures provide instructions for servicers and contractors on how to  document property conditions, but contain limited direction on  photographic evidence. Servicers must thoroughly document the  condition of the property when they first obtain possession so that FHA  does not hold them responsible for damage caused by the borrower.  Servicers also must take before and after pictures of any work they do on  the property. FHA\u2019s policies and procedures on photographic  documentation say only that the servicer must use digital photography,  ensure a date-stamp is printed within each photograph, and ensure that  each photograph is labeled to describe the contents of the photograph.  FHA has not communicated in writing any requirements for photograph  dimensions, color, distance, framing, or content or suggestions for  documenting conditions that may be difficult to see.\nServicers and FHA officials stated that they face challenges in  documenting property conditions in a way that most accurately informs  the compliance contractor about the property. The compliance contractor  reviews documentation, including photographs, uploaded into the asset  disposition system by servicers to make decisions on overallowable and  extension requests. The compliance contractor also reviews  documentation from maintenance contractors on inspection results and  reconveyance recommendations by HOC officials. An FHA maintenance  contractor told us that the compliance contractor sometimes responds  that the condition described is not apparent from the photographs in the  asset disposition system. According to members of an industry group  representing servicers, in some cases this may result in FHA requiring  servicers to repair damage caused by the borrower, because the  servicers\u2019 photographs did not prove the damage was present when they  first gained possession of the property.\nTo illustrate how photographs can effectively or ineffectively capture  property condition problems, figure 12 provides two examples of flooring  issues at properties conveyed to FHA. In one photograph, the buckling of  the floor is apparent, but in the other, the waterlogged and warped  condition of floor is harder to discern. An experienced FHA maintenance  contractor told us there are creative ways to document some conditions  that are difficult to photograph. For example, to document a damp floor,  one can photograph a piece of paper (which darkens when wet) before  and after placing it on the floor. This method is not included in FHA\u2019s  handbook or mortgagee letter.\nLimitations in the content and delivery of FHA\u2019s policies and procedures  on conveyance condition suggest room for improvement and are  inconsistent with the federal internal control standard for communicating  externally. This standard calls for management to externally communicate  the necessary quality information to achieve an entity\u2019s objectives.  Federal agencies can help ensure compliance by communicating with  and obtaining information from external parties and by periodically  evaluating and selecting appropriate methods of communication, taking  into account factors such as the audience, the purpose and type of  information being given, and legal or regulatory requirements.\nHowever, FHA has not identified where the conveyance condition policies  and procedures could be improved because it has not assessed  information from servicers\u2014for example, the frequency or content of their  questions to the compliance contractor. FHA also has not thoroughly  evaluated its methods for communicating its policies and procedures. As  a result, FHA has limited assurance that servicers understand FHA\u2019s  expectations for conveyed properties and that contractor decisions are  made consistently. Weaknesses in these areas can contribute to  inefficiencies such as delays in executing conveyances and  reconveyance of properties to servicers.\n\n\t\tFHA Has Not Provided Direction on Alternatives to Reconveyance for Properties That Do Not Meet Conveyance Condition Standards\n\nFHA has not provided written direction to HOC officials on choosing  among alternatives to address conveyed properties that do not meet  FHA\u2019s condition standards. According to officials from FHA  headquarters and the National Servicing Center, HOC officials can (1)  reconvey the property\u2019s title to the servicer, (2) issue a demand letter  establishing a debt to FHA for the cost of the work needed, or (3) enter  into a reconveyance bypass agreement with the servicer that requires the  servicer to complete repairs within a certain number of days. The latter  two options avoid reconveyance and therefore may expedite resale of the  property. These three options are mentioned in different parts of FHA\u2019s  policies and procedures, but the agency has not outlined the  circumstances that would warrant use of each method.\nFHA has not provided direction to the HOCs, partly because HOC officials  have the authority to choose a method based on the expected financial  return on the property. However, HOC officials with whom we spoke  differed in the factors that they considered when deciding how to address  properties that do not meet FHA\u2019s conveyance condition standards.  Officials from three HOCs cited criteria that any property with more than  $5,000 in damage due to servicer neglect should be considered for  reconveyance, while a bypass agreement or demand letter may be issued  if the amount of servicer neglect is less than $5,000. However, FHA  officials were not able to tell us where this criterion is written. An official  from the fourth HOC said the decision to reconvey partly depends on the  strength of the housing market. If the HOC believes it can sell the  property in its current condition\u2014even if the condition does not meet  FHA\u2019s conveyance standards\u2014the HOC will be more likely to issue the  servicer a demand letter than reconvey the property. In contrast, an  official from one of the other HOCs told us the state of the housing market  did not factor into decisions on reconveyance. Furthermore, according to  FHA officials, HOCs may also reconvey a property with only small  amounts of damage if the servicer frequently conveys properties not in  conveyance condition, in order to impress on the servicer the importance  of complying with FHA requirements.\nThe HOC officials generally agreed that bypass agreements offer a way  for small repairs to be fixed quickly. However, an official from one HOC  said the HOC did not issue bypass agreements often because servicers\u2019  property preservation and protection vendors may take longer than the  time specified in the agreement to complete repairs and, since the title is  in FHA\u2019s name, FHA has no recourse with the servicer. An official from  another HOC also said that he did not like issuing bypass agreements  because servicers do not always complete repairs quickly.\nFHA does not produce reports on the HOCs\u2019 use of reconveyance,  demand letters, and bypass agreements, so the frequency with which the  HOCs employ these methods is unknown. Some servicer representatives  with whom we spoke noted apparent inconsistency among the HOCs. For  example, representatives of three servicers said that some HOCs do not  issue bypass agreements at all. Similarly, representatives of one servicer  told us they have infrequently, if ever, received a demand letter for small  condition issues at properties; rather, FHA reconveys the properties for  minor condition issues.\nFHA\u2019s lack of written direction on alternatives to reconveyance is  inconsistent with federal internal control standards, which call for  designing control activities, including policies, to achieve objectives.  Granting HOC officials discretion in dealing with properties that do not  meet condition standards gives them flexibility to respond to specific  circumstances. However, without written direction on factors to consider  when determining whether they should reconvey a property, issue a  demand letter, or enter into a bypass agreement with the servicer, FHA  lacks reasonable assurance that HOCs make determinations consistently  and in line with the agency\u2019s regulatory goals for the REO program\u2014to  dispose of properties in a manner that expands home ownership,  strengthens neighborhoods and communities, and ensures a maximum  return to the mortgage insurance fund. Balancing these goals may  require using different methods to address properties that do not meet  conveyance standards. For example, in some cases issuing a demand  letter or a bypass agreement for certain properties may result in FHA  marketing and selling the property more quickly than it would by  reconveying the property. A quicker sale, in turn, may help avoid the  negative effects of a vacant property on the surrounding neighborhood.  However, if FHA accepts a property in poor condition, it may receive less  in proceeds when selling the property, which negatively affects FHA\u2019s  mortgage insurance fund.\n\n\t\tFHA Does Not Have a Plan to Evaluate Its Preconveyance Inspection Pilot\n\nFHA began a pilot program in 2017 to inspect properties that meet certain  criteria before conveyance, but has not developed a plan to assess the  results of the pilot program. FHA selected three large servicers to  participate in this preconveyance inspection pilot. These servicers may  request preconveyance inspections for properties with characteristics that  increase their chances of being reconveyed, according to FHA officials.  For example, eligible properties include those that experienced recurring  vandalism, received overallowable repairs of greater than $5,000, or have  potential structural defects, foundation issues, or damp or wet  basements. Based on the inspection results, the properties are  approved to convey, approved to convey subject to repair with no  additional inspection, or denied conveyance through the pilot (see table  3). After conveyance, FHA inspectors conduct a thorough inspection to  confirm that the property meets conveyance condition standards.  Properties that do not meet the standards may be reconveyed.\nAs of November 2018, FHA had not developed plans for evaluating the  effectiveness of the pilot in achieving the goals of reducing the number of  properties reconveyed due to property condition and minimizing the time  it takes to convey properties. FHA officials told us that they will develop a  plan to assess pilot outcomes when sufficient data are available.  However, without an evaluation plan, FHA may not collect the right  information during the pilot to rigorously assess results. GAO\u2019s guide for  designing evaluations states that key components of an evaluation design  include the evaluation questions or objectives; information sources and  measures; data collection methods; an analysis plan, including evaluative  criteria or comparisons; and an assessment of study limitations.\nCertain characteristics of FHA\u2019s pilot underscore the importance of  incorporating these components into evaluation design. For example,  because the pilot is intended to expedite the conveyance process through  preconveyance inspections, it will be important to isolate the impact of the  inspections, potentially by making comparisons to a control group. A  properly selected control group can rule out competing explanations for  observed outcomes. Additionally, because the pilot may affect  participating servicers in ways that extend beyond the speed of the  conveyance process or the probability of reconveyance, it will be  important for FHA to thoroughly consider the information sources and  measures it uses, including participant feedback. For example,  representatives of the three participating servicers told us they had  concerns about FHA holding properties in the pilot to higher conveyance  condition standards than nonpilot properties and the time it takes to  complete the preconveyance inspection process. According to the  representatives, this process, which includes 7 calendar days for the  inspection and 5 business days for the HOCs to review the inspection  report, has resulted in longer holding times and increased vandalism  risks.\nWithout a well-designed evaluation, FHA risks making decisions about  preconveyance inspections based on incorrect or incomplete information  on the pilot\u2019s benefits and drawbacks.\n\n\tConclusions\n\nWhile FHA increased the use of other property disposition methods in  recent years, servicers still convey thousands of foreclosed properties to  FHA annually. If the process of transferring ownership from the servicer to  FHA is not efficient, these properties may sit vacant for prolonged  periods, deteriorate, and contribute to neighborhood decline. As a result,  it is critical for FHA to have effective and efficient policies and procedures  for the conveyance process. While FHA has made recent updates to its  handbook, mortgagee letters, and information systems, additional  improvements would better align its processes and procedures with  federal internal control standards and GAO guidance on designing  evaluations:\nBy addressing limitations in the content (including its detail) and communication of its policies and procedures on conveyance condition, FHA could help reduce uncertainty and inconsistency in the conveyance process that may contribute to inefficiencies, such as reconveyance of properties to servicers.\nSecond, by providing direction to HOC officials on factors to consider when deciding whether to use alternatives to reconveyance for properties that do not meet conveyance condition standards, FHA could increase the likelihood that alternatives will be used consistently and in line with FHA\u2019s goals for the REO program.\nThird, by developing a plan for how it will evaluate the outcomes of the pilot to inspect certain properties prior to conveyance, FHA could help ensure the pilot generates the performance information needed to make effective management decisions about future policies.\nBy addressing these issues, FHA could make the conveyance process  more efficient and therefore help reduce negative impacts on  neighborhoods.\n\n\tRecommendations\n\nWe are making the following three recommendations to FHA:  The Commissioner of FHA should enhance the content and  communication of FHA\u2019s policies and procedures on conveyance  condition, including by considering the program stakeholder views  discussed in this report and other stakeholder input. (Recommendation 1)\nThe Commissioner of FHA should provide written direction to HOC REO  directors on factors to consider when determining whether to reconvey a  property with condition issues, issue a demand letter, or enter into a  bypass agreement with the servicer. (Recommendation 2)\nThe Commissioner of FHA should develop a formal plan for evaluating  the outcomes of the preconveyance inspection pilot that includes key  elements of evaluation design\u2014such as evaluation objectives and  measures\u2014and utilizes participant feedback and control groups, as  appropriate. (Recommendation 3)\n\n\tAgency Comments and Our Evaluation\n\nWe provided a draft of this report to FHA, the Department of Veterans  Affairs, and the Federal Housing Finance Agency (the conservator and  regulator of Fannie Mae and Freddie Mac) for their review and comment.  The Department of Veterans Affairs and the Federal Housing Finance  Agency did not provide comments. FHA provided written comments  reproduced in appendix II. FHA neither agreed nor disagreed with our first  recommendation to enhance the content and communication of its  policies and procedures on conveyance condition. FHA cited the 2016  updates to its policy handbook and mortgagee letter and said it  recognized the importance of external communication, training, and in- person meetings to ensure servicers have the information they need to  operate in compliance with FHA programs. Our report discusses these  updates, but also identifies areas for additional improvements to address  limitations in the clarity and comprehensiveness of FHA\u2019s policies and  procedures and methods for communicating them. FHA agreed with our  second and third recommendations to provide written direction on  considering alternatives to reconveyance and to develop a plan for  evaluating the preconveyance inspection pilot.\nWe are sending copies of this report to the appropriate congressional  committees, the Secretary of the Department of Housing and Urban  Development, and other interested parties. In addition, the report is  available at no charge on the GAO website at http:\/\/www.gao.gov.\nIf you or your staff have any questions about this report, please contact  me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Key contributors to this report are listed in  appendix III.\n\nAppendix I: Objectives, Scope, and Methodology\n\nOur objectives were to examine (1) timelines for Federal Housing  Administration (FHA) foreclosed property conveyances in June 2010\u2013 December 2017 and the extent to which servicers and FHA met time  requirements and (2) changes FHA has made to the conveyance process  in recent years and any ongoing process challenges.\n\n\tTime Lines for Property Conveyances\n\nTo address the first objective, we obtained data from FHA\u2019s Single Family  Insurance System\u2013Claims Subsystem and from the P260 Asset  Disposition and Management System (asset disposition system) on the  610,802 foreclosed properties mortgage servicers conveyed to FHA from  January 1, 2010, through December 31, 2017. For purposes of our  analysis, we generally excluded properties conveyed to FHA from  January 2010, through June 2010 because they were managed using  different data systems and contractors than FHA currently uses.\nAfter excluding these properties, we analyzed data for 544,421 properties  conveyed to FHA from July 2010 through December 2017. (We use  calendar years in this report unless otherwise noted.) We calculated the  number of days it took each property to complete the conveyance  process. We defined the start of the conveyance process as the date the  servicer obtained possession and acquired marketable title for a property  and the end of the process as the date on which FHA assigned a  marketing contractor to sell the property. For each annual cohort of  conveyed properties, we calculated the 25th, 50th (median), and 75th  percentile time frames and compared these statistics across years.\nTo analyze the effect that reconveyances had on the length of the  conveyance process, we compared length of time for conveyance in  2012\u20132017 for properties that were reconveyed to those that were not.  According to FHA staff, data on reconveyances were unreliable prior to  2012, so we excluded those properties from this comparative analysis.\nWe interviewed FHA officials about factors that may have affected  conveyance time frames from 2010 through 2017, including increased  use of other disposition methods and servicers delaying foreclosure  actions and the resulting impact on property conditions, since the asset  disposition system does not disclose the reasons for any delays. To  analyze changes in the use of different property disposition methods and  to examine the loss severity rates for these methods, we reviewed FHA  data for fiscal years 2010\u20132017. To understand the relationship between  properties with long default and foreclosure periods and conveyance time  frames, we measured the time between the borrower defaulting on the  mortgage and the servicer obtaining title to and possession of the  property (effectively, the end of the foreclosure process) for properties  conveyed to FHA from July 2010 through December 2017. We divided  the range of default and foreclosure periods into four quartiles. For each  quartile, we calculated the length of the conveyance process at the  median and at the 25th and 75th percentiles. We then compared these  statistics across quartiles.\nTo determine the extent to which mortgage servicers and FHA  contractors met their respective time requirements for the conveyance  process, we identified relevant time requirements in Department of  Housing and Urban Development (HUD) regulations and policies. We  also reviewed the performance work statements for FHA\u2019s mortgagee  compliance manager (compliance contractor) and field service managers  (maintenance contractors) to identify the contractors\u2019 time requirements  for the conveyance process. For servicers and contractors, we selected  key time requirements for which electronic data were available, including  the following:  Thirty calendar days from acquiring title and possession of a property, plus the length of any approved time extension, to convey property to FHA.\nForty-five days from conveying a property to FHA, plus the length of any approved time extension, to provide FHA with title evidence.\nFive business days to review each overallowable request submitted by a servicer.\nFive business days to review the sufficiency of title documentation submitted by the servicer.\nFive business days to determine whether a servicer can convey a property with surchargeable damage.\nFive business days to approve or deny a servicer\u2019s conveyance or title extension request.\nTwo calendar days, plus an additional 24 hours, to complete and upload the HUD Property Inspection Report from the date the property was assigned.\nFive calendar days to complete a Property Condition Report from the date the Property Inspection Report was completed.\nFor each property, we calculated the number of days it took servicers and  contractors to complete these required steps in the conveyance process  and compared that number to the maximum number of days FHA allows  for each step. For each annual cohort of properties conveyed in 2010\u2013 2017, we calculated the 25th, 50th (median), and 75th percentile time  frames for completing the steps. We also calculated the percentage of  properties for which servicers or FHA contractors met their time  requirements for each step. We reviewed FHA\u2019s procedures for  monitoring the performance of compliance and maintenance contractors  for conveyed properties. We also reviewed examples of contractor quality  control plans and FHA quality control reports and scorecards used to  assess the contractors\u2019 compliance with minimum time frames and other  requirements. Additionally, we interviewed FHA officials about the  contractors\u2019 compliance with their respective time requirements and what  steps FHA took, if any, to address any noncompliance.\nWe assessed the reliability of data from the Single Family Insurance  System\u2013Claims Subsystem and the asset disposition system by  reviewing FHA documentation about the data systems and data  elements. We interviewed FHA staff and contractors knowledgeable  about the data to discuss interpretations of data fields and trends we  observed in our analysis. We also conducted electronic testing, including  checks for outliers, missing data fields, and erroneous values. We  excluded from each analysis properties with missing or erroneous  information in the applicable data fields. We also excluded from each  analysis properties for which the applicable data fields were five absolute  deviations from the median (which we consider to be outliers). In addition,  we excluded certain properties conveyed in calendar years 2010\u20132017  that had conveyance dates that were out of sequence. For example, we  excluded properties for which the date a servicer obtained possession  and good and marketable title occurred after the date the servicer  conveyed the property to FHA. The number of properties we excluded in  any analysis using these methods represents no more than 3.2 percent of  properties conveyed from July 2010 through December 2017, which we  consider to be insignificant when compared to the remaining properties  included in the analysis. After taking these steps, we believe that the data  were sufficiently reliable for purposes of characterizing the overall length  of FHA property conveyances and compliance with key time  requirements.\n\n\tChanges to Conveyance Process and Ongoing Challenges\n\nTo determine what changes FHA made to the conveyance process in  recent years, we reviewed relevant FHA regulations, policies, and  procedures issued in 2010 or later, including FHA\u2019s February 2016  mortgagee letter (a written instruction to FHA-approved lenders) on  conveyances. We compared the requirements and property preservation  and protection allowance amounts in the mortgagee letter to those in the  prior mortgagee letter. We also reviewed FHA documentation on changes  to the asset disposition system, FHA\u2019s data system for conveyed  properties, and on FHA\u2019s preconveyance inspection pilot program that  began in 2017. We interviewed FHA officials on the reasons for the recent  changes and on the extent to which they reviewed any analogous  requirements and property preservation and protection allowances of  other mortgage entities (including Fannie Mae, Freddie Mac, and the  Department of Veterans Affairs) when making the updates. To  supplement our review of FHA\u2019s recent changes to property preservation  and protection allowances, we used the asset disposition system data to  analyze changes in the frequency and number of servicer overallowable  requests since the 2016 mortgagee letter went into effect.\nTo examine what, if any, challenges exist with the conveyance process,  we randomly selected a nongeneralizable sample of 20 large- and  medium-sized, bank and nonbank servicers of FHA-insured mortgages.  We defined large-sized servicers as those with 100,000 or more active  FHA-insured mortgages as of December 31, 2017, and medium-sized  servicers as those with 10,000\u201399,999 active FHA-insured mortgages as  of that date. These servicers accounted for more than one-third of active  FHA-insured mortgages as of December 31, 2017. We conducted  semistructured interviews with the servicers about their experience with  FHA property conveyances, including the sufficiency of FHA\u2019s policies  and procedures, time lines, and allowance amounts and any challenges  they experienced with the process. We also discussed the extent to which  the 2016 mortgagee letter assisted or hindered their conveyance efforts.\nIn addition, we spoke with two national industry groups representing  mortgage servicers about recent changes and any challenges their  members experienced with the conveyance process.\nWe reviewed FHA\u2019s requirements for servicers and contractors on  conveyed properties. In cases in which servicers stated that FHA\u2019s  policies and procedures on particular conveyance requirements was  insufficient or unclear, we examined the 2016 mortgagee letter, HUD\u2019s  single-family housing policy handbook, and frequently asked questions on  HUD\u2019s website\u2014to determine whether it addressed the topics and was  sufficiently thorough to be applied to properties with different  circumstances. We assessed whether the policies and procedures were  consistent with federal internal control standards for external  communication. In particular, we examined whether the policies and  procedures communicated necessary quality information to achieve  program objectives and whether FHA had evaluated appropriate methods  to communicate them. Where applicable, we also compared FHA\u2019s  policies and procedures to features of Fannie Mae\u2019s guide for servicers  on how to preserve and protect vacant properties. We also assessed  FHA\u2019s policies and procedures on reconveyances and alternatives to  reconveyance against federal internal control standards for designing  control activities.\nTo review the preconveyance inspection pilot that FHA began in 2017  and any challenges with the pilot, we interviewed the three participating  servicers about FHA\u2019s implementation of the pilot and the extent to which  preconveyance inspections reduced the likelihood of reconveyance or  addressed other challenges. We spoke with FHA National Servicing  Center officials about their monitoring of pilot outcomes and their plans for  assessing results. We assessed FHA\u2019s planning and evaluation efforts  against key components of evaluation design from GAO\u2019s guide for  designing evaluations.\nFurthermore, we interviewed a number of individuals and entities about  challenges they experienced in implementing their property conveyance  responsibilities, the sufficiency of FHA\u2019s policies and procedures, and  methods for assessing contractor performance. These included FHA  headquarters and National Servicing Center officials with responsibilities  for aspects of the conveyance process; FHA\u2019s compliance contractor; and  Real Estate-Owned Division officials, the largest maintenance contractor,  and staff responsible for overseeing the maintenance contractors at each  of FHA\u2019s four homeownership centers.\nFinally, we visited eight recently conveyed or reconveyed properties in the  Baltimore, Maryland, and Atlanta, Georgia, areas to observe property  conditions, learn about the maintenance contractors\u2019 property inspection  processes, and understand challenges in documenting and addressing  condition issues. We chose these locations to provide some geographic  dispersion and coverage of different FHA homeownership centers. The  properties were selected by Philadelphia and Atlanta homeownership  center staff based on our request to visit a mix of recently conveyed and  reconveyed properties in metropolitan areas and time periods that we  chose. As a result, the conditions we observed are illustrative rather than  representative of all conveyed properties.\nWe conducted this performance audit from September 2017 to June 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.\n\nAppendix II: Comments from the Department of Housing and Urban Development\n\nAppendix III: GAO Contact and Staff Acknowledgments\n\n\tGAO Contact\n\n\tStaff Acknowledgments\n\nIn addition to the contact named above, Steve Westley (Assistant  Director); Melissa Kornblau (Analyst in Charge); Rachel Batkins; William  Chatlos; Emily Flores; John McGrail; Samuel Portnow; Barbara  Roesmann; Tovah Rom; and Jena Sinkfield made key contributions to  this report.","output":null}
{"id":"gao_GAO-19-437","pid":"gao_GAO-19-437_0","input":"\tBackground\n\n\t\tThe Commercial Space Transportation Industry\n\nSpace transportation is the movement of objects, such as satellites and  vehicles carrying cargo, scientific payloads, or passengers, to or from  space. In the United States, commercial space transportation is carried  out using orbital and suborbital launch vehicles owned and operated by  private companies. Key parties involved in commercial space  transportation activities include:\nThe commercial launch provider\u2014the entity that conducts the  launch of a vehicle and the payload it carries.\nThe launch customer\u2014the entity that pays the launch provider to  carry a payload into space. Customers include the U.S. government\u2014 which has not operated its own launch vehicles since the retirement of  the Space Shuttle in 2011 and primarily relies on commercial launch  providers to, among other things, resupply the International Space  Station, launch satellites, and carry out national security and defense  missions. Customers also include private companies, such as  satellite owners, and researchers.\nThe launch site operator\u2014the entity that hosts the launch (or  reentry, or both) of the launch vehicle from its launch site. Almost all  launch site operators are either commercial launch providers or state  or municipal government entities.\nThe U.S. share of the global commercial space transportation market has  grown in recent years. For example, according to FAA, 64 percent of the  33 worldwide commercial orbital launches in 2017 occurred at U.S.  launch sites, up from about 48 percent in 2014.\nCommercial launch providers currently use, and are developing for future  use, a variety of vehicles to launch payloads. Historically, launch  providers have carried payloads into orbit using vertically launched  expendable launch vehicles\u2014those vehicles that launch only once. In  more recent years, a launch provider, SpaceX, has introduced launch  vehicles that can be reused for multiple launches, such as Falcon 9 and  Falcon Heavy, where one part or all of the launch vehicle returns to a  landing pad, either on land or on a converted barge offshore, after the  payload is launched into orbit. Commercial launch providers are also  moving toward reusable suborbital launch vehicles, some intended for  human space tourism. These vehicles include horizontal hybrid suborbital  launch vehicles, such as Virgin Galactic\u2019s SpaceShipTwo, and vertical  reusable suborbital launch vehicles, such as Blue Origin\u2019s New Shepard.  Figure 1 depicts examples of expendable and reusable vertical launch  vehicles.\nLaunch site infrastructure, and those who own and operate it, also varies  across individual launch sites. The type of infrastructure and its design  depends on the type of operations that the launch site supports. For  example, some launch sites may have a launch pad for vertical launches  but not a runway for horizontal launches; others may have infrastructure  specifically to support launch vehicle reentry operations. While many  different types and designs exist, figure 2 below shows a few examples of  major pieces of launch site infrastructure.\n\n\t\tAST\u2019s Roles and Organizational Structure\n\nWithin FAA, AST is responsible for regulatory oversight of the commercial  space transportation industry. AST\u2019s primary means of oversight is  licensing or permitting commercial launch and reentry vehicle operations  and non-federal launch sites, as well as conducting safety inspections of  licensed launch providers and site operators. AST is organized into three  management and support offices, including the Office of the Associate  Administrator, and five operational divisions\u2014responsible for the majority  of AST\u2019s primary mission areas, such as licensing and overseeing  launches. In addition, the FAA Reauthorization Act of 2018, signed into  law in October 2018, requires that AST develop an Office of  Spaceports. According to FAA officials, as of May 2019, the size and  design of this office have not yet been finalized.\nAST\u2019s workforce size is expected to increase to help accommodate  anticipated growth in the industry and AST\u2019s workload (see table 1). As  of February 2019, AST had 104 full-time equivalent positions and an  operations budget of about $25 million\u2014an increase of 25 full-time  equivalent positions and about $8 million since fiscal year 2015.\n\n\t\tLaunch Licensing Regulations\n\nFAA requires launch providers conducting a launch or reentry within U.S.  borders to obtain a license or permit, as well as those conducting a  launch or reentry abroad, if the launch provider is a U.S. entity. FAA  considers a commercial launch to be one in which the contract for the  main payload\u2019s launch was open to international competition or the  launch was privately financed without government support.\nFAA also requires, with some exceptions, a site operator\u2019s license,  which authorizes an entity, such as a state or local government, to host  commercial space launch operations from a specific launch site. FAA is  to conduct safety inspections of licensed commercial space transportation  launch operations, which involves monitoring of pre-operational,  operational, and post operational activities.\nIn February 2018, the National Space Council recommended that DOT  update the regulations on launch and re-entry licensing to better  accommodate changes that have occurred in the industry. The White  House subsequently directed DOT to publish a proposed rule by February  1, 2019, with a revised framework that allows more flexibility in how  companies can meet the regulatory requirements. DOT published a  notice of proposed rulemaking for the revisions to its licensing regulations  in April 2019.\n\n\tFunding for Infrastructure at Active U.S. Commercial Launch Sites Has Shifted from Federal to State, Local, and Private Sources\n\n\t\tFederally Funded Construction\n\nAround the mid-20th century, the federal government began constructing  the infrastructure that supports the majority of commercial orbital space  launches today. The Department of Defense (DOD) constructed launch  sites to support ballistic missile testing and satellite launches, including  sites that are now home to Cape Canaveral Air Force Station in Florida  and Vandenberg Air Force Base in California. Those sites conducted their  first test launches in 1950 and 1958, respectively. The National  Aeronautics and Space Administration (NASA) was created in 1958, and  began acquiring land adjacent to Cape Canaveral Air Force Station in  1962 to support its human spaceflight lunar program; this land is now  home to the Kennedy Space Center.\nIn recent years, nearly all FAA-licensed launches in the United States  occurred at three federal ranges, which were originally built by the federal  government (see fig. 3). All 61 of the FAA-licensed commercial orbital  launches from 2015 through 2018 occurred at launch sites that are on or  co-located with federal ranges, with 44 of the 61 launches taking place at  Cape Canaveral Air Force Station and Kennedy Space Center  (collectively referred to as \u201cCape Canaveral\u201d). In addition, one of the 11  licensed commercial suborbital launches occurred at a launch site co- located with a federal range.\nWhile the federal government made the initial infrastructure investment at  federal ranges, the launch complexes used for commercial launch  operations at these sites are now operated under use agreements by  non-federal entities, such as state governments or commercial launch  providers. For example, four of the launch complexes at Cape  Canaveral are operated by commercial launch providers, while two others  are operated by the State of Florida. Two other federal ranges have  launch pads that are also operated by non-federal entities\u2014Vandenberg  Air Force Base in California and the Mid-Atlantic Regional Spaceport,  which is co-located with NASA\u2019s Wallops Flight Facility in Virginia.\nThe Air Force and NASA generally still have responsibility for maintaining  common-use infrastructure\u2014that is, infrastructure that may be shared by  multiple users, such as access roads and fuel pipelines. As part of the  operators\u2019 use agreements (the details of which vary depending on the  launch site and launch site operator), however, funding for improvements  to infrastructure used solely by that site operator is generally left to the  site operator. This arrangement is in part because the infrastructure  improvements are necessary to support the unique needs of specific  commercial launch vehicles using those sites.\nAt another launch site, the federal government followed a different  infrastructure investment model. In the 1990s, the Air Force partnered  with the state of Alaska to help fund the construction of a state-owned site  to support federal government launches and missile testing rather than  constructing a new federal range. This site, known as the Pacific  Spaceport Complex \u2013 Alaska, conducted its first government launch in  1998. Major infrastructure includes two launch pads with shared vehicle  integration and transfer facilities. According to spaceport officials at this  site, in addition to government launches, Alaska Aerospace, a state entity  that operates the site, has contracts with three commercial launch  providers, which anticipate conducting commercial orbital launches there  in the future. Appendix II provides additional information on launch sites  co-located with federal ranges, as well as funding sources and  characteristics for other U.S. commercial launch sites.\n\n\t\tState and Local Government Funding\n\nWhile the federal government has not directly funded the construction of  infrastructure at launch sites in recent years, state and local  governments have done so. According to interviews we conducted and  our review of publicly available documents of state-government entities  that were formed to promote space-related development, state and local  governments are investing in infrastructure to obtain the economic  benefits of attracting space-related businesses to their areas. In two  cases, state governments became operators of launch sites co-located  with federal ranges and invested in infrastructure improvements at those  sites to support commercial orbital launch vehicles.\nThe Commonwealth of Virginia\u2014through Virginia Commercial Space  Flight Authority, an independent state entity created in part to develop  and promote Virginia\u2019s commercial space transportation industry\u2014 invested $90 million in improvements to a launch pad at the Mid- Atlantic Regional Spaceport. This represented a share of the total  costs, which were shared by Northrop Grumman Innovation  Systems, a commercial launch provider that has an agreement to  use the pad for commercial launches, including cargo resupply  missions to the International Space Station.\nThe State of Florida\u2014through Space Florida, an independent special  district that serves the state\u2019s space-related needs\u2014has provided  over $140 million in infrastructure investments. Those investments  upgraded launch pads and the supporting infrastructure at Cape  Canaveral, as well as provided grants matched by commercial launch  providers for improvements to infrastructure used by those providers.\nIn other cases, state and local governments have invested in wholly new  commercial launch sites or are adapting existing airport infrastructure to  use as launch sites. According to these launch site operators, these sites  are currently used for suborbital launches but could support orbital  launches in the future.\nThe state of New Mexico funded the construction of the commercial  launch site known as Spaceport America through $225 million in state  appropriations and local taxes in two counties. The state also has a  20-year lease agreement with Virgin Galactic, which plans to conduct  commercial suborbital space tourism launches from the site. This  launch site, with its 12,000-foot-by-200-foot runway, hosted one FAA- licensed suborbital test launch in 2018.\nIn California, the Mojave Air and Space Port (Mojave) is a general  aviation airport that obtained an FAA license to conduct commercial  suborbital launches in 2004. In addition to continuing its general  aviation operations, Mojave currently provides a runway and mission  preparation area to commercial launch providers testing vehicles  designed for orbital and suborbital launches. This site hosted three  FAA-licensed suborbital test flights in 2018. According to a  representative from Mojave, the site generally funds infrastructure  maintenance with rents and user fees, while launch providers build  their own facilities. In July 2018, Mojave also received a $1.4 million  grant through FAA\u2019s Airport Improvement Program for the purpose of  extending an airport taxiway. According to a Mojave representative,  the location of the taxiway extension will be available for hangar  development by both aviation and commercial space users on a first- come, first-serve basis. The project was completed in April 2019.\n\n\t\tPrivate Funds\n\nCommercial launch providers fund infrastructure improvements at existing  launch sites\u2014both co-located with federal ranges and elsewhere\u2014to  ensure the sites are tailored to their unique launch vehicles. For example,  under its agreements to use launch pads at the federal ranges at Cape  Canaveral and Vandenberg Air Force Base, SpaceX representatives told  us they invested \u201chundreds of millions\u201d of dollars in new infrastructure  and infrastructure improvements, such as constructing new liquid fuel  lines and improving launch pad cooling systems. According to SpaceX  representatives, the company made these investments to support the  specific needs of its launch vehicles and the rapid pace at which it is  currently launching. Virgin Galactic and Stratolaunch\u2014two other  commercial launch providers developing suborbital and orbital launch  vehicles, respectively\u2014funded the construction of hangars and testing  facilities for their launch vehicles at Mojave Air and Space Port.\nThree of the seven commercial launch providers that we spoke with  constructed or are currently constructing new launch sites for their  exclusive use. Representatives from two of them said doing so allows  them to schedule launches without having to compete with other launch  providers at existing launch sites. Two of these commercial launch  providers also told us they had not received any government funding for  these sites, while the third told us it had received some support from the  state government where the site is located.\nAs the commercial space transportation industry continues to evolve, it  may lead to more investments in launch sites that are not currently  supporting commercial orbital launches. For example, some commercial  launch providers are developing launch vehicles consisting of a rocket  launched from an airplane in flight, enabling launches from runways  rather than launch pads. This could change how and which entities fund  launch site infrastructure.\n\n\tLaunch Customers in Our Review Consider the Launch Provider\u2019s Capabilities and Price, among Other Factors, When Deciding Where to Launch\n\nCommercial space transportation is a global industry. We identified seven  countries, including the United States, that have launch providers with the  capability to support an orbital launch of a commercial payload (see fig.  4). In 2017, 7 of the 22 FAA-licensed launches conducted in the United  States contained a payload from a non-U.S. launch customer, including  several communications satellite operators and one civilian space  agency, according to FAA. Similarly, some U.S. launch customers we  interviewed said they have used non-U.S. launch providers.\nAccording to representatives of the seven domestic and non-U.S.  companies we interviewed that use launch services for placing their  products into Earth orbit or other trajectories, several factors influence  their selection of a launch provider. Many of these representatives  acknowledged that as part of their business decision, a prerequisite is  that the launch provider\u2019s vehicle and launch site must have the  capabilities to meet the customer\u2019s mission requirements, such as having  the capability to bring the payload to the desired orbit at the desired time.  That capability, in turn, depends on factors such as the lift capacity of a  provider\u2019s launch vehicle\u2014which dictates the maximum weight the  vehicle can carry\u2014and the geographic locations of its launch sites. For  example, launch vehicles operating from sites closer to the equator can  place payloads into certain orbits using less fuel due to Earth\u2019s rotational  velocity. The direction a launch vehicle can travel from a launch site also  affects the orbits into which the vehicle can most efficiently place a  payload. For example, Vandenberg Air Force Base in California\u2014which  allows launch vehicles to travel west over the Pacific Ocean\u2014is more  efficient for certain orbits, while Cape Canaveral\u2014which allows vehicles  to travel east over the Atlantic Ocean\u2014is more efficient for others.\nBeyond selecting a launch provider that has capabilities to meet a launch  customer\u2019s mission requirements, six of the seven launch customers we  spoke with said the price of a launch is a key deciding factor. For  example, a representative from an international satellite operations  company told us that the company achieved significant savings by  procuring a series of launches from its selected provider. According to the  representative, using a different launch provider would have cost almost  twice as much\u2014a price that would have forced the company to delay its  launch plans. According to data published in FAA\u2019s Annual Compendium  of Commercial Space Transportation: 2018, there is wide variation in the  commercial price of launches worldwide, ranging from an estimated $62  million to $178 million per launch. The exact price paid for many  launches is considered proprietary by both launch customers and  commercial launch companies, and is therefore not reported publicly.  Moreover, price can be affected by the size and weight of the payload,  the intended orbit being reached, and other mission-related factors. As a  result, direct comparison of launch prices is difficult.\nIn addition to price, a launch provider\u2019s availability and reliability are also  key factors, according to launch customers we spoke with. Six of the  launch customers we spoke with mentioned availability as a key factor,  which is the launch customer\u2019s ability to reserve a place on the launch  provider\u2019s launch schedule. For example, a representative from a  domestic small satellite operations company said it can be difficult to find  available launches in the United States because the company relies on  sharing launches with larger payloads, and few U.S. launches travel to  the company\u2019s desired orbit. As a result, the company has procured  launch services from Indian and Russian launch providers. Five launch  customers mentioned reliability\u2014generally a launch vehicle\u2019s history of  successful launches\u2014as a key factor, in part due to the financial impact  of a failed launch. For example, a representative from a non-U.S.-based  satellite operations company said that in the event of a failed launch,  insurance would generally cover the cost of the lost payload, but not lost  revenue that would have been generated by the payload in orbit.\nSome launch customers noted that choosing a launch provider is a  complex decision, and that the key factors they consider can be  interdependent. For example, the representative from the non-U.S.-based  satellite operations company said that while a launch provider may offer a  lower price on a less reliable vehicle, the lack of reliability could increase  the customer\u2019s payload insurance costs, effectively increasing the launch  price. A representative from a company seeking to launch into deep  space told us they would only consider a provider that is not only reliable  but also has years of successful operations and a proven business plan.\n\n\tDOT Published a Proposed Rule in April 2019 but Related Rulemaking Activities Affect When Regulatory Changes Will Be in Full Effect\n\n\t\tFAA Accelerated Plans to Streamline Regulations to Respond to a Presidential Directive\n\nAccording to FAA officials, FAA has been considering changes in its  licensing regulations since 2015 and recently has accelerated these  efforts. Dating back to 2015, according to FAA officials, FAA had been  taking an iterative approach by first making \u201cquick wins\u201d\u2014that is, making  administrative changes or straightforward regulatory revisions\u2014with a  long-term goal of fully consolidating and streamlining the regulations over  a period of several years. FAA\u2019s approach changed, however, when in  May 2018, a Presidential Directive was issued that addressed both the  timing and content of FAA\u2019s regulatory updates. The directive contained a  deadline to publish a proposed regulation for public comment by February  1, 2019. It also directed the Secretary of Transportation to replace the  current prescriptive regulations for commercial space launch licensing\u2014in  which a certain technology or action is required\u2014with a regulatory  framework that is performance-based\u2014in which applicants have flexibility  in how they achieve required outcomes, such as a specific level of safety.\nIn response to this directive, DOT published a notice of proposed  rulemaking (NPRM) in April 2019 to solicit comments on a proposed rule  that will incorporate performance-based requirements. According to  FAA officials, they had planned for the NPRM to be published by  February 1st, 2019, consistent with the deadline in the directive, but the  publication was delayed due to the lapse in DOT\u2019s appropriations that  took place in early 2019. A timeline of key actions related to launch  licensing regulation is shown in figure 5 below.\nThe preamble of the NPRM states that the proposed rule intends to  satisfy the requirements of the Presidential Directive, including  consolidating and revising multiple regulatory parts to apply a single set of  licensing and safety regulations across several types of operations and  vehicles, and replacing prescriptive regulations with performance-based  rules. The preamble further states that these changes will give industry  greater flexibility to develop means of compliance that maximize their  business objectives while maintaining public safety.\nThe proposed rule also seeks to address recommendations made by an  Aviation Rulemaking Committee (ARC) that was created in March 2018  as a forum for industry to discuss procedures and requirements for launch  and reentry licensing. For example:\nThe ARC recommended that FAA propose rules to eliminate  potentially duplicative requirements for launches at federal ranges.  Currently, launch providers at federal ranges are subject to FAA\u2019s  requirements in addition to those of the range operator (NASA or the  Air Force), which may be duplicative of each other. The preamble to  the NPRM states that, while FAA has not included language to  eliminate duplicative approvals, FAA would continue to work with the  appropriate agencies to streamline launch and reentry requirements  at ranges and federal facilities.\nThe ARC also recommended more flexibility in licensing such that a  single license structure could accommodate a variety of vehicle types  and launch or re-entry sites. The preamble states that the proposed  rule would, among other actions, eliminate the current limitation  specifying a launch license covers only one launch site.\n\n\t\tCompleting Other Related Rulemaking Activities and Finalizing Guidance Will Affect When Applicants Operate under the Revised Regulation\n\nAs part of the rulemaking process, FAA must comply with a number of  requirements before the final rule can be issued. FAA is statutorily  required to provide a period of time to solicit public comments on the  proposed regulation. FAA must then reasonably respond to public  comments submitted on the NPRM and determine whether any changes  to the proposed rule may be required as a result of the comments. Some  changes made in response to comments would allow AST to proceed  with publication of the final regulation. However, major changes not  contemplated in the NPRM could necessitate a supplemental NPRM,  which could affect the timing of the final regulation\u2019s publication.\nFAA provided 60 days after publication in the Federal Register for the  public comment period. And, while officials told us that they plan to work  toward publishing the final rule by the end of 2019, the schedule was  affected by DOT\u2019s lapse in appropriations. They also noted that the  quantity and content of the public comments and the time and resources  required to respond to them will influence that date. Officials estimate that  the public comments could number in the thousands. Further, there is a  lack of industry consensus in some areas. For example, according to the  cover letter accompanying the final ARC report, the report did not include  specific recommendations that were agreed upon by all participants.  Almost half of the industry stakeholders that participated in the ARC and  provided comments on the ARC final report (8 of 19) did not fully concur  with the report. Industry stakeholders disagreed on issues such as the  requirements for testing flight safety systems, which would be considered  as part of the licensing process. The lack of consensus among ARC  participants suggests that the NPRM may also generate significantly  different perspectives.\nFurthermore, FAA officials emphasized that the NPRM addresses a  highly complex and technical issue, using a wholly revised performance- based regulatory framework, an approach that could affect  implementation timelines. We found in the past that the complexity of the  issues addressed by rulemakings is a major factor influencing the time  needed to issue a regulation.\nFAA officials told us they intend to complete other related activities that  support the rule, such as finalizing guidance documents to provide  transparency and help ensure that licensing applicants understand the  new requirements. Such guidance may, for example, provide examples of  how to comply with the new performance-based requirements. FAA also  intends to implement new administrative tools to help AST review  licensing applications more quickly. Specifically:\nGuidance: FAA released a number of draft guidance documents in  the form of Advisory Circulars with the NPRM. These Advisory  Circulars cover a range of topics, such as providing ways for  applicants to comply with requirements for flight safety analysis and  lightning hazard mitigation, and provide at least one way an applicant  could demonstrate compliance with each performance-based  requirement in the proposed rule. FAA officials told us that they plan  to publish these Advisory Circulars in final form simultaneous with  publishing the final regulation. Through the ARC process, FAA sought  input from industry on the standards that should be used to  demonstrate compliance with the performance-based regulations. In  the long term, however, FAA told us that they are encouraging the  industry to develop voluntary consensus standards that the FAA could  then accept as an acceptable way of demonstrating compliance.\nAdministrative Tools: FAA officials said they are in the early stages  of looking at ways to reduce the administrative burden on FAA and  licensing applicants during the licensing process. For example, FAA  officials told us that in 2019 they will be examining ways to automate  and streamline the licensing process. FAA officials told us that they  would like to implement a system whereby applicants, for the first  time, would submit applications electronically to an FAA-sponsored  system rather than by hard copy or attachments to an email.  According to the preamble of the NPRM, FAA\u2019s proposal would allow  an applicant to submit its application by email as a link to a secure  server, and would remove the requirement that an application be in a  format that cannot be altered. In addition to easing the burden of  developing paper applications, FAA officials told us they envision that  an electronic system would enable both FAA and industry to view the  application during the application process and more easily  communicate about its progress.\n\n\tAST Has Taken Steps to Better Understand Current Workforce Needs, but Understanding of Future Needs Is Limited by a Lack of Information\n\nIn recent years, AST has improved some aspects of how it determines its  workforce needs. Our work on strategic workforce planning underscores  the importance of determining both current and future workforce needs  and identifying potential gaps in employee skills. The improvements made  to date provide AST with greater insight into the optimal number of people  currently needed in certain positions. However, these improvements do  not improve AST\u2019s ability to systematically assess the workforce needs of  its management and support offices, nor does AST project its future  workforce needs. Moreover, AST has yet to collect information on staff  skills and competencies that would enable it to identify potential gaps in  those skills, gaps that further limit AST\u2019s ability to effectively and  efficiently align its available staff resources with current and future  workloads.\n\n\t\tAST Has Improved Measurement and Analysis of Workforce Needs, but Only for Part of Its Office and within Its 2- Year Budget Cycle\n\nTo assist FAA decision makers in understanding and meeting AST\u2019s  staffing needs, AST developed and annually updates a 5-year workforce  plan for its office. The current plan\u2014covering the period from 2018  through 2022\u2014indicates that AST\u2019s approach for workforce planning has  a 5-year time frame. However, the plan discusses immediate workforce  and resource needs in general terms. One of the key principles we  identified in our prior work on effective strategic workforce planning is the  importance of determining the workforce needs that are critical to  achieving an organization\u2019s current and future programmatic goals.  Such a determination of workforce needs should include both the optimal  number of staff needed in specific positions and the required skillsets and  levels of expertise for staff.\nSince 2016, AST has taken several steps to better understand how it  uses its staff resources in carrying out its mission to license and oversee  space launch operations. The majority of AST\u2019s operations budget\u2014 about 75 percent in fiscal year 2018\u2014was used to fund salaries and  related expenses. AST now comprehensively monitors and measures  staff time spent on specific activities and measures and tracks the volume of its work\u2014information it can use to better understand workforce  needs. AST officials told us that these steps facilitate more informed  decision-making about the number of staff needed in specific positions for  the next budget cycle. However, these steps do not provide the  information AST needs to determine the optimal size and composition of  its entire workforce or enable it to project workforce needs sufficiently into  the future.\n\n\t\t\tRevised Timecard System\n\nAST launched a revised timecard system in June 2016 to more  comprehensively account for staff time spent on specific activities.  According to AST officials and our review of relevant documentation,  including a list of revised time codes, the revised system allows staff to  record hours worked on individual tasks, such as launch observations or  consultations with launch companies prior to application submission (i.e.,  pre-application consultation), training, and leave. Time codes were  revised for all AST staff\u2014that is, staff in its five operational divisions,  management office, and two support offices (see fig. 6)\u2014to account for all  major tasks they perform. AST officials told us that the new timecard data,  in combination with workload metrics, can help inform its current  workforce needs.\nFor its five operational divisions, AST officials have developed and  continue to refine a set of workload metrics, which, along with other data,  enable AST to identify the resources that are used to carry out key AST  activities, such as licensing and overseeing launches. These metrics track  the number of work activities (e.g., regulatory waivers issued or safety  inspections conducted) that are ongoing or were completed over a certain  time period. For example, in fiscal year 2018, AST was engaged in pre- application consultations with about 23 commercial launch providers and  was evaluating more than 16 license applications on average per month.  Officials analyze these metrics in combination with timecard data to  determine the number of staff hours and average number of days spent  completing specific activities. For example, between March and August  2017, FAA officials reported that for each ongoing project, staff spent an  average of about 60 hours per month on pre-application consultations.  Officials plan to use the results of this analysis in the fiscal years 2021\u2013 2022 budget cycle to help estimate the number of staff currently needed  in specific positions within its five operational divisions.\nHowever, with regard to its management and two support offices\u2014 which  represent about one-third of AST\u2019s total staff\u2014AST has not yet developed  workload metrics. Staff in AST\u2019s management and support offices are  responsible for overseeing research and development; advising and  assisting other offices on technical matters; coordinating and liaising with  international entities and other federal agencies; as well as performing  other support operations, such as budget and financial planning.\nOfficials told us that although they would like to develop these metrics,  they put the effort on hold because of competing priorities within AST,  such as updating its licensing regulations. Officials said that they had first  focused on better understanding the workforce needs of the operational  divisions, which have responsibility for the majority of AST\u2019s primary  mission areas, such as licensing and overseeing launches. In discussing  this approach AST officials stated that recent budget constraints have  limited their ability to address all of their current identified workforce  needs, which, according to their most recent workforce plan, are in nearly  all areas of their office. As a result, officials said that they use their limited  number of authorized positions to fill their most immediate workforce  needs, typically in the operational divisions.\nHowever, without workload metrics that would allow AST to determine the  number of staff needed for its workload regardless of what office or  division, it is difficult for AST to determine the appropriate number and  composition of staff to most effectively carry out its statutory priorities and  help ensure that it uses its limited resources in the most efficient way. In  addition, AST officials told us that they recognize that past hiring  decisions and balance of workload among staff may not have been fully  aligned with AST\u2019s statutory priorities and that the composition and ratio  of staff may no longer be appropriate given the evolution of the industry  and the revised regulatory structure under way. As a result, officials  stated that in the coming months they intend to take a fresh look at the  organization of the Office of Commercial Space Transportation as a  whole to better balance the needs of the industry with the organizational  requirements. In addition to developing an Office of Spaceports, as  required by the FAA Reauthorization Act of 2018, officials told us that  they will consider re-organizing the offices and divisions, as well as the  workload and staff currently within them.\n\n\t\t\tWorkload Projections\n\nAST also has taken steps to improve its ability to estimate its workload for  a 2-year budget cycle, which, according to AST officials, will help them  determine and justify near-term workforce needs. Specifically, from the  new workload metrics discussed above, AST officials told us they had  identified five key activities that best reflect historical workload trends  and that officials then plan to combine with their assumptions about how  the industry will evolve over the next 2 years. Officials told us that they  plan to use this approach for the first time in the fiscal years 2021\u20132022  budget cycle. In past budget cycles, AST relied primarily on the projected  number of launches to estimate its workload; this number, officials noted,  is the most important factor but resulted in an incomplete reflection of the  five operational divisions\u2019 workload. For example, officials told us that the  workload of its operational divisions encompasses a range of activities  leading up to a launch that would not be captured in its workload  estimates if AST only looked at the number of launches. Now, under their  planned approach, AST officials said that they will better account for the  full range of regulatory activities and the timeline of its licensing process.\nWhile planned improvements to AST\u2019s workload estimates better account  for the full range of AST\u2019s regulatory activities, limiting these estimates to  the 2-year budget cycle reduces AST\u2019s ability to anticipate and respond to  emerging workforce needs. AST recognizes the importance of longer- term workforce planning by developing and annually updating a 5-year  workforce plan. Also, as noted above, key principles for effective strategic  workforce planning emphasize the importance of forward-thinking  planning to help organizations align their workforce to meet future  programmatic goals. According to AST officials, they estimate the  workload for 2 years in part because it is intended to help them identify  and justify workforce needs during the 2-year budget process, as well as  prioritize addressing immediate workforce needs. Officials also said that  substantial uncertainty surrounds longer-term industry forecasts, and  consequently, any assessment of longer-term workforce needs. For  example, they pointed to a number of factors that lead to the  unpredictability of how the industry will evolve, including the variable pace  at which new launch companies progress and the future of the  commercial suborbital launch sector, particularly the nascent space  launch tourism industry. They also noted that a launch vehicle accident or  other risks could affect the industry\u2019s rate of growth.\nIn our prior work, we have discussed some approaches used by other  agencies to help assess future workforce needs when faced with  uncertainties. One approach involves scenario planning, in which a  federal agency operating in a changing environment used a range of  scenarios, each of which represented different future environments that  the agency may face, to help predict how the scope and volume of its  activities might change in each scenario. For AST, such an approach  could entail developing a range of workload projections based on different  industry and regulatory environments that it thinks it may face, along with  associated workforce management strategies to address those  environments.\nAST officials said that they were considering projecting their workload  estimates further into the future and intend to work with FAA\u2019s Office of  Aviation Policy and Plans\u2014the office that helps develop FAA\u2019s 20-year  aerospace industry forecasts\u2014to leverage that office\u2019s forecasting  expertise. However, AST has not established a timeline with milestones  or formally committed to conducting longer-term workload projections.  Longer-term workload projections may be particularly beneficial to AST to  help make well-timed decisions about hiring and training staff and to help  ensure AST has qualified staff available when they are needed. For  example, according to officials, it can take a few years for systems safety  engineers to be trained and have the sufficient experience to lead  projects. Further, AST officials told us that hiring technically qualified  personnel, including positions that require considerable training and  experience to be a fully functioning employee, is challenging. Without an  understanding of its projected workload beyond a budget cycle, AST will  be limited in its ability to effectively and strategically plan for its longer- term workforce needs and take action when the opportunity arises. As  such, AST remains at risk of not having the right number of staff in the  right positions to keep pace with and respond to changes in the  commercial space transportation industry.\n\n\t\tAST Lacks Information to Identify Gaps in Staff Skills and Competencies\n\nOur prior work on strategic workforce planning underscores the  importance for organizations to determine the skills and competencies  that are critical to successfully achieving their current and future missions  and goals. Once the necessary skills and competencies have been  identified, key principles for effective strategic workforce planning call for  an organization to identify\u2014and subsequently develop strategies to  address\u2014gaps between the skills and competencies needed and those  that its workforce has. Those gaps should include both current skills gaps  (i.e., skills that its workforce currently needs but does not possess) and  emerging skills gaps (i.e., skills that its workforce may need in the future  but does not possess). Further, according to federal Standards for  Internal Control, an organization\u2019s management should ensure that the  workforce skills necessary to achieve programmatic goals are continually  assessed. This step is especially important as changes in national  security, technology, budget constraints, long-term fiscal challenges, and  other factors may occur in the environment within which federal agencies  operate.\nAST, however, does not currently collect the information needed for it to  conduct a skills gap analysis. Rather, AST has a basic understanding of  the skills and competencies of its workforce. For example, its current  workforce plan includes the following information on AST\u2019s workforce:\nLevel of education\u2014the percentage and number of employees having  attained bachelor\u2019s, master\u2019s, and doctorate degrees.\nOccupation\u2014the percentage and number of employees in mission- critical occupations (e.g., aerospace engineers).\nAge\u2014the percentage and number of employees by age range.\nTenure\u2014the average number of years employees have been in their  current position and employed by FAA.\nRetirement eligibility\u2014the number of employees who will be eligible to  retire each year during the 5-year period of the staffing plan.\nAST officials acknowledged that the workforce information it currently  collects is insufficient to allow them to systematically identify gaps in  specific staff skills or competencies\u2014such as expertise in flight safety  analysis or launch vehicle propulsion\u2014needed for evaluating certain  launch license applications. Officials told us that they do prioritize filling  positions, through hiring or contracting, that address the organization\u2019s  most immediate needs. However, this strategy focuses on positions, as  opposed to identifying specific skills or competencies within those  positions.\nAST officials told us that they are planning to develop and annually  administer to staff and managers a skills assessment survey that would  collect information about the specific skills and competencies that  individual staff currently possess. Officials told us that the results of the  survey would allow them to assess the current skills of AST\u2019s workforce  and in combination with other information, such as expected attrition and  retirement rates, help identify current and emerging skills gaps. In July  2018, officials told us that they plan to complete the survey and  administer it in time for inclusion in their workforce plan for fiscal years  2019\u20132023, estimated to be issued in April or May 2019. However,  officials subsequently stated that their survey plans have been delayed  for multiple reasons, including DOT\u2019s lapse in appropriations. Accordingly,  as of May 2019, AST had neither developed a draft of the skills  assessment survey, nor established a formal timeline for finalizing it or a  plan for periodically administering the survey. Furthermore, officials told  us that they are currently negotiating with the union\u2019s bargaining unit to  gain approval to administer a survey that does not maintain anonymity to  non-management staff. They said that if they cannot obtain the bargaining  unit\u2019s approval, they will need to develop an alternative plan because they  do not believe that collecting anonymous data on staff skills would allow  them to identify skills gaps for these staff.\nOfficials told us that they also intend to include in the survey skills and  competencies that may be needed in the future. They stated that they did  not know for certain if or how they would identify what those new skills  might be, but that they are considering soliciting feedback from industry  stakeholders, such as through FAA\u2019s Commercial Space Transportation  Advisory Committee, to help identify any future competencies that may be  needed as a result of the evolution in the industry.\nWithout systematic information on specific skills and competencies of its  entire workforce, AST lacks reasonable assurance that its current  workforce possesses the requisite skills and competencies and may not  be able to efficiently identify opportunities to move staff within AST to help  address identified skills gaps. And, ultimately, AST may not be prepared  to make strategic decisions on how to address emerging skills gaps and  align its staff to achieve future programmatic goals, such as identifying  and acquiring potential new skills and competencies needed under a  revised regulatory structure.\n\n\tFAA Is Exploring Technological and Procedural Solutions to More Efficiently Accommodate Commercial Space Operations\n\n\t\tFAA\u2019s Current Approach to Accommodating Launch and Reentry Operations Results in Inefficiencies for Airspace Users and FAA\n\nFAA officials and representatives from the commercial space and aviation  industries we met with agree that FAA\u2019s current approach to  accommodating commercial space launch and reentry operations into the  National Airspace System (NAS) is inefficient. FAA has the  responsibility for ensuring the safe and efficient use of the NAS, a limited  national resource, for and by all users, including commercial and  business airlines and commercial launch providers, among others. To this  end, according to FAA officials and documents describing operational  procedures and risk evaluation, FAA takes measures during a  commercial space operation aimed at preventing fatalities, injuries, and  property damage, and ensuring that nothing interferes with the launch  vehicle\u2019s operations.\nFAA\u2019s current approach, as described in documents that explain how FAA  mitigates risk to people and property during a space launch, is to close  the airspace around a commercial launch operation\u2014in some cases  hundreds of square miles for several hours\u2014to other airspace users,  such as commercial airlines. Prior to launch, FAA establishes the size  and duration of the airspace closure, also known as an aircraft hazard  area, and, days ahead, notifies potentially affected airspace users about  the upcoming closure. FAA calculates the size and boundaries of the  aircraft hazard area generally based on the risk to life and property posed  by a launch vehicle\u2019s expected trajectory, as well as potential trajectories  in the case of a vehicle\u2019s failure and the subsequent paths of falling  debris. The duration of the closure is generally dependent on the period  of time in which the launch or reentry is expected to occur\u2014known as a  launch window\u2014which varies by the type of launch or reentry vehicle,  among other things. The aircraft hazard area extends from sea level up to  unlimited height, and generally does not change in size or shape during  the entirety of the launch window (see fig. 7).\nAccording to FAA officials, the designated aircraft hazard areas are larger  and remain in effect longer than may actually be needed to ensure public  safety. For example, according to FAA officials and launch  documentation, to protect public safety, the duration of an airspace  closure is always longer than the launch window. In fact, in some cases,  the airspace closure may be scheduled for more than 3 hours, which is  substantially longer than the time typically required for space launch and  reentry operations from Cape Canaveral (about 30 minutes). FAA officials  explained that they are not able to monitor or respond to dynamic  circumstances associated with space launch vehicles in the NAS in real- time. As a result, FAA closes the airspace for when and where it is  potentially\u2014rather than actually\u2014hazardous.\nFAA officials told us that the agency\u2019s approach to date for  accommodating space launch operations into the NAS has helped ensure  public safety during launches. For instance, during fiscal years 1989  through 2018, FAA reported that it licensed 357 launches or reentries,  and in this time there were no fatalities, serious injuries, or significant  property damage to the uninvolved public. However, according to FAA  officials and research, FAA\u2019s approach creates inefficiencies in how the  airspace around launch operations is used\u2014such as causing flight delays  for commercial airlines. FAA officials and commercial space industry  representatives said it also makes scheduling these operations more  challenging for launch providers, and affects FAA\u2019s operational efficiency.  The effects on each of these groups are described below.\nCommercial airlines. FAA has estimated that, in fiscal year 2017,  about 1,200 commercial airline flights were directly affected\u2014that is,  rerouted or delayed\u2014around 22 space launch operations, resulting in  an estimated 39,000 additional miles flown. The majority of these  miles were flown in proximity to Cape Canaveral in Florida, which  hosted the majority of domestic launches that year. FAA further  estimated that, of the 15 space launches from January to October  2018 around Florida where airspace tends to be busy due to the high  volume of commercial airline traffic along the East Coast, an average  of 60 aircraft per launch were directly affected. For all commercial  launch sites, FAA estimates that the number of directly affected  aircraft ranged up to 153 for an individual launch with an average of  fewer than 10 aircraft per launch outside of the Florida area.  According to FAA officials, these estimates are based on historical  data on the number of aircraft that typically fly through that area at the  time of the airspace closure. Because launches can be delayed by  hours or days for reasons such as unforeseen weather conditions or  technological issues, airlines and other affected airspace users may  face challenges when attempting to plan around a launch to avoid  flight reroutings and delays. Representatives of a major airline trade  association told us that the spread of launch activity beyond Cape  Canaveral, as well as the development of new launch vehicles, has  heightened their concerns about inefficiencies in how airspace around  launch operations is used.\nLaunch providers. The size and duration of aircraft hazard areas can  make it difficult for FAA to find time slots to accommodate commercial  space launches because of its responsibility to ensure the efficient  use of the national airspace, a limited resource. All the launch  providers we spoke with that had conducted launches at U.S.  commercial launch sites said they have been able to find suitable  launch windows that met with FAA approval. However, one launch  provider told us of an occasion when FAA had denied the originally  requested launch date and time because it fell within a time of  unusually congested airspace. In addition, more than half of the  launch providers told us that they anticipate challenges obtaining  approval for a requested launch date or time in the future.\nFAA. In addition to effects on NAS users, FAA officials told us that  FAA itself also experiences operational inefficiencies in managing air  traffic during launches. This inefficiency is, in part, because FAA\u2019s  current policies and procedures were developed for aircraft operations  and either have not yet been fully adapted for commercial space  operations, or a relevant policy or process is missing altogether. For  example, FAA\u2019s current procedures for launch providers and FAA to  follow when they request, schedule, and conduct launches require  different FAA facilities to negotiate unique agreements for each  separately licensed operation or activity. This process can be time- consuming. For example, one launch provider told us that it took 1\u00bd  years to finalize minor changes to a letter of agreement. As we  discuss later, FAA is taking steps to standardize these letters.\n\n\t\tFAA Aims to Increase Efficiency of Launch Integration through New Technologies, Procedures, and Industry Coordination\n\nAccording to FAA documentation and officials we spoke to, FAA aims in  the long term to increase utilization of the NAS by integrating launch  vehicle operations into the NAS with other users, rather than its current  approach of segregating launch and reentry operations through airspace  closures. Specifically in 2011, FAA began identifying actions it could take  and developing plans to address challenges associated with closing  portions of the airspace during launch operations. It did so in light of the  increasing frequency of commercial space launch and reentry operations  and the spread of operations to new locations. According to FAA officials,  the actions and plans continue to evolve as FAA learns more and reacts  to anticipated changes in the commercial space transportation industry.\nFurther, officials told us that FAA\u2019s vision for full integration of commercial  space launch operations cannot be defined by a single solution or an end  goal because the demands of these operations on the NAS are constantly  changing. Consequently, FAA officials said that full integration of  commercial space operations into the NAS will reflect a collection of  visions or approaches that improve predictability and efficiency while  maintaining safety. For example, according to FAA documents and  officials we spoke to, FAA\u2019s approach for experimental launches will  always be to close the airspace around the launch to other users. In  contrast, FAA may develop standards for some launch vehicles, such as  hybrid launch vehicles with repeated successful operations, which specify  a safe distance and duration of separation in the airspace.\nFAA has two key internal documents to help guide the development and  implementation of its actions as it seeks to better integrate commercial  space launches and reentry operations into the NAS and reduce FAA\u2019s  operational inefficiencies.\nA concept of operations: FAA officials expect to finalize a concept of  operations in 2019, which will provide a long-term, high-level vision for  FAA\u2019s efforts to efficiently integrate commercial space operations.  According to FAA officials, it will describe, among other things, FAA\u2019s  existing approach to and associated shortfalls in accommodating  commercial space operations, as well as proposed tools, policies, and  procedures to address those shortfalls. According to FAA officials, it  also will inform FAA\u2019s current and future efforts to identify needs for  new or modified technologies, tools, procedures, and policies.\nRoadmap for the Integration of Space Operations in the National  Airspace System (Roadmap): This document serves as a planning  and tracking tool for FAA\u2019s operational arm\u2014the Air Traffic  Organization\u2014to use as it seeks to more efficiently manage the  airspace during commercial space launch and reentry operations  while maintaining safety. It identifies, prioritizes, and tracks the  specific changes needed to begin addressing the related shortfalls  that FAA officials told us will be discussed in the concept of  operations. According to the Roadmap, some of the activities are  exploratory, and FAA expects that new activities will be identified and  added to the development schedule as FAA continues to work with  stakeholders to determine how best to manage the airspace, and  conceptualizes and develops key technologies. The first Roadmap  was released in November 2016, and, according to FAA officials, FAA  plans to update it annually. FAA officials told us they expect to release  the third and most recent version in 2019. The activities it identifies  are divided into: short-range (to have been completed in calendar  year 2018); mid-range (through 2022); and long-range (through 2023  and beyond) time frames, during which FAA plans to develop and  incorporate new technologies, policies, processes, and regulations.\nIn completing the actions needed to implement the approaches outlined in  the Roadmap, FAA officials told us that they are actively working with  FAA\u2019s Performance Analysis Directorate to develop a set of metrics to  measure the progress and effectiveness of its actions. Officials also  highlighted that because the demands of commercial space operations on  the NAS are constantly changing, as noted above, there is no defined end  goal. To this end, the purpose of any metrics officials develop will be to  help determine if their actions are helping increase efficiency while  maintaining safety, not measure their progress toward a goal of full  airspace integration. FAA officials told us they plan to have a set of  metrics completed by early 2019. Some of these metrics will likely use  currently available data, such as the number of aircraft rerouted and how  many additional miles rerouted aircraft fly, while others are still being  identified. Further, FAA officials told us that FAA coordinates actions  related to commercial space integration through an interagency working  group established in 2015. The group meets monthly and members  include officials from across FAA lines of business, as well as other  federal agencies, including the Department of Defense.\nThe Roadmap shows that FAA\u2019s actions to better integrate commercial  space launch and reentry operations into the NAS include, but are not  limited to: developing new technologies; updating and assessing needed changes to policies, procedures, and  coordinating with aviation- and space-industry stakeholders.\n\n\t\t\tTechnology\n\nFAA\u2019s technology efforts are related primarily to collecting real-time data  on a launch vehicle\u2019s position and path, automatically generating the  required aircraft hazard area, and integrating those data into the existing  structure of the air traffic control systems. As a result, FAA officials said  that FAA may ultimately be able to dynamically change the size and  duration of the aircraft hazard area in some types of launches, thereby  reducing the amount and duration of airspace closed to other users.\nIn the short term, FAA is assessing how existing air-traffic control  technologies and procedures could be used to help reduce the effects of  launches on other NAS users. According to an FAA official, for example,  four initiatives currently used to manage air traffic during other airspace  constraints could potentially be used during space launch operations.  One initiative would enable air traffic controllers to strategically control the  number of flights approaching the aircraft hazard area so that if these  flights were in the hazard area at the time of a launch vehicle failure,  controllers could still clear the area quickly enough to protect public  safety. This FAA official told us that if they decide to pursue these  initiatives, they hope to complete some of the necessary steps to do so by  summer 2019.\nFor potential use in the longer-term, FAA is piloting prototypes of two key  technologies by running them alongside existing air-traffic control systems  during selected launches, thereby testing their capabilities without their  being fully operational.\nThe Space Data Integrator (SDI) is designed to receive real-time data  on launch vehicle position and movement and display real-time  aircraft hazard areas to enable improved situational awareness. FAA  officials told us that, as FAA is assessing approaches to shift from  static to more dynamic hazard area calculation capability, initial SDI  capabilities will likely be deployed in advance of more integrated and  improved real-time hazard area generation capabilities. In addition,  FAA officials told us that they are exploring alternative acquisition  strategies that could enable partial system implementation for the  technology by 2022. Because FAA has not made a final investment  decision, the date of system-wide implementation of SDI is unknown.\nAccording to FAA officials, the Hazard Risk Assessment and  Management (HRAM) tool, if pursued, is intended to help  automatically communicate SDI data to air traffic control systems and,  in the future, to present air traffic controllers with information that  would allow them to decide how to best manage the airspace.  Officials also said that HRAM involves modifying an existing air traffic  management tool, currently has very limited capabilities, and is still  only under consideration as a possible approach. Over the next year  these officials plan to work on some of the tool\u2019s components, assess  what types of data are valuable to air traffic controllers, and determine  whether to continue developing this technology or consider alternative  technologies.\n\n\t\t\tPolicies, Procedures, and Regulations\n\nAccording to the Roadmap, FAA has identified policies and standard  operating procedures that need to be created or updated to enable it to  better manage the operating environment during space launches. Actions  taken to date include, for example: developing training materials to inform air traffic personnel about  commercial space operations in the NAS; developing a high-level strategy for integrated space vehicle  operations going forward; and  standardizing the terms of reference for commercial space operations  for use by FAA, NASA, and DOD.\nIn addition, according to the Roadmap, FAA plans to standardize some  letters of agreement\u2014the document specifying procedures that a launch  provider and FAA use to request, schedule, and conduct launches.  Officials said they hope to issue documentation of these changes by  September 2019. FAA officials told us that these changes will result in  letter of agreement templates for use by FAA. FAA officials said FAA also  plans to continue reviewing its regulations, policies, and procedures to  identify other areas that need updating or entirely new language.\n\n\t\t\tIndustry Coordination\n\nFAA is taking steps to foster coordination between commercial space and  aviation industries to help develop and increase buy-in for new and  revised approaches to improve the efficiency of the national airspace for  all users. Most notably, in November 2017, FAA chartered an aviation  rulemaking committee to examine the issue of equitable airspace access  among various users. Committee members include a mix of commercial  space transportation and aviation industry representatives. Topics being  addressed include identifying potential criteria that FAA may use when  considering competing user priorities for airspace, as well as potential  tools that could help mitigate the effects on other airspace users during  launch operations. FAA officials told us that the committee anticipates  issuing a report and recommendations to FAA in April 2019, and some  members of the committee highlighted that the meetings benefited their  understanding of other users\u2019 unique needs; economic benefits; and  experiences with regard to integrating space operations.\nAlso, an FAA official said the agency has sponsored four \u201cIndustry Days\u201d  events since 2014 for the commercial space industry. At each event,  multiple FAA offices discussed their roles and responsibilities associated  with space launches and answered questions from industry. For the first  time, at its 2018 event, FAA invited aviation industry representatives to  encourage continued dialogue between the commercial space and  aviation industries. FAA officials also noted that they solicited ideas on  priority actions from participants and are currently reviewing those ideas  to help inform their next steps. Separately, FAA expanded the  membership of its Commercial Space Transportation Advisory Committee  to include representatives of the aviation industry in addition to the  commercial space transportation industry to foster further dialogue  between these groups.\n\n\tConclusions\n\nThe commercial space transportation industry provides a service that has  become essential to many aspects of government, business, and society.  The capability to launch payloads into space enables national security  missions, mobile communications, and scientific research, among many  other applications. AST\u2019s role as a regulator of commercial space launch  providers is fundamental to the continued safe growth of the industry.  With the anticipated growth and potential organizational restructuring of  AST, as well as the evolution of the commercial space transportation  industry, it is vital that AST ensure that the size, composition, and skills of  its workforce are aligned with its projected workload, based on anticipated  future mission and programmatic goals. AST\u2019s workforce plan states that  AST needs additional staff in nearly all areas. However, current budget  and long-term fiscal pressures heighten the need for agencies to  strategically manage their workforce, a process that includes making  strategic decisions about how and where to prioritize limited resources.  AST does not have a complete understanding of its current and projected  workload, nor does it know the number of staff and types of staff skills  and competencies necessary to meet those workload needs. Without this  information, AST risks managing its workforce reactively to a rapidly  changing environment instead of strategically planning for the future.\n\n\tRecommendations for Executive Action\n\nWe are making the following four recommendations to FAA:  1.  The Associate Administrator of AST should develop workload metrics  that encompass the whole office and that would allow AST to  determine an appropriate workforce size and composition.  (Recommendation 1)  2.  The Associate Administrator of AST should establish a timeline for  finalizing workload projections that extend beyond the 2-year budget  cycle and that include an approach for addressing uncertainty.  (Recommendation 2)  3.  The Associate Administrator of AST should ensure that its skills  assessment survey collects information from staff on skills and  competencies in those areas that are both currently needed and may  be needed in the future. (Recommendation 3)  4.  The Associate Administrator of AST should develop and document a  plan for periodically assessing whether staff possess the necessary  skills and competencies to achieve programmatic goals, such as  annually administering a skills assessment survey. (Recommendation  4)\n\n\tAgency Comments\n\nWe provided a draft of this product to DOT and NASA for review and  comment. In its written comments reproduced in appendix III, DOT  concurred with our recommendations. DOT and NASA also provided  technical comments that we incorporated, as appropriate.\nWe are sending copies of this report to the appropriate congressional  committees, DOT, NASA, and other interested parties. In addition, the  report is available at no charge on the GAO website at  http:\/\/www.gao.gov.\nIf you or your staff members have any questions about this report, please  contact me at 202-512-2834 or KrauseH@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix IV.\n\nAppendix I: Objectives, Scope, and Methodology\n\nOur objectives for this report were to: (1) describe how the construction of  infrastructure at selected U.S. commercial launch sites has been funded;  (2) describe key factors that influence where orbital launches occur; (3)  summarize actions the Federal Aviation Administration (FAA) has taken  to streamline its commercial space launch regulations; (4) examine how  well-positioned FAA\u2019s Office of Commercial Space Transportation (AST)  is to determine its current and future workforce needs; and (5) identify  actions FAA is taking to better integrate commercial space launch  operations into the National Airspace System (NAS).\nThe scope of this report focuses on topics related to FAA\u2019s oversight of  the U.S. commercial space transportation industry. Therefore, the report  does not discuss launch indemnification and the safety of human  spaceflight, or examine international outer space treaty obligations.\nFor all objectives, we reviewed relevant statutes, regulations, and  directives governing FAA\u2019s oversight of the U.S. commercial space  transportation industry. In addition, we interviewed AST officials and  conducted semi-structured interviews with all seven commercial space  launch providers that had conducted an FAA-licensed launch operation  as of January 2018.\nTo describe how infrastructure at selected commercial launch sites has  been funded, we first identified, through review of FAA information on  launch site operator licenses and launch licenses, all U.S. commercial  launch sites\u2014those that have an FAA site operator license to conduct  commercial launch operations and those that may not have a site  operator license but have hosted FAA-licensed launch operations. From  these 15 identified U.S. commercial launch sites, we selected 9 for review  because the launch site has hosted FAA-licensed launch operations  between January 1, 2015, and December 31, 2018. We reviewed relevant  publicly-available documents, such as launch sites\u2019 business plans, user  guides, and other planning documents related to U.S. commercial launch  sites. We interviewed the eight launch site operators of the nine selected  launch sites. The perspectives of the selected launch site operators are  not generalizable to those of all launch site operators; however, the  information obtained provides a balanced and informed perspective on  the topics discussed.\nIn addition, we interviewed members of the Commercial Spaceflight  Federation\u2019s working group on commercial launch sites. See table 2 for a  full list of entities interviewed.\nTo describe key factors influencing where orbital launches occur, we  reviewed data from FAA\u2019s 2018 Annual Compendium of Commercial  Space Transportation as well as FAA data on recent launches within the  United States. We interviewed representatives from seven launch  customers, selected based on the following criteria:\nThe company is not a government entity.\nThe company\u2019s payload was commercial, as documented in FAA\u2019s  commercial space launch compendiums.\nThe customer had multiple launches in 2016 and 2017, with at least  one of those launches occurring in 2017.\nThe customer has had at least one launch in the United States that  was licensed by FAA.\nAmong the companies that met these criteria, we chose our final  selections to have a mix of the following characteristics: domestic and non-U.S. companies,  those that had launched exclusively at one launch site versus multiple  launch sites, and  those that are involved in traditional space activities, such as satellite  communications companies and remote-sensing companies and  those that are pursuing non-traditional space activities, such as  asteroid mining and satellite servicing.\nThe perspectives of the selected launch customers are not generalizable  to those of all launch customers; however, the information obtained  provides a balanced and informed perspective on the topics discussed.\nTo summarize actions FAA is taking to streamline its commercial space  launch regulations, we reviewed relevant statutes, regulations, and FAA  guidance. We also reviewed FAA\u2019s documents related to the rulemaking,  including its schedule of rulemaking activities and the Streamlined Launch  and Reentry Licensing Requirements notice of proposed rulemaking  issued in April 2019, and reviewed and analyzed the Streamlined Launch  and Reentry Licensing Requirements Aviation Rulemaking Committee  final report. We interviewed FAA officials and representatives of the  Commercial Spaceflight Federation about FAA\u2019s ongoing and planned  actions related to the rulemaking. Finally, we reviewed the minutes from  the June 2018 meeting and attended the October 2018 meeting of the  Commercial Space Transportation Advisory Committee, in which FAA  officials and industry representatives discussed FAA\u2019s actions on the  rulemaking.\nTo examine how well-positioned AST is to make strategic decisions about  its current and future workforce needs, we reviewed FAA documents,  including its budget justification and workforce plans from the past 3  years. We also reviewed FAA\u2019s year-end reports on its workload metrics  from fiscal years 2017 and 2018, and portions of FAA\u2019s preliminary labor  analyses using its revised timecard data and workload metrics. We  identified key principles on effective strategic workforce planning from our  previous work to use as criteria to assess FAA\u2019s actions. We interviewed  AST officials about their plans and actions to improve its workforce  planning and assessed those actions against the identified key principles  for effective strategic workforce planning. We focused our analysis on  those principles that are related to determining current and future  workforce needs.\nTo identify actions FAA is taking to better integrate commercial space  launch operations into the National Airspace System, we reviewed and  analyzed relevant FAA documents, including a document that discusses  FAA\u2019s vision for integrating commercial space transportation operations  into the NAS and the Roadmap for the Integration of Space Operations in  the National Airspace System. In addition, we interviewed FAA officials  within AST, Air Traffic Organization, and the Office of NextGen regarding  their ongoing and planned actions for improving the integration of  commercial space transportation operations into the NAS. We also  interviewed industry stakeholders to obtain perspectives on this topic.\nThese stakeholders included representatives from Airlines for America, a  trade association for the U.S. airline industry, and from launch providers.  Finally, we attended an FAA-sponsored industry conference in October  2018 on FAA\u2019s airspace integration efforts.\nWe conducted this performance audit from July 2017 to May 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.\n\nAppendix II: Selected Characteristics and Capabilities of U.S. Commercial Launch Sites\n\nTable 3 shows selected characteristics and capabilities of U.S.  commercial launch sites included in our review of infrastructure funding.  Table 4 includes other U.S. commercial launch sites that did not have  FAA-licensed activity from 2015 to 2018 and were not included in our  review of infrastructure funding.\n\nAppendix III: Comments from the Department of Transportation\n\nAppendix IV: GAO Contact and Staff Acknowledgments\n\n\tGAO Contact\n\n\tStaff Acknowledgments\n\nIn addition to the individual named above, Heather Halliwell (Assistant  Director); Gretchen Snoey (Analyst-in-Charge); Namita Bhatia Sabharwal;  Giny Cheong; Gerald L. Dillingham; Camilo Flores; Joshua Garties;  Richard Hung; Delwen Jones; Elke Kolodinski; Maureen Luna Long;  Malika Rice; Travis Schwartz; and Andrew Stavisky made key  contributions to this report.","output":null}
{"id":"gao_GAO-19-337","pid":"gao_GAO-19-337_0","input":"\tBackground\n\n\t\tEXIM Financing Product Types\n\nAs described in figure 1, to support U.S. exports, EXIM offers four major  types of financing products: direct loans, loan guarantees, export-credit  insurance, and working capital guarantees. Regardless of type, EXIM\u2019s  financing products generally have one of three maturity periods: Short- term transactions are for less than 1 year; medium-term transactions are  from 1 to 7 years long; and long-term transactions are more than 7 years.\nAs we reported in July 2018, for all financing types, EXIM currently  conducts a number of preauthorization and postauthorization antifraud  activities. See the examples shown in figure 2.\n\n\t\tFraud Risk Management\n\nFraud and \u201cfraud risk\u201d are distinct concepts. Fraud\u2014obtaining something  of value through willful misrepresentation\u2014can be challenging to detect  and adjudicate because of its deceptive nature. Fraud risk exists when  individuals have an opportunity to engage in fraudulent activity, have an  incentive or are under pressure (e.g., financial pressures) to commit  fraud, or are able to rationalize committing fraud. When fraud risks can be  identified and mitigated, fraud may be less likely to occur. Although the  occurrence of fraud indicates there is a fraud risk, a fraud risk can exist  even if actual fraud has not yet been identified or adjudicated.\nAccording to the Standards for Internal Control in the Federal  Government, executive-branch agency managers are responsible for  managing fraud risks and implementing practices for combating those  risks. Specifically, federal internal control standards call for agency  management officials to assess the internal and external risks (including  fraud risks) their entities face as they seek to achieve their objectives.  The standards state that as part of this overall assessment, management  should consider the potential for fraud when identifying, analyzing, and  responding to risks. Risk management is a formal and disciplined  practice for addressing risk and reducing it to an acceptable level.\nThe leading practices in the Fraud Risk Framework call for agencies to  identify inherent fraud risks affecting the program, examine the suitability  of existing fraud controls, and then prioritize mitigating \u201cresidual\u201d fraud  risks\u2014that is, risks remaining after antifraud controls are adopted.  Specifically, according to the assess component of the Fraud Risk  Framework, managers who effectively assess fraud risks attempt to fully  consider the specific fraud risks the agency or program faces, analyze the  potential likelihood and impact of fraud schemes, and then ultimately  document prioritized fraud risks. Moreover, managers can use the fraud  risk assessment process to determine the extent to which controls may  no longer be relevant or cost-effective. Leading practices that are  consistent with this component include  conducting quantitative or qualitative fraud risk assessments at  regular intervals, or both, of the likelihood and impact of inherent risks  on the program\u2019s objectives, and determining the agency\u2019s risk  tolerance for the inherent fraud risks;  identifying specific sources for gathering information about fraud risks,  including information on fraud schemes that are reflected in  adjudicated cases of fraud; examining the suitability of existing fraud controls for preventing fraud  and mitigating fraud risks identified; and documenting in the program\u2019s fraud risk profile the analysis of the  types of inherent fraud risks assessed, their perceived likelihood and  impact, managers\u2019 risk tolerance, and the prioritization of the inherent  fraud risks and any residual fraud risks.\nAs we reported in July 2018, the Fraud Reduction and Data Analytics Act  of 2015 requires the Office of Management and Budget (OMB) to  establish guidelines that incorporate the leading practices of GAO\u2019s Fraud  Risk Framework. The act also requires federal agencies to submit to  Congress a progress report each year, for 3 consecutive years, on  implementation of the risk management and internal controls established  under the OMB guidelines. OMB published guidance under OMB  Circular A-123 in 2016 affirming that federal managers should adhere to  the leading practices identified in the Fraud Risk Framework. As we  reported in December 2018, EXIM identifies itself as subject to the act,  and, as such, follows it. The Fraud Risk Framework is also aligned with  federal internal control standards, specifically Principle 8 (\u201cAssess Fraud  Risk\u201d) of the Green Book.\nFederal internal control standards also state that excessive pressures,  such as financial pressures (e.g., delinquent federal debt), can pose a  fraud risk factor to agency programs as these pressures can provide an  incentive or motive to commit fraud. Although the existence of financial  pressure alone does not necessarily indicate that fraud exists or will  occur, financial pressure is often present when fraud does occur.\n\n\t\tDelinquent Federal Debt and EXIM Financing Programs\n\nApplicants for EXIM programs who have delinquent federal debt may not  be able to obtain certain types of financing until they resolve their debts.  Specifically, under 31 U.S.C. \u00a7 3720B, applicants who are delinquent on  federal nontax debts may not receive federal financial assistance,  including such assistance provided by EXIM, until they satisfactorily  resolve the delinquency (e.g., pay in full or negotiate a new repayment  plan). However, 31 U.S.C. \u00a7 3720B also provides that an agency head  may waive this restriction. Additionally, OMB\u2019s Circular No. A-129,  Policies for Federal Credit Programs and Non-Tax Receivables,  prescribes to agencies the policies, procedures, and standards for  screening program participants to determine whether they are delinquent  on any federal debt when applying to federal credit programs.\n\n\tEXIM Reported Antifraud Controls for Mitigating Fraud Risks Identified and a Fraud Risk Assessment That Considered Those Risks Closed Cases of Fraud Generally Involve Four Fraud Risk Factors\n\nWe identified fraud risks\u2014generally involving four overall fraud risk  factors\u2014by examining EXIM-associated court cases of fraud adjudicated  from calendar year 2012 through calendar year 2017. We then  communicated these fraud risks to EXIM, and EXIM officials reported  examples of existing controls it uses to help detect and mitigate these  fraud risks. EXIM also provided documentation reflecting its efforts to  conduct a fraud risk assessment that considered various fraud risks  affecting its major financing product lines, including fraud risks we  identified during this review.\nWe identified fraud risks\u2014generally involving four overall fraud risk  factors\u2014by examining 44 EXIM-associated closed court cases of fraud  adjudicated from calendar year 2012 through calendar year 2017.  Specifically, the various fraud risks we identified overall involved one or  more of the fraud risk factors illustrated in figure 3 below: opportunities to falsify self-reported information on applications or  financial pressures that potentially incentivized participants or  employees to commit fraud; opportunities to circumvent or take advantage of EXIM or lender opportunities to circumvent the intent of EXIM\u2019s programs by diverting  loan proceeds and other EXIM financing for personal use or benefit  instead of for the export of U.S. goods.\nSee appendix I for a summary of these 44 cases we reviewed.\nThese 44 cases illustrate the financial risks associated with fraud against  EXIM. Federal and state courts combined have ordered restitution of  $82.4 million in the 44 adjudicated cases, but much of that restitution has  not yet been paid. For example, as of October 2018, the total remaining  unpaid restitution amount is $71.6 million, or over 80 percent. In one fraud  case we reviewed, which was adjudicated in 2013, a federal court  ordered a convicted U.S. exporter to pay EXIM $8.6 million in restitution  for the fraud that he committed in a loan guarantee program. Since 2013,  the participant has paid back $25.00 of this amount.\n\n\t\tEXIM Reported Antifraud Controls for Mitigating Fraud Risks Identified in Closed Cases\n\nEXIM reported having existing antifraud controls to mitigate the fraud  risks we identified. Specifically, we communicated to EXIM the fraud risks  we identified from our review of the 44 adjudicated cases. In response,  EXIM officials described general antifraud controls the agency currently  uses to help detect and mitigate each of the fraud risks we identified. The  officials stated that EXIM has experience with all the fraud risks we  identified and stated that they were generally confident that EXIM\u2019s  antifraud controls were appropriate for mitigating the risks. EXIM officials  consider many of the fraud risks that we identified as risks that could  impact any of the agency\u2019s financing programs (i.e., credit insurance, loan  guarantees, direct loans, or working capital guarantee programs).\nEXIM officials provided examples of the general antifraud controls that  they said EXIM uses to mitigate the fraud risks we identified across all  agency financing products. According to EXIM officials and as illustrated  in figure 4 below, these controls include: fraud prevention and detection  procedures; due diligence standards; and a list of \u201cred flags\u201d that EXIM  staff should be aware of and is used to identify indicators of potential  fraud and corruption that may appear on EXIM transaction documents.  Officials said that their confidence in the controls stems from seeing a  reduction in fraud cases since the early 2000s after these antifraud  controls were put in place.\nEXIM officials clarified that this confidence does not stem from completing  a comprehensive fraud risk assessment of fraud risks impacting all of its  financing products consistent with the leading practices in the Fraud Risk  Framework.\n\n\t\tEXIM\u2019s Fraud Risk Assessment Considered Fraud Risks Identified\n\nEXIM also provided documentation reflecting its efforts to conduct a fraud  risk assessment that considered various fraud risks affecting its major  financing product lines, including fraud risks we identified during this  review. EXIM officials said that the fraud risks we identified were  generally already known to EXIM as they relate to or are very similar to  those fraud risk factors contained in EXIM\u2019s list of red flags. EXIM officials  acknowledged that assessing its fraud risks and evaluating the agency\u2019s  existing antifraud controls may indicate opportunities for EXIM to further  adapt EXIM\u2019s antifraud controls to mitigate any residual fraud risks within  its tolerance level. Such assessments can further help EXIM mitigate  fraud and the resulting effects across all product lines before they occur,  which includes the length of time it can take for EXIM to fully recover from  restitution losses after fraud has been perpetrated, as illustrated in the 44  cases presented in appendix I.\n\n\tEXIM Has Procedures for Detecting Delinquent Federal Debt Owed by Applicants and Participants but Is Missing Additional Opportunities to Use Readily Available SAM Data to Do So\n\nEXIM has procedures for detecting delinquent federal debt owed by EXIM  applicants and participants. However, EXIM is missing additional  opportunities to use readily available SAM data to identify ineligible  applicants or participants that may have delinquent federal debt, and to  use such data to determine eligibility or assess repayment fraud risk.\n\n\t\tEXIM Has Procedures to Detect Delinquent Federal Debt Owed by Applicants and Participants\n\nEXIM has procedures to detect delinquent federal debt owed by  applicants and participants that include reviewing their credit reports and  requiring applicants to certify that they and other participants do not have  such delinquent debt. Under 31 U.S.C. \u00a7 3720B, applicants who are  delinquent on federal nontax debts may not receive federal financial  assistance, including direct loans, loan guarantees, or loan insurance until  they satisfactorily resolve the delinquency (e.g., pay in full or negotiate a  new repayment plan). 31 U.S.C. \u00a7 3720B does not address delinquent  federal tax debt; however, such delinquent federal debt may also pose a  fraud risk or repayment fraud risk to EXIM\u2019s financing programs.  Additionally, OMB Circular No. A-129 prescribes to agencies the policies,  procedures, and standards for screening program participants to  determine whether they are delinquent on any federal debt when applying  to federal credit programs, including  recommending that agencies ask applicants to self-certify on their  applications that they have no delinquencies;  requiring agencies to obtain and review applicants\u2019 credit reports; and encouraging agencies to use appropriate databases, such as the  Department of the Treasury\u2019s Do Not Pay portal sources to identify  delinquent federal debtors during the application screening process.\nAccording to EXIM officials, the agency employs procedures to ensure its  policies and processes meet these requirements for applicable financing  products. Specifically, and as illustrated in figure 5 below, these  procedures include reviewing the following:\nSelf-certifications: EXIM applications for relevant financing programs  include a self-certification by the applicant that the applicant does not  have delinquent federal debt. However, as we have reported in the  past, relying on applicants to self-report adverse actions on their  applications, instead of verifying such information, could cause an  agency to miss opportunities to develop a more-complete picture of  the applicants.\nCredit reports: EXIM obtains credit reports for applicants and  participants in some financing products. In particular, EXIM\u2019s  internal Loan Guarantee and Credit Insurance Manual of 2015  communicates the 31 U.S.C. \u00a7 3720B restriction to loan officers and  instructs them to review the borrower\u2019s credit report to check whether  the borrower is delinquent on any federal debt. If the loan officer finds  that the credit report reflects such delinquent federal debt, the manual  further instructs the loan officer to advise and request guidance from  EXIM\u2019s Trade Finance Director and the Office of General Counsel.  However, as we have reported in the past, some delinquent federal  tax debt may not appear on the credit reports unless the Internal  Revenue Service has filed a lien on the delinquent federal tax debt.\nWorld Check: EXIM, through the assistance of a third-party vendor,  also makes use of some data sources listed in the Do Not Pay  sources as part of its prescreening application process and possibly  during postauthorization risk-based reviews. Specifically, EXIM  officials told us that EXIM uses Thomson Reuters\u2019s World Check  database to identify federal debts owed by applicants as part of its  Character, Reputational, and Transaction Integrity (CRTI) review  process that is managed by EXIM\u2019s Credit Review and Compliance  Division. The World Check database currently checks over 20  different watch lists and other databases, including lists of entities  excluded from doing business with the federal government maintained  in GSA\u2019s SAM. According to EXIM, other sources in the World  Check database that reveal such federal debts could also lead  indirectly to the discovery of delinquent federal debt. However, as  discussed below, this check of SAM does not involve a check of  delinquent federal debt. This CRTI review process is conducted  during the underwriting (i.e., the preauthorization review) phase and  may occur throughout the life cycle of transactions, such as during  EXIM\u2019s postauthorization risk-based reviews. EXIM officials told us  that, as part of this process, loan officers or other EXIM officials send  the names of applicants to EXIM librarians, who perform a manual  search of the World Check database, review results, and return  relevant results to EXIM officials for their consideration. EXIM officials  noted that this process can be challenging, particularly when librarians  perform searches on applicants with common names, which produce  many results that are not useful.\nEXIM officials told us that EXIM does not track information on instances in  which an applicant\u2019s delinquent federal debt prevents a transaction from  moving forward or prevents a specific applicant\u2019s participation in a  transaction. Consequently, EXIM officials told us that EXIM has no  records of this happening. However as described in greater detail below,  EXIM does not make use of readily available SAM data to identify  delinquent federal debts owed by applicants and participants, which could  limit its ability to detect instances in which applicants and participants owe  these debts.\n\n\t\tEXIM Is Missing Additional Opportunities to Use Readily Available SAM Data to Detect Applicants and Participants That May Have Delinquent Federal Debt\n\nEXIM is missing additional opportunities to use readily available SAM  registration data to identify potentially ineligible applicants and  participants that may have delinquent federal debt or may otherwise  pose a repayment fraud risk. Specifically, while EXIM employs  procedures that may reveal applicants\u2019 delinquent federal debts, as  described above, EXIM\u2019s procedures for identifying applicants and  participants with delinquent federal debt do not include a search of a  specific data element in the SAM database that can be used to detect  delinquent federal debtors. The data element we refer to here is the Debt  Subject to Offset flag, which may reflect both nontax and tax delinquent  federal debts owed. As mentioned previously, SAM is a government-wide  information system that federal agencies can use to obtain information on  businesses that do business with the federal government, including an  entity\u2019s Debt Subject to Offset status. The Debt Subject to Offset data  element in SAM indicates that the entity potentially has a delinquent  federal debt subject to collection under the Treasury Offset Program.\nThe GSA officials who maintain the SAM database told us that all federal  agencies have the legal authority to use the SAM registration database  free of charge. Specifically, all federal agencies can use this database to  manually search by an entity\u2019s name, Data Universal Numbering System  number, or Tax Identification Number for the purpose of detecting  whether the entity potentially has delinquent federal debt, such as by  identifying whether an entity\u2019s SAM record contains the Debt Subject to  Offset flag. Further, GSA officials also told us that all federal agencies  are able to request batches of SAM registration data free of charge, for  the purpose of matching these data to agency data by entities\u2019 names,  Data Universal Numbering System numbers, or Tax Identification Numbers for the purpose of identifying entities that may have the Debt  Subject to Offset flag in SAM, among other available data.\nPerforming data analytics, such as batch matching, on available data is  a leading practice cited in the Fraud Risk Framework that we have  reported can help improve agency efforts to combat fraud. In particular,  we have found in prior work that using available data to verify that EXIM\u2019s  transaction applicants are not delinquent on federal debt can help EXIM  assure applicant eligibility is consistent with federal guidance, provide  reasonable assurance of repayment, and help prevent fraud. We have  also found that using available data to independently verify self-reported  delinquent federal debt information, such as self-reported information on  delinquent federal tax debt owed, is a key detection and monitoring  component of fraud prevention.\nWe identified additional opportunities for EXIM to manually use SAM\u2019s  online database or data-matching approaches to identify applicants or  participants with potential delinquent federal debt. Specifically, we  registered in SAM to conduct several manual searches (by entities\u2019 Data  Universal Numbering System numbers, Tax Identification Numbers, and  names) and confirmed that it can be used to conduct such searches  without incurring any external costs charged by GSA. For example, we  conducted two Data Universal Numbering System number searches and  found two active EXIM participants appearing in SAM\u2019s registration  database with a Debt Subject to Offset flag. We also obtained historical  SAM data from GSA and EXIM transaction data and confirmed that these data sources could be used to identify EXIM applicants and participants  with potentially delinquent federal debt in a batch match (rather than  manual, case-by-case searches). As illustrated in our batch-matching  results below, we found this data-matching process can provide an  opportunity to match these data sets using the Tax Identification Numbers  and Data Universal Numbering System numbers for the entities in both  data sets.\nOur batch-matching analyses indicated that, from calendar year 2014  through calendar year 2016, EXIM authorized transactions that had an  aggregate authorization value of approximately $34.3 billion. Of that  amount, we found the following:\nAn aggregate authorization value of about $1.7 billion was associated  with 32 U.S.-based companies that had a delinquent federal debt  indicator in SAM in the same month that these transactions were  authorized. The transactions mostly involved U.S.-based applicants  and exporters. As mentioned above, associated parties we reviewed  included not only the applicant, but also participants involved,  including the borrower, buyer, and exporter, which may or may not be  the applicant. While the results of this analysis do not mean that EXIM  should have suspended these transactions in accordance with 31  U.S.C. \u00a7 3720B, these results nonetheless indicate that the data in  SAM that indicate delinquent federal debt could provide an  opportunity for EXIM to identify important indicators of applicants or  other transaction participants with potential delinquent federal debt  when determining their program eligibility and assessing any related  fraud risks or repayment risks they present during EXIM\u2019s  preauthorization CRTI reviews. Because the Debt Subject to Offset  flag may indicate either nontax debts or tax debts, it is possible that  some of these entities owed delinquent federal nontax debts that are  applicable under 31 U.S.C. \u00a7 3720B, indicating EXIM should have  considered suspending these transactions. However, it is also  possible that some of these entities owed delinquent federal tax debts  that are not applicable under 31 U.S.C. \u00a7 3720B, but that may pose a  fraud risk or repayment risk nonetheless. By using the Debt Subject to  Offset flag as an indicator of these delinquent federal debts and  gathering additional information on the specific facts and  circumstances of each case, EXIM would be better positioned to  assess the relevant compliance, fraud, and repayment risks an  applicant\u2019s or participant\u2019s delinquent federal debt may pose.\nAn aggregate authorization value of about $4.1 billion was associated  with 97 U.S.-based companies that had a delinquent federal debt  indicator in SAM during the transaction maturity period (i.e., after the  month they were approved, but before the transactions\u2019 maturity  date). These transactions mostly involved U.S.-based applicants  and exporters. As mentioned above, associated parties we reviewed  included not only the applicant, but also participants involved,  including the borrower, buyer, and exporter, which may or may not be  the applicant. 31 U.S.C. \u00a7 3720B may prevent applicants with federal  financial debts from obtaining loans, guarantees, and insurance; thus,  it does not apply to any delinquent federal debt accrued after loan  approval. However, we looked at potential delinquent debt accrued  after approval because delinquent debt accrued after approval and  during the transaction maturity period might affect EXIM\u2019s view of a  financing product\u2019s repayment risk. Further, EXIM already conducts  similar postauthorization monitoring to identify such risks through its  use of World Check as part of its CRTI process described above.  Thus, these results nonetheless illustrate that EXIM can use SAM  data during EXIM\u2019s postauthorization CRTI reviews to identify  transaction participants with potential delinquent federal debt and  determine the extent to which they may pose a repayment fraud risk.\nPrior to sharing our results with EXIM, EXIM officials told us that they  have access to SAM entity registration records, but they believe  searching the SAM registration database is a time-consuming process  that should be reserved for rare circumstances. Further, EXIM officials  also told us that using the SAM registration database to identify  applicants or participants that have the Debt Subject to Offset flag in SAM  would yield few results because the vast majority of their financing  program participants are foreign-based entities, and thus would not also  be contractors for the U.S. government and registered in SAM.  However, we identified many U.S.-based entities that had a delinquent  federal debt indicator either in the month a transaction was approved, or  during the transaction\u2019s maturity period, by searching in the SAM  database and analyzing SAM data for EXIM applicant and participants, as  described above. Further, it is not clear whether performing manual  searches or batch matches with SAM data to identify delinquent federal  debtors would be any more time-consuming than EXIM\u2019s current  procedures for doing so, which include manual searches of World Check  and obtaining and reviewing credit reports, as described above.\nWhen we met with EXIM officials to communicate our batch-matching  results above, they expressed concern that these results could imply that  EXIM is doing business with applicants or participants with delinquent  federal debt. They then indicated that they were interested in obtaining  SAM registration data so that they could determine whether it would be  feasible for them to perform the same type of analysis that we performed.  In a subsequent meeting, EXIM officials informed us that they were also  able to obtain current SAM registration data, analyze the SAM data  against active EXIM participant data, and find dozens of active EXIM  participants with the Debt Subject to Offset flag in SAM.\nThe results of our analyses, as well as EXIM\u2019s own experience with the  SAM data, suggest EXIM also has an additional and practical opportunity  to incorporate searches of SAM entity registration data as part of its  postapproval monitoring of transactions to enhance its monitoring of and  response to risks in ongoing transactions. Standards for Internal Control  in the Federal Government state that management should use quality  data to achieve agency objectives. For example, this could include  agencies obtaining relevant operational, financial, or compliance-related  data from reliable internal and external sources in a timely manner based  on identified information requirements, and then using such data to make  informed decisions and evaluate performance in achieving program  objectives and addressing risks.\nWithout also pursuing available debt data in SAM\u2019s registration database,  as an additional layer of due diligence, to identify applicants with  delinquent federal debt during underwriting and compliance reviews,  EXIM is potentially forgoing practical opportunities to use such data when  determining applicants\u2019 program eligibility and to adopt leading practices  for managing repayment fraud risks across EXIM\u2019s financing programs. In  particular, such available SAM data can provide opportunities to  verify independently the applicants\u2019 self-certification of delinquent  federal debts they owe and assess whether the applicants may have  misrepresented their delinquent federal debt status on their  applications, which is a fraud risk in the application process; detect potential delinquent federal debts that are not apparent in credit make informed eligibility decisions during preauthorization CRTI  reviews and assess repayment fraud risk during postauthorization  CRTI reviews.\n\n\tConclusions\n\nEXIM assumes the credit and country risks that the private sector is  unable or unwilling to accept, including the risk of losses due to fraud.  EXIM\u2019s financing products face various fraud risks, and EXIM has begun  to take steps to consider these fraud risks as part of a full fraud risk  assessment, as we recommended in July 2018. However, because it  remains unclear whether EXIM\u2019s actions fully respond to the  recommendations of our July 2018 report, we will continue to monitor  EXIM\u2019s progress in fully assessing its fraud risks. EXIM also employs  procedures to detect delinquent federal debt owed by EXIM applicants  and participants. However, EXIM is missing opportunities to use readily  available SAM data to identify applicants or participants that may  misrepresent their delinquent federal debt status and pose a repayment  fraud risk to EXIM financing programs. Applicants or participants with  delinquent federal debt could be one of many repayment fraud risks that  could indicate an increased risk of nonrepayment and incentives to  commit fraud against EXIM. EXIM officials believe searching SAM is a  time-consuming process that would yield few results. However, manually  searching SAM\u2019s online registration database for the purpose of  determining whether an applicant or participant may have a Debt Subject  to Offset flag may not be any more time-consuming than what EXIM  currently performs through its preauthorization or postauthorization CRTI  reviews. Nevertheless, we demonstrate in this report the practicality and  illustrate results of using such data through multiple approaches, such as  batch matching, without incurring any external costs charged by GSA. By  assessing the practicality of searching SAM data, EXIM may determine  that this source of data provides an additional tool for combating fraud.  Implementing these antifraud activities could further help EXIM verify  program eligibility, identify repayment fraud risk, and provide EXIM with  reasonable assurance that it is effectively and efficiently carrying out its  mission of supporting U.S. jobs and the export of U.S. goods.\n\n\tRecommendations for Executive Action\n\nWe are making the following two recommendations to EXIM:  EXIM\u2019s chief operating officer should direct EXIM\u2019s Credit Review and  Compliance Division to assess and document the practicality of  incorporating into its preauthorization CRTI reviews searches of data  elements in SAM that indicate delinquent federal debts owed by  applicants, and, if practical, implement relevant approaches\u2014such as  manual searches or batch matching. (Recommendation 1)\nEXIM\u2019s chief operating officer should direct EXIM\u2019s Credit Review and  Compliance Division to assess and document the practicality of  incorporating into its postauthorization CRTI reviews searches of data  elements in SAM that indicate delinquent federal debts owed by  applicants and participants, and, if practical, implement relevant  approaches\u2014such as manual searches or batch matching.  (Recommendation 2)\n\n\tAgency Comments and Our Evaluation\n\nWe provided a draft of this report to EXIM for review and comment. In its  written comments, reproduced in appendix II, EXIM concurred with our  recommendations and stated that it will move forward to implement them.  EXIM also provided technical comments, which we incorporated as  appropriate.\nIn its written comments, EXIM noted a number of points it referred to as  \u201ckey concerns.\u201d These points do not disagree with our findings,  conclusions, or recommendations. Specifically, EXIM stated that the 44  cases we reviewed involved transactions that were approved between  2002 and 2012 and that it will continue to work with the Department of  Justice to collect restitution payments. Additionally, EXIM stated that it is  in full compliance with 31 U.S.C. \u00a7 3720B and the related provisions of  OMB Circular A-129 guidance regarding restrictions on doing business  with delinquent federal debtors. However, assessing EXIM\u2019s compliance  with 31 U.S.C. \u00a7 3720B or OMB Circular A-129 was outside the scope of  this report.\nFinally, for the purpose of implementing our recommendations, EXIM  requested the data pertaining to the U.S.-based companies that we found  to have a delinquent federal debt indicator in SAM. To identify those  companies, we used (1) an extract of data that EXIM provided to us, and  (2) GSA SAM data, which EXIM told us it can and has already obtained  directly from GSA. We will provide EXIM with a copy of the EXIM data it  requested. However, we believe EXIM will be better positioned to assess  the practicality of checking the SAM delinquent federal debt flag by  continuing to obtain the SAM data directly from GSA.\nWe are sending copies of this report to the appropriate congressional  committees, the president and board chairman of EXIM, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http:\/\/www.gao.gov.\nIf you or your staffs have any questions about this report, please contact  me at (202) 512-6722 or bagdoyans@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.\n\nAppendix I: Summary of GAO Review of 44 Cases Adjudicated from Calendar Years 2012 through 2017\n\nThe table below summarizes the information we reviewed during our  review of the 44 Export-Import Bank of the United States (EXIM)- associated cases of alleged fraud that we were able to identify and  determine were adjudicated from calendar years 2012 through 2017.  Such information includes financing product types, dates adjudicated,  fraud schemes, fraud risk factors involved, and the amount of EXIM  restitution owed and paid to EXIM. As mentioned earlier, the fraud risks  we identified in these 44 cases related to one or more of the following four  fraud risk factors: (1) opportunities to falsify self-reported information on  applications or transaction documents, (2) financial pressures that  potentially incentivized participants or employees to commit fraud, (3)  opportunities to circumvent or take advantage of EXIM or lender controls,  or (4) opportunities to circumvent the intent of EXIM\u2019s financing programs  by diverting loan proceeds and other EXIM financing for personal use or  benefit instead of for the export of U.S. goods.\n\nAppendix II: Comments from the Export- Import Bank of the United States\n\nAppendix III: GAO Contact and Staff Acknowledgments\n\n\tGAO Contact\n\n\tStaff Acknowledgments\n\nIn addition to the contact named above, Jonathon Oldmixon (Assistant  Director), Flavio Martinez (Analyst in Charge), Mason Calhoun, Marcus  Corbin, Anthony Costulas, Adam Cowles, David Dornisch, Heather  Dunahoo, Paulissa Earl, Colin Fallon, Dennis Fauber, Jennifer Felder,  Dragan Matic, Maria McMullen, Christopher H. Schmitt, Albert Sim,  Sabrina Streagle, and Steve Westley made key contributions to this  report.","output":null}
{"id":"gao_GAO-19-512","pid":"gao_GAO-19-512_0","input":"\tBackground\n\nIn the early 2000s, the Navy conceived of a new small surface combatant  concept known as LCS. This ship was intended to offer the Navy an  affordable, flexible platform that would be able to swap out surface  warfare, anti-submarine warfare, or mine countermeasure mission  packages to provide for one of those mission needs. As we found in  multiple reports, the Navy\u2019s vision for LCS evolved significantly over time  in response to diminished capability expectations and significant cost and  schedule growth. In 2014, the Secretary of Defense directed the Navy to  evaluate alternatives to LCS, citing survivability and lethality concerns.  This represented the beginning of the Navy\u2019s pursuit of a solution to  address LCS shortcomings and the evolving threat environment  acknowledged by the department.\nThe Navy initially envisioned quickly fielding a frigate\u2014referred to as the  FF program\u2014based on a minor modified LCS design. The ship was  expected to provide a more lethal and survivable multi-mission ship  capable of simultaneous surface and anti-submarine warfare, with a  planned contract award for the lead ship in 2018. In 2016, we found that  the Navy\u2019s planned upgrades for FF did not significantly improve certain  survivability areas and lacked capabilities that were prioritized by fleet  operators, such as the ship\u2019s range of travel without refueling. Then, in  April 2017 we found the Navy\u2019s aggressive FF acquisition schedule  increased risk to the government because it included a commitment to  buy ships in advance of adequate knowledge. In May 2017, the Navy  announced it was revising its frigate plans and began pursuing FFG(X).\n\n\t\tShipbuilding Best Practices\n\nIn 2009, we identified commercial shipbuilding best practices that could  be adapted for use by the Navy. We found that successful shipbuilding  programs have sound business cases built on attaining critical levels of  knowledge at key points in the shipbuilding process before significant  investments are made, as shown in figure 1.\nRegardless of the differences between Navy and commercial  shipbuilding, knowledge attainment is crucial to success. Executable  business cases use realistic cost and schedule targets to meet  performance and quality expectations by balancing inherent uncertainties  in acquisition programs. A solid business case provides for the resources  necessary to mitigate challenges, such as immature technologies and  design requirements. The greater the potential for challenges to occur,  the more time and money should be factored into the business case to  address them. The Navy has previously agreed, in principle, that  knowledge should be attained prior to key milestones to better ensure  ships are built to established cost, schedule, quality, and performance  standards.\n\n\t\tNavy Shipbuilding Acquisition Framework\n\nIn general, the Department of Defense (DOD) acquires new weapon  systems, such as Navy surface combatants, through a management  process known as the Defense Acquisition System. Under this system,  programs typically complete a series of milestone reviews and other key  decision points that authorize entry into a new acquisition phase. To  execute shipbuilding acquisition programs, the Navy uses the acquisition  processes included in the DOD Instruction 5000 series, as well as  acquisition instructions established by the Secretary of the Navy. The  Navy\u2019s guidance supports a seven-gate review process intended to  ensure that requirements align with acquisition plans, and to improve  collaboration among stakeholders. Figure 2 provides an overview of the  notional framework for Navy shipbuilding acquisition programs described  by the DOD and Navy guidance.\nThis acquisition framework includes decision reviews and milestones at  key junctures in the acquisition cycle. The Milestone Decision Authority is  the individual responsible for determining what events and documentation  requirements will apply to an acquisition program, as well as providing  approval for a program to proceed to the next acquisition phase. The  acquisition framework and Milestone Decision Authority\u2019s purpose is to  support careful assessment of a program\u2019s readiness to proceed to the  next stage of acquisition activities.\nThe gates and milestones that will be included in an acquisition program\u2019s  schedule can be customized based on its circumstances and needs. We  have previously found that shipbuilding programs typically have different  decision points than other DOD weapon systems. For example,  Milestone B for ship programs usually occurs after development of ship  specifications and system diagrams is well under way and is typically  aligned with the decision to authorize the start of detail design. While  Milestone C generally represents the decision to start production for  weapon systems, several of the Navy\u2019s more recent shipbuilding  programs either do not include a Milestone C review or changed the  sequencing of the review to occur after delivery of the lead ship.  Programs can receive approval to tailor the requirements for information  that must be developed to support this process and to have the decision- making authority delegated to other individuals for acquisition decisions  and approvals.\n\n\tNavy Expects That FFG(X) Requirements Will Provide a More Capable Small Surface Combatant, but at Increased Cost\n\nThe Navy expects that its current plans for FFG(X) will result in a small  surface combatant with considerable capability improvements compared  to LCS. To achieve this increased capability, the Navy is committing to  construct a larger, more expensive ship than LCS. To help refine FFG(X)  requirements and identify opportunities for cost savings, the Navy used a  conceptual design phase, in which it awarded $75 million in contracts to  industry.\n\n\t\tFFG(X) Requirements Reflect Limitations of LCS and Evolution in Capability Needs\n\nThe Navy\u2019s FFG(X) requirements represent the department\u2019s recognition  of its need for a more capable small surface combatant and the limitations  of LCS. For LCS and its mission packages, the Navy has devoted nearly  $28 billion (constant fiscal year 2018 dollars) to develop and buy a ship  that has fallen far short of demonstrating it can meet the minimum level of  capability defined at the beginning of the program. Specifically, LCS was  designed with reduced survivability requirements as compared to other  surface combatants. Over time the Navy lowered several survivability and  lethality requirements further and removed some design features\u2014 making the ships less survivable in their expected threat environments  and less lethal than initially planned. As shown in figure 3, the Navy  arrived at its FFG(X) plans after spending several years developing and  evaluating a variety of inputs to address problems with LCS and emerging  capability needs.\nThe Small Surface Combatant Task Force study report maintained the  Navy\u2019s need for 52 small surface combatants, which was revalidated in  the Navy\u2019s 2016 Force Structure Assessment. In recognition of LCS\u2019s  shortcomings, the Navy significantly reduced the total number of LCS,  and began planning for the new frigate based on minor modifications to  an LCS design\u2014referred to as FF\u2014to fulfill the 52-ship need.\nWhile the FF program was developing its acquisition plans and moving  toward a contract award for the lead ship scheduled for 2018, the  maritime operating environments continued to rapidly evolve, becoming  increasingly complex and contested. In recognition of this, the Chief of  Naval Operations directed the Navy to conduct another study, increasing  air defense and survivability beyond the FF baseline. In response, the  Navy convened a Frigate Requirements Evaluation Team from January to  June 2017. The purpose of this team was to build upon FF requirements  by analyzing options for air defense and vulnerability upgrades to help  determine top-level mission requirements that would yield a more capable  frigate. The results of this review led the Navy to cancel its FF acquisition  plans and focus on meeting increased requirements through a new  FFG(X) Guided Missile Frigate program.\nBoth the FF and FFG(X) requirements reflect the 2015 Small Surface  Combatant Task Force report findings that identified a need for increased  capabilities for small surface combatants to address evolving threats. As  we reported in June 2016, an FF based on a minor modified LCS only  partially fulfilled the small surface combatant capabilities that the task  force identified as most valued by the fleet. In particular, FF  requirements supported a multi-mission ship with some of the fleet\u2019s  highest priority mission capabilities, such as surface and anti-submarine  warfare, but did not provide air warfare capability. For FFG(X), the Navy  maintained the FF requirements and added local air defense as a  capability. Table 1 outlines the requirements evolution that the Navy  undertook to support a more lethal and capable small surface combatant.\n\n\t\tRequirements Drive Higher FFG(X) Cost than for Previous Small Surface Combatants\n\nTo achieve the increased capability expectations for FFG(X), the Navy  committed to acquiring a larger, more expensive ship than LCS or the  previously planned FF. Figure 4 provides average shipbuilding cost  estimates for the three different ships, with costs shown in same-year  dollars for comparison.\nAlthough the FFG(X) requirements have been finalized, the Navy plans to  make final cost and capability tradeoffs through the process of evaluating  proposed designs before selecting which one will be built.\n\n\t\tThe Navy Used Conceptual Design Phase to Better Understand Ship Requirements and Associated Costs\n\nIn an effort to focus on the relationship between requirements and cost,  the Navy undertook a conceptual design phase for FFG(X), which  enabled industry to inform requirements and identify opportunities for cost  savings. In February 2018, the Navy competitively-awarded FFG(X)  conceptual design contracts valued at nearly $15 million each to five  industry teams. These 16-month contracts were intended to enable  industry to mature parent ship designs\u2014designs for FFG(X) that are  based on ships have been built and demonstrated at sea\u2014and help  refine technical and operational program requirements.\nThe purpose of the conceptual design phase has parallels with the  purpose of pre-contractual negotiations in commercial shipbuilding. As we  previously have reported, these pre-contractual practices minimize ship  buyer risk prior to awarding construction contracts by developing the ship  concept and specifications based on negotiations between the ship buyer  and the shipyard. The practices include specifying the expected  performance and the major equipment on the ship. As part of these  activities, commercial shipbuilders and ship buyers analyze one or more  ship concepts to identify areas of potential risk and either mitigate these  risks or remove the risky elements from the ship before signing a  contract. Figure 5 provides an overview of the industry teams and  shipyards participating in the FFG(X) conceptual design.\nEach industry team performed ship development, ship design, workforce  planning, and shipyard improvement planning, among other activities, in  support of FFG(X) requirements refinement and cost reduction efforts.  Industry teams updated the Navy regularly on their design progress and  technical approach to fulfill requirements through monthly technical  exchange meetings and two design review meetings. Navy officials stated  that these meetings were intended to provide information to support the  program\u2019s Preliminary Design Review in May 2019 and mitigate risk prior  to the Navy\u2019s release of its request for proposal in June 2019 for the  FFG(X) detail design and construction competition.\nOur prior work on shipbuilding best practices emphasizes the importance  of having a full understanding of the effort needed to design and construct  a ship before awarding a contract for ship construction in order to reduce  cost and schedule risk. Navy and industry officials stated that the  conceptual design phase facilitated dialogue and information sharing that  helped ensure FFG(X) requirements were more fully understood by  industry and the government. Specifically, industry officials noted that  communication and activities during conceptual design improved their  understanding of the impetus for specific Navy requirements, allowing  industry the opportunity to get clarification on the intent of some  requirements, propose less costly alternatives, and get government  feedback on the proposed alternatives. It also improved their  understanding of the linkages between FFG(X)\u2019s approved capability  requirements and system specifications. In particular, industry officials  told us that one-on-one opportunities with the Navy aided knowledge  sharing and provided them with a means to ask questions without  concern that disclosing such information could jeopardize their  competitive position. They emphasized that in other cases where the  request for proposals process is their primary means for communicating  with the Navy (as opposed to having a conceptual design phase),  submitting questions about requirements or system specifications can be  challenging because those inquiries are available to the public. As a  consequence, contractors may opt to infer more about the intent of  requirements to avoid compromising their competitive interests.\nThe conceptual design phase included a formal cost savings effort, with  the Navy seeking proposals internally and from industry participants to  reduce cost through requirement and system specification refinement. To  support this effort, Navy officials stated they established a Frigate  Affordability Board to review potential cost reduction measures submitted  by both contractors and government that responded directly to Navy  requirements and specifications. Navy officials said the Board\u2014co- chaired by the Program Executive Office for Unmanned and Small  Combatants and the Naval Sea System Command\u2019s Naval Systems  Engineering Directorate, as well as the Chief of Naval Operations\u2019  Surface Warfare Directorate\u2014assessed the potential cost and capability  trade-offs of these proposed changes to requirements, and accepted or  declined them. Before going to the Board, relevant Navy subject matter  experts reviewed the technical and requirements implications of cost  reduction measures. The program office subsequently worked with Navy  engineering and requirements officials to balance cost with capabilities. If  the program office, Navy engineers, and requirements officials could not  reach agreement on the appropriate cost and capability mix, then their  different positions were presented to the Board.\nFor cost reduction initiatives submitted by industry, the Navy provided  feedback on the Board\u2019s decision, and incorporated fully or partially  accepted cost reduction initiatives into the FFG(X) system specifications.  Navy officials said they informed all industry teams of any changes to the  specifications on a monthly basis. Navy officials also stated that industry  submitted about 350 cost reduction ideas, with roughly 60 percent  partially or fully accepted by the Navy. They estimated $86 million in  savings per ship (constant year 2018 dollars) based on changes made in  response to the cost reduction measures submitted by industry or  government-initiated cost savings measures influenced by engagement  with industry.\n\n\tStreamlined Acquisition Approach Accelerates Planned FFG(X) Schedule, but Reduces Knowledge Available for Key Program Decisions\n\nIn an effort to accelerate the time between FFG(X) acquisition planning  and the fielding of ships, the Navy streamlined the program\u2019s acquisition  approach and leveraged knowledge obtained from industry during the  conceptual design phase. While the program may benefit from the  streamlining efforts, the acquisition approach for FFG(X) required the  Navy to submit its budget request for lead ship construction before the  program had a comprehensive understanding of the potential ship  designs and cost. Recent Navy policy changes have created some  uncertainty for Navy cost estimation activities by altering roles and  responsibilities within the Navy for completing component cost positions  and independent cost assessments.\n\n\t\tNavy Streamlined FFG(X) Program Acquisition Approach in an Effort to Accelerate Fielding of Ships\n\nAs permitted by DOD and Navy policy, the Navy has streamlined the  FFG(X) acquisition approach to move from planning to ship delivery and  fielding quicker than in a more traditional acquisition program. The  accelerated schedule reflects the Navy\u2019s desire to field a minimum of 52  small surface combatants, which the Navy\u2019s long-range shipbuilding plan  states will be achieved by fiscal year 2034. Navy officials stated that the  significant amount of knowledge that already existed to inform the  program\u2019s early activities and the use of parent designs helped enable the  streamlined approach for FFG(X). For example, Navy officials cited previous efforts by the Small Surface Combatant Task Force and the  Frigate Requirements Evaluation Team to determine appropriate ship  requirements, as well as activities performed in support of the FF frigate  acquisition plan that immediately preceded the shift to FFG(X). The Navy  also leveraged industry input received from a request for information in  2017 to understand cost drivers and the potential shipbuilders\u2019 abilities to  meet top level FFG(X) requirements and incorporate Navy-defined  equipment into ship designs. Figure 6 provides a high-level schedule of  key activities for the program.\nTo support its decision to pursue an accelerated acquisition schedule, the  Navy used the previously discussed conceptual design phase as well as  its decisions to limit FFG(X) to parent ship designs and minimize  technology development. Navy officials noted the use of parent designs is  allowing the program to proceed at a much faster pace from early  assessment of capability options to detail design and construction  contract award. They added that the parent designs provided a higher- fidelity design baseline from which the conceptual design industry teams  incorporated Navy systems and other requirements. Use of parent  designs is consistent with our best practices work in shipbuilding, which  has found that commercial shipbuilders use previous ship designs to the  extent possible. Doing so can reduce technical, schedule, and cost risk  in building a ship as compared to a \u201cclean sheet\u201d new ship design.  FFG(X) program officials noted the latter approach can take up to 9 years  to complete an analysis of alternatives and move through the acquisition  process to construction contract award.\nNavy officials said the program also used opportunities available as an  Acquisition Category (ACAT) 1B program to shorten the approval timeline  for specific acquisition requirements. For an ACAT 1B program, the  head of the DOD component is generally the Milestone Decision Authority  but, as appropriate, may delegate approval authorities to lower level  offices under its jurisdiction. In the case of FFG(X), the Assistant  Secretary for the Navy for Research, Development, and Acquisition  serving as the Milestone Decision Authority delegated specific approval  authorities to the Program Executive Office for Unmanned and Small  Combatants. These approval authorities applied to the program\u2019s life  cycle sustainment plan, independent logistics assessment, program  protection plan, and a compliance schedule addressing environmental  considerations.\nThe Navy also took advantage of opportunities to alter or waive some  significant early acquisition activities. For example, the Milestone  Decision Authority waived the formal Analysis of Alternatives and  Affordability Analysis, decided not to conduct a Milestone A review, and  deferred the full \u201cShould-Cost\u201d Analysis to later in the acquisition  process. Table 2 defines the purpose of these DOD acquisition program  elements and provides an overview of the Navy\u2019s actions related to them.\nAs the first major milestone for many major acquisition programs,  Milestone A is a review by the Milestone Decision Authority of key  program documents that support the materiel solution and risk reduction.  We have previously found that DOD officials place a high value on the  information developed for some of these documents, including the  Analysis of Alternatives, Affordability Analysis, and Should-Cost  Analysis. The Navy\u2019s decision to not conduct a Milestone A review also  eliminated a formal opportunity to bring the broad set of FFG(X)  stakeholders within the Navy and the Office of the Secretary of Defense  together at a relatively early stage to assess the program\u2019s acquisition  strategy and affordability and feasibility, as well as technical, cost, and  schedule risks. Further, it reduced the FFG(X) acquisition approach to a  single milestone decision point\u2014Milestone B\u2014for the broader group of  DOD stakeholders to evaluate program progress and readiness to  proceed to the detail design and construction contract award planned in  July 2020.\nIn the absence of Milestone A, the Navy\u2019s Gate 3 review for FFG(X)  provided an opportunity to communicate the program\u2019s progress toward  developing requirements and acquisition expectations, albeit to a more  limited audience than typically would participate in a Milestone A. In  particular, the Navy used Gate 3 to discuss top-level requirements  changes and receive capability development document approval from the  Chief of Naval Operations. It also included cost discussion related to  FFG(X) affordability within the overall Navy shipbuilding portfolio. The  gate\u2019s participants included officials from the Navy and the Office of Cost  Assessment and Program Evaluation (CAPE) within the Office of the  Secretary of Defense.\nThe Navy\u2019s Gate 4 conducted in February 2019 focused on a review of  the FFG(X) system specification before the draft detail design and  construction request for proposal release. Gate 4 documentation for  FFG(X) indicates that participants were limited to stakeholders from the  office of the Deputy Assistant Secretary of the Navy for Ships; Naval Sea  Systems Command Cost and Design Directorates; Program Executive  Office for Unmanned and Small Combatants; the FFG(X) program office;  and the Chief of Naval Operations Surface Warfare Directorate. This  excludes a number of key stakeholders that Navy guidance calls on to  attend and certify gate reviews, such as the Assistant Secretary of the  Navy (Financial Management and Comptroller) and the testing  community. As a result, the Navy would not have received insight from  several key stakeholders during the Gate 4 review for acquisition  activities, such as the program life cycle cost estimate development and  release of the draft request for proposal. These activities are generally relevant to this gate review, as Navy guidance notes program affordability  as a focus and the Navy\u2019s streamlining documentation indicates that the  gate was focused on reviewing the FFG(X) system specification before  releasing the draft request for proposal. Navy officials noted that  stakeholders have regularly received insight into FFG(X) activities  through other prior program reviews and will have additional opportunities  to review program costs and sustainment plans leading up to Milestone B.\nWe also found that some key stakeholders did not provide formal  approval for the initial FFG(X) life cycle sustainment plan that was  approved in March 2019. Specifically, only FFG(X) program officials and  the Program Executive Officer for Unmanned and Small Combatants\u2014 the delegated approval authority\u2014signed the plan. However, as stated in  DOD guidance, representatives from the relevant sustainment command  and the Program Executive Office for Integrated Warfare Systems are key  stakeholders that should provide their signed concurrence when  approving the life cycle sustainment plan. The FFG(X) life cycle  sustainment plan is a key document outlining the Navy\u2019s plans to address  the program\u2019s sustainment needs and costs, as typically around 70  percent of a weapon system program\u2019s total cost is in the sustainment  phase after procurement. Navy officials stated that the plan has been  reviewed by the independent logistics assessment team members that  are evaluating the FFG(X) program\u2019s integrated product support activities,  and noted that the Program Executive Office for Integrated Warfare  Systems has separate life cycle sustainment plans for government  furnished equipment systems included in the FFG(X) design. Navy  officials also said that FFG(X) sustainment plans would be reviewed by  stakeholders as part of Gate 5 and the Milestone B independent logistics  assessment.\n\n\t\tBudget Request for FFG(X) Lead Ship Preceded the Completion of Key Cost Estimation Activities That Should Inform Funding Decisions\n\nThe FFG(X) acquisition approach required the Navy to submit its nearly  $1.3 billion budget request for lead ship construction before the program  had established a comprehensive understanding of the potential ship  designs and estimated cost for the program. Our shipbuilding and  acquisition best practices call for resource decisions to be timed to align  with the availability of requisite cost, schedule, and technical knowledge  in order to inform key program decisions. Navy officials stated that they  had sufficient knowledge to inform key program decisions based on cost  estimation and conceptual design efforts that had previously been  completed. Navy officials said this included development of an FFG(X)  cost estimate by November 2018 to support a realistic budget request for  the lead ship. However, at the time of the Navy\u2019s fiscal year 2020 budget  request to fund detail design and the lead ship, the Navy had not  completed its component cost position, which will formalize the life cycle  cost expectations for FFG(X). Further, CAPE had not completed the  independent cost estimate for the program. The GAO Cost Estimating  and Assessment Guide says that comparing the component cost position  with an independent cost estimate to validate methodologies produce  similar results reinforces the credibility of a cost estimate.\nIn addition to key cost estimating best practices that had not been  completed, the Navy had not received final design review information  from the industry teams participating in the conceptual design phase  before requesting lead ship funds from Congress. Figure 7 reflects the  budget request timeline for the FFG(X) detail design and lead ship  contract award, as well as notable cost and design-related program  activities that were planned to be completed after the request.\nThe considerable cost growth that we have previously reported is  common to many shipbuilding programs, as well as challenges in  deviating from shipbuilding plans once a program has begun procuring  ships, emphasize the importance of having a strong understanding of  program expectations to back the initial procurement decision for  FFG(X). Given the timing of the Navy\u2019s budget request for lead ship  funding, Congress faces a decision on whether to authorize funding for  FFG(X) detail design and lead ship based on a budget request that was  not informed by key cost and design information.\nIf Congress authorizes and appropriates FFG(X) funding as the Navy  requested in March 2019, it will be critical that the Navy demonstrate the  program\u2019s acquisition program baseline reflects the results of the  component cost position and independent cost estimate before awarding  the detail design and construction contract. Doing so before the contract  award will help ensure a more reliable acquisition program baseline upon  which future costs and variances are measured and funding decisions are  made. Further, it will help mitigate remaining risk that stems from the  Navy not being able to account for the actual FFG(X) design and  associated estimated cost for ship construction until after the planned July  2020 contract award. Specifically, as currently planned, the Navy\u2019s  budget requests for fiscal years 2020 and 2021\u2014which are intended to  fund the first 3 ships\u2014will be made before the Navy has agreed to  contract pricing for FFG(X).\nNavy officials stated that they have completed a robust program life cycle  cost estimate. They noted that the estimate was informed by Navy  modeling of a notional ship design that leveraged data received from  industry during conceptual design and reflected ship design elements  needed to meet program requirements Navy officials also said that, as of  May 2019, some additional work remains for the cost estimate to account  for training and military construction considerations, as well as address  any needed changes related to the final industry design reviews for the  conceptual design phase. They also said that the program life cycle cost  estimate informed the Gate 4 review in February 2019, and an updated  version of the estimate will provide a basis for the Navy\u2019s efforts to  establish the component cost position in October 2019. As of the  issuance of this report, we have requested the program life cycle cost  estimate from the Navy, including the estimate\u2019s criteria and underlying  assumptions, but have not yet received this information.\n\n\t\tRecent Navy Changes in Cost Estimation Policy and the FFG(X) Program Schedule Create Uncertainty for Remaining Cost Estimation Activities\n\nRecent policy changes by the Navy related to cost analysis and  estimation have created some uncertainty for Navy cost estimation  activities going forward. Specifically, a March 2019 Secretary of the Navy  instruction for acquisition program cost analysis shifts the Naval Center  for Cost Analysis\u2019s role and responsibilities for Navy cost estimation to the  Navy\u2019s systems commands. Previously, the Naval Center for Cost  Analysis\u2014organizationally residing completely outside of the systems  command structure\u2014would provide an independent cost assessment of  the program life cycle cost estimate. The Naval Center for Cost Analysis  and the acquisition program, in coordination with the relevant systems  command, would discuss and adjudicate any differences between the  program life cycle cost estimate and the independent cost assessment to  produce the Navy\u2019s component cost position. This independent cost  assessment by the Naval Center for Cost Analysis was an important  verification of the program office estimates, which were often found to be  too optimistic, prior to the Navy finalizing its component cost position. The  Navy\u2019s recent changes for cost estimation and analysis may pose a risk  of overly optimistic estimates carrying forward in programs.\nNavy officials stated that they believe Naval Sea Systems Command cost  estimators can provide an independent cost estimate, as they are  intended to provide technical support to acquisition programs  independent of programmatic authority and report to a separate chain of  command. However, as stated by the Naval Sea Systems Command, the  collective mission of its organizations is to build, buy, and maintain the  Navy\u2019s ships. Based on this, we believe, as do CAPE officials with whom  we spoke, that shifting independent cost assessment activities to the  systems commands diminishes the Navy\u2019s ability to independently verify  a program life cycle cost estimate. As a result, the program life cycle cost  estimate essentially will become the component cost position based on  the lack of additional cost estimation input, such as what the Naval Center  for Cost Analysis previously provided.\nFurthermore, CAPE officials stated that having a systems command  execute cost analysis responsibilities for an acquisition program within the  same system command effectively eliminates the Navy\u2019s capacity to  perform independent cost estimates for its programs based on their  shared overarching mission. This position is consistent with the GAO  Cost Estimating and Assessment Guide, which states that an  independent cost estimate should be conducted by an organization  independent of the acquisition chain of command. The Director of CAPE  is required to conduct or approve independent cost estimates and cost  analyses for all major defense acquisition programs. As noted by CAPE  officials, CAPE has previously delegated certain cost estimation  responsibilities to the Naval Center for Cost Analysis. With the recent  Navy policy changes, CAPE may no longer choose to delegate  independent cost estimation activities to Navy cost estimators.\nFor FFG(X), CAPE intends to complete an independent cost estimate to  verify the Navy\u2019s component cost position. These plans include site visits  and data collection from the shipyards participating in the conceptual  design contracts. CAPE confirmed that the final independent cost  estimate will reflect the content of the winning proposal, indicating that  any FFG(X) proposals that the Navy receives from contractors not  involved in the conceptual design phase will be evaluated to ensure the  independent cost estimate accounts for those cost and design plans.\nCAPE officials also stated that their timeline for finalizing the independent  cost estimate for FFG(X) is tied to when the Navy decides on the winning  proposal for detail design and construction and communicates this  information to CAPE. Specifically, CAPE\u2019s final independent cost estimate  will reflect only the winning FFG(X) design, so completion of the estimate  will occur after the Navy informs CAPE about the FFG(X) design for  which it intends to pursue a contract award. CAPE officials said that  because the Navy\u2019s decision may not be made in advance of the planned  February 2020 Milestone B review for FFG(X), CAPE would likely just  provide input to support the milestone and complete the independent cost  estimate after that review.\n\n\tThe Navy Has Taken Steps to Reduce Design and Technical Risk, but Technology Integration and Testing Will be Key to Meeting Program Expectations\n\nThe Navy\u2019s decision to pursue a parent ship design for FFG(X) was  intended to reduce design uncertainty for the program. The Navy\u2019s  planned use of existing technologies for the ship\u2019s mission and combat  systems also supports reduced technical risk, though further maturation  of some key systems and successful integration and testing will be critical  to demonstrate the ship provides required capability within cost and  schedule expectations.\n\n\t\tUse of a Parent Ship Design Was Intended to Increase Design Certainty\n\nAdopting a parent design requirement for FFG(X) provided the conceptual  design industry teams with a proven baseline ship design. This enabled  them to focus on incorporating modifications to meet the Navy\u2019s specific  FFG(X) requirements rather than designing a new ship. The Navy did not  set any limitations on the extent contractors could modify or deviate from  the parent design. However, Navy officials stated they actively reviewed  parent design modifications through contract deliverables, technical  exchange meetings, and design reviews with industry teams. The design  reviews included an interim report in October 2018 and a final report in  May 2019 from each industry team on their design progress.\nFFG(X) program officials noted that the design maturity reviews provided  sufficient information to support the Navy\u2019s decision that the designs were  mature enough to release the request for proposals for the detail design  and construction contract award. In addition, some industry officials told  us that the conceptual design work on parent designs enabled them to  develop more mature and refined designs than typical for this stage of the  shipbuilding acquisition process. They also noted that continuing work in  response to the pending competition should move at least some design  elements closer to a detail design-level of maturity, and may provide the  Navy with greater confidence in the contract proposals it receives from  industry.\n\n\t\tTechnology Re-Use Should Reduce Some Risk, but Integration and Testing Remain to Demonstrate Critical Systems\n\nThe FFG(X) program\u2019s design concept requires the use of many existing,  more mature combat and mission systems to reduce technical risk. As  stated in the approved acquisition strategy for FFG(X), the program has a  requirement for all integrated systems to have achieved maturity of a  technology readiness level (TRL) 6 or higher. TRL 6 is defined by GAO  as the capability to produce a prototype system in a production-relevant  environment. Program officials confirmed that, as of May 2019, many  but not all FFG(X) integrated systems were at TRL 6 or higher. For  selected key systems planned for FFG(X), Navy officials stated they will  have achieved TRL 7 or higher by the planned July 2020 detail design  and construction contract award. Doing so would be consistent with our  acquisition best practices, which include maturing new key ship  technologies into actual system prototypes and demonstrating them in a  realistic environment\u2014achieving a TRL 7\u2014before the award of the  contract for lead ship design and construction. This practice helps reduce  the likelihood of costly design changes later.\n\n\t\t\tTechnology Re-Use\n\nMany of the systems planned for FFG(X) have been demonstrated and  are in use on other Navy ship classes, which helps the program fulfill  capability needs while avoiding developmental risks. Table 3 provides an  overview of some of the key existing systems planned for the ship.\nIn addition to the systems that have been utilized by other Navy ships, the  FFG(X) program plans to incorporate some systems that are still in  development, such as the Enterprise Air Surveillance Radar (EASR) and  a new version of the Aegis Weapon System.\nNavy officials stated that EASR\u2014a complex radar system expected to  provide long-range detection and engagement of advanced threats\u2014 is critical to FFG(X)\u2019s air and surface warfare missions. It is a scaled  down version of the Navy\u2019s Air and Missile Defense Radar that is in  production and scheduled for initial integration with the Aegis combat  system on a DDG 51 Flight III destroyer in fiscal year 2020. In early  2019, the Navy began testing a full-scale, single-face EASR array  engineering developmental model\u2014the full system planned for  FFG(X) will have three array faces\u2014at a land-based test site to  further demonstrate its functionality. The Navy expects to complete  land-based testing of the EASR engineering development model by  February 2020. The Navy also plans to integrate a rotating version of  EASR and a fixed-face version on other ship classes prior to  integrating the radar on the lead FFG(X). The Navy\u2019s results from  planned EASR developmental testing at the land-based site will be  integral to achieving a TRL 7 and reducing risk prior to the start of  FFG(X) detail design.\nThe Navy is developing a new version of the Aegis Weapon System\u2014 FFG(X)\u2019s combat management system\u2014to coordinate radar and  weapons system interactions from threat detection to target strike. For  example, the system will support the ship\u2019s ability to employ the Naval  Strike Missile for over-the-horizon offensive capability as well as a 32- cell vertical launch system to employ missiles for air defense. The  Aegis Weapon System for FFG(X) will leverage the Aegis common  source software that supports the combat systems found on the  Navy\u2019s DDG 51-class destroyers and CG 47-class cruisers. Navy  officials noted that they anticipate at least 70 percent of the Aegis  Weapon System software for FFG(X) will be common to the Aegis  software used for DDG 51 Flight III ships.\nRigorous testing of the Aegis Weapon System with EASR will be critical  for FFG(X), as the radar and combat management system must work in  concert for the ship to detect, track, and assess possible targets. Given  the radar and software commonalities, the risk level for both of these  FFG(X) systems should be reduced once the DDG 51 Flight III radar and  Aegis system baseline, upon which the FFG(X) integrated system is  based, have been demonstrated through testing on a ship beginning in  2022. Specific to the Aegis Weapon System for FFG(X), software  development is expected to run from fiscal year 2022 to late fiscal year  2024. The system\u2019s integration and testing with EASR is scheduled to  occur through fiscal year 2024.\n\n\t\t\tIntegration and Testing\n\nWhile the Navy is planning to use many already mature systems on  FFG(X), integration and testing of those systems will be critical to  demonstrate systems fit and work together as intended on the ship. The  Navy completed a technology readiness assessment in spring 2019 to  identify potential technical risks, and concluded that FFG(X) does not  have any critical technology elements. DOD generally defines a critical  technology element as one that may pose major technological risk during  development. Navy officials who completed the assessment stated that  they reviewed about 150 systems as part of their activities and found  none composed of new or novel technologies for which the Navy has  insufficient knowledge to demonstrate maturity. The assessment noted  one technology\u2014the New Advanced Integrated Line-of-Sight Equipment  System (nAILES) multi-coupler for antennas\u2014as a watch item. The Navy  would like to utilize nAILES for FFG(X), but according to Navy officials, it  is not considered a critical technology because the Navy has identified  alternative, proven technologies that will be used to meet the ship\u2019s needs  if nAILES is not available for use.\nThe findings of the technology readiness assessment are consistent with  the FFG(X) program\u2019s decision to use existing systems that do not require  technological innovation to deliver desired capability. However, the  findings do not necessarily equate to the program having no technology  risk for planned systems. For example, the Aegis Weapon System for  FFG(X) did not qualify under the parameters of the technology readiness  assessment as a critical technology element. Still, as already discussed,  the Aegis Weapon System will carry technical risk for several years until  the Navy completes development and demonstrates the system works as  intended for FFG(X). The Next Generation Surface Search Radar is  another system that is relatively mature\u2014FFG(X) program officials  confirmed in May 2019 it is nearing a TRL 6\u2014but requires further  development to reduce risk.\nThe FFG(X) test and evaluation master plan and independent technical  risk assessment are significant documents yet to be completed that will  help to further define risks and plans to address them. The test and  evaluation master plan serves to outline the program\u2019s integrated test  program and master schedule of major test events or phases. Navy  officials expect the test plan to be approved in December 2019 to support  the Milestone B decision. They noted that the plan may need to be  updated once the FFG(X) design is selected based on the additional  information that will be available to inform test planning. The independent  technical risk assessment is intended to categorize risks that cover a  broad range of factors, including technology maturity, integration needs,  and testing. If these factors are not sufficiently accounted for, a program  is likely to have difficulty meeting cost, schedule, and performance  objectives. An official from the Office of the Under Secretary of Defense  for Research and Engineering who is participating in the technical  assessment for FFG(X) stated they plan to complete their work to identify  any risks in March or April 2020. The official added that at this early stage  of their activities, the potential for integration risks associated with the  FFG(X) combat system is an area of interest because of the extensive  number of existing systems that will need to be integrated into the new  ship design.\nNavy test officials as well as DOD systems engineering and test officials  noted potential advantages and risks related to FFG(X) program\u2019s plans  for using existing technologies. Similar to what we previously discussed  about the use of a parent design, the officials stated that the use of  existing systems can increase understanding of the ship and its systems,  which may help the FFG(X) program achieve its planned accelerated  timeline between development and delivery. However, systems  engineering and test officials also indicated that, regardless of maturity,  challenges typically arise when DOD takes systems from other platforms  and attempts to integrate and use them in new ways on a new platform.  They cautioned that programs like FFG(X) that plan to use a lot of  government-furnished equipment or non-developmental systems often  underestimate the amount of integration challenges they will face. The  officials told us this may occur because of overconfidence that the  maturity of systems demonstrated through use on other platforms  eliminates most technical risk, whereas experience confirms that it is  always challenging to get systems to fit and work together as intended on  a new platform. Officials from the office of the Director, Operational Test  and Evaluation said that the parent design approach for FFG(X) may  enable the Navy to reduce some developmental testing activities;  however, operational testing expectations would largely be unaffected  because there will still be substantial integration to be completed and  tested in order to demonstrate mission capabilities.\n\n\tContracting Plans for FFG(X) May Help Mitigate Some Risk, and Use of Warranties Could Potentially Further Reduce Costs\n\nThe draft FFG(X) request for proposal indicates that the Navy plans to  use a fixed-price incentive contract to help control ship costs and special  performance incentive fees. In addition, the Navy plans to use  guarantees with limited liability for the shipbuilder to correct defects after  ship deliveries. Our prior work has found that using comprehensive ship  warrantees instead of guarantees could reduce the Navy\u2019s financial  responsibility for correcting defects.\n\n\t\tUse of Fixed-Price Incentive Contract Provides Benefits, but Planned Contract Structure Results in the Navy Absorbing More Cost Risk\n\nAfter completion of a full and open competition for FFG(X) detail design  and construction, the Navy plans to use a fixed-price incentive contract in  combination with additional special performance incentive fees to procure  the lead and follow-on ships. As we have previously reported, full and  open competition allows all responsible sources\u2014or prospective  contractors that meet certain criteria\u2014to submit proposals for a contract.  The use of competition in contracting is a critical tool for achieving the  best possible return on investment for taxpayers. Competitively awarded  contracts can save the taxpayer money, improve contractor performance,  and promote accountability for results. The fixed-price incentive  contracting approach for FFG(X) is intended to incentivize the contractor  to control costs and meet performance requirements. This contracting  strategy represents a significant departure from previous surface  combatant programs in which the Navy negotiated cost-reimbursement  contracts for construction of the lead ship. Under cost-reimbursement  contracts, the Navy assumes the cost risk because the shipbuilder is  reimbursed for its allowable incurred costs to the extent prescribed in the  contract, regardless of whether the work is performed to the exact level  desired by the Navy. For example, our prior work found that the Navy\u2019s  decisions to accept the first two LCS in incomplete, deficient conditions  complied with federal acceptance provisions, largely due to the cost- reimbursement type contracts in place to construct these ships.\nFixed-price incentive contracts provide an incentive for the shipbuilder to  control costs in order to maximize profit. Fixed-price incentive contracts  generally include a profit adjustment formula referred to as a shareline, as  well as a price ceiling, target cost, and target profit. The structure of the  shareline establishes how cost overruns or underruns in relation to a  target cost are shared between the government and shipbuilder. For  example, the 70\/30 shareline that the Navy is planning for FFG(X) lead  ship overruns means that the government pays 70 percent of cost and the  shipbuilder pays 30 percent when the cost exceeds the target cost up to  the price ceiling. Generally, the shareline functions to decrease the  shipbuilder\u2019s profit as actual costs exceed the target cost. The price  ceiling is generally the maximum the government will pay under the  contract and is typically negotiated as a percentage of the target cost.  The target cost generally informs the shareline and price ceiling.\nGiven the unknowns associated with design and construction, the Navy  plans to account for these unresolved risks by assuming responsibility for  cost growth above DOD recommended guidance. As we reported in  March 2017, when the Navy assumes a greater share of cost overruns  above the target cost, accepts a higher price ceiling, or both, the fixed- price incentive elements may not provide sufficient motivation for the  shipbuilders to control costs. Figure 8 depicts the how risk changes as  the Navy departs from a 50\/50 shareline for cost overruns and a ceiling  price of 120 percent.\nAs we previously noted, for the FFG(X) lead ship the Navy is planning to  have a shareline of 70\/30 for target cost overruns. The Navy also plans to  have a 60\/40 target cost overrun shareline for the second ship, and a  50\/50 overrun shareline for the remaining seven ships included in the  detail design and construction contract award. Based on this plan, the first  two FFG(X) ships will depart from DOD\u2019s guidance recommending a  50\/50 point of departure for negotiations between the government and  shipbuilder for cost overruns up to the price ceiling. This results in more  cost risk to the government for two ships in the detail design and  construction contract. The Navy\u2019s planned price ceiling for the 10 ships  included in the contract award may deviate from DOD\u2019s guidance  recommending a ceiling price set at 120 percent of target cost as a point  of departure for fixed price incentive contracts. Specifically, Navy  officials stated that the maximum ceiling price could be as high as 125  percent for all of the ships. However, Navy officials stated that the request  for proposal will provide incentive for industry to propose the minimum  price ceiling that sufficiently accounts for the proposal\u2019s level of risk,  meaning that industry may propose price ceilings below 125 percent. The  Navy also plans to include options for a special performance incentive fee  for each of the FFG(X) ships, which will be established for the final  request for proposal. These incentives have the potential to increase  shipbuilder profitability.\n\n\t\tFFG(X) Plan for Guaranty Use Is More Robust than Recent Shipbuilding Programs, but Use of Warranties Could Provide More Value to the Government\n\nAs outlined in the FFG(X) draft detail design and construction request for  proposal and confirmed by program officials, each frigate will have a  guaranty period that commences at ship delivery and is expected to end  18 months after delivery. Navy officials stated the guaranty is intended to  formalize a period of responsibility during which the shipbuilder must  correct defects, with the cost to the government and the contractor based  on the contract terms (cost shareline and price ceiling) associated with  the ship. During the guaranty period, the shipbuilder would be required to  correct all defects for which it is responsible, with proposals required to  include a minimum limitation of liability of $5 million per ship. Once the  total cost to correct identified defects reaches $5 million, the government  would pay the full cost to correct any additional guaranty period defects.\nThe $5 million minimum limitation of liability planned for FFG(X) has a  higher dollar value and covers a longer period of time than other recent  shipbuilding programs. For example, we previously found that for the  Navy\u2019s LPD 25 amphibious transport dock construction, the contract  initially included a $1 million limitation of liability. Navy officials stated  that the final request for proposal also will include a provision allowing  industry to propose a higher liability limit, up to and including no limitation  of liability. Navy officials said that any additional liability amount proposed  beyond the $5 million guaranty will be assessed as part of the technical  evaluation criteria used to select the winning FFG(X) design.\nWe found in March 2016 that the use of a guaranty did not help improve  cost or quality outcomes for the Navy and Coast Guard ships we  reviewed. We also found that commercial ship buyers and Coast Guard  officials stated that warranties foster quality performance because the  shipbuilder\u2019s profit erodes as it spends money to correct deficiencies after  delivery, during the warranty period. We further reported that the Coast  Guard has improved cost and quality by requiring the shipbuilder to pay to  repair defects by following Federal Acquisition Regulation warranty  provisions. For example, the Coast Guard paid up front for the Fast  Response Cutter warranty. The cost of the warranty amounted to 41  percent of the total defect correction costs. Although this ship does not  have the size and advanced systems planned for FFG(X), it serves to  demonstrate the potential value to the government presented by the use  of warranties. The Coast Guard also used a fixed-price incentive contract  with a warranty on its Offshore Patrol Cutter\u2014a ship of comparable size  to FFG(X). The first Offshore Patrol Cutter has a 2-year warranty, and  follow-on ships will have 1-year warranties. The Coast Guard pays a set  amount for these warranties, and in return, the shipbuilder must fix all  applicable defects identified within the agreed-upon time period  regardless of cost.\nRather than using guarantees for the FFG(X) contract to provide for the  correction of defects, the Navy could help control costs to the government  through the use of warranties. Under warranties, the government  generally receives a contractual right for the correction of all defects for  which the shipbuilder is responsible at the shipbuilder\u2019s expense. The  use of warranties is typically not mandatory, but federal and defense  acquisition regulations instruct contracting officers to consider various  factors when deciding whether a warranty is appropriate for an  acquisition. The regulations also instruct contracting officers to use a  warranty when it is practicable and cost-effective to do so. We  previously found that, unlike a warranty, the Navy almost exclusively paid  for defects that were the shipbuilder\u2019s responsibility under a guaranty  because of the contract type and terms in contracts that we reviewed.  Such conditions limit the incentive to discover every deficiency during the  guaranty period, and may negatively affect quality improvements over  time.\nThe Navy\u2019s FFG(X) plans suggest that the Navy may be prematurely  discounting warrantees as a mechanism to improve ship quality and  decrease cost to the government. Navy officials told us that mandating  that industry propose a warranty could result in additional costs to the  government because the initial cost of the ship could be raised  substantially to include the cost of the warranty. Additionally, Navy  officials said a requirement for warranty pricing could serve to limit  industry participation in the FFG(X) competition if offerors are unwilling to  accept the risk associated with a warranty and unable to provide  reasonable pricing. The Navy provided no analysis to support these  claims and confirm a clear understanding of whether a warranty could  provide greater value than the $5 million guaranty the Navy is proposing  for FFG(X).\nAs part of the competitive proposal process for FFG(X) detail design and  construction, the Navy could maintain its plans to require a guaranty but  also seek ship warranty pricing. The full and open competition for the  FFG(X) contract award may increase the potential for receiving warranty  pricing that provides a cost-effective alternative to the Navy\u2019s guaranty  plans. By limiting the request for proposal to guarantees, the Navy misses  an opportunity to obtain information on what comprehensive warranty  coverage against defects would cost, and use it to evaluate whether  warranties could further reduce risk for the FFG(X) program.\n\n\tConclusions\n\nAs the Navy approaches the Milestone B review for FFG(X), it is critical  that funding and other major programmatic decisions are fully informed by  the knowledge necessary to support them. This is especially important to  help ensure that the FFG(X) program does not face some of the same  cost, schedule, and performance shortfalls that have been faced by the  LCS program. The Navy\u2019s fiscal year 2020 budget request to authorize  and appropriate funding for the lead frigate was developed and submitted  without the benefit of key cost and design information, such as the  independent cost estimate and the final results from conceptual design.  As a result, it is necessary that the Navy provide Congress with a clear  understanding of FFG(X) cost expectations, including CAPE\u2019s  independent cost estimate, prior to awarding the detail design and  construction contract. This will help ensure that the FFG(X) program is  grounded in cost and design expectations that reflect the specific aspects  of the ship that the Navy selects for construction.\nWith the start of the planned $20 billion FFG(X) procurement  approaching, the Navy has limited time left to position the government to  obtain the best deal possible to fix any deficiencies discovered upon  delivery of the first 10 ships. The Navy\u2019s guaranty plan for FFG(X) offers  some improvements compared to recent shipbuilding programs, but does  not offer the degree of coverage that could potentially be provided by a  warranty. The competitive qualities of the FFG(X) acquisition approach  present an opportunity for the Navy to, at a minimum, obtain warranty  pricing from industry so that the program may use that input to evaluate  whether a warranty would be a cost-effective means of reducing the  government\u2019s cost risk.\n\n\tRecommendations for Executive Action\n\nWe are making two recommendations to the Secretary of the Navy:\nEnsure that the Assistant Secretary of the Navy for Research,  Development, and Acquisition provides to Congress the finalized  independent cost estimate prior to award of the detail design and  construction contract and demonstrates that the estimate is consistent  with the fiscal year 2020 budget request for the lead ship.  (Recommendation 1)\nEnsure that the Assistant Secretary of the Navy for Research,  Development, and Acquisition directs the FFG(X) program office to  request pricing for warranties for the lead ship and the nine follow-on  ship options planned for FFG(X) as part of the detail design and  construction request for proposals. (Recommendation 2)\n\n\tAgency Comments and Our Evaluation\n\nWe provided a draft of this report to DOD for comment. DOD provided  written comments, which have been reproduced in appendix I. In  responding to the draft report, DOD concurred and described the actions  it planned to take to address our two recommendations.\nIn response to the second recommendation to request pricing for  warranties for the lead ship and the nine follow-on ship options planned  for FFG(X) as part of the detail design and construction request for  proposals, DOD acknowledged that the Navy will receive guaranty rather  than warranty pricing, but stated that the solicitation allows industry to  propose a higher limitation of liability amount, up to an unlimited limitation  of liability, in its guaranty pricing for FFG(X). While this could allow for a  better value to the government than has been typical for recent  shipbuilding programs, permitting higher limitation of liability guaranty  pricing but not requesting warranty pricing from offerors means the Navy  will not have complete information on whether a warranty could be more  cost-effective than a guaranty. Our prior work found that the use of  Federal Acquisition Regulation warranty provisions improved shipbuilding  program cost and quality outcomes. As a result, we maintain our belief  that the FFG(X) program office should implement this recommendation by  seeking warranty pricing as part of the detail design and construction  request for proposals. The full and open competition for the FFG(X)  contract award may increase the potential for receiving warranty pricing  that provides a cost-effective alternative to the Navy\u2019s guaranty plans.\nDOD stated that modifying the solicitation to incorporate a warranty  pricing component would cause an unacceptable delay to the FFG(X)  program, but did not provide an analysis to support this assertion or  specify the extent of delay associated with adding a warranty pricing  request. The current FFG(X) schedule has roughly 10 months between  the request for proposals deadline and the contract award, and the  program originally had been planning for the solicitation period to end in  December 2019 before moving the deadline to September 2019 shortly  before its release. We recognize the substantial effort the proposal  development and review process requires, but we continue to believe that  the government would benefit from adding a request for warranty pricing  to the detail design and construction solicitation. While DOD stated that  the Navy will support the recommendation after award by requesting  pricing for an unlimited warranty before exercising the first ship option,  doing so would eliminate any potential warranty pricing advantages that  would occur as a result of the competitive conditions that currently exist  for the current detail design and construction contract.\nIn addition to DOD\u2019s written response to the report, DOD officials and  industry representatives associated with the FFG(X) conceptual design  activities provided separate technical comments, which we incorporated  as appropriate.\nWe are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, and the Secretary of the Navy.  This report will also be available at no charge on GAO\u2019s website at  http:\/\/www.gao.gov.\nIf you or your staff members have any questions regarding this report,  please contact me at (202) 512-4841 or oakleys@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made key  contributions to the report are listed in appendix II.\n\nAppendix I: Comments from the Department of Defense\n\nAppendix II: GAO Contact and Staff Acknowledgments\n\n\tGAO Contact\n\nShelby S. Oakley, (202) 512-4841 or oakleys@gao.gov.\n\n\tStaff Acknowledgments\n\nIn addition to the contact named above, the following staff members  made key contributions to this report: Diana Moldafsky (Assistant  Director), Lori Fields, Kurt Gurka, Stephanie Gustafson, Chad Johnson,  Jennifer Leotta, Sean Merrill, Miranda Riemer, Jillena Roberts, Hai Tran,  and Alyssa Weir.","output":null}